In re Featherfall Restoration

311 A.3d 437

261 Md.App. 105

In the MATTER OF the Petition of FEATHERFALL RESTORATION LLC

No. 1313, Sept. Term, 2022

Appellate Court of Maryland.

March 7, 2024

Circuit Court for Baltimore City, Case No. 24-C-22-002071

Argued by Catherine A. Potthast, Catherine A. Potthast P.A., Lutherville, MD, on brief, for Appellant.

Argued by Philipp M. Pierson, Deputy Counsel, Baltimore, MD; Joseph Dudek, Kramon & Graham, PA, Baltimore, MD (Anthony G. Brown, Attorney General of Maryland, Baltimore, MD; Steven M. Klepper, Kramon & Graham, PA, Baltimore, MD), on brief, for Appellee.

Argued before: Nazarian, Tang, Joseph M. Getty (Senior Judge, Specially Assigned), JJ.^*

Getty, J.

This case concerns whettier, under Maryland law, anti-assignment clauses in insurance policies are valid, including when a purported assignment of a claim arises after the occurrence of a loss.

Travelers Home and Marine Insurance Company ("Travelers") insured a home in Potomac, Maryland. In May 2020, the insured homeowners filed a claim with Travelers, believing that damage to the home’s roof was the result of a storm and was thus covered under their home insurance policy. Simultaneously, the homeowners contracted with Featherfall Restoration LLC ("Featherfall") for any work that would be needed to fix the roof. As part of this agreement, the homeowners signed an "Assignment of Claim" that purported to give Featherfall rights related to the claim under the Travelers insurance policy. Travelers denied the claim after an inspection of the roof showed that the damage resulted from normal wear and tear and therefore was not covered under the insurance policy.

After Travelers informed the homeowners that the claim had been denied, Featherfall alerted Travelers to the Assignment of Claim. Travelers, however, refused to recognize the assignment, relying on an anti-assignment clause in the insurance policy that voided any assignment of the policy made without Travelers’ written consent. Featherfall then filed a complaint with the Maryland Insurance Administration ("MIA"), alleging that Travelers’ refusal to recognize the assignment and subsequent lack of communication with Featherfall about the claim were violations of the Insurance Article of the Maryland Code. The Insurance Commissioner ("Commissioner") ultimately concluded that the assignment was not valid and that Travelers had not violated the Insurance Article, decisions that were affirmed upon judicial review in the Circuit Court for Baltimore City.

Feattierfall presents the following questions¹ for review:²

1. Did [the] trial court err in affording deference to and affirming the MIA’s ruling of law that anti-assignment clauses in property insurance policies preclude post-loss assignments of claims?

2. Did the trial court err in failing to issue a declaration or otherwise rule that the Assignment of Claim Benefits at issue did not violate the contractual provision of the subject insurance policy stating that "Assignment of this policy will not be valid unless we give our written consent?"

3. Did the trial court err in affirming the MIA’s decision that Featherfall as assignee of insurance benefits from Travelers was not a "claimant" or "aggrieved" with standing to challenge Travelers’ unfair claims settlement practices with respect to the claim assigned?

4. Did the trial court err in affirming the MIA’s decision [ ] that Travelers did not commit unfair claims settlement practices prohibited by §§ 27-303(6) and/or §§ 27-304(2) and (4) by refusing to recognize Featherfall’s assignment of policy rights associated with the subject claim?

5. Does. Maryland still follow the majority of States and the Restatement of Contracts § 322(2) which distinguish between assignment of an insurance contract and assignment of rights or benefits granted by the contract, and permit post-loss [assignments of benefits] despite standard anti-assignment clauses?

For the following reasons, we will affirm the decision of the circuit court.

BACKGROUND

A. Maryland Insurance Law

1. Insurance Article

The Insurance Article of the Maryland Code is the basis of Maryland’s statutory scheme regulating insurance companies. As a general overview, in 1963, the General Assembly repealed Article 48A of the Code, entitled "Insurance," and replaced it with a new Article 48A, entitled "Insurance Code," "to comprehensively govern and control insurers and the insurance business in Maryland." State Ins. Comm'r v. Nat’l Bureau of Cas. Underwriters, 248 Md. 292, 295–96, 236 A.2d 282 (1967). Under Maryland’s Code Revision, Article 48A was recodified as the Insurance Article in 1995.³

Title 27 of the Insurance Article ("Unfair Trade Practices and Other Prohibited Practices") is at the heart of Featherfall’s claims. Md. Code (2011, 2017 Repl. Vol.), Ins. §§ 27-101 et seq. Section 27-102 contains a broad prohibition that "[a] person may not engage in the State in a trade practice that is defined in this title as, or determined under this title to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance." Section 27-104 gives the Commissioner discretion to bring an enforcement action for an act or practice that is not specifically prohibited in Title 27 but the Commissioner nonetheless believes is "an unfair method of competition or an unfair or deceptive act or practice." The remaining subtitles of Title 27 contain specific acts and practices that are prohibited.

Featherfall relies on Title 27, Subtitle 3 ("Unfair, Claim Settlement Practices") for its specific allegations of unfair acts and practices against Travelers. Ins. §§ 27-301-306. The subtitle "provide[s] an additional administrative remedy to a claimant for a violation of this subtitle or a regulation that relates to this subtitle." Id. § 27-301(a). Section 27-303 states that "[i]t is an unfair claim settlement practice and a violation of this subtitle for an insurer" to engage in an enumerated list of actions, including, as relevant here, "fail[ing] to provide promptly on request a reasonable explanation of the basis for a denial of a claim." Id. § 27-303(b). Section 27-304 expands the list of prohibited claim settlement practices to include those that are "committed with the frequency to indicate a general business practice," including, inter alia, "fail[ing] to acknowledge and act with reasonable promptness on communications about claims that arise under policies" and "refus[ing] to pay a claim without conducting a reasonable investigation based on all available information." Id. §§ 27-304(2), (4). Section 27-305 establishes penalties for violations of Subtitle 3 and its associated regulations.

Section 2-215 of the Insurance Article governs appeals, including those for orders originating from Title 27, Subtitle 3 complaints. Id. § 27-306. Appeals are allowed for orders resulting from a hearing, the Commissioner’s refusal to grant a hearing, and decisions issued by the Commissioner on the prioritization of complaints. Id. § 2-215(a). Only the following persons have standing to appeal: parties to the hearing; "an aggrieved person whose financial interests are directly affected by the order resulting from a hearing or refusal to grant a hearing"; and a party to a decision about prioritization of complaints. Id. § 2-215(b). On appeal, the reviewing court may:

(1) affirm the decision of the Commissioner;

(2) remand the case for further proceedings; or

(3) reverse or modify the decision of the Commissioner if substantial rights of the petitioners may have been prejudiced because administrative findings, inferences, conclusions, or decisions:

…

(iv) are affected by other error of law;

…

(vi) are arbitrary or capricious.

Id. § 2-215(h).

2. The Maryland Insurance Administration

The General Assembly authorized Maryland’s first executive agency for insurance in 1872 when it created the Insurance Department under the Comptroller of the Treasury. 1872 Md. Laws ch. 388. The Department became an independent agency in 1878. 1878 Md. Laws ch. 106. In 1970, it became the Insurance Division of the Department of Licensing and Regulation. 1970 Md. Laws ch. 402. Its modern iteration as MIA, an independent agency, arose in 1993, 1993 Md. Laws ch. 538, and its enabling statute is found in Title 2 of the Insurance Article. Ins. §§ 2-201-507. "The Administration licenses and regulates insurers, insurance agents, and brokers who conduct business in the State, and monitors the financial solvency of licensed insurers. The Administration is also responsible for collecting taxes levied on all premiums collected by insurance companies within, Maryland." Maryland Insurance Administrations Origins and Functions (Jan. 11, 2024), https://msa.maryland.gov/msa/mdmanual/25ind/html/47insurf.html [https://perma.cc/NQ59-L5QG].

The Insurance Commissioner is the head of MIA. Ins. § 2401(b). The Commissioner has the, discretion to hold hearings "that the Commissioner considers necessary for any purpose" under the Insurance Article and is required to hold a hearing "if required by any provision of [the Insurance Article] … on written demand by a person aggrieved by any act of, threatened act of, or failure to act by the Commissioner or by any report, regulation, or order of the Commissioner" unless otherwise provided in the Article Id. § 2-210(a).

B. History of the Claim and the Attempted Assignment

Travelers issued a homeowners insurance policy (the "Policy") to K.K. and G.K. (collectively, the "Insured") for their home in Potomac, Maryland. The Policy’s coverage began on February 23, 2019, and continued for a one-year term. The Policy included property coverage for the dwelling, other structures on the property, personal property, and loss of use and liability coverage for personal liability and medical payments to others. The Policy also included the following provision regarding assignment:

5. Assignment. Assignment of this policy will not be valid unless we [Travelers] give our...