In 2007, a law became effective in Maryland that, for the first time, permitted insureds to sue their insurers for failing to act in good faith in settling their first party claims under a property insurance policy. The cause of action, which is found in Maryland Code § 3-1701, applies in actions to determine whether coverage exists under the relevant insurance policy, and also in actions to determine the extent to which the insured is entitled to receive payment from the insurer for a covered loss.
Under the statute, “good faith” means “an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim.” Insureds who prove their claim that their insurer failed to act in good faith may recover from the insurer: (1) actual damages; (2) expenses and litigation costs, including reasonable attorney’s fees; and (3) interest on all damages.
Maryland’s “bad faith” statute does not limit a party’s right to file a civil action for damages or other remedies otherwise available under any other provision of law. However, an insured must follow an administrative procedure prior to filing an action under the statute. The administrative procedure, which is located at Maryland Code § 27-1001, requires an insured to file a complaint with the Maryland Insurance Administration (“MIA”). The insured’s complaint to the MIA must include all documents the insured submitted to their insurer as proof of the loss, specify the applicable coverage and the amount of the claim, and state the amount of actual damages.
Once an insured files a complaint with the MIA, the insurer has 30 days to submit a written response to the complaint. Within 90 days after it receives an insured’s complaint, the MIA must render a decision that determines:
- Whether the insurer is obligated under the applicable policy to cover the underlying first-party claim;
- The amount the insured was entitled to receive from the insurer under the applicable policy on the underlying covered first-party claim;
- Whether the insurer breached its obligation under the applicable policy to cover and pay the underlying covered first-party claim, as determined by the Administration;
- Whether an insurer that breached its obligation failed to act in good faith; and
- The amount of damages, expenses, litigation costs, and interest, as applicable and as authorized under paragraph (2) of this subsection.1
An insured who feels aggrieved by the MIA’s decision may appeal to a Circuit Court, where they can now properly assert a lack of good faith claim under Maryland Code § 3-1701.
1 Md. Code Ann., Ins. § 27-1001