Case Title: Stavely v. State Farm

Citation: 376 Md. 108

Docket Number: 49/01

State: maryland

Court: Maryland Supreme Court

Date: 2003-07-28T00:00:00Z

Document:
IN THE COURT OF APPEALS OF MARYLAND
No. 49
September Term, 2001
_________________________________________
JOSEPH R. STAVELY
v.
STATE FARM MUTUAL
AUTOMOBILE INSURANCE COMPANY
__________________________________________
Bell, C.J.
        Eldridge
       
Raker
Wilner
Cathell
Harrell
Battaglia, 
                                
         JJ.
__________________________________________
Opinion by Eldridge, J.
_________________________________________
Filed:   July 28, 2003
1
Rule 8-501(g) states as follows:
“Agreed Statement of facts or stipulation. The parties may
agree on a statement of undisputed facts that may be included in a
record extract or, if the parties agree, as all or part of the statement of
facts in the appellant*s brief. As to disputed facts, the parties may
include in the record extract, in place of any testimony or exhibit, a
stipulation that summarizes the testimony or exhibit. The stipulation
may state all or part of the testimony in narrative form. Any statement
of facts or stipulation shall contain references to the page of the
record and transcript. The parties are strongly encouraged to agree to
such a statement of facts or stipulation.”
We granted a petition for a writ of certiorari in this case to review the
administrative denial of a request for attorney fees under Maryland Code (1997, 2002
Repl. Vol., 2002 Supp.), § 27-605(h) of the Insurance Article.
I.
The appellate proceedings in this case, both in the Court of Special Appeals and
in this Court, were based upon the parties’ agreed statement of facts filed in accordance
with Maryland Rule 8-501(g). 1  The agreed statement of facts, in relevant part, is as
follows.
“1.  On July 6, 1995, Appellee State Farm Mutual Automobile Insurance
Company (“State Farm”) notified Appellant Joseph Stavely (“Stavely”) of its proposed
nonrenewal of his motor vehicle liability insurance policy. Stavely filed a protest with
the Maryland Insurance Administration (“MIA”) regarding State Farm*s proposed
nonrenewal of his motor vehicle liability insurance policy. The Maryland Insurance
Administration, after investigation, affirmed State Farm*s proposed action, and Stavely
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requested a hearing.
“2.  A hearing was held on November 20, 1995, before Administrative Law
Judge (“ALJ”) James G. Klair.
“3.  On December 22, 1995, ALJ Klair issued a decision in favor of Stavely
finding that State Farm*s statistical basis for its underlying standards and the validity
of those statistics was insufficient to meet the first two prongs of the criteria set forth
in Crumlish v. Insurance Commissioner et al., 70 Md. App. 182, 520 A.2d 738 (1987).
* * *
“4.  ALJ Klair did not rule on Stavely*s request for attorney fees in the amount
of $3,740 as he held that ruling in abeyance pending submission of any objections by
State Farm.
* * *
“6.  State Farm [sought judicial review of] the December 22, 1995, OAH
decision [in] the Baltimore City Circuit Court.  On June 5, 1996, Chief Judge Robert
I. H. Hammerman reversed the OAH [Office of Administrative Hearings] decision,
believing it arbitrary and capricious. * * *
“7.  Stavely appealed the Circuit Court*s ruling to the Court of Special Appeals.
On December 12, 1997, the Court of Special Appeals reversed the Circuit Court,
reinstating the decision of ALJ Klair in favor of Complainant, and remanded the case
to the MIA. * * *
“8.  State Farm subsequently filed for and was granted certiorari by the Court of
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Appeals.  On October 20, 1998, the Court of Appeals dismissed State Farm*s writ of
certiorari, stating that the writ had been improvidently granted.
“9.  After the Mandate, Stavely filed a motion for attorney fees in the Baltimore
City Circuit Court.  After receiving State Farm*s response, Stavely requested that the
Circuit Court remand the case to the Insurance Commissioner for a determination
regarding whether attorney fees should be awarded.
“10.  This case was remanded by the Insurance Commissioner to the Office of
Administrative Hearings on June 28, 1999, to determine if Stavely, as the prevailing
party, was entitled to the award of attorney*s fees. * * *
“11.  A telephone pre-hearing conference was convened on August 17, 1999,
before  ALJ Brian Zlotnick, pursuant to Md. Code Ann., Ins. [§] 27-605 (1997).  The
issues were narrowed, and a briefing schedule was ordered as a result of the August
17th pre-hearing conference.
* * *
“l3.  The issues to be determined by the ALJ were:
Whether State Farm is required to pay attorney fees to Stavely*s attorney,
David A. Titman, as a result of its action to nonrenew Stavely*s automobile
insurance policy.
If attorney Titman*s fees are warranted, to what extent are those fees to be
awarded to him.
(a)
Is State Farm only required to pay attorney fees for Titman*s
participation in the November 20 OAH hearing before ALJ Klair;
(b)
Or, is State Farm liable for all attorney fees incurred by Titman for
his preparation and participation in the Administrative hearing and
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for all other work performed throughout the entire appeal process
of this case.
“l4.  On December 17, 1999, ALJ Zlotnick issued a Memorandum Order
concluding, as a matter of law, [that] Stavely*s request for counsel fees be denied
which decision was based upon the ALJ*s finding that State Farm*s actions were not
unjustified; accordingly the issue of quantum of fees was never reached. * * *
“l5.  On January 14, 2000, a timely Petition for Judicial Review was filed[, in the
Circuit Court for Baltimore City,] by Stavely, . . . and a Statement in Lieu of Record
was filed by the parties.
* * *
“16.  The Maryland Insurance Administration declined to participate in the
[proceedings in] the circuit court, and, when its counsel was contacted concerning the
present appeal, advised that it would not participate. * * *
“17.  On September 28, 2000, the petition for judicial review was orally argued
before Judge Joseph P. McCurdy.  On that day Judge McCurdy . . . ruled that ALJ
Zlotnick’s Order dated December 17, 1999, be upheld and that petitioner’s request for
counsel fees be denied. * * *
“18.  A timely appeal to the Court of Special Appeals was noted . . . .”
The Court of Special Appeals affirmed the judgment of the Circuit Court, Stavely
v. State Farm, 138 Md. App. 1, 769 A.2d 1008 (2001).  Stavely filed in this Court a
petition for a writ of certiorari which we granted.  Stavely v. State Farm, 365 Md. 65,
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775 A.2d 1216 (2001).
II.
Section 27-605 of the Insurance Article of the Maryland Code regulates certain
actions by insurers with respect to motor vehicle liability insurance policies.
Specifically, § 27-605 regulates cancellations, nonrenewals, premium increases, and
reductions in coverage.  See § 27-605(b).  Section 27-605(c) provides that, at least 45
days before one of these proposed actions is to be effective, the insurer must send
written notice to the insured that the insurer intends to take the particular proposed
action, that the notice must be in a certain form and must contain certain information,
that the insured has a right to protest the proposed action and request a hearing before
the Insurance Commissioner or the Commissioner’s designee, and that, if the insured
files a protest, the policy will stay in effect until the Commissioner’s determination.
Subsection (c) also requires that the notice inform the insured of “the authority of the
Commissioner to award reasonable attorney fees to the insured for representation at
[the] hearing” if the Commissioner decides the case in the insured’s favor.  Section 27-
605(g) provides for the administrative hearing, and states that the hearing shall be
conducted in accordance with the contested cases subtitle of the Maryland
Administrative Procedure Act, Code (1984, 1999 Repl. Vol., 2002 Supp.), §§ 10-201
through 10-226 of the State Government Article.
Section 27-605(h) of the Insurance Article relates to the Insurance
Commissioner’s decision following a hearing.  Subsection (h) provides as follows:
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“(h) Order following hearing. – (1) The Commissioner shall
issue an order within 30 days after the conclusion of the hearing.
(2) If the Commissioner finds the proposed action of the
insurer to be justified, the Commissioner shall:
(i) dismiss the protest; and
(ii) allow the proposed action to be taken on the later of:
1.  its proposed effective date; and
2.  30 days after the date of the determination.
(3) If the Commissioner finds the proposed action to be
unjustified, the Commissioner:
(i) shall disallow the action; and
(ii) may order the insurer to pay reasonable attorney fees
incurred by the insured for representation at the hearing as the
Commissioner considers approp riate.”
Consequently, if the Commissioner finds that the proposed action of the insurer is
“justified,” subsection (h)(2) requires that the proposed action be allowed.  If, however,
the Commissioner finds that the proposed action is “unjustified,” subsection (h)(3)(i)
mandates that the Commissioner “shall disallow the action.”  Under the plain language
of the statute, a finding of justification or a finding of no justification determines
whether the proposed action, such as a nonrenewal, shall be allowed or disallowed.
The Commissioner’s authority to “disallow” the proposed action is limited to the
situation where the proposed action is “unjustified,” and, in that situation, the
Commissioner must disallow the proposed action.
The words “justified” or “unjustified” are not contained in subsection (h)(3)(ii),
authorizing the Commissioner to order the insurer to pay reasonable attorney fees
incurred by the insured.  Instead, whenever the Commissioner has found the proposed
action to be unjustified and, therefore, has disallowed it, the Commissioner has the
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2
As the Court emphasized in Lumbermen’s Mutual Casualty Co. v. Insurance Commissioner, 302
Md. 248, 265, 487 A.2d 271, 280 (1985), “the statutory provisions . . . place the burden of proving
justification [for nonrenewal] upon the insurer.”
discretion to award attorney fees.  A second finding relating to “justification” is not
provided for in subsection (h)(3)(ii) concerning an award of attorney fees.
In the present case, ALJ James G. Klair determined that State Farm’s proposed
nonrenewal of Stavely’s motor vehicle insurance policy rested upon an “insufficient”
basis, that the insurer had “failed to meet its burden of proof” that the nonrenewal was
valid,2 and that State Farm was “in violation of the Maryland Insurance Code by virtue
of its proposed nonrenewal of the subject insurance policy.”  The decision by ALJ Klair
was upheld by the Court of Special Appeals, and this Court dismissed the writ of
certiorari.  Accordingly, the determination that State Farm’s proposed 1995 nonrenewal
of Stavely’s motor vehicle insurance policy was unjustified, and thus disallowed,
became final.
Nevertheless, when the matter later came before ALJ Brian Zlotnick for a
determination regarding an award of attorney fees pursuant to § 27-605(h)(3)(ii) of the
Insurance Article, Judge Zlotnick again considered whether the proposed nonrenewal
was “justified” and held that State Farm “was justified in its decision to nonrenew the
Complainant’s automobile policy.”  Judge Zlotnick also construed Judge Klair’s earlier
action as a decision which “did not make a finding that the” proposed nonrenewal was
unjustified.  Judge Zlotnick went on to hold that Stavely was “not entitled to the award
of attorney fees” because State Farm “was not unjustified in bringing its actions to
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nonrenew the Complainant’s automobile policy.”
ALJ  Zlotnick’s decision in this case was not based upon an exercise of
discretion as required by § 27-605(h)(3)(ii) of the Insurance Article.   Instead, the
ALJ’s decision was erroneous as a matter of law.  It was contrary to § 27-605(h) of the
Insurance Article, and both courts below erred in upholding the administrative
decision.
Although ALJ Klair, in his findings of fact, conclusions of law, and decision
disallowing the proposed nonrenewal, did not specifically use the word “unjustified,”
he did use equivalent language.  Judge Klair found that the basis for the insurer’s
proposed nonrenewal lacked “validity,” that the insurer failed to show that the
nonrenewal resulted from “standards [that] are reasonably related to its economic and
business purposes,” and that State Farm “is in violation of the Maryland Insurance
Code by virtue of its proposed nonrenewal of the subject insurance policy.”  Moreover,
ALJ Klair disallowed the proposed nonrenewal, and a finding that the proposed action
is “unjustified” is a statutory prerequisite for such disallowance.  ALJ Klair, therefore,
clearly found that the proposed nonrenewal of Stavely’s insurance policy was
“unjustified.”
As previously discussed, § 27-605(h)(3)(ii), permitting an award of attorney fees,
does not authorize the Commissioner or an ALJ to make a redetermination of
“justification” or a second finding concerning justification.  Under the statutory
framework, the decision that the insurer’s proposed action was “unjustified” was made
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when the proposed action was disallowed.  While the award of attorney fees is
discretionary, the decision against awarding such fees cannot be based on a finding,
contrary to the earlier finding, that the proposed action was “justified.”
Furthermore, under the facts of the present case, where ALJ Klair had decided
that the proposed nonrenewal was unjustified and the Court of Special Appeals had
upheld that decision, ALJ Zlotnick was bound by the earlier determination under
principles of res judicata and/or the law of the case.  White v. Prince George’s County,
282 Md. 641, 658, 387 A.2d 260, 270 (1978) (“principles of public policy underlying
the rule of res judicata [are] applicable to . . . administrative agencies performing quasi
judicial functions” such as the Maryland Tax Court, citing Woodlawn Ass’n v. Board,
241 Md. 187, 194-196, 216 A.2d 149, 154-155 (1966)).  See Sugarloaf v. Waste
Disposal, 323 Md. 641, 658-659 n.13, 594 A.2d 1115, 1123-1124 n.13 (1991)
(“principles of res judicata and collateral estoppel apply to administrative decisions . . .
in which . . . [the] agency is acting in a judicial capacity and resolves disputed issues
. . . properly before it which the parties have had an adequate opportunity to litigate”)
(internal quotation marks omitted).  See also Batson v. Shiflett, 325 Md. 684, 704, 602
A.2d 1191, 1201 (1992); Murray International v. Graham, 315 Md. 543, 547-549, 555
A.2d 502, 503-505 (1989).  As to the law of the case doctrine, see, e.g., Turner v.
Housing Authority, 364 Md. 24, 31-33, 770 A.2d 671, 676-677 (2001); Sabatier v. State
Farm, 327 Md. 296, 302-303, 609 A.2d 307, 310-311 (1992); Rite Aid Corp. v. Lake
Shore Investors, 298 Md. 611, 629, 471 A.2d 735, 744 (1984); Chayt v. Board of
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Zoning Appeals, 178 Md. 400, 403, 13 A.2d 614, 615 (1940).
This case must be remanded to the Insurance Commissioner for the
Commissioner (or his designee or an ALJ if the Commissioner so designates) to
exercise the discretion required under § 27-605(h)(3)(ii) of the Insurance Article.  In
this connection, we point out that § 27-605(h) seems to contemplate that an insured
who prevails should normally be awarded reasonable attorney fees, and that an award
of attorney fees should be denied to a prevailing insured only when a particular case
presents significant reasons warranting a denial.  This is shown by § 27-605(c)(3)(viii),
which requires that the notice of the insurer’s proposed action, to be sent to the insured
at least 45 days before the effective date of the action, specifically inform the insured
of “the authority of the Commissioner to award reasonable attorney fees to the insured
for representation at a hearing if the” insured prevails.  This statutory notice
requirement concerning attorney fees would make little sense if most prevailing
insureds were denied awards of attorney fees.  For a recent opinion of this Court setting
forth standards for the awards of attorney fees under fee shifting statutes, see Friolo
v. Frankel, 373 Md. 501, 819 A.2d 354 (2003).
JUDGMENT OF THE COURT OF SPECIA L
APPEALS 
REVER S ED, 
AND 
CASE
REMANDED TO THE COURT OF SPECIAL
APPE ALS 
WITH  
D I R E C T IO N S 
TO
REVERSE THE JUDGMENT OF THE
CIRCU IT COURT FOR BALTIMORE CITY
AND TO REMAND THE CASE TO THE
CIRCU IT 
COURT 
WITH 
FURTHER
D I R E C T IO N S  
T O  
R E V E R S E  
T H E
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ADMINISTRATIVE DECISION AND TO
REMAND THE CASE TO THE INSURANCE
C O M M I S S I O N E R  
F O R  
F U R T H E R
PROCEEDINGS CONSISTENT WITH THIS
OPINION.   COSTS IN THIS COURT AND
IN THE COURT OF SPECIAL APPEALS TO
BE PAID BY THE RESPONDENT.