Opinion ID: 2065759
Heading Depth: 1
Heading Rank: 4

Heading: Covered Claim

Text: The Court seeks to avoid the otherwise unambiguous application of INS § 9-306(c) by concluding that a penalty assessed pursuant to LE § 9-728 does not constitute a covered claim. It notes that INS § 9-301(d), in relevant part, defines covered claim as an insolvent insurer's unpaid obligation that arises out of a policy of the insolvent insurer issued to a resident or payable to a resident on behalf of an insured of the insolvent insurer. It then concludes that penalties assessed by the Commission under LE § 9-728 are statutory in nature and do not arise out of a policy of the insolvent insurer and, for that reason, do not constitute covered claims. That, to me, is an unduly narrow construction that is wholly inconsistent with the legislative intent and, indeed, the whole purpose of PCIGC. PCIGC stands in the shoes of the insolvent insurer and is obligated to pay claims that, but for its insolvency, the employer's insurer would be obligated under its policy to pay. As this Court has confirmed on a number of occasions, Maryland adheres to the general rule that parties to a contract are presumed to contract mindful of the existing law and that all applicable or relevant laws must be read into the agreement of the parties just as if expressly provided by them, except where a contrary intention is evident. Wright v. Commercial & Sav. Bank, 297 Md. 148, 153, 464 A.2d 1080, 1083 (1983); Auction & Estate Representatives, Inc. v. Ashton, 354 Md. 333, 344, 731 A.2d 441, 447 (1999); Lema v. Bank of America, 375 Md. 625, 645, 826 A.2d 504, 516 (2003). That includes, in this instance, the requirement in LE § 9-727 that insurers commence payment of awards within fifteen days, and, in my view, it would also include the obligation to pay any penalty assessed under LE § 9-728 on account of the insurer's failure to do so. The penalty provision in § 9-728 is not in the nature of an insurance regulation. It cannot be, because the Workers' Compensation Commission has no authority to regulate insurance companies. It is, rather, a mechanism to enforce an obligation that all workers' compensation insurers have under their policies to pay awards promptly and is, by law, incorporated into every workers' compensation insurance policy. Viewed in that light, a penalty assessed for an insurer's failure to comply with its policy obligations, even though assessed pursuant to statute, must also be regarded as arising from the policy. It is thus clear to me that Legion was obligated under its policy to pay both the award made to Mr. Yanni in accordance with LE § 9-727, and any penalties assessed under LE § 9-728 by reason of its failure to do so. Because its liability for the penalty arises solely from its status as an insurer, it necessarily must arise out of a policy of the insolvent insurer. That makes it a covered claim, for which, in light of Legion's insolvency, PCIGC is liable. This conclusion is not just a matter of construing the words of the statutes in a proper relational way. It goes to the heart of the statutory scheme. There are only two purposes for requiring employers to be insured  to assure payment of awards to injured workers and to protect employers from insolvency by reason of such awards. That is reflected in INS § 9-302, which states the purpose of subtitle 3 as being to provide a mechanism for the prompt payment of covered claims . . . and to avoid financial loss to residents of the State who are claimants or policyholders of an insolvent insurer. If PCIGC were free to ignore Commission awards with impunity  without being subject to the penalties allowed under LE § 9-728  that statutory purpose would remain in serious jeopardy. It is of some importance that, although PCIGC is obligated to pay covered claims arising under a wide variety of casualty insurance policies, the Legislature saw fit, in INS § 9-306(a)(3), to specify, in particular, PCIGC's obligation to pay the full amount of covered claims arising out of a workers' compensation policy.