Property & Casualty Insurance Guaranty Corp. v. Yanni

BELL, C.J. and WILNER, J.,

Dissent.

In May, 2003, Peter Yanni filed a workers’ compensation claim against his employer, MTI Corporation, and its insurer, Legion Insurance Company. Two months later, in July, 2003, Legion became insolvent, and appellant, Property and Casualty Insurance Guaranty Corporation (PCIGC), accepted the claim as a “covered” claim.

*501On September 29, 2004, the Workers’ Compensation Commission entered an award directing MTI and Legion, the actual parties to the proceeding, to pay temporary total and permanent partial disability benefits to Yanni, and an attorney’s fee to his attorney. Because Legion was insolvent, PCIGC had a statutory obligation under Maryland Code, § 9-306 of the Insurance Article (INS) and § 9-727 of the Labor and Employment Article (LE), to commence payment of that award within fifteen days after its entry. It failed to do so, prompting a request by Yanni and his attorney for penalties allowable under LE § 9-728. After two false starts, the Commission found that penalties were appropriate and that PCIGC was liable for the penalties, and it therefore assessed them against PCIGC. The Circuit Court for Montgomery County, on PCIGC’s action for judicial review, entered summary judgment affirming the Commission order.

Though acknowledging its responsibility to pay covered claims made against an insolvent insurer within fifteen days after entry of the award, its failure to discharge that responsibility, and the authority of the Commission to award penalties for non-conformance with that obligation, PCIGC nonetheless contends that no such penalties may be awarded against it because (1) it is not an insurer, (2) a penalty assessed under LE § 9-728 does not constitute a “covered claim” for which it is liable, and (3) even if it is an insurer and the penalty is a “covered claim,” it has statutory immunity against liability. The Court proposes to find merit in all three of those defenses. With respect, I dissent. None of them has merit, for if any of them did, the statute directly placing on PCIGC the obligation to pay Workers’ Compensation awards issued against insolvent insurers would be rendered largely toothless.

The issue here, as framed by PCIGC, is entirely one of statutory interpretation. Our goal, therefore, is to implement, not find a way to frustrate, the legislative intent. Citing INS § 9-302, the Court acknowledges that PCIGC’s statutory purpose is “to provide a mechanism for the prompt payment of covered claims under certain [insurance] policies and to avoid financial loss to residents of the State who are claimants or *502policyholders of an insolvent insurer.” (Emphasis added). That, within the bounds of the law, is what the Court should strive to do.

Is PCIGC An Insurer?

Relying on Uninsured Employers’ v. Danner, 388 Md. 649, 882 A.2d 271 (2005) and a few out-of-State cases, the Court first holds that, despite a clear, unambiguous statutory provision to the contrary, PCIGC is not an insurer. In my view, Danner is distinguishable and the out-of-State cases do not accurately reflect the intent of the Maryland General Assembly.

Like Mr. Yanni, Gerald Danner suffered a compensable accidental injury, filed a claim for workers’ compensation benefits, and received an award. Unlike this case, however, his employer did not carry workers’ compensation insurance and made no payments on the award. Danner therefore requested payment from the Uninsured Employer’s Fund (UEF), which denied the request. The Workers’ Compensation Commission thereafter ordered the Fund to pay the award, as well as a penalty and attorney’s fee. On judicial review, we upheld the order to pay the benefits under the award but reversed the order to pay the penalty and attorney’s fee.

We are not concerned here with the discussion regarding the Fund’s obligation to pay the basic benefits provided for in the award, but rather the reason why we held that the Fund was not liable for the penalty. That also was a matter of statutory construction. LE § 9-728—the statute that allows the Commission to assess penalties for late payment of awards—permits the Commission to assess a penalty if it finds that “an employer or its insurer” has failed, without good cause, to begin paying an award within the time allotted. (Emphasis added). The Fund was certainly not Danner’s employer; the question was whether it qualified as the employer’s insurer.

*503The term “insurer” is not defined in § 9-728 or, indeed, anywhere in subtitle 7 of title 9. In the absence of any directly controlling statute, we looked to two other sections of the Workers’ Compensation Law—LE § 9-401(b) and LE § 9-316(a)(3). Section 9-401(b), which is part of the subtitle dealing with the requirement of insurance coverage, defines “authorized insurer” as a stock corporation or mutual insurer that is authorized to provide workers’ compensation insurance in the State, a governmental self-insurance group, a self-insurance group of private employers that meets certain statutory requirements, or an individual employer that self-insures in conformance with LE § 9-405. Section 9-316(a)(3), which permits the Commission to collect a tax from insurers to defray the expenses of the Commission, defines “insurer” for that purpose in much the same way as § 9-401(b). The UEF, we held, did not fit within either of those definitions, and we therefore concluded, in the absence of any other statute that might bring it within the ambit of an insurer, it could not be considered one. Because it was neither an employer nor an insurer, it was not an entity against which a penalty could be assessed under LE § 9-728.

In marked contrast to the situation with respect to UEF, PCIGC is defined as an insurer, for the very purpose at issue here. PCIGC is created and its duties are defined in title 9, subtitle 3 of the Insurance Article. Title 9 deals with impaired insurance entities; subtitle 3 provides for PCIGC. Unlike UEF, PCIGC is a private corporation, not a State agency. INS § 9-306(a) provides that, except as to surety bonds, PCIGC is obligated to the extent of covered claims existing on or before the determination of insolvency and, within certain dollar limits, requires it to “pay the full amount of any covered claim arising out of a workers’ compensation policy.” Of particular relevance and, to me, of governing importance in this regard, § 9-306(c) provides that:

“[PCIGC] shall be deemed the insurer to the extent of the Corporation’s obligation on the covered claims and, to that extent, shall have the rights, duties, and obligations that *504the insolvent insurer would have had if the insurer had not become insolvent.”

(Emphasis added).

Unlike the situation in Danner, we do not need to go hunting for definitions of “insurer” in other parts of the Labor and Employment Article that have nothing directly to do with PCIGC to determine whether PCIGC falls within them. The statute that creates PCIGC and sets forth its functions and obligations makes it an “insurer” for this very purpose and expressly imposes on it the duties and obligations that the insolvent insurer (Legion) would have had if it had not become insolvent. That, alone, renders the holding in Danner and the analysis underlying that holding inapposite. To the extent that the penalty assessed by the Commission constitutes part of a “covered claim,” PCIGC clearly is an insurer and therefore falls within the ambit of LE § 9-728. None of the out-of-State cases relied upon by the Court dictate a different result.

Covered Claim

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 *505law 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 *506§ 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.

Immunity

As the third prong of its holding, the Court determines that, even if PCIGC were an insurer and even if a penalty assessed under LE § 9-728 constitutes a covered claim, PCIGC is immune from such an assessment under Maryland Code, § 5-412 of the Cts. & Jud. Proc. Article (CJP), which provides:

“There shall be no liability on the part of and no cause of action of any nature shall arise against a member insurer, [PCIGC] or its agents or employees, the Board of Directors, or the Insurance Commissioner or the Commissioner’s representatives for any action taken by them in the performance of their powers and duties under Title 9, Subtitle 3 of the Insurance Article.”

In holding that the immunity provided under that section precludes the assessment of penalties against PCIGC, and thus allows it to thumb its corporate nose at its statutory obligation, the Court relies on A.S. Abell Pub. Co. v. Mezzanote, 297 Md. 26, 464 A.2d 1068 (1983). The principal issue in that case was whether the Maryland Insurance Guaranty Association—a precursor of PCIGC—was a State agency for purposes of the Public Information Act. A newspaper had filed a PIA request to inspect certain records of the Association, which was denied on the ground that the Association was not a State agency. The Circuit Court agreed. We concluded that *507the Association was a State agency that was subject to the PIA and remanded the case to the Circuit Court for further proceedings. In doing so, we concluded that, in light of the predecessor statute to CJP § 5-412, the Association would not be liable for costs or attorneys’ fees that otherwise might be assessed under the PIA.

That is a far different situation than what we have here. As noted CJP § 5-412 provides immunity “for any action taken by [PCIGC or its members, directors, employees, or agents, or the Insurance Commissioner] in the performance of their powers and duties under Title 9, Subtitle 3 of the Insurance Article.” A corporate decision by a hybrid guaranty entity created by statute, presumably on the advice of counsel, that it is not a State agency and therefore is not subject to the PIA may well be regarded as one that, even if later proved wrong, was nonetheless taken in the performance of its corporate powers and duties. A decision not to pay a covered claim in conformance with a clear statutory mandate is not one taken in the performance of its powers and duties. PCIGC has no power or duty not to pay a covered claim for which it is legally responsible. Failure to pay is not the performance of its duties but an unlawful defiance and disregard of them.

To apply the immunity accorded in CJP § 5-412 to LE § 9-728 would be equivalent to having the tail wag the dog, for, read literally in that context, it would preclude any liability on the part of PCIGC for refusing to pay the very claims it was created to pay. The implication of such a broad reading of CJP § 5-412 is the substantial risk of leaving claimants without a source for the payment and employers subject to a liability that they may be incapable of discharging.

The Court suggests that the solution to any default by PCIGC in its obligation to pay awards entered by the Workers’ Compensation Commission in conformance with LE § 9-727 is for the claimant (or employer) to file a complaint with the Insurance Commissioner. Citing Insurance Com’r v. Prop. & Cas. Ins. Guar. Corp., 313 Md. 518, 546 A.2d 458 (1988), the Court observes that the Commissioner is empow*508ered to order PCIGC to pay a disputed claim. That is true, but it is hardly an exclusive, or even a practical remedy. That case involved a dispute over whether PCIGC was responsible for paying personal injury protection claims arising under automobile insurance policies issued by insurers that had become insolvent. The issue was purely a legal, and generic, one of whether liability existed for any such claim. The Commissioner ordered PCIGC to pay the claims and, when it refused, the Commissioner, after an administrative hearing, again ordered it to pay the claims.

The issue here is not whether PCIGC has legal liability for a class of claims. It recognized its obligation to pay Mr. Yanni’s award, and it has never contested that the payment of awards must commence within fifteen days. For whatever reason, it simply failed to comply with its obligation. To require the claimant, who needs the money immediately and who, by law, is entitled to it within fifteen days, to file a complaint with the Insurance Commissioner, who knows none of the underlying facts, and go through a contested case administrative hearing, with the further prospect of judicial review in a Circuit Court, simply to have another agency do what the Workers’ Compensation Commission has already done, namely, order PCIGC to pay the award, makes utterly no sense. That cannot be what the General Assembly intended.

For these reasons, I would affirm the judgment of the Circuit Court.

Chief Judge BELL authorizes me to state that he joins in the dissent.