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Appellate Court of Maryland Issues Controversial Opinion Regarding Insurance Bad Faith Claims and Liability for Subsequent Negligent Acts by Third Party

September 6, 2023 By Christopher J. Gowen

On July 27, 2023, the Appellate Court of Maryland issued an opinion in Browne v. State Farm, (Case No. 475045V (No. 1825) where the Court addressed two issues of first impression relevant to insurance defense and personal injury practices. The first of the two issues involved a review of two interconnected statutes: Md. Code (1995, 2017 Repl. Vol.) §27-1001 of the Insurance Article and Md. Code (1974,2020 Repl. Vol.) §3-1701 of the Courts and Judicial Proceedings Article (“CJP”). The statutes were created in 2007 to “create administrative and judicial remedies for a first-party insured against a[n]…insurer who fails to act in good faith denying coverage or declining payment for a covered loss” (See Browne).

CJP § 3-1701 established a right of an insured to file a civil action alleging lack of good faith against an insurer but the statute requires that the insured exhaust administrative remedies before such a suit may be filed.  In Maryland the administrative remedy prerequisite requires the insured to file a complaint with the Maryland Insurance Administration (MIA) after which the MIA must issue a decision. That decision rendered by the MIA does not become final until one of two things occurs, (1)  If the MIA issues an adverse decision to the insured that decision will become “final” if the insured does not request an administrative hearing within 30 days; or (2) If an administrative hearing is requested before the Office of Administrative Hearings (OAH) and after the hearing OAH issues a final decision (see IN § 27-1001(f)).

The Court in Browne analyzed and opined regarding what rights the insured has after 1 of the 2 instances mentioned above occurs.  Md. Code § 27-1001(f) allows a party to seek administrative review of the decision but the statute is silent as to whether the insured may elect to not seek judicial review and instead proceed in Circuit Court under CJP § 3-170 after exhausting the available administrative remedies.

State Farm argued that, once the insured received an adverse decision from MIA, she had two options: (1) to request a hearing with the Office of Administrative Hearings (“OAH”); or (2) to file a civil action under CJP § 3-1701 (bad faith). In Browne, the insured chose to request an OAH hearing and was then collaterally estopped from bringing the CJP § 3-1701 bad faith claim in civil court because the issues presented to OAH were substantially similar to the issues raised in the CJP § 3-1701 bad faith claim.

The Appellate Court of Maryland disagreed with State Farm and held that an action under CJP § 3-1701 may be brought after either an adverse ruling by MIA or OAH holding that “a final decision issued after an OAH hearing does not collaterally estop an insured from proceeding with a CJP § 3-1701 civil action in Circuit Court…nor does it have any collateral estoppel effect on a breach of contract or other civil action against an insurer.” (see. Browne)

This ruling resulted in a remand to the trial court, but the opinion provided further guidance on a second issue of first impression in Maryland, regarding subsequent negligent medical treatment after a tort caused by a defendant.  In the case at bar, after an uninsured motorist caused a car accident injuring the plaintiff, the plaintiff sought recovery from her insurance provider (Sate Farm) within the policy limits of her uninsured motorist coverage. After the accident, the plaintiff received medical treatment that State Farm deemed negligent, and a question arose as to whether the original tortfeasor can be held liable for subsequent negligence that they did not directly cause.  The Court provided guidance in dicta that suggests that the original tortfeasor’s liability continues if a defendant “could have anticipated the intervening act of negligence (by a 3rd party) might, in a natural and ordinary sequence, follow the original act of Negligence (see Browne). However, the scope of this liability is constrained by the principles of proximate and superseding causation.  The Court identified 5 instances where injury caused by subsequent negligent treatment could be beyond the scope of the original tortfeasor’s liability: (1) extraordinary misconduct by medical professionals, (2) intentional torts committed by medical professionals against the victim, (3) a victims elected treatment of an ailment known to be unrelated to the injuries caused by the negligent actor, (4) treatment by a medical professional the victim was negligent is selecting, and (5) aggravation of the injury due to the victim’s negligence in carrying out the treatment of her injuries.  The Court made clear that a defendant may not challenge the necessity of treatments solely on the basis that the treatment was performed because of a negligent misdiagnosis stating that, “so long as the individual seeking medical care makes a reasonable choice of physicians, she is entitled to recover for all damages resulting from any aggravation of her original injury caused by a physician’s misdiagnosis or mistreatment”. (see Browne)