• Bob Siems

Cecelia Schwaber Trust Two v. Hartford Accident and Indemnity Co., 636 F.Supp.2d 481 (D.Md.2009) (“S

Thus far, precisely one case has interpreted Maryland's Bad Faith statute, Md. Code Insurance §27-1001: Cecelia Schwaber Trust Two v. Hartford Accident and Indemnity Co., 636 F.Supp.2d 481 (D.Md.2009) ("Schwaber III”). Schwaber III added a list of factors to consider when finding bad faith and clarified that Maryland used the "totality of the circumstances" approach.


Cecelia Schwaber Trust Two (“Schwaber”) owned a warehouse in Baltimore. Cecelia had insurance on the warehouse with Hartford Accident and Indemnity Corporation (“Hartford.”) (Schwaber III at 482.)

In February 2003, a snowstorm put large amounts of snow and ice on the roof. By March 2003, the roof sprung a series of leaks. (Schwaber III, 636 F.Supp.2d at 482.) Schwaber filed a claim with Hartford, which denied the claim. (Hartford later agreed to pay 5% of the claim, but denied the rest.) (Schwaber III, 636 F.Supp.2d at 483.)

At end of some interminable litigation, Schwaber brought a bad faith action against Hartford for denying the claim. Hartfrord eventually field for summary judgment.

Procedural History

The rest of the extraordinarily complex procedural history is irrelevant, but best summarized by the fact that this opinion is Schwaber III. This is an opinion on Hartford's motion for summary judgment.

Holding and Reasoning

The Court first had to determine what bad faith test Maryland court would employ. It decided that Maryland would use the “totality of the circumstances” standard for bad faith because it better comports with Maryland’s statutory language. It therefore considered factors such as:

[(1)] efforts or measures taken by the insurer to resolve the coverage dispute promptly or in such a way as to limit any potential prejudice to the insureds;

[(2)] the substance of the coverage dispute or the weight of legal authority on the coverage issue; [and]

[(3)] the insurer's diligence and thoroughness in investigating the facts specifically pertinent to coverage.

Schwaber III, 636 F.Supp.2d at 487 (D.Md. 2009). Based on that test, the Court denied summary judgment to either party.

The Court also decided that Maryland would reject the “fairly debatable” bad faith standard. Under that standard, a denial of summary judgment to the Plaintiff requires granting summary judgment to the Defendant on the theory that if Defendant had a colorable case, it did not act in bad faith. This standard was incompatible with Maryland’s statute.

The Court also held that Maryland’s bad faith statute applied retroactively and did not violate the Contracts Clause. The Court declined to reach challenges under Maryland’s due process and takings clauses.

#CaseLaw #InsuranceBadFaith #CoverageDisputes #MarylandInsuranceAdministration

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