Why Does Anybody Appeal Maryland Insurance Administration Bad Faith Cases To The Office of Administrative Hearings?

October 24, 2014

Although Md. Code Insurance 27-1001(g) allows a party to appeal to the Office of Administrative Hearings instead of the Circuit Court, there is no apparent reason for Plaintiff to do so. There are two problems for insureds with OAH appeals. First, they are themselves appealable de novo to circuit court so it is hard to see how they were worth the legal fees. Second, Plaintiffs should always opt for a jury trial and almost always don't get everything they ask for and should therefore choose juries. Hypothesis: all cases should be appealed to juries.

 

But statistically, that does not seem to be what happens. Of those cases that reach merits decisions, almost half get appealed. Appeals to the Office of Administrative Hearings are more common (by a good margin) than appeals to Circuit Court.

 

Consider the numbers in the MIA Annual Report on Bad Faith for 2013, for example:

  • Thirty-four cases total.

  • Fourteen settled before a merits decision, leaving twenty merits decisions.

  • Four findings of bad faith; sixteen findings of good faith.

     

  • Ten cases were appealed

  • Six were OAH appeals, so at least two insured appealed to the OAH.

  • Four were Circuit Court appeals.

     

2013 was not an unusual year, although the relative amount of OAH appeals to Circuit Court appeals fluctuates. In 2010, for example, there were two OAH appeals and four Circuit Court appeals. In all other prior years, however, OAH appeals are equal or higher in number to Circuit Court appeals.

 

Figure 1: A graph of OAH decisions. ("Pending" cases were pending at the time of that year's MIA report.)

 

Perhaps Plaintiffs opt for OAH appeals because the OAH handles the cases differently? —Unlikely and Unsupported by Data. While the MIA does not publish statistics about the results of OAH hearings, there is no reason to believe that the OAH is significantly different from the MIA. According to the MIA’s numbers, the MIA has been reversed twice and affirmed five times, but all reversals happened before 2009. The MIA also lists eight cases as pending, so our data set is less than half complete. The MIA does not publish who appealed or what findings they appealed from. If the known OAH decisions are representative, Plaintiff’s OAH chances are about 28% (roughly equivalent to a Plaintiff’s chances before the MIA), and it has apparently been zero in recent years.

 

Perhaps if Insurer loses, Insurer appeals to the OAH? —Unlikely and Incomplete. First, the numbers do not add up. There are more OAH appeals than Insurer loses. Second, Md. Code Insurance 27-1001(g)(2) says that if both parties appeal and only one chooses the Circuit Court, the case is heard de novo in the Circuit Court. Even if Plaintiff “wins”, Plaintiff almost always can and should appeal as well to keep their jury trial.

 

Perhaps the data in the MIA annual reports is includes cases where one party appealed to the OAH and the other the Circuit Court? —Unlikely and Incomplete. First, there are often more OAH appeals than Circuit Court appeals, so it cannot explain the result entirely. Second, there’s no reason to think the MIA did that. Third, the MIA reports indicate at least seven merits decisions, which shows that at least some OAH appeals reached the merits..

  

Perhaps both parties want to avoid the expense and stress of a jury trial and prefer to try the case in front of professional judges? —Unlikely. I cannot imagine Plaintiffs attorneys who would prefer ALJs to juries in most venues. And it probably is not that much less expensive anyway. And there is a fee shifter to cover the costs.

 

Perhaps Plaintiffs who believe juries will not sympathize with them or who have highly technical arguments choose OAH appeals and insurance companies would rather avoid juries anyway? —Relatively More Likely and complete. It requires assuming that Plaintiffs and Insurance Companies reach radically different conclusions about how a jury will react to the case. That seems too unlikely to explain so large a trend. But more likely than Plaintiffs who do not want juries against insurance companies.

 

Revision Note: This post was revised in August 2015, mainly because we re-read it and could not resist tinkering.

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