MMTA v Property & Casualty

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In the Circu it Court for B altimore C ounty Case No. 03-C-03-8979 IN THE COURT OF APPEALS OF MARYLAND No. 95 September Term, 2004 ______________________________________ MARYLAND MOTOR TRUCK ASSOCIATION WORK ERS COMPENSATION SELF-INSURANCE GROUP v. PROPERTY & CASUALTY INSURANCE GUARANTY CORP. ______________________________________ Bell, C.J. Raker Wilner Cathell Harrell Battaglia Greene, JJ. ______________________________________ Opinion by Wilner, J. ______________________________________ Filed: April 6, 2005 With exceptions not relevant here, Maryland Code, § 9-402 of the Labor and Employment Article (LE), which is part of the Workers Compensation Law, requires every Maryland employer to secure workers compen sation for its co vered em ployees and lists six possible m ethods by w hich that ob ligation may be satisfied: (1) maintaining insurance w ith the Injured Worke rs Insuranc e Fund; (2) maintaining insurance w ith an autho rized insurer ; (3) participating in a govern mental self -insurance group; (4) participating in a self-insurance group of private employers that meets the requireme nts of title 25, su btitle 3 of the In surance A rticle (INS); (5) maintaining individual self-insura nce in accordance with LE § 9-4 05; or (6) having a county board of education secure compensation under §§ 8-402(c) or 7-114(d) of the Education Article. In 1993, a number of Maryland trucking companies decided to use the fourth method a private self -insurance group. In th at year, the Maryland Motor Truck Association (MMT A), a nonpro fit trade organization, established the Maryland Motor Truck Association Workers Compensation Self-Insurance Group (MMT A Group) for some of its members. In conformance with a regulation of the Insurance Commissioner, MMTA Group obtained a policy of excess insurance, for claims exceeding $150,000, from Reliance National Indemnity Company. That policy was renewed from time to time and was in effect for the period from February, 1999 to June, 2000. During that period, four claims exceeding $150,000 were filed against member trucking companies that were part of the MMTA Group, and the excess amounts with respect to those claims were submitted by MM TA G roup to Reliance. Because of financial difficu lties, Rel iance w as unab le to pay th ose am ounts. In October, 2001, Re liance wa s declared in solvent by a P ennsylvania c ourt and o rdered to liquidat e. In light of that circumstance, MMTA Group filed a claim with the Property and Casualty Insurance Gua ranty Corporation (PCIGC), an entity established by the General Assembly to provide for the payment of claims covered by policies of property or casualty insurance compan ies that beco me insolve nt. PCIGC denied the claim on th e ground that it was not a covered claim, as defined in INS § 9-301(d). In taking that position, PCIGC ultimately relied on § 9-301(d)(2)(i), which provides that [c]overed claim does not include an amount due an insurer. It asserted that M MTA Group was an insurer, within the mean ing of th at word as used in § 9-3 01(d)(2 )(i). That is the issue before us. Th e Circuit Court for Baltimore Co unty, in a declaratory judgment and breach of contract action filed by MMTA Group against PCIGC, declared that MMTA Group was an insurer and granted P CIGC s motion f or summ ary judgmen t, whereupon MMTA Group appealed to the Court of Special Appeals. We granted certiorari on our own initiative prior to proceedings in the intermediate appellate court and shall affirm. BACKGROUND Self-Insurance Groups and MMTA Group -2- As noted, LE § 9-402(a) permits employers to comply with the requirement of providing workers compen sation to their c overed em ployees by partic ipating in a selfinsurance group of private employers that meets the requirements of Title 25, Subtitle 3 of the Insu rance A rticle. T hat auth ority is repe ated in IN S § 25 -302. INS Title 25, subtitle 3 consists of §§ 25-301 through 25-308. Those sections place these self-insurance groups und er the jurisdic tion of, a nd su bjec t to ex tensive regulatio n by, the Insurance Commissioner. Section 25-303 requires the Insurance Commissioner to adopt regulations to implement the subtitle, regulations that must include, among other things: (1) classifications of business and industries, based on the type of activity conducted . . . w ithin which employers m ay join together in self-insurance groups; (2) for each classification: (i) a minimum level of contribution of at least $250,000 in premiums collected from or pledged by the members of the group to a fund from which w orkers com pensation c laims will be paid; (ii) a minimum level of excess insurance coverage that must be obtained by each self-insurance group; *** (3) conditions under which contributions by members of a selfinsurance group may be reba ted or temp orarily suspended; [and] *** (5) a requirement that the governance of the group be under the contro l of its m embe rs. Section 25-304(a) requires approval by the Commissioner before a self-insurance group may operate, and that includes approval of the self-insurance agreement. Section 25- -3- 306 requires approval by the Commissioner of any termination of a self-insurance agreement as well as any merger between two or more such groups. Section 25-307 permits the Commissioner to require actuarial studies and audits to determine the financial solvency of each group, to assess the group up to $500 to defray the cost of such reports and audits, and to require from a self-insurance group an annual report that may include payroll audit reports, summary loss reports, and quarterly financial statements. Section 25-308 authorizes the Commissioner to impose o n self-insura nce grou ps a mon etary penalty up to $10,000 for violations of the subtitle, to issue cease and desist orders to preclude those groups from engaging in practices that the Commissioner finds in violation of the subtitle, and to suspend or revoke the authority of the group to operate. Section 25-304(b) requires eac h self-insura nce grou p to have c ombined assets of at least $1,000,000. Section 25-304(c) requires the group to pay all workers compensation benefits for which each member incurs liability during the period of membership. It makes each member jointly and severally liable for the workers compensation obligations of the group and its members that are incurred during its period of membership, and it provides that the joint and several liability continues even if an employer s membership is terminated or cancelled. In accord with these statutory provisions, the Insurance Commissioner has promulgated a set of regu lations dealin g with priv ate self-insurance groups. They are found in COM AR 3 1.08.09 . They prescribe the kinds of businesses that may form self-insurance -4- groups (31.08.09.0 3); they specify the minimum annual premium that must be collected by the group from its members (31.08.09.04); they require each group to maintain excess insurance coverage of at least $1,000,000 per occurrence over a retention of $350,000 or less and set some requirements for excess insurance policies (31.08.09.06); and they provide detailed requireme nts for an a pplication fo r certificate of authority to operate as a selfinsurance group, including a schedule for the collection of premiums, procedures for handling disputes regarding premium payments by member, and [p]roof of paym ent to the group by each member of not less than 25 percent of that member s first year estimated annua l net prem ium. (3 1.08.09 .07). The regulations authorize the Commissioner to make an examination of the affairs, transactions, records, and assets of any group as often as the Comm issioner deems necess ary to determine the group s financial solvency. (31.08.09.11). They require each group to submit to the Commissioner an audited annual financial statement showing: (1) Actuarial appropriate rese rves for: (a) Known claims and expenses associated with them, (b) Claims incurred but no t reported an d expens es associated with them, (c) Unearned premiums, and (d) Bad debts, which reserves shall be shown as liabilities; [and] (2) An actuarial opinion re garding reserves for: (a) Known claims and expenses associated with them, and (b) Claims incurred but not reported and expenses associated with them[ .] -5- (31.08.09.12). The MM TA G roup w as form ed on J uly 1, 1993, with the execution of a Trust and Indemn ity Agreement. The purpose of the Group, as stated in the Agreement, was to provide economical Workers Compensation and Employers Liability Insurance coverage for the Members of the Group, to reduce the amount and frequency of losses, and to do all necessary and proper things incident to the provision of Workers Compensation and Employers Liability Insurance in such manner a s to be in the best interest of the M embers of the Grou p. The Agree ment c reated a trust, pro vided f or its fun ding, op eration, a nd governance, and set forth the obligations of the members of the group. The trust was to be funde d by premiums paid by the mem bers of the Group in amounts established by the Board of Trustees. §§ 3.04, 3.05. Those premiums were to be placed into two separate funds created by the A greemen t: a Trustees F und, to dea l with administrative costs, and a Claims Fund, for the purpose of paying claims and claim costs. § 5.02. The Group was required to defend, in the name and on behalf of its members, any claim, suit, or other proceeding instituted against the member on account of injuries or death covered by the Workers Compensation Law or Employers Liability, or otherwise asserting the member s liability under the Workers Compensation Law. § 10.08. In the event of a deficit, the trustees w ere authoriz ed to adopt a plan for elimination of the deficit, including an assessment on all members in the proportion which the contribution (annual premium) of each bears to the total contribution of all. § 5.05. In the event of insolvency of the Group, -6- each membe r was jointly and severally liable fo r the liabilities and obligations o f all members. § 3.05 (a). The calculation of premiums was provided for in the By-Laws of the Group. The aggregate premium needed was to be determined by the Board of Trustees. The premium for each member was to be determined by the Administrator, appointed by the trustees, based on the member s loss experience for prior years. In accordance with statutory and regulatory requirements and with § 5.06 of the Agreement, the trustees w ere required to obtain excess insurance in an amount not less than $1,000,000 over a retention of $250,000. Both the Agreemen t and the By-Laws p ermitted the trustees to employ a Service Company to handle c laims mad e against the membe rs and perf orm other administrative services. Article X, § 2 of the By-Laws provided, among other things, that the Service Company was to handle all claims after notice of injury was given, to prepare all required Workers Compensation forms, provide a defense if deemed appropriate , and nego tiate with a me mbe r s in jured em ploye e or the em ploye e s a ttorn ey. PCIGC and Self-Insurers Guaranty Fund Title 9 of the Insurance Article deals with insurance companies that are in financial diff icult y. In subtitle 3 of that title (INS §§ 9-301 through 9-316), the Legislature created and provided for the operation of P CIGC. The corporation is created by § 9-304 as a private, nonprof it, nonstock corporation. That section requires each authorized insurer that writes -7- any kind of direct insurance not specifically excluded from the ambit of the statute to be a member of PCIGC.1 Subject to certain conditions and limitations set forth in § 9-306, PCIGC is obligated to pay covered claims, including the full amou nt of any cov ered claim arising out of a workers compensation policy. In order to fulfill that oblig ation, PCIG C is required (1) to create se parate accounts f or title insuranc e, motor ve hicle insurance, workers compensation insurance, a nd other ins urance to w hich the sub title applies and (2) to assess each of its members in the proportion that the member s net direct written premiums for the preceding calendar year on the kinds of insuranc e covered by the approp riate account bears to the net direct written premiums of all member insurers for that year on those kinds of insuran ce. PCIGC, as no ted, is liab le on ly for the p ayment of a covered claim . That term is defined generally in INS § 9-301(d)(1) as including an insolvent insurer s unpaid obligation that arises out of a policy of the insolvent insurer. There is no dispute that Reliance qualifies as an insolvent insurer for purposes of that de finition. Section 9-301(d)(2), how ever, 1 INS § 9-304(b) provides that, [a]s a condition of its authority to transact insurance business in the State, each member insurer must be and remain a member of the Corporation. Section 9-301(f) defines Member insurer as an authorized insurer that writes a kind of insurance . . . to which this subtitle applies. Section 9-303 states that the subtitle a pplies to all kind s of dire ct insura nce e xcept th ose enu merate d in that s ection. Insurance for workers compensation claims is not within any of the exceptions. The closest that any exception comes to a self-insurance group is that for insurance written by a risk retention group. The term risk retention group is defined in §25-101(j) of the Insurance Article and, as so defined, it would not include a self-insurance group organized under title 25, subtitle 3, and no party to this action has claimed otherwise. -8- provides that covered claim does not include an am ount du e to a rein surer, insurer, insurance pool, or un derwriting associa tion, as a subrog ation rec overy or o therwi se. (Emp hasis ad ded). In addition to PCIGC, the Legislature created, as part of title 25, subtitle 3 of the Insurance Article, dealin g with workers com pensation s elf-insuranc e groups, th e Self Insurers Guaranty Fund (SIGF). S ection 25-3 05 creates th at Fund an d provide s for its administration by the Uninsured Em ployer s Fund established by LE § 10-304. The purpose of SIGF is to pay outstandin g obligation s of a self-in surance g roup that be comes ins olvent. Each self-insuran ce group is required to pay an assessment to SIGF at the same level assessed against other workers compensation carriers by [PCIGC] under Title 9, Subtitle 3 of this article, INS § 25-305(d), but, as the quid for that quo, self-insurance groups [are] not liable for payments to [PC IGC], § 25-30 5(a). DISCUSSION MMTA Group m akes three p oints in supp ort of its assertion that it is not an insurer for purposes of INS § 9-301(d)(2)(i). First, relying on CSX v. Continental Insurance, 343 Md. 216, 680 A.2d 1082 (1996) and cases from other States, it urges that, by definition, selfinsurance is not insurance, and, since it is not insurance, a self-insurance group cannot be an insurer. That conclusion, it adds, is supported by the definition of insurer in INS § 1101(v): Insurer includes each person engaged as indemnitor, surety, or contractor in the -9- business of entering into insurance contracts. MMTA Group does not enter into insurance contracts, it says. Finally, it notes that there are two out-of-State decisions on this issue one in Iowa (Iowa C ont. Wk rs Com p. v. Iow a Ins. G uar., 437 N.W.2d 909 (Iowa 1989)), which is in its favor, an d one in S outh Caro lina (S.C. Prop. & Cas. v. Carolinas Roofing Fund, 446 S.E.2d 422 (S.C. 1994)), which is not and it urges that we follow the Iowa approach and reject the South C arolina view . Not surprisin gly, PCIGC finds the S outh Carolina case more relevant and persuasive and believes that it is more con sistent with Maryland law. The issue is one of statutory construction the meaning of the word insurer in INS § 9-301(d)(2 )(i) and ou r objective is th erefore to d etermine w hether the L egislature intended that word to include self-insurance groups formed under LE § 9-402(a)(4) and INS title 25, subtitle 3. If the language of the statute is clear and unambiguous and, of itself, leads to but one result, the re is no need to look furth er. If that is not the case, however, we must search further for th e legislative inte nt by applying the most releva nt of the various established canons. In the context at issue here, the word itself is not so clear and unambiguous as, by itself, to make the legislative intent patent. That intent whether selfinsurance groups su ch as M MTA Group a re eligible to make claims against PCIGC is not apparent to us solely from the word in surer. Clea rly, the claim of an insurer is n ot a covered claim. The issue is whether the Legislature intended that self-insurance groups such as MM TA G roup be re garded as insurers f or that purp ose, and tha t intent can only -10- be found in the broader scheme fashioned by the Legislature, including th e laws de aling with self-insurance groups, with PCIGC, and with SIGF. We consider first MM TA G roup s argum ent that s elf-insu rance is not insu rance. For that proposition, as noted, MMT A Group cites CSX v. Continental Insurance, supra, 343 Md. 216, 680 A.2d 1082 and some out-of-State cases. We made no such holding or declaration in CSX. In a footno te, we simp ly described the nature of a self-insured retention, bu t said nothing as to whether such a retention constitu tes insur ance. See id. at 221-22, n.4, 680 A.2d at 1086, n.4. Indeed, at least with respect to self-insurance under the compulsory motor vehicle insurance laws, we have observed that self-insurance has been recognized by the General Assembly as the equivalent of an in suranc e policy. West American v. Popa, 352 Md. 455, 475 , 723 A.2d 1, 11 (199 8); BG&E Home v. Owens, 377 M d. 236, 246-47, 833 A.2d 8 , 14 (20 03). When dealing wi th an individu al po licyho lder who elec ts, or is req uired by deductibles or policy limits of one kind or another, to retain the risk for some part of a loss, the question of whether that retained risk constitutes insurance is, to some extent, a matter of semantics: is the policyholder self-insured or non-insured for that risk? In reality, because in that situation there is no spreading of the risk for that part of a loss that is either within a deductible or over the policy limit, the policyholder is mo re lik ely non-insured for that segmen t. As we shall explain later, that is not necessarily the case with group self-insurance. There, the retained risk is transferred from the individual (member) to the group and is spread -11- throughout the group. The member may share with th e other members joint and several liability for the overall, aggregate obligations of the group, but it is relieved of any direct obligation for payment of particular claims made against it. Tha t is much m ore akin to the nature and concept of insurance than to that of non-insurance. Both the Iowa and Sou th Carolina c ases addre ssed, in the co ntext of the ir respective laws, the issue now bef ore us whethe r a workers compensation self-insurance group was barred from pu rsuing a claim against a guaranty fund following the insolvency of its excess insurance carrier, on the ground that the group was an insurer. A lthough both cases are distinguishable in one w ay or another, we find that the decision in the South Carolina case is more consiste nt with underl ying Ma ryland law than tha t render ed by the Iowa c ourt. The Iowa court allowed the claim on three grounds: its construction of the relevant Iowa statute, certain re gulations ad opted by the Io wa Insur ance Co mmission er, and its perception of the extent of risk transference achieved by the self-insurance agreement under consideration. The court first pointed out that the term insurer was defined in the Iowa law as an insurer licensed to transact business in this state under either chapter 515 or chapter 520 . . . . (Emphasis added) (internal citation omitted) Iowa Cont. Wkrs Comp. v. Iowa Ins. Guar., supra, 437 N .W.2d at 915. The court regarded that definition as a narrow one and, in holding the self-insurance group not to be an insurer, noted that the group was not licensed (or apparently required to be licensed) under either chapter. The court s point was that [t]he legislature may be its own lexicograp her, and when it cho oses to do so we are -12- bound by its definitions. Id. The M aryland statutory de finition of in surer is diff erent. It says nothing about licensure, but includes persons engaged as indemnitor, surety, or contractor in the busines s of entering into insurance c ontracts. If th e entity does that, it is an insurer. The Iowa co urt also obse rved that the statute dealing with the guaranty corporation specifically excluded from the definition of a covered claim the self-insured portion of the claim, which the court treated as including, at lea st by implication, a claim by a self-insured entity, whose claim would not be a self-insured portion. Maryland does not hav e such a provisio n. The regulations relied upon by the Iowa court expressly stated that workers compensation self-insurance groups w ere not deemed to be insurance companies, were not subject to the provisions of the insurance laws, and were not subject to the premium tax on direct insurance. The Iowa Legislature later codified that exemption from the premium tax. No such re gulation s exist in Marylan d. To the contrary, as noted, self-insurance grou ps are subject to exten sive reg ulation b y the Insu rance C omm issioner . Although MMTA Group asserted in its brief, without contradiction, that self-insurance groups do not pay the premium tax levied under INS § 6-102, it does not appear that their exemption from that tax has ever been litiga ted o r app rove d by an opinion of the Atto rney Gener al and it is not e xpressly provided for in the statute. Section 6-101(a) subjects to the tax any person engaged as principal in the business of writing insurance contracts, surety contracts, guaranty contracts, or annuity contracts. Section 6-101(b) lists entities that might otherwise fall within the -13- ambit of § 6-101(a) but that are exempt from the tax. Self-insura nce grou ps are not in that list. We need not decide that issue in this case but note only that the exemption of workers compensation self-insurance groups from the premium tax in Maryland is much less clear than it was in Iowa. Fina lly, the Iowa court rejected the Guaranty Association s view that, because the selfinsurance agreement involved a measure of risk transference, it necessarily constituted insurance. Citing KEETON, INSURANCE L AW 6 (1971), the court concluded that not all risk transference constitutes insurance and that, in an y event, there w as not a com plete transference, as each member of the self-insurance grou p remaine d jointly and sev erally liable for both claims against it and claims against the other members. The South Carolina law, at issue in S.C. Prop. & Cas., was, in some respects, similar to that in Iowa . The statute a uthorizing workers compensation self-insurance groups provided that those groups were subject to the exclusive jurisdiction of the Workers Compensation Commission, that they were not deemed to be insurance companies, and that they were not regulated by the Department of Insurance. Nonetheless, the South Carolina Supreme Court sus tained a low er court conclusion that the group was an insurer as that term w as used in the de finition of co vered c laim. The trial court rested its decision largely on a finding that the self-insurance agreement involved a significant degree of risk transference, sufficient to meet the conceptual definition of insurance. The appellate court agreed but noted as well that the South Carolina law -14- defined insurer as including any association engaging as principal in any kind of insurance or surety business and that it defined insurance as a contract w hereby one u ndertakes to indemnify another or pay a specified amount upon determinable contingencies. The court found that, und er those definitio ns, the g roup q ualified as an in surer. As we observed, INS § 1-101(v) defines insurer as each person engaged as indemnitor, surety, or contractor in the business of entering into insurance contracts. To some extent, that begs the question, of whether the self-insurance agreement at issue constitutes an insurance contract. If so, MMTA is clearly an insurer, as its sole raison d etre and its only business is to enter into that kind of contrac t. In determining whether the Agreement constitutes an insurance contract, we must look at wh at it says and wh at it does. The nomenclature used in the Agreement what the Agreement says indicates that it is, and was perceived by the parties to be, an insurance contract. Throughout the Agreement and the a ccom panying By-Laws, words closely associated with, and in many respects peculiar to, insurance are used. The payments requ ired from the mem ber employers are referred to c onsistently as p remiums . The A greemen t covers no t just workers compensation claims but also other emp loyer s liability, and that aspect is directly referred to as insurance. In a broader sense, § 7.01 of the Agreement states expressly that [t]he purpose and objective of the G roup is to provide economical Workers Compensation and Employers Liability Insurance coverage for the M embers o f the Gro up . . . and to do all necessary and proper things incident to the provision of Workers Compensation and -15- Employers Liab ility Insurance in such m anner as to b e in the best interest of the memb ers of the Group. (Emphasis added). Article VII of the By-Laws sets forth Underwriting Guidelines to be used in determin ing the pre miums to be paid by the member employers. The Agreement and the By-Laws refer to the purchase of excess insurance not just insurance to protect the member employers, suggesting that what the MMTA Group provides is primary insurance. Some of the nomenclature used in the Agreement and By-Laws mirrors that used by the Legislature in the statute and the Insurance Commissioner in his regulations. As we have observed, both the statute and the regulations characterize the paymen ts made by the member employers as pre mium s, both refer to the required pu rchase of excess insu rance, and both speak of actuarial studies, audits, and opinions. The substance of the Agreement what it does is fully consistent with that nomenclature. Although the Iowa court was correct in noting that not all risk transference necessarily constitutes ins urance, it is w ell recogniz ed that risk transference and risk distribution are prim e chara cteristics of insu rance. See 1 C OUCH ON INSURANCE § 1.9 (3d ed. 2004) ( It is characteristic of insurance that a number of risks are accepted, some of which will involve losses, and that such losses are spread over all the risks in a way that enables the insurer to accept each risk at a slight fraction of the pos sible liability upon it ); K ENNETH S. A BRAHAM, D ISTRIBUTING R ISK: INSURANCE,L EGAL T HEORY, AND P UBLIC P OLICY at 2 (1986) ( By paying a relatively small sum the insurance premium the insured policyholder -16- receives a promise from an insurance company to pay the insured if he or she suffers a loss. The insured avoids the risk of suffer ing a large lo ss by substituting the certainty of suffering a small one. ). The Agreement clearly provides for that kind of risk transference and distribution. All claims made against a member employer are investigated, adjusted, settled, litigated, and, if necessary, paid by MM TA Grou p, not by the member. In return for the premiums paid by the member, it has transferred to the Group its liability for the payment of claims made against it. See INS § 25-304(c)(1): A self-insurance group shall pay all workers compensation benefits for which each member incurs liability during its period of membe rship. Should the Group become insolvent and unable to discharge that duty, the member may make a claim aga inst SIGF , the separate entity created by the Legislature for that very e ventua lity. The mere fac t that the mem bers retain join t and severa l liability for any remaining obligations of the Group does not suffice to preclude the Agreement from constituting an insurance contract. Section 504 of the Agreement also provides for the distribution of surplus funds, n ot ne eded for the payment of claims and adm inistrative expenses or for a prudent cushion, to the members in the form of dividends. Such an arrangem ent joint and several liability for a deficiency and the right to recover part of the surplus funds in the form of dividends is a traditional characteristic of assessment mutual insurance companies. Although, by statute, the Maryland Legislature has limited the liability of assessment mutual -17- insurance company members (see INS § 3 -111(c)(2)), th e retained co ntingent liability of mutual insurance company members for assessments to make up any defic iency in the ability of the company to pay accumulated claims (along with their concomitant right to dividends in the event the company earns more than is required to pay those claims) is a common element of those kinds of insurance companies. When we consider this entire landscape, it seems clear that these workers compensation self-insurance groups fall well within the definition of insurer in INS § 1101(v) and well within the meaning of insurer as used in IN S § 9-301 (d)(2)(i). The Circuit Court was therefore correc t in holding that the claim mad e by MMT A Group was not a covered claim within the m eani ng o f § 9-301 (d)(2 )(i) and entering judgmen t acc ordingly. JUDGMENT OF CIRCUIT COURT FOR BALTIMORE COUN TY AFF IRMED , WITH COSTS. -18-