bad faith claims in State Farm Mut. Auto. Ins. Co. v. White, 8
but, to date, has nei-
ther explicitly adopted nor rejected a cause of action for first party bad faith. Two decisions of Maryland’s Court of Special Appeals have declined to adopt a cause of action for first party bad faith.
8
248 Md. 324, 236 A.2d 269 (1967); White officially adopted the cause of action for third party bad faith in Maryland, but the Court of Appeals in Sweeten v. National Mut. Ins. Co. of D.C., 233 Md. 52, 194 A.2d 817 (1963) had already laid the foundation for the same. The insurer’s duty to its insured is to exer- cise good faith, i.e., an informed judgment based upon honesty and diligence, in mak- ing the decision whether or not to settle within policy limits. White at 333, 236 A.2d 269. Although Maryland is among those ju- risdictions adhering to a “bad faith” standard, rather than a “negligence” standard, the Court of Appeals has made it clear that there is little difference between the two standards, and negligence of the insurer is relevant in evaluating whether there has been an absence of good faith. Id. After a judgment in excess of the insurance policy limit is rendered, the plaintiff/judg- ment creditor ordinarily takes an assignment of the defendant/insured’s cause of action for bad faith against its own carrier. These as- signments have been held valid. Medical Mutual Liability Insurance Society v. Evans, 330 Md. 1, 622 A.2d 103 (1993). No cause of action for bad faith in favor of the plain- tiff/judgment creditor exists, and the cause of action can only be pursued by the plain- tiff/judgment creditor directly against the carrier after an assignment. Bean v. Allstate Insurance Co., 285 Md. 572, 403 A.2d 793 (1979). Of course, the insured can also main- tain the cause of action directly against his own insured. See Sweeten, supra. The measure of damages in a claim for third party bad faith failure to settle is the amount of any judgment in excess of the policy limit. See Evans, supra; State Farm v. Schlossberg, 82 Md. App. 45, 570 A.2d 328 (1990). The courts have not yet explicitly ruled on whether non-economic damages may be re- covered in a third party bad faith claim. The cause of action for bad faith failure to settle does not accrue until a judgment in excess of the policy limit has been entered, and an insured may not collect or charge the insurer with the cost of obtaining independent coun- sel to protect his interests prior to the enter- ing of the excess judgment. Allstate Ins. Co. v. Campbell, 334 Md. 381, 639 A.2d 652 (1994) reversing 96 Md. App. 277, 624 A.2d 1310 (1993).
Spring 2000
In the earliest decision, Johnson v. Fed- eral Kemper Insurance Co.,9
the Court of
Special Appeals held that a denial of cov- erage for “personal injury and property damage” under an automobile liability insurance policy, based upon an alleged lapse in the premium payment, did not give rise to a tort claim for first party bad faith.
McCauley v. Suls10
The Court of Special Appeals in also rejected such a
cause of action, but was slightly more cir- cumspect in framing its ruling so as not to preclude adoption of such a cause of action in the future. McCauley is, perhaps, an excellent example of the notion that bad facts make bad law. McCauley in- volved a claim under the uninsured motorist coverage of an automobile liabil- ity policy. During the course of litigation on the uninsured motorist claim, counsel for the carrier issued and served subpoe- nas for medical and employment records
9 10
74 Md. App. 243, 536 A.2d 1211 (1988), cert denied, 313 Md. 8, 542 A.2d 844 (1988)
123 Md. App. 179, 716 A.2d 1129 (1998); See also JMP Associates, Inc. v. St. Paul Fire & Marine Insurance Co., 109 Md. App. 343, 674 A.2d 562 (1996) rev’d other grounds 345 Md. 630, 693 A.2d 832 (1997)
without also issuing notices of records depositions. Subsequently, after the carrier’s counsel received the records, counsel for the plaintiff brought a sepa- rate action alleging invasion of privacy, fraud, civil conspiracy and abuse of pro- cess. In upholding the trial court’s granting of a motion to dismiss for fail- ure to state a cause of action in, among other claims, first party bad faith, the Court of Special Appeals predicated its decision on the absence of the “control over the litigation” factor and the inher- ent conflict of interest found to exist between the defending carrier and the insured in third party claims. However, the court was careful to leave open the possibility of a different holding under different facts when it noted: “We see no need to recognize a bad faith claim and impose a tort duty on the insurance car- rier under these facts.”11 Several cases in the Court of Appeals
are tangentially relevant in discussing the current state of bad faith law in Mary- land and may actually contain a subtle
(Continued on page 8) 11
See McCauley, supra note 10 at 188, 716 A.2d 1129.
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