Opinion
Civ. No. AW-99-1192.
October 4, 1999.
MEMORANDUM OPINION
Presently before the Court is Defendant's Motion to Dismiss Plaintiff's Amended Complaint. Plaintiff filed an opposition, and Defendant replied accordingly. A hearing was held on this motion on September 28, 1999. Local Rule 105.6 (D. Md.). Upon consideration of the briefs of the parties, the arguments of counsel at the hearing, and the entire record, for the reasons stated below, the Court will grant in part and deny in part Defendant's motion.
BACKGROUND
Plaintiff, Aris Mardirossian, desired to purchase disability insurance from the Defendant, Paul Revere Life Insurance Company ("Paul Revere"). Prior to submitting his application for insurance, Mardirossian advised his insurance agent (licensed by Paul Revere) that he had a history of diagnosis and treatment for sarcoidosis, a disease involving the formation of tumor-like nodules. The disease has gone into remission. Plaintiff instructed the agent to determine whether Paul Revere would issue a policy notwithstanding his medical history. This agent contacted Paul Revere's managing agent and gave him full information about Plaintiff, including medical records and reports. Paul Revere next requested that Plaintiff's agent arrange for a physical examination of the Plaintiff. Accordingly, on April 29, 1998, a physician or physician's assistant went to Plaintiff's home and performed the exam. During the exam, a detailed medical history was taken and blood was drawn for testing.
Further discussions occurred between Plaintiff's agent and Paul Revere's managing agent. Plaintiff's agent advised Defendant's agent that Plaintiff did not want to submit an application until he was assured by Paul Revere that the policy would issue despite his history of sarcoidosis. According to Mardirossian, Paul Revere's managing agent communicated to Plaintiff's agent that the policy would issue and that Plaintiff's medical history would not prevent the issuance of the policy. Therefore, Plaintiff submitted a full application along with a premium deposit, and terms of the disability insurance contract were arranged. Plaintiff alleges that "[t]here was nothing remaining to be done but file the application with Paul Revere and Paul Revere was to send the policy with the terms agreed upon." Amended Complaint at ¶ 6. Paul Revere's managing agent allegedly promised to send the policy to the Plaintiff. Despite these communications, Paul Revere requested a second sampling of blood from the Plaintiff. Plaintiff avers that this second sample, like the first, was negative for any return of sarcoidosis. Notwithstanding the above events, Paul Revere refused to issue the policy on the basis Plaintiff's history of sarcoidosis. Paul Revere, therefore, returned the premium deposit. Mardirossian, however, refused to accept the returned deposit and sent a premium for the first full year, demanding issuance of the policy.
On October 8, 1998, Mardirossian filed a complaint with the Maryland Department of Insurance but has received no response on the merits of this matter to date. On March 23, 1999, Plaintiff filed a two-count complaint in the Circuit Court for Montgomery County against Defendant. Defendant removed the action to this Court pursuant to 28 U.S.C. § 1441 et seq. In July 1999, Plaintiff filed an Amended Complaint with this Court. Presently before this Court is Defendant's Motion to Dismiss the Amended Complaint and Plaintiff's opposition thereto. Plaintiff's Amended Complaint alleges the following claims: breach of contract to issue an insurance policy (Count I), unfair trade practice in violation of the Maryland Insurance Article (Count II), negligent misrepresentation (Count III), and a claim for fraud/deceit (Count IV). Defendant seeks dismissal on the grounds that the facts alleged in Count I merely represent an "agreement to agree" which is unenforceable under Maryland law, and that there are no specific terms upon which to base an award of specific performance; that Count II should be dismissed because Plaintiff failed to exhaust his administrative remedies under the Maryland Insurance Article; that Counts III and IV are not supported by sufficient allegations, and should be dismissed as a matter of law; and that attorneys' fees are not allowed in this type of case.
Defendant contends that an award of attorneys' fees cannot be sustained because such a claim is not cognizable under the general American rule against the award of attorneys' fees. Plaintiff contends that an exception to that rule applies in this case. At this time, the Court will not rule on this issue as it is an issue of damages to be considered if there is a finding of liability
DISCUSSION I. Standard of Review for Motion to Dismiss
It is well established that a motion to dismiss under Rule 12 (b)(6) of the Federal Rules of Civil Procedure should be denied unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Schatz v. Rosenberg, 943 F.2d 485 (4th Cir. 1991), cert. denied, 503 U.S. 936 (1992). However, the function of a motion to dismiss for failure to state a claim is to test the legal sufficiency of the complaint, and not the facts that support it. See Neitzeke v. Williams, 490 U.S. 319, 326-27, 109 S. Ct. 1827 (1989). Thus, in determining whether to dismiss the complaint, this Court must view the well-pleaded material allegations in a light most favorable to the plaintiff, with the alleged facts accepted as true. See Chisolm v. TranSouth Financial Corp., 95 F.3d 331, 334 (4th Cir. 1996); Randall v. United States, 30 F.3d 518, 522 (4th Cir. 1994), cert. denied, 514 U.S. 1107 (1995); see also 5A Wright Miller,Federal Practice and Procedure: Civil 2d, § 1357, at 304-21 (1990).II. Count I: Breach of Contract A. Contract Formation
In Count I, Plaintiff seeks specific performance on an alleged oral agreement to issue disability insurance. Plaintiff claims that Paul Revere breached its contract with regard to his disability insurance policy because it failed to issue the policy as it had promised. Paul Revere argues that the oral assurances made by its managing agent amounted to an unenforceable agreement to agree. Plaintiff contends that the terms agreed upon together with Paul Revere's receipt of the application and deposit formed a binding contract. In the alternative, Plaintiff argues that even if a binding contract does not presently exist, the principles of waiver and promissory estoppel should be applied to this case, and specific performance should be awarded under the terms agreed upon. Maryland applies the objective standard to interpret formation of contracts issues. Although a signature is not required to form a contract, there must be some objective manifestation of the mutual assent of the parties to all material terms of the agreement. See Bat Masonry Co., Inc. v. Pike Paschen Joint Venture III, 842 F. Supp. 174, 177 (D. Md. 1993); National Insurance Company of Hartford v. Tongue, Brooks Company, 61 Md. App. 217, 223, 486 A.2d 212, 215 (1985) (holding that an oral contract of insurance may be valid). In National, the communication involved an insurance company underwriter's statement that "everything looked in order" and "that [the company] could write the risk for one year." Id. at 215 (emphasis added). The court affirmed the trial court's ruling that "if there was an oral message from the underwriter . . . saying in essence we will write the policy, then the risk had been accepted." Id. at 224. The court recognized that Maryland applies the objective standard as to the formation of contracts, meaning that the fact-finder should decide whether a party could have reasonably believed that coverage had been set. In the instant case, Plaintiff alleges that Defendant's managing agent not only informed him that the company could issue the policy, but that it would issue a policy of insurance. Plaintiff has sufficiently alleged a "meeting of the minds." Applying the objective standard to the pleadings, a fact-finder could find that Plaintiff reasonably believed that there was a binding contract to issue insurance. Therefore, Plaintiff can proceed under this legal theory.
It is well-settled that the rule in Maryland is that an `agreement to agree" is unenforceable. See Service Training Inc. v. Data General Corp., 737 F. Supp. 334, 339 aff'd, 963 F.2d 680 (4th Cir. 1992) ; Bat Masonry Co. v. Pike Paschen Joint Venture III, 842 F. Supp. 174, 177 (D. Md. 1993); Horsey v. Horsey, 329 Md. 392, 420, 620 A.2d 305, 319-20 (1993).
Defendant does cite cases which stand for the proposition that an application for insurance is merely an offer by the insured to purchase insurance, which the insurer can either accept or reject. See e.g., Hanke v. American Family Mut. Ins. Co., 951 F.2d 1259 (10th Cir. 1991) (unpublished); Rosenburg v. Lincoln Am. Life Ins. Co., 883 F.2d 1328, 1334 (7th Cir. 1989). However, the Court considers the similar factual scenario of the Rosenburg case on the issue of whether a claim upon which relief may be granted is supported by the pleadings. In that case, the plaintiff claimed that it had oral assurances that a policy would issue upon the company's receipt of the application and premium without regard to medical history. The court ruled that the matter be sent to the jury on the issue of contract formation and breach. Rosenburg, 883 F.2d at 1335.
B. Waiver and Promissory Estoppel
Defendant argues in support of its motion to dismiss that the doctrines of waiver and promissory estoppel cannot be invoked to create or compel the creation of a policy of insurance that otherwise does not exist. Alternatively, it argues that the facts pled do not give rise to the application of promissory estoppel. Promissory estoppel cannot be applied where the parties have not yet reached a meeting of the minds. The doctrine is a "substitute for consideration in enforcing a promise that the law would not otherwise enforce." Suburban Hosp., Inc. v. Sampson, 807 F. Supp. 31, 33 (D. Md. 1992). The issue of whether there was a meeting of the minds is a dispute integral to this case. It is premature to decide the issue of waiver and estoppel now, with the issue of contract formation unresolved. Therefore, the Court will defer a determination on this issue pending a decision on whether there was mutual assent for which a consideration substitute would be appropriate.
Defendant argues further that even if the doctrine of promissory estoppel applies, Plaintiff has not sufficiently pled that the alleged promise caused him any detriment. In his Complaint, the Plaintiff states that Paul Revere has or may have permanently precluded his ability to obtain insurance. Complaint at ¶ 15. Considering the pleadings in the light most favorable to the Plaintiff, the Court finds that this statement is sufficient to avoid a dismissal of this Count at this stage in the litigation.
C. Specific Performance
Plaintiff contends that there is no adequate remedy at law since Paul Revere has precluded him from securing other insurance coverage, and therefore, he requests specific performance. Defendant contends that this Count should be dismissed because a judgment of specific performance is not available where the terms of a contract to be enforced are uncertain. The plaintiff alleges that Paul Revere issued an application for insurance that contained terms of benefits, payments, and other details. In his Amended Complaint, Plaintiff alleges that he submitted $1.040.00 to Paul Revere, the equivalent of two months of premium payments. Amended Complaint at ¶ 12. These statements constitute sufficient pleading on the issue of specific performance. The parties will have further opportunity to present evidence on this issue. The Court finds that Plaintiff has stated a claim upon which relief can be granted with respect to Count I. Thus, the Court will deny Defendant's motion to dismiss as to Count I.
III. Count II: Statutory Unfair Trade Practice (Maryland Insurance Article) A. Exhaustion of Administrative Remedies
Defendant argues that Plaintiff can have no private cause of action under Title 27 of the Maryland Insurance Article and that Plaintiff has not exhausted his administrative remedies. The court in Alexander Alexander, Inc. v. B. Dixon Evander Assocs., Inc., 88 Md. App. 672, 700 n. 8, 596 A.2d 687 (1991) notes that most states that have considered the issue have concluded that the provisions of the Insurance Article defining and prohibiting unfair trade practices are "in the nature of governmental regulations and [do] not create private rights of action." The issue of the exhaustion of administrative remedies, however, is more significant for purposes of the instant case. This Court has previously considered this issue in connection with Paul Revere's motion to dismiss the original complaint. At that time, this Court declined to reach the arguments in support of that motion because Plaintiff had filed his Amended Complaint. However, the Court expressed reservations that Count II would survive the motion to dismiss since plaintiff had not fully exhausted his administrative remedies. See Mardirossian v. The Paul Revere Insurance Co., Civil No. AW-99-1192 (D. Md. August 9, 1999) (Memorandum Opinion).
A plaintiff bringing a claim under the Maryland Insurance Article must pursue and exhaust the administrative remedies provided for in the Insurance Article. See Veydt v. Lincoln Nat'l Life Ins. Co., 94 Md. App. 1, 12, 614 A.2d 1318 (1992). When an administrative remedy is directed by the statute, that remedy must ordinarily be exhausted before resorting to court action. See generally Zappone v. Liberty Life Ins. Co., 349 Md. 45, 60-66, 706 A.2d 1060 (1998) (explaining that exhaustion requirements depend upon the extent of administrative remedies afforded by statute); Holiday Point Marina Partners v. Anne Arundel County, 349 Md. 190, 198-204, 707 A.2d 829 (1998); Abington Center Assocs. v. Baltimore County, 115 Md. App. 580, 592-93, 694 A.2d 165 (1997). However, so long as an administrative remedy is not deemed to be "exclusive," but instead is either "primary" or "concurrent," the Court has recognized an exception to the exhaustion requirement when a party asserts a facial constitutional challenge to the validity of a statute. See Holiday Point, 349 Md. at 201, 707 A.2d 829; Insurance Comm'r v. Equitable Life Assur. Soc'y, 339 Md. 596, 620-24, 664 A.2d 862 (1995). On the other hand, if the statutory remedy is "exclusive," exhaustion is required, even if the declaratory action presents a facial constitutional challenge. See Holiday Point, 349 Md. at 203; Equitable Life, 339 Md. at 623.
Plaintiff argues that he is not required to exhaust his administrative remedies before bringing an action in this Court. However, there is no indication that this case qualifies for the "constitutional challenge" exception. No constitutional argument is alleged which would warrant an exception. In fact, this claim is totally dependent upon the statute and could require the expertise of the Insurance Commissioner. Zappone, 349 Md. at 67. Plaintiff cites Zappone in support of his argument that a private right of action may lie without exhaustion of the administrative remedies provided in the Insurance Article. The case, however, more accurately stands for the proposition that a Plaintiff has a private right of action without exhausting any administrative remedies if the administrative remedies provided in the statute are not deemed to be exclusive.
The Maryland Insurance Article provides a comprehensive and detailed system of administrative remedies that require the involvement of the Maryland Insurance Commissioner. See Md. Code Ann. (Insurance) §§ 27-103, 104, 105 (1997). According to the statute, the Commissioner's finding begins the process of hearings, cease and desist orders, appeals, and enforcement proceedings, including actions brought by the Commissioner to enjoin unfair trade practices in the business of insurance. Id. Based upon a plain reading of the statute, the Court finds that the administrative remedies for addressing unfair trade practices under the Maryland Insurance Article are exclusive. Thus, Plaintiff cannot assert a charge of unfair trade practice until he first exhausts his administrative remedies with regard to this claim. The Court will grant Defendant's motion as to Count II.
IV. Count III: Negligent Misrepresentation
In Count III, Plaintiff alleges that Paul Revere negligently misrepresented material facts pertaining to the issuance of the insurance policy. In Maryland, the prima facie elements of the tort of negligent misrepresentation are: (1) the defendant, owing a duty of care to the plaintiff, negligently asserts a false statement; (2) the defendant intends that his statement will be acted upon by the plaintiff; (3) the defendant has knowledge that the plaintiff will probably rely on the statement, which, if erroneous, will cause loss or injury; (4) the plaintiff, justifiably, takes action in reliance on the statement; and (5) the plaintiff suffers damage proximately caused by the defendant's negligence. Sheets v. Brethren Mut. Ins. Co., 342 Md. 634, 656-57, 679 A.2d 540 (1996).
In the instant case, the pleadings clearly allege the last four elements of the tort. The pivotal issue is whether the first element, the duty prong of the analysis, has been sufficiently alleged. Defendant contends that it did not owe Plaintiff a tort duty of care. Plaintiff alleges that the tort duty it was owed arises out of the contractual relationship between the parties. If the fact-finder later concludes that Paul Revere was in contractual privity with Plaintiff, there could be a tort duty arising out of the contractual relationship between them. See Lopata v. Miller, 122 Md. App. 76, 712 A.2d 24 (1998) (discussing circumstances in which a contractual relationship could sustain a claim for negligent misrepresentation); Brock Bridge Ltd. Partnership, Inc. v. Development Facilitators, Inc., 114 Md. App. 144, 689 A.2d 622 (1997) (same); Champion Billiards Cafe, Inc. v. Hall, 112 Md. App. 560, 685 A.2d 901 (1996) (same). Under Maryland law, pre-contractual negotiations may be sufficient to establish an intimate nexus if they invoke "personal trust and reliance." 21st Century Properties v. Carpenter Insulation Coatings Co., 694 F. Supp. 148, 154 (D. Md. 1988) (tort duty of care may be applicable in a contract case). From Plaintiff's pleadings it could be shown that sufficient contractual privity existed at the time of the alleged misrepresentation that the policy would issue, warranting the imposition of a tort duty of care beyond the contractual duty. Plaintiff alleges sufficient facts under a cognizable legal theory for negligent misrepresentation. Therefore, the Court will deny Defendant's motion as to Count III.
V. Count IV: Fraud/Deceit
Plaintiff claims that he is entitled to relief for fraudulent acts by Paul Revere. In Nails v. S R, 334 Md. 398, 639 A.2d 660 (1994), the Court of Appeals summarized the elements of the tort of fraud or deceit. In order to prevail, the plaintiff must prove: (1) that the defendant made a false representation to the plaintiff, (2) that its falsity was either known to the defendant or that the representation was made with reckless indifference as to its truth, (3) that the misrepresentation was made for the purpose of defrauding the plaintiff, (4) that the plaintiff relied on the misrepresentation and had the right to rely on it, and (5) that the plaintiff suffered compensable injury resulting from the misrepresentation. Id. at 415, 639 A.2d 660. Further, a fraud claim must be proven by clear and convincing evidence. Id. The requirement concerning knowledge of the falsity or reckless indifference as to the truth of the representation means either the defendant's actual knowledge that the representation was false or the defendant's "awareness that he does not know whether the representation is true or false." Ellerin v. Fairfax Savings, 337 Md. 216, 231, 652 A.2d 1117, 1124 (1995). Negligence or misjudgment, "however gross," does not satisfy the knowledge element. Ellerin, 337 Md. at 232, 652 A.2d at 1125, quoting Cahill v. Applegarth, 98 Md. 493, 502, 56 A. 794, 796 (1904).
The Court finds that Plaintiff has not sufficiently pled the third prong of the fraud/deceit tort which requires that Defendant made misrepresentations "for the purpose of defrauding" him. When factual allegations in support of a fraud claim do not give rise to an inference of fraudulent intent, the claim is subject to dismissal. See PPM Am., Inc. v. Marriott Corp., 820 F. Supp. 970, 974 (D. Md. 1993). Plaintiff has not asserted any facts tending to show that Paul Revere made misrepresentations for the purpose of defrauding him. Plaintiff has not alleged that Paul Revere had anything to gain by denying the application. Nor does the Court believe that Plaintiff can prove any set of facts in support of its fraud/deceit claim which would entitle him to relief. In fact, the controversy in this case as outlined in the Amended Complaint appears to resemble the trappings of a contractual dispute rather than anything sounding in fraud. Therefore, the Court will grant Defendant's motion as to Count IV.
CONCLUSION
Upon entrance of the Order in accordance with this Memorandum Opinion, Plaintiff will be left with two outstanding claims: a breach of contract claim for specific performance (Count I), and a claim for negligent misrepresentation (Count III).
A separate Order consistent with this Opinion will follow.
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