E-Alert Case Updates

Premium Finance Company May Not Deduct For “Other” Contracts

Prime Rate Premium Finance Corporation, Inc. v. Maryland Insurance Administration
No. 02800 (Md. App. 2009)
By: Lydia S. Hu, Associate
Semmes, Bowen & Semmes (www.semmes.com)

The Court of Special Appeals of Maryland affirmed the judgment of the Circuit Court for Baltimore City and held that a premium finance company must return to the insured any unearned premium in excess of the amount due under the Premium Finance Agreement.

Prime Rate Premium Finance Corporation is a premium finance company that finances an insured’s premium payable to an insurer under an insurance policy. Prime Rate revised its Premium Finance Agreement and sought approval from the Maryland Insurance Administration. Paragraph 16 of its agreement stated in pertinent part that the “insured . . . agrees that any refunds may be applied against any prior debts owed [to] Prime Rate.”

The Maryland Insurance Administration disapproved the proposed agreement. Prime Rate sought a hearing from the Maryland Insurance Administration pursuant to MD. CODE ANN. INSURANCE §2-210. The commissioner issued a final Order in statement of reasons in support of the Order and upheld the Maryland Insurance Administration’s rejection of the proposed agreement. Furthermore, the Circuit Court for Baltimore City affirmed the Maryland Insurance Administration’s findings.

Prime Rate appealed to the Court of Special Appeals. The Court of Special Appeals reviewed the relevant statutory provision of the insurance article. Section 23-405 governs the return of a premium after a cancellation. In pertinent part, this section provides:

Insurer responsible for unearned premiums.
(1) After the insurer returns to the premium finance company any gross unearned premiums that are due under the insurance contract, the premium finance company shall refund to the insured the amount of unearned premium that exceeds any amount due under the premium finance agreement.

(emphasis added). The issue in this case is whether Prime Rate could withhold the return of unpaid premiums to satisfy other debts owed to it by the insured outside of the contract for payment of its premiums. The Court determined that the use of the word “the” indicated a singular tense for the statute. In other words, “the premium finance agreement” refers to the singular insurance contract that which Prime Rate made premium payments on behalf of the insured. Thus, Prime Rate is required to return the unearned premium in excess of any amount due under the Premium Finance Agreement it has with the insured. Allowing Prime Rate and other premium finance companies to deduct an amount owed to it by way of other contracts is inconsistent with this statutory provision.

The Court of Special Appeals affirmed the Circuit Court for Baltimore City.