Spinnaker Insurance Company v. Renderos et al

Filing 10

MEMORANDUM OPINION. Signed by Judge Deborah K. Chasanow on 1/17/2023. (sat, Chambers)

Case 8:22-cv-01636-DKC Document 10 Filed 01/17/23 Page 1 of 9

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
SPINNAKER INSURANCE COMPANY
v.

:
:
:

Civil Action No. DKC 22-1636

:

CRISTINA RENDEROS, et al.

:

MEMORANDUM OPINION
In

this

insurance

coverage

declaratory

judgment

action,

Plaintiff Spinnaker Insurance Company (“Spinnaker”) sued Cristina
Renderos and Jose Renderos, seeking a declaration that it owes
neither a defense nor indemnity to Ms. Renderos under a Homeowners
Insurance Policy issued to her for a claim brought by Mr. Renderos,
her brother, arising from injuries he suffered attempting to put
It asserts that Mr. Renderos was a

out a fire in her home. 1

relative of Ms. Renderos and a resident of her household at the
time of the incident, making him an “insured” under the Policy and
thus excluded from coverage.
Ms. Renderos, one of the Defendants, has moved to dismiss and
compel

submission

of

Administration (“MIA”).

the

claim

to

(ECF No. 6).

the

Maryland

Insurance

She asserts that the

The complaint alleges that Ms. Renderos has tendered the
claim made by Mr. Renderos to Plaintiff for investigation, defense,
and indemnification.
It does not allege that a suit has been
filed.
1

Case 8:22-cv-01636-DKC Document 10 Filed 01/17/23 Page 2 of 9

Maryland Insurance Code, § 27-1001 and Courts Article § 3-1701
require that “any party to a casualty insurance policy must first
satisfy administrative remedies before asserting any claim to
‘determine the coverage that exists under the insurer’s insurance
policy.’”

(ECF No. 6-1 at 3).

She recites that she has filed a

complaint with the MIA that remains pending.

Spinnaker, on the

other hand, argues that the Maryland law cited by Ms. Renderos is
simply inapplicable to this action.
did not file a reply.

(ECF No. 9).

Ms. Renderos

The court now rules pursuant to Local Rule

105.6, no hearing being deemed necessary.

For the following

reasons, the motion will be granted in part.
Section 3-1701 of the Court’s Article provides that “a party
may not file an action under this subtitle before the date of a
final decision under § 27-1001 of the Insurance Article” (with
three exceptions not applicable here).
Proc. § 3-1701.

Md. Code Ann., Cts. & Jud.

The “subtitle” is Subtitle 17, Liability of

Insurer, which consists only of § 3-1701.

The section also

provides:
(b) This subtitle applies only to first-party
claims under property and casualty insurance
policies or individual disability insurance
policies issued, sold, or delivered in the
State.
and
(d) This
action:

section

applies

2

only

in

a

civil

Case 8:22-cv-01636-DKC Document 10 Filed 01/17/23 Page 3 of 9

(1)(i) To determine the coverage that exists
under the insurer’s insurance policy; or
(ii) To determine the extent to which the
insured is entitled to receive payment from
the insurer for a covered loss;
(2) That alleges that the insurer failed to
act in good faith; and
(3) That seeks, in addition to the actual
damages under the policy, to recover expenses
and litigation costs, and interest on those
expenses or costs, under subsection (e) of
this section.
Id.
Spinnaker argues that, because the “underlying” claim is a
third-party claim by the brother against the homeowner, it cannot
be a bad faith first-party claim by the homeowner against the
insurer subject to the administrative remedy requirement.
A declaratory judgment action is, in essence, a mechanism for
seeking to resolve an underlying dispute. It is a procedural means
to grant a remedy, and the Declaratory Judgment Act, 28 U.S.C. §
2201, does not create any substantive rights or causes of action.
Aetna Life Ins. Co. of Hartford, Conn. V. Haworth, 300 U.S. 227,
239-40 (1937).

In order to bring such an action, there must be an

underlying controversy that is justiciable.

To understand whether

there is such an underlying controversy, the facts and issues must
be recharacterized as they would arise, in this instance, as a
state law breach of contract or bad faith action:

If Spinnaker

refuses and fails to defend or indemnify, and Ms. Renderos sues,
what would that action look like?
3

Would it be a first-party action

Case 8:22-cv-01636-DKC Document 10 Filed 01/17/23 Page 4 of 9

for coverage or something else?

If, for instance, Ms. Renderos

sued because Spinnaker denied coverage for her own property damage,
that could be a first-party action for bad faith subject to
administrative exhaustion.

In this case, Ms. Renderos would be

suing because Spinnaker refused to defend or indemnify her in a
third-party action brought by her brother.

But Ms. Renderos could

still sue under Maryland law for bad faith.

A decade ago, Judge

Hollander discussed the statute:
[T]he statutory cause of action for denial of
coverage without good faith applies “to firstparty claims under property and casualty
insurance policies issued, sold, or delivered
in the State [of Maryland].” C.J. § 3–1701(b)
(emphasis added).
“Casualty insurance” is
defined in Section 1–101 of the Insurance
Article. See C.J. § 3–1701(a)(2) (“‘Casualty
insurance’ has the meaning stated in § 1–101
of the Insurance Article.”).
It includes,
inter
alia,
“insurance
against
legal,
contractual, or assumed liability for death,
injury, or disability of a human being, or for
damage to property.” Ins. § 1–101(i)(1)(i).
If the limitation to “first-party claims” were
intended to exclude claims by an insured
against its insurer for coverage against
liability on a claim brought by a third party
against the insured, the inclusion of claims
for coverage under “casualty insurance” would
be meaningless.
Such liability claims are
precisely the type that “casualty insurance”
ordinarily covers. In my view, the limitation
to “first-party” claims simply means that only
an insured, rather than a claimant against the
insured, may bring a claim under C.J. § 3–1701
against an insurer that denies coverage.
Whiting-Turner Contracting Co. v. Liberty Mut. Ins. Co., 912
F.Supp.2d 321, 339 (D.Md. 2012) (alteration in original).
4

The

Case 8:22-cv-01636-DKC Document 10 Filed 01/17/23 Page 5 of 9

court went on to hold that the plaintiff, as the insured, could
bring a bad faith claim against the insurer for failing to defend
or indemnify in a third-party action.

The question of whether the

administrative exhaustion requirement applied was expressly left
open. Id. at 338 n.18.
Spinnaker has focused, myopically, on the nature of the
eventual action that might be brought by Mr. Renderos against Ms.
Renderos, as the insured, and not on the full controversy, which
involves a potential bad faith claim by the insured, Ms. Renderos,
against her insurer for failing to defend or indemnify her.

In

the absence of waiver by the parties, the administrative exhaustion
requirement appears to apply to the controversy underlying this
declaratory judgment action.
Spinnaker argues, in the alternative, that the administrative
exhaustion requirement only applies to insured parties—that is,
§ 3–1701 “does not place any requirement on the insurer to engage
in an administrative proceeding if it challenges coverage under
its policy.”

(ECF No. 9 at 2 (emphasis added)).

The case it

cites, Unitrin Auto & Home Ins. Co. v. Karp, 481 F.Supp.3d 514,
527 (D.Md. 2020), was dealing with a counterclaim by an insured
for a declaration that the insurer failed to act in good faith.
In that context, the court ruled that, because there had been no
final order from the MIA at the time it filed the counterclaim,
the

court

lacked

subject

matter
5

jurisdiction

over

that

Case 8:22-cv-01636-DKC Document 10 Filed 01/17/23 Page 6 of 9

counterclaim. 2 It did allow the insurer to seek a declaration that
it owed no coverage, although it refused to grant summary judgment
on that issue.

It does not appear that the insured defendants

raised the failure to exhaust issue in that regard.
It is not as clear as Plaintiff would wish that it does not
need to file with the MIA, but Plaintiff does not seem to argue
that it could not do so. More importantly, there can be no concrete
controversy under Maryland law until the insured exhausts the
administrative remedies or they are waived.
Ms. Renderos has filed the requisite complaint with the MIA
and the existence of the administrative claim undermines the
necessity for this declaratory judgment action at this time, or at

The court also explained the ramifications, vel non, of the
disposition of a complaint by the MIA:
2

The MIA’s disposition of PennyMac’s complaint
is not binding on this Court, and by law
becomes a legal nullity upon the filing of a
court action. See Fakhoury v. Great N. Ins.
Co., No. CIV. WDQ-12-0268, 2012 WL 1554487, at
*3 (D.Md. Apr. 30, 2012) (noting that the
MIA’s decision is a nullity once an insured
has filed a civil action under § 3-1701 of the
Courts
&
Judicial
Proceedings
Article);
Thompson v. State Farm Mut. Auto. Ins. Co.,
196 Md.App. 235, 251, 9 A.3d 112 (2010)
(finding that the MIA record is not before the
court and the MIA decision appears to be a
nullity once the insured files a civil
action).
Unitrin Auto, 481 F.Supp.3d at 525.
6

Case 8:22-cv-01636-DKC Document 10 Filed 01/17/23 Page 7 of 9

least counsels against immediate resolution.
claim

is

a

necessary

precursor

to

filing

The administrative
a

complaint

or

counterclaim for breach of contract and bad faith.
Under the Declaratory Judgment Act, a district court “may
declare the rights and other legal relations of any interested
party seeking such declaration.”
added).

28 U.S.C. § 2201(a) (emphasis

“A declaratory judgment is appropriate ‘when the judgment

will serve a useful purpose in clarifying and settling the legal
relations in issue, and . . . when it will terminate and afford
relief from the uncertainty, insecurity, and controversy giving
rise to the proceeding.”

Mut. Ben. Ins. Co. v. Lorence, 59 F.App’x

595, 597 (4th Cir. 2003) (quoting Centennial Life Ins. Co. v.
Poston, 88 F.3d 255, 256 (4th Cir. 1996)).

There are some useful

benchmarks for determining when it is appropriate to decline or
defer the exercise of that discretion.

For example, “when a

related state proceeding is pending, a court should consider
whether the controversy ‘can better be settled in the proceeding
pending in the state court.’”

Id. (quoting Brillhart v. Excess

Ins. Co. of Am., 316 U.S. 491, 495 (1942)).

Indeed, “where another

suit involving the same parties and presenting opportunity for
ventilation of the same state law issues is pending in state court,
a district court might be indulging in ‘[g]ratuitous interference’
. . . if it permitted the federal declaratory action to proceed.”

7

Case 8:22-cv-01636-DKC Document 10 Filed 01/17/23 Page 8 of 9

Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (quoting
Brillhart, 316 U.S. at 495).
The United States Court of Appeals for the Fourth Circuit has
set out four factors to consider in such a case:
(1) whether the state has a strong interest in
having the issues decided in its courts; (2)
whether the state courts could resolve the
issues more efficiently than the federal
courts;
(3)
whether
the
presence
of
“overlapping issues of fact or law” might
create unnecessary “entanglement” between the
state and federal courts; and (4) whether the
federal action is mere “procedural fencing,”
in the sense that the action is merely the
product of forum-shopping.
United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493–94 (4th Cir.
1998) (quoting Nautilus Ins. Co. v. Winchester Homes, Inc., 15
F.3d 371, 376 (4th Cir. 1994)).
Here, the factors weigh in favor of declining to proceed with
this federal declaratory judgment action while the same issues
involved in the action are before a state administrative body.
The state legislature has created an administrative mechanism for
deciding cases such as this one where parties disagree as to “the
coverage that exists under the insurer’s insurance policy.”
Code Ann., Cts. & Jud. Proc. § 3-1701(d).

Md.

Indeed, state law

requires parties to go through the administrative process before
seeking relief in court under that statute.

The existence of an

administrative body whose province is to handle cases like this
suggests not only that the state has a strong interest in deciding
8

Case 8:22-cv-01636-DKC Document 10 Filed 01/17/23 Page 9 of 9

this type of case through that mechanism, but also that it has the
infrastructure to decide this type of case more efficiently.

And

the factual and legal inquiries this court would undertake to
determine whether Ms. Renderos’s policy requires Spinnaker to
defend or indemnify her under these circumstances are likely the
very

same

inquiries

the

Maryland

simultaneously undertaking.

Insurance

Administration

is

This suggests that proceeding with

this declaratory judgment action could result in “unnecessary
entanglement” between the state and federal bodies, such that it
could be a “gratuitous interference” for this court to do so.
While it cannot be said that Spinnaker is using this federal case
as

a

device

for

procedural

fencing,

the

Maryland

Insurance

Administration is much better suited to address the issues for the
reasons discussed.

Once that proceeding is concluded, the parties

and this court can decide how to proceed.
Accordingly,

this

court

will

stay

completion of proceedings before the MIA.

this

action

pending

The parties will be

directed to file a status report promptly and periodically in the
future.

A separate order will follow.

/s/
DEBORAH K. CHASANOW
United States District Judge

9