Maryland total-loss appraisal: how the appraisal clause works

Maryland regulates first-party automobile total losses through three layered authorities: the Unfair Claim Settlement Practices statute at Md. Code Ann., Ins. § 27-303, the first-party bad-faith private right of action at Md. Code Ann., Ins. § 27-1001 (with the parallel court-action statute at Md. Code Cts. & Jud. Proc. § 3-1701), and the motor-vehicle valuation regulation at COMAR 31.15.12 ("Valuation of Motor Vehicles"). Md. Code Ann., Ins. § 27-303 — Unfair Claim Settlement Practices. The statute defines specific prohibited claim-handling practices, including misrepresenting pertinent facts or policy provisions; refusing to pay a claim for an arbitrary or capricious reason based on all available information; failing to settle a claim promptly whenever liability is reasonably clear under one part of a policy in order to influence settlements under other parts; failing to provide promptly on request a reasonable explanation of the basis for a denial of a claim; and failing to act in good faith, as defined in § 27-1001, in settling a first-party property and casualty claim. Section 27-304 adds practices that are unfair when committed with the frequency to indicate a general business practice, including failing to acknowledge and act with reasonable promptness on communications about claims and failing to adopt and implement reasonable standards for the prompt investigation of claims. Md. Code Ann., Ins. § 27-1001 — First-Party Insurance Bad Faith. Effective October 1, 2007, Maryland created a statutory private right of action for first-party insurance claimants when an insurer fails to act in good faith. The remedy includes: (1) actual damages (capped at policy limits); (2) expenses and litigation costs, including reasonable attorney's fees (with attorney's fees capped at one-third of actual damages per § 27-1001(e)(4)); and (3) interest on actual damages, expenses, and litigation costs at the rate allowed under Md. Code Cts. & Jud. Proc. § 11-107(a). The procedure requires an administrative complaint to the Maryland Insurance Administration first, with appeal rights to circuit court (the parallel court-action statute is Md. Code Cts. & Jud. Proc. § 3-1701). "Good faith" means "an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim" (§ 27-1001(a)). §§ 27-1001 and 3-1701 do not impose any exemplary or damages-multiplier component (no enhanced "additional damages" award on a clear-and-convincing standard). COMAR 31.15.12 — Valuation of Motor Vehicles. Maryland's motor-vehicle valuation regulation (in COMAR Subtitle 31.15, Unfair Trade Practices) establishes standards for the investigation and settlement of first-party automobile total-loss claims. Following a total-loss determination, the insurer must — within 10 business days for a first-party claim — either make a cash-settlement offer or, if the policy authorizes it, replace the vehicle. The substantive content includes: Cash Settlement (Regulation .04). The insurer's minimum cash-settlement offer, subject to applicable deductions, must be either: (A) the retail value for a substantially similar motor vehicle from a nationally recognized valuation manual, or from a computerized database that produces statistically valid fair market values for a substantially similar vehicle, plus the applicable taxes and transfer fees; or (B) a quotation for a substantially similar motor vehicle obtained from a qualified dealer at a location reasonably convenient to the claimant, plus the applicable taxes and transfer fees. Maryland's regulation does not impose the NAIC-model "two or more comparables / two or more dealer quotations" closed list that several other states use. Contents of the Settlement Offer (Regulation .05). The offer must state the amount offered and inform the claimant that, on request, the insurer will provide in writing: a copy of the settlement offer; the method used to arrive at the value (including identification of any books, manuals, or databases used); a detailed explanation of the calculation, including the value added by any options; a list of all deductions taken from the value; and a copy of the inspection guidelines the insurer relied on to determine the vehicle's condition. The insurer must respond to such a request within 7 business days. Claimant Response (Regulation .06). The claimant may accept the offer, or reject it in writing and make a counteroffer based on dealer quotations, advertisements, or any other source of valuation for a substantially similar vehicle. If the insurer rejects the counteroffer, it must — within 5 business days — send the claimant a written explanation, in clear and understandable language, of why the information the claimant relied on does not provide a more accurate valuation than the insurer's. Md. Vehicle Law § 11-152 — Salvage Definition. A vehicle is "salvage" when the cost to repair it for legal operation on a highway exceeds 75% of its fair market value before the damage, or when an insurance company has acquired it as a result of a claim settlement.

In 2007 the General Assembly enacted Senate Bill 389 (Chapter 150), codifying § 27-1001 to provide a statutory remedy with actual damages (capped at policy limits), expenses and litigation costs (including reasonable attorney's fees capped at one-third of actual damages), and interest at the rate allowed under Md. Code CJP § 11-107(a). The insured first files a complaint with the Maryland Insurance Administration, and except in small claims, by agreement, or under a commercial policy with limits over $1,000,000, may not bring the parallel court action under Md. Code CJP § 3-1701 before a final decision under § 27-1001.