Under Maryland law, an insurance policy is governed by general contract principles and interpretation. In Maryland insurance disputes, courts are supposed to interpret the contract based on the parties’ intentions when the contract was drafted, and the contract must be considered a whole. In addition, the insurer has the burden to prove an exclusion from coverage.
Insurers are bound by the actions and representations of their agents. If an agent is an actual agent of an insurer, the agent is subject to the insurer’s right of control, the agent has a duty to act for the insurer’s benefit, and the agent holds the power to alter the legal relations of the insurer. In some cases, insurers can also be bound under the apparent-agency theory. In this situation, the insured must show that the insurer led him to believe that the apparent agent was an actual agent of the insurer, the belief was reasonable, and the insured relied upon the apparent agency.
In a recent case, one court considered whether a couple could succeed on a theory of apparent agency after they continued to make payments on their expired policy to who they believed was an agent of the insured. In that case, the insured couple purchased an insurance policy for a period of one year. The couple met with an insurance agent to purchase the policy and paid the policy premium to the agent. Such a payment was permitted as it fell under an “agency bill policy.” The couple continued to make payments on the policy to the agent rather than to the insurer directly. After the first year of the policy, the policy was eligible for renewal as a “direct bill policy,” which meant that the couple was supposed to make payments directly to the insurer to renew and continue coverage under the policy. The couple claimed it did not receive notice reflecting the cancellation and notice of the new policy. The couple continued to make payments directly to the insurance agent after the expiration of the initial one-year period, and the insurer never received the payments to renew and continue the policy.