The Maryland Insurance Administration is asking a circuit court judge to reconsider his ruling that an impartial party determine whether nine premium finance companies are violating state law.

The outcome of this case could influence how the MIA conducts such hearings, according to the attorney for five of those companies.

Circuit Court Judge W. Michael Pierson ruled April 22 that the MIA’s findings against the companies regarding calculations of interest on auto insurance policies become null and void and a new hearing on the matter be held, preferably by the state’s Office of Administrative Hearings. A hearing on the matter by the MIA, Pierson ruled, was a “violation of petitioners’ rights to fundamental fairness,” as Karen Stakem Horning, the MIA’s associate deputy commissioner, was the arbiter in ruling whether the actions of her boss – Maryland Insurance Commissioner Ralph S. Tyler – were appropriate.

In January, Hornig affirmed Tyler’s opinion the companies were violating state law and must change their policies to comply. The companies are among the largest premium finance agencies doing business with the Maryland Automobile Insurance Fund, the auto insurer of last resort for state residents.

Tyler alleged that all were collecting more interest than they should, and that two of the companies were guilty of charging and collecting interest even when there was no policy issued.

‘Command influence’

Pierson said the doctrine of “command influence” was present in the MIA’s actions, the question of whether a subordinate asked to validate the decision of a superior can rule with complete impartiality and make a neutral decision.

“[Hornig] was asked to rule upon the validity of what her superior [Tyler] did,” Pierson said in making his decision, according to a transcript. “Even further than that, in this case the commissioner was called as a witness …to testify in the hearing and to express his conclusions right before her….So I don’t know how you could get any more command influence than that, if in fact that principle, that proposition, is valid.”

Pierson ruled that the actions of the MIA be reversed and that the case return to the point following a cease and desist order against the companies. His ruling means a new hearing should be held, he said, preferably by the Office of Administrative Hearing.

“There’s really nobody in the MIA itself who would be free of the command influence taint that I believe exists,” the judge said.

Karen Barrow, a spokeswoman for the MIA, said the agency has filed a motion for reconsideration and “awaits a ruling on that motion in order to determine its next steps.”

If Pierson does not change his ruling, the MIA can refer the matter to the Office of Administrative Hearings or challenge the ruling in the state’s Court of Special Appeals.

Case ‘could’ have larger effect

Steve Wise, an attorney for five of the nine companies in the case, said what Pierson’s ruling means is “that the case goes on for a longer time before we get to the merits” of alleged state law violations.

‘It extends the ultimate decision,” Wise told IFAwebnews.com. “We firmly believe this is a case that should’ve been sent to administrative hearing.”

Wise said while the case against his clients did not arise from a consumer complaint, as most do, the Circuit Court judge’s decision “could” have a long-term impact on how Maryland regulators conduct similar disciplinary hearings.

“I’m sure the MIA is looking at it from that angle,” Wise said. “We’ll respond to their motion for reconsideration and wait and see what the MIA’s decision is.”

Timeline of Events

Oct. 6, 2008: Md. Insurance Commissioner Ralph S. Tyler orders nine companies to stop using “unlawful methods” to calculate interest on auto policies; hearing on matter scheduled soon thereafter.
Nov. 5, 2008: In a letter, Tyler denies finance company lawyer’s request that matter go to Maryland Office of Administrative Hearings; sends case to his associate deputy commissioner.
Dec. 9, 2008: Premium finance company again alleges unfair hearing setting before MIA Associate Deputy Commissioner Karen Stakem Hornig.
Jan. 23, 2009: Hornig affirms Tyler’s decision against the companies, prohibiting them from imposing a finance charge exceeding statutory limits and requires any affected premium finance agreements filed with the MIA to be refiled to comply with law.
Jan. 26, 2009: Premium finance companies appeal decision in Maryland Circuit Court.
April 22, 2009: Circuit Court judge rules against MIA, citing “violation of petitioners’ rights to fundamental fairness” with Hornig affirming Tyler’s decision; Hornig’s ruling reversed and case reverts to pre-hearing phase.
May 5, 2009: MIA files for reconsideration of decision.
Source: MIA, Maryland. Circuit Court records

This story originally appeared in the June 2009 print edition of Insurance & Financial Advisor.