Mutual Benefit Insurance v. Lorence , 59 F. App'x 595 ( 2003 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MUTUAL BENEFIT INSURANCE 
COMPANY,
Plaintiff-Appellant,
v.
JEFFREY LORENCE; KATHY A. TIPPETT;  No. 02-1734
BELINDA QUADE; MICHAEL QUADE, by
and through his mother and next
friend Belinda Quade,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Deborah K. Chasanow, District Judge.
(CA-00-827-DKC)
Argued: February 26, 2003
Decided: March 20, 2003
Before WILKINS, Chief Judge, and WILKINSON and
MOTZ, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: William Carlos Parler, Jr., PARLER & WOBBER,
L.L.P., Towson, Maryland, for Appellant. William N. Zifchak,
SASSCER, CLAGETT & BUCHER, Upper Marlboro, Maryland, for
Appellees.
2 MUTUAL BENEFIT INS. v. LORENCE
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
The district court dismissed plaintiff Mutual Benefit Insurance
Company’s declaratory judgment action seeking a declaration of its
obligation to indemnify insureds Jeffrey Lorence and Kathy Tippett
under an allegedly void contract. Because resolution of this case may
require a determination by the Maryland Insurance Administration
regarding the propriety of Mutual Benefit’s underwriting standards,
we believe that the district court did not abuse its discretion. We
therefore affirm the judgment below.
I.
This complaint arises out of an insurance coverage dispute. On
August 17, 1998, defendants Jeffrey Lorence and Kathy Ann Tippett
obtained a homeowner’s insurance policy from Mutual Benefit for
their residence at 26730 Connemara Lane, Mechanicsville, Maryland.
On their application for this policy, Lorence and Tippett were
required to answer a question as to whether the "applicant or any ten-
ant ha[s] any animals or exotic pets." They answered "no." Mutual
Benefit’s underwriting guidelines prohibit the issuance of homeown-
er’s insurance to applicants who own pit bull dogs. At the time
Lorence and Tippett obtained the policy, however, they owned two pit
bulls which were housed at their residence.
On February 17, 2000, one of Lorence and Tippett’s dogs attacked
Belinda Quade and her two-year-old son Michael. Both Belinda and
Michael were injured and had to be treated at a hospital. After the
attack, Lorence and Tippett filed a claim with Mutual Benefit request-
ing that Mutual Benefit provide coverage for any claims arising from
the February 17 incident. This was the first notice Mutual Benefit
received that Lorence and Tippett owned two pit bulls.
MUTUAL BENEFIT INS. v. LORENCE 3
On March 23, 2000, Mutual Benefit filed a complaint under the
Declaratory Judgment Act, 28 U.S.C. § 2201, against Lorence and
Tippett in the district court of Maryland. The complaint sought a
declaratory judgment that Mutual Benefit owed no duty to defend or
indemnify Lorence and Tippett for any claims arising from the dog
bite incident. Because the policyholders had made a material misrep-
resentation on their insurance policy application, Mutual Benefit
alleged that the policy was void ab initio. On May 5, 2000, Mutual
Benefit notified Lorence and Tippett that it was cancelling their insur-
ance policy on the basis of the material misrepresentation, and that it
would refund the excess premiums paid.
On August 2, 2000, Lorence and Tippett filed a complaint with the
Maryland Insurance Administration (MIA) seeking a ruling that
Mutual Benefit’s underwriting guideline with respect to pit bulls vio-
lated Maryland Insurance Code § 27-501. Section 27-501 prohibits an
insurer from canceling or refusing to underwrite or renew an insur-
ance policy for discriminatory reasons, and specifies that an insurer’s
underwriting standards must be "reasonably related to the insurer’s
economic and business purposes." Md. Code Ann., Ins. § 27-501(2002). Lorence and Tippett also requested that the MIA require
Mutual Benefit to defend and, up to the policy limits, indemnify them
for the dog bite incident.
The MIA has recently scrutinized the underwriting guidelines of
other insurance companies with respect to refusals to insure owners
of certain breeds of dogs. But, the MIA has a policy of not initiating
investigations of complaints that are currently being litigated. The
MIA thus deferred to the district court proceedings and informed
Lorence and Tippett to recontact the MIA once the litigation is termi-
nated.
Both parties made motions for summary judgment in the district
court. On March 12, 2002, the district court denied both motions. The
court noted the pending administrative proceedings before the MIA,
declined to exercise jurisdiction, and dismissed the complaint. Mutual
Benefit Ins. Co. v. Lorence, 189 F. Supp. 2d 298 (D. Md. 2002). The
court denied Mutual Benefit’s motion for reconsideration on June 12,
2002. Mutual Benefit now appeals.
4 MUTUAL BENEFIT INS. v. LORENCE
II.
A.
Under the Declaratory Judgment Act, a district court can "declare
the rights and other legal relations of any interested party seeking
such declaration." 28 U.S.C. § 2201 (2002). A declaratory judgment
is appropriate "when the judgment will serve a useful purpose in clari-
fying and settling the legal relations in issue, and . . . when it will ter-
minate and afford relief from the uncertainty, insecurity, and
controversy giving rise to the proceeding." Centennial Life Ins. Co.
v. Poston, 88 F.3d 255, 256 (4th Cir. 1996) (quoting Aetna Cas. &
Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937)). But, 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." Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495
(1942).
A court’s authority to grant a declaratory judgment is discretionary,
Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995), although guided
by a number of factors including:
(i) the strength of the state’s interest in having the issues
raised in the federal declaratory action decided in the state
courts; (ii) whether the issues raised in the federal action can
more efficiently be resolved in the court in which the state
action is pending; [ ] (iii) whether permitting the federal
action to go forward would result in unnecessary entangle-
ment between the federal and state court systems, because
of the presence of overlapping issues of fact or law; [and
(iv)] whether the declaratory judgment action is being used
merely as a device for "procedural fencing" — that is, to
provide another forum in a race for res judicata or to achieve
a federal hearing in a case otherwise not removable.
Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 377 (4th
Cir. 1994) (internal citations and quotations omitted). Given the dis-
cretionary nature of the district court’s decision, we review the district
court’s dismissal of Mutual Benefit’s declaratory judgment action for
abuse of discretion. Wilton, 515 U.S. at 289-90.
MUTUAL BENEFIT INS. v. LORENCE 5
B.
Applying these factors to this case, we cannot find that the district
court abused its discretion in dismissing Mutual Benefit’s declaratory
judgment action. Mutual Benefit argues that Lorence and Tippett
made a material misrepresentation on their policy application, and
therefore that the insurance policy is void. Under Maryland law, in
order for a misrepresentation to be material it must "reasonably have
affected the determination of the acceptability of the risk," and have
been actually relied upon in issuing the policy. North American Speci-
ality Ins. Co. v. Savage, 977 F. Supp. 725, 728 (D.Md. 1997). But,
an insurer cannot rely on an underwriting standard to determine the
acceptability of a risk unless that standard is "reasonably related to the
insurer’s economic and business purposes." Md. Code Ann., Ins.
§ 27-501(a)(2). The district court thus found that in order to determine
whether Lorence and Tippett’s misrepresentation was material, it
must first be decided whether Mutual Benefit’s underwriting standard
refusing to insure risks that include pit bulls complies with § 27-
501(a). Mutual Benefit Ins. Co., 189 F. Supp. 2d at 303. The Insur-
ance Commissioner has the authority to determine compliance with
§ 27-501 in the first instance. Md. Code Ann., Ins. § 27-501(h).
Given the "comprehensive administrative mechanism for determi-
nation of the permissible underwriting guidelines" set up by the
Maryland legislature, three of the four factors weigh in favor of defer-
ence here. Mutual Benefit Ins. Co., 189 F. Supp. 2d at 303. The state
has a strong interest in having a determination regarding the permissi-
bility of underwriting guidelines made by a state administrative or
judicial body. The district court recognized that the MIA would be
"much better suited to the economic and policy determination to be
made regarding coverage of pit bulls . . . ." Id. Furthermore, these
issues could be more efficiently resolved before the MIA, as the MIA
already possesses significant information regarding underwriting risks
associated with pit bulls. Finally, permitting the district court to pro-
ceed might result in unnecessary entanglement between the federal
and state systems. If the district court exercised jurisdiction, it would
have to consider whether Mutual Benefit’s refusal to insure pit bull
owners complied with § 27-501. But the MIA might simultaneously
be considering the permissibility under § 27-501 of a substantially
6 MUTUAL BENEFIT INS. v. LORENCE
similar underwriting guideline issued by another insurance company.
The potential for contradictory rulings is obvious.
Although the issuance of a declaratory judgment might settle some
of the issues set forth in Mutual Benefit’s complaint, there remains a
significant possibility that the MIA would have to later determine the
lawfulness of Mutual Benefit’s underwriting guidelines under § 27-
501. Considerations of "federalism, efficiency, and comity" therefore
support the district court’s decision. Centennial Life Ins. Co., 88 F.3d
at 257.
The district court did not abuse its discretion, and the judgment is
AFFIRMED.