Maryland law recognizes bad faith claims against insurers, but the legal framework differs significantly depending on whether your claim is a first-party claim (against your own insurer) or a third-party claim (against another insurer). Maryland’s statutes, Md. Code § 3-1701 and § 27-1001, establish the framework for insurance bad faith, but they impose important limitations, particularly on first-party claims. Attorney Michael A. Siddons represents Maryland policyholders whose insurers have improperly denied, delayed, or undervalued claims.

Has your insurance claim been wrongfully denied? Call (610) 255-7500 today for a free consultation. Contact us online

Maryland’s Bad Faith Insurance Framework

Maryland’s bad faith insurance law is codified in multiple statutes and developed through case law. Md. Code § 3-1701 and § 27-1001 establish requirements for insurer conduct and remedies for violations. Maryland distinguishes sharply between first-party and third-party claims, creating fundamentally different rights and remedies depending on the type of claim you pursue.

First-party claims involve claims made by a policyholder against their own insurer for benefits under the policy they purchased. Third-party claims arise when a policyholder pursues a claim against an insurer that covers the responsible party in an accident or loss.

First-Party Claims: Limited Remedies and Damages Caps

Maryland imposes strict limitations on remedies available in first-party bad faith claims:

Damages Capped at Policy Limits

In a first-party bad faith claim, your damages are strictly limited to the amount of benefits owed under the policy. You cannot recover damages beyond the policy limits, regardless of how egregious the insurer’s conduct.

Attorney’s Fees Limited to One-Third of Damages

Maryland law caps attorney’s fees in first-party bad faith cases at one-third of the damages recovered. This means that even if your attorney’s work justifies a higher fee, the statutory cap applies.

No Punitive Damages in First-Party Claims

First-party claims in Maryland do not permit recovery of punitive damages. Unlike Pennsylvania, where punitive damages are available for egregious insurer misconduct, Maryland restricts first-party remedies to the policy limits plus interest and capped attorney’s fees.

Interest on Unpaid Benefits

You may recover interest on unpaid policy benefits at rates set by statute.

Third-Party Claims: Broader Remedies and Punitive Damages

Third-party bad faith claims in Maryland are treated far more favorably than first-party claims:

Excess Damages Beyond Policy Limits

In a third-party claim, if the insurer’s bad faith conduct causes you to suffer a judgment in excess of the policy limits, you can recover the excess amount.

Punitive Damages Available with Actual Malice

Third-party claims allow recovery of punitive damages when the insurer’s conduct demonstrates actual malice—when the insurer acted with knowledge of the wrongfulness of its conduct or with reckless disregard for the policyholder’s rights. There are no statutory caps on punitive damage awards.

Full Attorney’s Fees

Unlike the one-third cap in first-party claims, third-party bad faith claims allow recovery of reasonable attorney’s fees without a percentage limitation.

Statutory Framework: Md. Code § 3-1701 and § 27-1001

Md. Code § 3-1701 sets forth unfair claim settlement practices that insurers are prohibited from engaging in, including:

• Misrepresenting facts relating to coverage
• Refusing to pay valid claims without conducting reasonable investigation
• Failing to acknowledge communications within reasonable time
• Failing to explain the denial of a claim
• Unreasonably delaying settlement of claims

Md. Code § 27-1001 addresses the remedies available when an insurer violates these unfair settlement practices.

What Constitutes Bad Faith in Maryland

To establish bad faith, you must prove that the insurer breached the implied covenant of good faith and fair dealing by engaging in conduct outside the reasonable range of insurer responses to a claim. Common examples include:

• Misrepresenting policy terms: Telling a policyholder the policy does not cover a claim when it clearly does.
• Failing to investigate: Denying a claim without conducting any investigation or with minimal inquiry.
• Ignoring evidence: Disregarding medical records, repair estimates, or other evidence supporting the claim.
• Unreasonable delay: Unjustifiably prolonging claim processing for months without good reason.
• Refusing settlement: (Third-party) Refusing to settle a claim within policy limits when settlement is reasonable.
• Inadequate communication: Failing to keep the policyholder informed about claim status or decisions.

Statute of Limitations

Bad faith claims in Maryland must be brought within three years of the alleged bad faith conduct. If the insurer’s improper conduct is continuing, the statute of limitations may be continuously renewed. Consult with an attorney to ensure the deadline has not passed.

Insurer Statutory Grace Period

Maryland law provides insurers with a grace period before bad faith liability attaches. The insurer is not in violation if it reasonably disputes whether the claim is covered. However, once an insurer has had a reasonable opportunity to investigate and coverage is clear, the grace period expires and bad faith liability may attach.

Maryland: An Underserved Market

Maryland has relatively few specialized bad faith insurance attorneys compared to neighboring states. This creates opportunities for policyholders: major insurers may be less familiar with Maryland bad faith law and may be more willing to settle claims where liability is clear. Having an attorney who specializes in Maryland bad faith law can significantly improve your outcome.

Frequently Asked Questions About Maryland Bad Faith Claims

What is the difference between first-party and third-party claims?

A first-party claim is against your own insurer for benefits under your policy. A third-party claim is against the insurer covering the responsible party. Maryland law is much more favorable to third-party claimants: they can recover excess damages and punitive damages, while first-party claimants are limited to policy benefits and capped attorney’s fees.

Can I recover more than my policy limit in a first-party claim?

No. In Maryland first-party claims, recovery is strictly limited to the policy benefits, interest, and capped attorney’s fees.

Can I recover punitive damages in my first-party bad faith claim?

No. Punitive damages are available only in third-party claims where the insurer’s conduct demonstrates actual malice.

How long do I have to bring a bad faith claim in Maryland?

You have three years from the date of the alleged bad faith conduct. If improper conduct is continuing, the deadline may be extended.

What does the insurer grace period mean?

Maryland law provides insurers a grace period to reasonably investigate and dispute coverage. During this period, the insurer is not immediately liable for bad faith. However, once coverage is clear, the grace period expires.

Contact Michael A. Siddons for Your Maryland Bad Faith Claim

Maryland’s bad faith insurance law is complex, with significant distinctions between first-party and third-party claims. Understanding these nuances is critical. Michael A. Siddons has extensive experience with Maryland insurance law and represents policyholders throughout the state.

Call (610) 255-7500 or contact us online to discuss your claim today.

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