In 2007, a law came into force in Maryland that for the first time allowed insured persons to sue their insurers because they did not act in good faith to settle their first party claims under a property insurance policy. The reasons, contained in Maryland Code § 3-1701, apply to measures to determine whether there is coverage under relevant insurance, and also to measures to determine the extent to which the insured is entitled to compensation from the insurer for a covered loss.
According to the Charter, "good faith" means "an informed judgment based on honesty and diligence supported by evidence which the insurer knew or should have known at the time when the insurer made a decision on a claim." Insured persons who prove that their insurer has not acted in good faith may recover from the insurer: (1
Maryland's charter of "bad faith" does not limit a party's right to sue for damages or other action otherwise available under any other provision of law. However, an insured person must follow an administrative procedure before making an action under the Charter. The administrative procedure, contained in the Maryland Code § 27-1001, requires an insured person to file a complaint with the Maryland Insurance Administration ("MIA"). The insured's complaint to MIA must include all documents that the insured has submitted to the insurer as proof of the loss, state the applicable coverage and the amount of damages and state the amount of actual damages.
When an insured person submits a complaint. with MIA, the insurer has 30 days to submit a written response to the complaint. Within 90 days of receiving an insurance complaint, the MIA must make a decision that determines:
- Whether the insurer is obliged under the applicable insurance obligation to cover the underlying first party claim;
- The amount that the insured was entitled to receive from the insurer under applicable insurance on the underlying covered first party claim,
- Whether the insurer has breached its obligation under applicable insurance to cover and pay the underlying covered administration, fixed first claim,  Whether an insurer that has breached its obligation has not acted in good faith; and
- the amount of damages, costs, legal costs and interest, where applicable and under the authorization (paragraph 2) of this subsection. 1
An insured person who feels dissatisfied with MIA's decision can appeal to a Circuit Court, where they can now properly claim a lack of good faith under Maryland Code § 3-1701.
1 Md. Code Ann., Ins. § 27-1001