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American Liberty Financial Services3/2/2001
We deal here with the construction of those parts of former Maryland Code, Art. 48A, § 486G, currently codified as Insurance Article, §§ 23-402 and 23-403, which require a premium finance company to give to its customer at least 10 days written notice of its intention to cancel the insurance policy it has financed. The question is whether the statute precludes the company from setting as the effective date of the cancellation a date prior to the end of the notice period. The Circuit Court for Wicomico County answered that question in the affirmative. We agree and shall therefore affirm.
BACKGROUND
Premium finance companies play an important role in the implementation of Maryland's compulsory motor vehicle insurance law. In order to provide a fund for the payment of legitimate claims made by persons injured through the operation of motor vehicles, Maryland Code, § 17-104 of the Transportation Article, requires the owner of every motor vehicle to maintain in effect certain financial security. With an exception not relevant here, that security must be in the form of a motor vehicle liability insurance policy containing at least the minimum coverages specified in § 17-103 of that Article. If that required security lapses or is terminated, the registration of the vehicle is automatically suspended as of the date of lapse or termination (§ 17- 106), and, upon notice by the Motor Vehicle Administration, the owner must, within 48 hours, surrender all evidence of the registration. If the owner fails to do so, the Administration may suspend his or her driver's license. Lapse or termination may also result in a civil penalty of $150 for the first 30 days of non-coverage and $7 per day thereafter, up to a maximum of $2,500. See § 17-106. Any person who drives a vehicle, knowing or having reason to know that the registration of the vehicle has been suspended pursuant to § 17-106, is guilty of a misdemeanor and, for a first offense, is subject to imprisonment for one year and a fine of $1,000. See §§ 17-107(a) and 27-101(h).
To the extent that insurance companies have insisted on receiving in advance the full amount of the premiums due on the policy, a problem is created for both fleet and individual owners who cannot afford such an outlay. It is a special problem for persons insured by the Maryland Automobile Insurance Fund (MAIF), which is precluded by law from accepting installment payments or otherwise financing premiums. See Insurance Article, § 20-507(f). To meet that need, premium finance companies were formed. Their business is to lend money to persons for the purpose of purchasing liability insurance; they pay the premium to the insurance company and are then reimbursed through a down payment and monthly installments made by the insured. They make their profit from the higher-than-average interest charged on the loan, but their real protection in the event of a default lies in their ability to cancel the policy if the insured fails to make the installment payments when due and to receive back from the insurance company, as an assignee or on behalf of the insured, the unearned premiums as of the date of cancellation. To that extent, the loan is fully secured.
Until 1964, premium finance companies were largely unregulated in Maryland, and, as we pointed out in Gov't Employees Ins. v. Taylor, 270 Md. 11, 17, 310 A.2d 49, 52 (1973), the result was not only the exaction of usurious interest and excessive service charges but the danger that flowed from the premium finance company's right, under its contract, to cancel the insurance policy without notice to the insured when a repayment installment was not made. The effect of that, we observed, was to leave the insured unaware t
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