A property insurance policy for a Maryland limited liability company (LLC) lapsed. The company tried to blame its independent insurance agent for the lapse and sued.
The relationship between the agency and the LLC began shortly after the LLC’s formation in 2019. The agency had a practice of notifying the insured when it was time to renew the property insurance.
The LLC did not file business personal property tax returns (Maryland tax law requires businesses with more than $20,000 in assets to file these annually) for the 2021 tax year and missed the 60-day grace period for doing so. Under Maryland law, an LLC that fails to comply with certain legal requirements (such as filing tax returns) forfeits its right to do business in the state and to use its name. It cannot bring a legal action when its rights are forfeited. Contracts the LLC entered into before and after forfeiture remain valid and enforceable.
In addition, the law makes doing business with an LLC that is in forfeiture status a crime. The other party could be guilty of a misdemeanor and face a fine of up to $500.
In October 2022, the state tax department declared the LLC to be “forfeited” and “not in good standing” due to the failure to timely file the tax returns. At some unspecified date after that, the property insurance lapsed without the agency notifying the LLC of the lapse. The following September, while its status was still “forfeited,” the LLC sued the agency for failing to give them notice.
The agency asked the court to either dismiss the suit or to grant it summary judgment, which is a ruling in its favor based on the law when the facts are not disputed. They argued that:
- A forfeited LLC could not file a lawsuit under state law.
- If the law did permit the LLC to file the suit, the suit must fail because a forfeited LLC could not enter into a contract such as an insurance policy.
The LLC filed the delinquent tax returns and exited forfeited status. It then responded to the agency’s motion by arguing that its “temporary” forfeiture status did not prevent it from filing a lawsuit. The agency argued that the reinstatement was not retroactive and did not give the LLC a “do-over.”
In February 2024, the trial court ruled in favor of the agency and dismissed the lawsuit “with prejudice,” meaning that the order was final and the LLC was prohibited from refiling the case with additional evidence or arguments. A court will dismiss with prejudice if it finds that the case was without merit. The LLC appealed, arguing that the dismissal should have been “without prejudice,” allowing a refiling of the case..
In October 2025, the state appellate court upheld the verdict in the agency’s favor. The judges wrote, “(The LLC) has not identified, and we could not locate, any Maryland cases holding that an insurance broker (or any third party) can owe either a negligence-based or contracts-based duty to a forfeited LLC with which the broker has previously conducted business.” They quoted a prior decision that they had no obligation to “rummage in a dark cellar for coal that isn’t there” where a party fails to cite relevant law.
The appellate court’s opinion does not state why the agency started the practice of notifying its insured of pending insurance renewals. However, as this case illustrates, doing so increases an agency’s risk of an errors and omissions liability lawsuit. An insurance policy is a contract between the carrier and the insured. The carrier owes the insured a renewal offer and the insured owes payment of the renewal premium. Agents have no obligation to get in the middle of that relationship. When they do, they become vulnerable to suits such as this one. It is safer for an agency to simply ask the insured for updated information at renewal time and to deliver a premium quote. Doing more than that may land the agency in a courtroom.
