Maryland Bar Bulletin
Publications : Bar Bulletin : December 2005

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Calm Before the Storm
By Richard A. Montgomery, III
MSBA Director of Governmental/Legislative Relations

Last year in this space I began by offering a prediction that the bitter partisan rhetoric of the 2004 United States Presidential election would not create much spillover into politics of the 2005 Maryland General Assembly session. To a large degree, I believe that turned out to be true. However, I do not believe that the tenor of political discourse in Maryland is completely immune from the influences of the "style" of political discourse at the federal level. I believe that 2006, regrettably, will serve as proof of Maryland’s vulnerability to the type of political rancor that plagues our Nation’s Capital. As we near the end of the first term of divided government in Maryland since the late 1960s, rest assured that the face-to-face collegiality that is the norm among members of the General Assembly during the session is not what you will be reading about in newspapers.

The 2006 General Assembly session should be marked by the notable absence of debate on a number of topics: medical malpractice (been-there-done-that, although I am certain a few bills will be introduced on the topic), judicial elections (a Senate task force is examining the issue) and taxation of legal services ($1 billion State surplus). However, you need not worry. There are always new issues.

Eminent Domain

At least in terms of sheer numbers, probably no issue will cause so many bills to be introduced as the issue of condemnation of private property through the use of eminent domain. Earlier this year, the U. S. Supreme Court issued its decision in the case of Kelo v. City of New London, in which the Court upheld that city’s right to acquire private property for the purposes of economic development. The Court determined that although the individual properties were taken from private individuals by the government and conveyed to a private entity, the takings were legal under Connecticut law and met the U.S. Constitution’s Fifth Amendment requirement that the property owners be justly compensated, and that the ultimate redevelopment project fit the definition of being a "public use."

Although the case has generated nationwide concern over the ability of a governmental entity to seize private property (especially non-blighted property), most of the Maryland experts in this area of the law I have approached believe that the Court’s decision in Kelo is consistent with current Maryland law. Nevertheless, the Maryland Republican Caucus has vowed to introduce a constitutional amendment to prohibit eminent domain condemnation for the purpose of economic development. Additionally, legislation passed in 2004 created the State of Maryland Task Force on Business Owner Compensation in Condemnation Proceedings. When the Kelo opinion was issued, the Task Force incorporated issues raised in that decision into their deliberations. The final report of the Task Force is scheduled for delivery to the presiding officers of the General Assembly this month (December).

Since the Kelo decision was handed down, several states have enacted either statutory or constitutional responses to the decision, either limiting or prohibiting governmental takings that ultimately confer benefits upon a private entity. Additionally, there are several bills before Congress that would prohibit or strongly discourage use of eminent domain condemnations for economic development. The most notable Congressional action to date is a House of Representatives measure that would deny federal funds to any city or state project that used eminent domain to force homeowners to sell their property to make way for a profit-making venture, such as a shopping center or hotel. That measure, an amendment to an appropriations bill, would apply to any funds administered by the departments of Transportation, Treasury, and Housing and Urban Development. Former House Majority Leader Tom DeLay (R-Tex.) had previously pledged to seek passage of a more inclusive measure that would apply to all federal funding.

At a briefing of the House Environmental Matters Committee in October, Committee Chairman Delegate Maggie McIntosh noted that she is aware of at least 40 bills related to eminent domain condemnation under development in the House of Delegates alone. Stay tuned…

Life Insurance Trusts

In February of 2005, the U.S. District Court for the Eastern District of Virginia determined in Chawla v. Transamerica Occidental Life that a trust did not have an insurable interest in the life of the insured, thereby allowing the insurance company to deny payment of the trust’s claim to the life insurance policy proceeds. If upheld on appeal or followed by other courts, this decision could adversely impact numerous irrevocable trusts that currently own life insurance policies for estate planning and investment purposes. However, many observers believe that because the case had such an unusual fact pattern that, even if the appeals court upholds the decision of the District Court to invalidate the insurance policy in Chawla, it may not affirm the lower court’s judgment in its interpretation of Maryland law with respect to the insurable interest issue.

Presently, the case is on appeal before the U. S. Court of Appeals for the Fourth Circuit, which could choose to overrule the District Court’s ruling. However, even if the Fourth Circuit affirms the decision, the District Court cited the insurable interest issue as a secondary argument in its holding, which may decrease the chances of the case establishing legal precedent. The principal reason for invalidation of the policy was that the insured made multiple, deliberate misrepresentations concerning the state of his health.

During the 2005 legislative session, House Bill 1608 (sponsored by Delegate Luiz Simmons) would have remedied the problem raised by Chawla by expressing the "intent of the General Assembly that a court interpreting Section 12-201 of the Insurance Article shall not use as precedent the holding in Chawla v. Transamerica as to whether, and under what standard, a trust, a trustee, or the beneficiaries of a trust shall have an insurable interest with regard to a trust procuring an insurance contract." Unfortunately, the bill died in the House Health and Government Operations Committee without a vote. The MSBA Estates & Trusts Section has been working since the end of the 2005 session to craft a revised version of HB 1608 for introduction in the 2006 legislative session.

Sexual Predators

At the Maryland Association of Counties (MACo) Annual Convention in August, Governor Robert L. Ehrlich, Jr., announced his intention to introduce legislation to establish an integrated registration and monitoring program to protect the public from sexual predators. The program is to be known as the Sex Offenders Compliance and Enforcement in Maryland Initiative. The initiative would involve more frequent monitoring of sex offenders, a more intensive community awareness campaign, and the unveiling of a new website that would include photographs and the most recent detailed information on sex offenders who have failed to provide current registration information.

State Employment Rights

In the aftermath of the furor created by the revelation that former Ehrlich staffer Joseph Steffen was involved in the alleged targeted firing of low-level State employees, the Presiding Officers created the Special Joint Committee on State Employee Rights and Protections in June 2005. The Special Joint Committee will focus on the rights of career civil servants in State government and whether legislation is necessary to protect certain classes of employees from removal without cause.

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Publications : Bar Bulletin: December 2005

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