Aetna Life Ins. Co. v. Mitchell
| Decision Date | 31 March 1981 |
| Docket Number | No. 80-518,80-518 |
| Citation | 101 Wis.2d 90,303 N.W.2d 639 |
| Parties | AETNA LIFE INSURANCE COMPANY, Allstate Life Insurance Company, Business Men's Assurance Company of America, Connecticut General Life Insurance Company, Hartford Life Insurance Company, IDA Life Insurance Company, Montgomery Ward Life Insurance Company, Occidental Life Insurance Company of California, Philadelphia Life Insurance Company, Provident Life and Accident Insurance Company, Rockford Life Insurance Company, The Paul Revere Life Insurance Company, The Travelers Insurance Company, Washington National Insurance Company, John U. Andersen, Stuart B. Crawford, William R. Lund, Joseph Mannix, Patrick J. O'Donahue, James J. Rath, Keith Tripp, The National Association of Life Underwriters and Wisconsin Association of Life Underwriters, Plaintiffs- Respondents, v. Susan M. MITCHELL, Commissioner of Insurance and Office of Commissioner of Insurance, Defendants-Appellants. |
| Court | Wisconsin Supreme Court |
James D. Jeffries, Asst. Atty. Gen. (argued), Bronson C. La Follette, Atty. Gen., Robert D. Repasky and David J. Gilles, Asst. Attys. Gen., on brief, for defendants-appellants.
Jon P. Axelrod (argued), Eric A. Farnsworth and DeWitt, Sundby, Huggett & Schumacher, S. C., Madison, on brief, for plaintiffs-respondents.
Gerald J. Thain, Center for Public Representation, David Swankin, National Consumers League, and James L. Brown, Wisconsin Consumers League, Madison, for amicus curiae Center for Public Representation, National Consumers League, and Wisconsin Consumers League.
Daniel W. Hildebrand and Ross & Stevens, S. C., Madison, for amicus curiae American Council of Life Insurance.
Jon S. Hanson, Executive Secretary, Brookfield, for amicus curiae The National Association of Insurance Commissioners.
This is an appeal from a judgment of the circuit court for Dane county, the Hon. W. J. Jackman, Reserve Judge, presiding. The circuit court declared Wis.Adm.Code § Ins. 2.14(3)(a) and (3)(f) 1 when joined with Wis.Adm.Code § Ins. 2.14(4)(a) (effective February 1, 1980) invalid insofar as applicable to whole life policies and enjoined Susan M. Mitchell, Commissioner of Insurance, appellant, from enforcing any penalty for a violation of the said rules. This action is before this court on certification from the court of appeals --- Wis. ---, --- N.W.2d ----.
On May 10, 1979, this case was before this court for the first time involving these provisions of the code but with an earlier effective date of January 1, 1979. These rules, promulgated by Harold R. Wilde, the then Commissioner of Insurance, directed life insurance companies to provide prospective policy purchasers with information describing the types of life insurance (term, whole life, endowment) and their respective costs in a pamphlet entitled "The Wisconsin Buyer's Guide to Life Insurance" (Buyer's Guide), 2 together with a form labelled the "Preliminary Policy Summary" (Policy Summary).
The Buyer's Guide and the Policy Summary required to be delivered prior to sale emphasized the necessity of comparing the policies with the Surrender Cost Index (SCI) 3 as a means of comparative shopping to aid in determining the lowest cost policy. The Surrender Cost Index numbers for the policies being considered were required to be disclosed to the consumer with the one-page Policy Summary form.
On December 15, 1978, shortly before the January 1, 1979 effective date of Commissioner Wilde's rule, Aetna Life Insurance Company (Aetna) and others, 4 the respondents, commenced an action pursuant to sec. 227.05(1), Stats., seeking both a temporary and a permanent injunction enjoining the Commissioner from enforcing these same rules and a judgment declaring them invalid as unconstitutional, beyond the Commissioner's power to establish and not in compliance with the statutory rule-making procedures. 5 In its complaint, Aetna, et al., alleged in part that the Commissioner's rules exceeded his authority, for the life insurance cost disclosure materials ordered to be given to prospective purchasers were incomplete misleading in violation of sec. 628.34(1), Stats., in that these materials did not contain sufficient information to enable the consumer to make an informed purchase decision and that they falsely represented that the least costly policy could be determined solely by a comparison of the SCI numbers of the policies under consideration. Aetna based this claim on the fact that the Buyer's Guide and Policy Summary ordered by Commissioner Wilde repeatedly emphasized the importance of the Surrender Cost Index as follows:
The trial court (Judge Sachtjen) 6 denied the request for a temporary injunction and Aetna, et al., appealed. At the time of the first appeal, the appellate court reversed the circuit court but directed the trial court to enjoin enforcement of the rule pending a trial on the merits. In its decision, the appellate court concluded that the "unqualified" representations that policies with low SCI numbers "cost the least" contained in the Buyer's Guide and Policy Summary were misleading for the court determined that "it is not always true that policies with low Surrender Cost Index numbers cost the least." On the original appeal, this court having considered Wilde's petition to review the decision of the court of appeals, vacated the decision ruling that "the propositions of law addressed by the court of appeals in its opinion should not be authoritatively determined until after a hearing on the merits." However, this court did agree with the court of appeals and continued the temporary injunction, remanding the case to the circuit court directing that court to enjoin enforcement of the rule, pending a hearing on the merits.
During the interim period of time between the first appeal and the subsequent remand to the circuit court, Susan M. Mitchell replaced Wilde as Commissioner of Insurance and conducted a hearing to review a possible modification of the challenged rules. Following this hearing, Mitchell directed a change in the effective date of these administrative code rules from January 1, 1979 to on or after February 1, 1980 7 and further, made minor changes in the Buyer's Guide and Policy Summary. An example of a minor change is Mitchell's restating Wilde's earlier representations concerning the cost of policies with low SCI numbers by merely qualifying the representation with the insertion of the word "likely" as follows:
"A POLICY WITH A LOW COST SURRENDER INDEX IS LIKELY TO BE A BETTER BUY." (Emphasis supplied.)
On November 20, 1979, shortly after Commissioner Mitchell ordered the language change in the Buyer's Guide and the Preliminary Policy Summary, 8 Aetna filed an amended complaint and again claimed that the amended rules were invalid for they mandate the distribution of incomplete misleading material, contrary to sec. 628.34(1), Stats. Specifically, Aetna termed the language change by Commissioner Mitchell as merely a "change without substance" and reiterated that the amended rules continued to require the distribution of incomplete misleading cost disclosure information.
The basis for this allegation was that the amended Buyer's Guide and Policy Summary required to be distributed, pursuant to the administrative code rules did not provide purchasers of whole life policies with an accurate picture of the relative cost of a particular policy because they emphasized the SCI to the practical exclusion of other life insurance cost indices. Aetna, et al., claimed that two other life insurance indexes, namely, the Net Payment Cost Index (NPCI) 9 and the Equivalent Level Annual Dividend (ELAD) 10 must also be disclosed in order to provide the consumer with sufficient information to make an informed purchase decision.
The case was tried to the court and the evidence dealing with the actuarial bases of the SCI, NPCI and ELAD, as well as that relating to the nature of whole life insurance policies, is not in dispute. Aetna, in support of their claim that the Buyer's Guide and the Policy Summary are misleading unless delivery and disclosure of the NPCI is also required before sale, established that the true cost of a whole life policy is dependent upon how it is terminated, 11 by death or surrender for cash value. The SCI and the NPCI are both measures of the relative costs of whole life policies with the SCI assuming a policy termination by surrender for cash value 12 while the NPCI is premised upon the assumption of policy termination by death. 13
At trial, Aetna, with the introduction of exhibits numbered 61 and 62, established that as a consequence of the assumption of policy surrender rather than termination by death, the use of the SCI alone cannot accurately predict the comparative cost of whole life policies when terminated by death, for the assumption that the cash value of the policy will be returned to the purchaser does not occur if the policy is terminated by death. Further, these exhibits demonstrate that in the event a policy is not surrendered, the NPCI is the more accurate measure when considering all of the elements of the policy's comparative cost 14 since, contrary to the SCI, the NPCI assumes the policy will be terminated by death and the cash value will not be available to reduce the...
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