American Community Mut. Ins. Co. v. Commissioner of Ins.

• Citation: 491 N.W.2d 597,195 Mich.App. 351
• Decision Date: 03 August 1992
• Docket Number: No. 130911,130911
• Parties: AMERICAN COMMUNITY MUTUAL INSURANCE COMPANY, Petitioner-Appellee/Cross-Appellant, v. COMMISSIONER OF INSURANCE, Respondent-Appellant/Cross-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 597

491 N.W.2d 597

195 Mich.App. 351

AMERICAN COMMUNITY MUTUAL INSURANCE COMPANY, Petitioner-Appellee/Cross-Appellant, v. COMMISSIONER OF INSURANCE, Respondent-Appellant/Cross-Appellee.

No. 130911.

Court of Appeals of Michigan.

Submitted July 14, 1992, at Lansing.

Decided Aug. 3, 1992, at 10:15 a.m.

Released for Publication Nov. 19, 1992.

Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., and Harry G. Iwasko, Jr., and William A. Chenoweth, Asst. Attys. Gen., for Com'r of Ins Miller, Canfield, Paddock & Stone by Kevin J. Moody, Lansing, for American Community Mut. Ins. Co.

Before SAWYER, P.J., and CONNOR and BEST, ^* JJ.

CONNOR, Judge.

Respondent, the Commissioner of Insurance, appeals as of right from an Ingham Circuit Court order of July 2, 1990, remanding this matter for an evidentiary hearing and vacating the commissioner's order of December 11, 1989, disapproving petitioner's proposed insurance application form. Petitioner filed a cross appeal. We reverse the order of the circuit court and reinstate the decision of the Commissioner of Insurance.

I

All issues presented by the parties on appeal concern whether, on the facts of this case, petitioner's proposed insurance form violated the provisions of the Insurance Code, M.C.L. § 500.100 et seq.; M.S.A. § 24.1100 et seq., prohibiting unfair trade practices. The Uniform Trade Practices Act, M.C.L. § 500.2001 et seq.; M.S.A. § 24.12001 et seq., a part of the Insurance Code, has as its purpose the regulation of the insurance industry, M.C.L. § 500.2002; M.S.A. § 24.12002. In general, unfair trade practices, as defined in the Uniform Trade Practices Act, are prohibited. M.C.L. § 500.2003(1); M.S.A. § 24.12003(1).

Petitioner's proposed insurance form was rejected by the Insurance Bureau's staff because it represented an unfair trade practice in violation of M.C.L. § 500.2027; M.S.A. § 24.12027. That statute provides in pertinent part as follows:

Unfair methods of competition and unfair or deceptive acts or practices in the business of insurance include:

* * * * * *

(b) Refusing to insure or refusing to continue to insure an individual or risk solely because the insured or applicant was previously denied insurance coverage by an insurer.

Petitioner's proposed application for short-term major medical health insurance, form 600 A (9/89), provided in part as follows:

QUESTIONS APPLY TO EACH PERSON PROPOSED FOR INSURANCE.

* * * * * *

If Any of the Following Questions Are Answered YES, Such Person is Ineligible for This Policy.

* * * * * *

[3.] F. Have you ever been declined for life or health insurance? If yes, who: ___________

* * * * * *

I have read this application and represent that the information shown on it is true and complete, to the best of my knowledge and belief. I understand and agree:

* * * * * *

3. Each person named in question 3A, B, C, D, E, or F is excluded from coverage under this policy.

In a letter ruling sent July 10, 1989, petitioner was notified that, on the basis of M.C.L. § 500.2027(b); M.S.A. § 24.12027(b), its form was disapproved. On August 9, 1989, petitioner requested a contested case hearing pursuant to M.C.L. § 500.2236(4); M.S.A. § 24.12236(4), ¹ contending the disapproval of the form was improper. By a notice of hearing dated September 5, 1989, a contested case hearing was set for October 30, 1989, before a hearing referee.

On October 2, 1989, the Insurance Bureau's staff filed a motion for a summary decision pursuant to an administrative rule adopted with regard to hearing procedures, 1983 AACS, R 500.2111. Consequently, instead of conducting a contested case hearing on October 30, 1989, the hearing referee scheduled that date for arguments on the motion. Following arguments, the motion was denied. The hearing referee determined that this case should continue to proceed to a contested case hearing as petitioner requested.

The bureau's staff appealed that decision directly to the Commissioner of Insurance, pursuant to 1983 AACS, R 500.2127(4), requesting the commissioner to both reverse the hearing referee's decision and stay the contested case proceedings. In his decision of December 11, 1989, the commissioner declined to grant additional oral argument on the basis that it was not required and that the parties had had ample opportunity to argue before the hearing referee. The commissioner reversed the hearing referee's decision and found that a summary decision should have been granted because petitioner's proposed form was properly disapproved by the Insurance Bureau's staff.

An appeal was filed in the Ingham Circuit Court, and the court vacated the commissioner's order of December 11, 1989, and remanded the case for a complete evidentiary hearing regarding petitioner's proposed form pursuant to the rules for contested case hearings.

II

On appeal to this Court, the commissioner's decision can be reversed only if that decision

(a) violated the constitution or a statute; (b) exceeded the commissioner's authority or jurisdiction; (c) was made upon unlawful procedure resulting in material prejudice to a party; (d) was not supported by competent, material or substantial evidence; (e) was arbitrary, capricious, or an abuse of discretion; or (f) was affected by any other substantial or material error of law. MCL 24.306; MSA 3.560(206). [Auto Club Ins. Ass'n v. Comm'r of Ins., 144 Mich.App. 525, 531, 376 N.W.2d 150 (1985).]

This same standard of review applied to the circuit court's review of the commissioner's decision. Id.

III

The commissioner first argues on appeal that his decision should not have been reversed by the circuit court either on procedural grounds or on the merits. In its cross appeal, petitioner contends that it should have had its form approved by the circuit court as a matter of law.

The Legislature has granted the Commissioner of Insurance the power to approve insurance forms before they are used. M.C.L. § 500.2236; M.S.A. § 24.12236, in relevant part, confers this power onto the commissioner:

(1) No basic insurance policy form or annuity contract form shall be issued or delivered to any person in this state, and no application form where a written application is required and is to be made a part of such policy or contract ... shall be issued or delivered to any person in this state, until a copy of the form thereof is filed with the department of insurance and approved by the commissioner as conforming with the requirements of this code and not inconsistent with the law. Failure of the commissioner to act within 30 days after submittal shall constitute approval....

* * * * * *

(3) Upon written notice to the insurer, the commissioner may disapprove, withdraw approval or prohibit the issuance, advertising or delivery of any form to any person in this state if it violates any provisions of this code, or contains inconsistent, ambiguous or misleading clauses, or contains exceptions and conditions that unreasonably or deceptively affect the risk purported to be assumed in the general coverage of the policy. The notice shall specify the objectionable provisions or conditions and state the reasons for the commissioner's decision. If the form is legally in use by the insurer in this state, the notice shall give the effective date of the commissioner's disapproval, which shall not be less than 30 days subsequent to the mailing or delivery of such notice to the insurer. If the form is not legally in use, then disapproval shall be effective forthwith. [Emphasis added.]

This statute provides the standards to be used by the commissioner in disapproving insurance forms. Underhill v. Safeco Ins. Co., 407 Mich. 175, 193-194, 284 N.W.2d 463 (1979). Form approval is required to protect the public from clauses that mislead, deceive, or unreasonably deny coverage. Progressive Mutual Ins. Co. v. Taylor, 35 Mich.App. 633, 642, 193 N.W.2d 54 (1971). Using the rules of statutory construction, we also interpret insurance laws liberally for the benefit of policyholders, creditors, and the general public. Allen v. Michigan Property & Casualty Guaranty Ass'n, 129 Mich.App. 271, 274, 341 N.W.2d 500 (1983). Consequently, M.C.L. § 500.2236; M.S.A. § 24.12236 should be interpreted in light of the purpose of protecting the general public from misleading or inaccurate insurance forms before they are put into use.

After reviewing the arguments of both sides as well as the previous tribunals' decisions, we are of the opinion that the commissioner reached a correct result on the merits. We also find, as discussed in section IV, infra, this case was properly resolved under summary decision rules.

The commissioner found that petitioner's form violated M.C.L. § 500.2027(b); M.S.A. § 24.12027(b) because of the provision that excluded an applicant from coverage under petitioner's policy for short-term health insurance if the applicant answered question 3F affirmatively, admitting the applicant had been previously denied insurance coverage. We believe this clearly was an unfair trade practice in violation of M.C.L. § 500.2027(b); M.S.A. § 24.12027(b), which prohibits an insurer from refusing to insure an individual solely because the individual previously has been denied insurance coverage.

Petitioner contended that its form did not violate M.C.L. § 500.2027(b); M.S.A. § 24.12027(b) because petitioner really did not do in practice what its form stated would occur, i.e., flatly deny insurance coverage to anyone who had previously been denied insurance without regard to the validity of that denial. In reality, petitioner would merely require an applicant who answered question 3F affirmatively to complete a more detailed form and go through an underwriting process to determine the risk that individual posed for purposes of health insurance coverage. An applicant who could not qualify for petitioner's short-term health insurance policy but subsequently was determined to be an acceptable risk would be...