American Family Life Assur. Co. v. Commissioner of Ins.

• Decision Date: 15 March 1983
• Citation: 388 Mass. 468,446 N.E.2d 1061
• Parties: AMERICAN FAMILY LIFE ASSURANCE COMPANY v. COMMISSIONER OF INSURANCE (and a companion case 1 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1061

446 N.E.2d 1061

388 Mass. 468

AMERICAN FAMILY LIFE ASSURANCE COMPANY v. COMMISSIONER OF INSURANCE (and a companion case¹ ).

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Dec. 9, 1982.

Decided March 15, 1983.

Stephen S. Ostrach, Asst. Atty. Gen. (Thomas A. Barnico, Asst. Atty. Gen., with him), for defendant.

Joel Z. Eigerman, Boston (Edward J. McCormack, III, Boston, with him), for Union Fidelity Life Ins. Co.

Sanford A. Kowal, Boston (Emanuel Howard, Boston, with him) for American Family Life Assurance Company.

Before HENNESSEY, C.J., and LIACOS, ABRAMS, NOLAN and O'CONNOR, JJ.

HENNESSEY, Chief Justice.

The defendant, the Commissioner of Insurance (Commissioner), appeals from two Superior Court judgments invalidating regulations promulgated by the Commissioner. The regulations, codified at 211 Code Mass.Regs. 47.07(1)(a)-(e) and 47.09(4)(a)-(c) (1980), effectively banned the sale of individual health insurance policies covering only one or a few diseases (specified disease insurance), unless they covered twelve listed diseases and met certain other requirements. The regulations were intended to curb abuses relating to the sale of cancer-risk insurance, which the Commissioner found was a poor health care investment, and was being marketed in an unscrupulous manner. The plaintiffs, American Family Life Assurance Company (American), and Union Fidelity Life Insurance Company (Union), had been selling cancer-risk insurance. They challenged the validity of the regulations in the Superior Court pursuant to G.L. c. 30A, § 7, and G.L. c. 231A, § 2. The cases were consolidated for trial. A Superior Court judge concluded that the Commissioner lacked statutory authority to promulgate the regulations, and that portions of the regulations were arbitrary and capricious. Judgments were entered accordingly. The case is before us on direct appellate review. We reverse.

The judge found the following facts. Under prior regulations, American and Union had been selling cancer-risk insurance policies which had been approved by the Commissioner pursuant to standard procedures for the approval of insurance policies under G.L. c. 175, § 108. In 1979, the Commissioner promulgated a regulation entitled "Rules and Regulations Governing Individual Accident and Sickness Insurance," later codified as 211 Code Mass.Regs. 47.00 (1980). ² The regulations dealt with a variety of matters, but the provisions at issue here are those governing the sale of specified disease insurance. In brief, they established five requirements: Under 47.07(1)(a), specified disease insurance has a maximum benefit limit of no less than $10,000 and covers all twelve specified conditions (one of which is cancer); under 47.07(1)(b), internal limits on dollar benefits can be no less than certain designated amounts; under 47.07(1)(c), specified disease coverage shall be guaranteed renewable to age sixty-five and may not be sold to anyone over that age; under 47.07(1)(d), it may be sold only as a supplement to basic hospital insurance; and under 47.09(4)(a)-(c), rates charged must meet specified minimum loss ratios.

The regulations apply to "all individual ... sickness insurance policies ... filed with the Division of Insurance, delivered, or issued for delivery after the effective dates of this regulation.... No policy ... covered by this regulation shall be issued or issued for delivery unless it complies with this regulation." 211 Code Mass.Regs. 47.02 (1980). The regulations were to be effective upon publication, which occurred on September 27, 1979. The Commissioner does not contend that the regulations apply to policies which were issued before that date. However, because there is no saving clause in the regulations, the Commissioner has deemed the regulations to apply to new sales of previously approved specified disease policies. Thus, under the regulations, American's and Union's previously approved cancer-risk insurance policies cannot be issued to new purchasers.

The judge concluded that regulations 47.07(1) (a)-(e) and 47.09(4)(a)-(c), exceeded the Commissioner's statutory authority. The judge discussed the statutes relied on to support the Commissioner's authority to promulgate the regulations, and concluded that the only possible basis was G.L. c. 175, § 110E. ³ Furthermore, even assuming that the Commissioner had authority to promulgate the regulations, the judge concluded that regulations 47.07(1)(a) and (d) were arbitrary and capricious, because they had no rational relation to the goals of § 110E. Finally, the judge concluded that the Commissioner could not withdraw his approval of previously approved policies for noncompliance with the new regulations without first affording the affected insurers an adjudicatory hearing.

We are presented with three questions on this appeal. First, did the Commissioner have statutory authority to promulgate regulations 47.07(1)(a)-(e) and 47.09(4)(a)-(c) under G.L. c. 175, § 110E? ⁴ Second, were regulations 47.07(1)(a) and (d) arbitrary and capricious? Third, was the Commissioner required by statute or by constitutional due process to hold an adjudicatory hearing before withdrawing approval of a previously approved policy under G.L. c. 175, § 110E?

1. We first consider the scope of the Commissioner's authority under G.L. c. 175, § 110E, inserted by St.1973, c. 1081. It provides in relevant part: "The commissioner shall make rules and regulations ... to establish minimum standards of full and fair disclosure, for the form and content of policies of accident and sickness insurance .... Such rules and regulations may apply to all, any portion or reasonable classifications of such policies or contracts, and shall be made to bring about: (a) reasonable standardization and simplification of coverages to facilitate understanding and comparisons; (b) elimination of provisions which may be misleading or unreasonably confusing, in connection either with the purchase of such insurance or with the settlement of claims; (c) elimination of deceptive practices in connection with the sale of such insurance; (d) elimination of provisions which may be contrary to the health care needs of the public; (e) elimination of coverages which are so limited in scope as to be of no substantial economic value to the holders thereof."

The plaintiffs argue that the phrase "full and fair disclosure, for the form and content of policies, "limits the Commissioner's authority to the issuance of regulations aimed at ensuring full and fair disclosure. They rely chiefly on the use of the word "for," and on the legislative history of § 110E. The Superior Court judge agreed that "[u]nder a literal reading of the statute," the Commissioner's power under § 110E was limited to establishing minimum standards of full and fair disclosure. The objectives (a) through (e) were subordinate to this dominant purpose. The judge found that the legislative history of § 110E supported this interpretation. Accordingly, he held that the challenged regulations exceeded the Commissioner's authority because they governed substantive provisions of accident policies unrelated to standards of disclosure, such as the risks to be insured against, the minimum benefits to be provided and the length of time during which said benefits must be available.

Section 110E was inserted by St.1973, c. 1081. In the 1973 legislative session the Division of Insurance recommended the passage of House Bill No. 109 which would have amended G.L. c. 175, § 108, by adding a new final paragraph providing in part that "[t]he Commissioner may also by regulation establish minimum benefits for accident or sickness policies ... so as to prevent the sale of policies that he finds are not of substantial economic value to the policyholder." Later in the same session, House Bill No. 7319 was introduced. It empowered the Commissioner to "make ... reasonable rules and regulations, ... including standards of full and fair disclosure, for the form and content of policies of accident and sickness insurance." This bill was amended by Senate Doc. No. 1903, which substituted the present language of this portion of § 110E, authorizing the Commissioner to make "regulations ... to establish minimum standards of full and fair disclosure, for the form and content of policies." The plaintiffs contend that the changes in language from these prior bills to § 110E as enacted reveal a legislative intent to limit the Commissioner's authority to the promulgation of regulations governing disclosure.

Although the plaintiffs' interpretation of this portion of the statute is not unreasonable, the Commissioner advances an alternative view. He suggests that since the words "for the form and content of policies" are separated from the words "to establish minimum standards of full and fair disclosure" by a comma, each phrase "was intended to be a parallel and independent source of regulatory authority." Thus, the Commissioner is empowered to make regulations concerning the content of insurance policies, consistent with the listed statutory goals, unrelated to disclosure.

We agree with the Commissioner's interpretation, primarily because the plaintiffs' construction is at odds with a workable reading of the entire statute. "Where the draftsmanship of a statute is faulty or lacks precision, it is our duty to give the statute a reasonable construction." School Comm. of Greenfield v. Greenfield Educ. Ass'n, 385 Mass. 70, 79-80, 431 N.E.2d 180 (1982). Massachusetts Comm'n Against Discrimination v. Liberty Mut. Ins. Co., 371 Mass. 186, 190, 356 N.E.2d 236 (1976); Massachusetts Turnpike Auth. v. Commonwealth, 347 Mass. 524, 528, 199 N.E.2d 175 (1968). We will not construe the statutory language so that it is inconsistent with other portions of § 110E when the language can fairly be interpreted to lead to a logical and consistent result. Lexington v. Bedford, 378 Mass. 562, 570, 393 N.E.2d 321 (...