BCS Life Ins. Co. v. Commissioner of Ins.

• Decision Date: 08 October 1986
• Docket Number: Docket No. 85843
• Citation: 152 Mich.App. 360,393 N.W.2d 636
• Parties: BCS LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. COMMISSIONER OF INSURANCE, Defendant-Appellant. 152 Mich.App. 360, 393 N.W.2d 636
• Court: Court of Appeal of Michigan — District of US

Page 636

393 N.W.2d 636

BCS LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. COMMISSIONER OF INSURANCE, Defendant-Appellant.

Docket No. 85843.

152 Mich.App. 360, 393 N.W.2d 636

Court of Appeals of Michigan.

Submitted Jan. 22, 1986.

Decided June 3, 1986.

Released for Publication Oct. 8, 1986.

[152 MICHAPP 362] Foster, Swift, Collins & Coey, P.C. by William K. Fahey, Lansing, for BCS Life Ins. Co.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Harry G. Iwasko, [152 MICHAPP 363] Jr., and Deborah K. Canja, Asst. Atty. Gens., for the Com'r of Ins.

Before BRONSON, P.J., and R.B. BURNS and KAUFMAN ^*, JJ.

PER CURIAM.

The Commissioner of Insurance (Commissioner) appeals from Ingham County Circuit Court Judge James T. Kallman's June 5, 1985, order which denied the Commissioner's motion to set aside a default judgment which was entered on May 22, 1985.

This case had its genesis in early 1984 when the State Bar of Michigan wrote to its members and their legal assistants, endorsing a health care program administered by Blue Cross and Blue Shield of Michigan (BCBSM) and underwritten by BCS Life Insurance Company (BCS). The letter began:

"After careful review and consideration of numerous health care alternatives, the State Bar of Michigan has decided to only endorse health care programs administered by Blue Cross and Blue Shield of Michigan (BCBSM) and underwritten by BCS Life Insurance Company of Chicago (BCS), a wholly owned subsidiary of the national Blue Cross and Blue Shield Health Maintenance Organizations (HMOs), for our member health care program. All coverages are effective May 1, 1984."

Included with the letter was a reply form and a benefits comparison chart, both of which referred to BCBSM but not BCS.

On May 29, 1984, the Commissioner issued a notice of hearing to BCS, in which she charged that the advertising package mailed to the bar members violated Sec. 2007 of the Insurance Code, M.C.L. Sec. 500.2007; M.S.A. Sec. 24.12007, and 1979 AC, R [152 MICHAPP 364] 500.664(1). The Commissioner charged that the advertising was misleading or deceptive because it failed to identify BCS as the underwriter of the program. At a September 5, 1984, hearing before Hearing Officer William A. Austin, the Insurance Bureau presented bureau employee Wayne Tanner as its only witness. Tanner testified that the advertising was misleading because it only referred to BCS in one place, while the remaining package suggested that BCBSM was the underwriter. However, Tanner acknowledged that BCS was identified as the underwriter in the advertising cover letter and that it would be usual practice for the reply envelope to be addressed to the program administrator, i.e., BCBSM. Tanner was aware that the various documents arrived at the addressees as one package.

At the close of the bureau's proofs, no evidence was presented by BCS, and BCS moved for dismissal of the petition. The motion to dismiss was formally argued before Mr. Austin on October 11, 1984. On November 27, 1984, Hearing Officer Austin issued a written proposal for decision, in which he recommended to the Commissioner that the charge against BCS be dismissed with prejudice. Mr. Austin found that there was no evidence that the advertising package was misleading, as the cover letter clearly identified BCS as the program underwriter.

The Commissioner, after determining that she wished to base her decision on a fuller evidentiary record, remanded the case for further hearing. On March 29, 1985, BCS responded by filing a single document, entitled "Petition for Interlocutory Review and Complaint for Declaratory Judgment", in Ingham County Circuit Court. Among other things, the petition/complaint alleged that the Commissioner's decision to remand the case was not supported by [152 MICHAPP 365] competent, material, and substantial evidence on the whole record, and that, because there was no question of material fact regarding the deceptiveness of BCS's advertising, BCS was entitled to a decision in its favor as a matter of law. The petition/complaint further alleged that interlocutory review was necessary because the Commissioner was improperly requiring BCS to prove its innocence and was causing unnecessary expense and delay. Finally, the petition/complaint sought a declaratory judgment that the advertising package was not deceptive or misleading as proscribed in M.C.L. Sec. 500.2007; M.S.A. Sec. 24.12007.

The Attorney General entered an appearance on April 4, 1985, and subsequently filed a brief in opposition to BCS's petition for interlocutory appeal. On April 30, 1985, a default judgment was entered against the Commissioner by the Ingham County Circuit Court Clerk for failing to answer BCS's complaint. The Commissioner then moved to strike BCS's complaint alleging that there is no legal basis for a complaint for declaratory relief from an interlocutory administrative decision, and moved to set aside the default judgment, alleging that no answer to a petition for review is required. No affidavit as required by MCR 2.603(D)(1) was filed in conjunction with the motion to set aside the default.

A hearing on the Commissioner's motion was scheduled for May 17, 1985. At the hearing, Judge Kallman allowed the Commissioner five additional days in which to file an affidavit of meritorious defense to BCS's complaint. The Commissioner did not file the affidavit, and no one appeared on her behalf at the rescheduled May 22, 1985, hearing. Accordingly, Judge Kallman denied the Commissioner's motion.

On May 24, 1985, the Commissioner again moved [152 MICHAPP 366] to set aside the default judgment. In the motion and an attached affidavit, counsel for the Commissioner explained that she had "overlooked" the May 22, 1985, hearing because she had another hearing to attend the same morning. A hearing on the renewed motion was held on June 5, 1985, at which time counsel for the Commissioner reiterated that she forgot about the May 22 hearing and asked the court to find her forgetfulness to be excusable neglect under MCR 2.612(C)(1)(a). The Commissioner also argued that although BCS had a right to petition for interlocutory review, it could not file a complaint for declaratory relief. She argued that since no answer to a petition is required, and given that the Commissioner filed a brief in response to the petition, there was no basis for defaulting the Commissioner.

Judge Kallman determined that, pursuant to previous appellate court decisions, a lawyer's busy schedule is not good cause for missing a default motion date. He also indicated that he was not inclined to protect 5,000 lawyers. In a particularly astute observation--one with which we cannot help but agree--Judge Kallman stated: "I mean, if a lawyer can't read, that is his problem." ¹ Judge Kallman then issued his written order denying the Commissioner's motion to set aside the default, from which the Commissioner now appeals.

The Commissioner has attacked the circuit court's action on two bases: first, that the circuit court was without jurisdiction to render a judgment on a complaint for declaratory relief from an interlocutory decision; and, second, that the circuit court abused its discretion in denying the Commissioner's[152 MICHAPP 367] motion to set aside the default judgment. We first discuss the jurisdictional issue.

Circuit courts are presumed to have jurisdiction unless the matter in question is specifically excluded by law. Const.1963, art. 6, Sec. 13; People v. Loukas, 104 Mich.App. 204, 207, 304 N.W.2d 532 (1981). The Commissioner asserts that the only permissible mode of review is by petition pursuant to M.C.L. Sec. 24.302; M.S.A. Sec. 3.560(202). That section provides that petition for review is permissible under M.C.L. Sec. 24.301; M.S.A. Sec. 3.560(201), which in turn provides:

"When a person has exhausted all administrative remedies available within an agency, and is aggrieved by a final decision or order in a contested case, whether such decision or order is affirmative or negative in form, the decision or order is subject to direct review, by the courts as provided by law. Exhaustion of administrative remedies does not require the filing of a motion or application for rehearing or reconsideration unless the agency rules require the filing before judicial review is sought. A preliminary, procedural or intermediate agency action or ruling is not immediately reviewable, except that the court may grant leave for review of such action if review of the agency's final decision or order would not provide an adequate remedy." (Emphasis added).

Significantly, M.C.L. Sec. 24.301 does not specifically state that the only allowable mode of review is by petition. Rather, review is permissible "as provided by law". Thus, M.C.L. Sec. 24.301 does not specifically preclude a circuit court from acquiring jurisdiction in a manner other than that asserted by the Commissioner.

Traditionally, courts have declined to act in contravention of administrative agencies where the parties have not exhausted their administrative[152 MICHAPP 368] remedies. Judges of the 74th Judicial District v. Bay County, 385 Mich. 710, 728, 190 N.W.2d 219 (1971). However, exceptions have evolved and one exists where the relief requested is purely declaratory and the facts are undisputed. Id.

The cases cited by the Commissioner, holding that a declaratory judgment cannot be obtained when interlocutory review of an administrative decision is sought, are inapposite for several reasons. First, the cases cited construed the provisions of the now-defunct declaratory judgment statute, 1948 C.L. 691.501 et seq., to mean that where an alternative remedy was available, declaratory action could not be obtained. The statute was superseded by GCR 1963, 521, which expressly repealed the restrictive construction by providing: "The existence of another adequate remedy does not preclude a judgment for declaratory relief in cases where it is...