Commerce Insurance Company v. Commissioner of Insurance

• Decision Date: 23 August 2006
• Citation: 447 Mass. 478,852 NE 2d 1061
• Parties: COMMERCE INSURANCE COMPANY & others v. COMMISSIONER OF INSURANCE & another.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

447 Mass. 478

852 NE 2d 1061

COMMERCE INSURANCE COMPANY & others¹ v. COMMISSIONER OF INSURANCE & another.²

Supreme Judicial Court of Massachusetts, Suffolk.

May 4, 2006.

August 23, 2006.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, SOSMAN, & CORDY, JJ.

Thomas A. Barnico, Assistant Attorney General (Elisabeth Ditomassi with him) for Commissioner of Insurance.

Nelson G. Apjohn (James A. Ermilio & Daniel P. Olohan with him) for Commerce Insurance Company.

Stephen J. D'Amato for Center for Insurance Research.

Roberta R. Fitzpatrick for Arbella Mutual Insurance Company.

The following submitted briefs for amici curiae:

Edward J. Donahue, Jr., Luke A. Dillon, III, Peter S. Rice, Mark A. Walsh, Elizabeth R. Cerda, & Peter T. Robertson for Massachusetts Insurance Federation, Inc., & others.

Joshua R. Kratka for Massachusetts Public Interest Research Group.

SPINA, J.

The primary question presented in this appeal is whether G. L. c. 175, § 113H, as appearing in St. 1983, c. 241, § 17, prohibits the Commissioner of Insurance (commissioner) from approving or promulgating an assigned risk plan for high-risk drivers unable to obtain private automobile insurance in the voluntary market. We hold that she is not prohibited from doing so.

On December 31, 2004, after a series of hearings, the commissioner approved a structural change in the way private automobile insurance is written in Massachusetts for high-risk drivers in the so-called residual, or involuntary, market. She ordered the current plan, which is based on a hybrid reinsurance model, phased out by January 1, 2008, and that it be replaced by an assigned risk plan. Commerce Insurance Company (Commerce) filed a complaint for judicial review under G. L. c. 175, § 113H (E), and for declaratory relief under G. L. c. 231A, § 1. Arbella Mutual Insurance Company (Arbella), the Center for Insurance Research (CIR), and others intervened as plaintiffs. See note 1, supra. A judge in the Superior Court stayed implementation of the new plan pending trial. Commerce filed a motion for judgment on the pleadings under Mass. R. Civ. P. 12 (c), 365 Mass. 754 (1974), and Superior Court Standing Order 1-96(4).³ A second judge in the Superior Court ordered judgment for Commerce and the other plaintiffs, and annulled the decision of the commissioner. He concluded that creation of an assigned risk plan is contrary to the plain language of G. L. c. 175, § 113H, and its underlying spirit and purpose, and that the commissioner did not have the statutory authority to promulgate such a plan. The commissioner appealed, and we granted the parties' applications for direct appellate review. We reverse the judgment of the Superior Court and order judgment for the commissioner, except for a minor portion of the plan that must be remanded for further proceedings.⁴

1. The statute. General Laws c. 175, § 113H (A), as appearing in St. 1983, c. 241, § 17, states in relevant part:

"(A) Insurance companies undertaking to issue motor vehicle liability policies or bonds, both as defined in G. L. c. 90, § 34A, shall cooperate in the preparation and submission of a plan which shall provide motor vehicle insurance to applicants who have been unable to obtain insurance through the method by which insurance is voluntarily made available; except that the plan shall provide that no insurance company shall be required to issue such policy or execute such bond if:

"(1) The applicant or any person who usually drives the motor vehicle has failed to pay an insurance company any motor vehicle insurance premiums due or contracted during the preceding twelve months; or

"(2) Any person who usually drives the motor vehicle does not hold or is not eligible to obtain an operator's license.

"Such a plan shall provide for the fair and equitable apportionment among such insurance companies of premiums, losses or expenses, or any combination thereof."

2. Discussion. The commissioner argues that the plain language of § 113H (A) is a broad grant of authority that allows her to promulgate any plan that is rationally related to the plain statutory goals of § 113H (A), namely, to "provide motor vehicle insurance to applicants who have been unable to obtain insurance through the method by which insurance is voluntarily made available," and to provide "for the fair and equitable apportionment among insurance companies of premiums, losses or expenses, or any combination thereof" arising from such insurance. The plaintiffs contend that the plain meaning of § 113H (A) prohibits the commissioner from promulgating an assigned risk plan, and mandates promulgation of a hybrid reinsurance plan such as the plan currently in use. They further argue that the statute must be construed in the context of its original enactment and amendments since 1953 as well as the long-standing administrative interpretation given the statute, which compel the conclusion that the statute prohibits an assigned risk plan. Finally, the plaintiffs argue that an assigned risk plan is inconsistent with other statutory provisions and underlying policies.

a. Plain language. We review questions of statutory interpretation de novo. See Raytheon Co. v. Director of the Div. of Employment Sec., 364 Mass. 593, 595 (1974). "Ordinarily, if the language of a statute is plain and unambiguous it is conclusive as to the legislative intent. . . . However, time and again we have stated that we should not accept the literal meaning of the words of a statute without regard for that statute's purpose and history." (Citations omitted.) Sterilite Corp. v. Continental Cas. Co., 397 Mass. 837, 839 (1986). We give substantial deference to a reasonable interpretation of a statute by the administrative agency charged with its administration enforcement, see Amherst-Pelham Regional Sch. Comm. v. Department of Educ., 376 Mass. 480, 491-492 (1978), but the duty of statutory interpretation rests in the courts. Cleary v. Cardullo's, Inc., 347 Mass. 337, 343-344 (1964). "An incorrect interpretation of a statute . . . is not entitled to deference." Kszepka's Case, 408 Mass. 843, 847 (1990). The burden is on the plaintiffs to show that the plan promulgated by the commissioner is invalid. See Massachusetts State Pharmaceutical Ass'n v. Rate Setting Comm'n, 387 Mass. 122, 126 (1982).

Section 113H (A) does not specify any model for the plan. That is, the statute does not specify whether the plan shall be an assigned risk plan, a reinsurance facility, or a joint underwriting association, the principal models used to write insurance for the residual market in the United States. The goals of each of these models in the residual market context are to provide insurance to high-risk drivers who are unable to obtain insurance in the voluntary market, and to apportion net losses fairly among carriers. Each model accomplishes these goals in different ways.

Assigned risk plans, utilized in forty-two States, assign individual high-risk drivers to individual carriers based on the carrier's voluntary market share, and the carrier bears the risk of any net loss produced by the assigned driver. Five States utilize joint underwriting associations, which issue policies through servicing carriers to high-risk drivers assigned to the association. The servicing carriers service the policies and adjust claims for a fee. Losses are borne by the association, which in turn makes assessments on all carriers required to participate, based on each carrier's voluntary market share. Three States, including Massachusetts, utilize a reinsurance facility. Under that model all carriers write policies to any driver on request, but may reinsure policies issued to high-risk drivers by ceding the attendant risk to all participating carriers for a fee. Losses are shared based on each insurer's voluntary market share. See Towers Perrin Tillinghast Report, Analysis of the Commonwealth Automobile Reinsurers 10-12 (April 2004); 1 G. Couch, Insurance § 2:35 (3d ed. 1995 & Supp. 2006).

To the extent that § 113H (A) requires a plan to "provide for the fair and equitable apportionment among such insurance companies of premiums, losses or expenses, or any combination thereof," that language is not descriptive of any particular model, as the plaintiffs argue, but of the constitutional ramifications the commissioner must consider when deciding how a particular model will serve as the basis for the plan. See 1 G. Couch, supra ("Requiring insurers to participate in residual market insurance by insuring risks that would otherwise be rejected has been held not to constitute a violation of the Takings Clause of the United States Constitution. Residual market funding schemes which are based upon market share or facility usage or a combination of both have also withstood constitutional challenges rooted in the Due Process, Equal Protection and Contracts Clauses"). To be sure, certain limited types of reinsurance polices may provide for the apportionment of expenses, but such language is not determinative of a reinsurance model. See 2 B.R. Ostrager & T.R. Newman, Insurance Coverage Disputes § 15.03b (13th ed. 2006). An assigned risk plan apportions losses and expenses among insurers by the assignment of high-risk drivers. Although the apportionment of losses and expenses under this model works indirectly, in contrast to direct apportionment of losses and expenses under the reinsurance and joint underwriting models, § 113H (A) does not specify how the apportionment must take place.

The fact that an assigned risk plan apportions losses and expenses indirectly, and therefore less precisely than a reinsurance facility or joint underwriting association, does not prohibit the commissioner from selecting that model for a plan under § 113H (A). A regulation will not be deemed invalid if it is reasonably related to the objective of, or within the ambit of, its enabling statute. See Consolidated Cigar Corp. v. Department of Pub. Health, 372 Mass....