Detroit Auto. Inter-Insurance Exchange v. Commissioner of Ins., INTER-INSURANCE

• Decision Date: 03 December 1982
• Docket Number: Docket No. 60097,INTER-INSURANCE
• Citation: 119 Mich.App. 113,326 N.W.2d 444
• Parties: , 33 A.L.R.4th 517 DETROIT AUTOMOBILEEXCHANGE, Petitioner-Appellant, v. COMMISSIONER OF INSURANCE, Respondent-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 444

326 N.W.2d 444

119 Mich.App. 113, 33 A.L.R.4th 517

DETROIT AUTOMOBILE INTER-INSURANCE EXCHANGE, Petitioner-Appellant, v. COMMISSIONER OF INSURANCE, Respondent-Appellee.

Docket No. 60097.

Court of Appeals of Michigan.

Submitted June 17, 1982.

Decided Aug. 26, 1982.

Released for Publication Dec. 3, 1982.

William H. Morman, Dearborn, for petitioner-appellant.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Harry G. Iwasko, Jr. and Louis J. Porter, Asst. Attys. Gen., for respondent-appellee.

Before HOLBROOK, P.J., and T.M. BURNS and McDONALD, ^* JJ.

PER CURIAM.

On September 9, 1981, the circuit court upheld an order issued by respondent, Commissioner of Insurance, finding that petitioner, Detroit Automobile Inter-Insurance Exchange, had violated M.C.L. § 500.2027(a)(ii); M.S.A. § 24.12027(a)(ii). Petitioner appeals as of right.

When this suit began, petitioner sold no-fault automobile insurance to people under age 21 only if they happened to reside with a parent or guardian who at the time of application was either already insured or about to become insured with petitioner. On December 12, 1978, respondent issued Insurance Bureau Bulletin 78-27 which stated that a very similar underwriting policy constitutes an unfair trade practice under the above statute. Six months later, respondent filed a complaint against petitioner. On September 18, 1980, respondent issued a final order determining that petitioner's underwriting practice violated the statute, ordering petitioner to cease and desist, and imposing a $2,500 fine for wilful violation of the statute. The circuit court judge affirmed respondent's determination in an opinion dated May 6, 1981. Even though he found that respondent had erred in determining that petitioner had wilfully violated the section, he upheld the $2,500 fine stating that the petitioner knew or reasonably should have known that its underwriting practice violated the statute.

M.C.L. § 500.2027; M.S.A. § 24.12027 states in part:

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

"(a) Refusing to insure * * * or limiting the amount of coverage available to an individual or risk because of any of the following:

* * *

* * *

"(ii) The residence, age, handicap, or lawful occupation of the individual or the location of the risk, unless there is a reasonable relationship between the residence, age, handicap, or lawful occupation of the individual or the location of the risk and the extent of the risk or the coverage issued or to be issued, but subject to subparagraph (iii)."

During the proceedings, respondent relied on three standards in determining that petitioner's practice violated the statute:

"1. The risk is so large as to preclude development of a meaningful rate.

"2. The maximum extent of the loss, if the risk is insured, would pose a significant threat of substantial financial loss to the insurer.

"3. The premium to be charged for the risk is so large as to approach the amount of coverage that would be otherwise provided."

Petitioner first argues that neither the circuit court nor respondent could lawfully use these three standards because they were (at that time) nonpromulgated rules.

True, respondent has the power and duty to promulgate rules enforcing the statute and carrying out its provisions. M.C.L. § 500.210; M.S.A. § 24.1210. However, an administrative agency need not always promulgate rules to cover every conceivable situation before enforcing a statute. Specifically, an administrative agency may announce new principles through adjudicative proceedings in addition to rule-making proceedings. The United States Supreme Court stated in Securities and Exchange Comm. v. Chenery Corp., 332 U.S. 194, 202, 67 S.Ct. 1575, 1580, 91 L.Ed. 1995 (1947):

"Not every principle essential to the effective administration of a statute can or should be cast immediately into the mold of a general rule. Some principles must await their own development, while others must be adjusted to meet particular, unforeseeable situations. In performing its important functions in these respects, therefore, an administrative agency must be equipped to act either by general rule or by individual order. To insist upon one form of action to the exclusion of the other is to exalt form over necessity."

See also National Labor Relations Board v. Bell Aerospace Co., Division of Textron, Inc., 416 U.S. 267, 94 S.Ct. 1757, 40 L.Ed.2d 134 (1974).

Furthermore, petitioner was not charged with violating the standards but was charged with violating the statute itself. The three standards were merely used to support respondent's position. In its opinion, the trial court stated: "Additionally, the Commissioner did not hold petitioner only to the standards advanced by the Insurance Bureau in order to justify refusal to insure individuals under twenty-one".

Petitioner next argues that the statute is unconstitutionally vague. However, we addressed this question in American Way Service Corp. v. Comm'r of Ins., 113 Mich.App. 423, 436, 317 N.W.2d 870 (1982):

"[D]ue process requires the existence of reasonably precise standards to be utilized by administrative agencies in the performance of delegated legislative tasks. The standards must be as reasonably precise as the subject matter requires or permits. * * * The reason for this requirement is to insure that 'individuals are not held responsible by the state for conduct that they could not reasonably understand to be proscribed'. * * *

"In the present case, § 2027 contains clear and unambiguous language defining its proscribed conduct. The only language in that statute that does not offer specific guidance to insurers is the 'reasonable relationship' exception in subparagraph (ii). However, an assistant actuary to the Insurance Bureau testified that the actual standards that determine the relationship between the risk of loss and age are well known in the industry and capable of calculation with scientific certainty. Thus, the statute does appear to be as reasonably precise as the subject matter requires."

In the present case, the statute is not unconstitutionally vague because petitioner was in fact put on notice that its conduct violated the statute. Bulletin 78-27, which petitioner was aware of, provided that notice.

Petitioner next...