Garris v. GOV. BD. OF SC REINSURANCE

• Decision Date: 29 December 1998
• Docket Number: No. 24871.,24871.
• Citation: 333 S.C. 432,511 S.E.2d 48
• Court: South Carolina Supreme Court
• Parties: D. Carroll GARRIS, Respondent/Appellant, v. The GOVERNING BOARD OF the SOUTH CAROLINA REINSURANCE FACILITY and the South Carolina Reinsurance Facility, Appellants/Respondents.

333 S.C. 432

511 S.E.2d 48

D. Carroll GARRIS, Respondent/Appellant, v. The GOVERNING BOARD OF the SOUTH CAROLINA REINSURANCE FACILITY and the South Carolina Reinsurance Facility, Appellants/Respondents.

No. 24871.

Supreme Court of South Carolina.

Heard November 4, 1998.

Decided December 29, 1998.

Rehearing Denied March 5, 1999.

Thomas C. Salane of Turner, Padget, Graham & Laney, P.A., Columbia, for Appellants/Respondents.

Thornwell F. Sowell of Sowell, Todd, Laffitte, Beard & Watson, L.L.C., Columbia; and Jeffrey A. Jacobs of Nelson Mullins Riley & Scarborough, L.L.P., Columbia, for Respondent/Appellant.

WALLER, Justice:

This appeal follows the circuit court's reversal of the decision of the Board of Governors (the Governing Board) of the South Carolina Reinsurance Facility (Facility) to revoke D. Carroll Garris's (Garris) status as a designated agent. We affirm in part, reverse in part, and remand for further proceedings.

FACTS

Garris, a licensed insurance agent, is a designated agent of Facility.¹ Prompted by an audit performed by one of Facility's servicing carriers, Facility began investigating allegations of underwriting irregularities at Garris's agency in mid-1993. Facility issued a notice of hearing and rule to show cause seeking to revoke Garris's status as a designated agent in December 1993. Facility alleged Garris had improperly classified private risks as commercial risks (which have lower premiums that are not subject to recoupment fees), insured "phantom" vehicles, wrote duplicate coverages, endorsed policies to insure additional vehicles after a policy had been canceled, and violated trust accounting procedures.

The Governing Board voted in November 1994 to revoke Garris's status as a designated agent. Garris petitioned the circuit court for review. The circuit court, following additional discovery, reversed the Governing Board's decision in November 1997. Both parties now appeal the circuit court's decision.

ISSUES

1. Did the circuit court err in ruling that Governing Board members who voted to revoke Garris's status as a designated agent acted as prosecutor and adjudicator in violation of Article I, Section 22 of the state constitution?

2. Did the circuit court err in ruling that the doctrine of res judicata bars Garris's argument about the composition of the Governing Board?

3. If res judicata does not bar Garris's argument, did the circuit court err in ruling that the composition of the Governing Board violates Article III, Section 1 of the state constitution?

4. Did the circuit court err in ruling that proxies were properly exercised and a quorum was present at Garris's hearing before the Governing Board?

1. ARTICLE I, SECTION 22

The circuit court reversed the Governing Board's decision to revoke Garris's status as a designated agent, finding the procedure followed by Facility unconstitutional. Under the state constitution, a person shall not "be subject to the same person for both prosecution and adjudication." S.C. Const. art. I, § 22.² Facility now argues the circuit court erred for three reasons.

A. FACILITY IS AN ADMINISTRATIVE AGENCY

Facility contends it is a private organization that merely acts as a statutory agent for the automobile insurance industry. Facility argues it receives no state funding, has no rule-making authority, and is subject to regulation by a state agency, the South Carolina Department of Insurance. Consequently, Facility argues it is not an "administrative agency" for purposes of Article I, Section 22 under the statute creating it or the Administrative Procedure Act (APA), S.C.Code Ann. §§ 1-23-10 to -660 (1986 & Supp.1997). We disagree.

An agency "means each state board, commission, department, executive department or officer, other than the legislature or the courts, authorized by law to make regulations or to determine contested cases." S.C.Code Ann. § 1-23-10(1) (1986) (emphasis added); accord S.C.Code Ann. § 1-23-310(1) (Supp.1997) (agency "means each state board, commission, department or officer, other than the legislature or the courts, but to include the Administrative Law Judge Division, authorized by law to determine contested cases"). It is true that Facility, a statutory creature, "is subject to regulations and orders promulgated by the director [of the Department of Insurance] or his designee." S.C.Code Ann. §§ 38-1-20(16) and XX-XX-XXX (Supp.1997).

Facility clearly possesses rule-making authority in the area of automobile insurance, a subject that touches the life of most South Carolinians. See S.C.Code Ann. § 38-77-520 (Supp. 1997) (every automobile insurer in South Carolina is bound by Facility's plan of operation as approved by the director of the Department of Insurance and by rules lawfully prescribed by Facility's Governing Board); S.C.Code Ann. § 38-77-596 to -610 (Supp.1997) (Facility must calculate and file recoupment fees that are assessed on all automobile insurance policies in South Carolina, and changes in rates are subject to public hearing pursuant to APA). See also Garris v. Governing Board of South Carolina Reinsurance Facility, 319 S.C. 388, 461 S.E.2d 819 (1995)

(applying APA to remand case for failure to exhaust administrative remedies); Moore v. South Carolina Reinsurance Facility, 297 S.C. 276, 376 S.E.2d 510 (1989) (applying APA in deciding whether Facility properly refused to certify each of designated agent's existing locations); Grain Dealers Mut. Ins. Co. v. Lindsay, 279 S.C. 355, 306 S.E.2d 860 (1983) (upholding Facility's power to enact rules regarding the distribution of Facility losses); Mungo v. Smith, 289 S.C. 560, 347 S.E.2d 514 (Ct.App.1986) (applying APA to decide that designated agent's status may not be revoked arbitrarily, but must be based upon substantial evidence); S.C.Code Ann. § 38-77-510 (Supp.1997) (designating Facility as a "using agency," which is defined as "any governmental body of the State which utilizes any supplies, services, or construction purchased" under state Procurement Code).

Facility has the authority to assign the status of designated agent to an individual, as well as the authority to revoke that designation. S.C.Code Ann. §§ 38-77-590 to -595 (Supp. 1997). Facility argues it does not decide "contested cases" as such cases are defined in the APA. See S.C.Code Ann. § 1-23-310(2) (Supp.1997) (contested case "means a proceeding, including but not restricted to ratemaking, price fixing, and licensing, in which the legal rights, duties or privileges of a party are required by law to be determined by an agency after an opportunity for hearing"). Nevertheless, Facility assured Garris during the course of its investigation that "a full contested type hearing will be offered to you at which time your response can be as full and complete as you deem appropriate." Facility concedes in its brief that, while it does not believe it is an administrative agency, it "has no objection to following due process standards applicable under the APA in all hearings before the Board."

We have interpreted Section 1-23-310(2) to mean that a "contested case"is one in which an agency is required by law to determine a party's rights after an opportunity for a hearing. League of Women Voters of Georgetown County v. Litchfield-by-the-Sea, 305 S.C. 424, 426, 409 S.E.2d 378, 380 (1991); Triska v. Dep't of Health and Envtl. Control, 292 S.C. 190, 196, 355 S.E.2d 531, 534 (1987). No statute explicitly requires Facility to hold a hearing before revoking an agent's status as a designated agent; therefore, Garris's case is not a "contested case" as defined in the APA.

However, we also have held that Article I, Section 22 requires an administrative agency to give procedural due process to parties that come before it even though a matter may not be a "contested case" as defined in the APA. See League of Women Voters of Georgetown County, supra (finding that certification process as outlined in then prevailing statutes and regulations was not a "contested case" as defined in APA, which meant League was not entitled to a hearing under APA; but concluding League was entitled to notice, a hearing, and judicial review under Article I, Section 22); Stono River Envtl. Protection Ass'n v. South Carolina Dep't of Health and Envtl. Control, 305 S.C. 90, 93, 406 S.E.2d 340, 342 (1991) (stating same principle).

We affirm the circuit court's ruling and hold that Facility is an administrative agency because it meets the rule-making component of the APA definition. See Mungo v. Smith, supra

(where a statute contains two clauses which prescribe its applicability and the clauses are connected by the disjunctive "or," application of the statute is not limited to cases falling within both clauses, but applies to cases falling within either). Accordingly, Facility must comply with the procedural due process protections established in Article I, Section 22 even though Garris's case is not a "contested case" as defined in the APA.

B. SAME PERSONS AS PROSECUTOR AND ADJUDCATOR

Facility argues the "same persons" were not engaged in both the prosecution and adjudication of Garris's case. We disagree.

The Governing Board oversees Facility operations by considering matters in various committees, which make recommendations to other committees and the Governing Board. Governing Board member James Lingle was present as a member at an Audit Committee meeting October 20, 1993. Governing Board members Jim Thompson, Clark Hobbie, Thomas Kepley, C.M. Dinwiddie, and Frank Lee were present as observers at the meeting. Larry Griner, who is not a Governing Board member but ultimately exercised another member's proxy and voted on the Garris matter, also was present as an observer. Garris was not present or represented at the meeting.

At that meeting, a Facility auditor who had examined Garris's records and practices reported her findings in detail. The Audit Committee, following a "lengthy discussion," unanimously voted to refer the...