Independent Ins. Agents of Ohio, Inc. v. Fabe

• Citation: 587 N.E.2d 814,63 Ohio St.3d 310
• Decision Date: 01 April 1992
• Docket Number: No. 90-2106,90-2106
• Court: Ohio Supreme Court
• Parties: INDEPENDENT INSURANCE AGENTS OF OHIO, INC. et al., Appellants, v. FABE, Superintendent; Ohio Savings & Loan League et al., Appellees.

Page 310

63 Ohio St.3d 310

587 N.E.2d 814

INDEPENDENT INSURANCE AGENTS OF OHIO, INC. et al., Appellants, v. FABE, Superintendent; Ohio Savings & Loan League et al., Appellees.

No. 90-2106.

Supreme Court of Ohio.

Submitted Nov. 19, 1991.

Decided April 1, 1992.

SYLLABUS BY THE COURT

1. R.C. 3905.01(B) and 3905.04 do not prohibit the licensing of applicants affiliated with non-insurance financial institutions.

2. An applicant for a license as an other-than-life insurance agent is not precluded from licensure by R.C. 3905.01(B) and 3905.04 merely because an affiliate of the applicant would be precluded thereunder, unless the applicant is but th e alter ego of the precluded affiliate.

In October 1987, the Superintendent of Insurance, George Fabe, requested an opinion from the Ohio Attorney General regarding, among other things, the licensing of affiliates and subsidiaries of non-insurance financial institutions. The Ohio Attorney General issued Opinion No. 88-056 on August 29, 1988, which states by syllabus in part:

"1. For purposes of R.C. 3905.01(B), a corporate appointee insurance agency may be owned as a subsidiary of a bank or savings and loan association.

"2. For purposes of R.C. 3905.01(B), a corporate appointee insurance agency may be owned by a bank or savings and loan association holding company."

Appellants, the Independent Insurance Agents of Ohio, Inc. and Thomas H. Hardy, filed a complaint against the Superintendent of Insurance and the Ohio Department of Insurance seeking a declaratory judgment that R.C. 3905 ¹ and 3905.04 ² prohibit the licensing of applicants affiliated with non-insurance financial institutions. Appellees, the Ohio Savings and Loan League and the Ohio Consumer Finance Association, intervened as defendants. While the case was still pending in the trial court, the superintendent issued Bulletin 89-1, which closely followed the opinion of the Attorney General to the effect that R.C. 3905.01(B) and 3905.04 do not prohibit the licensing of an applicant who will principally use the license to place insurance on property for which the applicant's affiliate is agent, custodian, vendor, bailee, trustee or payee.

The case was submitted to the trial court on stipulated facts. The trial court construed R.C. 3905.01(B) and 3905.04 to include the unwritten words "or any affiliate thereof" and entered a judgment declaring:

"DECLARED that Sections 3905.01, 3905.02, and 3905.04 of the Ohio Revised Code require Defendants, the Superintendent and the Department, to deny, to fail to renew or to revoke, in accordance with the requirements of [Title] 39 of the Ohio Revised Code, an insurance license to applicants and licensees that have solicited or sold or that propose to, intend to, or do solicit or sell property & casualty insurance principally upon or in connection with (i) the property of such licensee (or applicant) or of the licensee's (or applicant's) relatives, employers, employees or any affiliate thereof, or (ii) that property for which the licensee (or applicant) or any relative, employer, employee, or affiliate thereof is agent, custodian, vendor, bailee, trustee or payee; and it is further

"DECLARED that Sections 3905.01, 3905.02, and 3905.04 of the Ohio Revised Code prohibit the licensing of any affiliate of a non-insurance financial or lending institution * * * ." (Emphasis added.)

The court of appeals reversed the judgment of the trial court and held that (1) there is no per se disqualification of applicants affiliated with non-insurance financial or lending institutions, and (2) R.C. 3905.01(B) and 3905.04 do not apply to affiliates as they do to employers, employees and relatives, unless the applicant is but the alter ego of its affiliate.

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Agee, Clymer, Morgan & Fulton Co., L.P.A., and Philip Fulton, Columbus, Jenner & Block, Jonathan B. Sallet and Ann M. Kappler, Washington, D.C., for appellants.

Vorys, Sater, Seymour & Pease, Suzanne K. Richards and James A. Yano, Columbus, for appellee Ohio Sav. and Loan League.

Jones, Day, Reavis & Pogue, John W. Zeiger and Darrell L. Dreher, Columbus, for appellee Ohio Consumer Finance Ass'n.

Jeffrey D. Quayle, Columbus, urging affirmance for amicus curiae, Ohio Bankers Ass'n.

Lee I. Fisher, Atty. Gen., and Jeanny M. Vorys, Columbus, urging affirmance for amicus curiae, Ohio Atty. Gen.

Michael J. Petrucci and Kelly M. Morgan, Columbus, urging reversal for amicus curiae, Professional Ins. Agents Ass'n of Ohio, Inc.

Means, Bichimer, Burkholder & Baker Co., L.P.A., Craig D. Leister and Amy J. Girvin, Columbus, urging reversal for amicus curiae, Ohio Ass'n of Life Underwriters, Inc.

DANIEL B. QUILLIN, Justice.

The principal issue in this case is whether R.C. 3905.01(B) and 3905.04 prohibit the licensing of applicants affiliated with non-insurance financial institutions. For the reasons that follow, we hold that the statutes permit such licensing.

I Background

At the outset it should be recognized that the insurance industry is a mature, highly regulated industry with sophisticated legal and legislative advisors. This case is part of a "turf battle" for insurance business. As observed by another court, there is "a huge commercial tug-of-war between the bank holding company industry on one hand and independent insurance agents and other insurance industry groups on the other." Alabama Assn. of Ins. Agents v. Bd. of Governors (C.A. 5, 1976), 533 F.2d 224, 231.

A great deal of appellants' brief (and also appellees' brief) is devoted to arguments as to whether it would be desirable to restrict the licensing of applicants affiliated with non-insurance financial or lending institutions. These are essentially public policy arguments that are more properly addressed to the General Assembly. Coercive "tied-sales" are already prohibited by R.C. 3933.04.

II Principal Purpose Test

Pursuant to R.C. 3905.01(B) and 3905.04, the Superintendent of Insurance is authorized to deny or revoke a license when he determines that the principal purpose of an agent's ³ license is to solicit or place other-than-life insurance on the agent's own property or on the property of its relatives, employers or employees, or on the property of persons with whom the agent or its relatives, employers or employees maintain one or more of the legal relationships (i.e., agent, custodian, etc.) enumerated in the statutes.

In applying the principal purpose test, the superintendent historically has considered a variety of factors including a comparison of the agency's sales to persons falling within one or more of the enumerated legal relationships with the agency's total sales. If the agency's sales to persons falling within one or more of the enumerated legal relationships amounts to fifty-one percent or more of the total premium volume for any one calendar year, then the agency will be presumed to be in violation of the principal purpose prohibition contained in R.C. Chapter 3905. See Bulletin 89-1. No one is challenging the superintendent's use of the fifty-one percent presumption.

R.C. Chapter 3905 is thus clear that there is no impediment whatsoever to licensure unless the "principal purpose test" is violated. It follows that the trial court's per se disqualification for licensure of all applicants affiliated with non-insurance financial or lending institutions has no legal support. The court of appeals was correct in reversing the trial court on the per se disqualification. Appellants have not appealed that ruling.

III Directly or Indirectly

Appellants' main argument (that the word "affiliates" should be read into the statute, even though it is not there) is based on a strained application of the adverbial phrase "directly or indirectly," which does appear in R.C. 3905.04, but not in R.C. 3905.01.

We are guided by certain basic rules of statutory construction: "Words and phrases shall be read in context and construed according to the rules of grammar and common usage. * * * " R.C. 1.42. "[R]eferential and qualifying words and phrases, where no contrary intention appears, refer solely to the last antecedent * * *." Carter v. Youngstown (1946), 146 Ohio St. 203, 209, 32 O.O. 184, 186, 65 N.E.2d 63, 66. "It is a basic doctrine of construction that the express enumeration of specific classes of persons in a statute implies that the legislature intended to exclude all others." Fort Hamilton-Hughes Memorial Hosp. Center v. Southard (1984), 12 Ohio St.3d 263, 265, 12 OBR 342, 343, 466 N.E.2d 903, 905.

Appellants' argument that the General Assembly intended to include affiliates or subsidiaries within the restricted relationships is unpersuasive. There is no reason to believe that the General Assembly would omit relationships it intended to include. In fact, "affiliate of" is defined in an unrelated insurance statute, R.C. 3901.32(A). Likewise, R.C. 3953.21(B), another unrelated insurance statute, restricts "any subsidiaries thereof." So too, R.C. 3905.18, relating to life insurance agents, refers to the corporate applicant's shareholders. It is apparent that the General Assembly knows how to use these words when it so chooses.

We agree with the following analysis by the court of appeals:

" * * * [Appellants'] suggested construction would alter the plain and unambiguous language of R.C. 3905.04. The phrase 'directly or indirectly' modifies its antecedent, 'solicit, place or effect such insurance.' The statute restricts the indirect placement of insurance on property for which the applicant is an agent, custodian, vendor, bailee, trustee or payee. * * * [Appellants] would apply the words 'directly or indirectly,' which appear in the middle of the paragraph, to the list of relationships appearing at the end of the paragraph. Thus, under * * * [appellants'] construction, the statute would restrict the placement of insurance on property for which the applicant is...