Ins. Inst. of Mich. v. Comm'r
| Decision Date | 08 July 2010 |
| Docket Number | Docket Nos. 137400, 137407.,Calendar No. 3. |
| Citation | 785 N.W.2d 67,486 Mich. 370 |
| Parties | INSURANCE INSTITUTE OF MICHIGAN, Hastings Mutual Insurance Company, Farm Bureau General Insurance Company, Frankenmuth Casualty Insurance, Walter Stafford, Jr., and Michael Flohr, Plaintiffs-Appellees, and Michigan Insurance Coalition and Citizens Insurance Company of America, Intervening Plaintiffs-Appellees, v. COMMISSIONER, FINANCIAL & INSURANCE SERVICES, DEPARTMENT OF LABOR & ECONOMIC GROWTH, Defendant-Appellant. Insurance Institute of Michigan, Hastings Mutual Insurance Company, Farm Bureau General Insurance Company, Frankenmuth Casualty Insurance, Walter Stafford, Jr., and Michael Flohr, Plaintiffs-Appellants, and Michigan Insurance Coalition and Citizens Insurance Company of America, Intervening Plaintiffs-Appellants, v. Commissioner, Financial & Insurance Services, Department of Labor & Economic Growth, Defendant-Appellee. |
| Court | Michigan Supreme Court |
Dickinson Wright PLLC (by Peter H. Ellsworth and Jeffery V. Stuckey), Lansing, for plaintiffs.
Dykema Gossett PLLC (by Lori McAllister), Lansing, for intervening plaintiffs.
Michael A. Cox, Attorney General, B. Eric Restuccia, Solicitor General, and Christopher L. Kerr, William A. Chenoweth, and David W. Silver, Assistant Attorneys General, for defendant.
Collins, Einhorn, Farrell & Ulanoff, P.C. (by Deborah A. Hebert), Martin R. Brown, and Kathleen A. Lopilato for amici curiae the Insurance and Indemnity Law Section of the State Bar of Michigan.
McClelland & Anderson, L.L.P. (by Gregory L. McClelland and Gail A. Anderson), for amici curiae the Michigan Association of Realtors.
Miller, Canfield, Paddock and Stone, P.L.C. (by Michael J. Hodge and Kelly M. Drake), for amici curiae the Property Casualty Insurers Association of America, the American Insurance Company, and theNational Association of Mutual Insurance Companies.
Eric J. Ellman and Kelley Cawthorne (by Steven D. Weyhing) for amici curiae the Consumer Data Industry Association.
Fraser Trebilcock Davis & Dunlap, P.C. (by Mark R. Fox and Graham K. Crabtree), for amici curiae the Michigan Chamber of Commerce.
McClelland & Anderson, L.L.P. (by Gregory L. McClelland and Gail A. Anderson), for amici curiae the Michigan Association of Home Builders.
This case concerns the validity of rules promulgated by defendant Commissioner of Financial & Insurance Services (the OFIS rules) 1 banning the practice of "insurance scoring" under Chapters 21, 24, and 26 of the Insurance Code. The trial court ruled that the rules were "illegal, invalid, and unenforceable" and permanently enjoined defendant from enforcing them. The Court of Appeals issued three separate opinions, which vacated the circuit court's order but did not agree on a rationale. We hold that the Commissioner exceeded her authority by promulgating the OFIS rules because they are contrary to the Insurance Code. Accordingly, we vacate the judgment of the Court of Appeals and reinstate the trial court's order.
As explained in a 2002 report from then-OFIS Commissioner Frank Fitzgerald, "insurance scoring" or"insurance credit scoring" is "the use of select credit information to help insurance companies establish automobile and homeowners premiums." Frank Fitzgerald, The Use of Credit Scoring in Automobile and Homeowners Insurance (2002) (Fitzgerald Report),2 p. 5. An individual's credit score is calculated by applying a standard formula to information from the individual's credit history. These formulas are developed either by the insurance companies themselves or by credit scoring companies. Id. Insurance companies that use insurance scoring offer discounts to individuals with good insurance scores. Not all insurance companies use insurance scoring. Of those that do, their practices vary concerning the extent of the discounts offered and how the insurance scores are calculated. Id. at 5-6.
In 1997, the Legislature enacted MCL 500.2110a, which allows insurers to establish and maintain a premium discount plan without prior approval by the Legislature or the insurance commissioner. As a result, insurance companies in Michigan began using insurance scoring. Fitzgerald Report, supra at 9. In 2002, Commissioner Fitzgerald undertook a statewide study of this practice in order "to gather information on the use of insurance credit scoring in personal automobile and homeowners insurance policies and to take testimony concerning its effect on Michigan citizens." Id. at 1. In December 2002, OFIS issuedthe Fitzgerald Report, which concluded that "Michigan law permits a discount based on insurance credit scoring" but that "significant and legitimate concerns" identified during the course of the study "must be addressed to adequately protect the rights of Michigan consumersunder the Insurance Code." Id. at 24. To address these concerns, the report included several "Administrative Recommendations," or "action[s] that [are] available to the commissioner under current law." Id. The report concluded that "[o]ther concerns are beyond the statutory authority of the commissioner to remedy and will require action by the Michigan Legislature." Id. The report thus "respectfully submitted" several "Legislative Recommendations" "for the consideration of legislators in their policy deliberations." Id. None of the legislative recommendations totally prohibited the use of insurance scoring.
On February 14, 2003, Commissioner Fitzgerald issued a bulletin setting forth several directives taken from the December 2002 report. In the Matter of Conforming Insurance Credit Scoring Practices With Insurance Code Requirements, OFIS Bulletin 2003-01-INS (February 14, 2003).3 On the same date, he issued an order directing OFIS staff to monitor insurance companies' compliance with the directives and to initiate compliance actions as appropriate. Order to Monitor Insurer Practices and To Initiate Compliance Actions as Appropriate, OFIS Order No. 03-005-M (February 14, 2003).4 The bulletin directed insurance companies using insurance scoring to file with OFIS such information as "the formula used to apply the discount," "the specific credit classification factors used to calculate the insurance credit score," and an annual "actuarial certification justifying the discount levels and discount tiers offered by the company." OFIS Bulletin, supra. The bulletin also directed insurance companies to "recalculateand then apply an insured's insurance credit score at least once annually" and to "annually inform ... policyholders or applicants of the credit score used to apply an insurance credit scoring discount...." Id.
On May 13, 2003, then-OFIS Commissioner Linda A. Watters 5 issued an "update" to her predecessor's February 14, 2003 bulletin. In the Matter of Insurance Credit Scoring Practices—Update to Bulletin 2003-01-INS, OFIS Bulletin 2003-02-INS (May 13, 2003) (Watters Bulletin).6 The bulletin began by stating that After providing several examples, the bulletin continued:
The bulletin also reiterated that insurers must inform policyholders or applicants of the credit score used to apply a discount and revised the directive requiring annual recalculation of insurance scores to require recalculation only upon the request of the insured. Id.
In July 2004, after neither of the above-mentioned bills was enacted into law, OFIS developed proposed administrative rules prohibiting the use of insurance scoring. It held four public hearings—in Lansing, Detroit, Grand Rapids, and Flint—"to receive public comments on proposed rules clarifying a reasonable classification system under the Insurance Code, by requiring insurers to adjust base rates and by prohibiting the use as a rating factor after January 1, 2005, of a credit-based insurance score." See OFIS Notice of Public Hearing on Proposed Rules to Reduce Insurance Base Rates and To Ban the Use of Credit Scoring.7
After submission to and approval by the Office of Regulatory Reform, 8 the Commissioner formally adopted the rules. See MCL 24.245. On February 17, 2005, the Joint Committee on Administrative Rules (JCAR) 9 issued a notice of objection to the proposed rules. See MCL 24.245a. 10 JCAR determined that "[t]he agency is exceeding the statutory scope of its rule-makingauthority" and that "[t]he rule is in conflict with state law, the Insurance Code of 1956," and "is arbitrary or capricious." JCAR Revised Notice of Objection, # 05-3 (February 17, 2005). Bills to rescind the OFIS rules upon their effective date were introduced in both the House and Senate on February 22, 2005. SB 233; HB 4374. See MCL 24.245a(3). 11 After Governor Granholm indicated her intention to veto these bills, however, Senator Mike Bishop stated during a March 9, 2005 session of the Senate that "it would be futile for us to take up these bills and pointless to pursue passage of Senate Bill No. 233." Statement of Senator Bishop, Journal ofthe Senate, March 9, 2005, pp. 247-248. No legislative action ensued.
Under MCL 24.245a(5),12 ORR filed the rules with the...
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