Ins. Institute v. Comm'R of Ins.
| Decision Date | 21 August 2008 |
| Docket Number | Docket No. 262385. |
| Parties | INSURANCE INSTITUTE OF MICHIGAN v. COMMISSIONER OF THE OFFICE OF FINANCIAL AND INSURANCE SERVICES. |
| Court | Court of Appeal of Michigan — District of US |
A. Chenoweth, Assistant Attorney General, for the defendant.
McClelland & Anderson, L.L.P. (by Gregory L. McClelland and David E. Pierson), Lansing, for amici curiae the Michigan Association of Home Builders.
Dilley Haney, P.C. (by Troy W. Haney) and Law Offices of Robert June, P.C. (by Robert B. June), Ypsilanti, for amici curiae the Michigan House Democratic Caucus.
Before: WHITE, P.J., and ZAHRA and KIRSTEN FRANK KELLY, JJ.
In this action for a declaratory judgment, defendant commissioner of the Office of Financial and Insurance Services (OFIS) appeals as of right from the circuit court's opinion and order granting a permanent injunction to plaintiffs and intervening plaintiffs. The circuit court declared certain administrative rules (rules) promulgated by defendant commissioner illegal, invalid, and unenforceable, and permanently enjoined defendant from enforcing the rules against any plaintiff or intervening plaintiff in the action. The members of this panel have come to different conclusions regarding the issues presented, and have written three separate opinions. Because Judge KELLY concludes that the circuit court erred in permitting plaintiffs to maintain an original action and would vacate the circuit court's order on that basis, and I conclude that the circuit court erred in failing to base its review on the administrative record, and in accepting additional evidence, and further erred in its conclusions on the merits, at least with regard to insurance issued under Chapter 21 of the Insurance Code, this Court vacates the circuit court's order granting a permanent injunction and declaring defendant's rules illegal, unenforceable, and void, and lifts the stay imposed on defendant commissioner's enforcement of the rules.
A significant issue facing defendant commissioner when she assumed office in April 2003 was the use by insurance companies of credit report scores in setting policyholder rates (referred to as "insurance scoring").1 Defendant's predecessor, Commissioner Frank M. Fitzgerald, had addressed the issue by conducting a review of insurance scoring and issuing a bulletin on February 14, 2003, "directing insurers to take eight specific actions to comply with the above statutes if they chose to continue using insurance credit scoring."
As a result of an increase in consumer complaints, defendant conducted another review of insurance scoring, and ultimately decided to address the practice by proposing administrative rules. Defendant held four public hearings in July 2004; 418 persons attended and over 800 persons submitted written comment (an unprecedented number in the OFIS' history, according to defendant). A number of insurance industry representatives testified at the hearings or submitted written documentation.
On October 1, 2004, after the four public hearings, defendant submitted the proposed rules to the Office of Regulatory Reform (ORR)2 along with the OFIS report. The ORR certified that the proposed rules were legal on January 4, 2005. Defendant formally adopted the rules on January 18, 2005. The Michigan Legislature's Joint Committee on Administrative Rules sent Governor Jennifer M. Granholm a notice of objection to the proposed rules on February 17, 2005, stating that the "Committee has affirmatively determined by a concurrent majority vote that" (1) the agency is exceeding the statutory scope of its rulemaking authority, (2) the rules are in conflict with the Insurance Code of 1956, and (3) the rules are arbitrary and capricious. However, the Legislature failed to pass legislation preventing implementation of the rules.
The ORR filed the rules with the Secretary of State on March 25, 2005.3 Plaintiffs filed a complaint for declaratory and injunctive relief on March 29, 2005, challenging the validity of the rules, and a motion for a preliminary injunction. The proposed intervenors, Michigan Insurance Coalition and Citizens Insurance Company of America, joined in plaintiffs' motion for a preliminary injunction, and filed a motion to intervene as party plaintiffs. The parties stipulated their intervention.4
The circuit court's opinion and order granting a permanent injunction held the rules illegal, invalid, and unenforceable and permanently enjoined defendant from enforcing them, stating, in part:
All parties were given an opportunity to present evidence at the hearing on the Plaintiffs' motion for preliminary injunction on April 15, 2005. The Defendant indicated it did not contest the factual statements contained in Plaintiffs' affidavits, stating that Defendant believed them to be irrelevant. Defendant stated that the records from public hearings conducted by Defendant pursuant to the Administrative Procedures Act were the only relevant evidence the Court should consider.
* * *
The Court declines to review the record of the public hearings for the reason that it consists largely of position statements and opinions which may not be admissible under the rules of evidence, and more importantly because the Court finds it unnecessary to address whether the rules are arbitrary and capricious as alleged in Count 2 of Plaintiffs' complaint. The Court views the dispositive issues before it as questions of the legality of the Defendant's rules, given the Commissioner's rule-making authority.
* * *
Implementation of the OFIS rules would cause irreparable loss to Plaintiffs because Plaintiffs would incur the expenditure of millions of dollars in unrecoverable implementation costs and also because they would cause disruption of the entire casualty insurance market in the State of Michigan.
IT IS ORDERED that Plaintiffs' request for declaratory relief is granted, and the OFIS rules, R 500.2151-2155 are declared illegal, invalid, and unenforceable.
IT IS FURTHER ORDERED that Defendant is permanently enjoined from enforcing these rules against any Plaintiff in this action.
Defendant asserts that the validity of the OFIS rules may only be reviewed by petition for judicial review in the manner provided by § 101 of the Administrative Procedures Act (APA), MCL 24.301, and that under § 104 of the APA, MCL 24.304, such review is confined to the agency record. Thus, defendant maintains, the circuit court erred in entertaining plaintiffs' original action, and, additionally, in refusing to consider the agency record. Defendant further asserts that even if an original action were proper, plaintiffs nevertheless failed to comply with the requirement of MCL 24.264 that a plaintiff first request a declaratory ruling from the agency. Notwithstanding the foregoing arguments, however, defendant asserts that although the circuit court erred in entertaining the action and in refusing to consider the agency record, this Court, nevertheless, should address the substantive issues and reverse the determination that the rules are invalid.
Plaintiffs assert that MCL 500.244(1) does not provide an exclusive procedure or remedy for challenging the validity and legality of the rules, and that an original action under MCL 24.264 was proper because no judicial or quasi-judicial function was involved; rather, defendant was acting in a quasi-legislative capacity in promulgating the rules. Further, there is no need to request a declaratory ruling where the validity, rather than the applicability, of rules is at issue.
MCL 24.264 (§ 64 of chapter 3 of the APA) addresses declaratory judgment actions regarding the validity or applicability of administrative rules and provides:
Unless an exclusive procedure or remedy is provided by a statute governing the agency, the validity or applicability of a rule may be determined in an action for declaratory judgment when the court finds that the rule or its threatened application interferes with or impairs, or imminently threatens to interfere with or impair, the legal rights or privileges of the plaintiff. The action shall be filed in the circuit court of the county where the plaintiff resides or has his principal place of business in this state or in the circuit court for Ingham County. The agency shall be made a party to the action. An action for declaratory judgment may not be commenced under this section unless the plaintiff has first requested the agency for a declaratory ruling and the agency has denied the request or failed to act upon it expeditiously. This section shall not be construed to prohibit the determination of the validity or applicability of the rule in any other action or proceeding in which its invalidity or inapplicability is asserted. [Emphasis added.]
Section 244(1) of the Insurance Code, MCL 500.244(1), provides:
A person aggrieved by a final order, decision, finding, ruling, opinion, rule, action, or inaction provided for under this act may seek judicial review in the manner provided for in chapter 6 of the administrative procedures act of 1969, 1969 PA 306, MCL 24.301 to 24.306. [Emphasis added.]
Chapter 6 of the APA provides, in pertinent part:
When a person has exhausted all administrative remedies available within an agency, and is aggrieved by a final decision or order in a contested case, whether such decision or order is affirmative or negative in form, the decision or order is subject to direct review by the courts as provided by law. Exhaustion of administrative remedies does not require the filing of a motion or application for...
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Ins. Inst. of Mich. v. Comm'r
...appealed. On August 21, 2008, the Court of Appeals issued three separate opinions. Ins. Institute of Mich. v. Comm'r of the Office of Fin. & Ins. Servs., 280 Mich.App. 333, 761 N.W.2d 184 (2008). Judge White voted to vacate the trial court's judgment in part because the court had erred by f......