Linick v. Employers Mut. Cas. Co.

• Decision Date: 31 December 1991
• Docket Number: No. 04-91-00213-CV,04-91-00213-CV
• Citation: 822 S.W.2d 297
• Court: Texas Court of Appeals
• Parties: Irving LINICK, Formerly d/b/a Link Linick Insurance Agency, Appellant, v. EMPLOYERS MUTUAL CASUALTY COMPANY and Emasco Insurance Company, Appellees.

Page 297

822 S.W.2d 297

Irving LINICK, Formerly d/b/a Link Linick Insurance Agency, Appellant, v. EMPLOYERS MUTUAL CASUALTY COMPANY and Emasco Insurance Company, Appellees.

No. 04-91-00213-CV.

Court of Appeals of Texas San Antonio.

Dec. 31, 1991.

Richard C. Keene, Law Offices of Richard C. Keene, P.C., San Antonio, for appellant.

Joseph S. Babb and Susanne Underwood, Babb & Babb, P.C., Austin, for appellees.

Before REEVES, C.J. and GARCIA, and BISSETT ¹, JJ.

OPINION

BISSETT, Justice (Assigned).

This is an appeal by Irving Linick, formerly d/b/a Linick Insurance Agency, plaintiff in the trial court, from an order which dismissed his cause of action against Employers Mutual Casualty Company and Emasco Insurance Company, defendants in the trial court.

The sole issue presented by this appeal is whether the judiciary or an administrative board, i.e., the State Board of Insurance of Texas, has primary jurisdiction over a civil suit for damages brought by a local recording agent against an insurance company for failing to comply with the Texas Insurance Code and an Agency-Company Agreement. The resolution of such issue is dependent upon the interpretation of TEX.INS.CODE ANN. art. 21.11-1 § 5 (Vernon 1981), "Cancellation of Agency Contracts by Fire and Casualty Insurance Companies," which reads:

If it is found, after notice and an opportunity to be heard as determined by the board, that an insurance company has violated this article, the insurance company shall be subject to a civil penalty of not less than $1,000 nor more than $10,000, and it shall be subject to a civil suit by the agent for damages suffered because of the premature termination of the contract by the company.

Suit was originally filed July 27, 1989. Thereafter, on or about November 7, 1989, appellant filed its First Amended Original Petition. Appellant alleged, in summary, that the Company, contrary to their Agreement, Section 21.11-1 Texas Insurance Code, and to 28 Texas Administrative Code § 1.703, 5.7009 et seq., 7.604 et. seq. and 15.06, systematically, negligently, willfully, intentionally, and/or maliciously failed and refused to: 1) renew policies of insurance, theretofore issued by the Company to the clients, customers and insureds solicited by him; and 2) issue policies of insurance on any new business or increases in liability on renewal of in-force business on a fairly evaluated basis; which resulted in damages to appellant.

The obligation of appellees to renew policies and issue policies is not set out in the Agency-Company Agreement which is attached to the First Amended Original Petition as Exhibit "A". Such obligation, to the extent that it might apply to appellant, appears to be contained within the requirements of the TEX.INS.CODE ANN. art. 21.11-1 (Vernon 1981).

Appellees, by their First Amended Original Answer, Plea to the Jurisdiction, and First Amended Motion to Dismiss, asserted that the First Amended Original Petition claimed violations of article 21.11-1 as the sole proximate cause of all damages. Therefore, it is claimed that a finding by the State Board of Insurance that appellees violated such article was a prerequisite to bringing a civil suit for damages. In appellees' Plea to the Jurisdiction and First Amended Motion to Dismiss, it was urged that appellant had failed to exhaust his administrative remedies as contemplated by article 21.11-1 § 5, and had failed to plead that all conditions precedent had been satisfied prior to filing civil suit. Appellees claimed that failure to follow the statutorily required procedures resulted in the trial court's lack of jurisdiction over appellant's cause of action. We agree.

The trial court's Order of Dismissal evidences that the findings made were in consideration of Defendant's Special Exception, Plea to the Jurisdiction, and Motion to Dismiss. The trial court specifically found that under the facts as alleged in the First Amended Original Petition, section 5 of article 21.11-1 required appellant to secure a finding from the State Board of Insurance that appellees had violated article 21.11-1 prior to their instituting a civil suit for damages against appellees. The Order of Dismissal was signed and rendered on February 28, 1991.

Appellant presents a single point of error in this appeal. It states the following:

The sustaining of the Plea to the Jurisdiction asserted by EMPLOYERS and the Dismissal of the civil suit of LINICK by the trial court was error as jurisdiction of that court was not dependent upon a finding by the State Board of Insurance, prior to the institution of suit by LINICK, that EMPLOYERS violated Article 21.11-1 of the Texas Insurance Code.

The business of insurance has historically been closely regulated in this state. In Board of Ins. Comm'rs v. Great Southern Life Ins. Co., 150 Tex. 258, 239 S.W.2d 803, 808-09 (1951), the Texas Supreme Court, construing article 4764(a), stated: "As early as 1909, the Legislature recognized that the writing of life insurance was a business affected with the public interest and subject, therefore, to regulation to prevent abuses and discrimination." The Court acknowledged that legislation regulating the writing of life insurance "safeguards the rights of the policy holder, not alone by prescribing the form and content of his policy, but by undertaking as well to insure the solvency of the company with which he contracts." Id., 239 S.W.2d at 811. In Daniel v. Tyrrell and Garth Inv. Co., 127 Tex. 213, 93 S.W.2d 372 (1936), the Texas Supreme Court stated that "the business of insurance, generally, is now recognized to be one affected by public interest." Id., 93 S.W.2d at 374-75.

It is this public interest which brings the regulation of insurance by the Legislature squarely within the state's police power. See, e.g., Nunley v. The State Board of Ins., 552 S.W.2d 624, 627 (Tex.Civ.App.--Eastland 1977, writ ref'd n.r.e.). The courts of this state have long recognized that the wisdom of exercising police power is largely for legislative rather than judicial determination. Jefco Inc. v. Lewis, 520 S.W.2d 915, 922 (Tex.Civ.App.--Austin 1975, writ ref'd n.r.e.). Therefore, courts have been reluctant to disturb its exercise. See Great Southern Life Ins. Co., 239 S.W.2d at 812. Grounded in the separation of power doctrine, "there is a strong presumption that a legislature understands and correctly appreciates the needs of its own people, that its laws are directed at problems made manifest by experience, and that its discriminations are based upon adequate grounds." Smith v. Davis, 426 S.W.2d 827, 831 (Tex.1968). The Legislature, by proper grant, may delegate the exercise of police power to administrative agencies. See Jefco, Inc., 520 S.W.2d at 922.

Where the public interest is involved, individuals' rights often yield to overriding public interests and are often regulated under the police power of the State. Palmer v. Unauthorized Practice Comm. of the State Bar of Texas, 438 S.W.2d 374, 376-77 (Tex.Civ.App.--Houston [14th Dist.] 1969, no writ). Thus, contractual relations between parties can be regulated and the freedom of contract restricted to such a degree as is necessary for the reasonable protection of the public.

It can hardly be disputed that the insurance industry is highly regulated. Virtually every aspect of the organization and operation of insurance companies themselves is under the control of the State Board of Insurance. Likewise, the licensing and business activity of local recording agents is heavily controlled and regulated. See, TEX.INS.CODE ANN. art. 21.14 (Vernon 1981 and 1991 Supp.).

In addition to legislative control over the organization and structure of insurance companies, the licensing and sources of solicited writings by local recording agents, and the policy terms themselves, the Legislature has also determined that it should control the contractual relationship between insurance companies and agents. Therefore, the Legislature has mandated in article 21.11-1 certain procedures to be followed in the cancellation of agency contracts by life and casualty insurance companies. The provisions for termination and conduct of the business relationship following such termination are statutorily prescribed. The statute illustrates the fact that the relationship between insurance companies and their agents is not derived from the common law and is not exempt from statutory control under a freedom of contract or private right of contract theory.

Appellant suggests that section 5 of article 21.11-1 is unclear and that it must be construed in accordance with the rules of statutory construction. Appellees, to the contrary, assert that the statutory provision, in accordance with the standard rules of grammatical construction, is clear. We agree with appellees. If the State Board of Insurance, after proper notice has been given and...