Ludington Service Corp. v. Acting Com'r of Ins.

• Decision Date: 25 January 1994
• Docket Number: Docket Nos. 95123,No. 9,95124,N,9
• Citation: 444 Mich. 481,511 N.W.2d 661
• Parties: LUDINGTON SERVICE CORPORATION, Plaintiff-Appellee, v. ACTING COMMISSIONER OF INSURANCE, Defendant-Appellant, and Independent Insurance Agency of Michigan, Michigan Association of Professional Insurance Agents, and Michigan State Association of Life Underwriters, Intervening Defendants-Appellants. Calendarovember Term 1993.
• Court: Michigan Supreme Court

Page 661

511 N.W.2d 661

444 Mich. 481

LUDINGTON SERVICE CORPORATION, Plaintiff-Appellee, v. ACTING COMMISSIONER OF INSURANCE, Defendant-Appellant and Independent Insurance Agency of Michigan, Michigan Association of Professional Insurance Agents, and Michigan State Association of Life Underwriters, Intervening Defendants-Appellants.

Docket Nos. 95123, 95124.

Calendar No. 9, November Term 1993.

Supreme Court of Michigan.

Argued Nov. 3, 1993.

Decided Jan. 25, 1994.

John D. Pirich, Timothy Sawyer Knowlton, Honigman Miller Schwartz & Cohn, Lansing, for Ludington Service Corp.

Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., Harry G. Iwasko, Jr., William A. Chenoweth, Asst. Attys. Gen., Lansing, for defendant/appellant Michigan Com'r of Ins.

Michael A. Zagaroli, P.C., Michael A. Zagaroli, Lansing, for intervening defendants-appellants.

James H. Breay, Warner, Norcross & Judd, Grand Rapids, for Michigan Bankers Ass'n, as amicus curiae, in support of plaintiff/appellee.

Opinion

RILEY, Justice.

We granted leave to appeal in this declaratory relief action to decide whether Ludington Savings Bank's proposed business plan to purchase and operate an existing insurance agency through its wholly owned subsidiary, Ludington Service Corporation, would violate the Insurance Code. Specifically, we must decide whether the Commissioner of Insurance erred in concluding that the bank's proposed business plan would violate M.C.L. § 500.1207(3); M.S.A. § 24.11207(3), M.C.L. § 500.2077(2); M.S.A. § 24.12077(2), M.C.L. § 500.1207(5); M.S.A. § 24.11207(5), and M.C.L. § 500.1242(3); M.S.A. § 24.11242(3). We hold that the commissioner's findings with respect to §§ 1207(3), 2077(2), and 1207(5) are not supported by competent, material, and substantial evidence. We also hold that the commissioner improperly based his ruling on § 1242(3). Accordingly, we affirm the result reached by the Court of Appeals, albeit on somewhat different grounds.

I

Ludington Savings Bank sought to acquire ownership of an existing insurance agency through its wholly owned subsidiary, Ludington Service Corporation (plaintiff). ¹ Plaintiff proposed to offer life, accident, health, annuities, personal and commercial property, and casualty insurance. Both the insurance and banking operations were to take place in the bank buildings. After preparing a business plan ² that attempted to separate the bank's lending activities from plaintiff's insurance activities, plaintiff submitted the plan to the office of the Commissioner of Insurance and engaged in informal discussions with agency personnel. Subsequently, however, plaintiff learned that John R. Schoonmaker, the agency's director of legal resources, had sent a letter to Robert G. Howell, Executive Vice-President of the Michigan League of Savings Institutions, indicating that plaintiff's business plan could be in violation of the Insurance Code. ³ Plaintiff promptly filed suit in Ingham Circuit Court, seeking a declaratory judgment and requesting approval to operate the insurance agency in accordance with its proposed business plan. ⁴ Judge Thomas L. Brown dismissed the suit on the ground that plaintiff had not exhausted all its administrative remedies, noting that plaintiff either could seek a declaratory ruling from the commissioner or purchase the agency and contest the revocation proceedings if the commissioner sought to revoke the license. ⁵

Following the court's dismissal, plaintiff sought a declaratory ruling by the commissioner with regard to whether he would oppose the acquisition or later seek to revoke the license. ⁶ At some point, plaintiff apparently concluded that the commissioner was improperly delaying his decision, ⁷ thereby provoking plaintiff to again file suit in Ingham Circuit Court.

Thereafter, on September 15, 1989, the commissioner issued his declaratory ruling in conjunction with his answer to plaintiff's complaint and filed both with the circuit court. In the declaratory ruling, the commissioner found that plaintiff's business plan would violate several sections of the Insurance Code. ⁸ Consequently, the commissioner moved for summary disposition on the basis of his findings. After rejecting several constitutional and procedural arguments, ⁹ Judge Brown affirmed the commissioner's declaratory ruling. Plaintiff appealed Judge Brown's ruling in the Court of Appeals.

In three separate opinions, the Court of Appeals panel reversed both the commissioner's ruling and the circuit court's opinion. 194 Mich.App. 255, 486 N.W.2d 120 (1992). In the lead opinion, Judge Sawyer stated that he was not convinced that "plaintiff would necessarily violate the code if the agency is operated according to the business plan." Id., 194 Mich.App. at 258, 486 N.W.2d 120. Judge Shepherd concurred in the result reached by Judge Sawyer, but on the ground that the commissioner's ruling lacked competent, material, and substantial supporting evidence. Id., 194 Mich.App. at 268, 486 N.W.2d 120. Finally, Judge Connor dissented, asserting that the commissioner's decisions are entitled to substantial deference, and therefore, found competent, material, and substantial evidence to support the commissioner's ruling. Id., 194 Mich.App. at 268-270, 486 N.W.2d 120.

We granted leave to appeal, as well as various motions for leave to file briefs amici curiae. ¹⁰

II

This case comes to the Court in an interesting procedural posture because, instead of waiting for the commissioner to act upon actual Insurance Code violations, plaintiff exercised its right to a declaratory ruling for advance instruction with respect to whether its proposed business plan would violate the Insurance Code. Essentially, plaintiff sought guidance and approval that would bind the commissioner before making a substantial investment in its proposed business venture. Section 63 of the Administrative Procedures Act specifically permits plaintiff to seek such relief. ¹¹ Although this is a permissible remedy, we recognize the difficulty in isolating anticipatory violations of the Insurance Code solely on the basis of a proposed business plan. ¹²

Nonetheless, in reviewing the commissioner's findings, both the Michigan Constitution ¹³ and the applicable statute ¹⁴ direct this Court to examine the commissioner's authority to issue such a ruling as well as the entire record to determine whether the anticipated violations are supported by competent, material, and substantial evidence. Metropolitan Council No. 23 AFSCME v. Oakland Co. Prosecutor, 409 Mich. 299, 330, 294 N.W.2d 578 (1980), quoting Detroit v. General Foods Corp., 39 Mich.App. 180, 190, 197 N.W.2d 315 (1972). This Court must uphold the commissioner's decision " 'if it is supported by such evidence as a reasonable mind would accept as adequate to support the decision.' " Kieffer v. Dep't of Licensing & Regulation, 169 Mich.App. 312, 315, 425 N.W.2d 539 (1988).

Moreover, we recognize that the office of Commissioner of Insurance is an administrative agency "charged with the execution of the laws in relation to insurance ... and to perform such other duties as may be required by law...." M.C.L. § 500.200; M.S.A. § 24.1200. Accordingly, this Court, in reviewing the record, will accord the commissioner's factual findings great deference. Breuhan v. Plymouth-Canton Community Schools, 425 Mich. 278, 282-283, 389 N.W.2d 85 (1986), citing Magreta v. Ambassador Steel Co., 380 Mich. 513, 519, 158 N.W.2d 473 (1968). Similarly, this Court will accord deference to the " 'construction placed upon statutory provisions by any particular department of government for a long period of time....' " Southfield Police Officers Ass'n v. Southfield, 433 Mich. 168, 177, 445 N.W.2d 98 (1989).

A

Against this backdrop, we review first the commissioner's holding that the bank's plan would violate § 1207(3) of the Insurance Code, which provides:

"Except as provided in section 1212 and subsection (4), an agent shall not reward or remunerate any person for procuring or inducing business in this state, furnishing leads or prospects, or acting in any other manner as an agent."

The commissioner reasoned that the bank's plan would "amount to procuring or inducing business or furnishing leads or prospects for the Agency," with profits inuring to the benefit of the bank via dividend payments. ¹⁵ Declaratory ruling at 5.

In addressing THM, Ltd. v. Comm'r of Ins., 176 Mich.App. 772, 440 N.W.2d 85 (1989), the commissioner stated that the same analysis is applicable in the instant case. ¹⁶ He also suggested that this case could result in an even greater violation of § 1207(3) than in THM. The commissioner reasoned that the business plan's proposal to permit the bank to control and distribute the mailings, while allowing both companies to inform their customers of their affiliation, would violate § 1207(3)'s prohibition against producing leads or prospects, as well as the prohibition against procuring and inducing business. Declaratory ruling at 6.

The Court of Appeals majority held that the commissioner erred in the application of this section. In his lead opinion, Judge Sawyer held that § 1207(3) was limited to a quid pro quo relationship where dividends are distributed in direct proportion to the amount of business referred. Ludington Service, supra 194 Mich.App. at 259-260, 486 N.W.2d 120, citing Lawyers Title Ins. Corp. v. Chicago Title Ins. Co., 161 Mich.App. 183, 193-194, 409 N.W.2d 774 (1987). Judge Sawyer went so far as to hold that THM was wrongly decided, concluding that § 1207(3) "is not violated where an agency pays a dividend to a shareholder based upon the profits earned by the agency and the shareholder engages in promotion of the insurance agency." Id., 194 Mich.App. at 261, 486 N.W.2d 120.

On the other hand, Judge Shepherd's concurrence advocated a more moderate approach. He rejected overruling THM, and instead rested his decision to reverse on the lack of competent, material, and...