Massachusetts Ass'n of Independent Ins. Agents & Brokers, Inc. v. Commissioner of Ins.

• Citation: 367 N.E.2d 796,373 Mass. 290
• Parties: MASSACHUSETTS ASSOCIATION OF INDEPENDENT INSURANCE AGENTS AND BROKERS, INC., 1 et al. 2 v. COMMISSIONER OF INSURANCE. Supreme Judicial Court of Massachusetts, Suffolk
• Decision Date: 09 September 1977
• Court: United States State Supreme Judicial Court of Massachusetts

Page 796

367 N.E.2d 796

373 Mass. 290

MASSACHUSETTS ASSOCIATION OF INDEPENDENT INSURANCE AGENTS AND BROKERS, INC., ¹ et al.² v. COMMISSIONER OF INSURANCE Supreme Judicial Court of Massachusetts, Suffolk.

Argued Nov. 3, 1976.

Decided Sept. 9, 1977.

Richard R. Eurich, Boston, for plaintiffs.

Terence P. O'Malley, Asst. Atty. Gen., for defendant.

Before QUIRICO, BRAUCHER, WILKINS and LIACOS, JJ.

LIACOS, Justice.

This is an appeal from an order of a single justice dismissing the plaintiffs' complaint under G. L. c. 231A seeking to challenge the validity of Regulation 3-74, entitled "Rules and Regulations Regarding Insurance Issued Pursuant to a Group Marketing Plan," issued on October 31, 1974, by the Commissioner of Insurance (commissioner). The regulation in question, purporting to implement the provisions of G. L. c. 175, § 193R, inserted by St. 1973, c. 1098, sets forth the criteria for so-called group marketing plans. The statute on its face ³ concerns not only such plans but also "mass merchandising" plans. ⁴

The plaintiffs allege that the regulation is invalid and in contravention of the express provisions and intent of the statute. Their position is that G.L. c. 175, § 193R, requires the commissioner to make reasonable rules and regulations regarding insurance issued pursuant to both group marketing plans and mass merchandising plans, and that any narrowing by regulation of the limitations of the statute to group marketing would lead to unfair competition. The commissioner's position, as reflected in Regulation 3-74, is to the contrary. ⁵

The plaintiffs alleged in their complaint ⁶ that insurers were offering, and that the commissioner had approved, mass merchandising plans at lower rates than were available to individuals, which plans were not in conformity with G. L. c. 175, § 193R. They also alleged that they were participants in a heavily regulated industry with the purpose of the regulatory scheme being to protect those in the plaintiffs' position from the unfair and illegal competition being offered by the unregulated mass merchandising programs. They claimed that they were being injured in the conduct of their business and were suffering substantial losses of customers. The commissioner filed a motion to dismiss the amended complaint based on the grounds of lack of actual controversy and requisite standing by the plaintiffs. The single justice dismissed the complaint.

1. In order for a court to entertain a petition for declaratory relief, an "actual controversy" sufficient to withstand a motion to dismiss must appear on the pleadings. G. L. c. 231A, § 1. Even if there is an actual controversy, the particular plaintiff must demonstrate the requisite legal standing to secure its resolution. Hillman v. Second Bank-State St. Trust Co., 338 Mass. 15, 19, 153 N.E.2d 651 (1958). The question whether an actual controversy exists is closely related to the issue of standing. South Shore Nat'l Bank v. Board of Bank Incorporation, 351 Mass. 363, 366-367, 220 N.E.2d 899 (1966).

The purpose of both the actual controversy and the standing requirements is to ensure the effectuation of the statutory purpose of G. L. c. 231A, which is to enable a court "to afford relief from . . . uncertainty and insecurity with respect to rights, duties, status and other legal relations." G. L. c. 231A, § 9, inserted by St. 1945, c. 582, § 1. Such proceedings are concerned with the resolution of real, not hypothetical, controversies; the declaration issued is intended to have an immediate impact on the rights of the parties. Employers' Commercial Union Ins. Co. v. Commissioner of Ins., 362 Mass. 34, 38, 283 N.E.2d 849 (1972). Travelers Ins. Co. v. Graye, 358 Mass. 238, 240, 263 N.E.2d 442 (1970).

Although the "actual controversy" and standing requirements should be liberally construed in accord with the provisions of G. L. c. 231A, § 9, there are limits to the matters which can be heard in an action for a declaratory judgment. Southbridge v. Southbridge Water Supply Co., --- Mass. ---, --- - --- ^a, 355 N.E.2d 920 (1976).

In the sense that the matter at issue here involves a dispute over an official interpretation of a statute and the validity of a regulation promulgated pursuant to that interpretation, a justiciable controversy exists. Woods v. Newton, 349 Mass. 373, 376, 208 N.E.2d 508 (1965). School Comm. of Cambridge v. Superintendent of Schools, 320 Mass. 516, 70 N.E.2d 298 (1946). G. L. c. 231A, § 2. However, controversy in the abstract is not sufficient to allow a plaintiff to invoke the declaratory judgment remedy. Supreme Council of the Royal Arcanum v. State Tax Comm'n, 358 Mass. 111, 260 N.E.2d 822 (1970). The plaintiff must also be one who, by virtue of a legally cognizable injury, is a person entitled to initiate judicial resolution of the controversy. See K. C. Davis, Administrative Law § 22.04 at 427 (1972).

A party has standing when it can allege an injury within the area of concern of the statute or regulatory scheme under which the injurious action has occurred. Circle Lounge & Grille, Inc. v. Board of Appeal of Boston,324 Mass. 427, 86 N.E.2d 920 (1949). Westland Housing Corp. v. Commissioner of Ins. 352 Mass. 374, 225 N.E.2d 782 (1967). Massachusetts Soc'y of Optometrists v. Waddick, 340 Mass. 581, 165 N.E.2d 394 (1960).

Normally, an injury derived from business competition is not sufficient to confer standing. Nantucket Boat Inc. v. Woods Hole, Martha's Vineyard & Nantucket S.S. Auth., 345 Mass. 551, 188 N.E.2d 476 (1963). Circle Lounge & Grille, Inc. v. Board of Appeal of Boston, supra. "This rule does not apply, however, to competitors in a regulated industry . . . who are attempting to challenge governmental action threatening their competitive position." Everett Town Taxi, Inc. v. Aldermen of Everett, 366 Mass. 534, 538, 320 N.E.2d 896, 900 (1974). SDK Medical Computer Servs. Corp. v. Professional Operating Management Group, Inc., --- Mass. ---, --- & n.11, --- & n.12 ^b, 354 N.E.2d 852 (1976). South Shore Nat'l Bank v. Board of Bank Incorporation, supra. Bay State Harness Horse Racing & Breeding Ass'n v. State Racing Comm'n, 342 Mass. 694, 702, 175 N.E.2d 244 (1961).

The commissioner has argued that the exception has no applicability in this case. He claims that the purpose of G. L. c. 175, § 193R, is to facilitate the issuance of certain types of low-cost insurance, and that his actions thereunder cannot be seen as governmental action affecting competitive position. Rather, he argues, the competitive injury is solely a result of the operation of market forces. ⁷ This is too restrictive an application of the principle which can confer standing. Not only must the particular statute under which the violation is alleged to have occurred be examined in order to see whether the alleged injury is within the parameters of the statutory concern but, in the case of a regulated industry, we must ascertain whether the type of injury alleged is inconsistent with the aims and purposes of the entire regulatory scheme. If the injury alleged is within the scope of those concerns we believe that a challenger has shown sufficient injury to establish standing.

In the case of the insurance industry it is well established that the business of insurance is subject to a large degree of legislative regulation and that the power exists to establish reasonable regulation in the public interest. Attorney Gen. v. Prudential Ins. Co. of America, 310 Mass. 762, 765, 39 N.E.2d 664 (1942). It is also evident that the commissioner has certain obligations in the administration of the regulatory scheme. See G. L. c. 175, § 3A. Inherent in the nature of these obligations are certain expressed public policies or concerns which can be vindicated by allowing those injured by official action allegedly inconsistent with these policies to challenge them.

An examination of the entire regulatory scheme governing the insurance industry shows a clear public interest in the maintenance of a reasonable competitive level within the industry. This policy is clearly expressed in the rate setting provisions which are incorporated by reference in G. L. c. 175, § 193R. See G. L. c. 174A, § 2; G. L. c. 175, § 113B; G. L. c. 175A, §§ 2, 4. For example, G. L. c. 174A, § 2, and a parallel provision, G. L. c. 175A, § 2, declare that the statutory purpose is "to promote the public welfare by regulating insurance rates to the end that they shall not be excessive, inadequate or unfairly discriminatory," and further that nothing in the chapter was meant to preclude "reasonable competition." Cf. Westland Housing Corp. v. Commissioner of Ins., 352 Mass. 374, 225 N.E.2d 782 (1967). See also G. L. c. 175, § 113B; G. L. c. 175A, § 5(a)(4).

To construe these statements of policy as only applying to the rate setting process would be to disregard obvious legislative purpose. It is clear that the Legislature was acting in what it believed was the public interest in defining goals of precluding unreasonable competition and discriminatory rates. Cf. Chicopee Co-op. Bank v. Board of Bank Incorporation, 347 Mass. 744 752, 200 N.E.2d 284 (1964). Thus if the plaintiffs in this case allege an economic or competitive injury which on its face implicates the effectuation of these important public policies then it can be said that the injury is within the statutory zone of concern.

The powers and duties of agents and brokers in relation to marketing of insurance is set forth in G. L. c. 175, §§ 163-165. These sections clearly indicate that the ability of the agent as representative of the insurer, or the broker in placing policies with insurers, to compete for business is dependent on those coverages made available to them by insurers for marketing. Since it is persons such as the plaintiffs who are often the conduit for public contact with the insurer, the coverages available to agents and brokers are an essential factor in determining the nature of...