Norwood A. McDaniel Agency v. Foster

• Decision Date: 07 January 1988
• Citation: 543 A.2d 155,117 Pa.Cmwlth. 227
• Parties: NORWOOD A. McDANIEL AGENCY, Petitioner, v. Constance B. FOSTER, Insurance Commissioner, Commonwealth of Pennsylvania and the Aetna Casualty and Surety Company, Respondents. . Heard
• Court: Pennsylvania Commonwealth Court

Page 155

543 A.2d 155

117 Pa.Cmwlth. 227

NORWOOD A. McDANIEL AGENCY, Petitioner, v. Constance B. FOSTER, Insurance Commissioner, Commonwealth of Pennsylvania and the Aetna Casualty and Surety Company, Respondents.

Commonwealth Court of Pennsylvania.

Heard Jan. 7, 1988.

Decided Feb. 1, 1988.

Designated as Opinion to be Reported

June 22, 1988.

Michael A. Dillon, William R. Balaban, Balaban & Balaban, Harrisburg, for petitioner.

Linda Wells, Chief Counsel, Karen Gantt, Terrance J. Fitzpatrick, Harrisburg, for Insurance Com'r.

M. Hannah Leavitt, Baskin Flaherty Elliott Mannino & Beren, Harrisburg, for Aetna Cas. & Sur. Co.

OPINION AND ORDER

DOYLE, Judge.

Before us in our original jurisdiction is an application for peremptory mandamus and preliminary injunction filed by the Norwood A. McDaniel Agency (Petitioner). Petitioner is engaged in the insurance business in Pennsylvania and is an "agent" as that term is defined in Section 1 of the Act of September 22, 1978, P.L. 763, as amended, 40 P.S. § 241 (Act 143). Respondent Aetna Casualty and Surety Company (Aetna) is an insurer as defined in Section 1 of Act 143 and is licensed by Respondent Insurance Department.

By letter dated July 22, 1987 Aetna notified Petitioner that the agency agreement which had existed between the parties for twenty-nine years was terminated insofar as it affected Petitioner's rights to write personal property and casualty lines with Aetna (essentially home owners and automobile liability policies). The letter gave October 31, 1987 as the effective date of termination, but this date was later extended by agreement to January 1, 1988. The July letter advised Mr. McDaniel, head of the Petitioner agency, of his right to request review of the termination decision by the Insurance Commissioner. ¹ Petitioner timely requested review in a letter dated July 29, 1987. ²

Section 2 of Act 143 provides in pertinent part:

(d) Administrative review.--Any agent may within 30 days of receipt of notice of termination, request in writing to the Insurance Commissioner that he review the action of the insurer for the purpose of determining that said termination was in compliance with the provisions of this section.

(e) Restriction on termination.--No insurer shall terminate its contract with an agent due to the adverse experience of a single year. Prior to such termination it shall be the obligation of the insurer to demonstrate that it has made a reasonable attempt to rehabilitate such agent.

As of the date of this opinion and order the only significant Department action which has taken place in this matter consisted of a meeting which is most aptly described as a settlement or mediation conference. Both Mr. McDaniel and an Aetna representative were present at a December 2, 1987 meeting along with Mr. Sebastian, Chief of the Consumer Services Division of the Department, who was authorized by the Insurance Commissioner to attempt to mediate disputes between insurance companies and their agents. This conference was not stenographically recorded, witnesses were not placed under oath, and there was no cross-examination. All parties agreed that what occurred was not a due process hearing as defined in Sections 501-508 of the Administrative Agency Law, 2 Pa.C.S. §§ 501-508. Subsequent to the meeting, Mr. Sebastian sent all parties a letter containing "findings" that Aetna had not violated the Act, and that it had attempted to rehabilitate the Petitioner Agency. The letter also requested that "this termination be extended until October 31, 1988" but indicated that Petitioner could not write new automobile policies. Finally, the letter indicated that both the insurer and the agency had the right to appeal Mr. Sebastian's determination to the Insurance Commissioner pursuant to the Rules of Administrative Practice and Procedure.

It is Petitioner's position that Section 2(d) entitles him to a review of the termination action by the Commissioner before the insurer's termination can become effective; that no such review has been forthcoming, and that Aetna should be enjoined from terminating its agreement until such review occurs. Further, Petitioner seeks from this Court peremptory mandamus compelling the Commissioner to afford Petitioner administrative review.

Because this case is before us in the procedural posture of a motion for preliminary injunction, we must consider the following criteria in determining whether to grant the relief requested: (1) is the injunction necessary to prevent immediate and irreparable injury not compensable in damages (2) would greater harm result from denying the injunction than from granting it (3) is the plaintiff's right to relief clear (4) will the status quo be restored if the injunction is granted. Pennsylvania Interscholastic Athletic Association, Inc. v. Greater Johnstown School District, 76 Pa. Commonwealth Ct. 65, 463 A.2d 1198 (1983).

Mr. McDaniel testified that the immediate effect of the termination was to preclude him from writing new policies for personal property and casualty lines of insurance. The termination does not, however, affect his ability to write commercial insurance or, for the present time, does it affect his renewal business or other lines of insurance he maintains with Aetna. Renewals will be accepted by Aetna until the end of October 1988. Mr. McDaniel further explained that the prohibition against writing new automobile policies is particularly detrimental to him because only if he can write homeowners and automobile insurance policies together for the same individual with the same company can he offer a five percent discount which gives him a necessary competitive edge. Finally, this witness explained that the immediate effect of the termination is to preclude him from writing eight to twelve new policies a week and that such result is "devastating." In contrast, Aetna's witnesses did not present evidence that the degree of harm to Aetna would be that serious were Petitioner permitted to continue to write new policies during the pendency of this litigation. Thus, on balance, we believe that the immediate and irreparable harm being suffered by Petitioner is greater than any harm which might be suffered by Aetna.

Next, we must consider whether Petitioner has a clear right to relief. We read Section 2(d) to require a review by the Insurance Commissioner or her lawful designee prior to the termination of an agent's contract when such review is timely requested. This conclusion is reached because the Sections of Act 143 must be read in pari materia. Section 2(e) mandates that the insurer, upon the agent's request for a 2(d) review, demonstrate compliance with the rehabilitation provision. The only individual to whom such demonstration could logically be given is the Commissioner or her lawful designee. Further, Section 2(e) makes it clear that the demonstration must be given prior to the termination. Because we find that the review provisions have not been complied with and further find that the termination has actually taken effect, we hold that Petitioner has stated a clear right to relief.

While we found Mr. Sebastian to be a most credible witness, this Court does not believe that the mediation procedures which he has been authorized to perform constitute a "review" within the intendment of Section 2(d). And although we commend the Insurance Commissioner on her efforts to resolve amicably such disputes, settlement procedures such as those used here cannot be a substitute for the statutorily proscribed "review."

The Department contends that Petitioner had never asked for a formal hearing and, hence, has failed to exhaust administrative remedies. Although there was no request for such a hearing subsequent to Mr. Sebastian's letter being sent, we note that Mr. McDaniel stated in his July 29, 1987 letter to Mr. Sebastian "I am respectfully requesting that a hearing be scheduled to review this unfair agency termination as soon as possible." This letter was in direct response to Aetna's letter advising him of his 2(d) right of review under Act 143. We therefore find that a request for a Section 2(d) review was, in fact, made and do not believe that the intervening conference, which did not constitute a Section 2(d) review, vitiated that request. Equally without merit is the Department's contention that Petitioner's request for a hearing was not directed to the Commissioner, but to Mr. Sebastian. Inasmuch as Petitioner's letter was clearly in response to Aetna's letter informing him of his 2(d) right of review, the fact that the letter was addressed to Mr. Sebastian is of no moment.

Having determined that a review in this case is...