Shell v. Metropolitan Life Ins. Co.

• Decision Date: 06 April 1989
• Docket Number: No. CC986,CC986
• Citation: 181 W.Va. 16,380 S.E.2d 183
• Court: West Virginia Supreme Court
• Parties: , 57 USLW 2678, 117 Lab.Cas. P 56,492, 4 IER Cases 579 Bobby J. SHELL v. METROPOLITAN LIFE INSURANCE CO., Frank T. Senkoski and John W. Thomas.

Page 183

380 S.E.2d 183

181 W.Va. 16, 57 USLW 2678, 117

Lab.Cas. P 56,492,

4 IER Cases 579

Bobby J. SHELL v. METROPOLITAN LIFE INSURANCE CO., Frank T. Senkoski and John W. Thomas.

No. CC986.

Supreme Court of Appeals of West Virginia.

April 6, 1989.

Syllabus by the Court

1. In construing our state constitutional provision prohibiting any "law impairing the obligation of a contract," W.Va. Const. art. III, § 4, we have generally accepted the United States Supreme Court's interpretation of the similar provision contained in Article I, Section 10, Clause 1 of the United States Constitution.

2. "The clauses of the Constitution of the United States and the Constitution of West Virginia which forbid the passage of a law impairing the obligation of a contract are not applicable to a statute enacted prior to the making of a contract." Syllabus Point 1, in part, Devon Corp. v. Miller, 167 W.Va. 362, 280 S.E.2d 108 (1981), cert. denied, 455 U.S. 993, 102 S.Ct. 1622, 71 L.Ed.2d 855 (1982).

3. Although the language of the Contract Clause is facially absolute, its prohibition must be accommodated to the inherent police power of the State to safeguard the vital interests of its people.

4. In determining whether a Contract Clause violation has occurred, a three-step test is utilized. The initial inquiry is whether the statute has substantially impaired the contractual rights of the parties. If a substantial impairment is shown, the second step of the test is to determine whether there is a significant and legitimate public purpose behind the legislation. Finally, if a legitimate public purpose is demonstrated, the court must determine whether the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption.

5. One of the factors to be considered in determining the degree of impairment is whether the industry the statute seeks to regulate has been regulated in the past.

6. W.Va.Code, 33-12A-1, et seq. (1984), precludes insurance agents from being discharged except for good cause and confers a private cause of action upon insurance agents dismissed on other grounds. To the extent this statute affects existing rights under employment contracts executed before its effective date, it violates the Contract Clauses of the state and federal constitutions.

7. "In a certified case, this Court will not consider certified questions not necessary to a decision of the case." Syllabus Point 6, West Virginia Water Serv. Co. v. Cunningham, 143 W.Va. 1, 98 S.E.2d 891 (1957).

Ricklin Brown, Monica Kaminski, Bowles, McDavid, Graff & Love, Charleston, for Metropolitan Life Ins. and Frank T. Senkoski and John W. Thomas.

James M. Cagle, Charleston, for Bobby J. Shell.

MILLER, Justice:

The circuit court, having found constitutional the provisions of W.Va.Code, 33-12A-1, et seq. (1984), prohibiting an insurance company from discharging its agents except for "good cause" as defined in the statute, has certified this question to us. We find these provisions to be an unconstitutional impairment of existing contractual obligations under Article I, Section 10, Clause 1 of the United States Constitution ¹ and Article III, Section 4 of the West Virginia Constitution. ²

The material facts of this case are essentially undisputed. On or about September 30, 1968, Bobby J. Shell was hired by Metropolitan Life Insurance Company (Metropolitan) as an insurance agent. His employment contract provided that he could be dismissed by Metropolitan "without advance notice for breach of any of the conditions of your appointment and also at any time by two weeks' notice in writing[.]" ³

In March, 1984, the Legislature enacted W.Va.Code, 33-12A-1, et seq., governing contractual relationships between insurance companies and agents. W.Va.Code, 33-12A-3, provides:

"No insurance company may cancel, refuse to renew or otherwise terminate a written contractual relationship with any insurance agent who has been employed or appointed pursuant to that written contract by such insurance company for a period of more than five years, except for 'good cause,' as prescribed herein. If an insurance company proposes to cancel, fail to renew or otherwise terminate a contractual relationship with the agent, the company shall so notify the agent by certified mail at least ninety days prior to the date upon which the company proposed to cancel, fail to renew or terminate the contractual relationship. Such notice shall include a statement of the grounds upon which the insurance company bases its decision to cancel, refuse to renew or terminate any contractual relationship.

"The following matters are 'good cause' for an insurance company to terminate the contractual relationship with its agent:

"(a) Criminal misconduct or gross negligence relating to the business or premises of the insurance agency;

"(b) Fraud or moral turpitude;

"(c) Abandonment or unattendance of the business or premises of the insurance agency for such period of time as may unreasonably interfere with the transacting of business;

"(d) The failure by the agent to pay moneys over to the company for insurance contracts sold by the agency;

"(e) The death or disability of the agent; and

"(f) Upon the company becoming insolvent or discontinuing any line of insurance for any business purpose: Provided, That the insurance commissioner shall notify or cause to be notified in writing all agents of such insolvent insurance company that they are no longer entitled to any benefit under their contract with the insolvent company."

In March, 1985, some nine months after the effective date of the statute, ⁴ Metropolitan issued a new Manual of Instructions for Agents which, in essence, restated the "at will" nature of Mr. Shell's employment. ⁵

On or about June 12, 1987, Mr. Shell was fired, ostensibly for unsatisfactory work performance, with two weeks' salary in lieu of notice. Mr. Shell subsequently filed suit against Metropolitan in the Circuit Court of Logan County, alleging that he had been wrongfully discharged from his employment in violation of W.Va.Code, 33-12A-1, et seq. ⁶ In response to a motion for summary judgment, Metropolitan asserted that the statute unlawfully impaired the obligations of the parties under the employment contract and was, therefore, unconstitutional. Metropolitan sought summary judgment on this ground or, in the alternative, certification of the question to this Court. Mr. Shell subsequently joined in the motion to certify the question, and, by order dated July 12, 1988, the circuit court granted the motion. ⁷

The principal issue before this Court is whether W.Va.Code, 33-12A-1, et seq., violates the Contract Clauses of the state and federal constitutions. In construing our state constitutional provision prohibiting any "law impairing the obligation of a contract," W.Va. Const. art. III, § 4, we have generally accepted the United States Supreme Court's interpretation of the similar provision contained in Article I, Section 10, Clause 1 of the United States Constitution. E.g., Dadisman v. Moore, 181 W.Va. 779, 384 S.E.2d 816-(1988) Orr v. County Comm'n of Cabell County, 178 W..Va.276, 359 S.E.2d 109 (1987); Columbia Gas of West Virginia, Inc. v. Public Serv. Comm'n, 173 W.Va. 19, 311 S.E.2d 137 (1983); Wagoner v. Gainer, 167 W.Va. 139, 279 S.E.2d 636 (1981); Security Nat'l Bank & Trust Co. v. First W.Va. Bancorp, Inc., 166 W.Va. 775, 277 S.E.2d 613 (1981), appeal dismissed, 454 U.S. 1131, 102 S.Ct. 986, 71 L.Ed.2d 284 (1982); Preston County Light & Power Co. v. Renick, 145 W.Va. 115, 113 S.E.2d 378 (1960).

Initially, Mr. Shell contends that the Contract Clause analysis has no application here because his employment contract was modified by the new agents' manual issued in March, 1985. Mr. Shell argues that he was, in essence, given a new employment contract after the effective date of W.Va.Code, 33-12A-1, et seq., and that the statute therefore impairs no preexisting obligations.

In Syllabus Point 1, in part, of Devon Corp. v. Miller, 167 W.Va. 362, 280 S.E.2d 108 (1981), cert. denied, 455 U.S. 993, 102 S.Ct. 1622, 71 L.Ed.2d 855 (1982), we recognized the general rule that the constitutional prohibitions against impairment of contractual obligations are not applicable to contracts formed after the effective date of the statute:

"The clauses of the Constitution of the United States and the Constitution of West Virginia which forbid the passage of a law impairing the obligation of a contract are not applicable to a statute enacted prior to the making of a contract."

This rule was drawn from Edgar A. Levy Leasing Co. v. Siegel, 258 U.S. 242, 42 S.Ct. 289, 66 L.Ed. 595 (1922), and Oshkosh Waterworks Co. v. City of Oshkosh, 187 U.S. 437, 23 S.Ct. 234, 47 L.Ed. 249 (1903), but is supported in a number of other cases. E.g., Watson v. Employers Liability Assurance Co., 348 U.S. 66, 75 S.Ct. 166, 99 L.Ed. 74 (1954); Munday v. Wisconsin Trust Co., 252 U.S. 499, 40 S.Ct. 365, 64 L.Ed. 684 (1920). The rationale for this rule is apparent: There can be no impairment of contractual obligations which did not exist at the time the challenged statute was enacted. Thus, the Contract Clause prohibits only those statutes which impair existing contracts.

We must agree with Metropolitan, however, that Mr. Shell's employment contract predated the enactment of W.Va.Code, 33-12A-1, et seq. Nothing in the March, 1985 amendments to the agents' manual modified the provisions of the 1968 contract concerning the "at will" nature of Mr. Shell's employment. In fact, the new agents' manual expressly acknowledged Metropolitan's right to terminate Mr. Shell's employment for any reason on proper notice. We cannot conclude that Metropolitan, in essence, executed a new contract with Mr. Shell after the passage of W.Va.Code, 33-12A-1, et seq. Accordingly, we turn to the issue...