State Bd. of Ins. v. Deffebach, 13409

• Decision Date: 31 March 1982
• Docket Number: No. 13409,13409
• Citation: 631 S.W.2d 794
• Parties: STATE BOARD OF INSURANCE of Texas, et al., Appellants, v. William DEFFEBACH, Appellee.
• Court: Texas Court of Appeals

Page 794

631 S.W.2d 794

STATE BOARD OF INSURANCE of Texas, et al., Appellants, v.William DEFFEBACH, Appellee.

No. 13409.

Court of Appeals of Texas, Austin.

March 31, 1982.

Rehearing Denied May 5, 1982.

Mark White, Atty. Gen., Nancy O. Ricketts, Asst. Atty. Gen., Austin, for appellants.

Forrest C. Roan, Warren G. Craig, Jr., Roan & Gullahorn, P. C., Shannon H. Ratliff, McGinnis, Lochridge & Kilgore, Austin, for appellee.

SHANNON, Justice.

AppelleeWilliam Deffebach filed a declaratory judgment suit in the district court of Travis County pursuant to the Administrative Procedure and Texas Register Act, Tex.Rev.Civ.Stat.Ann. art. 6252-13a § 12 (Supp.1981).The objective of that suit was to obtain a declaration that OrderNo. 37,495, promulgated by the State Board of Insurance and containing certain rules pertaining to credit life and health and accident insurance, was invalid.After hearing, the district court rendered judgment declaring the order invalid in part and enjoining the agency from enforcing it.This Court will reverse the judgment and dissolve the injunction.

The findings of fact filed by the court established the following: ¹ The Board published notice of certain proposed credit insurance rules to be considered for adoption and sent letters of notice and copies of the proposed rules to one hundred seventy-six insurers and to other interested persons who had requested notice.Deffebach is an agent appointed by an insurance company to sell credit life and health and accident insurance.The Board's order promulgating presumptive rates "basically reduced the amount of premium paid for credit insurance" with a resultant reduction of Deffebach's income from commissions.

The district court concluded that the Board's order establishing presumptively reasonable premium and benefit packages constituted ratemaking, and as such, should have been considered in a contested case proceeding rather than in a rulemaking context under the Administrative Procedure and Texas Register Act, Tex.Rev.Civ.Stat.Ann. art. 6252-13a (Supp.1981)(sometimes referred to as APTRA).The court also declared the order exceeded the statutory authority of the Board inasmuch as it regulates insurance commissions, and that the adopted rules differed materially and substantially from those published as proposed rules therefore mandating republication as proposed rules.

STANDING TO SUE

The Board attacks the judgment by several points of error, some of which assert the district court erred in concluding Deffebach had standing to file a declaratory judgment action pursuant to art. 6252-13a § 12(Supp.1982).We will overrule those points of error.

Section 12 provides as follows:

The validity or applicability of any rule, including an emergency rule, adopted under Section 5(d) of this Act, may be determined in an action for declaratory judgment in a district court of Travis County, and not elsewhere, if it is alleged that the rule, or its threatened application, interferes with or impairs, or threatens to interfere with or impair, the legal rights or privileges of the plaintiff.The agency must be made a party to the action.A declaratory judgment may be rendered whether the plaintiff has requested the agency to pass on the validity or applicability of the rule in question.However, no proceeding brought under this section may be used to delay or stay a hearing after notice of hearing has been given if a suspension, revocation, or cancellation of a license by an agency is at issue before the agency.

If one shows an affirmative act by the agency to apply its rule to him and that the application of such rule would adversely affect his legal rights or privileges, he has standing to challenge the applicability of the rule in a § 12 declaratory judgment suit.Shannon & Ewbank, The Texas Administrative Procedure and Texas Register Act Since 1976-Selected Problems, 33 BaylorL.Rev. 393, 422(1981).Under § 12, one is not required to wait until the rule is attempted to be enforced against him before he may resort to declaratory relief.

Deffebach pleaded that the rules promulgated by the Board's order would result in a diminution "of compensation and commissions due him" as a licensed credit life and accident and health insurance agent.The proof was that the operation of the rules in question would place a ceiling, in effect, on commissions from credit life insurance, and would reduce substantially Deffebach's income from commissions.Since the imposition of the rules would clearly "affect" Deffebach, the Board's points of error attacking Deffebach's standing are overruled.

STATUTORY AUTHORITY TO PROMULGATE PRESUMPTIVE RATES

The parties treat the district court's judgment as having declared the Board was without authority to enter the order establishing presumptive rates for credit life and health and accident insurance.Although the "preliminary statement" in the district court's findings is that it did not rule on the authority of the Board to enter the order, the district court's judgment obviously provides that the Board, by entering the order, "... acted beyond the statutory authority delegated to it ... by regulating and controlling agent commissions...."The judgment further orders that the Board "... be permanently enjoined from enforcing, implementing or administering (the order)...."It would seem the district court prohibited the Board from exceeding its statutory authority, but refused to set out by declaratory judgment the scope of the Board's authority with respect to credit insurance premium rates.

Under the circumstances, this Court views the judgment as having determined the Board was not empowered to establish presumptive rates for credit life and health and accident insurance.By several points of error, the Board argues it was authorized to enter the order promulgating the rules.

A preliminary word concerning credit life and health and accident insurance may be of benefit to an understanding of this part of the appeal.Credit insurance is designed to assure repayment of a debt in the event of the debtor's death or disability.The debtor usually purchases such insurance through the creditor at the time the loan or other credit transaction is made.The debtor normally pays a single premium directly or indirectly for the full term coverage.In most cases, a creditor requires credit insurance for the loan.He makes credit insurance available to the debtor to meet that requirement and is the beneficiary of the policy.The creditor usually selects the insurer and receives some form of compensation for sale of the coverage.

We understand the creditor's control over the market for credit insurance and selection of the insurer encourages competition between insurers for the business upon the basis of the quality of service afforded by the insurer to the creditor and the amount of compensation paid creditors rather than upon the basis of the lowest premium charged debtors.The single premium nature of the business generates a large initial cashflow which permits payment of substantial "front end" compensation to creditors which, on occasion, results in the remaining premium being insufficient for the insurer to meet its ultimate obligations to the debtor-policyholders over the full term of coverage.

In 1963, the legislature amended Tex.Ins.Code Ann. art. 3.53, which regulates credit life and accident and health insurance.Article 3.53 is derived from the "Model Act" drafted by the National Association of Insurance Commissioners.Sections 7,8, and12 of art. 3.53, as relevant to this appeal, vest the Board and the Commissioner of Insurance with certain specific authority.²

Deffebach insists that the Board has no authority "to set rates for credit life and credit accident and health insurance."In this connection, Deffebach argues, correctly, an agency can adopt only such rules as are authorized by and consistent with its statutory authority.Kelly v. Industrial Accident Board, 358 S.W.2d 874(Tex.Civ.App.1962, writ ref'd).In determining whether an agency has exceeded its rulemaking authority, the critical factor to be considered is whether the rule harmonizes with the general objectives of the statute.Gerst v. Oak Cliff Savings & Loan Association, 432 S.W.2d 702(Tex.1968);Jefco, Inc. v. Lewis, 520 S.W.2d 915(Tex.Civ.App.1975, writ ref'd n. r. e.).

An examination of those sections of art. 3.53 set out in the margin makes clear that the Board has not been vested with the specific power to set rates for credit insurance.Instead, it has authority to approve forms and the ratio of premiums to benefits accorded by coverage.A credit insurer can write only those policies which have been filed with and approved by the Commissioner.Before approving the policy form, the Commissioner is required to review the policy benefits and the filed schedules of premium rates and to make a determination of the reasonableness of the relationship of benefits to rates and rates to benefits.The Commissioner must consider both the rates and the benefits in order to exercise the authority required of him by art. 3.53.

Section 12 of art. 3.53 empowers the Board to formulate rules and regulations appropriate for the supervision of the Act.Among the several rules promulgated by the Board and contained in the order under consideration is Rule 05.001.Rule 05.001 permits the Commissioner to presume, subject to rebuttal, that the benefits of a credit life and health and accident form are reasonable in relation to the premium charged if the premium rate schedule for such benefit, as filed with the Commissioner, does not exceed a certain rate.Other rules presently under attack provide insurers the right to rebut the presumptive rate and to make independent filings, should they choose.Acceptance of the presumptive rates and benefits is optional, at least in theory.

In addition, the Commissioner under the rules may deny or revoke the...