State Farm Mut. Auto. Ins. Co. v. Wyoming Ins. Dept.

• Decision Date: 31 May 1990
• Docket Number: No. 89-144,89-144
• Citation: 793 P.2d 1008
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and State Farm Fire and Casualty Company, Appellants (Petitioners), v. WYOMING INSURANCE DEPARTMENT, Appellee (Respondent).
• Court: Wyoming Supreme Court

Page 1008

793 P.2d 1008

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and State Farm Fire and Casualty Company, Appellants (Petitioners), v. WYOMING INSURANCE DEPARTMENT, Appellee (Respondent).

No. 89-144.

Supreme Court of Wyoming.

May 31, 1990.

Rodger McDaniel of McDaniel & Tiedeken Law Offices, Cheyenne, for appellants.

Joseph B. Meyer, Atty. Gen., Hugh Kenny and David K. Gruver, Asst. Attys. Gen., for appellee.

Before CARDINE, C.J., THOMAS, URBIGKIT and MACY, JJ., and ROONEY, J., Retired

ROONEY, Justice, Retired.

This appeal is from the district court's denial of a challenge by appellants to Section 6 of a regulation promulgated by the appellee, which section prohibited use by an insurer of a non-OEM ¹ after market part in the repair of an automobile or in the estimate for such repair without the written consent of the insured to the use of such part. ² The regulation was issued after a public hearing, and appellants/insurance companies timely filed a petition for review in the district court. The resulting order of the district court upheld the regulation.

We affirm.

Appellants word the issues on appeal:

"A. Does the Wyoming Insurance Department have statutory authority to regulate consumer choices between automobile parts manufactured by original manufacturers and those manufactured by non-original equipment manufacturers.

"B. Does the regulation promulgated by the Insurance Department impair contractual obligations between the Appellant and its insureds.

"C. Does the regulation bear enough of a reasonable relationship to its purpose to withstand due process scrutiny.

"D. Is Section 6 of the regulation supported by substantial evidence in the hearing record."

Appellee words them:

"I. Does the Wyoming Insurance Commissioner have statutory authority to regulate insurers' claims settlement practices?

"II. Have appellants shown that Section 6 of the regulation impairs their contractual obligations in violation of Article 1, Section 35 of the Wyoming Constitution?

"III. Is there a rational basis for the promulgation of Section 6 of the regulation?

"IV. Must there be substantial evidence in an administrative record to support the adoption of a regulation?"

The standard provision of the insurance policies in question which is pertinent to this matter requires the insurer to

"pay to repair or replace the property or part with like kind and quality. If the repair or replacement results in better than like kind and quality, you must pay for the amount of the betterment." (Emphasis added.)

In their arguments, appellants approach the issues with the assumption that appellee is imposing the use of OEM parts upon the appellants and that the problem is not one of consumer protection but is one of market competition. Two large industries are involved: the automobile industry and the insurance industry, but also involved is the consumer-insured. In truth, Section 6 of the regulation does not impose any use. It gives a choice to the insured. It is concerned primarily with the protection of the insured. The insured's choices are not "regulated" as contended in appellants' wording of the first issue. The insured is only afforded an opportunity to accept a replacement part other than that designated in the insurance policy. His choice is similar to that made by any consumer on the basis of that contained on the labels of two competing products. Any marketing impact is incidental to protection of the insured and to fair and equitable performance under the insurance policies.

With reference to the specific issues:

FIRST ISSUE: STATUTORY AUTHORITY OF THE INSURANCE COMMISSIONER TO PROMULGATE SECTION 6 OF THE REGULATION

The authority of the Insurance Commissioner to promulgate Section 6 of the regulation can be found in more than one statute.

I

The district court found such authority in W.S. 26-13-102 "specifically as an unfair practice." ³ The district court properly reasoned "The policy of insurance gives to an insured the right to a replacement part of like kind and quality. The issue is whether the replacement part is of like kind and quality with respect to the damaged part. Petitioners' argument means that an insured has no contractual right to insist upon OEM parts if a non-OEM part is of like kind and quality to the OEM part.

"This result is not what the insurance contract provides. It does not say that an insured must accept a non-OEM part even if it is of like quality as an OEM part. To be sure, the policy promises the insured that he may have parts of like kind and quality as the damaged part. Nobody argues here that an OEM part is not of like kind and quality as the original equipment. If they do, the evidence of record falls short of compelling such a finding. Moreover, the evidence did not show that OEM parts amounted to a betterment within the meaning of the policy. The insured has a right to an OEM part even if it costs more, even if it is of like quality as a non-OEM part because it is not a betterment, but rather of like kind as the damaged original equipment.

"The potential that an insurer may require an insured to accept a non-OEM part raises the prospect that an insured may be denied the benefit of his bargain. This threat when coupled with the evidence of record (which casts doubt upon whether OEM and non-OEM parts are truly of like kind and quality) empowers the commissioner to regulate. Section 6 is sustained as a valid exercise of the commissioner's rulemaking authority under W.S. § 26-13-102, specifically as an 'unfair practice.' "

II

Another statute under which the Insurance Commissioner has authority to promulgate Section 6 of the regulation ⁴ is W.S. 26-13-124. It sets forth fourteen practices as unfair methods of competition and unfair and deceptive acts. ⁵ Appellants argue that since the use of non-OEM parts in repairs or in repair estimates is not itemized therein, such is not an unfair claims settlement practice.

Although not specifically itemized therein, the practice may result in a violation of subsection (a)(vi) thereof, i.e., "[n]ot attempting in good faith to effectuate * * * fair and equitable settlements of claims in which liability has become reasonably clear." The district court found that "there is substantial evidence of record to support a distinction between OEM and non-OEM parts." The record supports this finding. There would obviously be no "betterment" or "worsening" of value if an OEM part was used for estimate or replacement of the damaged OEM part. If the estimate or replacement was with a non-OEM part of greater value than the damaged part, the insured would be obligated under the contract to pay for the "betterment," but there is no requirement for payment by the insurer for the "worsening" of value if the non-OEM part was less than that of the damaged part. As reasoned by the district court, the situation is obviously one-sided. Thus, the claim settlement condition of the policy is not "fair and equitable." The evidence at the hearing illustrates the difficulty, if not the impossibility, to reach an agreement on the relative value of the OEM and the non-OEM parts. Section 6 of the regulation is a reasonable requirement for resolving the difficulty by allowing the insured to say "yes" or "no" to the use of non-OEM parts. It promotes "good faith to effectuate prompt, fair and equitable settlement of claims" per W.S. 26-13-124(a)(vi). ⁶

III

Beyond that, appellants acknowledge that the Insurance Commissioner may determine a "practice not enumerated in" W.S. 26-13-124 ⁷ to be an unfair or deceptive practice. Appellants refer to W.S. 26-13-102 ⁸ in this connection as restricting the authority of the Commissioner with reference to unfair or deceptive acts or practices to those which are either "defined in this article" or "determined pursuant to this article." Appellants then conclude that W.S. 26-13-116 ⁹ is that referred to in W.S. 26-13-102 ¹⁰ as the only method to "determine pursuant to this article" the existence or non-existence of the deceptive acts or practices, and that the Commissioner did not employ the procedure referred to in W.S. 26-13-116 in connection with this matter.

A hearing was held on this issue. Appellants took part in the hearing with full knowledge of the content of the proposed regulation. The procedure here used was in substantial compliance with that required by W.S. 26-13-116. Therefore, appellants' argument for requiring exact itemization of the protected practice in W.S. 26-13-124 before the Commissioner can declare it to be an unfair or deceptive act or practice is a fallacious argument and W.S. 26-13-116 gives the Commissioner authority to promulgate Section 6 of the regulation.

IV

Not only was the procedure used here sufficiently within that required by W.S 26-13-116(a), and not only could the action be taken pursuant to the authority enumerated in W.S. 26-13-102 and in W.S. 26-13-124(a)(vi), even if not itemized in W.S. 26-13-116(a), but the authority of the Insurance Commissioner to promulgate Section 6 of the regulation is also contained in W.S. 26-2-109(a)(iv) and (v), in W.S. 26-2-110 and W.S. 16-3-101(b)(ix). W.S. 26-2-109(a) reads in pertinent part:

"(a) The Commissioner shall:

* * * * * *

"(iv) Execute the duties imposed upon him by this code;

"(v) Have the powers and authority expressly conferred upon him by or reasonably implied from this code[.]" (Emphasis added.)

W.S. 26-2-110(a) reads:

"Subject to the requirements of the Wyoming Administrative Procedure Act [§§ 16-3-101 through 16-3-115], the commissioner may make reasonable rules and regulations necessary to carry out any provision of this code [title 26]. No rule or regulation shall extend, modify or conflict with any law of this state or the reasonable implications thereof."

W.S. 16-3-101(b)(ix) reads in pertinent part:

"(b) As used in this act [Wyoming Administrative Procedures Act]:

* * * * * *

"(ix) 'Rule' means each agency...