U.S. Life Title Ins. Co. of New York v. Department of Commerce and Ins. of State of Tenn.
| Decision Date | 23 September 1988 |
| Citation | 770 S.W.2d 537 |
| Parties | U.S. LIFE TITLE INSURANCE COMPANY OF NEW YORK, Plaintiff/Appellant, v. DEPARTMENT OF COMMERCE AND INSURANCE OF the STATE OF TENNESSEE, Defendant/Appellee. STEWART TITLE GUARANTY COMPANY, Plaintiff/Appellant, v. DEPARTMENT OF COMMERCE AND INSURANCE, DIVISION OF INSURANCE, STATE OF TENNESSEE, and Elaine A. McReynolds in her official capacity as Commissioner, Defendants/Appellees. 770 S.W.2d 537 |
| Court | Tennessee Court of Appeals |
Fred E. Cowden, Jr., Nashville, for U.S. Life Title Ins. Co.
Linda A. Ross, Gilbert & Milom, Nashville, for Stewart Title Guar. Co.
W.J. Michael Cody, Atty. Gen. & Reporter, Gina J. Barham, Asst. Atty. Gen., Nashville, for defendants/appellees.
William F. Kirsch, Jr., Eugene J. Podesta, Jr., Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Memphis, for Amicus Curiae.
This appeal involves the validity of the rules regulating title insurance rates promulgated by the Commissioner of Commerce and Insurance 1 in 1983. Two title insurance companies challenged the rules in the Chancery Court for Davidson County on the grounds that they were not promulgated properly, that they were beyond the Commissioner's rulemaking authority, and that they were unconstitutional. The trial court upheld the validity of the rules. The insurance companies have appealed. We find that the rules are invalid because they were not promulgated in accordance with Tenn.Code Ann. Sec. 56-35-122 (1980).
Title insurance companies doing business in Tennessee are required to meet the requirements of the Title Insurance Law. 2 The law vests regulatory responsibility with the Commissioner of Commerce and Insurance ("commissioner"), including the authority to promulgate rules necessary for the administration of the law. The regulatory framework originally put in place in 1955 remained relatively unchanged until 1980 when the General Assembly enacted substantial revisions to the Title Insurance Law. 3
The 1980 legislation dealt with the manner in which title insurance companies computed their rates and reported their costs. Accordingly, the commissioner was required to amend the rules pertaining to the computation of title insurance rates. The commissioner appointed a committee to assist in drafting the new rules.
The committee consisted of persons familiar with the title insurance business in Tennessee, but not every one of the twenty-four title insurance companies doing business in Tennessee was represented. Two of the companies that did not have a representative on the committee were Stewart Title Guaranty Company ("Stewart") and USLife Title Insurance Company of New York ("USLife").
The committee submitted its recommendations for the new rules in July, 1983. The commissioner decided to use the recommendations as the basis for a rulemaking hearing. On July 29, 1984, a staff attorney for the Division of Insurance filed a notice of rulemaking hearing with the Secretary of State. The notice, which appeared in the August 15, 1983 edition of the Tennessee Administrative Register, did not contain the text of the proposed rules but did state that the commissioner intended to conduct a rulemaking hearing concerning amendments to Rule 0780-1-12.
After the notice was filed with the Secretary of State, the staff attorney instructed her secretary to mail copies of the notice and the proposed rule to all the title insurance companies doing business in Tennessee. However, the secretary only sent out copies of the notice to the companies whose addresses she found in the rate files provided by one of the department's actuaries. The secretary did not prepare transmittal letters or a record of the companies to whom the notices were addressed. The staff attorney assumed that her instructions had been carried out, and no one in the department checked the secretary's work even though she had never sent out rulemaking hearing notices before.
The commissioner conducted the rulemaking hearing on September 7, 1983. Representatives of nine title insurance companies attended, but neither Stewart nor USLife were among them because they never received a copy of the notice. The commissioner received statements both in favor of and opposed to the proposed rules. At the conclusion of the hearing, the commissioner announced that the record would be left open for two weeks to permit interested parties to file additional comments.
Representatives of both Stewart and USLife testified at trial without contradiction that they were unaware of the hearing until after it had been held. USLife's employees found out about the hearing two days after it had been held and submitted written objections to the proposed amendments while the record remained open. Stewart's representatives did not find out about the hearing until two weeks after it took place. They did not file written objections to the rule.
The commissioner approved the new rules on September 29, 1983. They were transmitted to the Attorney General and Reporter for review and were filed with the Secretary of State on January 20, 1984. They became effective on February 19, 1984.
On June 29, 1984, Stewart and USLife requested the commissioner to issue a declaratory order concerning the validity of the new rules. They were notified on September 7, 1984 that their requests had been denied and were directed to file their rates and supporting financial and statistical data in accordance with the new rules.
Both companies filed their complaints for declaratory judgment on September 21, 1984, challenging the manner in which the rules were promulgated, their constitutionality, and the commissioner's authority to promulgate them. The trial court upheld the validity of the rules, and the companies have appealed, raising the same three issues they raised in the trial court. We find the notice issue to be dispositive.
Due process and sound governmental policy require giving the public an opportunity to participate in rulemaking proceedings that might affect private business interests or the personal liberties of private citizens. 3 B. Mezines, J. Stein & J. Gruff, Administrative Law Sec. 15.03, at 15-23 (1988); 1 F. Cooper, State Administrative Law 135 & 151 (1965). Notice provides the vehicle for public participation, and, therefore, adequate public notice is an essential part of any rulemaking proceeding. Salmon Brook Convalescent Home, Inc. v. Commission on Hosps. & Health Care, 177 Conn. 356, 417 A.2d 358, 362-63 (1979); Costa v. Sunn, 64 Haw. 389, 642 P.2d 530, 533 (1982); 1 C. Koch, Administrative Law and Practice Sec. 4.4 (1985).
The notice requirement has a three-fold purpose. First, it insures that interested parties are made aware of the substance of any proposed rule that might be adopted. Dorignac v. Louisiana State Racing Comm'n, 436 So.2d 667, 669 (La.Ct.App.1983); Bassett v. State Fish & Wildlife Comm'n, 27 Or.App. 639, 556 P.2d 1382, 1384 (1976); 73 C.J.S. Public Administrative Law and Procedure Sec. 104 (1983). Second, it enables interested parties to express their views concerning the proposed rule. Cheshire Convalescent Center, Inc. v. Commission on Hosps. & Health Care, 34 Conn.Supp. 225, 386 A.2d 264, 271 (C.P.1977); Louisville & Jefferson County Planning & Zoning Comm'n v. Ogden, 307 Ky. 362, 210 S.W.2d 771, 772-73 (1948); 2 Am.Jur.2d Administrative Law Sec. 279 (1962). Third, it provides the agency with an opportunity to educate itself concerning the impact a proposed rule will have on the affected parties. Salmon Brook Convalescent Home, Inc. v. Commission on Hosps. & Health Care, 417 A.2d at 363; Bassett v. State Fish & Wildlife Comm'n, 556 P.2d at 1384.
Adequate notice resolves many of the concerns over the fairness of administrative rulemaking. It gives interested persons the opportunity to confront the agency's factual suppositions and policy preconceptions. 1 C. Koch, Administrative Law & Practice Sec. 4.4 (1985). It also forces agencies "to justify their quasi-legislative rulemaking before an informed and skeptical public." State v. Department of Health and Human Servs., 670 F.2d 1262, 1281 (3d Cir.1981).
The General Assembly has the prerogative to prescribe the manner in which notice of rulemaking proceedings should be given. It first established uniform notice requirements in 1974 when it enacted the Uniform Administrative Procedures Act ("UAPA"). 4 One year later, it prescribed the notice requirements presently found in Tenn.Code Ann. Sec. 4-5-203 5 which call for notice by publication in the Tennessee Administrative Register. Notice by publication does not require that interested persons receive actual notice of the pending rulemaking proceeding; substantial compliance with Tenn.Code Ann. Sec. 4-5-203(a)(1) is sufficient. Thus, Tenn.Code Ann. Sec. 4-5-203(d) provides:
Failure of any person to receive notice of a hearing on proposed rulemaking is not grounds for invalidating the resulting rule if notice of the hearing was published as provided in section (a)(1) of this section.
The UAPA's notice requirements were only intended to be minimum requirements. The General Assembly did not desire to supplant or relax the more stringent notice procedures many agencies were already required to follow. Thus, Tenn.Code Ann. Sec. 4-5-203(a)(1) provides that, in addition to publishing notice in the Tennessee Administrative Register, agencies must also provide the notice required by any other statute "applicable to the specific agency or a specific rule or class of rules under consideration."
The trial court found that Tenn.Code Ann. Sec. 4-5-203(d) applied not only to the UAPA's publication procedures but also to the independent notice requirements found in other statutes. We cannot agree with that conclusion because it renders illusory the...
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