Automobile Trade Ass'n v. Insurance Commissioner

Smith, J., delivered the opinion of the Court. We shall here reject the invitation of appellants and cross-appellees, Automobile Trade Association of Maryland, Inc., et al. (the Dealers), to declare invalid certain parts of the regulations adopted by Maryland’s Insurance Commissioner relative to credit life insurance. Because of our determination of those issues, we shall not be obliged to address the contentions of the Insurance Commissioner, appellee and cross-appellant. Thus, we shall affirm the judgment of the Circuit Court for Baltimore County entered after the filing of the carefully prepared, comprehensive opinion of Judge Alpert in that court. i The case In 1970, the General Assembly adopted Ch. 416 of the Acts of that year.

It created a new subtitle of Maryland Code (1957) Art. 48A entitled "Credit Life and Health Insurance,” codified as §§ 436C — 436-0. Code (1957, 1979 Repl. Vol.) Art. 48A, §§ 26 and 436M empower the Insurance Commissioner to adopt rules and regulations. 1 This litigation stems ¹⁸ from the adoption of Ch. 464 of the Acts of 1979, effective January 1,1980, amending § 436H by the addition of a new subsection (g). It authorized the Commissioner, among other things, to establish maximum rates of commission. 2 Regulations adopted by the Commissioner are the root of this controversy.

The Dealers object to Regulation 436M-1.4.6.14, treating profits derived from reinsurance as a part of commissions; Regulation 436M-1.20, setting up maximum commissions; and Regulation 436M-1.21, providing that reinsurance agreements must be approved by the Commissioner. 3 ¹⁹ The Automobile Trade Association of Maryland, Inc., together with certain dealers, and a number of individuals ²⁰ who are stockholders and officers of automobile dealerships, licensed agents for insurance companies and otherwise involved insofar as credit life insurance and in some instances reinsurance, filed a bill of complaint in the Circuit Court for Baltimore County seeking a declaratory judgment and injunctive relief. They challenged the regulations to which we have previously made reference. That association was described in the amended bill of complaint as "a nonprofit trade association composed of automobile dealers,... [its] membership] consisting] of approximately ... 400 licensed automobile dealers operating businesses in the State of Maryland [,]... [many of whose members] have employees licensed as agents with various insurance companies who, pursuant to contractual arrangements with insurance companies, receive commissions as agents on the sale of credit life and credit health insurance to customers of the dealers.” The matter ultimately came on for hearing. The parties agreed to a statement of facts.

The trial judge found the regulations valid. He also rejected certain contentions of the Commissioner. Both parties appealed. We acceded to the request of appellants and cross-appellants that we grant the writ of certiorari prior to hearing of the case by the Court of Special Appeals and that we advance the case for argument.

The Dealers contend: (1) Regulation 436M-1 and its enabling act violate the Contract Clause of the United States Constitution (U.S. Const, art. I, § 10); (2) the Insurance Commissioner lacks authority: (a) to create a distinction in the amount of commission that may be received by affiliated and nonaffiliated agents, (b) to "grant unto himself’ the right to approve reinsurance treaties entered into by out-of-state reinsurance companies, and (c) to define broadly "commission” so as to include reinsurance profits and dividends; and (3) the administrative record is insufficient to support the regulation. Since we took the case to decide the ²¹ issue of the validity of the statutes and regulations, we address that issue. Inasmuch as our determination is favorable to the Commissioner, we have no need in this instance to determine the validity of his contention.

It is elementary that appellate courts do not decide issues of constitutionality except as a last resort. Moreover, there would be no need to decide that issue if we were to find for the Dealers on their contentions relative to the adoption of the regulations. Hence, we shall consider the constitutional issue last. ii Power of the Commissioner The Dealers at the outset allude to the doctrine of separation of powers as reflected in Maryland Declaration of Rights, Art. 8. The Dealers assert that because administrative officials have no inherent powers and may exercise only those powers which have been expressly granted to them by the General Assembly or which are necessarily or reasonably implied from those powers so granted, the Commissioner is without power here.

They cite such cases as Governor v. Exxon Corp., 279 Md. 410, 440-41 , 370 A.2d 1102 (1977), aff'd on other grounds, 437 U.S. 117 , 98 S. Ct. 2207 , 57 L. Ed. 2d 91 (1978), and Pressman v. Barnes, 209 Md. 544, 555 , 121 A.2d 816 (1956). Accordingly, it may be worthwhile to examine what was said in those cases. In response to a contention that certain portions of an act constituted an unlawful delegation of legislative authority in violation of Declaration of Rights, Art. 8, Judge Eldridge said for the Court in Exxon: "Ordinarily when legislative authority is delegated to administrative officials, there must be sufficient standards for the guidance of the administrative officials. However, it has been recognized that the complexity of modern economic conditions may make it impossible to tailor specific guidelines for every conceivable situation and that latitude in granting discretion is necessary.

As stated in ²² Pressman v. Barnes, 209 Md. 544, 555 , 121 A.2d 816 (1956): 'It is recognized that it would not always be possible for Legislature or City Council to deal directly with the multitude of details in the complex situations upon which it operates.... The modern tendency of the courts is toward greater liberality in permitting grants of discretion to administrative officials in order to facilitate the administration of the laws as the complexity of governmental and economic conditions increases.’ See also Montgomery County v. Walsh, 274 Md. 502, 523-524 , 336 A.2d 97 (1975), appeal dismissed, 424 U.S. 901 , 96 S. Ct. 1091 , 47 L.Ed.2d 306 (1976). It would obviously be impractical for the Legislature to set specific guidelines to govern all situations where exceptions to the divestiture dates would be reasonable or where it would be necessary for a producer or refiner to operate a service station on a temporary basis.” Id. at 440-41. We have heretofore set forth the statutory bases for the authority of the Commissioner.

The argument here runs that the grant of power in § 26 (1) to the Commissioner is to make only such rules as are reasonable and necessary to effectuate the provisions of the article, that the authorization in § 436M is to adopt rules and regulations deemed "appropriate and necessary for the supervision of [the] subtitle,” and that the bases of authority set forth in § 436H (g) are to assure that the credit health and credit life insurance operations do not result in rates which are excessive in relation to benefits, do not endanger the solvency of the insurer, and do not adversely affect other classes of business of the insurer. Thus, it is argued that "the General Assembly [has] carefully circumscribed the Commissioner’s rulemaking authority” and hence he is without power to do that which he has done. ²³ It is elementary that in examining the power of the Commissioner to issue regulations to implement the provisions of the Credit Life and Health Insurance subtitle of the Insurance Code, we should examine the provisions of that subtitle. This is so because the regulations must be read in the context of that enactment. The purpose of the subtitle is defined in § 436C (a) as "to promote the public welfare by regulating credit life insurance and credit health insurance.” The terms used are defined.

A limitation is placed upon the forms of credit life and credit health insurance to be issued. The amounts of payments are regulated. The term of such insurance under § 436F is to "commence on the date the debtor becomes obligated to the creditor, except that, if a group policy provides coverage with respect to existing obligations, the insurance on a debtor with respect to the indebtedness shall commence on the effective date of the policy.” Individual policies issued are required to be delivered to the debtors, except that in the case of group insurance a certificate of insurance shall be issued to the debtor. Section 436G (b) specifies the contents of each individual policy or group certificate.

The Commissioner by § 436H is vested with the power and authority to approve all forms to be used in connection with such insurance as well as the rates to be charged. The statute contains requirements as to refunds. All policies of credit life insurance and credit health insurance delivered or issued for delivery in this State are required by § 436J to be "only by an insurer authorized to do an insurance business [in this State] and shall be issued only through holders of licenses or authorizations issued by the Commissioner.” There are statutory provisions relative to claims and to the option of a debtor "of furnishing the required amount of insurance through existing policies of insurance owned or controlled by him or of procuring and furnishing the required coverage through any insurer authorized to transact an insurance business within this State.” Moreover, § 436C (a) states, "The provisions of this subtitle shall be liberally construed.” Senate Bill 542, which ultimately was enacted as Ch. 464 of the Acts of 1979, contained an authorization for the Com ²⁴ missioner to set maximum rates of commission with the proviso, "but the maximum rate may not be less than 30 percent of the premium for an agent who is not the general agent, and may not be less than 4 percent additional to be paid to an agent who is a general agent.” This was stricken from the bill and replaced with the language now found in § 436H (g) (1), which we quoted in n.2. It is argued that "[b]y rejecting this language prior to the enactment, the General Assembly indicated that it did not intend to confer any authority on the Commissioner to create a two-tier commission structure.” That does not follow.

It can just as well be argued that the General Assembly, in its wisdom, deemed it a matter warranting further investigation and that this was a subject best committed to the discretion and expertise of the Commissioner. For that reason, we take a dim view of the Dealers’ citation of 2A Sutherland, Statutory Construction § 48.8, at 224 (4th ed. 1973) and Demory Brothers v. Bd. of Pub. Works, 273 Md. 320 , 329 A.2d 674 (1974), for their proposition that the rejection of an amendment by the Legislature indicates an intent not to include provisions embodied in the rejected amendment and their argument that "[t]he legislative action of rejecting the original text of the bill and deleting language should be accorded even more weight than the mere rejection of a proposed amendment to a bill.” We point out that we have said that the fact that a bill on a specific subject fails of passage in the General Assembly is a rather weak reed upon which to lean in ascertaining legislative intent. See, e.g., Police Comm’r v. Dowling, 281 Md. 412, 420-21 , 379 A.2d 1007 (1977), and Harden v. Mass Transit Adm., 277 Md. 399, 406 , 354 A.2d 817 (1976).

It is obvious that any item of expense which takes a minimum of thirty-two cents out of every dollar by way of premium paid to an insurer has a substantial impact upon the financial health of that insurance company. Moreover, it has a direct bearing upon the ultimate charge to the insured since that commission is money never received by the insurer. We point out that the challenge here is not to the power of the Commissioner to set any rate of commission, ²⁵ but to his right to determine that one class of agents should receive more than another. We conclude it was entirely within the power of the administrative agency to make the rule which differentiated between the commissions of affiliated and non-affiliated agents.

It must not be forgotten that Regulation 436M-1.21.1 relative to reinsurance treaties was amended on an emergency basis to incorporate the changes necessary by virtue of the adoption of Code (1957, 1979 Repl. Vol., 1980 Cum. Supp.) Art. 48A, § 436P by Ch. 571 of the Acts of 1980 concerning "fronting agreements.” It forbade an authorized insurer to engage in such an agreement with an unauthorized insurer with respect to any insurance written or issued in this State. 4 The type of reinsurance agreements used and the cost of such agreements have a distinct bearing upon the financial health of an insurance company. The General Assembly demonstrated its concern in this regard by its enactment of § 436P.

We are of the view that adoption of the regulation governing reinsurance agreements, even with out-of-state firms, falls within the authority vested in the Commissioner. ²⁶ The well-being of a company doing business in Maryland is just as much affected by a reinsurance agreement with an out-of-state firm as it is with one confining its activities to Maryland. The definition of commissions in Regulations 436M-1.4.6 and 436M-1.4.6.14 are inextricably linked with § 436P. We regard it as within the power of the Commissioner to see that agents do not by sleight of hand evade the regulations otherwise applicable to their actions. Thus, the Commissioner had the power to define "commission” so as to include reinsurance profits and dividends.

The regulations treating as a part of commissions those profits derived from reinsurance, setting up maximum commissions, and providing that reinsurance agreements must be approved by the Commissioner do not run afoul of the prohibition in Art. 48A, § 26 (1) against "extending], modifying], or conflicting] with any provision of... [Art. 48A] or the reasonable implications thereof.” Given that which the Court said in Exxon relative to the power of an administrative agency to make rules and the statutory bases here, we regard the adoption of the contested regulations here by the Commissioner as within the grant of power to that administrative agency. iii The administrative record The Dealers strongly contend: "The administrative record leading to the adoption of the Regulation contains little or no evidentiary support for the challenged parts of the Regulation and contains no indication of the basis or rationale for adopting the challenged parts. In the absence of such information, the public and interested persons are prevented from knowing the purpose for the Regulation and the underlying facts and are left with no choice but to initiate protracted litigation to ascertain after the fact whether or not the Commissioner exercised his authority appropri ²⁷ ately and in accordance with constitutional and statutory requirements. At bottom, the insufficiency of the administrative record effectively precludes judicial review and necessitates remand to the Commissioner.” (Emphasis in original.) The Dealers overlook that what is done by an administrative agency in a quasi-legislative capacity differs from that done by it in a quasi-judicial capacity. For example, B. Schwartz, Administrative Law § 60 (1976) states: "[T]here is a constitutional parallelism between rule-making and statute-making; neither agencies nor legislatures are required by due process to hold hearings before exercising legislative power.

Nor are agencies, any more than legislatures, required to base their rules upon any recorded evidentiary foundation. Legislative or administrative hearings may provide a factual record upon which exercises of legislative power may be supported. But neither the statute or regulation depends for its validity upon the existence of such a record. There is the same presumption of the existence of facts to support a legislative enactment, whether a statute or regulation is at issue.” Id. at 162-63.

In Dep’t of Nat. Res. v. Linchester, 274 Md. 211 , 334 A.2d 514 (1975), Judge Digges discussed for the Court an administrative agency acting in a quasi-legislative capacity: "In those instances where an administrative agency is acting in a manner which may be considered legislative in nature (quasi-legislative), the judiciary’s scope of review of that particular action is limited to assessing whether the agency was acting within its legal boundaries . ..; furthermore, when an agency is acting in a fact-finding capacity (quasi-judicial) the courts review the appealed conclusions by determining whether the contested decision was rendered in an illegal, arbitrary, capricious, ²⁸ oppressive or fraudulent manner.” Id. at 224 (citing cases). We have already determined that the Commissioner did not pass beyond the power granted to him by law. He was not acting in a fact-finding capacity when he adopted these regulations.

Hence, we reject this argument