Am. Way Life Ins. Co. v. Ins. Comm'r

Citations: 345 N.W.2d 634; 131 Mich. App. 1Docket: 65255

Court: Michigan Court of Appeals; December 5, 1983; Michigan; State Appellate Court

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The Michigan Court of Appeals reviewed the case of American Way Life Insurance Company v. Commissioner of Insurance, where the respondent, the Commissioner of Insurance, appealed a June 9, 1982, order from the Oakland County Circuit Court that reversed the commissioner's decision regarding a new type of credit insurance policy called "joint credit life insurance." Petitioner filed the policy on September 28, 1978, setting a premium of $1 per $100 of original indebtedness, in compliance with the Credit Insurance Act. The commissioner did not disapprove the filing within the required 30-day period, allowing the petitioner to sell the policy.

However, on April 3, 1979, the commissioner notified the petitioner of intent to withdraw approval due to concerns that the premium was excessive compared to the benefits provided. Following a hearing, the hearing officer recommended reducing the premium, leading the commissioner to finalize a reduction to $0.80 per $100 of indebtedness. The petitioner sought judicial review, and a temporary restraining order was granted to allow them to maintain the higher rate while the court deliberated.

The circuit court ultimately reversed the commissioner's decision, holding that the commissioner should have established a prima facie rate through formal rule-making procedures under the Administrative Procedures Act rather than through a contested case proceeding. The court argued that a standard for determining the reasonableness of the proposed premium needed to be set by established rules prior to any hearings. The central issue on appeal was whether the circuit court erred in requiring the commissioner to create rules for determining a reasonable premium and in preventing the use of a contested case process for this determination.

The circuit court erred in its decision and has been ordered to remand the case for a review of the petitioner's premium charges. The U.S. Supreme Court has established that administrative agencies can exercise discretion in setting standards through individual case adjudication rather than formal rule-making, as evidenced in cases like Securities Exchange Comm v Chenery Corp and Nat'l Labor Relations Board v Bell Aerospace Co. Administrative agencies may announce new principles in adjudicative proceedings, as they are not required to create rules for every situation before enforcing statutes. The court emphasized that not all essential principles for statute administration can be immediately codified into general rules; some must evolve through specific cases.

The Credit Insurance Act grants the commissioner the authority to adopt regulations as deemed necessary and allows for the withdrawal of premium approval if a premium is found excessive through contested proceedings. There is no requirement for the commissioner to establish a general rule for setting reasonable premiums before acting against an insurer. The expectation that premiums be set only through formal rule-making is impractical given the variety of insurance policies and the factors influencing premiums in Michigan. 

The petitioner's argument that the commissioner bypassed APA rule-making by establishing a prima facie rate in a contested case reflects a misunderstanding of what constitutes a rule under the APA. According to Section 107 of the APA, a rule is defined as a general statement or policy, and explicitly excludes orders that establish rates or decisions in contested cases. Therefore, the commissioner's disapproval of a premium after a hearing does not constitute a rule of general applicability and is only applicable to the specific insurer involved.

The circuit court determined that the commissioner's decision effectively established a prima facie rate applicable to all insurers. A prima facie rate allows the insurance bureau to accept filings without necessitating detailed actuarial support, streamlining the process for the insurance industry by reducing the need for extensive analysis for each premium proposal. This rate is not mandatory, as insurers retain the option to propose higher premiums and resolve disputes through contested case hearings. The circuit court's view that prima facie rates must follow the Administrative Procedures Act (APA) was incorrect; instead, these rates are derived from the commissioner's findings in individual cases. Consequently, the June 9, 1982, order is reversed, and the matter is sent back to the circuit court for a merits review of the petitioner's appeal. Additionally, the context notes that the proposed policy was new to Michigan, requiring the petitioner to base its premiums on estimations and provide accompanying actuarial data.