Opinion
C.A. No. 05C-10-309 SCD.
Submitted: December 10, 2007.
Decided: January 2, 2008.
Decision upon Plaintiffs' Motion for Summary Judgment.
Michael W. Teichman, Esquire, Parkowski, Guerke Swayze, P.A., attorney for plaintiffs.
Stuart M. Grant, Esquire, Grant Eisenhofer P.A., attorney for defendant.
David E. Sellinger, Esquire, Grant Eisenhofer P.A., attorney for defendant.
Peter B. Andrews, Esquire, Grant Eisenhofer P.A., attorney for defendant.
MEMORANDUM OPINION
The Delaware Insurance Commissioner became aware of practices in the administration of homeowners insurance policies which caused him concern. Unable to obtain a legislative remedy, he addressed the problem by issuing a regulation. The regulation created two new "predicate unfair trade practices." Unfair trade practices are defined by law. The Commissioner is expressly prohibited from adopting any regulation which extends, modifies or conflicts with any law. Consequently, the regulation exceeds the Commissioner's authority. The plaintiffs' motion for summary judgment is GRANTED.
Statement of Facts
The plaintiffs are trade associations representing insurance companies which write nearly 45% of the homeowners insurance policies in Delaware. As insurers, they are subject, inter alia, to Title 18, Chapters 23 and 41 which regulate trade practices in the insurance business and property insurance contracts. Section 2304 specifically defines unfair methods of competition and unfair or deceptive acts or practices in the insurance business.
18 Del. C. §§ 2301-2316 is also known as the Unfair Trade Practices Act.
In June 2005, Senate Bill 173 ("SB 173") passed the Delaware State Senate and was thereafter assigned to the Delaware House of Representatives Economic Development, Banking and Insurance Committee. Had SB 173 become law, it would have prohibited insurance companies writing homeowners insurance policies from canceling or non-renewing those policies "based on the claims history of an insured for weather-related claims, unless there were three or more weather-related claims within the preceding three year period." SB 173 also prohibited an insurer from counting inquiries, minor claims, and unpaid claims as claims. The House committee did not release the bill; it did not become law.
Del. S.B. 173, 143d Gen. Assem. (2005).
The Synopsis of SB 173 provided: This Legislation would ensure that homeowners do not have their homeowners insurance cancelled simply because they made one or two weather-related claims against their policy within a three year period. The Legislation also bars insurers from counting a call requesting information about filing a claim as an actual claim. Del. S.B. 173 syn., 143d Gen. Assem. (2005).
On August 1, 2005, only weeks after the close of the General Assembly's session, Defendant published notice in the Delaware Register of Regulations of a proposed regulation. The regulation established two unfair trade practices under Chapter 23 of Title 18: (i) the consideration of any non-claim contact by an insured as a claim for underwriting purposes; and (ii) the non-renewal of homeowners insurance policies based solely on the claims asserted against that policy. The notice also apprised interested parties of a September 1, 2005 hearing during which the Defendant would consider oral statements about the proposed regulation. Both Plaintiffs, through their counsel, submitted written comments and later testified at the hearing in opposition to the proposed regulation.
9 Del. Reg. Regs. 196 (Aug. 1, 2005).
Id.
Notwithstanding Plaintiffs' opposition, Defendant promulgated Insurance Department Regulation 703 (the "Regulation") on October 11, 2005 without substantive change. Section 4.0 of the Regulation establishes as a "predicate unfair trade practice" any instance when an insurer considers an inquiry regarding either a homeowners policy or a loss under that policy to be a claim for purposes of underwriting. An "inquiry" is defined as "any contact initiated by an insured that is not the filing or reporting of a claim to an insurer." The stated purpose of the Regulation is to protect consumers from cancellation or non-renewal "due solely to the fact that the consumer had made a non-claim inquiry about any matter relating to the policy. . . ."
9 Del. Reg. Regs. 593 (Oct. 1. 2005).
Id. at 595.
Id.
Id. at 593.
The Regulation also establishes as a "predicate unfair trade practice" the non-renewal of a homeowners policy "solely on the basis of claims asserted against that policy" unless two limited exceptions are met. The stated purpose of this provision is to protect consumers "from a cancellation or nonrenewal of a policy based on a claim that could reasonably have been anticipated by the insurer at the time that it sold the policyholder his or her policy."
It shall not constitute a predicate unfair trade practice for an insurer to nonrenew a policy: (1) on the basis of claims asserted against that policy if the claim or claims demonstrate that there has been a substantial change or increase in the hazard or in the risk assumed by the carrier subsequent to the date the policy was issued and such nonrenewal is applied to other homeowners policies similarly situated; or (2) on the basis of the consumer's refusal or failure to make necessary or material changes or repairs resulting from a notice by the insurer that failure to make such changes or repairs will constitute a breach of contractual duties, conditions or warranties that will change or increase in the hazard or in the risk assumed by the carrier subsequent to the date the policy was issued. Id. at 595.
Id. at 593.
It is uncontested that members of plaintiffs' organizations are subject to the Regulation at issue. Defendant contends that the Regulation is valid under 18 Del. C. §§ 311(a) and 2312(a), both of which give him broad authority to promulgate administrative regulations. He cites his specific authority under 18 Del. C. § 2304(16)(f) "to require insurers in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear." In the alternative, Defendant cites his authority under 18 Del. C. § 2307 "to take action against insurers that engage in any practice that the Commissioner . . . determines to be an unfair business practice." He asserts his authority to "define unfair business practices which are not enumerated in other portions of Title 18, Chapter 23."
18 Del. C. § 311(a): The Commissioner may make reasonable rules and regulations necessary for, or as an aid to, the administration or effectuation of any provision of this title. No such rule or regulation shall extend, modify or conflict with any law of this State or the reasonable implications thereof.
18 Del. C. § 2312(a): The Commissioner may, after notice and hearing, promulgate reasonable rules and regulations, as are necessary or proper to identify specific methods of competition or acts or practices which are prohibited by § 2304 or § 2305 of this title, but the regulations shall not enlarge upon or extend the provisions of § 2304 or § 2305 of this title. Such regulations shall be subject to review in accordance with § 2309 of this title. No such rule or regulation shall extend, modify or conflict with any law of this State or the reasonable implications thereof.
18 Del. C. § 2304(16)(f): The following are hereby defined as unfair methods of competition and unfair or deceptive acts or practices in the business of insurance . . . (16) No person shall commit or perform with such frequency as to indicate a general business practice any of the following . . . (f) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.
9 Del. Reg. Regs. 593 (Oct. 1, 2005).
Plaintiffs seek to have the Regulation declared unlawful because it exceeds the Defendant's statutory authority. Specifically, they cite 18 Del. C. § 2312:
The Commissioner may . . . promulgate reasonable rules and regulations, as are necessary or proper to identify specific methods of competition or acts or practices which are prohibited by § 2304 or § 2305 of this title, but the regulations shall not enlarge upon or extend the provisions of § 2304 or § 2305 of this title.
By creating a new category of "unfair trade practice," they believe the Regulation contravenes Chapter 23 of the Insurance Code by impermissibly enlarging upon or extending its provisions.
Standard of Review
The standard of review for a civil action under the Administrative Procedures Act (APA) which challenges a regulation is as follows: [T]he complaining party shall have the burden of proving either that the action was taken in a substantially unlawful manner . . . or that the regulation, where required, was adopted without a reasonable basis in the record or is otherwise unlawful.
29 Del. C. § 10141(e). This standard applies to most state agencies, including the State Insurance Commissioner. 29 Del. C. § 10161(a) (listing forty-eight state agencies controlled by the APA).
On appeal from a decision of an administrative agency, the reviewing court must determine whether the agency ruling is supported by substantial evidence and free from legal error. Absent an abuse of discretion, the decision of the agency must be affirmed. Where the issue is one of statutory construction and the application of the law to undisputed facts, the court's review is plenary; it is not bound by the agency's conclusion. A reviewing court may accord due weight, but not defer, to an agency interpretation of a statute administered by it. A reviewing court will not defer to the interpretation of an agency because it is rational or not clearly erroneous.
Stoltz Management Co., Inc. v. Consumer Affairs Board, 616 A.2d 1205, 1208 (Del. 1992).
Id.
Public Water Supply Co. v. DiPasquale, 735 A.2d 378, 382 (Del. 1998).
Id. at 383.
Summary judgment may be granted only when no material issues of fact exist. The moving party bears the burden of establishing the non-existence of material issues of fact. When considering a motion for summary judgment, the evidence is viewed in a light most favorable to the nonmoving party. When the moving party produces sufficient evidence under Superior Court Civil Rule 56 in support of its motion, the burden shifts and the nonmoving party may not rest on its own pleadings, but must provide evidence showing a genuine issue of material fact for trial.
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
Id.
Id.
Super. Ct. Civ. R. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Analysis
Provisions regulating property insurance contracts are contained in Title 18, Chapter 41 of the Delaware Code. Within that Chapter is Subchapter III, titled, Declinations, Renewals, and Cancellations of Property Insurance Contracts. That Subchapter sets forth the insurer's obligation to inform an applicant of the reason insurance coverage is declined. It identifies seven specific reasons an insurer may cancel a policy in effect more than 60 days. The Subchapter also lists five specific grounds which may not be the basis for declining or terminating a property insurance policy.The legislation which was proposed, but did not pass, would have added a new section to Chapter 41. The proposed legislation notes, inter alia, that "Delaware currently has no laws protecting homeowners from having their homeowners insurance terminated at the end of its annual term simply because they made a weather-related claim with their insurance carrier."
Del. S.B. 173, 143d Gen. Assem. (2005).
Id.
The Regulation is titled "703 Prohibited Practices Related to the Nonrenewal of Residential Homeowners Policies." In the Findings of Fact that precede the Regulation, the Commissioner expressly relies on Title 18, Chapter 23, titled, Unfair Practices in the Insurance Business, for the authority to adopt the Regulation. Specifically, he relies on two sections: 2304(16)(f) and 2307.
9 Del. Reg. Regs. 593, 594 (Oct. 1, 2005).
18 Del. C. §§ 2304(16)(f), 2307.
Applicability of Section 2304
Section 2304 begins: "The following are hereby defined as unfair methods of competition and unfair or deceptive acts or practices in the business of insurance." The statute then enumerates in great detail twenty-five separate categories of conduct which are not permitted. " Unfair claim settlement practices," the sixteenth prohibited behavior, states:
No person shall commit or perform with such frequency as to indicate a general business practice any of the following: . . . (f) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear[.]
18 Del. C. § 2304(16)(f).
The Commissioner addresses the nexus between a claims provision and a regulation regarding nonrenewal and inquiries in one sentence: "I find, as a matter of law, that the sanction of non-renewal, with its dire consequences for homeowners, is not a fair or equitable means of resolving claims which do not fall into the exceptions enumerated in the proposed regulation. . . ." The term "claim" is not defined in the Insurance Code. Undefined words in a statute must be given their ordinary meaning. Black's Law Dictionary defines "claim" as:
9 Del. Reg. Regs at 594.
The goal of statutory construction is to determine and give effect to legislative intent. If a statute is unambiguous, there is no need for judicial interpretation, and the plain meaning of the statutory language controls. If a statute is ambiguous, it should be construed in a way that will promote its apparent purpose and harmonize with other statutes. Eliason v. Englehart, 733 A.2d 944, 946 (Del. 1999).
The aggregate of operative facts giving rise to a right enforceable by a court; the assertion of an existing right; any right to payment or to an equitable remedy, even if contingent or provisional; a demand for money, property or a legal remedy to which one asserts a right; a demand for money.
Black's Law Dictionary 240-41 (7th ed. 1999).
The Commissioner has taken a category of deceptive practices related to claim settlement and offered it as authority to adopt a regulation related to inquiries and nonrenewal of homeowners insurance policies. The proffered assertion of authority is a non sequitur. Section 2304 does not have a provision related to inquiries or nonrenewal of homeowners policies.
Applicability of Section 2307
The Commissioner also relies on Section 2307(a) for his authority to promulgate the Regulation. That section states two conditions which must be present to initiate action: (1) that the Commissioner has reason to believe an insurer is engaging in an unfair or deceptive practice "whether or not defined in § 2304 or § 2305"; and (2) that a proceeding by the Commissioner would be in "the interest of the public." Upon satisfaction of both conditions, the Commissioner shall serve the offender with a "statement of the charges" and hold a hearing. After conducting the hearing, the Commissioner may issue an order to cease and desist and " if [the Commissioner finds] a violation of . . . chapter [23] . . . the Commissioner may, through the Attorney General . . . cause an action to be instituted to enjoin and restrain such person from engaging in such method, act or practice. " (emphasis supplied).
18 Del. C. § 2307(a) "Procedures as to defined and undefined practices; hearings; witnesses; appearances; production of books and service of process."
Id.
Id.
18 Del. C. §§ 2307(c), 2308(a).
It may be inferred from Section 2307(a) that the Commissioner has the authority to address conduct that is not specifically defined in Section 2304. But that authority must address the specific conduct noticed for a hearing. After a hearing, if the conduct violates the section, the Commissioner may impose an order to cease and desist and impose a fine. If the conduct continues, injunctive relief is available. That process was not followed in this instance. Thus, it does not provide authority for the Commissioner's action.
It is true that the Commissioner has the "powers and authority expressly vested by or reasonably implied from [Title 18]." He also has the authority to "make reasonable rules and regulations necessary for, or as an aid to, the administration or effectuation of any provision of this title." But there is a limitation on that authority: " No such rule or regulation shall extend, modify or conflict with any law of this State of the reasonable implications thereof. " (emphasis supplied).
Id.
The rationale that because of his regulatory authority, the Commissioner can infer a new deceptive practice through a statute clearly addressing unfair claims settlement behavior is convoluted. Statutes must be constructed so as to give meaning to the legislative intent. As Senate Bill 173 states, "Delaware currently has no laws protecting homeowners from having their homeowners insurance terminated at the end of its annual term simply because they made a weather-related claim with their insurance carrier." Cobbling together the language of several disparate statutory provisions is not a permissible way to supplement a statute the Commissioner finds to be inadequate. That goal is best achieved by completing the process that was initially undertaken: legislative change.
Coastal Barge Corp. v. Coastal Zone Indus. Control Bd., 492 A.2d 1242, 1246 (Del. 1985).
Del. S.B. 173, 143d Gen. Assem. (2005).
Appropriateness of Summary Judgment
The Commissioner argues that there are material facts which preclude summary judgment. The record does not identify any factual issues and none can be discerned. This is a matter of statutory construction which can be decided as a matter of law.
E.I. du Pont de Nemours and Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985) (stating that when the question is one of statutory construction and the application of law to the facts, the Court has plenary review).