Court Opinion

ID: 9566324
Source: CourtListenerOpinion
Date Created: 2023-08-21 19:37:07.792539+00
Date Added: 2024-06-11T09:35:45.345000
License: Public Domain

MOSK, J.
I dissent.
The Insurance Commissioner may have an arguable economic rationale for desiring to limit the amount of commission that may be paid to agents in the sale of credit life and credit disability insurance. In reliance upon his finding, however questionable, he could act by fiat if ours were a total bureaucratically controlled economy. But the problem here, in our government of laws, is that in invading this previously uncontrolled field the commissioner can cite no direct legislative authority justifying an enforceable order. The majority opinion adds nothing other than an ipse dixit approval.
The commissioner relies on two very general authorizations of power: Insurance Code sections 779.1 and 779.21. The former grants him the right to regulate “credit fife insurance and credit disability insurance,” while the latter permits reasonable rules to carry out the provisions of the article. Neither, however, defines the scope of the commissioner’s authority. While the power to regulate the relationship between debtor and insurer may be deduced from these general authorizations, it does not rationally follow that the commissioner may limit compensation to be paid to insurance companies’ employees or independent contractors, whether they be secretaries, telephone operators or general agents.
*660The only specific provision of the code that the commissioner points to—section 779.9—offers little comfort to him. The section provides; “The commissioner shall within 30 days after the filing of any such policies, certificates of insurance, notices of proposed insurance, applications for insurance, endorsements and riders, disapprove any such form if the benefits provided therein are not reasonable in relation to the premium charge.” On its face, the section appears to grant the commissioner the power to disapprove insurance policies only, not contracts between insurance companies and third parties.
Nor do any of the cases cited by the majority support an enlargement of that authority. The cases merely instruct that in areas within an administrative agency’s statutory grant of power courts must accord administrative regulations every presumption of validity. In the present case, this court must accept the commissioner’s factual finding that a limit on the commissions which agents may receive will benefit those buying credit insurance. However, we are not bound to find that an adopted regulation is within the scope of statutory power.
Indeed, the only California case on point leads to the converse conclusion. In Pac. Tel. & Tel. Co. v. Public Utilities Com. (1950) 34 Cal.2d 822 [215 P.2d 441], this court struck down a Public Utilities Commission (PUC) order similar to that promulgated by the commission in this case. Pacific was paying a substantial service fee to its parent company, American Telephone and Telegraph Company (AT&T). The PUC, finding that excessive fees could have an adverse effect on telephone users, set strict limits on the fees that Pacific could pay to AT&T. However, Justice Traynor, speaking for the majority, concluded that even though the Public Utilities Act accorded the PUC wide power to regulate the provision of services to consumers, it did not “specifically grant to the commission power to regulate the contracts by which the utility secures the labor, materials, and services necessary for the conduct of its business, whether such contracts are made with affiliated corporations or others.” (Id., at p. 827.)
Striking similarities can be found between Pacific Telephone and the case at bar. First, in each case a regulatory agency acted under broad grants of power directed towards affecting the services provided to consumers. The only substantive difference between the enabling statutes in Pacific Telephone and those in the present case may be that the former statutes accorded the PUC more authority than the present statutes grant the Insurance Commissioner. The PUC was vested with *661the power “ ‘to supervise and regulate every public utility in the state and to do all things, whether herein specifically designated or in addition thereto, which are necessaiy and convenient in the exercise of such-power and jurisdiction.’ ” (Id., at p. 828.) Moreover, the PUC was specifically entitled not only to determine proper rates, but also to determine whether “ ‘the rules, regulations, practices or contracts ... are unjust, unreasonable, discriminatory or preferential, . . .’ ” (Italics added.) (Ibid.) Thus, in contrast to the matter before us, a literal reading of the enabling statutes in Pacific Telephone may have led to the conclusion that the regulatory agency had supervision over contracts between the regulated industry and third parties.
Second, both cases involve an attempt by a regulatory agency to curtail a practice believed to endanger indirectly the quality of services provided to consumers. In Pacific Telephone, the PUC feared that excessive fees paid by Pacific to its parent company would inevitably lead to higher rates imposed upon telephone users or might prevent a lowering of rates. Even if rates were not affected, there was a danger that AT&T would extract such exorbitant sums from Pacific that the latter would face insolvency and would be unable to obtain the capital needed for continuous expansion of service to its customers. (See dissenting opn. by Carter, J., 34 Cal.2d at pp. 834-837.) In the present case, as the majority notes, the rationale for the commissioner’s regulation is that if insurance companies spend their limited resources competing with each other in the amount of commissions paid to agents, they will not be able to compete with each other in providing better services to debtors at lower premium rates. Each rationale is the type of economic administrative factual conclusion beyond review by the judiciary.
Third, in each case it is clear the Legislature had the power to adopt a rule identical to that promulgated by the administrative agency, but had not done so. The question in each case is legislative interpretation, not legislative power. (Id., at p. 826; O’Gorman & Young v. Hartford F. Ins. Co. (1931) 282 U.S. 251 [75 L.Ed. 324, 51 S.Ct. 130, 72 A.L.R. 1163] (legislative limit on insurance agents’ commissions upheld against constitutional attack).)
Fourth, in neither case was the administrative agency powerless to confront the perceived problem. The PUC in Pacific Telephone could “prevent a utility from passing on to the ratepayers unreasonable costs for materials and services” (34 Cal.2d at p. 826); such a remedy was not wholly satisfactory for it did not resolve the problem of potential AT&T *662raiding of Pacific’s treasury leading to insufficient capital for expansion of services. In the case at bar, the Insurance Commissioner has considerable power to affect premiums paid by and the services provided for debtors. He holds the power—and has exercised it—to place a ceiling on premiums that can be charged to debtors. (Cal. Admin. Code, tit. 10, § 2248.11 et seq.) Moreover, in response to concern over the quality of services provided to the debtor, the commissioner has incorporated into the rate structure a requirement that insurance companies, over a specified period of time, must pay back as claims at least 50 percent of the total amount spent for premiums. If there is still concern that competition in regard to agents’ commissions will lead to deterioration in services, further direct regulation of services may be considered.
Finally, underlying both Pacific Telephone and the present case is the concept that administrative agencies, unless specifically directed to by statute, should not interfere with the private ordering of parties. Insurance companies have a right to compete for agents, and agents have a right to contract at arm’s length with insurance companies. Indeed, section 779.1 carries a caveat that “Nothing in the article is intended to prohibit or discourage reasonable competition.” This right can be abridged by specific legislation, but in the absence of such legislation the fact that the service of insurance companies might be affected by a contract does not entitle an administrative agency to curtail or invalidate the instrument. As we noted in Pacific Telephone, almost every contract a company makes is bound to affect its rates and services. {Id., at p. 828.) Indeed, going one step further, almost any decision made by an insurance company will bear on its rendering of services. But until the Legislature provides that every decision by an insurance company is subject to regulatory review, this court should not permit gratuitous bureaucratic imposition upon the company-agency relationship on a vague theory that service might arguably be affected. ■
In the absence of specific legislative authorization, the commissioner has no power to interfere with the freedom of parties, dealing in arm’s length parity, to contract in accordance with the normal economic factors that induce one party to pay and one to receive.
I would affirm the judgment.
Clark, J., concurred.
Respondent’s petition for a rehearing was denied May 6, 1976. Mosk, J., and Clark, J., were of the opinion that the petition should be granted.