In re UNUM Life Insurance Co.

IN_RE_UNUM_LIFE_INSURANCE_CO.93-467; 162 Vt. 201; 647 A.2d 708

[Opinion Filed June 17, 1994]


 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 93-467


 In re UNUM Life Insurance                    Supreme Court
   Company of America
                                              On Appeal from
                                              Banking & Insurance

                                              March Term, 1994



 Elizabeth R. Costle, Commissioner

 Peter Cullen of Theriault & Joslin, P.C., Montpelier, and Andrew J.
    Bernstein, Portland, Maine, for plaintiff-appellant

 Jeffrey L. Amestoy, Attorney General, and William Griffin, Chief Assistant
    Attorney General, Montpelier, for defendant-appellee



 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.



      JOHNSON, J.    UNUM Life Insurance Company of America (UNUM) appeals
 the August 1993 decision of the Commissioner of Banking, Insurance and
 Securities (commissioner), which disapproved UNUM's proposed group life
 insurance policy.  We affirm.
      UNUM originally applied to the Vermont Department of Banking, Insurance
 and Securities (Department) in February 1990 for permission to market a group
 life insurance policy to the Vermont State Employees Credit Union (Credit 
 Union).  The Department disapproved the policy.  The Department stated, in 

 

 part, that a preexisting conditions exclusion (exclusion)(FN1) in the policy 
 violated 8 V.S.A. { 3542(2) because it was ambiguous and misleading and 
 deceptively affected the risks to be insured under the policy.


       UNUM subsequently requested a hearing before the Department.  Then-
 Commissioner Jeffrey Johnson appointed a hearing officer to preside over the
 hearing.  The hearing officer issued a proposed determination, recommending
 approval of the policy.(FN2)

 

      Commissioner Johnson rejected the hearing officer's proposed
 determination, although he adopted the hearing officer's findings of fact.
 Commissioner Johnson found that UNUM had not met its burden of demonstrating
 the need for the exclusion.  He further found that UNUM's proposal to send a
 notice to potential insureds explaining the exclusion did not aid in
 demonstrating a need for the exclusion, "but rather points out the problem
 with this [exclusion] . . . ; the [policy] does not meet the consumer's
 expectations."  Commissioner Johnson concluded that "the exclusion[] would
 unreasonably affect the risks purported to be covered by the policy and must
 be rejected."
      UNUM appealed Commissioner Johnson's decision to the Vermont Supreme
 Court.  This Court, in an unpublished decision, reversed and remanded
 Commissioner Johnson's decision so that "the commissioner may explain his
 ruling."  In re Unum Life Ins. Co. of America, No. 92-191, slip.op. at 2 (Jan.
 7, 1993).  We noted that Commissioner Johnson did not make clear whether the 
 finding that fifteen of twenty-seven insured members who have one of the 
 excluded conditions and die within twenty-four months after the effective date
 of coverage would be denied benefits was sufficient to disapprove the policy.
 The Court concluded that Commissioner Johnson did not adequately explain "why

 

 this specific exclusion is contrary to public policy, or how consumer 
 expectations would not be met should [the policy] be approved."
      Due to a change in commissioners, the case on remand came before
 Commissioner Elizabeth Costle, who requested memoranda from the parties and
 heard oral arguments.  On August 27, 1993, Commissioner Costle issued a
 decision concurring with her predecessor's ruling.  In her order,
 Commissioner Costle set out "Supplemental Findings of Fact," which were
 drawn from the record of the hearing before the hearing officer, to help
 explain her decision.(FN3) Commissioner Costle concluded that UNUM's policy "is
 contrary to public policy" and is in violation of 8 V.S.A. { 3542(2) because
 the preexisting-conditions exclusion is "ambiguous and misleading" and
 "deceptively affect[s] the risk that UNUM would purport to assume."
 UNUM now appeals Commissioner Costle's order.  UNUM argues on appeal
 that Commissioner Costle's order: (1) exceeds this Court's scope of remand,
 (2) contradicts and overrules the findings of fact previously adopted by
 Commissioner Johnson, and (3) is erroneous because the proposed policy
 complies with all applicable Vermont statutes and regulations.
                                      I.
      As a preliminary matter, we hold that Commissioner Costle did not exceed
 the scope of remand of our January 1993 order.  UNUM argues first that 

 

 Commissioner Costle was limited by our remand to writing an order that
 explained why the policy should be disapproved based only on the findings of
 fact adopted by Commissioner Johnson.  While we stated in our order that the
 purpose of remand was to permit Commissioner Johnson to "explain his
 ruling," we did not bar him from making more findings of fact on remand.
 Actually, we implied that more findings of fact would be necessary to
 explain his ruling, because the hearing officer's findings of fact were
 already before this Court during the prior appeal.  Cf. Isabelle v. Proctor
 Hosp., Inc., 132 Vt. 243, 245-46, 315 A.2d 241, 243 (1974) (where Supreme
 Court struck down findings, on remand trial court could base its conclusion
 only on findings made during rehearing).  Commissioner Costle requested that
 the parties submit memoranda and attend oral argument to orient herself to
 the dispute.  As Commissioner Costle stated: "I am . . . presented with the
 task of explaining a determination in which I did not participate."
 Commissioner Costle then issued a decision, supplementing the findings of
 fact adopted by Commissioner Johnson with findings drawn exclusively from
 the record of the initial hearing before the hearing officer, to provide the
 explanation that was lacking in the prior ruling.  This was not beyond the
 scope of our remand.
      UNUM further contends that, because there are no statutes or regulations
 directing how the commissioner may act on remand from the Supreme Court, 
 Commissioner Costle did not have the authority to conduct further proceedings.
 We disagree.  "The powers of an administrative agency must be construed to 
 include such incidental, implied power as may be needed for the agency to 
 achieve the task assigned to it."  In re DeCato Bros., Inc., 149 Vt. 493, 495,
 546 A.2d 1354, 1356 (1988); see also New Hampshire- Vermont Physician Serv. v. 
 Commissioner, Dep't of Banking & Ins., 132 Vt. 592, 596, 326 A.2d 163, 166 

 
 
 (1974) (administrative agency possesses implied powers necessary for full 
 exercise of those expressly granted).  The commissioner is charged with 
 reviewing insurance policies to ensure compliance with the law.  See, e.g., 8 
 V.S.A. { 3542.  To fulfill this duty,  the commissioner may hold hearings and
 issue findings of fact pursuant to regulation.(FN4) Vt. Dep't of Banking & 
 Ins. Reg. 82-1, { 4 (rev. 1987).  See also 8 V.S.A. { 72(a) (commissioner has
 authority to "issue subpoenas, examine persons, administer oaths and require 
 production of papers and records"). Commissioner Costle concluded that she had 
 the authority to hear the parties' arguments and issue supplemental findings 
 of fact based on the earlier record.  "[A]bsent compelling indication of 
 error, interpretations of statutory provisions by the administrative body 
 responsible for their execution will be sustained on appeal."  In re Vt. 
 Health Serv. Corp., 144 Vt. 617, 622-23, 482 A.2d 294, 297 (1984).  We hold 
 that, as Commissioner Johnson had the express authority to hold a hearing and 
 issue findings of fact, Commissioner Costle had the implied authority to hold 
 a rehearing and issue supplemental findings on remand from the Supreme 
 Court.(FN5)

 

                                    II.
      UNUM also urges this Court to find that Commissioner Costle's decision
 to disapprove its policy was erroneous because the policy complied with the
 applicable state statutes and regulations.
      Our standard of review is limited in this case.  "'Absent a clear and
 convincing showing to the contrary, decisions made within the expertise of
 [administrative] agencies are presumed [to be] correct, valid and
 reasonable.'"  Consumer Credit Ins. Ass'n v. State, 149 Vt. 305, 308, 544 A.2d 1159, 1161 (1988) (quoting In re Johnston, 145 Vt. 318, 322, 488 A.2d 750, 752 (1985)); accord In re Green Mtn. Power Corp., 138 Vt. 213, 215, 414 A.2d 1159, 1160 (1980) ("A decision of an administrative board is entitled
 to great weight with respect to matters within its particular area of
 expertise.").
      The grounds for disapproval of an insurance policy by the commissioner
 are set out in 8 V.S.A. { 3542:
      The commissioner shall disapprove any [policy] filed under this
      subchapter or withdraw any previous approval thereof, only on one
      or more of the following grounds: . . . (2) If it contains or
      incorporates by reference, . . . any inconsistent, ambiguous, or
      misleading clauses, or exceptions and conditions which deceptively
      affect the risk purported to be assumed in the general coverage of
      the contract.
 Commissioner Costle explained her grounds for disapproving UNUM's policy.  She
 found that the exclusion was both "misleading" and "ambiguous," in violation of
 8 V.S.A. { 3542(2), as demonstrated by the confusing testimony  of UNUM's
 employees regarding the application of the exclusion to specific  cases.  She
 further found that the exclusion would violate public policy  and  would
 "deceptively affect the risk that UNUM would purport to assumed"  in  violation
 of 8 V.S.A. { 3542(2), stating that policies containing such  exclusions "are 

 

 not sufficiently conclusive in their terms, and do not  provide a sufficient
 commitment on the part of the insurer to pay benefits." 

      We do not agree that the exclusion is ambiguous.  Although UNUM's 
 witnesses may have differed as to the exclusion's specific application, this 
 fact alone does not demonstrate ambiguity.  The language of the policy excludes
 "cancer," "cardiovascular disease," and "AIDS/ARC," diseases that  have well
 accepted and understood medical definitions, meanings and  usages.(FN6) The
 language is sufficiently clear to put an insured on notice  of the potential
 exclusions. 
      We agree with the commissioner, however, that the exclusion deceptively
 affected the risk to consumers.  Commissioner Costle found that consumers of
 life insurance policies expect to be covered as long as they do not commit
 suicide.  Despite its plan to publish the explanatory brochure for consumers,
 UNUM estimated that more than one half of the individuals who died within the
 first two years after the policy was put in force would not receive death
 benefits.  Thus, the majority of these consumers are either gambling that they
 will not die from an excluded preexisting condition that they know they have or
 they are not evaluating their eligibility for death benefits accurately.  This
 meant that UNUM would be collecting premiums from a large number of individuals
 for whom it had assumed no risk, which, Commissioner Costle found, would be an
 unacceptable result.  The commissioner was entitled to conclude that the policy
 deceptively affected the risk to be assumed in violation of the statute. 

 

      UNUM correctly states that there is no law specifically disallowing the
 exclusion in its policy.  It is true that the statute is cast in broad
 terms, but it contemplates that the commissioner's expertise and experience
 with insurance products and consumer expectations will be applied to
 determine what specific policies violate the statute.  To construe the
 statute otherwise would make the exercise of the commissioner's discretion
 meaningless.  "A statute may not be construed or applied . . . in a manner
 that will render it ineffective or lead to irrational consequences, nor will
 we presume that the Legislature intended absurd or irrational consequences."
 Vermont Dev. Credit Corp. v. Kitchel, 149 Vt. 421, 424, 544 A.2d 1165, 1166-
 67 (1988) (citation omitted).
      Here, Commissioner Costle acted within her delegated authority and
 offered adequate explanation of her decision.  UNUM has not overcome the
 presumption that the commissioner's decision is valid.
      Affirmed.


                                    FOR THE COURT:



                                    ________________________________
                                    Associate Justice

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                                Footnotes

FN1.    The exclusion stated:
     Where death is caused by, contributed to by, or resulting from a
     pre-existing condition:

     1. No benefits will be payable for a loss occurring within 24 months
     after the individual's effective date of insurance; and

     2. No increased or additional insurance will be payable for a loss
     occurring within 24 months after the day such increased or
     additional insurance is effective.

     "Pre-existing condition" means only:

     a. Cancer;
     b. Cardiovascular disease; or
     c. Condition relating to Acquired Immune Deficiency Syndrome (AIDS),
     or AIDS Related Complex (ARC), for which the individual received
     medical treatment, consultation, care or services, including
     diagnostic measures, except conditions relating to AIDS or ARC, or
     took prescribed drugs or medicines within six months prior to:

           (i) the individual's initial effective date of insurance; or
          (ii) the day that any increased or additional insurance is effective.


FN2.    The findings of fact made by the hearing officer that are relevant to
 this appeal are:

     8.  The terms "cancer," "cardiovascular disease" and "AIDS/ARC" have
     well-accepted and understood medical definitions, meanings and
     usages.
     . . . .

     11. UNUM will send brochures and letters to each Credit Union member
     to announce that insurance is available and to explain the key terms
     of the Policy.

     12. UNUM's brochures will repeat the Exclusion as printed in the
     Policy and will explain in plain English what the Exclusion means
     and how it will work.
     . . . .

     14. There is an actuarially significant risk that members insured
     under the Policy who have one of the Exclusion Conditions will die
     within 24 months after the effective date of their coverage under
     the Policy; UNUM projections show that 15 of 27 possible deaths in
     the first two years after the Policy is put in force would be denied
     coverage under the terms of the Exclusion.

FN3.    The following supplemental findings of fact are relevant to this
 appeal:

     23. Use of the pre-existing conditions exclusion rather than medical
     underwriting increases profits by allowing collection of premiums in
     cases where no benefits will be paid.
     . . . .

     31. The expectation of a consumer who buys a life insurance policy
     is that a death claim will be paid if he or she does not commit suicide.

FN4.    The commissioner's authority to act under Regulation 82-1, { 4 is
 expressly granted by the Legislature because the regulation was promulgated
 pursuant to 3 V.S.A. { 831(d) and is further authorized by 8 V.S.A. { 75.

FN5.    UNUM also argued that the commissioner exceeded the scope of the
 remand by issuing a series of supplemental findings that contradicted the
 findings of the hearing officer.  All but two of the findings supported the
 commissioner's view, with which we disagree, that the exclusion was ambiguous.
 In view of our holding in part II, that the commissioner's decision is affirmed
 only on the ground that the preexisting-conditions exclusion deceptively
 affected the risk to consumers, the supplemental findings challenged by UNUM
 are irrelevant.  The remaining two findings are not in conflict with the
 previous findings.

FN6.    We are aware that the Centers for Disease Control and Prevention
 periodically revises the definition of AIDS and we take no position on whether
 attempted retroactive application of a new definition would create ambiguity.



         
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                                  Dissenting

 

 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P.
 40 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.

                                 No. 93-467


 In re UNUM Life Insurance                    Supreme Court
   Company of America
                                              On Appeal from
                                              Banking & Insurance

                                              March Term, 1994


 Elizabeth R. Costle, Commissioner

 Peter Cullen of Theriault & Joslin, P.C., Montpelier, and Andrew J.
    Bernstein, Portland, Maine, for plaintiff-appellant

 Jeffrey L. Amestoy, Attorney General, and William Griffin, Chief Assistant
    Attorney General, Montpelier, for defendant-appellee


 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


      MORSE, J., dissenting.   The August 1993 Order of Commissioner Costle
 should be reversed because the findings do not support the commissioner's
 decision that the proposed life insurance policy violates 8 V.S.A. {
 3542(2).  Accordingly, I respectfully dissent.
      I agree with the Court that the language of the policy was not
 ambiguous or misleading but disagree that the exclusion deceptively affects
 the risk that UNUM purports to assume.  Under the second prong of {
 3542(2), the commissioner determined that the condition deceptively affects
 the risk that UNUM purports to assume because the exclusion will bar
 recovery on more than half of claims made during the first two years of the
 policy.  Apparently, this is based upon the commissioner's finding
 that consumers of life insurance policies expect to be covered as long as

 

 they do not commit suicide.  For two reasons, I fail to understand how this
 finding supports the commissioner's conclusion.
      First, the condition will be placed in the policy itself and brochures
 will be mailed to every Credit Union member to explain what the exclusion is
 and how it will work.  If informed, a consumer would not think the policy
 would pay out in all circumstances.  Furthermore, the exclusion is limited
 to persons who have been diagnosed as suffering from one of the exclusion
 conditions and who receive medical treatment for the condition in the six
 month period prior to the effective date of the policy's coverage.
 Consequently, there is little risk that a prospective insured will not be
 aware that he has an excluded condition.
      Next, the commissioner describes UNUM's promise to assume an individual
 risk as "illusory" in more than half of all cases arising during the first
 two years of the policy.  On the effective date of the policy, however, UNUM
 assumes the risk that the individual will live beyond the two year limit.
 Moreover, UNUM accepts all risk in the event that the insured dies from a
 cause unrelated to the excluded condition.  These risks are not illusory.
 The condition simply does not deceptively affect the risk that UNUM purports
 to assume.
      I would reverse.  Chief Justice Allen joins in this dissent.


                                          ____________________________
                                               Associate Justice