AETNA LIFE INSURANCE COMPANY, Allstate Life Insurance Company, Business Men‘s Assurance Company of America, Connecticut General Life Insurance Company, Hartford Life Insurance Company, IDA Life Insurance Company, Montgomery Ward Life Insurance Company, Occidental Life Insurance Company of California, Philadelphia Life Insurance Company, Provident Life and Accident Insurance Company, Rockford Life Insurance Company, The Paul Revere Life Insurance Company, The Travelers Insurance Company, Washington National Insurance Company, John U. Andersen, Stuart B. Crawford, William R. Lund, Joseph Mannix, Patrick J. O‘Donahue, James J. Rath, Keith Tripp, The National Association of Life Underwriters and Wisconsin Association of Life Underwriters, Plaintiffs-Respondents, v. Susan M. MITCHELL, Commissioner of Insurance and Office of Commissioner of Insurance, Defendants-Appellants.
No. 80-518
Supreme Court of Wisconsin
Argued January 7, 1981.—Decided March 31, 1981.
Motion for reconsideration denied, without costs, on May 4, 1981.
303 N.W.2d 639
Amicus Curiae brief of Center for Public Representation, National Consumers League, and Wisconsin Consumers League was filed by Gerald J. Thain, Center for Public Representation, David Swankin, National Consumers League, and James L. Brown, Wisconsin Consumers League, all of Madison.
Amicus Curiae brief of American Council of Life Insurance was filed by Daniel W. Hildebrand and Ross & Stevens, S.C., of Madison.
Amicus Curiae brief of The National Association of Insurance Commissioners was filed by Jon S. Hanson, executive secretary of Brookfield.
COFFEY, J. This is an appeal from a judgment of the circuit court for Dane county, the Hon. W. J. Jackman, Reserve Judge, presiding. The circuit court declared
On May 10, 1979, this case was before this court for the first time involving these provisions of the code but with an earlier effective date of January 1, 1979. These
The Buyer‘s Guide and the Policy Summary required to be delivered prior to sale emphasized the necessity of comparing the policies with the Surrender Cost Index (SCI)3 as a means of comparative shopping to aid in determining the lowest cost policy. The Surrender Cost Index numbers for the policies being considered were
On December 15, 1978, shortly before the January 1, 1979 effective date of Commissioner Wilde‘s rule, Aetna Life Insurance Company (Aetna) and others,4 the respondents, commenced an action pursuant to
Policy Summary
“To find a low-cost policy, look to the policy‘s Surrender Cost Index, not its premium.
“The lower the Surrender Cost Index, the lower the policy‘s cost to you.”
“The basic life insurance cost index is called the ‘Surrender Cost Index‘.
“But the most important thing to know may be summarized quite simply: LOOK FOR POLICIES WITH LOW SURRENDER COST INDEX NUMBERS. THEY COST THE LEAST.
“THE MOST IMPORTANT THING TO REMEMBER WHEN USING THE SURRENDER COST INDEX IS THAT A SMALL NUMBER IS GENERALLY A BETTER BUY THAN A COMPARABLE POLICY WITH A LARGER NUMBER.” (Emphasis and capital letters in original.)
The trial court (Judge Sachtjen)6 denied the request for a temporary injunction and Aetna, et al., appealed. At the time of the first appeal, the appellate court reversed the circuit court but directed the trial court to enjoin enforcement of the rule pending a trial on the merits. In its decision, the appellate court concluded that the “unqualified” representations that policies with low SCI numbers “cost the least” contained in the Buyer‘s Guide and Policy Summary were misleading for the court determined that “it is not always true that policies with low Surrender Cost Index numbers cost the least.” On the original appeal, this court, having considered Wilde‘s petition to review the decision of the court of appeals, vacated the decision ruling that “the propositions of law addressed by the court of appeals in its opinion should not be authoritatively determined until after a hearing on the merits.” However, this court did agree with the court of appeals and continued the temporary injunction, remanding the case to the circuit court directing that court to enjoin enforcement of the rule, pending a hearing on the merits.
“A POLICY WITH A LOW COST SURRENDER INDEX IS LIKELY TO BE A BETTER BUY.” (Emphasis supplied.)
On November 20, 1979, shortly after Commissioner Mitchell ordered the language change in the Buyer‘s Guide and the Preliminary Policy Summary,8 Aetna filed an amended complaint and again claimed that the amended rules were invalid for they mandate the distribution of incomplete—misleading material, contrary to
The case was tried to the court and the evidence dealing with the actuarial bases of the SCI, NPCI and ELAD, as well as that relating to the nature of whole life insurance policies, is not in dispute. Aetna, in support of their claim that the Buyer‘s Guide and the Policy Summary are misleading unless delivery and disclosure of the NPCI is also required before sale, established that the true cost of a whole life policy is dependent upon
At trial, Aetna, with the introduction of exhibits numbered 61 and 62, established that as a consequence of the assumption of policy surrender rather than termination by death, the use of the SCI alone cannot accurately predict the comparative costs of whole life policies when terminated by death, for the assumption that the cash value of the policy will be returned to the purchaser does not occur if the policy is terminated by death. Further, these exhibits demonstrate that in the event a policy is not surrendered, the NPCI is the more accurate measure when considering all of the elements of the policy‘s comparative cost14 since, contrary to the SCI, the NPCI assumes the policy will be terminated by death and the cash value will not be available to reduce the cost of the policy.
These exhibits reflected the results of studies dealing with the accuracy of the SCI in predicting the less costly of two whole life policies, assuming that each policy will be terminated by death rather than surrender ten and twenty years after issue. Each exhibit established that when termination by death is assumed, and one of two policies under consideration has a lower SCI and the other has a lower NPCI, then the policy with the lower NPCI
Exhibit number 61 examined the relative costs of non-participating policies as to other non-participating policies in over “500 competitive pair situations“.15 This study determined that the policies with the lower SCI were not the “better buy” in over 220 competitive pair situations (44%) when termination by death was assumed to occur ten years after issue and in over 125 competitive pair situations (25%) when the calculations were based on a termination date of twenty years after purchase.
Exhibit number 62 reflects the results of a study examining over 40,000 “competitive pair situations” involving both participating and non-participating policies. This study likewise concluded that the SCI alone is not an accurate and complete indicator of the better life insurance purchase in terms of return per premium dollar, as it determined that the SCI designated the “wrong” (more expensive) policy as the less costly in over 20% (more than 8,000) of the competitive pair situations when termination by death was assumed to occur at a ten or twenty year interval after issue.
With regard to the allegation that the Buyer‘s Guide and Policy Summary are misleading unless the purchaser
Given the foregoing facts relating to the relationship between the SCI, the NPCI and ELAD, the question confronting the circuit court was whether the Buyer‘s Guide and Policy Summary prescribed by Commissioner Mitchell would be misleading to prospective purchasers of whole life insurance due to their failure to include the NPCI and ELAD with the SCI for the policies under consideration. The salient features of the Buyer‘s Guide prescribed by Commissioner Mitchell are:18
“WISCONSIN BUYER‘S GUIDE TO LIFE INSURANCE
“Office of the Commissioner of Insurance
123 West Washington Avenue
Madison, Wisconsin 53702
“1980
“This guide has been prepared by the Wisconsin Commissioner of Insurance.
“This guide does not endorse any company or policy. It is designed to help most consumers buy life insurance. However, individuals with unusual financial situations should seek professional advice.
“BUYING LIFE INSURANCE
“When you buy life insurance, you should look for the least expensive policy which meets your needs. This guide will help you:
“Decide how much life insurance you should buy.
“Choose the type of policy best for you.
“Compare the cost of similar policies issued by different companies.
“FINDING A LOW COST POLICY
“After you decide which kind of life insurance fits your needs, look for a good buy. The best way to compare similar policies is to use the cost indexes. A POLICY WITH A LOW COST SURRENDER INDEX IS LIKELY TO BE A BETTER BUY.
“What are Cost Indexes ?
“Premiums alone do not always reveal the true cost. Cost is the difference between what you pay and what you get back. Three factors affect the cost: Premiums, dividends, and cash values.
“Premiums are the most obvious factor in a policy‘s cost. You should not buy a policy unless you can afford the premiums.
“If the company‘s investment return, loss experience and expenses are favorable, a portion of your premium is returned as a dividend. Only participating policies pay dividends. When you consider buying a participating policy, you will receive a dividend illustration based on the company‘s current dividend scale. These future dividends are not guaranteed.
“Computing the cost of whole life insurance is difficult. This is because a policyholder will receive one amount of money if the policy is surrendered for its cash value and another amount if he or she dies. Usually people who buy whole life insurance policies intend to keep them but in fact many people surrender the policies early. For this reason, you should consider cash values in determining the cost of a policy.
“The Surrender Cost Index
“This index takes into account all three factors discussed above, as well as interest. The surrender cost index compares costs as if you surrendered the policy in the future and took its cash value.
“Before anyone sells you a life insurance policy, he or she must give you surrender cost index figures at 10 and 20 years. To see how that policy ranks, you should compare those figures with ones for similar policies from other companies.
“. . .
“To get the most reliable comparisons, keep the following rules in mind:
“Cost comparisons should be made only among similar policies. For example, you should avoid using the surrender cost index to compare term and whole life insurance.
“. . .
“Small differences in index numbers may be offset by other policy features or differences in the quality of service.
“. . .”
“Other Useful Indexes
”Life Insurance Net Payment Cost Index. This index does not take cash values into account. It is useful if your main concern is the benefits to be paid at your death. As with the surrender cost index, a policy with a lower index figure is likely to be a better buy.
”The Equivalent Level Annual Dividend. This index is an average annual dividend, taking the time value of money into account.
“SHOPPING HINTS
“. . .
“SHOP AROUND. Policies vary substantially in cost. Before you buy a policy, check the surrender cost index.
“COMPARE POLICIES AND COMPANIES. The company with the lowest indexes for one policy will not necessarily have the lowest indexes for others.” (Bold face type and emphasis in original.)
The Policy Summary established by Commissioner Mitchell19 requires the insurer to supply the prospective purchaser with the name and address of the issuing company, the type and name of the policy, its face amount at issue, annual premium and SCI. As to the SCI, it provides:
“10 years 20 years
“SURRENDER COST INDEX*——
“To find a low cost policy, compare cost index figures, not just premiums. The Surrender Cost Index takes premiums, cash values, dividends (if any) and interest into consideration. A policy with a lower Surrender Cost Index is likely to be a better buy.
“Be sure you use the Surrender Cost Index to compare only similar policies. Small differences in the index are probably not significant. Large differences may mean substantial savings. See the Wisconsin Buyer‘s Guide to Life Insurance for examples.
“. . .
“* The Surrender Cost Index assumes that the policy is surrendered for its cash value 10 or 20 years in the future. Death prior to these surrender dates may alter the cost comparisons. Figures for participating policies are based on illustrated dividends which are not guaranteed.
“The Wisconsin Commissioner of Insurance requires an agent to complete this form when he or she takes an application.” (Emphasis in original.)
The record demonstrates that various actuarial experts disagreed concerning the issue of whether the above-quoted documents would mislead prospective purchasers of whole life policies as to their comparative costs. The Commissioner‘s experts testified that the Buyer‘s Guide and the Policy Summаry were not misleading despite the fact that they only required the disclosure of the SCI and represented that policies with low SCI numbers are likely to be the better buy. They further stated that the inclusion of the ELAD and NPCI would only serve to confuse the consumer and therefore disclosure of only the SCI was reasonable. Three of the commissioner‘s experts stated that the representation “A Policy with a low surrender cost index is likely to be a better buy,” was not misleading as the word “likely” was a sufficient qualifier in the sense that consumers reading this phrase
Commissioner Mitchell, when testifying in support of her rule, reiterated the testimony of her experts and stated that the required disclosure of only the Surrender Cost Index for whole life insurance cost comparison purposes was reasonable for she believed that this index provided a simple and effective means of cost comparison not likely to confuse consumers. She further recited that the Buyer‘s Guide and the Policy Summary were not misleading as they represented that a policy with a low SCI is only likely to be a better buy. However, she admitted that the SCI would not always be a perfect measure of the relative cost of whole life policies, and in particular those policies retained until death. The Commissioner also testified that although the majority of the consumers who purchase whole life policies do so with the intent to hold them until death, the decision to require a disclosure of only the Surrender Cost Index was based in part on statistics showing that most whole life purchasers, despite their initial intentions, actually surrender their policies within 20 years.
In contrast to the Commissioner and her experts, a number of actuarial and life insurance cost index experts testifying for Aetna, et al., recited that the Buyer‘s Guide and the Policy Summary as prescribed by Commissioner Mitchell were misleading. These experts stated that the repeated emphasis on the SCI in the Buyer‘s Guide and Policy Summary would lead average prospective purchasers to rely solely on the SCI in arriving at their purchase decisions. Thus, they concluded that the failure to require disclosure of the NPCI and ELAD is misleading because the mere reading of the SCI alone fails to provide sufficient and accurate information as to the relative cost of policies terminated by death as well as the extent to
The circuit court entered judgment declaring
“FINDINGS OF FACT
“A substantial number of policies whose low cost is judged by the Cost Surrender Index are not the lowest in cost if not surrendered but continued to death.
“Comparison of cost of participating policies with nonparticipating policies on the basis of the Surrender Cost Index alone results in the participating policies in having substantially lower Surrender Cost Indexes than those for non-participating policies.
“The Commissioner expects that participating and non-participating policies will be cost cоmpared on the basis of the Surrender Cost Index alone, although such policies differ in the presence or absence of dividends and the Surrender Cost Index of non-participating policies are guaranteed and that of participating policies is not.
“It is misleading to the prospective purchaser to compare participating and non-participating policies using only the Surrender Cost Index.
“The assertion in the Preliminary Policy Survey [sic] and the Buyer‘s Guide that a low surrender cost index
is likely to be the better buy is not accompanied by any index which can be compared to show those cases where the Low Surrender Cost Index may not be a less expensive policy if it is not surrendered. It is therefore misleading.
“. . .
“Since the Surrender Cost Index in the case of participating policies is made low by the use of illustrated dividends in the calculation, the failure to disclose the Equivalent Level Annual Dividend does not permit the purchaser to determine what part of the Surrender Cost Index is based on illustrated premiums [sic], the amount of which is not guaranteed and is misleading.
“The majority of policies of a similar kind can be judged as to cost by the Surrender Cost Index, but a substantial number can not, especially when the intent is to keep the policy until death. In such cases the Net Payment Cost Index is of value to such persons. It is also a valuable comparison tool to either confirm the Low Surrender Cost Index or if it does not point in the same direction, to provoke inquiry of the purchaser into the reason for the difference. The failure to include it in the Preliminary Policy Summary is misleading.
“The Surrender Cost Index and the Net Payment Cost Index of non-participating policies are guaranteed figures, since no dividends are included in the calculations. But the Surrender Cost Index and Net Payment Cost Index of participating policies are nоt so guaranteed. Neither the Preliminary Policy Summary or the Buyer‘s Guide make this clear so that a customer may be misled, even though it is stated that dividends are not guaranteed.
“Because the Preliminary Policy Summary and Buyer‘s Guide have the mark of the Commissioner on them the information contained has the endorsement of the State as complete and correct, although they are incomplete and misleading because of the absence of vital information needed by a substantial number of persons to make an intelligent choice.”
“CONCLUSIONS OF LAW:
“1. The rule, INS. 2.14(3) (a) [sic] as amended by the amendment promulgated [sic] to take effect February 1, 1980, insofar as it directs the use of the ‘Pre-
liminary Policy Summary, Whole Life’ and ‘Wisconsin Buyer‘s Guide to Life Insurance’ as therein set forth as ‘Appendix 1’ and ‘Appendix 3’ are invalid and void as applied to whole life policies and being in excess of the powers of the Commissioner of Insurance because the same contain misleading information, including information misleading because of incompleteness, contrary to Sec. 628.34, Wis. Stats. and compels insurance agents to disseminate such information.”
Commissioner Mitchell appealed from the judgment of the circuit court and the case is before this court on certification from the court of appeals.
Issue
Did the trial court err in declaring that the Commissioner of Insurance exceeded her rule-making power in requiring insurance companies to disseminate misleading cost disclosure information as to whole life policies because of incompleteness, contrary to
At the outset, it must be noted that this case does not involve a challenge to the Commissioner‘s authority to promulgate a rule requiring insurance companies to disseminate life insurance cost disclosure information. Aetna admits that the Commissioner has such authority. In fact, the record demonstrates that Aetna and the insurance industry as a whole support a complete and accurate cost disclosure requirement. However, Aetna objects to the accuracy and completeness of the information required to be disclosed in the Commissioner‘s Buyer‘s Guide and Policy Summary effective February 1, 1980.
The Commissioner attacks the trial court‘s ruling on two bases: (1) the trial court did not apply the correct standard of review in a proceeding challenging administrative rules under
According to the Commissioner, the trial court‘s review of the rule must be limited to a determination of whether the rule is a reasonable means of effecting the purposes of the Insurance Code found in
“MISREPRESENTATION. (a) Conduct forbidden. No person who is or should be licensed under this code, nо employe or agent of any such person, no person whose primary interest is as a competitor of a person licensed under this code, and no person on behalf of any of the foregoing persons may make or cause to be made any communication relating to an insurance contract, the insurance business, any insurer or any intermediary which contains false or misleading information, including information misleading because of incompleteness.” (Emphasis supplied.)
II. Trial Court’s Findings
As to the rules applicable to the review of a circuit court’s finding of fact, we refer to Klein-Dickert Oshkosh, Inc. v. Frontier Mortgage Corp., 93 Wis.2d 660, 663, 287 N.W.2d 742 (1980), where this court stated:
“We believe it is well-established that findings of the trial court will not be upset on appeal unless they are clearly erroneous and against the great weight and clear preponderance of the evidence. The evidence supporting the findings of the trial court need not constitute the great weight or clear preponderance of the evidence and reversal is not dictated if there is evidence to support a contrary finding. If there is to be a reversal on appeal, the evidence to support such a result must itself constitute the great weight and clear preponderance of the evidence. Furthermore, when the trial judge acts as the finder of fact, he is the ultimate and final arbiter of the credibility of witnesses. When more than one inference can be drawn from the credible evidence, the reviewing court must accept the inference drawn by the trier of fact. Bank of Sun Prairie v. Opstein, 86 Wis.2d 669, 676, 273 N.W.2d 279 (1979), and cases cited therein.”
The trial court found that a substantial number of whole life policies determined to be the lowest in cost under the SCI alone are not the least expensive if ter
The trial court also found that participating and non-participating policies when compared on the basis of the SCI alone as set forth in the Buyer’s Guide and Policy Summary will favor participating policies over non-participating policies as the Surrender Cost Index for participating policies is reduced with the inclusion of illustrated dividends in its (SCI) calculation. The court further found that Commissioner Mitchell’s Buyer’s Guide and Policy Summary fail to inform the purchaser the extent to which a participating policy’s SCI is based on illustrated dividends. These findings are not disputed. Thus, the Commissioner’s Policy Summary and Buyer’s Guide repeatedly emphasize the use of the SCI for cost comparison purposes, but fail to disclose the extent to which the SCI for participating policies is reduced by dividends that the consumer is not assured of receiving. The record demonstrates that the disclosure of the extent to which the SCI for participating policies is determined by nonguaranteed dividends is precisely what the ELAD accomplishes. Therefore, a true and accurate comparison of participating and nonparticipating policies as to illustrated dividеnds can only be made with the disclosure of the ELAD; hence, the presentation of the SCI without a contemporaneous revelation of the ELAD is misleading.
This testimony of the Commissioner demonstrates why the failure to include the NPCI in her Buyer’s Guide and Policy Summary renders them incomplete and misleading. She has admitted that the majority of people who purchase whole life insurance do so with the intent to hold their policies until death, yet, in spite of her admission that the SCI “would not always be a perfect measure” for policies held until death, she repeatedly encouraged in her cost disclosure materials the singular use of the SCI. The point to be considered is that it is the consumer’s intent at the time of purchase and not whether the policy is surrendered or terminated by death that should determine what information must be disclosed in order to enable them to make an intelligent and informed purchase decision. Since most consumers are interested at the time of purchase in buying death protection, the NPCI dealing with the relative costs of policies terminated by death is required to be disclosed, together
In summary, given that the SCI does not accurately predict the least costly policy under all circumstances, that the ELAD discloses a material fact that the SCI alone fails to present, namely, the extent to which illustrated dividends are reflected in the SCI, and that the NPCI is the more accurate measure of the relative cost of whole life policies terminated by death and is therefore a valuable guide to purchasers who intend to hold their policies until death, the record supports and indeed compels the trial court’s finding that the Buyer’s Guide and the Policy Summary are misleading in failing to inform the consumer when the SCI is likely to be inaccurate and in failing to include the NPCI and the ELAD.
Commissioner Mitchell has argued throughout these proceedings that the court should defer to the judgment of the agency in determining what cost disclosure materials should be required to be disseminated to consumers prior to sale. This argument amounts to the claim that statements and materials required to be distributed by the Commissioner, even if false or misleading, can never be challenged and, if accepted, would negate the legislative intent of
By the Court.—The judgment of the circuit court is affirmed.
SHIRLEY S. ABRAHAMSON, J. (dissenting).
This case is a declaratory judgment action commenced pursuant to
The majority states the major question which the circuit court confronted and decided as—“Whether the Buyer’s Guide and Policy Summary prescribed by Com
Briefly I view the case as follows: This case is a judicial review of a rule promulgated by an administrative agency.1 The rule was promulgated pursuant to the
I dissent because the majority has not restricted itself to a review of the Commissioner’s rule; instead the majority has improperly substituted a court’s judgment for a quasi-legislative decision of the Commissioner.
I. CHAPTER 227 REVIEW
I consider first the judicial review statutes applicable to this case.
The parties agree that the Buyer’s Guide and Policy Summary are part of a rule promulgated by the Commissioner and that the agency action in the instant case is classified as a rule under
Under
“Sec. 227.05(4) In any proceeding pursuant to this section for judicial review of a rule, the court shall declare the rule invalid if it finds that it violates constitutional provisions or exceeds the statutory authority of the agency or was adopted without compliance with statutory rule-making procedures.”
Aetna asserts that the rule exceeds the statutory authority of the Commissioner. This challenge rests on two grounds: (1)
The first question a rule challenge raises is what is the record on which judicial review is to be based.
Whatever the record upon which review is based, a broader question, also unanswered in
The parties disagree as to the scope of review. Aetna argues that the issue of whether the rule is misleading is a fact issue for ab initio determination by the circuit court or a question of law for ab initio determination by the courts. The Commissioner asserts that the review is of a quasi-legislative agency determination; that the court cannot substitute its judgment for that of the Commissioner ; and that the scope of review is the rational basis test.
Principles of judicial review are the means of allocating the decision-making function between agencies and courts and allowing the courts and agencies to work as partners in the furtherance of the public interest. Gardner, Federal Courts and Agencies: An Audit of the Partnership Books, 75 Colum. L. Rev. 800 (1975). The legislature has delegated the policy-making function to the administrative agency and has empowered the court to review the agency rules to ensure that they are lawful. A court should not rubber stamp an agency rule; such
Recently courts and commentators have suggested that in reviewing a rule the court might deal separately with the component issues of rulemaking, such as the agency rulemаking procedure, the agency’s interpretations of law, the agency’s factual determinations, and the agency’s decisions on policy within the agency’s exercise of delegated discretion. Under the “component” or “functional” approach to judicial review, the scope of judicial review depends on the issue involved. In 1975, with the enactment of
“227.20. Scope of review. (1) The review shall be conducted by the court without a jury and shall be confined to the record, except that in cases of alleged irregularities in procedure before the agency, testimony thereon may be taken in the court and, if leave is granted to take such testimony, depositions and written interrogatories may be taken prior to the date set for hearing as provided in ch. 804 if proper cause is shown therefor.
“ . . .
“(3) The court shall separately treat disputed issues of agency procedure, interpretations of law, determinations of fact or policy within the agency’s exercise of delegated discretion.
“(4) The court shall remand the case to the agency for further action if it finds that either the fairness of the proceedings or the correctness of the action has been impaired by a material error in procedure or a failure to follow prescribed procedure.
“(5) The court shall set aside or modify the agency action if it finds that the agency has erroneously interpreted a provision of law and a correct interpretation compels a particular action, or it shall remand the case to the agency for further action under a correct interpretation of the provision of law.
“(6) If the agency’s action depends on any fact found by the agency in a contested case proceeding, the court shall not substitute its judgment for that of the agency as to the weight of the evidence on any disputed finding of fact. The court shall, however, set aside agency action or remand the case to the agency if it finds that the agency’s action depends on any finding of fact that is not supported by substantial evidence in the record.
“(7) If the agency’s action depends on facts determined without a hearing, the court shall set aside, modify or order agency action if the facts compel a particular action as a matter of law, or it may remand the case to the agency for further examination and action within the agency’s responsibility.
“(8) The court shall reverse or remand the case to the agency if it finds that the agency’s exercise of discretion is outside the range of discretion delegated to the agency by law; is inconsistent with an agency rule, an officially stated agency policy or a prior agency practice, if deviation therefrom is not explained to the satisfaction of the court by the agency; or is otherwise in violation of a constitutional or statutory provision; but the court shall not substitute its judgment for that of the agency on an issue of discretion.
“ . . .
“(10) Upon such review due weight shall be accorded the experience, technical competence, and specialized knowledge of the agency involved, as well as discretionary authority conferred upon it. The right of the appellant to challenge the constitutionality of any act or of its application to the appellant shall not be foreclosed or impaired by the fact that the appellant has applied for or holds a license, permit or privilege under such act.”
Distinguishing among factual findings (the task of the agency subject to review), issues of law (ordinarily the task of the court), and the agency’s exercise of discretion (policy choices, the prerogative of the agency subject to review) is not easy. Often the three converge. Nevertheless using the component approach to judicial review of the rule before us helps clarify the issues and ensures that the court properly performs its judicial review function.
In this case I tend to favor using the “hard look” doctrine espoused by Judge Leventhal. As I understand it, while the focus of the doctrine is on whether the agency took the requisite “hard look,” the court immerses itself in the record to see if the agency’s action is supported by a factual record and reasoned articulation. Estreicher, Pragmatic Justice: The Contributions of Judge Harold Leventhal to Administrative Law, 80 Colum. L. Rev. 894, 906 (1980). If the agency’s action is so supported, it will be upheld.
II. REVIEW OF FACTUAL UNDERPINNINGS
The majority concludes that in order to determine whether the rule exceeds the Commissioner’s statutory authority the court must “look . . . into their factual underpinnings.” (Supra, p. 109)
I agree with the majority that although rule making involves policy determination and is an act legislative in character, Peterson v. National Resources Board, 94 Wis.2d 587, 595, 288 N.W.2d 845 (1980), there are frequently factual components in rule-making —as there are in the adjudicative process. Misunderstanding of the facts is as dangerous in developing an administrative
Unfortunately the majority does not set forth the “factual underpinnings” which it is examining. I suggest that the basic “factual underpinnings” of the rule are that a substantial number of policies are lapsed or surrendered rather than terminated by death; that in a majority of instances whether the policy terminates by lapse, surrender or death, the SCI and the NCPI Indexes as cost comparison tools lead to the same result; that comparison of costs of insurance policies is complex;14 that there is a need for disclosure of cost information; and that there is no single, agreed-upon technique for comparing costs of policies prior to purchase. I believe these factual predicates of the rule are undisputed and unchallenged by Aetna, the circuit court, or the majority opinion.
The majority concludes there is another factual issue underlying the rule and sets it forth as follows: “The question of whether the Buyer’s Guide and the Policy Summary are misleading is a question of fact.” (Supra, p. 110) The majority’s characterization of the question as one of fact is not supported by any citation to authority or by any reasoning of the court.
Assume for the moment, as the majority does, that the question of whether the rule is misleading is one of fact. The issue which then must be decided is who decides this fact—the Commissioner or the circuit court. Considering that the legislature has empowered the Commissioner to determine what information should be disclosed to the consumer and that the legislature has authorized the
Thus, if the majority is correct that the issue is one of fact, the majority errs in permitting the circuit court to determine the fact ab initio rather than requiring the circuit court to review the Commissioner’s determination of the fact; and the majority further errs in reviewing the circuit court’s determination rather than the Commissioner’s determination.
I find the majority’s characterization of the issue as one of fact surprising. Ordinarily the determination of whether a rule contravenes a statute involves a comparison of the language of the statute and of the rule and an interpretation of the rule and the statute. These questions are generally viewed as questions of law for purposes of judicial review. Peterson v. National Resources Board, 94 Wis.2d 587, 288 N.W.2d 845 (1980). Inasmuch as the issue in this case is viewed by the majority as being whether the rule is “false or misleading” under
The court’s analysis in Wawszkiewicz v. Department of the Treasury, 480 F. Supp. 739 (D. D.C. 1979), to determine whether the contents of a rule were misleading is instructive. Consumers attacked a Department of Treasury regulation allowing wine labels to carry the name “Chardonnay” without disclosing that other grape varieties may compose up to 25 percent of the volume. Con
Using this approach, this court need not defer to the decision of thе Commissioner or of the circuit court, and I conclude that the Buyer’s Guide and Policy Summary do not in and of themselves mislead the ordinary con
This is not a case of an agency labeling an 85 percent meat frankfurter as “All Meat,”19 or an agency labeling wine made in part of a variety of grapes as “Chardon
The food labels purport to describe the product the consumer is buying. The labels are not honest, straightforward or truthful; the ordinary purchaser is not getting the goods the label describes. These food labels, read between the shelf and the cash register, are the final and only information required to be made available to the consumer. No sales person licensed by the State of Wisconsin is present and authorized to explain the label or the intricacies of the contents of the package or to provide further information.
In the instant case, the Guide and Summary do not purport to advise the consumer whether the policy presented is the cheapest policy available for that consumer. The Guide and Summary do not predict the cost of a particular policy for a particular consumer. The true cost of the policy can be determined not at the date of purchase but only “after the fact,” that is at death, maturity of the policy, or at surrender of the policy. The Guide and Summary explain how consumers can go about estimating the cost of a policy. The Guide and Summary give the consumer a short course in cost disclosure and comparison shopping. This short course can be supplemented by the licensed salesperson.
Unlike the food labels, the Guide and Summary do not contain any factual misstatements and they are not rendered false and misleading by what they fail to include.
IV. REVIEW OF AGENCY DISCRETION OR POLICY
The essence of Aetna’s position, and the essence of the majority’s opinion, is that the Buyer’s Guide and Policy Summary are deficient because they emphasize the SCI22 and do not contain two other indices which may be of use to a prospective life insurance policy purchaser. The circuit court reasoned that the rules were misleading because the Commissioner failed to include useful information. Aetna and the majority seek to force the Commissioner to require insurance companies to make more detailed disclosure because they conclude that additional information would make the Guide and Summary more helpful for the consumer.
Although everyone agrees on the desirability of presenting the consumer with effective, meaningful cost disclosure, it is clear from the record, the briefs, the circuit court opinion and the majority opinion that reasonable people disagree as to the best means of achieving fair, meaningful, accurate cost disclosure which the consumer can understand. The dispute in this case really goes to the issue of whether the Commissioner’s exercise of her authority as to what information must be disclosed is sound and reasonable, that is whether the Commissioner
The legislature has delegated to the Commissioner the power to select the means to reach the objective. Selecting the means involves assessing existing and projected facts and predicting the effectiveness of a course of action. As I said previously, this court might review each component of the Commissioner’s rule making process. The court would review the Commissioner’s assessment of the facts to determine if they are supported by substantial evidence. Facts and policy blend together. In some instances of rule making, the Commissioner deals less with “evidentiary” disputes than with normative conflicts, projectories from imperfect data, experiments and simulations, educated predictions, differing assessments of possible risks, and the like.” Amoco Oil Co. v. Environmental Protection Agency, 501 F.2d 722, 735 (D.C. Cir. 1974). See 1 Davis, Administrative Law Treatise sec. 6.13, p. 510 (2d ed. 1979).
In this case the Commissioner’s decision as to what information will be helpful to the consumer is in the nature of a prediction for which supporting data is conflicting. Whether one index is better for the consumer than two or whether three are better than one, is not readily capable of objective determination. This “fact,” really unknowable, can best be characterized as an educated prediction, or more skeptically as a hunch, based on available empirical data. The Commissioner’s decision rests on an essentially legislative policy judgment, rather than on a factual determination. Cf. FCC v. Nat‘l Citizens Comm‘n for Broadcasting, 436 U.S. 775, 813-14 (1978).23
Where the rule turns on facts which are interrelated with policy choices, risk assessment, and predictions of the future, the court’s review should be directed to the reasons and explanations advanced by the Commissioner in support of the policy choices, risk assessments, and predictions, and should not dwell only on assurances of the correctness of the factual support for the rule. When fact and policy are mixed, as they often are, the court’s objective is “to see whether the agency, given an essentially legislative task to perform, has carried it out in a manner calculated to negate the dangers of arbitrariness and irrationality in the formulation of rules for general application in the future.” Automotive Parts and Accessories Ass‘n v. Boyd, 407 F.2d 330, 338 (D.C. Cir. 1968). See also Wisconsin Environmental Decade v. Pub. Service Comm., 79 Wis.2d 409, 425, 256 N.W.2d 149 (1977); Industrial Union Dept. v. Hodgson, 499 F.2d 467, 474-475 (D.C. Cir. 1974).
In dealing with Aetna’s contention that the Summary and Guide are inadequate and should include two more indices, I again turn to the court’s instructive analysis in the Wawszkiewicz Chardonnay wine case. The second issue in that case involved the consumers’ seeking to force the Treasury to require disclosures more detailed than were necessary to prevent the label from being misleading. The court compared its review of the Treasury’s statutory power to prohibit “false and misleading statements” and its review of the Treasury’s statutory power to require labels which “provide the consumer with adequate information as to the identity and quality of the products.” The court said that unlike the statutory obligation on the Treasury to prohibit false or misleading statements, there is a separate and different statutory
This statement of the standard of review of agency discretion and policy making is substantially similar to the traditional statement, which this court has adopted, of the scope of review of a rule or of a quasi-legislative administrative decision. This court has said it will review quasi-legislative administrative action to determine if it is arbitrary or capricious, willful or irrational; if it bears any reasonable relation to its objective; if it is reasonably intended and calculated to fulfill the legisla
V. APPLICATION OF THE TEST OF RATIONALITY
I conclude that whether the issue before the court is viewed as a review of an issue of fact or as a review of agency discretion or policy, the scope of review is substantially similar, because the essence of the standards applicable to each is the requirement of reasonableness or rationality. 1 Davis, Administrative Law Treatise sec. 6.6, p. 468 (2d ed. 1978).26 This court has said that “the substantial evidence in light of the record test” in almost any case converges with the concept of reasonableness and rationality, the usual expression of the scope of judicial review of quasi-legislative acts. Westring v. James, 71 Wis.2d 462, 477, 238 N.W.2d 695 (1975). See also
I turn now to determine whether the rule passes the test of rationality.
The Commissioner’s emphasis in her regulations on the cost surrender index is based on the factual predicate—which as we noted previously is undisputed and unchallenged—that most policies are terminated prior to death and that in most cases the SCI and the NCPI point in the same direсtion.
Considering these facts, the Commissioner concluded that a regulation emphasizing the Cost Surrender Index, requiring a single index in the Summary, and discussing all the indices in the Guide, has merit on the grounds of simplicity. The circuit court reviewed the rule and concluded that the Commissioner erred in several respects in the direction of “over simplification.” It is good to make things simple, says the circuit court, but it is misleading to make things simpler than they are. It is a close question whether the Summary and Guide are “simple” or “simpler.” Reasonable minds could reach different conclusions. The majority admits that the record demonstrates that “various actuarial experts disagreed concerning the issue of whether the . . . documents would mislead prospective purchasers of whole life policies as to their comparative costs.” (Supra, p. 104).
The majority, however, burrows deeper in its review of the rule and concludes that the Commissioner’s approach in determining what information should be furnished to the consumer is inherently flawed because the Commissioner has been guided by what actually happens to most policies rather than by what most consumers intend to do with the policy when buying it. The majority requires the Commissioner to draft the Guide and Summary to reflect the intention of the majority of pur
The court is to review the Commissioner’s rule to determine if the quasi-legislative task was carried out in a manner calculated to negate the dangers of irrationality and if, on the basis of the evidence presented, her rule makes sense and is defensible. Upon a review of the record I conclude that the Commissioner’s rule is the result of considered and careful study after long hearings. The Commissioner’s decisional process cannot be characterized as being filled with gaps, mistakes or slipshod reasoning. It is for the Commissioner, not this court, to choose which
The Commissioner’s rule is not patently unreasonable. It is not void of rational basis. It is not the result of an unconsidered, willful or irrational choice. The Commissioner has given a rational explanation for her decision; her decision is supported by expert opinion.
The area of life insurance cost disclosure is a difficult one, and across the country regulatory agencies and insurance companies are groping for answers.28 I might have drafted the rule in the same manner as the Commissioner or I might have drafted it differently. But I am not the Commissioner of Insurance. The record is adequate to support the Commissioner’s exercise of discretion.
The rules promulgated by the Commissioner are designed to operate in the future in a multitude of transactions. At this time there is no magical formula that will assure that the consumer understands the cost of the policy. The Commissioner should be free to experiment with various rational regulatory approaches and should be able to reexamine regulatory approaches, abandoning or changing those that prove defective and retaining those that function well. The rules are published in the Administrative Code, not in concrete. The rules can be changed if they do not work. The Commissioner and the industry agree that something needs to be done to improve disclosure of cost to the consumer. I would give the rules a chance in the marketplace.
I am authorized to state that Justice NATHAN S. HEFFERNAN joins in this dissent.
Notes
“(4) DISCLOSURE REQUIREMENTS. (a) The insurer shall provide, to all prospective purchasers of any policy subject to this rule, a copy of the current edition of the Wisconsin Buyer‘s Guide to Life Insurance and a properly filled out Preliminary Policy Summary prior to accepting the applicant‘s initial premium or premium deposit, except that insurers which do not market policies through an intermediary may provide the Preliminary Policy Summary and Wisconsin‘s Buyer‘s Guide to Life Insurance at the point of policy delivery, so long as they:
“Guarantee to the policyholder a 30-day right to return the policy for a full refund of premium, and
“Alert the prospective policyholder, in advertisements or direct mail solicitations, of his or her right to obtain a copy of the Wisconsin Buyer‘s Guide to Life Insurance and a Preliminary Policy Summary prior to sale.”
“This index [SCI] is calculated using premiums, dividends, the cash value for the duration of the index and an after-tax interest rate. These cost values are based on the assumption that the insured will live for the duration of the index [10 or 20 years] and then surrender the policy and that dividends will be paid according to the current dividend scale. The value is based on $1000 of insurance.”
“The payments index [NPCI] is calculated in the same manner as the comparable Life Insurance Surrender Cost Index except that the cash surrender value and any terminal dividend are not used. This index is useful if the main concern is the benefits which are to be paid at death and if the level of cash values is of secondary importance. It helps to compare costs at some future time, such as 10 or 20 years, if the policyholder continues paying premiums on the policy and does not take the cash surrender value.”
“(f) Preliminary Policy Summary. For the purposes of this rule, Preliminary Policy Summary means a document provided to the buyer of a life insurance policy prior to sale which contains necessary consumer cost disclosure information, in substantially the same format for all companies, as specified by the commissioner. Appendix 1 to this rule contains a Preliminary Policy Summary form for Whole Life and Endowment Policies. . . . Insurers may, upon request, incorporate Preliminary Policy Summary forms (if they are to be filled out by intermediaries) into copies of the Wisconsin Buyer‘s Guide to Life Insurance which they reprint.”
Federation of Homemakers v. Butz, 466 F.2d 462 (D.C. Cir. 1972).“The Court instead must review the evidence in support of the agency’s policy judgments, but may strike the decisions only upon finding them ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’
For one insurance company’s advertising approach to cost disclosure, see The Bankers Life, How Can I Make a Reliable Cost Comparison Between Competitive Policies, Changing Times 43, 44 (June 1980). It refers to only two indices.