Eubanks v. National Federation Student Protection Trust

George Rose Smith, Justice. The principal appellee, National Federation Student Protection Trust, is an association whose membership includes local schools in Arkansas and throughout the United States. The Trust annually offers an accident insurance program to its member schools, with students and school employees being eligible for the insurance. On July 19, 1985, after some preceding correspondence, an attorney in the State Insurance Commissioner’s office wrote a letter to the Kansas insurance agency which administers the insurance program, stating that the Trust’s program would not be in compliance with the Arkansas Insurance Code until the group policy and certificates had been approved by the Insurance Department. Upon receipt of that letter the Trust, without resorting to its administrative remedy before the Commissioner, filed this suit to enjoin the Commissioner from interfering with the Trust’s sale of the insurance in Arkansas. The other plaintiffs are the Chicago insurance company that writes the master policy, the Kansas insurance agency, and the Nashville, Arkansas, insurance representative who travels the state selling the plan to school districts. The complaint was filed four days after the July 19 letter. It states a variety of grounds for injunctive relief, one being that the Commissioner’s Bulletin 15-81, on which the attorney’s letter was based, is arbitrary and capricious. On the day the complaint was filed the chancellor signed an ex parte temporary restraining order which, after the case had been tried, was made final by the decree entered on November 26, 1985. The Commissioner’s appeal was filed in this court under Rule 29(l)(c). The Commissioner makes two arguments for reversal, but we need discuss only his first point, that the chancellor erred in finding the Bulletin to be arbitrary and capricious. We emphasize at the outset that the plaintiffs, though having the burden of proof, offered no evidence to support their allegation of arbitrariness and capriciousness. No one from the Commissioner’s office, for example, was called to explain the basis for the Bulletin. The defendants did not supply the deficiency. Consequently the trial court’s ruling in effect declared that the Bulletin is invalid on its face. We cannot agree with that conclusion. The Bulletin provides that if the parent pays the entire premium, a student accident plan cannot coordinate benefits with other insurance or declare itself to be “excess,” that is, applicable only to the extent that a claim is not covered by other insurance. The Bulletin goes on to provide that if the school and the parent both pay part of the premium, the benefits can be coordinated. Finally, if the school pays the entire premium, “the plan can be anything,” including being excess insurance. The chancellor’s decree recites that the Commissioner’s classification according to who pays the premium is capricious and arbitrary, because the insured has the same expectation of benefits regardless of who pays the premium. The facts about the insurance plan are simple. The Trust annually obtains a basic policy and makes the coverage available to its member schools. The Trust itself pays nothing to the insurance company and receives no commission. The Arkansas representative sells the plan to school districts. He testified that in 1984 his gross premium income was between $500,000 and $600,000, on which he receives a commission. The insurance company or its agency provides the school districts with information about the coverage and furnishes printed handbills, often called flyers, which are distributed to the children with instructions to take the flyers home to their parents. The flyer used in this instance provided a parent with basic information about the insurance, including a statement that it was excess coverage. On the facts before us it is evident that Bulletin 15-81 was issued as a consumer-protection measure. Our Insurance Code contains various provisions for the protection of purchasers of insurance. For instance, the Code prohibits misrepresentations made to obtain insurance business, Ark. Stat. Ann. § 66-3015 (Repl. 1980), prohibits excessive premiums, § 66-3023, and broadly authorizes the Commissioner to make reasonable rules and regulations to aid in putting the provisions of the Code into effect. § 66-2111. One of the Commissioner’s responsibilities has been to safeguard the interest of consumers who buy insurance. We think it plain that the Commissioner was acting within his authority in seeking to protect the parents in the present situation. We do not imply that the coverage offered through the Trust in 1985 was not a good value, but the area is undeniably one in which scrutiny is proper. Whatever premiums the insurance company is to receive must be paid by the school district, by the parents, or by both. Our school districts perennially operate on tight budgets. When the school board, composed of elected citizens, decides to spend school funds for the insurance of school children, parents may reasonably assume that the outlay is prudent, whether the district pays all or only part of the premium. But the situation is vastly different when the parent pays all the premium himself without the school board’s having committed its own funds. Here the parent sees only the flyer, which has a semblance of official sanction by reason of having come from the public school. Accident coverage for a student during school time is $ 12 a year, which might very well seem to be a bargain, and so it might have been. But the July 19 letter to the Trust, which was attached as an exhibit to the complaint, not only referred to the group policy and the certificates but went on to say: “In view of the Department’s previous problems with the advertisement material used by representatives of the [Trust], the Department is requesting that all solicitation material be filed for approval.” The standard for judicial review of administrative action is that the action will be regarded as arbitrary and capricious only where it is not supportable on any rational basis. Partlow v. Ark. State Police Comm’n, 271 Ark. 351, 609 S.W.2d 23 (1980). In the field of equal protection, a classification is not arbitrary if it rests upon a difference having a fair and substantial relation to the purpose of the measure. Corbitt v. Mohawk Rubber Co., 256 Ark. 932, 511 S.W.2d 184 (1974). The burden of showing that a rule has no rational basis is on the party challenging the rule. Streight v. Ragland, 280 Ark. 206, 655 S.W.2d 459 (1983). The plaintiffs did not sustain that burden; they did not even attempt to. The Commissioner’s Bulletin is not invalid on its face, which in the absence of proof concludes our inquiry. Reversed. Newbern, J., dissents.