Flumignan v. Detroit Automobile Inter-Insurance Exchange

D. F. Walsh, J. This appeal concerns the constitutionality of Michigan’s essential insurance act (EIA), MCL 500.2101 et seq.; MSA 24.12101 et seq., and specifically those provisions of the EIA which permit automobile no-fault insurers to cancel insurance policies if the insurer determines that the insured has been at fault in two or more motor — 124 — vehicle accidents in the three years preceding application for renewal of a policy. The circuit court ruled that a revocation or refusal to renew a policy of insurance based upon the insured’s involvement in automobile accidents without a prior judicial determination of fault deprives the insured of his state and federally guaranteed right to due process of law. Defendant appeals and we reverse. The EIA requires that no-fault insurance be provided to an "eligible person”. MCL 500.2118(1); MSA 24.12118(1). "Eligible person” is defined as an owner or registrant of a licensed vehicle or a licensed driver, MCL 500.2103(1); MSA 24.12103(1). However, a person who has accumulated too many "insurance eligibility points” in the three years preceding application for or renewal of a no-fault policy is excepted from the definition of "eligible person”. MCL 500.2103(l)(h); MSA 24.12103(l)(h). Insurance eligibility points are assessed for convictions, civil infractions, or findings of responsibility in probate court. MCL 500.2103(4); MSA 24.12103(4). A schedule is provided in § 2103(4) of the statute, detailing the number of points which can be assessed for each driving incident. Concerning motor vehicle accidents, points are assessed after the insurer determines that the insured was "substantially at-fault” in the accident. "Substantially at-fault” means more than 50% at fault. MCL 500.2103(4), 500.2104(4); MSA 24.12103(4), 24.12104(4). Three points are assessed for the first "substantially at-fault” accident. For the second and each subsequent accident in which the insured has been determined to be substantially at fault, four points are given. If application for a renewal of a no-fault policy occurred on or before December 31, 1982, — 125 — the insurer could decline or terminate coverage if the insured had accumulated five eligibility points within the three previous years. For applications or renewals occurring after January 1, 1983, an accumulation of six eligibility points would be required to justify a refusal or termination of insurance. MCL 500.2103(l)(h); MSA 24.12103(l)(h). Between June 27 and November 11, 1980, plaintiff Ida Flumignan was involved in three automobile accidents. In two accidents, she struck parked vehicles. In the third, she struck the rear end of a vehicle as it was leaving a parking lot. Plaintiffs were provided with no-fault insurance by defendant during the period in which the accidents occurred. They were subsequently notified that their insurance would be renewed only if Mrs. Flumignan was excluded from coverage or if the plaintiffs agreed to pay higher premiums. Such terms were not acceptable to plaintiffs and defendant opted to terminate coverage. Plaintiffs were notified that their insurance would be terminated June 10, 1981, because Mrs. Flumignan had incurred 11 eligibility points as a result of the three accidents. On June 2, 1981, plaintiffs commenced the present action, contending that the EIA was unconstitutional because it allowed termination of coverage without due process of law. Thereafter, defendant moved for summary judgment under GCR 1963, 117.2(1). The circuit court judge found that plaintiffs were entitled to due process of law before their insurance could be terminated. Specifically, the judge ruled that the plaintiffs were entitled to a judicial determination of fault before eligibility points for motor vehicle accidents could be assessed and their insurance terminated. Defendant raises primarily three arguments on — 126 — appeal: (1) that the plaintiffs have no property interest in no-fault insurance; (2) that no state action was involved in the attempted termination of plaintiffs insurance; and (3) that the procedures in the EIA satisfy the requirements of due process of law. Since we are persuaded that defendant’s third argument is meritorious, we will assume without deciding, for purposes of the following discussion, that the necessary state action and property interest are present. The United States Supreme Court has consistently held that "some form of hearing is required before an individual is finally deprived of a property interest” and that the "fundamental requirement of due process is the opportunity to be heard 'at a meaningful time and in a meaningful manner’ ”. Mathews v Eldridge, 424 US 319, 333; 96 S Ct 893; 47 L Ed 2d 18 (1976), citing Armstrong v Manzo, 380 US 545; 85 S Ct 1187; 14 L Ed 2d 62 (1965). The issue presented in this appeal is whether due process requires a judicial determination of fault prior to the assessment of insurance eligibility points for accidents in which the insured is found to be "substantially at-fault” by the insurer. In Mathews v Eldridge, supra, the United States Supreme Court considered virtually the same issue in a slightly different factual setting and ruled that a prior evidentiary hearing was not required. We find that the Supreme Court’s ruling in Mathews is dispositive of this appeal. In Mathews a state agency determined that George Eldridge, a recipient of disability insurance benefits under the Social Security Act, was no longer disabled and pursuant to that determination the social security administration terminated benefits. Eldridge brought an action in the United — 127 — States District Court for the Western District of Virginia claiming that the administrative procedures established by the Secretary of Health, Education and Welfare for assessing whether a continuing disability existed were insufficient to satisfy the requirements of due process. Both the district court and United States Court of Appeals for the Fourth Circuit agreed, holding that prior to termination of benefits the recipient had to be afforded an evidentiary hearing. The United States Supreme Court reversed, ruling that due process does not always require a predeprivation evidentiary hearing. Mathews, supra, 424 US 349. See also Parratt v Taylor, 451 US 527, 538; 101 S Ct 1908; 68 L Ed 2d 420 (1981). In so ruling the Court reviewed the recent cases in which the Court had had the opportunity of considering "the extent to which due process requires an evidentiary hearing prior to the deprivation of some type of property interest even if such a hearing is provided thereafter” and noted that "[i]n only one case, Goldberg v Kelly, 397 US 266-271; 90 S Ct 1011; 25 L Ed 2d 287 (1970), has the Court held that a hearing closely approximating a judicial trial is necessary”. Mathews, supra, 424 US 333. The Court further reflected that its prior decisions reaffirm the truism that "[d]ue process is flexible and calls for such procedural protections as the particular situation demands”. Mathews, supra, 424 US 334, citing Morrissey v Brewer, 408 US 471, 481; 92 S Ct 2593; 33 L Ed 2d 484 (1972). Finally, the Court in Mathews identified three distinct factors which must be considered in determining whether the specific dictates of due process have been met in any situation in which there is a deprivation of a private property interest by state action. The factors identified are as follows: — 128 — "First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government’s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.” 424 US 335. In order to apply these factors to the case before us, it is necessary that the relevant EIA procedures be examined and evaluated. Under § 2123(1) of the statute, notice of nonrenewal must be provided no later than 30 days before the insurance is to expire. The notice must declare the reason for the termination and advise the insured of his rights under §§ 2113 and 2114 of the act. Under § 2113, the insured has a right to an informal conference with the insurer. The insurer must establish reasonable internal procedures to provide the insured with the information pertinent to the denial of insurance and a method for resolving the dispute promptly and informally, while protecting the interests of both the insurer and the insured. MCL 500.2113(2); MSA 24.12113(2). If the informal conference procedure is not completed within 30 days of notice of nonrenewal or if the insured is dissatisfied with the insurer’s decision after the conference, the insured may appeal the decision to the insurance commissioner. MCL 500.2113(3); MSA 24.12113(3). 1981 AACS, R 500.1508(2), subds (c), (d). Section 2113(4) requires that the insurance commissioner establish by rule a procedure for resolution of disputes between the insured and insurer under this section, which procedure shall be calculated to provide the resolution informally and as — 129 — rapidly as possible, while protecting both parties’ interests. Pursuant to these dictates, the commissioner’s rules provide that the appeal from the insurer’s decision must be brought within 120 days of the decision. 1981 AACS, R 500.1510(2). The insured may be represented by another person through the appeal. 1981 AACS, R 500.1508(2)(e). The commissioner is then directed to review the appeal based on written materials or, if requested, based on a meeting with the parties. 1981 AACS, R 500.1510(3). Under the commissioner’s procedures, the parties are given a chance to supply the agency with all relevant information. Provision is made for prompt resolutions by the commissioner. 1981 AACS, R 500.1511-500.1513. Included in the decision must be a notification that, if the insured disagrees with the decision, he can seek review by the commissioner as a contested matter under the Administrative Procedures Act, MCL 24.201 et seq., 500.2113(5); MSA 3.560(101) et seq., 24.12113(5). The Administrative Procedures Act provides detailed procedures governing contested hearings. It specifies that notice as to the date, location, and nature of the hearing must be provided to the parties involved. It also provides for an evidentiary hearing, along with issuance of subpoenas at the request of the parties, the taking of depositions and discovery, cross-examination and the compilation of a record for purposes of appeal. MCL 24.271-24.276, 24.286; MSA 3.560(171)-3.560(176), 3.560(186). The decision of the commissioner is then required to be made in writing within a reasonable period. The decision must state the findings of fact and conclusions of law. If it is determined that the insured was not substantially at fault in an accident, the termination may be — 130 — deemed invalid and coverage reinstated either retroactively or from the date of the decision. The insurer may also be required to reimburse the insured for any excess premiums the insured has incurred as a result of the improper termination. 1981 AACS, R 500.1514. Thereafter, the insured may seek judicial review. In performing the Mathews balancing test, we note first that an insured whose policy is terminated can still receive insurance at either a higher rate by the same insurer or from other insurers or through the insurance placement facility, which exists to provide insurance to anyone who cannot obtain insurance through private channels. The private interest involved, therefore, is uninterrupted insurance from the same insurer at the same premium rate. Certainly there is a risk of an erroneous deprivation of insurance before the insured can process his appeal. Such risks do not appear to be substantial, however, since the insured must be given notice of the insurer’s decision to terminate coverage, an opportunity for an informal conference with the insurer, access to the information on which the insurer made its decision and an opportunity for a prompt review of the termination by the insurance commissioner. There do not appear to be any reasonable additional or substitute procedural safeguards, short of a judicial hearing, which would more adequately protect the insured against wrongful deprivation. While a judicial determination as to whether the insured was substantially at fault in the accidents prior to the termination of coverage would reduce the risk of an erroneous deprivation, it would also seriously undercut the public interest involved, which is the administration of a low-cost, efficient automobile insurance system. To require a judicial — 131 — determination of fault prior to assessment of insurance eligibility points under the statute would not only substantially increase the cost of insurance protection and seriously undermine the efficiency of the insurance system but it would also, in our judgment, hopelessly overburden the limited resources of the state judicial system. Moreover, as a practical matter, given the already overloaded dockets in many of the courts of this state, it would often be impossible to conclude a full judicial evidentiary hearing on fault prior to the end of the three-year period during which the accident can be considered in determining insurance eligibility points. Judicial predetermination of fault would be clearly impractical and prohibitively expensive and is constitutionally unnecessary in light of the administrative procedures provided and the public and private interests involved. We hold that the procedures provided in the EIA for administrative review of the insurer’s decision to assess eligibility points and to terminate insurance coverage along with the post-termination remedies including an administrative evidentiary hearing and judicial review of the agency decision satisfy the requirements of due process of law.1 The judgment of the circuit court is reversed. Our decision on this issue eliminates the necessity of disposing of the other issues raised by the parties. — 132 — Reversed. Costs to appellants. C. W. Simon, J., concurred. Footnotes [1] It should be noted that plaintiffs did not avail themselves of the procedures provided in the EIA for review of the insurer’s decision to terminate coverage. However, the insurance commissioner’s rules, 1981 AACS, R 500.1501 et seq., setting forth the procedures for resolution of disputes between the insurer and the insured were not effective until October 30, 1981, more than four months after the plaintiffs’ insurance was terminated. This fact does not affect our decision, however, because the availability of post-termination judicial review and relief, combined with the procedures in the EIA itself, satisfy due process. The administrative review procedures provided in the rules merely buttress this conclusion.