IN THE SUPREME COURT OF TEXAS

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No. 05-0016

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Mid-Century Insurance Company of Texas and Texas Farmers Insurance Company, Petitioners,

v.

Shefqet Ademaj, Respondent

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On Petition for Review from the

Court of Appeals for the Twelfth District of Texas

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Argued October 17, 2006

Justice O’Neill, concurring, joined by Justice Medina

            I agree with the Court that Mid-Century and Texas Farmers Insurance Companies (collectively, “Mid-Century”) lawfully recouped the Automobile Theft Prevention Authority (ATPA) fee from their policyholders. But the Court rests that conclusion on a construction of Insurance Code article 21.35B that could permit rate-regulated insurers to collect the items enumerated therein in addition to their filed rates in a manner that threatens to undermine the Legislature’s efforts to create a fair and competitive rate system. Accordingly, I concur in the Court’s judgment, but cannot join its opinion.

            The Court concludes that section (a) of article 21.35B of the Insurance Code provides independent authorization for insurers to charge policyholders for the enumerated items — policy fees, taxes, service fees, and other specified charges.[1] A careful reading of the entirety of article 21.35B belies that construction. Section (a) of article 21.35B provides:

(a) No payment may be solicited or collected by an insurer . . . in connection with an application for insurance or the issuance of a policy other than:

(1) premiums;

(2) taxes;

(3) finance charges;

(4) policy fees;

(5) agent fees;

(6) service fees, including charges for costs described under Article 21.35A of this code;

(7) inspection fees; or

(8) membership dues in a sponsoring organization.

Tex. Ins. Code art. 21.35B(a)[2] (current version at Tex. Ins. Code § 550.001(a)) (emphasis added). Section (d) of article 21.35B provides for criminal penalties for a violation of the statute. Read in conjunction with this penalty provision, the language I have emphasized suggests that section (a)’s purpose was not to authorize collection of the listed items but to prohibit the collection of any other charges. See Bridgestone/Firestone, Inc. v. Glyn-Jones, 878 S.W.2d 132, 133 (Tex. 1994) (stating “[o]nly in the context of the remainder of the statute can the true meaning of a single provision be made clear”). I would hold that insurers may charge their policyholders for the items listed only if the charge has been included in their filed rates under article 5.101 or otherwise authorized by the Legislature or by the Commissioner of Insurance exercising his or her delegated authority. See Tex. Ins. Code art. 5.101.[3] This reading is consistent with that of the Commissioner in Service Life & Casualty Insurance Co. v. Montemayor. Response to Petition for Review at 4, Service Life & Cas. Ins. Co. v. Montemayor, No. 04-0897 (Tex. June 21, 2004). (“This section is not, however, blanket authorization for all insurers to charge policyholders for every item listed.”).

            Whether “premium” is a component of rate, as the court of appeals held, 202 S.W.3d 176, 182, or rate is a component of “premium,” as the Court holds today, no one would argue that insurers may collect premiums that have not been authorized by the Commissioner, even though premiums are a charge enumerated in section (a) of article 21.35B. And other language in article 21.35B strongly indicates that section (a) does not independently authorize imposition of the listed charges. “Membership dues in a sponsoring organization” is an item listed under section (a)(8), yet section (c) provides that “an insurer may require that membership dues in its sponsoring organization be paid as a condition for issuance or renewal of an insurance policy.” If, as the Court holds, section (a) authorizes insurers to charge the enumerated items, then section (c) is a nullity. We have often held that courts should avoid construing statutes in a manner that will render language meaningless. Kerrville State Hosp. v. Fernandez, 28 S.W.3d 1, 8 (Tex. 2000) (citing City of LaPorte v. Barfield, 898 S.W.2d 288, 292 (Tex. 1995); Chevron Corp. v. Redmon, 745 S.W.2d 314, 316 (Tex. 1987)).

            Finally, the Court’s construction of article 21.35B is inconsistent with the comprehensive scheme the Legislature has created to regulate automobile insurance rates. In setting the benchmark rate, the Commissioner may consider a number of factors. Tex. Ins. Code art. 5.101, § 3(c). In the version of the statute that the parties agree applies here, those factors include all costs and expenses of operation, like taxes and the ATPA fee, “excluding only those expenses that are disallowed under Subsection (o)” of section 3 of article 5.101. Tex. Ins. Code art. 5.101, § 3(c)(4) (emphasis added). Excluded expenses include certain administrative expenses exceeding 110% of the industry median, lobbying expenses, certain advertising expenses, judgments or fines for bad-faith insurance practices, civil or criminal penalties or fines, contributions to social, religious, political, or fraternal organizations, fees paid to advisory groups, and “any unreasonably incurred expenses, as determined by the commissioner.” Tex. Ins. Code art. 5.101, § 3(o). The Court’s interpretation of article 21.35B would allow insurers to recoup expenses disallowed under subsection (o), because the Court concludes the Commissioner has discretion to include or exclude any expenses in the article 5.101 rate, including the ATPA fee, based on the permissive statutory language “may give consideration to.” See Tex. Ins. Code art. 5.101, § 3(c). That interpretation, however, is clearly flawed, as it renders the words “excluding only” in section 3(c)(4) meaningless. Kerrville State Hosp., 28 S.W.3d at 8. If the Commissioner can exclude only the specified expenses, it suggests that he must consider other appropriate expenses.[4] Moreover, in setting the benchmark rate upon which individual insurers’ rates are based, the Commissioner is to “produce rates that are just, reasonable, adequate and not excessive for the risks to which they apply, and not confiscatory.” Tex. Ins. Code art. 5.101, § 3(b)(2). By definition, a rate that would not compensate an insurer for reasonable expenses like the ATPA charge imposed upon insurers under article 4413(37) would not be adequate. Am. Alliance Ins. Co. v. Bd. of Ins. Comm’rs, 126 S.W.2d 741, 742 (Tex. Civ. App.—Austin 1939, writ ref’d) (holding statute that imposed tax on insurers that could not be included in rate or passed on to policy holders was unconstitutional).

            More importantly, the Court’s decision today would allow insurers to circumvent the restrictions on rates that article 5.101 imposes by simply characterizing charges as “policy fees.” The Court summarily dismisses that notion, reasoning that “[a]ny insurer choosing to charge the fee to policyholders both within and outside of the article 5.101 rate would be charging double that which the commissioner permits and, as is the case for any type of impermissible double charging, would be subject to administrative penalties.” ___ S.W.3d at ___. But under the Court’s reading of article 21.35B, the Commissioner would have no legal ground to require remedial action absent double charging. If an insurer imposed a “policy fee” to recover expenses barred under article 5.101, § 3(o), the insurer would be acting under the “affirmative source of . . . authority to solicit and collect payments” afforded by article 21.35B. ___ S.W.3d at ___. 

II.

            While I disagree with the Court’s interpretation of article 21.35B, I nevertheless conclude that Mid-Century was entitled to rely on Rule 5.205 and pass on the ATPA fee directly to its policyholders. 28 Tex. Admin. Code § 5.205 (1992). I agree with Mid-Century and the Court that the flat ATPA fee simply does not neatly fit within the flexible rating program. Because the fee is imposed on a per-vehicle basis, spreading it among lines of coverage through the flexible rating program would mean that consumers who purchased all lines would pay a greater portion of the ATPA fee than those who bought only the minimum liability limits, resulting in a discriminatory rate. See AT&T v. Cent. Office Tel. Inc., 524 U.S. 214, 223 (1998) (recognizing that rates are discriminatory when similarly situated customers pay different fees for the same services). By empowering insurers to pass on the ATPA fee to policyholders in Rule 5.205, the Commissioner assured that consumers would not pay discriminatory rates, while protecting insurers’ constitutional right to recoup expenses. See id.; Am. Alliance Ins. Co., 126 S.W.2d at 742.

            The crux of Ademaj’s complaint is that Mid-Century violated the filed-rate doctrine by failing to include the ATPA fee in its rate filing with the Commissioner. See AT&T, 524 U.S. at 222 (noting that, under the filed-rate doctrine, the rate a regulated carrier has filed is the only lawful charge). But to the extent the doctrine applies in this context, its purposes have been served. The filed-rate doctrine assures, first, that the reasonableness of regulated rates is determined solely by the appropriate regulatory authority. See Mincron SBC Corp. v. Worldcom, Inc., 994 S.W.2d 785, 789 (Tex. App.—Houston [1st Dist.] 1999, no pet.) (citing Keogh v. Chi. & Nw. Ry. Co., 260 U.S. 156, 161-64 (1922)). Second, the doctrine assures that rates imposed on consumers are nondiscriminatory. Id. Both of these purposes have been satisfied in this instance. Here, Rule 5.205 was adopted by the Commissioner in his rate-regulatory capacity under several provisions of the Insurance Code, including article 5.101 and article 5.98.[5] And, as I have said, the rule establishes a mechanism to provide for nondiscriminatory rates while protecting insurers’ constitutional rights. While the rule may allow insurers to charge policyholders $1 more than 30% above the benchmark rate, in my view the rule harmonizes the objectives underlying the ATPA and article 5.101, and therefore provided the insurers a valid basis for the pass-through charge. See R.R. Comm’n of Tex. v. Lone Star Gas Co., 844 S.W.2d 679, 685 (Tex. 1992). Consequently, I concur in the Court’s judgment, but I do not join its opinion.

                                                                        ___________________________________

                                                                        Harriet O’Neill

                                                                        Justice

OPINION DELIVERED: November 30, 2007