CITE:          108 Wn.2d 651, 741 P.2d 18



FILE DATE:     August 6, 1987

CASE TITLE: Federated American Insurance Company, et al,
               Appellants, v. Richard G. Marquardt, as Insurance
               Commissioner, Respondent.

[1] Administrative Law - Rules - Validity - Presumption - Review. Administrative rules adopted pursuant to a specific legislative grant of authority are presumed to be valid. A court's review is limited to determining whether the rule is reasonably consistent with the statute being implemented.

[2] Administrative Law - Rules - Construction - Administrative Construction - Effect. An administrative agency's interpretation of a rule adopted by it is entitled to great weight.

[3] Insurance - Unfair Practices - Deception - Necessity. Under RCW 48.30.010, an unfair insurance practice need not also be deceptive to be subject to regulation by the Insurance Commissioner.

[4] Administrative Law - Rules - Validity - Wisdom. The wisdom or desirability of an administrative rule is not subject to review by a court.

[5] Constitutional Law - Contracts - Impairment - Existing Statute. An obligation of a contract is not impaired in violation of Const. art. 1, 23 or U.S. Const. art. 1, 10 by a statute or administrative rule which is in effect when the contract is executed.

[6] Constitutional Law - Contracts - Impairment - Reasonableness - General Welfare. An administrative rule which is reasonably designed to achieve its purpose of promoting the general welfare does not violate the constitutional prohibition against the impairment of contracts.

[7] Constitutional Law - Due Process - Economic Regulation Police Power. An administrative rule regulating economic activity does not violate due process if it is reasonably related to the public welfare.

NATURE OF ACTION: Insurance companies challenged the validity of a rule requiring insurers which offer medical payments or personal injury protection coverage to make specific levels of the coverage available.

Superior Court: The Superior Court for Thurston County, No. 85 2-00890-9, Robert J. Doran, J., on January 15, 1986, granted a summary judgment upholding the validity of the rule.

Supreme Court: Holding that the adoption of the rule was authorized by statute and that the rule neither impaired the obligation of contracts nor violated due process, the court AFFIRMS the judgment.

COUNSEL:      MATT MURRAY (of MURRAY, DUNHAM & MURRAY), for appellants.



MAJORITY OPINION: At issue is the validity of an automobile insurance regulation adopted by the State Insurance Commissioner. The trial court found the regulation to be validly promulgated and constitutional. We affirm.

On December 27, 1984, the Commissioner adopted WAC 284-30 500(2)(b) by an order filed with the Code Reviser. The regulation provides:

"WAC 284-30-500 Unfair practices with respect to vehicle

. . .

(2) Beginning July 1, 1985, the following practices
      by any insurer, with respect to vehicle insurance policies
      applicable to private passenger vehicles registered or
      principally garaged in this state, are unfair and prohibited:

. . .

(b) Failing, except with respect to a motorcycle policy,
      to provide, to any named insured who so requests and pays
      the premium therefor, first party automobile benefits
      such as those in medical payments coverage or personal
      injury protection, on approved forms commonly used by
      the insurer in the state of Washington, with maximum benefit
      limits, as appropriate to the particular form, of at least:

(i) $35,000 for medical and hospital benefits incurred
      within three years of the accident;

(ii) $35,000 for one year's income continuation benefits,
      subject to a limit of the lesser of $700 per week or eighty
      five percent of the weekly income; and

(iii) $40 per day for loss of services benefits, for
      at least a year.

The Commissioner, in a "Statement of Purpose" filed earlier with the Code Reviser, had described the purpose of the new regulation as follows:

"     Proposed WAC 284-30-500 pertains to vehicle insurance.
      . . . Personal injury protection, commonly referred to
      as PIP, is often included in the private passenger automobile
      insurance policies written in Washington state. It provides
      first-party coverage to insureds (including passengers)
      for medical expenses, loss of wages and loss of services
      about the home, regardless of fault. Some insurers have
      not increased the limits available under the coverage
      in ten years or thereabouts, with the result that some
      people have considerably less protection than they need
      or probably believe they have. The proposed rule will
      require insurers to offer higher limits, as specified
      in the rule, and thereby more realistically protect the
      insured with respect to wage loss and medical expenses.

State Register 84-22-054 (1984).

The plaintiffs, Federated American Insurance Company and National Merit Insurance Company (companies), filed a petition for declaratory judgment seeking to have WAC 284-30-500(2)(b) declared invalid. They contended that (1) the Insurance Commissioner lacks the statutory authority to promulgate the regulation, (2) the regulation unconstitutionally impairs the obligations of contracts, and (3) the regulation unconstitutionally deprives the companies of their right to due process. The trial court granted the Commissioner's cross motion for summary judgment, holding the regulation valid and constitutional. The companies appeal.


We turn first to the question of whether the Commissioner possesses the statutory authority to enact the challenged regulation. The Commissioner, as to this question, relies primarily on RCW 48.30.010, which provides:

"     (1) No person engaged in the business of insurance
      shall engage in unfair methods of competition or in unfair
      or deceptive acts or practices in the conduct of such
      business as such methods, acts, or practices are defined
      pursuant to subsection (2) of this section.

(2) In addition to such unfair methods and unfair
      or deceptive acts or practices as are expressly defined
      and prohibited by this code, THE COMMISSIONER MAY FROM
      TIME TO TIME BY REGULATION promulgated pursuant to chapter

(Italics ours.)

[1] The Insurance Commissioner has broad powers over the control, supervision and direction of the insurance business. 2A G. Couch, INSURANCE 21:5, at 240 (2d ed. 1984). The Legislature, by enacting RCW 48.30.010(2), has granted the Commissioner the authority to define various acts or practices as unfair or deceptive. HORAN v. MARQUARDT, 29 Wn. App. 801, 803, 630 P.2d 947 (1981). Where the Legislature has specifically delegated to an administrator the power to make regulations, such regulations are presumed valid. The burden of overcoming this presumption lies on the challenger. BRANNAN v. DEPARTMENT OF LABOR & INDUS., 104 Wn.2d 55, 60, 700 P.2d 1139 (1985); WEYERHAEUSER CO. v. DEPARTMENT OF ECOLOGY, 86 Wn.2d 310, 314-15, 545 P.2d 5 (1976). Judicial review is limited to a determination of whether the regulation in question is reasonably consistent with the statute being implemented. BRANNAN; WEYERHAEUSER. As emphasized in WEYERHAEUSER, at 314, quoting from 1 K. Davis, ADMINISTRATIVE LAW 5.05, at 315 (1958):

"[T]he court is not free to substitute its judgment as
      to the desirability or wisdom of the [regulation], for
      the legislative body, by its delegation to the agency,
      has committed those questions to administrative judgment
      and not to judicial judgment.

ACCORD, 2A G. Couch 21:5, at 240-41.

The companies contend that, notwithstanding the Commissioner's broad power to regulate unfair or deceptive practices, the Commissioner here has exceeded his statutory authority by engaging in impermissible "legislation". They cite FAHN v. COWLITZ CY., 93 Wn.2d 368, 374, 610 P.2d 857, 621 P.2d 1293 (1980), which observed:

"[A]n administrative agency is limited to the powers and
      authority granted to it by the legislature. The legislature
      may, however, delegate to an administrative agency the
      power to determine a fact or state of things upon which
      application of the law is made to depend, provided the
      law enunciates standards which may guide the administrative
      officers or board . . . . [A]dministrative rules adopted
      pursuant to a legislative grant of authority are presumed
      to be valid and should be upheld on judicial review if
      they are reasonably consistent with the statute being
      implemented. (Citations omitted.) They argue that WAC 284-30-500(2)(b) requires ALL companies to offer no-fault PIP insurance (I.E., medical, hospital, wage loss, and loss of services benefits), in the amounts stated in the regulation, to ANY potential purchaser of automobile insurance who so requests. The companies thus contend that the Commissioner has attempted to legislate a mandatory no-fault insurance system in this State.

We do not read the challenged regulation as broadly. The Commissioner, who is responsible for the drafting of the language therein, emphatically states that the regulation was intended NOT to radically alter existing insurance laws. The Attorney General, as counsel for the Commissioner, concedes in his brief:

"The sole requirement imposed by [WAC 284-30-500(2)(b)]
      is that IF an insurer offers first-party medical payments
      or PIP coverage, and IF a named insured requests the coverage
      in the higher amounts specified in the rule and pays the
      premium for it, then the insurer must provide medical
      payments or PIP coverage in the specified minimum amount.
      An insurer need not make any affirmative effort to inform
      insureds or insurance applicants of these minimum available
      amounts. An insurer is free to continue to offer coverage
      in amounts lower than those contained in the rule, or
      indeed, to offer no coverage. ONLY WHEN AN INSURER OFFERS
      OF $35,000/$35,000/$40.

(Italics ours.)

[2] We agree with the trial court's observation that WAC 284 30-500(2)(b) is not a "model of clarity". In such situations, the Commissioner's interpretation of his own regulation is entitled to great weight. STATE LIQUOR CONTROL BD. v. STATE PERSONNEL BD., 88 Wn.2d 368, 379, 561 P.2d 195 (1977); VLIET v. DEPARTMENT OF LABOR & INDUS., 30 Wn. App. 709, 713, 638 P.2d 112 (1981), REVIEW DENIED, 97 Wn.2d 1002 (1982); SPRY v. MILLER, 25 Wn. App. 741, 745, 610 P.2d 931 (1980). When WAC 284-30-500(2)(b) is given the limited interpretation urged by the Commissioner, it does not constitute mandatory no-fault legislation. Rather it is merely a permissible regulation of the voluntary no-fault insurance market which has existed in this State since 1973. (See State Ins. Comm'r Bull. 73-6 (1973).) The Commissioner does not require companies to provide the types of protection specified in WAC 284-30-500(2)(b). The Commissioner has only required the insurer, IF IT PROVIDES SUCH PROTECTION AT ALL (medical payments or PIP), to offer it in the enumerated amounts to insureds who so request.

The Commissioner reasonably could determine that an insurer's failure to offer the enumerated amounts of insurance under these circumstances is an "unfair or deceptive" practice. SEE RCW 48.30.010(2). The "Statement of Purpose" for WAC 284-30-500(2)(b) points out that lesser amounts of insurance may no longer provide insureds with the protection they need to cover lost wages and medical expenses. We find that the Commissioner reasonably could conclude that to offer lost wages and medical coverages in amounts smaller than he has required in the regulation would lead the insured to a sense of false security in present day economic conditions. The Commissioner could find that such small coverages could do little to make up for actual lost wages and medical costs and would actually be deceptive to the insurance buyer. As noted in MUTUAL OF ENUMCLAW INS. CO. v. WISCOMB, 97 Wn.2d 203, 213, 643 P.2d 441 (1982):

"PIP coverage will not compensate an injured party, for
      example, for any pain and suffering. Neither will its
      protection exceed $20,000 in lost wages and an equal amount
      in medical coverage. This limited coverage simply is
      inadequate as a substitute for liability coverage, especially
      when the expenses of medical bills, lost wages, lost services
      and so on exceeds the modest PIP coverages.

The regulation here is within the authority of the statute empowering the Commissioner to define unfair or deceptive practices. BRANNAN v. DEPARTMENT OF LABOR & INDUS., 104 Wn.2d 55, 60, 700 P.2d 1139 (1985).

[3] The companies raise additional challenges to the regulation. First, they contend that RCW 48.30.010 only allows the Commissioner to define and prohibit practices which are "deceptive", and that the practices at issue here, even if reasonably deemed "unfair", are not deceptive. The statutory language, however, expressly grants the Commissioner authority to regulate "unfair OR deceptive" practices (italics ours). Words in a statute are to be given their plain and ordinary meaning unless a contrary intent appears. HEWSON CONSTR., INC. v. REINTREE CORP., 101 Wn.2d 819, 826, 685 P.2d 1062 (1984). Thus, as was true in HORAN v. MARQUARDT, 29 Wn. App. 801, 807, 630 P.2d 947 (1981):

"[W]e believe [the challenged regulation] promotes the
      policy underlying the Commissioner's authority to regulate
      UNFAIR practices and thus hold it to be a valid exercise
      of that authority.

(Italics ours.)

[4] The companies also argue that (1) WAC 284-30-500(2)(b) may impose a burden on smaller companies who wish to offer PIP insurance but not in the amounts specified in the rule; and (2) if higher amounts of PIP insurance are required, they should be required in all cases, and not only where an insured requests the higher amounts. These arguments, however, address the wisdom or desirability of the regulation, and are beyond the purview of this court. WEYERHAEUSER CO. v. DEPARTMENT OF ECOLOGY, 86 Wn.2d 310, 314, 545 P.2d 5 (1976).


Next, the companies claim that WAC 284-30-500(2)(b) violates both the state and federal constitutional provisions which prohibit the impairment of contracts. SEE Const. art. 1, 23; U.S. Const. art. 1, 10. We disagree.

[5, 6] The constitutional provisions are inapplicable to insurance contracts written after the effective date of the regulation. A contract is not considered impaired by a statute or regulation in force when the contract was made, since it is presumed that the contract was made in contemplation of existing law. SEE MINISH v. HANSON, 64 Wn.2d 113, 115, 390 P.2d 704 (1964); ESKAY PLASTICS, LTD. v. CHAPPELL, 34 Wn. App. 210, 212, 660 P.2d 764 (1983). Nor are contracts written prior to the regulation unconstitutionally impaired. As previously emphasized:

"     There can be little doubt that the insurance industry
      bears such a relation to the public welfare as to render
      persons and businesses engaged in it subject to regulation
      under the state's police power. Since the legislature
      cannot be expected to constantly supervise the industry,
      it is natural that it would delegate this power to the
      state official qualified to act in this area: the Insurance Commissioner. (Citations omitted.) KUECKELHAN v. FEDERAL OLD LINE INS. CO. (MUT.), 69 Wn.2d 392, 405, 418 P.2d 443 (1966). Furthermore, as noted in CRANE TOWING, INC. v. GORTON, 89 Wn.2d 161, 174, 570 P.2d 428, 97 A.L.R.3d 482 (1977):

"[P]arties cannot complain of an impairment of their contract
      rights when this impairment comes about through the State
      acting within its police power for the health, welfare
      and good of the general public. It is presumed that parties
      contract with knowledge that reservation of essential
      attributes of sovereign power is written into all contracts
      as a postulate of the legal order.

ACCORD, AETNA LIFE INS. CO. v. WASHINGTON LIFE & DISAB. INS. GUAR. ASS'N, 83 Wn.2d 523, 539, 520 P.2d 162 (1974).

The companies have called our attention to KETCHAM v. KING CY. MED. SERV. CORP., 81 Wn.2d 565, 570, 502 P.2d 1197 (1972), which contains the following statement:

"     We are dealing with a right particularly enumerated
      in the constitution - the freedom to contract. By obligation
      of contract is meant "The law binds [the parties] to perform
      [their] undertaking." STURGES v. CROWNINSHIELD, 17 U.S.
      (4 Wheat.) 122, 4 L. Ed. 529 (1819). Neither the due
      process clause nor the impairment of contract clause of
      either constitution overrides the power of the state to
      establish regulations that are reasonably necessary to
      secure the health, safety, good order, comfort or general
      welfare of the community. But the test is one of reasonableness.
      If the obligation of contract is to be impaired by the
      exercise of the police power, there must be a rational
      connection between the accomplishment of the purpose and
      the means employed. (Citations omitted.) We adopt that statement in support of the proposition that reasonable regulations designed to secure the general welfare of the community are constitutional if the regulations might achieve such a benefit. KETCHAM involved a challenge to a statute which required payment of the statements of optometrists for services even though optometrists were not participating provider members of the health care service organization. The court held that to impose such a burden on the service organization was unconstitutional as an impairment of contract. The court continued, at page 576:

"The statute must pass the judicial test of reasonableness,
      and the courts will not sustain restrictions upon useful,
      lawful and unharmful activities of the people or the use
      of property in pursuance thereof unless it is shown that
      the restrictions sought to be imposed by means of the
      police powers are rationally connected to improving or
      benefiting the public peace, health, safety and welfare.
      A contract is impaired by a statute which alters its terms,
      imposes new conditions or lessens its value. (Citations omitted.) We find nothing in KETCHAM which precludes the Commissioner from requiring insurance contracts offered after the promulgation of the regulation to include higher levels of coverage for wage loss and medical costs. Nor do we find KETCHAM indicating that the Commissioner, by the exercise of his authority to regulate, has altered, imposed new conditions on, or lessened the value of previously existing insurance contracts.

Here, the Legislature has expressly granted the Commissioner the authority to define "unfair or deceptive" practices in the insurance business. The Commissioner acted pursuant to this authority in promulgating WAC 284-30-500(2)(b), a regulation intended to provide insureds with adequate vehicle insurance protection and to assure that the effects of inflation not be permitted to erode that coverage previously deemed sufficient. We find no unconstitutional impairment of contract.


The companies finally contend that the challenged regulation, WAC 284-30-500(2)(b), violates their right to due process. Their argument does not involve alleged procedural rights, but rather is simply a claim based upon "substantive due process" rights. The companies rely primarily on NORTHWESTERN NAT'L INS. CO. v. FISHBACK, 130 Wash. 490, 228 P. 516, 36 A.L.R. 1507 (1924). However, that opinion found no reasonable relationship between the regulation there involved, which limited the number of agents allowed to any one company in an area, and the public welfare. The decision dealt with a restriction on the right of citizens to pursue a particular vocation (insurance agent) and struck down as discriminatory a statute which denied persons the right to follow that calling; it did not deal with the regulation of the conduct of the insurance business.

[7] Here a reasonable relationship does exist between the manner in which insurance coverage is offered to prospective customers and the public welfare. In matters relating to the conduct of the insurance business courts should not substitute their economic beliefs for the judgment of legislative bodies and should defer to the Legislature in the exercise of its police power to accomplish the regulation of unfair or deceptive economic practices. AETNA, at 534, citing FERGUSON v. SKRUPA, 372 U.S. 726, 10 L. Ed. 2d 93, 83 S. Ct. 1028, 95 A.L.R.2d 1347 (1963).

We uphold the challenged regulation as validly promulgated and constitutional. The judgment of the trial court is affirmed.

CONCURRING JUDGES: Pearson, C.J., and Utter, Brachtenbach, Dolliver, Dore, Andersen, Goodloe, and Durham, JJ., concur.