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decided: October 16, 1975.


Appeal from the Order of the Insurance Commissioner in case of In Re: Old Republic Life Insurance Company -- Violation of Section 354 of the Insurance Company Law and Section 7 of the Credit Life and Credit Accident and Health Insurance Act, Docket No. P74-6-1.


Robert J. Demer, with him Thomas R. Balaban, and Shaffer, Calkins & Balaban, for appellant.

Paul F. Donohue, Assistant Attorney General, with him Andrew F. Giffin, Assistant Attorney General, and Robert P. Kane, Attorney General, for appellee.

Judges Crumlish, Jr., Wilkinson, Jr., and Rogers, sitting as a panel of three. Opinion by Judge Wilkinson.

Author: Wilkinson

[ 21 Pa. Commw. Page 362]

This case is before us on appeal by Old Republic Life Insurance Company (appellant) from a decision of the Insurance Commissioner of Pennsylvania (Commissioner), imposing a $2,600.00 fine on appellant for its failure to obtain approval for, and its use of, certain insurance forms. We modify the amount of the penalty but otherwise sustain the Commissioner.

Appellant, a foreign stock life insurance company authorized to do business in Pennsylvania, deals largely in group life and group accident and health policies. Certain of its policyholders under creditors group insurance contracts are lending institutions having branch offices located throughout the Commonwealth. In February and May, 1974, Insurance Department investigators obtained from the files of these offices copies of two sets of multi-carboned documents bearing the logo of appellant and titled, "INSURANCE OPTION." With one set of forms, debtors of the lending institutions obtained credit life insurance under the group policies between appellant and the institutions by signing the document after the phrase, "I hereby request LIFE INSURANCE." With the other set, debtors similarly obtained credit life and/or disability insurance.

In a citation issued to appellant on June 19, 1974, the Insurance Department alleged that these documents were "applications for insurance" not on a form approved

[ 21 Pa. Commw. Page 363]

    by the Commissioner, and that their use thus violated Section 354 of the Insurance Company Law of 1921 (Act of 1921), Act of May 17, 1921, P.L. 682, as amended, 40 P.S. § 477b, and Section 7 of the Model Act for the Regulation of Credit Life Insurance and Credit Accident and Health Insurance (Model Act), Act of September 2, 1961, P.L. 1232, as amended, 40 P.S. § 1007.7.*fn1 Following a hearing, the Commissioner, in an adjudication and order dated January 7, 1975, found appellant in violation of the above provisions and ordered it to cease and desist the use of such forms until they were filed and approved, and to pay a penalty of $2,600.00.

Appellant appeals to this Court on three grounds: (1) that the forms in dispute are not "applications for insurance," and thus do not require approval by the Commissioner; (2) that it has not "used" such forms; and (3) that the decision of the Commissioner, finding the forms to be "applications for insurance," is not supported by substantial evidence. We reject all three contentions.

Regarding its first ground, appellant argues that the forms in controversy are not "applications for insurance" because they are not offers or proposals to enter into a contract of insurance which appellant can accept or reject. Rather, appellant suggests that the documents

[ 21 Pa. Commw. Page 364]

    are in the nature of an acceptance to an offer, since appellant, under its group policy contracts with the lending institutions, is required to insure all debtors of those institutions who elect coverage.

We cannot accept appellant's narrow contract interpretations approach. The purpose of the Act of 1921, in general, and the Model Act, in particular, is to protect debtors from insurer and creditor abuse regarding insurance related to credit transactions. See Schuchman, Consumer Credit By Adhesion Contracts II, 35 Temp. L.Q. 281, 301-09 (1962). To accept appellant's position would remove from Commissioner review the only document by which debtors, under the present circumstances, can obtain coverage pursuant to the group policies. Appellant would consequently have the ability, by contracting away its power of rejection under a group policy with a creditor, to define what forms are to be "applications for insurance" subject to approval by the Commissioner. This would be contrary to the purpose of the Act of 1921 and the Model Act.

Since the insurance laws of the Commonwealth are to be liberally construed to effect their purpose, Statutory Construction Act of 1972, 1 Pa. C.S. § 1928, we hold that any intent of a debtor to obtain credit insurance, regardless if such intent manifests itself technically as a contract offer or acceptance, is an "application for insurance" under Section 354 of the Act of 1921, and Section 7 of the Model Act. Accordingly, the forms in question are "applications for insurance."

Further support for this conclusion is found in Section 412 of the Act of 1921, 40 P.S. § 512, which prohibits the delivery of a life insurance policy in the Commonwealth without written application of the insured, except in two situations not relevant here.*fn2 Since a review of

[ 21 Pa. Commw. Page 365]

    the record fails to reveal any writing, other than the disputed forms, by which a debtor has acquired life insurance, such documents, assuming compliance with the law, must be regarded as "applications for insurance."

In its second argument, appellant maintains that the forms are not part of its records nor have been used as a basis to extend coverage to a debtor. Appellant, therefore, concludes that it has not "used" the documents in violation of the Act of 1921 and the Model Act.

A review of the record, however, sustains a contrary conclusion. One sheet of the multi-carboned forms, entitled "ORIGINAL REGISTER (To be sent to Old Republic)," had been transmitted to appellant by the lending institutions when a debtor elected coverage. Furthermore, the documents were the exclusive methods by which coverage was extended to debtors. Indeed, both sets of forms contained the caveat, "No credit insurance is provided unless the borrower signs . . . below."

Concerning its third ground, appellant asserts that the Commissioner, in finding the forms to be "applications for insurance," preferred the testimony of an Insurance Department employee to that of appellant's witness. The employee, whose duties required her to review forms for their acceptability under the Model Act, had no formal

[ 21 Pa. Commw. Page 366]

    legal training, whereas appellant's witness headed its legal department. In essence, appellant contends that the testimony of its witness is entitled to greater weight and credibility. However, weight and credibility, absent capricious disregard of competent evidence, are better judged by the fact finder -- here, the Commissioner -- not by this Court. E.g., Pomeroy's Inc. v. Workmen's Compensation Appeal Board, 15 Pa. Commonwealth Ct. 270, 325 A. 349 (1974). Since we believe the Commissioner did not disregard competent evidence, we hold his conclusion that the forms were "applications for insurance" supported by substantial evidence.

However, we cannot uphold the Commissioner's assessment of the $2,600.00 penalty. It is within the power of this Court to determine whether the Commissioner has abused his discretion in imposing monetary penalties for violations of the Act of 1921. Wallace v. Insurance Department, 9 Pa. Commonwealth Ct. 567, 308 A.2d 162 (1973). Under Section 354 of the Act of 1921, 40 P.S. § 477b, the Commissioner has broad discretion to impose, inter alia, fines not in excess of $1,000.00 for each violation of the Act. We find little evidence in the record to support the amount of the penalty and thus hold the Commissioner abused his discretion.

The record demonstrates that although the unapproved forms were employed on many occasions, their use does not appear to have worked any prejudice to the debtors who signed them. Since the violated insurance statutes are intended to protect those very debtors, see Schuchman, Consumer Credit By Adhesion Contracts II, supra, the amount of the penalty, consequently, is unnecessary to vindicate the enactments.

This appeal, pursuant to Section 354 of the Act of 1921, 40 P.S. § 477b, and Section 13 of the Model Act, 40 P.S. § 1007.13, is governed by the Administrative Agency Law, Act of June 4, 1945, P.L. 1388, as amended, 71 P.S. § 1710.1 et seq. Since Section 44 of that Act, 71

[ 21 Pa. Commw. Page 367]

P.S. § 1710.44, permits this Court to modify adjudications by the Commissioner, we, accordingly, enter the following


Now, October 16, 1975, it is ordered that paragraph designated "1" of the order of the Insurance Commissioner of Pennsylvania, dated January 7, 1975, Insurance Department Docket Number P74-6-1, be and is hereby modified to reduce the amount of the penalty to be paid by Old Republic Life Insurance Company to one hundred dollars ($100.00). The order and adjudication of the Insurance Department is otherwise affirmed.


Affirmed as modified.

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