Lincoln National Life Ins. Co. v. INSURANCE COMM'R OF THE STATE OF MARYLAND , 328 Md. 65 ( 1992 )

RODOWSKY, Judge.

The question presented here involves the construction of Md.Code (1957, 1991 Repl.Vol.), Art. 48A, § 234B(b). It reads:

“If an insurer intends to cancel a written agreement with an agent or broker, or intends to refuse any class of renewal business from the agent or broker, the insurer shall give the agent or broker not less than 90 days written notice. Notwithstanding any provision of the agreement to the contrary, the insurer shall continue for not less than one year after termination of the agency agreement to renew through the agent or broker any of the policies which have not been replaced with other insurers as expirations occur. This subsection shall not apply to: (1) agents or brokers or policies of a company or group of companies represented by agents or brokers who by contractual agreement represent only that company or group of companies if the business is owned by the company or group of companies and the cancellation of any contractual agreement does not result in the cancellation or refusal to renew any policies of insurance; or (2) life, health, surety, wet marine and title insurance policies.”

This statute states two rules in absolute terms and then states two exceptions. We shall refer to the rule stated in the first sentence as the “notice rule.” We shall refer to the rule stated in the second sentence as the “renewal rule.” The third sentence of subsection (b) states two separately numbered exceptions. The exception numbered (1) we shall call the “captive agent exception”¹ and the exception numbered (2) we shall call the “lines of business exception.” The question is whether the lines of business exception applies to both rules or only to the renewal rule.

The question presented arises out of the complaint made to one respondent, Insurance Commissioner of Maryland (the Commissioner), by the other respondent, Gerald R. Veydt (Veydt). Veydt, by contract effective January 1, 1985, was appointed as an agent to “solicit applications for Individual Life Insurance, Individual Disability Insurance, Group Insurance, Annuities and [to] solicit subscriptions for securities offered by or through” the petitioner, Lincoln National Life Insurance Company (Lincoln National), and certain related companies. An Insurance Code prerequisite to that appointment is that Veydt be an individual licensed to act as an agent for life and health insurance and annuities. Art. 48A, §§ 167, 176 and 178.²

The contract between Veydt and Lincoln National provided that either party could terminate the appointment, with or without cause. No minimum period for a notice of termination was provided in the contract. By letter dated March 28, 1988, Lincoln National terminated Veydt’s agency appointment effective March 31, 1988. Veydt complained to the Commissioner, contending that § 234B(b) required that he be given at least ninety days notice of termination. Lincoln National contended that § 234B(b) did not apply to the termination of appointments to write the lines of business covered by Veydt’s agency contract with Lincoln National.

At the hearing in the Insurance Division, Lincoln National presented evidence describing the differences in company-agent relationships between agents appointed to solicit life and health lines, on the one hand, and property and casualty lines, on the other hand, particularly as to renewals of policies and the earning of commissions. There is no material dispute of fact in the instant matter concerning the general contours of these differences. They are well summarized by the Court of Special Appeals in the subject case. “Unlike property and casualty insurance policies, which typically have to be renewed annually or semi-annually, life, health, surety, wet marine, and title policies remain in effect for a specified period of time, or for a particular occasion, or until a certain event or occurrence, and are not renewed periodically.” Insurance Comm’r v. Lincoln Nat’l Life Ins. Corp., 89 Md.App. 114, 123, 597 A.2d 992, 996 (1992) (footnote omitted).

With respect to commissions, the intermediate appellate court summarized the evidence in stating Lincoln National’s position.

“[A]n agent who produces property and casualty insurance policies, which renew annually or semi-annually, must get the insured to renew in order to earn his or her commission. If the agency is terminated, the agent will not receive the renewal commission. The 90-day termination notice provision and one year policy renewal provision offer some protective cushion for the agent’s non-vested commission income until the agent secures a contract with another company through which to place similar insurance. Conversely, life insurance and health insurance agents have a contractual right with the company to receive certain continuing commissions based on the policy holders maintaining their policies. These types of policies are ongoing; if the agent terminates with the company, the company is still responsible to pay commissions for a certain period of time, sometimes for as long as the policy is in force and maintained by the policy holder. These types of policies are also more stable; agents’ commissions are vested and they do not need the protection of 90-days notice.”

Id. at 124, 597 A.2d at 990-97.

Lincoln National also argued that the legislative history of § 234B(b), which we shall review below, demonstrated that the lines of business exception was intended to apply to the notice rule.

The Commissioner, through a designee, ruled that Lincoln National had violated § 234B(b) by failing to give Veydt the required notice. The administrative agency construed the statute by emphasizing that the lines of business exception referred only to “policies” whereas the captive agent exception referred to “agents or brokers or policies.” The Commissioner explained the perceived significance as follows:

“When the Legislature chose to use the word ‘policy’ in [the lines of business exception], it meant precisely that and nothing more. Had the Legislature intended to exempt life and health agents and brokers as well, it would have used the same language as that found in [the captive agent exception], which is ‘agents or brokers or policies of a company or companies____’ When the Legislature uses certain words in one part of a statute and omits them from others, one must assume that the omission was intentional____ [The] statute is to be read ‘so that no word, phrase, clause or sentence is rendered surplusage or meaningless.’ Holy Cross Hospital v. Health Services Cost Review Commission, 283 Md. 677[, 684, 393 A.2d 181, 184-85] (1978). There is an obvious distinction between an ‘agent or broker’ and a ‘policy’, and one must assume that the Legislature used the word ‘policy’ intentionally. Therefore, I find that the 90 day termination provision applies inasmuch as the agents are not exempt.”

(Citation omitted).

The Commissioner was “not persuaded by Lincoln National’s arguments concerning legislative history and presumed legislative intent.” Indeed, the administrative agency stated the Maryland rule of statutory construction to be that “[w]hen the language of a statute is clear and unambiguous one should not turn to extrinsic evidence as an aid to construction.”

Lincoln National sought judicial review in the Circuit Court for Baltimore City. That court reversed. The circuit judge concluded that the statute clearly stated that both exceptions applied to both rules.

Veydt and the Commissioner appealed to the Court of Special Appeals which reversed the Circuit Court for Baltimore City. Lincoln Nat’l, 89 Md.App. 114, 597 A.2d 992. The intermediate appellate court, paraphrasing the Commissioner’s approach, reasoned as follows:

“Where the legislature intended to except both agents and policies from the provisions of subparagraph (b), it did so explicitly and unequivocally. ‘Captive’ agents as well as policies written by the companies represented by ‘captive’ agents are expressly excepted. But with respect to life, health, wet marine, and title insurance, the legislature excepted only the policies, not the agents representing the companies that issue such policies. To interpret the statute as Lincoln would have us do, we would have to add words to the third sentence of § 234B(b) to make the pertinent portion of it read, in substance, as follows:

This subsection shall not apply to — (2) life, health, surety, wet marine and title insurance policies and agents and brokers who represent companies that issue such policies. (Added words emphasized.)”

Id. at 124-25, 597 A.2d at 997. The court answered Lincoln National’s legislative history argument by stating that it saw “nothing in the statute, or its history, or its apparent purpose that persuades us that the General Assembly intended it to be read as if the additional language were inserted.” Id. at 125, 597 A.2d at 997.

We granted Lincoln National’s petition for certiorari. We shall end the volley with a reversal of the Court of Special Appeals and a rejection of the Commissioner’s ruling on this question of law.

The two exceptions to § 234B(b) are introduced by the following legislative directive: “This subsection shall not apply to:” the captive agent exception “or” the lines of business exception. “This subsection” means subsection (b) of § 234B. Both exceptions apply to the entire subsection. That is what the language says. There is no ambiguity in “[t]his subsection shall not apply to.” Both exceptions apply to each rule of the subsection. The Commissioner’s construction ignores the plain language of the statute.

Certainly the General Assembly knows the difference between a subsection and a sentence which is part of a subsection. Nevertheless, the Commissioner’s construction of § 234B(b) is that the Legislature really meant to say that only the captive agent exception applies to the notice rule, but that both the captive agent and the lines of business exceptions apply to the renewal rule. If the General Assembly mistakenly said that both exceptions apply to the entire subsection, then the mistake should manifest itself in an absurd or illogical result. In that event this Court is not so slavish to the literal text as to refuse to effect the true legislative intent. Kaczorowski v. Baltimore, 309 Md. 505, 525 A.2d 628 (1987).

Applying what the Legislature actually said produces the result, in broad strokes, that property and casualty agents and brokers, who are not captives, get commissions on renewals on their expirations for one year after termination of their agency contracts, and they get the opportunity to continue to place new business with the insurer for ninety days before the termination becomes effective. Those who place the types of insurance specified in the lines of business exception, as well as property and casualty agents who are captives, are excluded from the operation of subsection (b). That is not an absurd or illogical result. Generally speaking, the excepted lines of business are not written for periods of time, as are the property and casualty lines, but, assuming that premiums are paid as required, policies of the excepted lines of insurance are in effect until the occurrence or non-occurrence of an event. Further, it is not disputed in the instant matter that the producer’s commissions ordinarily are payable based upon the original placement of the coverage with respect to the excepted lines, whereas the commissions of producers placing property and casualty coverages continue to be earned as the policies might be renewed from policy period to policy period.

In the administrative agency’s ruling the Commissioner said: “Nor am I persuaded that the public policy of this. State would best be served by my holding that life and health insurance agents are not entitled to 90 days written notice that their agency contracts will be cancelled.” That is not a conclusion that the plain meaning of subsection (b) is absurd or illogical when viewed with the agency’s expertise in the field of insurance. Rather, it is a personal opinion of what is more desirable — an opinion which ignores where the General Assembly clearly drew the line.

That the Legislature drew the line in subsection (b) between the excepted lines of business on the one hand and property and casualty business written by non-captives on the other is supported by Travelers Indem. Co. v. Merling, 326 Md. 329, 605 A.2d 83 (1992).³ Merling was an independent agent whose agreements to write property and casualty coverages for Travelers Indemnity and two of its subsidiaries were cancelled. Following the expiration of the one year, post termination period provided under the renewal rule of subsection (b), Travelers solicited Merling’s “expirations,” i.e., his customers. Merling sued, contending that the solicitation violated his property rights in the expirations, as recognized under the American Agency System. Relying on subsections (b) and (c), we held that § 234B “has legislatively changed the common law American Agency System.” Id. at 339, 605 A.2d at 88. The purpose of the statute was to protect the insureds. Under the common law rule the insurer “could not use the expirations to directly solicit the insureds or to refer them to other agents who represented the company.” Id. at 338, 605 A.2d at 87. “The result was that, upon termination of the agent, a majority of the policies which originated from that agent were not renewed.” Id.

We then described, in Merling, § 234B as it stood following amendments by Chapter 73 of the Acts of 1972. At that time subsection (b) consisted of the notice rule, the renewal rule, and the lines of business exception.⁴ We said that the 1972 legislation was “a compromise ... reached between the agent’s right to his expirations following termination and the State’s interest in protecting the insureds from cancellations or nonrenewals.” Id. at 340, 605 A.2d at 88. We held that § 234B modified Merling’s property rights in the expirations so that the direct solicitations by Travelers Indemnity more than one year after termination of the agency relationship were not tortious. Id. at 342, 605 A.2d at 89.

In Merling we defined “expirations.” The term is also used in the renewal rule of subsection (b). We said:

“The term ‘expirations’ has a definite meaning and, as stated in V.L. Phillips & Co. v. Pennsylvania Threshermen, Etc., 199 F.2d 244, 246 (4th Cir.1952), cert. denied, 345 U.S. 906, 73 S.Ct. 645, 97 L.Ed. 1342 (1953), includes

‘the records of an insurance agency by which the agent has available a copy of the policy issued to the insured or records containing the date of the insurance policy, the name of the insured, the date of its expiration, the amount of insurance premiums, property covered and terms of insurance.’ ”

326 Md. at 337, 605 A.2d at 86-87. Reference in that definition to the date of a policy's expiration indicates that we were not concerned in Merling with the excepted lines. This is made even more plain by the reliance on the Pennsylvania Threshermen case. Before defining “expirations,” the Fourth Circuit stated the contention of the terminated agent-plaintiff in that case to be “that the custom and usage in the insurance field recognizes the property right of the agent to expirations on fire and casualty policies written by him.” 199 F.2d at 246.

Merling did not deal with the notice rule of subsection (b). It is not, however, illogical or absurd to follow the literal language of subsection (b) and conclude that the minimum ninety day notice provision was part of the same compromise. While limiting property and casualty agents’ property rights in expirations, those same agents obtained a guaranteed lead time on termination.

It is also clear that the agency agreements referred to, both in the renewal rule and in the notice rule, are agreements of the same type, that is, agreements dealing with lines of business which renew and which have expirations. The notice rule is triggered “[i]f an insurer intends to cancel a written agreement with an agent or broker, or intends to refuse any class of renewal business from the agent or broker.” § 234B(b). The renewal rule operates “[njotwithstanding any provision of the agreement to the contrary.” Id. This refers to an agreement that is the subject of the notice rule. The one year period of the renewal rule is measured from “termination of the agency agreement,” again referring to the agreement described in the introductory sentence of subsection (b), the notice rule.

Nevertheless, the Commissioner concluded that controlling significance must be given to the fact that the words “agents or brokers” are used in the captive agent exception, but they are not used in the lines of business exception. Critical to this construction is a negative implication drawn from comparing the omission of “agents or brokers” in the lines of business exception with the General Assembly’s use of “agents or brokers or policies” in the captive agent exception.

The short and dispositive answer to this strained analysis is that subsection (b), as enacted by Chapter 73 of the Acts of 1972, did not contain the captive agent exception. The only exception to the subsection was the lines of business exception. As enacted, subsection (b) read:

“If an insurer intends to cancel a written agreement with an agent or broker, or intends to refuse any class of renewal business from the agent or broker, the insurer shall give the agent or broker not less than 90 days written notice. Notwithstanding any provision of the agreement to the contrary, the insurer shall continue for not less than one year after termination of the agency agreement to renew through such agent or broker any of the policies which have not been replaced with other insurers as expirations occur. This subsection shall not apply to life, health, surety, wet marine and title insurance policies.”

When the General Assembly created the right to notice of a cancellation of “a written agreement” or of a refusal of “any class of renewal business,” and created a requirement that expirations be renewed for not less than one year, the General Assembly excepted terminations of agreements with agents and brokers placing life and the other specified lines. The exception applied both to the notice rule and to the renewal rule, because the General Assembly said that subsection (b) did not apply to the specified lines of business.

The captive agent exception, with its reference to “agents or brokers” as well as to “policies,” did not come into subsection (b) until inserted by Chapter 229 of the Acts of 1975. Its insertion did not prevent the lines of business exception from continuing to apply both to the notice rule and to the renewal rule. The evident purpose of the 1975 amendment was to narrow the scope of the notice rule and of the renewal rule. Although the rules were intended to be limited to property and casualty agents and brokers who owned their expirations, the language employed was broader than the objective. By stating two absolute rules which were limited only by the lines of business exception, the two rules also applied to agents and brokers who were employees of property and casualty insurers, e.g., the direct writers, but who did not own their expirations. Captive agents simply were not part of the problem that the General Assembly sought to address, and they were excepted as well.

This holding has considered and given appropriate weight to the administrative interpretation. The Commissioner has decided this very case as an initial proposition nearly twenty years after subsection (b) was first enacted with only the lines of business exception. The opinion of the Commissioner cites no prior ruling by that agency on subsection (b). This Court has said that “a construction placed on a statute by administrative officials soon after its enactment is strong, persuasive influence in determining the judicial construction.” Board of Educ. v. Lendo, 295 Md. 55, 63, 453 A.2d 1185, 1189 (1982). There is no contemporaneous construction in the matter before us. We have said that a contemporaneous construction is entitled to great deference when “the interpretation has been applied consistently and for a long period of time.” Baltimore Gas & Elec. Co. v. Public Serv. Comm’n, 305 Md. 145, 161, 501 A.2d 1307, 1315 (1986). There is no history of a long and consistent interpretation in this case. We have also said that an “important consideration is the extent to which the agency engaged in a process of reasoned elaboration in formulating its interpretation of the statute.” Id. Here, a process of reasoned elaboration would not have considered present § 234B(b) as if it had emerged from the General Assembly as Athena is said to have emerged from the head of Zeus. The process should have considered the two stages in the enactment of present subsection (b). That would have revealed that the words “agents or brokers” in the captive agent exception could not be the keystone of the interpretation arch.

The Commissioner’s erroneous construction of the statute appears to have resulted from too rigid an application of one of the so-called rules of statutory construction. The Commissioner said that “[w]hen the language of a statute is clear and unambiguous one should not turn to extrinsic evidence as an aid to construction.” In support, the Commissioner cited, inter alia, Lendo, 295 Md. 55, 453 A.2d 1185. There what we said was “that if there is no ambiguity or obscurity in the language of a statute, there is usually no need to look elsewhere to ascertain the intent of the General Assembly.” Id. at 62, 453 A.2d at 1189. We also said that the statute in Lendo “speaks for itself.” Id. at 65, 453 A.2d at 1190. Nevertheless, we reviewed the historical evolution of the statute and rejected the administrative agency’s interpretation that was first enunciated some eight years before the controversy in Lendo, but more than fifty years after the statute was enacted.

The Commissioner’s restatement of the rule of construction treats legislative history much like the use of parol evidence in the interpretation of a contract. That is not correct. In Kaczorowski, 309 Md. at 514, 525 A.2d at 632, we said:

“ ‘We agree ... that “[t]he starting point in every case involving construction of a statute is the language itself.” But ascertainment of the meaning apparent on the face of a single statute need not end the inquiry. This is because the plain-meaning rule is “rather an axiom of experience than a rule of law, and does not preclude consideration of persuasive evidence if it exists.” The circumstances of the enactment of particular legislation may persuade a court that Congress did not intend words of common meaning to have this literal effect.’ ”

(Quoting Watt v. Alaska, 451 U.S. 259, 265-66, 101 S.Ct. 1673, 1677-78, 68 L.Ed.2d 80, 88 (1981) (citations and footnote omitted)).

For these reasons we reverse the judgment of the Court of Special Appeals.

JUDGMENT OF THE COURT OF SPECIAL APPEALS REVERSED. CASE REMANDED TO THE COURT OF SPECIAL APPEALS FOR THE ENTRY OF A JUDGMENT AFFIRMING THE JUDGMENT OF THE CIRCUIT COURT FOR BALTIMORE CITY. COSTS IN THIS COURT AND IN THE COURT OF SPECIAL APPEALS TO BE DIVIDED EQUALLY BETWEEN INSURANCE COMMISSIONER OF THE STATE OF MARYLAND AND GERALD R. VEYDT, RESPONDENTS.

1 . When describing the operation of subsection (b) we shall use only the term “agent" for purposes of brevity, even though subsection (b) refers to agents or brokers.

2 . Section 167(a) provides:

“Certificate and appointment required. — A person may not act as an insurance agent unless:

(1) That person has obtained a certificate of qualification from the State in the particular kind or kinds of insurance or subdivisions thereof for which that person intends to act as agent; and

(2) That person has obtained an appointment or appointments from an insurer or insurers.”

Section 176(a) provides that "[bjefore any individual is eligible for a certificate to act as agent or broker, with regard to kinds of insurance other than life and health insurance, annuities, [and certain limited lines,]” the individual must meet the qualifications prescribed by § 177. Section 176(b) requires meeting the qualifications prescribed by § 178 before eligibility for a certificate to act as agent or broker as to life and health insurance or annuities.

3 . Both the Court of Special Appeals and the Commissioner were without the benefit of Merling at the time of their decisions.

4 . As amended by Chapter 73 of the Acts of 1972, § 234B also included present subsection (a), the introductory section, and present subsection (c). The latter reads: “No insurer shall cancel or refuse to renew the policy of the insured because of the termination of the agent’s or broker’s contract.”