Summary Judgment in Administrative Proceeding based on Moving Party’s Testimonial Evidence; Prohibition of Fees in Addition to Commissions in Insurance Transactions

Woodford v. Pennsylvania Ins. Dep’t, 201 A.3d 899 (Pa. Cmwlth. 2019), allocatur granted Aug. 13, 2019, appeal docket 65 MAP 2019

The Supreme Court of Pennsylvania granted allocatur to consider (1) whether genuine issues of material fact concerning the credibility of statements made in a moving party’s affidavit precludes summary judgment and (2) an issue of first impression, whether the Insurance Commissioner’s directive that a producer stop imposing fees in addition to commissions in consumer transactions was reasonable.

The Pennsylvania Insurance Department (Department) filed an order to show cause with the Insurance Commissioner alleging that Michael William Woodford and Options Insurance Agency (jointly, Producer) violated portions of The Insurance Department Act of 19211 (Act) when it (1) paid referral fees that violated the limitations imposed by Section 672-A(b)(2) of the Act, 40 P.S. § 310.72(b)(2); (2) charged fees to consumers in addition to commissions, in violation of Section 674-A(a) of the Act; (3) charged fees to consumers for completing insurance applications, in violation of Section 674-A(b) of the Act; and (4) engaged in conduct suggesting unworthiness for licensure pursuant to Section 611-A(7) of the Act, 40 P.S. § 310.11(7) (relating to fraudulent, coercive or dishonest practices) and Section 611-A(20) of the Act, 40 P.S. § 310.11(20) (relating to lack of general fitness, competence or reliability).

Producer filed a motion for dismissal asserting that the Department’s charges had no factual or legal basis. An affidavit by Woodford was the sole evidentiary support for the motion. In the affidavit, Woodford averred facts supporting Producer’s compliance with the Act’s limitations on referral fees and denied that Producer charged any fees related to completing insurance applications.

The Department filed an answer to the motion, along with three counter-affidavits concerning referral fees. Producer filed a motion to strike the answer the answer as untimely. However, the Commissioner denied the motion for summary judgment, finding that issues of credibility regarding Woodford’s affidavit could only be tested through an evidentiary hearing. Following a hearing, the Commissioner issued the Application Fee Order. After concluding that Producer violated the Act, the Commissioner issued a cease and desist order and imposed penalties including a $5,000 fine and five years of Department supervision. Regarding Section 674-A(a) of the Act (concerning collection of fees in addition to commissions), the Commissioner noted that permissibility of fees in consumer transactions was an issue of first impression, and thus deferred to the Department’s construction of the Act, concluding that the Act precludes such fees in personal/consumer insurance transactions. The Commissioner included this section in the cease and desist order but declined to impose any penalty for Producer’s past violations.

Producer appealed to Commonwealth Court arguing that the Commissioner granted Producer’s request to strike the Department’s untimely answer and counter-affidavits in opposition to the summary judgment motion such that there was no response to its motion, therefore the Commissioner should have granted summary judgment for the Department’s failure to point to any genuine issues of material fact. The Department countered that the only evidence Producer submitted in support of summary judgment was Woodford’s affidavit and the Commissioner could not grant summary judgment based solely on testimonial evidence from the moving party under Borough of Nanty-Glo v. American Surety Co., 309 Pa. 236, 163 A. 523 (1932).

Commonwealth Court clarified that, contrary to the Department’s argument, the Nanty-Glo rule does not apply to administrative proceedings: “’because the purpose of the Nanty-Glo rule [is] to reserve questions of credibility for the jury, it [has] no application to an administrative proceeding in which the administrative law judge or administrative body serve[s] as the factfinder.’” Slip Op. at 6, quoting Snyder v. Dep’t of Envtl. Res., 588 A.2d 1001, 1004 (Pa. Cmwlth. 1991).

However, Commonwealth Court found that Producer was not automatically entitled to summary judgment once the Commissioner struck the Department’s untimely response to the summary judgment motion, explaining that “[e]ven in the absence of counter-affidavits, the moving party must still satisfy its burden of showing there are no genuine issues of material fact.” Slip Op. at 6. Thus, Commonwealth Court agreed with the Commissioner’s conclusion that genuine issues of material fact precluded summary judgment for Producer in advance of an evidentiary hearing.

Producer also challenged the Application Fee Order, arguing that the Commissioner initially determined producers may charge fees in addition to commissions in personal/consumer transactions, but then contradicted that finding as applied to Producer. The Department took the position that the specific authorization of fees for commercial business implicitly but clearly precludes such fees for consumers.

Commonwealth Court found Producer’s argument was without merit. Commonwealth Court clarified that the Commissioner, affording the Department deference, expressly concluded: “Collecting additional fees for personal insurance transactions, other than legitimate broker fees that comply with [Section 671-A(b) of the Act,] 40 P.S. § 310.71(b), is prohibited by [Section 674-A(a) of the Act],” but under the circumstances, the Commissioner declined to penalize Producer for its past practice of charging fees in personal/consumer insurance transactions and directed only that Producer cease imposing such fees in the future. Commonwealth Court concluded that this “limited directive was reasonable in addressing an issue of first impression, especially where the evidence revealed confusion among producers and lack of express notice by the Department of its position concerning fees permitted under the Act” and that “the Commissioner’s directive was also consistent with her analysis and conclusions concerning the fees permitted and prohibited by the Act.” Slip Op. at 9.

The Supreme Court of Pennsylvania granted allocatur as to the following issues:

(1) With respect to a question of statutory construction that the Insurance Commissioner and the Commonwealth Court readily acknowledge was a matter of first impression, did the Commonwealth Court Panel err when it afforded deference to the Insurance Department’s interpretation of an ambiguous statute that was penal in nature instead of strictly construing the statute against the Insurance Department, as required by Pennsylvania law?

(2) Does the Commonwealth Court Panel’s holding conflict with other intermediate appellate court opinions in holding that Petitioners were not entitled to summary judgment notwithstanding the fact that the Insurance Department failed to reply to Petitioners’ motion for summary judgment and failed to submit evidence to contradict a sworn affidavit submitted by Petitioners?