Rowell v. Harleysville Mutual Insurance ( 1978 )

Lewis, Chief Justice:

Appellant was an insurance agent of respondent under a written contract which provided for its termination by either party, without cause, upon sixty days written notice to the other. Subsequent to the execution of the agency contract, the General Assembly adopted Act No. 1177 of the 1974 Acts of the General Assembly, relating to automobile liability insurance, which contained a provision prohibiting the cancellation of insurance agency contracts by an insurer because of the volume of automoble insurance placed with it by its agent on account of the statutory mandate for coverage. Respondent’s effort to terminate its agency contract with appellant, allegedly in violation of the statutory prohibition, gave rise to the present litigation for injunctive relief to prevent such cancellation.

The sole issue presented is whether the application of the statutory prohibition against cancellation of insurance agency contracts, as contained in Act No. 1177, operates as an unconstitutional impairment of the existing contractual right to cancel the agency agreement between the parties.

Appellant contended that the provisions of Act No. 1177, prohibiting the cancellation of insurance agency agreements, precluded respondent from terminating the agency agreement in this case; while respondent contended, to the contrary, that the application of the statutory prohibition against cancellation operated as an unconstitutional impairment of the parties’ existing contractual rights to terminate their agency agreement. The material facts are not in dispute.

The General Assembly, in order to better provide for the automobile liability insurance needs of the people of this State, enacted the South Carolina Automobile Reparation Reform Act of 1974 (Act No. 1177, 1974 Acts of the General Assembly, 58 Stat. 2718, currently codified in Section 38-37-10 et seq. of the 1976 Code of Laws). It was based upon the following unchallenged legislative findings contained in Section 1 of Article II of Section 3 thereof:

“The General Assembly hereby finds and declares that automobile insurance has become a legal and practical necessity for .individuals; but notwithstanding the necessity for such insurance such individuals are denied coverage on a voluntary basis through rejection, cancellation, or nonrenewal of automobile insurance arbitrarily, capriciously, and without objective reasons, as a result of which, heretofore, intolerable numbers of such risks have been consigned to the inferior coverages, high rates, unfair discriminations and other injustices of the Assigned Risk plan and other residual risk insurance markets.”

The general legislative purpose in the enactment of the statute is now set forth in Code Section 38-37-110(1) as follows:

In keeping with its intention to effect a complete reform of automobile insurance and insurance practices in South Carolina as the same pertain to individuals, the General Assembly declares that the purposes of this article are:

(1) To provide that every such automobile insurance risk which is insurable on the basis of the criteria established herein shall be entitled to automobile insurance from the automobile insurance insurer of the applicant’s choice on the basis of the same rates, . . . provided by such insurer to all other applicants or insureds falling within . . . the applicable risk and territorial classification plan promulgated by the Commissioner with the approval of the Commission.

Therefore, one of the basic purposes for the enactment of Act No. 1177 was to provide a system under which all drivers in South Carolina would be able to obtain automobile insurance without discrimination among applicants for such insurance. The statute accomplishes this purpose by placing upon agents and insurers the mandatory duty to accept all insurable risks, Code Sections 38-37-310 and 38-37-920; and through Section 38-37-940(2) which provides:

(2) No insurer of automobile insurance shall cancel its representation by an agent primarily because of the volume of automobile insurance placed with it by the agent on account of the statutory mandate of coverage nor because of the amount of the agent’s automobile insurance business which the insurer has deemed it necessary to reinsure in the Facility.

In determining the effect of the foregoing statutory limitation on the right to cancel agency agreements, we must keep in mind (1) the status of respondent’s operation in this State, (2) the public interests involved, and (3) the purposes to be accomplished by the enactment of the prohibition. When viewed in the light of these considerations, it clearly appears that respondent possesses no vested contract rights subject to constitutional protection in this case.

While it is generally true that vested rights under a contract executed prior to a legislative enactment are subject to constitutional protection, no such constitutional protection can be claimed where vested rights are not involved.

The general rule is well settled that the right to contract is not without limitations, but is subject to reasonable regulations in order to protect an overriding public interest. 16 Am. Jur. (2d), Constitutional Law, Section 375.

Respondent was licensed by the State of South Carolina to sell insurance after it qualified under the laws and regulations of the State. This license, however, granted no vested right to respondent to sell insurance in this State, but was issued by the State and accepted by respondent subject to the following reservations set forth in Code Section 38-5-70: Every insurance company shall, as a condition for the privilege of entering into and doing business in this State, pay all taxes and perform all duties now or hereafter prescribed by law. (Emphasis added).

The fact that the business of insurance serves a vital public interest cannot be questioned. In fact, the present statute contains the legislative finding that “automobile insurance has become a legal and practical necessity for individuals.”

Under these facts, respondent entered into its contractual relationship with appellant, charged with knowledge that its privilege to operate in South Carolina was subject to legislative change when such changes were necessary to serve the public interests. This principle was stated in Dantzler v. Callison, 230 S. C. 75, 94 S. E. (2d) 177:

No person can acquire a vested right to continue, when once licensed, in a business, trade or profession which is subject to legislative control and regulation under the police power, as regulations prescribed for such may be changed or modified by the legislature, in the public interest, without subjecting the action to the charge of interfering with contract or vested rights.

The legislature is vested with a broad discretion, in the exercise of its regulatory control of businesses affected with a public interest, to determine, not only what the interests of the public require, but what measures are necessary for the protection of such interests. 16 Am. Jur. (2d), Constitutional Law, Section 320.

The legislature has determined that the public interests require that all drivers secure automobile insurance and that such insurance must be made available by insurers, including respondent, on a non-discriminatory basis. These are areas of proper legislative concern and regulation, and the validity of the legislative judgment on these matters is not questioned. Only the regulatory method adopted to accomplish such purpose is challenged in this case.

As previously shown, the insurer is prohibited from cancelling the agency contract either because of the volume of automobile insurance placed with it by the agent or because of the amount of the agent’s business which the insurer deems it necessary to reinsure. It is undisputed that cancellation of an agent’s contract because of the foregoing reasons would materially circumvent the legislative purpose to make available on a non-discriminatory basis automobile insurance to all drivers from the insurer of the applicant’s choice.

The present restriction on the right to cancel the agency contract does not affect contracts between respondent and its policyholders, but operates solely on respondent’s relationship with its agent in the sale of insurance, an area peculiarly within the State’s regulatory power. The statutory restriction is limited solely to the evil sought to be remedied. In fact, it is now apparent that the General Assembly correctly concluded that its purpose to assure automobile insurance coverage to all drivers might be thwarted by an insurer through the simple expedient of cancelling an agent’s contract because of the volume of business placed with it by that agent in compliance with the mandate of the statute. The prohibition against cancellation in no way affected any legal right to respondent to cancel appellant’s agency contract. Its only effect is to prevent retaliation by respondent or other insurers against those agents who complied with the law.

The General Assembly determined that the public interests required the far reaching reforms in automobile insurance coverage enacted under the provisions of Act No. 1177. These reforms were made applicable to all agents and insurers. In order to assure compliance with the terms of the statute, certain enforcement provisions were enacted, among them the present prohibition against cancellation of agency contracts. The determination of what enforcement measures were necessary for the protection of the interests of the public rested within the broad discretion of the General Assembly. This record is devoid of any showing that the regulations adopted were not reasonable.

The argument that “the prohibition against termination of agency contracts was not necessary to achieve the public purpose of the Act,” relying upon the decision in G-H Insurance Agency, Inc. v. The Travelers Insurance Co., 270 S. C. 147, 241 S. E. (2d) 534, and that the inclusion of such prohibition served no public purpose, is without merit. In that case, we held that an independent insurance agent possessed a private cause of action for the wrongful termination of its agency relationship. In so holding, we pointed out that the adoption of the provision against cancellation was not limited in its purpose and application to the benefit of the public to the exclusion of insurance agents, recognizing the dual aspect of the protection afforded by such provision. Our holding in the G-H Insurance Agency case, that the provision' prohibiting cancellation of agency contracts was not necessary to enforce compliance, renders such provision no less a part of the system adopted by the legislature to secure compliance with the provisions of Act No. 1177. The presence of other adequate enforcement provisions affords no ground for this Court to hold that the inclusion of the cancellation provision served no public purpose.

Since respondent had no vested right to sell insurance in this State, the reasonable statutory measures adopted to enforce compliance with the laws regulating the sale of insurance violated no constitutional rights of respondent.

The lower court was, therefore, in error in holding that Act No. 1177 impaired any contractual rights of respondent. The judgment is accordingly reversed and the cause remanded.

Rhodes and Gregeory, JJ., concur.