The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site -



Opinion No. 5531

August 6, 1979


Retroactive rate increase

The Insurance Commissioner may not approve a retroactive rate increase.

Honorable Richard J. Allen

State Senator

State Capitol

Lansing, Michigan

You have requested my opinion as to whether the Insurance Commissioner may authorize a retroactive rate increase.

Chapter 24 of the Michigan Insurance Code of 1956, 1956 PA 218, MCLA 500.100 et seq; MSA 24.1100 et seq, entitled 'Casualty Insurance Rates' prescribes a procedure for fixing and approving insurance rates by the Commissioner of Insurance. Two methods are provided for. Under the 'prior approval' regulatory scheme, rates and rate-making factors are proposed and supporting material is filed by the insurer on its own behalf or by a licensed rating organization. Each such filing must state its proposed effective date and indicate the character and extent of the coverage contemplated. 1956 PA 218, supra, Sec. 2406; MCLA 500.2406; MSA 24.12406. As to review and effective date of such rate filings, 1956 PA 218, supra, Sec. 2408, provides in part that:

'(1) The commissioner shall review filings as soon as reasonably possible after they have been made in order to determine whether they meet the requirements of this chapter.

'(2) Subject to the exception specified in subsection (3) of this section, each filing whether or not accompanied by supporting information shall be on file for a waiting period of 15 days before it becomes effective, which period may be extended by the commissioner for 1 additional period not to exceed 15 days if he gives written notice within such waiting period to the insurer or rating organization which made the filing that he needs such additional time for the consideration of such filing. Upon written application by such insurer or rating organization, the commissioner may authorize a filing which he has reviewed to become effective before expiration of the waiting period or any extension thereof. A filing whether or not accompanied by supporting information shall be deemed to meet the requirements of this chapter unless disapproved by the commissioner within the waiting period or extension thereof: Provided, That where a filing is not accompanied by supporting information and such information is required by the commissioner under subsection (1) of section 2406, such filing shall be deemed to meet the requirements of this chapter unless disapproved by the commissioner within 15 days after such information is furnished.' MCLA 500.2408; MSA 24.12408.

An alternative method for filing provides that an insurance company can specify the date upon which the rates becomes effective. The Commissioner of Insurance then has 15 days within which to act on that filing. If the filing is not disapproved within 15 days of the filing, 'the filing shall be deemed to be approved.' This alternative method of rate filing is detailed in 1956 PA 218, supra, Sec. 2430, and provides for the following procedure:

'(1) In lieu of the filing requirements of this chapter and as an alternative method of filing, any insurer or rating organization may file with the commissioner any manual of classification, rules or rates, any rating plan and every modification of any of the foregoing which it proposes to use, the filing to indicate the character and extent of the coverage contemplated. Every such filing under this section shall state the effective date thereof, shall take effect on said date, shall not be subject to any waiting period requirements, and shall be deemed to meet the requirements of section 2403(1)(d) (rate standards). A filing and any supporting information shall be open to public inspection, if the filing is not disapproved.

'(2) At any time within 15 days from and after the date of any such filing, the commissioner may give written notice to the insurer or rating organization making such filing, specifying in what respect and to what extent he contends such filing fails to comply with the requirements of section 2403(1)(d) and fixing a date for hearing not less than 10 days from the date of mailing of such notice. At such hearing the factors specified in section 2406(1) shall be considered. If the commissioner after hearing finds that the filing does not comply with the provisions of this chapter, he may issue his order determining wherein and to what extent such filing is deemed to be improper and fixing a date thereafter, within a reasonable time, after which such filing shall no longer be effective. Any order of disapproval under this section must be entered within 30 days of the date of the filing affected.

'(3) In the event that no notice of hearing shall be issued within 15 days from the date of any such filing, the filing shall be deemed to be approved. If such filing shall be disapproved, the insuring provisions of any contract or policy issued prior to the time the order becomes effective shall not be affected. But if the commissioner disapproves such filing as not being in compliance with section 2403(1)(d) (rate standards), he may order an adjustment of the premium to be made with the policy-holder either by refund or collection of additional premium, if the amount is substantial and equals or exceeds the cost of making the adjustment. The commissioner may thereafter review any such filing in the manner provided in sections 2418 and 2420, but if so reviewed, no adjustment of premium may be ordered. Sections 2406(2) (filing may be made by rating organization), 2408(1) (commissioner shall review filing as soon as reasonably possible), and 2412 (insurer must adhere to filing) shall be applicable to filings made under this section.' MCLA 500.2430; MSA 24.12430.

Analogous to the issue raised by your question is the issue of whether the Public Service Commission may grant a retroactive rate increase to a public utility.

In General Telephone Co v Public Service Commission, 341 Mich 620; 67 NW2d 882 (1954), the Michigan Public Service Commission appealed a circuit court's decree which remanded the determination of 'just, reasonable and nonconfiscatory rates,' back to the Commission, and authorized General Telephone Company to collect temporary rates not in excess of the rates requested pending such determination, conditioned upon providing a $1,000,000 refund bond. In sustaining the lower court's decree, the court reiterated the holding in Michigan Bell Telephone Co v Public Service Commission, 315 Mich 533; 24 NW2d 200 (1946), by stating:

'This Court made it very clear in Michigan Bell Telephone Co. v Public Service Commission, 315 Mich 533 (66 PUR NS 287), that the commission cannot establish a retroactive rate thereby correcting injustice caused by delay in establishing rates for the past. When failure to provide adequate rates in the past cannot be remedied by retroactive orders, it follows that every reasonable effort should be made by the commission to eliminate unnecessary dealy and to pass judgment on facts that will not only reflect upon the present but a reasonable period in the future.' General Telephone Co, supra, 341 Mich at 632; 67 NW2d at 887.

And in Michigan Consolidated Gas Co v Public Service Commission, 389 Mich 624; 209 NW2d 210 (1973), the court again stated that rates cannot be made to operate retroactively. There, in sustaining the circuit court's power to issue a temporary injunction granting a rate increase over that initially granted by the Commission, the court quoted with approval from Michigan Consolidated Gas Co. v. Public Service Commission, 25 Mich App 512, 515-16, 181 NW2d 596, 598 (1970), the following:

'Our Supreme Court has explicitly held that a commission may not establish retroactively rates thereby correcting any injustice caused by a delay in establishing necessary increased rates. Michigan Bell Telephone Co. v Public Service Commission (1946), 315 Mich 533; General Telephone Company of Michigan v. Public Service Commission, supra, at p 632.' Michigan Consolidated Gas Co, supra, 389 Mich at 642, 209 NW2d at 217.

In Michigan Bell Telephone, supra, Michigan Bell brought an action against the Michigan Public Service Commission to have a December 28, 1944 order of the Commission declared unlawful. This order required Michigan Bell to reduce its gross revenues attributable to its intrastate operations for 1944 by $3,500,000, and to submit to the Commission a plan for the distribution of such amount to the Michigan Bell's subscribers for that year. This order was based on a determination that Michigan Bell's profits were too high and that it was charging unnecessary and avoidable expenses against the public. There, the court phrased the issue as follows:

'Has the commission statutory power to order retroactively a refund to be made by the telephone comany to its subscribers out of charges for services rendered (and in large part paid prior to the date of the order), such charges having been made in conformity with the existing rates fixed by the commission (or its predecessor) and in effect during the time the services were rendered?' 315 Mich at 538, 24 NW2d at 202.

The court, in Michigan Bell Telephone, supra, held that there existed no express or reasonably implied statutory provision authorizing the Commission to alter or readjust telephone rates or charges retroactively, and that the Commission's power to fix utility rates and charges was limited to orders which were prospective in effect. Moreover, the court concluded that orderly protection of the rights of the parties concerned required that a lawfully established rate remain in force until altered by a subsequently established lawful rate. In so holding, the court in Michigan Bell Telephone, supra, stated:

'In fixing rates the commission acts in a legislative capacity; and an order of the commission establishing a utility rate must be construed as a statute of like character would be construed. In Harrison v Metz, 17 Mich 377, Justice Cooley said: 'legislation is to have a prospective operation only, except where the contrary intent is expressly declared or is necessarily to be implied from the terms employed.' More recently we have held: 'That all statutes are prospective in their operation excepting in such cases as the contrary clearly appears from the context of the statute itself.' Detroit Trust Co. v City of Detroit, 269 Mich 81. The Federal supreme court lately said:

'Retroactivity, even where permissible, is not favored, except upon the clearest mandate. It is the normal and usual function of legislation to discriminate between closed transactions and future ones or others pending but not completed.' Claridge Apartments Co. v Commissioner of Internal Revenue, 323 US 141 (65 Sup Ct 172, 89 L Ed 139).' 315 Mich at 547, 24 NW2d at 205-06.

Further, the court reiterating the Appellee's position stated:

'The impropriety and invalidity of the order of December 28, 1944, on this ground (i.e., that it is in effect retroactive) should be clear. For the State to prescribe utility rates, forbid the utility to charge any other rates, and then say that those rates may be declared unjust and unreasonable as applied to executed transactions shocks the conscience. Under such a rule how could the utility order its affairs? If an order may be made retroactive for one year, why not for any period (in the absence of a statute of limitations) and what then becomes of the commitments the utility may have made in the belief that the sums it has earned and collected belong to it? Reason, common fairness and precedent combine to establish the rule that the charter of a commission's powers should not be construed to permit it to impugn its own legislative acts with retroactive effect unless the statutes affirmatively require such a construction' (emphasis added). 315 Mich at 548, 24 NW2d at 206.

'Retroactive' laws are generally defined as those which take away or impair vested rights acquired under existing laws, create new obligations, impose a new duty, or attach a new disability in respect to the transactions or considerations already passed. Barbieri v Morris, 315 SW2d 711, 714 (Mo, 1958). It is clear that general rules of statutory construction respecting retroactive legislation have held that statutes are generally designed to operate prospectively. A statute should not be held retroactive unless expressly made so, or unless the legislative intent to make it so is unmistakable. This is especially true when such construction would affect a status already fixed, or obligations already accrued.

Rates charged by insurance companies must not deviate from those established by State authority. The State officer vested with power to fix or approve rates cannot exceed his or her statutory authority, and the procedure prescribed by statute for fixing or approving rates must be followed. 44 CJS, Insurance, Sec. 60, p 532.

Neither 1956 PA 218, supra, Sec. 2408, nor Sec. 2430, expressly provide that the Commissioner of Insurance has authority to apply rate increases retroactively; nor is there any basis to conclude that such power is necessarily to be implied from the language employed. The statutory scheme so carefully laid out contemplates only prospective effect of rate changes. Rate filings should be made, reviewed, and acted upon in an orderly and timely fashion. For the protection of the rights of the parties concerned, a lawfully established rate should remain in force until altered by a subsequently established lawful rate. Parties should not be exposed to the uncertainty that would result should the Commissioner of Insurance be permitted to apply rate increases retroactively.

While 1956 PA 218, supra, Sec. 2430, grants authority to the Commissioner to order an adjustment of premium to be made with the policyholder either by refund or collection of additional premium upon a finding that the proposed rates are excessive, inadequate, or unfairly discriminatory, such power relates back no further than the time period between the date such new filing took effect and the date of the Commissioner's order of disapproval.

It is, therefore, my opinion that retroactive insurance rate increases may not be approved by the Commissioner of Insurance.

Frank J. Kelley

Attorney General