LANSING – Insurers can continue to consider customers’ credit scores when setting rates for auto and homeowners insurance, a divided Supreme Court ruled Thursday in a much-anticipated decision.
The ruling is a bitter setback for Gov. Jennifer Granholm, legislative Democrats and urban activists who have decried the practice, which they say unfairly leads to illogically high rates in poor areas. But the ruling was hailed by insurers, who said banning the practice – which they say is an accurate predictor of risk – would only have forced rate increases for most of the public.
Justice Elizabeth Weaver once again was the deciding vote and her move to join with the other three Republican-nominated justices on the court, from whom she is estranged, was something of a surprise. In recent years, and especially after she helped elect a Democrat-nominated justice as chief justice for the current term, she has sided with the Democrats on a number of controversial cases.
In Insurance Institute of Michigan et al vs. Insurance Commissioner (SC Docket No. 137400), a 4-3 majority of the court held that then-Office of Financial and Insurance Services Commissioner Linda Watters exceeded her authority under the insurance code to ban credit scoring through rules she issued in 2004.
Justice Maura Corrigan, writing for the majority, held that the use of credit scores in rate-setting is permissible under the Insurance Code and was not discriminatory. Joining Corrigan were Justice Stephen Markman, Weaver and Justice Robert Young Jr. Corrigan said offering a discount for a good credit score is no different than one for safety devices in a vehicle.
“Discounts for anti-lock brakes are offered because they reduce the risk of loss, and discounts for high insurance scores are offered because they reduce the risk of loss,” she wrote. “The more insureds there are with anti-lock brakes, the lower the risk of overall loss. Likewise, the more insureds there are with high insurance scores, the lower the risk of overall loss.”
But Chief Justice Marilyn Kelly, writing for the dissenting justices, responded that the majority’s analysis is “seriously flawed and sets a dangerous precedent for the future.” Kelly was joined by Justice Michael Cavanagh and Justice Diane Hathaway.
“In my view, the power to enact rules to ‘effectuate the purposes’ of the Insurance Code provides a broader grant of authority than the power simply to inquire whether the Code permits a particular practice,” Kelly said. “The majority appears willing to overrule defendant’s decision simply because it disagrees with it. However, when the proper level of deference is applied, it is irrelevant whether the majority would decide the issue differently. Rather, after examining the conflicting evidence, one can only conclude that defendant did not exceed her authority by promulgating the rules banning the practice.”
Kelly noted that the title of the Insurance Code, which contains its purpose, speaks to maintaining the affordability of insurance. But Corrigan cited comments from insurance company officials that banning credit scoring would only make insurance less affordable for more people.
The insurance industry was “relieved” by the high court’s decision, said Insurance Institute of Michigan Executive Director Pete Kuhnmuench, noting the original lawsuit was filed five years ago after actions by Watters.
Hathaway’s victory over Chief Justice Clifford Taylor had made insurance industry officials uneasy about what the court would do with the case.
But the court’s ruling reaffirmed the industry’s primary argument that credit is a legitimate rating factor, Kuhnmuench said.
Asked whether the court’s opinion should quell the issue in the Legislature, Kuhnmuench said the group still supports legislation adding some consumer protections in regulating the use of credit scoring. That legislation (HB 5297 ), which is before the House Insurance Committee, is modeled after a policy by the National Conference of Insurance Legislators and has been implemented in 26 other states.
Office of Insurance and Financial Regulation Commissioner Ken Ross issued a statement after the decision, saying, “Affirming the unbridled use of credit scores by insurers is bad for Michigan consumers, who expect and deserve their rates to be determined by factors such as driving record.”
And anti-credit scoring activists, who had held rallies against the practice, blasted the decision.
“Today, Our Michigan Supreme Court, in a 4-3 decision sided with the powerful special interests and powerful insurance companies against Michigan consumers,” said Linda Teeter, executive director of Michigan Citizen Action. “Using a person’s credit score as one of the factors used to determine an insurance rate has nothing to do with their driving record, which is the only standard that should matter in a person’s driving record, not their financial standing. Instead of standing up for Michigan residents, the Supreme Court today slammed the doors of justice in their faces and showed just how out of touch it is with the people of Michigan.”
One of the most interesting reactions, in terms of the political world, came from Democratic Party Chair Mark Brewer. Weaver and Young are both up for re-election this year, and Brewer has targeted Young heavily while playing coy about whether the party would challenge Weaver, considering she is running as an independent this year and has sided with Democrats on many decisions of late.
A statement from the Democratic Party chided Young and “other GOP justices” without naming Weaver.
“This is a discriminatory decision by Bob Young and his Republican cronies on the Michigan Supreme Court,” Mr. Brewer said. “This decision will increase premiums for drivers and drive up the cost of auto insurance coverage. Once again, Young and Republicans on the court side with their campaign donors – the insurance companies – over Michigan consumers.”
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