NU Online News Service, April 13, 2:00 p.m. EDT
A four-year-old legal battle in Michigan over the state regulator's attempt to ban insurer use of credit scoring may be headed to the State Supreme Court after a judge's recent ruling in favor of carriers that oppose the prohibition.
Fifth Judicial Circuit Court Judge James Fisher in Hastings, Mich., last Friday turned down a bid by the Michigan Office of Financial and Insurance Regulation to stay his injunction, preventing OFIR from denying insurance company rate filings using credit-based insurance scores as a rating factor to determine premiums.
His action was greeted as "welcome news" by an insurance trade group, while OFIR Commissioner Ken Ross vowed to continue his legal fight. Both sides in the case had previously filed applications to the Michigan State Supreme Court, prior to Friday's.
OFIR first promulgated administrative rules banning the use of credit scoring in 2005–an action that was challenged by Hastings Mutual Insurance Company, Farm Bureau General Insurance Company of Michigan, Progressive Michigan Insurance Company and Frankmuth Mutual Insurance Company.
Also objecting was the Insurance Institute of Michigan and two Farm Bureau policyholders, Walter Stafford Jr. and Michael Flohr.
The judge originally ruled in 2005 that the use of consumer credit records in setting insurance rates was justified and did not discriminate. Friday's decision expanded the 2005 injunction by preventing OFIR from challenging insurance credit scoring by enforcing the insurance code on a case-by-case basis.
The commissioner had been disapproving auto insurance rate filings that used credit scoring to set premiums, arguing that studies by consumer groups had found mistakes in credit reports for many consumers.
He relied in part on an executive order issued by Michigan Gov. Jennifer Granholm last month, directing OFIR to utilize every administrative tool at the agency's disposal to assure the auto insurance company provides insurance at fair and equitable rates–including but not limited to disapproval of rate increases or rejection of rate filings.
A spokesman for the American Insurance Association, John Birkinbine, said a Wayne State University Study found that use of credit reports was not discriminatory. He said there was speculation that chances the Supreme Court would take the case are 50-50.
Mr. Ross issued a statement after the ruling, in which he said Michigan consumers had "lost big," but promising that "the fight isn't over yet. In spite of this ruling, I intend to press our case on appeal and continue to use every administrative tool at my disposal to ensure that each rate filing fully complies with Michigan law."
David Snyder, AIA's vice president and associate general counsel, said the judge's ruling had stopped "OFIR's unlawful attack on a valid and legal rating/underwriting factor…" He called the decision "welcome news for the majority of Michigan consumers"–who, he said, had benefited from credit scoring.
Mr. Snyder said the ruling also means "the state's executive branch can't make up its own rules and then execute them by politically-charged regulatory fiat. The administration's continued attacks on the insurance industry do not serve anyone's interests."
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