Interpretation of the Commissioner of Insurance Circular– by the Commissioner or by the Court?

Additional Hearing of Civil Appeal 4960/18 Zeligman and others v. the Phoenix and others (4-7-2021)

In a class action submitted against 5 insurance companies, the claimants argued that the companies charged an additional interest of 4-6% due to payments of monthly installments of premiums on policies which are not life insurances and in relation to all the components thereof, including the savings element.

The insurers argued that this charge is not prohibited by the commissioner of insurance, according to the relevant circulars.

The Commissioner of Insurance submitted his position to the District Court during the certification stage, in which he indicated that the circulars may be interpreted as such which do not prohibit the charges of this interest concerning all the  elements of the premium, in view of the fact that the premium was calculated on the basis of yearly payments where in fact it was  spread to installments over the whole year.

In the first instance, the District Court approved the motion to certify the claim as a Class Action and it was decided that the position of the Commissioner can lead to different conclusions and although this position should be given a certain weight in the interpretation of the circulars , yet the court is the entity which would give its decisive interpretation thereto.

In the appeal, the Supreme Court dealt with the question of the status of the Commissioner’s interpretation to his circulars. Justice Yael Vilner held that the  Commissioner drafts the circulars , enforces them and is authorized to impose monetary  penalties for their breaches. The fact that these legislative, enforcement and quasi-judicial powers were granted to the Commissioner by the law shows that it is appropriate to adapt the interpretation of the Commissioner in order to avoid contradicting interpretations by the court and by the Commissioner. In addition, the Commissioner has specific expertise in this field, which justifies limiting the judicial interference with his decisions which as any other administrative authority, enjoys the assumption that his acts are proper. 

In conclusion, the Supreme Court unanimously determined that a preferred weight should be given to the interpretation of the Commissioner to his circular except for instances where it is proven that the Commissioner acted in conflict of interests or for irrelevant considerations.

The applicants submitted a request to have an Additional Hearing of the appeal which is granted in rare cases where the judgement has significant impact on broad scope of other cases , beyond the specific interests of the direct parties to the proceeding.

The judgment of the panel in the additional hearing overturned the conclusion of the Supreme Court and was given on 4th July 2021, by 4 majority judges against 3 .

The main judgment was handed down by Justice H. Melzer who determined that the task of interpretation of laws and of administrative legislation is given to the court. In addition, in class actions the court acts as a part of a mechanism of “checks and balances” and hence the final interpretation should be made by the court.

The judge set various yardsticks in order to check in which case the opinion of the commissioner of insurance would be accepted by the court. In each case the court would check the following considerations:

1. Whether the interpretation of the commissioner is in accordance with the rules of interpretation as set by the court and  where it is not, less weight would be attributed thereto.
2. The expertise of the regulator- whether the position presented is professional i.e relates to a specific professional issue,  it will be preferred as compared with an interpretation of legal norms where the court is authorized to be the interpreter.
3. Whether the opinion of the commissioner was based on a thorough check of the various relevant options.
4. Whether the Commissioner drafted the directives or just gives his opinions on old guidelines.
5. Whether the structure of the regulated market and the identity of the parties gives rise to a fear that a regulator is in a situation of regulatory fault.
6. Whether the position is thorough and well-reasoned and broad in its scope.
7. Whether the Commissioner presented contradictory positions concerning the same subject matter.
8. Whether there are two regulators of the same field who presented contradicting positions.
9. Whether the case falls into one of the exceptions set by Judge Vilner – conflict of interest was shown or irrelevant considerations have led to the position.

In this specific case, the judge applied the above considerations and reached the conclusion that the  position of the commissioner is not in accordance with the language of the circulars, for example, concerning inapplicability thereof to savings plan and the description of the circular as Life Insurance tariff does not allow its applicability to other branches of insurance (personal accidents, etc.) .In addition,  the position is not in accordance with the objectives of the circulars as one should choose a position that protects the Insureds and hence the interpretation offered by the commissioner should be declines.

An interesting observation made by the court in this Additional Hearing is that the Commissioner may be in “Regulatory  Captivity” in the Insurance market and may prefer the strong and organized group of companies and not the weak and unorganized insureds.

Finally, the Additional Hearing judgement declined the position of the Commissioner to its merits which was in favor of the insurance companies.

Comments:

1. The Insurers cannot find a “shield” when relying on the position of the Commissioner in interpreting the Circulars and Directives ( where interpretation is required) and future intervention by the court  is not ruled out.

•  After the first judgment of the Supreme Court, various articles were published by Academics complaining that giving a preference to the interpretation of the Commissioner interferes with the separation of powers between the judicial and administrative Authorities. The judgment in the Additional Hearing echoes the ideas of these articles concerning the issue of the power of the court as the interpreter of all legislation.

• The judgment in the Additional Hearing reflects the wish of the Supreme Court to maintain its dominant position vis a vis the administrative and executive bodies of the State ,  as a reaction to voices that call to lessen the Supreme Court’s dominance especially in issues of public interest.

 

Peggy Sharon

Levitan, Sharon & Co.