OFFICIAL OPINION No. 22

OFFICIAL OPINION No. 22 Courts-Attorney General-Insurance-Accidental Death Benefits Clause 1. Initially. all legal questions of the Insurance Department must be referred to its legal counsel. 2. State agencies must seek the advice of the Department of Just.ice in_ matters of great importance. matters that are controversial, and matters 111 which the out- come is not clear. 3. A decision by the Pennsylvania Supreme Court constitutes part of the law of the Commonwealth. 4. When carrying out its responsibilities under law. the Insurance Department must take cognizance of court decisions that modify interpretations of specific contract language. 5. All time limitations in regard to accidental death clauses in all lines of insurance may be void as contrary to public policy. Honorable William Sheppard Insurance Commissioner Harrisburg, Pennsylvania Dear Commissioner Sheppard: Harrisburg, Pa. April 26, 1974 Our opinion has been requested as to whether the Insurance Department should change its policy in regard to the enforcement of the existing insurance laws of Pennsylvania, including the ap- proval and disapproval of submitted policies, when court decisions are rendered which modify existing interpretations of specific in- surance contract language. We have also been asked if such chang- es should be interpreted by the Insurance Department itself or whether such matters should be referred to the Justice Depart- ment for its interpretation. More specifically, what effect Burne v. Franklin Life Insurance Company, 451 Pa. 218 (1973) should have on the enforcement of present laws of Pennsylvania, especially in regard to acceptable language for accidental death benefit clauses. 1 In accordance with this request, we submit our opinion. I. Periodically, state or federal court decisions are rendered which modify existing interpretations of specific insurance contract language. Decisions of the Supreme Court constitute part of the law of the Commonwealth. Stitt v. Consol1:dated Gas Supply Corp., 3 Pa. Commonwealth Ct. 482 (1971). It has also been held that 1 A comparable issue was raised in the case of U11ited Services Automobile Associa- hn11 Appeal, 2?7 Pa. Superior Ct. 508, (1974) in which Judge Spaeth held invalid an 1 mp act prov1s1on which cond 1t10ned recovery under uninsured motorist coverage. OPINIONS OF THE ATTORNEY GENERAL 75 decisions of higher courts are binding on lower tribunals. See In re Townsend's Estate, 349 Pa. 162 (1944); Beckham v. Travelers Ins. Co., 206 Pa. Superior Ct.488 (1965); H1:lbert v. Heller, 13 Leh. L.J. (1930). On the other hand, even though Federal Court decisions may be looked to for guidance, Ronnie's Bar, Inc. v. Pennsylvania Labor Relations Bd., 411 Pa. 459 (1963), state courts are not bound by these decisions unless they are decided upon questions of federal law. Rader v. Pennsylvania Turnpike Commission, 407 Pa. 609 (1962). Sect~ons 354 and 616 of the Insurance Company Law of 1921, 40 P.S. §477b, 751 direct the Insurance Commissioner to approve or disapprove the form of insurance contracts before they are sold. It has been contended that the Department has no authority under this law to approve or disapprove policies based upon court opinions. We find this contention to be without merit. The Com- missioner must apply and follow the law of the Commonwealth in approving insurance contracts. This necessarily includes pertinent common law and equity principles as well as constitutional and statutory provisions. The Commissioner thus has quasi-judicial power in determining whether a proposed policy contract violates any law or principle of equity. Mutual Benefit Life Ins. Co. v. Welch, 71 Okla. 59, 175 P. 45 (1918). In construing an Oklahoma law nearly identical to Section 354, the Court there held that the Insurance Commissioner must disapprove an insurance contract whenever he determines, in the exercise of his quasi-judicial power, that it is violative of any applicable law, written or un- written or any principle of equity. More particularly, the Court stated: "The common law, of course, forbids among other things, any 'form' of policy of life insurance which violates the public policy in any respect." 71 Okla. at 62. In regard to the effect of the disapproval of the form of a contract by the insurance commissioner, the Court stated: "It shall be con- clusively unlawful for such company to issue any policy in the 'form' so disapproved, without regard to whether his disapproving decision is correct or erroneous, provided he did not act arbitrarily or fraudulently in the same." 71 Okla. at 63. The above analysis in- dicates that it would certainly be an abuse of discretion for you to approve contracts containing terms that the Supreme Court has held to be unfair and unenforceable as against public policy. It has also been contended that no changes need be made in the policies themselves since the Supreme Court has found them unen- forceable, and, perforce, lower courts will be bound by that deci- sion in subsequent cases. But, insurance policies containing such terms, even though unenforceable, are likely to cause policyholders to forego meritorious claims in the mista~en b.elief that the terms are in fact, enforceable. The general pubhc rehes on the Insurance Department's duty to approve policies, and, consequently, terms appearing in policies have a greater appearance of state- sanctioned enforceability than terms appearing in ordinary con- 76 OPINIONS OF THE ATTORNEY GENERAL tracts. While your Department's approval of a policy is not a state- ment that all terms are in your opinion enforceable,_ you should act to eliminate indubitably unenforceable terms m order that claimants will not be misled. See Ice City, Inc. v. Insurance Com- pany of North America, 456 ;pa. 210 (19?~). Therefore, when court decisions modify interpretat10ns of spec1f1c contract language, the Insurance Department must take cognizance of these changes in carrying out its responsibilities under law. II. It next becomes relevant to ask whether the Insurance Depart- ment should itself interpret these court decisions or whether such matters should be referred to the Department of Justice. The determination of whether a particular court decision is based sole- ly on the facts of the particular case or whether it is a construction of the law generally applicable is a legal question. Section 902 of the Administrative Code, 71 P.S. §292, provides that: "The Department of Justice shall have the power and its duty shall be: * * * " (b) To supervise, direct and control all of the legal business of every administrative department ... and com- mission of the State Government." In carrying out his duty under the law, the Attorney General has assigned assistant attorneys general to various state agencies to be responsible for their day to day legal affairs. Initially, all legal questions of the Insurance Department must be referred to its legal counsel. The advice of the Department of Justice should then be sought in matters of great importance, matters that are con- troversial, and matters in which the outcome is not clear. Applying these guidelines, the Insurance Commissioner and the assistant at- torneys general assigned to the Insurance Department must use their discretion in determining when to submit this and other legal questions to the Department of Justice for its review and deter- mination. III. Applying the principles enunciated above, we are of the opinion that the Insurance Department must apply the holding of the Burne case to approve or disapprove submitted contracts . . The Pennsylvania Supreme Court in Burne dealt with acciden- t~al death. ~enefits _in a life ins1:1ran_ce _poli~y and held that a provi- s10n reqmrin~ the insured to die within ninety days of an accident for thE'. benef1.ts to be payable is arbitrary and unreasonable when there is no dispute that death was caused by accidential means. OPINIONS OF THE ATTORNEY GENERAL 77 The benefit in question usually provides that the insurer will pay double indemnification to the beneficiary of the insured when the death of the insured is the result of an accident; it is usually qualified, as it was in Burne, by afrovision which requires that the .death occur within ninety days o that accident. In Burne, the in- sured died four and one-half years after the accident, but as a result of the accident. In holding the ninety day provision unenforceable, the Court stated ( 451 Pa. at 222): "To predicate liability under a life insurance policy upon death occurring only on or prior to a specific date, while denying policy recovery if death occurs after that fixed date, offends the basic concepts and fundamental objec- tives of life insurance and is contrary to public policy." The Court added: " ... the decisions as to what medical treatment should be ac- corded an accident victim should be unhampered by con- siderations which might have a tendency to encourage something less than the maximum medical care on penalty of financial loss if such care succeeds in extendmg life beyond the 90th day. All such factors should, whenever possible, be removed from the antiseptic halls of the hospital. Rejection of that arbitrary ninety day provision does exactly that." Id. at 223. The Court further reasoned in Burne that indemnification for premature death resulting from an accident is the primary purpose for obtaining double indemnity accidental death coverage. The ninety day provision is a period imposed by the insurer within which to ascertain whether death did in fact result from an acci- dent. Because of advances in medical science, doctors have acquired the ability to sustain life for long periods of time after a fatal acci- dent. Such advances in medical science rendered the ninety day provision arbitrary and unreasonable when applied in Burne because there was no dispute that the accident was the proximate cause of death. Hence, this provision was held unenforceable as it is a general rule of law that provisions in an insurance policy should be disregarded when they cannot reasonably be applied to factual situations. Grandin v. Rochester German Insurance Company, 107 Pa. 261 ( 1884). See also Tennant v. Hartford Steam Boiler Inspection and Insurance Company, 351 Pa. 102 (1944); Norlund v. Reliance Life Insurance Company, 282 Pa. 389 (1925). As can be gleaned from the discussion above, the holding in Burne was based upon two grounds. Firstly, the Court held that the time limitation of the accidental death benefit clause was unenforceable against the beneficiary under the facts of the case; and secondly, that the time limitation was arbitrary and unreasonable and therefore void as against public policy. Our opinion that the ninety day requirement is generally unenforceable is predicated on the more general grounds of the latter holding. 78 OPINIONS OF THE ATTORNEY GENERAL Since the Burne case was concerned with accidental death clauses in life insurance policies, the question arises as to "Yhethe~ the basic principles of that case should be ext~nded to all lmes of m~urance that include accidental death benefit clauses. The quest10n also arises as to whether any time limitation, no matter how long, is an acceptable provision in an accidental death benefit clause. There does not seem to be any type of insurance policy which has a double indemnity accijental death benefit clause to which the reasoning of the Burne case would not be applicable. Therefore, the basic principle of Burne can be extended to all lines of insurance that include accidental death benefit clauses. The insured in Burne died four and one-half years after the acci- dent. By permitting double indemnification after four and one-half years, the Court implicitly held that any time period limitation restricting recovery of accidental death benefits where death is caused by accident is invalid. We are therefore of the opinion that any time limitation, regardless of how long, would be arbitrary and capricious and thus void as against public policy. If there is a con- tested fact of whether the cause of death was accidental, the issue can be resolved without cutting off the right of the insured on the basis of an arbitrary time limit. Common sense dictates that approval or disapproval of contract forms calls for the exercise of reasonable discretion. The insurer as well as the insured deserves the protection of the Commissioner in avoiding unlawful provisions. The same reason exists for similar prot~c~ion in the avoidance of ambiguous or other unwarranted prov1s10ns. The adhesive nature of an insurance contract calls for the sound judgment of the Commissioner to prohibit limiting provisions which are unanticipated and which are not clearly brought to the attention of the insured. Accordingly, irrespective of any contention that Bun1e is being construed too broadly, the Commissioner, in the sound exercise of his discretion, can refuse to approve policies which purport to cut off accidental death benefits by any arbitrary time limit. Of course, as provided in 40 P.S. §477b, notice of such refusal, specifying the reason therefor, must be given, and the issue can be tested by hearing and subsequent judicial review. In con~lusio_n, !tis. our _opinion, and you are accordingly advised, t!iat all t!me hm1tat10ns m regard to accidental death clauses in all Imes of msurance can be considered void as contrary to public policy. Insurance pol_icie~ that have been approved by the Insurance D epartme!1~ contammg hke clauses may be disapproved to exclude such prov1s10ns. By the same token, all new policies that are sub- OPINIONS OF THE ATTORNEY GENERAL 79 mitted to the Insurance Department for its approval should be dis- approved if they contain such a clause. Sincerely, Jeffrey G. Cokin Deputy Attorney General Israel Packel Attorney General OFFICIAL OPINION No. 23* Liquor Cude-Fourteenth Amendment- 42 U.S.C. §J.981 1. No action should be taken by the Liquor Control Board to revoke the license of corporate licensees for employing aliens as officers of the corporate licensee in violation of the U.S. citizenship requirements of 47 P.S. §'4-403(c) inasmuch as such citizenship requirements are to be treated as unconstitutional under the Fourteenth Amendment and are suspended by 42 U.S.C. §1981. Honorable Gene F. Roscioli Chairman Liquor Control Board Harrisburg, Pennsylvania Dear Mr. Roscioli: Harrisburg, Pa. April 30, 1974 It has been brought to our attention that certain corporate licensees of the Liquor Control Board may be employing resident aliens as officers of such corporations in apparent contravention of the United States citizenship requirements of the Liquor Code, 47 P.S. §4-403(c). Question is now raised whether or not the Liquor Control Board should invoke its statutory authority to revoke any and all licenses held by such corporations under the provisions of the Liquor Code, §4-403(a) and (c) which authorize the Board to revoke licenses where a corporate licensee has an officer who is not a United States citizen. It is our opinion, and you are hereby ad- vised, that the Board shall not take any action to revoke such licenses on the ground that the licensee has an officer who is a resi- dent alien inasmuch as the citizenship requirement of the Liquor Code, 47 P.S. §4-403, is in contravention of federal law, 42 U.S.C. §1981, and the Fourteenth Amendment. 1 *Editor's Note: See Opinion No. 48 infra. 1. As early as 1933 and again in 1935. the Attorney General of the State of New York held that similar citizenship requirements in New York's Alcoholic Beverage Control Law were unenforceable under U.S. treaty obligations and the Supremacy Clause of the U.S. Constitution. See, 1933 Op. N .Y. Attorney General 94 (October 9, 1933); and 1935 Op. N.Y. Attorney General 133 (May 15, 1935). Since that time, the United States Supreme Court has used 42 U.S.C. §1981 and the Equal Protection Clause of the Fourteenth Amendment to achieve that same result. Consequently, this opinion will not rely on U.S. treaty obligations in dis- cussing the question of alien rights. 80 OPINIONS OF THE ATTORNEY GENERAL The Liquor Code provides for a United States citizenship re- quirement for applicants for hotel, restau_rant. and club liquor licenses and establishes that sub.sequent -y10lat10n of suc:h stan- dards is also grounds for revocat10n of a license already issued: "If the applicant is a natural person, his application must show that he is a citizen of the United States .... If the applicant is a corporation, the application must show that ... all officers, directors and stockholders are citizens of the United States, and that the manager of the hotel, restaurant or club is a citizen of the United States." 47 P.S. §4-403(b), (c). Question is now raised about the validity of such citizenship restriction in light of 42 U.S.C. §1981 and the Fourteenth Amend- ment of the United States Constitution. 42 U.S.C. §1981 [formerly, 8 U.S.C. §41] provides as follows: "All persons within the jurisdiction of the United States shall have ... full and equal benefit of all la .vs ... and shall be subject to like punishment, pains, licenses ... and to no other." In Takahashi v. California Fish and Game Commission, 334 U.S. 410 (1948), the Court held that, although this statute was originally passed to guarantee black residents equal benefit of the laws, the language of the statute clearly guarantees alien residents the same rights within the states as non-alien residents. See, also, Whitfieldv. Ranges, 222 F . 745 (8th Cir. 1915); and Martinezv. Fox Valley Bus Lines, 17 F. Supp. 576 (N.D. Ill. 1936). The question must now be answered whether or not the Pennsylvania Liquor Code which, in ultimate effect, establishes two sets of standards for applicants for liquor licenses-one for citizens and another for aliens-can stand in light of federal law which mandates that aliens within the jurisdiction of the United States are guaranteed the same benefits of the laws as granted to non-aliens and further provides that alien residents shall be subject to the same licensing laws as non-aliens and to no other. The effect of Pennsylvania's citizenship requirement in 47 P.S. §4-403 is to provide for an additional requirement for alien applicants for liquor licenses: naturalization pursuant to the terms and conditions as established by the United States Congress. Yet Congress decreed in 42 U.S.C. §1981 that aliens shall not be sub- jected to different regulatory standards when the States choose to exercise their power to issue licenses under the state police power. 47 P.S. §4-403(b) a_nd (c) inevitably and invariably conflict with federa) law _regarding the treatment and regulations of aliens as enunciated m 42 U.S.C. §1981. Under the general principle of supremacy and also under the exclusive power of Congress to OPINIONS OF THE ATTORNEY GENERAL 81 legislate for the purpose of controlling immigration, (see Truax v. Raich1 239 U.S. 33, 42 (1915)), inconsistent state laws must yield to the wisdom of Congress, and the requirements of U.S. citizenship of 47 P.S. §4-403(b) and (c) for applicants for liquor licenses must be held invalid. In addition to the provisions of 42 U.S.C. §1981, the United States Supreme Court has consistently held that the Equal Protection Clause of the Fourteenth Amendment is, in itself, sufficient authori- ty to strike down State laws which discriminate against aliens. In Traux v. Raich, 239 U.S. 33 (1915), the Court struck down as un- constitutional an Arizona anti-alien labor law which required that employers must employ a work force of at least 80% native-born citizens of the United States. In writing for the majority, Justice Hughes observed that the Fourteenth Amendment guaranteed aliens equal economic opportunity, and an attempt by the State to regulate the rights of aliens to the benefit of its non-alien residents was unconstitutional: "[State police power l does not go so far as to make it possi- ble for the state to deny to lawful inhabitants, because of their race or nationality, the ordinary means of earning a living. It requires no argument to show that the right to work for a living in the common occupation of the com- munity is of the very essence of the personal freedom and opportunity that it was the purpose of the [XIV] Amend- ment to secure." 239 U.S. at 41. "The assertion of an authority to deny to aliens the oppor- tunity of earning a livelihood when lawfully admitted to the state would be tantamount to the assertion of the right to deny them entrance and abode, for in ordinary cases they cannot live where they cannot work." Id. at 42. In the instant case, Pennsylvania law would impinge upon the economic equality of opportunity of aliens to earn a livelihood by dispensing and selling alcoholic beverages pursuant to state law, which prohibition is for the ultimate economic benefit of non-alien residents of the Commonwealth. This economic discrimination cannot stand in light of the holding of Truax v. Raich, supra, and 47 P.S. §4-403(b) and (c) must be considered invalid.2 In Takahashi v. Fish and Game Commission, 334 U.S. 410 (1948), the Supreme Court held that the G_alifornia.Fish.and Q-ame Commission could not lawfully refuse to issue Califorma resident aliens commercial fishing licenses which were otherwise available to non-alien California residents. As Justice Hugo Black observed for the majority: 2. For other statements by the Supreme Court guaranteeing aliens economic equality, see Yick Wv I'. Hvpkin.~ . 118 U.S. 356 (1886) and Harrisiades v. Shaughnfssy, 342 U.S. 580 (1952). 82 OPINIONS OF THE ATTORNEY GENERAL "The Fourteenth Amendment and. the laws adopted under i~s authority thus embody a general policy that all person~ lawfully m this country shall abide in any state on an equality of legal privileges with all citizens under non-discriminatory laws." 334 U.S. at 420. More recently, the United States Supreme Court has handed down three landmark decisions regarding resident alien rights un- der the Equal Protection Clause. In Graham v. Richardson, 403 U.S. 365 (1971), the Court struck down Pennsylvania and Arizona statutes which conditioned state welfare benefits on United States citizenship. As observed by the majority, such ethnocentric re- quirements will be carefully scrutinized by a suspicious judiciary, and only where the state can convincingly demonstrate a compell- ing state interest will such requirements be upheld: "But the Court's decisions have established that classifications based on alienage, like those based on nationality or race, are foherently suspect and subject to close judicial scrutiny." 403 U.S. at 371, 372. In Sugarman v. Dougall, 413 U.S. 634 (1974), the Court held that New York could not require U.S. citizenship as a condition prece- dent for employment with the state under the New York civil ser- vice law. Again, in In re Griffith, 413 U.S. 717 (1974), the Court struck down a Connecticut statute which denied resident aliens the right to take the Connecticut bar examination solely because of alien citizenship as violative of the Fourteenth Amendment: "Resident aliens; like citizens, pay taxes, support the economy, serve in the armed forces, and contribute in myriad other ways to our society. It is appropriate that a State bear a heavy burden when it deprives them of employment opportunities. We hold that the Committee, actmg on behalf of the State, has not carried its burden." 413 U.S. at 722. In order to justify the ethnocentric requirements of 47 P.S. §4- 403 (b) and (c), the Liquor Control Board must affirmatively demonstrate a compelling state interest in restricting licenses to individual citizens of the United States and to corporations where all officers, directors, and shareholders are citizens of the United States. It appears that the citizenship requirement as it affects all dir~ctors, officers and shareholders of a corporation must be str_1cken down as overly broad on its face. As the citizenship re- qmrement affects managers of a corporate applicant and natural P~~sons _applyi~g on their own behalf, it appears that the c1tize_nsh1p _requirements should be stricken down absent any sub- stantial evidence offered by the Board to indicate that alien managers and bar owner_s _would notoriously violate the Liquor Code after receiving their licenses. 3 Ina.smuch as the Board has never contended such to be the case, alien residents should be given OPINIONS OF THE ATTORNEY GENERAL 83 the right to manage corporate establishments licensed by the Board, to own such establishments in their own right, and to serve as officers of corporations licensed under the Liquor Code. 4 In reaching this result, it is realized that the Twenty-first Amendment recognizes the states' special constitutional interest in regulating the retail sale of liquor. See, California v. LaRue, 409 U.S. 109 (1972). As pointed out in Justice Rehnquist's opinion, where there is a high correlation between criminal activity and erotic sexual performance in clubs which serve liquor, the Twenty- first Amendment can be used to prohibit behavior which otherwise would be protected under the free expression of ideas of the First Amendment. As pointed out in Justice Stewart's concurring opin- ion, however, the Twenty-first Amendment does not permit total irrationality or invidious discrimination in such regulation: "This is not to say that the Twenty-first Amendment em- powers a State to act with total irrationality or invidious discrimination in controlling the distribution and dispen- sation of liquor within its borders." 409 U.S. at 120. As indicated by the Supreme Court in Graham, Sugarman and Griffith cases, discrimination against alien residents is obviously irrational and invidious discrimination. Consequently, it must be concluded that the Twenty-first Amendment does not authorize the Legislature to discriminate against alien residents in liquor regulatory legislation. In summation, it is our opinion and you are hereby advised that no further action shall be taken against corporate licensees who may employ resident aliens as officers or directors or whose shareholders may be aliens in violation of 47 P.S. §4-403(c) in- asmuch as such citizenship requirements shall be treated as un- constitutional under the Fourteenth Amendment. Very truly yours, Richard J. Orloski Deputy Attorney General Israel Packel Attorney General 3. See, Veto Message of Governor MiltonJ. Shappof March 1, 1974(VetoNo. l)veto- ing a proposed amendment to the Game Law which provided greater penalties for alien residents who violated the Game Law than for citizen residents who per- formed the same illegal acts. 4 The Pennsylvania Attorney General's Office has consistently advised State agen- cies that U.S. Citizenship requirements are unenforceable. See, 0.0. No. 92, Op. Pa. Atty. Gen. 177 (1971) on veterinarians; 0.0. No. 11 ;!, Op. Pa. Atty. Gen., 2 Pa. B. 634 (March 15, 1972) on real estate brokers; 0. 0. No. 118, Op. Pa. Atty. Gen ., 2 Pa. B. 635 (March 23, 1972) on physicians; 0.0. No.114, Op. Pa. Atty. Gen. 2 Pa. B. 635 (March 23, 1972) on pharmacists; 0.0. No. 116, Op. Pa. Atty. Gen. 2 Pa. B. 745 (April 4, 1972) on practical nurses; 0.0. No. 4 of 197:i, Op. Pa. Atty. Gen. 3 Pa. B. 201 (Jan. 15, 1973) on scholarship applicants; and 0.0. No. 9 of 1973, Op. Pa. Atty. Gen. 3 Pa. B. 204 (Jan. 16, 1973) on teachers. 84 OPINIONS OF THE ATTORNEY GENERAL