Tennessee Insurance Legal News - June 2013 - Volume 2, Number 2

Tennessee Attorney General Holds That Tennessee Statute Prohibiting Preferences Or Distinctions In Certain Insurance Transactions Is Not Unconstitutional

By John E. Anderson, Sr

In its April 24, 2013 opinion, the Tennessee Attorney General opined that the Tennessee Unfair Competition and Unfair or Deceptive Practices Act, which prohibits preferences or distinctions in certain insurance transactions, is not unconstitutional. The statute at issue, Tenn. Code Ann. § 56-8-104(18)(A), provides as follows: (18) Preferences or Distinctions in Certain Insurance Transactions prohibited.

(A) Making, offering to make, or permitting any preference or distinction in property, marine, casualty, or surety insurance as to form or policy, certificate, premium, rate, benefits, or conditions of insurance, based upon membership, nonmembership, or employment of any person or persons by or in any particular group, association, corporation, or organization, or making the preference or distinction available in any event based upon any fictitious grouping of persons . . . .

The opinion explained that this statute essentially prohibited insurance companies from offering discounts to certain groups of people based upon their membership and/or employment by a particular organization or company. "This type of anti-discrimination restriction is designed to prevent insurance companies from offering discounts or other preferences 'to persons, or groups of persons, based upon factors other than legitimate rate-making considerations.'" These provisions prevent "unfair discrimination among similarly-situated purchasers of insurance."

The Attorney General concluded that the anti-discrimination restriction in Tenn. Code Ann. § 56-8-104(18)(A) does not violate the commercial speech protections of either the First Amendment of the United States Constitution or Article I, Section 19 of the Tennessee Constitution. "Both of these constitutional guarantees provide a qualified protection for commercial speech."

Additionally, the Attorney General noted that by enacting Tenn. Code Ann. § 56-8-104(18), the General Assembly effectively has prohibited insurance companies' preferences in premiums, rates, benefits, or other conditions of insurance based upon group membership or employment. It noted that this provision is consistent with other provisions of the Act, which prohibit insurance companies from granting preferences based upon factors other than risk, citing Tenn. Code Ann. § 56-8-104(7)(A)-(E), and, conversely, which prohibit insurance companies from giving less favorable terms based upon other impermissible factors, such as race, sex, national origin, and disability, Tenn. Code Ann. § 56-8-104(7)(F) & (G).

"The General Assembly has thus deemed harmful to the public the commercial activity of...