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Blount v. Metropolitan Life Ins. Co.
May 23, 1984
677 S.W.2d 565
Published Opinion

Blount v. Metropolitan Life Ins. Co.

Court of Appeals of Texas,


Joyce M. BLOUNT, Appellant,



No. 14039.


May 23, 1984.


Rehearing Denied Sept. 12, 1984.

Attorneys & Firms

*567 Joseph Hunter, Alvin, for appellant.

Jim Alsup, Gary A. Thornton, Small, Craig & Werkenthin, Austin, for Metropolitan Life Ins. Co.

Jim Mattox, Atty. Gen., Susan Henricks, Asst. Atty. Gen., Austin, for The Employees Retirement System of Texas.

Before PHILLIPS, C.J., and POWERS and BRADY, JJ.


*568 POWERS, Justice.

Joyce M. Blount sued the Metropolitan Life Insurance Company and the Employees Retirement System in a district court of Travis County. The trial court rendered judgment that she take nothing by her suit. We will reverse the trial-court judgment and remand the case for trial.


In Blount’s original petition, she alleged that her deceased husband, Ronald A. Blount, was killed as the result of an accidental gunshot wound while a member of the Employees Retirement System and an insured under a group life insurance policy issued by Metropolitan. She alleged, in addition, that Metropolitan refused to pay her, as named beneficiary, certain sums the company was obligated to pay her under the group policy. Metropolitan contends that the sums claimed by Mrs. Blount are not owed under the insurance contract because Mr. Blount’s death was a suicide.

The controversy between the parties was previously presented to the Employees Retirement System. After an evidentiary hearing, the System found that Mr. Blount’s death was a suicide. Based upon that finding of fact, the System, on December 14, 1981, issued an order “that the claim of Joyce Blount for $46,000 of life and accidental death benefits arising from the death of Ronald A. Blount be in all respects denied.” Thereafter, Mrs. Blount filed the present suit in a district court of Travis County.

The trial court denied Mrs. Blount’s request for a jury and proceeded to determine her cause of action based upon the evidentiary record compiled in the Employees Retirement System. The trial court judgment orders that she take nothing and recites as follows:

The Court having considered the pleadings on file, the record of the proceedings before the Defendant Employees Retirement System of Texas, and the argument of counsel is of the opinion that the administrative order of the Defendant Employees Retirement System of Texas is supported by substantial evidence, is lawful, and should be affirmed.


Mrs. Blount brings three points of error: (1) the trial court erred in denying her a trial de novo on her contract claim against Metropolitan; (2) the trial court erred in overruling her request for a jury trial; and (3) the trial court erred in its conclusion that the administrative order of the Employees Retirement System was supported by “substantial evidence.”

We hold the case has been tried on the wrong theory and, in the interests of justice, remand the cause to the district court for a new trial. United Gas Corp. v. Shepherd Laundries Co., 144 Tex. 164, 189 S.W.2d 485 (1945).

The applicable statute is the Texas Employees Uniform Group Insurance Benefits Act, Tex.Ins.Code Ann. art. 3.50–2 (1981 & Supp.1984) (the “Act” hereafter). The statute establishes a framework for the purchase of group life, accident, and health insurance for State employees. Section 4 of the Act vests in a “trustee” the sole power to administer and implement the Act. The “trustee” so empowered is the State Board of Trustees of the Employees Retirement System of the State of Texas, a body consisting of three appointed members and three members elected by members of the State retirement system. Title 110B, §§ 25.003, 25.004 (Pamph.Supp.1984). This body, as trustee under the Act, is given several powers designated in the Act, including the power to: (1) hire employees and designate their duties; (2) “contract with a qualified, experienced firm of group insurance specialists or an administering firm who shall act for the trustee in a capacity as independent administrators and managers of the programs authorized under” the Act; (3) “enter into interagency contracts with any department of the State of Texas;” (4) “promulgate all rules, regulations, plans, procedures, and orders reasonably necessary to implement and carry *569 out the purposes and provisions of” the Act; (5) prepare specifications for the insurance coverages authorized by the Act; (6) prescribe the conditions for eligibility for insurance coverages provided under the Act; (7) determine “the methods and procedures of claims administration;” (8) determine “the amount of employee payroll deductions” and the “procedures by which such deductions shall be made;” (9) establish plans of group coverages for active and retired employees, which plans, in the trustee’s discretion, may include group life coverage, accidental death and dismemberment, and health benefit plans; (10) formulate and submit to the State Board of Insurance the insurance coverages determined by the trustee; (11) and the power to select particular insurance carriers to furnish such coverages, the selection to follow a competitive-bidding process conducted by the State Board of Insurance. § 3.50–2, §§ 4, 5, 11.

In addition, § 4(e) of the Act provides that the trustee shall have full power and authority as to the following:

[E]stablishment of grievance procedures by which the trustee shall act as an appeals body for complaints by employees regarding the allowance and payment of claims, eligibility, and other matters.

Nothing in the Act, unless it be this subsection, purports to vest in the trustee a power to adjudicate claims on a group life insurance contract entered into by the trustee under the Act.1 The parties have assumed *570 that Tex.Rev.Civ.Stat.Ann. art. 6252–13a, the Texas Administrative Procedure and Texas Register Act (APTRA) (Supp.1984):

“Contested case” means a proceeding, including but not restricted to ratemaking and licensing, in which the legal rights, duties, or privileges of a party are to be determined by an agency after an opportunity for adjudicative hearing.

(emphasis added). If, however, the trustee has under the Act no power of adjudication, it follows that the trustee lacked authority to conduct an “adjudicative hearing” and the resulting order issued by the trustee is void.

We construe § 4(e) of the Act as vesting in the trustee an authority to establish grievance procedures regarding employee complaints about “the allowance and payment of claims, eligibility, and other matters;” and a power to determine and act upon such complaints as internal, administrative matters only, short of any power finally to determine the rights and obligations between a beneficiary and a carrier so as to bind them thereto. It is a power to take informal discretionary action in a claim dispute between the carrier and a beneficiary, the “lifeblood” of the administrative process, but it is not the power to adjudicate. K.C. Davis, Administrative Law Text, § 4.01, (1972).2 Our construction is based upon the following.

*571 “The cardinal rule in statutory interpretation and construction is to seek out the legislative intent from a general view of the enactment as a whole, and, once the intent has been ascertained, to construe the statute so as to give effect to the purpose of the Legislature.” § 4(e) must be interpreted to determine whether the trustee is therein given a power to adjudicate claims arising out of an insurance contract entered into by the trustee under the Act.

While no part of the Act purports expressly to give the trustee the power to adjudicate between a beneficiary and a carrier on any claim dispute between them, we find that the Act does give the trustee a power to adjudicate between the State and any employee, annuitant, or dependent in the matter of fraudulent claims. Section 13A(a) provides that the trustee may, after notice and hearing, “expel from participation in the Texas employees uniform group insurance program any employee, annuitant, or dependent who submits a fraudulent claim under or has defrauded or attempted to defraud any health benefits plan offered under the program.” Subsections 13A(c) and (e) specifically provide that such proceedings constitute a “contested case” under APTRA and that an appeal therefrom “is under the substantial evidence rule.” Nothing in this section of the Act purports to empower the trustee to make a fraudulent-claim determination as between the carrier and a beneficiary, so that it would be a binding determination between those parties, precluding any obligation of payment on the carrier’s insurance contract.

Section 13A is, however, useful for interpretative purposes because it illustrates vividly that the Legislature, had it intended to vest in the trustee an adjudicative power reviewable as a “contested case” and under the “substantial evidence rule,” would have chosen language more direct and suitable for the purpose. More importantly, by the Legislature’s express provision that APTRA shall apply to a narrow class of contract claims, that is, fraudulent claims, and to the trustee’s decision to expel a member from participation in the relevant group-insurance program, the Legislature impliedly provided that all other classes of insurance claims shall not constitute a matter to which APTRA applies. State v. Mauritz-Wells Co., 141 Tex. 634, 175 S.W.2d 238, 241 (1943). Thus, within the terms of the *572 Act itself, it is doubtful that one can impute to the Legislature an intent to empower the trustee to adjudicate between a claimant and a carrier concerning their rights and obligations on an insurance contract made by the trustee under the Act.

Next, a general view of the Act compels in another way an inference that the Legislature did not vest in the trustee a power to adjudicate disputes arising between a beneficiary and a carrier as to liability on an insurance contract made under the Act. One observes that the Act is silent as to the rights and duties of insureds, annuitants, and beneficiaries, on the one hand, and carriers on the other hand. Implicit in the Act is that their rights and duties inter se are matters of contract—the contract made by the trustee with the carrier in which the State employee is an insured. But the Act gives absolutely no criterion by which the trustee is to determine any claim on the contract or any defense based thereon. The absence of any such criterion, which could be quite general, suggests strongly that the Legislature did not intend that the trustee should have an adjudicatory power in such disputes. Housing Authority v. Higginbotham, 135 Tex. 158, 143 S.W.2d 79 (1940). Moreover, because the rights and obligations of the parties are left to contract, it is strongly implied that the enforcement of such rights and obligations is a matter of contract law enforceable through common law causes of actions based upon contract.

Tex.Rev.Civ.Stat.Ann. art. 1446c, the Public Utility Regulatory Act, §§ 16, 18, 24, 26, 27 (Supp.1984); see also the statutes discussed in Current Problems—Administrative Government in Texas, 47 Tex.L.Rev. 805 (1969). The Act does not, however, purport to create any right or duty; rather, those matters are expressly left to be fixed contractually, from time to time, between the carrier and the trustee. In short, the Act does not even hint at establishing a statutory right or a system of statutory rights and duties as a substitute for common-law rights and duties.

Finally, the assumptions necessary to a theory that the trustee has adjudicative powers, in the case of ordinary contract actions and defenses, are insupportable. While the Act itself does not provide for judicial review in the ordinary case, we may assume the correctness of the carrier’s position that judicial review is available under APTRA § 19(e).

In light of the foregoing, it would, in our view, contravene legislative intent to hold that § 4(e) of the Act impliedly vests in the trustee an adjudicatory power over ordinary contract claims based upon a denial of coverage.3

We hold, accordingly, that the trial court proceeded on the wrong theory in its adjudication of Mrs. Blount’s claim under the substantial evidence rule and as a contested case defined by APTRA § 3(2). In the interests of justice, we reverse the judgment of the trial court and remand the cause for a new trial as an ordinary common-law action on or for breach of the insurance contract.


The Employees Retirement System and Metropolitan, by motions for rehearing, challenge in various ways our refusal to hold that § 4(e) of the Act impliedly vests in the trustee a power to adjudicate claims based upon a denial of coverage. Some of their contentions suggest the need for a reply.

The Employees Retirement System and Metropolitan apparently agree that a power of adjudication exists in the trustee only if that be the meaning assigned to § 4(e), wherein the Legislature confers upon the trustee full power and authority as to the

establishment of grievance procedures by which the trustee shall act as an appeals body for complaints by employees *574 regarding the allowance and payment of claims, eligibility, and other matters ....

Apparently, they do not challenge the proposition that nothing in the Act purports expressly to confer upon the trustee a general power of adjudication with respect to ordinary policy claims. Does § 4(e) imply a general power of adjudication in that regard?

It is said that we overlook or deemphasize certain key phrases in Ex parte Roloff, 510 S.W.2d 913, 915 (Tex.1974). We have not overlooked or deemphasized the quoted phrases.

The grammatical answer to appellees’ contentions is that § 4(e), and the phrases in question, are facially limited in their scope and meaning by the threshold phrase “establishment of grievance procedures.” Nothing in this phrase suggests a judicial proceeding and the following words—“appeals body for complaints by employees regarding the allowance and payment of claims”—must be interpreted in light of that antecedent, modifying, and limiting phrase. Aside from this, however, appellees’ theory contradicts certain fundamental rules of statutory construction relative to the legislative delegation of powers to administrative agencies.

It is a general principle of administrative law that an administrative agency has no inherent power. An agency’s jurisdiction and the nature and extent of its powers must be found within the constitutional and statutory provisions applicable to the agency. It has been said that an agency may exercise only such authority as is conferred upon it by statute in “unmistakable terms.” Key Western Life Ins. Co. v. State Board of Ins., 163 Tex. 11, 350 S.W.2d 839 (1961).

The issue before us is whether one may reasonably interpret § 4(e) of the Act to be a grant of power to the trustee to find facts and apply common-law rules in making an “adjudication” of a beneficiary’s claim under the policy, that is, a determination that is binding on the beneficiary and the insurer as the judgment of a court would be. We do not believe that is the sense of the words used in § 4(e) or not. We do not believe that to be the proper function of a court, however, and we will not do it.

We prefer the more rational and traditional interpretative process illustrated in Tex.Rev.Civ.Stat.Ann. art. 1269m, § 22a (1963) (amended by 1979 Tex.Gen.Laws, ch. 753, § 9 at 1864). That statute provided that a city fireman may be given military leave of absence without pay; and upon his return from military service he

shall be entitled to be returned to the position in the department held by him at the time the leave of absence is granted ... provided he ... remains physically and mentally fit to discharge the duties of that position. ...

*575 Stauffer, a fireman granted military leave, applied on his return for a position in the fire department of the City of San Antonio. He was denied re-employment on the basis that he was not physically qualified, as indicated in his medical discharge from military service and as found by the City’s examining physician, upon which evidence the City’s Civil Service Commission acted in denying Stauffer re-employment.

The City, on writ of error, argued three points of error attacking the trial court’s judgment that Stauffer be reinstated:

(1) Section 9 of Article 1269m makes the Chief of the Fire Department the sole judge of whether petitioner is physically qualified to discharge the duties of his position; (2) the courts have no power to review the action of the Commission in refusing reinstatement; and (3) the decision of the Commission on the question of petitioner’s physical fitness is supported by substantial evidence.

344 S.W.2d at 159. The Supreme Court answered these contentions with an analysis of the applicable statute along the same lines we have set forth above. The Court stated:

Section 22a states in no uncertain terms that a returning fireman shall be reinstated if he remains physically and mentally fit to discharge the duties of his position.... It does not provide for reinstatement upon a finding by the Commission that the applicant is qualified, and there is no language suggesting that the Commission is to hear and decide that question. The statute does not even disclose where the application for reinstatement is to be filed. An intention that the same should be presented to the Commission can fairly be implied from the provision authorizing that body to grant military leave of absence, but this affords no basis for a further implication that the Commission is authorized to conduct a hearing and make an administrative determination of the fact questions that may arise.

Article 1269m contains no general grant of power to hear and decide disputed issues.

French v. Cook, 173 Cal. 126, 160 P. 411, 413 (1916), indicating the Court’s obvious approval of the California court’s analysis of a provision, in a city charter, requiring the grant of a pension to a policeman killed or injured in the performance of his duty:

There is absolutely nothing in the charter purporting to confide to the [pension] board the power to finally determine any question of fact in connection with such a pension. The board is apparently in the same position with relation to such a matter as is any officer required by law to do a prescribed act in a certain contingency, where no special method is provided by law for the ascertainment of the facts. Under such circumstances it may often be true that there is uncertainty or dispute as to the facts, but in such a case the only resort of the officer is such investigations as he may be able to himself make for the purpose of determining his own course of action. His determination as to the facts, however, is not effectual for any other purpose. If not satisfied as to the evidence of the essential facts, he may refuse to act until required to do so by the judgment of some tribunal invested with the power to finally determine such controversy, but before such tribunal any conclusion to which he may have come on the facts has no legal force whatever. The sole question there is whether the facts are in reality such as to require the performance of the act, and this altogether regardless of the officer’s conclusion as to the facts. The party having a vested right in the performance of the act, if the facts are as claimed by him, has also the right to have his claim as to the facts judicially determined. The functions of the board in such a matter as this are really ministerial only, and come under the same principle as would apply in the *576 case of a county or city auditor, in so far as any finality to its conclusions are [sic] concerned.

344 S.W.2d at 160 (emphasis added). The Supreme Court of Texas then concluded its opinion in Stauffer by stating:

Texas Constitution, Article V, Section 8.

Id. 344 S.W.2d at 161 (emphasis added). The parallels with the present case are obvious and require no elaboration.

In the meaning we have assigned to § 4(e), we have suggested the limits of the power conferred by that section upon the trustee. The words of that section, standing alone and considered in light of the entirety of the Act, do not suggest that the trustee has in any sense the power finally to determine the question of coverage, depending upon his fact finding as to the issue of suicide, so that his decision will be binding on the parties as a judgment would be or as an administrative decision would be, subject to “substantial evidence” review under APTRA. Hence, Mrs. Blount was entitled to have the issue determined by a judicial tribunal, which does have that power, based upon a preponderance of the evidence, and not upon the basis of “substantial evidence” shown in an administrative record.

Some other suggestions made in the motions for rehearing deserve comment. We point out that the “scope of review” and the “manner of review” under APTRA § 19 are not the same thing, although they may be intertwined, a point upon which one of the motions for rehearing is mistaken. For example, the “scope of review” may be the “substantial evidence” review based upon an agency record in a case where the “manner of review” prescribed by statute is “other than trial de novo.”

Our reference to the absence of statutory standards applicable to the trustee’s presumed decision-making power under Southwestern Sav. & L. Ass’n. of Houston v. Falkner, 160 Tex. 417, 331 S.W.2d 917 (1960). In the statute under review, however, there are no standards at all.

Next, we have no doubt of the trustee’s rule-making power; however, he may not, through an exercise of that power, enlarge his jurisdiction beyond that granted by the Legislature.

Finally, with respect to the difficulties envisioned from a circumstance where the trustee does not have the power of adjudication, we emphasize that we must declare and enforce the statutes as they are made by the Legislature and it is for that body, and not the courts, to give relief if the legislation proves unwise. Board of Insurance Com’rs v. Guardian Life Ins. Co., supra. We will not, however, prejudge the constitutionality of any such future statute.

The motions for rehearing are overruled.



It is a commonplace that the Legislature may delegate to administrative agencies powers that are referred to as “quasi-judicial.” The scope and effect of such delegated powers normally vary according to the particular statutory framework wherein the powers are delegated.

For example, the Legislature may substitute for common-law rights and duties a wholly different system of statutory rights and duties and authorize an agency, such as the Industrial Accident Board, to determine specific controversies thereunder. 19(a) (emphasis added).

Nevertheless, the scope and extent of the agencies’ “quasi-judicial” power of decision is not limited solely by the terms of the statute wherein such power is delegated to the agency. For example, the power of adjudication may not be conferred except under legislative limitations which serve “as a standard or guide for the exercise of ... semi-judicial functions....” Corzelius v. Harrell, 143 Tex. 509, 186 S.W.2d 961, 968 (1945).

Certain adjudicatory powers may not be delegated to administrative agencies because they ordinarily belong solely to the judicial branch. Railroad Commission of Texas v. Rau, 45 S.W.2d 413 (Tex.Civ.App.1931, writ dism’d) (determination of validity of contract rights).

Where the statute purports to vest in an agency the power to determine an issue that is “inherently judicial in nature,” or where the agency is powerless to grant relief and has no authority to make incidental findings essential to relief, the courts retain their jurisdiction of the controversy unless the statute purports to grant the agency an exclusive jurisdiction to determine the controversy, in which event the constitutionality of the statute must be determined. Foree v. Crown Central Petroleum Corp., 431 S.W.2d 312 (Tex.1968).


Davis illustrates the relative importance of informal administrative discretionary actions by reference to the actions taken by several federal agencies in one year, showing that the greater number by far were informal as opposed to adjudicatory. Of one agency, the Securities and Exchange Commission, he writes:

The SEC in all classes of its business had only 103 formal hearings in one recent year, but in one class of business it passed upon 4,706 registration statements to determine whether they complied with standards of adequate and accurate disclosure. When a statement fails to conform, the Commission’s staff sends a letter of comment, affording opportunity to file correcting or clarifying amendments. The effective power is exercised through the letters of comment, not through issuance of stop orders. During the year 202 statements were withdrawn and only two stop orders were issued. Whether informal conferences that resolve disputes arising out of letters of comment involve adjudication, consent, or coerced consent seems to be a variable. Informal discretionary action is the meaningful category.

Davis, supra, at 89. As suggested in the foregoing, coercive action based upon complaints, without any purported adjudication, is a common method employed by administrative agencies. Id. Davis lists the following kinds of action as being informal discretionary actions possible to be taken by an agency: “initiating, investigating, prosecuting, negotiating, settling, contracting, dealing, advising, threatening, publicizing, concealing, planning, recommending, and supervising.” Id, at 90.

The distinction between an agency’s investigatory power and its power to adjudicate, the latter invoking the safeguards of the federal Administrative Procedure Act, is illustrated in Id. at 454–486, 80 S.Ct. at 1521–1542.

Analogous provisions are found in Texas statutes. For example, the Texas Railroad Commission is empowered “to determine complaints presented to it by” motor carriers, by public officials, or by any citizen having an interest in the subject matter. Tex.Agri.Code Ann., § 14.003(a)(1).

Therefore, when § 4(e) of the Insurance Code provides that the trustee “shall act as an appeals body for complaints by [insured] employees regarding the allowance and payment of claims,” without specifying that the trustee’s decision shall have a particular effect upon anyone’s legal rights, duties, or privileges, the only inference one may logically draw is that the Legislature intended that the decision have no effect upon such rights, duties, and privileges. The rather plain purpose of § 4(e) does not mention beneficiaries.


See, Tex.Code Crim. P. Ann. art. 42.12, § 22) (Supp.1984).

There is a question, not yet definitely settled insofar as our research reveals, whether APTRA itself creates a right to “an adjudicative hearing” before an administrative agency. The question was squarely presented in Id. at 292. This would seem the better view, but we are content to rest our decision in the present case upon a holding that the trustee simply had no jurisdiction to make a binding determination relative to the contract rights of the parties.

End of Document