Could Maryland constitutionally ban sex-based pricing in insurance, even for policies already in effect?

Plain-English summary

Counsel for Monumental Life Insurance Company asked the Attorney General to revisit earlier advice on whether House Bill 1155, which would have banned insurers from setting premiums or benefits based on an insured's sex, would unconstitutionally impair existing insurance contracts under the Contract Clause. The bill would have barred use of any sex-based mortality or morbidity statistics and, for premiums paid after July 1, 1985, required equal treatment of men and women even under policies written before the bill's enactment. Applying the Supreme Court's Contract Clause framework, the opinion found that Maryland's extensive regulation of insurance made any impairment less severe, and that even assuming a substantial impairment, the state's significant interest in equal treatment of the sexes, reinforced by Maryland's own Equal Rights Amendment and a recent Supreme Court decision treating sex-based pension plans as illegal under Title VII, supplied the legitimate public purpose the Contract Clause requires. The opinion also flagged an unresolved drafting issue: the bill was unclear about whether insurers, in equalizing rates, could reduce benefits or raise premiums for the previously "advantaged" sex on existing policies, and recommended that any reintroduced legislation clarify that point.

Currency note

This opinion was issued in 1984. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could Maryland constitutionally ban sex-based pricing in insurance, even for policies already in effect?
According to this 1984 opinion, yes, it would likely be constitutionally defensible. The Attorney General concluded that a ban on sex-based discrimination in insurance rates and benefits could survive a Contract Clause challenge, even as applied to preexisting policies.

Why did the state's interest in equal treatment outweigh insurers' contract rights here?
The opinion reasoned that Maryland's Equal Rights Amendment, Article 46 of the Declaration of Rights, and a Supreme Court decision treating sex-differentiated pension plans as illegal, showed that eliminating sex-based distinctions was a significant and legitimate governmental interest, which the Contract Clause allows to justify a reasonable and appropriately tailored impairment of existing contracts.

Did the bill clearly say how insurers could achieve equal rates?
The opinion noted an ambiguity the bill's drafters had not addressed: whether insurers could equalize benefits by decreasing benefits or raising premiums for the previously advantaged sex on existing policies, or whether they were limited to increasing benefits or lowering premiums for the disadvantaged sex, and recommended that any future version of the bill clarify this point.

Background and statutory framework

Under Article 48A, §§223(a)(1), 223(b)(2), and 226(c)(2) of the Maryland Insurance Code, insurers were then permitted to set different terms for men and women where there was actuarial justification. House Bill 1155 would have eliminated that justification for sex-based distinctions after July 1, 1985. The opinion applied the Contract Clause test from Allied Structural Steel Co. v. Spannaus and Energy Reserves Group, Inc. v. Kansas Power and Light Co., which asks whether a law substantially impairs a contractual relationship and, if so, whether the impairment is justified by a significant and legitimate public purpose and is reasonable and appropriate to that purpose, informed by the Supreme Court's treatment of sex-based pension plans in Arizona Governing Comm. v. Norris and the Maryland Court of Appeals' recognition of the state's legitimate interest in insurer solvency in Automobile Trade Ass'n v. Insurance Comm'r.

Citations

Statutes:

• U.S. Const. Art. I, §10 (Contract Clause)
• Article 48A, §223(a)(1) of the Maryland Code (insurer rate-setting authority)
• Article 48A, §223(b)(2) of the Maryland Code (actuarial justification standard)
• Article 48A, §226(c)(2) of the Maryland Code (sex-based differentiation in other insurance lines)
• Article 46 of the Maryland Declaration of Rights (Equal Rights Amendment)

Cases:

• Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978) (Contract Clause test: substantial impairment, then legitimate public purpose)
• United States Trust Co. v. New Jersey, 431 U.S. 1, 19 n. 17 (1977) (severity of impairment measures the constitutional hurdle)
• Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 411 (1983) (impairment in a heavily regulated industry is less likely to be substantial; legitimate public purpose standard)
• Arizona Governing Comm. v. Norris, 463 U.S. 1073 (1983) (sex-differentiated pension plans violate Title VII, recognizing equal treatment as a legitimate governmental interest)
• Automobile Trade Ass'n v. Insurance Comm'r, 292 Md. 15, 31-32 (1981) (state has a legitimate interest in insurer solvency)
• Spirt v. Teachers Ins. & Annuity Ass'n, 735 F.2d 23 (2d Cir. 1984) (Norris does not preclude retroactive relief in every case)
• Spirt v. Teachers Ins. & Annuity Ass'n, 691 F.2d 1054 (2d Cir. 1982) (underlying decision reinstated by the 1984 Second Circuit ruling)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1984/Volume69_1984.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

INSURANCE

Constitutional Law-Contract Clause-Legislation Prohibiting Sex-Based Discrimination In Insurance Would Be Constitutionally Defensible.

October 15, 1984

James O'C. Gentry, Esq.
Monumental Life Insurance Company

You have requested our review of earlier advice from this office on the constitutionality of legislation such as House Bill 1155 (Insurance-Discrimination), introduced in the 1984 session of the General Assembly. That bill, if enacted, would have prohibited insurers from differentiating in premium rates or benefit payments on the basis of their insureds' sex. Specifically, you have asked us to reconsider the issue of whether such legislation would impair contract rights in violation of the Contract Clause of Article I, §10 of the United States Constitution.

In a letter of advice to Delegate Maurer, Assistant Attorney General Robert A. Zarnoch addressed this issue and concluded that the State could constitutionally enact House Bill 1155. Letter of Advice from Robert A. Zarnoch, Assistant Attorney General, to Lucille Maurer, State Delegate (February 21, 1984). We have carefully reviewed Mr. Zarnoch's analysis and the relevant authorities governing the issue, as well as Dean Erwin N. Griswold's analysis of a similar bill pending in Congress. Letter from Erwin N. Griswold, Esquire, to Jack H. Blaine, Chief Counsel to the American Council of Life Insurers (May 16, 1983).

Although we recognize that the matter is not entirely free from doubt, in the final analysis we concur with Mr. Zarnoch's conclusion that legislation prohibiting sex-based discrimination in insurance would be constitutionally defensible. The purpose of this Opinion is to summarize our reasons for that conclusion.

I
House Bill 1155

Currently, the Maryland Insurance Code permits an insurer (i) to issue life insurance on different terms for men and women, based on the two groups' different life expectancies, and (ii) to discriminate between the sexes in other forms of insurance, if "there is actuarial justification for the differential". See Article 48A, §§223(a)(1), 223(b)(2), and 226(c)(2). House Bill 1155, as drafted, would have prohibited such sex-based distinctions after July 1, 1985.1

Far from recognizing any "actuarial justification" for sex-based discrimination, the bill would have expressly proscribed the use of "any statistical table, whether of mortality, life expectancy, morbidity, disability, disability termination, losses, or any other subject, or any other statistical compilation as a basis for" such discrimination. Proposed §223(d)(4) of Article 48A.

The bill would have permitted insurers to continue calculating and paying benefits according to sex-based differentials to the extent that the benefits were derived from premiums paid before July 1, 1985. However, the bill would have required that all premiums due after that date, and the benefits derived from those premiums, be calculated in the same way for both sexes, even under insurance policies executed before the bill's enactment.

II
The Contract Clause

The first question in analyzing the constitutionality of a statute under the Contract Clause is "whether the state law has, in fact, operated as a substantial impairment of a contractual relationship". Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 (1978). "The severity of the impairment measures the height of the hurdle the state legislation must clear". 438 U.S. at 245. Accord United States Trust Co. v. New Jersey, 431 U.S. 1, 19 n. 17 (1977).

However, as the Supreme Court has recently noted, "[i]n determining the extent of the impairment, we are to consider whether the industry the complaining party has entered has been regulated in the past". Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 411 (1983). The Court found that changes in state law are not easily held to constitute substantial impairment when "the parties are operating in a heavily regulated industry". 459 U.S. at 413.2 On that basis alone, it is at least arguable that Maryland's extensive regulation of insurance practices sufficiently mitigates the severity of the impairment that would be caused by legislation such as House Bill 1155.

Assuming, however, that a prohibition against sex-based discrimination in insurance would constitute a substantial impairment of contractual relationships, there remains yet another question to consider: whether the State has "a significant and legitimate public purpose behind the regulation, ... such as the remedying of a broad and general social or economic problem", to justify the legislation. Energy Reserves Group, 459 U.S. at 411-12. "The requirement of a legitimate public purpose guarantees that the State is exercising its police power, rather than providing a benefit to special interests." 459 U.S. at 412.

In Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978), the Supreme Court found no legitimate state interest sufficient to support the contract impairment caused by a statute governing employee pension benefits. In that case, the statute appeared to have been narrowly drawn to benefit a particular employer's workers, whose employment contract did not entitle them to pensions. 438 U.S. at 248. However, the Court subsequently has held that sex-differentiated employee pension plans violate Title VII of the U.S. Code, in effect, recognizing the elimination of sex-based distinctions as a legitimate governmental interest. Arizona Governing Comm. v. Norris, 463 U.S. 1073 (1983).3 The governmental interest in equal treatment of the sexes is perhaps especially significant in Maryland, given this State's Equal Rights Amendment, Article 46 of the Maryland Declaration of Rights.4

We recognize that the State also has a legitimate interest in the solvency of insurance companies. Automobile Trade Ass'n v. Insurance Comm'r, 292 Md. 15, 31-32 (1981).5 Absent evidence, however, that the impact of House Bill 1155 would be to render insurers insolvent, the mere fact that the bill might make their business less profitable would not, in our view, outweigh the strong contervailing public interest in eliminating sex-based discrimination.6 Thus, although the matter is not altogether certain, we believe that a governmental interest in the equal treatment of men and women is significant enough in Maryland to make a statutory ban on sex-based discrimination in insurance justifiable in terms of the Contract Clause.

Finally, if there is a legitimate public purpose for the contract impairment, courts are to inquire "whether the adjustment of 'the rights and responsibilities of contracting parties [is based] upon reasonable conditions and [is] of a character appropriate to the public purpose justifying [the legislation's] adoption'". Energy Reserves Group, 459 U.S. at 412 (quoting United States Trust Co. v. New Jersey, 431 U.S. 1, 22 (1977)). However, in making that determination, "courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure". United States Trust Co., 431 U.S. at 23.

As drafted, House Bill 1155 would have required insurers to equalize benefits to men and women only insofar as the benefits were derived from premiums paid after July 1, 1985. In that respect, the bill tracked the decision in Arizona Governing Comm. v. Norris, which required equalization of only those benefits derived from employees' contributions made after the date of the decision.7 Thus, in our view, the effect of House Bill 1155 would most probably be found reasonable and appropriate to the public purpose it was intended to serve.

III
Effect on Preexisting Contracts

A specific point concerning the effect of House Bill 1155, which Mr. Zarnoch did not address, is worth mention. As you indicate, there are two ways to achieve equalization in insurance: (1) increase the benefits or decrease the premiums of the presently "disadvantaged" class; or (2) decrease the benefits or increase the premiums of the presently "advantaged" class. The question Mr. Zarnoch's letter did not directly address is whether, as to preexisting policies, the bill would have limited insurers to the first method or would have permitted insurers to use the second method as well.

We are not sure that, as drafted, the bill would have allowed insurers to unilaterally modify outstanding policies to the detriment of policyholders, although proposed §223(f) would have authorized insurers to use "any lawful method of complying" with the legislation's anti-discrimination provisions, the bill did not specify what methods would be considered "lawful", that is, it did not indicate whether it would be considered "lawful" for an insurer, in seeking to achieve the required equalization, to unilaterally modify its outstanding policies so as to decrease the benefits or increase the premiums of the presently "advantaged" class. Moreover, we note that proposed §223(g)(1), concerning sanctions for violations, would have permitted a court to order modification of insurance policies, "except that a premium payment or contribution under the contract may not be increased and no benefits under the contract may be reduced to achieve compliance". That provision strongly suggests that, as to preexisting policies, the legislation would have barred insurers from adversely affecting the presently "advantaged" class of insureds: if courts were to be expressly precluded from so impairing insureds' contract rights, it seems doubtful that insurers were to have been allowed to do so.

To be sure, this result might not have been at all intended by the drafters of House Bill 1155. In any event, if such legislation is reintroduced, we suggest that careful consideration be given to this issue and that the legislation be clarified as to its intent in this regard.8

IV
Conclusion

In summary, it is our opinion that legislation banning sex-based discrimination in insurance would be constitutionally defensible. While such legislation, as applied to preexisting insurance policies, might constitute an impairment of contract rights, we believe it could be justified as reasonable and appropriate to serve the significant and legitimate state interest in equal treatment of the sexes.

We do suggest, however, that any such legislation address more clearly than did House Bill 1155 the means of compliance it would authorize insurers to adopt.

Stephen H. Sachs, Attorney General

Avery Aisenstark
Chief Counsel,
Opinions and Advice

Editor's Note: The preceding Opinion was originally written as a letter of advice. Because of the importance of the issues discussed, it is published here in a slightly revised format.

1 The bill also would have expressly prohibited discrimination based on an insured's race, color, religion, or national origin. However, as you have pointed out, the Insurance Code already in effect prohibits discrimination on those bases; thus, your only concern is with the proposed prohibition on sex-based discrimination.

2 In Energy Reserves Group, the Court upheld a Kansas statute prescribing prices for natural gas produced and sold in the state, a subject on which the state had never before legislated. The Court held that the statute did not substantially disrupt producers' legitimate expectations, in view of its similarity to federal regulation of interstate gas prices.

3 The Norris case was decided after Dean Griswold prepared his analysis of proposed federal legislation to prohibit sex-based discrimination in insurance, in which he concluded that the legislation appeared to violate the Contract Clause. Letter from Erwin N. Griswold, Esquire, to Jack H. Blaine, Chief Counsel to the American Council of Life Insurers, at 53-54 (May 16, 1983). While Norris, of course, was not a Contract Clause case, it nonetheless affects our analysis, at least with respect to the legitimacy of a public policy of equalization.

4 We recognize, of course, that the Equal Rights Amendment is not directly controlling in this matter, since no state action is involved. See 68 Opinions of the Attorney General 164 (1983). Nevertheless, it does evidence a significant and legitimate State interest in favoring the equal treatment of men and women, or, as the Supreme Court has stated it, in "remedying ... a broad and general social . . . problem". Energy Reserves Group, 459 U.S. at 411-12.

5 In Automobile Trade Ass'n, the Court of Appeals upheld a limit on the amount of commissions that may be paid to agents or brokers for credit life and health insurance, finding that the state interest in insurers' solvency supported the challenged regulation, in view of its reasonableness. 292 Md. at 33.

6 As discussed in Part III below, however, the bill could be designed to provide insurers with options that would permit them to fully comply with its requirements, without necessarily having to suffer reduced profits.

7 The Supreme Court's decision to grant only prospective relief in Norris was not based on constitutional grounds, however, but on the heavy financial burden retroactive relief would have imposed on the employer or insurer in order to protect male retirees' expectations of receiving specified benefits. And the Second Circuit has recently concluded that Norris does not preclude retroactive relief in every case. Spirt v. Teachers Ins. & Annuity Ass'n, 735 F.2d 23 (2d Cir. 1984), reinstating Spirt v. Teachers Ins. & Annuity Ass'n, 691 F.2d 1054 (2d Cir. 1982). Under the benefits plan in Spirt, annuity payments varied with the performance of the plan's investment. Because annuitants had no expectation of benefits of any particular size, immediately equalizing payments to men and women would neither require the insurer to pay out additional sums nor disrupt male annuitants' expectations.

8 For the reasons expressed in Part II above, we do not believe that the Contract Clause would preclude the General Assembly from authorizing insurers to modify their outstanding policies to decrease benefits/increase premiums of the "advantaged" class of insureds. But, if the General Assembly does intend to authorize this method of equalization, it should do so clearly and unambiguously.