Mccarthy Fin., Inc. v. Premera, Corp.

182 Wash.App. 1

328 P.3d 940

McCARTHY FINANCE, INC., a Washington corporation; McCarthy Retail Financial Services, LLC, a Washington limited liability company; Hemphill Brothers, Inc., a Washington corporation and its affiliates and subsidiaries, J.A. Jack & Sons, Inc., a Washington corporation, and Lane Mt. Silica Co., a Washington corporation; Puckett & Redford, PLLC, a Washington professional limited liability company; and Annette Steiner, a single person, Appellants,

v.PREMERA, a Washington corporation, Premera Blue Cross, a Washington corporation, LifeWise Health Plan of Washington, a Washington corporation; and Washington Alliance for Healthcare Insurance Trust, and its Trustee, F. Bentley Lovejoy, Respondents.

No. 69848–6–I.

Court of Appeals of Washington, Division 1.

June 23, 2014.

Joseph Colbert BrownJr., J.C. Brown Law Office, PLLC, Cashmere, WA, Frank Raymond Siderius, Siderius Lonergan & Martin LLP, Randall W. Redford, Puckett & Redford, PLLC, Seattle, WA, for Appellant.

Gwendolyn C. Payton, Lane Powell PC, John R. Neeleman, Lane Powell PC, Kathleen M. O'sullivan, Perkins Coie LLP, Seattle, WA, for Respondent.

VERELLEN, A.C.J.

¶ 1 Although the Office of the Insurance Commissioner has broad regulatory authority, the Insurance Code, ch. 48.44 RCW, and the Consumer Protection Act (CPA), ch. 19.86 RCW, anticipate that policyholders may litigate CPA claims against insurers and their agents. Especially where the insurance commissioner declares he is unable to effectively regulate surplus levels maintained by nonprofit insurers, the filed rate, primary jurisdiction, and exhaustion of remedies doctrines do not necessarily bar CPA claims alleging misrepresentations by insurers or their agents that resulted in excessive surplus levels.

¶ 2 The Washington Alliance for Healthcare Insurance Trust (WAHIT), a nonprofit trust, sells insurance issued by nonprofit entities Premera, Premera Blue Cross, and LifeWise Health Plan of Washington ¹ (collectively Premera). Despite its nonprofit status, Premera holds more than $1 billion in “surplus.” The plaintiffs purchased Premera policies through WAHIT and seek damages, including refunds of premiums they have paid, alleging that Premera and WAHIT violated the CPA and the Insurance Code by making false claims on a web site, in advertising mailings, and in other public statements. They contend that Premera accumulated its large surplus, in part, based upon these misrepresentations.

¶ 3 The trial court dismissed the lawsuit in its entirety based on the filed rate, primary jurisdiction, and exhaustion of remedies doctrines. We conclude that several claims were erroneously dismissed.

¶ 4 The filed rate doctrine bars suits against regulated entities challenging the reasonableness of their filed rates. Claims alleging only excessive, unnecessary, or unfair rates are precluded by the filed rate doctrine. But the doctrine does not necessarily bar CPA claims based on fraud or misrepresentation, even though the court may be required to consider the premiums paid in computing damages. Such calculations do not amount to “rate setting” by the court.

¶ 5 The primary jurisdiction doctrine is predicated on an attitude of judicial self-restraint and is applied when the court concludes that the dispute should be handled by an administrative agency created by the legislature to deal with such problems. The primary jurisdiction doctrine does not bar the CPA claims of misrepresentation and resulting excessive surplus because courts routinely address CPA misrepresentation claims and Insurance Commissioner Mike Kreidler has unequivocally stated that he lacks authority to effectively regulate such surpluses.

¶ 6 Litigants generally must exhaust available and adequate administrative remedies before seeking judicial intervention. Here, the exhaustion of remedies doctrine does not bar the policyholders' CPA claims because there is no showing that the insurance commissioner can provide an effective remedy.

¶ 7 Finally, the claims premised on selective underwriting were properly dismissed for failure to state a claim for relief to policyholders.

¶ 8 We affirm in part, reverse in part, and remand for further proceedings.

FACTS

¶ 9 Premera currently holds more than $1 billion in “surplus,” approximately $250 million of which is profit from investments. “Surplus” refers to a company's total assets minus liabilities. As alleged by plaintiffs, “surplus” does not include the insurer's “claim reserves,” defined by regulation as the total of unpaid reported claims plus reasonably expected claims not yet reported.²

¶ 10 In this putative class action, the plaintiffs represent proposed classes of individuals and groups that purchased Premera policies through WAHIT: “Class A,” the “large group” class, is comprised of groups with more than 50 persons; “Class B,” the “small group” class, consists of groups of at least 1 but not more than 50 employees; and “Class C” is comprised of individual purchasers. The policyholders allege that Premera and WAHIT violated the CPA and the Insurance Code by (a) falsely claiming on the WAHIT web site that it is an “employer governed trust,” (b) falsely advertising in WAHIT mailings that it “negotiate[s]” to obtain high quality benefits at the “lowest possible cost” or “most affordable cost,” and (c) falsely claiming WAHIT to be a “member governed group,” allowing “selective underwriting” that contributed to the surplus.³ They also allege that deceptive acts in the form of false statements to the public resulted in excessive surplus.⁴

¶ 11 In Washington, statutes and administrative regulations provide for the insurance commissioner's review of all insurance premium rates.⁵ The insurance commissioner may disapprove any individual or group contract if it is ambiguous or misleading or if the purchase of health care services is solicited by deceptive advertising.⁶ The insurance commissioner may also disapprove any insurance contract if the benefits provided are “ unreasonable in relation to the amount charged for the contract.” ⁷

¶ 12 Premera moved to dismiss the policyholders' claims pursuant to CR 12(b)(6) and CR 52, asserting that the filed rate doctrine, the insurance commissioner's primary jurisdiction, and the policyholders' failure to exhaust administrative remedies compelled dismissal. The trial court dismissed all claims brought by the “small group” Class B and the “individual” Class C plaintiffs pursuant to CR 12(b)(6) and dismissed all claims by the “large group” Class A plaintiffs on summary judgment.

¶ 13 The policyholders appeal.

DISCUSSION

¶ 14 Premera contends that the insurance commissioner's rate approval process would be adversely impacted by allowing a court to consider challenges related to Premera's accumulated surplus. Premera also contends that the doctrine of primary jurisdiction applies because the insurance commissioner is an expert in regulating insurance companies' surpluses. Finally, Premera contends that the insurance commissioner's statutory authority to hold hearings and issue cease-and-desist orders were meaningful remedies available to the policyholders that they failed to exhaust.

¶ 15 Central to Premera's arguments is the premise that the insurance commissioner vigorously and effectively regulates the surplus maintained by the nonprofit insurers. However, Insurance Commissioner Mike Kreidler has publicly stated that surplus levels maintained by nonprofit insurers, including Premera, are excessive. Kreidler has also publicly asserted that he lacks the authority to effectively address or control the excessive surplus amassed by nonprofit insurers. He has unsuccessfully proposed legislation to more intensively address surpluses.⁸

¶ 16 This appeal is limited to whether the filed rate doctrine, primary jurisdiction, or failure to exhaust administrative remedies warrants dismissal of the policyholders' CPA claims of misrepresentation and the resulting excessive surplus. The parties have not briefed other questions as to the precise nature and nuances of those claims. This court reviews de novo a trial court's dismissal pursuant to CR 12(b)(6) and will affirm where no set of facts consistent with the complaint justify recovery.⁹ This court reviews de novo an order granting summary judgment and will affirm where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.¹⁰

Filed Rate Doctrine

¶ 17 The policyholders assert that the trial court erred by dismissing their claims pursuant to the filed rate doctrine, a court-created rule barring suits against regulated entities challenging the reasonableness of their filed rates.¹¹ The doctrine “provides, in essence, that any ‘filed rate’—a rate filed with and approved by the governing regulatory agency—is per se reasonable and cannot be the subject of legal action against the private entity that filed it.” ¹² Several policies are advanced by the filed rate doctrine, including (1) reinforcing the agency's authority to determine the reasonableness of rates, (2) deferring to the agency's expertise in a particular industry, (3) recognizing and preserving the legislature's determinations as to the regulatory scheme by allowing for enforcement by statutorily designated state officers, and (4) preventing lawsuits from disrupting the statutory and regulatory scheme for uniformity of rates. ¹³

¶ 18 Whether to extend the filed rate doctrine to a claim involving health insurance is a question of first impression. The only case in which our Supreme Court has addressed the filed rate doctrine, Tenore v. AT & T Wireless Servs., provides limited guidance on this issue.¹⁴ In dicta, the Tenore court criticized judicial decisions from other jurisdictions that had applied the filed rate doctrine “rigidly, even to bar claims of a fraud or misrepresentation.” ¹⁵ However, the court ultimately determined that the defendant, AT & T, was exempt from rate filing...