Insurance--reserves--filed rate doctrine
The trial court did not err by granting a Rule 12(b)(6) dismissal of plaintiffs' class actions
alleging that defendant medical service corporation maintained excessive reserves on the ground
that the filed rate doctrine precluded the actions. The filed rate doctrine holds that a plaintiff may
not claim damages on the ground that a rate approved by a regulator as reasonable is excessive
and that rates set by a regulator may not be collaterally attacked; although plaintiffs contended
that they were seeking a declaration that defendant's reserve is excessive rather than a
redetermination of their rates, the Commissioner of Insurance considers the reserve amount in
approving rates and any allegation that defendant accumulated an excessive reserve requires the
recalculation of approved rates.
Marvin Schiller and David G. Schiller for plaintiffs-
appellants.
Maupin Taylor & Ellis, P.A., by M. Keith Kapp and Kevin W.
Benedict; and Robinson, Bradshaw & Hinson, P.A., by Robin L.
Hinson and Frank E. Emory, Jr., for defendant-appellee Blue
Cross and Blue Shield of North Carolina.
WALKER, Judge.
On 30 June 1997, plaintiff Roland Giduz filed a class action
against defendant Blue Cross and Blue Shield of North Carolina
(Blue Cross) alleging, inter alia, violations of N.C. Gen. Stat. §
58-65-95. On 8 May 1998, plaintiff Bradshaw B. Lupton filed aclass action against Blue Cross and filed an amended complaint on
28 October 1998, making allegations identical to those of Giduz.
Pursuant to Rule 2.1 of the General Rules of Practice for the
Superior and District Courts, the Chief Justice of our Supreme
Court designated both actions as exceptional and assigned them tothe Special Superior Court for Complex Business Cases. The trial
court consolidated the two actions and substituted Lupton as the
named plaintiff.
Blue Cross is a non-profit medical service corporation
governed by Articles 65 and 66 of Chapter 58 of the North Carolina
General Statutes. Chapter 58 requires that health insurers and
medical service corporations maintain monetary “reserves” such that
the solvency of the insurer will not likely be threatened if claims
or other expenses are higher than forecast in any given year.
Under N.C. Gen. Stat. § 58-65-95, Blue Cross is required to
maintain a minimum monetary “reserve” to provide for contingent
expenditures. Specifically:
Every such corporation [subject to this
Article] shall accumulate and maintain, ..., a
special contingent surplus or reserve at the
following rates annually of its gross annual
collections from membership dues, exclusive of
receipts from cost plus plans, until the
reserve equals an amount that is three times
its average monthly expenditures for claims
and administrative and selling expenses:
(1) First $200,000...............4%
(2) Next $200,000.................2%
(3) All above $400,000...........1%
N.C. Gen. Stat. § 58-65-95(b)(1999). Additionally, the reserve may
not “exceed an amount equal to six times the average monthly
expenditures for claims and administrative and selling expenses.”
N.C. Gen. Stat. § 58-65-95(c)(1999).
Under our State's statutory rate making scheme, the
Commissioner of Insurance (Commissioner) determines whether the
rates filed by an insurer are reasonable. N.C. Gen. Stat. § 58-65-
40 provides in part: No corporation subject to the provisions of
this Article and Article 66 of this Chapter
shall enter into any contract with a
subscriber after the enactment hereof unless
and until it shall have filed with the
Commissioner of Insurance a full schedule of
rates to be paid by the subscribers to such
contracts and shall have obtained the
Commissioner's approval thereof. The
Commissioner may refuse approval if he finds
that such rates are excessive, inadequate or
unfairly discriminatory; or do not exhibit a
reasonable relationship to the benefits
provided by such contracts. At all times such
rates and form of subscribers' contracts shall
be subject to modification and approval of the
Commissioner of Insurance under rules and
regulations adopted by the Commissioner, inconformity to this Article and Article 66 of
this Chapter.
N.C. Gen. Stat. § 58-65-40 (1999). Under N.C. Gen. Stat. § 58-2-
75(a)(1999), judicial review of the Commissioner's rate
determination may be obtained by petition within 30 days of the
Commissioner's decision. If no petition is filed, “the parties
aggrieved shall be deemed to have waived the right to have the
merits of the order or decision reviewed and there shall be no
trial of the merits thereof by any court to enforce or restrain
enforcement of the same.” Id.
Plaintiffs' amended complaint alleged that Blue Cross violated
N.C. Gen. Stat. § 58-65-95 by accumulating and maintaining a
reserve that exceeds “the statutorily authorized level of reserves
legislatively determined to be sufficient and reasonably necessary”
for the payment of Blue Cross's claims and expenses. Further,
plaintiffs claimed Blue Cross misrepresented to the Commissioner
that its reserves were within the statutory limits. Plaintiffs
argue they have “property and contractual rights” in the
statutorily excessive reserves and seek to have it placed into a
common fund and distributed to them.
(See footnote 1)
Plaintiffs sought a declaratory judgment and stated four
causes of action: (1) unfair and deceptive trade practices; (2)breach of fiduciary duties; (3) unjust enrichment; and (4)
conversion and fraud.
On 13 July 1998, Blue Cross moved to dismiss plaintiffs'
claims pursuant to Rule 12(b)(6) of the North Carolina Rules of
Civil Procedure. On 10 June 1999, the trial court entered an
order, which was amended on 14 June 1999, granting Blue Cross's
motion to dismiss for failure to state a claim upon which relief
may be granted, on the grounds that the “filed rate doctrine”
precludes plaintiffs' actions as a matter of law.
Plaintiffs argue the trial court erred in granting Blue
Cross's motion to dismiss. Specifically, dismissing their claims
based upon the “filed rate doctrine” was error.
A motion to dismiss for failure to state a claim tests the
legal sufficiency of the complaint. See N.C.R. Civ. P. 12(b)(6)
(1999); Shaut v. Cannon, 136 N.C. App. __, __, 526 S.E.2d 214, 215
(2000). A dismissal of a complaint for failure to state a claim
upon which relief can be granted is proper when the complaint on
its face reveals that no law supports a plaintiff's claim or that
facts sufficient to make a good claim are absent or when some fact
disclosed in the complaint necessarily defeats a plaintiff's claim.
See Jackson v. Bumgardner, 318 N.C. 172, 347 S.E.2d 743 (1986). A
motion to dismiss is properly granted where a valid legal defense
stands as an insurmountable bar to a plaintiff's recovery. See
Johnson v. N.C. Dept. of Transportation, 107 N.C. App. 63, 67, 418
S.E.2d 700, 702 (1992). For the purpose of the Rule 12(b)(6)
motion, the well-pleaded material allegations of the complaint aretaken as admitted; but conclusions of law or unwarranted deductions
of facts are not admitted. See Lloyd v. Babb, 296 N.C. 416, 427,
251 S.E.2d 843, 851 (1979)(quoting Sutton v. Duke, 277 N.C. 94, 98,
176 S.E.2d 161, 163 (1970)).
Our Supreme Court has recently adopted the “filed rate
doctrine,” where it held that a “plaintiff may not claim damages on
the ground that a rate approved by a regulator as reasonable is
nonetheless excessive because it is the product of unlawful
conduct.” N.C. Steel, Inc. v. National Council on Compensation
Ins., 347 N.C. 627, 632, 496 S.E.2d 369, 372 (1998). Further,
after rates have been set by a regulator, those rates may not be
collaterally attacked. Id. The proper venue for questions
involving rates is through the Insurance Commissioner and not a
court or a jury. Id. The filed rate doctrine precludes a
plaintiff from requesting a recalculation of the rates the
Commissioner would have set absent the alleged illegal conduct of
a defendant. See N.C. Steel, Inc. v. National Council on
Compensation Ins., 123 N.C. App. 163, 176, 472 S.E.2d 578, 585
(1996), affirmed in part and reversed on separate grounds, 347 N.C.
627, 496 S.E.2d 369 (1998). The “General Assembly has given the
Insurance Commissioner the duty of setting rates. The
Commissioner, aided by his staff, has the expertise to determine
proper rates.” N.C. Steel, 347 N.C. at 632, 496 S.E.2d at 372.
The filed rate doctrine applies in the context of a suit under N.C.
Gen. Stat. § 75-1 et seq. See N.C. Steel, 123 N.C. App. at 175,
472 S.E.2d at 585. In N.C. Steel, the plaintiffs, companies paying workers'
compensation insurance premiums, alleged that the defendant
insurance companies withheld certain evidence from the Insurance
Commissioner about servicing carrier fees for residual market
workers' compensation insurance in order to secure approval of
excessive rates. See N.C. Steel, 347 N.C. at 630, 496 S.E.2d at
371. The plaintiffs first argued that since defendants had
wrongfully obtained the excessive rate, they were entitled to a
refund of the excess premiums paid. Id. at 631, 496 S.E.2d at 372.
Plaintiffs' second theory alleged that defendants conspired to pay
excessive servicing carrier fees, which prevented the premiums from
covering losses in the residual market. Id. at 636, 496 S.E.2d at
374. Plaintiffs argued this created a shortfall which required the
defendants to use part of the premiums from the voluntary market to
cover the loss. Id. Plaintiffs claimed that a recalculation of
the rates in order to prove damages was not necessary. Id.
Our Supreme Court disagreed and held:
We believe that the plaintiffs cannot prove
their claim without the rates set by the
Commissioner being questioned. The
plaintiffs' damages must come from being
shifted from the voluntary market to the
residual market. If the plaintiffs offer
evidence that a certain number of
policyholders who were in the residual market
should have been in the voluntary market, the
defendants could show that the influx of these
policyholders would have caused the
Commissioner to set different rates for the
two markets. This is a questioning of rates
set by the Commissioner, which the filed rate
doctrine is designed to prevent.
Id. at 636, 496 S.E.2d at 374-75. In the case at bar, plaintiffs contend that they are not
seeking a redetermination of their insurance rates but rather a
declaration that Blue Cross's reserve is statutorily excessive.
(See footnote 2)
Plaintiffs argue that “the manner and method in which [Blue Cross]
accumulated the reserves is irrelevant to the issue of whether the
filed rate doctrine is applicable.” We disagree.
In approving the rates, the Commissioner considers Blue
Cross's reserve amount. Thereafter, Blue Cross's collection of
premiums, based on these rates, determines the accumulation of the
§ 58-65-95 reserve. Thus, if Blue Cross accumulates a reserve in
excess of the statutory limits, the Commissioner is authorized
under N.C. Gen. Stat. § 58-65-40 to modify the rates, thereby
affecting the amount of the reserve. Any allegation that Blue
Cross accumulated an excessive reserve requires the recalculation
of approved rates, notwithstanding plaintiffs' argument to the
contrary. Accordingly, “the plaintiffs cannot prove their claim
without the rates set by the Commissioner being questioned.” N.C.
Steel, 347 N.C. at 636, 496 S.E.2d at 374. Thus, the trial court
properly dismissed plaintiffs' actions pursuant to Rule 12(b)(6).
Affirmed.
Judges JOHN and TIMMONS-GOODSON concur.
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