Case Title: N.C. Steel v. National Council on Compensation Ins.#+##+#

Citation: 347 N.C. 627

Docket Number: 317PA96

State: north-carolina

Court: North Carolina Supreme Court

Date: 1998-03-06T00:00:00Z

Document:
IN THE SUPREME COURT OF NORTH CAROLINA
No. 317PA96
FILED: 6 MARCH 1998
N.C. STEEL, INC.; N.C. STEEL ERECTORS, INC.; N.C. STEEL
MANAGEMENT, INC.; N.C. STEEL FABRICATORS, INC.; AIRCRAFT SERVICES
OF RALEIGH, INC.; MONTAGUE BUILDING COMPANY; SMITH & SMITH,
SURVEYORS, P.A., and NORTH CAROLINA MARBLE & GRANITE
v.
NATIONAL COUNCIL ON COMPENSATION INSURANCE; NATIONAL WORKERS'
COMPENSATION REINSURANCE POOL; NORTH CAROLINA RATE BUREAU; AETNA
CASUALTY & SURETY COMPANY; CIGNA INSURANCE COMPANY and INS. CO.
OF NORTH AMERICA; EMPLOYERS INS. OF WAUSAU A MUTUAL COMPANY;
FIDELITY & CASUALTY CO. OF N.Y.; HARTFORD UNDERWRITERS INSURANCE
COMPANY; LIBERTY MUTUAL INSURANCE COMPANY; MICHIGAN MUTUAL
INSURANCE COMPANY; NATIONAL SURETY CORPORATION; ST. PAUL FIRE &
MARINE INSURANCE COMPANY; THE TRAVELERS INSURANCE COMPANY; and
UNITED STATES FIDELITY AND GUARANTY COMPANY
On discretionary review pursuant to N.C.G.S. § 7A-31 of
a unanimous decision of the Court of Appeals, 123 N.C. App. 163,
472 S.E.2d 578 (1996), affirming in part and reversing in part an
order entered 16 February 1995 by Clark, J., in Superior Court,
Wake County, granting the defendants’ motion for summary
judgment.  Heard in the Supreme Court 18 March 1997.
This is an action by eight corporations which allege
that the eleven defendant insurance companies and three other
entities have engaged in a restraint of trade in violation of
N.C.G.S. § 75-1; have engaged in unfair and deceptive practices
in violation of N.C.G.S. § 75-1.1; have engaged in unfair
competition in violation of N.C.G.S. § 58-63-15; have engaged in
constructive fraud; have breached a fiduciary duty; have breached
a covenant of good faith and fair dealing; and have conspired to
commit fraud, breach of fiduciary duty, and breach of implied
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covenants of good faith and fair dealing.  The only claims
brought forth with this appeal are the claims based on chapters
58 and 75 of the North Carolina General Statutes.
The defendants moved to dismiss the action pursuant to
N.C.G.S. § 1A-1, Rule 12(b)(1) and (c).  At the hearing on this
motion, the court considered matters outside the pleadings, which
converted it to a hearing for summary judgment.  Stanback v.
Stanback, 297 N.C. 181, 205, 254 S.E.2d 611, 627 (1979).  The
superior court granted the motion for summary judgment, and the
Court of Appeals affirmed in part and reversed in part.  We
allowed petitions for discretionary review by plaintiffs and
defendants.
Lore & McClearen, by R. James Lore, for plaintiff-
appellants and -appellees.
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
by James D. Blount, Jr., and Steptoe & Johnson, by Mark
F. Horning, for The Aetna Cas. & Surety Co.; Womble,
Carlyle, Sandridge & Rice, by Pressly M. Millen, for
National Council on Compensation Insurance and National
Workers' Compensation Reinsurance Pool; Young, Moore,
Henderson & Alvis, by R. Michael Strickland, for N.C.
Rate Bureau; Poyner & Spruill, by John R. Jolly, Jr.,
for CIGNA Ins. Co. and Ins. Co. of North America;
Ragsdale, Liggett & Foley, by George R. Ragsdale, for
Employers Ins. of Wausau; Cranfill, Sumner & Hartzog,
by Dan M. Hartzog, for Fidelity & Cas. Co. of New York;
Moore & Van Allen, by Joseph W. Eason and Denise Smith
Cline, for Hartford Underwriters Ins. Co.; Manning,
Fulton & Skinner, by John B. McMillan, for Liberty
Mutual Ins. Co.; Moore & Van Allen, by Joseph W. Eason
and Denise Smith Cline, for Michigan Mutual Ins. Co.;
Maupin, Taylor, Ellis & Adams, by M. Keith Kapp, for
National Surety Corp.; Petree Stockton, L.L.P., by
John L. Sarratt, for St. Paul Fire & Marine Ins. Co.;
Parker, Poe, Adams & Bernstein, by John F. Graybeal,
for Travelers Ins. Co.; and Tharrington, Smith &
Hargrove, by Douglas E. Kingsbery, for United States
Fidelity & Guaranty Co., defendant-appellants and
-appellees.
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The Alliance of American Insurers, by Ann W. Spragens,
Senior Vice President and General Counsel, amicus
curiae.
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
by B. Davis Horne, Jr., on behalf of American Insurance
Association and National Association of Independent
Insurers, amici curiae.
WEBB, Justice.
The gravamen of the plaintiffs’ claim is that the
defendants withheld certain evidence from the Insurance
Commissioner in a rate case decided in 1992, causing the
Commissioner to approve excessive rates for workers’ compensation
insurance.  The materials submitted at the hearing on the motion
for summary judgment showed that workers’ compensation insurance,
with minor exceptions, is mandatory.  N.C.G.S. § 97-9 (1991). 
Employers may be self-insured, they may purchase insurance in the
voluntary market, or they may purchase insurance in the residual
market.  Employers who are not or cannot be self-insured and who
cannot purchase insurance in the voluntary market must purchase
in the residual market, often called the assigned risk pool. 
N.C.G.S. § 58-36-1(5) (1994).  There is a 14% surcharge for
coverage in the residual market, and dividends are not paid on
residual market coverages as is done in the voluntary market.
Workers’ compensation rates are regulated by law.  The
process of rate-making is begun by the filing of proposed rates
with the Insurance Commissioner by the North Carolina Rate Bureau
(NCRB).  N.C.G.S. § 58-36-15 (1994).  The proposed rates become
legal rates unless the Insurance Commissioner intervenes and
holds hearings for the purpose of approving final rates. 
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N.C.G.S. § 58-36-20 (1994).  The NCRB is an organization created
by statute, N.C.G.S. § 58-36-1, and is a defendant in this case. 
Much of NCRB’s function in rate increase applications is done by
a national rating organization, the National Council on
Compensation Insurance (NCCI), which is also a defendant in this
case.
The plaintiffs contend that the way the residual market
is conducted by the defendants unlawfully causes excessive rates. 
The Commissioner of Insurance has promulgated a “North Carolina
Workers’ Compensation Insurance Plan” (Plan), which delegates the
regulation of the residual market to NCRB.  The plan requires
that each company writing workers’ compensation insurance accept
customers assigned to it who have not been able otherwise to
procure such coverage.
NCCI has created a National Workers’ Compensation Pool
(Pool) consisting of all insurance companies who write workers’
compensation insurance in North Carolina.  The Pool is a
defendant in this case.  Premiums paid for assigned risk
insurance are deposited in the Pool.  When an insured is accepted
for assigned risk insurance, a member of the Pool is designated
to service its policy.  This company, which is called a servicing
carrier, issues a policy and services it.  It does not keep the
premium, however.  The premiums are deposited in the Pool, and
claims are paid from the Pool.  In this way, all carriers of
assigned risk insurance share equally in the assigned risk
losses.
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The companies which issue assigned risk policies are
paid servicing carrier fees by the Pool.  These fees are agreed
upon by the Pool and the carriers, and varied from 27.4% to 30%
of assigned risk premiums during the period from 1989 through
1993.  It is the servicing carrier fees about which the
plaintiffs complain.
The plaintiffs assert two theories of damages resulting
from the alleged illegal activity.  First, they contend rates are
forced up by the use of the servicing carrier fees, which are
undisclosed noncompetitive expenses, and loss factors that would
have been demonstrably lower in a competitive residual market,
thereby adversely affecting purchasers of workers’ compensation
insurance in both the voluntary and residual markets.  Second,
they say that the actions of the defendants forced some
policyholders into the residual market, where the premiums are
higher and the plaintiffs do not receive dividends on their
policies.
The defendants rely on the filed rate doctrine, which
grew from the United States Supreme Court’s opinion in Keogh v.
Chicago & N.W. Ry. Co., 260 U.S. 156, 67 L. Ed. 183 (1922).  The
filed rate doctrine provides 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.  See also Square D Co. v. Niagra Frontier
Tariff Bureau, 476 U.S. 409, 90 L. Ed. 2d 413 (1986).
We agree with the Court of Appeals for the reasons
stated in its opinion that we should adopt the filed rate
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doctrine.  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.  We do
not believe that, by the enactment of N.C.G.S. ch. 75, the
General Assembly intended that duly set rates be challenged in
another forum.  When the Commissioner approved the rates, they
became the proper rates.
As Judge Wynn, writing for the Court of Appeals, points
out, chapter 58 of the General Statutes contains a comprehensive
regulatory scheme for insurance companies, which includes
provisions for punishing violators of the chapter.  N.C.G.S. §
58-2-70(g) (1994).  It also contains a provision for the appeal
of decisions of the Commissioner.  N.C.G.S. § 58-2-75(a) (1994). 
We do not believe that, with this comprehensive regulatory
scheme, the General Assembly intended that the rates could be
collaterally attacked.
The plaintiffs contend that the servicing carrier fees
were not considered by the Commissioner.  They say that the
failure of the defendants to disclose to the Commissioner the
plan by which these fees are paid is a violation of N.C.G.S. §
58-63-15(5) and an unfair practice.  We believe this is a good
example of why questions involving rates should be settled by the
Insurance Commissioner and not by a jury.  Whether the payment of
the servicing carrier fees is a relevant factor which must be
considered by the Commissioner in setting rates pursuant to
N.C.G.S. § 58-36-10 is a technical question which requires
considerable expertise to answer.  It is best decided by the
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Commissioner, who has this expertise.  It should not be decided
by a court or jury, which does not have this expertise.
The plaintiffs rely on several cases which they say
establish the rule that actions for violations of chapter 58 may
be brought under N.C.G.S. §§ 75-1 and 75-1.1.  Pearce v. American
Defender Life Ins. Co., 316 N.C. 461, 343 S.E.2d 174 (1986); Dull
v. Mutual of Omaha Ins. Co., 85 N.C. App. 310, 354 S.E.2d 752,
disc. rev. denied, 320 N.C. 512, 358 S.E.2d 518 (1987); Phillips
v. Integon Corp., 70 N.C. App. 440, 319 S.E.2d 673 (1984); Ellis
v. Smith-Broadhurst, Inc., 48 N.C. App. 180, 268 S.E.2d 271
(1980).  These cases involve wrongs which are not involved with
rate-making.  The filed rate doctrine provides that rates may not
be collaterally attacked after they have been set by a regulator. 
These cases are not precedent for this case.
The plaintiffs next argue that applying the filed rate
doctrine in this case is inconsistent with State ex rel. Hunt v.
N.C. Reinsurance Facility, 302 N.C. 274, 275 S.E.2d 399 (1981). 
We held in that case that recoupment surcharges which insurers
were allowed to assess their policyholders were not rates which
had to be filed with the Insurance Department.  The defendants
argue that, in the same way, the servicing carrier fees involved
in this case are not subject to regulation by the Commissioner,
and the filed rate doctrine should not bar them from pursuing a
remedy based on a price fixing conspiracy in regard to the
servicing carrier fees.
The plaintiffs are complaining about the rates set by
the Commissioner.  This distinguishes the case from Hunt.  It is
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the approval of the rates by the Commissioner that gives them the
protection of the filed rate doctrine.
The plaintiffs next contend that the General Assembly,
by an amendment to N.C.G.S. § 58-63-15, showed that it intended
that actions such as this one may be maintained.  N.C.G.S. §
58-63-15 lists thirteen things that are unfair methods of
competition or unfair or deceptive practices.  In 1986, the
General Assembly amended the section to provide that a violation
of one of the thirteen unfair practices does not create a private
cause of action.  The other twelve unfair practices were not
mentioned in the revision of the section, and the plaintiffs
argue that this means private causes of action may be brought on
violations of any of them.  None of the wrongs enumerated in
N.C.G.S. § 58-63-15 involved the wrongs alleged in this case.  We
do not believe the General Assembly had wrongs of this type in
mind when it amended the section.
The plaintiffs next argue that Keogh is distinguishable
from this case because in Keogh the United States Supreme Court
recognized that the plaintiffs had a remedy under the Interstate
Commerce Act.  They did not need a second remedy under the
Sherman Antitrust Act.  We do not believe an adequate other
remedy is necessary for the application of the filed rate
doctrine.  We note, however, that after the determination of a
rate, a ratepayer may petition the Commissioner to investigate
for fraud.  N.C.G.S. § 58-2-70(c).  If the Commissioner
determines there was fraud in the application, he may petition
the Superior Court, Wake County, for an order for restitution to
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any injured party.  N.C.G.S. § 58-2-70(e).  This is a remedy for
injured ratepayers.
The plaintiffs next contend that certain language in
ICC v. Transcon Lines, 513 U.S. 138, 130 L. Ed. 2d 562 (1995),
provides that when there is a comprehensive regulatory scheme
with which a party must comply, there may be a departure from the
filed rate in order to comply with the whole scheme.  The
plaintiffs say we have a comprehensive regulatory scheme in this
case, which includes chapter 75 of the General Statutes. 
Transcon deals with the authority of the Interstate Commerce
Commission to obtain injunctive relief to enforce regulations
adopted by the Commission.  It does not deal with the issues
involved in this case.
The plaintiffs next rely on N.C.G.S. § 58-63-35(d),
which provides:
No order of the Commissioner under this
Article or order of a court to enforce the
same shall in any way relieve or absolve any
person affected by such order from any
liability under any other laws of this State.
N.C.G.S. § 58-63-35(d) (1994).  The plaintiffs say that this
section makes other available remedies a part of the
comprehensive insurance regulation of the State.  They rely on
Stanley v. Moore, 339 N.C. 717, 454 S.E.2d 225 (1995), for the
proposition that a remedy under one statute does not preclude a
remedy under another statute.  In Stanley, we held that a
plaintiff could bring an action for treble damage pursuant to
N.C.G.S. ch. 75-1, art. 1, for a violation of the Ejectment of
Residential Tenants Act although there was a remedy under the
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Act.  There was a provision in the Tenants Act which provided,
“[t]he remedies created by this section are supplementary to all
existing common-law and statutory rights and remedies.”  N.C.G.S.
§ 42-25.9(c) (1994).
Stanley is distinguishable from this case.  There was
no setting of a rate in Stanley.  We believe that N.C.G.S. §
58-63-35 provides that a person is not relieved of other
liability by this section if he is otherwise liable.  In this
case, the defendants are not otherwise liable because of the
filed rate doctrine.
The plaintiffs, relying on United States v. Radio Corp.
of America, 358 U.S. 334, 3 L. Ed. 2d 354 (1959), argue that the
regulatory power of the Commissioner of Insurance is not
complete, and this allows an action under chapter 75.  The
regulatory power of the Commissioner is complete so far as
setting rates is concerned.  That is all that is involved in this
case.
The plaintiffs next contend that we should adopt the
state action doctrine as articulated in FTC v. Ticor Title Ins.
Co., 504 U.S. 621, 119 L. Ed. 2d 410 (1992).  Under the state
action doctrine antitrust actions are immune from prosecution if
(1) the state’s intent is to replace competition with state
regulation, and (2) the state in fact actively supervises the
challenged conduct.  The plaintiffs contend that the second prong
of the state action doctrine is not met in this case because
there is no state supervision of the servicing carrier fees.  The
plaintiffs argue that the state action doctrine subsumes the
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filed rate doctrine and includes more than rate issues.  They say
that we used the state action doctrine in Madison Cablevision,
Inc. v. City of Morganton, 325 N.C. 634, 656, 386 S.E.2d 200, 213
(1989).
In Madison Cablevision, we said that it was not
necessary to the decision in that case, but we discussed the
state action doctrine to demonstrate it was consistent with the
result we reached.  We do not believe we should adopt the state
action doctrine in this case.  We might adopt the state action
doctrine in a proper case, but in a case dealing with insurance
rates, we believe the reasoning of Keogh is sound.
The plaintiffs next contend that the doctrine of
equitable estoppel in insurance regulation as adopted in other
states should be adopted in this state.  They cite three cases to
support this proposition.  Continental Cas. Co. v. Diversified
Indus., Inc., 884 F. Supp. 937 (E.D. Pa. 1995); Anderson v.
Minnesota Ins. Guar. Ass’n, 520 N.W.2d 155 (Minn. Ct. App. 1994),
rev’d on other grounds, 534 N.W.2d 706 (Minn. 1995); Morton
Int’l, Inc. v. General Accident Ins. Co. of America, 134 N.J. 1,
629 A.2d 831 (1993), cert. denied, 512 U.S. 1245, 129 L. Ed. 2d
878 (1994).  These three cases hold that when an insurer makes a
representation as to coverage in a filing, it cannot give a
lesser coverage in its policies.  These cases have no application
to this case.  They do not involve the setting of insurance
rates.
Finally, the plaintiffs say the Court of Appeals was in
error in saying they had abandoned their claim for injunctive
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relief.  They contend that the filed rate doctrine does not bar a
claim for injunctive relief.  They rely on a sentence in Square
D, 476 U.S. at 422, 90 L. Ed. 2d at 425, which reads, “The
alleged collective activities of the defendants . . . were
subject to scrutiny under the antitrust laws by the Government
and to possible criminal sanctions or equitable relief.”  They
also rely on a sentence in Keogh, 260 U.S. at 161, 67 L. Ed. at
187, which reads, “[U]nder the Anti-trust Act a combination of
carriers to fix reasonable and nondiscriminatory rates may be
illegal, and if so, the government may have redress by criminal
proceedings . . . [or] by injunction.”  We are not bound by the
United States Supreme Court’s ruling as to equitable relief. 
Nevertheless, we believe the two sentences relied upon by the
plaintiffs say it is the government, and not individuals, that is
entitled to equitable relief.
We affirm the Court of Appeals in its holding that the
plaintiffs do not have a claim based on illegal activities in the
setting of workers’ compensation insurance rates.
The plaintiffs also contend that they may recover on
what they say is a “non-rate” theory, which they describe as
follows:  The plaintiffs say the defendants conspired to pay
excessive servicing carrier fees, which prevented the premiums
from covering losses in the residual market.  Because of this
shortfall, the defendants had to use part of the premiums from
the voluntary market to cover this loss.  As a result, the
defendants placed more marginal risks in the residual market with
its higher premiums.  The plaintiffs say that it is not necessary
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to question the rates set by the Insurance Commissioner in order
to prove their damages.  The damage, say the plaintiffs, comes
from the shifting of policyholders into the residual market.  The
damages they seek do not depend on a challenge to the rates.  We
disagree.
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.
The plaintiffs rely on the affidavit of Dr. John W.
Wilson, an expert in insurance rates, who stated that “none of
the damages deriving from this forced expansion of the residual
market as a result of excessive servicing carrier fees depend on
or result in changes in the regulated manual rates.”  Dr.
Wilson’s statement, however, is not supported by the record.  We
can find no other way to calculate the damages plaintiffs allege
than to require a jury to speculate regarding what rate the
Commissioner would have approved had the allegedly excessive fee
been considered, and had more employers been able to purchase
insurance in the voluntary market.  
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This case is analogous to Uniforce Temporary Personnel,
Inc. v. National Council on Compensation Insurers, Inc., 892 F.
Supp. 1503 (S.D. Fla. 1995), aff’d, 87 F.3d 1296 (11th Cir.
1996), which involved a claim that the ratepayers were improperly
insured in the residual market and thus forced to pay higher
rates than they would have if they had obtained insurance in the
voluntary market.  In Uniforce, employers claimed that the
defendant-insurance carriers conspired to fix excessively high
servicing carrier fees, which resulted in the employers’ being
forced to purchase insurance in the residual market instead of
the voluntary market.  Id. at 1507.  The court in that case
determined that the “plaintiffs’ claims for damages [fell]
squarely within the filed rate doctrine.”  Id. at 1512.  As in
Uniforce, the jury in this case would have had 
to measure the difference between the
properly approved workers’ compensation
insurance rates paid by plaintiffs and those
mythical rates which would have been
applicable but for the defendants’ concerted
activity.  This undertaking is not within the
province of the courts but should reside with
the respective state regulators with
authority over rate-setting.
Id.  The plaintiffs’ second theory of recovery thus cannot
survive a motion for summary judgment and is barred by the filed
rate doctrine.
The Court of Appeals held that it is not necessary to
question the rates set by the Commissioner under the plaintiffs’
second claim.  It said it was not necessary to calculate approved
rates in order to determine damages, and relief could be given to
the plaintiffs by determining the number of insurers who were
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forced to purchase in the residual market.  This is where we
differ with the Court of Appeals.  We do not believe the
plaintiffs could prove damages without recalculating rates
previously approved by the Insurance Commissioner.
We reverse the Court of Appeals on the plaintiffs’
second claim for relief.
AFFIRMED IN PART AND REVERSED IN PART.