IN THE



## A RIZONA 

## C OURT OF 

## A PPEALS

D IVISION O NE

ENTERPRISE LIFE INSURANCE COMPANY, et al.,

Plaintiffs/Appellants
,

v.

STATE OF ARIZONA DEPARTMENT OF INSUR ANCE,

Defendant/Appellee

.
No. 1 CA

- CV 19

- 0359

Appeal from the Superior Court in Maricopa County

No. LC2018

- 000254

- 001 The Honorable Patricia A. Starr
, Judge

VACATED

COUNSEL

Kutak Rock, LLP
, Scottsdale By S. David C hilders, Tasha N. Cycholl, Jennifer L. Kraham, Paul S. Gerding, Jr. Counsel for Plaintiff

s /Appellant s
Arizona Attorney General ' s Office
, Phoenix By Lynette J. Evans C ounsel for Defendant/Appellee FILED 3-26-2020ENTERPRISE LIFE, e t al. v. ADOI Opinion of the Court

2 OPINION
Judge James B. Morse Jr. delivered the opinion of the Court, in which Presiding Judge David D. Weinzweig and Judge Jennifer M. Perkins joined.

M O R S E , Judge:

¶1 The Arizona Department of Insurance ( " ADOI " ) found that Enterprise Life Insurance Company ( " Enterprise " ) and National Foundatio n Life Insurance Company ( " National " ) (collectively, " the companies " ) exited the Arizona individual health insurance mark et and were therefore prohibited from transacting business in the Arizona market for five years. The companies unsuccessfully challeng ed the ADOI ' s decision in the superior court and now appeal

. Because A.R.S. § 20

- 1380 does not provide the ADOI with the authority to force the companies to exit the market, we vacate the ADOI ' s order.

FACTS AND PROCEDURAL BACKGROUND

¶2 Currently, the compan ies provide in

- force health insurance policies that are labeled as " grandfathered " and " transitional " by the Patient Prot ection and Affordable Care Act ( " ACA " ). 42 U.S.C. § 18011; 45 CFR § 147.140 (a)(1)(i)

. " Grandfathered " policies are those that were so ld prior to the signing of the ACA in March of 2010. " Transitional " policies are those that were sold after the ACA was passed, but before its provisions went into effect on January 1, 2014. Both types of policies are somewhat unusual because they are ex empt from the substantive and procedural requirements of the ACA. 4 5 CFR § 147.140( c )(1) ; 2 9 CFR § 2590.715

- 1251(c)

. S o long as these policies continue to be offered for renewal by the insurer, existing customers can renew and continue this coverage. Im portant for our purposes, this renewal process takes place outside o f the regulatory framework and ACA individual market ( " ACA market " )

. ¶3 While " grandfathered " policies may continue to be offered for renewal in perpetuity without ACA compliance, " transiti onal " policies must eventually comply with the ACA. T he ACA first m andated that all

" transitional " policies must be replaced with ACA

- compliant essential health benefit policies ( " EHB policies " ) by January 1, 2014

. T he Centers for Medicare and Medicaid S ervices ( " CMS " ) have extended th at deadline multiple times, most rec ently to January 1, 2020.ENTERPRISE LIFE, e t al. v. ADOI Opinion of the Court

3 ¶4 T he ever

- changing deadline led the companies to believe the ACA required them to make new EHB policies available to their

" grandfathered " and " transitional " cus tomers. Accordingly, the companies filed rates with the ADOI to offer new EHB policies from 2015 to 2017 , but

n o o ne purchased the EHB policies

. T he companies continue d to renew the

" grandfathered " and " transitional " policies for existing customers , rely ing

on the extensions granted by the CMS

. ¶5 After the CMS extended the deadline to January 2019 , the companies chose to discontinue offering new EHB policies , and instead only renewed their existing " grandfathered " and " transitional " policies. A ccordingly , the companies did not file EHB policy rates with the ADOI by the June 1, 2017
, deadline.

¶6 I n October of 2017 the ADOI sent the companies a letter explaining that by " failing to file plan year 2018 rates, " the companies had provided the ADOI " wi th constru ctive notice of their intent to exit the individual market. " The letter then directed the companies to terminate all in

- force " grandfathered " and " transitional " policies by December 31, 2017
, and take further steps to properly exit the market.

¶7 The compa nies appealed to the Office of Administrative Hearings. At the evidentiary hearing, an ADOI assistant director, testified that when an insurer files EHB rates with the ADOI, it is then required by federal regulations to offer ACA compliant polic ies in the ACA market for that year. Thus, according to the ADOI, when the companies filed EHB
rates between 2015 and 2017, they effectively entered " the ACA individual health insurance market place " and became subject to what the agency describes as the m arket exit provision of A.R.S. § 20

- 1380 (D) . That statute provides as follows : D. If a health care insurer elects to discontinue offering all health insurance coverage in the individual market in this state, the health care insurer may discontinue that co verage onl y if all of the following occur:

1. The health care insurer gives notice to the director at least five business days before the health care insurer gives notice to each individual of the intention to discontinue offering health insurance coverag e in the i ndividual market in this
state.ENTERPRISE LIFE, e t al. v. ADOI Opinion of the Court

4 2. The health care insurer provides notice to each individual of that discontinuation at least one hundred eighty days before the date of the expiration of that coverage.

3. The health care insurer discontinues al l individu al insurance or coverage that was issued or delivered for issuance in this state and does not renew any coverage that was offered or sold in this state.

¶8 According to the ADOI, when the companies failed to file EHB rates they
, "elect[ed] to discontinue offe ring all health care insurance in the individual market," and A.R.S. § 20

- 1380(D) allow s the ADOI to forc e them from Arizona's individual insurance market entirely. The companies challenged the ADOI 's interpretation of the st atute, and argue d that because the companies were still offering to renew their " grandfathered " and " transitional " policies to existing customers, they had not

" discontinue [d] offering all health insurance coverage in the individual market

. " A.R.S. § 20

- 1 380(D) ( e mphasis added)

. ¶9 The ADOI responded that renewed policies are distinguished from new policies and " grandfathered " and " transitional " policies are

" closed blocks of business, " not offered or available for purchase in the individual marketplace. The Administrative Law Judge ( " ALJ " ) disagreed and reasoned that the term " offering all " includes both " the offering of the sale of new policies and the offer to renew existing policies

. " As such, the ALJ found the ADOI failed to establish: (1) that the companies exited the market purs uant to the statute and (2) that grounds existed to suspend or revoke their certificate to transact business in the state.

¶10 T he ADOI rejected the ALJ's reasoning and dec ision

. T he ADOI found that the ALJ ' s decision " overemphasizes the importance of the

w ord ' all ' in the statute " and should have instead focused on the word

" offering, " which " constitutes an act by the insurer calculated to procure new business, not to mere ly retain existing enrollees. " Therefore, under the ADOI ' s interpretation, the compan ies " elected to discontinue offering all health insurance " because they stopped offering new policies in the individual market.

¶11 As a penalty, the ADOI first ordered the companies to comply with the remaining market exit provisions enumerated in A.R.S. § 20

- 1380(D)(1

- 3). Second, the ADOI barred the companies from the Arizona individual health insurance market for a period of five years "as made clear by A.R.S. § 20

- 1380(E)

. "ENTERPRISE LIFE, e t al. v. ADOI Opinion of the Court

5 ¶12 T he companies appealed to the superior court and challeng ed the ADOI ' s interpre tation of the statute and corresponding penalties. T he superior court affirmed , concluding that the word " all " in the statute " most logically refers " to offeri ng new " guaranteed available insurance plans, " and does not include the renewal of existing cove rage. Therefore, the superior court found that the companies triggered the market exit provisions of the statute and must comply with the ADOI ' s order. The co mpanies timely appealed. We have jurisdiction pursuant to A.R.S. § 12

- 913.

DISCUSSION

¶13 On appe al, the companies challenge the ADOI ' s interpretation of A.R.S. § 20

- 1380 and the resulting order

. When an administrative order is " based on an interpretation of law, " this C ourt reviews the agency and superior court ' s interpretation de novo, Saldate v. M ontgomery, 228 Ariz. 495, 498
, ¶ 10 (App. 2012)
, and therefore is " not bound by the superior court 's or the agency ' s legal conclusion s , " JHass Group L.L.C. v. Ariz. Dep ' t of Fin

. Insts

. , 238 Ariz. 377, 383, ¶ 20 (App. 2015). Further, i n interpreting a sta tute, the primary goal is to determine and give effect to the legislature ' s intent. DeVries v. Stat e, 221 Ariz. 201, 204, ¶ 6 (App. 2009). And " [t]he best indication of legislative intent is the plain language of the statute ." Bither v. Country Mut. Ins . Co., 226 Ariz. 198, 200, ¶ 8 ( App. 2010).

¶14 Moreover, " the degree to which [an agency] can exercise any power depends upon the legislature ' s grant of authority to the agency. " Facilitec, Inc. v. Hibbs, 206 Ariz. 486, 488, ¶ 10 (2003). Nothing in A.R.S. § 20

- 1380 authorizes the ADOI to compel an insurer to exit the market. Instead, the ADOI relies on A.R.S. § 20

- 142 (B) , which provides that the ADOI directo r " shall have the powers and authority . . . reasonably implied from the provisions of this title. " The issue is therefore whether A.R.S. § 20

- 1380 " reasonab ly implie[s] " that the ADOI can force the companies to cancel the ir " grandfathered " and " transition al" policies and completely exit Arizona ' s individual insurance market.

¶15 As reflected in its titl e , the purpose of A.R.S. § 20

- 1380 is to provide " guaranteed renewability for all individuals [ ' ] " health insurance coverage. Arizona Senate Fact Sheet, 2000 Reg. Sess. S.B. 1032 (44 th Leg., 2 nd Reg

. Sess., April 26, 2000). Subsection A enforces this purp ose by requiring insurers to " renew or continue" existing coverage at the individual ' s request. A.R.S. § 20

- 1380(A)

. An " insurer may nonrenew or discontinue the health insurance coverage of an individual " only for the specific reasons

en umerated in A.R.S . § 20

- 1380( B ) . Relevant here
, (B)(3) p rovides anENTERPRISE LIFE, e t al. v. ADOI Opinion of the Court

6 exception when the insurer "has ceased to offer new coverage and has discontinued all in

- force coverage in the market pursuant to subsection D of this section

. " A.R.S. § 20

- 1380(B) (3) ( e mphasis added)

. T his provision clarifies that an insurer does not exit the market when it merely "cease [s] to offer new coverage" and has not "discontinued all in

- force coverage

. "

¶16 S ubsection D then provides that for an insurer to avail itself of the exception to mandatory renewability based on exiting the individual health insurance market
, it must : (1) provide formal notice to the director; (2) provide timely notice to their existing customers; and (3) discontinue all individual insurance and not renew any coverage that w as offered or sold in the state. A.R.S. § 20

- 1380(D).

¶17 T he ADOI argues that when an insurer ceases to offer new coverage in the market, A.R.S. § 20

- 1380 gives the agency the authority to force an insurer to discontinue all in

- force coverage pursuant to s ubsection s B and D outlined above , and then revoke the insurers ability to do business in the state for a period of five years pursuant to subsection E. 1 But A.R.S. § 20

- 1380 does not authorize such action. The statute provides a checklist of what must b e done when the insurer decides to discontinue both new and existing coverage . T he legislature deployed permissive words ( "elect" and "may " ) to authorize the insurer, not the ADOI, to make that decision

. Beyond that
, the statute protects renewability of coverage and does not expressly authorize the ADOI to force an insurer to discontinue in

- force coverage. Therefore, subsection s B and D establish a limited mechanism by which the insurer may choose to avoid guaranteed renewability under subsection A . The y do not support the ADOI's proposition that an ins urer's decision not to offer new coverage triggers the mandatory discontinuation of existing coverage.
¶18 T he ADOI also argues that its authority to force an insurer to discontinue in

- force coverage and comp letely exit the market is "reasonably implied" in t he statute because otherwise an insurer will never act to comply with subsection D. T his ignores both the text and purpose of the
statute. I f an i nsurer does not perform all the prerequisites of subsecti on D, then despite the insurer's preference to canc el existing coverages , an individual insured can enforce his or her right to renew an existing policy

1 The ADOI only sought to force non

- re newal of the existing coverages. The ADOI has not asserted that A.R.S. § 20

- 1380 provide s express or implied authority to require the companies to continue to offer the previously offered new policies in order to renew the existing coverage policies

.ENTERPRISE LIFE, e t al. v. ADOI Opinion of the Court

7 pursuant to A.R.S. § 20

- 1380(A)

. Thus, the statute provides its own incentive for an insurer to comply with subsection D without the ADOI ' s intervention

. ¶19 Rather than protecting existing insureds by providing guaranteed renewability of their health insurance coverage, the ADOI's order subverts the plain language of A.R.S. § 20

- 1380 and accomplishes precise ly the opposite result

— forcing the ter mination of an individual's insurance coverage against the wishes of both the insurer and the insured. In the end, the ADOI’s claim of statutory authority fails because ADOI is seeking to accomplish what an insurer is forbidden from doing under subsection A. A.R.S. § 20

- 1380 provides for guaranteed renewability of existing coverage and does not "reasonably imply" that the ADOI can force an insurer to terminate or non

- renew existing coverage simply because the ins urer ceases to offer new coverage.

¶20 T he ADOI further contends that if we do not adopt its interpretation of A.R.S. § 20

- 1380, insurer s will be able to remain in the market without offering new policies. As a result, the ADOI argues that other insurers would stop offering new insurance poli cies, causing severe harm to the Arizona market. At bottom, the ADOI once again misinterprets A.R.S. § 20

- 1380 as a sword for the agency to wield, when its purpose is to shield the individual insured against loss of i nsurance coverage.
¶21 Finally, the ADOI contends this interpretation of the statute leaves the agency unable to enforce the five

- year market ban provision of A.R.S. § 20

- 1380(E). Not so. The statute only provides that the ADOI wait until the prerequisites of subs ection D have been met before enforcing subsection E as a deterrent to an insurer electing to non

- renew existing coverages by exit ing the market.

¶22 More broadl y, the ADOI 's arguments i gnore the separation of
powers. The " scope of a n agency ' s power is measured by statute and may not be expanded by agency fiat. " Cochise C ounty v. Ariz

. Health Care Cost Containment Sys., 170 Ariz. 443, 445 (App. 1991). " [ A] ny ex cursion " beyond what is granted by the legislature " is treated as a n usurpation of constitutional powers vested only in the major branch of government. " Hibbs, 206 Ariz. at 488, ¶ 10 ( quoting Cochise Cty

. v. Kirschner , 171 Ariz. 258, 261

- 62 (App. 1992) )

. If the ADOI is concerned that insure r s will not offer new policies in Arizona unless the ADOI i s empowered to force insurers to cancel existing " grandfathered " and " transition al" policies, then it should ask the legislature to grant it such power. The AD OI ' s order
, and the well

-ENTERPRISE LIFE, e t al. v. ADOI Opinion of the Court

8 establ ished principle that an agency ' s power is dependent on a grant of statutory authority
, cannot coexist.

¶23 B ecause the companies have not perform ed the actions set forth in A.R.S. § 20

- 1380(D), the companies ' insureds retain the protections of A.R.S. § 20

- 1380 (A) against termination of their insurance. Further, neither the plain language of the statute
, nor the implied authority derived therefrom
, provide the ADOI with authority to force the companies to
term inate existing cover ages and take further steps to exit the market

. T he refore, the ADOI ' s order requiring the companies to do so is contrary to law and must be vacated.

CONCLUSION

¶24 We vacate the ADOI ' s order against the companies.