Opinion ID: 1189013
Heading Depth: 2
Heading Rank: 3

Heading: The Validity of the Rate Regulations as to Rollbacks With Respect to Hearings

Text: (36a), (37a) The superior court determined that the rate regulations as to rollbacks are invalid on their face insofar as they preclude an individualized hearing on an individual insurer's rate rollback liability: they are preclusive (1) because they do not allow a variance or variances sufficient for rate adjustments necessary to avoid confiscation and (2) because they impose the relitigation bar, which assertedly operates to prevent proof of confiscation in and of itself, even if there were a sufficient variance or variances. (36b) To the extent that the superior court's determination of invalidity is based on the relitigation bar, it is unsound. The relitigation bar, as noted above, is this: Relitigation in a hearing on an individual insurer's rates of a matter already determined either by these regulations or by a generic determination is out of order and shall not be permitted. However, the administrative law judge shall admit evidence he or she finds relevant to the determination of whether the rate is excessive or inadequate (or, in the case of a proceeding [concerning a rate for the rollback year], relevant to the determination of the minimum nonconfiscatory rate), whether or not such evidence is expressly contemplated by these regulations, provided the evidence is not offered for the purpose of relitigating a matter already determined by these regulations or by a generic determination. (Cal. Code Regs., tit. 10, § 2646.4, subd. (e).) There is nothing preclusive in the relitigation bar. That is not to say that the relitigation bar is without effect. Its words are plain: Relitigation in a hearing on an individual insurer's rates of a matter already determined either by these regulations or by a generic determination is out of order and shall not be permitted. ... (Cal. Code Regs., tit. 10, § 2646.4, subd. (e), italics added.) Rather, the effect of the relitigation bar is unobjectionable. In adjudication, the judge applies declared law; he does not entertain the question whether its underlying premises are sound. That is as it should be. Otherwise, standardless, ad hoc decisionmaking would result. Similarly, in quasi-adjudicatory proceedings, the administrative law judge applies adopted regulations; he does not entertain the question whether their underlying premises are sound. That is also as it should be, and for the same reason. The effect of the relitigation bar is simply to assure that, in determining an individual insurer's rate rollback liability, the administrative law judge does not entertain the question whether the premises underlying the rate regulations as to rollbacks are sound. There is, without doubt, nothing novel about such a prohibition. (Cf., e.g., Cal. Code Regs., tit. 22, § 51536 et seq. [setting rates for reimbursement for hospital inpatient services provided to Medi-Cal program beneficiaries]; see especially id., § 51550, subd. (b)(8) [in an administrative adjustment proceeding to challenge certain rate limitations, a provider may not attack the methodology used to calculate the interim rate].) It must be emphasized that in Calfarm, we held that Proposition 103's rate rollback requirement provision is not invalid on its face, but the rates thereby established are necessarily subject to the right of an insurer to demonstrate that a particular rate is, as applied to it, a confiscatory rate. ( Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 826.) Note the right we declared therein: the right ... to demonstrate that a particular rate is, as applied ..., a confiscatory rate  not a right to do anything else. [24] The relitigation bar does not prevent proof of confiscation  it does not, in Calfarm 's words, deny the insurer its right ... to demonstrate that a particular rate is, as applied to it, a confiscatory rate. ( Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 826.) By its very terms, in the case of a proceeding concerning a rate for the rollback year, it requires admission of evidence found relevant to the determination of the minimum nonconfiscatory rate.... (Cal. Code Regs., tit. 10, § 2646.4, subd. (e).) The question is not whether the relitigation bar prevents proof of confiscation. It does not. Rather, the question is whether there is a variance or variances sufficient to accommodate such proof. More on this immediately below. (37b) To the extent that the superior court's determination of invalidity is based on the variances, it is also unsound. There is nothing preclusive in the variances. It is true that, out of eight variances, only three are applicable to rates under the rate rollback: (1) the one-line variance; (2) the entering-the-market variance; and (3) the insurer-insolvency variance. It is also true that the first and second are each of limited availability and the third is demanding. But the three applicable variances should not be considered, as it were, each in isolation, but rather all together within their full context. There is the ratemaking formula itself. It is designed to yield a nonconfiscatory rate for the individual insurer even before any variance might come into play. Because it has safety built in, it does not appear to need safety valves different from those provided by the variances. Be that as it may, there is also a separate and independent constitutionally mandated variance, which was properly recognized by the administrative law judge. It would be available to the individual insurer on proof of confiscation, that is to say, on proof that the regulations in question would otherwise be confiscatory as applied. In view of the foregoing, the variances must be deemed sufficient for rate adjustments necessary to avoid confiscation.