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

Heading: The General Validity of the Rate Regulations as to Rollbacks

Text: (14) The superior court determined that the rate regulations as to rollbacks are not invalid on their face as statutorily unsupported. In our review, we must briefly address a threshold issue. The insurers contend in this proceeding as they contended in Calfarm that Proposition 103's rate rollback requirement provision, viz., Insurance Code section 1861.01, subdivision (a), which sets the maximum rate for the rollback year at 80 percent of the 1987 rate, is facially invalid as confiscatory. Their arguments were weighed and found wanting in Calfarm. There is simply no reason to revisit the issue here. Without question, the rate regulations as to rollbacks are not invalid as statutorily unsupported insofar as they relate to procedure. In Calfarm, we determined the Insurance Commissioner's authority in this sphere. There, we held that the commissioner has broad discretion to adopt rules and regulations as necessary to promote the public welfare in this regard. ( Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 824.) Neither are the rate regulations as to rollbacks invalid as statutorily unsupported insofar as they relate to substance. In Calfarm, we did not determine the Insurance Commissioner's authority in this sphere. We do so here. In Calfarm, we held that if an insurer believes the rates set by [Insurance Code] section 1861.01, subdivision (a), are confiscatory and file[s] an application ... for approval of a higher rate, the commissioner must determine whether the initiative's rate, or some other rate less than the insurer charged, is fair and reasonable.... ( Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 825.) To do so, the commissioner must establish rules to resolve various interstitial legal, policy, and technical issues. An administrative official may frame rules deliberately in quasi-legislative proceedings to adopt regulations. Or he may develop rules ad hoc in the course of quasi-adjudicatory review. We believe that Proposition 103 authorizes the commissioner to take the former path. As we made plain in Calfarm, the commissioner may exercise such ... powers ... as may fairly be implied from the initiative. ( Id. at p. 824, internal quotation marks and italics omitted.) In our view, the adoption of substantive regulations is one of these powers. As construed in Calfarm, Proposition 103 effectively requires the commissioner to establish rules. It implicitly empowers him to proceed by regulation. Certainly, it does not bar him from doing so. Included, of course, are regulations strictly so called, i.e., rules generally applicable to all insurers formulated by the commissioner in quasi-legislative proceedings. Included as well are regulations incorporating generic determinations, i.e., findings relating to all or at least several insurers made by the commissioner in consolidated hearings conducted in accordance with quasi-adjudicatory procedures and then adopted by him as regulations. This follows from our implication in Calfarm that the commissioner could consolidat[e] cases and generally tak[e] whatever steps are necessary to reduce the job to manageable size. ( Ibid. ) There is, without doubt, nothing novel in the adoption of regulations incorporating generic determinations. (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., § 51536, subd. (g)(3) [defining a market basket classification].) The insurers argue that the rate regulations as to rollbacks are indeed invalid as statutorily unsupported insofar as they relate to substance. They do not persuade. For the reasons stated, we believe that, as construed in Calfarm, Proposition 103 does indeed authorize the Insurance Commissioner to adopt substantive rate regulations to implement the rate rollback requirement provision. The insurers' assertion  viz., that in Insurance Code section 1861.08, the initiative requires the commissioner to conduct hearings on the rates of individual insurers by means of quasi-adjudicatory procedures  is correct. The inference that they attempt to draw  viz., that the commissioner cannot do anything else relative to rates by any other means  is unsound. We cannot find in the initiative, either in Insurance Code section 1861.08 or elsewhere, what the insurers purport to discern, i.e., an intent to require all determinations by the commissioner bearing on rates to be made in quasi-adjudicatory proceedings on the rates of individual insurers. (15) The insurers then argue that the rate regulations as to rollbacks are invalid as statutorily unsupported insofar as they relate to substance because they are impermissibly retroactive. It is unclear whether and to what extent the superior court made any determination in accordance with the insurers' argument. Insofar as it did, it erred. The rate regulations as to rollbacks may properly be considered prospective. The fixing of a rate and the reducing of that rate are prospective in application.... ( Consumers Lobby Against Monopolies v. Public Utilities Com., supra, 25 Cal.3d at p. 909 (lead opn. by Mosk, J.); accord, id. at p. 916 (conc. & dis. opn. of Richardson, J.).) The ordering of a refund of rates is akin to a reduction in rates, when, as here, the rates in question were charged pending a determination of [their] legality.... ( Id. at p. 910 (lead opn. by Mosk, J.); accord, id. at p. 916 (conc. & dis. opn. of Richardson, J.).) It follows that the ordering of a refund of rates is itself prospective. Since the regulations in question serve such a refund, they may soundly be viewed to share its character. But even if the rate regulations as to rollbacks might be deemed retroactive, they cannot be deemed impermissibly so. `Primary' retroactivity  to coin a phrase  obtains when regulations alter[] the past legal consequences of past actions. ( American Min. Congress v. U.S.E.P.A. (9th Cir.1992) 965 F.2d 759, 769, italics in original; see National Medical Enterprises, Inc. v. Sullivan (9th Cir.1992) 957 F.2d 664, 671.) That is not present here. `Secondary' retroactivity occurs when regulations affect[] the future legal consequences of past transactions.... ( National Medical Enterprises, Inc. v. Sullivan, supra, 957 F.2d at p. 671, italics in original.) That is indeed present. [B]ut such `secondary retroactivity' is an entirely lawful consequence of much agency rulemaking and does not by itself render a rule invalid. ( Ibid. ) That it is an  entirely lawful consequence means just that: it does not itself offend any law, including the United States and California Constitutions and their respective due process clauses. In making their argument for the impermissible retroactivity of the rate regulations as to rollbacks, the insurers rely on Bowen v. Georgetown University Hospital (1988) 488 U.S. 204 [102 L.Ed.2d 493, 109 S.Ct. 468]. That decision is distinguishable, concerning as it does certain Medicare cost-limit regulations altering the past legal consequences of past actions under predecessor regulations. ( Id. at p. 219 [102 L.Ed.2d at p. 507], italics in original (conc. opn. of Scalia, J.).) We may observe in passing that the rate regulations as to rollbacks were not adopted until after the rollback year. That fact cannot itself render them impermissibly retroactive. For about a year prior to the approval of Proposition 103, insurers were on actual notice of the rate rollback requirement provision itself. [14]