Opinion ID: 1646864
Heading Depth: 1
Heading Rank: 5

Heading: Blue Cross also takes the position the reimbursement cost formula was open to change by it provided statutory and contractual requirements were followed.

Text: As an abstract proposition this may be true. But that alone does not mean a change so effected can serve ipso facto to alter the terms of any and all existing contracts, absent consent or acquiescence by the other contracting party or termination of the agreement and creation of a new one. We shall deal first with the statutory phase of the proposition presented. Laws regulating the insurance business are remedial, being enacted under the state's police power, because such business has been found to be impressed with public interest and the public is entitled to protection against unscrupulous and illegal practices. Chapter 505, Code, 1962; Bankers Life & Cas. Co. v. Alexander, 242 Iowa 364, 373, 45 N.W.2d 258; 44 C.J.S. Insurance § 55, page 518; and 29 Am.Jur., Insurance, section 49, page 464. The insurance commissioner is an administrative officer. As such he may, at times, exercise quasi legislative or quasi judicial powers. See sections 505.8 and 505.9, Code, 1962; 44 C.J.S. Insurance § 57(b), page 525; and 33 Iowa L.Rev. 335, 339. This does not mean such official has or exercises legislative or judicial powers in the true sense. More specifically, in approving a contract involving modification of a reimbursement cost formula, he performs an act quasi legislative in nature in that it is to be effective in futuro. Prentis v. Atlantic Coast Line Co., 211 U.S. 210, 226, 29 S.Ct. 67, 69, 53 L.Ed. 150; West Flagler Amusement Co. v. State Racing Commission, 122 Fla. 222, 165 So. 64, 65; and Hyson v. Montgomery County Council, 242 Md. 55, 217 A.2d 578, 582-583. The commissioner may have discretion to act but it is the ultimate function of the courts to determine whether he has acted according to law or abused his discretion, and to construe the legal meaning and effect of his administrative actions. Iowa Mut. Tornado Ins. Ass'n v. Timmons, 252 Iowa 163, 169-174, 105 N.W.2d 209; Bankers Life & Cas. Co. v. Alexander, supra, 242 Iowa at 371, 45 N.W.2d 258; 44 C.J.S. Insurance, § 58, page 526; and 33 Iowa L.Rev. 335, 343. While authority of the commissioner in approving the formula modification here involved is not questioned, the effect of this action upon the existing contract between Blue Cross and Hospital is challenged. The issue presented goes to the legal effect of the commissioner's approval upon an existing, valid, executory contract between an insurer and a servicing agent, not upon a policy between an insurer and the insured. Presumably the commissioner, in approving a modification of the reimbursement cost formula, was acting in the best interests of the public. But his quasi legislative order, to the extent it affected the existing contractual obligation between Blue Cross and Hospital, contravened both the federal and state constitutional provisions forbidding impairment by the state of existing contractual rights and duties. This means that as to Hospital, absent an agreement to the modification, acquiescence, or termination of the existing contract and creation of a new one, the order issued was constitutionally proscribed. See Constitution of the United States, Article I, section 10, and Constitution of Iowa, Article I, section 21, both providing in substance, to the extent here material, no law shall be passed impairing the obligation of contracts. And, if the legislature cannot by statute constitutionally abrogate the terms of an existing contract, neither can the insurance commissioner do so in the performance of a quasi legislative function which has legislative force and effect. See John P. King Mfg. Co. v. City Counsel of Augusta, 277 U.S. 100, 111-114, 48 S.Ct. 489, 493-494, 72 L.Ed. 801; Appleby v. Delaney, 271 U.S. 403, 409, 46 S.Ct. 581, 583, 70 L.Ed. 1009; 16A C.J.S. Constitutional Law § 378, page 50; 12 C.J., Constitutional Law, section 725, page 1066; 2 Am.Jur.2d, Administrative Law, section 298, page 125; and 16 Am.Jur.2d, Constitutional Law, section 450, pages 797-798. Under the conditions here existing, the action of the commissioner in approving the revised cost formula could not be constitutionally so extended as to impair the obligation of the contract then existing between Blue Cross and Hospital. See 29 Am.Jur., Insurance, section 50, pages 466, 467, citing British America Assur. Co. v. Colorado & S. Ry. Co., 52 Colo. 589, 125 P. 508, 511-512, 125 P. 1135, 41 L.R.A.,N. S., 1202; and Filipkowski v. Springfield Fire & Marine Ins. Co., 206 Wis. 39, 238 N.W. 828, 830, 78 A.L.R. 613. We can only conclude the exercise of a power pursuant to statute authorizing the commissioner to approve contracts between an insurer and a servicing agency did not serve to make the subject modification applicable to Hospital. IX. The contract executed May 12, 1959, provides in part: The cost of the Hospital in rendering hospital service shall be calculated according to a reimbursement cost formula to be established by the Hospital Advisory Committee of the Service Corporation, and approved by the Board of Directors of the Service Corporation and the Iowa Insurance Commissioner. Such formula, as tentatively established by the Hospital Advisory Committee, provides for the calculation of such cost substantially as follows:   . (Emphasis supplied.) In this connection Blue Cross contends the word tentatively means conditional or provisional, opening the door to periodic modifications. We are not here concerned with the word tentatively, lifted out of context, but rather with the entire contract, and in particular the term as tentatively established by the Hospital Advisory Committee. Where, as in this case, the terminology employed is uncertain or susceptible to more than one meaning, we may, under established rules, proceed to effect an interpretation of the instrument in order to ascertain the meaning and manifestation of words used. In so doing we search for intent of the parties as disclosed by what they said. Rule 344(f) (14), R.C.P.; Bruhl v. Thul, 257 Iowa 889, 892-893, 134 N.W. 2d 571; Restatement of Contracts, Iowa Annotations, section 226; Williston's Treatise on Law of Contracts, Revised Ed., sections 601-610; Simpson, Law of Contracts, Hornbook Series, Second Ed., section 102. See also Aultman v. Meyers, 239 Iowa 940, 949-950, 33 N.W.2d 400. We also look to the matter of intent as it existed at time the contract was executed. Huntington v. Jacob Haish Co., 190 Iowa 1197, 1200, 181 N.W. 480; 17A C.J.S. Contracts § 294, page 27, § 295, page 63, and § 359, page 361. Clearly the contract does not provide: The cost of the Hospital in rendering hospital service shall be calculated according to a reimbursement cost formula to be tentatively established by the Hospital Advisory Committee of the Service Corporation, and approved by the board of directors of the Service Corporation and the Iowa Insurance Commissioner, it being specifically understood and agreed the formula may from time to time be revised, altered or modified, to all of which Hospital hereby consents and agrees. Adoption of the view urged by Blue Cross would require reading words into the contract which are neither specifically nor impliedly contained in the instrument. This we cannot do. Presumably Blue Cross Hospital Advisory Committee originally recommended the reimbursement cost formula contained in the 1959 contract between Blue Cross and Hospital. However, its action in so doing was, and could in no event be of any force or effect until adoption of the proposal by Blue Cross board of directors and approval by the insurance commissioner. This means any reimbursement cost formula established by the Hospital advisory committee is preliminary, tentative or provisional in that it may only be finalized or become effective if and when given requisite approval. We are persuaded, (1) it is in this sense the word tentatively is here employed; (2) the phrase as tentatively established by the Hospital Advisory Committee neither says nor implies Blue Cross may, by unilateral action, effectively modify the reimbursement cost formula at any time or times it may so elect.