Opinion ID: 4553492
Heading Depth: 2
Heading Rank: 2

Heading: Considerations on Remand

Text: We begin with the fundamentals. A federal court exercising its diversity jurisdiction over state-law claims applies the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941). Here, that state is Illinois, which applies forum law unless an actual conflict with another state’s law is shown, Bridgeview Health Care Ctr. v. State Farm Fire & Cas. Co., 10 N.E.3d 902, 905 (Ill. 2014), or 12 No. 19-2898 the parties agree that forum law does not apply. See Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 770 N.E.2d 177, 194 (Ill. 2002). Neither Gunn nor Continental seeks application of Illinois law, and the laws of the District of Columbia and Washington appear likely, at a minimum, to give diﬀerent eﬀect to the acts of the Washington state insurance commissioner. The analysis then turns to which state’s law applies. Bridgeview, 10 N.E.3d at 905. In general, Illinois follows the Restatement (Second) of Conflict of Laws (Am. Law Inst. 1971). Barbara’s Sales, Inc. v. Intel Corp., 879 N.E.2d 910, 919 (Ill. 2007). For claims on a contract, the Second Restatement usually enforces the parties’ contractual choice of law, see § 187, which may extend to tort claims “dependent” on the contract. Facility Wizard Software, Inc. v. Southeastern Technical Servs, LLC, 647 F. Supp. 2d 938, 943 (N.D. Ill. 2009). In this case, however, the parties’ contract contains no choice-of-law provision. Absent eﬀective party choice, to govern issues in contract the Second Restatement chooses the “local” law (that is, the substantive law excluding choice-of-law rules) of the state which, “with respect to that issue, has the most significant relationship to the transaction and the parties.” § 188(1). To govern issues in tort, the Second Restatement similarly chooses the law of the state which, “with respect to that issue, has the most significant relationship to the occurrence and the parties.” § 145(1). These general standards oﬀer little direct guidance in resolving particular cases. See Barbara’s Sales, 879 N.E.2d at 920. But the Second Restatement also supplies “a secondary statement in black letter setting forth the choice of law rules in a given situation.” Id. (quotation marks omitted). These “specific presumptive rules” provide more No. 19-2898 13 concrete points of departure. Townsend v. Sears, Roebuck & Co., 879 N.E.2d 893, 902 (Ill. 2007). For claims regarding a group life insurance contract, the Second Restatement’s presumptive rule is that “rights against the insurer are usually governed by the law which governs the master policy.” § 192 cmt. h. That is usually the law of the employer’s principal place of business, where the master policy was delivered. Id. The Illinois Supreme Court has cited this rule with approval in the context of group health insurance. Hofeld v. Nationwide Life Ins. Co., 322 N.E.2d 454, 458 (Ill. 1975). The Couch treatise is in accord as to group insurance generally, 1A Couch on Insurance § 8:7, and we have reached the same conclusion as to group accident insurance under Indiana’s version of the “most significant relationship” test. Horn v. Transcon Lines, Inc., 7 F.3d 1305, 1307–08 (7th Cir. 1993). Applied to this case, comment h to section 192 of the Second Restatement seems to suggest that Illinois would choose District of Columbia law to govern Gunn’s claim for breach of contract. As for Gunn’s tort claims (unfair and deceptive consumer practices, fraud, and fraudulent concealment), the Second Restatement’s presumptive rule for torts of deception provides that if the place of defendant’s deception and the place of plaintiﬀ’s reliance on it were the same, the law of that place applies. § 148(1). If deception and reliance took place in different states, a list of relevant contacts guides the court’s determination of what jurisdiction has “the most significant relationship” to the case. § 148(2). Illinois has applied section 148 to consumer fraud claims. Barbara’s Sales, 879 N.E.2d at 922. Applied to this case, section 148 suggests Illinois may choose either District of Columbia or Washington law to 14 No. 19-2898 govern Gunn’s tort claims, depending on whether it would legally characterize Continental’s alleged misrepresentations as having been made to Gunn in Washington or to his employer in the District of Columbia.4 2. The Filed-Rate Doctrine in the District of Columbia “In the District of Columbia, the filed rate doctrine is statutorily mandated.” District of Columbia v. D.C. Pub. Serv. Comm’n, 905 A.2d 249, 256 (D.C. 2006), citing D.C. Code § 34603. The statutory scheme within which the mandate is embedded provides that every public utility in the District must file proposed rate changes with the D.C. Public Service Commission for the Commission’s approval. § 34-901(c)–(d). The statutory filed-rate rule provides that rates approved by the Commission “shall be prima facie reasonable until finally found otherwise in an action brought for that purpose.” § 34603; see also § 34-1129 (“It shall be unlawful for any public utility to … receive a greater or less compensation for any service performed by it within the District of Columbia … than 4 We note one wrinkle in Illinois conflicts law that may or may not bear on this case. Illinois recognizes the doctrine of dépeçage, or “cutting into pieces” a single claim and subjecting different issues to different jurisdictions’ laws. Spinozzi v. ITT Sheraton Corp., 174 F.3d 842, 848 (7th Cir. 1999). Even if Illinois would choose District of Columbia law to govern one or more of Gunn’s claims, perhaps Illinois might choose Washington law to govern Continental’s defenses if it determined that Washington had the most significant relationship to the case with respect to a specific issue, such as the filed-rate defense. See Doctor’s Data, Inc. v. Barrett, 170 F. Supp. 3d 1087, 1107 (N.D. Ill. 2016) (recognizing possibility of splitting claims from defenses under principle of dépeçage); see generally Restatement (Second) § 6 (factors relevant to “most significant relationship” analysis). No. 19-2898 15 is specified in such printed schedules … as may at the time be in force.”). The problem for Continental’s defense, however, is that this statutory language says nothing about insurers, which are not included in the definition of “public utilities.” See § 34214. Nor does the statute address the District’s insurance regulator or insurance premiums. We have found no District of Columbia case or statute applying filed-rate principles in the insurance context. We also have found no District of Columbia case recognizing a filed-rate defense to a suit for breach of a promise as to how premiums would be computed, still less to a suit for fraud. Dicta suggest the District of Columbia may recognize a common law filed-rate doctrine not anchored in a specific statute, see Watergate East, Inc. v. D.C. Pub. Serv. Comm’n, 662 A.2d 881, 889 (D.C. 1995) (statute “amounts to a codification of the filed rate doctrine”), but if such a doctrine exists, its contours are yet to be revealed. After all, a legislative decision to adopt the doctrine in one context (public utilities) could be understood as a legislative choice not to adopt it in others (like insurance). And at any rate, the District would still have to balance the policies underlying filed-rate rules against its own consumer protection policies. See, e.g., McCarthy Finance, Inc. v. Premera, 347 P.3d 872, 875 (Wash. 2015) (“But while a court must be cautious not to substitute its judgment on proper rate setting for that of the relevant agency, the legislature has directed that the [consumer protection statute] be liberally construed.”). Even if the District of Columbia otherwise recognizes a common law filed-rate doctrine broad enough to bar Gunn’s claims, it also is not clear whether such a doctrine would apply to enforce the decision of a diﬀerent jurisdiction’s 16 No. 19-2898 regulator. Continental’s brief assumes that the public law of Washington must in all events, and in all courts, trump the private law of the District of Columbia. Traditionally, however, courts have been reluctant to enforce the public law of other states. See Restatement (First) of Conflict of Laws § 610 (Am. Law Inst. 1934) (“No action can be maintained on a right created by the law of a foreign state as a method of furthering its own governmental interests.”); id., cmt. c (“No action can be maintained by a foreign state to enforce its license … laws”); Moore v. Mitchell, 30 F.2d 600, 604 (2d Cir. 1929) (L. Hand, J., concurring) (“To pass upon the provisions for the public order of another state is, or at any rate should be, beyond the powers of a court”). Why would District of Columbia law privilege Washington state’s interest in the authority of its insurance commissioner above the District’s own interest in aﬀording a remedy to injured plaintiﬀs whom it would otherwise protect? See Emory v. Grenough, 3 U.S. (3 Dall.) 369, 370 n. (1797), translating 2 Ulrich Huber, Praelectiones Juris Romani et Hodierni, ch. “De Conflictu Legum” (1689) (“By the courtesy of nations, whatever laws are carried into execution, within the limits of any government, are considered as having the same eﬀect every where, so far as they do not occasion a prejudice to the rights of the other governments, or their citizens.”); Joseph Story, Commentaries on the Conflict of Laws 33 (1834) (“It is difficult to conceive, upon what ground a claim can be rested, to give to any municipal laws an extra-territorial eﬀect, when those laws are prejudicial to the rights of other nations, or their subjects.”), approving Huber, supra. The District of Columbia has an interest in protecting those subject to its laws from unfair and deceptive business practices. See Shaw v. Marriott Int’l, Inc., 605 F.3d 1039, 1045 (D.C. Cir. 2010). Perhaps No. 19-2898 17 more to the point, the District of Columbia has an interest in enforcing contracts negotiated and performed there, Wright v. Sony Pictures Entm’t, Inc., 394 F. Supp. 2d 27, 32 (D.D.C. 2005), and the nature of group insurance suggests the master policy in this case fits that description. It is not clear the District of Columbia could or would subordinate those interests to the regulatory interests of the State of Washington. 3. The Filed-Rate Doctrine in Washington State The State of Washington recognizes a “common law filed rate doctrine” not grounded in any statute. McCarthy Finance, Inc. v. Premera, 347 P.3d 872, 875 (Wash. 2015). The doctrine has been applied to bar state consumer protection claims challenging health insurance premiums that had been approved by the state insurance commissioner. Id. at 876. But claims under the state consumer protection law or for breach of contract that are “merely incidental” to rates approved by the commissioner are not barred. Harvey v. Centene Mgmt. Co., 357 F. Supp. 3d 1073, 1083 (E.D. Wash. 2018) (denying motion to dismiss in part), quoting McCarthy, 347 P.3d at 875. “[W]hile a court must be cautious not to substitute its judgment on proper rate setting for that of the relevant agency, the legislature has directed that the [consumer protection statute] be liberally construed … . In most cases, courts must consider [such] claims even when the requested damages are related to agency-approved rates.” McCarthy, 347 P.3d at 875. Accordingly, to the extent Washington state law applies, Gunn’s claims may or may not be barred depending on whether they are deemed “merely incidental” to or “would necessarily require courts to reevaluate” the commissioner’s approval of Continental’s rates, as the Washington Supreme Court—and no other court—would apply that 18 No. 19-2898 distinction. Harvey, 357 F. Supp. 3d at 1083, quoting McCarthy, 347 P.3d at 875. 4. Multistate Regulation of Group Insurance In the McCarran–Ferguson Act of 1945, Congress essentially insulated state regulation of “the business of insurance” from the dormant Commerce Clause and from implied federal preemption. 15 U.S.C. §§ 1011–1012; see American Ins. Ass’n v. Garamendi, 539 U.S. 396, 427–28 (2003) (“state regulation … will be good against preemption by federal legislation unless that legislation specifically relates to the business of insurance” (quotation marks omitted)); Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 218 n.18 (1979) (“States are free to regulate insurance companies without fear of Commerce Clause attack.”). Given the national reach of so many insurance companies and of group insurance policies issued to national employers, regulation of such group policies poses important choice-of-law questions. Continental’s understanding of those challenges leads it to assert that its promise of interstate uniformity in a group insurance policy was illusory. “[L]ike all long-term care insurers,” Continental says, it “must seek approval of rate increases on a state-by-state basis.” Continental says that the necessity is so obvious that a reasonable customer should have known that any promises of uniform rates among similarly situated insureds should not have been believed. Continental’s position is startling, but we have been given no support—as a matter of law, custom, or reason—for its central assumption that the proper regulatory subject is the individual certificate of a customer like Gunn rather than the employer’s master policy under which the individual certificates are issued. No. 19-2898 19 A necessary foundation for a filed-rate defense is the regulator’s “jurisdiction to determine the reasonableness of rates.” McCarthy, 347 P.3d at 875. Washington asserts, as it can assert, legislative and regulatory jurisdiction over only instate activity. See Midwest Title Loans, Inc. v. Mills, 593 F.3d 660, 666 (7th Cir. 2010), quoting Healy v. Beer Inst., 491 U.S. 324, 337 (1989); Dean Foods Co. v. Brancel, 187 F.3d 609, 614–15 (7th Cir. 1999), quoting Bonaparte v. Tax Court, 104 U.S. 592, 594 (1881); Wash. Rev. Code § 48.01.020. As to ratemaking, Washington requires that every company “engaged in the business of making contracts of insurance” file its proposed rates with the insurance commissioner for approval or disapproval. Wash. Rev. Code § 48.01.050; see §§ 48.19.040, 48.19.060. The question then is how to describe the legal geography of a group insurance policy with an employer and master policy in one location and individual insureds all over the nation. More than one state has at least arguable interests in such national policies and the individual certificates issued under them. As noted above, the key contractual event in group insurance transactions is generally held to be delivery of the master policy, not the individual certificates issued under it. See 1A Couch on Insurance § 8:1 (“the addition of new individual members to a master group policy does not create a new contract of insurance.”). Apparently on the same understanding, Washington’s current statutory regulation of group long-term care insurance applies to “a long-term care insurance policy or contract that is delivered or issued for delivery in this state” and “any certificate issued under a group long-term care insurance policy that has been delivered or issued for delivery in this state.” Wash. Rev. Code § 48.83.020. (The long-term care insurance statute in force in 2000, when Gunn first 20 No. 19-2898 obtained coverage, did not address group insurance specifically. See Wash. Rev. Code § 48.84.020; Wash. Admin. Code § 284-54-010.) So we might expect the Washington state insurance commissioner to care about master policies delivered in Washington and about certificates issued, no matter where or to whom, under master policies delivered in Washington. That would make good multistate sense. If universalized, it would mean that every group policy has one and only one regulator, steering clear of the regulatory Scylla avoided in the private-law context by the usual choice-of-law rule. See Horn v. Transcon Lines, Inc., 7 F.3d 1305, 1307 (7th Cir. 1993) (“There is only one policy and one form of certificate evidencing coverage. We cannot imagine why Liberty Mutual would prefer a choice-of-law approach under which 50 diﬀerent rules govern the same policy of insurance”); Restatement (Second) § 192 cmt. h (“it is desirable that each individual insured should enjoy the same privileges and protection”); 1A Couch on Insurance § 8:7 (“This rule prevents the same policy from being interpreted according to the law of potentially 50 states thus creating uniformity in the coverage and protection of every individual insured under the group policy.”). But Continental proceeded on nearly the opposite assumption in 2015, when it sought the challenged rate increases. Continental wrote the Washington insurance commissioner: The new premium rates will be applied to all in- sureds under group policies that were sitused in your state except insureds under the group pol- icies sitused in your state that were issued cer- tificates in another state that is an extraterritorial (ET) jurisdiction. These insureds are No. 19-2898 21 governed by the other ET state’s laws and regu- lations and will be included in that state for rate increase purposes. The new premium rates will also be applied to insureds issued in your state under groups sitused outside of your state. As we read this letter, Continental submitted rates to the commissioner for every individual certificate issued in Washington, even if the master policy had not been delivered there, but not for every master policy delivered in Washington, if the certificate was issued in an “extraterritorial jurisdiction” (which appears to describe Washington as well). The briefs do not explain what is an “extraterritorial jurisdiction,” what makes it one, or whether the District of Columbia is one, nor did counsel at oral argument. We assume that interstate regulation of insurance transactions involves a good deal of comity and agreement among regulators of different states, without each regulator always pushing for maximum power. Any state’s claim to extraterritorial power merits further inquiry, at least. Continental’s letter to the Washington insurance commissioner suggests if nothing else that its basic position is overstated: at least some states, those that are not “extraterritorial jurisdictions,” are content to leave ratemaking authority in the hands of the regulator where the master policy was delivered, even if certificates under that policy are issued to insureds within their own borders. Untying this knot is not possible on the record now before us. But it is essential to even a threshold determination of the validity of any filed-rate defense that would give decisive effect to the decisions of the Washington state insurance commissioner. We must remand this task to the capable district judge, who may find it useful to enlist the help of interested 22 No. 19-2898 amici, including the National Association of Insurance Commissioners, associations of insurance companies, and perhaps others who can educate generalist federal courts about the broader implications of choice-of-law rules as applied to group insurance policies. We acknowledge the questions we have posed are more easily asked than answered. And we have not framed or discussed those questions with any intention to prejudge the cor- rect outcome(s) in this case. The district court may find that a motion under Rule 12(c), a motion for summary judgment on a more complete record, or perhaps a motion for class certification could bring the issues into sharper relief. See In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1015 (7th Cir. 2002). Those are case management issues best left to the district court’s discretion. The judgment of the district court is REVERSED and the case is REMANDED for further proceedings consistent with this opinion.