Opinion ID: 1346909
Heading Depth: 2
Heading Rank: 1

Heading: Applicability of Filed Rate Doctrine to Plaintiffs' Claims

Text: Plaintiffs argue the Filed Rate Doctrine does not bar its claims. We agree. The Filed Rate Doctrine stands for the proposition that because an administrative agency is vested with the authority to determine what rate is just and reasonable, courts should not adjudicate what a reasonable rate might be in a collateral lawsuit. Edge, 366 S.C. at 517, 623 S.E.2d at 391 (quoting Amundson & Assocs. Art Studio v. Nat'l Council on Comp. Ins., 26 Kan.App.2d 489, 988 P.2d 1208, 1213 (1999)). The DOI was not vested with the authority to determine the rates applicable to the workers' compensation policies at issue, thus the Filed Rate Doctrine does not bar Plaintiffs' claims in this instance. A brief examination of the regulatory scheme applicable to workers' compensation policies provides the necessary context to understand the issues before this Court. Generally, the DOI is vested with the authority to regulate the insurance industry. For regulatory purposes, there are three categories of workers' compensation insurance that employers can maintain: self-insurance, assigned risk insurance, and voluntary insurance. The workers' compensation insurance at issue is voluntary insurance. Each category of workers' compensation insurance is regulated in a different manner by the DOI. An examination of the regulatory scheme applicable to the self-insurance category is irrelevant to our understanding of the issues before the Court. However, an understanding of the regulation of assigned risk insurance and voluntary insurance is necessary to properly contextualize the Federal Court's certified questions. Generally, those employers participating in the assigned risk program are high-risk insureds that were unable to procure insurance in the open market. In contrast, those employers participating in the voluntary program were able to acquire insurance on the open market. The differences in the nature of these programs are reflected in their respective regulation. In 1989, the General Assembly established a rating system for the assigned risk insurance and voluntary insurance programs. As briefly explained before, the rates in both programs are calculated by the use of two categories of data: the LC and the LCM. [1] The LC is derived by the National Council of Compensation Insurers (NCCI) and submitted to the DOI for approval. The LCM differs from the LC in that it is not industry wide or calculated by a rating agency but is carrier-specific and calculated using figures for expenses and profits each individual carrier incurs in the market. Beginning in 1990, the DOI differentiated between the voluntary and assigned risk programs as to how the expense component, or LCM, would be developed and who would file this information. Section 38-73-1380 provides for the LCM to be filed with the department and approved by the director or his designee, by each member or subscriber of a rating organization independently. The DOI, however, utilized the discretion given to it under section 38-73-1430 to mandate that the rating organization file a proposed expense component for the Assigned Risk Plan reflecting the cost of the Assigned Risk Plan only, which, when approved, will be added to the approved pure loss component for the Assigned Risk Plan to become the final rate for the Plan. Department of Insurance Bulletin No. 1990-05. Thus, after the inception of the rating system in 1990, workers' compensation insurance rates were to be established uniformly throughout the assigned risk program. In contrast, however, insurers in the voluntary program market relied on rating agencies for the LC used in calculating their rates, but developed and filed their own LCM. The Administrative Law Court recognized this change by stating that [e]ach carrier determines its own final rates in the voluntary program by combining its own expenses with the loss costs. NCCI v. SCDOI, et. al., 05-ALJ-09-0355-CC (S.C. Admin L. Ct.2005) (http://www.scalc.net/decisions.aspx?q=4&id=8127#_ftn1) (last visited June 2, 2010). Nonetheless, within its bulletin establishing a two-tiered rating system, the DOI mandated that all insurers filing proposed LCM figures, including those in the voluntary insurance market, shall include the necessary information required by `SCID Form No. 2007,' ... and all data necessary to support the filing. Department of Insurance Bulletin No. 1990-05. These filings were subject to public hearing. The deregulation of the voluntary insurance program continued when, in 2000, the General Assembly altered the filing and review requirements for workers' compensation insurers seeking deviations from their previously-approved premiums. The General Assembly introduced the definition of exempt commercial policies to the rating scheme in 2000 Act No. 235. Exempt commercial policies were defined as insurance contracts: ... for large commercial insureds where the total combined premiums to be paid for these policies for one insured is greater than fifty thousand dollars annually and as may be further provided for in regulation or in bulletins issued by the director. Exempt commercial policies include all property and casualty coverages except for commercial property and insurance related to credit transaction written through financial institutions. S.C.Code Ann. § 38-1-20(40) (2002). The definition of casualty insurance includes workers' compensation insurance. Id. § 38-1-20(9). Thus, workers' compensation insurance policies are exempt commercial policies. The General Assembly provided that [e]xempt commercial policies are not subject to prior approval by the [DOI]. Act No. 235, 2000 S.C. Acts 1683, § 8 (codified as S.C.Code Ann. § 38-73-910(G) (2002)). The General Assembly amended the definition of exempt commercial policies by removing the minimum premium requirement, thus making all commercial insured policies exempt from DOI rate approval. S.C.Code Ann. § 38-1-20(4) (Supp.2008). The General Assembly's recognition of a class of exempt commercial policies abrogated the DOI's rate-making authority over the policies at issue. Act No. 235 eliminated the subject policies from the public notice requirement by specifically exempting them from the rate-making requirements of Title 38. This exemption eliminated the instant policies from the requirement of public notice given to consumers of a proposed rate increase and the fundamental requirement that [n]o insurer may make or issue a contract or policy except in accordance with the filings which are in effect for the insurer. Id. § 38-73-920. Furthermore, this Court has recognized that sellers of exempt commercial policies are not required to file rate schedules and plans with the [DOI]. Croft v. Old Republic, 365 S.C. 402, 410, 618 S.E.2d 909, 913 (2005). Finally, the DOI has specifically noted that no insurer of exempt commercial policies will be required to file any classification, rate, rule, or rating plan. S.C.Code Ann. Regs. § 69-64 (Supp.2008). As argued by Plaintiffs, the DOI continued to require rating agencies to file LC data with the DOI for its approval. However, beginning in 2000 with the advent of exempt commercial policies, the DOI was not vested with the authority to regulate LCM. The filing at issue was made in 2001, a year after exempt commercial policies were no longer subject to rate setting regulation by the DOI. All of policies at issue were for large commercial insureds and carried premiums in excess of $50,000, thus all were exempt commercial policies under both the original and amended versions of the definition of this term. Therefore, because the submission made by Defendants in 2001 did not invoke the regulatory authority of the DOI, the Plaintiffs' claim against Defendants is not barred by the Filed Rate Doctrine.