Court Opinion

ID: 9664238
Source: CourtListenerOpinion
Date Created: 2023-08-24 00:09:39.971351+00
Date Added: 2024-06-11T18:15:03.690214
License: Public Domain

PAGE, Justice
(dissenting).
I respectfully dissent. I disagree with the court’s characterization of the issue presented as being merely whether we should recognize a passive review exception to the filed rate doctrine. I believe that the nature of the Minnesota insurance regulatory scheme, the structure of State Farm’s URP, and the type of claim asserted by the class when viewed together undermine each rationale for adopting the filed rate doctrine in this case. The court’s expansion of the doctrine to the extreme facts of this case sets dangerous precedent that will allow quasi-regulated industries to avoid the consequences of their unlawful behavior.
I.
The court justifies applying the filed rate doctrine to bar this class action based on the principles of separation of powers and effectuating the legislature’s intent, but application of the filed rate doctrine serves neither of these goals. Nor do the other traditional rationales have any application here.
A. Justiciability
One rationale for the filed rate doctrine is justiciability. Because a rate is deemed reasonable when it has been filed and approved by the regulatory agency, in order for a court to calculate damages in an antitrust or RICO action the court would have to determine what the hypothetical alternative reasonable rate would have been without the illegal conduct. Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 21 (2d Cir.1994). Because this involves expertise unique to the administrative agency assigned to oversee those rates, it is a deter*320mination that courts are ill-equipped to make. Id. at 19, 21.
This case does not require a jury or a court to speculate on the hypothetical alternative reasonable rate that would have been set without State Farm’s allegedly illegal conduct. The class’s damages would simply be the cumulative difference between each individual homeowner’s base rate, and the rate they paid with the URP surcharge. Because the surcharge is calculated according to a percentage of the homeowner’s base rate, the class’s damages are calculable with mathematical precision. Thus, the justiciability concern has no place here.
B. Rate Discrimination
Another rationale for the filed rate doctrine is the avoidance of discriminatory rates among ratepayers. When first identifying this rationale, the Supreme Court expressed caution over recovery based on an amount less than the filed rate because it “might, like a rebate, operate to give [the plaintiff] a preference over his trade competitors.” Keogh v. Chicago & Nw. Ry. Co., 260 U.S. 156, 163, 43 S.Ct. 47, 67 L.Ed. 183 (1922). The Court further explained that even if all ratepayers sued, uniform treatment would not result “unless the highly improbable happened, and the several juries and courts gave to each the same measure of relief.” Id. Some courts have since expanded this rationale beyond trade competitors to include all ratepayers because it preserves the goal of uniformity of rates. See, e.g., Wegoland, 27 F.3d at 21.
Here, members of the class are not trade competitors so there is little concern for giving one a preference over others. Further, the ascertainable nature of the damages and the fact that this is a class action eliminates any concern over varying recoveries and non-uniform rates. Thus, there is no chance that awarding the class damages in this case would result in discriminatory rates.
Nonetheless, the court, without citation to authority, significantly expands this rate discrimination rationale by focusing not on the possibility of discriminatory rates among trade competitors or consumers, but on the regulated industry’s right to earn a reasonable return. Even if this were a legitimate concern for heavily regulated industries, it has no application here. For the general authority that regulated industries are constitutionally entitled to reasonable return, the court cites Hibbing Taconite Co. v. Minnesota Public Service Commission, 302 N.W.2d 5 (Minn.1980). But Hibbing Taconite was an electric utility rate case in which rates are set by the regulatory agency according to a strict set of guidelines outlined by statute and clarified by judicial decisions. See Minn.Stat. § 216B.03 (2004); Nw. Bell Tel. Co. v. State, 299 Minn. 1, 216 N.W.2d 841 (1974). In Northwestern Bell we explained that:
The process by which rates are fixed is, first, to determine the value of the company’s property represented by the equity of its stockholders; second, to establish a fair rate of return which will provide earnings to investors comparable to those realized in other businesses which are attended by similar risk, will allow the company to attract new capital as required, and will maintain the company’s financial integrity; and, third, to compute corporate taxes, depreciation reserves, and other expenses of operating the company. The rates charged subscribers are thereupon authorized in an amount which will equal the sum of the return to investors and the company’s operating expenses.
299 Minn. at 5-6, 216 N.W.2d at 846.
In contrast, insurance rates are set by the insurers themselves, not the DOC. *321Minn.Stat. § 70A.08, subd. 1 (2004). And more importantly, there is no limit on the amount of the rate so long as “a reasonable degree of price competition exists.” Minn.Stat. § 70A.04, subd. 2(a) (2004). The DOC’s only function in reviewing rates for excessiveness is ensuring that such competition exists. In this regard, insurance rates are little different from rates set by any other non-regulated industry. Therefore, like non-regulated industries, insurers are free to build litigation expenses into their rates. Further, even when a reasonable degree of competition does not exist, the legislature has directed that in considering rate excessiveness “[d]ue consideration shall be given to past and prospective loss and expense experience * * * and to all other relevant factors.” MinmStat. § 70A.05(1) (2004). This suggests that litigation costs associated with past rates can be built into future rates regardless of competition.
The court suggests that to allow this action would require speculation over whether the DOC would have approved of the URP without the surcharge. But, in doing so, the court elevates the importance of a rate being adequate over the importance of a rate being non-discriminatory. Given the choice between potentially saddling State Farm with an inadequate rate, or effectively punishing the class for State Farm’s allegedly illegal behavior, I would choose the former. It must be emphasized that it was State Farm who designed the URP, not the DOC.
C. No-Injury Rule
A third rationale for the filed rate doctrine is that, because the filed rate defines the legal rights between a ratepayer and the regulated industry, no economic injury can be suffered by paying the filed rate. The Supreme Court in Keogh explained that:
Section 7 of the Anti-Trust Act gives a right of action to one who has been “injured in his business or property.” Injury implies violation of a legal right. The legal rights of a shipper as against carrier in respect to a rate are measured by the published tariff. Unless and until suspended or set aside, this rate is made, for all purposes, the legal rate, as between carrier and shipper. The rights as defined by tariff cannot be varied or enlarged by either contract or tort of the carrier.
260 U.S. at 163, 43 S.Ct. 47.
The Eighth Circuit Court of Appeals recently distinguished Keogh in a case involving facts very similar to this case. In Saunders v. Farmers Insurance Exchange, 440 F.3d 940, 942 (8th Cir.2006), homeowners brought federal anti-discrimination actions against several insurers alleging that their underwriting criteria and pricing policies reflected unlawful race discrimination. The district court applied the filed rate doctrine and issued summary judgment in favor of the insurers. The Eighth Circuit reversed, explaining first that the filed rate doctrine is simply a way to harmonize two federal statutes with competing purposes. Id. at 944. Because the insurance rate regulatory scheme involved state statutes, the court held that the “Supremacy Clause tips any legislative competition in favor of the federal anti-discrimination statutes.” Id.
While this case is slightly different in that it does not implicate the Supremacy Clause, the Saunders court went on to explain that a state regulatory scheme could still bar a federal claim, depending on the “language, remedies, and purposes of the federal statutes at issue.” Id. The court then focused on Keogh’s no-injury rationale and made an appropriate distinction that is relevant here:
*322RICO and the Sherman Act require a plaintiff to prove injury to “his business or property.” 18 U.S.C. § 1964(c). Thus, the no-injury principle of Keogh applies to deprive a RICO or antitrust plaintiff of standing under federal law to challenge a filed rate that must be charged under state law. But standing to sue under federal anti-discrimination statutes such as the Fair Housing Act is far broader. If a defendant’s pricing policies or practices were the product of unlawful race discrimination, plaintiffs who purchased homeowners insurance at the discriminatory rates have standing to seek relief under these federal statutes even if the defendant was required by state law to charge its filed rates. Thus, as to this limited group of plaintiffs, the no-injury principle of Keogh * * * will not support [application of the filed rate doctrine].
Saunders, 440 F.3d at 944-45 (citations omitted).
This distinction applies equally to this case. The DOC’s review of insurance rates serves four functions: to ensure that rates are not (1) excessive; (2) inadequate; (3) unfairly discriminatory; or (4) being used to engage in unfair price competition. See Minn.Stat. § 72A.04, subd. 1 (2004). Keogh’s, no-injury rule only addressed the first function. When a regulatory agency determines that a rate is not excessive— i.e., reasonable — it necessarily defines the economic rights between the consumer and the regulated entity. A consumer cannot thereafter claim that he was injured because a different reasonable rate should have been paid.
But the same cannot be said for the consumer’s right to be free from unlawful racial discrimination. This right has already been defined by statute. See Minn. Stat. §§ 70A.04, subd. 1, 72A.20, subd. 13 (2004). The DOC’s discrimination review function does nothing to further define the right and certainly does not mean that the rate cannot be discriminatory. It only means that, in the DOC’s opinion, the rate is not discriminatory. Thus, the no-injury rationale has no application in this case.
D. Separation of Powers
Related to the no-injury principle is the idea that the filed rate doctrine respects principles of separation of powers when allowing judicial involvement would infringe on the executive branch’s role of reviewing rates for reasonableness. But, as already discussed, the class’s challenge is not to the DOC’s review of the URP’s reasonableness, but to the DOC’s review of the URP for compliance with an anti-discrimination statute. The latter type of review involves the judicial function of applying facts to the law, not measuring competition, see Minn.Stat. § 70A.04, subd. 1, or calculating the insurer’s operating expenses and ascertaining a reasonable rate of return while taking into account the risk associated with insuring a particular behavior, see Minn.Stat. §§ 70A.04, subd. 2(b), 70A.05, subd. 2. Unlike measuring competition or setting rates, the DOC does not have particular expertise in interpreting statutes or identifying unlawful discrimination. Consequently, far from respecting separation of powers, the court’s decision violates separation of powers by delegating a judicial function to an executive official without the availability of judicial review.
State Farm attempts to circumvent this distinction by characterizing this action as a highly complex case centered around interpreting actuarial data. But one of the threshold disputes is over the interpretation of two apparently conflicting provisions of Minn.Stat. § 72A.20, subd. 13 (2004), which does not require interpretation of actuarial data. The main provision *323prohibits “charging differential rates for an equivalent amount of homeowner’s insurance coverage * * * solely because * * * of the age of the primary structure sought to be insured.” Minn.Stat. § 72A.20, subd. 18(b). This suggests that State Farm’s URP is permissible if it was in fact based on the age of utility systems within the home, and not solely on the age of the home itself. Subdivision 13, however, does “not prohibit the use of rating standards based upon the age of the insured structure’s plumbing, electrical, heating or cooling system or other part of the structure, the age of which affects the risk of loss.” Minn.Stat. § 72A.20, subd. 13. By negative implication, subdivision 13 suggests that a rating scheme based on utility systems within the home may also be prohibited if not sufficiently supported by actuarial data. But it is unclear that this is prohibited by the main provision, which is specific to charging differential rates “solely because * * * of the age of the primary structure,” instead of more broadly covering the age of the home or a proxy for it.
In other words, the first question a court would be confronted with by this case is whether the statute requires a rating scheme based on utility systems to be supported by actuarial data at all. If not, the fact question becomes whether State Farm’s URP was in fact based on the age of the utility systems, or if it was really based on the age of the primary dwelling. This requires no particular expertise or interpretation of actuarial data.
If section 72A.20, subdivision 13, were interpreted to prohibit the charging of differential rates based on the age of utility systems without actuarial support, only then would the interpretation of actuarial data be necessary. But even if this is the correct interpretation, the legislature has already recognized that courts are competent to interpret actuarial data. The DOC, insurers, and intervenors are allowed to remove a case or appeal to a district court under certain circumstances. Minn.Stat. §§ 14.63 (“Any person aggrieved by a final decision in a contested case is entitled to judicial review of the decision * * 72A.25 (allowing the DOC to file for an injunction in a district court if the DOC charges a violation of, inter alia, Minn.Stat. § 72A.20, and the insurer refuses to discontinue the activity); 72A.26 (allowing any intervenor in a public hearing to seek relief from a district court if the DOC does not charge a violation of, inter alia, Minn. Stat. § 72A.20) (2004). Thus, under the right circumstances this very case could have been heard before a district court. Although this would only allow for the issuance of an injunction instead of damages, in order to support the injunction, the district court would still be required to assess actuarial data to find a violation of section 72A.20, subdivision 13(b). Therefore, any complexity in interpreting actuarial data has no relevance to the separation-of-powers rationale for the filed rate doctrine.
E. Legislative Intent
The other rationale that the court cites for the filed rate doctrine is that it carries out the intent of the legislature to assign all responsibilities associated with filed rates to the regulatory agency. In Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 106 S.Ct. 1922, 90 L.Ed.2d 413 (1986), the Supreme Court elevated this rationale over all others when declining to overrule Keogh. The Court seemed to acknowledge that certain procedural and judicial developments since Keogh may undermine the original rationales for the filed rate doctrine, including
the development of class actions, which might alleviate the expressed concern about unfair rebates; the emergence of *324precedents permitting treble-damages remedies even when there is a regulatory remedy available; the greater sophistication in evaluating damages, which might mitigate the expressed fears about the speculative nature of such damages; and the development of procedures in which judicial proceedings can be stayed pending regulatory proceedings.
Square D Co., 476 U.S. at 423-24, 106 S.Ct. 1922. But the Court recognized “the strong presumption of continued validity” associated with Congressional acquiesce to the judicial interpretation of a statute, which at the time had been in place for 65 years, and held that “[i]f there is to be an overruling of the Keogh rule, it must come from Congress, rather than from this Court.” Id. at 423-24, 106 S.Ct. 1922. Because this court has not yet interpreted the filed rate doctrine to apply to Minnesota’s insurance regulatory scheme, Minnesota has no such history of legislative acquiesce to the filed rate doctrine.
The court concludes that the Minnesota Legislature’s intent to apply the filed rate doctrine in this case is implied by Minn. Stat. § 70A.11, subd. 1 (2004). Section 70A.11, subdivision 1, reads:
If the commissioner finds after a contested case proceeding under chapter 14 that a rate is not in compliance with section 70A.04, the commissioner shall order that its use is to be discontinued and shall order the excess premium plus interest at the rate specified in section 549.09 to be refunded to the policyholder. The amount of the refund, plus interest, must be computed from the commencement date of the contested case hearing on the rate.
This applies only to proceedings under the Administrative Procedures Act and only to findings made by the commissioner. It does not apply to judicial proceedings. The court concludes that this “reinforces the principles that underlie the filed rate doctrine” because an insurer can rely on the DOC’s review of its rates. But the class is not challenging the DOC’s review of State Farm’s rates; they are asking the court to conduct an independent review of them for any race-based discriminatory impact. There is no expression of legislative intent anywhere that the judicial branch not review rates for their discriminatory impact.
In fact, by allowing insurers to set their own rates, the opposite may well be true, that is, by establishing a presumption of reasonableness based on the existence of competition, and by making the DOC’s review function passive only, the legislature has expressed its intent that insurance rates be treated like any other rate set by non-regulated industries. The DOC’s review function merely recognizes the unique nature of, and the potential for abuse in, the insurance industry.
The court also finds evidence of legislative approval of the filed rate doctrine in Minn.Stat. § 72A.08 (2004) because it prohibits rebates. But section 72A.08, subdivision 1, only prohibits an insurance company from giving rebates. It does not apply to a judicial award of restitution for a benefit wrongfully conferred. Further, although subdivision 2 prohibits an insured from receiving a rebate, it clearly does not contemplate prohibiting restitution from a judicial action. If it did, it would conflict with section 70A.11, subdivision 1, which allows for the DOC to order refunds of illegal premiums under certain circumstances.
Finally, even if legislative intent as suggested by the court can be implied, we have long recognized that “statutes are presumed not to alter or modify the common law unless they expressly so provide.” Agassiz & Odessa Mut. Fire Ins. Co. v. *325Magnusson, 272 Minn. 156, 166, 136 N.W.2d 861, 868 (1965) (emphasis added); see also Morris v. Am. Family Mut. Ins. Co., 386 N.W.2d 233, 237-38 (Minn.1986). Assuming that the class has stated a common law cause of action, the filed rate doctrine cannot be applied against them absent express legislative intent that insurance providers are immune from judicial oversight.
II.
Compounding my concern that none of the filed rate doctrine rationales apply here are the severe consequences of applying the doctrine in this case. First, as the class argues, consumers are largely left without a remedy under the regulatory scheme. In this case, the DOC and State Farm privately agreed to a $75,000 “investigation fee” that went to the state. The DOC did not seek refunds of any of the nearly 20 million dollars in URP surcharges that class members paid to State Farm. The public had no input in this remedy and no opportunity to intervene. Because the DOC agreed to charge a violation of section 72A.20, subdivision 13(b), and State Farm agreed to stop charging the URP, the class could not appeal the consent order in any way. See Minn.Stat. §§ 72A.25, 72A.26 (2004). There are no remaining statutory provisions allowing for intervention, appeal, or judicial review. The class’s only remedy — the remedy that the court now forecloses — was to file a lawsuit.
The second consequence of this decision is that the law regarding racial discrimination in insurance practices will now be determined by executive officials who are not bound by stare decisis and who, as history informs us, may well be complicit in the effort to discriminate. See generally, e.g., Brown v. Board of Education, 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954) (racial segregation by school officials); Atwater v. City of Lago Vista, 532 U.S. 318, 360, 121 S.Ct. 1536, 149 L.Ed.2d 549 (2001) (O’Connor, J., dissenting) (recognizing the problem of police using minor traffic infractions to engage in racial profiling). On July 23, 1997, the DOC determined that State Farm’s URP was not racially discriminatory. In October of 2002, a different DOC official determined that the URP was racially discriminatory. On April 9, 2004, yet another DOC official determined that the URP was not racially discriminatory. The result of the court’s decision is that the legal acceptance of racially discriminatory behavior will change with the changing tides of the DOC administration, or even with the different DOC officials assigned to review the behavior on a particular day. This does not comport with the rule of law.
Third, the passive nature of the DOC’s review leaves me with serious concerns about the degree of attention that will be given to compliance with anti-discrimination statutes. There is no requirement that the DOC even review rates that are filed with it. And even if it does review all rates as a matter of course, the review serves four distinct functions and, as the court highlights, the insurance regulatory scheme is “very comprehensive.” This means that the DOC is responsible for ensuring compliance with dozens of statutes before a problem or complaint with regard to one even arises. Finally, although an investigation was initiated here based on one customer’s complaint after the URP was approved, there is nothing that requires the DOC to initiate such an investigation. While I do not endorse passive review as an exception to the filed rate doctrine, I know that passive review without judicial oversight may well result in no review of insurance rates.
*326For these reasons, I would reverse the district court’s grant of summary judgment on the basis of the filed rate doctrine. While I agree in principle with the concept of the filed rate doctrine, I believe that the facts of this case undermine the rationales for adopting the filed rate doctrine here and results in severe and unfair consequences for insurance purchasers who are also persons of color. For purposes of compliance with anti-discrimination statutes, insurance companies, like all non-regulated industries, should be accountable to all three branches of government.