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N.C. Steel Inc. v. National Council on Compensation Insurance

March 06, 1998

N.C. STEEL, INC.; N.C. STEEL ERECTORS, INC.; N.C. STEEL MANAGEMENT, INC.; N.C. STEEL FABRICATORS, INC.; AIRCRAFT SERVICES OF RALEIGH, INC.; MONTAGUE BUILDING COMPANY; SMITH & SMITH, SURVEYORS, P.A., AND NORTH CAROLINA MARBLE & GRANITE
v.
NATIONAL COUNCIL ON COMPENSATION INSURANCE; NATIONAL WORKERS' COMPENSATION REINSURANCE POOL; NORTH CAROLINA RATE BUREAU; AETNA CASUALTY & SURETY COMPANY; CIGNA INSURANCE COMPANY AND INS. CO. OF NORTH AMERICA; EMPLOYERS INS. OF WAUSAU A MUTUAL COMPANY; FIDELITY & CASUALTY CO. OF N.Y.; HARTFORD UNDERWRITERS INSURANCE COMPANY; LIBERTY MUTUAL INSURANCE COMPANY; MICHIGAN MUTUAL INSURANCE COMPANY; NATIONAL SURETY CORPORATION; ST. PAUL FIRE & MARINE INSURANCE COMPANY; THE TRAVELERS INSURANCE COMPANY; AND UNITED STATES FIDELITY AND GUARANTY COMPANY



The opinion of the court was delivered by: Webb, Justice.

On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision of the Court of Appeals, 123 N.C. App. 163, 472 S.E.2d 578 (1996), affirming in part and reversing in part an order entered 16 February 1995 by Clark, J., in Superior Court, Wake County, granting the defendants' motion for summary judgment. Heard in the Supreme Court 18 March 1997.

This is an action by eight corporations which allege that the eleven defendant insurance companies and three other entities have engaged in a restraint of trade in violation of N.C.G.S. § 75-1; have engaged in unfair and deceptive practices in violation of N.C.G.S. § 75- 1.1; have engaged in unfair competition in violation of N.C.G.S. § 58- 63-15; have engaged in constructive fraud; have breached a fiduciary duty; have breached a covenant of good faith and fair dealing; and have conspired to commit fraud, breach of fiduciary duty, and breach of implied covenants of good faith and fair dealing. The only claims brought forth with this appeal are the claims based on chapters 58 and 75 of the North Carolina General Statutes.

The defendants moved to dismiss the action pursuant to N.C.G.S. § 1A-1, Rule 12(b)(1) and (c). At the hearing on this motion, the court considered matters outside the pleadings, which converted it to a hearing for summary judgment. Stanback v. Stanback, 297 N.C. 181, 205, 254 S.E.2d 611, 627 (1979). The superior court granted the motion for summary judgment, and the Court of Appeals affirmed in part and reversed in part. We allowed petitions for discretionary review by plaintiffs and defendants.

The gravamen of the plaintiffs' claim is that the defendants withheld certain evidence from the Insurance Commissioner in a rate case decided in 1992, causing the Commissioner to approve excessive rates for workers' compensation insurance. The materials submitted at the hearing on the motion for summary judgment showed that workers' compensation insurance, with minor exceptions, is mandatory. N.C.G.S. § 97-9 (1991). Employers may be self-insured, they may purchase insurance in the voluntary market, or they may purchase insurance in the residual market. Employers who are not or cannot be self-insured and who cannot purchase insurance in the voluntary market must purchase in the residual market, often called the assigned risk pool. N.C.G.S. § 58-36-1(5) (1994). There is a 14% surcharge for coverage in the residual market, and dividends are not paid on residual market coverages as is done in the voluntary market.

Workers' compensation rates are regulated by law. The process of rate-making is begun by the filing of proposed rates with the Insurance Commissioner by the North Carolina Rate Bureau (NCRB). N.C.G.S. § 58- 36-15 (1994). The proposed rates become legal rates unless the Insurance Commissioner intervenes and holds hearings for the purpose of approving final rates. N.C.G.S. § 58-36-20 (1994). The NCRB is an organization created by statute, N.C.G.S. § 58-36-1, and is a defendant in this case. Much of NCRB's function in rate increase applications is done by a national rating organization, the National Council on Compensation Insurance (NCCI), which is also a defendant in this case.

The plaintiffs contend that the way the residual market is conducted by the defendants unlawfully causes excessive rates. The Commissioner of Insurance has promulgated a "North Carolina Workers' Compensation Insurance Plan" (Plan), which delegates the regulation of the residual market to NCRB. The plan requires that each company writing workers' compensation insurance accept customers assigned to it who have not been able otherwise to procure such coverage.

NCCI has created a National Workers' Compensation Pool (Pool) consisting of all insurance companies who write workers' compensation insurance in North Carolina. The Pool is a defendant in this case. Premiums paid for assigned risk insurance are deposited in the Pool. When an insured is accepted for assigned risk insurance, a member of the Pool is designated to service its policy. This company, which is called a servicing carrier, issues a policy and services it. It does not keep the premium, however. The premiums are deposited in the Pool, and claims are paid from the Pool. In this way, all carriers of assigned risk insurance share equally in the assigned risk losses.

The companies which issue assigned risk policies are paid servicing carrier fees by the Pool. These fees are agreed upon by the Pool and the carriers, and varied from 27.4% to 30% of assigned risk premiums during the period from 1989 through 1993. It is the servicing carrier fees about which the plaintiffs complain.

The plaintiffs assert two theories of damages resulting from the alleged illegal activity. First, they contend rates are forced up by the use of the servicing carrier fees, which are undisclosed noncompetitive expenses, and loss factors that would have been demonstrably lower in a competitive residual market, thereby adversely affecting purchasers of workers' compensation insurance in both the voluntary and residual markets. Second, they say that the actions of the defendants forced some policyholders into the residual market, where the premiums are higher and the plaintiffs do not receive dividends on their policies.

The defendants rely on the filed rate doctrine, which grew from the United States Supreme Court's opinion in Keogh v. Chicago & N.W. Ry. Co., 260 U.S. 156, 67 L. Ed. 183 (1922). The filed rate doctrine provides that a plaintiff may not claim damages on the ground that a rate approved by a regulator as reasonable is nonetheless excessive because it is the product of unlawful conduct. See also Square D Co. v. Niagra Frontier Tariff Bureau, 476 U.S. 409, 90 L. Ed. 2d 413 (1986).

We agree with the Court of Appeals for the reasons stated in its opinion that we should adopt the filed rate doctrine. The General Assembly has given the Insurance Commissioner the duty of setting rates. The Commissioner, aided by his staff, has the expertise to determine proper rates. We do not believe that, by the enactment of N.C.G.S. ch. 75, the General Assembly intended that duly set rates be challenged in another forum. When the Commissioner approved the rates, they became the proper rates.

As Judge Wynn, writing for the Court of Appeals, points out, chapter 58 of the General Statutes contains a comprehensive regulatory scheme for insurance companies, which includes provisions for punishing violators of the chapter. N.C.G.S. § 58-2-70(g) (1994). It also contains a provision for the appeal of decisions of the Commissioner. N.C.G.S. § 58-2-75(a) (1994). We do not believe that, with this comprehensive regulatory scheme, the General Assembly intended that the rates could be collaterally attacked.

The plaintiffs contend that the servicing carrier fees were not considered by the Commissioner. They say that the failure of the defendants to disclose to the Commissioner the plan by which these fees are paid is a violation of N.C.G.S. § 58-63-15(5) and an unfair practice. We believe this is a good example of why questions involving rates should be settled by the Insurance Commissioner and not by a jury. Whether the payment of the servicing carrier fees is a relevant factor which must be considered by the Commissioner in setting rates pursuant to N.C.G.S. § 58-36-10 is a technical question which requires considerable expertise to answer. It is best decided by the Commissioner, who has this expertise. It should not be decided by a court or jury, which does not have this expertise.

The plaintiffs rely on several cases which they say establish the rule that actions for violations of chapter 58 may be brought under N.C.G.S. §§ 75-1 and 75-1.1. Pearce v. American Defender Life Ins. Co., 316 N.C. 461, 343 S.E.2d 174 (1986); Dull v. Mutual of Omaha Ins. Co., 85 N.C. App. 310, 354 S.E.2d 752, disc. rev. denied, 320 N.C. 512, 358 S.E.2d 518 (1987); Phillips v. Integon Corp., 70 N.C. App. 440, 319 S.E.2d 673 (1984); Ellis v. Smith-Broadhurst, Inc., 48 N.C. App. 180, 268 S.E.2d 271 (1980). These cases involve wrongs which are not involved with rate-making. The filed ...


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