in the Court of Appeals 6 September 2017.
by petitioner from order entered 18 November 2016 by Judge G.
Bryan Collins in Wake County No. 14 CVS 15290 Superior Court.
Hanna & Sullivan, PLLC, by Douglas W. Hanna, for
Attorney General Joshua H. Stein, by Special Deputy Attorney
General Daniel Snipes Johnson and Assistant Attorney General
M. Denise Stanford, for respondent-appellee North Carolina
Department of Insurance and the Commissioner of Insurance.
Moore and Henderson, P.A., by Marvin M. Spivey, Jr., Glenn C.
Raynor and Angela Farag Craddock, for respondent-appellee
North Carolina Reinsurance Facility.
the North Carolina Reinsurance Facility ("the
Facility"), is a statutory entity, consisting of all
motor vehicle liability insurers in North Carolina as
required members. N.C. Gen. Stat. § 58-37-5 (2015).
Discovery Insurance Company ("Discovery") is a
Kinston, North Carolina-based insurance company engaged in
selling motor vehicle insurance. Discovery was a member of
the Facility at all times relevant to this appeal.
Facility is a creation of North Carolina's Compulsory
Automobile Liability Insurance Law." State ex rel.
Hunt v. N. Carolina Reinsurance Facility, 302 N.C. 274,
283, 275 S.E.2d 399, 402 (1981). "The Facility is a pool
of insurers which insures drivers who the insurers determine
they do not want to individually insure." Id.
The pertinent provisions are codified in Article 37, Chapter
58 of the General Statutes. N.C. Gen. Stat. §§
58-37-1 to 58-37-75 (2015) (hereinafter referred to as
"the Facility Act").
insurance companies which write motor vehicle insurance in
North Carolina, are required to issue motor vehicle liability
coverage insurance to any "eligible risk, " as is
defined in N.C. Gen. Stat. § 58-37-1, who applies for
that coverage, if the coverage can be ceded to the Facility.
N.C. Gen. Stat. § 58-37-25(a). After writing a motor
vehicle policy, an insurer can retain it as a part of its
voluntary business or cede it to the Facility. Hunt,
302 N.C. at 283, 275 S.E.2d at 402.
policy is ceded, the writing insurer pays the net premium to
the Facility, less certain allowed expenses. The Facility
becomes liable on that particular policy to reimburse the
issuing insurer for claims paid. Id. at 283, 275
S.E.2d at 402-3.
loss and claim occurs under the policy, the ceding company
settles the claim and is reimbursed by the Facility.
Id. The Facility is only authorized to reinsure
coverages arising under motor vehicle insurance policies
required to satisfy The Motor Vehicle Safety and Financial
Responsibility Act, N.C. Gen. Stat. §§ 20-279.1
et seq., together with any other motor vehicle
insurance as is required by federal law or regulation, state
law, state administrative code, or rule adopted by the North
Carolina Utilities Commission. N.C. Gen. Stat. §
58-37-35(b). The Facility is required to operate on a no
profit-no loss basis. N.C. Gen. Stat. § 58-37-35(1).
November 2011, Discovery uncovered a fraudulent scheme by one
of its claims executives, Roland Steed ("Steed").
From early 2005 until November 2011, Steed issued Discovery
claim checks to fictitious persons and entities in order to
have the proceeds of those checks to be deposited into
accounts he controlled. Steed reported the fraudulent
payments as legitimate payments under his management and
his scheme, Steed issued checks for fraudulent payments
totaling approximately $5.2 million. Of that total, Steed
attributed approximately $1.3 million of those payments to
claims on auto liability policies, which had been ceded to
the Facility by Discovery. Before Steed's scheme was
uncovered, the Facility had reimbursed Discovery for the
approximately $1.3 million in claims paid under these ceded
notified the Facility upon learning of Steed's fraudulent
activity in November 2011. Discovery asked the Facility to
keep Steed's fraud confidential from all, except a select
few of the Facility's executives, to allow the Department
of Insurance a period of time required to conduct a criminal
Facility honored Discovery's request and did not
independently investigate Steed's fraudulent payments,
until after Steed and his co-conspirators were indicted in
August 2012. Following Steed's indictment, the Facility
confirmed the net total of the claims payments attributable
to Steed's fraud and reimbursed to Discovery was $1, 340,
letter to Discovery dated 25 October 2013, Facility staff
noted the Facility only reimburses companies for payments of
valid claims. The letter repeated the Facility's
conclusion that $1, 340, 921.25 in reported, but fraudulent,
losses reimbursed by the Facility were not valid claim
payments, but were fidelity losses that were ineligible for
reimbursement. The Facility instructed Discovery to repay
these losses to the Facility.
requested a hearing, pursuant to N.C. Gen. Stat. §
58-37-65(a), before the Facility's Board of Governors
("the Facility Board") to dispute the
Facility's staff's 25 October 2013 letter requesting
Discovery to repay the loss payments attributable to
Steed's frauds. The Facility Board's hearing took
place on 24 July 2013. On 19 August 2013, the Facility Board
issued a final decision and held Discovery was obligated to
repay the Facility the $1, 340, 921.25 in fraudulent claims
payments previously reimbursed by the Facility.
appealed the Facility Board's decision to the
Commissioner of Insurance pursuant to N.C. Gen. Stat. §
58-37-65(b). At a December 2013 meeting, the Facility Board
learned Discovery had appealed the Facility Board's 19
August 2013 ruling and had not repaid the fraudulent
reimbursements made by the Facility. The Facility Board
instructed Facility staff to issue a letter and a
Supplemental Account Activity Statement to Discovery on 16
Hearing Officer, on behalf of the Commissioner of Insurance
("the Commissioner"), issued an order which
affirmed the ruling of the Facility Board on 20 October 2014.
petitioned the Superior Court of Wake County for judicial
review of the Commissioner's order pursuant to N.C. Gen.
Stat. § 58-37-65(b). The trial court affirmed the
Commissioner's Order on 18 November 2016. Discovery
timely filed notice of appeal to this Court on 16 December
trial court reviewed Discovery's appeal of the Hearing
Officer's order as a civil case pursuant to N.C. Gen.
Stat. § 58-2-75(b). Jurisdiction lies in this Court from
a final order of the superior court pursuant to N.C. Gen.
Stat. § 1-277 (2015) and § 7A-27(b) (2015).
requests this Court review whether the Commissioner erred by:
(1) holding the Facility acted within its statutory authority
by ordering Discovery to repay the disputed claim payments;
(2) finding the Facility was not required to institute a
separate civil action against Discovery to recover the
approximately $1.3 million at issue; (3) making findings of
fact and conclusions of law regarding the audit
responsibilities of the Facility, which are not supported by
the whole record; (4) concluding that Discovery's
affirmative defense of estoppel was not applicable; (5) not
permitting pre-hearing discovery; and, (6) not considering
the Facility's authority to issue the Supplemental
Account Activity Statement.
Standard of Review
Gen. Stat. § 58-37-65 of the Facility Act provides that
"[a]ll rulings or orders of the Commissioner under this
section shall be subject to judicial review as approved in
G.S. 58-2-75." This statute provides for judicial review
of orders and decisions of the Commissioner by the filing of
a petition within 30 days from the date of the delivery of a
copy of the order or decision by the Commissioner. Pursuant
to N.C. Reinsurance Facility v. Long, 98 N.C.App.
41, 390 S.E.2d 176 (1990), N.C. Gen. Stat. § 58-2-75 is
to be read in conjunction with N.C. Gen. Stat. § 150B-51
of the Administrative Procedure Act ("APA").
Long, 98 N.C.App. at 46, 390 S.E.2d at 179.
N.C. Gen. Stat. 150B-51(b), the scope and standard of review
is that in "reviewing a final decision, the court may
affirm the decision of the agency or remand the case to the
agency . . . for further proceedings." The court:
may also reverse or modify the [agency's] decision . . .
if the substantial rights of the petitioners may have been
prejudiced because the [agency's] findings, inferences,
conclusions, or decisions are:
(1) In violation of constitutional provisions;
(2) In excess of the statutory authority or jurisdiction of
(3) Made upon unlawful procedure;
(4) Affected by other error of law;
(5) Unsupported by substantial evidence . . . in view of the
entire record as submitted; or
(6) Arbitrary, capricious, or an abuse of discretion.
N.C. Gen. Stat. § 150B-51(b) (2015).
particular standard applied to issues on appeal depends upon
the nature of the error asserted. "It is well settled
that in cases appealed from administrative tribunals,
questions of law receive de novo review, whereas
fact-intensive issues such as sufficiency of the evidence to
support an agency's decision are reviewed under the
whole-record test." N. C. Dep't of Env't
& Nat. Res. v. Carroll, 358 N.C. 649, 659, 599
S.E.2d 888, 894 (2004) (brackets, quotation marks and
asserted under subsections 150B-51(b)(1)-(4) are reviewed
de novo. N.C. Gen. Stat. § 150B-51(c) (2015).
Under the de novo standard of review, the reviewing
court "considers the matter anew and freely substitutes
its own judgment[.]" Carroll, 358 N.C. at 660,
599 S.E.2d at 895 (citation, internal quotation marks, and
the error asserted falls within subsections 150B-51(b)(5) and
(6), this Court applies the "whole record standard of
review." N.C. Gen. Stat. § 150B-51(c) (2015). Under
the whole record test,
[the reviewing court] may not substitute its judgment for the
agency's as between two conflicting views, even though it
could reasonably have reached a different result had it
reviewed the matter de novo. Rather, a court must
examine all the record evidence-that which detracts from the
agency's findings and conclusions as well as that which
tends to support them-to determine whether there is
substantial evidence to justify the agency's decision.
Carroll, 358 N.C. at 660, 599 S.E.2d at 895
(internal citations and quotation marks omitted). "
'Substantial evidence' means relevant evidence a
reasonable mind might accept as adequate to support a
conclusion." N.C. Gen. Stat. § 150B-2(8c) (2015).
Facility Board Did Not Exceed Its Authority by Ordering
argues the Facility Act does not authorize the Facility to
issue an order of repayment. We disagree.
reviewing an action of the Facility Board, the Commissioner
determines whether the challenged Facility action was taken
in accordance with the Facility Act, the Facility's Plan
of Operation and the Facility's Standard Practice Manual.
N.C. Gen. Stat. § 58-37-65(c). Rule E of Section 5 of
the Standard Practice Manual states "[f]idelity losses
arising out of claims handling shall be the sole
responsibility of the member company." Chapter 7.C of
Section 4 of the Standard Practice Manual provides that
"errors detected through the . . . functions of the
Facility will be reported to the carrier with appropriate
instructions for prompt correction." Regarding the power
of the Facility Board, the Facility Act provides in pertinent
(g) Except as may be delegated specifically to others in the
plan of operation or reserved to the members, power and
responsibility for the establishment and operation of the
Facility is vested in the Board of Governors, which power and
responsibility include but is not limited to the
. . . .
(12) To adopt and enforce all rules and to do anything
else where the Board is not elsewhere herein specifically
empowered which is otherwise necessary to accomplish the
purpose of the Facility and is not in conflict with the
other provisions of this Article.
Gen. Stat. § 58-37-35(g)(12) (emphasis supplied).
Canons of Statutory Construction
rules governing this Court's review and construction of
the General Statutes are well established. "[W]hen the
language of a statute is clear and unambiguous, there is no
room for judicial construction and the courts must give its
plain and definite meaning, and are without power to
interpolate, or superimpose, provisions and limitations not
contained therein." State ex rel. Commissioner of
Ins. v. North Carolina Rate Bureau, 43 N.C.App. 715,
719-20, 259 S.E.2d 922, 925 (1979) (quoting Norris v.
Home Security Life Insurance Co., 42 N.C.App. 719, 721,
257 S.E.2d 647, 648 (1979)).
statute, being remedial, should be construed liberally, in a
manner which assures fulfillment of the beneficial goals for
which it is enacted and which brings within it all cases
fairly falling within its intended scope." Burgess
v. Joseph Schlitz Brewing Co., 298 N.C. 520, 524, 259
S.E.2d 248, 251 (1979) (citing Hicks v. Albertson,