United States: HASSETT'S OBJECTIONS - The Filed Rate Doctrine: A Love Story

Insurance Reinsurance Managed Healthcare Review - Spring 2012

Because many states have statutes barring or restricting the enforcement of arbitration clauses in insurance contracts, the U.S. Supreme Court's decision last year in AT&T Mobility, LLC v. Concepcion, Case No. 09-893 (U.S. April 27, 2011) (upholding class arbitration waivers) has been of limited benefit to insurers. See Ga. Code Ann. § 9-9-2(c) (arbitration clauses in insurance contracts unenforceable); Miss. Code Ann. § 83-11-109 (disallowing arbitration clauses in uninsured motorist coverage); Neb. Rev. St. § 25-2602.01; S.C. Code Ann. § 15-48-10; Ark. Code Ann. § 16-108-230; Nev. Rev. St. § 689B.067 (group health insurance); United Ins. Co. of Am. v. Fla. Office of Ins. Regulation, 985 So. 2d 665 (Fla. App. 2008) (upholding insurance department's denial of application to include arbitration clause in life insurance contracts); Appleton Papers, Inc. v. Home Indemn. Co., 612 N.W.2d 760 (Wis. App. 2000) (arbitration clause unenforceable where form not approved by commissioner of insurance). The majority of decisions uphold insurance-specific restrictions on arbitrability based upon the McCarran-Ferguson Act, which allows state law to control the insurance industry unless Congress expressly provides otherwise. See Am. Bankers Ins. Co. of Fla. v Inman, 436 F.3d 490 (5th Cir. 2006); McKnight v. Chicago Title Ins. Co., 358 F.3d 854 (11th Cir. 2004).

Just in time for insurers, the filed rate doctrine has gained momentum. Most recently, in Armour v. Transamerica Life Ins. Co., Case No. 11-2034 (D. Kan. January 25, 2012), the court dismissed a putative class action as barred by the filed rate doctrine. The plaintiff alleged that Transamerica had sold long-term care policies under an unreasonable actuarial assumption which, unknown to the plaintiff but known to Transamerica, would and did result in subsequent rate increases. Based on that premise, the plaintiff asserted purported causes of action for fraud, negligent misrepresentation, breach of duty of good faith and fair dealing, breach of contract and unjust enrichment. Id. at 2. Transamerica moved to dismiss the case under the filed rate doctrine. Specifically, because it had filed its rates with the Kansas Department of Insurance, Transamerica claimed those rates could not be altered collaterally via litigation. The court agreed and dismissed the case.

The essence of the filed rate doctrine is that a rate that is filed or approved by a governing regulatory authority is per se reasonable and unassailable in judicial proceedings. Id. at 3. The doctrine originated in cases involving federal regulatory agencies but over the years has spread to state agencies (particularly utilities) and ultimately to insurance companies. See Keogh v. C.N. Ry. Co., 260 U.S. 156 (1922) (Interstate Commerce Commission); Ark. La. Gas Co. v. Hall, 453 U.S. 371 (1981) (Federal Energy Regulatory Commission); Taffet v. Southern Co., 967 F.2d 1483 (11th Cir. 1992) (State Public Service Commissions); Coll v. First Am. Title Ins. Co., 642 F.3d 876, 886 (10th Cir. 2011) (title insurance); Clark v. Prudential Ins. Co. of Am., 736 F. Supp. 2d 902, 913-914 (D.N.J. 2010) (health insurance); Schilke v. Wachovia Mortg. FSB, Case No. 09-CV-1363 (N.D.Ill. Sept. 28, 2011) (hazard insurance) (vacated on other grounds); Richardson v. Standard Guar. Ins. Co., 371 N.J.Super. 449, 853 A.2d 955, 964 (N.J.Super. A.D. 2004) (holding the filed rate doctrine applies to the insurance industry and noting "the considerable weight of authority from other jurisdictions that have applied the filed rate doctrine to ratemaking in the insurance industry"); Schermer v. State Farm Fire and Cas. Co., 721 N.W.2d 307 (Minn. 2006) (applying the filed rate doctrine to the insurance industry); In re Cincinnati Ins. Co., 51 So. 3d 298 (Ala. 2010).

The filed rate doctrine promotes two policy goals: (1) eliminate discrimination among rate payers; and (2) prevent courts from engaging in disguised rate-making, which should be reserved to regulatory agencies. As a result, the filed rate doctrine bars not only breach of contract claims, where the insured claims the insurer promised a rate less than the filed rate, but also bars tort claims where the relief sought would be essentially a disguised deviation from the filed rate. See Armour at 3. See also AT&T Co. v. Central Office Tel., Inc., 524 U.S. 214, 222 (1998) ("Even if a carrier intentionally misrepresents its rates and a customer relies on the misrepresentation, the carrier cannot be held to the promised rate"); Cincinnati Ins., 51 So. 3d at 309 (filed rate bars judicial inquiry into adequacy of disclosure of rate). While the rule is "sometimes harsh and seemingly merciless," it accords with the legal presumption that all persons are presumed to know the filed rates. Armour at 3; see also Kansas City Rwy. Co. v. Carl, 227 U.S. 639, 653 (1913) (consumer's knowledge of filed and approved rates conclusively presumed); Cincinnati Ins., 51 So. 3d at 309 (same).

The Armour court applied the filed rate doctrine where the regulator did not affirmatively approve rates but retained the right to disapprove them. Armour at 4. Similarly, it did not matter whether the public was allowed to comment on proposed rates prior to implementation. Id. Given that the application of the filed rate doctrine to state law claims does not implicate important federal interests, as do the antitrust laws, courts have not drilled into the depth of the state regulation. Compare F.T.C. v. Ticor Title Ins. Co., 504 U.S. 621 (1992) (state ratemaking immune from federal antitrust laws only where state supervision is active). The level of rate regulation is up to the states.

Finally, the Armour decision addressed a practical consideration. The typical class plaintiff's main objective is to survive a motion to dismiss and go straight to class certification, which might lead to a settlement. As a result, the typical complaint is broad and as vague as allowed under pleading rules. If a defendant seeks to introduce evidence, the motion may be converted to one for summary judgment and, perhaps, stayed pending discovery.

In Armour, the defendant introduced rate filings in support of its motion to dismiss. Rejecting the plaintiff's challenge, the court held it could take judicial notice of the rate filings on the motion to dismiss. Other courts agree. See Pacificorp v. Northwest Pipeline GP, Case No. CV-10-99 (D. Ore. June 23, 2010); see also Bryant v. Rich, 530 F.3d 1368 (11th Cir. 2008) (evidence properly considered in adjudicating motion to dismiss for failing to exhaust administrative remedies).

The battle is not over. Insurers should expect plaintiffs to devise theories and measures of recovery to avoid the filed rate doctrine, but insurers should be gratified to see the growing application of the doctrine in insurance class actions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.