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HASSETT'S OBJECTIONS: The Filed-Rate Doctrine: Competing Lines of Cases Undermine its Reliability

04.06.2015

The essence of the filed-rate doctrine is that a rate that is filed or approved by a governing regulatory authority is per sereasonable and unassailable in judicial proceedings.  The doctrine originated in cases involving federal regulatory agencies but over the years has spread to state agencies (particularly utilities) and increasingly to insurance company filings with state departments of insurance.  See 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, 820 F.Supp.2d 825 (N.D.Ill. Sept. 28, 2011) (hazard insurance) (vacated on other grounds); andRichardson 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”).

The filed-rate doctrine promotes two policy goals: (1) to eliminate discrimination among rate payers and (2) to preclude disguised judicial rate-making.  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 has been applied to bar tort claims where the relief sought would be essentially a disguised deviation from the filed-rate.  See Armour v. Transamerica Life Ins. Co., 2012 WL 234032 (D.Kan. January 25, 2012).  See also Uniforce Temp. Pers., Inc. v. Nat'l Council on Comp. Ins., Inc., 892 F.Supp. 1503, 1512 (S.D.Fla. 1995) ("In order for this Court or a jury to award damages, it would be necessary to measure the difference between the properly approved... insurance rates paid by plaintiffs and those mythical rates which would have been applicable but for the dedendants’ concerted activity. This undertaking is not within the province of the courts but should reside with the respective state regulators with authority over rate-setting."); Decambaliza v. QBE Holdings, Inc., 2013 WL 5777294, at *7 (W.D.Wis. Oct. 25, 2013) (plaintiffs' "focus[] on the lawfulness and purpose of the benefits that defendants derived from the excessive premiums and not on what constitutes a reasonable rate" was an "illusory distinction because the alleged fraud necessarily implicates the reasonableness of the filed rates"). 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.

In Armour, 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 allegedly 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.  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.

Armour is one of the most favorable filed-rate decisions in the insurance context.  It applied the filed-rate doctrine where the regulator did not affirmatively approve rates but retained the right to disapprove them.  Armour at *4.  See also In re Title Ins. Antitrust Cases, 702 F.Supp. 2d 840, 848-849 (N.D. Ohio 2010) (filed-rate doctrine barred antitrust claim involving rates set in file and use state, because state provided that the commissioner "shall review" rate filings).  TheArmour court held it did not matter whether the public was allowed to comment on proposed rates prior to implementation. Id. 

But application of the filed-rate doctrine in the context of insurance is far from universal.  Some courts refuse outright to apply the doctrine to state regulation, while others draw various distinctions between challenges to rates and ratemaking versus challenges to post-ratemaking conduct.  See Clark v. Prudential Ins. Co. of America, Civ. No. -08-6197, 2011 WL 940729 (D.N.J. Mar. 15, 2011) (rejecting outright the application of the filed-rate doctrine to state insurance rates);Jackson v. U.S. Bank, N.A., 2014 WL 4179867 *3-4 (S.D.Fla. Aug. 22, 2014) (collecting cases refusing to apply filed-rate doctrine to cases involving forced-place insurance); Kunzelmann v. Wells Fargo Bank, N.A., 2012 WL 2003337, at *3 (S.D.Fla. June 4, 2012) ("plaintiffs' claims are not barred by the filed-rate doctrine [where they do] not challenge the rates filed by insurers [but r]ather challenge [] the manner in which Defendants select insurers, the manipulation of the force-placed insurance process, and the impermissible kickbacks that were included in the premiums."); Hoover v. HsBC Mortg. Corp. (USA), 2014 WL 1280441 at *9 (rejecting application of filed-rate doctrine where plaintiffs "d[id] not challenge the rates charged by Defendants (as opposed to challenges to allegedly improper conduct underlying the rates, such as kickbacks)").

The competing lines of cases are irreconcilable.  Two recent decisions bear discussion. 

First, most recently, in North Carolina St. Bd. of Dental Examiners v. Federal Trade Commission, No. 13-534, (U.S. Feb. 25, 2015), the Supreme Court of the United States further restricted the state action defense applicable in anti-trust cases.  See Parker v. Brown, 317 U.S. 341 (1943) (state law authorizing anticompetitive conduct trumps antitrust enforcement).  Specifically, the Dental Examiners decision rejects state regulatory antitrust immunity where the state's sovereign involvement is tangential.  While that case involved an industry-controlled state board, the Court focused on the involvement by the state as a sovereign.

While most courts have not directly analogized to antitrust immunity in addressing the filed-rate doctrine, some have.  See Daluere v. Kentucky, 119 F.Supp. 2d 683, 688 (W.D.Ky. 2011) ("[T]he policy foundations for ... state action [antitrust] immunity coincide interestingly with the filed rate doctrine.").  In a file and use state, where the state's authority is limited to rejecting rates, courts may resist application of the filed-rate doctrine.  While decisions of the commissioner of insurance should constitute acts of the sovereign, courts may drill into the extent of the regulatory analysis.  It is difficult to imagine an inquiry capable of more judicial mischief than one into ratemaking. 

With respect to insurance cases specifically, the split in the courts may best be illustrated by the recent decision in Wilson v. Everbank, N.A., No. 14 CIV 22264 (S.D.Fla. Jan. 6, 2015).  That case involved a putative class action attacking forced-placed insurance.  The plaintiffs argued that they were not challenging the insurance rates but only "the manner in which [the defendants] select insurers, the manipulation of the force-placed insurance process, and the impermissible kickbacks that were included in the premiums."  Id. at *20. 

Conversely, the insurers argued that the distinction between process and rate purely is semantic.  By attacking the composition of the filed-rate and alleging that some portion of the approved rate passed on to them was an unearned kickback, Plaintiffs necessarily challenge the reasonableness of the rates – which included the alleged kickbacks – approved by state regulators.  

The court punted, holding that it must accept the plaintiff's distinction on a motion to dismiss but would re-examine the question on a motion for summary judgment.  Wilson, at *21.  But class action plaintiffs are like guerilla insurgents – "They win by not losing."  Kissinger, Henry: "The Vietnam Negotiations," Foreign Affairs, Vol. 48, No. 2, Jan. 1969.  Deferring the adjudication of the filed-rate doctrine, a purely legal question, until summary judgment prolongs the lawsuit's life, thereby sustaining the plaintiffs.  While many defendants will continue to defend, at least through summary judgment, others opt to settle.  While payments to avoid the risk of greater liability makes sense to the particular defendants, it is debatable whether such transfers of wealth benefit society as a whole.