2023 S.D. 31South Dakota Life & Health Guar. Ass'n v. S. Dakota Bankers Benefit Plan Tr.
| Docket Number | 29895-r-JMK |
| Decision Date | 05 July 2023 |
| Parties | 2023 S.D. 31SOUTH DAKOTA LIFE & HEALTH GUARANTY ASSOCIATION, Appellee, v. SOUTH DAKOTA BANKERS BENEFIT PLAN TRUST, Appellant. |
| Court | South Dakota Supreme Court |
ARGUED AUGUST 31, 2022
APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT HUGHES COUNTY, SOUTH DAKOTA THE HONORABLE M. BRIDGET MAYER Judge
MICHAEL L. SNYDER CHARLES D. GULLICKSON MITCHELL A. PETERSON of Davenport, Evans, Hurwitz & Smith, LLP Sioux Falls South Dakota Attorneys for appellee.
TERRA M. LARSON MICHAEL F. SHAW of May, Adam, Gerdes & Thompson, LLP Pierre, South Dakota Attorneys for appellant.
[¶1.] Until 2019, the South Dakota Bankers Benefit Plan Trust (Trust) was statutorily required to be a member of the South Dakota Life and Health Guaranty Association (Association). The Association covers impaired and insolvent insurers' obligations to their insureds by assessing Association members. In 2017, the Association assumed liability for an insolvent insurer. The Association established a five-year assessment schedule to cover the insolvent insurer's obligations. The Trust paid three years but protested having to pay the last two because they were assessed after its membership in the Association ended. The Association denied the Trust's protests.
[¶2.] The Trust appealed to the South Dakota Division of Insurance which scheduled a hearing in front of the Office of Hearing Examiners (Examiner). The Examiner determined that the Association had no legal authority to assess the Trust for the last two assessments because they were authorized and called after the Trust ended its membership in the Association, and the Employee Retirement Income Security Act of 1974 (ERISA) preempted the State's laws requiring trusts to make payments for assessments.
[¶3.] The Association appealed the Examiner's decision to the circuit court, arguing that the Association had legal authority to assess the Trust under State law and its plan of operation, and ERISA does not preempt any state insurance law making the Trust liable for the assessments. The circuit court reversed the Examiner's order and adopted the Association's arguments. The Trust now appeals from the circuit court's order requiring the Trust to pay the two assessments along with prejudgment interest. We reverse.
[¶4.] Both parties have stipulated to the material facts underlying this appeal as first recounted in the Examiner's findings of fact. The Association is an organization that exists to pay benefits and continue coverages of impaired and insolvent insurers through assessments that it levies upon its member insurers, subject to limitations delineated in SDCL chapter 58-29C. South Dakota Bankers Benefit Plan Trust is a Multiple Employer Welfare Arrangement (MEWA) under ERISA § 3(40). The Trust is also a self-funded Multiple Employer Trust (MET) pursuant to SDCL 58-18-88. The Trust provides and maintains an employee welfare benefit plan for eligible employees of employers that are active members of the South Dakota Bankers Association. It describes its purpose as "assum[ing] the financial risk of providing health care benefits to its members by maintaining stop-loss coverage and adequate reserves to cover any potential losses, as well as making participating employers assessable in the event of insolvency."
[¶5.] Before July 1, 2019, the Trust was required under SDCL 58-18-88(6) to participate in and be a member of the Association. However, on July 1, 2019, a legislative amendment to SDCL 58-18-88 took effect and eliminated the Trust's mandatory membership in the Association. Consequently, the Trust ended its membership.
[¶6.] At issue in this appeal is whether the Trust is obligated to pay assessments issued by the Association after the Trust ceased being a member. The assessments arose from the insolvency of the insurers Penn Treaty Network American Company and its subsidiary American Network Insurance Company (collectively Penn Treaty). Penn Treaty was declared insolvent pursuant to an order of liquidation entered by the Commonwealth Court of Pennsylvania on March 1, 2017, approximately two years before the Trust ended its membership with the Association. That same day, the Association accepted liability for and reinsured the obligations it incurred as a result of Penn Treaty's liquidation. The Association decided to spread the obligatory payments, resulting from the liquidation, over five years rather than requiring its members to pay a one-time lump-sum payment.[1]Had it wished to, the Association asserts that it could have legally assessed a onetime lump-sum payment in 2017 pursuant to SDCL 58-29C-51(O) and SDCL 58-29C-52(A).[2] [¶7.] To satisfy its obligations over the five years, as planned, the Association began authorizing yearly assessments to be paid by its members.[3] The Association authorized and called assessments in 2017, 2018, and 2019. The Trust paid all three without objection.[4] However, after the Trust ended its membership in the Association, it protested having to pay the Association's 2020 assessment, which was authorized on December 20, 2019, and called on January 22, 2020. On January 28, 2020, in response to the called assessment, the Trust sent the Association a letter outlining its objection to paying the assessment. The Association responded in a letter dated February 7, 2020, stating its understanding that the Trust was still required to pay the assessment. The Trust then paid the assessment under protest as reflected in its correspondence to the Association dated February 21, 2020.
[¶8.] The Association denied the Trust's protest in a letter dated April 9, 2020, and advised the South Dakota Division of Insurance of the denial the same day. The Trust appealed the denial to the Division of Insurance on June 2, 2020. The Division of Insurance scheduled the appeal for a hearing before the Office of Hearing Examiners.
[¶9.] Before the Examiner made its decision, the Association authorized and called the 2021 assessment, which the Trust similarly paid under protest, and the Association again denied. At the Trust's request, its two protests were consolidated for purposes of the appeal before the Examiner.
[¶10.] On March 23, 2021, the Examiner issued its decision, concluding that the Trust "was under no obligation to pay the assessments to [the] Association in 2020 and 2021 as the assessments were made after [the] Trust no longer belonged to [the] Association." Furthermore, the Examiner determined that the Trust was prohibited by federal law, specifically, ERISA, from making payments to the Association and that any South Dakota law purporting to require the Trust to make such payments was preempted by ERISA. Accordingly, the Examiner ordered the Association to refund the Trust's 2020 and 2021 assessment payments, along with prejudgment interest, which the Association did on April 7, 2021.
[¶11.] The Association appealed the Examiner's decision and final order to the circuit court, raising several issues. First, the Association claimed the Trust was required to pay the 2020 and 2021 assessments under state law in conjunction with the Association's plan of operation. Second, the Association asserted that the Examiner erred in concluding that ERISA preempted any South Dakota statute requiring the Trust to pay the assessments. Third, the Association argued that the Examiner retroactively applied substantive law by determining that the amendments to SDCL 58-18-88(6), ending the requirement that the Trust participate as a member of the Association, terminated the Trust's obligation to pay the assessments.[5] Finally, the Association argued that it was improper for the Examiner to require the Association to reimburse the Trust for prejudgment interest on the assessments paid under protest.
[¶12.] After briefing by both parties, the circuit court issued a written memorandum opinion in which it concluded that "the [Examiner] impermissibly gave Senate Bill 37 [the statutory amendments ending the Trust's obligatory membership in the Association] retroactive effect and therefore its decision must be reversed." The circuit court further determined that "[t]he two assessments paid under protest must remain paid, and interest thereon is further ordered." The court agreed with the Association that the Trust acquired the obligation to pay for all five yearly assessments in 2017 when Penn Treaty was liquidated. The court held that by not requiring the Trust to pay the 2020 and 2021 assessments, the 2019 amendment, which abrogated the Trust's required membership in the Association, was given substantive retroactive effect. Further, the circuit court reasoned that the Association's plan of operation authorized the Association's assessments against the Trust after it ended its membership in the Association. Finally, the court held that the Examiner erred in concluding ERISA preempted any South Dakota statute requiring the Trust to pay the Association's assessments.
[¶13.] The circuit court incorporated its memorandum opinion into its order and final judgment, which ordered the Trust to pay the Association prejudgment interest on the returned 2020 and 2021 assessment amounts. The prejudgment interest was to be calculated "at the rate of 10% per annum per SDCL 21-1-13.1 and SDCL 54-3-16, with said interest beginning to accrue as of April 7, 2021[,]" which is the date the Association returned the 2020 and 2021 assessment payments to the Trust pursuant to the Examiner's order.
[¶14.] The Trust appeals, raising several issues which we consolidate and restate as follows:
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