AMUNDSON & ASSOCS. ART STUDIO, v. National Council on Comp. Ins.

• Decision Date: 17 September 1999
• Docket Number: No. 81,028.,81,028.
• Citation: 988 P.2d 1208,26 Kan. App.2d 489
• Parties: AMUNDSON & ASSOCIATES ART STUDIO, LTD., d/b/a THE AMUNDSON GROUP, Individually and representing a class of similarly situated persons, Appellant, v. NATIONAL COUNCIL ON COMPENSATION INSURANCE, INC., et al., Appellees.
• Court: Kansas Court of Appeals

26 Kan. App.2d 489

988 P.2d 1208

AMUNDSON & ASSOCIATES ART STUDIO, LTD., d/b/a THE AMUNDSON GROUP, Individually and representing a class of similarly situated persons, Appellant, v. NATIONAL COUNCIL ON COMPENSATION INSURANCE, INC., et al., Appellees.

No. 81,028.

Court of Appeals of Kansas.

Opinion filed September 17, 1999.

Scott A. McCreight, Steven M. Sprenger, and Korey A. Kaul, of Sprenger & McCreight, L.C., of Kansas City, Missouri, for the appellant.

Reid F. Holbrook and Brent G. Wright, of Holbrook, Heaven & Osborn, P.A., of Kansas City, and David H. Bamberger, of Piper & Marbury, L.L.P., of Washington, D.C., for appellee United States Fidelity and Guaranty Company.

Jerome T. Wolf and Curtis E. Woods, of Sonnenschein, Nath & Rosenthal, of Kansas City, Missouri, and Mark F. Horning and Shannen W. Coffin, of Steptoe

& Johnson, L.L.P., of Washington, D.C., for appellees Aetna Casualty & Surety Company and Travelers Insurance Company.

Floyd R. Finch, of Blackwell, Sanders, Matheny, Weary & Lombardi, L.L.P., of Kansas City, Missouri, for appellee Houston General Insurance Company.

Lori R. Schultz, of Morrison & Hecker L.L.P., of Kansas City, Missouri, for appellee Liberty Mutual Insurance Company.

David W. Hauber, of Boddington & Brown, Chtd., of Kansas City, and David J. Healy, of Arnold, White & Durkee, of Houston, Texas, for appellees Continental Western Insurance Company and Hartford Underwriters Insurance Company.

Roger D. Stanton, of Berkowitz, Feldmiller, Stanton, Brandt, Williams & Stueve, L.L.P., of Kansas City, Missouri, and James R. Safley, of Robins, Kaplan, Miller & Ciresi, L.L.P., of Minneapolis, Minnesota, for appellee Employers Insurance of Wausau.

Edward M. Boyle, of Payne & Jones, Chartered, of Overland Park, for appellee Commercial Union Insurance Company.

Robert B. Sullivan and Miriam Glueck, of Polsinelli, White, Vardeman & Shalton, a Professional Corporation, of Overland Park, for appellee Granite State Insurance Company.

Wyatt A. Hoch and Martha Aaron Ross, of Foulston & Siefkin, L.L.P., of Wichita, John A. Karaczynski, of Akin, Gump, Strauss, Hauer & Feld, L.L.P., of Los Angeles, California, and Kevin J. Arquit and Gary R. Carney, of Rogers & Wells, of New York, New York, for appellee National Council on Compensation Insurance, Inc.

Leslie A. Greathouse, of Shughart, Thomson & Kilroy, of Overland Park, R. Lawrence Ward, of Shughart, Thomson & Kilroy, of Kansas City, Missouri, and Richard G. Parker, of O'Melveny & Myers, L.L.P., of Washington, D.C., for appellee Insurance Company of North America.

William R. Sampson and Timothy M. O'Brien, of Shook, Hardy & Bacon, L.L.P., of Overland Park, and James P. Kleinberg, of McCutchen, Doyle, Brown & Enerson, L.L.P., of San Jose, California, for appellees Fireman's Fund Insurance Company and National Surety Corporation.

William R. Sampson and Timothy M. O'Brien, of Shook, Hardy & Bacon, L.L.P., of Overland Park, and Stanley B. Block, of Vedder, Price, Kaufman & Kammholz, of Chicago, Illinois, for appellee Continental Insurance Company.

Wyatt A. Hoch and James D. Oliver, of Foulston & Siefkin L.L.P., of Wichita, for amici curiae American Insurance Association, Alliance of American Insurers, and National Association of Independent Insurers.

Before PIERRON, P.J., RULON, J., and ROVERT J. FLEMING, District Judge, assigned.

PIERRON, J.:

Amundson & Associates Art Studio, Ltd. (Amundson) appeals from the district court's dismissal of its cause of action for failure to state a claim upon which relief may be granted. Amundson filed a class action lawsuit against the National Council on Compensation Insurance, Inc., and a number of insurance companies (collectively NCCI) challenging their conduct in managing the "residual" market for workers compensation insurance in Kansas. Amundson alleges that NCCI violated the Kansas Antitrust Act by conspiring to fix costs associated with the residual market.

Amundson and the class of similarly situated persons it represents are Kansas employers. Kansas employers are generally required to purchase workers compensation insurance to protect their employees. See K.S.A. 1998 Supp. 44-532(b).

There are at least two bodies of employers purchasing workers compensation insurance in Kansas. The majority of employers purchase workers compensation insurance in the "voluntary market." In the voluntary market, employers purchase the insurance at the prevailing rate, based upon their individual circumstances. Employers who are considered high risk are typically unable to purchase workers compensation insurance in the voluntary market because of the nature of their businesses, their injury record, and the increased risk of insuring them. To remedy this problem, the legislature has mandated that every insurance company writing workers compensation insurance in Kansas participate in a plan for the equitable apportionment of these high risk employers. K.S.A. 40-2109. Such a plan is known as the involuntary or "residual" market.

NCCI is a corporation owned and operated by its 700 member insurance carriers. NCCI is an insurance "rating organization" licensed in Kansas to develop and file proposed rates for the insurance commissioner's approval. NCCI proposes rates that will be charged to employers within the residual market. The plan used in Kansas for the equitable apportionment of these high risk employers was promulgated by NCCI.

The rates proposed by NCCI are filed with the insurance commissioner, who has the authority to approve, reject, or modify the rates. NCCI delegates responsibility for the daily administration of the risks written in the residual market to certain insurers known as "servicing carriers." The residual market imposes significant risk on insurers because employers insured in the residual market generally have worse loss experience than employers who are able to obtain coverage in the voluntary market. In order to mitigate these risks, most insurers in Kansas have entered into a contractual arrangement known as the National Workers' Compensation Reinsurance Pool.

NCCI selects certain insurers to act as servicing carriers. These servicing carriers accept the risks required by the plan, thereby fulfilling the obligation of all pool participating companies. The servicing carriers issue policies, collect premiums, investigate and pay claims, and provide other services to residual market policyholders. The servicing carriers then reinsure 100 percent of their assigned risks with the pool companies. By this means, the servicing carriers avoid liability themselves for any loss sustained by the employers in the residual market. Any loss experienced in the residual market is allocated to every insurer writing workers compensation insurance in Kansas, based on each company's market share. The cost of losses experienced in the residual market and allocated to each insurer writing workers compensation insurance is treated as an expense in setting a company's rates.

As compensation for performing their duties, these service carriers are awarded fees (a servicing carrier allowance) in the form of a percentage of the premiums paid by the employers purchasing insurance in the residual market. In the past, NCCI has had complete discretion in picking the servicing carriers and determining the rate of compensation paid to them. NCCI has not chosen the servicing carriers based upon a competitive bidding process.

Amundson alleges that the servicing carrier allowance was excessive because NCCI selected servicing carriers and determined the allowance by mutual agreement rather than by competitive bidding. Amundson also alleges that NCCI conspired with the other defendants to systematically and fraudulently understate the net operating gain and/or overstate the net operating loss for the residual market. Amundson alleges 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.

Amundson contends a competitive bidding environment for the selection of the servicing carriers would reduce the overall rates in both markets.

Amundson filed a petition alleging damages as a result of the price-fixing conspiracy among the defendants. The first count asserted a violation of the Kansas antitrust laws, K.S.A. 50-101 et seq., and sought treble damages under K.S.A. 50-801(b). The remaining counts alleged common-law fraud, unjust enrichment, and a civil conspiracy, and requested compensation, fees and costs, and an injunction prohibiting further illegal conduct. NCCI removed the case to federal court, which remanded it to state court for lack of subject matter jurisdiction.

NCCI filed a motion to dismiss based primarily on the "filed rate doctrine." The district court agreed and concluded that Amundson's allegations were an impermissible collateral attack on rates approved by the insurance commissioner and thus barred by the filed rate doctrine. The court stated that to allow Amundson to challenge the rates under the provisions of the antitrust law would infringe upon the authority of the insurance commissioner. The court indicated that no matter how Amundson framed the issue, it was challenging the rates established by the insurance commissioner.

Amundson argues the district court erred in granting NCCI's motion to dismiss based on the filed rate doctrine.

Our review of a motion to dismiss is clearly established. When a motion to dismiss under K.S.A. 60-212(b)(6) raises an issue concerning the legal sufficiency of a claim, the question must be decided from the well-pleaded facts of plaintiff's complaint. A court must accept the plaintiff's description of the events, along with any inferences reasonably to be drawn therefrom. However, this does not mean the...