Blue Cross & Blue Shield of Delaware, Inc. v. Elliott

• Decision Date: 21 December 1983
• Citation: 479 A.2d 843
• Court: Delaware Superior Court
• Parties: BLUE CROSS & BLUE SHIELD OF DELAWARE, INCORPORATED, Appellant, v. David H. ELLIOTT, Insurance Commissioner of the State of Delaware, Appellee. . Submitted:

Page 843

479 A.2d 843

BLUE CROSS & BLUE SHIELD OF DELAWARE, INCORPORATED, Appellant, v. David H. ELLIOTT, Insurance Commissioner of the State of Delaware, Appellee.

Superior Court of Delaware New Castle County.

Submitted: Dec. 21, 1983.

Decided: April 30, 1984.

Appeal from decision of Insurance Commissioner--REVERSED AND REMANDED.

Max S. Bell, Jr., and John J. Schreppler, II, of Richards, Layton & Finger, Wilmington, for appellant.

Catherine S. Mullholland, Deputy Atty. Gen., for appellee.

TAYLOR, Judge.

By decision dated March 17, 1983 the Delaware Insurance Commissioner [Commissioner] held that rates which appellant Blue Cross & Blue Shield [Blue Cross] had filed were excessive under 18 Del.C. § 2503 and allowed a lesser rate increase. The parties have submitted briefs and had oral argument.

I

An initial issue raised by Blue Cross is whether the Commissioner's decision should be reversed because the Commissioner was disqualified from deciding this matter. The issue of disqualification was raised by Blue Cross during the rate proceedings. Blue Cross contends that shortly after a dispute was resolved between the Commissioner and Blue Cross over the availability of coverage for Commissioner's son, the Commissioner began to evidence strong public hostility to Blue Cross and its rate positions.

The Commissioner attached to his decision on the rate filing, an order denying the Blue Cross motion to disqualify. The order concluded that (1) the Commissioner could not disqualify himself from performing his statutory duty since no statutory mechanism existed for disqualification other than by impeachment, and (2) the actions of the Commissioner did not reflect bias or prejudgment of the issues which were inherent in the frequent rate filings of Blue Cross. The Commissioner indicated that any prior problem concerning his son's coverage had been resolved and that he and his son have coverage. The Court has not been supplied with evidentiary material which refutes the Commissioner's findings.

Blue Cross also contends that press releases made by the Commissioner before and during the pendency of this matter indicate prejudice or prejudgment which requires the decision to be reversed.

At the outset, it is noted that the Insurance Department has a duality of functions, one, overseeing the conduct of the insurance industry affecting the public in this State, and second, assuring that the rates are not excessive, inadequate or unfairly discriminatory, and in the performance of its protecting the public a segment of the Department may be called upon to take an advocacy or adversary position while the Commissioner or someone in the Department must perform an adjudicatory function. 1 Cooper, State Administrative Law 338-343; New Jersey State Board of Optometrists v. Nemitz, N.J.Super., 21 N.J.Super. 18, 90 A.2d 740 (1952); Dayoub v. Com., State Dental Council, etc., Pa.Comm., 70 Pa.Cmwlth. 621, 453 A.2d 751 (1982).

Blue Cross cites fourteen communications from either the Commissioner or the Deputy Commissioner. These communications make it clear that the Department was becoming more active or aggressive in coping with rapidly increasing health care costs. The Department sought more detailed information concerning the Blue Cross operation. It disapproved various Blue Cross filings on the ground that the information had not been provided. It appears that the Department obtained the services of a consultant, James H. Hunt, to make a comparative analysis of Blue Cross's financial operation. It also announced a public information program designed to stimulate competition in the health care insurance industry. Blue Cross sees these actions as a personal vendetta by the Commissioner. On the other hand, the Commissioner asserts that Blue Cross has received particular attention because it is a major provider of health care protection, but that filings of other insurers had also been disapproved.

With respect to the statements which announced the Commissioner's disapproval of certain Blue Cross filings, while they addressed the issues and gave an explanation for the disapproval, I do not find that they precluded due consideration of the evidence which might be introduced at the ultimate hearing. Clearly, the system which contemplates the exercise of an early disapproval necessitates some preliminary adjudication of the issues. Finally, the Commissioner's efforts to obtain support for legislation giving the Commissioner greater control is legitimate conduct on the part of an elected official concerning the powers of his office and is not disqualifying conduct.

It should be noted that a party to an adjudicatory proceeding, such as the Blue Cross rate hearing, is entitled to a determination which is free from bias or prejudice. Cooper, State Administrative Law, pp. 338-343, 344-346. Moreover, the official or body which is charged with conducting and deciding matters must guard against making pronouncements which indicate a prejudgment of the pending matter. Ibid. If that restrictive requirement is violated, appellate review will scrutinize the administrative action to assure that no miscarriage of justice has occurred. Ibid, pp. 348-350.

The Court does not find that the actions of the Commissioner and Department in singling out Blue Cross for critical comment of the nature involved here warrants disqualifying an elected official from performing his statutory duty of rate surveillance. However, in view of this background, the Court is called upon to scrutinize the hearing record to determine whether the decision is a miscarriage of justice.

II

Blue Cross contends that the test in determining the propriety of rates is whether the rates fall within the range of reasonableness. The Commissioner does not dispute this standard. The disagreement arises in applying that range. 18 Del.C. § 2503(a)(2) requires that "[r]ates shall not be excessive, inadequate or unfairly discriminatory." Therefore, permissible rates are those which are not unfairly discriminatory and are less than excessive and more than inadequate. The rates must be the product of "due consideration" of the several factors enumerated in 18 Del.C. § 2503(a)(3). ¹ The statute contemplates a plurality of rates based on the considerations enumerated in paragraph (3), particular systems of express provisions of different insurers (paragraph (4)), risk classifications (paragraph (5)), or other reasonable classifications (subsection (b)).

The function of the Commissioner is to review the insurer's filings "to determine whether they meet the requirements" of the statute. 18 Del.C. § 2506(a). The Commissioner must apply this standard to determine whether or not the insurer's filed rates are "excessive, inadequate or unfairly discriminatory" and whether the filing otherwise fails to meet the requirements of the statute. Elliott v. Blue Cross, Del.Supr., 463 A.2d 273 (1983).

In this case the Commissioner found that Blue Cross had not given proper weight to various factors which were entitled to consideration and had based the rates on unsupported assumptions and that as a result thereof the filed rates were excessive. Therefore, the record must be examined to determine whether the Commissioner's conclusion finds support in the record.

With respect to the factors which may be considered in connection with filing and review of rates, it has been noted above that a number of factors are entitled to consideration, including past and prospective loss experience within and outside this State, reasonable margin for contingencies, past and prospective expenses both countrywide and those specially applicable to this State, and other relevant factors within and without this State. 18 Del.C. § 2503(a)(3).

Blue Cross contends that the Commissioner erroneously accepted the approach of the Department's expert witness, James Hunt, and rejected Blue Cross evidence. Blue Cross characterizes Mr. Hunt's testimony as a "personal social policy approach" and challenges his emphasis upon (1) Blue Cross's failure to negotiate with doctors, (2) judging administrative expenses on "trends in the economy" and his impression that Blue Cross is a high expense operation, and (3) reduction of allowable reserves to encourage cost containment.

With respect to Blue Cross's objection to the Commissioner's reliance on trends in the economy, it must be recognized that prospective expenses, both countrywide and applicable to this State, are considerations listed in 18 Del.C. § 2503(a)(3)e. The Commissioner's consideration of this factor was proper.

Blue Cross takes issue with the Commissioner's acceptance of Mr. Hunt's "impression" that Blue Cross is a "high expense" operation. Blue Cross points to testimony of Mr. Heck at the stay hearing which shows the "loss ratio" standard which is applied to all other insurers range between 55% and 70%, while applying that same loss ratio standard to the rates which Blue Cross had filed would produce a much more favorable loss ratio of 85%. While this testimony is not a part of the Commissioner's record, it is indicative of evidence which would have been in the record if Blue Cross had been afforded the opportunity to introduce evidence applying the "loss ratio" standard.

III

Blue Cross contends that the Commissioner's allowance of a reserve equivalent to one month's expenses does not properly apply 18 Del.C. § 2503(a)(3) and violates 18 Del.C. § 6305. The Commissioner found that the Blue Cross reserve of 11 million dollars represented 0.8 month's expenses, and he determined that a one-month reserve was proper. Blue Cross's filed rates contemplated a two-month reserve. Apparently the Blue Cross reserve has been declining for more than two years, reaching .8 month at the time of the hearing and .6 month at the end of 1982. This means that, assuming the moneys were drawn from the reserve for payment for medical services rendered to Blue Cross coverage holders, the...