Carl v. State
| Decision Date | 02 September 2008 |
| Docket Number | No. COA07-1288.,COA07-1288. |
| Citation | 665 S.E.2d 787 |
| Parties | Linda CARL and Charles R. Eilber, individually and on behalf of all others similarly situated, Plaintiffs, v. The STATE of North Carolina, the N.C. Teachers' and State Employees' Comprehensive Major Medical Plan, a/k/a The State Health Plan, and MedAmerica Insurance Co., Defendants. |
| Court | North Carolina Court of Appeals |
Billet and Connor, P.C., by J. Martin Futrell, Philadelphia, PA; Twiggs, Beskind, Strickland & Rabenau, P.A., by Donald H. Beskind, Raleigh; and Marcus Auerback & Zylstra, L.L.C., by Jerome M. Marcus and Jonathan Auerbach, Wyncote, P.A., for Plaintiffs-Appellees.
Poyner & Spruill, L.L.P., by Edwin M. Speas, Jr., David Dreifus, and Thomas K. Lindgren, Raleigh, for Defendant/Crossclaim-Plaintiff-Appellee.
The State of North Carolina, through the North Carolina Teachers' and State Employees' Comprehensive Major Medical Plan, a/k/a The State Health Plan ("SHP") (collectively the "State"), offered certain current and retired North Carolina employees Long Term Care ("LTC") Benefits under a contract of insurance with MedAmerica Insurance Company ("MedAmerica"). Plaintiffs are two North Carolina State employees who seek to represent a class of state employees, retired state employees, and retired local government employees who contend that certain representations by SHP and MedAmerica constituted contractual obligations that Plaintiffs' insurance premiums would remain "level," i.e., that there would be no increases unless justified by the claims experience for the group, approved by the Department of Insurance, and applied to the entire group as opposed to any one individual. [R pp 17-52]. Plaintiffs brought claims against the State and MedAmerica because Plaintiffs' premiums for LTC Benefits increased beyond that which was level when SHP selected Prudential Insurance Company ("Prudential") to replace MedAmerica at the termination of MedAmerica's contract with SHP.
Plaintiffs filed a Complaint on 14 September 2006, and a Corrected Third Amended Complaint on 18 May 2007, in Wake County Superior Court setting forth the following four claims: (1) SHP breached its contract with MedAmerica, made for Plaintiffs' intended benefit, that SHP would maintain Plaintiffs and other class members as a group and move them into any new group for LTC Benefits following the termination of the MedAmerica contract; (2) SHP breached its contract with Plaintiffs by and through the increase in Plaintiffs' premiums for their LTC Benefits beyond that which was "level;" (3) Plaintiffs had a contractual right to "level" premiums for LTC Benefits, and this contractual right was a property right that was taken without just compensation, in violation of N.C. Constitution Article I, Section 19; and (4) MedAmerica breached its contract with Plaintiffs to maintain a "level" premium for LTC Benefits. On 18 June 2007, the State moved to dismiss Plaintiffs' Complaint.
On 18 June 2007, MedAmerica filed Amended Crossclaims against the State seeking indemnity for any liability MedAmerica may have to Plaintiffs or the class. On 9 July 2007, the State moved to dismiss MedAmerica's crossclaims.
The State raised a sovereign immunity defense to each claim and crossclaim, pursuant to North Carolina Rules of Civil Procedure 12(b)(1) and (b)(2). The State also moved to dismiss Plaintiffs' constitutional claim ("Corum claim"), pursuant to Rule 12(b)(6), arguing that alternative adequate remedies existed. By order entered 5 September 2007, the trial court denied the State's motions.
On 6 September 2007, the State filed timely Notice of Appeal from the trial court's order denying their claims of sovereign immunity. By order entered 28 September 2007, the trial court denied the State's Motion for Stay pending appeal. On 19 October 2007, this Court granted the State's Petition for Supersedeas, staying all proceedings pending appeal. On 21 November 2007, MedAmerica filed a Motion to Dissolve Writ of Supersedeas and Dismiss the State's Interlocutory Appeal. On 30 November 2007, the State filed a Petition for Writ of Certiorari with this Court, seeking review of the trial court's denial of their Rule 12(b)(6) defense to Plaintiffs' Corum claim. On 17 December 2007, Plaintiffs filed a Motion to Dismiss the State's Interlocutory Appeal.
In 1997, the General Assembly authorized SHP to offer LTC Benefits to State employees, retirees, and retired local government workers, and their qualified dependents, on a voluntary, self-pay basis. 1997 N.C. Sess. Laws 468 (codified as amended N.C. Gen. Stat. § 135-41). SHP's Executive Administrator and Board of Trustees were given the sole authority to implement and administer LTC Benefits as fiduciaries of SHP. N.C. Gen.Stat. §§ 135-39.5(22), 135-40(a), and 135-41 (2005). The enabling legislation gave SHP discretion to make such benefits available through a contract of insurance with an insurance carrier selected on a competitive bid basis or by the establishment of a self-insured program administered by SHP. N.C. Gen.Stat. § 135-41. SHP chose to make benefits available through a contract of insurance.
SHP issued a request for proposal ("RFP") from insurance carriers to which MedAmerica responded and was the successful bidder. Upon acceptance, MedAmerica's response to the RFP became part of MedAmerica's LTC Contract with SHP. Under that contract, MedAmerica was to provide LTC Benefits coverage from 1 March 1998 through 31 December 2003, with two options for one-year extensions. One provision of the MedAmerica policy gave enrollees the option of paying their lifetime premium in the first ten years, resulting in a paid-in-full policy at the end of ten years. The contract also contained the following language: "At the termination of this Contract, all enrollees will remain members of the group and move with the group to new group coverage unless group coverage is no longer offered by the Plan." North Carolina Department of Insurance regulations required that upon moving the group from one group coverage to another, SHP's replacement coverage must offer substantially similar benefits with a premium calculated on the age of enrollment in the group being replaced. 11 N.C.A.C. 12.1005 (2005).1
Long-term care insurance policies with a level premium are required to maintain, and by necessity create, contract reserves from the excess of premiums over claims in the early years of the policy, when claims are lower, so as to offset excess claims over premiums in the later years when claims are higher. 11 N.C.A.C. 11F.0201(10) and 11F.0205(a)(1)(A) (2005). Accordingly, SHP's contract with MedAmerica created such reserves. [R p 92, 101-03, 188] MedAmerica agreed to transfer these reserves to the next carrier at the end of its contract. [R p 101]
SHP gave information packets on the LTC Benefits to potential enrollees. The cover letter contained in the packets stated that the premium rates "are offered to you at group rates which are substantially less than comparable individual plans." [R p 37] Information in the packets stated that the "[p]remiums are based upon age at the time coverage is purchased, so the younger you are, the less expensive your premiums will be" and "when you enroll, you lock in your lower premium." [R p 41] Information in the packet also stated the following:
Your premiums are designed to remain level over your lifetime. They will only be changed if a change is justified based on the claims experience and if approval is obtained from the North Carolina Department of Insurance. Any change of premiums must be made for everyone with similar coverage so you will never be singled out for a rate increase.
[R p 46]
With the MedAmerica contract scheduled to expire on 31 December 2003, SHP issued an RFP on 14 August 2003 for another contract to continue LTC Benefits starting 1 January 2004. While SHP received several responses to this 2003 RFP, none provided coverage for enrollees who had elected the ten-year, paid-in-full option. SHP withdrew its 2003 RFP and exercised one of its one-year renewal options with MedAmerica, extending coverage through 31 December 2004.
On 9 March 2004, SHP issued another RFP. The 2004 RFP required the replacement carrier to accept transfer of the existing group, including those who had purchased the ten-year, paid-in-full option. [R p 188] The 2004 RFP also provided for a transfer of reserves "as part of [the] carrier's acceptance of the risk associated with the group." [Id.] The 2004 RFP required that bidders offer coverage consistent with 11 N.C.A.C. 12.1005,2 which required that the premium be based upon the age of enrollment in the MedAmerica group and that the coverage offer substantially similar benefits. An addendum to the 2004 RFP stated that it was SHP's "preference that all current insureds transfer to the new carrier with no change in rates of [sic] benefits." [R p 214]
SHP subsequently contracted with Prudential to continue LTC Benefits beginning 1 January 2005. However, after the termination of the MedAmerica contract, SHP did not transfer the group in its entirety to Prudential as existing enrollees who wanted to maintain their LTC Benefits had to enroll in the new Prudential policy at rates based on their age in 2005, rather then when they were first enrolled in LTC Benefits with MedAmerica. According to Plaintiffs, more than 70% of MedAmerica policyholders were 60 or older when they first...
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