Colonial Life Ins. Co. of America v. Curiale

• Decision Date: 13 October 1994
• Citation: 205 A.D.2d 58,617 N.Y.S.2d 377
• Parties: In the Matter of COLONIAL LIFE INSURANCE COMPANY OF AMERICA, Respondent-Appellant, v. Salvatore R. CURIALE, as Superintendent of Insurance of the State of New York, et al., Appellants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 377

617 N.Y.S.2d 377

205 A.D.2d 58

In the Matter of COLONIAL LIFE INSURANCE COMPANY OF AMERICA Respondent-Appellant, v. Salvatore R. CURIALE, as Superintendent of Insurance of the State of New York, et al., Appellants-Respondents.

Supreme Court, Appellate Division Third Department.

Oct. 13, 1994.

G. Oliver Koppell, Atty. Gen. (Deirdre Roney, of counsel), Albany, for Salvatore R. Curiale, appellant-respondent.

Hinman, Straub, Pigors & Manning (Bartley J. Costello III, of counsel), Albany, for New York State Conference of Blue Cross and Blue Shield Plans, appellant-respondent.

LeBoeuf, Lamb, Greene & MacRae (Jay G. Safer, Stephen H. Orel and Ellen M. Dunn, of counsel), New York City, for respondent-appellant.

Couch, White, Brenner, Howard & Feigenbaum (Harold N. Iselin, of counsel), Albany, for New York State Health Maintenance Organization Conference, amicus curiae.

Windels, Marx, Davies & Ives (Craig P. Murphy, of counsel), New York City, for Health Ins. Ass'n of America, amicus curiae.

Before MIKOLL, J.P., and CREW, WHITE, YESAWICH and PETERS, JJ.

PETERS, Justice.

Cross appeals from a judgment of the Supreme Court (Keegan, J.), entered August 2, 1993 in Albany County, which partially granted petitioner's application, in a proceeding pursuant to CPLR article 78, to annul certain regulations enacted by respondent Superintendent of Insurance.

Petitioner is a commercial insurance company which issues small group health insurance policies in this State. Petitioner challenged two regulations promulgated by respondent Superintendent of Insurance to implement chapter 501 of the Laws of 1992 (hereinafter chapter 501). Chapter 501 requires a commercial insurer doing business in this State to employ "community rating" ¹ and to offer "open enrollment" ² for any insurance policies issued in this State. The underpinning of the new law was to spread the risk among more people and provide greater rate stability. The Superintendent was directed to promulgate regulations designed to protect insurers writing policies from claim fluctuations and "unexpected significant shifts in the number of persons insured" (Insurance Law § 3233[a]. Pursuant thereto, the Superintendent promulgated 11 NYCRR parts 360 and 361 which implemented what he deemed a statutory directive that insurers be required to share the risk of high-cost claims by establishing a pool system which compares the risk of insurers in seven regions of the State (11 NYCRR 361.3[e][3]. After these comparisons were made, insurers with worse than average demographic factors would get money from regional pooling funds, while insurers with better than average factors would pay money into these pooling funds.

Petitioner commenced this proceeding seeking to have 11 NYCRR part 361 and two provisions of 11 NYCRR part 360 invalidated. Supreme Court dismissed the petition to the extent that it challenged 11 NYCRR part 361, but granted the petition with respect to 11 NYCRR part 360. The parties have cross-appealed from the adverse portions of the court's judgment. ³

Preliminarily, it must be noted that this matter should have been commenced as a declaratory judgment action instead of a CPLR article 78 proceeding (see, Matter of Consolation Nursing Home v. Commissioner of N.Y. State Dept. of Health, 194 A.D.2d 149, 605 N.Y.S.2d 493, lv granted 83 N.Y.2d 759, 616 N.Y.S.2d 14, 639 N.E.2d 754 [1994]; Matter of Lazore v. Board of Trustees of Vil. of Massena, 191 A.D.2d 764, 594 N.Y.S.2d 400) and therefore the proceeding will be so converted (see, CPLR 103[c]; Matter of Wright v. Town Bd. of Town of Ticonderoga, 169 A.D.2d 190, 572 N.Y.S.2d 397, lv denied 79 N.Y.2d 751, 579 N.Y.S.2d 651, 587 N.E.2d 289).

Petitioner contends that the pool system established by 11 NYCRR part 361 violates the intent of chapter 501 since the Legislature did not intend that (1) contributions to the system be mandatory, (2) contributions be based on existing policies, and (3) Empire Blue Cross and Blue Shield (hereinafter Empire) participate. We first note that it is well settled that the Superintendent's interpretation of the Insurance Law provisions is entitled to great deference because of his special competence and expertise with respect to the insurance industry unless such interpretation is irrational or contrary to the clear wording of a statutory provision (see, Medical Malpractice Ins. Assn. v. Superintendent of Ins. of State of N.Y., 72 N.Y.2d 753, 537 N.Y.S.2d 1, 533 N.E.2d 1030, cert. denied 490 U.S. 1080, 109 S.Ct. 2100, 104 L.Ed.2d 661).

The Superintendent established the pool system pursuant to Insurance Law § 3233 which provided that "the superintendent shall promulgate regulations to assure an orderly implementation and ongoing operation of the open enrollment and community rating required by [Insurance Law §§ 3231 and 4317] * * *. The regulations shall apply to all insurers and health maintenance organizations subject to community rating" (Insurance Law § 3233[a]. Based upon such language, there exists a clear expression by the Legislature that regulations shall be promulgated to further open enrollment which "shall include reinsurance or a pooling process involving insurer contributions to, or receipts from, a fund" (Insurance Law § 3233[c] and that those regulations "shall apply to all insurers and health maintenance organizations subject to community rating" (Insurance Law § 3233[a]. Accordingly, considering the statute as a whole and keeping in mind its objective of stabilizing health insurance premiums, we find that Supreme Court correctly found that the Legislature intended to create a mandatory pooling system.

Addressing petitioner's contention that 11 NYCRR part 361 is invalid since the Legislature intended pool contributions to be based on policies written after the effective date and not to existing policies, we find that Supreme Court properly rejected this contention. Supreme Court correctly observed that chapter 501 specified that only certain provisions thereof would apply to policies written in the future (see, e.g., L.1992, ch. 501, § 21), with the section establishing the pooling system not so specified. Our review of the regulations reveals that they were not retroactive since they were not made effective as of a date prior to their promulgation (cf., Matter of Consolidated Edison Co. of N.Y. v. State Bd. of Equalization & Assessment, 103 A.D.2d 453, 480 N.Y.S.2d 789, affd 67 N.Y.2d 783, 501 N.Y.S.2d 22, 492 N.E.2d 130, appeal dismissed 479 U.S. 801, 107 S.Ct. 41, 93 L.Ed.2d 4). Accordingly, since 11 NYCRR part 361 requires calculations of relative risk to be made based upon all policy holders not just those of new policy holders, we find that the subject regulation is in accordance with the legislative directive (see also, First United Am. Life Ins. Co. v. Curiale, 200 A.D.2d 243, 613 N.Y.S.2d 494).

Petitioner next contends that 11 NYCRR part 361 violates the legislative intent since only commercial insurers and not Empire were to participate in the pool system. We disagree. The language of Insurance Law § 3233(a) directs the Superintendent to promulgate regulations "to assure an orderly implementation and ongoing operation of the open enrollment and community rating required by [Insurance Law §§ 3231 and 4317]". It further specifies that "[t]he regulations shall apply to all insurers and health maintenance organizations subject to community rating". Hence, these statutory directives coupled with Insurance Law § 4317, which imposes the requirements of open enrollment and community rating on not-for-profit insurers of which Empire is a part, require us to dismiss petitioner's contentions.

Finally, petitioner contends that 11 NYCRR part 361 imposes an unconstitutional tax, gives State money to private organizations and takes property without just compensation. Our review indicates that the Legislature intended pool payments be mandatory and that those payments consist of the amounts necessary to permit sharing or equalization of the risk of high cost claims (see, Insurance Law § 3233[c]. Having chosen to require such payments, the Legislature could therefore delegate the responsibility to the Superintendent to collect such amounts (see, Greater Poughkeepsie Lib. Dist. v. Town of Poughkeepsie, 81 N.Y.2d 574, 601 N.Y.S.2d 94, 618 N.E.2d 127; Gautier v. Ditmar, 204 N.Y. 20, 97 N.E. 464). We find that such pool contributions are a valid exercise of the Legislature's power to regulate (see generally, Health Ins. Assn. of Am. v. Harnett, 44 N.Y.2d 302, 405 N.Y.S.2d 634, 376 N.E.2d 1280) and as the enactment intended to regulate rather than generate revenue it is not a tax (see, United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477; Medical Malpractice Ins. Assn. v. Superintendent of Ins. of State of N.Y., 72 N.Y.2d 753, 537 N.Y.S.2d 1, 533 N.E.2d 1030; Health Ins. Assn. of Am. v. Harnett, supra; see also; San Juan Cellular Tel. Co. v. Public Serv. Commn. of Puerto Rico, 967 F.2d 683).

We further find that Supreme Court properly rejected the contention that the pooling contributions constituted a gift of State money to a private organization in violation of N.Y. Constitution, article VII, § 8(1). As Supreme Court noted (159 Misc.2d 221, 226, 603 N.Y.S.2d 263), the State Constitution "provides authority for the legislature to protect New Yorkers against sickness, by insurance or otherwise". Since the Legislature directed the Superintendent to promulgate such regulations to implement chapter 501, we find that there is nothing in NY Constitution, article VII, § 8(1) which indicates that the delegation was invalid. We further agree with Supreme Court that there has not been an unconstitutional taking of what petitioner contends is its low-risk value of its book of business. We find, as did Supreme Court, that petitioner cannot support its contention that it has a constitutionally protected...