Edge v. State Farm Mut. Auto. Ins. Co., 26078.

• Decision Date: 05 December 2005
• Docket Number: No. 26078.,26078.
• Citation: 623 S.E.2d 387
• Court: South Carolina Supreme Court
• Parties: Patricia L. EDGE, Miles Green, and all others similarly situated, Appellants/Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and all others similarly situated, and South Carolina Reinsurance Facility, Defendants, of whom South Carolina Reinsurance Facility is the, Respondent, and State Farm Mutual Automobile Insurance Company is the, Respondent/Appellant.

623 S.E.2d 387

Patricia L. EDGE, Miles Green, and all others similarly situated, Appellants/Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and all others similarly situated, and South Carolina Reinsurance Facility, Defendants, of whom South Carolina Reinsurance Facility is the, Respondent, and State Farm Mutual Automobile Insurance Company is the, Respondent/Appellant.

No. 26078.

Supreme Court of South Carolina.

Heard June 14, 2005.

Decided December 5, 2005.

A. Camden Lewis and Peter D. Protopapas, both of Lewis, Babcock & Hawkins, L.L.P., of Columbia; Michael G. Sullivan, of Michael G. Sullivan, P.C., of Columbia; and Richard A. Harpootlian, of Richard A. Harpootlian, P.A., Columbia, for Appellants/Respondents.

Thomas C. Salane, of Turner, Padget, Graham & Laney, P.A., of Columbia, for Respondent South Carolina Reinsurance Facility.

James C. Gray, Jr., B. Rush Smith, III, C. Mitchell Brown, and William C. Wood, Jr., all

of Nelson, Mullins, Riley & Scarborough, of Columbia, for Respondent/Appellant State Farm Mutual Automobile Insurance Company.

Justice WALLER:

This is an appeal from the dismissal of several causes of action against Respondent/Appellant State Farm Mutual Automobile Insurance Company (State Farm) and all causes of action against Respondent South Carolina Reinsurance Facility (the Facility). State Farm has cross-appealed the partial denial of its motion to dismiss. We affirm in part and reverse in part.

FACTS

In 1996, State Farm insured the plaintiffs, Patricia Edge and Miles Green. Edge and Green's daughter, Shelly Green, were involved in separate automobile accidents. Edge and Shelly were not cited and were found not to be at-fault by the police investigating the accidents. The other driver in Edge's accident, Ann Shull, forfeited her bond and was adjudicated guilty of running a red light in October 1996. Notwithstanding this, State Farm, determined Edge was at-fault. In Shelly's accident, the other driver, Chris Whitner, was found guilty of two traffic violations while Shelly was not charged with any violations. However, State Farm determined Shelly was at-fault.

After the accident, the plaintiffs' policies were ceded to the Facility.¹ As a result of State Farm's fault determination of the accidents, two merit ratings points were assigned to each plaintiff and their premiums increased. Edge's six-month premium beginning in October 1997 increased from $425.77 to $1,088.83, or approximately $660. Green's six-month premium increased from $386 to $1,700, or approximately $1,314.

Instead of paying the higher premium, Edge applied for insurance with Horace Mann Insurance. Horace Mann notified her that State Farm had reported the accident to the Comprehensive Underwriting Exchange and she would be assessed two surcharge points and her premiums would be substantially higher. Edge paid the increased premium for the Horace Mann policy for four days. Horace Mann later removed the surcharge, refunded the increase, and lowered the premium rate after Edge provided documentation that Shull had been convicted in connection with the accident. Green was billed for the higher premiums but subsequently the merit points were removed, and he never actually paid any increased premium.

The plaintiffs brought this action seeking a declaratory judgment and damages for breach of contract, breach of statute, and conspiracy against State Farm and the Facility. The circuit court denied State Farm's 12(b)(8) motion; granted the Facility's motion to dismiss; and in two separate orders, denied in part and granted in part State Farm's 12(b)(1) and (6) motion dismissing several causes of action.²

Basically, the issues in this case center around two underlying questions: 1) whether State Farm can unilaterally determine whether a driver is at-fault; and 2) whether State Farm's and the Facility's use of the facility rate was authorized and its calculation proper.

Background

Base and Objective Standards Rates

In 1987, the General Assembly enacted legislation which provided for a two-tier rating system for automobile insurers to use which included a base rate and an objective standards rate.³ The objective standards rate was 25% higher than the base rate. See S.C.Code Ann. § 38-73-455 (repealed by Act No. 154, § 31 eff. Mar. 1, 1999). An insurer's base rate was to be charged to all drivers unless the driver met one or more of the criteria or conditions set forth in S.C.Code Ann. § 38-73-625 (repealed by 1997 Act No. 154, § 31, eff. Mar. 1, 1999). One of the conditions was whether the driver has been at-fault in a prior accident. Section 38-73-455 listed several exceptions to this increase in premiums — one of which was when the other driver involved in an accident was convicted of a moving traffic violation. S.C.Code Ann. § 38-73-455(d). A driver meeting one of the objective standards of § 38-73-625 and not falling within an exception in § 38-73-455 was to be charged the objective standards rate. Furthermore, both the base and objective standards rates were subject to additional surcharges under the Uniform Merit Rating Plan.

Uniform Merit Rating Plan

The Uniform Merit Rating Plan was established in 1976 by regulation to create a uniform system of automobile insurance discounts and surcharges based primarily on a driver's record. S.C.Code Reg. 69-13.1 (repealed by State Reg. Vol. 25, Issue No. 3, eff. Mar. 23, 2001). The regulation applied to all insurers writing automobile policies in South Carolina. Surcharge points were assessed based upon moving traffic violation convictions, accidents, and other indicators for the 36-month period prior to the inception of the policy. If there were no surcharge points, the driver was entitled to receive a 20% safe-driver's discount. One surcharge point, and the driver lost the safe driver discount. Two or more surcharge points increased the premium. If the policy was ceded (or reinsured) to the Facility and without a safe driver discount, the facility rate applied.

There were also recoupment fees assessed against every policyholder which allowed the Facility to recoup its operating losses. The recoupment fee is calculated based upon the number of surcharge points the driver has under the Merit Rating Plan. See infra n. 1.

The Facility Rate

S.C.Code Ann. 38-73-1420 (2002) provides for the calculation of the facility rate. The facility rate is calculated by the Facility using two numbers: the expense and pure loss components. The pure loss component is derived from the pure loss component which was filed by the rating organization with the most subscribers or members. The expense component is derived from a filing made by the Facility based upon the expense data of its designated carriers. After the rating organization with the largest number of members files its pure loss component, and it has been approved, then the Facility files its expense component, the actual incurred expenses of the Facility. Once the expense component is approved by the Director of the Insurance Department, the two are added together to form the facility rate to be used by all designated carriers.

ISSUES

1) Did the circuit court err in granting the Facility's motion to dismiss?

2) Did the circuit court err in denying in part and granting in part State Farm's motion to dismiss?

DISCUSSION

Initially, we address the plaintiffs' argument that State Farm's cross-appeal should be dismissed because a denial of a motion to dismiss is not immediately appealable. While State Farm concedes this point, it contends the Court has jurisdiction over its cross-appeal because of judicial economy. We agree.

An order that is not directly appealable may be considered if there is an appealable issue before the court. Briggs v. Richardson, 273 S.C. 376, 256 S.E.2d 544 (1979); Cox v. Woodmen of World Ins. Co., 347 S.C. 460, 469, 556 S.E.2d 397, 402 (Ct.App.2001). Here, an order in this case which is appealable is before the Court and, in an effort to avoid another appeal in the future and potentially narrow the issues for trial (i.e. judicial economy), we will consider State Farm's cross-appeal.

In addressing the issues raised in this case, a threshold decision we must make is whether to adopt the filed rate doctrine. The filed rate doctrine was originally a federal preemption rule which provided that rates duly adopted by a regulatory agency are not subject to collateral attack in court. See Mississippi Power & Light Co. v. Mississippi, 487 U.S. 354, 108 S.Ct. 2428, 101 L.Ed.2d 322 (1988). See also Hamm v. Pub. Serv. Comm'n, 310 S.C. 13, 17, 425 S.E.2d 28, 30 (1993). "The filed rate doctrine stands for the proposition that because an administrative agency is vested with the authority to determine what rate is just and reasonable, courts should not adjudicate what a reasonable rate might be in a collateral lawsuit." Amundson & Assocs. Art Studio v. Nat'l Council on Comp. Ins., 26 Kan.App.2d 489, 988 P.2d 1208, 1213 (1999). Many courts have held the rationale underlying the federal filed rate doctrine applies equally to regulations by state agencies. See e.g. Wegoland, Ltd. v. NYNEX Corp., 27 F.3d 17, 20 (2nd Cir.1994). The filed rate doctrine bars only collateral attacks brought by private parties and not direct reviews in ratemaking cases or actions brought by a governmental agency. Commonwealth v. Anthem Ins. Cos., Inc., 8 S.W.3d 48, 53-4 (Ky.Ct.App.1999).

Most courts have held the doctrine bars all actions brought by a private party. These courts reason that making a declaratory judgment or establishing and enforcing an injunction would inevitably require the court to determine the proper rate "to the same, if not greater, extent as would an attempt to fix damages based upon previously filed rates." Hilling v. Northern States Power Co., 1990 WL 597044, *3 (D.Minn.1990). See also H.J., Inc. v. Northwestern Bell Tel. Co., 954 F.2d 485, 490 (8th Cir.1992) (holding filed rate doctrine to be...