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

• Decision Date: 12 September 1979
• Citation: 407 A.2d 524
• Parties: David H. ELLIOTT, Insurance Commissioner of the State of Delaware, Defendant Below, Appellant, v. BLUE CROSS AND BLUE SHIELD OF DELAWARE, INCORPORATED, Plaintiff Below, Appellee.
• Court: Supreme Court of Delaware

Page 524

407 A.2d 524

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

Supreme Court of Delaware.

Submitted Feb. 15, 1979.

Decided Sept. 12, 1979.

Upon appeal from the Court of Chancery. Reversed.

Dana S. Shreve, Asst. Atty. Gen., Wilmington, for appellant.

Max S. Bell, Jr., of Richards, Layton & Finger, Wilmington, for appellee; W. Michael Ireland of Blue Cross and Blue Shield of Delaware, Inc., Wilmington, of counsel.

Before HERRMANN, Chief Justice, DUFFY and HORSEY, Justices.

HORSEY, Justice:

This appeal concerns the construction of a provision of Chapter 25 of the Delaware Insurance Code, Title 18, dealing with regulation of rates of certain lines of insurance and Section 2507 thereof as to disapproval by the Insurance Commissioner of rate filings.

The Commissioner appeals from an order of the Court of Chancery enjoining him from disapproving and nullifying new rate filings of Blue Cross and Blue Shield of Delaware, Inc. before holding a hearing as to the filings. The Commissioner contends that a 1971 amendment to 18 Del.C. § 2507 authorizes him to issue an order disapproving a new rate filing and denying use thereof without a prior hearing. Blue Cross contends that the 1971 legislation does not confer on the Commissioner authority to disapprove a rate filing and make such disapproval effective before the insurer is given a hearing. Blue Cross further contends that the 1971 amendment may not be interpreted as abolishing the "file and use" concept of the Delaware Insurance Code, which means that a new rate becomes effective and useable by an insurer on the filing of such rate subject to later modification or rejection by the Commissioner.

For reasons hereafter given, we conclude that the Court of Chancery erred in construing the 1971 legislation as making no material change in § 2507 and in finding that the amendment did not authorize the Commissioner to amend or revoke a rate filing before holding a hearing. We adopt a "middle ground" as to the consequences of the 1971 amendment. We hold that under the statute, as amended, a new rate filing continues to be effective on the stated date (which may be the date of filing or a later date), but that the Commissioner may disapprove the new rate before holding a hearing thereon. However, in doing so, the Commissioner must specify the reason for his disapproval and provide (1) that the effective date of his order shall be "within a reasonable period" after the date of the order, ¹ and (2) that a hearing will be held on the rate filing and his order, if requested by the insurer, within 20 days of such request. In other words, under the amended statute, the Commissioner is now permitted to nullify a new rate filing prior to the holding of a hearing, which he could not do under the statute prior to its amendment, subject to the insurer's right of hearing within 20 days, as stated above.

I

This case arises out of rate filings submitted in February 1978 by Blue Cross and Blue Shield, pursuant to Chapter 25 of the Insurance Code, 18 Del.C. Ch. 25, with the filings having a stated effective date on or after April 1, 1978. Without holding a hearing, the Insurance Commissioner in March entered orders denying the new rates and barring Blue Cross from using them. Upon petition of Blue Cross for relief, the Court of Chancery issued a preliminary injunction, enjoining the Commissioner from preventing use of the new rates prior to a hearing on them. The Commissioner then filed an interlocutory appeal, ² and thereafter the parties reached a settlement. However, the parties requested, and this Court agreed to provide a construction of the statute because of the substantial public interest in having the question finally determined. See Darby v. New Castle Gunning Bedford Educ. Ass'n., Del.Supr., 336 A.2d 209 (1975).

II

Before looking more closely at § 2507, it may be helpful to put the section's subject, subtitled, "Disapproval of filing", in its proper setting. Chapter 25, titled "Rates and Rating Organizations" is concerned primarily with the regulation of insurance rates, for the purposes ³ stated in § 2501, as to specified lines of insurance described in § 2502. Section 2503 deals with the "making of rates" and considerations to be used in determining rates and classification of risks; § 2504, with "Rate filings" and requiring every insurer to make rate filings with the Commissioner (with certain exceptions); § 2505 with exemptions from filings; and § 2506 with "Effective date of filing." Section 2506 provides as follows:

"(a) The Commissioner shall review filings as soon as reasonably possible after they have been made in order to determine whether they meet the requirements of this chapter. The filings shall be deemed to meet the requirements of this chapter unless disapproved by the Commissioner.

(b) Any special filing with respect to a surety or guaranty bond required by law or by court or executive order or by order, rule or regulation of a public body, not covered by a previous filing, shall become effective when filed and shall be deemed to meet the requirements of this chapter until such time as the Commissioner rejects the filing." 18 Del.C. § 2506.

This then brings us to § 2507. Prior to the amendment in 1971 ⁴ of 18 Del.C. § 2507, the statute read:

"If within 30 days after a specific inland rate, a special surety or guaranty on a risk specially rated by a rating organization, subject to subsection (b) of section 2504 of this chapter, has become effective, the Commissioner finds that such filing does not meet the requirements of this chapter or if upon review of any other filing, the Commissioner finds that the same does not meet the requirements of this chapter, he shall, after a hearing held upon not less than 10 days' written notice specifying the matters to be considered at such hearing, to every insurer and rating organization which made such filing, issue an order specifying in what respects he finds that such filing fails to meet the requirements of this chapter, and stating when, within a reasonable period thereafter, such filing shall be deemed no longer effective. Copies of the order shall be sent to every such insurer and rating organization. The order shall not affect any contract or policy made or issued prior to the expiration of the period set forth in the order."

The original statute clearly provided that the Commissioner could only reject or modify a rate filing "after a hearing." Furthermore, if the rate had been made effective by an insurer before hearing, it could only be made ineffective after hearing and the expiration of a "reasonable period thereafter." The language of § 2506, quoted above, also indicates that the rate filing code provisions put Delaware in the category of "file and use" rate regulation statutes. As stated above, the term "file and use" is understood to mean that an insurer who files a new rate may use it Upon, or within a self-designated time after, filing, without the requirement of first obtaining approval from the Insurance Commissioner.

Under this "file and use" rate procedure, an insurer controls the effective date of a new rate filing. If an insurer files a proposed rate change sufficiently in advance of its proposed effective date so that the Commissioner has the necessary time to examine the filing and supporting documentation and to hold a hearing (if he believes the rate filing should be modified or rejected), there is no problem. However, the statute permits filings to be made by an insurer with an effective date which will not permit time for a hearing to be held prior to such effective date. ⁵ The result is that if the new rate is later disallowed, the insurer has been permitted to charge an unlawful rate for a considerable period of time to the possible detriment of the public. Conversely, if the rate is not allowed until after a hearing, the insurer has been deprived of a right to use a lawful rate for an appreciable period of time.

Thus, it appears from § 2506 and § 2507 that the Legislature clearly opted for the former "file and use" procedure when the Code and § 2507 were originally adopted in 1968. The question now is whether the Legislature, by the 1971 amendment, intended to abolish the concept and practice, or to modify it in any way.

III

The 1971 legislation amending § 2507 provided as follows:

" § 2507, Chapter 25, Title 18, Delaware Code, is hereby amended by striking 'after a hearing held upon not less than ten (10) days written notice specifying the matters to be considered at such hearing, to every insurer and rating organization which made such filing', and substituting 'specify the reason for his disapproval and state that a hearing will be granted within twenty (20) days after request in writing by the insurer or rating organization which made such filing.' " 58 Del. Laws C. 238 (July 9, 1971).

As can be seen, the Legislature, rather than repealing the existing § 2507 and restating it, struck certain language and substituted other language and, in so doing, created a construction problem.

That the 1971 amendment is less than clear appears from the treatment accorded it by the Delaware Code Revisors in preparing the 1974 Revised Delaware Code. A reading of § 2507 in that Code discloses that the Revisors have discounted the amendment and excluded it from § 2507, with the result that the current Code contains the identical language adopted when the Insurance Code was enacted in 1968. The Revisors took this unusual action after apparently concluding that they could not determine what the intent of the Legislature was by the 1971 amendment. In a "Revisor's Note" to § 2507, the Revisors, after referring to the passage of the 1971 amendment, state:

"In as much as this amendment will render the first sentence confusing, the deletion and substitution...