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

• Decision Date: 09 May 1983
• Citation: 463 A.2d 273
• Parties: David H. ELLIOTT, Insurance Commissioner, Respondent, Appellant, v. BLUE CROSS & BLUE SHIELD OF DELAWARE, INC., Petitioner, Appellee. . Submitted:
• Court: Supreme Court of Delaware

Page 273

463 A.2d 273

David H. ELLIOTT, Insurance Commissioner, Respondent, Appellant, v. BLUE CROSS & BLUE SHIELD OF DELAWARE, INC., Petitioner, Appellee.

Supreme Court of Delaware.

Submitted: May 9, 1983.

Decided: July 7, 1983.

Upon appeal from Superior Court. Reversed.

Catherine S. Mulholland (argued), Deputy Atty. Gen., for appellant.

Max S. Bell, Jr. (argued), John J. Schreppler, II, Richards, Layton & Finger, and William E. Kirk, III, Blue Cross & Blue Shield of Delaware, Inc., Wilmington, of counsel, for appellee.

Before McNEILLY, HORSEY, and CHRISTIE, JJ.

CHRISTIE, Justice:

This appeal involves the question of whether a disallowance and rollback of filed health insurance rates may be enforced by the Insurance Commissioner where the Commissioner has conducted a hearing and the evidence has revealed that the prior rates, which will be reinstituted on account of the rollback, are inadequate.

Delaware is a "file and use" state in regard to specific lines of insurance. "[T]he 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." See generally Elliott v. Blue Cross & Blue Shield, Inc., Del.Supr., 407 A.2d 524, 527 (1979), [Elliott v. Blue Cross (1979) ]. However, the provisions of the Insurance Code, Title 18, Chapter 25, 18 Del.C. § 2507 permit the Commissioner to disallow and rollback those filed rates by written order before a hearing is afforded.

David H. Elliott, the Insurance Commissioner, appeals from a decision of the Superior Court dated September 30, 1982, which granted an injunction against the Commissioner, and from the issuance of a writ of mandamus. Superior Court enjoined an October 1, 1982 effective date for the disallowance and rollback of certain health insurance rates which had been filed May 26, 1982 and had already been put into use by Blue Cross and Blue Shield of Delaware, Inc. in third-quarter contracts (July, August, and September). The Superior Court issued a writ of mandamus to compel the Commissioner to render a final decision on the merits of the rate increase which had been the subject of a public hearing conducted September 1 through September 8, 1982. In effect, the Superior Court held that the Commissioner could not rollback rate increases filed by Blue Cross until he had made a final determination as to the propriety of the increases. We think this ruling was not in accord with the statutory scheme.

As it turned out, the Commissioner did not act promptly on the merits of the rate increase; he did not comply with the writ until March 17, 1983, when he disallowed a part of the filed rate increase and established June 1, 1983 as the date for a partial rollback. Although his decision caused this appeal to appear to be moot, the parties have stipulated that identical and significant questions of law regarding the effect of 18 Del.C. § 2507 are continuing to recur in regard to other rate filings. Therefore, they have requested this Court to address the issues raised. This Court has agreed to consider the issues because the questions raised are matters of continuing importance to the State and to the numerous citizens of Delaware who are Blue Cross subscribers. See Fraternal Order of Police, Delaware--Wilmington Lodge No. 1 v. McLaughlin, Del.Supr., 428 A.2d 1158, 1159-60 (1980); Elliott v. Blue Cross (1979), 407 A.2d at 526.

The genesis of the current rate dispute extends from the events of May 26, 1982 when Blue Cross filed a 19.2% rate increase to be put into effect for several categories of third-quarter contracts. ¹ On June 2, 1982, the Commissioner's office disallowed those rates but did so in a manner that did not conform to the statutory format. His office noted that it would review the filed rates if additional information was supplied. Blue Cross responded on June 16, 1982, disputing the need for further information and requesting a disallowance date three and a half months in the future, a time span in accord with practices previously established by the Commissioner. On June 25, 1982 the Commissioner again disallowed the filing and set the disallowance date as July 1, 1982, five days later. ²

Blue Cross then applied to Superior Court for a stay pursuant to 29 Del.C. § 10144. ³ Superior Court enjoined the July 1 date and ordered the Commissioner to schedule a hearing. The Court found that the 5-day period between June 25 and July 1 was not a reasonable time in which to implement the disallowance. See Blue Cross and Blue Shield v. Elliott, Del.Super., 449 A.2d 267 (1982).

On July 17, 1982 the parties agreed to dismiss the litigation and on July 23, 1982, in accord with the requisites of 18 Del.C. § 2507, the Commissioner specified his reasons for disallowance, gave notice of the Blue Cross' right to request a hearing within 20 days, and set October 1, 1982 as the disallowance date for the third-quarter rates. A hearing was requested and was held September 1 through September 8, 1982. The issues raised in the hearing concerned the merits of the disallowed rates and whether the 69 days between July 23 and October 1 constituted a reasonable period before disallowance. Blue Cross admitted that it was not prepared to meet the October 1 deadline and requested that the Commissioner grant an extension in light of undisputed testimony that the rates which would be reinstated on October 1 would be clearly inadequate since at least part of the requested increase was justified.

The Commissioner did not render a decision on these issues or respond in writing to the request for an extension of the disallowance date. His attorney did, however, deny the extension in a phone conversation. Blue Cross petitioned for a writ of mandamus in Superior Court, pursuant to 29 Del.C. § 10143 ⁴ contending that the Commissioner had failed to perform his statutory duty to allow a reasonable period before the effective date of disallowance. It argued that the term "hearing" as used in 18 Del.C. § 2507 must be defined as the entire administrative process, including the ultimate decision on the issues, and that the "reasonable period" before the disallowance date must be measured from the time when a final decision on the merits of the increase is rendered. Blue Cross argued that since the Commissioner had not rendered any final decision, the reasonable period had not elapsed and the Commissioner had a duty to postpone the effective date of the rollback until he made a final decision.

The Commissioner argued that 18 Del.C. § 2507 does not impose a duty on him to render a final decision after the hearing (and before the rollback is effective) but only requires that a reasonable period exist between the promulgation of the rollback order and its effective date. He contended that the 69 day period was reasonable, that his July 23 order complied with the other terms of the statute, and, therefore, a writ of mandamus requiring him to do otherwise was improper. He also argued that even if a duty to come to a decision or to grant an extension were found under 18 Del.C. § 2507, such a duty was discretionary and not subject to compulsion under a writ of mandamus.

The Superior Court adopted the Blue Cross position in its interpretation of 18 Del.C. § 2507 and found that since the Commissioner failed to render a final decision he did not fulfill his statutory duty to hold a hearing and, therefore, the effective date of disallowance and rollback should have been extended. The Court also found that the discretionary nature of the Commissioner's duty did not bar application of the writ. On September 30, 1982 the Court issued its writ of mandamus to compel a final decision before the rates were rolled back, and the effective date of disallowance was stayed, leaving the higher rates in effect. See the unreported opinion in Blue Cross & Blue Shield of Delaware, Inc. v. David H. Elliott, Del.Super., C.A. No. 82M-SE-42 (O'Hara, J., September 30, 1982). ⁵

This decision was appealed to this Court by the Commissioner; however, in the period before oral argument the Commissioner rendered the appeal moot by issuing a final order approving part of the rate increase filed May 26, 1982 and disallowing those premiums he did not regard as properly documented, effective June 1, 1983. Blue Cross appealed this new decision to the Superior Court and a stay of his order was granted. However, Superior Court ordered that the premiums collected after June 1, 1983, above the level approved by the Commissioner, were to be held in a reserve fund, subject to refund if the full rate is not ultimately approved. See the order in Blue Cross & Blue Shield of Delaware, Inc. v. Elliott, Del.Super., C.A. No. 83A-MR-16 (Taylor, J., May 24, 1983).

Although we initially agreed to attempt to find a solution to the entire controversy between these parties, in view of this further litigation in Superior Court, we now conclude that we should limit our ruling to that controversy originally presented to us. We decline to issue a declaratory judgment having prospective application.

The parties' focus in the previous and present litigation in this case involves the interpretation of the effect of 18 Del.C. § 2507, which states as follows:

§ 2507. Disapproval of filing.

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 § 2504 of this title 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...