Employee Ben. Managers v. Dept. of Ins.
| Decision Date | 12 March 2008 |
| Docket Number | No. 02A03-0704-CV-148.,02A03-0704-CV-148. |
| Citation | 882 N.E.2d 230 |
| Parties | EMPLOYEE BENEFIT MANAGERS, INC. OF AMERICA and Charles Belch, Appellants-Petitioners, v. INDIANA DEPARTMENT OF INSURANCE, Appellee-Respondent. |
| Court | Indiana Appellate Court |
Mark D. Ulmschneider, Andrew L. Teel, Steele, Ulmschneider & Malloy, Fort Wayne, IN, Attorneys for Appellants.
Steve Carter, Attorney General of Indiana, David L. Steiner, Deputy Attorney General, Indianapolis, IN, Attorneys for Appellee.
Employee Benefit Managers, Inc. of America and its President, Charles Belch ("Belch"), (collectively, "EBM") appeal a decision of the Allen Superior Court affirming an order of the Indiana Department of Insurance ("the Department") that, in relevant part, revoked insurance licenses held by EBM.1 We affirm.2
EBM has presented the following issues for review:
I. Whether the Department's order is ultra vires because the Department lacked subject matter jurisdiction over EBM;
II. Whether there is substantial evidentiary support for:
(a) the finding that EBM was dishonest and financially irresponsible,
(b) the finding that EBM failed to arrange for the payment of unfunded claims, and
(c) the finding that EBM violated paragraph 5(e) of the Agreed Entry; and
III. Whether EBM was denied due process because the Department failed to conduct sufficient compliance hearings.
EBM was engaged in managing the funding and administration of self-funded employee benefit plans for employer-clients. The Department obtained an Examination Warrant, issued December 10, 2003, to allow the examination of EBM's records by the Department. On January 27, 2004, the Department obtained a subpoena for EBM records. On May 25, 2004, the Department lodged charges of non-compliance.
The Department and EBM entered into an Agreed Entry dated July 7, 2004, and a subsequent Agreed Entry dated November 22, 2004. EBM was required to arrange for the funding and payment of then-unfunded claims as verified by the Special Financial Examiner, amounting to approximately $1,795,000.00. EBM agreed to cease offering or administering any health plans in which fees collected from different employers to fund health claims were commingled in depository accounts. EBM also agreed to provide employers with documents defining the terms and conditions of any claims funding arrangements and/or stop loss insurance policies.
EBM agreed to have in place a funding source for unfunded claims in an amount no less than $600,000.00 as of thirty days from the date of the Final Order. On November 22, 2004, the Acting Commissioner issued a Final Order incorporating and adopting the Agreed Entry. EBM's licenses were placed on probationary status. On March 22, 2005, the Department requested an emergency hearing.
At the March 31, 2005 hearing, Belch testified that EBM no longer commingled funds from participating employer groups in a single account, and that marketing materials clearly explained the nature of EBM's programs. EBM had obtained Key Man life insurance and had afforded the Special Financial Examiner access to pertinent files. However, Belch also testified that EBM was not in compliance with the requirement to arrange for funding and payment of all unfunded claims. Employers' deposited funds and accounts receivable were being used to pay claims and EBM was pursuing additional funding. At the conclusion of the hearing, Commissioner Atterholt took the matter under advisement.
On April 29, 2005, Commissioner Atterholt issued a Stipulated Stay of Proceedings extending the compliance date for claims funding and payment to June 1, 2005. A hearing was conducted on June 17, 2005, at which EBM identified a potential source of funding, but admitted that the anticipated funding was not yet in place. Commissioner Atterholt again took the matter under advisement.
On or before July 1, 2005, EBM deposited $219,000.00 into an account for the payment of unfunded claims. Also on July 1, 2005, Commissioner Atterholt issued an order that EBM deposit into that account a minimum of $804,000.00 more before July 8, 2005. By July 15, 2005, EBM was to provide proof that the account funds had been expended for claims payments. Pursuant to a supplemental order issued on July 11, 2005, non-compliance was to result in suspension of EBM's insurance licenses.
On October 26, 2005, a final hearing was conducted. On January 31, 2006, the Department filed an Emergency Motion for Cease and Desist, alleging that EBM had issued letters to employers suggesting that failure to reimburse EBM for purported loans was a violation that EBM was entitled to redress under authority of state government, specifically the Department. On February 17, 2006, Commissioner Atterholt issued an Emergency Cease and Desist Order/Final Order revoking the licenses held by EBM and Belch and ordering them to not engage in conduct that constitutes the business of insurance without applying for and receiving a certificate of authority to do so. However, the Order provided: "Belch and EBM are not prohibited from doing business with employers in the form of single employer self insured health plans as those activities are outside the scope of the Indiana Department of Insurance and are subject [to] the regulation of federal government agencies." (App.1100.) (emphasis in original.)
The revocation was based upon the Commissioner's findings that claims were not timely paid and employers were misled into believing that a funding source was in place when it was not in place. Subsequently, EBM filed a response brief but did not request an additional hearing.
On March 20, 2006, EBM filed a Verified Petition for Judicial Review pursuant to Indiana Code Section 4-21.5-5-1 et seq. The trial court conducted hearings on September 19, 2006, and on October 3, 2006. On January 11, 2007, after the parties submitted proposed findings of fact and conclusions of law, the trial court held an additional hearing to determine whether Belch had been dismissed as a party to the proceedings before the Department. On February 12, 2007, the trial court affirmed the Department's order. EBM now appeals.
Although the legislature has granted courts the power to review the action of state government agencies taken pursuant to the Administrative Orders and Procedures Act (AOPA), this power of judicial review is limited. LTV Steel Co. v. Griffin, 730 N.E.2d 1251, 1257 (Ind.2000). A court may only set aside agency action that is: (1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (2) contrary to constitutional right, power, privilege, or immunity; (3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; (4) without observance of procedure required by law; or (5) unsupported by substantial evidence. Ind.Code § 4-21.5-5-14(d).
The burden of demonstrating the invalidity of an agency action is on the party asserting its invalidity. Ind. Code § 4-21.5-5-14(a). An agency acts arbitrarily or capriciously if its action constitutes a willful or unreasonable action without consideration and in disregard of the facts and circumstances of the case or without some basis that would lead a reasonable person to such action. Indiana State Bd. of Educ. v. Brownsburg Comm. School Corp., 865 N.E.2d 660, 665 (Ind.Ct. App.2007). Trial and appellate courts that review administrative determinations are prohibited from reweighing the evidence or judging the credibility of witnesses and must accept the facts as found by the administrative body. Id. at 665-66. While an appellate court shows deference to the administrative agency's findings of fact, no such deference is accorded to the agency's conclusions of law. LTV Steel, 730 N.E.2d at 1257.
The threshold question is whether the Department had jurisdiction over EBM. The trial court found that the Department had jurisdiction over EBM because (1) EBM and Belch held insurance licenses; (2) the terms of the Agreed Entry provided that the Department had jurisdiction over EBM; and (3) EBM was producing products that look and act like insurance. EBM denies that it engages in insurance activities that the Department has the power to regulate.
The function of the Department is described in Indiana Code Section 27-1-1-1 as follows:
There is hereby created a department in the state government of the state of Indiana which shall be known as the department of insurance. Said department shall have charge of the organization, supervision, regulation, examination, rehabilitation, liquidation, and/or conservation of all insurance companies to which this title is applicable, shall have charge of the enforcement, administration, and execution of the provisions of this title and the provisions of any other statute applicable to insurance companies, to the insurance department, or to the insurance commissioner, and shall exercise such other powers and perform such other duties as may at any time be imposed or conferred on the department by law. Wherever by any of the provisions of any statute any right, power, or duty is imposed or conferred on the department, the right, power, or duty so imposed or conferred shall be possessed and exercised by the insurance commissioner, unless otherwise provided in that statute, or unless any such right, power, or duty is delegated to the duly appointed deputies, assistants, or employees of the department, or any of them, by an appropriate rule or order of the insurance commissioner.
(emphasis added.)
Indiana Code Section 27-1-2-2 delineates the application of Article 1:
This article shall be applicable to all persons, firms, partnerships, corporations, associations, orders, societies, and systems and to associations operating as Lloyds, interinsurers, or individual underwriters authorized as of March 8, 1935, to make insurance under the provisions of any sta...
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