Forman v. Compensation Ins. Council, 98-00260

• Court: Court of Appeals of Tennessee
• Writing for the Court: PER CURIAM
• Citation: 13 S.W.3d 365
• Parties: JO ANN FORMAN, INC., et al, Plaintiffs/Appellees, v. NATIONAL COUNCIL ON COMPENSATION INSURANCE, INC., et al, Defendants/Appellants. AppealCOURT OF APPEALS OF TENNESSEE Filed
• Docket Number: 98-00260
• Decision Date: 29 September 1999

JO ANN FORMAN, INC., et al, Plaintiffs/Appellees,
v.
NATIONAL COUNCIL ON COMPENSATION INSURANCE, INC., et al,
Defendants/Appellants.

Appeal No. 01-A-01-9805-CH-00260

COURT OF APPEALS OF TENNESSEE

Filed September 29, 1999

APPEAL FROM THE CHANCERY COURT FOR MARION COUNTY, AT JASPER, TENNESSEE

Marion Chancery No. 6068

THE HONORABLE THOMAS A. GREER, JR., SPECIAL CHANCELLOR

The sole question presented by this appeal is whether or not workers' compensation insurance, which is an intangible contract right or service, is an "article" or "product" subject to the Tennessee antitrust statutes (Tennessee Code Annotated sections 47-25-101 and 47-25-103-109). If this "intangible" is within the purview of the act, then the trial court was correct in overruling the Rule 12 motion of the defendants. If such "intangible" is not within the purview of the statute, the Rule 12 motion is well taken and the trial court judgment must be reversed. For the reasons that follow, we find that the Tennessee antitrust statutes do not apply to workers' compensation insurance. Accordingly, the trial court's decision must be reversed.

JOHN W. MURREY, III, HUGH J. MOORE, JR., DOUGLAS E. PECK,
JERRY H. SUMMERS, JIMMY F. RODGERS, JR., Chattanooga, Tennessee
ATTORNEYS FOR PLAINTIFFS/APPELLEES

SHELBY R. GRUBBS, PAMELA BLASS BRACHER, T. MAXFIELD BAHNER,
GARY D. LANDER, Chattanooga, Tennessee
ATTORNEYS FOR DEFENDANTS/APPELLANTS

JOHN KNOX WALKUP, DENNIS J. GARVEY, MICHAEL BASSHAM, GEORGE S. BELL, III, Nashville, Tennessee
ATTORNEYS FOR STATE OF TENNESSEE

E. CLIFTON KNOWLES Nashville, Tennessee
ATTORNEY FOR AMERICAN INSURANCE ASSOCIATION, ALLIANCE OF AMERICAN INSURERS AND NATIONAL ASSOCIATION OF INDEPENDENT INSURERS

REVERSED AND REMANDED

WILLIAM B. CAIN, JUDGE

OPINION

I. STANDARD OF REVIEW

This case is before the court of appeals on an interlocutory appeal from the judgment of the chancellor in denying the defendants' Rule 12.02(6) motion to dismiss for failure to state a claim for which relief can be granted. Such a motion is to test the sufficiency of the complaint and dismissal is warranted only when no set of facts would entitle the plaintiff to relief. On such motion, the reviewing court must take all the well pleaded material factual allegations as true and construe the complaint liberally in favor of the plaintiff. Stein v. Davidson Hotel Co., 945 S.W.2d 714, 716 (Tenn. 1997).

II. FACTS

The Tennessee Workers' Compensation Law requires all employers, with certain limited exceptions, to pay compensation for the death, disablement or injury of their employees. Employers must fund those benefits, either by purchasing workers' compensation insurance, or by qualifying to self-insure. Tenn. Code Ann. 50-6-103 (1991), 56-2-201(2)(L)(Supp. 1998). Workers' compensation insurance policies are contracts between the insurer and the employer, by which the insurer, in return for a premium, agrees to indemnify the employer against all liabilities arising under the workers' compensation law. The insurer also agrees to provide certain services ancillary to the promise to indemnify, such as issuance of policies, loss control advice and administration of claims.

Employers purchase workers' compensation insurance in either the voluntary market or the residual (or assigned risk) market. In the voluntary market, insurers voluntarily and unilaterally decide which employers they wish to underwrite. Those employers that are unable to obtain coverage in the voluntary market purchase their insurance in the residual market pursuant to a plan approved by the Commissioner of Commerce and Insurance in which all carriers are required to participate as an insurer of last resort. See Tenn. Code Ann. 56-5-314(c)(Supp. 1998).

The residual market mandate exposes insurers to significant risk because employers insured in that market typically have adverse loss experience. In order to minimize these risks and satisfy their residual market obligations, many insurers in Tennessee (as in other states) have entered into a contractual arrangement known as the National Workers' Compensation Reinsurance Pool ("the Pool"). Under this arrangement, certain carriers, known as "servicing carriers," write policies for residual market insureds which are then reinsured by the Pool's participating companies. Like carriers in the voluntary market, servicing carriers investigate and pay claims and provide loss control and other services to their insureds. The companies participating in the Pool pay the servicing carriers a "servicing carrier allowance" as reimbursement for their expenses in providing these insurance services, plus a reasonable profit.(FN1)

III. ISSUE

Plaintiffs in this lawsuit are various corporations which have purchased workers' compensation insurance. They have brought this class action on behalf of "all employers . . . who purchased workers' compensation insurance in Tennessee since January 1, 1985." Defendants are thirteen workers' compensation insurers doing business in Tennessee, a national workers' compensation rate service organization licensed in Tennessee, and a national workers' compensation reinsurance pool (referred to above as "the Pool") also operating in Tennessee.

Against the undisputed factual background outlined above, Plaintiffs complain that Defendants entered into an agreement to inflate workers' compensation insurance rates by charging an excessive servicing carrier allowance. They allege that "[D]efendants and their co-conspirators combined, conspired and agreed together to establish unreasonably high and noncompetitive servicing carrier compensation." They assert that Defendants should have determined the allowance by competitive bidding rather than using an NCCI formula based on actual insurer expenses. Since Plaintiffs, as insureds, do not pay the service carrier allowance, they do not allege direct injury by reason of the excessive allowance. They contend that the excessive allowance was passed through to rate payers in the form of higher rates with the result that employers in Tennessee, in both the voluntary and residual markets, have been injured by paying excessive premiums for workers' compensation insurance. They further allege that the excessive allowance increased the deficit in the residual market which deficit in turn was assessed against the Pool participating companies. This caused these companies to reduce their underwriting in the voluntary market thus forcing more employers to obtain coverage in the residual market at higher rates. Plaintiffs seek recovery for the full amount of the allegedly excessive premiums they were charged for their workers' compensation insurance policies.

The provisions in the Trade Practices Act which are material to this case are as follows:

All arrangements, contracts, agreements, trusts or combination between persons or corporations made with a view to lessen, or which tend to lessen, full and free competition in...