Guaranty Nat. Ins. Co. v. Gates

• Decision Date: 08 November 1990
• Docket Number: No. 89-16288,89-16288
• Citation: 916 F.2d 508
• Parties: GUARANTY NATIONAL INSURANCE COMPANY; Nationwide Mutual Insurance Company; Farmers Insurance Exchange; Allstate Insurance Company; United Services Automobile Association; Safeco Insurance Company; Northland Insurance Company; State Farm Mutual Automobile Insurance Company, Plaintiffs-Appellants, v. David A. GATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 508

916 F.2d 508

59 USLW 2237

GUARANTY NATIONAL INSURANCE COMPANY; Nationwide Mutual Insurance Company; Farmers Insurance Exchange; Allstate Insurance Company; United Services Automobile Association Safeco Insurance Company; Northland Insurance Company State Farm Mutual Automobile Insurance Company, Plaintiffs-Appellants, v. David A. GATES, Defendant-Appellee.

No. 89-16288.

United States Court of Appeals Ninth Circuit.

Argued Jan. 9, 1990.

Submitted Jan. 16, 1990.

Decided Sept. 27, 1990.

As Amended Nov. 8, 1990.

Frank Rothman, Darrel J. Hieber, Gary S. Glickman, Stephen J. McConnell, Skadden, Arps, Slate, Meagher & Flom, Los Angeles, Cal., Robert R. Barengo, Reno, Nev., for plaintiffs-appellants Guar. Nat. Ins. Co., Nationwide Mut. Ins. Co., Allstate Ins. Co., United Services Auto. Ass'n, Safeco Ins. Co., Northland Ins. Co., and State Farm Mut. Auto. Ins. Co.

Casey W. Vlautin, Woodburn, Wedge & Jeppson, Reno, Nev., for plaintiff-appellant Farmers Ins. Exchange.

Brian McKay, Atty. Gen., Carson City, Nev., for defendant-appellee.

Appeal from the United States District Court for the District of Nevada.

Before WALLACE, ALARCON and LEAVY, Circuit Judges.

LEAVY, Circuit Judge:

OVERVIEW

Eight insurance companies brought this action for injunctive and declaratory relief against the Insurance Commissioner of the State of Nevada. The insurers challenged the constitutionality of Chapter 784, 1989 Statutes of Nevada, enacted by the Nevada legislature in June of 1989.

Chapter 784 mandates a rollback of rates for motor vehicle liability insurance to the levels that were in effect on July 1, 1988. Additionally, it requires a minimum rate reduction of fifteen percent below those July 1, 1988 rates. The reduced rates are to remain frozen for one year from October 1, 1989 until October 1, 1990. The effective date of Chapter 784 is October 1, 1989.

The insurers claim the requirements of Chapter 784 violate their constitutional right to due process because no relief is available from the imposed rates unless the Insurance Commissioner finds that an insurer is substantially threatened with insolvency. The insurers claim the mandated rates violate the Constitution because they permit confiscatory rates and do not provide for a fair rate of return.

Both parties moved for summary judgment. The district court granted summary judgment in favor of the Insurance Commissioner. We reverse.

FACTS

Chapter 784 reads as follows:

Section 1. 1. For any coverage for a policy of motor vehicle liability insurance issued or renewed on or after October 1, 1989, every insurer shall reduce its charges for motor vehicle liability insurance to levels which are at least 15 percent less than the charges for the same coverage which were in effect on July 1, 1988. For those persons who apply for a policy of motor vehicle liability insurance for the first time on or after October 1, 1989, the rate must be 15 percent less than the rate which was in effect on July 1, 1988, for similarly situated risks.

2. Between October 1, 1989, and October 1, 1990, rates and premiums reduced pursuant to this subsection may only be increased if the commissioner of insurance finds, after a hearing, that an insurer is substantially threatened with insolvency. The commissioner of insurance shall consider the profitability of all lines of insurance transacted by an insurer licensed to do business in this state in determining whether the insurer is substantially threatened with insolvency. For the purposes of this subsection, "insolvency" means the financial condition wherein the sum of the insurer's debts is greater than all of the insurer's property, at fair valuation.

3. Any separate affiliate of an insurer, established on or after October 1, 1989, is subject to the provisions of this section and shall reduce its charges to levels which are at least 15 percent less than the insurer's charges in effect on July 1, 1988.

4. Notwithstanding any previous notice of cancellation or renewal, any insurer that has issued a policy of motor vehicle liability insurance in this state that is in effect on October 1, 1989, and has a scheduled date for termination before October 1, 1990, shall not cancel that policy before October 1, 1990, or refuse to renew or extend that policy through September 30, 1990, for the purpose of avoiding the limit on rates required by this section.

5. Any insurer who cancels or fails to renew policies of motor vehicle liability insurance at a rate that exceeds his average monthly rate of cancellation or failure to renew, respectively, for the preceding 24 months by more than 10 percent during any 30-day period between October 1, 1989, and October 1, 1990, is required to show cause immediately to the commissioner why he is not in violation of this section. Any violation of this section is a violation of the Nevada Insurance Code. If the commissioner determines that the reason for the increase in the rate of cancellation of or failure to renew policies is an attempt to circumvent the reductions in rates, he may take appropriate disciplinary action.

6. For purposes of this section, "insurer" has the meaning ascribed to it in NRS 679A.100.

Sec. 2. This act becomes effective on October 1, 1989.

1989 Nev.Stat. 784, reprinted in Advance Sheets, Nev.Leg. 65th Sess., Vol. III at 1862-63.

The insurance companies allege in their complaint that on its face, Chapter 784 violates due process requirements because it prohibits rate relief to avoid confiscatory results. The complaint also alleges that, in addition to its facial invalidity, the application of Chapter 784 "would deprive each of the plaintiffs of property and other rights in violation of the due process and taking clauses of the ... United States Constitution. U.S. Const. amend. V & XIV."

In July of 1989, the insurance companies moved for summary judgment on their facial challenge to Chapter 784. On August 11, 1989, the district court granted a preliminary injunction to stay the operation of Chapter 784. The Insurance Commissioner filed a cross-motion for summary judgment, claiming that Chapter 784 is facially constitutional. In their motions for summary judgment, neither party challenged Chapter 784 as it applies individually to the insurance companies. Accordingly, the district court's opinion discusses only the facial challenge to the constitutionality of the Chapter.

After a hearing, the district court granted the Commissioner's cross-motion for The insurers appealed. On October 16, 1989, this court stayed the application of Chapter 784 pending a decision on appeal.

summary judgment. The district court found the provisions of Chapter 784 to be within the police power of the State of Nevada and found the reduction and freeze of insurance rates reasonable as a temporary moratorium.

STANDARD OF REVIEW

A grant of summary judgment is reviewed de novo. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir.1986). Viewing the evidence in the light most favorable to the non-moving party, we must determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant law. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir.1986).

The appellants do not contend there are genuine issues of material fact. They argue that the district court did not correctly apply the relevant law to their facial challenge of Chapter 784.

DISCUSSION

Jurisdiction

The first issue is whether we have subject matter jurisdiction. The jurisdictional issue arises because the Declaratory Judgment Act, 28 U.S.C. Sec. 2201, is a procedural device only; it does not confer an independent basis of jurisdiction on the federal court. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72, 70 S.Ct. 876, 879, 94 L.Ed. 1194 (1950); see also Mobil Oil Corp. v. City of Long Beach, 772 F.2d 534, 539-40 (9th Cir.1985), limited on other grounds, Transamerica Occidental Life Ins. Co. v. DiGregorio, 811 F.2d 1249 (9th Cir.1987); Alton Box Bd. Co. v. Esprit de Corp., 682 F.2d 1267, 1273-74 (9th Cir.1982). ¹ A declaratory judgment action may be entertained in federal court only if the coercive action that would have been necessary, absent the declaratory judgment procedure, could have been heard in a federal court. Id.

Here, it can be argued that the insurers' defense of due process would preclude the declaratory judgment defendant, the Insurance Commissioner of Nevada, from successfully litigating against the insurers an action to enforce Chapter 784 under state law. Under this analysis, the federal courts lack jurisdiction. However, there is a complicating factor.

The plaintiffs have asked for injunctive as well as declaratory relief. Therefore, this case is very similar to Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). There, the shareholders of nine railroads brought suit to enjoin the Attorney General of Minnesota from enforcing state rate regulations that allegedly violated the railroads' constitutional rights. The shareholders alleged that the rate regulations, which reduced the railroads' tariffs and charges, were unjust, unreasonable, and confiscatory and would, if enforced, deprive them of their property without due process of law. Young, 209 U.S. at 130, 28 S.Ct. at 444. The Supreme Court held that the railroads should not be forced to violate the statute and then assert their constitutional claims as a defense to the state enforcement action. Id. at 165, 28 S.Ct. at 456. The Court thought the railroads should not have to bear the risk of large losses by having to disobey the act and then proceed in state court. Id. The Court noted that the suit raised significant questions of federal law within the meaning of the jurisdictional statute. Id. at 161-62, 28 S.Ct. at 454-55.

Recently, the Supreme Court has reiterated its position: "[i]t is beyond dispute that federal courts have jurisdiction over suits to enjoin state officials from interfering with...