IN RE DECLARATORY RULING BY COM'R OF INS.

• Decision Date: 06 July 1999
• Docket Number: No. COA98-927.,COA98-927.
• Citation: 517 S.E.2d 134,134 NC App. 22
• Court: North Carolina Court of Appeals
• Parties: In the Matter of A DECLARATORY RULING BY THE NORTH CAROLINA COMMISSIONER OF INSURANCE REGARDING 11 N.C.A.C. 12.0319.

517 S.E.2d 134

134 NC App. 22

In the Matter of A DECLARATORY RULING BY THE NORTH CAROLINA COMMISSIONER OF INSURANCE REGARDING .0319.

No. COA98-927.

Court of Appeals of North Carolina.

July 6, 1999.

Attorney General Michael F. Easley, by Special Deputy Attorney General Lorinzo L. Joyner, Assistant Attorney Generals Francis J. Di Pasquantonio, Sue Y. Little and Ted R. Williams, for the State.

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., by Michael E. Weddington and Deanna L. Davis, Raleigh, for appellee Employers Health Insurance Co.

Maupin, Taylor & Ellis, P.A., by M. Keith Kapp and Kevin W. Benedict, Raleigh, for appellees Blue Cross and Blue Shield of North Carolina.

Bailey & Dixon, L.L.P., by Alan J. Miles, amicus curiae, Raleigh, for North Carolina Association of Defense Attorneys.

Patterson, Harkavy & Lawrence, L.L.P., by Burton Craige, amicus curiae, Raleigh, for North Carolina Academy of Trial Lawyers.

Smith Helms Mulliss & Moore, L.L.P., by James G. Exum, Jr., and John J. Korzen, amicus curiae, Greensboro, for Citizens for Business and Industry, United HealthCare of North Carolina, Inc., Kaiser Foundation Health Plan of North Carolina, Fortis Provider Markets, Fortis Insurance Company, and Fortis Benefits Company.

MARTIN, Judge.

On 26 September 1978 the North Carolina Department of Insurance (NCDOI) adopted a rule pursuant to the North Carolina Administrative Procedures Act (currently codified as N.C. Gen.Stat. § 150B), stating that "Life or accident and health insurance forms shall not contain a provision allowing subrogation of benefits." 11 N.C.A.C. 12.0319 (anti-subrogation rule). The validity of this rule is the subject of this dispute. Employers Health Insurance Company (Employers) and Blue Cross Blue Shield of North Carolina (BCBS) filed a joint petition on 15 October 1997 seeking a formal declaration regarding the enforceability of the 1978 anti-subrogation rule.

Known historically as the principle of substitution, the doctrine of subrogation allows a party who has compensated a creditor under the color of some obligation, to step into the shoes of the creditor, thereby succeeding to the creditor's rights to proceed against the debtor for reimbursement. Journal Pub. Co. v. Barber, 165 N.C. 478, 487-88, 81 S.E. 694, 698 (1914). When an insurer has compensated the insured for a loss according to the terms of an insurance policy, the insurer is subrogated to the rights of the insured with respect to any third party who may be liable for the loss covered by the policy. Phoenix Ins. Co. of Brooklyn v. Erie & Western Transp. Co., 117 U.S. 312, 6 S.Ct. 750, 29 L.Ed. 873 (1886); Fidelity Insurance Co. v. Atlantic Coast Line Railroad Co., 165 N.C. 136, 80 S.E. 1069 (1914).

In a declaratory ruling of 29 December 1997, the Commissioner upheld the anti-subrogation rule. The superior court reversed the Commissioner's ruling but stayed the judgment pending final appellate determination. NCDOI appeals.

Appellate review of a judgment of the superior court entered upon review of an administrative agency decision requires that the appellate court determine whether the superior court utilized the appropriate scope of review and, if so, whether the superior court did so correctly. ACT-Up Triangle v. Com'n for Health Serv., 345 N.C. 699, 706, 483 S.E.2d 388, 392 (1997) (citing Amanini v. North Carolina Dept. of Human Resources, 114 N.C.App. 668, 443 S.E.2d 114 (1994)). The nature of the error asserted by the party seeking review dictates the appropriate manner of review: if the appellant contends the agency's decision was affected by a legal error, G.S. § 150B-51(1)(2)(3) & (4), de novo review is required; if the appellant contends the agency decision was not supported by the evidence, G.S. § 150B-51(5), or was arbitrary or capricious, G.S. § 150B-51(6), the whole record test is utilized. In re Appeal by McCrary, 112 N.C.App. 161, 435 S.E.2d 359 (1993).

In this case, petitioners' claim and respondent's assignments of error both address the legal efficacy of the anti-subrogation rule, 11 N.C.A.C. 12.0319; thus the appropriate standard of review for the superior court and this Court is de novo review. Id. It makes no difference that a declaratory ruling, rather than a contested case, is now before us. N.C. Gen.Stat. § 150B-4 (1995) ("A declaratory ruling is subject to judicial review in the same manner as an order in a contested case."). Accordingly, we consider de novo whether the Commissioner erred in upholding the anti-subrogation rule adopted by the NCDOI.

Respondent's Appeal

The superior court concluded that NCDOI exceeded its statutory authority and violated the United States Constitution when it promulgated the anti-subrogation rule. With respect to the question of statutory authority, NCDOI contends the superior court erred when it concluded promulgation of the anti-subrogation rule (1) exceeded the statutory authority of the NCDOI, (2) effectively changed North Carolina substantive law allowing legal subrogation, and (3) amounted to an unconstitutional delegation of legislative powers. The Commissioner also takes issue with the superior court's conclusion that: (4) adoption of the rule impermissibly interfered with petitioners' constitutional freedom of contract, and (5) application of the rule to prohibit subrogation clauses in the policies of fewer than all health and accident insurers in this State violated Constitutional guarantees of equal protection under the law. For the following reasons we reverse the judgment of the superior court.

I. Statutory Authority

The power of the Commissioner of Insurance is limited by statute. As stated in State ex rel. Com'r of Ins. v. North Carolina Auto. Rate Administrative Office,

While the Office of Commissioner of Insurance is created by Article III, sec. 7(1) of the North Carolina Constitution, section 7(2) of that Article says his duties shall be prescribed By law. Hence, the power and authority of the Commissioner emanate from the General Assembly and are limited by legislative prescription.

287 N.C. 192, 202, 214 S.E.2d 98, 104 (1975), appeal after remand, 30 N.C.App. 427, 227 S.E.2d 603 (1976), reh'g granted, opinion vacated by, 292 N.C. 1, 231 S.E.2d 867 (1977); State ex rel. Com'r of Ins. v. North Carolina Rate Bureau, 300 N.C. 381, 398, 269 S.E.2d 547, 561,reh'g denied,301 N.C. 107, 273 S.E.2d 300 (1980) (hereinafter Rate Bureau); Mullins v. North Carolina Criminal Justice Educ. and Training Standards Com'n, 125 N.C.App. 339, 481 S.E.2d 297 (1997). In addition to express powers, administrative agencies have implied powers reasonably necessary for the proper execution of their express purposes. Mullins at 344, 481 S.E.2d at 300; State ex rel. Com'r of Ins. v. Integon Life Ins. Co., 28 N.C.App. 7, 10, 220 S.E.2d 409, 411-12 (1975). Absent express authority or an implied power reasonably necessary for proper administrative functions, "[a]n administrative agency has no power to promulgate rules and regulations which alter or add to the law it was set up to administer or which have the effect of substantive law." Integon Life Ins. Co. at 11, 220 S.E.2d at 412. However, just because an asserted power is "novel and unprecedented" does not necessarily mean the action exceeds statutory authority. Rate Bureau at 401, 269 S.E.2d at 562 (citing United States v. Morton Salt Company, 338 U.S. 632, 70 S.Ct. 357, 94 L.Ed. 401 (1950)). Despite the "novel and unprecedented" aspects of the anti-subrogation rule, we must determine whether the NCDOI was given express or implied authority to promulgate 11 N.C.A.C. 12.0319.

"An issue as to the existence of power or authority in a particular administrative agency is one primarily of statutory construction." Rate Bureau at 399, 269 S.E.2d at 561; Mullins, supra.

In construing the laws creating and empowering administrative agencies, as in any area of law, the primary function of a court is to ensure that the purpose of the Legislature in enacting the law, sometimes referred to as legislative intent, is accomplished. The best indicia of that legislative purpose are "the language of the statute, the spirit of the act, and what the act seeks to accomplish."

Rate Bureau at 399, 269 S.E.2d at 561 (citations omitted); Mullins, supra.

Rules of statutory construction apply, and so statutes in pari materia, and all parts thereof, should be construed together and compared with each other. Rate Bureau at 399-400, 269 S.E.2d at 561; Redevelopment Commission v. Security National Bank of Greensboro, 252 N.C. 595, 114 S.E.2d 688 (1960). "Such statutes should be reconciled with each other when possible, and any irreconcilable ambiguity should be resolved so as to effectuate the true legislative intent." Rate Bureau at 400, 269 S.E.2d at 561; Duncan v. Carpenter, 233 N.C. 422, 64 S.E.2d 410 (1951).

A review of the statutory insurance regulatory scheme reveals a legislative intent to grant the Commissioner broad authority to review insurance forms and restrict those provisions less favorable to the consumer, i.e., the insured or beneficiary, than required by statutory provisions.

The Commissioner is given the authority to require filing and approve insurance policies. N.C. Gen.Stat. § 58-51-1 (filing and approval authority over sickness and accident insurance forms prior to use); N.C. Gen.Stat. § 58-51-85 (filing and approval authority over policies of group or accident and health insurance prior to use); N.C. Gen.Stat. § 58-51-95 (filing and approval authority over forms and rates for individual sickness or bodily injury or death by accident policies prior to use); N.C. Gen.Stat. § 58-67-50 (filing and approval authority over evidences of coverage, amendments issued by HMOs prior to use). However, these statutes do not provide express authority to exclude substantive provisions, absent some other authority within the insurance statutes.

G.S. § 58-2-40 (Powers and Duties of Commissioner) states that the...