INSURERS'ACTION COUNCIL, INC. v. Heaton

• Decision Date: 23 December 1976
• Docket Number: No. Civ-3-76-440.,Civ-3-76-440.
• Citation: 423 F. Supp. 921
• Parties: INSURERS' ACTION COUNCIL, INC., a Nebraska Corporation, et al., Plaintiffs, v. Berton HEATON, Commissioner of Insurance, et al., Defendants, and United Cerebral Palsy et al., Intervenors.
• Court: U.S. District Court — District of Minnesota

423 F. Supp. 921

INSURERS' ACTION COUNCIL, INC., a Nebraska Corporation, et al., Plaintiffs, v. Berton HEATON, Commissioner of Insurance, et al., Defendants and United Cerebral Palsy et al., Intervenors.

No. Civ-3-76-440.

United States District Court, D. Minnesota, Third Division.

December 23, 1976.

Frank Claybourne, Joseph R. Kernan, Jr., and Robert J. Schmit, Doherty, Rumble & Butler, St. Paul, Minn., for plaintiffs.

Warren Spannaus, Atty. Gen., Richard B. Allyn, Sol. Gen., Stephen F. Befort, Kent G. Harbison, William R. Howard, and Richard D. Lockridge, Sp. Asst. Attys. Gen., St. Paul, Minn., for defendants Berton Heaton and Minnesota Department of Commerce, Ins. Division.

John F. Stone and David B. Morse, Thompson, Hessian, Fletcher, McKasy, & Soderberg, Minneapolis, Minn., for defendant Minnesota Comprehensive Health Association.

Rebecca A. Knittle and Patricia A. Suita, Legal Advocacy for the Developmentally Disabled of Minnesota, Minneapolis, Minn., attorneys for defendants in intervention United Cerebral Palsy, Minnesota Epilepsy League, Minnesota Association for Retarded Citizens, Michael L. Berde and Carol T. Berde.

Frank Allen Hester, Legal Assistance of Ramsey County, Inc., St. Paul, Minn., for amici curiae Senior Citizens Legislative Council of Greater St. Paul, Senior Citizens Coalition of Greater St. Paul, Inc. and Metropolitan Senior Federation, Inc.

Michael Milgrom, Minneapolis, Minn., for amicus curiae Minnesota Public Interest Research Group.

John F. Market, St. Paul, Minn., for amicus curiae Minnesota Catholic Conference.

MEMORANDUM & ORDER

DEVITT, Chief Judge.

This action for declaratory and injunctive relief, which is presented on plaintiffs' motion for a preliminary injunction, is a challenge to the constitutionality of the recently enacted Minnesota Comprehensive Health Insurance Act of 1976, Minn.Laws 1976, ch. 296.

Plaintiffs are several insurance companies and a non-profit corporation composed of several other insurers, all of which write or have written accident and health insurance in Minnesota. Such activities have subjected them to regulation by the Act. Defendants are the Minnesota Commissioner of Insurance, the individual charged with administering the Act, the Insurance Division of the Minnesota Department of Commerce, and the Minnesota Comprehensive Health Association, an association created by the Act and composed of all commercial insurers, fraternals, self-insurers, and health maintenance organizations who desire to write accident and health insurance in Minnesota. In addition, several organizations whose members are potential beneficiaries of the Act have been permitted to intervene or participate as amici curiae.

The Act has three basic areas of operation. First, it requires that every health and accident insurer shall offer to Minnesota residents qualified policies or unqualified policies containing a specified amount of major medical coverage. Qualified policies are those which provide certain statutorily mandated benefits or the actuarial equivalent of those benefits. Second, employers who offer health care plans to their employees must make available to them a certain type of qualified plan. Finally, the Act creates the Comprehensive Health Association and charges it with operating a comprehensive health insurance plan designed to offer policies to individuals who are unable to obtain health and accident insurance through normal channels. The Association is also available to reinsure qualified policies issued by individual carriers.

The statute was passed after extensive legislative investigation showed that some 400,000 Minnesotans presently are not covered by any form of health insurance. Of this number, some 200,000 are uninsurable because of a pre-existing medical disability. Without delving at length into the various irreparable injuries alleged by all parties to this litigation, the court notes that any delay in the operation of this statute will work a corresponding delay in medical insurance coverage for these people. The court does not feel the need to explore the equities any further since it concludes that plaintiffs have failed to satisfy the one non-injury oriented requirement for securing a preliminary injunction. They have failed to demonstrate a substantial probability of success on the merits.

I. Substantive Due Process

Plaintiffs' first argument based on the due process clause is that the Act is an unreasonable and arbitrary exercise of the state's recognized power to regulate the business of insurance. Although this argument seems to invoke the antiquated if not moribund theory of "substantive due process," it appears to have continuing validity in this area, at least on the state level. Aetna Casualty and Surety Co. v. Commissioner, 358 Mass. 272, 263 N.E.2d 698 (1970) and Hartford Accident and Indemnity Co. v. Ingram, 290 N.C. 457, 226 S.E.2d 498 (1976). These cases respectively illustrate the two unreasonable elements which plaintiffs find in the Act — confiscation and conscription into a new business. Plaintiffs allege that confiscation will occur from the operation of the state plan. The conscription argument is used to attack both aspects of the statute. The court will assume only for the purpose of discussion that some aspects of the substantive due process doctrine remain viable and that the elements of confiscation and conscription delineate its reach regarding state regulation of insurance.

Plaintiffs seemingly attack a few other aspects of the statute under the substantive due process rubric such as the Act's requirement that all insurers offer qualified plans. Plaintiffs claim that this requirement is not rationally related to the purpose of the statute since some qualified plans are presently being offered. They claim that requiring all insurers to offer such policies is superfluous to the Act's goal of providing minimum health care benefits. This superfluous requirement is allegedly irrational since it will possibly drive some insurers out of the state. What this amounts to is asking the court to substitute its economic and social judgment for that of the legislature. But I can't do that. Ferguson v. Skrupa, 372 U.S. 726, 83 S.Ct. 1028, 10 L.Ed.2d 93 (1963).

Plaintiffs have repeatedly used the term confiscation without precisely defining what they mean. Does confiscation occur when the right to do business is conditioned upon incurring a net loss on all operations in the state or only upon suffering a loss in one area of business which can be offset by gains elsewhere? Although they have not adequately defined the term, plaintiffs have been very clear in pointing to the events which will allegedly have a confiscatory effect. For the first year of operation, the premium for insurance offered under the state plan will be the average of the premiums charged by the five largest insurers with the largest number of persons covered by qualified plans. Plaintiffs claim that this rate will necessarily result in a loss to the state plan, which loss will be passed on to the member insurers. Either this will cause confiscation or the inability of the insurers to recoup this loss in future years will have that effect. Plaintiffs do not seriously contend that confiscation will result in the subsequent years of the plan's operation since the statute provides that the state plan premium in those years shall be "self-supporting."

There are two answers to plaintiffs' contention. First, it is not at all clear that a loss will result in the first year of operation. For example, persons insured by the state plan will be able to collect only for expenses caused by pre-existing conditions which are incurred in the last six months of the first year. Thus, they will receive half the projected benefits but will be obligated to pay the full premium. Also, because of transactions costs which are built into the normal commercial premium but are not included in the state premium, a larger fraction of the state plan premium will be available to pay claims. Second, even if a loss occurs, it appears that insurers can offset it by raising premiums on individual policies sold to Minnesota residents. Although the court had some initial reservations about the ability of insurers to do this since the Commissioner of Insurance has the power under Minn.Stat. § 62A.02(3) (1974) to disapprove premiums which are unreasonable in relation to the benefits provided in the policy, both parties agreed at oral argument that such an offset could be made. Therefore, it appears that plaintiff's claim of loss with no possibility of recoupment is speculative and not sufficient to trigger an injunction at this stage of the proceedings. If a loss in fact occurs and recoupment is prohibited, plaintiffs then may have a remedy. However, the court re-emphasizes that in order to prove such a claim, plaintiffs must first define what they mean by confiscation and demonstrate that confiscation of this nature made through the exercise of the state's police power is redressable under the due process clause.

As previously noted, plaintiffs also contend that the Act is unreasonable since it obligates unwilling insurers to enter a new line of business for which they are insufficiently prepared. Some of the plaintiffs are characterized as small insurers who write low-limit health and accident policies with benefits which do not approach the statutorily mandated coverages. Plaintiffs claim that he obligation to offer qualified policies, either directly to individuals or indirectly through participation in the state plan, unconstitutionally forces them into the entirely new business of providing broad-benefit, high-limit forms of insurance. Plaintiffs rely on Hartford Accident and Indemnity Co. v. Ingram, supra, in support of this position. In that case, the Supreme Court of North Carolina invalidated a statute which required all general liability insurers to participate in a...