Massachusetts Medical Soc. v. Commissioner of Ins.

• Decision Date: 30 March 1988
• Citation: 520 N.E.2d 1288,402 Mass. 44
• Parties: The MASSACHUSETTS MEDICAL SOCIETY v. COMMISSIONER OF INSURANCE (and a consolidated case).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1288

520 N.E.2d 1288

402 Mass. 44

The MASSACHUSETTS MEDICAL SOCIETY v. COMMISSIONER OF INSURANCE (and a consolidated case).

Supreme Judicial Court of Massachusetts Suffolk.

Argued Dec. 10, 1987.

Decided March 30, 1988.

Acheson H. Callaghan, Jr., (Michael J. Lacek, Boston, with him), for The Medical Malpractice Joint Underwriting Ass'n of Massachusetts.

Cheryl L. Conner, Asst. Atty. Gen., for Com'r of Ins.

Michael T. Gengler and Kenneth Laurence, Boston, for The Massachusetts Medical Soc.

Jeffrey Swope (Kevin E. Hulslander, Boston, with him), for Blue Shield of Massachusetts, Inc., intervenor.

Before HENNESSEY, C.J., and LIACOS, NOLAN and LYNCH, JJ.

NOLAN, Justice.

A single justice of the Supreme Judicial Court for the county of Suffolk reserved and reported to the full court two consolidated complaints seeking review of the decision by the Commissioner of Insurance (Commissioner) fixing and establishing medical malpractice insurance rates for physicians and surgeons effective July 1, 1985, 1986, and 1987, and establishing the first instalment of the deferred premium liability charges for 1983, 1984, and 1985 pursuant to St.1986, c. 351, § 38. A separate complaint seeking review of two post-decision implementation orders of the Commissioner was reserved and reported to the full court and consolidated with the above described action for a determination of all the issues.

The first complaint, brought by the Massachusetts Medical Society (MMS or "the Medical Society"), challenged the Commissioner's April 21, 1987, decision setting medical malpractice insurance classifications and rates under G.L. c. 175A, § 5A, and establishing adjustments to physicians' charges to Blue Shield of Massachusetts, Inc. (Blue Shield), under G.L. c. 175A, § 5B. A second complaint seeking review of the same decision of the Commissioner was filed by the Medical Malpractice Joint Underwriting Association of Massachusetts (JUA). MMS and JUA filed cross motions to intervene, which motions were granted by the single justice along with Blue Shield's motion to intervene in the MMS complaint.

Subsequent to the Commissioner's April 21, 1987, decision, the Medical Society filed a separate complaint for review of two rulings made by the hearing officer and affirmed by the Commissioner concerning the calculation of the dollar amount of Blue Shield's additional payments to physicians resulting from the medical malpractice insurance premium increases. The single justice allowed Blue Shield's motion to intervene.

A. Experience rating plan. MMS objects to the Commissioner's adoption of a design for an experience rating plan for physicians to be implemented in the 1988 rate year. The Medical Society alleges that the Commissioner erred in approving the statistical plan for experience rating proposed by the State Rating Bureau (SRB) over the peer review plan offered by MMS. The Commissioner affirmed the statistical design under both St.1986, c. 351, § 36, and G.L. c. 175A, § 5A. We agree with the Commissioner's determination.

MMS argues that the Commissioner was without statutory authority to adopt an experience rating plan effective July 1, 1988, in a proceeding conducted to fix and establish rates for the years 1985, 1986 and 1987, and that notice of his intention to implement a plan for 1988 was insufficient. The Medical Society contends that the experience rating plan endorsed by the Commissioner is unfair, unreasonable and in violation of the Fourteenth Amendment to the United States Constitution and arts. 1, 6, 7, and 10 of the Massachusetts Constitution. MMS further alleges that the experience rating plan is unsupported by the evidence, and that the statutory classification system which will govern the finalized experience rating plan is too vague to be constitutionally applied. Because we are unconvinced that the Commissioner's preliminary approval of the statistically based experience rating plan is tantamount to "fixing and establishing" risk classifications and premium charges under § 5A, we see no merit in the Medical Society's claims.

This court considered the question whether premium charges under an experience rating plan were fixed and established by a decision of the Commissioner in Century Cab, Inc. v. Commissioner of Ins., 327 Mass. 652, 660, 100 N.E.2d 481 (1951). We held that "[a] rate may be fixed where its elements are settled and where all that remains to be done is to combine those elements by the employment of a definite rule, or as here by mathematical process.... The rates in the instant case depend not upon future factual contingencies for their determination but on present established facts." Id. at 664-665, 100 N.E.2d 481 (citations omitted). The Commissioner's finding that an experience rating plan shall be implemented in 1988, along with his approval of a provisional plan, does not amount to a fixed and established rate determination under the test set forth in Century Cab. The Commissioner did not fix the premium charges, establish specialty group classifications, nor did he promulgate a complete formula through which these determinations could be made. Rather, the Commissioner directed JUA to work with SRB and MMS to accumulate the necessary factual data to formulate and implement a comprehensive experience rating plan for the 1988 rate year. To that end, the hearing officer made various findings which, when combined, outlined a feasible experience rating plan that, once formulated, would conform to the statutory scheme. The Commissioner then affirmed the plan and correctly determined that the hearing officer was within his authority to endorse the design under both G.L. c. 175A, § 5A, and St.1986, c. 351, § 36. ¹

Until a finalized experience rating plan is presented for implementation in the rate year 1988, the Medical Society's challenges to the validity of the present plan are premature. We serve the interests of neither the administrative nor the judicial process by reviewing in a piecemeal fashion administrative proposals for measures not yet fully formulated. The better policy is to allow the administrative process to run its course before permitting appellate review, thereby granting the administrative agency a sufficient opportunity to apply its expertise to develop regulations in conformity with the statutory scheme. Assuncao's Case, 372 Mass. 6, 8-9, 359 N.E.2d 1304 (1977). The parties will have ample opportunity to renew any applicable objections to the completed plan once it is introduced for adoption during the 1988 hearings.

B. Collection of deferred premium liability. Statute 1986, c. 351, § 38, amended G.L. c. 175A, § 5A, and set forth the scheme through which JUA could recover Total Deferred Premium Liability (TDPL). ² The statute provided deferral of the amount due until July 1, 1987, and specified that predetermined portions of the total would be collected annually over a five-year period. St.1986, c. 351, § 38 (3). MMS and JUA challenge the Commissioner's decision with respect to various findings concerning the calculation and apportionment of TDPL. ³

MMS objects to the Commissioner's separate treatment of corporate and partnership coverages, and of claims made, occurrence, and reporting endorsement coverages in apportioning deferred premium liability. The Medical Society demands a narrow interpretation of § 38 which would require that deferred premium liability charges be determined solely by risk classifications based upon medical specialties. ⁴ The Commissioner disagreed with MMS's interpretation and concluded that because corporations and partnerships were charged different rates in 1983, 1984, and 1985, these insureds warranted different treatment regarding the collection of their deferred premium liability. Similarly, the Commissioner endorsed the assessment of TDPL as a percentage of premium, which resulted in different charges for physicians with various types of coverage. MMS argues that any deferred premium charge scheme other than a flat rate would discriminate on grounds other than medical specialty, and therefore violate the statute.

There is no language in the statute which precludes the Commissioner from assessing different premium liability to distinguish between the types of coverage held by insureds within their respective risk classifications. It was within the Commissioner's discretion under G.L. c. 175A, § 5A, to differentiate among insureds based on their differing costs of coverage. His ruling complied with the intent of the Legislature, and his classifications were supported by substantial evidence.

We are persuaded, however, by MMS's and JUA's joint contention that the Commissioner erred in failing to include the deferred premium for reporting endorsements in his calculation of TDPL.

Reporting endorsements are policies purchased by physicians to protect themselves against claims of malpractice made after they discontinue their claims-made insurance policies. Unlike an occurrence policy which covers malpractice claims arising from the physician's conduct during the period in which the occurrence policy is effective, regardless of when the claim is filed, a claims-made insurance policy covers only claims reported to JUA during the effective term of the policy. Therefore, when a physician formerly carrying a claims-made policy either changes his coverage by purchasing an occurrence policy or discontinues practicing medicine, he is vulnerable to any claim arising from an incident that occurred during the life of his claims-made policy but was reported to JUA after the policy's termination. A reporting endorsement is a policy designed to protect the physician from liability arising from these belatedly filed claims. Reporting endorsements are separate policies with separate premium charges assessed pursuant to the rate increases ordered from 1983, 1984, and 1985, the collection of which has been deferred under St.1986, c. 351, § 38.

JUA,...