PIE Mut. Ins. Co. v. Kentucky Medical Ins. Co.

• Decision Date: 05 January 1990
• Docket Number: 88-CA-1416-MR and 88-CA-1889-MR,Nos. 88-CA-1658-M,s. 88-CA-1658-M
• Citation: 782 S.W.2d 51
• Parties: PIE MUTUAL INSURANCE COMPANY, Appellant, v. KENTUCKY MEDICAL INSURANCE COMPANY; and Leroy Morgan, Commissioner, Kentucky Department of Insurance, Appellees. KENTUCKY MEDICAL INSURANCE COMPANY, Appellant, v. Leroy MORGAN, Commissioner, Kentucky Department of Insurance; and Pie Mutual Insurance Company, Appellees. PIE MUTUAL INSURANCE COMPANY, Appellant, v. Leroy MORGAN, Commissioner, Kentucky Department of Insurance; and Kentucky Medical Insurance Company, Appellees.
• Court: Kentucky Court of Appeals

Page 51

782 S.W.2d 51

PIE MUTUAL INSURANCE COMPANY, Appellant, v. KENTUCKY MEDICAL INSURANCE COMPANY; and Leroy Morgan,

Commissioner, Kentucky Department of Insurance,

Appellees.

KENTUCKY MEDICAL INSURANCE COMPANY, Appellant, v. Leroy MORGAN, Commissioner, Kentucky Department of

Insurance; and Pie Mutual Insurance Company,

Appellees.

PIE MUTUAL INSURANCE COMPANY, Appellant, v. Leroy MORGAN, Commissioner, Kentucky Department of

Insurance; and Kentucky Medical Insurance

Company, Appellees.

Nos. 88-CA-1658-MR, 88-CA-1416-MR and 88-CA-1889-MR.

Court of Appeals of Kentucky.

Jan. 5, 1990.

K. Gregory Haynes, Merrill S. Schell, Rhonda E. Curry, Wyatt, Tarrant & Combs, Louisville, George L. Seay, Frankfort, Donald Darby, Jacobson, Maynard, Tuschman & Kalur, Louisville, for Pie Mut. Ins. Co.

Lively M. Wilson, Janet A. Craig, Stites & Harbison, Louisville, for Kentucky Medical Ins. Co.

Patrick Watts, Kentucky Dept. of Ins., Frankfort, for Leroy Morgan and Kentucky Dept. of Ins.

Before EMBERTON, HAYES and WILHOIT, JJ.

WILHOIT, Judge.

The primary issues presented by these appeals are whether one insurer has standing to contest the issuance of a certificate of authority to another insurer, and whether the Commissioner of the Department of Insurance must enforce a settlement agreement executed by two insurers.

A certificate of authority to transact insurance was issued to PIE Mutual Insurance Company (PIE) by the Insurance Commissioner in April 1987. In other states PIE primarily writes medical malpractice policies. In June 1987, Kentucky Medical Insurance Company (KMIC), also a medical malpractice insurer, filed with the Commissioner an application for a hearing pursuant to KRS 304.2-310(2)(b). This statute provides that the Commissioner shall hold a hearing:

Upon written application for a hearing by a person aggrieved by any act, threatened act, or failure of the commissioner to act, or by any report, rule, regulation or order of the commissioner (other than an order for the holding of a hearing, or an order entered after a hearing, of which hearing such person had notice). Any such application must be filed in the department within sixty (60) days after such person knew or reasonably should have known, of such act, threatened act, failure, report, rule, regulation or order, unless a different period is provided for by other laws applicable to the particular matter, in which case such other law shall govern.

By the application for a hearing KMIC sought to challenge the issuance of PIE's certificate. KMIC alleged in the application that PIE charged inadequate rates and understated its reserves. KMIC also cited revocation and suspension statutes, KRS 304.3-190 and 304.3-200, in the petition. Prior to the conclusion of the scheduled hearing, PIE and KMIC entered into an agreement and the hearing was held in abeyance. The agreement provided for, among other things, an actuarial audit of PIE which would be reviewed by an actuary employed by KMIC. If the two actuarial firms agreed upon inadequacies of PIE, PIE agreed to correct the deficiency. The general counsel of the Department of Insurance also signed the agreement.

In January 1988 KMIC filed with the Commissioner a motion to enforce the agreement. KMIC also specifically requested a stay of PIE's certificate of authority until it complied with the agreement. The stay was requested pursuant to KRS 304.2-310(5), which states that "[p]ending the hearing and decision [of the KRS 304.2-310 hearing], the commissioner shall suspend or postpone the effective date of his previous action." A hearing on the motion to enforce the agreement was held January 28, 1988. On March 25, PIE repudiated the agreement on the basis it was "illegal and violated public policy." By an April 7 order the Commissioner declined to enforce the agreement, but ordered PIE to file with the Commissioner the information required by the agreement.

KMIC sought review of the Commissioner's April 7 order in the Franklin Circuit Court pursuant to KRS 304.2-370. The circuit court held that KMIC is an aggrieved party and has standing to request a hearing on the issuance of a certificate to PIE, and stayed the effectiveness of PIE's certificate pending the decision on the hearing. PIE appealed to this court, and obtained an order July 21, 1988, staying the effectiveness of the circuit court's suspension of PIE's certificate. KMIC also appealed the circuit court's failure to order enforcement of the agreement.

Meanwhile, KMIC pressed its efforts to obtain a hearing before the Commissioner. PIE filed an original action in circuit court seeking to prohibit the Commissioner from allowing discovery by KMIC. After the circuit court denied the requested relief, PIE appealed to this court. An order was entered November 22 staying the circuit court order requiring a hearing.

The Commissioner contends that KMIC prematurely resorted to the circuit court because he had not made a determination that KMIC was an aggrieved party, pointing to KRS 304.2-310(4): "[i]f the commissioner finds that the application [for a hearing] is made in good faith, that the applicant would be so aggrieved if his grounds are established, he shall hold the hearing...." The circuit court found that it was not necessary for the Commissioner to make this finding because the question of standing is one of law, and that further administrative process to determine standing would be futile. See Sobolewski v. Louisville Downs, Inc., Ky.App., 609 S.W.2d 943, 946-47 (1980).

KMIC contends that it has standing to request a hearing on the issuance of a certificate of authority to PIE. By characterizing its argument in this manner, KMIC claims it is entitled to a suspension of PIE's certificate until a decision is rendered based upon the hearing. See KRS 304.2-310(5). PIE and the Commissioner contend that the legislature granted the Commissioner complete discretion to determine if a certificate should be issued, and that KMIC has no standing to challenge the issuance of the certificate. All parties cite Humana of Kentucky, Inc. v. NKC Hospitals, Inc., Ky., 751 S.W.2d 369 (1988). An analysis of this case, as well as the relevant sections of the Insurance Code, is necessary to determine the issue of standing.

In Humana v. NKC Hospitals, NKC challenged Humana's offering of pediatric open heart surgery and cardiac catheterization as beyond the scope of its certificate of need (CON). The court held that the CON legislative scheme included competitors in the definition of standing so they could "demand compliance with the statutory scheme for the benefit of the public." 751 S.W.2d at 372. NKC's interest was "within the zone of interests to be protected or regulated," see Association of Data Processing Organizations, Inc. v. Camp, 397 U.S. 150, 153, 90 S.Ct. 827, 830, 25 L.Ed.2d 184 (1970), so it can maintain a quality, cost effective program. 751 S.W.2d at 373. The relevant state health plans established that a facility operating a "pediatric open heart or cardiac catheterization is to be protected from competition unless a need for an additional provider can be demonstrated in an administrative hearing subject to the review process.... The hospital has the information available to assess the impact of a new program, and if it has no standing to challenge the agency's actions as arbitrary, as a practical matter no one will." Id.

The CON statutory scheme differs from the process governing the issuance of certificates of authority to insurers. An "affected person" is defined in KRS 216B.015(2) to include "health facilities located in the service area in which the project is proposed to be located which provide services similar to the services of the facility under review." Our Supreme Court found significant that KRS 216B.085 provides that an "affected person" has standing to be a party to the CON hearing. 751 S.W.2d at 372. The court also noted that the Commission of Health Economic Control does not have uncontrolled discretion to decide when to permit competition, but must comply with the State Health Plan and "conduct a certificate of need review before permitting a 'substantial change in a health service' which is not 'consistent with the state health plan.' " Id.

Turning to the Insurance Code, we find no similar procedure specifically allowing a competitor to contest the issuance of a certificate of authority to another insurer. We begin by noting that KRS 304.1-130 provides that "[p]rovisions of this code relative to a ... particular matter shall prevail over provisions relating to ... such matter in general." KRS 304.3-150 specifies the application procedure for obtaining a certificate of authority. This procedure entails filing certain documents with the Commissioner. No hearing is required before the certificate is issued; however, a hearing may be scheduled pursuant to KRS 304.2-310. A certificate is issued upon the Commissioner's finding that the insurer has met the requirements of the Insurance Code. KRS 304.3-160(1). KRS 304.3-180(1) provides that "[a] certificate of authority shall continue in force as long as the insurer is entitled thereto under this code, and until suspended or revoked by the commissioner or terminated at the insurer's request...." In short, the issuance of a certificate of authority is not provisional.

KMIC points to no statute, other than the general hearing statute of KRS 304.2-310, which brings it within the "zone of interests to be protected or regulated." The question then becomes whether "a person aggrieved" in that statute was intended by the legislature to include a competitor for purposes of challenging the commissioner's issuance of a certificate of authority. The common law rule in Kentucky is that absent...