Premera v. Kreidler, 32377-0-II.

• Decision Date: 04 April 2006
• Docket Number: No. 32377-0-II.,32377-0-II.
• Citation: 131 P.3d 930,133 Wn. App. 23
• Parties: PREMERA, a Washington nonprofit miscellaneous corporation; and PREMERA Blue Cross, a Washington nonprofit corporation, Petitioners, v. Mike KREIDLER, Insurance Commissioner for the State of Washington, Respondent, Welfare Rights Organizing Coalition; Washington Citizen Action; American Lung Association of Washington; Northwest Federation of Community Organizations; Northwest Health Law Advocates; Service Employees International Union; The Children's Alliance; Washington Academy of Family Physicians; Washington Association of Churches; Washington Protection and Advocacy System, Inc.; Washington State Chapter of the National Organization for Women; Washington State Hospital Association; Association of Washington Public Hospital Districts; and Washington State Medical Association, Intervenors.
• Court: Washington Court of Appeals

131 P.3d 930

133 Wn. App. 23

PREMERA, a Washington nonprofit miscellaneous corporation; and PREMERA Blue Cross, a Washington nonprofit corporation, Petitioners, v. Mike KREIDLER, Insurance Commissioner for the State of Washington, Respondent, Welfare Rights Organizing Coalition; Washington Citizen Action; American Lung Association of Washington; Northwest Federation of Community Organizations; Northwest Health Law Advocates; Service Employees International Union; The Children's Alliance; Washington Academy of Family Physicians; Washington Association of Churches; Washington Protection and Advocacy System, Inc.; Washington State Chapter of the National Organization for Women; Washington State Hospital Association; Association of Washington Public Hospital Districts; and Washington State Medical Association, Intervenors.

No. 32377-0-II.

Court of Appeals of Washington, Division Two.

April 4, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert Bertelson Mitchell, Jr., Thomas Edward Kelly, Jr., Preston Gates & Ellis LLP, Seattle, Charles Kenneth Wiggins, Wiggins & Masters PLLC, Bainbridge Island, for Petitioner.

Elizabeth Christina Beusch, Attorney Generals Office, Govt. Compliance, Olympia, for Respondent.

Nicholas Broten Straley, Columbia Legal Services, Seattle, Dierk Jon Meierbachtol, Seattle, Michael F. Madden, Bennett Bigelow & Leedom PS, Seattle, Eleanor Hamburger, Sirianni Youtz Meier and Spoonermore, Seattle, for Respondent Intervenor Welfare Rights Organizing Coalition.

Howard Mark Goodfriend, Edwards Sieh Smith & Goodfriend PS, Seattle, for Amicus Curiae Alliance for Advancing Nonprofit Healthcare.

Robert James Fallis, Office of the Attorney General, Olympia, for Amicus Curiae Attorney Generals Office.

Janet Marie Helson, Skellenger Bender PS, Seattle, for Amicus Curiae Consumers Union of the U.S., Inc.

Timothy J. Warzecha, Law Offices of Timothy J. Warzecha, PLLC, Seattle, for Amicus Curiae National Assoc. of Insurance Commissioners.

VAN DEREN, A.C.J.

¶ 1 Premera, Premera Blue Cross, and their affiliated companies (collectively Premera) sought to reorganize Premera's holding company system under a for-profit parent and to convert the nonprofit affiliates to for-profit companies. Washington State Insurance Commissioner Mike Kreidler (Commissioner) disapproved Premera's proposal. Premera now seeks judicial review of the Commissioner's ruling, arguing that: (1) he improperly interpreted the Health Carrier Holding Company Act (Health Carrier HCA); (2) he erred by considering Premera's proposal under the Insurer Holding Company Act (Insurer HCA); (3) he erred in applying a fair market value test to the proposed conversion; (4) he erred in concluding that the conversion will hurt subscribers and the insurance-buying public; and (5) he improperly failed to consider the benefits of Premera's proposed conversion.

¶ 2 We hold that the Commissioner did not err in assessing the benefits of Premera's proposal and in rejecting its conversion plan on the grounds that the plan as a whole was unfair and unreasonable to subscribers, not in the public interest, and likely to be hazardous or prejudicial to the insurance-buying public. Finding no error, we affirm the Commissioner's decision.

FACTS¹

¶ 3 Premera is an independent licensee of the Blue Cross® Blue Shield® Association (BCBSA). Based in Mountlake Terrace, Washington, Premera provides commercial health care coverage to paying subscribers in Washington and Alaska.

¶ 4 Premera must maintain a minimum amount of Risk Based Capital (RBC)² to maintain its BCBSA license and meet the requirements of the law. Premera's RBC level is among the lowest of all BCBSA licensees. In 2002, Premera's RBC level was 406 percent, not far above the 375 percent RBC threshold level for early-warning monitoring by the BCBSA. Its RBC level increased to 433 percent by the end of 2003.

¶ 5 In 2002, Premera's Board of Directors unanimously determined that raising equity capital as a publicly traded company would be the best option for increasing capital. Premera informed the Commissioner and other public officials of its conversion plans on May 30, 2002. On September 17, Premera filed its Form A Statement, the required application for approval of its proposal.

¶ 6 Premera's Form A proposed to create a new, completely for-profit Premera holding company (New Premera) through a series of intricate corporate liquidations and transfers. In the final step, Premera would transfer 100 percent of the initial stock of New Premera to two newly created philanthropic foundations, the Washington Foundation and the Alaska Foundation (Foundations). New Premera, the parent company, would have the right to issue new stock to meet capital needs.

¶ 7 The Foundations would be obligated to sell their New Premera stock according to a set schedule and would use the proceeds, estimated at between $500-700 million, to fund public health initiatives. Both New Premera and the Foundations would sell stock at the initial public offering (IPO), with New Premera deciding the number of shares to be offered. Premera proposed raising $100-150 million at the IPO with the option to raise additional capital in subsequent stock offerings.

¶ 8 The Commissioner assigned several members from the Office of the Insurance Commissioner (OIC) to review Premera's proposal and authorized them to retain expert consultants to assist their review and to issue reports. The Commissioner also allowed several groups to intervene. Both Premera and the Intervenors engaged experts to evaluate the Form A Statement and to respond to the OIC staff's review. In response to concerns the OIC experts voiced in their initial reports, Premera and the OIC staff met and resolved various issues.

¶ 9 On February 5, 2004, Premera filed an Amended Form A Statement. From May 3 through May 18, 2004, the Commissioner presided over an adjudicative hearing on Premera's Amended Form A. The Commissioner also held two rounds of public hearings in various locations around the state and accepted written public comment. The Commissioner issued his decision disapproving Premera's proposal on July 15, 2004, and Premera timely sought judicial review.³ We accepted direct review.

ANALYSIS

¶ 10 RCW 34.05.570 governs judicial review of an agency order. We may grant relief only if the party challenging the agency order shows that the order is invalid for one of the reasons specifically set forth in the statute. RCW 34.05.570(1)(a) and (3). Premera asserts the Commissioner's order is invalid because the order is outside the Commissioner's statutory authority or jurisdiction, is based on an erroneous interpretation and application of the law, is not supported by substantial evidence in the record, does not decide all the issues requiring resolution, and is arbitrary and capricious. RCW 34.05.570(3)(b),(d),(e),(f), and (i).

¶ 11 We apply a substantial evidence standard to an agency's findings of fact but review de novo its conclusions of law. Heidgerken v. Dep't of Natural Res., 99 Wash.App. 380, 384, 993 P.2d 934 (2000). The error of law standard "allows the reviewing court to essentially substitute its judgment for that of the administrative body, though substantial weight is accorded the agency's view of the law." Franklin County Sheriff's Office v. Sellers, 97 Wash.2d 317, 325, 646 P.2d 113 (1982). "[A]lthough a commissioner cannot bind the courts, the court appropriately defers to a commissioner's interpretation of insurance statutes and rules." Credit Gen. Ins. Co. v. Zewdu, 82 Wash.App. 620, 627, 919 P.2d 93 (1996). Furthermore, substantial deference to agency views is appropriate when an agency determination is based heavily on factual matters, especially factual matters that are complex, technical, and close to the heart of the agency's expertise. Hillis v. Dep't of Ecology, 131 Wash.2d 373, 396, 932 P.2d 139 (1997).

¶ 12 The substantial evidence standard is "highly deferential" to the agency fact finder. ARCO Prods. Co. v. Wash. Utils. & Transp. Comm'n, 125 Wash.2d 805, 812, 888 P.2d 728 (1995). The evidence must be of a sufficient quantum to persuade a fair-minded person of the truth of a declared premise. In re Elec. Lightwave, Inc., 123 Wash.2d 530, 542-43, 869 P.2d 1045 (1994). We will not weigh the evidence or substitute our judgment regarding witness credibility for that of the agency. Affordable Cabs, Inc. v. Dep't of Emp. Sec., 124 Wash.App. 361, 367, 101 P.3d 440 (2004). We consider findings of fact to which no error has been assigned as verities on appeal. Davis v. Dep't of Labor & Indus., 94 Wash.2d 119, 123, 615 P.2d 1279 (1980).

I. Interpretation of the Health Carrier HCA

¶ 13 Premera contends that the Commissioner misinterpreted the Health Carrier HCA and wrongly applied the standards contained in the Insurer HCA to its conversion proposal. Premera argues that under the Health Carrier HCA, there are only two bases for disapproving the proposed conversion—the carrier's inability to satisfy registration requirements after the change in control and the likelihood that the conversion may substantially lessen competition.⁴ See RCW 48.31C.030(5)(a). (There is no dispute that Premera can satisfy the necessary registration requirements and that conversion will not directly affect the number of competitors offering health insurance in Washington.) The Commissioner responds that the standards for disapproving the proposal are the same in both Acts and that any other interpretation violates the plain meaning rule, leads to absurd results, and contravenes legislative intent. The Intervenors assert that this court must give great deference to the Commissioner's interpretation of the Health Carrier HCA and further suggest that any ambiguity in RCW 48.31C.030 results from tabulation errors. This is an issue of first impression, as there are no decisions interpreting either Act.

¶ 14 The Insurer HCA, covering traditional insurers,...