Schermer v. State Farm Fire and Cas. Co.

Decision Date14 September 2006
Docket NumberNo. A04-2088.,No. A04-2054.,A04-2088.,A04-2054.
Citation721 N.W.2d 307
PartiesChristopher P. SCHERMER, et al., on behalf of themselves and all others similarly situated, Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, et al., Respondents.
CourtMinnesota Supreme Court

Louise D. Bjorkman, Lawrence R. King, T. Joseph Snodgrass, Shawn M. Raiter, Larson King, LLP, Saint Paul, MN, Charles S. Zimmerman, J. Gordon Rudd, Zimmerman Reed, P.L.L.P., Minneapolis, MN, Rhett A. McSweeney, McSweeney & Fay, Minneapolis, MN, Charles N. Nauen, Robert K. Shelquist, Lockridge Grindal Nauen P.L.L.P., Minneapolis, MN, for Appellants.

Todd A. Noteboom, William L. Greene, Daniel Oberdorfer, Douglas R. Boettge Monica L. Davies Leonard, Street and Deinard, Minneapolis, MN, for Respondent.

Mike Hatch, Attorney General, Daniel S. Goldberg, Assistant Attorney General Office of the Attorney General for the State of Minnesota, Saint Paul, MN, for Amicus Curiae State of MN.

Sharon L. Van Dyck, Schwebel, Goetz & Sieben, P.A., Minneapolis, MN, Jeffrey D. Bores, Chestnut & Cambronne, P.A., Minneapolis, MN, for Amicus Curiae MN Trial Lawyers Association.

Heard, considered, and decided by the court en banc.

OPINION

HANSON, Justice.

Appellant Christopher P. Schermer and other homeowner's insurance policyholders (the Class) commenced this class action against their insurer, respondent State Farm Fire and Casualty Co. (State Farm), alleging that the surcharge that was imposed by State Farm on homes whose electrical systems were more than 39 years old was racially discriminatory. The district court granted summary judgment dismissing the complaint on the alternative grounds that the complaint failed to state a cause of action and that the filed rate doctrine prevents a court from retroactively changing a rate that has been filed with and approved by a state regulatory agency. The court of appeals affirmed summary judgment on both grounds. We affirm on the filed rate doctrine.

To place the Class's allegations in context, we will first describe the regulatory system established by the Minnesota Legislature for the review and approval of insurance rates. Insurers operating in Minnesota are subject to investigation and regulation by the Minnesota Department of Commerce (DOC). See Minn.Stat. § 60A.031 (2004). One regulatory requirement is that all insurers must file their proposed rates with the DOC before the rates can become effective. Minn.Stat. § 70A.06, subd. 1 (2004). The DOC is authorized to review these proposed rates to ensure that they are not excessive, inadequate, or unfairly discriminatory. Minn. Stat. § 70A.04, subd. 1 (2004). The general standards defining discriminatory rates are contained in Minn.Stat. § 70A.04, subd. 4 (2004). More specific prohibitions against discrimination are contained in Minn.Stat. § 72A.20 (2004), the anti-redlining statute. These latter prohibitions are the basis for the Class's complaint.

Section 72A.20 prohibits "charging differential rates for an equivalent amount of homeowner's insurance coverage * * * solely because * * * of the age of the primary structure sought to be insured." Minn.Stat. § 72A.20, subd. 13(b) (2004).1 An exception to that prohibition is made for the use of rating standards that are based on "the age of the insured structure's plumbing, electrical, heating or cooling system or other part of the structure, the age of which affects the risk of loss." Id. (emphasis added). The substance of the Class's claim is that a surcharge applicable to the Class under one of State Farm's homeowner's insurance rating plans violated this statute because, the Class alleges, although it was purportedly based on the age of an insured's electrical system, it was actually based on the age of the insured's structure.

With this context in mind, we turn to the facts, which are not disputed. On May 8, 1997, State Farm filed with the DOC a rate plan known as the "Utilities Rating Plan" (URP). As eventually approved by the DOC, the URP gave homeowners a discount or a surcharge, as a percentage of their base premium, depending on the age of their electrical system. The discount ranged from 2% for an 8-year-old electrical system, to 25% for a new system. Homeowners with systems between 9 and 39 years old received no discount or surcharge. Homeowners with systems older than 39 years old were required to pay a 6% surcharge.

To support the proposed URP, State Farm submitted actuarial exhibits to demonstrate that there was a higher risk associated with older electrical systems. But the actuarial data State Farm submitted used all noncatastrophic losses (e.g., fire, water damage, theft, etc.), not just those losses directly caused by older electrical systems. The Class alleges that this lack of actuarial support for the surcharge constitutes a violation of the redlining prohibitions of section 72A.20.

Before ultimately approving the URP, the DOC rejected it three times as being in violation of section 72A.20, for reasons unrelated to the actuarial exhibits. Each time State Farm responded by making the required changes to comply with the statute and resubmitting the URP for approval. In conjunction with each rejection, the DOC indicated that State Farm's "file would be held in suspense" until it made the required changes. After making all required changes, State Farm submitted the final URP and the DOC approved it on July 23, 1997.

In 2001 a State Farm policyholder filed a complaint with the DOC after he received notice that his premium was going to increase under the URP because his electrical system was approaching 40 years of age. The DOC initiated an investigation and requested that State Farm provide actuarial data to support the URP. State Farm responded that it did not have electrical system cause-of-loss data to support its URP rates. After an 18-month investigation the DOC investigator concluded that State Farm's URP is actually based on the age of the insured's home, which is "illegal according to Minn.Stat. § 72A.20, subd. 13(b) (2000)." Specifically, the investigator interpreted section 72A.20, subd. 13(b), to require actuarial support of losses specifically attributable to older electrical systems.

The DOC drafted a cease and desist order that was presented to State Farm in October of 2002. The order alleged that State Farm violated several statutes, including section 72A.20, subdivision 13(b). State Farm agreed to an informal disposition. In a consent order, State Farm denied the allegations but agreed to cease the URP plan and pay investigative costs of $75,000. The consent order contained no factual or legal findings, but resolved "any and all claims by the Commissioner arising out of the activities related to [State Farm's] URP program."2 The public had no input in the resolution of this matter and nothing about the complaint, investigation, or consent order became public until after the matter was final, on December 4, 2002, when the DOC issued a press release.

Two days later the Class commenced this action. On September 12, 2003, the Class was certified to include "[a]ll insurance policyholders issued policies * * * between the dates of August 1, 1997 and February 15, 2003 that cover homes * * * the premiums for which included surcharges based on State Farm's Utility Rating Plan." The Class does not include all homeowner's insurance policyholders affected by the URP because it does not include those who received a discount or those who paid the base premium.

The parties made cross-motions for summary judgment and on September 3, 2004, the district court entered a series of orders. The court denied the Class's motion for summary judgment because it concluded that there was a genuine issue of material fact on the issue of whether the URP violated section 72A.20, subd. 13(b). But the court granted State Farm's motion for summary judgment because it concluded, first, that section 72A.20, subd. 13(b), does not afford a private right of action and, second, that the filed rate doctrine precluded collateral judicial review of a rate filed with and approved by the DOC.

The court of appeals affirmed the grant of summary judgment on both grounds. We granted review on both issues but because we conclude that the filed rate doctrine bars the Class's claims, we need not reach the issue of whether the Class otherwise had valid statutory or common law claims.

I.

We review a district court's grant of summary judgment to determine whether there are any genuine issues of material fact and whether the court erred in its application of the law. Lubbers v. Anderson, 539 N.W.2d 398, 401 (Minn. 1995). We view the evidence in the light most favorable to the party against whom summary judgment was granted. Id. Accordingly, we assume as true the Class's allegation that State Farm's rates were racially discriminatory, in violation of Section 72A.20, subd. 13(b). We consider whether the Class's claims are nevertheless barred by the filed rate doctrine.

The origin of the filed rate doctrine can be traced back to a 1922 United States Supreme Court decision, Keogh v. Chicago & Northwestern Railway Co., 260 U.S. 156, 43 S.Ct. 47, 67 L.Ed. 183 (1922). The Court held that an award for treble damages is not available in an antitrust action by a private shipper challenging a rate that was submitted to and approved by the federal Interstate Commerce Commission. Id. at 165, 43 S.Ct. 47. The Court reasoned that a party cannot suffer injury by paying a filed rate because:

[t]he legal rights of shipper as against carrier in respect to a rate are measured by the published tariff. Unless and until suspended or set aside, this rate is made, for all purposes, the legal rate, as between carrier and shipper. The rights as defined by the tariff cannot be varied or enlarged by either contract or tort of the carrier.

Id. at 163, 43 S.Ct. 47. The Court also explained that any award to the plaintiff of a refund of a portion of the filed...

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