Schermer v. State Farm Fire and Cas. Co., No. A04-2054

• Decision Date: 06 September 2005
• Docket Number: No. A04-2088., No. A04-2054
• Citation: 702 N.W.2d 898
• Parties: Christopher P. SCHERMER, et al., on behalf of themselves and all other similarly situated, Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, et al., Respondents.
• Court: Minnesota Court of Appeals

702 N.W.2d 898

Christopher P. SCHERMER, et al., on behalf of themselves and all other similarly situated, Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, et al., Respondents.

Nos. A04-2054, A04-2088.

Court of Appeals of Minnesota.

September 6, 2005.

Lawrence R. King, T. Joseph Snodgrass, Shawn M. Raiter, Larson King, LLP, St. Paul, Minnesota; and Charles N. Nauen, Robert K. Shelquist, Lockridge Grindal Nauen P.L.L.P., Minneapolis, Minnesota; and Charles S. Zimmerman, J. Gordon Rudd, David M. Cialkowski, Zimmerman Reed, P.L.L.P., Minneapolis, Minnesota; and Rhett A. McSweeney, McSweeney & Fay, Minneapolis, Minnesota, for appellants.

Todd A. Noteboom, William L. Greene, Daniel Oberdorfer, Douglas R. Boettge, Monica L. Davies, Leonard, Street and Deinard, Professional Association, Minneapolis, Minnesota, for respondents.

Mike Hatch, Attorney General, Brian Dockendorf, Assistant Attorney General, St. Paul, Minnesota, for amicus State of Minnesota.

Sharon L. Van Dyck, Schwebel, Goetz & Sieben, P.A., Minneapolis, Minnesota; and Jeffrey D. Bores, Chestnut & Cambronne, P.A., Minneapolis, Minnesota, for amicus Minnesota Trial Lawyers Association.

Considered and decided by PETERSON, Presiding Judge; MINGE, Judge; and PARKER, Judge.

OPINION

PARKER, Judge.¹

In this class action suit, appellants challenge the district court's grant of summary judgment in favor of respondent, arguing that the district court erred by (1) rejecting appellants' argument that respondents violated Minn.Stat. § 72A.20, subd. 13 (2004) as a matter of law; (2) holding that no private right of action exists under Minn.Stat. § 72A.20, subd. 13 (2004); and (3) holding that the filed rate doctrine bars appellants' claims. Because no private right of action exists under Minn.Stat. § 72A.20, subd. 13 (2004), and because the filed rate doctrine bars appellants' claims, we affirm. Therefore, we need not address appellants' argument that respondents violated Minn.Stat. § 72A.20, subd. 13 (2004), as a matter of law.

FACTS

On May 8, 1997, respondent State Farm Fire and Casualty Company and State Farm General Insurance Company (State Farm) filed an initial version of a "Utilities Rating Plan" (URP) with the Department of Commerce (DOC) for homeowners and farm insurance policies. The URP had an effective date of June 15, 1997. It based a rate differential on the age of the oldest of the electrical, plumbing, and heating/cooling system. On May 22, 1997, the DOC notified State Farm that its filing had been reviewed and had to be amended to comply with Minn.Stat. § 72A.20, subd. 13. Pending that amendment, the filing was held in suspense. On June 5, 1997, State Farm submitted a revised URP. Under this revision, homeowners would be placed in different rate categories based on the age of the electrical system only. On June 10, 1997, the DOC informed State Farm that the URP required further amendment. Pending that amendment, the URP continued to be held in suspense. On June 27, 1997, State Farm submitted a further revision to the URP in response to this request. On July 18, 1997, the DOC again informed State Farm that further amendments were required to the URP and, pending those amendments, the filing would continue to be held in suspense. On July 23, 1997, the DOC accepted the URP for use effective August 1, 1997.

The accepted URP placed insured homeowners in different rating categories based on the age of the electrical system. A home with a new system would be eligible for a discount from the base premium; a home with an older system would be subject to an additional charge over the base premium. State Farm used the age of the home as a surrogate for the age of the home's electrical system as part of the development of a rating plan that assigned rates based on the age of the homeowner's electrical system. At all times during this process, State Farm relied on its original actuarial exhibit that utilized all noncatastrophic losses (not just those related to electrical systems) as its support for the URP. Approximately one year later, in September 1998, State Farm filed a modified URP with the DOC. Under the revised URP, policyholders could more easily avoid the surcharge by making updates to their electrical system. The September 1998 filing also combined the three rating categories associated with the oldest electrical systems into a single 40-plus year category subject to a six-percent premium.

In January 2001, a private citizen filed a complaint with the DOC about State Farm's URP rating classification. In response to this complaint, the DOC began an investigation. The investigation took approximately 19 months and was led by Martin Fleischhacker. Fleischhacker reviewed the 1997 actuarial data that was supplied in support of the URP and found that the URP was based on the age of the primary structure, not the age of the electrical system. He also found that it did not include information demonstrating the risk of loss due to the age of the electrical system. He believed that when an insurer places homeowners in different rating categories based upon the age of a utility system, such as an electrical system, any differential in rates must be limited to differential in losses caused by or related to the age of that particular system. It was clear that the actuarial exhibits submitted by State Farm in 1997 indicated that the differentials in URP charges and discounts had been calculated using all noncatastrophic losses, not just those caused by aging electrical systems. Fleischhacker concluded that the URP violated Minn.Stat. § 72A.20, subd. 13.

State Farm disagreed with Fleischhacker's interpretation of the statute. In October 2002, Fleischhacker sent State Farm a letter attaching a "DRAFT: CEASE AND DESIST ORDER AND NOTICE OF RIGHT TO HEARING." The letter alleged that State Farm did not track and had no loss data to show that the age of the structure's electrical system affects the risk of loss. It alleged that State Farm tracked the age of the insured's dwelling and that its loss data were correlated with the age of the dwelling. Finally, it concluded that the URP was based on the age of the primary structure, which is prohibited by Minn.Stat. § 72A.20, subd. 13(b).

In December 2002, the DOC entered into a settlement with State Farm which was effectuated by a consent order. The order set forth the allegations of wrongdoing. It noted that State Farm denied those allegations. State Farm acknowledged that it had been advised of its right to a hearing and to appeal from any adverse determination after a hearing but expressly waived those rights. The consent order contained the following: "Both the Commissioner and Respondent agree that this Order represents an informal settlement and that there has been no hearing, findings of fact, or conclusions of law with respect to the allegations of the Commissioner." Under the terms of the consent order, State Farm agreed to discontinue the surcharge portion of the URP for one year while continuing to offer discounts. It retained the right to seek approval of the rates thereafter. It also agreed to reimburse the department $75,000 for its investigative costs.

Appellants Christopher Schermer, John Smith, Marjorie Smith, and Reverend Albert Gallmon, on behalf of themselves and all others similarly situated (the class), filed their first class action on December 6, 2002, within days of the announcement of the consent order. The class states that this lawsuit was "filed to force State Farm to pay the Class back for State Farm's violation of state law." The class sought a refund of all surcharges collected by State Farm from 1997-2002 under the URP. The surcharges totaled nearly $20,000,000. Due to procedural matters and court rulings, the operative complaint is the class's third amended class action complaint. The class alleged the following eight counts in this complaint:

• Count 1: Rescission of Unlawful Contract Terms

• Count 2: Breach of Contract and Duty of Good Faith and Fair Dealing

• Count 3: Violation of Prevention of Consumer Fraud Act Minn.Stat. § 325F.69, subd. 1 (as to the public)

• Count 4: Violation of Prevention of Consumer Fraud Act Minn.Stat. § 325F.69, subd. 1 (as to the DOC and the Commissioner of Commerce)

• Count 5: Unreasonable Restraint on Trade or Commerce in Violation of Minnesota Antitrust Law Minn.Stat. § 325D.53, subd. 2(1) to (4) and § 325D.03, subd. (1)(1)(a)

• Count 6: Violation of the Act Against Unfair Discrimination and Competition Minn.Stat. § 325D.03 and § 325D.072

• Count 7: Fraud by Nondisclosure

• Count 8: Filed Rate Doctrine

Each count in the complaint was based on State Farm charging an allegedly improper rate, a rate that was approved by the Commissioner of Commerce in 1997 and then subject to a consent order in 2002. In its third amended complaint, the class summarized their claim in a section entitled "Nature of Action":

This is a class action against Defendants State Farm Fire and Casualty Company and State Farm General Insurance Company (referred to collectively as "STATE FARM"), for redlining in Minnesota by dramatically charging higher premiums for homeowners and farm/ranch insurance for older homes, farms, ranches, buildings and other structures without actuarial support. STATE FARM is a homeowners and farm/ranch insurer who, under the moniker "Utilities Rating Plan" ("URP"), has systematically charged unfair and discriminatory premiums to Minnesotans living in older homes, farms and ranches to subsidize deep premium discounts for consumers living in new homes, farms and ranches. STATE FARM's URP was a transparent effort to redline and discriminate. STATE FARM's misconduct was and is in violation of state law.

(Emphasis added.)

In 2004, State Farm submitted a rate filing to the DOC in which it sought approval of the same URP filed and approved by the DOC in 1997 and 1998, which is the same URP at issue in this litigation. As it did in 1997, State...