State ex rel. Hunt v. North Carolina Reinsurance Facility, 5

• Decision Date: 04 March 1981
• Docket Number: No. 5,5
• Citation: 302 N.C. 274,275 S.E.2d 399
• Court: North Carolina Supreme Court
• Parties: STATE of North Carolina, ex rel., His Excellency, James B. HUNT, Jr., Governor of the State of North Carolina, et al. v. NORTH CAROLINA REINSURANCE FACILITY et al.

Page 399

275 S.E.2d 399

302 N.C. 274

STATE of North Carolina, ex rel., His Excellency, James B HUNT, Jr., Governor of the State of North Carolina, et al. v. NORTH CAROLINA REINSURANCE FACILITY et al.

No. 5.

Supreme Court of North Carolina.

March 4, 1981.

Atty. Gen. Rufus L. Edmisten by Sp. Deputy Atty. Gen. Isham B. Hudson, Jr.,

and Hunter, Wharton & Howell by V. Lane Wharton, Jr., Raleigh, for plaintiffs.

Allen, Steed & Allen, P. A., by Arch T. Allen, III, and Charles D. Case, Raleigh, for Hartford Acc. and Indem. Co., Hartford Cas. Ins. Co., New York Underwriters Ins. Co. and Twin City Fire Ins. Co.

Bailey, Dixon, Wooten, McDonald & Fountain by J. Ruffin Bailey and Gary Parsons, Raleigh, for American Auto. Ins. Co., American Ins. Co., Associated Indem. Corp., Fireman's Fund Ins. Co., and National Surety Corp.

Broughton, Wilkins & Crampton by J. Melville Broughton, Jr., and Charles P. Wilkins, Raleigh, for Nationwide Mut. Fire Ins. Co., Nationwide Mut. Ins. Co., and N. C. Farm Bureau Mut. Ins. Co.

Johnson, Patterson, Dilthey & Clay by Grady S. Patterson, Jr., and D. James Jones, Jr., Raleigh, for American Fire and Cas. Co., Ohio Cas. Co., Utica Mut. Ins. Co., Virginia Mut. Ins. Co., Carolina Cas. Ins. Co., West American Ins. Co., and American Indem. Co.

Jordan Law Offices by John R. Jordan, Jr., and Robert R. Price, Raleigh, for American Manufacturers Mut. Ins. Co., American Motorists Ins. Co., American Protection Ins., Federal Kemper Ins. Co., Kemper Sec. Ins. Co., and Lumbermens Mut. Cas. Co.

Manning, Fulton & Skinner by Howard E. Manning and John B. McMillan, Raleigh, for Allstate Indem. Co., Allstate Ins. Co., Northbrook Fire and Cas. Co., State Farm Fire and Cas. Co., and State Farm Mut. Auto. Ins. Co.

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan by Henry A. Mitchell, Jr., and R. Marks Arnold, Raleigh for Aetna Cas. and Sur. Co., Automobile Ins. Co. of Hartford, Bankers Standard Ins. Co., The Connecticut Indem. Co., Horace Mann Ins. Co., Insurance Company of North America, INA Reinsurance Co., INA Underwriters Ins. Co., Indemnity Ins. Co. of North America, Pacific Employers Ins. Co., Security Ins. Co. of Hartford, Standard Fire Ins. Co. and Teachers Ins. Co.

Young, Moore, Henderson & Alvis by Charles H. Young, Jr., Raleigh, for North Carolina Reinsurance Facility, North Carolina Rate Bureau, Allianz Ins. Co., and all other answering defendant insurance companies.

CARLTON, Justice.

We are once again presented with a serious conflict between the insurance industry and the North Carolina Commissioner of Insurance concerning the interpretation of certain insurance laws. In this action, the Commissioner is joined by the Governor and the Attorney General as plaintiffs. In light of our recent extensive treatment of this area, we find it unnecessary to present a historical background of North Carolina's insurance laws except as stated briefly and in limited context below. References will be made to the four cases decided by this Court on 15 July 1980 and they will be hereinafter referred to collectively as the 1980 Insurance Cases, and individually as follows: State ex rel. Commissioner of Ins. v. Rate Bureau, 300 N.C. 381, 269 S.E.2d 547 (1980), as 1980 Insurance Case I; State ex rel. Commissioner of Ins. v. Rate Bureau, 300 N.C. 460, 269 S.E.2d 538 (1980), as 1980 Insurance Case II; State ex rel. Commissioner of Ins. v. Rate Bureau, 300 N.C. 474, 269 S.E.2d 595 (1980), as 1980 Insurance Case III; State ex rel. Commissioner of Ins. v. Rate Bureau, 300 N.C. 485, 269 S.E.2d 602 (1980), as 1980 Insurance Case IV.

I. SUMMARY OF FACTS AND HOLDINGS OF THE LOWER COURTS

On 24 September 1979 plaintiffs, the Governor, the Commissioner of Insurance and the Attorney General, filed a complaint for declaratory relief and motion for preliminary injunction against the North Carolina Reinsurance Facility (Facility), the North Carolina Rate Bureau (Rate Bureau), and approximately 300 of their member companies. Plaintiffs challenged the legality of specific "recoupment surcharges" imposed by the industry on certain motor vehicle insurance policyholders in addition to regular insurance premiums. Plaintiffs alleged that the surcharges are unlawful on numerous grounds, primarily that they are "rates" which may not be lawfully charged until filed with and reviewed by the Commissioner of Insurance. Pending a final resolution of the case on its merits, plaintiffs sought to enjoin collection of the surcharges. ¹

The motion for preliminary injunction was heard by Judge Braswell at the 18 February 1980 Session of Superior Court, Wake County. In an order filed 26 February 1980 Judge Braswell denied plaintiffs' motion for preliminary injunction on the grounds (1) that the surcharges were lawful and proper and in compliance with G.S. § 58-248.34(e), G.S. § 58-248.33(l ), G.S. § 58-248.34(f) and other applicable provisions of the Facility's Plan of Operation, (2) that no filing with or approval by the Commissioner of Insurance is required by law with respect to the surcharges in question, (3) that plaintiffs failed to demonstrate probable cause to believe that they would be successful upon the ultimate determination of the case, (4) that neither the plaintiffs nor the using and consuming public would be irreparably damaged by collection of the recoupment surcharges during the pendency of the litigation, and (5) that there was a substantial likelihood that the Facility would in the near future be unable to meet its obligations as they become due should collection of the recoupment surcharges be enjoined pendente lite and, instead, that the Facility and its member companies would suffer irreparable harm if a preliminary injunction was issued.

Plaintiffs appealed the trial court order to the North Carolina Court of Appeals. On 21 October 1980, the Court of Appeals, Judge Wells writing, modified and remanded. That court held that the trial court properly denied plaintiffs' motion to enjoin collection of the disputed surcharges pendente lite, but that the denial of plaintiffs' motion that defendants be required to file the disputed surcharges with the Commissioner of Insurance was erroneous. The Court of Appeals agreed with plaintiffs that defendants were required to file the surcharges so that they could be reviewed by the Commissioner, and, if appropriate, by the courts as required by G.S. § 58-248.33(l) and G.S. § 58-248.34(d). The court reasoned that if the surcharges were not so filed and reviewed, persons paying the surcharges would be "denied the protection of the laws, may not be able to recover any excessive charges paid by them and would therefore suffer irreparable loss should plaintiffs prevail on the merits."

Judge Hedrick dissented. In his opinion, the appeal should be dismissed since it was from the denial of a preliminary injunction and no substantial right of plaintiffs would be lost if the appeal was not determined before a final hearing on the merits.

Defendants gave notice of appeal to this Court. Since Judge Hedrick's dissent did not directly address the filing issue, defendants also simultaneously petitioned this Court for discretionary review which we allowed on 2 December 1980. Oral arguments were heard on 10 February 1981. We disagree with the holding of the Court of Appeals and reverse.

Other facts important to an understanding of our decision are noted below.

II. JURISDICTION AND EXTENT OF REVIEW

We elect to address a single issue on this appeal: Whether surcharges are "rates" within the meaning of our insurance laws. Other issues were addressed by the Court of Appeals and others have been presented to us by the briefs of the parties. We elect not to address any of them. We have accelerated our efforts to file this opinion in order that it might be promptly available to our legislators who, we understand, are presently considering legislation in this controversial area of our law. To address the peripheral issues would serve no positive purpose and would, as will later be demonstrated, produce no different result. Unquestionably, the above issue is at the core of the controversy and the other issues raised pale in comparison. It would serve little purpose for us to extensively discuss whether the Governor had standing to sue. Moreover, whether the appeal should be dismissed as interlocutory since it is from the denial of a preliminary injunction, as discussed in the Court of Appeals' dissent, is irrelevant in light of our election to answer the substantive question involved. We also will not address the Court of Appeals' treatment of our preliminary injunction laws. With respect to these, and all other issues noted by the Court of Appeals and the parties in brief, we express no opinion. Suffice it to say that pursuant to our supervisory and discretionary power we find the procedural context of the matter before us to be such that we can adequately deal with the substantive issue presented in a controversy which is obviously demanding of prompt resolution. It is an issue crucial to the people of North Carolina.

III.

SURCHARGES VIS-A-VIS RATES

A.

In the 1980 Insurance Case I, Section III, we held that evidence, in view of the entire record, was insufficient to support the Commissioner's findings and conclusions that the 10% rate differential between insureds ceded to the Facility and those remaining in the voluntary market was unfairly discriminatory. There, we also reviewed the statutes creating the Facility and discussed in detail what we understood to be the intent of our Legislature in creating this form of automobile insurance administration. We noted then the problems relating to recoupment surcharges and that the 1979 Legislature had enacted legislation requiring that "clean risks" in the Facility be charged no higher rate than those outside. We also noted that confusion would continue to surround this phase of automobile insurance regulation in North Carolina until such...