State Farm Mut. Auto. Ins. Co. v. State, Dept. of Public Advocate

• Decision Date: 05 April 1990
• Citation: 571 A.2d 957,118 N.J. 336
• Parties: STATE FARM MUTUAL AUTOMBILE INSURANCE COMPANY, Respondent and Cross-Appellant, v. STATE of New Jersey, DEPARTMENT OF the PUBLIC ADVOCATE, Appellant and Cross-Respondent. NEW JERSEY DEPARTMENT OF the PUBLIC ADVOCATE, Appellant, v. NEW JERSEY MEDICAL MALPRACTICE REINSURANCE ASSOCIATION, Respondent. INSURANCE SERVICES OFFICE, INC., Respondent and Cross-Appellant, v. NEW JERSEY DEPARTMENT OF the PUBLIC ADVOCATE, Appellant and Cross-Respondent.
• Court: New Jersey Supreme Court

Page 336

118 N.J. 336

571 A.2d 957

STATE FARM MUTUAL

AUTOMBILE INSURANCE COMPANY, Respondent and Cross-Appellant, v. STATE of New Jersey, DEPARTMENT OF the PUBLIC ADVOCATE,

Appellant and Cross-Respondent.

NEW JERSEY DEPARTMENT OF the PUBLIC ADVOCATE, Appellant, v. NEW JERSEY MEDICAL MALPRACTICE REINSURANCE ASSOCIATION, Respondent.

INSURANCE SERVICES OFFICE, INC., Respondent and Cross-Appellant, v. NEW JERSEY DEPARTMENT OF the PUBLIC ADVOCATE, Appellant and Cross-Respondent.

Supreme Court of New Jersey.

Argued Oct. 23, 1989.

Decided April 5, 1990.

Richard E. Shapiro, Director, Trenton, Div. of Public Interest Advocacy, for appellant and cross-respondent Dept. of the Public Advocate.

Thomas P. Weidner, for respondent and cross-appellant State Farm Mut. Auto. Ins. Co. (Jamieson, Moore, Peskin & Spicer, attorneys; Thomas P. Weidner and Edward McCardell, Princeton, on the briefs).

Elizabeth J. Sher, for respondent and cross-appellant Insurance Services Office, Inc. (Pitney, Hardin, Kipp & Szuch, attorneys; Elizabeth J. Sher, Clyde A. Szuch, and David M. Fabian, Morristown, on the briefs).

Hugh P. Francis, for respondent New Jersey Medical Malpractice Reinsurance Ass'n (Francis & Berry, attorneys; Evelyn Cadorin Farkas, Morristown, on the brief).

Elmer M. Matthews, Newark, for amicus curiae American Ins. ass'n.

The Opinion of the Court was delivered by

O'HERN, J.

One essential aspect of the business of insurance is to predict the statistical occurrence of certain risks of human or business activities. The recent San Francisco earthquake and Hurricane Hugo bring the issues into focus. Every consumer of insurance runs a certain statistical risk of loss. In essence, the consumers pool their chances to minimize catastrophic individual losses. They pay premiums to insurance companies to spread the risk. The business of insurance plainly affects the public. Hence insurance regulators supervise many, if not most, aspects of the business. In New Jersey, our Department of Insurance (DOI) fulfills the role of supervisor.

In order to assure that hearings concerning insurance rates before the DOI are fully adversarial, our Legislature has authorized the Division of Rate Counsel (hereafter Rate Counsel) in the Department of the Public Advocate to intervene in certain proceedings before DOI. N.J.S.A. 52:27E-18. The Department of the Public Advocate Act of 1974, L.1974, c. 27 (codified at N.J.S.A. 52:27E-1 to -47) (Advocate's Act) created that Department. The theory is that the Public Advocate's participation will produce a more complete record that will inform the agency's action, providing a form of oversight by an "ombudsman" for consumers. In certain proceedings, the Legislature has provided that the industry regulated will pay for the Public Advocate's activity. N.J.S.A. 52:27E-19.

N.J.S.A. 52:27E-18 authorizes the Division of Rate Counsel in the Department of the Public Advocate to intervene whenever an insurance company initiates a proceeding to change rates. In such a matter, the director need only submit a bill in order to be paid for those services. N.J.S.A. 52:27E-19.

The statute authorizing compensation states:

b. Whenever the Division of Rate Counsel represents the public interest in a proceeding initiated by an insurance company or nonprofit service plan subject to Title 17 of the Revised Statutes or Title 17B of the New Jersey Statutes for authority to increase or change the charges for insurance, the director shall send each insurer, nonprofit service plan or rating organization involved in such proceeding a statement of the compensation and expenses of counsel, experts and assistants employed by the division in such proceeding, together with an appropriate allocation to such insurance company, nonprofit service plan or rating organization of its fair share thereof. [ N.J.S.A. 52:27E-19b.]

The cases before us primarily concern the proper method and scope of review of charges submitted by Rate Counsel under N.J.S.A. 52:27E-19b (sometimes referred to herein simply as "19b"). Are those charges reviewable at all, and if so, by a court or by an administrative agency? And are they subject to the same review, let us say, as probate counsel's fees, which would require judicial analysis of factors such as time spent, skill exhibited, and standing of attorneys? See In re Estate of Bloomer, 43 N.J. Super. 414, 417, 129 A.2d 35 (App.Div.), certif. denied, 23 N.J. 667, 130 A.2d 428 (1957).

In addition, we must decide what constitute proceedings initiated by insurers to increase or change charges. We must also resolve whether the Division of Rate Counsel in the Department of the Public Advocate has any statutory rate review function to perform under N.J.S.A. 52:27E-19b in connection with deregulated lines of commercial insurance. A 1982 legislative initiative exempted certain commercial lines of insurance from any requirement that they seek from the Commissioner of Insurance prior approval to increase rates. Commercial Insurance Deregulation Act of 1982, L.1982, c. 114 (codified at N.J.S.A. 17:29AA-1 to -32). Finally, we must resolve whether necessary expenses incurred by the Public Advocate in recovering his charges are properly regarded as part of the proceedings covered under N.J.S.A. 52:27E-19b.

We affirm the judgment of the Appellate Division that the bills in these cases are subject to a limited form of review by the Law Division. However, this opinion establishes for future cases a new procedure before the Department of Insurance that we believe will more expeditiously and justly resolve further disputes about such bills. We also hold that the Advocate's Act covers commercial-line proceedings and forms filings and that Counsel is entitled to fees in recovering the bills.

I

The opinion of the Appellate Division, 227 N.J.Super. 99, 545 A.2d 823 (1988), sets forth the details of each of the cases fully. We need not repeat them here. The cases involved State Farm Mutual Automobile Insurance Company (State Farm), Insurance Services Office, Inc. (ISO), and New Jersey Medical Malpractice Reinsurance Association (Medical Malpractice).

The cases began simply enough, almost like contract claims, in the Law Division. The first was the State Farm case. The Public Advocate's complaint involved a book account for approximately $27,000, covering various bills submitted to State Farm over a period of several years. The parties engaged in a routine exchange of discovery, but when State Farm served interrogatories on the Public Advocate demanding to know, among other things, the schools from which the Public Advocate's employees had graduated, the Public Advocate resisted the discovery. State Farm then moved to compel answers. The Public Advocate argued that there could be no discovery in the Law Division because the case really concerned not a complaint for damages, but enforcement of an administrative order, the validity of which could be reviewed only in the Appellate Division under Rule 2:2-3(a)(2) (allowing appeal as of right to review final agency actions). The Public Advocate's position understandably troubled the Law Division judge, who summarized the Public Advocate's arguments in this way:

On this motion, in effect they [the attorneys from the Department of the Public Advocate] are saying the information you're seeking is not relevant to any issue in the case, because you cannot raise the issue of reasonableness * * *.

Now, my concern is [whether] that position [is] constitutionally correct. Even if the statute said specifically, no defense can be raised as to the reasonableness of the charges made by the Public Advocate, the issue would still remain in my mind, "Is that constitutional?"

The Public Advocate replied that "our claim is certainly not that he [State Farm] has nowhere to challenge the fees, but rather if [State Farm] is going to launch a challenge to agency action, it must be in the Appellate Division," and "unless there's a certain level of arbitrariness made, then there is no right of discovery." The court responded:

That puts the cart before the horse. You don't know whether it's arbitrary until you have the discovery. And to say that you have to have a threshold showing of arbitrariness before you get discovery is just going around in circles.

Nonetheless, the Law Division later accepted the argument of the Public Advocate, stating, "I am going to deny [State Farm's] Motion to Compel Discovery with respect to the interrogatories on the ground that the information sought is not relevant to these proceedings." The court recognized that only the Appellate Division could resolve the legal question of whether any factual issues raised in opposition to the bills could be litigated in a Law Division proceeding. State Farm took an interlocutory appeal from that discovery ruling but did not gain a stay of the Law Division action.

Some months later, the Public Advocate moved before another judge for summary disposition of its claims. According to that judge, the case had originally proceeded "as though it were not a State agency [suit] but rather as though it were a billing and this is a book account [for] money owed." In such a case State Farm could expect discovery. She observed, however, that by the time the parties had appeared before her, they had come to grips with the problem of the statute and its interpretation. She agreed with the Advocate that the action was more like an enforcement order under Rule 4:67, in which the Law Division has no authority to consider questions of the validity of the agency's order. R. 4:67-6(c)(3).

State Farm argued that it would be "bizarre" for the procedure to be as the Public Advocate argued. An insurer would have to "go to the Appellate Division to challenge the reasonableness of the bill and when you get to the Appellate Division, they can't look at a bill and say yes, that's reasonable or no, that's not reasonable."

The Law Division understood...