Surcharge Classification 0133 By Delaware Compensation Rating Bureau, Inc., Matter of

• Decision Date: 02 June 1994
• Citation: 655 A.2d 295
• Parties: In the Matter of SURCHARGE CLASSIFICATION 0133 BY the DELAWARE COMPENSATION RATING BUREAU, INC. . Submitted:
• Court: Delaware Superior Court

Page 295

655 A.2d 295

In the Matter of SURCHARGE CLASSIFICATION 0133 BY the DELAWARE COMPENSATION RATING BUREAU, INC.

Superior Court of Delaware New Castle County.

Submitted: June 2, 1994.

Decided: June 15, 1994.

Upon Appeal from an Order of the Insurance Commissioner. Reversed.

Thomas P. Preston, and Bonnie L. Wolfgang, Duane, Morris & Heckscher, Wilmington, for Delaware Compensation Rating Bureau, Inc., appellant.

Calvin L. Scott, Jr., Deputy Atty. Gen., Dept. of Justice, Wilmington, for the Ins. Com'r of the State of Delaware, appellee.

Clark W. Furlow, Smith, Katzenstein and Furlow, Wilmington, for the American Ins. Ass'n, the Alliance of American Insurers and the Nat. Ass'n of Independent Insurers, amici curiae.

OPINION

COOCH, Judge.

This is an appeal by the Delaware Compensation Rating Bureau, Inc. (DCRB) from a September 15, 1993 order of the Insurance Commissioner of the State of Delaware (the Commissioner) in which order the Commissioner determined that "Surcharge Classification 0133" ("the Surcharge") imposed on asbestos abatement companies by DCRB from April 11, 1988 to February 28, 1990 was unlawful, and which order also required DCRB to refund all premiums collected under the Surcharge for that period. On appeal, DCRB argues that the Commissioner lacked authority, on various legal and factual grounds, for the retroactive application of the September 15, 1993 order disallowing the Surcharge.

This Court concludes that the statutory scheme governing administrative rate-making set forth in 18 Del.C. ch. 25 prohibits the retroactive surcharge disallowance at issue here. Accordingly, the Court does not reach the other arguments raised by DCRB on appeal and, for the following reasons, this Court reverses the Commissioner's September 15, 1993 order.

I. FACTUAL AND PROCEDURAL BACKGROUND

The facts necessary for the Court to decide this case are almost entirely undisputed. ¹ DCRB is licensed pursuant to 18 Del.C. ch. 25 to file rates with the Commissioner on behalf of its approximately 270 member insurers who write worker's compensation insurance in Delaware. On April 1, 1985, DCRB submitted a rate filing with then Commissioner David N. Levinson, requesting an occupational disease surcharge on workers compensation insurance rates (the Surcharge) to be charged to employers engaged in the business of removing asbestos (Classification 0133), with an effective date of March 1, 1985, to apply on a new and on a renewal basis. On May 31, 1985, the rate application was stamped "Filed--May 29, 1985--David N. Levinson--Insurance Commissioner of Delaware" and returned to DCRB, which, understanding the Surcharge to have been approved, implemented it. Thereafter, the Surcharge was included in four subsequent annual rate filings of DCRB until February 1990 when, in response to the Commissioner's urging, it was replaced by a new classification which was approved by Commissioner on March 5, 1990.

Events in Pennsylvania.

In the interim, certain events had occurred in Pennsylvania which affected the continuing approval of the Surcharge by the Commissioner. On April 23, 1985, the Pennsylvania Compensation Rating Bureau, Inc. (PCRB), which apparently is a related entity to DCRB, also adopted a surcharge based on the same Classification Code 0133 to be applied to contractors engaged in asbestos removal and encapsulment in Pennsylvania. PCRB began using the surcharge in 1985, despite the fact that the Pennsylvania Insurance Department had disapproved that surcharge; PCRB maintained that it understood the surcharge had been approved. On July 6, 1988, the Pennsylvania Insurance Commissioner determined that the surcharge was unlawful, having found that asbestos abatement workers do not face an abnormal disease exposure, and ordered PCRB to refund the amount of the surcharge retroactive to April 10, 1985. The present Insurance Commissioner of Delaware, Donna Lee H. Williams (who succeeded David N. Levinson as Insurance Commissioner in January 1993) asserts that Commissioner Levinson first became aware of the Pennsylvania Insurance Commissioner's action sometime in 1990 when he and his staff learned that the Pennsylvania Department of Insurance had issued its July 6, 1988 order instructing PCRB to cease and desist its use of the Surcharge.

Subsequent Delaware procedural history.

The Delaware Department of Insurance (the Department) sought to have DCRB voluntarily refund all Surcharge premiums imposed, but DCRB and its member insurers declined to do so, asserting that the Surcharge, having annually been approved since 1985 by the Commissioner, was lawful. Thereupon, the Department filed a complaint on September 6, 1990 with the Commissioner which alleged that DCRB had violated its responsibilities under Delaware law by filing and using the Surcharge; additionally, the Department sought to suspend DCRB's license and to impose fines on DCRB. A hearing was held, pursuant to the complaint, on October 26, 1990 before the Commissioner's hearing officer. On November 15, 1990, the Commissioner issued an order disapproving the Surcharge pursuant to 18 Del.C. § 2507. This was the first time Surcharge 0133 had ever been disapproved.

On March 28, 1991, the hearing officer submitted his Report and Recommendation regarding the October 26, 1990 hearing to the Commissioner who then, on July 1, 1991, ordered that DCRB: 1) report all Surcharges collected; 2) set up an escrow account into which an amount equal to all of the Surcharge premiums collected was to be placed; 3) file "New Rates" based on specified criteria which would then be applied retroactively; and 4) instruct DCRB member insurers to refund the difference between the Surcharge premiums collected and the new rates.

DCRB appealed this order to the Superior Court on July 12, 1991. This Court issued an order on August 13, 1991 staying the distribution of the funds collected by DCRB pending the appeal of the Surcharge refund issue and ordered the Commissioner to issue a separate order regarding the "New Rates." In the Matter of Surcharge Classification 0133, Del.Super., C.A. No. 91A-07-6-1-AP, Bifferato, J. (Aug. 13, 1991) (ORDER). The Commissioner complied and issued a new order to that effect. On August 30, 1991, DCRB filed the "New Rates," which in turn were disapproved by a further order of the Commissioner dated September 26, 1991, the Commissioner having found the newly submitted rates "excessive."

On April 8, 1992, another hearing was held before a hearing officer to consider the appropriateness of the Commissioner's September 26, 1991 order and the appropriateness of the "New Rates." The hearing officer filed his Report and Recommendation on August 3, 1993, which recommended that DCRB be instructed to refund all premiums collected under Surcharge Classification 0133 from April 11, 1988 (the date on which PCRB withdrew its similar rates in Pennsylvania) to February 28, 1990 (the expiration date of the Surcharge). On September 15, 1993, Commissioner Williams issued an order declaring Surcharge 0133 unlawful as of April 11, 1988 through February 28, 1990, and retroactively ordered a refund of the premiums collected under the Surcharge during that period. ²

On October 12, 1993, DCRB filed a timely appeal of the September 15, 1993 order with this Court. On November 24, 1993, this Court granted DCRB's motion to stay the Commissioner's September 15, 1993 order pending the determination of this appeal. On February 14, 1994, the American Insurance Association, the Alliance of American Insurers and the National Association of Independent Insurers, trade associations in the insurance industry, were permitted to intervene as amici curiae and to file a brief in support of DCRB's position and in opposition to the September 15, 1993 order.

II. DISCUSSION

A. The Contentions of the Parties.

DCRB cites three grounds for its appeal. First, DCRB asserts that both Article I, § 10 of the United States Constitution (the contract clause) and established principles of statutory construction prohibit the Commissioner's retroactive disapproval of the Surcharge; a corollary to this argument is that such retroactive disapproval is unfair and upsets risk considerations taken into account at the time of the formation of insurance contracts. Second, DCRB argues that the Commissioner's September 15, 1993 order is unsupported by substantial evidence. Third, DCRB argues that available data supports the "New Rates" as filed by DCRB on August 30, 1991 that were subsequently disapproved by the Commissioner on September 26, 1991. ³

The amici support DCRB's position that the Commissioner impermissibly ordered a retroactive surcharge refund and advance four reasons why the Commissioner's September 15, 1993 order should be reversed. First, they assert that this Court should reverse the order based on general insurance principles and public policy considerations of fairness in rate-making. Second, they claim that lawfully approved rates cannot be disapproved based on what they describe as "unrelated events" in other states. Third, they argue that the Fifth and Fourteenth Amendments to the United States Constitution prohibit the Commissioner's action in imposing the retroactive surcharge refund. Fourth, they argue that the contract clause of the United States Constitution prohibits such retroactive rate disallowance.

The Commissioner argues that her authority to order a retroactive refund of Surcharge Classification 0133 is implicitly authorized by 18 Del.C. ch. 25 and that such authority is not otherwise prevented by any federal or state constitutional prohibitions against ex post facto laws or impairment of contracts. The Commissioner further asserts that DCRB had a duty promptly to have disclosed any knowledge it had that the Pennsylvania surcharge had been disapproved by the Pennsylvania Insurance Commissioner on July 6, 1988, and that its failure to do so now "collaterally estops" DCRB from...