W. Va. Employers' Mut. Ins. Co. v. Bunch Co.

• Decision Date: 06 June 2013
• Docket Number: No. 11–1750.,11–1750.
• Citation: 745 S.E.2d 212,231 W.Va. 321
• Court: West Virginia Supreme Court
• Parties: WEST VIRGINIA EMPLOYERS' MUTUAL INSURANCE COMPANY d/b/a Brickstreet Mutual Insurance Company, and Michael D. Riley, West Virginia Insurance Commissioner, Petitioners v. THE BUNCH COMPANY, Respondent.

231 W.Va. 321

745 S.E.2d 212

WEST VIRGINIA EMPLOYERS' MUTUAL INSURANCE COMPANY d/b/a Brickstreet Mutual Insurance Company, and Michael D. Riley, West Virginia Insurance Commissioner, Petitioners

v.THE BUNCH COMPANY, Respondent.

No. 11–1750.

Supreme Court of Appeals of

West Virginia.

Submitted April 16, 2013.

Filed June 6, 2013.

Syllabus by the Court

1. “On appeal of an administrative order from a circuit court, this Court is bound by the statutory standards contained in W. Va.Code § 29A–5–4 [ (g) ] and reviews questions of law presented de novo; findings of fact by the administrative officer are accorded deference unless the reviewing court believes the findings to be clearly wrong.” Syl. Pt. 1, Muscatell v. Cline, 196 W.Va. 588, 474 S.E.2d 518 (1996).

2. “In cases where the circuit court has amended the result before the administrative agency, this Court reviews the final order of the circuit court and the ultimate disposition by it of an administrative law case under an abuse of discretion standard and reviews questions of law de novo.” Syl. Pt. 2, Muscatell v. Cline, 196 W.Va. 588, 474 S.E.2d 518 (1996).

3. “Any challenge to an approved insurance rate by an aggrieved person or organization should be raised pursuant to the provisions of West Virginia Code § 33–20–5(d) (1967) (Repl.Vol.2006) in a proceeding before the Insurance Commissioner.” Syl. Pt. 3, State ex rel. Citifinancial, Inc. v. Madden, 223 W.Va. 229, 672 S.E.2d 365 (2008).

4. “The presumption of statutory compliance for approved insurance rates set forth in West Virginia Code § 33–6–30(c) (2002) (Repl.Vol.2006) may only be rebutted in a proceeding before the Insurance Commissioner.” Syl. Pt. 4, State ex rel. Citifinancial, Inc. v. Madden, 223 W.Va. 229, 672 S.E.2d 365 (2008).

5. By design, insurance rate setting involves the prospective use of proposed rates which are calculated based on cost projections derived from past experience combined with a reasonable expectation of future losses and expenses.

6. The administrative costs and expenses specifically authorized by the legislative rate making rule to be included in insurance premiums, such as agent commissions and policy acquisition or servicing expenses, are prospective in nature. See85 C.S.R. § 8–11.2.

Jeffrey M. Wakefield, Esq., Erica M. Baumgras, Esq., Flaherty Sensabaugh Bonasso PLLC, Charleston, WV, for Petitioner Brickstreet.

Paul T. Farrell, Jr., Esq., Green, Ketchum, Bailey, Walker, Farrell & Tweel, Huntington, WV, for Respondent.

Andrew R. Pauley, Esq., Office of the West Virginia, Insurance Commissioner, Charleston, WV, for Petitioner, Insurance Commissioner.

Alex J. Shook, Esq., Hamstead, Williams & Shook, PLLC, Morgantown, WV, for Respondent.

D.C. Offutt, Jr., Esq., Offutt Nord Burchett, PLLC, Huntington, WV, for Amicus Curiae, West Virginia Mutual Insurance Company, Inc.

Jill Cranston Bentz, Esq., Mychal Sommer Schulz, Esq., Jacob A. Manning, Esq., Dinsmore & Shohl, LLP, Charleston, WV, for Amicus Curiae, West Virginia Insurance Federation.

LOUGHRY, Justice:

Petitioners West Virginia Employers' Mutual Insurance Company doing business as BrickStreet Mutual Insurance Company (“BrickStreet”) and Michael D. Riley, ¹ the West Virginia Insurance Commissioner (“Commissioner”) appeal from the October 31, 2011, order of the Circuit Court of Kanawha County, which reversed and vacated the Commissioner's July 9, 2010, administrative order upholding previously approved rates. At issue below was an assertion by the respondent, the Bunch Company (“Bunch”), that the premium it paid to BrickStreet wrongly included a charge for an agent commission.Given that BrickStreet directly wrote and issued the workers' compensation insurance policy at issue, Bunch contends that the rate component which pertained to an agent commission should not have been factored into its premium. In explanation of using the same premium charge for its direct and agent written business, BrickStreet maintains that it incurs increased expenses related to the servicing of its non-agent business.² After carefully reviewing the record as developed in this case in conjunction with applicable statutes, regulations, and case law, we are firmly convinced that the trial court committed error in reversing and vacating the decision of the Commissioner. Accordingly, the decision of the circuit court is reversed.

I. Factual and Procedural Background

The protracted history of this case began with the respondent's filing of an amended class action complaint in the Circuit Court of Cabell County on October 15, 2007.³ Through that complaint, Bunch alleged that when BrickStreet became its insurer on January 1, 2006,⁴ a charge for the expense of an agent commission was wrongly included in the workers' compensation premium BrickStreet charged Bunch and other similarly situated insureds. Denying it charged any insured an expense for an agent commission, BrickStreet argued that the plaintiffs' claims were barred by the filed rate doctrine ⁵ and that their exclusive remedy lay with the Commissioner. Presented with cross motions for summary judgment, the Circuit Court of Cabell County, the Honorable John L. Cummings, rejected the need for additional factual development. Viewing this matter as one rooted in law, the circuit court reasoned that “the sole issue is whether a component of the premium is lawful or unlawful.” ⁶ After considering the stipulated facts submitted by Bunch and BrickStreet along with the pleadings and argument of counsel, Judge Cummings decided that BrickStreet had wrongfully charged Bunch a commission as part of its premium without incurring a specific agent-related expense.⁷

Shortly after Judge Cummings issued his ruling, this Court issued its decision in State ex rel. Citifinancial v. Madden, 223 W.Va. 229, 672 S.E.2d 365 (2008).⁸ Central to the Citifinancial decision was this Court's recognition of the Legislature's clear disapproval of “judicial intrusion into issues of insurance rate setting.” ⁹Id. at 236, 672 S.E.2d at 372. In light of specific legislative amendments to the insurance statutes, we held in Citifinancial that there is a presumption of statutory compliance and validity which applies to approved insurance rates. See id. at 235, 672 S.E.2d at 371. Of critical import to the respondent in this case was our holding in Citifinancial that any challenge to an approved insurance rate has to be raised in an administrative proceeding before the Commissioner pursuant to West Virginia Code § 33–20–5(d). 223 W.Va. at 231, 672 S.E.2d at 367, syl. pt. 3. And, only after such an administrative challenge has transpired, can judicial review occur. Id. at 239, 672 S.E.2d at 375.

BrickStreet, in reliance on the holdings of Citifinancial, sought relief from the ruling of Judge Cummings.¹⁰ By ruling entered on March 5, 2009, Judge Hustead granted relief to BrickStreet, reversing and vacating the order of Judge Cummings. Judge Hustead ruled that Bunch was seeking to challenge an established insurance rate and that this Court was clear in Citifinancial that circuit courts do not have the authority to review rate-setting matters until those matters have first been challenged before the Commissioner.

Complying with the dictates of Citifinancial, Bunch filed a consumer complaint with the Commissioner on February 17, 2010, reasserting its allegation that BrickStreet was unlawfully charging an agent commission for its “direct-write” business.¹¹ In responding to the complaint, BrickStreet stated that it had not charged Bunch an agent commission. BrickStreet explained that an insured's premium is based on multiple components, one of which is the loss cost multiplier (“LCM”).¹² Included in the LCM are component expenses for the costs of acquisition and service fees. For any of its insureds who do not have agents, BrickStreet maintains there are enhanced administrative needs that it is responsible for handling. For the additional services it provides to its “direct write” clients, BrickStreet is compensated through the premium components of acquisition costs and services fees.

The Commissioner denied the relief sought by Bunch through its administrative ruling issued on July 9, 2010. As part of that ruling, the Commissioner concluded:

5. The Insurance Commissioner finds there is no factual dispute concerning the filing and approval of the rates and forms of BrickStreet ... and as a matter of law the rate filings and BrickStreet's use of the same should be upheld.

6. The Insurance Commissioner finds that the rates charged by BrickStreet were reasonable in relation to the benefits provided due to the fact that certain administrative costs and/or expenses are incurred by BrickStreet in handling direct written business which would otherwise be handled by appointed agents.

Addressing the statutory presumption that attaches to approved insurance rates,¹³ the Commissioner found that Bunch had not “provided ... [any] information that would in fact rebut such a presumption.”

Bunch appealed the Commissioner's ruling to the Circuit Court of Kanawha County and by ruling issued on October 31, 2011, Judge Kaufman reversed and vacated the Commissioner's order. The circuit court found that (1) the Commissioner erred by allowing BrickStreet to charge Bunch a commission when no correlative expense had been incurred; (2) the Commissioner erred in finding that the subject insurance rates were reasonable; and (3) BrickStreet could not rely on the affidavit of Mr. Mahler's ¹⁴ due to the lack of opportunity for cross-examination.

In reliance on Judge Kaufman's ruling, Bunch has filed a new class action complaint in the Kanawha County Circuit Court, through which it seeks monetary relief for BrickStreet's unlawful charge of an agent commission as part of its workers' compensation premium.¹⁵ That action has been stayed pending the outcome of this appeal.

II. Standard of Review

Our review of this administrative appeal is governed by the same statutory...