IN COURT OF APPEALS
Christopher P. Schermer, et al., on behalf of
themselves and all other similarly situated,
State Farm Fire and Casualty Company, et al.,
Filed September 6, 2005
Hennepin County District Court
File No. 02-20839
Lawrence R. King, T. Joseph Snodgrass, Shawn M. Raiter, Larson ● King, LLP, 2800 Wells Fargo Place, 30 East Seventh Street, St. Paul, Minnesota 55101; and
Charles N. Nauen, Robert K. Shelquist, Lockridge Grindal Nauen P.L.L.P., 100 Washington Avenue South, Suite 2200, Minneapolis, Minnesota 55401; and
Charles S. Zimmerman, J. Gordon Rudd, David M. Cialkowski, Zimmerman Reed, P.L.L.P., 651 Nicollet Mall, Suite 501, Minneapolis, Minnesota 55402; and
Rhett A. McSweeney, McSweeney
Todd A. Noteboom, William L. Greene, Daniel Oberdorfer, Douglas R. Boettge, Monica L. Davies, Leonard, Street and Deinard, Professional Association, 150 South Fifth Street, Suite 2300, Minneapolis, Minnesota 55402 (for respondents)
Mike Hatch, Attorney General,
Brian Dockendorf, Assistant Attorney General,
Sharon L. Van Dyck, Schwebel, Goetz & Sieben, P.A., 5120 IDS Center, 80 South Eighth Street, Minneapolis, Minnesota 55402; and
Jeffrey D. Bores, Chestnut & Cambronne, P.A., 3700 Campbell Mithun Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402 (for amicus Minnesota Trial Lawyers Association)
Considered and decided by Peterson, Presiding Judge; Minge, Judge; and Parker, Judge.
S Y L L A B U S
1. A private party does not have a cause of action for a violation of the Unfair Claims Practices Act, Minn. Stat. § 72A.20, subd. 13 (2004).
2. The filed rate doctrine bars suit against a regulated insurance company when the suit is based on an allegation that rates filed with the regulatory agency violate state law.
O P I N I O N
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.
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
· 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.
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 Farm used age-of-home data as a surrogate for the age of the electrical system. It also provided its actuarial support for the rate differential based on all noncatastrophic losses. In its review, the DOC considered the actuarial data filed in support of the URP in light of the criticisms raised by Fleischhacker in 2002. There were differences of opinion among DOC staff members.
On April 9, 2004, the DOC approved State Farm’s filing. In its approval, the DOC accepted the use of the age of the dwelling as a surrogate for the age of the utilities as well as the use of all noncatastrophic losses as actuarial support for the rate differential. According to one staff member of the department, the approval of State Farm’s URP in 2004 reflected a return to the position of Minn. Stat. § 72A.20, subd. 13, that the DOC had followed until 2001.
Both parties moved the district
court for summary judgment. On September
3, 2004, the district court denied the class’s motion for partial summary
judgment. The class sought summary
judgment on the ground that as a matter of law State Farm’s 1997-1998 URP
violates Minn. Stat. § 72A.20, subd. 13, because (1) the URP differential is
based solely on the age of dwelling; and (2) the statute requires URP rate
differentials to be calculated based on losses caused by the age of a home’s
electrical system, not all noncatastrophic losses. The district court held that there is a
genuine issue of material fact with regard to the sole use of age of
dwelling. But in response to the class’s
motion, the district court agreed with State Farm that because the class’s
claims are predicated on an alleged violation of Minn. Stat. § 72A.20, subd.
13, summary judgment in favor of State Farm is appropriate because there is no
private cause of action for a violation of Minn. Stat. § 72A.20, subd. 13,
pursuant to Morris v. Am. Family Mut.
Ins. Co., 386 N.W.2d 233 (
I. Does a private right of action exist under the Unfair Claims Practices Act, Minn. Stat. § 72A.20, subd. 13 (2004)?
II. Does the filed rate doctrine bar the class’s claims?
On appeal from summary judgment, this
court determines whether there are any genuine issues of material fact and
whether the trial court erred in its application of the law. State
by Cooper v. French, 460 N.W.2d 2, 4 (
Under the Unfair Claims Practices Act (UCPA), no person shall engage in this state in any trade practice which is defined in sections 72A.17 to 72A.32 as or determined pursuant to sections 72A.17 to 72A.32 to be an unfair method of competition or an unfair or deceptive act or practice in the business of insurance. Minn. Stat. § 72A.19, subd. 1 (2004). Subdivision 13 of section 72A.20, entitled “Refusal to renew,” prohibits the following trade practice:
Refusing to renew, declining to offer or write, or charging differential rates for an equivalent amount of homeowner’s insurance coverage, as defined by section 65A.27, for property located in a town or statutory or home rule charter city, in which the insurer offers to sell or writes homeowner’s insurance, solely because:
. . . .
(b) of the age of the primary structure sought to be insured.
Minn. Stat. § 72A.20, subd. 13(b) (2004). Subdivision 13 also contains a “safe harbor provision” stating:
This subdivision shall not prohibit the insurer from applying underwriting or rating standards which the insurer applies generally in all other locations in the state and which are not specifically prohibited by clauses (a) to (d). . . . Clause (b) shall not prohibit the use of rating standards based upon the age of the insured structure’s plumbing, electrical, heating or cooling system or other part of the structure, the age of which affects the risk of loss.
The class argues that (1) it did not assert a private cause of action under Minn. Stat. § 72A.20, subd. 13, but instead requested that the district court rescind the surcharge terms of its respective contracts because these terms violated this statute; (2) the common law recognizes this distinction and affords the right to collect for discriminatory rate charges that violate a regulatory scheme; and (3) the legislature expressly intended to allow suits relating to subdivision 13 through the exception-to-immunity provision in Minn. Stat. § 65A.29, subd. 6 (2004).
Farm argues that the class’s claims fail as a matter of law because the
The court in Morris held that a private party does not have a cause of action
against an insurer for a violation of the UCPA, Minn. Stat. § 72A.20. Morris,
386 N.W.2d at 238. In Morris, the first-party insured
plaintiff sued her insurer for basic economic loss no-fault benefits arising
out of an auto accident.
The class’s claims were predicated on an alleged violation of Minn. Stat. § 72A.20, subd. 13. The class claimed that State Farm’s alleged breaches of contract violated this statute. Thus, the class sought to bring a private cause of action under the UCPA, which is barred by Morris.
Moreover, this court has rejected a
plaintiff’s attempt to use an alleged violation of the UCPA as an element of
the plaintiff’s common law claim for tortious interference with prospective
relations. See Glass Serv. Co. v. State
Farm Mut. Auto. Ins. Co., 530 N.W.2d 867 (
Finally, the class argues that this court must recognize that the legislature expressly intended to allow litigation concerning violations of subdivision 13. The class cites Minn. Stat. § 65A.29, subd. 6, entitled “Immunity of Insurer or commissioner,” which provides:
There shall be no liability on the part of and no cause of action of any nature shall arise against the commissioner or against any insurer, its authorized representative, its agents, its employees or any firm, person or corporation furnishing to the insured information as to reasons for declination, nonrenewal, or cancellation, for any statement made by them in any written notice of declination, nonrenewal or cancellation, for the providing of information relating thereto, or for statements made or evidence submitted at any hearings or investigations conducted in connection therewith. This subdivision shall not apply to any action or proceeding arising under section 72A.20.
(Emphasis added.) According to the class, “by declaring an exception, [section 65A.29] permits litigation concerning violations of § 72A.20, subd. 13.”
We reject the class’s argument that this statute authorizes it to bring a suit against State Farm. While State Farm is not “immune” from liability under Minn. Stat. § 72A.20, subd. 13, because the DOC may bring an action against State Farm, the class may not bring a private cause of action against State Farm.
Next, the class argues that the district court erred in granting summary judgment because the “filed rate” doctrine does not apply to bar its claims.
In Keogh v. Chicago & Nw. Ry. Co., 260
the filed rate doctrine forbids “a regulated entity [from charging] rates for
its services other than those properly filed with the appropriate federal
regulatory authority.” Ark. La. Gas Co. v. Hall, 453
The district court held that the
filed rate doctrine bars the class’s claims and relied on the Wegoland decision. In Wegoland,
the plaintiff class alleged that two telephone companies gave regulatory
agencies and consumers misleading financial information to support the inflated
rates they requested. Wegoland, Ltd. v. NYNEX Corp., 806 F.
Supp. 1112, 1113 (S.D.N.Y. 1992), aff’d,
27 F.3d 17 (2d Cir. 1994). The
plaintiffs alleged that companies purchased products at inflated prices, then
used those prices to justify inflated rates which resulted in high
The class argues that (1) the facts of this case do not warrant adoption of the filed rate doctrine; (2) the filed rate doctrine does not apply to insurance; (3) the filed rate doctrine does not apply to discriminatory insurance practices; (4) the filed rate doctrine does not apply because it conflicts with Minnesota common law; and (5) the filed rate doctrine cannot apply to the class’s rental dwelling policy claims. State Farm argues that the filed rate doctrine applies in this case and that the exceptions the class cites are inapplicable. We address each of the claims.
The class first argues that the
facts of this case do not warrant adoption of the filed rate doctrine because
“[w]hile initially created to protect consumers, the filed rate doctrine has
been used in recent times to victimize consumers.” But here, applying the filed rate doctrine
comports with the policies underlying the doctrine. Application of the filed rate doctrine (1)
prevents the judiciary from “reconstitute[ing] the whole rate structure” of an
industry; (2) avoids retroactive relief that would lead to discrimination in
rates such that a victorious plaintiff would end up paying less than similarly
situated nonsuing customers; and (3) avoids “undermin[ing] the congressional
scheme of uniform rate regulation.” Wegoland, 27 F.3d at 19 (quoting Keogh, 260
State Farm complied with
Next, the class argues that the
competitive and deregulated nature of the private insurance market and the
absence of exclusive jurisdiction of the DOC do not support applying the filed
rate doctrine in
Next, the class argues that the
filed rate doctrine does not apply to discriminatory insurance practices. The class argues that State Farm “cloaked its
discriminatory intent behind a fictitiously named ‘utilities’ classification,
when the classification was really an age of dwelling classification.” The class cites Dehoyos v. Allstate Corp., 345 F.3d 290 (5th Cir. 2003), for the
proposition that courts have allowed class action lawsuits seeking to restore
premiums charged under discriminatory classifications to proceed. But the court in Dehoyos did not address the filed rate doctrine. Instead, the court addressed whether the
McCarran-Ferguson Act preempted federal discrimination law.
Next, the class argues that the
filed rate doctrine does not apply because it conflicts with
The class’s reliance on these two
Finally, the class argues that if
this court adopts the filed rate doctrine, remand is required for holders of
rental dwelling policies (RDP). The
class argues that the filed rate doctrine cannot apply to the class’s RDP
claims because an RDP is a policy form covering one- or two-family dwellings
owned, but not occupied, by the policyholder.
We disagree. The district court
properly dismissed the class’s RDP claims because Minn. Stat. § 72A.20, subd.
13, applies to “homeowners’ insurance,” and not rental dwellings. Thus,
D E C I S I O N
Because the class has no private cause of action under the Unfair Claims Practices Act, Minn. Stat. 72A.20, subd. 13 (2004), and because the filed rate doctrine bars the class’s claims, the district court did not err by granting summary judgment in favor of State Farm.
* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.