In the Matter of
Capitol American Life Insurance Company
Fixed Indemnity Policy Forms,
ZN, FR/ZM, JF/JG, FA/FA89, and FB
Filed April 6, 1999
Dissenting, Anderson, Judge
Commissioner of Commerce
Agency File No. 25.2P70.0119
Mike Hatch, Attorney General, Stephen K. Warch, Assistant Attorney General, 1200 NCL Tower, 445 Minnesota Street, St. Paul, MN 55101 (for respondent Commissioner of Commerce)
Considered and decided by Amundson, Presiding Judge, Randall, Judge, and Anderson, Judge.
U N P U B L I S H E D O P I N I O N
Insurance company challenges an order by the Commissioner of Commerce requiring the company to reduce the rates it charges for some of its policies to comply with Minn. Stat. § 62A.135, subd. 3 (1996), which requires demonstration of a loss ratio of 65 percent or above. We affirm.
Capitol American Life Insurance Company brings this appeal requesting reversal of a final order by the Commissioner of Commerce requiring Capitol to reduce the rates charged for policy forms JF/JG, ZN, FR/ZM, FB, and FA/FA89 to comply with the loss-ratio standards of Minn. Stat. § 62A.135, subd. 3 (1996).
In January 1995, James Flanary, a commerce analyst, sent a letter to Capitol asserting that Capitol’s policies did not appear to comply with the minimum loss-ratio requirements of Minn. Stat. § 62A.135. A similar letter was sent to Capitol on February 9, 1998, explaining that the information submitted with Capitol’s 1996 annual statement also did not appear to comply with the minimum loss-ratio requirements. At the bottom of this letter was the request to "[p]lease respond within 30 days of the date of this letter pursuant to Minn. Stat. § 62A.135." Capitol failed to respond within the 30-day statutory limit. When they did respond, they addressed all of the policies at issue.
Capitol argues that it should be allowed to add the amount of reserves for anticipated future premium refunds to the amount of claims actually incurred to reach the required statutory percentage, but, the commissioner rejected the inclusion of the future premium refunds and Capitol brought this appeal.
D E C I S I O N
Under Minn. Stat. §§ 14.63-.69 (1998), governing judicial review of agency decisions, the court may affirm the decision of the agency or remand the case for further proceedings; or it may reverse or modify the decision if the substantial rights of the petitioners may have been prejudiced. However, agency decisions enjoy a presumption of correctness. Crookston Cattle Co. v. Minnesota Dep’t of Natural Resources, 300 N.W.2d 769, 777 (Minn. 1980). We show deference to the agency's expertise and special knowledge in the field of its training, education, and experience. Reserve Mining Co. v. Herbst, 256 N.W.2d 808, 824 (Minn. 1977).
Where the evidence is conflicting or more than one inference may be drawn from the evidence, the findings of the agency must be upheld. Minnesota Life Health Ins. Guar. Ass’n v. Department of Commerce, 400 N.W.2d 769, 773 (Minn. App. 1987). We defer to the agency's skill and expertise even in cases of first impression. Id. The relator has the burden of establishing that the record does not support the agency’s findings in its entirety. Reserve Mining, 256 N.W.2d at 825.
I. Calculations of Loss Ratio
Capitol argues that it should be allowed to include the cost of the return of premium amounts to the incurred claims to establish a loss-ratio calculation of 65 percent. The statute does not define or explain how the minimum loss-ratio standard is calculated.
Notwithstanding section 62A.02, subdivision 3, relating to loss ratios, the minimum loss ratios for fixed indemnity policies [for individuals are 65 percent.] [table omitted] * * *
All rate filings must include a demonstration that the rates are not excessive. Rates are not excessive if the anticipated loss ratio and the lifetime anticipated loss ratio meet or exceed the minimum loss ratio standard in this subdivision.
Minn. Stat. § 62A.135, subd. 3 (1996).
When a statute is unambiguous, its wording controls over agency interpretations. In re Kern Grain Co., 369 N.W.2d 565, 570 (Minn. App. 1985), review denied (Minn. Aug. 29, 1985). Capitol argues that the "notwithstanding" clause does not justify ignoring the definition of anticipated loss ratio in Minn. Stat. § 62A.02. But, the definition of notwithstanding is "in spite of" or "although." The American Heritage Dictionary 1238 (3d ed. 1996).
Therefore, the statute may be read: in spite of section 62A.02, subdivision 3, relating to loss ratios, the minimum loss ratios for fixed indemnity policies for individuals are 65 percent. The language is unambiguous. There is no justification, as Capitol suggests, for using the 62A.02 definition to calculate loss ratio for policies governed by 62A.135. The commissioner’s analysis and decision is consistent with the plain language of the statute. We conclude that Minn. Stat. § 62A.135, subd. 3, is not read in conjunction with the loss-ratio definition in Minn. Stat. § 62A.02.
Next, Capitol argues that the commissioner improperly read the statute to exclude return of premium amounts from the loss-ratio calculation. Capitol contends that the 1994 version of 62A.135 is the basis for the commissioner’s improper interpretation. It argues that the 1994 version did not allow the use of return of premium amounts in calculating loss ratio, but that the deletion of some crucial language in the later versions of the statute now infers that returned premium amounts may be used to calculate loss ratio. The relevant portion of the 1994 version of section 62A.135 read:
(b) Notwithstanding section 62A.02, subdivision 3, relating to loss ratios, policies must return to Minnesota policyholders in the form of aggregate benefits under the policy, for each year, on the basis of incurred claims experience and earned premiums in Minnesota and in accordance with accepted actuarial principles and practices.
(Emphasis added.) Capitol contends that the removal of the language "on the basis of incurred claims experience and earned premiums," indicates that Capitol is now allowed to include return of premium amounts in its loss-ratio calculation.
This argument is faulty because it assumes an ambiguous statute in need of judicial interpretation, but that is not the case. The statute itself is not the problem. Capitol is dissatisfied with the commissioner’s application of the statute, but the solution to this application problem cannot be obtained through statutory interpretation.
"When the meaning of a statute is doubtful, courts should give great weight to a construction placed upon it by the department charged with its administration." Krumm v. R.A. Nadeau Co., 276 N.W.2d 641, 644 (Minn. 1979); see also Goodman v. State, Dep’t of Pub. Safety, 282 N.W.2d 559, 560 (Minn. 1979) (giving substantial consideration to administrator's statutory interpretation and application where statute is ambiguous). The United States Supreme Court held that federal administrative agencies have the authority to fill gaps in the framework of regulatory statutes and may do so through the exercise of rulemaking power or may, in its discretion, do so by individual order on a case-by-case basis. See Securities & Exch. Comm’n v. Chenery Corp, 332 U.S. 194, 202-03, 67 S. Ct. 1575, 1580 (1947); See also Bunge Corp. v. Commissioner of Revenue, 305 N.W.2d 779, 785 (Minn. 1981) (Minnesota Supreme Court adopted Chenery in a case involving state Commissioner of Revenue). We will not overturn the commissioner’s decision based on an unsupported argument for statutory interpretation.
Finally, Capitol argues that "the commissioner’s interpretation of the statute should be given no particular weight by this court." It argues that deference should only be given in areas of technical expertise or training. This argument belies precedent. The rationale for the creation of an agency is to concentrate specialized knowledge, education, and experience.
We also adhere to the fundamental concept that decisions of administrative agencies enjoy a presumption of correctness, and deference should be shown by courts to the agencies' expertise and their special knowledge in the field of their technical training, education, and experience.
Reserve Mining, 256 N.W.2d at 824. An agency’s technical expertise and training places it in the best position to implement the regulatory guidelines created by statute. If gaps within the framework of a statute exist, it is within the power of the agency to fill those gaps. Bunge Corp, 305 NW.2d at 784-85. It is the agency’s responsibility to put the statutory regulations into practice, and it is precisely because of its expertise that an agency is given deference.
We do not look to the legislature’s intent unless the current statute is ambiguous. Because we find that the current statute is unambiguous, we defer to the commissioner’s application of the statute. Further, even if Capitol’s argument had merit, it is not persuasive enough to overcome the presumption of the commissioner’s correctness. Crookston, 300 N.W.2d at 777.
II. Fixed Indemnity Policies
Capitol further argues that some of its policies are exempt from the statutory requirement because they are not fixed indemnity policies as defined by the statute. Fixed indemnity is defined in Minn. Stat. § 62A.135, subd. 1(a) (1996), as:
a policy form, other than an accidental death and dismemberment policy, a disability income policy, or a long term care policy * * * that pays a predetermined, specified, fixed benefit for services provided. For policy forms providing both expense-incurred and fixed benefits, the policy form is a fixed indemnity policy if 50 percent or more of the total claims are for predetermined, specified, fixed benefits * * *.
Capitol contends that forms FB and FA/FA89 are exempt because they provide benefits upon death or dismemberment. However, the statute is clear that policies that provide both expense-incurred and fixed benefits are reviewed to determine if 50 percent or more of the total claims are for predetermined, specified, fixed benefits. If so, they are considered fixed indemnity policies and come under the regulation of section 62A.135. The policies at issue are fixed indemnity policies because 50 percent or more of the total claims are for predetermined, specified, fixed benefits and therefore they must meet the statutory requirement of a loss-ratio of 65 percent or more.
Capitol asserts that policy FR/ZM is not a fixed indemnity policy because it pays benefits "tied to ‘actual costs’ with a fixed dollar maximum." Capitol claims that the placement of a dollar cap on the expense-incurred payment does not make it a fixed indemnity policy. This argument is counter-intuitive. The policy does not pay the actual expenses incurred by a patient, but pays a limited dollar amount, a predetermined, specified, fixed benefit for services provided. Therefore, it becomes a fixed indemnity policy.
The commissioner’s interpretation and application of the statute is reasonable. Therefore, we affirm the commissioner’s decision to reduce the premiums for all policies at issue.
III. Notice and Jurisdiction
Capitol argues that it did not receive sufficient notice. It argues that the written notice from Phillips only referenced three of the policy forms because those three policies were the only policies included in the "Noncomprehensive Accident and Health Exhibit" accompanying Capitol’s 1996 annual statement. The first paragraph of the commerce department’s letter notifying Capitol of its deficiency reads:
In the supplement titled "Noncomprehensive Accident and Health Exhibit" accompanying your company’s annual statement for 1996, it appears that the loss ratios on your company’s fixed indemnity policies sold in Minnesota do not satisfy the minimum loss ratio requirements in Minn. Stat. § 62A.135, subd. 3.
The statute requires that the commissioner give written notice of a deficiency after which the insurer has 30 days to amend its rates to comply with the statute or to seek an exemption.
If the data submitted does not confirm that the insurer has satisfied the loss ratio requirement of this section, the commissioner shall notify the insurer in writing of the deficiency.
Minn. Stat. § 62A.135, subd. 5 (1996).
The commerce department argues that Capitol was notified of all the questionable policies because the letter included "your company’s fixed indemnity policies sold in Minnesota," and all of the policies at issue are fixed indemnity policies. The commissioner believes that Capitol understood none of the policies at issue complied with the statutory requirements. In fact, Capitol’s response to the commissioner’s notice letter included a "review of the experiences" for all of the policies at issue in this case; therefore, Capitol was not injured or prejudiced by the imperfect notice.
Further, all that the statute requires is that the commissioner notify the insurer "if the data submitted does not confirm that the insurer has satisfied the loss ratio requirement of this section." Minn. Stat. § 62A.135, subd. 5 (1996). The commissioner determined that the data were not sufficient and notified Capitol that the submitted data were insufficient. The statute does not require that the commissioner specifically describe every policy that does not comply.
We conclude that: (1) Capitol was given notice of the problem with their policies in 1995 when Flanary wrote that Capitol’s policies did not appear to comply with the minimum loss-ratio requirements of Minn. Stat. § 62A.135 and again in 1998, when Capitol received a second letter indicating that its policies did not appear to comply with the statute; (2) the numerous phone conversations that took place between Capitol and the commerce department made Capitol aware of the problems with all the policies at issue; (3) Capitol was not prejudiced by notice it contends was imperfect; and (4) judicial economy is served by ruling on all policies at once rather than sending some of the policies back to be relitigated on the same issue. Therefore, we affirm the commissioner’s decision to reduce the premiums for all the policies at issue.
ANDERSON, Judge (dissenting)
I respectfully dissent.
This is no ordinary appeal from an administrative disposition. No testimony was taken here, no witnesses were sworn, and no administrative law judge presided over the proceedings to assure that the rights of all parties were protected. The statutory scheme established by the legislature provides that the aggrieved party may take its appeal directly from the agency’s decision to this court. Minn. Stat. §§ 14.63-14.69 (1998).
In this case, as to three of the policies, identified as policy forms FR/ZM, FA/FA89, and FB, sufficient notice was not given by the agency to relator of noncompliance as required by statute. Such notice is clearly required and the commissioner is compelled to "notify the insurer in writing" of the deficiency observed by the commissioner.
Minn. Stat. § 62A.135, subd. 5 (1996), provides:
Each insurer that has fixed indemnity policies in force in this state shall, as a supplement to the annual statement required by section 60A.13, submit [data], in a form prescribed by the commissioner[.] * * *
If the data submitted does not confirm that the insurer has satisfied the loss ratio requirements of this section, the commissioner shall notify the insurer in writing of the deficiency. The insurer shall have 30 days from the date of receipt of the commissioner’s notice to file amended rates that comply with this section or a request for an exemption with appropriate justification.
The majority argues that because Capitol’s response included data about the three policies identified in the notice, as well as the policies not identified in the notice, Capitol has not been prejudiced.
Perhaps so. While I yield to no one in my enthusiasm for judicial economy, I feel constrained to point out that this court has no special expertise in matters of insurance regulation and the carrier in this case has been deprived of the minimal notice required by the governing statute. I do not believe it places a great burden on the agency to require it to do that which it should have done in the first place and that is both to give the carrier specific and clear notice of the deficiencies it seeks to correct and to allow the carrier to respond to that notice.
As to policy forms FR/ZM, FA/FA89, and FB, I would reverse the agency’s decision and remand to allow for proper notice and response.