Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Wash. Ct. App.: Dismissal of policyholders’ deceptive trade practices claims against health insurer reversed, (Jul 18, 2014)

By Linda O’Brien, J.D., LL.M.

The filed rate, primary jurisdiction, and exhaustion of remedies doctrines did not bar purchasers of health insurance policies from bringing Washington Consumer Protection Act claims against an insurance trust and health insurance company for allegedly making misrepresentations that resulted in an excessive surplus for the insurance company, a state appellate court has held. The trial court’s dismissal of the claims was reversed and remanded for further proceedings (McCarthy Finance, Inc. v. Premera, June 23, 2014, Forrest, K.).

The Washington Alliance for Healthcare Insurance Trust (WAHIT) is a nonprofit trust that sells insurance issued by nonprofit entity, Premera, a health insurance company. Premera currently holds a $1 billion surplus from investments. Several businesses that purchased policies from Premera filed suit against Premera and WAHIT for violations of the Washington Consumer Protection Act (CPA). The policyholders, in seeking refunds of premiums they paid, alleged that the defendants made false representations on a website, in advertising mailings, and in other public statements regarding the quality and costs of benefits, and the reasons for premium increases, and that Premera accumulated its large surplus based on those misrepresentations. The trial court dismissed the suit based on the filed rate, primary jurisdiction, and exhaustion of remedies doctrines. The policyholders appealed.

Filed rate doctrine. The court found that the filed rate doctrine did not bar CPA claims based on fraud or misrepresentation since the calculation of premiums paid in computing damages did not constitute rate setting by the court. The doctrine provides that any filed rate – a rate filed with and approved by a regulatory agency – is per se reasonable and cannot be subject to legal action against the private entity that filed it. According to the court, consumers may bring claims against insurers under the CPA, including claims based on misrepresentations. Second, the policyholder claims in this case were not direct challenges to the rate charged. Third, the court would not be engaging in “rate making” when considering the rates paid by policyholders as a measure of damages.

Primary jurisdiction. The primary jurisdiction doctrine did not bar CPA claims of misrepresentation and resulting excessive surplus because the Office of the Insurance Commissioner stated that it lacked the authority to effectively regulate surplus level maintained by nonprofit insurers, according to the court. The primary jurisdiction doctrine is applied when the court believes that the dispute should be handled by an administrative agency created by the legislature to resolve such disputes. The CPA expressly allows claims against insurers for matters subject to the Insurance Commissioner’s regulation, provided the claim is not based on activity allowed by insurance statutes and regulations. The Insurance Commissioner’s statement the he lacked authority through existing regulations and laws to effectively regulate nonprofit health insurance companies’ accumulation of excessive surpluses was compelling in the court’s view, thus, the trial court erred in dismissing the policyholders’ claims on that basis.

Exhaustion of remedies. Finally, the exhaustion of remedies doctrine did not bar the policyholders’ CPA claims as there was no showing that the Insurance Commissioner could provide an effective remedy. A litigant must exhaust administrative remedies only if an adequate administrative remedy is available. In addition to the Commissioner’s public statements of his limited authority, the statutes and regulations provided no mechanism for the Commissioner to actively regulate a nonprofit insurer’s excessive surplus. Since no statute or regulation allows the Commissioner to grant the relief the policyholders’ seek, an exhaustion of remedies was not required under those circumstances, the court concluded.

The case is No. 69848-6-1.

Attorneys: Joseph Colbert Brown, Jr. (J.C. Brown Law Office, PLLC) for McCarthy Finance, Inc., McCarthy Retail Financial Services, LLC, Hemphill Brothers, Inc., J.A. Jack & Sons, Inc., and Puckett & Redford, PLLC. Gwendolyn C. Payton (Lane Powell PC), and Kathleen M. O'Sullivan (Perkins Coie LLP) for Premera, Premera Blue Cross, LifeWise Health Plan of Washington, and Washington Alliance For Healthcare Insurance Trust.

Companies: McCarthy Finance, Inc.; McCarthy Retail Financial Services, LLC; Hemphill Brothers, Inc.; J.A. Jack & Sons, Inc.; Lane Mt. Silica Co.; Puckett & Redford, PCCL; Premera; Premera Blue Cross; LifeWise Health Plan of Washington

Cases: StateUnfairTradePractices Advertising WashingtonNews