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State Farm Mutual Automobile Insurance Co. v. State

Decided: August 9, 1988.

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, APPELLANT,
v.
STATE OF NEW JERSEY, DEPARTMENT OF THE PUBLIC ADVOCATE, RESPONDENT. NEW JERSEY DEPARTMENT OF THE PUBLIC ADVOCATE, RESPONDENT, V. NEW JERSEY MEDICAL MALPRACTICE REINSURANCE ASSOCIATION, APPELLANT. INSURANCE SERVICES OFFICE, INC., APPELLANT, V. NEW JERSEY DEPARTMENT OF THE PUBLIC ADVOCATE, RESPONDENT



On appeal from the Superior Court of New Jersey, Law Division, Mercer County.

Michels, Shebell and Gaynor. The opinion of the court was delivered by Shebell, J.A.D.

Shebell

State Farm Mutual Automobile Insurance Company (State Farm), Insurance Services Office, Inc. (ISO) and New Jersey Medical Malpractice Reinsurance Association (NJMMRA) are the various appellants in these consolidated appeals seeking in certain of the appeals review of Law Division judgments which enforced assessments of counsel fees and expenses issued pursuant to N.J.S.A. 52:27E-19b by the Division of Rate Counsel of the Department of the Public Advocate for representing the public interest in what the Public Advocate alleges were proceedings for authority to increase or change the charges for insurance initiated at various times by the appellants. ISO and State Farm also appeal directly to this court from certain Rate Counsel assessments.

There are two issues common to these appeals. The first concerns the authority of the Division of Rate Counsel to

charge fees and expenses. Appellants assert that the mere filing of rates or forms or the conveying of information concerning the need for surcharges as occurred in these various matters did not constitute the initiation of "a proceeding" by the appellants "to increase or change the charges for insurance" within the contemplation of N.J.S.A. 52:27E-19b. The second issue concerns the mechanism for enforcement of the Rate Counsel's assessments and the means by which appellants can question the amount of the assessment.

THE INSURANCE SERVICES OFFICE, INC. CASES

ISO is a nonprofit insurance rating organization licensed under N.J.S.A. 17:29A-2 to prepare and file insurance rates and policy forms with the Department of Insurance on behalf of its member insurers. ISO was assessed for fees and costs by Rate Counsel for Rate Counsel's intervention in some 25 different rate and form filings made by ISO concerning private passenger automobile, homeowners and commercial automobile insurance from 1982 to 1985.

Although ISO paid Rate Counsel over $180,000.00 in settlement of these assessments in 1984 and 1985, disputes arose over three different types of bills which could not be resolved through negotiation. ISO refused to pay certain bills related to Rate Counsel's intervention in commercial automobile insurance rate filings on the ground that the filing of a deregulated commercial automobile insurance rate pursuant to N.J.S.A. 17:29AA-5 with the Department of Insurance is to be accomplished within 30 days after its effective date and does not constitute a "proceeding initiated by [a rating organization] . . . for authority to increase or change the charges for insurance" which would entitle Rate Counsel to compensation under N.J.S.A. 52:27E-19b.

The second type of disputed bill concerns Rate Counsel's review of certain insurance policy form filings with the Department of Insurance. ISO contends that Rate Counsel has neither

the authority to intervene nor the right to seek compensation where such filings concern changes in forms only and do not involve the fixing of rates, rate increases or rate changes as specified in N.J.S.A. 52:27E-18 and 19b. In the third category, ISO objected to a number of bills which it acknowledged an obligation to pay, but which are disputed as being unreasonable in amount.

When ISO failed to make payment on a total of approximately $70,000 in Rate Counsel bills, two complaints were filed in the Law Division for judgment on the outstanding debt. The first action sought judgment in the amount of $14,870.00. The second sought compensation for billings for legal fees and expenses in the amount of $55,963.68.

The two actions were consolidated and the Public Advocate then filed a motion for summary enforcement under R. 4:67-6 or, in the alternative, summary judgment. ISO opposed the motion and filed a cross-motion for partial summary judgment. The Law Division judge entered a Final Judgment requiring ISO to pay Rate Counsel $35,177.50, representing compensation for its intervention in the commercial auto insurance rate filings and policy form filings which ISO claimed were outside the scope of N.J.S.A. 52:27E-18 and 19b.

The trial court further ruled that jurisdiction to challenge the validity, basis and reasonableness of the Public Advocate's final determination that such compensation was due and owing resided exclusively in the Appellate Division. Accordingly, the issue of whether Rate Counsel was entitled to compensation for intervening in such filings under N.J.S.A. 52:27E-18 and 19b was transferred to this court pursuant to R. 1:13-4(a) and R. 2:2-3(a)(2). With respect to those bills which were disputed by ISO as unreasonable in amount or previously settled, the court found that factual issues existed necessitating resolution by summary trial. ISO, however, settled this aspect with Rate Counsel prior to trial.

Subsequently, however, Rate Counsel submitted additional bills to ISO for legal expenses incurred in prosecuting the summary enforcement proceedings before the Law Division. ISO filed a notice of appeal directly from those bills. This appeal was consolidated with the matter originally transferred from the Law Division. ISO filed an amended notice of appeal for two additional bills received on May 4 and 26, 1987, a second amended notice of appeal for two additional bills submitted by the Public Advocate on October 16, 1987, a third amended notice of appeal to include bills submitted by the Public Advocate on November 19, 1987, a fourth amended notice of appeal for bills dated December 18, 1987, a fifth amended notice of appeal for bills dated January 25, 1988, and a sixth amended notice of appeal for bills dated February 24, 1988. We granted ISO's motion to file a seventh amended notice of appeal for bills dated March 18, 1988.

THE STATE FARM CASES

On March 29, August 30, October 31, and December 20, 1984, and on February 22, 1985, Rate Counsel forwarded bills to State Farm for payment pursuant to N.J.S.A. 52:27E-19b. Not having received payment on any of the bills within the 30-day period mandated by N.J.S.A. 52:27E-19c, Rate Counsel filed a complaint against State Farm in the Superior Court, Law Division, on June 4, 1985. The complaint sought judgment in the amount of $27,662.60 plus interest, the combined total of the five bills. The complaint alleged that these bills represented Rate Counsel's compensation and expenses for work which it performed in furtherance of the public interest with regard to Department of Insurance filings identified as Rate Counsel File Nos. 84-PPA-11 and 79-I-153.

Following oral argument on a motion to compel more specific answers to interrogatories in the Law Division, the court issued an oral opinion denying the motion since it found that the information sought in the interrogatories was not relevant to

the Law Division action, which the court characterized as being in the nature of a summary enforcement proceeding under R. 4:67-6. The judge concluded that State Farm could only challenge the reasonableness of the bills by appealing Rate Counsel's assessments, which he characterized as final administrative determinations, to the Appellate Division. By notice of motion dated October 31, 1986, Rate Counsel moved pursuant to R. 4:67-6 for summary enforcement of the five bills, which it characterized as agency determinations. Rate Counsel also moved for summary enforcement of seven additional bills which it sent to State Farm for payment subsequent to the drafting of the complaint. These latter bills, dated March 22, 1985 and February 6, March 28, May 8, June 18, July 23 and August 20, 1986, were for fees and expenses incurred by Rate Counsel in representing the public interest with regard to the Department of Insurance filing identified as Rate Counsel File No. 84-PPA-11.

Rate Counsel further maintained that 11 of the bills sent to State Farm reflected fees and expenses incurred in a proceeding initiated by State Farm before the Department of Insurance identified as Rate Counsel File No. 84-PPA-11. The remaining bill represented fees and expenses incurred by Rate Counsel in connection with an appeal by eight insurance companies from an order of the Commissioner of Insurance rendered in a Department of Insurance filing identified as Rate Counsel File No. 79-I-153, otherwise known as the Consolidated Automobile Classification Proceeding. Since State Farm was one of the eight companies that filed the appeal, one-eighth of Rate Counsel's expenses incurred in connection with the appeal was allocated to State Farm.

With regard to the aforesaid Consolidated Automobile Classification Proceeding, State Farm submitted a filing to the Department of Insurance on April 11, 1978, seeking an overall rate increase of 21.4% for its private passenger automobile insurance policyholders. State Farm proposed a distribution scheme which allocated the premium to individual policyholders based

in part on the age, sex, marital status and geographic location of the driver. Rate Counsel intervened in this proceeding to represent the public interest.

The Commissioner of Insurance apparently issued an order severing various rate classification issues presented in State Farm's filing and consolidating them with other pending rate filings that raised similar issues. The consolidated hearing, in which State Farm participated and defended its existing classification system, ran for approximately 11 months. Rate Counsel participated in this proceeding and sent statements of compensation and expenses to all filers who participated therein. The Commissioner issued an order in the proceeding requiring State Farm and the other filers to make specified changes to their rate classification methodologies, including their driver classifications and geographic rating territories. State Farm and seven other rate filers filed a notice of appeal with this court from the Commissioner's order.

Rate Counsel and State Farm executed a "Memorandum of Understanding," wherein State Farm agreed "to pay its proportionate share of the expenses which have been or will be incurred by the Public Advocate pursuant to N.J.S.A. 52:27E-19 in connection with the Consolidated Automobile Insurance Classification and Related Methodologies Proceeding which was conducted by the Department." However, during the pendency of the appeal, the New Jersey Automobile Insurance Reform Act of 1982, N.J.S.A. 17:29A-33 et seq., was enacted, which directed all automobile insurance carriers to implement certain changes to their classification and rating system. State Farm and the other appellants claimed that the Reform Act rendered the Commissioner's order moot and that we should therefore set aside the order. On May 23, 1985, we dismissed the appeal and remanded the matter to the Department of Insurance for further consideration.

With regard to Rate Counsel File No. 84-PPA-11, State Farm submitted a filing to the Department of Insurance dated

October 19, 1983, which was subsequently superseded by another State Farm filing dated December 21, 1983. The filing concerned rates applicable to private passenger automobile insurance. It proposed changes in the manner in which State Farm determined rates for different driver classes, geographic territories and the manner in which State Farm distributed company expenses among policyholders. Rate Counsel intervened in the proceeding and hired a consultant to analyze the filing and prepare a report, which was subsequently submitted to the Department of Insurance.

State Farm's attorney submitted a certification in opposition to Rate Counsel's motion for summary enforcement in which he denied that State Farm initiated either of the proceedings previously described.

With regard to the Consolidated Automobile Classification Proceeding, Rate Counsel File No. 79-I-153, State Farm maintains it filed for a rate increase in April 1978, but did not seek to change its basic methodology for determining an individual insured's premium based upon age, sex, marital status and territory. The Commissioner approved an overall rate increase of 12% in December 1978. State Farm asserts that since the Commissioner ordered State Farm, along with all other insurers doing business in New Jersey, to participate in certain hearings to determine whether the traditional methods utilized to charge individual insureds were proper, State Farm did not initiate these hearings.

With regard to Rate Counsel File No. 84-PPA-11, State Farm maintained that this filing was made solely because State Farm was compelled to do so by operation of a state statute which altered the manner in which State Farm allocated the premiums among its insureds and that State Farm did not "initiate" this proceeding since it was mandated by law to make the filing.

Oral argument was conducted on the motion for summary enforcement on December 19, 1986. State Farm argued

against summary enforcement, contending that the bills were not orders or determinations entered by a state administrative agency within the meaning of R. 4:67-6(a). It also argued that before obtaining a judgment for summary enforcement, Rate Counsel should be required to produce evidence with regard to who initiated the rate filings and the manner in which Rate Counsel's bills were calculated.

The motion judge granted the motion for summary enforcement, finding that the bills were orders or determinations entered by a state administrative agency and that the validity of the bills was not justiciable in a summary enforcement proceeding. A final judgment was entered on January 7, 1987, directing State Farm to transmit a check in the amount of $32,222.60 to Rate Counsel, which State Farm has paid under protest. The judgment stated that jurisdiction to challenge the validity and reasonableness of the bills, including the issue of who initiated the underlying proceedings, resided exclusively with the Appellate Division.

Rate Counsel also sent State Farm several bills which were not included in its complaint or motion for summary enforcement. These bills, dated September 26, October 24, November 25 and December 23, 1986, were for legal services and the expense of experts employed by Rate Counsel in representing the public interest in proceedings identified as Rate Counsel File Nos. 84-PPA-11, previously discussed, and 84-PPA-68. Rate Counsel File No. 84-PPA-68 relates to a filing by State Farm with the Department of Insurance in April 1984, containing revised rate schedules so as to comply with the Tort Threshold Law. Rate Counsel intervened on behalf of the public interest and hired an actuarial consulting firm to assist in its review and analysis of the case. A report prepared by the consultant was filed with the Department of Insurance and the matter was thereafter transferred to the Office of Administrative Law where hearings were conducted. The total amount of the four bills was $43,937.92. State Farm filed four separate timely notices of appeal with this court from each of the bills.

In a statement of proceedings in lieu of transcript accompanying each notice of appeal, State Farm asserted that it was disputing the reasonableness of the bills and the assertion that it had initiated the proceedings on which the bills were based. State Farm further explained that while it did not feel that the bills were final decisions of a state administrative agency, it was appealing pursuant to R. 2:2-3(a)(2) in order to protect its rights.

Subsequent to receiving the bills involved in the four additional notices of appeal, State Farm received two more bills from Rate Counsel for its representation of the public interest in two of the proceedings previously described, Rate Counsel File Nos. 84-PPA-11 and 84-PPA-68. These bills, dated February 9 and 19, 1987, totaled $9,677.25. State Farm filed an amended notice of appeal with this court on March 12, 1987 from these two additional bills.

Then, after receiving the bills which were the subject of the above-mentioned notices of appeal and certifications, State Farm received additional bills from Rate Counsel for its representation of the public interest in Rate Counsel File Nos. 84-PPA-11 and 84-PPA-68. One of the bills related to a new proceeding, referred to as Rate Counsel File No. 88-PPA-2. Specifically, Rate Counsel issued: (1) two bills dated March 24, 1987, in the amounts of $3,334.50 and $345, on account of which State Farm filed a second amended notice of appeal on May 8, 1987; (2) two bills dated April 30, 1987, in the amounts of $2,558.75 and $86.25, on account of which State Farm filed a third amended notice of appeal on June 4, 1987; (3) a bill dated May 22, 1987, in the amount of $3,404.30, on account of which State Farm filed a fourth amended notice of appeal on June 25, 1987; (4) two bills dated June 19, 1987, in the amounts of $172.50 and $4,916.25, on account of which State Farm filed a fifth amended notice of appeal on July 14, 1987; (5) two bills dated August 10, 1987, in the amounts of $661.25 and $2,127.50, on account of which State Farm filed a sixth amended notice of appeal on August 27, 1987; (6) two bills dated September 24,

1987, in the amounts of $874 and $1,213.61, on account of which State Farm filed a seventh amended notice of appeal on October 22, 1987; (7) two bills dated October 16, 1987, in the amounts of $57.50 and $1,667.50, on account of which State Farm filed an eighth amended notice of appeal on December 4, 1987, and (8) two bills dated November 19, 1987, in the amounts of $2,156.25 and $460, on account of which State Farm filed a ninth amended notice of appeal on December 4, 1987. Thereafter, Rate Counsel issued: (1) two bills dated December 18, 1987, in the amounts of $57.50 and $115, as a result of which State Farm filed a tenth amended notice of appeal on February 2, 1988; (2) two bills dated January 25, 1988, in the amounts of $115 and $7,360, as a result of which State Farm filed an eleventh amended notice of appeal on March 8, 1988, and (3) a bill dated ...


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