On certification to the Superior Court, Appellate Division, whose opinion is reported at 227 N.J. Super. 99 (1988).
For affirmance -- Chief Justice Wilentz, and Justices Clifford, Handler, O'Hern, Garibaldi and Stein. For reversal -- None. The opinion of the Court was delivered by O'Hern, J. Stein, J., concurring. Justices Clifford joins in this opinion. Justices Clifford and Stein concurring in the result.
One essential aspect of the business of insurance is to predict the statistical occurrence of certain risks of human or business activities. The recent San Francisco earthquake and Hurricane Hugo bring the issues into focus. Every consumer of insurance runs a certain statistical risk of loss. In essence, the consumers pool their chances to minimize catastrophic individual losses. They pay premiums to insurance companies to spread the risk. The business of insurance plainly affects the public. Hence insurance regulators supervise many, if not most, aspects of the business. In New Jersey, our Department of Insurance (DOI) fulfills the role of supervisor.
In order to assure that hearings concerning insurance rates before the DOI are fully adversarial, our Legislature has authorized the Division of Rate Counsel (hereafter Rate Counsel) in the Department of the Public Advocate to intervene in certain proceedings before DOI. N.J.S.A. 52:27E-18. The Department of the Public Advocate Act of 1974, L. 1974, c. 27 (codified at N.J.S.A. 52:27E-1 to -47) (Advocate's Act) created that Department. The theory is that the Public Advocate's participation will produce a more complete record that will inform the agency's action, providing a form of oversight by an "ombudsman" for consumers. In certain proceedings, the Legislature has provided that the industry regulated will pay for the Public Advocate's activity. N.J.S.A. 52:27E-19.
N.J.S.A. 52:27E-18 authorizes the Division of Rate Counsel in the Department of the Public Advocate to intervene whenever an insurance company initiates a proceeding to change rates. In such a matter, the director need only submit a bill in order to be paid for those services. N.J.S.A. 52:27E-19.
The statute authorizing compensation states:
b. Whenever the Division of Rate Counsel represents the public interest in a proceeding initiated by an insurance company or nonprofit service plan subject to Title 17 of the Revised Statutes or Title 17B of the New Jersey Statutes for authority to increase or change the charges for insurance, the director shall send each insurer, nonprofit service plan or rating organization involved in such proceeding a statement of the compensation and expenses of counsel, experts and assistants employed by the division in such proceeding, together with an appropriate allocation to such insurance company, nonprofit service plan or rating organization of its fair share thereof. [ N.J.S.A. 52:27E-19b.]
The cases before us primarily concern the proper method and scope of review of charges submitted by Rate Counsel under N.J.S.A. 52:27E-19b (sometimes referred to herein simply as "19b"). Are those charges reviewable at all, and if so, by a court or by an administrative agency? And are they subject to the same review, let us say, as probate counsel's fees, which would require judicial analysis of factors such as time spent, skill exhibited, and standing of attorneys? See In re Estate of Bloomer, 43 N.J. Super. 414, 417, 129 A.2d 35 (App.Div.), certif. denied, 23 N.J. 667, 130 A.2d 428 (1957).
In addition, we must decide what constitute proceedings initiated by insurers to increase or change charges. We must also resolve whether the Division of Rate Counsel in the Department of the Public Advocate has any statutory rate review function to perform under N.J.S.A. 52:27E-19b in connection with deregulated lines of commercial insurance. A 1982 legislative initiative exempted certain commercial lines of insurance from any requirement that they seek from the Commissioner of Insurance prior approval to increase rates. Commercial Insurance Deregulation Act of 1982, L. 1982, c. 114 (codified at N.J.S.A. 17:29AA-1 to -32). Finally, we must resolve whether necessary expenses incurred by the Public Advocate in recovering his charges are properly regarded as part of the proceedings covered under N.J.S.A. 52:27E-19b.
We affirm the judgment of the Appellate Division that the bills in these cases are subject to a limited form of review by the Law Division. However, this opinion establishes for future cases a new procedure before the Department of Insurance that we believe will more expeditiously and justly resolve further disputes about such bills. We also hold that the Advocate's Act covers commercial-line proceedings and forms filings and that Counsel is entitled to fees in recovering the bills.
The opinion of the Appellate Division, 227 N.J. Super. 99, 545 A.2d 823 (1988), sets forth the details of each of the cases fully. We need not repeat them here. The cases involved State Farm Mutual Automobile Insurance Company (State Farm), Insurance Services Office, Inc. (ISO), and New Jersey Medical Malpractice Reinsurance Association (Medical Malpractice).
The cases began simply enough, almost like contract claims, in the Law Division. The first was the State Farm case. The Public Advocate's complaint involved a book account for approximately $27,000, covering various bills submitted to State Farm over a period of several years. The parties engaged in a routine exchange of discovery, but when State Farm served interrogatories on the Public Advocate demanding to know, among other things, the schools from which the Public Advocate's employees had graduated, the Public Advocate resisted the discovery. State Farm then moved to compel answers. The Public Advocate argued that there could be no discovery in the Law Division because the case really concerned not a complaint for damages, but enforcement of an administrative order, the validity of which could be reviewed only in the Appellate Division under Rule 2:2-3(a)(2) (allowing appeal as of right to review final agency actions). The Public Advocate's position understandably troubled the Law Division judge, who summarized the Public Advocate's arguments in this way:
On this motion, in effect they [the attorneys from the Department of the Public Advocate] are saying the information you're seeking is not relevant to any issue in the case, because you cannot raise the issue of reasonableness * * *.
Now, my concern is [whether] that position [is] constitutionally correct. Even if the statute said specifically, no defense can be raised as to the reasonableness of the charges made by the Public Advocate, the issue would still remain in my mind, "Is that constitutional?"
The Public Advocate replied that "our claim is certainly not that he [State Farm] has nowhere to challenge the fees, but rather if [State Farm] is going to launch a challenge to agency action, it must be in the Appellate Division," and "unless there's a certain level of arbitrariness made, then there is no right of discovery." The court responded:
That puts the cart before the horse. You don't know whether it's arbitrary until you have the discovery. And to say that you have to have a threshold showing of arbitrariness before you get discovery is just going around in circles.
Nonetheless, the Law Division later accepted the argument of the Public Advocate, stating, "I am going to deny [State
Farm's] Motion to Compel Discovery with respect to the interrogatories on the ground that the information sought is not relevant to these proceedings." The court recognized that only the Appellate Division could resolve the legal question of whether any factual issues raised in opposition to the bills could be litigated in a Law Division proceeding. State Farm took an interlocutory appeal from that discovery ruling but did not gain a stay of the Law Division action.
Some months later, the Public Advocate moved before another judge for summary disposition of its claims. According to that judge, the case had originally proceeded "as though it were not a State agency [suit] but rather as though it were a billing and this is a book account [for] money owed." In such a case State Farm could expect discovery. She observed, however, that by the time the parties had appeared before her, they had come to grips with the problem of the statute and its interpretation. She agreed with the Advocate that the action was more like an enforcement order under Rule 4:67, in which the Law Division has no authority to consider questions of the validity of the agency's order. R. 4:67-6(c)(3).
State Farm argued that it would be "bizarre" for the procedure to be as the Public Advocate argued. An insurer would have to "go to the Appellate Division to challenge the reasonableness of the bill and when you get to the Appellate Division, they can't look at a bill and say yes, that's reasonable or no, that's not reasonable."
The Law Division understood the circularity of the point, but concluded that "if there is a right to a hearing, where the hearing should be held and how it shall be conducted and what the burden of the State is on that billing is a matter for the Appellate Division to decide." Even though, in the court's view, the "horses [had] been changed in midstream" by the Public Advocate, now seeking a remedy under Rule 4:67, it ruled that only the Appellate Division could decide whether "there [is] a place to challenge the reasonableness of those bills,
where should that forum be to challenge the reasonableness of those bills," and "[w]ho should hear it." Declining to leave the issue in limbo, it said: "I'm going to make sure the Appellate Division is going to look at the issue. I'm going to grant the motion for summary proceeding on behalf of the Public Advocate to pay $32,222." (More bills had accrued since the complaint was filed.) The court refused to stay its judgment.
The Medical Malpractice case was next to be heard before another judge some three months later. Medical Malpractice, a reinsurance association established by statute, had advised the Commissioner of Insurance of an anticipated deficit and had been billed for Rate Counsel's review of its statistics. It argued that it had not initiated proceedings to change rates within the meaning of N.J.S.A. 52:27E-19b. Apparently familiar with the prior disposition of the State Farm case, the court suggested that the Public Advocate obtain a legislative change so that if the insurers "don't pay within the thirty days from the period [as defined] by the Legislature, that then upon their filing with the Clerk of the Superior Court [the bills] have the force of a judgment." It nonetheless felt bound to enter judgment on the amount claimed. The court did not, however, determine that Rule 4:67 governs jurisdiction to challenge reasonableness, as had the prior Law Division judge. In the court's view, the matter was simply a traditional allocation of jurisdiction. The agency could proceed before the Law Division to obtain summary enforcement or summary judgment, but the underlying challenges to the validity of the action, as well as all appeals from agency action (the billings), must be made in the Appellate Division. See R. 2:2-3(a)(2).
The third of the cases to be litigated was brought by ISO, an organization of insurers licensed in New Jersey under N.J.S.A. 17:29A-2, which consolidates data-collection and rating efforts. ISO prepares and files rates and policy forms with the Department of Insurance on behalf of its members. The ISO case appears to have been heard later in the same day by the same judge who heard the Medical Malpractice case. He found in the
ISO case four broad issues: (1) whether, under commercial deregulation, the bills were submitted for services rendered in connection with proceedings initiated to change charges; (2) whether the Public Advocate's services in connection with "forms filings" were billable; (3) whether a prior agreement to pay some of the claims was a simple contract question triable before him; and (4) whether ISO might consent to pay some of the bills. Again, the court ruled that questions of eligibility for payment are for the Appellate Division.
The court thus gave judgment for all the monies claimed by the Public Advocate except those claimed to be "due or not due because of this settlement agreement." As in the Medical Malpractice case, it referred to Rule 4:67-6. The court expected all other issues to be transferred to the Appellate Division. The ...