January 3, 2008
IN THE MATTER OF THE OBJECTION OF SUN LIFE ASSURANCE COMPANY OF CANADA AND KEYPORT LIFE INSURANCE COMPANY TO THE INSURANCE FRAUD ASSESSMENT FOR FY 2002 AND 2003 PURSUANT TO N.J.S.A. 17:33A-8.
On appeal from final agency action by the Department of Banking and Insurance.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 28, 2007
Before Judges Wefing, R. B. Coleman and Lyons.
The issue in this case is the timeliness of this appeal filed by Sun Life Assurance Company and Keyport Life Insurance Company (collectively, Sun Life or the Companies).*fn1 Sun Life appeals from a decision by the New Jersey Department of Banking and Insurance (NJDBI or Department) dated October 16, 2006, which denied Sun Life's objections to amounts assessed pursuant to N.J.S.A. 17:33A-8(g) against Sun Life as Sun Life's insurance fraud assessments for fiscal years 2002 and 2003, and Sun Life's request for a refund of amounts it deemed were overpaid. Because we find that the State's assessments dated March 10, 2003, for fiscal year 2002, and January 9, 2004, for fiscal year 2003, constitute "final decisions or actions of any state administrative agency" pursuant to Rule 2:2-3(a)(2) and the time to appeal those assessments pursuant to Rule 2:4-1(b) has expired, we affirm NJDBI's determination not to recalculate Sun Life's assessment and not to provide any refund.
The pertinent facts and procedural history are as follows. NJDBI's Division of Insurance Fraud Prevention is charged with investigating alleged insurance fraud in New Jersey. In 1983, the New Jersey Insurance Fraud Prevention Act (Act), N.J.S.A. 17:33A-1 to -30 was enacted. It created a special purpose funding mechanism referred to as the fraud assessment, whereby the actual incurred expenses of NJDBI for all services related to insurance fraud investigation are funded by the companies that the Department regulates. The Act permits the Commissioner of Banking and Insurance (Commissioner) to apportion expenses incurred by the State to fund its responsibilities pursuant to the Act among every company writing a class of insurance described in Subtitle 3 of Title 17 and Subtitle 3 of Title 17B "in the proportion that the net premiums received by each of them . . . bears to the sum total of all such net premiums received by all companies writing that insurance within the State . . . ." N.J.S.A. 17:33A-8(g). The term "net premiums received" is defined in the Act as "gross premiums written, less return premiums thereon and dividends credited or paid to policyholders." Ibid.
Historically, the Commissioner has calculated the assessment based upon information contained in Schedule T of a company's annual statement. Schedule T is a standard form used throughout the industry and adopted by the National Association of Insurance Commissioners. Column 3 of Schedule T indicates the amount of "net premiums received."
Prior to January 1, 2001, the amounts reported on Column 3 of Schedule T accurately reflected "net premiums received." However, after January 1, 2001, the National Association of Insurance Commissioners adopted a revised format for Schedule T. This format called for certain "deposit-type" funds, such as annuities, which were previously reported in Column 6, to be reported in Column 3. Apparently, the Commissioner calculated the assessments for the years 2002 and 2003, using the amounts stated in Column 3 without addressing the then recent change in what was included in Column 3 of Schedule T.
On March 10, 2003, the Department of Treasury issued the annual fraud assessments, entitled "Insurance Premiums Tax," for fiscal year 2002 pursuant to N.J.S.A. 17:33A-8(g) to each of the companies. The assessments set forth the amount due for fiscal year 2002 from the Companies for the cost of administration of the Division of Insurance Fraud Prevention pursuant to the Act. The assessments further advised the Companies that the amounts on the documents were payable on or before thirty days from the date of the documents.
On April 9, 2003, Sun Life paid both of the assessments and wrote to the Department of Treasury seeking to challenge the assessments. The letter from the Companies advised that the Companies believed that the calculation method was faulty and advised that it was submitting "the enclosed payments under protest, and request[ed] the recalculations to determine the actual amount owed and the appropriate refunds of any overpayments." No response was made to that letter, and Sun Life did not take any action to follow up on the letter until September 2004.
On January 9, 2004, NJDBI issued the fiscal 2003 fraud assessments to the Companies. Those documents set forth the statutory basis for the assessments, as well as the computation utilized to come to the amount of assessment due. The assessments provided that payment was due on February 5, 2004. On January 30, 2004, counsel for Sun Life wrote to the NJDBI, arguing that the calculation method applied to determine the amount owed was faulty and not consistent with applicable law. Accordingly, counsel advised the Department that the Companies were submitting payments under protest and again requested recalculations to determine the actual amount owed and appropriate refunds of any payments. Again, no response was made by the Department and no further follow up or action was undertaken by the Companies.
On September 7, 2004, counsel for Sun Life wrote to the New Jersey Division of Revenue noting it had not received a response to its earlier letter of April 9, 2003, regarding the fiscal 2002 assessment. It sought again a recalculation and a refund. There is no evidence of any response to that letter.
On May 15, 2006, our court, in an action filed by thirteen other insurance companies in the Superior Court, Appellate Division, to challenge the fraud assessments by NJDBI for fiscal years 2002 and 2003, invalidated the method by which the Department had calculated the assessments.*fn2 We found that the appellants in that matter paid an assessment in excess of what the State was entitled to receive and that they were entitled to a refund for any overpayment.
On June 8, 2006, counsel for Sun Life wrote to counsel for NJDBI and stated that in light of our decision the previous month, the Companies looked forward to a refund of the amounts the Companies overpaid. The Department responded on October 16, 2006, with a letter stating that because Sun Life had not been a party to the appeal and had failed to appeal in a timely and appropriate manner, it was the position of the Department that all the issues regarding Sun Life's insurance fraud prevention assessments for prior years were resolved. Sun Life filed a notice of appeal from that letter on November 30, 2006.
On appeal, Sun Life argues that because our court has determined that the Department's calculation of the fraud assessment for fiscal years 2002 and 2003 was erroneous, it is entitled to a refund and that the fraud assessment challenge in this action is timely. The Department's position is that Sun Life's avenue for relief from the fiscal 2002 and 2003 year assessments was to file an appeal pursuant to Rule 2:2-3(a)(2) within forty-five days from the receipt of the assessment letters and that this action is, therefore, time-barred. The Department also argues that Sun Life was not a party to our May 15, 2006 decision, that that decision does not affect Sun Life, and that the "voluntary payment" doctrine precludes any refund.
The New Jersey Constitution, Article VI, § 3, par. 3, provides that "[t]he Superior Court shall be divided into an Appellate Division, a Law Division, and a Chancery Division, which shall include a Family Part. Each division shall have such other parts and hear such causes, as may be provided by rules of the Supreme Court." Pursuant to that authority, our Supreme Court has provided in Rule 2:2-3(a)(2) that "appeals may be taken to the Appellate Division as of right . . . to review final decisions or actions of any state administrative agency or officer . . . ." An appeal pursuant to Rule 2:2-3(a)(2), however, is not "maintainable so long as there is available a right of review before any administrative agency or officer, unless the interest of justice requires otherwise . . . ."
Rule 2:2-3(a)(2) has been interpreted to mean that the mode of review so provided in the rule is exclusive. Pascucci v. Vagott, 71 N.J. 40, 51-52 (1996). "'The exclusive method for review of action or inaction of a State administrative agency . . . is by direct appeal to [the Appellate Division] pursuant to Rule 2:2-3(a)(2).'" In re Failure by Dept. of Banking & Ins., 336 N.J. Super. 253, 261 (App. Div.), certif. denied, 168 N.J. 292 (2001) (quoting Trantino v. N.J. State Parole Bd., 296 N.J. Super. 437, 459-60 (App. Div. 1997), aff'd and modified, 154 N.J. 19 (1998)). Further, Rule 2:4-1(b) provides that "[a]ppeals from final decisions or actions of state administrative agencies . . . shall be taken within 45 days from the date of service of the decision or notice of the action taken."
The parties appear to agree that the decision or action at issue is evidenced by the letters dated March 10, 2003, setting forth the assessment for fiscal year 2002, and the letters dated January 9, 2004, setting forth the assessments for fiscal year 2003. Neither of the parties contest that these documents were issued by a state agency. Further, none of the parties have pointed us to any statutory or regulatory procedure which would have afforded Sun Life a right of review before any administrative agency or officer.*fn3
In order to resolve the matter before us, we must determine whether the March 10, 2003, and January 9, 2004, letters were "final decisions or actions" of a state agency. If we determine they were, then Sun Life's appeal would be time-barred because no appeal was filed within forty-five days of the date of service of these assessments on Sun Life. Alberti v. Civil Serv. Comm'n, 41 N.J. 147, 154 (1963).
There is no definition in the rules of what constitutes a final decision or action by a state agency. Our Supreme Court addressed this issue in DeNike v. Bd. of Trustees, Employees Ret. System of N.J., 34 N.J. 430 (1961). In DeNike, the Court stated:
[f]or a state administrative agency to gain repose from an appeal by virtue of the elapse of time from a decision or action it must give the party sought to be bound unmistakable written notice of the finality of the decision or action. This is especially true with an agency, . . . where the parties sought to be bound are to a large extent without any practical business or legal knowledge. Although not mandatory, considerate dealing by the administrative body suggests that such notice might as well apprise the party sought to be bound that he has a right to an administrative appeal or hearing, if such exists, together with the time within which such action must be taken. [DeNike, supra, 34 N.J. at 435.]
In its opinion in DeNike, the Court looked to Schack v. Trimble, 28 N.J. 40 (1958), in determining whether the state agency's action spoke with unmistakable finality. Schack was concerned with a prerogative writs proceeding brought by property owners to obtain a building permit. One issue was whether the denial by a municipal building inspector of a permit was an action which triggered the time for an appeal. In Schack, the Court drew the distinction between informal or ex parte determinations made by administrative officials charged with the performance of ministerial functions as opposed to those determinations where there was "a sufficient crystallization of a dispute along firm lines to call forth the policy of the repose." Schack, supra, 28 N.J. at 49.
In re CAFRA Permit No. 87-0959-5, 152 N.J. 287, 299 (1997), the Supreme Court noted that for a decision to be "final" for purposes of triggering the appeal period in Rule 2:4-1(b), "an agency decision should contain adequate factual and legal conclusions." The Court again stated that "[t]he decision should also give unmistakable notice of its finality" and, "[a]lthough not mandatory, the notice should describe briefly the right to an appeal within the agency and the time limits for filing such an appeal." Ibid. The Court reiterated that position again in 2001 in Northwest Covenant Med. Ctr. v. Fishman, 167 N.J. 123, 139 (2001).
In determining what is final agency action under the federal Administrative Procedures Act, the United States Supreme Court has held that two conditions must be satisfied for agency action to be "final." Bennett v. Spear, 520 U.S. 154, 177-78, 117 S.Ct. 1154, 1168, 137 L.Ed. 2d. 281, 305 (1997) (internal citations omitted). "First, the action must mark the 'consummation' of the agency's decisionmaking process -- it must not be of a merely tentative or interlocutory nature. And second, the action must be one by which 'rights or obligations have been determined,' or from which 'legal consequences will flow.'" Ibid.
We know of no statute, rule, or case law which specifies what form a final decision or agency's action must take. In In re CAFRA Permit, supra, 152 N.J. at 300, the Court noted in dicta that a letter written by the Department of Environmental Protection's Director of the Division of Coastal Resources to the party seeking an exemption from one of the Division's policies could suffice as the basis for an appeal. In Jersey City v. Dept. of Envtl. Prot., 227 N.J. Super. 5 (App. Div.), certif. denied, 111 N.J. 640 (1988), the final decision or action was a lease for a marina. In Bullethole, Inc. v. Dunbar, 335 N.J. Super. 562 (App. Div. 2000), the final action was the Governor's designation of the State Police as the point of contact for processing Brady Act background checks for prospective gun purchasers. Further, we note that the term "'action' found in [Rule 2:2-3], includes inaction." Matthews v. Finley, 46 N.J. Super. 175, 177 (App. Div.), certif. denied, Matthews v. Neeld, 25 N.J. 283 (1957).
In order to resolve the question of whether the four notices to Sun Life constitute final decisions or actions of a state agency, we must first distill from the existing case law the attributes of what constitutes a final agency decision or action. The attributes we find that must be considered and analyzed are the following:
(1) The decision or action must be authorized and issued by a state agency. R. 2:2-3(b)(2);
(2) The decision or action must not be advisory or informal. DeNike, supra, 34 N.J. at 434;
(3) The decision or action must be adequately communicated to the person to be bound. Id. at 435;
(4) The decision or action must unmistakably evidence that it is the agency's final decision or action concerning the matter. Northwest Cov. Med. Ctr., supra, 167 N.J. at 139; In re CAFRA, supra, 152 N.J. at 299; DeNike, supra, 34 N.J. at 435;
(5) The decision or action must clearly set forth the agency determination and the basis for same. In re CAFRA, supra, 152 N.J. at 299;
(6) The decision or action must be of such a nature that it is evident it marks the consummation of the agency's decision making process and not the beginning of an agency proceeding. Bennett v. Spear, supra, 520 U.S. at 177-78, 117 S.Ct. at 1168, 137 L.Ed. 2d at 305; and
(7) The decision or action should advise the party of any right to an administrative appeal or hearing, if such exists, together with the time within which such action must be taken. In re CAFRA, supra, 152 N.J. at 299.
We are satisfied from a review of the record that the assessment notices Sun Life received were authorized or issued by a state agency. The Companies clearly knew the statutory basis for the assessment from the notice and, as evidenced by the Companies' objection letter, they knew what calculation formula the agency used. There is nothing in the assessment notices which would indicate that the assessments were an initial assessment subject to an agency hearing or a tentative decision subject to future agency hearings or review. The statutory basis upon which the assessments were made provided for no agency review or appeal. Therefore, there was no right to an administrative appeal or hearing about which to inform the Companies. Moreover, Sun Life is not an unsophisticated entity. It is a major insurance company with more than adequate professional advisory resources. While it may have been preferable for all concerned for the agency to have advised the Companies of their rights to appeal to our court, no court has made that mandatory. Hence, we are satisfied that the assessment letters constituted a final decision or action by the State agency. Accordingly, the appeal is untimely under Rule 2:4-1. Alberti, supra, 78 N.J. Super. 194.
We agree with NJDBI that our recent decision in Comm'r's Calculation applies only to the parties to that action and find the Companies' argument to the contrary to be without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).*fn4
Lastly, we address the Companies' argument that it is entitled to a refund because we determined NJDBI incorrectly assessed the Companies and the Companies paid the incorrect amount. "'Public policy discourages suits for refund of taxes erroneously paid or illegally collected.'" N.J. Hosp. Ass'n. v. Fishman, 283 N.J. Super. 253, 263 (App. Div. 1995) (quoting Cont'l Trailways v. Dir., Div. of Motor Vehicles, 102 N.J. 526, 548 (1986), cert. dismissed, 481 U.S. 1001, 107 S.Ct. 1636, 95 L.Ed. 2d 195 (1987)). In that case, we stated "[i]t is firmly settled that in the absence of statutory authority, taxes voluntarily, although erroneously, paid even under an unconstitutional statute cannot be refunded." Id. at 264 (internal quotations omitted). As the Court has said, "the 'voluntary payment' rule is founded on the basic precept that '[e]very man is supposed to know the law,' from which it follows that, '[i]gnorance or mistake of law by one who voluntarily pays a tax illegally assessed furnishes no ground of recovery.'"
N.J. Hosp. Ass'n, supra, 238 N.J. Super. at 264 (quoting In re Fees of State Bd. of Dentistry, 84 N.J. 582, 588 (1980)).
Consequently, we are satisfied that the letters of assessment from the state agencies constituted final decisions or actions by a state agency and that the within appeal is not timely. We are further satisfied that our recent decision in Comm'r's Calculation is not applicable to the Companies and that under the voluntary payment rule, they are not entitled to a refund.