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Celtic Insurance Co. v. New Jersey Individual Health Coverage Program Board

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


April 3, 2009

CELTIC INSURANCE COMPANY, APPELLANT,
v.
NEW JERSEY INDIVIDUAL HEALTH COVERAGE PROGRAM BOARD, NEW JERSEY DEPARTMENT OF BANKING AND INSURANCE, AND THE STATE OF NEW JERSEY, RESPONDENTS.
IN RE NEW JERSEY IHCPB'S ADOPTION OF N.J.A.C. 11:20-2.17
IN THE MATTER OF THE CHALLENGE AND REQUEST FOR HEARING BY CELTIC INSURANCE COMPANY REGARDING THE NEW JERSEY INDIVIDUAL HEALTH COVERAGE PROGRAM BOARD OF DIRECTORS' ISSUANCE OF THE DECEMBER 18, 2006 INTERIM RECONCILIATION OF THE 1997/1998 LOSS ASSESSMENT.

On appeal from the New Jersey Individual Health Coverage Program Board of Directors and the New Jersey Department of Banking and Insurance.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 4, 2009

Before Judges Stern, Rodríguez and Payne.

In A-1459-05, A-0071-06 and A-0072-06, Celtic Insurance Company appeals from three separate final administrative determinations of the New Jersey Individual Health Coverage Program ("IHCP") Board and the Department of Banking and Insurance. Celtic challenges the denial of full reimbursement under the Individual Health Insurance Reform Act (the "Reform Act"), N.J.S.A. 17B:27A-2 to -16.5, for its net-paid losses for 1997-1998. Celtic asserts that the Board improperly applied "the amended reimbursement formula" resulting from the 1997 amendments to the Reform Act, L. 1997, c. 146, to a period prior to the amendment's effective date, and asserts a contractual and constitutional basis for declaring that retroactive approach unlawful. In its reply brief, Celtic states it "no longer seeks a judgment from this court requiring respondent to fully reimburse Celtic's unpaid losses from the 1997/1998 and 1999/2000 periods" because it has now been paid for those losses. However, it seeks payment of an additional $4,410,368 from the period of January 1, 1997 through June 31, 1997, because the Board applied the amended regulations based on the 1997 statutory amendments, which were effective on July 1, 1997, retroactively to January 1, 1997.

In A-2908-06 and A-4166-06, Celtic again challenges the application of the 1997 statutory amendment, effective July 1, 1997, retroactively to January 1, 1997. It also contests the retroactive application of the amended N.J.A.C. 11:20-2.7 to the reimbursement formula for 1997. It argues that the retroactive funding formula is unconstitutional and otherwise unlawful, and that the assessment methodology for the years 1993-2000 should be the same.

Following the Supreme Court's opinion in In re N.J. Indiv. Health Coverage Program's Readoption of N.J.A.C. 11:20-1 et seq., 179 N.J. 570 (2004), relating to the methodology for 1997-1998 loss assessments, the Board amended the regulations, effective December 18, 2006, and recalculated a new biennial calculation using a new adjusted net earned premium ("ANEP") methodology. The Board issued new invoices and "interim reconciliations" for the 1997-1998 and 1999-2000 periods.

Celtic filed A-2908-06 on February 1, 2007, within forty-five days of the December 18, 2006 effective date of the amendment to N.J.A.C. 11:20-2.17, and the invoices for 1997-1998, 1999-2000 and 2001-2002 issued that day. It filed A-4166-06 on April 13, 2007, within forty-five days of the denial of a request for an administrative hearing addressed to the new reimbursement formula for 1997-1998. The Board asserts that the appeal and claim for the additional $4,410,368 are untimely because N.J.A.C. 11:20-8.9 required an appeal from the audited amount of its net paid losses within twenty days, and Celtic never appealed from that determination in 1999. See also N.J.A.C. 11:20-2.15.

In order to settle the issue concerning the retroactivity of N.J.S.A. 17B:27A-2 and -12, as amended by L. 1997, c. 146 ("Chapter 146"), effective July 1, 1997, and the governing regulations, we shall treat the appeal as timely.

Celtic contends that N.J.A.C. 11:20-2.17 (2006) and its reimbursement formula are invalid and manifestly unjust, and that they unconstitutionally violate federal substantive due process both facially and as retroactively applied by the Board to the interim reconciliation of the 1997-1998 IHCP loss assessment. It claims that application of the new regulation based on the amendment to the statute by Chapter 146 deprived it from collecting the additional reimbursable losses it incurred under the Reform Act which remained in effect until July 1997.

While the effective date of Chapter 146 was July 1, 1997, the starting date for the first two-year IHCP calculation period under N.J.S.A. 17B:27A-2, as amended, was January 1, 1997, and Chapter 146, in effect, began reducing the amount of losses that an IHCP participant could report for reimbursement under the Reform Act starting at the beginning of 1997.

Celtic cannot ignore the fact that the Board had to promulgate a new loss assessment methodology starting in January 1997 because the Supreme Court had invalidated the old two-tier methodology it had used to calculate the entire 1997-1998 loss assessments. See In re IHCP's Readoption, supra, 179 N.J. at 573-78. As a result, Chapter 146 provided that the first two-year calculation period would begin on January 1, 1997, N.J.S.A. 17B:27A-2 (1997), and "[a]dmininstrative regulations 'cannot alter the terms of a statute or frustrate the legislative policy'" of the agency's enabling act. See In re N.J. IHCP's Readoption, supra, 179 N.J. at 579 (quoting Med. Soc'y of N.J. v. N.J. Dep't of Law & Pub. Safety, 120 N.J. 18, 25 (1990)). See also Cooper Univ. Hosp. v. Jacobs, 191 N.J. 125, 140-41 (2007).

Statutes are entitled to a presumption of validity, State Farm Mut. Auto. Ins. Co. v. State, 124 N.J. 32, 45-46 (1991), and "if the Legislature expresses an intent that the statute is to be applied retroactively, the statute should be so applied." Oberhand v. Dir., Div. of Tax., 193 N.J. 558, 571 (2008) (citing Gibbons v. Gibbons, 86 N.J. 515, 522 (1981)). Moreover, the legislative intent may either be expressed "in the language of the statute or implied," in that "retroactive application may be necessary to make the statute workable or to give it the most sensible interpretation." Gibbons, supra, 86 N.J. at 522.

Here, the plain language in N.J.S.A. 17B:27A-2, as amended in 1997 by Chapter 146, provides that the first "[t]wo-year [IHCP] calculation period... shall begin January 1, 1997 and end December 31, 1998." Thus, the fact that the statutory amendment was "effective" on July 1, 1997 is irrelevant because the Legislature clearly made its application retroactive to January 1, 1997. The IHCP has always been administered on an annual basis. See N.J.S.A. 17B:27A-12(a)(1) (1992) (which required that, by March 1, 1993, IHCP members had to begin submitting their data "for the preceding year ending on December 31"); see also N.J.S.A. 17B:27A-12(a)(2) (1992).

We find no constitutional infirmity or manifest injustice. See, e.g., States v. Carlton, 512 U.S. 26, 30-31, 114 S.Ct. 2018, 2002, 129 L.Ed. 2d 22, 28 (1994) (noting that the Supreme Court "repeatedly has upheld retroactive tax legislation against a due process challenge"); OFP, L.L.C. v. State, 395 N.J. Super. 571, 590-95 (App. Div. 2007), aff'd o.b., 197 N.J. 418 (2008) (retroactivity of Highlands Act to a subdivision with environmental approval does not violate Due Process Clauses of Federal and State Constitutions; four-and-a-half month retroactivity not "manifest injustice").

Both the health and insurance industries in New Jersey have always been very highly regulated, and as the Supreme Court stated in State Farm, supra, 124 N.J. at 50, "a participant in a highly regulated industry must anticipate that its profit levels can be capped or even reduced by changes in government regulation." In fact, our courts are clear that there is no vested right in the "anticipated continuance of the present general laws." Phillips v. Curiale, 128 N.J. 608, 621 (1992) (quoting Levin v. Twp. of Livingston, 62 N.J. Super. 395, 404 (Law Div. 1960), aff'd in part, rev'd in part, 35 N.J. 500 (1961)). For this reason, Celtic's reliance on Oberhand does not control; unlike Oberhand, here there is no "manifest injustice" and "unfairness of changing the law." See Oberhand, supra, 193 N.J. at 572. There the decedants died prior to amendment of the tax statute and relied on a prior tax statute in doing estate planning. Id. at 562-65. As we upheld application of the 2006 revised regulation for 1997-1998 in In re Guardian, decided today, we affirm the denial of Celtic's challenge to the 1997-1998 interim reconciliation.

Affirmed.

20090403

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