Liberty Mut. v. La. Ins. Rating Com'nLiberty Mut. v. La. Ins. Rating Com'n
LIBERTY MUTUAL INSURANCE COMPANY, Liberty Mutual Fire Insurance Company, Liberty Insurance Corporation, The First Liberty Insurance Corporation, and LM Insurance Corporation
v.
LOUISIANA INSURANCE RATING COMMISSION, Honorable James H. "Jim" Brown, Chairman; Carl J. Barbier; Byron Briggs; Michael Franks; Thomas Besselman; Charles Kirsch, Jr.; and Doug Foreman.
Court of Appeal of Louisiana, First Circuit.
*1022 Robert L. Rieger, Jr., Baton Rouge, for Plaintiffs/Appellees Liberty Mutual Insurance Company, et al.
C. Noel Wertz, Baton Rouge, Richard D. Chappuis, Robert N. Kallam, Lafayette, for Defendants/Appellants Louisiana Insurance Rating Commission, et al.
Frank P. Simoneaux, Baton Rouge, for Intervenor/Appellee Citgo Petroleum Corporation.
Before WATKINS, GONZALES and KUHN, JJ.
GONZALES, Judge.
This is an appeal by the Louisiana Insurance Rating Commission (LIRC), James H. Brown, Commissioner of Insurance, and the commissioners of LIRC (defendants), from a trial court judgment (1) preliminarily enjoining the defendants from regulating the issuance of an insurance policy by Liberty Mutual Insurance Company (LMIC) and/or its affiliates to Citgo Petroleum Corporation (Citgo), (2) preliminarily enjoining the defendants from conducting future inquiries into LMIC's or its affiliate's use of "wrap-up" insurance policies in Louisiana, and (3) declaring that a bulletin issued by LIRC was of no effect due to LIRC's failure to follow the rule-making requirements of the Louisiana *1023 Administrative Procedure Act (LAPA) prior to issuing the bulletin.[1]
FACTS AND PROCEDURAL HISTORY
This case involves the issuance of a "wrapup" insurance policy by LMIC to Citgo for a construction project at a Citgo plant in Calcasieu Parish. Wrap-up insurance programs, also referred to as consolidated insurance programs, or owner-controlled insurance programs, are used primarily for large construction projects in industry; they generally involve the issuance of workers' compensation and liability insurance to the principal of the project which provides coverage for all contractors, subcontractors, and their employees working on the construction project.[2] In this case, in connection with its construction project, Citgo contracted with LMIC for a wrap-up insurance program to cover its general contractor, Fluor Daniel, Inc., and all of its sub-contractors.
In February of 1995, prior to LMIC's issuance of the wrap-up insurance policy to Citgo, Dennis Alves, LMIC's director of workers' compensation and its intercompany and government relations department, contacted Chris Faber, Deputy Commissioner of LIRC, regarding the permissibility of wrap-up insurance programs in Louisiana. According to Alves, Faber informed him that such programs were permissible. Following LMIC's issuance of a wrap-up policy to Citgo, Alves again spoke to Faber, who then indicated that this type of policy was not permissible in Louisiana. In a letter dated May 19, 1995, Barita Morgan of the Louisiana Department of Insurance informed Alves that LIRC was studying wrap-up insurance programs and that the results of the study were expected to be presented at LIRC's June 21, 1995 meeting. Alves denies receiving this letter from Morgan. In a letter dated May 26, 1995, Alves requested that Faber provide further clarification of LIRC's position as to the permissibility of wrap-up insurance programs in Louisiana. He received no response.
On June 21, 1995, LIRC issued Bulletin LIRC 95-03 to all property and casualty insurance companies and rating organizations making rates and rule filings in Louisiana. The bulletin provided a general definition of wrap-up insurance and required, among other things, that all insurers file wrap-up insurance rates and rules with LIRC for approval before being used in Louisiana.
On June 26, 1995, LIRC issued an "Order to Show Cause" to LMIC ordering it to show cause at a hearing on July 26, 1995, why a fine should not be assessed against LMIC "because of its failure to comply within thirty (30) days with written directives of the Louisiana Insurance Rating Commission." Attached to the order was a copy of a letter dated June 3, 1995, from LIRC Commissioner Doug Foreman to Neil Koenig of Citgo, informing him that the LMIC/Citgo wrap-up insurance policy had to be submitted to LIRC for approval prior to its implementation.
On July 13, 1995, LMIC, Liberty Mutual Fire Insurance Company, Liberty Insurance Corporation, The First Liberty Insurance Corporation, and LM Insurance Corporation (Liberty Mutual) filed a pleading captioned "Petition for Preliminary and Permanent Injunctions, Petition for Declaratory Judgment and Petition to Nullify Certain Actions Taken by the Louisiana Insurance Rating Commission at its June 21, 1995 Meeting" in the Nineteenth Judicial District Court. Named as defendants were LIRC, James H. Brown, the Commissioner of Insurance, Carl J. Barbier, *1024 Byron Briggs, Michael Franks, Thomas Besselman, Charles Kirsch, Jr., and Doug Foreman, named in their official capacities as commissioners of LIRC.[3] In the petition, Liberty Mutual sought preliminary and permanent injunctions quashing LIRC's order to show cause set for hearing on July 26, 1995, invalidating Bulletin LIRC 95-03 in its entirety, prohibiting the defendants from exerting their regulatory authority over the LMIC/Citgo wrap-up insurance program or any other future programs, and prohibiting the defendants from taking retaliatory action against Liberty Mutual. In addition, Liberty Mutual sought a declaratory judgment decreeing that the defendants and their employees and agents had no regulatory authority to investigate or interfere with wrap-up insurance programs implemented with the inclusion of insurance rates previously approved by LIRC, and decreeing that the actions taken by LIRC at the June 21, 1995 meeting, including the issuance of the Order to Show Cause to LMIC and the issuance of Bulletin LIRC 95-03, were violative of the Louisiana Open Meetings Law and without effect. Liberty Mutual also sought an award of attorney fees.
At its July 26, 1995 meeting, LIRC voted to set aside the Order to Show Cause issued to LMIC on June 26, 1995.
On July 28, 1995, Citgo filed a petition of intervention, seeking relief against the defendants similar to that sought by Liberty Mutual.
A hearing on the preliminary injunction was held on August 2, 1995. At the conclusion of the hearing, the trial court took the matter under advisement, the parties subsequently filed post-trial memoranda, and on December 8, 1995, the trial court signed a "Judgment on Rule for Preliminary Injunction" which stated, in pertinent part:
IT IS ORDERED, ADJUDGED AND DECREED that, upon the posting of bond in the amount of $5,000.00, a preliminary injunction in favor of [Liberty Mutual] issue herein against [the defendants], restraining, enjoining, and prohibiting them... from regulating or attempting to regulate the direct issuance by Liberty Mutual of a commercial general liability insurance policy and a workers' compensation insurance policy at the request of [CITGO] in conjunction with construction and maintenance projects undertaken for CITGO as owner and under such further terms and conditions by which CITGO pays the premiums for such policies based on rates and forms filed with and approved by [LIRC], and the general contractor and its subcontractors on such projects as well as CITGO as owner of the projects are named insured, such programs commonly referred to within the insurance industry as consolidated insurance programs, owner controlled insurance programs or wrap up insurance programs.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that ... a preliminary injunction in favor of [Liberty Mutual] issue herein against [the defendants], restraining, enjoining and prohibiting them ... from conducting any future inquiries into Liberty Mutual's wrap up insurance programs, its consolidated insurance programs, owner controlled insurance programs or similar programs in Louisiana[,] based on rates and forms filed with and approved by [LIRC], including but not limited to Liberty Mutual's program in place with [CITGO].
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that ... a preliminary injunction in favor of [Liberty Mutual] issue herein against [the defendants], restraining, enjoining and prohibiting them ... from conducting any future inquiries into Liberty Mutual's wrap up insurance programs, its consolidated insurance programs, owner controlled insurance programs or similar programs in Louisiana.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Plaintiffs have established a prima facie case that it is more likely than not that Bulletin LIRC 95-03 is a "rule" as set forth in La. R.S. *1025 49:951(6), that the requirements enunciated in Bulletin LIRC 95-03 are not issued in accordance with the Louisiana Administrative Procedures [sic] Act, and pursuant toLa. R.S. 49:963 , Bulletin LIRC 95-03 will be declared to be null, void and of no effect. (Emphasis added.)
The defendants appeal from the judgment on the preliminary injunction, asserting the following assignments of error:
1. The trial court erred in issuing a preliminary injunction in that Liberty Mutual failed to establish any grounds at the trial thereon that would support the granting of such extraordinary relief.
2. The trial court erred in finding, preliminarily, that Bulletin LIRC 95-03 is a rule which must be adopted in accordance with the notice and comment procedures of the Louisiana Administrative Procedure Act.
DOES BULLETIN LIRC 95-03 CONSTITUTE A RULE WITHIN THE MEANING OF THE LOUISIANA ADMINISTRATIVE PROCEDURE ACT?
In its judgment, the trial court declared that Bulletin LIRC 95-03 would be declared of no effect because it was more likely than not that it was a rule which was not issued in accordance with the rulemaking requirements of the LAPA. The defendants argue that the trial court erred in this determination.
There is no dispute that LIRC is a state agency subject to the rulemaking requirements of the LAPA. See
In this case, it is not disputed that LIRC did not satisfy any of the rulemaking requirements of the LAPA prior to the issuance of Bulletin LIRC 95-03. LIRC argues that these procedures were unnecessary because the bulletin is not a "rule" and that the trial court erred in finding to the contrary. According to LIRC, Bulletin LIRC 95-03 is an investigatory order to the extent it orders that insurers file wrap-up plans so that LIRC can ascertain if they comply with the law, and is an "interpretive directive"[4] to the extent that it explains LIRC's understanding of wrap-ups and
The LAPA,
*1026 "Rule" means each agency statement, guide, or requirement for conduct or action, exclusive of those regulating only the internal management of the agency and those purporting to adopt, increase, or decrease any fees imposed on the affairs, actions, or persons regulated by the agency, which has general applicability and the effect of implementing or interpreting substantive law or policy, or which prescribes the procedure or practice requirements of the agency. "Rule" includes, but is not limited to, any provision for fines, prices or penalties, the attainment or loss of preferential status, and the criteria or qualifications for licensure or certification by an agency. A rule may be of general applicability even though it may not apply to the entire state, provided its form is general and it is capable of being applied to every member of an identifiable class. The term includes the amendment or repeal of an existing rule but does not include declaratory rulings or orders or any fees.
We agree with the trial court's conclusion that Bulletin LIRC 95-03 constitutes a rule as defined above.[5] First, the bulletin constitutes a statement regarding wrap-up insurance by LIRC which has general applicability to all insurers issuing this type of insurance in Louisiana. Further, it contains LIRC's interpretation of the definition of wrap-up insurance and has the effect of interpreting LIRC's substantive policy regarding the use of wrap-up insurance policies in Louisiana; that is, LIRC clearly "directs that insurers must file for approval of all rates and rules comprising wrap-up programs with the LIRC." In requiring that insurers submit wrap-up programs for approval, the bulletin sets forth three specific substantive criteria which must be considered in the filing of any insurer submitting a plan to LIRC for approval. Each of the criterion provides some type of limitation on the use of wrap-up programs in the insurance industry. It can hardly be said that these pronouncements by *1027 LIRC serve merely an "investigative" or "interpretive" function without substantive effect. See Star Enterprise v. State, Department of Revenue and Taxation, 95-1980, 95-1981, 95-1982 (La.App. 1st Cir. 6/28/96),
We further note that, in addition to constituting a "rule," Bulletin LIRC 95-03 probably constitutes an invalid rule. That is, the requirements imposed on insurers in the bulletin appear to be in excess of LIRC's statutory authority which is contained in Part XXX of Chapter 1 of the Insurance Code,
JUDICIAL REVIEW OF AN AGENCY RULE UNDER THE LOUISIANA ADMINISTRATIVE PROCEDURE ACT
Having concluded that Bulletin LIRC 95-03 constitutes a rule within the meaning of the LAPA, and because, in its first assignment of error, LIRC takes exception with the issuance of injunctive relief in this case, we must determine whether Liberty Mutual properly challenged the rule's validity or applicability.
The laws creating LIRC and governing the scope of its authority are found in Part XXX of Chapter 1 of the Insurance Code,
In determining the applicability of laws, the more specific governs over the more general. In the Interest of A.C., 93-1125 (La.1/27/94),
If agency laws are silent, and the challenge to an agency rule is based upon the grounds that the rule is unconstitutional or exceeds the statutory authority of the agency, or was adopted without substantial compliance with rulemaking procedure, the appropriate and only remedy is an action for declaratory judgment under
The record contains no evidence that the requirements of
It must be noted that the declaratory judgment provided for in
However, it can be seen from the plain language of
When the trial court applies the wrong law, no weight should be accorded to its judgment. Otto v. State Farm Mutual *1029 Automobile Insurance Company,
DECREE
For the foregoing reasons, the judgment of the trial court is REVERSED in its entirety. This matter is REMANDED to the trial court which is ordered to direct Liberty Mutual to apply to LIRC for reconsideration of the validity of Bulletin LIRC 95-03 in light of the views expressed herein. The total costs of this appeal in the amount of $886.06 is to be assessed equally between Liberty Mutual and LIRC.
ON REHEARING
GONZALES, Judge.
On application for rehearing, both sides in this case complain of this Court's ruling. LIRC basically complains that this Court went too far in finding its rule invalid. On the other hand, Liberty Mutual complains that our opinion did not go far enough by granting to it numerous requests for relief. We invite both sides to more carefully read the opinion rendered in this matter, and they will find that their positions are misplaced.
INVALIDITY OF BULLETIN LIRC 95-03
LIRC complains that our opinion went too far in declaring Bulletin LIRC 95-03 invalid. On page 8 of our opinion, after analyzing whether or not the bulletin was a rule, we noted, in part, as follows:
We further note that, in addition to constituting a "rule," Bulletin LIRC 95-03 probably constitutes an invalid rule.... LIRC's action in issuing the bulletin in all likelihood exceeds its authority to regulate rates. [Emphasis added].
This statement about the possible invalidity of Bulletin LIRC 95-03 is not the rule of decision in our opinion; we reversed the trial court judgment because it was not rendered in conformity with the procedural requirements of
STRINGENT REQUIREMENTS OF LA. R.S. 49:963
Liberty Mutual's basic complaint on rehearing is that it does not like the law. Most of the issues Liberty Mutual raises concern the stringent requirements of
It is true there are some serious problems with
Louisiana Revised Statute 49:963 was almost entirely outmoded at the time of its adoption. It is apparently derived from a combination of the provisions of the 1946 version of the federal Administrative Procedure Act (federal APA) (Act June 11, 1946, c. 324, 60 Stat. 237) and the Model State Administrative Procedure Act of 1961 (Model Act). However, subsequent revisions to both the federal APA and to the Model Act have eliminated many of the problems presented by Section 963. Further, as noted in our original opinion, the revision to the Louisiana Code of Civil Procedure relative to declaratory judgments eliminated the requirement of no other remedy and had legislatively overruled the Burton v. Lester rationale. Despite all these improvements and recommendations for change in the declaratory judgment law on both the federal and state levels, our legislature has not seen fit to address these problems in
The rest of Liberty Mutual's complaints about inconvenience and multiple litigation generated by the strict compliance with
REMAINING ISSUES
Liberty Mutual further suggests that our opinion in this matter is in conflict with an earlier opinion of this circuit, Star Enterprise v. State, Department of Revenue and Taxation, 95-1980, 95-1981, 95-1982 (La.App. 1st Cir. 6/28/96),
Finally, we address Liberty Mutual's argument that the trial court was the proper forum to address the alleged unconstitutionality of Bulletin LIRC 95-03. In its "Judgment on Rule for Preliminary Injunction," the trial court declared the bulletin to be a rule, that it was not issued in accordance with the rulemaking requirements of the LAPA, and was, therefore, "null, void and of no effect." Based on its conclusion that the rule was statutorily invalid because not issued in accordance with the LAPA, the trial court did not have to reach the issue of the constitutionality of the rule. Generally, courts will not address constitutional issues when the case can be disposed of on the basis of nonconstitutional issues. Blanchard v. State, Parks and Recreation Commission, 96-0053 (La.5/21/96),
In our original opinion, we affirmed the trial court's finding that Bulletin LIRC 95-03 was a rule. Although not expressly stated in the original opinion, we now affirmatively state our agreement that the rule was statutorily invalid because not issued in accordance with the rulemaking requirements of the LAPA. Therefore, there is no reasons to address the alleged unconstitutionality of Bulletin LIRC 95-03.
For the above reasons, the applications for rehearing filed by LIRC and by Liberty Mutual are DENIED.
NOTES
[1] In its judgment on the rule for preliminary injunction, the trial court also found that Liberty Mutual had established a prima facie case in its favor on two other issues: (1) the alleged violation of the Louisiana Open Meetings Law, and (2) the effect of LIRC's issuance and subsequent revocation of the Order to Show Cause against Liberty Mutual. Based on the assignments of error alleged in this appeal, these issues are not before this court.
[2] In Bulletin LIRC 95-03, dated June 21, 1995, LIRC defined "wrap-up insurance" as: a policy that covers exposures for a large group. Each member of the group is connected to other members by one or more common insuring characteristics. For example, wrap-up insurance can be written for all the various businesses working together on a special project. Wrap-up insurance as used in this Bulletin includes owner controlled insurance programs.
Notes
[3] According to
[4] Although the concept of "interpretive directive" is not contained in the LAPA, Section 962 of the LAPA does address the similar concept of "declaratory orders." This provision mandates that each agency provide by rule for the filing and prompt disposition of petitions for declaratory orders and rulings as to the applicability of any statutory provision or of any rule or order of the agency. The existence of such a rule within LIRC's regulatory scheme is unknown.
[5] Bulletin LIRC 95-03 reads as follows:
Bulletin LIRC 95-03
DATE: June 21, 1995
TO: All Property and Casualty Insurance Companies and Rating Organizations Making Rate and Rule Filings in Louisiana
RE: Wrap-Up Insurance
This bulletin clarifies issues surrounding wrap-up insurance and sets forth directives of the Louisiana Insurance Rating Commission (LIRC).
"Wrap-up insurance" is defined as a policy that covers exposures for a large group. Each member of the group is connected to other members by one or more common insuring characteristics. For example, wrap-up insurance can be written for all the various businesses working together on a special project. Wrap-up insurance as used in this Bulletin includes owner controlled insurance programs.
The LIRC requires that wrap-up insurance rates and rules be filed with and approved by the LIRC before they can be used in Louisiana. A wrap-up insurance filing must adhere to directives contained in all LIRC Bulletins and must conform to all Louisiana [s]tatutes.
To avoid unnecessary delays in the approval process, a wrap-up insurance filing coming before the LIRC must consider the following:
(1) Louisiana Revised Statute 23[:]1174.1 prohibits a wrap-up insurance program which discriminates "based upon the contractor's or subcontractor's securing the employer's workers[`] compensation obligation by any method provided for in R.S. 23[:]1168 and/or R.S. 23 [:]1191 through 23[:]1193."
(2) A wrap up insurance program must neither take away nor reduce the right and ability for the individual contractor to choose the best method to insure the individual contractor's risk.
(3) A wrap up insurance program must allow for coordination of coverages between the wrap-up policy and individual contractor policies without placing a burden upon the individual contractor or the contractor's chosen insurer. A burden exists when the wrap-up policy results in duplicate coverages or higher costs to the individual contractor.
In the past there has been confusion regarding the filing requirements for wrap-up programs. Under the authority pursuant to R.S. 22[:]1402, 22[:]1403, 22[:]1404.(3)(b) and 22[:]1407, the LIRC directs that insurers must file for approval of all rates and rules comprising wrap-up programs with the LIRC. Such programs must comply with LIRC and Louisiana statutes, regulations, rules, and directives. Wrap-up programs currently in use and not previously filed with the LIRC must comply with the directives of this Bulletin and file with the LIRC no later than August 2, 1995[,] 12:00 pm[.] (The cutoff for the August 16, 1995 LIRC agenda).
If there are questions[,] call LIRC staff at (504) 342-5202.
s/Chris Faser, III Chris Faser, III Deputy Commissioner/LIRC[6] If a regulated party can attack a rule in connection with an enforcement, a license revocation, restriction, denial, or other contested adjudicative action, and receive a remedy of reversal based on the invalid rule, he has no standing under
[7] The Nineteenth Judicial District Court was the proper court of appellate review of a LIRC rule under
[8] We note that, although LIRC issued an Order to Show Cause against LMIC, LIRC voted to set aside the order on June 26, 1995.
[1] We note that when a constitutional attack is properly made and addressed, this exhaustion requirement may not be necessary.
[2] The Star Enterprise court stated,
We now consider the Department's argument that the trial court lacked subject matter jurisdiction to review the rule and to enjoin its enforcement. First, the Department contends that the trial court was statutorily precluded from determining the validity of the rule under the terms of the LAPA itself.