Miss. Windstorm Underwriting Ass'n, et al. v. Union Nat'l Fire Ins., et al.
| Docket Number: | 2010-CC-00076-SCT Linked Case(s): 2010-CC-00076-SCT |
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| Supreme Court: | Opinion Link Opinion Date: 01-26-2012 Opinion Author: King, J. Holding: On Direct Appeal: Affirmed in Part; Reversed in Part and Rendered. On Cross-Appeal: Affirmed. |
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| Additional Case Information: |
Topic: Insurance - Reinsurance - Standard of review - Section 83-34-19 - Appeal to Insurance Commissioner - True-up deadline - Section 83-34-13 - Voluntary writings - Section 83-34-9 - Farm-property exclusions - Section 83-34-1(g) - Reinsurance allocation - Privilege taxes - Section 27-73-5 - Mobile-home premium reporting - Adopting new rules - Grouping Judge(s) Concurring: Waller, C.J., Carlson, P.J., Randolph, Lamar, Kitchens, Chandler and Pierce, JJ. Dissenting Author : Dickinson, P.J. Procedural History: Admin or Agency Judgment Nature of the Case: CIVIL - INSURANCE |
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| Trial Court: |
Date of Trial Judgment: 12-15-2009 Appealed from: Hinds County Chancery Court Judge: J. Dewayne Thomas Disposition: Appellees appealed to the Chancery Court after the Insurance Commissioner's denial their contest to the assessments levied by MWUA. The Chancery Court granted relief on all but one issue. Case Number: G-2007-2019 T/1 |
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| Note: | Union National Fire Insurance Company's "Motion for Rule 33 Pre-hearing Conference" is denied. | |
| Party Name: | Attorney Name: | Brief(s) Available: | ||
| Appellant: | Mississippi Windstorm Underwriting Association, Hartford Fire Insurance Company, Hartford Casualty Insurance Company, Hartford Insurance Company of the Midwest and Hartford Accident & Indemnity Company v. Union National Fire Insurance Company, United States Fire Insurance Company, A Subsidiary of Crum & Forster Holding, Inc., RLI Insurance Company, OneBeacon Insurance Group, Aegis Security Insurance Company, Zurich American Insurance Company (for itself and its subsidiaries who are members of MWUA), Homesite Insurance Company, Farmer Insurance Group of Companies and Allstate Property & Casualty Insurance Company AND Aegis Security Insurance Company, Homesite Insurance Company and Union National Fire Insurance Company |
CHARLES G. COPELAND
REBECCA SUZANNE BLUNDEN
JANET G. ARNOLD
JEFFREY S. DILLEY |
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| Appellee: | Union National Fire Insurance Company, United States Fire Insurance Company, A Subsidiary of Crum & Forster Holding, Inc., RLI Insurance Company, OneBeacon Insurance Group, Aegis Security Insurance Company, Zurich American Insurance Company (for itself and its subsidiaries who are members of MWUA), Homesite Insurance Company, Farmer Insurance Group of Companies and Allstate Property & Casualty Insurance Company AND Aegis Security Insurance Company, Homesite Insurance Company and Union National Fire Insurance Company | SAMUEL E. L. ANDERSON ARTHUR F. JERNIGAN, JR. JANET MCMURTRAY ROBERT B. HOUSE ERIC FOSTER HATTEN FORREST S. LATTA DAVID AARON NORRIS JAMES P. GOLDEN ROSS F. BASS, JR. LUTHER T. MUNFORD MARSHALL S. NEY ANTON LEO JANIK, JR. JAMES W. SHELSON JENNIFER REBEKAH WARDEN MICHAEL B. WALLACE | ||
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Synopsis provided by:  If you are interested in subscribing to the weekly synopses of all Mississippi Supreme Court and Court of Appeals hand downs please contact Tammy Upton in the MLI Press office. |
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| Topic: | Insurance - Reinsurance - Standard of review - Section 83-34-19 - Appeal to Insurance Commissioner - True-up deadline - Section 83-34-13 - Voluntary writings - Section 83-34-9 - Farm-property exclusions - Section 83-34-1(g) - Reinsurance allocation - Privilege taxes - Section 27-73-5 - Mobile-home premium reporting - Adopting new rules - Grouping |
| Summary of the Facts: | As a result of Hurricane Katrina, the Mississippi Windstorm Underwriting Association sustained great losses well in excess of its reinsurance. MWUA assessed its members to cover the loss. Members are required to share in MWUA’s expenses, profits, and losses based on their percentages of wind and hail insurance premiums written in the previous calendar year. After the initial assessments, several member companies complained that they had incorrectly reported the previous year’s figures. The Board of Directors gave the members a one-time opportunity to submit corrected data – a true-up. Thereafter, some members (most of whom did not submit corrected data) appealed the assessment following the true-up. The Board denied their appeals. The members appealed their claims to the Insurance Commissioner, and the Commissioner denied their requested relief. The members appealed to chancery court which granted the members relief on all but one issue. MWUA appeals, and the members have filed a cross-appeal. |
| Summary of Opinion Analysis: | Issue 1: Standard of review The parties contest whether the Commissioner and the chancellor applied the appropriate standard of review on appeal. The members argue that the Commissioner should have reviewed the case de novo instead of giving deference to the Board, because the Board is not an administrative agency. MWUA argues that, regardless of whether the Commissioner employed the correct standard of review, the chancellor erred by reviewing the Commissioner’s decision de novo when it was entitled to deference. When reviewing the Board’s decisions, the Commissioner noted that section 83-34-19 was silent as to what standard of review to apply. The statute states only that “[a]ny hearings held by the commissioner pursuant to such an appeal shall be in accordance with the procedure set forth in the insurance laws of Mississippi.” Because the Commissioner had deferred to the Board, the chancellor had determined that the Commissioner’s ruling was arbitrary and capricious. But the Commissioner’s failure to review the case de novo does not automatically render his judgment incorrect. Thus, the Court will give deference to the Commissioner’s decision as long as it is supported by substantial evidence and is not arbitrary and capricious. Issue 2: True-up deadline One party, Zurich American Insurance Company, argues that MWUA did not have authority to allow a true-up. Arguing that MWUA had authority to allow the true-up, other members state that MWUA did not have authority to set deadlines by which to submit the information. The parties also contest whether credits for voluntary writings and farm-property exclusions are mandatory or if they are mandatory only if timely reported. As the statute existed prior to Hurricane Katrina, section 83-34-13 provided that the plan of operation should “provide for the efficient, economical, fair and nondiscriminatory administration of the association.” It is true that no previously adopted rule gave the Board permission to allow a true-up. But because these were exigent circumstances that demanded unusual and immediate action, the Board was allowed to circumvent the process. The true-up was not an effort on behalf of MWUA to make a new rule; it was simply a remedy to the property-insurance chaos caused by Hurricane Katrina. The Board ordered the true-up in an effort to administer the association in a fair and equitable manner. Thus, MWUA did not act arbitrarily or capriciously in extending this offer. MWUA did not exceed its authority by giving members an opportunity to submit corrected data and by enforcing the true-up deadline. Thus, the chancellor erred by reversing the Commissioner’s decision on this point. Issue 3: Voluntary writings The voluntary-writings provision is found in section 83-34-9. The Commissioner had determined that, although members shall receive credit for their voluntary writings, it is incumbent upon the members to submit their voluntary writings to MWUA. The chancellor had reversed the Commissioner’s findings, holding that: the term “shall” evidenced the mandatory nature of the voluntary credits and farm-property exclusion, and MWUA had no authority to set a deadline for members to receive their credits or farm-property exclusion. Pursuant to MWUA’s Manual of Rules and Procedures Section VIII(2)(B), members must submit proof of their voluntary writings to MWUA in order to receive credit. MWUA required members to report their voluntary writings quarterly, within sixty days of the end of each quarter. Thus, for the 2004 policy year, members’ voluntary writings were due by March 2005, at the latest. Accordingly, the chancellor erred by reversing the Commissioner on this point. Issue 4: Farm-property exclusions Section 83-34-1(g), the farm-property exclusion, provides that a member’s net-direct premiums do not include farm property. According to MWUA, it had provided a definition of “farm property” in its Welcome Packet, which all members received when they joined the association. On appeal, the Commissioner had determined that MWUA had provided the definition of farm property. Thus, it was the member’s fault if it did not understand the exclusion and failed to report it before the true-up deadline. The chancellor had reversed the Commissioner’s findings. One Beacon Insurance Group is the only member that argues it was not allowed to submit its farm-property writings for exclusion. As noted by the Commissioner, members were allowed to exclude farm property well before Hurricane Katrina. Thus, the insurance companies have themselves to blame for not understanding the exclusion prior to Hurricane Katrina. One Beacon also argues that it did not know that it could submit its farm-property exclusions during the true-up, because the true-up letters addressed only voluntary credits. But the true-up letters informed members that they could submit “corrected and/or supplemental information for their 2004 net direct premiums and 2004 voluntary windstorm and hail premiums.” Surely, farm-property exclusions were included in net direct premiums information. Thus, the chancellor erred by reversing the Commissioner on this point. Issue 5: Reinsurance allocation The parties disagree as to how MWUA should have allocated the reinsurance proceeds between the 2004 and 2005 policy years. MWUA argues that no authority requires it to follow a certain method of allocation. The members argue that MWUA should have followed the National Association of Insurance Commissioners’ guideline that reinsurance should be applied consistent with the losses. The Commissioner had determined that MWUA’s method of reinsurance allocation was appropriate. However, the chancellor had found that the Commissioner’s decision was arbitrary and capricious. The chancellor had reasoned that members had to report to MWUA using statutory accounting principles, MWUA should be held to the same standard, and the authorities that MWUA relied upon did not support its position. The Commissioner’s finding was arbitrary and capricious. Whether the difference in the assessment is one or one-million dollars, the money belongs to the company, and MWUA cannot arbitrarily decide how to apply the reinsurance. Any slight change in a member’s participation percentage from one year to the next can equate to large savings. Thus, the chancellor is affirmed on this point. For an accurate assessment, the figures should be recalculated using the method mandated by section 83-34-9. Issue 6: Privilege taxes The parties disagree as to whether MWUA’s assessments are akin to privilege taxes, which are refunded if overpaid. MWUA argues that its assessments do not fit within section 27-73-5. Conversely, the members contend that the assessment is like a privilege tax, because all insurers engaged in writing property insurance in the state are required to participate in the windpool. MWUA was created to provide an adequate market for wind and hail insurance on the Coast and to implicitly encourage insurance companies to voluntarily write wind and hail policies on the Coast. That is why members may receive credit for their voluntary writings, thereby reducing their assessment. Also, as MWUA argues, the privilege-tax scenario would affect only the individual taxpayer. In section 83-34-9, the Legislature clearly stated that “[a] member shall, in accordance with the plan of operation, annually receive credit for essential property insurance voluntarily written in a coast area.” The process would be harmed if it were to remain open for years. The Commissioner’s decision was supported by substantial evidence and was not arbitrary and capricious. Issue 7: Mobile-home premium reporting According to the parties, the Mississippi Department of Insurance had discovered that some members had incorrectly classified mobile-home premiums as auto insurance. At the time of the Commissioner’s ruling, the department was still reviewing the issue, and only one company had been identified that may have misreported its premiums. Thus, the Commissioner found that the issue was not ripe for review. On appeal, the chancellor differed and determined that it would have been arbitrary and capricious for MWUA to collect these funds without recalculating each member’s percentage of participation. The members argue that, because MWUA has to recalculate participation percentages for the offending members, MWUA should accept their corrected data and recalculate participation percentages for all members. MWUA argues that its true-up process was fair, and that the mobile-home reporting issue is a separate problem that does not concern this case. The members attempt to use this mobile-home reporting issue as a way to submit their voluntary credits. But the mobile-home reporting issue has nothing to do with the tardy submission of voluntary credits or farm-property exclusions, and it does not excuse the tardiness of such submissions. MWUA should not be required to let members who missed the true-up deadline submit corrected information based on the mobile-home reporting issue. Issue 8: Adopting new rules In reversing the Commissioner, the chancellor ordered MWUA to adopt rules and regulations concerning the following: the time for appeals, how and when to amend assessments, how to seek a refund for overpayment, any applicable statute of limitations, a definition of farm property, and rules for denying voluntary credits. MWUA argues that it already had rules in place for these matters. While the chancellor did not have the authority to require MWUA to adopt new rules and regulations, the Legislature already has addressed many of these concerns, and MWUA already had appellate procedures in place. Issue 9: Grouping The parties disagree as to whether group reporting is appropriate. Some members argue that group reporting was not permitted under the statute as it existed in 2004 and 2005. One member, Farmers Insurance Group of Companies, supports the decision to allow grouping. MWUA argues that nothing in the statute specifically prohibited grouping. Members that oppose grouping argue that small companies are adversely affected by grouping because those companies have to carry the burden of financing benefits enjoyed by large conglomerates. The members maintain that section 83-34-9 and Section IX of MWUA’s Plan of Operation specifically prohibited grouping. The Commissioner had determined that, even if a member had grouped its voluntary credits with affiliated companies, each member had received an individual assessment. Accordingly, the Commissioner held that MWUA’s interpretation of the governing statutes allowed the Board, in its discretion, to permit grouping, and it was a reasonable interpretation. The statutes – as they existed in 2004 and 2005 – did not specifically prohibit grouping. MWUA and its predecessor had allowed the practice for thirty-five years, during which no member had complained about the practice. In fact, MWUA’s reporting forms specifically provided a place for members to report in groups. Thus, all members were aware of or had notice of the practice. The Commissioner’s and chancellor’s findings that grouping is a permissible practice are supported by substantial evidence and are not arbitrary and capricious. |
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