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LUPTON

v.

BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, et al.

NO. COA99-1138

NORTH CAROLINA COURT OF APPEALS

Filed: 1 August 2000

BRADSHAW B. LUPTON, individually and on behalf of all persons similarly
situated,
Plaintiff
v .

BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, a non-profit Corporation,
Defendant
and

MICHAEL F. EASLEY, ATTORNEY GENERAL, on behalf of the rights and Interests
of the public,
Defendant-Intervenor
__________________________________

ROLAND GIDUZ, individually and on behalf of all persons similarly situated,
Plaintiff
v.

BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, a non-profit Corporation,
Defendant
and

MICHAEL F. EASLEY, ATTORNEY GENERAL, on behalf of the rights and Interests
of the public,
Defendant-Intervenor

Appeal by plaintiffs from order entered 14 June 1999 by Judge Ben F.
Tennille in Durham County Superior Court. Heard in the Court of Appeals 8
June 2000.

Marvin Schiller and David G. Schiller for plaintiffs- appellants.

Maupin Taylor & Ellis, P.A., by M. Keith Kapp and Kevin W. Benedict;
and Robinson, Bradshaw & Hinson, P.A., by Robin L. Hinson and Frank E.
Emory, Jr., for defendant-appellee Blue Cross and Blue Shield of North
Carolina.

WALKER, Judge.
On 30 June 1997, plaintiff Roland Giduz filed a class action against
defendant Blue Cross and Blue Shield of North Carolina (Blue Cross)
alleging, inter alia, violations of N.C. Gen. Stat. § 58-65-95. On 8 May
1998, plaintiff Bradshaw B. Lupton filed a class action against Blue Cross
and filed an amended complaint on 28 October 1998, making allegations
identical to those of Giduz. Pursuant to Rule 2.1 of the General Rules of
Practice for the Superior and District Courts, the Chief Justice of our
Supreme Court designated both actions as exceptional and assigned them to
the Special Superior Court for Complex Business Cases. The trial court
consolidated the two actions and substituted Lupton as the named plaintiff.
Blue Cross is a non-profit medical service corporation governed by
Articles 65 and 66 of Chapter 58 of the North Carolina General Statutes.
Chapter 58 requires that health insurers and medical service corporations
maintain monetary “reserves” such that the solvency of the insurer will not
likely be threatened if claims or other expenses are higher than forecast
in any given year. Under N.C. Gen. Stat. § 58-65-95, Blue Cross is required
to maintain a minimum monetary “reserve” to provide for contingent
expenditures. Specifically:
Every such corporation [subject to this Article] shall accumulate
and maintain, ..., a special contingent surplus or reserve at the following
rates annually of its gross annual collections from membership dues,
exclusive of receipts from cost plus plans, until the reserve equals an
amount that is three times its average monthly expenditures for claims and
administrative and selling expenses:
(1) First $200,000...............4% (2) Next
$200,000.................2%
(3) All above $400,000...........1%

N.C. Gen. Stat. § 58-65-95(b)(1999). Additionally, the reserve may not
“exceed an amount equal to six times the average monthly expenditures for
claims and administrative and selling expenses.” N.C. Gen. Stat. §
58-65-95(c)(1999).
Under our State's statutory rate making scheme, the Commissioner of
Insurance (Commissioner) determines whether the rates filed by an insurer
are reasonable. N.C. Gen. Stat. § 58-65- 40 provides in part:
No corporation subject to the provisions of this Article and
Article 66 of this Chapter shall enter into any contract with a subscriber
after the enactment hereof unless and until it shall have filed with the
Commissioner of Insurance a full schedule of rates to be paid by the
subscribers to such contracts and shall have obtained the Commissioner's
approval thereof. The Commissioner may refuse approval if he finds that
such rates are excessive, inadequate or unfairly discriminatory; or do not
exhibit a reasonable relationship to the benefits provided by such
contracts. At all times such rates and form of subscribers' contracts shall
be subject to modification and approval of the Commissioner of Insurance
under rules and regulations adopted by the Commissioner, in conformity to
this Article and Article 66 of this Chapter.

N.C. Gen. Stat. § 58-65-40 (1999). Under N.C. Gen. Stat. § 58-2-
75(a)(1999), judicial review of the Commissioner's rate determination may
be obtained by petition within 30 days of the Commissioner's decision. If
no petition is filed, “the parties aggrieved shall be deemed to have waived
the right to have the merits of the order or decision reviewed and there
shall be notrial of the merits thereof by any court to enforce or restrain
enforcement of the same.” Id.
Plaintiffs' amended complaint alleged that Blue Cross violated N.C.
Gen. Stat. § 58-65-95 by accumulating and maintaining a reserve that
exceeds “the statutorily authorized level of reserves legislatively
determined to be sufficient and reasonably necessary” for the payment of
Blue Cross's claims and expenses. Further, plaintiffs claimed Blue Cross
misrepresented to the Commissioner that its reserves were within the
statutory limits. Plaintiffs argue they have “property and contractual
rights” in the statutorily excessive reserves and seek to have it placed
into a common fund and distributed to them.[1]
Plaintiffs sought a declaratory judgment and stated four causes of
action: (1) unfair and deceptive trade practices; (2)breach of fiduciary
duties; (3) unjust enrichment; and (4) conversion and fraud.
On 13 July 1998, Blue Cross moved to dismiss plaintiffs' claims
pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure.
On 10 June 1999, the trial court entered an order, which was amended on 14
June 1999, granting Blue Cross's motion to dismiss for failure to state a
claim upon which relief may be granted, on the grounds that the “filed rate
doctrine” precludes plaintiffs' actions as a matter of law.
Plaintiffs argue the trial court erred in granting Blue Cross's motion
to dismiss. Specifically, dismissing their claims based upon the “filed
rate doctrine” was error.
A motion to dismiss for failure to state a claim tests the legal
sufficiency of the complaint. See N.C.R. Civ. P. 12(b)(6) (1999); Shaut v.
Cannon, __ N.C. App. __, __, 526 S.E.2d 214, 215 (2000). A dismissal of a
complaint for failure to state a claim upon which relief can be granted is
proper when the complaint on its face reveals that no law supports a
plaintiff's claim or that facts sufficient to make a good claim are absent
or when some fact disclosed in the complaint necessarily defeats a
plaintiff's claim. See Jackson v. Bumgardner, 318 N.C. 172, 347 S.E.2d 743
(1986). A motion to dismiss is properly granted where a valid legal defense
stands as an insurmountable bar to a plaintiff's recovery. See Johnson v.
N.C. Dept. of Transportation, 107 N.C. App. 63, 67, 418 S.E.2d 700, 702
(1992). For the purpose of the Rule 12(b)(6) motion, the well-pleaded
material allegations of the complaint aretaken as admitted; but conclusions
of law or unwarranted deductions of facts are not admitted. See Lloyd v.
Babb, 296 N.C. 416, 427, 251 S.E.2d 843, 851 (1979)(quoting Sutton v. Duke,
277 N.C. 94, 98, 176 S.E.2d 161, 163 (1970)).
Our Supreme Court has recently adopted the “filed rate doctrine,” where
it held that a “plaintiff may not claim damages on the ground that a rate
approved by a regulator as reasonable is nonetheless excessive because it
is the product of unlawful conduct.” N.C. Steel, Inc. v. National Council
on Compensation Ins., 347 N.C. 627, 632, 496 S.E.2d 369, 372 (1998).
Further, after rates have been set by a regulator, those rates may not be
collaterally attacked. Id. The proper venue for questions involving rates
is through the Insurance Commissioner and not a court or a jury. Id. The
filed rate doctrine precludes a plaintiff from requesting a recalculation
of the rates the Commissioner would have set absent the alleged illegal
conduct of a defendant. See N.C. Steel, Inc. v. National Council on
Compensation Ins., 123 N.C. App. 163, 176, 472 S.E.2d 578, 585 (1996),
affirmed in part and reversed on separate grounds, 347 N.C. 627, 496 S.E.2d
369 (1998). The “General Assembly has given the Insurance Commissioner the
duty of setting rates. The Commissioner, aided by his staff, has the
expertise to determine proper rates.” N.C. Steel, 347 N.C. at 632, 496
S.E.2d at 372. The filed rate doctrine applies in the context of a suit
under N.C. Gen. Stat. § 75-1 et seq. See N.C. Steel, 123 N.C. App. at 175,
472 S.E.2d at 585. In N.C. Steel, the plaintiffs, companies paying
workers' compensation insurance premiums, alleged that the defendant
insurance companies withheld certain evidence from the Insurance
Commissioner about servicing carrier fees for residual market workers'
compensation insurance in order to secure approval of excessive rates. See
N.C. Steel, 347 N.C. at 630, 496 S.E.2d at 371. The plaintiffs first argued
that since defendants had wrongfully obtained the excessive rate, they were
entitled to a refund of the excess premiums paid. Id. at 631, 496 S.E.2d at
372. Plaintiffs' second theory alleged that defendants conspired to pay
excessive servicing carrier fees, which prevented the premiums from
covering losses in the residual market. Id. at 636, 496 S.E.2d at 374.
Plaintiffs argued this created a shortfall which required the defendants to
use part of the premiums from the voluntary market to cover the loss. Id.
Plaintiffs claimed that a recalculation of the rates in order to prove
damages was not necessary. Id.
Our Supreme Court disagreed and held:
We believe that the plaintiffs cannot prove their claim without the
rates set by the Commissioner being questioned. The plaintiffs' damages
must come from being shifted from the voluntary market to the residual
market. If the plaintiffs offer evidence that a certain number of
policyholders who were in the residual market should have been in the
voluntary market, the defendants could show that the influx of these
policyholders would have caused the Commissioner to set different rates for
the two markets. This is a questioning of rates set by the Commissioner,
which the filed rate doctrine is designed to prevent.
Id. at 636, 496 S.E.2d at 374-75. In the case at bar, plaintiffs contend
that they are not seeking a redetermination of their insurance rates but
rather a declaration that Blue Cross's reserve is statutorily excessive.
[2] Plaintiffs argue that “the manner and method in which
[Blue Cross] accumulated the reserves is irrelevant to the issue of whether
the filed rate doctrine is applicable.” We disagree.
In approving the rates, the Commissioner considers Blue Cross's reserve
amount. Thereafter, Blue Cross's collection of premiums, based on these
rates, determines the accumulation of the § 58-65-95 reserve. Thus, if Blue
Cross accumulates a reserve in excess of the statutory limits, the
Commissioner is authorized under N.C. Gen. Stat. § 58-65-40 to modify the
rates, thereby affecting the amount of the reserve. Any allegation that
Blue Cross accumulated an excessive reserve requires the recalculation of
approved rates, notwithstanding plaintiffs' argument to the contrary.
Accordingly, “the plaintiffs cannot prove their claim without the rates set
by the Commissioner being questioned.” N.C. Steel, 347 N.C. at 636, 496
S.E.2d at 374. Thus, the trial court properly dismissed plaintiffs' actions
pursuant to Rule 12(b)(6).
Affirmed.
Judges JOHN and TIMMONS-GOODSON concur.

FOOTNOTES:

[1]Plaintiffs cite N.C. Gen. Stat. § 58-65-160 in support of their
contention that they have contractual rights in the reserves. Section
58-65-160 protects the rights of Chapter 58 corporations to merge or
consolidate, provided that “the rights of the subscribers ... in the
reserves” must be “adequately protected” by rules and regulations adopted
by the Commissioner. The section was repealed by Session Laws 1998-3, s. 3,
effective 22 May 1998.

[2] Plaintiffs' original complaint alleged that Blue Cross charged and
collected excessive rates and misrepresented the amount of its statutory
reserves to the Commissioner in order to secure the approval of higher
rates. Plaintiffs' amended complaint removed all references to these
allegations.