Filed rate doctrine sinks business owner's unfair premium suit

The filed rate doctrine provides that an insured person may not claim damages on the ground that a rate approved by a regulator as being reasonable is nonetheless excessive because it is the product of unlawful conduct.

Case name: Stutts v. Travelers Indemnity Co., et al., No. COA09-52 (N.C. Ct. App. 09/15/09).

Ruling: The North Carolina Court of Appeals held that the "filed rate" doctrine applied to a business owner and barred his unfair and deceptive trade practices claim.

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What it means: In North Carolina, after workers' compensation rates have been set by the state regulatory board, those rates cannot be collaterally attacked. The filed rate doctrine provides that an insured person may not claim damages on the ground that a rate approved by a regulator as being reasonable is nonetheless excessive because it is the product of unlawful conduct.

Summary: The sole owner of a concrete hauling business applied for workers' compensation coverage through the North Carolina Workers' Compensation Insurance Plan, which in turn assigned the carrier. He purchased a policy that covered any employee he hired but elected to exclude himself. He did not hire any employees. When the carrier audited and confirmed he had no employees, it provided him a partial premium reimbursement. He was injured and filed a workers' compensation claim which was denied due to his exclusion. The owner alleged he was entitled to a full refund and that the carrier engaged in unfair and deceptive trade practices. He argued the carrier knew he did not intend to hire employees, and therefore, the policies were worthless "ghost policies" that incurred no risk. The court affirmed summary judgment for the carrier. It held the owner's decision to exclude himself from coverage did not change the fact that the carrier was exposed to risk when the policies were in place. It held the filed rate doctrine barred his claim, as the rates the carrier charged him were approved through a state regulator.

The court explained that any legal challenge implicating rates set by the insurance commissioner is precluded under the filed rate doctrine. It reasoned that a jury would have to measure the difference between the properly approved workers' compensation insurance rates paid by the owner and those "mythical rates" that could be assigned in the absence of the legally assigned rates. It noted the legislature has given the insurance commissioner the duty of setting rates, and therefore, the filed rate doctrine prevents an insured from requesting a recalculation absent some illegal conduct by the insurance carrier.

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October 19, 2009

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