VPS MANAGEMENT, INC., Plaintiff and Appellant, v. PACIFIC RIM ASSURANCE COMPANY, Defendant and Respondent.
In its first amended complaint, VPS Management, Inc. sued its workers' compensation insurer, Pacific Rim Assurance Company (sued below as Pacific Rim Insurance Company), for negligence, fraud, and breach of contract. VPS appeals from the judgment entered following the trial court's grant of Pacific's motion for judgment on the pleadings.1 We affirm. We hold that the wrongs alleged by VPS related to rate making and that the remedies available to VPS are limited to those contemplated in section 11750 et sequitur of the Insurance Code and related administrative regulations.
According to the first amended complaint, VPS bought workers' compensation insurance from Pacific between June 1990 and June 1993. The policy stated VPS was entitled to participate in dividends, on terms and conditions defined in the policy, namely the provisions of Pacific's dividend allocation plans.2
Pursuant to the policy, Pacific was to furnish unit statistical reports containing financial information about VPS's claim loss history to the Workers' Compensation Insurance Rating Bureau (WCIRB) annually or more frequently as required by the Rating Plan. The Rating Plan, promulgated or approved by the Insurance Commissioner, required a workers' compensation insurer to exclude certain claim losses from the incurred medical and incurred indemnity amounts reported to the WCIRB. These excluded costs, loss expenses, are not used by the WCIRB in calculating experience rating modifications and do not affect an employer's experience rating modification.
The Rating Plan provided that for workers' compensation claims arising under policies with inception dates before January 1, 1993, defense medical-legal expenses were not to be classified and reported to the WCIRB as incurred losses, but were instead to be treated as defense expense. The complaint continues, alleging that Pacific nevertheless wrongly included in its reporting its defense medical-legal expenses (including reserves therefor), combining them with incurred losses when reporting claim losses to the WCIRB, in violation of the Rating Plan. The effect of Pacific's conduct was to increase VPS's premiums. Higher incurred losses also effected a reduction or elimination of any policy dividends payable by Pacific to VPS.
The complaint further alleges that because of Pacific's concealment, VPS did not learn of Pacific's misclassifying and misreporting defense medical-legal expenses until 1996, after VPS caused an audit to be performed on its workers' compensation files. Even after Pacific was informed that incurred medical losses, defense costs and medical-legal costs had been improperly reported, Pacific refused to timely submit revisions to the WCIRB knowing that VPS would be precluded from modifying its experience modifications downward because of the “statute of limitations” in the Ratings Plan, providing that the WCIRB may revise no more than the current and two immediately preceding experience modifications for a company. Only an insurer can submit such revisions.
On August 24, 1998, the court granted Pacific's motion for judgment on the pleadings and denied leave to amend. The judgment, entered September 14, 1998, ordered VPS take nothing by its first amended complaint and awarded costs to Pacific.
“Because a motion for judgment on the pleadings is similar to a general demurrer, the standard of review is the same. [Citation.] We treat the pleadings as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law․ The burden of proof is squarely on the plaintiff. [Citation.] The judgment of dismissal will be affirmed if it is proper on any grounds stated in the motion, whether or not the trial court relied on any of those grounds. [Citation.] [¶] We independently construe statutes as a matter of law according to their purpose and intent. [Citation.]” (Baughman v. State of California (1995) 38 Cal.App.4th 182, 187, 45 Cal.Rptr.2d 82.)
Pacific's motion for judgment on the pleadings claimed the first amended complaint failed to state facts sufficient to constitute a cause of action because no private right of action exists for the acts complained of in VPS's complaint. Pacific characterized VPS's action as based on alleged violations of regulations promulgated under Insurance Code, section 11751.5, governing the reporting of workers' compensation insurance loss experience.3 Pacific contended, however, that section 11758 precludes VPS's causes of action.
Section 11758 provides: “No act done, action taken or agreement made pursuant to the authority conferred by this article shall constitute a violation of or grounds for prosecution or civil proceedings under any other law of this State heretofore or hereafter enacted which does not specifically refer to insurance.” Consequently, said Pacific, as it argues on appeal, VPS's complaint seeking damages for negligence, fraud and breach of contract, was not brought under any law of this State which specifically refers to insurance, and was properly dismissed.
Pacific says VPS's claim is barred by section 11758 because an insurer's reporting of loss information to insurance regulators is “an act done” or “action taken” pursuant to the authority conferred by Article 3, Chapter 3, Part 3 of Division 2 of the Insurance Code (§§ 11750-11759.1). The duty to report workers' compensation insurance loss experience information to the WCIRB stems solely from certain regulations (the Unit Statistical Plan) promulgated pursuant to section 11751.5, not from common law. It is these regulations which VPS contends Pacific violated by its misreporting.
The Legislature's treatment of misreporting or other noncompliance, provides for review by the Commissioner of Insurance. (§§ 11754, 11754.1.) Depending on the nature of the noncompliance, the Commissioner may order correction within a reasonable time or issue a cease and desist order. (§§ 11754, 11754.2.) If an insurer does not comply with the Commissioner's final order, it is liable for a fine and subject to possible license suspension or revocation. (§§ 11756, 11754.3.)
Section 11755 prohibits an insurer from willfully withholding information from, or knowingly giving false or misleading information to the commissioner or any rating organization which will affect rates, rating systems or premiums for workers' compensation insurance. A willful violation brings a fine of up to $5,000. Willful violation of a compliance order also is a misdemeanor. (§ 11756.) A finding, determination, rule, ruling, or order by the commissioner is subject to judicial review pursuant to Code of Civil Procedure section 1094.5. (§ 11754.5.)
Pacific says section 11750 et sequitur governs all aspects of loss reporting for workers' compensation insurance and is not limited to challenges to the rate making system or the commissioner's authority to regulate. Since, says Pacific, the conduct on which VPS's action is based is an “act done” or “action taken” pursuant to the statutory scheme, the complaint is subject to section 11758 which precludes misreporting of loss information as the grounds for any civil proceeding. In short, Pacific says VPS is limited to remedies provided by the statutes and regulations.
VPS describes its lawsuit as arising from a dispute over premiums charged under a workers' compensation insurance policy, not a rate making dispute. It also points out that its complaint alleges claims for negligence, breach of contract and fraud-common law causes of action preceding the confining statutory enactments. Because Pacific concealed the misreporting from VPS, VPS only discovered the practice in 1996, following an audit. Consequently, VPS could not obtain proper experience reductions for the years June 1990 through June 1993 through the administrative process, which permitted revisions only of the current and two immediately preceding experience modifications for an insured. Pacific's misreporting of defense expenses, says VPS, was a breach of the insurance contract, and Pacific's withholding from VPS its practice of misreporting constituted fraud, all with resulting damages to VPS.
We conclude that although the complaint names the wrongs allegedly committed by Pacific as negligence, breach of contract and fraud, at bottom, this lawsuit is founded on claimed wrongs concerning rate making and is, therefore, precluded by section 11758 as “an act done” or “an action taken” pursuant to the authority of Article 3.
VPS's claim that it was prevented by Pacific's concealment of misreporting costs so that VPS was disabled from pursuing its administrative remedy of correction is of no help. VPS makes no claim that it monitored transactions under its policy during the challenged years by, for example, requesting of the relevant rating organization “all policyholder information contained in its records” (§ 11752.6) or asking the relevant rating organization to reconsider a decision, action or omission (§ 11753.1), or in any fashion invoking available statutory options for administrative review of its rating. The inference to be drawn from VPS's failure to allege any efforts on its own behalf is that VPS failed to monitor its own workers' compensation experience and attendant reporting.
Pacific cites Karlin v. Zalta (1984) 154 Cal.App.3d 953, 201 Cal.Rptr. 379, a class action lawsuit against a physician, a physicians' organization, and several insurance companies for an alleged conspiracy to fix medical malpractice insurance premium rates at excessive levels in violation of the Unfair Inssurance Practices Act (§ 790 et seq.) (UIPA) and the McBride-Grunsky Insurance Regulatory Act (Former § 1850 et seq.)(McBride Act), as it existed before passage of Proposition 103 in November 1988, and to pass those charges on to the class-Californians who bought medical services from physician members of the organization. Plaintiff Karlin alleged she and the class suffered damages in the form of inflated medical malpractice premiums.
She alleged causes of action for combination and conspiracy in restraint of the business of insurance, conspiracy to monopolize, creation of a monopoly and attempt to monopolize, false representations made in the sale of insurance and with respect to the business of insurance, all of which were based on section 790.03, conspiracy to charge excessive rates in violation of former section 1852 of the McBride Act, and unjust enrichment. She variously sought damages, declaratory relief, and imposition of a constructive trust. Here, the complaint seeks damages for negligence, breach of contract, and fraud.
Pacific argues, and VPS does not deny, the similar comprehensiveness of the then McBride Act scheme and the scheme set out in section 11750 et sequitur. While, as VPS points out there are certain factual differences between Karlin and this case (in Karlin, the alleged wrongdoers were the insured and insurer, charged with collusive and anticompetitive activity between themselves), those differences lack significance in light of the statutory scheme and language there at issue-language substantively identical to that of section 11758. Section 1860.1 of the McBride Act provides: “No act done, action taken or agreement made pursuant to the authority conferred by this chapter shall constitute a violation of or grounds for prosecution or civil proceedings under any other law of this State heretofore or hereafter enacted which does not specifically refer to insurance.” (See also Karlin v. Zalta, supra, 154 Cal.App.3d at p. 969, 201 Cal.Rptr. 379,.)
The Karlin court reviewed the legislative history of the relevant McBride Act provisions, of which the trial court had taken judicial notice. The court also reviewed the provisions of the Act, “a detailed and an extensive ratemaking scheme to ensure that competition exists in the pricing of casualty insurance, while at the same time permitting concert of activity between insurers and others.” (Id. at p. 970, 201 Cal.Rptr. 379.) “Having established this mechanism for achieving price competition without initial rate regulation by the Insurance Commissioner, the McBride Act provides categorically for immunity from prosecution under other laws that do not specifically contravene it for activities within the McBride purview. (§§ 1860.1, 1860.2.)” (Id. at. p. 972, 201 Cal.Rptr. 379.) Following an analysis of the UIPA, the court concluded the that act was primarily concerned with enforcement of unfair insurance settlement claims practices and a broad spectrum of unfair and deceptive practices in the insurance industry, but not with the setting of rates for casualty insurance, which it found lay exclusively within the province of the McBride Act.
Karlin asserted her action was primarily founded in antitrust and that the relevancy of the McBride Act to her claim turned on the wrong she alleged, regardless of the fact that her claim was interwoven with antitrust nomenclature and concepts. The court stated her complaint was “fundamentally directed at the premium rates charged by [the insurer] to [the insured] for medical malpractice coverage. It is permeated with allegations that the defendants conspired ‘to raise, fix and/or stabilize prices for medical malpractice insurance at artificial and noncompetitive levels in the Southern California market’ and others of similar import․ It is patent from this characteristic language that the focus of plaintiff's case is the charging of excessive insurance premiums and that is gravamen falls squarely within the purview of the McBride Act, which was designed to exclusively regulate the making and use of such rates.” (Id. at. p. 974, 201 Cal.Rptr. 379.)
So too, as described above, does VPS's complaint state the alleged wrongs in terms tied inexorably to rate setting. We find the analogy of VPS's lawsuit to Karlin compelling.
Moreover, in Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th 257, 41 Cal.Rptr.2d 220, 895 P.2d 56, the Supreme Court affirmed a court of appeal decision holding that the Unfair Insurance Practices Act (§ 790 et seq.) did not supersede or displace insurance-industry-related claims under the Cartwright Act (Bus. & Prof.Code, §§ 16720-16770) and/or the Unfair Competition Act (Bus. & Prof.Code, § 17200 et seq.). “[A] private cause of action may be stated under the UCA for violations of the Cartwright Act, but not for violations of the UIPA.” (Id. at p. 266, 41 Cal.Rptr.2d 220, 895 P.2d 56.) In summarizing the lower court's reasoning, the court included, without comment, “Moreover, the Court of Appeal observed, the Legislature had included specific provisions exempting specified classes of insurance from other laws. (E.g., §§ 795.7 [senior citizens health insurance], 1860.1 [casualty insurance rates], 11758 [workers' compensation], 12414.26 [title insurance].) Had the UIPA created a general exemption of insurance from the Cartwright Act and other laws, none of these provisions would have been necessary. Since the legislature thereby demonstrated that it was aware of the need to create an exemption, and did not do so for other classes of insurance, the UIPA did not displace existing rights and remedies for unlawful business practices in the insurance industry, among them the Cartwright Act.” (Id. at p. 267, 41 Cal.Rptr.2d 220, 895 P.2d 56, emphasis added.)
The Legislature has provided a comprehensive scheme relating to loss reporting, including opportunities for administrative review and correction. Section 11758 restricts the bases for civil proceedings for acts or actions undertaken pursuant to Article 3 to laws specifically referring to insurance. VPS was, therefore, precluded from seeking damages for alleged wrongs grounded in Pacific's alleged statutory/regulatory violations.
The judgment is affirmed. The parties are to bear their own costs on appeal.
1. This is our second visit to this lawsuit. In No. B121785, VPS purported to appeal from a nonappealable order imposing $2,100 in monetary discovery sanctions. In VPS Management, Inc. v. Pacific Rim Assurance. Co. (Mar. 5, 1999) B121785 [non-pub. opn.], we treated the appeal as a petition for extraordinary writ and granted the petition, directing the trial court to vacate the order imposing the sanction.VPS elected to submit an appellant's appendix on appeal. That appendix does not include a copy of the minute order or of the judgment purportedly entered thereon. Pacific does not dispute the fact that judgment was entered. We note, as well, that no reporter's transcript of proceedings at the hearing on Pacific's motion is included in the appellate record.
2. Appellant's appendix contains no copy of the policy. According to the complaint, “[a] true and correct copy of [Pacific]'s standard workers' compensation and employer liability insurance policy provisions (‘policy’) is presently unavailable to [VPS] but is in the possession, custody and control of [Pacific].”
3. Additional statutory references are to the Insurance Code.
SPENCER, P.J., and MASTERSON, J., concur.