Second Circuit on the Doctrine of Rates Filed for the Class Action

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On May 25, 2022, in Grossman v. GEICO Case. Co. (#21-278), the Second Circuit Court of Appeals upheld the district court’s dismissal of a class action attempt by two automobile policyholders alleging that GEICO improperly withheld windfall profits on policies of personal auto insurance sold in New York due to the COVID -19 pandemic.

The court’s summary order, invoking the “deposited rate” doctrine, may be Lily here.

Background

As a result of the COVID-19 pandemic and due to associated lockdowns instituted in New York and other states, the number of miles traveled by the general public decreased significantly after mid-March 2020, and accidents in ‘automotive have also decreased considerably. Naturally, car insurance companies like GEICO have saved billions of dollars because fewer accidents mean fewer claims. In April 2020, GEICO announced the GEICO Giveback program, which offered a 15% credit to new and existing customers who chose to renew their personal GEICO auto policy.

In New York, insurers must obtain personal auto insurance rate approval from the New York State Department of Financial Services (“NYDFS”) under Section 23 of the Insurance Act. from New York. GEICO’s Giveback program, with its 15% bonus credit, has been approved by the NYDFS.

Certain GEICO policyholders filed a purported class action lawsuit in federal court in the Southern District of New York, alleging breach of contract, unjust enrichment and violations of New York General Commercial Law (“NY GBL”) arising from profits alleged disloyalties of GEICO as a result of the COVID-19 pandemic. Specifically, the plaintiffs argued that GEICO charged excessive premiums, that the GEICO Giveback program was insufficient to compensate consumers for the excessive premiums charged, and that GEICO unfairly retained windfall profits. In response, GEICO argued that: (1) the action should be dismissed under the filed rate doctrine; (2) the claim for breach of contract must be dismissed because no contractual term was breached; (3) the claim for unjust enrichment must be dismissed, the relationship between the parties being governed by a contract; and (4) NY GBL’s claims should be dismissed because no reasonable consumer would be misled by GEICO’s promotional material that offered 15% savings.

In September 2021, District Court Judge Marrero, satisfied that the plaintiff’s claims were precluded by the filed rate doctrine, granted Geico’s motion to dismiss and the plaintiffs appealed.

Analysis

The “filed rates doctrine” is a court-created rule that any rate filed and approved by the applicable regulator is inherently reasonable and unassailable in legal proceedings brought by ratepayers disputing the rate. It protects regulated entities from civil lawsuits if the entity is required to file its tariffs with the applicable regulator and the agency has the power to set, approve or disapprove the tariffs. The deposited rate doctrine is a form of deference and preemption, and there are two principles that underlie the doctrine. First, the principle of “non-justiciability” states that courts must not undermine the pricing power of agencies by upsetting approved rates; and second, the principle of “non-discrimination” states that litigation must not become a means for certain ratepayers to obtain preferential rates through litigation. A claim that involves either principle is prohibited.

The Second Circuit found that plaintiffs’ claims did not state a claim as a matter of law, warranting dismissal, for at least three reasons. More importantly, the filed rates doctrine is broad, reaching federal and state causes of action, and protects rates set and approved by federal or state regulators. The application of the doctrine does not depend on the nature of the cause of action, the culpability of the defendant’s conduct, or the possibility of inequitable results. Therefore, regardless of how a claim is formulated, if the principle of non-justiciability or non-discrimination is at issue, the action is statute-barred. Here, there was no dispute that GEICO’s rates had been filed with and approved by the NYDFS and that the plaintiffs had been charged the same rate.

According to the Second Circuit, by repeatedly noting that the charges were “excessive” or insufficient, the plaintiffs were basically seeking to recalculate the insurance rates that GEICO was charging during the pandemic. For this reason, the court concluded that the action involved the principle of non-justiciability and upheld the dismissal. This principle embodies the understanding that regulators use their particular expertise to look at the whole picture regarding the reasonableness of a proposed tariff and rely on that expertise to determine whether a tariff is appropriate. A court lacking this expertise is not able to challenge the reasonableness of the tariff filed. The fact that the tariffs were approved by NYDFS in itself made them reasonable and unassailable. Therefore, whether framed as a claim for breach of contract, unjust enrichment, or violation of NY GBL, the suit involved the principle of non-justiciability and is therefore barred under the filed rate doctrine. The court also declared that the plaintiffs’ causes of action were legally insufficient, for the reasons given by GEICO, even if the rate doctrine filed was unenforceable.

Take away food

Although, as a summary order, the Second Circuit’s ruling lacks the substantial precedent effect of formal notice, it nevertheless joins a number of other appellate rulings invoking the rate doctrine filed in the insurance context. See, for example, Granite State Ins. Co. c. Star Mine Servs., Inc., 29 F.4th 317 (6th Cir. 2022) (holding that the filed rate doctrine precludes judicial review of an indemnity insurer’s charge of non-compliance with an audit accidents at work and its enforceability); Lewis v. M&T Bank, No. 21-933, 2022 WL 775758, at *1 (2d Cir. March 15, 2022) (finding that the plaintiffs’ claims violated both the principles of non-justiciability and non-discrimination); Alpert v. Nationstar Mortg., LLC, 198 Wash. 2d 228, 494 P.3d 419 (2021) (holding that the deposited rate doctrine would apply to claims against intermediaries such as a loan servicer and broker to the extent that an award of damages would directly attack the deposited rate); Rothstein v. Balboa Ins. Co., 794 F.3d 256, 263 (2d Cir. 2015) (dismissing, on the principle of non-justiciability, claims against an insurance company against risks which “remain[ed] based on the principle that the tariffs approved by the regulators were too high”); W. Park Assocs., Inc. v. Everest Nat’l Ins. Co., 975 NYS2d 445, 452 (2nd Dept. 2013) (“[A] However, the consumer’s disguised claim seeking compensation for damage allegedly caused by the payment of a tariff registered with a regulatory commission is considered an attack on the tariff approved by the regulatory commission and, therefore, , prohibited by the doctrine. ); In re Complaint of Pilkington N. Am., Inc., 2015-Ohio-4797, 145 Ohio St. 3d 125, 47 NE3d 786 (holding a utility billed to the customer at the statutory rate under the filed tariff doctrine); McCarthy Fin., Inc. v. Premera, 182 Wash. 2d 936, 347 P.3d 872 (2015) (stating that class actions by insureds were barred by the filed rate doctrine).

Insurers and producers sued for wrongs alleged in the context of rate-setting should determine, with expert counsel, whether the rate doctrine filed would serve as a full or partial defence. The courts have been receptive to the application of the doctrine when, as in the GEICO case, the facts justify it.

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