On September 20, 2017, after waiting 5 years for the Division of Insurance to approve or disapprove a rate filing Genworth Life Insurance Company (“Genworth”) a leading writer of long-term care insurance in Massachusetts lost its bid in Superior Court to force the Commissioner of Insurance to acknowledge that its substantial 2012 rate increase filings had taken effect in December 2016 by operation of law.
The Business Litigation Session of the Superior Court disagreed and entered judgment on September 20 dismissing Genworth’s January 9, 2017 lawsuit against the Commissioner of Insurance finding Genworth had failed to properly set an effective date for its rate filings to take effect under the Division of Insurance’s specific and standard procedures.
Double-digit and triple digit rate increase requests for long-term care insurance
For a number of years, Genworth’s long-term care insurance book had been smarting under unanticipated policy payouts. Long-term care insurance premiums had become grossly inadequate because of continuing medical advances lengthening life spans. These increased life spans caused benefits to be paid for much longer than had been actuarily predicted.
Genworth’s problems with its long-term care insurance book were compounded by it having issued its policies as “guaranteed renewable” insurance. Genworth could not cancel coverage other than for nonpayment of premiums and it could not increase premiums for any class of policies without the approval of a policyholder’s state insurance department.
In 2010, Genworth made a nationwide filing that years for rate increases of up to 18%. Massachusetts allowed Genworth a 10% rate increase.
Two years later, in December 2012, Genworth again filed in Massachusetts requesting increase on its long-term care insurance policies issued between September 1988 and September 2005. This request sought premium increases of up to 134 percent over existing premium rates on some of 14,500 of Genworth’s long-term care insurance policies issued Massachusetts residents between 1988 and September 2005.
Rate filings through System for Electronic Rates & Form Filing without effective date
Genworth submitted its 2012 rate increases to the Division of Insurance through the National Association of Insurance Commissioners’ System for Electronic Rates & Form Filing (“SERFF”). SERFF, implemented in Massachusetts in 2009, improved on the prior paper process by allowing insurers to electronically submit forms, policies, and endorsement to insurance regulators and allow regulators to manage the regulatory review process on-line with greater efficiency and speed.
Under the SERFF system, Genworth could have requested a specific “Effective” or “Implementation” Date for the proposed rate increase, so long as that date was no earlier than 30 days after the SERFF filing. Genworth submitted no effective date with its filings. Instead under an alternative SERFF procedure Genworth requested its proposed rate increases become effective “On Approval.”
Apparently, Genworth left out an effective date anticipating, based upon its prior experience with the Massachusetts Division of Insurance in 2010 refusing to agree to an 18% increase, negotiations with the Division of Insurance over its up to 134% rate increase.
Four years of negotiating in slow motion
In the months following the filings, the Division of Insurance raised questions and sought additional information about the filings by way of “Objection Letters” filed through the SERFF system. Information was exchanged and negotiations between Genworth and the Division of Insurance ensued.
Over the next couple of years, Genworth amended its filings twice through the SERFF system changing the rate increase it was requesting. Never, however, did Genworth make any post-submission filing through the SERFF system that sought a change to the date of implementation to impose a specific deadline.
On July 26, 2016, Genworth met with Division of Insurance representatives to discuss the proposed rate increases on Genworth’s long-term care insurance. At the meeting, Genworth expressing frustration about the delays in the rate approval process and intimated it was considering litigation because of the delay.
The conundrum of long-term care insurance rate inadequacy
The problem with inadequate rates for long-term care insurance did not just affect Genworth. In 2015, then-Commissioner Dan Judson had spoken at ae Springfield Insurance Agents’ Association lunch about the “conundrum” of long-term care insurance rate inadequacy. See Agency Checklists’ article of November 3, 2015, “Mass. Commissioner Recaps First Six Months On The Job For Hampden Agents.”
In October 2016, the Division of Insurance announced public information sessions in mid-November for: ““Policyholders who have purchased these products and renewed them annually for many years deserve the opportunity to understand why high rate increases are being requested and what their options are for funding long-term care when they may need it in the future.” See Agency Checklists’ article of November 8, 2016 article, “Mass. DOI Sets Long-Term Care Information Sessions for November 16th, 17th & 18th.”
These information sessions were preparatory to an agreement being negotiated by the Commissioner of Insurance with 16 long-term care insurance carriers who had asked for that rate increase from a low of 10 percent to a high of over 300 percent.
In January 2017, the Commissioner announced an understanding between the Division and the carriers, no carrier would be permitted a increase of higher than 40 percent and all increases above 10 percent would be spread over multiple years with annual increases limited to 10 percent. See Agency Checklists’ article of January 24, 2017, “Long-Term Care Policyholders’ Rates May Rise 40% Under Agreement With 16 Carriers.”
Genworth refuses to agree on rate cap with Division of Insurance and files suit
Genworth was not one of the 16 carriers agreeing to the rate increase limitations for its long-term care insurance policies.
As the November information sessions on long-term care insurance were being scheduled by the Division of Insurance, Genworth served a letter on the Commissioner giving formal notice that Genworth’s proposed rates would take effect on November 21, 2016, “unless the Division disapproves the proposed rates and specifies the reason(s) for such disapproval within the next 30 days from the date of this letter. Genworth’s letter cited § 108(2) (a) of the General Laws that provides:
No policy of accident and sickness insurance shall be delivered or issued for delivery to any person in this commonwealth until a copy of the policy and table of rates or manual of risks of the company has been on file with the Commissioner for at least thirty days.
Genworth extended the November 21 deadline until December 16, 2017, at the Division’s request for the parties to further negotiate.
The negotiations over Genworth’s rate increases soon broke down and Genworth sued the Commissioner on January 9, 2017, asking the Superior Court to rule that its rates were “deemed approved” as a matter of law because of the Commissioner’s failure to act on Genworth’s letter under § 108(2)(a) with thirty days as required by this statute.
On February 21, 2017, the Commissioner rejected Genworth’s 2012 rate filings claiming that Genworth’s letter was not valid because it had not been properly filed through SERFF.
Superior Court rules for Commissioner and dismisses Genworth’s complaint
In the Superior Court, both parties filed for summary judgment.
Genworth argued § 108 set forth a 30-day deadline by which the Commissioner had to act and that once Genworth triggered the 30-day period with its October 16, 2016 letter the failure of the Commissioner to act caused its 2012 rate filings to automatically take effect on December 16, 2016 (considering agreed upon extensions of the 30-day deadline).
The Commissioner responded that the Division of Insurance had a clear procedure set out in the SERFF Filing Instructions on how Genworth could take advantage of the so-called “deemer provision” in the law and that Genworth did not follow that procedure
Genworth replied to the Commissioner’s claim of faulty notice that the fact that the October 16, 2016 letter was not sent via the SERFF system was unimportant since the Commissioner admittedly received the letter and cannot be said to be prejudiced because of this “technical error” on Genworth’s part.
Court dismisses suit based on Genworth failing to file effective date correctly
The Superior Court ruled against Genworth’s claim its rates were “deemed approved” under § 108. and that Genworth’s failure to file its letter deeming the effective date using the SERRF system was immaterial. The Court found:
- there was no direct conflict between Section 108 and the SERFF Filing Instructions;
- the disputed SERFF Filing Instructions set forth the procedure Genworth had to follow to set an effective date for its rate filings;
- the exclusive SERFF filing requirement was not irrational, since the SERFF system provides an orderly process for insurance filings including rate filings effective dates;
- since the Instructions are valid, Genworth’s failure to comply with them means it cannot take advantage of those provisions in the law which allow a rate increase to be deemed approved;
- since those increases were specifically disapproved by the Commissioner in February 2017, Genworth cannot implement its long-term care insurance rates on policies that were the subjects of the filings.
Genworth has 30 days to appeal from September 20, 2017, adverse judgment
Here, Genworth elected to proceed with the Superior Court action after the Commissioner denied its rate increases on February 21, 2017. Under § 108(2), Genworth had the option to file an appeal to the denial directly to the Supreme Judicial Court with 20 days of the denial. Since such an appeal would have made its claim that its rate filings were deemed approved by operation of law, it apparently elected to continue its Superior Court suit instead. Now Genworth has no appeal of the rate denial and may only seek a remedy by appealing the Superior Court decision.
Agency Checklists will monitor the case if an appeal is filed. Genworth’s appeal could have interesting ramifications for the relationship of Division of Insurance bulletins and statutory law. The Division of Insurance implemented SERFF by a bulletin not a regulation. See Bulletin 2008-08.
Bulletins do not have the force of law. See Agency Checklists’ article of August 1, 2011, “Division of Insurance Bulletins Do Not Have the Force of Law.” However, in the Genworth decision, the Superior Court seems to give the SERFF Instructions Genworth did not follow more weight than the law would allow.