Appeal from the Iowa District Court for Polk County, Artis I. Reis, Judge.
The opinion of the court was delivered by: Zager, Justice.
An insurance company appeals from a decision of the district court affirming the decision of the Iowa Insurance Commissioner. REVERSED AND REMANDED.
In this case, Chartis Insurance (Chartis), formerly known as American International Group, Inc., urges us to consider whether the Iowa Insurance Commissioner (Commissioner) has the authority under Iowa Code section 515A.1 to consider an as-applied challenge to a workers' compensation liability insurance rating schedule approved for use in accordance with Iowa law. We conclude the Commissioner does not have the authority under Iowa Code section 515A.1 to reject a faithful application of a plan previously approved under Iowa Code section 515A.4, despite the perceived unfairness of that application. We conclude this to be true even if, in the Commissioner's judgment, this individual application results in a premium that is excessive or unfairly discriminatory under Iowa Code section 515A.1. Further, the legislature intended a section 515A.9 hearing to be limited to a review of the manner in which an approved rating system has been applied to an insured. Therefore, for the reasons set forth below, we reverse.
I. Factual Background and Procedural History.
The facts of this case are not disputed. Chartis issued two workers' compensation insurance policies to Action Warehouse Company, Ltd. (Action), one that had a term of December 31, 2006, through December 31, 2007, and one that had a term of December 31, 2007, through December 31, 2008.
During the terms of these policies, Action contracted with both Firestone North American Tire, LLC (Firestone) and Titan Tire Distribution (Titan) to provide employees to operate tire warehouses owned respectively by Firestone and Titan and used exclusively to store the goods manufactured by the respective owners. Action acknowledges that both Firestone and Titan contracted with Action because the tire manufacturers wanted to avoid dealing with labor unions in the operation of their warehouses.
These Action employees were permanent employees who worked exclusively in warehouses owned by the tire manufacturers. Both Chartis and Action agree that these employees did not work directly in the tire manufacturing process. In fact, Firestone's warehouse is located eight miles away from the factory where the actual tire manufacturing process occurs, and Titan's warehouse is located a quarter of a mile away. Employees of the warehouses were not even allowed to enter the factories where tire manufacturing actually occurred, as collective bargaining restrictions prohibited their presence on the factory floor.
Insurers offering workers' compensation liability insurance in Iowa are required to comply with Iowa Code chapter 515A. The National Council on Compensation Insurance (NCCI) has created a rating and classification system for determining the premium rates insurers charge for workers' compensation coverage.*fn1 NCCI filed its rating and classification system for approval in accordance with Iowa Code chapter 515A.4, and the Iowa Insurance Division, headed by the Commissioner, approved NCCI's system. That rating and classification system is set forth in the Basic Manual for Workers Compensation and Employers Liability Insurance (Basic Manual). In accordance with Iowa statute, Chartis exercised its option to adopt the NCCI system for determining the premium rates it charges for workers' compensation. See Iowa Code § 515A.4(2) (2009). Thus, the coverage Chartis provided to Action was governed under the terms of the Basic Manual.
Originally, Chartis classified the Action employees who staffed the Firestone and Titan warehouses under the NCCI classification code applicable to general warehouse employees (8292). However, pursuant to the terms of its workers' compensation insurance policies, Chartis performed an audit of Action's operations after the conclusion of the first year of coverage, but during the second year of coverage. Action does not dispute that Chartis had the right to do so under the terms of its agreement with Action. After conducting this audit, Chartis both retroactively and prospectively changed the employees' classification code to the code applicable to rubber tire manufacturing (4420). This change resulted in a significantly higher premium. Another Chartis auditor reconsidered and confirmed the findings of the initial audit. Action argues the effect of this retroactive change in the classification code was unfair.
In response, following the procedures set forth in the Basic Manual, Action then ordered an inspection through NCCI to determine the appropriate classification code for Action employees working in the Firestone and Titan warehouses. The initial NCCI inspector agreed with Action and concluded that the insurance premium should be changed back to the rate applicable to warehouse workers. However, a subsequent NCCI inspector agreed with Chartis's assessment, and the classification code remained as that applicable to rubber tire manufacturing.
Action then appealed the change in classification code to the NCCI Iowa workers' compensation appeals board (appeals board), as required by the dispute resolution provisions of the Basic Manual. The appeals board ruled in favor of Chartis, holding that Chartis correctly applied the relevant Basic Manual rules and accurately reclassified the Action workers. In accordance with the provisions of Iowa Code section 515A.9, Action appealed the decision of the appeals board to the Commissioner. Chartis does not dispute the Commissioner's authority to make a determination about whether it complied with the filed rate schedule, as defined by the Basic Manual. The Commissioner reversed the ruling of the appeals board, finding that the original audit was improper and requiring Chartis to classify the employees as warehouse employees. This original decision of the Commissioner found Chartis had not complied with the requirements of the Basic Manual.
Chartis then filed a petition for judicial review requesting the district court reverse the decision issued by the Commissioner and requesting that the district court uphold the decision of the appeals board. Prior to a ruling by the district court, and upon motion by the Commissioner, the district court remanded the case back to the Commissioner for further proceedings. Rather than relying on or expanding the original decision, the Commissioner ordered the parties to submit postremand briefs. The Commissioner directed the parties to address the issue of whether charging Action the premium rate for workers' compensation coverage under the rubber tire manufacturing classification violated Iowa Code chapter 515A's prohibition on rates that are "excessive, inadequate, or unfairly discriminatory." See Iowa Code § 515A.1. After reviewing the briefs, the Commissioner found, "NCCI employee classification rules approved by the agency for use by workers' compensation carriers in calculating premium rates cannot override the broad review authority the legislature granted the Commissioner under chapter 515A to review these rates as applied." The Commissioner further found that the rate charged by Chartis as a result of its classifying Action workers as rubber tire manufacturing employees "is excessive because the actual risk of harm to the affected workers is not commensurate with the premium [Chartis] assessed Action Warehouse for the coverage in question."
Thus, after remand to the Commissioner, the Commissioner reversed the ruling of the appeals board on entirely different grounds than in her original decision, though she ruled in favor of Action both times. Though the original decision specifically found that "the original audit was improper in considering these employees to be classified as Code 4420" based on its analysis of the rules in the Basic Manual, the decision following remand never reached that issue. The Commissioner relied on her general authority as provided in Iowa Code section 515A.1.
Pursuant to the NCCI filed rules, businesses are generally assigned one classification, and "each classification includes all the various types of labor found in a business."*fn2 Further, employees provided by a labor contractor such as Action and "assigned to clients must be classified the same as direct employees of the client performing the same or similar duties."*fn3 Thus, Chartis has always contended that under the NCCI rules, Firestone and Titan are rubber tire manufacturers for all of its Iowa employees. Moreover, any employees provided by a labor contractor such as Action are required to have the same 4420 classification. In her final ruling, the Commissioner did not address whether Chartis had correctly followed the NCCI rates. Rather, she simply acknowledged, "Chartis calculated the premium rate it charged Action Warehouse for this coverage by classifying these employees under NCCI's worker classification rules."
The district court affirmed the final agency order of the Commissioner, choosing to "defer to the agency's expertise and discretion to interpret and apply its own statute." The district court agreed with the Commissioner's conclusion that the premium rate Chartis applied to Action workers after the reclassification to the rubber tire manufacturer rate was "excessive and therefore prohibited by Iowa Code section 515A.1."
Chartis appeals the ruling of the district court. We retained the appeal.
For the reasons which will be explained later in this opinion, we assume for purposes of this appeal that the rates charged by Chartis following its audit complied with the NCCI rates filed with and approved by the Insurance Commissioner. The sole issue on appeal, then, is whether the Commissioner has the authority to determine that a specific application of a plan approved under Iowa Code section 515A.4 violates the statute's ...