Appeal from the Circuit Court of Cook County; the Hon. James
C. Murray, Judge, presiding.
PRESIDING JUSTICE CAMPBELL DELIVERED THE OPINION OF THE COURT:
Defendants, Philip R. O'Connor, Acting Director of the Illinois Department of Insurance (Director), and the Illinois State Medical Inter-Insurance Exchange (ISMIE), appeal from a judgment of the circuit court of Cook County which reversed the decision of the Director. The Director had determined that the classification scheme and the insurance rate scheme applied to emergency room physicians was permissible and that plaintiffs should bear the costs of the administrative proceedings. Defendant Director only appeals from that portion of the trial court's order which denied the assessment of costs against plaintiffs. Defendant ISMIE raises the following issues on appeal: (1) whether insurance policy classification of emergency room physicians based on risk factors uniquely associated with the practice of emergency medicine was permitted by the statute regulating medical liability insurance rates; (2) whether insurance policy classification of emergency room physicians by medical specialty was proper under ISMIE's manual of rules and rates; (3) whether ISMIE's underwriting rules pertaining to part-time and obligatory staffing of emergency rooms was unfairly discriminatory; (4) whether the decision of the Director upholding ISMIE's classification scheme was supported by substantial competent evidence; (5) whether the trial court improperly substituted its judgment for that of the Director; and (6) whether the trial court erred in reversing the assessment of hearing costs against plaintiffs and prohibiting the future assessment of costs.
A discussion of the background of the parties may be helpful in understanding the issues involved since this appeal arises out of a dispute involving insurance rates for medical malpractice coverage. Generally, the amount of insurance premiums is determined by the classification in which a particular type of physician is placed; the higher the classification, the larger the premium that is assessed. The rates assigned by insurance companies are regulated by the Illinois Insurance Code. Ill. Rev. Stat. 1977, ch. 73, par. 613 et seq.
The Illinois Medical Inter-Insurance Exchange (ISMIE) is a physician-owned and controlled reciprocal insurance company created to provide Illinois physicians with medical malpractice insurance. In 1976, the first year of its operation, ISMIE adopted the classification and rate system used by the Hartford Insurance Company which had previously insured Illinois physicians. This system classified physicians into five groups. Emergency room physicians were placed in class three and paid the premiums for that class. In 1977, after receiving negative input from some of its members, ISMIE adopted a seven class rating system following recommendation of the same by its "Ad Hoc Advisory Committee."
Under this new classification system, non-surgical specialties were placed in Classes 1, 2 and 3, while those in the surgical specialties were placed in Classes 4 through 7. Full-time emergency room physicians were placed in Class 4, although other physicians with specialties other than emergency medicine could work in an emergency room up to 36 hours per month without incurring a change in classification. A Class 1, 2 or 3 physician who worked more than 36 hours in an emergency room would be charged 50% of his regular rate and 50% of the Class 4 rate. A full-time resident whose emergency room activity did not exceed 24 hours per week would also be charged 50% of the Class 4 rate. In addition, the ISMIE rating scheme exempted physicians who staffed an emergency room under a "Pontiac Plan." A "Pontiac Plan" is a corporate arrangement whereby some staff doctors contract with the hospital to provide emergency room services, thereby eliminating the need to involve other staff physicians who are not interested in working in the emergency room. Finally, in each of the seven classifications, physicians were permitted to downgrade their ranking by demonstrating that they did not perform certain procedures typical to their class. This opportunity to downgrade their status was not afforded to emergency room physicians. The ISMIE classification scheme only provided for an upgrade in the classification of emergency room physicians.
Plaintiffs are full-time emergency room physicians. On November 1, 1977, plaintiffs requested that the Director review the new classification system. Plaintiffs charged that the reclassification of emergency room physicians violated section 155.18 of the Illinois Insurance Code (Ill. Rev. Stat. 1977, ch. 73, par. 767.18), which prohibits insurance rates which are excessive and unfairly discriminatory. On June 14, 1978, the Department of Insurance gave notice of a fact-finding, non-adversarial hearing to be conducted on the issues raised by plaintiffs. The Director appointed an independent, consulting actuary as hearing officer in the matter.
Plaintiffs petitioned and were permitted to intervene in the administrative proceedings and a preliminary hearing was held. Since plaintiffs had requested the review, the hearing officer, following the usual and customary procedure of the Department of Insurance, ordered that the costs of his fees in the matter be assessed to plaintiffs. (Ill. Rev. Stat. 1977, ch. 73, par. 1020(3).) Plaintiffs objected to this order, arguing that it was premature under section 27 D of Rule 24.02 of the Illinois Insurance Department Regulations. Plaintiffs were ordered to pay a $500 advance payment to the hearing officer, which they in fact paid.
The hearing convened and the hearing officer found that on the basis of the evidence presented, the classification system adopted by ISMIE was not unfairly discriminatory towards emergency room physicians, nor were the rates charged to the physicians excessive. He recommended that: (1) the hearing be dismissed with prejudice; (2) plaintiffs bear the costs of the hearing officer's fees, and (3) each party pay its own attorney fees. On March 24, 1980, the Director adopted the findings, conclusions and recommendations of the hearing officer.
Pursuant to the Administrative Review Act (Ill. Rev. Stat. 1979, ch. 110, par. 264 et seq.), plaintiffs filed this action alleging, inter alia, that the decision of the Director was contrary to the manifest weight of the evidence and that the premium rate charged to emergency room physicians was unfairly discriminatory and excessive. The circuit court found that the decision of the Director upholding the classification scheme and premium rate charges of ISMIE was contrary to the manifest weight of the evidence and was found to be excessive and unfairly discriminatory in violation of section 155.18 of the Illinois Insurance Code. (Ill. Rev. Stat. 1979, ch. 73, par. 767.18.) In addition, the court reversed without remand that portion of the Director's decision which assessed fees and expenses to plaintiffs and ordered that no fees or expenses may be assessed by the Director on account of the proceedings.
At the outset, we note that the final determination of the Director was defended in the trial court by both ISMIE and the Attorney General on behalf of the Director. The issue of whether ISMIE has the right to defend the decision of the Director was not addressed by the trial court, nor was it raised on appeal by any of the parties. An examination of the record indicates that the order of the trial court was directed to the Director alone. Although plaintiffs argue in their brief that the Director waived his right to contest the decision of the circuit court on appeal, the issue of the propriety of the prosecution of this appeal by ISMIE on behalf of the Director was not raised by plaintiffs in this appeal. We will not consider the issue in this appeal since plaintiffs failed to raise this issue below. Brown v. Lober (1979), 75 Ill.2d 547, 389 N.E.2d 1188.
ISMIE raises numerous issues which pertain to the classification scheme which it employed in determining insurance rates. Although these issues are stated separately, each of the issues is intertwined with the trial court's decision as to whether the decision of the Director was contrary to the manifest weight of the evidence. Therefore, we shall address these issues as follows: (1) whether the decision of the Director which concluded that the premium rates charged to emergency room physicians was not excessive was contrary to the manifest weight of the evidence and whether the premium rates were excessive in violation of the statute; and (2) whether the decision of the Director which concluded that the premium rates charged to emergency room physicians were not unfairly discriminatory was contrary to the manifest weight of the evidence and whether the premium rates were unfairly discriminatory in violation of statute.
ISMIE first contends that due consideration to section 155.18 of the Insurance Code (Ill. Rev. Stat. 1979, ch. 73, par. 767.18) was not given by the trial court. Defendant ISMIE urges that its determination of the malpractice insurance rates charged to emergency room physicians was proper under the statute which permits classification according to risks pursuant to section 155.18(b)(4). In establishing classification, ISMIE maintains that the statute is clear in the factors which may be considered in establishing a classification scheme. ISMIE refers to section 155.18(b)(2) which states in pertinent part:
"Consideration shall be given, to the extent applicable, to past and prospective loss experience within and outside this State, to a reasonable margin for underwriting profit and contingencies, to past and prospective expenses both countrywide and those especially applicable to this State, and to all other factors, including judgment factors, deemed relevant within and outside this State." (Ill. Rev. Stat. 1979, ch. 73, par. 767.18(b)(2).)
Defendant ISMIE argues that the statute does not require that the same factors be utilized when assigning risk classifications, but that the statute requires grouping and identification of similar risks. As an example, ISMIE notes that urologists and emergency room physicians were both assigned to Class 4 because the relative risk of malpractice claims against the two specialties was deemed by ISMIE to be the same. Defendant, however, argues that the factors which contribute to the incidence of malpractice claims against urologists are not the same factors which are necessarily valid for emergency room physicians. Defendant urges that its "Ad Hoc Advisory Committee" concluded that the risks attendant with the practice of emergency medicine were deemed to be greater ...