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Horwitz v. Bankers Life and Casualty Co.

February 16, 2001


Appeal from the Circuit Court of Cook County. No. 95 CH 1787 Honorable Sidney A Jones, III, Judge Presiding.

The opinion of the court was delivered by: Justice Greiman

Plaintiff Fern Horwitz (Horwitz), by her father and attorney-in-fact, brought this action on behalf of herself and a purported class of policyholders who were allegedly injured by the manner in which the defendant insurance company, Bankers Life & Casualty Company (Bankers), calculated and applied its premium rates for individual health insurance policies. Plaintiff claimed that the manner in which Bankers calculated those premiums breached its contract (counts III and IV), violated section 364 of the Illinois Insurance Code (Insurance Code) (215 ILCS 5/364 (West 1994)) (counts I and II), and violated section 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/2 (West 1994)) (count VI). She also claimed that Bankers breached its contract with her by increasing her premiums twice-rather than once-during a few years that her coverage was in effect (count V), and that Bankers fraudulently concealed from her some of the practices she claims were unlawful (count VII).

Initially, the trial court partially granted summary judgment as to count III in plaintiff's favor and summary judgment as to count V in defendant's favor. Bankers then asked the court to reconsider its ruling as to count III, which was granted. Ultimately, the trial court dismissed all of plaintiff's claims, holding that: (1) plaintiff's policy was governed by Colorado law; (2) plaintiff's breach of contract and consumer fraud claims were barred by the filed rate doctrine; (3) no private right of action exists under section 364; and (4) defendant had not breached its contract by increasing premiums more than once during certain policy years. However, the court only decided Horwitz's individual claims and never decided whether the case should proceed as a class action. Plaintiff now appeals the trial court's ruling on counts I through III, V, and VI of her third amended complaint. *fn1 For the reasons that follow, we affirm in part, reverse in part, and remand the cause for further proceedings.

This case arose from a dispute between Horwitz and Bankers regarding premium increases for plaintiff's individual health insurance policy. Specifically, plaintiff alleges that, beginning in February 1991, defendant increased her premiums by amounts greater than permitted by the terms of her policy. She also claims that, beginning in 1991, defendant increased her premiums more often than allowed by her policy. These formed the bases of plaintiff's complaint.

In February of 1985, Joel Horwitz, plaintiff's then-husband, purchased a family policy from Bankers under form CR-97N. At that time, the Horwitz family was living in Denver, Colorado. In September of that year, plaintiff became disabled by mental illness. In September of 1986, while divorce proceedings were pending and the Horwitzes still lived in Colorado, Mr. Mark Gilbert (Gilbert), plaintiff's father, asked Mr. Horwitz to agree to the issuance of a separate policy, in plaintiff's own name, for which plaintiff would be solely responsible. Mr. Horwitz agreed, and plaintiff's individual policy was issued to her on October 2, 1986, at which time she was residing at the Colorado Mental Health Institute in Fort Logan, Colorado.

In approximately September of 1987, plaintiff moved to Illinois and became an Illinois resident. Defendant, however, continued to treat her policy as a Colorado policy in accordance with its established practice concerning insureds who move from state to state. In short, to avoid confusion regarding premium rates and coverages, in such instances, Bankers follows a "state of issuance" rule, under which it continues to apply the premium rates and coverages of the state of issuance. Thus, defendant charged plaintiff the Colorado premium rates after plaintiff moved to Illinois. Defendant also notified plaintiff of this fact after she moved and invited her to convert her policy to an Illinois policy. Plaintiff declined and paid the Colorado premium rates throughout the life of her policy.

In February of 1995, plaintiff filed a two-count complaint that asserted claims under section 364 of the Illinois Insurance Code and for breach of contract, based on defendant's use of its experience with claims and losses under form CR-97N to determine the premium rates applicable to that form. In February of 1997, plaintiff filed her third amended complaint, which contained seven counts that were all based on the allegations of "the death spiral," which will be described hereinafter. In her complaint, plaintiff asserted that the defendant gutted the value of the policy by "closing the block"-- meaning that the policy series was no longer sold to new customers. The impetus for such action, plaintiff argued, is that as the number and amount of loss claims (loss experience) grow larger for a policy series, an insurance company becomes trapped in having to renew an economically improvident policy.

The effect of Bankers' response to this phenomenon, however, was that Bankers began pricing its renewal premiums based on the loss experience of just that closed block group. In other words, by "closing the block," Bankers' calculations of what the policyholder's renewable premiums should cost arose only from the statistical data of those remaining in the closed block group. As this limited pool of insureds became older and more sickly, the argument continued, their claims increased and their renewal rates, or premiums, rose. *fn2 As they rose, healthy insureds, who could obtain coverage elsewhere, cancelled their policies, leaving behind only those policyholders whose medical condition prevented other coverage. Those who could not qualify for new coverage, consequently, either died or could no longer afford to keep their coverage alive by paying the dramatic premium increases.

Ultimately, plaintiff asserted, Bankers was able to force their healthcare costs to be shifted from Bankers to the insureds (resulting in, effectively, self-insurance) and accomplished non-renewal by forcing them off the policy. This is what is referred to by plaintiff as the "death spiral."

Counts I, II, IV, and VII were dismissed under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1994)) as follows. On November 20, 1995, and on May 24, 1996, the circuit court dismissed with prejudice plaintiff's claims alleging a violation of section 364 of the Illinois Insurance Code, on the ground that no private right of action exists under section 364. These claims were counts I and II of plaintiff's original complaint and were subsequently repleaded in all of the amended complaints. On June 13, 1997, the circuit court dismissed without prejudice plaintiff's claims alleging (a) breach of contract based on allegedly selective premium increases, and (b) fraudulent concealment, which were counts IV and VII of plaintiff's third amended complaint. Plaintiff never repleaded these claims.

However, counts III and V were made the subjects of cross-motions for partial summary judgment. While the circuit court partially granted summary judgment to defendant on count V, it also partially granted summary judgment to plaintiff on count III. Specifically, in count III, plaintiff focused on what she believed to be the four circumstances in which a premium may be changed: changes in age, benefits, the Consumer Price Index, or new rate tables. She quoted Bankers' policy:


We may change the premium rates for this policy. The change may be due to a change in benefits. Since some benefit amounts are tied to the Consumer Price Index (CPI) for medical/hospital doctor fees, it's expected that premium and benefit changes will occur each year. The change may also be due to a new table of rates or an increase in age of a family member. We can only change the premium if we change it for all policies like yours in your state on a class basis. We'll tell you in advance of any changes in the premium. The premium for this policy is expected to increase each year."

The focus was on whether the clause, "[t]he change may also be due to a new table of rates," permitted Bankers to shift the rate tables for this (or any) policy from broad-based community experience to the experience of just the finite, closed-off subgroup. The court held:

"And this phrase reasonable expectations of the parties certainly cannot mean that it is reasonable that with each renewal of the contract that ones insureability [sic] is going to be recalculated ab initio.

With time under the scheme that is advanced by the defendant, the group members' premiums necessarily increase to levels that are destined to approach the actual medical payments themselves. As these premiums increase along with illnesses, the degree of fortuitous[ness] decreases.

Of course, insurance is intended to protect one from a fortuitous event. And since the degree of fortuitousness decreases, with it the characteristics of an insurance policy decreases [sic] as well. I think that is why the plaintiff is entitled to summary judgment and that is why the defendant is not entitled to summary judgment ."

After that ruling, defendant raised the filed rate doctrine as an affirmative defense for the first time in a supplemental brief after its initial reconsideration brief (after it lost summary judgment) was filed. Basically, this doctrine states that where a regulated entity is required to file its rates with a governmental agency charged with authority to regulate those rates, an individual is barred from attacking those rates in a civil action for damages. On reconsideration, the court found that this newly asserted filed rate doctrine precluded any action under the contract -given Bankers' filing of its rates with the Colorado Division of Insurance (CDOI) without its objection- and granted summary judgment to defendant on count III. Subsequently, it also barred Horwitz's Illinois Consumer Fraud Act claim (count VI) for the same reason. Plaintiff now appeals the dismissal of counts I, II, III, V, and VI.

This appeal deals mainly with issues of law that are subject to de novo review. E.g., Jackson v. South Holland Dodge, Inc., 312 Ill. App. 3d 158, 162 (2000) (A section 2-615 motion to dismiss is reviewed de novo on appeal); Peddinghaus v. Peddinghaus, 314 Ill. App. 3d 900, 904 (2000) ("The standard of review in cases involving summary judgment is de novo"). However, the parties disagree as to the applicable standard of review regarding the court's decision to admit the affirmative defense of the filed rate doctrine, through its granting of defendant's motion to reconsider, in light of plaintiff's contention that defendant waived the filed rate doctrine as an affirmative defense. Plaintiff argues that according to Zook v. Norfolk & Western Ry. Co., 268 Ill. App. 3d 157 (1994), the review of a trial court's decision to strike (or admit) an affirmative defense is reviewed de novo. Defendant, however, cites, "[t]he determination of whether to grant a motion for reconsideration is within the circuit court's discretion, subject to reversal only upon abuse of such discretion." United States Fidelity & Guaranty Co. v. Alliance Syndicate, Inc., 286 Ill. App. 3d 417, 419 (1997).

We note that the intended purpose of a motion to reconsider is to bring to the court's attention (1) newly discovered evidence which was not available at the time of the first hearing, (2) changes in the law, or (3) errors in the court's previous application of existing law. Merchants Bank v. Roberts, 292 Ill. App. 3d 925, 929 (1997). In granting defendant's motion to reconsider, the trial court stated, "[t]he court is of the view that the filed rate doctrine controls the entire case. The plaintiff's motion to reconsider was taken by the court simply as a device by which the court - to afford the court an opportunity for its ruling to be consistent with all of that."

It is unclear whether plaintiff is challenging the trial court's grant of defendant's motion to reconsider for a failure to meet the Merchants Bank test. However, one argument she does explicitly make is that because defendant did not assert the filed rate doctrine as an affirmative defense in its answer or reply, it was untimely to assert it in a motion for summary judgment according to section 2-613(d) of the Code of Civil Procedure. 735 ILCS 5/2-613(d) (West 1998). It has long been held that section 2-616(a) (735 ILCS 5/2-616(a) (West 1998)) permits a party to amend its pleadings to include an affirmative defense at any time prior to final judgment. Further, the trial court's determination of whether to allow or deny an amendment of a pleading is discretionary and will not be reversed absent an abuse of discretion.

In re Estate of Hoover, 155 Ill. 2d 402, 416 (1993). Consequently, whether plaintiff is challenging the trial court's acceptance of the filed rate doctrine as an affirmative defense or its grant of defendant's motion for reconsideration, we analyze the trial court's actions for this issue under an abuse of discretion standard. *fn3 After granting defendant's motion for reconsideration, the circuit court determined that plaintiff's policy was governed by Colorado law.

Plaintiff's first argument is that the court erred in this decision. Because plaintiff's policy does not contain a choice of law provision, Illinois courts must apply Illinois' choice of law rules to determine the governing law. Diamond State Insurance Co. v. Chester-Jensen Co., 243 Ill. App. 3d 471, 485 (1993). Illinois' choice of law rules apply the law of the state with the most significant contacts. Hofeld v. Nationwide Life Insurance Co., 59 Ill. 2d 522, 529 (1975). According to Hofeld, given a de novo review, this court is to apply the following factors to determine the most significant contacts:

"[I]nsurance contract provisions may be governed by the location of the subject matter, the place of delivery of the contract, the domicile of the insured or the insurer, the place of the last act to give rise to a valid contract, the place of performance, or other place ...

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