Opinion
C.A. No. 07A-10-005 PLA.
Submitted: April 14, 2008.
Decided: April 22, 2008.
ON APPEAL FROM THE DEPARTMENT OF INSURANCE AFFIRMED.
Richard H. Morse, Esquire, YOUNG CONAWAY STARGATT TAYLOR, LLP, Wilmington, Delaware, Attorney for Appellant.
Julie M. Donoghue, Esquire, STATE OF DELAWARE DEPARTMENT OF JUSTICE, Dover, Delaware, Attorney for Appellee.
I. Introduction
This is an appeal filed by BCBSD, Inc. ("Blue Cross") of a decision by Matthew P. Denn, the Insurance Commissioner of the State of Delaware (the "Commissioner"), finding Blue Cross in violation of Section (16)(c) of the Unfair Trade Practices Act of the Delaware Code, 18 Del. C. § 2304(16)(c), for failing to adopt and implement reasonable standards for the prompt investigation of claims. The Commissioner entered a cease and desist order and imposed a fine of $100,000.00 subject to a reduction of $50,000.00 upon proof of compliance. In this appeal, Blue Cross contends that the Commissioner's Order violates its right to due process under the United States Constitution, Delaware Constitution, and Delaware statutory law because the initial charge and notice was incomplete. It also contends that substantial evidence did not exist to support the Commissioner's finding that it violated Section (16)(c). As will be discussed infra, the Court concludes that Blue Cross was afforded fair and appropriate notice for a hearing addressing violations of Section (16)(c) and was thus not denied due process. The Court further determines that the Commissioner's decision is supported by substantial evidence. Accordingly, the Commissioner's decision is AFFIRMED.
II. Statement of Facts
In August 2006, the Department of Insurance (the "Department") began investigating all Delaware insurance providers to determine whether they were in compliance with Department of Insurance Regulation 1310. The Department's findings as to Blue Cross's compliance are contained in a document entitled "Market Conduct Examination Report Prompt Pay of BCBSD, Inc. as of June 30, 2006" (the "Report"). Based on that Report, on May 3, 2007, a notice of hearing was issued to Blue Cross in which the Commissioner charged violations of 18 Del. C. §§ 2304(16)(b) and (e). The Notice provided:
[T]he Insurance Commissioner has reason to believe that you have engaged in unfair trade practices in that you have, with such frequency as to indicate a general business practice, failed to acknowledge and act reasonably promptly upon communication with respect to claims arising under insurance policies, failed to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed.
Id., App. at A-1. Although it did not mention the sections specifically, the notice contained a virtual quotation of 18 Del. C. §§ 2304(16)(b) and 2304(16)(e).
No mention of any possible violation of 18 Del. C. § 2304(16)(c) was contained in that notice.
On May 29, 2007, the Insurance Commissioner conducted a hearing on charges stemming from alleged violations of 18 Del. C. §§ 2304(16)(b) and 2304(16)(e). When the hearing began, the Department representative asserted that Blue Cross had processed claims in a manner that prevented the Department from determining whether the claims were properly rejected, a charge that was not addressed in the initial notice. Blue Cross objected to that charge being raised at the hearing because it had not been given proper notice of the violation. The Commissioner agreed and ruled that the issue could not be raised.
The hearing then proceeded solely on the original charges. Mr. Kirk Yeager ("Yeager"), the examiner who supervised and authored the Report, testified for the Department. Based on his review, out of 461,164 claims that Blue Cross had adjudicated, 26,197, or six percent (6%), of those were not processed within thirty days of receipt. Blue Cross further stipulated that it is reasonable to infer from the evidence that it had failed to pay approximately 10,467 clean claims within thirty days of receipt during the first six months of 2006. Yeager also testified that Blue Cross failed to enter many claims into its system, noting that "[t]here is virtually no way for someone to verify the number of claims or the handling of those claims other than the fact that they may have been held."
Regulation 1310 defines clean claim in a number of ways, see 18 Del. Admin. C. § 1310 (4.0), but generally a "clean claim" is one that is "submitted in the carrier's standard form using information called for by said forms, with all of the required fields completed." Id. § 1310(4.6).
Id., App. at A-6:20-22 (Hearing Transcript).
George H. English, Jr. ("English"), Blue Cross's Vice President of Operations, was called to testify on behalf of Blue Cross. English reported that Blue Cross's first priority was to process claims accurately and then to process such claims in a timely manner, although both objectives "go hand in hand." English admitted that Blue Cross did not have any formal process to monitor compliance with Regulation 1310 at the time of the Report.
Id., App. at A-12:2-7 (Hearing Transcript).
Id., App. at A-13-14 (Hearing Transcript).
After review of post-hearing memoranda, the Commissioner held that the evidence presented at the hearing supported a finding that the company violated 18 Del. C. § 2304(16)(c), a section with which Blue Cross had not been charged. Rather than finding that Blue Cross had violated Section 16(c) on the evidence submitted, the Commissioner asked both parties to address the necessity of holding a new hearing to determine compliance with Section 16(c).
In response to the request, counsel for Blue Cross objected to the Commissioner bringing a charge against it based on evidence that it had voluntarily submitted to the Commissioner. Blue Cross asserted that new notice and a new hearing would be required but that a new hearing would not be permitted by law. Blue Cross also asserted that "[u]nder no circumstances does Blue Cross wish to bear the expense, in time and money, of a second hearing on these matters."
Appellant's Opening Br., App., at A-033-036 (Letter to Commissioner Denn, 7/26/07).
Id., App. at A-035-036 (Letter to Commissioner Denn, 7/26/07).
Despite Blue Cross's objection, the Commissioner notified Blue Cross that it was being charged with violations of Section 16(c). The Commissioner issued a new notice, dated July 27, 2007, for a new hearing based on the Section 16(c) charge. The notice stated:
[T]he Insurance Commissioner has reason to believe that you have engaged in unfair insurance practices in that you have, with such frequency as to indicate a general business practice, failed to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies. The basis for this hearing is factual testimony offered by an employee of Blue Cross Blue Shield of Delaware at a May 29, 2007 hearing before the Delaware Department of Insurance, and materials formally submitted to the Department by Blue Cross Blue Shield of Delaware following and arising from that hearing.
Id.., App. at A-037 (Letter to Commissioner Denn, 7/26/07).
On August 29, 2007, Blue Cross and the Department stipulated that neither party intended to introduce additional evidence into the record. Blue Cross did, however, file a written submission setting forth its legal arguments in defense of the charge that it violated Section 16(c).
The Commissioner ultimately ruled that Blue Cross had violated Section 16(c). Importantly, the Commissioner directly addressed Blue Cross's argument that he had no authority to consider and charge Blue Cross with a violation of Section 16(c):
The original hearing notice for this matter made reference only to paragraphs (b) and (e) of Title 18, Section 2304(16). The reason for that is that the information contained in the examiner's report, which generated the hearing notice, did not immediately raise issues regarding compliance with paragraph (c) ("Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies. . . ."). On July 23, 2007, I wrote to the parties and indicated that evidence introduced at the May 29, 2007 hearing had also raised concerns regarding BCBSD's compliance with paragraph (c). That letter asked the parties whether they would like the opportunity to hold a new hearing or introduce new legal arguments regarding this issue. BCBSD responded that I was forever precluded by law from making any findings based on evidence that was introduced (by BCBSD) at the May 29, 2007 hearing. I find those arguments, which I will not reiterate here but which BCBSD is free to pursue on appeal, to be creative but frivolous — taken to their logical end, they would allow an insurance company to disgorge any type of incriminating evidence about its own illegal conduct by virtue of having blurted it out. Such arguments are also unsupported by proper application of any of the legal doctrines or case law cited by BCBSD.
Id., App. at A-044-045 n. 11 (Commissioner's Decision and Order, 9/25/07).
Turning to the merits, the Commissioner first held that thirty days is "the legal benchmark for the `reasonable' handling of a health care provider's claim" under 18 Del. C. § 2304(16). Based on that determination, the Commissioner held that Blue Cross failed to respond to over 10,000 properly submitted claims within the thirty-day period required by Regulation 1310. Relying on English's testimony, he further concluded that Blue Cross had no system in place to ensure compliance with Regulation 1310. As a sanction, the Commissioner issued a cease and desist order that precluded Blue Cross from processing claims without a formal process to ensure compliance with Regulation 1310. He also imposed a $100,000.00 fine on Blue Cross, subject to a reduction of $50,000.00 if Blue Cross complied with the Commissioner's cease and desist order.
Id., App. at A-041 (Commissioner's Decision and Order, 9/25/07). The Commissioner determined that thirty days was reasonable because Regulation 1310, adopted by the Commissioner in 2003 to implement 18 Del. C. § 2304(16), states "No more than 30 days after receipt of a clean claim from a provider or policyholder, a carrier shall take one of the following four actions. . . ." Id., App. at A-041 (citing 18 Del. Admin. C. § 1310-6.1). The Commissioner also noted that, had Blue Cross disagreed with thirty days as a reasonable amount of time, it could have challenged the law at hearings addressing whether the regulation should be implemented but never did so. Id.
At the hearing, English testified that there was no system in place during the audit period:
Commissioner: What I'm having a little trouble understanding is how the computer system that you described with the various provisions for suspending and the like jibes with [Regulation 1310] because, if I understood you correctly, once something is suspended by the computer, then it's essentially, under the system in effect during this time period at least, off the radar as far as the computer is concerned, correct?
The Witness: Yes.
Commissioner: There's nothing that the computer doesn't automatically tell someone it's 28 days, it's 29 days, we need to deal with this?
The Witness: No, it does not.
Appellant's Opening Br., App. at A-043-044 (Commissioner's Decision and Order, 9/25/07).
III. Parties' Contentions
Blue Cross asserts two arguments on appeal. First, it argues that the Commissioner's decision to charge violations of Section 16(c) after the hearing began but before it was given notice of the charge violates its right to Due Process under the U.S. Constitution, 29 Del. C. § 10122, and 18 Del. C. § 2307. Second, even assuming that the Commissioner's actions afforded due process, Blue Cross submits that it did not violate Section 16(c) because 97.65% of claims were handled within thirty days, 92.3% of claims were handled within fourteen days, and the average time to handle a claim was 3.6 days. It is claimed that these numbers indicate reasonable promptness. Furthermore, Blue Cross submits that the Commissioner's decision is not supported by substantial evidence since he failed to consider any surrounding circumstances in determining whether Blue Cross acted promptly.
In response, the Commissioner contends that Blue Cross is not entitled to immunity for incriminating admissions voluntarily offered by its employee at a hearing. The Commissioner points out that Blue Cross was provided with adequate notice of a subsequent hearing and was given a full and fair opportunity to participate in that hearing, although it chose to waive these rights. The Commissioner urges this Court to reject Blue Cross's argument of "confessional immunity" whereby a participant at an agency hearing would be immune from further prosecution for admissions of conduct that violate agency rules and regulations. The Commissioner further submits that the Court should reject Blue Cross's argument that Regulation 1310 is unreasonable because Blue Cross never challenged the regulation when it was promulgated, despite numerous opportunities to do so. Because Section 16(c) requires "reasonable standards" rather than a "reasonable success rate," and Blue Cross admitted that it had not implemented a formal policy, the Commissioner contends that his decision is supported by substantial evidence.
IV. Standard of Review
When reviewing an appeal of a decision from an administrative agency, the Court must determine whether the ruling is supported by substantial evidence and free from legal error. The Court will affirm the agency's decision where there is no abuse of discretion. Only where the record clearly indicates that the agency's decision was based on improper or inadequate grounds has the agency abused its discretion. Where the agency's determination is supported by substantial evidence, however, the Court will affirm the ruling. Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Substantial evidence is "more than a scintilla but less than a preponderance. . . ."
Stoltz Mgmt. Co. v. Consumer Affairs Bd., 616 A.2d 1205, 1208 (Del. 1992).
Id. (citation omitted).
Kreshtool v. Delmarva Power Light Co., 310 A.2d 649, 652 (Del.Super.Ct. 1973) (citation omitted).
Olney v. Cooch, 425 A.2d 610, 614 (Del. 1981) (citing 29 Del. C. § 6442(d)).
Id. (citation omitted).
Id. (citation omitted).
Where the issue presented is a question of law or the application of law to undisputed facts, the court's review is plenary. The court has discretion to give due weight to an agency's own interpretation of a statute it administers, but the Court may not defer to that interpretation. Where an agency interpretation is "longstanding and widely enforced," that interpretation is entitled to greater weight.
Stoltz Mgmt. Co., 616 A.2d at 1208 (citing E.I. du Pont de Nemours Co., Inc., v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985)).
Pub. Water Supply Co. v. DiPasquale, 735 A.2d 378, 382 (Del. 1998) (footnote omitted).
Id. at 382 n. 8.
V. Analysis 1. Blue Cross's Right to Due Process Was Not Violated
Due process under the Fifth and Fourteenth Amendments to the United States Constitution, as well as the Delaware Constitution, requires that the adjudicative body give fair notice of any proposed action. In the context of an administrative agency hearing, due process requirements are less stringent than those required for a judicial hearing. The agency need not "enumerate precisely every event to which a hearing examiner may finally attach significance." A party has been afforded due process where the record indicates that it was given a full opportunity to answer the charges. If a party has been provided sufficient opportunity to respond to allegations against it, and has taken advantage of that opportunity to prepare a strategy, the party's due process rights are not violated. In contrast, where a party is unable to develop a strategy to respond to allegations that were not adequately raised, a hearing on the allegations violates the party's right to due process.In the context of an agency hearing, an agency must give twenty days' notice to the parties involved of any charges it intends to bring. Concerning the Department of Insurance, whenever the Commissioner has reason to believe that a party has engaged in an unfair method of competition or a deceptive practice, the Commissioner must issue a statement and notice of the charges at least ten days before the hearing. Blue Cross does not dispute that the Commissioner gave timely notice. What Blue Cross challenges in this appeal is the Commissioner's authority to charge it with violations of Section 16(c) based on information gleaned from the earlier May 29, 2007 hearing.
When interpreting a statute, the Court's goal is to give effect to the legislature's intent. If the statute in question is unambiguous, the plain meaning of the language controls. Only where the statutory language is ambiguous should the Court attempt to construe it to promote its apparent purpose and to harmonize it with other statutes. The statute permitting the Commissioner to charge any insurer for possible unfair trade practices is unambiguous:
Am. Ins. Ass'n v. Delaware Dept. of Ins., 2008 WL 44322, at *3 n. 36 (Del.Super.Ct. Jan. 2, 2008).
Id.
Id. (citing Eliason v. Englehart, 733 A.2d 944, 946 (Del. 1999)).
Whenever the Commissioner shall have reason to believe that any such person has been engaged or is engaging in this State in any unfair method of competition or in any unfair or deceptive act or practice, whether or not defined in § 2304 or § 2305 of this title, and that a proceeding by him/her in respect thereto would be in the interest of the public, he/she shall issue and serve upon such person a statement of the charges in that respect and a notice of a hearing thereon to be held at a time and place fixed in the notice, which shall not be less than 10 days after the date of the service thereof.
18 Del. C. § 2307(a) (emphasis added).
Based on the plain meaning of the statutory language, the Commissioner may issue notice at least ten days before the hearing "whenever" he has reason to suspect that a party has engaged in unfair or deceptive practices that harm the public interest. "Whenever" is defined as "at whatever time" or "on whatever occasion." Thus, the wording of the statute demonstrates the legislature's intent to give the Commissioner the ability to remedy any violations at any time. When or how the Commissioner learns of that conduct is irrelevant. The statute does not preclude the Commissioner from charging a party for statutory violations after hearing evidence on different charges, even if the party voluntarily offers that evidence. So long as the Commissioner issues the proper notice and has a meaningful and reasonable basis for believing that the insurer violated a statutory provision, the statute is satisfied.
WEBSTER'S NEW WORLD DICTIONARY OF THE AMERICAN LANGUAGE 1664 (College Ed. 1966).
Blue Cross argues that the Commissioner is barred by 29 Del. C. § 10122 from using notices seriatim, and that the plain language of 18 Del. C. § 2307(a) precludes the Commissioner from issuing notice for a new hearing based on the "same operative conduct" that formed the basis for the first hearing. The Court disagrees. 29 Del. C. § 10122 only requires that notice be given twenty days before a hearing and that it contain certain information. Here, it is undisputed that all of the information required by 29 Del. C. § 10122 was included in the notice for the second hearing. Other than a conclusory statement in its briefs, Blue Cross has offered no case or statutory support for its argument that 18 Del. C. § 2307(a) forever bars the Commissioner from issuing a new notice for subsequent hearings based on violations arising from the same operative conduct. In light of the plain meaning of the statutes and the absence of any law supporting Blue Cross's position, the Court rejects the contention that the Commissioner cannot issue notice at any time.
See 29 Del. C. § 10122.
To accept Blue Cross's position, the Court would have to ignore the plain language of 18 Del. C. § 2307, which permits the Commissioner to issue notice based on evidence of any unfair practices discoveredat any time. Under Blue Cross's theory, any party who voluntarily divulges incriminating evidence at a hearing should be entitled to "confessional immunity" from charges based on conduct that was unknown to the Commissioner before the hearing. Taken to its logical conclusion, if Blue Cross volunteered information that it had engaged in any illegality, the Commissioner would be precluded from taking any action based on those admissions unless they were not part of the initial hearing notice. The Court declines to grant such widespread immunity in these circumstances.
To be sure, Blue Cross is correct that the Commissioner could not require it to defend against violations of Section 16(c) at the May 29, 2007 hearing because it had not received proper notice of that charge. But the Commissioner cured this defect by issuing a new notice and permitting Blue Cross ample opportunity to defend itself against these new charges. It was thus given full and fair notice and opportunity to prepare a strategy to defend against the charges, which it did by submitting legal memoranda in support of its arguments. I find that due process has been satisfied in this context.
Counsel for Blue Cross argues that it would have asked different questions at the May 29, 2007 hearing had it known of the possibility that it may have violated Section 16(c). In other words, the fact that the Commissioner only identified two different subsections should have allowed Blue Cross to be secure in the knowledge that it did not have to be concerned about its failure to adopt and implement reasonable standards for the prompt investigation of claims. Indeed, Blue Cross relies upon the United States Supreme Court case of In re Ruffalo to demonstrate that the Commissioner violated its due process rights by using the admissions to support subsequent charges.
390 U.S. 544 (1968).
In Ruffalo, an attorney appeared before an Ohio bar association board to address vague charges of unethical conduct related to hiring a railroad employee to solicit as clients individuals injured in railroad accidents. Over Ruffalo's objection, the board added an additional count based on testimony Ruffalo provided to defend against the other charges. On appeal, the United States Supreme Court reversed and found a violation of the attorney's due process rights:
These are adversary proceedings of a quasi-criminal nature. . . . The charge must be known before the proceedings commence. They become a trap when, after they are underway, the charges are amended on the basis of testimony of the accused. He can then be given no opportunity to expunge the earlier statements and start afresh.
Ruffalo, 390 U.S. at 551.
The Supreme Court also rejected the board's argument that a continuance was sufficient to afford the attorney due process:
This argument overlooks the fact that serious prejudice to petitioner may well have occurred because of the content of the original 12 specifications of misconduct. He may well have been lulled `into a false sense of security' ( Bouie v. City of Columbia, 378 U.S. 347, 352, 84 S.Ct. 1697, 1702, 12 L.Ed.2d 894) that he could rebut charges Nos. 4 and 5 by proof that Orlando was his investigator rather than a solicitor of clients. In that posture he had `no reason even to suspect' (ibid.) that in doing so he would be, by his own testimony, irrevocably assuring his disbarment under charges not yet made.
Id. at 551 n. 4.
In analyzing the applicability of Ruffalo herein, the case of Matter of Smith is instructive. There, the District of Columbia Court of Appeals determined that the due process violation in the Ruffalo case arose from the bar association's failure to give Ruffalo prior notice that certain conduct would amount to a disbarment offense:
403 A.2d 296 (D.C. 1979).
Thus, apparently, Ruffalo was not denied due process because the bar association failed to give him timely notice of an additional charge of violating the disciplinary rules. Indeed the bar association amended its complaint, and Ruffalo was given a continuance to prepare a response. Rather, Ruffalo was denied due process because the bar association failed to give him prior notice that his conduct would amount to, in the words of the Supreme Court, a "disbarment offense," with the consequence that Ruffalo was trapped into admitting that he had committed a disciplinary violation.
Smith, 403 A.2d at 301.
While recognizing the conundrum faced by Ruffalo, the District of Columbia Court of Appeals nevertheless rejected respondent's argument that Ruffalo precluded new charges based on his admission of fraud at a hearing for another matter:
Under this reading of Ruffalo an attorney could immunize himself from discipline for the bulk of his professional indiscretions by confessing freely at any time after being charged with some trivial violation. We pause to note that this sort of wholesale immunity from sanction is inconsistent with the purpose of bar discipline to protect the public, the courts, and the legal profession from the misconduct of individual attorneys. The question posed by this case is whether this result is compelled, either in general or in the specific instance, by the due process guarantees of procedural and substantive fairness.
Id. at 300.
The Smith court then found that the respondent's due process rights were not violated where the Board of Professional Responsibility reinstated a charge of fraud against him based upon his admissions at a hearing for alleged neglect. The Court explained that the respondent was not "trapped" into admitting fraud because "[t]he Rules of Professional Conduct are quite clear on this point: respondent's actions were proscribed. No newly-declared standards of professional conduct were applied retroactively to respondent's actions after he had admitted to them." As a result, the Court concluded that the respondent had proper notice that his conduct violated the rules of professional conduct, that he knew the nature of the charges against him, and that he was "not lulled into a false sense of security and, thereby, trapped."
Id. at 302.
Id.
Id.
Neither the Constitution nor the Ruffalo decision compels this Court to reverse the Commissioner's finding against Blue Cross. Ruffalo's holding was premised on the vagueness of the charges asserted against him. Specifically, the Supreme Court found that Ruffalo's due process rights were violated when testimony he presented to rebut vague charges became inculpatory, since the original charges functioned as a "trap" to "lull the petitioner" into presenting evidence that would "irrevocably assur[e] his [conviction] on charges not yet made." Unlike the attorney in Ruffalo, whose conduct was not clearly prohibited, and whose basis for disbarment was that "[a lawyer] who believes that it is proper to employ and pay another to work against the interests of his regular employer is not qualified to be a member of the Ohio Bar," Blue Cross has been on notice since the statute was implemented that it had a distinct duty to establish standards for the prompt processing of claims, and that it was not free to make accuracy a priority over timeliness, if to do so would violate the statute. In fact, the Commissioner explicitly informed Blue Cross that the notice related to Regulation 1310:
The Commonwealth Court of Pennsylvania examined Ruffalo in Salters v. Pennsylvania State Police Municipal Police Officers' Education and Training Commission, 912 A.2d 347 (Pa.Commw.Ct. 2006) and explained:
Ruffalo should be understood as a vagueness case. The Ohio Bar's standard that attorneys not engage in "immoral or unethical conduct" was used as an empty vessel into which could be poured almost any conduct. At the time Ruffalo hired a railroad employee to work on his own time to explain the technical aspects of railroading, Ruffalo did not know this conduct was immoral or unethical. Indeed, it was conduct "about which reasonable men differ, not one immediately apparent to any scrupulous citizen who confronts the question" and not proscribed in clear terms by the state; accordingly, due process prohibited punishment for the conduct.Salters, 912 A.2d at 353 n. 8 (citing Ruffalo and Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626 (1985)).
Zauderer, 471 U.S. at 655 n. 18 (discussing Ruffalo).
Ruffalo, 390 U.S. at 548.
But in this instance, the very specific subject matter of the market conduct exam and the notice with respect to this proceeding clearly relates to regulation 1310. It's actually cited in the notice of the hearing. And Regulation 1310 has an unequivocal requirement that claims be responded to within 30 days in one of a variety of fashions that's identified in the regulation. And what I've heard your witness say is, we do that when we can but sometimes we can't and we haven't taken any formal steps with respect to our systems to ensure that we are complying with the 30-day response period. And that's my concern.
Hearing Tr., 5/29/2007, at 96:7-18.
Unlike the evidence in Ruffalo that later became incriminating, the evidence of violations of Section 16(c) was not based solely on Blue Cross's attempt to defend against charges of 18 Del. C. §§ 2304(b) and (e). Despite counsel's initial objections, he did not object to questioning of English by the Commissioner or Department's counsel that elicited information about Blue Cross's lack of a formal system.
While it is true that Blue Cross's employee testified that there was no formal system in place to monitor compliance with Regulation 1310 during the period at issue, Yeager, the investigator, testified on his direct examination that Blue Cross lacked a formal system:
Crane: Were you able to determine whether or not they were, in fact, unclean claims?
Yeager: No.
Crane: Why is that?
Yeager: The company records really aren't that adequate to audit that entire segment of claims. The claims that are received go into a microfilm system that is minimally indexed. There is virtually no way for someone to verify the number of claims or the handling of those claims other than the fact they may have been held.
Hearing Tr., 5/29/2007, 20:13-23.
See id. at 80:14-17; 92:12-93:5; 111:4-15; 113:8-14. In fact, counsel for Blue Cross specifically asked about Blue Cross's system:
Counsel for Blue Cross: Did Blue Cross have a system in place back when this audit was done that was effective in keeping something from sort of sitting at the bottom of some processor's file for too long?
English: No, we did not. Our system is not as interactive in order to — identifying and helping us push and identifying those cases so that we can move them a lot quicker. We have tools that identify the claim, and we do push them. But the tools are not as effective in moving as many documents as we have.Id. at 77:8-17.
The notice in this case charged Blue Cross with violations of Section 16(c), 18 Del. C. § 2304(16)(b), and 18 Del. C. § 2304(16)(e) and described the offending conduct in clear terms. Subsections (b) and (e) are distinct and separate from subsection (c), which deals with the carrier's affirmative duty to implement standards for the prompt investigation of claims. Blue Cross does not suggest that the charges were vague or that it did not understand them. Rather, Blue Cross was aware at all times that it was required to implement a formal policy under Section 16(c). Thus, there was no "newly-declared standard" that the Commissioner applied retroactively only after Blue Cross admitted its lack of any formal policy.
See Salters, 912 A.2d at 353 n. 8 ("By contrast [with Ruffalo], the Commission's regulation proscribed the offending conduct in clear terms. Further, the application itself warned that providing unsworn false statements to the Commission violated the Pennsylvania Crimes Code."). Notably, although Section 16(c) refers to "reasonable standards", Regulation 1310, of which Blue Cross was aware, makes clear that all claims must be processed within thirty days. The notice given to Blue Cross for both hearings was clear. The first notice stated that Blue Cross may have "failed to acknowledge and act reasonably promptly upon communication with respect to claims arising under insurance policies, [and] failed to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed." The second notice questioned whether Blue Cross "failed to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies." These notices, which quote sections of 18 Del. C. § 2304(16) almost verbatim, placed Blue Cross on notice of the charges against it. Blue Cross does not contend otherwise.
More importantly, Blue Cross was afforded a separate hearing to address the potential violations of Section 16(c) that it had admitted at the May 29, 2007 hearing. The Commissioner was first alerted to the possibility that Blue Cross had violated Section 16(c) at that time. The Commissioner thereafter issued proper notice for a new hearing in order to permit Blue Cross to present evidence to address the new charges. That Blue Cross chose not to participate in the second hearing, but rather to rely on the evidence presented at the first hearing, does not alter the fact that it was given a fair and adequate opportunity to be heard.
Blue Cross apparently refused to participate in the second hearing because "that offer was a transparent attempt to get Blue Cross to agree that [the Commissioner's] failure to comply with 29 Del. C. § 10122 would be cured if he held a second hearing after he informed Blue Cross of the charges." Appellant's Reply Br. at 1 n. 2.
See, e.g., In re Kennedy, 442 A.2d 79, 92 (Del. 1982) (finding that an attorney's refusal to take exception to a notice of charge and an agreement to a stipulation of facts "probably amount[s] to a waiver").
2. The Commissioner's Finding that Blue Cross Violated Section 16(c) is Supported by Substantial Evidence
Blue Cross next argues that the Commissioner impermissibly extended the reach of Section 16(c) to conduct that the statute does not proscribe. Blue Cross argues that because it adjudicated 97.65% of the claims within the thirty days required of Regulation 1310, it handled claims with reasonable promptness and within a reasonable time. Blue Cross submits that its system was reasonable, that the Commissioner erred by refusing to consider the surrounding circumstances, and that the Commissioner's reliance on Regulation 1310 was misplaced. Blue Cross also contends that the State Benefits Committee's approval of its contract is persuasive evidence that Blue Cross complied with the statute in a reasonable manner.Section 2304(16)(c) of Title 18 of the Delaware Code states in pertinent part: "No person shall commit or perform with such frequency as to indicate a general business practice any of the following: . . . [f]ailing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies[.]" To enforce any statute under Title 18 of the Delaware Code, the Commissioner may promulgate appropriate regulations. Regulation 1310 is one such regulation promulgated to enforce 18 Del. C. § 2304(16). The Regulation requires that an insurance carrier process a "clean claim" within thirty days of receipt, either through payment, request for additional information, or rejection, with appropriate notice to the provider or policyholder.
See 18 Del. C. § 310(b) ("The Commissioner shall have the powers and authority expressly vested by or reasonably implied from this title."); id. § 311(a) ("The Commissioner may make reasonable rules and regulations necessary for, or as an aid to, the administration or effectuation of any provision of this title. No such rule or regulation shall extend, modify or conflict with any law of this State or the reasonable implications thereof.").
Commissioner Donna Lee Williams amended Regulation Department Regulation 1310 to require that a carrier pay a "clean claim" in thirty days rather than the forty-five days. 7 Del. Reg. 100-101 (July 1, 2003). The Commissioner cited 18 Del. C. § 2304(16) as the basis for this regulation. Appellant's Opening Br., App. at A-040 (Commissioner's Decision and Order, 9/25/07). The Regulation was again amended on August 1, 2005, in ways immaterial to this case. 9 Del. Reg. 240 (August 1, 2005). Both amendments were promulgated appropriately under 18 Del. C. § 2313(a), which requires notice and hearing before any regulations are enacted, modified, or amended.
18 Del. Admin. C. § 1310(6.1).
Blue Cross's admission that it had no formal procedures in place to comply with Regulation 1310 or to ensure timely processing of claims, in addition to evidence that it had failed to pay over 10,000 claims within thirty days as required by Regulation 1310, is more than sufficient to support the Commissioner's finding that Blue Cross failed to adopt "reasonable standards for the prompt investigation of claims arising under insurance policies" under Section 16(c). As the Commissioner so aptly stated:
[T]here is no need in this case to argue over whether 1,000, 10,000 or (as BCBSD would argue) 250,000 improper late payments in a six month period constitutes a "general business practice," because BCBSD testified that it in fact had a general business practice of making no specific effort whatsoever to ensure compliance with Regulation 1310. An affirmative decision by an insurance carrier to simply ignore the law with respect to prompt payment of claims, combined with 10,000 individual incidents of the law being violated as a consequence of that decision, is more than sufficient to violate 18 Del. C. § 2304(16).
Appellant's Opening Br., App. at A-045 (Commissioner's Decision and Order, 9/25/07).
The undisputed testimony at the May 29, 2007 hearing indicated that Blue Cross had failed to implement formal procedures, other than vague employee incentive programs, to ensure timely compliance with Regulation 1310. Blue Cross openly conceded at the hearing that its first priority when processing claims was accuracy, not timeliness. The lack of a formal system in place that focused on timeliness led to 10,000 late payments within the first six months of 2006. The Commissioner's determination that Blue Cross's general practice of "failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies" was thus supported by substantial evidence.
The express language of Section 16(c) further supports the Commissioner's ruling. Section 16(c) precludes a party from continuously failing to adopt reasonable standards to investigate claims promptly. That Blue Cross processed 97.65% of its claims within thirty days of receipt is irrelevant. The statute does not address an insurance carrier's rate of success. Similarly, the fact that Blue Cross received approval from the State Benefits Committee to process 97.65%, rather than 100%, of its claims within thirty days is irrelevant to the question of whether Blue Cross had reasonable standards to ensure prompt investigation, a clear statutory requirement. Blue Cross admitted that it had no standards in place to ensure the prompt investigation of submitted claims. That alone constitutes substantial evidence to support the Commissioner's finding that Blue Cross violated Section 16(c).
Id.
The Court further concludes that the Commissioner's reliance upon Regulation 1310 to define a "reasonable time" for processing claims was proper. Regulation 1310 was adopted to implement 18 Del. C. § 2304(16) pursuant to the appropriate procedural requirements of notice and a hearing. With input from Blue Cross and other insurance carriers, the Commissioner adopted a definition of reasonable under Regulation 1310. Blue Cross did not interpose any objection to the thirty-day standard when the regulation was being considered in 2003, although it was given an opportunity to do so. Under these circumstances, it ill behooves it to complain that the Regulation, which explicitly defines the time period for compliance, should not be applied to it.
The Commissioner noted that, when Regulation 1310 was adopted, no insurance carrier challenged the regulation. Appellant's Opening Br., App. at A-040 (Commissioner's Decision and Order, 9/25/07). In fact, the record indicates that the insurers who testified were supportive of Regulation 1310. Id.
More importantly, Regulation 1310's plain language explicitly states that insurance carriers have thirty days — not just a "reasonable time" — to process claims. Because Regulation 1310 was implemented to enforce 18 Del. C. § 2304(16), Blue Cross's admission that it failed to process over 10,000 claims within thirty days is substantial evidence that it failed to comply with Section 16(c) within a "reasonable time." Giving the agency rule greater weight because it is "longstanding and widely enforced," the Court finds that the Commissioner's decision that thirty days is reasonable is supported by substantial evidence.
DiPasquale, 735 A.2d at 382 n. 8.
VI. Conclusion
Based on the foregoing, the Court finds that the Commissioner's ruling is supported by substantial evidence. Nor did the Commissioner violate Blue Cross's right to due process by later filing an additional charge since it also afforded the carrier notice and a full opportunity to be heard. Accordingly, the Insurance Commissioner's decision is hereby AFFIRMED.
IT IS SO ORDERED.