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Enter. Life Ins. Co. v. Ariz. Dep't of Ins. - 3/26/2020

Arizona Court of Appeals Division One holds that A.R.S. § 23-1380 does not authorize the Department of Insurance to require a health insurer to discontinue all coverage when the insurer ceases to offer some coverage.

Two companies provided health insurance policies that were exempt from the requirements of the Patient Protection and Affordable Care Act (“ACA”) because they were sold before the ACA was enacted (“grandfathered” policies) or after it was enacted but before it went into effect (“transitional” policies).  The companies renewed these policies and also filed rates with the Department of Insurance to offer new, ACA-compliant policies.  However, no customers purchased the new policies, and the companies ceased offering them.  The Department asserted that the companies had thereby exited the individual market and directed them to terminate their grandfathered and transitional policies.

The companies appealed to the Office of Administrative Hearings.  The ALJ ruled in the companies’ favor, but the Department rejected the ALJ’s decision and barred the companies from the Arizona individual health insurance market for 5 years pursuant to A.R.S. § 20-1380.  The superior court affirmed and the companies appealed again.

Section 20-1380(D) provides that “[i]f a health care insurer elects to discontinue offering all health insurance coverage in the individual market in this state, the health care insurer may discontinue that coverage only if” the insurer provides notice to the Department of Insurance and its existing customers and discontinues all individual coverage in Arizona.  The Department argued that when an insurer ceases to offer new coverage in the market, § 20-1380(D) authorizes the Department to order the insurer to discontinue all coverage, while § 20-1380(E) authorizes the Department to revoke the insurers’ ability to do business in the state for 5 years. 

The Court of Appeals rejected this reasoning and vacated the Department’s order.  Based on the purpose of the statute and its permissive language, the Court explained that § 20-1380 provides a checklist of an insurer when the insurer decides to discontinue “all” coverage (i.e., new and existing coverage).  An insurer’s decision not to offer new coverage does not allow the Department to force an insurer to discontinue existing coverage. 

The Court also rejected the Department’s argument that the authority it sought was necessary or implied.  The purpose of the statute is to protect insureds, but the Department’s order would have had the opposite result by forcing the companies to terminate coverage that insureds wanted to keep.  More broadly, the Court reminded the Department that its powers are limited to those granted by statute, and that its attempt to venture beyond that grant violated the separation of powers.

Judge Morse delivered the opinion of the court; Judges Weinzweig and Perkins joined.

Posted by: Josh Bendor

Posted On: 5/18/2020