Preview:

FOR PUBLICATION

ATTORNEYS FOR APPELLANTS: MARK D. ULMSCHNEIDER ANDREW L. TEEL Steele, Ulmschneider & Malloy Fort Wayne, Indiana

ATTORNEYS FOR APPELLEE: STEVE CARTER Attorney General of Indiana DAVID L. STEINER Deputy Attorney General Indianapolis, Indiana

FILED
of the supreme court, court of appeals and tax court

Mar 12 2008, 8:55 am

IN THE COURT OF APPEALS OF INDIANA
EMPLOYEE BENEFIT MANAGERS, INC. OF AMERICA and CHARLES BELCH, Appellants-Petitioners, vs. INDIANA DEPARTMENT OF INSURANCE, Appellee-Respondent. ) ) ) ) ) ) ) ) ) )

CLERK

No. 02A03-0704-CV-148

APPEAL FROM THE ALLEN SUPERIOR COURT The Honorable Stanley A. Levine, Judge Cause No. 02D01-0603-CT-129

March 12, 2008

OPINION - FOR PUBLICATION

BAILEY, Judge

Case Summary Employee Benefit Managers, Inc. of America and its President, Charles Belch ("Belch"), (collectively, "EBM") appeal a decision of the Allen Superior Court affirming an order of the Indiana Department of Insurance ("the Department") that, in relevant part, revoked insurance licenses held by EBM.1 We affirm.2 Issues EBM has presented the following issues for review: I. Whether the Department's order is ultra vires because the Department lacked subject matter jurisdiction over EBM; Whether there is substantial evidentiary support for: (a) the finding that EBM was dishonest and financially irresponsible, (b) the finding that EBM failed to arrange for the payment of unfunded claims, and (c) the finding that EBM violated paragraph 5(e) of the Agreed Entry; and Whether EBM was denied due process because the Department failed to conduct sufficient compliance hearings. Facts and Procedural History EBM was engaged in managing the funding and administration of self-funded employee benefit plans for employer-clients. The Department obtained an Examination Warrant, issued December 10, 2003, to allow the examination of EBM's records by the

II.

III.

1

Belch was licensed as an insurance producer, and EBM was licensed as a third party administrator and as an insurance producer. Oral argument was conducted on February 19, 2008 in the Indiana Supreme Court courtroom, attended by the members of the Indianapolis Bar Association Bar Leader Series V. We commend counsel on the quality of their written and oral advocacy.

2

2

Department. On January 27, 2004, the Department obtained a subpoena for EBM records. On May 25, 2004, the Department lodged charges of non-compliance. The Department and EBM entered into an Agreed Entry dated July 7, 2004, and a subsequent Agreed Entry dated November 22, 2004. EBM was required to arrange for the funding and payment of then-unfunded claims as verified by the Special Financial Examiner, amounting to approximately $1,795,000.00. EBM agreed to cease offering or administering any health plans in which fees collected from different employers to fund health claims were commingled in depository accounts. EBM also agreed to provide employers with documents defining the terms and conditions of any claims funding arrangements and/or stop loss insurance policies. EBM agreed to have in place a funding source for unfunded claims in an amount no less than $600,000.00 as of thirty days from the date of the Final Order. On November 22, 2004, the Acting Commissioner issued a Final Order incorporating and adopting the Agreed Entry. EBM's licenses were placed on probationary status. On March 22, 2005, the Department requested an emergency hearing. At the March 31, 2005 hearing, Belch testified that EBM no longer commingled funds from participating employer groups in a single account, and that marketing materials clearly explained the nature of EBM's programs. EBM had obtained Key Man life insurance and had afforded the Special Financial Examiner access to pertinent files. However, Belch also testified that EBM was not in compliance with the requirement to arrange for funding and payment of all unfunded claims. Employers' deposited funds and accounts receivable were being used to pay claims and EBM was pursuing additional funding. At the conclusion of the 3

hearing, Commissioner Atterholt took the matter under advisement. On April 29, 2005, Commissioner Atterholt issued a Stipulated Stay of Proceedings extending the compliance date for claims funding and payment to June 1, 2005. A hearing was conducted on June 17, 2005, at which EBM identified a potential source of funding, but admitted that the anticipated funding was not yet in place. Commissioner Atterholt again took the matter under advisement. On or before July 1, 2005, EBM deposited $219,000.00 into an account for the payment of unfunded claims. Also on July 1, 2005, Commissioner Atterholt issued an order that EBM deposit into that account a minimum of $804,000.00 more before July 8, 2005. By July 15, 2005, EBM was to provide proof that the account funds had been expended for claims payments. Pursuant to a supplemental order issued on July 11, 2005, non-compliance was to result in suspension of EBM's insurance licenses. On October 26, 2005, a final hearing was conducted. On January 31, 2006, the Department filed an Emergency Motion for Cease and Desist, alleging that EBM had issued letters to employers suggesting that failure to reimburse EBM for purported loans was a violation that EBM was entitled to redress under authority of state government, specifically the Department. On February 17, 2006, Commissioner Atterholt issued an Emergency Cease and Desist Order/Final Order revoking the licenses held by EBM and Belch and ordering them to not engage in conduct that constitutes the business of insurance without applying for and receiving a certificate of authority to do so. However, the Order provided: "Belch and EBM are not prohibited from doing business with employers in the form of single employer self insured health plans as those activities are outside the scope of the Indiana Department of 4

Insurance and are subject [to] the regulation of federal government agencies." (App. 1100.) (emphasis in original.) The revocation was based upon the Commissioner's findings that claims were not timely paid and employers were misled into believing that a funding source was in place when it was not in place. Subsequently, EBM filed a response brief but did not request an additional hearing. On March 20, 2006, EBM filed a Verified Petition for Judicial Review pursuant to Indiana Code Section 4-21.5-5-1 et seq. The trial court conducted hearings on September 19, 2006, and on October 3, 2006. On January 11, 2007, after the parties submitted proposed findings of fact and conclusions of law, the trial court held an additional hearing to determine whether Belch had been dismissed as a party to the proceedings before the Department. On February 12, 2007, the trial court affirmed the Department's order. EBM now appeals. Standard of Review Although the legislature has granted courts the power to review the action of state government agencies taken pursuant to the Administrative Orders and Procedures Act (AOPA), this power of judicial review is limited. LTV Steel Co. v. Griffin, 730 N.E.2d 1251, 1257 (Ind. 2000). A court may only set aside agency action that is: (1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (2) contrary to constitutional right, power, privilege, or immunity; (3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; (4) without observance of procedure required by law; or (5) unsupported by substantial evidence. Ind. Code

Download Employee Benefit Managers, Inc. of America and Charles Belch v. Indiana Dept. of

Indiana Law