{
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  "name": "IN THE MATTER OF: A DECLARATORY RULING BY THE NORTH CAROLINA COMMISSIONER OF INSURANCE REGARDING 11 N.C.A.C. 12.0319",
  "name_abbreviation": "In re a Declaratory Ruling by the North Carolina Commissioner of Insurance Regarding 11 N.C.A.C. 12.0319",
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    "parties": [
      "IN THE MATTER OF: A DECLARATORY RULING BY THE NORTH CAROLINA COMMISSIONER OF INSURANCE REGARDING 11 N.C.A.C. 12.0319"
    ],
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      {
        "text": "MARTIN, Judge.\nOn 26 September 1978 the North Carolina Department of Insurance (NCDOI) adopted a rule pursuant to the North Carolina Administrative Procedures Act (currently codified as N.C. Gen. Stat. \u00a7 150B), stating that \u201cLife or accident and health insurance forms shall not contain a provision allowing subrogation of benefits.\u201d 11 N.C.A.C. 12.0319 (anti-subrogation rule). The validity of this rule is the subject of this dispute. Employers Health Insurance Company (Employers) and Blue Cross Blue Shield of North Carolina (BCBS) filed a joint petition on 15 October 1997 seeking a formal declaration regarding the enforceability of the 1978 anti-subrogation rule.\nKnown historically as the principle of substitution, the doctrine of subrogation allows a party who has compensated a creditor under the color of some obligation, to step into the shoes of the creditor, thereby succeeding to the creditor\u2019s rights to proceed against the debtor for reimbursement. Journal Pub. Co. v. Barber, 165 N.C. 478, 487-88, 81 S.E. 694, 698 (1914). When an insurer has compensated the insured for a loss according to the terms of an insurance policy, the insurer is subrogated to the rights of the insured with respect to any third party who may be liable for the loss covered by the policy. Phoenix Ins. Co. of Brooklyn v. Erie & Western Transp. Co., 117 U.S. 312, 29 L.Ed. 873 (1886); Fidelity Insurance Co. v. Atlantic Coast Line Railroad Co., 165 N.C. 136, 80 S.E. 1069 (1914).\nIn a declaratory ruling of 29 December 1997, the Commissioner upheld the anti-subrogation rule. The superior court reversed the Commissioner\u2019s ruling but stayed the judgment pending final appellate determination. NCDOI appeals.\nAppellate review of a judgment of the superior court entered upon review of an administrative agency decision requires that the appellate court determine whether the superior court utilized the appropriate scope of review and, if so, whether the superior court did so correctly. Act-Up Triangle v. Com\u2019n for Health Serv., 345 N.C. 699, 706, 483 S.E.2d 388, 392 (1997) (citing Amanini v. North Carolina Dept. of Human Resources, 114 N.C. App. 668, 443 S.E.2d 114 (1994)). The nature of the error asserted by the party seeking review dictates the appropriate manner of review: if the appellant contends the agency\u2019s decision was affected by a legal error, G.S. \u00a7 150B-51(1)(2)(3)&(4), de novo review is required; if the appellant contends the agency decision was not supported by the evidence, G.S. \u00a7 150B-51(5), or was arbitrary or capricious, G.S. \u00a7 150B-51(6), the whole record test is utilized. In re Appeal by McCrary, 112 N.C. App. 161, 435 S.E.2d 359 (1993).\nIn this case, petitioners\u2019 claim and respondent\u2019s assignments of error both address the legal efficacy of the anti-subrogation rule, 11 N.C.A.C. 12.0319; thus the appropriate standard of review for the superior court and this Court is de novo review. Id. It makes no difference that a declaratory ruling, rather than a contested case, is now before us. N.C. Gen. Stat. \u00a7 150B-4 (1995) (\u201cA declaratory ruling is subject to judicial review in the same manner as an order in a contested case.\u201d). Accordingly, we consider de novo whether the Commissioner erred in upholding the anti-subrogation rule adopted by the NCDOI.\nRespondent\u2019s Appeal\nThe superior court concluded that NCDOI exceeded its statutory authority and violated the United States Constitution when it promulgated the anti-subrogation rule. With respect to the question of statutory authority, NCDOI contends the superior court erred when it concluded promulgation of the anti-subrogation rule (1) exceeded the statutory authority of the NCDOI, (2) effectively changed North Carolina substantive law allowing legal subrogation, and (3) amounted to an unconstitutional delegation of legislative powers. The Commissioner also takes issue with the superior court\u2019s conclusion that: (4) adoption of the rule impermissibly interfered with petitioners\u2019 constitutional freedom of contract, and (5) application of the rule to prohibit subrogation clauses in the policies of fewer than all health and accident insurers in this State violated Constitutional guarantees of equal protection under the law. For the following reasons we reverse the judgment of the superior court.\nI. Statutory Authority\nThe power of the Commissioner of Insurance is limited by statute. As stated in State ex rel. Com\u2019r of Ins. v. North Carolina Auto. Rate Administrative Office,\nWhile the Office of Commissioner of Insurance is created by Article III, sec. 7(1) of the North Carolina Constitution, section 7(2) of that Article says his duties shall be prescribed By law. Hence, the power and authority of the Commissioner emanate from the General Assembly and are limited by legislative prescription.\n287 N.C. 192, 202, 214 S.E.2d 98, 104 (1975), appeal after remand, 30 N.C. App. 427, 227 S.E.2d 603 (1976), reh\u2019g granted, opinion vacated by, 292 N.C. 1, 231 S.E.2d 867 (1977); State ex rel. Com\u2019r of Ins. v. North Carolina Rate Bureau, 300 N.C. 381, 398, 269 S.E.2d 547, 561, reh\u2019g denied, 301 N.C. 107, 273 S.E.2d 300 (1980) (hereinafter Rate Bureau); Mullins v. North Carolina Criminal Justice Educ. and Training Standards Com\u2019n, 125 N.C. App. 339, 481 S.E.2d 297 (1997). In addition to express powers, administrative agencies have implied powers reasonably necessary for the proper execution of their express purposes. Mullins at 344, 481 S.E.2d at 300; State ex rel. Com\u2019r of Ins. v. Integon Life Ins. Co., 28 N.C. App. 7, 10, 220 S.E.2d 409, 411-12 (1975). Absent express authority or an implied power reasonably necessary for proper administrative functions, \u201c[a]n administrative agency has no power to promulgate rules and regulations which alter or add to the law it was set up to administer or which have the effect of substantive law.\u201d Integon Life Ins. Co. at 11, 220 S.E.2d at 412. However, just because an asserted power is \u201cnovel and unprecedented\u201d does not necessarily mean the action exceeds statutory authority. Rate Bureau at 401, 269 S.E.2d at 562 (citing United States v. Morton Salt Company, 338 U.S. 632, 94 L.Ed. 401 (1950)). Despite the \u201cnovel and unprecedented\u201d aspects of the anti-subrogation rule, we must determine whether the NCDOI was given express or implied authority to promulgate 11 N.C.A.C. 12.0319.\n\u201cAn issue as to the existence of power or authority in a particular administrative agency is one primarily of statutory construction.\u201d Rate Bureau at 399, 269 S.E.2d at 561; Mullins, supra.\nIn construing the laws creating and empowering administrative agencies, as in any area of law, the primary function of a court is to ensure that the purpose of the Legislature in enacting the law, sometimes referred to as legislative intent, is accomplished. The best indicia of that legislative purpose are \u201cthe language of the statute, the spirit of the act, and what the act seeks to accomplish.\u201d\nRate Bureau at 399, 269 S.E.2d at 561 (citations omitted); Mullins, supra. Rules of statutory construction apply, and so statutes in pari materia, and all parts thereof, should be construed together and compared with each other. Rate Bureau at 399-400, 269 S.E.2d at 561; Redevelopment Commission v. Security National Bank of Greensboro, 252 N.C. 595, 114 S.E.2d 688 (1960). \u201cSuch statutes should be reconciled with each other when possible, and any irreconcilable ambiguity should be resolved so as to effectuate the true legislative intent.\u201d Rate Bureau at 400, 269 S.E.2d at 561; Duncan v. Carpenter, 233 N.C. 422, 64 S.E.2d 410 (1951).\nA review of the statutory insurance regulatory scheme reveals a legislative intent to grant the Commissioner broad authority to review insurance forms and restrict those provisions less favorable to the consumer, i.e., the insured or beneficiary, than required by statutory provisions.\nThe Commissioner is given the authority to require filing and approve insurance policies. N.C. Gen. Stat. \u00a7 58-51-1 (filing and approval authority over sickness and accident insurance forms prior to use); N.C. Gen. Stat. \u00a7 58-51-85 (filing and approval authority over policies of group or accident and health insurance prior to use); N.C. Gen. Stat. \u00a7 58-51-95 (filing and approval authority over forms and rates for individual sickness or bodily injury or death by accident policies prior to use); N.C. Gen. Stat. \u00a7 58-67-50 (filing and approval authority over evidences of coverage, amendments issued by HMOs prior to use). However, these statutes do not provide express authority to exclude substantive provisions, absent some other authority within the insurance statutes.\nG.S. \u00a7 58-2-40 (Powers and Duties of Commissioner) states that the Commissioner shall:\n(1) See that all laws of this State that the Commissioner is responsible for administering and the provisions of this Chapter are faithfully executed; and to that end the Commissioner is authorized to adopt rules in accordance with Chapter 150B of the General Statutes, in order to enforce, carry out and make effective the provisions of those laws.\nN.C. Gen Stat. \u00a7 58-2-40(1) (1994). In particular,\n[t]he Commissioner is also authorized to adopt such further rules not contrary to those laws that will prevent persons subject to the Commissioner\u2019s regulatory authority from engaging in practices injurious to the public.\nId. Thus, in addition to the enforcement of express statutory provisions protecting the public, the Commissioner is authorized to adopt \u201cfurther rules\u201d to prevent insurers from \u201cengaging in practice injurious to the public.\u201d Id. The Commissioner argues that this statute provides express and/or implied authority to limit subrogation provisions, as they are \u201cinjurious to the public.\u201d\nG.S. \u00a7 58-2-40 (formerly G.S. 58-9(1)), has been interpreted to place a duty upon the Commissioner to administer the insurance laws of the State, and does not confer any other express powers or duties. Charlotte Liberty Mut. Ins. Co. v. State ex rel. Lanier, 16 N.C. App. 381, 384, 192 S.E.2d 57, 59 (1972) (\u201cThe Commissioner of Insurance of North Carolina is charged with the duty under G.S. \u00a7 58-9 with administering the laws of the State with regard to the insurance industry. Specific powers and duties are statutorily conferred upon the Commissioner to aid him in the administration of the insurance laws.\u201d). Standing alone, G.S. \u00a7 58-2-40 does not contain an express or implied grant of power to limit subrogation provisions. See Integon Life Ins. Co., 28 N.C. App. at 11, 220 S.E.2d at 412 (\u201cClearly, G.S. 58-9(1) contains no express grant of authority to set rates and it is not such an implied power as is \u2018reasonably necessary for (the Commissioner\u2019s) proper functioning.\u2019 \u201d). Therefore some other statutory provision must provide a specific basis for authority, before the Commissioner has the authority to promulgate \u201cfurther rules\u201d restricting \u201cpractices injurious to the public.\u201d N.C. Gen. Stat. \u00a7 58-2-40.\nRegarding health and accident insurance policies, G.S. \u00a7 58-51-15 sets out required and prohibited policy provisions. G.S. \u00a7 58-51-15(a) states twelve specific provisions that must be found in every health and accident insurance policy. Prohibited provisions are regulated in G.S. \u00a7 58-51-15(b) which precludes eleven different substantive contractual provisions in health and accident policies, unless those policies adopt the language and wording of the statute. Subrogation rights are neither required nor prohibited by the statute on health and accident insurance policies; however, G.S. \u00a7 58-50-15(a) provides that:\nNo policy provision which is not subject to G.S. 58-51-15 shall make a policy, or any portion thereof, less favorable in any respect to the insured or the beneficiary than the provisions thereof which are subject to Articles 50 through 55 of this Chapter.\nN.C. Gen. Stat. \u00a7 58-50-15(a) (1994). This statutory provision gives the Commissioner a broad latitude and flexibility in evaluating other provisions in insurance policies.\nCiting Durrett v. Bryan, 14 Kan.App.2d 723, 729, 799 P.2d 110, 115 (1990), as persuasive authority, the Commissioner argues that \u201ca subrogation provision, by having the effect of reducing the benefits ultimately received by a policyholder, would be a less favorable provision, and so prohibited by KSA 40-2204(A).\u201d Interpreting statutory provisions almost identical to G.S. \u00a7\u00a7 58-51-15 and 58-50-15, the Kansas Court of Appeals found that \u201ca subrogation clause is a provision less favorable to the insured than those provisions delineated in\u201d the Kansas equivalent to G.S. \u00a7 58-51-15. Id. at 729, 799 P.2d at 115-16. That Court concluded that these statutes provide \u201cadequate statutory authority for the promulgation of\u2019 the anti-subrogation rule. Id. at 729, 799 P.2d at 116. We agree with the reasoning of the Kansas Court that subrogation provisions are certainly \u201cless favorable in any respect to the insured or the beneficiary\u201d than those required by G.S. \u00a7 58-51-15, because subrogation inevitably reduces the potential amount of compensation received by the insured. Thus the statutory scope of the Commissioner\u2019s authority allows the prohibition of sub-rogation provisions in insurance contracts.\nGiven these legislative pronouncements we conclude that \u201cthe language of the statute, the spirit of the act, and what the act seeks to accomplish,\u201d all demonstrate a legislative intent to grant the Commissioner of Insurance broad authority to limit insurance policy provisions, like subrogation, that are less favorable to the insured than those specifically addressed by G.S. \u00a7 58-51-15. Cf. Rate Bureau at 399, 269 S.E.2d at 561.\nNevertheless, the superior court held that promulgation of the anti-subrogation rule exceeded the Commissioner\u2019s authority by altering or adding to the substantive common law allowing for subrogation. Petitioners cite State ex rel. Com\u2019r of Ins. v. Integon Life Ins. Co., 28 N.C. App. 7, 11, 220 S.E.2d 409, 412 (1975), for the proposition that \u201c[a]n administrative agency has no power to promulgate rules and regulations which alter or add to the law it was set up to administer or which have the effect of substantive law.\u201d Because the anti-subrogation rule prohibits subrogation provisions in accident and health insurance forms, petitioners contend that the rule is an unauthorized restriction on all forms of subrogation, contractual or equitable.\nWhere an agency has the authority to act, its rules and regulations have the binding effect of statutes and may accordingly alter the common law. Taylor v. Superior Motor Co., 227 N.C. 365, 367, 42 S.E.2d 460, 461 (1947) (noting that \u201cproper regulations authorized under the Act have the binding effect of law,\u201d because such regulations \u201care the tools used to effectuate the policy and purposes of the Act.\u201d). As discussed above, NCDOI had the authority to limit contractual provisions providing subrogation rights to insurers. The Commissioner is charged with enforcing the laws governing insurance contracts. N.C. Gen. Stat. \u00a7 58-2-40 (Powers and Duties of Commissioner to enforce insurance laws); N.C. Gen. Stat. \u00a7 58-1-10 (\u201cA contract of insurance is an agreement by which the insurer is bound to pay money or its equivalent or to do some act of value to the insured upon, and as an indemnity or reimbursement for the destruction, loss, or injury of something in which the other party has an interest.\u201d) Therefore, to the extent the anti-subrogation rule limited contractual rights, it was promulgated within the authority of the agency and has the binding effect of law. The question is whether the scope of the anti-subrogation rule exceeded the authority delegated by the legislature, and purported to limit rights arising outside contracts. A review of the anti-subrogation rule in the context of the general law of subro-gation reveals that the rule is limited to contractual (or conventional) subrogation.\nSubrogation rights are categorized as \u201ceither the right of conventional subrogation \u2014 that is, subrogation by agreement between the insurer and the insured \u2014 or the right of equitable subrogation, by operation of law, upon the payment of the loss.\u201d Milwaukee Ins. Co. v. McLean Trucking Co., 256 N.C. 721, 726, 125 S.E.2d 25, 29 (1962). Conventional subrogation arises from an express contract between the payer and creditor (or debtor), that the payer will be subrogated to the rights of the payee. Journal Pub. Co. v. Barber, 165 N.C. 478, 488, 81 S.E. 694, 698-99 (1914) (\u201cConventional subrogation or subro-gation by act of parties may take place by the debtor\u2019s agreement that one paying a claim shall stand in the creditor\u2019s shoes; and furthermore can arise only by reason of an express or implied agreement between the payer and either the debtor or the creditor, and the agreement, like other agreements, must be supported by a consideration.\u201d); Grantham v. Nunn, 187 N.C. 394, 121 S.E. 662 (1924).\nEquitable subrogation is \u201ca device adopted by equity to compel the ultimate discharge of an obligation by him who in good conscience ought to pay it\u201d and \u201carises when one person has been compelled to pay a debt which ought to have been paid by another and for which the other was primarily liable.\u201d Beam v. Wright, 224 N.C. 677, 683, 32 S.E.2d 213, 218 (1944); Lyon & Sons, Inc. v. N.C. State Bd. of Educ., et al, 238 N.C. 24, 32, 76 S.E.2d 553, 559 (1953); Harris-Teeter Super Markets, Inc. v. Watts, 97 N.C. App. 101, 103, 387 S.E.2d 203, 205 (1990). \u201cIt is sufficient to invoke the doctrine of subrogation if (1) the obligation of another is paid; (2) \u2018for the purpose of protecting some real or supposed right or interest of his own.\u2019 \u201d Jamestown Mut. Ins. Co. v. Nationwide Mut. Ins. Co., 277 N.C. 216, 222, 176 S.E.2d 751, 756 (1970) (citations omitted); North Carolina Ins. Guar. Ass\u2019n v. Century Indem. Co., 115 N.C. App. 175, 188, 444 S.E.2d 464, 472, disc. review denied, 337 N.C. 696, 448 S.E.2d 532 (1994) (hereinafter NCIGA). Even where there is no express subrogation agreement in an insurance contract, equitable subrogation rights may arise by operation of law. Smith v. Pate, 246 N.C. 63, 67, 97 S.E.2d 457, 460 (1957) (\u201cWhere an insurance company, pursuant to the terms of its contract of insurance, indemnifies the insured for loss resulting from a wrongful act of a third person, it is by operation of law subrogated to the extent of such payment to the rights of its insured against the tort-feasor.\u201d); Standard Acc. Ins. Co. v. Pellecchia, 15 N.J. 162, 104 A.2d 288 (1954) (\u201cThe right does not arise out of contract but rather exists without the consent of the insured. [Although of course the parties may by agreement waive or limit the right.\u201d). Also, equitable subrogation rights have been recognized in the context of recovering pay-merits for medical benefits, as in uninsured motorists automobile insurance policies. Moore v. Beacon Ins. Co., 54 N.C. App. 669, 670, 284 S.E.2d 136, 138, disc. review denied, 305 N.C. 301, 291 S.E.2d 150 (1981) (\u201cIt is well-settled in North Carolina that an insurer is subro-gated to its insured\u2019s rights to recover medical expenses resulting from injuries inflicted by a tortfeasor when the insurer has paid such medical expenses pursuant to a medical payments provision in the [automobile] insurance policy.\u201d)\nThe anti-subrogation rule itself only applies to subrogation as it appears in insurance forms, i.e., conventional subrogation by agreement. 11 N.C.A.C. 12.0319 states that \u201c[l]ife or accident and health insurance forms shall not contain a provision allowing subrogation of benefits.\u201d We conclude that the Commissioner did not exceed the statutory authority granted by the General Assembly when promulgating the rule prohibiting subrogation provisions in life or accident and health insurance contracts. The superior court\u2019s conclusion that the NCDOI exceeded its authority in limiting contractual subrogation is accordingly overruled. The question of whether equitable subrogation rights might also arise in the context of life or accident and health insurance coverage is not before us and, therefore, we do not address that question. See NCGIA at 190-91, 444 S.E.2d at 473 (Even where the General Assembly has expressly excluded contractual sub-rogation claims, this Court has held that the General Assembly did not also intend to restrict equitable subrogation rights.).\nThe superior court also held that even if the General Assembly had intended to authorize the Commissioner to restrict insurance provisions like subrogation, such authorization amounted to an invalid and unconstitutional delegation of legislative power to an administrative agency. We disagree.\nThe North Carolina Supreme Court has interpreted Article I, section 6 of the North Carolina Constitution (separation of power) and Article II, section 1 of the Constitution (vesting legislative power in General Assembly) to mean that \u201cthe legislature may not abdicate its power to make laws or delegate its supreme legislative power to any coordinate branch or to any agency which it may create.\u201d Adams v. North Carolina Dept. of Natural and Economic Resources, 295 N.C. 683, 696, 249 S.E.2d 402, 410 (1978) (citing North Carolina Turnpike Authority v. Pine Island, Inc., 265 N.C. 109, 143 S.E.2d 319 (1965)). Recognizing the complexity of the modern legislative process, the Court concluded that \u201cstrict adherence to ideal notions of the non-delegation doctrine would unduly hamper the General Assembly in the exercise of its constitutionally vested powers;\u201d therefore, \u201cthe constitutional inhibition against delegating legislative authority does not preclude the legislature from transferring adjudicative and rule-making powers to administrative bodies provided such transfers are accompanied by adequate guiding standards to govern the exercise of the delegated powers.\u201d Id. at 697, 249 S.E.2d at 410.\nWhen evaluating what constitutes \u201cadequate guiding standards\u201d in the \u201cexercise of delegated powers,\u201d the court has stated that \u201csuch declarations need be only as specific as the circumstances permit.\u201d Bring v. North Carolina State Bar, 348 N.C. 655, 658, 501 S.E.2d 907, 909, reh\u2019g denied, 349 N.C. 242, 514 S.E.2d 271 (1998) (quoting Adams v. North Carolina Dept. of Natural and Economic Resources, 295 N.C. 683, 249 S.E.2d 402 (1978)).\nWhen there is an obvious need for expertise in the achievement of legislative goals the General Assembly is not required to lay down a detailed agenda covering every conceivable problem which might arise in the implementation of the legislation. It is enough if general policies and standards have been articulated which are sufficient to provide direction to an administrative body possessing the expertise to adapt the legislative goals to varying circumstances.\nId. In addition, the existence of adequate procedural safeguards supports the constitutionality of the delegated power and tends to \u201cinsure that the decision-making by the agency is not arbitrary and unreasoned.\u201d Id. (\u201cProcedural safeguards tend to encourage adherence to legislative standards by the agency to which power has been delegated.\u201d).\nThe statutory provisions, G.S. \u00a7\u00a7 58-2-40, 58-51-15, 58-50-15, granting and guiding the Commissioner\u2019s authority in health and accident insurance policies, articulate \u201cgeneral policies and standards\u201d which sufficiently \u201cprovide direction to an administrative body possessing the expertise to adapt the legislative goals to varying circumstances.\u201d Bring at 568, 501 S.E.2d at 909. Also, judicial review of the Commissioner\u2019s declaratory ruling and specific application of the rule in contested cases under the North Carolina Administrative Procedures Act (G.S. \u00a7 150B), offer adequate procedural safeguards tending to \u201cencourage adherence to legislative standards\u201d and also demonstrate the constitutionality of the legislative delegation of power to the Commissioner.\nWe therefore conclude that the Commissioner was within the statutory and constitutional powers delegated by the General Assembly when adopting the anti-subrogation rule, 11 N.C.A.C. 12.0319.\nII. Constitutional Violations\nThe superior court also concluded that: (A) adoption of the anti-subrogation rule impermissibly interfered with petitioners\u2019 constitutional freedom of contract, and (B) application of the rule to prohibit subrogation provisions in the policies of some, but not all, insurers violated Constitutional guarantees of equal protection under the law. We disagree and reverse the superior court on these issues as well.\nA.\nPromulgation of the anti-subrogation rule does not interfere with petitioner\u2019s constitutional right to contract. The right to contract is a property right protected by our State Constitution and the Fourteenth Amendment to the United States Constitution. Alford v. Textile Insurance Co., 248 N.C. 224, 227, 103 S.E.2d 8, 10-11 (1958); Morris v. Holshouser, 220 N.C. 293, 17 S.E.2d 115 (1941); Mark IV Beverage, Inc. v. Molson Breweries USA, Inc., 129 N.C. App. 476, 500 S.E.2d 439, disc. review denied, 349 N.C. 360, 515 S.E.2d 705 (1998); Louchheim, Eng & People, Inc. v. Carson, 35 N.C. App. 299, 241 S.E.2d 401 (1978). However, this right is qualified by the power of the legislature to supervise economic relations, providing restrictive safeguards and reasonable regulations. Morris, supra] Mark TV Beverage, Inc., supra; Louchheim, supra. Limitations on the right to contract are constitutional \u201cso long as they are reasonable in light of the purposes to be accomplished.\u201d Louchheim at 306, 241 S.E.2d at 405-06 (citing Morris v. Holshouser, supra).\nThe test for determining the constitutionality of a statute under the law of the land is whether the legislature has employed reasonable means to effect a proper governmental purpose. . . . The due process inquiry is whether \u201cthe state measure bear[s] a rational relation to a constitutionally permissible objective.\u201d\nMark IV Beverage, Inc., 129 N.C. App. at 486-87, 500 S.E.2d at 446 (citations omitted). \u201cIt has been long established that the insurance business is charged with a public interest, and that its regulation is constitutional.\u201d Rate Bureau at 386, 269 S.E.2d at 555 (citing German Alliance Insurance Co. v. Lewis, 233 U.S. 389, 58 L.Ed. 1011 (1914)).\nHere, the anti-subrogation rule is a reasonable means to accomplish a proper governmental purpose. Restricting conventional sub-rogation provisions in insurance policies increases the amount of potential recovery for the insured public. Thus the superior court erred when concluding that the anti-subrogation rule impermissibly interfered with the constitutional liberty to contract.\nB.\nThe superior court also concluded\n[t]he application of 11 NCAC 12.0319 to prohibit subrogation provisions in the accident and health policies of some, but not all, similarly situated insurers, including Employers Health and Blue Cross, contravenes the constitutional guarantees of equal protection of the laws found in Article I, Section 19 of the North Carolina Constitution and Amendment XIV of the United States Constitution.\nThe conclusion was engendered by the court\u2019s finding that in 1983, Pilot Life Insurance Company (Pilot Life) had sought judicial review of the anti-subrogation rule. In the 1983 action, the Superior Court of Wake County entered a judgment on 12 July 1984 in which it declared the rule null and void \u201cto the extent it attempts to prohibit Pilot\u2019s exercise of its rights to be subrogated . . .,\u201d and permanently restrained NCDOI from enforcing the rule against Pilot Life. Pilot Life Insurance Company v. Ingram, Wake County case number 83 CVS 6671. The Commissioner interpreted the judgment as applying only to Pilot Life, did not appeal, and continued to enforce the anti-subrogation rule against all other North Carolina commercial accident and health insurers.\n\u201cState economic regulatory classifications such as this involve no suspect classification or fundamental freedom and receive only \u2018reasonable scrutiny.\u2019 \u201d American Nat. Ins. Co. v. Ingram, 63 N.C. App. 38, 46, 303 S.E.2d 649, 654, cert. denied, 309 N.C. 819, 310 S.E.2d 348 (1983) (citing Hughes v. Alexandria Scrap Corporation, 426 U.S. 794, 49 L.Ed.2d 220 (1976)).\nLegislation subject only to reasonable scrutiny, even though it may cause some disparate treatment among similarly situated businesses, will not be held violative of the Equal Protection or Due Process Clauses of the Fourteenth Amendment if it bears a \u201crational relationship to a permissible state objective.\u201d Such legislation need not be the best resolution of a particular problem. It can, in fact, be seriously flawed and result in substantial inequality and still remain constitutional if it has some reasonable basis. It will not be set aside if \u201cany state of facts reasonable may be conceived to justify it.\u201d [citations omitted.]\nIngram at 46-47, 303 S.E.2d at 654 (quoting Prudential Property and Casualty Co. v. Ins. Commission, et al., 534 F.Supp. 571, 576 (C.D.S.C. 1982), affirmed, 699 F.2d 690 (4th Cir. 1983)).\nReviewing application of the anti-subrogation rule under this level of scrutiny, we conclude there is no equal protection violation. The anti-subrogation rule serves a legitimate purpose, and the existence of the prior superior court decision invalidating the rule with respect to Pilot Life alone constitutes a rational basis for NCDOI\u2019s disparate treatment of the similarly situated insurers.\nPetitioners argue that a stricter level of scrutiny should be applied because the Commissioner\u2019s application of a facially neutral rule intentionally and purposefully discriminated against insurers other than Pilot Life. Relying upon S. S. Kresge Co. v. Davis, 277 N.C. 654, 661, 178 S.E.2d 382, 386 (1971), petitioners contend that \u201c \u2018[t]hough the law itself be fair on its face, and impartial in appearance, yet, if it is applied and administered by public authority with an evil eye and an unequal hand, so as practically to make unjust and illegal discriminations between persons in similar circumstances, material to their rights, the denial of equal justice is still within the prohibition of the constitution.\u2019 \u201d (quoting Yick Wo v. Hopkins, 118 U.S. 356, 30 L.Ed 220 (1886)). However, to evoke a greater level of scrutiny under the equal protection clause, the discrimination at issue must involve a suspect class such as race or national origin. Hughes v. Alexandria Scrap Corporation, 426 U.S. 794, 49 L.Ed.2d 220 (1976); Ingram, 63 N.C. App. 38, 303 S.E.2d 649; Sheila Foster, Intent and Incoherence, 72 Tul. L. Rev. 1065 (1998). \u201cA statute, otherwise neutral on its face, must not be applied so as invidiously to discriminate on the basis of race.\u201d Washington v. Davis, 426 U.S. 229, 241, 48 L.Ed.2d 597, 608 (1976) (citing Yick Wo v. Hopkins, 118 U.S. 356, 30 L.Ed. 220 (1886)).\nThe differential treatment in this case involves no suspect class, and so stricter scrutiny is not appropriate. Id. The 1983 Pilot Life judgment provides a rational basis for NCDOI\u2019s differential treatment, and therefore NCDOI\u2019s application of the rule to insurers other than Pilot Life does not violate the constitutional guarantee of equal protection under the law.\nPetitioners\u2019 Cross-Assignments of Error\nPetitioners Employers and BCBS argue two cross-assignments of error. N.C.R. App. P. 10(d) permits an appellee, without taking an appeal, to cross-assign as error an act or omission of the trial court which deprives the appellee of an alternative legal ground for supporting the judgment in their favor. Carawan v. Tate, 304 N.C. 696, 286 S.E.2d 99 (1982); Leonard v. Lowes, 131 N.C. App. 304, 506 S.E.2d 291 (1998). We have considered petitioners\u2019 arguments in the alternative, reject them, and overrule their cross-assignments of error.\nFirst, petitioners argue that the superior court\u2019s decision is supported by the doctrine of issue preclusion. Under the principles of issue preclusion, petitioners claim the Commissioner is estopped from enforcing the anti-subrogation rule against other insurers following the Pilot Life judgment. We disagree.\nThe Pilot Life judgment was expressly limited to the parties of that case. Moreover, the case was settled post-judgment, and was never appealed. Petitioners are not in privity with the participants in the Pilot Life dispute, and seek to use that decision offensively against the agency. Under such circumstances we do not believe that the application of offensive non-mutual collateral estoppel against the state agency would be appropriate. See c.f, Rymer v. Estate of Sorrells, 127 N.C. App. 266, 270, 488 S.E.2d 838, 841 (1997). However, even if the principles of collateral estoppel technically precluded the parties from relitigating the issues decided by the superior court in Pilot Life, \u201cit would be inequitable to allow petitioners, even those with privity, to assert the doctrine in this case.\u201d Tar Landing Villas Owners\u2019 Ass\u2019n v. Town of Atlantic Beach, 64 N.C. App. 239, 243, 307 S.E.2d 181, 185, disc. review denied, 310 N.C. 156, 311 S.E.2d 296 (1983).\nWhen the issue, however, as in this case, involves the scope and formulation of a law never before addressed by an appellate court in this State, we believe that our duty to develop the law outweighs the resulting burden on petitioners.\nId. at 244, 307 S.E.2d at 185. We decline to apply the doctrine of collateral estoppel to this appeal.\nSecond, petitioners argue that the doctrine of separation of powers \u201crequires administrative agencies to follow the law of the . . . courts [which have] jurisdiction over the cause of action.\u201d Thomas v. North Carolina Dept. of Human Resources, 124 N.C. App. 698, 709, 478 S.E.2d 816, 823 (1996), affirmed, 346 N.C. 268, 485 S.E.2d 295 (1997). They contend the Commissioner violated the separation of powers doctrine when enforcing the anti-subrogation rule, after a superior court had invalidated that rule with respect to Pilot Life. We disagree. Petitioners\u2019 interpretation of Thomas is too broad. The holding in Thomas applies only to decisions of appellate courts.\nIt is well-established that when an appellate court of this State determines that a statute enacted by the General Assembly is facially unconstitutional, that statute may not be subsequently enforced against any citizen or entity. An order of this Court proclaiming a statute unconstitutional applies not only to the named litigants, it voids the statute entirely as if it no longer existed. Once a statute is determined to be unconstitutional, no private citizen or division of the State may take any further action pursuant to the provisions of that unconstitutional statute.\nId. at 709-10, 478 S.E.2d at 823. Explaining the great deference ordinarily due administrative interpretations of statutes, the Thomas Court stated that \u201c[djeference is inappropriate where, by attempting to arrogate to itself the distinct duties of the judiciary in having the final word in interpreting statutes.\u201d Id. at 708, 478 S.E.2d at 822 (emphasis added).\nIn the present case, the judgment of the superior court in Pilot Life did not constitute the \u201cfinal word\u201d in interpreting the anti-subrogation rule; rather, that decision was expressly limited to the parties involved in the dispute. Absent an appellate ruling on the validity of the rule, the agency did not violate the separation of powers by attempting \u201cto arrogate to itself the distinct duties of the judiciary.\u201d Id. The doctrine of separation of powers does not require the Commissioner to consider the Pilot Life decision as the final judicial interpretation of the anti-subrogation rule in any other applications of the rule. This assignment of error is overruled.\nAccordingly we hold that the Commissioner had authority to promulgate and enforce the anti-subrogation rule; the decision of the superior court is reversed.\nReversed.\nJudges GREENE and McGEE concur.",
        "type": "majority",
        "author": "MARTIN, Judge."
      }
    ],
    "attorneys": [
      "Attorney General Michael F. Easley, by Special Deputy Attorney General Lorinzo L. Joyner, Assistant Attorney Generals Francis J. Di Pasquantonio, Sue Y. Little and Ted R. Williams, for the State.",
      "Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., by Michael E. Weddington and Deanna L. Davis, for appellee Employers Health Insurance Go.",
      "Maupin, Taylor & Ellis, P.A., by M. Keith Kapp and Kevin W. Benedict, for appellees Blue Cross and Blue Shield of North Carolina.",
      "Bailey & Dixon, L.L.P., by Alan J. Miles, amicus curiae, for North Carolina Association of Defense Attorneys.",
      "Patterson, Harkavy & Lawrence, L.L.P., by Burton Craige, ami-cus curiae, for North Carolina Academy of Trial Lawyers.",
      "Smith Helms Mulliss & Moore, L.L.P., by James G. Exum, Jr., and John J. Korzen, amicus curiae, for Citizens for Business and Industry, United Healthcare of North Carolina, Inc., Kaiser Foundation Health Plan of North Carolina, Fortis Provider Markets, Fortis Insurance Company, and Fortis Benefits Company."
    ],
    "corrections": "",
    "head_matter": "IN THE MATTER OF: A DECLARATORY RULING BY THE NORTH CAROLINA COMMISSIONER OF INSURANCE REGARDING 11 N.C.A.C. 12.0319\nNo. COA98-927\n(Filed 6 July 1999)\n1. Insurance\u2014 anti-subrogation rule \u2014 statutory authority\nThe Commissioner of Insurance had authority under the statute prohibiting policy provisions less favorable to the insured or beneficiary than required by statutory provisions, N.C.G.S. \u00a7 58-50-15(a), to promulgate a rule prohibiting conventional subrogation provisions in life or accident and health insurance contracts. N.C.G.S. \u00a7 58-51-16.\n2. Insurance\u2014 anti-subrogation rule \u2014 not delegation of legislative power\nStatutory authorization of the Commissioner of Insurance to promulgate a rule prohibiting subrogation provisions in life or accident and health insurance forms did not amount to an unconstitutional delegation of legislative power to an administrative agency. N.C. Const, art. I, \u00a7 6; N.C. Const, art. II, \u00a7 1.\n3. Insurance\u2014 anti-subrogation rule \u2014 liberty to contract\nThe anti-subrogation rule promulgated by the Commissioner of Insurance for life, accident and health insurance forms did not impermissibly interfere with the constitutional liberty of insurers to contract.\n4. Insurance\u2014 anti-subrogation rule \u2014 equal protection\nThe anti-subrogation rule promulgated by the Commissioner of Insurance for life, accident and health policies did not violate the equal protection clauses of the state or federal constitutions because of a prior superior court decision invalidating the rule with respect to one insurer. N.C. Const, art. I, \u00a7 19; U.S. Const, amend. XIV.\n5. Collateral Estoppel and Res Judicata\u2014 insurance \u2014 anti-subrogation rule \u2014 ruling for one insurer\nThe Commissioner of Insurance was not collaterally estopped from enforcing the anti-subrogation rule against petitioner life, accident and health insurers following a judgment that the mle could not be enforced against one life, accident and health insurer since the prior judgment was expressly limited to the parties of that case; the prior case was settled post-judgment and was never appealed; petitioners are not in privity with the participants in the prior case; and application of offensive non-mutual collateral estoppel against the Commissioner of Insurance would thus be inappropriate. Even if collateral estoppel technically precluded the parties from relitigating issues decided by the superior court in the prior judgment, it would be inequitable to allow petitioners, even those with privity, to assert collateral estoppel in this case.\n6. Constitutional Law\u2014 State \u2014 separation of powers \u2014 insurance \u2014 anti-subrogation rule\nThe Commissioner of Insurance did not violate the doctrine of separation of powers by enforcing an anti-subrogation rule against life, accident and health insurers after a superior court had invalidated that rule with respect to one insurer since there was no appellate ruling on the validity of the rule, and the Commissioner was not required to consider the superior court decision as the final judicial interpretation in any other applications of the rule.\nAppeal by North Carolina Commissioner of Insurance from judgment entered 20 April 1998 by Judge Robert L. Farmer in Wake County Superior Court. Heard in the Court of Appeals 30 March 1999.\nAttorney General Michael F. Easley, by Special Deputy Attorney General Lorinzo L. Joyner, Assistant Attorney Generals Francis J. Di Pasquantonio, Sue Y. Little and Ted R. Williams, for the State.\nSmith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., by Michael E. Weddington and Deanna L. Davis, for appellee Employers Health Insurance Go.\nMaupin, Taylor & Ellis, P.A., by M. Keith Kapp and Kevin W. Benedict, for appellees Blue Cross and Blue Shield of North Carolina.\nBailey & Dixon, L.L.P., by Alan J. Miles, amicus curiae, for North Carolina Association of Defense Attorneys.\nPatterson, Harkavy & Lawrence, L.L.P., by Burton Craige, ami-cus curiae, for North Carolina Academy of Trial Lawyers.\nSmith Helms Mulliss & Moore, L.L.P., by James G. Exum, Jr., and John J. Korzen, amicus curiae, for Citizens for Business and Industry, United Healthcare of North Carolina, Inc., Kaiser Foundation Health Plan of North Carolina, Fortis Provider Markets, Fortis Insurance Company, and Fortis Benefits Company."
  },
  "file_name": "0022-01",
  "first_page_order": 54,
  "last_page_order": 70
}
