Miss. SC reverses part of decision in underwriting case

Jessica M. Karmasek Feb. 1, 2012, 10:53am


JACKSON, Miss. (Legal Newsline) - The Mississippi Supreme Court last week reversed part of a lower court's decision in a case over a state underwriting association's request to assess its members to cover losses following Hurricane Katrina.

In 1987, the state Legislature created the Mississippi Windstorm Underwriting Association, or MWUA, to provide an adequate market for windstorm and hail insurance in the state's six coastal counties: George, Hancock, Harrison, Jackson, Pearl River and Stone.

Under the statute, every insurance company writing essential property insurance in Mississippi is required to become a member.

Members are required to share in MWUA's expenses, profits and losses based on their participation percentage from the previous calendar year.

As an incentive, members that voluntarily offer wind and hail coverage receive credit for each voluntary premium written.

As a result of Katrina, which hit the Gulf Coast in August 2005, MWUA lost more than $700 million.

However, it had secured $175 million in reinsurance.

Jim Redd, MWUA's accountant, testified he applied the majority of the insurance to the 2004 policy year so the association did not have to assess members for that policy year.

The remainder of the reinsurance was then applied to the 2005 policy year. Even with the reinsurance, MWUA had a $545 million loss.

The association decided to assess its members to cover the loss.

Just days after the hurricane, MWUA assessed its members $10 million. Four months later, in December 2005, it assessed members a second time for $285 million.

After the initial assessments, several member companies complained they had incorrectly reported the previous year's figures.

MWUA's Board of Directors decided to give the members a one-time opportunity to submit corrected data, or a true-up.

Even after the true-up, some members -- most of which did not submit any corrected data -- appealed the assessment.

The board denied their appeals. The members then appealed their claims to the state's Insurance Commissioner, and the commissioner denied their requested relief.

Thereafter, the members appealed the commissioner's decision to the Hinds County Chancery Court, which granted the members relief on all but one issue.

In response, MWUA appealed the chancery court's judgment to the state's high court. The members filed a cross-appeal.

The main issue is whether the commissioner and the chancery court applied the appropriate standard of review on appeal.

The members argue the commissioner should have reviewed the case de novo instead of giving deference to the board because the board is not an administrative agency.

MWUA contends, regardless of whether the commissioner employed the correct standard of review, the chancery court erred by reviewing the commissioner's decision de novo when it was entitled to deference.

In response, the members argue that because the commissioner failed to review the board's decision de novo, the chancery court employed the proper standard of review.

MWUA presented a total of eight issues for the Court to review:

- Whether the chancery court erred by reviewing the case de novo;

- Whether the chancery court erred by finding that the board did not have the authority to set and enforce the true-up deadline;

- Whether the chancery court erred by finding that MWUA incorrectly applied its reinsurance;

- Whether the chancery court erred by finding that MWUA's assessments are like privilege taxes;

- Whether the commissioner was arbitrary and capricious in ruling that (a) the mobile-home reporting issue was an issue for the Mississippi Department of Insurance, not MWUA; and (b) MWUA's method of distributing recovered funds was acceptable;

- Did the chancery court err in overturning the commissioner on each of the above issues?

- Also, did the chancery court err in ordering the MWUA to adopt new rules, regulations and definitions concerning the assessment appeals when it had already adopted such rules consistent with its statutory mandate?

The members presented only one issue on cross-appeal -- whether the chancery court erred by finding that grouping was permitted.

The Court, in its opinion filed Thursday, affirmed the chancery court's judgment on two issues, but reversed and remanded the court's judgment on the remaining issues.

"Because the Commissioner's decision was supported by substantial evidence and was not arbitrary and capricious, the Court reverses and renders the chancellor's judgment regarding the following issues: whether MWUA had authority to set and enforce a true-up deadline, the mandatory nature of voluntary credits and farm-property exclusions, whether assessments are akin to privilege taxes, and the mobile-home reporting issue," Justice Leslie D. King wrote for the Court.

"Because the chancellor lacked authority to order MWUA to adopt new rules, the Court reverses and renders this part of the chancellor's judgment. The Court affirms the chancellor's judgment regarding two issues -- grouping and reinsurance."

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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