Comp insurer violated state law by selling policies: Montana high court

The Supreme Court of Montana on Tuesday ruled a workers compensation insurer violated state law by what the court described as illegally canceling policies and having a new company re-write them.

A comp insurer for an unspecified number of Montana businesses, Victory Insurance Co. in 2019 entered into an agreement with Clear Spring Property and Casualty “pursuant to which Clear Spring agreed to reinsure all of the policies at issue in this case,” according to Victory Ins. v. State.

Later that year, Victory sent an email to its insured stating, “To further reduce your business’ workers compensation premiums while increasing coverage options, effective January 1, 2020, your Victory Insurance Company policy has been upgraded to Clear Spring policy number [number].” It argued in court filings that the policies were identical.

On December 27, 2022, the commissioner of securities & insurance with the Montana State Auditor filed a notice alleging that Victory had “illegally canceled its policies” and that it could impose up to a $2.7 million fine. Victory requested a hearing with a CSI hearing examiner, who ruled that Victory had committed 165 violations of state insurance code. CSI in 2023 ultimately fined the company $250,000, with $150,000 “suspended,” coming due only if Victory committed further violations of the insurance code within one year.

On appeal, Victory argued the CSI officer’s decision was improper in that it classified the sale as a cancellation of policies, that it violated due process with the fine issued, and that the company was entitled to a jury trial.

The court, in affirming and citing case law, wrote that the transfer of policies amounted to a cancellation because it disallowed the insured to choose their insurer: “It is through this lens of fostering insurance-market competition that we must determine whether an assignment can constitute a cancellation.”

On the argument that the policies were “materially identical,” the court wrote that “there is one material difference between the two sets of policies: the issuing insurer. An insured’s ability to choose the insurer with whom they are contracting is at the very core of market competition and Montana law assumes that the parties to a contract ‘are in the best position to make decisions in their own interest.’”

“It is not for the courts to determine whether an insured’s selection of a particular insurer is better or worse than their previous insurer, only to give effect to that decision, particularly where the Legislature has expressed a clear intent to foster competitive selection in the insurance marketplace. We, therefore, hold that an assignment can constitute a cancellation,” the court wrote.

The court also wrote that CSI has the authority to issue fines and that a jury trial was not necessary in a case where there is no dispute of material facts.