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Is a challenge to insurance premiums really a rate challenge in Missouri? Not even flowers will get an insured around the administrative review process.

In the ongoing debate regarding insurance coverage issues arising from the COVID-19 era, the U.S. Court of Appeals for the Eighth Circuit recently determined that, under Missouri law, a challenge by an insured regarding premium adjustments is really a challenge to insurance rates, necessitating the claim to be made to the director of the Missouri Department of Insurance rather than through the courts.

In Alissa’s Flowers, Inc. v. State Farm Fire & Casualty Co., 2022 U.S. App. LEXIS 3110 (February 3, 2022), Plaintiff brought suit against its insurer, State Farm, alleging that the flower shop had overpaid its premiums to State Farm in light of its “significantly lower exposure rate due to COVID-19.” The policy at issue was effective from March 5, 2020 to March 5, 2021. Due to mandatory closure orders related to non-essential businesses issued by the State of Missouri, Alissa’s Flowers closed its retail store to the public on March 16, 2020. The flower shop re-opened on May 11, 2020, suffering a loss of approximately $100,000 from in-store sales.

Alissa’s Flowers filed a lawsuit against State Farm in May 2020, and sought to represent the following class:

All persons and entities that: (a) purchased commercial liability insurance with State Farm that had a six (6) month or longer policy period; (b) paid a premium for the coverage based on State Farm’s rates and rules; and (c) were subject to a Stay at Home Order.

Id. at *2.

In its Motion to Dismiss, State Farm argued that Missouri law required Alissa’s Flowers to bring its claims before the Missouri Department of Insurance. The U.S. District Court for the Western District of Missouri – Jefferson City agreed and concluded that it lacked jurisdiction over the matter because Alissa’s Flowers had, in effect, challenged State Farm’s insurance rates and rules, and thus Plaintiff was required to exhaust its administrative remedies. Id. at *3.

In affirming the lower court’s decision, the Court of Appeals analyzed existing Missouri statutory law and concluded the district court’s analysis was correct. The Court noted that under Missouri Revised Statutes Section 379.321.6(1), commercial insurance rates, rating plans, modifications, and manuals of classifications must be filed with the director of the Department of Insurance. Further, under Section 379.348, an entity “aggrieved by a rate charged, rating plan, rating system, or underwriting rule followed or adopted by an insurer” may ask the insurer “to review the manner in which the rate, plan, system or rule has been applied…” If the insurer does not complete the review or does grant adequate relief, the aggrieved party “may file a written complaint and request for hearing with the director” of the Department of Insurance. Id. The director is then tasked with considering whether the complaint charges a violation of the relevant sections and whether “the complainant would be aggrieved if the violation is proven.” Id. Sections 379.346.2 and 379.346.3 provide the procedure for the required hearing conducted by the director. 

Alissa’s Flowers argued that it was challenging insurance premiums, rather than insurance rates. Therefore, it was not required to follow the administrative review process under Missouri law. As alleged in Plaintiff’s Complaint, the insurance policy at issue stated premiums are “computed based on rates in effect at the time the policy was issued.” Alissa’s Flowers alleged that it would have paid less in premiums had State Farm “factored in the shutdown and COVID-19 when it applied its rules and rates.” Alissa’s Flowers, Inc., 2022 U.S. App. LEXIS 3110 at *4. In its brief, Alissa’s Flowers explained the premium equals the rate multiplied by the amount of coverage, i.e., “if the rate per $1,000 of coverage is $6.00 per year, and you have a home that would be replaced for $200,000 if destroyed, then the annual premium would be $1,200.” Id. at *5. 

The Court noted that Alissa’s Flowers argued that it overpaid its premium, but did not contend that its amount of coverage should change, thus, Plaintiff’s grievance appeared to be with the equation’s other variable – the insurance rate. The district court correctly examined the allegations contained in Plaintiff’s Complaint and determined that the factual allegations “presume[d] State Farm would have applied a lower rate which factored in COVID-19 in computing a lower premium.” Id. (quoting page 4 of the District Court’s Oct. 22, 2020 order).

Nor did the Court of Appeals accept Alissa’s Flower’s argument that it was challenging the rating plan State Farm applied to business during the pandemic. According to Alissa’s Flowers briefing, the director of the Department of Insurance does not have authority to review a commercial insurer’s rating plan because “DOI's oversight is limited exclusively to 'excessive rates.'” Id. at *6. In addressing this argument, the Court agreed with the district court’s explanation in the case of 4505 Madison LLC v. Travelers Indem. Co., 2021 U.S. Dist. LEXIS 86411, which states:

Missouri has distinct regulatory requirements for commercial property and commercial casualty insurance, including delineating that a commercial insurer's rates are filed with the DOI for informational purposes only. However, while the Missouri regulatory scheme has certain statutes specifically applicable in the commercial insurance context, these statutes do not provide for a separate review mechanism.

4505 Madison LLC, 2021 U.S. Lexis 86411 at *5.

The Court of Appeals ultimately concluded that the administrative review process set forth in Section 379.348 applies in the commercial insurance context and, specifically, to the claims brought by Alissa’s Flowers. The Court further concluded that Alissa’s Flowers was required to exhaust administrative remedies because the “claims, in essence, constitute a challenge to State Farm's rates, rating plan, rating system and underwriting rules.” Alissa’s Flowers, Inc., 2022 U.S. App. LEXIS 3110 at *7. Of note, the Court of Appeals did disagree with the district court’s finding that it lacked subject matter jurisdiction rather than lack of authority to grant relief. As the distinction did not alter the end result, dismissal of Plaintiff’s Complaint, the district court’s decision was affirmed.