(Article from Insurance Law Alert, May 2017)
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The Ninth Circuit ruled that a California federal district court erroneously dismissed a putative class action against the American Association of Retired Persons (“AARP”) alleging violations of California statutory law based on the organization’s alleged solicitation and transaction of insurance. Friedman v. AARP, Inc., 2017 WL 1657553 (9th Cir. May 3, 2017).
The complaint alleges that AARP serves as the group policyholder for Medigap coverage sold by UnitedHealth, and that pursuant to a contractual arrangement, AARP participates in the solicitation of new members and the collection of premiums for UnitedHealth. In turn, AARP retains 4.95% of each dollar paid by enrollees prior to remitting the premiums to UnitedHealth. The complaint asserts that this fee is a commission on the sale of insurance, and that by collecting this fee, AARP violated the California Insurance Code, which provides that a person “shall not solicit, negotiate or effect contracts of insurance” without a proper license. AARP moved to dismiss the complaint, which the district court granted. The district court concluded that the complaint did not plausibly allege that AARP acted as an “unlicensed insurance agent” or that the 4.95% fee was an improper “commission.” The district court also held that AARP did not “solicit” insurance because the marketing materials did not allow potential enrollees to directly purchase insurance coverage from AARP. The Ninth Circuit reversed.
The Ninth Circuit ruled that, at the motion to dismiss stage, the complaint sufficiently alleges that AARP solicits and transacts insurance. In particular, the court reasoned that allegations that the 4.95% fee is a commission sufficiently plead the transaction of insurance. In so ruling, the court rejected the argument that the method of fee calculation conclusively establishes that it is a royalty rather than a commission. The court also held that the complaint sufficiently alleges the solicitation of insurance because, among other things, AARP’s marketing materials expressly state: “This is a solicitation of insurance.” The Ninth Circuit rejected the district court’s reasoning that solicitation was not alleged because AARP’s website did not permit direct purchase or enrollment.
The Ninth Circuit also addressed an issue not reached by the district court – the “filed-rate” doctrine. AARP had argued that the claims were barred by the “filed-rate” doctrine, under which “rates duly adopted by a regulatory agency are not subject to collateral attack in court.” Because the district court concluded that the complaint failed to state a claim, it did not reach this issue. However, the Ninth Circuit noted that in light of its reinstatement of the complaint, the “filed-rate” doctrine reemerges as a relevant issue. The court therefore remanded the matter to the district court.