State ex rel. Hunt v. North Carolina Reinsurance Facility , 49 N.C. App. 206 ( 1980 )

WELLS, Judge.

The factual context of this case centers around the statutory requirement for liability insurance coverage for all licensed motor vehicles (The Vehicle Financial Responsibility Act of 1957, G.S. 20-309) and the insurance industry’s reluctance to insure all drivers. The North Carolina Reinsurance Facility (hereinafter Facility) was created to provide motor vehicle insurance to those eligible risk applicants that insurance companies would not voluntarily insure. See Article 25A of Chapter 58 of the General Statutes. When an insurance company agent determines that an applicant for insurance is an unacceptable risk, the agent will “cede” the risk to the Facility. G.S. 58-248.31(a) mandates that all insurance companies that write motor vehicle insurance in North Carolina must be members of the Facility and must share equitably the cost of the Facility. “Cession” transfers the risk of loss from the individual insurer to all insurers through the operation of the Facility. G.S. 58-248.26(1). The decision to cede an applicant is made unilaterally by each insurance company. G.S. 58-248.35. See Comr. of Insurance v. Rate Bureau, 300 N.C. 381, 269 S.E. 2d 547 (1980).

The trial court found that the Facility has lost substantial amounts of money. The statutory scheme allows the Facility to set rates “on an actuarially sound basis ... calculated, insofar as is possible, to produce neither a profit nor a loss.” G.S. 58-248.33(1). Pursuant to the statute, Facility losses are potential losses to the member insurance companies. G.S. 58-248.26(1) provides that the risk of loss for ceded insureds is transferred to all insurers, and G.S. 58-248.34(e) requires that the Facility’s plan of operation shall provide for “the preliminary assessment of all members for initial expenses necessary to commence operations ... [and] the assessment of members if necessary to defray losses and expenses ... [and for] the recoupment of losses sustained by the Facility ... .” Regarding such losses, G.S. 58-248.34(f) provides that “every member shall, following payment of any pro rata assessment, commence recoupment of that assessment by way of an identifiable surcharge on motor vehicle insurance policies issued by that member or through the Facility until the assessment has been recouped.”

Within this statutory framework, the defendants Facility and Rate Bureau determined that an 18.6 percent surcharge applied to Facility insureds was necessary to recoup the past Facility losses and that a 1.1 percent surcharge applied to all insureds, ceded and nonceded, was necessary to recover anticipated losses due to the artificially low rates required by statute for ceded “clean risks”. G.S. 58-248.33(1). The genesis of the action before us was the order of the Board of Governors of the Facility for the defendant companies to charge and collect the two recoupment surcharges as part of the cost of motor vehicle insurance coverage, without filing the surcharges and supplemental information with the Commissioner of Insurance.

North Carolina’s file and use system of insurance rate-making allows the Rate Bureau (G.S. 58-124.17) and the Facility (G.S. 58-248.33(1)) to establish rates based on specified factors. G.S. 58-124.19; Note, 56 N.C.L. Rev. 1084 (1978). Although such rates are effective immediately, the rates and supplemental information must be filed with the Commissioner of Insurance within ninety days (G.S. 58-124.20) to enable the Commissioner to review the rate’s compliance with the applicable statutes (G.S. 58-124.21). Plaintiffs brought this action to establish that recoupment surcharges are not exempted from the filing requirements, and to prevent defendants from charging such surcharges in violation of statutory procedures for rate-setting.

At the threshold, defendants challenge the standing of the Governor as a real party in interest in this action and have cross-appealed from the trial court’s denial of their motion to dismiss the Governor as a party plaintiff. Defendants do not challenge the standing of the Commissioner of Insurance or of the Attorney General as parties.

Since the original enactment of the Declaratory Judgment Act, G.S. 1-253, et seq., our appellate courts have declared repeatedly that it is to be given a liberal and generous application. The touchstone of the Act is the presence of a justiciable controversy, where the pleadings demonstrate a real controversy and the need for a declaration of rights. Whether the plaintiff is necessarily the person entitled to the declaration or whether the plaintiff is entitled to the declaration in accordance with his theory is not the determinative factor in resolving the question as to whether the action may be prosecuted. Walker v. Charlotte, 268 N.C. 345, 347-48, 150 S.E. 2d 493, 495 (1966). There is no question that in the case sub judice the complaint sets out a justiciable controversy. We believe that the Governor’s constitutional powers, duties, and obligations to the people of North Carolina generally — obviously including that significant class of citizens who are compelled to obtain automobile liability insurance in order to use the public roads and highways of the State — constitutes significant interest in the controversy generated by the action of the Board of Governors of the Facility sufficient to give the Governor standing to seek a declaration as to the legality of their action. See Kornegay v. City of Raleigh, 269 N.C. 155, 152 S.E. 2d 186 (1967); Shaw v. City of Asheville, 269 N.C. 90, 152 S.E. 2d 139 (1967).

We now consider whether plaintiffs have established that they are entitled to injunctive relief. In order for plaintiffs to establish their right to a preliminary injunction, they must show (1) a likelihood of success on the merits of their case, and (2) that they are likely to sustain irreparable loss unless interlocutory injunctive relief is granted or unless interlocutory injunctive relief appears reasonably necessary to protect plaintiffs’ rights during the litigation. Investor’s, Inc. v. Berry, 293 N.C. 688, 701, 239 S.E. 2d 566, 574 (1977); Waff Bros., Inc. v. Bank, 289 N.C. 198, 204-5, 221 S.E. 2d 273, 277 (1976); Pruitt v. Williams, 288 N.C. 368, 372, 218 S.E. 2d 348, 351 (1975); Williams v. Greene, 36 N.C. App. 80, 85, 243 S.E. 2d 156, 159-60 (1978), disc. rev. denied, 295 N.C. 471, 246 S.E. 2d 12 (1978). The purpose of a preliminary injunction is to preserve the status quo of the subject matter involved until a trial can be had on the merits. The trial court cannot go further and determine the final rights of the parties, which must be reserved for final trial of the action. Pruitt v. Williams, supra, at 372.

In passing on the validity of the order of the trial court denying plaintiffs’ injunctive relief, we are not bound by the findings of the trial court, but we may review the evidence and make our own findings. Pruitt v. Williams, supra, at 373, and cases cited therein. Our review of the evidence before the trial court convinces us that plaintiffs are entitled to limited injunc-tive relief in this case. We do not agree with plaintiffs’ position that defendants should be enjoined from collecting the surcharges pending final determination on the merits. We do agree with plaintiffs’ position that defendants should be required to file the surcharges in order that they may be reviewed by the Commissioner, and if appropriate by the courts, as is required under the provisions of G.S. 58-248.33(1) and G.S. 248.34(d). If the surcharges are not so filed and reviewed, it is our opinion, and we so hold, that those persons who pay the surcharges would be denied the protection of the laws, may not be able to recover any excessive charges paid by them and would therefore suffer irreparable loss should plaintiffs prevail on the merits.

We are also of the opinion that to this extent — i.e., that the surcharges must be filed — plaintiffs are likely to succeed on the merits. The key question in this respect is whether the surcharges are rates, as that term is commonly understood and is used throughout Chapter 58 of the General Statutes. We believe that question should be answered in the affirmative. Defendants’ argument to the contrary, adopted by the trial court, is hinged upon a single sentence found at the end of G.S. 58-248.34(0- Subsection (f) provides for a scheme of recoupment by member companies of assessments paid by them to the Facility under the plan of operations. The disputed sentence is as follows: “The amount of recoupment shall not be considered or treated as premium for any purpose.” Defendants argue that this sentence means that the surcharges, being the companies’ instruments of recoupment of assessment paid, are not rates, and hence not subject to the provisions of G.S. 58-248.33(1) and 58-248.34(d). As we read the entire enactment, it is clear that the General Assembly intended that all rates and charges promulgated by the Rate Bureau or the Facility would be subject to the filing and review requirements of the statute. In the context of the entire scheme, recoupment surcharges are to be based on premiums charged in policies reinsured by the Facility, and the disputed sentence therefore serves the purpose of keeping the surcharges separate and apart — in a separate pot — from the premiums themselves, and no more.

We hold that plaintiffs are entitled to an order of the trial court requiring the defendants to file the disputed surcharges with the Commissioner for his review pending the final determination of this action on the merits. That portion of the trial court’s order denying plaintiffs’ motion to enjoin the collection of the disputed surcharges pendente lite is affirmed. That portion of the trial court’s order denying plaintiffs’ motion that defendants be required to file the disputed surcharges with the Commissioner of Insurance is reversed. The order of the trial court is so modified and this action is remanded for an order consistent with this opinion.

Modified and remanded.

Judge ERWin concurs. Judge Hedrick dissents.