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Pieter Williams
Regulatory Insurance Advisors, LLC

THE IMPACT OF RECENT SUPREME COURT DECISIONS ON THE STATE INSURANCE REGULATION

Introduction
Recent decisions by the Supreme Court have had a significant impact – both direct and indirect - on state regulators, particularly in how such agencies operate and interact with the insurance industry. These cases redefine the boundaries of administrative authority and the extent to which courts will defer to agencies in interpreting statutes. This article examines the implications of the National Rifle Association v. Vullo, Loper Bright Enterprises v. Raimondo, and Corner Post, Inc. v. Board of Governors decisions for regulatory practices.  The article also explores whether the overruling of Chevron will trickle down to the states.[1]

Vullo Decision and Its Impact
The Supreme Court’s ruling in National Rifle Association v. Vullo addressed the issue of government officials’ authority to express criticism without crossing into unconstitutional suppression of speech. The Court held that government representatives can criticize viewpoints and attempt to persuade others, but they are prohibited from using state power to punish or suppress disfavored speech. The Court concluded that Vullo’s actions violated free speech protections afforded to the National Rifle Association by the First Amendment.  

In Vullo, after a mass shooting in New York, Maria Vullo, then Superintendent of the New York Department of Financial Services, which regulates banks and insurance companies, issued a press statement as well as departmental guidance to insurers and banks urging them to reconsider doing business with gun rights groups. The guidance to insurers provided in part:

In light of the above, and subject to compliance with applicable laws, the Department encourages its insurers to continue evaluating and managing their risks, including reputational risks, that may arise from their dealings with the NRA or similar gun promotion organizations, if any, as well as continued assessment of compliance with their own codes of social responsibility. The Department encourages regulated institutions to review any relationships they have with the NRA or similar gun promotion organizations, and to take prompt actions to managing (sic) these risks and promote public health and safety.

Some insurers and banks stopped doing business with the NRA, and the NRA sued on the theory that the 1963 Supreme Court decision in Bantam Books v. Sullivan,[2] holding that “informal, indirect government efforts to suppress or penalize speech by threatening private intermediaries violate the First Amendment” applied.

In oral argument, an ACLU advocate arguing for the NRA referred to Vullo’s efforts as “a campaign by the state’s highest political officials to use their power to coerce a boycott of a political advocacy organization because they disagreed with its advocacy.”

This ruling has implications for administrative agencies that may engage in public discourse while enforcing regulations. The decision emphasizes the importance of balancing regulatory enforcement with constitutional protections for free speech.[3]  It also raises the specter of insurers potentially challenging other bulletins, positions, or policies of the state regulators.  For example, if a state department of insurance takes a hard position on cannabis or other drug insurance, or transgender health coverage, could the words and actions be challenged as “threatening private intermediaries?” Time will tell how this emerges in the insurance space.

Loper Bright Enterprises v. Raimondo
In Loper Bright Enterprises v. Raimondo,[4] the Supreme Court overturned the longstanding Chevron doctrine, which had previously required courts to defer to administrative agencies’ reasonable interpretations of ambiguous statutes. This decision marks a significant shift in administrative law by reducing judicial deference to regulatory agencies.

In Loper Bright , along with Relentless, Inc., et al. v. Department of Commerce, et al., the Supreme Court “granted certiorari limited to the question whether Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (___), should be overruled or clarified. Under the Chevron doctrine, courts have sometimes been required to defer to ‘permissible’ agency interpretations of the statutes those agencies administer — even when a reviewing court reads the statute differently.” The Chevron doctrine provided that if a court determined “the statute is silent or ambiguous with respect to the specific issue” being considered, the court must defer to the agency’s interpretation if it “is based on a permissible construction of the statute.

The opinion, written by Chief Justice John Roberts for the six-justice majority, did not mince words or leave any doubt, when he wrote toward the end of his opinion, “Chevron is overruled.”

The Court explained why Chevron could not continue:

“Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA [Administrative Procedure Act] requires …. And when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it. But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.”

Justice Elena Kagan dissented, referring to the doctrine as “part of the warp and woof of modern government.”

In Chevron[5] the Supreme Court considered an issue involving the Environmental Protection Agency (“EPA”) and how it interpreted the Clean Air Act in regulating industrial pollution. The key issue was whether the EPA could allow companies to treat entire industrial plants as a single "source" of pollution rather than regulating each individual component separately.

The Supreme Court, in a 6-0 decision,[6] upheld the EPA's interpretation, creating a framework for determining when courts should defer to a federal agency's interpretation of a law. This decision established what is now known as the Chevron Doctrine.

Chevron established a two-step process that courts were to use to evaluate whether an agency's interpretation of a statute is lawful. The first step is to determine if Congress directly spoke on the issue. If the law is clear, then the court considering the issue would have to follow Congress’s intent.  However, if the statute was ambiguous or silent, the court would proceed to the second step under the Chevron doctrine, and determine if the agency's interpretation is reasonable and consistent with the statutory purpose; if so,the court would defer to the agency's expertise.

The overturn of Chevron deference raises questions about how regulatory agencies will function moving forward. Without the presumption of deference, agencies will face increased legal challenges to their rulemaking and enforcement actions, necessitating clearer statutory mandates from legislatures.[7]

Chevron Doctrine’s Application in States
The application of the Chevron doctrine has varied significantly across states. Because the Chevron doctrine is only applicable to federal governmental agencies, states did not automatically apply such deference to their state governmental agencies, including departments of insurance. That said, 14 states and the District of Columbia continue to apply Chevron-like deference, while 36 states have adopted either de novo review or hybrid approaches.[8]

Illinois, for example, uses a hybrid model that incorporates elements of both de novo and Chevron deference. The variation in state-level practices highlights the complex interplay between federal administrative law and state regulatory frameworks.[9]

At least 14 states have put an end to Chevron-like deference by three different means:

  1. State Supreme Court decision - Arkansas, Kansas, Michigan, Mississippi, Ohio, and Utah.
  2. Constitutional amendment - Florida.
  3. Legislation - Arizona, Idaho, Indiana, Nebraska, Tennessee, and Wisconsin.[10]

Whether more states will take such approaches or continue to use some level of Chevron-like deference is open to question. However, for those states such as Illinois where a hybrid approach is used, insurers will want to consider how they proceed now that the federal Chevron doctrine is dead.

Corner Post, Inc. v. Board of Governors
In its October 2023 Term, the Supreme Court also issued its opinion in Corner Post, Inc. v. Board of Governors of the Federal Reserve System,[11] addressing when the statute of limitations begins for claims under the Administrative Procedure Act (“APA”). The central question was whether the six-year limitations period starts when an agency issues a regulation or when a plaintiff is first harmed by that regulation. The Court concluded that it was the latter.

In 2011, the Federal Reserve Board issued Regulation II, capping interchange fees that banks could charge merchants for debit card transactions. Corner Post, a North Dakota truck stop that began operations in 2018, challenged this regulation in 2021 arguing that the fee cap was set higher than permitted by law financially injury their business. The lower courts disagreed, finding that the statute of limitations had expired, as it began when the regulation was issued in 2011 and not when Corner Post was exposed to it.         On appeal, the Eighth Circuit found that the plain reading of the APA was that it was six years from final regulation issuance.

The Supreme Court reversed.. In a 6-3 majority opinion written by Justice Amy Coney Barrett, the Court held that an APA claim accrues when the plaintiff is injured by a final agency action, not when the regulation is issued. Therefore, Corner Post's lawsuit, filed within six years of its opening and subsequent injury by the regulation, was deemed timely.

This decision enables entities to challenge longstanding federal regulations if they can demonstrate a recent injury caused by such regulations, potentially leading to increased legal challenges against older agency rules.  Some have suggested the ruling contemplates a business establishing itself solely for the purpose of challenging various regulations.

This ruling is expected to influence future challenges to regulatory authority. Given the state regulation of insurance, this decision has no immediate impact on the insurance regulatory framework in the fifty states, but it is not hard to imagine challenges beginning at the state level;  For instance, when an insurer begins operations in a new state or begins offering a new product that is impacted by existing regulations. 

The Auer Doctrine
Expect the next challenge to the administrative state to come in the form of challenges to the Auer doctrine. In 2007, Justice Antonin Scalia wrote the unanimous opinion in Auer v. Robbins[12] holding that, with some limitations, courts are to defer to an agency’s interpretation of ambiguous regulatory language “unless it is plainly erroneous or inconsistent with the regulation.” Auer deference has been widely applied to a variety of non-binding agency issuances.  AsLike Chevron, the Auer doctrine is federal, but those who have worked in the insurance regulatory world know that this, too, has found its way into many states.  If Auer eventually is overturned, expect similar reviews of state deference under the Auer doctrine.  Until then, Auer remains good law.In 2019, in Kisor v. Wilkie,[13] Justice Elena Kagan issued the opinion for a unanimous Supreme Court, holding that Auer v. Robbins, 519 U.S. 452 (1997), and an older case that Auer cited in support, Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), should not be overruled. The decision emphasized limitations to the Auer doctrine’s scope and application.

State Regulation
Insurance, of course, is generally regulated at the state level. The McCarran–Ferguson Act[14] exempts the “business of insurance” from most federal regulation. The act was passed by Congress in 1945 in response to the Supreme Court decision, United States v. South-Eastern Underwriters Association,[15] In which the Court held that the federal government could regulate insurance companies under the authority of, and pursuant to, the Commerce Clause of the United States Constitution.  Based on that finding, the Court held that federal antitrust laws applied to the insurance industry. 

Impact on the insurance regulatory framework?
As a result of McCarran, federal administrative law is not directly applicable to  state-regulated insurance.  However, Vullo directly touched on the statements of a state insurance regulator, and these other regulatory decisions might trickle down to states. One can imagine challenges to other insurance matters that involve sensitive matters or actors deemed unfavorable by regulators. In addition, while the other cases discussed are applicable to the federal government’s administrative structure, as has been outlined, many of these decisions have been applied at the state level or are likely to be used to challenge regulatory action at the state level.

Summary and Conclusion
The recent Supreme Court decisions analyzed in this article illustrate a changing landscape for the state regulatory practices. The rulings in Vullo, Loper Bright, and Corner Post collectively emphasize the need for clear statutory frameworks and reinforce the constitutional boundaries on administrative authority. These developments will likely shape regulatory approaches in the insurance sector and beyond for years to come.

References

[1] This article is based in part on a presentation the authors made at the JVP Insurance Foundation Forum on October 30, 2024.

[2] Bantam Books v. Sullivan, 372 US 58 (1963).

[3] See National Rifle Association v. Vullo, No. 602 US 175 (2024), https://www.supremecourt.gov/opinions/23pdf/602us1r28_9o6b.pdf.

[4] Loper Bright Enterprises v. Raimondo, 603 US 369, 2024 U.S. LEXIS 2882 (2024).

[5] Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984)

[6] Three justices recused themselves from the decision.

[7] See Loper Bright Enterprises v. Raimondo, 603 US _ (2024), https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf.

[8] See Phillips, "Chevron in the States?," Mississippi Law Journal, Vol. 89.2, 2020, available at https://mississippilawjournal.org/wp-content/uploads/2020/04/V89.2.4-PHILLIPS-Macro-4.3.20.pdf; see also  The Federalist Society, “Chevron in the States: Where Is Deference Still in Effect, and How Can States Eliminate It?”, by GianCarlo Canaparo and Caleb Sampson, Oct 3, 2024, available at https://fedsoc.org/commentary/fedsoc-blog/chevron-in-the-states-where-is-deference-still-in-effect-and-how-can-states-eliminate-it  (“courts in over half of the states defer to executive agencies”).

[9] For further analysis on state-level Chevron applications, see Phillips, "Chevron in the States?," Mississippi Law Journal, Vol. 89.2, 2020, available at https://mississippilawjournal.org/wp-content/uploads/2020/04/V89.2.4-PHILLIPS-Macro-4.3.20.pdf.

[10][10] See The Federalist Society, “Chevron in the States: Where Is Deference Still in Effect, and How Can States Eliminate It?” by GianCarlo Canaparo and Caleb Sampson, Oct 3, 2024, available at https://fedsoc.org/commentary/fedsoc-blog/chevron-in-the-states-where-is-deference-still-in-effect-and-how-can-states-eliminate-it.

[11] Corner Post, Inc. v. Board of Governors, 603 US 799 (2024), https://www.supremecourt.gov/opinions/23pdf/22-1008new_8n5a.pdf.

[12] See Auer v. Robbins, 519 US 452 (1997), https://supreme.justia.com/cases/federal/us/519/452/.

[13] See Kiser v. Wilkie, 588 US _, 139 S.Ct. 2400 (2019), https://supreme.justia.com/cases/federal/us/588/18-15/.

[14] 15 U.S.C. §§ 1011-1015.

[15] United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944).