                   IN THE SUPREME COURT OF IOWA

                              No. 06–1087

                           Filed June 26, 2009

TRAVELERS INDEMNITY COMPANY,

      Appellant,

vs.

COMMISSIONER OF INSURANCE
OF THE STATE OF IOWA,

      Appellee.



      Appeal from the Iowa District Court for Polk County, Robert B.

Hanson, Judge.



      A workers’ compensation insurer pursues judicial review of a

ruling of the commissioner of insurance concluding the insurer charged

an excessive premium for workers’ compensation coverage under the

assigned risk pool. REVERSED.


      CeCelia Ibson and Laurie J. Wiedenhoff of Smith, Schneider, Stiles

& Serangeli, P.C., Des Moines, for appellant.



      Thomas J. Miller, Attorney General, and Jeanie Kunkle Vaudt,

Assistant Attorney General, for appellee.
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HECHT, Justice.

      In this case, an insurance company challenges an order of the

commissioner of insurance finding the company charged an excessive

premium       to   an    assigned-risk      policyholder.        We     reverse    the

commissioner’s order as it was based on a finding that is not supported

by substantial evidence in the record.

      I.      Factual and Procedural Background.

      With some exceptions not relevant in this case, Iowa employers are

required by law to obtain insurance covering their liability for workers’

compensation benefits. See Iowa Code § 87.1 (2005). When an employer

is “in good faith entitled to” obtain workers’ compensation insurance, but

is “unable to procure such insurance through ordinary methods” (i.e.,

the traditional insurance market), such coverage is available through an

“assigned risk” market. Id. § 515A.15. The “assigned risk” market is a

mechanism which allocates among insurers “the underwriting risk for a

proportionate share of applicants [who are] unable to obtain coverage in

the voluntary market.” 1 Lee R. Russ & Thomas F. Segalla, Couch on

Insurance § 2:35 (3d ed. 2005).

      The Iowa Code authorizes insurers serving the assigned risk

market to agree upon an equitable apportionment of the policies among

them, and mandates administration of such agreements by a licensed

“rating organization.”       Iowa Code §§ 515A.15, .15B.               The National

Council on Compensation Insurance (NCCI) is a rating organization

operating in Iowa.1       As the administrator of the assigned risk plan in


      1We   have previously described NCCI in a nonassigned risk context as follows:
              The National Council on Compensation Insurance (NCCI) collects
      statistical data on behalf of approximately 200 member and subscriber
      insurance carriers writing workers’ compensation insurance, analyzes
      that data on a continuing basis, and acts as agent for its members and
                                          3

Iowa, NCCI adopted rules for the administration, management, and

enforcement of the assigned risk plan in Iowa.                To determine which

insurer will be assigned in a particular case, NCCI employs a formula

designed to provide for “the random and equitable distribution of

employers . . . to assigned carriers.” The annual premium charged by an

assigned carrier for the risk is determined by an algorithm which takes

into account the increased risk of a particular employer based on the

employer’s claim history.

       Action Moving, Inc. is a small trucking firm headquartered in Sioux

City, Iowa.     The firm, which also does business through a branch

location in Sioux Falls, South Dakota, generates revenue by providing

intrastate transportation services under its own name and interstate

services as an agent for another trucking company, Atlas Van Lines.

       Action Moving made application to NCCI for coverage under the

assigned risk plan for the year 2002.              The application reported the

company’s entire payroll and did not claim or disclose other workers’

compensation coverage for any portion of the firm’s business.                      NCCI

calculated a premium rate that was approved by the commissioner of

insurance, and assigned Travelers as the servicing carrier for the policy

period that began on January 1, 2002. The policy issued by Travelers to

Action Moving made no distinction as to whether a covered injury

occurred during intrastate or interstate moves and purported to provide

coverage for all claims arising under the workers’ compensation law of

Iowa or South Dakota.

_____________________________
       subscribers in presenting requests for premium changes to the proper
       state regulatory authorities. It carries out these activities in Iowa and
       thirty-one other states.

Sheet Metal Contractors of Iowa v. Comm’r of Ins., 427 N.W.2d 859, 860 (Iowa 1988).
                                           4

       In March 2003, Action Moving notified Travelers of a dispute as to

the amount of premium charged for the 2002 coverage. Action Moving

claimed the premium should have been based only on that part of the

company’s payroll incurred while providing intrastate transportation

services in Iowa and South Dakota because its employees were covered

by Atlas’s workers’ compensation insurance when they provided

interstate services.2        Travelers rejected Action Moving’s objection,

claiming the carrier’s exposure extended to all of the insured’s employees

wherever they were working at the time of injury. Action Moving filed an

appeal with NCCI’s Workers’ Compensation Appeal Board challenging the

rate charged by Travelers.           See id. § 515A.9 (stating every rating

organization “shall provide . . . reasonable means whereby any person

aggrieved by the application of its rating system may be heard”). NCCI

concluded it did not have jurisdiction to rule on the rate dispute.

       Action Moving appealed NCCI’s decision. See id. (authorizing the

commissioner of insurance to affirm or reverse decisions of rating

organizations).     The commissioner of insurance determined NCCI did

have jurisdiction of the dispute and remanded the case with instructions

for further proceedings. The commissioner’s decision noted “[a] rate as

applied is not excessive, inadequate or unfairly discriminatory if it is an

actuarially sound estimate of the expected value of all future costs

associated with an individual risk transfer.” The commissioner’s decision

instructed NCCI to decide on remand the legal question of whether the


       2Atlas deducted from its payments to Action Moving for services rendered the
cost of workers’ compensation insurance attributable to the interstate services provided
by Action Moving’s employees. The record does not reveal, however, what insurance
company provided such insurance coverage or whether that company was approved by
the commissioner as required by Iowa Code section 87.1. Action Moving asserts the
insurance carrier assigned by NCCI to provide the coverage for previous policy periods
based the premium on only the payroll generated from intrastate services.
                                         5

rate    applied   by   Travelers   to   Action    Moving’s    total   payroll    was

commensurate with the cost of the workers’ compensation risk

undertaken by Travelers as Action Moving’s insurer under the assigned-

risk plan.      In other words, NCCI was directed to address the legal

question of whether Travelers had claim exposure for injuries sustained

by     Action   Moving   employees      when     they   are   hauling   for     Atlas,

notwithstanding any coverage under Atlas’s policy. The commissioner’s

decision further instructed NCCI to “articulate in writing the facts

supporting [its] legal conclusion . . . on this issue.”

        NCCI’s remand decision did not expressly address the precise legal

question directed to it.     After summarizing the evidence presented by

Action Moving and Travelers, the decision summarily stated:

        In executive session, the Board members discussed the
        testimony presented and discussed the fact that [Action
        Moving] was paying more for workers’ compensation
        insurance than similar risks. The Board also discussed that
        there is an issue in determining where liability exists if the
        injury occurs after the fact, and not while actually driving for
        [Action Moving] or Atlas Van Lines. There being no further
        discussion, a motion was made, properly seconded, and
        passed by majority vote, and it was RESOLVED, that the
        payroll for [Action Moving] be split according to interstate
        and intrastate exposure. Travelers Insurance Company will
        calculate premium . . . based on the intrastate exposure of
        [Action Moving].

        Although the NCCI decision did summarize the evidence presented

by Action Moving and Travelers, it did not articulate findings of fact or

conclusions of law as directed by the commissioner.               Travelers again

appealed NCCI’s decision to the commissioner of insurance.

        When the commissioner considered this matter for the second

time, the only question before the agency was whether NCCI “correctly

determined that [Action Moving’s] payroll should be allocated between

employers in applying the relevant rate.”           After a noncontested case
                                          6

hearing, the commissioner affirmed NCCI’s determination that the rate

as applied by Travelers was excessive because it required Action Moving

to   pay     twice   for   workers’   compensation     coverage     for   employees

performing work under the agency agreement with Atlas.3

       Travelers sought judicial review of the commissioner’s order. The

district court affirmed the commissioner’s order, concluding substantial

evidence supported the commissioner’s finding that Travelers had

charged Action Moving an excessive premium for workers’ compensation

insurance. Travelers appeals, contending the commissioner erred in its

interpretation of the applicable law, in its application of the applicable

law to the facts, and in making fact findings that are not supported by

substantial evidence in the record.4
       II.     Scope of Review.

       There is some confusion as to the appropriate standard of review

for the commissioner’s factual findings in this case. The parties agree

this case involves “other agency action” and is not a “contested case”

under Iowa Code chapter 17A. Compare Iowa Code § 17A.2(2) (defining

agency action as including “the whole or a part of an agency rule or other

statement of law or policy, order, decision, license, proceeding,

investigation, sanction, relief, or the equivalent or a denial thereof, or a

failure to act, or any other exercise of agency discretion or failure to do

so, or the performance of any agency duty or the failure to do so”), with

id. § 17A.2(5) (defining contested case as “a proceeding . . . in which the



       3Appeals of the manner in which a rating system has been applied are not

contested cases. See Iowa Code § 515A.9.

       4Because    we find a finding of fact upon which the commissioner’s legal
conclusions are based is not supported by substantial evidence, we do not address
Travelers’ challenges to the commissioner’s interpretation and application of the law.
                                    7

legal rights, duties or privileges of a party are required by the

Constitution or statute to be determined by an agency after an

opportunity for an evidentiary hearing”).          The enabling act for the

Insurance Division does not provide for contested case hearings in

actions under chapter 515A. See id. § 505.23. As “other agency action,”

the commissioner’s decision in this case was not bound by the

procedural rules applicable to a “contested case.” See id. § 17A.12.

      The district court found the substantial evidence standard of

section 17A.19(10) does not apply because this matter involves “other

agency action” and not a “contested case.”               Citing our opinion in

Greenwood Manor v. Department of Public Health, 641 N.W.2d 823 (Iowa

2002), the district court noted a reviewing court only examines “whether

the   agency   committed   an   error   of   law    or    acted   unreasonably,

capriciously, or arbitrarily.” 641 N.W.2d at 831. On appeal, both parties

assert our standard of review requires us to determine whether the

agency’s action is unreasonable, capricious, or arbitrary.

      The cases relied on by the district court in finding the substantial

evidence standard only applies to judicial review of contested cases were

based on a pre-1998 version of section 17A.19.                 See Iowa Code

§ 17A.19(8)(f) (1997) (stating the court may grant relief when agency

action is “[i]n a contested case, unsupported by substantial evidence in

the record made before the agency when that record is viewed as a

whole”).   In 1998, the General Assembly substantially revised section

17A.19, including the standards of judicial review previously listed in

section 17A.19(8). See 1998 Iowa Acts ch. 1202, § 24. The amendment

affecting the “substantial evidence” standard removed the reference to

contested case hearings, thereby expanding substantial evidence review

to all factual findings by an agency. Iowa Code § 17A.19(10)(f) (2001)
                                     8

(permitting the court to grant relief from prejudicial agency action

“[b]ased upon a determination of fact clearly vested by a provision of law

in the discretion of the agency that is not supported by substantial

evidence in the record before the court when that record is viewed as a

whole”). As explained by the reporter-draftsman of the 1998 revisions,

       [p]aragraph (f) now also applies the substantial evidence test
       to all ultimate facts found by an agency, as well as to all
       basic facts underlying those ultimate facts, pursuant to a
       clear delegation of authority to the agency to do so, whether
       those facts are found in formal adjudication and, therefore,
       were subject to the “substantial evidence” test under the
       original IAPA, or in informal adjudication or rulemaking
       which were subject to the “unreasonable, arbitrary,
       capricious, or abuse of discretion” test under the original
       IAPA. The change was made to a single standard for the
       judicial review of all facts found by an agency pursuant to a
       delegation of authority to do so because the “substantial
       evidence” and “unreasonable, arbitrary, or capricious” tests
       are functionally similar.      Both required only deferential
       review rather than rightness or substitution of judgment
       review, and both substantively embody the exact same
       reasonable person standard of review.

Arthur E. Bonfield, Amendments to Iowa Administrative Procedure Act,

Report on Selected Provisions to Iowa State Bar Association and Iowa

State Government 68 (1998). The district court thus erred in relying on

the former version of section 17A.19 and cases decided under that

statute in stating the scope of review.

       The legislature has delegated to the commissioner of insurance

authority to determine whether rates charged by companies providing

workers’ compensation insurance are excessive.         See Iowa Code §§

515A.1 (2005) (the purpose of chapter 515A is to “promote the public

welfare by regulating insurance rates to the end that they shall not be

excessive”); 515A.3(1)(a) (“[r]ates shall not be excessive”); 515A.4(3)

(commissioner authorized to review rate filings to determine whether they

meet   the   requirements   of   chapter   515A);   515A.5   (commissioner
                                     9

authorized to disapprove workers’ compensation insurance rate filings

which fail to meet the requirements of chapter 515A).           We therefore

review the commissioner’s factual findings for substantial evidence based

on the record viewed as a whole.         Id. § 17A.19(10)(f).    Substantial

evidence is

      the quantity and quality of evidence that would be deemed
      sufficient by a neutral, detached, and reasonable person, to
      establish the fact at issue when the consequences resulting
      from the establishment of that fact are understood to be
      serious and of great importance.

Id. § 17A.19(10)(f)(1).

      III.    Discussion.

      Travelers challenges the commissioner’s determination that the

premium charged to Action Moving was excessive. The commissioner’s

determination that the premium charged by Travelers was excessive is

based on the crucial finding that Action Moving’s liability for workers’

compensation benefits owed to its employees injured while providing

interstate services under the agency agreement with Atlas was insured

by another approved carrier.    Travelers contends this finding is not

supported by substantial evidence.

      Action Moving, like most employers, is statutorily required to

obtain workers’ compensation insurance from “some corporation,

association, or organization approved by the commissioner of insurance.”

Id. § 87.1. In the proceedings before NCCI and the commissioner, Action

Moving asserted Travelers’ premium was excessive because Action

Moving had already secured adequate coverage for its interstate

transportation services from Atlas’s insurance carrier. See id. § 515A.1

(stating the purpose of the workers’ compensation liability insurance

chapter of the Iowa Code is “to promote the public welfare by regulating
                                            10

insurance rates to the end that they shall not be excessive, inadequate or

unfairly discriminatory”).     The commissioner found Action Moving had

obtained such coverage through Atlas’s master workers’ compensation

plan, and consequently the premium charged by Travelers based on

Action Moving’s entire payroll was excessive.
       The commissioner relies on four items of evidence to support her
finding Action Moving procured coverage through Atlas workers’
compensation      insurance     for   its    employees   engaged     in   interstate
transportation services.        First, the commissioner notes the agency
agreement between Atlas and Action Moving expressly required Action
Moving to either provide its own workers’ compensation insurance
coverage, with an “all-states” endorsement, or to accept coverage under
Atlas’s plan.5 Second, the commissioner cites two letters in the record,
one from Grandy Pratt Company (Action Moving’s insurance agent) to
Travelers and another from Atlas to Travelers, indicating Action Moving’s
employees were covered by Atlas’s workers’ compensation insurance
when they performed work for Atlas. Finally, the commissioner points
out it is undisputed Atlas’s (unidentified) workers’ compensation insurer
paid previous workers’ compensation claims of Action Moving employees
at some unspecified time.
       We conclude the record is inadequate to support the agency’s
finding of fact that Action Moving was insured for workers’ compensation
claims arising from interstate transportation services by an approved
insurer other than Travelers during the policy period which is the subject


       5We   note the agency agreement actually entered into the record before the
commissioner was a blank copy of Atlas’s standard agency agreement and was not the
actual agency agreement formed by Action Moving and Atlas. Travelers disputes
neither the existence of the agency agreement between Atlas and Action Moving nor the
terms of that agreement pertaining to workers’ compensation insurance coverage.
                                       11
of this case. Although the agency agreement between Atlas and Action
Moving and the letters cited by the commissioner tend to prove Atlas
granted       Action   Moving   two   alternatives   for    securing    workers’
compensation insurance and that Action Moving chose to be covered
under Atlas’s master workers’ compensation plan, the record does not
identify a carrier who allegedly provided such coverage during the
relevant time period.     The record is also devoid of evidence tending to
establish that Atlas’s unidentified carrier was a company “approved by
the commissioner of insurance” to insure workers’ compensation risks in
Iowa.     See id. § 87.1.       The fact that Atlas’s unidentified workers’
compensation insurer paid the workers’ compensation claims of some
Action Moving employees at an unspecified time in the past does not
constitute substantial evidence that Action Moving had coverage for such
claims during the policy period in question.
        As the commissioner’s conclusion that Travelers charged Action
Moving an excessive premium was based on her unsupported finding
that Action Moving had obtained adequate workers’ compensation
coverage for claims arising in the course of interstate transportation
services from another approved insurer for the same policy period,
Travelers has demonstrated its substantial rights were prejudiced by that
factual finding. Id. § 17A.19(10).
        IV.    Conclusion.
        The commissioner’s finding that Action Moving obtained alternative
workers’       compensation     insurance   coverage       for   its   interstate
transportation services from an insurer other than Travelers is not
supported by substantial evidence in the record. We therefore reverse
the commissioner’s order.
        REVERSED.
        All justices concur except Baker, J., who takes no part.
