Blue Cross Blue Shield of Montana, Inc. v. Montana State Auditor

In late 2006 Blue Cross Blue Shield of Montana ("BCBS") submitted a form for approval by the Commissioner of Insurance ("Commissioner"), as required by Montana law. The form included language excluding payment of benefits to the insured if the insured received or is entitled to receive benefits from an automobile or premises liability insurance. The Commissioner rejected the form because it violated state law and deceptively affected the risk purported to be assumed in the insurance contract. However, forms with this exclusion had been submitted by BCBS and allowed by the Commissioner since 2002. After losing a contested case hearing on the issue and a subsequent judicial review in the Montana First Judicial District Court, BCBS appealed the District Court’s order upholding the Commissions disapproval of BCBS’ form.

The Court first reviewed whether the District Court had correctly concluded that the Commissioner was authorized to withdraw its prior approval. The Court rejected BCBS’ argument that the Commissioner’s prior approval of the BCBS form with the exclusionary language precluded it from now disapproving the BCBS form. Quoting the relevant Montana statute providing that the Commissioner "may at any time, after notice and for cause shown, withdraw any approval," the Court concluded that the Commissioner clearly possessed the power and duty to withdraw its previous approval of BCBS’ forms, even if one of the approvals arose during a contested case proceeding. The Court also rejected BCBS’ argument that the Commissioner was barred by res judicata based on the previous administrative proceeding from withdrawing its previous approval because that proceeding had not produced a decision, decree or order.

The Court then examined whether the Commission properly rejected the BCBS form. Under Montana law, a health service corporation's right to subrogation may not be exercised until the insured has been fully compensated for his or her losses. The Court noted that the exclusions in the BCBS form permitted BCBS to avoid paying benefits to an insured if the insured was merely entitled to receive benefits from an auto or premises liability insurance, regardless of whether the insured actually received any benefits from such policy. As a result, the Court concluded that the exclusions violated Montana law and therefore the Commission properly rejected the BCBS form.