What the end of the Chevron deference could mean for insurers

By Doug Bailey

A 6-3 ruling in late June by the U.S. Supreme Court in the case of Loper Bright Enterprises v. Raimondo was hailed as an earth-shattering decision that killed a 40-year practice of leaving it up to regulatory agencies to interpret ambiguous federal laws. The high court essentially said, “Hey, it’s our job to determine what the law says, not yours.”

The decision was hailed as a victory for businesses and conservatives who have long felt too much power was vested in the hands of regulators and that the avenues to challenge questionable rules and laws were narrow and difficult to navigate. It extinguished the so-called Chevron deference, set in 1984 in a case involving the oil company, which gave federal agencies wide powers to interpret laws and decide the best ways to apply them.

Pundits declared the overturning of Chevron was a “seismic decision,” the aftershocks of which “will be felt throughout the federal government.”

Although there was little question the decision shifted significant authority from regulators to the courts, the immediate impact of the ruling was confusion, as the Supreme Court offered little guidance on how lower courts would decide challenges to agency rulemaking.

The confusion ran the gamut. Some lawmakers such as Rep. Lauren Boebert, R-Colo., wrongly believed the decision rendered unconstitutional all questionable regulations proffered by government bodies such as the Environmental Protection Agency and they would be immediately suspended. Meanwhile, some on the other side believed the agencies would simply adjust to the new world and not much would really change.

The truth, as always, is probably somewhere in the middle. The justices clearly gave the courts the final say over regulations not explicitly detailed by Congress, thus limiting the ability of federal agencies to interpret their own statutes. However, the high court did not single out any specific regulations as unconstitutional, nor did it require agencies to immediately suspend regulations without a court hearing.

So what has changed, and what are the more likely repercussions to heavily regulated businesses such as insurers, financial institutions, airlines, transportation companies, broadcasters and telecommunications firms?

A weaker administrative state

“The SCOTUS decision will make it easier for courts to challenge administrative rules and will require Congress to pass more specific legislation,” said Pete Potente, CEO of San Diego-based global law corporation POTENTE. “The likely direct impact is that the administrative state gets weaker.”

With courts having more power to review and potentially overturn agency regulations, we can expect more legal challenges and uncertainty for agencies that may become more cautious in issuing regulations. This will lead to slower rulemaking and more litigation.

“A regulated entity litigating against its regulator was considered the nuclear option,” said Elizabeth Tosaris, an attorney in the regulatory and administrative law practice group at Michelman & Robinson in San Francisco. “But entities with enough vested interest in a different interpretation of the laws will think of challenging the interpretation and relying on the Loper case to discount whatever the interpretation is.”

It may take some time to discern the full impact of the court’s tossing of Chevron. But legal experts, corporate attorneys and analysts point to some likely scenarios for certain areas, such as health care, insurance, environmental and financial regulation.

Health insurers may have the most federal laws governing them, so it may be the area where the first challenges under the new ruling appear. Judicial review of the Health Insurance Portability and Accountability Act and the Gramm-Leach-Bliley Act, which require financial institutions to explain their information-sharing practices to their customers, is expected. The Food and Drug Administration’s authority to regulate drug approval and safety could be more closely scrutinized, and regulations related to Medicare and Medicaid could face increased legal challenges, experts said.

“The Affordable Care Act, by virtue of the complexity of our health care system, left a lot of room for interpretation, and the previous Chevron decision deferred to the agencies to really decide exactly what to do,” said Bradley Ellis, senior director, insurance, at Fitch Ratings. “So now there will likely be a lot of challenges to existing rules, and you could have different regulations from jurisdiction to jurisdiction, depending on the outcome of litigation.”

Ellis said the court may have to issue a clarification of its ruling to settle jurisdictional differences or confusion that could erupt.

“Otherwise, you’re going to have a lot of patchwork of regulations across the United States that differ depending on where you live, in an already extremely complex health care system,” he said. “But the biggest downside might be the cost of the litigation other than just confusion.”

Others agree. “You might have all the red states following the U.S. Supreme Court and the blue states deciding to keep the rules as they’ve always been,” said Tosaris. “Chevron had a rationale that an individual state court could say what still applies given the law in their state.”

Impact on health care regulations

Frequent legal challenges to the ACA, particularly the legality of Medicaid expansion under the act, could destabilize the health insurance market, potentially leading to increased premiums or reduced coverage options, Ellis said. Even the basic foundation of what “essential health services” means under the ACA could face legal challenges.

Public health measures, such as vaccine mandates or pandemic-related restrictions, might also be subject to more stringent judicial review.

Insurers should monitor and adapt

Because states regulate insurers for the most part, the industry may not be impacted by the overturning of the Chevron deference, experts said. But that might not be the whole story. Some fear the balance of power between state and federal insurance regulation could shift, impacting not just health insurance but also property/casualty insurance and other insurance lines.

Overall, the insurance industry can expect a more complex and challenging regulatory environment. Insurers will need to closely monitor legal developments and adapt their business strategies accordingly, say attorneys.

Regulations related to natural disasters, climate change and insurance fraud could be subject to increased scrutiny. In addition, coverage for emerging risks, such as cyberattacks and autonomous vehicles, could be more contested.

Insurers may face more legal challenges to policies, coverage and claims-handling practices, and those challenges would increase costs and operational burdens. Regulations related to catastrophe modeling, risk assessment and pricing could be subject to increased scrutiny, which could affect insurers’ ability to accurately price policies and manage risk. Courts may be more inclined to interpret insurance contracts in favor of policyholders, leading to increased insurance payouts.

Overall, the P/C industry can expect a more complex and challenging regulatory environment. Insurers will need to invest in legal expertise, risk modeling and regulatory compliance to navigate these challenges. International insurance and reinsurance contracts may be subject to increased scrutiny and potential disputes.

Nithya Das, chief legal and administrative officer at Diligent, a governance compliance software company, said risk management will be more difficult with the Chevron deference gone.

“By overruling the Chevron doctrine, the Supreme Court didn’t remove or obviate regulatory requirements,” she said. “They called into question the ability of agencies to interpret and enforce legal regulations. This does not mean legal requirements fall away or give companies any certainty about how agencies will react, but it adds more uncertainty on compliance.”

But business leaders reading the coverage of the court’s decision to overturn Chevron could be lulled into a false sense of relief that strict environmental regulations will now be easier to challenge.

According to Enhesa, the leading provider of regulatory and sustainability intelligence worldwide, the Supreme Court decision could make environmental law more complicated to navigate for large corporations. The reason: State regulators and federal courts will now wield an outsized influence over environmental regulation.

“Because legal challenges to federal agency statutes will now be decided by the courts, the venue for these challenges will become more important than ever,” said Nhat Nguyen, chief analyst at Enhesa “There could be a surge in efforts to challenge environmental regulations, with industry groups looking to challenge regulations in more-conservative, pro-business courts like the Fifth Circuit Court of Appeals, while environmental groups and others push for more stringent interpretations of environmental statutes in courts like the Ninth Circuit, which has historically leaned left.”

The anticipated increase in legal activity following the decision in Loper Bright Enterprises, et al. v. Raimondo will push businesses into a greater need for a granular, state-by-state understanding of laws — and multiple possible interpretations of those laws — that could affect their businesses, Nguyen said.

Correction: In an earlier version of this article, some of the quotes from Bradley Ellis, senior director, insurance, at Fitch Ratings, were mistakenly attributed to Mike Prindle, senior vice president at insurance broker CAC Specialty. We apologize for the error.