Abdulah v. COM'R OF INS. OF COM. OF MASS., Civ. A. No. 94-12396-NG.

• Decision Date: 27 October 1995
• Docket Number: Civ. A. No. 94-12396-NG.
• Citation: 907 F. Supp. 13
• Parties: Basimah R. ABDULAH, National Association of Black Americans, Richard P. Howe as Mayor of the City of Lowell, and Town of Hull, Plaintiffs, v. COMMISSIONER OF INSURANCE Of the COMMONWEALTH OF MASSACHUSETTS and Automobile Insurers Bureau of Massachusetts, Defendants.
• Court: U.S. District Court — District of Massachusetts

907 F. Supp. 13

Basimah R. ABDULAH, National Association of Black Americans, Richard P. Howe as Mayor of the City of Lowell, and Town of Hull, Plaintiffs, v. COMMISSIONER OF INSURANCE Of the COMMONWEALTH OF MASSACHUSETTS and Automobile Insurers Bureau of Massachusetts, Defendants.

Civ. A. No. 94-12396-NG.

United States District Court, D. Massachusetts.

October 27, 1995.

Michael Savage, Office of Michael Savage, Scituate, MA, Jack E. Robinson, New York City, for Basimah R. Abdulah.

Daniel R. Wojcik, Assistant City Solicitor, City Hall Law Department, Lowell, MA, for Richard P. Howe.

James B. Lampke, Town Counsel — Town of Hull, Hingham, MA, for Town of Hull.

Jack E. Robinson, Stamford, CT, for National Association of Black Americans, National Association of Railroad Passengers.

Judith Fabricant, Attorney General's Office, Boston, MA, for Commissioner of Insurance for Commonwealth of Massachusetts, Automobile Insurers, Automobile Insurers Bureau of Massachusetts.

E. Michael Sloman, Meyer, Connolly & Sloman, Boston, MA, for Automobile Insurers, Automobile Insurers Bureau of Massachusetts.

MEMORANDUM AND DECISION

GERTNER, District Judge.

I. INTRODUCTION

The plaintiffs¹ in this action seek declaratory and injunctive relief against the Massachusetts Commissioner of Insurance ("the Commissioner") with respect to the method by which the Commissioner sets motor vehicle insurance rates.² The plaintiffs allege that the Commissioner's method, which relies in part on a territorial rating scheme, violates both the Equal Protection and Due Process Clauses of the 14th Amendment of the United States Constitution.³ In particular, plaintiffs allege that the statute, M.G.L. c. 175E § 4(d), requiring the Commissioner to use a territorial rating system, is invalid on its face because it necessarily results in the creation of a classification scheme which is not rationally related to a legitimate governmental purpose, and because it results in a confiscation of property without just compensation.

While plaintiffs raise interesting policy questions, the complaint is framed so narrowly that I cannot, on this record, find a violation of the Constitution.⁴ For the reasons stated below, defendants' motion for summary judgment is ALLOWED and plaintiffs' motion for summary judgment is DENIED.⁵

II. FACTUAL AND STATUTORY BACKGROUND

The parties have stipulated to all relevant facts in this case. They are as follows:

Since as early as 1927, the Commissioner has been statutorily authorized to set "fair, just, reasonable and nondiscriminatory" rates for certain types of automobile insurance coverage in Massachusetts. See M.G.L. c. 175 § 113B. Prior to 1977, the Commissioner was required annually to set rates for all forms of automobile insurance. In 1977, the Commissioner's authority to set rates was abolished, and insurance companies were permitted to set their own rates, subject to the Commissioner's approval. This change resulted in significant rate increases; the law was amended in 1977 to permit the Commissioner once again to set rates annually, following her or his determination that competition is insufficient or unworkable as a rate-setting mechanism. See M.G.L. c. 175 § 113B, M.G.L. c. 175E § 5. The Commissioner has, pursuant to this authority, made such determinations annually and established rates for non-commercial automobile insurance in every year following 1977.

The Commissioner sets rates by categorizing vehicle owners by the risk factors they are deemed to possess. Risk factors are characteristics of owners or their vehicles which have been statistically correlated with higher or lower frequencies of insurance claims. Vehicle owners whose risk factors indicate a higher than average likelihood that they will make a claim are charged higher than average rates. Conversely, vehicle owners whose risk factors indicate a lower than average likelihood of making a claim pay less.

It is, of course, possible to conceive of an infinite number of potential risk factors, since there is likely to be some correlation (even if slight) between claim frequency and any number of characteristics of insureds or their vehicles. In determining what risk factors may properly be considered in her or his rate-setting process, however, the Commissioner is guided by statutory requirements. For example, the Commissioner is required to consider the following as relevant risk factors individual driver accident records, the installation of anti-theft devices, airbags and other safety features, the make and model of the insured vehicle, and years of driving experience. M.G.L. c. 175 § 113B. Conversely, the Commissioner is prohibited from considering sex, age, or marital status as risk factors. Id.

One of the risk factors to be considered in determining the insurance rates applicable to a particular vehicle is the locality where that vehicle is principally garaged. Pursuant to M.G.L. c. 175E § 4(d), the Commissioner is required to establish not less than 15 rating territories throughout the Commonwealth and to calculate the risk of insuring particular vehicles by taking into account the particular territory in which an insured vehicle is garaged. This law does not, however, specify a method by which the Commissioner should determine the number or boundaries of these territories.

In practice, the Commissioner has established 27 such rating territories. Of these 27 territories, 10 consist of individual neighborhoods within the City of Boston. The remaining territories consist of groups of cities and towns throughout Massachusetts which have been found by the Commissioner to have similar rates of insurance claims.⁶

Every year, the Commissioner determines a "claims index" for each rating territory by comparing the relative rate of claims in the territory with statewide averages after taking into account the territory's traffic density and the individual characteristics of drivers within the territory ("the classification mix"). An initial index is computed which equals the ratio of the territory's claims frequency to the expected frequency using statewide averages. If the territory's claim frequency is higher than the expected level, it will be assigned an index greater than one. If its frequency is below the expected level, its index will be less than one. After initial indices have been determined, they are modified slightly by a practice known as "capping and tempering," which limits the percentage by which a territory's index may vary from its previous year's index, and from the indices determined for other territories.

Once a territory's final claims index has been determined using this system, the index is used to set the insurance rates for vehicles garaged within the territory, essentially by multiplying a statewide base rate by the index. As a result of this system, the rates charged to otherwise similarly situated drivers in Massachusetts vary widely depending on where they happen to garage their vehicle. For example, in 1994, the average policy holder in Territory 2, which includes the Town of Wellesley, paid $824.01 for the "standard package" of non-commercial automobile insurance, which includes mandatory liability coverages as well as comprehensive and collision coverage. That same driver, with the same driving record, would have to pay $2,142.11 for the same coverage if she lived in Territory 22, which includes the Roxbury section of Boston. Other Boston neighborhoods do almost as poorly under this system: our hypothetical driver would pay $1,725.13 in Charlestown, $1,575.41 in South Boston, and $2,150.75 in Dorchester. A driver in Lowell would pay $1,425.28. The statewide average rate is $1,074.81.

III. DISCUSSION

As explained above, plaintiffs make two distinct—and very narrow claims—in this action. First, plaintiffs claim that M.G.L. c. 175E § 4(d), which requires the Commissioner to implement a territorial rating scheme for motor vehicle insurance rates, facially violates the Equal Protection Clause by creating a classification that is not rationally related to a legitimate governmental purpose. In particular, they claim that the Commissioner's use of a territorial rating scheme is per se not rationally related to the goal of fairly allocating insurance risks, because it necessarily results in similarly situated drivers within the Commonwealth paying grossly disparate rates.

Next, plaintiffs contend that Section 4(d) necessarily results in a rating scheme which is unconstitutionally "confiscatory," presumably because it takes the property of Massachusetts drivers without due process of law. In making this claim, plaintiffs analogize the plight of vehicle owners to that of a regulated business, and rely on a line of cases prohibiting rate-setting bodies from setting rates so low as to deprive a such a business of a fair and reasonable return on its investment. See Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 603, 64 S.Ct. 281, 288, 88 L.Ed. 333 (1944); Aetna Casualty & Surety Co. v. Commissioner of Insurance, 358 Mass. 272, 281, 263 N.E.2d 698 (1970).

I will address each of these claims in turn.

A. Whether M.G.L. c. 175E § 4(d) Creates a Classification Scheme Which is Not Rationally Related to a Legitimate Governmental Purpose

Because plaintiffs have not alleged discrimination against a suspect or quasi-suspect class nor the deprivation of a fundamental right, their Equal Protection claim can succeed only if they prove that the challenged statute bears no "rational relationship to a legitimate state purpose." San Antonio Independent School District v. Rodriguez, 411 U.S. 1, 44, 93 S.Ct. 1278, 1302, 36 L.Ed.2d 16 (1973); Pennell v. City of San Jose, 485 U.S. 1, 14, 108 S.Ct. 849, 858-59, 99 L.Ed.2d 1 (1987). The Supreme Court has noted that this is an extremely low threshold of legitimacy, and serves to invalidate only "wholly arbitrary acts." New Orleans v. Dukes, 427 U.S. 297, 303-304, 96 S.Ct....