Aetna Fire Ins. Co. v. Shanks
Decision Date | 30 August 1926 |
Docket Number | 1045.,No. 1044,1044 |
Citation | 14 F.2d 690 |
Parties | ?TNA FIRE INS. CO. et al. v. SHANKS, State Auditor, et al. HENRY CLAY FIRE INS. CO. et al. v. SAME. |
Court | U.S. District Court — Eastern District of Kentucky |
Joseph S. Laurent, of Louisville, Ky., Robert J. Folonie, of Chicago, Ill., and Frederick D. Silber, of Chicago, Ill., for plaintiffs.
Frank E. Daugherty, Atty. Gen., and Gardner K. Byers, Asst. Atty. Gen. (Guy H. Briggs, of Frankfort, Ky., of counsel), for defendants.
Before DONAHUE, Circuit Judge, and COCHRAN and HICKS, District Judges.
These two suits are here on motions for interlocutory injunctions. The plaintiffs in the one are stock fire insurance companies, 163 in number, licensed to do and doing fire insurance business in Kentucky, who are incorporated in states other than Kentucky and in countries foreign to the United States. The plaintiffs in the other are 3 such companies, 2 of whom are incorporated in Kentucky and 1 in the District of Columbia. The plaintiffs in the two suits constitute all the stock companies doing fire insurance business in Kentucky except 2, who did not join in either suit for reasons not necessary to state. All of the plaintiffs in both suits are also licensed to do and are doing windstorm insurance business in Kentucky. The defendants in each suit are, respectively, the auditor, the insurance commissioner, and the Attorney General of Kentucky.
The ground of jurisdiction of the one suit is diversity of citizenship, and that it arises under the Constitution of the United States; that of the other is that it so arises. The interlocutory injunctions sought are to restrain action on the part of the defendants which interferes with, and which, if not restrained, will prevent, plaintiffs' charging and collecting an increase in rates of 12O per cent. on all fire and windstorm insurance done by them in Kentucky, which became effective August 2, 1926, the day before these suits were begun.
It is alleged in the bills that for the five years preceding this — i. e. for 1921, 1922, 1923, 1924, and 1925 — the losses and expenses of the stock fire insurance companies doing business in Kentucky, including plaintiffs, on their fire insurance business done therein, amounted to $56,605,126, and that their income from earned premiums on such business amounted to $46,007,501, thus making their losses and expenses for that period on this account exceed such income to the extent of $10,597,625, and that for that period the losses and expenses of such companies on their windstorm insurance business done therein amounted to $6,190,026, and their income from earned premiums on such business for that period amounted to $3,962,282, thus making their losses and expenses on this account exceed such income to the extent of $2,227,744. It may be taken, therefore, that, according to these allegations, during that period the plaintiffs did their fire insurance business in Kentucky at a net loss of over $10,000,000, and their windstorm business therein at a net loss of over $2,000,000. It is further alleged in the bills that, at the time of the making of the increase referred to, plaintiffs were then doing business in Kentucky at such a loss, and that the increase of 12O per cent. in the rates for such insurance will not yield them a profit; that, notwithstanding such increase, they will still be doing business at a loss, and that they are willing to continue to do business with such increase, trusting to future experience.
These facts, thus alleged, are set forth as the justification for such increase, and it is claimed that, by reason thereof, the action of the defendants, who are state officers and acting in their official capacity in the particulars complained of, amounts to depriving them, by the state of Kentucky, of their property without due process of law, in violation of the first section of the Fourteenth Amendment to the federal Constitution. The action complained of consists in denying the right of plaintiffs to charge and collect such increase, in demanding of plaintiffs' local agents that they disobey instructions to charge and collect it, and in threatening them, in case they do, with prosecution under a statute which prescribes severe penalties for so doing, and further in the bringing of an action by the defendant Shanks as auditor in the Franklin circuit court, the day after these suits were brought, to restrain plaintiffs from charging and collecting such increase.
The defendants do not question plaintiffs' right to a reasonable profit. Thus far they have not controverted the allegations of the bill as to their doing business in Kentucky at a loss. As to windstorm insurance they concede the legality of the increase, and disclaim any intent to interfere with plaintiffs in charging and collecting it. Their position as to the increase, so far as fire insurance is concerned, is that it is illegal, in that a certain course of procedure, prescribed by a valid statutory provision, the following of which was essential to its legality, was not followed. This being so, they have the right to prevent its being charged and collected. The questions before us for determination, therefore, are whether the statutory provision relied on applied to the increase in question, and, if it did, whether it was valid; i. e., free from any constitutional objection. This provision is one of several having to do with the making of rates to be charged and collected by stock companies for fire insurance done in Kentucky. Those provisions are 762b25 to 762b33, inclusive, of Carroll's Kentucky Statutes (6th Ed.) 1922, which are sections 25 to 33, inclusive, of the Act of March 13, 1920, Acts Kentucky 1920, c. 16. It is section 762b33, or section 33 of the original act, which is relied on by defendants. To properly understand it a general survey of the preceding eight sections should be made.
Section 762b25 provides for the creation of a rating bureau. It contemplates that there may be a number of bureaus, but as only a single bureau has been created thereunder it may be dealt with as if that was all that it called for. Its membership consists of all the stock fire insurance companies doing business in Kentucky, each of whom is required to be a member of it. This bureau is empowered to make rates. There is no express provision to this effect. The power to so make them is an implication from its name, and provisions in this and subsequent sections, which presuppose that it has such power, and regulate its exercise. There being no such express provision, there is no definition of the extent of the power. In reality the rating bureau is the insurance companies themselves, acting through a special agency in the exercise of their function to prescribe the rates at which they will do business. What it does they do.
The next section may be passed.
Section 762b27 provides for the auditor obtaining information from the rating bureau as to its organization, maintenance, and operation, and for the filing by it with him of schedules, rates, forms, regulations, and documents giving other information.
Section 762b28 provides for an examination of the rating bureau by the auditor.
Section 762b29 prohibits the rating bureau from fixing a rate which unfairly discriminates between risks.
Section 762b30 provides for deviation by an insurance company from the rates made by the rating bureau.
Section 762b31 is in part in these words:
Section 762b32 is in part in these words:
"The auditor shall, upon written complaint or upon his own motion, have power to investigate the necessity for a reduction of rates, and upon investigation, shall have power to order such reduction if the result of the business of the stock fire insurance companies, in this commonwealth, for five years next preceding said investigation shows that there has been an aggregate profit in excess of a reasonable amount, but in no event shall said auditor have power to order any reduction in rates in this commonwealth which will prevent a reasonable aggregate profit to the stock insurance fire companies licensed therein."
Section 762b33 is in full in these words:
We come, then, to the question whether section 762b33 had application to the...
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