Aetna Insurance Company v. Hyde

• Decision Date: 23 June 1926
• Docket Number: 26187
• Citation: 285 S.W. 65,315 Mo. 113
• Parties: Aetna Insurance Company et al. v. Ben C. Hyde, Superintendent of Insurance Department of State of Missouri, Appellant
• Court: Missouri Supreme Court

285 S.W. 65

315 Mo. 113

Aetna Insurance Company et al.
v.
Ben C. Hyde, Superintendent of Insurance Department of State of Missouri, Appellant

No. 26187

Supreme Court of Missouri

June 23, 1926

Dissenting Opinion May 26, 1926.

Motion for Rehearing Denied June 23, 1926.

Appeal from Cole Circuit Court; Hon. Henry J. Westhues, Judge.

Reversed and proceedings dismissed.

Floyd E. Jacobs and John T. Barker for appellant.

(1) Fire insurance is a business affected with a public interest and it is well settled that a state may regulate fire insurance rates. Co. v. Wanberg, 260 U.S. 73; Co. v. Lewis, 223 U.S. 389; State ex rel. v. Harty, 278 Mo. 691; Co. v. Welch,49 Okla. 620, 154 P. 48; Henderson v. McWaters,104 S.C. 268; Martin v. Howard,96 Neb. 278; People v. Co., 126 Ill.App. 636; 12 C. J., 850. (2) The reduction order is presumed to be just and reasonable and the burden of proof is on the respondents to show the contrary; to overcome the presumption that the reduction order is reasonable the evidence must be clear and convincing, every reasonable doubt being yielded in favor of the reduction. Sec. 6284, R. S. 1919; Laws 1923, p. 235; 10 C. J., 426. (3) Respondents failed to meet the burden of proof imposed on them; they were required to offer substantial evidence as to their income, losses and reasonable expenditures; respondents refused to show what their expenses were or that they were reasonable and their officers were not allowed to testify as to what salaries and commissions they received; no proper explanation was given regarding excessive expenses; no such showing was made by respondents as to justify a court in setting aside the order of reduction and such order must be sustained. In re Water Co., 7 Mo. P. S. C. 379; In re Gas Co., 9 Mo. P. S. C. 465; Springfield v. Springfield, 10 Mo. P. S. C. 47; Re Railway Co., 11 Mo. P. S. C. 36; Re Railway Co., 11 Mo. P. S. C. 86; Re Railway Co., 7 Mo. P. S. C. 202; Re Railway Co., 11 Mo. P. S. C. 79; Re Water Co., 5 Mo. P. S. C. 620; Re Electric Co., 10 Mo. P. S. C. 335; State v. Express Co.,85 Neb. 25, 42 L. R. A. (N. S.) 396; Mo. Rate Cases, 230 U.S. 474; Minn. Rate Cases, 230 U.S. 352; Ark. Rate Cases, 187 F. 290; State v. Co.,24 Nev. 53; Smythe v. Ames,169 U.S. 466; Gas Co. v. New York,157 F. 849; Darnell v. Edwards,244 U.S. 564. (4) Only reasonable and prudent operating expenses can properly be charged against the State; excess profit taxes, surtaxes and other Federal taxes, excess commissions paid in St. Louis, taxes paid on property not devoted to the insurance business, donations, etc., are not operating expenses, but corporate expenses, and must be borne by the stockholders of the corporations. State v. Express Co.,85 Neb. 25, 42 L. R. A. (N. S.) 396; Mo. Rate Cases, 230 U.S. 474; Minn. Rate Cases, 230 U.S. 352; Ark. Rate Cases, 187 F. 290; State v. Co.,24 Nev. 53; Smith v. Ames,169 U.S. 466; Darnell v. Edwards,244 U.S. 564. (5) In arriving at the earnings of all the fire insurance companies doing business in Missouri all of their income from such business must be considered. Interest earnings constitute income and must be considered. Groesbeck v. Railroad,250 U.S. 607; People v. Roberts, 52 N.Y.S. 859; St. John v. Railroad,89 U.S. 136; State v. Co.,24 Nev. 53; Ark. Rate Cases, 187 F. 290, 230 U.S. 553; Fall River v. Com.,228 Mass. 575; Ark. Rate Cases, 168 F. 730. (6) For rate-making purposes the calculation of profit or loss of fire insurance companies can only be made upon the basis of premiums received, losses paid and expenses paid. Earned premiums, incurred losses and incurred expenses cannot be considered for rate making purposes. Secs. 6283, 6280, 6281, R. S. 1919. (7) Since the passage of the Rating Act in 1915 the Insurance Department consistently interpreted the law to require a consideration only of written premiums, paid losses and paid expenses; the construction of executive officers entrusted with the duty of carrying out a statute is entitled to great weight. State ex rel. v. Gordon,266 Mo. 394; State ex rel. v. Y. M. C. A.,259 Mo. 233; Folk v. St. Louis,250 Mo. 116; Ewing v. County,216 Mo. 681. (8) The evidence in this case conclusively shows that respondents have made more than a reasonable profit in Missouri during this five-year period, and the reduction order should stand. (9) All losses, including conflagration losses, were paid during this period with premiums received by respondents, and no allowance should be made for conflagration liability inasmuch as all losses have been paid and to make a further allowance would be a duplication.

Bates, Hicks & Folonie, Hogsett & Boyle, Leahy, Saunders & Walther and Cockrill & Armistead for respondents.

(1) Respondents sustained the burden of proof. The findings of fact by a referee sustained by the circuit court will not be disturbed unless the findings are palpably wrong, great deference being given to the findings of the referee and trial court. Hurst v. Trust Co.,264 S.W. 406; Rawlins v. Rawlins,102 Mo. 563; Parker v. Roberts, 116 Mo. 567; Vanne v. Schencko,100 Mo. 250; Lens v. Lenhardt,127 Mo. 271; Laughlin v. Laughlin,291 Mo. 472. (2) Under the Rating Act of 1915, the Superintendent has no power to pass on the reasonableness of expenses. The only power given to the Superintendent is by Sec. 6283, R. S. 1919, authorizing him to investigate the necessity for a reduction of rates, and under proper circumstances to make a reduction order. He is given no power to pass on the reasonableness of respondents' expenditures. A grant of authority to administer legislative power will be held to extend no further than the express terms of the grant. State ex rel. v. Patterson, 229 Mo. 391; Syler v. Railway Co.,213 U.S. 175; Interstate Commerce Commission v. Railroad Co.,167 U.S. 479; City of Benwood v. Commission,75 W.Va. 127; Railroad Co. v. Railroad Commissioners,94 Miss. 124; Railroad Commissioners v. Oregon Railroad Co., 17 Ore. 19, 19 P. 702; Grand Rapids Co. v. Railway Commissioners,183 Mich. 383; 150 N.W. 155. (3) There are no improper or excessive expenses including in respondents' tabulations of experience. (a) Excess commissions in St. Louis are expenses which the respondents are compelled by conditions to pay. (b) Federal taxes are properly treated as operating expenses. Galveston Electric Co. v. Galveston, 258 U.S. 399; Georgia Railway & Power Co. v. Railroad Commission, 43 S.Ct. 682; Oklahoma Natural Gas Co. v. Corporation Commission,90 Okla. 84, 216 P. 217; Municipal Gas Co. v. Public Service Corporation, 186 N.Y.S. 541; Consolidated Gas Co. v. Newton, 207 F. 231, note in 23 A. L. R. 826. (c) There are no expenses for donations or entertainments included in respondents' figures. (d) Taxes on property not devoted to the insurance business are excluded from respondents' figures. (e) Commissions to brokers are not paid by respondents, and are therefore not included in respondents' expense figures. (f) Legal expenses incurred by respondents are properly included. Arkansas Rate Cases, 187 F. 315. As to all expenses included in respondents' tabulations, the presumption is, in the absence of any testimony to the contrary, that they were reasonably incurred and that the amounts thereof are reasonable. Dayton Goose Creek Railway Co. v. United States,44 S.Ct. 169. (4) Interest earnings on the capital and surplus of the companies cannot be taken into account in fixing a level of rates for underwriting. (a) The undisputed evidence shows a clear line of separation between the underwriting and investment activities of the insurance companies, each of which activities is productive of a profit or a loss. The Income Tax Law of Congress recognizes the clear line of separation between the two activities, by imposing taxes calculated in different ways upon investment profit and underwriting profit respectively. Revenue Act 1921, sec. 246a; Revenue Act 1924, sec. 6336. (b) The reduction order, in so far as it takes into account interest earnings on capital and surplus in order to reduce underwriting rates, deprives the companies of their property without due process of law. Smyth v. Ames, 169 U.S. 540; Minnesota Rate Case, 230 U.S. 352; State ex rel. Case v. Public Service Commission, 249 S.W. 962; Marty v. Light & Power Co., 259 S.W. 796; Hackworth v. Railroad Co.,286 Mo. 282; Northern Pacific Railway Co. v. North Dakota,236 U.S. 585; Brooks-Scanlon Co. v. Railroad Commission, 251 U.S. 596; Vandalia Railroad Co. v. Schull,255 U.S. 113; Norfolk & Western Railroad Co. v. Conley,236 U.S. 605; Interstate Commerce Commission v. Union Pacific Co.,222 U.S. 541; Union Pacific Railroad Co. v. Public Utilities Commission,95 Kan. 604; Morgan Co. v. Railroad Commission,127 La. 636; Louisiana Co. v. Railroad Commission,131 La. 387; State v. Spokane Railroad Co.,89 Wash. 599; State Public Utilities Commission v. Monarch Refrigerating Co.,267 Ill. 528; Citizens Railway v. Public Service Commission, 271 Pa. St. 39; State ex rel. Danciger v. Public Service Commission, 275 Mo. 496; Nowata County Gas Co. v. Henty Oil Co.,269 F. 742; State ex rel. Kansas City v. O'Rear,210 S.W. 392; Note in 52 L. R. A. (N. S.) 15; 10 C. J. 423; Railway Co. v. Railroad Commission, 155 F. 806; In re Arkansas Railroad Rates, 163 F. 143; Northern Ry. Co. v. Keyes, 91 F. 48; Chicago Railroad Co. v. Dey,35 F. 866; Railway Co. v. Towers,126 Md. 59; State v. Express Co.,81 Minn. 87, 83 Am. St. 366, 50 L. R. A. 667; Railway Co. v. Railroad Commissioners,196 F. 800; Railway Co. v. Hadley,168 F. 317 (modified in 230 U.S. 474); Cumberland Telephone & Telegraph Co. v. La. Public Service Commission, 285 F. 215. (c) The Missouri Rating Act does not contemplate taking into account interest earnings on capital and surplus. Section 6283 confines the superintendent to "earnings in this State," and to "the aggregate profits therein," and to "the aggregate collections by insurance companies in...