American Employers' Ins. Co. v. Commissioner of Ins.

• Decision Date: 16 September 1937
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: AMERICAN EMPLOYERS' INSURANCE COMPANY & others v. COMMISSIONER OF INSURANCE.

298 Mass. 161

10 N.E.2d 76

AMERICAN EMPLOYERS' INSURANCE COMPANY & others v. COMMISSIONER OF INSURANCE.

Supreme Judicial Court of Massachusetts, Suffolk.

September 16, 1937

April 12, 1937.

Present: RUGG, C.

J., FIELD, LUMMUS & QUA, JJ.

Commissioner of Insurance. Insurance, Motor vehicle liability. Equity Jurisdiction, Review of decision of insurance commissioner. Words "Due hearing and investigation."

The commissioner of insurance, before determining the classification of risks and premium charges for compulsory motor vehicle liability insurance, was required by G. L. (Ter. Ed.) c. 175, Section 113B, as amended by St. 1935, c. 459, Section 4, to hold a full hearing observing fundamental procedural requirements and to act only upon evidence then introduced; and a determination based in part upon his consideration of data gathered by his examiners and in his file but not put in evidence at such hearing must be annulled. Upon a petition under G.L. (Ter. Ed.) c. 175, Section 113B, as amended by

St. 1935, c.

459, Section 4, for a review of an order of the commissioner of insurance determining the classification of risks and premium charges for compulsory motor vehicle liability insurance, the court has no jurisdiction, after having annulled the order, to adjudge and establish rates.

BILL IN EQUITY, and PETITION FOR REVIEW, filed in the Supreme Judicial Court for the county of Suffolk on October 10, 1936.

The cases were reserved and reported by Donahue, J.

F. H. Chase, (R.

P. Baldwin with him,) for the petitioners.

E. O. Proctor Assistant Attorney General, for the respondent.

RUGG, C.J. These cases have been reserved for our consideration upon the pleadings, the master's reports and the exceptions thereto, the motion of the respondent for recommittal, and the decree denying that motion. The proceedings are brought by certain stock companies authorized to issue motor vehicle liability insurance policies or bonds. The cases arise out of an order of the respondent as commissioner of insurance made on September 21, 1936, fixing classifications of risks and insurance premium charges for motor vehicle liability policies and bonds as defined in G.L. (Ter. Ed.) c. 90 Section 34A. The first case is a suit in equity alleging that the order is void for reasons therein stated. The other is a petition in equity brought under the provisions of G.L. (Ter. Ed.) c. 175, Section 113B, as amended by St. 1935, c. 459, Section 4, whereby review of that order and other relief are sought. That section, as in force when the respondent made the order in question and also a similar order in September, 1935, provided in the first paragraph thereof as follows: "The commissioner shall, annually on or before September fifteenth, after due hearing and investigation, fix and establish fair and reasonable classifications of risks and adequate, just, reasonable and non-discriminatory premium charges to be used and charged by companies in connection with the issue or execution of motor vehicle liability policies or bonds, both as defined in section thirty-four A of chapter ninety, for the ensuing calendar year or any part thereof. He shall, on or before said date, sign memoranda of the classifications and premium charges fixed and established by him in such form as he may prescribe and file the same in his office, and cause a duly certified copy of such classifications and schedule of premium charges forthwith to be transmitted to each company authorized to issue such policies or to execute such bonds. During said calendar year, the classifications and premium charges fixed and established by the commissioner for such policies shall be used by all companies issuing such policies, and the classifications and premium charges for such bonds shall be used by all companies acting as surety on such bonds." The section provided that the charges should be fixed after a hearing of which notice incorporating a schedule precisely setting forth the premium charges proposed to be established for the ensuing calendar year had been given in a manner specified. The section further provided: "The commissioner may make, and, at any time, alter or amend, reasonable rules and regulations to facilitate the operation of this section and enforce the application of the classifications and premium charges fixed and established by him, and to govern hearings and investigations under this section. He may at any time require any company to file with him such data, statistics, schedules or information as he may deem proper or necessary to enable him to fix and establish or secure and maintain fair and reasonable classifications of risks and adequate, just, reasonable and non-discriminatory premium charges for such policies or bonds. . . . Any person or company aggrieved by any action, order, finding or decision of the commissioner under this section may, within twenty days from the filing of such memorandum thereof in his office, file a petition in the supreme judicial court for the county of Suffolk for a review of such action, order, finding or decision. . . . The court shall have jurisdiction in equity to modify, amend, annul, reverse or affirm such action, order, finding or decision, shall review all questions of fact and of law involved therein and may make any appropriate order or decree. The decision of the court shall be final and conclusive on the parties."

The cases were referred to a master, who has filed a principal and comprehensive report in the petition for review, and has considered in the report in the suit in equity only the narrower issues there involved.

When the compulsory motor vehicle insurance law (hereafter called the compulsory insurance law) was first enacted in 1925, the commissioner of insurance then in office considered various possible methods for determining premium charges. There was formed with his approval a voluntary association of the interested insurance corporations, termed for convenience the bureau. Its declared objects were to cooperate with the commissioner in carrying out the provisions of the compulsory insurance law and to deal with the various activities arising under it. It was not formed by the commissioner in the exercise of any specific statutory power. It was, however, formed at his request and was adopted by him as his principal instrumentality for collecting data and statistics for use in establishing classifications of risks and fixing premium charges as required by said Section 113B. Its use for this purpose has been continued by all subsequent commissioners including the respondent. Each commissioner including the respondent has established rules and regulations in great detail, known as the statistical plan, to be used by the insurance companies for reporting to the bureau the data, statistics and information required for the fixing of classifications and premium charges. From the material thus collected the bureau has compiled and submitted to the commissioner information in much particularity with reference to the experience of the insurance companies under the compulsory insurance law. The data and statistics submitted by the bureau to the respondent constituted all the information necessary to enable him to fix pure premiums as the basis of the final premium charges for 1937. The term "pure premiums" means the amount necessary to have been paid on each motor vehicle to raise a fund equal to the incurred losses, which comprise the actual losses paid and the companies' estimates of outstanding unpaid losses. The determination of this factor is one of the steps in fixing rates.

There is a certain normal course of procedure in establishing rates under the compulsory insurance law which has been customarily followed by all commissioners. The several steps are (1) to determine whether the State shall be divided into rating territories with different rates for each, and if so how many; (2) to assign each city or town to its appropriate territory on the basis of its loss experience; (3) to estimate the pure premiums or loss cost per vehicle for each territory for the year; (4) to determine what classification of vehicles shall be adopted in determining the pure premiums, and (5) to increase or load this pure premium by an amount estimated to be sufficient to pay the expenses of the company in carrying on its business plus a reasonable profit. The third is the only one of these steps in the conduct of the respondent now assailed. Hitherto the commissioners have used as the basic pure premiums of past experience the average of the last five years modified by a so called two-year rate level factor intended to change that average by the experience of the last two years. That method is based upon the recognition of the theory that, while a five-year...