Appeal by Progressive Cas. Ins. Co., Matter of

• Decision Date: 23 December 1997
• Docket Number: No. A96-138,A96-138
• Citation: 307 N.J.Super. 93,704 A.2d 562
• Parties: In the Matter of the APPEAL BY PROGRESSIVE CASUALTY INSURANCE COMPANY from Orderissued by the Commissioner of Banking and Insurance.
• Court: New Jersey Superior Court — Appellate Division

Page 93

307 N.J.Super. 93

704 A.2d 562

In the Matter of the APPEAL BY PROGRESSIVE CASUALTY INSURANCE COMPANY from Order No. A96-138 issued by the Commissioner of Banking and Insurance.

Superior Court of New Jersey Appellate Division.

Argued Nov. 18, 1997.

Decided Dec. 23, 1997.

Douglas S. Eakeley, Roseland, for appellant Progressive Casualty Insurance Company (Lowenstein, Sandler, Kohl, Fisher & Boylan, attorneys; Mr. Eakeley, of counsel and on the brief with Robert L. Lombardi).

Eleanor Heck, Deputy Attorney General, for respondent Commissioner of Banking and Insurance (Peter Verniero, Attorney General, attorney; Joseph L. Yannotti, Assistant Attorney General, of counsel; Ms. Heck, on the brief).

M. Paige Berry, Trenton, for respondent New Jersey Commercial Automobile Insurance Plan (Picco Herbert & Kennedy, attorneys; Ms. Berry, of counsel and on the brief).

Before Judges PRESSLER, WALLACE and CARCHMAN.

The opinion of the court was delivered by

PRESSLER, P.J.A.D.

Progressive Casualty Insurance Company appeals from an order entered by the Acting Commissioner of Insurance (Commissioner) affirming, as neither arbitrary, capricious nor inconsistent with law, a determination by the Governing Committee of the New Jersey Commercial Automobile Insurance Plan (CAIP), following a hearing before it in September 1995, denying Progressive's application for adjustment of its participation data for 1988. The Governing Committee based its decision on Section 6.F.5 of CAIP's Operating Plan, effective July 15, 1990, requiring requests for data adjustment to be made within two and a half years following the end of the calendar year for which the adjustment is sought. The Governing Committee concluded that the limitations rule applied and denied the adjustment request, and the Commissioner accepted the factual findings and reasoning of the Committee while acknowledging that the Committee had the authority, which it declined to exercise, to grant an exception from the rule. We reverse. We are satisfied that the Commissioner erred in applying the substantial evidence rule to its review of the Committee's action and should have treated this as a contested case under the Administrative Procedure Act. We remand for that purpose.

CAIP was established in 1984 pursuant to N.J.S.A. 17:29D-1, as implemented by N.J.A.C. 11:3-1.1 to -1.10, for the purpose of providing an insurance mechanism for owners of commercial vehicles unable to obtain insurance in the voluntary market. CAIP is administered by a Governing Committee appointed by the Commissioner and acting in accordance with a Plan of Operation (Plan) approved by the Commissioner. N.J.A.C. 11:3-1.3. The membership of the Governing Committee is prescribed by N.J.A.C. 11:3-1.4, which allocates representative members to various industry groups. All insurers writing motor vehicle liability and physical damage coverage in this State are CAIP participants, N.J.A.C. 11:3-1.3, and a CAIP participant may apply, pursuant to the Plan, to be a servicing carrier. All servicing carriers have a seat on the Governing Committee, N.J.A.C. 11:3-1.4. Progressive became a servicing carrier in 1988 and has had, since that time, a representative on the Governing Committee.

As we understand the Plan's operation in general terms, CAIP's profits and losses are apportioned annually among all participants in the proportion their voluntary premiums bear to the total of all voluntary premiums paid. ¹ For the purpose of establishing the proportion ratios for each year, the premiums received by a servicing carrier for writing CAIP insurance are excluded from the calculation. We further understand that a national industry organization, the Automobile Insurance Plan Service Office (AIPSO), headquartered in Rhode Island, is employed by CAIP to receive and analyze the annual premium data, make the ratio calculations, and apportion the benefits and risks of participation. We further understand that this scheme, including the use of AIPSO's services, has been adopted by a number of other states.

According to the record, during the early years of operation of the Plan, participants not infrequently requested an adjustment by AIPSO of their premium data well after the close of the calendar year for which it had been submitted, and, by and large, these requests were routinely granted, resulting in recalculations for those years of the CAIP's benefits and burdens among the participants. In 1988, Twin City Fire Insurance Company requested premium data adjustment for calendar year 1984 explaining that by error the data submitted to AIPSO had included premiums earned by it as a servicing carrier. AIPSO, relying on what it believed to be an industry-wide standard imposing a two-and-a-half-year limitations period on adjustment requests, referred the matter to the Governing Committee. The Governing Committee, relying on the two-and-a-half-year rule, denied Twin City's request, and Twin City appealed to the Commissioner. On May 15, 1989, then Commissioner of Insurance Kenneth D. Merin issued a final decision and order under Order No. A89-122 by which he concluded that irrespective of whether the two-and-a-half-year rule was an industry-wide standard, the rule could not be applied by CAIP because it was not included in the Plan. Commissioner Merin reasoned that:

The Governing Committee's rationale for denying Twin City's request is not sufficient to sustain their decision. The first point is based on a provision that is not contained in CAIP's Plan of Operation, and should not be applied to Twin City. If the 2 1/2-year correction period limitation is a standard practice for AIPSO and the Governing Committee plans to enforce this rule, then, in my opinion, the rule should first be made a part of CAIP's Plan of Operation before it is applied to Service Carriers that adhere to the present stated provisions of CAIP.

As a result of the Commissioner's ruling in Twin City, AIPSO recalculated the participation percentages of all participants for the year in question.

As a further result of that ruling, the Governing Committee recommended a Plan amendment to incorporate the two-and-a-half-year rule. That amendment was approved by the Commissioner, and on July 15, 1990, Rule 6.F.5 became effective, providing in full as follows:

All of the data necessary to comply with the foregoing participation procedures shall be reported to AIPSO by each company subscribing to this Plan or by the statistical agencies designated by such companies and each company agrees to permit its statistical agent to release such data to AIPSO.

AIPSO shall periodically, but not less than quarterly, notify each company subscribing to this Plan of its Plan participation data.

Corrections and adjustments to a given calendar year's voluntary base participation data will be accepted from a company for a period of 2- 1/2 years from the close of the calendar year.

Note: For example, companies may submit corrections to Calendar Year 1987 voluntary base data until June 30, 1990.

It is significant to note that several days before the effective date of the rule, two other servicing carriers, Aetna Casualty and Surety (Aetna) and Travelers Indemnity Company (Travelers) requested adjustment in their data as well. The Governing Committee granted Travelers' request on September 7, 1990, permitting it to correct its premium data for 1984, 1985 and 1986. Aetna's request was granted on November 13, 1990, resulting in revision of its 1987 data. These adjustments resulted in recalculations of participation percentages for those years as well.

It is against this background that we address Progressive's situation. Progressive's statistical agents, to whom it provided its premium data, were Insurance Services Office (ISO) and National Association of Independent Insurers (NAII). Apparently, Progressive's commercial lines premium information was reported to ISO, who then transmitted that information to NAII for reporting to AIPSO. In November 1991 Robin Harbage, Progressive's corporate actuary, in reviewing the data, concluded that the premium data for 1988 and 1989 provided by NAII to AIPSO had been overstated and first realized, on further investigation, that NAII had failed to deduct its servicing carrier premiums. The record is not altogether clear as to what happened then. According to Harbage's testimony at the September 1995 Governing Committee hearing, he first communicated with a Progressive staff member, who was advised by NAII that the correct premium data should be resubmitted to it for resubmission to AIPSO. Progressive apparently did so by letter in January or February 1992. At some later unspecified time, Harbage called AIPSO's then Director of Contract Services, Denise Palizza, who also testified at the hearing, and was advised that the corrected data had to come from NAII, which had not yet, apparently, transmitted it to AIPSO. According to Harbage, the corrected data for both years was finally sent by NAII to AIPSO in June 1992. As we understand what then transpired, AIPSO in fact accepted the corrected data for 1989, and presumably recalculated proportion percentages for that year. Harbage testified that he received no confirmation from AIPSO with respect to 1988. On further inquiry of AIPSO, he was advised by John Verruso, then AIPSO's manager of the New Jersey CAIP, who also testified at the hearing, to make a formal request to AIPSO for correction for 1988. Harbage did so by letter dated February 16, 1993. AIPSO then took the position that Rule 6.F.5 applied to the 1988 data and hence that the time for requesting adjustments had expired on June 30, 1991. Since Progressive had not requested adjustment by that date--not surprising since it did not know of the error until the following November--AIPSO referred the matter to the Governing Committee on the ground that only the Committee had the power to grant an exception to the limitations rule.

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