Attorney General v. Commissioner of Ins.

• Decision Date: 16 September 1988
• Citation: 403 Mass. 370,530 N.E.2d 142
• Parties: ATTORNEY GENERAL v. COMMISSIONER OF INSURANCE et al. 1 (and a consolidated case 2 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 142

530 N.E.2d 142

403 Mass. 370

ATTORNEY GENERAL v. COMMISSIONER OF INSURANCE et al. ¹

(and a consolidated case ²).

Supreme Judicial Court of Massachusetts,

Suffolk.

Sept. 16, 1988.

Decided Nov. 9, 1988.

James K. Brown (Barnett D. Ovrut, Boston, with him), for Hanover Ins. Co.

James P. Kiernan, Sp. Asst. Atty. Gen. (Harold J. Keohane, Sp. Asst. Atty. Gen., with him), for Com'r of Ins.

Acheson H. Callaghan, Jr. (E. Michael Sloman, Boston, with him), for intervener.

Before HENNESSEY, C.J., and ABRAMS, NOLAN, LYNCH and O'CONNOR, JJ.

LYNCH, Justice.

This appeal is submitted on a reservation and report by a single justice of the Supreme Judicial Court for the county of Suffolk, and presents challenges to the fixing and establishing of 1987 and 1988 private passenger motor vehicle insurance rates by the Commissioner of Insurance (commissioner). The complex and protracted history of the rate setting processes for those two years encompasses three requests for review of the original 1987 rates set by the commissioner on May 4, 1987, one of which was presented to, and resulted in an order of remand from, this court. Massachusetts Auto. Rating & Accident Prevention Bureau v. Commissioner of Ins., 401 Mass. 282, 516 N.E.2d 1132 (1987) (the 1987 remand order). ³

On the same day the 1987 remand order was issued, the commissioner issued the 1988 private passenger motor vehicle insurance rates. The Massachusetts Automobile Rating and Accident Prevention Bureau (bureau) filed a complaint for review of those rates pursuant to G.L. c. 175, § 113B, and Hanover Insurance Company (Hanover) likewise sought review of the commissioner's denial of its petition to intervene in the 1988 rate hearings and proceedings. A single justice of this court consolidated the two petitions and, while retaining jurisdiction over both cases, remanded them to the commissioner on January 21, 1988 (the 1988 remand order), for reconsideration in light of our remand of the 1987 rates. Thereafter, the commissioner consolidated the proceedings on remand for the 1987 and 1988 rates, conducted further hearings (the remand hearings) and, on March 10, 1988, issued his decision (the remand decision) which set an 8.3% increase in the 1987 rates and a 7.7% increase in the 1988 rates (in addition to increases already established in the original 1987 and 1988 rate proceedings).

The bureau declined to pursue further appeals regarding the 1987 or 1988 rates. The Attorney General filed a petition for review of the remand decision, although he had not appealed from the commissioner's original decisions on the 1987 or 1988 rates. The bureau was permitted to intervene as a defendant in the Attorney General's appeal, which was consolidated by the single justice with Hanover's appeal, and reserved and reported to this court.

Following the 1987 remand order, the commissioner requested that the four primary parties to the 1987 rate proceedings (the bureau, the State Rating Bureau [SRB], the Attorney General, and the Professional Insurance Agents of New England and Independent Insurance Agents of Massachusetts [agents] ), suggest what procedural and substantive steps should be taken to meet the directives of the 1987 remand order. Oral arguments were made and briefs received on the parties' positions. Similarly, following the 1988 remand order, the commissioner requested that the parties (the bureau, Hanover, the Attorney General, agents, and SRB) articulate positions on which issues of the 1988 rate proceedings were affected by the 1988 remand order. The commissioner then notified the parties of his determination of the obligations of the Division of Insurance under both the 1987 remand order and the 1988 remand order (collectively, the "remand orders"), and consolidated the hearings for both years into one proceeding.

The Attorney General challenges the authority of the commissioner to modify on remand the 1987 and 1988 rates, alleging error in both the procedures followed and the decision reached, as set forth below. Hanover claims that the commissioner erred in denying its petition to intervene in the 1988 proceedings.

1. Scope of the remand orders. The Attorney General argues that the commissioner impermissibly reopened the rate proceedings by holding hearings after the remand orders and by addressing issues and considering evidence beyond the scope of the remand orders. We disagree. In its original appeal from the 1987 rate decision, the bureau argued that the exclusion of certain evidence without explanation by the commissioner was error requiring remand. Massachusetts Auto. Rating & Accident Prevention Bureau v. Commissioner of Ins., 401 Mass. at 285, 516 N.E.2d 1132. With respect to three documents concerning past underwriting results ⁴--a type of evidence admitted and relied on in past proceedings--we agreed with the bureau that the commissioner should have admitted the evidence or explained why it was excluded. Id. "It was up to the commissioner to articulate some reason for ignoring the evidence," id. at 287, 516 N.E.2d 1132, so that we could test the decision for the "reasoned consistency" required in agency decision making. Id., citing Boston Gas Co. v. Department of Pub. Utils., 367 Mass. 92, 104, 324 N.E.2d 372 (1975). The Attorney General contends that the scope of the commissioner's responsibility on remand did not include reopening the hearings to admit and consider the excluded evidence. This contention ignores the language of the 1987 remand order itself, which directed the commissioner to "make findings and, if necessary, hold further hearings in order to fix and establish the 1987 automobile insurance rates." 401 Mass. at 301, 516 N.E.2d 1132. On remand, the commissioner determined that he was unable to provide an acceptable rationale for the exclusion of the three exhibits. He therefore reopened the 1987 rate record to admit and consider the exhibits. ⁵ The commissioner also determined, after considering comments from the parties to the initial proceedings, that the 1988 remand order required the reconsideration of the 1988 rates and the effect on those rates of the underwriting evidence to be admitted into the 1987 rate record. This course of action is clearly contemplated by the 1988 remand order which directs the commissioner to reconsider the two 1988 petitions "in light of the decision" in the 1987 remand order, and further directs that he "shall hold such hearings and shall amend or supplement his decision as he deems necessary" (emphasis added).

Having reopened the proceedings and admitted the exhibits in evidence, ⁶ the commissioner then considered what effect the documents had on the previously established rates. This procedure was not performed in a vacuum. In addition to having as background the testimony from the initial hearings, ⁷ the commissioner heard arguments and received briefs from the parties, not only on their recommendations of the scope of response necessary to comply with the remand orders, but also on the parties' views of the impact of the underwriting evidence on the 1987 and 1988 rates. Since the 1987 remand order expressly recognized the relevance of past underwriting results in testing the reasonableness of "target" underwriting results and profit provisions, 401 Mass. at 286-287, 516 N.E.2d 1132, and since underwriting profit allowance is one component used in setting rates, ⁸ it follows that a consideration of the exhibits was relevant to the reasonableness of the rates. Indeed, after considering the information contained in the exhibits, the commissioner determined that the rates as previously set were not adequate and reasonable as required by G.L. c. 175, § 113B.

The Attorney General contends that the commissioner's subsequent increasing of the rates constitutes retroactive rate making or an impermissible "second look," relying on Attorney Gen. v. Commissioner of Ins., 370 Mass. 791, 353 N.E.2d 745 (1976). There, we held that a direct appeal was the only way to challenge or correct any legal error committed by the commissioner in setting the rates, id. at 827, 353 N.E.2d 745, a position in keeping with the Legislature's repeal of the so-called second-look statute, which had permitted adjustments to the current year's rates when a shortfall was shown to have occurred in a prior year. In the present case, the commissioner has not adjusted the current year's rates to compensate for a demonstrated shortfall in a prior year. Instead, his analysis of the underwriting results he had previously not taken into account led to his determination that the 1987 and 1988 rates themselves did not meet the statutory standards. ⁹ As we have emphasized, the object of fixing the underwriting profit allowance is to establish "an allowance for underwriting profit which, when added to investment income, would yield a return on shareholder capital comparable to that of unregulated industries of comparable risk." Massachusetts Auto. Rating & Accident Prevention Bureau v. Commissioner of Ins., 381 Mass. 592, 605, 411 N.E.2d 762 (1980). Having weighed the evidence of underwriting results and having reached the conclusion that the rates as set did not allow companies to earn a fair return, it was the commissioner's obligation to fix rates which would meet the statutory requirement of reasonableness and adequacy. In this regard, we do not substitute our judgment for that of the commissioner. Massachusetts Auto. Rating & Accident Prevention Bureau v. Commissioner of Ins., 389 Mass. 824, 828, 453 N.E.2d 381 (1983). This reasoning applies to the increases in both the 1987 and 1988 rates.

2. Adequacy of the findings and basis in the evidence. The Attorney General contends that the remand decision is not supported by substantial evidence, that the commissioner failed to make adequate findings, and that the commissioner excluded relevant evidence. Our inquiry, in reviewing the commissioner's decisions, is limited to ...