Automobile Insurers Bureau of Massachusetts v. Commissioner of Ins.

• Decision Date: 07 March 1995
• Parties: AUTOMOBILE INSURERS BUREAU OF MASSACHUSETTS & others. 1 v. COMMISSIONER OF INSURANCE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1234

650 N.E.2d 1234

420 Mass. 599

AUTOMOBILE INSURERS BUREAU OF MASSACHUSETTS & others.¹ v. COMMISSIONER OF INSURANCE.

Supreme Judicial Court of Massachusetts Suffolk.

March 7, 1995.

June 19, 1995.

E. Michael Sloman, Boston (Michael B. Meyer with him), for plaintiffs.

Eric A. Smith, Asst. Atty. Gen., for Com'r of Ins.

Before LIACOS, C.J., ABRAMS, O'CONNOR and GREANEY, JJ.

ABRAMS, Justice.

The decision of the Commissioner of Insurance (commissioner) establishing private passenger motor vehicle insurance rates for 1995 resulted in an over-all rate reduction of 6.1%. ² The Automobile Insurers Bureau of Massachusetts ³ (AIB) and ten of its member companies filed a complaint for judicial review under G.L. c. 175, § 113B (1992 Ed.), of the commissioner's decision in the Supreme Judicial Court for Suffolk County. On a joint motion of the parties, a single justice reserved and reported the case without decision for determination by the full court. ⁴ We affirm the commissioner's decision.

1. The proceedings. The commissioner determined that competition was insufficient to assure that private passenger automobile insurance rates would not be excessive. See G.L. c. 175E, § 5 (1992 Ed.). The commissioner therefore invoked the procedures of G.L. c. 175, § 113B, to fix and establish automobile insurance rates for calendar year 1995. Interested parties were invited to participate in the proceedings. ⁵ Four parties formally intervened: the AIB; the State Rating Bureau, pursuant to G.L. c. 26, § 8E (1992 Ed.); the Attorney General, pursuant to G.L. c. 12, § 11F (1992 Ed.); and the Professional Independent Insurance Agents of Massachusetts (PIIAM), a trade association. ⁶

All but four issues were resolved by stipulations accepted by the commissioner. On December 15, 1994, the commissioner issued a decision resolving the four contested issues: (1) the effect of recent law changes, particularly the 1994 mandatory seat belt law, on loss pure premiums; (2) retention of the competition adjustment factor (CAF); (3) the appropriate methodology for calculating loss development factors; and (4) the appropriate methodology for setting increased limit factors. The plaintiffs do not appeal from the methodology for calculating loss development factors or increased limit factors. ⁷ The commissioner concluded that the seat belt law would produce savings to the industry and therefore reduced the bodily injury portion of rates by 4.9%, which represents an over-all rate decrease of approximately 2.2%. The commissioner concluded that other legal and regulatory changes did not warrant any rate adjustment. She continued to apply the CAF to reduce certain company expenses. Application of the CAF reduced over-all rates by approximately 1.6%. On appeal, the plaintiffs raise three issues: (1) the validity of the commissioner's rate change for the seat belt law; (2) whether rates should have been changed due to other law changes; and (3) the confiscatory effect of the CAF.

2. Seat belt law adjustment. The commissioner reduced loss pure premiums ⁸ for bodily injury coverage to reflect anticipated savings from the 1994 seat belt law, St.1993, c. 387, which mandated the use of seat belts as of February 1, 1994. ⁹ The plaintiffs argue that this reduction was not authorized, that the model used to establish the amount of the reduction was faulty, and that the inputs used in applying this model were improper.

a. Authority to reduce rates. The seat belt law provides that "[t]he commissioner of insurance shall mandate a minimum five percent reduction in bodily injury premiums if the observed seat belt use rate among all occupants equals or exceeds fifty percent one year after this law has been in effect." St.1993, c. 387, § 7. ¹⁰ The seat belt law had not been in effect for one year at the time the commissioner made the rate reduction. It thus was impossible to observe seat belt use one year after the law took effect. The plaintiffs assert that the commissioner erred because she was not authorized to reduce insurance rates to reflect the effect of the law. We do not agree.

The commissioner had the authority to effect the rate reduction under her broad rate setting powers. The commissioner has the statutory authority, and duty, under G.L. c. 175, § 113B, to establish insurance rates that are adequate, just, reasonable, and nondiscriminatory. In so doing, she can, and indeed must, consider all changes in conditions which affect rates, including changes in the law. See, e.g., Massachusetts Auto. Rating & Accident Prevention Bureau v. Commissioner of Ins., 389 Mass. 824, 842-844, 453 N.E.2d 381 (1983) adjustment for increased sanctions for driving under the influence); Massachusetts Auto. Rating & Accident Prevention Bureau v. Commissioner of Ins., 384 Mass. 333, 338-339, 424 N.E.2d 1127 (1981) (adjustment for merit rating); Massachusetts Auto. Rating & Accident Prevention Bureau v. Commissioner of Ins., 381 Mass. 592, 599-600, 411 N.E.2d 762 (1980) (adjustment for raised drinking age).

The rate-reduction language in the 1994 seat belt law does not limit the commissioner's ability to consider seat belt use in setting rates under her powers pursuant to G.L. c. 175, § 113B. It simply sets a minimum reduction (i.e., five per cent) in the event of a certain occurrence (i.e., "the observed safety belt use rate among all occupants equals or exceeds fifty percent one year after" the law takes effect). St.1993, c. 387, § 7. "Specific authority to act in a particular respect does not bar other action that is consistent under general statutory authority." Massachusetts Elec. Co. v. Department of Pub. Utils., 419 Mass. 239, 246, 643 N.E.2d 1029 (1994). See Grocery Mfrs. of Am., Inc. v. Department of Pub. Health, 379 Mass. 70, 76, 393 N.E.2d 881 (1979). The reduction for 1995 is consistent with a further reduction for 1996 if observed seat belt use equals or exceeds fifty per cent after February 1, 1995. ¹¹

b. The model. The plaintiffs also contest the model by which the commissioner determined the amount of the rate reduction. The model used by the commissioner in determining the rate reduction was previously used to take account of the effects of the 1986 seat belt law ¹² in determining insurance rates for 1986, 1987, and 1988. The model seeks to establish the effect of changes of seat belt usage, as a result of the law, on the loss experience for bodily injuries, and, in turn, on insurance costs. It compares prelaw and postlaw seat belt usage, multiplied by the efficacy of seat belts in reducing four major classes of injury (fatal, severe, moderate and minor). These amounts are then multiplied by the distribution of injury costs for vehicle occupants ¹³ for each category of injury. The resulting amounts are applied to reduce loss pure premiums.

In reviewing the commissioner's decision, under G.L. c. 175, § 113B, "our inquiry is limited to 'whether the rates have reasonable support in evidence.' " Aetna Casualty & Sur. Co. v. Commissioner of Ins., 408 Mass. 363, 378, 558 N.E.2d 941 (1990), quoting Massachusetts Auto. Rating & Accident Prevention Bureau, 384 Mass. at 337, 424 N.E.2d 1127. "[T]his standard is indistinguishable from the substantial evidence standard." Automobile Insurers Bureau of Mass. v. Commissioner of Ins., 415 Mass. 455, 457, 614 N.E.2d 639 (1993), quoting Aetna Casualty & Sur. Co., supra at 378 n. 14, 558 N.E.2d 941. "We will not perform a de novo weighing of the evidence, and we give due weight to the commissioner's experience, technical competence, specialized knowledge, and discretionary authority" (citations omitted). Aetna Casualty & Sur. Co., supra at 378, 558 N.E.2d 941. "If there is substantial evidence supporting the commissioner's decision, we will not substitute our own judgment for hers." Automobile Insurers Bureau of Mass., supra at 457-458, 614 N.E.2d 639. See Aetna Casualty & Sur. Co., supra at 378-379, 558 N.E.2d 941, and cases cited (deference applies especially to commissioner's choice of methodology).

There was substantial evidence supporting the commissioner's decision. It was reasonable for the commissioner to conclude that the clearly evidenced increase in seat belt use would reduce losses. See Attorney Gen. v. Commissioner of Ins., 370 Mass. 791, 819, 820-821, 353 N.E.2d 745 (1976). To determine the amount by which to reduce rates, the commissioner used an existing, accepted model. The plaintiffs did not meet their burden of showing that the commissioner's choice of methodology was erroneous. See Massachusetts Bonding & Ins. Co. v. Commissioner of Ins., 329 Mass. 265, 280, 107 N.E.2d 807 (1952) (party challenging methodology has burden of establishing that commissioner's order is erroneous); Aetna Casualty & Sur. Co., supra at 373, 558 N.E.2d 941 (can continue to use previously used methodologies where party does not provide adequate reason not to).

The plaintiffs argue that the model should have been rejected because it proved to be erroneous in its prior application. They argue that, contrary to the model's prediction, the 1986 seat belt law did not reduce insurance costs and that, if it did, the model overstated the effect of the law. The commissioner found these arguments unpersuasive. Instead, she accepted the evidence of a relative deceleration in loss pure premiums in 1986 and evidence that the seat belt law was a cause of this drop.

The plaintiffs argue that there is no information on which to draw a direct correlation between the loss pure premium drops and the use of seat belts. The existing data reflected the result of all factors that influence loss pure premiums in either direction. Although the effect of increased seat belt use could not be isolated, there was evidence that after the 1986 law took effect, the number of motor vehicle occupant injuries declined by 20% while seat belt use increased from 20% to 35%-37% of motor vehicle occupants. After the 1986 law was repealed, seat...