Century Cab v. Commissioner of Ins.

• Decision Date: 31 July 1951
• Citation: 100 N.E.2d 481,327 Mass. 652
• Parties: CENTURY CAB, Inc. et al. v. COMMISSIONER OF INS. et al. MAURICE A. WANTMAN, Inc. v. HARDWARE MUT. CAS. CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 481

100 N.E.2d 481

327 Mass. 652

CENTURY CAB, Inc. et al. v. COMMISSIONER OF INS. et al.

MAURICE A. WANTMAN, Inc. v. HARDWARE MUT. CAS. CO.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Dec. 8, 1950.

Decided July 31, 1951.

S. S. Ganz, Boston, C. J. Innes, H. H. Ham, Jr., and D. C. Ganak, all of Boston, for plaintiff.

R. A. Cutter, Boston, E. P. Healy, Asst. Atty. Gen., J. W. Perkins and J. S. McKenney, Boston, for defendant.

D. H. Fulton, Boston, by leave of court submitted a brief as amicus curiae.

Before QUA, C. J., and RONAN, WILKINS, WILLIAMS and COUNIHAN, JJ.

WILLIAMS, Justice.

These are two proceedings in equity involving the legality of premium charges established by the commissioner of insurance for the years 1948, 1949, and 1950, which may conveniently be considered together.

The first is a petition under G.L. (Ter.Ed.) c. 175, § 113B, as amended, for review of an order of the commissioner of insurance establishing premium charges for compulsory motor vehicle liability insurance on policies to be issued for the calendar year 1950, with a prayer 'That the order by the respondent commissioner of insurance adopting the 'Massachusetts Automobile Experience Rating Plan for 1950' be annulled.' The petitioners are owners of taxicabs, principally garaged in Boston, Somerville and Lowell. The original respondent is the commissioner. American Employers' Insurance Company and Liberty Mutual Insurance Company, companies authorized to issue compulsory motor vehicle liability policies in this Commonwealth, have been permitted to intervene as respondents. The case, after reference to a master whose report has been confirmed, is before us by reservation and report of a single justice of this court upon the petition, the respondents' answers, and the master's report for decision of the following questions of law. '1. Has the commissioner of insurance by the inclusion of Section F entitled 'Massachusetts Automobile Experience Rating Plan' in his order of October 25, 1949, acted within the authority granted to him by law and has he performed the duties imposed upon him by law to fix and establish compulsory motor vehicle liability insurance classifications of risks and premium charges and are the premium charges resulting from the application of Section F effective for the year 1950? 2. Do the provisions of Section F entitle 'Massachusetts Automobile Experience Rating Plan' of the respondent commissioner's order of October 25, 1949, violate the petitioner's rights under the Fourteenth Amendment to the Constitution of the United States? 3. Is Section F of the commissioner's order of October 25, 1949, ineffective by reason of the manner in which the commissioner gave notice of the hearing held by him on October 10, 1949? 4. Upon the foregoing record and in this proceeding, to what extent are the petitioners entitled to raise the foregoing questions or any of them?' This fourth question has not been argued. The right of the petitioners to institute these proceedings appears to have been settled in Brest v. Commissioner of Insurance, 270 Mass. 7, 19, 169 N.E. 657.

General Laws (Ter.Ed.) c. 175, § 113B, as amended, provides that '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 * * *.

'The commissioner shall cause notice of every such hearing to be given by advertising the date thereof once in at least one newspaper printed in each of the cities of Boston, Worcester, Springfield, Newburyport, Gloucester, Pittsfield, Fall River, New Bedford, Haverhill and Lawrence, at least ten days prior to said date, and he shall incorporated in such notice or publish therewith a schedule clearly and precisely setting forth the premium charges proposed to be fixed and established for the ensuing calendar year.'

The master has found that on or about September 26, 1949, the commissioner caused to be published in at least one newspaper published in each of the above named cities a notice of a hearing to be held by him on October 10, 1949; that a hearing was held on that date; and that on October 25, 1949, he filed a 'memorandum of his actions, orders, findings and decisions.' In this memorandum, the commissioner, for the purpose of fixing and establishing rates for compulsory insurance, has classified all motor vehicles by type, each classification by type being subdivided according to the territorial district in which the vehicle was principally garaged. Such classification has been held by this court to be lawful, Brest v. Commissioner or Insurance, 270 Mass. 7, 169 N.E. 657, and no contention to the contrary is made in these proceedings. The complaint of the petitioners is confined to Section F of the memorandum wherein an additional classification of motor vehicle owners is established under an 'experience rating plan' which by reason of its eligibility requirements is mandatory in its application to the petitioners as owners of taxicabs. It is a plan substantially the same as the plans used by the commissioner in establishing rates for the years 1948 and 1949. Premium rates for a class established under the classification of motor vehicles according to type and territory are based primarily on the average hazard, as shown by experience, attending the operation of vehicles in the class. These rates are termed 'manual rates' and include 'two elements: (1) the pure premium representing the average loss to be expected from a vehicle of a given type garaged in a given territory and (2) the expense loading representing the average cost of operating a casualty insurance company apart from the amount to be paid for losses.' The purpose of the experience rating plan is to classify risks by determining for each owner of the motor vehicles, who meets the eligibility requirements of the plan, an insurance rate which recognizes his measurable departure in hazard from the average hazard in his class. The master finds that 'It is also a purpose of experience rating in general to encourage safe driving and to prevent accidents. Under experience rating the worse than average risk will be charged a higher premium, but by the same token should find it less difficult to obtain coverage. Ownership and not identity of the operator determines the risk to be rated, just as it determines the person required to carry compulsory motor vehicle insurance.'

It is intended that the plan shall be applied only to those whose experience in relation to motor vehicle accidents is of sufficient breadth to have significance as to future expected losses. Eligibility therefore is limited to owners who for a period of three years ending one year prior to January 1 of the year to which the rates apply have paid a total premium of at least $1,000 and during the last year of the period have had the experience of at least five 'earned car or plate years,' 'meaning such experience as is equivalent to having five cars on the road and exposed to risk for one year.' For the purpose of the 1950 rates this period includes the years 1946, 1947, and 1948. They are termed the 'experience years.'

The departure of the eligible individual's risk from the average risk of his class is measured by comparing his actual experience as reflected in losses paid and reserves for losses outstanding with the average experience of the class during these years. The modification of the manual rate to obtain the rate applicable to the individual under the rating plan is accomplished by multiplying the manual rate by a fraction or decimal representing a ratio ascertained by such comparison. The ratio is called the 'experience modification' and is a reduction to mathematical form of the relation of the expected loss of the individual owner based on his actual losses during the experience period to his expected loss as an average member of his class.

It is unnecessary to describe in detail the method employed in computing this ratio. By means of credibility factors or percentages actuarily obtained the amounts of losses are reduced or 'weighted' to determine their approximate experiential value. Different factors are applied to those of $500 and less, which are greater in frequency and constitute 60% of the total losses, and to those in excess of $500. To the total of the losses after 'weighting' by the credibility factors there is added, to give weight to absence of loss, a percentage of the average expected loss of the class obtained by the use of a third credibility factor. The sum constitutes the numerator of the experience modification fraction. The expected loss of the insured as an average member of his class is the denominator. By applying this fraction to the manual rate of the insured his premium charge under the rating plan is obtained.

'If the experience modification is over 100%, the premium rate under the rating plan is higher than the manual rate. If it is under 100%, the rate under the rating plan is lower than the manual rate.'

'The computation of the experience modification and the experience premium from the loss data and the tables in the plan [in which are listed the credibility factors to be used] requires only simple arithmetic. The computation of the credibility factors as set out in the table and the way in which they interact and act upon the premium involves somewhat more complicated mathematical processes for which actuarial training and judgment is desirable. There is no occasion in the ordinary...