Employers Mut. Liability Ins. Co. v. Premo

• Decision Date: 01 June 1965
• Citation: 211 A.2d 154,152 Conn. 610
• Court: Connecticut Supreme Court
• Parties: EMPLOYERS MUTUAL LIABILITY INSURANCE COMPANY et al. v. Alfred N. PREMO, Insurance Commissioner , et al. Supreme Court of Errors of Connecticut

Page 154

211 A.2d 154

152 Conn. 610

EMPLOYERS MUTUAL LIABILITY INSURANCE COMPANY et al. v. Alfred N. PREMO, Insurance Commissioner [William R. Cotter,

Insurance Commissioner, Substituted Defendant], et al.

Supreme Court of Errors of Connecticut.

June 1, 1965.

Frank E. Callahan and John D. Fassett, New Haven, with whom, on the brief, was David A. Gibson, New Haven, for appellants (plaintiffs).

Louis Weinstein, Asst. Atty. Gen., with whom, on the brief, was Harold M. Mulvey, Atty. Gen., for appellee (named defendant).

Joseph P. Cooney, Hartford, with whom was Herbert P. Schoen, Hartford, for appellee (defendant Hartford Acc. & Indem. Co.)

Before KING, C. J., and MURPHY, ALCORN, COMLEY and SHANNON, JJ.

KING, Chief Justice.

The National Council on Compensation Insurance, hereinafter referred to as the National Council, is a voluntary association of insurance companies licensed, under § 38-190 of the General Statutes, by the insurance commissioner of Connecticut, hereinafter referred to as the commissioner, as a workmen's compensation rating organization. Each member of, or subscriber to, a licensed rating organization may authorize it to file rates on behalf of that member or subscriber, who must then adhere to the rates so filed by that organization. General Statutes §§ 38-188(b), 38-191. An insurance company may file its own schedule of rates under § 38-188(a). Under the provisions of subdivision (b) of that section, it need not become, or remain, a member of, or subscriber to, any rating organization. It is claimed by the defendants that as a practical matter a workmen's compensation insurance company is really required to belong to the appropriate rating organization because it is necessary to have the benefit of the pooled experience of all compensation underwriters in the area, something which is possible only if the company becomes a member of, or subscriber to, the appropriate rating organization. This claim finds support in the fact that every insurance company writing workmen's compensation insurance in Connecticut is a member of, or subscriber to, the National Council, which is the rating organization covering Connecticut. The claim is further supported by the fact that an appeal to the commissioner is expressly granted by § 38-190(b) from the refusal of an appropriate rating organization to admit a reputable insurance company as a subscriber. Counsel agree that for the purposes of this case no differentiation need be made between members and subscribers, and the term 'member' will hereinafter be used as including a subscriber.

A member may propose a change in, or addition to, the filings of the rating organization and, if the proposal is rejected, may appeal to the commissioner under § 38-192 of the General Statutes. Chapter 682 of the General Statutes, which includes §§ 38-186 through 38-201, was largely patterned upon, and taken from, a model act known as the 'Casualty and Surety Rate Regulatory Bill', sometimes called the 'All-Industry Bill', which was drafted by a committee representing stock and non-stock insurance companies, for adoption by the various states, after the enactment, in 1945, of the McCarran-Ferguson Insurance Regulation Act. 59 Stat. 33, 15 U.S.C. §§ 1011-1015. This federal statute allowed the states an opportunity to take regulatory action after the decision in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 536, 64 S.Ct. 1162 88 L.Ed. 1440, a case which held that the insurance business constituted commerce and therefore was subject to the federal antitrust statutes. The 'All-Industry Bill' was approved by the National Association of Insurance Commissioners on June 12, 1946, and was largely incorporated in chapter 221 of the 1947 Supplement to the General Statutes of Connecticut. As far as it is material to this case, it now forms, with certain amendments, chapter 682 of the General Statutes.

Hartford Accident and Indemnity Company, a stock insurance company, hereinafter referred to as Hartford, proposed to the National Council a 'wrap-up' plan for supplying workmen's compensation insurance coverage on an atomic power plant to be constructed at Haddam Neck, Connecticut, by Connecticut Yankee Atomic Power Company, hereinafter referred to as Yankee. Twelve public utility companies comprise the stockholders of Yankee, and no one of them owns more than one-fourth of Yankee's stock. It is a project of great magnitude, having a total estimated construction cost of $84,000,000. The estimated payroll at the job site is over $9,000,000, of which $2,350,000 will be represented by payrolls of subcontractors. The total estimated workmen's compensation premium at current manual rates is $370,000, of which $80,000 will be derived from subcontracted work.

The wrap-up proposal applied only to job-site work. See Miller Bros. Construction Co. v. Maryland Casualty Co., 113 Conn. 504, 514, 155 A. 709. Hartford's application was further limited to such contractors and subcontractors as had contracted 'ex insurance' with Yankee, that is, had contracted under a provision in the invitations for bids that the contractors and subcontractors would exclude from their bids the cost of proper workmen's compensation insurance because Yankee itself would provide such insurance at its own expense. Separate policies would be issued to each contractor and subcontractor to which an ex insurance contract had been awarded, just as if each had individually purchased its own compensation insurance. Manual rates, as well as the individual assured's experience rating, which, when applied to the manual rate, gives the 'standard premium', would remain unchanged. The only change would be in two adjustments which may be made to the manual rate, if the premium is large enough to qualify, in order to arrive at the actual premium cost to the particular assured. One adjustment would be under the premium discount rules, which provide for an established, sliding scale discount to an assured, based on the size of the premium otherwise computed. The second would be under the retrospective rating plan, which an assured may, at its option, accept at the inception of the policy coverage period and under which its premium, as otherwise determined, is adjusted, either upward or downward, at the expiration of the policy period, to reflect the assured's actual losses during that period. As to these two adjustments, the premiums of all contractors and subcontractors, insofar as these premiums are embraced in the wrap-up proposal, would be combined, instead of being used individually as the basis for computing adjustments for each contractor or subcontractor as would have been the case had each individually obtained its requisite insurance. The net effect is to reduce the total premium cost, at least under the premium discount rules.

Each committee of the National Council, including the committee on rating, is composed of an equal number of stock insurance company members and of nonstock company members, such as mutual insurance companies. In the present case, there was a tie vote of the six members of the committee on rating which acted on Hartford's proposal. The three stock companies voted in favor of it, and the three mutual companies voted against it. The result, under the rules of the National Council, was that the proposal was lost. ¹

Hartford then appealed to the commissioner under General Statutes § 38-192. ² The commissioner approved the proposal on September 5, 1963, and ordered the National Council to file it as an addition to its filings, effective September 10, 1963. From that decision, the plaintiffs, some eight nonstock insurance companies, pursuant to General Statutes § 38-201 appealed to the Superior Court.

In the Superior Court the plaintiffs attacked the decision of the commissioner on four main grounds, any one of which, if sustained, would invalidate his decision. Each of these grounds was overruled. At the outset, it is desirable to determine the function and powers of the Superior Court in the hearing and disposition of appeals taken, as was this one, under § 38-201 of the General Statutes. It is therein provided: '(b) Nothing contained in this chapter [General Statutes, c. 682] shall require the observance at any hearing [by the commissioner] of formal rules of pleading or evidence. (c) Any order or decision of the commissioner shall be subject to [judicial] review [at the instance of any party interested], on the basis of the record of the proceedings before the commissioner and such review shall not be limited to questions of law * * *. The court may, in disposing of the issue before it, modify, affirm or reverse the order or decision of the commissioner in whole or in part.' Clearly, the appeal is not a de novo hearing in which the court takes evidence. Nor does the court substitute its judgment for that of the commissioner. Rather, the court determines, on the basis of the record before the commissioner, whether the appellants, herein referred to as the plaintiffs, have sustained the burden of proving that the action of the commissioner was illegal, that is, either contrary to some statute or controlling rule of law or so arbitrary and unreasonable as to amount to an abuse of his discretion. Jaffe v. State Department of Health, 135 Conn. 339, 353, 64 A.2d 330, 6 A.L.R.2d 664; Gibson v. Connecticut Medical Examining Board, 141 Conn. 218, 222, 104 A.2d 890.

The plaintiffs correctly agree that, in addition to considering the transcript of the hearing before him and the briefs filed with him, the commissioner had the right to consider records in his department and to call upon his background of expert knowledge.

The right of appeal to the commissioner under General Statutes § 38-192 is restricted to an appeal 'from the action or decision of * * * [the] rating organization in approving or rejecting any proposed change in or addition to the filings of [the] rating...