Grain Dealers Mut. Ins. Co. v. Lindsay

• Citation: 306 S.E.2d 860,279 S.C. 355
• Decision Date: 31 August 1983
• Docket Number: No. 21984,21984
• Court: United States State Supreme Court of South Carolina
• Parties: GRAIN DEALERS MUTUAL INSURANCE COMPANY, Appellant, v. John W. LINDSAY, as Chief Insurance Commissioner and The South Carolina Reinsurance Facility, Respondents.

Page 860

306 S.E.2d 860

279 S.C. 355

GRAIN DEALERS MUTUAL INSURANCE COMPANY, Appellant, v. John W. LINDSAY, as Chief Insurance Commissioner and The

South Carolina Reinsurance Facility, Respondents.

No. 21984.

Supreme Court of South Carolina.

Aug. 31, 1983.

R. Bruce Shaw and Thornwell F. Sowell, III, both of Nelson, Mullins, Grier & Scarborough, Columbia, for appellant.

E.W. Laney, III, and Thomas C. Salane, both of Turner, Padget, Graham & Laney; and L. Kennedy Boggs, Columbia, for respondents.

PER CURIAM:

This appeal is taken from a judgment of the circuit court, which affirmed the imposition of additional assessments against appellant Grain Dealers Mutual Insurance Company for excessive utilization of the South Carolina Reinsurance Facility. We affirm and, with certain deletions adopt the judgment of the trial court.

The South Carolina Reinsurance Facility ("the Facility") was established as part of the Automobile Reparation Reform Act of 1974, Act 1177, now appearing as Sections 38-37-710 through 38-37-790, Code of Laws of South Carolina, 1976. In essence the Facility exists to achieve a relatively fair distribution of burdens imposed upon automobile insurers by the mandatory provisions of Section 38-37-310, Code. Under the Act, automobile insurers are permitted to "cede" risks to the Facility for reinsurance. In turn, losses incurred on these ceded risks are to be apportioned among the participating insurers. It will be noted that "equitable" is a key word appearing throughout the statute establishing and empowering the Reinsurance Facility.

To prevent excessive and unfair use of the Facility by insurers, Section 38-37-950, Code, declares that:

A prima facie case of excessive or unreasonable utilization shall be established upon a showing that an automobile insurance insurer or a group of such insurers under the same management has ceded or is about to cede more than thirty-five percent of total direct written premiums on South Carolina automobile insurance as reported in the most recently filed annual statement(s) of such insurer or group.

Section 38-37-730, Code, directs the Facility to develop a Plan of Operation to accomplish "equitable apportionment" of expenses and losses among members. Pursuant to this statutory charge the Facility has established an "Accounting Rule" whereby excessive cessions are taxed to the offending insurer by requiring an additional contribution to Facility losses in the amount of two dollars for every "overceded" premium dollar. This amount is paid above and beyond the insurer's normal pro rata share. It appears from the record of this appeal that the Facility Plan of Operation was the product of a cooperative endeavor in which insurers fully participated and consented to the apportionment scheme.

The appellant, Grain Dealers Mutual Insurance Company, does not dispute the fact of its excessive cessions during the fiscal year 1975-1976. On appeal from the Insurance Commissioner to the Circuit Court, Grain Dealers contended that more than a prima facie showing of overcessions was required to justify the taxation of an additional contribution. That position appears to have been abandoned on this appeal.

On appeal to the circuit court, Grain Dealers also contended that the Insurance Commissioner failed to comply with the provisions of Section 1-23-350, Code, which requires concise and explicit statement of facts underlying an administrative determination. While we would agree the Commissioner's order could have been more explicit in reciting the finding of a prima facie overcession, we concur with the holding of the trial court that this action was pending prior to the adoption of the South Carolina Administration Procedures Act and therefore was not governed by its standards. Section 1-23-400, Code.

We are left with appellant's attack upon the taxation scheme as a "penalty" adopted in excess of the statutory grant of power to the Facility. We disagree, as did the trial court, and here adopt the following from the Order of the trial judge as fully disposing of this issue:

In large part the problem presented in this appeal stems from the Facility's inartful use of the term "penalty" to describe its rule. But a determination of whether the rule is a true "penalty" depends upon the substance of what it does and not how it may be described. Commonwealth v. Musser Forrests, Inc., 394 Pa. 205, 146 A.2d 714 (1959); Southern Ry. Co. v. Melton, 133 Ga. 277, 65 S.E. 665 (1909). The correct test of whether an administrative rule is penal or remedial depends not upon its relative severity but rather whether the pecuniary amount to be paid is calculated to compensate injured parties for the wrongs done. 36 Am.Jur.2d, Forfeitures & Penalties, Section 8. It is of no significance in the first instance whether the rule is authorized by Section 38-37-950 so long as it may be independently justified as a function of the clearly expressed power to equitably apportion losses. If the Accounting Rule finds its basis in other sections of Act 1177 and is reasonably consistent with the Act's purposes, the Facility will not have acted in excess of its authority. Beard-Laney, Inc. v. Darby, 213 S.C. 380, 49 S.E.2d 564 (1948); Atlantic Coast L.R. Co. v. S.C. Public Service Commission, 245 S.C. 229, 139 S.E.2d 911 (1965); Terry v. Pratt, 258 S.C. 177, 187 S.E.2d 884 (1972). Viewed in this light, the real issue becomes whether the authority to equitably apportion losses encompasses the authority to assess an overceding insurer a greater share of Facility losses than would have been assessed if no overutilization occurred.

The legislature intended to create a Facility empowered to apportion its losses among insurers according to the degree to which each member utilized the cession privilege:

[T]he General Assembly declares that the purposes of [Act 1177] are:

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(4) To provide a reinsurance facility for automobile insurance insurers to which all such insurers shall participate to the end that the operating expenses and net profit or loss of such Facility may be shared equitably by...