Insurance Co. of North America v. Kueckelhan

• Decision Date: 21 March 1967
• Docket Number: No. 38195,38195
• Citation: 425 P.2d 669,70 Wn.2d 822
• Parties: INSURANCE COMPANY OF NORTH AMERICA, Appellant, v. Lee I. KUECKELHAN, Insurance Commissioner, Respondent.
• Court: Washington Supreme Court

Page 822

70 Wn.2d 822

425 P.2d 669

INSURANCE COMPANY OF NORTH AMERICA, Appellant, v. Lee I. KUECKELHAN, Insurance Commissioner, Respondent.

No. 38195.

Supreme Court of Washington, En Banc.

March 21, 1967.

Rehearing Denied July 3, 1967.

Schweppe, Reiter, Doolittle & Krug, Mary Ellen Krug, Seattle, for appellant.

John J. O'Connell, Atty. Gen., Basil L. Badley, Asst. Atty. Gen., Olympia, for respondent.

HAMILTON, Judge.

Appellant, an out-of-state insurance company prosecutes this appeal from a judgment of the superior court affirming an order of the Insurance Commissioner. The order in question adopts a regulation, promulgated by the Insurance Commissioner, which requires that all insurers writing property insurance (known in the insurance industry as 'fire and allied lines') in the state of Washington submit pertinent documents upon each policy issued to a licensed and existing examining bureau for the purpose of ascertaining whether lawful rates are being charged.

We affirm the judgment of the superior court.

The background and procedural events may be briefly chronicled in the following manner: In 1911, the state legislature adopted a comprehensive insurance code (Laws of 1911, ch. 49). Section 101 of that code provided:

After the first day of January, nineteen hundred thirteen, the commissioner, if he deem it necessary for the detection and correction of errors or discovery of violations of this act in effecting insurance, if any be committed may permit an inspecting or stamping bureau to be maintained under the supervision of a deputy commissioner for the purpose of inspecting all daily reports of fire insurance risks located in this state.

In 1913, an examining bureau, in the nature of an independent voluntary association, was established at the behest of and utilized by stock property insurers. This bureau has continued in existence since that time and is now known as the Washington Insurance Examining Bureau, Inc. In 1930, the then Insurance Commissioner, H. O. Fishback, issued a directive, the pertinent part of which reads:

Pursuant to the provisions of the above section (Laws of 1913 (1911), ch. 49, § 101), a Supervisor of Inspection Bureau will be maintained under the direction of this department in the office of the Insurance Examiner (Walter F. Keene), where all daily reports of fire insurance risks will be inspected. This work will be in charge of Mr. C. H. Cole, who has had many years experience in the fire insurance business in the state of Washington, and who will be in a position to render every service to companies, agents and the insuring public in the maintenance of uniform rates and practices in matters pertaining to the business of fire insurance.

It is, therefore, ordered that all agents transacting a fire insurance business in this state shall immediately upon issue, on and after April 15th, mail a copy of each daily report, addressed simply to P.O. Box 3188, Seattle, Washington.

Most, if not all, stock companies, including appellant, complied with the directive. Mutual and fraternal insurers were not then deemed subject to the order, although later such insurers, with the exception of factory mutuals, were brought within the scope of the order.

In 1947, by Laws of 1947, ch. 79, as amended by Laws of 1957, ch. 193 (RCW Title 48), the legislature enacted the present insurance code. Under article 19 of chapter 79 entitled 'Rates,' the legislature included the following provision (section .19.41, now codified as RCW 48.19.410) entitled 'Examination of Contracts,' which, in pertinent part, reads 1. The Commissioner may permit the organization and operation of examining bureaus for the examination of policies, daily reports, binders, renewal certificates, endorsements, and other evidences of insurance or of the cancellation thereof, For the purpose of ascertaining that lawful rates are being charged.

2. A bureau shall examine documents with regard to such kinds of insurance as the commissioner may, after hearing, reasonably require to be submitted for examination. A bureau may examine documents as to such other kinds of insurance as the issuing insurers may voluntarily submit for examination.

3. No bureau shall operate unless licensed by the Commissioner as to the kinds of insurance as to which it is permitted so to examine. To qualify for a license a bureau shall:

(1) Be owned in trust for the benefit of all the insurers regularly using its services, under a trust agreement approved by the commissioner.

agreement approved by the commissioner.

(2) Make its services available without discrimination to all authorized insurers applying therefor, subject to such reasonable rules and regulations as to the obligations of insurers using its services, as to the conduct of its affairs, and as to the correction of errors and omissions in documents examined by it as are approved by the commissioner.

(3) Have no manager or other employee who is connected with any rating organization, or who is an employee of an insurer other than to the extent that he is an employee of the bureau owned by insurers through such trust agreement.

(4) * * *

4. Such license shall be of indefinite duration and shall remain in force until revoked by the commissioner or terminated at the request of the bureau. The commissioner may revoke the license, after hearing,

5. Any person aggrieved by any rule, regulation, act or omission of a bureau may appeal to the commissioner therefrom. The commissioner shall hold a hearing upon such appeal, and shall make such order upon the hearing as he deems to be proper.

6. Every such bureau operating in this state shall be subject to the supervision of the commissioner, and the commissioner shall examine it as provided in article three of this code. (RCW 48.03)

7. Every examining bureau shall keep adequate records of the outstanding errors and omissions found in coverages examined by it and of its receipts and disbursements, and shall hold as confidential all information contained in documents submitted to it for examination.

8. The commissioner shall not license an additional bureau for the examination of documents relative to a kind of insurance if such documents are being examined by a then existing licensed bureau. Any examining bureau operating in this state immediately prior to the effective date of this code under any law of this state repealed as of such date, shall have prior right to apply for and secure a license under this section. (Italics ours.)

Following enactment of the foregoing provision, the existing examining bureau organized itself as a nonprofit corporation, executed the required trust agreements and was licensed by the Insurance Commissioner as the Washington Insurance Examining Bureau, Inc. (hereafter called the Bureau). Since then, and up until this action, it has continued to examine the daily reports submitted to it by the various insurers writing property coverage in the state of Washington, including appellant, but excepting 'factory mutuals.' ¹ The submission of such daily reports by the various insurers was deemed by the Insurance Commissioner and the Bureau to be in compliance with the 1930 order of Commissioner Fishback. Appellant, however, contends, and asserts on its part, that all daily reports were submitted on a voluntary basis.

In 1962, the Insurance Commissioner apprehended that legal complications could arise out of the fact that, since the enactment of the insurance code in 1947, no hearing had been held concerning the kinds of insurance which should be submitted to the Bureau for examination. Accordingly, appropriate notices of hearing before the Commissioner were issued and at the appointed time interested insurers, including appellant, and the Bureau, appeared and presented their views, either orally or in writing, all of which were made a part of the record of the hearing. Thereafter, and after an intervening court proceeding, the Commissioner entered the following findings and order, to be effective as of March 20, 1964:

I hereby make the following findings:

1. The Washington Insurance Examining Bureau, Inc. is an examining bureau duly licensed by the Insurance Commissioner of the State of Washington, to examine, among other kinds of insurance, property insurance as defined in RCW 48.11.040.

2. Since the 15th day of October, 1930, the office of the Insurance Commissioner of the State of Washington has continuously required all daily reports and other documents relating to fire insurance and allied lines to be submitted to the Washington Insurance Examining Bureau, Inc. for examination for the purpose of determining whether lawful rates are being charged.

3. Substantial credible evidence was submitted supporting the need for an examination of the daily reports, policies, binders, renewal certificates, endorsements, and other evidences of insurance or the cancellation thereof, which relate to fire insurance and allied lines.

4. In 1961, the Washington Insurance Examining Bureau, Inc. examined 517,412 new daily reports of fire insurance and allied lines and issued 71,421 criticisms therefor for errors discovered, or approximately 14 per cent of such policies which were erroneously written.

5. A great majority, if not all, of the 71,421 policies of fire insurance and allied lines erroneously written would have been so issued and would not have been discovered if the daily reports had not been sent to the Washington Insurance Examining Bureau, Inc. for examination.

6. It is in the public interest to require every insurer authorized to write property insurance in the State of Washington to submit to the Washington Insurance Examining Bureau, Inc. all policies, daily reports, binders, renewal certificates, endorsements, and other evidences of insurance, or the cancellation thereof, which relate to fire insurance and allied lines.

7. The cost to the property insurers submitting such documents to the Washington Insurance Examining...