Insurance Services Office v. Whaland, 7694

• Decision Date: 30 September 1977
• Docket Number: No. 7694,7694
• Citation: 378 A.2d 743,117 N.H. 712
• Parties: INSURANCE SERVICES OFFICE v. Frank E. WHALAND, New Hampshire Insurance Commissioner.
• Court: New Hampshire Supreme Court

Page 743

378 A.2d 743

117 N.H. 712

INSURANCE SERVICES OFFICE v. Frank E. WHALAND, New Hampshire Insurance Commissioner.

No. 7694.

Supreme Court of New Hampshire.

Sept. 30, 1977.

Orr & Reno and Ronald L. Snow, Concord, for plaintiff.

David H. Souter, Atty. Gen., and Andrew R. Grainger, Concord, for the State.

GRIMES, Justice.

This case is an appeal pursuant to N.H. RSA 541:7, taken by Insurance Services Office, an insurance rating organization as defined in RSA ch. 413, from a final decision of the New Hampshire Insurance Commissioner. The commissioner denied plaintiff's requested revision of its New Hampshire Homeowners Insurance Program originally filed with the commissioner for approval on April 15, 1976. The plaintiff, on behalf of the companies for whom it was filing the requested rate relief, was proposing to increase New Hampshire Homeowners insurance premiums an average of 14.4 percent.

Plaintiff originally filed with the commissioner an overall premium rate increase of 15.8 percent on April 15, 1976. On June 16, 1976, a hearing was held at which time plaintiff's expert, Mr. Fusco, gave testimony regarding the filing. Philip Presley, the department's actuary at the time, was unable to testify due to illness, and the commissioner decided to continue the hearing until August 3, 1976, so that Mr. Presley could testify.

On August 2, the commissioner determined that he had enough evidence to make a ruling and cancelled the August 3d hearing. Plaintiff objected to this cancellation and requested a rehearing for the purpose of introducing Mr. Presley's testimony. At this time plaintiff also amended its request downward from a 15.8 percent overall premium increase to one of 14.4 percent, allegedly in the hope that the commissioner would more readily approve the filing and because plaintiff was aware that Mr. Presley would not give testimony to support an increase of 15.8 percent. The commissioner took the position, over plaintiff's objection, that this constituted a new filing and required the submission of a new set of statistics before he would hold another hearing. Plaintiff's position was that the statistics already submitted supported a rate increase of 15.8 percent and would, therefore, also support a 14.4 percent increase. Nevertheless, the new statistics were submitted.

In the meantime, plaintiff took the deposition of Philip Presley pursuant to subpoena on September 30, 1976. The commissioner was not represented despite having received notice both in writing pursuant to the statute, and verbally. This deposition, together with all exhibits marked, was submitted to the commissioner on October 29 with a request that he now close this case and render an opinion on the requested rate relief.

Instead, the commissioner ordered a new hearing for December 13, 1976. This hearing, however, produced no testimony but was essentially a forum for both sides to restate their legal positions regarding the "new" filing. The commissioner then indicated that he wanted to summon Mr. Presley for the purpose of taking his testimony and on December 20, 1976, Mr. Presley appeared before the commissioner. The commissioner thereafter denied the requested rate relief. Plaintiff requested a rehearing which was granted. At the rehearing plaintiff stated it had nothing further to introduce and the hearing was closed. The commissioner thereafter again denied the rate relief requested.

Plaintiff agrees that, upon review, an order of the commissioner will be overturned only where plaintiffs show by a clear preponderance of the evidence that the decision of the commissioner is unreasonable or unlawful. RSA 541:13. There is a presumption that the commissioner's decision is prima facie lawful and reasonable. RSA 541:13; N.H.-Vt. Hosp. Serv. v. Whaland, 114 N.H. 92, 96, 315 A.2d 191, 194 (1974). It is plaintiff's primary contention that the decision of the commissioner was unreasonable and unlawful because it was unsupported by substantial evidence on the record and because it did not clearly reveal the basis of his determinations. Id. at 97, 315 A.2d at 194; N.H.-Vt. Physician Serv. v. Durkin, 113 N.H. 717, 724, 313 A.2d 416, 421 (1973); see RSA 400-A:14 I, 23 II a (Supp.1975).

In order to determine whether the commissioner made his decision based on substantial evidence, it is necessary to review the statutory standards to be applied to rate-making and the duties of the commissioner in approving or disapproving rates. According to RSA 414:3(a) rates are not to be excessive, inadequate or unfairly discriminatory. In determining whether rates meet the standard of RSA 414:3(a), due consideration is to be given the following factors set forth in RSA 414:3(b) (Supp.1975):

"1. Past and prospective experience within and without the state.

"2. Conflagration and catastrophe hazards, if any.

"3. A reasonable margin for underwriting profit and contingencies, to dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policy holders, members or subscribers.

"4. To past and prospective expenses both countrywide and those specially applicable to this state.

"5. In the case of fire insurance, to the experience of the business for the most recent 5-year period available.

"6. All other relevant factors within and outside this state."

The commissioner has the option of approving or disallowing a requested rate filing because it does not comply with the requirements of RSA ch. 414. RSA 414:5(a). That motion further requires the commissioner to send a written notice apprising the organization that made the filing of the respects in which the filing fails to meet the requirements of RSA ch. 414 if the filing is disapproved.

At the outset we note that rate-making is a technical and highly complex process requiring much expertise. Pa. Ins. Dept. v. City of Philadelphia, 196 Pa.Super. 221, 237, 173 A.2d 811, 819 (1961); Md. Fire U.W. v. Ins. Comm'r, 260 Md. 258, 266, 272 A.2d 24, 28 (1971). It demands the review of a complicated set of data the purpose of which is to determine the amount of premiums necessary to cover losses and expenses to be experienced in the future in addition to producing a reasonable profit. This requires the prediction of future trends extrapolated from past experience. In order to be a predictor of the future, the past experience must be adjusted by certain factors or ratios which take into account things such as future labor costs, future construction costs, future premium buying habits of the public, inflation, etc. See In re Filing By Fire Ins. Rating Bureau, 275 N.C. 15, 32, 165 S.E.2d 207, 220 (1969). Thus, rate-making is a judgmental field and as such proper rates cannot be determined with exactitude. Id.; Fire Insurance Rating Bureau v. Rogan, 4 Wis.2d 558, 563, 91 N.W.2d 372, 377 (1958).

Rate-making is not a judicial function. 1 R. Anderson, Couch on Insurance § 21:38 (2d ed. 1959). Due to its complexity as well as to the determination of the legislature, rate-making is left to the discretion of the insurance commissioner who is a specialist in the field and upon whose expertise we must rely. Travelers Indemnity Co. v. Williams, 190 So.2d 27, 29 (Fla.Dist.Ct.App.1966); Md. Fire U.W. v. Ins. Comm'r, 260 Md. 258, 266, 272 A.2d 24, 28 (1971). Due to the expertise required in the field, courts should be reluctant to substitute their judgment for that of the commissioner. See Id.

The evidence presented in this case is further complicated beyond that of the ordinary rate case by the fact that in 1975 the insurers changed from their old lettered series program to a numbered series. This transition changed coverage in various of the programs offered, such as the ceilings of losses that would be covered and deductibles. Therefore it was necessary for plaintiff to devise a method of conversion for transposing its experiences in the lettered program to experience in the numbered program in order to develop sufficient data history to support the requested rate increase. The plaintiff attempted to do this, and data history as well as an explanation of the method of conversion was submitted in the form of a written exhibit as well as through the testimony of plaintiff's expert.

The commissioner's written decision reveals that his primary reason for denial of the rate increase is plaintiff's use of countrywide indices and statistics in support of its filing as opposed to data specifically relating to New Hampshire. The commissioner therefore determined that plaintiff's exhibits and expert testimony failed to support its requested rate relief. A further reason for denial was his disagreement with plaintiff's conversion of losses from the lettered to the numbered series.

A review of the record reveals that the only evidence submitted was that of plaintiff which consisted of a number of written exhibits, the testimony of plaintiff's expert and the deposition of Philip Presley. Plaintiff's evidence was supportive of its...