Jordan v. American Eagle Fire Ins. Co.

• Court: U.S. Court of Appeals — District of Columbia Circuit
• Writing for the Court: EDGERTON, Associate Justice, MARIS, Circuit , and PRETTYMAN, Associate Justice
• Citation: Jordan v. American Eagle Fire Ins. Co., 169 F.2d 281, 83 U.S.App.D.C. 192 (D.C. Cir. 1948)
• Decision Date: 12 April 1948
• Docket Number: No. 9507.,9507.
• Parties: JORDAN, Superintendent of Insurance, v. AMERICAN EAGLE FIRE INS. CO. et al.

169 F.2d 281 (1948)

JORDAN, Superintendent of Insurance, v. AMERICAN EAGLE FIRE INS. CO. et al.

No. 9507.

United States Court of Appeals District of Columbia.

Argued October 15, 1947.

Decided April 12, 1948.

COPYRIGHT MATERIAL OMITTED

Mr. Lloyd B. Harrison, Special Assistant Corporation Counsel, District of Columbia, of Washington, D. C., with whom Mr. Vernon E. West, Corporation Counsel, Mr. Chester H. Gray, Principal Assistant Corporation Counsel, and Mr. Oliver Gasch, Assistant Corporation Counsel, District of Columbia, all of Washington, D. C., were on the brief, for appellant.

Mr. Abraham Kaplan, of New York City, pro hac vice, by special leave of court, with whom Messrs. Paul B. Cromelin, and Francis C. Brooke, both of Washington, D. C., and George I. Gross, of New York City, were on the brief, for appellees.

Before EDGERTON, Associate Justice, MARIS, Circuit Judge, and PRETTYMAN, Associate Justice.

PRETTYMAN, Associate Justice.

This is an appeal from a judgment of the District Court setting aside an order of the Superintendent of Insurance for the District of Columbia and permanently enjoining its enforcement.¹ Appellees are 173² fire insurance companies engaged in business in the District of Columbia.

The controversy revolves about Section 3 of an act of Congress of June 1, 1944,³ called the Rating Act, the pertinent provisions of which⁴ are:

"The Superintendent is empowered to investigate the necessity for an adjustment of the rates on any or all risks or classes of risks within the scope of this chapter, and to order an adjustment of such rates whenever he determines, after investigation of the experience showing premiums and losses for a period of not less than five years next preceding such investigation, that the rates for any one or more classes of risks are excessive, inadequate, or unreasonable. In determining the necessity for an adjustment of rates, the Superintendent shall give consideration to all factors reasonably attributable to the risks, to the conflagration or catastrophe hazard, both within and without the District, and to a reasonable profit. * * *

"Any person, firm, or corporation aggrieved by any order, ruling, proceeding, or action of the Superintendent * * * may appeal to the Commissioners of the District, or contest the validity of such order, ruling, proceeding, or action in any court of competent jurisdiction by appeal or through any other appropriate proceedings, as provided under sections 35 — 1348 and 35 — 1349 of the D.C.Code."⁵

On February 1, 1945, the Superintendent requested that all companies to which the foregoing statute applied, furnish, "Pursuant to Sections 3 and 7",⁶ "reports of your Company's experience in the District of Columbia for the five-year period ending December 31, 1944." The reports, made under oath, were submitted as requested and were checked and recapitulated by the Superintendent. On August 10, 1945, a copy of the recapitulation was furnished to the companies through their Rating Bureau.⁷ The Superintendent's subsequent invitation that the companies recommend a formula for the adjustment of their rates was declined. Thereafter, on October 29, 1945, the Superintendent notified the companies, in a multiple-addressee letter, that he had "given consideration to the information supplied by the experience reports and to all other factors reasonably attributable to the risks involved, including the conflagration and catastrophe hazard, both within and without the District, and to a reasonable profit", and had therefrom "determined that during the period 1940 to 1944, inclusive, the rates for fire and lightning insurance and for extended coverage insurance were excessive and unreasonable." He, therefore, ordered a specific over-all reduction of those rates, which he expressed in a lump sum of $225,407⁸ for the companies as a whole, to take effect on January 1, 1946.⁹ We postpone for a moment an analysis of his order.

Appellees immediately requested the Superintendent to amend or rescind his order and applied to him for an oral hearing at which testimony could be presented with respect to various objections to the order. An oral hearing was granted and held, commencing December 14, 1945, and enforcement of the order was stayed. At this hearing the Superintendent announced that the proceeding was a matter of grace and not of right and was in no sense a statutory hearing. The companies were permitted to bring in witnesses of their choice, to adduce oral and documentary evidence, and to argue to the Superintendent. The latter declined to elaborate the basis for his proposed adjustment further than the explanation contained in the order itself, and produced no evidence to support his order. Subsequently, on February 1, 1946, and ex parte, he issued a further order, in which he reviewed his position in the light of the hearing and the contentions of the companies, and amended his original order, postponing its effective date to April 1, 1946, and decreased the amount of the reduction to a lump sum of $115,236.

The Superintendent's orders were based upon the figures and other information furnished by the companies and relating to their experience for the preceding five-year period. There is no dispute as to this underlying data. The dispute on the merits of the orders concerned the factors which the Superintendent used in compiling the rates which he would allow. In his order of October 29, 1945, he said he would allow a loading of 1½ per cent for the conflagration hazard in the calculation of fire insurance rates, and the same percentage in the computation for extended coverage insurance. He allowed an under-writing profit of 5 per cent. He recited that 73 of the 234 companies reporting (28.87 per cent of the total premiums), including many of the oldest and largest companies, had an average expense ratio of 38.74 per cent and that in none of these companies did the ratio exceed 44 per cent. Therefore, he said, he found 43 per cent of premiums written to be a reasonable allowance for expenses. He included in investment profit an amount calculated as the income derived by the companies from the investment of unearned premium reserves. In the order of February 1, 1946, the Superintendent changed the allowable expense factor to 43.5 per cent in fire insurance rates and entirely eliminated his proposed adjustment of rates for extended coverage insurance. The new order thus related to fire and lightning insurance only.

The contentions made by the companies to the Superintendent were that he had erred in his computation of premiums earned, in fixing the expense factor, and in his computation of the income from the investment of unearned premium reserves.

Appellee companies entered no appeal to the Commissioners of the District but, choosing the alternate remedy, filed a bill in the District Court praying for interlocutory and permanent enjoinders of any enforcement of the order and for a judgment that the order as amended is of "no force and effect, because the same has not been based upon a determination after the investigation required by statute". Alternatively, appellees sought a hearing concerning certain alleged substantive defects, one of which was that the order was confiscatory and another "because the defendant Superintendent has failed to give proper consideration to the elements required by statute."

The District Court enjoined enforcement of the order pendente lite and, after a nonjury trial in which evidence was received, adjudged the order illegal and void and made the injunction permanent. The basis for its conclusion was that the hearing required by due process of law had not been afforded the companies. Its reasoning, stated in a careful opinion, was that since due process of law required a hearing of the quasi-judicial type, the word "investigation" in the statute must be construed as including such a hearing, in order to avoid a conclusion that the statute itself was unconstitutional. The Superintendent appealed.

Our first inquiry must concern the express requirements of the statute. Section 3 of the Act, as set forth above, requires an "investigation" before a determination, and a determination before the promulgation of a rate adjustment order. But the Act does not expressly provide for a "hearing". There is no reason to take the term "investigation" at other than its face value. A quasi-judicial hearing, at which opposing parties present their claims and evidence and have their controversies determined, is not an "investigation", and a requirement that there be an investigation carries with it no command that a quasi-judicial hearing be conducted.¹⁰ This statute is not like those which contain legislative mandates for "hearings",¹¹ "due hearings",¹² "formal hearings",¹³ or "full hearings".¹⁴ The judicial character of such statutory hearings is emphasized, and perhaps demanded, by statutory provisions for a "review" of the agency action in a court.¹⁵ A "review" is not usually a trial de novo; the common understanding is that the reviewing tribunal will inspect the step-by-step functioning and determinations of the agency. Of necessity, in such case a record of the agency hearing is required. In most instances, the statutory provision is that the agency's findings of fact shall be conclusive if they are supported by substantial evidence in the record. The trial court aptly quoted Mr. Justice Cardozo¹⁶ on this point: "To put the problem more concretely: how was it possible for the appellate court to review the law and the facts and intelligently decide that the findings of the Commission were supported by the evidence when the evidence that it approved was unknown and unknowable?" The statute before us in the present case contains no provision for findings of fact by the Superintendent or for "review" by a court of the proceeding before him. This statute contemplates and provides for a different course of proceeding from...