Massachusetts Bonding & Ins. Co. v. Commissioner of Ins.

• Decision Date: 11 September 1952
• Citation: 329 Mass. 265,107 N.E.2d 807
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: MASSACHUSETTS BONDING & INS. CO. et al. v. COMMISSIONER OF INSURANCE. CANAVAN v. COMMISSIONER OF INSURANCE.

Page 807

107 N.E.2d 807

329 Mass. 265

MASSACHUSETTS BONDING & INS. CO. et al. v. COMMISSIONER OF INSURANCE.

CANAVAN v. COMMISSIONER OF INSURANCE.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued April 8, 9, 11, 1952.

Decided Sept. 11, 1952.

R. A. Cutter, Boston, J. W. Perkins, Boston, for Massachusetts Bonding & Ins. Co. et al.

V. A. Canavan, Boston, for intervenor.

J. W. Kelleher, Sp. Asst. Atty Gen., for Commissioner of Insurance.

Before QUA, C. J., and LUMMUS, RONAN, SPALDING and WILLIAMS, JJ.

SPALDING, Justice.

These are two petitions under G.L. (Ter.Ed.) c. 175, § 113B, as amended, for review of an order of the respondent commissioner of insurance (hereinafter called the commissioner), fixing premium charges for compulsory motor vehicle liability policies issued in the year 1952. The petitioners in what will be referred to hereinafter as the first case are fifty stock companies and thirteen mutual companies authorized to issue such policies under G.L. (Ter.Ed.) c. 90, §§ 34A-34J, as amended, and c. 175. The petitioner in the second case is an automobile owner who holds a compulsory insurance policy. A single justice of this court reported and reserved the cases, without decision, on the pleadings, an amended stipulation, the exhibits introduced before the commissioner, the commissioner's order, and the transcript of oral testimony introduced before the commissioner at a public hearing, 'such decrees to be entered as equity and justice may require,' in accordance with the provisions of G.L. (Ter.Ed.) c. 175, § 113B, as amended. ¹

The First Case.

The allegations of this petition challenge the propriety of the commissioner's selection of a loss level in fixing the premium charges for 1952. For a proper understanding of these allegations, a few facts concerning the rate method employed by the commissioner will be helpful. A part of each rate is designed to raise an amount sufficient to cover the losses likely to be incurred during the year. That portion is called the 'pure premium' or loss cost per vehicle for the year. The practice under the compulsory insurance law has been to use the loss experience of the past as a guide to the probable losses and pure premiums of the succeeding year. The principal problem of the commissioner, therefore, is to select a comparable period in the past, adjusted, if necessary, to reflect the conditions likely to exist in the year for which the rates will be applicable.

The petitioners allege that they reported to the commissioner and to his statistical agent, the Massachusetts Automobile Rating and Accident Prevention Bureau (hereinafter called the Bureau), all the data, statistics, and information necessary to enable him to establish 'adequate, just, reasonable and non-discriminatory premium charges' as required by § 113B; that on December 7, 1951, the commissioner, after due notice, held a public hearing on a schedule of tentative premium rates for 1952; that all the data and statistics previously submitted to the commissioner and the Bureau were introduced in evidence together with the testimony of three experts called by the petitioners; that no evidence was introduced in behalf of the commissioner to challenge either the matters set forth in the exhibits or the testimony of the witnesses; that on December 19, 1951, the commissioner filed an order fixing the compulsory motor vehicle insurance premium charges for 1952 at the same level as the tentative rates; and that in setting these rates, the commissioner based the pure premium on the average pure premium ² of the years 1948, 1949, and 1950, the last three years for which complete statistics were available.

The petitioners further aver that there was no evidence to warrant the commissioner's use of the average loss level of the years 1948, 1949, and 1950 in predicting the probable experience of 1952; that he disregarded the overwhelming and undisputed evidence that the sudden rapid rise of pure premiums in 1950 and the continuing upward trend in 1951 made the loss experience of 1948 and 1949 wholly unreliable as a guide to the probable losses of 1952; that this upward trend was such that the commissioner was required to base the pure premium for 1952 on the more pertinent data of the year 1950 alone; and that by reason of the commissioner's unwarranted use of the three year average, the premium rates for 1952 are substantially lower than would have resulted from the use of the loss experience of 1950 and are not 'adequate, just, [and] reasonable', within the meaning of those words in § 113B. Other allegations are that the rates set by the commissioner will bring about an underwriting loss of over $600,000 for all companies as a whole, and an underwriting loss of over $1,500,000 for the stock insurance companies as a group (if certain assumptions are made as to conditions in 1952) ³; and that in 1950 the latter companies wrote about 64.2% of all compulsory insurance.

In his answer, which included a demurrer, the commissioner's position is that the determination of a pure premium for 1952 was a matter of judgment as well as of mathematical analysis; that the use of the experience of 1950 along would give disproportionate weight to loss estimates; and that his use of the data for the years 1948, 1949, 1950 was justified in that it contained a higher percentage of actual losses as distinct from estimated losses.

The Demurrer.

The basis of the demurrer, in essence, is that judicial review under G.L. (Ter.Ed.) c. 175, § 113B, is confined to the question whether the premium rates fixed by the commissioner are confiscatory, and that there is no basis for such review inasmuch as the petitioners have failed to allege that the rates are so unreasonably low as to deprive any one of them of its property without due process of law.

We are of opinion that the demurrer must be overruled.

The pertinent provisions of § 113B are: 'The commissioner shall, * * * after due hearing and investigation, fix and establish fair and reasonable classifications of risks and adequate, just, reasonable and non-discriminatory premium charges to be used and charged by companies in connection with the issue or execution of motor vehicle liability policies or bonds * * *. He shall * * * sign memoranda of the classifications and premium charges fixed and established by him * * * and file the same in his office, and cause a duly certified copy of such classifications and schedule of premium charges forthwith to be transmitted to each company authorized to issue such policies or to execute such bonds. * * * [T]he classifications and premium charges fixed and established by the commissioner * * * shall be used by all companies * * *. Any person or company aggrieved by any action, order, finding or decision of the commissioner under this section may * * * file a petition in the supreme judicial court for the county of Suffolk for a review of such action, order, finding or decision. * * * The court shall have jurisdiction in equity to modify, amend, annul, reverse or affirm such action, order, finding or decision, shall review all questions of fact and of law involved therein and may make any appropriate order or decree.'

It is apparent that this section fixes limits to the commissioner's authority by prescribing the establishment of 'adequate, just, [and] reasonable' premium charges. In the exercise of this statutory authority, the commissioner's action is subject to constitutional restrictions against deprivation of property without due process of law. In other words the rates established must not be confiscatory. Opinion of the Justices, 251 Mass. 569, 610-611, 147 N.E. 681; Lowell Gas Co. v. Department of Public Utilities, 324 Mass. 80, 86-88, 84 N.E.2d 811; Opinion of the Justices, 328 Mass. 679, 106 N.E.2d 259. But the words 'adequate, just, [and] reasonable' do not require the commissioner to fix rates so low as to barely withstand attack on constitutional grounds. 'The mere fact that a rate is nonconfiscatory does not indicate that it must be deemed to be just and reasonable. It is well known that rates substantially higher than the line between validity and unconstitutionality properly may be deemed to be just and reasonable, and not excessive or extortionate.' Banton v. Belt Line Railway, 268 U.S. 413, 423, 45 S.Ct. 534, 537, 69 L.Ed. 1020; Denver Union Stock Yard Co. v. United States, 304 U.S. 470, 483, 58 S.Ct. 990, 32 L.Ed. 1469, and cases cited. See New England Telephone & Telegraph Co. v. Department of Public Utilities, 327 Mass. 81, 96, 97 N.E.2d 509. We are of opinion that the statute imposes upon the commissioner the duty of fixing a rate that lies somewhere between the lowest rate that is not confiscatory and the highest rate that is not excessive or extortionate.

The commissioner argues that the history of § 113B shows that the provision for judicial review inserted in that section was solely for the purpose of protecting the constitutional rights of parties affected by his action, and that administrative action within the limits of constitutional authority is not subject to judicial scrutiny. In support of this contention he directs our attention to Opinion of the Justices, 251 Mass. 569, 147 N.E. 681, where the justices considered the constitutionality of the proposed provisions of § 113B which made final all decisions of the commissioner of insurance in approving premium charges. At pages 610-611 of 251 Mass., at page 700 of 147 N.E. it was said: 'A fundamental principle of rate making by public authority is that in general the rate so established must be sufficient to yield a fair return on the reasonable value of the property used or invested for doing the business after paying costs and carrying charges. Rates not sufficient to yield such return are unjust, unreasonable and confiscatory. That is the general rule. The making of rates may be treated as a legislative or executive function. 'In all such...