Medical Malpractice Joint Underwriting Ass'n of Massachusetts v. Commissioner of Ins.

• Citation: 395 Mass. 43,478 N.E.2d 936
• Parties: The MEDICAL MALPRACTICE JOINT UNDERWRITING ASSOCIATION OF MASSACHUSETTS v. COMMISSIONER OF INSURANCE.
• Decision Date: 30 May 1985
• Court: United States State Supreme Judicial Court of Massachusetts

Page 936

478 N.E.2d 936

395 Mass. 43

The MEDICAL MALPRACTICE JOINT UNDERWRITING ASSOCIATION OF MASSACHUSETTS v. COMMISSIONER OF INSURANCE.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Feb. 8, 1985.

Decided May 30, 1985.

Acheson H. Callaghan, Jr., Boston (Michael J. Lacek, Boston, with him), for plaintiff.

Stephen S. Ostrach, Asst. Atty. Gen. (Stewart Kemp, Boston, with him), for the Comr. of Ins.

Michael T. Gengler, Boston, for intervener.

Before HENNESSEY, C.J., and WILKINS, LYNCH and O'CONNOR, JJ.

HENNESSEY, Chief Justice.

This case was commenced, pursuant to G.L. c. 175A, § 5A, by the filing in the Supreme Judicial Court for the county of Suffolk of a complaint for review of the decision of the Commissioner of Insurance (Commissioner) establishing medical malpractice insurance rates for physicians and surgeons, effective July 1, 1983. The case was reserved and reported to the full court without decision by a single justice, upon the record of the hearing before the Commissioner.

The complaint ¹ was brought by the Medical Malpractice Joint Underwriting Association of Massachusetts (JUA), a nonprofit association established pursuant to St.1975, c. 362, § 6, and to a plan of operation promulgated by the Commissioner. The JUA is authorized to issue policies of medical malpractice insurance to licensed physicians and hospitals in Massachusetts at rates fixed and established by the Commissioner under G.L. c. 175A, § 5A. The single justice allowed the motion of the Massachusetts Medical Society (MMS), a participant in the rate hearings, to intervene in the appeal.

The relevant facts are as follows. On April 1, 1983, the JUA filed a recommendation for a 162.7% increase in medical malpractice insurance rates for physicians for the period July 1, 1983, to June 30, 1984. On June 2, 1983, the Commissioner published a notice of hearing on that request. The hearing, presided over by the Commissioner, was held on six days between July 13 and August 15, 1983. The JUA, the MMS, the Independent Insurance Agents of Massachusetts, Inc. (IIAM), and the State Rating Bureau (SRB) participated.

On May 18, 1984, ² the Commissioner issued his decision ordering a 42% average increase in rates for physicians for the period beginning July 1, 1983. Both the MMS and SRB had recommended that any rate increase be capped at 50%, although their advisory filings indicated that increases of 90.7% (SRB) or 62% (MMS) were actuarially indicated.

On June 7, 1984, the JUA filed an appeal of the Commissioner's decision alleging that the rates established are not "adequate, just, [and] reasonable" as required by G.L. c. 175A, § 5A, ³ and are not "actuarially sound" and "calculated to be self-supporting" as required by St.1975, c. 362, § 6. ⁴ Specifically the JUA claims that the Commissioner erred in: (1) imposing an especially high standard of proof on proponents of a rate increase; (2) ruling that G.L. c. 175A, § 5A, does not require the rates to be self-sustaining in each rating period; and (3) establishing an average rate increase which is lower than the recommendation of any expert actuarial witness and which is unsupported by substantial evidence in the record. We agree that the Commissioner misinterpreted the applicable statutes and, as a result, reached a decision that is not supported by substantial evidence in the record. We therefore reverse and remand the case to the Commissioner for proceedings consistent with this opinion.

1. Standard of Proof.

The Commissioner applied to these proceedings the "evidentiary standard" set forth in a decision of his predecessor establishing medical malpractice rates for 1976-1977. See 211 Code Mass.Regs. § 61.00 (1978). He quoted from that earlier decision in relevant part: "Balancing the costs of an overestimate [of rates] against those of an underestimate, we feel compelled to place a substantial evidentiary burden on those who would seek higher rates. We will not reject arguments for increases on this basis, but we will require that they be justified better than we might in a more conventional rate case." The JUA contends that the Commissioner erred by imposing an especially high evidentiary burden on proponents of a malpractice insurance rate increase and that his error materially contributed to the establishment of an inadequate rate. We agree.

At the outset, we note that the controlling statutes do not subject proponents of rate increases to a higher standard of proof than is required of those seeking lower rates. General Laws c. 175A, § 5A, states that the Commissioner shall fix and establish "adequate, just, reasonable and nondiscriminatory premium charges...." In St.1975, c. 362, § 6, the Legislature further provides that "[t]he resultant premium rates shall be on an actuarially sound basis and shall be calculated to be self-supporting." The Legislature has directed the Commissioner to set rates that meet these standards, regardless of whether such rates result in an increase or decrease of premium charges.

In the absence of a statutory provision to the contrary, we have held that "[p]roof by a preponderance of the evidence is the standard generally applicable to administrative proceedings." Craven v. State Ethics Comm'n, 390 Mass. 191, 200, 454 N.E.2d 471 (1983). A higher standard of proof is required only "in a very limited number of cases where 'particularly important individual interests or rights are at stake.' " Id., quoting Herman & MacLean v. Huddleston, 459 U.S. 375, 389, 103 S.Ct. 683, 691, 74 L.Ed.2d 548 (1983). See Guardianship of Roe, 383 Mass. 415, 423, 421 N.E.2d 40 (1981) (higher standard of proof required in civil case only when person may receive stigma comparable to criminal conviction and faces loss of liberty). We have noted that the "imposition of even severe civil sanctions that do not implicate such interests has been permitted after proof by a preponderance of the evidence." Craven, supra, 390 Mass. at 200, 454 N.E.2d 471, quoting Herman & MacLean, supra, 459 U.S. at 389-390, 103 S.Ct. at 691-692. According to these principles, it is clear that the monetary interests at stake in these proceedings do not merit the imposition of a heightened evidentiary standard. Furthermore, it is unclear from the Commissioner's decision just what standard he did apply. We have indicated that the adoption of an intermediate standard of proof, such as the "clear and convincing" standard, too often serves "as the functional equivalent for the more familiar 'reasonable doubt' standard." Guardianship of Roe, supra, 383 Mass. at 424, 421 N.E.2d 40, quoting Custody of a Minor (No. 1), 377 Mass. 876, 885, 377 N.E.2d 68 (1979). See Stone v. Essex County Newspapers, Inc., 367 Mass. 849, 877-878, 330 N.E.2d 161 (1975) (Quirico, J., dissenting). At least once in his decision the Commissioner refers to the applicable standard as "more stringent" than the "compelling evidence standard."

The Commissioner and MMS contend that it is routine practice to assign the burden of proof to the proponent of an insurance rate increase and that the Commissioner only required a "somewhat higher" "weight of that burden" in setting malpractice insurance rates. To support their contention, they cite cases arising under statutes regulating workers' compensation insurance rates, G.L. c. 152, § 52, noncompulsory motor vehicle insurance rates, G.L. c. 175A, § 7, insurer contracts for medical and surgical services, G.L. c. 176B, § 4, and public utility rates, G.L. c. 164, § 94. However, such cases are inapposite for two reasons. First, the Commissioner did not simply allocate the burden of persuasion to the JUA as the proponent of a rate increase. He required an especially high degree of proof in support of the JUA's recommendation. None of the cases cited requires proponents of rate increases to support their proposals with more than a preponderance of the evidence. More importantly, the cases relied upon arise under statutes authorizing the Commissioner only to approve or disapprove rate filings rather than to fix rates himself. In contrast, G.L. c. 175A, § 5A, requires the Commissioner to investigate, fix, and establish medical malpractice insurance rates in conformity with statutory requirements. Cognizant of this difference in the Commissioner's statutory duties, we have placed the burden of proof on insurer-petitioners where they are responsible for filing a proposed rate increase. Liberty Mut. Ins. Co. v. Commissioner of Ins., 366 Mass. 35, 42, 313 N.E.2d 897 (1974). Massachusetts Medical Serv. v. Commissioner of Ins., 346 Mass. 346, 348, 191 N.E.2d 777 (1963). Although the JUA was the first to request a malpractice insurance rate increase, it was the Commissioner who formally initiated the rate-making proceedings by issuing notice of the hearing. In light of his duties under G.L. c. 175A, § 5A, we think the essential principle is that the record must support the Commissioner's decision.

Despite the absence of any statutory provision which varies the standard of proof required in medical malpractice insurance rate hearings, the Commissioner argues that his view comports with legislative intent as evidenced by the design of St.1975, c. 362, § 6. Incorporating the reasoning of a predecessor Commissioner's 1976-1977 decision, he cites the statute's "asymmetry of treatment between rate surpluses and rate deficits" and concludes that the remedy provided for premium undercharges is more explicit, more effective, and imposes lower social costs. Therefore, he concludes, the Legislature implicitly expressed a preference for erring on the side of setting inadequate rates and accordingly intended the use of "an asymmetrical burden of proof." There are several flaws in this reasoning. At the time St.1975, c. 362, § 6, was enacted--and at the time of the Commissioner's 1976-1977 decision construing that statute--the JUA was to recoup deficits by either an assessment on policyholders or a...