Mortgage Guaranty Ins. Corp. v. Langdon

• Decision Date: 02 October 1981
• Docket Number: 5129 and 5130,5128,Nos. 5127,s. 5127
• Parties: MORTGAGE GUARANTY INSURANCE CORPORATION, Appellant (Plaintiff), v. John T. LANGDON, Commissioner of Insurance for the State of Wyoming, Appellee(Defendant). VEREX ASSURANCE, INC., Appellant (Petitioner), v. John T. LANGDON, Insurance Commissioner, Department of Insurance, State of Wyoming, Appellee (Respondent).
• Court: Wyoming Supreme Court

Page 509

634 P.2d 509

MORTGAGE GUARANTY INSURANCE CORPORATION, Appellant (Plaintiff), v. John T. LANGDON, Commissioner of Insurance for the State of Wyoming, Appellee(Defendant).

VEREX ASSURANCE, INC., Appellant (Petitioner), v. John T. LANGDON, Insurance Commissioner, Department of Insurance, State of Wyoming, Appellee (Respondent).

Nos. 5127, 5128, 5129 and 5130.

Supreme Court of Wyoming.

Oct. 2, 1981.

Paul B. Godfrey, Godfrey & Sundahl, Cheyenne, for appellant in No. 5127.

Nick Kalokathis, Lathrop & Uchner, P. C., Cheyenne, for appellant in No. 5130.

John D. Troughton, Atty. Gen. and Bob R. Bullock, Senior Asst. Atty. Gen., Cheyenne, for appellee in Nos. 5127 and 5130.

Before RAPER, C. J., ^a McCLINTOCK, ^b THOMAS and ROSE, JJ., ^c and GUTHRIE, J., Retired. ^d

THOMAS, Justice.

In this appeal the Court must concern itself with the authority of the Commissioner of Insurance for the State of Wyoming (hereinafter referred to as the Commissioner) to regulate the private mortgage insurance business and with the manner of exercise of that authority. The Commissioner entered separate orders providing with respect to Verex Assurance, Inc. (hereinafter referred to as Verex) that the approval previously given to its premium rate schedule should be withdrawn, and providing with respect to the appellant Mortgage Guaranty Insurance Corporation (hereinafter referred to as MGIC) that the approval previously given to its policies, including the premium rate schedule, should be withdrawn. The Commissioner's grounds for withdrawing the previous approvals were that the loss ratios of these companies for Wyoming were significantly lower than in other states, making the premium rates in Wyoming excessive, the benefits in Wyoming unreasonable in relation to the premium charged, and resulting in unfair discrimination against premium-paying Wyoming residents. The Commissioner also On January 20, 1977, the Commissioner issued a notice of hearing addressed to all insurance companies selling mortgage guaranty insurance in Wyoming, advising that the purpose of the hearing was to ascertain whether the Commissioner should disapprove the rate and policy form filings of the several companies as they pertained to mortgage guaranty insurance and lease guaranty insurance. This order specified some 11 different areas of concern. A request was made by MGIC that its hearing be held separately, and this request was granted. The first hearing involving Verex and three of the other companies began on April 6, 1977. These other three companies then agreed to be bound by the disposition made in the MGIC hearing, and the Verex hearing resumed without their participation on April 18, 1977.

found fault with the amount of the first-year premium, the level renewal premiums, the continuation of coverage when the appraised value of the property at the time of the loan exceeded the loan balance by 25 percent, the provision that all premiums received became fully earned upon payment of a claim, and, in the case of Verex, he also objected to the minimum premium retention of $50 on certificates of insurance cancelled during the first year. The only value component with respect to the private mortgage insurance business which the Commissioner considered was insurance against default. The appellants, Verex and MGIC, appealed the Commissioner's determinations, and the district court affirmed the Commissioner's orders. We conclude that the Commissioner's restriction of his consideration to the insurance feature only of private mortgage insurance was unduly narrow and did not constitute a proper application of standards to this unique style of insurance. We shall reverse and remand the cases for further consideration.

Following the conclusion of the Verex hearing the Commissioner, on May 6, 1977, issued an order withdrawing the approval of its premium rate schedule effective on June 6, 1977. On that same day a separate order was issued withdrawing the rate schedules of all companies, including MGIC. The Commissioner justified this action by stating that it would be inequitable to disapprove the Verex rates while allowing other companies to continue using the same rates. MGIC and Verex petitioned the District Court of Laramie County for an order staying the Commissioner's orders pending appeal by Verex and further hearing before the Commissioner as to MGIC. This was granted by the district court. The MGIC hearing began July 11, 1977, and proceeded on various dates with full participation by MGIC. On October 4 the Commissioner issued an order withdrawing the previous approval of the rate schedule and policy forms of MGIC. The orders in the two cases are essentially the same with both containing extensive findings of fact, conclusions of law and justifying discussion by the Commissioner.

As explained by the record before this court, private mortgage insurance companies offer to conventional home mortgage lenders a limited amount of protection against loss if the homeowner-borrower defaults on the home loan mortgage. While the lender is the insured party under the contract, the premium cost is paid in all instances by the borrower or mortgagor. The homeowner-borrower is the premium-paying Wyoming resident referred to in the Commissioner's orders. The limited coverage ranges from 10 or 20 percent on loans where the loan to value ratio is 80 percent or under through 25 percent where the loan to value ratio is 80 to 90 percent or 90 to 95 percent. Premiums increase based upon increases in the percentage of coverage and higher loan to value ratios. For example, under the most commonly used annual plan, pursuant to which the borrower continues to pay premiums during the entire term of the loan or for such shorter period as the insured mortgagee may require, the first premium is 1 percent where the loan to value ratio is 95 percent and the coverage is 25 percent, and the renewal premiums are 1/4 percent for all subsequent years. If the loan to value ratio were 80 to 90 percent with 20 percent coverage, the first premium is 1/2 of 1 percent and 1/4 percent in all subsequent years.

The record is clear that in Wyoming such insurance is an essential feature with respect to granting of loans where the loan to value ratio is 80 percent or higher. The mortgage lenders require mortgage guaranty insurance in connection with those loans as a condition of making the loan. The primary justification of the Wyoming mortgage lenders for this requirement is that it is essential for them to market these loans to other lenders outside of Wyoming. It is the position of the Wyoming mortgage lenders that they must be able to engage in this secondary market in order to have available money to provide loans to service new home buyers in Wyoming. The economic fact associated with this position is that Wyoming is a capital short state, and consequently Wyoming lenders must market their loans to financial institutions outside the state in order to have new capital available to lend to home buyers.

The critical factual findings by the Commissioner with respect to Verex point to its experience of a nationwide loss ratio of 21.6 percent during the years 1971 through 1976, while its loss ratio in the State of Wyoming was .61 percent. With respect to MGIC the Commissioner found that in the same 6-year period it had experienced a nationwide loss ratio of 19.75 percent, while its loss ratio in the State of Wyoming had been .67 percent. Comparing these to the experience of all other companies, the Commissioner noted that the loss ratio of all other companies on a national basis was 20.35 percent and that the loss ratio of all mortgage guaranty insureds in Wyoming was .58 percent. The Commissioner also noted that in the states of Wyoming, Nebraska, Colorado, Utah, Idaho, North Dakota, Montana, and South Dakota, Verex's loss ratio was only 7.45 percent of total premium earned, and that MGIC in the states of Wyoming, Nebraska, Utah, Idaho, North Dakota, Montana, and South Dakota, had a loss ratio of only 2.8 percent of premium earned. He noted in the latter instance that the loss ratio would still be less than 5 percent if Colorado were included.

Based upon the loss ratio findings, the Commissioner then concluded with respect to both Verex and MGIC that the premium rate schedule utilized in Wyoming was excessive the benefits provided to Wyoming property owners were unreasonable in relation to the premium charged in violation of § 26.1-270(a) (iv) and § 26.1-316(e), W.S.1957. ¹ In addition, the Commissioner concluded that the failure of the insurance companies to differentiate their premium rate schedules between those areas of the country which have produced the greatest losses and those areas of the country which have incurred the fewest losses, such as Wyoming, discriminated unfairly against premium-paying Wyoming residents in violation of § 26.1-270(a)(iv), W.S.1957 (§ 26-14-105(a)(iv), W.S.1977) and § 26.1-316(e), W.S.1957 (§ 26-15-113(a)(v), W.S.1977). The Commissioner further found that the assessment of a first-year premium which is disproportionate to the risk being assumed and the assessment of the same renewal premium for subsequent years of coverage was unfairly discriminatory against premium-paying Wyoming residents, in violation of § 26.1-270(a)(iv), W.S.1957 (§ 26-14-105(a)(iv), W.S.1977) and § 26.1-316(e), W.S.1957 (§ 26-15-113(a)(v), W.S.1977). The Commissioner also concluded that the premiums were unreasonable in relation to benefits provided to premium-paying Wyoming residents when the principal balance of the loan decreased to the point where the appraised value of the property (at the time the loan was obtained) exceeded the principal In the case of Verex the Commissioner also concluded that the minimum premium retention of $50 on certificates cancelled during the first year of coverage was excessive and unreasonable and in violation of § 26.1-270(a)(iv), W.S.1957 (§...