Private Passenger Auto. Rate Revision on Behalf of Aetna Cas. and Sur. Co., Matter of

• Decision Date: 28 April 1992
• Citation: 256 N.J.Super. 46,606 A.2d 401
• Parties: In the Matter of a PRIVATE PASSENGER AUTOMOBILE RATE REVISION ON BEHALF OF the AETNA CASUALTY AND SURETY COMPANY.
• Court: New Jersey Superior Court — Appellate Division

Page 46

256 N.J.Super. 46

606 A.2d 401

In the Matter of a PRIVATE PASSENGER AUTOMOBILE RATE REVISION ON BEHALF OF the AETNA CASUALTY AND SURETY COMPANY.

Superior Court of New Jersey Appellate Division.

Argued March 2, 1992.

Decided April 28, 1992.

Mark F. Horning, admitted pro hac vice, for appellant (Hannoch Weisman, Trenton, attorneys; Mark F. Horning, of counsel and on the brief; Susan Stryker on the brief).

Patricia A. Kern, Deputy Atty. Gen., for respondent Department of Ins. (Edward J. Dauber, Acting Atty. Gen., attorney; Joseph L. Yannotti, Asst. Atty. Gen., of counsel; Patricia A. Kern, on the brief).

Theresa D. Brown, Asst. Deputy Public Advocate, for intervenor Department of the Public Advocate, Division of Rate Counsel (Wilfredo Caraballo, Trenton, attorney; Theresa D. Brown, on the brief).

Before Judges R.S. COHEN, A.M. STEIN and KESTIN, temporarily assigned).

The opinion of the court was delivered by

ARNOLD M. STEIN, J.A.D.

Aetna Casualty & Surety Company and its affiliate companies, the Standard Fire Insurance Company and the Automobile Insurance Company of Hartford, Connecticut, appeal the order of the Commissioner of Insurance denying its application for increase in private passenger automobile premium rates.

The application has a troubled history. See Allstate Ins. Co. v. Fortunato, 248 N.J.Super. 153, 158-59, 590 A.2d 690 (App Div.1991). ¹ It was filed on June 29, 1990. The application then went back and forth between Aetna and the Department of Insurance, with the Department maintaining the position that the carrier's application was incomplete. Id. at 158, 590 A.2d 690. Allstate and Aetna then brought separate actions in the Chancery Division seeking to compel the Commissioner to accept their rate increase applications for filing. Judge Levy ordered the Commissioner to submit Allstate's and Aetna's filings to the Office of Administrative Law for contested case hearings. We affirmed in our opinion of May 14, 1991. Id. at 166, 590 A.2d 690.

The hearings began before the Administrative Law Judge on May 28 and were completed on June 10, 1991. The ALJ rendered his initial decision on September 15, 1991. He concluded that Aetna was not entitled to a rate increase but gave the carrier the option of submitting revised rate schedules consistent with his findings. The Commissioner affirmed, for somewhat different reasons than those set forth by the ALJ.

We accept the Commissioner's findings: as to the application of symbol drift in measuring premium trends; his method of calculating loss development factors for uninsured/underinsured (UM/UIM) motorist claims; and the application of twelve point historical data in calculating loss trends. These conclusions are amply supported by substantial credible evidence in the record below and should not be disturbed. Clowes v. Terminix Intern., Inc., 109 N.J. 575, 587, 538 A.2d 794 (1988); In re N.J. Medical Malpractice, 246 N.J.Super. 109, 134, 586 A.2d 1317 (App.Div.1991).

We reverse the Commissioner's ruling applying the methodology providing a higher yield rate on invested policyholder funds in effect at the time of Aetna's filing rather than that in effect at the time of the hearings. We agree with the ALJ's conclusion that the new regulatory amendment (simple average of most recent 12 monthly numbers for Treasury constant three-year maturity rate) more accurately reflects actual yield rate than the previous calculation method (based on statutory interest rates used by the Internal Revenue Service). See N.J.A.C. 11:3-16.10(a)(8) effective November 26, 1990. The disposition of this application was considerably delayed. It would be unrealistic and unfair to use an interest yield rate formula which the Department of Insurance recognized as obsolete well before these hearings began. We must assume that the most recent amendment to the regulation reflects a more current and accurate yield rate than that which it replaced. The current method of calculating the yield on premiums should be used. Its adoption preceded the ALJ hearings and its use would not prejudice the factual presentation of the parties.

The centerpiece of Aetna's appeal is the refusal by the ALJ and the Commissioner to consider as ratemaking factors the cost claimed to be associated with depopulation into the voluntary insurance market of drivers formerly insured by the Market Transition Facility (MTF), and that share of projected MTF losses predictably chargeable against Aetna. The argument was hastily conceived just before the ALJ hearings began. Aetna's original application filed back on June 29, 1990, did not and could not include an allowance for anticipated MTF deficits. The MTF did not begin to issue policies until October 1990, after Aetna had already filed. N.J.S.A. 17:33B-11c.

The contested hearings on the application finally commenced on May 28, 1991. Anxious to conclude this already aged application proceeding, Aetna did not amend its filing. Instead, for the first time, shortly before the commencement of hearings, the carrier sought to introduce evidence that its projected costs resulting from depopulation required an additional rate increase of + 21.2%, and that an additional + 24.3% increase was needed to offset Aetna's estimated $8 million share of the operating shortfall incurred by the MTF during its first year of operation. This proof was first made available to the ALJ and opposing counsel in the form of a transcript of the prefiled testimony of Aetna's actuarial expert.

The ALJ excluded these proposed proofs because their presentation would have improperly injected new and complex issues on the eve of trial. The Commissioner upheld this exclusion.

We agree that the ALJ correctly excluded this depopulation cost and shortfall evidence first offered by Aetna just before trial. This case could not have proceeded without giving opposing counsel for the Department of Insurance and the Public Advocate an opportunity to review this newly-proposed evidence and arrange for its evaluation and probable testimony by their own experts. This would have required adjournment of the proceeding, probably for a considerable period of time, further frustrating efforts to bring this application proceeding to conclusion.

The Fair Automobile Insurance Reform Act of 1990 (FAIR Act), N.J.S.A. 17:33B-1 et seq., established the MTF to provide for the orderly transfer of drivers from the Joint Underwriting Association (JUA) into the voluntary market:

MTF was to gradually take on the risks whose JUA policies expired after September 30, 1990, and was to issue its own policies for two years, until October 1, 1992. During that time, the MTF population would be reduced, if necessary by periodic assignments of risks to insurers who did not voluntarily take on their share, to 32%, 29%, 20% and, finally 10% of the market. The 10% residuum of rejected risks would be relegated to the old assigned risk plan. N.J.S.A. 17:33B-11e(5); 17:29D-1. [Matter of Market Transition Facility, 252 N.J.Super. 260, 265-66, 599 A.2d 906 (App.Div.1991), certif. denied, 127 N.J. 565, 606 A.2d 376 (1992) ].

We conclude that the Commissioner did not abuse his discretion by upholding the ALJ's refusal to allow proofs as to alleged costs associated with depopulation assignments from the MTF. The FAIR Act permits a carrier to charge a presumably higher MTF rate rather than its own voluntary market rates to drivers insured pursuant to the depopulation provisions of the FAIR Act. The MTF rates may be continued for a three-year period including the time the insured was covered by the MTF. N.J.S.A. 17:33B-12. Aetna claims that because MTF rates are inadequate, it will lose money on each depopulated driver that it is required to insure. That may not be so. Aetna may be able to carry these depopulated insureds at lower operating cost than the MTF. Additionally, since this filing, the Commissioner has already granted rate increases to MTF. Moreover, unlike some other carriers, Aetna has refused to take on any depopulation insureds. By its own choice, Aetna has no loss experience with these depopulated drivers. It cannot complain about the Commissioner's failure to consider such speculative "evidence" about the potential effect of MTF rate inadequacies.

We view differently the Commissioner's refusal to permit proofs of MTF's operating loss deficit as a basis for a rate increase.

Ordinarily, we would not question the final decision of the Commissioner in upholding the exclusion of this evidence, a correct ruling at the time it was made by the ALJ. The Commissioner's decision requires closer inspection because of his unique status in this proceeding. The brief submitted on his behalf states:

If the issue were now presented to him, the Commissioner would still be correct to conclude that prediction of the ultimate financial outcome of the MTF, consequent assessments and the costs of depopulation remains a speculative venture. The estimate of a current deficit does not determine the ultimate financial outcome of the MTF.

....

Although MTF losses are somewhat less speculative now than when the issue was presented to the Administrative Law Judge, the fact remains that these losses will be incurred in the future rather than immediately. The insurers have not been asked to pay a dime. There is no basis to presently require insureds to pay increased rates now based on the MTF losses.

In addition to his obligation as a department head to reach a final decision after de novo review of the record before the ALJ, N.J.S.A. 52:14B-10(c)(d), the Commissioner is the regulatory supervisor of the insurance industry in New Jersey, N.J.S.A. 17:1C-3, specifically charged with operation of the Market Transition Facility. N.J.S.A. 17:33B-11. In that capacity he had access to every bit of information that the MTF had about its operation and the deficit it was generating.

In Matter of Market Transition Facility, supra, 252 N.J.Super....