Rice v. Continental Casualty Co.

• Decision Date: 06 March 1946
• Docket Number: No. 11425.,11425.
• Citation: 153 F.2d 964
• Parties: RICE et al. v. CONTINENTAL CASUALTY CO.
• Court: U.S. Court of Appeals — Fifth Circuit

153 F.2d 964 (1946)

RICE et al. v. CONTINENTAL CASUALTY CO.

No. 11425.

Circuit Court of Appeals, Fifth Circuit.

March 6, 1946.

Howell Ward, of Corpus Christi, Tex., and W. B. Moss, of Sinton, Tex., for appellants.

Gordon Boone, Hood Boone, Allen V. Davis, and T. H. Burruss, all of Corpus Christi, Tex., for appellee.

Before SIBLEY, HOLMES, and McCORD, Circuit Judges.

HOLMES, Circuit Judge.

This is an action to recover the balance alleged to be due the plaintiff (appellee here) as premiums on three compensation-insurance policies. The controversy arose over the proper rate that should have been charged, it being conceded that the rate should have been either $2.70 or $4.36 per hundred dollars of payroll, dependent upon the proper classification of the risks by the Board of Insurance Commissioners of Texas.

Standing upon their claim that the rate should have been $2.70 per hundred, defendants below (appellants here) filed a counterclaim for the excessive amount of premiums alleged to have been collected by the plaintiff. This counterclaim was denied by the court below, and judgment rendered for the plaintiff, from which judgment in its entirety the defendants appealed to this court.

Jurisdiction of the court below rested upon diversity of citizenship and the requisite amount in controversy. The fact that the plaintiff failed to recover the full amount demanded did not oust jurisdiction, since in good faith the complaint stated an amount within the jurisdiction of the federal district court. Upon the trial below, the court refused to inquire into the applicable rate, because the record showed that the identical question was determined by the State Board of Insurance Commissioners. The correctness of this ruling is challenged on this appeal.

We think the court below erred in failing to distinguish between the Commission's power to make rates and its power to apply them to particular risks. Ratemaking is law-making, says the Texas court, but, after orders prescribing rates have gone into effect, such rates must be applied to particular services. In Texas, the same agency may fix insurance rates and apply them to workmen's compensation insurance policies. At least such is the construction that the intermediate appellate courts of the state have placed upon the local statute, and we are bound by it in the absence of a decision on the subject by the highest court of the state.¹

The trial court cited two decisions² of intermediate appellate courts of Texas in support of its ruling that the issue was foreclosed by the State Board of Insurance Commissioners, but these authorities do not hold that the action of the board in applying the rates to particular risks may not be inquired into by a court of competent jurisdiction. On the other hand, the Foley and Brown-Root cases, supra, were decided by state courts of equal dignity, and expressly upheld the remedy herein sought by appellants. The amendment of 1943, providing that any party aggrieved should have the right to apply to a court for redress, merely expressed what previously had been implied.³

If we were free to construe the Texas statute⁴ for ourselves, we might doubt the power of the Commission to apply to particular risks the rates promulgated by it; but that question is settled for the present, so far as we are concerned, by the Texas Court of Civil Appeals in the Brown-Root case, supra. Conceding the power of the Commission not only to promulgate rates but to apply them to particular risks, it is expressly held in the case just cited that the Texas legislature has not attempted to deprive the courts of power to grant redress for an error in rate-application as distinguished from rate-making. It points out that errors will inevitably occur in applying or administering valid rates, and holds that the party aggrieved by the payment or collection of the wrong rate is entitled to a judicial remedy for the injury sustained.

The Texas statutes in plain words clearly indicate the legislative intent with reference to the rates to be promulgated.⁵ The Commission is directed to establish "all classifications of hazards and rates of premiums * * * applicable to each"; not to fix a separate rate for each payroll, but to determine hazards by classes and fix rates to apply to the payroll in each of such classes. To this end it may adopt a system of rating that takes into account the peculiar hazard of each individual risk, provided it is fair, reasonable, and not confiscatory, as to each class of insurance carriers authorized by law to write such insurance. In the instant case, the Commission determined the hazards by classes and fixed the rates applicable to the payroll in each of such classes. Each of the risks covered by the policies issued to appellants fell within one of these classes.

No attack is made in this case upon the classifications established or upon the rates so fixed. The only issues relate to the proper classification of the particular risks, i. e., as to the category in which each hazard fell. The court below was competent to adjudicate these issues, because the function of the Commission in applying the proper rate was not legislative but purely ministerial. Therefore, its action was subject to judicial review as...