State ex rel. Wis. Inspection Bureau v. Whitman

• Decision Date: 17 July 1928
• Citation: State ex rel. Wis. Inspection Bureau v. Whitman, 196 Wis. 472, 220 N.W. 929 (Wis. 1928)
• Parties: STATE EX REL. WISCONSIN INSPECTION BUREAU ET AL. v. WHITMAN, STATE COM'R OF INSURANCE.
• Court: Wisconsin Supreme Court

196 Wis. 472

220 N.W. 929

STATE EX REL. WISCONSIN INSPECTION BUREAU ET AL.

v.WHITMAN, STATE COM'R OF INSURANCE.

Supreme Court of Wisconsin.

July 17, 1928.

Appeal from a judgment of the Circuit Court for Dane County; E. Ray Stevens, Circuit Judge.

Action by the State, on the relation of the Wisconsin Inspection Bureau and others, against Platt Whitman, Commissioner of Insurance of the State of Wisconsin.From the judgment, plaintiffs appeal.Reversed and remanded, with directions.--[By Editorial Staff.]

Action begun July 14, 1923; judgment entered January 2, 1926.The determination of this case involves a construction of part of chapter 203, Wis. Stats., known as the Rating Law, being chapter 61 of the Laws of 1917, and a consideration of whether or not, as construed, it is constitutional; and the further questions as to the power of the commissioner of insurance under the act as construed.The applicable provisions of the law are printed in the margin.¹

Wisconsin has what is known as the standard fire policy law.The use of this standard form is made compulsory by the provisions of section 203.06, subdivision (2) of which provides:

“* * * Nothing in this section shall be construed as prohibiting the attachment of said policy of a clause or clauses insuring against any other risk or risks authorized by subsection (3) of section 201.05, to be embraced in the same policy with fire, or against consequential loss or damage including loss of rents, leasehold interests, profits or commission or loss resulting from interruption of business or manufacture due to any or all of the risks insured against.”

The questions presented here for consideration can be most clearly and concisely stated by presenting the outline of argument given by counsel at the opening of their briefs.On behalf of the plaintiffs it is argued as follows:

“I.Explosive Permits.--1.The Rating Act vests in the commissioner no power to disapprove the contractual terms of riders, but only the power to disapprove the rider if its use would render the rate discriminatory.(1) The conditions which led to the adoption of the Rating Act.(2) The object and general scheme of the present law.(3) That it was not intended to delegate to the commissioner the power to disapprove the contractual terms of riders is demonstrated by section 203.46.(4)Section 203.36 negatives legislative intent that general power of disapproval should rest with the commissioner.(5)The court's construction of section 203.36--1 is not only inconsistent with subdivision 3 of the same section, but with section 203.46.(6).A construction of the Rating Act which gives to the commissioner general power of approval of contractual provisions is inconsistent with the entire legislative scheme.

2.The commissioner disapproved the riders in question, not because of their relation to the rate, but solely because of objection to the scope of the contractual privileges embraced therein; his action was therefore beyond his jurisdiction and the court below should have reversed his orders of disapproval.

3.As to the legal effect of the court's construction of the approval provisions: (1)The court below properly held that, if the act be construed as delegating to the commissioner the power to approve or disapprove the contractual terms of riders, the provisions delegating such power are unconstitutional.(2)The court erred in holding that the unconstitutionality of the approval provisions vitiated the provisions relating to uniform bureau rules and forms, though leaving in force those relating to rates.(a)The ruling of the court defeats the legislative purpose that there shall be uniformity of bureau forms as well as uniformity of bureau rates.(b) The elimination of bureau authority to establish uniform bureau forms tends to defeat the fundamental legislative purpose that rates shall be nondiscriminatory.(c)The ruling of the court below is destructive of the regulatory scheme of the act.(3) Sanction of the ruling that there be stricken from the act not merely the approval provisions but those authorizing uniform bureau forms and rules would require that the entire law be held unconstitutional.(4) The evidence as to the liberality of the riders in question.

II.Forms for Coverage of Consequential Damage are within the Rating Act.

III.As to the Construction and Validity of the Rate Provisions of the Act.--1.The rating provisions of the act in question.2.Lacking a sufficiently definite standard, there is a denial of due process and also an unlawful delegation of legislative power.3.Is the test of reasonableness a sufficiently definite standard as applied to insurance rates?4.If sustainable at all, the general standard of reasonableness must be held to imply the regulation of rates upon the basis of underwriting profit.5.What is the lawful basis for determining underwriting profit?(1) Custom and reason require the calculation of underwriting profit on the earned premium basis.(2) Legislative treatment of unearned premiums as a liability rather than a gain or asset.(3) Recognition by the insurance department that unearned premiums should be excluded in determining underwriting profits.(4)The court decisions.(5) Investment earnings may not be considered in determining underwriting profit.6.The inclusion of unearned premiums or investment of earnings in the determination of underwriting profit would operate to deny due process.

IV.As to the Rate Orders.--1.As to tornado rates: (1) The orders of the commissioner were erroneous because rested upon an inadequate experience basis.(2) The orders of the commissioner were erroneous because based on premiums received rather than premiums earned.(3)The court below, in substance, adopted the earned premium basis but applied it in contravention of the undisputed evidence.2.As to builders' and carpenters' rates: (1) The nature of the rates in question.(2) The ground upon which the commissioner ordered the reductions.(3) The commissioner was without jurisdiction to remove the asserted discrimination by fixed reductions in one of the classes of rates involved.(4) The assumption of the commissioner that the former reduction in completed building rates had placed them out of their former relation to incompleted building rates was contrary to the undisputed testimony.(5) The finding of the commissioner that the builders' rates were excessive as compared with rates on completed buildings is contrary to the undisputed evidence.3.The Rating Act was so construed and applied by the court as to deny due process.”

To this the Attorney General replies:

“I.The law empowers commissioner to disapprove rules prescribing forms of permits embraced in group 1, the so-called explosive permits, if he finds, as he has, reasonably on the record before him that they are unreasonable or unfair to the insuring public; and such power is administrative, or at most quasi judicial only, and not legislative.1.Existence of power to disapprove: (a) Not confined or applicable to internal management of bureau.(b) The rating bureau and its operation.2.Power to disapprove not legislative, but administrative in character: (a) Legislative purpose and effect is protection of insuring public.Rate tied to rule; rule tied to rate.(b) Implied standard of reasonableness fixed by Legislature; commissioner finds only fact.(c) If power to disapprove does not exist, ‘rule book’ was not entitled to filing.3.Prescribed conditions in filed rules unfair; disapproval warranted by evidence.Illustrations of the unfairness.

II.Refusal of rules embraced in group 2 relating to indirect loss insurance was proper.

III.The rating provisions of the law (sections 203.39and203.49, Stats.) under which the commissioner's orders reducing rates on certain classes of insurance risks do not deny due process of law to appellants, nor are they invalid as lacking a sufficiently definite legislative standard.1.The record presents no federal question, and appellants' claim of denial of due process of law, either by the rating law itself or by its application by the commissioner in reducing the rates on tornado risks and builders' and carpenters' fire risks, is of no avail.2.The standard of reasonableness prescribed by the rating law is sufficiently definite, and legislative power is not delegated to the commissioner of insurance by reason of there being no enumeration or definition of the factors which the commissioner may consider in finding the fact of whether a rate is reasonable or otherwise.What are permissible factors not involved here.

IV.The rate orders and reductions made by the commissioner are lawful and sustained by the record.1.As to tornado rates: (a) Wisconsin experience supports order.(b) Premium receipts versus ‘earned’ premiums.(c) Expense ratio factor.(d) Companies refused information of ‘experience.’(e) Investment gains important factor.2.As to builders' and carpenters' risks: (a) General comment on testimony.(b) Evidence sustains findings and orders.(1) Comparison of completed risks with builders' risks proper.(2) Relation to order of prior reductions on completed risks.(3) Basis rate proper standard of comparison.”

In the court below, it was held:

“1.As to group 1; i. e., the explosive permits:

(1) It was the intent of the Rating Act to remove the drafting of forms of riders and underwriting rules and regulations from the competitive field and place the drafting of them within the hands of rating bureaus formed under the act.

(2) It was the intent of the act to vest in the commissioner the power to approve or disapprove bureau forms, rules, and regulations according as he, in discretion, should regard the contractual privileges embraced therein as promotive or not of the public interest.

(3) Because no legislative standard was prescribed, and the commissioner was left to exercise his power of approval or disapproval...