State ex rel. Commissioner of Insurance v. North Carolina Automobile Rate Administrative Office

214 S.E.2d 98, 287 N.C. 192, 1975 N.C. LEXIS 1076

• Court: Supreme Court of North Carolina
• Decided: May 6, 1975
• Docket: No. 74
• Status: Published

Opinion

HUSKINS, Justice.

Appellants’ assignments one and two allege the Court of Appeals erred in reversing the order of the Commissioner of Insurance on grounds that it was (1) in excess of his statutory-authority and (2) not supported by material and substantial evidence. Due to the statutory framework underlying these contentions, we will consider them together.

The history and framework of North Carolina’s insurance laws, codified as Chapter 58 of the General Statutes, were reviewed by Chief Justice Bobbitt in In re Filing by Automobile Rate Office, 278 N.C. 302, 180 S.E. 2d 155 (1971). With that background in mind, we limit our discussion to those provisions pertinent to the controversy here involved. For further background discussion, see also Allstate Insurance Company v. Lanier, 242 F. Supp. 73 (E.D. N.C. 1965), aff'd 361 F. 2d 870 (4th Cir.), cert. denied 385 U.S. 930, 17 L.Ed. 2d 212, 87 S.Ct. 290 (1966).

G.S. 58-9 sets out the general powers and duties of the Commissioner of Insurance and confers upon him the duty to “'[s]'ee that all laws of this State governing insurance companies, associations, orders or bureaus relating to the business of insurance are faithfully executed, and to that end he shall have power and authority to make rules and regulations, not inconsistent with law, to enforce, carry out and-make effective the provisions of this Chapter, and to make such further rules and regulations not contrary to any provisions of this Chapter which will prevent practices injurious to the public by insurance companies. . . .”

G.S. 58-9.4, enacted in 1971 to expedite the rate-making processes, provides for direct review by the Court of Appeals of “ [a] ny order or decision of the Commissioner that the premium rates charged or filed on all or any class of risks are excessive, inadequate, unreasonable, unfairly discriminatory or are otherwise not in the public interest. . . .” This section also provides : “Any order or decision of the Commissioner, if supported by substantial evidence, shall be presumed to be correct and proper.”

■ G.S. 58-9.5 establishes the procedures on appeal under G.S. 58-9.4 and provides that such an appeal stays theCommis-sioner’s order or decision pending determination of the appeal.

G.S. 58-9.6 sets out the scope of review under G.S. 58-9.4 and provides that the Court of Appeals may reverse or modify ■a decision of the Commissioner which is (1) in violation of constitutional provisions, (2) in excess of statutory authority or jurisdiction of the Commissioner, (3) made upon unlawful proceedings, (4) affected by other errors of law, (5) unsupported by material and substantial evidence in view of the entire record as submitted, or (6) arbitrary or capricious.

G.S. 58-248.1, under which the Commissioner claims authority to enter the order contested in this case, confers authority on the Commissioner to enter orders directing revision of improper rates, classifications or classification assignments.- To facilitate orderly discussion of the assignments and avoid repetition, the pertinent provisions of this statute'will appear later in this opinion. For historical background of, G.S. 58-248.1 and other changes in North Carolina insurance ■ laws wrought by Chapter 381 of the 1945 Session Laws, see Wettach, The 1945 Revision of the Insurance Laws of North Carolina, 23 N.C.L. Rev. 283 (1945) ; Report of the Governor’s Study Commission on Automobile Liability-Insurance and Rates (N. C. April 15, 1971) ; Report of the North Carolina Commission on Revision of the Insurance Laws (January 30, 1945).

G.S. 58-248 establishes the procedures to be followed by the Rate Administrative Office in obtaining Commissioner approval of a rate change and enumerates the factors to be considered in determining the necessity for a rate adjustment. Under that section the Commissioner is authorized to compel production of any data “necessary to compile statistics for the purpose of determining the underwriting experience of automobile liability injury and property damage insurance” and to make that data available to the Rate Office “for the capitulation [sic] and promulgation of rates.” The section contains the following statement in regard to approval or disapproval of rates by the Commissioner: “All such rates compiled and promulgated by such bureau shall be submitted to the Commissioner of Insurance for approval and no such rates shall be put into effect in this State until approved by the Commissioner of Insurance and not subsequently disapproved.” Factors to be considered by the Commissioner and Rate Office in the rate-making process are enumerated as follows: G.S. 58-248 further requires the Rate Office to submit rate proposals to the Commissioner on or before July 1 of each calendar year and requires the Commissioner to approve or disapprove the proposals within ninety days.

“The Commissioner of Insurance in considering any rate compiled and promulgated by the bureau may take into consideration the earnings of all companies writing automobile liability insurance in this State realized from the investment of unearned premium reserves and investments from loss reserves on policies written in this State. The amount of earnings may in an equitable manner be included in the rate-making formula to arrive at a fair and equitable rate.

In determining the necessity for an adjustment of rates the Commissioner shall give consideration to past and prospective loss experience, including the loss-trend and other relevant factors developed from the latest statistical data available; to such relevant economic data from reliable indexes which demonstrate the trend of costs relating to the line of automobile insurance for which rates are being considered and to such other reasonable and related factors as are relevant to the inquiry. The bureau in promulgating and fixing rates shall consider the same factors and shall prepare and present such information, data, indexes and exhibits with the rate filing.” G.S. 58-248.

With this statutory background, we turn to the appellants’ contention that G.S. 58-248.1 vests the Commissioner with authority to order an interim rate reduction in this case.

While the Office of Commissioner of Insurance is created by Article III, sec. 7(1) of the North Carolina Constitution, section 7 (2) of that Article says his duties shall be prescribed by law. Hence, the power and authority of the Commissioner emanate from the General Assembly and are limited by legislative prescription. The only power he has to fix rates is such power as the General Assembly has delegated to and vested in him. In re Filing by Automobile Rate Office, 278 N.C. 302, 180 S.E. 2d 155 (1971) ; Comr. of Insurance v. Automobile Rate Office, 19 N.C. App. 548, 199 S.E. 2d 479, cert. denied 284 N.C. 424, 200 S.E. 2d 663 (1973).

We are further guided by rules of construction that statutes in pari materia, and all parts thereof, should be construed together and compared with each other. Redevelopment Commission v. Bank, 252 N.C. 595, 114 S.E. 2d 688 (1960). Such statutes should be reconciled with each other when possible, and any irreconcilable ambiguity should be resolved so as to effectuate the true legislative intent. Duncan v. Carpenter, 233 N.C. 422, 64 S.E. 2d 410 (1951) ; McLean v. Board of Elections, 222 N.C. 6, 21 S.E. 2d 842 (1942) ; Thomasson v. Patterson, 213 N.C. 138, 195 S.E. 389 (1938).

Chapter 58 of the General Statutes clearly reveals the intent of the General Assembly to vest the Rate Office with primary authority to fix, adjust and propose rates subject to the approval or disapproval of the Commissioner of Insurance. G.S. 58-246 and 248. “The Commissioner shall approve proposed changes in rates, classifications or classification assignments to the extent necessary to produce rates, classifications or classification assignments which are reasonable, adequate, not unfairly discriminatory, and in the public interest.” G.S. 58-248 (Emphasis added). Chapter 58 grants the Commissioner broad regulatory and supervisory powers for overseeing the faithful execution of the insurance laws of this State. But we find no provision in that chapter giving the Commissioner concurrent authority with the Rate Office to fix or reduce rates.

The Commissioner relies on the provisions of G.S. 58-248.1 which read in pertinent part as follows:

“Whenever the Commissioner, upon his own motion or upon petition of any aggrieved party, shall determine after notice and a hearing, that the rates charged or filed on any class of risks are excessive, inadequate, unreasonable, unfairly discriminatory, or otherwise not in the public interest, or that a classification or classification assignment is unwarranted, unreasonable, improper or unfairly discriminatory he shall issue an order to the bureau directing that such rates, classifications or classification assignments be altered or revised in the manner and to the extent stated in such order to produce rates, classifications or classification assignments which are reasonable, adequate, not unfairly discriminatory, and in the public interest.”

We are of the opinion, and so hold, that when the quoted language is read aright it will not support the Commissioner’s conclusion that he has blanket authority thereunder to consider immediate emergency situations such as the energy crisis and enter interim rate orders based thereon. To so construe the statute ignores the function of the Rate Office and infringes upon its authority to fix, adjust and propose rates. When G.S. 58-248.1 is construed in pari materia with the other provisions of Chapter 58, we think the legislative grant of authority to the Commissioner to order an alteration or revision in the rates charged or filed presupposes the failure of the Rate Office to perform its rate-making duties faithfully. Before the Commissioner can order, “to the extent stated in such order,” a rate alteration or revision under G.S. 58-248.1, he must first make a determination that the rates charged or filed are excessive, inadequate, unreasonable, unfairly discriminatory or otherwise not in the public interest. In reaching that determination he “shall give consideration to past and prospective loss experience, including the loss-trend and other relevant factors developed from the latest statistical data available; to such relevant economic data from reliable indexes which demonstrate the trend of costs relating to the line of automobile insurance for which rates are being considered and to such other reasonable and related factors as are relevant to the inquiry.” G.S. 58-248. The quoted language is broad enough to include evidence, if otherwise competent, received not only through the Rate Office but from other sources as well.

In the application of these standards, “[pjroposed rates shall not be deemed unreasonable, inadequate, unfairly discriminatory or not in the public interest, if such proposed rates make adequate provision for premium rates for the future which will provide for anticipated loss and loss adjustment expenses, anticipated expenses attributable to the selling and servicing of the line of insurance involved and a provision for a fair and reasonable underwriting profit.” G.S. 58-248; In re Filing by Automobile Rate Office, 278 N.C. 302, 180 S.E. 2d 155 (1971). When existing or proposed rates provide for these expenses and for a fair and reasonable profit, and no more, the Commissioner has no authority to order alteration or revision of rates under G.S. 58-248.1.

Appellants do not allege collusion, conspiracy or other deviations from established rate-making practices by the Rate Office. On the contrary, it appears the Rate Office has followed established rate-making procedures based on underwriting experience statistics as prescribed by G.S. 58-248. Appellants are the parties contending that established rate-making principles will result in excessive rates in light of the energy crisis. Therefore, the gist of this controversy involves the selection of rate-making techniques which will properly account for the effects of the energy crisis on automobile liability insurance rates. The authority and duty to account to the public for such an emergency situation lies primarily in the Rate Office until the Commissioner finds that a proposed accounting by the Rate Office will result in unreasonable or unfair profits or that the Rate Office has engaged in undue delay in reacting to the situation. Ordinarily, the law contemplates the revision of rates on an annual basis.

Here the Rate Office’s 29 June 1973 filing does not purport to deal with the energy crisis since it was based on a two-year experience period ending 30 June 1972. Indeed, the full effects of the energy crisis were not being publicly felt in November 1973 when the first prehearing meeting was held on that filing, and only two months data relating to the energy crisis was available at the final hearing. Consequently, this record, including the showing by appellants of one method for computing rates based on motor vehicle statistics and the “original ideas” of an expert statistician, who the appellants admit is not an expert in insurance rate making, will not support a conclusion that the Rate Office was not proceeding with due diligence in dealing with relevant factors spawned by the energy crisis. We hold, therefore, that the Commissioner was without statutory authority to enter the rate reduction order and supplementary order based on independent evidence received at the hearing. G.S. 58-9.6 (b) (2).

Furthermore, we note that the Commissioner has the statutory duty to consider rate proposals in accordance with the standards contained in G.S. 58-248 and either approve or disapprove such proposals. He has no authority to merely accept a proposal as being true and accurate for purposes of entering an interim order. Such action by the Commissioner in his 6 March 1974 order also exceeded his statutory authority.

Even if we assume arguendo that the Commissioner had authority under G.S. 58-248.1 to order an interim rate reduction based on the energy crisis, his order of 6 March 1974 must still fall because it is not supported by material and substantial evidence in view of the entire record as submitted.

Substantial evidence has been described as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Universal Camera Corp. v. NLRB, 340 U.S. 474, 95 L.Ed. 456, 71 S.Ct. 456 (1951) ; see Hanft, Some Aspects of Evidence in Adjudications by Administrative Agencies in North Carolina, 49 N.C.L. Rev. 635, 666-68 (1971) ; 2 Am. Jur. 2d, Administrative Law §§ 621 and 688 (1962). “Substantial evidence is more than a scintilla or a permissible inference.” Utilities Commission v. Trucking Company, 223 N.C. 687, 690, 28 S.E. 2d 201, 203 (1943).

The insurance rate-making process is an attempt to predict the future by relying in large measure upon what has occurred in the past. Report of the Governor’s Study Commission on Automobile Liability Insurance and Rates at 41 (N.C. April 15, 1971). Among factors to be considered in making this prediction are “the loss-trend and other relevant factors developed from the latest statistical data available” and “other reasonable and related factors as are relevant to the inquiry.” G.S. 58-248. We have previously held, in the related area of fire insurance, that “reasonable and related factors” may be shown by “evidence, otherwise competent, of a cost trend, upward or downward, which continues from the past into the present, and expert testimony, otherwise competent, that such trend maAj reasonably be expected to continue into the future, so that future costs will be higher or lower than present costs.” (Emphasis added.) In re Filing by Fire Ins. Rating Bureau, 275 N.C. 15, 36, 165 S.E. 2d 207, 222 (1969).

The appellants in this case have avoided the use of traditional loss experience data as prescribed in G.S. 58-248, and have attempted to establish a trend in insurance paid claims based on motor vehicle statistics alone. When this evidence is scrutinized it appears that the trending procedures formulated by witness Crotts are admittedly premised upon the assumption that the energy crisis and its ramifications will continue into the future. But there is no expert testimony supporting the assumption that the energy crisis as it existed during December 1973 and January 1974 could reasonably be expected “to continue into the future” with the same disastrous effects so obvious during the two months in question. While Mr. Register did testify that he expected the energy shortage to continue for some time, his expertise in motor vehicle statistics does not warrant such an opinion and the Commissioner was not entitled to rely on it in entering his order. Likewise, there was no expert testimony by anyone knowledgeable in the field of insurance rate making to support either the use of witness Crotts’ “original ideas” for rate-making purposes or the use of two months experience in the energy crisis as a foundation for both a rate change and a change in rate-making procedures. To the contrary, Mr. Walters, the only witness knowledgeable of insurance rate making, expressed serious doubts concerning the techniques used by appellants to conclude a rate reduction was warranted. The Commissioner’s order in this case is not supported by substantial evidence- in view of the entire record as submitted and therefore cannot stand. G.S. 58-9.6 (b) (5).

For the reasons stated the decision of the Court of Appeals, reversing the order of the Commissioner of Insurance, is affirmed. The Commissioner’s interim order filed 6 March 1974 and his supplementary order filed 8 March 1974 are vacated. The case is remanded to the Court of Appeals for further remand to the Commissioner of Insurance for disposition of the filing according to law.

Affirmed and remanded.