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ALLSTATE INSURANCE COMPANY v. BENTLEY, Commissioner.
45440.
Insurance rate revision. Fulton Superior Court. Before Judge Shaw.
BELL, Chief Judge.
1. The three criteria which insurance rates must meet as stated in Code Ann. 56-507 are indivisible, and a failure to comply with any one of the three in the making of a rate causes the rate to be offensive to the statute and illegal.
2. Under Code Ann. Ch. 56-5, when the Insurance Commissioner challenges the legality of a rate, the burden of proof is on the insurance company to show that the rate is not offensive to the statute.
3. The enumerated definitions in the second paragraph of Code Ann. 56-507 (a) are several and one is not a condition precedent to the other. The Commissioner correctly ruled that it is not necessary to first find that a reasonable degree of competition does not exist before a rate may be considered to be excessive because it is unreasonably high for the insurance provided.
4. Neither the facts found by the Commissioner of Insurance nor the record as a whole authorized the conclusion of law that the new rates challenged were excessive because they were unreasonably high for the insurance provided. The Commissioner's findings of fact and the record as a whole demanded a holding that the rates were not excessive for this reason.
5. (a) Neither the facts found by the Commissioner of Insurance nor the record as a whole authorized the conclusion of law that the rates challenged were excessive because a reasonable degree of competition does not exist in the area with respect to the classification to which the rates are applicable.
(b) To authorize a conclusion of law that the rates were excessive on this ground the statute first requires a finding of fact that Allstate individually was not reasonably competitive with the other companies collectively. The facts found by the Commissioner and the record as a whole totally fail to authorize this conclusion.
6. The Commissioner erred in concluding as a matter of law that the new rates of Allstate were discriminatory to the policyholders of the company.
7. (a) The Commissioner erred in concluding as a matter of law that the new rates of Allstate must be based on its own experiences and cannot follow the experiences of the rating bureaus.
(b) Under the rating statute of 1967 (Ga. L. 1967, pp. 684-706; Code Ann. 56-5), the profit an insurance company earns from its business of writing insurance is not ipso facto a basis for prohibiting the continued use of a rate. Profits may be a factor in the determining of other ultimate prohibiting facts but profit alone does not taint a rate.
8. The statute, Ga. L. 1967, pp. 684-706, does not authorize the Commissioner of Insurance to order refunds by a company of an increase in premiums from the date of implementation. His powers are limited to prohibiting the continued use of the increases in rates from the date of the issuance of his final order.
9. Under the provisions of Ga. L. 1967, pp. 684-706, courts reviewing an order of the Commissioner of Insurance have a broad scope of judicial inquiry as the statute demands that the Commissioner's orders be supported by substantial evidence and directs reviewing courts to consider the record as a whole.
The Allstate Insurance Company, appellant, on June 11, 1969, notified the Insurance Commissioner of Georgia that it had made an upward revision of its rates to be charged for its homeowners insurance policies in the State. The Commissioner, by letter dated September 11, 1969, advised Allstate that "the revision does not meet the requirements of our rating laws . . . produces rates which are excessive . . . a reasonable degree of competition does not exist as to the rates thus established" and that the rates were "unfairly discriminatory to all policyholders." He directed Allstate "to make and implement such changes as are necessary to bring your rates into compliance with the law not later than September 25, 1969." On Allstate's refusal to alter its rates as filed, the Commissioner ordered the company to show cause why an order disapproving the new rates should not be entered. A hearing was had before the Commissioner at which evidence was presented. On November 21, 1969, a formal order disapproving the new rates was entered. The order specified its effective date to be December 10, 1969, but directed Allstate to make refunds to its policyholders of all premiums collected over and above those of the old rates from June 11, 1969, plus interest at 7 percent per annum. On appeal to the Superior Court of Fulton County the Commissioner's order was affirmed. This judgment of affirmance is now appealed to this court. In the superior court counsel stipulated the record and the transcript as it appeared in the hearing before the Commissioner and no other testimony was offered.
In his order, the Commissioner enumerated his findings of fact as follows: "(1) The premium rate revision became effective June 16, 1969, and established Allstate's premiums at a level 15% below those filed by the Georgia Inspection and Rating Bureau, the Transportation Insurance Rating Bureau and the Multi-Line Insurance Rating Bureau, which became effective May 1, 1969. The premiums were developed by application of a factor of .2975 (the bureau annual factor of .35 less the 15% differential) to the bureau three year prepaid premium, with the result rounded to the nearest .10. This factor was applied uniformly to the premiums for all forms of coverage, amounts of insurance, construction, protection and territories. (2) Allstate's countrywide expense ratios for homeowner's insurance for 1968 were:
(a) Commissions and Brokerage Incurred* 9.1
(b) Other Requisitions, Field Supervision (c) General Expenses Incurred** 4.6
Total 25.8
*Ratio To Premium Written
**Ratio To Premium Earned
Year Earned Incurred Ratio Expenses % Tot.% Tot. % 1965 912,006 564,863 61.9 24.6 86.5 13.5
1967 1,361,084 921,304 67.7 25.3 93.0 7.0 *Includes Loss Adjustment Expense
(4) The established industry-wide underwriting profit factor in homeowner's insurance rate making is 5% for profit and 1% for contingencies. (5) In 1968, there were 210 insurance companies licensed to write homeowner's insurance in Georgia. Approximately 200 are members and subscribers of rating organizations. At least 191 of these companies adopted essentially the same percentage of rate increases for homeowner's insurance as was promulgated and adopted by the rating bureaus (GIRB, TIRB and MLIRB), May 1, 1969. (6) Excluding State Farm Fire Insurance Company, the companies not adopting the bureau percentage of increases wrote 11.1 percent of the Georgia homeowner's business for the year 1967. 88.9% was written in 1967 by the companies adopting essentially the same percentage of increase as was adopted by the bureaus. (7) Allstate does not operate through the independent agency system. Its marketing method differs from the bureaus and its homeowner's forms are only approximately the same as the bureaus. (8) Allstate's experience in homeowner's insurance has been consistently better than the industry total for at least the past nine years producing a profit of at least 6.5% every year for the last nine years. (9) Allstate writes approximately 5% of the homeowner's insurance in Georgia. This represents a credible sample of experience for rate making purposes. (10) Approximately 30% of the homeowner's business in Georgia is written at rates less than the bureau rates. (11) Bureau companies operate in substantially the same manner with respect to sales programs, methods of distributing their products, through independent agents with substantially the same underwriting philosophies and claims practices using practically the same policy forms. (12) Insurance provided in a policy is determined and measured not only by the words in a policy but by the benefits that are delivered to the policyholder. A company using rates lower than the bureau and maintaining a lower loss ratio than the bureau does not necessarily provide the same insurance as the bureau. (13) Allstate's earned premium volume for homeowner's insurance for the year 1964 through 1968 was $5,923,784 in the State of Georgia. The 1968 earned premium volume was $1,780,622. Underwriting gain was $463,442 for the five-year period 1964 through 1968. (14) Allstate's number of policies in force increased from 15,063 in 1964 to 34,820 in 1968. Premium volume increased from $849,528 in 1964 to $2,054,823 in 1968 rising from the 6th largest writer in 1964 to the second largest writer in 1968. (15) One hundred nine (109) companies have on file in Georgia variations of forms and rates for homeowner's insurance. (16) Companies deviating from bureau rates in Georgia have established a practice of maintaining the deviation, when bureau rates increase or decrease by letting their rates float up or down the same percentage of decrease or increase. (17) Allstate maintains lists of marketing territories
which require inspections before accepting a risk in such territory. A risk must meet certain underwriting standards to be acceptable."
The conclusions of law reached by the Commissioner were (1) The law requires Allstate to base its rates solely on its own experience giving consideration to its past loss experience within the State and to a reasonable margin for underwriting profit. (2) Based on Allstate's own experience the rate increases were unreasonably high for the insurance provided and thus were excessive unless a reasonable degree of competition exists in the State among the insurance companies with respect to the classification to which the new rates are applicable. (3) A reasonable degree of competition does not exist between the insurers writing homeowner's insurance in the State. Therefore, the increase implemented by Allstate produces rates which are excessive. (4) It is not necessary to show that a reasonable degree of competition does not exist in order to show that a rate is unfairly discriminatory. (5) The increased rates implemented by Allstate, based as they were upon the experience of the bureaus whose operations are not comparable with Allstate's, constitutes discrimination as to all of Allstate's policyholders affected. (6) The increased rates are prohibited after December 10, 1969. (7) Allstate is required to make refunds of the excessive premiums charged to all policyholders with 7% interest per annum from the date of implementation of the offensive rates.
There are three rating organizations, or bureaus, licensed for rate making in homeowner's insurance in Georgia. They are Multi-Line Insurance Rating Bureau, the Georgia Inspection and Rating Bureau, and the Transportation Insurance Rating Bureau. These rating bureaus have identical rates on forms which are identical and raised their rates uniformly on the same policy forms on May 1, 1969. The bureau rates are based on the experiences of all companies including the independent companies not members of a rating bureau. This includes the experience of Allstate. The member companies are not bound to adopt the bureau rates. Some do and some do not. The Commissioner found that 191 of the approximately 200 members of the rating bureaus did adopt essentially the same percentage of rate increase for homeowner's insurance as promulgated and adopted by the rating bureaus. No challenge to these 191 companies' adopting the bureau rates has been entered by the Commissioner nor to the other member companies who deviate from the bureau rates.
1. Ga. L. 1967, pp. 684-703 (Code Ann. Ch. 56-5), was described by the Attorney General in the oral argument before this court as "an open competition" statute. Counsel for appellant and counsel amicus curiae are in accord that this brief summation is in truth an excellent description of the statute. The General Assembly has made it clear that its intent in enacting the statute was to promote the public welfare by instituting a new procedure for the determining of insurance rates for certain types of insurance which would not only permit but encourage competition between insurers. Under this system the prior approval of the Commissioner of Insurance is no longer necessary for a premium rate to be effective. A company now may set its rate by simply filing with the Commissioner an announcement of the rate. These self-implemented rates, however, must subscribe to certain standards or they may be challenged by the Commissioner and, after a hearing before him if necessary, may be prohibited if they do not meet the statutory standards. This criterion is to be found in Code Ann. 56-507 where it is succinctly stated that "(a) Rates shall not be excessive or inadequate, as herein defined, nor shall they be unfairly discriminatory." What is meant by the words "excessive" and "inadequate" is defined in the section. The third essential, the words "unfairly discriminatory" is not defined in the Act.
In reaching the decision in this case, the first holding we must make is that the three statutory criteria must each be met in order for a challenged rate to withstand a possible prohibiting order of the Commissioner. They are indivisible. A failure to comply with any one of the three in the making of a rate causes the rate to be illegal and offensive to the statute.
2. At the beginning of the hearing, following a colloquy between the Commissioner and counsel, the Commissioner correctly ruled that the burden of proof was on the insurance company to show that its new rates were not subject to the criticism charged by the Commissioner and thus not offensive to the statute.
3. The Commissioner in his order ruled that the new rates implemented by Allstate were excessive. This criterion is defined in the Code as follows: "No rate shall be held to be excessive unless (1) such rate was unreasonably high for the insurance provided and (2) a reasonable degree of competition does not exist in the area with respect to the classification to which such rate is applicable." Code Ann. 56-507 (a). Allstate contends that under this definition no rate can be held to be "(1) unreasonably high for the insurance provided" unless it is first found that "(2) a reasonable degree of competition does not exist in the area." The implication of this argument is that a finding of a lack of a reasonable degree of competition standing alone would be insufficient as a basis for the Commissioner to prohibit the continued use of the rate. We cannot agree that these definitions are so interrelated that either is a condition precedent for the other or that they are interdependent. Either of these definitions supported by substantial evidence in the record may uphold a prohibition against the continued use of a rate. The Commissioner correctly ruled that it is not necessary to first find that a reasonable degree of competition does not exist before a rate may be considered to be excessive because it is unreasonably high for the insurance provided.
4. The Commissioner concluded as a matter of law that the new rates of Allstate are excessive because they are unreasonably high for the insurance provided. The Commissioner found as a fact that Allstate's homeowner's forms or policies are approximately the same as the bureaus'. He also found that some 109 companies have on file in his office variations of forms and rates for homeowner's insurance. There are some 36 companies which vary in degree from the forms alone as recommended by the rating bureaus. There is evidence showing that Allstate, although varying in degree in some of its forms from those of the bureau, in the main uses those which are comparable. Testimony by one official of the Department of Insurance, the Deputy Rating Insurance Commissioner, was to the effect that in those forms where Allstate deviates "they may contain some additional [coverage] not included in the [bureau] forms." Thus the inference is that Allstate's deviating forms often provide a broader coverage than do those of the bureau. There is no evidence at all intimating that the coverage offered by Allstate is different to an extent that their policies are worth less than those of any other company. Importantly, it is undisputed in the record that in the cities of Atlanta, Savannah, Albany, Athens, Augusta, Columbus, LaGrange, Macon, Rome, Gainesville, Griffin, Baldwin, Dawsonville, Homer and Maysville, the homeowner's policies of Allstate comparable to those of the Multi-Line Insurance Rating Bureau, sold for less than those of the bureau. It should be noted here that the three bureaus pool their experience and establish a single rate; obviously, they do this on policy forms also. (See Division 5 (a), infra). Neither the record when viewed as a whole, nor the findings of fact made by the Commissioner, authorized the conclusion of law that the new rates of Allstate were excessive because they were unreasonably high for the insurance provided. The Commissioner's findings of fact and the record as a whole demand a finding to the contrary. The Commissioner erred in holding Allstate's rates excessive for this reason.
5. The Commissioner found as a matter of law under Code Ann. 56-507 (a) that the new rates of Allstate were excessive because "(2) a reasonable degree of competition does not exist in the area with respect to the classification to which such rate is applicable."
(a) It is interesting to note that in his preliminary statement after he had called the hearing to order, the Commissioner made the following comment: "The record of Allstate has been one of an intensive competitive, intensively competing company in this State. It has had rather tight and rigid practices in some areas that we will talk about on other occasions but the record of Allstate has been one of a vigorously competing company. And the purpose of this hearing this morning is to attempt to lay the record clear and insist that Allstate continue to do what it has been advertising that it is doing, compete for business." This admission by the Commissioner is sufficient to refute his conclusion of law that there is not a reasonable degree of competition in the area of homeowner's insurance. Certainly he takes administrative notice that this particular company, "a vigorously competing company," is an "intensively competing company in this State." This being so, obviously it is incongruous to say in a hearing where its rates alone are questioned, that its rates are excessive because there is not a reasonable degree of competition existing in the industry.
Apparently, in considering this sub issue, the investigating authority lost sight of the main controversy under investigation, i.e., the efficacy of Allstate's new rates. The issue is not the rates of other companies nor whether other companies are competing. 1 For the decision in this case, Allstate's conduct in the area of competition is the determining factor. A monopolistic collusion has not been suggested.
The three rating bureaus are allowed to combine their experience and establish a single rate that is available to all. They do this. Thus no one member of any rating bureau is using rates produced singly by the bureau to which it belongs, but like Allstate, is using as a basis for its rates, the combined experience of all. The members of a bureau are permitted to follow the rate established by their bureau or may deviate from that rate. This permissive deviation is a principal factor in encouraging competition. The statute imposes no limitations on the sources of experience to which consideration may be given in rate making. Rather the statute provides the broadest possible scope for deliberative thought by expressly stating that "Consideration shall be given . . . to past and prospective loss experience within and outside this State." Code Ann. 56-507 (b). That language means the experiences of no one company, but the combined experience of the entire industry. Allstate, like all other licensed companies, is included in the broad permissiveness of the statutory language in its rate-making determination. It therefore makes no difference what process or method it follows in reaching its rate structure unless it violates the law in the particulars provided in the statute. It must be treated as others are treated. It is not, therefore, ipso facto a violation of law for Allstate to maintain its rates at a level 15 percent below those of the combined experience of the three rating bureaus.
(b) To authorize the Commissioner's conclusion of law that Allstate's rates were excessive because a reasonable degree of competition does not exist in the area with respect to the classification to which the rates are applicable, the evidence must substantially support the principle that Allstate was not reasonably competitive with the other companies collectively.
The undisputed evidence shows that for the year 1965 the bureau formula for rate making was as follows: $60.00 for policy claims and settlement losses; $34.00 for expenses; and profit, $6.00. The formula used by Allstate in preparing its rates was: $53.42 for policy claims and settlement costs; $23.82 for expenses; and $9.06 profit. These figures show a cost to the bureau's insured of $100 on the bureau formula as compared to only $86.30 cost to Allstate's insured. In addition these figures show a differential in Allstate's favor of $7.12 savings in expenses and a savings of $6.58 in policy claims and settlement costs. Thus, while spending less for expenses and paying less for claims and settlement costs, Allstate yet managed to earn a third more profit while saving its policyholders 13.67 percent savings over those of companies following the bureau rates. The figures for the years 1964, 1966, 1967 and 1968, while varying somewhat in the respective amounts from those of 1965, all demonstrate a favorable position for Allstate in each category. Certainly, these factors reflect credibly on the competitiveness of Allstate.
Other convincing proof of the competitiveness of Allstate are the Commissioner's findings of fact, all supported by substantial evidence in the record, that "(7) Allstate does not operate through the independent agency system. (8) Allstate's experience in homeowner's insurance has been consistently better than the industry total for a least the past nine years producing a profit of at least 6.5 percent every year for the last nine years. (9) Allstate writes approximately 5 percent of the homeowner's insurance in Georgia . . . (13) Allstate's earned premium volume for homeowner's insurance for the years 1964 through 1968 was $5,923,784 in the State of Georgia. The 1968 earned premium volume was $1,780,622. Underwriting gain was $463,442 for the five-year period 1964 through 1968. (14) Allstate's number of policies in force increased from 15,063 in 1964 to 34,820 in 1968. Premium volume increased from $849,528 in 1964 to $2,054,823 in 1968 rising from the 6th largest writer in 1964 to the second largest writer in 1968 . . . (17) Allstate maintains lists of marketing territories which require inspections before accepting a risk in such territory. A risk must meet certain underwriting standards to be acceptable."
The evidence did not authorize the Commissioner's conclusion of law that Allstate was not reasonably competitive.
6. The Commissioner erred in concluding as a matter of law that the new rates of Allstate were discriminatory to its own policyholders. The record here demonstrates conclusively that Allstate policies, comparable to those of other companies, have premium rates substantially less than those of the others and will remain less under its newly increased rate structure. The existence of these facts alone precludes the legal conclusion of discriminatory action by Allstate against its own policyholders.
7. (a) The Commissioner erred in holding as a matter of law that the new rates of Allstate must be based on its own experiences and cannot follow the experiences of the rating bureaus. To place Allstate in this category would be to seriously threaten and illegally restrain its competitive position. This result would negate the intent of the rating statute which has for its purpose the permitting and encouraging of competition among insurers in order to promote the public welfare. (See Division 5 (hb) of this opinion for other discussion bearing on this issue).
(b) Throughout this record there is the suggestion of official preoccupation with the idea that profits of writers of homeowner's insurance are subject to regulation. While in older rate-making procedures, the reasonableness of profits was a major determining factor, that is no longer the case. The new rate statute is not concerned with profits and does not authorize the regulation of profits. In fact the statute seems to recognize that the producing of good profits is a major force in engendering the desired competitive spirit in the insurance business. Certainly, under the new statute large profits earned under a rate are not ipso facto a legal basis for prohibiting the continued use of that rate. While profits may be an element to be considered in the determining of other ultimate prohibiting factors, profit alone does not taint a rate. (This is not to be confused with a lack of profit resulting in loss which might endanger the solvency of an insurer or tend to destroy competition.)
8. The Commissioner in his order directed Allstate "to make refunds of the excessive premiums charged to all policyholders with 7 percent interest per annum from the date of implementation of the offensive rates . . .h" The date Allstate implemented the rate was June 16, 1969. The date of the Commissioner's order to make refunds was November 21, 1969. The effective date of the prohibited use of the offensive rates was December 10, 1969. Thus the Commissioner sought to apply his decision retroactively. In this he erred. The limit of his authority where he finds a rate to be violative of the statute is to direct that the rate shall thereafter be prohibited. Code Ann. 56-530 (a). If the illegal rate is continued in use after his valid and final order, he has the means of enforcing his order by the revocation or suspension of the offender's license to do insurance business in the State. Code Ann. 56-530 (c) (d). And see Code Ann. 56-536 for other authorized enforcement possibilities.
9. On judicial review of cases arising under the 1967 rating statute "The findings of the Commissioner as to any fact, if supported by substantial evidence upon consideration of the record as a whole, shall be conclusive." Code Ann. 56-227 (1) (c). The statute directs that a reviewing court, in addition to deciding relevant questions of law, shall set aside findings and conclusions, unsupported by substantial evidence upon consideration of the record as a whole, and in making the foregoing determinations the court shall review the whole record. Code Ann. 56-227 (3b) (v, vi). This presents a broader scope for judicial inquiry on review than in most appeals from fact-finding bodies (e.g. those from the State Board of Workmen's Compensation) where any evidence supporting a finding of fact is sufficient to require the courts to honor it as conclusive and irrefutable. Here substantial evidence is required to support a fact found before it is conclusive on reviewing courts. This broader scope of judicial review does not mean that the courts will superimpose their views of the facts over those of the fact finder. It does mean that facts arbitrarily, capriciously, or indifferently drawn without substantial evidence supporting them in the record as a whole are not binding on reviewing courts.
A reviewing court's decision, therefore, must be based on the record as a whole and not simply on those parts of it regarded as favorable to the Commissioner's conclusion. It is thus the court's duty, when reviewing proceedings held before the Commissioner of Insurance, to consider evidence in the record that is favorable as well as that which is unfavorable to the Commissioner's decision and then determine whether the decision is, in light of the whole record, supported by substantial evidence, and if it is not, it should be reversed.
There is not substantial evidence in the record to support the Commissioner's findings of facts numbered 4, 12 and 16. Numbered findings of facts 7 and II are supported only partially by the evidence. However, it is not necessary in reaching the several holdings of this case to disregard any part of these questionable findings of facts for even by according efficacy to them all, and by adding to them cumulatively from the record as a whole, they do not, nor does the record as a whole, justify the erroneous conclusions of the law reached by the Commissioner, affirmed by the superior court, and here reversed.
Notes
1  Obviously, by not disputing the increases in rates of some 191 companies adopting essentially the same percentage of rate increases for homeowner's insurance as promulgated by the rating bureaus, he has extended his tacit approval to them. (See the Commissioner's finding of fact #5). This tacit approval necessarily includes tacit acknowledgment that these companies are not violating the law. It is an anomaly to suggest that they are not competing, which is violative of the law, and yet approve their rates without contest.
Whelchel, Dunlap & Gignilliat, James A. Dunlap, Alston, Miller & Gaines, Francis Shackelford, F. Dean Copeland, amicus curiae.
Arthur K. Bolton, Attorney General, Harold N. Hill, Jr., Executive Assistant Attorney General, Robert J. Castellani, Assistant Attorney General, for appellee.
Kilpatrick, Cody, Rogers, McClatchey & Regenstein, Devereaux F. McClatchey, Donald L. Shafer, Terry W. Cox, for appellant.
ARGUED JULY 6, 1970 -- DECIDED OCTOBER 7, 1970 -- REHEARING DENIED NOVEMBER 5, 1970 -- CERT. APPLIED FOR.
Friday May 22 16:29 EDT


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