State ex rel. Commissioner of Insurance v. North Carolina Fire Insurance Rating Bureau

LAKE, Justice. The North Carolina Fire Insurance Rating Bureau is a statutory agency created by the State “for the purpose of making rates and rules and regulations which affect or determine the price which policyholders shall pay for insurance.” G.S. 58-125, 127. “For rate making purposes, the Bureau is to be regarded as if it were the only insurance company operating in North Carolina and as if it had an earned premium experience, an incurred loss experience and an operating expense experience equivalent to the composite of those of the companies actually in operation.” In Re Filing by Fire Insurance Rating Bureau, 275 N.C. 15, 32, 165 S.E. 2d 207 (1968). Every company engaged in the writing of fire insurance policies, including — 65 — extended coverage endorsements attached thereto, is required to be a member of the Bureau. G.S. 58-127. There are two methods by which changes in premium rates for extended coverage insurance may be put into effect. First, the Bureau may file with the Commissioner of Insurance, for approval by him, a proposal for such change, either an increase or a decrease. G.S. 58-131.1. Second, the Commissioner, on his own initiative, may, after investigation, order a reduction or an incréase in the premium rate when necessary to enable the operating companies (considered for this purpose as if they were a single company) to earn upon policies written in North Carolina a fair and reasonable profit. G.S. 58-131.2. The two methods overlap in the sense that in passing upon a proposal submitted by the Bureau the Commissioner need not approve or disapprove such proposal in its entirety but “upon proper findings of fact supported by substantial evidence, may fix premium rates at a level such as to allow part but not all of the increase [or decrease] proposed by the Bureau.” In Re Filing by Fire Insurance Rating Bureau, supra, at p. 40. The two methods for changing premium rates are, however, separate and independent and the procedures prescribed by the statute in pursuing the one or the other method must be followed. In the present instance, the Bureau filed a proposal that the premium rates for extended coverage insurance be reduced by 19% for the reason that premium rates then in effect were producing excessive profits and, with such reduction in effect, the profits of the companies (considered as if they were one company) would be fair and reasonable. The proposal, known to the Insurance Department and to the insurance industry as the “filing,” carried attachments containing statistical data in support of the proposal. Nothing in the record before us indicates that these data were not sufficient to show, prima facie, that the proposed reduction in premium rates was proper and that, with such proposed rates in effect, the insurance companies would earn upon their North Carolina extended coverage business a fair and reasonable profit. The actuary and statistician for the Bureau, testifying at the hearing before the Commissioner on the motion of the Bureau to vacate the Commissioner’s “letter order,” testified that data available to the Bureau at the time of the filing so indicated. — 66 — Before the Commissioner took any action upon this filing and before the filing could go into effect pursuant to the “deemer” provision of G.S. 58-131.1, the Bureau notified the Commissioner that it was withdrawing the filing. We have heretofore said that when the Bureau makes a filing in which it proposes an increase in the premium rates, “unquestionably, the Bureau may amend its filing so as to propose a smaller increase in premium rates than that proposed in the original filing.” In Re Filing by Fire Insurance Rating Bureau, supra, at p. 40. We find no merit in the contention of the Commissioner that once a filing is made the Bureau cannot withdraw it, but it remains before the Commissioner for his approval, disapproval or modification. If a filing, once made, could never be withdrawn, it would follow that if the Bureau made a filing proposing a substantial increase in the premium rates which the Commissioner, with or without justification, failed to disapprove within 60 days after its submission, such increase would go into effect, at least temporarily, pursuant to the “deemer” provision of G.S. 58-131.1, even though the Bureau were to find that its calculations were in error and no increase was justified and were to advise the Commissioner of such error and of its desire to withdraw the proposal. It can hardly be supposed that the Legislature, by the enactment of Article 13 of Chapter 58 of the General Statutes, creating the Bureau, so intended. Nothing in the statute relating to filings by the Bureau supports the contention that a filing, once made, cannot be withdrawn for any reason satisfactory to the Bureau. In this respect, there is no basis for making a distinction between a filing which proposes an increase in the premium rate and a filing which proposes a decrease in such rate. We, therefore, hold that the Court of Appeals was correct in its determination that the Bureau was acting within its rights in withdrawing this filing. It is not necessary for us to determine, and we do not pass upon, the question of whether a filing may be withdrawn by the Bureau after the “deemer” provision puts it into effect or the Commissioner sets it for a public hearing. The filing in question was never set for hearing and was withdrawn within 60 days from its submission. The Bureau having withdrawn its filing, that matter was at an end and there was, thereafter, no proposal before the Commissioner for a change in the premium rate for extended — 67 — coverage insurance. The matter was then as if no filing had ever been made, so far as the Commissioner’s authority to order a change in the premium rate was concerned. The second method for bringing about a change in the premium rate, namely an independent investigation and action by the Commissioner pursuant to G.S. 58-131.2, was available to the Commissioner, just as it would have been had the Bureau made no filing at all. However, to pursue that method, the Commissioner must follow the procedure prescribed therefor. “Obviously, the Commissioner of Insurance has no authority to prescribe or regulate premium rates, except insofar as that authority has been conferred upon him by the above mentioned statutes. In exercising that authority, he must comply with the statutory procedures and standards.” In Re Filing by Fire Insurance Rating Bureau, supra, at p. 33. This is not to say that the withdrawn filing is, by the withdrawal, obliterated from the records of the Insurance Department or that, in a proceeding initiated by the Commissioner, it cannot be considered by him. Such filing, together with the statistical data attached thereto, would be competent in evidence at a properly convened hearing before the Commissioner, pursuant to G.S. 58-131.2, as an admission by the Bureau that, as of the date of the filing, the therein proposed rates would be sufficient to yield to the companies (considered as one) a fair and reasonable profit upon their North Carolina extended coverage business. However, at such hearing, like any other extra-judicial admission, it would be subject to correction, clarification or modification by evidence of inconsistent or more recent information. Stansbury, North Carolina Evidence (Brandis Rev.), § 166, at p. 4 of Vol. 2, § 167. The Commissioner, having no filing before him, issued his “letter order” directing a reduction in the premium rate for extended coverage insurance without notice to the Bureau or to the public, without conducting a hearing and without receiving any evidence or making any finding of fact. The subsequent orders of the Commissioner (one oral, the other a formal, written order) followed a hearing upon the motion by the Bureau to set aside the earlier “letter order.” This hearing was necessarily limited to the determination of the Bureau’s motion to vacate the earlier order. No notice thereof was given to the public and the notice thereof to the Bureau contained no information that the purpose of the hearing was to receive — 68 — evidence, make findings of fact and determine the premium level which would yield to the companies (considered as one) a fair and reasonable profit on their extended coverage business in North Carolina. Thus, the two orders, oral and written, made by the Commissioner following the hearing on the motion to vacate, must be deemed made without any notice or hearing as to the merits; i.e., the reasonableness of the then existing premium rates. G.S. 58-131.5 provides: “Hearing. — The Commissioner shall not make any rule, regulation or order under the provisions of this Article without giving the Rating Bureau and insurers who may be affected thereby reasonable notice and a hearing if hearing is requested. All hearings provided for in this Article shall be held at such time and place as shall be designated in a notice which shall be given by the Commissioner in writing to the Rating Bureau * * * at least 30 days before the date designated therein. The notice shall state the subject of the inquiry. “At the conclusion of such hearing, or within 30 days thereafter, the Commissioner shall make such order or orders as he may deem necessary in accordance with his finding * * (Emphasis added.) The Commissioner contends that this statute has no application and no hearing upon the merits was necessary in this instance because there was no request for such hearing by the Bureau. To acquiesce in this contention would be for us to shut our eyes to the obvious fact that the Bureau had no notice that the Commissioner contemplated a change in the premium rate pursuant to an independent investigation into the merits of the existing rates as authorized by G.S. 58-131.2. Having no notice that such action was in contemplation by the Commissioner and having withdrawn its filing, the Bureau had no reason to request a hearing on the merits of the existing premium rate level. Under the circumstances, the phrase “if hearing is requested” cannot be deemed to shield arbitrary rate fixing by the fiat of the Commissioner. G.S. 58-9.2 provides that all hearings shall, unless otherwise specially provided, be held at such time and place as shall be designated in a notice given by the Commissioner, which — 69 — notice “shall state the subject of the inquiry.” No notice whatever was given by the Commissioner to the Rating Bureau of his intent to convert the contemplated hearing on the Bureau’s motion to vacate the “letter order” into an independent investigation of the reasonableness of existing premium rates for extended coverage insurance pursuant to G.S. 58-131.2. To so proceed without such notice and an adequate opportunity to the Bureau to present evidence as to the merits of the existing premium rate level must be deemed arbitrary and capricious. Thus, the resulting order may be reversed by the reviewing court pursuant to G.S. 58-9.6 (b) and, in so adjudging, the Court of Appeals committed no error. G.S. 58-27.1 establishes within the Insurance Department an Insurance Advisory Board and authorizes that board to promulgate rules and regulations to provide for the holding of public hearings before the Commissioner (or any person employed by the Insurance Department and authorized by the Commissioner to act in his stead) on such proposals to revise an existing rating schedule so as to increase or decrease the charge for insurance or to set up a new rating schedule, if such proposals are subject to the approval of the Commissioner and, in the judgment of the board, are of such nature and importance as to justify and require such public hearing. This statute also authorizes the board to determine by its rules an‘d regulations the circumstances under which such public hearing shall be held and requires the Commissioner of Insurance to hold public hearings in accordance with such rules and regulations. The Insurance Advisory Board adopted rules pursuant to this statutory authority. Rule 1, so adopted, provides: “Any rate adjustment or proposal involving a general revision of an existing rating schedu’e, which the Commissioner or the Advisory Board finds upon investigation involves a material change in the rate level, or the setting up of a new rating schedule of a material nature for a kind of insurance or for a separately rented major subdivision thereof, shall be subject to a public hearing prior to action thereon by the Insurance Commissioner. * * *” (Emphasis added.) Obviously, a rate decrease of 19% (not to mention the additional 3.4% decrease ordered by the Commissioner in his “letter order”) is a material change in the rate level. If Rule 1 — 70 — were to be interpreted to permit the Commissioner to deny a hearing when he decides to embark upon an independent investigation, designed to produce a rate reduction of at least 19%, by the simple expedient of finding that this is not a material change in the rate level, it would raise serious doubt as to the constitutionality of the rule. When reasonably possible, a statute, or an administrative rule, should be construed so as to avoid serious doubt as to its constitutionality. National Labor Relations Board v. Jones & Laughlin Steel Corp., 301 U.S. 1, 57 S.Ct. 615, 81 L.Ed. 893, 108 A.L.R. 1352 (1937) ; 16 Am. Jur. 2d, Constitutional Law, § 146. We decline to construe this rule of the Insurance Advisory Board as giving such authority to the Commissioner. Clearly, G.S. 58-27.1 (c) contemplated the holding of a public hearing before an order can be entered making such a material change in insurance premium rates. There was no error in the decision of the Court of Appeals that the statute and the rule require the Commissioner to hold a public hearing, after due notice, before entering the orders here in question. The Court of Appeals stated that to the extent that there may be a conflict between this requirement of G.S. 58-27.2 and the “deemer” provision of G.S. 58-131.1, the provisions of G.S. 58-27.2 must prevail since that statute was enacted later than G.S. 58-131.1. The principle of statutory construction relied upon by the Court of Appeals is entirely sound. However, we do not consider it pertinent to this decision for the reason that the “deemer” provision has no application to this appeal. That provision appears in G.S. 58-131.1, which reads as follows: “Approval of rates. — No rating method, schedule, classification, underwriting rule, bylaw, or regulation shall become effective or be applied by the Rating Bureau until it shall have been first submitted to and approved by the Commissioner. * * * Every rating method, schedule, classification, underwriting rule, bylaw or regulation submitted to the Commissioner for approval shall be deemed approved, if not disapproved by him in writing within 60 days after submission.” Thus, the “deemer” provision has application only when there is before the Commissioner for his approval a filing by the Bureau. As above shown, at the time of the orders of the Commissioner from which this appeal is taken, there was no — 71 — filing by the Bureau so pending before the Commissioner, the filing of 6 January 1975 having been lawfully withdrawn by the Bureau. Thus, the question for determination on this appeal is, Can the Commissioner of Insurance, acting on his own motion, pursuant to G.S. 58-131.2, order a material reduction in insurance premium rates without notice and without a hearing upon the merits of such rate change? We hold that G.S. 58-27.1 (c) and the rules of the Insurance Advisory Board, adopted pursuant thereto, forbid the Insurance Commissioner to do so. The record discloses that, on three separate occasions since early 1973, the Rating Bureau (i.e., the insurance companies operating in North Carolina) applied to the Commissioner for permission to reduce substantially the rates of premium charged the people of North Carolina for extended coverage insurance. None of these proposed reductions could go into effect until approved by the Commissioner. G.S. 58-131.1. In each instance, had the Commissioner taken no action whatever, the proposed rate reduction would have gone into effect, after a 60 day waiting period, pursuant to the “deemer” provision of G.S. 58-131.1. In each instance, the people of the State have been deprived of the benefit of the rate reduction proposed because the Commissioner did not hold a hearing and requested the company not to put the deemer provision into effect. In each instance, it may well be that the Commissioner, in good faith and for good reason, did not consider the proposed reduction sufficient. We do not, in this decision, intimate any opinion as to the reasonableness of the existing premium rates, or of the proposed reduction therein. The merits of the reduction ordered by the Commissioner are not before us on this appeal. In the last of these instances, no reason for the asserted inability of the Commissioner to hold the required hearing is mentioned in his request that the Bureau waive the “deemer” provision. In the first two instances, the Commissioner stated only that he was unable to hold the hearing “due to my very busy schedule,” the nature of the conflicting activities not being shown. Assuming, as we do, that the Commissioner, then newly in office, found all of his time consumed by the necessary study of and discharge of his official duties, this is no justification for the failure to order and hold a hearing upon the proposed rate reductions. All hearings provided for by Ch. 58 of the General Statutes may be conducted either by the Commis — 72 — sioner personally or “by one or more of his deputies, investigators, actuaries, examiners or employees designated by him for the purpose.” Both the public and the insurance companies (acting through the Rating Bureau) are entitled to a prompt hearing of and determination of each proposal by the Bureau for a substantial change in the rates of premium charged. Such hearings must be held as required by the statute. The “deemer” provision in G.S. 58-131.1 was designed by the Legislature to protect the insurance companies from the failure of the Commissioner of Insurance to perform, in person or through his deputy or other designated employee, this statutory duty. The companies (through the Bureau) are under no compulsion to waive this statutory protection against arbitrary delay in approving or disapproving their rate change proposals. Thus, the companies have a measure of protection against such official inaction. The public does not. If the Commissioner does not conduct hearings and determine the validity of rate changes proposed by the Bureau, these, including substantial rate increases, go into effect under the “deemer” provision without any opportunity on the part of the public to be heard in opposition thereto. The availability of an application for a writ of mandamus to compel the holding of such a hearing, though not to control the decision thereat, pursuant to Rule 22 of the Rules of Appellate Procedure, 287 N.C. 730, is not presently before us. We are confident that no occasion to pass upon that question will arise in the future now that the duty of the Commissioner to hold hearings and determine the propriety of proposed rate changes filed with him by the Bureau has been determined by this appeal. Affirmed.