National Union Fire Insurance v. Dickinson

Wood, J., (after stating the facts). (1) I. The business of fire insurance so affects the public interest that it is generally held to be a proper subject-matter for franchise and police regulation by the State. Generally speaking, fire insurance is regarded as a commercial necessity. 14 R. C. L. 857, sec. 25. See Citizens Ins. Co. v. Clay, 197 Fed. Rep. 435; McCarter, Attorney General, v. Fire Ins. Co., 74 N. J. Eq. 372, 18 Ann. Cas. 1048. The public are so largely affected by it that the State undertakes to supervise the business by prescribing the conditions upon which it may be done. But while the business is impressed with a public use, and is therefore of a quasi-public character and subject to license and regulation, it is not so entirely of a public nature that the public have a right to demand service of the companies authorized to do business in the State as they may do of purely guasi- . public corporations or agencies. (2) If the majority of the members of the bureau, through its governing committees or its manager, should undertake to formulate rules, as conditions precedent to membership therein, that would have the effect to eliminate competition and create a monopoly of the insurance business by certain favored companies to the prejudice of the public seeking insurance, or to the detriment of other insurance companies authorized to do business in the State, it would undoubtedly be within the jurisdiction of a court of equity, at the instance of the Attorney General, or other insurance company injuriously affected by such conduct on the part of the bureau, to restrain the making or the enforcement of such rules. This the courts would have the power to do, not because the statute authorizing the creation of the bureau constitutes the same a public agency, but upon the broad ground of public policy and the power of the court to inhibit companies doing an insurance business from conducting such business in such a manner as to injuriously affect the public. (3) Since insurance companies are only authorized to do business in the State upon the certificate of the Auditor that they have complied with all the laws affecting them, they are creatures of the State. Kirby’s Digest, sec. 4345. Hence the companies constituting the bureau must conform to the laws and the general policy of the State and do no act, either individually or in concert, that has a tendency to injuriously affect the public or the interest of any other insurance company that is authorized to transact business in the State. See Inter-Ocean Pub. Co. v. Associated Press, 184 Ill. 438, 56 N. E. 822, 48 L. R. A. 568; Western Union Tel. Co. v. State, 76 N. E. 100. Therefore, if appellant has shown that the bureau is conducted by its manager or governing committees under • such, arbitrary rules as to exclude from the State companies engaged in the dual business of urban and farm insurance, and in a manner to create a monopoly in favor of the other insurance companies and to the exclusion of appellant, as alleged in its complaint, then appellant would be entitled to the relief sought, whether the bureau, under the act, be treated as the mere private agency of its constituent members or as a gwsi-public agency under whose rules and regulations the business of insurance shall be conducted. II. This brings us to the consideration of the question as to whether the rules adopted by the bureau for assessing its members to meet the expenses incident to maintaining the same are so arbitrary and unreasonable as to unjustly discriminate against appellant in favor of other companies, and to virtually preclude appellant from enjoying the benefits of the bureau, and by so doing to practically preclude it from doing business in the State on the same or equal terms with other companies. The contentions of the respective parties on this issue and the facts mainly relating thereto are reflected in the correspondence set forth in the statement. It will be observed that the act under which the bureau was organized does not prescribe any rules for assessing its members to meet the expenses, of maintaining the organization. So far as any statutory limitations are concerned, the bureau is left entirely free to adopt its own rules. The purpose of this statute, as all other insurance laws, primarily, is to protect the public who are seeking insurance, and not to confer any private advantage or benefit upon companies doing an insurance business disconnected with the interests of the public. It was shown that these.bureaus are created in most of the States of the Union, the purpose of such organizations being to place the business of fire insurance on a scientific basis, so that the premiums might be fixed according to the actual risks undertaken, and by thus making rates commensurate with the true hazards the design was that the public should get the benefit of reduced rates growing out of a scientific and systematic conduct of the business. Several of the States, in 1915, adopted the recommendation of the National Convention of Insurance Commissioners and enacted what is designated a “Model Rating Bureau Bill.” Act 76, Acts of Michigan, 1915; Acts of Missouri, 1915, pp. 313-320; Laws of Pa. 1915, Act 401; Laws of Minn., 1915, chap. 101. These acts require all insurance companies to maintain or become a. member of a rating bureau. The Arkansas act permits the companies to employ a common expert, but it does not require that any company shall employ such expert. The model bill adopted by these States contains a provision that the expenses of the bureau “shall be shared in proportion to the gross premiums received by each member during the preceding years, to which may be added a reasonable fee. ” The act under review, as we have seen, does not prescribe the manlier in which the expenses shall be paid by the members of the bureau. But it was shown that the Arkansas Bureau adopted the same plan as that prescribed in the acts of those States adopting the model rating bureau bill. True, several of the States (Iowa, Oklahoma, Kentucky and Kansas) have enacted rating bureau bills which provide for deducting farm insurance premiums, and in some of them the premiums on other insurance, in making the assessment to meet the expenses of the bureau. But the fact that the method adopted by the Arkansas bureau is modeled after a bill that was recommended by the National Convention of Insurance Commissioners and enacted into law in several of the States is a cogent argument in support of the contention of the appellees that the method of the Arkansas bureau is not arbitrary and unreasonable. The principal basis of appellant’s contention, that premiums on farm business should not be taken into consideration in making the assessment for expenses, is that the farm business is essentially different from urban business; that the companies who compete for that class of business operate a farm department, with men who devote a lifetime to farm insurance business in charge, and that the actuarial bureau rendered no services that are needed by a farm insurance business; that, on the other hand, the urban business requires that rates be made along scientific lines by experts who must consider each class of risk from the standpoint of ‘ ‘ occupancy, exposure, protection, processes of manufacture,” etc., elements that do not enter into consideration on farm property. The testimony of the secretary tended to prove that the principal expense of the bureau was incurred in the inspection of urban property and the classification of the same in order to fix a basis of rates for insurance. On the other hand, the testimony of Speed tends to show that the bureau issued a general basis schedule for farm property, and that some service was furnished companies who were members and who were doing a farm, as well as an urban, business. His testimony showed that dwelling houses in cities and towns, like dwelling houses on farms, were not individually rated by the bureau, but were rated by the agents themselves by applying the basis schedule; that most of the risks in towns of less than five hundred people were not individually rated, and that therefore more than 50 per cent, of the risks in cities and towns were not so rated. It was shown that dwellings in cities and towns constituted about 35 per cent, of all the insurance; that farm insurance constituted 7 per cent.; that various other classes of risks in cities and towns, such as tornado, steam railway, per bale cotton contracts, cotton gins, etc., were not individually rated. So Speed testified that it was impossible, with respect to the service the bureau renders, to divide insurance into urban business on the one side, and farm business on the other. He stated that there was practically no difference between the situation of farm risks and the various other unrated risks so far as the service of the bureau was concerned. He further testified that if premiums on farm business were excepted that it would logically follow that all other exceptions that received no benefit from the services of the bureau so far as specific rating was concerned would also have to be excepted, and that it was impossible to devise any plan of assessment that would enable the bureau to pro rate the expense of maintaining same according to the -services actually performed to its various members. (4) Without pursuing the question of fact further, we are convinced that the method of making the assessments as adopted by the bureau was not an arbitrary and unreasonable discrimination against the appellant. On the contrary, we are convinced that the evidence shows that the plan adopted was the fairest and most equitable that could have been devised when the interests of all the subscribers to the bureau were considered. It is manifest that if exceptions were allowed on farm insurance, then exceptions would have to be allowed also on other classes of business similarly situated, or else the companies writing these other classes of insurance could claim that the assessment was an unjust discrimination as to them. Thus the plan of the organization for raising the necessary funds to meet its expenses and to preserve its efficiency would be subject to perpetual change, and the bureau could have no settled plan at all. Any plan should have in view the interests not of one or a small number of -subscribers doing a certain kind of insurance, but a plan that would operate most equitably upon all the subscribers. The plan adopted was within the discretion of the bureau, and appellant .has no right to continue as a member therein and enjoy its benefits without conforming to the rules, which, so far as the proof shows, the remaining eighty-.four members acquiesced in, as the best plan that could be established for maintaining the work of the bureau. The decree is therefore correct, and it is in all things affirmed. McCulloch, C. J., and Smith, J., concurring in the judgment.