600 A.2d 244 | Pa. Commw. Ct. | 1991
Federal Kemper Insurance Company (Federal Kemper) petitions for review of an order of the Insurance Commissioner (Commissioner) denying Federal Kemper’s request for extraordinary circumstances relief from the private passenger automobile insurance rate reductions mandated by the Act of February 7, 1990, P.L. 11 (Act 6), which amended certain provisions of Titles 18, 42, and 75 of the Pennsylvania Consolidated Statutes.
On May 21, 1990, Federal Kemper, after reducing its rates as required by Act 6, filed for extraordinary circumstances relief with the Insurance Department (Department) alleging that its rates were inadequate to the extent of 18.2% and requesting a rate increase to cover the alleged shortfall. Federal Kemper’s request was filed pursuant to 75 Pa.C.S. § 1799.7(b)(3), which provides:
An insurer aggrieved by the rate reductions mandated by this subsection [which concerns the rate rollbacks mandated by Act 6] may seek relief from the commissioner, which relief may be granted when the commissioner deems necessary in extraordinary circumstances.
Federal Kemper raises the following issues for this Court’s review:
1. Whether the Commissioner applied the correct burden of proof in rendering [her] Order and Adjudication.
2. Whether the Commissioner’s determination that the use of a 17-month partially retrospective rating period to adjudicate an [extraordinary circumstances] filing constitutes illegal retrospective ratemaking.
3. Whether the Commissioner’s determinations concerning the loss cost savings resulting from Act 6 are erroneous.
4. Whether the Commissioner’s determinations concerning the effect of increased costs arising out of Act 6 are erroneous.
5. Whether the Commissioner’s determination that a rate filing under Act 6 need not include a contingency provision violates [The] Casualty and Surety Rate [Regulatory] Act.
6. Whether the Commissioner’s determination that the Department need not consistently employ a 2 to 1 premi*549 um to surplus ratio in its evaluation of various rate filings is erroneous.
At argument Federal Kemper raised an entirely new issue which was first discussed in its Reply Brief, that is, whether the Commissioner applied the correct legal standard to extraordinary circumstances relief procedures by measuring an insurer’s expected rate of return against a constitutional standard of confiscation as opposed to a statutory standard of inadequacy, set forth in The Casualty and Surety Rate Regulatory Act (Rate Act)
I
Federal Kemper first argues that the Commissioner erred by placing upon it the additional burden of disproving the Department’s analysis of Federal Kemper’s extraordinary circumstances relief request, which Federal Kemper characterizes as the Department’s “alternative rate filing.” Federal Kemper Brief, p. 12. Federal Kemper does not dispute that it has the burden of proving that there exist extraordinary circumstances justifying relief under Section 1799.7(b)(3), but contends, rather, that it satisfied that burden by filing a rate increase request with supporting data establishing that the requested rates comply with the Rate Act. Further, Federal Kemper argues that as a result of its filing, the burden shifted to the Department to prove the unreasonableness of the insurer’s filing as occurs, accord
Federal Kemper’s argument fails for a number of reasons. As discussed in Prudential and more recently in Liberty Mutual Fire Insurance Co. v. Department of Insurance, 142 Pa.Commonwealth Ct. 282, 597 A.2d 235 (1991), extraordinary circumstances proceedings under Section 1799.7(b)(3) are not the same as Rate Act proceedings. Federal Kemper’s supposition that it carried its burden of proving its justification for extraordinary circumstances relief by filing for rates which it deems to be in compliance with the Rate Act is clearly belied by the express provisions of Section 1799.7. The mandated rate rollbacks of Act 6 are deemed to comply with the Rate Act pursuant to Section 1799.7(c). It does not follow, therefore, that Federal Kemper has proven the presence of extraordinary circumstances by the mere filing of its request for a rate increase that also purportedly complies with the Rate Act.
Moreover, there is no foundation for characterizing the Department’s analysis of Federal Kemper’s relief request as an “alternative rate filing” or an affirmative defense, which Federal Kemper advances as an auxiliary argument. The methodology of the Department simply analyzes, by incorporation of the anticipated costs and savings to an insurer under Act 6, the rate of return an insurer is anticipated to receive, and as such constitutes evidence of whether or not extraordinary circumstances are present. As found in Prudential, the Commissioner acts within her discretion in accepting the Department’s methodology as a means to examine whether extraordinary circumstances exist; and this Court is bound by the Commissioner’s findings of fact in this regard so long as they are supported by substantial evidence. An insurer, of course, may challenge by evidence of its own the underpinnings and/or application
II
Federal Kemper next argues that the Commissioner erred by using a seventeen-month partially retrospective period as a time frame in which to determine the existence of extraordinary circumstances because this would result in retroactive ratemaking. This issue was raised, discussed, and determined in favor of the Commissioner and Department in Prudential, which controls the disposition of the issue herein.
Ill
Federal Kemper argues that the Commissioner’s determinations concerning certain Act 6 loss reduction factors (cost savings to insurers anticipated from the implementation of certain provisions of Act 6) are erroneous and contrary to law. This Court notes that an agency commits an error of law if its adjudication “represents a manifest and flagrant abuse of discretion or a purely arbitrary execution of the agency’s duties or functions.” Prudential, 141 Pa.Commonwealth Ct. at 164, 595 A.2d at 653. See also Slawek v. State Board of Medical Education & Licensure, 526 Pa. 316, 586 A.2d 362 (1991). This principle is especially significant since the issue raised by Federal Kemper involves a certain latitude of speculation about future events and their effect upon an insurer’s rate of return. As this Court stated in Insurance Department v. Pennsylvania Coal Mining Ass’n, 26 Pa.Commonwealth Ct. 348, 357-58, 363 A.2d 823, 827-28 (1976):
Ratings of insurance risks, particularly as to new and untested coverages, necessarily entails assumptions and*552 projections whether characterized as informed guesses or informed judgment. This is precisely why the judiciary should not second guess or substitute its judgment for that of those whose business it is to make such projections____ The want of experience under an expanded program of insurance coverage gives added importance to judgment decisions by those whose experience qualifies them to make the same.
Should substantial evidence support the Commissioner’s findings in these areas of judgment, this Court is bound to affirm her order and adjudication. Id. A review of the record and arguments of the parties convinces this Court that the Commissioner did not commit a manifest abuse of discretion in adopting the prognostications of the Department over those more dire ones of Federal Kemper and that the Commissioner’s findings are supported by the record.
Federal Kemper first contends that the Commissioner overstates the impact of Act 6’s verbal threshold in reducing an insurer’s costs. Act 6 precludes a limited-tort insured from suing for non-economic damages (i.e., pain and suffering), with some exceptions, unless the insured has sustained a “serious injury” (the so-called verbal threshold). 75 Pa.C.S. § 1705. The Commissioner found that bodily injury claims will be reduced as a result of this prohibition, based upon the premise that medical claims in excess of first party benefits will, for limited-tort insureds not suffering from “serious injuries,” largely be handled by the insured’s health insurance. Federal Kemper contends, on the other hand, that such claims will not be reduced as the Commissioner surmised since it is likely that once an injured insured has exhausted his or her first party benefits, the insured’s health carrier will direct the insured to submit any unpaid medical bills to and make a demand upon the tortfeasor’s carrier for bodily injury coverage. The Commissioner’s interpretation of the interplay of coverages, however, is more reasonable:
If health insurance were secondary to the tortfeasor’s liability coverages, as Federal Kemper contends, then*553 insurance consumers in Pennsylvania would be greatly prejudiced. One of the basic tenets of no-fault insurance is swift care to injured parties and prompt payment of medical claims. Under Federal Kemper’s interpretation, health insurance would not pay for medical bills while the issue of liability for the underlying accident is worked out, which could take years if the issue is litigated. Insureds will be forced to pay the medical bills or forego treatment in the interim.
Adjudication, p. 28-29; see 75 Pa.C.S. § 1719. Moreover, the evidence of record supports the Commissioner’s findings and not Federal Kemper’s argument. N.T., pp. 227-29. As the Commissioner pointed out, Federal Kemper failed to present direct evidence to support its argument. Adjudication, p. 30.
Federal Kemper next argues that the Commissioner erred by concluding that by eliminating a portion of bodily injury claims, the verbal threshold “greatly” reduces first party claims
Federal Kemper next argues that the Commissioner erred by accepting the Department’s estimates of cost savings because of Act 6’s prohibition against certain duplicate recoveries over the estimates proposed by Federal Kemper.
Federal Kemper next argues that the Commissioner erred by accepting the Department’s anticipated cost savings resulting from the medical cap provisions of Act 6 over the prognostications of Federal Kemper. The Commissioner found that the Department’s estimations were more reasonable because they were based upon data from the Health Care Financing Administration (HCFA) specific to Pennsylvania, while Federal Kemper based its estimations on HCFA data gleaned from the United States as a whole.
Federal Kemper next argues that the Commissioner erred by inflating the impact of the mandatory anti-fraud provisions of Act 6 and contends that because it already implements significant anti-fraud measures, the 5% costs savings anticipated by the Commissioner is unwarranted. The Commissioner determined, however, that the extent of the mandatory measures and the resulting unification of efforts will provide savings to all insurers even with their existing anti-fraud measures. See 18 Pa.C.S. § 4117; 75 Pa.C.S. §§ 1801-1828 (which deal with Act 6’s mandatory anti-fraud measures). This Court cannot conclude that the Commissioner abused her discretion in making this conclusion in light of the comprehensive measures devised by the legislature. Moreover, there is nothing in the record, nor is there any other reason to conclude, that effective enforcement of Act 6’s anti-fraud provisions will not occur as contended by Federal Kemper.
IV
Federal Kemper argues that the Commissioner erred by not factoring into her calculations the possibility of increased costs to insurers arising from Act 6’s elimination of the prohibition against pleading and proving medical expenses below the mandatory first party benefit limit. Federal Kemper contends that if a plaintiff is permitted to plead and prove these costs at trial, juries will enter higher bodily injury awards based upon the evidence of the full
The Commissioner dismissed Federal Kemper’s reasoning on the grounds that most cases which go to trial are major ones where medical costs are over $10,000 and therefore, the issue only involves the impact of submitting amounts up to $10,000 or an additional $10,000 to the jury; that judges will probably instruct juries that the plaintiffs have been compensated for their medical costs, thus defusing their impact;
V
Federal Kemper argues that the Commissioner erred by failing to incorporate a contingency provision to cover unforeseen future costs and contends that the Rate Act mandates such a provision. Further, such a provision is absolutely required in light of all of the future disasters Federal Kemper sees visited upon insurers as a result of Act 6.
VI
Finally, Federal Kemper argues that the Commissioner erred by not using a 2 to 1 premium to surplus ratio in evaluating an insurer’s extraordinary circumstances relief filing, as opposed to the particular premium to surplus ratio of each insurer which reflects the insurer’s experience. The insurer in Prudential raised this identical issue, which was discussed and determined by this Court in favor of the Commissioner. Accordingly, Federal Kemper’s argument is likewise rejected.
For the foregoing reasons, the Commissioner’s order is affirmed.
AND NOW, this 25th day of November, 1991, the order of the Insurance Commissioner is hereby affirmed.
. For a description of the methodology by which the Department analyzes extraordinary circumstances relief requests, see Prudential Property and Casualty Insurance Co. v. Department of Insurance, 141 Pa.Commonwealth Ct. 156, 162, n. 2, 595 A.2d 649, 652, n. 2 (1991).
. Act of June 11, 1947, P.L. 538, as amended, 40 P.S. §§ 1181-1199.
. Federal Kemper also argues with regard to this issue that the Commissioner erred by basing the loss reduction factor for decreased bodily injury claims upon the experience of Michigan, which had implemented a similar automobile insurance overhaul act. Prudential. Federal Kemper points out that while Pennsylvania permits insureds to carry as little as $5,000 in first party coverage, Michigan requires unlimited first party coverage. The Commissioner’s determination that health insurance will in many cases cover any excess above the minimal first party coverages supports her reliance on the Michigan data.
. Actually, the Commissioner reduced anticipated first party claims for purposes of her analysis by only 3.1%.
. Act 6, prohibits duplicate recoveries between an insured’s first party benefits and tortfeasor’s bodily injury coverage; worker’s compensation claims and bodily injury coverage; and a victim’s health insurance and tortfeasor’s bodily injury coverage.
. Federal Kemper contests this assumption on the premise that case law prohibits a jury from being informed of the availability of insurance. This case law, however, is designed to protect defendants from the resulting prejudice from such disclosure. See Hannis v. Ashland State General Hospital, 123 Pa.Commonwealth Ct. 390, 554 A.2d 574, appeal denied, 524 Pa. 632, 574 A.2d 73 (1989). The Commissioner contemplates only that the jury will be informed that the plaintiff has been compensated or reimbursed for his or her medical bills. That scenario works to the prejudice of neither party.
. It must be noted that unlike the circumstances in Prudential, Liberty Mutual, and other Act 6 cases decided by this Court, there has been no challenge to the competency of the Department’s witnesses and their testimony in this matter. Based upon defects in certain testimony,