People ex rel. New York Fire Insurance Exchange v. Phillips

| NY | Dec 4, 1923

Pound, J.

The New York Fire Insurance Exchange is a rate-making association maintaining an office in New York city, which has been authorized under the Insurance Law (Cons. Laws ch. 28) to make rates to be used by fire insurance underwriters. To correct discrimination in the fixing of such rates by such associations, the Insurance Law, section 141, provides suitable power in the superintendent of insurance to entertain complaints and after a full hearing to order its removal.

The important part of section 141 of the Insurance Law, so far as the question of discrimination is concerned, is that no such rate-making association shall fix any fire insurance rate “ which discriminates unfairly between risks in the application of like charges or credits or which discriminates unfairly between risks of essentially the same hazards and having substantially the same degree of protection against fire. Whenever it is made to appear to the satisfaction of the superintendent of insurance that such discrimination exists, he may, after a full hearing * * * order such discrimination removed.” (Insurance Law, § 141, added by Laws of 1911, chap. 460, as amd. by Laws of 1912, chap. 175, and Laws of 1913, chap. 26; since amd. by Laws of 1922, chap. 660.)

The relator has a testing agency known as its “ Chicago Laboratories ” where tests are made of fire protection devices for the purpose of assisting it in fixing rates without unfairly discriminating between various devices. Application was made to the relator for credit in the rating of certain risks equipped with the so-called “ Con-ran Sprinkler Head," an invention of the intervener. It was claimed that the Conran device was just as effective as the sprinkler systems for which the relator allowed a reduced rate. The relator refused to grant this reduced rating on the ground that the Conran sprinkler had not been submitted to or approved by the “ Chicago Laboratories.” The intervener, having had his apparatus subjected to extensive tests and approved by the board of standards and appeals of the city of New York, the body which approves the installation of all fire apparatus in buildings within that city, and by others, complained to the superintendent of insurance that a discrimination against his device existed in the fixing of rates. The matter was finally brought to hearing and determination, the superintendent of insurance holding, in effect, that the determining issue was whether or not the Conran device was just as effective as the sprinkler systems for which the exchange had allowed a reduced rate. He found that it was and ordered the removal of the discriminations.

The question is whether as matter of law the relator discriminated unfairly against the Conran sprinkler head. The effect of the decision of the Appellate Division is that the question before the superintendent of insurance was one of equal fire hazard to be determined by him on such evidence as a complainant sees fit to produce. Under this interpretation of the statute the rate-making association and the insurance companies who must recognize the device as a protection against fire, can be compelled to grant a rate equal to that given the most approved devices which have met all tests, although the exchange has not tested the device, and the owner of the device has refused to comply with the association’s uniform rules for testing devices seeking a preferred rate.

Kiley, J., in a dissenting opinion, stated the rule as follows:

“ Discrimination, as used here (in sec. 141 of the Insurance Law) and as applied to this relator, could only be practiced in one of two ways: 1st. After a test made relator might unfairly find that the intervener’s device was not equal as a reducing element in fire hazard to some other device used for like purposes. 2nd. It might refuse to make the test. It did not default in either of these particulars; it was. ordered to remove an ' unfair discrimination ’ it never imposed — ordered in effect to certify to the efficiency of a device it had not been permitted to test.”

The difference between these two interpretations of the statute makes the issue on this appeal.

The question is not whether the Conran sprinkler is as good a sprinkler as any other in use. It may, for the purposes of the argument, be conceded that it is. The question is whether the exchange discriminates unfairly against it; makes a distinction in the way it treats the Conran device to its prejudice and in favor of others in the same class. The jurisdiction of the superintendent of insurance does not extend to the decision as an original proposition of the merits of rival automatic sprinklers. It extends only to the question whether all are treated alike and treated fairly. If equality and fairness to all is found, no discrimination can be said to exist.

Public policy, it would seem, requires that the exchange should have the power to adopt suitable rules requiring those whose devices are offered as a protection against fire to submit such devices to reasonable tests to be made by the exchange itself, or under its direction. The exchange and the fire insurance companies are assuming the financial risk and burden of granting lower rates where protective devices are installed. It has no power to turn away any applicant who presents his contrivance fpr approval or to create a monopoly in behalf of the inventions it may seek to favor by refusing its approval of equally reliable automatic sprinklers which have met its test. But when the applicant for consideration who seeks to obtain the approval of the exchange refuses to submit to reasonable and competent tests to be made by it and insists that the exchange shall act upon such tests as he offers, he seeks to substitute his own method of forming a judgment on the merits of his device for the method adopted by the exchange for the formation of its judgment thereon. His tests may be as good to the mind of the superintendent as the tests of the exchange, but the point is that the exchange may properly reserve to itself the function of making its own tests under its own rules, so long as it treats all comers with uniform and impartial consideration.

On slight reflection it would seem that the adoption of a uniform method of testing these devices by the exchange itself was well nigh essential for the satisfactory working of the scheme of rate reduction. The public has the right to rely upon the exchange to protect it from the installation of unsuitable devices. The exchange has the right to protect itself. If the applicant were allowed to select his own test, to convince the superintendent of insurance of its efficiency and thus to avoid the test proposed by the exchange, the result would be inconvenience and uncertainty instead of definiteness and uniformity.

The substance of the relat'or’s position is that it will not reduce rates except where the protective device installed has obtained a license from it to be obtained on passing the tests which it imposes for its protection. Would an unlicensed chauffeur be heard to say that he was the best chauffeur in the world and that, therefore, he should be excused from the tests officially imposed on others in the same class and be licensed on some other basis of determining merit? Would an applicant for appointment in the civil service be heard to say, even if the Constitution did not forbid, that he should be permitted to demonstrate his merit and fitness by other methods than the examination required of others in the same class? Fairness and efficiency assumed, the better the device the more certain the required approval. The fairness and efficiency of the tests made by the Chicago Laboratories are not questioned. Conran is, in fact, seeking a discrimination in his favor, not the removal of a discrimination against him.

Discrimination may come after the device has been submitted to the exchange. Finality would not attach to its action. It may refuse to make the test or the test may be unfair or the decision may be arbitrary. The powers of the superintendent may then be properly invoked to remove such discrimination.

The order of the Appellate Division should be reversed and determination of the superintendent of insurance annulled, with costs.

His cock, Ch. J., Cardozo, McLaughlin and Andrews, JJ., concur; Hogan and Crane, JJ., dissent.-

Order reversed, etc.