259 P. 1068 | Kan. | 1927
Lead Opinion
This case is here on rehearing. It was decided in November, 1926 (121 Kan. 802, 257 Pac. 337). The six members of the court sitting were divided, three to three, on some of the questions presented, and no decision was reached on those questions. A rehearing was granted and the case was reargued in March of this year. Before a consultation could be had after that argument one member of the court, Justice Mason, was taken sick. He died on May 4. Wm. Easton Hutchison was appointed to succeed him. Thereafter the court, on its own motion, ordered a rehearing before the whole court. The case was reargued at our July sitting. At that time plaintiffs filed a motion protesting against Justice Hopkins,
“. . . participating in the hearing and in the decision in this cause for the reason that he was formerly attorney-general of the state of Kansas and as such appeared for the defendant and represented him in said cause in the trial court and directed the joining of the issues in said court and in determining the policy of the defense.”
The motion points out the fact that Justice Hopkins did not sit in either of the previous hearings in this court, nor participate in the former decision, for the reasons stated in the motion, and the contention is made that—
“Under these circumstances, the participation of his honor, Justice Hopkins, in the consideration and the decision of this cause at this time, would amount to a denial of due process and of the equal protection of the laws which are guaranteed by the constitution of the United States.”
Plaintiffs cite no statute, or constitutional provision, of this state that would be violated or ignored by Justice Hopkins participating in the consideration and decision of this case; neither do -they specify any particular in which such participation would deny to them due process and the equal protection of. the laws.
The protesting motion presents a preliminary question which should be decided. The facts pertaining to this question, as shown by the record before us, including affidavits filed pertaining thereto, are as follows: Richard J. Hopkins, having been nominated and elected according to our laws, became a member of this court on the second Monday in January, 1923, and since that time has served as a member of this court. During the four years immediately prior thereto he was the attorney-general of this state.
'Much business of a legal and of an administrative nature passes
Disqualification of a judge to sit in a cause by reason of the fact that he had been of counsel for one of the parties prior to becoming a judge is based upon the theory of supposed bias for that reason. In the absence of a statute disqualifying a judge for that reason, he is not disqualified. (33 C. J. 1002; Butler v. Scholefield, 54 Cal. App. 217.) The authorities hold that a prosecuting attorney who later becomes judge is not disqualified to sit in a case by reason of having had something to do with the preliminary stages of the prosecution, unless the statute specifically so provides. (33 C. J. 1005; Eastridge v. Commonwealth, 195 Ky. 126; Hargis v. Commonwealth, 135 Ky. 578; State v. Bordelon, 141 La. 611; State v. Turnhow, 99 Ore. 270; Gandia v. Stubbe, 29 Porto Rico, 141; Kirby v. State, 78 Miss. 175. See, also, Barber County Comm’rs v. Lake State Bank, 123 Kan. 10,252 Pac. 475.)
So, even if we had a statute in this state disqualifying a member
No provision of our constitution, or of our statute, prescribes conditions under which a member of this court is disqualified from sitting. Neither is there any provision of our constitution or statute for calling another judge to sit in lieu of one who may be disqualified. The framers of our constitution evidently took the view that any person who had the standing and qualifications to become a member of this court would not be presumed to be biased or prejudiced by reason of the fact that some time prior to becoming a member of the court he had been an attorney for one of the parties in the action, and our legislature obviously has consistently entertained the same view. Plence there is no legal disqualification of a member of this court to sit in a cause, unless it can be said to be the common-law reason for disqualification of one who had a pecuniary interest in the result of a cause. We need not decide in this case whether that would be a disqualification, for it is not contended by plaintiffs that Justice Hopkins, or any other member of this court, is disqualified for that reason.
Since there is no method provided by our constitution or statute for having another person sit as judge of this court, if one or more members should be disqualified in a case, it necessarily follows that they must sit, when their views are necessary to a decision. There is no way in which questions may be decided in this court except by the decision of the members of the court. If a member were to decline to sit for a reason which is insufficient, he might be compelled to sit by mandamus. (Montfort v. Daviss, 218 S. W. 806 [Tex. Civ. App.].) This court is organized to decide cases. There is no substitute for it, or for any one of. its members, in our scheme of government. Litigants are entitled to have the essential questions
It necessarily follows that plaintiffs’ protest against Justice Hopkins participating in the consideration and decision of this case is neither well founded in fact nor supported by the law. It is therefore denied. Justice Hopkins took no part in the decision of this question.
Passing now to the merits of the case. The general statement of the case, made in the former opinion (121 Kan. 802-804, 257 Pac. 337) need not be repeated. We have before us, speaking in a large way, the single question: Was the order made by defendant, in so far as it pertains to fire insurance premium rates, unreasonable, unjust and inequitable? The trial court regarded this as including the following questions, each of which was considered and determined: (1) Should the rate be fixed so as to yield to plaintiffs a reasonable percentage of the underwriting profits independent of their capital and surplus, or should it be fixed so as to yield a reasonable return upon the amount of their capital and surplus allocated by some proper method to the state of Kansas? (2) In determining the income of plaintiffs, should consideration be taken of their investment earnings? (3) What is the proper basis upon which to predicate the rate of return? (4) Is the order void or unreasonable because it attempts to adjust the rates according to occupancy or vocational classifications without regard to the fire hazard contained in the individual risk? And (5), in view of the conclusions reached in the foregoing propositions, does the order provide a proper and reasonable return to plaintiffs?
Taking up these questions: (1) Upon what are plaintiffs entitled to make a reasonable profit — the value of their capital stock allocated to this state, or their premiums? In other words, should a reasonable premium rate provide a return which, after the payment of losses and expenses, will yield a fair per cent of profit upon the value of the capital employed in the business, or, should capital employed in the business be disregarded, and the return computed upon the amount of premium receipts only and so as to yield a fair per cent of such premiums as a profit? Obviously this lies at the threshold of our inquiry, for until this is determined it is difficult properly to consider the other questions. There is no decided case directly in point as a precedent. Textbooks and articles in encyclo
“There is a vast difference between constitutions or statutes which merely protect public utilities in the right to a fair and reasonable return on their business and those statutes which guarantee a certain fixed per cent or profit. See Galveston Electric Co. v. Galveston [D. C.], 272 Fed. 147.” (p. 542.)
In this case there is no agreement between the parties upon the 'question as there was in the Hyde case, and the test required by our statute (R. S. 40-463), unlike that in the Bullion case, is 'that “the rate must be reasonable.”
The question before us has been many times determined in analogous cases dealing with public utilities and other public service corporations, in which, from the nature of their respective businesses, the public has such an interest that the state, or some board or commission provided by it, is authorized to fix the rates they may charge for their services. In these cases of late years it has been uniformly held that the companies are entitled to a rate which, after the payment of proper and necessary expenses and charges, will yield a reasonable return upon the value of their property used and useful in the business. The latest holding of the'supreme court of the
“The just compensation safeguarded to the utility by the 14th amendment is a reasonable return on the value of the property used, at the time that it is being used for the public service.” (p. 812.)
This is the settled holding' of the courts upon the question. Many cases have dealt with the question, but it is not necessary to cite numerous authorities. We fully agree with the principles pertaining to the determination of rates stated in the case last cited. In German Alliance Ins. Co. v. Kansas, 233 U. S. 389, it was held that the business of fire insurance is so far affected with a public interest as to justify legislative regulation of its rates. But plaintiffs contend the rule above stated cannot apply to stock fire insurance companies, for the reason that the capital and surplus of such companies is not property used or useful in the business in the sense that the property of a public utility is so used and useful; that it is not invested in franchises, rails, street cars and street-car barns, etc., as is the property of a street-car company; nor in telephones, poles, lines, conduits, etc., as that of a telephone company; nor in mains, meters, etc., as is the property of a gas or water company. There is no merit in this contention. Naturally it would not be invested in this class of property — each utility, industry, or business invests its money as its peculiar business requires — but there is no room for holding, as contended by plaintiffs, that it is not used and useful in the insurance business. The very nature of the insurance business requires that stock companies engaged therein have capital and surplus with which to conduct the business. The statutes require insurance companies to have capital and to have surplus, to invest it in particular securities, and such investments are, by statute, regulated and supervised with the utmost care. (R. S. 40-201 et seq.) Most of the states, perhaps all of them, have now, and have had for years, statutes pertaining to and authorizing the regulation of the amount and the use and investment of the capital and surplus of insurance companies. The officers and directors of the insurance companies could no more use their capital and surplus in a business, or in a manner, not authorized by the statute than could the utilities company get along without rails, street cars, telephone wires, poles, conduits, or gas or water mains or meters, as the nature of their respective businesses requires. One who invests his money in the
The face value of the capital stock of any corporation is seldom a true guide to its real value, and that is true of insurance companies. Regarding all of the assets of an insurance company as being used in the insurance business, the reasonable value thereof at the time the inquiry is made should be the basis upon which to compute a reasonable return. Because of the class of securities in which investments of capital and surplus are required to be made, this can be determined with reasonable accuracy. In the report of the joint committee of the legislature of New York appointed to investigate the affairs of insurance companies, other than life insurance, and make a report and recommendation to the legislature, after considering the various methods contended for of computing profits of fire insurance companies, and the inaccurate conclusions which the contending parties had drawn therefrom, is used this language:
“This illusion largely disappears when we consider carefully upon what basis the earnings should be figured. In reality, the amount of the-capital of a fire insurance company has very little significance; it is scarcely anything beyond a basis for computing the ownership of the company. The real capital, in the economic sense, that the stockholders have in the business is to be valued either as what the business would bring if sold as a going concern, or as what it would bring if liquidated. The former, the market price, would in general be greater than the latter by the value of the good will of the business. The sum for which the business could be liquidated, which we may call the proprietorship or the ‘proprietary interest’ would be, in general, the capital, the surplus, and say 30 per cent of the reinsurance reserve (for the reason that the business could be reinsured for about 70 per cent of the reserve; . . .).
*360 “Now this method of figuring profits is the method that is used in every other kind of business, and there is no reason why it should not be equally valuable in fire insurance. It certainly answers the question which the prospective buyer of fire insurance stock wishes to have answered, namely, ‘How much, taking into account all sources of income, underwriting profit, interest and gain from sale of securities, will my investment yield?’ It certainly answers the question which the public is interested in: ‘What, taking everything into account, has the fire insurance business yielded? Have the profits been excessive? if so the premiums must have been too high.’ ” (20 New York Assembly Documents, p. 56 [1911].)
This committee recommended, among other things, that the state should not undertake the business of fixing' rates for fire insurance for stock fire insurance companies, for the reason that the competition of mutual and reciprocal fire insurance companies, the possibility of the formation of other stock fire insurance companies, and the constant insistence of the insured for lower rates, would tend to prevent unreasonably high rates by joint-stock companies. But the question, whether the state should undertake to fix fire insurance rates, is not before us. Whether wisely, or unwisely, our state has done so, and the prudence of that is a legislative question, not a judicial one. The report of the commission is important, however, upon the question of the correct basis to compute the earnings of stock fire insurance companies.
It is argued that to fix rates to yield a fair return on the value of capital would force the placing of different rates for the separate companies, for the reason that some of them have much larger capital than others; but this contention is erroneous. Even a greater discrepancy would appear if separate companies were to be treated as to their premium income less expenses and losses, for this, as to the different companies, shows a much greater variation than there is in their capital stock. But both of these considerations are eliminated when we consider, as we must, that separate rates of premium on specific property cannot be made for different companies. To do so perhaps is impossible, certainly is impracticable and undesirable. For the purpose of determining rates of premiums, plaintiffs must be considered as a whole, just as though collectively they constituted one company, and the rate established for a specific property must be one which each of the companies may use. In this case it is conceded this is true. The result may be, and is, that some of the companies will make more profit than others; some may sustain an actual loss. This is inevitable. It arises from many causes — the selection of risks, the volume of business written, the expense in
Defendant has contended that the amount of the capital and surplus, actually paid in by the stockholder at the time the insurance companies were organized, and additional payment to capital and surplus by the stockholders, not derived from earnings (allocated to this state), is the sum upon which plaintiffs are entitled to make a reasonable return. But this is inaccurate. The present capital and surplus of plaintiffs is made up in part by past-accumulated earnings, some of which has been disbursed as stock dividends and some of which has been retained as surplus, although under the statute it could have been disbursed either as cash or stock dividends. This forms as much a part of the present value of the capital of plaintiffs as though it had in fact been disbursed to the stockholders and by them reinvested in the capital and surplus of their respective companies. Though plaintiffs’ profits in the past may have been large, that is not a reason they should now be required to do business at a rate which will not yield a reasonable return upon the present fair value of their property actually used and useful in the insurance business. (Newton v. Consolidated Gas Co., 258 U. S. 165, 175.) Since plaintiffs do business in other states, and some of them in foreign countries, this value should be allocated to this state in the proportion that the insurance business transacted by plaintiffs in this state bears to their total insurance business. In the referee’s report there is a discussion of different methods of making such an allocation, if one were made, and of different results obtained by different methods of computation. Since, in the court below, the reasonable return was not computed upon the reasonable present valúe of the property of plaintiffs used and useful in the insurance business, and no allocation thereof to this state was made, we do not feel called upon to determine between two or more methods of computing such allocation, any further than to say that such allocation should be made upon consideration of all the insurance business transacted by plaintiffs in this state as compared with all the insurance business transacted by plaintiffs elsewhere. We apprehend there will be no difficulty in finding a proper method of making such allocation, when it is once attempted. It was error for the court below to disregard, the value of plaintiffs’ capital and to take the premiums received by plaintiffs as a basis upon which to compute a reasonable return.
Turning our attention to the next question: (2) In determining
In Memphis v. Memphis City Bank, 91 Tenn. 574, the court held that a corporation entitled the “Memphis City Fire and General Insurance Company,” whose officers are authorized to write insurance of various kinds, “and generally to do all things necessary and proper in carrying on the general insurance business,” is not empowered to do a banking business, although its charter provides that it may purchase, hold, and convey any and all kinds of estate, real, personal, or mixed, receive in trust money or other valuable things,, and loan surplus funds on any stocks of any incorporated company, or of the United States, or “invest them in any real or personal estate, or choses in action, or other good securities.”
And, on appeal of that case to the United States supreme court, 161 U. S. 186, touching the claim of the company that it had, by legislative authority, changed its business from an insurance business to a banking business, and was then entitled to certain exemption from taxation which it enjoyed while conducting an insurance business, the court said: “We think the change from the business of insurance to that of banking is a material and radical change,”' and denied the contention.
Plaintiffs are not incorporated as, and do not have the functions of, banks. They are insurance companies, required by law to have a. capital and surplus with which to conduct their business; and all of their business transactions, their underwriting and their investments, are supervised and regulated for the common good, because-the business as a whole is one clothed with the public interest. (German Alliance Ins. Co. v. Kansas, supra.) In the case of Ætna Ins. Co. v. Hyde, supra, it was held that the income from investments representing capital and surplus should not be considered, but the income of investments representing unearned premium should be considered. Upon this point there was a division of opinion among the members of the court.
Passing to the next question: (3) upon what principle should underwriting profits be computed? or, as may be otherwise stated, what premiums shall be considered and what losses and expenses shall be considered in determining the underwriting profits of plaintiffs? Since we have already determined that rates should not be based on underwriting profits only, but should include a consideration of all the income and all expenses and losses, this question becomes of secondary importance; but a brief discussion of it may be helpful. In Bullion v. Ætna Insurance Co., 151 Ark. 519, decided under a statute which' required premium rates to be determined by the “underwriting profits,” the definition of that term was important; but, as previously pointed out, that is not true under our statute, which does not use the term “underwriting profits,” but which makes the reasonableness of the order affecting rates the only test. On this branch of the case it is not necessary to elaborate extensively what was said in the former opinion (121 Kan. 802, 805-811, 257 Pac. 337). One correction should be made. It was there stated: “Incurred losses and expenses . . . average, from year to year, from 10 to 12% per cent more than losses and expenses annually paid.” While the evidence as to some of the plaintiff companies showed the difference to be that great, considering all the plaintiffs, the difference is not so much. We adhere to the view, previously expressed, that in determining the profits of plaintiffs, losses and expenses should not be computed substantially greater than they are. Since the filing of the former opinion a great deal
The method used by plaintiffs in this case was both inaccurate and incomplete. It was inaccurate in the one respect, at least, of computing losses and expenses substantially greater than they were. It was incomplete in that it did not show what part of the premiums ultimately became profit. The result is that there is a fatal hiatus in the proof. It must be remembered that the gist of plaintiffs’ complaint in this action is that the order made by defendant, sought to be enjoined, so reduced rates that plaintiffs were unable to make a reasonable profit. How is it possible to establish that fact without showing what part of the premiums, if any, ultimately became profits? Obviously, such a showing is essential. The order made by defendant is presumed to be reasonable- — to be one that would enable plaintiffs to make a reasonable profit- in the conduct of their business. The burden was on plaintiffs to establish their allegations that it was unreasonable and confiscatory. They failed to make that showing. It is worthy of note that- plaintiffs, since the filing of the former opinion, no longer contend that Sun Insurance Office v. Clark, [1912] A. C. 443, supports their contention that in computing profits of an insurance company unearned premiums should be disregarded — it seems clear that what was decided in that case had been misinterpreted. It is contended, however, that the Bullion case (Bullion v. Ætna Insurance Co., supra) is an authority
Another question should be discussed. It was one of the contentions of plaintiffs that the order complained of was void because of the form of the order; that is, because it attempts to adjust rates according to occupancy or vocational classification of the property insured, and also because the increases and decreases were made a named percentage of the final rate rather than the basic rate. Much evidence was taken on this question and it was argued at length before the referee. In the written memorandum filed by the referee with his findings, the evidence and arguments pertaining to this feature of the case are treated at length, and this order criticized in some respects, but with this conclusion:
“So that scientifically unsound as I believe it to be, upon the whole I do not regard it as sufficiently serious to say that it is therefore void.”
When the matter came before the district court the question was again argued. In the memorandum opinion filed by the trial court the question is discussed, together with the report of the referee thereon, with this conclusion:
“The foregoing views were adopted by the referee in his report and I am also in agreement- with his conclusion that while the system adopted by the superintendent is faulty and inferior to the analytic system, yet that fact in itself does not necessarily vitiate the rate order, providing discriminations are not too glaring and an adequate return is attained. The court will, therefore, approve the referee’s report in respect to this objection and proceed to a consideration of more serious and vital propositions hereafter discussed.”
In the former opinion this question was treated as follows:
“Is the order void or unreasonable because it attempts to adjust rates according to occupancy or vocational classifications without regard to the fire hazard contained in the individual risks? The trial court held the order made by defendant was not void for this reason. From this ruling there has been no appeal, hence, we need give the matter no further attention.” (p. 804.)
Plaintiffs complain bitterly of this and say that they had in effect appealed from the ruling of the trial court on this question; that is, they had argued in their brief that it was erroneous, which they regard as a sufficient cross appeal under the rulings of this
In view of the conclusions reached upon the foregoing propositions, has it been shown that the order made by defendant is unreasonable and confiscatory? This must be answered in the negative. The referee found, and it is in effect conceded in this case,, that if the rate should be fixed so as to yield a fair return upon the value of plaintiffs’ capital allocated to this state upon any of the methods suggested, rather than upon the underwriting profits only, the order sought to be enjoined was not unreasonable. We have determined that the rate should be fixed so as to yield a fair return upon the value of plaintiffs’ capital allocated to this state by consideration of all the insurance-business transacted by plaintiffs in this state compared with such business transacted by them elsewhere.
The referee found that if consideration was to be given to investment earnings, the order was not unreasonable. We have determined that consideration should be given to all the income of plaintiffs, including investment earnings.
The referee found that unless the method employed by him in determining underwriting profits — that is, of deducting incurred losses and expenses from earned premiums, plus 35 per cent of unearned premiums — was correct, then the order was not unreasonable. We have determined that this method is incorrect, and further, that rates should not be determined upon underwriting profits alone.
Other questions, some of them pertaining to procedure, are argued by the parties, but we do not find it necessary to refer to them.
Concurrence Opinion
concurs in all except the question discussed in the first paragraph of the syllabus, in which he took no part.
Concurrence Opinion
concur on the question discussed in the first paragraph of the syllabus, and dissent from the remainder of the opinion.