In Re North Carolina Fire Insurance Rating BureauAnnotate this Case
96 S.E.2d 344 (1957)
245 N.C. 444
In the Matter of a Filing Made by the NORTH CAROLINA FIRE INSURANCE RATING BUREAU In Review of ExperienceFire Insurance 1950 to 1954, Inclusive.
Supreme Court of North Carolina.
February 1, 1957.
*347 Atty. Gen. George B. Patton, Asst. Atty. Gen. T. W. Bruton, for North Carolina Commissioner of Insurance.
Joyner & Howison, Raleigh, for North Carolina Fire Ins. Rating Bureau.
Broughton & Broughton, Raleigh, for North Carolina Farm Bureau Federation and North Carolina Farm Bureau Mut. Ins. Co.
It appears from the evidence in this proceeding that the Rating Bureau proposed a rate increase for farm dwellings of approximately 16% on 28 October 1954. A public hearing was held on the proposal on 17 December 1954. The Commissioner found as a fact that the evidence presented did not support the Rating Bureau's contention that the hazards are different between unprotected farm and unprotected non-farm dwellings when the farm and non-farm dwellings are similar in location, are of the same construction and subject to the same degree of fire protection.
At the above hearing, it appears the Rating Bureau furnished experience on farm dwellings for the year 1953 only. Naturally, the Commissioner had no right to consider a rate for fire insurance except one based on the experience for a period of not less than five years next preceding the year in which the review was made and the other factors enumerated in the statute. G.S. § 58-131.2. The Commissioner further held, "In view of General Statutes 58-131 it is not necessary to keep statistics separating farm dwellings from non-farm dwellings unprotected because this law provides there shall be no unfair discrimination `between risks involving essentially the same construction and hazards, and having substantially the same degree of protection.' These two classes come within that category and should, under North Carolina law, be treated as one." While the statistical data offered at that time did not meet the requirement of G.S. § 58-131.2, in that it covered only one year instead of five, the ruling to the effect that it was improper to include unprotected farm dwellings and unprotected non-farm dwellings in different classes for rate making purposes but that they should be treated as one class, to that extent the ruling modified the classes involved and approved in 1947 for rate-making purposes. The ruling was tantamount to a finding pursuant to G.S. § 58-131.2 that the Rating Bureau's application of an approved classification "is unwarranted, unreasonable, improper or unfairly discriminatory," and in accord with the provisions of the statute, the Commissioner left the matter open so that the Rating Bureau might have an opportunity to propose adjustments in conformance with the decision. It would seem that the Rating Bureau chose to ignore the order, took no appeal from it, and later filed the request involved in this procedure, based on the original classifications as approved in 1947.
In the hearing before the Commissioner on the present request for an increase in fire insurance rates on farm property, the Rating Bureau furnished the experience on farm dwellings sub-Class 024 for the years 1953 and 1954 which showed a loss ratio in 1953 of 93.37% and for 1954 of 96.25%. Since this was for a period of less than five years, as required under G.S. § 58-131.2, the Rating Bureau based its request on the loss ratio for Class 021, which includes sub-Classes *348 as follows: 024, Farm Dwelling's; 025, Farm Property, Livestock, Growing Crops and Hay and Grain in Stacks (not including Tobacco Barns); 026, Tobacco Curing Barns; 029, Tobacco Pack Barns; 028, Tobacco-Harvested Crop-Farm Floater Form.
As we interpret the record before us, if the requested increase should be allowed, most of it would fall on farm dwellings, sub-Class 024. Moreover, under the present methods of classification, it is conceded in appellant's brief, if two dwellings are located in the same neighborhood and are of similar construction, if one of the houses is located on a tract of land devoted to farming, which consists of as much as 3.1 acres, it is classified as a farm dwelling; but if the other house is located on a tract of land which consists of less than 3.1 acres, it is classified as a non-farm dwelling, whether the occupant is a farmer or not.
For the purposes of classification and keeping of statistics, there are now 115 different classes of property in this State. Statistics are kept as to the premiums and losses with respect to each of the 115 different specific classes. These classes were first approved by the Insurance Department of North Carolina on 1 January 1947. Prior to that time, classification statistics had been kept in only 26 classes. When the 26 classes were expanded to 115, it was merely a refinement of the 26 classes. The 115 classes, with minor modifications which have been approved from time to time, are still in effect.
For a more complete understanding of the powers and duties of the Commissioner with respect to the reduction or increase of rates, we deem it necessary to consider the pertinent provisions of G.S. § 58-131.2, which read as follows: "The Commissioner is hereby empowered to investigate at any time the necessity for a reduction or increase in rates. If upon such investigation it appears that the rates charged are producing a profit in excess of what is fair and reasonable, he shall order such reduction of rates as will produce a fair and reasonable profit only.
"If upon such investigation it appears that the rates charged are inadequate and are not producing a profit which is fair and reasonable, he shall order such increase of rates as will produce a fair and reasonable profit.
"In determining the necessity for an adjustment of rates, the Commissioner shall give consideration to all reasonable and related factors, to the conflagration and catastrophe hazard, both within and without the State, to the past and prospective loss experience, including the loss trend at the time the investigation is being made, and in the case of fire insurance rates, to the experience of the fire insurance business during a period of not less than five years next preceding the year in which the review is made.* * * * * *
"Whenever the Commissioner finds, after notice and hearing, that the bureau's application of an approved rating method, schedule, classification, underwriting rule, bylaw or regulation is unwarranted, unreasonable, improper or unfairly discriminatory he shall order the bureau to revise or alter the application of such rating method, schedule, classification, underwriting rule, bylaw or regulation in the manner and to the extent set out in the order."
The manager of the Rating Bureau in testifying in its behalf for the requested increase of rates on farm property, said: "As between an unprotected farm dwelling and an unprotected dwelling of Class 10 (an unprotected non-farm dwelling), it could be possible to have precisely similar types of buildings. Farm dwellings are placed in the classification with farm property rather than in the classification of other unprotected dwellings because farm dwellings are really considered to be a part of the farming process, more than in the case of any other class of dwelling occupancy. It is my understanding that the separate classification *349 of farm dwellings is not on the basis of construction but on the basis of hazard."
It is apparent, we think, under the provisions of G.S. § 58-131.2, that the General Assembly has never authorized a fire insurance rate to be fixed upon a consideration of hazard alone. Furthermore, 58-131 provides: "The rating bureau in making rates shall not unfairly discriminate between risks involving essentially the same construction and hazards, and having substantially the same degree of protection."
We do not understand that property must necessarily be included in the same class in order for it to have the same fire insurance rate, provided the location, construction and degree of protection are substantially the same in both classes.
The question as to whether a 50% loss ratio is a proper division of the premium dollar is not before us for decision. Aetna Insurance Co. v. Hyde, 275 U.S. 440, 48 S. Ct. 174, 72 L. Ed. 357. However, it would seem that the selection of risks may figure substantially in the loss ratio, particularly on unprotected property. Unfortunately, the lack of proper installation and inspection of electric wiring in many instances is a source of substantial fire loss. It is unfortunate indeed that the county commissioners of many of our counties have not seen fit to exercise the authority given them by G.S. § 160-122 to appoint qualified electrical inspectors, whose duties, among other things, would be to enforce all State and local laws governing electrical installations and materials, and to make inspection of all new electrical installations in the rural areas, as well as in towns having a population of less than 1,000, unless satisfactory provision for such inspection has been otherwise provided.
The appellant assigns as error the conclusion of law set forth in the judgment entered below to the effect that the following finding of fact is supported by substantial evidence in the record and is correct and proper: "That the North Carolina Fire Insurance Rating Bureau had the burden of proof to justify that there should be a differential in rates on unprotected farm dwellings from the unprotected non-farm dwellings known as Class 10. There was no evidence offered by the Rating Bureau that such differential was justified, and, therefore, in view of the provision of General Statutes 58-131, which reads as follows: `The Rating Bureau in making rates shall not unfairly discriminate between risks involving essentially the same constructions and hazards, and having substantially the same degree of protection,' the proposed filing must be rejected."
It is provided in G.S. § 58-9.3(2), "* * The order or decision of the Commissioner if supported by substantial evidence shall be presumed to be correct and proper." But we know of no statute or decision that makes a request of the Rating Bureau for an increase or decrease in rates presumptively correct and proper. The Rating Bureau is the movant in this proceeding and the burden is upon it to establish that the proposed rate is fair and reasonable, G.S. § 58-131.2, and that it does not "unfairly discriminate between risks involving essentially the same construction and hazards, and having substantially the same degree of protection." G.S. § 58-131. Furthermore, we hold that the mere fact that the Commissioner has heretofore approved 115 different classes of property in this State in order that premiums and losses with respect to each class may be ascertained, does not relieve the Rating Bureau of the burden of proof to support its request or requests to the Commissioner for reductions or increases in rates. Neither does the fact that certain classes have been approved relieve the Commissioner of the duty to determine whether the Rating Bureau's application of an approved rating method or classification is unfairly discriminatory. We think G.S. § 58-131 was enacted to prevent such discrimination as would exist between unprotected farm and unprotected non-farm properties, similar in location, construction and *350 hazards, and having substantially the same degree of protection, if the request of the Rating Bureau, involved in this appeal, should be allowed. This assignment of error is overruled.
The appellant also assigns as error the conclusion of law to the effect that the following finding of fact is supported by substantial evidence in the record and is correct and proper: "That the North Carolina Fire Insurance Rating Bureau did not conform to the General Statutes 58-131.2, which requires that fire experience on any class be kept for five years and that the Rating Bureau did not present such experience on unprotected farm property, sub-Class 024."
In view of the fact that the requested increase was based on the loss ratio of Class 021 as a whole, which includes sub-Class 024, in our opinion this latter finding was not essential to the decision reached in the lower court. Hence, we deem it unnecessary to consider or discuss this assignment of error.
The appellant takes the position that there can be no doubt about certain conclusions, to wit: "(1) The classifications 021, 009, 019, and 029, were adopted by the Bureau pursuant to statutory requirement that classifications be provided. G.S. § 58-130. (2) Those classifications were approved by the Commissioner. (3) Those classifications were in effect throughout the base period, 1950-1954, inclusive. (4) The Bureau was required by the N.C.Statute to report its statistics in accordance with the existing classifications and it did so report its statistics in this case in accordance with the classifications 021, 009, 019, and 029. (5) Those statistics justify and support the 25% rate increase sought by the Bureau for Class 021. (6) Those statistics do not justify any rate increase for the unprotected non-farm dwellings and contents, classes 009, 019, and 029."
The appellant's brief contains this further statement: "* * * the only remaining question is whether classification 021, farm property, was so arbitrary and so unreasonable as to be illegal and void from the beginning. That is the nub of this case."
In our opinion, the failure to grant the increase requested is not tantamount to a holding that the classification 021 was so arbitrary and so unreasonable as to be illegal and void from the beginning.
It will be noted that the appellant insists that the statistics do not justify any rate increase in Classes 009, 019, and 029. But the evidence of the Rating Bureau reveals that Class 009 had a loss ratio for the fiveyear experience period of 63.41%; Class 019 for the same period had a loss ratio of 53.26%; and Class 029 a loss ratio of 40.98%. If these three classes may be consolidated for rate-making purposes, as the appellant insists they may, then we can see no reason why properties classed in 021 and 029, which are substantially alike in location, construction, hazards and protection, should not also be consolidated for ratemaking purposes.
In light of the provisions of G.S. §§ 58-131, 58-131.2, and the evidence disclosed on the record, the rulings of the Commissioner in denying the 25% increase in fire insurance rates on farm property, Class 021, which rulings were upheld in the court below, in our opinion, were proper and must be upheld.
JOHNSON, J., not sitting.