ALLSTATE INS. CO. v. KNUTSON

ERICKSTAD, Chief Justice.

In this case, the Insurance Commissioner for the State of North Dakota appeals to this court from an order for judgment of the District Court of the Fourth Judicial District, entered on the 29th day of September, 1978. Although we have often said that an order for judgment is not appealable,1 we shall in this case, because it appears that both parties are anxious to have this court reach the merits, and because a denial of the appeal on that ground would in this case only result in a temporary remand for the purpose of permitting the Commissioner to appeal from the judgment, consider this as an appeal from the judgment of the district court which was entered on the 4th day of October, 1978.

The judgment reversed the decision of the Insurance Commissioner dated May 18, 1978, which denied the filing for a rate increase of Allstate Insurance Company and Allstate Indemnity Company, whom we shall hereinafter refer to as Allstate. The judgment remanded the case to the Insurance Commissioner for the purpose of allowing him to enter an order approving the rate filings, and further provided that if the Commissioner did not enter an order approving the rate filings within 10 days of the date the record was returned to the Commissioner, the rate filings were to be deemed approved. We affirm the judgment of the district court.

Chapter 26-28, N.D.C.C., relating to casualty insurance rates is generally applicable to this case. Sections 26-28-03, 26-28-04(1), and 26-28-05(1), N.D.C.C., and particularly subsection (3) thereof, are especially pertinent.2 Section 26-28-18(3), N.D.C.C., makes any order or decision of the Insurance, Commissioner subject to review by appeal within the time and in the manner provided by Chapter 28-32, N.D.C.C., the Administrative Agencies Practice Act. The pertinent section of that Act is Section 28-32-19, N.D.C.C. 3 In this case, it appears that what we have is a dissatisfaction by the Commissioner with the technique used by Allstate in arriving at its proposed rates.

The district court, in its memorandum opinion supporting its order reversing the Commissioner, said:

"It is so ordered."

Notwithstanding that it is important to know what conclusions the trial court reached and upon what facts the court reached its conclusions, as our review under the Administrative Agencies Practice Act, Ch. 28-32, N.D.C.C., is of the findings, conclusions, and decision of the administrative agency, it is crucial that we examine the findings and conclusions of the administrative agency.

Since our decision in Geo. E. Haggart, Inc. v. North Dakota Workmen's Comp. Bur., 171 N.W.2d 104 (N.D.1969), in which we applied the substantial evidence rule, both Sections 28-32-19, and 28-32-21, N.D. C.C., have been amended.

Most recently, our court speaking through Justice Sand, considered the significance of the amendment to Section 28-32-19(5), N.D.C.C., as follows:

In reviewing the findings of an administrator under the Administrative Agencies Practice Act, notwithstanding the amendment to Section 28-32-19(5), N.D. C.C., because of the constitutional prohibition involved in the doctrine of the separation of powers against delegation of nonjudicial functions to the judiciary and Section 94 of our State Constitution, we must exercise restraint. See Geo. E. Haggart, Inc. v. North Dakota Work. Comp. Bur., supra at 112; City of Carrington v. Foster County, 166 N.W.2d 377, 382, 385 (N.D.1969); see also Tang v. Ping, 209 N.W.2d 624, 628 (N.D.1973).

In contrast to questions of fact, questions of law are fully reviewable by our court. See State Hospital v. N. D. Employment Sec. Bur., 239 N.W.2d 819, 822 (N.D.1976); Bank of Hamilton v. State Banking Board, 236 N.W.2d 921, 925 (N.D.1976); In re Sales & Use Tax Det. by St. Tax Com'r, 225 N.W.2d 571, 576 (N.D.1974). Let us examine the Commissioner's findings pertinent to the filing.

From a procedural standpoint, the Commissioner's findings indicate that Allstate made separate filings, one on behalf of Allstate Insurance Company, and the other on behalf of Allstate Indemnity Company, for revised rules and rates, which were disapproved by the Commissioner; that thereafter Allstate sought and received a hearing on the filings, which hearing was conducted by special hearing examiner, Norbert J. Lange, on July 12, 1977; that on August 4, 1977, the Commissioner advised Allstate that its filings had been disapproved because Allstate employed a "trend factor", a practice which the Commissioner disapproved; that on August 17, 1977, Allstate sought a rehearing on the disapproval and that a rehearing was granted and was held on November 22, 1977, before Alfred A. Thompson, as special hearing examiner; that on December 23, 1977, a delayed exhibit, denominated exhibit no. 23, was filed with the examiner, and that thereafter Allstate sought and received an additional hearing which was held on February 6, 1978; and that thereafter the examiner requested that each side serve and file briefs and proposed findings of fact and that the last of such briefs was received by the examiner on March 30, 1978.

Incidentally, the record discloses that the special hearing examiner filed his findings with the Commissioner on the 6th day of April, 1978, wherein the examiner adopted certain numbered findings proposed by counsel for the Commissioner, adopted certain numbered findings proposed by Allstate, and in addition made special findings.

It is interesting to note that until that time the Commissioner had consistently rejected the filings of Allstate on the grounds that trend factors were used and he did not approve of same. In part 4 of the additional findings submitted by examiner Thompson, it is stated:

In the Commissioner's findings dated May 19, 1978, the Commissioner adopted the proposed findings recommended by Examiner Thompson which were recommended by counsel for the Commissioner, but rejected most of the proposed findings submitted by Allstate which were approved and recommended by hearing examiner Thompson. As for the additional findings recommended by the hearing examiner, the Commissioner adopted all of those except part 4. relating to trend factors.

Our view of the Commissioner's findings are that the crucial points are contained in what he has denominated additional findings and more specifically additional findings 4. through 9. They read as follows:

Let us briefly analyze and discuss those additional findings of the Commissioner.

Part 4. does not seem to be a disputable issue or one that is actually disputed, but a reasonable answer was given thereto by Allstate to the effect that because of the advent of no-fault insurance in the recent past in North Dakota, it was not possible to have a long-time sample.

Additional parts 5. through 8. relate to the Commissioner's preference for the application of the two alternative techniques suggested by Dr. Fikret Ceyhun of the Department of Economics of the University of North Dakota, and his associate, Mr. Paul Hoag, over the straight-line regression technique employed by Allstate in its efforts to predict future costs or trends in the industry.

Notwithstanding that this court has indicated its reluctance to substitute its own judgment for that of qualified experts in matters entrusted to administrative agencies (see Johnson v. Elkin, 263 N.W.2d 123, 130 (N.D.1978); Bank of Hamilton v. State Banking Board, supra at 925; Application of Bank of Rhame, 231 N.W.2d 801, 811-12 (N.D.1975); First American Bank & Trust Co. v. Ellwein, 221 N.W.2d 509, 518 (N.D.1974), cert den., 419 U.S. 1026, 95 S.Ct. 505, 42 L.Ed.2d 301 (1974)), we believe that the Commissioner has a greater responsibility in considering applications of this kind than merely concluding that one or more techniques for determining future costs are more acceptable than the one employed by the applicant.

Unless the technique employed by the applicant in determining the costs results in rates which are excessive, or inadequate, or unfairly discriminatory, contrary to § 26-28-03 subd. 1(d), or unless the Commissioner has established rules after appropriate notice and hearing, which rules appear to have been violated by the applicant in its filing, the filing should be approved. See §§ 28-32-02 and 26-28-13, N.D.C.C. For a case generally supporting this proposition, see Nationwide Mutual Ins. Co. v. Commonwealth of Pennsylvania, 15 Pa.Cmwlth. 24, 324 A.2d 878 (1974).

In the instant case, a synopsis of the Allstate filing reads as follows:

The filing includes the following pertinent information relative to percentage changes indicated and percentage changes proposed by Allstate:

                       Percent    Change
"Coverage              Indicated   Proposed

Bodily Injury                           +141.4%              +30.0%
Property Damage                          +36.7               +30.2
Personal Injury Prot.                    -29.7               -20.0
Uninsured Motorists                      -42.0               N/C
Collision                                +39.5               +30.0
Comprehensive                            - 6.0                 0.0
Towing                                   + 2.9               N/C
                                        ________           ________
Total                                    + 32.1%             + 15.0%

Although the Commissioner has been critical of the fact that Allstate's indicated percentage changes are greater generally than its proposed percentage changes, that alone cannot be a basis for denying the proposed rate changes. In that regard, it is significant to note part two of Section 26-28-03, N.D.C.C., which reads:

We have examined all of the exhibits submitted on behalf of Allstate, and particularly exhibit 23 prepared by Dr. Ceyhoun and Mr. Hoag on behalf of the Commissioner, in light of the transcripts of the three hearings, and conclude that Allstate has established a basis for its filing, notwithstanding that Dr. Ceyhoun and Mr. Hoag may be correct in their analysis of the filing to the extent that methodologies, other than the one used by Allstate, are available to determine whether Allstate used the best available one. Illustrative of Mr. Hoag's view is his testimony as follows:

* * * * * *

Dr. Ceyhoun asserts that one of the alternative approaches suggested by him would be 95 percent reliable in a certain instance, whereas the equation used by Allstate was only 85 percent reliable.4 Neither he nor Mr. Hoag have contended that had their equations been used the results would have indicated that the rate adjustments asked for by Allstate were violative of Section 26-28-01, N.D.C.C., in that they were excessive, inadequate, or unfairly discriminatory.

Lest we leave the impression by this discussion that Allstate agreed that it used an inappropriate method of forecasting costs, it should be noted that Allstate did not so agree, instead it asserted through its senior actuary, Mr. Darrell Ehlert, the reasoning supporting the use of "a simple straight line regression".5

Allstate and the Commissioner are apparently agreed that the Insurance Commissioner's authority in reviewing a filing is limited and that he, unlike other rate-making authorities, cannot accept the filing in part and reject it in part. It is not so clear, however, that they agree that the Commissioner must either approve or disprove that which the insurance company elects to submit. In support of his position that he may only accept the filing wholly or reject it wholly, the Commissioner refers us to Nationwide Mutual Insurance Company v. Williams, 188 So.2d 368, 369 (Fla.Dist.Ct. App.1966). We think that the most relevant part of that decision is that part which reads: "We observe a legislative deficiency upon the subject of regulating insurance rates by not allowing some flexibility on the part of the Insurance Commissioner in reviewing filings." 188 So.2d at 369.

We cite this case and quote the above for the reason that we believe that our legislature could make this field of the law more workable if it permitted the Commissioner authority to accept in part and reject in part. North Carolina has apparently done so, see State ex rel. Com'r of Insurance v. N. C. Fire Insurance, 292 N.C. 471, 234 S.E.2d 720, 731 (1977).

Throughout the proceedings prior to the taking of this appeal, the Commissioner has taken the view that trending may not be considered in filings of this nature. On appeal, the Commissioner has apparently modified his position by in essence conceding that although trending may be a factor to be considered when giving effect to past and prospective loss experience, as he has the right to weigh the factors, he can weigh certain factors at zero and thus could weigh trending at zero in this case. In support thereof, he refers us to State ex rel. Com'r of Insurance v. N. C. Fire Insurance, supra. Our examination of that case causes us to believe that the Commissioner has placed a strained meaning upon it.

In that case, the Commissioner had declined to consider certain evidence submitted to it covering a three-year-period indicating a loss apparently because it did not cover the five-year-period. The Supreme Court of North Carolina found that to be error.

It is our view that the Commissioner cannot in the instant case, in the guise of weighing the factors, completely disregard what has been discussed throughout this opinion as trending, or in other words, cannot completely disregard data which includes therein an estimation of prospective losses based upon past experience.

We think appropriate the approach which the trial court suggested in its memorandum opinion as follows:

For the reasons stated in this opinion we conclude that the Commissioner's order is neither supported by a preponderance of the evidence, nor is it in accordance with law; thus it must be reversed. We adopt the judgment of the district court and, accordingly, the judgment of the district court is affirmed.

SAND and PAULSON, JJ., and LARRY M. HATCH, District Judge, concur.

LARRY M. HATCH, D. J., sitting in place of VANDE WALLE, J., disqualified.

PEDERSON, Justice, concurring specially.

The Legislature said that the purpose of the casualty insurance rate law is to promote public welfare by regulating insurance rates to the end that those rates not be excessive, inadequate or unfairly discriminatory. The Legislature further said that it was not intended (1) that reasonable competition should be prohibited or discouraged, or (2) that uniformity in insurance rates, rating systems, rating plans or practices should be unnecessarily prohibited or encouraged. Finally, the Legislature said that the law shall be liberally interpreted to carry out these purposes. See § 26-28-01, NDCC.

As far as I can determine after many months of evaluations, administrative hearings and judicial reviews, no one yet has said whether the Allstate rates are excessive, inadequate or unfairly discriminatory.

The author of the majority opinion, in 1970, wrote that "it is not the function of the judiciary to act as a super board of review," and that it is not for the court to substitute its judgment for that of the lawfully designated authorities. See Appeal of Johnson, 173 N.W.2d 475 (N.D.1970). Although that was not a review pursuant to the Administrative Agencies Practice Act, the same principle applies. Ordinarily then, courts should not initially decide the adequacy of insurance rates. That does not mean that we engage in any cat-and-mouse game playing. Expertise of any specific administrator may be questioned politically but judicial restraint requires that we refrain from substituting our judgment for that of the administrator (or questioning his expertise) in every case where he has functioned under a statutory directive.

This all leaves me in a quandary. By affirming the judgment of the district court, which in effect authorized the increased rates for Allstate, it appears that we are fulfilling the function prescribed by the Legislature. Are we not, then, infringing upon the authority of the insurance commissioner and taking on the role of a "super board" or "super commissioner"? I understand the majority opinion to infer that because of the refusal of the commissioner to evaluate Allstate's proposed rates as excessive, inadequate or unfairly discriminatory, the courts must, by necessity, allow them to become effective. This may be the only alternative available, but it impresses me that we are saying to the commissioner, "you didn't do this right," so we are going to penalize the public by making it pay insurance rates which might even be excessive.

The problem is eventually legislative. The all-or-nothing interpretation that both Allstate and the commissioner place upon Chapter 26-28, NDCC, violates my sense of reasonableness. The statute ought to be changed. During oral argument, counsel for the commissioner said that he was always willing to negotiate with applicants. I think that public interest requires that we leave room for those negotiations. My concurrence arises out of necessity— not necessarily conviction.