We substit ute Mike Ge eslin, in h i s o ff icial ca pacity , as succ essor to Jos e Montemayor, 1 Commi ssioner of Insuranc e. See Tex. R. App. P. 7. Be cause their intere sts do not diverg e, we ref er to appellants collec tively , but, w hen nece ssary in rec ounting historica l fac ts, we distinguish betwe en t h e a c t i o n s o f

t h e c o m m i s s i o n e r

an d T D I. 

### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 5 -00 067 -CV

Mike G eeslin, Com m ission er of Insu rance, and Texas Depart m ent of In surance , Appellan ts
v. State F arm Lloyd s , Appellee

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 345TH JUDICIAL DISTRICT NO. GN30379 3 , HO NORAB LE SUZ ANNE COVINGTO N , JUDGE PRESIDI NG

O P I N I O N This appea l conce rns the validity of a r ate o rder

issued by

the commissioner of insurance . The rate orde r wa s based on now- expired article 5.26-1 o f the insuranc e code , which provided the pr o ce d ure by which Te x as homeowne rs insuranc e provide rs wer e to file their initial homeowner s insurance rate s with the Texas D epar tment of I nsuranc e (“ TDI ” or the “depa rtment”)
as re quired by

Senate B ill 14 in 2003. Tex. I ns. Cod e An n . ar t
. 5 .26-1 (West Supp. 2004-2005). 1 The rate order required S tate Farm L loy ds to reduc e its filed homeowne rs insuranc e rates by twelve perc e n t. St a te F a

r m L lo y d s s o u g h t r e v ie w in d is tr ic t c o u rt. F in d in g th a t arti c le 5
. 2 6-1 wa s unconstitutional and that State Fa rm L loy ds’s due proc ess rig hts had bee n violated, the district cour t
vacated the rate orde r. Appe llants now seek r ever sal of the district c ourt’s judgme nt. We conclude2

that the portion of sec tion 4 of article 5.26- 1 setting out what insurers are required to prove on appea l to t he c omm iss ion e r ( “ the pr oo f p ro vis ion ” ) i s unc on sti tut ion a l on its fa c e and as app li ed to State Fa rm L loy ds. There fore , we affirm the judgme nt of t he trial court in part as to its findings that the pr ov isi on

of fo rm e r A rt ic le 5. 26 -1 , s e c tio n 4 , w hic h r e qu ir e s an in sure r t o p ro ve that a rate reduc tion would prod u ce i nadequa te rates, is unconstituti onal and that State F arm L loy ds’s due pr oc e ss r ig hts we re vio la te d. B e c a us e we fu rt he r h old that th e un c on sti tut ion a l pr oo f p ro vis ion is
sever able, we sever that provision, r ever se the trial court’s judgme nt a s to the constitutionalit y of the
rema inder of the statute, and re mand to the depa rt m en t for f urther pr ocee dings c onsistent with this opi nion.
F ACTUAL AND P ROCEDURAL BACK GR OUND

Fr om 1991 t h ro u gh 2 003, Texas insurance companies ope rate d under a sy stem of flexibl e rate setting , which allowe d insurers to cha rg e up to 30 per cent more or less t han a statepromulg ated be nchmar

k rate . House Resear ch Or g anization, Bill Analy sis, Tex . S.B. 14, 78th L eg ., R.S. (2003). During that time period, in an e ffor t to avoid regulation, insurance companies be g an sh if tin g mor e and

mor e of the ir bu sin e ss t ow ard

un re g ul ate d b ra

nc he s c a lle d L loyd’ s c omp a nie s. Id. Orig inally

unregulated bec ause the y g en erally cover ed spec ialty

risks at lower- than-standa rd rate s, L loy d’s companie s g rew from about 20 perc ent of the ma rket in 1991 to about 95 per cent of the marke t in 2003. Id. Thus, by 2003, only

five pe rce nt of the Texas homeowne rs insuranc e mar ket
was re g ulated. Id. ; H ou se Com m. R e po rt , T e x. S.B . 1 4, 78 th L e g ., R.S. (2 00 3) . In th is m os tly unregulated m ar k et, Texas consumers w ere paying the highe st premiums in the country , often for policies providing reduc ed cove rag e. Id.3 To addre ss these iss ues, t he Tex as L eg islature passed Senate Bill 14, which ame nded the insuranc e code to establish a new sy stem for re g ulating r esidential prope rty insurance rate s. Act of June 2, 2003, 78th L eg ., R.S., ch. 206, 2003 Tex. Gen. L aws 907. Under the new sy stem, insurers
wer e re quired to file their rate s with T DI, an d TDI would then re view and e ither appr ove or disapprove those rate s.

Th e c ha ng e s to the sy ste m of ins ur anc e re g ulatio n we re imp le me nte d in thr e e ph a se s. Article 5.26- 1, eff

ective June 11, 2003, throug h Se p te mb e r

1 , 2 0 0 4, established a one -time proce dure for quickly

bring ing a ll Tex as homeowne rs insuranc e provide rs under this new rate -re g ulation prog ram. Ac cordingto its terms, insurers wer e require d to f ile their initial reg ulated rates with TDI within twenty

day s of the ef

fec tive date of

SB 14, J u n e 1 1, 2003, and to implement the rates immediately
. Tex. Ins. Code Ann. art. 5.26-1, § 2(a)
. Wit hin f orty day s of the filing deadline, T DI
was re quired to re view and e ither appr ove or modify the initial rates. Id. art. 5.26-1, § 2( b). Af t e r t h e i n i t i al fi l i n g, ar t i cl e 5
. 1 4 2 , ef fe ct i v e J u n e 1 1 , 2 0 0 3 , t h ro u gh Dec ember 1, 2004, provided temporary rate -re g ulation proce dures. Id. art. 5.142 (West Supp. 2004- 20 05 ). Un de r t

he te rm s o f a

rt ic le 5. 14 2, ins ur e rs we re re qu ir e d to fi le the ir rate s w ithTD Iand

a wa it the commissioner’s a

pproval be fore implementing these rate s. Id. art. 5.142, § 5. Finally , afte r De cembe r 1 , 2004, article 5.13-2 allowe d insurers to file r ates a nd implement the rate s immediately without prior approva l. Id. art. 5
. 1 3 -2, § 5 (West Supp. 2005). Under this permanent file-a

nd-use sy stem, insurers can use propose d rate s immediately , but TDIcan revie w and either disapprove the rate s befor e they g o into e ffe ct or disapprove further use of the f iled rate s after they g o into effe ct. Id. art. 5.13-2, §§ 5, 7. State Fa rm L loy ds filed with TDI on J une 26, 2003, subm itting its then-exist ing r ates as its initi al rates. On August 18, 2003, TDI notified State Fa rm L loy ds of its determination that the4

rate s mu st b e re du c e d b y tw e lve pe rc e nt, statin g that th e rate s “ are no t r e a so na ble fo r t he ri sk s to which they

apply .” State F arm L loy ds appea led. Pursuant to the terms of a rticle 5.26-1, a

hear ing on State Far m ’s ap p ea l was to be conducte d befor e the c ommissi oner. TDI noticed the case f or hea ring fiftee n day s from the date that State Fa rms L loy ds fi l ed its appeal. In prepa ration for the hea ring , State Fa

rm L loy ds serve d dis c ov ery requ est s o n T DI , i ncl ud in g depo si ti on no ti ces, requ est s fo r do cum ent s, andin te rr og a torie s,
se e kin g to d e te rm ine ho w TDI had set the rate re du c tio n f or State F arm

L loyds . A lth ou g h St a te Fa rm L loy ds’s discover

y reque sts were s erved pursuant to the de partment’s r ules of pra ctice a

nd pr oc e dure fo r c on te ste d case s, TD Ire fu se d to pr od uc e fo r d e po sit ion

any of its e mpl oy e e s w ith kn ow le dg e of

re le va nt fa c ts ab ou t TDI ’s rate re du c tio n, de nie d all of State F arm L loyds ’s re qu e sts for doc uments and interr og atories, and withheld the workpapers and exhibi ts of i ts testify ing e x pert
un til a ft e r S ta te F arm

L loyds pr e fi le d it s d ir e c t c a se , a rguin g tha

t th e c a se wa s a

rate c a se , n ot a contested c ase, a

nd, there fore , the conteste d case discovery rules did not apply
. See 28 Tex. Admin. Code §§ 1.82-.84 (2003) . After a pre trial hea

ring on Aug ust 25, 2003, TDIag reed t o p rese nt one of its two desig nated testify ing e x perts for

a limited, one-a

nd-a- half-hour

deposition. The c ommissi oner he ard the merits of the c ase on Septe mber 2 a nd 3, 2003. To preva il in i t s ap peal unde r the ter ms of article 5.26-1, State F arm L loy ds was re quired to show by
c le ar a nd c on vin c inge viden ce that th e ra te re du c tio n s pe c if

ie d b y TD Iwo uld

pr od uc e ina de qu a te rate s. An inadequate rate was defined as a rate that is “insufficient to sustain projec ted losses and
e xp e n s e s ” a n d “ e n d an g e r s t h e s o l v e n c y o f an i n s u r e r u s i n g t h e r a t e . ” T e x. I n s . C od e An n. a rt
. 5. 14 2, § 2 (b )( 2) ; see also id. art . 5 .2 6- 1, § 1 (b ) ( “ Th e de fi nit ion s a do pte d und e r a rt ic le 5. 14 2 of t

his code a pply to this article .”). Following the hear ing, the commissioner issued a f inal order aff irming5

the depa rtment’s rate re duction, stating in a single conclusion of law

that the rates rec ommended by TDI would produce adequa

te base rate s for State F arm L loy ds. State Fa rm L loy ds sought judicial r eview in district c ourt. The district cour t gr anted
sum m ary judgme nt in favor of

State Fa

rm L loy ds, decla

ring appellants’ a ctions void and unenfor cea

ble, vac ating the commissioner’s rate order , and deny ing a ppellants’ re quest to remand the ca se for

further administrative proc eeding s. Acc ording to the district court, ar ticle 5.26-1 wa s unconstitutional on it s fac e and a s applied, violating the due c ourse of l aw p ro v i s ion of the Texas Consti tution and the due proc ess clause of the United States Constit ution. Article 5.26-1 wa s also unconstitutional, the court found, be ca u s e i t violated the taking s provisions of both the Texas Consti tution and the Unit ed S tates C onstitut ion. Fur ther, the court found that appellants ha d denied State F arm L loy ds due process by failing to follow the applica ble conteste d case provisions of t he Admini strative P roce dure Act (“A PA”) a nd TDI ’s own conte sted ca se rules. See Tex. Gov’t Code Ann. §§ 2001.051-.178 ( West 2000); 28 T ex . Ad m i n . C ode §§ 1.1-.90 ( 2003). The commissioner and TDI

appea led to this Court.

AN AL YSI S Stan dard of Revie w

The mate rial fa cts are not in disput e, an d t h e propr iety of summary judgme nt is a question of law. W estc ott Com mc ’n s, Inc. v . S

tra y ho rn , 104 S.W .3d 141, 145 (Tex. App.—Austin 2003, pet. denied). We revie w t he district cour t’s summary

judgme nt de novo. Va le nc e Op e ra tin g Co . v . D or se tt , 1 64 S.W. 3d

65 6, 66 1 ( Te x. 20 05 ); Pr ov ide nt L ife& Ac c ide nt I ns . Co. v . Kn ott , 1 28 S.W. 3d 21 1, 21 5 ( Tex
. 20 03 ). Whe n th e ma te ri a l f a c ts a re no t in dis pu te , b oth parties move f

or summary judgme nt, a

nd the district c ourt g rants one motion and de nies the other,6

we r eview the summary judgme nt evidenc e prese nted by both sides, determine a ll questions prese nted, and r ender

the judg ment that the distr i ct court should have rende red. Te x as W or k e rs’ Comp. Comm’n v. Patient Adv ocates of Tex ., 136 S
. W
. 3d 643, 648 (Tex. 2004); FM Pr op s. Op e ra tin g Co . v . Ci ty

of A us tin , 22 S.W .3d 868, 872 (Tex. 2000).
Const itut ionali ty of Article 5.26-1 When the constitutionalit y of a statute is c halleng ed, we beg in our re view with a presumption of validity , Sax v. V otteler , 648 S.W .2d 661, 664 (Tex. 1983), and the burden is on the party att ac k i n g t h e statute to establish its unconstituti onality
. Texas Pub. Bldg. Auth. v. M attox , 68 6 S. W.2 d 9 24 , 9 27 (T e x. 19 85 ); Ro bin so n v. Hi ll , 507 S.W .2d 521, 524 (Tex. 1974). I n c on str uin g a statut e , w e pr e su me that: (1 ) c omp lia

nc e wi th th e con st it ut io ns of thi s st a te and

the Un ite d St a te s is intended; (2 ) the e nti re statut e is i nte nd e d to be e ff e c tiv e ; (3 ) a jus t and re a so na ble re su lt i s in te nd e d; (4) a re sult feasible of e x ecution is intended; and (5) public interest is favor ed over any private inter est.
Tex. Gov’t Code Ann. § 311.021 (West 2005). When confr onted with multipl e construc tions of a statut e , if po ssi ble , we mus t int e rp re t the statut or y langua g e in a

mann e r t hat r e nd e rs it c on sti tut ion a l. City of H ou sto n v . Clar

k , 197 S.W .3d 314, 320 (Tex. 2006). I n deter mining leg islative intent, as we must, we presume that the leg islature intended c ompliance with the c onstitut ion; therefor e, statutes7

are g iven a construction consistent with constituti onal re quirements. Brady v. F ourteenth Court of Ap pe als , 795 S.W .2d 712, 715 (Tex. 1990). We look to the plain meaningof the wor ds used in the statute, presuming ever

y word to have b een deliberately chosen a nd excluded words to have been purp o s el y o m i t ted. Fireman’s Fund County M ut. Ins. Co. v. Hidi , 13 S.W .3d 767, 768-69 (Te x. 20 00 ); Con tin e nta l Ca s. In s. Co. v . F un c tio na l R esto ra tio n A sso c s. , 1 9 S. W. 3 d 3 9 3 , 398 (T e x. 20 00 ); US

A W as te Se rv

s. of H ou sto n, In c . v . S

tra y ho rn , 150 S
. W
. 3 d 4 9 1 , 494 (T e x. Ap p. —A us tin

20 04 , p e t. d e nie d) . We sh ou ld n ot a do pt a c on str uc tio n o f a st atut e tha

t w ill rende r the statute mea

ningles s o r l ead to a

bsurd re sults. Fleming Foods of Tex., Inc . v. Ry lander , 6 S.W .3d 278, 284 (Tex. 1999).

I n c ha lle ng ingthe c on sti tut ion a lity of a statut e , a par ty may sh ow that the statut e is unconstitutional on its fa ce or as applied to that pa

rty
. Te x as W or k e rs’ Com p. Com m’n v . G ar c ia , 89 3 S.W.2 d 5 04 , 5 18 n. 16 (T e x. 19 95 ); s e e a ls o Ci ty o f Co r p u s Ch r is ti v . P u b li c U

ti l. Comm ’n of Tex. , 51 S.W .3d 231, 240-41 (Te x . 2001) (Ow en, J., concurring ). To sustain a f acia l challeng e, the par ty must show that the statute, by its terms, alway s operates unconstitutionally
. Id. To su sta in
an as- applied challeng e, the party must show that the statute is unconstitutional when applied to that particula r per son or set of f

acts. Id.
1. The provision of a rt i cl e 5.26-1 t hat sets out the proof requirem ent for rate revie ws is un constitutional on its face. Ap pe lla nts c on ten d tha t, w he n c on sid e ri ngthe ins ur anc e c od e a s a wh ole , a rt ic le 5.26-1 ca n be construe d to ope rate constitutionally and that the trial court there fore err ed in finding that th e pr ov isi on

is f a c ia ll y u n c o ns tit uti on a l. S ta te F arm

L loyds ha d c ha lle ng e d th e c on sti tut ion a lity of the statut e on

the ba sis that it

a llo we d th e c omm iss ion e r t o im po se c on fi sc a tor

y rate s.8 Reg ulated compa

nies are constitutionally

protec ted from confiscatory rate order s. A g overnme nt-set rate must a llow a regulated company to not only rec over its oper ating expenses, but also to rea liz e re asonable returns on its investments sufficie nt to assure confide nce in the continued financ ial integ rity

of the e nterprise
. Duquesne Light Co. v. Barasch , 488 U.S. 299, 307 (1989); Ra ilr oa d Co mm ’n v . H

ou st on Na tu ra l Gas Cor

p ., 289 S.W .2d 559, 572 (Tex. 1956). A rate that does not allow for

a re asonable rate of re turn is confiscatory and unconstitu t i o n al
. J

e rse yCe nt. Power & Light Co. v. Fede ral Energy Re gulatory Comm’n , 810 F.2d 1168, 1181 ( D.C. Cir. 1987). Se c tio n 4 of

art ic le 5. 26 -1 pr ov ide s th a t “ the burd e n o f p ro of is o n th e ins ur e r t o sh ow , by c le ar and c on vin c inge vid e nc e , th a t th e rate re du c tio n s pe c if ie d b y the de pa rtme nt w ou ld pr od uc e ina de qu a te rat es. ” Te x. I ns . Co de Ann. art . 5 .2 6- 1, § 4 . Arate is i na de qu a te if it i s “insuffic ient to sustain projected losses and expenses to which the rate a pplies, and continued use of the r a te e n d an g e r s th e s o lv e n c y o f anin s u r e r

u s in g th e r a te , ” o r

if th e r a te “ h a s the ef fe ct of substantially

lessening competition or cre ating a monopoly within any

marke t.” I

d. art. 5.142, § 2(b) (2).

Rather than a llowi n g fo r a reasonable r ate of return on inve stments, article 5.26-1 only safe g uards a

n insurer f

rom rate s that could lead to insolvency
. Whil e other provisions of the insurance code c omport with the const itutional prohibit ion on confiscatory rate s, providing, f

or example, that rates must be “ just,” “fa ir,” “ rea sonable,” “ade quate, ” “n o t co nfiscator y ,” and “ not excessive,” see id. arts. 1.02(b) , 5.2 6 -1, § 2 (W est Supp. 2004-2005 & Supp. 2005), the
c omm iss ion e r i s n ot r e qu ir e d to a pp ly c on sti tut ion a l st and ard s w he n c on d u c t i n g a n a rt ic le 5. 26 -1 rate
re vie w. Ar

tic le 5. 26 -1 ins te a d r e qu ir e s the c omm iss ion e r to a pp ro ve po te nti a lly

c on fi sc a tor

y rate s, absent c lear

and convinc ing evidence that such rates would lead to ins olvency . We note, howeve r,Appellants ar g ue that the f inal order was non-c onfiscator

y and, there fore , even if

the proof 2 provision was unconstitutional, the order should be upheld. We disag ree . Even if the r ecor d evidenc e shows that the r ate order allows State Fa rm L loy ds the opportunity for a rea sonable rate of return, the order is void. An unconsti tutional statute is void and cannot provide a basis for a ny rig ht or re lief. City of San Antonio v. Summerglen Pro p . Owners Ass’n , 185 S.W .3d 74, 88 (T e x. Ap p. —Sa

n A nto nio 20 05 , p e t. d e nie d) . A ny or de r t hat is ba se d o n a

vo id statut e is l ike wi se void. See id. N o a d d i t i o n a l e x a m i n a t i o no f t h e e n d r e s u l ti s n e c e s s ar

y. 9 that rate s can be confiscatory without necessa

rily leading to insolvency
. Thus, the proof pr ovision
se t out in sectio n 4 of

art ic le 5. 26 , b y

a llo wi ngfo r t

he imp os iti on

of c on fi sc a tor

y rate s, fa ils to p r o v id e r e g u late d

c o mp an ie s w it

h a c o n s ti tuti o n a ll y

a d e qu a te r e v ie w o f

g o v e r n me n t- s e t r a te s . We there fore hold that the proof pr ovision is unconsti tutional on its fac e. See Gu aran ty Nat ’l In s. 2 Co. v. Gates , 916 F.2d 508, 512 ( 9th Cir. 1990) (dec laring a st atute unconstit utional for its failure to provide a me chanism to g uara ntee a constitutionally

require d fair a

nd rea sonable re turn to a regulated insurer ).

2. Ar ti c le 5. 26 -1 was unc ons ti tu ti ona l as appl ie d t o St at e F ar m Llo yds . Appellants next assert that even if section 4 of ar ticle 5.26-1 is unconstitutional on its face , the rate orde r is valid beca use the c ommissi oner did not re quire State F arm L loy ds to meet t h e u n c o n s t i tu t i o n a l p r o o f r e qu i r e m e n ta tt h e h e ar i n g . C i t i n g e v i d e n c e t o t h e c o n t r a r y, State Fa rm L loy ds argues that the unconstitutional proof provision was a pplied throug hout the rate

re du c tio n a

pp e a l and that th e c omm iss ion e r’ s dec isi on fo llo wi ngthe rate he ari ngwa s b a se d o n th is unconstitutional proof provision.

Th e re c or d e sta

bli sh e s th a t, w he n T DI

ini tia lly no tif ie d St a te F arm

L loyds of its rate
re du c tio n, it s e t out th e fo llo wi ngpr oo f r e qu ir e me nt: “ Th e burd e n o f p ro of is on the c omp a ny

to sh ow , b y c le ar a nd c on vin c ing e vid e nc e , tha t the ra te re du c tio n spe c if

ie d by the de pa

rtme nt w ou ldWe emphasize that our holding toda y decla res only one aspec t of the proof pr ovision to be 3 unconstitutional a

nd leave s intact the “cle ar a nd convincing ” burde n-of- proof pr ovision in former article 5.26-1. The le g islature’s intent in t his reg ard was t wofold, as it clea rly soug ht to (1) place the burden of proof on the i n s u re r, and (2) implement the hig her e videntiary standard of

“cle ar a nd convincing ” evide nce, r ather than a mer e prepondera

nce. I n the first re spect, the le g islature’s a ctions are consistent with the regulatory scheme adopted f

or utiliti es rate ca ses, which plac es the burde n of pr oo f o n th e uti lity to sh owthat, d e pe nd ingon the c ir c ums tanc e s, the pr op os e d r a te c ha ng e is j us t and re asonable or th e ex i s t ing r ate is just and re asonable
. See Tex. Util . Code Ann. §§ 36.006 (We st 2 00 7) (e le c tr ic uti lit ie s) , 5 3. 00 6 ( Wes t 20 07 ) ( pu bli c uti lit ie s) , 1 04 .0 08 (g a s u til iti e s) (West 2007).
10 pr od uc e ina de qu a te re su lts .” I n it s n oti c e of he a ri ng , T DI re ite rate d th is p ro of

re qu ir e me nt a

nd a lso inc lud e d the langua g e of art ic le 5. 14 2: “ A rate is ina de qu a te if the rate is ins uf fi c ie nt to s us ta in projec ted losses and e x penses to which the rate applies, and c ontinued use of the r ate: (A ) enda ng ers the solvency

of an insure r using the rate; or (B) has the effec t of substantially lessening competition
or cr eatinga monopoly

within the marke t.” L ikewise, TDI used the same lang uag e in its opening statement bef

ore the commissio n er at t h e merits hear ing. F urther, in its final orde r, the
com m i s sioner re fer

red to the “ inadequate” pr oof provision, conc luding in finding of fa ct 25 that “State F arm did not show by clea r and c onvincing evidenc e that the rate reduc tion specified by the De pa rtme nt w ou ld p ro du c e ina de qu a te re su lt s. ” Thus , th e e vid e nc e e sta bli sh e s th a t th is unconstitutional standard—rather than s ome other c onstitut ional standard—w as applied by the commissioner in upholding TDI ’s rat e d etermination. W e hold that ar ticle 5.26-1 wa s
un c on sti tut ion a l a s a

pp lie d to State F arm

L loyds
. 3. Severability The parties have challeng ed no other provision, a nd we have neither addre ssed nor found constitutional infirmities in t he re mainder of the statute. Be cause we de termine that the

3F ur the rm or e , th e le g isl a tur e so ug ht t o p la c e a hig h b ur de n o n th e ins ur e r t o s ho w w hy its rate —rathe r than TDI ’s reduc ed rate—should be appr oved. Or dinarily , the clea r-a nd-convinc ing standard is a

pplied in civil matters only in ext raor dinary

circ umstances, such as civil commitment hear ings or

the involuntary

termination of par ental rig hts. S e e, e.g. , T ex . He alt h & Saf ety Code Ann. § 574.034(a) (W est 2003) (civil commitment); Tex. Fam. Code Ann. § 161.001 (W est Supp. 20 07 ) (t e rm inatio n o f p are nta l r ig hts ); see also Ellis County State Bank v . Keev er , 888 S.W .2d 790, 792 (Tex. 1994). Where the bur den of pr oof for a contested ca se is undefine d or uncle ar, w e have applied the g ener al civil standard of a pre pondera

nce o f t he evide nce be cause contested c ases a re c iv il in na ture. See Southwestern Pub. Se rv. Co. v. Public Util. Comm’n , 962 S.W .2d 207, 213 (Tex . App .—

Au sti n 1 99 8, pe t. d e nie d) ; Professional Mobile Home Transp. v. R.R. Comm’n , 73 3 S. W.2 d 8 92 , 8 99 (T e x. Ap p. —A us tin 19 87 , w ri t r e f’ d n .r .e .) ; Beav er Expre ss Serv., Inc . v. R.R. Comm’n , 727 S.W .2d 768, 775 n.3 (Tex. App.—Austin 1987, writ denied). Her e, howe ver, the leg islature has e x pressly require d that initial rate hear ings be conducte d under the clea

r-a nd-convinc ing stan d ard, most likely motivated by

its desire to eff

ectively and expeditious ly

addre ss the in s u ra n ce-rate crisis and re quire that initial rates be established and approve d within a short time frame . Moreove r, under the statute, rates are to b e determined by company -spec ific historical data, see Tex. I ns. Code Ann. ar t. 5.142, § 3( e) , which ar e in the po sse ssi on

and c on tr ol o f t

he ins ur e rs . 11 un c on sti tut io nal “i na de qu a te ” pr oo f p ro vis ion of art ic le 5. 26 -1 is s e ve ra

ble , w e are c omp e lle d to strike only

the proof pr ovision and to uphold the remainder of the statute. When a par

t of a statutory

scheme is uncon s t i t u t i o nal, a c ourt should—where possible—sever out the unconstitutional a spects and save the balanc e of the scheme
. T ex . Go v ’t Cod e Ann. § 3 11 .0 32 (We st 2 00 5) ; Cas h Am

. In t’ l, I nc . v . B e nn e tt , 35 S.W .3d 12, 22-23 (Te x . 2000) (O we n, J., d iss e nti ng ); Com mi s s i o n for Law yer D iscipline v. Benton , 980 S.W .2d 425, 441 ( T e x . 1 9 9 8 )
. A c c o r d i n g t o T e x a s l aw o ns e v e r a b i l i t y: (a ) I f any statut e c on ta ins a pr ov isi on fo r se ve ra bil ity , that pr ov isi on

pr e va ils in interpre ting that statute. (b ) I f any statut e c onta ins a pr ov isi on fo r no ns e ve ra bil ity , that pr ov isi on

pr e va ils in interpretingthat statute.As noted above , in the absenc e of a nonsever ability

provision, th e legislature has 4 de mon str a te d a

pr e fe re nc e fo r se ve ra

bil ity , instru c tin g c ourt s to pre se rv e va lid pr ov isi on s of a statut e wher ever possible. Tex. Gov’t Code Ann. § 311.032 (West 2005). 12 ( c ) I n a statute that do es n o t co n t ai n a p ro v i s i o n fo r sever ability or nonsever ability , if any

provision of the statute or its application to any person or circ umstance is held invalid, the invalidity does not aff

ect other provisions o r a p p l i c a t i o n s o f

t h e s t a tu t e t h a tc anb e g i v e ne f f e c tw i t h o u tt h e i n v a l id provision or application, and to this end the provisions of the statute a re sever able. Tex. Gov’t C ode Ann. § 311.032. In Rose v. D octors Hospital , 801 S.W .2d 841, 844 (Tex. 1990), t h e C o u rtr e s t a t e d

t h e t e s tf o r s e v e r a b i l i t y:
Wh e n , th e r e f

o r e , a p art o f a s tatute is u n c o n s ti tuti o n a l, th a t f a c t d o e s n o t authori ze the courts to decla

re the rema inder void also, unless all the pr ovisions are c onnecte d in subject-matter , depende nt on eac h other, operating toge ther for the s ame pur pose, or otherw ise so connec ted in meaningthat i t cannot be presumed the leg islature would have pa ssed t he one without the other. The c onstitut ional and unconstitutional provisions may

even be contained in the sa me sec tion, and y et be perf ectly distinct and sepa rable , so that t h e fi rst may stand thoug h the last fall. The point is not wheth er the y

are c on ta ine d in

the same se c tio n, fo r t

he dis tr ibutio n in to s e c tio ns is pure ly art if ic ia l; b ut w he the r the y

are e sse nti a lly

and ins e pa ra bly c on ne c te d in substance. I f, whe n the unconsti tutional portion is stricken out, that which re mains is complete in itself, and capa ble of being executed in a ccor dance with the appar ent leg islative intent, wholly

independe nt of that which wa s rejec ted, it must st and. (q u o t i n g W

este rn Un ion Te l. C

o. v . S tat e , 6 2 T e x. 63 0, 63 4 ( 18 84 )) . T he g oa l of se ve ra bil ity is t o reta in the valid port i o n s an d applications of a statute whene ver possible. Id. Th e se se ve ra bil ity direc tives also ref

lect our c ase la

w’s re minder that “in the co n s t ru ct ion of statutes, if it can be lawfully done, it is the duty

of the c ourt to const ru e a s t at u t e s o as to rende r it valid.” Sharber v. Florenc e , 115 S.W .2d 604, 606 (Tex. 1938). 4On the oth e r h and , w e mus t avo id s e ve ri ng a pr ov isi on if it wou ld re qu ir e the c ourt to w ri te 5 words into the statute, to leave g aping loopholes in the statute, or to fore see w hich of many differ ent possible way s the leg islature mig ht r espond t o the constitutional objections we have found. Ra nd all v . S orre ll , 548 U.S. 230, ___, 126 S. C t. 2479, 2500 (2006). 13 Whe re se ve ra

bil ity is p e rm iss ibl e , th e un con stitut ion a lity of on e pa rt of a statut e should n ot invalidate the entire statute unless the unconstitutional provision is not separ able f rom t h e remainder. Benton , 9 80 S.W. 2d a t 44 1- 42 ; s e e a ls o H a r r is Co u nty W

ater Control & Improve ment Dist. No. 39 v. Albright , 2 63 S.W. 2d 94 4, 94 7 ( Te x. 19 54 ); Black v . Dallas County Bail Bond Bd. , 8 82 S.W. 2d 43 4, 43 7 ( Te x. Ap p.—Da lla s 1 99 4, no wr it) (“ An inv a lid provision do es n o t v o i d any rema ining pr ovisions that we can g ive ef fec t to after de leting the contaminated pr ovision.”). 5

H e r e , i na d o p t i n g S B 1 4 , t h e l e g i s l a tu r e i n c l u d e d a p r o v i s i o nf

o r s e v e r a b i l i t y:
I f a ny pr ov isi on

of thi s A c t or

its a pp lic a tio n to any

pe rs on or c ir c ums tanc e is h e ld invalid, the invalidity

does not aff

ect other provisions or applications of this Act that can be g iven ef

fec t without the invalid provision or application, and to this end the provisions of this act are decla red to be sever able.
Te x. I ns . Co de Ann. art . 2 2, § 2 2. 03 (We st Su pp . 2 004-2 005) . A s se ve ra bil ity is a n in qu ir y int o le g isl a tiv e int e nt, Minnesota v. Mille Lacs Band of Chippewa Indians , 526 U.S. 172, 191 (1999), we
are g uided by

the leg islature’s e x plicit inclusion of t his sever ability provision. See Tex. I ns. Code Ann. art . 2 2, § 2 2. 03 . Ac c or din g to t he le g isl a tur e ’s dir e c tiv e , th e se ve ra bil ity pr ov isi on wi ll p re va il and the invalid st atutory

provision shall not affe ct other pr ovisions that can be g iven ef fec t without the invalid provision. See id. ; T e x. Go v’ t Co de Ann. § 3 11 .0 32 (a ); Benton , 980 S.W .2d at 441-42.

T h e pr o v i s i o n we h av e he l d i n v al i d i s t h e p ro o f p ro v i s i o nfo r a ra t e- re v i ew h ea ri n g, which re quires insurer s to prove “that the rate reduc tion specifie d by the depa rtment would produce14

inadequate results.” See T ex . I ns. Code Ann. ar t. 5.26-1, § 4. Despite our remova l of the

“ ina de qu a te” pro of pr ov isi on , s e ve ra l pr ov isi on s r e ma in t hat pr ov ide g uid anc e to t he pa rt ie s in setting r ates a

nd to the commissioner in conducting a rate-re view hea ring
. Un de r the ins ur anc e c od e , in sure rs be g in b y se tti ngthe ir

ow n r a te s a

nd fi lin g the se
ra t es wi t h T DI. Id. art. 5
. 2 6

- 1 , § 2 ( a ) ; art. 5
. 1 4 2 , § 4 ( a ) ; art. 5
. 1 3

- 2 , § 5 ( a )
. D e p e n d in g o nwhich provision applies, the insurer may be allowe d to immediat el y b egi n using those r ates, see id. art. 5.13-2, § 5( a), or

may be re quired to await TDI ’s appr oval of those r ates, see id. art. 5.142, § 4(a) . I n setting these rates, insurers a re guided by

statutory rating criter ia. See id. art. 5.142, § 3. These statutory

g uidelines requir e the insure r to consider : (1 ) pa st an d pro sp ect iv e lo ss expe ri e nc e ins ide thi s sta te , an d outs ide thi s st a te if the state data ar e not cr edible; (2) the p e c u li ar ha zards and experienc es of individual risks, past and prospec tive, inside and outside the state; (3) the insurer ’s historical pre mium, ex posure, loss, and e x pense e x perie nce; (4) cata strophe hazar ds within thi s state; (5 ) op e ratin g e xpe ns e s, e xclu din g dis a llo we d e xpe ns e s; (6) investment income; (7) a re asonable marg in for prof it; and (8) any

other re levant fa ctors inside and outside this state.
Id. Th e se g uid e lin e s sp e c if ic a lly direct th e in sure r t o c on sid e r a re a so na ble marg in f

or pr of it i n setting its rates. Id. Fur thermore , the insurer

is dir ecte d to base its rate s on its own hist orica lDef initions adopted unde r ar ticle 5.142 apply

to article 5.26- 1. Tex. I ns. Code Ann. 6 art. 5.26-1, § 1(b) (West Supp. 2004-2005). Article 1.02 was also added by SB 14, which cr eate d the thr e e -s ta g e pr oc e ss f

or re g ulatin g the ra

te s o f h ome ow ne rs ins ur anc e c omp anie s. 15 pr e mium and

los s data , a s we ll a s its ow n data fo r e xpe ns e s and fo r pr of it and c on tin g e nc y

fa c tor s. Id. § 3(e)
. The insu re r i s further instructed that ra tes must not be “excessive, inade quate,
unrea sonable, or unfairly discriminatory for the risks to w hich they apply .” Id. § 3(d). Ar

ticles 5.142
and 1.02 pr ov ide the fo llo wi ngde fi nit ion s o f “ e xce ssi ve ,” “ ina de qu a te ,” and “ un fa ir ly discriminatory ”: [A] r a te is: (1 ) e xcess iv e if th e rat e is li kel y to pro du ce a lo ng -t e rm pr of it that is unrea sonably

high in r elation to the insuranc e cove rag e provide d; (2) inadequate if the rate is insufficient to sustain projec ted losses and expenses to which the rate applies, a nd continued use of

the rate: (A) endang ers the solve ncy of an insure r using the rate; or (B ) h as t h e e ff

ec to f s u b s t an t i al l y

l es s e n i n g c o m p e t i t i o no r c re at i n g a monopoly

within any

marke t; or (3) unfairly

discriminatory

if the rate: (A ) is n ot b a se d o n s ound a c tua ri a l pr inc ipl e s; (B ) does not bea

r a r easona

bl e re l at i o n s h i p t o the expected loss and expense experience among risks; or (C) is based in whole or in part on the ra ce, c ree d, color, e t h n i ci t y , or national orig in of the policy holder or insure d.
Tex. I ns. Code Ann. ar

ts. 1.02(c), 5.142( b). Th e se de fi nit ion s n ot o nly de fi ne an in adeq uat e rate 6 as one that “enda

ng ers the solve ncy

o f an insurer using the rate,” but they also set out additionalAlthough the insurance code further instructs that rate s must not be “unrea sonable,” neither 7 an “ un re a so na

ble ” no r a “ re a so na ble ” rate is e xplic itl y

de fi ned
. I n s e tti ngou t it s r a tin g c ri te ri a in article 5.142 , t h e leg islature twice ref ere nced the term re asonable : rates must allow for a “re asonable ” mar g in for prof it, Tex . I ns. Code Ann. ar t. 5.142, § 3(b)( 7) (West Supp. 2004-2005), and a r ate must bea

r a “ rea sonable” relationship to the expected loss and expense e x perie nce a mong risks, id. § 2 (3 )( B ). Wor ds no t de fi ne d in a statut e a re g ive n th e ir

pla in m e anin g , r e a d in

c on te xt, and construe d acc ording to the rules of g rammar and common usag e. Te x . Gov’t Code Ann. § 3 11 .0 11 (a ) ( Wes t 20 05 ); Fitzgerald v . Advanc ed Spine Fix ation Sys., Inc. , 996 S.W .2d 864, 865 (Tex. 1999). “Rea sonable” is defined a s “fa ir, proper , or m oderate under the circ umstances.” Bla ck’s L aw Dic tionary

1272 (7th ed. 1999). 16 rating criter ia, including the parameter s for a permissible level of long -term pr ofit, which ca nnot be “unre asonably

high in r elation to the insuranc e cove rag e provide d.” Id. 7 Reading the statute as a whole and considering article 5.26-1 in lig ht of article s 5.142
and 1. 02 , th e pa

rt ie s are pr ov ide d wi th de ta ile d g uid anc e fo r s e tti nga rate , a nd the c omm iss ion e r i s g iven detailed sta

ndards f or appr oving or

disapproving a filed r ate. The unconst itutional “inade quate” proof pr ovision can be se vere d without requiring “the c ourt to wr i t e wo rds i nto the
s t a tu t e , t o l e a v e g a

p i n g l o o p h o l e s i nt h e s t a tu t e , o r t o f o r e s e e w h i c h o f

m an y d i f f e r e n tp o s s i b l e w a ys the leg islature mig ht respond to the consti tutional objections.” Se e Ra nd all v . S orre ll , 548 U.S. 230, ___, 126 S. Ct
. 2 4 7 9 , 2 5 00 (2006). Ha ving se vere d this unconstitut ional “inade quate” provision,
we c onclude that the r emainder of the statute c omports with co n s t i t u t i onal standar ds for setting ins ur anc e rate s, wh ic h r e qu ir e that th e ins ur e r b e pe rm itt e d to e arn a re a so na ble pr of it. I n so holding, we note the consistenc y betwee n our d ec i s i on in this case and the solution c r a f

te d b y th e Ca li f o r n ia Su p r e me Co u rt w h e nf

a c e d w it h a s im il ar ly im p e r f e c t s tatuto ry provision aimed at re ducing sky rocke ting c ar insura

nce r ates in California. See C a l farm I ns . Co. v. Deuk

mejian , 771 P.2d 1247 (Cal. 1989). The statute pa ssed by the California le g islature, Proposition 103, contained a rate-a djustm en t m echanism that the insurers a rg ued would pre clude17

relief from conf

iscatory rate s. See id. at 1250. L ike the statute at is s u e h er e, P roposition 10 3 pr ov ide d that “ rate s and pr e miums re du c e d
. . . may be on ly inc re a se d if

the c omm iss ion e r f

ind s, afte r a hear ing, that an ins urer is substantially threatened with insolvency .” Id. at 1253. Acc ording to th e Ca li f

o r n ia Su p r e me Co u rt, s u c h w o r d in g v io late s th e c o n s ti tuti o n a l s ta n d ar d of a f air a nd
rea sonable re turn. Id. Th e pr ov isi on wa s th e re fo re he ld to be inv a lid un de r t he du e pr oc e ss c la

us e of the California

Constit ution and the United States Constitut ion. Id. at 1256. Havingdeter

mined that the statute’s “insolvenc y standard” was unc onstitut ional, the court then turne d to the issue of seve rability
. Id. Pr op os iti on 10 3 c on ta ine d a

se ve ra bil ity c la us e much like the one in t h e T ex as I nsuranc e Code. As the c ourt discussed in Cal far m , Ca lif or nia
c a s e l aw p r o v i d e s t h r e e c r i t e r i a f o r s e v e r a b i l i t y: t h e i n v a l i d p r o v i s i o nm u s tb e g r a m m a t i c a l l y, functionally , and volitionally separ able. Se e Sa nta Ba rb ara S c h. Di st. v . S up e rio r Co ur t , 530 P.2d 605, 617-18 (Cal. 1975). A ppl y i n g t h ese c riteria to the pr ovision in question, t he cour t found the section conta ining the insolvenc y standard to be “clear l y s ev er able.” Cal far m , 771 P.2d at 1256. The c ourt deter

mined that the provision was gra mmatically

sever able be cause it could be re moved without aff

ecting the wording of any other provision. Id. I t w a s a lso fu nc tio na lly se ve ra ble be c a us e its removal would mere ly eliminate an exception to the g ener al rate -setting standard of the statute, which would o t herw ise opera te unobjectionably
. Id. F ina lly , th e pr ov isi on wa s v oli tio na lly
se ve ra ble be c a us e the re ma ind e r o f t

he statut e wo uld

lik e ly have be e n a do pte d e ve n if the inv a lid ity of the insolvency

standard ha d been f

orese en; the voter s “would presumably pref er rate se tting and regulation under the ba lance of the initiative to the method of setting insurance rate s which existed befor e the initiative was e nacte d.” Id.18 As the Cal

far m court e x plained, the invalidation and se vera nce of t h e p ro v i sion at iss ue “ le a ve s unto uc he d th e g e ne ra l st and ard for rate a dju stm e nt, ” wh ic h s ta te s th a t no “ ra te sh a ll be a pp ro ve d or re ma in in ef

fe c t whic h is exce ssi ve , ina de qu a te , unf a ir ly dis c ri min a tor

y or oth e rw ise in violation of this chapter.” Id. Simi larly , in the prese nt c ase, the invalidation a nd sever ance of the provision requiringinsurers to prove that the rate re duction specifie d by TDI would produce inadequate re sults has no ef fe ct on the g ener al standar d for r ate r eview. A s discussed above , the statute provides that “ [a] n approve d o r modified rate . . . must be just, reasonable , adequate, not excessive, and not unfa irly discriminatory

for the r isks to which it applies
. ” Tex. I ns. Code Ann. art. 5.26-1, § 2(b). F urther, g iven the cr isis in t he insuranc e mar ket, the leg islature would likely have adopted pr ovisions for rate regulation with or without the sentence in que stion that sets out the proof require ment. See Cal

far m , 771 P.2d at 1256. Be cause we have held that the pr oof provis ion is unconstitut ional and must be
se ve re d, we c on c lud e that, und e r the re ma ini ng , va lid pr ov isi on s of ar tic le 5. 26 -1 , a

n in sure r m

us t show by clea r and c onvincing evidenc e that a r ate filed under a rticle 5.26-1 is “

just, reasona

ble, adequa te , n o t e xc e s s iv e , an d n o t u n f a ir ly d is c r im in a to r

y f o r th e r is k s to w h ic h it a

p p li e s ,” which
me ans that th e rate mus t a llo w fo r a “ re a so na ble pr of it, ” bu t no t on e that is “ un re a so na bly hig h in relationship t o the insuranc e cove rage p ro v i d ed
. ” See Tex. I ns. Code Ann. ar t. 5.26-1, § 2(b), art. 5.142, §§ 2(b) (1-3) , 3(d), a rt. 1.02(c) (1-3)
. Due Pr oc ess I n t h ei r ne x t ar gu m en t , ap p el l an t s co n t en d t h at , d es p i t e th e ex p ed i t edp ro ce ed i n gs
re qu ir e d b y

art ic le 5. 26 -1 , th e pr oc e e din g s und e r art ic le 5. 26 -1 me t a ll p ro c e dura l du e pr oc e ss19

re qu ir e me nts . In re sp on se , State F arm L loyds argue s that, be c a us e a pp e lla nts re fu se d to c omp ly

wi th the APA and TD I ’s own rule s, State Fa rm L loy ds’s due proc ess rig hts were violated. I n administrative proc eeding s, due proc ess re quires that par ties be aff orded a full and fair he aringon disputed fac t issues. City of C or pu s Ch ris ti , 51 S. W.3 d at 26 2 ( Te x. 20 01 ); Office of Pub. Util. Couns el v. Public U til. Comm’n , 185 S.W .3d 555, 576 (Tex. App
. — Au s tin 2006, pet. denied). The ult imate t est of due proce ss of l aw in an adminis trative hearingis the prese nce or absenc e of ru d iments of fair pla y . State v. Crank , 6 6 6 S
. W
. 2 d 9 1 , 9 4 (T ex . 1 9 8 4 ). Al t h o u gh administrative hea

ring s need not “ measure up to judicia l sta ndards,” ag encie s cannot be arbitra ry or inhere ntly unfair. Office of Pub. Util. Counsel , 185 S.W .3d at 576. We hold that St a te F ar

m L lo y d s ’ s d

u e p r o c e s s r ig h ts w e r e v io late d b y ( 1 ) the
un c on sti tut ion a l pr oo f requi re me nt, (2 ) a pp e lla nts ’ f a ilure to a

pp ly the APA , a

nd (3 ) a pp e lla nts ’ failure to fulfill certa in require ments of due pr ocess.
1. Unc ons ti tu ti ona l pr oo f re quir e m e nt Be cause we have dete rmined that the c omm is s io n e r a p p li e d an unconstitutional proof
re qu ir e me nt at th e rate -r e vie w h e ari ng , w e ho ld that Stat e F arm L loyds wa s d e nie d d ue pr oc e ss i n t h i s p ro ce ed i n g.
2 . Ap p l i ca ti o n o f

th e A PA The pa rties dispute the applicability of the APA to an a

rticle 5.26-1 r ate- revie w he ari ng . A c c or din g to a

pp e lla nts , be c a us e art ic le 5. 26 -1 do e s n ot s pe c if ic a lly pr ov ide that th e APA applies and be cause article 5.26-1 hea ring s are to be conduc ted by the commissioner rather than byI nsurer s wer e required to file t heir ini tial regulated rates with TDI within twenty

day s of 8 the ef fec tive date of

SB 14, June 11, 2003, and to implement the rates immediately . Tex. I ns. Code Ann. art
. 5
. 2 6 -1, § 2(a). Withi n forty day s of the filing deadline, T DI was re quired to re view and either a pprove or modify the initial rates. Id. art. 5.26-1, § 2( b).

20 the State Off

ice of Administrative Hea ring s (“SOAH ”), the APA ca nnot apply

to an ar ticle 5.26-1 rate -re view hea

ring . State Fa

rm L loy ds contends that the APA a pplies to eac h provi s i o n o f t he insurance code unle ss specifica lly exempted. B eca

use no specific exemption ex ists in article 5.26-1, i tar gu es , t h e A P A m u s tap p l y t o an ar t i cl e 5
. 2 6 -1 ra t e- re v i ew h ea ri n g. I n deter mining leg islative intent, courts are require d to rea d statutes as a w hole and interpre t them to give e ffe ct to ever y part. City o

f San Antonio v. City of Boerne , 111 S.W .3d 22, 25 (Tex. 2003). The 2003 c hang es to the sy stem of insuranc e re g ulation w ere implemented in three pha s e s b y arti c le s 5
. 2 6

- 1 , 5
. 1 4 2 , an d 5
. 1 3

- 2
. F o r e a c h o f th e thr e e p h a s e s , th e le g is latu r e s e t out
cer tain proce dures. For initial rate filing s, the leg islature provide d that hear ings w ould be conduc ted by the commissioner, not by SOAH. Tex. I ns. Code. Ann. ar t. 5.26-1, § 4. No spec ific provision was made for the a

ppli ca t i o n of the APA to an a rticle 5.26-1 r ate- revie w hea ring . For the sec ond ph a se of imp le me ntatio n, rate s w e re to be fi le d an d p re -a pp ro ve d b y

the c omm iss ion e r u

nd e r a rt ic le 5. 14 2. Ar

tic le 5. 14 2 sp e c if

ic a lly pr ov ide d th a t c ha

pte r 2 00 1 o f t

he g ov e rnme nt c od e wa s to a pp ly to a ll a rticle 5.142 rate -re view hea ring s. Id. art. 5.142, § 11. Although, a s under a rticle 5.26-1, the
c omm iss ion e r w a s to c on du c t th e he ari ng , th e c ommis si on er was sp e c if ic a lly ins tr uc te d to do so under the APA. Id. art. 5.142, § 9. Finally , article 5.13-2, which e stablished the per manent file- andus e sy ste m, sp e c if

ic a lly pr ov ide d that the APA wa s to a pp ly to a ll a rt ic le 5. 13 -2 rate -r e vie w h e a ri ng s. I n deter mining leg islative intent a s to the APA’s applica bility , we a cknowledg e the time constraints that the leg islature imposed for conducting an ar ticle 5.26-1 initial rate f

iling and
ra t e- re v i ew h ea ri n g. We further consider that, w hile the leg islature made no specific provision for 821

the APA’s application to an a rticle 5.26-1 rate -re view hear ing, the leg islature spec ifically provided that the APA would apply to rate- re v i ew h ea ri ng s under a rticles 5.142 and 5.13- 2. I f the g ener al provisions of the insurance code reg arding the g ener al applicability of the APA applied to ar ticles 5.26-1, 5.142, and 5.13- 2, then the spec ific provisi on for a pplication of the APA in ar ticles 5.142 and 5.13-2 would have been unnece ssary and redunda nt. Thus, we conclude that the leg islature did not i n t en d t h at t h e A P A ap p l y

t o a 5
. 2 6 -1 ra t e- re v i ew h ea ri n g. I n th e pr e se nt ca se , how e ve r, e ve n th ou g h n ot r e qu ir e d b y statut e , T DI

op te d to a pp ly the APA by

no tic ingthe he ari ngun de r b oth the APAand

its ow n r ule s f or c on te ste d c a se he a ri ng s. B y g iv in g n o ti c e to St a te F ar m L lo y d s th a t th e h e ar in g w a s to b e c o n d u c te d u n der the APA, the depar tment was required to conduct the hear ing a s noticed. Althoug h bound to apply the APA by its own notice of hea

ring , the depar

tment failed to do so. B y

noticing the hear ing unde r the APA a nd then fa iling to apply

it, appellants denied State Fa rm L loy ds the due process to which it wa s entitled.
3. Due proce ss requirem ents Even if TD I h ad n o t noticed the he aringunder the APA and wa s, theref ore, not require d to comply with it, appellants wer e re quired to conduc t the hear ing so that State Far m L loy ds
was a ffor ded due proce ss. I n an administrative hea ring , due proc ess means that parties be a ffor ded a ful l and fa ir hea

ring on disputed fac t issues. City of C or pu s Ch ris ti , 5 1 S. W.3 d at 26 2; Office of Pub. Util. Couns el , 185 S.W .3d at 576. The basic elements of due proce ss at the ag ency level ar e notice, hear ing, and an impartial trier of fa cts. Texas Dep’t of Pub. Safety v. M onroe , 983 S.W .2d 52, 56 (Tex. App.—Houston [14t h Dist.] 1998, no pet.). A f ull a nd fair he aringincludes the rig ht to cross-e x amine adve rse witnesse s and to prese nt and re but evidence
. City of C or pu s Ch ris ti , 51 S.W .3d at 262.22 a. Im

partial decision m aker State Fa rm L l o y d s argues that its due proc ess rig hts were violated bec ause the decision make r wa s biased, citing evidenc e that the c ommissi oner ma de a public statement
c on c e rn ingthe dis po sit ion of State F arm

L loyds ’s rate de te rm inatio n p ri or to t h e h e ari ng . App e lla

nts maintain that due proce ss pe rmits the commissioner to take a public view on the matter , even be fore hear ing, a s long a s he is “ca pable of judging a particula r controve rsy fairly on the basis of its own circu m s t an ce s . ” See H

ortonville Joint Sch. Dist. v. Hortonville Educ . Ass’n , 426 U.S. 482, 493 (1976). We beg in with the presumption tha t d ecision make rs ar e unbiase d. Hammac k v. P ublic Util. Comm’n , 131 S.W .3d 713, 731 (Tex. App.

— Austin 2004, pet. denied). To overc ome that pre sumption, S tate F arm L loy ds must show that the commissi oner’ s mind was “irre vocably

closed” to the m at t er before him so that he was inca pable of impartially

judgingthe evidenc e and te stimony

to be pre sented at the hear ing. Id. State F arm

L loyds ha s f

a ile d to me e t thi s burd e n. I n su pp or t of its c la im, it c ite s to
one conve rsation betwe en the c ommissi oner a nd a repor

ter. The re porter a sked the c ommissi oner if h e b eli eved that TDIhad incor rec tly deter mined that the rates filed by State Fa rm L loy ds were
unrea sonable; the c ommissi oner r esponded, “ No.” B ased o n t h i s ev idence , State Fa rm L loy ds conclude s that the commissioner prejudg ed the outcome of the c ase be cause he admitted bef ore the hear ing that he believe d his staff’s de termination was c orre ct, althoug h he had not y et see n the evidenc e or he ard the testimony of S tate F arm L loy ds. We presume that, de spite communicating wh a t he be lie ve d to be the c or re c t di sp os iti on

be fo re the he ari ng , th e c omm iss ion e r w a s st ill a ble to hear all the testimony

and evide nce a

nd make a

n impartial dec i s i o n . “It is well esta blished that23

absent a showing of inca

pability to decide a particula

r controve rsy

fairly , an administrative of fice r is not disqualified simpl y beca use he or she has pr eviously

taken a position, even in public, on a policy issue related to a par

ticular dispute.” Texas Utils. Elec

. Co. v

. P u b l i c U t i l

. Comm’n , 881 S.W .2d 387, 392 (Tex. App.—Austin 1994), rev’d in part on other grounds , 935 S.W .2d 109 (T ex . 1 9 9 6 ) ( ci t i n g United States v. Morgan , 313 U.S. 409, 421 (1941))
. We rec og nize that, having pr e pa re d in a dv a nc e fo r h e ari ng s, and

ba se d o n in fo rm a tio n le arn e d in the ir pr e pa ratio ns , mo st de c isi on make rs have some no ti on of ho w t he y wi ll d e c ide a

c a se . T his is n o e vid e nc e that th os e de c isi on make rs do no t c are fu lly re vie w a nd we ig h th e e vid e nc e and test imo ny a s p re se nte d; i t simply means they wer e prepa red. State Fa

rm L loy ds has prese nted no evidenc e to s h o w t h at the commissioner did not properly listen to, consider, and weigh the evidenc e presented before making his final decision.

b. Full

and fa ir he aring State F arm L loyds argue s tha t it wa s den ie d a ful l and fa ir he ari ngbe c a

us e a pp e lla nts de nie d it th e di sco very

to w hic h it

wa s e nti tle d und e r t

he APAand

un de r T DI ’s dis c ov e ry

ru le s. We have c oncluded that, be cause TDI noticed the he aringunder both the A PA and its own discovery rules, the de partment wa s bound to abide by them. B e c a us e we have fo un d that the APA and TD I ’s ru le s fo r c on te ste d c a se s a pp lie d to the rate-re view hea

ring , we ag ree with State Far m L loy ds that appellants violated both sets of r ules in denying State Fa

rm L loy ds the discovery to w hich it wa s entitled. Both the APA a nd TDI ’s own
ru les pro vi de for

br oa d d isc ov e ry

c on sis te nt w iththe dir e c tiv e s o f t he Te xas R

ule s o f C ivi l Procedur e. See Tex. Gov’t C ode Ann. § 2001.091; 28 Tex . Admin. Code § 1.82. State Fa rm L loy ds24

reque sted discover

y pursuant to TDI ’s ru les of pra ctice a nd proce dure. See 28 Tex. Admin. Cod e § 1 .8 2. Al tho ug h a pp ella nts argue that th e y

su bs tanti a lly

c omp lie d w iththe APAand wi th TDI ’s own rule s, they conce de that State Fa rm L loy ds was permitted only one brie f, one- and-a -halfho ur de po sit ion

of on ly on e of TD I ’s tw o e xpe rt s. TD I re fu se d to pr od uc e fo r d e po sit ion

any of its
e mpl oy e e s w ithkn ow le dg e of re le va nt fa c ts a bo ut T DI ’s rate -a dju stm e nt d e te rm inatio n, de nie d a ll of State Farm L loy ds’s reque sts for documents a nd interrog atories, a

nd withheld the workpa

pers a nd
e xhibi ts of its te sti fy

ing e xpe rt un til a ft e r Sta te F arm L loyds pr e fi le d it s d ir e c t c a se . B y re fu sin g a ll discovery except for one strictly

limit ed deposition of one of its ex perts, a ppellants violated the discovery provisions of both the APA and TDI ’s own rule s, which allow for broad, pa rty -initiated discovery
. See id. ; Tex. Gov’t Code Ann. § 2001.091.

Even if TDI had not notice d the hea ring under the APA, appellants would still have been r equire d to comply

with TDI ’s own rules for contested c ase he aring s. TDI ’s proc edura l rules apply to “any matter within the jurisdiction of the bo ar d , t h e commissioner or the f ire mar shal.” 28 Tex. Admin. C ode § 1.1. Except as other wise spec ifically

provided, TDI ’s proc edural rules “g overn the proce dure f

or the instituti o n, conduct, a nd deter mination of proce eding s befor e the board, the commissioner, or the fi re m arsha l.” Id. As alre ady explained, TDI ’s rules pr ovide for broad, pa rty -initiated discover

y consistent with the Texas Rules of Civil Procedur e. Id. § 1.82. Thus, even if

the APA did not apply , TDI ’s rules of proce dure w ould have r equire d t hat it allow State Fa r m L lo y d s to c o n d

u c t i ts r e qu e s te d

d is c o v e r y . T h e r e qu e s te d

d is c o v e r y w o u ld h a v e been possible even unde r the time constra ints of an ar ticle 5. 2 6-1 rate-re view hea ring , as TDI ’s rules permit the hea

ring s office r to shorten o r l en gt h en the discove ry response times as the intere st of justice requir es. Id. § 1.84.The commissioner’s sing le conc lusion of law stated: “B ased upon the evidenc e admitted 9 and re viewed by

the Commiss i o n er , i t i s the Commis sioner’s opinion that the rate re duction rec ommended by

the Depa rtment will produce a dequate base r ates for State Fa rm.” Al tho ug h we a dd

re ss thi s is su e a s p art

of the pa rt ie s’ du e pr oc e ss a

rgume nt, we no te tha

t, 10 on rema nd, the wording of this orig inal order will have no bear ing on the case . Fur ther, whe ther the A P A e v e na

p p l i e s w i l l d e p e n d

o nh o w t h e h e ar i n g i s n o t i c e d b y T D I. 25 We hold that St at e Fa

rm L loy ds was denie d a full and f air he aringbeca

use it was denied the discovery it r equeste d, discovery that should ha ve bee n permitted under

both the APA and TD I ’s ow n r

ule s o f p ro c e dure . Ev e n if the he ari ng ha d not be e n noti c e d und e r the APA and the APA had not applied, TD Iwould have be en re quired to comply with its ow n ru l es of procedur e,
w h i c h a p p l y t o a l l m a t t e r s w i t h i ni t s j u r i s d i c t i o nan d , l i k e t h e A P A , a l l o w f o r b r o a d , p a rt yi n i t i a t e d d i s c o v e r y.

c. APA’s requirem ents for evide ntiar y findings State Fa rm L loy ds contends that the commissioner’s fina l order violate s the APA’s
r e qu i r e m e n tt h a t“ f

i n d i n g s o f

f a c t , i f s e tf o rt h i ns t a tu t o r

y l an g u a g e , m u s tb e a c c o mp an i e d b y a concise and explicit statement of the under ly ing f acts supporting the finding s.” See Tex. Gov’t Code Ann. § 2001.141(d) ( West 2000). As we have conclude d, beca use the hear ing w as noticed unde r the APA, the APA is applicable . Although the co m m i s s ioner’s or der de ny ing State F arm L loy ds’s appea l se t o ut only

a sing le conc lusion of law, his or de r i nc lud e d 2 5 f ind ing s o f f

a c t. 9 These 25 f

indings of f

act pr ovided a de tailed ac count of the underly ing fac ts, a s require d by

statute. We conclude that the commissioner’s orde r wa s consistent with the APA’s re quirement that the f inal order “be a ccompa

nied by a conc ise and e x plicit sta t em en t o f the unde rlying f acts supporting the finding s.” See id. 1026

Re mand State Farm L lo y ds ar g ue s th a t r e mand is n ot a pp ro pr ia te , w arr ante d, or le g a lly
a uth or ize d b e c a

us e do ingso wo uld e sse nti a lly re -e na c t the Se nate B ill 14 imp le me ntatio n p ro c e ss retrospe ctively . Be cause article 5.26-1 pre scribed stric t deadlines for insurers to make their initial rate filings and for the corr esponding rate -re view hear ings, State Fa rm L loy ds urg es that any

further revie w now that those de adlines have passed must be c onducted unde r the c ontin u i n g, perma nent revie w proc ess cur

rently in place, “ reg ard l es s of the outcome of this case.” Be cause State Fa rm L loy ds’s interpre tation would lead to an a bsurd re sult that the leg islature could not have intende d,
we r ejec t this contention.

The leg islature, whe n it enacte d article 5.26-1, made exp re ss provision for the
e xpir a tio n o f t

he fi rs t ph a se of

the tr ans iti on a l r e g ulator

y sy ste m. Se c tio n 7 of

art ic le 5. 26 -1 state s: (a) This article e x pires September 1, 2004. (b ) Th e e xpir a tio n o f thi s art ic le do e s no t a ff e c t an a c tio n or

pr oc e e din g a g a ins t an in sure r s ub

je c t to that la

w f or a fa ilure to c omp ly

wi th t hat la w b e fo re its expiration, reg ardle ss of when the action or pr ocee ding w as commenc ed, and that law is continued in ef fec t for that purpose
. Tex. I ns. Code Ann. ar

t. 5.26-1, § 7. I n its enactment of this temp o ra ry provision, the leg islature
c on t e mp l a t e d

t h a tc i r c u m s t an c e s m i g h tar i s e
— a s i nt h i s c a s e
— i nw h i c h a p r o c e e d i n g wo uld continue past the Septe mber 1, 2004 de adline. B eca use the leg islature provided for the continuation of proc eeding s that were not completed bef ore a rticl e 5
. 2 6 -1 ’s expiration, remand is per missibl e. Her e, bec ause of

err ors in the orig inal proce eding , including the application of a n unconstitutional proof provision a

nd violations of due proce ss, r emand is both appropr i at e a n d require d.27

See Tex. Gov’t Code Ann. § 2001.174 (cour t revie wing a contested case “shall reverse or re mand the c a se fo r f

ur the r p ro c e e din g s” ); Fi rst Sa v . & Loa n As s’ n of De l R io v . Le wis , 512 S.W .2d 62, 64 (Tex
. Civ. App.—Austin 1974, writ ref’d n.r .e.) ( “In g ener al, it may be said that if the r eviewing court finds e rror

in the ag en cy o rd er, it may rema nd the ca se to the ag ency for further considera

tion.”). State Fa rm L loy ds argues that section 7 is ina pplicable here beca

use this is not “an action or pr ocee ding a g ainst an insurer subject to that law for a failure to c omply with that law bef

ore its ex piration.” Althoug h State Fa rm L loy ds initiated the appea l, the appea l a rose be cause of TDI ’s de te rm inatio n th a t State F arm L loyds ha d fa ile d to c omp ly wi th t he statut e by

fi lin g a ra te that di d
no t qu a lif y a s “ jus t, re a so na

ble , a de qu a te , no t e xce ssi ve , a nd no t un fa ir ly

dis c ri min a tor

y fo r t he ri sk to w hich it applie[d] .” See Tex. I ns. Code Ann. ar t. 5.26-1, § 2(b). F urther, a rticle 5.26-1 makes no oth e r p ro vis ion f

or TDI to in itiat e “ an a c tio n o r p ro c e e din g a g a ins t an in sure r . . . fo r a fa ilure to comply with the law” other than the appea l a nd hear ing pr ovisions, which, although initiated by the insurer, a rise bec ause of

TDI ’s disapprova l of the insurer ’s filed ra te. See id. Se c tio n 7 (b ) w ou ld h av e n o ap p l i ca t i o nu n d er ar t i cl e 5
. 2 6 -1 i f i t d i d

n o tap p l y t o an i n s u re r- i n i t i at edra t e- re v i ew h ea ri n g. We also rec og niz e t h at t he leg islature conte mplated continued pr ocee dings of an
art ic le 5. 26 -1 rate -r e vie w h e ari ngbe y on d f ina l di sp os iti on

of the a pp e a l. S e c tio n 6 pr ov ide s:
I f on final a

ppeal the c ourt upholds the com m i s sioner’s de termination that the insurer’ s rates a

re e x cessive, the insurer sha ll refund the diffe re n ce in ove rcha rg ed pr e mium to e a c h p oli c y

ho lde r, plu s in te re st.
Tex. I ns. Code Ann. ar

t. 5.26-1, § 6. I f ar

ticle 5.26-1 be came inopera ble af ter the Septe mber 1, 2004
e xpir a tio n d a te , th e n n o r e fu nd c ou ld b e ha d a

nd se c tio n 6 of art ic le 5. 26 -1 wo uld be me anin g le ss.We rec og nize that, after the case was initially hear d , t h e co m m issioner made se vera l 11 fi nd ing s o f f

a c t a s to the re a so na

ble ne ss, a de qu a c y , a

nd e xce ssi ve ne ss o f t

he rate s: 17. The modified r ate de termined by the Depa rtment is rea sonable. 18. The modified r ate de termined by the Depa rtment is adequate. 20. The modified r ate de termined by the Depa rtment is not ex cessive. 22. The modified r ate de termined by the Depa rtment i s n ot inadequate , as def ined by art. 5.142(b) (2). B e c a us e of the c on fu sio n a s to the pr oo f pr ov isi on , wh ic h we have de c lare d unc on sti tut ion a l, and bec ause w e have conclude d that State Fa rm L loy ds was not af

forde d d u e p ro ce s s , the commissioner’s finding s of fa ct no long er ha ve any mea n i n g. Only

afte r the prope r proof re qu ir e me nt i s a

pp lie d a nd a ft e r S ta te F arm

L loyds is g ive n d

ue pr oc e ss a s set ou t in thi s o pin ion wi ll the commissioner be a

ble to provide a meaning ful assessment of the rea sonablene ss, adequa cy , and excessiveness of the rate s at issue.
28 I ndeed, if a pendingproce eding under article 5.26-1 could not pr ocee d past the September 1, 2004 expiration date, the appe al itself would be e ssentially moot after Septe mber 1, 2004, be cause the ins u re r, wh o is authorized to charg e its filed rates during the appe al, would fa ce no c onsequenc es if it l os t th e a

pp e a l. I f art ic le 5. 26 -1 we re ino pe ra ble in the mann e r su g g e ste d b y State F arm

L loyds , the insurer

could not issue ref

unds even if—on f

inal dispositi on—the cour t found its rates to be excessive. Such a r esult would rende r the appeal provisions of the statute mea ningle ss, a re sult that
we c onclude the le g islature did not intend. Se e Lowev . R iv e ra , 60 S.W .3d 366, 369 (Tex. App.—Dallas 2001, no pe t.) (stating that statutes should not b e co n s t ru ed in a manner that leads to absur d results).

Be cause we c onclude that the le g islature intended a rticle 5.26-1 to continue in effe ct to the final conc lusion of all pending case s, including appea l a nd rema nd, and that, to ef

fec tuate such intent the leg islature intended se ction 7(b) a pply to an ar

ticle 5.26-1 rate-r eview hear ing, we hold that r emand is pe rmissible a nd authorized wher e there was an e rr o r i n the pr oc e e din g s. Se e Fi rst

Sa v . &Loa n A ss’n o

f D e l R io , 512 S.W .2d at 64. 1129 CO NC LU SION Be cause we c onclude that the por tion o f section 4 of a

rticle 5.26-1 se tting out the insurer’ s proof requireme nt is unconstitutional on its fac e and as applied to State Far m L loy ds and that State Fa

rm L loy ds was denie d constitutionally adequate re view of TD I ’s rate orde r, we aff irm the judg ment of the trial c ourt as to the insurer ’s proof r equire ment and as to due proce ss. We se ver the un con st itu tio na l pr ov isi on re qu ir ingan in sure r t o p ro ve that a rate re du c tio n b y

TD Iwo uld produce inadequate rates, reve rse the tr ial court’s judgme nt as to the constitutionality of the
re ma ind e r o f t

he statut e , a

nd re man d to th e de pa

rtme nt f or fu rt he r p ro c e e din g s c on sis te nt w ith this opini on.

__________________________________________ Diane H enson, Jus tice Be fore Chief J ustice L aw, Justi ces Waldrop a nd Henson Affir med in part; Rever sed and Rema nded in par

t Filed: May

22, 2008