Opinion ID: 1293583
Heading Depth: 1
Heading Rank: 8

Heading: audited data

Text: Appellants first contend that the Commissioner erred in finding and concluding that unaudited data in an insurance ratemaking hearing is unreliable and incredible. By this assignment of error, appellants compel our consideration of the several subsections of our judicial review statutes applicable to insurance ratemaking. A. Standards of Judicial Review G.S. 150A-43, a part of the North Carolina Administrative Procedure Act (NCAPA), provides in pertinent part that, [a]ny person who is aggrieved by a final agency decision . . . is entitled to judicial review of such decision under this Article, unless adequate procedure for judicial review is provided by some other statute, in which case the review shall be under such other statute.  (Emphasis added.) The Department of Insurance is an agency subject to the provisions of the NCAPA. G.S. 150A-2(1). The question, therefore, is whether some other statute provides adequate procedure for judicial review such that the NCAPA review statutes become inapplicable. In determining what is adequate procedure for judicial review, as those words appeared in our former statute, G.S. 143-307, this Court held that an adequate procedure for judicial review exists only if the scope of review is equal to that under G.S. Chapter 143, Article 33, 143-306 et seq. Jarrell v. Board of Adjustment, 258 N.C. 476, 480, 128 S.E.2d 879, 883 (1963). Effective 1 February 1976, G.S. 143-307 was replaced by G.S. 150A-43. Law of March 24, 1975, 1975 N.C.Sess.Laws 44, Ch. 69, s. 4; Law of April 12, 1974, 1973 N.C.Sess.Laws 691, Ch. 1331, s. 2. We now hold that adequate procedure for judicial review, as those words appear in present G.S. 150A-43, exists only if the scope of review is equal to that under present Article 4 of G.S. Chapter 150A. While it has been held that the scope of review provided by the NCAPA is substantially broader than that provided by other sections of G.S., Chapter 58 such that the NCAPA should control, Occidental Life Insurance Co. v. Ingram, 34 N.C.App. 619, 240 S.E.2d 460 (1977), we find the applicable Chapter 58 provision for judicial review of the ratemaking cases to be practically identical to the NCAPA provisions. Compare G.S. 58-9.6(b) with G.S. 150A-51. There are of course subtle differences. For example, G.S. 150A-51 provides that an agency decision may be reversed or modified if the substantial rights of petitioners  may have been prejudiced. (Emphasis added.) The comparable provision in G.S. 58-9.6 provides that such rights  have been prejudiced. Id. 9.6(b). (Emphasis added.) For this reason, and in the interest of uniformity in judicial review of administrative decisions, see Daye, North Carolina's New Administrative Procedure Act: An Interpretive Analysis, 53 N.C.L.Rev. 833, 899 (1975) (hereinafter Daye ), we hold that G.S. 150A-51 is the controlling judicial review statute in insurance ratemaking cases. However, to the extent that G.S. 58-9.6(b) adds to the judicial review function as noted below and in light of the virtually identical thrust of the two statutes, we elect to proceed by applying the review standards of both G.S. 58-9.6 and G.S. 150A-51, where those standards may be construed as being consistent with each other. Both provide that the court may (1) affirm, or (2) reverse, (3) modify, or (4) remand the case for further proceedings. G.S. 58-9.6 also provides the court may declare the Commissioner's order null and void if the substantial rights of the appellants have been, [1] prejudiced because the Commissioner's findings, inferences, conclusions or decisions are: (1) In violation of constitutional provisions, or (2) In excess of statutory authority or jurisdiction of the Commissioner, or (3) Made upon unlawful proceedings, or (4) Affected by other errors of law, or (5) Unsupported by material and substantial evidence in view of the entire record as submitted, or (6) Arbitrary or capricious. G.S. 58-9.6(b). See also G.S. 150A-51. G.S. 58-9.6(b) also provides that [s]o far as necessary to the decision and where presented, the court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning and applicability of the terms of any action of the Commissioner. Here, appellants rely on G.S. 58-9.6(b)(2), (3) and (6) above, contending that the Commissioner has only such powers as are given him by statute and, absent specific statutory authority for the audited data requirement, the Commissioner is without authority to order this particular form of evidence. 1. Excess of Statutory Authority We first address the question whether the Commissioner's action was in excess of statutory authority as contemplated by G.S. 58-9.6(b)(2) and G.S. 150A-51(2). Turning to the applicable statutory provisions, G.S. 58-9 sets out the general powers and duties of the Commissioner of Insurance and confers upon him the duty to [s]ee that all laws of this State governing insurance companies . . . or bureaus relating to the business of insurance are faithfully executed, and to that end he shall have power and authority to make rules and regulations, not inconsistent with law, to enforce, carry out and make effective the provisions of this Chapter, and to make such further rules and regulations not contrary to any provisions of this Chapter which will prevent practices injurious to the public by insurance companies . . . . G.S. 58-9(1). G.S. 58-124.19 sets out the standards and factors to be considered in ratemaking. It provides that [r]ates shall not be excessive, inadequate or unfairly discriminatory. At the time of the Commissioner's order, G.S. 58-124.19(2) provided that: Due consideration shall be given to past and prospective loss experience, within this State; to the hazards of conflagration and catastrophe; to a reasonable margin for underwriting profit and to contingencies; to dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers; to past and prospective expenses specially applicable to this State; and to all other relevant factors including judgment factors, deemed relevant, within this State. . . Our Legislature has generally addressed the question of data collection and availability in two other statutes. G.S. 58-124.18(d) provides: The Commissioner of Insurance is hereby authorized to compel the production of all books, data, papers and records and any other data necessary to compile statistics for the purpose of determining the underwriting experience of lines of insurance referred to in this Article, and this information shall be available and for the use of the Bureau for the capitulation and promulgation of rates on lines of insurance as are subject to the rate-making authority of the Bureau. G.S. 58-124.20(c) provides that: The Bureau shall maintain reasonable records, of the type and kind reasonably adapted to its method of operation, of the experience of its members and of the data, statistics or information collected or used by it in connection with the rates, rating plans, rating systems, underwriting rules, policy or bond forms, surveys or inspections made or used by it. With this statutory background, we turn to the appellant's contention that the Commissioner exceeded his statutory authority in ordering that data be audited. Appellants contend that none of the statutes require that data be audited and the Commissioner has no power to interpolate that requirement into the statutes. Moreover, appellants assert that G.S. 58-124.20 vests the authority to promulgate insurance rates in the Rate Bureau and G.S. 58-124.21 gives the Commissioner only a limited power of disapproval. The latter statute provides that: If the Commissioner after hearing finds that the filing does not comply with the provisions of this Article, he may issue his order determining wherein and to what extent such filing is deemed to be improper. . . . (Emphasis added.) Because Article 12B nowhere specifically states that data be audited, appellants argue, the Commissioner improperly rejected the filing in finding appellants failed to comply with the provisions of [the] Article. Appellants rely on previous statements of this Court that the Commissioner has, in the regulation of insurance rates, only such authority as has been conferred upon him by statute. State ex rel. Commissioner of Insurance v. North Carolina Fire Insurance Rating Bureau, 292 N.C. 471, 234 S.E.2d 720 (1977); State ex rel. Commissioner of Insurance v. North Carolina Automobile Rate Administrative Office, 287 N.C. 192, 214 S.E.2d 98 (1975); In re North Carolina Fire Insurance Rating Bureau, 275 N.C. 15, 33, 165 S.E.2d 207, 220 (1969). In limited context, appellants correctly cite the established rule in this jurisdiction. In State ex rel. Commissioner of Insurance v. North Carolina Automobile Rate Administrative Office, supra , Justice Huskins, writing for the Court, stated: While the Office of Commissioner of Insurance is created by Article III, sec. 7(1) of the North Carolina Constitution, sec. 7(2) of that Article says his duties shall be prescribed by law. Hence, the power and authority of the Commissioner emanate from the General Assembly and are limited by legislative prescription. The only power he has to fix rates is such power as the General Assembly has delegated to and vested in him. 287 at 202, 214 S.E.2d at 104. (Emphasis in original.) The stated rule is in accord with well-established principles of administrative law. The powers and authority of administrative officers and agencies are derived from, defined and limited by constitution, statute, or other legislative enactment. 73 C.J.S. Public Administrative Bodies and Procedure § 49 (1951 and Cum.Supp.1980) and cases cited therein. Thus, [i]n fixing by law the premium rate, it is the legislative power of the State which is being exercised. In re Filing by North Carolina Fire Insurance Rating Bureau, supra, at 32, 165 S.E.2d at 219. It is beyond question that the Legislature may so delegate this authority to an administrative officer provided it prescribes sufficiently clear standards to control his discretion. In re Filing by North Carolina Fire Insurance, supra ; State ex rel. Utilities Commission v. North Carolina and Southern Bell Telephone and Telegraph Company, 239 N.C. 333, 80 S.E.2d 133 (1954). We note that appellants do not contend that the Legislature improperly delegated its authority to the Commissioner nor that it failed to prescribe sufficiently clear standards to control his discretion. They contend only that the Commissioner exceeded his existing statutory authority. An issue as to the existence of power or authority in a particular administrative agency is one primarily of statutory construction. Joseph Burstyn, Inc. v. Wilson, 303 N.Y. 242, 101 N.E.2d 665 (1951), rev'd. on other grounds, 343 U.S. 495, 72 S.Ct. 777, 96 L.Ed. 1098 (1952). In construing the laws creating and empowering administrative agencies, as in any area of law, the primary function of a court is to ensure that the purpose of the Legislature in enacting the law, sometimes referred to as legislative intent, is accomplished. In re Filing by the N. C. Fire Insurance Rating Bureau, supra ; In re Dillingham, 257 N.C. 684, 127 S.E.2d 584 (1962). The best indicia of that legislative purpose are the language of the statute, the spirit of the act, and what the act seeks to accomplish. Stevenson v. City of Durham, 281 N.C. 300, 303, 188 S.E.2d 281, 283 (1972). In addition, a court may consider circumstances surrounding [the statute's] adoption which throw light upon the evil sought to be remedied. State ex rel. N. C. Milk Commission v. National Food Stores, Inc., 270 N.C. 323, 332, 154 S.E.2d 548, 555 (1967). We should be guided by the rules of construction that statutes in pari materia, and all parts thereof, should be construed together and compared with each other. Redevelopment Commission v. Security National Bank of Greensboro, 252 N.C. 595, 114 S.E.2d 688 (1960). Such statutes should be reconciled with each other when possible, and any irreconcilable ambiguity should be resolved so as to effectuate the true legislative intent. Duncan v. Carpenter, 233 N.C. 422, 64 S.E.2d 410 (1951). Applying the foregoing, we first note that neither G.S. 58-124.18(d) nor G.S. 58-124.20(c), the statutes dealing with data collection and availability, mentions a requirement that data be audited. However each section requires that certain data be collected, and the Commissioner is given a certain statutory flexibility in determining what and how that data is to be gathered. G.S. 58-124.18(d) authorizes the Commissioner to require  any other data necessary to compile statistics. Former G.S. 58-124.19(2), under which this proceeding took place, set out the factors to be considered in ratemaking, and also referred to  all other relevant factors including judgment factors, deemed relevant in addition to the factors specially named. G.S. 58-9(1) provides that the Commissioner shall have power and authority to make rules and regulations, not inconsistent with law . . . and to make such further rules and regulations not contrary to any provision of this Chapter which will prevent practices injurious to the public by insurance companies. Viewing these statutes in pari materia, we think it without question that our Legislature intended for the Commissioner of Insurance to promulgate such reasonable rules and regulations as he deems necessary to discharge the functions of his office in seeing that all laws of this State governing insurance companies. . . or bureaus relating to the business of insurance are faithfully executed. Thus the desire of the Commissioner that data submitted in a ratemaking case be audited is not, in our interpretation, in excess of the statutory powers so construed. Our view is, we think, consistent with the weight of authority in other jurisdictions. It is generally recognized that investigatory or inquisitorial powers, power to inspect, or to require the disclosure of information by means of accounts, records, reports, or statements are conferred on practically all administrative agencies. Indeed, such powers constitute functions which distinguish an administrative agency from a court. 1 Am.Jur.2d, Administrative Law § 85. Administrative agencies often have the duty to inquire into the management of regulated businesses and in order to perform their functions efficiently it is essential that the agency have access to many facts, often not voluntarily supplied. State ex rel. Railroad and Warehouse Commission v. Mees, 235 Minn. 42, 49 N.W.2d 386 (1951). The fact that an asserted power is novel and unprecedented does not mean that it does not exist as a statutory power. United States v. Morton Salt Company, 338 U.S. 632, 70 S.Ct. 357, 94 L.Ed. 401 (1950). The United States Supreme Court addressed this issue in the Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968). There, the Federal Power Commission had, contrary to years of custom, set rates for a geographical area of natural gas producers instead of setting rates for individual companies within that geographical area. The Court held that the Federal Power Commission did not abuse or exceed its statutory authority in adopting the system of area price regulation, supplemented by a provision for moratorium upon certain price increases and for exceptions for smaller producers. In interpreting the provisions of the act creating the agency, the Court stated: This Court has repeatedly held that the width of administrative authority must be measured in part by the purposes for which it was conferred; [citations omitted]. Surely the Commission's broad responsibilities therefore demand a generous construction of its statutory authority. Such a construction is consistent with the view of administrative rate making uniformly taken by this Court. The Court has said that the legislative discretion implied in the rate making power necessarily extends to the entire legislative process, embracing the method used in reaching the legislative determination as well as that determination itself. [Citations omitted.] It follows that rule-making agencies are not bound to the service of any single regulatory formula; they are permitted, unless their statutory authority otherwise plainly indicates, to make the pragmatic adjustments which may be called for by particular circumstances. [Citations omitted.] Id. at 776-77, 88 S.Ct. at 1364-65, 20 L.Ed.2d at 341-42. (Emphasis added.) Contrary to the reasoning in the Permian Basin cases, supra, that unless a statute forbids a practice, a ratemaking body should have authority to make pragmatic adjustments, appellants strenuously argue that had the Legislature intended the Commissioner to have the power to require audited data, it would have expressly given it to him. We think appellants expect too much of our Legislature and too little of our state administrative agencies. One of the primary problems in the case before us, and in other cases involving the interpretation of an administrative agency's power, results from the established law that legislative power may not be delegated to an administrative agency unless adequate standards are included in the delegating legislation. The Legislature can obviously not anticipate every problem which will arise before an administrative agency in the administration of an act. The legislative process would be completely frustrated if that body were required to appraise beforehand the myriad situations to which it wished a particular policy to be applied and to formulate specific rules for each situation. Clearly, then, we must expect the Legislature to legislate only so far as is reasonable and practical to do and we must leave to executive officers the authority to accomplish the legislative purpose, guided of course by proper standards. See, e. g., American Power and Light Company v. Securities and Exchange Commission, 329 U.S. 90, 67 S.Ct. 133, 91 L.Ed.2d 103 (1946). The modern tendency is to be more liberal in permitting grants of discretion to administrative agencies in order to ease the administration of laws as the complexity of economic and governmental conditions increases. The realities of modern legislation dealing with complex economic and social problems have led to judicial approval of broad standards for administrative action. Detailed standards are not required, especially in regulatory enactments under the police power. 1 Am.Jur.2d, Administrative Law § 118 (1951). North Carolina cases have long been consistent with this modern tendency. Pue v. Hood, 222 N.C. 310, 22 S.E.2d 896 (1942), reviewed the action of the Commissioner of Banks in denying an application for a bank charter. There the Court stated, It cannot be questioned that the Legislature would have the authority to investigate and decide this question before authorizing incorporation of a bank. But surely the Legislature cannot meet in session and determine the existence or nonexistence of this condition precedent which it has prescribed every time an application for a [bank] charter is received by the Secretary of State. It may, instead, create an administrative investigatory, fact-finding agency to perform this function, administrative and not judicial in nature. 222 N.C. at 314, 22 S.E.2d at 899. In State ex rel. North Carolina Utilities Commission v. Atlantic Coast Line Railroad Company, 224 N.C. 283, 29 S.E.2d 912 (1944), this Court considered inter alia the question whether the Utilities Commission had authority to require certain utilities give 30 days' written notice of rate increases. This Court held that under general authority to formulate regulations, an administrative agency of the State may prescribe by rule the procedure by which a right granted may be exercised. In Burton v. City of Reidsville, 243 N.C. 405, 90 S.E.2d 700 (1956), it was said: The acts of administrative or executive officers are not to be set at nought by recourse to the courts. Nor are courts charged with the duty or vested with the authority to supervise administrative and executive agencies of our government. However, a court of competent jurisdiction may determine in a proper proceeding whether a public official has acted capriciously or arbitrarily or in bad faith or in disregard of the law. Pue v. Hood, [Comr. of Banks,] supra. And it may compel action in good faith in accord with the law. But when the jurisdiction of a court is properly invoked to review the action of a public official to determine whether he, in choosing one of two or more courses of action, abused his discretion, the court may not direct any particular course of action. It only decides whether the action of the public official was contrary to law or so patently in bad faith as to evidence arbitrary abuse of his right of choice. If the officer acted within the law and in good faith in the exercise of his best judgment, the court must decline to interfere even though it is convinced the official chose the wrong course of action. The right to err is one of the rights-and perhaps one of the weaknesses-of our democratic form of government. In any event, we operate under the philosophy of the separation of powers, and the courts were not created or vested with authority to act as supervisory agencies to control and direct the action of executive and administrative agencies or officials. So long as officers act in good faith and in accord with the law, the courts are powerless to act-and rightly so. Id. at 407-08, 90 S.E.2d at 702-03. In interpreting the authority of the former State Highway Commission, this Court in C. C. T. Equipment Company v. Hertz Corporation, 256 N.C. 277, 123 S.E.2d 802 (1962), stated: The Legislature has not set out in detail every incidental power belonging to and which may be exercised by the Commission. As a practical matter the Legislature could not foresee all the problems incidental to the effective carrying out of the duties and responsibilities of the Commission. Of necessity it provided for those matters in general terms. Where a course of action is reasonably necessary for the effective prosecution of the Commission's obligation to supervise the construction, repair and maintenance of public highways, the power to take such action must be implied from the general authority given and the duty imposed. Mosteller v. Southern R. R. Company, 220 N.C. 275, 280, 17 S.E.2d 133. Administrative boards, commissions and officers have no common-law powers. Their powers are limited by the statutes creating them to those conferred expressly or/by necessary or fair implication.   In determining whether a board or commission has a certain power, the authority given should be liberally construed in the light of the purposes for which it was created and that which is incidentally necessary to a full exposition of the legislative intent should be upheld as being germane to the law. In the construction of a grant of power, it is a general principle of law that where the end is required the appropriate means are given.   However, powers should not be extended by implication beyond what may be necessary for their just and reasonable execution. 42 Am.Jur., Public Administrative Law, 26, pp. 316-318. Id. at 282-83, 123 S.E.2d at 806-07. Appellants also argue that the Commissioner improperly found and concluded that unaudited data was unreliable. They assert there is a lack of sufficient evidence to support this finding and conclusion because only one witness, qualified at the hearing as an expert in accounting and financial reporting, testified that unaudited reports cannot be relied upon. This evidence was uncontested. In asserting their position, appellants correctly argue that the whole record test is applicable to judicial review of administrative decisions in North Carolina, citing In re Rogers, 297 N.C. 48, 253 S.E.2d 912 (1979); Thompson v. Wake County Board of Education, 292 N.C. 406, 233 S.E.2d 538 (1977). Moreover, both G.S. 58-9.6(b)(5) and G.S. 150A-51(5) put forth that test as a proper standard of judicial review of these proceedings. They argue that review of the record as a whole reveals insufficient evidence for the Commissioner's finding that unaudited data is unreliable. Unlike Thompson v. Wake County , supra, and In re Rogers, supra , where the Court was concerned with conflicting and contradictory evidence, the expert witness' testimony here with respect to unaudited data was not contradicted. Indeed, the witness was not even cross-examined on this point. Appellants further argue, however, that the whole record discloses that the collection of insurance statistical data is an unbelievably complex process which has been painstakingly developed and meticulously documented; and that the methods by which the statistics are collected and assembled are the same in North Carolina as in 47 other states. Appellants' brief presents a lengthy explanation of how the statistical agents and the Rate Bureau compile and evaluate statistical data. We are not concerned, however, with either the number of states who do things this way or the complexity of the data collection process. We are concerned with the amount of evidence in the record which supports the Commissioner's order. What appellants seem to be arguing is that we hold as error the Commissioner's reliance on uncontested evidence presented to him. This we are unwilling to do. North Carolina is in accord with the well-established rule that it is for the administrative body, in an adjudicatory proceeding, to determine the weight and sufficiency of the evidence and the credibility of the witnesses, to draw inferences from the facts, and to appraise conflicting and circumstantial evidence. 73 C.J.S., Public Administrative Bodies and Procedure § 126. See, e. g., State ex rel. Commissioner of Insurance v. N. C. Automobile Rate Administrative Office, supra ; State ex rel. Commissioner of Insurance v. N. C. Fire Insurance Rating Bureau, supra. The credibility of witnesses and the probative value of particular testimony are for the administrative body to determine, and it may accept or reject in whole or part the testimony of any witness. 73 C.J.S., supra at § 126. Hence, applying the whole record test to the issue of audited data, we find no error in the Commissioner's election to accord the necessary weight and credibility to the testimony of the single uncontested expert witness testifying on auditing. Finally, appellants' reliance on previous decisions of this Court as authority for the position that the Commissioner exceeded his statutory authority in ordering audited data is misplaced. In each of the cases relied upon by the appellants, the Commissioner clearly exceeded his statutory authority in fixing premium rates in factual situations clearly distinguishable from that disclosed by this record. For example, in State ex rel. Commissioner of Insurance v. N. C. Automobile Rate Administrative Office, 292 N.C. 1, 231 S.E.2d 867 (1977), the Commissioner ordered that private passenger automobile insurance rates be decreased by 23.8% for bodily injury and increased by 2.5% for property damage. This Court found that the statute applicable at that time allowed the Commissioner to (1) either approve all of the increase proposed by the rate office, (2) approve a part of the proposed increase or (3) disapprove the entire proposed increase. The statute did not authorize the Commissioner to order a reduction in then-existing rates. Therefore, he clearly exceeded his statutory authority when he ordered a reduction of a rate. In that same case, we note, Justice, now Chief Justice, Branch used language far more pertinent to the issue before us than that relied on by appellants: The language of G.S. 58-248 does not restrict the Commissioner's consideration to the statistical data furnished by the Rate Office and he may consider evidence from other sources if it is otherwise competent. Id. at 18, 231 S.E.2d at 876. Moreover, The Commissioner of Insurance is considered to be a specialist in the field of insurance and his projection of past experience and present conditions into the future is assumed to be correct and proper if supported by substantial evidence. Expert testimony, otherwise competent, that a trend upward or downward may reasonably be expected to continue into the future is evidence of reasonable and related factors which the Commissioner may consider in making his projections. The statute does not require that procedures and methods for trending loss experience for the future shall be frozen. Id. at 21-22, 231 S.E.2d at 878. (Emphasis in original.) Therefore, the Court held that the Commissioner did not err when, rather than measuring automobile property damage insurance trends separately from paid claim costs and paid claim frequency as the automobile rate administrative office had done in its filing according to its usual methodology, he chose instead to apply trending factors to the composite of average paid claim costs and frequency or average loss cost per automobile. Indeed, in many of our previous decisions on insurance, we have stressed the Commissioner's statutory ability to compel special statistical data.