Opinion ID: 2332011
Heading Depth: 2
Heading Rank: 7

Heading: Liability Insurance Expense

Text: Casco's rate request included an increase from $1,200 to $3,500 for its annual premium for general liability insurance on its wharves and piers. The evidence indicated the increase was caused by accidents on the wharf which were not related to Casco or its operations. Because the accidents were not connected with Casco's property, Mr. McLaughlin asked the Company's insurance agent to inquire into what appeared to be an unreasonable premium increase. The agent had not responded to Mr. McLaughlin at the time the record before the Commission was closed. The Commission found that the substantially increased insurance premium was not a legitimate expense for ratemaking purposes. Stating that Casco had failed in its duty to obtain insurance coverage at a low cost, the Commission allowed an insurance expense of only $3,000 for ratemaking purposes. Re Casco Bay Lines, supra at 178. We hold the Commission's treatment of Casco's liability insurance expense to be an arbitrary exercise of its power. Such error, however, does not warrant further action by this Court because of the relatively small amount of money involved. Unlike the life insurance, pension and commuting expenses, which were imposed by Casco's own management upon its ratepayers for the benefit of its owner-officers, the liability insurance expense is an actual cost imposed upon Casco by a separate business entity. Such costs, being the result of arm's-length transactions, carry a presumption of reasonableness. There is no evidence that Casco's management acted imprudently or in bad faith with respect to this expense. See Central Maine Power Co. v. Public Utilities Commission, 153 Me. 228 at 242, 136 A.2d 726 at 736. Moreover, the testimony shows that Mr. McLaughlin made a reasonable and prudent inquiry into the premium increase. The Commission's finding that this expense was unreasonable is not supported by the evidence in the record and, therefore, its disallowance of $500 was not warranted. Although error exists in the Commission's disallowance of $500 of the expense item, we find that the relatively small amount of money involved makes it unnecessary for this Court to consider its remedial powers under Section 305. Ratemaking is not an exact science and often calls for estimations and predictions. The Commission and the utilities might overestimate in one area and underestimate in another. The Commission's final decision must be accorded some margin for error. Accordingly, this Court is primarily concerned with the reasonableness of the overall result. New England Telephone & Telegraph Co. v. Public Utilities Commission, supra (1978). In this case, the Commission committed error in its disallowance of $500 in liability insurance expense. On the other hand, the Commission granted Casco $1,200 more for professional fees expense than it had requested. These amounts appear relatively insignificant when compared to the total of $459,426 in operating expenses allowed by the Commission in its operating ratio computation. Recognizing that ratemaking is a process of estimations and predictions, we cannot find that the total effect of the Commission's decision on this issue results in confiscation of Casco's property. The Commission's error does not warrant our consideration of this Court's remedial powers under 305 in this case.