Opinion ID: 1293583
Heading Depth: 2
Heading Rank: 1

Heading: summary of facts and holdings

Text: On 29 November 1977 the North Carolina Rate Bureau, on behalf of its member companies and the North Carolina Reinsurance Facility, filed with the Commissioner of Insurance a proposed revised premium rate schedule for automobile insurance, including bodily injury and property damage liability, medical payments, and physical damage insurance for non-fleet private passenger automobiles. The filing stated that calculations substantiated the need for a statewide average rate increase of 23.2%, but in accordance with the requirements of G.S. 58-124.26 the filing had been limited to an overall increase of 6%. The filing also proposed that rates for risks ceded to the North Carolina Reinsurance Facility be 10% higher than rates for risks voluntarily retained, and that ą 5% territorial rate differences be established. The Commissioner gave notice of public hearing, contending that the filing failed to comply with statutory requirements in a number of respects. After the hearing, the Commissioner made extensive findings of fact and conclusions of law and disapproved the filing in its entirety. In his disapproval order, he allowed the Bureau 60 days to submit an amended filing consistent with his findings and conclusions and ordered that the Bureau by its amended filing submit the exact data and information he had requested in the notice of public hearing. The Rate Bureau appealed to the North Carolina Court of Appeals. That court, speaking through Arnold, Judge, affirmed in part and reversed in part. We note the various holdings of the Court of Appeals and our response on review: (1) The Court of Appeals held that the Commissioner may require that company data in this insurance ratemaking hearing be audited. We reverse. We hold that while such a requirement, as a general rule, does not exceed the Commissioner's statutory authority, the Commissioner here failed to comply with lawful procedures and his actions were arbitrary and capricious. (2) The Court of Appeals held that the proposed 10% rate differential for insureds ceded to the North Carolina Reinsurance Facility was unfairly discriminatory. We reverse. Applying the whole record test, we hold that there was insubstantial evidence in the record to support the Commissioner's findings and conclusions of unfair discrimination. (3) The Court of Appeals held that the Commissioner may require the consideration of income on invested capital in an insurance ratemaking case. We reverse. We hold that the Commissioner erred as a matter of law in concluding that the law of this jurisdiction allows consideration of income from invested capital in an insurance ratemaking case. (4) The Court of Appeals held that the Commissioner's implementation of a capital asset pricing model to calculate underwriting profit margins was erroneous. We affirm. We hold that the Commissioner's attempted implementation of a capital asset pricing model to calculate underwriting profit margins was erroneous as a matter of law and was arbitrary and capricious. (5) The Court of Appeals held that the enactment of G.S. 58-124.21 did not transfer the burden of proof in a ratemaking hearing to the Commissioner of Insurance. We affirm. We hold that the burden of proving the need and reasonableness of an insurance rate increase continues to rest with the Rate Bureau. (6) The Court of Appeals held that the Commissioner did not fail to comply with the statutory requirement that in his order disapproving a filing he indicate wherein and to what extent such filing is deemed to be improper. G.S. 58-124.21(a). We affirm, albeit for different reasons than those noted by the Court of Appeals. (7) The Court of Appeals held that the Commissioner complied with the notice requirements of G.S. 58-124.21(a). We reverse. We hold that the Commissioner failed to comply with the notice requirements of this statute because no notice was served upon appellants questioning the reliability of the data submitted. (8) We hold that the Commissioner erroneously found and concluded that the appellants acted in bad faith. (9) We leave undisturbed those portions of the Court of Appeals' decision finding (a) that projections of territorial rate differences did not consider the new classification plan and that the alleged failure to consider the new classification plan resulted in excessive rates was not supported by the evidence, (b) that there was no evidence to support the Commissioner's disapproval of deductible collision rates as being excessive, and (c) that the appeal by the Rate Bureau nullified the Commissioner's order to submit an amended filing. These holdings were not brought before us on this appeal. (10) While several portions of our decision are supportive of certain positions and apparent general goals of the Commissioner, the magnitude of the multiple legal errors in the proceedings before the Commissioner and in his order compel us to reverse the order, declare it null and void and order the filing approved. Moreover, we order that the escrowed premium funds representing this proposed rate increase be remitted to the member insurers pursuant to G.S. 58-124.21(b). Other facts important to an understanding of our decision are noted below.