Court Opinion

ID: 9829433
Source: CourtListenerOpinion
Date Created: 2023-09-01 19:18:28.750953+00
Date Added: 2024-06-11T07:43:01.153673
License: Public Domain

On Motions for Rehearing.
Appellee has, it seems to us, confused the rate-making function of the Insurance Department — which .function is legislative in character and cannot therefore be exercised retroactively in violation of the constitutional prohibition against making ex post facto and retroactive laws —with its administrative function of rate-application, on which the prohibition *540against making retroactive laws has no bearing. We will first of all show that the correction made by the Department on November 22, 1934, referred to in our original opinion, was an exercise of the Department’s administrative function, and that the prohibition against retroactive legislation cannot possibly constitute a legal obstacle to the correction of the application of an erroneous rate, or to the right of reparation for the time the erroneous rate was applied.
As is well known, rate-making is law making. And, as is true of all other legislation, after orders which prescribe rates for particular services have gone into effect, such rates must be applied or assessed for the performance of services for which they have been previously prescribed. As pointed out in our original opinion, errors will inevitably occur at times whereby the agency, which is charged with the duty of administering or applying rates which have been previously prescribed for particular services, will assess for the performance of a particular service a rate prescribed for a different service. In the case of railroad rates, which are prescribed by one agency, and are applied by another —-the individual carriers themselves — there is small danger (after it has been established as a fact that the rate which had been previously prescribed for a particular service was not assessed for the performance of such service, but that a different rate was assessed therefor), of confusing the action of the commission in prescribing the rate (which is legislative) with the error of the carrier in assessing and collecting an erroneous rate (which is administrative). Furthermore, it is practically impossible to think, or to argue, that a carrier, which is by law denied all rate-making power, may, by assessing and collecting an erroneous rate, thereby establish a rate, which it has erroneously assessed and collected, as the only lawful rate for such service, so as thereby to-enable the carrier or shipper to claim that any correction in application would constitute retroactive legislation. An argument which is so patently absurd when used of an error in applying a railroad rate prescribed for one service to another and different service, loses something of its absurdity, though it can gain nothing in validity, when used of an error made by the Insurance Department in applying a rate previously prescribed for a greater risk than the risk which was actually involved, because the Department has by law both the power to prescribe rates, and to apply them after they have been prescribed to the risk for which they were prescribed.
The action taken by the Insurance Department on November 22, 1934, by which a change was made in the rate which was applied to appellant’s particular risk, was not the exercise of the Department’s legislative or rate-making functions. No change was thereby made in the Department’s rate structure. But, to the contrary, it affirmatively appears from the record in this case, that the Department applied on November 22, 1934, the same identical rate which it would have applied as early as the very inception of appellant’s policies of insurance had the fact been made known to it at that time that the Dewey death loss had been erroneously included in appellant’s experience record. In other words, it is not pretended that the rate which was applied on November 22, 1934, was then established, or that it had not been in full force and effect at all times from the very inception of appellant’s policies, and available to be applied by the Department, and would have been applied by the Department then but for the fact that the Department did not then know said rate should be applied because appellant’s experience record erroneously included the Dewey death loss. Indeed, ap-pellee, on original hearing, made the point that the only reason why the rate, which was applied by way of correction on November 22, 1934, was not applied even as early as the inception of the policies, was due to the negligence of appellant in failing to discover the Dewey death loss. The action taken by the Department on November 22, 1934, was obviously an exercise of its administrative function of rate-application, and not the exercise of its legislative function of rate-making. And the constitutional prohibition against retroactive legislation does not operate to prevent the Department from applying the correct rate, and does not operate to prevent appellant from recovering reparation for premiums which appellee collected in excess of the rate which appellee earned and the Department would have assessed, except for said error in appellant’s experience record. It is clear that in the instant case, the rate which the Department determined on November 22, 1934, was correct, was one that could and would have *541been applied at the inception of the policies but for the erroneous inclusion of the Dewey death-loss. And that is to say it was the rate prescribed by law — even prior to the inception of the policies for the service of carrying appellant’s risk; and it was because it was in full force and effect that it was applied by way of correction on November 22, .1934.
It is no'doubt true, as it insists, that, had appellee sued appellant for the portions of premiums which had, according to the face of the policies accrued between May 2, 1933, and May 2, 1934, and obtained judgment therefor before the correction was made, appellee would have recovered judgment from appellant for the amount then indicated by the face of the policies. That is, appellant would have recovered on the basis of the erroneous rate. Such a recovery would have been final. But such a recovery would have resulted, not because the amount so recovered was actually due by law, but because the proof which would then have been made would have erroneously established such amount as based on the duly prescribed rate. Judgments are sometimes recovered on evidence which at a later day could be proven erroneous, yet the judgments so obtained finally conclude the matters in litigation. But that such a judgment as indicated would have, resulted, if taken before the error in rate had been corrected, is to he attributed solely to the doctrine of finality of judgments, which is based on the same policy as is, of course, the statute of limitation.
Appellee further urges that it works a hardship and great inconvenience on insurance companies to require them, long after they had collected premium money, but within the period of the four year statute of limitation (Vernon’s Ann. Civ.St. art. 5527), to make reparation, merely because the Insurance Department might at such late date uncover errors. The purpose of prescribing by law the rates that shall be charged is a most excellent one. No error made in administering the law can repeal it, or knowingly be permitted to defeat it; certainly the convenience of those whose business the law is meant to regulate, cannot serve to defeat it. It is doubtless true that some of the errors which the Insurance Department corrects from time to time, as in the present case, in misapplications of rates, are errors which the Insurance Company concerned could not have discovered itself. But it is difficult to understand how the substitution by the Department of the correct rate for an erroneous rate could have serious consequences to an insurance company. The error made by the Department in applying a rate can no more give an insurance company the right to a wrong rate, Than can an error made by a carrier in applying a rate give a shipper the right to a wrong rate. And in legal contemplation the company can suffer no harm by being required to carry the actual risk involved at the rate previously prescribed therefor. Moreover, the rule works both ways. While it may be that the greater vigilance of insurance companies in such matters, and the' greater expert knowledge possessed by them, keep down errors made against them and in favor of policy holders; yet such errors are inevitable, and then the rule will work for them.
Appellee further argues that, where the Insurance Department is permitted to make correction such as it made in the present instance, and if policy-holders are permitted to recover reparation on the basis of such corrections, that insurance rates will be wholly unstable; and insurance companies will have no certain rates to count on. It is but fair to appellee to state again in this connection that it fails to distinguish between the exercise of the rate-making function by the Department, and its rate-application function in the exercise of which it applies to particular risks rates theretofore prescribed for carrying the particular risk involved. Possessed of such a view, it is entirely logical for appellee to consider that the Department, when it establishes a new manual or base rate, is but exercising the same function which it exercises when it applies a previously prescribed “adjusted” rate. It is, of course, in reference to previously prescribed manual rates that “adjusted” rates can be spoken of as existing, for they are nothing more than variations calculated on the applicable manual rate, according to the provisions of “System of Schedule and Experience Rating” adopted by the Department (and that is certain which by mere calculation can be made certain). So much we infer from the record before us in this case. Of course the establishment of a new manual rate, from which variations to be applied to individual risks must be calculated, can he done by the Department only in the exercise of its rate-making function. *542To effect a change in a manual rate it is necessary for the Department to publish fifteen days notice before making such a change effective, according to the requirement of R.S. Art. 4907, Vernon’s Ann.Civ. St. art. 4907.' Appellee helpfully indicates in its motion that in making changes in a manual rate, the Department actually does this. And, of course, a newly established manual rate can operate prospectively only. Indeed, as herein indicated, all rates operate' only from and after they have, been prescribed; but the establishment of a manual rate prescribes the variations that are calculated thereon to be applied to individual risks.
Because the correction made by the Department on November 22, 1934, did not violate appellee’s constitutional rights, but simply enforced the applicable previously prescribed rate, appellant was entitled to recover reparation for the excess collected by appellee over the applicable lawful rate then actually in force. It follows that judgment should be here rendered for appellant for the overcharges sued for, as they are fixed by proof; therefore, appellant’s motion for rehearing is granted; the former judgment of this court set aside, judgment reversed and rendered, and ap-pellee’s motion for rehearing refused.
Appellant’s motion for rehearing ■ granted, former judgment set aside, cause reversed and rendered, and appellee’s motion for rehearing refused.