Court Opinion

ID: 6261811
Source: CourtListenerOpinion
Date Created: 2022-02-17 22:09:15.425953+00
Date Added: 2024-06-11T08:59:43.867329
License: Public Domain

ROBERTS, Justice,
dissenting.
I agree that Safeguard Mutual Insurance Company (Safeguard; should have divested itself of securities and mortgages which, due to changed business circumstances,1 it became illegal for Safeguard to hold. I also agree that Safeguard’s cross-appeal is meritless.
However, I cannot agree with the majority that Safeguard should be exempted from maintaining an unearned premium reserve solely because it does not collect any “cash premiums payable in advance.” See Act of August 23, 1961, P.L. 1090, § 1, 40 P.S. § 917 (1971).2 Safeguard does not require payment of premiums before beginning to provide coverage under its policies. Safeguard does, however, collect premiums during the policy period in advance of much *608of the coverage for which those premiums are paid.3 The majority concludes that Safeguard is exempt from carrying unearned premium reserve as a liability as required by 40 P.S. § 91. I do not agree.
There are two reasons for requiring an insurance company to treat an unearned premium reserve as a liability. First, if a policyholder cancels the policy during its effective period, funds must be available to refund a pro rata share of the premium paid. Second, because losses generally occur throughout the policy period, an insurance company must maintain funds, such as premium reserves, to cover potential losses.4
The majority’s interpretation of 40 P.S. § 917 ignores these considerations. There is no dispute that Safeguard receives most of its premiums before they are earned. Safeguard, like many insurance companies, does not demand full payment of premiums before providing coverage. Such payment will typically cover the entire policy period, but will be made soon after coverage begins. Therefore Safeguard receives most premiums “in advance” of the time it will earn them, but must keep these funds available to satisfy losses or cancellations of policies. It must therefore be concluded *609that Safeguard receives “cash premiums payable in advance” and is ineligible for the exemption in 40 P.S. § 917 from maintaining an unearned premium reserve as defined in id. § 91.5
The majority’s distinction between premiums payable before any coverage is provided, which it says are “paid in advance,” and premiums payable shortly after the policy period begins, in advance of most coverage, which the majority says are not paid in advance, is unjustified. In both instances, policyholders pay substantial premiums for future coverage. In both instances, the insurer must maintain funds to satisfy future losses and cancellations of policies. There is no reason to distinguish between these two modes of collecting premiums by saying that one is collection “in advance” and the other is not. Sections 91 and 917 are designed to protect against the problems which can arise when a company holds substantial premiums collected in advance of coverage. The majority’s reading of these sections frustrates this statutory protection for policyholders.
Accordingly, I dissent and would vacate the order and remand the case to the Insurance Department for further proceedings.
EAGEN, C. J., joins in this dissenting opinion.

. The securities became impermissible holdings when Safeguard began writing assessable policies. See Insurance Company Act, Act of May 17, 1921, P.L. 789, §§ 802, 517, 602, as amended, 40 P.S. §§ 912, 652, 722 (1971 & Supp.1977). The mortgages became impermissible when they went into default. See id. These investments should therefore have been properly divested.

. The applicable version of this section (since amended) reads:
“§ 917. Reserves
A mutual insurance company, other than a mutual life company, shall maintain unearned premium and other reserves separately, for each kind of insurance, upon the same basis as that required of domestic stock insurance companies transacting the same kind of insurance, except that the Insurance Commissioner may, by written order, fix a different basis of reserve for losses and claims in workmen’s compensation insurance. Any reserve for losses or claims based upon the premium income shall be computed upon the net premium income, after deducting any so-called dividend or premium returned or credited to the member. Except when case premiums are payable in advance, the provisions relating to unearned premium reserve shall not apply to policies issued by a domestic mutual fire insurance company which policies set forth therein, or in the promissory note attached thereto, a limited or unlimited liability to assessment.
Such companies shall accumulate such reserves not later than December 31, 1961.”
Neither party has raised the question whether the amendment to this section should affect a determination of insolvency made prior to its passage.

. It is common insurance practice to begin coverage shortly before collecting the policy premium.
The majority asserts that we must accept the Commonwealth Court’s determination that Safeguard does not collect premiums paid in advance as a finding of fact supported by the record. The Commonwealth Court’s conclusion, however, is not one of fact, but is an erroneous legal interpretation of “cash premiums paid in advance,” which we are free to correct.

. For example, an insurance company writing 100 one year policies on January first, charging $10 premium for each, collects total premium income of $1000. In January, if one policyholder suffers a $50 loss, his claim will be settled, leaving the company $950 on hand. This fund cannot be considered an unencumbered asset, however, because the company must have funds available to pay later losses or policy cancellation refunds. Maintaining an unearned premium reserve helps insure the availability of such funds. Compare 40 P.S. § 91 (“Computation of unearned premium liability”) with id. § 92 (“Computation of reserves against unpaid losses . . .”•) (another device for insuring the availability of funds to pay losses).

. One type of domestic mutual fire insurance company which might qualify for this exemption is the “post-assessment mutual” insurance company. It calculates and collects most of its premiums after the policy period has elapsed, receiving from policyholders enough premium to cover accrued losses. This sort of company holds no unearned premium, and therefore need not. maintain an unearned premium reserve.