Court Opinion

ID: 3617439
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:00:13.464753+00
Date Added: 2024-06-11T14:24:56.399748
License: Public Domain

The Superintendent of Insurance, in refusing a license to this foreign insurer, is not attempting to regulate brokers' commissions. He does not have and does not assume to have any such power (Matter of Importers  Exporters Ins. Co. v.Rhoades, 239 N.Y. 420). All that he is doing is to prohibit a foreign insurer from coming into this State and paying commissions in excess of those voluntarily fixed by the members of the New York Fire Insurance Exchange, which do about ninety-eight *Page 363 
per cent of the fire insurance business transacted in the metropolitan areas of this State. That is a very different thing from prescribing rates. The Superintendent does not say what the rates shall be. He has no control over that. The members of the Exchange may raise or lower rates whenever and as often as they so decide.
The petitioner, a foreign insurance company, has failed to adhere to these rates. For this reason the Superintendent of Insurance has refused to renew its license to do business within this State. The Superintendent has based his refusal upon the discretion which he contends is vested in him by the provisions of section 42 (subd. 2) of the Insurance Law. This section provides that the Superintendent shall issue a renewal license to a foreign insurer provided the latter is not delinquent with respect to any requirements imposed by the Insurance Law, and provided further that the Superintendent shall be satisfied "that its continuance in business in this state will not be hazardous or prejudicial to the best interest of the people of this state."
Obviously, the Superintendent has been charged with a greater duty than merely to see to it that the specific directions found in the Insurance Law are observed. Here is a plain mandate by the Legislature that the Superintendent must do more than merely look to the letter of the statute; otherwise, the second criterion contained in subdivision 2 is meaningless.
The question here presented, therefore, is whether in this case the Superintendent of Insurance has lawfully exercised the powers conferred upon him under the Insurance Law. What he has done in effect in this case is to compel this foreign insurer to observe a reasonable regulation subscribed to by the vast majority of fire underwriters doing business in this State. He has undertaken this action only upon a finding that unless there is a limitation upon brokerage commissions paid by this foreign insurer, its continuance in business in this State will be hazardous and prejudicial to the best interest of the people of this State.
The above conclusion is based upon findings that the experience of fifty years in the insurance business has demonstrated that some restraint must be placed upon commissions paid to brokers. Unbridled competition among the insurers in this regard has in the past frequently resulted in an unhealthy competitive condition *Page 364 
imperiling the public interest in preserving the financial soundness of the companies and the maintenance of low acquisition costs. Furthermore, a correlation between commissions and premiums has received legal recognition (O'Gorman  Young,Inc., v. Hartford Fire Ins. Co., 282 U.S. 251, 256; BuffaloAss'n of Fire Underwriters v. Noxsel-Dimick Co., 235 App. Div. 92, affd., 260 N.Y. 678). The payment of commissions constitutes a substantial percentage of acquisition costs, which in turn determine premium rates. Payment of unduly large commissions has in consequence an important bearing both upon the premium rates charged to the public and the profit realized by the company.
It will not do to say that conceding the Superintendent the power asserted by him in this case would leave him free to coerce individual foreign insurers into observing all the standards adopted by domestic companies, even if these standards were devised for the sole purpose of placing foreign insurers at a competitive disadvantage. In reviewing the quasi-judicial acts of the Superintendent of Insurance under this section, the courts in the case at bar must determine first that there is reasonable basis for holding that the doing of business in this State by the foreign insurer will be hazardous and prejudicial to the best interest of the people of this State and, second, that there is adequate evidence to support this conclusion. It cannot be said that the basis for the finding of the Superintendent is unreasonable, or that it is unsupported by adequate evidence.
It follows that the order appealed from should be reversed and the determination of the Superintendent of Insurance affirmed.
LEHMAN, Ch. J., RIPPEY and LEWIS, JJ., concur with LOUGHRAN, J.; FINCH, J., dissents in opinion in which CONWAY and DESMOND, JJ., concur.
Order affirmed. *Page 365