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In re Allstate Insurance Co.

Decided: June 27, 1978.

IN THE MATTER OF THE PRIVATE PASSENGER AND UTILITY AUTOMOBILE RATES OF ALLSTATE INSURANCE COMPANY


On appeal from Department of Insurance.

Allcorn, Horn and Furman. The opinion of the court was delivered by Horn, J.A.D.

Horn

Pursuant to R. 2:2-4 and R. 2:5-6, on May 15, 1978 Allstate Insurance Company (Allstate) moved for leave to appeal certain interlocutory orders of the Commissioner of Insurance of this State (Commissioner) entered on April 26, 1978 and contained in a paper entitled "Order for Expansion of Proceedings," and for a stay of a hearing scheduled to commence before a hearing officer appointed by the Commissioner on May 17, 1978.

After oral argument on May 22, 1978 we granted leave to appeal, continued a stay of the hearing earlier ordered by a single judge on an emergency basis (R. 2:9-8) and, with

the consent of all concerned, elected to consider and determine the appeal on the merits on the oral arguments and the papers submitted.

The primary issue is whether the Commissioner should be disqualified from determining whether the Department of Insurance (Department) on October 25, 1977 legally approved Allstate's rate-increase application. A secondary issue is whether Allstate is entitled to discovery in connection with the primary issue, principally by way of depositions of employees of the Department who have relevant knowledge of pertinent facts.

There is no dispute that the Commissioner has been vested with the authority for administering and enforcing the insurance laws of this State, N.J.S.A. 17:1C-6, N.J.S.A. 17:1C-17, N.J.S.A. 17:17-1 to 17:51-5, N.J.S.A. 17B:17-1 to 17B:36-4, including the administration of the insurance-rating laws, N.J.S.A. 17:29A-1 et seq. Before an insurer, either independently or as a member of a rating organization, may use or charge an insurance rate, its rating system must be filed and approved by the Commissioner, N.J.S.A. 17:29A-6, 7 and 8. And any subsequent alterations or modifications to rating systems must likewise be filed with and approved in advance by the Commissioner. N.J.S.A. 17:29A-14. The standard for rate approval which must be determined by the Commissioner is whether the rates are reasonable, adequate and not unfairly discriminatory. N.J.S.A. 17:29A-7, 10, 11 and 14. Although the stated standard is expressed in comparatively simple terms, the standard requires that the Commissioner consider various factors, including loss and expense experience as well as reasonable profit. N.J.S.A. 17:29A-11. Insurance companies authorized to do business in the State are required to file statistical data concerning loss and expense experience on a regular basis, in order to assure that rates are based on accurate information, and particular applications for rate-system modifications must be supported by such information. N.J.S.A. 17:29A-5 and 11.

The Commissioner is empowered to designate a salaried employee of the Department to act in his stead, "who shall report to the commissioner and advise the commissioner on the nature of the matter delegated." N.J.S.A. 17:29A-26. Based on such advice and report as he may receive from such designee, the Commissioner shall make such order as the Commissioner shall, in his discretion, determine. Id.

On December 28, 1976 Allstate filed an application with the Commissioner seeking increases in its private-passenger automobile-insurance rates in an average overall amount of 14.6%. Numerous hearings were held on the rate application during the early part of 1977, and on June 3, 1977 Philipp K. Stern, Chief Actuary of the Department of Insurance and the designated hearing officer for the Allstate application, rendered his report and recommendations. Based upon the evidence presented, Stern recommended an aggregate increase in the Allstate rates of 7.1%.

In a separate application pending before the Department contemporaneously with the Allstate filing, Insurance Services Office (ISO) had sought an increase in the automobile rates used by its members, in an aggregate amount of 35.3%, based upon the loss and expense experience of its over 200 member companies. Effective September 1, 1977, the Commissioner approved an increase in the ISO rates averaging 14.4%*fn1

On October 20, 1977, before any determination had been made by the Commissioner with respect to the Allstate filing, a representative of Allstate met with Stern to discuss the possibility of a filing with reference to the increased rates recently approved for ISO. As a result, on October 24, 1977 an application was hand-delivered to Stern by Allstate representatives, wherein the company proposed to "revise [its] rate levels to those recently approved for Insurance Services

Office," which, upon approval by the Department, would replace in its entirety Allstate's pending application. The proposed substitute filing included numerous detailed exhibits indicating the specific breakdown of requested rate changes, which would provide an aggregate overall increase of 16.1% in the Allstate rates. The following day, October 25, 1977, Allstate's representatives were given a letter by Stern stating that the Commissioner had approved the substituted filing, effective November 1, 1977 for new policies and November 21, 1977 for renewal policies.

It should be noted in connection with the filing by Allstate that in the past a procedure had been recognized by the Commissioner whereby insurers were able to file so-called "Me Too" rate applications. A memorandum sent to the Commissioner on December 2, 1975 ...


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