OFFICES AND OFFICERS ‑- STATE ‑- INSURANCE COMMISSIONER ‑- CHANGE IN INSURANCE RATES ‑- HEARING.
The public notice and hearing provisions of chapter 42.32 RCW are not applicable when changes in insurance rates are filed with and reviewed by the insurance commissioner; however, any member of the public affected by an increase or a threatened increase in his insurance rates may demand a full hearing before the commissioner.
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September 20, 1963
Honorable Martin J. Durkan
State Senator, 47th District
908 American Building
Cite as: AGO 63-64 No. 59
By letter previously acknowledged you have requested the opinion of this office on a question which we paraphrase as follows:
Are the public notice and hearing provisions of chapter 42.32 RCW applicable where new insurance rates are filed with and reviewed by the insurance commissioner?
We answer your question as explained in our analysis.
[[Orig. Op. Page 3]]
To answer your question we must first determine what statutory duties are imposed upon insurers seeking to establish a rate for insurance and what statutory duties are imposed upon the insurance commissioner with respect thereto. These statutory duties are set forth in chapter 48.19 RCW.
Every insurer authorized to issue insurance policies in the state of Washington must file the proposed rates for its policies and supporting data with the insurance commissioner.1/ Such a filing is required by RCW 48.19.040, which provides as follows:
[[Orig. Op. Page 4]]
"(1) Every insurer shall, before using, file with the commissioner every manual of classifications, manual of rules and rates, and every rating plan as to surety insurances, and every rating schedule, minimum rate, class rate, and rating rule as to other insurances, and every modification of any of the foregoing which it proposes. The insurer need not so file any rate on individually rated risks as described in subdivision (1) of RCW 48.19.030; except that any such specific rate made by a rating organization shall be filed. This section does not apply to casualty insurance.
"(2) Every such filing shall state its proposed effective date and shall indicate the character and extent of the coverage contemplated. When a filing is not accompanied by the information upon which the insurer supports such filing, and the commissioner does not have sufficient information to determine whether the filing meets the requirements of this chapter, he may require the insurer to furnish the information upon which it supports the filing. An insurer may offer in support of any filing
"(a) the experience or judgment of the insurer or rating organization making the filing,
"(b) the experience of other insurers or rating organizations, or
"(c) any other factors which the insurer or rating organization deems relevant. A filing and any supporting information shall be open to public inspection only after the filing becomes effective.
"(3) Where a filing is required no insurer shall make or issue an insurance contract or policy except in accordance with its filing then in effect, except as is provided by RCW 48.19.090."
Under certain circumstances an insurer may authorize a rating [[Orig. Op. Page 5]] organization to file its rate proposals on its behalf.2/
The commissioner has the duty to review the filing to determine whether it meets the requirements of chapter 48.19 RCW. His duty to review is stated in RCW 48.19.060, which provides:
"(1) The commissioner shall review a filing as soon as reasonably possible after made, to determine whether it meets the requirements of this chapter.
"(2) Except as provided in RCW 48.19.070:
"(a) No such filing shall become effective within fifteen days after date of filing with the commissioner, which period may be extended by the commissioner for an additional period not to exceed fifteen days if he gives notice within such waiting period to the insurer or rating organization which made the filing that he needs such additional time for consideration of the filing. The commissioner may, upon application and for cause shown, waive such waiting period or any part thereof as to a filing which he has not disapproved.
"(b)A filing shall be deemed to meet the requirements of this chapter unless disapproved by the commissioner within the waiting period or any extension thereof.
"(3) This section does not apply to casualty insurance." (Emphasis supplied.)
The criteria for his review is contained in RCW 48.19.020, which provides:
"Premium rates for insurance shall not be excessive, inadequate, or unfairly discriminatory. This section does not apply to casualty insurance."
If the commissioner in his review of the filed rate and supporting data determines that the filing does not meet the requirements of RCW 48.19.020, he must disapprove the filing pursuant to RCW 48.19.100, which provides:
"If within the waiting period or any extension thereof as provided in RCW 48.19.060, the commissioner finds that a filing does not meet the requirements of this chapter, he shall disapprove such filing, and shall give notice of such disapproval, specifying the respect in which he finds the filing fails to meet such requirements, and stating that the filing shall not become effective, to the insurer or rating organization which made the filing. This section does not apply to casualty insurance."
All the foregoing statutes expressly state their inapplicability to casualty insurance. The legislature has set forth both the casualty insurer's and commissioner's duties concerning proposed rates of casualty insurance entirely within the confines of RCW 48.19.440 which provides:
"Every insurer as to casualty insurance shall file with the commissioner its rates and rating schedules, or it may adopt advisory rules and rates of rating organizations. Unless disapproved by the commissioner prior thereto, any such filing shall become effective upon expiration of thirty days from date of filing.
"Every such insurer and its agents shall adhere to its filings, and shall not amend such filings or deviate therefrom until it shall have filed amendatory schedules or rates or notice of such deviation with the commissioner for a period of thirty days; except that such amendatory schedules or deviations shall not become effective if disapproved by the commissioner within such thirty-day period.
"The commissioner may waive any such waiting period or any part thereof as to any filing by giving notice thereof to the insurer." (Emphasis supplied.)
The statutory criteria governing the commissioner's power of disapproval are contained in RCW 48.19.030, which provides in pertinent part:
"Rates shall be used, subject to the other provisions of this chapter, only if made in accordance with the following provisions:
". . .
"(2) In the case of casualty and surety insurances:
"(a) The systems of expense provisions included in the rates for use by any insurer or group of insurers may differ from those of other insurers or groups of insurers to reflect the requirements of the operating methods of any such insurer or group with respect to any kind of insurance, or with respect to any subdivision or combination thereof for which subdivision or combination separate expense provisions are applicable.
"(b) Risks may be grouped by classifications for the establishment of rates and minimum premiums. Classification rates may be modified to produce rates for individual risks in accordance with rating plans which establish standards for measuring variations in hazards or expense provisions, or both. Such standards may measure any differences among risks that can be demonstrated to have a probable effect upon losses or expenses.
"(3) Due consideration in making rates for all insurances shall be given to:
"(a) Past and prospective loss experience within and outside this state; and in the case of rates for fire insurance, to the loss experience of insurers as to insurance against fire during a period of not less than the most recent five‑year period for which such experience is available.
"(b) Conflagration and catastrophe hazards, where present.
"(c) A reasonable margin for underwriting profit and contingencies.
"(d) Dividends, savings and unabsorbed premium deposits allowed or returned by insurers to their policyholders, members, or subscribers.
"(e) All other relevant factors within and outside this state.
"(4) In addition to other factors required by this section, rates filed by an insurer on its own behalf may also be related to the insurer's plan of operation and plan of risk classification.
[[Orig. Op. Page 6]]
"(5) Except to the extent necessary to comply with RCW 48.19.020 uniformity among insurers in any matter within the scope of this section is neither required nor prohibited."
For the sake of clarity we feel it necessary to summarize the foregoing statutory requirements of rate filings. We will first discuss the requirements of insurers other than casualty insurers. Every insurer must, before using, file its proposed rates, rate schedules, rate rules, etc., with the commissioner. The commissioner may require the insurer to file supporting data or the insurer may file it on its own accord. Within fifteen days after the date of filing (which period may be extended an additional fifteen days) the commissioner must review the filed rate and determine whether the rate meets the requirements of chapter 48.19 RCW; that is, that the rate is not excessive, inadequate or unfairly discriminatory. If the commissioner finds that the filed rate does not meet the requirements of chapter 48.19 RCW, he must disapprove the filing, notify the insurer in what respect the filing fails to meet the requirements, and state that the filing shall not become effective. If the commissioner does not disapprove the filed rate within the waiting period or its extension, the filing is deemed to meet all requirements and will become effective on its effective date. (RCW 48.19.060, subdivision (2) (b),supra.)
A casualty insurer must also file its rates and rating schedules with the commissioner. These rates become effective upon the expiration of thirty days unless disapproved by the commissioner for noncompliance with the statutory criteria set out in RCW 48.19.030.
The essence of your question, then, is whether these acts of the insurer and the insurance commissioner are subject to the requirements of RCW 42.32.010, which provides:
"No board, commission, agency or authority of the state of Washington, nor the governing board, commission, agency or authority of any political subdivision exercising legislative, regulatory or directive powers, shall adopt any ordinance, resolution, rule, regulation, order or directive, except in a meeting open to the public and then only at a meeting, the date of which is fixed by law or rule, or at a meeting of which public notice has been given by notifying press, radio and television in the county and by such other means as may now or hereafter be provided by [[Orig. Op. Page 7]] law: Provided, That this chapter shall not apply to the state legislature, the judiciary, or to those regulatory orders of quasi judicial bodies applicable only to named parties as distinguished from orders having general effect on the public or a class or group."
This statute requires that each agency of the state give public notice of any intended action on its part that is "legislative" or "quasi-legislative" in nature, as distinguished from action that is "adjudicative" or "quasi-judicial." Obviously, the commissioner in reviewing a filed rate is not adopting an ordinance, resolution or directive. However, if a failure to disapprove or the disapproval of a filed rate constitutes the adoption of a rule, regulation or order, as those terms are used in RCW 42.32.010, then he may do so only at a public meeting of which the required notice has been given.
The terms "rule" and "regulation" are legally synonymous and interchangeable when used to characterize administrative action that is the product of legislative, or rule‑making, power. Davis, Administrative Law Treatise, § 501, on page 285.
In the case ofSenior Citizens League, Inc. v. Dept. of Social Security, 38 Wn.2d 142, 228 P.2d 478 (1951), our Supreme Court defined rule‑making as follows:
"'Rule‑making' is legislation on the administrative level, i.e., legislation within the confines of the granting statute, as required by the constitution and its doctrine of non-delegability and separability of powers. Willapoint Oysters, Inc. v. Ewing, 174 F.2d 676, certiorari denied, 338 U.S. 860. It is the function of laying down general regulations as distinguished from orders that apply to named persons or to specific situations, the latter being adjudicatory in nature. Administrative Rule‑Making, Fuchs, 52 Harv. L. Rev. 263." (p. 168)
Quoting further from the article of Professor Fuchs, cited in the above case:
". . . it is feasible to distinguish a general regulation from an order of specific application on the basis of the manner in which the parties subject to it are designated. If they are named, or if they are in effect identified by their [[Orig. Op. Page 8]] relation to a piece of property or transaction or institution which is specified, the order is one of specific application. If they are not named, but the order applies to a designated class of persons or situations, the order is a general regulation or a rule. Thus a railroad rate order is an order of specific application if one or more railroads are named in it as the parties addressed, regardless of how many shippers may be affected by it. Conversely, an order that all carriers reduce their rates by a specified percentage would be a general regulation. . . .
". . .
"Accordingly it is useful to define rule‑making as the issuance of regulations or the making of determinations which are addressed to indicated but unnamed and unspecified persons or situations; to distinguish this function from the issuance of orders or findings or the taking of action applying to named or specified persons or situations; . . ." 52 Harv. Law Rev. (p. 264-265) (Emphasis supplied.)
While the term "order" is normally used to connote adjudicative action, or action of particular rather than general application,3/ an administrative order may in some instances contain the elements of both rule‑making and adjudication. InState v. Weinstein, 322 S.W.2d 778 (1959), the Supreme Court of Missouri was confronted with the question of whether an order entered by the state highway commission directing the relocation of certain water mains owned by the plaintiff on a state right-of-way was an adjudicative order requiring a hearing under the contested case provisions of that state's administrative procedure act. The court held that while the highway commission's function in determining the location of water lines within the right-of-way was a legislative one, its [[Orig. Op. Page 9]] determination to relocate the plaintiff's lines was in this case an adjudicative determination. The court reasoned that since the plaintiff had previously been granted a license to place his lines in a certain location within the right-of-way, the order of relocation was at least a modification of that license, which made the determination, as to the plaintiff, one affecting the rights and privileges of a specific party in a specific situation. Quoting from the court's opinion:
"It is certainly true that the Commission has authority, legislative in nature, directly from the Constitution 'to locate, relocate, design and maintain all state highways; and authority to construct and reconstruct state highways, subject to limitations and conditions imposed by law as to the manner and means of exercising such authority.' Sec. 29, Art. IV. In performing that function, the Commission exercises legislative discretion and finds necessary legislative facts ('facts which do not pertain to a particular party but which bear upon law, policy or discretion', Davis, Administrative Law Treatise, Sec. 7.20) by its own methods, which are not subject to judicial review or control because the location and design of highways are matters of policy which are committed solely to the discretion of the Commission. However, in determining whether and where a particular pipe line should be relocated, we think the Commission is not finding legislative facts or deciding general policy but is determining adjudicative facts ('facts pertaining to a particular party,' Davis, Sec. 7.20) to decide an issue concerning aparticular party in a particular situation and its duties and privileges, under past and present existing facts, and so is making a quasi-judicial decision. . ." (Emphasis supplied.) (pp. 783-784.)
It is, therefore, apparent that an agency order is included within the public notice and hearing provisions of RCW 42.32.010 to the extent that it is legislative in nature, but that to the extent it is adjudicative it is excluded from the proviso as a quasi-judicial order directed to a named person or persons.
It is our opinion that the insurance commissioner, in reviewing a rate filed by an insurer to determine if it is a lawful rate, is not engaged in legislative rule‑making. The rate is fixed by [[Orig. Op. Page 10]] the insurer, not the commissioner. To constitute rule‑making, we feel that the commissioner must also possess the power of rate‑making. This power the commissioner does not have. In the leading case ofInterstate Commerce Commission v. Louisville and Nashville Railroad Co., 227 U.S. 88, 57 L.Ed. 431, 33 S.Ct. 185 (1912), the U. S. Supreme Court held that the function of the Interstate Commerce Commission in disapproving and setting aside as "unreasonable" rates charged by interstate carriers was not rate‑making.
Quoting from the court's opinion:
"Under the statutethe carrier retains the primary right to make rates, but if, after hearing, they are shown to be unreasonable, the Commission may set them aside and require the substitution of just or unjust charges. . . ." (Emphasis supplied.) (p. 92)
The court then went on to characterize the function as an adjudicative one, determining the legality of rates charged by a named carrier or carriers.
In a subsequent case,Morgan v. United States, 298 U.S. 468, 479, 480, 80 L.Ed. 1295, 56 S.Ct. 911 (1935), the court was called upon to determine the nature of the power of the Secretary of Agriculture to disapprove and set aside rates that failed to meet the criteria established by certain regulatory statutes. In characterizing the power as quasi-judicial, and the order setting aside the rates as adjudicative, Chief Justice Hughes, author of the court's opinion said:
"What is the essential quality of the proceeding under review, and what is the nature of the hearing which the statute prescribes?
". . .Congress has required the Secretary to determine as a condition of his action, that the existing rates are or will be 'unjust, unreasonable, or discriminatory.' If and when he so finds, he may 'determine and prescribe' what shall be the just and reasonable rate, or the maximum or minimum rate, thereafter to be charged. . . .
"A proceeding of this sort requiring the taking and weighing of evidence, determinations of fact based upon the consideration of the evidence, [[Orig. Op. Page 11]] and the making of an order supported by such findings, has a quality resembling that of a judicial proceeding. Hence it is frequently described as a proceeding of a quasi-judicial character. . . ." (Emphasis supplied.)
And inUnited Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 100 L.Ed. 373, 76 S.Ct. 373 (1955), the court, while not specifically characterizing the power as quasi-judicial, held that a similar function of the Federal Power Commission did not constitute rule‑making, saying:
". . . The basic power of the Commission is . . . to set aside and modify any rate or contract which it determines, after hearing, to be 'unjust, unreasonable, unduly discriminatory, or preferential.' This is neither a 'rate‑making' nor a 'rate‑changing' procedure. It is simply the power to review rates and contracts made in the first instance by natural gas companies and, if they are determined to be unlawful, to remedy them. . . ." (p. 341)
It is true that the statutes in question in both the Morgan case, supra, and the United Gas Pipe Line Co. case, supra, provided for a hearing prior to making the determination. However, that requirement was not considered by the court in its characterization of the power as merely that of review, disapproval and remedy rather than the power of legislative rule‑making.
We feel that the cases cited above are uniquely applicable to the instant situation, and that the mere review by the insurance commissioner to determine whether or not lawful rates have been filed is not the adoption of a rule, regulation or order contemplated by the public notice and hearing provisions of RCW 42.32.010. Rather, it is purely an adjudicative or quasi-judicial function to determine the legality of a filed rate. Any order entered by the commissioner in execution of this function is one addressed only to a named party, the insurer filing the rate. Accordingly, this function is specifically excluded from RCW 42.32.010 as a regulatory order of an administrative agency acting in a quasi-judicial capacity.
This opinion should not be construed to mean that the public is without a means to be heard in these matters. A member of the public affected by an increase or a threatened increase in his insurance rates may demand a full hearing before the commissioner [[Orig. Op. Page 12]] pursuant to RCW 48.04.010,4/ and if aggrieved by any order of the commissioner entered after such hearing, may appeal to the superior court of Thurston County pursuant to RCW 48.04.100.5/
We trust the foregoing will be of assistance to you.
Very truly yours,
JOHN J. O'CONNELL
GERALD C. WEAVER
Assistant Attorney General
*** FOOTNOTES ***
1/An exception to this procedure is made for special filings pursuant to RCW 48.19.070, which are not within the scope of this opinion.
2/RCW 48.19.050. A rate filed in this manner is subject to the same procedures of review by the commissioner as a rate filed by the insurer itself. Accordingly, a rate filed in this manner is within the scope of this opinion.
3/For example, the Federal Administrative Procedures Act, 5 U.S.C.A., - 1001, defines the term "order" to mean:
". . . the whole or part of the final disposition, (whether affirmative, negative, injunctive, or declaratory in form) of any agency in any matter other than rule making but including licensing. 'Adjudication' means agency process for the formulation of an order."
4/RCW 48.04.010 provides in pertinent part as follows:
"(1) The commissioner . . . shall hold a hearing
". . .
"(b) upon written demand for a hearing made by any person aggrieved by any failure is deemed an act under any provision of this code, or by any report, promulgation, or order of the commissioner other than an order on a hearing of which such person was given actual notice or at which such person appeared as a party, or order pursuant to the order on such hearing."
5/RCW 48.04.100 provides in pertinent part:
"(1) Any person aggrieved on account of any official action or threatened action of the commissioner, or of his failure to act if such failure is deemed to constitute an act under any provision of this code, may demand a hearing thereon as provided in RCW 48.04.010, and may appeal from the commissioner's order made pursuant thereto. Such appeal shall be taken only to the superior court for Thurston county and only from an order refusing a hearing or an order on hearing. . . ."