decided: June 13, 1979.
J.C. PENNEY CASUALTY INSURANCE COMPANY, PETITIONER
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF INSURANCE, WILLIAM J. SHEPPARD, INSURANCE COMMISSIONER, RESPONDENT
Appeal from the Order of the Insurance Commissioner of the Commonwealth of Pennsylvania in case of In the Matter of: William and Deborah Prindle -- Appeal of J.C. Penney Casualty Insurance Company, Docket No. P77-8-4.
William R. Balaban, with him Thomas R. Balaban, and Robert J. Demer, for appellant.
Paul A. Adams, with him Barbara Anne Brown, Assistant Attorney General, and John H. Isom, Chief Counsel, for respondent.
President Judge Bowman and Judges Wilkinson, Jr., Mencer, Rogers, Blatt, DiSalle and MacPhail. Judges Crumlish, Jr. and Craig did not participate. Opinion by Judge Mencer.
[ 43 Pa. Commw. Page 362]
This is an appeal by J.C. Penney Casualty Insurance Company (Penney) from an order of the Insurance Commissioner (Commissioner). Two important questions are raised: (1) whether the occurrence of two theft losses in an 18-month period is sufficient evidence of a "substantial change or increase in hazard" so as to justify the non-renewal of an insurance policy pursuant to Section 5(a)(9) of the Unfair Insurance Practices Act (Act), Act of July 22, 1974, P.L. 589, as amended, 40 P.S. § 1171.5(a)(9); and (2) whether due process is denied when one assistant attorney general acts as prosecuting attorney and another, assigned to the same office, acts as hearing examiner.*fn1
The facts are undisputed. On February 8, 1974, Penney issued a standard "renters" insurance policy to William Prindle and Deborah Prindle. Between January 7, 1975 and August 10, 1976, the Prindles suffered two theft losses for which Penney paid a total of $1721. On November 24, 1976, Penney notified the Prindles that it would not renew their policy because of the two losses.
[ 43 Pa. Commw. Page 363]
The Prindles, pursuant to Section 5(a)(9)(iv) of the Act, 40 P.S. § 1171.5(a)(9)(iv), requested the Department of Insurance (Department) to review Penney's action. The Department determined that there was reason to believe Penney had violated the Act, and a hearing was therefore scheduled pursuant to Section 8 of the Act, 40 P.S. § 1171.8.*fn2 An assistant attorney general attached to the Department was assigned by the Commissioner to act as hearing examiner. Another assistant attorney general attached to the same office was assigned to prosecute the case on behalf of the Department.
At the hearing, the only evidence presented to justify Penney's non-renewal of the Prindles' policy was the occurrence of the two theft losses. Concluding that this was insufficient to establish an "increase in hazard" within the meaning of the Act, the Commissioner ordered Penney to offer to renew the policy and to cease and desist from refusing to renew other policies solely on the basis of loss frequency.*fn3 Penney's appeal to this Court follows.
[ 43 Pa. Commw. Page 364]
Section 4 of the Act, 40 P.S. § 1171.4, makes it unlawful for insurance companies to engage in "an unfair or deceptive act or practice." Unfair or deceptive acts or practices are defined in Section 5(a)(9) to include, inter alia,
[c]ancelling any policy of insurance covering owner-occupied private residential properties or personal property of individuals that has been in force for sixty days or more or refusing to renew any such policy unless. . . there has been a substantial change or increase in hazard in the risk assumed by the company subsequent to the date the policy was issued. . . . (Emphasis added.)
The phrase "increase in hazard" has traditionally been used in provisions of insurance policies which allow the insurer to avoid liability on the policy if there has been an "increase of the hazard to which the insured property is exposed." 8 G. Couch, Cyclopedia of Insurance Law § 37:692, at 299 (2d ed. 1961). See also lines 31-32 of the Standard Fire Insurance Policy of the State of Pennsylvania in Section 506(2) of The Insurance Company Law of 1921, Act of May 17, 1921, P.L. 682, as amended, added by the Act of August 23, 1961, P.L. 1081, 40 P.S. § 636(2); Smith v. Penn Township Mutual Fire Association, 323 Pa. 93, 99, 186 A. 130, 133 (1936). As used in this context, the phrase has acquired a peculiar and appropriate meaning which the legislature must be presumed to have had in mind in using it in Section 5(a)(9). See Statutory Construction Act of 1972, 1 Pa. C.S. § 1903(a).
'The term "increase of hazard" denotes an alteration or change in the situation or condition of the property insured which tends to increase the risk'. . . . The policy is issued to protect the insured against existing risks, which are contemplated
[ 43 Pa. Commw. Page 365]
and covered by the premiums, and, in the absence of fraud or concealment, the hazard in respect to the risk assumed cannot be enhanced or enlarged by a mere continuation of the conditions and uses existing at the time the policy was issued. (Citations omitted.) (Emphasis in original.)
Rossini v. St. Paul Fire & Marine Insurance Co., 182 Cal. 415, 424, 188 P. 564, 568 (1920).
See also New England Insurance Co. v. Cummings, 164 F. Supp. 553 (S.D. Miss. 1958). Thus, to establish an increase in hazard, there must be evidence of a change in the situation which substantially increases the probability that the event insured against will occur.
Penney introduced no evidence whatsoever that any change had occurred to increase the risk of future losses. The fact that two losses had already occurred may be nothing but confirmation that the risk insured against does in fact exist, not that this risk has increased. Exceptionally frequent losses may eventually generate a suspicion that something has indeed changed, but, absent additional evidence, it will in most cases be equally likely that the losses are simply the result of bad luck, the risk of which the insurance company has, for a fee, assumed. This is particularly true where, as here, only two losses in an 18-month period are involved, one of which did not even occur at the Prindles' residence. Finally, even if we were to assume that the two losses do indeed indicate that the risk of loss has increased, there is no basis in the record upon which to conclude that the increase has been substantial. We therefore conclude that Penney failed to establish a justification for refusing to renew the Prindles' policy and that the Commissioner correctly concluded that Penney had violated Sections 4 and 5 of the Act.
[ 43 Pa. Commw. Page 366]
With regard to Penney's second argument, this Court has, on several occasions, expressed reservations about the propriety of one attorney's acting as prosecutor where another attorney attached to the same office advises the tribunal or acts as hearing examiner. State Board of Podiatry Examiners v. Chairman, 31 Pa. Commonwealth Ct. 615, 618-19, 377 A.2d 1022, 1024 (1977); Sheppard v. American Bankers Insurance Co., 26 Pa. Commonwealth Ct. 189, 363 A.2d 874 (1976), aff'd, 478 Pa. 532, 387 A.2d 449 (1978); Pennsylvania Human Relations Commission v. Thorp, Reed & Armstrong, 25 Pa. Commonwealth Ct. 295, 361 A.2d 497 (1976); State Board of Medical Education and Licensure v. Grumbles, 22 Pa. Commonwealth Ct. 74, 347 A.2d 782 (1975). We have held, however, that where the facts are undisputed the error, if any, is harmless since any decisions which may be the result of bias can be overturned on appeal if incorrect as a matter of law. Thorp, Reed & Armstrong, supra. Since there is no factual dispute in this case, we are compelled to follow the latter case and to reject Penney's argument on this issue.*fn4
Accordingly, we enter the following
And Now, this 13th day of June, 1979, the order of William J. Sheppard, Insurance Commissioner, dated April 14, 1978, is hereby affirmed.