No. 55 E.D. Appeal Docket 1982, Appeal from the Order of the Commonwealth Court dated March 10, 1982, entered at No. 1184 C.D. 1980, affirming the Order of the Insurance Commissioner dated April 17, 1980, entered at No. R78-7-2,
Nix, C.j., and Larsen, Flaherty, McDermott, Hutchinson, Zappala and Papadakos, JJ. Flaherty, J., joins in this opinion and files a concurring opinion in which Hutchinson, J., joins. Hutchinson joins in this opinion and files a concurring opinion, Flaherty, J., joins. McDermott, J., files a dissenting opinion in which Zappala, J., joins. Zappala, J., files a dissenting opinion in which McDermott, J., joins.
In this appeal we have agreed to review the Commonwealth Court's affirmance of an order of the Insurance Commissioner of Pennsylvania ("Commissioner") rescinding his prior approval of Hartford Accident and Indemnity Company's ("Hartford") gender-based automobile insurance rates on the ground they were "unfairly discriminatory" under section 3(d) of the Casualty and Surety Rate Regulation Act ("Rate Act"), Act of June 11, 1947, P.L. 538, § 3(d), 40 P.S. § 1183(d)(1971). After careful consideration we have concluded that the Commissioner's action was both within his statutory authority and mandated by the Rate Act, and, therefore, affirm.
The instant action was initiated by Philip V. Mattes ("Mattes"), a Hartford automobile policyholder, who filed a complaint with the Commissioner challenging the legality of the Commissioner's earlier approval of Hartford's gender-based rates. Mattes established at an evidentiary hearing that, as a twenty-six year old unmarried male with an unblemished driving record, he was obligated to pay One Hundred Forty-eight Dollars ($148) more in annual premiums than would a similarly situated female insured for identical coverage. Hartford sought to justify its rating plan on the ground that actuarial data indicated that male policyholders in Mattes' age group are more likely to incur accident losses than female policyholders in the same age group.*fn1 The Commissioner, interpreting the Rate Act's prohibition of "unfairly discriminatory" rates in light of this Commonwealth's public policy against sex discrimination as embodied in the Equal Rights Amendment, concluded that
Hartford's gender-based rates were "unfairly discriminatory" and therefore invalid.
Hartford filed a petition for review of the Commissioner's adjudication in the Commonwealth Court; Mattes and the State Farm Mutual Automobile Insurance Company ("State Farm") were permitted to intervene. The Commonwealth Court affirmed en banc, finding no basis for disturbing the Commissioner's decision.*fn2 65 Pa. Commw. 249, 442 A.2d 382 (1982). Petitions for allowance of appeal filed in this Court by Hartford and State Farm were granted.
In order to place Mattes' complaint and the Commissioner's response thereto in their proper context, an understanding of the statutory scheme which forms the background of this controversy is essential. The legislature's purpose in enacting the Rate Act is clearly set forth in section one:
The purpose of this Act is to promote the public welfare by regulating insurance rates to the end that they shall not be excessive, inadequate or unfairly discriminatory; to enable authorized insurers to meet all requirements of the insuring public of this Commonwealth, and to authorize and regulate cooperative action among insurers in rate making and in other matters within the scope of this Act. Nothing in this Act is intended (1) to prohibit or discourage reasonable competition, or (2) to prohibit or encourage uniformity in insurance rates, rating systems, rating plans or practices. This Act shall be liberally interpreted to carry into effect its purposes as herein set forth.
40 P.S. § 1181 (1971) (emphasis supplied).
The Rate Act applies, with certain enumerated exceptions, to "all classes and kinds of insurance which may be written by stock or mutual casualty insurance companies, associations or exchanges, and including fidelity, surety and guaranty bonds and all other forms of motor vehicle insurance,
and to title insurance on risks or operations in this Commonwealth . . . ." 40 P.S. § 1182 (1971).
The central provision of the Rate Act is section three, which sets forth the manner in which insurers must formulate their rates, thereby creating an affirmative duty of compliance on the part of insurers wishing to do business in this Commonwealth:
All rates shall be made in accordance with the following provisions:
(a) Due consideration shall be given to past and prospective loss experience within and outside this Commonwealth, to physical hazards, to safety and loss prevention factors, to underwriting practice and judgment to the extent appropriate, to catastrophe hazards, if any, to a reasonable margin for underwriting profit and contingencies, to dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers, to past and prospective expenses both country wide and those specially applicable to this Commonwealth, and to all other relevant factors within and outside this Commonwealth;
(b) 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;
(c) 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;
(d) Rates shall not be excessive, inadequate or unfairly discriminatory.
40 P.S. § 1183 (1971) (emphasis supplied).
It must be emphasized that subsection (d) of section three limits the powers conferred upon insurance companies under subsections (a), (b) and (c). The overriding consideration is section three's mandate that rates may not be "excessive, inadequate or unfairly discriminatory."
To ensure compliance with the above provisions, section four of the Act requires every insurer to "file with the Commissioner every manual of classifications, rules, and rates, every rating plan and every modification of any of the foregoing which it proposes to use." 40 P.S. § 1184(a) (1971).*fn3 The Commissioner must "review such of the filings as it may be necessary to carry out the purposes of this Act," 40 P.S. § 1184(c) (1971), and is empowered to disapprove, after a hearing, any filing which fails to meet the requirements of the Rate Act. 40 P.S. § 1185 (1971). Beyond this specific delegation of authority, the legislature has committed to the Commissioner the "full power and authority, . . . [and] duty, to enforce by regulations, orders, or otherwise, . . . the provisions of this Act, and the full intent thereof." 40 P.S. § 1193(d) (1971) (emphasis supplied).
Persons aggrieved by an approved filing which has not taken effect are entitled to file a complaint with and have a hearing before the Commissioner. 40 P.S. § 1197(a) (1971); Commonwealth, Insurance Department v. Adrid, 24 Pa. Commw. 270, 355 A.2d 597 (1976). Administrative review is available in appropriate cases even where, as in the instant case, the challenged filing is in effect.*fn4 Moreover,
a party adversely affected by the Commissioner's adjudication of a complaint has a right of appeal to the Commonwealth Court. 40 P.S. § 1197(c) (Supp.1983-84); 42 Pa.C.S. § 763(a).
Several important points emerge from the foregoing discussion. The Rate Act evidences the clear legislative determination that the public welfare requires both statutory channeling of the ratemaking process and administrative scrutiny of the resulting rates. One of the principal justifications for governmental involvement identified by the legislature is the need to prevent "unfairly discriminatory" rates. To achieve that goal, the legislature has directly prohibited insurers from making "unfairly discriminatory" rates, and has entrusted enforcement of that prohibition to the Commissioner, and, if need be, to the courts. Thus the Rate Act, independent of any federal or state constitutional provision, proscribes "unfairly discriminatory" ratemaking by insurers in this Commonwealth and provides administrative and judicial remedies therefor.
The basic issue in this appeal is the proper interpretation of the phrase "unfairly discriminatory" as employed in section 3(d) of the Rate Act, 40 P.S. § 1183(d) (1971). That phrase is not defined in the Rate Act itself. The Commissioner concluded that he was compelled to interpret the statutory prohibition against "unfairly discriminatory"
rates in a manner consistent with the strong public policy against gender-based discrimination under law as expressed in Pennsylvania's Equal Rights Amendment. Appellants Hartford and State Farm attack that conclusion arguing in favor of a narrow interpretation of the phrase which would limit the prohibition of section 3(d) to rates which are not "actuarially sound." Under the latter view the Rate Act would not only permit insurers to impose gender-based rates but would also prohibit the Commissioner from denying approval to such rates provided the insurer is able to support them with actuarial data.*fn5
In the proceedings before the Commissioner, Mattes established conclusively that Hartford required him to pay a significantly higher premium than a similarly situated woman would be charged for identical Hartford coverage solely on the basis of his gender. There is no attempt to suggest that Mattes was not in fact discriminated against because of his sex. The inquiry must begin by accepting that a gender-based discrimination exists. The question to be resolved is whether such discrimination falls within the parameters of the Rate Act's prohibition against "unfairly discriminatory" rates.
Appellants' basic argument is that "unfair" should be limited in meaning to " actuarially unfair". Appellants maintain that the Rate Act's prohibition of "unfairly discriminatory" rates relates only to "variations in prices or rates that have no relationship to costs or the risk of loss". Brief for Hartford at 27. ...