# State Ex Rel. Commissioner of Insurance v. North Carolina Rate Bureau

> Supreme Court of North Carolina · July 15, 1980 · 300 N.C. 381

URL: https://www.frixlaw.com/law-library/cases/1293583

## Case

- **Full name:** State of North Carolina Ex Rel. Commissioner of Insurance v. North Carolina Rate Bureau, North Carolina Reinsurance Facility, Nationwide Mutual Insurance Company, State Farm Mutual Automobile Insurance Company, the Aetna Casualty and Surety Company, Lumbermens Mutual Casualty Company, Great American Insurance Company, the Travelers Indemnity Company, United States Fire Insurance Company and the Shelby Mutual Insurance Company in the Matter of a Filing Dated November 29, 1977, as Amended, by the North Carolina Rate Bureau for Revised Private Passenger Motor Vehicle Insurance Rates, Docket No. 260
- **Court:** Supreme Court of North Carolina
- **Decided:** July 15, 1980
- **Citations:** 300 N.C. 381; 269 S.E.2d 547; 1980 N.C. LEXIS 1125
- **Precedential status:** Published
- **Opinion:** Opinion by Carlton
- **Judges:** Carlton, Brock
- **Cited by:** 159 later opinions in the Frix Law Library

## Citator (automated)

- **Red flag:** Overruled on other grounds by In Re Redmond Ex Rel. Nichols, 369 N.C. 490 (2017).
- Negative treatments: 2
- Distinguished by: 0
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1293583

## How later opinions describe it (automated extraction)

- holding order requiring insurance organization to submit audited data was arbitrary and capricious where Insurance Commission failed to determine availability of data and provide adequate guidelines for compliance with order
- declining to review constitutional question on direct appeal where no prior assertion that appellant’s substantial rights may have been prejudiced by constitutional defect
- holding order arbitrary and capricious in part because no adequate guidelines for compliance

## Opinion text

INDEX
Historical Background.387
I. Summary of Facts and Holdings.392
II. Audited Data . ^ 05 CO
A. Standards of Judicial Review. ^ 05 CO
1. Excess of Statutory Authority . . . ÍD Oi CO
2. Unlawful Proceedings (Procedures) CO O ^
3. Arbitrary and Capricious Actions O (M ^
B. Summary . H W
III. North Carolina Reinsurance Facility . . . LO rtf
X.Other Holdings of Court of Appeals 00 LO
XI.Final Disposition . Oi lO Ttf
CARLTON, Justice.
This opinion deals extensively with certain provisions of the North Carolina Administrative Procedure Act and the powers of State administrative agencies generally, as well as with our general insurance laws.
Historical Background
Numerous opinions of this Court cited in the body of this opinion contain a summary of the history and framework of North Carolina’s insurance laws, codified as Chapter 58 of the General Statutes.
See especially In re Filing by Automobile Rate Administrative Office,
278 N.C. 302 , 180 S.E. 2d 155 (1971). We therefore find it necessary to present only a limited summary here.
It has been long established that the insurance business is charged with a public interest, and that its, regulation is constitutional.
German Alliance Insurance Co. v. Lewis,
233 U.S. 389 , 34 S.Ct. 612 , 58 L.Ed. 1011 (1914). Likewise, it has been long recognized that regulation of insurance is a function of the states rather than the federal government. Indeed, for many years no effort was made in any court proceedings to apply the Sherman Anti-Trust Act, 15 U.S.C. § 1
et seq.,
and other acts of Congress to insurance, on the grounds that insurance was not interstate
*388
commerce, and that Congress did not intend its acts to relate to insurance. However, in 1944, the Supreme Court of the United States held that insurance companies which conducted their activities across state lines were within the regulatory power of Congress under the Commerce Clause of the Federal Constitution, and that insurance was subject to the Sherman Anti-Trust Act.
United States v. South-Eastern Underwriters Association,
322 U.S. 533 , 64 S.Ct. 1162 , 88 L.Ed. 1440 (1944).
Shortly thereafter, Congress enacted the McCarran-Ferguson Act of March 9, 1945, 59
Stat.
33 , 15 U.S.C. §§ 1011-1015 . The Act, as finally amended, provided,
inter alia,
that the business of insurance should be subject to the laws of the several states, and not to the acts of Congress (unless such acts relate specifically to insurance), except that the Sherman Act, and certain other acts should be applicable to the business of insurance after 30 June 1948
to the extent such business is not regulated
by state law. 15 U.S.C. § 1012 .
The North Carolina Legislature responded by enacting Chapter 381 of the 1945 Session Laws codified as G.S. § 58-248.1. The statute vested broad review powers in the Commissioner of Insurance to insure that insurance rates not be unreasonable, inadequate, unfairly discriminatory nor harmful to the public interest. Under the 1945 statute, the Commissioner could act “upon his own motion or upon petition of any aggrieved party.”
Id.
No periodic filings by the industry were required. However, the 1965 Legislature incorporated such a requirement into G.S. 58-248 by providing in pertinent part that
On or before July 1 of each calendar year the . . . Rate . . . Office shall submit to the Commissioner the data hereinabove referred to for bodily injury and property damage insurance on private passenger vehicles and a rate review based on such data.
Such rate proposals shall be approved or disapproved by the Commissioner. . . .
(Emphasis added.)
Both appellate courts in this State have had numerous occasions throughout the years to review proceedings before and orders by the Commissioner in ratemaking cases. During the years prior to 1977 the typical case on appeal involved the Commissioner’s disapproval of a rate filing. In most of those cases, this Court or the Court of Appeals found no legal basis for the Com
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missioner’s disapproval and upon remand the Commissioner would find yet another ground for disapproving a proposed rate increase. A stalemate was thus created by the statute’s “prior approval” requirement.
Seemingly in response, the 1977 Legislature enacted significant changes in our insurance laws.
See
1977 N.C. Sess. Laws 1119 , Ch. 828 (codified in various sections of Ch. 58, Cum. Supp. 1979). The new legislation effected major changes in three general areas of insurance regulation.
1.
Insurance ratemaking was changed from a “prior approval” system to a “file and use” system. To promulgate new or revised rates, the insurer or rating organization is required only to file the rates and accompanying supportive data with the Commissioner prior to the effective date of the rates. The rates then take effect automatically and remain in effect until revised rates are filed. The Commissioner’s prior approval is not required for rates to take effect.
See
G.S. 58-124.20 (essential lines), G.S. 58-131.39 and G.S. 58-131.41 (nonessential lines).
The statutes also outline procedures by which the Commissioner may contest such rates after they are filed. He must hold a hearing. G.S. 58-124.21 (Cum. Supp. 1979) for essential lines of insurance and G.S. 58-131.42 for nonessential lines. If he finds that rates are not in compliance with statutory standards, G.S. 58-124.19 (essential lines) and G.S. 58-131.37 (nonessential lines), he may disapprove the rates and declare them ineffective. G.S. 58-124.21 (essential lines) and G.S. 58-131.42 (nonessential lines). His decision is subject to judicial review, G.S. 58424.22(a) (essential lines) and G.S. 58431.54(b) (nonessential lines), but the insurers may continue to use the rates pending such review if the purportedly excessive premiums are placed in an escrow account. G.S. 58424.22(b) (essential lines) and G.S. 58431.42(b) (nonessential lines).
In abandoning the prior approval system for the file and use system, North Carolina has joined the general trend of regulatory programs among the states. R. Keeton,
Basic Text on Insurance Law
§ 8.4(b) (1971). Some states have even eliminated the filing requirement.
Id.
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2.
For ratemaking purposes, the 1977 legislation divided insurance into two categories called essential and nonessential lines.
Survey of Developments in North Carolina Law
— In
surance,
56 N.C.L. Rev. 1084, 1085 (1978). Previously, the types of insurance subject to rate regulation had been divided into five categories, each regulated in a different manner — fire, casualty, miscellaneous lines, automobile liability and workers’ compensation. Rate regulation patterns for the two new categories are established based upon the mandatory or voluntary Rating Bureau membership. The new file and use system applies to both.
A.
Nonessential lines of insurance, including certain fire and property insurance, casualty insurance and inland marine insurance are governed by Chapter 58, Article 13C. This statute establishes a system of voluntary rating bureau membership. It provides that insurance rates should not be “excessive, inadequate or unfairly discriminatory,” G.S. 58-131.34(1), and that the most effective way to achieve rates is through “reasonable price competition among insurers.” G.S. 58-131.34(3). Detailed provisions and factors to be considered are set out. Rating organizations, available to all insurers operating in the State, are authorized, G.S. 58-131.34(2), but insurers are not required to join a rating bureau and may use their own rates. G.S. 58-131.41. However, while recognizing that cooperation among insurers is desirable, the statute provides that regulation is necessary to prevent restraint of competition. G.S. 58-131.34(4).
B.
Chapter 58, Article 12B governs the essential lines of insurance. These include certain residential fire and property insurance, automobile theft and physical damage insurance, automobile liability insurance and allied lines, and workers’ compensation and employers’ liability insurance. G.S. 58-124.17(1). The North Carolina Rate Bureau is established and all insurance companies writing any of the essential lines in North Carolina are required to be members. G.S. 58-124.17(1); G.S. 58-124.18. Hence, the major distinguishing factor in rate regulation between essential and nonessential lines is mandatory Bureau membership and man
*391
datory adherence to rules established by the Bureau. Moreover, no price competition is provided for among the companies in the essential lines, unlike the plan for nonessential lines which allows competition. G.S. 58-131.41.
G.S. 58-124.19 sets out the factors to be considered in establishing rates for essential lines. The basic standard for essential lines is the same as for nonessential lines — rates are not to be “excessive, inadequate or unfairly discriminatory.” G.S. 58-124.19(1). Risks may be classified for ratemaking purposes, but the classification plan for automobile insurance may not be based upon the age or sex of the persons insured. G.S. 58-124.19(4). Some of these and other factors to be considered in ratemaking are discussed in the body of this opinion.
3.
The 1977 Legislature also made significant changes in the statutory scheme for dealing with high-risk insureds in motor vehicle insurance. G.S. 58-248.26 to .40. All insurance companies licensed to write motor vehicle insurance in North Carolina are required to participate in the North Carolina Reinsurance Facility, a statutory reinsurance pool for the high-risk driver of motor vehicles. G.S. 58-248.34(e).
The most far-reaching change in the operation of the Facility was the establishment of procedures to make the Facility self-sustaining. Under the new law, losses sustained by the Facility are to be recouped according to a statutory prescription. G.S. 58-248.34(e). A detailed discussion of statutes relating to the Facility is included in Section III. of this opinion.
* * * *
We note that all of our discussion in summary above involves only the 1977 insurance legislation. The 1979 Legislature also made significant changes in our insurance laws. We parenthetically mention some of these in our opinion. However, we issue the caution that, since all four insurance ratemaking decisions handed down today are based on pre-1979 legislation, reference should be made to the later changes for applicable rate filings.
*392
I.
Summary Of Facts And Holdings
On 29 November 1977 the North Carolina Rate Bureau, on behalf of its member companies and the North Carolina Reinsurance Facility, filed with the Commissioner of Insurance a proposed revised premium rate schedule for automobile insurance, including bodily injury and property damage liability, medical payments, and physicial damage insurance for non-fleet private passenger automobiles. The filing stated that calculations substantiated the need for a statewide average rate increase of 23.2%, but in accordance with the requirements of G.S. 58-124.26 the filing had been limited to an overall increase of 6%. The filing also proposed that rates for risks ceded to the North Carolina Reinsurance Facility be 10% higher than rates for risks voluntarily retained, and that ± 5% territorial rate differences be established.
The Commissioner gave notice of public hearing, contending that the filing failed to comply with statutory requirements in a number of respects. After the hearing, the Commissioner made extensive findings of fact and conclusions of law and disapproved the filing in its entirety. In his disapproval order, he allowed the Bureau 60 days to submit an amended filing consistent with his findings and conclusions and ordered that' the Bureau by its amended filing submit the exact data and information he had requested in the notice of public hearing.
The Rate Bureau appealed to the North Carolina Court of Appeals. That court, speaking through Arnold, Judge, affirmed in part and reversed in part.
We note the various holdings of the Court of Appeals and our response on review:
(1) The Court of Appeals held that the Commissioner may require that company data in this insurance ratemaking hearing be audited. We reverse. We hold that while such a requirement, as a general rule, does not exceed the Commissioner’s statutory authority, the Commissioner here failed to comply with lawful procedures and his actions were arbitrary and capricious.
(2) The Court of Appeals held that the proposed 10% rate differential for insureds ceded to the North Carolina Reinsurance
*393
Facility was unfairly discriminatory. We reverse. Applying the whole record test, we hold that there was insubstantial evidence in the record to support the Commissioner’s findings and conclusions of unfair discrimination.
(3) The Court of Appeals held that the Commissioner may require the consideration of income on invested capital in an insurance ratemaking case. We reverse. We hold that the Commissioner erred as a matter of law in concluding that the law of this jurisdiction allows consideration of income from invested capital in an insurance ratemaking case.
(4) The Court of Appeals held that the Commissioner’s implementation of a “capital asset pricing model” to calculate underwriting profit margins was erroneous. We affirm. We hold that the Commissioner’s attempted implementation of a “capital asset pricing model” to calculate underwriting profit margins was erroneous as a matter of law and was arbitrary and capricious.
(5) The Court of Appeals held that the enactment of G.S. 58-124.21 did not transfer the burden of proof in a ratemaking hearing to the Commissioner of Insurance. We affirm. We hold that the burden of proving the need and reasonableness of an insurance rate increase continues to rest with the Rate Bureau.
(6) The Court of Appeals held that the Commissioner did not fail to comply with the statutory requirement that in his order disapproving a filing he indicate “wherein and to what extent such filing is deemed to be improper.” G.S. 58424.21(a). We affirm, albeit for different reasons than those noted by the Court of Appeals.
(7) The Court of Appeals held that the Commissioner complied with the notice requirements of G.S. 58424.21(a). We reverse. We hold that the Commissioner failed to comply with the notice requirements of this statute because no notice was served upon appellants questioning the reliability of the data submitted.
(8) We hold that the Commissioner erroneously found and concluded that the appellants acted in bad faith.
(9) We leave undisturbed those portions of the Court of Appeals’ decision finding (a) that projections of territorial rate differences did not consider the new classification plan and that the
*394
alleged failure to consider the new classification plan resulted in excessive rates was not supported by the evidence, (b) that there was no evidence to support the Commissioner’s disapproval of deductible collision rates as being excessive, and (c) that the appeal by the Rate Bureau nullified the Commissioner’s order to submit an amended filing. These holdings were not brought before us on this appeal.
(10) While several portions of our decision are supportive of certain positions and apparent general goals of the Commissioner, the magnitude of the multiple legal errors in the proceedings before the Commissioner and in his order compel us to reverse the order, declare it null and void and order the filing approved. Moreover, we order that the escrowed premium funds representing this proposed rate increase be remitted to the member insurers pursuant to G.S. 58-124.21(b).
Other facts important to an understanding of our decision are noted below.
II.
Audited Data
Appellants first contend that the Commissioner erred in finding and concluding that unaudited data in an insurance ratemak-ing hearing is unreliable and incredible. By this assignment of error, appellants compel our consideration of the several subsections of our judicial review statutes applicable to insurance ratemaking.
A. Standards of Judicial Review
G.S. 150A-43, a part of the North Carolina Administrative Procedure Act (NCAPA), provides in pertinent part that, “[a]ny person who is aggrieved by a final agency decision ... is entitled to judicial review of such decision under this Article,
unless adequate procedure for judicial review is provided by some other statute, in which case the review shall be under such other statute.”
(Emphasis added.) The Department of Insurance is an “agency” subject to the provisions of the NCAPA. G.S. 150A-2(1). The question, therefore, is whether “some other statute” provides “adequate procedure for judicial review” such that the NCAPA review statutes become inapplicable.
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In determining what is “adequate procedure for judicial review,” as those words appeared in our former statute, G.S. 143-307, this Court held that an adequate procedure for judicial review exists “only if the scope of review is equal to that under G.S. Chapter 143, Article 33, 143-306
et seq.” Jarrell v. Board of Adjustment,
258 N.C. 476, 480 , 128 S.E. 2d 879, 883 (1963). Effective 1 February 1976, G.S. 143-307 was replaced by G.S. 150A-43. Law of March 24, 1975, 1975 N.C. Sess. Laws 44 , Ch. 69, s. 4; Law of April 12, 1974, 1973 N.C. Sess. Laws 691 , Ch. 1331, s. 2. We now hold that “adequate procedure for judicial review,” as those words appear in present G.S. 150A-43, exists only if the scope of review is equal to that under present Article 4 of G.S. Chapter 150A.
While it has been held that the scope of review provided by the NCAPA is substantially broader than that provided by other sections of G.S. Chapter 58 such that the NCAPA should control,
Occidental Life Insurance Co. v. Ingram,
34 N.C. App. 619 , 240 S.E. 2d 460 (1977), we find the applicable Chapter 58 provision for judicial review of the ratemaking cases to be practically identical to the NCAPA provisions.
Compare
G.S. 58-9.6(b) with G.S. 150A-51.
There are of course subtle differences. For example, G.S. 150A-51 provides that an agency decision may be reversed or modified if the substantial rights of petitioners
“may
have been prejudiced.” (Emphasis added.) The comparable provision in G.S. 58-9.6 provides that such rights
“have
been prejudiced.”
Id.
9.6(b). (Emphasis added.) For this reason, and in the interest of uniformity in judicial review of administrative decisions,
see
Daye,
North Carolina’s New Administrative Procedure Act: An Interpretive Analysis,
53 N.C.L. Rev. 833, 899 (1975) (hereinafter
Daye),
we hold that G.S. 150A-51 is the
controlling
judicial review statute in insurance ratemaking cases. However, to the extent that G.S. 58-9.6(b) adds to the judicial review function as noted below and in light of the virtually identical thrust of the two statutes, we elect to proceed by applying the review standards of both G.S. 58-9.6 and G.S. 150A-51, where those standards may be construed as being consistent with each other.
Both
provide that the court may (1) affirm, or (2) reverse, (3) modify, or (4) remand the case for further proceedings. G.S. 58-9.6 also provides the court may declare the Commissioner’s order null and void if the
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substantial rights of the appellants “have been”
1
prejudiced because the Commissioner’s findings, inferences, conclusions or decisions are:
(1) In violation of constitutional provisions, or
(2) In excess of statutory authority or jurisdiction of the Commissioner, or
(3) Made upon unlawful proceedings, or
(4) Affected by other errors of law, or
(5) Unsupported by material and substantial evidence in view of the entire record as submitted, or
(6) Arbitrary or capricious.
G.S. 58-9.6(b).
See also
G.S. 150A-51.
G.S. 58-9.6(b) also provides that “[s]o far as necessary to the decision and where presented, the court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning and applicability of the terms of any action of the Commissioner.”
Here, appellants rely on G.S. 58-9.6(b)(2), (3) and (6) above, contending that the Commissioner has only such powers as are given him by statute and, absent specific statutory authority for the audited data requirement, the Commissioner is without authority to order this particular form of evidence.
1. Excess of Statutory Authority
We first address the question whether the Commissioner’s action was “in excess of statutory authority as contemplated by G.S. 58-9.6(b)(2) and G.S. 150A-5K2). Turning to the applicable statutory provisions, G.S. 58-9 sets out the general powers and duties of the Commissioner of Insurance and confers upon him the duty to
[s]ee that all laws of this State governing insurance companies ... or bureaus relating to the business of insurance are faithfully executed, and to that end he shall have power and authority to make rules and regulations, not inconsistent
*397
with law, to enforce, carry out and make effective the provisions of this Chapter, and to make such further rules and regulations not contrary to any provisions of this Chapter which will prevent practices injurious to the public by insurance companies. . . .
G.S. 58-9(1).
G.S. 58-124.19 sets out the standards and factors to be considered in ratemaking. It provides that “[r]ates shall not be excessive, inadequate or unfairly discriminatory.” At the time of the Commissioner’s order, G.S. 58-124.19(2) provided that:
Due consideration shall be given to past and prospective loss experience, within this State; to the hazards of conflagration and catastrophe; to a reasonable margin for underwriting profit and to contingencies; to dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers; to past and prospective expenses specially applicable to this State; and to all other relevant factors including judgment factors, deemed relevant, within this State. . . .
Our Legislature has generally addressed the question of data collection and availability in two other statutes. G.S. 58-124.18(d) provides:
The Commissioner of Insurance is hereby authorized to compel the production of all books, data, papers and records and any other data necessary to compile statistics for the purpose of determining the underwriting experience of lines of insurance referred to in this Article, and this information shall be available and for the use of the Bureau for the capitulation and promulgation of rates on lines of insurance as are subject to the rate-making authority of the Bureau.
G.S. 58424.20(c) provides that:
The Bureau shall maintain reasonable records, of the type and kind reasonably adapted to its method of operation, of the experience of its members and of the data, statistics or information collected or used by it in connection with the rates, rating plans, rating systems, underwriting rules, policy or bond forms, surveys or inspections made or used by it.
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With this statutory background, we turn to the appellants’ contention that the Commissioner exceeded his statutory authority in ordering that data be audited. Appellants contend that none of the statutes require that data be audited and the Commissioner has no power to interpolate that requirement into the statutes. Moreover, appellants assert that G.S. 58-124.20 vests the authority to promulgate insurance rates in the Rate Bureau and G.S. 58-124.21 gives the Commissioner only a limited power of disapproval. The latter statute provides that: “If the Commissioner after hearing finds that the filing
does not comply with the provisions of this Article,
he may issue his order
determining wherein and to what extent
such filing is deemed to be improper. . . .” (Emphasis added.) Because Article 12B nowhere specifically states that data be audited, appellants argue, the Commissioner improperly rejected the filing in finding appellants failed to “comply with the provisions of [the] Article.”
Appellants rely on previous statements of this Court that the Commissioner has, in the regulation of insurance rates, only such authority as has been conferred upon him by statute.
State ex rel. Commissioner of Insurance v. North Carolina Fire Insurance Rating Bureau,
292 N.C. 471 , 234 S.E. 2d 720 (1977);
State ex rel. Commissioner of Insurance v. North Carolina Automobile Rate Administrative Office,
287 N.C. 192 , 214 S.E. 2d 98 (1975);
In re North Carolina Fire Insurance Rating Bureau,
275 N.C. 15, 33 , 165 S.E. 2d 207, 220 (1969).
In limited context, appellants correctly cite the established rule in this jurisdiction. In
State ex rel. Commissioner of Insurance v. North Carolina Automobile Rate Administrative Office, supra,
Justice Huskins, writing for the Court, stated:
While the Office of Commissioner of Insurance is created by Article III, sec. 7(1) of the North Carolina Constitution, sec. 7(2) of that Article says his duties shall be prescribed
by law.
Hence, the power and authority of the Commissioner emanate from the General Assembly and are limited by legislative prescription. The only power he has to fix rates is such power as the General Assembly has delegated to and vested in him.
287 N.C. at 202 , 214 S.E. 2d at 104 (emphasis in original).
*399
The stated rule is in accord with well-established principles of administrative law. The powers and authority of administrative officers and agencies are derived from, defined and limited by constitution, statute, or other legislative enactment. 73 C.J.S., Public Administrative Bodies and Procedure § 49 (1951 and Cum. Supp. 1980) and cases cited therein. Thus, “[i]n fixing by law the premium rate, it is the legislative power of the State which is being exercised.”
In re Filing by North Carolina Fire Insurance Rating Bureau, supra
at 32, 165 S.E. 2d at 219 . It is beyond question that the Legislature may so delegate this authority to an administrative officer provided it prescribes sufficiently clear standards to control his discretion.
In re Filing by North Carolina Fire Insurance, supra; State ex rel. Utilities Commission v. North Carolina and Southern Bell Telephone and Telegraph Company,
239 N.C. 333 , 80 S.E. 2d 133 (1954).
We note that appellants do not contend that the Legislature improperly delegated its authority to the Commissioner nor that it failed to prescribe sufficiently clear standards to control his discretion. They contend only that the Commissioner exceeded his existing statutory authority.
An issue as to the existence of power or authority in a particular administrative agency is one primarily of statutory construction.
Joseph Burstyn, Inc. v. Wilson,
303 N.Y. 242 , 101 N.E. 2d 665 (1951),
rev’d on other grounds,
343 U.S. 495 , 72 S.Ct. 777 , 96 L.Ed. 1098 (1952).
In construing the laws creating and empowering administrative agencies, as in any area of law, the primary function of a court is to ensure that the purpose of the Legislature in enacting the law, sometimes referred to as legislative intent, is accomplished.
In re Filing by the N.C. Fire Insurance Rating Bureau, supra; In re Dillingham,
257 N.C. 684 , 127 S.E. 2d 584 (1962). The best indicia of that legislative purpose are “the language of the statute, the spirit of the act, and what the act seeks to accomplish.”
Stevenson v. City of Durham,
281 N.C. 300, 303 , 188 S.E. 2d 281, 283 (1972). In addition, a court may consider “circumstances surrounding [the statute’s] adoption which throw light upon the evil sought to be remedied.”
State ex rel. N.C. Milk Commission v. National Food Stores, Inc.,
270 N.C. 323, 332 , 154 S.E. 2d 548, 555 (1967).
*400
We should be guided by the rules of construction that statutes
in pari materia,
and all parts thereof, should be construed together and compared with each other.
Redevelopment Commission v. Security National Bank of Greensboro,
252 N.C. 595 , 114 S.E. 2d 688 (1960). Such statutes should be reconciled with each other when possible, and any irreconcilable ambiguity should be resolved so as to effectuate the true legislative intent.
Duncan v. Carpenter,
233 N.C. 422 , 64 S.E. 2d 410 (1951).
Applying the foregoing, we first note that neither G.S. 58424.18(d) nor G.S. 58424.20(c), the statutes dealing with data collection and availability, mentions a requirement that data be audited. However each section requires that certain data be collected, and the Commissioner is given a certain statutory flexibility in determining what and how that data is to be gathered. G.S. 58424.18(d) authorizes the Commissioner to require
“any other data necessary
to compile statistics.” Former G.S. 58-124.19(2), under which this proceeding took place, set out the factors to be considered in ratemaking, and also referred to
“all other relevant factors
including judgment factors, deemed relevant” in addition to the factors specially named. G.S. 58-9(1) provides that the Commissioner “shall have power and authority to make rules and regulations, not inconsistent with law . . . and
to make such further rules and regulations
not contrary to any provision of this Chapter which will prevent practices injurious to the public by insurance companies.”
Viewing these statutes
in pari materia,
we think it without question that our Legislature intended for the Commissioner of Insurance to promulgate such reasonable rules and regulations as he deems necessary to discharge the functions of his office in seeing “that all laws of this State governing insurance companies ... or bureaus relating to the business of insurance are faithfully executed.” Thus the desire of the Commissioner that data submitted in a ratemaking case be audited is not, in our interpretation, in excess of the statutory powers so construed.
Our view is, we think, consistent with the weight of authority in other jurisdictions.
It is generally recognized that investigatory or inquisitorial powers, power to inspect, or to require the disclosure of information by means of accounts, records, reports, or statements are
*401
conferred on practically all administrative agencies. Indeed, such powers constitute functions which distinguish an administrative agency from a court. 1 Am. Jur. 2d,
Administrative Law
§ 85. Administrative agencies often have the duty to inquire into the management of regulated businesses and in order to perform their functions efficiently it is essential that the agency have access to many facts, often not voluntarily supplied.
State ex rel. Railroad and Warehouse Commission v. Mees,
235 Minn. 42 , 49 N.W. 2d 386 (1951).
The fact that an asserted power is novel and unprecedented does not mean that it does not exist as a statutory power.
United States v. Morton Salt Company,
338 U.S. 632 , 70 S.Ct. 357 , 94 L.Ed. 401 (1950).
The United States Supreme Court addressed this issue in the
Permian Basin Area Rate Cases,
390 U.S. 747 , 88 S.Ct. 1344 , 20 L.Ed. 2d 312 (1968). There, the Federal Power Commission had, contrary to years of custom, set rates for a geographical area of natural gas producers instead of setting rates for individual companies within that geographical area. The Court held that the Federal Power Commission did not abuse or exceed its statutory authority in adopting the system of area price regulation, supplemented by a provision for moratorium upon certain price increases and for exceptions for smaller producers. In interpreting the provisions of the act creating the agency, the Court stated:
This Court has repeatedly held that the width of administrative authority must be measured in part by the purposes for which it was conferred; [citations omitted]. Surely the Commission’s broad responsibilities therefore demand a generous construction of its statutory authority.
Such a construction is consistent with the view of administrative rate making uniformly taken by this Court. The Court has said that the “legislative discretion implied in the rate making power necessarily extends to the entire legislative process, embracing the method used in reaching the legislative determination as well as that determination itself.” [Citations omitted.] It follows that rule-making agencies are not bound to the service of any single regulatory formula; they are permitted,
unless their statutory authority otherwise plainly indicates,
“to make the pragmatic ad
*402
justments which may be called for by particular circumstances. [Citations omitted.]”
Id.
at 776-77 , 88 S.Ct. at 1364-65 , 20 L.Ed. 2d at 341-42 . (Emphasis added.)
Contrary to the reasoning in the Permian Basin cases,
supra,
that unless a statute forbids a practice, a ratemaking body should have authority to make pragmatic adjustments, appellants strenuously argue that had the Legislature intended the Commissioner to have the power to require audited data, it would have expressly given it to him. We think appellants expect too much of our Legislature and too little of our state administrative agencies.
One of the primary problems in the case before us, and in other cases involving the interpretation of an administrative agency’s power, results from the established law that legislative power may not be delegated to an administrative agency unless adequate standards are included in the delegating legislation. The Legislature can obviously not anticipate every problem which will arise before an administrative agency in the administration of an act. The legislative process would be completely frustrated if that body were required to appraise beforehand the myriad situations to which it wished a particular policy to be applied and to formulate specific rules for each situation. Clearly, then, we must expect the Legislature to legislate only so far as is reasonable and practical to do and we must leave to executive officers the authority to accomplish the legislative purpose, guided of course by proper standards.
See, e.g., American Power and Light Company v. Securities and Exchange Commission,
329 U.S. 90 , 67 S.Ct. 133 , 91 L.Ed. 103 (1946). The modern tendency is to be more liberal in permitting grants of discretion to administrative agencies in order to ease the administration of laws as the complexity of economic and governmental conditions increases. The realities of modern legislation dealing with complex economic and social problems have led to judicial approval of broad standards for administrative action. Detailed standards are not required, especially in regulatory enactments under the police power. 1 Am. Jur. 2d,
Administrative Law
§ 118 (1951).
North Carolina cases have long been consistent with this “modern tendency.”
Pue v. Hood,
222 N.C. 310 , 22 S.E. 2d 896 (1942), reviewed the action of the Commissioner of Banks in denying an application for a bank charter. There the Court stated,
*403
It cannot be questioned that the Legislature would have the authority to investigate and decide this question before authorizing incorporation of a bank. But surely the Legislature cannot meet in session and determine the existence or nonexistence of this condition precedent which it has prescribed every time an application for a [bank] charter is received by the Secretary of State.
It may, instead, create an administrative investigatory, fact-finding agency to perform this function, administrative and not judicial in nature.
222 N.C. at 314, 22 S.E. 2d at 899 .
In
State ex rel. North Carolina Utilities Commission v. Atlantic Coast Line Railroad Company,
224 N.C. 283 , 29 S.E. 2d 912 (1944), this Court considered
inter alia
the question whether the Utilities Commission had authority to require certain utilities give 30 days’ written notice of rate increases. This Court held that under general authority to formulate regulations, an administrative agency of the State may prescribe by rule the procedure by which a right granted may be exercised.
In
Burton v. City of Reidsville,
243 N.C. 405 , 90 S.E. 2d 700 (1956), it was said:
The acts of administrative or executive officers are not to be set at nought by recourse to the courts. Nor are courts charged with the duty or vested with the authority to supervise administrative and executive agencies of our government. However, a court of competent jurisdiction may determine in a proper proceeding whether a public official has acted capriciously or arbitrarily or in bad faith or in disregard of the law.
Pue v. Hood, Comr. of Banks, supra.
And it may compel action in good faith in accord with the law. But when the jurisdiction of a court is properly invoked to review the action of a public official to determine whether he, in choosing one of two or more courses of action, abused his discretion, the court may not direct any particular course of action. It only decides whether the action of the public official was contrary to law or so patently in bad faith as to evidence arbitrary abuse of his right of choice. If the officer acted within the law and in good faith in the exercise of his
*404
best judgment, the court must decline to interfere even though it is convinced the official chose the wrong course of action. The right to err is one of the rights —and perhaps one of the weaknesses — of our democratic form of government. In any event, we operate under the philosophy of the separation of powers, and the courts were not created or vested with authority to act as supervisory agencies to control and direct the action of executive and administrative agencies or officials. So long as officers act in good faith and in accord with the law, the courts are powerless to act — and rightly so.
Id.
at 407-08, 90 S.E. 2d at 702-03 .
In interpreting the authority of the former State Highway Commission, this Court in
C. C. T. Equipment Company v. Hertz Corporation,
256 N.C. 277 , 123 S.E. 2d 802 (1962), stated:
The Legislature has not set out in detail every incidental power belonging to and which may be exercised by the Commission. As a practical matter the Legislature could not foresee all the problems incidental to the effective carrying out of the duties and responsibilities of the Commission. Of necessity it provided for those matters in general terms. Where a course of action is reasonably necessary for the effective prosecution of the Commission’s obligation to supervise the construction, repair and maintenance of public highways, the power to take such action must be implied from the general authority given and the duty imposed.
Mosteller v. Southern R. R. Company,
220 N.C. 275, 280 , 17 S.E. 2d 133 . “Administrative boards, commissions and officers have no common-law powers. Their powers are limited by the statutes creating them to those conferred expressly or/by necessary or fair implication. ... In determining whether a board or commission has a certain power, the authority given should be liberally construed in the light of the purposes for which it was created and that which is incidentally necessary to a full exposition of the legislative intent should be upheld as being germane to the law. In the construction of a grant of power, it is a general principle of law that where the end is required the appropriate means are given. . . . However, powers should not be extended by implication beyond what may be necessary for their just and reasonable execution.’’ 42 Am. Jur., Public Administrative Law, 26, pp. 316-318.
*405
Id.
at 282-83 , 123 S.E. 2d at 806-07 .
Appellants also argue that the Commissioner improperly found and concluded that unaudited data was unreliable. They assert there is a lack of sufficient evidence to support this finding and conclusion because only one witness, qualified at the hearing as an expert in accounting and financial reporting, testified that “unaudited reports cannot be relied upon.” This evidence was uncontested.
In asserting their position, appellants correctly argue that the “whole record” test is applicable to judicial review of administrative decisions in North Carolina, citing
In re Rogers,
297 N.C. 48 , 253 S.E. 2d 912 (1979);
Thompson v. Wake County Board of Education,
292 N.C. 406 , 233 S.E. 2d 538 (1977). Moreover, both G.S. 58-9.6(b)(5) and G.S. 150A-5K5) put forth that test as a proper standard of judicial review of these proceedings. They argue that review of the record as a whole reveals insufficient evidence for the Commissioner’s finding that unaudited data is unreliable.
Unlike
Thompson v. Wake County, supra,
and
In re Rogers, supra,
where the Court was concerned with conflicting and contradictory evidence, the expert witness’s testimony here with respect to unaudited data was not contradicted. Indeed, the witness was not even cross-examined on this point.
Appellants further argue, however, that the whole record discloses “that the collection of insurance statistical data is an unbelievably complex process which has been painstakingly developed and meticulously documented;” and that the methods by which the statistics are collected and assembled are the same in North Carolina as in 47 other states. Appellants’ brief presents a lengthy explanation of how the statistical agents and the Rate Bureau compile and evaluate statistical data.
We are not concerned, however, with either the number of states who do things this way or the complexity of the data collection process. We are concerned with the amount of evidence in the record which supports the Commissioner’s order.
What appellants seem to be arguing is that we hold as error the Commissioner’s reliance on uncontested evidence presented to him. This we are unwilling to do.
*406
North Carolina is in accord with the well-established rule that it is for the administrative body, in an adjudicatory proceeding, to determine the weight and sufficiency of the evidence and the credibility of the witnesses, to draw inferences from the facts, and to appraise conflicting and circumstantial evidence. 73 C.J.S.,
Public Administrative Bodies and Procedure
§ 126.
See, e.g., State ex rel. Commissioner of Insurance v. N.C. Automobile Rate Administrative Office, supra; State ex rel. Commissioner of Insurance v. N.C. Fire Insurance Rating Bureau, supra.
The credibility of witnesses and the probative value of particular testimony are for the administrative body to determine, and it may accept or reject in whole or part the testimony of any witness. 73 C.J.S.,
supra
at § 126. Hence, applying the whole record test to the issue of audited data, we find no error in the Commissioner’s election to accord the necessary weight and credibility to the testimony of the single uncontested expert witness testifying on auditing.
Finally, appellants’ reliance on previous decisions of this Court as authority for the position that the Commissioner exceeded his statutory authority in ordering audited data is misplaced. In each of the cases relied upon by the appellants, the Commissioner clearly exceeded his statutory authority in fixing premium rates in factual situations clearly distinguishable from that disclosed by this record. For example, in
State ex rel. Commissioner of Insurance v. N.C. Automobile Rate Administrative Office,
292 N.C. 1 , 231 S.E. 2d 867 (1977), the Commissioner ordered that private passenger automobile insurance rates be decreased by 23.8% for bodily injury and increased by 2.5% for property damage. This Court found that the statute applicable at that time allowed the Commissioner to (1) either approve all of the increase proposed by the rate office, (2) approve a part of the proposed increase or (3) disapprove the entire proposed increase. The statute did not authorize the Commissioner to order a reduction in then-existing rates. Therefore, he clearly exceeded his statutory authority when he ordered a reduction of a rate. In that same case, we note, Justice, now Chief Justice, Branch used language far more pertinent to the issue before us than that relied on by appellants: “The language of G.S. 58-248 does not restrict the Commissioner’s consideration to the statistical data furnished by the Rate Office and he may consider evidence from
*407
other sources if it is otherwise competent.”
Id.
at 18 , 231 S.E. 2d at 876 .
Moreover,
The Commissioner of Insurance is considered to be a specialist in the field of insurance and his projection of past experience and present conditions into the future is assumed to be correct and proper if supported by substantial evidence. Expert testimony, otherwise competent, that a trend upward or downward may reasonably be expected to continue into the future is evidence of “reasonable and related factors” which the Commissioner may consider in making his projections.
The statute does not require that procedures and methods for trending loss experience for the future shall be frozen.
Id.
at 21-22 , 231 S.E. 2d at 878 . (Emphasis in original.)
Therefore, the Court held that the Commissioner did not err when, rather than measuring automobile property damage insurance trends separately from paid claim costs and paid claim frequency as the automobile rate administrative office had done in its filing according to its usual methodology, he chose instead to apply trending factors to the composite of average paid claim costs and frequency or average loss cost per automobile.
Indeed, in many of our previous decisions on insurance, we have stressed the Commissioner’s statutory ability to compel special statistical data.
In
In re N.C. Fire Insurance Rating Bureau, supra,
Justice Lake said:
It is, of course, within the sound discretion of the Commissioner to require complex statistical exhibits to be made available to the adverse party prior to the hearing, to restrict or deny the use of newly developed statistical data sprung suddenly at the hearing by either party to the surprise of the other, and to grant such recess of the hearing as he may deem necessary to permit reasonable opportunity to study such data and to prepare evidence to refute it.
275 N.C. at 37-38 , 165 S.E. 2d at 223 .
*408
In
State ex rel. Commissioner of Insurance v. North Carolina Automobile Rate Administrative Office,
293 N.C. 365 , 239 S.E. 2d 48 (1977), this Court held,
inter alia,
that the fact that orders were based in part on calculations derived from operator license statistics maintained by the Department of Motor Vehicles and from the penalty point system was not a basis for disturbing the Commissioner’s orders. Justice Exum noted that the credibility of testimony is for the Commissioner to determine. He added, “There is nothing sacrosanct about so-called ‘insurance statistics.’ ”
Id.
at 384 , 239 S.E. 2d at 60 . And, “Insurance data compiled by the Rate Office, insofar as it is shown to be reliable and fairly compiled, is valuable and should be considered.
The Commissioner may also consider evidence, otherwise competent, from other sources.” Id.
at 384-85, 239 S.E. 2d at 60 (emphasis added).
The Commissioner’s statutory authority to require certain kinds of data submission is therefore unquestioned.
In light of the foregoing, we hold that the Commissioner’s findings and conclusions that data submitted in an insurance rate-making case be audited were not “in excess of statutory authority” as contemplated by G.S. 58-9.6(b)(2) or G.S. 150A-5U2).
2. Unlawful Proceedings (Procedures)
We next address the question whether the Commissioner’s action was “made upon unlawful proceedings” or “procedures” as contemplated by G.S. 58-9.6(b)(3) and G.S. 150A-5H3). We first note that, while the prohibition against agency action “in excess of statutory authority,” G.S. 58-9.6(b)(2) and G.S. 150A-5K2), and one “made upon unlawful procedure,” G.S. 58-9.6(b)(3),
see also
G.S. 150A-5H3), appear redundant, the distinction is significant indeed. The former refers to the
general authority
of an administrative agency to properly discharge its statutorily assigned responsibilities. The latter refers to the
procedures employed
by the agency in discharging its statutorily authorized acts. We have held above that the Commissioner had the general statutory authority to require audited data in this proceeding. We are now compelled to hold, however, that he did not follow lawful procedure in attempting to do so.
*409
The rulemaking power of an administrative agency is restricted by law apart from the statute conferring power and an agency having authority to effectuate the policies of a particular statute may not effectuate such policies so singlemindedly that it wholly ignores other and equally important legislative objectives. 1 Am. Jur. 2d,
Administrative Law
§ 72.
See also Edgerton v. International Company,
89 So. 2d 488, 490 (Fla. 1956). This is especially true in the case of agencies which have both ac-cusatorial and judgmental powers. The potential for unfairness and abuse is obvious in a situation in which an administrative officer is vested with broad rulemaking powers, determining the admissibility and weight of evidence in hearings and making the final determination on the merits of an action, as is the Commissioner of Insurance in ratemaking cases. Indeed, one of the fundamental purposes in the creation of administrative procedure acts was to minimize the potential of unfairness in embodying in one person or agency these various functions.
See generally
1 Am. Jur. 2d,
Administrative Law
§ 78. Since an administrative agency is vested with powers both quasi-judicial and quasi-legislative, such procedural safeguards are essential.
Our Legislature, in providing that agency action is unauthorized if “made upon unlawful procedure” was clearly sensitive to the potential abuse mentioned above. “This provision authorizes a court to reverse or modify agency action that is not in accordance with the procedural requirements specified in the NCAPA; or with those required under another statute governing agency procedure.” Daye,
supra
at 914. We therefore turn to a consideration of lawful agency procedures in general and the North Carolina Administrative Procedure Act in particular.
Appellants argue, albeit briefly and without citation of authority, that the Commissioner converted a ratemaking case into a rulemaking hearing and thereby violated the terms of the North Carolina Administrative Procedure Act (NCAPA), G.S. 150A-1
et seq.
The Commissioner’s response is equally terse: He argues that this proceeding is exempt from the NCAPA by virtue of certain of its provisions. A determination of the applicability of the NCAPA to this proceeding is therefore necessary to resolve the question whether the Commissioner acted “upon unlawful procedure” in finding and concluding that unaudited data presented in a ratemaking hearing is unreliable and incredible. We think
*410
that the NCAPA is applicable and that the Commissioner violated its rulemaking requirements.
G.S. 150A-9 provides in pertinent part:
It is the intent of this Article to establish basic minimum procedural requirements for the adoption, amendment, or repeal of administrative rules. Except for emergency rules . . ., the provisions . . . are applicable to the exercise of any rule-making authority conferred by any statute.No rule hereafter adopted is valid unless adopted in substantial compliance with this Article.
G.S. 150A-10 then defines “rule” to mean “each agency regulation, standard or statement of general applicability that implements or prescribes law or policy, or describes the organization, procedure, or practice requirements of any agency. The term includes the amendment or repeal of a prior rule. . . .”
The statute then lists six exclusions to the rule definition including the following two, interpretations of which are crucial to the issue before us:
“(4) Statements of policy or interpretations that are made in the decision of a contested case; . . .
(6) Interpretative rules and general statements of policy of the agency.”
The Commissioner argues that either of the quoted exclusions would relieve him of NCAPA requirements with respect to his determination that audited data is essential in a ratemaking hearing. G.S. 150A-2(2) does specifically provide that a ratemaking proceeding is a “contested case” within the meaning of the NCAPA. The primary question, therefore, revolves around the meaning of “interpretative” rules and “statements of policy.”
It becomes readily apparent from the statutory definition of “rule,” which includes six exceptions, that
different types
of rules were contemplated. This is crucial in the issue confronting us here for two reasons: (1) The distinction is important in determining the requirements that will be imposed in establishing the procedures used in adopting and promulgating the rule, and (2) the distinction between different types of rules is important in determining the validity and legal effect of a challenged rule.
*411
While the distinctions are sometimes blurred and rules often serve two or more purposes simultaneously, agency rules may be grouped into three general categories: procedural rules, interpretative rules, and legislative rules. 1 F. Cooper,
State Administrative Law
173 (1965); Daye,
supra
at 851-53.
(1) Procedural rules are those which describe
how
the agency will discharge its assigned functions and the requirements others must follow in dealing with the agency. These are the fundamental rules of agency procedures and are essential to efficient agency operation. Generally these rules deal with such matters as forms, instructions and availability for public inspection of all agency rules and policy.
See, e.g.,
G.S. 150A-1KD. Clearly, then, the requirement that data presented in a ratemaking hearing be audited is more than a procedural rule.
(2) Legislative rules are those established by an agency as a result of a delegation of legislative power to the agency. “Legislative rules fill the interstices of statutes. They go beyond mere interpretation of statutory language or application of such language and within statutory limits set down additional substantive requirements.” Daye,
supra
at 852-53.
(3) Interpretative rules have been defined as
those that interpret and apply the provisions of the statute under which the agency operates. No sanction attaches to the violation of an interpretative rule as such; the sanction attaches to the violation of the statute, which the rule merely interprets. Thus, for example, most of the regulations of the Internal Revenue Service are interpretative.
1 Cooper,
supra
at 174-75.
The crucial determination to be made here is whether the Commissioner’s conclusion that data be audited is a legislative or interpretative rule. This is so because interpretative rules and general policy statements of agencies are excluded from the NCAPA rulemaking provisions by G.S. 150A-KH6) and statements of policy or interpretations made in the decision of a contested case are excluded by G.S. 150A-10(4). On the other hand, substantive legislative rules are not excluded from the NCAPA, unless one of the other exclusions applies. We note that none of the remaining exclusions is applicable here.
*412
The Commissioner contends that the auditing requirement is interpretative and therefore within the stated exclusions. However, we are not limited to the label placed on a rule by an agency, but must look instead to the substance of the rule in question.
Lewis-Mota v. Secretary of Labor,
469 F. 2d 478 (2d Cir. 1972);
Pharmaceutical Manufacturers Association v. Finch,
307 F. Supp. 858 (D. Del. 1970);
Gibson Wine Company v. Snyder,
194 F. 2d 329 (D.C. Cir. 1952). As Professor Daye stated in his helpful article analyzing the NCAPA: “It should be emphasized that careful scrutiny of the substance of the rule in question is critical, since the interpretative-rule exclusion, if not confined to proper boundaries, could well subsume the rulemaking provisions.” Daye,
supra
at 853.
2
In applying the stated definitions to the record before us, we conclude that the Commissioner’s requirement of audited data amounts to a legislative rule and is therefore subject to the rulemaking provisions of the NCAPA. We are so persuaded because his new requirement clearly goes beyond a mere interpretation of the statute under which the agency he heads operates and sets up new substantive requirements. One has only to read the lengthy and learned briefs of appellants and
amici curiae
to know this is true. Furthermore, unlike an interpretative rule, this is certainly a rule with sanctions. Indeed, the Commissioner has dramatized the sanction for violation of his auditing rule: He has denied the requested rate increase for failure of appellants to comply with his newly established rule.
Put another way, the Commissioner’s enunciated rule was established as a result of a delegation of legislative power to his agency. G.S. 58-9(1) empowers the Commissioner to “make rules and regulations ... to enforce, carry out and make effective the provisions of this Chapter, and to make such further rules and regulations not contrary to any provision of this Chapter. . . . The Commissioner may likewise, from time to time, withdraw,
*413
modify or amend any such regulation.” Hence, the Commissioner’s rule here is clearly legislative in nature. It fills “the interstices of the statute,” and within the statutory limits, it sets down “additional substantive requirements.”
Our holding that the Commissioner’s auditing requirement is tantamount to a legislative rule and therefore not excluded from the NCAPA is not, however, dispositive of the issue. The Commissioner correctly argues that a second mode by which administrative agencies can establish rules is through the case-by-case process of administrative adjudication. He relies primarily on the following language in the landmark case of
Securities & Exchange Commission v. Chenery Corporation,
332 U.S. 194 , 67 S.Ct. 1575 , 91 L.Ed. 1995 (1947):
To hold that the Commission had no alternative in this proceeding but to approve the proposed transaction, while formulating any general rules it might desire for use in future cases of this nature, would be to stultify the administrative process. That we refuse to do.
* * *
There is thus a very definite place for case-by-case evolution of statutory standards. And the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.
Id.
at 202-03 , 67 S.Ct. at 1580, 91 L.Ed. at 2002.
The scope of our review of an administrative order wherein a new principle is announced and applied is no different from that which pertains to ordinary administrative action. The wisdom of the principle adopted is none of our concern [citations omitted]. Our duty is at an end when it becomes evident that the Commission’s action is based upon substantial evidence and is consistent with the authority granted by Congress. [Citations omitted.]
Id.
at 207, 67 S.Ct. at 1582, 91 L.Ed. at 2004-05.
Clearly, the consequences of the choice between general rulemaking and
ad hoc,
case-by-case adjudication is of enormous significance. 1 Cooper,
supra
at 177-78. As noted by one com
*414
mentator, the “whole tenor” of APA procedures is different when establishing rules in the adjudication of contested cases, rather than following rulemaking procedures:
(1) The type of notice is different.
(2) The form of hearing is different.
(3) The mechanics of decision-making are different.
(4) The scope of judicial review is different.
(5) Most importantly, APA-established rules are normally prospective in operation, while decisions in adjudicatory matters are normally (like judicial decisions) retroactive.
Id.
The discretion vested in administrative agencies in choosing between the two methods of establishing rules is not, however, unbridled. Indeed, the U.S. Supreme Court in
Chenery
provided qualifying guidelines in stating the quoted general rules.
Ad hoc
rulemaking in adjudication is necessary where:
problems may arise in a case which the administrative agency could not reasonably foresee, problems which must be solved despite the absence of a relevant general rule. Or the agency may not have had sufficient experience with a particular problem to warrant rigidifying its tentative judgment into a hard and fast rule.
Or the problem may be so specialized and varying in nature as to be impossible of capture within the boundaries of a general rule.
332 U.S. at 202-03 , 67 S.Ct. at 1580, 91 L.Ed. at 2002.
Applying the foregoing to the record before us, we note: (1) the lack of unaudited data was not a problem unforeseen by the Commissioner, (2) “absence of a relevant general rule was not prohibitive of this ratemaking,” (3) here, the Commissioner had “sufficient experience” with the problem, and (4) certainly the problem of auditing is not so specialized and varying in nature as to be “impossible of capture within the boundaries of a general rule.” Indeed, with respect to the latter, one of the problems with the Commissioner’s sudden order to audit data was its vagueness, a problem which could have been avoided had the rule been promulgated in the orderly NCAPA process.
*415
The
Chenery
Court also added:
Since the Commission, unlike a court, does have the ability to make new law prospectively through the exercise of its rule-making powers, it has less reason to rely upon
ad hoc
adjudication to formulate new standards of conduct within the framework of the Holding Company Act. The function of filling in the interstices of the Act should be performed, as much as possible, through this quasi-legislative promulgation of rules to be applied in the future.
332 U.S. at 202 , 67 S.Ct. at 1580, 91 L.Ed. at 2002.
Decisions by the U.S. Supreme Court subsequent to
Chenery
have been less than helpful. For example, on the question whether an administrative agency can, through adjudication, overrule its prior clear rules when private parties have acted in reliance on the overruled decisions,
NLRB v. Wyman-Gordon Company,
394 U.S. 759 , 89 S.Ct. 1426 , 22 L.Ed. 2d 709 (1969), goes in one direction while
NLRB v. Bell Aerospace Company,
416 U.S. 267 , 94 S.Ct. 1757 , 40 L.Ed. 2d 134 (1974), goes in the opposite direction. Moreover, the Court has held that an agency, even when it had opened the way by first adopting an interpretative rule, could make law only through a legislative rule and not through
ad hoc
decisions based on the interpretative rule.
Morton v. Ruiz,
415 U.S. 199 , 94 S.Ct. 1055 , 39 L.Ed. 2d 270 (1974). Yet, just two months later, in
NLRB v. Bell Aerospace Company, supra,
the Court unanimously held that the NLRB, even without first issuing an interpretative rule, could make new law in an adjudication. It has been stated that the
Morton v. Ruiz
decision was clearly excessive, though “in the right direction.” 2 K. Davis,
Administrative Law Treatise
§ 7.27 at 140 (2d ed. 1979).
3
We think the superior rule was stated by Professor Cooper some fifteen years ago and generally adopted by numerous court decisions since:
The general rule that should guide the agencies in making the choice between rule making and
ad hoc
adjudication might be formulated as follows: where an agency faces the
*416
alternative of proceeding by rule making or by adjudication, the process of rule making should be utilized except in cases where there is a danger that its utilization would frustrate the effective accomplishment of the agency’s functions. Where such danger exists,
e.g.,
where the “agency may not have had sufficient experience with a particular problem to warrant rigidifying its tentative judgment into a hard and fast rule,” or where the problem is so “specialized and varying in nature as to be impossible of capture within the boundaries of a general rule,” the advantages to the agency of utilizing the
ad hoc
adjudication technique must be balanced against the possible deleterious public consequences resulting from the retroactive application of a new standard of general application to large numbers of parties who have had no opportunity to be heard as to what the standard should be. Unless the balance clearly preponderates in favor of the
ad hoc
adjudication method, the agency should utilize rule-making procedures.
The suggestion was well phrased in an A.B.A. committee report which recommended that:
Administrative agencies shall (1) as a fixed policy prefer and encourage rule making to reduce to the minimum the necessity for case-by-case administrative adjudications; and . . . (4) shall promptly formulate, incorporate and promulgate as a rule or statement of policy any and all general principles, not otherwise published as rules or specified in statutes, enumerated in any specific case decision.
More specifically, it has been well suggested that while the practice of working out policy piecemeal by
ad hoc
adjudication may be justified in the initial stages of administrative regulation of a new field, yet when time and experience have served to sharpen and focus the problems involved, then the agency should utilize rule-making procedures to lay down general rules for the future guidance of all parties affected.
1 Cooper,
supra
at 181-82 (footnotes omitted).
For decisions in accord with the stated rule,
see generally, NLRB v. E. & B. Brewing Company,
276 F. 2d 594 (6th Cir. 1960),
*417
cert. denied,
366 U.S. 908 (1961);
NLRB v. Guy F. Atkinson Company,
195 F. 2d 141 (9th Cir. 1952);
Gonzalez v. Freeman,
334 F. 2d 570 (D.C. Cir. 1964);
Harnett v. Board of Zoning, Subdivision and Building Appeals,
350 F. Supp. 1159 (D.V.I. 1972).
We think the policy favoring rulemaking rather than
ad hoc
adjudication comports with the intent of our Legislature in enacting G.S. 150A-10. The exclusion of policy statements or interpretations “made in the decision of a contested case” included in G.S. 150A-10(4) clearly was not intended to embrace substantive rules with anticipated future applicability. This is so because of the difference between interpretative and legislative rules discussed above and because G.S. 150A-10(6) which excludes “interpretative rules and general statements of policy of the agency” would be unnecessary if G.S. 150A-10(4) were intended to apply to matters beyond the contested case in question. Professor Daye has correctly analyzed the exclusion:
[I]t would appear that if the agency, based on the result in a contested case, desired to promulgate a general rule to govern a matter in the future based on a given set of facts, the promulgation would constitute a rule subject to rulemak-ing requirements unless within another exclusion.
Daye,
supra
at 851, note 84.
The rationale for the rule we adopt has been stated as follows:
Rule-making provides the agency with a forum for soliciting the informed views of those affected in industry and labor before adopting a new policy. Giving the agency discretion to embark on the new course in an adjudication limits the views presented to those of the parties in the particular case.
. . .
Chenery [supra]
may allow adjudication as a vehicle for formulation of new agency policy. But the same license should not exist where the new policy revolutionizes long-established patterns of conduct. Where those affected have justifiably relied upon an agency-engendered belief in an established policy, the agency should not be permitted to change the policy except through rule-making. An agency decision branding as “unfair” the conduct always previously
*418
stamped “fair” should raise judicial hackles sufficiently to lead the court to refuse to follow
Chenery
and order the agency to engage in rule-making.
B. Schwartz,
Administrative Law
§ 66 at 189-90 (1976).
Applying the stated rule to the record before us, we first note that the Commissioner clearly intended for the auditing requirement contemplated in his order to apply both retroactively to the case at bar and prospectively to future filings. This is apparent from his finding of fact No. 32 which prescribes the minimum reasonable audit features “to
be performed
by ISO, NAII and the Bureau.” (Emphasis added.) Moreover, he rejected another automobile insurance rate filing on the same grounds only seven months after this filing.
State ex rel. Commissioner of Insurance v. North Carolina Rate Bureau,
41 N.C. App. 327 , 255 S.E. 2d 567 (1979), on appeal to this Court and decided today as No'. 86, and in other subsequent filings,
see State ex rel. Commissioner of Insurance v. North Carolina Rate Bureau,
44 N.C. App. 191 , 261 S.E. 2d 671 (1979), decided by this Court today as No. 54;
State ex rel. Commissioner of Insurance v. North Carolina Rate Bureau,
44 N.C. App. 75 , 259 S.E. 2d 926 (1979), decided by this Court today as No. 74.
Moreover, we find that in attempting to establish the auditing requirement the Commissioner’s following of normal NCAPA rulemaking requirements would have presented no “danger that . . . utilization [of the NCAPA] would frustrate the effective accomplishments of the agency’s functions.” In this connection, we note:
(1) This is not a situation where the Commissioner “may not have had sufficient experience with a particular problem” to warrant an NCAPA established rule. Indeed, the record discloses that the Commissioner intended to establish a “hard and fast rule.”
(2) The rules was not “so specialized and varying in nature as to be impossible of capture within the boundaries of a general rule.” Present regulations filed by the Commissioner pursuant to the NCAPA are easily adaptable to accomplish the Commissioner’s desired goal.
See
11 NCAPA 10.301.
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(3) In balancing the advantages of the Commissioner’s application of the
ad hoc
technique against the possible “deleterious public consequences resulting from the retroactive application of a new standard of general application to a large number of parties who have had no opportunity to be heard as to what the standard should be,” we think the scales tip in favor of appellants. The record discloses that the new requirement would be far reaching. It would instantly require a change in long-established procedure in this State and one utilized in practically every other state in the nation. No attempt has been made to determine the ultimate cost of the new requirement, an expense we suspect would ultimately be borne by rate payers in one way or another. No attempt was made to determine if the order was even capable of performance. For example, the audit requirement would obviously require an examination of “original source documents” of the many member groups reporting to the Rate Bureau. No attempt was made to determine where such records are kept by the national companies involved, whether the required information could possibly be retrieved within the time limits required by statute in rate filings or for what period of time such records are or should be maintained. These and other critical questions could properly be answered at a rulemaking hearing held pursuant to the NCAPA. We think it the only orderly and legally proper way to approach the promulgation of a rule so far reaching as that the Commissioner seeks to establish.
In summary, we hold that the practical operation of the Commissioner’s change of policy, when incorporated in the order now before us, is to work hardship upon appellants altogether out of proportion to the public ends to be accomplished. The inequity of such an impact of policy upon appellants presents a striking example of the very reason for the enactment of administrative procedure acts across the land. The Commissioner has ample ways of instituting, through the Legislature or pursuant to the NCAPA, rules he deems essential for the proper discharge of his duties.
We therefore hold that the Commissioner’s attempt to establish a rule requiring audited data in this ratemaking hearing was “made upon unlawful procedure” as contemplated by G.S. 58-9.6(b)(3) and G.S. 150A-5K3).
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3. Arbitrary and Capricious Actions
We next address the question whether the Commissioner’s action ordering audited data was “arbitrary and capricious” as contemplated by G.S. 58-9.6(b)(6) and G.S. 150A-51(6).
Agency decisions have been found arbitrary and capricious,
inter alia,
when such decisions are “whimsical” because they indicate a lack of fair and careful consideration; when they fail to indicate “any course of reasoning and the exercise of judgment,”
Board of Education v. Phillips,
264 Ala. 603 , 89 So. 2d 96 (1956), or when they impose or omit procedural requirements that result in manifest unfairness in the circumstances though within the letter of statutory requirements, 2 Cooper,
supra
at 761-69, note 8, and cases cited therein. “The ultimate purpose of rulemaking review is to insure ‘reasoned decisionmaking’ . . . .” Daye,
supra
at 922, citing Verkuil, Judicial Review of Informal Rulemaking, 60 Va. L. Rev. 185 , 230 (1974).
We agree with appellants that the Commissioner’s order with respect to audited data is arbitrary and capricious for these reasons: The order is vague and uncertain in that (1) it does not establish the extent to which examination of “original source documents” is required, (2) it does not make clear whether the auditing must be performed by Certified Public Accountants, other accountants, or actuaries, (3) it does not specify the degree of precision and reliability required of “statistical sampling,” (4) it generally does not provide appellants with adequate guidelines for compliance with the general conclusion that data in a ratemak-ing hearing be audited, (5) it includes no determination by the Commissioner as to the possibility of performance of his new rule nor whether implementation of the rule would be economically feasible, (6) it includes no determination whether the statutory time limits could be complied with in face of the new rule, and (7) it includes no determination whether the “original source data” contemplated by the new rule is even available for the past years involved in this filing or whether such data, if available, is located in North Carolina or outside the State in the case of the several hundred companies writing insurance in this State.
In view of these omissions we hold the Commissioner’s order is grossly imprecise in attempting to enunciate a substantive rule
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involving sweeping ramifications and is therefore “arbitrary or capricious” as contemplated by G.S. 58-9.6(b)(6) and G.S. 150A-5K6).
B. Summary
The Court of Appeals affirmed the Commissioner’s conclusion that unaudited data is not a credible basis for justifying a proposed rate increase on the sole ground that there was “material and substantial evidence in view of the entire record as submitted” as contemplated by G.S. 58-9.6(b)(5) to support the Commissioner’s order. Had this been the only criterion for appellate review, the Court of Appeals’ decision would be correct as we have noted above.
See
Section I.A. above. That court erred, however, in failing to review the Commissioner’s order in light of subsections (3) and (6) of G.S. 58-9.6(b) and G.S. 150A-51, as we have done above. Therefore, and for the reasons stated above, this portion of the Court of Appeals’ decision is reversed.
We declare null and void all portions of the Commissioner’s order referring to the requirement of audited data, including but not limited to, findings of fact 22 through 35, conclusions of law 1 through 4 and usage of the phrase “purported to show” in all portions of the order wherein the phrase was obviously inserted to question otherwise undisputed and uncontradicted evidence but for the lack of formal audit.
Finally, we note that the issue presented here is not an isolated one. The proliferation of administrative agencies throughout the last several decades, both in federal and state governments, has created controversy and confusion over the question of proper legislative delegation of authority and the appropriateness of standards to guide effective agency action. The various treatises cited in this opinion are replete with citations to decisions from state and federal courts adopting practically every position imaginable. We agree generally that:
Power should be delegated [to an administrative body] where there is agreement that a task must be performed and it cannot be effectively performed by the legislature without the assistance of a delegate or without an expenditure of time so
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great as to lead to the neglect of equally important business. Delegation is most commonly indicated where the relations to be regulated are highly technical or where their regulation requires a course of continuous decision.
Where not only technical skill but continuous judgment is demanded the legislature is helpless. This is true of rate regulation which requires a vast number of individual determinations, a body of technical material, and an expert staff. Decisions must make a pattern, integrated yet flexible. [The legislature] could not frame a delegation which would settle all vital questions of policy.
Jaffe,
Judicial Control of Administrative Action
35, 37 (1965).
The North Carolina General Assembly has effectively and properly delegated insurance ratemaking to the Rate Bureau with review by the Commissioner of Insurance. It can, and perhaps should, review the statutes with the view to providing clarity on such significant substantive matters as that presented here. In the meantime, it is incumbent on the Commissioner, in discharging the broad powers he possesses as head of a major State administrative agency, to follow the clear lawful procedures prescribed by our Legislature to guide all administrative agencies.
III.
North Carolina Reinsurance Facility
In its filing letter of 29 November 1977 to the Commissioner, the Rate Bureau stated, “This filing proposes also that the rates for risks ceded to the North Carolina Reinsurance Facility be 10°/o higher than the proposed rates for risks voluntarily retained, subject to all applicable provisions of law.”
Based on several findings of fact, the Commissioner concluded,
inter alia,
as follows:
(20) That as the filing does not propose any fixed set of objective criteria for deciding which risks may be ceded to the Facility, the decision to cede a given risk is based entirely on the subjective judgment of the individual insurer.
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(21) That the exercise of subjective judgment regarding cessions by insurers has resulted in a Facility population in which 475,704 (86.9%) of the ceded exposures have not caused a claim payment to be made, 389,111 (71.0%) have never been assessed SDIP points, and 341,273 (62.3%) have neither been assessed any SDIP points nor caused a claim payment to be made.
(22) That in view of the current composition of the Facility, a 10% increase in the Facility Rate [sic] above the rates for voluntary business would be excessive and unfairly discriminatory.
(23) That because acquisition and service costs are charged and accounted for as a percentage of premium, a Facility rate 10% higher than the proposed rates for insureds voluntarily retained will result in ceded risks paying disproportionately higher acquisition and service costs, and that the higher Facility rate is therefore excessive and unfairly discriminatory.
(24) That were the proposed 10% higher Facility rate approved, any increase in the percentage of total insureds ceded to the Facility would result in an overall rate level increase in excess of 6%, which is in contravention of G.S. 58-124.26.
The Court of Appeals agreed with the Commissioner, stating,
[T]here appears in the record material and substantial evidence to support the Commissioner’s finding of fact. The figures and percentages are drawn directly from the Bureau’s Exhibit # RB 33. And based upon the finding that there are no objective criteria for cession to the Facility, and the Commissioner’s finding that 62.3% of the insureds ceded to the Facility have neither assessed any SDIP points nor caused a claim payment to be made, we find that there is ample support for the Commissioner’s conclusion that a 10% rate increase for insureds in the Facility would be unfairly discriminatory.
41 N.C. App. at 320-21 , 255 S.E. 2d at 564 .
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By their second assignment of error, appellants contend that the Court of Appeals erred in approving the findings and the conclusions of the Commissioner that the reinsurance rate differential is unfairly discriminatory.
This assignment of error presents to this Court the first substantial challenge to the North Carolina Motor Vehicle Reinsurance Facility created in 1973 by the General Assembly to replace the Assigned Risk Plan. Basically, the Facility represents a pool which insures risks which companies determine they do not want to individually insure. A review of the significant provisions of Article 25A, Chapter 58, N.C. General Statutes, will prove helpful to our disposition of this assignment of error.
G.S. 58-248.27 created the North Carolina Motor Vehicle Reinsurance Facility (“Facility”) in 1973 as a nonprofit entity to consist of all insurers licensed to write motor vehicle insurance in the State. All insurers within the State are required to be members of the Facility and to be bound by its rules of operation which are determined by the statute or promulgated by its board of governors. G.S. 58-248.31(a) is particularly significant. It provides that all insurers “as a prerequisite to the further engaging in this State in the writing of motor vehicle insurance . . .
shall accept and insure any otherwise unacceptable applicant therefor who is an eligible risk if cession of the particular coverage and coverage limits applied for are permitted in the Facility."
(Emphasis added.)
This statute also provides that all insurers “shall equitably share the results of such otherwise unacceptable business through the Facility” and that each company shall be bound by the acts of its agents in accordance with the provisions of the Article.
Id.
G.S. 58-248.32(a) provides in part that no licensed agent of an insurer shall refuse to accept any application from an eligible risk for such insurance and to immediately bind the coverage applied for if cession of the particular coverage and limits are permitted in the Facility. The 1977 Legislature added a provision to this statute providing that agents shall write the coverage applied for at what the agent believes to be the appropriate rate level. G.S. 58-248.32(b).
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G.S. 58-248.33 defines the Facility’s functions and administration. It first provides that the Facility shall assure the availability of motor vehicle insurance to any “eligible risk” and
that the Facility shall accept all placements made in accordance with the Article.
G.S. 58-248.33(a). It then sets forth the minimum coverage provisions for which the Facility shall provide reinsurance.
Subsections (d), (e), (f) and (g) of G.S. 58-248.33 spell out the composition, responsibilities and powers of the Facility’s board of governors.
The 1977 Legislature amended G.S. 58-248.33 by adding,
inter alia,
subsections (1) and (m). Former subsection (1), under which this proceeding occurred, provided in pertinent part:
The classifications, rules, rates, rating plans and policy forms used on motor vehicle insurance policies reinsured by the Facility may be made by the Facility by any licensed or statutory rating organization or bureau on its behalf and shall be filed with the Commissioner.
The Commissioner may establish separate sub classifications within the Facility for clean risks as defined by the Commissioner. . . . Rates shall be neither excessive, inadequate nor unfairly discriminatory. ...
If the Commissioner finds, after a hearing, that a rate is either excessive, inadequate or unfairly discriminatory, he shall issue an order specifying in what respect it is deficient and stating when, within a reasonable period thereafter, such rate shall be deemed no longer effective. Said order is subject to judicial review as set out in Article 2 of this Chapter. Pending judicial review of said order, the filed classification plan and the filed rates may be used, charged and collected in the same manner as set out in G.S. 58-131.42 of this Chapter. . . .
All rates shall be on an actuarially sound basis and shall be calculated, insofar as is possible, to produce neither a profit nor a loss. . . . Rates shall not include any factor for underwriting profit on Facility business, but shall provide an allowance for contingencies. There shall be a strong presumption that the rates and premiums for the business of the Facility are neither unreasonable nor
excessive.
4
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Law of May 24, 1973, 1973 N.C. Sess. Laws 1215 , Ch. 818, as amended by Law of June 30, 1977, 1977
N.C. Sess. Laws
1119 , Ch. 828, s. 19.
G.S. 58-248.34 sets forth the requirements for the Facility’s “plan of operation.”
G.S. 58-248.35 provides that, “Upon receipt by the company of a risk
which it does not elect to retain,
the company shall follow such procedures for ceding the risk as are established by the plan of operation.” (Emphasis added.)
The 1977 amendments applicable to this case, and incorporated in the statutory summary noted above, made several significant changes to the original 1973 legislation. The most significant was the establishment of the procedures designed to make the Facility self-sustaining. Prior to 1977, a high-risk insured whose coverage was ceded to the Facility paid the same amount for insurance as the high-risk insured whose coverage was not ceded. Law of March 6, 1945, Ch. 381, s. 2, 1945 N.C. Sess. Laws 461 , formerly G.S. 58-248.2 (1975) (repealed 1977). Under the 1977 statute, losses sustained by the Facility are to be recouped “either through surcharging persons reinsured by the Facility or by equitable pro rata assessment of member companies.” G.S. 58-248.34(e). The member companies, in turn, are to recoup any such investment by surcharging policyholders. G.S. 58-248.34(f). This surcharge is to be assessed “on motor vehicle insurance policies issued by the member or through the Facility.”
Id.
Conversely, should the Facility realize any gain, any balance remaining after losses are covered is to be distributed to persons reinsured by the Facility. G.S. 58-248.34(e).
In commenting on the 1977 changes, the Legislative Research Commission’s report to the 1979 General Assembly stated:
Under the old law the participating company could not transfer more than 50% of their risks to the Facility, had to share Facility losses, and could not charge higher rates for automobile liability policies ceded to the Facility. House Bill 658 [1977 revision of insurance law] changed all of that by eliminating the 50% limitation on cessions, by permitting
*427
higher rates or surcharges to recover losses of the Facility, and by providing for distribution of Facility gains to policyholders reinsured by the Facility. The apparent intent behind the new provisions is to make the Facility self-sustaining, whereas under the old system the insurance industry in effect subsidized the Facility by absorbing its losses.
Legislative Research Commission,
Report to the 1979 General Assembly of North Carolina
12-13 (1979).
That same report also stated:
House Bill 658 provided for a “clean risk” subclassification in the Facility (those drivers without points for the previous three years whose policies were ceded to the Facility), to be defined by the Commissioner. In his supplemental order of November 30, 1978, the Commissioner directed the Rate Bureau to submit a plan whereby no driver in the Facility would be surcharged more than a driver outside the Facility if they had the same number of driving record points or chargeable accidents. This was coupled with his October 30, 1978, order to eliminate the separate Facility rate in the classification plan submitted earlier, and was intended to compensate for any revenue shortfalls resulting from that elimination. Both orders have been appealed. It is arguable as to whether or not the Commissioner’s orders come within the letter or intent of the new provisions, but deference must be made to the courts for judgment on this matter. There is, however, implication in the language of G.S. 58-248.34(e) that the surcharge does not necessarily have to apply exclusively to drivers whose policies are ceded to the Facility.
Id.
at 47-48 .
A. Scope of Review
Turning to appellants’ contentions under this assignment that the Commissioner’s order disapproving a 10% surcharge on Facility policyholders should be voided, we first note that we have not been cited to any of the standards for judicial review of insurance actions in either G.S. 58-9.6 or G.S. 150A-51. We must therefore first determine the appropriate scope of review for this assignment of error.
*428
The thrust of the arguments presented by both appellants and the Commissioner is concerned with the evidence presented at hearing on this issue. We think the appropriate subsection of our judicial review statutes thus invoked is that which calls for appropriate judicial action when the Commissioner’s findings and conclusions are “[unsupported by material and substantial evidence in view of the entire record as submitted,” G.S. 58-9.6(b) (5) or are “[unsupported by substantial evidence in view of the entire record as submitted,” G.S. 150A-5H5). However, because the Commissioner’s brief relies on certain cases from other jurisdictions involving constitutional determinations and because the phrase “unfairly discriminatory” carries constitutional implications, we first explain our decision not to consider this assignment of error on constitutional grounds.
It is well established in this jurisdiction that the constitutionality of a statute will not be reviewed in the appellate court unless it was raised and passed upon in the proceedings below,
City of Durham v. Manson,
285 N.C. 741 , 208 S.E. 2d 662 (1974), usually by the trial court. “[W]e will not pass upon a constitutional question unless it affirmatively appears that such question was raised
and passed upon
in the court below.”
State v. Dorsett & Yow,
272 N.C. 227, 229 , 158 S.E. 2d 15, 17 (1967) (emphasis in the original). In
State v. Cumber,
280 N.C. 127 , 185 S.E. 2d 141 (1971), the constitutional question was not raised in the trial court but for the first time in the Court of Appeals. This Court held that it was not properly before the Court of Appeals nor this Court. We stated:
That belated constitutional question was injected for the first time on appeal to the Court of Appeals and therefore came too late. It was not properly before that court and is not now properly before us. “The attempt to smuggle in new questions is not approved.
Irvine v. California,
347 U.S. 128, 129 . Appellate courts will not ordinarily pass upon a constitutional question unless it affirmatively appears that such question was raised and passed upon in the trial court.
State v. Jones,
242 N.C. 563, 564 , 89 S.E. 2d 129 . This is in accord with the decisions of the Supreme Court of the United States.
Edelman v. California,
344 U.S. 357, 358 .”
State v. Grundler,
251 N.C. 177 , 111 S.E. 2d 1 (1959).
Accord, State v. Colson,
274 N.C. 295 , 163 S.E. 2d 376 (1968).
*429
Id.
at 131-32, 185 S.E. 2d at 144 .
See also State v. Duncan,
282 N.C. 412 , 193 S.E. 2d 65 (1972);
State v. Hudson,
281 N.C. 100 , 187 S.E. 2d 756 (1972),
cert. denied,
414 U.S. 1160 (1974).
Here, the Commissioner’s original order denying the Reinsurance Facility rate increase stated only that such rates are “unfairly discriminatory” presumably in the statutory sense. He never held that any of the statutes or actions were unconstitutional. In his brief, however, he does make vague assertions that it would be “constitutionally suspect” to interpret the statutes contrary to his findings and conclusions. He states, “The governing statutes should be construed so as to avoid serious doubts as to constitutionality.” Moreover, the Commissioner relies strongly on a recent holding of the Supreme Court of Michigan,
Shavers v. Attorney General Kelley,
402 Mich. 554 , 267 N.W. 2d 72 (1978),
cert. denied,
442 U.S. 934 (1979). There, it was held that Michigan’s No-Fault Insurance Act was constitutional insofar as it provided benefits as a substitute for tort remedies it partially abolished. However, certain ratemaking mechanisms were constitutionally deficient in failing to provide due process. That court delineated several deficiencies of the Michigan statute, similar to deficiencies alleged here. However, the Michigan court unquestionably based its holding on constitutional due process considerations. Indeed, the Michigan action was a declaratory judgment action specifically brought to determine the constitutionality of the Michigan No-Fault Insurance Act. The constitutional question was the basis for the action from trial court to final appellate adjudication. This is completely unlike the case before us where the record discloses no constitutional question presented or passed on in the Commissioner’s original order.
Moreover, our judicial review statutes do not contemplate constitutional review in the present posture of the matter before us. G.S. 58-9.6(b)(l) provides essentially that the
Commissioner’s findings and conclusions
may be affirmed, reversed, modified, etc. if the
substantial rights of the appellants
have been prejudiced “in violation of constitutional provisions,” and G.S. 150A-5HU provides the same standard if the appellants’ rights “may have been prejudiced.” Here, appellants, the Rate Bureau and member companies make no assertion that their rights have been prejudiced because any of the Commissioner’s findings or conclusions were in violation of any constitutional provisions. This is only the belated
*430
argument of the Commissioner. Accordingly, we think no constitutional issues are before us.
B. Material and Substantial Evidence
We next address the question whether the Commissioner’s findings and conclusions with respect to this portion of his order were “unsupported by material and substantial evidence
in view of the entire record as submitted”
as contemplated by G.S. 58-9.6(b)(5) and G.S. 150A-5U5). (Emphasis added.)
We reiterate the rule stated in Section II. A. 1 of this opinion that it is for the administrative agency to determine the weight and sufficiency of the evidence and the credibility of the witnesses, to draw inferences from the facts, and to appraise conflicting and circumstantial evidence. 73 C.J.S.,
Public Administrative Bodies and Procedure, supra
at § 126. It is not our function to substitute our judgment for that of the Commissioner when the evidence is conflicting. However, as also indicated above, when evidence is conflicting, the standard for judicial review of administrative decisions in North Carolina is that of the “whole record” test.
Thompson v. Wake County Board of Education, supra; In re Rogers, supra.
As Justice Exum stated in
In re Rogers:
“The ‘whole record’ test is not a tool of judicial intrusion; instead, it merely gives a reviewing court the capability to determine whether an administrative decision has a rational basis in the evidence.
See
Jaffe, Judicial Control of Administrative Action . . . 601 [(1965)]; Daye,
supra
at 920-921.” 297 N.C. at 65 , 253 S.E. 2d at 922 .
In
Thompson v. Wake County,
Justice Copeland clearly explained the “whole record” test:
This standard of judicial review is known as the “whole record” test and must be distinguished from both
de novo
review and the “any competent evidence” standard of review.
Universal Camera Corp. v. N.L.R.B.,
340 U.S. 474 , 95 L.Ed. 456 , 71 S.Ct. 456 (1951);
Underwood v. Board of Alcoholic Control,
278 N.C. 623 , 181 S.E. 2d 1 (1971); Hanft,
Some Aspects of Evidence in Adjudication by Administrative Agencies in North Carolina,
49 N.C.L. Rev. 635, 668-74 (1971); Hanft,
Administrative Law,
45 N.C.L. Rev. 816, 816-19 (1967). The “whole record” test does not allow the
*431
reviewing court to replace the Board’s judgment as between two reasonably conflicting views, even though the court could justifiably have reached a different result had the matter been before it
de novo,
Universal Camera Corp.,
supra.
On the other hand, the “whole record” rule requires the court, in determining the substantiality of evidence supporting the Board’s decision, to take into account whatever in the record fairly detracts from the weight of the Board’s evidence. Under the whole evidence rule, the court may not consider the evidence which in and of itself justifies the Board’s result, without taking into account contradictory evidence or evidence from which conflicting inferences could be drawn. Universal Camera Corp.,
supra.
292 N.C. at 410, 233 S.E. 2d at 541 .
Applying the foregoing, we proceed to review the evidence to determine whether it is substantial in view of the entire record to support the Commissioner’s findings and conclusions. We first note that G.S. 58-248.33(1) which prohibits rates which are “excessive, inadequate or unfairly discriminatory” contains no definition of the latter phrase. That same statute provides, however, that “[ajl rates shall be on an actuarially sound basis.”
Id.
Moreover, it provides that “[t]here shall be a strong presumption that the rates and premiums for the business of the Facility are neither unreasonable nor excessive.”
Id.
While the Commissioner’s findings with respect to the numbers and percentages of ceded exposures which had not had assessed any SDIP points nor caused claim payments to be made are supported by the record, the Commissioner has made no findings with respect to the statutory standard “actuarially sound.” This is so even though the record is replete with evidence indicating that the proposed differential for the rate increase between ceded and voluntary business is actuarially justified. For example, the evidence for the Rate Bureau indicated there were only 1.42 claims per hundred cars involving bodily injury for voluntary risk policyholders in contrast with 2.95 accidents per hundred cars involving bodily injury for ceded risk policyholders. For property damage, the corresponding figures for voluntary risk were 5.70 accidents per hundred cars as compared to 10.21 for ceded risk.
The statistics revealed in the following chart indicated the pure premium or average loss per car was also significant:
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Bodily Property Injury Damage
Voluntary Risks $22.17 $23.85
Ceded Risks 56.12 47.59
In other words, the claim frequency for Facility business for bodily injury was 108% higher than for a voluntary insured. For property damage, the claim frequency was 79% higher for a Facility insured than for a voluntary insured. On an average loss per car basis, the pure premium for a Facility insured for bodily injury liability was 153% higher and for property damage liability the Facility insured had a loss cost of 99.5% higher than a voluntary insured.
The Commissioner’s order also relies heavily on the percentage of insureds who had no SDIP points or claims assessed. The record indicates extensive questioning concerning what are referred to as “clean risks.” As we understand it from the record, parties to the hearing proceeded under the understanding that a “clean risk” was one who had neither SDIP points nor a claim assessed during the preceding three-year period.
5
The Commissioner’s findings and conclusions concerning these statistics and the “current composition of the Facility” indicate that he based his conclusions primarily on what he considers unfair discrimination between a “clean risk” in the Facility and those in the voluntary market. Again, however, in following the statutory guide that the rates be “actuarially sound,” the statistics are significant. The following chart from the Rate Bureau’s exhibits indicates the claim frequency per hundred cars:
Bodily Property Injury Damage
Voluntary “Clean Risks” 1.30 5.46
“Clean Risks” in Facility 2.73 9.56
Increased Claim Frequency of Ceded Risks (110% higher) (75% higher)
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Moreover, the comparable pure premium statistics (average loss per car) indicate:
Bodily Injury Property Damage
Voluntary “Clean Risks” $20.41 $22.52
“Clean Risks” in Facility 51.96 43.93
Increased Average Loss of Ceded Risks (155% higher) (95% higher)
We also note that, while as indicated above, the Commissioner’s alarming statistical finding that 62.3% of those in the Facility had neither SDIP points nor claims paid is supported by the evidence, the record indicates that his statistics were based on the experience for all carriers writing in North Carolina
for the accident year
ending June 30, 1976. Clearly, these statistics would not reveal the SDIP record or claims made for these insureds for the three-year period which we glean from the record to be contemplated by the definition of a “clean risk.” Apparently, the data relied upon by the Commissioner covers only the one-year period. We assume that data for the preceding accident year is that most commonly relied upon when a filing is made. However, it is obviously inconsistent to show concern about the composition of a Facility with respect to its high percentage of “clean risks” and not include statistics covering a three-year period; while the high percentage of insureds in the Facility might not have had any SDIP points assessed or claims made during the preceding year, this certainly does not mean that these insureds are “clean risks.” Some of them, perhaps many of them, might well not be “clean risks” if the three-year period were considered.
Therefore, on the basis of our review of the entire record, we are compelled to conclude that the Commissioner failed to consider material and substantial evidence concerning the actuarial soundness of the statistics and that the findings which the Commissioner made, while supported by the evidence, are legally irrelevant in light of the limitation to a one-year period. The
*434
evidence supporting the Commissioner’s findings and conclusions is, therefore, in our view, insubstantial.
C. Statutory Scheme
It is also helpful in addressing the question presented here to analyze the statutory scheme from the provisions set forth in the introductory section to this portion of our opinion. Insurance companies doing business in North Carolina are required to write policies for all qualified applicants with exceptions not pertinent here. A company which has written a policy it does not wish to retain has the
absolute right to
cede that policy to the Facility. The rates and classifications for the Facility risk are to be made by the Facility and there is a strong presumption that these rates are neither unreasonable nor excessive. Facility rates are to be on an actuarially sound basis and can produce
neither a profit nor a loss.
The Commissioner’s finding and conclusion therefore “that the filing does not propose any fixed set of objective criteria for deciding which risk may be ceded to the Facility” is simply not persuasive. Indeed, the setting of objective criteria by insurance companies would be legally unenforceable; G.S. 58-248.35 allows ceding merely upon the criterion that the
company does not elect to retain the business.
It is presumed the Legislature acted with reason and common sense and did not require an unjust and absurd result.
King v. Baldwin,
276 N.C. 316 , 172 S.E. 2d 12 (1970). We think the plain legislative intent is that Facility rates can be higher than those for the voluntary market if a higher Facility rate is actuarially indicated.
See
G.S. 58-248.32(b). We simply do not believe that the Legislature would require companies to insure
all
applicants, regardless of the risk they present, direct the Facility to accept unlimited policy cessions from insurance companies, direct the Facility to fix rates on an actuarially sound basis that will produce neither a profit nor a loss, and then provide that the Facility may not do precisely what it was directed to do because such actions would be “unfairly discriminatory.”
We are not inadvertent nor insensitive to the Commissioner’s concern that our statutory scheme allows insurance companies to cede any insured they elect not to retain without any criteria established by law. The answer is, first of all, that such a scheme
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is the obvious legislative intent and we perceive no constitutional attack, as indicated earlier, on the statute itself. The Legislature has obviously elected to leave the establishment of criteria for ceding to the individual companies, anticipating their awareness that the Facility is a non-profit, unincorporated legal entity, G.S. 58-248.27, and not allowed to make a profit. G.S. 58-248.33(1). Since the premium of an insured ceded to the Facility goes to the Facility and there is no profit to the company, the only way the company can possibly make an underwriting profit is by voluntarily retaining the risk. Such incentive, we think our Legislature reasoned, is sufficient to safeguard abuse of the ceding privilege and prevent “unfair discrimination.”
We further note that the 1979 amendments to G.S. 58-248.33(1) provide even more protection to clean risks ceded to the Facility. They can be charged rates no higher than clean risks voluntarily retained.
D. Acquisition and Service Costs
We next turn to the Commissioner’s findings and conclusion that because acquisition and service costs are charged and accounted for as a percentage of the premium, a Facility rate 10% higher than the proposed rate for insureds voluntarily retained would result in ceded risks paying disproportionately higher acquisition and service costs. We simply find no evidence in the record to support the Commissioner’s bare assertion. The Rate Bureau’s Exhibit No. 1 states the acquisition cost figure for voluntary business to be 19.5%, plus 5% for profit on automobile liability insurance. The acquisition for Facility business, on the other hand, is stated to be 16.8%, with no figure for profit. Moreover, in the only testimony we find on this point, one witness testified that there is more general administration expense for the 12-point driver than for a driver with no points. We are therefore compelled to conclude that the Commissioner’s finding of fact No. 92 and conclusion of law No. 23 are unsupported by any material or substantial evidence.
E. Cap on Rate Increase
We next turn to the Commissioner’s conclusion that any increase in the total number of insureds in the Facility would increase the overall rate level by more than 6% in contravention of
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G.S. 58-124.26. While this finding and conclusion is mathematically correct, it is erroneous as a matter of law. As noted above, the statutes permit insurers to cede any unwanted business to the Facility. Indeed, the previous limitation for cessions to the Facility at 50% without specific approval of the board of governors was repealed by the 1977 Legislature. At present, there is no limit to the number of insureds who may be ceded to the Facility. Consequently, as appellants correctly note, should the Commissioner approve the overall rate level increase of 6% and thereafter
one single
additional insured were ceded to the Facility, everything else being equal, an increase in the overall rate level above the 6% cap imposed by G.S. 58-124.26 would result. Under the Commissioner’s conclusion, all rate increases would be impossible to justify since there is no way to ascertain what the total future cessions to the Facility might be and thus whether, at some time in the year, additional cessions to the Facility might push the overall rate level above 6%.
Moreover, if an additional cession to the Facility resulted in an increase in “the general rate level” the same result would follow when other factors not directly related to the ratemaking process cause an increase or decrease in total premium collections. For example, premium variations are established by such factors as the number of SDIP points and territory in which a car is principally garaged. If we adopt the Commissioner's contention here, a general rate increase would occur anytime any insured in the State is convicted of a traffic violation or moved into a territory with a higher risk factor. Such was clearly not the legislative intent.
Construing the applicable statutes
in pari materia
and interpreting each in a way as would give meaning and effect to each provision and thus carry out the legislative intent,
State ex rel. Commissioner of Insurance v. Automobile Rate Bureau Administrative Office, supra,
we believe the Legislature did not intend a result impossible to obtain in practical terms, but instead intended that any overall rate increase should be limited to 6%
given the same book of business
as for the experience period.
The ratemaking process is premised on the underlying assumption that the book of business throughout the period for which rates are to be made will be the same as that which existed during the experience period.
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Finally, we note again that the Commissioner’s statistical findings,
to the extent stated,
are supported by the evidence. However, the Rate Bureau’s exhibits tend to establish that while the statistical data in the filing support and justify an overall 11.8% increase in liability insurance rates for voluntary business, the corresponding data with respect to Facility insureds support and justify an overall 63.4% increase for insureds who have been ceded to the Facility. As explained earlier, the evidence clearly supports the assertion that the differential in rates between the voluntary market and the Facility are actuarially justified, the standard established by statute. Again, it is not our task to substitute our judgment for the Commissioner’s where evidence is conflicting. However, under the “whole record” test, which we are bound to apply, we do not merely consider the evidence which in and of itself justifies the Commissioner’s conclusion without taking into account contradictory evidence or evidence from which conflicting inferences could be drawn. Applying the whole record test, as explained above, we hold that the evidence to support the Commissioner’s findings and conclusions that the 10% rate differential was unfairly discriminatory was insubstantial in view of the entire record.
F. Summary
Before leaving this assignment of error, we deem it appropriate to note that until clear guidelines are established either by the Legislature or by the Commissioner, confusion will continue to abound over the phrase “unfair rate discrimination.” The phrase is not defined in our statutes nor, for that matter, in the model laws and is a source of continuing controversy.
See
S. Kim-ball and H. Denenberg, Insurance, Government and Social Policy 209-242 (1969).
Moreover, those in the profession and the industry are unable to agree when unfair price discrimination exists. As noted earlier in this opinion, for some it connotes constitutional consideration; others consider it in purely economic terms. “A widely accepted economic definition of price discrimination states that unfair price discrimination exists if, allowing for practical limitations, there are price differences that do not correspond to differences in cost or cost differences that are not reflected in price differences.”
Kimball and Denenburg, supra
at 210. It has been
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othewise stated that “rate equity exists where each insured’s net premium is exactly sufficient to defray the expenses of his expected losses (and loss adjustment expenses). Conversely, rate equity is absent where the premium dollar of some insureds must be used for the payment of losses suffered by other insureds in the same risk category. Applicants for insurance must be classified for purposes of premium computations in order that each applicant need carry only the expected cost of his own coverage. Procaccia & Shafton,
Coinsurance Clauses and Rate Equity,
Insurance L.J., February 1978 at 69 (No. 661).
We can understand the reluctance to define such a complex term as “unfair discrimination.” However, the vagueness now present will continue, in our opinion, to create severe operational problems for the persons charged with the application of the law. It is obvious that the insurance business, being essentially mutual in character, should provide for all policyholders to be treated fairly with respect to other policyholders. However, the formula for determining what that fairness is should be established by the policymaking body in lieu of reliance on case-by-case adjudications.
It should also be observed that the Commissioner does not contend that the rates charged to those in the Facility are excessive. His order deals only with unfair discrimination. It is apparent, therefore, that the Commissioner’s primary concern in this instance is with the composition of the Facility. Our Legislature, however, has determined that the makeup of the Facility should be determined by the insurers with the protective device that the insurers will not be allowed to make a profit on Facility business. The Commissioner’s recourse, therefore, is to request the Legislature to set the objective criteria for ceding insureds to the Facility which he desires. Moreover, we note that at the time of this proceeding the Commissioner was already authorized to establish separate subclassifications for clean risk in the Facility. The record discloses that he did not do so.
Finally, we think it worthwhile to note recent legislative action pertaining to the Facility.
The 1979 Legislative Research Commission Report to the General Assembly made several recommendations to the 1979 session. It expressly recommended that there should be a statutory
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definition of a “clean risk” subclassification within the Facility, in which subclassification the insureds would pay Facility rates but would not be subject to the Facility surcharge. The Commission stated that it would be unfair for motorists in the “clean risk” classification to subsidize other motorists in the Facility. The Commission also recommended that the Legislature consider the possibility of adding automobile physical damage (collision), theft, and comprehensive insurance coverages to the coverages provided by the Facility.
The 1979 Legislature responded to these recommendations with several changes in Article 25. G.S. 58-248.31 was amended by adding two subsections. These provided essentially that each company will provide the same type of service to ceded business that it provides for its voluntary market.
Id.
58-248.31(b). The records of agents and brokers shall indicate that the business is ceded.
Id.
When an insurer cedes a policy to the Facility and the premium for that policy is higher than the insurer would normally charge for the policy if retained by the insurer, the policyholder shall be informed (1) that his policy is ceded, (2) that the coverages are written at the Facility rate, which rate differential must be specified, (3) what the reason or reasons are for the cession to the Facility, (4) that the specific reason or reasons for his cession to the Facility will be provided upon the written request of the policyholder to the insurer, and (5) that the policyholder may seek insurance through other insurers who may elect not to cede his policy.
Id.
Upon the written request of a person notified that his policy has been ceded to the Facility, the insurer ceding the policy must provide in writing to the insured the specific reason for the decision to cede. G.S. 58-248.31(e).
The 1979 Legislature also amended G.S. 58-248.33. Subsection (1) of that statute formerly provided that “the Commissioner may establish separate subclassifications within the Facility for clean risk as defined by the Commissioner.” That sentence was deleted and the following language inserted in lieu thereof:
The Board of Governors [of the Reinsurance Facility] shall establish a separate subclassification within the Facility for “clean risks” as herein defined. For the purpose of this Article, a “clean risk” shall be any owner of a motor vehicle classified as a private passenger non-fleet motor vehicle as
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defined under Article 13C of this Chapter if the owner and the principal operator and each licensed operator in the owner’s household have two years’ driving experience and if neither the owner nor any member of his household nor the principal operator had had any chargeable accident or any conviction for a moving traffic violation pursuant to the subclassification plan established by the provisions of G.S. 58-30.4, during the three-year period immediately preceding the date of application for motor vehicle insurance or the date of preparation for a renewal motor vehicle insurance policy.
That subsection was also significantly amended to provide,
“However, the rates made by or on behalf of the Facility with respect to ‘clean risks, ’ as defined above, shall not exceed the rates charged ‘clean risks’ who are not reinsured in the Facility.”
(Emphasis added.) Finally, the subsection was amended to provide that the “difference between the actual rate charged and the ac-tuarially sound and self-supporting rates for ‘clean risks’ rein-sured in the Facility may be recouped in similar manner as assessments pursuant to G.S. 58-248.34(f).”
IV.
Income On Invested Capital
The Commissioner concluded in his order that the proposed rate increase was “excessive to the extent that
investment income
is not properly taken into account in any of the rate level calculations contained in the filing.” (Emphasis added.) He also concluded that “it has long been recognized that investment income is an integral part of the return on any insurance transaction.”
Appellants contend that the Commissioner’s conclusions were erroneous to the extent that they contemplated a consideration of investment income on
invested capital.
Appellants correctly note that the 1979 Legislature amended G.S. 58-124.19(2) to require consideration of investment income on
unearned premium
and
loss reserves
in reviewing rate filings. Because investment income on unearned premium and loss reserves
were
included in this filing and because the Legislature
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has clarified consideration of these items for the future, we are not concerned here with appellants’ investment income on unearned premium and loss reserves. The question before us relates solely to consideration of investment income
on invested capital.
On this point, the Court of Appeals held:
[T]his Court has recently decided that investment income may be considered in evaluating the reasonableness of a filing.
State ex rel. Comr. of Ins. v. N.C. Rate Bureau,
40 N.C. App. 85 , 252 S.E. 2d 811 (1979). It is thus proper for the Commissioner to consider investment earnings
on capital invested
by insurers in reviewing the rate making formula.
41 N.C. App. at 318 , 255 S.E. 2d at 562-63 (emphasis added).
We first note that the Court of Appeals misconstrued its earlier decision. A careful review of the earlier decision reveals that the question was whether the Commissioner might properly consider profits on investment income from
unearned premium and loss reserves.
The court there made no mention of the propriety of the consideration of income from
invested capital
and thus reliance on that decision was misplaced.
A. Error of Law
We therefore turn to the propriety of the Commissioner’s determination that income on invested capital must be considered in a rate increase filing. In addressing this question, we think the applicable statutes of judicial review are G.S. 58-9.6(b)(4) and G.S. 150A-5K4),
i.e.,
whether the Commissioner’s findings and conclusions in this respect were “[a]ffected by other error(s) of law.”
The statute enumerating the factors to be considered in ratemaking, G.S. 58-124.19, quoted
supra,
referred in 1977 “to a reasonable margin for underwriting profit and to contingencies” and “to dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders. . . .” We note that the statute at that time made no mention of a consideration of investment income on either unearned premium and lo

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1293583. Public record. Not legal advice.