Hartford Accident & Indemnity Co. v. Insurance Commissioner of Commonwealth , 505 Pa. 571 ( 1984 )

OPINION

NIX, Chief Justice.

In this appeal we have agreed to review the Commonwealth Court’s affirmance of an order of the Insurance Commissioner of Pennsylvania (“Commissioner”) rescinding his prior approval of Hartford Accident and Indemnity Company’s (“Hartford”) gender-based automobile insurance rates on the ground they were “unfairly discriminatory” under section 3(d) of the Casualty and Surety Rate Regulation Act (“Rate Act”), Act of June 11, 1947, P.L. 538, § 3(d), 40 P.S. § 1183(d)(1971). After careful consideration we have concluded that the Commissioner’s action was both within his statutory authority and mandated by the Rate Act, and, therefore, affirm.

I.

The instant action was initiated by Philip V. Mattes (“Mattes”), a Hartford automobile policyholder, who filed a complaint with the Commissioner challenging the legality of the Commissioner’s earlier approval of Hartford’s gender-based rates. Mattes established at an evidentiary hearing that, as a twenty-six year old unmarried male with an unblemished driving record, he was obligated to pay One Hundred Forty-eight Dollars ($148) more in annual premiums than would a similarly situated female insured for identical coverage. Hartford sought to justify its rating plan on the ground that actuarial data indicated that male policyholders in Mattes’ age group are more likely to incur accident losses than female policyholders in the same age group.¹ The Commissioner, interpreting the Rate Act’s prohibition of “unfairly discriminatory” rates in light of this Commonwealth’s public policy against sex discrimination as embodied in the Equal Rights Amendment, concluded that Hartford’s gender-based rates were “unfairly discriminatory” and therefore invalid.

Hartford filed a petition for review of the Commissioner’s adjudication in the Commonwealth Court; Mattes and the State Farm Mutual Automobile Insurance Company (“State Farm”) were permitted to intervene. The Commonwealth Court affirmed en banc, finding no basis for disturbing the Commissioner’s decision.² 65 Pa.Commw. 249, 442 A.2d 382 (1982). Petitions for allowance of appeal filed in this Court by Hartford and State Farm were granted.

II.

In order to place Mattes’ complaint and the Commissioner’s response thereto in their proper context, an understanding of the statutory scheme which forms the background of this controversy is essential. The legislature’s purpose in enacting the Rate Act is clearly set forth in section one:

The purpose of this Act is to promote the public welfare by regulating insurance rates to the end that they shall not be excessive, inadequate or unfairly discriminatory; to enable authorized insurers to meet all requirements of the insuring public of this Commonwealth, and to authorize and regulate cooperative action among insurers in rate making and in other matters within the scope of this Act. Nothing in this Act is intended (1) to prohibit or discourage reasonable competition, or (2) to prohibit or encourage uniformity in insurance rates, rating systems, rating plans or practices. This Act shall be liberally interpreted to carry into effect its purposes as herein set forth.

40 P.S. § 1181 (1971) (emphasis supplied).

The Rate Act applies, with certain enumerated exceptions, to “all classes and kinds of insurance which may be written by stock or mutual casualty insurance companies, associations or exchanges, and including fidelity, surety and guaranty bonds and all other forms of motor vehicle insurance, and to title insurance on risks or operations in this Commonwealth ...40 P.S. § 1182 (1971).

The central provision of the Rate Act is section three, which sets forth the manner in which insurers must formulate their rates, thereby creating an affirmative duty of compliance on the part of insurers wishing to do business in this Commonwealth:

All rates shall be made in accordance with the following provisions:

(a) Due consideration shall be given to past and prospective loss experience within and outside this Commonwealth, to physical hazards, to safety and loss prevention factors, to underwriting practice and judgment to the extent appropriate, to catastrophe hazards, if any, to a reasonable margin for underwriting profit and contingencies, to dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers, to past and prospective expenses both country wide and those specially applicable to this Commonwealth, and to all other relevant factors within and outside this Commonwealth;

(b) The systems of expense provisions included in the rates for use by any insurer or group of insurers may differ from those of other insurers or groups of insurers to reflect the requirements of the operating methods of any such insurer or group with respect to any kind of insurance, or with respect to any subdivision or combination thereof for which subdivision or combination separate expense provisions are applicable;

(c) Risks may be grouped by classifications for the establishment of rates and minimum premiums. Classification rates may be modified to produce rates for individual risks in accordance with rating plans which establish standards for measuring variations in hazards or expense provisions, or both. Such standards may measure any differences among risks that can be demonstrated to have a probable effect upon losses or expenses;

(d) Rates shall not be excessive, inadequate or unfairly discriminatory.

40 P.S. § 1183 (1971) (emphasis supplied).

It must be emphasized that subsection (d) of section three limits the powers conferred upon insurance companies under subsections (a), (b) and (c). The overriding consideration is section three’s mandate that, rates may not be “excessive, inadequate or unfairly discriminatory.”

To ensure compliance with the above provisions, section four of the Act requires every insurer to “file with the Commissioner every manual of classifications, rules, and rates, every rating plan and every modification of any of the foregoing which it proposes to use.” 40 P.S. § 1184(a) (1971).³ The Commissioner must “review such of the filings as it may be necessary to carry out the purposes of this Act,” 40 P.S. § 1184(c) (1971), and is empowered to disapprove, after a hearing, any filing which fails to meet the requirements of the Rate Act. 40 P.S. § 1185 (1971). Beyond this specific delegation of authority, the legislature has committed to the Commissioner the “full power and authority, ... [and] duty, to enforce by regulations, orders, or otherwise, ... the provisions of this Act, and the full intent thereof.” 40 P.S. § 1193(d) (1971) (emphasis supplied).

Persons aggrieved by an approved filing which has not taken effect are entitled to file a complaint with and have a hearing before the Commissioner. 40 P.S. § 1197(a) (1971); Commonwealth, Insurance Department v. Adrid, 24 Pa.Commw. 270, 355 A.2d 597 (1976). Administrative review is available in appropriate cases even where, as in the instant case, the challenged filing is in effect.⁴ Moreover, a party adversely affected by the Commissioner’s adjudication of a complaint has a right of appeal to the Commonwealth Court. 40 P.S. § 1197(c) (Supp.1983-84); 42 Pa.C.S. § 763(a).

Several important points emerge from the foregoing discussion. The Rate Act evidences the clear legislative determination that the public welfare requires both statutory channeling of the ratemaking process and administrative scrutiny of the resulting rates. One of the principal justifications for governmental involvement identified by the legislature is the need to prevent “unfairly discriminatory” rates. To achieve that goal, the legislature has directly prohibited insurers from making “unfairly discriminatory” rates, and has entrusted enforcement of that prohibition to the Commissioner, and, if need be, to the courts. Thus the Rate Act, independent of any federal or state constitutional provision, proscribes “unfairly discriminatory” ratemaking by insurers in this Commonwealth and provides administrative and judicial remedies therefor.

III.

The basic issue in this appeal is the proper interpretation of the phrase “unfairly discriminatory” as employed in section 3(d) of the Rate Act, 40 P.S. § 1183(d) (1971). That phrase is not defined in the Rate Act itself. The Commissioner concluded that he was compelled to interpret the statutory prohibition against “unfairly discriminatory” rates in a manner consistent with the strong public policy against gender-based discrimination under law as expressed in Pennsylvania’s Equal Rights Amendment. Appellants Hartford and State Farm attack that conclusion arguing in favor of a narrow interpretation of the phrase which would limit the prohibition of section 3(d) to rates which are not “actuarially sound.” Under the latter view the Rate Act would not only permit insurers to impose gender-based rates but would also prohibit the Commissioner from denying approval to such rates provided the insurer is able to support them with actuarial data.⁵

In the proceedings before the Commissioner, Mattes established conclusively that Hartford required him to pay a significantly higher premium than a similarly situated woman would be charged for identical Hartford coverage solely on the basis of his gender. There is no attempt to suggest that Mattes was not in fact discriminated against because of his sex. The inquiry must begin by accepting that •& gender-based discrimination exists. The question to be resolved is whether such discrimination falls within the parameters of the Rate Act’s prohibition against “unfairly discriminatory” rates.

Appellants’ basic argument is that “unfair” should be limited in meaning to “actuarially unfair”. Appellants maintain that the Rate Act’s prohibition of “unfairly discriminatory” rates relates only to “variations in prices or rates that have no relationship to costs or the risk of loss”. Brief for Hartford at 27. Their proffered construction of the Rate Act must be rejected for several reasons.

Appellants base their argument largely on the legislative history of a model statute on which the Rate Act was based. In any event, the legislative history is unpersuasive. Appellants rely on a 1947 report to the National Association of Insurance Commissioners urging the adoption of a model statute drafted in response to the McCarron-Ferguson Act, 15 U.S.C. §§ 1011 et seq., which exempted the insurance business from federal antitrust laws to the extent that it was regulated by state law. They argue that the target of the Rate Act’s prohibition, therefore, is the type of price discrimination which would violate the antitrust laws. Even assuming arguendo that this proposition logically follows, appellants fail to justify its application to the Pennsylvania Rate Act. There is no evidence that the General Assembly made use of the report or that the Rate Act was enacted in response to the McCarron-Ferguson Act. Thus it cannot be presumed that the report reflects the legislature’s intent. To the contrary, the legislative response to the McCarronFerguson Act was the original Unfair Insurance Practices Act, Act of June 5, 1947, P.L. 445, § 1, 40 P.S. §§ 1151 et seq. (repealed 1974), as is . explicitly stated in section 1 thereof, 40 P.S. § 1151. There is no reason to believe that the Rate Act was an additional response as claimed by appellants.

Second, the legislature has directed that the Rate Act “shall be liberally construed to carry into effect its purposes ____” 40 P.S. § 1181 (1971). The principal purpose of the Rate Act is “to promote the public welfare by regulating insurance rates to the end that they shall not be excessive, inadequate or unfairly discriminatory; ____” Id. Appellants’ interpretation would be the antithesis of a liberal construction, and would severely limit the ability of the Commissioner to effectuate one of the three principal goals of the Rate Act, the prevention of unfairly discriminatory rates.

Third, “[e]very statute shall be construed, if possible, to give effect to all its provisions”. 1 Pa.C.S. § 1921(a). Appellants’ interpretation would render the phrase “unfairly discriminatory” mere surplusage. See Colodonato v. Consolidated Rail Corp., 504 Pa. 80, 470 A.2d 475 (1983); Matter of Employees of Student Services, Inc., 495 Pa. 42, 432 A.2d 189 (1981); Masland v. Bachman, 473 Pa. 280, 374 A.2d 517 (1977); Consumers Education and Protective Association v. Nolan, 470 Pa. 372, 368 A.2d 675 (1977); Daly v. Hemphill, 411 Pa. 263, 191 A.2d 835 (1963). Section 3(c) of the Rate Act, 40 P.S. § 1183(c), establishes the requirement of actuarial fairness by permitting an insurer to vary rates within a class only where the risk insured can be “demonstrated to have a probable effect upon losses or expenses.” If actuarial fairness were the only concern of the Rate Act, the proscription of “unfairly discriminatory” rates contained in section 1 and 3(d) would be redundant and of no independent effect; satisfaction of section 3(c) would be dispositive of the requirement of actuarial soundness. In order to give meaning to that proscription, the “fairness” of rates must be recognized as a legislative concern distinct from and transcending the need for sound actuarial justification. Thus we conclude that section 3(d) manifests separate legislative objectives which represent the recognition that a rate may be justified by the actuarial data offered in its support, yet unfair in its underlying assumptions and its application to the individual. Accordingly, appellants’ narrow, technical view of the Rate Act’s mandate of “fairness” must be rejected.

We must next consider whether the Commissioner was justified in looking to the Pennsylvania Equal Rights Amendment in his determination of whether Hartford’s gender-based rate plan was “unfair.” Appellants seek to characterize the Commissioner’s disapproval of Hartford’s rate plan as an unauthorized attempt to impose his personal theories and perceptions of social policy upon the insurance industry. We disagree. As we have already concluded, it was appropriate for the Commissioner to look beyond actuarial statistics in evaluating the fairness of Hartford’s discriminatory rates. Since those rates were based on the gender of the insured, the Equal Rights Amendment was necessarily relevant.

The Equal Rights Amendment was adopted by the voters of this Commonwealth on'May 18, 1971. The Amendment provides:

Prohibition against denial or abridgement of equality of rights because of sex

Equality of rights under the law shall not be denied or abridged in the Commonwealth of Pennsylvania because of the sex of the individual.

Pa. Const. Art. I, § 28.

In Henderson v. Henderson, 458 Pa. 97, 327 A.2d 60 (1974), this Court explained the purpose and effect of the new constitutional amendment:

The thrust of the Equal Rights Amendment is to insure equality of rights under the law and to eliminate sex as a basis for distinction. The sex of citizens of this Commonwealth is no longer a permissible factor in the determination of their legal rights and responsibilities. The law will not impose different benefits or burdens upon the members of a society based on the fact that they may be man or woman.

Id., 458 Pa. at 101, 327 A.2d at 62.

We have not hesitated to effectuate the Equal Rights Amendment’s prohibition of sex discrimination by striking down statutes and common law doctrines “predicated, upon traditional or stereotypic roles of men and women ____” Commonwealth ex rel. Spriggs v. Carson, 470 Pa. 290, 299-300, 368 A.2d 635, 639 (1977) (plurality opinion) (“Tender years doctrine” offends concept of equality of the sexes embraced in Equal Rights Amendment.); see Adoption of Walker, 468 Pa. 165, 360 A.2d 603 (1976) (Adoption Act’s failure to require parental consent of unwed father as well as unwed mother violates Equal Rights Amendment.); Butler v. Butler, 464 Pa. 522, 347 A.2d 477 (1975) (Presumption that where husband obtains his wife’s property without adequate consideration a trust is created in his wife’s favor abolished.); Commonwealth v. Santiago, 462 Pa. 216, 340 A.2d 440 (1975) (Doctrine of “coverture” requiring presumption that wife who commits crime in presence of husband was coerced by husband discarded.); Di Florido v. Di Florido, 459 Pa. 641, 331 A.2d 174 (1975) (Presumption that husband is owner of household goods used and possessed by both spouses abolished.); Commonwealth v. Butler, 458 Pa. 289, 328 A.2d 851 (1974) (Statutory scheme under which women are eligible for parole immediately upon incarceration while men must serve minimum sentence violates Equal Rights Amendment.); Henderson v. Henderson, supra (Statute providing for alimony pendente lite, counsel fees and expenses in divorce action for wife but not husband violates Equal Rights Amendment.); Conway v. Dana, 456 Pa. 536, 318 A.2d 324 (1974) (Presumption that father must bear principal burden of support of minor children abolished.); cf. Hopkins v. Blanco, 457 Pa. 90, 320 A.2d 139 (1974) (Equal Rights Amendment requires that wife as well as husband be permitted to recover for loss of consortium.) Gender-based rates such as Hartford’s rely on and perpetuate stereotypes similar to those condemned in the above cases.

The efficacy of such rates is questionable even on the actuarial level.

In terms of simplicity and consistency (i.e., stability and ease of verification), age, sex, and marital status receive high marks as rating factors. This is not the case from the viewpoint of causality. Causality refers to the actual or implied behavioral relationship between a particular rating factor and loss potential. The longer a vehicle is on the road, for example, the more likely it is that the vehicle may be involved in a random traffic accident; thus, daily or annual total mileage may be viewed as a causal rating factor. To the extent that sex and marital status classifications may be defended on causal grounds, the implied behavioral relationships rely largely on questionable social stereotypes ____ Given the significant changes in traditional sex roles and social attitudes which have occurred in recent years, justifications for rating plans on the grounds of such implied assumptions are unacceptable.

... [Pjublic policy considerations require more adequate justification for rating factors than simple statistical correlation with loss; in this regard, the task force recommends consideration of criteria such as causality, reliability, social acceptability, and incentive value in judging the reasonableness of a classification system. Based on these criteria, the task force concludes that as rating characteristics, sex and marital status are seriously lacking in justification and are subject to strong public opposition; and should therefore be prohibited as classification factors.

National Association of Insurance Commissioners. Report of the Rates and Rating Procedures Task Force of the Automobile Insurance (D3) Subcommittee, November, 1978 at 5-6 (footnotes omitted).

As a matter of public policy, the Insurance Commissioner found that a rate plan based upon gender is offensive to the spirit of Article I, section 28. Appellants argue that Article I, section 28 is not self-executing. Furthermore, they attempt to employ the state action concept of our federal system and argue that here no such action occurred. These arguments are also misplaced in this context.

First, it is not a question as to whether or not Article I, section 28 is self-executing since we are here concerned with the proper interpretation of a legislative enactment. The question presented, properly phrased, is whether the term “unfairly discriminatory” must be read in light of the Equal Rights Amendment to our Pennsylvania Constitution. Unquestionably, sex discrimination in this Commonwealth is now unfair discrimination. It is a cardinal principle that ambiguous statutes should be read in a manner consonant with the Constitution. To read the term “unfairly discriminatory” as excluding sex discrimination would contradict the plain mandate of the Equal Rights Amendment to our Pennsylvania Constitution. Therefore, we must affirm the decision of the Insurance Commissioner. We must do so because the statute must be interpreted to include sex discrimination as one type of unfair discrimination, and not because the Commissioner has the power to implement the public policy of this Commonwealth in the absence of legislative direction.

Further, the notion that the interpretation of this insurance statute involves the concept of “state action” is incorrect in this context. The “state action” test is applied by the courts in determining whether, in a given case, a state’s involvement in private activity is sufficient to justify the application of a federal constitutional prohibition of state action to that conduct. The rationale underlying the “state action” doctrine is irrelevant to the interpretation of the scope of the Pennsylvania Equal Rights Amendment, a state constitutional amendment adopted by the Commonwealth as part of its own organic law. The language of that enactment, not a test used to measure the extent of federal constitutional protections, is controlling.

The text of Article I, section 28 makes clear that its prohibition reaches sex discrimination “under the law.” As such it circumscribes the conduct of state and local government entities and officials of all levels in their formulation, interpretation and enforcement of statutes, regulations, ordinances and other legislation as well as decisional law. The decision of the Commissioner in a matter brought pursuant to the Rate Act is not only “under the law” but also, to the extent his adjudication is precedent on the question decided, “the law.” The Commissioner, as a public official charged with the execution of the Rate Act and sworn to uphold the Constitution and laws of this Commonwealth, Pa.Const. Art. 6, § 3; Act of June 4, 1879, P.L. 99, § 1, 71 P.S. § 761 (1962), was constrained to conform his analysis of Hartford’s rate plan and his interpretation of section 3(d) of the Rate Act to Article I, section 28.

Thus, in light of the Pennsylvania Constitution’s clear and unqualified prohibition of discrimination “under the law” based upon gender, we conclude that the Commissioner’s disapproval of Hartford’s discriminatory sex-based rates on the ground they were “unfair” and contrary to established public policy was in conformity with section 3(d) of the Rate Act and an appropriate exercise of his statutory authority.

Accordingly, the Order of the Commonwealth Court affirming the adjudication of the Insurance Commissioner is affirmed.

FLAHERTY, J., joins in this opinion and files a concurring opinion in which HUTCHINSON, J., joins. HUTCHINSON joins in this opinion and files a concurring opinion, FLAHERTY, J., joins. McDERMOTT, J., files a dissenting opinion in which ZAPPALA, J., joins. ZAPPALA, J., files a dissenting opinion in which McDER-MOTT, J., joins.

1 . The statistics relied upon by Hartford did not reflect whether the policyholder was the actual operator of the vehicle involved in a given accident. While Hartford also offered accident statistics complied by the Pennsylvania Department of Transportation in support of the rate plan, that data had not been employed in the ratemaking process.

2 . President Judge Crumlish filed a dissenting opinion.

3 . This obligation may be satisfied through the medium of a licensed rating organization. Act of June 11, 1947, P.L. 538, § 4(b), 40 P.S. . § 1184(b) (1971). Hartford is a member of such an organization.

4 . Any person or organization aggrieved with respect to any filing which is in effect may make written application to the Commissioner for a hearing thereon: ____ Such application shall specify the grounds to be relied upon by the applicant. If the Commissioner shall find that the application is made in good faith, that the applicant would be so aggrieved if his grounds are established, and that such grounds otherwise justify holding such a hearing, he shall, within thirty (30) days after receipt of such application, hold a hearing upon not less than ten (10) days written notice to the applicant and to every insurer and rating organization which made such filing.

If, after such hearing, the Commissioner finds that the filing or a part thereof does not meet the requirements of this Act, he shall issue an order specifying in what respects he finds that such filing or a part thereof fails to meet the requirements of this Act, and stating when, within a reasonable period thereafter, such filing or a part thereof shall be deemed no longer effective____ 40 P.S. § 1185(b) (1971).

5 . Under section 5(c) of the Rate Act, 40 P.S. § 1185(c), the Commissioner has no power to disapprove a filing or a modification unless a violation can be established.