Travelers' Insurance v. Kelsey

Smith, P. J.:

This is an action brought to restrain the Superintendent of Insurance from revoking the certificate of plaintiff, a foreign corporation, authorizing it to transact business in the State, on the ground that it has failed to comply with section 97 of the Insurance Law. (Laws of 1892, chap. 690, added by Laws of 1906, chap. 326.) The only question involved is as to the proper construction of that seetian. The section is entitled “ Limitation of expenses,” and provides that insurance companies shall be limited in their expenditures for new business to an amount not “ exceeding in the aggregate the total loadings upon the premiums for the first year of insurance received in said calendar year * * * and the present values of the assumed mortality gains for the first five years of insurance on the policies on which the first premium or instalment thereof has been received during said calendar year, as ascertained by the select and ultimate method of valuation as provided in section eighty-four of this chapter.” Section 84 (as amd. by Laws of 1906, chap. 326) is entitled “Valuation of policies,” and provides that the legal minimum valuation “shall be in accordance with the select and ultimate method, and on the basis that the rate of mortality during the first five years” shall be calculated according to certain more or less arbitrary percentages specified.

It seems that in a policy the gross premium is made up of two sums, one the loading and the other called the net premium. The loading is supposed to provide for the proportionate share of this policy of the running expenses of the company. The balance of the premium is called the net premium. This is reckoned upon the basis of such an amount as, with interest compounded, would produce at the termination of the policy the amount insured. The expression “ vqx,” as used in insurance, is the mathematical notation for a one-year term premium. “ Qx ” means the probability of a person aged “ x ” dying within the year. “ V ” is the factor which is used to discount a sum of money for one year. In placing insurance the assured is examined and his health certified. In other words, the risks are selected. It has been found, therefore, that in the first five years the actual liability for insurance is diminished, and section 84 of the Insurance Law has arbitrarily given the actual liability assumed as a certain percentage of the liability which would exist if the risk had not been selected. Thus, in the first year it is declared that the actual liability is one-half vqx, or fifty per cent; in the second year it is sixty-five per cent; in the third year it is seventy-five per cent; in the fourth year eighty-five per cent, and in the fifth year ninety-five per cent. The difference, then, between the net premium and this percentage in the first five years of the continuance of an insurance policy is what is called in insurance “ assumed mortality gains,” or, in other words, it is such part of the premium as is paid in the first five years more than is needed to compensate the company for the actual liability incurred. In section 97 of the act, which is here for construction, a company is allowed for new business in any year, the total loadings upon the new policies placed within that year and the present value of the assumed mortality gains upon the policies where the premium or the first installment of premium is first paid within that year.

But the apparent permission given by this section has been limited by the Superintendent of Insurance. In some policies of insurance the premium is so large that the margin of the net premium over one-half vqx exceeds the present values of the assumed mortality gains for the first five years. In such cases the Superintendent of Insurance would allow the use of the full amount of the assumed mortality gains for the first five years. That seems to be permitted by the statute. In some non-participating policies, however, the premiums are much less. The present value of the assumed mortality gains for the first five years in such policies may be largely in excess of the margin of the net premium for the first year over and above one-half vqx. In those cases the Superintendent of Insurance has assumed to say that the company cannot expend the full value of the assumed mortality gains for the first five years, but only such part thereof as is represented by the margin of that premium over and above the loading and one-Iialf vqx. The learned Attorney-General plausibly argues that it could not have been the intention of the Legislature to have allowed a company to expend for new business an amount in excess of the mortality gains Z’eceived upon such new policies for a given year. It is claimed that if it be held otherwise some fund must pay the excess, and that fund invaded must belong to other policyholdez's. It is further shown from the report of the insurance committee, at page 414 of that report, that such a limitation may have been in the mizzds of that committee. The answez-, however-, to this argument would seem to be that whatever may have been the sound legislative policy, and whatever may have been in the mind of the insuz-once committee in making its report, the limitation of expense has been specified by the Legislature in language clear and explicit, and it is only where the intent of the Legislature is doubtful that we are allowed to look to the report of a committee; or to sound legislative policy for a rule of construction. Prior to the enactment of this law insurance companies were unrestricted as to the amount that should be expended for new business. It may have been the intent of the Legislature to have placed certain restrictions upon that expenditure, although not to have restricted such expenditure to the actual mortality gain in the premium actually paid. Furthermore, there are other sources of profit to an insurance company which might have been taken into consideration in placing this limitation upon the right of expenditure for new business. • In some policies . also there appear to be margins in the net premiums over one-half vqx in excess of the present value of the assumed mortality gains for the first five years. It is difficult to understand why the Legislature should have given a right to the expenditure for new business of the assumed mortality gains for the first five years, if it had been intended in case of some, non-participating policies to have limited the amount to what would be in fact the mortality gain for only the first year in addition to the loadings upon the policy. If the Legislature had so intended, other phraseology should have been used to express such intent, and the clear permission of the statute should not be construed by the court to effect some other rule of legislative policy which the courts might deem wise. The reference in section 97 to section 84 as to the valuation of policies, is for the purpose of determining what is the assumed mortality gain as declared by that section, and for that purpose only.

We are of opinion, therefore, that the restriction imposed by the Superintendent of Insurance is unauthorized by the statute, and the injunction asked for should be granted. The judgment should be reversed, without costs, and final judgment directed for plaintiff, without costs.

All concurred.

Interlocutory judgment reversed, without costs. Final judgment directed for plaintiff, without costs.