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AMERICAN EAGLE FIRE INS. CO. v. JORDAN

June 25, 1946

AMERICAN EAGLE FIRE INS. CO. et al.
v.
JORDAN et al.



The opinion of the court was delivered by: HOLTZOFF

This is an action by a group of fire insurance companies to enjoin the enforcement of an order of the Superintendent of Insurance of the District of Columbia, adjusting and fixing fire insurance rates.

 Acting under the authority of this statute, the Superintendent of Insurance on October 29, 1945, promulgated an order reducing fire insurance rates. This order was modified by a supplemental order issued on February 1, 1946, by which the reduction was made somewhat smaller than by the original order. Thereupon, this suit was brought by a number of fire insurance companies doing business in the District of Columbia, to enjoin the enforcement of the amended order and to secure an adjudication that it is of no force and effect. Out of the 234 fire insurance companies doing business in the District of Columbia, 173 are plaintiffs in this action.

 The order sought to be reviewed constitutes the first attempt on the part of the Superintendent of Insurance of the District of Columbia to exercise the rate-making authority conferred on him by the Act of June 1, 1944. Consequently, this case is one of first impression.

 The plaintiffs assert that the order of the Superintendent should be set aside and it enforcement enjoined on several grounds. First, it is contended that the Superintendent's failure to accord a hearing to the interested parties, and to take evidence as a basis for his order, was illegal and contrary to the requirements of the statute, if properly construed. Second, it is alleged that the rates fixed by the Superintendent are confiscatory and, therefore, constitute a taking of property without due process of law. Third, it is urged that some of the basic computations on which the Superintendent predicated his action were erroneous. Each of these grounds will be separately considered.

 I. Lack of Hearing

 No formal proceedings had been instituted or conducted by the Superintendent, no hearing had been held or accorded to interested parties, and no notice of an intention on the part of the Superintendent to revise rates had been given to any one. The order appears to have been issued on a purely ex-parte manner. After the order was promulgated, some of the companies affected by it requested an opportunity to be heard and to present contravening data with a view to securing a modification of the reduction of rates The companies were then permitted to submit information informally. The Superintendent and his counsel, however, expressly took the position that this opportunity was extended to the companies as a matter of grace and not as a matter of right, and that he had the authority to proceed without any hearing. A supplemental order, dated February 1, 1946, was subsequently issued by the Superintendent modifying the original order by directing a rate reduction of at least 5%, so as to effect an annual reduction of not less than $ 115 236.

 It is contended by the companies that the mode of procedure adopted and followed by the Superintendent was illegal. They urge that they were entitled to a hearing; that the Superintendent was obligated to proceed on the basis of evidence adduced by his counsel in his behalf, and countervailing evidence introduced by the companies and any other interested parties; and that a record of such evidence should have been made, and should have formed a basis for findings of fact, which in turn should have constituted the foundation for any other fixing rates. On the other hand, it is the Superintendent's position that the statute does not require him to proceed by formal hearings, but that he is empowered to act on the basis of an ex parte informal investigation and his personal knowledge, without any representation on behalf of interested parties.

 A determination of this important issue requires a consideration of the nature of the administrative process as distinguished from the judicial process. Basically the judicial process is a means for determining a controversy between two or more named persons by an impartial tribunal. The administrative process, as applied in connection with regulatory activities of the Government, and more particularly, regulation of rates is a means by which a Governmental agency clothed with delegated legislative authority or performing a quasi judicial function, regulates activities of groups of persons within specified channels. In its operation the judicial process contemplates a proceeding in which each party is represented in person or by counsel, with the tribunal acting as an arbiter. The administrative process envisages a proceeding in which the regulatory body may be represented before itself by its own counsel, who presents evidence in support of an action which he suggests that the agency should take, while parties who may be affected by the proposed action may be heard in person or by counsel. In one case, there is a determination of a controversy by an impartial tribunal, while in the other instance, the regulatory agency or officer is in part an interested party and in part a trier of the respective contentions advanced by its counsel and the counsel for other parties represented at the hearing.

 The difference between the two types of process become more apparent in connection with proceedings to review the determinations reached. In case of the judicial process, review is had by appropriate appellate proceedings in a higher court. The trial court has no interest or participation in the subsequent steps. On the other hand, in case of the administrative process, the administrative agency becomes the respondent or defendant in judicial proceedings seeking to review the administrative order, and through its counsel seeks to sustain the administrative action.

 It has been held by an unbroken line of authorities that an administrative agency, in establishing a basis for regulatory action, particularly an order fixing rates, is under an obligation to give notice and to accord a fair and full hearing to all interested parties' to take evidence, to make findings of fact based solely on such record, and to predicate its final conclusion on the findings of fact. In Ohio Bell Tel. Co. v. Public Utilities Comm., 301 U.S. 292, 57 S. Ct. 724, 81 L. Ed. 1093, the Public Utilities Commission of Ohio instituted a proceeding to fix the valuation of property of telephone companies as of 1925 and to adjust rates as of that date. After the completion of the proceeding, the Commission made a further order fixing the values of the property for each year from 1926 to 1933, without taking any evidence on this aspect of the matter. The Supreme Court held that the action of the Commission was invalid, because of its failure to hold a hearing on this phase of the subject, and because of the fact that it proceeded without taking any evidence. In writing for a unanimous court, Mr. Justice Cardozo, in his usual trenchant style, made the following remarks (301 U.S.at pages 302-305, 57 S. Ct.at page 729, 81 L. Ed. 1093):

 'From the standpoint of due process -- the protection of the individual against arbitrary action -- a deeper vice is this, that even now we do not know the particular or evidential facts of which the Commission took judicial notice and on which it rested its conclusion. Not only are the facts unknown; there is no way to find them out. When price lists or trade journals or even government reports are put in evidence upon a trial, the party against whom they are offered may see the evidence or hear it and parry its effect. Even if they are copied in the findings without preliminary proof, there is at least an opportunity in connection with a judicial review of the decision to challenge the deductions made from them. The opportunity is excluded here. The Commission, withholding from the record the evidential facts that it has gathered here and there, contents itself with saying that in gathering them it ...


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