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on traffic received by Dixie from its connections, it should be noted that the sum of the local rates is generally substantially less than the proposed single-factor rates on less than truckloads, which would apply on 15,000-pound shipments, through Atlanta.

The shipping density of printing paper ranges from 31 to 48 pounds a cubic foot. Dixie has participated in the movement of a few shipments from Kingsport to some of the considered destinations. Eighteen thousand pounds is the maximum quantity transported in Dixie's vehicles, but the record does not clearly disclose whether this is so because of the physical limitations of the vehicles, of State maximum weight laws, or because of other reasons.

The principal reasons advanced in justification of the proposed schedules are that the present commodity rates are not compensatory to Dixie. For the 3-month period ended June 30, 1943, Dixie's average expense was 43.5 cents a truck-mile and its average revenue was 40.4 cents a truck-mile. During 1942, its average expense and average revenue were approximately 35.9 cents a truck-mile. The average expense of 43.5 cents is compared by Dixie with the divisions it receives out of the present joint commodity rates to support its contention that such rates are too low. For example, based on a maximum load of 18,000 pounds, Dixie receives amounts equivalent to 19.6 and 18.9 cents a truck-mile for the haul from Atlanta to Montgomery, about 180 miles, out of the joint rates of 53 and 51 cents, minimum 15,000 and 36,000 pounds, respectively, from Kingsport to Montgomery, approximately 487 miles. The expenses shown are averages for the transportation of all classes of traffic. They are of little value in determining the reasonableness of rates, such as those here considered, on a particular kind of traffic. Comparisons of average truck-mile expense with the revenues yielded by divisions are of little help in determining the reasonableness of joint rates.

Under section 216 (g) of the Interstate Commerce Act respondents have the burden of showing that proposed changed rates are just and reasonable. No evidence was adduced to show that the increased rates which would become effective upon the cancelation of the commodity rates, are just and reasonable. The statutory burden has not been sustained.

We find that the increased rates which would result from the proposed cancelation of the commodity rates, have not been shown to be just and reasonable. An order will be entered requiring the respondents to cancel the suspended schedules and discontinuing the proceeding.

43 M. C.C.

EX PARTE No. MC-5

MOTOR CARRIER INSURANCE FOR PROTECTION OF THE

PUBLIC IN THE MATTER OF SECURITY FOR PROTECTION OF THE PUBLIC AS PROVIDED IN THE INTERSTATE COMMERCE ACT, PART II, AND OF RULES AND REGULATIONS GOVERNING FILING AND APPROVAL OF SURETY BONDS, POLICIES OF INSURANCE, QUALIFI. CATIONS AS A SELF-INSURER, OR OTHER SECURITIES AND AGREEMENTS BY MOTOR CARRIERS AND BROKERS SUBJECT TO THE INTERSTATE COMMERCE ACT, PART II.

Submitted October 1, 1943. Decided April 18, 1944

Upon further hearing, rule VIII of rules and regulations governing the filing and

approved of surety bonds, et cetera, modified. Prior reports, 1 M. C. C. 45, 6 M. C. C. 407, 12 M. C. C. 413, 18 M. C. C. 131, and 22 M. C. C. 350. Appearances as shown in prior reports, also:

Gregory U. Harmon for the Bureau of Motor Carriers, Interstate Commerce Commission,

Harry E. Boot, Arthur R. Robinson, John J. Wicker, Jr., G. G. Zorn, 8. R. Fritz, 1. S. Markel, Edmund S. Kochersperger, Robert L. Patterson, and H. E. Heller for interested parties.

SECOND REPORT OF THE COMMISSION ON FURTHER HEARING

DIVISION 5, COMMISSIONERS LEE, ROGERS, AND PATTERSON BY DIVISION 5 :

In the prior reports herein, we prescribed certain rules and regulations governing the filing and approval of surety bonds and policies of insurance by motor carriers subject to the Interstate Commerce Act for the protection of the public, among which is rule VIII which reads as follows:

Policies of insurance as amended by the endorsements provided by these rules corering bodily injury liability, property damage liability, and cargo liability must be written by insurance companies legally authorized to transact business in each State in which their policies cover the operations of the insured motor carrier, except that more than one policy of insurance may be used in cases where, in the judgment of the Commission, the territorial operations of such

carriers warrant separate coverage on separate portions of their routes or territories.

A motor carrier has the option of filing a surety bond in lieu of one of the other forms of security. This bond runs in favor of the United States and inures to the benefit of any person holding a final judgment arising out of injury or damage claims against the motor carrier which filed it. The execution of surety bonds by so-called corporate surety companies is limited to such companies as are authorized to execute surety bonds in favor of the United States under the Corporate Surety Company Act of 1894. Such companies are required by the Secretary of the Treasury to have a minimum paid-in capital or guaranty fund of $250,000. With this in mind, the Bureau of Motor Carriers originally proposed a requirement that insurance companies to be qualified to file certificates of insurance with this Commission must have a minimum policyholders' surplus of not less than $250,000. However, due primarily to the uncertainty regarding the effect that a minimum financial standard might have in restricting the market available to motor carriers for the purchase of their insurance, rule VIII was prescribed in its present form. We recognized, however, that in the development of motor-carrier regulation it would probably be necessary ultimately to prescribe a minimum financial standard for insurance companies desiring to file insurance in behalf of motor carriers subject to our jurisdiction. On June 11, 1943, we reopened this proceeding for further hearing for the purpose of considering whether rule VIII should be modified to read as set forth in appendix A hereto or otherwise. All parties of record, all insurance companies any of whose policies were on file with the Commission, various motor-carrier associations, and all State regulatory commissions were notified of the further hearing.

At such hearing, the American Trucking Associations, Inc., affirmatively supported the proposed modification. A number of interested parties failed definitely to take a position either for or against the proposal. Only five parties, Federal Underwriters, of Dallas, Tex., the Underwriters' Service Association, Inc., the New Jersey Manufacturer's Casualty Insurance Co., American Mutual Alliance, and the Oregon Automobile Insurance Co., definitely opposed the proposed modification. Their contentions will be discussed later.

Within approximately a year after the rules and regulations now in effect were prescribed, there were 440 insurance companies filing certificates of insurance and surety bonds with the Commission. Such companies ranged in size from very small organizations to the largest and strongest in the country. Some of these companies had been organized within recent years, while others had been operating a long period of time and appeared to be well established. Approximately

200 companies were qualified under our rules to write bodily-injury and property-damage insurance while about 240 were qualified to write cargo insurance. Since the present rule VIII was adopted, 21 companies having certificates of insurance on file with the Commission have failed. Eighteen of these companies were mutuals, reciprocals, or Lloyds institutions which are generally referred to as nonstock organizations. Three were stock companies. Preceding their failures, all of these companies except 2 reported policyholders' surplus funds of less than $250,000. One of the 2 reported policyholders' surplus funds of $304,000 and the other $323,000.

When the original proposal of a minimum financial standard of $250,000 was under consideration, it was urged that a sound management is as important as, if not more important than, substantial policyholders' surplus funds. Of the 21 companies which have failed to date, only 2 possessed policyholders' surplus funds in excess of the minimum financial standard originally proposed. About 90 percent of such companies never reported surplus funds in excess of $200,000, and in a majority of instances, such funds were substantially less than that amount. We can hardly assume that such a high percentage of so-called small companies were all poorly managed, and that companies possessing larger financial resources where failures have been few were almost without exception well managed. That 90 percent of these failures occurred among the companies the least strongly financed is very significant. Not infrequently, through errors or omissions of one kind or another on the part of management, or through abnormal periods, heavier losses than anticipated are sustained. These, the more strongly financed insurance companies seem to be able to assimilate because of their larger financial resources, while the less strongly financed companies frequently fail. It seems clear that a strong financial position is a paramount factor underlying the security provided by an insurance policy.

It goes almost without saying that the failures of the insurance companies already referred to created long-drawn-out liquidation proceedings as a result of which creditors and claimants were confronted with delay and uncertainty. In some instances, difficulty was experienced by the officials in charge of liquidation in collecting assessments. In one instance, the liquidator in charge of proceedings in the State of domicile of a defunct insurance company found himself unable to collect the assessment which he levied upon the policyholders of certain States in which the company had previously been licensed to transact business, because the assessment feature of the policy was found to be invalid under the laws of such States. Recent inquiries of the officers in charge of the liquidation of the 21 companies, as to the prospects of settlement of claims filed with them, brought responses which are summarized in the record as shown in appendix B hereto and. which without exception emphasize the hardships on the claimants,

At the present time, there are 417 companies authorized to file 1 or more of the prescribed forms of security in behalf of motor carriers with the Commission. Some 193 are authorized to write liability and property-damage insurance, while 264 are authorized to write cargo insurance. Since there were 440 companies authorized about 1 year after the rules and regulations became effective, the present number of 417 represents a reduction of 23 companies. Our Section of Insurance has reviewed the 1942 annual statements of all the present authorized stock companies having a capital of less than $150,000 and a surplus in excess of capital of less than $50,000, nonstock organizations issuing nonassessable policies with policyholders' surplus of less than $200,000, and nonstock organizations issuing assessable policies only possessing policyholders' surplus funds of less than $150,000. Such review discloses that there are 3 stock companies at present qualified to file certificates of insurance which do not possess the proposed minimum paid-in capital. In addition, there are 11 nonstock institutions which do not possess the proposed policyholders' surplus funds. Seven of these companies have policyholders' surplus funds of less than $100,000, 5 have policyholders' surplus funds in excess of $100,000 and less than $200,000, and 2 have policyholders' surplus considerably in excess of the proposed minimum but paid-in capital in each case is only $100,000. With 3 exceptions, all of the companies operate on the nonstock plan and 5 of the 14 have been organized within the last 10 years. One company was organized many years ago, but it appears to have been more or less inactive until about 2 years ago when control was acquired by the present management. The 14 companies are at present insuring 398 motor carriers. Since approximately 25,000 motor carriers have complied with our insurance rules and regulations, these companies are insuring only 1.6 percent of all motor carriers who have effected compliance with section 215 of the act. If we were to assume that none of the 14 companies could rearrange their financial structures so as to enable them to comply with the minimum financial standard proposed, there would still be at least 180 companies authorized to write liability and propertydamage insurance and at least 213 companies authorized to write cargo insurance, all of which are able to comply, and these companies are at present insuring 98.4 percent of the motor carriers on which certificates of insurance have been filed with the Commission.

One of the 14 companies referred to has no certificate now on file with us, although it is qualified. The remaining 13 companies are insuring 398 motor carriers. Seven of the companies insure 217

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