GERMAN ALLIANCE INSURANCE COMPANY v. LEWIS, SUPERINTENDENT OF INSURANCE OF THE STATE OF KANSAS
No. 120
SUPREME COURT OF THE UNITED STATES
Argued December 10, 1913. Decided April 20, 1914.
233 U. S. 389
APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE DISTRICT OF KANSAS.
The business of insurance is so far affected with a public interest as to justify legislative regulation of its rates.
A public interest can exist in a business, such as insurance, distinct from a public use of property, and can be the basis of the power of the legislature to regulate the personal contracts involved in such business.
Where a business, such as insurance, is affected by a public use, it is the business that is the fundamental thing; property is but the instrument of such business.
Munn v. Illinois, 94 U. S. 113; Budd v. New York, 143 U. S. 517; Brass v. North Dakota, 153 U. S. 391, demonstrate that a business by circumstances and its nature may rise from private to public concern and consequently become subject to governmental regulation; and the business of insurance falls within this principle.
The fact that a contract for insurance is one for indemnity and is personal, does not preclude regulation.
A general conception of the law-making bodies of the country that a business requires governmental regulation is not accidental and cannot exist without cause.
What makes for the general welfare is matter of legislative judgment, and judicial review is limited to power and excludes policy.
The liberty of contract guaranteed by the
The inactivity of a governmental power, no matter how prolonged, does not militate against its legality when exercised. United States v. Delaware & Hudson Co., 213 U. S. 366.
Whether rate regulation is necessary in regard to a particular business affected by a public use, such as insurance, is matter for legislative
A discrimination is not invalid under the equal protection provision of the
A legislative classification may rest on narrow distinctions. Legislation is addressed to evils as they appear and even degrees of evil may determine its exercise. Ozan Lumber Co. v. Union National Bank, 207 U. S. 251.
The Kansas statute of 1909, so far as it provides for regulating rates of fire insurance, is not unconstitutional under the
Statement of the Case.
BILL in equity to restrain the enforcement of the provisions of an act of the State of Kansas entitled “An act relating to Fire Insurance, and to provide for the Regulation and Control of rates of Premium Thereon, and to Prevent Discriminations Therein.” Chap. 152 of the Session Laws of 1909.
The grounds of the bill are that the act offends the Constitution of the State and of the United States.
A summary of the requirements of the act is as follows:
Sec. 1. Every fire insurance company shall file with the superintendent of insurance general basis schedules showing the rates on all risks insurable by such company in the State and all the conditions which affect the rates or the value of the insurance to the assured.
Sec. 2. No change shall be made in the schedules except after ten days’ notice to the superintendent, which notice shall state the changes proposed and the time when they
Sec. 3. When the superintendent shall determine any rate is excessive or unreasonably high or not adequate to the safety or soundness of the company, he is authorized to direct the company to publish and file a higher or a lower rate, which shall be commensurate with the character of the risk; but in every case the rate shall be reasonable.
Sec. 4. No company shall engage or participate in insurance on property located in the State until the schedules of rates be filed nor write insurance at a different rate than the rate named in the schedules, or refund or remit in any manner or by any device any portion of the rates; or extend to any insured or other person any privileges, inducements or concessions except as specified in the schedules.
Sec. 5. Any company making insurance where no rate has been filed shall, within thirty days after entering into such contract, file with the superintendent a schedule of such property showing the rate and such information as he may require. The schedule shall conform to the general basis of schedules and shall constitute the permanent rate of the company.
Sec. 6. The schedules shall be open to the inspection of the public, and each local agent shall have and exhibit to the public copies thereof relative to all risks upon which he is authorized to write insurance.
Sec. 7. No company shall, directly or indirectly, by any special rate or by any device, charge or receive from any person a different rate of compensation for insurance than it charges or receives from any other person for like insurance or risks of a like kind and hazard under similar circumstances and conditions in the State. Any company violating this provision shall be deemed guilty of unjust discrimination, which is declared unlawful.
Sec. 8. The superintendent may, if he finds that any
Sec. 9. The superintendent shall give notice of any order or regulation made by him under the act, and any company, or any person, city or municipality which shall be interested, shall have the right within thirty days to bring an action against the superintendent in any district court of the State to have the order or regulation vacated. Issues shall be formed and the controversy tried and determined as in other cases of a civil nature, and the court may set aside one or more or any part of any of the regulations or orders which the court shall find to be unreasonable, unjust, excessive or inadequate to compensate the company writing insurance thereon for the risk assumed by it, without disturbing others. The order of the superintendent shall not be suspended or enjoined, but the court may permit the complaining company to write insurance at the rates which obtained prior to such order upon the condition that the difference in the rates shall be deposited with the superintendent to be paid to the company or to the holders of policies as, on final determination of the suit, the court may deem just and reasonable. During the pendency of the suit no penalties or forfeitures shall attach or accrue on account of the failure of the complainant to comply with the order sought to be vacated or modified until the final determination of the suit. Proceedings in error may be instituted in the Supreme Court of the State as in other civil cases, and that court shall examine the record, including the evidence, and render such judgment as shall be just and equitable. No action
Sec. 10. Infractions of the act are declared to be misdemeanors and punishable by a fine not exceeding $100 for each offense, provided that if the conviction be for an unlawful discrimination the punishment may be by a fine or by imprisonment in the county jail not exceeding ninety days, or by both fine and imprisonment.
Sec. 11. No person shall be excused from testifying at the trial of any other person on the ground that the testimony may incriminate him, but he shall not be prosecuted on account of any transaction about which he may testify, except for perjury committed in so testifying; “provided, that nothing in this act shall affect farmers’ mutual insurance companies organized and doing business under the laws of this State and insuring only farm property.”
The bill alleged that it was brought by the German Alliance Insurance Company in behalf of itself and all other companies and corporations conducting a similar business and similarly situated, and that Charles W. Barnes was the duly elected superintendent of fire insurance of the State of Kansas. It alleged the jurisdictional amount, and that the controversy was one arising under the Constitution of the United States and of the State of Kansas. It alleged, further, the following facts, which we state in narrative form, omitting those which relate to the constitution of the State, no assignment of error being based upon them: The appellant, to which we shall refer as complainant, was incorporated under the laws of New York as a fire insurance company in 1879 and immediately entered upon such business, and it has for long periods of
The business of fire insurance as conducted by it consists of making indemnity contracts against direct loss or damage by fire for a consideration paid, known as a premium; that the rate or premium is the amount charged for each $100 of indemnity. The property which is the subject of insurance is ordinarily known and designated as the risk. Complainant issues indemnity contracts or fire insurance policies covering all kinds and descriptions of improvements upon real estate and the contents thereof and all kinds and descriptions of personal property and also farm houses, barns and granaries and their contents. The rate of premium varies with the kind of property covered, its physical characteristics and situation, its exposure, the presence or absence of fire protection, and many other causes.
The establishment of the basis rate for the premium to be charged is a matter of technical and mathematical deduction from the experience of all fire insurance companies covering a long period of years and, territorially, the whole civilized world. To make such deduction it is necessary not only to be in possession of the compiled statistics of fire insurance business, but also to be skilled in the mathematical “theory of probabilities” and in the “law of large numbers” so as to be able to apply with technical accuracy such laws and such data, and that no one not specially trained as an insurance statistician is competent to make such deductions.
A theoretically correct basis rate having thus been arrived at is subject to variation according to the risk, whether in town or country, and, if in the former, according to the class of town or city in which it is situated. The classification of towns and cities depends upon water supply, fire protection and general physical conditions. In addition to ascertaining the individual risk, if a build-
Complainant and others engaged in the insurance business employ a large number of men skilled as inspectors to report upon individual risks, and it is impossible to fix and adjust a reasonable rate of premium for each and every individual risk without the information so obtained and having the same applied by experts. And such training and information are necessary to determine whether a basic rate or actual rate as applied to any particular risk is or is not reasonable, and the respondent is not possessed of the requisite information or special training necessary to qualify for such determination and any conclusion to which he might come would be a mere guess or arbitrary determination; and the provisions of the act can only be properly administered in any event by the employment by the State of a corps of inspectors and experts specially trained in the business of fixing rates of fire insurance.
The complainant has complied with all of the laws of the State, and has received the regular license or authorization of the State, to transact the business of fire insurance therein.
It conducts its business by means of resident agents, of which it has seventy-two directly employed; it has a large and valuable established business to secure which it has expended a large sum of money, and to be compelled to give up its business would result in irreparable damage and injury to it. A large number of the fire insurance policies issued by complainant are written upon farm buildings and their contents and in writing such business
The business of fire insurance is purely and exclusively a private business and may be transacted by private persons in their individual capacity or by unincorporated or incorporated companies, that the amount of indemnity and the premium is a matter of private negotiation and agreement, and the act of the legislature of the State of Kansas attempts to regulate the business in so far as the fixing of the rate of premium is concerned and in the attempted regulation distinguishes between fire insurance companies and individuals and partnerships, and thereby denies to complainant and other companies the equal protection of the law, contrary to the
Under the laws of Kansas, mutual fire insurance companies may be organized, that such companies having a guaranteed fund of $25,000 may do business on a cash basis and accept premiums in cash and that such premium measures the total liability of the insured under the policy either to the company or to its creditors; that by the eleventh section of the act under review, it is provided “that nothing in this act shall affect farmers’ mutual insurance companies, organized and doing business under the laws of this State, and insuring only farm property.” The complainant and many other companies insure farm property and come into direct competition with farmers’ mutual companies of the character specified and the act of the legislature in excepting the latter companies deprives complainant of the equal protection of the laws and is therefore repugnant to the
The act distinguishes between fire insurance companies and other insurance companies, individuals and persons and distinguishes between insurance and other lines of business and thereby offends the equality clause of the Constitution of the United States.
Complainant, under protest, filed the general basis schedules of its rates as required by the act, which were arrived at by the process hereinbefore set out. On the nineteenth of August, 1909, respondent made a reduction of 12% from the rates as filed and from the rates filed by other companies, with the proviso that it should not apply to residence property, churches, school houses, farm property or special hazards. The order was to become effective September 1, 1909. And it was further ordered that on and after that date the exception of churches and dwelling houses should be eliminated. Complainant notified the superintendent by letter that it would, under
The risks included in the order and not excepted therefrom, comprise all ordinary mercantile risks in the State and that the reduction of 12% will result in a rate which is much less than the cost of carrying the risks.
Respondent is threatening to make further reductions and it is proposed to revoke the license of any fire insurance company which may violate the provisions of the act, even though the rates fixed by him may be so low as to be confiscatory and to inflict upon the officers of the company, including complainant, the penalties prescribed for such violation, and such companies and complainant, unless defendant be restrained by injunction, will be obliged to comply with the requirements of the act to their irreparable damage and injury.
Complainant finally alleges that it is not its purpose to attack the orders of respondent on the ground that they were not made in strict compliance with the provisions of the act, but to have the act in its entirety declared to be unconstitutional and void for the reasons alleged, and to have respondent restrained and orders made by him under the provisions of the act enjoined. And such an injunction is prayed.
Respondent filed a demurrer stating that he demurred to so much of the bill as charges the act of the State of Kansas to be repugnant to the constitution of Kansas and the Constitution of the United States. The demurrer was sustained. Subsequently, upon the bill being amended, a general demurrer was filed, which was also sustained by the court, and the bill dismissed. Prior, however, to this action, it having been suggested that the term of office of Charles W. Barnes as superintendent of insurance had expired and that Ike Lewis had succeeded to that office and to all of its duties and powers, he was made defendant in the place and stead of Charles W. Barnes.
Mr. Thomas Bates and Mr. John G. Johnson, with whom Mr. Seymour Edgerton was on the brief, for appellant:
The business of fire insurance is a private business and the public has no legal right to demand its service. Am. Surety Co. v. Shallenberger, 183 Fed. Rep. 636; Hunt v. Simmons, 19 Missouri, 583; Orr v. Home Ins. Co., 12 La. Ann. 255; Queen Ins. Co. v. State, 86 Texas, 250.
The State has not the power to fix the rates charged to the public either by corporations or individuals engaged in a private business, and the test as to whether a use is public or not is whether a public trust is imposed upon the property, and whether the public has a legal right to the use which cannot be denied. Allen v. Jay, 60 Maine, 124; Am. L. S. C. Co. v. Chi. Live Stock Exch., 143 Illinois, 210; Arnsperger v. Crawford, 101 Maryland, 247; Avery v. Vermont El. Co., 75 Vermont, 235; Brown v. Gerald, 100 Maine, 351; Burlington v. Beasley, 94 U. S. 310; Ches. & Pot. Tel. Co. v. Manning, 186 U. S. 238; Citizens Savings Assn. v. Topeka, 20 Wall. 655; Collister v. Hayman, 183 N. Y. 250; Dutton v. Strong, 1 Black, 1; Ex parte Quarg, 149 California, 79; Fallsberg Co. v. Alexander, 101 Virginia, 98; Farmers’ Market Co. v. P. & R. T. Ry. Co., 142 Pa. St. 580; Gaylord v. Sanitary Dist., 204 Illinois, 576; Howard Mills v. Schwartz Lumber Co., 77 Kansas, 599; Horney v. Nixon, 213 Pa. St. 20; Hurley v. Eddingfield, 156 Indiana, 416; Jacobs v. Water Sup. Co., 220 Pa. St. 388; L. & N. R. Co. v. West Coast Co., 198 U. S. 483; Ladd v. Southern Cotton Co., 53 Texas, 172; Pearce v. Spalding, 12 Mo. App. 141; People v. Steel, 231 Illinois, 340; Purcell v. Daly, 19 Abb. N. C. 301; Queen Ins. Co. v. State, 86 Texas, 250; Ryan v. Terminal Co., 102 Tennessee, 111; Shasta Power Co. v. Walker, 149 Fed. Rep. 568; Sholl v. German C. Co., 118 Illinois, 427; Stock Exchange v. Board of Trade, 127 Illinois, 153; State v. Associated Press, 159 Missouri, 410; Tyler v. Beacher, 44 Vermont, 648; Ulmer v. Ry. Co., 98 Maine, 579;
The regulation of rates and charges in a private business is not within the police power of the State. Adair v. United States, 208 U. S. 161; Coffeyville Co. v. Perry, 69 Kansas, 297; Connolly v. Union Pipe Co., 184 U. S. 540; Dobbins v. Los Angeles, 195 U. S. 223; Ex parte Dickey, 144 California, 234; Holden v. Hardy, 169 U. S. 366; Hurtado v. California, 110 U. S. 516; In re Berger, 195 Missouri, 16; Kreibohm v. Yancey, 154 Missouri, 67; Lawton v. Steele, 152 U. S. 133; Lochner v. New York, 198 U. S. 45; Mugler v. Kansas, 123 U. S. 623; Muller v. Oregon, 208 U. S. 412; Munn v. Illinois, 94 U. S. 113; People v. Steele, 231 Illinois, 340; People v. Coler, 166 N. Y. 1; State v. Associated Press, 159 Missouri, 410; Street v. Varney El. Sup. Co., 160 Indiana, 338; West Branch Ex. v. McCormick, 1 Pa. Dist. Rep. 542.
The Kansas rate law of 1909 cannot be sustained as a condition precedent to the right of a foreign corporation to do business in the State. Ætna Ins. Co. v. Jones, 78 S. Car. 445; American Co. v. Shallenberger, 183 Fed. Rep. 636; Cargill v. Minnesota, 180 U. S. 452; Carroll v. Greenwich Ins. Co., 199 U. S. 401; Connolly v. Union Pipe Co., 184 U. S. 540; Ins. Co. v. Prewitt, 202 U. S. 246; Lafayette Ins. Co. v. French, 18 How. 404; Nat. Council v. State Council, 203 U. S. 151; Orient Ins. Co. v. Daggs, 172 U. S. 557; So. Pac. Co. v. Denton, 146 U. S. 202; Waters-Pierce Oil Co. v. Texas, 177 U. S. 28; West. Un. Tel. Co. v. Kansas, 216 U. S. 1.
The law cannot be sustained on the ground that it is within the power of the legislature of a State to impose such conditions as it likes upon corporations which derive their right to exist from the State. Lake Shore &c. R. Co. v. Smith, 173 U. S. 684; People v. Budd, 117 N. Y. 1; State v. Associated Press, 159 Missouri, 410.
The business of fire insurance is not a monopoly.
Herriman v. Menzies, 115 California, 16; United States v. American Tobacco Co., 164 Fed. Rep. 700.
The business of fire insurance is not a proper function of government, nor does it receive special privileges from the State. Ætna Life Ins. Co. v. Coulter, 115 Kentucky, 787; Ohio v. Guilbert, 56 Oh. St. 575; Opinion of the Justices, 155 Massachusetts, 598; Id. 182 Massachusetts, 605;
A general public interest is not equivalent to a public use. Lowell v. Boston, 111 Massachusetts, 454; Matter of Mayor of New York, 135 N. Y. 253; Matter of Niagara Falls Co., 108 N. Y. 375.
The power to regulate rates and charges is simply the power to take private property for public use. Charles River Bridge Case, 11 Peters, 420; Cole v. La Grange, 113 U. S. 1; Dodge v. Michigan Twp., 107 Fed. Rep. 827; 2 Kent‘s Comm. 333; Lowell v. Boston, 111 Massachusetts, 454; Opinion of the Justices, 155 Massachusetts, 598. See also, as bearing on this subject: Allnutt v. Inglis, 12 East, 527; Brass v. North Dakota, 153 U. S. 391; Budd v. New York, 143 U. S. 517, S. C., 117 N. Y. 1; State v. Edwards, 86 Maine, 102; Munn v. Illinois, 94 U. S. 113; Spring Valley Co. v. Schottler, 110 U. S. 347; Burlington v. Beasley, 94 U. S. 310; Dow v. Beidelman, 125 U. S. 680; Wabash &c. Ry. Co. v. Illinois, 118 U. S. 557; German Alliance Ins. Co. v. Hale, 219 U. S. 307; Noble State Bank v. Haskell, 219 U. S. 104 and 575; Dodge v. Mission Township, 107 Fed. Rep. 827; Paul v. Virginia, 8 Wall. 168.
Mr. John S. Dawson, Attorney General of the State of Kansas, with whom Mr. S. N. Hawks, Mr. F. S. Jackson and Mr. C. B. Smith were on the brief, for appellee:
The act complained of is within the police power of the State. Noble State Bank v. Haskell, 219 U. S. 104 and 575; German Alliance Ins. Co. v. Hale, 219 U. S. 307; Carroll v. Greenwich Ins. Co., 199 U. S. 401, 411; Jacobson v. Mas-sachusetts, 197 U. S. 11, 27, 31; Lake Shore &c. R. R. v. Ohio, 173 U. S. 285, 297; Citizens Ins. Co. v. Clay, 197 Fed. Rep. 435; German Alliance Ins. Co. v. Barnes, 189 Fed. Rep. 769.
The act is not repugnant to
The act is not repugnant to either the due process clause of the
The validity of the act can be sustained under the police power of the State, as well as under the power of the State to regulate corporations created by it, or permitted by it to do business within its borders. Assurance Co. v. Bradford, 60 Kansas, 85; Railroad Co. v. Matthews, 58 Kansas, 447; Gulf R. R. Co. v. Ellis, 165 U. S. 150; Atkinson v. Woodmansee, 68 Kansas, 71; Fidelity Life Assn. v. Mettler, 185 U. S. 308; Railroad Co. v. Matthews, 174 U. S. 96; Orient Ins. Co. v. Daggs, 172 U. S. 557; Waters-Pierce Oil Co. v. Texas, 177 U. S. 28; N. Y. Life Ins. Co. v. Cravens, 178 U. S. 389; Insurance Co. v. Warren, 181 U. S. 73; Commonwealth v. Vrooman, 164 Pa. St. 306; Doyle v. Insurance Co., 94 U. S. 535; State v. Mo. Pac. Ry. Co., 33 Kansas, 176; Leavenworth v. Water Co., 62 Kansas, 643; Inhabitants of Wayland v. Middlesex County, 4 Gray (Mass.), 500; Irrigation Co. v. Klein, 63 Kansas, 484; West v. Bank, 66 Kansas, 524.
The classifications made by the legislature are proper. 4 Supreme Court Encyc. 357; Heath & Milligan v. Worst, 207 U. S. 338; Ozan Lumber Co. v. Union Natl. Bank, 207 U. S. 251; Mobile Co. v. Kimball, 102 U. S. 691; Gulf, C. & S. F. R. Co. v. Ellis, 165 U. S. 150; Missouri, K. & T. R. Co. v. May, 194 U. S. 267.
Insurance is affected by public interest. State v. Insurance Co., 30 Kansas, 585; State v. Phipps, 50 Kansas, 609; Blaker v. Hood, 53 Kansas, 499, 509; State v. Phipps, 50 Kansas, 609; Freund on Police Power, §§ 400-401; Ætna Life Ins. Co. v. Hardison, 199 Massachusetts, 181; N. Y. Life Ins. Co. v. Hardison, 199 Massachusetts, 190; 3 Selected Essays in Anglo-Am. Legal History, p. 108; Zartman‘s Yale Readings in Ins. pp. 9-10, and 213; Arnold on Marine Ins. 102; Munn v. Illinois, 94 U. S. 113; 7 Encyc. U. S. Sup. Ct. Rep. 78; 4 Encyc. U. S. Sup. Ct. Rep. 77; Northwestern Ins. Co. v. Riggs, 203 U. S. 243; Phoenix Ins. Co. v. Montgomery, 42 L. R. A. 468; Exempt Firemen v. Roome, 93 N. Y. 313; Firemen‘s Assn. v. Lounsbury, 21
As to the right to fix rates, see Winchester Turnpike Co. v. Croxton, 33 L. R. A. 177; Munn v. Illinois, 94 U. S. 113; Georgia R. R. Co. v. Smith, 128 U. S. 174; Allnutt v. Lord Hale (De Portibus Maris, 1 Hargraves Law Tracts, 78); Mobile v. Yuille, 3 Alabama, 137; Laurel Fork R. R. Co. v. West Virginia Trans. Co., 25 W. Va. 324; Allnutt v. Inglis, 12 East, 527; People v. Budd, 117 N. Y. 1, S. C., 143 U. S. 517; Re Annon, 50 Hun, 415, aff‘d 117 N. Y. 621; Spring Valley Co. v. Schottler, 110 U. S. 347; Brass v. Stoeser, 153 U. S. 391, aff‘g, 2 Nor. Dak. 482.
As to public interest and public use, see Budd v. New York, 143 U. S. 517; Freund‘s Police Power, §§ 304, 378; People v. Formosa, 61 Hun, 272; Boxwell v. Security Life Ins. Co., 193 N. Y. 465; Lumbermen‘s Exchange v. Fisher, 150 Pa. St. 475; Craig v. Kline, 65 Pa. St. 399; Henry v. Roberts, 50 Fed. Rep. 902; Genesee Fork Co. v. Ives, 144 Pa. St. 114; Mobile v. Yuille, 3 Alabama, 137; Brass v. Stoeser, 153 U. S. 391; McCarty v. Firemen‘s Ins. Co., 73 Atl. Rep. 80; Civil Rights Cases, 109 U. S. 62.
As to illegality of fire underwriters associations, see N. Y. Bd. of Underwriters v. Higgins, 114 N. Y. Supp. 506; Firemen‘s Fund Ins. Co. v. Hellner, 49 So. Rep. 297; Continental Co. v. Parks, 142 Alabama, 650, 39 So. Rep. 204; Orient Ins. Co. v. Daggs, 172 U. S. 565; Farmers’ Ins. Co. v. Dobney, 189 U. S. 301; Barbier v. Connolly, 113 U. S. 27, 28.
Opinion of the Court.
After stating the case as above, MR. JUSTICE MCKENNA delivered the opinion of the court.
The specific error complained of is the refusal of the District Court to hold that the act of the State of Kansas is unconstitutional and void as offending the due process clause of the
The basic contention is that the business of insurance is a natural right, receiving no privilege from the State, is voluntarily entered into, cannot be compelled nor can any of its exercises be compelled; that it concerns personal contracts of indemnity against certain contingencies merely. Whether such contracts shall be made at all, it is contended, is a matter of private negotiation and agreement, and necessarily there must be freedom in fixing their terms. And “where the right to demand and receive service does not exist in the public, the correlative right of regulation as to rates and charges does not exist.” Many elements, it is urged, determine the extending or rejection of insurance; the hazards are relative and depend upon many circumstances upon which there may be different judgments, and there are personal considerations as well—“moral hazards,” as they are called.
It is not clear to what extent some of these circumstances are urged as affecting the power of regulation in the State. It would seem to be urged that each risk is individual and no rule of rates can be formed or applied. The bill asserts the contrary. It in effect admits that there can be standards and classification of risks, determined by the
Munn v. Illinois, 94 U. S. 113, is an instructive example of legislative power exerted in the public interest. The constitution of Illinois declared all elevators or storehouses, where grain or other property was stored for a compensation, to be public warehouses, and a law was subsequently enacted fixing rates of storage. In other words, that which had been private property had from its
That the case had broader application than the use of property is manifest from the grounds expressed in the dissenting opinion. The basis of the opinion was that the business regulated was private and had “no special privilege connected with it, nor did the law ever extend to it any greater protection than it extended to all other private business.” The argument encountered opposing examples, among others, the regulation of the rate of interest on money. The regulation was accounted for on the ground that the act of Parliament permitting the charging
Munn v. Illinois was approved in many state decisions, but it was brought to the review of this court in Budd v. New York, 143 U. S. 517, and its doctrine, after elaborate consideration, re-affirmed, and against the same arguments which are now urged against the Kansas statute. Nowhere have these arguments been, or could be, advanced with greater strength and felicity of expression than in the dissenting opinion of Mr. Justice Brewer. Every consideration was adduced, based on the private character of the business regulated and, for that reason, its constitutional immunity from regulation, with all the power of argument and illustration of which that great judge was a master. The considerations urged did not prevail. Against them the court opposed the ever-existing police power in government and its necessary exercise for the public good and declared its entire accommodation to the limitations of the Constitution. The court was not deterred by the charge (repeated in the case at bar) that its decision had the sweeping and dangerous comprehension of subjecting to
In Brass v. Stoeser, 153 U. S. 391, Munn v. Illinois and Budd v. New York were affirmed. A law of the State of North Dakota was sustained which made all buildings, elevators and warehouses used for the handling of grain for a profit public warehouses, and fixed a storage rate. The case is important. It extended the principle of the other two cases and denuded it of the limiting element which was supposed to beset it—that to justify regulation of a business the business must have a monopolistic character. That distinction was pressed and answered. It was argued, the court said (p. 402), “that the statutes of Illinois and New York [passed on in the Munn and Budd Cases] are intended to operate in great trade centers, where, on account of the business being localized in the hands of a few persons in close proximity to each other, great opportunities for combinations to raise and control elevating and storage charges are afforded, while the wide extent of the State of North Dakota and the small population of its country towns and villages are said to present no such opportunities.” And it was also urged that the method of carrying on business in North Dakota and the Eastern cities was different, that the elevators in the latter were essentially means of transporting grain from the lakes to the railroads and those who owned them could, if uncontrolled by law, extort such charges as they pleased, and stress was laid upon the expression in the other cases which represented the business as a practical monopoly. A contrast was made between those conditions and those which existed in an agricultural State where land was cheap and limitless in quantity. It was replied that this difference in conditions was “for those who make, not for those who interpret, the laws.” And con-
The cases need no explanatory or fortifying comment. They demonstrate that a business, by circumstances and its nature, may rise from private to be of public concern and be subject, in consequence, to governmental regulation. And they demonstrate, to apply the language of Judge Andrews in People v. Budd (117 N. Y. 1, 27), that the attempts made to place the right of public regulation in the cases in which it has been exerted, and of which we have given examples, upon the ground of special privilege conferred by the public on those affected cannot be supported. “The underlying principle is that business of certain kinds holds such a peculiar relation to the public interests that there is superinduced upon it the right of public regulation.” Is the business of insurance within the principle? It would be a bold thing to say that the principle is fixed, inelastic, in the precedents of the past and cannot be applied though modern economic conditions may make necessary or beneficial its application. In other words, to say that government possessed at one time a greater power to recognize the public interest in a business and its regulation to promote the general welfare than government possesses to-day. We proceed then to consider whether the business of insurance is within the principle.
A contract for fire insurance is one for indemnity against loss and is personal. The admission, however, does not
Those regulations exhibit it to be the conception of the law-making bodies of the country without exception that the business of insurance so far affects the public welfare as to invoke and require governmental regulation. A conception so general cannot be without cause. The universal sense of a people cannot be accidental; its persistence saves it from the charge of unconsidered impulse, and its estimate of insurance certainly has substantial basis. Accidental fires are inevitable and the extent of loss very great. The effect of insurance—indeed, it has been said to be its fundamental object—is to distribute the loss over as wide an area as possible. In other words, the loss is spread over the country, the disaster to an individual is shared by many, the disaster to a community shared by other communities; great catastrophes are thereby lessened, and, it may be, repaired. In assimilation of insurance to a tax, the companies have been said to be
Complainant feels the necessity of accounting for the regulatory state legislation and refers it to the exertion of the police power, but, while expressing the power in the broad language of the cases, seeks to restrict its application. Counsel states that this power may be exerted to “pass laws whose purpose is the health, safety, morals and the general welfare of the people.” The admission is very comprehensive. What makes for the general welfare is
The restrictions upon the legislative power which complainant urges we have discussed, or rather the considerations which take, it is contended, the business of insurance outside of the sphere of the power. To the contention that the business is private we have opposed the conception of the public interest. We have shown that the business of insurance has very definite characteristics, with a reach of influence and consequence beyond and different from that of the ordinary businesses of the commercial world, to pursue which a greater liberty may be asserted. The transactions of the latter are independent and individual, terminating in their effect with the instances. The contracts of insurance may be said to be interdependent. They cannot be regarded singly, or isolatedly, and the effect of their relation is to create a fund of assurance and credit, the companies becoming the depositories of the money of the insured, possessing great power thereby and charged with great responsibility. How necessary their solvency is, is manifest. On the other hand to the insured, insurance is an asset, a basis of credit. It is practically a necessity to business activity and enterprise. It is, therefore, essentially different from ordinary com-
But it is said that the reasoning of the opinion has the broad reach of subjecting to regulation every act of human endeavor and the price of every article of human use. We might, without much concern, leave our discussion to take care of itself against such misunderstanding or deductions. The principle we apply is definite and old and has, as we have pointed out, illustrating examples. And both by the expression of the principle and the citation of the examples we have tried to confine our decision to the regulation of the business of insurance, it having become “clothed with a public interest,” and therefore subject “to be controlled by the public for the common good.”
If there may be controversy as to the business having such character, there can be no controversy as to what follows from such character if it be established. It is idle, therefore, to debate whether the liberty of contract guaranteed by the
We may venture to observe that the price of insurance is not fixed over the counters of the companies by what Adam Smith calls the higgling of the market, but formed in the councils of the underwriters, promulgated in schedules of practically controlling constancy which the applicant for insurance is powerless to oppose and which, therefore, has led to the assertion that the business of insurance is of monopolistic character and that “it is illusory
We have summarized the provisions of the Kansas statute, and it will be observed from them that they attempt to systematize the control of insurance. The statute seeks to secure rates which shall be reasonable both to the insurer and the insured, and as a means to this end it prescribes equality of charges, forbids initial discrimination or subsequently by the refund of a portion of the rates, or the extension to the insured of any privilege; to this end it requires publicity in the basic schedules and of all of the conditions which affect the rates or the value of the insurance to the insured, and also adherence to the rates as published. Whether the requirements are necessary to the purpose, or—to confine ourselves to that which is under review—whether rate regulation is necessary to the purpose, is a matter for legislative judgment, not judicial. Our function is only to determine the existence of power.
The bill attacks the statute of Kansas as discriminating against complainant because the statute excludes from its provisions farmers’ mutual insurance companies, organized
The provision of the statute is, “That nothing in this act, shall affect farmers’ mutual insurance companies organized and doing business under the laws of this State and insuring only farm property.” The distinction is, therefore, between coöperative insurance companies insuring a special kind of property and all other insurance companies. It is only with that distinction that we are now concerned. There are special provisions in the statutes of Kansas for the organization of coöperative companies and if the statute under review discriminates between them the German Alliance Company cannot avail itself of the discrimination. A citation of cases is not necessary, nor for the general principle that a discrimination is valid if not arbitrary, and arbitrary in the legislative sense, that is, outside of that wide discretion which a legislature may exercise. A legislative classification may rest on narrow distinctions. Legislation is addressed to evils as they may appear, and even degrees of evil may determine its exercise. Ozan Lumber Co. v. Union County Bank, 207 U. S. 251. There are certainly differences between stock companies, such as complainant is, and the mutual companies described in the bill, and a recognition of the differences we cannot say is outside of the constitutional power of the legislature. Orient Ins. Co. v. Daggs, 172 U. S. 557.
Decree affirmed.
MR. JUSTICE LURTON was not present when this case was argued, and took no part in its decision.
MR. JUSTICE LAMAR, dissenting.
I dissent from the decision and the reasoning upon which it is based. The case does not deal with a statute affect-
The fixing of the price for the use of private property is as much a taking as though the fee itself had been condemned for a lump sum—that taking, whether by fixing rates for the use or by paying a lump sum for the fee, has always heretofore been thought to be permissible only when it was for a public use. But the court in this case holds that there is no distinction between the power to take for public use and the power to regulate the exercise of private rights for the public good. That is the fundamental proposition on which the case must stand, and the decision must therefore be considered in the light of that ruling and of the results which must necessarily flow from the future application of that principle. For if the power to regulate, in the interest of the public, comprehends what is intended in the power to take property for public use, it must inevitably follow that the price to be paid for any service or the use of any property can be regulated by the General Assembly. This is so because the power of regulation is all-pervading, as witness the statute of frauds, the recording acts, weight and measure laws, pure food laws, hours of service laws, and innumerable other enactments of that class. And if this power be as extensive as is now, for the first time, decided, then the citizen holds his property and his individual right of contract and of labor under legislative favor rather than under constitutional guaranty. The principle is applied here to the case of insurance; but the nature of that business
Insurance is not production; nor manufacture; nor transportation; nor merchandise. And this court in N. Y. Life Co. v. Deer Lodge Co., 231 U. S. 495, at the present term, reaffirmed its previous rulings that “insurance is not commerce,” “not an instrumentality of commerce,” “not a transaction of commerce,” “but simply contracts of indemnity against loss by fire.” Such a contract is personal and in the State whose statute is under consideration, insurance companies are classed among those “strictly private.” Leavenworth County v. Miller, 7 Kansas, 479, 520. The fact, that insurance is a strictly private and a personal contract of indemnity puts it on the extreme outside limit and removes it as far as any business can be from those that are in their nature public. So that if the price of a private and personal contract of indemnity can be regulated,—if the price of a chose in action can be fixed,—then the price of everything within the circle of business transactions can be regulated. Considering, therefore, the nature of the subject treated and the reasoning on which the court‘s opinion is based, it is evident that the decision is not a mere entering wedge, but reaches the end from the beginning and announces a principle which points inevitably to the conclusion that the price of every article sold and the price of every service offered can be regulated by statute.
And such laws are not without English precedent. For while no statute ever before attempted to fix the price of a contract of indemnity,1 yet under a Parliament that sat as a perpetual constitutional convention, with power
But it may be said that, though insurance is a contract of indemnity and personal, its personal character has not been thought to preclude the many regulatory measures adopted and sustained during the past hundred years.
This is most freely conceded. But it is equally true that the failure for more than 100 years to attempt to fix the rates of insurance is indubitable evidence of the general public and legislative conception that the business of insurance did not belong to the class whose rates could be fixed. That settled usage is not an accident. For rate-making is no new thing, and neither is insurance. Its use in protecting the owner of property against loss; its value as collateral in securing loans; its method of averages and distributing the risk between many persons widely separated and all contributing small premiums in return for the promise of a large indemnity; has been known for centuries. All these considerations were recently pressed upon the court in an effort to secure a ruling that insurance was commerce. In refusing to accede to the sufficiency of the argument, the court in the Deer Lodge Case pointed out that the size of the business of insurance did not change the inherent nature of the business itself, saying that “the number of transactions do not give the business any other character than magnitude.”
The character of insurance, therefore, as a private and personal contract of indemnity, has not been changed by
But these and those referred to in Attorney General v. Firemen‘s Insurance Co., 74 N. J. Eq. 372, furnish instances of the exercise of this power to regulate which can be exerted against any person, trade or business, no matter how great or small. This power to regulate is so much oftener exerted against the large business, because the evils are then more apparent, that the size of the business and the number of persons interested is sometimes referred to as indicating that the business is affected with a public interest. But there is no such limitation. For the power to regulate is the essential power of government which can be exerted against the whole body of the public or the smallest business. And if, as seems to be implied, the fact that a business may be regulated is to be the test of the power to fix rates, it would follow, since all can be
It is said, however, that the validity of rate statutes has often been recognized, notably in the Munn Case (94 U. S. 113, 126) where a statute was sustained which regulated the price to be charged for storing grain in elevators. The Munn Case is a landmark in the law. It is accepted
“Enough has already been said to show that, when private property is devoted to a public use, it is subject to public regulation. It remains only to ascertain whether the warehouses of these plaintiffs in error, and the business which is carried on there, come within the operation of this principle” (p. 130).
Not only does the Munn Case show that the right to fix prices depends on the concurrence of public interest and the employment of property devoted to a public use, but with the exception of the Louisiana Bread Case, 12 La. Ann. 432, it is believed that every American rate-statute since the requirement that property should not be taken without due process of law, related to a business which was public in its character and employed visible and tangible property which had been devoted to a public use. The list of rate-regulated occupations is not too long to be here given. It includes canals, waterways and
It is to be noted that in each instance the power to regulate rates is exercised against a business which in every case used tangible property devoted to a public use. Some of them had a monopoly (Spring Water Co. v. Schottler, 110 U. S. 347, 354). Some of them had franchises. Most of them used public ways or employed property which they had acquired by virtue of the power of eminent domain. They were therefore subject to the correlative obligation to have the use, of what had been thus taken by law, fixed by law. And as further pointing out the characteristics of the public use justifying the fixing of prices, it will be noted that, with the exception of toll mills (which, however, do employ property devoted to a public use), they all have direct relation to the business or facilities of transportation or distribution—to transportation by carriers of passengers, goods or intelligence by vehicle or wire;—to distribution of water, gas or electricity through ditch, pipe or wire; to wharfage, storage or accommodation of property before the journey begins, when it ends, or along the way.
It will be seen, too, that the size of the business is unimportant, for the fares of a cabman, employing a broken-down horse and a dilapidated vehicle, can be fixed by law as well as the rates of a railroad with millions of capital and thousands of cars transporting persons and property across the continent.
The fact that rate-statutes, enacted and sustained since the adoption of constitutional government in this country, all had some reference to transportation or distribution, is a practical illustration of the accepted meaning of “public use” when that phrase was first employed in American constitutions, and when turnpikes and carriers, wharfingers and ferrymen had rates, tolls and fares fixed by law. No change was made in the meaning of the words or in the principle involved when it opened to take in new forms and facilities of transportation, whether by vehicle, pipe or wire, and new forms of storage, whether on the wharf or in the grain-elevator.
But it is said that business is the fundamental thing and the property but an instrument, and that there is no basis for the distinction between a public interest and a public use. But there is a distinction between a public interest—justifying regulation—and a public use—justifying price fixing. “Public interest and public use are not synonymous.” In re Niagara Falls Ry. Co., 108 N. Y. 375, 385. And since the case here involves the validity of a Kansas statute it is well to note that the Supreme Court of that State in Howard v. Schwartz, 77 Kansas, 599, recognizes that there is a difference and adjudges accordingly. It there cited numerous decisions from other States and in defining a public use, made the following quotation from the opinion of the Supreme Court of Maine:
““Property is devoted to a public use when, and only when, . . . all the public has a right to demand and share in” it “. . . In a broad sense it is the right in the public to an actual use, and not to an incidental benefit.” (p. 608).
The effect of the difference between public use and public interest appears from the application; for the Supreme Court of Kansas on the authority of this and numerous other cases, held that a steam flour mill was not such a public use as would authorize its owners to exercise the power of eminent domain, though it was “a useful and important business instrumentality which contributed to the growth and development of the locality where the [mills] are situated. This may also be said, however, of every legitimate business. To a limited extent every honest industry adds to the general sum of prosperity and promotes the public welfare” (p. 609).
Nothing more can be said of insurance—nor can the power to take the private property of insurers, by fixing rates, be enlarged by a legislative declaration that the business is affected with a broad and definite public interest. For since the contract of insurance is private and personal, it is almost a contradiction in terms to say that the private contract is public or that a business which consists in making such private contracts is public in the constitutional sense. The fundamental idea of a public business, as well declared by the Supreme Court of Kansas, 77 Kansas, 608, is that “all the public has a right to demand and share in” it. That means that each member of the public on demand and upon equal terms, without written contract, without haggling as to terms, may demand the public service, and secure the use of the facility devoted to public use. If the company can make distinctions and serve one and refuse to serve another, the business ex vi termini is not public. The common carrier has no right to refuse to haul a passenger even if he has been
The suggestion that the public interest is found in the characteristics of the business of insurance, justifies a brief examination of those characteristics and a statement of the results that logically must follow from such a test. For if the power is to develop out of the characteristics, it must necessarily follow that other occupations, having similar characteristics, must be subject to the same rate-regulating power.
The elements which are said to show that insurance is affected with a public interest do not arise out of the size of any one company, but out of the volume of the aggre-
In view of what Judge Cooley calls the general supposition that “the right to fix prices was inconsistent with constitutional liberty,” it is not surprising that little is to be found in the books relating to a statute like this. It is, however, somewhat curious that among the few expressions to be found on the subject, is the intimation by Lord Ellenborough in Allnutt v. Inglis, 12 East, 527, 535, that insurance rates were not on the same basis as a public business using property devoted to a public use. For in answering the argument that if the rates of a public wharf could be fixed, insurance rates could also be fixed, he clearly intimates that this could not be done, since the wharf was a monopoly and “the business of insurance and of counting-houses may be carried on elsewhere.”
In the following cases the statutes fixing prices have been held to be void. Ex parte Dickey, 144 California, 234, fixing the price to be charged by an employment bureau; Ex parte Quarg, 149 California, 79; People v. Steele, 231 Illinois, 340, prohibiting the sale of theater tickets at a price higher than that charged by the theater; State v. Fire Creek Coke Co., 33 West Va. 188, limiting the profits on sales to employés. See also State v. McCool, 83 Kansas, 428, 430, bot., where in sustaining a statute regulating the weight of bread the court called attention to the fact that the statute did not attempt to fix the price. To these could be added a multitude of decisions showing that the power
There is, in the opinion an allusion to usury laws as instances of fixing rates for other than public service corporations. We do not understand that the opinion is founded on that proposition, for even the usury laws do not fix a flat rate, but only a maximum rate, and do not require lenders to make loans to all borrowers, similarly situated, at the same rate of interest. Moreover interest laws were in their inception not a restriction upon the right of contract but an enlargement, permitting what theretofore had been regarded both as an ecclesiastical and civil offense. This fact may have been coupled with the idea that as the sovereign had the prerogative to coin money and make legal tender for all claims, he could fix the price that should be charged for the use of that money.
At any rate, interest laws had been long recognized before the Constitution and have been prevalent ever since. They, therefore, fall within the rule that contemporary practice, if subsequently continued and universally acquiesced in, amounts to an interpretation of the Constitution. But the same character of long continued ac-
The act now under review not only takes property without due process of law but it unequally and arbitrarily selects those from which such property shall be taken by price fixing. Although including all other fire insurance companies, it excepts certain mutual insurance companies. Persons engaged in doing an insurance business are not within its terms. In Kansas, the right to do a fire insurance business is not limited to corporations, but may be conducted by persons, individuals, partners, companies and associations, whether incorporated or not.
THE CHIEF JUSTICE and MR. JUSTICE VAN DEVANTER concur in this dissent.