ROBERTSON v. CALIFORNIA.
No. 274.
June 3, 1946.
Argued January 8, 9, 1946.
Affirmed.
MR. JUSTICE BLACK concurs in the result.
MR. JUSTICE JACKSON took no part in the consideration or decision of this case.
T. A. Westphal, Jr., Deputy Attorney General of California, and M. Arthur Waite argued the cause for appellee. With them on the brief were Robert W. Kenny, Attorney General, Julien G. Hathaway and H. F. Orr.
Briefs were filed as amici curiae by Nathaniel L. Goldstein, Attorney General of New York, Orrin G. Judd, Solicitor General, and Saul A. Shames, Assistant Attorney General, for the State of New York, and by Francis V.
MR. JUSTICE RUTLEDGE delivered the opinion of the Court.
This case differs from Prudential Insurance Co. v. Benjamin, ante, p. 408, in three respects. It is a criminal cause; the statutes involved regulate, rather than simply tax, the business of insurance; and appellant‘s acts held to violate them were done before the McCarran Act‘s1 effective date.
Appellant was convicted in a state court for violating
“703. Except when performed by a surplus line broker, the following acts are misdemeanors when done in this State:
“(a) Acting as agent for a nonadmitted insurer in the transaction of insurance business in this State.”
“1642. A person shall not act as an insurance agent, broker, or solicitor until a license is obtained from the commissioner, authorizing such person so to act.”4
The complaint charged in two counts that appellant had (1) acted without a license as an agent for a non-admitted insurer in soliciting and selling a policy contrary to
The evidence, which is undisputed, disclosed the following facts. The First National Benefit Society is an Arizona corporation, conducting from Phoenix a mutual benefit type of insurance business. Its method of operation must be inferred from the facts of record, in the absence of other evidence. One O‘Lein, then an elderly resident of Ventura, California, had difficulty in securing insurance on account of his age. Prior to August 28, 1944, hе had learned of the Society‘s “Gold Seal” policy, by radio and through “literature.” This apparently was mailed from the home office and included a printed form of return postal card marked, presumably pursuant to postal permit, “Postage will be Paid by Addressee,” the Society. O‘Lein filled in and returned the card to the
The evidence further showed that the Society was not admitted to do business in California and that appellant had no license of any kind to act as an insurance agent, broker or solicitor there.
We may deal first exclusively with the objections founded on the commerce clause, since each of the others would be obviously without merit but for the supposed effects of the South-Eastern decision5 not only in relation to the prohibitory consequences of that clause but also, apparently, to resurrect other limitations upon state power long since settled adversely to such claims in reference to the business of insurance.6
Little need be said in relation to the general license requirement of
Section 1639 declares that the purpose of these and other provisions of the Code is “to protect the public by requiring and maintaining professional standards of conduct on the part of all insurance agents and insurance brokers acting as such within this State.” The statutory requirеments apply to all agents, without discrimination, whether they represent California or out-of-state insurance companies and whether the business done is interstate or local in character. They apply only to agents acting in California, not to acts done outside the state.
Appellant has not sought to obtain a license under the Code provisions, has not been denied one, and has not attacked any particular requirement. His charge is
To state the argument in this way is in effect to answer it. We accept the regulation for what it purports to be on its face and by the statute‘s express declaration, namely, a series of regulations designed and reasonably adapted to protect the publiс from fraud, misrepresentation, incompetence and sharp practice which falls short of minimum standards of decency in the selling of insurance by personal solicitation and salesmanship. That such dangers may exist, may even be widely prevalent in the absence of such controls, is a matter of common knowledge and experience. And no argument is needed to show that these evils are most apt to arise in connection with the activities of the less reliable and responsible insurers, as well as insurance brokers or salesmen, and vitally affect the public interest.7
Such being the purpose and effect of
If, in the absence of contrary action by Congress, a state may license agents or brokers for the sale of interstate transportation in order to prevent fraud, California v. Thompson, supra; trainmen engaged in interstate commerce to secure their competence, Smith v. Alabama, supra; Nashville, C. & St. L. R. Co. v. Alabama, supra; the sale on commission of interstate consignments of farm produce to secure honest dealing and financial responsibility, Hartford Indemnity Co. v. Illinois, supra; and the activities of customs brokers to secure responsibility in the state courts on claims arising locally, Union Brokerage Co. v. Jensen, supra, by the sorts of conditions imposed through the respective licensing provisions, there can be no valid reason for outlawing
That appellant‘s activities were of a kind which vitally affect the welfare and security of the local community, the state and their residents could not be denied. Cf. Hoopeston Co. v. Cullen, 318 U. S. 313, 316 ff. They had in fact a highly “special interest” in his localized pursuit
Furthermore, here as in the cited cases, “unless some measure of local control is permissible,” the activities and their attendant evils “must go largely unregulated,” unless or until Congress undertakes that function. California v. Thompson, supra, at 115. And in view of the well-known conditions of competition in this field, such a result not only would free out-of-state insurance companies and their representatives of the regulation‘s effect, thus giving them advantage over local competitors, but by so doing would tend to break down the system of regulation in its purely local operation.
II.
Section 703 (a) is interwoven with different conditions and therefore has somewhat different effects than does
So far as concerns these requirements of
This, the state contends, is all that needs to be considered, since appellant neither possessed nor, so far as appears, had applied for or been denied a surplus line broker‘s license. Consequently, in its view, the validity of other provisions of the Code is not involved, either directly or by necessаry relationship to
Appellant insists, however, that
These conclusions are based on the view that
is not adequately safeguarded to insure that money will be available to pay death benefits.” In support of this statement of California‘s policy and the experience on which it is founded, counsel point to the Annual Reports of the Insurance Commissioner covering a period of some six years, from 1934 to 1940,19 which resulted in some of the legislation now called in question. See also X Report of Joint Insurance Investigation Committee (N. Y.) 364-365 (1906); Hoopeston Co. v. Cullen, 318 U. S. 313, 321.
Furthermоre, the state apparently concedes, as appellant contends, not only that the Society is excluded from transacting insurance business by the admission requirements and its failure to comply with them, but also that appellant would be forbidden to place insurance with it by the provisions relating to surplus line insurance, even if he had secured the surplus line broker‘s license.20
As we understand it, therefore, appellant‘s argument in this phase comes in substance to two things: (1) That the admission requirements and the surplus line broker provisions, as they relate to nonadmitted insurers and their agents, are invalid for discrimination against out-of-state insurers and in favor of domestic ones; (2) that California, as a result of the South-Eastern decision, no
The discrimination argument is without substance in so far as it maintains that the statutes permit domestic companies to operate without meeting these requirements, but forbid out-of-state insurers to do likewise. For, as has been noted,21 the conditions apply alike to domestic and foreign corporations, excepting only those organized or admitted to do business in California before January 1, 1940. As to them different standards are applicable, but they too apply equally and alike to domestic and foreign insurers.22
That the state has seen fit to draw a line as of that date between new companies seeking to enter the field and established companies, differentiating the two classes by different standards in the minimum reserve requirements, in order to permit the latter to continue in business and build up reserves,23 does not involve any discrimination as between domestic and foreign or interstate and intrastate insurers. For each may be authorized to enter, and each to continue, on identical terms. Such a distinction does not become discriminatory, in any sense now pertinent, merely because the preexisting companies are allowed to continue their business under somewhat less burdensome reserve requirements than those under which new companies are permitted to enter. See X Report of Joint Insurance Investigation Committee (N. Y.) p. 365 (1906). Otherwise the state, having authorized either domestic or foreign companies to engage in the business, would be greatly restricted, perhaps foreclosed, in raising the reserve
Apart from this classification, which is clearly within the state‘s power, the discrimination argument becomes identical with the contention that the state cannot exclude foreign companies, such as the First National Benefit Society, or their agents, from carrying on their business in Californiа for failure to meet her reserve requirements.
This is the crucial contention. It too is without merit. The evils flowing from irresponsible insurers and insurance certainly are not less than those arising from the activities of irresponsible, incompetent or dishonest insurance agents. The two things are concomitant, being merely different facades of the same sepulchre for the investments and security of the public. Cf. Study of Legal Reserve Life Insurance Companies, T. N. E. C. Monograph No. 28, § XV. It would be idle to require licensing of insurance agents, in order to secure honesty and competence, yet to place no restraint upon the kind of insurance to be sold or the kinds of companies allowed to sell it, and then to cover their representatives with their immunity. This could only result in placing domestic and complying foreign insurers at great disadvantage and eventually in nullifying all controls unless or until Congress should take over the regulation.
No such consequence has followed from the South-Eastern decision. It did not wipe out the experience of the states in the regulation of the business of insurance or its effects for the continued validity of that regulation. Much of this was concerned with the activities of so-called foreign insurance companies and, in particular, with re-
It is true that California imposes her reserve standards, for both domestic and foreign insurers, by requiring them to secure a certificate of authority to do business issued upon compliance with those conditions, in other words, by a form of licensing. But we are far beyond the time when, if ever, the word “license” per se was a condemnation of state regulation of interstate business done within the state‘s borders.25 The commerce involved here is not transportation. Nor is it of a sort which touches the state and its people so lightly that local regulation is inappropriate or interferes unreasonably with the commerсe of other states.26 Not the mere fact or form of licensing, but what the license stands for by way of regulation is important.27 So also, it is not simply the fact of prohibition, but what is forbidden and for the protection of what interest, that is determinative. For the commerce clause is not a guaranty of the right to import into a state whatever one may please, absent a prohibition by Congress, regardless of the effects of the importation upon the local community. That is true whether what is brought in
Here California‘s reserve requirements for securing authority to do business cannot be held, either on the face of the statute or by any showing that has been made, to be excessive for the protection of the locаl interest affected; or designed or effective either to discriminate against foreign or interstate insurers or to forbid or exclude their activities, by all who are able and willing to maintain reasonable minimum reserve standards for the protection of policyholders. Exclusion there is, but it is exclusion of what the state has the power to keep out, until Congress speaks otherwise. Every consideration which supports the licensing of agents and brokers, and the authorities we have cited giving effect to those considerations,29 sustain the state‘s requirements in this respect, as do also the decisions which have sustained various measures of exclusion in protection of the public health, safety and security not only from physical harm but from various forms of fraud and imposition.30
It is quite obvious, to repeat only one of those considerations, that if appellant‘s contentions were accepted and foreign insurers were to be held free to disregard California‘s reserve requirements and then to clothe their agents or others acting for them with their immunity, not
We do not intimate that this particular Society‘s insurance is unsound or fraudulent. As to that no showing has been made. We only say that California has imposed its reserve requirements as allowable standards for securing minimum assurance to the state‘s policyholders in respect to performance of their policies by the insurer, not as a mere exclusionary measure in exercise of the power to bar foreign corporations altogether; and that in the absence of compliance the state can exclude the company and its representatives as it did, until Congress makes contrary command. Their remedy is not to destroy the regulatory reserve conditions, but to comply with them.
It follows also that appellant‘s objections founded on the provisions relating to the placing of surplus line insurance with nonadmitted insurers are without merit. Apart from the phase relating to the requirements for obtaining the surplus line broker‘s license, the objection is two-fold. One is that, even if licensed, appellant would be forbidden to place the insurance with a nonadmitted insurer, unless there were no admitted one with which the risk could be written. The other, that in any event the risk could not be placed with the nonadmitted insurer for a less premium than would be accepted by any admitted insurer. The short answer would seem to be that, by the reserve
It remains to say a word concerning the effect of the McCarran Act for this case and the contentions founded on the Fourteenth Amendment.
As for the latter, with respect to due process, the only objection advanced which is independent of commerce clause considerations is that to sustain the state‘s requirements, particularly in so far as they exclude the Society from interstate operations in California and thus also appellant‘s activities in aid of its business, will be in effect to project California‘s laws into other states, here presumably Arizona, and regulate the Society‘s activities there. The contention is obviously without merit. Nothing which California requires touches or affects anything the Society or appellant may do or wish to do in Arizona or elsewhere than in California. Hoopeston Co. v. Cullen, supra.
Likewise the equal protection contention is wholly without substance.32
Our determination has been made without specific reliance upon the McCarran Act for two reasons. One is that this was not necessary. The other arises from the facts that this is a criminal proceeding, the appellant‘s acts held to violate the California statutes were committed in August following rendition of the South-Eastern decision in June of 1944, and the McCarran Act was not approved until March 9, 1945. The effect of that statute we have considered in the Prudential case, ante, p. 408. But that case involved no criminal or penal phase and therefore no conceivable ex post facto effect. It is doubtful that more than the semblance of such an effect would be in-
The judgment is
Affirmed.
MR. JUSTICE JACKSON took no part in the consideration or decision of this case.
MR. JUSTICE DOUGLAS, dissenting in part.
I agree with the Court that the general license requirements which California provides for the insurance agents were constitutional under the decisions of the Court, even prior to the McCarran Act. But prior to that Act California could not under our decisions under the commerce clause exclude an interstate business, at least in absence of a showing that it was a fraudulent enterprise or in an unsound condition. No such showing is made here. The McCarran Act changes that rule; but it should not be allowed to make unlawful what was lawful when done.