# German Alliance Insurance v. Lewis

> Supreme Court of the United States · April 20, 1914 · 233 U.S. 389

URL: https://www.frixlaw.com/law-library/cases/9418251

## Case

- **Full name:** German Alliance Insurance Company v. Lewis, Superintendent of Insurance of the State of Kansas
- **Court:** Supreme Court of the United States
- **Decided:** April 20, 1914
- **Citations:** 233 U.S. 389; 34 S. Ct. 612; 58 L. Ed. 1011; 1914 U.S. LEXIS 1237
- **Precedential status:** Published
- **Opinion:** Dissent by Lamar
- **Judges:** McKenna, Lamar, Lurton, Van Devanter
- **Cited by:** 351 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9418251

## How later opinions describe it (automated extraction)

- affirming state regulation of fire in- surance rates

## Opinion text

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 *419 ing the safety or morals of the public. It presents no question of monopoly in a prime necessity of life, but relates solely to the power of the State to fix the price of a strictly personal contract; The court holds that fire insurance though personal is affected with a public interest and therefore, that the business may not only be regulated but that the premium or price to be paid to the insurer for entering into that personal contract can be fixed by law.
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 4>f 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 pricé to be paid for any service or the use of any property can be regiilated 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 thig 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 *420 and the intangible character of its contracts are such as to indicate the far-reaching effect of the principle announced, and warrants a statement of some of the grounds of dissent.
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 hot 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 óf 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. 1 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 *421 to pass bills of attainder, to take properly for private purposes and to take it without due process of law, many statutes approaching that now under review were adopted and enforced. Acts were passed by Parliament fixing the price of many commodities that were convenient or useful. These laws did not stop at fixing the price of property, but, like the present act they fixed the price of private contracts, and, by statute prescribed the rate of wages, and made it unlawful for the employé to receive or for the employer to give more than the wage fixed by, law. It is needless to say that these laws were felt to be an infringement upon the rights of men; that they were bitterly resisted by buyer and seller, by employer and employe, and were a source of perpetual irritation often leading to violence. But the fact that the English Parliament had the arbitrary power to pass such statutes made them valid in law, though they were in violation of the inherent rights of individual. In time, the great injustice in this, was so far recognized that these laws, fixing the price of strictly private contracts, seem to have been repealed, and Lord Ellenborough, while enforcing, as proper, a rate for public wharfs, was able to say, in Allnutt v. Inglis, 12 East, 527, 538, “that the general principle is favored both in law and justice, that every man may fix what price he pleases for his own property or the use of it.” But what was a favor in England, that might at any time be withdrawn, was in this country made a constitutional right that could not be withdrawn. For although the practice of fixing prices may have prevailed in some of the Colonies “up to the time of independence,” yet, as Judge Cooley says, since independence “it has been commonly supposed that a general power in the State to regulate prices was inconsistent with constitutional liberty.” Cooley’s Const. Law (7th ed.) 807; Stickney’s State Control of Trade, p. 3 and the abstract of English price-fixing statutes, p. 9 et seq. That common supposition is rightly' founded on the fact *422 that the Constitution recognizes the liberty to contract and right of private property. They include not only the right to make contracts with which to acquire property, but the right to fix the price of its use while it is held, and the further right to fix the price if it is to be sold. To deprive any person of either is to take property, since there can be no liberty of contract and true private ownership if the price of its use or its sale is fixed by law. That right is an attribute of ownership. State Tax Case, 15 Wall. 232, 278 , top.
But it may be said that, though insurance is á 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 *423 its magnitude or by the faet that more policies and for greater amounts are now written than in the centuries during which no effort has ever before been made to fix their rates. It is, however, undoubtedly true that during all of that period regulatory statutes were, from time to time, adopted to protect the public against conditions and practices which were subject to regulation. The public had no means of knowing whether these corporations were solvent or not, and statutes were passed to require a publication of the financial condition. The policies were long and complicated, with exceptions, and qualifications, and provisos. They were often unread by the policyholder and sometimes not understood when read. Statutes were accordingly passed providing for a standard form of policy in order to protect the assured against his inexperience, to prevent hard bargains, and to avoid vexatious litigation, and as similar evils appear they may be dealt with by regulatory or prohibitory legislation just as statutes were passed and can still be passed to punish combinations, pooling arrangements, and all those practices which amount to unfair competition.
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 *424 regulated, the price charged by all can be regulated. Or if great size is the test, if the number of customers is the test, if the scope of the business throughout the nation is the test, if the contributions of the many to the value of the business is the test — or if it takes a combination of all to meet the condition, — then every business with great capital and many customers distributed throughout the country and making a large business possible, must be treated as affected with a public interest, and the price of the goods on its shelves can be fixed by law. Then could the price of newspapers, magazines and the like be fixed, because certainly nothing is more affected with a public interest, nothing is so dependent on the public, nothing reaches so many persons and so profoundly affects public thought and public business. Such a business is, indeed, affected with a public interest, — justifying regulation (Lewis Publishing Co. v. Morgan, 229 U. S. 288 ), but not the fixing of the price of the paper or periodical or the rates of advertising. For great and pervasive as is the power to regulate, it cannot override the constitutional principle that private property cannot be taken for private purposes. Missouri Pacific v. Nebraska, 164 U. S. 403 . That limitation on the power of government over the individual and his property cannot be avoided by calling an unlawful taking a reasonable regulation. Indeed, the protection of property is an incident of the more fundamental and important right of liberty guaranteed by the Constitution and which entitled the - citizen freely to en-. gage in any honest calling and to make contracts as buyer or seller, as employer or employé, in order to support himself and family.
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 *425 as an authoritative and accurate statement of the principle on which the right to fix rates is based. .But the statute there under review did not undertake to fix the price of a personal contract, but to fix the price for the use of property, once private, but then public. The reasoning of the court clearly shows that in order to regulate rates, two things must concur — (1.) the business must be affected with a public interest; and (2) the property employed in such business must be devoted to a public use. The basic principle of the decision was the oft quoted saying of Lord Hale that “when private property is affected with a public interest, it ceases to be juris privati only.” The decision in the Munn Case was but an application of that terse statement and. was applied in a case where the elevators had been devoted to a public use. This will distinctly appear from the statement by the court of the question involved and decided. For after reviewing and applying Lord Hale’s pithy saying and reviewing the other authorities the court said (italics ours):
“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 *426 booms; bridges and ferries; wharves, docks, elevators and stockyards; telegraph, telephone, electric, gas and oil lines; turnpikes, railroads and the various forms of common carriers, including express and cabs. To this should be added the. case of the inn-keeper (as to which no American case has been found where the constitutional question as to the right to fix his rates has been considered), the confessedly close case of the irrigation ditches for distributing water ( 189 U. S. 439 ), and the toll mill acts. This of course does not include the case of condemnation for governmental purposes or for roads and ways where no question of rates is involved. There may be other instances not found, but it is believed that the foregoing numeration exhausts the list of what has heretofore been treated as a public business justifying the exercise of the price-fixing power against persons or corporations:
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.
*427 . When thus enumerated, they appear to be grouped around the common carrier as the typical public business and all employing in some way property devoted to a public use.
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., 138 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:
*428 ‘“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 *429 convicted of arson. But if an insurance company is indeed public it is bound to insure the property of the man who is suspected of having set fire to his own house, or whose statements of value it is unwilling to take. This is manifestly inconsistent with the contract of insurance which requires the utmost good faith, not only in making truthful answers to questions asked, but in not concealing anything material to the risk. If the company has the discretion to insure or the right to refuse "to insure,'then, by the very definition of the terms, it is not a public business. If, on the other hand, the company is obliged to insure bad risks or the property of men of bad character, of doubtful veracity or known to be careless in their handling of property the law would be an arbitrary exertion of power in compelling men to enter into contract with persons with whom they did not choose to deal where confidence is the very foundation óf a contract of indemnity. Indeed, it seems to be conceded that a person owning property is not entitled to demand insurance as a matter of right. If not, the business is not public and not within the provision of the Constitution which only authorize» the taking of property for public purposes — whether the taking be of the fee for a lump sum assessed in condemnation proceedings, or whether the use be taken by rate-regulation, which is but another" method of exercising the same power.
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 *430 gate business of all the companies doing business within the State and beyond its borders. If that test be applied, and if the sum of the units is to determine whether or not a business is affected with a public interest (which is said to be the equivalent of a public use), then if the principle of the decision be applied to the business of farming all can see to what end it leads. In view of the. amount of property employed and the aggregate number of persons engaged in agriculture and the public’s absolute dependence upon .that pursuit, it would follow that, farming being affected with a broad and definite public interest, the price of wheat and corn; cotton and wools; beef, pork, mutton and poultry; fruit and vegetables, could be fixed. Or if we take the aggregate of those who labor and consider the public’s absolute dependence upon labor, it would inevitably follow, that it, too, was affected with a broad and definite public interest and that wages in the United States of America in this Twentieth Century could be fixed bylaw, just as in England between the 14th and 18th centuries. And- inasmuch as the prices of agricultural products are dependent on the price of land and labor, and as the price of labor is closely related to the cost of rent and food and clothes and the comforts of life, there would be the power to take the further step and regulate the cost of everything which enters into the cost of living. Of course, it goes without saying that if the rates for fire insurance can be fixed, then the rates for life and marine insurance can be fixed. By a parity of reasoning the rates of accident, guaranty and fidelity insurance could also be regulated. There seems no escape from the conclusion that the asserted power to fix the price to be paid by one private -person to another private person or private corporation for a private contract of indemnity, or for his product, or his labor, or for his private contracts of any sort, will become the center of a circle of price-making legislation that, in its application, will destroy the right of *431 private property and break down the barriers which the Constitution has thrown around the citizen to protect him in his right of property — which includes his right of contract to make property, his right to fix the price at which his property shall be used by another. By virtue of the liberty which is guaranteed by the Constitution, he also has the right to name the wage for his labor and to fix the terms of contracts of indemnity, — whether they be contracts of endorsement or suretyship, or contracts of indemnity against loss by fire, flood, or accident.
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 *432 to regulate is limited by the constitutional prohibition against the taking of private property. Guillotte v. New Orleans, 12 La. Aim. 432, is the only American casé found which sustains the right to fix prices for other than a commodity or service furnished by a public utility company of the kind already pointed out. . In that case the court said that the city could fix the price of bread and that if the baker did not desire to do business within the limits of such city he could go elsewhere. That reasoning, would support any statute, for every citizen at least has the right to go out of business. But it has been repeatedly held by this court that such an answer cannot sustain an invalid statute, the Constitution being intended to secure the citizen against being driven out of business by an unconstitutional statute or regulation.
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 jnevalent 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 *433 quiescence and settled usage that sustains a usury law also sustains the right of the contracting parties to agree upon the charge for insurance. For centuries before the Constitution, and continuously ever since they have themselves fixed this charge, and this makes most strongly in favor of their right to continue to agree upon the price of a private contract of indemnity against loss by fire.
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. General Statutes of Kansas (1909), §§ 4086, 4091, 4122. And if it could be true that the legislature could fix the price of insurance it would seem to be doubly necessary that all doing an insurance business should be treated alike. There is no difference in principle and none by statute in the character of the contract, whether it is made by one man, or the Lloyds, or a corporation. There is no difference in the character of the contract made by a stock company and a mutual company. In each instance the contract is one of indemnity against loss for a fixed premium. If the policy-holder is a stockholder in an ordinary corporation, he may get back somé of his premium by way of dividends; if he is a member of a mutual company, he pays his premium and gets back his share of the earnings. But to say that the State may fix the price to be charged for insurance by a stock company and that it will not fix the price to be charged by mutual companies or by the Lloyds, who do an enormous business of exactly the same nature on exactly *434 the same sort of property and on exactly the same terms, is to make a discrimination which amounts to a denial of the equal protection of the law.
The Chief Justice and Mr. Justice Van Devanter concur in this dissent.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9418251. Public record. Not legal advice.