# United States v. South-Eastern Underwriters Assn.

> Supreme Court of the United States · June 5, 1944 · 322 U.S. 533

URL: https://www.frixlaw.com/law-library/cases/9419525

## Case

- **Full name:** UNITED STATES v. SOUTH-EASTERN UNDERWRITERS ASSOCIATION Et Al.
- **Court:** Supreme Court of the United States
- **Decided:** June 5, 1944
- **Citations:** 322 U.S. 533; 1944 Trade Cas. (CCH) 57,253; 64 S. Ct. 1162; 88 L. Ed. 1440; 1944 U.S. LEXIS 1199
- **Precedential status:** Published
- **Opinion:** Dissent by Jackson
- **Judges:** Black, Stone, Frankfurter, Jackson, Roberts, Reed
- **Cited by:** 725 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/9419525

## How later opinions describe it (automated extraction)

- finding such characteristics to create "a continuous and indivisible stream of intercourse among the states composed of collections of premiums, payments of policy obligations, and the countless documents and communications which are essential to the negotiation and execution …
- holding __________________________ that transactions may constitute commerce although they do not "concern the flow of anything more tangible than electrons and information"
- holding that insurance business falls within aegis of Commerce Clause because it is marked by, inter alia, collection of premiums and payments of policy obligations
- holding that transactions may constitute commerce although they do not "concern the flow of anything more tangible than electrons and information”
- noting that Commerce Clause power "is a positive power ... to govern affairs which the individual states, with their limited territorial jurisdictions, are not fully capable of governing"

## Opinion text

Mr. Justice Jackson,
dissenting in part:
I.
The historical development of public regulation of insurance underwriting in this country has created a dilemma which confronts this Court today. It demonstrates that “The life of the law has not been logic: it has been experience.”
For one hundred fifty years Congress never has undertaken to regulate the business of insurance. Therefore to give the public any protection against abuses to which that business is peculiarly susceptible the states have had to regulate it. Since 1851 the several states, spurred by necessity and with acquiescence of every branch of the Federal Government, have been building up systems of regulation to discharge this duty toward their inhabitants. 1
There never was doubt of the right of a state to regulate the business of its domestic companies done within the home state. The foreign corporation was the problem. Such insurance interests resisted state regulation and brought a series of cases to this Court. The companies sought to disable the states from regulating them by arguing that insurance business is interstate commerce, an argument almost identical with that now made by the *585 Government. 2 The foreign companies thus sought to vest insurance control exclusively in Congress and to deprive every state of power to exclude them, to regulate them, or to tax them for the privilege of doing business.
The practical and ultimate choice that faced this Court was to say either that insurance was subject to state regulation or that it was subject to no existing regulation at all. The Court consistently sustained the right of the states to represent the public interest in this enterprise. It did so, wisely or unwisely, by resort to the doctrine that insurance is not commerce and hence is unaffected by the grant of power to Congress to regulate commerce among the several states. Each state thus was left free to exclude foreign insurance companies altogether or to admit them to do business on such conditions as it saw fit to impose. The whole structure of insurance regulation and taxation as it exists today has been built upon this assumption. 3
The doctrine that insurance business is not commerce always has been criticized as unrealistic, illogical, and inconsistent with other holdings of the Court. I am unable to make any satisfactory distinction between insurance business as now conducted and other transactions that are held to constitute interstate commerce. 4 Were we con *586 sidering the question for the first time and writing upon a clean slate, I would have no misgivings about holding that insurance business is commerce and where conducted across state lines is interstate commerce and therefore that congressional power to regulate prevails over that of the states. I have little doubt that if the present trend continues federal regulation eventually will supersede that of the states.
The question therefore for me settles down to this: What role ought the judiciary to play in reversing the trend of history and setting the nation's feet on a new path of policy? To answer this I would consider what choices we have in the matter.
II.
The Government claims, and we must approve or reject the claim, that the antitrust laws constitute an exercise of congressional power which reaches the insurance business. That might be true on either of two different bases. The practical as well as the theoretical difference is substantial, as this case will show.
1. If an activity is held to be interstate commerce, Congress has paramount regulatory power. If it acts at all in relation to such a subject, it often has been held that it has “occupied the field” to the exclusion of the states, that the federal legislation defines the full measure of regulation and outside of it the activity is to be free. 5 This Court now is not fully agreed as to the effects of the Commerce Clause on state power, 6 but at least the Court always has considered that if an activity is held to be interstate in character a state may not exclude, burden, or obstruct it, 7 *587 nor impose a license tax on the privilege of carrying it on within the state. 8 The holding of the Court in this case brings insurance within this line of decisions restricting state power.
2. Although an activity is held not to be commerce or not to be interstate in character, Congress nevertheless may reach it to prohibit specific activities in its conduct that substantially burden or restrain interstate commerce. Wickard v. Filburn, 317 U. S. 111 . When this power is exercised by Congress, it impairs state regulation only in so far as it actually conflicts with the federal regulation. Terminal Railroad Association v. Brotherhood of Railroad Trainmen, 318 U. S. 1 . This congressional power to reach activities that are not interstate commerce interferes with state power only in a milder, narrower, and more specific way.
Instead of overruling our repeated decisions that insurance is not commerce, the Court could apply to this case the principle that even if it is not commerce the antitrust laws prohibit its manipulation to restrain interstate commerce, just as we hold that the National Labor Relations Act prohibits insurance companies, even if not in commerce, from engaging in unfair labor practices which affect commerce. Polish Alliance v. Labor Board, post, p. 643. This would require the Government to show that any acts it sought to punish affect something more than insurance and substantially affect interstate transportation or interstate commerce in some commodity. Whatever problems of reconciliation between state and federal authority this would present — and it would not avoid them all — it would leave the basis of state regulation unimpaired.
The principles of decision that I would apply to this case are neither novel nor complicated and may be shortly put:
1. As a matter of fact, modem insurance business, as *588 usually conducted, is commerce; and where it is conducted across state lines, it is in fact interstate commerce.
2. In contemplation of law, however, insurance has acquired an established doctrinal status not based on present-day facts. For constitutional purposes a fiction has been established, and long acted upon by the Court, the states, and the Congress, that insurance is not commerce.
3. So long as Congress acquiesces, this Court should adhere to this carefully considered and frequently reiterated rule which sustains the traditional regulation and taxation of insurance companies by the states.
4. Any enactment by Congress either of partial or of comprehensive regulations of the insurance business would come to us with the most forceful presumption of constitutional validity. The fiction that insurance is not commerce could not be sustained against such a presumption, for resort to the facts would support the presumption in favor of the congressional action. The fiction therefore must yield to congressional action and continues only at the sufferance of Congress.
5. Congress also may, without exerting its full regulatory powers over the subject, and without challenging the basis or supplanting the details of state regulation, enact prohibitions of any acts in pursuit of the insurance business which substantially affect or unduly burden or restrain interstate commerce.
6. The antitrust laws should be construed to reach the business of insurance and those who are engaged in it only under the latter congressional power. This does not require a change in the doctrine that insurance is not commerce. The statute as thus construed would authorize prosecution of all combinations in the course of insurance business to commit acts not required or authorized by state law, such as intimidation, disparagement, or coer *589 cion, if they unreasonably restrain interstate commerce in commodities or interstate transportation. 9 It would leave state regulation intact.
III.
The majority of the sitting Justices insist that we follow the more drastic course. Abstract logic may support them, but the common sense and wisdom of the situation seem opposed. It may be said that practical consequences are no concern of a court, that it should confine itself to legal theory. Of course, in cases where a constitutional provision or a congressional statute is clear and mandatory, its wisdom is not for us. But the Court now is not following, it is overruling, an unequivocal line of authority reaching over many years. We are not sustaining an act of Congress against attack on its constitutionality, we are making unprecedented use of the Act to strike down the constitutional basis of state regulation. I think we not only are free, but are duty bound, to consider practical consequences of such a revision of constitutional theory. This Court only recently recognized that certain former decisions as to the dividing line between state and federal power were illogical and theoretically wrong, but at the same time it announced that it would adhere to them because both governments had accommodated the structure of their laws to the error. Davis v. Department of Labor, 317 U. S. 249, 255 . It seemed a common-sense course to follow then, and I think similar considerations should restrain us from following a contrary and destructive course now.
*590 The states began nearly a century ago to regulate insurance, and state regulation, while no doubt of uneven quality, today is a successful going concern. Several of the states, where the greatest volume of business is transacted, have rigorous and enlightened legislation, with enforcement and supervision in the hands of experienced and competent officials. Such state departments, through trial and error, have accumulated that body of institutional experience and wisdom so indispensable to good administration. The Court’s decision at very least will require an extensive overhauling of state legislation relating to taxation and supervision. The whole legal basis will have to be reconsidered. What will be irretrievably lost and what may be salvaged no one now can say, and it will take a generation of litigation to determine. Certainly the states lose very important controls and very considerable revenues. 10
The recklessness of such a course is emphasized when we consider that Congress has not one line of legislation deliberately designed to take over federal responsibility for this important and complicated enterprise. 11 There is no federal department or personnel with national experience *591 in the subject on which Congress can call for counsel in framing regulatory legislation. A poorer time to thrust upon Congress the necessity for framing a plan for nationalization of insurance control would be hard to find.
Moreover, we have not a hint from Congress that it concurs in the plan to federalize responsibility for insurance supervision. Indeed, every indication is to the contrary. 12 *592 It was urged to do so by one President, 13 and by the insurance companies. 14 The decisions of this Court confirming state power over insurance have been paralleled by a history of congressional refusal to extend federal authority into the field, 15 although no decision ever has explicitly denied the power to do so.
*593 . The orderly way to nationalize insurance supervision, if it be desirable, is not by court decision but through legislation. Judicial decision operates on the states and the industry retroactively. We cannot anticipate, and more than likely we could not agree, what consequences upon tax liabilities, refunds, liabilities under state law to states or to individuals, and even criminal liabilities will follow this decision. Such practical considerations years ago deterred the Court from changing its doctrine as to insurance. 16 Congress, on the other hand, if it thinks the time has come to take insurance regulation into the federal system, may formulate and announce the whole scope and effect of its action in advance, fix a future effective date, and avoid all the confusion, surprise, and injustice which will be caused by the action of the Court. 17
*594 A judgment as to when the evil of a decisional error exceeds the evil of an innovation must be based on very practical and in part upon policy considerations. When, as in this problem, such practical and political judgments can be made by the political branches of the Government, it is the part of wisdom and self-restraint and good government for courts to leave the initiative to Congress.
Moreover, this is the method of responsible democratic government. To force the hand of Congress is no more *595 the proper function of the judiciary than to tie the hands of Congress. To use my office, at a time like this, and with so little justification in necessity, to dislocate the functions and revenues of the states 18 and to catapult Congress into immediate and undivided responsibility for supervision of the nation’s insurance businesses is more than I can reconcile with my view of the function of this Court in our society.
Insurance commissions were established by New Hampshire in 1851 (N. H. Laws 1851, c. 1111); by Massachusetts in 1852 (Mass. Laws 1852, c. 231); by Rhode Island in 1855 (R. I. Laws, October 1854, p. 17, § 17). By 1890, when the Sherman Act became law, seventeen states had established supervisory authorities. Patterson, The Insurance Commissioner in the United States (1927), p. 536, n. 62.
See particularly argument of New York Life Insurance Company in New York Life Ins. Co. v. Deer Lodge County, 231 U. S. 495, 496 (1913), and that for Paul in Paul v. Virginia, 8 Wall. 168 (1868).
Paul v. Virginia, 8 Wall. 168, 183 (1868); Hooper v. California, 155 U. S. 648, 655 (1895); Noble v. Mitchell, 164 U. S. 367, 370 (1896); New York Life Ins. Co. v. Cravens, 178 U. S. 389, 401 (1900); New York Life Ins. Co. v. Deer Lodge County, 231 U. S. 495 (1913); Bothwell v. Buckbee, Hears Co., 275 U. S. 274 ; Ducat v. Chicago, 10 Wall. 410 ; Liverpool Insurance Co. v. Massachusetts, 10 Wall. 566 ; Philadelphia Fire Assn. v. New York, 119 U. S. 110 ; Nutting v. Massachusetts, 183 U. S. 553 ; Northwestern Mutual Life Ins. Co. v. Wisconsin, 247 U. S. 132 .
E. g., Champion v. Ames, 188 U. S. 321 (Idttery tickets); Electric Bond & Share Co. v. Securities & Exchange Comm’n, 303 U. S. 419 (holding companies).
E. g., Pennsylvania R. Co. v. Public Service Comm’n, 250 U. S. 566 .
McCarroll v. Dixie Greyhound Lines, 309 U. S. 176 ; Duckworth v. Arkansas, 314 U. S. 390 .
Furst v. Brewster, 282 U. S. 493 , and cases cited.
Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203 ; Cudahy Packing Co. v. Hinkle, 278 U. S. 460 .
The Government contends that at least Count One of the present indictment conforms to this interpretation of the antitrust laws. Under the Criminal Appeals Act we have no jurisdiction to construe or reconstrue the indictment. My view would require remand to the District Court or the Circuit Court of Appeals for consideration in the light of our opinion.
In 1943, gross premiums taxes on insurance companies yielded 40 states an aggregate of $96,108,000 and the remaining eight an estimated $26,892,000, making a total of $123,000,000. State Tax Collections in 1943, pamphlet published by Bureau of the Census, p. 8.
It is impossible to believe that Congress, if it ever intended to assume responsibility for general regulation of insurance, would have made the antitrust laws the sole manifestation of its purpose. Its only command is to refrain from restraints of trade. Intelligent insurance regulation goes much further. It requires careful supervision to ascertain and protect solvency, regulation which may be inconsistent with unbridled rate competition. It prescribes some provisions of policies of insurance and many other matters beyond the scope of the Sherman Act.
Also it requires sanctions for obedience far more effective than the $5,000 maximum fine on corporations prescribed by the antitrust laws. Violation of state laws are commonly punishable by cancellation of *591 permission to do business therein — a drastic sanction that really commands respect.
The antitrust law sanctions are little better than absurd when applied to huge corporations engaged in great enterprise. In the two related Madison Oil cases (see United States v. Socony-Vacuum Oil Co., 310 U. S. 150 ) fifteen of the seventeen corporations convicted had combined capital and surplus reported to be $2,833,516,247. The total corporate fines on them were $255,000, making a ratio of fines to corporate capital and surplus of less than %oo of 1 per cent. In addition, fines of $180,000 were assessed against individuals. In the automobile financing case (see United States v. General Motors Corp., 121 F. 2d 376 , cert. denied, 314 U. S. 618 ) General Motors Corporation, three wholly owned subsidiaries and no individuals were convicted. The fines were $20,000. Capital and surplus were then reported at $1,047,840,321, the fine being somewhat less than Vsoo of 1 per cent thereof.
In each case the corporate fines were $5,000, the maximum permitted by the statute. 15 TJ. S. C. § 1.
The last agency to investigate insurance problems was the Temporary National Economic Committee. It made no recommendation of federal control. Its chairman, Senator O’Mahoney, after reviewing carefully the problems caused by the concentration of economic power in the hands of the insurance companies and the abuses of the business, said: “Therefore I say again that personally I would not support any law that would undertake to do away with state regulation of insurance, and there never has been suggested to me or to any member of the TNEC or to the committee as a whole any thought of doing away with state regulation or imposing federal supervision.” 26 American Bar Association Journal 913. Both dominant political parties have supported the present system. In 1940, the Democratic platform contained this provision: “We favor strict supervision of all forms of the insurance business by the several States for the protection of policyholders and the public.” The Republican platform of that *592 year contained this provision: “We favor a continuance of regulation of insurance by the several States.”
President Theodore Roosevelt twice recommended that Congress assume control of insurance. Message of December 6, 1904, 39 Cong. Rec. 12, and Message of December 5, 1905, 40 Cong. Rec. 95.
See Insurance Blue Book (Centennial Issue, 1876) Ch. VI, Fire Insurance, p. 32.
In 1866, a bill was introduced in the House, providing for creation of a national bureau of insurance in the Treasury Department. It was not passed. H. R. 738, 39th Cong., 1st Sess.
In 1868, a bill was introduced in the Senate proposing a national bureau of insurance, but never1 passed. S. 299,40th Cong., 2d Sess.
In 1892, a bill was introduced in the House creating the office of Commissioner of Insurance. It was never reported out of committee. H. R. 9629,52d Cong., 1st Sess.
In 1897, a bill was introduced in the Senate to declare that insurance companies doing business outside of the states of their incorporation were to be deemed to be engaged in interstate commerce. It was not reported out of committee. S. 2736, 55th Cong., 2d Sess.
After President Roosevelt’s recommendation of 1904, Senator Dryden introduced a bill in the Senate to establish a bureau of insurance in the Department of Commerce. The bill died in committee. S. 7277, 58th Cong., 3d Sess.
After President Roosevelt’s second recommendation, the House Judiciary Committee reported that Congress had no power to regulate insurance, and said: “The views of the Supreme Court have practically met the approval of the bar and business men of the United States as being in accordance with law and common sense.” H. R. Rep. 2491, 59th Cong., 1st Sess., March 23,1906, p. 14.
The Senate Committee on the Judiciary made a similar report. Sen.' Rep. 4406, 59th Cong., 1st Sess., 1906.
In 1914^15, resolutions were introduced in both the House and the Senate proposing an amendment to the Constitution to the effect that Congress should have power to regulate the business or commerce of *593 insurance throughout the United States and its territories or possessions. The resolutions were not reported out of the Judiciary Committee. S. J. Res. 103, 63d Cong., 2d Sess.; H. J. Res. 194, 63d Cong., 2d Sess.; S. J. Res. 58, 64th Cong., 1st Sess.
In 1933, a resolution was introduced for a similar constitutional amendment which died in committee. S. J. Res. 51, 73d Cong., 1st Sess.
Moreover, by exceptions and exemptions Congress has indicated a clear intent to avoid interference with state supervision. Insurance corporations are excepted from those who may become bankrupts. 11 U. S. C. § 22 . Insurance issued by any issuer under state supervision is exempted from the Securities Act. 15 U. S. C. § 77c (a) (8). Insurance companies supervised by state authority are exempted from regulation as investment companies. 15 U. S. C. §§ 80a-2 (a) (17) and80a-3 (c) (3).
In New York Life Ins. Co. v. Deer Lodge County, 231 U. S. 495, 502 , the Court said: “To reverse the cases, therefore, would require us to promulgate a new rule of constitutional inhibition upon the States and which would compel a change of their policy and a readjustment of their laws. Such result necessarily urges against a change of decision.”
In resisting pressure to federalize insurance supervision Congress has followed the advice of some of the best informed champions of *594 the public interest on insurance problems. One was Louis D. Brandéis. Speaking as counsel for the Protective Committee of Policy-holders in the Equitable Life Assurance Society, before the Commercial Club of Boston, on October 26, 1905, Mr. Brandéis said:
“The sole effect of a Federal law would be — the sole purpose of the Dryden bill [see note 15, supra] must have been — to free the companies from the careful scrutiny of the commissioners of some of the States. It seeks to rob the State even of the right to protect its own citizens from the legalized robbery to which present insurance measures subject the citizens, for by the terms of the bill a Federal license would secure the right to do business within the borders of the State, regardless of the State prohibitions, free from the State’s protective regulations. With a frankness which is unusual — and an effrontery which is common — among the insurance magnates — this bill is introduced in the Senate by John F. Dryden, the president of the Prudential Life Insurance Company — the company which pays to stockholders annual dividends equivalent to 219.78 per cent, for each dollar paid in on the stock; the company which devotes itself mainly to insuring the working men at an expense of over 37.28 cents on every dollar of premiums paid; the company which, in 1904, made the worst record of lapsed and surrendered industrial policies. . . .
“Federal supervision is also advocated by Mr. James M. Beck (formerly Assistant Attorney General of the United States), the counsel for the Mutual Life Insurance Company, and his main argument against State supervision appears to be that the companies pay, in the aggregate, for fees and taxes in the several States $10,000,000, which he says is twice as much as is necessary to cover the expense of proper supervision. Ten million dollars is a large sum in itself, but a very small one compared with the aggregate assets or the aggregate *595 expense of management. Mr. Beck’s company paid in 1904 $1,138,663 in taxes and fees. Its management expenses were $15,517,520, or nearly fourteen times as much. Our Massachusetts savings banks paid in the year ending October 31, 1904, $1,627,794.46 in taxes to this Commonwealth: that is $80,890.02 more than the whole expense of management, which was $1,546,904.44.
“Doubtless the insurance departments of some States are subjects for just criticism. In many of the States the department is inefficient, in some doubtless corrupt. But is there anything in our experience of Federal supervision of other departments of business which should lead us to assume that it will be freer from grounds of criticism or on the whole more efficient than the best insurance department of any of the States? For it must be remembered that an efficient supervision by the department of any State will in effect protect all the policyholders of the company wherever they may reside. Let us remember rather the ineffectiveness for eighteen long years of the Interstate Commerce Commission to deal with railroad abuses, the futile investigation by Commissioner Garfield of the Beef Trust, and the unfinished investigation into the affairs of the Oil Trust in which he has since been engaged. Federal supervision would serve only to centralize still further the power of our Government and to increase still further the powers of the corporations.”
Mr. Justice Brandéis for a unanimous Court wrote, in Bothwell v. Buckbee, Mears Co., 275 U. S. 274, 276 (1927): “A contract of insurance, although made with a corporation having its office in a State other than that in which the insured resides and in which the interest insured is located, is not interstate commerce.” He joined in other similar decisions in Northwestern Mutual Life Ins. Co. v. Wisconsin, 247 U. S. 132 ; National Union Fire Ins. Co. v. Wanberg, 260 U. S. 71 .
Thirty-five states of the Union have filed amicus curiae briefs with us, protesting against the decision which the Court is promulgating.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9419525. Public record. Not legal advice.