Amicus Curiae Brief On Behalf of the State of Texas — New Orleans Insurance Exchange v. United States

; bes- Supreme Coed. US.

5 FILED:

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FREE — ay. „.

9 r uα vant JOHN I. PEY, !

Supreme Court of the United States

OCTOBER TERM, 1957

No. 399

NEW ORLEANS INSURANCE EXCHANGE,

2 Appellant

a, S&S, ,

UNITED STATES OF AMERICA, .

0 _ Appellee

On Appeal from the United States District Court for the

ö Eastern Division of Louisiana, New Orleans Division

_ + «AMICUS CURIAE BRIEF

ON BEHALF OF THE STATE OF TEXAS

“WILL WILSON

Attorney General

‘State of Texas

C. k. RICHARDS

Assistant Attorney General

OE A A

4 0

its brief as amicus curia

2

| Supreme Court of the Anited States

OCTOBER. TERM, 1957

>

~~ wr 3 7

No. 399

NEW ORLEANS INSURANCE EXCHANGE,

pe 5 *

a .

UNITED STATES OF AMERICA,

Ret Ales.

On Appeal from the United States District Court for the

Eastern Division of Louisiana, New Orleans Division

*

AMICUS CURIAE BRIEF

ON BEHALF OF THE STATE OF TEXAS —

*

a

To The Honorable Supreme Court of The United States:

The State of Texas, acting by and through Will

Wilson, its Attorney Gen ral, respectfully submits

‘ upon the question as to

whether the taxation and regulation of the business

of insurance is subject to State control where a state,

1

such as Texas, has acted in accordance with the au-

thority délegated to it by the Congress in the MeCar-

ran-Ferguson Act, 15 U.S.C. 1011-1015.

The State of Texas is gravely concerned as to

whether its State Board of Insurance and Commis-

sioner of Insurance may regulate the insurance busi-

ness of Texas in accordance with the comprehensive

Insurance Code of Texas, guided by the opinions of

the Attorney General of Texas interpreting. its pro-

visions, or whether such regulation may be continued

without interference by the Federal Government

only if conducted-in accordance with the views of the

Antitrust Division of the Department of Justice.

Texas has anti-trust laws as comprehensive as those

of the Federal Government.’ The Attorney General

of Texas and the District and County Attorneys of

Texas are charged with the enforcement of its anti-

trust laws’ and all citizens of the State have recourse

to such laws for actual and exemplary. damages for

injury resulting from any violation of the anti-trust

laws of Texas.“ ae

There now exists 2n uncertainty as to whether the

- decision in Miley v. John Hancock Mutual Life In-

The anti-trust laws of Texas, both civil and criminal,

are set forth verbatim in the Appendix to this brief.

The Attorney General of Texas has vigorously prosecut-

ed violations of the anti-trust laws. A few examples are:

State v. Standard Oil Co. 130 Tex. 313, 107 S. W. 2d 550

(Sup. Ct. 1937) ; Ford Motor Co. v. State. 142 Tex. 5, 175

S. W. 2d 230 (Sup. Ct. 1943); Arkansas Fuel Oil Co. et al

v. State, 154 Tex. 573, 280 S.W. 2d 723 (Sup. Ct. 1955) ;

State v. Swift and Co., 187 S.W..2d 127 (Civ. App., error

refused 1945). a oer .

Cline v. Insurance Exchange of Houston, 140 Tex. 175,

166 S. W. 2d 677 (Sup. Ct. 1943). ake

| —3.—

surance Co., et al., 148 F. Supp. 299, aff. 242 F. 2d

758, cert. den. Oetober 14, 1957, correctly declares the

law in holding that in view of the McCarren-Fergu-

son Act, Federal regulation is precluded in States

which, like Texas, have comprehensive and complete

laws regulating the insurance business, together

with anti-trust laws with sweeping prohibitions

against agreements cr combinations in restraint of

trade. fe 1

The State Board of Insurance of Texas determines

and fixes proper rates of premiums which must be

adhered to in insuring motor vehicles and workmen’s

compensation insurance risks, If insurance com-

panies and agents fail to adhere to.such fixed rates

: they are in violation of State law. Insurance com-

panies may enforce rates with respect to fire r.

allied lines and surety bonds only when such

have been duly filed with and approved by the Bo any

In addition, policy contracts for fire and allied lines,

workmen’s compensation insurance, motor vehicle

and surety bonds must be written on the policy con-

tract forms prescribed by the Board. Even in the

field of health and accident insurance there are num- _ .

erous compulsory provisions which must be inserted

in each policy contract. , 3

The State of Texas is submitting, in connection

with this brief, copies of the Texas Insurance Code

(1957 Ed.) which is published by the State Board of

Insurance. This Honorable Court will note that the

printed Code is a book containing 444 pages of laws

applicable to the business of insurance, exclusive of

the anti-trust laws. For ready reference a list of

8

some of the articles pertaining to rate and policy

form control are shown below.‘ 5

Articles 1.04 (b) (e) and 1. 10 set forth the duties

of the State Board of Insurance and the Commission-

er of Insurance. A casual reading of these articles

discloses that the Board and the Commissioner have

sweeping control of insurance companies as to

whether they should be permitted to transact busi-

ness within the State of Texas, including the right to

suspend the entire business of any company within

the State which is found to be in .. . non-compli-

ance with any provision of the laws relative to in-

surance...” The Board and the Commissioner

have not only very broad power in the control of rates

and policy forms but also like eontrol in determing’

- whether insurance companies have proper reserves,

‘impairment of surplus, etc. In addition, the Board

and.the Commissioner are required to report to the

Attorney General of the State any violations of law

which may be discovered in the exercise of the com-

prehensive control of the insurance business. |

Articles 2.01, et seq., give the Board and the Com-

missioner exclusive control over the incorporation of

insurance companies, including the determination as

Art. 5.01. Board required” to fix motor vehicle rates

(p. 95); Art. 5.06. Board required to prescribe Motor

vehicle policy forms. Approyal by endorsements required.

(p. 97). Art. 5.15. Fidelity, Guaranty and Surety bond

rates must have Board approval based on factors specified

dy law. (p. 100) Arts. 5.25 and 5.26.. Maximum rates fixed

for fire insurance with deviation below fixed rates under

certain ‘conditions. (p. 105). Art 5.35. Board prescribes

uniform fire policies which all companies must use. (p.

110). Art. 5.55. Workmen’s compensation rates fixed by

Board. (p. 119). Art. 5.56. All companies required to use

uniform -policy forms prescribed by Board. (p. 120).

to whether such companies are properly qualified to

continue in business, how dividends shall be paid, and

all other matters in the conduct of their business.

Likewise, foreign or out-of-state companies must ob-

tain permits to do business in Texas and subject

themselves to the same requirements as domestie

companies, which includes control 3s to reserves, in-

vestments, and ownership of real estate. Articles

5.68, et seq., set forth the provisions of the Penal

Code of Texas which pertain only to insurance busi-

ness. It will be ngted that penalties are provided for

any failure to obey the insurance laws and regula-

tions issued by the Board and the Commissioner. The

penal provisions are in addition to the anti-trust

laws of Texas noted above.

There now exists a great uncertainty and eonfu-

sion as to whether the Board of Insurance and the

Commissioner of Insurance, together with the At-

torney General of Texas, may determine finally

whether the insurance business is being properly

transacted in the State of Texas, and whether the in-

surance laws of Texas and regulations promulgated

pursuant thereto can be enforced in accordance with.

the interpretation of such laws by the Board and

Commissioner and the Attorney General of Texas

without interference by the Antitrust Division of the

Department of Justice. N

The McCarran-Ferguson Act undoubtedly was

the result of congressional effort to return to the

4

states the regulation and taxation of the insurance

business (provided they had comprehensive, ade-

' quate’ statutory regulation) as a result of United

‘State v. South-Eastern Underwriters Association,

322 U.S. 533 (1944). The effirmance of Miley v.

6

/ *

: ——

John Hancock Mutual Life Insurance Co., 148 F.

Supp. 299, aff. 242 F. 2d 758, cert. den. October 14,

1957, apparently declared the law to be that states

which, like Massachusetts and. Texas, had compre-

hensive insurance regulation, would be premitted to

enforce their laws without interference from the

Department of Justice. However, affirmance of the

New Orleans Insurance Exchange case, 148 F. Supp.

915, seems to be squarely in conflict with the views

expressed in the Miley case.

The State of Texas is now confronted with this

realistic problem. The State Board of Insurance fix-

es rates with respect to certain lines of insurance and

different rates may be applied to certain other lines

only after approval by: the Board. The Attorney

General of Texas will prosecute vigorously any com-

pany which fails or refuses to comply with the rates

provided by law: The question is: After the State

of Texas, through its State Board of Insurance and

the Attorney General, enforces rates and other regu-

_ lations of the insurance business, will those who com-

ply with such compulsory regulation be prosecuted

by the Antitrust Division of the Department of Jus-

‘tice as in the South-Eastern case?

The State of Texas, through its Attorneys General, 5

has for many years enforced the provisions of its

anti-trust laws in the case of insurance companies.

At the time of the enactment of the anti-trust laws

in 1889 the business of insurance was not specifically

named in the statutory provisions. In 1893 the Su-

preme Court of Texas, in Queen Insurance Company

v. State ex rel Attorney General, 86 Tex. 250, 24 S.W.

397, so held, and in 1903 amendatory legislation pro-

vided for prosecution of anti-trust violations by in-

a

surance companies. Griffin v. Palatine Insurance

~— Go, 238 S. W. 637 (Comm. App. 1922). oa

Although the laws of Texas provide specifically for

prosecution i in the case of boycotts (Art: 7428; Vern-

on's Civil Statutes, and Art. 1634, Vernon’s Penal

Statutes), would a successful prosecution of a viola-

tor of either or both of these statutes preclude similar

action against the offender by the mann of

Justice? We think not.

The State of Texas has ee to enact com-

prehensive laws for the regulation of the insurance

business. In view of the decisions in Crafts v. Fed-

eral Trade Commission, 244 F. 2d 882 (1957) and.

American Hospital and Life Insurance Co. v. Fed-

eral Trade Commission, 243 F. 2d 719 (1957) by the

Courts of Appeal for tne ‘9th and 5th Circuits, re-

spectively, the 55th Legislature of Texas in 1957 en-

acted a broad and comprehensive statute governing

unfair competition and unfair practices set forth as

Article 21.21 of the Texas Insurance Code at pages

285-289 of the Code. Section 1 of the Act declares

that the purpose of the Act is to regulate trade prac-

tices in the business of insurance in accordance with.

the intent of Congress as expressed in the MeCarran-

Ferguson Act. The State of Texas, through its At-

torney General, will vigorously prosecute all viola-

tions of this statutory provision which are brought

to his attention.

Therefore, the State of Texas respectfully requests

this Honorable Court to grant a rehearing in the

New Orleans Insurance Exchange case and declare

For prosecution of insurance companies under the 220

trust laws, see Potomac Fire Insurance Co. v. State, 18 S. W.

2d 929 _— eal 1929, error —

the law’ as to whnther the McCarran-Ferguson Act

restores to the State the right to enforce, free from

Federal interference, their laws which afford com-

plete regulation of the insurance business. The State

of Texas respectfully suggests that, if those who

observe and conform to State regulation are subject

do proseeution for violation of Federal anti-trust

laws, in the event the Anti-trust Division of the De-

partment of Justice does not agree with the interpre-

tation and enforcement of State law, the Attorneys

General and regulatory agencies of the State con-

cerned with enforcement-should know it. The State

Board of Insurance ce of Texas and the Attorney Gen-

_ eral of Texas should know whether their interpreta-

tion and enforcement of State law may be accepted

by the insurance business with safety, or whether

they should enforce only sueh compulsory regulation

as will meet with the approval of the Anti-trust Di-

vision. The State of Texas should not be in a position

of enforcing compliance with its regulations, and

then find that such compliance is rewarded by ured

cution for. violation of Federal law.

The State of Texas submits that the question of

law discussed in this amicus curiae brief is, of itself,

so grave and substantial as to justify its considera-

tion by this Court on its merits.

Respectfully submitted,

WILL WILSON |

Attorney General

State of Texas

C. K. RICHARDS

Assistant Attorney General

State Capitol,

Austin, Texas.

a oot

APPENDIX

The following articles area tutory provisions

contained in Title 126 (Trusts-Con*piracies Against

Trade) contained in Vernon’s Texas Statutes (1948

Ed. Vol. 1).

“Article 7426 7796 ‘Trusts’

— trust is a —— of capital, skill or

aets by two or more persons, firms, corporations

or associations of persons, or ‘either two or more

of them for either, any or all of the —

purposes:

41. Jo create, or which may y tend to ereate,

or earry out restrictions in trade or commerce

or aids to commerce or in the preparation of any

product for market or transportation, or to

create or carry out restrictions in the free pur-

suit of any business authorized or permitted by

laws of this State.

“2. To fix, maintain, increase or reduce the

price of merchandise, produce or commodities,

or the cost of insurance, or of the preparation of

any product for market or —.—

— “To prevent or lessen competition in the

manufaciure, : , transportation, sale or

purchase of me ise, produce or commodi-

ties or the business of insurance, or to prevent

or lessen competition in aids to commerce, or

in the preparation of any product for ‘market or

transportation.

- To fix or maintain any standard or fig

ure whereby the price of any article or commod-

ity of merchandise, produce or commerce, ‘or

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a

the cost of transportation, or insurance, or the

a preparation of any product for market or trans-

portion, shall be in any manner affected, con-

trolled or established. }

„5. To make, enter into, maintain, execute

or carry out any contract, obligation or

ment by which the parties thereto bind, or have

bound themselves not to sell, dispose of, trans-

port or to prepare for market or transportation

----.any_article or commodity, or to. make any con-

tract of insurance at-a-price below a common

standard or figure or by which they shall agree

in any manner to keep the price of such article

or commodity or charge for transportation or

insurance, or the cost of the preparation of any

product for market or transportation at a fixed

or graded figure, or by which they shall in any

manner affect or maintain the price of any com-

modity or article or the cost of transportation or

insurance, or the cost of the preparation of any

product for market or transportation between

them or themselves and others, to preclude a free

and unrestricted competition among themselves

or others in the sale or transportation of any

such article or commodity, or business of trans-

portation or insurance, or the preparation of

any product for market or transportation, or

by which they shall agree to pool, combine or

unite any interest they may have in connection

with the sale or purchase of any article or com-

modity, or for transportation or insur-

ance or or the preparation of any pro-

duct for et or t rtation v its

price or such charge might be in any manner

46. To regulate, fix or limit the output of

any article or commodity which may be manu-

factured, mined, produced or sold, or the amount

—11—

of insurance ‘which may be undertaken, or the

amount of work that may be done in the prep-

aration of any product for — or trans-

portation. cng aes

7. To abstain from e in or continu-

ing business, or from the or sale of

merchandise, produce or commodities partially

or entirely within the State of Texas, or any

portion thereof. (p. *

“Art. 7427. 7797 Monopoly defined

A monopoly is a combination or consolidation

of two or more corporations when effected in

either of the following methods:

41. When the direction of the affairs of two

or more corporations is in any manner brought

under the same management or control for the

purpose of producing, or where such common

— or control tends to create a trust

as defined in the first article of this chapter.

“2. Where any corporation acquires the

shares or certificates of stock or bonds, fran-

chise or other rights, or the physical properties f

2 *

or corporations, for purpose preven

or lessening, or where the effect of such

tion tends to affect or lessen competition, whether

such acquisition is accomplisned directly or

ea — the 1 of trustees or other-

p. 2082)

“Art. 7428. 7798 3 83 trade

Either or any of the following acts shall

oOongstitute a conspiracy in restraint of trade:

«1. Where any two or more persons, firms,

npr or associations of * who are

6 in or selling any article of mer- .

„ baying or soling any st enter into

an agreement or undertaking *

LET firm, co -

I Il of .

merchandise, produce or commodity.

“2. Shan ins oth — firms

corporations or associations of persons shall

agree to boycott or threaten to refuse to buy

_ from or sell to any person, firm, corporation or

association or persons for buying from or selling

to any other person, firm, corporation or associa- |

tion of persons.

* Where any two or more persons, 8

corporations or associations of persons shall

agree to boycott, or enter into any agreement or

understanding to refuse to transport, deliver,

receive, accept, erect, * operate, use or

work with an goods, res, merchandise,

articles or p 1 2 firm,

tion or association of persons; provided,

however, that this sub-division of this Article

shall not be construed to a y to an agreement

between employees to terminate their employ-

ment, or to refuse to transport, deliver, receive,

2 assemble, operate use or work with

the goods wares, me or pro-

ducts of their immediate employer unless such

refusal is intended or calculated to induce, or

shall have the effect of inducing, such employer

to refrain from purchasing or from otherwise

goods, wares, merchandise, articles 5

or produets from any person, firm, corporation

or association of persons.“ (p. 2083) ö

ills

The following articles are statutory provisions ,

contained in Title 19 (Trusts and Conspiracies), -

Vernon’s Texas Statutes (1948 Ed. Vol. 2). Article

1632 defining “Trusts” is. identical in language

with Article 7426, Vernon’s Texas Civil Statutes, |

supra. Article 1633 defining “Monopoly” is identi-

cal with Article 7427, Vernon’s Texas Civil Statutes,

supra, and Article 1634, Vernon’s Penal Code, defin-

ing “Conspiracy in restraint of trade” is identical

with Article 7428, Vernon’s Texas Civil Statutes, .

“Art. 1635. [1466] Punishment

“Whoever violates any provision of this

chapter shall be confined in the penitentiary not

‘less than two nor more than ‘ten years.” (p.

340)

“Art. 1637. [1470] Agreement to form trust,

monopoly, ese. |

Af any person shall enter into an agreement

or understanding of any character to form a

trust, or to form a monopoly, or to form a con-

. spiracy in restraint of trade, as these offenses

J

are defined to this chapter or shall form a trust,

— or conspiracy in restraint of trade, or

a party to the formation of a trust or

mo y or conspiracy in restraint of trade, or

shall a party to a trust or monopoly or

conspiracy in restraint of trade, or shall do any _ -

act in furtherance of aid to such trust or monop-

oly or conspiracy in restraint of trade, he shall

be confined in the penitentiary not less than two

nor more than ten years.” (p. 340).

e

„Art. 1638. [1471] Operating in violation of

this law 8 See aoe

AI any person, shall, as a member, agent, em-

ploye, officer, director or stockholder of any

business, firm, corporation or association of per-

sons, form, in violation of the provisions.of this

chapter, or shall operate, in violation of such pro-

visions, any such business, firm corporation or

association formed in violation of this chapter,

or shall make any sale, or purchase, or any other

contract, or do business for such business, firm,

corporation or association, or shall do any other

aet which has the effect of violating or aiding’ in

the violation of any provision of this chapter,

or shall, with the intent or purpose of driving

out competition or for the purpose of financially

injuring competitors, sell within this State at.

less than cost of manufacture or production, or

sell in such a way or give away within this State,

produets for the purpose of driving out competi-

tion or finaneially injuring competitors engaged

in a similar business, or give secrete rebates on

such purchase for the purpose of the aforesaid,

he shall be confined in the penitentiary not less

than two nor more than ten years.” (p. 340)

Art. 1689 [1472] Persons outside State liable

>

“If any person, shall, outside of this State,

doc anything which, if done within this State,

would constitute the formation of a trust or

monopoly or conspiracy in the restraint of trade,

as defined in this chapter, and shall cause or

permit the trust or monopoly 80 formed by him

to do business within this State, or shall cause or

permit such trust, monopoly, or conspiracy in

restraint of trade to have any operation or effect

—15—

within this State, or, if such trust, monopoly or

conspiracy in restraint of trade, having

formed outside of said State, any person sha.

give effect to such trust, monopoly or conspiracy ©

in this State, or he shall do anything to help or

aid it doing business in this State, or otherwise

_ violate the anti-trust laws of this State, or if any

person shall buy or sell or otherwise make con-

tracts for or aid any business, firm, corporation

or association of persons, formed or operated

in vidlation of any provision of this chapter, or

so formed or operated as would be in violation of .

the laws of this State, if it had been formed

ithin this State, shall be confined in the peni-

tenti not less than two nor more than ten

years.” (p. 340) |

“Art. 1640, [1473] Forming trusts, ete.

If any person, employe, agent, stockholder,

or officer of any person, firm, association of

persons, or corporation, now doing business in

this State, have formed a trust, or monopoly, as

defined in this chapter, or have formed a con-

— in restraint of trade, as defined in this

chapter, or shall do or perfor many act of any

character to carry out such trust, monopoly or

— in restraint of trade, such person,

employe, agent, stockholder, or officer, shall be

confined in the penitentiary not less than two

nor more than ten years.“ (p. 341)