Brief for the Appellant — Hoopeston Canning Co. v. Cullen

Supreme Court brief1943

Ask Donna

What actually matters in this document.

Text

oe - ‘ : «

—_ Court of the United States —

- ; Octonzn Trio, 1942

No. 358

HOOPESTON CANNING co., E. PRITEHARD, INC.,

: Dee Se | er AL ae

| Appellants,

arr “U8. ince et

LOUIS H PINK, Surerintenvenf vi/Insutance oF THE

Srate or New York, fT aL, ~ °

| ; Nees ? ) | - : ‘ Appellees.

8 ss ° es :

APPEAL FROM THE SUPREME COURT OF THE STATE OF NEW YORK.

: / “7a. ; ° A

BRIEF FOR APPELLANTS.

D | Frangxun D. “TRUEBLOOn,

{ J Craic R. Jonnson, .

; ; ‘Counsel for Appellants.

Cart O..Orsox, - = * m : ye |

Of Counsel.

tracts is not affected by acts in the Btate of

| New Work+....ccccgceccccnsees ret erty. |

(a) Inspection of risks or lossés i eee ac ales

(b) Explaining transaction to prospective in- 7

TY EPP OTTC Pree Cer re et ye :

‘ -

| |

; off ia

SUBJECT INDEX. % ;

, ipo! | PAGR ~

~ Opinions Below ..s...0ceeceereeeeeeeeen ens (arwiwes 1

7 Jurisdiction .. pseveawe ; PSE cians ivebiden eee 1

Statutes Involved See je one AEE OEE S,

Statement of the Ps irate caeeey aVegeasaees 3

1. Parties ..... estes Raper OE RE aa ae

om Procedings Below dee Bs Pe easy ee kara

3. Statement ct ccaemeryvaen” 5

- (a) General Statement ..-.....---+++++++s vo?

_(b) History of Groups. ee nag cant Shite

_{e) How the Plans’ Operate....... epee pie

« (d) Financial Standing of Groups.........- x%

- (e) Economy of Cooperatives.........-.-++: 9

(f) Comparative Insurance Costs.........-- :

(g) Licenses. of Groups...-....2eeeeee eee 11

(h) Effect of New York Statutes....:.-.---- 13

| Specification of Errors. Hecetkeveuwbeessvceveucecss .

Suinmary of ‘Argument. ae cewienen aes ee a Ae

Argument . Seikioge ueereanes® Ce cemane weceve’s ceaain’ ee ae

I. Jurisdiction .....---- bcseterees euchnnwe Msavee ae

‘Under the due process clause the State of New _

York is prohibited from exercising ——:

-over appellants’ contracts of inter-insurance. 15

(1) The Illinois jurisdiction over appellants’ con- ae

(0) ‘tila prospective insured an applica-

ea SU RE i 0k act iene a veda ee Rye ae: 2

(d)' Gollcitation: . 2... 0365 .6005 wien yn eal 2

(e) Recommendation by Subscriber..... a..-8

(2) The fact that appellants are licensed by the’

} State of New York has no bearing on the ques-

‘tion of jurisdiction to regulate. hires asbeapeae J

/ (8) Neither the location of the insured Property ,

nor the residence of the Subscriber in New

York State can afford any basis for regulation ~~

) by New York of appellants’ Tllinois contracts. 2%

(4) The Court of Appeals failed to ‘apply the limi-

a tations of due process in the Case at Bar..... 2

- Authorities Cited by Trial Term on | Issues of Jurisdic- :

WOR caccencikgnetahta ries unaikhs pecan tdoesaten ss “34

II. Equal Pealedins Of DIME. Cokin i OR

Section 412, subsection 1, Section 417, subsection 1,

and Section 418, subsection 1, are invalid and

inapplicable because they deny to appellants the

equal protection of tlie Oo. ees eee 38

III. Unreasonable Regulation ........... Se edge 42

The statutes are invalid and inapplicable on the -

ground of unreasonable regulation kaave kactona 42

IV. Conclusion SG UMOw PARA CRRAS Maas ae uh aaewen eats ee

Appendix A: Statutes‘Sued Upon...............++. 51

Appendix B: Statutes Indirectly Involved....:..... 58

"Taste oF Cases Crren, :

Ets Lite Tae: Co. v. ‘Dunken, 266 U. Ss. 388, 399. 15, 27, 29

> Mllgeyer v. Louisiana, 165 U. 8. 578, 591............ 16, 27

Boseman vy. Conn. Gen: Life Ins. Co., 301 U. S. 196,

SRA eras ee ae

C.B. & Q. R. Co. v. MeGuire, 219 U.S. 549, ee 42°

; Clay Fire Ins. Co. v. Huron Salt Co., 31 Mich. 345,

BE reid wha chachaceh iv tidessia ss aug atl nce 19,26 .

Commercial Mutnal Accident Co. v. Davis, 2 213 U. 8.

PE isso ceo s Nou vantianprenniheces vb iss uieyae > bisa 24

Compania de Tabacos.v. Collector, 275 U. 8. 87,100... 34°

‘Concordia Fire Insurance Co. v. Tlinois, 292.0. 8. 535,

«$45, 549 ..... bea Meee Ad CAA MOR 8 oop CRAB emo pe-s 42 /

_ Connecticut. Fire Ins. Co. v. Way, 62.N. H. 622, 623. ..19, 52

Cotting v. Godard, 183 'U. S. 79, 109, 111, 112.......... 39

“Crandall v.. Nevada, 73 U. 8. 35, 49........... ad viel

Bdwards v. California, 314 U: S, 160........ einer 23, 39

"Engel v. O'Malley, 219 U. 8. 128, 138...........0.... 39

Equitable Life Ass’n. Soe. v. Penn; 238 U. S. 143, 147... , 34

‘Fidelity & Deposit Co. v. Tafoya, 270 U. 8. 426, 434,

MD cch dune cltnbascDae en OOF, Ce OPS PE eed . -26, 28

Firenian’s Ins. Co.-v. Beha, 30 F. (2d) 539...... Mivk , 31

Fireman’s Ins. Co. v. Conway, 278 U. S. 580.......... _—

_ First National i v. — 273 U. Ss. 548, 552,

SN Gist bon atae Mes : stedewes St Seleccinest> mie

French v. People, 6 Colo. App. 311. Siewanceatplesccks ie

Frost v. Corporation Commigsion, 278 U.S. 515, 522. .39, 42-.

| Green v. C. B. & Q. Ry. Co., 205 U: 8. 530, Ss SB. ,

| Hanover Fire Ths. Co. v. Harding, 272 U. S. 494, 507.. 26

ae : International Text Book Co.-v. Tone, 220'N. 2 313, 318. 2%

Hartford Indemnity Co. v. Delta & Pine Land Co., 292.

mS & | Breer aaa ae eres 16,

ae en igh sh ydenshpveudcbcusceatabanene

Home Ins. Co. v. Dick, 281 U. 8. 397, 407, 408 bine ok fete:

. Hyde v. Goodnow, 3 N. Mae WERE s sass sib conven 22, 28

' Kasprzak v. Mutual Life ‘Assur> Co. of Canada, 1F.

‘Supp. DIS eee eee cece een ee eee eee eee seens 2

Knights Templars’ Indemnity Co. v. Jarman, 187. v. gs, =>

[Rep Mae Mav a Ne hs cei uce vance \s bona cncesensvnr

Korn and Wifkmiller v v. Mutual Assurance Society, 10

U.S. 192, 201..... yecwaet Sine bal tae b0N 4 chan

Liverpool Steam Co. v. Phenix Ins. Co., 129 U. ie 391,

" Louisville Gas & E.-Co. v. Coleman, 277 U. 8. 32, 37... 89, 42

Marine Ins. Co. v. St. Louis ete. i, Co., 41 Fed. 643,

| GY jad eee Pi cceiians ta os ae

- Mas v. Owens-Ilinois Ginss Cox 34 F. Sune 415, 421., 2

Matter of Northwestern National Insurance Company

v. Pink, 288 N. Y. 359 (1942).7..5.. - aT Ree 9

Mayflower Farms v. Ten Eyck, 297 U. S. 266, 272, ‘O74.

Minnesota Commercial Men’s Ass’n. v. Benn, 261 U. S.

140, 143, 144, Sete Co eter euceceas 16, 22, 27, 29, 3

_ Modern Woodman v. Mixer, 267 U.S. 544, 551, Be : g

Mutual Life Ins. Co. v. Cohen, 179 U. S. 262, 269... .°.16, 27

McFarland v. American Sugar Refining Co., 241 U. S.

79, 86 ....... hive teticcs. wes gabnwsibvsnevrncses

McLean v. Arkansas, 211 U. 8. 539, 548:....... payer,

‘Nebbia v. New York, 291 U. S. 502, GON Nae ie

. ? fy

e v oe ;

New York Life Ins. Co. v. Dodge, 246 U. 8. 357, 373... ° 27

- New York Life Ing. Co. v. Faced 234 U.S. 149,

1B jcseseeeceeeeeseeeects bails Son sami 25, 27, 29

0’Gorman & Young v. Hartford Fire Ins. Co., 282 U.S.

i) Se eee eee, gee vepeeavececess 44

- Osborn v. Ozlin, 310 U. 8. 53. apa OO dst Fy RA PARR Se ee 34, 35

’ Palmetto Fire Ins. Co. v, Beha, 13 F. (24) 500,504,

fs EY aeey (seeks UOAe beecopscccseedeocey ss satay St “He

Palmetto Fire tes Co: Vv. Com, 272 U. 8.295, 304..... 26

x Pennsylvania Lumbermei’ 8 ‘Ins. Co. v. Meyer, basil Le

Bios CL, Oe ESE 24

| People, ex rel,, Kirkman | v. Van Amringe, 266 N. Y.

beg MO a pcdsinoceves Gobesspasceneounes te Ket ass « 28

: People, ex rel., McCall v. Gilbert, 44 Hun. ( 51 Sup.

| Ok) 848, SOR 63s... Ghiiaiabecsh ees series 6 22

' People, ex rel., Sea Ins. Co. v. eek 274 N. Y. 312... 28

Provident Savings Life Assurance Society v. Kentucky.

Fe SS NE ener ceareace Bes wie rth ¥

Royal Arcanum v. Green, 237 U. 8. 531, 542........., 17

Sasnett v. Iowa State Traveling Men’s Ass’n,, 90 F.

(2d) 514, certiorari denied 302 U. S. 711..:....:. 22

- Smith v. Swormstedt, 57 U.S. 288, 302 bapeees ining ee

St. Louis Cotton Compress Co. v. _ Arkansas, 260

ge eae Oa aed dee Ash Sie ot pap ee 16, 27

‘Taggart v. Wachter, ete., Ine. , 179 Md. 608, 618, 619.. 17

Tauza v. Susquehanna Coal Co.,.220 N. Y. 259, 267... "Se -

Terral v. Barke, 257 U. S. 589; 888... 5...3.60360.3.. 6°

Truax v. Corrigan, 257 U.S, 312, 332, 333...... ayeway: 42

Western v. Genesee Mutual Ins.: Co., °12 N. Y. 258,

3 Beet aoe re ae,

ae ee -

Searores Cirep.

| Constitution of the United States, 14th Amendment. :12, 13.

Insurance Law of the State of New York (Chapter ~

882, found at pages 2530 et seq., in Volume 2 of the ©

Laws of 1939 of the State of New York, being Chapter —

28 of the Consolidated Laws of New York): .

‘Sections ee eC ee ha gu ay oan seh asan 2

ORR OT Se aay pape ae ae 28

MD Sadkwccevcchesnsieusssvadewseciunt 31

oe hee Fic dws d's Ve dn abu) ooo line 31

NR a es nd eens 5 the <ickeeh 44

ae ee es 2, 33, 43, 44

Bs roca Sak so uch cdnudeecuet ovpreee: |

EI 65500 s be pains jab se ceens seeks 46

ees ek a cbs s agiae. in Mie eae eel 2,41

eR i os Dens eek cock hah eek te :2, 45

411-4 ...... PEG SicN 0e0 hbk RRR CRE a

| + SCRE ee a, Ieee 2, 5 ch dao 40,41

ee ents Ae cach ek eae oul 2, 46, 47, 48

EE Te op te here kin 2, 13, 46

SRE oa db Cock od a's ceniseeukwaedoueee

RRS r ree ee - 2

ee OO ek von ue 2, 13; 38, 40, 41

GPE cascacs i caate oe eas 2, 38, 39, 40, 41, 48

BS SS ivGs aan ON eR EY = ie RN 2,46

(Be ee AES SR IRS ook EE GE Es 2, 48

a vbitciedtcaces PES EOS FE a 2, 48.

a es ora s (aa Ga we wees & "eo

Judicial Code. tation 37a, as “amended (28 U. S.

©. A. 344a) ‘and Section 1 of the Act of January 31, _

1938 (¢. 14, 45 Stat: 54) and e Act of i agen 26, 1928

- (¢, 440, 45 Stat. 466) o.....2...0000. Reyer cere 1

New York Civil Practice Act: :

, Section 195. SA ce eee ee Mas gewin cena er

Virginia Code: . mete, |

Section 4235-c ............ Posh uk Gia ices cneees 37

NER FONE os nn ei cee svicsiccedseeneetecyee

Vii

| 3 Texrs Crrep. | ;

Best’s Insurance News (Fire and Casualty Edition)

Patterson, The Insurance Commissioner in the United

States, pp. 90, 91.........: PR AR ee igh nranas aly 25

Study of Legal Reserve Life Tasarance Companies,.

. T.N. E. C. Monograph’ No. 28 (1941) eS AR

Vol. 43, No. 7, p. 16, ; November, 1942 cu ek aks wee Pa :

® ©

| | | é ° *

. q ; :

ea é

3 .

‘ Hs . |

. . |

. * > ‘ ; 3 .

X .

;

. , oO

- : ;

| 3 o i eo-

: \ . as: “ |

oe. @

. : ;

: \: |

‘

-o

\ .

\ . |

. ) :

: , y

i ; ch x os

¢ o

4 ra 2

* . ag ; ~ ‘

. : - | |

2 : J | |

a : - |

: ‘ :

; - .

; -

: ‘ ae 3

. ica : |

. |

e Sek" |

‘eo , | |

‘ 2

j E -

“h . rn fe ;

3 , |

‘ . a | | |

: E

: | | . | .

° ; | | |

, . 3

. > ‘e : 7

. * . aa “ ; !

.* : ) | | |

. . ;

i. oe |

" . : |

8 : : :

may * ;

* ; ;

* ~*

. " - 7

. :

| \

4 2 3 : | 7 |

| : a, é :

| E .

b ’ > |

——_— =

: |

. . °

‘ ; ' ~ ,

" ; ;

o aa ; 2

- ‘ . “ 3 |

' -

‘ ; | |

* aes ;

| :

‘ E |

c = ; |

; “ | =

= ee:

* ‘

b r .

i .

Y :

r : : | ; as

‘ »

e <

° ; Be s |

| .

) 2 Y

2 se |

' ; j

2 .

? ° « ; 7 |

: -

, e :

: Re

- ‘ i |

i Sales :

; ; : 3 |

> eS : |

- i |

e% :

: :

° ‘ |

: : | |

: ; ; . .

. . e 8, 5 7 .

iT . ;

. ; |

* ° 8 :

| ; —

. ; °

. €

IN THE .

‘supreme Court of the United States

Ocroser TERM, 1942. ee, iy

sie

HOOPESTON CANNING CO., a Corporation; E.

PRITCHARD, INC., a Corporation; LANSING B.

WARNER, INCORPORATED, a Corporation; HARRY

M. BROWN anv JAMES T. SMITH, PAUL E. EMER- 6

SON, axp BEN A. MORTON, |

j Appellants, -

, v8. Bae tas

_ LOUIS H. PINK, as Superinrenpent or INsuRANCE OF THE

Srate or New York, anv JOHN J. BENNETT, JR., as

ATTorn@yY-GENERAL OF THE Grass or New York, _

Sore ;

APPEAL FROM THE SUPREME COURT OF THE STATE OF NEW YORK.

® > ae . :

S . , BRIEF FOR APPELLANTS

Lo : we

Opinions Below. |

The. opinion of the Court of Appeals of the State of New

York is reported i in 288 N. Y. 291, the opinion of the Appel-

late Divisjon in’262 App. Div. 446, and the opinion of. the

Trial Term ~ 24 N. Y.S. (2d) 312. ,

es \.. + Surisdiction.

- This ey is ae pursuant to Section 237(a) of the

- Judicial Code of the, United States as. amended (28 U.S.

C. A., See. 344(a)), and Section 1 of the Act of Congress’

. + Ne

_ of January. 31, 1928 (c. 14, 45 Stat. 54), as amended by the /

Act of Congress of April 26, 1928 (c. 440, 45 Stat. 466),

from the final judgmeift of the Supreme Court of the State.

of New York, Albany County, entered on June ‘23,-1942

(R. 204), pursuant to the remittitur of the Court of Ap-

_peals of the State-of New York (R. 201). . The appeal was «

allowed by a member of this Court on August 6, 1942 (R:

215): . Refererice is made-to the Statement as to Jurisdic-.

tion filed pursuant to Rule 12 as amended for’a concise —

statement of. the grounds on which the jurisdiction of this

Court is invokéd. This Court noted probable jurisdiction .

~.on October 12, 1942 cm. 325). °

Statutes Involved.

The stated involved are certain portions of Section

130; Section 168, subsection 2; Section 410, subsection 1; |

- Section 412, subsection 1; Section 413, subsection 2; Section

’..-415, subsection 1; Section 415, subsections 1(d) and-1(e);

Section-417, subsection 1; Section 418, subsections I and 3;

- Section 420; Section 421, and Section 422, subsection 1, of .

_ the Insurance Law of. the State of New York. The perti-

~~ nent portions of these statutes are. summarized in the

Statement as to Jurisdiction, begivning at page 2, and the

statutes ‘are set out in Appendix A. The objectionable

portion of Section 40, subsection 4, alleged in the. com-

' plaints having been exscinded by the legislature after the

_ commencement of these suits need not hereafter be con-

- sidered. The statutes indirectly involved in this appeal -

are eet out in pete B.

Statement of the Case.

oe ‘1. Panrms. As

5 ~The seer plaintiffs beléw, . are. representatives of 4 2

'. approximately 976 persons, firms, and: corporations in the

Canners Exchange suit and of approximately 2100 persons, .

. firms, and corporations in the Warner Reciprocal’ Insurers

suit. Thiese are class suits, under Section 195 of the New

York Civil Practice Act, where the questions in each suit

are of common or general interest to ‘many persons and

those who might have been made parties are very numer-

~ ous and it was impracticable to vara them all peters the

Court. *

Smith v. Swormstedt, 57 U. S. 288, 302: -

The delehteats are the Superintendent of Insur ance and

the Asienay General of the State of New York.

ee Daccnmiciien BeLow.

2 The appellants, being two separate“gronps of persons,

_ firms, and- corporations exchanging in Illinois contracts of |

indemnity against loss or damage from fire, and their —

Attorney-in-Fact, brought their separate actions, later can-

solidated, in the Supreme Court of theeState of New York,

Albany County, on November 1, 1939,-for a declaratory

judgment. By these actions the appellants ‘challenge the.

validity and applicability to. these groups of certain por-- -

tions of the New. York Insurance Law under the Four-

teenth Amendment to the Constitution of the United States.

_ Consolidation of the causes was ordered (R. 154).) A trial

“ to the Court resulted in & judgment (R..149) declaring that

the State of New York had jurisdiction to regulate appel-

lants’ contracts of indemnity, but that certain of the ehal-’.

lenged statutes were invalid under the equal protection<of

the laws clause and the due process clause on the ground,

ad ment. (R. 205). A detailed statement of+the proceedings

of unreasonable’ regulation, while certain other of the

statutes were applicable and valid. Section 130, the coun- . _

tersignature statute, the Trial Term held to be inapplicable —

~,on its face (R. 149). Both sides appealed to the Appellate |

Division for the-Third Department, which Court reversed.

thé Trial. Term on the issue of jurisdiction and ordered

judginent in favor of appellants (R. 183). The appellees

thereupon appealed to’the Court of Appeals, which ‘Court

reversed ‘the judgment of the’Appellate Division and-or?

dered the complaints dismissed,(R.-202). A judgment was

duly: entered iy the Supreme Court of New York, Albany

. County, on June 23, 1942, giving effect to the remittitur of

. »the Cenrt of Appeals, and this appeal is frem that jig-"

\ below -is eeutarese 1 in the Statement as to Jurtediction on .

\4 file erie *. : :

\ eee, STATEMENT or Faors. ie

cat a le General Statement. Ree a A sige |

The appellants comprise two srvape ef. carefully selected .

‘pers: ns, firms, and - eorporations,, known as. Subscribers

-. (RB. 47), who eooperate in varrying | their:own fire i insurance

at actual cost (R. 48)... One of these groups is confined to

Subscribers engaged ‘in the cannihg industry, . while the:

' ather group is limited to @ubscribers engaged in the whole-

gale. groeery: ‘business and allied lines (R. 46, 51). . Insur-

_. ance-is effected by exchanging under the IlJinois law (R.

:. Jae contracts, of indemnity of a private nature, in which

each Subscriber assumes an individual and several liability —

for his. proportionate part of any losa(R. 48). Each Sub-

- seriber depesits funds, out of which. his liability is paid, —

and these funds. remain his. separate property until’ ueed

oF returned. - The Subscribers _in_the canneys group have

.” *on'hand aggregate deposits exceeding four million’ dollars ..

Gare (B. a the Subscribers: in: the wholesale or: sits

” ra e

r) ¥

| Seer.

3 Soe See ’ ‘e

have on hand aggregate deposits of approximately one

and oné-half million dollars (R. 46). Approximately ten

~ percent of ‘the Subscribers reside in the State of New

_— (R. 51), and both groups are licensed i in that ‘state

-(Bxhibits 16, 17; R. 71, 280, 281),

je Pam ai History of Groups:

The otiginal group of canners began carrying their own

‘ “fire i insurance in 1907 (R. 47). ‘ Within a short time there-

after this group had expanded to include a majority of

' the caniers. throughout the United States and Canada

(R. 49, 50). The field from which to select canners eligible

for this insurance. having always been limited, the number °

of Subscribers to the plan has not changed materially from

year to year (R. 51). Although the list has undergone

~ gome change, substantially the same canners who started.

_ in 1907 are stil? with Canners Exchange. | he number of |

Subscribers has continued at all times between nine hun- —

., dred and a thousand, between ninety and a hundred. of

~ whom are-in the State of New York (R. 51), In addition

to th appellant Subscribers, California Packing Corpora-

. tion, -H. JHeinz €o., Minnesota Valley Canning Co., with-

~ ont, and:Snider Packing Corporatign of Rochester, Empire

. State Pickling Co. of Phelps, Comstock: Canning Corpora- 6 \ 7

tion of Newark, and Curtice Brothers of Rochester, within, *

_ the State of Now York, have been for many years repre-

"sentative Subscribers (R, 49, 50, 51, 56).

"was given to forming a similar cooperative for those en-

gaged in the wholésale grocery business: and allied lines. -

In 1912, therefore, a group of wholesale grocers began

‘ farrying their: own fire instirance under a plan substan- —

~ tially similar to-that employed by the canners (R. 46, 47, |

j 48). The number: ‘embracing’ the plan also increased rap; —

idly at the beginning, although it has remained approxi-

rT 9

- Canners Exchange having proven successful, “attefition ‘

Ahi

inlet Eo 7 tree

Pacha ae ae e

~ mately twenty-one hundred for a considerable time. Two :

‘hundred. and thirty of this group are in the State of New

York (R.’46, 51). The name of Wholesale Grocery Sub-

scribers, originally used to designate these Subscribers,

- was in 1926-changed to Warner Reciprocal Insurers, under

which designation substantially the same group “has con-

tinued“ever since (R. 46, 51). in addition to the appellant |

Subscribers, California Packing Corporation, H. J. Heinz ©

Co., H. Kellogg & Sons, Hubbard Grocery Co., without,

. and Snider Packing Corporation of Rochester, Pepsi-Cola

Company of Brooklyn, Seaman Brothers of New York City,

and R. C. Williams & Co., within, the State of New York,

‘. are representative Subscribers (R. 49, 50, 51).

c. How the Plans Operate.

‘The canner or wholesale sree ale desires to partici-

7 pate in one of: these ‘cooperative: enterprises obtains an .

application blank (Exhipits 3,4; R. 57, 220, 221) and Power

of Attorney (Exhibits 5, 6; R. 57, 222, 225) from’ the.

office of the Attorney-in-Fact in Chicago. The applicant

signs. and returns both documents by mail to the ‘office

| .(R. 95). In the event the applicant is accepted, the

Attorney-in-l‘act executes a contract of: inter-insurance,

/thé standard fire’ insurance policy adapted to this use

(Exhibits 7, 8, 9, 10; R. 59, 228, 232, 235, 239), which it

delivers to the applicant by placing it in the mail at its

office in Chicago (R. 60),. An estimate of the amount of

the initial ,deposit is usually enclosed, and this sum ‘the

Subscriber forwards by mail. Subsequent deposits: are .

_made and held. in the same manner as original deposits

(R: 60). Virtually all of the contracts of inter-insurance

_are exchanged by ganners. and wholesale grocers who are .

old Subscribers (R. 55). The Power of Attorney is ex-

ecuted but once ; thereafter it continues in force until re-

voked. Once it is executed it forms the basis for the

Subscriber (R. 112). There is no premium or price

charged for this indemnity ; the consideration for each con-

‘ tract is the exchange of promises; ‘and the ultimate cost

cannot be determined until the end of the particular period

_ covered (R,62). 3 i

Trained. instrance engineers employed on a salary basis

sary. Their principal duty is to inspect outstanding risks,

. to the end that hazards from fire be diminished (R. 54, 55).

They may sometimes explain the plan to ‘a prospective

_. Subscriber, but they have no authority to solicit or nego- _

tiate an application or to bind the appellants in any way,

as no.such power is projected beyond the office of the

Attorney-in-Fact (R. 55, 67). They receive no commis-

- gions. Although it is possible for an engineer ‘to furnish

_ ablank Power of Attorney to a prospective Subscriber, an

exchange of all. subsequent contracts with the particular

officer of the Attorney-in-Fact testified that he knew of no-

instance where this had ever been ‘done (R. 100,-: 101).

All matters pertaining ‘to losses, as well as all other

affairs between the Attorney-in-Fact and the Subscriber,

are transatted by mail (R. 66). This is made possible be-

cause of the high degree of trust existing between‘ the Sub-

scriber and Attorney-in-Fact. All adjustments are stated —

at the office of the Attorney-in-Fact in- Chicago (R. 67). In

‘the event of a “very unusual’’ loss, an inspector, having

no authority to make an adjustment, may be sent from.

‘Chicago to examine the property. However, ‘the over-

. whelming number of losses are small ones that are paid

as a routine matter without investigation ( R: 111).. The

invariable rule is that all losses are: paid’ by check ‘sent

throvgi the mails from the office of the Attorney-in-Fact

to ‘he Subscriber sustaining the loss (R. 66). In thirty-

‘five years no suit has ever veen brought on a loss in New

York State; indeed; no serious controversy has ever arisen

betweeri a Subscriber and the. Attorney-in- Fact respecting |

"make ‘such ‘naar trips ont of Chicago as may be neces- |

DE Ce SHOE ee eee

g |

such loss (R. 112). All performance under the: contract of

inter-insurance and the Power of Attorney, as the Appel- |

late Division re takes place in Illinois (R. 182).

d. Financial Standing of Groups.

~ The financial standing, the fairness and equity observed

throughout the years in the payment of losses, the in-

tegrity, efficiency and economical management of these

groups are not open to question. grhe Triai Court found

-that both groups ‘‘have built up’ the highest reputation -

for financial soundness, féir dealing, and the prompt pay-

ment of claims’’ (R. 123). As early as 1916 the founder

reported to the National Canners Association (Exhibit 21;

BR. 73, 314C) that’ ‘‘there is absolutely no question * * *—

(that) any honest loss sustained by Canners Exchange

Subscribers will be paid. We have more actual assets

larger. in paver lene to the amount involved. than are the

cash assets available for losses of any stock ‘company. =

In 1937 the report of examination of the affairs of the

. eanners group conducted under the: convention of. insur.

ance commissioners of the several states (Exhibit 19; K.

72, 300) reported that ‘‘The cash position of the Exchange

is excellent and all investments are of a high grade,”’ that

“The Exchange is efficiently managed as is evident by its

sound financial condition,”’ and that ‘‘Subscribers are af-

forded good ‘treatment and’ contractual obligations are

_ fairly discharged.’? This same convention. in reporting

on its examination of the affairs of the wholesale grocers

group in 1937 found that (Exhibit 18; R.. 72, 284)-‘‘The

Exchange is in sound financial condition with an excellent

cash position. Its assets are of a high grade and can ~

readily be turned into cash to meet any emergency: which

may arise,’’ that ‘‘all contractual obligations are taken:

care of promptly and in accordance with the provisions

| —.of the agreements,”” and that the affairs of. the apoenane

are managed ‘‘in an economical and efficient manner.’’

At the end of 1938 the aggregate deposits of the canners

group exceeded four million dollars, those of the whole-

sale grocéry group, nearly one and a half milion. .The

great bulk of these assets consist of United States gov-_

ernment securities and the rest of cash in n banks ——

14, 15; ‘R. 71, 265, -275). ;

e. Ecdnomy of Cooperatives.

The courts below have found the cost of this cooperative

indemnity to be from thirty to fifty per cent lower. than

comparable insurance would cost if the Subscribers pur-

chased it from companies engaged in the business of ‘in-

surance (R. 156, 188). In general there are two reasons

' for this economy: (1) The Subscribers instire themselves:

at acfual cost without using the expensive agency system \

. employed by stock- companies,’ the eliinination of which,

statistics show, effects a saving of at least twenty-five per

cent of the cost of. this insurance? (R. 75) ; (2) ‘The loss

ratio is far lower than those of the stock companies. With:

_ out the agency system there is no indiscriminate accept-

ance, of risks by a resident agent whose principal thought

is to earn a commission. There.is no conflagration hazard, —

_ ‘Tisks being scattered (Exhibit 21; R, 75, 76, 156).

‘The founder of these exchanges, Mr. Lansing B. Warner,

reported to the National Canners Association’ in 1916 (Ex-

' In Matter 6f Northwestern National Inserance Company v. Pink,

_ 288 'N. Y- 3509 (1942), it was stated In a dissenting opinion concurred in

by Conway, J. that “The payment. of commissions constitutes a substantial

percentage of acquisition costs, which in turn determine premiam rates.”

"2 The agency expense for all stock companies fot the year 1941 aver-

aged 26.2 per cent of the cost of the insurance. Best's Insurance News

(Fire and Casualty Edition), Vol. 43, No. 7, p. 16, Novémber, 1942.

_ Compare the economy made possible in savings-bank life insurance by

the elimination of the agency system. See Study of Legal Reserve Life ~

_ Insurance Companies, T. N. E. C. Monograph No. 28 (1941) p. 310, where

it is stated that, “The principal reasons for the low cost of savings-bank

life insurance is, of course, that the savings banks do not incur agency

expenses.”

; BY

+ hibit 21; R. 73, 314C) that ‘‘Our record, so far £s savings

"are concerned; speaks for itself. In eight years actual

ash savings, as compared with the cost of the same amonnt —

of insurance if placed with stock companies, have amounted

to more than $600,000, and, in addition to this, we have

been instrumental in having the average rates on canning —

factories throughout the United States reduced twenty

“per cent, and the $600,000 saving above. feferred to is in

addition to this twenty per cent rate reduction. This

twenty per cent reduction, we estimate, means nearly

_ $400,000 saving to the industry per annum’’; that the plan

_‘*is an object lesson in cooperation. * * * with losses

paid of nearly one million dollars and with savings direct

and indirect amounting to from one to two million dollars

and with the improved insurance conditions now existing

as compared with eight years ago.”’.

For the year. 1938 alone the members of the canners

group saved an aggregate. of $922,000 over the amount

their insurance would Wave cost if obtained froi stock com- |

panies, while the comparable saving fpr the Wholesale

epee group was $286,000 (Exhibits 15, 14; R. 71, 256,

248).

f. Comparative Insurance Costs.

Exhibit 26 (R. 74, 318) is- an analysis. of income and.

di sbursements of five of thé outstanding fire insurarice

companies compared with the Canners groups for the year -

1938 (R. 74). These compauies—Aetna Insurance Co,

_ The Home Insurance Co., Great American Insurance Co.,

Hartford Fire Insurance Co., and Iisurance Company of

North Amerita—showed an average loss expense of 44.2

per cent for 1938 as against a 23.5 per cent loss expense

for Canners Exchange. The five companies also showéd

an average operating expense for the same year of 47.9

per cent compared with total operating expenses ( inelud-

~ ing compensation to the Attorney-in-Fact and taxes) of

RS ETE IIE LOE BE IETE SE EN ATS AS FSA

28.4 per cent for the cooperative. As against an average ~

dividend paid to the stockholders of ‘the ‘five companies of

7.9 per cent the savings returned | to. nemtesirenis amounted

to 48.1 per cent,

Likewise Exhibit 25 (R. 14, 317) is a comparison of | f

figures-for the wholesale grocery group with those for the —

same five stock companies for 1938 (R. 74). -Against an

average loss expense for the stock companies of 44.2 per

cent the wholesale grocery group. showéd a loss expense of

16.9 per. cent; against the average operating expense of

the stock companies of 47.9 per cent the total expenses

(inéluding compensation to the Attorney-in-Faect—and

taxes) of Warner Reciprocal Insurers was 27.2 per cent;

and as against an average dividend of the stock companies S

‘paid to stockholders of 7.9 per cent fhe savings to. the

- members of the cooperative amount to 55.9 per cent. ._ The

official records for subsequent years were not availabie at

- the time wd the trial. :

eae of Groups.

“Each group | is licensed (Exhibits 1, 2; ‘R. 53, 218, 219).

to exchange contracts of inter-insurance in Illinois by the .

Director of Insurance of that state. Although all con-

tracts are exchanged in Iilinois and none are, or ever have

been, exchanged in New York, each group has been li-

censed (Exhibits 16, 17; R. 71, 280, 281) by the Superin-

tendent of Insurance of that state since 1930. ‘Taxes have

been paid regularly to Néw. York since the enactment of

the taxing statute in 1936 (Exhibit 22; R. 73, 315). The :

_ Superintendent i is sears a for the service of prec-

ess.

h. Effect of New York Statutes.

As these plans have been worked out over:a period of

- many years they present to the Court a delicately balanced

system of self-insurance of unprecedented efficiency. The |

evidence is undisputed that the application of the chai- ~

' lenged statutes to them would throw the plan upon which

they operate out of balance, create inequities among Sub-

_ seribers, increase the cost materially, deny to a great

number the ‘right to participate, and lead to the ultimate |

- destruction of both cooperatives (R. 77-83). The effect of

‘the enforcement of each particular statute upon these

groups is considered in detail under Points I and Til, .

— at page 38 of this brief. |

‘Specification of Errors.

The Court of Appeals of the State of N ew York. erred

in the following respects, to-wit (R. 211), 0" |

1. In* reversing the final order of the Appellate Divi-_.

sion, Third Department, entered on Aeepagatl 2, » 1941,

and in ordering the complaints dismissed. ~ |

*2. In refusing’ to hold that the statutes 'dieedit in the

complaints, and each of them, are invalid as beirig in viola-

tion of Section 1 of the Fourteenth Article of Amendment —

to the Constitution of the United States because they pur-

port:to regulate, interfere with, and prohibit appellants’

contracts of inter-insurarice made and to be performed out-

side the State of New York, and thereby deprive appellants

“of: their liberty and property without due process of law

(R. 211, 212, 213). : |

3. In refusing to hold the aforesaid statutes, ond ‘each

of them, invalid as. being in ‘violation. of Section 1 of the

Fourteenth Article of Amendment to the Constitution of

. the United States because they purport to impose regula- —

tions upon appellants’ contracts of ivter-insurance that are

unreasonable, arbitrary, and capricious without any rea-

sonable relation to the end sought. to be attained, and _

thereby deprive appellants of their liberty and Sides

without due process of law (R. 213).

4. In refusing to hold that Sections 412, subsection i,

417, subsection 1, and 415,. subsection 1, of the aforesaid

‘statutes violate “Section 1 of. the Fourteenth Article of

Amendment to the Constitution of the United States be-

cause they” purport to impose regulations and prohibitions

_ upon appellants’ contracts of inter-insurance that are dis-

criminatory against appellants, and thereby deprive them .

of the equal protection of the laws (R. 213, 214).

5: In refusing to hold that the State of New. York may

not attach a condition to appellants retaining their New

York. licenses by requiring them to submit to the purported

? regulations and prohibitions of the statutes alleged in the |

complaints, and each of them, which statutes violate Sec-

tion-1.of the Fourteenth Article of Ameridment to the Con-

stitution of the United States in the manner -set -out in

“paragraphs 2, 3, and 4 hereof (R. 214). |

| Summary of Argument. _

‘Pot I. The statutes are invalid and inapplicable on —

the ground of jurisdiction under the due. process clause,

Appellants’ contracts are personal; contracts of indemnity _

made-and to be performed in -the iState of Illinois. The

mere fact that. payment of indemnity in Illinois is de-

pendent upon the condition of. loss or damage to property

- in New York, or that the owner of the insured property

resides in N@w York, does not affect the Illinois jurisdic.

tion to regulate these contracts. Appellants’ contracts of

’ inter-insurance, being inter-related, must-all be construed -

in accordance with the Illincis law fegardless of the lo-

cation of. the property or the residence of the Subscriber.

The application of diverse state laws to appellants’ con-

-- tracts would throw the entire system out of balance and.

lead to the ultimate destruction of the plan. Sta

_ Point II. Certain sections of: the New York Insurance

. Law, notably Section 412, subseetion 1, which denies to

citizens: who do not have a net worth in excess of ten .

thousand dollars the right to participate i in this indemnity,

are invalid and — under: the equal protection :

of the laws’ clause. - |

Point III. The statutes are invalid and fnapplicabe on.

the ‘ground of unreasonable regulation.

SOU PLR SON SEL EO RBIS

ARGUMENT. -

: Porrr I.

" Jurisdiction. a

Under the due process clause the State of New. York is

prohibited from exercising jurisdiction over appellants’

’ contracts of inter-insurance.

All of appellants’ contracts of beedanmeneas (Exhibits

7, 8, 9; 10°; R. 59, 228, 232, 235, 239) are and always have

. . been made in Mlinois: - -No contracts have ever been made

in New York (R. 60, 163). |

The Appellate Division, i in approving the finding of the’

Trial Court (R. 163) that the contracts are ‘‘as a matfer of

“law, Illinois contracts of ifsurance, ’? said (R. 189, 190):

‘‘ Applications are received, policies are.issued and .

losses are paid in the State of Illinois. * -* * Con-’

_ tracts between’ them (appellants) and others, entered

dnto in the Stat¢.of Illinois, must be governed by the.

laws of that state.”

These findings were not impugned by the Court of Ap-

peals (R. 196, 197). . |

The contracts, being made in Illinois, are' governed by

Iinois law, not by New York law. Being valid in IIli-

_ Rois: the contracts are valid in all other states, including

New York. Due process requires. the application of Illi-

nois Jaw to them. ;

' Aetna Life Ins. Co: v. Duaken, 266. U. S. 389, 399."

*. ‘Home. Ins. Co. v. Dick, 281 U. 8. 397, 407, 408

~ (opinion by Brandeis, J.). ie

Exhibits 7 and 9 are the so-called old New York standard contracts

dines for. use by. Warner Reciprocal Insureys and Canners Exchange

- Subscribers respectively, while Exhibits 8 and 10 are the so-called new

New York standard contracts adapted for use by these groups. The two

types of contracts contain substantially the same provisions.

es 298-T. S. 143, 149,

unchallenged opinion. of one of appellants’ officers that the

- 16

Hartford Indemnity Co. ¥. Dette & Pine Lona Co, is

St. Louis Caption Compress -Co. v. Athenias, 20°

U. 8. 346, 347 (opinion by Holmes, J.).

Minnesota Commercial Men’s Ass’n v- Benn, 261

- U.S. 140) 145.

Allgeyer v. Louisiana, 165 U. 8. 578, 5 591. :

Mutual Life Ins. Co. v. Cohén, 179 U..Sr°262, 269.

_ Knights Templars’ Indemnity Co. v. — 187.

0. 8. 197, 204. .

Liverpool Steam Co. v. Phenig Ins. Co:, 129 v. Ss.

, 453.

| pa Ins. Co. ¥. St. Louis, etc., Ry. Co., 41 =

643, 653. oe

It is necessary that all: of appellants’ contracts, ré-

gardless of the location of the property or the residence

of the Subscriber, be goyerned by Illinois law’ ( R. 77). The

Attorney-in-Fact executes every contract on behalf of all

of the Subscribers (Exhibits 5, 6; R. 58, 223, 226); there- .~

fore every Subscriber is-a party to every contract. ys

network of inter-related contracts is thereby created émong :

the Subscribers who are scattered throughout the United —

States, Canada, and elsewhere. Every Subscriber, regard- —

less of residence or location of the property, pays the |

same ‘proportional part of every loss (R. 47; 48), and it ©

obviously would be unfair if the rights, for example, of a

New. York Subscriber, were determined by more favorable

laws than those determining . the rights of a. Subscriber

in, another jurisdiction, or vice versa. If the laws of the-

various jurisdictions were to be applied terthese contracts, —

inequalities and, inequities among. the several Subscribers

would be inevitable (R. 77). If New York is to be given

the right, to: regulate appellants’ contracts, other states.

paradoxically, have the same right. The door would thus

be opened to all manner of conflicting regulations. It is the

ee eaten ee Re ee ee ae te, eri

subjection of appellants’ contracts to the varying. laws

of the different jurisdictions would result in the ultimate

- destruction of this system of insurance, and appellees have’

. not suggested any reason ‘for — these groups to .

. this danger (R. 77).

The rule which requires appellants’ contracts to be uni-

formly interpreted under a single standard is stated in

Royal Arcanum v. Green, 237 U. S. 531, 542, approved in

Modern Woodman v. Mixer, 267 U. S. 544, 551, in an opin-

ion by Holmes, J.

. Inc., 179 Md. 608, 618, 619, where the Maryland Court of —

reciprocal exchange. The Court. said:

Pennsylvania, in which state the contracts were ex-—

: changed) would seem to follow from the requirement

-arising from the reciprocal, cooperative nature ef the

enterprise, that all policy holders be affected alike.

Royal Arcanum 'v. Brashears, 89 Md. 624, 631, 43 A.

866. ‘This, which could be assured only by: the appli-

cation of the laws of one jurisdiction would be an im-.

plied undertaking of subscribers, for they intended ~

dealing and being dealt with on one uniform basis, and -

. all that affects the subscribers as a whole must be dé-

- termined.upon and ordered’ by one authority to ac-

; complish that. ‘Indeed, the accuracy of this conclusion

- is irresistibly maztifested by considering the inftrinsic

relation between each and-all the members concerning:

their duty to pay assessments-and the resulting indi-

visible unity between them in the fund from which.

their rights | were to be enjoyed. _The ‘contradiction in

terms is apparent which would rise from holding, on

standard of duty and. obligation on the part of the

_ members themselves and the corporation, and saying,

‘on the other hand, that the duty of members was to be’

‘tested isolatedly and individually: by resorting not to

Illustrating the rule further j is Taggart v. Wachter, eic., - |

Appeals applied a uniform standard of law to a quasi- ~~

‘The same result (fhe application of the law of: ..

the one hand, that *there was a collective and gnified

‘1, ing rhany divergent, variable, and conflicting ‘criteria.””'s,

one source” ‘of “aitijeriés haistteabis to all, at) apply

“\ Supreme Counéed of Royal. Arcanimy, Green, 287 UV.

\ Sa 1916A, 771; Wardle v. Townsend, 75 Mich. 385, gi

ax W. 950; +1. R. A. p11.”

y a . le

pare We submit t hat ‘the’ payment of oe ‘affects the Sub- i.

. seribers-as a rhole’” and therefore ‘‘must be determined.

“tipon and orderad by’ one’ authority.’’- ‘Nor can thére be «|:

_ any question . that the Subscribers. ‘intended desling and :

_ being dealt: with: ‘On, one “uniform basis. mm Nigra

~ The. doctrine of the preceding cases wag lglied te group

“insurance by this Court in Boseman v. Conn. Gen. Life Ins.

" Co:,) 301 Us8. 196, 206, the language ‘heing: sya Lat ae

y, ‘othe shsiclision that Pennsylvania law governs. the

" policy provision requiring notice of claim is supported. .

_not-only by the making and delivery of the contract \

$531, 541, 35 S: Ct. 7245-797, 59 L.-ed: 1089, LRA

of insurance“in that State, the declaration in the:policy

that ‘Pennsylvania law shall govern and- petitioner’s

“acceptance of - the insurance according’ to the terms,

J) of the policy. but ‘also: by the purpose of ‘the parties

‘te the contract.that everywhere it shall have the same —

‘meaning and. give the same protection and that inequali- _

thet and confusion liable to result from applications

of diverse state. laws shall be: avoided.”’

ee It i ig apparent. ‘that appellants” -contracts (Exhibits’7, 3

9, 10; R. 59,. 228, 232, 235,-239) differ from those; of, cor-

As to the latter, “only the” insurer and a

" s cingtred are partieg, and no other. person is directly inter-,

- ested-in them. A partieular “contract is not inter-related ~

‘with all of the remaining contracts. The corporaté in-

_ surer’s contraet’ is usually countersigned and delivered °

« by a resident: agent- in the jurisdiction where the insured

to. locat law. Usually all activities under such contracts

"take -place within the local jurisdiction, including the xd-

: justment. of losses. It is this apparent that ordinarily

resides ‘or the property is situated, and is:‘therefore subject

a ; ;

enter ee) ise wet acy Mae 18 ee eke ee lero a

ESD LMAO EL EINES SRE ATE TLET LO

. . .

nd necessity exists for interpreting such contracts accord-

ing to a single uniform standard of law. :

. The State of, New “York has expressly recognized the

waaay for. applying, a uniform standard to all Sub-

, seribers by providing ‘in Section 415, subsection 1 (Ap-

X pendix A), of the Insurance Law’ that ‘‘every Subscrib-.

- 6r’s agreement (Power. of Attorney) shall be identical in

x * * ©. with all other Subscribey’s: agreements.

ntly in force.’’ If the requirement of - this section is

rte’ be’ met, it follows that were New York to “be allowed

to regulate any of appellants’ contraets, the state must

“be m be ed to regulate.all of them, including the contracts

upon sks in other states. | }

In addition to the foregoing, all pie aioe ie under

appellazits’ ‘contracts of intér-insurdnee takes place in Ili-

nois (R. 122), and the,Appellate Division expressly found

_*(R. 182) that the said contracts are not performed in the

“State of New York, the finding having been acquiesced in ;

by the Cgurt of Appeals (R- 196, 197). |

apes Western x. Genesee Mutual Ins. Co., 12. N. Y. 258,

262.

Clay Fire Ins. Co. v. Huron Salt Co., 31 am. 345, °

J Ba

Connecticut Fire Iai. Co. v. Way, 62 N. H. 622,

.. 623. ,

— » ., ,

—-. At is immaterial that the standard forms of policies

~. adapted for use by appellants (Exhibits 7, 8, 9, 10; R. 59,

_ 231, 233, 238, 240) grant\the theoretical right to require a.

”' Babscriher to-furnish a cértificate of a notary or plans of °

a destroyed building, or to submit to an examination under

oath in respect to a loss. In the entire history of appel-

lants’ groups these requirements have nev er been inveked

-(R. 710). But even if the Subscribers. were required to

‘eomply with these provisions, which they-are not, there

would still be no performance in New York state. -

(1) The Illinois jurisdiction over pent contracts is

not affected by acts in the State of New York.

The appellants employ approximately twenty-six trained ~

insurance engineers, who contribute largely to the success.

of this inter-insurance (R. 54). ‘From complete records,

charts and plans of the insured properties kept in its office —

the Attorney-in-Fact obtains up-to-the-minute’ information

regarding all risks. If a faulty or. dangerous condition

develops in, one of these it can usually be corrected by

letter or telephone. However, when the necessity arises,

an engineer will go from the office to view the property

and counsel.with the owner regarding the minimizing of |

the hazard from fire. He may also explain the plan ‘of ’

' self-insurance to the infrequent’ prospective’Subscriber (BR.

54, 55, 92, 188, 189). In visiting ‘a risk the engineer as-

- certains the moral hazard by observing the ‘‘housekeeping”’

of the Subscriber. For example, if the risk is ‘near a-rail- -

road the engineer learns whether the weeds and grass

_ around the plant have been cut so as to avoid the hazard:

from locomotive sparks (R. 98), or he may recommend

that fire walls or wire glass windows be installed (R. 54).

Inspections of new properties are necessarily infrequent. _

The engineers have no authority to solicit new Subscribers,

er to bind appellants i in any way (R. 189). .Nor does the .

engineer ‘make inquiries in the field regarding the ‘eredit

standing or reputation of an applicant (R. 98). The eu-

gineers receive no commissions, — — on a

— basis. —

Because: stocks of seems goods and groseries as they

accumulate are ordinarily stored in buildings and ware- —

houses, the plans and specifications of which are on file '

. in the office: of the. Attorney-in-Fact, there is usually no

necessity for inspecting such goods before coverage.

As to losses, the overwhelming majority are small ones

_that are paid without inspection upon proof of loss sent

. 21

in by the Subseriber (R_ 111). However, in the event of -

_a‘‘very unusual’’ loss, an inspector who has no authority

to bind appellants or make an adjustment is sent out from

_ Chicago to view the property to determine the extent as —

well as the cause of the loss in order that future losses frofn

‘the same cause may be avoided (R. 111). Since only one-

York State (R. 46, 51), the relative number of. losses. in

that state requiring inspections is very smiall.. Losses are

never adjusted in. New York State; all adjustments are

“stated at the office of the Attorney-in-Fact in Chicago

‘and are paid by check mailed to the Subscriber from that

place (R. 66, 67). It is plain that there is no adjustment

of losses in the sense that’ stock companies adjust them.

We assert that the Appellate: Division correctly stated .

the law applicable to the activities of appellants’ engineers

(R. 189; 190). it said: .

‘‘These acts are wholly consistent with the right of

a resident secure a foreign contract of insurance,’

a right which is supported by. an impressive array of

authorities (Allgeyer v. Louisiana, 165 U. S. 578;

- St. Lows Compress Co, v. Arkansas, 260 id. 346; Aetna

Life Ins. Co. v. Dunken, 266 id. 389; Minnesota Asso-

ciation v. Benn, 261 id. 140; People ex rel. Kirkman v.

Van Amringe, 266 N. Y. 277; U. 8. Mortgage & Trust.

Co. v. Ruggles, 258 id. 32; Stone v. Penn Yan, K.P.¢ ©

B. Railway, 197 id. 279.) Tf this right may be abridged

inerely because of the inspection of risks and appraisal

of losses here, then it is a right in theory only and of

“no practical. value. The cases cited, however, emphasize

the fact that situs does not confer upon the State the

power to regulate. The necessary cor yllary to this

doctrine is that inspections and appraigals, which-have _

to do with the situs, do. not. confer su h jurisdiction.’’ .

The Court. of Appealsdid not dissent from these views.

“Additional authorities (except the Benn case) holding

various types of acts within the state insufficient as basis

MGS POEL LNTS EE Le LONE GOES BIS MI Ee SARE TPG I ELBE ET LEI EA

tenth of the total, number of- Subscribers reside in New .

ee 143

gineers do is far different from the usual ‘‘servicing’’ of |

for assumption of jurisdiction to regulate contracts entered

into outside the +tate:

(a) Inspection of risks or losses.

Sasnett v. Lowa State Traveling Men's Ass’n.,’

~ 90 F. (2d) 514, certiorari denied 302 U. S. 711.

Kasprzak v. Mutual Life Assur. Co. si Canada,

- 1 -F. Supp. 915.

French v. People, 6 Colo. App; 311. Ber Pate

People ex rel. McCall v. Gilbert, 44 Hun. (51 Bap.

Ct.) 522, 524.

( b) Explaining transaction to ee insured. °

'. Palmetto Fire Ins, Co. v. Beha, 13 F. (2d) 500; 510.

_ Minnesota Commercial Men’s Ass’n. v. Benn, 261°

U. S. 140, 144. .

Connecticut Fire Ins. Co. v. Way, 62 N. H. 622

623. -

ae Solicitation. _ 2

Green v. C. B. é Q. Ry. Co., 205 U-8:-530, 533,

Minnesota Commercial Men’s. Ass’ %. V. Benn, 261

U. S. 140, 148, 145. .

Hyde v. Goodnow, 3 N. Y. 266, 271..

Western v. Genesee Mutual Ins. Co., 12 N. Y. 258,

* 262. , :

Mas v. Oweris-Winois Glass Co., 34 F. Sop. 418,

421.

(e) Recommendation by Subscriber.

Minnesota Commercial Men’s Ass’n. v. Benm, 261

U. S. 140, 143. i

Because of the highly tilted nature and the high

_type of risks’ insured and the -profeséional methods used

by appellants’ engineers (R. 54, 55, 76), what these er

5 “ re és Pathe) Leb HOTTER SPORES SP hey AE t ti LYE Ba = ee eg eee on

I i re seancopesuenpresee er 39 Voici a Tatra

. 2 .

per a* J . - .

risks by stock companies, particularly casualty risks, where

a rigid, continuous system of inspection is necessarily em-

‘ployed by the insurer to guard against ever-changing cir-

.oumstances that constantly menace the safety of the in-

sured premises and the lives of the employees, typified in

the elaborate and intricate system: of ‘‘servicing’’ of the

‘Virginia casualty contracts in. Osborn v. Olio, 310 U. S.

- §3, hereinafter discussed.

* Appellants. contend that as sitteune of the United States,

their engineers ‘‘have the right to pass and repass through

every part of it without i interruption’? (Crandall vy. Ne-

vada, 72 U: S. 35, 49, per Miller, J.; see also Edwards v.

California, 314 U. S. 160), including the right to pass into ©

New York. State. to inspect property in connection : with

insurance contracts entered into ontside of the state with- ©

out thereby subjecting appellants to far-reaching juris-

dictioral consequences. —

It is plain that the. presence or absence: of contract

within the state seeking to regulate is the determinative: _

| factor i in the above cases—the doing of business for the

speaking, insurance

business is the saline” of contracts, Knights Templars’ :

Indemnity Co. v. Jarman, 187 U. 8. 197, 204; and a state

seeking to regulate such business cannot reach the ——

tracts which constitute it unless the contracts have their-

situs. within the state. If a state other ‘than the state in

Which the contracts are made were permitted to regulate

. the contracts, such regulation would be an infringement —

upon the. jurisdiction of the state of the lex loci contractus.

_ The findings of the lower courts that appellants’ contracts

are made in Illinois therefore seems conclusively to pro-

" hibit” jurisdiction i in New. York to. regulate them. No case

has been cited: by opposing counsel where: jurisdiction to

regulate has been upheld in the absence of contract within

the’ state. Proof. ofa course of making contracts, as. dis-

ndiaatiata icicle tthe a Ae Bi Gi SRB es 3A PC CN

or]

tinguished il proof of eomuten transactions is generally

requjred. 4

We also note that courts have upheld jurisdiction for |

service of: process where the same circumstances would |

not warrant upholding jurisdiction to regulate. In the

language of Cardozo, J., ‘‘activities insufficient to. make

out the transaction of business, within the meaning of those

statutes (regulating foreign corporations), may yet be

sufficient to bring the corporation within the-state so as

“2 render it amenable to. process.”’ (Tauza v. Susquehanna

Coal Co., 220 N. Y. 259, 267.) And again, the same judge

: stated that ‘‘business may be sufficient to subject the for-

"eign corporation that does it.to the service of ‘process, and

‘yet insufficient to require it. to take out a license.’’ (Inter-

national Teat Book Co. v. Tone, 220 N. Y. 313, 318.) Thus

the Court has upheld service of process in cases (Pennsyl-

. © vania Lumberimen’s Ing. Co. v. Meyer, 197 U. 8. 407; Com-

ict mercial Mutual Accident Co. v. Davis, 213 U. S. 245) where

- the agent of a non-resident insurance corporation was .

present within the state clothed with the authority to enter.

into contracts of adjustment, although there ‘was no proof

of - specific contracts having been entered into with the

state. The Appellate Division in the instant case ex-

pressly found that. no authority to bind i is ever projected

into the State of New York (BR. 189). @ °

In concluding this part of. our discussion, we assert by

way of summary that no contracts are ever made or coun-

| tersigned: Gwithin the State of New York; that appellants /

‘have no office in the state; no‘general or special agents,

no district manager or other. impedimenta therein; that

_ there is no carryirg on of an elaborate systeni of ‘ssolicita- -

tion in New York, no commissions paid, no advertising, no

_ employees, no incidental contracts, no bank accounts in the

state, and that, activities generally are localized i in ee

(2) ‘The fact that appellants are licensed by the State of —

New Be ek rene a OE Qertion Ht dertetioten

to regulate. S

At the time of the i issuance of the New York licenses by

Superintendent Conway in 1930 it was known that appel-

- lants’ contracts were ‘made in Illinois, and it was under-_— .

stood that they would continue to be made in that state..

No attempt was ever made by the New York Department

to regulate these contracts until the state amended its

Insurance Law in. 1939, when the threat of regulation was .

first made.. Because of the long existence of these licenses,

it would be dangerous to the reputation of appellants’ co-

operatives to surrender them. (Patterson, The Insurance

Commissioner. in the United States, pp. 90, 91.) The State

of New York now seeks to take advantage of a situation it

helped create by attempting at this late date to change the -

entire theory upon which the licenses were granted. In

_ 1936, when. the first countersignature statute was enacted,

‘ no/attempt was made to force appellants to bring their

contracts within the state for countersignature (R. 75).

'- Sinee the enactment of the taxing statutes of. 1935 ‘( sub-

stantially re-enacted as Section 552 of the Insurance Law

of 1939) appellants have paid taxes to the State of New.

: York measured by net deposits of New York Subscribers

in the amount of several thousand dollars each year. This

seems a high annual fee when we consider that all the In-

surance Department does in return i is audit the statements

‘filed by appellants each year.

The appéllants assert that the State of New York has

in effect demanded ‘that appellants either submit to the

| extraterritorial operation of the challenged statutes or

give up their licenses. But it is axiomatic that a state may |

_ Never compel a licensee to give up rights guaranteed by the

federal constitution. in order to. obtain or retain a license.

New York Life Ins. Co. v. Head, 234 U. S. 149, 163.

ys means < ‘repudiating. the imputation. .

lia Sadie Stra Se ba cea ater ae PARLE TY AES RIS

- 26

" Sink Fire Ins, Co. v. Harding, 2 272 U. S. 194,

507..

Fidelity dé: Deposit Co, v. ‘Tafoya,’ 270 U. 8. 426,

' 434 (opinion by Holmes, J.).

Terral v. Burke, 257 U. 8. 529,532. .

Palmetto Fire Ins. Co. v. Conn, 272 U. 8. 295, 304

——— by Holmes, J. ).

“Although we made the above iiabetiion.’ in the Court of

Appeals, that Court wholly misconceived the argument, as -

shown by the statement in the opinion that we contended

that although appellants were authorized to do business

in New York, since they did no business in the state they

must be treated as though unauthorized (R. 198). We

‘never addressed that argument to any court and take this

(8) ‘nthe ten tapislnn ot Sas inmnell gregh) sie

Sennen ae ee meninae Se Neer Cae Siine cin oe

nen Spe a en ma aici

nois contracts. — .,

There can -be no qecntion aie the authorities in. this

Court, as well ‘as under the authorities generally, that

_ neither the situs of the property nor the residence of the

Subscriber'in New York ean afford any basis for the claim

that. New York has the jurisdiction to regulate these con- |

tracts. Moreover, the jurisdiction being in Illinois, a uni- .

form standar rd of interpretation is assured. The applica-

_ tion of any other rule would result’ | in a conflict with the

federal constitution. :

_ An excellent statement of the? gener } rule is » toon in

Clay Fire Ins. Co. v. Huron Salt Co., 31 Mich. 345, 354,

where Groves, C. J., in an opihion concurred i in hy Camp-

‘bell and Cooley, JJ., said as follows:

“The contract was ‘personal and not ‘oak ‘and al-

though it had relation in a certain sense to realty, it

was not operative upon the estate, but. merely as an

agreement to pay money in ¢ase the erections, or other

make the contract a Michigan contract, or in any legal

sense make the state the place of performance by the

that the contractee was a Michigan corporation, did

not impress upon the contract the quality of locality,

so as to cause our laws in regard. to business done*here

by agents of. — companies to affeet it in point of

law.” ;

the foregoing principle: | in varying aspects under the aid

rm clause are: .

Aetna Life Ins. Co. v. Dunken, 266 U. 8S. 389, 399.

Home Ins. Co. v. Dick, 281 U. S. 397, *407, 408

(opinion. by- Brandeis, J.)..

292 U. S. 143, 149.

U.S. 346 (opinion by Holmes, J: ).

- . Minnesota Commercidt Men’s Ass’n'v. Benn, 261

U. S. 140, 145.

' Allgeyer v. Louisiana, 165 U. Ss. 578, 591.

Mutual Life Ins. Co. v. Cohen, 179 U. S. 262, 269.

New York Life Ins. Co. v. Dodge, 246 U. S. 397,

New York Life Ins. Co. v. Head, 034 U. S. 149, 163.

District of New York in construing a prior New York

statute recognized the constitutional safeguard as. apply-

ing to a New York resident insuring say

limits of the state by means of contracts entered into out-

side.

_ property specified, should be damaged by fire. The.

- cireumstance | that the liability to pay was made to’

' depend upon’an event to real property ‘here, did not —

insurance company. And tie further. circumstance, .

St. Louis Cotton Compress Co. v. Oto 260

cA three-judge’ District —_ sitting in the Southern:

rty within the _.

- Palmetto Fire Ins. Co. v. Beha, 13 F. (2d) 500, 504.

Cases in- this Court: which present the application -« , es

Hartford Indemnity Co. v. Delta é Pine Land Cos...

se te ee ee ee tes ———————————

e / ’ a . : :

, p ; i \ : . 28 | |

forts This case was cited with approval in Fidelity & Deposit

Co. v. Tafoya, 270 U. 8. 426, 436,-in .an opinion. by

Holmes, J.

‘Although ‘the above rule has been settled in New York .

by a long line of decisions beginning with. Hyde v. Good-

now, 3.N..Y, 266, 271, and including People ew rel. Kirkman

v. Van Amringe, 266 N. Y. 277, 281, and People ea rel. Sea ~

Ins. Co. v. Graves, 274.N. Y. 312, the Court réfused to apply

it to the instant” case.

“(4) ‘The Court of Appeals white, failed to endo the

limitations of ‘due process in the case at bar.

The Court: of Appeals, ignoring ‘the applicable author-

ities, found that appellants were doing business in ‘New ©

York and ‘therefore subject to regulation. (R. 197). Of -

course, conclusions of state courts as to mixed questions

of law and fact may never be invoked to deprive suitors

of rights guaranteed .by the federal, constitution.

- First: National Bank v. Hartford, 273. U. S. 548,

552, 553. -

Provident Sau ings Life Assurance Society v, Ken-

tucky, 289 U.8.103,112.-

- The decision of the Court of anaes is based (R. 197) ©

upon the definition of Section 41, subsection 3(a), of the.

“Insurance Law (Appendix: B) which defines an insurance

business ‘as ‘‘the making, as insurer, or proposing to make

as insurer, of any insurance contract.’’ In attempting to

distinguish ‘the Subseriber in his capacity as ‘‘insurer”

from thé .“‘situation where the applicant for insurance to

de issued to him solely as an insured mails an application

for that i insurance té a foreign. cortipany. i ina foreign state,”

where admittedly there is no: jurisdiction to to, regulate, the '

- Court says that the insurer {prospective @ Subscriber) signs...

Ve Power of Attorney in | New ‘York and confers ‘thereby ©

Ake

- power upon » the ‘siaiiteitnliiad to execute ‘far him a con-°

tract of insurance so that he may become: the insurer of

hundreds of risks throughout the United States and

Canadh ; that it matters not where the contract creating

’ the obligation to oO pay the indemnity is made arenes ‘four

resident is an insurer.’’

Needless to say no authorities are cited for so remark-

able a proposition. .

That the holding of the Court j is based upon ithicene

reasoning is readily demonstrable. ‘The decision is neees-

sarily based upon the untenable ground that the consti- re

tutional privilege here claimed .does not extend to: an

‘insurer. The following are representative of cases in which-

the rights of.the insurer. under the due process clause’ ‘were

‘upheld and.enforced. . .

Hartford Indemnity Co. v. Delta dé: Pine Lead Co.,.

"992 U. 143, 149.

Aetna Life Ins. Co. v. Dunken, 266 U. 8. 389, 399.

New York Life Ins-Co. v. Head,.234 U. S. 149, 163.

In the mutual benefit case of Minnesota Commercial

Men’s Ass’n. v. Benn, 261 U. S. 140; 143,,145, the con-

stitutional privilege here claimed was enforced on behalf

of the membersjof the association, each of whom stood ‘‘in

the peculiar sifmation of being’ a party to both sides, in-

surer “and ins ed.”? (Korn and-.Wisemiller v. Mutual -

Assurance Society, 10 U. 8. 192, 20}.) -

The above language applied to members of a mutual

association applies as well .to the Subscribers in this

inter-insurance. ' Nevertheless, the Court misplaced. the —

» emphasis. The primary object of an. applicant desiring -

to participate in this indemhity is to save up to fifty per

‘ eent in his insurance costs, not to engage in the insurance

business. Moreover, if the applicant sending in the, Power

of Attorney should be rejected, it cannot. reasonably Le

o said that ene the pendency of his application he has

me ‘Week engaged in “the insurance (dealt: If thi applicant ei

Eg aceepted, however, the resulting. ‘contract comes into —

a being, not in. New’ York, but in Ilinois, the wate ej ac-

-ceptanee.

Py Minnesota Commercial Men’ s Ass’n. ve Ben’,

+ 1 261'U. 8. 140, 143, gS area

In Hartford Indemnity Co: v. Delta. é Pine Land Co.,

292 U.S. 143, a bald attempt had -been. made by the State

of Mississippi to avoid the limitations of due process. The.

", \state had ‘acted a statute that proyided that, ‘‘all con-

cts. of. insufance on propérty, lives, or interests in this

s shal] be deémed to be.made there.’’ But the Supreme:

rourt \of Mississippi, réfused to hold the statute invalid,

saying, “{*when the statute declares that such a contract Ep

shall. be deemed to be made in “this state, it means that the

~ “eonflict of law: between the two states.is eliminated. ?- Phis >

~ -Court.denounced the attempt to strike down thé constitu. . |

ish __ tional right, stafing (p. 149);

ow ,

| «(The Mississippi statutes, so construed, deprive the

» appellant of due process of law, A state may limit

or prohibit the making of certain contracts within its

‘39 L. ed. 297, 15 S. Ct. 207, ® Inters, Com. Rep. 610; _

Orient Ins. ‘Co. v, Paggs, 172 U. & 587,-565, 566, 43 L.

ed. 552, 555, 556, 19 S.Ct. 281; New York L Fns. Co.

- y. Cravens, 178 U. 8. 389, 398, 399, 44 L. ed11167 1123, -

.- 1124, 20 S.. Ci 962) ; but it cannot extend the effect of

its laws beyond its borders so .as to destroy: or qnpair

the right of ¢itizens of ‘other states to make a contract

not operative within its jurisdiction, and lawfui where — -

- made... New York L. Ins. Co. v. Head, 234 U. 8. 149,

58 L. ed. 1259, 34 S. Ct. 879, Aetna L. Ins. Co. v.

Dunken, 266 U. S: 389, 399,.69 L..ed. 342, 349, 45 5S

Ct. 129. Nor may it in an. action based upon such a 4

contract enlarge the obligations of the parties ‘to ac-

cord with every local statutory policy solely upon the

“ground that one of the parties is its own citizen. Home

dns. Co. v.- Dick, 281 U. S. 397, 407, 408, 74 Ti. ed. 926, oF

933, 934, 50 8. Ct. 338, 74 A. Le R. 701.” ¥

own territory: (Hooper v, California, 155-U. S. 648, |

; oe : ‘31

* We ¢ submit that. there is no diffgrence in. principle | be-

tween the above case and the case at bar. -

The Court of: Appeals limited its law to a case in the

District Court, Fireman’s Ins. Co. v. Beha; 30 F. (2d): 539

Combay,! 278 U. S. 580), where the insurance contracts were

admittedly entered into within the State of New York

over ‘them. The sole issue in that case was whether. the

‘state could require a ‘non-resident insurer licensed’ and

doing business in New York to conform to. the financial

_ requirements imposed ‘upon domestic insurers as a con-

- dition tg the retention of its license, although acts in re-

lation thereto thight be ‘required of. the insurer outside

of the state. The Court answered this question in the

affirmative. The case is net in point, nor did the appellees

deem it of sufficient importance ta cite in any of the courts

° below.

licenses (R. 198), asserts that because’of these licenses

the Subscribers know that the minimum ‘capital and the

those. of domestic insurers, iting | Sections 42 and 90

(Appendix, B): of the Insurance Law. ‘(These considera-

‘ tions’? says the Court, ‘‘are helpful: competitively in ob

' taining insurayee. -business.”’

acaeaely owners - simply earry their own insurance, At is

cooperatives i in addressing the. National Cafiners Conven-

tion said (Exhibit 91-; R. 73, 314By:

1. Albert Conway, “having succeeded” James a Beha as Superinteride nt

. of Inshrance of ‘New York. was substituted’ ‘as a party defendant in the

Supreme Court of the United .States. He was later elected to the

Court of Appeals and wrote the opinion in the instant cause in the court

belowe As Superintendent of Insurance Judge Conway lieard and passed

upon appellants’ applications for licenses in 1930.

“(affirmed on a procedural point in Fireman’s Its. Co. v, ‘

and ‘there was no question as to the jurisdiction of the state.

‘The Court of Aneel, ‘Sinan that deiniieie derive :

a pecuniary or economic benefit from their New. York |

assets of the -insurers mist be substantially the same as"

P) . :

. The element of competition cannot be present where the

as true today fis it was in 1916 when the founder of these -

‘¢Another thing I wish to impress upon you is that ,

Canners Exchange is cooperative and not competi.

' tive. It is not in competition with anyoné or any in-

‘surance company. It j is a plan for the canners to carry

_their own insurance’and tb pay only the-cost; The

- United States Steel Corporation, the Standard Oil

Company and other large,corporations, we understand,

carry a large part of their own insurance. They feel

.. that they have a large enough namber of separate.

risks to create an average and think they can there- |

fore, better afford to stand a loss now and then than to _

pay premiums on all their risks, and if they have a

proper average they ean. Because they do this; are .

- they in the insurance business or are they in competi-—

_ tion with the stock companies? Of course, not. They |

are simply carrying their. own insurance... Thid is.

‘exactly what you canners are doing, except that no

one of you have enough | separate risks to make an ~

‘average, so you join. together at the office of Canners

Exchange and accomplish the same result. You can

really see that there is:no competition, but you are -

' merely securing your insurance at what it costs.”’

- These remarks: apply with equal force to Warner Re-

| * ciprocal Insurers. Neither tobe ever been changed.

- There has been no material incfease in Subscribers dur-"

ing the past decade (R. 126, 142). The increase in deposits

made by New York Subseribers (R: therefore: neces-

sarily reflects the‘increased insurance needs ubscribers’

for the period, and the taking out of the licenses had-noth-

jing to do with the increasé. The enlarged volume o

deposits is readily explained, Stotks of canned goods and

rroceries ‘constit te the bulk of the insured property.

size and value of these stocks vary with the times, depend-

ing upon crops, economic conditions, markets, and other

factors. The bottom of the. cataclysmic depression having

been reached early in the 1930s, values of canned goods

and groceries, as well as. of buildings and equipment, ‘were |

_ unprecedently low. But as business conditions improved,

inventories increased, both in amount and value. Appel-

ants’ insurance coverage, and therefore the deposits, in-

creased in proportion. This was true in New York as

well as in the rest of the country.

_ ThesCourt of Appeals next adverts to the lstehen (R.

200)... The discugfion is-confused. The Court says that if

appellants were not authorized or licensed in New York

and transacted no busi! t state, the statutes would

not be. applicable, but since appellants are licensed, the

sections (except Section 130 which it discusses separately)

: are applicable, the Court thereby i ignoring the fundamental

rule that a license cannot furnish a basis for the impositign

of unconstitutional rMMilations. Section 130, which on its

{gr applies only to the foreign insurer who ‘‘shall in this

state issue, deliver or otherwise effectuate any contract

‘of insurance,’’ is by a piece of. judicial. amendment held to

apply to appellants’ cantracts because ‘‘as indicated =

they (appellants) are doing business here.’’

The holding of the Court of Appeals that thesis Sub- .

seribers are. doing business i in New-York in effect compels

appellants to retain their New York licenses. Thus all of

the challenged statutes become applicable to them. There- -

fore the Court’s, statement that the statutes apply only to

authorized reciprocals is misleading. As the decision now —

stands, the only escape from regulation open to the New ,

York Subscribers i is for them to give up their insurance.

Why ‘should these business men be compelled. to give 7

up carrying their own insurance and thereby add up to

fifty per cent to their insurance costs simply because the

State of New York has seen fit to impose a set of untried”

regulations upon them? Doubtless old “line companies

would like to see these cooperatives broken ‘up. so that

appellants, would be obliged to go into the open market’

and purchase insurance of thein. It seems strange that ®

the Court of: Appeals would invoke a technicality to re-

verse the well- -reasoned opinion of the Appellate Division

” 34

in order to prevent this reasonable cooperation among

business .men to lighten the-charge upon. business, where

there is no public to be protected and -no one is asking.

to be protected against the use of his own -credit and

business standing and the saving it gives to. him. ~This is

particularly true’ during the present period when “many

~ ‘small business men are struggling for existence. “We assert

that cooperation among business men based“upon mutual

confidence and trust ought*to be encouraged instead of

discouraged or prevented altogether.

Authorities cited by Trial Term on isgue of jurisdiction

In making a case for jurisdi¢tion in New: ‘York State

the Trial Term cited two tax cases,-referred to below, and .

Osborn v. Oelin, 310 U.S. 53. Not one of these cases was

' mentidned by either the Appellate. Division or the Court

of Appeais. In citing the tax cases the Trial Term over-

looked the principle that although taxation in a sense is=

eregulation, the right to tax does not carry with it the right

to regulate. ‘The power to regulate includes the power to

restrain or prohibit altogether, whereas in the case of

taxation, the non-résident insurer escapes the prohibition .

by paying the tax. This distinction is recognized by Mr.

Justice Holmes in the first of these cases, Equitable Life .

Ass’n. Soc. v. Penn, 238.U. S. 148, 147, where he said: :

‘“‘The fact that the state could not prevent the .

contracts, so far as that may be true, has little bear- '

ing upon its right to consider the benefits :thus an-

nually extended into Pennsylvania in measuring the —

_ yalue of privileges that. it does grant.”’ :

And the same judge in his dissenting opinion in the

second case, Compania de Tabacos v. Collector, 275°U. S.

87, 100, said:

. It readily may be seen . that a state inay tax things

that under the Constitution as interpreted it wannot

_ prevent.’’ ;

“It is irrelevant that under these. cases a state may tax

. a licensed foreign insurer and. measure the tax by con-

tracts entered into outside of the state, where either the

insured, or the property, or both, are in the state, and the

‘eqntracts are to be performed: within the state. But if this

. were a-tax case the authorities cited, would still be inap-

posite because here there is no performance i in New York.

- In taxation cases the license is of course. important be-

_eause-the taxis the price charged for it.

_ relied upon by the Trial Term for its adverse conclusion

regarding: jurisdiction, suit was brought by thirty-four

non-resident casualty companies who maintained an elab-

orate agency system in the State of Virginia. Paragraph

(7), (a) of the complaint filed ‘i in the District Court alleged

in effect the doing of dbusiness for the purpose of regula-

tion by averring the making of contracts within the State

of Virginia, the language being that “Each agent plaintiff .

* * * has countersigned for his respective company

er companies large numbers of contracts covering in Vir-

ginia some of which were produced outside of ¥irginia and

some in Virginia. * ° * Dué’to the frequency of said

countersignatures the aggregate value of the services of

‘ each agent plaintiff has been very great, though the value -

of furnishing a single countersignature was trivial.’’ This

doing of business was also reflected in tlie finding of the

District Court (#9 F. Supp. 71) that, ‘‘Customarily, con-

tracts produced outside of Virginia have been counter-

‘signed by the general agents and branch office managers

s, without cémpensation.’’ It goes without saying that coun-

tersigning and delivering the policies within the state,

. being the last effective acts to give the contracts validity,

made them Virginia contracts.

The District Court also found other facts that independ-

ently of the foregoing constituted the doing of business in

Virginia, including the finding that ‘‘The companies em-

In Osborn v. Ozlin, 310 U. S. 53, the case —principally Siok

ploy. field supervisors to stiniulate and guide the activ ities.

- of loeal producers, to accept or reject orders for contracts ~*

° from producers, to underwrite, prepare and check con-

tracts, to collect premiums’ and generally to represent the

‘company in a- particular territory. The two major classes

of: field supervisors are: (a) The general agent. © °° °¢ .

In Virginia, the general agents produce the bulk of the”

_ local business. -(b) The branch office manager or salaried —

—eompany representative who has the-same—powers—and—

duties as the general agent, but is compensated by a salary

and receives no commission for producing business. When-

ever a branch manager negotiates a policy directly with an -

. assured, the rule of the National Aésociation of Insurance

-\ Agents, in which most insprers have acquiesced, requires

that the contract be closed through one of the mancger’s

commission agents who is’ paid the full producer’s com-

~ mission. “The manager’s function is to develop his terri-—

tory through ordinary producing agents and to supervise e

and assist them in the. production of desirable business” = 7

(italics supplied),—all m Virginia. This Court cay toe

the above findings of fact in their entirety.

‘In addition to all this, the contracts,” anne the tai

company agency system used by these conipanies, were

performable Within the staté. An elaborate system of

‘*servicing’’ was maintained by these companies; casualty

suits were defended within the state and losses were ad-

justed and paid therein by the stock company adjusters.

Other “activities within the state were directed toward:

enforcing compliance.at all times by the companies ahd -

assureds with the ‘‘network of legislation (which). controls.

the surety and casualty business in. Virginia’ (310: U..S.-

63). Virtually everything pertaining to the business of

casualty insurance in this. myriad of ramifications was done

within the state, and this Court assumed the doing of busi-

ness within Virginia which the plaintiffs did not dispute:

The. examples of. proper cases for state supervision given

PaA ; aoe

in thé opinion. all presuppose the existence of “Yariedictjon

‘to. regulate (310 U. S. 65,°66).

There was no claim in the Osborn case that the statute

requiring the coutitersigning of policies. within the state

was invalid. Plaintiffs had been doing this enormous miss,

of business ‘within Virginia over a period of years and had

submitted to the jurisdiction of the state to ‘regulate its

contracts, and the requirement that the-policies be counter-

- signed within the state was part of the system of regula-

tion plaintiffs had submitted to. There was no attempt

by Virginia to secure jurisdiction over the policies through

‘the requirement of countersignature, and the complaint,

in which three countersigning resident agents joined, al-

" leged compliance. therewith. The sole griev apee was that

that part of the . Virginia statute. was is_uficonstitutionat

|__ which: forbade—a—salaried . representative countersigning

- policies of insurance, but required the countersigning resi-

dent agént to colléct all -premiums paid thereunder and

_ keep not less than fifty per cent of the commissions. paid

_ by the company. for procuring the business, :

The contention was made that because of the large com-

missions provided for the countersigning resident agent 3

by the challenged statute, insurance costs outside the state -

‘would be increased and hence Virginia in effect would ‘be.

. tegulating matters beyond her jurisdiction, but this Court

disposed of. this argument by saying that ‘‘The mere fact

’ that state action may have repercussions beyond state lines

is of no judicial significance so long ag the action is not.

within that domain which the Constitution forbids’’ (310

U. S. 62). Because of all this business. done within the

state ‘‘ Virginia‘ has taken hold of a matter within her

" power’? (310 U. S. 62).

_ That the State of Virginia recognizes the inapplicability

of the ,countersignature statutes to reciprocal insurance

is shown by Sections 4235-c and°4340- of the —

” ; 38

° Code, which specifieally except reciprocal insurance from

the operation of the statutes providing for countersignature.

—

Port II.

Equal Protection of the Laws.

The following sections are invalid and inapplicable because

‘they deny to. appetiante ‘the: equal, protection of the

laws. -

Section 412, ‘Subsection 1.

Section 417, Subsection 1.

" Séction 418, Subsection 1.

Section 412, subsection 1.(Appendix A), prohibits the

Subscribers from making ‘‘any new agreement for insur-

_ ance’? who do not’ have net assets in an amount not less

.than ten thousand dollars. The statute also provides that -

_ {before renewing a contract of insurance with a Sub-

seriber’’ similar proof of financial responsibility shall be

required unless the Subscriber has accumulated the operat- |

ing reserve required by Section 418, subsection 1, herein-

after discussed, that is, twice the amount of the ‘annual.

__ premium’’ (the term being improperly applied to the initial

_ deposit) or the Subsgriber’s pro rata share, determined |

on the’ basis of ‘‘annual premiums ‘in force’? ‘of one-half.

of one per cent of the aggregate insurance in force.

Thus a canner or. wholesale grocer who does not ave .

net assets in excess of ten thousand dollars is forbidden °

to insure any new stock of goods, new equipment, new

| building or ad-lition, or the -like, although he would be

_ permitted to renew a contract on subject matter covered °

by a previous contract if he had the operating reserves

“required by Sertion 418, subsection-1. Although the great

majority of contracts entered into are on new subject —

’ matter (stocks of‘ canned goods and groceries), neither

group builds\up reserves which meet the requirements of.

| x

a . ae

s~ ¢ °

| Section 418, sebsettion 1, so as to ‘alow them the privilege

of Fenewing their outstanding contracts (R, 63, 64). Thus /

all Subscribers not worth the sum of ten thousand dollars”

_- or over are prohibited from carrying their own insurance.

Such Subscribers constitute a ‘great number”’ of the entire

“membership i in both groups (R. 79). The undisputed evi vi-~

dence is that Section 412,. subsection J, is simply an ‘arbi-_

trary provision that denies to the small busiggss man the |

right to carry his’ own insurance, .and that over \thirty

- years’ experience has proven that no ‘neeessity exists for

such a provision (R. 79 *The Trial Térm found (R. 176)

the said section invalid on the ground Ahat it. denies. to the

> gmall- ‘business man .the right--to,secure this insurance.

“The Court of Appeals i in reversing did not even deem the

tights of ‘the Subscribers i in this regard worth mentioning.

Truly this is legislation based on a ‘‘man’s mere prop-

. etty status,’’ which, ‘‘ out more, cannot be used by a

state to test, qualify,”or limit’’ the -rights ‘of citizens.

(Edwards v. Califorfia, 314 U. S. 160, 184.) There is no

relation whatever,etween the requirement of this statute

: , and the ability ofa Subscriber to pay a liability arising

out of his insurance contract. Thus a Subscriber having

net assets of $12,000 would be permitted - ‘unlimited insur-

‘ance and could incur a liability far’i in ‘excess of his worth,

while ‘a Subscriber worth only $8,000 would be barred from

‘carrying any insurance, or assuming a liability therefor of

.even one dollar. Other instances - showing the glaring dis-

crimination of this.section could also be’ given.

‘It seems clear that this statute denies to appellants the

_ equal protection of the laws. i!

4 Frost v. Corporation Commission, 278 U. 5. 518,

/, @&:

‘Louisville Gas & E. Co, v. Coleman, 277 U. S. 32, |

Cotting v. Godard, 183 U.S. 79, 109, 111, 112.

‘Engel v. O’Malley, ag. U. S. 128, 138.

‘ e

. ‘.

“% ; 40 . a @

Another objection to Section 412 2, subsection 1, is that

no similar requirement is made for members of matual *

‘fire insurance companies or persons desiring to i insure their

property in any insurance company.

. Seetion 418, subsection 1 (Appendix A) referred to above,

requires each Subscriber to build up an operating reserve |

by deducting each year not less. than. one-quarter of his

‘‘earnings ag an underwriter’? until he has accumulated -

the greater of these-two sums: (a)*Twice the amount of

_ his premium, or (b) his pro ratasshare of an aggregate re-.

_ serve of one-half of one per cent. of the egate amount:~

of insurance in force. But there is tio premium in this CO.

operative insurance,nor has the provision for ‘earnings

as an underwriter’’ any. application to appellants for the

_ obvious reason that they have no such earnings. Instead;

the unused portion of the deposit to which the Subscriber

has retained title thra§ghout is returned to him each year.

“Section 418, subsection 1, if applied to appellants would

require the building up of unnecessarily large reserves.

_ For over thirty years the present system of accumulating

and maintaining reserves has proven adequate. to meet all

losses, expensés and contingencies. The reserve require-

ments of this section are new. No other: state requires.

‘them. There. are no comparable requirements for insur-

ance companies (R. 81, 82). In-holding the statute to be

| discriminatory, ‘the Trial Term stated that if New York

imposed similar requirements on stock companies it would ~

- put a great many of them out ef business (R. 177). More

over, the statute creates a joint liability as to ‘these re-

serves—anathema to appellants’ plan. — ,

Section’ 417, subsection 1 (Appendix A), seine to

require. appellants to amend their contracts and Powers .

of Attorney so that they ‘‘shall provide for a contingent |

- several liability for assessment of the ‘Subscriber as an

inter- insurer on the risks ‘of every other Subscriber in an’.

ag :

, 41 .

4 ate

(nto

amount not less than otie Yor: more than ten times the

‘amount ‘of and in addition to the annual premium expressed

in such contracts of insurance issued to the Subscriber by

the reciprocal. insurer.’? But Section 345, subsection 1

‘(Appendix B), of the Insurance Law relating to mutual

fire insuratice companies provides no limitation: whatever

to the contingent liability of members of a mutual company.

To impos: Section 417, ‘subsection 1, upon appellants

would require them to remake their system. Here the

liability of a Subscriber is one entire liability, definite

and certain: The Subscriber must pay his several, separate,

fractional share of all losses and expenses at all events, and

limitation upon this liability would ‘be inconsistent with

the theory of the system. In contrast the term ‘‘contingent |

liability’? implies two liabilities,—a fixed liability. to the

extent of the deposit and an additional liability, contingent

on the happening of some event not specified. The term

- obviously has no application to this self-insurance. The _

use of the word ‘‘aéssessment”’ in the. statute as applied .

to the case at bar is also without meaning. .

_ Nor could liability be limited, as- proposed by Section

417, subsection 1, without destroying the present plan

(RB. 81). This is the uncontroverted evidence. The statute

would hybridize appellants’ insurance“with old line isur-

ance. There is no premium or other amount of any designa-

tion “expressed i in such contracts,’’—can be none. Inthe

. very nature of things the cost cannot be determined until

~ the end of the period of coverage. .-Appellants’ initial

deposit is made for convenience only. .

The reserve requirements of Section 418, subsection 1, _ -

as compared with the reserve requirements for insurance

_ companies, is a denial to appellants of the equal protection _

of the laws. Likewise the requirements of Section 412, —

~ ° subsection 1, and Section 417, subsectien 1, as ‘compared

“s (poe ee

= ° 7

- with members of mutual fire apa is a denial to appel-

lants of equal protection of the laws.”

Concordia Fire Insurance Co. v. linois, 292 U.S.

535, 545, 549.

. Hartford. Steam Boiler Ins. Co. ¥. Sheahan 301

« . ; U.S. 459, 461.

Mayflower Farnis v. Ten Eyck, 297 U. S. 266, 272,

@ 274. ,

Frost v. Corporation Commission, 278 v. S. 515,

§22.

Louisville Gas and E.. Cox. Coleman, 277 U. S.

32, 37.

: McFarland v. American cue Refining Co., 241

U. 8. 79, 86.°

Point Il. .

- Unreasonable Regulation. :

. The statutes are invalid and inapplicable on the ground

of unreasonable regulation. :

In addition to violating the equal protection of the laws

clause, each of the above three statutes is invalid and in-

applicable as unreasonable and. discriminatory regulations

and prohibitions. The other statutes will now be con-

sidered in relation to the due process clause on the ground —

_ of unreasonable regulation: The following authorities ik: ~

* lustrate the general principles applicable.

Nebbia v. New York, 291 U. S. 502, 525.

McLean v. Arkansas, 211 U. 8. 539, 548.

C. B. é Q. R. Co. v. McGuire, 219 U.S. 549, 589.

Truax v. Corrigan, 257 U.S. 312, 332, 333.

Section ‘130.

"Section 422, Subsection 2.

We contend t t the construction given Section 130 (Ap- . -

“pendix A) by the Court of Appeals /does violence to the.

plain-meaning of words:because it emasculates the section

of the- condition precedent to its application, to- wit, that

- the foreign insurer ‘‘shall in this state issue, deliver or

- otherwise effectuate any contract of insurance,’” and sub-

stitutes therefor ‘‘doing business here,’’ as defined by’ the

Court of Appeals, The effect of this construction being

to confirm the jurisdiction of the State of New York over:

appellants’ contracts, we maintain that Section 130, as now

. construed, is invalid as an extraterritorial usurpation | for-

..bidden by the due: process clause.” °

In general all risks fall into two classes: (a) The fac:

‘tories and warehouses|of canners and the stores and ware-

houses of wholesale grocers; (b) Stocks of canned goods

and groceries. The contracts | in relation to the first class :

of risks are simply reriewed from time to time. In the

second class, new contracts are issued on inventories: as-

they- accumulate. The ‘‘turn-over’’ of these inventories

is frequent: When a Subscriber receives a new stock he

simply telephenes, wires or writes the office in Chicago toy

cover the goods. ‘There is never any. difficulty. The par-

ties do not deal at arm’s length; on the contrary, a rela-

tion of mutual trust and confidence exists. Therefore

transactions are frequently informal. If a mistake should

be made it is easily corrected. . There is nothing in the

. relation of appellants to require the superintendence of an ‘

outsider—at twenty-five per cent: additional cost to the

Subscriber. . : : |

Moreover, these being highly ‘specialized risks, only a

professional insurance engineer is qualified to ‘service’

_ them. Ordinarily the resident. agent wonld. not be so

= a

af oa i | ay

qualified (R. 76, 77).. And the risks being limited to one

or two in particular vicinity inorder to eliminate the ~

conflagration hazard, it would be impracticable for the

' so-called resident agent to visit Ahem. © This the evidence |

shows’ 4 ® %. h: >) See nalts

Section 130 should ‘be read with Section 499, subsection 1

(Appendix A), which requires the maintenance of at least

.. One office in the State of New York. Section 110, subsec-

‘tion 3 (Appendix B), requires. the agent to be a soliciting

agent compensated on a commission basis. We believe that

one of the reasons for demanding that appellants cause.

their contracts to be-countersigned by a residetit agent is to

secure commissions to the local agents. Manifestly the —

agency system’has no place in this self-insurance; it would

arbitrarily adi approximately twenty-five per cent (R. 75)

to the cost.' It is not denied in the- record that the enfore-

~.ing of Retions 130 and 422, subsection 1, against appel- —

lants, would result in the ultimate destruction of the system

-(R. 77, 83).- We assert that the statutes aré harsh, arbi-

trary; and unreasonable regulations. :

= ‘de 168, Subsection 2. as

; This statute (Appendix A) provides that ‘‘no policy or

- contract of fire insurarice * * * shall be made, issued or-

‘delivered * * * on any property ‘in this state, unless it

shall conform ‘in all particulars’? to the standard fire in-

surance policy of the State of New York. The present

section was repealed after the commencement of this liti-

gation, and a. hew statute enacted, to take effect July 1,

1943 (Ch. 900, Laws 942). The new statute carries

‘forward the same general objection as the present statute.

.The question is whether appellants are to be permitted

-. to make‘such changes in the New York standard policy us |

are necessary under their system of inter-insurance. Obvi-

1. See O'Gorman € — v. as se be Fire Ins. ‘Co., 282 U.* S. 251, 255

et seq. ; : t

ously the statutory form of policy was prepared for insur-

ance corporations, and, the adaptation thereof -to appel-

lants’ use has required many changes. Thus at the top

of the first page of the. contract (Exhibits 7, 9; R. 59, 228,

935) is substituted a paragraph containing a full descrip-

_tion of the individuals, partnerships, and corporations who

exchange the contracts. Next, the contract as adapted

incorporates the Power of Attorney. Becatise a premium

or ptcp for this insurance cannot be stated, the ustial

language relating to premium has ‘been ¢liminated, and

the consideration stated is the exchange of insurance by

the Sabscribers. his is of-the very essence of the insur-

ance, and the requirement t#&t a premium be stated’ is

carried forward in the new statute. Toward the bottom .

of the same page of the policy is substituted another full

paragraph setting forth the several nature of the Sub-

scribers’ liability and the manner in which it is deter-

> amined. ’ The contracts required to be used therefore cannot

_ be made to ‘‘conform in. all particulars’’ to the form pre-

scribed without completely destroying the plan of insur-

ance. The Trial Term (R. 176) permitted-sufficient -lati- -

‘tude to make the statute workable. We contend that the

statute is void because unreasonable, arbitrary, and ca-

pricious, as well as because of lath of jurisdiction. -

Section 410, Subsection 1:

“” Section 415, Subsection 1(d).

The first of these’ statutes (Appendix A) jas to do with

the ‘“‘advigory committee’’ which, subject to the Articles

of Association and Subscribers Agreement has ultimate

powers of management. The Trial Term held that since

appellants’ Power ot Attorney is in negatien of such power

, the provision is rendered meaningless (R. 176). The Court

_ of Appeals did not dissent from this construction. Section

. 415, subsectio# 1(d) (Appendix A) provides for a ‘method

46 \

of electing advisors not unlike the one used by the canners

group but differing from the one used by the wholesale

grocers. As to'the latter group the statute is one more |

unnecessary regulation ,(R. 80): ; P

‘9

Section 415, Subsection 1. °

The statute (Appendix A) requires s bscribers ’ to

- execute and &cknowledge the Power of Attorney “fy a tiati-

ner sufficient for the acknowledgment of conveyances. of

real-property to be recorded in the state in which such Sub-

scriber is domiciled.”” The statute is of nation-wide ap-.

plication and it is difficult to instance a clearer case of

extraterritorial legislation. New Subscribers cannot be ac-

cepted by any such loose method as would ever admit of

a forgery or mistake in identity. It is a cumbersome and

burdensome regulation, being unreasonable, arbitrary, and

capriciaus (R: 80). “i

Section 413, Subsection 2.

‘. Section 418, Subsection 3. >

tes Section 420.

Section 413, subsection 2 (Appendix A), requires the ac-

cumulation of a special contingent surplus, or guaranty —

_— surplus, at the rate of one per cent of the. insurers’ net

premium income for each such year until A minimum sur-

plus of at least 250 thousand dollars is built up (Seetions

411, subsection 4,,and Section 341, subsection 1(a) (Ap-

* pendix B)). The statute also provides that the fund thus

accumulated shall not be impaired except upon liquidation.

the requirement of Section 41°, subsection 2..-The 1939

statement. of Warner.Reciprocal Insurers (Exhibit 11; B.

), 247) shows reserve funds in exeess of 400 thousand

dollars, exclusive of unreturned savings of 228 thousand

dollars, while the corresponding statement .for Canners

a ce

Exchange Subscribers (Exhibit 12; R. 65, 255) shows re-

serve funds i in. excess of 2 million dollars, exclusive of 850

thousand dollats of ‘unretuyned savings; and the reports

of the convention examinations of the National’ Conyen-

tion of Insurance Commissioners made in 1937 (Exhibits

. 18, 19; R. 72, 284, 300) show the accuntulated reserves sub- -

413, subsection 2, ‘but these reserves are of a totally dif-

ferent kind from those purported to be required by said

Section 413, subggction 2. The reports of examination

commend the ‘‘excellent’’ cash position of both ‘groupe

(Id.). :

Our: reasons for dialtonsind Biition 413, subsectién 2,°—

are as follows: It is a fundamental principle of this self-

- insurance that each Subscriber retain title to all deposits

and otfier-funds, and that no one Subscriber’s funds be

used, ta pay the liability of another Subscriber, that is to

say, that no joint liability be imposed, and that upon with-

drawing from the plan a Subscriber shall get his money

back. The statute, however, seeks to interpolate into the

Power of Attorney provisions wholly subversive of this |

principle of several, separate ownership of the funds. Thus

‘the statute provides that the surplus may not be ‘‘im- —

paired’? by ‘‘dividend distributions’’ to the Subscriber or

_ by refunds or returns of continuing or retiring Subscribers’

‘reserves or deposits except in the event of liquidation, and

for the building up of reserves ‘‘at the rate of one per cent

of its net premium income.’’ The ‘Trial Term held that,

a premium is alien to this insurance, ‘‘and the plaintiffs

may not be compelled to introduce (into the poli¢y) such

false provision.”’ ( R. 175, 176.) Nor is there any measure

by which. tnese reserves are to be built up. The statute also

refers to ‘‘dividends”’ to Subscribers,’ with the provision

/ against ‘‘impairment’’ by “dividend. distributions,’’ which

/_ plainly is not applicable except by .a‘loose analogy to the

return of the unused portion of the deposit as a saving.

48 2 5 o

- The worst feature of the statute is that it would eliminate

the separate individual ownership of the funds making up

the aggregate surplus and substitute therefor a joint fund.

Thus title to the reserves would pass out of the Subscriber.

Upon -the Subscriber’s- withdrawal, the money would not

‘be returned to him. In over thirty years of experience the

Subscribers have never been obliged to fall back upon the

reserves to pay.a single loss or other obligation — (f. 285),

and any reserves built up under Section 413, ‘subsectior2>

would .probably constitute a permanent fund. Only in-.

solvency or liquidation would rescue the fund from per- —

manent alienation; even then it would not be returned to

the Subscriber. ,; .¢)

The above considerations also apply to Section 418, sub-

- seétion 3 (Appendix A), held invalid: by the Trial. Term

(R. 177), and to Section 420. .

“In challenging. these statutes uppellants believe that

they present no mere question of legislative policy, but

a question of statutes actually prohibiting the continued ex-

istence of the system (R. 79, 80). To save this self-insur-

ance is the reason the instant litigation was commenced:

Moreover, appellees admit that no necessity exists for mak- -

ing the fundamental changes required by these sections.

We contend that Sections 413, subsection 2, 418, sub-

section 3, and 420-are invalid onthe ground of unreason-

able regulation, as well as on the ground.of lack of jects.

diction.

ware or ‘Sechion 421.

This statute ( Appendix A) deals with accounting pro-

cedure. In so far as it requires the Attorney-in-Fact to

maintain a separate account for each Subscriber, it cor-

responds. with appellants’ plan and no objection is made.

But in attempting to apply such terms as ‘‘premiums

earned by him—as-an—underwriter”’ and ‘‘operating re-

serves’’, both of which are alien to appellants’ inter-insur-

ance, this section must fall with Section 418, subsection 1,

as unreasonable regulation, as well as for lack of jurisdic:

tion (R. 82, 83). .

-Pomr IV.

Conclusion. |

It has been said that the present tendency of ‘the deci- |

sions of this Court is to allow the states a wider latitude

than heretofore in legislation concerni orety Toca alias

matters. We believe the necessary corollary to this view

is that state legislation should be examined with increased —

‘serutiny to make certain that, in. the exercise of these _

broader powers, the state has not been guilty” of exceéding

the beunds of its jurisdiction or of denying rights guar-

anteed by the equal protection of the Jaws clause.

_ The practical effect.of the New York statutes under con- —

sideration is to deny to all citizens of the United States in

ange of New York fhe right to_carry their own insur-

For if appellants were forced te comply -with. the |

Yew “York statutes their cooperative insurance plan would |

cease to be, and some entity type of insurer, the precise na-

ture of which is not certain, would be’ substituted. If it be -

required ‘that the. insurance contract. state a premium or

price charged for the insurance, if joint liability. be sub-

stituted for the present several liability, if ‘the individual

ownership of the funds be eliminated, if the agency system

be forced on these groups—then appellants’ system of

inter-insurancé as it is known today will have passed out

of existenc® and one of the finest examples of cooperation .

among American business men will have become but a

memory. | 7 |

We pray that the judgment, of the Court of Appeals of

the State of New York be in all things reversed.

Respectfully submitted,

Feasxus D. Tevesiso,

Cras R. Jonxsox, ;

ee I for Appeltant:.

. -

. .

. ‘

‘

eg ae a ciel me

—— ;

. » z E

. os . \

- i ;

| e

- 8 :

os . . Z :

e .

ve .

‘ . *

. . i

Se <4 7 :

‘ =

. P

Fé ‘

/ a : . p

> .

? : m ; -

’

3 ‘

a .

. e

, 3 ? ° .

. ;

e.,

. . :

° bd ;

3 c ¥

i -

. 4

= is

a .

, = “

. $

. .

° .

. F

e .

APPENDIX A.

| Statutes Sued Upon.

(Showing in italics particular provisions alleged.)

Insurance ‘Law of 1939 of the State of New York:

Section 40, sussection 4, ‘(Objectionable portion re-

* pealed during pendency of this litigation.)

Section 130, sussection 1. ‘Except as provided in sub-

section two, no licensed foreign or-alien insurer shall in

“this state issue, deliver or otherwise effectuate any con-

tract of insurance covering either persons resident in “this

state or property situated in this state, or covering any

risk incident to the performance or non-performanée of any’

covering any risk incident to any ‘obligation or duty -which

is governed by the laws of this state though actually to be

performed elsewhere, unless such contract of insurance is. -

_tssued or effectuated through, or countersigned by, a.resi-

dent licensed insurance agent of this state. Within the

meaning of this. section, a licensed individual insurance

-agent shall be deemed to be resident. in this state. if he

has his domicile or his principal place of business in this

state, and a licensed corporation insurance agent shall be

deemed to be resident in this state if it maintains a law-

fully established place of business in this state; and a

- licensed firm or association insurance agent shall be deemed .

to be resident in this state if it maintains an established —

place of business in this state.’’ |

Section 168, sussection 2. ‘‘No policy or contract of fire

insurance, including a renewal of such policy or contract,

shall be made, issued or delivered by any ixsurer or by

any agent ‘or representative thereof, on any property in

this state, unless it shall conform-in all particulars as.to

size of type, as to location of blank spgces, and as to all

provisions, agreements a conditions, with such printed

blank form of policy (the standard form of the National

Convention of Insurarice Commissioners; section 168, sub-

section 1); and no other or different provision, agreement

‘or condition shall be in any manner made a part of such

contract or policy, except as follows:’’ (Repealed as of

July 1, 1943.) 7 re

Section 410, sussection 1. ‘‘Within the meaning of this

_ chapter the term ‘reciprocal insurer’ shall mean. any’ ag-

gregation of persons, firms or corporations, herein called

‘subscribers,’ who or which under a common name engage

in the business of inter-insurgnee or exchanging contracts

of insurance on the’ reciprocal: plan through an attorney-

in-fact having authority to obligaté the subscribers sev-

‘erally, within: such limits as may lawfully be specified in

the power of attorney, oh contracts of insurance made with

any subscriber as a policyholder through such attorney-

in-fact acting on behalf .of all other subscribers. For the

purposes of this chapter, the term ‘reciprocal ‘insurer’ shall

include any reciprocal or inter-insurance exchange, by

whatever name known, and any reference thereto as an

insurer shall be deemed to mean any such aggregation of

inter-insurers operating through«an attorney-in-fact in-

dividually and collectively as an insurance organization

for the benefit of its policyholders. The term ‘advisory

committee’ as used in.this chapter, shall. be deemed to in

- cludé any official body, by whatever name called, which is

_ chosen by the subscribers of a reciprocal insurer, and which

' has, subject to the articles of association and subscribers’

agreement, ultimate power and responsibility in the man-

agement and control of the affairs of a reciprocal insurer.”

Section 412, sussection 1. ‘“‘No authorized reciprocal

insurer shall make any new agreement for insurance with

any person, firm or private corporation who or which does

not have assets-in his, their or its own right in an amount

wt less than ten thousand dollars in excess of liabilities,

ss shown by a commercial agency report, as hereinafter

provided, or by a sworn’statement on file with the attorney-

in-fact, verified, by such subscriber or by an officer of a

oration subscriber.

Before renewing a contract of inauvaince with a a sub- _

swriber, similar proof of financial responsibility shall. be.

required“unless the subscriber has accumulated and main-

sins the subscriber’s operating reserve required by section

four hundred eighteen. The report of an éstablished com.

agency having one hundred thousand or more sub-

«ribets shall be deemed presumptive evidence of the finan-

ial condition of a subseriber.’’

Section 413, sussection 2. ‘‘ Every authorized reciprocal

insurer, at the end of the first and every succeeding cal-

t year following the effective date of this chapter, and |

the case of a reciprocal insurer hereafter authorized, at

end of each full calendar year of doing business in this

te, shall accumulate and maintain a speciai -ontingent

rplus, or guaranty surplus, by whatever name called, at.

rate of one per cent of its net premium income for each

h year as reported i in its annual statement, until such

ingent surplus shall be at least equal to the amount of

two hundred fifty thousand dollars). Such contingent —

plus shall not .be impaired by dividend distributions or

reyumde or returns 0 of continuing -or retiring subscrib- -

’ reserves or deposits except in the event of the liquida-

of such reciprocal insurer under order of a court.

such reciprocal insurer may set aside the entire amount

the contingent surplus herein required or accumulate

wh surplus at a rate in excess of that herein required;

such contingent surplus, onée set aside, shall be there-

er maintained unimpaired except as to the amount; if |

, in excess of the\minimum surplus required by section

hundred eleyen.”” =

intmum surplus required in section four hundred eleven _ .

- 54 ee :

Section 415, sussEction 1. ‘‘Every’subscriber of an au.

thorized reciprocal insurer shall have executed -a sub-

seriber’s agreement, and every subscriber hereafter execut-

ing such a subscriber’s agreement shall execute and duly

acknowledge the same, in a manner sufficient for the ac-

_ knowledgment of conveyances of real property to be

recorded in the state in which such subscribers is domiciled;

_and every subscriber’s agreement shall be identical in ternis,

except as to the date and the name and address of the

subscriber, with all other subscriber’s agreements cur.

rently in force and effect with all.other subscribers of such-

. reciprocal insurer. Every such subscriber’s agreement

> shall contain in substance the following provisions:

ae) ‘ e o 2 os e

_@ (d) ‘A provision that there shall be an annual meeting

of the subscribers, in person or by proxy, at a time and

“place to be determined in accordance with such agreement,.

of which each-subscriber shall be duly notified and at which

each subscriber shall have power to vote in person or by

proxy for all members of the serena committee to be

chosen or appointed at’ such time.’

(e) “A provision specifying the powers aud duties of

the advisory éommittee, which-shall include the power and —

duty to regulate the compensation, powers and duties of the

- attorney-in-fact, if ‘not specifically provided in the sub-

scriber’s agreement, and shallélso include the power to-

make regulations for the efféctive control and custody of

the funds and investments of the reciprocal insurer:’

(Applicable only to Warner Reciprocal Insurers.)

- Section 417, sussection 1. ‘‘Every. contract of insur-

ance and ev ery power of attorney of the attorney-in-fact

or subscriber's agreement under or by which covitracts of

insurance are issued or exchanged by any authorized

reciprocal insurer shall provide for a continge nt several

' liability for assessment ‘of the. subscriber as an inter-w- :

surer on the risks of every other subscriber in an amount

> 55

not.less than one nor more than ten times the amount of.

_and in addition to the annual premium expressed in such

contracts of noupnace issued to the subscriber by the

reciprocal insurer.’ : =,

Section 418, sussection 1. ‘‘Every subscriber of an

authorized reciprocal insurer shall be required to accu-

mulate a minisnum operating reserve, to be credited to such

snbscriber on the books and records of. such reciprocal in-

surrer, by authorizing the attorney-in-fact to credit to

sueh account at the end of the fiseal year of such recipro-

cal insurer, an amount not less than ané. quarter of such

subscriber’s earnings as an_underwriter ‘during such pe-

ried. Such aceumulation shall be made if and at least #0 long

as such subscriber’s operating reserve is less than the larger

of the following amounts: ( a) Twice the amount of the an-

‘nual preminm or premiums in force as of such date on all

policies issued to such subseriber by the.reciprocal insurer;

- or (b) such subscriber's pro.rata share, determined on the

basis of.annual premiums in force, of an aggregate oper-

ating reserve for such reciprocal insurer equal to one-half

of ome peytent of the agareante amount of fire insurance in

force in such reciprocal insurer as of sueh date.’

“Ssetiqx 418, scasectioxn 3. “‘No subscriber shall hare

a.secured ar preferred claim against any assets 6f the re-

eiprocal insurer arising out of such operating reserve. but

all assets held by such insurer shall be available for the

payment of claims of policyholders and creditors of such

reciprocal insurer im preference to any claim for with-

drawal by a subscriber as such. Any sabseriher’s operat-

ing reserve accumulated: by any such reciprocal insurer

“shall be maintained at all times, exeept that a subseriher

‘may, upon withdrawal from membership and eancelatior

of all insurance contracts held by-him in snech insurer, and

after ziving to the attorney-in-fact written notice of with-

_ drawal at least stxty days in advanee, withdraw the amonnt

af his operating reserve less Jsuch surrender charges as

‘may be deducted pursuant to ‘the subscriber’s. agreement.

No such ‘withdrawal shall be permitted after an order of —

liquidation of, or the appointment of a receiver or liqui-

dating trustee for, any such reciprocal insurer. »»

_ Sercrion 420. “‘All. of the assets of any reciprocal in-,

surer including subscribers’ operating reserves shall be

liable. primarily for payment of all liabilities incurred un-

der its policies or other contracts. No part of the surplus

funds of such reciprocal insurer shall be subject to the |

claims of general creditors of any of the individual sub- |

scribers of such insurer until all policies under which any —

such subscriber is obligated have been terminated and in °

no event be yond the amount of such subscriber's operating

reserve, The contingent lability of subscribers for addi:

tional premiums or assessments shall not be included as

an ‘asset in the financial statement of a reciprocal in-

surer. Subscribers’ operating reserves for which notice

* of withdrawal has ‘been given shall be reported as liabili- -

‘ties until paid. In any statement or report of the financial.

condition of a reciprocal insurer filed in this state, the sur.

plus to ‘policyholders, after providing for the unearned

premitim reserves, loss resérves and other Nabilities, as

_ required by this "apter, shall be‘ reported as follows:

1. Special ‘contingent surplus; 2. Subscribers’ operat. .

ing reserves; 3. All-other surplus, if any.”’

Section 421. ‘‘The attorney-in-fact, in addition tothe

books of account of the: collective transactions of all sub-

scribers of the. reciprocal insurer, shall keep and” maintain .

“_--® separate account for each individual subscriber setting

forth ‘the entries determining the operating reserve, if

any, of: such subscriber. Each subscriber’s account. shall

be credited with the premiums earned by him as an under:

writer on the policies issued by the exchange, and charged

with his proper share of all losses incurred. under such

policies as well as with the cxpenses incurred by the in

surer. Earnings and interest income from investments of

57 .

all subscribers’ operatirig réserves , shall be apportioned

and credited to subscribers .on the basis of their accumu- |

lated operating reserves and all other interest and invest-

‘ment income may: be apportioned and credited to the sub-

scribers on the basis of their premsians earned as under.

writers.’’

Section 422, sussection 1. ‘‘The superintendent may,

in his discretion, pursuant to section forty-two, issue 4a

7 license to a reciprocal insurer domiciled in, or organized

under the laws of another state or of any province of the

Dominion of Canada, to do in this state such kind or kinds»

of: insurance business as a domestic réciprocal insurer ,

may be authorized to do in this state. Such foreign or

alien reciprocal insurer shall comply with’ substantially

the same requirements of this chapter which are applicable

to domestic reciprocal insurers hereafter to be organized

and authorized to do the same kind or kinds of insurance

“business and in addition every such alien reciprocal shall .

he subject to the provisions of this chapter relating to alien

insurance companies authorized to do the same kind or

kinds ‘of insurance business. ° Nothing herein contained

‘shall be deemed’ to require. that the attarney-in-fact of a

foreign or alien reciprocal insurer shall be resident or

domiciled in this state. or shall maintain his or its princi-

_ pal’ office in this state, or shall be organized under the

laws of’ this state; but every authorized reciprocal insurer

: shall maintain at least one office in this state.””

: : 7 . 5

‘a APPENDIX B.

Statutes Indirectly Involved.

Amendment of 1936 to the Insurance Law of the State

‘of New York:

The Censolidated tow of New’ York Annotated, Book 21,

Insurance. Law. _ Section 69, sussecTion-a. Issuance

through resident-agents of insurance risks by certain for-

eign imsurance ‘companies. “No insurance company or

insurer organized or: existing under the laws of any other

state or country shall issue or deliver any policy or make

_ any, contract of insurance ‘on either persons or property.

in this gtate, or covering any hazard or risk in.the perform-

ance or non-performance of.any duty relative to any con- |

tract or obligation, performed or to be perfornied in this .

state, ,or in connection with any ‘obligation or duty which

is governed or controlled by the laws of this state, but ac-

tually to be performed by any individual, firm-or corpora-

tion not resident in this state, ‘unless such policy or con-

tract is issued “through or-countersigned by a lawfully con-

stituted and licensed resident agent of this state, provided

"nothing in this section shall be congtrued to apply to con-

* tracts or policies of life insurance, or. to tertificates of

fraternal benefit societies, or to insurance covering the

rolling stock of any railroad or any vessel, airplane, or mo-

tor bus aised in interstate commerce, or to property in.

transit, or to reinsurance between companies.

Insurance Law of 1939 of the State of New York:

Section 41, sussecTion 3. The term ‘‘doing an insurance

| business, ’” within the meaning of this chapter, shall be

deemed to include (a) the making, as insurer, or prepovng

to make as insurer, of any insurance contract, a ) the

making, as guarantor « or surety, or the proposing to make .

8 /

as guarantor. or surety, of any contract of guaranty or

suretyship as a vocation and not as merely incidental to

any other legitimate business or. activity of the guarantor

or surety, and (c) the doing.of any kind of business, includ-

ing a reinsurance business, specifically recognized as con-

stituting the doing of an insurance business ,within the _ |

meaning of this chapter and (d) the doing or proposing

foregoing in a manner designed to evade the provisions of

_° this chapter. | . \

Section 42. Requirements for foreign or alien insurer’s

license. 1. Before issuing a license to do business, ex-

cept by way of a renewal license; to any foreign or alien

insurer the superintendent sliall require it to submit for

filing a certified copy of its charter, and of its by-laws,

if any, currently in force, and such other do¢uménts as

may be necessary to show the kind .or kinds of business *

which it is empowered-or authorized to do, and also a full

’ statement verified by two officers or responsible representa-

tives in manner-as the superintendent shall prescribe, .

_ showing its assets, liabilities and financial condition. The

‘superintendent may also require a full statement of its

income and disbursements, business done, and other facts

required ‘to be shown in the annual,statement of such an

-insurer. Before issuing any such license the superin- |

tendent may make an examination of the affairs of such

insurer at its principal office within the United States, or

he may accept in lieu thereof a report of an examination

made by the insurance department or other insurance su-

_ pervisory Official of any other state or of any government

outside the United States. Before issuing any new or

renewal license to any foreign or alien insurer hereafter

applying for the same, the superintendent may require —

satisfactory proof, either in the charter of such insurer

or by an agréement evidenced by a duly certified resolu-

tion of its board of directors, or otherwise as the super-

intendent may require, that such insurer will not engage

in any insurance business in contravention of ‘the provi-

sions of this section, nor any insurance business which it

is not empowered or authorized to do by its charter.

2. The superintendent shall issue a renewal license to

any foreign or alien insurer’if he shall be satisfied, by such

proof as he may require, that such an insurer is not de-

_jinquent with respect to any requirement imposed by this —

chapter and that its continuance in business in ‘this state

will not be hazardous‘or prejudicial to the best interests

‘p of the people of this state.

3. No foreign insurer shall be licensed to do in this

state any kind of insurance business, or combination ‘of

_ kinds of insurancé business, which are not permitted to be

done by domestic insurers hereafter to be licensed ‘under

the provisions of this chapter. No foreign insurer shall be

authorized to do business in this state if it does in this

state or elsewhere any kind of business, other than an

_ingurance business and such business as is necessarily or

properly incidental to the kind or kinds of insuranée busi-

ness which it is licensed to do in this state.

4, No alien insurer shall be licensed to do in this state

any - -kind of insurance business, or any combination of

‘kinds of insurance business, which are not permitted to

be done by domestic insurers hereafter to be licensed under

the provisions of this chapter. No alien insurer shall be

authorized to do an insurance business in this state if it

deés anywhere within the United States any kind of busi-

ness other than an insurance business and such business

as is necessarily or properly incidental to the kind or kinds

of insurance business which. it is authorized to do in this

state. gi

5. Except as otherwise specifically. pesshded in this

chapter no foreign insurer and no United States branch

of an alien insurer shall be or continue to be authorized to

do an insurance business in this state if it fails to comply .

substantially with any requirement or limitation of this

chapter, applicable to similaY-domestic insurers hereafter

to be organized, which in the judgment of the superintend- -

ent is reason@jly necessary to protect the interests of the

people of this state.

No-foreign insurer and no United States branch of an

alien insurer which does outside of this state any kind or

combination of kinds of insurance business not permitted

to be done in this state by similar domestic insurers here-

after: organized, shall be or continue to be authorized to

do an insurance business in this: state, unless in the judg-

ment of the superintendent the doing of such kind or com-

bination of kinds of insurance business will not be prejudi-

cial to the best interests of the people of this state. —

This subsection shall not be deemed to affect. the require-

ments of section forty or of: subsections one and two of

-section one hundred ninety-three. Pee

6. Notwithstanding the provisions offbubssction three, |

any foreign insurance company which has been licensed to

do the business of life insurance in this state continuously

during a period of twenty years next preceding the effec-

tive date of this chapter may continue to be licensed, in the

discretion of the superintendent, to do the kind or kinds . —

of insurance business which it was authorized to do im-

mediately prior to the taking effect of this chapter.

’ Section 90. Investments of foreign and alien insurers.

1. The superinterident may refuse a new or renewal li-

cense to.any foreign insurer, if he finds that its invest-

‘ments do ‘not comply in Substance with the investment —

requirements and limitations imposed by this chapter upon

like domestic insurers hereafter organized to do the same

kind or kinds of insurance busine The superintendent

may recognize like securities of the home state of a foreign

insurer as minimum capital inyestments in lieu of the

securities specified in paragraphs (b) and (4) of section

seventy- nine.

2. No alien insurer shall be authorized to do- business

in this state unless its general ‘state deposits and its trus-

- teed assets comply in substance with the requirements and

limitations of this chapter applicable to like domestic in-.

‘surers hereafter organized to do. the same kind or kinds

of insurance business, exéept that foreign investments

_ shall be allowed to the following extent only:

(a) Bends, notes or other evidences of indebted-

ness issued or guaranteed by the government of the -

- country in which such alien insurer was organized or

‘by any _provirice or other major political subdivision

thereof’ and: not in default as to principal or interest,

may be recognized as reserve investments under see-

tion eighty-one in an:amount not exceeding the mini-

mum capital required of a “domestic stock insurer

hereafter organized to do the same kind or kinds of

' Insurance business.

(b)° Bonds, notes or einai valid and legally author-

ized obligations issued, assumed or guaranteed by the

Dominion of Canada or any province thereof ‘which

are not in default as to principal or interest may be

included in the trusteed assets of such alien insurer

in an amount not exceeding ten’ per cent of the total

_ admitted assets of the United. States eect of such

insurer. :

~ Section 110, SUBSECTION 3. The term Pp reeetr agent”

as used in this article, means any authorized or acknowl-

edged agent of an insurer or fraternal benefit society, and

any sub-agent or other representative of such an agent,

who acts as such in the solicitation of, negotiation for, or —

procurement or making of, an instirance or annvity con-

tract, other.than as a licensed insurance broker; except.

that the term ‘‘insurance agent’’ shall not include any

regular salaried officer or. employee of a licensed insurer. -

or fraternal benefit society or of a licensed insurance agent,

who does not outside of an. office of such insurer or agent

a cone 63.

solicit or accept from the public applications or orders for

any such contract, if such officer. or employee does not

receive for his services a commission or other compensa-

tion directly dependent upon the- amount of business. donc.

Section 168, SyBSECTION 1. Fire insurance contract ;

standard policy provisions; permissible variations; tem-

porary contracts; combination policies; ‘mutual’? and.

. “stock’’ required. 1. The printed form of a policy of

fire insurance, adopted on the twelfth day of December,

nineteen hundred sixteen by the National Convention of

Insurance Commissioners (now known as the National As- -

sociation of Insurance Commissioners) at ‘its meeting in

the city of New York and heretofore filed by the superin-

tendent in his office pursuant to section three of chapter

four hundred forty of the laws of nineteen hundred seven-

teen, together with such additions, omissions and modifica-

tions, similarly adopted from time to time by said associa-

tion, as may be approved by the superintendent, shall be

“known and designated as the ‘‘standard fire insurance

policy of the state of New York.” Upon the payment of

- a fee of ten cents the superintendent shall furnish a true

copy of such form to any person requesting the same.

Section 341, sussection 1(a). Stock fire and marine

_ insurance companies; .organization; powers -and financial

requirements. 1. A stock company may be organized in

the manner prescribed in section forty-eight and be 1li-

‘eensed to do an insurance business of the following kind

or kinds, : as specified i in section forty-six, with the following

requirements as to minimum paid-i in capital, and with an

‘additional requirement of paid-in initial surplus. in each

instance at least equal to the amount of its paid-in capital,

and every such company shall at all times thereafter main-

tain a minimum capital at least equal to thet hereinafter

specified : | .

* (a) If organized to do the business, of fire insur-

~. agee, as specified in paragraph four of section forty-

64 ‘

six, it shall have a capital at least equal to two hundred

fifty thousand dollers, and it may in addition do any

one or more of the. kinds of business specified in

paragraphs five, six, twelve, nineteen and twenty (ex-

cluding insurance in respect to, appertaining to or in

connection with, any and all risks or perils of naviga-

tion, transit, or transportation, including war risks, .

on, over or under any seas, and excluding insurance

against loss. or damage and against liability for loss

or damage, by reason of injury to the person) without

having additional capital or surplus. | =

Section 345, suBsection 1. Mutual fire insurance com-

panies; contingent: ligbility; assessments; extraordimary

reserve. 1.” Except as provided in section fifty-eight,

‘every domestic mutual fire insurance company shall in its

.by-laws and policies prescribe the contingent mutual lia-

bility of its members for the payment of assessments, in

such a way that each member shail be liable to pay his

proportionate share, subject to the limitations hereinafter

specified, of the amount of any assessment or assessments

necessary to make good an impairment of the minimum

surplus of such company.- The contingent liability of a -

member may be limited to an amount not less than one

additional annual premium on each policy held by him.

No such insurance company shall make, issue or -deliver

‘any policy of insurance, except. as provided in section

fifty-eight, which does not prescribe the contingent liability

of the policyholder. i in clear and explicit language printed

in type not smaller than eight. point.

Section 410, susszetiqn 1. Definition of reciprocal in-

surer; doing business without license; licensing. 1. Within

the meaning of this chapter the term “reciprocal insurer”

-shall'mean any aggregation of persons, firms or corpora-

tions, herein called ‘‘subscribers,’’ -who or which under a

common name engage in the business of inter-insurance or

exchanging contracts of insurance on-the reciprocal plan

- through an attorney-in-fact having authority to obligate

65 .

the subscribers severally, within such limits as may law-

fully be specified in the power of attorney, on contracts

of insurance made with any subscriber as a policyholder —

through such attorney- in-fact acting on behalf of all other .

subscribers.. For the purposes of this chapter, the term

“reciprocal insurer’* shall include any reciprocal or inter-

insurance exchange, by whatever name known, and any

reference thereto as an insurer shall be: deemed to mean

any such aggregation of inter-insurers operating thropgh

an attorney-in-fact individually and collectively as an in-

surance organization for the benefit of its policyholders.

The term ‘‘advisory committee,’” as used in this. chapter,

shall be deemed to include any official body, by whatever

‘name galled, which is chosen by the subscribers of a re-

ciprocal insurer and which has, subject to the articles. of

association and subscribers agreement, ultimate power and

responsibility in the management and centrol of the affairs

ofa reciprocal insurer. |

Section 410, sussection 2. No, person, firm, corporation —

or association as an underwriter or underwriters, and no

reciprocal insurer, shall do any insurance business in this

state; nor shall any person, firm, corporation or association

_ as attorney-in-fact or other representative of any recip-

rocal insurer do or cause to be done within this state any

act which effects, aids or promotes the doing of an insur-

_ ance business in this state by any reciprocal insurer, unless ~

authorized so to do pursuant to the provisions of this

article.

Section 411, suBsEcTIon 4. If within one year thereafter

the superintendent finds,-after such investigation and ex-

amination as he may see fit to make, that each subscriber -

has deposited in cash with the attorney-in-fact an amount

at least equal to the premium specifiefl in such declaration,

and that a fund, at least equal to the amount of the mini- —

mum capital required of a domestic stock insurance com-

pany hereafter organized under the provisions of this

66 , 3

chapter to do the same kind or kinds of insurance business

(Section 341, subsection 1(a)), has been: advanced by the

subscribers as a minimum surplus for policyholders, and

is: in the possession of the attorney-in-fact or invested

subject to the control of the advisory committee, and that

other requirements of this chapter applicable to such

reciprocal insurer have been complied with, he may issue

to such reciprocal insurer a license to do business.

Section 414, eupsecTion 2. Every such existing recip-

rocal insurer and every authorized foreign reciprocal in-

surer, shall, within one year after the effective date of this

chapter, have so revised its subscribers. agreement and its

articles of association, if any, a8 to conform to the require-

ments applicable to. reciprocal insurers hereafter to be

SSA

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.