German Alliance Insurance Company v. Ike Lewis

• Decision Date: 20 April 1914
• Docket Number: No. 120,120
• Citation: 58 L.Ed. 1011,34 S.Ct. 612,233 U.S. 389
• Parties: GERMAN ALLIANCE INSURANCE COMPANY, Appt., v. IKE LEWIS, as Superintendent of Insurance of the State of Kansas
• Court: U.S. Supreme Court

233 U.S. 389

34 S.Ct. 612

58 L.Ed. 1011

GERMAN ALLIANCE INSURANCE COMPANY, Appt.,

v IKE LEWIS, as Superintendent of Insurance of the State of Kansas.

No. 120.

Argued December 10, 1913.

Decided April 20, 1914.

Bill in equity to restrain the enforcement of the provisions of an act of the state of Kansas entitled, 'An Act Relating to Fire Insurance, and to Provide for the Regulation and Control of Rates of Premium Thereon, and to Prevent Discriminations Therein.' Chap. 152 of the Session Laws of 1909.

The grounds of the bill are that the act offends the Constitution of the state and of the United States.

A summary of the requirements of the act is as follows:

Sec. 1. Every fire insurance company shall file with the superintendent of insurance general basis schedules showing the rates on all risks insurable by such company in the state, and all the conditions which affect the rates or the value of the insurance to the assured.

Sec. 2. No change shall be made in the schedules except after ten days' notice to the superintendent, which notice shall state the changes proposed and the time when they shall go into effect. The superintendent may allow changes upon less notice.

Sec. 3. When the superintendent shall determine any rate is excessive or unreasonably high, or not adequate to the safety or soundness of the company, he is authorized to direct the company to publish and file a higher or lower rate, which shall be commensurate with the character of the risk; but in every case the rate shall be reasonable.

Sec. 4. No company shall engage or participate in insurance on property located in the state until the schedules of rates be filed, nor write insurance at a different rate than the rate named in the schedules, or refund or remit in any manner or by any device any portion of the rates; or extend to any insured or other person any privileges, inducements, or concessions except as specified in the schedules.

Sec. 5. Any company making insurance where no rate has been filed shall, within thirty days after entering into such contract, file with the superintendent a schedule of such property, showing the rate and such information as he may require. The schedule shall conform to the general basis of schedules, and shall constitute the permanent rate of the company.

Sec. 6. The schedules shall be open to the inspection of the public, and each local agent shall have and exhibit to the public copies thereof relative to all risks upon which he is authorized to write insurance.

Sec. 7. No company shall, directly or indirectly, by any special rate or by any device, charge or receive from any person a different rate of compensation for insurance than it charges or receives from any other person for like insurance or risks of a like kind and hazard under similar circumstances and conditions in the state. Any company violating this provision shall be deemed guilty of unjust discrimination, which is declared unlawful.

Sec. 8. The superintendent may, if he finds that any company, or any officer, agent, or representative thereof, has violated any of the provisions of the act, revoke the license of such offending company, officer, or agent, but such revocation shall not affect liability for the violation of any other section of the act; and provided that any action, decision, or determination of the superintendent under the provisions of the act shall be subject to review by the courts of the state as provided in the act.

Sec. 9. The superintendent shall give notice of any order or regulation made by him under the act, and any company, or any person, city, or municipality which shall be interested, shall have the right within thirty days to bring an action against the superintendent in any district court of the state to have the order or regulation vacated. Issues shall be formed and the controversy tried and determined as in other cases of a civil nature, and the court may set aside one or more or any part of any of the regulations or orders which the court shall find to be unreasonable, unjust, excessive, or inadequate to compensate the company writing insurance thereon for the risk assumed by it, without disturbing others. The order of the superintendent shall not be suspended or enjoined, but the court may permit the complaining company to write insurance at the rates which obtained prior to such order upon the condition that the difference in the rates shall be deposited with the superintendent to be paid to the company or to the holders of policies as, on final determination of the suit, the court may deem just and reasonable. During the pendency of the suit no penalties or forfeitures shall attach or accrue on account of the failure of the complainant to comply with the order sought to be vacated or modified until the final determination of the suit. Proceedings in error may be instituted in the supreme court of the state as in other civil cases, and that court shall examine the record, including the evidence, and render such judgment as shall be just and equitable. No action shall be brought in the United States courts until the remedies provided by the act shall habe been exhausted. If any company organized under the laws of the state, or authorized to transact business in a state, shall violate the section, the superintendent may cancel the authority of the company to transact business in the state.

Sec. 10. Infractions of the act are declared to be misdemeanors and punishable by a fine not exceeding $100 for each offense, provided that if the conviction be for an unlawful discrimination, the punishment may be by a fine or by inprisonment in the county jail not exceeding ninety days, or by both fine and imprisonment.

Sec. 11. No person shall be excused from testifying at the trial of any other person on the ground that the testimony may incriminate him, but he shall not be prosecuted on account of any transaction about which he may testify, except for perjury committed in so testifying; 'provided, that nothing in this act shall affect farmers' mutual insurance companies, organized and doing business under the laws of this state, and insuring only farm property.'

The bill alleged that it was brought by the German Alliance Insurance Company in behalf of itself and all other companies and corporations conducting a similar business and similarly situated, and that Charles W. Barnes was the duly elected superintendent of fire insurance of the state of Kansas. It alleged the jurisdictional amount, and that the controversy was one arising under the Constitution of the United States and of the state of Kansas. It alleged, further, the following facts, which we state in narrative form, omitting those which relate to the Constitution of the state, no assignment of error being based upon them. The appellant, to which we shall refer as complainant, was incorporated under the laws of New York as a fire insurance company in 1879, and immediately entered upon such business, and it has for long periods of time conducted the business of fire insurance in Kansas and other states of the United States.

The business of fire insurance as conducted by it consists of making indemnity contracts against direct loss or damage by fire for a consideration paid, known as a premium; that the rate or premium is the amount charged for cach $100 of indemnity. The property which is the subject of insurance is ordinarily known and designated as the risk. Complainant issues indemnity contracts or fire insurance policies covering all kinds and descriptions of improvements upon real estate and the contents thereof, and all kinds and descriptions of personal property, and also farm houses, barns, and granaries and their contents. The rate of premium varies with the kind of property covered, its physical characteristics and situation, its exposure, the presence or absence of fire protection, and many other causes.

The establishment of the basis rate for the premium to be charged is a matter of technical and mathematical deduction from the experience of all fire insurance companies, covering a long period of years, and, territorially, the whole civilized world. To make such deduction it is necessary not only to be in possession of the compiled statistics of fire insurance business, but also to be skilled in the mathematical 'theory of probabilities' and in the 'law of large numbers' so as to be able to apply with technical accuracy such laws and such data, and that no one not specially trained as an insurance statistician is competent to make such deductions.

A theoretically correct basis rate having thus been arrived at is subject to variation according to the risk, whether in town or country, and, if in the former, according to the class of town or city in which it is situated. The classification of towns and cities depends upon water supply, fire protection, and general physical conditions. In addition to ascertaining the individual risk, if a build- ing the size, material of which, and the manner in which it is constructed, the character of the occupancy, and the character of the occupancy and construction of adjacent buildings, also the character of the contents of the buildings, and the manner in which they are stored, and the precautions used to detect and prevent fires, are necessary to be ascertained.

Complainant and others engaged in the insurance business employ a large number of men skilled as inspectors to report upon individual risks, and it is impossible to fix and adjust a reasonable rate of premium for each and every individual risk without the information so obtained and having the same applied by experts. And such training and information are necessary to determine whether a basic rate or actual rate, as applied to any particular risk, is or is not reasonable, and the respondent is not possessed of the requisite information or special training necessary to qualify for such determination, and any conclusion to which he...