American Hospital & L. Ins. Co. v. Federal Trade Com'n

• Decision Date: 09 April 1957
• Docket Number: No. 16132.,16132.
• Citation: 243 F.2d 719
• Parties: The AMERICAN HOSPITAL AND LIFE INSURANCE COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

243 F.2d 719 (1957)

The AMERICAN HOSPITAL AND LIFE INSURANCE COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 16132.

United States Court of Appeals Fifth Circuit.

April 9, 1957.

J. D. Wheeler, San Antonio, Tex., Boyle, Wheeler, Gresham, Davis & Gregory, San Antonio, Tex., of counsel, for petitioner.

Robert B. Dawkins, Asst. Gen. Counsel, James B. Truly, Atty., Earl W. Kintner, Gen. Counsel, Alvin L. Berman, Atty. Federal Trade Commission, Washington, D. C., for respondent.

George R. Cross, Associate Counsel George S. Hanson, Gen. Counsel., New York City, for amicus curiae National Ass'n of Insurance Agents.

John S. Hamilton, Jr., Chicago, Ill., Franklin J. Marryott, Boston, Mass., L. J. Carey, Detroit, Mich., M. S. Chenault, Mason City, Iowa, J. P. Craugh, Utica, N. Y., James B. Hamilton, Owatonna, Minn., W. O. Head, Dallas, Tex., Leslie P. Hemry, Boston, Mass., John W. Joanis, Stevens Point, Wis., M. L. Landis, Van Wert, Ohio, Chase M. Smith, Chicago, Ill., J. M. Sweitzer, Wausau, Wis., Garl Watkins, Seattle, Wash., for American Mut. Alliance, Chicago, Ill.

Lawrence Pomeroy, New York City, Palmer, Serles, Delaney, Shaw & Pomeroy, New York City, of counsel, for National Ass'n of Ins. Brokers, Inc.

Whitney North Seymour, New York City, George G. Gallantz, Simpson Thacher & Bartlett, New York City, of counsel, for Health Ins. Ass'n of America.

Hugh B. Cox, H. Thomas Austern, Henry P. Sailer, Washington, D. C., Covington & Burling, Washington, D. C., of counsel, for Life Ins. Ass'n of America and American Life Convention, amici curiae.

Edmund G. Brown, Atty. Gen., of California, Harold B. Hass, Deputy Atty. Gen. of California, for the State of California.

John Ben Shepperd, Atty. Gen. of Texas, Will D. Davis, Appellate Asst., Austin, Tex., for the State of Texas.

A joinder to the brief of amicus curiae of the State of Texas was filed by the Attorneys General of the following States: New York, Louisiana, Maryland, North Dakota, New Hampshire, New Mexico, Florida, Idaho, Kentucky, Maine, Mississippi, Missouri, Nebraska, Wisconsin, Wyoming, Utah, Connecticut.

Before HUTCHESON, Chief Judge, and CAMERON and JONES, Circuit Judges.

JONES, Circuit Judge.

The petitioner, the American Hospital and Life Insurance Company, is a corporation of Texas. Its principal or home office is in San Antonio, Texas. It is engaged in the business of writing health and accident insurance. It has been licensed to do business and is doing business in Arizona, Arkansas, Colorado, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma and Tennessee, as well as in the State of Texas. In each of these states the petitioner has agents through whom its business is conducted. Each of the states has statutes forbidding deceptive and misleading advertising. The petitioner employed printed brochures which it sent from its home office to its agents for use in advertising and soliciting business. It did no advertising by newspapers or other periodicals or by radio or television. The Federal Trade Commission issued its complaint against the petitioner charging it with engaging in unfair and deceptive advertising practices in commerce in violation of the Federal Trade Commission Act, 15 U.S. C.A. § 41 et seq. The petitioner asserted that its advertising was not false, misleading or deceptive. It also contended that the Commission was without jurisdiction because of the McCarran Act, 15 U.S.C.A. § 1011 et seq. After a hearing the Examiner of the Commission, in an initial decision, held that the charges concerning the petitioner's advertising had not been sustained. The Examiner also held that the Commission was without jurisdiction, except as to petitioner's transactions in Mississippi where, at the time of the hearing, there was no adequate law regulating false and deceptive acts and practices. The Commission, on appeal, set aside the initial decision of the Examiner by a three to two decision. It determined that in passing the McCarran Act the Congress did not, and did not intend to, deprive the Commission of the power to regulate and control the interstate activities of insurance companies. It found the advertising brochures which had been sent from Texas to the other states were false and deceptive. It entered a Cease and Desist Order which is before us for review. In the opinion of the majority of the Commission, it was said that "there must remain an irreducible area of Commission jurisdiction over the interstate activities of insurance companies which cannot be reached by state law."

In the South-Eastern Underwriters case,¹ of which more will be hereafter said, Mr. Justice Black, in the majority opinion, observed that "Perhaps no modern commercial enterprise directly affects so many persons in all walks of life as does the insurance business". Although it has not been classed as a public utility charged with the duty of serving all who may apply,² the business of insurance has been more generally regulated than any other sphere of business activity not a public utility.³ It was determined in 1869 that the insurance business did not constitute transactions in commerce,⁴ and this doctrine was adhered to in many subsequent decisions.⁵ In 1944 came the South-Eastern case, supra, where, in a four to three decision, with two justices of the court not participating, it was held generally that insurance businesses are engaged in "Commerce among the several States", and specifically that the Sherman Anti-Trust Act⁶ applied to insurance activities. Mr. Chief Justice Stone, in his dissenting opinion, said that the action of the majority in overturning the precedents of seventy-five years "cannot fail to be the occasion for loosing a flood of litigation and of legislation, state and national, in order to establish a new boundary between state and national power, raising questions which cannot be answered for years to come * * *".⁷ The litigation has not yet reached the flood stage and the McCarran-Ferguson Act,⁸ sometimes referred to as Public Law 15, and more often merely as the McCarran Act, has been the only national legislation of consequence resulting from the decision. This act was proposed by Senators McCarran and Ferguson and on March 9, 1945, it was signed by the President and became a law. The enactment is brief and many of its provisions are here pertinent.⁹

The purpose and effect of the McCarran Act has been stated by the Supreme Court, it saying:

"Obviously Congress\' purpose was broadly to give support to the existing and future state systems for regulating and taxing the business of insurance. This was done in two ways. One was by removing obstructions which might be thought to flow from its own power, whether dormant or exercised, except as otherwise expressly provided in the Act itself or in future legislation. The other was by declaring expressly and affirmatively that continued state regulation and taxation of this business is in the public interest and that the business and all who engage in it `shall be subject to\' the laws of the several states in these respects.

"Moreover, in taking this action Congress must have had full knowledge of the nation-wide existence of state systems of regulation and taxation; of the fact that they differ greatly in the scope and character of the regulations imposed and of the taxes exacted; and of the further fact that many, if not all, include features which, to some extent, have not been applied generally to other interstate business. Congress could not have been unacquainted with these facts and its purpose was evidently to throw the whole weight of its power behind the state systems, notwithstanding these variations." Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 66 S.Ct. 1142, 1155, 90 L.Ed. 1342. See North Little Rock Transp. Co. v. Casualty Reciprocal Exchange, 8 Cir., 1950, 181 F.2d 174; American Universal Ins. Co. v. Sterling, 3 Cir., 1952, 203 F.2d 159.

By the Act it was provided not only that the business of insurance should be subject to regulation by the States, but that until June 30, 1948,¹⁰ the Sherman Act, the Clayton Act and the Robinson-Patman Act should not apply to the business of insurance, and after that date the Sherman and Clayton Acts and the Federal Trade Commission Act should apply to such business to the extent it is not regulated by State law. It is also provided that nothing contained in the Act shall render the Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion or intimidation. Then too it was provided that the Act should not affect the application of the National Labor Relations Act, the Fair Labor Standards Act or the Merchant Marine Act to the business of insurance. These provisions evidence a design on the part of Congress to yield to the States which had undertaken, or which would undertake, to regulate the insurance business in those fields in which the Sherman Act might otherwise have been applicable, with the exception of boycotts, coercion and intimidation. Such was the intent of the Congress. Senator McCarran, in response to the query of a colleague, said:

"The Senator will recall the Southeastern Underwriters case. The decision was startling. It created consternation in the insurance business because by previous decisions rendered during the past 50 years or more we were entitled to believe that the business of insurance was not to be classified as interstate commerce. The Supreme Court of the United States specifically, directly, and emphatically put it into the category of interstate commerce. It put it squarely under the Sherman Act, the Clayton Act, and other Acts. The pending bill is for the purpose of creating a moratorium for 3 years in order that the business of insurance shall not be interfered with by any Federal power under either the Clayton Act or the Sherman Act. So during the period of moratorium the various states

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