California State Auto Ass Nbureau v. Maloney, INTER-INSURANCE

• Court: United States Supreme Court
• Writing for the Court: DOUGLAS
• Citation: 95 L.Ed. 788,341 U.S. 105,71 S.Ct. 601
• Parties: CALIFORNIA STATE AUTO. ASS'NBUREAU v. MALONEY, Insurance Com'r of State of Callfornia
• Docket Number: INTER-INSURANCE,No. 310
• Decision Date: 23 April 1951

341 U.S. 105 71 S.Ct. 601 95 L.Ed. 788 CALIFORNIA STATE AUTO. ASS'N INTER-INSURANCE BUREAU

v.

MALONEY, Insurance Com'r of State of Callfornia.

No. 310. Argued March 8, 1951. Decided April 23, 1951.

Mr. Moses Lasky, San Francisco, Cal., for appellant.

Mr. Harold B. Haas, San Francisco, Cal., for appellee.

Page 106

Mr. Justice DOUGLAS delivered the opinion of the Court.

Appellant is an unincorporated association which the California District Court of Appeal analogizes to a mutual insurance corporation. The details of its organization and operation are not important here. It is supervised by the Insurance Commissioner of California, like other insurance companies doing a liability insurance business. It was formed to write automobile insurance to a select group of members at a lower cost than the then prevailing rate. A California law requiring proof of financial responsibility from certain people before issuing them a license to drive a car, provides that a person who does not pay a judgment of $100 or more arising out of an automobile accident has his driver's license suspended, and the suspension can be lifted only by paying the judgment and establishing his ability to pay claims arising from future accidents. That ability to pay may be established by proof that the person is insured, by posting a surety bond, or by deposit of $11,000 in cash. Cal. Vehicle Code, 1943, §§ 410, 414. Another law requires operators of trucks for hire to supply such evidence of financial responsibility before they may get permits to operate trucks. Cal.Stat.1935, c. 312, Gen.Laws, Act 5134.

One result of these laws was to make it impossible for a large number of drivers—classified as poor risks by the insurance companies and not possessing enough resources

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to get a surety bond or to make the cash deposit—to receive drivers' licenses to operate motor vehicles. Some of these people were poor risks, others were not. Many hardship cases developed among people who were dependent on the use of the highways for a living. There was a proposal that California go into the insurance business and insure these and other risks. The insurance companies countered by adopting a voluntary assigned risk plan under which all automobile insurance companies doing business in California undertook to insure some, though not all, of the groups unable to obtain insurance. This plan, approved by California's Insurance Department, provided for the allocation of applicants to the subscribing insurers in proportion to the amount of automobile insurance written by each in the preceding year.

The voluntary plan did not reach all applicants. Moreover, appellant withdrew from it, causing the other insurers to be reluctant to continue it. Thereupon the legislature enacted the Compulsory Assigned Risk Law. Cal.Stat.1947, c. 39, p. 525, as amended, c. 1205. It provides that the Insurance Commissioner shall approve 'a reasonable plan for the equitable apportionment' among insurers of applicants for automobile insurance 'who are in good faith¹ entitled to but are unable to procure such insurance through ordinary methods.' Cal. Insurance Code 1947, § 11620. It is mandatory on all insurers to subscribe to the plan. Id. §§ 11625, 11626.

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The plan approved by the Commissioner was objectionable to appellant, who refused to subscribe to it. The Commissioner, acting pursuant to authority granted him, suspended appellant's permit to transact automobile liability insurance in California. Appellant contested the suspension in the California courts. The District Court of Appeal sustained the act against the claim that it violated the Due Process Clause of the Fourteenth Amendment. 96 Cal.App.2d 876, 216 P.2d 882. A petition for hearing was denied by the Supreme Court. The case is here on appeal. 28 U.S.C. § 1257(2), 28 U.S.C.A. § 1257(2).

Appellant assails the constitutionality of the Act under the Due Process Clause of the Fourteenth Amendment on the following grounds: it commands insurers to enter into contracts and to incur liabilities against their will; it forces on insurers contracts that have abnormal risks and from which financial loss may be expected; it requires appellant to alter its type of business from a cooperative with a select membership to a venture insuring members of the general public.

Appellant in support of its contentions presses Michigan Public Utilities Commission v. Duke, 266 U.S. 570, 45 S.Ct. 191, 69 L.Ed. 445 and Frost Trucking Co. v. Railroad Commission of State of California, 271 U.S. 583, 46 S.Ct. 605, 70 L.Ed. 1101 on us. Those cases held that private carriers by motor vehicle could not consistently with Due Process be converted into public carriers by legislative fiat nor be allowed to use the public highways only on condition that they become common carriers. We put those cases to one side. To be sure, appellant is required to insure members of a different group than the select one it voluntarily undertook to serve. But there are important restrictions on the financial commitments incident to the broadened undertaking. We were advised on the argument that the premiums chargeable can be commensurate with the...