Citizens' Ins. Co. v. Clay

• Decision Date: 10 June 1912
• Citation: 197 F. 435
• Parties: CITIZENS' INS. CO. v. CLAY et al.
• Court: U.S. District Court — Eastern District of Kentucky

197 F. 435

CITIZENS' INS. CO. v. CLAY et al.

United States District Court, E.D. Kentucky.

June 10, 1912

PER CURIAM.

Having what they think due regard for the settled rule that a federal court of first instance should not declare a state statute unconstitutional, where the question involved is one of law and not of fact, unless that court is satisfied to a reasonable certainty that such invalidity exists, the majority of the judges who heard this application are unable to approve the issue of the preliminary injunction which is asked. The following considerations, among others, are effective in creating that serious doubt which is sufficient to defeat the motion:

1. Fire insurance is a commercial necessity, and its character tends to monopoly. To engage in the business calls for large capital. Practically it is in the hands of a comparatively small number of insurers, who naturally in many things act together or in groups, and who are so situated as to make competition in rates subject to easy control. Actual combinations to restrain competition in rates have been common enough to provoke legislation in many states including Kentucky. The reports of the Court of Appeals of that state indicate the prevalence of such restrictive agreements, and the existence of such legislation. Bell v. Louisville Board of Fire Underwriters, 146 Ky. 841 143 S.W. 388. True, the bill alleges and the demurrer admits that 'the business of fire insurance, as carried on in the state of Kentucky, and elsewhere, by your orator and other insurance companies, is not a monopoly either legally or actually'; but on the oral argument our attention was directed to the Kentucky statute and decision above cited, and it was agreed by counsel that noncompetitive agreements among agents existed in parts of the state. It is enough to say that in this business a degree of monopoly is probable, unless prevented by appropriate legislation. It seems measurably analogous to the elevator business involved in Munn v. Illinois, 94 U.S. 113, 24 L.Ed. 77, and Budd v. New York, 143 U.S. 517, 12 Sup.Ct. 468, 36 L.Ed. 247. And see Carroll v. Greenwich Ins. Co., 199 U.S. 401, 411, 26 Sup.Ct. 66, 50 L.Ed. 246.

2. The business of fire insurance is not impressed with a public use in the sense that the public can demand service, but it has at least a quasi public, as distinguished from a purely private, character. See discussion in Atty. Gen. v Firemen's Ins. Co., 74 N.J.Eq. 372, 381, 73 A. 80 414, 29 L.R.A. (N.S.) 1194, 135 Am.St.Rep. 708, 18 Ann.Cas. 1048.

3. Recognizing such public character, the business has been subjected to regulation which would be quite invalid in a purely private business, such regulations, for example, as a valued policy law (Orient Ins. Co. v. Daggs, 172 U.S. 557, 19 Sup.Ct. 281, 43 L.Ed. 552), and an increased recovery penalty (German Alliance Ins. Co. v. Hale, 219 U.S. 307, 31 Sup.Ct. 246, 55 L.Ed. 229). So, too, the legislative right seems to be recognized to the extent of limiting the amount of business a company may do in a year, the amount of commissions it may pay its agents, etc. Such regulations are familiar, and, so far as have been brought to our attention, unchallenged; but they are clearly in violation of an unrestricted right of contract. Further, the universal system of state regulation tending to make certain the continued solvency of the companies is inconsistent with any absolute right by the insured to contract for the cheapest insurance satisfactory to him. See, also, Noble Bank v. Haskell, 219 U.S. 104, 31 Sup.Ct. 186, 55 L.Ed. 112, 32 L.R.A. (N.S.) 1062, Ann. Cas. 1912A, 487, in connection with the undoubted analogy between banking and insurance.

4. Complainant is a Missouri corporation. It is permitted to do business in Kentucky under a license annually renewed. It cannot have greater rights than a domestic corporation has in the subject-matter now involved. Orient Ins. Co. v Daggs, supra, 172 U.S. 566, 19 Sup.Ct. 281, 43 L.Ed. 552, and cases cited. Under the power of amending corporate charters reserved by the Kentucky Constitution, a general prohibition directed...