Family Security Life Ins. Co. v. Daniel

• Citation: 79 F. Supp. 62
• Decision Date: 12 August 1948
• Docket Number: Civil Action No. 1918.
• Court: U.S. District Court — District of South Carolina
• Parties: FAMILY SECURITY LIFE INS. CO. et al. v. DANIEL, Attorney General of South Carolina, et al.

79 F. Supp. 62

FAMILY SECURITY LIFE INS. CO. et al. v. DANIEL, Attorney General of South Carolina, et al.

Civil Action No. 1918.

District Court, E. D. South Carolina, Columbia Division.

August 12, 1948.

Donald Russell, C. Erskine Daniel, E. W. Johnson, and T. Sam Means, Jr., all of Spartanburg, S. C., for plaintiffs.

John M. Daniel, Atty. Gen. of South Carolina, T. C. Callison, Asst. Atty. Gen. of South Carolina, Edgar A. Brown, of Barnwell, S. C., D. W. Robinson, of Columbia, S. C., and R. N. Ward, of Greenville, S. C., for defendants.

Before DOBIE, Circuit Judge and WYCHE and TIMMERMAN, District Judges.

WYCHE, District Judge.

This is a suit to enjoin the enforcement of a South Carolina statute (Appendix A) which, among other things, declares it to be unlawful, punishable by fine and imprisonment in the discretion of the Court, (1) for any insurance company to own a mortuary or to permit its officers or employees to operate a mortuary, and (2) for any funeral director or employee of a mortuary to be licensed as an insurance agent, upon the ground that it is violative of the Federal Constitution.

With the filing of the action, plaintiffs applied for the convening of a statutory Court to hear and determine their application for an interlocutory injunction, and pending such hearing, for a temporary restraining order. Section 266 of the Judicial Code, 28 U.S.C.A. § 380. On April 17, 1948, an order was entered, convening such statutory Court, and granting a ten day temporary restraining order, which has been continued by agreement of the parties.

The hearing before the statutory Court was based upon the pleadings, stipulations and various affidavits submitted by the parties. It was agreed by counsel for all the parties that, after ruling out all incompetent matter, the cause be submitted for a final decree upon the merits.

It is clear from the pleadings and the record that federal and equity jurisdiction exists, and that if the Act be unconstitutional, as claimed, plaintiffs are entitled to the relief prayed. Dobie on Federal Procedure, 166; Liggett Co. v. Baldridge, 1928, 278 U.S. 105, 110, 49 S.Ct. 57, 73 L.Ed. 204; Terrace v. Thompson, 1923, 263 U.S. 197, 215, 44 S.Ct. 15, 68 L.Ed. 255. The question in this case is whether the challenged act contravenes the due process and equal protection clauses of the Federal Constitution. Amendment 14.

The facts giving rise to the controversy, briefly summarized, are as follows: For a number of years insurance companies, primarily those engaged in the issuance of what is commonly designated as "industrial insurance," have been selling in South Carolina a type of insurance policy which assures the payment of the assured's funeral upon his death. The record shows that in one instance at least (and the record does not indicate whether this case is instanced as an isolated example or as illustrative of a common practice) the agent of the insurance company selling this type of insurance, was an employee of a mortuary. So far as the record shows, no improper advantages of any kind were taken of the assured, either as a result of the issuance of this type of insurance, or of the fact that an agent selling it was connected with a mortuary.

In the early part of 1948, the plaintiff Family Security Life Insurance Company, a legal-reserve life insurance corporation, organized under the laws of South Carolina, embarked aggressively upon the business of writing this "pre-paid funeral" type of insurance. The active promoters of the company were J. Gordon Floyd and A. G. Mackey, both funeral directors, one located in Spartanburg and the other in Greenville, South Carolina. One of the reasons for Floyd's and Mackey's interest was their natural desire to see that as many persons as possible had assured the payment of their funeral through insurance. One of the heavy expense items in a mortuary, especially in the South, is the large volume of "charity funerals." By energetically pushing this type of insurance, Floyd and Mackey, both for themselves and for other morticians, would be protecting themselves, to a degree, against the loss attaching to "charity funerals."

The officers and employees of other mortuaries in the State were actively solicited as stockholders and agents of this insurance company. A large number associated themselves with the company as stockholders and/or agents. The company made rapid strides immediately. To a degree this resulted from the more liberal provisions incorporated in this plaintiff company's policies.

All policies offered by the company are on a life insurance basis with legal reserves and non-forfeiture values approved by the South Carolina Insurance Commissioner; and claims paid on the company's policies of insurance are made in cash, and permits the beneficiary freedom of choice in selection of a funeral home and in selection of type and cost of merchandise and services. Its contracts are more favorable to the insured than those of other competing companies writing the same class of insurance because of higher policyholders' reserves, more favorable premium rates, more liberal extended insurance and cash surrender values, and the adoption of the 1941 Standard Industrial Mortality Table. And it, alone, of all South Carolina companies, writes insurance up to age 74, and is the only industrial insurance company in South Carolina that has adopted the recommended provisions of the Guertin Reports. (Appendix B)

The plaintiff insurance company has 34 stockholders, all of whom except one, either own, manage, supervise, operate or are employed by a mortuary, or undertaking establishment. It has 79 agents, all duly licensed by the Insurance Commissioner of South Carolina, 51 of whom are funeral directors, or owners, employees, or agents or officers of mortuaries, funeral directors, or undertaking establishments. No one funeral home may own more than forty-nine per cent of the company's outstanding stock. Its President and all but one of its five Directors are either owners, managers, supervisors, or operators of mortuaries or undertaking establishments. It grants no exclusive agency in any community; anyone, including those in or entering into the undertaking business can become an agent and become a stockholder in the plaintiff company.

In 1947, before the plaintiff company became active, the insurance laws of South Carolina were drastically revised under an Act known as "The Insurance Law." Act May 12, 1947, 45 Stat. of S.C. pp. 322-473. These revisions were designed to, and did invest the Insurance Commissioner of South Carolina with the broadest and most extensive powers of supervision and control over insurance companies and insurance agents operating in South Carolina. Under "The Insurance Law", an insurance company can only be authorized to operate in South Carolina if the Insurance Commissioner approves its charter, and no agent can be licensed until the Commissioner has determined upon application and examination that the applicant is "a competent and trustworthy person" to act as such agent. This law clothes the Commissioner with authority to correct any form of "unfair competition" found by him to be employed by any insurance company. It also, makes it a criminal offense, punishable by fine and imprisonment in the discretion of the Court "to make payment or settlement of death benefits * * * in merchandise or services rendered or agreed to be rendered." The Insurance Commissioner is empowered to revoke licenses of companies for proper cause or for violation of the laws of this State, to revoke the license of an agent when it appears that an agent has violated the law or wilfully deceived or unjustly dealt with the citizens of the State. In short "The Insurance Law" gives the Commissioner plenary authority to deny or revoke licenses to any company or agent whose operations or activities might be deemed as a violation of law, unfair, unjust or deceptive.

Before the enactment of the challenged statute, and after an investigation of the proposed operations of the plaintiff company the Insurance Commissioner of the State, acting under "The Insurance Law" had duly authorized it to engage in the writing of its type of "burial insurance" through funeral directors and employees of mortuaries, generally, as agents. Prior to this approval being given, the South Carolina Insurance Commissioner, it appears from the undisputed record, carefully inquired into plaintiff company's proposed method of operating and especially its intention to use normally funeral directors and employees of mortuaries as its agents. Such administrative officer, charged with special knowledge and familiarity in the field of insurance and clothed with such extensive powers, was not required to approve the operations of an insurance company if those operations transgressed the insurance laws of South Carolina, were unfair as against policyholders or competing companies, or might be subject to deception or improper advantage. By approving the plaintiff company's operations, the Insurance Commissioner had necessarily to conclude that those operations were proper. Similarly, the Insurance Commissioner duly licensed all the agents of plaintiff company, including the individual plaintiff Lanford, most of whom were employees of mortuaries. In so doing, the Commissioner found that such persons were both "competent" and "trustworthy" in every particular.

As the business of the plaintiff company increased rapidly its competitors became active. At meetings of agents of the competing insurance companies, pressure for legislation to destroy plaintiff company and to proscribe its agents was agreed upon. Division developed, too, among the morticians themselves and some of them joined with the competing insurance companies in promoting special legislation intended to destroy plaintiff company and its business. It seems obvious from the record that this legislation had its genesis in...