Federal Trade Commission v. Travelers Health Association, 51

• Decision Date: 28 March 1960
• Docket Number: No. 51,51
• Citation: 80 S.Ct. 717,362 U.S. 293,4 L.Ed.2d 724
• Parties: FEDERAL TRADE COMMISSION, Petitioner, v. TRAVELERS HEALTH ASSOCIATION
• Court: U.S. Supreme Court

362 U.S. 293

80 S.Ct. 717

4 L.Ed.2d 724

FEDERAL TRADE COMMISSION, Petitioner,

v TRAVELERS HEALTH ASSOCIATION.

No. 51.

Argued Dec. 10, 1959.

Decided March 28, 1960.

Mr. Charles H. Weston, Washington, D.C., for petitioner.

Mr. C. C. Fraizer, Lincoln, Neb., for respondent.

Mr. Justice STEWART delivered the opinion of the Court.

Section 2(b) of the McCarran-Ferguson Act provides that '(T)he Federal Trade Commission Act, * * * shall be applicable to the business of insurance to the extent that such business is not regulated by State law.'¹ The State in which the respondent is incorporated prohibits unfair or deceptive practices in the insurance business there or 'in any other state.' The question presented is whether the respondent's interstate mail order insurance business is thereby 'regulated by State law' so as to insulate its practices in commerce from the regulative authority of the Federal Trade Commission.

The respondent, a Nebraska corporation, is engaged in the business of selling health insurance. Licensed only in the States of Nebraska and Virginia, the respondent sells no policies through agents, but from its office in Omaha transacts business by mail with residents of every State. It solicits business by mailing circular letters to prospective buyers recommended by existing policyholders. All business is carried on by direct mail from the Omaha office; it is from there that policies are issued, and there that premiums are paid and claims filed.

A Nebraska statute provides: 'No person shall engage in this state in unfair methods of competition or in unfair or deceptive acts and practices in the conduct of the business of insurance. No person domiciled in or resident of this state shall engage in unfair methods of competition or in unfair or deceptive acts and practices in the conduct of the business of insurance in any other state, territory, possession, province, country, or district.'²

The Court of Appeals set aside a cease-and-desist order of the Federal Trade Commission prohibiting the respondent from making certain statements and representations in its circular letters found by the Commission to be misleading and deceptive in violation of the Federal Trade Commission Act. 15 U.S.C. § 45, 15 U.S.C.A. § 45. The court concluded that '(w)ith every activity of the (respondent), in the conduct of its business, subject to the supervision and control of the Director of Insurance of Nebraska, we think that the (respondent's) practices in the solicitation of insurance by mail in Nebraska or elsewhere reasonably and realistically cannot be held to be unregulated by State law.' The court accordingly decided that the Commission was 'without authority to regulate the practices of the (respondent) in soliciting insurance.' 262 F.2d 241, 244. Judge Vogel dissented, stating his belief that it was 'impractical and ineffective' to 'force the citizens of other states to rely upon Nebraska's regulation of the long distance advertising practices of the (respondent) in the promotion and sale by mail or otherwise of insurance outside the State of Nebraska.' It was his view that Nebraska's regulation of deceptive practices 'in any other state' is not 'the kind of regulation by state law Congress had in mind' in enacting the McCarran-Ferguson Act. 262 F.2d 241, 245. Certiorari was granted 359 U.S. 988, 79 S.Ct. 1122, 3 L.Ed.2d 978, to resolve an important question left undecided in Federal Trade Comm. v. National Casualty Co., 357 U.S. 560, 78 S.Ct. 1260, 2 L.Ed.2d 1540.

In that case the issue involved the effect of state laws regulating the advertising practices of insurance companies which were licensed to do business within the States and which were engaged in advertising programs requiring distribution of material by local agents. In those circumstances the Court found there was 'no question but that the States possess ample means to regulate this advertising within their respective boundaries.' 357 U.S. at page 564, 78 S.Ct. at page 1262. It was held that § 2(b) of the McCarran-Ferguson Act 'withdrew from the Federal Trade Commission the authority to regulate respondents' advertising practices in those States which are regulating those practices under their own laws.' 357 U.S. at page 563, 78 S.Ct. at page 1261. The Court expressed no view as to 'the intent of Congress with regard to interstate insurance practices which the States cannot for constitutional reasons regulate effectively * * *.' 357 U.S. at page 564, 78 S.Ct. at page 1262.

The question here is thus quite different from that presented in National Casualty. In this case the state regulation relied on to displace the federal law is not the protective legislation of the States whose citizens are the targets of the advertising practices in question. Rather, we are asked to hold that the McCarran-Ferguson Act operates to oust the Commission of jurisdiction by reason of a single State's attempted regulation of its domicil- iary's extraterritorial activities.³ But we cannot believe that this kind of law of a single State takes from the residents of every other State the protection of the Federal Trade Commission Act.⁴ In our opinion the state regula- tion which Congress provided should operate to displace this federal law means regulation by the State in which the deception is practiced and has its impact.

The McCarran-Ferguson Act was passed in 1945. Its basic purpose was to allay doubts, thought to have been raised by this Court's decision of the previous year in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, as to the continuing power of the States to tax and regulate the business of insurance.⁵ See Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 429—433, 66 S.Ct. 1142, 1154—1156, 90 L.Ed. 1342; Maryland Casualty Co. v. Cushing, 347 U.S. 409, 413, 74 S.Ct. 608, 610, 98 L.Ed. 806; Securities & Exchange Comm. v. Variable Annuity Life Ins. Co., 359 U.S. 65, 99, 79 S.Ct. 618, 636, 3 L.Ed.2d 640 (dissenting opinion). The original bills as passed by both the Senate and the House would have made the Federal Trade Commission Act completely inapplicable to the insurance business. S. 340, 79th Cong., 1st Sess., 91 Cong.Rec. 478—488, 1085, 1093—1094. During the debate in the House, however, several members objected to the provision exempting the business of insurance from this federal statute (91 Cong.Rec. 1027—1028, 1086, 1089, 1092—1093), and Representative Sumners, Chairman of the House Judiciary Committee, stated that in conference he would support an amendment which would make the Federal Trade Commission Act applicable to the same extent as the Sherman and Clayton Acts, 15 U.S.C.A. § 1 et seq., 12 et seq., 91 Cong.Rec. 1093. Thus it was that § 2(b) in the form finally enacted first appeared as a recommendation of the Conference Committee of the two Houses. H.R.Conf.Rep. No. 213, 79th Cong., 1st Sess.

Since the House accepted the Conference Report without debate, 91 Cong.Rec. 1396, the only discussion of § 2(b) in its present form occurred in the Senate. Yet, from that somewhat limited debate, as well as the earlier debate in both Houses as to the effect of the Sherman and Clayton Acts, it is clear that Congress viewed state regulation of insurance solely in terms of regulation by the law of the State where occurred the activity sought to be regulated. There was no indication of any thought that a State could regulate activities carried on beyond its own borders.

Thus the report on the original House bill stated: 'It is not the intention of Congress in the enactment of this legislation to clothe the States with any power to regulate or tax the business of insurance beyond that which they had been held to possess prior to the decision of the United States Supreme Court in the Southeastern Underwriters Association case. Briefly, your committee is of the opinion that we should provide for the continued regulation and taxation of insurance by the States, subject always, however, to the limitations set out in the controlling decisions of the United States Supreme Court as, for instance, in Allgeyer v. (State of) Louisiana (165 U.S. 578 (17 S.Ct. 427, 41 L.Ed. 832)), St. Louis Cotton Compress Co. v. (State of) Arkansas (260 U.S. 346 (43 S.Ct. 125, 67 L.Ed. 297)), and Connecticut General (Life) Insurance Co. v. Johnson (303 U.S. 77 (58 S.Ct. 436, 82 L.Ed. 673)), which hold, inter alia, that a State does not have power to tax contracts of insurance or reinsurance entered into outside its jurisdiction by individuals or corporations resident or domiciled therein covering risks within the State or to regulate such transactions in any way.' (H.R.Rep. No. 143, 79th Cong., 1st Sess. 3.)

Significantly, when Senator McCarran presented to the Senate the bill agreed to in conference, he began by reading most of the foregoing quotation from the original House Report as part of his explanation of the bill. 91 Cong.Rec. 1442. The ensuing Senate debate centered around § 2(b). The three Senate conferees, Senators McCarran, O'Mahoney, and Ferguson, repeatedly emphasized that the provision did not authorize state regulation of extraterritorial activities. See, e.g., 91 Cong.Rec. 1481, 1483, 1484. Typical is the following statement by Senator O'Mahoney: 'When the moratorium period passes, the Sherman Act, the Clayton Act, and the Federal Trade Commission Act come to life again in the field of interstate commerce, and in the field of interstate regulation. Nothing in the proposed law would authorize a State to try to regulate for other States, or authorize any private group or association to regulate in the field of interstate commerce.' 91 Cong.Rec. 1483.

Not only this specific legislative history, but also a basic motivating policy behind the legislative movement that culminated in the enactment of the McCarran-Ferguson Act serve to confirm the conclusion that when Congress provided that the Federal Trade Commission...