National Casualty Company v. Federal Trade Com'n

• Decision Date: 06 June 1957
• Docket Number: No. 12944.,12944.
• Citation: 245 F.2d 883
• Parties: NATIONAL CASUALTY COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Sixth Circuit

245 F.2d 883 (1957)

NATIONAL CASUALTY COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 12944.

United States Court of Appeals Sixth Circuit.

June 6, 1957.

John F. Langs, Detroit, Mich. (Langs, Molyneaux & Armstrong, by John F. Langs, Detroit, Mich., on the brief), for petitioner.

Robert B. Dawkins, Washington, D. C. (Earl W. Kintner, Gen. Counsel, Robert B. Dawkins, Asst. Gen. Counsel, J. B. Truly, Washington, D. C., on the brief), for respondent.

Brief Amici Curiae:

Covington & Burling, Washington, D. C., for Life Insurance Ass'n. of America and American Life Convention.

Thomas M. Kavanagh, Stanton S. Faville, Edmund E. Shepherd, Lansing, Mich., for the State of Michigan.

Latham Castle, William C. Wines, Chicago, Ill., for the State of Illinois.

M. L. Landis, et al., Chicago, Ill., for American Mut. Alliance.

Simpson, Thacher & Bartlett, New York City, for Health, Inc. Ass'n of America.

John J. O'Connell, and John W. Riley, Olympia, Wash., for the State of Washington.

Bruce Bennett, Little Rock, Ark., for the State of Arkansas.

Will Wilson, Will D. Davis, Austin, Tex., for the State of Texas.

Jo M. Ferguson, Earle V. Powell, Frankfort, Ky., for the Commonwealth of Ky.

Edmund G. Brown, Harold B. Haas, San Francisco, Cal., for the State of California.

Edwin K. Steers, James C. Jay, Indianapolis, Ind., for the State of Indiana.

John Anderson, Jr., Atty. Gen., Charles C. McCarter, Topeka, Kan., et al., for the State of Kansas.

Before SIMONS, Chief Judge, and ALLEN and MILLER, Circuit Judges.

SHACKELFORD MILLER, Jr., Circuit Judge.

The petitioner seeks a review of an order of the Federal Trade Commission requiring the petitioner to cease and desist from engaging in acts and practices in the conduct of its insurance business found by the Commission to be unfair and deceptive, in violation of the Federal Trade Commission Act, as amended. Sec. 45 (a) (1), (6) and (c), Title 15, U. S.Code.

The complaint filed by the Commission alleged that the petitioner in the course of its interstate business of selling accident and health insurance and for the purpose of inducing purchases of such insurance policies, was making statements and representations concerning the benefits of said policies of insurance which were false and deceptive, were to the prejudice and injury of the public, and constituted unfair and deceptive acts and practices in commerce within the meaning of the Federal Trade Commission Act. Petitioner by its answer admitted that it had advertised its accident and health insurance policies as charged in the complaint, but denied that its advertising was false or misleading, or was to the prejudice and injury of the public, or that it had violated the Federal Trade Commission Act. The petitioner affirmatively alleged that the Commission was without jurisdiction over its interstate insurance business because of state statutes regulating unfair and deceptive acts or practices within the respective boundaries of the states, within the scope and meaning of the McCarran Act, Sections 1011-1015, Title 15, U.S.C.A.

At the hearings which followed, the facts were shown to be as follows. Petitioner is a stock company incorporated under the laws of Michigan for the purpose of selling accident, health and all types of casualty insurance, with its principal office in Detroit, Michigan. It is licensed to sell such policies in all states of the United States, the District of Columbia and Hawaii, through resident agents located therein. It sells its insurance policies by solicitation from 350 to 400 direct, but independent, insurance agents throughout the nation, who operate under contract on commission only. Petitioner prepares and sends to these agents direct-mailing cards, advertising material and applications. The agents mail locally or distribute personally this material to likely prospects, secure leads thereby and then call and personally solicit the prospect. A small percent of direct mail advertising is sent by petitioner from its offices in Detroit to the public. 80% or more of petitioners' accident and health policies are issued by it from its home office after receipt, checking and consideration by it of the prospect's signed application which has been secured by the agent. Any policy issued by petitioner is forwarded to the agent for delivery to the insured. Premium notice forms are printed by the petitioner and furnished to the agents who mail them out locally. Premium collection is the agent's responsibility, only 5% or less being remitted directly to the petitioner in cases of unusual or temporary situations.

The Hearing Examiner held that four of the five categories of advertising set forth in the complaint were unfair and deceptive as alleged. He held that the Commission's overall interstate jurisdiction was limited to the four states and the District of Columbia which had no statute regulating unfair or deceptive acts or practices in the business of insurance within their respective boundaries. He also held that the Commission had jurisdiction in all states over the advertising practices of petitioner to the extent that its deceptive advertising material was disseminated by the petitioner by the use of the United States mails. He issued a Cease and Desist order to that effect.

Upon appeal, the Commission reversed the Examiner in part, holding by a three-to-two decision that it had full jurisdiction over the interstate sale of insurance by means of unfair and deceptive advertising practices, irrespective of whether the state had adopted a local law regulating such practices within its boundaries. Since, in our opinion, this case will be disposed of on the jurisdictional issue, it is unnecessary to discuss petitioner's contentions that its advertising was not false or misleading and that the proceeding and the issuance of a Cease and Desist order did not serve any public interest. The jurisdictional question involves the construction and application of the McCarran Act referred to above.

The background giving rise to the McCarran Act is important.

In 1869, the Supreme Court upheld the validity of a Virginia statute which regulated foreign insurance companies, on the ground that the statute did not offend the Commerce Clause of the U. S. Constitution because "issuing a policy of insurance is not a transaction of commerce." Paul v. State of Virginia, 8 Wall. 168, 183, 19 L.Ed. 357. Thereafter, in similar cases, the Supreme Court consistently ruled that the business of insurance was not commerce. In New York Life Insurance Co. v. Deer Lodge County, 231 U.S. 495, 503-504, 510, 34 S.Ct. 167, 172, 58 L.Ed. 332, the Supreme Court, as late as 1913 held to this view, stating in its opinion in that case that "contracts of insurance are not commerce at all, neither state nor interstate." However, in 1944, the Supreme Court in United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, a case involving alleged violations of the Sherman Anti-Trust Act, 15 U.S. C.A. §§ 1-7, 15 note, again considered the question and in a four-to-three decision, held that the business of insurance conducted across state lines was interstate commerce subject to regulation by Congress under the Commerce Clause.

The Supreme Court's decision was vigorously protested in the insurance field. The insurance companies, relying upon the court's previous rulings, had engaged in practices which were prohibited under the federal anti-trust laws but which were permitted under the laws and regulations of the various states. The states feared the loss of large revenues under their laws taxing insurance sold within the states, which, under the new ruling, might be held discriminatory of interstate commerce and, therefore, unconstitutional. As a result of this vigorous reaction to the decision, congress passed the so-called McCarran Act in 1945. This Act provides in part as follows:

"Sec. 1 Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.

"Sec. 2. (a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business. (b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after January 1, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act 15 U.S.C.A. § 12 et seq., and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended 15 U. S.C.A. § 41 et seq., shall be applicable to the business of insurance to the extent that such business is not regulated by State law.

"Sec. 3. (a) Until January 1, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, and the Act of June 19, 1936, known as the Robinson-Patman Anti-discrimination Act, shall not apply to the business of insurance or to acts in the conduct thereof. (b) Nothing contained in this Act shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation.

"Sec. 4. Nothing contained in this Act shall be construed to affect in any manner the application to the business of insurance of the Act of July 5, 1935, as amended, known as the National Labor Relations Act 29

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