Niagara Fire Ins. Co. v. Cornell

• Decision Date: 23 September 1901
• Parties: NIAGARA FIRE INS. CO. et al. v. CORNELL, State Auditor, et al.
• Court: U.S. District Court — District of Nebraska

110 F. 816

NIAGARA FIRE INS. CO. et al. v. CORNELL, State Auditor, et al.

United States Circuit Court, D. Nebraska.

September 23, 1901

[Copyrighted Material Omitted]

J. M Woolworth and W. D. McHugh, for complainants.

F. N Prout, Atty. Gen., and Norris Brown, Asst. Atty. Gen., for respondents.

McPHERSON District Judge.

A number of fire insurance companies, corporations organized and existing under the laws of states of the United States other than the state of Nebraska, are complainants herein. John F. Cornell, auditor of Nebraska, C. J. Smythe, attorney general, and Howard H. Baldridge, county attorney of Douglas county, are respondents. So far as I deem important, waiving allegations conferring jurisdiction and allegations more or less technical, the recitals of complainants' bill in equity in substance are as follows: Nearly 20 years ago each of complainants made application to the state auditor of Nebraska for license to transact the business of fire insurance in the state, making the showing as to solvency, its character and methods of doing business, and in all respects complying with the requirements of the Nebraska laws relating to foreign insurance companies, including the payment of large sums of moneys to the state; all of which has been done each and every year, and each and all of said exactions and burdens it is now and ever will be ready and willing to comply with and bear. During all of these years it has, by reason of such license, and the many renewals thereof, gone to very large expense in advertising, establishing offices and agencies to properly and successfully carry on its business in the state. The bill then recites at much length historical facts, as claimed, pertaining to the insurance business, by which it appears that until some years ago the business of fire insurance was mere guesswork, and akin to gambling, for the reason that neither the insured nor insurer, nor any one else, knew the cost or value of a certain risk. Then it was that men of great skill and learning and experience were employed to fix the price or cost of insurance of the innumerable kinds of risks. And it is alleged that several years ago the complainants, and a large number of other insurance companies doing business in Nebraska, employed one Hartman, an expert of high standing, to fix the fair and reasonable rates for the various risks, physical and moral, and that the companies would be bound, by agreement, to do business only in accordance with the rates thus fixed by Hartman. Business was so done by agreement in Nebraska, with Hartman's help, until the legislation of which complaint is now made. It is also alleged that the Nebraska legislature, in 1897, passed two statutes, one known as 'Senate File No. 330' and the other as 'Senate File No. 2,' both approved April 15, 1897. No. 330 is with reference to 'Trusts,' defining the same, providing means for their suppression, and provides for punishment for a violation of the statute. It specifically refers to fire insurance companies, and in the definition of a trust it recites that a combination of capital, skill, or acts by persons with the intent to prevent competition in fire insurance, or by which they shall in any manner establish or settle the price of fire insurance, with the intent to prevent free competition, is in violation of the statute. The other statute is likewise to prevent combinations in matters of fire insurance, and provides penalties for its violations. It is the duty of the auditor, the attorney general, and the several county attorneys to enforce these statutes. Since the passage of these statutes, the companies, including complainants, still get information from the said Hartman as to risks, their classification, their cost or worth, and so on. But it is alleged that Hartman's conclusions, while generally observed, are not always followed, each company acting as it deems wise, and often ignoring his recommendations. It is also alleged that, unless restrained, defendants will seek to enforce these statutes, to the great annoyance, detriment, and damage of the companies. And complainants insist that the statutes for various reasons are in conflict with both the state and federal constitutions. An injunction is prayed for, restraining the defendants, their successors in office, and the various county attorneys from enforcing, as against any of complainants, either of the statutes, or any of their void provisions. Supplemental bills have been filed, showing that annually since the bill was filed each of complainants has made a proper showing to the auditor, paid the money necessary to enable it to do business in Nebraska, and has received a license therefor. Other important allegations are made, which will be noticed later in this opinion. A restraining order was issued by Judge Munger. The answers to the bill and supplemental bills were filed by Mr. Smythe, the then attorney general. He tendered but three issues: (a) A denial of the unconstitutionality of either of said statutes; (b) denies that either he or the auditor, or any county attorney, intends to attack either of the complainants because of a violation of either of the statutes in question; (c) allegations that complainants are doing business in Nebraska by mere sufferance. On the issues thus raised the case has been tried.

1. Neither the first nor third defense raises any question of fact; and in my judgment the second defense neither raises a question of fact that need be decided, nor has it any merit. The showing both by the allegations of the bill not put in issue and the proofs is to the effect that by legislation for a great many years in force, and still in force, in Nebraska, foreign insurance companies were invited to go into Nebraska and do a fire insurance business. This was done, no doubt, partly by reason of comity to other states, but no doubt largely to enable the citizens of the state to have competition generally, and particularly as to large risks in the cities. The companies went into the state, and for many years paid large sums to the state, and additional large sums in advertisements, establishing offices, agencies, and other necessary expenses. The present attorney general, in his argument, strongly and with much ability and force urges for my consideration the case in the United States supreme court of Paul v. Virginia, 8 Wall. 168, 19 L.Ed. 357. I agree with him that that case and many other like cases hold-- to all of which I agree-- that foreign insurance companies cannot do business in Nebraska excepting by and with the consent of the state of Nebraska. To that effect the law is well settled. If the state of Nebraska by legislation makes it more onerous for foreign insurance companies, there can be no doubt about the validity of such legislation. Their license fees can be increased. Their local agents can be required to pay fees. The laws can be made more rigorous as to suits brought against them. They can be required to name in the state or in every county a resident attorney upon whom process can be served. Many other exactions can be required. And the fact that the foreign company has heretofore been licensed is no answer to such new legislation, and all foreign companies can be excluded from the state. But that is not the question before me for decision. If it were, I would sustain the contention of the attorney general. These companies have been, by legislation, invited to come into the state. They are here, and here lawfully. They are complying with all requirements of the state, unless it be the requirements of the statutes in question. They being here by invitation, and complying with all legal requirements, as they say, it cannot be exacted of them that they comply with illegal requirements, because an illegal requirement is none at all. An unconstitutional statute is no law. It seems clear to me that the complainants have the right to challenge these statutes. And it will not do for the respondents Mr. Cornell and Mr. Smythe, nor their successors, to say, as is said by their answer filed, that the laws are constitutional, but that they will not enforce them, and therefore there need be no injunction. If the laws are valid, they must be enforced, and a presumption well-nigh conclusive that they will enforce them. So the question for judicial determination is as to the validity of these statutes.

2. The statutes provide that for alleged infractions the companies may be cited to appear before the state auditor. From his decision an appeal can be taken to the state court. But because the auditor passes thereon it is insisted he is exercising judicial functions, and therefore the statutes are in conflict with the Nebraska constitution, which lodges all judicial power with the courts. I cannot sustain this contention of the companies; and upon this question, as well as others, I do not care to enter upon a discussion, which would be, and only could be, academic. If the companies, by appeal or other proceeding, can get a hearing before the courts, and there be given a trial by jury, or a trial according to the recognized chancery practice, as the nature of the case may require, then it has been tried according to due process of law and the law of the land, and has no just cause of complaint. Such are the holdings of the courts. I suppose all the states have special proceedings for the hearing of grievances, and such proceedings are sustained if along the line somewhere, and by some reasonable method, the party can have a hearing in the courts. And it is equally clear that such remedy is not to the exclusion of the power of a federal court to act. There may be a plain, speedy, and adequate remedy at law in the state courts, but with the proper parties, with the...