People v. United Nat. Life Ins. Co.

• Decision Date: 04 May 1967
• Citation: 427 P.2d 199,66 Cal.2d 577,58 Cal.Rptr. 599
• Court: California Supreme Court
• Parties: , 427 P.2d 199 The PEOPLE, Plaintiff and Appellant, v. UNITED NATIONAL LIFE INSURANCE COMPANY, Defendant and Respondent. The PEOPLE, Plaintiff and Appellant, v. PIONEER LIFE INSURANCE COMPANY, Defendant and Respondent. The PEOPLE, Plaintiff and Appellant, v. NATIONAL LIBERTY LIFE INSURANCE COMPANY, Defendant and Respondent. L.A. 28843--28845. In Bank

Page 599

58 Cal.Rptr. 599

66 Cal.2d 577, 427 P.2d 199

The PEOPLE, Plaintiff and Appellant, v. UNITED NATIONAL LIFE INSURANCE COMPANY, Defendant and Respondent.

The PEOPLE, Plaintiff and Appellant, v. PIONEER LIFE INSURANCE COMPANY, Defendant and Respondent.

The PEOPLE, Plaintiff and Appellant, v. NATIONAL LIBERTY LIFE INSURANCE COMPANY, Defendant and Respondent.

L.A. 28843--28845.

Supreme Court of California,

In Bank.

May 4, 1967.

Thomas C. Lynch, Atty. Gen., and H. Warren Siegel, Deputy Atty. Gen., for plaintiff and appellant.

O'Melveny & Myers, Warren M. Christopher, William W. Vaughn, Girard E. Boudreau, Jr., Beardsley, Hufstedler & Kemble, Seth M. Hufstedler and John Sobieski, Los Angeles, for defendants and respondents.

Davis, Polk, Wardwell, Sunderland & Kiendl, Richard E. Nolan, New York City, Charles S. Hoppin and J. Anthony Kline, San Francisco, as amici curiae on behalf of defendants and respondents.

SULLIVAN, Associate Justice.

We hold in these consolidated cases that California can constitutionally regulate insurance transactions of foreign insurance companies which, although they have no agents in this state, solicit and negotiate such transactions with California residents exclusively by mail from offices outside this state. Additionally we conclude that foreign insurers engaging in such activities are subject to the provisions of section 700 of the Insurance Code ¹ and, as a condition precedent to engaging therein, must procure from the Insurance Commissioner of this state (commissioner) a certificate of authority in accordance with that section. As we explain, infra, we find that such regulation comports with applicable criteria of federal due process and is free of conflict with any federal law or regulation. We also point out that the conclusions which we reach do not affect the validity or enforceability of pertinent insurance policies heretofore contracted by defendants. We therefore reverse the judgments.

The facts are not in dispute. Defendants United National Life Insurance Company (United), Pioneer Life Insurance Company (Pioneer) and National Liberty Life Insurance Company (National) were organized under the laws of other states ² and have offices only in the respective states of their incorporation. Each defendant is licensed by its home state to carry on the particular class of insurance business in which it is engaged. Generally speaking all three companies solicit insurance business exclusively by mail.

In the Pioneer and National cases the defendants solicit residents of California by mailing to the latter individually from their home offices (see fn. 2, ante) application forms and other material. These documents explain the particular policy being offered, set forth the premiums, emphasize the low cost of the coverage, and urge the California addressee to complete and return the application form, together with payment of the first premium, to the company at its home office. The policy is thereafter issued at the home office and mailed to the applicant. Payments of subsequent premiums are received from the California policyholder by mail.

In the case of United there is a difference in the method of operation. As part of its solicitation by mail, United issues a pre-indorsed policy and sends it to California residents who are parents of recently inducted members of the armed services, together with an 'ownership application' and other material explaining the policy. The recipient is urged to complete and return the application, together with payment of the designated first premium. Unlike the policies of Pioneer and National which, as we have said, are issued by the company at its home office only after it has received the completed application and first premium, United's policy is effective immediately upon deposit by the policyholder of the completed application and required premium in the United States mail in California.

None of the three companies has offices or agents in California; has any other representative within this state; or has at any time applied to the commissioner for, or received from him, a certificate of authority as provided in section 700. ³

These actions were brought by the commissioner in the name of the People pursuant to section 12928.6 ⁴ to enjoin defendant companies 'from engaging directly or indirectly, by mail or otherwise' in the insurance business in California or 'from transacting insurance in California as defined in section 35' unless and until a certificate of authority is obtained in compliance with section 700. In their respective answers, defendants in the main admitted their methods of solicitation by mail as alleged by the commissioner in his complaints and as described above, but denied that they had violated or would in the future violate any of the provisions of the California Insurance Code. The answers also set forth a number of affirmative defenses, which, it is sufficient to say at this point, asserted the lack of power or jurisdiction of the court to grant the relief prayed for by the commissioner and additionally the inapplicability of sections 35 and 700 to the particular insurance business being conducted by them. In each of the actions motions for summary judgment were filed by the plaintiff and by the respective defendant company. In each the court granted the defendant's motion and denied plaintiff's motion upon the ground that California could not constitutionally regulate the type of insurance business being conducted. ⁵ Judgments were entered accordingly. These appeals by the People followed.

Simply stated the issues before us are these: (1) Whether California can constitutionally regulate the transaction of the mail order insurance business; and (2) whether section 700 is applicable to such business.

We consider the first issue in an historical setting. In 1869 the United States Supreme Court held that policies of insurance 'are not articles of commerce in any proper meaning of the word * * * (and) are not inter-state transactions, though the parties may be domiciled in different States.' (Paul v. Virginia (1869) 75 U.S. (8 Wall.) 168, 183, 19 L.Ed. 357, 361.) Paul and many cases following it upheld state regulation of the insurance business on the premise that it was not interstate commerce and therefore not subject to federal regulation under the commerce clause. In 1944 in United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, in what it later described as 'a reorientation of attitudes toward federal power in its relation to the business of insurance conducted across state lines' (Prudential Ins. Co. v. Benjamin (1946) 328 U.S. 408, 414, 66 S.Ct. 1142, 1147, 90 L.Ed. 1342), the Supreme Court held that such business Was interstate commerce and consequently subject to federal regulation. As the parties herein point out to us, in the interval between Paul and South-Eastern Underwriters state regulation of the insurance business proliferated without restrictions other than those predicated upon the due process clause of the federal Constitution. Comprehensive state systems of regulation and taxation were predicated 'on the rationalization that insurance was not commerce, yet was business affected with a vast public interest * * * (and) the negative implications of the commerce clause became irrelevant, * * *.' (Prudential Ins. Co. v. Benjamin, supra, 328 U.S. 408, 415--416, 66 S.Ct. 1142, 1147.)

To meet the threat to state regulation presented by the holding in South-Eastern Underwriters and to preserve state regulation from attacks based on the commerce clause, Congress in 1945 promptly passed the McCarran Act (15 U.S.C.A. §§ 1011--1015). This act expressly provided that the regulation and taxation of the business of insurance should be subject to the laws of the several states. ⁶ The Supreme Court in Prudential Ins. Co. v. Benjamin, supra, 328 U.S. 408, 66 S.Ct. 1142, rejected a broad and vigorous attack on the act and dispelled any doubt as to the efficacy of the McCarran Act to free state regulation from possible commerce clause restraint. As the court there said: 'Obviously Congress' purpose was broadly to give support to the existing and future state systems for regulating and taxing the business of insurance. This was done in two ways. One was by removing obstructions which might be thought to flow from its own power, whether dormant or exercised, except as otherwise expressly provided in the Act itself or in future legislation. (Fn. omitted.) The other was by declaring expressly and affirmatively that continued state regulation and taxation of this business is in the public interest and that the business and all who engage in it 'shall be subject to' the laws of the several states in these respects.' (Pp. 429--430, 66 S.Ct. p. 1155.)

As the parties before us recognize, the McCarran Act, while validating state power to regulate and tax in respect to the commerce clause, did not purport to circumscribe such power in the light of the due process clause. It remained for the court's decision in State Board of Insurance v. Todd Shipyards (1962) 370 U.S. 451, 82 S.Ct. 1380, 8 L.Ed.2d 620, to construe and assess the act as against due process requirements. Todd which we discuss in more detail infra, affirmed a Texas decision declaring unconstitutional a statute imposing a tax on premiums paid to an insurer not licensed to do business in that state. The court in Todd held that state regulation should be examined in the light of due process criteria existing prior to the enactment of the McCarran Act and 'should be kept within the limits set by' Allgeyer v. State of Louisiana (1897) 165 U.S. 578, 17 S.Ct. 427, 41 L.Ed. 832; St. Louis Cotton Compress Co. v. State of Arkansas (1922) 260 U.S. 346, 43 S.Ct. 125, 67 L.Ed. 297, and Connecticut General Life Insurance Co. v. Johnson (1938) 303 U.S. 77, 58 S.Ct. 436, 82 L.Ed. 673. (State Board of Insurance...