Prudential Ins Co v. Benjamin 8212 11, 1946

Decision Date03 June 1946
Docket NumberNo. 707,707
Citation66 S.Ct. 1142,328 U.S. 408,90 L.Ed. 1342,164 A.L.R. 476
PartiesPRUDENTIAL INS. CO. v. BENJAMIN, Insurance Com'r of South Carolina. Argued March 8—11, 1946
CourtU.S. Supreme Court

Appeal from the Supreme Court of the State of South Carolina.

Mr. Joseph W. Henderson, of Philadelphia, Pa., for appellant.

[Argument of Counsel from page 409 intentionally omitted] Messrs. T. C. Callison and David W. Robinson, both of Columbia, S.C., for appellee.

Mr. C. H. Foust, of Columbia City, Ind., for the State of Indiana and other States, as amici curiae, by special leave of Court.

Mr. Justice RUTLEDGE delivered the opinion of the Court.

This case and Robertson v. California, 328 U.S. 440, 66 S.Ct. 1160, bring not unexpected sequels to United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440. In cycle reminiscent conversely of views advanced there and in Paul v. Virginia, 8 Wall. 168, 19 L.Ed. 357, claims are put forward on the basis of the South-eastern decision to sustain immunity from state taxation and, in the Robertson case, from state regulation of the business of insurance.

The specific effect asserted in this case is that South Carolina no longer can collect taxes from Prudential, a New Jersey corporation, which for years prior to 1945 the state had levied and the company had paid. The tax is laid on foreign insurance companies and must be paid annually as a condition of receiving a certificate of authority to carry on the business of insurance within the state. The exaction amounts to three per cent of the aggregate of premiums received from business done in South Carolina, without reference to its interstate or local char- acter.1 No similar tax is required of South Carolina corporations.2

Prudential insists that the tax discriminates against interstate commerce and in favor of local business, since it is laid only on foreign corporations and is measured by their gross receipts from premiums derived from business done in the state, regardless of its interstate or local character. Accordingly it says the tax cannot stand consistently with many decisions of this Court outlawing state taxes which discriminate against interstate commerce.3 South Carolina denies that the tax is discriminatory4 or has been affected by the South-Eastern decision. But in any event it maintains that the tax is valid, more particularly in view of the McCarran Act,5 by which it is claimed Congress has consented to continuance of this form of taxation and thus has removed any possible constitutional objection which otherwise might exist. This Prudential asserts Congress has not done and could not do.

The State Supreme Court has held the continued exaction of the tax not to be in violation of the commerce clause or affected by the ruling made in the South-Eastern case. 35 S.E.2d 586. That holding presents the principal basis for this appeal.


The versatility with which argument inverts state and national power, each in alternation to ward off the other's incidence,6 is not simply a product of protective selfinterest. It is a recurring manifestation of the continuing necessity in our federal system for accommodating the two great basic powers it comprehends. For this Court's part, from Gibbons v. Ogden, 9 Wheat. 1, 6 L.Ed. 23, no phase of that process has been more continuous or at times perplexing than reconciling the paramount national authority over commerce, created by Article I, § 8 of the Constitution, with appropriate exercise of the states' reserved powers touching the same or related subject matter.7

The continuing adjustment has filled many of the great constitutional gaps of Marshall's time and later.8 But not all of the filling has been lasting. Great emphases of national policy swinging between nation and states in historic conflicts have been reflected, variously and from time to time, in premise and therefore in conclusion of particular dispositions.9 In turn, their sum has shifted and reshifted the general balance of authority, inevitably producing some anomaly of logic and of result in the decisions.

No phase has had a more atypical history than regulation of the business of insurance. This fact is important for the problems now presented. They have origin in that history. Their solution cannot escape its influence. Moreover, in law as in other phases of living, reconcilia- tion of anomalous behavior, long continued, with more normal attitudes is not always easy, when the time for that adjustment comes.

Essentially the problems these cases tender are of that character. It is not necessary to renew the controversy presented in South-Eastern. Whether or not that decision properly has been characterized as 'precedent-smashing,'10 there was a reorientation of attitudes toward federal power in its relation to the business of insurance conducted across state lines. Necessarily this worked in two directions. As the opinion was at pains to note, 322 U.S. 533, 545 ff, 64 S.Ct. 1162, 88 L.Ed. 1440, no decision previously had held invalid an Act of Congress on the ground that such business was beyond reach of its power, because previously no attempted exercise of that authority had been brought here in litigation. But from Paul v. Virginia to New York Life Ins. Co. v. Deer Lodge County, 231 U.S. 495, 34 S.Ct. 167, 58 L.Ed. 332, negative implication from the commerce clause was held not to place any limitation upon state power over the business, however conducted with reference to state lines. And correlatively this was taken widely, although not universally, to nullify federal authority until the question was squarely presented and answered otherwise in the South-Eastern case.

Whether Paul v. Virginia represented in its day an accommodation with or a departure from the preexisting evolution of commerce clause law and whether its ruling, together with later ones adhering to it, remained consonant with the subsequent general development of that law, may still be debated. But all may concede that the Paul case created for the business of insurance a special, if not a wholly unique, way of thinking and acting in the regulation of business done across state lines. See Ribble, State and National Power over Commerce (1937) 89, 186—187. The aegis of federal commerce power continued to spread over and enfold other business so conducted, in both general and specific legislative exertions. Usually this was with judicial approval; and, despite notable instances of initial hostility, the history of judicial limitation of congressional power over commerce, when exercised affirmatively, has been more largely one of retreat than of ultimate victory.11 The plain words of the grant havem ade courts caurts cautious, except possibly in some of the instances noted, about nullifying positive exertions of Congress' power over this broad and hard to define field. At the same time, physical and economic change in the way commerce is carried on has called forth a constantly increasing volume of legislation exercising that power.12

Concurrently with this general expansion, however, from Paul to South-Eastern the states took over exclusively the function of regulating the insurance business in its specific legislative manifestations. Congress legislated only in terms applicable to commerce generally, without particularized reference to insurance. At the same time, on the rationalization that insurance was not commerce, yet was business affected with a vast public interest,13 the states developed comprehensive regulatory and taxing systems. And litigation of their validity came to be freed of commerce clause objections, at any rate from Deer Lodge on to South-Eastern. Due process in its jurisdictional aspects remained to confine the reach of state power in relation to business affecting other states.14 But the negative implications of the commerce clause became irrelevant, as such, for the valid exercise of state regulatory and taxing authority.

Meanwhile the business of insurance experienced a nation-wide expansion graphically depicted not only in the facts of the situation presented in the South-Eastern case but also in the operations of Prudential as described by its advocates in this cause.15 These divergent facts legal and economic, necessarily were reflected in state legislation. States grappling with nationwide, but nationally unregulated, business inevitably exerted their powers to limits and in ways not sought generally to be applied to other business held to be within the reach of the commerce clause's implied prohibition. Obvious and widespread examples are furnished in broad and detailed licensing provisions, for the doing of business within the states, and in connected or distinct taxing measures drawn in apparent reliance upon freedom from commerce clause limitations.16

Now we are told many of these statutes no longer can stand. The process of read-justment began affirmatively with South-Eastern. Since the commerce clause is a two-edged instrument, the indicated next step, indeed the constitutionally required one, as the argument runs, is to apply its negatively cutting edge. Conceptions so developed with reference to other commerce must now be extended to the commerce of insurance in completion of the readjustment. This, it is confidently asserted, will require striking down much of the state legislation enacted and effective prior to the South-Eastern decision. Particularly will this be true of all discriminatory state taxes, of which it is said South Carolina's is one. Moreover, those results must follow regardless of the McCarran Act's provisions. For by that Act, in Prudential's assessment, Congress neither intended to, nor could validate such taxes.

It is not surprising that the attack is thus broad. When a decision is conceived as precedent-smashing, rightly or wrongly, the conception's invitation may be to greater backtracking than is justified, in spite of warning to proceed with care. 322 U.S....

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