Royal Standard Insurance Company v. McNamara

• Decision Date: 22 April 1965
• Docket Number: No. 17751.,17751.
• Citation: 344 F.2d 240
• Parties: ROYAL STANDARD INSURANCE COMPANY, Appellant, v. Robert S. McNAMARA, Secretary of Defense, United States of America, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

344 F.2d 240 (1965)

ROYAL STANDARD INSURANCE COMPANY, Appellant, v. Robert S. McNAMARA, Secretary of Defense, United States of America, Appellee.

No. 17751.

United States Court of Appeals Eighth Circuit.

April 22, 1965.

Charles W. Stubbs of Stubbs, Maynard & Nixon, Oklahoma City, Okl., Welcome D. Pierson, Oklahoma City, Okl., James O. Garner, Fort Smith, Ark., John G. Holland, Fort Smith, Ark., and Lawrence S. Rosenstrauch, Columbus, Ga., for appellant.

Martin Jacobs, Attorney, Dept. of Justice, Washington, D. C., John W. Douglas, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., Morton Hollander, Attorney, Dept. of Justice, Washington, D. C., and Charles M. Conway, U. S. Atty., Fort Smith, Ark., for appellee.

Before VOGEL, RIDGE and MEHAFFY, Circuit Judges.

VOGEL, Circuit Judge.

Royal Standard Insurance Company, appellant herein, instituted this action to obtain a preliminary and permanent injunction restraining the Secretary of Defense, appellee, from placing into effect and enforcing a Department of Defense directive. The directive upon which attack is made was issued April 15, 1964, to become effective July 1, 1964.¹

The purpose of the directive at issue was to establish "uniform requirements" (1) "for motor vehicle liability insurance coverage for all military and civilian personnel extended driving and parking privileges on military installations within the United States" and (2) "for the accreditation of insurers for the solicitation and sale on military installations of motor vehicle liability insurance".

With respect to its first purpose, the regulations contained in the directive provide that "to secure and retain driving and parking privileges on military installations, all military and civilian personnel must possess motor vehicle liability insurance which meets the requirements" of the regulations. A motor vehicle liability insurance policy meets the requirments if it: (1) Complies with all statutory and regulatory requirements of the state in which the installation is located and has policy amounts not lower than the minimum limits prescribed in the financial responsibility or compulsory insurance law of that state; (2) states clearly the name and full address of the insurer; (3) provides bodily injury and property damage liability coverage for all drivers authorized by the named insured to drive the vehicle, "military endorsements excluding persons other than the named insured whether in the military or not are not acceptable"; and (4) does not contain unusual limitations or restrictions including, but not limited to (a) territorial limitations, except that if the installation is located within the United States, the standard limitation limiting coverage to the United States and Canada is acceptable; and (b) coverage limitations which exclude liability for bodily injury to passengers and guests if such liability exists as a matter of law.

There are other provisions as well as numerous exceptions to the directive's requirements, both for defense personnel and insurers, which we find of insufficient pertinence to detail here.

On May 30, 1964, the appellant filed its complaint, alleging that it is an Arkansas corporation engaged in the business of writing automobile liability insurance for military personnel; that the Secretary of Defense lacked authority to issue the April 15, 1964, directive and that if such directive is put into effect it, the appellant, will have to cease doing business. Appellant requested that the Secretary be permanently enjoined from carrying out and enforcing the directive. Appellant also sought a "temporary injunction" restraining enforcement of the directive and requiring the Secretary to issue a new directive canceling the old.

In response to an order to show cause why a preliminary injunction should not be granted, the Secretary of Defense moved for dismissal of the complaint and denial of a preliminary injunction on the following grounds, among others, that (1) appellant lacked standing to sue, (2) appellant had not exhausted its administrative remedies, (3) the action is an unconsented suit, (4) the appellant's pleadings fail to show acts constituting irreparable injury, and (5) the Secretary acted within his authority in promulgating the regulations complained of and they are reasonable regulations. On June 10, 1964, the District Court denied the appellant's request for a preliminary injunction and the case proceeded to trial.

Testimony of appellant's witnesses may be briefly summarized as follows: The appellant has 27 employees. The major share of its business (79%) comes from insuring military personnel who are under 25 years of age. Servicemen in that age group are generally undesirable insurance risks and can usually get insurance coverage only through an "assigned risk pool or plan" at a rate considerably higher than that charged by the appellant. All of the appellant's insurance policies for servicemen have the essentials of a restrictive endorsement known as a "military restriction" which provides that when the insured automobile is driven off a military installation, only the named insured and the members of his family are covered. A major shareholder of the appellant and its general manager expressed the opinion that, "It is not humanly possible" for the appellant to comply with the 1964 directive's requirements.

Testimony for the Secretary indicated that the directive was promulgated, after consultation with the National Association of State Insurance Commissioners, the insurance industry generally, and the military departments, as a result of the Defense Department's files containing numerous cases of unsatisfied claims and judgments against servicemen who thought they had adequate insurance. The problem resulted from insurance companies issuing endorsements limiting their liability and of companies being unsound financially, leaving the military man with either inadequate insurance or none at all. The policy reasons for adopting the state licensing provisions for insurance companies desiring on-base solicitation privileges were stated to be the lack of expertise on the part of the Defense Department in evaluating insurance companies and the fact that it was felt that military personnel residing within a state were entitled to the equal protection of state insurance laws coextensive with citizens of that state. A factor taken into consideration was that when a company is accorded on-base solicitation privileges it carries — at least to some buyers — the tacit approval of the Department of Defense that the insurance it sells is satisfactory.

At the conclusion of the trial, June 26, 1964, the trial court held: That the court has jurisdiction of the parties and that the Secretary of Defense has authority to issue directives for the use of facilities of the Department of Defense pertaining to the use of such facilities for driving and parking and also for solicitation of insurance; that neither directive is contrary to the McCarran-Ferguson Act, 15 U.S.C.A. §§ 1011-1015, and that the directive of the Secretary of Defense did not abridge the right to contract of third parties; that the exercise of powers authorized in Article I, Section 8, of the Constitution of the United States delegated by Congress to the Secretary of Defense does not violate the Ninth or Tenth Amendments of said Constitution, and that the regulations contained in the directive of the Secretary of Defense are neither arbitrary nor capricious; that the courts will not review managerial acts, not clearly arbitrary, of executive officials performed within the scope of their authority and will not substitute their judgment in such matters for that of the officials; that the directive of the Secretary of Defense was within his discretion and the court is without jurisdiction to review his actions. The court thereupon entered judgment dismissing appellant's complaint. Subsequently appellant applied to this court for a stay pending disposition of this appeal. After oral argument, appellant's application therefor was denied on July 28, 1964.

We think the District Court was entirely correct in granting judgment of dismissal against the appellant herein. The directive had for its purpose the establishment of uniform requirements as to automobile liability insurance for military and civilian personnel who were granted driving and parking privileges on military installations within the United States and for the accreditation of insurers for the solicitation and sale on military installations of motor vehicle liability insurance. No attempt was made by the directive to regulate insurance written elsewhere or used elsewhere. It did nothing more or less than to provide that those who wished to drive or park on military establishments or to solicit insurance there had to abide by the conditions set forth.

5 U.S.C.A. § 22 provides as follows:

"§ 22. Departmental regulations. The head of each department is authorized to prescribe regulations, not inconsistent with law, for the government of his department, the conduct of its officers and clerks, the distribution and performance of its business, and the custody, use, and preservation of the records, papers, and property appertaining to it."

As to the Secretary of Defense, Congress has specifically provided, 10 U.S. C.A. § 133:

"Secretary of Defense: appointment; powers and duties; delegation by

"(a) There is a Secretary of Defense, who is the head of the Department of Defense,

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