Silver v. Garcia

• Decision Date: 26 April 1985
• Docket Number: No. 84-1728,84-1728
• Parties: Leonard J. SILVER, et al., Plaintiffs, Appellees, v. Juan Antonio GARCIA, Commissioner, et al., Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 33

760 F.2d 33

Leonard J. SILVER, et al., Plaintiffs, Appellees, v. Juan Antonio GARCIA, Commissioner, et al., Defendants, Appellants.

No. 84-1728.

United States Court of Appeals, First Circuit.

Argued Feb. 8, 1985.

Decided April 26, 1985.

Reina Colon De Rodriguez, Asst. Sol. Gen., with whom Roberto Schmidt Monge was on brief, for defendants, appellants.

Clifford S. Robbins, Washington, D.C., with whom Paul A. Lenzini, Hernando A. Rivera and Chapman, Duff & Paul, Washington, D.C., were on brief, for plaintiffs, appellees.

Before COFFIN, Circuit Judge, WISDOM, ^* Senior Circuit Judge, and BOWNES, Circuit Judge.

BOWNES, Circuit Judge.

This action presents a constitutional challenge to a Puerto Rican statute which requires applicants for an insurance consultant's license to have resided in Puerto Rico for one year prior to application. The plaintiffs below, Leonard J. Silver and Alvin E. Mangold, were denied insurance consultants' licenses on the basis of this residency requirement, and brought suit against the Commissioner of Insurance and Secretary of Justice of the Commonwealth of Puerto Rico claiming that the residency requirement abridged the privileges and immunities of citizenship guaranteed in Article IV of the United States Constitution. The district court agreed and enjoined the enforcement of the residency requirement. 592 F.Supp. 495. We affirm.

Silver and Mangold are residents of Pennsylvania, where they have owned and operated an insurance consulting business, First Risk Management Company, since 1956. Silver and Mangold act strictly as advisors, evaluating the liability, property and marine risks of clients and recommending management and operations changes designed to minimize such risks. These recommendations may include modification of insurance coverage. From time to time, they engage in negotiations, accompanied by their clients, with insurance brokers and companies concerning the terms and costs of policies. As independent risk consultants, Silver and Mangold do not maintain any business relationship with insurance companies, brokers, or agents and do not sell insurance either directly or indirectly. They receive no commissions from insurance companies, brokers, or agents for their services, but are compensated by their clients at an hourly rate for consulting services received.

Both Silver and Mangold possess extensive experience in the insurance consulting field. They have represented clients worldwide and in more than two dozen states. Both have passed the examination and fulfilled the experience, character, and ethics requirements to obtain the highest professional designation in their field, that of Charter Property Casualty Underwriter from the American Institute of Property and Liability Underwriters, Inc. In addition, both have earned the Associate in Risk Management degree awarded by the Insurance Institute of America. Silver has written extensively in the field of risk management and is a founding member and past president of the Insurance Consultants' Society. Mangold has served terms as vice-president and treasurer of the Insurance Consultants' Society. The Insurance Consultants' Society is one of two professional organizations in the risk consultant field and its members consist solely of independent consultants who, as a matter of professional ethics, maintain no relationship or affiliation with insurance companies, agents, or brokers.

In 1963, Mangold and Silver established First Insurance Management (P.R.) Inc. in Puerto Rico. The name has since been changed to First Risk Management (P.R.) Inc. In 1963 there was no licensing requirement for insurance consultants. However, in 1974, the Insurance Code of Puerto Rico was amended to require licensure of "insurance consultants." Six requirements for such a license were set out.

Every applicant for an insurance consultant license shall meet the following requirements:

(1) Must have resided de facto in Puerto Rico and must have been a bona fide resident of Puerto Rico for at least one year immediately preceding the date on which license is applied for.

(2) Must be worthy of trust and competent and must comply in other respects with section 907 of this title.

(3) Must have satisfactorily passed any examination required under section 911 of this title.

(4) Must have at least five years of experience as an insurance adjuster or insurance broker with regard to the kinds of annuity or insurance to be covered by the license. Must have also the special training and additional experience necessary to fulfill the responsibilities of a consultant.

(5) Must post the bond required from a consultant by section 924d of this title.

(6) Must not be stockholder, member, partner, agent or employee of any insurer or agent who is authorized to engage in or is engaged in the insurance business in Puerto Rico, or who has economic or financial interest or a contractual relationship in the insurance field with any authorized insurer or agent, except as a policyholder. Provided, that if an insurance consultant is also a broker, he may not act as a broker in regard to any insurance policy, contract or coverage involved in or produced by the advice, counsel, recommendation or information given to his client in his role as insurance consultant, nor may he receive commissions on account of said policy or contract.

The application for a license shall be made on the form furnished by the Commissioner. The license fees shall be two hundred (200) dollars a year.

Upon request of any government instrumentality, the Commissioner may issue provisional licenses, exempting them from requirements one, three, four, five and from the payment of fees.

P.R. Laws Ann. tit. 26, Sec. 924a (1976 and Supp.1983). The bond required under this provision was set at $10,000. Id. at Sec. 924d.

Between 1974 and 1978, Silver and Mangold made several attempts to obtain insurance consultants' licenses, submitting application forms and detailed descriptions of their qualifications and experience. They also indicated a willingness to post the required bond. In August of 1978, the Commissioner formally denied Silver's request for a license on the basis that he did not meet the residency requirement. In August of 1982, the Commissioner of Insurance issued an order stating that First Risk (P.R.) and its officials were to immediately cease and desist "from acting as insurance consultants in Puerto Rico until the persons acting on its behalf obtain an insurance consultants' license ..." and a copy of the order was sent to First Risk's Puerto Rican clients. In December of 1982, Silver and Mangold reapplied for licenses, but were once again turned down because they had not fulfilled the residency requirements.

Suit was filed in the United States District Court for the District of Puerto Rico. The case was decided on cross-motions for summary judgment. Under the Puerto Rican Federal Relations Act, "the rights, privileges, and immunities of citizens of the United States shall be respected in Puerto Rico to the same extent as though Puerto Rico were a State of the Union and subject to the provisions of paragraph 1 of section 2 of article IV of the Constitution of the United States." 48 U.S.C. Sec. 737 (1982). The district court found that since one of the fundamental rights protected under the privileges and immunities clause is "the right of a citizen of one state to pass through, or to reside in any other state, for purposes of ... professional pursuits," Baldwin v. Fish and Game Comm'n, 436 U.S. 371, 384, 98 S.Ct. 1852, 1860, 56 L.Ed.2d 354 (1978) (quoting Corfield v. Coryell, 6 F.Cas. 546, 552 (C.C.E.D.Pa.1825)), Puerto Rico's refusal to issue a license to either Silver or Mangold implicated a fundamental right. Applying the analysis set out in Hicklin v. Orbeck, 437 U.S. 518, 98 S.Ct. 2482, 57 L.Ed.2d 397 (1978), the district court found that Puerto Rico could not show that the discrimination imposed by the residency requirement fell within the limits permitted by the Constitution, holding that nonresidents do not constitute a peculiar source of the evil at which the statute was aimed and the discriminatory means does not bear a substantial relationship to the evil it was meant to prevent.

We find the analysis provided by the district court to be entirely accurate. "[T]he Privileges and Immunities Clause was intended to create a national economic union." Supreme Court of New Hampshire v. Piper, --- U.S. ----, ----, 105 S.Ct. 1272, 1276, 84 L.Ed.2d 205 (1985). The privileges and immunities clause encourages a national economy by allowing persons to cross state lines freely in pursuit of economic gain. See, e.g., Piper, --- U.S. ----, 105 S.Ct. 1272, 84 L.Ed.2d 205 (residency requirement for admission to state bar found unconstitutional); United Building and Construction Trades Council of Camden County v. Mayor and Council of Camden, 465 U.S. 208, 104 S.Ct. 1020, 79 L.Ed.2d 249 (1984) (resident hiring preference for construction workers found unconstitutional); Hicklin v. Orbeck, 437 U.S. 518, 98 S.Ct. 2482, 57 L.Ed.2d 397 (1978) (resident hiring preference for oil and gas workers found unconstitutional); Toomer v. Witsell, 334 U.S. 385, 68 S.Ct. 1156, 92 L.Ed. 1460 (1948) (prohibitively expensive licensing fee for nonresident shrimp fishermen found unconstitutional). There can be no doubt that insurance and occupations in the insurance industry are important to the national economy. Consequently, the ability of a citizen of one state to act as an insurance consultant in another state must be considered a fundamental right or privilege protected by the privileges and immunities clause.

The Commissioner of Insurance argues, however, that occupations in the insurance industry should not be considered to be protected by the privileges and immunities clause. He points to the fact that the field of insurance has long been recognized as a proper subject for extensive...