State Farm Mut Automobile Ins Co v. Duel

• Decision Date: 12 February 1945
• Docket Number: No. 115,115
• Citation: 65 S.Ct. 573,324 U.S. 154,89 L.Ed. 812
• Parties: STATE FARM MUT. AUTOMOBILE INS. CO. v. DUEL, Commissioner of Insurance of Wisconsin
• Court: U.S. Supreme Court

324 U.S. 154

65 S.Ct. 573

89 L.Ed. 812

STATE FARM MUT. AUTOMOBILE INS. CO.

v DUEL, Commissioner of Insurance of Wisconsin.

No. 115.

Argued Jan. 12, 1945.

Decided Feb. 12, 1945.

Rehearing Denied March 12, 1945.

See 324 U.S. 887, 65 S.Ct. 856.

Appeal from the Supreme Court of the State of Wisconsin.

Mr. Barnabas F. Sears, of Chicago, Ill., and Mr. R. M. Rieser, of Madison, Wis., for appellant.

Mr. Harold H. Persons, of Madison, Wis., for appellee.

Mr. Justice DOUGLAS delivered the opinion of the Court.

This is an appeal under § 237(a) of the Judicial Code, 28 U.S.C. § 344(a), 28 U.S.C.A. § 344(a), from the judgment of the Wisconsin Supreme Court which sustained the constitutionality as construed and applied to appellant of § 201.18 of the Wisconsin Statutes 1943. 244 Wis. 429, 12 N.W.2d 696.

Sec. 201.18 reads as follows:

'Reserves, basis for. (1) The unearned premium or reinsurance reserve for every insurance company when no other statutory provision is made tberefor, shall be computed by the commissioner by setting up fifty per cent of the premiums received on all risks that have one year or less to run, and pro rata of all premiums on risks that have more than one year to run. In the case of perpetual risks or policies, the whole amount of premium paid shall be set up as a reserve. Every such company shall show its reserve, computed upon this basis, as a liability in the annual statement required by section 201.50.

'(2) Where no other provision is made therefor by law, the reserves of any insurance company shall be calculated upon such basis, method and plan as shall fully provide for all liabilities, and any basis, method and plan fixed by the order of the commissioner shall be prima facie just, reasonable and proper.'

The insurance commissioner of Wisconsin refused appellant a license in 1942 and also in 1943 for failure to comply with that provision. Appellant accordingly brought suits to enjoin the commissioner from interfering with its business and to require him to issue it a license to do business in the State for the years in question. The facts may be briefly stated.

Appellant is an Illinois corporation doing business in many States. It started doing business in Wisconsin in 1939. It writes various forms of automobile insurance on the mutual plan. When it writes a policy for a new customer, it charges him a membership fee in addition to a premium. The membership fee is not returnable but entitles the insured to insure one automobile so long as he remains a desirable risk and so long as the company continues to write such coverage. It is said that the membership fee gives a life option to the insured to purchase insurance at a saving of from twenty to thirty-five per cent of the usual cost. Appellant has contended that the membership fees are no part of the premiums, furnish no insurance protection, and merely reimburse it for the expense of obtaining the new business. Wisconsin took a different view. The commissioner refused renewal of appellant's license for the years ending May 1, 1940, and May 1, 1941. Litigation followed which resulted in the decision of Duel v. State Farm Mutual Automobile Ins. Co., 240 Wis. 161, 1 N.W.2d 887, 2 N.W.2d 871. The Wisconsin Supreme Court held as a matter of law that the membership fees were part of appellant's premiums and that 50 per cent of them must be included in the reserve required by § 201.18. Thereupon appellant adopted and submitted to the commissioner a new scheme for doing business in Wisconsin. The plan was to abandon the membership fee in Wisconsin, to require none of its Wisconsin policyholders, and to do business in Wisconsin on a level premium basis. The result was that the premiums required to be paid in Wisconsin were 27 per cent higher than those required in States which construed premiums as not including membership fees. The commissioner refused to grant appellant the licenses for these later years because its reserve required by § 201.18 did not include 50 per cent of the membership fees obtained on business written in other States. The present litigation ensued. The Wisconsin Supreme Court sustained the commissioner, holding (1) that § 201.18 required a reserve which covered the overall liability of the appellant and (2) that § 201.18 as construed and applied did not contravene appellant's constitutional rights.

Of the three constitutional questions argued here two were raised below. They are that the statute violates (1) the due process clause of the Fourteenth Amendment and (2) the full faith and credit provision of Art. IV, Sec. 1. We think neither of the two has merit.

I. So far as due process of law is concerned, this case is governed by the principles announced in Osborne v. Ozlin, 310 U.S. 53, 60 S.Ct. 758, 84 L.Ed. 1074, and Hoopeston Canning Co. v. Cullen, 318 U.S. 313, 63 S.Ct. 602, 87 L.Ed. 1722, 145 A.L.R. 1113. In Osborne v. Ozlin, supra, 310 U.S. at page 62, 60 S.Ct. at page 761, 84 L.Ed. 1074, we stated that 'The mere fact that state action may have repercussions beyond state lines is of no judicial significance so long as the action is not within that domain which the Constitution forbids.' We sustained in that case Virginia legislation which forbade a licensed company to write insurance in Virginia except through a resident agent and which provided that the resident agent could not retain less than one-half of the customary commission even though the business originated with an out-of-state broker, the resident agent rendering only a perfunctory service. We held that by such measures Virginia was seeking to protect the interests of her citizens, not to prohibit the making of contracts beyond her borders. In Hoopeston Canning Co. v. Cullen, supra, we sustained provisions of the New York Insurance Law as applied to reciprocal insurance associations licensed to do business in New York but with headquarters in Illinois. The regulations which New York had imposed included stipulated operating reserves for payment of losses, a contingent liability of subscribers of not less than one nor more than ten times the amount of the annual premium expressed in the contract, and a requirement for the maintenance of an unimpaired surplus. We said, 'Neither New York nor Illinois loses the power to protect the interests of its citizens because these associations carry on activities in both places. * * * We think the regulations themselves, since they are aimed at the protection of the solvency of the reciprocals or at promoting the convenience with which New York residents may do their insurance business, are all within the scope of state power.' 318 U.S. at page 321, 63 S.Ct. at page 607, 87 L.Ed. 1722, 145 A.L.R. 1113.

Wisconsin has a legitimate concern with the financial soundness of companies writing insurance contracts with its citizens. The reserve which it requires under § 201.18 is designed to measure the entire future contingent liability on unexpired risks. That contingent liability is obviously relevant in any appraisal of the financial soundness and stability of the company. It is to be sure a bookkeeping requirement. But it is more than that: It is one of Wisconsin's measuring rods of financial stability and strength. Any financial statement required by Wisconsin or any other State would need reflect all assets and liabilities of the company in the interests of truth. Their inclusion does not mean that out-of-state activities are being regulated by Wisconsin. It only means that solvency of a multi-state business can hardly be determined on a single state basis. Accounting is no exact science. The due process clause certainly does not require uniformity in requirements for financial statements of companies doing a multistate business. Each State must necessarily have leeway in providing its own accounting standards for companies doing business within its borders. If a state undertook to regulate out-of-state activities through such a requirement, different questions would be posed. But we fail to see Wisconsin has done that here. We cannot say that the reserve required by Wisconsin has any purpose but the protection of its own citizens. Its adequacy or appropriateness as a standard for qualification to do business in Wisconsin is therefore a question for Wisconsin to determine.

II. Little need be said in reply to the contention that the Wisconsin statute as construed and applied violates the full faith and credit provision of the Constitution. Appellant's argument comes down to this: Illinois, the state of incorporation, does not treat the membership fees as a part of the premiums. Therefore, Wisconsin may not do so. The result would be that no State could impose stricter financial standards for foreign corporations doing business within its borders than were imposed by the State of incorporation. The full faith and credit provision requires no such result. This Court has recognized that 'In the case of statutes, the extra-state effect of which Congress has not prescribed, where the policy of one state statute comes into conflict with that of another, the necessity of some accommodation of the conflicting interests of the two states' is imperative. Alaska Packers Ass'n v. Industrial Accident Commission, 294 U.S. 532, 547, 55 S.Ct. 518, 523, 79 L.Ed. 1044. The full faith and credit provision may not be used to compel one State 'to substitute the statutes of other states for its own statutes dealing with a subject matter concerning which it is competent to legislate.' Pacific Employers Ins. Co. v. Industrial Accident Commission, 306 U.S. 493, 501, 59 S.Ct. 629, 632, 83 L.Ed. 940. He who challenges the power of one State to enforce in its own courts its own statutes on such grounds carries the burden of showing that 'of the conflicting interests involved those of the foreign state are superior to those of the forum.' Alaska Packers Ass'n v. Industrial Accident Commission, supra, 294 U.S. at page 548, 55 S.Ct. at...