United States v. Underwriters Ass, SOUTH-EASTERN

Decision Date05 June 1944
Docket NumberNo. 354,SOUTH-EASTERN,354
Citation88 L.Ed. 1440,64 S.Ct. 1162,322 U.S. 533
CourtU.S. Supreme Court

On Appeal from the District Court of the United States for the Northern District of Georgia.

Mr. Francis Biddle, Atty. Gen., for appellant.

Messrs. John T. Cahill, of New York City, and Dan MacDougald, of Atlanta, Ga., for appellees.

Mr. Justice BLACK delivered the opinion of the Court.

For seventy-five years this Court has held, whenever the question has been presented, that the Commerce Clause of the Constitution does not deprive the individual states of power to regulate and tax specific activities of foreign insurance companies which sell policies within their territories. Each state has been held to have this power even though negotiation and execution of the companies' policy contracts involved communications of information and movements of persons, moneys, and papers across state lines. Not one of all these cases, however, has involved an Act of Congress which required the Court to decide the issue of whether the Commerce Clause grants to Congress the power to regulate insurance transactions stretching across state lines. Today for the first time in the history of the Court that issue is squarely presented and must be decided.

Appellees—the South-Eastern Underwriters Association (S.E.U.A.), and its membership of nearly 200 private stock fire insurance companies, and 27 individuals—were indicted in the District Court for alleged violations of the Sherman Anti-Trust Act. The indictment alleges two conspiracies. The first, in violation of § 1 of the Act, was to restrain interstate trade and commerce by fixing and maintaining arbitrary and non-competitive premium rates on fire and specified 'allied lines'1 of insurance in

Alabama, Florida, Georgia, North Carolina, South Carolina, and Virginia; the second, in violation of § 2, was to monopolize trade and commerce in the same lines of insurance in and among the same states.2

The indictment makes the following charges: The member companies of S.E.U.A. controlled 90 per cent of the fire insurance and 'allied lines' sold by stock fire insurance companies in the six states where the conspiracies were consummated.3 Both conspiracies consisted of a continuing agreement and concert of action effectuated through S.E.U.A. The conspirators not only fixed premium rates and agents' commissions, but employed boycotts together with other types of coercion and intimidation to force non-member insurance companies into the conspiracies, and to compel persons who needed insurance to buy only from S.E.U.A. members on S.E.U.A. terms. Companies not members of S.E.U.A. were cut off from the opportunity to reinsure their risks, and their services and facilities were disparaged; independent sales agencies who defiantly rep-

resented non-S.E.U.A. companies were punished by a withdrawal of the right to represent the members of S.E.U.A.; and persons needing insurance who purchased from non-S.E.U.A. companies were threatened with boycotts and withdrawal of all patronage. The two conspiracies were effectively policed by inspection and rating bureaus in five of the six states, together with local boards of insurance agents in certain cities of all six states.

The kind of interference with the free play of competitive forces with which the appellees are charged is exactly the type of conduct which the Sherman Act has outlawed for American 'trade or commerce' among the states.4 Appellees5 have not argued otherwise. Their defense, set forth in a demurrer, has been that they are not required to conform to the standards of business conduct established by the Sherman Act because 'the business of fire insurance is not commerce.' Sustaining the demurrer, the District Court held that 'the business of insurance is not commerce, either intrastate or interstate;' it 'is not interstate commerce or interstate trade, though it might be considered a trade subject to local laws, either State or Federal, where the commerce clause is not the authority relied upon.' 51 F.Supp. 712, 713, 714.

The District Court's opinion does not contain the slightest intimation that the indictment was held defective on a theory that it charged the appellees with restraining and monopolizing nothing but the making of local contracts.

There was not even a demurrer on that ground. The District Court treated the indictment as charging illegal restraints of trade in the total 'activities complained of as constituting the business of insurance.' 51 F.Supp. 712, 713. And in great detail the indictment set out these total activities, of which the actual making of contracts was but a part. As recognized by the District Court, the insurance business described in the indictment included not only the execution of insurance contracts but also negotiations and events prior to execution of the contracts and the innumerable transactions necessary to performance of the contracts. All of these alleged transactions, we shall hereafter point out, constituted a single continuous chain of events, many of which were multistate in character, and none of which, if we accept the allegations of the indictment, could possibly have been continued but for that part of them which moved back and forth across state lines. True, many of the activities described in the indictment which constituted this chain of events might, if conceptually separated from that from which they are inseparable, be regarded as wholly local. But the District Court in construing the indictment did not attempt such a metaphysical separation. Looking at all the transactions charged, it felt compelled by previous decisions of this Court to hold that despite the interstate character of many of them 'the business of insurance is not commerce', and that as a consequence this 'business', contracts and all, could not be 'interstate commerce' or 'interstate trade.' In other words, the District Court held the indictment bad for the sole reason that the entire 'business of insurance' (not merely the part of the business in which contracts are physically executed) can never under any possibly circumstances be 'commerce', and that therefore, even though an insurance company conducts a substantial part of its business transactions across state lines, it is not engaged in 'commerce among the States' within the meaning of

either the Commerce Clause or the Sherman Anti-Trust Act.6 Therefore, to say that the indictment charges nothing more than restraint and monopoly in the 'mere formation of an insurance contract', as has been suggested in this Court, is to give it a different and narrower meaning than did the District Court, something we cannot do consistently with the Criminal Appeals Act which permits the case to come here on direct appeal.7

The record, then, presents two questions and no others: (1) Was the Sherman Act intended to prohibit conduct of fire insurance companies which restrains or monopolizes the interstate fire insurance trade? (2) If so, do fire insurance transactions which stretch across state lines constitute 'Commerce among the several States' so as to make them subject to regulation by Congress under the

Commerce Clause? Since it is our conclusion that the Sherman Act was intended to apply to the fire insurance business we shall, for convenience of discussion, first consider the latter question.


Ordinarily courts do not construe words used in the Constitution so as to give them a meaning more narrow than one which they had in the common parlance of the times in which the Constitution was written. To hold that the word 'commerce' as used in the Commerce Clause does not include a business such as insurance would do just that. Whatever other meanings 'commerce' may have included in 1787, the dictionaries, encyclopedias, and other books of the period show that it included trade: businesses in which persons bought and sold, bargained and contracted.8 And this meaning has persisted to modern times. Surely, therefore, a heavy burden is on him who asserts that the plenary power which the Commerce Clause grants to Congress to regulate 'Commerce among the several States' does not include the power to regulate trading in insurance to the same extent that it includes power to regulate other trades or businesses conducted across state lines.9

The modern insurance business holds a commanding position in the trade and commerce of our Nation. Built

upon the sale of contracts of indemnity, it has become one of the largest and most important branches of commerce.10 Its total assets exceed $37,000,000,000, or the approximate equivalent of the value of all farm lands and buildings in the United States.11 Its annual premium receipts exceed $6,000,000,000, more than the average annual revenue receipts of the United States Government during the last decade.12 Included in the labor force of insurance are 524,000 experienced workers, almost as many as seek their livings in coal mining or automobile manufacturing.13 Perhaps no modern commercial enterprise directly affects so many persons in all walks of life as does the insurance business. Insurance touches the home, the family, and the occupation or the business of almost every person in the United States. 14

This business is not separated into 48 distinct territorial compartments which function in isolation from each other. Interrelationship, interdependence, and integration of activities in all the states in which they operate are practical aspects of the insurance companies' methods of doing business. A large share of the insurance business is concentrated in a comparatively few companies located, for the most part, in the financial centers of the East.15 Premiums collected from policyholders in every part of the United States flow into these companies for investment. As policies become payable, checks and drafts flow back to...

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