Carroll v. Greenwich Insurance

Delivered the opinion of the court.

This is a bill brought by a number of fire insurance companies, incorporated in States other than Iowa, to enjoin the auditor of that State from enforcing §§ 1754, 1755 and 1756 of the Iowa Code, 1897. The ground of the bill is that these sections are invalid under the state constitution and the Fourteenth Amendment of the Constitution of the United States. There is a reference also to Article 1, section 10, and an oblique suggestion that the law impairs the obligation of contracts. The defendant demurred,, and the Circuit Court issued an injunction as prayed, which was made perpetual by final decree. 125 Fed. Rep. 121. Thereupon the defendant appealed to this court.

By section 1754, “It shall be unlawful for two or more fire insurance companies doing business in this State, or for the officers, agents, or employés of such companies, to make or enter into any combination or agreement relating to the rates to be charged for' insurance, the amount of commissions to be allowed agents for procuring the same, or the manner of transacting the fire insurance business within this State; and any such company, officer, agent ór employé violating this provision shall be guilty of a misdemeanor,” and a fine is imposed for each offense. By § 1755 it is made the duty of the auditor of state to summon for examination, under oath, any officer, agent or employe suspected of violating § 1754, and if he determines that the company is guilty, or if the officer or agent fails to appear, to revoke the authority of the company to do business in the State for one year. By § 1756 an appeal is given from the decision of the auditor to the District Court, the case to be tried de novo, as equitable causes are tried. By § 1757 the statements made upon the examination before the auditor or county court shall not be used in any criminal prosecution against the person making' them.

The bill sets forth the necessity for every insurance company to gather all the experience available into one mass and to analyze and classify it scientifically in order to ascertain the true value of risks, and that it will add greatly to the expense if each company is required to employ a separate person to do the work. It charges, upon information and belief, that if the plaintiffs attempt to combine their experience and to employ the same person to analyze it, the auditor will summon them and revoke their authority to -do business in the State. It further alleges that the plaintiffs desire not only to do what has been stated for their guidance in establishing rates, but to agree what classes of risks are non-insurable, how various risks shall be classified, and as to other matters relating to the manner of doing business. It repeats the charge, upon information and belief, that if the plaintiffs proceed in this manner the auditor will order an examination and reyoke' their licenses, and prays for an injunction against enforcing in any manner the above-mentioned sections of the Iowa Code. The Circuit Court considered that the statute was not invalid under the constitution of Iowa, but held that the • prohibitions of agreements as to the amount of commissions to be allowed, or as to the manner of transacting the fire insurance business in the State, were contrary to the Fourteenth Amendment. While waiving a discussion of the clause against combinations as to rates, it seemingly regarded the provisions of § 1754 as inseparable, and issued a general, injunction'forbidding the enforcement against the plaintiffs of §§‘1754, 1755 and 1756.

' We assume, for purposes of decision, that the bill means that the auditor threatens and' intends to enforce the act in case the plaintiffs do what they desire to do, and that if § 1754 is contrary to the Constitution of the United States, a proper case for an injunction- is made out. Osborn v. Bank of the United States, 9 Wheat. 738, 839, 840. See Cleveland v. Cleveland City Ry. Co., 194 U. S. 517, 531; Detroit v. Detroit Citizens’ Street Ry. Co., 184 U. S. 368, 378. We assume further-that the position of the plaintiffs is not affected by the fact that they are foreign corporations. The act is in general terms, and hits all insurance companies. If. it is invalid as to some, it is invalid as to all. United States v. Ju Toy, 198 U. S. 253, 262, 263. That the requirements of the act might have been made .conditions ■ to foreign companies doing business in the State, Fidelity Mutual Life Ins. Co. v. Mettler, 185 U. S. 308, Waters-Pierce Oil Co. v. Texas, 177 U. S. 28, is immaterial, since, as we understand' the statute, the legislature .did not-, attempt to reach -the result in that way. A company lawfully doing business'iii the'State is no more bound by á general unconstitutional enactment- than a citizen of the State. W. W. Cargill Co. v. Minnesota, 180 U. S. 452.

We pass- to the question- upon which the Circuit Court' decided .-the. case, namely, the constitutionality of §' 1754, the only section which we find it necessary to consider. Whatever may be .thought of the policy of such attempts, it cannot be denied in this court,- unless some of its decisions are to be overruled, that, statutes prohibiting combinations' between possible rivals in trade may be constitutional. The decisions--concern not only statutes of the United States, Northern Securities Co. v. United States, 193 U. S. 197, Swift & Company v. United States, 196 U. S. 375, but also state laws of similar import. Smiley v. Kansas, 196 U. S. 447; National Cotton Oil Co. v. Texas, 197 U. S. 115.

In view of these cases further discussion is unnecessary, but we will add a few words. While we need not affirm 'that in no instance could a distinction be taken, ordinarily if an act of Congress is valid under the Fifth Amendment it would be hard to say that a state law in like terms was void under the Fourteenth. It is true that by the provision in the body of the instrument Congress has power to regulate commerce, and that the act of Congress referred to in the cases cited was passed in pursuance of that power. But even if the Fifth Amendment were read as contemporaneous with the original Constitution, the power given in the commerce clause would not be taken to override it so far as the Fifth Amendment protects fundamental personal rights. It is only on the ground that the right to combine at will is a fundamental- personal right that it can be held to be protected by the Fourteenth Amendment from any abridgment by the State. Cincinnati Street Ry. Co. v. Snell, 193 U. S. 30, 36. Many state laws which limit the freedom of contract have been sustained by this court, and therefore an objection to this law on the general ground that it limits that freedom cannot be upheld. There is no greater sanctity in the right to combine than in the right to make other contracts. Indeed, Mr. Dicey, in- his recen-t work on Lav and Public Opinion in England during the Nineteenth Century, indicates that it is out of the very right to make what contracts one chooses, so strenuously advocated by Bentham, that combinations have arisen which restrict the very freedom that Bentham sought to attain, and which even might menace the authority of the State. If then the statute before us is to be overthrown more special reasons must be assigned.

At the argument before us more special reasons were assigned. It was pressed that there is no justification for the particular selection of fire insurance companies for the prohibitions discussed. With regard to this it should be observed, as is noticed by the appellees, that a general statute of Iowa prohibits all contracts or combinations to fix the price of any article of merchandise or commodity, or to limit the quantity of the same produced, or sold in the State, Code of 1897, § 5060, and that this section covers fire insurance. Beechley v. Mulville, 102 Iowa, 602. Therefore the act in question does little if anything more than apply and work out the policy of the general law in a particular case. Again, if an evil is specially experienced in a particular branch of business, the Constitution embodies no prohibition of laws confined to the evil, or doctrinaire requirement that they should be couched in all-embracing terms. It does not forbid the cautious advance, step by step, and the distrust of generalities which sometimes have been the weakness, but often the strength, of English legislation. Otis v. Parker, 187 U. S. 606, 610, 611. And if this is true, then in view of the possible teachings to be drawn from a practical knowledge of the business concerned, it is proper that courts should be very cautious in condemning what legislatures have approved.

If the legislature of the State of Iowa deems it desirable artificially to prevent, so far as it can, the substitution of combination for competition, this court cannot say that fire insurance may not present so conspicuous an example of what that legislature thinks an evil as to justify special treatment. The imposition of a more specific liability upon life and health insurance companies was held valid in Fidelity Mutual Life Insurance Co. v. Mettler, 185 U. S. 308. See also Missouri Pacific Ry. Co. v. Mackey, 127 U. S. 205; Orient Insurance Co. v. Daggs, 172 U. S. 557; Otis v. Parker, 187 U. S. 606; Home Life Insurance Co. v. Fisher, 188 U. S. 726, 727.

But it is said that, however it may be as to some regulations of fire insurance, these, or at least the last two of them, forbidding agreements as to agents’ commissions and the manner of transacting business, are not to be justified. In order to ■ make this out the scope of the provisions was exaggerated both in the argument and in the bill. The bill seems to assume that the statute forbids insurance companies to obtain and use each other’s experience, or to employ the same person to work up the results. It does not. It simply forbids an agreement betwéen the companies relating to the rates which may be' based upon those results. No doubt an agreement between the companies readily would be inferred, if they wére found all to charge, the same rates; but an agreement between the companies is the only thing aimed at, and if they avoid that they escape, the law. So it was suggested in argument that they could not employ the same adjuster in case-of loss. We do. not perceive anything to hinder their doing so, although it may be that they would have to be careful about the terms of his authority.. 'The object of.the law, we'assume, until the Iowa Court shall decide otherwise, is single, 'to keep up competition, and the general language is to be restricted by the specific provisions and to the particular end. Limited as we understand it to be limited,’ the statute goes no further than others which have been, sustained, and does not contravene the Constitution of the United States. *

The argument before us very properly was rested on the Fourteenth Amendment. Therefore it is unnecessary to discuss the other objections suggested in the bill.

Although we have conceded, that the bill makes a case for an injunction if its premises are true, it cannot be understood to charge that the auditor will go further than to enforce the act as. properly construed. The allegations upon information and belief, which we have stated, probably mean no more than that the plaintiffs reasonably suppose that the auditor will do his duty, They are pressed' to the verge when they are-taken to set forth a threat to do that. They certainly do not show that he threatens to do'more.

Decree reversed.