The business of fire insurance is of an extensive and peculiar
character, concerning a large number of people, and it is within
the police power of the state to adopt such regulations as will
protect the public against the evils arising from combinations of
those engaged in such business, and to substitute competition for
monopoly, and regulations which have a real substantial relation to
that end and are not essentially arbitrary do not deprive the
insurance companies of their property without due process of
law.
All corporations, associations and individuals within its
jurisdiction are subject to such regulations in respect of their
relative rights and duties as the state may, in the exercise of its
police power and in harmony with its own and the federal
Constitution, prescribe for the public convenience and the general
good, and the state may also prescribe, within such limits, the
particular means of enforcing such regulations.
Page 219 U. S. 308
Although the means devised by the state legislature for the
enforcement of its police regulations may not be the best that can
be devised, this Court cannot declare them illegal if the enactment
is within the power of the state.
A state is not bound to go to the full extent of its power in
legislating against an evil from which it seeks to protect the
public.
A statute which applies equally to all of the same class and
under like conditions does not deny equal protection of the
law.
A statute that applies to all insurance companies which unite
with others in fixing rates to be charged by each constituent
member of the combination does not deny equal protection of the law
to the companies so uniting. The classification is neither
unreasonable nor arbitrary, but has a reasonable and just relation
to the evil which the legislation seeks to prevent.
Where defendant takes no exception to action of the trial court
in sustaining demurrer to one of his pleas, but goes to trial on
the merits, introduces evidence on other issues, and does not offer
evidence on those raised by that plea, this Court may fairly assume
that he waived or abandoned it on the trial even if he has assigned
as error the action of the court in sustaining the demurrer.
Sections 2619, 2620 of the Code of Alabama, 1896, as amended, §
4954, 4955, Code 1907, imposing on all insurance companies who are
connected with a tariff association a liability to be recovered by
the insured of twenty-five percent in excess of the amount of the
policy are not unconstitutional under the Fourteenth Amendment as
depriving such companies of their property without due process of
law or denying them the equal protection of the laws.
The facts, which involve the constitutionality of certain
provisions of the Code of Alabama, are stated in the opinion.
Page 219 U. S. 312
MR. JUSTICE HARLAN delivered the opinion of the Court.
This action was brought in one of the courts of Alabama by the
defendant in error, Hale, on a policy of fire insurance issued by
the German Alliance Insurance Company, a New York corporation.
The policy covered
"lumber and squared timber while stacked on the banks of Byrne's
Mill Pond, near Bay Minette, Baldwin County, Alabama, said lot of
lumber and timber containing 300,000 feet,"
etc.
Upon the petition of the defendant, the case was removed into
the Circuit Court of the United States for the Southern District of
Alabama, where a verdict was returned for $5,198.93 in favor of the
plaintiff. For that amount judgment was rendered against the
company. The circuit court suggested that the verdict was
excessive, and that the motion for new trial would be granted
unless the plaintiff reduced the verdict to $4,112. The required
reduction was made, and the new trial denied.
Northern Pacific
R. Co. v. Herbert, 116 U. S. 642,
116 U. S.
647.
The principal question presented by the assignments of
Page 219 U. S. 313
error arises out of certain provisions of the Code of Alabama,
as follows:
"SECTION 2619. Every contract or policy of insurance hereafter
made or issued shall be construed to mean that, in the event of
loss or damage thereunder, the assured or beneficiary thereunder
may, in addition to the actual loss or damage suffered, recover
twenty-five percent of the amount of such actual loss, any
provision or stipulation in such contract or policy to the contrary
notwithstanding. Provided at the time of the making of such
contract or policy of insurance, or subsequently, before the time
of trial, the insurer belonged to, or was a member of, or in any
way connected with, any tariff association or such like thing, by
whatever named called, or who had made any agreement or had any
understanding with any other person, corporation, or association
engaged in the business of insurance, as agent or otherwise, about
any particular rate of premium which should be charged or fixed for
any kind or class of insurance risk, and provided further, no
stipulation or agreement in such contract or policy of insurance to
arbitrate loss or damage, nor to give notice or make proofs of loss
or damage, shall in any such case be binding on the assured or
beneficiary, but right of action accrues immediately upon loss or
damage."
"SECTION 2620. If it is shown to the reasonable satisfaction of
the jury by a preponderance of the weight of the testimony that
such insurer at the time of the making of such agreement or policy
of insurance, or subsequently, before the time of trial, belonged
to, or was a member of, or in any way connected with, any tariff
association or such like thing, by whatever name called, either in
or out of this state, or had made any agreement or had any
understanding, either in or out of this state, with any other
person, corporation, or association engaged in the business of
insurance, as agent or otherwise, about any particular rate of
premium which should be charged or fixed for any risk of
Page 219 U. S. 314
insurance on any person or property, or on any kind or class of
insurance risk, they must, if they find for the assured or
beneficiary, in addition to his actual damages, assess and add
twenty-five percent of the amount of such actual loss, and judgment
shall be rendered accordingly, whether claimed in the complaint or
not."
Alabama Code 1896, §§ 2619, 2620;
ibid., 1907, §§ 4594,
4595.
At the time of the contract of insurance, the defendant
corporation was connected with a tariff association which
prescribed the rates of premium to be charged by its constituent
members. The verdict and judgment against the company gave effect
to that clause of the statute providing that, under every contract
or policy of insurance thereafter made or issued by any such
association, the assured or beneficiary may, in addition to the
actual loss or damage suffered, recover 25 percent of the amount of
such actual loss, any provision or stipulation in such contract or
policy to the contrary notwithstanding.
The assignments of error present a question of practice which is
supposed to be raised by those provisions of the policy which
contained a covenant and warranty in these words:
"1st. The assured will take a complete itemized inventory of
stock on hand at least once in each calendar year, and unless such
inventory has been taken within twelve calendar months prior to the
date of this policy, one shall be taken in detail within thirty
days of issuance of this policy, or this policy shall be null and
void from such date, and upon demand of the assured the unearned
premium from such date shall be returned. 2d. The assured will keep
a set of books, which shall clearly and plainly present a complete
record of business transacted, including all purchases, sales, and
shipments, both for cash and credit, from date of inventory, as
provided for in the first section of this clause, and during the
continuance of this policy. 3d. The assured will keep such books
and inventory, and
Page 219 U. S. 315
also the last preceding inventory, if such has been taken,
securely locked in a fireproof safe at night. In the event of
failure to produce such set of books and inventories for the
inspection of this company, this policy shall become null and void,
and such failure shall constitute a perpetual bar to any recovery
thereon. And defendant avers that the assured wholly disregarded
the terms, stipulations, and conditions of said policy in the
following respects, to-wit: 1st. He did not keep a set of books, as
therein provided; 2d. He did not keep said books securely locked in
a fireproof safe at night and at other times, as therein provided;
3d. He failed to produce said books for the inspection of the
defendant after said alleged loss, wherefore said policy became and
was null and void. And the defendant says by reason of the failure
and refusal of said plaintiff to comply with the said covenant and
warranty in the said particulars, the said plaintiff is not
entitled to recover in this action, nor to have and maintain this
action against the defendant."
The principal question arising on this writ of error is whether
the above sections of the Alabama Code are consistent with the
Constitution of the United States. The contention is that the
provision allowing the insured or beneficiary in a named
contingency to recover, in addition to the actual loss or damage
suffered by him, twenty-five percent of the amount of loss or
damage so suffered -- any stipulation in the contract of insurance
to the contrary notwithstanding -- deprives the company of its
property without due process of law and also denies to it the equal
protection of the laws; thus, it is contended, violating the
Fourteenth Amendment of the Constitution of the United States.
In our opinion, the statute is not liable to objection on
constitutional grounds. The state -- as we may infer from the words
of the statute alone -- regarded the fixing of insurance rates by
self-constituted tariff associations or combinations
Page 219 U. S. 316
as an evil against which the public should be guarded by such
legislation as the state was competent to enact. This question was
before the Supreme Court of Alabama, and the statute was there
assailed as violating both the state and federal constitutions.
That court held that the object of the Legislature of Alabama was
to prevent monopoly and to encourage competition in the matter of
insurance rates, and that the statute was a legitimate exercise to
that end of the police power of the state, not inconsistent with
either the state or federal constitution.
Continental Ins. Co.
v. Parkes, 142 Ala. 650, 658-659. The same view of the statute
was taken by the state court in subsequent cases.
Fireman's
Fund Ins. Co. v. Hellner, 159 Ala. 447;
Aetna Ins. Co. v.
Kennedy, 161 Ala. 600. We concur entirely in the opinion
expressed by the state court, that the statute does not infringe
the federal Constitution nor deprive the insurance company of any
right granted or secured by that instrument. The business of fire
insurance is, as everyone knows, of an extensive and peculiar
character, and its management concerns a very large number of
people, particularly those who own property and desire to protect
themselves by insurance. We can well understand that fire insurance
companies, acting together, may have owners of property practically
at their mercy in the matter of rates, and may have it in their
power to deprive the public generally of the advantages flowing
from competition between rival organizations engaged in the
business of fire insurance. In order to meet the evils of such
combinations or associations, the state is competent to adopt
appropriate regulations that will tend to substitute competition in
the place of combination or monopoly.
Carroll v. Greenwich Ins.
Co., 199 U. S. 401,
199 U. S. 411.
Regulations having a real, substantial relation to that end, and
which are not essentially arbitrary, cannot property be
characterized as a deprivation of property without due process of
law. They are enacted
Page 219 U. S. 317
under the power, with which the states have never parted, of
caring for the common good within the limits of constitutional
authority. Insurance companies -- indeed, all corporations,
associations, and individuals within the jurisdiction of a state --
are subject to such regulations in respect of their relative rights
and duties as the state may, in the exercise of its police power
and in harmony with its own and the federal Constitution, prescribe
for the public convenience and the general good.
Jacobson v.
Massachusetts, 197 U. S. 11,
197 U. S. 27,
197 U. S. 31;
Lake Shore &c. v. Ohio, 173 U.
S. 285,
173 U. S. 297;
House v. Mayes, ante, p.
219 U. S. 270.
Much stress is placed by the insurance company on that clause of
the statute allowing the insured to recover, in addition to the
actual loss or damage suffered, twenty-five percent of the amount
of such loss or damage if the company, before or at the time of
trial, belonged to or was connected with a tariff association that
fixed rates. We do not think that this provision is in excess of
the power of the state. As a means to effect the object of the
statute -- the discouragement of monopoly or combination and the
encouragement of competition in the matter of insurance rates --
the state adopted the regulations here in question. It was for the
state, keeping within the limits of its constitutional powers, to
say what particular means it would prescribe for the protection of
the public in such matters. The court certainly cannot say that the
means here adopted are not in any real or substantial sense germane
to the end sought to be attained by the statute. Those means may
not be the best that could have been devised, but the court cannot
for any such reason declare them illegal or beyond the power of the
state to establish. So far as the federal Constitution is
concerned, the state could forbid, under penalty, combinations to
be formed within its limits by persons, associations, or
corporations engaged in the business of insurance for the purpose
of fixing rates. But it is not bound to go to that extent in
its
Page 219 U. S. 318
legislation. It may, in its discretion, go only so far as to
impose upon associations or corporations acting together in fixing
rates a liability to pay to the insured, as part of the recovery, a
certain percent beyond the actual loss or damage suffered if,
before or at the time of suit on the contract of insurance, it is
made to appear that the company or corporation sued is part of or
connected with a tariff rate association. Such a provision
manifestly tends to discourage monopoly or combination and to
encourage competition in a business in the conduct of which the
general public is largely interested.
Equally without basis on which to rest is the contention that
the statute violates the clause of the Fourteenth Amendment
forbidding a state to "deny to any person within its jurisdiction
the equal protection of the laws." We will assume, for the purposes
of this case, that this company is within the jurisdiction of the
federal court, so as to entitle it to claim the benefit of that
provision of the Fourteenth Amendment.
Blake v. McClung,
172 U. S. 239,
172 U. S. 260.
We are yet clearly of the opinion that the statute does not, within
the meaning of the Constitution, deny the insurance company the
equal protection of the laws. The statute applies only to
associations or corporations that unite in fixing the rates of
insurance to be charged by each constituent member of the
combination. Looking at the evil to be remedied, that was such a
classification as the state could legally make. It is neither
unreasonable nor arbitrary within the rule that a classification
must rest upon some difference indicating "a reasonable and just
relation to the act in respect of which the classification is
proposed." The legislature naturally directed its enactment against
insurance companies or corporations which, before or at the time of
trial, were found to be members of an insurance tariff association
that fixed rates. No principle or classification required it to
include insurance associations that were free to act, in
Page 219 U. S. 319
the matter of rates, upon the merits of each application for
insurance, unaffected by any agreement or arrangement with other
companies. All insurance companies, persons, or corporations
engaged in the business of insurance, as agent or otherwise, with
associations, persons, or corporations which acted together in
fixing rates, are placed by the statute upon an equality in every
respect, and therefore it cannot rightfully be contended that the
plaintiff in error is denied the equal protection of the laws.
Whatever "liberty of contract" they had must have been exercised in
subordination to any valid regulations the state prescribed for the
conduct of their business. Statutes that apply equally to all of
the same class and under like conditions cannot be held to deny the
equal protection of the laws, for, as this Court has adjudged, "the
equal protection of the laws is a pledge of the protection of equal
laws" to all under like circumstances.
Yick Wo v. Hopkins,
118 U. S. 356,
118 U. S. 367;
Barbier v. Connolly, 113 U. S. 27;
Soon Hing v. Crowley, 113 U. S. 703.
One of the assignments of error for this Court, the ninth, is
that the circuit court erred in sustaining the plaintiff's demurrer
to the plea numbered two, in which reference was made to the above
provisions, alleged to be embodied in the policy, and which make it
the duty of the assured at stated times to take an inventory of
stock on hand, and keep a set of books, to be securely locked in a
fireproof safe at night. To that plea the plaintiff demurred upon
these separate grounds: 1. it did not appear that the plaintiff was
bound by the provision of the policy referred to in the plea; 2.
the property insured was of such a character that the policy set up
in the plea was not applicable thereto; 3. it did not appear that
the property insured was of such a character that the provision of
the policy, as set up in the plea, was applicable thereto; 4. it
was not made to appear by the plea that there was any purchase,
sales, and shipment or other business transacted from the time
the
Page 219 U. S. 320
policy was issued until the time of the loss which affected or
related to the property insured. The demurrer was sustained, but no
exception appears to have been taken to this action of the courts.
The defendant did not stand upon his plea, and went to trial upon
the merits of the case, without objection, and introduced evidence
upon other issues in the case, but at the trial no evidence was
offered or introduced on either side relating to the matters set
out in the second plea. Under these circumstances, we are not
required to consider the questions raised by that plea. On this
record, we may fairly assume that the defendant at the trial waived
or abandoned the issues raised by the plea.
Garrard v.
Reynolds, 4 How. 123,
45 U. S. 126;
Weed v. Crane, 154 U. S. 570.
Restricting this decision to the points hereinbefore discussed, the
judgment must be affirmed.
Judgment affirmed.