Section 703(a) of the California Insurance Code makes it a
misdemeanor for any person, except one licensed as a "surplus line
broker," to act "as agent for a nonadmitted insurer in the
transaction of insurance business" within the State. Section 1642
provides that "[a] person shall not act as an insurance agent,
broker, or solicitor until a license is obtained from the
commissioner, authorizing such person so to act." Appellant was
convicted in a state court for violations of §§ 703(a) and 1642
committed subsequently to the decision of this Court in United
States v. South-Eastern Underwriters Assn., 322 U.
(holding that the business of insurance conducted
across state lines is interstate commerce), but prior to the
enactment of the Act of Congress of March 9, 1945, 59 Stat. 33
(authorizing state taxation and regulation of the business of
insurance). The evidence showed that appellant, without a license
of any kind, had acted within the State as agent of a nonadmitted
foreign insurer conducting a mutual benefit type of insurance
1. Section 1642, considered with other requirements of the state
law, being designed and reasonably adapted to protect the public
and applicable without discrimination to agents of local and
foreign companies acting in California, was not in violation of the
Commerce Clause of the Federal Constitution, since it neither
Page 328 U. S. 441
against nor substantially obstructs interstate commerce.
California v. Thompson, 313 U. S. 109
328 U. S.
2. Considered apart from other provisions of the Code, the
requirements for issuance of a surplus line broker's license --
that the Commissioner shall find the applicant to be trustworthy
and competent to transact an insurance brokerage business in such
manner as to safeguard the interest of the insured, payment of a
$50 filing fee, and posting of a $5,000 fidelity bond -- were not
in violation of the Commerce Clause of the Federal Constitution. P.
328 U. S.
3. Even though the Code provisions regulating the admission of
foreign insurance companies to do business within the State,
together with provisions regulating activities of surplus line
brokers, operated to forbid either foreign or domestic companies to
do within the State a life insurance business on other than a legal
reserve basis, except as to companies engaged in doing such
business there prior to January 1, 1940, no unconstitutional
discrimination against interstate commerce was involved, and the
result is not precluded by the South-Eastern
328 U. S.
(a) The conditions prescribed apply alike to domestic and
foreign corporations. P. 328 U. S.
(b) The provision differentiating between companies organized or
admitted to do business within the State prior to January 1, 1940,
and others, does not involve any discrimination as between domestic
and foreign or interstate and intrastate insurers. P. 328 U. S.
(c) The distinction does not become discriminatory, in any sense
now pertinent, merely because the preexisting companies are allowed
to continue their business under somewhat less burdensome reserve
requirements than those under which new companies are permitted to
enter. P. 328 U. S.
4. For failure to meet its reserve requirements, a State may
exclude foreign insurance companies, or their agents, from doing
business within the State. P. 328 U. S.
(a) State regulation of interstate business done within the
State's borders is not rendered invalid by the mere fact that the
regulation is in form a "license." P. 328 U. S.
(b) The Commerce Clause is not a guaranty of the right to import
into a State whatever one may please, absent a prohibition by
Congress, regardless of the effects of the importation upon the
local community. P. 328 U. S.
(c) The reserve requirements of the State cannot be deemed,
either on the face of the statute or by any showing that has been
made in this case, to be excessive for the protection of the
Page 328 U. S. 442
interest affected, nor designed or effective either to
discriminate against foreign or interstate insurers or to forbid or
exclude their activities. P. 328 U. S.
5. Appellant's objections founded on the provisions relating to
the placing of surplus line insurance with nonadmitted insurers
lack merit in view of the power of the State, through it reserve
requirements for admission and related prohibitions, to forbid
entirely the placing of insurance of the sort here involved,
whether with domestic, admitted, or nonamitted companies. P.
328 U. S.
6. The requirements of the state law do not operate to regulate
activities of the appellant or the foreign insurer beyond the
borders of the State, and do not on this score violate the due
process or equal protection clause of the Fourteenth Amendment. P.
328 U. S.
7. The result in this case is reached independently of the Act
of March 9, 1945; wherefore, no question a to possible ex post
operation of that Act is involved. P. 328 U. S.
Appellant was convicted in a state court of violating certain
provisions of the California Insurance Code, which he challenged as
being contrary to the Commerce Clause and the Fourteenth Amendment.
The conviction was affirmed by an intermediate state court, which
was the highest state court to which an appeal could be taken.
Ins.L.J. May, 1945, p. 273. Appellant appealed to this Court.
p. 328 U. S.
Page 328 U. S. 443
MR. JUSTICE RUTLEDGE delivered the opinion of the Court.
This case differs from Prudential Insurance Co. v.
Benjamin, 328 U. S. 408
three respects. It is a criminal cause; the statutes involved
regulate, rather than simply tax, the business of insurance, and
appellant's acts held to violate them were done before the McCarran
Act's [Footnote 1
Appellant was convicted in a state court for violating §§ 703(a)
and 1642 of the California Insurance Code, and the conviction was
sustained on appeal to the Superior Court of Ventura County.
] Appellant now
urges here primarily that the application which has been made of
those sections is a regulation of interstate commerce forbidden by
the commerce clause of the Constitution, Article I, § 8, in view of
United States v. South-Eastern Underwriters Assn.,
322 U. S. 533
also puts forward due process and equal protection arguments,
resting on his conception of the applicability of those provisions
of the Fourteenth Amendment. [Footnote 3
Page 328 U. S. 444
The California Insurance Code, provisions are as follows:
"703. Except when performed by a surplus line broker, the
following acts are misdemeanors when done in this State: "
"(a) Acting as agent for a nonadmitted insurer in the
transaction of insurance business in this State."
"* * * *"
"1642. A person shall not act as an insurance agent, broker, or
solicitor until a license is obtained from the commissioner,
authorizing such person so to act. [Footnote 4
The complaint charged in two counts that appellant had (1) acted
without a license as an agent for a nonadmitted insurer in
soliciting and selling a policy contrary to § 703(a), and (2)
solicited and sold a policy of insurance without being licensed as
required by § 1642.
The evidence, which is undisputed, disclosed the following
facts. The First National Benefit Society is an Arizona
corporation, conducting from Phoenix a mutual benefit type of
insurance business. Its method of operation must be inferred from
the facts of record, in the absence of other evidence. One O'Lein,
then an elderly resident of Ventura, California, had difficulty in
securing insurance on account of his age. Prior to August 28, 1944,
he had learned of the Society's "Gold Seal" policy, by radio and
through "literature." This apparently was mailed from the home
office, and included a printed from of return postal card marked,
presumably pursuant to postal permit, "Postage will be Paid by
Addressee," the Society. O'Lein filled in and returned the card to
Page 328 U. S. 445
Society in Phoenix, asking it to "send me, without obligation,
details of "Gold Seal" Policies." A few days later, on August 28,
1944, appellant called at O'Lein's home with the card, stating he
represented the First National Benefit Society. Thereupon, he
explained to O'Lein the terms of the policy, its benefits, and
costs, soliciting and persuading the prospect to take out a policy
for himself and one also for his wife. No medical examination was
required. Appellant filled in the application forms, procured the
signatures, accepted from O'Lein a check made out in appellant's
name in payment of the first quarterly premiums, gave receipts,
later cashed the check at a local bank, and received the proceeds.
A few days later, the O'Leins received policies by mail from the
Society's office in Phoenix.
The evidence further showed that the Society was not admitted to
do business in California, and that appellant had no license of any
kind to act as an insurance agent, broker, or solicitor there.
We may deal first exclusively with the objections founded on the
commerce clause, since each of the others would be obviously
without merit but for the supposed effects of the
decision [Footnote 5
] not only in relation to the prohibitory
consequences of that clause, but also, apparently, to resurrect
other limitations upon state power long since settled adversely to
such claims in reference to the business of insurance. [Footnote 6
Page 328 U. S. 446
Little need be said in relation to the general license
requirement of § 1642 except to state more fully its effects by
virtue of its relation to other provisions of the California
Insurance Code, which prescribe the conditions for securing the
license. Those requirements, in summary, are that an application
must be made upon a prescribed form setting forth the kinds of
insurance the applicant desires to transact (§ 1643); he must be a
citizen of the United States or one who has applied for
citizenship, and must have attained his majority (§ 1648.5); he
must pass a written examination as to his qualifications (§ 1674)
and pay two fees, one a filing fee of $4, the other an examination
fee of $5 (§ 1678). On his fulfilling these conditions, the license
is issued if the state commissioner of insurance is satisfied that
he is qualified and intends in good faith to carry on the business
Section 1639 declares that the purpose of these and other
provisions of the Code is
"to protect the public by requiring and maintaining professional
standards of conduct on the part of all insurance agents . . .
acting as such within this State."
The statutory requirements apply to all agents, without
discrimination, whether they represent California or out-of-state
insurance companies and whether the business done is interstate or
local in character. They apply only to agents acting in California,
not to acts done outside the state.
Appellant has not sought to obtain a license under the Code
provisions, has not been denied one, and has not attacked any
particular requirement. His charge is
Page 328 U. S. 447
wholesale, not particular. It is, in effect, that, since the
entire series of acts done by him was directed to the conclusion of
an interstate transaction, within the South-Eastern
ruling, those acts, though taking place altogether within
California, were inseparably a part of the interstate transaction,
and therefore beyond reach of the state's licensing or regulatory
power. The contention appears to contemplate not only that
appellant's acts were interstate commerce, but also that the state
cannot impose any licensing requirement upon them or, it would
seem, upon any phase of conducting an interstate insurance business
through agents acting in person.
To state the argument in this way is. in effect. to answer it.
We accept the regulation for what it purports to be on its face and
by the statute's express declaration -- namely, a series of
regulations designed and reasonably adapted to protect the public
from fraud, misrepresentation, incompetence, and sharp practice
which falls short of minimum standards of decency in the selling of
insurance by personal solicitation and salesmanship. That such
dangers may exist -- may even be widely prevalent in the absence of
such controls -- is a matter of common knowledge and experience.
And no argument is needed to show that these evils are most apt to
arise in connection with the activities of the less reliable and
responsible insurers, as well as insurance brokers or salesmen, and
vitally affect the public interest. [Footnote 7
Such being the purpose and effect of § 1642, there can be no
substantial question concerning its validity on commerce
Page 328 U. S. 448
clause grounds. That is true whether appellant's acts are taken,
in their setting, as being "in" commerce or only as "affecting" it.
For the case is ruled, so far as § 1642 is concerned, by decisions
such as California v. Thompson, 313 U.
, 313 U. S. 110
Hartford Accident & Indemnity Co. v. Illinois,
298 U. S. 155
Smith v. Alabama, 124 U. S. 465
Nashville, c. & St.L. Ry. Co. v. Alabama, 128 U. S.
, and Union Brokerage Co. v. Jensen,
322 U. S. 202
If, in the absence of contrary action by Congress, a state may
license agents or brokers for the sale of interstate transportation
in order to prevent fraud, California v. Thompson, supra;
trainmen engaged in interstate commerce to secure their competence,
Smith v. Alabama, supra; Nashville, C. & St.L. Ry. Co. v.
the sale on commission of interstate
consignments of farm produce to secure honest dealing and financial
responsibility, Hartford Accident & Indemnity Co. v.
and the activities of customs brokers to
secure responsibility in the state courts on claims arising
locally, Union Brokerage Co. v. Jensen, supra,
sorts of conditions imposed through the respective licensing
provisions, there can be no valid reason for outlawing § 1642
That appellant's activities were of a kind which vitally affect
the welfare and security of the local community, the state and
their residents could not be denied. Cf. Hoopeston Canning Co.
v. Cullen, 318 U. S. 313
318 U. S. 316
ff. They had in fact a highly "special interest" in his localized
Page 328 U. S. 449
of this phase of the comprehensive process of conducting an
interstate insurance business. Cf. Union Brokerage Co. v.
at 322 U. S. 212
Here, as in each of the instances cited, appellant's activities
called in question were concentrated in the regulating state,
although affecting or constituting interstate commerce. Moreover,
the licensing provision of § 1642 is regulatory, not exclusory, in
character; is not discriminatory; is not in conflict with any
policy or action of Congress, but rather accords with its expressed
views insofar as the McCarran Act may be taken to be applicable;
] and is designed
appropriately to secure the public from those evils of uncontrolled
insurance solicitation to which it is directed. In view of these
facts, the regulation "neither discriminates against nor
substantially obstructs the commerce." California v. Thompson,
at 313 U. S.
Furthermore, here as in the cited cases, "unless some measure of
local control is permissible," the activities and their attendant
evils "must go largely unregulated" unless or until Congress
undertakes that function. California v. Thompson, supra,
at 313 U. S. 115
And, in view of the well known conditions of competition in this
field, such a result not only would free out-of-state insurance
companies and their representatives of the regulation's effect,
thus giving them advantage over local competitors, but, by so
doing, would tend to break down the system of regulation in its
purely local operation.
Section 703(a) is interwoven with different conditions, and
therefore has somewhat different effects than does § 1642. Unlike
the latter, which applies to acting as agent for all insurers, it
forbids acting as agent for nonadmitted
Page 328 U. S. 450
insurers alone, unless the person so acting is a "surplus line
broker." [Footnote 10
become a surplus line broker, one must procure a special license
pursuant to the requirements of § 1765. This license also is issued
upon application, if the commissioner of insurance finds that the
applicant is "trustworthy and competent to transact an insurance
brokerage business in such a manner as to safeguard and interest of
the insured." The applicant also must file with the commissioner a
faithful performance bond in the amount of $5,000, and pay a filing
fee of $50.
So far as concerns these requirements of § 1765 for procuring
the surplus line broker's license, if they are considered without
reference to any of the other Code provisions, the same conclusion
is required concerning the validity of § 703(a) as for that of §
1642, by the authorities above cited and discussed. Indeed, the
filing fee of $50 is larger than the combined fees required by §
1642, but not more than the fee involved in the Union
And the bond provision is
substantially identical with that sustained in California v.
In the absence of any showing that it is
administered arbitrarily, the requirement that the license shall
issue only after a finding of trustworthiness and competence by the
commissioner cannot be taken to be other than an appropriate means
of safeguarding the public against the obvious evils arising from
the lack of those qualifications. California v. Thompson,
Considered separately from any relationship to other
sections of the Code, therefore, the prescribed conditions for
Page 328 U. S. 451
the surplus line broker's license are no more invalid than those
which must be fulfilled to secure the general agent's license under
§ 1642. [Footnote 11
This the state contends is all that needs to be considered,
since appellant neither possessed nor, so far as appears, had
applied for or been denied, a surplus line broker's license.
Consequently, in its view, the validity of other provisions of the
Code is not involved either directly or by necessary relationship
to § 703(a). [Footnote
Page 328 U. S. 452
Appellant insists, however, that § 703(a), taken in conjunction
with § 1765, is more than a licensing requirement for regulating
the qualifications of agents acting in California in the
transaction of the business covered by its terms. It is, rather, he
maintains, a prohibition of the writing of such insurance there by
nonadmitted insurers and their agents. And this, he says, the state
cannot do, both because it cannot exclude interstate commerce in
California and because it cannot discriminate against out-of-state
insurers in such a manner.
These conclusions are based on the view that § 703(a) is related
inseparably, by its terms and in fact, to other Code provisions in
addition to § 1765 -- namely, those regulating the admission of
foreign insurance corporations to do business in California
] and the
interwoven provisions regulating activities of surplus line
brokers. [Footnote 14
Page 328 U. S. 453
703(a), on its face, forbids acting as agent for nonadmitted
insurers except in the case of a surplus line broker. And the
combined effects of the provisions relating to such brokers and of
those governing the admission of foreign corporations are said to
be to "absolutely prohibit" the writing of or aiding in procuring
the of insurance issued here or, indeed, of any insurance issued by
the Society. [Footnote
Page 328 U. S. 454
California in effect concedes this, alternatively to maintaining
that no question concerning the validity of those provisions is
presented. The short effect of the admission provisions, for
purposes now pertinent, the state admits, is to forbid either
foreign or domestic companies to do a life insurance business in
California other than on a legal reserve basis, [Footnote 16
] except as to companies engaged
in doing such business there prior to January 1, 1940. [Footnote 17
] The policy underlying
this exclusion is said to be founded in the state's experience
showing that a mutual company doing business
"on the stipulated premium plan with right of assessment,
] without a
sufficient surplus and full reserves
Page 328 U. S. 455
is not adequately safeguarded to insure that money will be
available to pay death benefits."
In support of this statement of California's policy and the
experience on which it is founded, counsel point to the Annual
Reports of the Insurance Commissioner covering a period of some six
years, from 1934 to 1940, [Footnote 19
] which resulted in some of the legislation
now called in question. See also
X Report of Joint
Insurance Investigation Committee (N.Y.) 364-365 (1906);
Hoopeston Canning Co. v. Cullen, 318 U.
, 318 U. S.
Furthermore, the state apparently concedes, as appellant
contends, not only that the Society is excluded from transacting
insurance business by the admission requirements and its failure to
comply with them, but also that appellant would be forbidden to
place insurance with it by the provisions relating to surplus line
insurance, even if he had secured the surplus line broker's
license. [Footnote 20
As we understand it, therefore, appellant's argument in this
phase comes in substance to two things: (1) that the admission
requirements and the surplus line broker provisions, as they relate
to nonadmitted insurers and their agents, are invalid for
discrimination against out-of-state insurers and in favor of
domestic ones; (2) that California, as a result of the
Page 328 U. S. 456
longer can require foreign insurance corporations seeking to do
business there to maintain minimum reserves for protection of
policyholders in the state or compel agents or brokers to refrain
from representing them there notwithstanding such
The discrimination argument is without substance insofar as it
maintains that the statutes permit domestic companies to operate
without meeting these requirements, but forbid out-of-state
insurers to do likewise. For, as has been noted, [Footnote 21
] the conditions apply alike to
domestic and foreign corporations, excepting only those organized
or admitted to do business in California before January 1, 1940. As
to them, different standards are applicable, but they too apply
equally and alike to domestic and foreign insurers. [Footnote 22
That the state has seen fit to draw a line as of that date
between new companies seeking to enter the field and established
companies, differentiating the two classes by different standards
in the minimum reserve requirements, in order to permit the latter
to continue in business and build up reserves, [Footnote 23
] does not involve any
discrimination as between domestic and foreign or interstate and
intrastate insurers. For each may be authorized to enter, and each
to continue, on identical terms. Such a distinction does not become
discriminatory, in any sense now pertinent, merely because the
preexisting companies are allowed to continue their business under
somewhat less burdensome reserve requirements than those under
which new companies are permitted to enter. See
of Joint Insurance Investigation Committee (N.Y.) p. 365 (1906).
Otherwise the state, having authorized either domestic or foreign
companies to engage in the business, would be greatly restricted,
perhaps foreclosed, in raising the reserve
Page 328 U. S. 457
requirements as experience and the public interest might make
necessary. [Footnote 24
Apart from this classification, which is clearly within the
state's power, the discrimination argument becomes identical with
the contention that the state cannot exclude foreign companies,
such as the First National Benefit Society, or their agents, from
carrying on their business in California for failure to meet her
This is the crucial contention. It too is without merit. The
evils flowing from irresponsible insurers and insurance certainly
are not less than those arising from the activities of
irresponsible, incompetent, or dishonest insurance agents. The two
things are concomitant, being merely different facades of the same
sepulchre for the investments and security of the public.
Study of Legal Reserve Life Insurance Companies,
T.N.E.C. Monograph No. 28, Section XV. It would be idle to require
licensing of insurance agents, in order to secure honesty and
competence, yet to place no restraint upon the kind of insurance to
be sold or the kinds of companies allowed to sell it, and then to
cover their representatives with their immunity. This could only
result in placing domestic and complying foreign insurers at great
disadvantage, and eventually in nullifying all controls unless or
until Congress should take over the regulation.
No such consequence has followed from the South-Eastern
decision. It did not wipe out the experience of the states in the
regulation of the business of insurance, or its effects for the
continued validity of that regulation. Much of this was concerned
with the activities of so-called foreign insurance companies and,
in particular, with requirements
Page 328 U. S. 458
designed to secure minimum guaranties of solvency and ability to
pay claims as they mature. Essentially, the protection sought was
against fly-by-night operators and the grosser forms of
profiteering and financial mismanagement all too common in
unregulated insurance activity. See generally
The Insurance Commissioner in the United States (1927).
It is true that California imposes her reserve standards, for
both domestic and foreign insurers, by requiring them to secure a
certificate of authority to do business issued upon compliance with
those conditions -- in other words, by a form of licensing. But we
are far beyond the time when, if ever, the word "license" per
was a condemnation of state regulation of interstate
business done within the state's borders. [Footnote 25
] The commerce involved here is not
transportation. Nor is it of a sort which touches the state and its
people so lightly that local regulation is inappropriate or
interferes unreasonably with the commerce of other states.
] Not the mere
fact or form of licensing, but what the license stands for by way
of regulation, is important. [Footnote 27
] So also, it is not simply the fact of
prohibition, but what is forbidden and for the protection of what
interest, that is determinative. For the commerce clause is not a
guaranty of the right to import into a state whatever one may
please, absent a prohibition by Congress, regardless of the effects
of the importation upon the local community. That is true whether
what is brought in
Page 328 U. S. 459
consists of diseased cattle [Footnote 28
] or fraudulent or unsound insurance.
Here, California's reserve requirements for securing authority
to do business cannot be held, either on the face of the statute or
by any showing that has been made, to be excessive for the
protection of the local interest affected, or designed or effective
either to discriminate against foreign or interstate insurers or to
forbid or exclude their activities, by all who are able and willing
to maintain reasonable minimum reserve standards for the protection
of policyholders. Exclusion there is, but it is exclusion of what
the state has the power to keep out, until Congress speaks
otherwise. Every consideration which supports the licensing of
agents and brokers, and the authorities we have cited giving effect
to those considerations, [Footnote 29
] sustain the state's requirements in this
respect, as do also the decisions which have sustained various
measures of exclusion in protection of the public health, safety,
and security not only from physical harm, but from various forms of
fraud and imposition. [Footnote
It is quite obvious, to repeat only one of those considerations,
that, if appellant's contentions were accepted and foreign insurers
were to be held free to disregard California's reserve requirements
and then to clothe their agents or others acting for them with
their immunity, not
Page 328 U. S. 460
only would the state be made helpless to protect her people
against the grossest forms of unregulated or loosely regulated
foreign insurance, but the result would be inevitably to break down
also the system for control of purely local insurance business. In
short, the result would be ultimately to force all of the states to
accept the lowest standard for conducting the business permitted by
one of them or, perhaps, by foreign countries. Inevitably this
would mean that Congress would be forced to intervene and displace
the states in regulating the business of insurance. Neither the
commerce clause nor the South-Eastern
such a result.
We do not intimate that this particular society's insurance is
unsound or fraudulent. As to that, no showing has been made. We
only say that California has imposed its reserve requirements as
allowable standards for securing minimum assurance to the state's
policyholders in respect to performance of their policies by the
insurer, not as a mere exclusionary measure in exercise of the
power to bar foreign corporations altogether, and that, in the
absence of compliance, the state can exclude the company and its
representatives as it did until Congress makes contrary command.
Their remedy is not to destroy the regulatory reserve conditions,
but to comply with them.
It follows also that appellant's objections founded on the
provisions relating to the placing of surplus line insurance with
nonadmitted insurers are without merit. Apart from the phase
relating to the requirements for obtaining the surplus line
broker's license, the objection is two-fold. One is that, even if
licensed, appellant would be forbidden to place the insurance with
a nonadmitted insurer unless there were no admitted one with which
the risk could be written. The other that, in any event, the risk
could not be placed with the nonadmitted insurer for a less premium
than would be accepted by any admitted insurer. The short answer
would seem to be that, by the reserve
Page 328 U. S. 461
requirements for admission and related prohibitions, the state
forbids entirely the placing of insurance of the sort issued here,
whether with domestic, admitted, or nonadmitted companies.
It remains to say a word concerning the effect of the McCarran
Act for this case, and the contentions founded on the Fourteenth
As for the latter, with respect to due process, the only
objection advanced which is independent of commerce clause
considerations is that to sustain the state's requirements,
particularly insofar as they exclude the Society from interstate
operations in California and thus also appellant's activities in
aid of its business, will be in effect to project California's laws
into other states, here presumably Arizona, and regulate the
Society's activities there. The contention is obviously without
merit. Nothing which California requires touches or affects
anything the Society or appellant may do or wish to do in Arizona
or elsewhere than in California. Hoopeston Canning Co. v.
Likewise, the equal protection contention is wholly without
substance. [Footnote 32
Our determination has been made without specific reliance upon
the McCarran Act for two reasons. One is that this was not
necessary. The other arises from the facts that this is a criminal
proceeding, the appellant's acts held to violate the California
statutes were committed in August, following rendition of the
decision in June of 1944, and the McCarran
Act was not approved until March 9, 1945. The effect of that
statute we have considered in the Prudential
today. But that case involved no criminal or penal phase, and
therefore no conceivable ex post facto
effect. It is
doubtful that more than the semblance of such an effect would be
Page 328 U. S. 462
by reliance upon the Act in this case. For it hardly could be
maintained that the South-Eastern
decision had the effect
to convert Congress' preexisting silence concerning a matter which,
prior to the decision, had been held not to be commerce into an
expression by Congress of disapproval of these provisions of the
California Code during the short period intervening between the
decision and the date on which appellant acted. The indicated
inference, if any, would be to the contrary, wholly without regard
to the McCarran Act. Its effect might reasonably be taken as merely
declaring or confirming expressly the inference which would be
indicated from Congress' silence entirely without reference to the
Act's provisions. But the declaration was made, as we have said,
after appellant's acts were done. And, to avoid any semblance of
retroactive effect in a criminal matter, we have refrained from
explicit reliance upon the Act in this case. It does not detract
from our decision on other grounds that the McCarran Act, if
applied, would dictate the same result.
The judgment is
MR. JUSTICE JACKSON took no part in the consideration or
decision of this case.
Public Law 15, 79th Cong., 1st Sess., c. 20, approved March 9,
1945, 15 U.S.C. §§ 1011-1015. See
following note 32
The conviction was obtained in the Justice's Court of Ventura
Township, California. The Superior Court of Ventura County was the
highest court of the state to which appeal could be taken. Its
opinion is not reported. The penalty was a fine of $100 imposed for
violating each count.
In the Statement of Appeal filed in the Superior Court, the
grounds relied upon, apart from commerce clause and local law
objections, were only that appellant's acts "were, if true, done by
him in accordance with the provisions of the Fourteenth Amendment
to the Constitution of the United States . . . ," and that §§
703(a) and 1642 "are unconstitutional, and in violation of . . .
the Fourteenth Amendment. . . ."
Deering's California Codes, Insurance Code of California, §§
703, 1642. These sections are part of California's comprehensive
regulatory scheme for the business of insurance, and are directly
related, in the case of § 703, to the requirements laid by other
sections for acting as surplus line broker, see
infra, and in that of § 1642 to such requirements for securing a
license to act in the specified representative capacities,
But see 322 U. S. 533
322 U. S. 547
Thus, it was long settled, under the doctrine of
8 Wall. 168, that neither due process nor
equal protection of the laws forbids the kind of state regulation
of the business of insurance imposed by §§ 703(a) and 1642.
Hooper v. California, 155 U. S. 648
Nutting v. Massachusetts, 183 U.
. See also Hoopeston Canning Co. v.
Cullen, 318 U. S. 313
As to the dangers of blurring the due process and equal
protection limitations with commerce clause ideas, and the
consequent necessity for separate treatment in disposing of these
Ribble, State and National Power over
Commerce (1937) 98; Nippert v. Richmond, 327 U.
, 327 U. S.
-425; McLeod v. Dilworth, 322 U.
, 322 U. S. 349
dissenting opinion at 322 U.S.
. Cf. also Bethlehem Motors Corp. v. Flynt,
256 U. S. 421
Henderson, The Position of Foreign Corporations in American
Constitutional Law (1918) 122, and see
See Hartford Accident & Indemnity Co. v. Nelson
Co., 291 U. S. 352
291 U. S. 360
German Alliance Ins. Co. v. Lewis, 233 U.
, 233 U. S.
-415; Osborn v. Ozlin, 310 U. S.
, 310 U. S. 65
National Union Fire Ins. Co. v. Wanberg, 260 U. S.
. And see also United States v.
Underwriters Assn., 322 U. S. 533
322 U. S. 539
ff.; Prudential Life Ins. Co. v. Benjamin, ante,
328 U. S. 408
In some of these cases, e.g., Hartford Accident &
Indemnity Co. v. Illinois, 298 U. S. 155
Union Brokerage Co. v. Jensen, 322 U.
, there were also federal licensing statutes which
the Court found neither inconsistent with nor therefore effective
to exclude the state licensing regulation. The Union Brokerage case
involved an instance of state regulation of foreign commerce.
In addition to the cited authorities, see also
decisions cited and relied upon in each of the opinions.
following note 32
See note 14 as to
"surplus line insurance
" In general, this is insurance
involving special risks or for some other reason not falling within
the usual lines of authorized business.
Appellant also points out that, by § 1775.5, an annual tax equal
to three percent of the gross premiums upon business done during
each calendar year is imposed upon each surplus line broker. Apart
from the facts that appellant has not applied for such a license,
and that no effort has been made to collect this tax from
appellant, so far as appears, it may be noted that the tax applies
alike to all surplus line brokers, whether acting for domestic or
admitted foreign insurers or for nonadmitted ones. No question as
to the validity of this tax is presented by this record.
Indeed, the state argues that no question is raised concerning
the validity of the requirements of § 1765 for procuring the
surplus line broker's license, since, "so far as this record shows,
the life insurance sought to be effected in this case might or
might not have been procurable from admitted insurers."
However, on the alternative basis of accepting appellant's view
that the insurance would not have been so obtainable, California
concedes the insurance would fall within the surplus line
exception, but asserts that appellant, if he had obtained the
license, could have acted as agent in the transaction. Hence, since
he did not apply for the license, the state argues that § 1765 has
not been applied to him, and its validity is not involved.
Appellant, however, maintains that, even if he had secured the
license, the combined effects of § 703(a) and other sections
relating to surplus line insurance would have forbidden him to act
in this transaction. See
California maintains that the validity of other Code sections,
apart from §§ 703(a) and 1642, was not in issue in the state courts
and, though raised here in the briefs, is not necessarily
California Insurance Code §§ 1560-1607, 10818.
Appellant relies particularly upon § 10818, prohibiting the
organization or admission of new insurers after January 1, 1940, to
operate as so-called "Chapter 9" companies -- that is, among
others, as mutual companies having less than the reserve
requirements specified for such insurers operating on the
assessment plan -- but permitting previously organized or admitted
companies to continue under specially imposed requirements.
at notes 16 21
Pertinent also is § 700 of the Code providing: "A person shall
not transact any class of insurance business in this State without
first being admitted for such class" through securing a certificate
of authority from the commissioner on compliance with the code's
California Insurance Code, Chapter Six. Surplus Line Brokers. §§
Section 1761 reads:
"Except as provided in Sections 1760 and 1760.5, a person within
this State shall not transact any insurance on property located . .
. within, or on the lives or persons of residents of this State
with nonadmitted insurers, except by and through a surplus line
broker licensed under this chapter and upon the terms and
conditions prescribed in this chapter."
Section 1760 provides: "Any citizen of this State may negotiate
and effect insurance on his own property with any nonadmitted
insurer," cf. note
and § 1760.5 requires specified kinds of insurance,
marine and aircraft risks, to be placed with
nonadmitted insurers only through a "special lines' surplus line
By § 1763, a surplus line broker
"may solicit and place insurance, other than as excepted in
section 1761, with nonadmitted insurers only if such insurance
cannot be procured from a majority of the insurers admitted for the
particular class or classes of insurance. Such part of the
insurance as cannot be so procured may be procured from nonadmitted
if it is not so placed to secure a lower rate than the lowest
any admitted insurer will accept. Stringent provisions for
supervising the section's requirements by the commissioner are
Other sections require maintaining an office in the state (§
1767), keeping records and making reports (§§ 1768, 1769, 1774),
and provide criminal sanctions for violating the chapter's
provisions, § 1776.
as to surplus line brokers, Patterson, The
Insurance Commissioner in the United States (1927) 188-190.
The argument is not only various, but somewhat devious.
Appellant disclaims intention to maintain that the state cannot
"regulate the insurance business," and goes on to rest on the
general proposition that it cannot prohibit interstate commerce
entirely, and that the effect of the statutory provisions,
particularly § 10818, see note 13 supra,
is to do this. As will appear,
the argument really comes down to maintaining that California
cannot require foreign companies or their agents to comply with her
minimum requirements for issuing the type of insurance issued
By § 10510 of the Code,
"An incorporated life insurer issuing policies on the reserve
basis shall not transact life insurance in this State unless it has
a paid in capital of at least two hundred thousand dollars
Section 36 defines "paid-in capital" as including the surplus of
a mutual insurer. The effect of the two sections, it is conceded in
the state's brief,
"is to require that a stock company have a capital stock
aggregating at least $200,000, and that a mutual company have a
surplus of at least $200,000, in order to do business in
Both requirements apply to domestic and foreign companies alike,
with the exceptions noted below in note 17
The exception was the result of a series of amendments to the
Code, made from 1935 to 1939, designed gradually to restrict the
operations in the state of companies operating without reserves, to
enable such companies already engaged in business to build up
reserves, and to forbid the organization or admission of new
companies operating without them or with reserves below the minimum
Calif.Stat. 1935, cc. 282, 283, pp. 1002,
657, 667, 678; Stat. 1937, c. 726, p. 2024; Stat. 1939, c. 321, p.
1609. And see also
the Annual Reports of the Insurance
Commissioner, California, as follows: Sixty-sixth, 10-11;
Sixty-eighth, XX; Sixty-ninth, XVII; Seventieth, XVIII;
Seventy-first, XXIX; Seventy-third, XVII, XXII-XXIII.
The policy issued in this case contained the following provision
in small type on the reverse side of the sheet:
"The lawfully required portion of Premiums paid on this
Certificate shall be set aside into the Mortuary Fund. Premiums
necessary to maintain the Certificate in force are not fixed
amounts, and, in event of Premium insufficiency, may be adjusted,
with the written approval of the Corporation Commission, for the
purpose of payment of claims and general operating expenses. In the
event of any emergency caused by excessive mortality, the
Corporation may, with the written consent or at the direction of
the Corporation Commission, levy Assessments on Members to be
placed in the Mortuary Fund."
See note 17
§ 1763, quoted in part in note 14 supra,
and text infra
The type of
insurance issued here is not within the exceptions specified in §
1763, which in turn relate to §§ 1760 and 1760.5. The former, it is
to be noted, relates on its face only to property insurance, the
latter to various special risks, not including mutual assessment
insurance, which can be placed only by a "special lines' surplus
line broker." See note
See note 13
the Reports of the Insurance Commissioner, cited in
Cf. Queenside Hills Realty Co. v. Saxl, 328 U. S.
; Chicago & Alton R. Co. v. Tranbarger,
238 U. S. 67
Chicago, B. & Q. R. Co. v. Nebraska ex rel. Omaha,
170 U. S. 57
See Union Brokerage Co. v. Jensen, 322 U.
; Clark v. Paul Gray, 306 U.
; Bradley v. Public Utilities Commission,
289 U. S. 92
Hendrick v. Maryland, 235 U. S. 610
Clark v. Poor, 274 U. S. 554
New Mexico ex rel. McLean v. Denver & Rio Grande R.
Co., 203 U. S. 38
Cf. Hale v. Bimco Trading Co., 306 U.
; Baldwin v. Seelig, 294 U.
; Hoopeston Canning Co. v. Cullen,
318 U. S. 313
authorities cited in note 25
as to state exclusions of and prohibitions on
interstate commerce, Rasmussen v. Idaho, 181 U.
; Smith v. St. Louis & S.W. R. Co.,
181 U. S. 248
Compagnie Francaise v. Louisiana State Board of Health,
186 U. S. 380
Reid v. Colorado, 187 U. S. 137
Oregon-Washington R. & N. Co. v. Washington,
270 U. S. 87
Mintz v. Baldwin, 289 U. S. 346
Crossman v. Lurman, 192 U. S. 189
Plumley v. Massachusetts, 155 U.
61; Hennington v. Georgia, 163 U.
. See also Kimmish v. Ball, 129 U.
; Missouri, K. & T. R. Co. v. Haber,
169 U. S. 613
Carter v. Virginia, 321 U. S. 131
See 328 U. S.
See note 28
See note 20 and
MR. JUSTICE DOUGLAS dissenting in part.
I agree with the Court that the general license requirements
which California provides for the insurance agents were
constitutional under the decisions of the Court, even prior to the
McCarran Act. But, prior to that Act, California could not, under
our decisions under the commerce clause, exclude an interstate
business, at least in absence of a showing that it was a fraudulent
enterprise or in an unsound condition. No such showing is made
here. The McCarran Act changes that rule, but it should not be
allowed to make unlawful what was lawful when done.