Respondent, a Nebraska corporation engaged in the business of
selling health insurance to residents of all States, is licensed
only in Nebraska and Virginia. All of its business is transacted by
mail from an office in Nebraska, where policies are issued,
premiums are paid, and claims are filed. A Nebraska statute
prohibits unfair or deceptive practices in the insurance business
there or "in any other state."
Held: as to alleged deceptive practices outside the
State of Nebraska, this statute is not sufficient to bring
respondent within § 2 (b) of the McCarran-Ferguson Act, which
exempts the insurance business from the Federal Trade Commission
Act to the extent that it is "regulated by State law." Pp.
362 U. S.
294-302.
(a)
Federal Trade Commission v. National Casualty Co.,
357 U. S. 560,
distinguished. Pp.
362 U. S.
297-298.
(b) The state regulation which Congress provided should operate
to displace the Federal Trade Commission Act means regulation by
the State in which the deception is practiced and has its impact.
Pp.
362 U. S.
298-302.
262 F.2d 241, judgment vacated and case remanded.
Page 362 U. S. 294
MR. JUSTICE STEWART delivered the opinion of the Court.
Section 2(b) of the McCarran-Ferguson Act provides that
"[T]he Federal Trade Commission Act, . . . shall be applicable
to the business of insurance to the extent that such business is
not regulated by State law. [
Footnote 1]"
The State
Page 362 U. S. 295
in which the respondent is incorporated prohibits unfair or
deceptive practices in the insurance business there or "in any
other state." The question presented is whether the respondent's
interstate mail order insurance business is thereby "regulated by
State law" so as to insulate its practices in commerce from the
regulative authority of the Federal Trade Commission.
The respondent, a Nebraska corporation, is engaged in the
business of selling health insurance. Licensed only in the States
of Nebraska and Virginia, the respondent sells no policies through
agents, but, from its office in Omaha, transacts business by mail
with residents of every State. It solicits business by mailing
circular letters to prospective buyers recommended by existing
policyholders. All business is carried on by direct mail from the
Omaha office; it is from there that policies are issued, and there
that premiums are paid and claims filed.
A Nebraska statute provides:
"No person shall engage in this state in unfair methods of
competition or in unfair or deceptive acts and practices in the
conduct of the business of insurance. No person domiciled in or
resident of
Page 362 U. S. 296
this state shall engage in unfair methods of competition or in
unfair or deceptive acts and practices in the conduct of the
business of insurance in any other state, territory, possession,
province, country, or district. [
Footnote 2]"
The Court of Appeals set aside a cease and desist order of the
Federal Trade Commission prohibiting the respondent from making
certain statements and representations in its circular letters
found by the Commission to be misleading and deceptive in violation
of the Federal Trade Commission Act. 15 U.S.C. § 45. The court
concluded that,
"[w]ith every activity of the [respondent], in the conduct of
its business, subject to the supervision and control of the
Director of Insurance of Nebraska, we think that the [respondent's]
practices in the solicitation of insurance by mail in Nebraska or
elsewhere reasonably and realistically cannot be held to be
unregulated by State law."
The court accordingly decided that the Commission was "without
authority to regulate the practices of the [respondent] in
soliciting insurance." 262 F.2d 241, 244. Judge Vogel dissented,
stating his belief that it was "impractical and ineffective" to
"force the citizens of other states to rely upon Nebraska's
regulation of the
Page 362 U. S. 297
long distance advertising practices of the [respondent] in the
promotion and sale by mail or otherwise of insurance outside the
State of Nebraska."
It was his view that Nebraska's regulation of deceptive
practices "in any other state" is not "the kind of regulation by
state law Congress had in mind" in enacting the McCarran-Ferguson
Act. 262 F.2d 241, 245. Certiorari was granted, 359 U.S. 988, to
resolve an important question left undecided in
Federal Trade
Comm'n v. National Casualty Co., 357 U.
S. 560.
In that case, the issue involved the effect of state laws
regulating the advertising practices of insurance companies which
were licensed to do business within the States and which were
engaged in advertising programs requiring distribution of material
by local agents. In those circumstances, the Court found there was
"no question but that the States possess ample means to regulate
this advertising within their respective boundaries." 357 U.S. at
357 U. S. 564.
It was held that § 2(b) of the McCarran-Ferguson Act
"withdrew from the Federal Trade Commission the authority to
regulate respondents' advertising practices in those States which
are regulating those practices under their own laws."
357 U.S. at
357 U. S. 563.
The Court expressed no view as to
"the intent of Congress with regard to interstate insurance
practices which the States cannot for constitutional reasons
regulate effectively. . . ."
357 U.S. at
357 U. S.
564.
The question here is thus quite different from that presented in
National Casualty. In this case, the state regulation
relied on to displace the federal law is not the protective
legislation of the States whose citizens are the targets of the
advertising practices in question. Rather, we are asked to hold
that the McCarran-Ferguson Act operates to oust the Commission of
jurisdiction by reason of a single State's attempted regulation of
its domiciliary's
Page 362 U. S. 298
extraterritorial activities. [
Footnote 3] But we cannot believe that this kind of law of
a single State takes from the residents of every other State the
protection of the Federal Trade Commission Act. [
Footnote 4] In our opinion, the state
regulation
Page 362 U. S. 299
which Congress provided should operate to displace this federal
law means regulation by the State in which the deception is
practiced and has its impact.
The McCarran-Ferguson Act was passed in 1945. Its basic purpose
was to allay doubts, thought to have been raised by this Court's
decision of the previous year in
United States v. South-Eastern
Underwriters Ass'n, 322 U. S. 533, as
to the continuing power of the States to tax and regulate the
business of insurance. [
Footnote
5]
See Prudential Insurance Co. v. Benjamin,
328 U. S. 408,
328 U. S.
429-433;
Maryland Casualty Co. v. Cushing,
347 U. S. 409,
347 U. S. 413;
Securities & Exchange Comm'n v. Variable Annuity Life Ins.
Co., 359 U. S. 65,
359 U. S. 99
(dissenting opinion). The original bills as passed by both the
Senate and the House would have made the Federal Trade Commission
Act completely inapplicable to the insurance business. S. 340,
79th
Page 362 U. S. 300
Cong., 1st Sess., 91 Cong.Rec. 478-488, 1085, 1093-1094. During
the debate in the House, however, several members objected to the
provision exempting the business of insurance from this federal
statute (91 Cong.Rec. 1027-1028, 1086, 1089, 1092-1093), and
Representative Sumners, Chairman of the House Judiciary Committee,
stated that, in conference, he would support an amendment which
would make the Federal Trade Commission Act applicable to the same
extent as the Sherman and Clayton Acts. 91 Cong.Rec. 1093. Thus, it
was that § 2(b), in the form finally enacted, first appeared as a
recommendation of the Conference Committee of the two Houses.
H.R.Conf.Rep. No. 213, 79th Cong., 1st Sess.
Since the House accepted the Conference Report without debate,
91 Cong.Rec. 1396, the only discussion of § 2(b) in its present
form occurred in the Senate. Yet, from that somewhat limited
debate, as well as the earlier debate in both Houses as to the
effect of the Sherman and Clayton Acts, it is clear that Congress
viewed state regulation of insurance solely in terms of regulation
by the law of the State where occurred the activity sought to be
regulated. There was no indication of any thought that a State
could regulate activities carried on beyond its own borders.
Thus, the report on the original House bill stated:
"It is not the intention of Congress in the enactment of this
legislation to clothe the States with any power to regulate or tax
the business of insurance beyond that which they had been held to
possess prior to the decision of the United States Supreme Court in
the
Southeastern Underwriters Association case. Briefly,
your committee is of the opinion that we should provide for the
continued regulation and taxation of insurance by the States,
subject always, however, to the limitations set out in the
controlling decisions of the United States Supreme Court,
Page 362 U. S. 301
as, for instance, in
165 U. S. Louisiana (165 U.S.
578), 260 U. S. Louis Cotton Compress
Co. v. Arkansas (260 U.S. 346), and
Connecticut General
Insurance Co. v. Johnson (303 U.S. 77), which hold,
inter alia, that a State does not have power to tax
contracts of insurance or reinsurance entered into outside its
jurisdiction by individuals or corporations resident or domiciled
therein covering risks within the State or to regulate such
transactions in any way."
(H.R.Rep. No. 143, 79th Cong., 1st Sess. 3.)
Significantly, when Senator McCarran presented to the Senate the
bill agreed to in conference, he began by reading most of the
foregoing quotation from the original House Report as part of his
explanation of the bill. 91 Cong.Rec. 1442. The ensuing Senate
debate centered around § 2(b). The three Senate conferees, Senators
McCarran, O'Mahoney, and Ferguson, repeatedly emphasized that the
provision did not authorize state regulation of extraterritorial
activities.
See, e.g., 91 Cong.Rec. 1481, 1483, 1484.
Typical is the following statement by Senator O'Mahoney:
"When the moratorium period passes, the Sherman Act, the Clayton
Act, and the Federal Trade Commission Act come to life again in the
field of interstate commerce, and in the field of interstate
regulation. Nothing in the proposed law would authorize a State to
try to regulate for other States, or authorize any private group or
association to regulate in the field of interstate commerce."
91 Cong.Rec. 1483.
Not only this specific legislative history, but also a basic
motivating policy behind the legislative movement that culminated
in the enactment of the McCarran-Ferguson Act, serve to confirm the
conclusion that, when Congress provided that the Federal Trade
Commission Act would be displaced to the extent that the insurance
business was "regulated" by state law, it referred only to
regulation by the State where the business activities
Page 362 U. S. 302
have their operative force. One of the major arguments advanced
by proponents of leaving regulation to the States was that the
States were in close proximity to the people affected by the
insurance business, and therefore were in a better position to
regulate that business than the Federal Government.
See,
e.g., 91 Cong.Rec. 1087; 90 Cong.Rec. 6532. Joint Hearings
before the Subcommittees of the Committees on the Judiciary on S.
1362, H.R. 3269, H.R. 3270, 78th Cong., 1st Sess. 17, 37, 117,
238-239, 242-243, 244, 252. Such a purpose would hardly be served
by delegating to any one State sole legislative and administrative
control of the practices of an insurance business affecting the
residents of every other State in the Union. This Court has
referred before to the
"unwisdom, unfairness and injustice of permitting policyholders
to seek redress only in some distant state where the insurer is
incorporated."
Travelers Health Ass's v. Virginia, 339 U.
S. 643,
339 U. S.
649.
Because of our view as to the meaning of § 2(b) of the
McCarran-Ferguson Act, we do not need to consider the
constitutional questions that might arise as to the applicability
of the Nebraska statute to misrepresentations made to residents of
other States.
Compare Alaska Packers Ass'n v. Industrial
Accident Commission, 294 U. S. 532;
Western Union Telegraph Co. v. Brown, 234 U.
S. 542;
Sligh v. Kirkwood, 237 U. S.
52. Suffice it to note that the impediments,
contingencies, and doubts which constitutional limitations might
create as to Nebraska's power to regulate any given aspect of
extraterritorial activity serve only to confirm the reading we have
given to § 2(b) of the Act.
It follows that the judgment of the Court of Appeals must be
vacated, and the case remanded to that court for further
proceedings consistent with the views expressed in this
opinion.
Vacated and remanded.
Page 362 U. S. 303
[
Footnote 1]
The here pertinent portions of the McCarran-Ferguson Act are as
follows:
"That the Congress hereby declares that the continued regulation
and taxation by the several States of the business of insurance is
in the public interest, and that silence on the part of the
Congress shall not be construed to impose any barrier to the
regulation or taxation of such business by the several States."
"SEC. 2. (a) The business of insurance, and every person engaged
therein, shall be subject to the laws of the several States which
relate to the regulation or taxation of such business."
"(b) No Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for the purpose
of regulating the business of insurance, or which imposes a fee or
tax upon such business, unless such Act specifically relates to the
business of insurance:
Provided, That after June 30, 1948,
. . . the Sherman Act, . . . the Clayton Act, and . . . the Federal
Trade Commission Act, . . . shall be applicable to the business of
insurance to the extent that such business is not regulated by
State law. . . ."
59 Stat. 33, as amended, 61 Stat. 448.
[
Footnote 2]
Section 44-1503 of Reissue Revised Statutes of Nebraska, 1943 as
amended by the Emergency Act of May 14, 1957, Laws of Nebraska,
1957, c. 191, § 2. This provision is part of the Nebraska "Unfair
Competition and Trade Practices" Act of 1947, as amended (§§
44-1501 to 44-1521, Reissue Revised Statutes of Nebraska, 1943,
1957 Cumulative Supplement, Laws of Nebraska, 1957, c. 191). Other
provisions of the Act empower the Director of Insurance (1) to
prefer charges against any such insurer if he has reason to believe
that it has, in Nebraska or elsewhere, engaged "in any unfair or
deceptive act or practices in the conduct of such business," and to
give the insurer notice of a hearing on the charges (§ 44-1506);
(2) to take evidence at the hearing (§ 44-1507); and (3) to issue a
cease and desist order if he determines that the insurer has
engaged in the wrongful acts and practices with which it is charged
(§ 44-1509).
[
Footnote 3]
This basic difference was effectively emphasized in Commissioner
Gwynne's separate opinion concurring in the Commission's action in
the present proceeding. He pointed out that he had dissented from
the Commission's assumption of jurisdiction in the
American
Hospital proceeding, where the "insurance company operated
exclusively through agents in various states, in which it was duly
licensed under the respective state laws," where "every such state
had adopted the Model Code, or equivalent legislation," and where
the
"advertising practice complained of involved bundles of
advertising matter mailed from the home office to the company's
agents in the several states and disseminated there by such
agents."
53 F.T.C. 548, 558-559. (Commissioner Gwynne's view as to the
Commission's lack of jurisdiction in the American Hospital
proceeding was ultimately upheld here in
Federal Trade Comm'n
v. National Casualty Co., 357 U. S. 560,
which disposed of both the order against National Casualty Company
and the order against American Hospital & Life Insurance
Company.) In the present case, by contrast, Commissioner Gwynne
pointed out that the respondent was making representations to
induce sales of insurance in States where it was not licensed and
had no agents. He concluded that
"this type of law (that is, a law purporting to protect the
people
of another state from deceptive advertising) can
hardly be said to be the type of law referred to in Section 2(b) of
the McCarran Act. Section 2(b) makes the Federal Trade Commission
Act applicable to the business of insurance to the extent that such
business is not regulated by state law. I think this refers to the
laws of the state whose citizens are being affected by the
advertising, and not to laws of some other state operating
extraterritorially."
53 F.T.C. 548, 563. Commissioner Gwynne, as a member of
Congress, participated in the debates leading to the passage of the
McCarran-Ferguson Act, 91 Cong.Rec. 1089, 1090.
See also
90 Cong.Rec. 6534-6536.
[
Footnote 4]
The respondent has argued in this Court that the Federal Trade
Commission lacked jurisdiction because the respondent's advertising
practices are regulated not only by Nebraska, but also by "all
other states" in which the respondent conducts its mail order
business. To this, the petitioner replies that (1) the respondent
did not raise this argument before the Commission, and therefore
has waived it; (2) the statutes of the "other" States do not
purport to apply to misrepresentations mailed to their residents by
unlicensed, nonresident insurance companies having no local agents;
and (3) even if these state statutes purported to be applicable to
misrepresentations by such insurers, there still would not be
regulation by state law within the meaning of the § 2(b) proviso,
because the statutes could not be effectively enforced against the
respondent. The Court of Appeals gave no consideration to the
effect of "regulation" by any State other than Nebraska. In accord
with accepted principles, we decline to consider these issues on
the present record, leaving them "to be considered for what they
are worth by the court below, if duly presented and relied upon. .
. ."
Marconi Wireless Tel. Co. of America v. Simon,
246 U. S. 46,
246 U. S. 57.
See Tunstall v. Brotherhood, 323 U.
S. 210,
323 U. S. 214;
United States v. Beach, 324 U. S. 193,
324 U. S. 196;
Federal Communications Comm'n v. WJR, 337 U.
S. 265,
337 U. S.
285.
[
Footnote 5]
While the appeal in
South-Eastern Underwriters was
pending here, there had been abortive attempts in the
Seventy-eighth Congress to immunize the business of insurance from
the federal antitrust laws.
See H.R. 3270, S. 1362, 78th
Cong., 1st Sess.; H.R.Rep. No. 873, 78th Cong., 1st Sess.; 89
Cong.Rec. 7686, 10532, 10659-10664.
MR. JUSTICE HARLAN, whom MR. JUSTICE FRANKFURTER and MR. JUSTICE
WHITTAKER join, dissenting.
This case marks the second time within a year that the Court has
made inroads upon the policy of the McCarran-Ferguson Act by which
Congress pervasively restored to the States the regulation of the
business of insurance, a function which until this Court's decision
in
United States v. South-Eastern Underwriters
Association, 322 U. S. 533,
traditionally had been considered to be exclusively theirs. Last
Term the Court held variable annuity policies, sold across state
lines, subject to regulation by the Securities and Exchange
Commission.
See Securities & Exchange Comm'n v. Variable
Annuity Life Ins. Co., 359 U. S. 65,
359 U. S. 93-101
(dissenting opinion). Today it holds that advertising materials
mailed into other States by a health insurance company, already
regulated under the laws of its own State with respect to the
out-of-state transmission of such materials, are subject also to
regulation by the Federal Trade Commission at least to the extent
that such advertising matter is unregulated by the laws of the
State into which it is sent.
The Court's holding is based upon its conclusion
"that when Congress provided [in § 2(b) of the McCarran-Ferguson
Act] that the Federal Trade Commission Act would be displaced to
the extent that the insurance business was 'regulated' by state
law, it referred only to regulation by the State where the business
activities have their operative force."
I think the data on which the Court relies is much too meagre to
justify this conclusion, and believe, as the Court of Appeals did,
that Nebraska's regulation of these activities of the respondent
foreclosed Federal Trade Commission jurisdiction.
What is referred to in the majority opinion as "specific
legislative history" on the issue before us seems to me to fall far
short of being persuasive towards the Court's view
Page 362 U. S. 304
of the statute. The report on the original House bill, on which
so much store is placed, was directed, as I read it, not to
differentiating between the kinds of state insurance regulation
which would, after the moratorium period provided in the statute
had ended, [
Footnote 2/1] exempt
from federal regulation and control the business of insurance in
all but limited aspects, [
Footnote
2/2] but to the general proposition that the new statute would
not enlarge or narrow state regulatory power as it had existed
before this Court's decision in the
South-Eastern
Underwriters case,
supra. That no more than this can
be got out of the report on the original House bill is made
manifest by Senator McCarran's explanation of the conference bill
when he presented it to the Senate -- an episode to which the Court
refers. Quoting from the report, the Senator said:
"That expression [meaning the report] should be made a part of
this explanation. In other words, we give to the States no more
powers than those they previously had and we take none from them.
[
Footnote 2/3]"
91 Cong.Rec. 1442.
I believe that the fragments from the ensuing Senate debate, on
which the Court further relies, indicate no
Page 362 U. S. 305
more than does the report. [
Footnote
2/4] The same is true, in my opinion, of expressions made
during the debate relating to the desirability of leaving insurance
regulation to local authorities because they were, so to speak, on
the ground, expressions which, the Court correctly observes,
reflected "a basic motivating policy behind the legislative
movement that culminated in the enactment of the McCarran-Ferguson
Act." And since the Court very gingerly throws out possible
constitutional questions, I think it appropriate to say that the
right of Nebraska to police its own insurance company
domiciliaries, with respect to their advertising sent from Nebraska
into other States, is not seriously open to constitutional doubt.
See Hammond Packing Co. v. Arkansas, 212 U.
S. 322;
Sligh v. Kirkwood, 237 U. S.
52. There is certainly nothing in
Alaska
Page 362 U. S. 306
Packers Ass'n v. Industrial Accident Commission,
294 U. S. 532,
which points to the contrary.
The temptation is strong, no doubt, to ask the Court to innovate
with respect to the McCarran-Ferguson Act when state regulation may
be thought to have fallen short. Two years ago, we declined to do
so when invited by the Federal Trade Commission in the
National
Casualty case, supra, at
357 U. S.
564-565. I think it unwise for us now to yield to this
encore on the part of the Commission. One innovation with the Act
is apt to lead to another, and may ultimately result in a hybrid
scheme of insurance regulation, bringing about uncertainties and
possible duplications which should be avoided.
"Obviously Congress' purpose was broadly to give support to the
existing and future state systems for regulating and taxing the
business of insurance. This was done in two ways. One was by
removing obstructions which might be thought to flow from its own
power, whether dormant or exercised, except as otherwise expressly
provided in the Act itself or in future legislation. The other was
by declaring expressly and affirmatively that continued state
regulation and taxation of this business is in the public interest,
and that the business and all who engage in it 'shall be subject
to' the laws of the several states in these respects."
"Moreover, in taking this action, Congress must have had full
knowledge of the nationwide existence of state systems of
regulation and taxation; of the fact that they differ greatly in
the scope and character of the regulations imposed and of the taxes
exacted; and of the further fact that many, if not all, include
features which, to some extent, have not been applied generally to
other interstate business. Congress could not have been
unacquainted with
Page 362 U. S. 307
these facts, and its purpose was evidently to throw the whole
weight of its power behind the state systems notwithstanding these
variations."
Prudential Ins. Co. v. Benjamin, 328 U.
S. 408,
328 U. S.
429-430.
See also Wilburn Boat Co. v. Fireman's Fund
Ins. Co., 348 U. S. 310,
348 U. S.
318-321;
Securities & Exchange Comm'n v.
Variable Annuity Life Ins. Co., supra, at
359 U. S. 68-69,
and dissenting opinion at
359 U. S. 93
et seq.
If innovations in the policy of the McCarran-Ferguson Act are
thought desirable, they should be made by Congress, not by us.
I would affirm.
[
Footnote 2/1]
In addition to § 2(b) set forth in
note 1 of the Court's opinion ante, p. 295, §
3(a) of the Act provides:
"Until June 30, 1948, the Act of July 2, 1890, as amended, known
as the Sherman Act, and the Act of October 15, 1914, as amended,
known as the Clayton Act, and the Act of September 26, 1914, known
as the Federal Trade Commission Act, as amended, and the Act of
June 19, 1936, known as the Robinson-Patman Anti-discrimination
Act, shall not apply to the business of insurance or to acts in the
conduct thereof."
[
Footnote 2/2]
Section 3(b) of the Act provides:
"Nothing contained in this Act shall render the said Sherman Act
inapplicable to any agreement to boycott, coerce, or intimidate or
act of boycott, coercion, or intimidation."
[
Footnote 2/3]
Senator McCarran's reading of the report on the original House
bill stopped short of the last clause (following the citation of
cases) quoted in the Court's opinion.
Ante, p.
362 U. S.
301.
[
Footnote 2/4]
It is worth observing that one of the hypothetical questions put
to Senator Ferguson by Senator Pepper of Florida, an opponent of
the bill, related to whether the bill would permit Florida, in
disregard of the federal antitrust laws, to authorize the sale in
Florida of insurance at rates fixed by an out-of-state insurance
rating bureau, and that Senator Ferguson replied in the
affirmative. 91 Cong.Rec. 1481. Yet the Court now finds it
offensive to the concept of the statute to consider that other
States may be content to rely on Nebraska's regulation of
advertising material mailed to their citizens by Nebraska insurance
companies. The Court reserves "for what they are worth" the
questions that would arise were such other States to legislate
against the out-of-state mailing of insurance advertising into
their jurisdictions. Yet, even if such legislation proved abortive
as a practical matter, because of a foreign insurance company
having no office, agents, or assets within the State so
legislating, such legislation would nonetheless presumably exclude
Federal Trade Commission jurisdiction unless we were to depart from
our holding in
Federal Trade Comm'n v. National Casualty
Co., 357 U. S. 560, to
the effect that it is the
existence of state regulatory
legislation, and not the
effectiveness of such regulation,
that is the controlling factor. The distinction between such a case
as that and the one before us seems to me to be one without a
difference.