Family Security Life Ins. Co. v. Daniel

DOBIE, Circuit Judge (dissenting).

I think the South Carolina Statute is constitutional, so it would seem proper for me to state briefly the reasons that compel me to reach this conclusion.

Certain principles favoring this view are so well established as to require little need of citations. The police power of the State is very broad and especially is this true when, as here, the subject matter of a statute, namely insurance, is a matter of public interest. And it has also been held that the undertaking business is one of public concern. Walton v. Commonwealth, 187 Va. 275, 46 S.E.2d 373; State v. Blackwell, 196 S.C. 313, 13 S.E.2d 433. There is a primary presumption of the constitutionality of a State statute in the light of the Federal Constitution and a strong showing must be made by the party attacking the constitutionality of the statute. Where the business is one of public concern and the State legislature, on any reasonable ground, thinks that an evil exists which ought to be remedied, and where the legislative remedy has any rational relation to this evil, the statute is valid. Only where the statute is quite arbitrary or capricious and utterly unreasonable, should the courts strike the statute down as unconstitutional. See 16 C. J.S., Constitutional Law, §§ 174, 668; 11 Am.Jur., Commerce, § 94, Const.Law, §§ 255, 284, 303, 305; 12 Am.Jur., Const.Law, §§ 567, 575, 655. See also, Fitzpatrick v. Liquor Control Commission, 316 Mich. 83, 25 N.W.2d 118 (upholding a State statute forbidding the employment of women as bartenders) ; Dufour v. Maize, 358 Pa. 309, 56 A.2d 675 (upholding Pennsylvania Bituminous Coal Open Pit Mining Act, 52 P.S. § 1396.1 et seq.); United States v. Southeastern Underwriters, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440; Merchants’ Mut. Automobile Liability Co. v. Smart, 267 U.S. 126, 45 S.Ct. 320, 69 L.Ed. 538.

In the very important case of Osborn v. Ozlin, 310 U.S. 53, 65, 66, 60 S.Ct. 758, 762, 84 L.Ed. 1074, Mr. Justice Frankfurter stated:

“It is not our province to measure the social advantages to Virginia of regulating the conduct of insurance companies within her borders insofar as -it affects Virginia risks. Government has always had a special relation to insurance. The ways of safeguarding against the untoward manifestations of nature and other vicissitudes of life have long been withdrawn from the benefits and caprices of free competition. The state may fix insurance rates, German Alliance Ins. Co. v. Lewis, 233 U.S. 389, 34 S.Ct. 612, 58 L.Ed. 1011, L.R.A.1915C, 1189, it may regulate the compensation of agents, O’Gorman &. Young v. Hartford Fire Ins. Co., 282 U.S. 251, 51 S.Ct. 130, 75 L.Ed. 324, 72 A.L.R. 1163, it may curtail drastically the area of free contract, National Union Fire Ins. Co. v. Wanberg, 260 U.S. 71, 43 S.Ct. 32, 67 L.Ed. 136. States have controlled the expenses of insurance companies, New York Insurance Law, Consolidated Laws of New York, c. 28, § 244, and Wisconsin Statutes, § 201.21; and see Report of Joint (Armstrong) Insurance Investigation Committee (N.Y.) pp. 403-18 (1906). They have also promoted insurance through savings banks; see Berman, The Massachusetts System of Savings Bank Life Insurance, Bulletin No. 615, U. S. Bureau of Labor Statistics, and New York Laws of 1938, c. 471. In the light of all these exertions of state power it does not seem possible to doubt that the state could, if it chose, go into the insurance business, just as it can operate warehouses, -flour mills, and other business ventures, Green v. Frazier, 253 U.S. 233, 40 S.Ct. 499, 64 L.Ed. 878, or might take ‘the whole business of banking under its control,’ Noble State Bank v. Haskell, 219 U.S. 104, 113, 31 S.Ct. 186, 188, 55 L.Ed. 112, 32 L.R.A.,N.S., 1062, Ann.Cas.l912A, 487. If the state, as to local risks, could thus preempt the field of insurance for itself, it may stay its intervention short of such a drastic step by insisting that its own residents shall have a share in devising and safeguarding protection against its local hazards. La Tourette v. McMaster, 248 U.S. 465, 39 S.Ct. 160, 63 L.Ed. 362. All these are questions of policy not for us to judge. For it can never be emphasized too mu'ch that one’s own opinion as to the wisdom of a law must be wholly excluded when one is doing one’s judicial duty. The limit of our inquiry is reached when we conclude that Virginia has exerted its powers as to matters within the bounds of her control.”

And, in La Tourette v. McMaster, 248 U.S. 465, 467, 468, 39 S.Ct. 160, 161, 63 L.Ed. 362, Mr. Justice McKenna observed:

“This contention depends upon the character of the business of insurance, and it was decided in German Alliance Insurance Co. v. Lewis, 233 U.S. 389, 34 S.Ct. 612, 58 L.Ed. 1011, L.R.A.1916C, 1189, to-be clothed with a public interest and subject, therefore, to the regulating power of the state. And it necessarily follows that, as insurance is affected with a public interest, those engaged in it or who bring about its consummation are affected with the same interest and subject to regulation as it is. A broker is so engaged- — is an instrument of such consummation. The statute makes him the representative of the insured. He is also the representative of the insurer (Hooper v. California, 155 U.S. 648, 657, 15 S.Ct. 207, 39 L.Ed. 297), and his fidelity to both may be the concern of the state to secure. As said by the Supreme Court of the state (104 S.C. 501, 89 S.E. 398): ‘It is important for the protection of the interests of the people of the state that the business should be in the hands of competent and trustworthy persons.’ And we may say that this result can be more confidently and completely secured through resident brokers, they being immediately under the inspection of the commissioner of insurance. The motive of the statute, therefore, is benefit to insurer and insured and the means it provides seem to be appropriate.

“ ‘But we need not cast about for reasons for the legislative judgment. We are not required to be sure of the precise reasons for its exercise or be convinced of the wisdom of its exercise.’ It is enough if the legislation be passed in the exercise of a power of government and has relation to that power. Rast v. Van Deman & Lewis Co., 240 U.S. 342, 365, 366, 36 S.Ct. 370, 60 L.Ed. 679, L.R.A.1917A, 421, Ann.Cas. 1917P, 455, and cases cited; also Bunting v. Oregon, 243 U.S. 426, 437, 37 S.Ct. 435, 61 L.Ed. 830, Ann.Cas.1918A, 1043.”

It seems to me that there is a very real evil in the case before us. A South Carolina statute prohibits the payment of life insurance policies in either services or merchandise. Code 1942, § 7984, 36 Stat. 234. Plaintiffs here make much of the fact that the policy is payable to a stated beneficiary and there is no contractual obligation requiring that the undertaker who was the agent writing the policy must take care of the funeral. It is very significant, though, that the policy is enclosed in a jacket-envelope. On this jacket-envelope is printed in large red capital letters: “Guaranteed Protection For Prepayment of Funeral Expenses of” followed by a blank for the name of the insured. When the policy is written, as will usually be the case, by an undertaker, the name of this undertaker will be typewritten on this jacket-envelope with a statement that the premium payments are due each month and payable to the undertaker. At the bottom of this jacket-envelope is also printed in large capitals: “The Family Security Life Insurance Company is Owned and Operated by South Carolina Funeral Directors For the People of South Carolina.” Then, on the face of the policy is a “Facility of ^ Payment” Clause which would clearly justify the insurer in paying the proceeds of the policy to the undertaker conducting the funeral. I therefore think that the constitutionality of the statute could be sustained solely on the ground that in actual practice the statute plugs up a loop-hole and prevents a subtle evasion of the South Carolina law prohibiting the payment of life insurance policies in merchandise or services.

It has been held in a number of cases that a life insurance agent, in certain aspects, acts for both parties — the insurer and the insured, and we know that life insurance companies are stressing the role of the agent as a counselor to the insured. La Tourette v. McMaster, 248 U.S. 465, 467, 468, 39 S.Ct. 160, 63 L.Ed. 362. There are many situations in our case which would place the insurer-undertaker in a rather parlous position. If the undertaker who writes the policy secures the funeral, it then becomes to the interest of the undertaker-agent to have the policy paid in full. If, on the other hand, the funeral is to be conducted by some other undertaker, or this is even contemplated, the undertaker-agent has a club to compel his securing the funeral.

There is> evidence in the affidavits that Mr. Floyd, in his compaign to secure undertakers as agents for his Company, stated that this insurance would be a means of confining the undertaking business in South Carolina to the undertakers who are Floyd’s agents and that it would be used as a means of discouraging other men, particularly veterans, from embarking upon this business. There was also evidence in some of the affidavits that such a result had been brought about in some of the far Southern States.

The undertaker-insurance agent receives for his services in collecting the premiums 15%. Since these amounts are very small, this is a trifling consideration and the undertaker-agent is tempted to secure his real remuneration oat of conducting the funeral. In one specimen policy, the monthly payment premium is $1.57 so that the undertaker-agent would receive less than twenty-five cents a month for collecting these premiums.

The undertaker-agent writing the policy knows, of course, the amount of the insurance. This affords him a strong temptation to charge for the funeral the full amount of the insurance, even where the insured is a person of very scant means. We must notice, too, that these policies will be written in small amounts for people of little economic substance and probably less intelligence, who will be putty in the hands of a strong and forceful insurer-undertaker.

There seems to me to be little merit in the suggestion of the plaintiffs that this is the only Company now engaged in this type of business in South Carolina. If these plaintiffs are successful, and if the Company writes many policies, as it seems to have done, other companies will Undoubtedly be attracted to this field.

The statute is couched in, general terms and applies to all undertakers or life insurance companies and their agents. If a State has the right to regulate race tracks, certainly a statute directed at all race tracks would not be invalid merely by virtue of the fact that at the time of the enactment of the statute, there was only one race track within the State.

The two cases cited by the plaintiffs most clearly in point were unduly restrictive. In Hauser v. North British & Mercantile Insurance Co., 206 N.Y. 455, 100 N.E. 52, 42 L.R.A,N.S., 1139, Ann.Cas. 1914B, 263, the statute limited the insurance business solely to those principally engaged in that business and to real estate agents. All others, however well-qualified, were barred. In Northwestern Nat. Insurance Co. v. Fishback, 130 Wash. 490, 228 P. 516, 36 A.L.R. 1507, the statute limited the insurance company to one agent in cities of less than 50,000 inhabitants and to two agents in cities of over 50,000, however great might be the actual need of additional agents. Cf. Liggett Co. v. Baldridge, 278 U.S. 105, 49 S.Ct. 57,73 L.Ed. 204; Tyson & Bro. United Theatre Ticket Offices v. Banton, 273 U.S. 418, 47 S.Ct. 426, 71 L.Ed. 718, 58 A.L.R. 1236; Lakeland Highlands Canning Co. v. Mayo, D.C., 28 F.Supp. 44, 46. In our case, the statute leaves the field of insurance wide-open, with the exception of undertakers, and for the reasons that I have stated, it seems to me that the undertaking business and the life insurance business, like oil and water, do not mix.

There has been a decided swing in the viewpoint of the United States Supreme Court in this field. Formerly, the Court seemed willing to strike down State statutes on the score that these statutes contravened the Fourteenth Amendment. The dissenting opinions of Holmes and Brandéis in the earlier cases have now been quite generally upheld. Said Mr. Justice Holmes, in his dissenting opinion in Liggett Co. v. Baldridge, 278 U.S. 105, 115, 49 S.Ct. 57, 60, 73 L.Ed. 204: “The Constitution does not make it a condition of preventive legislation that it should work a perfect cure. It is enough if the questioned act has a manifest tendency to cure or at least to make the evil less.” The modern cases have stressed the idea that questions of policy are for the legislature and not for the courts, and that courts cannot strike down a statute merely because they think the statute is unwise or because it is not the best remedy for the apparent evil. These cases give wide latitude to State legislatures for experimental legislation in economic and social fields. Powell v. Pennsylvania, 127 U.S. 678, 8 S.Ct. 992, 32 L.Ed. 253; Carolene Products v. United. States, 323 U.S. 18, 65 S.Ct. 1, 89 L.Ed. 15, 155 A.L.R. 1371; Sage Stores v. Kansas, 323 U.S. 32, 65 S.Ct. 9, 89 L.Ed. 25. Particularly ample is this power to protect a person deemed by the legislature (as here) to be the weaker of the contracting parties. See Advance-Rumely Thresher Co. v. Jackson, 287 U.S. 283, 53 S.Ct. 133, 77 L.Ed. 306, 87 A.L.R. 285.

To repeat, when, as here, there is an evil which is reasonably apparent and when the statute has some fair relation as a remedy for the evil, the courts are powerless to interfere. It does not seem to me, in the light of what I have set out above, that we can brand the statute here as being arbitrary, unreasonable or capricious. Accordingly, I think the statute before us is constitutionally valid and that the injunction sought by the plaintiffs should be denied.