FEDERALISM AND INSURANCE REGULATION BASIC SOURCE MATERIALS © Copyright NAIC 1995 All rights reserved. ISBN 0-89382-369-4 National Association of Insurance Commissioners Printed in the United States of America FEDERALISM AND INSURANCE REGULATION BASIC SOURCE MATERIALS by SPENCER L. KIMBALL Professor Emeritus of Law, University of Chicago Research Professor, University of Utah College of Law Of Counsel, Manatt, Phelps & Phillips Los Angeles and Washington, D.C. and BARBARA P. HEANEY Attorney at Law, Madison, WI Consulting Attorney on Insurance, Wisconsin Legislative Council, 1978-1994 Madison, Wisconsin Table of Contents Prefatory Note ............................................................................. ix I. Origins of Regulation .............................................................. 3 A. Special Charters .............................................................. :.3 Commentary ......................................................... 3 Chapter LXXX, LAws or COMMONWEALTH OF M~SSACH~SETTS, 1806--1809 .............................. 3 B. General Incorporation Statutes .......................................... 6 Commentary ......................................................... 6 MASSACHUSETTS ACTS AND RESOLVES 1845, Chapter 23 ........................................................ 7 C. Beginnings of Formal Insurance Regulation ....................... 7 Commentary ......................................................... 7 MASSACHUSETTS ACTS AND RESOLVES 1852, Chapter 231 ....................................................... 8 MASSACHUSETTS ACTS AND RESOLVES 1851, Chapter 331 ..................................................... 10 D. Development of a Regulatory System .............................. 11 Commentary ....................................................... 11 1. Development of a State Regulatory System ............... 12 PAUL V. VIRGINIA. ................................................ 12 Opinion of the Court, Field, J ........................ 12 2. Development of a Private Regulatory System ............ 15 Commentary ....................................................... 15 NEW ORLEANS INSURANCE EXCHANGE, SELECTED RULES .............................................................. 16 3. Re-entry of the Federal Government .......................... 18 Commentary ....................................................... 18 UNITED STATES V. SOUTH-EASTERN UNDERWRITERS ASS’N~ ..................................... 19 1. The concurring opinion of Frankfurter, J., is not reproduced here. vi Table of Contents Opinion of the Court, Black, J ....................... 19 Dissenting Opinion of Stone, C.J ................... 26 Dissenting (in Part) Opinion of Jackson, J ......30 McCarran-Ferguson Act and Its Meaning ............................... 35 A. Enactment ...................................................................... 35 Commentary ....................................................... 35 MCCARRAN FERGUSON ACT ................................. 36 Commentary ....................................................... 37 B. Authority to Tax ............................................................. 38 Commentary ....................................................... 38 METROPOLITAN LIFE INS. Co. v. WARD ................. 40 Opinion of the Court, Powell, J ..................... 40 Dissenting Opinion of O’Connor, J ................ 44 Commentary ....................................................... 50 STATE BOARD OF INS. V. TODD SHIPYARDS CORP...50 Opinion of the Court, Douglas, J ................... 50 Dissenting Opinion of Black, J ....................... 54 Commentary ....................................................... 55 MINISTERS LIFE AND CASUALTY UNION V. HAASE~ ............................................................ 55 Opinion of the Court, Hallows, J ................... 55 C. Meaning of ’Insurance’. ................................................... 62 Commentary ....................................................... 62 SECURITIES AND EXCHANGE COMMISSION V. VARIABLE ANNUITY LIFE Ins. Co. OF AMERICA. .................................................... 63 Opinion of the Court, Douglas, J ................... 63 Concurring Opinion, Brennan, J .....................67 Dissenting Opinion of Harlan, J ..................... 68 Commentary ....................................................... 70 2. The dissenting opinion of Gordon, J., is not reproduced here. Table of Contents vii NATIONSBANK V. VARIABLE ANNUITY LIFE INS. Co ............................................................ 72 Opinion of the Court, Ginsburg, J ..................72 Do Meaning of ’Regulation’ ..................................................78 Commentary .......................................................78 WISCONSIN LAWS OF ~947, Chapter 487 ............... 79 Commentary ....................................................... 84 FEDERAL TRADE COMMISSION V. NATIONAL CASUALTY CO ................................. 85 Opinion of the Court, Per Curiam ................. 85 Commentary ....................................................... 87 FEDERAL TRADE COMMISSION V. TICOR TITLE INS. CO ..................................................88 Opinion of the Court, Kennedy, J .................. 88 Concurring Opinion, Scalia, J ........................ 99 Dissenting Opinion, Rehnquist, C.J ............. 100 Dissenting Opinion, O’Connor, J ................. 103 Meaning of the ’Business of Insurance’. ......................... 104 Commentary ..................................................... 104 SECURITIES AND EXCHANGE COMMISSION V. NATIONAL SECURITIES .................................... 105 Opinion of the Court, Marshall, J ................105 Dissenting Opinion, Black, j.3 ......................109 Commentary ..................................................... 109 GROUP LIFE & HEALTH INS, Co. v. ROYAL DRUG Co ................................................................. 109 Opinion of the Court, Stewart, J .................. 109 Dissenting Opinion of Brennan, J ................. 114 Commentary ..................................................... 118 UNITED STATES V. FAUE ...................................... 120 Opinion of the Court, Blackmun, J .............. 120 Dissenting Opinion, Kennedy, J ................... 126 Commentary ..................................................... 128 3. Black, ]., wrote no opinion. He merely stated his belief that the Court Appeals for the Ninth Circuit had analyzed the issues correctly. viii Table of Contents HARTFORD FIRE INS. CO. v. CALIFORNIA ............. 130 Opinion of the Court on ’Business of Insurance,’ Souter, J ................................. 130 Opinion of the Court on ’Comity’, Souter, J ................................................... 140 Dissenting Opinion on ’Comity,’ Scalia, J ....142 F. Meaning of ’Boycott, Coercion, and Intimidation’. ........146 Commentary ..................................................... 146 ST. PAUL FIRE ~ MARINE INS. Co. v. BARRY ........ 147 Opinion of the Court, Powell, ] ................... 147 Dissenting Opinion, Stewart, ] ..................... 153 Commentary ..................................................... 156 HARTFORD FIRE INS. CO. v. CALIFORNIA ............. 157 Opinion of the Court on ’Boycott,’ Scalia, J ................................................... 157 Dissenting Opinion on ’Boycott,’ Souter, J... 164 G. Miscellaneous Problems ................................................ 170 Commentary ..................................................... 170 TABLES Table of Documents ............................................................ 177 Table of Cases ..................................................................... 179 Bibliography ........................................................................ 183 Prefatory Note State regulation of insurance is usually said to have been formally approved by the United States Supreme Court in the 1868 case of Paul v. Virginia;~ the 1945 adoption of the McCarran-Ferguson Act by the United States Congress is usually considered the starting point for discussing modem regulation of insurance in the United States. This collection of materials accepts those conventions, but it also looks at the roots of development of insurance regulation from the beginnings of the Republic and traces it to the present. It does so in part by using illustrative early statutes, presenting them chron- ologically, and in part by using cases that illustrate the interpretation of the crucial later statutes. The cases are arranged analytically, rather than chronologically. The theme of the book is that increasingly American insurance regulation has been shaped by reactions to judicial decisions; those reactions have in some instances reflected misunderstanding or mis- take. Analysis of large quantities of interrelated materials must be se- lective. Nowhere has this been truer than with presentations about insurance regulation. Discussions of insurance regulation, particu- larly during the last half century, have often sought to justify staked- out positions of interested parties. A virtual avalanche of writing on the subject has descended on the public, on the Congress, and on the professions whose livelihoods are dependent on insurance regula- tion. Our aim is more modest. We seek to present a factual historical account of what has happened, using primary sources with a mini- mum of connective text. For the most part, we have eliminated par- allel citations to decisions