U.S. Supreme Court HARTFORD STEAM BOILER INSPECTION & INS. CO. v. HARRISON, 301 U.S. 459 (1937)

[Page 301 U.S. 459, 465]

am of the opinion that its decision was right and should be affirmed.

First. On its face the statute is a proper exercise of the state's police power. The provision for licensing only bona fide residents of the state is valid. [Footnote 2] Regulation of the rates charged for insurance, of the relations of those engaged in the business and of the amount of agents' compensation fall within the exercise of this power. [Footnote 3] The claim here is that the particular regulation is unreasonable and discriminatory. The presumption of constitutional validity must prevail unless the terms of the statute, or what we judicially know, or facts proved by the appellants, overthrow that presumption. As it is conceivable that conditions existed in Georgia which justified the difference in treatment of the agents of the two sorts of companies, and as no circumstances are alleged or proved or are of judicial knowledge which negative the existence of those conditions, the attack upon the statute should fail. [Footnote 4]

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tuality, by which each of the insured becomes one of the insurers, thereby becoming interested in the profits and liable for the losses; without a charter, such an organization would be governed by the general law of partnership; when incorporated, they are subject to the terms of their charters.' Sections 56-1401 to 56-1433 deal exclusively with the incorporation and government of mutual insurance companies setting up for them a system quite apart from that prescribed for the incorporation and regulation of stock companies. The decision law of the state also recognizes the fundamental different between the two kinds of company. 5 The Supreme Court of Georgia quoted and relied upon its earlier decision as to the radical difference between stock and mutual companies and their methods of transacting business, and refused to hold the classification of the statute arbitrary or unreasonable.

The literature on the subject shows that at its inception the fire insurance business in the United States was modelled upon the mutual companies of Great Britain. [Footnote 6] Stock companies, however, were soon organized and rapidly grew to such proportions that today they transact about seventh-five per cent. of the nation's fire insurance business. Local and state mutual insurance companies now write about 10 per cent. of the total of fire insurance and are strongest in agricultural districts and the smaller cities; another 10 per cent. of the total business is written by so-called factory mutuals; the balance is cared for by Lloyd's associations. [Footnote 7]

[Page 301 U.S. 459, 467]

low operating cost due to simplicity of organization and it is said that the sales staffs of such companies work either 'on a salaried basis or on a lower scale of commissions than do the representatives of stock companies.' 8 There are approximately twenty-five hundred mutual fire and casualty institutions operating throughout the United States the vast majority of which concentrate their operations locally within one or more counties or within a single state. 'These companies rarely compete with agency represented stock companies and there has been no apparent inclination on their part to alter the scope of activity or plan of operation. Of the many mutual fire insurance companies probably no more than ten per cent extend their fields of operation beyond the boundaries of their home state.' [Footnote 9]

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when compared with the vast amount written by stock companies. This fact in itself may well be a persuasive reason for not extending to agents of mutual companies the requirement that they shall not work upon a salary. [Footnote 10] When to this is added the fact that ordinarily such agents work on salary because, in effect, they are the agents of the policyholders rather than of independent owners of a stock corporation, it is plain that there is reason for classifying them differently from agents of stock companies. In the light of the facts the classification of the agents of the two sorts of company cannot be said to be arbitray or unreasonable, and so to deny the agents of the stock companies the equal protection of the laws.

Mr. Justice BRANDEIS, Mr. Justice STONE, and Mr. Justice CARDOZO concur in this opinion. Footnotes

Footnote 1 Act of March 28, 1935. Georgia Acts 1935, p. 140.

Footnote 2 La Tourette v. McMaster, , 39 S.Ct. 160.

Footnote 3 O'Gorman & Young v. Hartford Insurance Co., 282 U.S. 251, 257, 51 S. Ct. 130, 131, 72 A.L.R. 1163.

Footnote 4 O'Gorman & Young v. Hartford Insurance Co., supra, 282 U.S. 251, 257, 258 S., 51 S.Ct. 130, 131, 132, 72 A.L.R. 1163; Borden's Farm Products Co. v. Baldwin, 293 U.S. 194, 208, 209 S., 55 S.Ct. 187, 191.

Footnote 5 Carlton v. Southern Mutual Insurance Company, 72 Ga. 371.

Footnote 6 Enc. of the Social Sciences, vol. VI, 255; Yale Readings in Insurance, Property, chapter IV.

Footnote 7 Enc. of the Social Sciences, vol. VI, 258.

Footnote 8 Enc. of the Social Sciences, vol. VIII, p. 100.

Footnote 9 Best's Insurance News, October 1935, p. 314.

Footnote 10 Compare Citizens' Tel. Co. v. Fuller, , 33 S.Ct. 833.