Source: https://supreme.justia.com/cases/federal/us/301/459/
Timestamp: 2019-04-22 18:14:11+00:00

Document:
A statutory discrimination between the mutual companies and the stock companies which write fire, casualty, etc., insurance in the State, forbidding stock companies to act through agents who are their salaried employees but permitting this to mutual companies, is repugnant to the equal protection clause of the Fourteenth Amendment. P. 301 U. S. 463.
Georgia Ls., 1935, Act of Mar. 28, 1935, § 1, held unconstitutional. The discrimination has no reasonable relation to the difference between the two classes of companies. It is arbitrary.
183 Ga. 1, 187 S.E. 648, reversed.
the above-named Insurance Commissioner to license one of the appellants as general agent of the other, the Insurance Company.
"No licensed fire or casualty insurance company or company writing fidelity or surety bonds, shall write or issue any policy or indemnity contract on any risk in this State except through a resident agent licensed by the Insurance Commissioner: Provided . . . The words 'resident agent' as used in this section are deemed to mean resident agents engaged in the solicitation of such business from the public generally, and shall not include any salaried employee of any insurance company doing business in this State, but shall include any agents of mutual insurance companies however compensated."
Appellants claimed that enforcement of the quoted inhibition would deprive them of the equal protection of the laws, contrary to the Fourteenth Amendment.
"that said act, in discriminating against stock companies and the agents thereof and in favor of mutual companies and the agents thereof, sets up an arbitrary classification bearing no reasonable relationship to the subject matter of the legislation, and is discriminatory, depriving both petitioner, The Hartford Steam Boiler Inspection & Insurance Company, as an insurance company, and petitioner, W. M. Francis, as an individual, of their constitutional rights."
Accordingly, it directed that mandamus issue.
In the State Supreme Court, counsel agreed that the sole question involved was the constitutionality of the statute. That Court, being of opinion that the act prescribed no undue discrimination, and did not otherwise conflict with the Federal Constitution, reversed the trial court. The cause is here by appeal.
"It may be said generally that the equal protection clause means that the rights of all persons must rest upon the same rule under similar circumstances, Kentucky Railroad Tax Cases, 115 U. S. 321, 115 U. S. 337; Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283, 170 U. S. 293, and that it applies to the exercise of all the powers of the state which can affect the individual or his property, including the power of taxation. County of Santa Clara v. Southern Pac. R. Co., 18 F. 385, 388, 399; The Railroad Tax Cases, 13 F. 722, 733. It does not, however, forbid classification, and the power of the state to classify for purposes of taxation is of wide range and flexibility, provided always that the classification"
similarly circumstanced shall be treated alike."
"Royster Guano Co. v. Virginia, 253 U. S. 412, 253 U. S. 415; Air-Way Corp. v. Day, 266 U. S. 71, 266 U. S. 85; Schlesinger v. Wisconsin, 270 U. S. 230, 270 U. S. 240. That is to say, mere difference is not enough; the attempted classification"
"must always rest upon some difference which bears a reasonable and just relation to the act in respect to which the classification is proposed, and can never be made arbitrarily and without any such basis."
"Gulf, Colorado & Santa Fe Ry v. Ellis, 165 U. S. 150, 165 U. S. 155. Discriminations of an unusual character especially suggest careful consideration to determine whether they are obnoxious to the constitutional provision. Compare Martin v. District of Columbia, 205 U. S. 135, 205 U. S. 139; Bell's Gap R. Co. v. Pennsylvania, 134 U. S. 232, 134 U. S. 237."
was adopted "in order to reduce the expenses of operation and thus benefit the policyholders themselves."
It is idle to elaborate the differences between mutual and stock companies. These are manifest and admitted. But the statutory discrimination has no reasonable relation to these differences. We can discover no reasonable basis for permitting mutual insurance companies to act through salaried resident employees and exclude stock companies from the same privilege. If there were any such basis, it would have been discovered by the state courts. The trial court said there was none. Two Justices of the Supreme Court were of the same opinion. The prevailing opinion in that court fails to disclose any good reason for the discrimination. The diligence of counsel for appellee has not been more successful. Thus, the efforts in the state courts, and here, to find support for the statute have conspicuously failed. Statements as to the extent of the business written by stock companies are obviously beside the mark.
For the error indicated, the questioned judgment must be reversed, and the cause returned to the Supreme Court for further proceedings not inconsistent with this opinion.
of the statute excluding salaried employees of insurance companies from licensure is unconstitutional.
"The words 'resident agent,' as used in this section, are deemed to mean resident agents engaged in the solicitation of such business from the public generally, and shall not include any salaried employee of any insurance company doing business in this State, but shall include any agents of mutual insurance companies, however compensated."
The ground upon which the act is held invalid is that it unreasonably discriminates between salaries employees of mutual insurance companies and similar employees of stock companies.
The answer alleges that there is a well recognized difference between stock and mutual insurance companies in that, in the case of the former, the relationship between the company and its policyholders is one of contract merely, they dealing at arm's length, whereas, in the latter, the policyholders are the owners of the company, and constitute its membership. Other well known differences between mutual and stock insurance are detailed in the answer, and will be referred to hereinafter.
am of the opinion that its decision was right, and should be affirmed.
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. [Footnote 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.
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." [Footnote 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 percent extend their fields of operation beyond the boundaries of their home state. [Footnote 9]"
Reference to the report of the Insurance Commissioner of Georgia for 1934, the year preceding the adoption of the statute under review, furnishes interesting data on the relative business of stock and mutual insurance companies in the Georgia. For that year, the total of risks carried by stock fire insurance companies in the state was $1,512,181,296. Foreign mutual fire insurance companies carried only $82,727,816. Two domestic mutual companies doing a statewide business carried $73,370,177, and fourteen small local mutuals carried $10,893,603. Thus, mutual companies carried about ten percent of the total fire insurance business of the state and, of that ten percent, over one-half was written by Georgia mutual companies.
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 arbitrary 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.
Act of March 28, 1935. Georgia Acts 1935, p. 140.
La Tourette v. McMaster, 248 U. S. 465.
O'Gorman & Young v. Hartford Insurance Co., 282 U. S. 251, 282 U. S. 257.
O'Gorman & Young v. Hartford Insurance Co., supra, 282 U. S. 257-258; Borden's Farm Products Co. v. Baldwin, 293 U. S. 194, 293 U. S. 208-209.
Carlton v. Southern Mutual Insurance Co., 72 Ga. 371.
Enc. of the Social Sciences, vol. VI, 255; Yale Readings in Insurance, Property, chapter IV.
Enc. of the Social Sciences, vol. VI, 258.
Enc. of the Social Sciences, vol. VIII, p. 100.
Best's Insurance News, October 1935, p. 314.
Compare Citizens' Tel. Co. v. Fuller, 229 U. S. 322.

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