Court Opinion

ID: 9421777
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:59:47.516922+00
Date Added: 2024-06-11T17:19:09.570477
License: Public Domain

Mr. Justice Harlan,
whom Mr. Justice Frankfurter, Mr. Justice Clark and Mr. Justice Whittaker join,
dissenting.
The issue in these cases is whether Variable Annuity Life Insurance Company of America (VALIC) and The Equity Annuity Life Insurance Company (EALIC) are subject to regulation by the Securities and Exchange Commission under the Securities Act of 1933 and the Investment Company Act of 1940 with respect to their variable annuity business.
*94Section 3 (a) (8) of the Securities Act, 48 Stat. 74, 76, 15 U. S. C. §-77c (a)(8), provides that the statute shall not apply to:-
“Any insurance or endowment policy or annuity contract or optional annuity contract, issued by a corporation subject to the supervision of the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of any State or Territory of the United States or the District. of Columbia.”
Section 3 (c) (3) of the Investment Company Act, 54 Stat. 789, 798, 15 U. S. C. § 80a-3 (c) (3), puts .outside the coverage of the Act “[a]ny . . . insurance company,” and J 2 (a) (17), 54 Stat. 789, 793,15 U. S. C. § 80a-2 (a) (17), defines an insurance company as:
“a company which is organized as an insurance company, whosé primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance Companies, and which is subject to supervision by the insurance commissioner or a similar official or agency of a State; or any receiver or similar official or any liquidating agent for such a company, in his capacity as such.”
These two insurance companies are organized under the- Life Insurance Act of the District of Columbia, 35 D. C. Code, 1951, §§ 35-301 to 35-803, and are subject to regulation by the Superintendent of Insurance of the District of Columbia, who has approved the annuity policies written by them. At the time of trial YALIC had also qualified to do business in Arkansas, Kentucky, and West Virginia, and its annuity policies had likewise been approved by the insurance departments of those States.1 Both companies in the District of Columbia, *95and VALIC in the other States- offer their policies to the public only through insurance agents duly licensed by the local insurance authority.
Variable annuity policies are a recent development in the insurance business designed to meet inflationary trends in the economy by substituting for annuity payments in fixed-dollar amounts payments in fluctuating amounts, measured ultimately by the company’s success in investing the premium payments received from annuitants. One of the early pioneers in this field was Teachers Insurance and Annuity Association, a New York regulated life insurance organization engaged in selling annuities to college personnel. The Association in 1950 made exhaustive studies into the feasibility and soundness of variable annuities. Two years later, it incorporated College Retirement Equities Fund, a companion company under joint management with Teachers Insurance, which, subject to regulation under the New York Insurance Law, commenced offering such annuity contracts in the teaching profession.2 The first life insurance company to offer such contracts generally appears to have been the Participating Annuity Life Insurance Company, which since 1954 has been selling variable annuity policies under the supervision of the Arkansas insurance authorities. VALIC and EALIC entered the field in 1955 and 1956 respectively.
The characteristics of a typical variable annuity contract have been adumbrated by the majority. It is sufficient to note here that, as the majority concludes, as the two lower courts found, and as the SEC itself recognizes, it may fairly be said that variable annuity contracts contain both “insurance” and “securities” features. It is *96certainly beyond question that the “mortality” aspect of these annuities — that is the assumption by the company of the entire risk of longevity — involves nothing other than classic insurance concepts and procedures, and I do not understand how that feature can be .said to be “not substantial,” determining as it does, apart from options, the commencement and duration of annuity payments to the policyholder. On the other hand it cannot be denied that the investment policies underlying these annuities, and the stake of the annuitants in their success or failure, place the insurance company in a position closely resembling that of a company issuing certificates in a periodic payment investment plan. Even so, analysis by fragmentization is at best a hazardous business, and in this instance has, in my opinion, led the Court to unsound legal conclusions. It is important to keep in mind that these are not cases where the label “annuity” has simply been attached to a securities scheme, or where the offering companies are traveling under false colors, in an effort to avoid federal regulation. The bona fides of this new development in the field of insurance is beyond dispute.
The Court’s holding that these two companies are subject to SEC regulation stems from its preoccupation with a constricted “color matching” approach to the construction of the relevant federal statutes which fails to take adequate account of the historic congressional policy of leaving regulation of the business of insurance entirely to the States. It would be carrying coals to Newcastle to re-examine here the history of that policy which was fully canvassed in the several opinions of the Justices in United States v. South-Eastern Underwriters Assn., 322 U. S. 533, and which was again implicitly recognized by this Court as recently as last Term when, in Federal Trade Comm’n v. National Casualty Co., 357 U. S. 560, we declined to give a niggardly construction to the McCarran *97Act. Suffice it to say that in consequence of this Court’s decision 90 years ago in Paul v. Virginia, 8 Wall. 168, and the many cases following it,3 there had come to be “widespread doubt” prior to the time the Securities and Investment Company Acts were passed “that the Federal Government could enter the field [of insurance regulation] at all.” Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U. S. 310, 318; see also Prudential Ins. Co. v. Benjamin, 328 U. S. 408, 414.
I can find nothing in the history of the Securities Act of 1933 which savors in the slightest degree of a purpose to depart from or dilute this- traditional federal “hands off” policy respecting insurance regulation. On the contrary, the exemption of insurance from that Act, which is couched in the broadest terms, reflected not merely adherence to tradition but also compliance with a supposed command of the Constitution. In a study of the proposed Act, the Department of Commerce concluded that the legislation could be bottomed on the federal power over commerce because securities did have the independent general commercial existence and value which the Paul decision had found.lacking in insurance policies. See A Study of the Economic and Legal Aspects of the Proposed Federal Securities Act, reprinted in Hearings before Senate Committee on Banking and Currency on S. 875, 73d Cong., 1st Sess. 312, at 330, and in Hearings before House Committee on Interstate and Foreign Commerce on H. R. 4314, 73d Cong., 1st Sess. 87, at 105.. This distinction between securities and insurance, mistaken or not, underlay the passage of the final bill. When the proposed act was considered by the Senate and House Committees, it did not contain an express exemption of *98insurance. The House Committee explained that the exemption in the final bill (§3 (a) (8) of the Act):
“makes clear what is already implied in the act, namely, that insurance policies are not to be regarded as securities subject to the provisions of the act. The insurance policy and like contracts are not regarded in the commercial world as securities offered to the public for investment purposes. The entire tenor of the act would lead, even without this specific exemption, to the exclusion of insurance policies from the provisions of the act, but the specific exemption is included to make misinterpretation impossible.” H. R. Rep. No. 85, 73d Cong., 1st Sess. 15.
That this distinction stemmed from the feared implications of the Paul decision appears from the House debates. See 73d Cong., 1st Sess., 77 Cong. Rec. 2936, 2937, 2938, 2946. Moreover, two days after the Senate began consideration of the proposed act, Senator Robinson introduced a resolution (S. J. Res. 51) calling for a constitutional amendment because, in his view, “the National Government at present has no authority whatever over insurance companies.” 73d Cong., 1st Sess., 77 Cong. Rec. 3109.
Similarly, I can find nothing in the history of the Investment Company Act of 1940 which -points in any way to a change in federal policy on this score. Here tradition, perhaps more than constitutional doubt, explains the exemption of insurance companies from the Act. In hearings before the House Committee, Commissioner Healy of the SEC discussed the “face-amount installment certificates” issued by certain investment companies and often “sold on the basis of the comparison with savings bank deposits and insurance policies.” The major fáctor appearing to distinguish these investment *99companies from insurance companies for purposes of federal control was the strict state regulation present over insurance policies but absent over investment certificates. Hearings before House Committee on Interstate and Foreign Commerce on H. R. 10065, 76th Cong., 3d Sess. 61-62. Likewise, in the Senate debates, preservation of state regulation over insurance companies appears as the crucial factor distinguishing them from investment trusts. 76th Cong., 3d Sess., 86 Cong. Rec. 10070. Stating that “the bill has nothing to do with the regulation of insurance companies,” Senator Byrnes went on to say: “The platforms of both political parties have urged supervision of insurance by the several States, but not regulation by the Federal Government.” Id., at 10071. See also United States v. South-Eastern Underwriters Assn., supra, at 584, 591-592, n. 12 (dissenting opinion).
In 1944, this Court removed the supposed constitutional basis for exemption of insurance by holding, in United States v. South-Eastern Underwriters Assn., supra, that the business of insurance was subject to federal regulation under the commerce power. Congress was quick to respond. It forthwith enacted the McCarran Act, 59 Stat. 33, 15 U. S. C. §§ 1011-1015, which on its face demonstrates the purpose “broadly to give support to the existing and future state systems for regulating and taxing the business of insurance,” Prudential Ins. Co. v. Benjamin, supra, at 429, and “to assure that existing state power to regulate insurance would continue;” Wilburn Boat Co. v. Fireman’s Fund Ins. Co., supra, at 319. Thus, rather than encouraging Congress to enter the field of insurance, the South-Eastern decision spurred reiteration of its undeviating policy of abstention.
In this framework of history the course for us in these cases seems to me plain. We should decline to admit the SEC into this traditionally state regulatory domain.
*100Admittedly the variable annuity was not in the picture when the Securities and Investment Company Acts were passed. It is • a. new development combining both substantial insurance and securities features in an experiment designed to accommodate annuity insurance coverage to contingencies of the present day economic climate.4 This, however, should not be allowed to obscure the fact that Congress intended when it enacted these statutes to leave the future regulation of the business of insurance wholly with the States. This intent, repeatedly expressed in a history of which the Securities and Investment Company Acts were only a part, in my view demands that bona fide experiments in the insurance field, even though a particular development may also have securities aspects, be classed within the federal exemption of insurance, and not within the federal regulation of securities.5 Certainly these statutes breathe no notion of concurrent regulation by the SEC and state insurance authorities. The-fact that they do not serves to reinforce the view that the congressional exemption of insurance was but another manifestation of the historic federal policy leaving regulation of the business of insurance exclusively to the States.6
It is asserted that state regulation, as it existed when the Securities and Investment Company Acts were passed, *101was inadequate to protect annuitants against the risks inherent in the variable annuity and that therefore such contracts should be considered within the orbit of SEC regulation. The Court is agreed that we should not “freeze” the concept of insurance as it then existed. By the same token we should not proceed on the assumption that the thrust of state regulation is frozen. As the insurance business develops new concepts the States adjust and develop their controls. This is in the tradition of state regulation and federal abstention. If the innovation of federal control is nevertheless to be desired, it is for the Congress, not this Court, to effect.
I would affirm.

 Since the trial VALIC has also qualified in Alabama and New Mexico, and EALIC in North Dakota.

 By the end of 1956 the College Retirement Fund had issued such annuities to more than 31,000 individuals, and the value of its annuity units had increased from $10 to $18.51.

 The cases are collected in United States v. South-Eastern Underwriters Assn., supra, at 544, n. 18.

 See Morrissey, Dispute Over the Variable Annuity, 35 Harv. Bus. Rev. 75 (1957).

 It is worth observing that in' reporting the proposed Securities Act of 1933 the House Committee stated that insurance policies “and like contracts” were to be exempt from federal regulation. See arte., p. 98.

 In Contrast, § 18 of the Securities Act, 48 Stat. 74, 85, 15 U. S. C. § 77r,.provides that the Act shall not affect the jurisdiction of state securities commissions, thus recognizing a system of dual regulation where the exemptive provisions are not applicable. The Investment Company Act has a similar provision, § 50. 54 Stat. 789, 846, 15 U. S. C. § 80a-49.