Joseph McKenna

“ To a limited extent every honest industry adds to the general sum of prosperity and promotes the public welfare.
Nothing more can be said of insurance-nor can the power to take the private property of insurers by fixing rates be enlarged by a legislative declaration that the business is affected with a broad and definite public interest. For since the contract of insurance is private and personal, it is almost a contradiction in terms to say that the private contract is public, or that a business which consists in making such private contracts is public in the constitutional sense. ”

“ The fact that insurance is a strictly private and a personal contract of indemnity puts it on the extreme outside limit, and removes it as far as any business can be from those that are in their nature public. So that if the price of a private and personal contract of indemnity can be regulated,-if the price of a chose in action can be fixed,-then the price of everything within the circle of business transactions can be regulated. ”

“ Indeed, it seems to be conceded that a person owning property is not entitled to demand insurance as a matter of right. If not, the business is not public, and not within the provision of the Constitution which only authorizes the taking of property for public purposes-whether the taking be of the fee, for a lump sum assessed in condemnation proceedings, or whether the use be taken by rate regulation, which is but another method of exercising the same power. ”

“ If, on the other hand, the company is obliged to insure bad risks or the property of men of bad character, of doubtful veracity, or known to be careless in their handling of property, the law would be an arbitrary exertion of power in compelling men to enter into contract with persons with whom they did not choose to deal where confidence is the very foundation of a contract of indemnity. ”

“ Those regulations exhibit it to be the conception of the lawmaking bodies of the country without exception that the business of insurance so far affects the public welfare as to invoke and require governmental regulation. A conception so general cannot be without cause. The universal sense of a people cannot be accidental; its persistence saves it from the charge of unconsidered impulse, and its estimate of insurance certainly has substantial basis. Accidental fires are inevitable and the extent of loss very great. ”

“ For the power to regulate is the essential power of government which can be exerted against the whole body of the public or the smallest business. And if, as seems to be implied, the fact that a business may be regulated is to be the test of the power to fix rates, it would follow, since all can be regulated, the price charged by all can be regulated. ”

“ In some degree the public interest is concerned in every transaction between men, the sum of the transactions constituting the activities of life. But there is something more special than this, something of more definite consequence, which makes the public interest that justifies regulatory legislation. We can best explain by examples. The transportation of property-business of common carriers-is obviously of public concern, and its regulation is an accepted governmental power. The transmission of intelligence is of cognate character. ”

“ Whether the requirements are necessary to the purpose, or-to confine ourselves to that which in under review-whether rate regulation is necessary to the purpose, is a matter for legislative judgment, not judicial. Our function is only to determine the existence of power.
The bill attacks the statute of Kansas as discriminating against complainant because the statute excludes from its provisions farmers' mutual insurance companies, organized and doing business under the laws of the state and insuring only farm property. ”

“ If there may be controversy as to the business having such character, there can be no controversy as to what follows from such character if it be established. It is idle, therefore, to debate whether the liberty of contract guaranteed by the Constitution of the United States is more intimately involved in price regulation than in the other forms of regulation as to the validity of which there is no dispute. The order of their enactment certainly cannot be considered an element in their legality. ”

“ There is no difference in principle and none by statute in the character of the contract, whether it is made by one man, or the Lloyds, or a corporation. There is no difference in the character of the contract made by a stock company and a mutual company. In each instance the contract is one of indemnity against loss for a fixed premium. If the policy holder is a stockholder in an ordinary corporation, he may get back some of his premium by way of dividends; if he is a member of a mutual company, he pays his premium and gets back his share of the earnings. ”

“ The suggestion that the public interest is found in the characteristics of the business of insurance justifies a brief examination of those characteristics and a statement of the results that logically must follow from such a test. For if the power is to develop out of the characteristies, it must necessarily follow that other occupations, having similar characteristics, must be subject to the same rate regulating power. ”

“ If the company can make distinctions and serve one and refuse to serve another, the business ex vi termini is not public. The common carrier has no right to refuse to haul a passenger even if he has been convicted of arson. But if an insurance company is indeed public, it is bound to insure the property of the man who is suspected of having set fire to his own house, or whose statements of value it is unwilling to take. ”

“ It presented a case, the court further said, 'for the application of a longknown and well-established principle in social science, and this statute simply extends the law so as to meet this new development of commercial progress.' The principle was expressed as to property, and the instance of its application was to property, but it is manifestly broader than that instance. It is the business that is the fundamental thing; property is but its instrument, the means of rendering the service which has become of public interest. ”

“ Against that conservatism of the mind which puts to question every new act of regulating legislation, and regards the legislation invalid or dangerous until it has become familiar, government-state and national-has pressed on in the general welfare; and our reports are full of cases where in instance after instance the exercise of regulation was resisted and yet sustained against attacks asserted to be justified by the Constitution of the United States. ”

“ Or if great size is the test, if the number of customers is the test, if the scope of the business throughout the nation is the test, if the contributions of the many to the value of the business is the test,-or if it takes a combination of all to meet the condition, then every business with great capital and many customers distributed throughout the country, and making a large business possible, must be treated as affected with a public interest, and the price of the goods on its shelves can be fixed by law. ”

“ It is said, the state has no power to fix the rates charged to the public by either corporations or individuals engaged in a private business, and the 'test of whether the use is public or not is whether a public trust is imposed upon the property, and whether the public has a legal right to the use which cannot be denied;' or, as we have said, quoting counsel, 'Where the right to demand and receive service does not exist in the public, the correlative right of regulation as to rates and charges does not exist.' Cases are cited which, it must be admitted, support the contention. ”

“ Complainant feels the necessity of accounting for the regulatory state legislation and refers it to the exertion of the police power; but, while expressing the power in the broad language of the cases, seeks to restrict its application. Counsel states that this power may be exerted to 'pass laws whose purpose is the health, safety, morals, and the general welfare of the people.' The admission is very comprehensive. What makes for the general welfare is necessarily in the first instance a matter of legislative judgment, and a judicial review of such judgment is limited. ”

“ And as further pointing out the characteristics of the public use justifying the fixing of prices, it will be noted that, with the exception of toll mills (which, however, to employ property devoted to a public use) , they all have direct relation to the business or facilities of transportation or distribution,-to transportation by carriers of passengers, goods, or intelligence by vehicle or wire; to distribution of water, gas, or electricity through ditch, pipe, or wire; to wharfage, storage, or accommodation of property before the journey begins, when it ends, or along the way. ”

“ But it is said that the reasoning of the opinion has the broad reach of subjecting to regulation every act of human endeavor and the price of every article of human use. We might, without much concern, leave our discussion to take care of itself against such misunderstanding or deductions. The principle we apply is definite and old, and has, as we have pointed out, illustrating examples. ”

“ The act now under review not only takes property without due process of law, but it unequally and arbitrarily selects those from which such property shall be taken by price fixing. Although including all other fire insurance companies, it excepts certain mutual insurance companies. Persons engaged in doing an insurance business are not within its terms. In Kansas, the right to do a fire insurance business is not limited to corporations, but may be conducted by persons, individuals, partners, companies, and associations, whether incorporated or not. ”

“ It would be very rudimentary to say that measures of government are determined by circumstances, by the presence or imminence of conditions, and of the legislative judgment of the means or the policy of removing or preventing them. The power to regulate interstate commerce existed for a century before the interstate commerce act was passed, and the Commission constituted by it was not given authority to fix rates until some years afterwards. ”

“ Then could the price of newspapers, magazines, and the like be fixed, because certainly nothing is more affected with a public interest, nothing is so dependent on the public, nothing reaches so many persons, and so profoundly affects public thought and public business. ”

“ We have summarized the provisions of the Kansas statute, and it will be observed from them that they attempt to systematize the control of insurance. The statute seeks to secure rates which shall be reasonable both to the insurer and the insured, and as a means to this end it prescribes equality of charges, forbids initial discrimination or subsequently by the refund of a portion of the rates, or the extension to the insured of any privilege ”

“ The effect of insurance-indeed, it has been said to be its fundamental object-is to distribute the loss over as wide an area as possible. In other words, the loss is spread over the country, the disaster to an individual is shared by many, the disaster to a community shared by other communities ”

“ The distinction is artificial. It is, indeed, but the assertion that the cited examples embrace all cases of public interest. The complainant explicitly so contends, urging that the test it applies excludes the idea that there can be a public interest which gives the power of regulation as distinct from a public use, which, necessarily, it is contended, can only apply to property, not to personal contracts. The distinction, we think, has no basis in principle (Noble State Bank v. Haskell, 219 U.S. 104, 55 L. ed. 112, 32 L.R.A. (N.S.) 1062, 31 Sup. ”

“ They are the product, it is true, of skill and experience, but such skill and experience a regulating body may have as well as the creating body. Indeed, an allegation in the original bill that the superintendent of insurance could not have the requisite technical and mathematical training to determine whether a basic rate or an actual rate as applied to any particular risk was or was not reasonable, and that his conclusion, therefore, 'would be a mere guess or arbitrary determination,' was omitted by an amendment. ”

“ Are not such regulations restraints upon the exercise of the personal right-asserted to be fundamental-of dealing with property freely, or engaging in what contracts one may choose, and with whom and upon what terms one may choose? ”

“ The cases need no explanatory or fortifying comment. They demonstrate that a business, by circumstances and its nature, may rise from private to be of public concern, and be subject, in consequence, to governmental regulation. ”

“ We do not understand that the opinion is founded on that proposition, for even the usury laws do not fix a flat rate, but only a maximum rate, and do not require lenders to make loans to all borrowers, similarly situated, at the same rate of interest. ”

“ Statutes were accordingly passed providing for a standard form of policy in order to protect the assured against his inexperience, to prevent hard bargains, and to avoid vexatious litigation; and as similar evils appear they may be dealt with by regulatory or prohibitory legislation just as statutes were passed, and can still be passed to punish combinations, pooling arrangements, and all those practices which amount to unfair competition. ”