Federal Trade Commission v. Travelers Health Association/Opinion of the Court

Section 2(b) of the McCarran-Ferguson Act provides that '(T)he Federal Trade Commission Act, * *  * shall be applicable to the business of insurance to the extent that such business is not regulated by State law.' The State in which the respondent is incorporated prohibits unfair or deceptive practices in the insurance business there or 'in any other state.' The question presented is whether the respondent's interstate mail order insurance business is thereby 'regulated by State law' so as to insulate its practices in commerce from the regulative authority of the Federal Trade Commission.

The respondent, a Nebraska corporation, is engaged in the business of selling health insurance. Licensed only in the States of Nebraska and Virginia, the respondent sells no policies through agents, but from its office in Omaha transacts business by mail with residents of every State. It solicits business by mailing circular letters to prospective buyers recommended by existing policyholders. All business is carried on by direct mail from the Omaha office; it is from there that policies are issued, and there that premiums are paid and claims filed.

A Nebraska statute provides: 'No person shall engage in this state in unfair methods of competition or in unfair or deceptive acts and practices in the conduct of the business of insurance. No person domiciled in or resident of this state shall engage in unfair methods of competition or in unfair or deceptive acts and practices in the conduct of the business of insurance in any other state, territory, possession, province, country, or district.'

The Court of Appeals set aside a cease-and-desist order of the Federal Trade Commission prohibiting the respondent from making certain statements and representations in its circular letters found by the Commission to be misleading and deceptive in violation of the Federal Trade Commission Act. 15 U.S.C. § 45, 15 U.S.C.A. § 45. The court concluded that '(w)ith every activity of the (respondent), in the conduct of its business, subject to the supervision and control of the Director of Insurance of Nebraska, we think that the (respondent's) practices in the solicitation of insurance by mail in Nebraska or elsewhere reasonably and realistically cannot be held to be unregulated by State law.' The court accordingly decided that the Commission was 'without authority to regulate the practices of the (respondent) in soliciting insurance.' 262 F.2d 241, 244. Judge Vogel dissented, stating his belief that it was 'impractical and ineffective' to 'force the citizens of other states to rely upon Nebraska's regulation of the long distance advertising practices of the (respondent) in the promotion and sale by mail or otherwise of insurance outside the State of Nebraska.' It was his view that Nebraska's regulation of deceptive practices 'in any other state' is not 'the kind of regulation by state law Congress had in mind' in enacting the McCarran-Ferguson Act. 262 F.2d 241, 245. Certiorari was granted 359 U.S. 988, 79 S.Ct. 1122, 3 L.Ed.2d 978, to resolve an important question left undecided in Federal Trade Comm. v. National Casualty Co., 357 U.S. 560, 78 S.Ct. 1260, 2 L.Ed.2d 1540.

In that case the issue involved the effect of state laws regulating the advertising practices of insurance companies which were licensed to do business within the States and which were engaged in advertising programs requiring distribution of material by local agents. In those circumstances the Court found there was 'no question but that the States possess ample means to regulate this advertising within their respective boundaries.' 357 U.S. at page 564, 78 S.Ct. at page 1262. It was held that § 2(b) of the McCarran-Ferguson Act 'withdrew from the Federal Trade Commission the authority to regulate respondents' advertising practices in those States which are regulating those practices under their own laws.' 357 U.S. at page 563, 78 S.Ct. at page 1261. The Court expressed no view as to 'the intent of Congress with regard to interstate insurance practices which the States cannot for constitutional reasons regulate effectively * *  * .' 357 U.S. at page 564, 78 S.Ct. at page 1262.

The question here is thus quite different from that presented in National Casualty. In this case the state regulation relied on to displace the federal law is not the protective legislation of the States whose citizens are the targets of the advertising practices in question. Rather, we are asked to hold that the McCarran-Ferguson Act operates to oust the Commission of jurisdiction by reason of a single State's attempted regulation of its domiciliary's extraterritorial activities. But we cannot believe that this kind of law of a single State takes from the residents of every other State the protection of the Federal Trade Commission Act. In our opinion the state regulation which Congress provided should operate to displace this federal law means regulation by the State in which the deception is practiced and has its impact.

The McCarran-Ferguson Act was passed in 1945. Its basic purpose was to allay doubts, thought to have been raised by this Court's decision of the previous year in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, as to the continuing power of the States to tax and regulate the business of insurance. See Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 429-433, 66 S.Ct. 1142, 1154-1156, 90 L.Ed. 1342; Maryland Casualty Co. v. Cushing, 347 U.S. 409, 413, 74 S.Ct. 608, 610, 98 L.Ed. 806; Securities & Exchange Comm. v. Variable Annuity Life Ins. Co., 359 U.S. 65, 99, 79 S.Ct. 618, 636, 3 L.Ed.2d 640 (dissenting opinion). The original bills as passed by both the Senate and the House would have made the Federal Trade Commission Act completely inapplicable to the insurance business. S. 340, 79th Cong., 1st Sess., 91 Cong.Rec. 478-488, 1085, 1093-1094. During the debate in the House, however, several members objected to the provision exempting the business of insurance from this federal statute (91 Cong.Rec. 1027-1028, 1086, 1089, 1092-1093), and Representative Sumners, Chairman of the House Judiciary Committee, stated that in conference he would support an amendment which would make the Federal Trade Commission Act applicable to the same extent as the Sherman and Clayton Acts, 15 U.S.C.A. § 1 et seq., 12 et seq., 91 Cong.Rec. 1093. Thus it was that § 2(b) in the form finally enacted first appeared as a recommendation of the Conference Committee of the two Houses. H.R.Conf.Rep. No. 213, 79th Cong., 1st Sess.

Since the House accepted the Conference Report without debate, 91 Cong.Rec. 1396, the only discussion of § 2(b) in its present form occurred in the Senate. Yet, from that somewhat limited debate, as well as the earlier debate in both Houses as to the effect of the Sherman and Clayton Acts, it is clear that Congress viewed state regulation of insurance solely in terms of regulation by the law of the State where occurred the activity sought to be regulated. There was no indication of any thought that a State could regulate activities carried on beyond its own borders.

Thus the report on the original House bill stated: 'It is not the intention of Congress in the enactment of this legislation to clothe the States with any power to regulate or tax the business of insurance beyond that which they had been held to possess prior to the decision of the United States Supreme Court in the Southeastern Underwriters Association case. Briefly, your committee is of the opinion that we should provide for the continued regulation and taxation of insurance by the States, subject always, however, to the limitations set out in the controlling decisions of the United States Supreme Court, as, for instance, in Allgeyer v. (State of) Louisiana (165 U.S. 578 (17 S.Ct. 427, 41 L.Ed. 832)), St. Louis Cotton Compress Co. v. (State of) Arkansas (260 U.S. 346 (43 S.Ct. 125, 67 L.Ed. 297)), and Connecticut General (Life) Insurance Co. v. Johnson (303 U.S. 77 (58 S.Ct. 436, 82 L.Ed. 673)), which hold, inter alia, that a State does not have power to tax contracts of insurance or reinsurance entered into outside its jurisdiction by individuals or corporations resident or domiciled therein covering risks within the State or to regulate such transactions in any way.' (H.R.Rep. No. 143, 79th Cong., 1st Sess. 3.)

Significantly, when Senator McCarran presented to the Senate the bill agreed to in conference, he began by reading most of the foregoing quotation from the original House Report as part of his explanation of the bill. 91 Cong.Rec. 1442. The ensuing Senate debate centered around § 2(b). The three Senate conferees, Senators McCarran, O'Mahoney, and Ferguson, repeatedly emphasized that the provision did not authorize state regulation of extraterritorial activities. See, e.g., 91 Cong.Rec. 1481, 1483, 1484. Typical is the following statement by Senator O'Mahoney: 'When the moratorium period passes, the Sherman Act, the Clayton Act, and the Federal Trade Commission Act come to life again in the field of interstate commerce, and in the field of interstate regulation. Nothing in the proposed law would authorize a State to try to regulate for other States, or authorize any private group or association to regulate in the field of interstate commerce.' 91 Cong.Rec. 1483.

Not only this specific legislative history, but also a basic motivating policy behind the legislative movement that culminated in the enactment of the McCarran-Ferguson Act serve to confirm the conclusion that when Congress provided that the Federal Trade Commission Act would be displaced to the extent that the insurance business was 'regulated' by state law, it referred only to regulation by the State where the business activities have their operative force. One of the major arguments advanced by proponents of leaving regulation to the States was that the States were in close proximity to the people affected by the insurance business and, therefore, were in a better position to regulate that business than the Federal Government. See, e.g., 91 Cong.Rec. 1087; 90 Cong.Rec. 6532. Joint Hearings before the Subcommittees of the Committees on the Judiciary on S. 1362, H.R. 3269, H.R. 3270, 78th Cong., 1st Sess. 17, 37, 117, 238-239, 242-243, 244, 252. Such a purpose would hardly be served by delegating to any one State sole legislative and administrative control of the practices of an insurance business affecting the residents of every other State in the Union. This Court has referred before to the 'unwisdom, unfairness and injustice of permitting policyholders to seek redress only in some distant state where the insurer is incorporated.' Travelers Health Ass's v. Com. of Virginia, 339 U.S. 643, 649, 70 S.Ct. 927, 930, 94 L.Ed. 1154.

Because of our view as to the meaning of § 2(b) of the McCarran-Ferguson Act, we do not need to consider the constitutional questions that might arise as to the applicability of the Nebraska statute to misrepresentations made to residents of other States. Compare Alaska Packers Ass'n v. Industrial Accident Commission, 294 U.S. 532, 55 S.Ct. 518, 79 L.Ed. 1044; Western Union Telegraph Co. v. Brown, 234 U.S. 542, 34 S.Ct. 955, 58 L.Ed. 1457; Sligh v. Kirkwood, 237 U.S. 52, 35 S.Ct. 501, 59 L.Ed. 835. Suffice it to note that the impediments, contingencies, and doubts which constitutional limitations might create as to Nebraska's power to regulate any given aspect of extraterritorial activity serve only to confirm the reading we have given to § 2(b) of the Act.

It follows that the judgment of the Court of Appeals must be vacated, and the case remanded to that court for further proceedings consistent with the views expressed in this opinion.

Vacated and remanded.

Mr. Justice HARLAN, whom Mr. Justice FRANKFURTER and Mr. Justice WHITTAKER join, dissenting.

This case marks the second time within a year that the Court has made inroads upon the policy of the McCarran-Ferguson Act by which Congress pervasively restored to the States the regulation of the business of insurance, a function which until this Curt's decision in United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, traditionally had been considered to be exclusively theirs. Last Term the Court held variable annuity policies, sold across state lines, subject to regulation by the Securities and Exchange Commission. See Securities & Exchange Comm. v. Variable Annuity Life Ins. Co., 359 U.S. 65, 93-101, 79 S.Ct. 618, 633-637, 3 L.Ed.2d 640 (dissenting opinion). Today it holds that advertising materials mailed into other States by a health insurance company, already regulated under the laws of its own State with respect to the out-of-state transmission of such materials, are subject also to regulation by the Federal Trade Commission, at least to the extent that such advertising matter is unregulated by the laws of the State into which it is sent.

The Court's holding is based upon its conclusion 'that when Congress provided (in § 2(b) of the McCarran-Ferguson Act) that the Federal Trade Commission Act would be displaced to the extent that the insurance business was 'regulated' by state law, it referred only to regulation by the State where the business activities have their operative force.' I think the data on which the Court relies is much too meagre to justify this conclusion, and believe, as the Court of Appeals did, that Nebraska's regulation of these activities of the respondent foreclosed Federal Trade Commission jurisdiction.

What is referred to in the majority opinion as 'specific legislative history' on the issue before us seems to me to fall far short of being persuasive towards the Court's view of the statute. The report on the original House bill, on which so much store is placed, was directed, as I read it, not to differentiating between the kinds of state insurance regulation which would, after the moratorium period provided in the statute had ended, exempt from federal regulation and control the business of insurance in all but limited aspects, but to the general proposition that the new statute would not enlarge or narrow state regulatory power as it had existed before this Court's decision in the South-Eastern Underwriters case, supra. That no more than this can be got out of the report on the original House bill is made manifest by Senator McCarran's explanation of the conference bill when he presented it to the Senate-an episode to which the Court refers. Quoting from the report, the Senator said: 'That expression (meaning the report) should be made a part of this explanation. In other words, we give to the States no more powers than those they previously had and we take none from them.' 91 Cong.Rec. 1442.

I believe that the fragments from the ensuing Senate debate, on which the Court further relies, indicate no more than does the report. The same is true, in my opinion, of expressions made during the debate relating to the desirability of leaving insurance regulation to local authorities because they were, so to speak, on the ground, expressions which, the Court correctly observes, reflected 'a basic motivating policy behind the legislative movement that culminated in the enactment of the McCarran-Ferguson Act.' And since the Court very gingerly throws out possible constitutional questions, I think it appropriate to say that the right of Nebraska to police its own insurance company domiciliaries, with respect to their advertising sent from Nebraska into other States, is not seriously open to constitutional doubt. See Hammond Packing Co. v. State of Arkansas, 212 U.S. 322, 29 S.Ct. 370, 53 L.Ed. 530; Sligh v. Kirkwood, 237 U.S. 52, 35 S.Ct. 501, 59 L.Ed. 835. There is certainly nothing in Alaska Packers Ass'n v. Industrial Accident Commission, 294 U.S. 532, 55 S.Ct. 518, 79 L.Ed. 1044, which points to the contrary.

The temptation is strong, no doubt, to ask the Court to innovate with respect to the McCarran-Ferguson Act when state regulation may be thought to have fallen short. Two years ago we declined to do so when invited by the Federal Trade Commission in the National Casualty case, supra, 357 U.S. at pages 564-565, 78 S.Ct. at page 1262. I think it unwise for us now to yield to this encore on the part of the Commission. One innovation with the Act is apt to lead to another, and may ultimately result in a hybrid scheme of insurance regulation, bringing about uncertainties and possible duplications which should be avoided.

'Obviously Congress' purpose was broadly to give support to     the existing and future state systems for regulating and      taxing the business of insurance. This was done in two ways. One was by removing obstructions which might be thought to     flow from its own power, whether dormant or exercised, except      as otherwise expressly provided in the Act itself or in      future legislation. The other was by declaring expressly and     affirmatively that continued state regulation and taxation of      this business is in the public interest and that the business      and all who engage in it 'shall be subject to' the laws of      the several states in these respects.

'Moreover, in taking this action Congress must have had full     knowledge of the nation-wide existence of state systems of      regulation and taxation; of the fact that they differ greatly      in the scope and character of the regulations imposed and of      the taxes exacted; and of the further fact that many, if not      all, include features which, to some extent, have not been      applied generally to other interstate business. Congress     could not have been unacquainted with these facts and its purpose was evidently to throw the whole      weight of its power behind the state systems, notwithstanding      these variations.' Prudential Ins. Co. v. Benjamin, 328 U.S.     408, 429-430, 66 S.Ct. 1142, 1155, 90 L.Ed. 1342.

See also Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 318-321; 75 S.Ct. 368, 372-374, 99 L.Ed. 337; Securities & Exchange Comm. v. Variable Annuity Life Ins. Co., supra, 359 U.S. at pages 68-69, and dissenting opinion at 93 et seq., 79 S.Ct. at pages 620-621, 633.

If innovations in the policy of the McCarran-Ferguson Act are thought desirable, they should be made by Congress, not by us.

I would affirm.