Federal Trade Commission v. Travelers Health Association

PETITIONER:Federal Trade Commission
RESPONDENT:Travelers Health Association
LOCATION:Bonneville Dam

DOCKET NO.: 51
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 362 US 293 (1960)
ARGUED: Dec 10, 1959
DECIDED: Mar 28, 1960

Facts of the case

Question

Audio Transcription for Oral Argument – December 10, 1959 in Federal Trade Commission v. Travelers Health Association

Earl Warren:

Number 51, Federal Trade Commission, Petitioner, versus Travelers Health Association.

Mr. Weston, you may proceed.

Charles H. Weston:

Mr. Chief Justice, may it please the Court.

The question which is presented is whether the Federal Trade Commission is authorized to regulate deceptive practices of a company which does a mail order insurance business, if the state of incorporation has a law which prohibits a domicile insurance company from engaging in deceptive practices inside that state or outside the State.

The Commission filed a complaint against the respondent under Section 5 of the Federal Trade Commission Act.

Evidence was taken and hearing examiner issued and initial decision and this was appealed to the Commission.

It found that respondent’s advertising was misleading in certain respects and it entered a cease-and-desist order.

The court below held by a majority vote, that Nebraska regulated respondent’s advertising in other State and that this advertising, was thereby regulated by State law within the meaning of this proviso of Section 2 (b) of the McCarran Act.

The Court knows that that Act was passed to authorize state regulation and taxation of insurance companies free from Commerce Clause limitations.

It provides that no act of Congress which does not specifically deal with the insurance business shall invalidate or supersede any state legislation in this field.

The Act was passed to remove doubts as to validity of state legislation which is had been caused by the decision of this Court in Southeastern Underwriters case.

A special provision is made as to —

Felix Frankfurter:

To remove doubts or to displace it?

Charles H. Weston:

Excuse me?

Felix Frankfurter:

To remove doubts or to displace it?

Charles H. Weston:

Well, I think it did — if the doubts were there, they were removed I suppose [Attempt to Laughter].

As to the antitrust laws, including the Federal Trade Commission Act, special provision was made.

These laws were not to apply to the insurance business before June 30, 1948, now there was a moratorium.

By the proviso of Section 2 (b), they were to apply after that date.

The proviso was before this Court in National — in National Casualty case, at the 1957 term.

The companies there involved did business only through agents and they were licensed in every state in which they sold policies.

The advertising which the Commission had found to be deceptive was shipped to the agents and they distributed locally to potential purchasers.

The Court said that in view of this local distribution, the laws of the States regulating deceptive insurance advertising unquestionably were enforceable against the activity within their respective boundaries.

And it held that where States were regulating this kind of advertising under their own laws, it was regulated by State law within the McCarran Act provision.

The facts in the present case were — presented a very different picture.

Respondent has no agents and all its business is solicited by mail.

It sells policies in all States, but it is licensed only in Nebraska and Virginia.

It sends a series of letters to prospect sometimes as many as 30, including in the letters, policy application, a policy application form and advertising material.

It issues all policies, pays all claims and conducts this promotion material from its home office which is in Nebraska.

The names of prospects are obtained from its own policy-holders and it solicits only white-collar workers, in fact only white, white-collar workers.

Charles H. Weston:

The policy, which it offers, provides for payment for the specified sum during each week that the insurance is disabled by sickness, there’s a maximum period of 52 weeks.

A State customarily regulates conduct which is within its borders.

Phrase regulated by State law as applied in connection with prohibition of certain conduct would ordinarily be understood to mean regulation by the law of the State where conduct occurs and has its adverse effect.

I think that there is particular reason for giving the phrase this meaning into the McCarran Act, because its affect in that Act is to withdraw from the public the protection given by certain federal statutes to the extent that State law gives protection.

The Trade Commission Act protects the public against deceptive acts and practices in all interstate transactions.

Preventing deceptive promotion, or sale of policies which insure against some of the laws covered by sickness or accident is certainly as of much public concern as protecting it against deceptive promotion of sale of ordinary items of commerce.

There is every reason to believe that Congress would not have withdrawn the protection of federal act on the basis of State protection unless the state protection was given by a law readily available to the persons affected; that is the law of the State where the insured lived and was mislead.

What do you find in the legislative history of the McCarran Act?

Charles H. Weston:

We think that it —

(Voice Overlap) limited interpretations of law?

Charles H. Weston:

We think — we think that if supports this view.

The Committee Report on the bill in both the House and Senate said that it was a purpose of Congress to secure adequate regulation of insurance.

Section 10 — this — the proviso of Section 2 (b) was not in the bill as passed in the Senate or in the bill as passed in the House.

It came into the bill — it was introduced in the bill by the conferees pointed to adjust the differences between the two branches.

Senator McCarran was one of the three Senate conferees and speaking of this proviso, he said that Federal legislation would not be displaced except by State law amicably covering the field.

Senator Ferguson was another of the conferees.

He said that If a State authorized a monopolistic combination of insurance companies which did business in numerous States that would immunize them from the Sherman Act, in the State of enactment, but not in other States.

Senator O’Mahoney, the third conferee, made a quite similar statement.

In other words, regulation by State law which displaces federal statute is regulation by the law of the locality.

In Travelers Health against Virginia, this Court referred to the unwisdom, unfairness and injustice of permitting policy-holders to enforce their claims against an insurer only in some distant State where the insurer is incorporated.

In McGee against International Insurance at the 1957 term, it said that if policy-holders having policies by an out-of-state insurer, would if they — they would be at a severe disadvantage, if forced to follow the insurance company to a distant State in order to hold it legally accountable.

In that case —

(Voice Overlap) constitutional right — constitutional power of Nebraska to regulate its domestic insurance companies with reference to transactions in other States.

Charles H. Weston:

Well, my argument is irrespective of the constitutional right of Nebraska —

Or to pass (Voice Overlap) —

Charles H. Weston:

— to do that.

— raise that contention?

Charles H. Weston:

We raise — we think that it raises a — an issue which might be — maybe substantial and I was going to leave that point to the discussion in our brief, it is discussed in the brief.

Charles E. Whittaker:

Mr. Weston, why should it have to be — I’m just — it seems to me, your contention is that though Congress said, Regulation of the business of the insurance was to be the concern of the States, you take the position that their regulation is not “efficient,” “sufficient” or “adequate”, is that any of the Commission’s business?

Charles H. Weston:

No.

Charles H. Weston:

I — I think, you mistake our position.

In the first place, we think that general provision of that regulation of insurance being the concern of the States is not the controlling factor under this special provision with reference to the antitrust laws of the Trade Commission Act.

Thereto apply unless the State has regulated.

Now, regulate, of course, can have various meanings.

What we suggest is that the meaning of — giving it the meaning, regulation by the State where the injury is suffered, where the person is who’s — in whose interest the protection is given is regulation, it should be regarded as regulation by that State, not by the law of some distant state.

Charles E. Whittaker:

Were these consisting — the (Inaudible) regulation by the State is adequate, efficient or sufficient (Inaudible) and is not a question of character judging the determination to occur (Inaudible)

Charles H. Weston:

I would agree with you on that and — and that is — we’re not making that contention.

We are saying that —

Suppose that argument objected (Voice Overlap) —

Charles H. Weston:

Yes.

— with the contention.

Charles H. Weston:

Yes.

We — we are not making that argument.

We are saying that mere regulation by the state of incorporation does not constitute the kind of state regulation which removes the application of the antitrust laws and the Trade Commission Act.

But it can — that’s just another form of your oral argument rejected the National Casualty.

You say that the State — you sat there in the State and it shouldn’t have to be effective regulation.

Now, you say that this is not effective regulation because the States in which these — this insurance company does business, has no control over the insurance company.

It’s only Nebraska and that people who live in other States have to resort in Nebraska for a — for a relief and you say that isn’t effective.

What’s the difference between — the essential difference between your position in the old case and the one now?

Charles H. Weston:

I think the difference is that there — effective had to be determined on the basis of the kind of state-by-state consideration of what they were doing.

Our position here is —

William O. Douglas:

Well, you’re following basically the concurring opinion of the Chairman?

Charles H. Weston:

Yes.

Certainly —

William O. Douglas:

Chairman Gwynne.

Charles H. Weston:

Yes.

I — I would like to mention that because I think that it — it’s of some significance.

He was a member of the House Judiciary Committee when the McCarran Act was passed.

He participated rather permanently in the debate on the bill.

He dissented from the Commission’s ruling, jurisdictional ruling in National Casualty.

Charles H. Weston:

In this case he wrote concurring opinion on the question of jurisdiction.

He said that what was referred to in the McCarran Act was regulation by the law of the State whose citizens are being affected not the law of some other state operating extraterritorially.

He said that when Congress permitted States to regulate free from commerce obstacles — Commerce Clause obstacle, it did not permit them — permit one State to regulate for another State.

But that is the effect if Nebraska law operates to displace in all other States, a federal statute which otherwise would be applicable.

Charles E. Whittaker:

Mr. Weston, do you undertake the support from the languages used by Chairman Gwynne in his concurring opinion?

Charles H. Weston:

Well, I’m — don’t have in mind at the moment to have the precise language of all — everything he says.

Charles E. Whittaker:

Well, do you support this language?

I think how this Section 2 (b) provision refers to the laws of the State whose citizens are being affected —

Charles H. Weston:

Yes.

Charles E. Whittaker:

— by the advertising of the words and not to the laws of some other State, operating extraterritorially.

This protection by the McCarran Act offer the individual State, protection to the State from the paramount federal power is difficult to reconcile with the theory after making one State subject to the laws of another State, in which laws they have no part in making.

Do you subscribe to that language?

Charles H. Weston:

Well, the — that latter part would raise a question of possible —

Charles E. Whittaker:

Well, it didn’t make any sense to me at all.

Charles H. Weston:

Well — I said the — the latter part may raise the question as to, the possible conflict were Nebraska interprets deceptive practice in one way — Nebraska corporation, though its operating in Illinois, Illinois interprets it another way.

But, I think that essentially his position that it means, the law of the State whose citizens are being affected and not the law of some other State is sound and supported by a legislative history as well as all natural ordinary test for construing legislation.

Now, I’d like to turn to the question which maybe presented here and that is whether respondent’s advertising is regulated by the laws of the States to which it is mailed.

Respondent has not previously made this claim.

It is claimed — it — before the Commission and in the court below, it claimed regulation only by virtue of the law of Nebraska.

I do not think that it is claimed even in this Court that it is regulated by any other State.

Its brief says that these other States are empowered to regulate and empowered to enforce the Model Fair Trade Practice Act against advertising mailed into the State by an out-of-state insurer, but it has not said that these laws do apply to this kind of advertising.

I think that that rather ambiguous word, empowered means simply that a State can enact legislation regulating this kind of advertising, which would have some measure of enforceability within constitutional limits.

Now, the various State Attorney Generals should know what their laws provide, 20 of them joined in the amicus brief filed in the court below by Attorney General from Nebraska.

They claimed — they did not claim that respondent was regulated by any State other than Nebraska.

They have not — a similar brief has been filed in this Court and they’ve not made this — that claim in this Court.

The claim is that the State — other States have regulatory power and that the decision in Travelers Health against Virginia indicates that these States may also regulate.

I don’t say that they have regulated. Most of the States adopted the Model Fair Trade Practice Act before June 30, 1948.

William J. Brennan, Jr.:

What’s the number up to now, Mr. Weston, is on 44, so less than the —

Charles H. Weston:

I think all the [Attempt to Laughter] or possibly all now —

William J. Brennan, Jr.:

Possibly all —

Charles H. Weston:

— but not the District of Columbia.

This was I say, has been in effect generally, for some 12 years. Yet neither the brief that the attorney — State Attorney General had filed — now, the brief filed by two insurance company trade associations refers to a single proceeding brought by a State under that Act against a non-licensed mail order insurer.

I think that the reason there’s no claim that this — this Act applies or no showing that it ever has been applied, is that it does — it does not apply.

It applies only to a domestic company or a firm, a licensed firm company.

It provides that any order issued under the Act shall be enforced in the courts of the State wherein the person resides or has this principal place of business.

A non-admitted foreign company does not reside or have any place of business in the State.

Furthermore, this Act makes it unlawful to engage in deceptive practices in the State in the conduct of the insurance business.

The one who engages in deceptive practices in the State while conducting the business of insurance is engaging in business in the State.

All States require such a company to paying the license, but no State is required the license of respondent except Virginia under its blue sky law.

Felix Frankfurter:

Mr. Weston, can you forgive me, if I inquire whether I understood you correctly to say that the reason none of these statutes have been enforced against a concern like this is that they’re construed not to apply such concerns, is that it.

Charles H. Weston:

Yes.

Felix Frankfurter:

But if they don’t apply then the McCarran Act doesn’t apply, does it?

Charles H. Weston:

No.

The — the McCarran does — does apply.

Felix Frankfurter:

What?

Charles H. Weston:

The McCarran — well, I don’t — what you mean by the McCarran Act applies the —

Felix Frankfurter:

(Voice Overlap) —

Charles H. Weston:

— the federal (Voice Overlap) —

Felix Frankfurter:

Does the — there’s nothing to supplant federal regulation.

Charles H. Weston:

That’s right.

Felix Frankfurter:

Well, then there’s — what kind of problem have we got?

Charles H. Weston:

Well —

Felix Frankfurter:

(Voice Overlap) state statute?

Charles H. Weston:

The —

Felix Frankfurter:

If it doesn’t apply, if — if the State laws have no applicability, then the — the immunity or whatever you call it, the McCarran Act doesn’t come into existence, is that right?

Charles H. Weston:

Yes.

I’m now talking about the laws of the States to which the advertising material is sent.

Felix Frankfurter:

Oh no, no — no.

Charles H. Weston:

The — the respondents mean and I say practically sole claim is on the basis of the law of Nebraska.

Felix Frankfurter:

Yes.

Felix Frankfurter:

But you — and you say I’ll understand you, that the Nebraska law doesn’t regulate this activity of this insurance company, is that right?

Charles H. Weston:

No.

I say that the laws of the — of the — of other States don’t regulate what comes into this State.

I say that they apply only to a domestic company or there was a licensed foreign company.

Now in Nebraska —

Felix Frankfurter:

There is no doubt that Nebraska can deal with this if it chooses to enforce its law, is that right?

Charles H. Weston:

It certainly can deal with it as far as Nebraska is concerned.

Felix Frankfurter:

I don’t mean — I don’t mean constitutional powers, statutory power, I mean there are on the books of State statutes which can regulate this practice insofar as regulation can be affected in any circumstances, is that right?

Charles H. Weston:

There is that law in Nebraska, but not in other States because my contention is that the laws which they have enacted apply only to their domestic companies and licensed foreign companies.

Felix Frankfurter:

Well, I received my — my puzzlement that those other States do not raise this problem because there is no supplanting state legislation.

Charles H. Weston:

That’s true, they do.

But I — I wanted to remove that aspect, if possible, from the case so that it would be confined to the question of the possible effect to the Nebraska law.

Felix Frankfurter:

I understand that.

Well then —

Charles H. Weston:

I —

Felix Frankfurter:

— then I can see the argument, that’s all right.

Charles H. Weston:

Now, we deal in our brief, we think that even if some State should construe its law as applying to the mere mailing into the State of policy application forms and advertising.

That there would be so many obstacles to enforcement that it would not be the regulation contemplated by the McCarran Act.

I think I will leave that point to the brief.

Felix Frankfurter:

That’s a — that argument carries you far, doesn’t it?

Charles H. Weston:

Well [Attempt to Laughter] —

Felix Frankfurter:

As you find it in this field?

Charles H. Weston:

Yes.

They really are a quite — quite a series of steps, each of one — each of which presents a substantial problem.

Charles E. Whittaker:

Mr. (Inaudible) do you really believe that if this company sent misleading literature down to Missouri from Nebraska and the Missouri Commission imposed penalties upon them and reduced it to a judgment, then sued on the judgment in Omaha that the Omaha courts would not enforce the judgment here, as argued in your briefs, under Full Faith and Credit clause?

Charles H. Weston:

No.

I —

Charles E. Whittaker:

(Voice Overlap) —

Charles H. Weston:

— I don’t think, we said we wouldn’t enforce it.

I said that there would be question of to what extent the Full Faith and Credit clause would require the Nebraska’s courts to honor a judgment issued under the regulatory law of another State.

Charles H. Weston:

And their various — that’s — there’d be also various problems, question whether state officials were authorized to go into the courts with another State to prosecute a suit.

We also have problem, I suppose, as to whether Missouri could reach anybody who sue.

Charles H. Weston:

Well, it would have to be by service by mail and that would be the Travelers Health against Virginia question that was decided by this Court.

We’re assuming that they could reach them by mail, although there’s no such provision in the Model Act itself.

Now, I would like to point out that the jurisdiction of the Federal Trade Commission to regulate mail order insurance advertising has been recognized by the industry itself.

And it is recognized that it has this jurisdiction because the States are unable to regulate effectively.

The Commission exercised this jurisdiction by promulgating, in February 1950, Fair Trade Practice Rules governing mail order insurance advertising.

An article based on interviews with state and federal officials and insurance companies and trade association officers written by the Assistant Attorney General of Kansas, stated that this rules had been promulgated at the instigation of the industry.

An article written by the general counsel of the National Bureau Casualty Underwriters says that these rules were issued as the out grow for the general industry conference of mail order insurers.

Another writer gave as a probable cause for the adoption of the rules the fact that the problem of mail order accident in health insurance had been a troublesome one for years and the States seemed unable to deal with it adequately.

In closing, I would just like to call attention to the fact that I think inadvertently, the request made in the conclusion in our brief is too broad.

The respondent has not criticized this.

We ask that the Court reverse the judgment below and with directions to deferring the Commission’s order.

It appears that respondent did not abandon in the court below its contention that the evidence wasn’t sufficient to support the findings as to the misleading affect of its representations and the Court did not pass in this issue.

I assume, therefore, that if judgment is reversed, the case should be remanded for further proceedings.

Earl Warren:

Mr. Fraizer.

C. C. Fraizer:

Mr. Chief Justice, Honorable Associate Justices.

Nebraska had a brief equivalent of a Fair Trades Practice Act, as far back as 1913, it’s quoted in my brief, long before anyone ever dream of South-Eastern or the McCarran Act, or subsequent happenings.

The brief, of course, contains the terrific match of Nebraska regulatory legislation.

It does regulate the insurance business in general.

Nebraska gave Travelers Health Association the only light that has when granted of the charter in 1904.

Nebraska requires that Travelers Health be financially responsible, requires that settlement of claims and all that sort of thing, the conduct of the business, the conducting in a descent and a high class manner.

Nebraska requires Travelers to report annually, what it received, what it paid out, what it’s got on hand.

Nebraska, every three years, examines everything that Travelers Health does.

Nebraska does regulate the Travelers Health Association.

The State prescribes that what its policy form shall contain, what policy form shall not contain.

Nebraska, I think its 1948 about 1949, adopted a department rule, number 16, which is in the record, requiring all Nebraska companies to keep a complete file of its advertising material available for the convenient examination and checking of examiners of the Nebraska Insurance Department.

Nebraska joined with the a large number States in — through the National Association of Insurance Commissioners in creating what became known as the advertising rules, copy of the rules attached to Nebraska Attorney General’s amicus brief which is joined in by 27 other States and I think referred to in a separate amicus brief of Illinois and also in the amicus brief of Health Insurance Association of America and the American Mutual Insurance Alliance. With all due respect to counsel, I’ve lived with this case for five years.

I’ve lived with the insurance regulation for about 19 years having formally been insurance commissioner of the State of Nebraska.

I’m sure counsel did not mean to misstate, but in the court below and the Eighth Circuit, we used as second barrel in our gun, so to speak, Travelers versus Virginia and, of course, later followed by the McGee case, McGee versus International.

C. C. Fraizer:

So counsel misspoke and I’m sure he did it unintentionally.

Nebraska does regulate the other States, in effect, in their amicus briefs have said that they regulate the various retaliatory laws of States and the National Association of Insurance Commissioners having its membership all of the States of the union plus, Puerto Rico and Virgin Island, I believe, composes an interlocking or network of regulation on a state basis, but nevertheless with a voluntary national aspect that really regulates this business.

I’d be happy to attempt to answer any questions.

I rather deal with — I’ve responded to counsel’s argument up to this point at least.

Earl Warren:

Very well, any response?