McGee v. International Life Ins. Company

PETITIONER:McGee
RESPONDENT:International Life Ins. Company
LOCATION:Hazlehurst Manufacturing Company

DOCKET NO.: 50
DECIDED BY: Warren Court (1957-1958)
LOWER COURT: State appellate court

CITATION: 355 US 220 (1957)
ARGUED: Nov 20, 1957
DECIDED: Dec 16, 1957

Facts of the case

Question

Audio Transcription for Oral Argument – November 20, 1957 in McGee v. International Life Ins. Company

Earl Warren:

— McGee, Petitioner, versus International Life Insurance Company.

Mr. Mandell, you may proceed.

Arthur J. Mandell:

Mr. Chief Justice, may it please the Court.

The genesis of this case began on April 4, 1944 when the Empire Mutual Insurance Company of Arizona issued a policy on the life of Lowell Step Franklin insuring his life for $5000.

He named as his beneficiary his mother Lulu B.McGee.

A policy was mailed by the Empire Company to the insurer within California, and he continued making payments of premiums to Empire until September 1st, 1948 when the Empire Company of Arizona reinsured its risks with the International Life Insurance Company of Austin, Texas.

Based upon this reassurance agreement approved by both governmental agencies of Arizona in Texas, the International Company issued its certificate of reinsurance and mailed it to the insured in California.

On September 1st, 1948 until some time to December of 1950, the insured Franklin received notices by mail of the premiums due and mailed his premiums from California to Texas and was fully paid-up when, on December 11, 1950, he died.

Subsequent thereto, a claim was made on behalf of Lulu B.McGee, his mother, the beneficiary, and the claim was denied.

On June 11, 1951, Lulu B.McGee, through her California attorneys, file a suit — filed a suit in San Francisco against the International.

And the International, not having qualified to do business in California as required by the California statute and not having designated anyone to accept service, the California attorney proceeded under the Unauthorized Insurers Practice Act which was passed on October 1, 1949.

Therefore, after the passage of the Act on October 1st, 1949, throughout the rest of the life of Franklin, through December 1950, the International Insurance Company from Texas mailed notices of premiums to California to Franklin and — and reply to such notices received by mail, the premiums in Texas.

The — the petitioner here, and plaintiff below, complied fully with the Unauthorized Insurers Practice Act as required by the California statute.

No attack has been made and is made now on the proposition that the statute was not followed with reference to service.

Judgment by default in accordance with the California practice was rendered in October 1951.

The judgment was forwarded to the Texas attorneys who filed the suit in the District Court of Harris County, Texas to collect upon the California judgment.

The District Court denied recovery on the judgment.

An appeal was made to the Court of Civil Appeals in Texas who affirmed the denial of recovery by the District Judge on the authority of (Inaudible) case from the Fifth Circuit.

Most important hearing and application for writ of error to the Supreme Court followed and was denied, an application for the writ was filed and this Court didn’t grant it.

The question for decision here is whether California had the right to pass the Unauthorized Insurer’s Practice Act and set out therein the Act which if an insurance company does within the State subjects it — itself to the jurisdiction of the State of California under the Unauthorized Practice Act.

Some of the conditions set out in the Unauthorized Practice Act, which the California legislature, in its own wisdom, saw fit to include as making that — insure such insurance company subject to its process in accordance with the rules laid down included the mailing of notices or the collection of premiums from one State into the State of California and the receiving of premium payments from California and any other act or transaction with the policyholders in the State of California.

By stipulation, it is, of course, conceded that Section 3 and 4 of the Unauthorized Practice Act, which deals with the mailing of notices or notices by mail, has been complied with.

Secondly, a claim was made in California mailed to Texas, the claim was denied.

The Fifth Circuit in the (Inaudible) case held a statute similar to this constitutional but stated there that it would not apply if the contracts of insurance were issued prior to the time that the Unauthorized Insurers Practice Act was passed.

And in subsequent cases on 206 F.2d and 207 F.2d denied recovery on that ground, it’s because of these decisions that it got us from Court of Civil Appeals refused recovery in this case.

It is petitioner’s position here that the decision of this Court and the Travelers Health Insurance Company — Virginia versus Travelers Health Insurance Company in 70 Supreme Court, 339 U.S.643, is authority for our proposition that all the act done by the International in California under the California statute subject to her to the jurisdiction of that court.

That statute complies with all the requirements of due process because in it, not only does it appoint a person to receive process but also requires that a copy of the pleading in the process being mailed by registered mail to the defendant, the insurance company, and in order to protect the insurance company further, the statute provides that in the event the respondent feels that it is not subject to the jurisdiction, it may come to California, file a motion to quash the service on the ground that they didn’t do any of the four acts which the State of California provides constituting sufficient grant to subject itself to the jurisdiction of California.

And if sustained, it will not consider that as an appearance in court.

International didn’t do any of these things.

It sent back and let the case proceed.

Arthur J. Mandell:

And defendant on the ground, first, as I understand it, that the act itself is unconstitutional.

Second, that the act, as applied to them in this instance, is unconstitutional.

And third, that the fact that — that the certificate of insurance was issued subsequent — I’m sorry, the fact that a certificate of insurance was issued prior to the passage of the California Act makes them not subject to the jurisdiction of the Court.

We submit that under the authority of the Travelers case and of the Schutt case decided by the Second Circuit, the International was subject to the jurisdiction of this Court — of the court of California.

Section 1611 and 1610 of the Act sets out pretty clearly, so that anyone doing business in that State may know exactly what are selling an insurance policy or mailing any notices may know exactly what it may or may not do before it subjects itself to the jurisdiction of that State.

In that section, we submit that a mailing of notices for collection of premiums has been declared by the legislature of the State of California sufficient to do business and that State to subject itself to the jurisdiction of the State.

May I ask you a question?

Arthur J. Mandell:

Yes, sir.

This case was tried on stipulation of facts.

And the reason of that stipulation, page 21, as I get it, there’s no evidence in this record that this insurance company had ever done any business at anytime in California mailing notice a part of the transaction with this particular plaintiff, your client?

Arthur J. Mandell:

That is correct, Your Honor.

Is that right?

Arthur J. Mandell:

There is no —

You have to uphold the statute on the assumption that the transactions with your client are the only business which was ever done by this company in California.

Arthur J. Mandell:

The — insofar as this record is concerned, we say that the only evidence in the record is that they had done business in this instance.

There is no negative stipulation of any other business.

But for the purpose of this record, the evidence here is that that’s the only thing they have known.

The only transaction?

Arthur J. Mandell:

Yes.

In other words, what I’ve got in mind is supposing your client had been in New York where there was no dispute, this insurance company was doing business, then, for reasons of his own, in part of California, the insurance company has to follow premium notices and he just — they have to send him — send the notices to California address.

Would you think that that kind of business would come within the —

Arthur J. Mandell:

Well, of course —

— meaning of the statute?

Arthur J. Mandell:

Of course, these are not the facts in this case but assuming the facts in this case that a man might have lived in — in Texas where unquestionably, the International was doing business, it was organized in Texas and has moved to California, and if the International saw fit not to subject itself to the jurisdiction of the State of California by way of process, it could have taken steps to reinsure its risks with some other insurance company that does business in Texas.

That is done all the time.

It had its choice.

It could have easily done so had it so desired.

And, of course, as this — without question that they are charged with knowledge of the law and having been charged with knowledge of the law, they could have easily decided.

We don’t want to subject ourselves to the jurisdiction of the State of California.

And they had three months time within which next premium was due and reinsure this risk.

But so far as this record is concern, we have to take the case on the basis that the only business that this company did in California was mailing premium notices to your client, your —

Arthur J. Mandell:

Yes, Your Honor.

— to the — to the insured —

Arthur J. Mandell:

Yes.

And nothing more.

Arthur J. Mandell:

Nothing more.

Yes.

Arthur J. Mandell:

Now, the — the question is one really whether the State of California has to write an authority in the protection of its citizens to set up this type of regulations or methods or procedure.

Now, it is significant to note that when the admiral has passed the legislature so fit to state the purpose of the act and in its purpose, it states that whereas certain insurance companies had issued policies of insurance to citizens of the State and whereas it will be — may become necessary for such citizens of the State of California to enforce the payment of such policies, policies that had heretofore been issued and — and therefore, passes this act.

The point that I’m making is that the — it is clear upon the Act that California passed that legislature intended it to apply to policies then existing and not like the Fifth Circuit decided, that it need not apply to — retroactively to file insurance policies issued before the passage of the Act.

Because the very language of the Act says it is here to protect those citizens who now have policies and whom may have to sue in order to collect these policies.

And its unfair and unjust for these citizens to have to go and — to other States in policies which are unbearably are small, seek counsel in far away States to enforce their rights.

Now, this — the question before this Court is, had California the right, the constitutional authority to pass such a statute?

And we submit that it did.

Now, the contention has been made and I suppose it’s implicit in the opinion under Galveston Court of Civil Appeals that it is unconstitutional in its application in this case because of its retroactive nature and that the policy was issued in 1948 and the Act was not passed on 1949.

But we submit that service of process is a procedural matter.

No one — this Court has said and many courts have said as a constitutional right not to be sued anywhere.

The question is does the procedure of issuing the process meet the requirements said by this Court of which simply is, does it — does such suit not offend traditional notions of fair play and substantial justice.

Now, then, apply this principle to the case at bar.

The respondent had notice of it, had an opportunity to present itself in California if it — if it for thought that it was not subject to the California court present this motion and if not subject to it — in other words, if it didn’t come under the three subdivisions set out by the statute, then it would have been clear.

Had it not been clear of the jurisdiction, then proper exceptions on appeal could have followed but respondent choose not to do so.

This is a small policy, a $5000 policy and it’s just these kind of policies that at least 38 States have sought to protect and hence, the passage of this Act.

It would have been much more onwards and certainly, the legislature of the State of California thought so, to have imposed the burden on Lulu McGee to come to Texas to file a suit.

We submit that the (Inaudible) case in 229 F.2d decided by the Second Circuit on the authority of the Travelers case decided by this Court is federal authority, that in cases such as these, and act such as passed by the California statute is enforceable and is not on contravention of the constitutional provisions of the Fourteenth Amendment.

I would like to reserve my few more minutes that I have to reply.

Does the record show what defense was on the power (Inaudible)?

Arthur J. Mandell:

Well, the record does not show what the defense was except that in the trial in Texas which was simply a trial upon the judgement, the International Insurance Company did plead to the — a defense.

A defense that the deceased committed suicide while insane claiming that that was an exception to the policy.

However, and so to introduce as prove thereof, the proof of claim made by Lulu McGee on exception by counsel for McGee, the Court did not admit such evidence because the question before the Court was the validity of the judgement itself.

The Court of Civil Appeals makes known of this fact and says — sets out a defense to the policy is not here material.

Arthur J. Mandell:

And we submit that it is not.

Stanley Hornsby:

May it please the Court.

The International Life Insurance Company is a legal reserve life insurance company from Texas.

It did not do a mail order business in California nor it doesn’t do a mail order business in any other State.

The matter in which we happened to require this California policyholder was that we had a reinsurance agreement which was entered into with an Arizona corporation where the International is also authorized to do business.

And in connection with that reinsurance agreement, the Arizona corporation was what ours on the calls a benefit corporation which is a mutual assessment association.

And in that connection, the agreement provided that International was to offer to all policyholders of Empire Mutual, a policy with the legal reserved company, International, are that the policyholder should have the right to withdraw his proportionate share under (Inaudible).

In compliance with that agreement made with the Arizona corporation, International carried out its part and mailed to the policyholder in California, its reinsurance certificate which he accept.

Thereafter, the only thing done by International was to mail the usual and customary premium notices and thereafter, deny liability by mail.

The policy holder originated, if I understand you correctly, was not solicited by your —

Stanley Hornsby:

That is correct, sir.

It was not.

Not only was this policyholder not solicited but we have solicited no other policy over this.

In —

William O. Douglas:

How did he obtain this policy?

Stanley Hornsby:

The record shows that it was mailed to him by the Empire Mutual from Arizona.

Now, the record stipulation does not show —

William O. Douglas:

Who did — who did the soliciting?

(Inaudible)

Stanley Hornsby:

I have no idea, sir.

That was before we came into the picture.

William O. Douglas:

Not in — it doesn’t appear in the record —

Stanley Hornsby:

No, sir.

William O. Douglas:

— if it was done by mail or (Inaudible)

Stanley Hornsby:

It says —

William O. Douglas:

(Inaudible)

Stanley Hornsby:

— that it was mailed — the stipulation provides, it was mailed to him from the office of the Empire in Arizona.

It does not say where he was at the time.

I presume he was — I presume he was in California at the time.

William J. Brennan, Jr.:

Is this an argument that at all events is applied to your client, the statute does not reach it without reference to the constitutional question?

Stanley Hornsby:

Both, Mr. Justice, from the standpoint that the statute cannot constitutionally be applied to our client.

William J. Brennan, Jr.:

Well, apart from that, I — the — the statute, as I read it, looking at page 23 of the petitioner’s brief, speaks of none admission at the time of solicitation and you say your company didn’t do that.

Insurance and your company didn’t do that or delivery by inter contracts of insurance.

I gather, you say your company didn’t do that.

Stanley Hornsby:

Well, our company did mail a reinsurance certificate.

Yes.

William J. Brennan, Jr.:

A reinsurance certificate.

Stanley Hornsby:

That’s correct, sir.

William J. Brennan, Jr.:

That was at the time you acquired it under reinsurance?

Stanley Hornsby:

That’s right, sir.

Prior to the time — prior to the time that this statute was adopted.

William J. Brennan, Jr.:

So that, that then is a contract of insurances insofar as the statute is concerned?

Stanley Hornsby:

I think it possibly would be so construed, sir.

Gentlemen, I —

Hugo L. Black:

Is your case —

Stanley Hornsby:

Sir?

Hugo L. Black:

Am I right in thinking, probably, the case just stand at this point as you say — you say to have been by the Fourteenth Amendment’s Due Process Clause from getting served the company, that if it shows nothing more had been done by the State and show one person by mail in that State?

Stanley Hornsby:

That, I think, is correct, sir.

I think there is —

William O. Douglas:

Just like the premium.

Stanley Hornsby:

Sir?

Hugo L. Black:

Just like the premium.

Stanley Hornsby:

Yes, sir.

The premiums have — in other words, the customary premium notices were sent to him.

The premiums were mailed to the company in Texas.

Hugo L. Black:

The valid — what you have is a valid insurance policy that your company sent to him by the mail, paid premiums and he wants to sue on that.

The question is whether the Fourteenth Amendment (Inaudible) suing in California made here or whether he (Inaudible) in some place by the company whatever it is doing (Inaudible).

Stanley Hornsby:

But, Justice, I think that’s one question.

I think there’s a further question which is the holding of the (Inaudible) cases that even the California statute, assuming that it is constitutional — even assuming that it is constitutional in its application under these facts that it would not be applicable to this policy which was issued prior to the adoption of the statute.

Hugo L. Black:

Yes.

Hugo L. Black:

That’s the one addition, the thing you have on application of the statute (Voice Overlap) —

Stanley Hornsby:

That’s correct, sir.

Hugo L. Black:

— what your constitutional question.

Am I wrong in thinking that — what I think?

Stanley Hornsby:

If I understand you, sir, I don’t think so.

Our position is that this respondent did not have sufficient contacts with California to warrant under the Due Process Clause, the application of this statute to him.

Hugo L. Black:

(Inaudible) after that policy had been in effect is not enough, it’s so little that the Fourteenth Amendment permits California to subject your company suit that day?

Stanley Hornsby:

Yes, sir.

Felix Frankfurter:

Are you — are you — I take it, you can take up each one of these points separately.

Stanley Hornsby:

I intend to —

Felix Frankfurter:

Are you not?

And when you said, “As of the second point,” you will assume — you will assume that prospectively or as to prospective policy, such a statute is constitutional part — apply retrospectively violates due process.

Did you proceed to that?

(Inaudible), that is your second point, isn’t it?

Stanley Hornsby:

Sir?

Felix Frankfurter:

That is your second point, is it not?

Stanley Hornsby:

That is — that is correct, sir.

Felix Frankfurter:

That assuming, but I mean on start with the assumption, this statute is all right as to all future policy.

And you say it has an infirmity if this applied to policies thereto (Inaudible).

Stanley Hornsby:

That will be the second part.

Yes, sir.

I think that this Court has written in several instances, probably the case which has become the one that’s more frequently referred to now as the more enlightened rational is that of the International Shoe Company case.

We would like to particular remind you that in that case, of course, there were some 13 — 11 to 13 resident salesmen who lived in the State.

Their commissions were large.

A tremendous amount of business was obtained there.

And this Court held in construing that situation that due process was not violated, and that the contacts of the State were not irregular or casual, that they were systematic and continuous throughout the years and that those minimum contacts did not offend your traditional notions of fair play or substantial justice.

Of course, in this case, we think an entirely different situation prevails.

We have never had any sales personnel.

We have never had any agents in California, and we don’t believe that this case meets the minimum test set down in the International Shoe Company case.

After the International Shoe Company case, of course, you have the Travelers versus Virginia.

Stanley Hornsby:

And again, in that case, you had a general mail order business being done by the Travelers Health Association in which they have some 800 members at the time of the trial.

They had solicited those members, not only about mail but also by those who are already members in the State.

In addition to that, they have caused many sick benefit claims to be investigated within the State.

You will recall, of course, that you applied in the one opinion, the Osborn efforts and then International Shoe principles and held that the transactions were not merely isolated or short-lived.

And that the certificates were systematically and widely delivered following solicitations based on recommendations of Virginians and that there were many certificate holders in the State.

We don’t have that in this case.

Hugo L. Black:

May I ask you?

Stanley Hornsby:

Surely, sir.

Hugo L. Black:

You set out in your brief that there are some reasons separately why you say it would depend universal sense of justice of the contrary, the universal ideas of fair practice, hold the company subject to sue and the state made issuance of policy of insurance concerning who died there, where most likely, most of the witnesses (Inaudible) in connection with the lawful (Inaudible).

Stanley Hornsby:

I don’t think that we have that set out separately, Mr. Justice, in connection with our brief.

But if you will permit me to digress just a moment there, I would like to urge to this Court that it is probably pretty high time that we become a little bit concern about the policyholders who are not litigated.

As is evidenced by this case, Mr. Justice Harlan asked what the circumstances were we sought to show them in the trial court, we offer the claimant’s statement, the colonel’s report, the colonel’s verdict and the transcript to the testimony taken.

Where was the colonel’s verdict given?

Stanley Hornsby:

In California, sir.

In California.

Stanley Hornsby:

Yes.

All these evidence was in California.

Stanley Hornsby:

That’s correct, sir.

And it showed that the man had committed suicide which was not one of the things covered by the policy.

It was expressly excluded from the policy.

The point I wanted to make, Mr. Justice, was this.

That we hear courts talking about the — protecting the litigants, the people who have to sue insurance companies.

Maybe years ago, the insurance business was somewhat different from what it is today, but my experience with the insurance business today is that you don’t have very much trouble with companies who deny claims on invalid grounds.

Where the difficulty arises is where the claims are made without adequate grounds.

In other words, these policyholders who don’t litigate are having to pay premiums now considerably greater than they would have to be if all your invalid claims weren’t paid.

Now, we have situations that exist generally.

And I — I think the Court realizes it.

Mention has been made of the claims being too small for the policyholder to take them to the home state of company to litigate them.

In times, there are many instances even within the State of Texas where our claims on held that accident policies maybe too small to warrant our litigating them.

Your modern —

Hugo L. Black:

Oh, excuse me.

Stanley Hornsby:

That’s all right, sir.

Hugo L. Black:

Suppose this suit had been filed in the federal court by the company in Texas or the — or declaration that the policy should be canceled or (Inaudible) you’ve been saying or shown about what happened or that the suicide (Inaudible) and made a motion under federal law to transfer to California District Court on the basis forum non conveniens but do you think that (Inaudible).

Stanley Hornsby:

I think the thing that would have been wrong, sir, is that it would have put the company to the expense of defending an invalid claim in California.

Hugo L. Black:

Well, but (Voice Overlap) —

Stanley Hornsby:

And my —

Hugo L. Black:

— I — I understood from you, all the evidence indicates, came from California where you could have gotten the witness, in person much cheaper by the case (Inaudible) much more convenient say.

Stanley Hornsby:

Mr. Justice, the evidence that we referred to were the claimants statement the certificate of death, the colonel’s verdict and the transcript of the testimony of the colonel’s report are written documentary evidence.

Hugo L. Black:

Yes.

But suppose the other side had said, “We wanted to offer a number of witnesses there to State of California to the (Inaudible) bring all the way to Texas and there were no witnesses in Texas to the affair — to the event.

Stanley Hornsby:

I would — I would say, sir, that, of course, if we were in the situation that we had done anything to get us in to California but probably, there is our — to suggest might be necessary.

Hugo L. Black:

You had done something which you (Inaudible).

Stanley Hornsby:

Yes, sir, we collected one dollar a month.

Collected in — in its entirely, $30, I believe.

Hugo L. Black:

How much was the amount claimed on (Inaudible)?

Stanley Hornsby:

$5000.

Hugo L. Black:

Was the action alleged —

Stanley Hornsby:

Yes, sir.

Hugo L. Black:

— an alleged (Inaudible).

Stanley Hornsby:

I don’t know what they alleged, sir.

As I say, they just said that the policy had been issued when the man died.

I’m sure they did not make any issue with the California court as to what the cause of death was because they had them show to California court with a good judgement.

William J. Brennan, Jr.:

Mr. Hornsby, this is a —

Stanley Hornsby:

Yes.

Hugo L. Black:

— Uniform Act, isn’t it?

Stanley Hornsby:

Not entirely so.

No, sir.

It is sometimes referred to as Uniform Act but there are differences between some of the States that I know of at least.

William J. Brennan, Jr.:

Well, are — are there any substantial differences in the — for reasons upon which service of process took place?

Stanley Hornsby:

I don’t recall any substantial ones.

Stanley Hornsby:

So the California Act is similar to the Florida Act.

I believe the Schutt case was passing on the Tennessee Act.

I’m not familiar with it.

William J. Brennan, Jr.:

Well, am I correct in understanding about 38 States have this kind of statute now?

Stanley Hornsby:

I just don’t know, sir.

I heard counsel make that statement.

William J. Brennan, Jr.:

Well, it — it had the sponsorship, isn’t it, of the insurance commisioner?

Stanley Hornsby:

Of the National Association of Insurance Commissioners, yes, sir.

William J. Brennan, Jr.:

Do you know what — what the abuse was or — or mischief of the — that was aimed to —

Stanley Hornsby:

I presumed that there likely was a number of years ago, exist certain instances of that now where there possibly some out of state insurers were not paying their claims as they should.

And that this was supposed to be an act which would compel them and force them to pay them.

The point that I was making moment ago, sir, was that I doubt that that situation exist generally now.

I think that you’re — very great number of insurance companies do not fail to pay claims by virtue of the fact that our petition forces them to.

It’s just not good business not to pay them.

Under your contract with the primary insurer, the Direct-Writing Company?

Have you any option to refuse to issue certificates or (Voice Overlap) —

Stanley Hornsby:

None — none whatsoever, sir.

It was a reinsurance agreement of the type of, in effect, reorganization by which we took over their assets and agreed to either give their policyholders a policy or to let them have their proportionate part of the funds of the Empire Mutual.

Is that contract in the record?

Stanley Hornsby:

Yes, sir.

Hugo L. Black:

Was it a voluntary contract?

Stanley Hornsby:

It was — it was a contract, sir, which had been, of course, as I have mentioned, our — our company is a legal reserve company is controlled by its Board of Directors.

The Arizona corporation was a benefit corporation and was controlled by its members.

It was subject to a membership meeting, Mr. Justice, also, the approval of the Corporation Commission of Arizona and the Board of Insurance Commissioners of the State of Texas.

Hugo L. Black:

And if this transfer had not been made, would the suit had been brought by policyholder in the State of California?

Stanley Hornsby:

I —

Hugo L. Black:

(Voice Overlap) —

Stanley Hornsby:

so far as — sir?

Hugo L. Black:

Did your company have not taken it over?

Stanley Hornsby:

I wouldn’t think so because so far as I know there was no greater contact between Empire Mutual and California then International.

Stanley Hornsby:

The stipulation provides, as Mr. Justice Harlan had mentioned, that nor has either company, in any way, carried on any business activity within the State of California except it was herein stipulated that neither before nor after September 1st which was the date of reinsurers’ contract.

Hugo L. Black:

How many policies do you think the Government have to issue before he said that the system is fair play and (Inaudible)?

Stanley Hornsby:

As I construe — as I construe your opinions, Mr. Justice, the opinions of this Court, it would depend upon whether or not there had been activities of the agent of the corporation within the State.

I don’t think it could be said that you could say that the mere issuance of one policy or 50 policies or a hundred policies, sir.

Hugo L. Black:

1000?

Stanley Hornsby:

Again —

(Voice Overlap) —

Stanley Hornsby:

— we can make it — we can make it such that — I don’t believe that the mere holding of the policy, I think, Mr. Justice, that you should look to how they were acquired.

Now, if they have solicited and have a thousand policies on the State, I think, the situation might be different, sir.

Harold Burton:

(Inaudible)

to you that the — the claim is not of — protect you the general jurisdiction but protect you the jurisdiction in a particular matter as to which you have been doing business in — in California.

The — the jurisdiction claimed here arises out of various transactions and pointed out none other than unrelated transaction?

Stanley Hornsby:

That is true, sir.

But on the other hand, this is still within the proposition of a — isolated transaction.

If — if there’d be not some such rule, such as that, Mr. Justice, I think the situation can arise, it was suggested a few moments ago of you can return restrict your activities to one State, set all your policies there.

And then are you going to be subjected to suit in every State and the union provided you have policyholder moved there.

I don’t think that’s should be the law, sir.

You may defer with me.

Harold Burton:

No, the local State where the policyholder lives, said so?

Stanley Hornsby:

Well, sir, may be I feel pretty strongly about it having been on the other side of the docket most of the time.

But I fear, in all sincerity, than in many instances, the insurance companies need protection from the policyholders rather than the policyholders from the insurance companies.

And I have seen it happen time and time again.

And I think it’s happening in this case.

Felix Frankfurter:

I think your — as I get it, your feeling derives from the assumption that here was an invalid claim, doesn’t it, and you — you say, “This is an invalid claim, a lot of invalid claim.”

Isn’t that true?

Isn’t that — and that payment, an invalid claim, of course, cast a burden on — under (Inaudible) thereby affecting the (Inaudible).

Stanley Hornsby:

I think that — I think, Mr. Justice, that that should and should be taken into consideration.

Felix Frankfurter:

But the starting point of that feeling or that view is a unilateral determination that the claims were invalid.

One can’t — can’t (Inaudible) I have without realizing how things would seem awfully clear to one side, assume a different aspect on the other side get something at all?

Stanley Hornsby:

I would —

Felix Frankfurter:

(Voice Overlap)

the record.

Anybody that has been into court knows how surprising sometimes it is, as otherwise inclusive case, not so conclusive as to the other fact it’s true?

Stanley Hornsby:

I agree with you wholeheartedly, sir, that it was for that reason that I made the remarks to that.

They had in order that we might not have the situation exist where there was the feeling that it was these policyholders, the single policyholder who needed protection of the California statute.

I think definitely, sir, there are two sides to it.

Returning briefly to the discussion of the Travelers versus Virginia, Mr. Justice Douglas, in his opinion, of course, said that he put to one side where the policyholder seeks to sue the out of state company in Virginia.

But, as I recall it, he did expressly state that the corporate project entails the use of one or more people in the State of the solicitation business.

And certainly, in this case, we did not have that.

The other opinion, of course, questions the fact that an in personam judgment can be based on service by registered letter or substituted service on a corporation which is never been within the State.

And it’s pointed out again that the minimum contacts set out in the International Shoe Company case are the activities of the corporation’s agent within the State.

I think if we examine all of your cases that, at least, I have been able to find.

Osborn versus Ozlin, of course, was not a case in which service was involved but was a suit by company is authorized to do business in Virginia in relation to the Virginia statute.

Your Hoopeston Canning Company versus Cullen was, in turn, an action against the insurance department for declaratory judgment challenging the constitutionality.

And, of course, in that case, there were engineers sent into the State.

There were investigations made before the people were accepted.

There were many, many contracts, 50,000, I believe, during the seven-year period, $2,000,000 of premiums more than those in the home state.

Then this Court, of course, took up the Perkins case and reiterated there, your holdings of the International Shoe Company case.

I think the International Shoe Company case together with the Perkins case enunciate the rule that certainly, there can be no personal judgment against the defendant with which the State has no contacts, it has relations.

And you cite with comparison the Pennoyer versus Neff, the Benn case.

Certainly, there were less contacts in this case, which we now arguing before the Court than there were in the Benn case because there, they were doing a general mail order business.

We have not been doing a general mail order business here.

It’s of interest, I think, to see the reaction that the Circuit Courts have taken to some of the opinions.

The Second Circuit in the Schutt case, construing the Tennessee statute, says that the constitutional question is more definite of solution.

And it seems that the authority of the Benn case that impaired to the vanishing point by Travelers Health Association versus Commonwealth of Virginia, and says, “Perhaps, in the end, vestiges of the old physical presence theory will prevail.”

However, that may be, we will agree with to follow the opinions of the Court in International Shoe and Travelers.

I have found the case since our brief was written by the Ninth Circuit said on May 22nd, 1956 of Vecke, V-E-C-K-E, versus —

Hugo L. Black:

What?

How do you spell that?

Stanley Hornsby:

Vecke, V-E-C-K-E.

Hugo L. Black:

V-E —

Stanley Hornsby:

V-E-C-K-E versus Griesedieck, G-R-I-E-S-E-D-I-E-C-K, Western Brewery Company.

The citation says 233 F.2d 772.

Hugo L. Black:

233 F.2d.

Stanley Hornsby:

Yes, sir, 772.

I can’t pronounce them properly, Mr. Justice, was less spell them.

What was interesting in that case, there were two brewery distributors involved.

One of them didn’t have an office or any particular salesman in California but they did sell directly to distributors.

And once or twice, the president of the company or some of its other officers would make sales promotion trips through in California.

And it did furnish the distributor with stationary and advertising and authorized it to settle disputes within the manufacturing purchasers.

Now, the other beer manufacturer involved did maintain an office in California, had a resident manager in six field representatives or home spent considerable amounts of time in California.

The Ninth Circuit came up with the answer that the — and the District Court in both instances had quashed the service on the out of state manufacturing — beer manufacturers.

The Ninth Circuit came up with the answer that the quashing of the citation is to the first beer manufacturer even though there were substantial sales made, that — that was proper, and it was interesting to me the comment was made about International Shoe case.

The contrary rule, moreover, would raise grave questions of due process of law, notwithstanding the reexamination of the requisites of due process in this area of the law which the Supreme Court of the United States has undertaken and such cases as International Shoe Company and Perkins versus Benguet, Travelers Health and so forth, the leading case of Cannon Manufacturing Company versus Cudahy Packing Company, a case in which the local contacts of the Foreign Manufacturing Corporation far exceeded those in the instant case has not been overruled and more significantly, has recently been cited and followed.

In Harris versus (Inaudible) for the Fourth Circuit in 1955 Emery versus Adams for the Sixth Circuit in 1950.

So they held that even though there were substantial sales there, that they were not subject to California law.

At least, gentlemen, we find the Circuit Court’s probably in some confusion about the issues that maybe involved in this case.

Felix Frankfurter:

Of course, there — of course, different considerations enter into legislation affecting the insurance company as you well know.

Stanley Hornsby:

I’m afraid so, Mr. Justice.

Felix Frankfurter:

Well, I’m afraid it did not.

The scopes of constitutional authority are very different.

Stanley Hornsby:

I — I can see no valid reason though —

Felix Frankfurter:

The brewery — the brewery sales and insurance.

Stanley Hornsby:

I can see no valid reason why the rule should be broader in favorable of a beer manufacturer than an insurance company though, sir.

Felix Frankfurter:

(Inaudible) all before there was ever legislation governing any business, insurance business (Inaudible) brewery itself.

I don’t think it minimizes (Inaudible).

Stanley Hornsby:

[Laughs]

The other point that we would like to urge is this.

It is a– an apparent deference between the Fifth Circuit and the Second Circuit in the case of (Inaudible) versus Iowa State, decided for the Fifth Circuit in 1953.

Iowa State was doing a general mail order business in Florida.

Stanley Hornsby:

And the Florida statute is very similar to the California statute.

The Circuit Court there upheld the constitutionality of the Florida statute as such but made the, to me, very important distinction and that was that the Act could be given no effect which will impose retroactively the provisions upon the insurers having policies enforced prior to the enactment of the statute.

This distinction marks the line between due process and unauthorized state action.

Now, the theory upon which they proceeded in upholding the Act was that, if a mail order insurer wanted to go in to a State and solicit business there, that he was put on notice and charged with notice of the fact that there was a state statute that says, “If you come in here and do a mail order business, then you’re subjecting yourself to the jurisdiction of the courts of the State.”

But that — that same rule would not apply to those who had already had policies enforced in the State because they had issued the policies without any such notice.

And, of course, that is the situation that we have in the instant case.

Our sincere belief is that the minimum contacts which this respondent has had with California did not justify, holding that the California courts acquire jurisdiction on the record of those minimum contacts.

In addition, we do urge the point that even if you go so far, and it will be for the gentlemen, then you have held in any of the case that I have been able to find.

I have found no other case in which this Court or any other court has held that an out of state corporation could be subjected where they had no agent who went into the State, either through members or as investigators or in some capacity.

So that if you should so hold in this Court, you will be going further, I think, than this Court has ever gone before.

Felix Frankfurter:

Would you, yourself —

Stanley Hornsby:

Sir?

Felix Frankfurter:

Would you, yourself, extend what you’ve just said to solicitation you will add on the (Inaudible) must of the — must of the — the human enticement, must of the — the (Inaudible) talk rather than (Inaudible)?

Stanley Hornsby:

Well, Mr. Justice, I would say, at least, that there had to be solicitation in any event.

I personally — probably I’m old-fashioned enough to where I would extend at that part, sir.

But, in any event, I think that she would not be justified in extending jurisdiction unless there has been some type of solicitation and that doesn’t exist in this case.

Hugo L. Black:

Why would you consider solicitation so important?

I’m not talking here about what’s been said in the cases.

Why would you think that it’s so important?

(Inaudible)

Stanley Hornsby:

From this — from this standpoint —

Hugo L. Black:

(Inaudible)

Stanley Hornsby:

From this standpoint, Mr. Justice, the thought occurs to me that there should be some right on the part of the person of the corporation as to whether or not it is going to subject itself to the jurisdiction of a particular State under a statute such as this.

Now, then, if it goes in and voluntarily solicits, then, I think, the argument can be made, although I don’t agree with it personally and necessarily, but I think a valid argument could be made that they have elected to come within the provisions of that statute.

But if you say we’re going to put to him when there hasn’t been that contact, that, sir, I don’t think should be done.

Hugo L. Black:

(Inaudible) to keep the policy’s effect there and except —

Stanley Hornsby:

They had no —

Hugo L. Black:

(Voice Overlap)

they conference.

Stanley Hornsby:

They had no alternative, Mr. Justice.

Hugo L. Black:

What is it?

Stanley Hornsby:

Because you couldn’t just breach the contract for the man.

Now, counsel suggests that you could reinsure it with some other company.

That sounds like a very rapid quick suggestion because it’s not possible to do that.

You don’t reinsure one isolated contract with a particular company where the policy is $1 a month.

Hugo L. Black:

You mean it — it was compelled to do it if it want to make a contact (Inaudible) to make.

Stanley Hornsby:

It was a contract, I doubt very — I doubt very serious, Mr. Justice, if the company knew or considered that there was a policyholder in California.

Most of the policyholders were in Arizona where we are admitted to do business and did business.

Hugo L. Black:

Finally, gets back (Inaudible)

Stanley Hornsby:

Yes, sir.

And —

Hugo L. Black:

And — and added to that is the suggestion of Mr. Justice Frankfurter.

You claim that at a certain extent (Inaudible) if applied in this way, it has retrospective (Inaudible).

Stanley Hornsby:

That’s correct, sir.

Gentlemen, we do urge the two grounds that in the first instance, there are not sufficient contacts shown to warrant, subjecting this respondent to the jurisdiction of the California court.

And the second one, the theory of the (Inaudible) cases that the policy was issued prior to the time of the enactment of the California Act.

Thank you.

Earl Warren:

Mr. Mandell.

Arthur J. Mandell:

May it — may it please the Court.

So there maybe no misunderstanding, although I think the stipulation is very clear, the first insurance company, the Empire, issued its policy to the insured and mailed it to him in California.

It was in existence and premiums were paid from California to Arizona until 1948.

In 1948, the Empire assets and liabilities were taken over by the International of Texas.

It is — it may be, as counsel stated, that they didn’t know, International didn’t know that it was one or more insurance policies in California.

Whether it did or did not, we don’t know but certainly, it was there for them to know if they sought that they find out.

Secondly, the premiums were paid to International after they took it over until this man’s death.

Now, the —

How much premiums were paid?

Arthur J. Mandell:

There were, I believe, four or five quarterly premiums.

Now, the fact that there was only a $1 premium per month or $3 quarterly or $300 or $30,000, I see, can have no material effect on the decision of this case.

The principle is exactly the same.

Arthur J. Mandell:

As a matter of fact, the legislature of the State of California saw fit to pass this Act in order to protect the little policyholders.

That’s what it had in mind and it so states in the enabling clause of the Act.

Now, it may be that what counsel for respondent said that to pay a claim such as this and the record here is certainly, sullen of his validity or invalidity on the contrary, insofar as this Court are concerned and must assume that it was a valid claim because it comes from a judgment of competent jurisdiction and of the State of California.

There is nothing in the record except a pleading, which may suggest otherwise.

Nothing whatsoever that it’s — the claim is not valid or it has any infirmities.

Now, it maybe that by paying this claim, it may or by subjecting the California — the International to the California jurisdiction, may or may not work a hardship on the rest of the policyholders.

Let’s assume for argument sake that it might, the place for such a complaint is before the legislature of the State where the Act was passed unless the Act, in itself, is so capricious and obituary as to do violence to the Constitution.

Now —

Hugo L. Black:

Is there question that you have notice of the company as (Voice Overlap) —

Arthur J. Mandell:

No, sir, no, sir.

There is a stipulation in the record that they have received notice by registered mail of the institution of the action after notice.

So that’s why I made the point before that California, unlike Texas, is given the insurance company the right to come here and challenge the jurisdiction without subjecting itself to it.

Now — so the question now remains, as I see it, whether in this instance where one insurance policy was issued and premiums were received in one insurance policy, does that subject the — does this — this one act, take it out of the provision of the statute.

In order to answer that question, we must look at the statute itself.

The statute, and we set it out in — it set out on page 55 of the transcript of the record, sets at a reason for the statute and it says, “The legislature declares that it is a subject of concern that non admitted insurers have issued policies of insurance to residents of this State physically present herein at the time of such issuance, thus presenting to such residents the often insuperable obstacle of resorting to distant forums for the purpose of asserting legal rights under such policies, policies that have heretofore been issued.”

Then, in order to clarify and give notice to all those in interest as to what acts they are talking about on page 57 of the transcript of the record, it’s set out.

One of out of two, the solicitation of application for such contracts, three, wholly independent of number two, the collection of premiums, membership fees, assessments or under considerations for such contract.

Now, it — it’s undisputed that number — certainly, they did the act in number three.

Number four, any other transaction of business arising out of such contracts and the other transaction is the receiving of the claim, the denial of the claim.

Now, this very question of whether the validity of this process can be tested with reference to the time when the insurance certificate was issued, was answered in the negative by the Second Circuit in the Schutt case, and that is 229 F.2d 158, and it’s cited in both briefs.

But moreover, this Court, in the Travelers case said this — in Virginia versus Travelers, whether such solicitation is isolate or continuous, it is activity which Virginia can regulate.

This Court has sanctioned such provision.

Moreover, the — in New Jersey, I believe, the Boches verus Miami Air Line, 111 F.Supp.

There, the Miami Air Line, from time to time, flew over New Jersey, Orlando there and sometimes thereafter.

New Jersey passed the statute making it a minimal to process.

Miami Air Line claimed that that was a retroactive statute and therefore, it was not applicable to it.

The District Judge, Federal District Judge held, of course, like many other decision, that as long as it give the opposite party fair notice, the issuance of process was a matter of procedure and did not affect any substantive rights.

Now, in the Schutt case, which held the retroactive feature of the — of the process is no invalidity, just contrary to the Fifth Circuit.

The Second Circuit discussed what acts constitute sufficient ground to assume jurisdiction of the State of Tennessee.

Now, evidently, the State of Tennessee has passed an act exactly like the one in California.

Arthur J. Mandell:

And the Court said, “Certainly, the mailing of the premium notices and the remittance of premium payments and the submission of proofs of death constitute the doing of any act whatsoever whether interstate or intrastate in nature exactly,” as what’s done in the case at bar.

The company is at one end or the other of each of these activities and one end is in New York and the other end is in Tennessee.

The noble argument of the great number of insurance companies paid their just claims which would have any relevancy in this matter, I — I just don’t see how it could.

But historically speaking, during the last two or three years in Texas, at least, we’ve had some disastrous experiences with insurance companies.

And the kind of statement made by counsel for respondent does not fit in with the facts at Pleasanton, Texas.

And I may say this, that the Brewery case, as cited by counsel for respondent, differs with the case at bar in that in those cases, the particular State saw fit not to make — not to pass a statute covering this situation.

The statute here was passed to meet the need and for this Court to set a test or whether issuing one policy or two policy or 50 policies before they can be subjected to the provision of the Act is to make an unrealistic test and to deprive these policyholders of their rights under the law as given in their respective States.

Thank you very much.

Felix Frankfurter:

Before you sit down.

Arthur J. Mandell:

Yes, sir.

Felix Frankfurter:

I don’t know whether you have made comment or you have.

I’m sorry to have missed it but the stipulation, the last clause on page 21, isolated.

What is you comment on that?

Arthur J. Mandell:

Now, my — my interpretation of the last clause is not the one that you, Justice Frankfurter, arrived at.

Felix Frankfurter:

I haven’t derived that yet.

Arthur J. Mandell:

I — I mean suggest now.

I’m sorry.

The word we thought we said that insofar as we know the only thing that we stipulated to was that this transaction, so far as this insured is concerned, that’s all they have done.

Did they’ve done anything else, we don’t know and therefore, I don’t think it’s a negative stipulation.

Felix Frankfurter:

Now, by this transaction, you don’t mean, or do you, this type of transaction, you mean this — this thing to transaction has decreed (Inaudible)?

Arthur J. Mandell:

Franklin, the insured.

Felix Frankfurter:

Yes.

(Inaudible) there was no other — there’s no other such policyholder reinsured by the respondent, resident of California.

Is that what this mean?

Arthur J. Mandell:

I — I think, as far as we know, that is correct, sir.

Felix Frankfurter:

Well, then, why — why do you say your construction is different?

This is the only — this is an isolated case.

Arthur J. Mandell:

Well, the reason I say, sir, that your construction — your suggestive construction maybe different is that when we entered under this stipulation, we entered in a stipulation of facts we knew at that time.

All we know at that time is that they have done this things with Franklin.

And I submit, as forcefully as I know how, that that one — that number of transactions with one policyholder is sufficient —

Felix Frankfurter:

I understand that.

Arthur J. Mandell:

— to come under the Act.

Felix Frankfurter:

I — I wasn’t directing myself to the legal —

Arthur J. Mandell:

Yes.

Felix Frankfurter:

I — get —

Arthur J. Mandell:

I — I assume —

Felix Frankfurter:

It’s your position but it is the fact or I wonder whether one could read this otherwise then you have a record in which there was (Inaudible) and acknowledgement of this particular policyholder but there is allegation negatively that there was a cause of business with a lot of other policy.

Arthur J. Mandell:

That is correct, sir.

Felix Frankfurter:

That is correct.

Arthur J. Mandell:

That is correct, sir.

Yes.

Felix Frankfurter:

And at that respect, you created from Schutt or Schutt.

(Voice Overlap) —

Arthur J. Mandell:

And that — and that respect is different from Schutt but we read it by Justice Black’s statement and to Virginia case in which he says and this Court says whether such solicitation is isolate or continuous.

It is the activity which Virginia can regulate.

Felix Frankfurter:

All right.

All I meant — I wanted to — to find the issue that —

Arthur J. Mandell:

Yes, sir.

Felix Frankfurter:

To get down to — to the contention, your contention that although this statute falls on the situation in which there was but one outstanding policy related to this Texas corporation that is within the statute, as you read the statute we are —

Arthur J. Mandell:

Yes.

Felix Frankfurter:

— bound by that.

Arthur J. Mandell:

Yes.

Felix Frankfurter:

I’m not sure we are.

Are we?

Is there — is there a California ruling on that?

Arthur J. Mandell:

We —

Felix Frankfurter:

But I assumed, this whole litigation is on the assumption that the Texas statute was properly applied to this situation.

Arthur J. Mandell:

California statute.

Felix Frankfurter:

I beg your pardon.

Arthur J. Mandell:

Yes, sir.

Felix Frankfurter:

California statute.

Arthur J. Mandell:

Yes.

Felix Frankfurter:

Therefore, your — your constitutional question here is — the problem here is, assuming that the incident of this California statute is by the single policy and nothing else that it’s a valid (Inaudible) constitutional policy.

Is that right?

Arthur J. Mandell:

Whether it contravenes the principle that this Court has said in or I asked you fair play and proper notice.

That simply is the thing.

Felix Frankfurter:

(Voice Overlap) —

Arthur J. Mandell:

Thank you very much.

Hugo L. Black:

Do you think the automobile case has any (Inaudible)?

Arthur J. Mandell:

Well, I — I suppose they do except, Your Honor, that I can see where respondent may — made — made the very caution answer that somebody was physically present in the State.

Hugo L. Black:

Somebody is physically present.

Arthur J. Mandell:

Yes.

Hugo L. Black:

The consequences appeared because somebody was physically there rather than (Voice Overlap) —

Arthur J. Mandell:

I suppose that if I were —

Hugo L. Black:

(Inaudible)

Arthur J. Mandell:

I — I suppose if I were on the other side and we put (Inaudible) for an answer, that’s the answer that would come to my mind.

Hugo L. Black:

They’ve just been there once.

Arthur J. Mandell:

There were just once and they were here by mail a number of times.

Felix Frankfurter:

I — I — since you were so commendably fair in putting the answer to your problem, the result of which do not fear, the answer isn’t good enough anyhow.

I suppose another answer is you better hold currents of people going interstate.

Arthur J. Mandell:

Yes, sir.

Felix Frankfurter:

That’s a very different case.

Hugo L. Black:

You have a whole current of mail order in such (Inaudible)

Arthur J. Mandell:

It maybe many other insurance companies.

Hugo L. Black:

(Voice Overlap) —

Arthur J. Mandell:

I have never answered my case from justices before and I appreciate that very much.

Thank you.

[Laughter]