State Board of Insurance v. Todd Shipyards Corporation – Oral Argument – March 21, 1962 (Part 1)

Media for State Board of Insurance v. Todd Shipyards Corporation

Audio Transcription for Oral Argument – March 21, 1962 (Part 2) in State Board of Insurance v. Todd Shipyards Corporation

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Earl Warren:

Number 144, State Board of Insurance et al., Petitioners, versus Todd Shipyards Corporation.

Mr. Shannon.

Bob E. Shannon:

May it please the Court.

This Court grants certiorari to the Third Court of Civil Appeals in Texas back in October of 1961.

That Court of Civil Appeals had held a provision of the Texas Insurance Code invalid as a violation of the Due Process Clause of Federal Constitution.

That provision is Section 2 (e) of Article 2138 of the Insurance Code.

This provision simply lays a 5% tax upon the premiums paid by a person owning taxes risks who insures those taxes risks with unauthorized insurance companies.

Now, an unauthorized insurance company is simply a company not licensed to do business in Texas.

The respondent here contracted for an unauthorized insurance outside the State of Texas, paid the tax under protest and brought suit in the District Court of Travis County to recover the payments of these taxes.

The Travis County Court held that the respondent should recover, the State been appealed to the Court of Civil Appeals sitting in Austin and as stated, that court held on the basis of the Allgeyer holding in the St. Louis Cotton Compress holding that it was a violation of federal due process.

Then the State applied to the Texas Supreme Court for an application for writ of error.

The Texas Supreme Court refused to grant the application and in a per curiam opinion noted that it refused to do so because of a holding of this Court in the Allgeyer case and in the St. Louis Cotton Compress case.

The question presented to this Court is whether or not Texas may regulate a licensed — a corporation which is licensed to do business in Texas, who is insuring Texas property at risks with an unauthorized company when the formalities of the contract were made outside Texas.

The statement of facts were primarily stipulated in the trial court and I may simply and I believe rather rapidly cover them.

The respondent is a foreign corporation, a New York Corporation in fact but it has done business in Texas since 1934.

It owns property and his plants in Galveston and Houston Texas.

This property is by — it’s somewhere in the neighborhood of $900,000.

At these plants, it employs about 1500 people.

In fact, the total volume of business of the respondent amounts to about 27%.

That is done in Texas over its overall operations over the country.

Now, on this property, certain insurance and on these other risks, certain insurance was purchased with these unauthorized companies in New York.

Now, the insurance was purchased from two English companies and it is stipulated and admitted in the record that these companies are not authorized insurance companies that they do not submit to any regulation in any form or any fashion to the Texas State Board of Insurance.

Now, as I stated a moment ago, the contracts themselves were negotiated for, premiums were paid, the contracts were made outside of Texas and New York.

In fact, in the contracts themselves, which appear in the record, it is stated that as between the insured, that is Todd, and as between the insurance company, it could be considered that the contracts were made in New York.

And one from this brief resume of facts, there are several points which could — the petitioner feels that are important and would like to bring to attention of this Court.

One that — that Todd is a foreign company but it has licensed itself to do business in Texas since 1934.

And that Todd did purchase the insurance from unauthorized companies that the tax in question, Section 2 (e), places the tax on the insured, that is, the people who are buying the insurance and add up on the insurance company which admittedly has not submitted itself to the regulation by Texas.

At this time, I think it — it’s important that the Section 2 (e) or of Article 2138 be briefly examined and the purpose of the background of statute going into.

Petitioners feel that the purpose of the tax in question is primarily regulatory.

It is helpful in understanding the tax to know something about the background of insurance regulation in Texas to see where this particular tax fits into regulatory scheme.

Bob E. Shannon:

Prior to 1876, there was no insurance regulation in Texas.

Unfortunately, the era is well-known as one in which the insurance business did frankly what it was — what it wished to do and there were situations for a frequent failures, financial failures by the insurance company.

In many cases in that period, the officials of the insurance companies conducted themselves more or less for — and conducted the companies more or less for their own benefit rather than for the benefit of stockholders of the companies or for the policy holders of the company.

In this period also, it was problem of discriminatory rates between certain insured companies and insurers.

Earl Warren:

What was that period did you say Mr. Shannon?

Bob E. Shannon:

Mr. Justice, prior to 1876, prior to any state regulation —

Earl Warren:

Yes.

Bob E. Shannon:

— by the Board.

In 1876, the legislature did pass an act setting up a state department of insurance and from that date, down to the present, it has passed various laws which comprehensively regulate the whole of the insurance business in Texas.

The present regulatory bodies called the State Board of Insurance and they exercise, as I say, a fairly comprehensive control over the insurance done by licensed companies in the State.

A few examples of the kinds of regulations which were imposed by the State Board or the fact that minimum capital and surplus are required to be met, that the company’s license do business in Texas come into Texas and submit themselves to examination by examiner by the State Board of Insurance that these companies submit annual statements of their financial condition, that a certain kinds of insurance rates are prescribed by the Board and other kinds of insurance policy forms are even prescribed on the Board.

Now, these regulations are few and these among many others set a minimum standard of performance for insurance companies which operate lawfully in Texas.

John M. Harlan II:

Did the respondent here paid the tax, large — that have gone into Texas, in fact the charge content with Todd.

Bob E. Shannon:

If he paid the tax Your Honor?

John M. Harlan II:

Yes, this — if Todd had paid the tax.

Bob E. Shannon:

Todd did pay the tax Your Honor on protest.

John M. Harlan II:

And yes, I know but assuming that Todd — assuming that you prevail in this lawsuit as far as Texas is concerned, Lloyd can write insurance in there with anybody who was going to pay 5% tax.

Bob E. Shannon:

Through certain — through certain agencies Your Honor, through Article 21, its various sections within the act to setup special licensing agency.

John M. Harlan II:

I understand, yes but as far as that’s given compliance in — in those respects, Lloyd’s can go ahead and write to its heart’s content.

Bob E. Shannon:

That’s true Your Honor —

John M. Harlan II:

How do — what my question is how does this regulate law that’s why I can’t understand?

Bob E. Shannon:

Alright, Your Honor, it actually has no regulation directly on Lloyd’s of London.

Actually, it tends to end the encouragement to persons owning risks in Texas from going outside the companies which are licensed in Texas to purchase insurance because of placing a tax on these transactions.

John M. Harlan II:

They’re making it tougher to the out of state company to come in.

Bob E. Shannon:

In effect, yes.

As I have stated a moment ago, the purpose of the tax is primarily regulatory and this is revealed in the first section of 21-2038 which is the purpose clause and stated as follows, The legislature declares that it is the subject and concern that the placing of such direct lines of insurance with an unauthorized insurance companies is not properly regulated.

As I stated a moment ago, 2138 does several things.

In Section 2 — or subsection (a), (b), (c), and (d), it sets up a means by which persons owning risks in Texas may purchase insurance from unauthorized companies if they will go through specially licensed agents.

Now, these agents on under certain categories and they — they must pass certain — certain test before they can provide this sort of insurance.

Also, the agent pays a 5% tax upon the gross premiums taken upon these transactions.

Bob E. Shannon:

And Section 2 (e) which is under consideration before this Court, the — is in effect a tax which is used as a regulation to — as Mr. Justice said a moment ago to in effect, lessen the advantage of these — of Texas people owning Texas risks to go outside the state and purchase insurance from unauthorized companies.

Now, under the tax — under the tax, it is the person purchasing the insurance that pays the tax and not the insurance company.

And as I stated a moment ago, the unauthorized insurer is not one licensed by the State Board of Insurance and could be one of several kinds of insurance companies.

It could be a non-licensed insurance company of a foreign country or it could be a non-licensed insurance company of another state or for that matter, it could be a domestic company which had not complied in all respects with the regulations of State of Texas.

Now, the effect of this tax and the regulatory effect is that it lessens the advantage formally enjoyed to unauthorized insurers and that they could insure insurance property in Texas at a lower cost and could companies which would come into Texas and submit themselves to regulation by the Board.

Earl Warren:

Well, I understand that domestic corporations that do not conform to insurance laws can — can do business in the State?

Bob E. Shannon:

Not if we can find them Your Honor.

Earl Warren:

Well, I thought you said that — said that —

Bob E. Shannon:

Possibly so this —

Earl Warren:

You mean in the event that it’s found that someone has some domestic company that it’s not complied as sole insurance that the — that the purchaser must pay?

Bob E. Shannon:

Yes sir.

Earl Warren:

Yes, I see what you mean, yeah.

Bob E. Shannon:

The other effect of the regulation is that it tends to equalize the burdens of the regulatory burden among all the risks in the State prior to Section 2 (e) only those risks which were insured with authorized companies for the cost of the regulation.

However, it’s subsequent to the passage of the tax, all of these taxes risks more important because of the regulation.

As I stated a moment ago, the Court of Civil Appeals found in or based its opinion upon the Allgeyer case and the St.Louis Cotton Compress case.

These cases in effect held that a state was powerless to regulate contracts of insurance own risks within the State if the formalities of the contract were made outside the State’s borders.

It was said in those cases that this was a violation of the liberty of contract and as such was a violation of the federal due process.

Since 1897, when the Allgeyer case was decided and at later points, this case has been criticized and questioned invalid by this Court.

Specifically, in the area of labor legislation, this case had been used to curtail the power of various states to regulate working conditions within the State.

In 1949, the Linking Union against Northwestern case expressly repudiated this philosophy which curtailed the power of the State to so regulate.

I think it’s significant that each time within the last, well, 20 years that this Court has been confronted with the Allgeyer case, our President based upon the Allgeyer decisions that the Court has either overruled that President or has made distinctions which in effect avoid deciding on that case.

Some of these cases or the Osborn against Ozlin case, the Hoopeston against Cullen case.

Felix Frankfurter:

What did you say?

Bob E. Shannon:

The Travelers’ Insurance against Virginia and the Watson against Employers Casualty Company cases.

Felix Frankfurter:

I still can’t understand the issue.

Bob E. Shannon:

This approach — a new approach has been demonstrated by these cases to solve the problem of the State attempting to regulate insurance within its borders.

This approach is one of the realistic inquiries into the interest of the State which is attempting to regulate the insurance.

First of these cases and probably the most important from the standpoint of this lawsuit is the Osborn against Ozlin case which was decided in 1940 by this Court.

There, Virginia required that insurance companies which were licensed in Texas — in Virginia excuse me, and which were insuring risks in Virginia to purchase insurance to licensed agents in Virginia then it was contended in that case that this was an interference with the contracts since these contracts were admittedly made out in New York, and it was placing a burden upon the contracts that the State could not validly do.

Have the Court in that case said that simply because there are repercussions across state lines in this matter that it did not invalidate the legislation if Virginia had a definable interest in the contracts of insurance sought to be regulated.

Bob E. Shannon:

The petitioner submits to this Court that the interests of Texas and the insurance contracts here involved is certainly is — as substantial as those in Virginia in the Osborn case.There, the person sought to be regulated was in Virginia.

Here, the person regulated or taxed is in Texas.

There, the risks were located in Virginia and here, the risks are located in Texas.

John M. Harlan II:

What do you do with the St. Louis Cotton case as Mr. Justice Holmes write on them, is that identical with your situation?

Bob E. Shannon:

That’s true Your Honor and we feel that in order to hope and state, this Court would have to overrule St. Louis —

John M. Harlan II:

We would have to overrule —

Bob E. Shannon:

Compress (Voice Overlap) —

John M. Harlan II:

— I would suppose that’s the case, yes.

Bob E. Shannon:

The next case announcing this new approach in the regulatory approach is the Hoopeston against Cullen.

This case upheld the validity of New York regulation of reciprocal insurance companies.

In those — even though the contracts in those cases were made in Illinois, the premiums were made in Illinois and the attorney in fact was located in — in Illinois.

The — of course, the contention was made there based upon the Allgeyer line of principles that the State could not interfere with the making of contracts outside the state.

However, the Court said that in determining the power of state to regulate that the conceptualistic approach employed in the Allgeyer line of cases no longer was to be employed but instead recognize that a court might have a substantial — that a state might have a substantial interest in the insurance of persons located within that state or property located within that state.

The interest in the regulation could be measured by such realistic considerations as protection of the citizen involved or the protection of the State from incidents of loss.

In that case, it was much emphasized that the risks of property was located in New York, the State attempting to regulate.

In fact, the Court stated there then I quote, “There’s no more reason to bar the State from authority over the insurance of property within it and to exclude it and control of all other property interest mentioned.”

The next case that the petitioner feels important in this field is the Travelers Health Association against Virginia.

It is a jurisdiction case.

We feel that it’s important because in that case, the Allgeyer line of cases was heard before the Court and the Court refused to be bound by that group of cases.

There, the Virginia Government had issued a cease-and-desist order against certain mail order insurance activities of the Nebraska Corporation.

There, the contracts were made in Nebraska and it was maintained that since they were made in Nebraska, Virginia could not reach them.

Have the Court found that Virginia did have a power to issue the cease-and-desist order.

Felix Frankfurter:

Did I — I didn’t understand you to claim that Texas could compel the insurance to be written by a state insurance company or state licensed insurance company.

Bob E. Shannon:

No sir, Your Honor I’m not — I’m not taking that position.

Felix Frankfurter:

Now, let me ask you then this.

Could Texas pass a statute saying that this foreign corporation shall be excluded from doing business in the state until and unless it takes out insurance in the foreign — in a state regulated insurance company?

Bob E. Shannon:

Your Honor, I believe there is authority in the Osborn case which could possibly sustain the State in that contention, yes.

Felix Frankfurter:

Could — could Texas say that you can’t remove a case to the federal court if you take out insurance in the foreign insurance company?

Bob E. Shannon:

Well, I’m not so sure about that Your Honor whether we have the power.

Felix Frankfurter:

Why — why do you think those cases are more doubtful in this case if it can’t exclude the corporation that’s within it from doing business on that condition, if it can’t exclude it from going — from removing a case, the starting case in the federal court?

Felix Frankfurter:

It must be because that’s beyond the power of the state to impose such a condition and why.

What’s the difference in that in exacting a tax?

Bob E. Shannon:

I think Your Honor, the federal courts are open to all persons who wish to litigate there and have these requisite conditions in their cases.

Felix Frankfurter:

You don’t have to let him in at all, do you?

Bob E. Shannon:

Pardon me?

Felix Frankfurter:

You don’t have to let him in if you can keep him out for any reason at all.

Bob E. Shannon:

That’s right.

Felix Frankfurter:

This Court has said you can’t impose that condition, why not?

Bob E. Shannon:

Well, now Your Honor, there are certain conditions that can be laid down for foreign corporation before it can come in and if they don’t meet those conditions —

Felix Frankfurter:

That’s right.

Bob E. Shannon:

— you can exclude them.

Felix Frankfurter:

But you can’t exclude them for that reason.

You can’t exclude them — you can’t make it as a condition if they should central to the federal courts, that’s what’s called an unconstitutional condition, isn’t it?

Bob E. Shannon:

No sir, I wouldn’t — I wouldn’t say that it could make that condition.

Felix Frankfurter:

Well, then it’s not clear whether they could say you can’t — you must take out insurance from a company over which we have power of regulation, that certainly is not settled, is it?

Bob E. Shannon:

No, it’s not settled Your Honor.

Felix Frankfurter:

Would you think it’s more doubtful or less doubtful to this?

Bob E. Shannon:

I think it’s much less doubtful.

Not — not — Your Honor, are you speaking of your second hypothetical situation as referred to the cases — the case barred here?

Felix Frankfurter:

Instead of doing what Texas did here, it said outright, we have supervisory control over the insurance company that do business in their state.

We make certain exaction as to reserves, as to the percentage of — control over dividends etcetera, etcetera, investigatorial power by the commission of insurance or whatever your regulatory body is.

And therefore, we want to have that kind of control.

Now, if you think it’s doubtful whether he could do that?

Bob E. Shannon:

No sir, I’m sorry I misunderstood you a moment ago.

I think we could do that.

I think it’s constitutionally possible to acquire these — these exactions.

Felix Frankfurter:

Constitutionally — it’s constitutionally clear you think for Texas to say to a — to a resident in Texas, you must take out insurance from a company that does business here?

Bob E. Shannon:

I feel that under holding the Osborn case that the State probably could exercise that power Your Honor.

Felix Frankfurter:

Well, that isn’t quite that case, was it?

Bob E. Shannon:

Well, no, that wasn’t the case but there’s language in the Osborn — Osborn against Ozlin case that would indicate the State does have that power.

Bob E. Shannon:

The language was, I believe, that the State could preempt the field of insurance if it so wished.

If it did not, he could do less than what it could do that is —

Felix Frankfurter:

There was a language indicating that when you deal with insurance — when you deal with the insurance business long history and adjudication indicates that there’s a — if that comes so close to — to the safety and the interest of the State, you can do a good deal to control the insurance business.

Bob E. Shannon:

Yes, sir.

Felix Frankfurter:

But it’s a very different thing to — to tell a resident of Dallas or Houston or Fort Worth that if he’s going to get insurance at all, he must take it — he must take it from a local company.

Bob E. Shannon:

Well, the same considerations Your Honor would — would be involved there.

I can feel that in determinating — determining after all, you’re concerned about the residents who will take this insurance if you’re controlling the insurance company.

You’re not so much concerned about the insurance company itself.

Here, in this situation which you opposed, this is simply a way of determining that these residents of Texas would be — have insurance that at least met a certain minimum requirements.

Felix Frankfurter:

And what is Texas of interest in that, that the fellow should be protected against himself?

Bob E. Shannon:

Your Honor, I will now go into the Texas interest in the insurance contracts involved here.

One of the interests involved is the fact that the risks are located here and the cases, the Osborn case and in the Hoopeston case, both these cases emphasize — emphasized a fact that the risks were located in Texas.

Now, these risks are substantial risks.

They’re not few bales of cotton as in the Allgeyer case which were mainly shipped out and left the confines of Louisiana but these will remain in Texas for the — for the most part.

Another factor is the fact that the insured that is the respondent here is located in Texas.

In case of failure or the inability of casualty company to pay for large casualty loses, some 1500 — certain economic consequences would be sure to be felt by the State of Texas, some 1500 people would more or less be unemployed if the Todd Shipyards Corporation offices there were closed.

State agencies would be caught upon the supply relief in that situation and of course loss of purchasing power would have adverse effect on the business community in general.

Another important factor is Your Honor that the events which give rise to contractual obligation to pay on these policies will more than likely to occur in Texas.

In case of some of the insurances involved, persons compensated will be residents of Texas and they will be resorting to Texas courts more than likely unless they wish to resort to distant forums which would cause a great deal of trouble and expense.

The people having a claim under the liabilicy — liability policies here would be treated in Texas hospitals by Texas doctors and unless reimbursed by insurance may well become more of the state or dependence upon residents of Texas to take care of.

Also, the State does extend police protection to the respondent.

It makes it possible for the respondent to carry on a profitable business in Texas.

Texas, I feel also has the vital interest in the effective enforcement of its regulatory program.

As I’ve stated a moment ago prior to the passage of this act, there had been certain regulatory — certain regulatory scheme setup.

However, after the passage of — there was this gap existing, this was passed and attempt to close this as much as possible and the effect simply was that it lessen the advantage of an unauthorized insurance companies which they get previously —

Hugo L. Black:

What do you mean by lessen the advantage?

Bob E. Shannon:

Yes sir.

Hugo L. Black:

What do you mean by lessen the advantage practically?

Bob E. Shannon:

Pre — previously, Your Honor people in Texas who — who could — who owned risk in Texas could insure with unauthorized companies and the authorized companies could afford to offer him insurance for a lesser rate.

Hugo L. Black:

Why?

Bob E. Shannon:

Because he didn’t have to pay any taxes that the licensed companies didn’t have to pay.

Hugo L. Black:

Suppose — suppose Texas have called this a purchase tax, would that had made any difference?

Suppose they would have charged so much for each policy purchased by a merchant living in Texas, and apply that to a purchase or policies bought in other states?

Bob E. Shannon:

No sir, I don’t believe that would make any difference.

Felix Frankfurter:

But they have to impose the purchase tax and everybody who purchase their insurance, wouldn’t they?

Hugo L. Black:

That’s what I ask.

I said suppose they had put a purchase (Voice Overlap) —

Felix Frankfurter:

From all the (Voice Overlap) —

Hugo L. Black:

Suppose they had a claim you’re talking about now, you said that to make it compensate, put them on a level with the others, you had to put on this step.

Suppose instead of putting it in this form, Texas had put a purchase tax on every purchaser of insurance in the state, would there been any reason why it couldn’t put on this one this — this out of state company, or purchasers from it by taking it directly?

Bob E. Shannon:

No sir, I don’t think so.

Hugo L. Black:

But are you arguing if that’s in substance, what you’re doing here that you — states impose taxes on the companies that do business in Texas and then in order to compensate for it, it’s necessary to require the purchasers from non-authorized Texas company to pay this tax?

Bob E. Shannon:

Well, Your Honor we feel that the tax placed upon the domestic companies is in turned passed to the risks involved.

Here, then in that case a risk insured with the licensed company would bear a greater — a proportionate cost or in — as against a risk that was insured with an unauthorized company — no burden whatsoever until this tax was passed.

Felix Frankfurter:

I don’t see how — how getting money into the Treasury of Texas, safeguards the safety interest etcetera, etcetera.

I can understand how — I understand that Texas said, insurance is very important, it doesn’t affect merely the insured person but it affects as you indicate those people out of employment, it may — the buyer may go beyond the immediate unit etcetera, etcetera.

Therefore, we have a very strong interest or adequate interest to see to it that buyer protection is adequate, especially.

Therefore, we want to have insurance companies who can control by an oversight etcetera, etcetera.

But as much as Texas is done, Texas simply says, “We want to make money out of the person who wants to insure himself outside the state.”

Bob E. Shannon:

Your Honor, with all do deference to Your Honor’s conclusion, I feel —

Felix Frankfurter:

I have no conclusion, I’m asking a question.

Bob E. Shannon:

I feel that this is not the case.

A tax is only used as a regulatory device.

Felix Frankfurter:

Meaning how is it?

Bob E. Shannon:

Well, it places a tax upon this — this — this transaction or this — this person purchasing the insurance and that person is less likely to purchase that insurance if he’s going to have to pay this tax.

Felix Frankfurter:

I know but that’s merely of — as you say, this operates a special concept to get insured by locally regulated company.

But suppose for better or bad reasons, some big concerns and the questions referred to take insurance from companies that a resident in localize New York or in Chicago or whatnot, some of the insurance companies is in Massachusetts.

But what you’re saying is the likelihood of pressure is sufficient state — about the interest of the State and its interest of the State —

Bob E. Shannon:

That’s correct.

I feel that we have gone — we stop short that the power of the state could have exercised and we have — by this Section 2 (e) have — as Your Honor appraised, applied to pay some pressure.

Felix Frankfurter:

You haven’t cut short the use of bludgeoning tax, your result in which for one reason or another, you do not think it’s important enough to impose directly.

Bob E. Shannon:

The respondent is only one of many large from all the state concerns which tax insurance with unauthorized insurance companies.

If Section 2 (e) is struck down, many of these insurers will seek insurance elsewhere, Texas would find itself from the position of having many of its largest and most hazardous risks authorized in companies that it has no control over whatsoever.

Not only —

Felix Frankfurter:

Unless, the fact of such a statute as I’ve suggested to you.

Bob E. Shannon:

Well, we feel that the legislature —

Felix Frankfurter:

Had a choice, you think?

Bob E. Shannon:

Had a choice and it could — it may well pay such — such a statute.

And we feel that if Section 2 (e) is struck down, it will not only take long for those insurers who are now submitting a Texas regulation to realize that they can go outside the state and escape the burden of Texas regulation and still insure in Texas risks.

We feel that Texas has legitimate interest in keeping these licensed companies in Texas.

It is submitted, Your Honors, that the interest which I have outlined or ever been a substantial as those in the Osborn case or in Hoopeston case and we feel for that reason that the Court of Civil Appeals opinion should be overruled.

Co-counsel would like to reserve Mr. Chief Justice 20 minutes in rebuttal.

Earl Warren:

You may — you may Mr. –.

Mr. Vickery.

Charles R. Vickery, Jr.:

Mr. Chief Justice, may it please the Court.

From the admission of petitioner’s counsel that St. Louis Compress controls this case and in order for the State to prevail in this litigation that St. Louis Compress must be overruled.

It is at least quite clear that the parties are met today on an old and familiar constitutional battleground and that is the boundary line which separates permissible from prohibited estate taxation.

This terrain in this litigation has been examined by this Court in at least five or six different cases.

The landmarks or the benchmarks are well-established and there is no doubt that the St.Louis Compress case, the Tafoya case, the Connecticut General case, clearly controls this litigation.

But in analyzing the boundaries that have been definitively established by this Court, we must apply those boundaries to this one simple issue.

Does due process prohibit — does due process prevent the State of Texas from levying a discriminatory tax on early admitted insurance based on only one and only one possible Texas connection or Texas nexus and that is a Texas risk or its synonym Texas property.

The — in answering that issue, you are forced, immediately met with — with the question, should St. Louis Compress be overruled.

Now, the facts must be a little more minutely examined and were examined by the petitioner.

The insurance contracts were negotiated in New York.

They were delivered in New York.

They were paid for in New York.

The premium for paid for in New York.

All of the negotiations, all of the decisions is to whether to insure or not and where to insure were made in New York.

Now, that is true because Todd, the respondent is a large enterprise having shipyards and some five or six different states.

They have an insurance expert located in the City of New York.

Charles R. Vickery, Jr.:

He covers all of the — all of these marine risks and I used that as a broad terminology which he places all the marine risks, some of them under one policy for five or six different yards, yards in Texas, yards in Louisiana, yards in New Jersey, yards in New York and yards in California and yards in the State — State of Washington.

There isn’t — there is not and the State admits in this case that Texas has no connection that there is no transaction or activity by this New York corporation in the State of — of Texas that can be connected in any way with the insurance contracts or the premium payments or for that matter the losses either.

The losses if it has and when occurring are adjusted in New York between New York’s expert and the brokerage companies are authorized to do business in New York in a one capacity or another represent the London insurance.

Texas has absolutely no connection with either the contracts or with the losses.

Now, the London insurers, the London insurers are not doing business in Texas, they are not admitted to do business in Texas and these facts are all covered by stipulation that is crystal clear.

They have no agent in Texas.

They do not solicit or have any contract with the State of Texas whatsoever.

All of the insurance, negotiations and solicitation are in New York.

Lloyd is not admitted to do business in Texas and it is not doing business in Texas and its tax is not levied for the privilege or the right to do business in Texas or to obtain the privilege of doing a Texas insurance business.

The respondent is domiciled in the State of New York or it has its principal office and place of business and where it operates a shipyard.

Felix Frankfurter:

Lloyd’s could be admitted to do business in Texas, could it?

Charles R. Vickery, Jr.:

Yes sir, if it — if it complied with the various statutes.

Of course, they have not.

I would not want to speculate on why not but they’re not subject to Texas rate regulations.

They’re not subject to Texas reserve requirements.

They’re not subject to capital requirements and Texas also has some discriminatory taxation that are based on investments in the State in which they allow companies, preferential treatment if asked and when their investments in the State reach certain formulistic level.

And Lloyd’s has not subjected himself and he’s not now subjected to any state regulation.

Earl Warren:

For that matter of curiosity, do any other states have this kind of a law to your knowledge Mr. —

Charles R. Vickery, Jr.:

Yes sir, the State of Louisiana has filed a brief in this case in which they say that they have a similar statute.

Earl Warren:

Oh, yes.

Charles R. Vickery, Jr.:

The effect of their brief is that this Court held that statutes are similar statute unconstitutional in 1897 and they never have paid any attention to the holding in the Allgeyer case and that I find it to reverse it now.

They have had — they have had that statute on their book for 65 years.

They come here and say they know it’s been unconstitutional all that time but they like to make it lawful now as they could.

The State’s brief presides —

Felix Frankfurter:

Did you say that they had paid no attention to mean that the statute has not been formally repealed but it’s not been enforced to attach and enforce which?

Charles R. Vickery, Jr.:

There, I do not know.

There, amici curiae then decide.

The effect of it is if they still have such a statute and if they have — they didn’t like the Allgeyer case in the beginning then they don’t like the Allgeyer case —

Felix Frankfurter:

There are a lot of people didn’t like it.

Charles R. Vickery, Jr.:

That’s right.

Charles R. Vickery, Jr.:

But in some — but the dislikes I think are not aimed that the problem in this are not aimed that the problems in this case which I will go into in a minute.

Todd, the respondent operates to Texas ship — shipyard.

Now, this is an important point.

Todd does operate a Texas shipyard.

It does do a — a business in Texas.

Now, these cases that involve the — the jurisdictional boundaries between the State’s right to tax and where it may not rightfully tax, come up here to this Court in two basic postures.

And it’s important to make this distinction.

The State in this case has personal jurisdiction over Todd Shipyards.

Todd Shipyards is doing business in the State at which is clearly admitted.

They are now trying to extend the state’s taxing powers to the State of New York against an admitted company.

By reason of transact — by reason of its personal presence in the State, they’re trying to reach an extraterritorial or another state transaction.

Now, the case has come up here in another way.

They come up where the company like Lloyds is not in the State.

Clearly not doing business in the State and the State seeks to reach that company on the grounds of transactions within the State.

If suit were brought against Lloyds, they would be trying to reach Lloyds through a Texas transaction.

In this case, they admit the case reached Lloyds.

They admit Lloyds don’t have a Texas transaction.

They’re not trying to project their power to Lloyds.

They’re trying to take the personal jurisdiction that they have over this foreign corporation and project it to an extraterritorial transaction.

And — and those are two different postures in which the case has come up here and sometimes, the rules are not altogether harmonious unless that distinction is made between projecting from personal jurisdiction to an out of state transaction and trying to get the jurisdiction to a transaction in the state.

John M. Harlan II:

If Lloyds is in Texas, could they impose this tax on Lloyd?

Charles R. Vickery, Jr.:

If Lloyd was doing business in the state, they would be subject to the states admitted insurance tax on business done in the state, yes sir.

John M. Harlan II:

Well, how could the State since they can’t get Lloyd in their hands on Lloyds, can they make the — can they make the insurer a collection agent form?

Charles R. Vickery, Jr.:

The insurer — you mean the insured?

John M. Harlan II:

The insured, I beg your pardon.

Charles R. Vickery, Jr.:

They could if it was a Texas transaction, if it were — if the transaction is within Texas.

If they were taxing a transaction in a taxable within Texas, you’re thinking of the Scripto on similar cases.

Now, this transact — the Scripto case is — is in the second posture.

The Florida was reaching Scripto by reason of Scripto’s activities in the state.Scripto was unfair and they were reaching out to get him by reason of transactions.

It’s also patently clear in this case that when the State admits that they can’t reach Lloyds, they — they virtually admit Texas has no jurisdiction of this transaction.

Charles R. Vickery, Jr.:

If Tex — if this was a Texas insurance contract, if Texas has this vital interest that the state suggest then Lloyd would be amenable to Texas regulation and they could reach out under the Scripto in similar cases and reach Lloyds.

They take an inconsistent position when they say they — when they admit they cannot reach Lloyds and when they say but at the same time, we can tax what you do with Lloyd in New York.

If these were a Texas transaction, if Texas had this jurisdictional nexus, if they have the jurisdictional connection, they could bring Lloyds under the regulatory authority of the State of Texas.

The position of the State on their point is really inconsistent.

Now, I would like now to discuss if I may in the factual analysis the nature of the insurance and this point is vital.

This tax is laid and this tax is levied without regard to whether this insurance is available and Texas is not.

Some of this insurance, there’s nothing in the record on this factual point but some of this insurance is not available in Texas and cannot be purchased in Texas because no admitted company was right.

John M. Harlan II:

That’s true, a lot of Lloyd’s policy that’s why they’re so successful.

Charles R. Vickery, Jr.:

Yes sir, that’s true.

They’re willing to take risk and nobody else will tell you.

Earl Warren:

We’ll recess now Mr. —

Charles R. Vickery, Jr.:

Thank you.