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District Court of Appeal, Second District, Division 4, California.

The PEOPLE, Plaintiff and Appellant, v. UNITED NATIONAL LIFE INSURANCE COMPANY, Defendant and Respondent.

The PEOPLE, Plaintiff and Appellant. v. PIONEER LIFE INSURANCE COMPANY, Defendant and Respondent.

The PEOPLE, Plaintiff and appellant. v. NATIONAL LIBERTY LIFE INSURANCE COMPANY, Defendant and Respondent.

Civ. 30330–30332.

Decided: September 14, 1966

Thomas C. Lynch,m Atty. Gen., and H. Warren Siegel, Deputy Atty. Gen., for plaintiff and appellant. O'Melveny & Myers, Warren M. Christopher, William W. Vaughn, and Girard E. Boudreau, Jr., Los Angeles, for defendant and respondent National Liberty Life Ins. Co. Beardsley,. Hufstedler & Kemble, Seth M. Huftstedler and John Sobieski, Los Angeles, for defendants and respondents United Nat. Life Ins. Co. and Pioneer Life Ins. Co.

This is an appeal from three judgments of the superior court, in favor of the above three defendants, denying California the right to license and regulate defendants' activities in carrying on, from another state, mail order insurance business with residents of California.   Acting pursuant to the authority conferred by section 12928.6 of the Insurance Code, the Insurance Commissioner, sued, in the name of the People of California, to enjoin defendants from carrying on their business, as hereinafter described, unless and until they had procured a certificate of authority as provided for by section 700 of the Insurance Code.1  Defendants answered, admitting the facts as alleged by the complaint but denying the legal conclusions thereof and setting forth five affirmative defenses.   They also filed interrogatories, seeking answers to the administrative interpretation of section 700 and administrative practice thereunder.   Both plaintiff and the several defendants moved for summary judgment.   The trial court entered summary judgment for defendants, on the ground that California could not constitutionally regulate the activities involved.   For that reason, it regarded any issues as to the administrative interpretation of section 700 as being immaterial and (since the interrogatories went only to that issue) they were not required to be answered.

As presented in the briefs on this appeal, the issues requiring determination are:

(1) Does the due process clause of the federal Constitution prohibit California from regulating insurance transactions of the nature carried on by defendants herein?

(2) If California may constitutionally regulate such business without violation of the due process clause, is such regulation in conflict with any federal law preempting the field of regulation?

(3) If California is not prohibited, either by the due process or the supremacy clauses, from regulation, does section 700 of the Insurance Code, properly construed, require a certificate of authority for business of the nature carried on by defendants?


In the case of defendants Pioneer Life Insurance Company and National Liberty Life Insurance Company, the facts material to this case are as follows:  Each company is incorporated in another state and is duly licensed there to carry on the classes of insurance business in which they are engaged;  they have offices in their states of incorporation, but in no other state;  they solicit business from residents of California by sending to such residents large quantities of material, addressed to particular addressees.   This material describes and explains the policies offered, indicates the premiums required (stressing the low cost of the policies) and urging the recipient to fill out an enclosed application form and return it, together with the indicated premium, to the home office.   The policy is issued at the home office and mailed to the applicant at his California address.

The methodology of defendant United National Life Insurance Company is somewhat different.   That company, also incorporated in another state, duly licensed there, and having its sole office in its state of incorporation, solicits business from California addressees by sending to the parents of persons newly inducted into the armed services a pre-endorsed policy, together with explanatory literature and urging the parents to complete an “ownership application” and return that application, together with the prescribed premium, to the home office.   The United policies, thus already in the hands of the California resident, become effective immediately upon deposit of the application and premium in the United States mail in California.

None of the companies have offices or agents in California and they have no contact with this state except as above described.   None have applied for, or been issued, a certificate under section 700 of the Insurance Code.


In a line of decisions beginning with Paul v. State of Virginia (1869) 75 U.S. (8 Wall.) 168, 19 L.Ed. 357, it was held that insurance was not commerce.   In 1944 the Supreme Court removed the insurance business from state control by declaring such business to be interstate commerce in United States v. South–Eastern Underwriters Assn. (1944) 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440.   Congress promptly passed the McCarran Act in 1945 (15 U.S.C. §§ 1011–1015), the purpose of which was to provide for state regulation of the insurance business within limits of the due process clause.  (State Bd. of Ins. v. Todd Shipyards Corp. (1962) 370 U.S. 451, 452, 82 S.Ct. 1380, 1381–1382, 8 L.Ed.2d 620, 622.)

It is argued, however, that the McCarran Act permitted state regulation only insofar as it did not violate due process and that the concept of “due process,” for this purpose, was “frozen” in accordance with the meaning and application of that term as defined in cases decided prior to 1945.

 In a decision rendered after the case at bench was tried, the Supreme Court of Wisconsin was faced with, and decided this same contention.   (Ministers Life & Cas. Union v. Haase *1966) 30 Wis.2d 339, 141 N.W.2d 287.)   The opinion in that case analyzes and discusses the block of cases relied on by defendants for their position here, and concludes that nothing in the McCarran Act prohibits the states from regulation so long as that regulation meets the test of “due process” as now applied by the Supreme Court of the United States.   We need not extend this opinion by repeating or paraphrasing here the discussion so effectively provided by the Wisconsin court.   We find the reasoning of that case persuasive and its conclusion correct;  we follow it here.

 Applying what we understand to be the modern test—namely, that a state may regulate to protect the legitimate interests of its own citizens whenever there are sufficient contacts to cause concern we think there can be no question here but that the activities engaged in by defendants are a sufficient contact.   The persons taking out insurance are residents of California;  the applications for insurance are executed here and the premiums are paid from California funds;  in the case of United the insurance contracts are completed here;  in all cases, the only effective contact between the respondents and their customers is in California;  to the extent that disputes arise under the insurance contracts, suits will ordinarily be brought here;  if the companies are financially unsound, or if they engage in improper practices,2 the impact falls upon California residents.   Insofar as the policies solicited by mail by these defendants from California residents are concerned, California has, in fact,. more interest in the solvency and integrity of the insurers than any other state.   Its legitimate interest in regulation is apparent;  the exercise of that power is an act well within the concept of due process.


It is argued that regulation of defendants by California would invade a field already pre-empted by Congress.   A a general proposition, of course, this is an argument met by the very terms and purposes of the McCarran Act.   However, the parties discuss whether or not section 1012(b) of title 15 of the United States Code, one of the sections of the McCarran Act, by its terms pre-empts the regulation herein involved.   But that section merely makes applicable the powers of the Federal Trade Commission over deceptive mail order advertising;  it does not provide for a comprehensive regulation of, or the licensing of, the insurance business as such—that being the very matter delegated to the states by the main provisions of the Act.   We are here concerned with this general power to regulate and that is all that the present suit seeks to require.   Whether or not, when and if defendants have secured certificates under section 700, the commissioner is limited in his regulatory powers over their advertising by section 1012(b) is a matter which can be determined when and if it arises in a proper case.3


 Finally, it is argued that section 700, properly construed, does not apply to a foreign insurer conducting only a mail order business of the kind herein involved.

On its face, the statute clearly seems to be applicable.  Section 700 reads as follows:

“A person shall not transact any class of insurance business in this State without first being admitted for such class.   Such admission is secured by procuring a certificate of authority from the commissioner.   Such certificate shall not be granted until the applicant conforms to the requirements of this code and of the laws of this State prerequisite to its issue.   After such issue the holder shall continue to comply with the requirements as to its business set forth in this code and in the laws of this State.   Where a hearing is held under this section the proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the Commissioner shall have all the powers granted therein.”

As defined in section 35 of the Insurance Code, “transact” includes any of the following acts:

“(a) Solicitation.

“(b) Negotiations preliminary to execution.

“(c) Execution of a contract of insurance.

“(d) Transaction of matters subsequent to execution of the contract and arising out of it.”

Clearly, defendants “solicit” business at the time and place where their advertising material is received (Golden & Co. v. Justice's Court (1914) 23 Cal.App. 778), and defendants certainly are engaged in “negotiations preliminary to execution”;  they are, therefore, “transacting” insurance business in California.

Defendants argue, however, that, in the over thirty years that section 700 has been in force, it has never been applied to mail order insurance solicitation, and that there are administrative rulings to the effect that it does not so apply.   These contentions rest, in part at least, on matters which defendants sought to develop by the interrogatories which they proposed in the trial court and which, by stipulation, remain unanswered.   In this state of the record, we cannot properly decide whether or not such administrative construction has existed, or whether it was of such a nature as to prevent the Insurance Commissioner, now, from applying the statute.   On remand, the parties and the trial court may explore the issues raised by this contention.   We point out, for their assistance, that, insofar as any administrative construction rested not on an interpretation of our own statute but on a belief, based on authorities no longer controlling, that this state lacked constitutional power to regulate such businesses as those now before us, that construction is entitled to little, if any, weight.

 Defendants argue, also, that the Legislature has recognized that section 700 did not apply to purely “mail order” insurance business.   In support of this contention, they point to the enactment, in 1949, of sections 1610–1620 of the Insurance Code (The Unauthorized Insurers Process Act), and to the enactment, in 1961, of section 1620.1 through 1620.7 of the same code (The Unauthorized Insurers False Advertising Process Act).   We find the argument non-persuasive.   The first group of sections provide for the service of process on the Insurance Commissioner, permit the mail order insurer to appear and defend on posting a bond, and make other provisions for the conduct of suits so commenced and defended.   But those sections were enacted at a time when the implications of International Shoe Co. v. State of Washington *1945) 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, were just beginning to be explored and when it was still questionable whether or not the laws of this state, dealing with service of process, applied to the full extent of permissible constitutional power.   The latter point certainly was not clear before the decisions in Henry R. Jahn & Son, Inc. v. Superior Court, 49 Cal.2d 855, 323 P.2d 437 decided in 1958, and Cosper v. Smith & Wesson Arms Co., 53 Cal.2d 77, 346 P.2d 409, decided in 1959.   Under these circumstances, the enactment of sections 1610 et seq. implies no more than an intent on the part of the Legislature to make clear that, at least as to one aggravated form of the whole problem of suits against foreign corporations,4 it wanted to go as far as it constitutionally could.5

 Defendants point to the provision in section 1616, whereby a “mail order” insurer, sued under the provisions of the Unauthorized Insurers Process Act, may appear and defend, without securing a certificate from the Commissioner, but merely by posting a bond in the particular suit.   They argue that the Legislature must, thereby, have indicated a belief that such an insurer had lawfully sold the policy sued on without having complied with section 700.   We read no such implication into the section.   The fact that such policies had been and would thereafter be sold—whether legally or illegally—was a known fact.   It is a practical impossibility for a foreign insurer to comply with section 700 after suit is brought and before its time to answer would expire.   Assuming the (at best doubtful) power of the state to default an uncertificated insurer absolutely, that would be a most extreme device to enforce local regulation.   We can read into section 1616 no more than a willingness of this state to permit a legitimate defense to individual actions even by insurers who had not met our regulatory requirements, leaving the enforcement of such requirements to other sanctions.

We find the argument based on section 1620.1 through 1620.7 to be no more persuasive.   The McCarran Act had expressly preserved the power of the Federal Trade Commission over false and deceptive advertising “to the extent that such business is not regulated by State Law.”  (15 U.S.C. § 1012(b).)  In two cases, the United States Supreme Court had cast doubt on the effectiveness of state regulation to oust this federal power where the state law did not expressly apply to an out-of-state insurer.  (Federal Trade Com. v. National Cas. Co. (1958) 357 U.S. 560, 78 S.Ct. 1260, 2 L.Ed.2d 1540;  Federal Trade Com. v. Travelers Health Ass;n (1960) 362 U.S. 293, 80 S.Ct. 717, 4 L.Ed.2d 724.)   Again we can see no more than the expressed purpose to make crystal clear that this state was, in fact and in law, engaged in the specific kind of regulation to which the McCarran Act referred.6

The judgments are reversed;  the cases are remanded to the trial court for further proceedings not inconsistent with this opinion.


1.   Since defendants had no agents in California, service was made on the Secretary of State.   No objection to the mode of service was made and it is not contended that defendants were not subject to suit in California.

2.   It is not contended that any of these defendants do, in fact, engage in deceptive or fraudulent advertising or that they are financially unsound.   But the power to regulate does not turn on whether or not any particular licensee, in fact, currently, violates regulatory standards;  the regulations are preventative in nature.

3.   The regulation of false advertising turns not only on an interpretation of section 1012(b) of title 15, but on the constitutionality and interpretation of sections 1620.1 through 1620.7 of our Insurance Code, to which we advert at a later point in this opinion.

4.   Consult, for example, Horowitz, Bases of Jurisdiction of California Courts To Render Judgments Against Foreign Corporations and Non–Resident Individuals (1958) 31 So.Cal.L.Rev. 339.

5.   Sections 1610–1620 of the Insurance Code were added by chapter 495, Statutes of 1949.   Section 1 of that act declares the legislative purpose as follows:“The purpose of this act is to subject certain insurers to the jurisdiction of courts of this State in suits by or on behalf of insured or beneficiaries under insurance contracts.   The Legislature declares that it is a subject of concern that nonadmitted 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;  that this State has an interest in providing to its residents as convenient forum for the purpose of asserting and enforcing legal rights under such policies;  that if such residents are left to seek remedy in distant forums they will be, for practical purposes, without remedy.   In furtherance of such state interest, the Legislature herein provides a method of substituted service of process upon such insurers and declares that in so doing it exercises its power to protect its residents and to define, for the purpose of this statute, what constitutes doing business in this State, and also exercises powers and privileges available to the State by virtue of Public Law 15, 79th Congress of the United States, Chapter 20, First Session, S.340, as amended, which declares that the business of insurance and every person engaged therein shall be subject to the laws of the several states.”

6.   Section 1620.1 sets forth the Legislature's declaration of purpose as follows:“(a) The purpose of this article is to subject to the jurisdiction of the commissioner and to the jurisdiction of the courts of this State, insurers not authorized to transact business in this State which place in or send into this State any false advertising designed to induce residents of this State to purchase insurance from insurers not authorized to transact business in this State.   The Legislature declares it is in the interest of the citizens of this State who purchase insurance from insurers which solicit insurance business in this State in the manner set forth in the preceding sentence that such insurers be subject to the provisions of this article.   In furtherance of such state interest, the Legislature in this article provides a method of substituted service of process upon such insurers and declares that in so doing, it exercises its power to protect its residents and also exercises powers and privileges available to the State by virtue of Public Law 15, 79th Congress of the United States, Chapter 20, 1st Session, S.340, which declares that the business of insurance and every person engaged therein shall be subject to the laws of the several states;  the authority provided in such sections to be in addition to any existing powers of this State.”

KINGLEY, Justice.

FILES, P.J., and JEFFERSON, J., concur.

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