Fourteenth Amendment, Section 1:
All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
Those engaged in the insurance business 1 as well as the business itself have been peculiarly subject to supervision and control. 2 Even during the Lochner era the Court recognized that government may fix insurance rates and regulate the compensation of insurance agents, 3 and over the years the Court has upheld a wide variety of regulation. For instance, a state may impose a fine on
any person ‘who shall act in any manner in the negotiation or transaction of unlawful insurance . . . with a foreign insurance company not admitted to do business [within said State].’ 4 Or, a state may forbid life insurance companies and their agents to engage in the undertaking business and undertakers to serve as life insurance agents. 5 Further, foreign casualty and surety insurers were not deprived of due process by a Virginia law that prohibited the making of contracts of casualty or surety insurance except through registered agents, that required that such contracts applicable to persons or property in the state be countersigned by a registered local agent, and that prohibited such agents from sharing more than 50% of a commission with a nonresident broker. 6 And just as all banks may be required to contribute to a depositors’ guaranty fund, so may automobile liability insurers be required to submit to the equitable apportionment among them of applicants who are in good faith entitled to, but are financially unable to, procure such insurance through ordinary methods. 7
However, the Court has discerned some limitations to such regulations. A statute that prohibited the insured from contracting directly with a marine insurance company outside the state for coverage of property within the state was held invalid as a deprivation of liberty without due process of law. 8 For the same reason, the Court held, a state may not prevent a citizen from concluding a policy loan agreement with a foreign life insurance company at its home office whereby the policy on his life is pledged as collateral security for a cash loan to become due upon default in payment of premiums, in which case the entire policy reserve might be applied to discharge the indebtedness. Authority to subject such an agreement to the conflicting provisions of domestic law is not deducible from the power of a state to license a foreign insurance company as a condition of its doing business therein. 9
A stipulation that policies of hail insurance shall take effect and become binding twenty-four hours after the hour in which an application is taken and further requiring notice by telegram of rejection of an application was upheld. 10 No unconstitutional restraint was imposed upon the liberty of contract of surety companies by a statute providing that, after enactment, any bond executed for the faithful performance of a building contract shall inure to the benefit of material men and laborers, notwithstanding any provision of the bond to the contrary. 11 Likewise constitutional was a law requiring that a motor vehicle liability policy shall provide that bankruptcy of the insured does not release the insurer from liability to an injured person. 12 There also is no denial of due process for a state to require that casualty companies, in case of total loss, pay the total amount for which the property was insured, less depreciation between the time of issuing the policy and the time of the loss, rather than the actual cash value of the property at the time of loss. 13
Moreover, even though it had its attorney-in-fact located in Illinois, signed all its contracts there, and forwarded from there all checks in payment of losses, a reciprocal insurance association covering real property located in New York could be compelled to comply with New York regulations that required maintenance of an office in that state and the countersigning of policies by an agent resident therein. 14 Also, to discourage monopolies and to encourage rate competition, a state constitutionally may impose on all fire insurance companies connected with a tariff association fixing rates a liability or penalty to be collected by the insured of 25% in excess of actual loss or damage, stipulations in the insurance contract to the contrary notwithstanding. 15
A state statute by which a life insurance company, if it fails to pay upon demand the amount due under a policy after death of the insured, is made liable in addition for fixed damages, reasonable in amount, and for a reasonable attorney’s fee is not unconstitutional even though payment is resisted in good faith and upon reasonable grounds. 16 It is also proper by law to cut off a defense by a life insurance company based on false and fraudulent statements in the application, unless the matter misrepresented actually contributed to the death of the insured. 17 A provision that suicide, unless contemplated when the application for a policy was made, shall be no defense is equally valid. 18 When a cooperative life insurance association is reorganized so as to permit it to do a life insurance business of every kind, policyholders are not deprived of their property without due process of law. 19 Similarly, when the method of liquidation provided by a plan of rehabilitation of a mutual life insurance company is as favorable to dissenting policyholders as would have been the sale of assets and pro rata distribution to all creditors, the dissenters are unable to show any taking without due process. Dissenting policyholders have no constitutional right to a particular form of remedy. 20