The President

Our next speaker is not a stranger to all of us. He has lived in Cincinnati for a number of years, following the practice of law and adjustment of losses. He is now living in Denver as a General Adjuster.. I have the pleasure of introducing Mr. Sylvester G. Williams, General Adjuster.

MR. PRESIDENT AND GENTLEMEN OF THE FIRE UNDERWRITERS' ASSOCIATION OF THE NORTHWEST:

Bernardin de St. Pierre has united the names of Paul and Virginia in a story so beautiful and touching that we naturally anticipate in any association of these names some dramatic incident with a pathetic sequel. We are not unprepared, therefore, to find in the version of Paul and Virginia, as told by that entertaining and romantic historian, Mr. Wallace, in the eighth volume of his United States Reports, a story which has become a classic in the literature of Insurance, a pathetic tale over which generations of insurance companies have wept bitterly.

Familiar as the story may be to many of you, I have thought that some of its details might be repeated without weariness, as we never grow altogether tired of a good thing, and this story is one of the best that Mr. Wallace has given us.

An act of the legislature of Virginia, February 3, 1866, provided that no insurance company, not incorporated under the laws of Virginia, should carry on its business within that State without previously obtaining a license for the purpose, and that it should not receive such license until it had deposited with the treasurer of the State bonds of a specified kind and amount. A subsequent act declared that no per

son should" without a license, authorized by law, act as agent for any foreign insurance company," under a prescribed penalty, and that every person offering to issue, or making any contract or policy of insurance for any company created or incorporated elsewhere than in the State, should be regarded as an agent of a foreign insurance company.

The reporter of the now celebrated case which forms the subject of this paper, says that "in May, 1866, Samuel Paul, a resident of the

State of Virginia, was appointed the agent of several insurance companies incorporated in the State of New York to carry on the general business of insurance against fire." And, in the usually interesting and graphic style of the court historian, we are told that Paul, in pursuance of the law, filed with the Auditor of Public Accounts his authority from the companies to act as their agent. He then applied to the proper officer of the district for a license to act as such agent, offering to comply with all the requirements of the statute except the provision requiring a deposit of bonds with the treasurer of the State, and the production to the officer of the treasurer's receipt.

The mild old district official to whom he applied, and with whom now rested the destinies of a thousand corporations and many score of insurance superintendents of generations yet unborn, placed his goldrimmed spectacles back upon his shining bald head and looked at Mr. Paul with a look of ineffable sadness and surprise. He had not yet outgrown the doctrines of his youth and early manhood relating to the sovereign power of the Old Dominion. Yet, very recent events had conspired to awaken in his soul the fearful suggestion that possibly the State of Virginia had, after all, no rights that a Yankee corporation was bound to respect. But with trembling fealty to the State he most loved and whose interests he had sworn to protect, the gallant old survivor of a much-abused doctrine of State's rights dismissed Samuel Paul with a shake of his venerable head.

Paul, however, was a reconstructionist, if not a revolutionist; if not an adjuster, he was a re-adjuster, or at least he was subservient to the behests of the Yankee corporations; and he "undertook," says the historian, “to act in the State as agent for the New York companies without any license,” and did, in one instance at least, issue a policy in their name to a citizen of Virginia.

For this violation of the statute he was indicted, and convicted in the Circuit Court of the City of Petersburg, and was sentenced to pay a fine of fifty dollars.

In

Then Paul arose and went up to the City of Washington, where he appealed to the sympathies of the great court there in session. substance he alleged that the rights of the corporation which he represented had been infringed in two respects: first, under that clause of the Federal Constitution which provides that "the citizens of each State shall be entitled to all the privileges and immunities of citizens of the several States;" and, again, under that clause giving to Congress

power "to regulate commerce with foreign nations and among the several States."

Arguments having been presented, Mr. Justice Field, delivering the opinion of the court, said:

The term citizen, as there [in the Constitution] used, applies only to natural persons, members of the body politic, owing allegiance to the State, not to artificial persons created by the legislature and possessing only the attributes which the legislature has prescribed.

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The privileges and immunities secured to the citizens of each State in the several States by the clause in question, are those which are common to the citizens in the latter States under their constitution and laws by virtue of their being citizens. Special privileges enjoyed by citizens in their own States must be enjoyed at home, unless the assent of other States to their enjoyment therein be given. A grant of corporate existence is a grant of special privileges to the corporators, enabling them to act for certain purposes as an individual and exempting them (unless otherwise specially provided) from individual liability. The corporation must dwell in the place of its creation, and cannot migrate to another sovereignty (Bank of Augusta vs. Earle). Having no absolute right of recognition in other States, but depending for such recognition and the enforcement of its contracts upon their assent, it follows, as a matter of course, that such assent may be granted upon such terms and conditions as those States may think proper to impose.

Proceeding to the second objection urged to the validity of the Virginia statute, as in violation of the commercial clause of the Constitution, the court said that although the language of the Constitution "is general, and includes alike commerce by individuals, partnerships, associations and corporations," nevertheless" issuing a policy of insurance is not a transaction of commerce. Policies of insurance are simple contracts of indemnity against loss by fire," and "not articles. of commerce in any proper meaning of the word. They are not subjects of barter and trade offered in the market as something having an existence and value independent of the parties to them. They are not commodities to be shipped or forwarded from one State to another and there put up for sale. Such contracts are not interstate transactions, though the parties may be domiciled in different States. They are local transactions, and are governed by

the local law."

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It being thus decided that within the meaning of the Federal Constitution a corporation is not a citizen, and issuing a policy of insurance is not a transaction of commerce, Paul returned to the bosom of his fair Virginia and made his peace with her by paying the penalty which had been imposed.

I.

THE RELATIONS OF FOREIGN CORPORATIONS TO THE STATE.

In regard to the proposition that a corporation is not entitled to the privileges and immunities of a citizen in the several States, the point was quite fully decided in the earlier case of the Bank of Augusta vs. Earle, and reiterated in the case of Ducate vs. The City of Chicago (10 Wall., 470), the authority of which has been followed in many subsequent cases.

In the latter case the court said:

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The power of the State to discriminate between her own domestic corporations and those of other States desirous of transacting business within her jurisdiction, is clearly established. As to the nature or degree of discrimination, it belongs to the State to determine, subject only to such limitations on her sovereignty as may be found in the fundamental law of the Union.

By the

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Law of comity obtaining among the States a corporation of one State may exercise within any other State the general powers conferred by its own charter, unless it is prohibited from so doing either in the direct enactments of the latter State, or by its public policy deduced from the general course of its legislation, or from the settled adjudications of its highest courts (101 U. S., 352).

It must be clear, however, that the prohibitions sought to be enforced do exist in one or the other of the forms stated, otherwise the rule of comity will prevail. But where a State has clearly declared its withdrawal from the comity of States, foreign corporations must, if required, be literally born again before they can enter into that State for the transaction of business.

Nor does a license to a foreign corporation to enter a State involve a permanent right to remain (94 U. S., 535). The State may revoke the license in its discretion, for good cause or without cause. The motive or intention of the State in so doing is not open to enquiry" (Ib.). But the Federal courts, looking to the citizenship of the stockholders for the purposes of jurisdiction, will not permit their jurisdiction to be ousted over controversies to which foreign corporations are parties, when that jurisdiction has been invoked. While, however, a State cannot, by statute, prevent a foreign corporation transferring a suit from a State court to the Federal courts, it may lawfully revoke its license for so doing.

The various limitations imposed by State statutes upon insurance

companies are quite familiar. They may include obtaining a license; recording articles of association; disclosing the nature and objects of the corporation; publication of statements; appointment of agents to receive service of process; submission to examination of the corporate business; agreement not to transfer suits to the Federal courts; deposit of funds with the State, and, in some instances, prohibit compacts and combinations for maintaining rates of premium.

These statutes are classed with the police laws of the State. They are designed primarily to protect the interests of the citizens of the State and not, unless expressly so declared, to render acts done before compliance void or unenforceable. In some of the States, however, compliance is held to be a condition precedent to the validity of acts done within the State. In such cases, premium notes taken before compliance cannot be recovered upon, nor can premiums collected by an agent, and sureties upon an agent's bond are not bound. Otherwise, when compliance is not held to be a condition precedent. In some jurisdictions (Indiana and Vermont) contracts have been held valid as against but not in favor of a non-complying company. In others this view has been questioned. In one case, at least (in Indiana), it has been held that the policy of a non-resident, non-complying company is not "other insurance" within the meaning of the clause in the policy of another, a domestic company, forbidding other insurance.

In the absence of evidence compliance with the statutes will be presumed (8 A. & E. E., 346).

Doing a single act is not "carrying on business;" and so, among other things, the adjustment of a loss by an uncertified agent has been held in New York not to be within the prohibition of a statute forbidding non-State companies to carry on business in the State (44 Hun., N. Y., 8-348).

But statutes imposing limitations upon the corporations of other States are subject to the constitutional limits upon the power of the States, and must recognize principles of natural justice (8 A. & E. E., 338). The State cannot enact any law impairing the obligation of contracts even as to foreign corporations, and the protection of property, the right to a hearing in the courts, freedom from attachment without due process of law, are guaranteed to such corporations by the Federal Constitution as fully as to citizens in their individual capacity (Ib., 365).

While retaliatory legislation has been held in a number of the States and by the United States Supreme Court, to be constitutional,