INSURANCE ADVOCATE.

• Position: LOOKING BACK

THE INSURANCE ADVOCATE HAS BEEN IN PUBLICATION SINCE 1889. EACH ISSUE, WE LOOK BACK TO A DIFFERENT TIME TO SEE WHAT INSURERS WERE READING ABOUT BACK THEN.

1946

Statutory Regulation of Commissions

This editorial is one of a series on the subject of agents' and brokers' commissions which has aroused countrywide interest. Reserve copies of the issues in which previous editorials appeared have long ago been exhausted, and, in order to satisfy the many calls upon us, we are distributing the editorials in reprint form. Copies may be had on request.

That landmark in the law established by the decision of the United States Supreme Court in the O'Gorman and Young, Inc. cases on January 5, 1931, promises to become of real concern to agents, brokers and company executives. Remember that the rating bills approved by the National Association of Insurance Commissioners provide that in the making of rates "consideration shall be given to the past and prospective loss and expense experience... ." We italicize the word "expense" in order to emphasize its pregnant meaning in the proposed bills.

The rating bills proposed by the All-Industry Committee omit the word "expense." And with very good reason. But with state rating laws--such as New Jersey enacted two years ago containing the words "expense elements"--who knows how soon the business as a whole, either through state or federal rating laws, will face regulation of all expense factors? And when that time comes--as it is already present in the case of the Massachusetts Compulsory Automobile Liability Security Act--agents' and brokers' commissions will be a prime subject for Commissioners to dally with.

The late Mr. Justice Brandeis, speaking for the Supreme Court, stated that the subject was "clearly within the scope of the police power." The text of the majority opinion voiced by him in the poorly prepared O'Gorman and Young cases appeared in our issue of December 1, 1945 together with some comments of my own. I stated then that the phases of the commission problem which the Court failed to examine shine through the dissenting Opinion of Associate Justices Van Devanter, McReynolds, Sutherland and Butler. And I believe that the text of their separate opinion which appears below will bear me out.

The pity is that theirs was not the majority opinion of the Court's five to four decision. And now that the texts of both opinions are before us as background, I'll try to show in future issues not only why the New Jersey commission act might have been declared invalid, but also how similar enactments should be attacked.

-C. S. R.

THE SEPARATE OPINION OF ASSOCIATE JUSTICES VAN DEVANTER, McREYNOLDS, SUTHERLAND AND BUTLER IN THE O'GORMAN AND YOUNG CASES

We are of opinion that the judgments below should be reversed.

The Appellees (defendants below) are separate fire insurance companies. The facts are not in dispute; both records present like circumstances and questions of law. It will suffice here to point out the essentials disclosed in No. 12.

O'Gorman and Young, a New Jersey corporation, under proper license transacts business as an insurance broker. For many years it has been the agent of appellee, a Connecticut corporation authorized to issue fire policies in New Jersey. Prior to March 29, 1928, the agreement of employment provided that for negotiating and selling such policies the agent should receive 25% of prescribed premiums. On that day the original contract was changed and now it provides that the agent shall be paid "what such services were reasonably worth."

Acting under this modified arrangement, O'Gorman and Young negotiated and sold policies upon which the premiums amounted to $2,454.61. As reasonable compensation, demand was made for $613.68--25% of the premiums. The Insurance Company paid $490.92, 20%, and denied further liability.

Thereupon (October, 1928), asserting that its services were reasonably worth 25% of the premiums, O'Gorman and Young brought an action against the Insurance Company in the Circuit Court, Essex County, New Jersey to recover $122.76. The complaint sets out the foregoing facts and asks for judgment; it says nothing concerning any New Jersey statute.

The answer admits the allegations of the complaint except "defendant denies that it owes the plaintiff the sum of $122.76 as in said complaint alleged for the reasons hereinafter in this answer set forth." They are set out in the three paragraphs immediately below.

Chapter 128, Act of the New Jersey Legislature approved March 29, 1928, provides (Section 1)--"In order that rates for insurance against the hazards of fire shall be reasonable it shall be unlawful for any such insurer licensed in this State to directly or indirectly pay or...