Hooper v. California/Opinion of the Court
The principle that the right of a foreign corporation to engage in business within a state other than that of its creation depends solely upon the will of such other state has been long settled, and many phases of its application have been illustrated by the decisions of this court. Bank v. Earle, 13 Pet. 519; Insurance Co. v. French, 18 How. 404; Society v. Coite, 6 Wall. 594; Provident Institution v. Massachusetts, Id. 611; Hamilton Co. v. Massachusetts, Id. 632; Paul v. Virginia, 8 Wall. 168; Ducat v. Chicago, 10 Wall. 410; State Tax on Railway Gross Receipts, 15 Wall. 284; Pailroad Co. v. Peniston, 18 Wall. 5; Delaware Railroad Tax Case, Id. 206; State Railroad Tax Cases, 92 U.S. 575; Philadelphia & S. S. S.C.o. v. Pennsylvania, 122 U.S. 326, 7 Sup. Ct. 1118; California v. Southern Pac. R. Co., 127 U.S. 1, 8 Sup. Ct. 1073; Home Ins. Co. v. New York, 134 U.S. 594, 10 Sup. Ct. 593; Maine v. Grand Trunk R. Co., 142 U.S. 217, 12 Sup. Ct. 121, 163; Ashley v. Ryan, 153 U.S. 445, 14 Sup. Ct. 865.

While there are exceptions to this rule, they embrace only cases where a corporation created by one state rests its right to enter another and to engage in business therein upon the federal nature of its business,-as, for instance, where it had derived its being from an act of congress, and has become a lawful agency for the performance of governmental or quasi governmental functions, or where it is necessarily an instrumentality of interstate commerce, or its business constitutes such commerce, and is, therefore, solely within the paramount authority of congress. In these cases the exceptional business is protected against interference by state authority. The reasons upon which the exceptions to the general rule are based have been often explained. Telegraph Co. v. Texas, 105 U.S. 460; Gloucester Ferry Co. v. Pennsylvania, 114 U.S. 196, 205, 211, 5 Sup. Ct. 826; Philadelphia & S. S. S.C.o. v. Pennsylvania, 122 U.S. 326, 342, 7 Sup. Ct. 1118; McCall v. California, 136 U.S. 104, 110, 10 Sup. Ct. 881; Norfolk & W. R. Co. v. Pennsylvania, 136 U.S. 114, 118, 10 Sup. Ct. 958; Pickard v. Car Co., 117 U.S. 34, 6 Sup. Ct. 635; Robbins v. Taxing Dist., 120 U.S. 489, 7 Sup. Ct. 592; Leloup v. Port of Mobile, 127 U.S. 640, 8 Sup. Ct. 1380; Asher v. Texas, 128 U.S. 129, 9 Sup. Ct. 1; Stoutenburgh v. Hennick, 129 U.S. 141, 9 Sup. Ct. 256; Crutcher v. Kentucky, 141 U.S. 47, 11 Sup. Ct. 851.

In the case last cited the precedents were fully reviewed, and the governing reasons of the law upon this subject were clearly elucidated.

The contention here is that, inasmuch as the contract was one for marine insurance, it was a matter of interstate commerce, and as such beyond the reach of state authority, and included among the exceptions to the general rule. This proposition involves an erroneous conception of what constitutes interstate commerce. That the business of insurance does not generically appertain to such commerce has been settled since the case of Paul v. Virginia, supra. See, also, Philadelphia Fire Ass'n v. New York, 119 U.S. 110, 7 Sup. Ct. 108, and authorities there cited.

While it is true that in Paul v. Virginia, and in most of the cases in which it has been followed, the particular contract under consideration was for insurance against fire, the principle upon which these cases were decided involved the question of whether a contract of insurance of any kind constituted interstate commerce. The court, in reaching its conclusion upon this question, was not concerned with any matter of distinction between marine and fire insurance, but proceeded upon a broad analysis of the nature of interstate commerce, and of the relation which insurance contracts generally bear thereto. Thus, in Paul v. Virginia, the court, speaking through Mr. Justice Field, said: 'Issuing a policy of insurance is not a transaction of commerce. The policies are simply contracts of indemnity against loss by fire, entered into between the corporations and the assured, for a consideration paid by the latter. These contracts are not articles of commerce in any proper meaning of the word. They are not subjects of trade and barter, 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 then put up for sale. They are like other personal contracts between parties, which are completed by their signature and the transfer of the consideration. Such contracts are not interstate transactions, though the parties may be domiciled in different states. The policies do not take effect-are not executed contracts-until delivered by the agent in Virginia. They are, then, local transactions, and are governed by the local law. They do not constitute a part of the commerce between the states any more than a contract for the purchase and sale of goods in Virginia by a citizen of New York whilst in Virginia would constitute a portion of such commerce.'

This language was reiterated in the case of Philadelphia Fire Ass'n v. New York, supra. In Crutcher v. Kentucky, supra, the court, in applying the exception to the general rule, held that the state of Kentucky was without power to prevent a corporation engaged in interstate commerce from entering that state and carrying on its business therein, and also pointed out the distinction between the making of contracts of insurance and interstate commerce, or the necessary instrumentalities thereof, as follows: 'The case is entirely different from that of foreign corporations seeking to do a business which does not belong to the regulating power of congress. The insurance business, for example, cannot be carried on in a state by a foreign corporation without complying with all the conditions imposed by the legislation of that state. So with regard to manufacturing corporations, and all other corporations whose business is of a local and domestic nature, which would include express companies whose business is confined to points and places wholly within the state. The cases to this effect are numerous.'

It is evident, then, as we have said above, that the attempt to so distinguish between policies of marine insurance and policies of fire insurance as to reach the deduction that there is a constitutional difference between the business of a corporation issuing policies of one kind and that of a corporation dealing in policies of the other kind, which affects the question of a state's authority to control the business of either, is based upon a fundamental misconception of the nature of the constitutional provision relied upon. It ignores the real distinction upon which the general rule and its exceptions are based, and which consists in the difference between interstate commerce, or an instrumentality thereof, on the one side, and the mere incidents which may attend the carrying on of such commerce on the other. This distinction has always been carefully observed, and is clearly defined by the authorities cited. If the power to regulate interstate commerce applied to all the incidents to which such commerce might give rise and to all contracts which might be made in the course of its transaction, that power would embrace the entire sphere of mercantile activity in any way connected with trade between the states, and would exclude state control over many contracts purely domestic in their nature.

The business of insurance is not commerce. The contract of insurance is not an instrumentality of commerce. The making of such a contract is a mere incident of commercial intercourse, and in this respect there is no difference whatever between insurance against fire and insurance against 'the perils of the sea.'

The state of California has the power to exclude foreign insurance companies altogether from her territory, whether they were formed for the purpose of doing a fire or a marine business. She has the power, if she allows any such companies to enter her confines, to determine the conditions on which the entry shall be made. And as a necessary consequence of her possession of these powers, she has the right to enforce any conditions imposed by her laws as preliminary to the transaction of business within her confines by a foreign corporation, whether the business is to be carried on through officers or through ordinary agents of the company; and she has also the further right to prohibit a citizen from contracting within her jurisdiction with any foreign company which has not acquired the privilege of engaging in business therein, either in his own behalf or through an agent empowered to that end. The power to exclude embraces the power to regulate, to enact and enforce all legislation in regard to things done within the territory of the state which may be directly or incidentally requisite in order to render the enforcement of the conceded power efficacious to the fullest extent, subject always, of course, to the paramount authority of the constitution of the United States.

In the argument at bar it was admitted that, if the contract is to be considered as made in California, then this case is governed by the foregoing principles, unless the business of a foreign company writing marine insurance is protected by the interstate commerce clause of the constitution; which, as we have seen, is not the case.

It is claimed, however, that, irrespective of this clause, the conviction here was illegal-First, because the statute is by its terms invalid, in that it undertakes to forbid the procurement of a contract outside of the state; and, secondly, because the evidence shows that the contract was in fact entered into without the territory of California. The language of the statute is not fairly open to this construction. It punishes 'every person who in this state procures or agrees to procure for a resident of this state any insurance,' etc. The words 'who in this state' cannot be read out of the law in order to nullify it under the constitution.

It is urged that the words, 'every person who agrees to procure for a resident of this state,' are inconsistent with the preceding language, 'who in this state procures,' etc. The argument is this: The act punished is procuring for a resident. In order to procure for another, the procurer must be agent of such other; hence the contract of insurance was procured by the agent of the insured, and not by the agent of the foreign company; and, inasmuch as the foreign company was not, and under the law could not be, technically, within the state for the purpose of giving its assent to the contract, the insurance must have been procured without the state. The fallacy here is ingenious, but it is easily exposed. The elementary rule is that every reasonable construction must be resorted to in order to save a statute from unconstitutionality. Parsons v. Bedford, 3 Pet. 433; U.S. v. Coombs, 12 Pet. 72; Brewer's Lessee v. Blougher, 14 Pet. 178; Supervisors v. Brogden, 112 U.S. 261, 5 Sup. Ct. 125; Presser v. Illinois, 116 U.S. 252, 6 Sup. Ct. 580.

The admission that the insurance was procured for the resident from a foreign company which had no agent in the state does not exclude the possibility of its having been procured within the state. If it were obtained for the resident by a broker who was himself a resident, this would be a procuring within the state, and be covered by the statute.

The business of a broker is to serve as a connecting link between the party who is to be insured and the party who is to do the insuring,-to bring about 'the meeting of their minds' which is necessary to the consummation of the contract. In the discharge of his business he is the representative of both parties to a certain extent. How v. Insurance Co., 80 N.Y. 32; Monitor Mut.  Insurance Co. v. Young, 111 Mass. 537; Insurance Co. v. Reynolds, 36 Mich. 502.

Domat thus defines his functions: 'The engagement of a broker is like to that of a proxy, a factor, or other agent, but with this difference: that the broker, being employed by persons who have opposite interests to manage, he is, as it were, agent both for the one and the other, to negotiate the commerce and affair in which he concerns himself. Thus his engagement is twofold, and consists in being faithful to all the parties in the execution of what every one of them intrusts him with. And his power is not to treat, but to explain the intentions of both parties, and to negotiate in such a manner as to put those who employ him in a condition to treat together personally.' 1 Dom. (Strahan's Translation) bk. 1, tit. 17, § 1.

Story says this statement of the functions of a broker is 'a full and exact description according to the sense of our law.' story, Ag. (9th Ed.) p. 31, note 3.

If the contention of the plaintiff in error were admitted, the established authority of the state to prevent a foreign corporation from carrying on business within its limits, together personally.' 1 Dom. (Strahan's would be destroyed. It would be only necessary for such a corporation to have an understanding with a resident that in the effecting of contracts between itself and other residents of the state he should be considered the agent of the insured persons, and not of the company. This would make the exercise of a substantial and valuable power by a state government depend, not on the actual facts of the transactions over which it lawfully seeks to extend its control, but upon the disposition of a corporation to resort to a mere subterfuge in order to evade obligations properly imposed upon it. Public policy forbids a construction of the law which leads to such a result, unless logically unavoidable.

The facts found here enforce the correctness of these views, and illustrate the evil which the statute was doubtless intended to prevent.

Johnson & Higgins were average adjusters and brokers in New York City. Hooper, the plaintiff, as their agent, had a place of business in San Francisco. As such broker he applied for the insurance to his principals in New York City. The policy came to San Francisco for delivery, and the premium was there paid.

One more contention remains to be noticed. It is said that the right of a citizen to contract for insurance for himself is guarantied by the fourteenth amendment, and that, therefore, he cannot be deprived by the state of the capacity to so contract through an agent. The fourteenth amendment, however, does not guaranty the citizen the right to make within his state, either directly or indirectly, a contract, the making whereof is constitutionally forbidden by the state. The proposition that, because a citizen might make such a contract for himself beyond the confines of his state, therefore he might authorize an agent to violate in his behalf the laws of his state within her own limits, involves a clear non sequitur, and ignores the vital distinction between acts done within and acts done beyond a state's jurisdiction.

Judgment affirmed.

Notes