States regulated insurance because federal government never did

Evidence

In Paul v. Virginia (1869), a Virginia law (of 1866) licensed “foreign” insurance companies. To get a license, the company had to deposit bonds with the treasurer of Virginia. Paul was agent for various New York (and hence “foreign”) companies. Paul’s was a test case, challenging the Virginia law and financed by the National Board of Fire Underwriters. The federal government, it was argued, had the sole and exclusive power to regulate interstate commerce. The states had to keep out of this domain. Hence the Virginia law was unconstitutional. But the Supreme Court disagreed and upheld the Virginia statute. Insurance, the Court said, was not “commerce.” This seems to modern readers a rather strange idea (and the Supreme Court repudiated this idea some eighty years later). Of course the insurance business is “commerce.” But in context the case made good sense. The federal government had never shown the slightest inclination to regulate insurance. The states did. They had enacted literally hundreds of insurance laws. Had Paul won, a vast body of law, a whole field of law, would have been consigned to the ashcan. This would have been a radical result, and the Court shrank back from doing it. The companies had to face what they sometimes considered the howling wolves of the states. — Lawrence M. Friedman, A History of American Law, 3132

Categorization

• XREF: Connects to the course thread on M’Intosh-era federalism balance and to ch50’s milk-rate case where states regulated commerce — same federalism patterning. — connects to: American regulation moved historically from local to state to federal control — Lawrence M. Friedman, A History of American Law, 2547
• DEFINE: Explains the Paul v. Virginia doctrine that insurance is not commerce, a foundational constitutional holding later repudiated.

Broader Connections

• American regulation moved historically from local to state to federal control #expands (0.82) — Lawrence M. Friedman, A History of American Law, 2547