The American Hospital and Life Insurance Company

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IN 'THE fatter OF THE AMERICAN HOSPITAL AND LIFE INSlJlAKCE COMPANY ORDER, ETC., IX REGARD TO TUE ALLEGED VIOLATION OF THE FEDERAL T1Lile CO::IJfISSION ACT Docket 6237. Complaint, Oct. 14, 1954-Decision, Apr. 24, 1956' Order requiring an insurance company with principal place of business in San Antonio, Tex., sellng eight types of life, health, and accident policies through agents in 14 States, to cease misrepresenting the benefits of its policies through statements in brochures and apvlication forms sent to its agents and used by them in selling the policies. Before Mr. J. Earl Cow hearing examiner. ilr. Robert R. Silts, 3fr. Willi",,, R. J(eam and lift. Joseph Callaway for the Commission.

Boyle, Wheeler: (/l'e:sha17/;, Dwvi8 GTego' I'Y, of San Antonio, Tex. lor respondent.

FINDI GS AS TO THE F"\CTS , Co.)r CLTISTO S AXD OIWER Pursuant to the provisions of the Federal Trade Commission Act the Federal Trade Commission, on October 14 , 1954, issued and subsequently served upon respondents, The American I-Iospital and Life Insurance Company, a corporf1tion its complaint, charging said respondent with the use of unfair and deceptive acts and practices in commen e in the sale of health and accident insurance policies, in violation of the provisions of the Federal Trade Com mission Act.

Thereafter respondent filed its answer and, in conjunction there- Ivith. a motion for dismissal of the complaint on the ground that the C01innission is without jurisdiction ill the matter. This motion having been denied by the hearing examiner duly designated in the complaint, for the reason that the question of jurisdiction could be resolved satisfactorily only after t.he submission of evidence, certain testimony and other evidence in support of the allegations of the complaint Wf'rC introduced before the hearing examiner and were duly recorded in the office of the Commission. :Ko further evidence having been presented by respondent, the matter Was considered by the hea.ring examiner upon the complaint, respondent's answer thereto, the testimony and evidence, proposed findings as to the facts and conclusions presented by counsel, and additional motions 1'01' dismissal, filed by respondent, a.nd the he.aring examiner, on THE AMERICAN HOSPITAL AKD LIFE INSURANCE CO. 1101 1100 Findings December 8 , 1955 filed his initial decision in which he ordered that the complaint be dismissed.

Within the time permitted by the, Commission s Rules of Pra,ctice, counsel in support of the complaint filed an appeal from said initial decision, and the Commission, after eonside,ring said appeal. respondent' s brief in opposition thereto oral nrguments of counsel and the entire record herein, rendered its decision grnnting the appeal and vac.ating and setting aside the initial decision. Thereafter, this matter came on for final consideration by the Commission, and the Commission, being now fully advised in the premises, makes the following findings as to the facts, conclusions drawn therefrom, and order, viThieh, together wit.h the aforesaid decision on the appeal shall be in lien of the initial decision of the hearing examiner.

FINDINGS AS TO THE FACTS 1. Respondent, The American Hospital and Life Insurance Company, is a corporation, duly organized, existing and doing business under and by virtue of the laws of the State of Texas, with its principal place of business located at Pecan & St. Mary's Streets in the City of San Antonio, State of Texas. Said respondent is authorized by charter to e,ngage in, and it does engage in. the business of life, health and accident insurance. It is licensed to conduct such business in the States of Arizona, Arkansas, Colorado. Illinois, Indiana, I\:ansas, Kentucky, Louisiana, :Mississippi, l\lis::ol1ri New Mexico, Oklahoma, Tennessee, and Texas. Respondent's life insurance business is not involved in this proceeding. 2. Respondent maintains a substantial course of trade in commerce, as that term is defined in the Federal Trade Commission Act, in health and accident insurance" issuing policies to purchasers thereof Jocated in each of the fourteen States in which it is authorized to do business. Among the policies so issued are those for individnals and family groups identified. by respondent as follows: (1) American Family Accident Policy, Form A (1). (2) American Standard Accident Policy, Form ASA. (3) All American Accident Policy, Form AAA. (4) Income Protection Policy, Form A&H3.

(5) Business and Professional :Men and lNomen s Income Policy, Form BPI.

(6) Preferred Individual Hospital and Surgical Insurance Policy, Form PRI.

(7) American Economy Hospital and Surgical Insurance Policy, Form AE Rev, 451524-59- 1102 FEDERAL TRADE COMMSSION DECISIONS Findings 52 . T. C. (8) All American Automobile Aecident Policy, Form AAAA. The substantiality of respondent's business is indicated by the fact that its premium receipts from its health and accident insurance business during the year 1953 was $4 835 523.05 and during the year 1954 was $5 009 184.47.

3. Respondent' s health and accident insurance business is conducted through agents in the various States in ,,-which respondent is licensed. When an agent in any State other than Texas sccures an application for a policy, the application is sent through the mail by the agent to respondent's home offce in San Antonio, Texas where the policy is issued. The policy is then mailed back to the agent in the other State for delivery to the purchaser. 4. A substantial number of persons who have purchased policies of health and accident insurance from respondent while living in States in which respondent was licensed to do business have later moved into States in which respondent was not so licensed. It is respondent' s practice in such cases to mail to such insureds or policyholders premium notices and receipts and to receive from them premium payments renewing the coverage afforded by their policies. Premium payments so received by respondent from States other than those in which it was licensed to do business for the year 1953 amounted to $47 305. , and for the year 1954 amounted to $78,- 417.89. To this extent respondent is regularly engaged in commerce with residents of States other than those in which it is licensed to do business.

5. In connection with and to promote the sale of each of the policies listed in paragraph 3, above, respondent prepares and issues a circular or brochure consisting of four pages. There is one exception-the circular relating to the policy Form AE Rey. consists of bnt a single page. The brochures are sent by respondent from its home offce in San Antonio, Texas, to its agents located in the various States in which respondent is licensed, and ate used by such agents, and often shown by them to prospective purchasers as aids in selling the policies to which they refer. The first and second pages of each brochure contain advertising matter; the third page consists of an application form; and the last page either is blank or contains information helpful in determining premium rates. Upon completion of a sale, the applicant for insurance fills out, or fnrnishes the information for filling out, and signs the application form, which is then torn from the brochure and sent in to respondent with the proper premium payment; the agent issues a receipt ror the premium received, usually on the form at the bottom of the second page of the brochure, and then leaves $ _ _ THE AMERICAN HOSPITAL AND LIFE INSURANCE CO. 1103 1100 Findings pages 1 and 2 of the brochure with the applicant. l pon acceptance of the application at its home offce, respondent issues the policy and transmits it to the selling agent for delivery to the insured. 6. In the brochure relating to respondent's policy, Form ASA the following advertising statements are made: NO AGE PH.OVISION terminating 01' reducing benefits because of increasing age. and POLICY FORM ABA issued to len and Women. ages 18 to 00. Only persons engaged in non-hazardous occupations are eligible ana all applicants must be in good health.

t.he broehure relating to the The same statements are made in policy, Form AAA.

The complaint alleges that tl1Tongh the use of these statements respondent represents that the indemnification provided by its pol icies may be continued to age Gn or for an indefinite period at the option of the insured. Such representation is false: the complaint charges, because respondents policies arc term policies and are renewable at the option of respondent only. Further, the policies are automatically terminated upon the payment of certain cash benefits.

The Commission does not construe these statements as having the meaning ascribed to them. Said statements ean be reasonably read to mean only that the policies contain no provisions terminating or reducing be.nefits on account of increasing age and that applicants for such policies must be within the age limits specified j and the evidence is that the statements as so construed ate both true. On this phase of the case the aJ1egations of the complaint have not been sustained.

7. In the advertising section of the brochure relating to respondent' s policy, Form A&H3, the following, among other boxed items appears:

: CO!'FINI!'G : PER ILLNESS - n __ MONTH : INDEM!'ITY for loss of time from ilness, beginning on the fourth day and continuing benefits for non- for one ;year for each ilness. (Up to two months fun confining ilness.

Substantially similar statements are made in the brochure relating to respondent's policy, Form BPI. The record shows that the blank amount of dollars is nsnally filled in by the agent before or at the time he is talking to the prospect, based on the prcminms paid.

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1104 FF:DEHAL TRADE CO:\ThIISSIOX DECIS,IONS Findings ;'2 F. T. C, T?rou h .such statellents respondent repl'eSel1ts. directly and by ImphcatlOIl. that its policies provide indenmification for loss of time due to any and all sickness or illness. In truth and ill fact, respondents policies do not ::0 provide. The coverage under' the policy. Form A&H3 is expressly restricted to indemnification for loss of t.ime clue to sickness or disease contracted !lucl commencing after the effecti\' e date of the policy and while the policy is in force which wholly necessarily and continuously disables and prevents the insured from enn'(lavino- in anv business, profession or employment for wage or profit. and only for such period of time as the policyholder is regularly visited and .attended by a legally qualified physician (M. ), surgeon (M. D. or osteopath, ot.her than himself. K or docs the policy ('over loss or time for illness due to pregnancy, miscarriage 01' childbirth in case of a woman policyholder, regardless of how long the policy , also cont.ains substan-has been in effect. The policy, Form BPI tially the same restrictions on respondent's liability. none of which restrictions are disclosed in the sales brochures. Respondent' s representations as to the indemnification provided s ale there-by its policies for loss of time due to sickness or illn(' fore, false and deceptive.

, also 8. Respondent's brochure relating to its policy, Forll BPI contains the following with respect to loss of time due to accidents: TOTAL PER ACCIDEN' 3rol\TH : DISABILITY: for l(Jss of time from accidental injury, beginning with the first day of disabilty ancl continuing for life while you are totaHy disabled. and PARTIAL PER ACCIDE:'T I, , IOl\TH : DISABILITY for loss of time from accidental injury, beginning with (he first day ami continuing for the period of partial disabilty (limit 3 months). Substantially the same statements arc also made in the advertising sections of the brochures relating to respondents policies Forms A&H3 and AAA.

Through such statements, respondent represents, directly a.nd by implication, that its policies provide indemnification for loss time due t.o an or any accidents In truth and in f ponc1(,llt's po1icil's do not so provide. Under the policy, Form BPI, respondent's JiabiJity for loss of time due to total accident disability is Jimited to accidents that shaJ1 .._ 'I' HE :\MERICAX HOSPITAL AXD LIFE INSURANCE CO. 1105 1100 .l' indings within twenty days after the date of the accident wholly, necessarily and continuously disable and prevent the insured from performing each and every duty pertaining to his occupation for the first twelve months. After that time, the insnred, in order to eol1ect the indemnity, must be wholly and continnously disabled by reason of the accident from engaging in any occupation for wage or profit. Furthermore: the policy expressly limits the com pany's liability for Joss of time due to either total or partial accident disability to sneh periods of time as the policyholder is under the regular care of a leg-ally qualified physician (M. D. surgeon (.Yl. ) or osteopath, other than himself. The policies Forms A&.H3 and AAA, contain similar limitations on respondent's liability, none of which limitat.ions is disclosed in the sales brochures.

Responclent:s representations as to the indemnification provided by its policies for loss of time, clue to accidents are, thus, false and deceptive.

9. Respondents advertising brochure for its policy: Form AE Hey., contains the following:

'ROmI SERVICE 31 (lays; each entry' *I-OSPITAL EXPEKSE 1. Operating Room . Anaesthetics 8. Laboratory Service 4. X-Rays 5. Dressings fi. Drugs 7. Blood transfusions Any service of the hospital necessary to the recovery of the patient * SURGERY From $3.00 to $150.00 8150.

Depending on seriousness of operntion Additional Benefits * * .:lA'.rERNITY: LP to $-- aftf'r insurance has been in force 10 months. * * * Through such statements, respondent represents, among other things, that said policy provjdes indemnity up to a maximum snm of $150 for a.ny operation serious enough to cost such an amount and that the maternity benefits mentioned are in addition to payments for room service a.nd hospital expenses. Actually, the policy does not so provide. Under the terms of this policy, payment for surgeon s bill is in accordance with schedule of fixed fees for different types of operations. Only six 1106 FEDERAL TRADE COl\L\IISSION Decisions Order 52 F.

out of sixty-seven operations listed call for a surgeon s fee of as much as $150. For twenty-nine of the listed operations, the surgeon s fees allowed are $25 or less, regardless of the aetnal cost of such operations to the policyholder.

Said policy likewise does not provide for the payment of a maternity benefit after ten months, or at any other time, in addition to the payments provided for room service and other hospital expenses. The maternity benefit is obtainable only by payment of an additional premium over and above the regular premium provided in the policy and is covered by a supplemental agreement or rider attached to the policy. Moreover, said supplemental agreement or rider expressly provides that payment of the maternity benefit shall be "in lieu of all other benefits provided in the policy for hospital services " and it is, thus, clear that the maternity , isbenefit, instead of being an additional benefit, as represented merely a snbstitute.

Respondent' s representations to the contrary are false and dereptive.

COXCL 'CSIDXS 1. The Federal Trade Commission has jurisdiction over all aT the respondent' s acts or practices alleged in the complaint to be unlawful.

2. The pnblie interest in the proceeding is clear and substantial. 3. The use by respondent of the statements and representations found herein to be false and deceptive, with respect to the terms and its failure to revealand conditions of its policies of insurance, the limitations of the coverage of said po1ieies, have the tendency and capacity to mislead and deceive a substantial portion of thc purchasing public into the erroneous and mistaken belief that said statements and representations are true and to induce the purchase of said policies of insurance because of such e.rroneous and mistaken belief.

4. The aforesaid acts or practices of respondent as above set forth are all to the prejudice and injury of the public and constitute unfair and deceptive acts or practices \within the intent and meaning of the Federal Trade Commission Act.

ORDER It is ordered That respondent, The American Hospital and Life , repre- Insurance Company, corporation, and its offcers, age,nts sentatives, and employees, directly or through any corporate or other device, in connection with the offering for sale, sale and dis- , THE A.'\RICAN HOSPITAL AND LIFE INSURANCE CO. 1107 1100 Opinion tribution in commerce, as "commerce" is defined in the Federal Trade Commission Act, of any accident, health, hospital or surgical insurance policy, do forthwith cease and desist from representing,directly or by implication: 1. That said policy provides for indemnification against losses due to sickness or accident, unless a statement of all the conditions exceptions, restrictions and limitations affecting the indemnification actually provided are set forth conspicllollsly, prominently, and in suffciently close conjunction with said representations as will fully reljeve it of all capacity to deceive.

2. That said policy provides for payment in full or in any specified amount or for payment up to any specified amount for any medical, surgical or hospital service unless the policy provides that the actual cost to the insured for that service will be paid in an cases up to the amount representeel, or unless full disclosure of the schedule of payments for which the policy provides is made eonspicuonsly, prominently, and in suffciently close conjunction with said representation as will fully relieve it of all capacity to deceive.

3. That said policy provides for the payment of certain benefits in addition to other benefits when SHch is not t.he fact. It is further o1'dered That the respondents herein shall, within sixty (60) days after service upon them of this order, file with the Commission a report in writing setting forth in detail the manner and form in which they have complied with the order to cease and desist.

Commissioners Gwynne and 1fason dissenting. OPINION OF THE COMMISSIOK By KER , Commissioner:

Counsel in support of the complaint issued in this proceeding has appe,alecl om the hearing examiner s initial decision, in which after holding that Public Law 1.1 of the 79th Congress (:\fcCarran- Fergnson Insurance Regnlation Act) 1 limits the Federal Trade Commission s jurisdiction herein to respondent's activities in the State of Mississippi, he dismissed the complaint for failure of proof. Respondent, a Texas corporation, is licensed to conduct, and does conduct. a health-and-accident insura.nce business -in Arjzona, Arkansas, . Colorado, Illinois Indiana, I(ansas, Kentucky, Louisiana Mississippi, :\1issonri, New Mexico, Oklahoma. Tennessee, and Texas. It sells its health-and-accident insurance policies exclusively through licensed agents in each of those States, and its only advertising 159 Stat. 33 (19015) ; 15 U. C. lOllf!. 1108 FEDERAL TRADE COMMISSIO:N DECISIONS Opinion 52 F.

consists of printed brochures, which it mails from its home offce in San Antonio, Texas, to its agents in other States for display or distribution to prospective policyholders in the course of sales interviews. Applications secured by respondent's agents in States other than Texas are mailed to respondenes home offce, where the policies are issued and mailed to the agents for delivery to the new policyholders. The complaint alleged that respondent's advertising contains various false, misleading and deceptive represent.ations in Ylolat.ion of the Federal Trade Commission Act. Respondent maintains that an States in which it carries on its operations have laws that forbid it. Ol' its agents to make misrepresentations in the course of seIJing its insurance and that under the McCarran-Ferguson Act this is suffcient to remove it from the scope of the Fecteral Trade Commission Act. Thus at the threshold of our consideration of this appeal we f Lee an important jurisdictional question. The basis of the hearing examiner s holding that the Commission s jurisdiction extends to respondent's transactions in :Mississippi I1one is that each of the other States where it advertises or seDs it.s insurance policies (saving from considerat.ion respondent' s home State of Texas. inasmuch as jurisdiction has not been asserted over respondent's business transacted wholly within that State) fully regulntes the business of insurance by legislative, enactment and that to the extent such regulation exists our jurisdiction has bee-11 ,,-ithc1rawn by the. J\ic- Carran-Fergnson Act.

That. statute directly and expressly provides that after J anuary 1 , 1948, the Federal Tmrje Commission Act shall apply to the :I The McCarran-Ferguson Act reads in full text as foHow!! : An Act to express the intent of the Congress with reference to the regulation of the business of insurance Be it enacted by the Senate and House of Representatives of the United States of Am.erica in Congress assembled, That the Congress hereby declares that the continued regulation and taxation by the several States of the businCf!s of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States. SEC. 2. (a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.

(b) No Act ot Congress shall be construed to invalidate, impair, or !mpersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes Ii fee or tax upon such business, unless such Act specifically relates to the business at insurance: Provided That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, Ilnd the Act of October 15, 1914 , as amended known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such busjness is not regulated by State 1aw. SEC. 3. (a) Unti June 30, 1948, the Act of July 2, 1890, as amended, known as tbe Sherman Act, and the Act of October 15, 1914, lis amended, known lis the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as THE AMBRICAN HOSPITAL AXD LIFE INSURA CE CO. 1109 1100 Opinion business of insurance "to the ext.ent that such business is not regnlated by State Jaw." In the judgment of the examiner. the Commission s jurisdiction over the commercial activities of insurance companies is contingent upon a.n absence of State regula,tory legislation. Implicit in that view is the proposition that the sum of jurisdiction-State and Federal-over eOlllmel'Ce is no more than the aggregate of the several State jurisdictions. 'Ve need scarcely point out that such a. concept. not only neglects the exclusive Federal jurisdiction over commerce arnon,q the States, conferred by Section 3 of Article 1 of the Constitntion of the United States, but is inconsistent with the fundamental constitutional doctrine of the separation of State and Federal powers.

,Ye do not think that the McCarron-Ferguson Act, considered solely by its terms or along with its legislative history and judicial interpretation, admits of such a construction. In United States v. South-Eastern UndeTW7"iten Assn. 322 U. 533 (1944), the Supreme Court in efiect overturne. Paul v. Vb' ginia 75 U.S. 168 (1868), and the line of related eases, all of which were bottomed on the principle that contracts of insurance, are not commerce, either interstate or ntrastate and declared that the conduct of fire insurance business across State lines is "Commerce among the several States" and accordingly a conspiracy to monopolize interstate trade and commerce in that business violates the Sherman Antitrust Act. At the same time the Conrt pointed out that, for constitutional purposes, certain activities of a business may be intrastate and hence subject to State control, while other activities of the same business may be interstate and subject to Federal regulation. However, the Court did not attempt to decide which State Jaws were applicable to the business of insurance and to what. extent they were not applicable. A Jocal insurance company which sold only within the State was clearly subject to the State laws, but amended, and the Act of June 19, 1936, known as the Robinson-Patman AntldiBcriminatlon Act, shall not apply to the business of insurance or to acts in the conduct thereof. (b) Nothing contained in this Act shall render the said Sherman Act inapplicable to /lny agreement to boycott, coerce, or intimidate, or act of boycott. coercion, or intimidation.

SEC. 4. Nothing contained in this Act shall be construed to affect in any manner th application to the business of insurance of the Act of July 5, 1935, as amended, known as the National Labor Relations Act, or the Act of June 25, 1938, as amended, known as the Fair Labor Standards Act of 1938, or the Act of June 5, 1920, known as the Merchant Marine Act, 1920.

SEC. 5. As used in this Act, the term "State" includes the several States, AI8.ka, Hawall, Puerto Rico, and the District of Columbia. SEC. 6. It any provision of this Act, or the application of such provision to any person or circumstances, shall be held invalid, the remainder of the Act, and the application such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected.

.1110 FEDERAL TRADE COMMISSION DECISIONS Opinion 52 F. , C. the extent to which a company doing an interstate business was subject to State laws was not made clear. The McCarran-Ferguson Act was enacted the year following South-Eastern Uruerwriters. Its title states that it is an act to express the intent of Congress with reference to the regulation of the business of insurance. The title docs not suggest that Congress was undertaking to give any additional jurisdiction to the States or to take any away; it indicates rather an intent to avoid any ambiguity arising out of the Congressional silence. It appears that the McCarran -Ferguson Act was designed to permit the States to regulate in the traditional manner the business of insurance. It was not designed to permit insurance companies to secure JleW business by false or misleading advertising in interstate commerce nor was it intended as an abdication of Federal Jurisdiction under the Sherman, Clayton, and .Federal Trade Commission Acts oyer the business of insurance. I-Iacl Congress desired to remove the business or insurance from the scope of these laws, it could ha VB done so by simply providing that for the purpose of those statutes the business of insurance across State lines should not be deemed to be "Commerce among the several States. " Quite to the contrary, it expressly applied those laws to t.he business of insurance within certain limits.

The first section of the Act declares that "the continued regulation and taxatjon by the several States of the business of insurance is in the public interest: and that "silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of sneh business by the several States. Continued regulation" again conveys the idea that Congress did not intend to give anything to the States that they did not already possess. Silence on the part of Congress ,vas not to be construed as imposing any barrier to State regulation. That is not to say, however, that there were to be no other?' barriers to or limitations upon State regulation: Areas in which the States could never regulate were not dealt with one way or the other. :' The original version of the McCarran- Ferguson Act, as reported by the committees of the respective Houses of Congress, provided flatly that neither the Federal Trade Commission Act nor the Robinson-Patman Act should "apply to the business of insurance or to acb in the conduct of that business." In debate on the floor of the House the wisdom of such an exclusion was Questioned (91 Congo Rec. 1027), and the chairman of the House Committee en the Judiciary offered to propose to the Joint Committee of Conference th elimination of the exclusionary section and the inclusion of the Federal Trade Commission Act in the moratory section, thus making the Federal Trade Commission Act applicable tc the insurance business, along with the Sherman and Clayton Acts. a1'ter 1947. No opposition to this proposal was voiced on the floor. The conference committee adopted the suggestion, with the result that the Federal Trade Commission Act was to apply to the business of insurance upon lapse of the moratorium. THE AMERICAN HOSPITAL AND LIFE INSURANCE CO. 1111 1100 Opinion In construing the meaning of this section, it is to be borne in mind that under the commerce cla,use or the Federal Constitution Congress not only has exclusive power to regulate interstate commerce but in exercising that p01Ver can even regulate intrastate activities which affect interstate commerce. United States v. Wrightwood Dairy 00. 315 U.S. no, n9 (1942). 'When Congress enters this intermediate zone and legislates fully on a given subject, the Federal statute ipso facto snpersedes existing state legislation on the same subject. Southe"" Ry. 00. v. R. R. 001n11., Indiana, 236 S. 439, 446 (1915).

The first section must therefore mean that the continued regulation and taxation by the States of the businf'Bs of insurance to the limits of their constit1dional p01Uel is in the public interest. Certainly the States lack the power to tax or regulate Pllrely interstate activities or insurance companies. It. can only be that the section provides that State authority over intl'astate insurance business that might affect interstate insurance business could not be disturbed by Fedeml legislation which did not specifically mention lJSllrance.

'Ve now approach the determination of the proper construction of the crucial second section of the :McCarran-Ferguson Act. Subsection (a) thereof makes the business of insurance and everyone engaged therein " subject to State laws relating to the regnlation or taxation of such business. " This is a deal pronouncement that the South-Eastern Under1'writen case does not dislodge State regulation of insurance.

The second section goes on to provide in subsection (b) : No Act of Congress s11a1) be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insul' ance * * * unless such Act specifically relates to the business of insurance: * * * Obviously, this does not purpor' to give the States the power to legislate outside their jurisdiction. Nor does it interfere in any way with Federal laws cO\Tering interstate commerce over which the States could not ever claim jurisdiction: e.g., the post statutes. See United States v. Sylvan"s 192 F. 2d 96 , 100 (7th Cir. 1951), ccrt. denied 342 U. S. 943 (1952). Such laws cannot impair or supersede State laws, for they do not relate to the same channels of commerce. And, under the terms of the Act, they become inoperative only if and to the extent that they impair invalidate, or supersede State laws. Maryland OMualty 00. Oushing, 347 l;. S. 409, 413 (1954).

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1112 FEDERAL TRADE COl\JMISSIOX DECIEIO;-S Opinion :)2 F. '1. C. Section 2 (b) continues:

Provided, That after Januar.r 1 , 1948, the Federal Trade Commission Act, as amended, shall be applicable to the business of in l1ran('e 10 thl: extent that such business is not regulated by State law Even without such a prm-iso the Federal Trade COJnmission Act would have been applicable to those aspects of the business of insurance which ' are exclusively in interstate CQmmerl'e. for that area was never reached by State In w. 1'he,y c.onld nol therefore. be regulated by State law. :' l\Ioreovel', if this proviso lleant only that no action could be taken under the I; cderal Trade Commis6ion Act which was in conflict with State law it was wholly unnecessary. The statute already had stated that no Act of Con!!ress shad invalidate, impair, or supersede a State lnw unless it rela.tes specifically to insurance. It is the offce of a proviso "to except SOlnething from the operative effect or to qua:li-fy or restrain the generality of t.he substantive enactment to ""which it is attached. Cox v. Hart 260 U. S. 427, 435 (1022). The proviso in the J\cCarl'an- Ferguson Act must therefore, make t.he Federal Trade Commission Act. an exception to the rule that no Federal law not relating specifically to insurance may supersede a State law enacted for the purpose of regubting the business of insurallce. It must have been contemplated that under c.certain conditions the Federal Trade Commission Act might supersede a State law purporting to reguhlte the business of insurance but not covering all aspects thereof. In its application to the interstate phase or a transaction 'i"which Ctllnot be regulated by State law for example, the Federal law in one sense would supersede a State Jaw covcring the same subject matter in a different and local phase or the transaction. The Federal and State laws in this field supplement and reinrorce one another in order to provide full protect.ion to the public. Indeed, it seems to us that such a view is not only consonant with bnt imperative to the preservation of the public interest in this dOlTmin. We fully subscribe to the principle that the Federal Governmcnt ought not encumber the States in \"ielding the maximum of their sovereign powers over the business of insurance. This we understand to be the essential a.im or t.he IcCarran-Fergu on Act. But in the absence of a far stronger and more positive commandment than that statute lays down we cannot be persuaded tlmt as to the bU1:iness of insurance the Federal authority has been ousted from the interstate regulatory sphere. It surely could not have been the Congressional intent to create a legal vacuum wherein an insurance . The so-ca.lled "moratorium" was later extended by Congress until after .Tune 30, 1948. 61 Stat. 448 (1947).

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Tile AMERICAN HOSPI''AL AKD LIFE I:\SVRANCE CO. 1113 1100 Opinion eornpany would havp, be.en enabled to escape regulation of the interstate aspects of its business in cases in whidl the Federal and State laws did not confIiet.

,Ve observe that. Section 3 (a) of the McCnl'an- Fergnson Act is a moratory clause su pel.ding the .1PpliGation of the Fede.ral Tnlele Commission Sherma.n, Clayton. and Robinson-Patman Acts to the business of insurance for nearly three years. If those statutes were not to " 1Lpply to the bwd1/eS8 oj 11UHf,iance or to acts iti the cond' uct theJ'eor until .January L 194-8 've think it logically follows that they were, to apply to that bllt;iness and to those acts after the prescribed elate. Thus this subsection as well as Section 2 (b) is inconsistent with any notion that the Commjssion jurisdiction over the jnterstate aspects of the insurance business was repealed.

Tn withclrawing Federal jurisdiction llncler the Federal Trade Commission, Sherman. Clayton' and Hobinson-Patman Acts over the business of insurance for nearly three ye,-lrs Congress apparently was attempting to eliminate arguments by insurance companies that Federal regulation alone ,yas adequate and that State rcgulations were burdening inten;tnte commerce. Congrc. s .!Hve the States about three years in "which to define a rea onable area of State po1icc power. Beyond that reasonable, area. States could not go. H.egardless of whether a State rcgulated lnsllrnnceduring this time after 194:7 the Federal Trade Commission was expressly authorized to regulate it 011 difierent grounds. llamel'y J'egllhting the lise of the interstate ehannels of commerce.

Since the Court in the South-Ea.stern Under'rIL'i'/te/' ease had said that insurance sold by a company ill one State to ,1 customer in another State was in interstate, commerce. tllis type of tr.:nsaction was subject to the jurisdiction of the Commission. During the moratorium COllgre s intended.d tlwt t.he Commission not exercise its jurisdiction. ---\.after that. period the Fe(leral Trade Commission Act was again to apply, to the extent that the business of insurance was not. regulated by State l,ny. Since the States "were given no new jurisdiction State la,y could re,g-ulate the business of insurance only to the extent possible before the south-1!a.ste7"n Underwriters decision. And, as the Court recognized in tha.t case, there were elements of interstate t.transactions which the States could not reglllate.

Ibid.

4 "The power granted to Congress (by the Commerce Clauses is a positive power. It .je. the power to leg-Islate concerning- transactions which, reaching acros!: state boundaries affect the people of more states than ODe; to govern affairs which the individual states with their limited territorial jurisdictions, are not fnl1y capable of J;overning. " 322 U. S. at 552.

, ) 1114 FEDERAL TRADE COM.'.IISSION DECISIONS Opinion 52 F. T. C.

The legislative history of the McCarran-Ferguson Act supports the foregoing conclusion. ,Ve believe this legislative history shows plainly that in enacting that measure Congress was concerned only with ensuring that State laws regulating the business of insurance should not be snperseded in the zone of "affecting interstate commerce" by Federal legislation not expressly relating to insurance. Thus we find in the reports of the committees of both Houses of Congress this statement:

Inevitable uncertainties which followed the handing down of the decision in the Southeastern Underwriters Association ca,se with respect to the constitutionality of State laws; have raised questions in the minds of insurance executives, State insurance offcials, and others as to the validity of State tax laws as well as State regulatory provisions; thus making desirable legislation b:y the Congress to stabilze the general situation. Bils attempting to deal with the problem were considered in both the Houseand the Senate during the Seventy-eighth Congress, but failed of enactment. Your committee believes there is urgent need for an immediate expression of policy by the Congress with respect to the continued regulation of the business of' insurance by the -respective States. Already many insurance companies have refused, while others have threatened refusal to comply with State tax laws as well as with ot.her Stat.e regulations, on the f!round that to do so, when f'u('h laws may subsequently be held unconstitutional in keeping with the precedentsmashing decisioll in the Southeastern Underwriters case wil subject insurance executives to both civil and criminal actions for misappropriation of company funds. (Sen. Rep. 1'0. 20, 79th Cong. , 1st Sess. 2; II. R. Rep. 143, 79th Cong. , 1st Sess. , 2.

But authority to regulate the interstate aspects of the business of insurance was to remain with the Federal Government, as can be seen from the following statement in the House Committee rEfport which was quoted with approval by Senator McCaITan in floor' debate on the bill (91 Congo Rec. 1443):

It is not the intention of Congress in the enactment of this legislation to clothe the States with any power to regulat.e or tax the business of insurance beyond that which they had been held to possess prior to the decision of the United States Supreme Court in the Southeastern Underwriters Associati.o11 case. Briefly, your committee is of the opinion that we should provide for the continued regulation and taxation of insurarice by the States, subject always. however to the limitations set out in the controllng decisions of the United Allgeyer v. Louisiana (165 U. S. 578), States Supreme Court, as, for instance, in St. Louis Cotton Compress Co. v. Arkansas (200 u. S. 346), and Connecticut General Insurance Co. v. Johnson (303 U. S. 277) * * * (H.R. Hep. 143 , 79th Cong., 1st Sess., 3. J foregoing excerpt a11 hold that The three eases last cited in the a State s power to tax insurance activities is limited to transactions account ocenrring within its bonndaries. We would be hard put to for the reference to these decisions if the purpose of the xIcCarran- Ferguson Act were to snbstitnte and exclusive State power for the THE AMERICAN HOSPITAL AND LIFE INSURfu'CE CO. 1115 1100 Opinion Federal Trade Commission s jurisdiction over the interstate aspects of the insurance business.

We are confirmed in onr belief to the contrary by the decision of United States v. Sylvanus 192 F. 2d 96 (7th Cir. 1951), ceTt. denied 342 U.S. 943 (1952), wherein the Conrt held that the Mc- Carran-Ferguson Act did not abolish Federal jurisdiction under the postal laws to prosecnte for mail fraud committed in the sale of insurance in a State having its own statutes regulating that business. The Conrt carefully distinguished the interstate and intrastate aspects of the defendant's deceptive practices: (IJt cannot properly be said that this indictment has to do with the regulation of insurance business in Illinois. Rather it has to do with the question of whether defendants have used the mails in pursuance of a scheme so to manipulate their authorized regulated business in Illinois as to result in fraudulent deception of its prospective policy holders. The charge is not that the corporate charter should be ignored or that the administrative offcers of Illinois may not perform their statutory duties and supervise and regulate the company s insurance business in Illinois, but goes to the use of the mails, over which the Congress has, by the Constitution, paramount power and authority. It matters not that the alleged fraudulent actors might be prosecuted unrter the" law of Illnois. The Indictment charges simply that acts of deception amounting to a scheme to defraud have been committed hy defendants, in conducting their authorized business, and that defendants have availed themselves of the mails inexecution or attempted execution of that scheme. It is immaterial that the fraudulent plan itself is outside the jurisdiction of Congress, Badders v. , 240 S. 391 * * *, or that the scheme charged involved a transaction forbidden by the laws of the state. Hara v. 6 Cir., 129 F. 551.

We conclude, then, that it was not the intent of the Congress, by its passage of the :McCarran Act, to surrender control of the use of the mails or to cease to ' authorize the federal courts to determine whether the mails have been utilzed in attempted execution of a scheme to defraud and that the district court, by entertaining jurisdiction, did not interfere with regulation of the insurance company by the state but properly overruled the motions to dismiss the indictment. (192 F. 2d at 100.

Unlike the Federal Trade Commission Act, the postal laws were not expressly brought by the McCarran-Ferguson Act to bear on the business of insurance. Indeed, that statute declares that Act of Congress not specifically relating to the business of insurance shall be construed to invalidate, impair, or supersede any State law regnlating that business. Yet in the Sylvanus decision supra the Court held that a postal statute banning a course of conduct which in its intrastate aspects constituted a State oflense was nnaffected by the :NlcCarran-Ferguson Act. All the more, then, under the Federal Trade Commission Act which the ~icCarran-Ferguson Act nmde applicable to the business of insurance, there must remain an irreducible area of Commission . . .

1116 FEDERAL TRADE CO:\LvIISSION DECISIONS Opinion 52 F.

jurisdiction over the interstate activities of insurance companies which cannot be reached by State law and as to which the limitation to the extent that such business is not regulated by State la,,/' is inoperative.

A State can revoke an insurance corporation s charter or license thus affecting interstate commerce to some degree. To the extent necessary to enable it effectively to exercise its police pmver the State can take action having consequences in other jurisdictions and the Federal Trade Commission could not. prohibit such regulation. And the text and history of the McCarran-Fergnson Act leave no doubt that the power of the States to tax, or to fix rates for insurance companies doing business within their territories was in no way to be invalidated, impaired, or superseded by Federal law. However, as we have already said, our proceeding to abate deceptive practices by such companies does not impinge on those State functions, and we do not believe that the Federal Trade Commission Act, whell read in conjunction with the icCarran-FergusoIl Act, can be properly interpreted to interfere with the taxing or rate':fixing pO\vers.

By ' execnting its statutory mandate to prevent deceptive practices in the interstate business of insurance, the Commission in no wise llsurps State laws prohibiting false advertising. The Federal Trade Commission Act and the State laws are both designed to suppress' deception in advertising. The Commission s action ' in the instant matter aids the States in their o\vn local procedures to protect their citizenry from such excesse,-. The :TlcCarran-Fergnson Act vms passed to enable the,m to continue such regulation. J1factland Ca ualty Co. v. hing, 347 U.S. 409. 413 (1954). The principle that the Commission may proceed against a practice that may Rimnltaneously be the object of State, regulation js one of long standing. Thus the Commission s orders prohibiting the interstate shipment of lottery devices to be used in selling merchandise have been universally upheld on judicial review despite the fact that such devices are not put to their intended nse until they have left the channels of interstate commerce (just as the respondent' s brochures are not displayed for sales purposes until they have come to rest jn the hands of respondent's agent, within a State). See Seymou1' Sales Co. v. FTC 216 F. 2d 63:1, 635- (D. C. Cir. 1954), cert. denied 348 U. S. 928 (1955), and eases therein cited. The idea of a field of enforcement divided between 5 "\5 rccently fl April 2, 1956, the Supreme Court of the 'Cnitpd States reaffrmed tbls principle in l'emlsylruuirt \'. Nelson 3,50 e. S. 497 . declaring that where the Fedentl Government had occupied the field of protecting against sedition. States were not thereby prevented "from prosecuting where the !;!IIDe act constitutes both a Federal and a State offense under the pollee power THE AMERICAN HOSPITAL AND LIFE I:KSURANCB CO. 11 Ii 1100 Opinion Federal and State Governments is embedded in a number of statutes in addition to the :fcCarran-Ferguson Act. Examples of these are acts dealing with thc sale of liqnor (the Wilson Act 26 Stat. 313 and the 'Webb-Kenyon Act, 33 Stat 699), convict-made goods (the Hawes-Cooper Act, 45 Stat. 108'! , and the Ashurst-Sommers Act 49 Stat 494), oleomargarine (32 Stat .193), diseased plants (44 Stat. 98), black bass (64 Stat. 845), whaling (49 Stat. 1246), prizefight films (54 Stat 686), and the Federal Power Act (49 Stat. 838). In view of our foregoing consideration of the terms, legislative history, and judicial interpretation of the l\fcCarran Ferguson Act we do not think the statute admits of the cOllstruetion placed on it by the hearing examiner.

Respondent points ont that it did not send its advertising materials to sales prospects but mailed them to its own agents in various States for local use, and that hence its advertising occurred only in intrastate commerce. vVe consider such an analysis factitious and nnrealistic. Respondent's annual premium collections on healthand-accident insurance sold by its agents throughout fourteen States amount to about $2 750 000. It employs an indisputable channel of interstate commerce, the mails, for sending advertising materials to its agents, receiving applications for insurance from them, and fonvarding the issued policies to them for delivery to policyholders. The actual interview of a prospect, though it necessarily happens at a fixed geographical point within some State, cannot be isolated from the remainder of respondent's established course of dealing. By preparing its brochures and furnishing them, by mail, to its agents in various States for their use in sales presentations, respondent engages in an interstate commercial1 practice that must be viewed as a whoJe and not compartmentalized. Consolidated Manufacturing 00. v. FTO 190 F. 2d 417, 418 (4th Cir. 1052). under the Federal Trade Commission Act, one who sells through agents in other than his home State must answer for deceptive advertising which he supplies to his agents, even though such representations are by necessity conveyed to the public within a particular State. Oeneml illators Co. v. FTC 1H F. 2d 33, 3G (2d Cir. 1040); Ford Motor Co. v. FTO 120 F. 2d 175 , 183 (6th Cir. 1041) .

The Commission is accordingly of the opinion that the hearing examiner erred in not holding that the Commission had jurisdiction over such of respondent s practices in jnterst.ate commerce as might be found to be unfair or deceptjve irrespective of the existence of State statutes applicable to the intrastate clements of su('h practices. ,Ve turn now fa the Lppeal from the hearing examiner s dismissal1 of the complaint for lack of substantial evidence. 45152. 59- ____ _ . __ Opinion 52F.

Respondent was charged with falsely representing, among other things, that the indemnification provided by its policies might continue to the age of sixty, or for an indefinite period, at the option of the insured. The sole evidence adduced on this allegation consists of brochures which state as follows, or similarly: NO AGE PROVISION terminating or reducing benefits because of increasing' age and- POLICY FORM ASA Issued to Men and Women, ages 18 to 60. Only persons engaged in non-hazardous occupations are eligible and all applicants must be in good health.

We do not believe that these two statements, separately or together, particularly in the absence of assertions of lifetime duration or any other definite period of coverage, can be reasonably read as meaning more than that respondent's policies contain no provisions terminating or reducing benefits on account of increasing age and that applicants for such policies must be within the age limits specified. It is true that respondent's accident-and-health policies are term contracts renewable at the . option of the company on the premium data. However, nothing to the contrary is expressed or reasonably implied in the aforequoted statements and we therefore discern therein no capacity or tendency to deceive. We uphold the hearing examiner s dismissal of the complaint in this respect. Respondent was next charged with falsely representing that its policies provide indemnification for all illness or accidents. To prove this charge there were introduced respondent's brochures containing broad, general representations, of which the following are typical:

(OONFINING) ( ILL KESS PER (IKDEMNITY) MOKTH for loss of time from ilness, beginning on the fourth day and continuing for ODe year for each ilness. (Up to two months full benefits for nonconfining ilness.

Total Accident_ per month Disabilty for loss of time from accidental injury beginning with the first day of disabilty and continuing- for life if you are totally disabled. Partial Accident- per month Disabilty for loss of time from accidental injury, beginning with the first day and continuing for period of partial disabilty (limit 3 months). $ _ _ , _ THE AMRICAN HOSPITAL L"'D LIFE INSURANCE CO. 1119 lido Opinion In conjunction with the foregoing there WBrc introduced copies of respondent's policies containing conditions substantially limiting the illness and accident bcncfits advertised. The examiner found that the charges in this regard were not supported by substantial evidence, not for the reason that the representations were Dot proved nor that the terms of the policies did hot nmterialJy limit the advertised benefits, but for:a ;Rumber of other reasons which are in onr judgment unsonnd and contrary to controlling precedent. The examiner attached great weight to the bet that thc brochures in question included a statement to the effect that benefits therein described "are subject to the terms of the policy issued. " ,Ve are not in accord with the examiner s view that such a notice is suff cient to correct erroneous impressions given by the representations CONFINING ILLNESS IKDEMKITY- per month for loss of time from illness, beginning on t.he fourth day and con6nuing for one year for each ilness " or "TOTAL ACCIDENT DIS- ABILITY- per month for loss of time from accidental injury, beginning with. the, first day of disability and continuing for life while yon are totally disablcd." Respondent's vice-preside11L W. C. Murphy, testified that an agent' s sales kit consisted of the sales brochures, a rate book and, I guess, a fountain pen " and that respondent's agents are not required to carry sample policies with them. These sales brochures consist of an application form and a receipt form for the initial payment. These bets lead ns to believe that many applicants do not see Jample policies before executing formal applications for respondent's insurance. We consider this circl!!1stance significant. In the context of the sales presentation, in the course of which the prospect has little or no opportunity to inspect a sample policy, the !;ales brochure, we are convinced, clearly has the tendency and capacity of misleading as to the extent of coverage. We disagree with the examiner statement that if the prospect would read the entire page he would see that all benefits are subject to the terms of the policy and then if interested he would naturally inquire of the agent as to the terms. Bather it is our view that the brochure functions as a self-contained piece of advertising that of itself is likely induce a prospect to purchase respondent's insurance. Furthermore, we do not believe that the prospective purchaser is under any obligation to investigate the extent to which respondent' unrestricted representations of coverage for illness or a,ccidents are untrne. "Under repeated decisions, the purchaser is entitled to rely upon the representations made. He need not distrnst what is told him. . . . It goes without saying almost that it is extremely , , , 1120 FEpERAL TRADE COMMISSION DECISIONS Opinion 52 F. T. C;

diffcult for a layman to nnderstand the terms and conditions of such policies as these, bnt whether the applicants did or did not read and understand the policies is beside the point." United States v. Sy/;vanus 192 F. 2d 96 , 105 (7th Cir. 1951) cert. denied, 342 S. 943 (1952).

. the busy or careless businessman is entitled to protection from deceptive printed forms, e.ven though an . attentive, careful person would not be deceived thereby, Independent Di-rectory Oorp. v. FTO 188 F. 2d 468 , 470 171 (2d Cir. 1951), it does not devolve upon respondent's prospects to ascertain the extent to which respondent' advertising mayor may not exaggerate. or falsify. The Federal Trade Commission Act is violated if the first c.contact or .interviev'l is secured by deception even though the true facts are made known to the purchaser before he enters into the contract to' purchase. Oarter Products, Inc. v. FTO 186 F. 2d 821. 824 (7th Cir. 1951). Another questionable premise in the examiner s reasoning is that any reasonably intelligent person considering the purchase. of health and accident insurance would be expected to know that health and accident policies do not ordinarily cover a11 ilnesses and all accidents, regardless of their nature or time of origin or occnrrence." Apart from the fact that the Federal Trade Commission has the duty to protect not only the "reasonably intelligent" but also the ignorant\ the unthinking, the credulous, and the inv. FTO 143 F. 2r1 676.experienced OharlfeB of the Ritz Dist. Oorp. 679 (2d Cir. 1944), we question whether the fact asserted by the examiner to be common knowledge iJ it be a fact- is generally known even to the "Reasonably intelligent. It, is certainly not beyond the realm of actuarial conceivability: not to say possibility, that in these United States in the mid-twentieth century insurance could be written which would afi'ord protect.ionagainst all illness and all aeeidents.

The examiner noted that no proof of Rctl1al deception was offered and declared Absence of such evidence justifies a presumption that none existed. Despite his disclaimer of reliance on such a presumption, it evidently was one of the considerations impelling error. It washim to dismiss these charges. This 1S manifest firmly established long since that "dual deception of the public need not be shown in Federal TradeColYlInission proceedings and that representations having a, capacity to deceive are unlawful. Oharles of the Ritz Dist. Corp. v. FTO, supra 143 F. 2d at 680 The initial decision devotes considerable space to three decisions of the Supreme Court of iississippi, all involving private Jitigation, in which that Court. accorded a morp liberal interpret.ation THE AMERICAN HOSPITAL A D LIFE 11\SURANCE CO. 1121 1100 Opinion to the conditions contained in accident and heart.h policies similar to those here than t.their literal intendment would seem to just.ify. He concludes from these holdings that the conditions are not so burdensome as to render untrue respondent's broad representations. The decisional law of a' single" St.ate is no sure guide to the interpretations that other States may place on respondent's policies. 1Vhat is more, the fact that a policyholder may eventually prevail over a respondent in an appeal from a jury trial does not rectify the deception inhering in the sales practices whereby he was induced to purchase the insurance. He may be discouraged by the literal terms of the policy from seeking legal redress. 1Ve do not ,consider that the fact that if he perseveres to his State supreme 'court he may succeed in winning an interpretation of respondent' policy more favorable to him than the language literally warrants is a substitute for the protection assured him by the Federal Trade .commission Act.

The hearing examiner discusses at some length the reasonableness ,of the restrictions that respondent attaches to its illness and ac c"ident benefits. This is, of course, not germane to the question of whether respondent' s representations tend to deceive and mislead. 1"here remain for discussion two other charges dismissed by the examiner. It was alleged that respondent had represented its hospital-and-surgical-expense policy to provide for the payment of $150 for any operation serious enough to justify such a surgeon fee. The evidence shows that respondent djsseminates a one-page advertisement which. among other things, st.tes that the policy provides for- SURGERY from $3. 00 to $150. $150.

depending on seriousness of operation The policy to which this refers sets out a long schedule of the -various amounts payable for specified types of surgical operations. Sixty-seven different benefits are enumerated. A mere six of these amount to $150: operations for removal of a portion of the lung, removal of kidney, removal of a portion of the vertebra, removal Df entire prostate or thyroid gland, and cutting into the cranial c.avity.

Only $25 is allowed for removal of tonsils and adenoids. Appraising this advertisement as it is likely to be read by unsuspecting, incautious members of the purchasing public, we gain the impression that the policy will indemnify up to a maximum sum of $150 for any surgical operation serious enough to cost such an amount. Opinion 52 F.

Thus, if a tonsillectomy cost $50, we would think it reasonable to expect that one insured by the policy would be protected to that extent. The advertisement is therefore deceptive and misleading in that it promises benefits which the policy does not corroborate. Lastly, it was charged that respondent falsely represented that its hospital-and snrgical-expense policy would pay maternity benefits in addition to room service and hospital expense. On the advertisements for this type of policy, following a listing of the benefits of room service, hospital expense, and surgery, there is shown as one of the "Additional Benefits: Maternity: Up to $__---- after insurance has been in force for 10 months. We would have diffculty in reading the foregoing as anything less than a representation that the maternity benefit is in addition to the other benefits provided by the policy. In actuality, however the maternity benefit is provided for in a rider wherein it is specified that the maternity benefit shall be "in lien of all other benefits provided in the policy for hospital service." Thus, far from being an addl tional benefit, it is only a substitute benefit, and the representation in regard thereto is hence at material variance with the facts. 'IVe believe that the type of misconception that such advertising- as this can engender in the minds of couples seeking to provide financially for the birth of ehildren is especially vicions. There can be no question that it is a patent deception to describe as "additional" a benefit which excludes participation in other benefits, directly following a broad representation that hospital and surgical expenses are covered.

In view of the foregoing, the initial decision is vacated and set aside, and our findings as to the facts, made on consideration of the whole record including the initial decision, and conclusions and order to cease and desist wil be issued in lieu thereof. Commissioners Gwynne and :Mason dissent.

JOINT DISSENTING OPINION OF CHAIRMAN GWYNNE AXD COMMISSIONER MASON We are unable to agree with the views expressed in the majority opinion. The reasons for our dissent are: first, the opinion completely ignores the intent of Congress in adopting Public Law 15 (McCarran Act); second, it would return the insurance business to the uncertainty and confusion whjch followed the dec.ision in S. v. South-Eastern Ul1derll'riters Association. (1944) 322 U.S. 533. It was to remove this nneertainty and confusion that the McCarran Act was adopted.

Prior to the decision in the South-Eastern Under1'riter8 case regulation of insurance was recognized as a problem for the re- THE AMERICAN HOSPITAL AND LIFE INSURANCE CO. 1123 IlDO Opinion spective states. This was partly because the Snpreme Court of the United States in a long line of decisions from Paul v. Virginia 8 Wall. 168 , to New York Life Imurance Company v. Deerlodge County, 231 U.S. 495, had held that the business of insnranee was not commerce.

Although the business of insurance \vas not subject to regulat.ion under the commerce . clause, it was unlversaJ1y recognized as a business affected with a public interest. Consequently, the states found few obstacles to regulating it to the fnllest extent and in the manner the respective legislatures thought to be for the pubhc good in their particular states. These laws took the form of determining who should engage in the insurance business within the state boundaries, the terms under which the business might be conducted, regulation as to rates to be charged (even to the extent of fixing them, or permitting representatives of insurance companies to do so under state supervision). The right of the states to levy tax and licimse fees, even diseriminating against foreign insurance corporations, was also recognized. See 44 C. J.S. p. 518; LaTourette v. McMa.ter, Im;urance (/01nm1:-:sioner 244 17. 8. 465. Had these regulations been directed at the usual industry engaging in interstate commerce, many would have run counter to paramount Federal authority. For example, the many discriminatory taxing programs were not in accord with decisions of t.he Supreme Court relating to interstate commerce.e generally. Certain state rate regulations were contrary to the philosophy of Federal antit.rust laws. Xo conflict arose, however, because it had been settled that the business of insurance was not intBl'state comnml'ce. This does not mean that the insurance business and the states -in regulating it were free from all Federal constitntional and statntory provisions. They were, of course, subject to such constitutional restraints as the clue process clause, the exclusive, right of Congress to establish post offces and post roads r S. v. Sylvanus (1951), 192 F. 2d 96J and many others. In fact they were, and still are subject to all restraints properly imposed by panunonnt power except as that power elects to exempt thmn. In regulating insurance.e, states act under that great reservoir of power known as the police power. There ate, of course, jurisdictional limitations on the exercise of that power. It may be directed only at activities within the state. It has never been claimed that the states may operate directly in that phase of regulation known as the flow of commerce. K or by no stretch of the imagination can it be said that the McCarran Act intended to give any such power.

1124 FEDERAL TRADE CO:\'l'vlTSSIOX DECISIO::S Opinion :)2 F. T. C. In 1944 in the south-Ea8te1' n Underw1"ite'f'8 case, the court. reversed its holdings of 75 years standing and concluded that t.he business of insurance was interstate commerce. It was also specificaUy held that it was subject to the Sherman Act. The immediate effect of this decision ",vas to bring the business of insurance and the laws of the various states regulat.ing it under the paramount power of the Federal antitrust In ws. Because the inconsistency previously referred to, this created considcrable uncertainty and confusion in the insurance field of which Congress took immediate cognizance.

Confronted with this emergency, Congress had several alterna tives:

(1) It might t.ake no action and a110w the antitrust statutes to be superimposed on the existing state systems of regulation and taxation. This vi'uld create great confusion as to the legal boundaries between Federal and state control. which confusion could only be lessened bit by bit as courts made decisions on specific problems.

(2) It might write a comprehensive law for Federal regulation of insurance -a law which would provide new methods for many matters theretofore handled by the states. and which might make such changes in the application of existing antitrust laws to the peculiar business of insurance as experience had indicated might be necessary.

(3) It might recognize and continue existing or future state regulation by removing the obstacles to that regulation which had been caUed into being by the decision that the business of insurauc" was interstate commerce.

Congress chose the latter course and expressed its choice by the adoption of the McCarran Act. The general purpose of this legis- Jation was to meet the problems created by the South-Ea-stern Underwriters case. The plan for meeting this problem is clearly expressed in the law. It may be reduced to a simple statement as follows: The Congress declares that the continued regulation and taxation by the states of the business of insurance is in the public i.nterest and shall remain, with two exceptions, namely, (1) t.his Act shall not render the Sherman Act inapplicable to agreements to or acts of boycott, com'cion or intimidation. and (2) that after June 30, 1948 (bnt not before), the Sherman Act, the Clayton Act and the Federal Trade Commission Act shall be applicable to the business of insurance, but only to the extent that such business is not. regulated by state Jaw. Thus, in any case, the jurisdictional question may be qnickJy and certainly resolved by finding the answer THE AMERICAN HOSPITAL AND LIFE r:\'SURA CE CO. 1125 1100 Opinion to a simple question, namely, is there state regulation to meet the particular problem presented by the facts. That this is the proper interpretation of the law is indicated by the following: (1) the wording of the statute itself, (2) the legislative history, (3) events which transpired immediately following passage of the la.,v, (4) decisions of the courts interpreting the McCarran Act.

It is: of course, wen set.tled that the power of Congress 11D11er the commerce clause is broad and is also paramount. It includes the right to regulate, 01' even prohibit, the flo\v of things across state lines, the right to regulate the instrumentalities by which commerce is carried on, and also the right to regulate activities wholly within the state, which affect interstate commerce. The power to regulate the so-called flow of commerce covers eVGry species of movement of persons and things, whether for profit or not; every species of communication; every specie.s of tntnsmisslon of intelligence, whether for commercial purposes or othenvise j every species of commercial negotiations, which, as shown by the established course of business, will involve sooner or later an act of transportation of persons or things, or the flow of services or power across state lines. (See the Analysis of the United States Oonstitution as prepared by the Legislative Reference Service. Library of Congress, and cases cited.

The great power of Congress to reguhtte matters wholly within the st.ate but affecting interstate commerce is wen settled in v. Darby (1944), 312 U. S. 100, in which the conrt held that the payment of suhstandard wages wholly within a state affected.d commerce and could be prohibited.

Going with these great powers, and a, necessary corollary to thml1 is the right of Congress to determine where and when these powers are to be used. Thus, it may decline to exercise certain powers; and it may condition its refusal t.o exercise them on the fact of regnlation by the states.

This is exactly what Congress was seeking to do in the icCarl'an Aet. Much of the falJacy of the reasoning in the majority opinion springs from a, refusal to recognize this obvious fact. The majority would decide the issues in this case by applying principles which admittedly were applicable following the decision in the Smdh- Easte'f Underwriters case. They conveniently i l10re the fact that the purpose of the McCarran Act. was to prevent t.he application of these principles.

For convenience, and before discussing the Jaw in detail the McCarran Act is set ont here in fuJJ text: 1126 FEDERAL TRADE COMJ\fISSION DECISIOXS Opinion 52 F.

Be it enacted. by the Senate and H OUS6 of Representatives of the United State! 01 America in Congress assembled That the Congress hereby declares that the continued regulation add taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States. SEC. 2. (a) The business of insurance, and every person engaged therein shall be subject to the laws of the several States which relate to, the regulation or taxation of such business.

(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such insurance: Provided That afterAct specifically relates to the business of January 1, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law. SEC. 3. (a) Until January 1, 1948, the Act of July 2, 1890, as amended known as the Sherman Act, and the Act of October 15, 1914, as amended known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, and the Act of June 19, 1936, known as the Robinson-Patman Antidiscrimination Act, shall not apply to the business of insurance or to acts in the conduct thereof. (b) :rothing contained in this Act shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation.

SEC. 4. Nothing contained in this Act shall be construed to affect in any manner the application to the business of insurance of the Act of July 5, 1935, as amended, known as the National Labor Relations Act, or the Act of June 25, 1938, as amended, known as the Fair Labor Standards Act of 1938, or the Act of June 5, 1920, known as the Merchant Marine Act, 1920. SEC. 5. As used in this Act, the term "State" includes the several States, Alaska, Hawaii, Puerto Rico, and the District of Columbia. SEC. 6. If any provision of this Act, or the application of such provision to any person, or circumstances, shall be held invalid, the remainder of the Act and the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected. While the title to a statute is not, strictly speaking, a part or the law, nevertheless, it is interesting to note that the title is " express the intent of the Congress with reference to the regulation of the business of insurance. Immediately after the enacting clause, occnrs the following: That the Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, . . 4:

This is a clear and positive declaration or Congressional policy, which cannot be read ont or the law. It expressly points ont the character or state regulation and taxation which is in the public THE AMERICAN HOSPITAL" AND LIFE INSURANCE CO. 1127 1100 Opinion interest. It is the "continued regulation . In the past, the states have done all the regulating so far as the commerce clause was concerned. That was to carryon, with the exceptions expressly provided for, and which will be discussed hereafter. There is nothing in this statement or in the entire Act which jnstifies the interpretation that the regulation contemplated was to continue only by the grace of the Federal Trade Commission. Speaking on this subject in Pl'uden.t:al Insurance Company Benjamin 328 U. S. 408, the Supreme Court of the United States had this to say:

Obviously Congress' purpose was broadly to give support to the existing and future State systems for regulating and taxing the business of insurance. This was done in two ways. One was by removing obstructions which might be thought to flow from its own power, whether dormant Or exercised, except as otherwise expressly provided in the Act itself or in future legislation. The other was by declaring expressly and affrmatively that continued State regulation and taxation of this business is in the public interest and that the business and all who engage in it " shall be subject to " t.he laws of the RE'veral States in these respect.s.

Moreover, in taking this action Congress must have had full knowledge of the nation-wide existence of state systems of regulation and taxation; of the fact that they differ greatly in the scope and character of the regulations imposed and of the taxes exacted; and of the further fact that many, if not all, include features which, to some extent, have not been applied generally to other interstate business. Congress could not have been unacquainted with these facts and its purpose war evidently to throw the whole weight of its power behind the state systems, notwithstanding there variations. * * * it clearly put the full weight of its power behind existing and future State legislation to sustain it from any attack under the commerce clause to whatever extent this may be done with the force of that power behind it, subject only to the exceptions expressly provided for. That a declaration of policy by Congress will be given weight by the courts is well settled. See S. Y. Darby, 312 U. S. 100. Continuing, the statute further provides: * * * and that silence on the part of the Congress shall not be construed to impose any harrier to the regulation or taxation of such business by the several States.

Some of the powers granted to Congress by the Constitution are either expressly, or by necessary implication, exclusive and cannot be exercised by the states even though Congress has taken no action thereon and has remained silent on the subject. The power to declare war is an example. Under the commerce c1cause, the line between Federal and state authority cannot be so precisely drawn. This is particularly true in the field of state activities which may or may not have a prohibited effect on interstate commerce. The , 1128 FEDERAL TRADE CO:\IMISSION DECI8WN& Opinion 52 F: T. C:

supremacy of the Congress, when properly exercised in this field is clearly recognized. A diffcult problem arises where the powers of Congress are allowed to lie dormant, that is, when Congress is silent on a given subject. Should jts silence be construed- as a reservation of its power, which will bar any state regulation j" or will it be considered as consent to state action until Congress has spoken? This question has arisen many times and has received a variety of answers, depending upon the circumstances of the particular case.

The question of silence of Congress is not involved in this case. The Congress evidently thought it might be raised, and intended to make its position clear. The inclusion of the above 'lnoted clause indicates how thoroughly Congress has considered this matter and how determined it was to remove all possible barriers to its declared policy of state regulation.

Section 2 (a) provides:

The business of insurance, and e\'ery perron engaged therein, shail be subject to the laws of the several States which relate to the regulation OJ' taxation of such business.

when used in this connection. " subject. to" means '" subordinate obedient to Shay v. Roth Calif. (1923), 221 P. 967: Va,u;" City of LOB Angeles (1890), 24 P. 771. In it long line of cases from Pau.l v. irgirda to New Tod,: L(fe lns'ltrance 00. v. Dee1'Zodge County, insurance companies have challenged their subjection to state regulatory or taxing bnys. The Supreme Court, however, consistently rejectecl this defense on rhe theory that the business of insurance wns not interstate commerce. 1Vhen the Supreme Court in Soulh-Eastern Underwriters reversed its decision: this defense became good, and the business of insurance was subject to state laws, only to the extent that such laws did not interfere with paramollnt "Federal pmvcr under t.he commerce clausc. In Section 2 (a) Congress clearly showed its intention to rem( ve the barricT of its o,vn paramount. power and thus make the business of insurance.e subject to st.ate Jaws: notwit.hstanding the decision in Smdh-Easteni Under'J''luriteJ's. Section 2 (b) provides:

Ko Act of Congress shall be construed to invalidate, impair, 01" supet'sede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon insurance: P'/1)ided. Tim t after January 1 , 1948, the Act of July, 1890, as amended. known as the Sherman Act, and the Act of October 15, 1914, as amended. known as the Clayton Act, and the Act of September 26, 19B, known as tJw Federal Trade' Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulat.ed b;y State law. THE AMERICAN HOSPITAL AND LIFE I SURANCE CO. 1129 110U Opinion Stronger language to give state laws "top billing" could hardly be imagined. The clause beginning with "unless" is particularly significant. "Yhile Congrpss had not legislated directly concerning the insurance business, lt had done 1:0 vdth reference generally to interstate eommercc and with reference to persons and corporations enga.ged therein. The antitrust laws are examples. Congress in Sec. :2 (b) said nOlle of these 1a\ys (except as indicated in the proviso) shall apply to t.he business of jnsurance, unless such law specifically relates to insurance. It recognized: first, that insurance has some problems peculiar to that industry; second, that many states had adopted regulatory systems tailored to the ill- SllrHllL' C business in their boundaries; and, third, that any attempt to superimpose the general lawi: regulating commerce on these systems would create great confusion.

The proviso applies only to the provision immediately preceding it. Dahlberg v. Y O1lng (1950) Minnesota -12 K.W. 2ml 570. It provides an exception to the goneral statement preceding it, "hlch exception is that the three Acts named therein shall, after January 1 \ 1948: apply to the business of .insllrance but only to the extent that such business is not regulated by sbLte law. This proviso was adopted to answer cri6cism of the original Flonse bills, which provided simply that certain laws shall not apply to the business of insura,nce or to acts in the conduct of that business. In other words, in the original bills, the Honse proposed to wash its hands of the whole matter, regardless of whether any particular state had provided re ulation. The final version, which 'vas ac. cepted by the Honse without objection, simply conditioned Federal withdrawal from the field on the fact that the particular state had provided regulatory laws. In view or the strong stand taken by the House in favor of continued state regulation, it does not seem reasonable that it would have accepted, without question, this final version, if (as claimed by the majority) such version set up concurrent jurisdiction, with the Federal power paramount to t.he state power.

vvnat Congress had in mind is further illnstrated by Section 3 (a) which provides that until J anuary 1, 1948, the antitrust htws should in no event apply to the business 0-1 insurance. The majority claim that the purpose of this moratorium was to give the states timp in which to design a reasonable area of state police power. Beyond that reasonable area, states could not go. That view is based on 11 misconception of the state police power. That power was reserved to the states by the Constitution. It is not up to the Congress to determine whether it is exercised reason- 1130 FEDERAL TRADE COMMISSION DECISJONS Opinion 52 F.

ably. 'Whether exercised reasonably or not, this power is subject at all times, to the pammount power of the Federal government under the commerce clause and other eonstitutional provisions not involved here; and in case of conflict, the question is resolved by the Federal government and not by the states. The whole purpose of the MeCanan Act was to express the Congressional intent that the barrier of paramount po,\yer under the commerce clause was to be removed in the event that the states did adopt regulatory laws. The purpose of the moratorium was to give the states time to adopt such laws. Failing to do so in any particular area, the Federal power would still remain.

Section 3 (b) provides:

Xothing contained in this Act shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion or intimidation.

The 801dh-Ea.stern Undeyw)'iter8 case involved a boycott by a number of insurance companies operating in several states. The Congress concluded that the paramount power of the Federal government in such cases should remain.

The fact that Section 3 (b) js in the law is a strong argument t.he IcCarranagainst the interpl'etabon urged by the majority. If Act left the Federal government ancl the states with concurrent powers (in which the Federal power would necessarily be paramount), why was it necessary to include Section 3 (b)? The legislative history of the :McCarran Act st.rongly supports our interpretation of the jurisdictional feature. While the South-Eastern Underwriters Cle was pending in the Supreme Court, bills were introduced in the House, providing for the unqualified exemption of insurance from the Sherman and Clayton Acts. Thereafter, and a.after considering suggestions by representatives of the K ational Association of State Insurance Commissioners, and also by representatives of the insurance industry, bills were introdncecl both in the House and Senate, which bills with some minor modification, eventually became the ~IcCarran Act. In some respects, these bi1Js further limited the control of TradeCongress, as, for example, in the inclusion of the Federal Commission Act. In other respects, the Federal authority was broadened to retain control, in all cases where state regulation did not exist. The law, as finally passed, is clear on this point; regulaexception of the boycottbon shall remain in the states with the situations where a statesituation, and with the exception of those either did not or could not adopt the necessary regnlations. THE AMERlC.L" HOSPITAL AND LIFE INSURANCE CO. 1131 1100 Opinion There is literally no evidence to the contrary. N ate the following excerpts from the Senate debate.

SENATOR M"L'RDOCK. And it is intended that on the expiration of the moratorium, the Sherman Act, the Clayton Act, and the other acts mentioned wil again become effective, except ATOR MCCARRAN. Except as the states themselves have provided regulation.

SENATOR PEPPER. States may determine whether or not the Sherman and other acts become applicable to the business of insurance? ATOR !\lCCARRAN. Yes.

What was done after the adoption of the YIeCarran Act indicates that the persons concerned had no doubt about the meaning of the Act. The National Association of State Insurance Commissioners prepared a model code for the regulation of the insurance business in accordance with the directions of Congress. This code has been adopted by a majority of the state lcgislatures. Other states have adopted laws which in effect are equivalent. It is diffcult to understand why these actions should have been taken if the parties thereto thought that the net result 'would leave the law as it was just prjor to the McCarran Act, which is the contention of the majority in this case.

The McCarran Act has been considered in four Federal conrt caSBS. In none of them, did the court experience any difficulty in determining what the :McCarran Act meant. In the Sylvanus case the court said:

It is clear, we think that by this legislation, the Congress established a public policy upon the part of the national government to refrain from interference with the regulation and taxation of insurance companies by the several States, In Maryland Oasualty Oompany v. Oushing (1953), 347 U. 409, the Supreme Court said:

Even the most cursory reading of the legislative history of this enactment (McCarran Act) makes it clear that its exclusive purpose was to counteract any adverse effect that the court decision in the South-Eastern Under\vriters case might be found to leave on state regulation of insurance. The Court then qnotes from House Report No. 143, 79th Congress 1st Session, as follows:

It is not the intention of Congress in the enactment of this legislation to clothe the states with any power to regulate or tax the business of insurance beyond that which they had been held to possess prior to the decision in the South-Eastern Underwriters case.

A clearer and more concise statement of the extent of the Mc- Carran Act, and also its limitations, could hardly be fonnel. 1132 FEDERAL TRADE CO;'\BHSSION DECIE.JO Opinion ;:2 F. In North Little Roek l'Tallsportation Co. v. Casualty Reciprocal Exchange (1950), 181 F. 2d, 174, the Court said: The purpose of the McCarran Act was to permit the States to C'continue the regulation of the business of insurance, unhampered, to the extent provided. by the Act, by Federal legislation relating to interstate COllmetTE'. See Prudentia Insurance Co. v. Benjamin supra, p: 429 of 328 -e. In view of what was said by the Supreme Court about the effect of the McCarran Act in the Pl'lIdentiar Insumnce Co. rase and the case of Robertson v. People of State at Calif., 328 U. S. 440, 449, 461., there is no need for discussing the validity or effecti,eness of the McCarran Act. A ruling that it is invalid or ineffectual, we think, would be absurd. The P1'udential In81JA'(f1We Oompany case is cliredJy in point. There, the Prudential company ehalJengcd a statute of South Carolina which imposed on foreign insurance companies as a condition of doing business ,,,within the state. an annual tax of 3% of premiums on business done in the state without reference to transactions, whether interstate or local. It should be noted that the case did not involve purely intrastate matter.rs. which the majority claim is the limit of the ;\IcCal'mn Act's etlecti veness. This state tax was clearly discriminatory, affected interstate commerce, and would ordinarily have been stricken clo\vn. However, it wa,s not, and the reason given was that a state tax or regulation discriminating against interstate commerce.e which would be invalid under the commerce dause, in the absence of action by Congress, may be validated by the affrmative action of Congress consenting thereto. The only difference between the Prudential case and the one at bar is that the former deals with state taxation and the latter with state regulation. The McCarran Act covers both. The majority view of jurisdiction under the l\icCarran Act is entirely different. They say the McCarran Act "was designed to permit the states to regulate in the traditional manner the business of insurance.:' They obviously do not mean they are permitted to regulate it as they did prior to the SO,/,th-Eastern Underwriters Case, bee-a use their decision in this case asserts the paramount po,vel' of Federal laws over those of the states. No law of Congress vms necessary to give the, states a right to carryon activities ,within their O\vn borders, designed to regulate, insnrllIlce. That is c.covered under the police power, guaranteed to the states h:v the Constitubon. Just as Congress with reference to pO\Yer Hnder the commerce clause, state legislatures may exerc.ise these powers or not as they choose, subject only t.o their own and the Federal Constitution, The real problems arise when the pxercise of these powers come in conflict with the. commerce elause. , THE AMERICAN HOSPITAL AND LIFE INSURANCE CO. 1133 1100 Opinion There, the Federal power is paraUlOunt. Parker v. BTown, 317 S. 34. Southe"" Railway Company v. Railroad Comm. of Indiana 236 U.S. 439. But, as was pointed out in the latter ease Congress could have circumscribed its regulation so as to occupy a limited field. This intention to occupy a limited field is the very essence of the lIcCarran Act.

Just how far the majority would go in disregarding this intention is well illustrated in the case at bar. For example, suppose a state having the model code should decide that certain advertising disseminated therein did not violate the lo;w. Nevertheless the Federal Trade Commission asserting its paramount power to regulate the flow of commerce into the state comes to an opposite conclusion. Or suppose the state offcials held the advertising was illegal, while the Federal Trade Commjssion held to the contrary. The majority decision does not recognize state regulation; it de strays it.

The cases cited do not support the majority position. Of course the Federal government, under the commerce clause, may regulate the flow of lottery devices into a state, regardless of state laws on the subject. The reason is that Congress has never enacted in the lottery field an equivalent of the "IeCarran Act. It requires a violent stretching of the imagination to find any support in the Sylvanu8 decision. There, the defendant was indicted under statute Prohibiting the use of the mails to defraud. The power of Congress in mail fraud matters does not depend on interstate commerce; it is based all the exclusive Const.itutional right to control the mails. Prior to the South-Eastern Undcnvriterscase immediately after and prior to the l\IcCarran Act, ,md under the McCarran Act, the result would have been the same. As the Court well expressed it This indictment does not have to do with the regulation of the insurance business in Illinois. Rather it has to do with the question of whether defendants have used the mails in pursuance of a scheme so to manipulate their authorized regulated business in Illinois as to result in fraudulent deception of its prospective policy holders. The charge is not t.hat the corporate charter should be ignored or that tile ac1minjstrative offcers of Illinois may not perform their statutory duties and supervise and regulate the company s insurance business in illinois, but goes to the use of the ma.ils over which Congress has by the Constitution paramount pmve.r and authority. The fcCarran Act arrests the overriding power of the Federal government under the commerce clause as it affects insurance, where 45152- BG- - 1134 FEDERAL TRADE CQM:rnSSIOX DECISIONS Opinion 52F.

the states have regulatory laws. owhere does the Act express any intention of doing the same with the power to regulate the mails, the power to enforce due process, or the many other constitutional powers.

To us, the conclusion in inescapable that under the majority view the l\1cCarran Act accomplished nothing. Courts will not presume that a statute was meant to have no effect. On the contrary, it will be presumed that the legislative body intended to make some change in existing laws, particularly where the whole history shows they intended to remedy what they thought was an existing evil. This rule is llsually applied in situations -where the over-all intent is not clearly expressed in cleaT language.

I-Iere, the majority "auld reverse these well-known rules of statutory construction in order to prove that Congress accomplished nothing. They, in effect: Tewrite portions of the fcCaflan Act as follmvs:

That the COllgress hereby decbl'cs that paramount regulation and tnxat-ion hy the Federal government of the business of insurance rather than the continuea regnlahon an(l taxation thereof by the severnJ states. -is in the public interest. Section 2. (it) The business of insurance, and every person engaged therein shan be subject. to the laws of the several states which relate to the regulat.ion or taxation of such business, only to the extent. that such la,vs do not conflict \\-ith the paramount Federal pO\vcr lllder the commerce clause, Section 2. (b) Any act of Congress. whether it specifically relate to the business of insurance or not. shall be construed to jnvalidate -impair or suspend any 1n w enacted by any state for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such bl1sjness whenever the state law conflicts with such act of Congress. The Act of .July 2. 1890. as amended. knovi' as the Sherman Act. and thc Act of October 15, 1914. as amended known as the, Clayton Act and the Act of September 26. 1914 kno\"n as the Fe(leral Trade Comm-ission Act as amendec1 shan be applicable to the business of insllrance regardless of any st.ate re.gulation on the subject.

Our sec(Jld object.ion to the rnnjority opinion -is that it would return the jnsurance bus-iness to the confusion into which it was plnnged by the South-Eastern Underwriters decision. The nature and extent of that confusion as well expressed by the djssenting judges. The late Jr. Chief Justice St.one said: THE AMERICAN HOSPITAL AXD LIFE INSURANCE CO. 1135 llUO Opinion * " * And in view of the broad powers of the federal government to regllate matters which, though not themselves commerce, nevertheless affect interstate commerce WIckard Y. Pilb1l1"n 317 1: S. 111; Parish Alliance v. Labor Board Bup there can be no doubt of the power of Congress if it so desires to regulate many aspects of the Insurance business mentioned in this indictment. But the immediate and only practical effect of the decision now rendered is' to withdraw from the states, in li-rge meaSUl' , the regulation of insurance and to confer it on the 11itional go,ernment, which has adopted no legislative policy and evolven no scheme of regulation with respect to the business of insurance. Congress having ial en 110 action, the present decision substitutes, for the varied and detailed state regulation developed oyer a period of years the limited aim and indefinite command of the Sherman Act for the suppression of restraints on competition in the marketing of goods and services in or affecting interstate commerce, to be applied by the courts to the insurance business as best they may.

In the years since this Court' s prOIlOllTCement that insurance is not commerce came to be regarded as settled constitutional c1octline, vast efforts have gone into the development of schemes of state reglJlation and into the organization of the insurance bustness in conformity to such regulatory requirements, Vast Rmounts of capital have been in\:estecl in the business in reliance on the permanence of the existing system of state regulation. How far that system is now supplanted is not and in the nature of things could not well be, explained in the Court's opinion. The Government admits that statutes of at least five states wil be invalidated by the decision as in conflict \yjth the SheniJan .\.Lt and the argument in this Court reveals serious doubt whetlwr many others may not also be inconsistent \with that Act. The extent to which stil other state statutes wil now be inva1idated as in conflct with the commerce clause has not been explored in any detail in the briefs and aq,'1lfDent or in the Court' s opinion.

The late JIr. Justice Jackson said:

The states uegan nearly a century ago to regulate insurance, and state regulation, while no doubt of uneven quality, today is a successful going concern. Several of the states, where the greatest voluwe of business is transacted, have rigorous and enlightened legislation, with enforcement and supervision in the hands of experienced and competent offcials. Such state departments, through trial and error, have accumulated that body of institutional experience and wisdom so indispensable to good administration. The Court' s decision at very least wil require an extensive overhauling of state legislation relating to taxation and superl'sion. The whole legal basis wil have to be reconsidered. What wil be il'etl" ievably lost and what may be salyaged no one now can say, and it wil take a generation of litigation to determine. Certainl y the states lose very important controls and very considerable revenues.

The recklessness of such a course is emphasized when we consider that Congress has Dot ode line of legislation deliberately designed to take over federal responsibilty for this important and complicated enterprise. * * * It is lmpossible to believe tllat Congress, if it ever intended to assume responsibilty for general regulation of insurance, would have made the antitrust laws the sole manifestation of its purpose. Its only command is to refrain from restraints of trade. Intellgent insurance reg'Jation goes much further. It requires careful supervision to ascertain and protect solvency, regulation 1136 FEDERAL TRADE C01fMISSION DECISIONS Opinion 52F.

which may be inconsistent \with unbridled rate competition. It prescribes some provisions of policies of insurance and many other matters beyond the scope of the Sherman Act.

Also it requires sanctions for obedience fal' more effective than the $5 000 maximum fine on corporations prescribed by the antitrust laws. Violation of state laws are commonly punishable by cancellation of permission to do business therein--a drastic sanction that really commands respect. The accident and health insurance industry is H, large and important one; yet, it is a sm dl part of the business of .insurance. This case, under Section 5 of the Federal Trade Commission Act, involves only a matter of advertising. But Section 5 is a comprehensive section which covers many things, such as combinations and restraints under' the Sherman Act and at common law, price fixing, and many other things which the Federal Trade Conunission might hold to be unfair methods of competition. As has been frequently said, insurance is a business effected with a public interest. Many years of regulation in 48 states have developed the fact that insurance has some problems peculiar to the business. One is the Decessity of maintaining an industry whose financial ability to meet obligations accruing many years in the fntnre wil not be undermined by short term considerations. Consequently, the states have asserted their right to regulate the financial policies of the companies licensed to do business in their states, to demand the deposit of certain reserves, to regulate and even limit competition, to fix rates, etc. Some of the regulations permit, or even require, cooperative action among insurance companies which could easily be contrary to the philosophy of the Federal antitrust laws.

In this connection, the majority opinion says: However, as we have already said, our proceeding to abate deceptive practices by such companies does not impinge on those state functions, and we do not believe that the Federal ':trade Commission Act can be properly interpreted to interfere .with the taxing or rate-fixing powers. \Ve have already called attention to the breadth and extent of the Federal power to regulate the flow of commerce and also to the extensive power under the "a.ffecting interstate commerce" theory to regulate matters entirely within the state which were once thought to be far removed from Federal authority. In Sonth- Eastern Underwriters, the Supreme Court called attention to the many activi6es of a modern insurance company which involved or affected interstate commerce as we now know it. Such activities are necessarily centered in a home offce. From there and to there flows a constant stream of advertisjng brochures, policies, applications, statements, rate schedules, chrections, etc. These have to do , ,, THE A:\IERICA HOSPITAL A D LIFE INSURANCE CO. 1137 1100 Opinion with all the activities of the insura.nce business and are not restricted to advertising.

In this case, jurisdiction is based on the admitted fact that the respondent sent bundles of advertising matter into states \vhere it was licensed to do business. Actual dissemination of the advertising occurred entirely within the state. Except for the :McCarran Act it is clear this limited proof would sustain paramount Federal jurisdiction. ust how' the majority arrive at the conclusion that similar proof would not sustain Federal jurisdiction in taxing and rate- making matters is not clear. In fact, the decision in North Little Rock Transp07.tation Co. Casualty Recip1'cal Exchange, supr' is to thc contrary. That case involved an appeal from a summary judgment of dismissal of a treble damage suit. The dismissal was based upon a determination that the fixing of rates by thc National Bureau of Casualty Underwriters for casualty insurance written in the State of Arkansas by the members and subscribers of the Bureau is not violative of the Sherman Act, as amended. Thc Court adopted the findings of the District Court, Olle of which was:

3. In the absence of public regulation or Congressional exemption, the price fixing acti,ities of the Bureau involved in this case would constitute a violation of the Sherman Act. 85 F. Supp. 90.1, nt p. 964. The Circuit Court of Appeals affrmed the holding of the District Court that the McCalTan Act permitted the State of Arkansas to continue the regulation of insurance in the matter of rate fixing,. which regulation, without the IcCarran Act auld have violated the Sherman Act.

It is our conclusion that the majority opinion would bring tremendous confusion in the insurance industry and would opeu the door wide to complete Federal control. IV rc not discnssing the relative merits of Federal versus state control. All we say is that the decision belongs to Congress and not to a Federal bureau. The hearing examiner, after applying the jurisdictional tests to which we subscribe, concluded that in all st tcs in which respondent was licensed to do business, except l\iississippi, state regulation did exist. The hearing examiner then considered the alleged ilcgal advertising in :Mississippi and concluded that it did not violate the Federal Trade Commission Act.

We have repeatedly pointed out th, under the McCarran Act the Federal Trade Commission has some jurisdiction in the business of insurance. "Within that jurisdiction, and in performance duties imposed by Congress, 41 complaints have been issued. Where the Commission has jurisdiction, we would hold insurance companies to a high degree of responsibility in their dealings with the pnblie. 1138 FEDERAL TRADE CO;\OlISSION DECISIONS Opinion 52 1' . 1\ C. Consequently, we do not approve of some of the statements made by the hearing exa,miner in his consideration of the advertising in question.

However, that matter is not now before us. Since the filing of the initial decision, :1Iississippi had adopted the model code, effeelive as of February 29, 1956.

The la,v governing such a situation is clearly expressed in United Corporation, et al. v. Federal Tmde Commission (1940), 110 F. 2d 473, as follows:

And since the power' of the Federal Trade Commission is purely regulatory and not punitive, it is clear that jurisdiction must exist at the time of the entry of its order. Jurisdiction at the time of the commission of acts objected to as unfair trade practices or at the time of the filing of the complaint with regard thereto is not suffcient; for the order to be entered does not relate to past practices or determine rights as of the time of the filing of the complaint, as in an action at law, but commands or forbids action in the future. In Chamber of C07nme1'Ce of Minneapolis, et al. v. Federal Trade Oommission (1926), 13 F. 2d 673, the Court said: As the orders ot the Commission are purely remedial and pre ventative, the effect thereof is entirely in the future. Therefore, the jurisdiction of the Commission should, in this respect be measured C.Olll- as of the time of the order rather than as of the filing of the plaint or as of the hearing thereon.

It thus appears that in every state involved in this case, state regulation now prevents further action by the Commission. In aecordanee with the views expressed in this dissent, we would deny the appeal and dismiss the complaint. ADDITIQ),' AL V1E'\VS OF C03IJHISSIONER JUASON The issue here resolves itself basically int.o that ever fundamental question states rights versus centralized government. Our problem is not the determination of which philosophy is right-that is a legislative function. Our sole dut.y is to dctcrmine which road Congress has directed us to follow in the instant matter. In my opinion, if the rationale on ,yhic.h the majority bases its deeision in this case sta,nds, it must of necessity fol1mv that the Federal Government has almost unlimited control over the management of the insurance business.

This would apply not only to false advert.ising of health and accident policies, the present center of ani' attention in 41 m\ses, but such would include all other aspects of the business of insurance, RS the approval of policy forms, the esta.blishment of rates, the maintenance, of reserves, t.he regulation of agency commissions, and THE AJ.IERICAN HOSPITAL AND LIFE INSURA.'.TE CO. 1139 1100 Opinion the countless other components of the internal management of any single company or companies.

To transfer in one fell swoop the control of every phase of the business of insurance, whether regulated or not by state law, to tho Federal Government when crossing state lines is to flout the expressed intent of Congress.

1140 FEDERAL TRADE COM vnSSION Decisions Complaint 52 F.

Ix THE ~fatter OP CLOVER FAR.:\ STORES CORPORATION ET AL.

CONSENT ORDER , ETC. , IN REGARD TO '.rhe ALLEGED VIOLATION OF SEC. 2 (C) OF T1 IE CLAYTON ACT Docket 6444. COJnpla.int, Nov. 8, 1955-Decision, Apr. 24, 1956 Consent order requiring 27 \\hclesale grocerJ' iirms, their wholly owned service corporation, and its subsidiary, to cease discriminating in price in violation of Sec. 2 (c) of the Clay-ton Act as amended, through receiving and accepting from sellers, brokerage and other compensation for services commonly rendered by independent brokers \yllich Clover replaced in many transactions between sellers and respondent wholesalers. Before 2111.. Abner E. Lipscomb hearing examiner. Mr. Edwa/i'd S. Ragsdale and Mr. Cecil G. Miles for the Commission.

Mr. Ne1cell Blair of 'Washington, D. C. , and Mooney, Hahn Loeser, Keough Freedheim of Clevehnd, Ohio, for respondents. CO:UPLAINT The Fede.ral Trade Commission, having reason to believe that the parties respondent named in the capt.ion hereof, and hereinafter more particularly designated and described, have violated and are now violating the provisions of subsection (e) of Section 2 of the Clayton Act ('C. C. Title 15 , Sec. 13), as amended by the Hobinson-Patman Act, approved June 19 , 1936, hereby issues its complaint stating its charges with respect thereto as follows: PARAGRAPH 1. Respondent Clover Farm Stores Corporation he.reinafter sometimes referred to as respondent Clover, is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Ohio, with its princil"l1 offce and place business located at 2135 Columbus Road. Cleveland, Ohio. It is whony owned and controlled by a. group of wholesa.le grocery firms, all or substantially all of which.h arc t.he respondents listed in Paragraph Three. Said respondent was incorporated in Ohio on ..tugust 1 , 1947, although the business had been operated under the same corporate n:Ulle ns a DehL"\Yare corporation by substantially the same owners and along similar lines for many years prior to its incorporation in Ohio.

PAIL 2. Respondent The Lane-Lease Co. , Inc. , is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Ohio, with its principal offce and place of . ( j . ...___ ___._ _._ , __ ___._ __.. _. _ _ ._ , _ , , CLOYBH l;ATIM STORES CORP. ET AL. 1141 1140 Complaint business located at 2135 Columbus Road, Cleveland, Ohio. It is wholly owned and controlled by respondent Clover and hereinafter a rcfere,Ilce to respondent Clover hr to be interpreted as including respondent The Lane-Lease Co. Inc. Said respondent was incorporated in Ohio on K ovember 16, 1940, although the business had been operated as a Dela,\YHTe corporation under a somewhat similar name (The Lane-Lease Company) by substrmtiaJly the same 01Hlers and along similar lines for many years prior to respondent' s incorporation in Ohio.

PAR. 3. Each respondent named below is a corporation ,,,which is organized, existing, and doing business under a,nd by virtue OT the lois of the state specifiecl, and whose, principal offce and place of business is locat.ecl at the address shown, opposite its llame: Re" l(lent Str.te of incorporation I L'Jcation of princip:'l offce and place of bils1IWSS The B:;Y Gil:i:J! Compr.ny.--- PCIlIls;,lvania 'Ury' E ami 10th St.. . Tyrone, P:l. .Fox C1ri'eery Company_ P8Jlnsyli:mia___ 3no )JcKean A. ve" O!;arlel'oi, Pa. The .Jo m Blacrl's Sons Compo.n:r_ . 1u\\o.-- -- GOI) JstSt. SE " Cedar R:1pid, Iowa. W. E. (1 b():' n Company_ - Penn.y!v3nia-- 3t, St. and 5th Ave- Nc',. Brigbton, Pa. Tos. A . God\hll'd Company_- - ' Indmn L-- 215 'Vest Seymour St. , :\rUllCH , lnrl. Frey'" Son, Inc_ MarylanrL_. 14IJ Cherry H111 Rd., Baltimore, )dd. Conso:id"tecl Foods, Inc_ - Sew llampshire- .3,,; 'Yest Holls St ., Kr.shufl, N. II. Kre1Ulini!. 1PP Grocer Com- ' :?llssomL_ 3S00 Sortb Broadway, St. Loui, 1-10. Tagemcm-B(1()e Company- II Ilmois__, j 1704 En.Bt Jefferson St. , Springfield The F .), Bcw;:ey Co- I Obio_ 91 \Ycst Umon St., Athens, Ohio. M. ny. l(lCkj nc_ 1ke 7 North D St.: York, r =,?Ylvania___ GUJcr & CalklD, Cumpany-- ..1 , Llll01S-- - "ping S t. and ulherty Ave., Freeport, Il. Arthur J. Thn on Company-- , 'Visconsin -- 411 with Ave., Ashland, ''118. The HOlnOr.GqyJord Company---- c:ot VU!'lliD.__--__ - (JOt Baltlmorc St., Clark:obu!g, 1V. Va. Dand l ;I'k Som compmlY- Ohio_ J lad Ea t Saudusky St- , Finctlay, Ohio. Layton &: Company, Iuc__ --- DeliJware-- -- .- Dhision St. and Penn ylvania RR. , Dover, Del.

The Lee()nm & -Worrall Company- I PennsyivanicL__ - 200-202 Center Ave" Butler, Fa. Petcl' G. l. ennon Company__ : Dlinois-- 114 Lafayette St, Jol;et, Ill. )'Ialtby, Inc- _u_ ClJestnut St" Cornllg, N. Y. -. 1 Kew YOlk_ 09 J'ortnern Sales Company, 71 Rangor St. , Houlton, Maine. 111c_ -- I\IAme------- Plumb &: .\:('1-011 Company_ -- 'Yisconsin 711) Buffalo St., Manitowoc, Wis. The Theo Pocbler Mercantile Kansas-- - 701 East with se, Lawrence, Kans. Rice Lake Grocer Company_ -- 'ViSrOllin IIi East Messcng r St., Rice Lake, 'Vis. ----- Ma.sachusetts--_-- .- 203 Summer, 1Ilass.K Cornp2nyT. Smith Co-- St. , worcester Standard Wholesale Co. , Inc--_- - Rhode Island_ -- 63-ns Lung 1Vlmrf, Newport, R. ples.PJattE'r Company_----_u- Tyxas_ --_u_ 19 Jones St" Fort Worth Tex. Wilcox Brothers Grocers 1nc_ - :;e\\" Yl'rk II 14i2 West 1st St. , Oswcgo . Y.Barrow Grocery Company, lnc_ ! Virginf::L - Black,;tonc, V'I Said respondents are the wholesale, grocery firms referred to in Para.graph One and are sometimes hereinafter referred to as respondent members.

PAR. 4. R.esponclent Clove.r is now, a.nd continuously since its organization in 1947 has been, engaged in acts and practices which facilitate transactions or purchase and sale of food products, grocery products, grocers' supplies, and grocers' equipment between sellers aT such products a.nd respondent members who purchase such food and grocery products Tor resale to retail grocery stores and who purchase such supplies and equipment for their own use and for resale to retailers.

1142 FEDERAL TRADE CO:vnSSION DECISIONS Complaint 52 F.

In most of such transactions the member respondents order directly from and are invoiced by the sellers; bnt in others the member respondents order from and are invoiced by respondent Clover which is invoiced by the sellers.

Said acts and practices of respondent Clover consist in part of making arrangements with the sellers to sell products under brands which are owned by respondent Clover; of designating such sellers as approved suppliers; of listing such seners in a book supplied by respondent Clover to respondent members; and of urging respondent members to buy directly from such sellers. Respondent Clover engages in substantially similar acts and practices with respect to the same and other sellers as to products sold under brands owned by the sellers.

Most of the transactions are between sellers and respondent members located in different states; and most of the products involved in such transactions are shipped across state boundaries. PAR. 5. In engaging in the acts and practices above alleged respondent Clover is performing services commonly Tendered by independent brokers which respondent Clover replaces in a large number of such transactions of purchase and sale. In consideration for such acts and practices, many of the sellers payor grant to respondent Clover, and respondent Clover receives and accepts from such sellers: sums of money as brokerage and as allowances and discounts in lieu of brokerage. Prior to about 1953 such sums were typically a percentage of the atpurchases of respondent members. Subsequently many sellers, the instance and request of respondent Clover, paid lump sums, the amounts of which were the same or approximately the same as theretofore paid on a percentage basis.

In some transactions where the seller invoices respondent Clover and it invoices respondent members, the payment takes the form of a discount which is in lieu of brokerage. PAR. 6. The fnnds received by respondent Clover as brokerage , to-and as allowances and discounts in lien thereof are used by it gether with other fnnds received by it from respondent members to pay its operating expenses. \Vhen such funds exceed expenses in any year, the excess or part thereof may be, and often is, distributed to respondent members as patronage dividends. PAR. 7. For many years prior to 1947, respondent Clover s corporate predecessor, referred to in Paragraph One, engaged in the same business as respondent Clover as above alleged. PAR. 8. The acts and practices of respondents and of each of them, as hereinabove alleged and described, violate subsection (c) CLOYER FAR I STORES CORP. ET AL. 1143 1140 Decision of Section 2 of said Clayton Act as amended by the Hobinson-Patman Act.

INITIAl. DECISION BY ABKER E. LIPSCO:\IB, HEARING EXAMINER On ovember 8 , 19;'55, the Federal Trade Commission issued its complaint in this proceeding, charging the R.respondents with violation of subsection (e) of Section 2 of the Clayton Act as amended by the Hohinson-Patman Act, approved June 19, 1936, by receiving lnll accepting, directly or inclh'ectly, commissions, brokerage or other compemmtion, or allowances or discounts in lieu thereof, from many of the various sellers from whom they purchase food and grocery products, grocers' supplies and grocers' equipment in commerce for their own accounts for resale.

Thereafter, on February 3 , 1956 , Respondents filed with the Commission their answer to said complaint, and on )Jarch 5 , 1956 :Respondents CJover .Farm Stores Corporation and The Lane-Lease Co., Inc., by Grant A. :'lasoll, their President and Treasurer, and Gladys S. Clark, their Assistant Secretary, and all the other Respondents herein, except Respondent The John Blanl's Sons Company, by their counsel of record, Samuel G. 1Vellman and Newell Blair: entered into an agreement with counsel supporting the complaint., and, pursuant thereto, submitted to the Hearing Examiner an Agreement Containing Consent Order To Cease And Desist supported by formal statements of consent thereto and authorization therefor by all the wholesale member Respondents entering into said Agreement by their counsel, Samuel G. Wellman and Newell Blair. and an Affdavit executed by Attorney Samnel G. 'We11man attesting to the formal consent by all wholesale member Respondents order con-to t.he form of the proposed consent cease-and-desist tained in the agreement.

At the same time counsel for Respondents submitted a Motion To Dismiss Complaint As To One Respondent, The John B1aul's on Jan- Sons Company, stating therein that said company had, uary 1 , 1955 , prior to the issuance of the complaint herein, ceased to be a stockholder-member of Respondent Clover Farm Stores Corporation, and, by about J line 30, 1955 , had been fully dissolved and its assets distributed. There,with counsel for Hespondents also submitted an Affdavit e:,eented by Thea F. BJau1, the last acting president of The .John Blalll's Sons Company, attesiing to those facts. In vie" thereof, Hnd oJ the fact that counsel supporting the complaint does not oppose, the granting of said motion, the complaint herein ,vill be dismissed as to Respondent The John Blaurs Sons Company.

. _____ ________ . , 1144 FEDERAL TRADE CO?-LVIISSION DECISIONS Decision 52 :F'. T. C. Respondents are identified in the agreement as follows: Each Respondent named below is a corporation which is organized, and . doing business under and by virtue of the laws of the state specified, and whose principal offce and place of business is located at the address shown opposite its name: State of Location of principal offce Respondent Incorporation and pillce of bus1nesfI Clover Farm Stores Corporation-- Ohio---__---- 2135 Columbus Rd., Cleveland, Ohio The Lane-Lease Co., Inc. -- ----- Ohio-_-- 2135 Columbus Rd. Cle,eland, Ohio The Bayer-Gilam Company ------ l'eunsy!vania_--_. Alley K and 10th St., Tyrone, Pa. Fo:: Grocery Company -- Pennsylvania--_. 300 IcKean Ave., Charleroi, Pa. W. E. Osuorn Company Pennsylntnia_-- 8th St. and 5th Ave., New Brighton, PII. J as. A. Goddard Company -- Indiana---------- 215 \\Test Seymour St. :iluncie, Ind. Frey & Son Inc. ----------------- Maryland-------- 1401 Cherry Hil Rd. Baltimore,375 'Vest HollisMd. St.,Consolidll ted !foods Inc. ew Hampshire_- Nashull, K. H. Krennlng- Schlapp GrocerCompany --- Missouri--_--_--. 3800 North Broadway, St. Louis, Mo. Jageman-Bode Company --- Illinois- 1704 East Jetlerson St. Springfield, Ill. The F. J. Beasley Co. ---------- Ohio--_---- 91 West Union St., Athens, Ohio M. B. Glackin, Inc. -------------- Pennsylvanla_--_. 143-47 North Duke St., York, Po.. Guyer & Calkins Company -- -- Illnois__ Spring St. and Liberty .Ave. Freeport, Ill. Arthur J. Hanson Company ------ Wisconsln--_____- 41111th Ave., Ashland, 'Vis. '1'he Hornor-Gaylord Company ---- West Vlrg!nla---- 601 Baltimore St., Chnksburg, W. Va.

David Kirk Sons Company ------- Ohio---__----- 130 East San dusk)" St., Findlay,Di'lsion St.Ohiofind Pennsylvania R.R.Layton & Company, Inc. -------- Delaware Dover, Del. The Leedom & Worrall Company_- Pennsylvania____- 200-202 Center Ave. Butler, Pa. Peter G. Lennon Company ------ Illinois_____- 114 Lafayette St., Jollet, Ill. J. B. :Ma1tby, Inc. ---------------- New York_-__---- 99 Chestnut St. Corning,74 BangorN.St..Y.Northern Sales Company, Inc. --- Maine_ Houlton, Maine Plumb & Nelson Company ----- - \Visconsin_--__--- 716 Buffalo St.. fanitowoc, WIs. 'The Theo Poehler Mercantile Company -------------- Kansas_____---- 701 East 8th St. Lawrence, Kans.

Rice Lake Grocer Company ------- Wisconsin 16 East ::fessenger St., Rice203 SummerLake. WIs.St.,E. T. Smith Co. ----- MasslIehllsetts--_ \Vorcester, Mass. Standard Wholesale Co., Inc. -- Rhode Island- 63-65 Long Whar!, Newport, R. I. Waples-Platter Company --------- '1e::as_----------- 1819 Jones St. .Fort "' orth rex. Wlleo:: Brothers Grocers Inc. ----- Kew York- 472 West 1st St., Oswego, N, Y. Harrow Grocery Company, Inc. _--I Virglnla--_--_---- Blackstone, Va. Respondents admit a11 the jurisdictional facts alleged in the complaint and agree that the record herein may be taken as if findings of jurisdictional facts had been duly made in accordance with such allegations.

CLOVER FARM STORES CORP. ET AL. 1145 1140 Order Respondents, in the agreement, waive any further procedure before the Hearing Examiner and the Commission; the making of findings of fact or conclusions of law; and all of the rights they may have to challenge or contest the validity of the order to cease and desist entered in accordance therewith. All parties agree that the answer heretofore fied by all Respondents shah be considered as having been withdrawn, and for all legal purposes it wi1 hereafter be so rcgarded; that the record on which the initial decision and the decision of the Commission shall be based shall consist solely of the complaint and the agreement; and that the agreement is for settlement purposes only and does not constitute an admission by Respondents that they have violated the law as alleged in the complaint.

The agreement sets forth that the order to cease and desist contained therein shall have the same force and effect as if entered after a full hearing, and may be altered, modified or set aside in the manner provided for other orders; and that the complaint herein may be used in construing the terms of said order. After consideration of the charges set forth in the complaint, the agreement, the documents appendant thereto, hereinabove cited, and the provisions of the proposed order, the Hearing Examiner is of the opinion that such order will safegnard the public interest to the same extent as could be accomplished by an order issued after full hearing and all other adjudicative proccdure waived in said agreement. Accordingly, in consonance, with the terms of the aforesaid a.agreement, the Hearing Examiner accepts the Agreement Containing Consent Order To Cease And Desist; finds that the Commission has jurisdiction over the Respondents and over their acts and practices as alleged in the complaint; and finds that this proceeding is in the public interest. Therefore It is ordered That Respondents Clover Farm Stores Corporation a corporation, and The Lane-Lease Co. , Inc. , a corporation, their offcers, directors, agents, representatives and employees, directly or through any corporate or other device, in connection with the purchase of food products, grocery products, grocers' supplies and grocers' equipment, or other merchandise, in commerce., as "commerce " is define.d in the C1nylon Act, cia forthwith cease and desist from:

Receiving or accepting, directly or indirectly, from any seller anything ofnduc as a commission: brokerage, or other compensation, or any allowance or discount in lieu thereof, upon any purchase made by Respondents Clover Farm Stores Corporation, a corporation, or The Lane-Lease Co., Inc. , a corporation, for resale , .

1146 FEDERAL TRADE CO:vL\fISSION DECIS'IONS Order to thejr stockholder members, or upon any purchase made by any of said members.

It i8 further o1'dend That tbe Respondents, The Bayer-Gilam Company, a corporation, Fox Grocery Company, a corporation W. E. Osborn Company, a corporation Jos. A. Goddard Company, a corporation, Frey & Son, Inc., a corporation, Consolidated Foods Inc. , a corporation, ICrenning-Schlapp Grocer Company, a corporation, Jageman-Bodc Company, a corporation, The F. T. Beasley Compa,ny, a corporation, )\1. B. Glackin, Inc., a corporation, Guyer &0 Canlkins Company, a corporation, Arthur J. Hanson Company, a corporation, The Hornor-Caylord Company, a corporation, David Kirk Sons Company, a corporation, Layton & Company, Inc. , a corporation, The Leedom & 'Vorrall Company, a corporation, Peter G. Lennon Company, a corporation, J. B. l\faltby, Inc. , a corporation, ::orthern Sales Company, Inc. , a corporation, The Theo Poehler Mercantile Company, a corporation, Plumb & Nelson Company, a corporation, Rice Lake Grocer Company, a corporation E. T. Smith Co. , " corporation, Standard \Vholesale Company, Inc. , a corporation. YVaples-Platter Company, a corporation, )Vilcox Brothers Grocers. Inc. , a corporation, and Barrow Grocery Company, Inc., a corporatjon, their respective offce.s directors, agents representatives, and employees, directly or through Clover Farm Stores Corporation, a corporation, or The Lane-Lease Co. , Inc. , a corporation, or any other corporate or other device, in connection with the purchase of food products, grocery products, grocers supplies and grocers' equipment, or other merchandise, in commerce as "commerce" is defined in the Clayton Act, do forthwith cease and desist from:

eceiving or accepting, directly or indirectly, from any seller, or from Respondents Clover Fa.rm Stores Corporation, a corporation or The Lane, Leasc Co. , Inc. , a corporation, or from any other agent, representative, or other intermediary, acting for or in behalf or subject to the direct or indirect control of said buyer H.espondor other.r com- ents, anything of value as a commission, brokerage, pensation, or any allowance or discount in lieu thereof upon any purchase made by said member H.respondents, or for them by Re- , a corporation, or The spondents Clover Farm Stores Corporation Lane-Lease Co., Inc., a corporation, or any other such intermediary. I t is fu.rther ol'dei'xl That the complaint, in ofar as it relates t.o lle,sponclellt The .John Blaurs Sons Compa.ny, a corporation and the same hereby is, dismissed.

, .

CLOVER FARM STORES CORP. ET AL. 1147 JJ40 Decision DECISION OF THE CO:MMISSION AND onder TO File REPORT OF COMPLIANCE Pursuant to Section 3.21 of the Commission s Rnles of Practice the initial decision of the hearing examiner shall, on the 24th day of April, 1956, become the decision of the Commission; and, accordingly:

It is ordered That respondents Clover Farm Stores Corporation a corporation, The Lane-Lease Co., Inc., a, corporation, The Bayer- Gillam Company, corporation, Fox Grocery Company, corporation, 'IV. E. Osborn Company, a corporation, Jos. A. Goddard a corporation, Frey & Son, Inc., a corporation, Consolidated Foods Inc., a corporation, I\'renning- Schlapp Grocer Company, a corporation, Jageman-Boc1e Company, a corporation, The F. J. Beasley Company, a corporation, ~1. B. Glackin, Inc., a corporation, Guyer & Calkins Company, a corporation, Arthur J. I-Ianson Company, a corporation, The Hornor-Gaylord Company, a corporation, David Kirk Sons Company, a corporation, Layton & Company, Inc., a corporation, The Leedom & 'Vorrall Company, a corporation, Peter G. Lennon Company, a corporation J. D. Maltby, Inc., a corporation, Northern Sales Company, Inc. , a corporation, The Theo Poehler Mercantile Company, a corporation, Plnmb & Nelson Company, a corporation, Rice Lakc Groccr Company, a corporation E. T. Smith Co. , a corporation, Standard 'Wholesale Company, Inc., a corporation, ",Vaples-Platter Company, a corporation, vVilcox Brothers Grocers, Inc. , a corporation, and Barrow Grocery Com. pany, Inc., a corporation, shall within sixty (60) days after service upon them of this order, file with the Commission a report writing setting forth in detail the manner and form in which they have complied with the order to cease and desist. &, &,&: 1148 FE-DERAI, TRADE CQMMISSIOX DECIS,rONS Opinion 52 F. T. C.