The Western world is haunted by the specter of the German government killing millions upon millions of Jews (and others) in concentration camps. I couldn’t sleep when I first saw the pictures in the 1950s. My children couldn’t sleep when they first saw them in the 1980s.
Everything comes around to insurance in the end. Often, the fuse is time-delayed. Usually, it is not as time-delayed, as it has been for Holocaust claims.
The most visible type of claims that have not been paid are life insurance claims. The surface reasons given by non-paying insurance companies were that policy documents were not presented or that there was insufficient proof of death.
One can see how brittle institutions that normally acquire bureaucratic regularity would be persuaded by such reasons, at least until they saw the pictures. Many people believe that insurers have not paid Holocaust claims because they are greedy. “Imagine!” they say, “the insurer gets to keep control over all those millions or billions—which became trillions, perhaps—only to invest it as they see fit until they have to pay a claim, if ever. Even minimally competent financial managers will look good under those circumstances.”
For decades, families have struggled with European insurers to prove claims and get them paid. In the last 10 years or so, the effort has picked up steam and publicity. One wonders why it took half a century to get around to seriously dealing with this problem.
Holocaust legislation
Congress has passed the United States Holocaust Assets Commission Act of 1998. It establishes a commission to look into “the disposition of Holocaust-era assets in the United States[.]”
Moreover, the foreign policy arm of the executive branch of the federal government, the German government, and a number of German companies, entered into “The Foundation Agreement,” which is designed for German companies to fund claims massively after various lawsuits in the United States have been dismissed. The federal government is authorized to file pleadings in these lawsuits as a friend of the court recommending dismissal.
Finally, the National Association of Insurance Commissioners has created a joint commission with some European insurance commissioners to study the problems of Holocaust policies and claims and to gather information.
In 1999 the California Legislature passed the Holocaust Victim Insurance Relief Act (HVIRA). This act required that insurers doing business in California that sold insurance policies to persons in Europe during the Holocaust-era provide certain information about these policies to the California Commissioner of Insurance. This information includes:
• The number of insurance policies sold;
• The holder and beneficiary of each such policy;
• The current status of each such policy;
• Information pertaining to addresses of policyholders;
• Whether proceeds were paid;
• The right of the court to certify a plan for distributing proceeds, if not paid;
• And so forth.
Not only must companies doing business in California provide this information, but any related company must do so as well, and a related company is any “parent, subsidiary, reinsurer, successor in interest, managing general agent, or affiliate company[.]”
California insurers sue
Several insurance companies brought suit against the California Insurance Commissioner to prevent the enforcement of this statute. These companies include: Gerling Global Reinsurance, Winterthur International and Assicurazioni Generali. In addition, the American Insurance Association, a trade association for insurers, joined as a plaintiff.
The Federal District Court for the Northern District of California granted the plaintiffs a preliminary (temporary) injunction preventing the enforcement of the statute upon two constitutional grounds: first, the foreign affairs doctrine and, second, the Commerce Clause in the Constitution.
The commissioner appealed to the Ninth Circuit and the three-judge panel came up with a very odd result. It held that neither of the reasons the district court gave to support its preliminary injunction were sound. Normally, one would expect a circuit court to reverse a district court when this happens. However, the Court of Appeals for the Ninth Circuit held that there was a third ground that, more probably than not, would justify the granting of the injunction. Consequently, it affirmed the granting of the injunction, but sent the case back to the district court to consider the reason it articulated.
Rejecting the arguments
First, the court of appeals observed that the McCarran-Ferguson Act applies to this situation. In that statute, the Congress declared, among other things, that the regulation of the business of insurance belonged to the states, so long as the Congress did not speak. This statute is the foundation of the extensive regulation states engage in when it comes to insurance.
The rights of states to regulate is not unlimited, however. State A cannot use its own insurance law to regulate the rights of citizens of other states who have no real connection to State A. Moreover, Congress did not intend that State A should be able to regulate a group of insurance companies for the benefit of citizens of State B. Sometimes this is called the “dormant Commerce Clause.”
The Ninth Circuit rejected the idea that HVIRA exceeds the constitutional authority of states to regulate the business of insurance. HVIRA does not seek to regulate decision-making of European companies. It only seeks to require California companies to “provide information about Holocaust-era insurance policies that they (or any of their affiliates) issued.”
Of course, it is this last issue that should go to the Supreme Court of the United States. If California requires all insurance companies who now do business in California to identify all insurance policies they ever issued during the Holocaust-era, then they will be inquiring about business a non-California company has done with non-California residents. California authorities, of course, will say that some of those people, or their descendants, might have moved to California.
To be sure, people who are beneficiaries under Holocaust-era policies and who believe that they have rights against insurers, may seek to enforce those rights in California courts. It is also obvious that California state government may try to assist its citizens in bringing these suits.
In opposition, the insurers argue that the Commerce Cause seeks to prevent extra territorial economic effects. They argue that complying with this statute will cost money and therefore constitute an economic effect. The Ninth Circuit held that this effect was simply incidental and hence to be disregarded.
The insurers also argued that HVIRA violates the foreign affairs doctrine implicitly inherent in the Constitution. The Constitution is designed so that the federal government will have the ability to speak with “one voice” on matters affecting foreign policy and commerce.
The Ninth Circuit was dissatisfied with these arguments. For one thing, when Congress passed the Holocaust Act, it expressly authorized the commission the statute created to confer with the NAIC with state governments to obtain information from them. Consequently, Congress has legitimized state involvement in tracking down Holocaust-era insurance obligations.
Furthermore, the agreements that the federal government has entered into with Germany and Switzerland are not affected by California’s HVIRA. Indeed, they are not statutes with pre-emptive effect. There doesn’t seem to be any conflict between HVIRA and any federal regulation. Moreover, California’s law is not directed towards foreign governments, but to companies—some foreign—doing business in California. If HVIRA has any effect on foreign policy, it is incidental and accidental. It in no way has the potential to disrupt and embarrass the federal government in its foreign dealings.
Besides, the panel observed, that United States Supreme Court has been reluctant to strike down state statutes upon the grounds that they constitute a foreign policy interference. The last time the Supreme Court did it was over 30 years ago. In that case, it struck down a state statute permitting foreign nationals to inherit in that state only if citizens of the state could inherit in the foreign country.
The United States Supreme Court did not strike down this statute because, on its face, it invaded federal government’s foreign policy mandate. Indeed, the Supreme Court had upheld a similar statute 50 years ago. The problem was that the state statute encouraged group of state judges to make nasty remarks about a foreign country on public record, and this became a foreign policy problem.
A third reason
Thus, the Ninth Circuit rejected both of the grounds utilized by the Northern District of California to grant the prohibitory injunction. Normally, a court of appeals in this situation would reverse the lower court. The Ninth Circuit, however, thought that there might be an additional reason for upholding the injunction—one that was not used by the district court.
The Due Process Clause of the Fourteenth Amendment provides that persons will not be deprived of life, liberty, or property without due process of law. Over the years, the rule has developed that the Due Process Clause “limits the power of a foreign state to apply its substantive law to factual and legal situations in which it has little or not contact.” This is called the “legislative prong” of the Due Process Clause. One of the insurers argued that HVIRA “violates the most basic norms of fundamental fairness” because it deprives California insurers of licenses for “failure to perform tasks that are literally impossible.” In addition, the reporting requirement is arbitrary and unreasonable, according to the insurer.
At least one other court has come to the same conclusion. In another case also involving Gerling Global Re, a district court held that a state may not legislatively regulate an insurer unless there is some minimal contact between a state and the regulated subject[.]” The Ninth Circuit seemed persuaded by this argument.
In effect, this argument pertains to whether the California legislature has the jurisdiction to pass statutes to inquire into what a company did in, say, Poland, 60, 70, 75 years ago, when it now does a smidgen of business in California.
In effect, the Ninth Circuit is saying that the legislative powers of states are broad, but not that broad. No doubt we will be seeing more of these cases—perhaps even of this very case. Insurance agents will probably be asked about this situation from time to time from Holocaust descendants. Tragedy never ends, as the Greek playwrights know. It reverberates down through generation after generation like a blood curse.
Quinn is an Austin shareholder in the law firm of Sheinfeld, Maley & Kay. He litigates and testifies on insurance related problems and is currently the chair of the Insurance Section of the State Bar of Texas. He also is a Visiting Professor of Law at the University of Texas-Austin.
Topics California USA Carriers Legislation Claims Europe Germany
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