Opinion
Argued February 19, 1929 —
Decided May 20, 1929.
On appeal from the Essex County Circuit Court.
This was an action at law in the Essex Circuit Court for damages for breach of a contract for negotiating and selling policies of fire insurance. Motion was made before Honorable Nelson Y. Dungan, Circuit Court judge, to strike out the answers filed by the defendants for the alleged reason that they did not set up a legal defense. At the conclusion of the argument the judge declined to strike the answers, delivering the following opinion:
"Separate suits were instituted by the plaintiff against the Hartford Fire Insurance Company of Hartford, Connecticut, hereinafter designated as Hartford, and against the Phoenix Assurance Company, Limited, of London, hereinafter designated as Phoenix, to recover a balance of commissions due to it as agent for those respective fire insurance companies.
"There was a contract between the plaintiff and Hartford at a stated commission which was renewed March 29th, 1928, with an agreement to pay the plaintiff a reasonable sum for its agency efforts, which reasonable sum was fixed at twenty-five per cent.
"On that date (March 29th, 1928) there was a subsisting contract between the plaintiff and Phoenix, then in full force and effect, to act as its agent, which theretofore, under the agreement, had borne compensation at the rate of twenty-five per cent.
"By an act of the legislature of the State of New Jersey, approved on that date (March 29th, 1928), and which took effect immediately, it was provided that it should be unlawful for insurers against hazards by fire to pay or allow any commissions or compensation in excess of a reasonable amount to any of its agents, nor to pay or allow to any local agent any commissions or compensation in excess of that paid or allowed to any one of its local agents in this state.
"Plaintiff was a local agent in the city of Newark, and it appears that the rate of commissions paid to one or more of the local agents of the defendants in this state was twenty per cent.
"Both defendants, therefore, paid to the plaintiff twenty per cent. commissions on business done by it for them after March 29th, 1928, and refused to pay the additional five per cent. which, before that date, they had paid to it. Thereupon plaintiff brought these suits against them to recover the additional amount, claiming that twenty-five per cent. was a reasonable compensation for the agency services.
"The defendants, by their answers, admit the material allegations in the complaint, but plead as a defense the act of March 29th, 1928.
"A motion is now made on behalf of the plaintiff to strike out these answers on the ground that the act is not applicable to the contracts in controversy, as contravening the fourteenth amendment of the federal constitution, which provides that no state shall deprive any person of property without due process of law, and as a violation of the United States and New Jersey constitutions which prohibit the passage of any law impairing the obligation of contracts.
"As to the contention that the constitutional provisions relating to the impairment of contracts is violated by the legislative enactment in question it may be noted that the Hartford contract with the plaintiff apparently expired on the very day the 1928 law became effective, and was renewed on that date, so it must be assumed that the renewal contract was made within that law. As to the contract with Phoenix, it appears that there was a contract in force at that time but no statement appears as to when it terminated, except the statement that the defendant refused, after that date, to pay more than twenty per cent., `and without revoking the contract,' from which it may be assumed that by refusing to pay more than twenty per cent. `after that date,' notice was given to the plaintiff of the amount of the obligation under the contract which the defendant recognized, and which amount the plaintiff received up to the commencement of this suit, but there is no proof or agreed fact that the plaintiff in receiving that amount accepted it in full satisfaction for its commissions under the contract, and it may be, if there was no change in this contract, either express or implied, the legislature is without power under these constitutional provisions to change it until its expiration, in which event, however, it may become liable to the further provision of the 1928 statute which provides that `in case any insurer is convicted of a violation of this act, every local agent of the insurer in this state shall be entitled to the same commission or compensation * * *, and any local agent may recover from the insurer * * * the amount of such commissions or compensation * * * to which he may become entitled under this act.' The question of implied waiver is usually one for the jury, and if that be a proper one to be considered in this case, the answer should not be stricken out upon the ground of the impairment of the obligation of the contract, even though there was no express agreement on the part of the plaintiff to change its terms, but a jury should determine whether there had been such implied waiver and, if so, when it had taken place, and find a verdict accordingly.
"The other question is whether or not the act deprives the plaintiff of its property without due process of law, and therefore is a violation of the fourteenth amendment to the federal constitution.
"Federal and state laws are in favor of the regulation of the business affairs of persons and corporations which affect the public interest, and there are federal and state decisions in almost every state in this country upholding the constitutionality of such laws, provided they are reasonable. Of course the mere statement in the law itself as to the reasonableness of its provisions does not make them so, but that is a question to be decided sometimes by the court and sometimes by a jury. Whether or not the business of a fire insurance company is affected with a public interest is not an open question in this state. In McCarter, Attorney-General, v. Fireman's Insurance Co., 74 N.J. Eq. 372 (at p. 383), our Court of Errors and Appeals said: `The business of the defendants [insurance companies] is in point of fact one that directly affects the interests of the public, and such public interest has been recognized as a subsisting one by the legislature of this state, and that in point of law, the business of the defendants is affected with a public interest.'
"If the regulations prescribed are reasonable, they are valid. Our statute provides that the rates for fire insurance `shall be reasonable.' Since the commissions paid to local agents naturally enter into the cost of such insurance to the public, and therefore influence the rates which must be charged to the public for such insurance, it is within the police power of the state to require that the commissions must be reasonable, otherwise such large commissions might be allowed as to impair the financial stability of the insurance companies, and thus imperil their ability to meet their financial obligations to their policyholders.
"Since twenty per cent. is the amount of commissions paid to some of its local agents, the effect of this legislation is to determine that a commission in excess of that is unreasonable. The presumption is in favor of the reasonableness of the law until the contrary is made to appear.
"In the facts or argument, there is nothing to overcome that presumption, and therefore the answers should not be stricken out as an unlawful deprivation of the plaintiff of his property without due process of law.
"The motion in both cases to strike out the answers of the defendants will be denied."
For the appellant, Pilgrim Ritger.
For the respondents, Lum, Tamblyn Colyer.
The judgment under review herein should be affirmed, for the reasons expressed in the opinion by Judge Dungan in the Circuit Court.
For affirmance — THE CHANCELLOR, CHIEF JUSTICE, TRENCHARD, PARKER, KALISCH, BLACK, McGLENNON, KAYS, JJ. 8.
For reversal — CAMPBELL, LLOYD, CASE, VAN BUSKIRK, HETFIELD, DEAR, JJ. 6.