8 Wall. (75 U.S.) 168 (1869), argued 12 Oct. 1869, decided 1 Nov. 1869 by vote of 8 to 0; Field for the Court. During the nineteenth century, fire and life insurance companies were among the first corporations to market products on a national basis. To encourage the development of local enterprise, many states levied discriminatory taxes and license fees against nonresident, or “foreign,” insurance companies chartered in other states. Such protectionist legislation was directed chiefly against large corporations in the Northeast. Paul v. Virginia was a test case financed by the National Board of Fire Under-writers to challenge these discriminatory practices. The case arose when Paul, an agent for a number of New York fire insurance companies, was convicted under a Virginia law for selling insurance without a license.
Company lawyers argued that corporations were “citizens” as defined in the Privileges and Immunities Clause of Article IV and that insurance sales were transactions in interstate commerce under Article I, section 8. A victory on the Commerce Clause issue would have preempted the states from regulating or taxing any aspects of interstate insurance sales.
A unanimous Supreme Court held against the insurance industry on both questions, thereby allowing state projectionist legislation to continue. The decision reflected the nineteenth-century view that corporations were not citizens for purposes of the Privileges and Immunities Clause. The Court ultimately held, in United States v. South-Eastern Underwriters Association (1944), that the insurance business affected interstate commerce, but by then state regulatory systems were well entrenched. Congress recognized this fact by authorizing the continuation of state insurance regulation through the McCarran-Ferguson Act of 1945.
Philip L. Merkel