American Insurance Assn., et al. v. Garamendi, John, CA Insurance Commissioner

Questions presented: 1. Whether California's Holocaust Victim Insurance Relief Act, which the U.S. government has called an "actual interference" with U.S. foreign policy, violates the foreign affairs doctrine of Zschering v. Miller, 389 U.S. 429 (1968). 2. Whether the HVIRA, which attempts to regulate insurance transactions that occurred overseas between foreign parties more than half a century ago, exceeds California's legislative jurisdiction under the Due Process Clause. 3. Whether the McCarran-Ferguson Act, 15 U.S.C. 1011-1015, insulates the HVIRA form review under the Foreign Commerce Clause.

BY: LAURA BERGER, MEDILL NEWS SERVICE

Fred Jackson's father, on a train heading for a Nazi death camp, told his son that he was old and would probably not survive, but to remember when you get out of here we have insurance policies. He told Fred not to ever forget the name of the insurance company -- Generali -- just like an army general. He repeated the name over and over again, the last words he spoke to his son.

That story is recounted regularly by David Lash, of Bet Tzedek Legal Services in Los Angeles, who has worked for 30 years on behalf of Holocaust survivors and their families.

Fred Jackson survived and tried for years to get information about his father's insurance policy. Generali told him it was too soon after the liberation to file a claim. Jackson waited and tried again and was told that it was too late. As Lash recounts the story, Generali told him he would need a death certificate signed by Hitler, but Hitler didn't issue death certificates. Eventually, Jackson's persistence paid off and he received the money from his father's policy.

Jackson is one of many survivors who have either fought for years to claim a family policy or have yet to receive any money or documents that are theirs. It was common for Europeans at that time to purchase all types of insurance policies, mainly life.

In 1999, dissatisfied with U.S. diplomatic efforts to bring restitution to survivors and their families, the California legislature enacted the Holocaust Victim Insurance Relief Act (HVIRA), designed to facilitate Holocaust-era insurance claims in California courts. The act requires California insurers that sold policies to people in Europe to file certain information about these policies with the California Commissioner of Insurance. HVIRA seeks information such as the number of policies the insurer or related company had in effect during the years of 1920-1945, the name of the holder and beneficiaries of each of these policies, the city of origin and address for each policy, as well as the current status of the policy.

If California insurers fail to comply, they are subject to having their insurance licenses suspended. The insurers contend that because the policies were written in Europe and sold to Europeans as long as 80 years ago, the fact that they are the California affiliate is irrelevant and they should not be forced to disclose policies that they believe are virtually impossible to locate or do not even exist.

Step Zielezinski, assistant general counsel of American Insurance Trade Association, calls the law a "Draconian penalty."

"The law requires you to report thousands upon thousands of insurance records in California or risk losing your license to do business," he said.

In an attempt to bar enforcement of the law, three insurance companies and an insurance trade association sued in federal court in the Eastern District of California. Included among them was Assicurazioni Generali (Generali), an Italian insurance company that issued Holocaust-era policies and currently does business in California. Their claim was that California's law violated the federal government's foreign affairs power and the Commerce Clause, the Due Process Clause, and the Equal Protection Clause of the U.S. Constitution.

The federal trial court sided with the insurance companies and issued a preliminary injunction, finding that they would probably succeed in showing that the California law violated the foreign affairs doctrine and the commerce clause.

A 9th Circuit Court of Appeals panel unanimously reversed on both the foreign affairs and commerce clause arguments, but kept the preliminary injunction in place so the district court could consider the due process claim.

As to the foreign affairs argument, the 9th Circuit noted that the federal government's foreign affairs power is not mentioned expressly in the text of the Constitution but, rather, is "derived from the structure of the Constitution and the nature of federalism."

In holding that the foreign affairs power is not compromised by HVIRA, Judge Susan Graber wrote, "No Plaintiff is a foreign government, nor is any Plaintiff owned in whole or in part by a foreign government; they are, simply, businesses?.HVIRA, on its face, involves commerce alone, and it is not, on its face, directed at any particular foreign country."

In so holding, the 9th Circuit said that the 1968 U.S. Supreme Court's opinion in Zschernig v. Miller doesn't apply to HVIRA. In Zschernig, the Supreme Court held unconstitutional an Oregon probate law that allowed a foreign citizen to inherit from a decedent'sestate only if U.S. citizens could inherit from an estate in the foreign citizen's country. The Court held that state law was an unconstitutional "intrusion by the State into the field of foreign affairs which the Constitution entrusts to the President and the Congress."

The 9th Circuit conceded that HVIRA touches on foreign commerce. However, the court added, there is more to the analysis than that. The issue, Graber wrote, is "whether the federal government has chosen to permit the states to act." The 9th Circuit concluded Congress did in 1998 by enacting the U.S. Holocaust Assets Commission Act (Holocaust Act). The federal law established a commission to examine issues pertaining to the disposition of Holocaust-era assets in the United States and asked for detailed information on the Holocaust-related claims and practices of insurance companies, both domestic and foreign.

"If Congress was expecting a detailed report on the claims practices and policies of 'foreign' insurance companies from an organization consisting only of state insurance regulators, Congress must have expected that the regulators would be acting pursuant to state law," Graber wrote. "Congress must also have been aware that, in order to fulfill the Holocaust Act's broad objectives, state insurance commissioners might have to require the foreign affiliates of domestic insurance companies to search a foreign office for information on Holocaust-era policies."

Therefore, the 9th Circuit concluded, Congress recognized that state laws such as California's could assist in the gathering of information.

As for the commerce clause, the 9th Circuit pointed to the McCarran-Ferguson Act, which left the business of insurance to the states. "HVIRA is a California insurance regulation of California insurance companies that affects foreign commerce only indirectly," Graber wrote. "Consequently, the McCarran Act applies and the dormant Commerce Clause does not."

Though the 9th Circuit upheld HVIRA against the constitutional objections addressed by the district court, the court left open the possibility that the California law could still be voided under the "legislative prong" of the due process clause. That clause "limits the power of a forum state to apply its substantive law to factual and legal situations with which it has little or no contact." In fact, the insurers argued that HVIRA "violates the most basic notions of fundamental fairness" because it takes "away the licenses of California insurers for failure to perform tasks that are literally impossible." On that score, the 9th Circuit remanded the case to the district court.

Instead, the insurance companies took their case to the U.S. Supreme Court.

In their petition for certiorari, the insurers claimed that, "if it is allowed to stand, American assurances regarding the resolution of Holocaust-era claims will be cast into doubt, relations with our allies will be undermined, and the ability of the United States to speak with one voice in the field of foreign affairs will be severely compromised."

For instance, the insurers said that the U.S. has taken measures to bring restitution to survivors with German corporations as well as the German government. In July 2000, President Clinton and German Chancellor Schroeder completed negotiations for the creation of a $5 billion foundation to pay Holocaust claims and Clinton pledged to pursue litigation in U.S. courts against German companies over Holocaust claims.

"The process of getting compensation is much more certain and speedy in the process the U.S. has set up rather than risking litigation in California," said Step Zielezinski, of the American Insurance Trade Association.

However, the opposition believes that the states are not usurping federal powers.

"This is an issue of private people signing private contracts with private companies," said Lisa Stern, one of the attorneys for the state of California. "This has nothing to do with foreign policy."

Zielezinski counters that the case has implications beyond California and is troubling in the context of a possible world war.

"The federal government is supposed to speak with one voice. California is undermining the federal government's ability to deal effectively with foreign governments," he said.

While the insurers see this case as California possibly affecting foreign policy by having European nations pay twice for reparations they have already started to pay, the survivors just want documents that are rightfully theirs.

David Lash, who has worked pro bono for 30 years on their behalf, said that after extensive research of the record of international insurance claims, there has been a failure of international commissioners to respond to claims.

"The American system of justice is the most revered system of justice in the world," he said. "If people who have been wronged and have claims against these wrongdoers who still work in the U.S., then they should be able to have the information they deserve."

Lash has filed a "friend of the court" brief on behalf of these "frail, indigent, survivors that nobody speaks for."

California's legislation is to serve one purpose: to unveil truths, he said. "If anybody has the records, it's them [insurance companies]."

On Jan. 10, 2003, the Court accepted the case for review, and on June 23, the Court, in a divided 5-4 opinion, reversed, with Justice David Souter writing the opinion for the majority.

Attorneys: For Am. Ins. Assn., et al.:Kenneth Steven Geller Mayer, Brown, Rowe & Maw 202-263-30001909 K Street, N. W. Washington, DC 20006For John Garamendi, Commissioner (state of California):Frank Kaplan Alschuler, Grossman, et al. 310-907-10001620 26th St., 4th Fl., N. Santa Monica, CA 90404-4060Frederic W. Reif Riker, Danzig, et al. 500 Fifth Avenue, #4920 New York, NY 10010For U.S.:PAUL D. CLEMENTActing Solicitor General (at the time), Counsel of RecordROBERT D. MCCALLUM, JR.Assistant Attorney GeneralEDWIN S. KNEEDLERDeputy Solicitor GeneralBARBARA MCDOWELLAssistant to the Solicitor GeneralMARK B. STERNDOUGLAS HALLWARD-DRIEMEIER