1868, Paul – vs – Virginia
In Ancient America, the insurance marketplace was regulated by the states without federal interference. To suggest the marketplace was in dismay is putting it mildly. The need for industry standardization was obvious so, in 1868 the State of Virginia became the first to restrict the activities of *Foreign (non-resident) Insurance Entities.
The new requirements weren’t drastic at all. Basically, Virginia implemented a non-resident licensing procedures and *surety bond requirement to conduct the business of insurance.
On average, surety bond requirements ranged from thirty to fifty thousand dollars. The bonds were deposited with the state and intended to protect consumers from losses in the event their insurer didn’t pay claims.
If an entity didn’t comply with state guidelines, they were now deemed unauthorized entities and subject to state fines or other penalties.
In comes Samuel Paul, America’s First Unauthorized Entity. Mr. Paul, a resident of Virginia was appointed as a fire insurance agent however, his appointment was with New York Insurance Companies looking to sell to Virginians.
Mr. Paul complied with most of Virginia’s licensing requirements except for the surety bond. Since no surety bond was submitted with his application for licensure, his application was incomplete and therefore declined. Despite not being authorized to sell fire insurance in Virginia, Mr. Paul continued operating as a fire agent and was eventually fined $50 by the state.
Here’s where conflict enters our story. Mr. Paul argued to the local circuit courts that his $50 fine wasn’t valid.
According to the “Federal Privileges and Immunities Clause” designed to prevent states from treating citizens of other states in a discriminatory manner, commerce matters were under the regulation of federal laws – Not State Laws.
Virginia’s local circuit and Supreme Court didn’t agree with Mr. Paul and upheld the state’s decision to impose a fine. The ruling declared a business entity was not a citizen and the business of insurance was not a typical transaction of commerce.
The 1868 Paul -vs- Virginia ruling officially moved the business of insurance beyond federal legislation until 1944.