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O'Gorman & Young, Inc. v. Hartford Fire Ins. Co. - 282 U.S. 251, 51 S. Ct. 130 (1931)


In New Jersey, where the subject regulated is properly within the scope of the police power of the state, a charge of discrimination or lack of reasonable relation between the object of the act and the means employed, must be supported by facts in the record sufficient to overcome the general presumption of constitutionality.


O'Gorman and Young, a New Jersey corporation, under proper license transacts business as an insurance broker. For many years it has been the agent of appellee, a Connecticut corporation authorized to issue fire policies in New Jersey. Prior to March 29, 1928, the agreement of employment provided that for negotiating and selling such policies the agent should receive 25 percent of prescribed premiums. O'Gorman and Young negotiated and sold policies upon which the premiums amounted to $ 2,454. As reasonable compensation, demand was made for $ 613 -- 25% of the premiums. The Insurance Company paid $ 490.92, 20%, and denied further liability. Thereupon, asserting that its services were reasonably worth 25 percent of the premiums, O’Gorman and Young brought an action against the Insurance Company in order to recover the remaining 5 percent. The trial court awarded judgment to the companies, holding that the broker’s 25 percent commissions violated Chapter 128, Act of the New Jersey Legislature that required commissions to be reasonable. Claiming that the state statute violated its due process, O’Gorman and Young challenged the judgment.


Was Chapter 128, Act of the New Jersey Legislature, which regulated fire insurance commission rates, invalid for being violative of due process because it allegedly deprived the plaintiff of its property?




The Supreme Court of the United States affirmed the judgment and held that the state statute limiting commissions was a reasonable exercise of the state police power. According to the Court, because the broker’s commissions had a direct relation to the rate charged on an insurance policy, his commissions were properly within the scope of state regulation where insurance rates were subjected to state police power. Because the business of insurance was affected with a public interest, a state may regulate the rates, and likewise, the relations of those engaged in the business. The Court averred that no facts in the record showed that abuses did not exist in the state so as to make the statute an inappropriate remedy. Therefore, the broker failed to present sufficient evidence to overcome the presumption of constitutionality.

As for the standard of review, the Court explained that because underlying questions of fact may condition the constitutionality of legislation of this character, the presumption of constitutionality must prevail in the absence of some factual foundation of record for overthrowing the statute. Here, it did not appear upon the face of the statute, or from any facts of which the court must take judicial notice, that in New Jersey evils did not exist in the business of fire insurance for which this statutory provision was an appropriate remedy. The action of the legislature and of the highest court of the State indicated that such evils did exist. Also, the record was barren of any allegation of fact tending to show unreasonableness.

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