Paul v. Virginia
75 U.S. 168 (1869)
Rule of Law:
A corporation is not a citizen within the meaning of the Privileges and Immunities Clause and is therefore not entitled to the same privileges as natural persons in other states. Furthermore, the issuance of an insurance contract is a local transaction, not an act of interstate commerce subject to federal regulation under the Commerce Clause.
Facts:
- Virginia enacted a statute requiring insurance companies incorporated outside of Virginia to post a significant bond and obtain a license before conducting business in the state.
- This bond requirement was not imposed on insurance corporations created within Virginia.
- Samuel Paul was a resident of Virginia who acted as an agent for several insurance companies incorporated in New York.
- The New York companies that Paul represented did not post the bond required by the Virginia statute.
- Consequently, Virginia authorities denied Paul a license to sell insurance on their behalf.
- Despite the license denial, Paul proceeded to sell an insurance policy in Virginia for one of the New York companies.
Procedural Posture:
- Samuel Paul was indicted and convicted in the Circuit Court of Petersburg, Virginia (a trial court) for violating the state's insurance licensing statute.
- Paul appealed his conviction to the Supreme Court of Appeals of Virginia, the state's highest court.
- The Supreme Court of Appeals of Virginia affirmed the trial court's judgment.
- Paul (as plaintiff in error) then sought review of the decision from the Supreme Court of the United States.
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Issue:
Does a Virginia statute that imposes different requirements on insurance corporations created in other states violate the Privileges and Immunities Clause or the Commerce Clause of the U.S. Constitution?
Opinions:
Majority - Justice Field
No. The Virginia statute does not violate the Constitution because corporations are not 'citizens' for the purposes of the Privileges and Immunities Clause, and issuing an insurance contract is not interstate commerce. The Privileges and Immunities Clause ensures that citizens of one state are not treated as aliens in another, but the term 'citizens' in this context applies only to natural persons, not to artificial entities like corporations. While corporations are sometimes treated as citizens for the purposes of federal court jurisdiction, that legal fiction does not extend to all constitutional rights. A corporation is a 'mere creation of local law' and has no absolute right to operate in another state; therefore, a state may impose conditions on foreign corporations that it does not impose on its own. Regarding the Commerce Clause, the Court reasoned that issuing an insurance policy is not a transaction of commerce. It is a simple contract of indemnity, a local transaction that is completed upon delivery in Virginia, not a commodity to be shipped or traded across state lines. Therefore, it does not constitute interstate commerce subject to congressional regulation, and states are free to regulate it.
Analysis:
This decision established two foundational principles that shaped American corporate and commercial law for decades. First, by declaring that corporations are not 'citizens' under the Privileges and Immunities Clause, the Court affirmed broad state authority to regulate and tax out-of-state corporations differently than domestic ones. Second, its holding that insurance is not interstate commerce effectively ceded the entire field of insurance regulation to the states. This precedent remained controlling for over 75 years until it was overturned in United States v. South-Eastern Underwriters Ass'n (1944).
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