Introduction

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CHAPTER I

INTRODUCTION

A. Application of Antitrust Law to the Insurance Industry

During the first half century of their existence, the federal antitrust

laws had no application to the insurance industry because insurance

transactions were not considered part of interstate commerce. Then, in

1944, the United States Supreme Court issued its watershed opinion in

United States v. South-Eastern Underwriters Association,

1

holding that

insurance transactions constituted interstate commerce and, hence, were

subject to federal antitrust laws. Congress reacted to this decision the

following year by enacting the McCarran-Ferguson Act,

2

exempting the

“business of insurance” from the Sherman, Clayton, and Federal Trade

Commission Acts to the extent such business was “regulated by State law”

and the challenged activity did not constitute “boycott, coercion or

intimidation” (the “boycott exception”).

Fundamentally, the McCarran-Ferguson Act provides a limited

antitrust exemption that is meant to allow insurers to pool and store

historical loss information to allow more accurate loss projections on

future claims when pricing policies. Insurers have also used the exemption

to permit them to develop more standardized policy forms. Since insurance

had already been subject to state regulation and taxation, the Act ensured

the continuing ability of states to regulate and tax insurers doing business

within their borders.3

For a number of years after the passage of the McCarran-Ferguson

Act, the federal and state antitrust laws were perceived to have limited

application to insurance practices. But a trio of Supreme Court decisions

1. 322U.S. 533 (1944).

2. 15 U.S.C. §§ 1011-1015.

3. For an extensive summary of the legislative history of the McCarran-

Ferguson Act, see Alan M. Ande rson, Insurance and Antitrust Law: The

McCarran-Ferguson Act and Beyond, 25 WM. & MARY L. REV. 81 (1983).