Overview of Exemptions and Defenses

• Pages: 25-54

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CHAPTER III

OVERVIEW OF EXEMPTIONS AND DEFENSES

A. Federal Exemptions

1. The McCarran-Ferguson Act 132

The McCarran-Ferguson Act exempts from the antitrust laws conduct

that constitutes “the business of insurance” to the extent that such conduct

is “regulated by state law,” provided that it is not an “agreement to boycott,

coerce, or intimidate, or act of boycott, coercion, or intimidation.”

133

All

three of these ter ms–business of insurance, regulation by state law, and

boycott–have been the subject of Supreme Court interpretation.

The Supreme Court has explained that, like all exemptions to the

antitrust laws, the McCarran-Ferguson Act is “to be narrowly

construed.”

134

In passing the act, “the primary concern of both

representatives of the insurance industry and the Congress was that

cooperative ratemaking efforts be exempt from the antitrust laws.”

135

Despite this original focus on cooperative ratemaking, courts have

recognized that the McCarran-Ferguson Act may apply to private price-

fixing activities as well.

136

The act, however, “does not exempt the

132. Over the years, man y bills have been intr oduced in Congress to

significantly limit the scope of the Act. See, e.g., Health I ns. Industry

Antitrust Enforcement Act of 2013, H.R. 99, 113th Cong. (2013);

Protecting Access to Health Act of 2012, H.R. 5, 112th Cong. (2012);

Insurance Indus. Competition Act of 2007, S. 618, 110th Cong. (2007);

Insurance Indus. Antitrust Indus. Antitrust Enforcement Act of 2006, S.

4025, 109th Cong. (2006); Insurance Competitive Pricing Act, H.R. 448,

108th Cong. (2003); Medical Liability Ins. Crisis Response Act of 2003,

H.R. 1158 108th Cong (2003); Medical Malpractice Ins. Antitrust Act of

2003, S. 352, 108th Cong. (2003).

133. 15 U.S.C. §§1012(b), 1013(b).

134. Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 231 (1979).

135. Id. at 221.

136. See, e.g., In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 354 (3d Cir.

2010) (“On the basis o f this history, one might narrowly construe t he

‘business of insurance’ to encompass only public ratemaking efforts, not

purely private collaboration unauthorized or unsupervised by state

26 Insurance Antitrust Handbook, 3d Ed.

business of insurance companies from the scope of the antitrust laws. The

exemption is for the ‘business of insurance,’ not the ‘business of

insurers.’”

137

a. The Business of Insurance

Perhaps the most heavily-litigated McCarran-Ferguson Act factor is

what constitutes the business of insurance. The Court has drawn a sharp

distinction between the “activities of insurance companies” and “the

business of insurance.”

138

“[O]nly when [insurance companies] are

engaged in the ‘business of insurance’ does the statute apply.”

139

The

business of insurance standard is thus a conduct-oriented rather than an

entity-oriented test.

140

The Court has fashioned a tripartite test for determining whether

conduct is the business of insurance. In Group Life & Health Insurance

Co. v. Royal Drug Co.,141 the Court held that contracts regulating the

amount of reimbursement that Blue Shield would pay to pharmacies

providing drugs to its insureds were not the business of insurance because

the contracts (1) did not involve the “spreading and underwriting of a

policyholder’s risk,” (2) did not have a direct connection with the

contractual relationship between the insurer and insured, and (3) were not

arrangements limited to entities within the insurance industry.

142

agencies. Dicta in Royal Drug suggests otherwise, however.”); I n re

Workers’ Comp. Ins. Antitrust Litig., 867 F.2d 1552, 1556 (8th Cir. 1989)

(finding that the “fixi ng of rates by the compensa tion carriers, whether by

private or by state-approved rate setting” could fall within the McCarran-

Ferguson Act’s antit rust exemption).

137. Royal Drug Co., 440 U.S. at 211. The Court further explained as follows:

“If agreements between an insurer and retail pharmacists are the ‘business

of insurance’ because they reduce the insurer’s costs, then so are all other

agreements insurers may make to keep their costs under control—whether

with automobile body repair shops or landlords. Such agreements would

be exempt from the a ntitrust laws if Co ngress had extended the coverage

of the McCarran-Ferguson Act to the ‘business o f insurance companie s.’

But that is precisely what Congress did not do.” Id. at 232-33.

138. S.E.C. v. Nat’l Sec., Inc., 393 U.S. 453, 459 (1969) (emphasis in original).

139. Id. at 449-60.

140. Hartford Fire Ins. Co. v. Cal., 509 U.S. 764, 780-81 (1993).

141. 440 U.S. 205, 214-15 (1979).

142. Id. at 214-15.