Product Marketing and Distribution

• Pages: 103-122

103

CHAPTER VII

PRODUCT MARKETING AND DISTRIBUTION

Insurers market and distribute their products by a variety of means.

The most common are (1) the use of independent agents, or producers,

representing multiple insurers; (2) the use of exclusive agents representing

a single insurer; (3) independent brokers, who sometimes or in some

respects represent the insureds or prospective insureds; and (4) so-called

“direct writing” or “direct marketing,” by which the insurer sells directly

to customers without an agent or broker.

Because insurers compete for agents’ services, and agents compete to

represent insurers, horizontal agreements between competing insurers or

agents to limit such competition can pose special antitrust concerns.

Likewise, horizontal agreements with respect to brokers competing for

policyholder or carrier business can pose antitrust concerns. Furthermore,

vertical dealings between an insurer and its agents or an insurer and

brokers, such as an insurer’s prohibition on agent rebating of commissions,

also can present antitrust problems.

The discussion below separately addresses these four areas of

concerns, analyzing both the lawfulness of insurer practices absent an

exemption and the availability of McCarran-Ferguson Act445 or state

action immunity.

A. Horizontal Agre ements

1. Agreements Between Agents

Without immunity, agreements between competing agents on the

commissions demanded from insurers would be per se unlawful price

fixing. No defense would be available on the grounds that collaboration

was necessary to counteract the superior bargaining power of large

insurers.

446

Both the Department of Justice (DOJ) and the Federal Trade

445. 15 U.S.C. §§ 1011-1015.

446. Cf. Int’l Healthcare Mgmt. v. Hawaii Coal. for Health, 332 F.3d 600, (9th

Cir. 2003) (affirming dismissal of managed health care plan’s claims of

group boycott and conspiracy relating to fees); United States v. Alston, 974

F.2d 1206, 1214 (9th Cir. 1992) (“individual health care providers are

entitled to take some joint action . . . to level the bargaining imbalance”

104 Insurance Antitrust Handbook, 3d Ed.

Commission (FTC) regularly have brought criminal or civil actions against

professionals accused of fixing their fees.

447

Agreements between agents not to rebate their commissions would

also be per se unlawful in the absence of immunity or state law prohibitions

on rebating. An agreement not to rebate is tantamount to an agreement not

to discount, which constitutes illegal price fixing.

448

Similarly, allocations

of customers, territories, and markets by competing agents or insurers

would be per se unlawful.

449

The per se rule generally is applied to “joint efforts by a firm or firms

to disadvantage competitors by ‘either directly denying or persuading or

coercing suppliers or customers to deny relationships that competitors

need in the competitive struggle.’”

450

The FTC has taken enforcement

action against an independent agent association that proposed a boycott of

an insurer that had adopted a direct marketing program making the insurer

a competitor of the agents.

451

Additionally, any boycott in aid of a price-

related objective, such as a group refusal to deal with insurers paying low

commissions, or an agreement to demand that an insurer terminate a

rebating agent, would also be subject to condemnation under the per se

rule.

452

with prepaid medical plans as long as such action falls “short of price

fixing”).

447. See, e.g., Alston, 974 F.2d at 1207 (criminal charges against dentists); FT C

v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411 (1990) (civil action

against attorneys re fusing to deal with ci ty government in or der to coerce

increase in public defender fees).

448. See Catalano, Inc. v. Target Sales, 446 U.S. 643, 648 (1980) (agreement to

eliminate interest-free credit was per se illegal because it was “equivalent

to giving a discount eq ual to the value of the use of the p urchase price for

that period of time”); see also United States v. Beaver, 515 F.3d 730, 737-

38 (7th Cir. 2008); United States v. Am. Radiator & Standard Sanitary

Corp., 433 F.2d 174, 185-88 (3d Cir. 1970).

449. See Palmer v. BRG of Ga., Inc., 111 S. Ct. 401, 402-03 (1990); United

States v. Topco Assoc., 92 S. Ct. 1126, 1134 (1972); In re Cardizem CD

Antitrust Litig., 332 F.3d 896, 907 (6th Cir. 2003); United States v. Consol.

Laundries Corp., 291 F.2d 563, 574 (2d Cir. 1961).

450. Northwest Wholesale Stationers v. Pacific Stat ionary & Printing Co., 472

U.S. 284, 294 (1985) (citations omitted).

451. Independent Ins. Agents of Am., 108 F.T.C. 87 (1986).

452. Superior Court Trial Lawye rs Assoc., 493 U.S. at 436 n.19 (applying per

se rule to alleged agree ment involving “[n] ot only a boycott but al so a

horizontal price-fixing arrangement”).