Arroyo-Melecio v. Puerto Rican American Ins. Co., 04-1045.

• Decision Date: 14 February 2005
• Docket Number: No. 04-1045.,04-1045.
• Citation: 398 F.3d 56
• Parties: Rafael ARROYO-MELECIO; Daniel Espinosa-de-León; Angel M. Ortiz-Quiñones; Celia Rodríguez-Rivera; Conjugal Partnership Ortiz-Rodríguez, Plaintiffs, Appellants, v. PUERTO RICAN AMERICAN INSURANCE COMPANY; Universal Insurance Company; Preferred Risk Insurance Company; Integrand Assurance Company; Cooperativa de Seguros Multiples de Puerto Rico; Royal & Sun Alliance of Puerto Rico, Inc.; Seguros Triple SSS, Inc.; National Insurance Company; American International Insurance Company of Puerto Rico, Inc.; Caribbean Alliance Insurance Company; Allstate Insurance Company; Asociación de Suscripcíon Conjunta de Seguro de Responsabilidad Obligatorio, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 56

398 F.3d 56

Rafael ARROYO-MELECIO; Daniel Espinosa-de-León; Angel M. Ortiz-Quiñones; Celia Rodríguez-Rivera; Conjugal Partnership Ortiz-Rodríguez, Plaintiffs, Appellants, v. PUERTO RICAN AMERICAN INSURANCE COMPANY; Universal Insurance Company; Preferred Risk Insurance Company; Integrand Assurance Company; Cooperativa de Seguros Multiples de Puerto Rico; Royal & Sun Alliance of Puerto Rico, Inc.; Seguros Triple SSS, Inc.; National Insurance Company; American International Insurance Company of Puerto Rico, Inc.; Caribbean Alliance Insurance Company; Allstate Insurance Company; Asociación de Suscripcíon Conjunta de Seguro de Responsabilidad Obligatorio, Defendants, Appellees.

No. 04-1045.

United States Court of Appeals, First Circuit.

Heard December 9, 2004.

Decided February 14, 2005.

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Antonio J. Amadeo-Murga, for appellants.

Heidi L. Rodríguez, with whom Néstor M. Méndez-Gómez, Kevin M. Acevedo-Carlson, and Pietrantoni Mendez & Alvarez LLP were on brief, for appellees Puerto Rican American Insurance Company & Preferred Risk Insurance Company.

Arturo J. García-Solá, with whom Luz Nereida Carrero, Mario Arroyo, Fiddler González & Rodríguez, Roberto C. Quiñones-Rivera, Nannette Berríos-Haddock and McConnell Valdés were on brief, for all appellees except Puerto Rican American Insurance Company & Preferred Risk Insurance Company.

Before LYNCH, Circuit Judge, STAHL, Senior Circuit Judge, and HOWARD, Circuit Judge.

LYNCH, Circuit Judge.

In 1995, in order to address the problem of the large number of drivers in the Commonwealth of Puerto Rico without vehicle liability insurance, the commonwealth enacted the Compulsory Motor Vehicle Liability Insurance Act, Law 253 ("Law 253"), codified at 26 P.R. Laws Ann. §§ 8051 et seq.

This federal antitrust suit challenged certain conduct of private insurers and the new state-created entity under Law 253, the Joint Underwriting Association ("JUA"), in the compulsory insurance program. The suit was dismissed at the pleadings stage under Fed.R.Civ.P. 12(b)(6). The plaintiffs, who purport to represent a class of harmed consumers, appeal.

In sum, the plaintiffs allege that the defendants, private insurers and the JUA, have agreed to and created a monopoly in the JUA as to all forms of low-cost compulsory insurance and have boycotted and coerced at least one broker in order to maintain that monopoly. The private insurers and the JUA argue that this monopoly is a result required by the state law. That is untrue. The Puerto Rico statute contemplates (at least as to non-high-risk policies) competition, but then, oddly, creates incentives for defendants to create just such a monopoly as alleged. The claims before us are a different matter: a federal antitrust suit raises different issues than issues of compliance with local statutes. As to one claim only, we reverse the dismissal and remand; we affirm the dismissal of all other claims.

I.

We describe the statutory scheme. Before the enactment of Law 253, uninsured drivers caused over $110 million in damages to other vehicles each year in Puerto Rico, and it was estimated that only 25 percent to 30 percent of the vehicles in Puerto Rico were covered under some type of liability insurance.

Law 253 created a compulsory automobile liability insurance system, which, beginning in 1998, provides each insured vehicle owner with $3000 of coverage for damages caused to third parties per accident in exchange for a uniform premium, initially set at $99 for each private passenger vehicle and $148 for each commercial vehicle. 26 P.R. Laws Ann. §§ 8052(j), 8056(a). All "private insurers," defined as insurers with more than 1 percent of the commonwealth's total volume of vehicle liability premiums, id. § 8052(b), are required to offer the compulsory liability insurance in two ways: both as private insurers to a defined class of drivers and as members of the JUA, to which they must belong. Id. §§ 8053(d), 8054(a), 8055(a). Law 253 allows private insurers to reject certain applicants for the compulsory insurance pursuant to regulations promulgated by the Insurance Commissioner. Id. § 8054(b). The criteria for rejection are defined by the Insurance Commissioner's Puerto Rican Insurance Rule LXX ("Rule LXX"), promulgated in Regulation No. 6254 in December of 2000. Most of the criteria in Rule LXX for permissible rejections identify applicants who are bad drivers or otherwise of high risk.¹ See Rule LXX, Art. 8.

The JUA itself provides compulsory liability insurance to all drivers,² including those high-risk drivers whom private insurers are not required to insure. 26 P.R. Laws Ann. § 8055(b). Vehicle owners may opt out of the compulsory liability insurance scheme by purchasing traditional liability insurance with comparable or better coverage. See id. § 8061; Rule LXX, Art. 12(a). Law 253 appears to require the private insurers also to offer the policy despite the availability of coverage from the JUA, see 26 P.R. Laws Ann. §§ 8054(a), 8055(b), and allows private insurers to apply for approval to sell the compulsory insurance at less than the rate set by the commonwealth. See id. § 8056(c) ("Any private insurer may submit for the approval of the [Insurance] Commissioner a variation of a uniform percentage to reduce the uniform compulsory liability insurance premium...."). Some legislative history suggests that Law 253 was meant to encourage competition "between insurance companies wanting to have a greater number of insured, who will have to extend offers in order to attract them." Certified translation of the Daily Sessions Record, Senate of Puerto Rico, Monday, October 9, 1995. As a result, the statutory scheme contemplates competition in compulsory insurance, at least for non-high-risk drivers, between private insurers themselves and between them and the JUA. It also contemplates, but does not mandate, the possibility of a monopoly in the JUA as to compulsory insurance for high-risk drivers.

All members of the JUA share in its profits and losses. 26 P.R. Laws Ann. § 8055(e). To compensate for the fact that the JUA must insure drivers considered too risky by private insurers, all the JUA's profits, including those distributed to private insurers, are exempt from income taxes. Id. § 8055(j). Through the JUA, the risk of insuring these high-risk drivers is thus spread among all the private insurers. The profits distributed to the JUA members (the private insurers) also encompass the profits from the sale of non-high-risk policies insured by the JUA.

Though created by law, the JUA is "private in nature, for profit, and ... subject to the provisions of the [Insurance] Code applicable to insurers." Rule LXX, Art. 2(c). The JUA is under some direction by the commonwealth. The Insurance Commissioner is directed to establish the manner of distribution of the total amount of premiums received by the JUA, 26 P.R. Laws Ann. § 8055(c); Rule LXX, Art. 20(e)(3), and the structure and operation of the JUA, and its direction by a board of directors, so that the JUA may accomplish its goals in a "cost-effective, fair and nondiscriminatory" manner. 26 P.R. Laws Ann. § 8055(f). The plan of operations may be amended only with the approval of the Insurance Commissioner. Rule LXX, Art. 20(c)(1)(xv).

On the other hand, the Insurance Commissioner is not made a member of the board of directors of the JUA, id., Art. 20(c)(1)(iii), and does not appear to have active supervision over the day-to-day affairs of the JUA. Four of the five directors on the JUA's board of directors are elected by the members of the JUA, while the fifth director is the officer in charge of the JUA. Id. None of these directors are defined as a state official. The JUA is not an agency of the commonwealth. It has "general corporate powers," such as the power to sue and be sued, to enter into contracts, to hold and use property, etc. See Rule LXX, Art. 20(a); 26 P.R. Laws Ann. § 2905.

For both private insurers and the JUA, the commonwealth, through the Insurance Commissioner, sets the terms of the compulsory policy itself, the premium rate, and the amount of coverage. The Puerto Rico Mandatory Liability Insurance Uniform Policy, the policy defining the terms of the compulsory liability insurance, is set forth in the Insurance Commissioner's rules. Rule LXX, Art. 22. This policy is "the sole contract between [the insured] and [the JUA]." The policy does not contain any specification for the type of repair parts that may be used or provisions governing repair practices.

The Insurance Commissioner has established, through regulation, a uniform initial liability determination system to facilitate the investigation, adjustment, and resolution of claims arising under the compulsory liability insurance scheme. See P.R. Laws Ann. § 8057; Puerto Rico Insurance Rule LXXI ("Rule LXXI"). Rule LXXI sets out portions of the claims making process, including the use of diagrams, which are made part of the regulation, to allocate fault for accidents. Rule LXXI, Arts. 2, 6, 7. However, there is nothing in Rule LXXI concerning the insurers' auto repair arrangements or practices; nor does the Rule govern all claims practices.

A few points bear emphasis. First, the statute, apparently unusually,³ contemplates competition with respect to at least the non-high-risk drivers between the private insurers and also between the private insurers and the JUA. Second, the statute provides a means for insurers who are in competition to seek to sell the compulsory insurance at a lower price than the "uniform premium." 26 P.R. Laws Ann. § 8056(c). Third, the supervision over the JUA does not cover at least some of the complained-of activities. For example, the Insurance Commissioner, by statute, has considerable supervision over the operating plan and the method of premium distribution, id. §§ 8055, 8056; by contrast, there appears to...