ACKERMAN-CHILLINGWORTH, ETC. v. PACIFIC EL. CON. ASS'N

• Decision Date: 25 November 1975
• Docket Number: Civ. No. 74-217.
• Court: U.S. District Court — District of Hawaii
• Parties: ACKERMAN-CHILLINGWORTH, DIVISION OF MARSH & McLENNAN, INCORPORATED, a Delaware Corporation, et al., Plaintiffs, v. PACIFIC ELECTRICAL CONTRACTORS ASSOCIATION, a Hawaii non-profit Corporation, et al., Defendants.

405 F. Supp. 99

ACKERMAN-CHILLINGWORTH, DIVISION OF MARSH & McLENNAN, INCORPORATED, a Delaware Corporation, et al., Plaintiffs, v. PACIFIC ELECTRICAL CONTRACTORS ASSOCIATION, a Hawaii non-profit Corporation, et al., Defendants.

Civ. No. 74-217.

United States District Court, D. Hawaii.

November 25, 1975.

COPYRIGHT MATERIAL OMITTED

James S. Campbell, Robert A. Rowan, William M. Swope, Honolulu, Hawaii, R. M. Torkildson, Jared H. Jossem, Honolulu, Hawaii, for plaintiffs; Cades, Schutte, Fleming & Wright and Torkildson, Katz & Conahan, Honolulu, Hawaii, of counsel.

Howard K. Hoddick, David A. Ezra, John A. Hoskins, Honolulu, Hawaii, for defendants Pacific Electrical Contractors Ass'n and Walter T. Oda; Anthony, Hoddick, Reinwald & O'Connor, Honolulu, Hawaii, of counsel.

Richard E. Stifel, David F. Day, Honolulu, Hawaii, for defendants The Ins. Co. of North America and Pacific Employers Ins. Co.; Goodsill, Anderson & Quinn, Honolulu, Hawaii, of counsel.

Benjamin C. Sigal, Honolulu, Hawaii, for defendants International Brotherhood of Electrical Workers, Local No. 1186 and Antone Fujikawa; Shim, Sigal, Tam & Naito, Honolulu, Hawaii, of counsel.

DECISION

WONG, District Judge.

Plaintiffs are general agents¹ and solicitors² of insurance in Hawaii. Defendants are the Pacific Electrical Contractors Association (PECA), and its Executive Secretary, Walter T. Oda; the International Brotherhood of Electrical Workers Local 1186 (IBEW), and its Business Manager, Akito Fujikawa; the Insurance Company of North America (INA), and its wholly-owned subsidiary, Pacific Employers Insurance Company (PEIC), a California corporation.

The parties agree that in October 1973 the IBEW and PECA amended their collective bargaining agreement to require that all signatories participate in an "Association Dividend Group Plan" to provide for workmen's compensation insurance. The plaintiffs allege that pursuant to the labor agreement defendants IBEW, PECA, and INA entered a conspiracy to require the PECA members to purchase workmen's compensation insurance solely from INA and/or PEIC, in violation of § 1 of the Sherman Act, 15 U.S.C.A. § 1 (1973).³

In a second count, plaintiffs allege that the amended collective bargaining agreement is prohibited by § 8(e) of the National Labor Relations Act, 29 U.S.C. A. § 158(e) (1973).⁴

After extensive discovery,⁵ both sides filed cross-motions for summary judgment on plaintiffs' claims.⁶ Since this Court finds that there is no issue over any material fact, the case is ripe for summary adjudication.

SUMMARY OF FACTS

A. General industry background

There are approximately 120 electrical contractors in Hawaii, about half of whom are members of the PECA. Most or all contractors have signed a collective bargaining agreement with the IBEW, negotiated for all the contractors by the PECA. Prior to 1974, the contractors purchased their workmen's compensation insurance from numerous insurance carriers, through many different agencies.⁷

Several aspects of state insurance law dampen rate competition among carriers. Hawaii statute requires insurers to file their rates with the Insurance Commissioner. Most insurers satisfy this obligation by subscribing to a rating bureau, which files the same rates on behalf of all of its members. See Haw. Rev.Stat. § 431-694.⁸ Furthermore, insurers may not give preferred premium rates to group purchasers. Haw.Rev. Stat. § 431-693(a)(5).

The practice of dividend issue somewhat allays these anticompetitive factors. Some months after the expiration of a policy, the carrier's board of directors determines whether a dividend may be declared, based on the size of the insured's claims and the insurer's costs. However, carriers generally do not issue dividends to small employers who pay premiums below a certain threshold.

Groups of employers in the same occupational area are allowed to form "safety groups" and purchase their insurance from a single carrier. Safety groups must be open to all employers in the industry. They play a large role in workmen's compensation coverage on the mainland⁹ but, until the defendants' initiative, were uncommon in Hawaii. Safety groups are designed to provide a mechanism for employers, workers, and insurance companies to cooperate to reduce occupational hazards and to improve rehabilitation programs.

Group purchase of insurance allows reductions in the cost of insurance in an otherwise relatively noncompetitive industry in several ways. First, increased effectiveness of safety and rehabilitation programs reduces the size of premiums (still calculated on an individual employer basis). Second, carriers are more likely to vote favorable dividends when they know they might otherwise lose a large volume of business to a competitor. Although carriers are not allowed to guarantee dividends in advance, they may tell a prospective customer what their past practices have been and what their minimum retention will be in the future. Third, dividends can be calculated on the combined experience of the employers and this results in payment of dividends (if at all) to every employer, regardless of size. In an industry of small employers,¹⁰ this latter factor is likely to be very important.

Samuel Alcorn, National Vice-President of Bayly, Martin & Fay, described group plans in the following terms:¹¹

The customary desire of an association to go into a group Workmen's Compensation program is to have a means to achieve lower costs for its members by bargaining for the entire group with an insurance carrier.

Such programs generally have their greater appeal to members with small or medium sized premiums . . ..

. . . . . .

We have not run into programs in the past where participation in an association program was mandatory. To the contrary, most associations are opposed to being obligated to have all of their members under the sponsored insurance program because lousy operators . . . could drag down the success of a good association program.

. . . . . .

Group Workmen's Compensation programs can be set up on a "closed" basis or on an "open" basis.

A closed program is one which has a single broker of record or agent — precluding participation by any other agent or broker — even though the other agent or broker might represent the same insurance company.

The open plan is an override to the originating broker, but permits any local agent or broker representing the insurance company to place individual accounts within the program.

The originating or coordinating broker earns his override by counseling the association's safety committee, working with the carrier to establish a good safety program, keeping records on losses and processing claims, coordinating credit plans for premium payment, and auditing the carrier's claims file to assure that there is a fair basis for dividend computation.

B. The union proposals

In May 1973 the IBEW made contract-renewal proposals on wage and fringe levels and other matters. The union included a proposal that workmen's compensation insurance be provided through a Taft-Hartley trust fund or by purchase from a single carrier.¹² Under the former approach, the contractors would, in effect, have been self-insurers. Either approach would be to the employees' advantage; the IBEW believed, for two sets of reasons: centralized administration of insurance would lead to better claims service, either through increased industry leverage with a single carrier, or by sympathetic trusteeship administration; and a single insurer would have both the incentives and the opportunity to create adequate safety and rehabilitation programs.¹³

At first the PECA was reluctant to accede to the single-carrier proposal even though the IBEW argued that the Association could supplement its income by charging a fee for administration, and that individual members might also benefit by reduced rates. The membership, however, did agree to amend Article 19 of the collective bargaining agreement so that it endorsed the principle of a trust fund to provide workmen's compensation.¹⁴

The Martin E. Segal Company, consultants that had provided the IBEW and PECA with technical assistance in the insurance field since 1962, helped survey the contractors' existing insurance practices. In September 1973, it recommended against a Taft-Hartley type of trust fund and in favor of a group plan. Under the plan, eventually adopted in major terms, the individual contractors would continue to pay premiums based solely on factors unique to their business, e. g., type of work, volume of payroll, and safety record. However, the experience of all employers would determine the calculation of dividends. The Segal Company believed that total dividends under the plan would be greater than the sum of dividends the contractors were currently earning.¹⁵

William D. White, of the Segal Company, concluded that the group plan provided a means of accomplishing many of the Taft-Hartley trust fund goals, including:

1. Centralized purchasing from one insurer.

2. An opportunity for the Association to play a greater role in administering the Workmen's Compensation insurance program.

3. Better service from the insurer.

4. A more generous dividend plan whereby all Association members would ultimately realize savings based on safety efforts and reduced insurance company expenses.¹⁶

C. Membership approval

At meetings in September with the IBEW and in October 1973, the PECA Board of Directors agreed to recommend the group plan to its membership, with the required participation of all signatory employers. A report by the Association's Executive Secretary Oda suggested that the "dividends received could be allocated towards off-setting PECA dues. Since the non-association members would also be participating, this could be a means of assessing them for the services we provide."¹⁷

Nevertheless, Oda's report continued, "The primary objective of the Fund, besides better quality service, faster claim processing,...