579 F.2d 484 (9th Cir. 1978), 76-1264, Ackerman-Chillingworth, Div. of Marsh & McLennan, Inc. v. Pacific Elec. Contractors Ass'n

Docket Nº:76-1264.
Citation:579 F.2d 484
Party Name:1978-1 Trade Cases 61,967 ACKERMAN-CHILLINGWORTH, DIVISION OF MARSH & McLENNAN, INCORPORATED, a Delaware Corporation, Alexander of Hawaii, Inc., dba Mid-Pacific Insurance Division, a Hawaii Corporation, American Mutual Underwriters, Ltd., a Hawaii Corporation, Bayly, Martin & Fay of Hawaii, Inc., a Hawaii Corporation, Davies Insurance Agencies, Inc
Case Date:March 22, 1978
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 484

579 F.2d 484 (9th Cir. 1978)

1978-1 Trade Cases 61,967


INCORPORATED, a Delaware Corporation, Alexander of Hawaii,

Inc., dba Mid-Pacific Insurance Division, a Hawaii

Corporation, American Mutual Underwriters, Ltd., a Hawaii

Corporation, Bayly, Martin & Fay of Hawaii, Inc., a Hawaii

Corporation, Davies Insurance Agencies, Inc., a Hawaii

Corporation, Stanley S. Hashimoto, Occidental Underwriters

of Hawaii, Ltd., a Hawaii Corporation, Jack T. Osakoda, and

Raymond T. Tanaka, Appellants,



non-profit Corporation, International Brotherhood of

Electrical Workers, Local No. 1186, PacificEmployers

Insurance Company, a California Corporation, the Insurance

Company ofNorth America, aPennsylvania Corporation, Walter

T. Oda, and Akito Fujikawa, Appellees.

No. 76-1264.

United States Court of Appeals, Ninth Circuit

March 22, 1978

Rehearing and Rehearing En Banc Denied July 31, 1978.

Page 485

William M. Swope (argued), Honolulu, Hawaii, for appellants.

John A. Hoskins (argued), Benjamin C. Sigal (argued), Richard E. Stifel (argued), Honolulu, Hawaii, for appellees.

Appeal from the United States District Court for the District of Hawaii.

Before ELY, HUFSTEDLER, and WRIGHT, Circuit Judges.

ELY, Circuit Judge:

This is a private antitrust action challenging a workmen's compensation plan, which was implemented by an employers' association pursuant to a collective bargaining agreement. The appellants alleged that the plan was both illegal Per se and unlawful as contrary to the rule of reason under section 1 of the Sherman Act, 15 U.S.C. § 1 (1970). The opposing parties moved for summary judgment, and the District Court granted the motion of the appellees, writing an excellent opinion, reported at 405 F.Supp. 99 (D.Hawaii 1975). Here, the appellants vigorously challenge the propriety of the order. 1

Page 486


Appellants, who are general insurance agents and insurance solicitors in Hawaii, filed a complaint against the Pacific Electrical Contractors Association (PECA), a trade association, its executive secretary, one Oda, the International Brotherhood of Electrical Workers, Local 1186 (IBEW), its business manager, named Fujikawa, the Insurance Company of North America (INA), and the latter's wholly-owned subsidiary, Pacific Employers Insurance Company (PEIC). Of the approximately 120 electrical contractors in Hawaii, 63 are dues-paying members of PECA. PECA negotiates with IBEW on behalf of all the contractors, who, accordingly, have signed a collective bargaining contract with IBEW.

Prior to 1974 the electrical contractors purchased their insurance individually from a number of carriers through different agents. Hawaii's law permits employers in an occupational field to form "safety groups" for the purpose of purchasing their insurance from a single carrier. Haw.Rev.Stat. § 431-693(3) (1968). Safety groups have been extensively utilized in other states but were uncommon in Hawaii until the concept was introduced by the appellees.

Several characteristics of safety groups make their use attractive. First, the insurance carrier encourages cooperative efforts among employers, workers, and insurers aimed at reducing occupational hazards and improving employee rehabilitation programs. The increased effectiveness of such safety and rehabilitation programs promotes diminution of the amounts of premiums. Second, insurance purchased by members of a safety group is of the participating type; thus, dividends are payable at the end of the policy term. In the safety group context, insurance carriers are more likely to declare large dividends rather than risk losing business to a competitor. Third, and most significantly, all employers in a safety group are eligible to receive dividends, even though carriers generally do not pay dividends to small employers. This feature was particularly attractive to the electrical contracting industry, which consists largely of small employers.

In May, 1973, IBEW proposed to PECA that all Hawaii electrical contractors place their workmen's compensation insurance either with one carrier or through a Taft-Hartley trust fund. Union officials believed that either plan would benefit the employees by providing for better claims service through a centralized administration. In addition, a single insurer would likely have more incentive and a greater opportunity to upgrade safety and rehabilitation programs.

IBEW offered to PECA the option to manage such a workmen's compensation insurance plan at a meeting of PECA's Board of Directors held on May 23, 1973. Fujikawa, of IBEW, expressed concern about the financial condition of PECA. He suggested that electrical contractors would receive reduced rates under a group insurance plan and that PECA could supplement its income by charging electrical contractors a fee for administering such a plan. To secure the anticipated benefits for the union and PECA, Fujikawa and the PECA Board agreed that contractors who were not members of PECA should also be required to participate in the plan.

In September, 1973, Martin E. Segal Company (Segal), a consulting firm that had assisted PECA and IBEW in insurance matters, evaluated the IBEW proposal. In lieu of a Taft-Hartley trust fund, Segal recommended a dividend safety group plan called the "Association Dividend Group Plan." Under this plan the contractors would continue to pay premiums calculated according to the individual risks of their businesses, based upon considerations such as their type of work, volume of payroll, and safety record. Dividends would be computed, however, according to the record

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of the entire group of contractors. Segal estimated that total dividends under the proposed plan would exceed those that the contractors were currently earning.

Oda reported Segal's proposal to the PECA Board of Directors. He suggested earmarking a percentage of the dividends for an employee rehabilitation program. He also recommended that, in order to supplement the income of PECA, dividends be applied to PECA dues, "with the inference that non-members would be forfeiting their dividends."

PECA's Board of Directors and IBEW officials held a joint meeting on September 27, 1973, to discuss the Segal plan. The PECA directors agreed to recommend that its members adopt the "Association Dividend Group Plan," with the mandatory participation of all employers covered by the collective bargaining agreement.

On October 26, 1973, PECA convened a meeting of the general membership to discuss the proposed group plan and nonmember contractors were invited to attend the meeting. Berton Jacobson, representing Segal, explained the features of the proposed plan, including its mandatory character and the distribution of dividends. He projected an overall fifteen percent savings in premiums under the group plan. The membership approved an amendment to the collective bargaining contract that required participation of all signatory contractors, with the plan administered by PECA. The amendment read:


Section 1. The parties agree that present practices and procedures for compensation of employees for occupational illness and injuries are unsatisfactory, and require substantial improvement.

Section 2. The parties agree that all Employers will participate in an "Association Dividend Group Plan" providing for workmen's compensation insurance coverage for their employees, as recommended by the actuary designated by the parties. The Plan will be administered by PECA. The Union shall be consulted by PECA prior to making any important policy decisions which may affect the employees.

Section 3. The Plan shall be initiated February 1, 1974.

During the following weeks a number of insurance carriers and agents expressed to Oda their disapproval of the mandatory nature of the plan. In a letter to Jacobson, Oda wrote, "I'm still getting calls from sub-agents who feel we will be putting them out of the workmen's compensation business."

On November 19, 1973, Segal sent a specification letter to nine insurance carriers to solicit bids for the PECA plan. The letter requested written proposals concerning promptness of claims payments, safety and rehabilitation programs, and dividend payments. It did not specify a general agent or whether the plan would be "open" or "closed" in the sense that only one or a limited number of agents could represent the carrier. In a letter written on the same day, Jacobson warned Oda to furnish the specification letter only to direct representatives of carriers not to agents or brokers, who might claim an entitlement to compensation for their services.

Only three insurance companies submitted bids: First Insurance Company of Hawaii, Argonaut Insurance Company, and INA. The First Insurance Company bid, which one White of Segal rejected, "require(d) the free choice of an insurance agent by the insured," and offered a dividend plan "applicable to individual risk, with the amount of the dividend being determined on the basis of that risk's premium size and experience." White testified that the bid was rejected because it did not contain a group dividend plan, as requested in the specification letter. 3

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Segal recommended the INA plan, and the PECA Board of Directors accepted that plan on January 24, 1974. 4 INA proposed to write the policies through PEIC, its subsidiary. INA quoted a minimum retention rate of 31.9 percent, which was more favorable than the 40.8 percent retention quoted by Argonaut Insurance Company. INA stated in its proposal that it would acquiesce to the appointment of a broker to coordinate the plan if PECA so desired.

Oda had been licensed as an insurance solicitor since 1957 but was inactive for a number of years...

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