Barry v. St. Paul Fire & Marine Ins. Co.

• Decision Date: 16 May 1977
• Docket Number: No. 76-1226,76-1226
• Court: U.S. Court of Appeals — First Circuit
• Parties: 1977-1 Trade Cases 61,431 David M. BARRY, M.D., et al., Plaintiffs, Appellants, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY et al., Defendants, Appellees.

Page 3

555 F.2d 3

1977-1 Trade Cases 61,431

David M. BARRY, M.D., et al., Plaintiffs, Appellants, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY et al., Defendants Appellees.

No. 76-1226.

United States Court of Appeals First Circuit.

May 16, 1977.

Leonard Decof, Providence, R. I., with whom Mark S. Mandell and Leonard Decof, Ltd., Providence, R. I., were on brief, for appellants.

Sidney S. Rosdeitcher, New York City, with whom Paul, Weiss, Rifkind, Wharton & Garrison, Jack Hassid, New York City, Hinckley, Allen, Salisbury & Parsons, Thomas D. Gidley, Stephen J. Carlotti, Providence, R.I., Covington & Burling, Charles Lister, Jonathan M. Weisgall, Washington, D. C., Carroll, Kelly & Murphy, and Joseph A. Kelly, Providence, R. I., were on brief, for Aetna Casualty & Surety Co., Hartford Casualty Co. and Hartford Fire Insurance Co., appellees.

Walker B. Comegys, Washington, D. C., with whom Powers & Hall, Washington, D. C., Kirk Hanson, David P. Whitman, Hanson, Curran, Bowen & Parks, Joseph V. Cavanagh, and Higgins, Cavanagh & Cooney, Providence, R. I., were on brief, for St. Paul Fire & Marine Ins. Co. and Travelers Ins. Co., appellees.

Before COFFIN, Chief Judge, CAMPBELL, Circuit Judge, and GIGNOUX, ^* District Judge.

COFFIN, Chief Judge.

The primary issue presented by this appeal is whether a "consumer" of insurance can sue an insurance company for violating the antitrust laws. Under the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-15, "the business of insurance" is exempted from antitrust regulation to the extent that it is regulated by the states. Id. § 1012(b). But McCarran-Ferguson does not confer a blanket immunity: insurers are subject to the Sherman Act if they engage in "act(s) of boycott, coercion, or intimidation" or if they agree to engage in such acts. Id. § 1013(b). We must decide whether this exception applies only to insurance company boycotts of agents and other companies or also applies to refusals to deal with policyholders.

This suit is brought by plaintiffs seeking to represent two classes: all licensed physicians practicing in the state of Rhode Island and all citizens of Rhode Island who are or will be under a doctor's care. The defendants are four insurance companies that have sold malpractice insurance to Rhode Island doctors. The plaintiffs charged in their amended complaint that these companies violated the nation's antitrust laws by conspiring to shrink the malpractice coverage available to Rhode Island doctors. According to the complaint, one company, St. Paul Fire & Marine Insurance Company, changed its future malpractice policies to provide coverage only on a "claims made" basis, rather than an "occurrence" basis. ¹ When St. Paul's disgruntled customers tried to take their business elsewhere, the other insurance companies refused to sell them malpractice policies of any sort. Believing this to be the result of an unlawful conspiracy in restraint of trade, plaintiffs sought injunctive relief and treble damages. ² The viability of their suit depends on the scope of the McCarran-Ferguson Act. 15 U.S.C. § 1011-15.

The Act must be placed in historical context if it is to be understood. For many years, from 1869 to 1944, the Supreme Court steadfastly maintained that insurance was not "commerce" and that state regulation of insurance did not impinge on the federal government's power to regulate interstate commerce. See, e. g., Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L.Ed. 357 (1869). In 1944, however, the Supreme Court repudiated the principle that insurance is not commerce and held that federal antitrust laws could constitutionally be applied to insurance companies. United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). This decision left the nation's insurance companies and the states' regulatory bodies dumbfounded; suddenly, state taxation and regulation of insurance seemed open to serious constitutional doubts. Federal authorities were loath to assume the burden of substituting national for state supervision of insurance.

To restore some certainty, Congress passed the McCarran-Ferguson Act in 1945. The Act made it clear that state regulation and taxation of insurance could continue. It also narrowed the impact of federal law on the insurance business, stating that "the Sherman Act, . . . the Clayton Act, and . . . the Federal Trade Commission Act . . . shall be applicable to the business of insurance to the extent that such business is not regulated by State law." 15 U.S.C. § 1012(b). This provision allows the states to engage in a kind of "reverse preemption", and the states were quick to enact the necessary laws.

The parties agree that the defendants' acts were related to the business of insurance and that Rhode Island effectively regulates that business. Cf. SEC v. National Securities, Inc., 393 U.S. 453, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969); FTC v. Travelers Health Ass'n, 362 U.S. 293, 80 S.Ct. 717, 4 L.Ed.2d 724 (1960). The controversy in this case centers on an exception to the "preemptive" powers of the states: "Nothing contained in this chapter shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation." 15 U.S.C. § 1013(b).

The district court concluded that "despite this provision's broad wording, which on first glance seems to support the plaintiffs' position, Congress intended this exception to be narrowly applied and that it does not, in fact, cover the situation presented in this case." It held that the "boycott, coercion, and intimidation" exception was intended by Congress solely to protect insurance agents or other insurance companies from being blacklisted by combinations of companies, and was not intended to have any bearing on the insurer-insured relationship. It also observed that a contrary holding would vitiate the McCarran-Ferguson Act by, presumably, cutting deeply into the area of regulation which has been given to the states. In so holding, it relied on the only case authorities which had dealt with this issue. Addrisi v. Equitable Life Assurance Soc'y, 503 F.2d 725 (9th Cir. 1974), cert. denied, 420 U.S. 929, 95 S.Ct. 1129, 43 L.Ed.2d 400 (1975); Meicler v. Aetna Cas. & Sur. Co., 506 F.2d 732 (5th Cir. 1975); Transnational Ins. Co. v. Rosenlund, 261 F.Supp. 12 (D.Or.1966).

Six other district courts have now taken the same view. Mathis v. Automobile Club Inter-Ins. Exch., 410 F.Supp. 1037 (W.D.Mo.1976); Proctor v. State Farm Mut. Auto. Ins. Co., 406 F.Supp. 27 (D.D.C.1975); McIlhenny v. American Tit. Ins. Co., 418 F.Supp. 364 (E.D.Pa.1976); Royal Drug Co. v. Group Life and Health Ins. Co., 415 F.Supp. 343 (W.D.Tex.1976); Seasongood v. K & K Ins. Ag'cy, 414 F.Supp. 698 (E.D.Mo.1976), rev'd on other grounds, 548 F.2d 729 (8th Cir. 1977); Frankford Hosp. v. Blue Cross, 417 F.Supp. 1104, 1976-2 Trade Cas. P 61,030 (E.D.Pa.1976). ³

Since we feel compelled to disagree with this rather formidable array of authorities, we first try to summarize as fairly as we can the bases for their decision. We then make our own analysis of the wording of the statute and its legislative history. The line of cases begins with Transnational Ins. Co. v. Rosenlund, supra. Although the Transnational court found that it was not faced with a boycott even within the ordinary meaning of that word, it announced in passing that the boycott provision

"was placed in the legislation to protect insurance agents from the issuance by insurance companies of a 'black-list,' which would name companies or agents which were beyond the pale. This list, in effect, was a directive to an agent not to write insurance in the name of or for the black-listed company; otherwise, he would be stripped of his agency and not permitted to write insurance for any of the members of the governing organization of insurance companies." 261 F.Supp. at 26-27 (footnote omitted).

Only blacklisting by an insurance company, the court intimated, was subject to the Sherman Act under this provision. The court, though referring broadly to "the legislative history", cited only a single page of the Congressional record in support of this reading. 91 Cong.Rec. 1087 (1945). Transnational stood alone until 1974, when the Fifth and Ninth Circuits followed its lead. The courts of appeals simply adopted without elaboration the Transnational court's discussion of "the" legislative history. One reason for taking so narrow a view of the provision was the courts' apparent fear that any other reading would "emasculate", Meicler, supra, 506 F.2d at 734, or "vitiate", Addrisi, supra, 503 F.2d at 729, the McCarran-Ferguson Act. To fend off this danger, the Meicler court adopted a rule that policyholders or members of the public could not seek the benefit of the boycott provision. Later cases have followed these pioneers without adding to their analysis.

As will be seen, we disagree with the conclusion reached by these courts. Simple disagreement might not be enough if the insurance business had long relied on authoritative rulings in other circuits. That is not the case here. The view we reject was not advanced until 1966, when a single district court suggested it. Only in the past three years has its narrow reading of the boycott provision begun to gain more general favor. What prevents us from following the trail blazed by the Transnational court is its decision to go behind the statutory language. We would be justified in probing legislative history if the language were ambiguous or if, even though unambiguous, the language literally read produced a senseless or unworkable statute. Massachusetts Financial Serv., Inc. v. Securities Investor Protection Corp., 545 F.2d 754 (1st Cir. 1976). Cf. United States v. Slater, (1st Cir. Dec. 22, 1976).

The words "agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation", within the context of the Sherman Act, do not...