Feinstein v. Nettleship Co. of Los Angeles

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: Before CHAMBERS, ANDERSON and SCHROEDER; SCHROEDER
• Citation: Feinstein v. Nettleship Co. of Los Angeles, 714 F.2d 928 (9th Cir. 1983)
• Decision Date: 01 September 1983
• Docket Number: 82-5698,Nos. 77-3998,s. 77-3998
• Parties: 1983-2 Trade Cases P 65,590 Walter FEINSTEIN, Jack Kriegsman, Leo Miller, Morton H. Pastor and Jason I. Green, Plaintiffs/Appellants, v. NETTLESHIP CO. OF LOS ANGELES, Pacific Indemnity Company, Insurance Company of North America, Sentry Insurance, American Re-Insurance Company, and North American Re-Insurance Corporation, Defendants/Appellees.

Page 928

714 F.2d 928

1983-2 Trade Cases P 65,590

Walter FEINSTEIN, Jack Kriegsman, Leo Miller, Morton H Pastor and Jason I. Green, Plaintiffs/Appellants, v. NETTLESHIP CO. OF LOS ANGELES, Pacific Indemnity Company Insurance Company of North America, Sentry Insurance American Re-Insurance Company, and North American Re-Insurance Corporation, Defendants/Appellees.

Nos. 77-3998, 82-5698.

United States Court of Appeals Ninth Circuit.

Argued May 10, 1983.

Submitted Aug. 10, 1983.

Decided Sept. 1, 1983.

Joseph M. Alioto, Lawrence John Appel, Alioto & Alioto, San Francisco, Cal., for plaintiffs/appellants.

John W. Stamper, Philip F. Westbrook, Jr., O'Melveny & Myers, Frederick A. Clark, Carl J. Schuck, Overton, Lyman & Prince, Los Angeles, Cal., Gary H. Anderson, James Michael, Robert M. Westberg, Pillsbury, Madison & Sutro, San Francisco, Cal., John Michael McCormick, Kadison, Pfaelzer, Woodard, Ouinn & Rossi, Steven Lindsey, Myers & D'Angelo, Peter Sullivan, Gibson, Dunn & Crutcher, Douglas L. Thorpe, Los Angeles, Cal., for defendants/appellees.

Appeal from the United States District Court for the Central District of California.

Before CHAMBERS, ANDERSON and SCHROEDER, Circuit Judges.

SCHROEDER, Circuit Judge.

This is a protracted antitrust action by physicians against the insurance agent and carriers who provided medical malpractice insurance to members of the Los Angeles County Medical Association. The question is whether the defendants' alleged domination of the medical malpractice insurance market in Southern California, through an agreement with the medical association, is immune from antitrust attack. The district court held that the defendants' conduct was the business of insurance and was regulated by the state. It therefore concluded that the antitrust claims were barred by the McCarran-Ferguson Act exemption to the antitrust laws, 15 U.S.C. § 1012. In addition, the court held that defendants' conduct did not fall within the boycott exception to that Act, 15 U.S.C. § 1013(b). It granted summary judgment in favor of the defendants. We affirm for the reasons set forth below.

I. FACTS AND PROCEDURAL HISTORY

Plaintiffs-appellants Walter Feinstein, Jack Kriegsman, Leo Miller, Morton H. Pastor, and Jason I. Green, are doctors in Los Angeles County who at various times between 1963 and 1969 purchased medical malpractice insurance through defendant-appellee Nettleship Company. Nettleship was an underwriting manager for medical malpractice insurance, and was the approved agent for the Los Angeles County Medical Association (LACMA) throughout the relevant period. Defendant Pacific Indemnity was one of the insurance carriers. The other companies named in the complaint were reinsurers.

It is undisputed that at the time this lawsuit began, most professional medical liability insurance in California was written on a group basis. The doctors negotiated with the insurance company through local medical associations. The insurance company issued a master policy to the association, and the participating physicians, in turn, received certificates of insurance.

The facts in this case reflect that pattern. In a written agreement LACMA designated the Nettleship Company the "sole and exclusive agent approved by the association." Nettleship issued a master policy to LACMA and certificates of insurance to the covered doctors. In exchange for exclusive agency, Nettleship agreed not to limit coverage to low risk areas, but to include high risk specialties as required by the members. The agreement also addressed claims handling and provided for the revision of rates, pursuant to annual reports regarding Nettleship's net profits.

In order to buy insurance through Nettleship, a physician was required to be a member of LACMA, but LACMA members were free to purchase medical malpractice insurance elsewhere if they chose. For part of the period in issue, the "exclusivity" provision was not respected, for LACMA used an additional insurance agent. Nettleship, however, gained an increasing share of the medical malpractice insurance market in Southern California, and, during the late sixties it imposed substantial, successive rate increases. In 1969, plaintiffs filed their complaint in this case alleging conspiracy to monopolize and monopolization, price-fixing and tied sales, as well as boycott, fraud and coercion.

In 1971, the district court granted the defendants summary judgment on price-fixing and related claims, on the ground that insurance rate-setting was regulated by state law and thus fell within the exemption of the McCarran-Ferguson Act. 15 U.S.C. §§ 1011-15. In 1977, the district court granted summary judgment on the remaining antitrust claims, holding that the entire action was barred by the McCarran-Ferguson Act and that the plaintiff-physicians, as policyholders, lacked standing to raise the boycott exception in 15 U.S.C. § 1013(b). The district court's holding on standing was dictated by our decision in Addrisi v. Equitable Life Assurance Society of the United States, 503 F.2d 725 (9th Cir.1974), cert. denied, 420 U.S. 929, 95 S.Ct. 1129, 43 L.Ed.2d 400 (1975). After the 1977 district court decision in this case, however, that aspect of Addrisi was overruled by St. Paul Fire & Marine Insurance Co. v. Barry, 438 U.S. 531, 98 S.Ct. 2923, 57 L.Ed.2d 932 (1978) which held that policyholders may invoke the boycott exception. In 1979, this court therefore remanded for reconsideration in light of Barry.

Following remand the district court in 1980 granted partial summary judgment for the defendants on plaintiffs' tying claims. In 1982, the district court granted summary judgment to defendants on all remaining issues on the ground that the action was barred by the McCarran-Ferguson Act and that the defendants' conduct did not constitute a boycott under 15 U.S.C. § 1013(b). There is no factual dispute and we review solely to determine whether defendants were entitled to judgment as a matter of law. Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, 690 F.2d 1240, 1250 (9th Cir.1982), cert. denied, --- U.S. ----, 103 S.Ct. 1234, 75 L.Ed.2d 468 (1983).

II. DISCUSSION

The McCarran-Ferguson Act provides that:

(a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.

(b) No act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance.... Provided, that ... the Sherman Act, and ... 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.

Section 1013(b) of the McCarran-Ferguson Act provides that

Nothing contained in this act shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation.

The McCarran-Ferguson Act creates an antitrust exemption for the business of insurance which was prompted by the Supreme Court's departure in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944) from prior holdings that insurance is not a transaction in interstate commerce. See Barry, 438 U.S. at 538-39, 98 S.Ct. at 928-29. The Act was passed in response to widespread concern that the states should be permitted to continue regulating and taxing the insurance industry. It provides an exemption from the antitrust laws for the business of insurance, but only to the extent that such business is regulated by the state, and does not involve a boycott, coercion or intimidation. Id. at 539-40, 98 S.Ct. at 2929; Klamath-Lake Pharmaceutical Ass'n v. Klamath Medical Service Bureau, 701 F.2d 1276, 1284 (9th Cir.1983), petition for cert. filed, 51 U.S.L.W. 3884 (U.S. June 14, 1983) (No. 82-1969).

Plaintiffs in this appeal contend both that the defendants' agreement with LACMA was not exempt as the business of insurance, and that even if it otherwise qualifies for exemption, it falls within the boycott-coercion exception. We address these contentions in turn.

A. The Business of Insurance and State Regulation

The Supreme Court has set forth three factors to consider in determining whether a practice constitutes the business of insurance: (1) whether the practice has the effect of transferring or spreading the policyholders' risks; (2) whether the practice is an integral part of the policy relationship between the insurer and insured; and (3) whether the practice is limited to entities within the insurance industry. Union Labor Life Insurance Co. v. Pireno, --- U.S. ----, ----, 102 S.Ct. 3002, 3009, 73 L.Ed.2d 647 (1982). This court has discussed these factors in two recent decisions, both of which emphasize that the primary characteristic of the business of insurance is the transferring or spreading of risk. Klamath-Lake, 701 F.2d at 1285; United States v. Title Insurance Rating Bureau of Arizona, 700 F.2d 1247, 1251 (9th Cir.1983). Provided the risk spreading factor is present, the business of insurance is not limited to traditionally recognized areas of insurance. See Klamath-Lake, 701 F.2d at 1286-87. In Klamath-Lake, we held that the practice of shifting the risk of pharmacy costs, as well as medical costs, qualified as the business of insurance. Id. at 1287.

In this case, which involves a conventional field of insurance, plaintiffs offer no very clear articulation of the practice which they seek to challenge as violative of the antitrust laws and outside the business of insurance. It appears, however, that for purposes of bringing this suit outside the scope of the McCarran-Ferguson Act, plaintiffs have focused their ire upon the agreement between the medical association and the insurers to offer the malpractice insurance only to members of LACMA.

That...