Hartford Fire Insurance Co v. California Merrett Underwriting Agency Management Limited v. California

Decision Date28 June 1993
Docket Number91-1128,Nos. 91-1111,s. 91-1111
Citation125 L.Ed.2d 612,113 S.Ct. 2891,509 U.S. 764
PartiesHARTFORD FIRE INSURANCE CO., et al., Petitioners, v. CALIFORNIA et al. MERRETT UNDERWRITING AGENCY MANAGEMENT LIMITED, et al., Petitioners, v. CALIFORNIA et al
CourtU.S. Supreme Court
Syllabus*

Nineteen States and many private plaintiffs filed complaints alleging that the defendants—four domestic primary insurers, domestic companies who sell reinsurance to insurers, two domestic trade associations, a domestic reinsurance broker, and reinsurers based in London—violated the Sherman Act by engaging in various conspiracies aimed at forcing certain other primary insurers to change the terms of their standard domestic commercial general liability insurance policies to conform with the policies the defendant insurers wanted to sell.After the actions were consolidated for litigation, the District Court granted the defendants' motions to dismiss.The Court of Appeals reversed, rejecting the District Court's conclusion that the defendants were entitled to antitrust immunity under § 2(b) of the McCarran-Ferguson Act, which exempts from federal regulation "the business of insurance," except "to the extent that such business is not regulated by State law."Although it held the conduct involved to be "the business of insurance,"the Court of Appeals ruled that the foreign reinsurers did not fall within § 2(b)'s protection because their activities could not be "regulated by State law," and that the domestic insurers had forfeited their § 2(b) exemption when they conspired with the nonexempt foreign reinsurers.Furthermore, held the court, most of the conduct in question fell within § 3(b), which provides that nothing in the McCarran-Ferguson Act"shall render the . . . Sherman Act inapplicable to any . . . act of boycott. . . ."Finally, the court rejected the District Court's conclusion that the principle of international comity barred it from exercising Sherman Act jurisdiction over the three claims brought solely against the London reinsurers.

Held: The judgment is affirmed in part and reversed in part, and the case is remanded.

938 F.2d 919(CA91991), affirmed in part, reversed in part, and remanded.

Justice SOUTER delivered the opinion of the Court with respect to Parts I, II-A, III, and IV, concluding that:

1.The domestic defendants did not lose their § 2(b) immunity by conspiring with the foreign defendants.The Court of Appeals's conclusion to the contrary was based in part on the statement, in Group Life & Health Ins. Co. v. Royal Drug Co.,440 U.S. 205, 231, 99 S.Ct. 1067, 1083, 59 L.Ed.2d 261, that, "[i]n analogous contexts, the Court has held that an exempt entity forfeits antitrust exemption by acting in concert with nonexempt parties."Even assuming that foreign reinsurers were "not regulated by State law,"the Court of Appeals's reasoning fails because the analogy drawn by the Royal Drug Court was a loose one.Following that language, the Royal Drug Court cited two cases dealing with the Capper-Volstead Act, which immunizes certain "persons" from Sherman Act liability.Ibid.Because, in contrast, the McCarran-Ferguson Act immunizes activities rather than entities, an entity-based analysis of § 2(b) immunity is inappropriate.Seeid., at 232-233, 99 S.Ct., at 1083-1084.Moreover, the agreements at issue in Royal Drug Co. were made with "parties wholly outside the insurance industry,"id., at 231, whereas the alleged agreements here are with foreign reinsurers and admittedly concern "the business of insurance."Pp. ____.

2.Even assuming that a court may decline to exercise Sherman Act jurisdiction over foreign conduct in an appropriate case, international comity would not counsel against exercising jurisdiction in the circumstances alleged here.The only substantial q estion in this case is whether "there is in fact a true conflict between domestic and foreign law."Societe Nationale Industrielle Aerospatiale v. United States District Court,482 U.S. 522, 555, 107 S.Ct. 2542, 2561, 96 L.Ed.2d 461(Blackmun, J., concurring in part and dissenting in part).That question must be answered in the negative, since the London reinsurers do not argue that British law requires them to act in some fashion prohibited by United States law or claim that their compliance with the laws of both countries is otherwise impossible.Pp. ____.

Justice SCALIA delivered the opinion of the Court with respect to Part I, concluding that a "boycott" for purposes of § 3(b) of the Act occurs where, in order to coerce a target into certain terms on one transaction, parties refuse to engage in other, unrelated transactions with the target.It is not a "boycott" but rather a concerted agreement to terms (a "cartelization") where parties refuse to engage in a particular transaction until the terms of that transaction are agreeable.Under the foregoing test, the allegations of a "boycott" in this case, construed most favorably to the respondents, are sufficient to sustain most of the relevant counts of complaint against a motion to dismiss.Pp. ____.

SOUTER, J., announced the judgment of the Court and delivered the opinion for a unanimous Court with respect to Parts I and II-A, the opinion of the Court with respect to Parts III and IV, in which REHNQUIST, C.J., and WHITE, BLACKMUN, and STEVENS, JJ., joined, and an opinion with respect to Part II-B, in which WHITE, BLACKMUN, and STEVENS, JJ., joined.SCALIA, J., delivered the opinion of the Court with respect to Part I, in which REHNQUIST, C.J., and O'CONNOR, KENNEDY, and THOMAS, JJ., joined, and a dissenting opinion with respect to Part II, in which O'CONNOR, KENNEDY, and THOMAS, JJ., joined.

Stephen M. Shapiro, Chicago, IL, for petitioners in 91-1111.

Molly S. Boast, New York City, for petitioners in 91-1128.

Lawrence G. Wallace, Washington, DC, for U.S. as amicus curiae by special leave of the Court.

Laurel A. Price, Trenton, NJ, for respondents.

Justice SOUTER announced the judgment of the Court and delivered the opinion of the Court with respect to Parts I, II(A), III, and IV, and an opinion with respect to Part II(B) in which Justice WHITE, Justice BLACKMUN and Justice STEVENS join.

The Sherman Act makes every contract, combination, or conspiracy in unreasonable restraint of interstate or foreign commerce illegal.26 Stat. 209, as amended, 15 U.S.C. § 1.These consolidated cases present questions about the application of that Act to the insurance industry, both here and abroad.The plaintiffs(respondents here) allege that both domestic and foreign defendants(petitioners here) violated the Sherman Act by engaging in various conspiracies to affect the American insurance market.A group of domestic defendants argues that the McCarran-Ferguson Act, 59 Stat. 33, as amended, 15 U.S.C. § 1011 et seq., precludes application of the Sherman Act to the conduct alleged; a group of foreign defendants argues that the principle of international comity requires the District Court to refrain from exercising jurisdiction over certain claims against it.We hold that most of the domestic defendants' alleged conduct is not immunized from antitrust liability by the McCarran-Ferguson Act, and that, even assuming it applies, the principle of international comity does not preclude District Court jurisdiction over the foreign conduct alleged.

I

The two petitions before us stem from consolidated litigation comprising the complaints of 19 States and many private plaintiffs alleging that the defendants, members of the insurance industry, conspired in violation of § 1 of the Sherman Act to restrict the terms of coverage of commercial general liability (CGL) insurance1 available in the United States.Because the cases come to us on motions to dismiss, we take the allegations of he complaints as true.2

According to the complaints, the object of the conspiracies was to force certain primary insurers (insurers who sell insurance directly to consumers) to change the terms of their standard CGL insurance policies to conform with the policies the defendant insurers wanted to sell.The defendants wanted four changes.3

First, CGL insurance has traditionally been sold in the United States on an "occurrence" basis, through a policy obligating the insurer "to pay or defend claims, whenever made, resulting from an accident or 'injurious exposure to conditions' that occurred during the [specific time] period the policy was in effect."App. 22 (Cal.Complaint ¶ 52).In place of this traditional "occurrence" trigger of coverage, the defendants wanted a "claims-made" trigger, obligating the insurer to pay or defend only those claims made during the policy period.Such a policy has the distinct advantage for the insurer that when the policy period ends without a claim having been made, the insurer can be certain that the policy will not expose it to any further liability.Second, the defendants wanted the "claims-made" policy to have a "retroactive date" provision, which would further restrict coverage to claims based on incidents that occurred after a certain date.Such a provision eliminates the risk that an insurer, by issuing a claims-made policy, would assume liability arising from incidents that occurred before the policy's effective date, but remained undiscovered or caused no immediate harm.Third, CGL insurance has traditionally covered "sudden and accidental" pollution; the defendants wanted to eliminate that coverage.Finally, CGL insurance has traditionally provided that the insurer would bear the legal costs of defending covered claims against the insured without regard to the policy's stated limits of coverage; the defendants wanted legal defense costs to be counted against the stated limits (providing a "legal defense cost cap").

To understand how the defendants are alleged to have pressured the targeted primary insurers to make these changes, one must be aware of two important features of the insurance...

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