Humana v. Forsyth

Decision Date20 January 1999
Docket Number97303
Citation119 S.Ct. 710,525 U.S. 299,142 L.Ed.2d 753
Parties114 F.3d 1467, affirmed. SUPREME COURT OF THE UNITED STATES 119 S.Ct. 710 142 L.Ed.2d 753303 HUMANA INC., et al., PETITIONERS v. MARY FORSYTH et al. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT [
CourtU.S. Supreme Court

Justice Ginsburg delivered the opinion of the Court.

This case concerns regulation of the business of insurance by the States, as secured by the McCarran-Ferguson Act, 59 Stat. 33, as amended, 15 U.S.C. § 1011 et seq., and the extent to which federal legislation, specifically, the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., is compatible with state regulation. The controversy before us stems from a scheme employed by petitioner Humana Health Insurance of Nevada, Inc. (Humana Insurance), a group health insurer, to gain discounts for hospital services which the insurer did not disclose and pass on to its policy beneficiaries. The scheme is alleged to violate both Nevada law and RICO. Under the McCarran-Ferguson Act, the federal legislation may be applied if it does not "invalidate, impair, or supersede" the State's regulation. 15 U.S.C. § 1012(b).

The federal law at issue, RICO, does not proscribe conduct that the State's laws governing insurance permit. But the federal and state remedial regimes differ. Both provide a private right of action. RICO authorizes treble damages; Nevada law permits recovery of compensatory and punitive damages. We hold that RICO can be applied in this case in harmony with the State's regulation. When federal law is applied in aid or enhancement of state regulation, and does not frustrate any declared state policy or disturb the State's administrative regime, the McCarran-Ferguson Act does not bar the federal action.

I

Plaintiffs in the District Court, respondents in this Court, are beneficiaries of group health insurance policies issued by Humana Insurance. Between 1985 and 1988, plaintiffs-respondents received medical care from the Humana Hospital-Sunrise, an acute care facility owned by codefendant (now copetitioner) Humana Inc. Humana Insurance agreed to pay 80% of the policy beneficiaries' hospital charges over a designated deductible. The beneficiaries bore responsibility for payment of the remaining 20%. But pursuant to a concealed agreement, the complaint in this action alleged, the hospital gave Humana Insurance large discounts on the insurer's portion of the hospital's charges for care provided to the policy beneficiaries.1 As a result, Humana Insurance paid significantly less than 80% of the hospital's actual charges for the care that policy beneficiaries received, and the beneficiaries paid significantly more than 20% of those charges.2

The employee beneficiaries brought suit in the United States District Court for the District of Nevada,3 alleging that Humana Insurance and Humana Inc. violated RICO through a pattern of racketeering activity consisting of mail, wire, radio, and television fraud.4 Defendants Humana Insurance and Humana Inc. moved for summary judgment, citing §2(b) of the McCarran-Ferguson Act, which provides:

"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, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance." 15 U.S.C. § 1012(b).

The District Court granted the motion. In that court's view, RICO's private remedies, including the federal statute's treble damages provision, 18 U.S.C. § 1964(c), so exceeded Nevada's administrative penalties for insurance fraud, see infra, at 10 11, that applying RICO to the alleged conduct would have been "tantamount to allowing Congress to intercede in an area expressly left to the states under the McCarran-Ferguson Act," 827 F. Supp. 1498, 1521 1522 (Nev. 1993).5

The Ninth Circuit reversed in relevant part. See 114 F.3d 1467, 1482 (1997). In Merchants Home Delivery Serv., Inc. v. Frank B. Hall & Co., 50 F.3d 1486 (1995), a decision handed down after the District Court rejected the policy beneficiaries' right to sue under RICO in this case, the Court of Appeals adopted a "direct conflict" test for determining when a federal law "invalidate[s], impair[s], or supersede[s]" a state law governing insurance. As declared in Merchants Home, the McCarran-Ferguson Act does not preclude "application of a federal statute prohibiting acts which are also prohibited under a state's insurance laws." Id., at 1492. Guided by Merchants Home, and assuming that Nevada law provided for administrative remedies only, the Ninth Circuit held that the McCarran-Ferguson Act did not bar suit under RICO by the Humana Insurance policy beneficiaries. See 114 F.3d, at 1480. Circuit courts have divided on the question presented: Does a federal law, which proscribes the same conduct as state law, but provides materially different remedies, "impair" state law under the McCarran-Ferguson Act? 6 We granted certiorari to address that question. 523 U.S. ___ (1998).

II

Prior to our decision in United States v. South-Eastern Underwriters Assn., 322 U.S. 533 (1944), we had consistently held that the business of insurance was not commerce. See, e.g., Paul v. Virginia, 8 Wall. 168, 183 (1869) ("Issuing a policy of insurance is not a transaction of commerce."); see also South-Eastern, 322 U.S., at 544, n. 18 (collecting cases relying on the Paul generalization). The business of insurance, in consequence, was largely immune from federal regulation. See St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 539 (1978) ("[T]he States enjoyed a virtually exclusive domain over the insurance industry."). In South-Eastern, we held for the first time that an insurance company doing business across state lines engages in interstate commerce. See 322 U.S., at 553. In accord with that holding, we further decided that the Sherman Act applied to the business of insurance. See id., at 553 562.

Concerned that our decision might undermine state efforts to regulate insurance, Congress in 1945 enacted the McCarran-Ferguson Act. Section 1 of the Act provides that "continued regulation and taxation by the several States of the business of insurance is in the public interest," and that "silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States." 15 U.S.C. § 1011. In §2(b) of the Act the centerpiece of this case Congress ensured that federal statutes not identified in the Act or not yet enacted would not automatically override state insurance regulation. Section 2(b) provides that when Congress enacts a law specifically relating to the business of insurance, that law controls. See §1012(b). The subsection further provides that federal legislation general in character shall not be "construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance." Ibid.7

The McCarran-Ferguson Act thus precludes application of a federal statute in face of state law "enacted . . . for the purpose of regulating the business of insurance," if the federal measure does not "specifically relat[e] to the business of insurance," and would "invalidate, impair, or supersede" the State's law. See Department of Treasury v. Fabe, 508 U.S. 491, 501 (1993). RICO is not a law that "specifically relates to the business of insurance." This case therefore turns on the question: Would RICO's application to the employee beneficiaries' claims at issue "invalidate, impair, or supersede" Nevada's laws regulating insurance?

The term "invalidate" ordinarily means "to render ineffective, generally without providing a replacement rule or law." Brief for United States as Amicus Curiae 17, n. 6 (citing Carter v. Virginia, 321 U.S. 131, 139 (1944) (Black, J., concurring)). And the term "supersede" ordinarily means "to displace (and thus render ineffective) while providing a substitute rule." Brief for United States as Amicus Curiae 17, n. 6 (citing Illinois Commerce Comm'n v. Thomson, 318 U.S. 675, 682 (1943)). Under these standard definitions, RICO's application to the policy beneficiaries' complaint would neither "invalidate" nor "supersede" Nevada law.

The key question, then, is whether RICO's application to the scheme in which the Humana defendants are alleged to have collaborated, to the detriment of the plaintiff policy beneficiaries, would "impair" Nevada's law. The answer would be "no" were we to read "impair," as the policy beneficiaries suggest, to be "interchangeabl[e]" with "invalidate" and "supersede." Brief for Respondents 14; see Brief for United States as Amicus Curiae 17, n. 6 (describing the use of the three terms as an "instanc[e] of lawyerly iteration"). The answer would also be "no" if we understood "impair" to mean "the displacement of some portion of a statute or its preclusion in certain contexts." Id., at 14. This is so because insurers can comply with both RICO and Nevada's laws governing insurance. These laws do not directly conflict. The acts the policy beneficiaries identify as unlawful under RICO are also unlawful under Nevada law. See infra, at 10 12.

On the other hand, the answer would be "yes" were we to agree with Humana Insurance and Humana Inc. that the word "impair," in the McCarran-Ferguson Act context, signals the federal legislators' intent "to withdraw Congress from the field [of insurance] absent an express congressional statement to the contrary." Brief for Petitioners 10. Under that reading, "impair" would convey "a very broad proscription against applying federal law where a state has regulated, or chosen not to regulate, in the insurance industry." Merchants Home, 50 F.3d, at 1491 (emphasis in original). See also Reply Brief 4 (McCarran-Ferguson Act "precludes federal law that is at material variance...

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