In re Aviation Insurance Industry

• Decision Date: 13 April 1960
• Citation: 183 F. Supp. 374
• Parties: In re Grand Jury Investigation of the AVIATION INSURANCE INDUSTRY.
• Court: U.S. District Court — Southern District of New York

183 F. Supp. 374

In re Grand Jury Investigation of the AVIATION INSURANCE INDUSTRY.

United States District Court S. D. New York.

April 13, 1960.

Davis, Polk, Wardwell, Sunderland & Kiendl, New York City, for Associated Aviation Underwriters, Frederick A. O. Schwarz, Porter R. Chandler, James A. Thomas, Jr., New York City, of counsel.

Kelley, Drye, Newhall & Maginnes, New York City, for Aviation Ins. Rating Bureau, John W. Drye, Hancock Griffin, Jr., New York City, of counsel.

S. Hazard Gillespie, Jr., U. S. Atty., New York, Robert A. Bicks, Acting Asst. Atty. Gen., Edward B. Kenney, Herbert F. Peters, Attys., Dept. of Justice, Antitrust Division, Washington, D. C., for Antitrust Division, Dept. of Justice.

CASHIN, District Judge.

Nominally, these are motions made by two entities, Associated Aviation Underwriters (AAU) and Aviation Insurance Rating Bureau (AIRB), which have been served with grand jury subpoenas duces tecum, for orders quashing those subpoenas. However, the orders, if granted on the basic ground urged by the movants, would result in a judicial determination not only that the subpoenas presently under attack should be quashed but also that absolutely no authority exists for the Antitrust Division of the Justice Department to conduct any investigation of the aviation insurance industry. Accordingly, I will treat these motions, as I must, as seeking an order quashing not only the particular subpoenas nominally under attack but the entire investigation.

Movant AAU is an association of insurance companies which, in effect, conducts the business of the member insurers insofar as aviation risks are concerned. The types of coverage handled by AAU are—

(1) aircraft hull insurance;

(2) aircraft personal injury and death and property liability insurance;

(3) general liability insurance divided into airport liability, airline ground liability and products liability;

(4) workmen's compensation and employers' liability insurance; and

(5) personal accident insurance.

The vast majority of the contracts of insurance entered into by AAU arise in New York.¹

AIRB is a rating organization formed under the laws of the State of New York. Membership therein is open to any capital stock insurer authorized to write insurance for which AIRB prescribes rates. Any insurer may become a subscriber to AIRB under conditions set out in its constitution. AIRB prescribes rates for aircraft hull, aircraft passenger liability, aircraft property damage liability and employers' aviation indemnity insurance. It does not prescribe rates for personal accident insurance, workmen's compensation insurance, airport and hangar keepers' liability insurance and aircraft manufacturers' products liability insurance. The precise method of the setting of rates and the extent of their binding force on members of AIRB will not be reviewed, as unnecessary to this decision.

At the present time, it would appear that the constituency of both of the moving parties is exactly the same.

The subpoenas currently attacked are grand jury subpoenas. It is clear, however, that even though the subpoena powers of a grand jury impanelled by the District Court for the Southern District of New York are being utilized, no grand jury proceedings, in the sense of actual presentation to the body of evidence with a view toward the obtaining of an indictment or indictments, are presently being conducted. Rather, the investigation is in its preliminary stage and the documents subpoenaed are actually being sought for examination by attorneys of the Antitrust Division of the Department of Justice. This conclusion is impelled by the fact that "In December 1959, the Attorney General of the United States authorized a grand jury investigation of possible violations of the federal antitrust laws by persons, firms, associations and corporations engaged in the business of insurance". (Memorandum of the United States in Opposition to Motion to Quash Subpoenas Duces Tecum submitted on the instant motions).² Because of the time necessary in conducting a widespread antitrust investigation, it is highly unlikely that the case could possibly be in such a posture as to be ready for presentation. This conclusion is buttressed by consideration of the fact that, in connection with this same investigation, the Attorney General's staff, about March 7, 1960, submitted, ex parte, an order which would have provided for the "impounding" of documents delivered pursuant to a grand jury subpoena duces tecum so that "attorneys for the United States could study, analyze and examine same" at Washington, D. C.³

This utilization of grand jury subpoenas for administrative investigations is not new. The Report of the Attorney General's National Committee to Study the Antitrust Laws, submitted on March 31, 1955, stated: (at pg. 344)

"Present procedures enable the Department of Justice to employ compulsory process to obtain both documentary and testimonial evidence at every stage of criminal and civil antitrust proceedings—except during the investigative stage of a matter in which civil proceedings are, from the outset, contemplated.

"Where indictment is contemplated, the federal grand jury is equipped with ample powers to permit the fullest investigation. The grand jury subpoena may be used to compel the discovery of all documentary material reasonably required as well as the testimony of witnesses under oath."

Thus, it is clear that the United States considers the grand jury and the District Court as its adjuncts, at least in the investigative stage of criminal antitrust proceedings. It is equally clear that the instant proceedings are in that stage.

I point out these facts not for the purpose of expressing carping criticism.⁴ Perhaps, utilization of the grand jury and the Court is necessary for the Department of Justice to perform the function assigned to it by Congress of enforcing the antitrust laws, when Congress has not given that Department its own subpoena powers.⁵ Rather, I think these facts relevant to the present decision because of the Government's reliance upon Blair v. United States, 1919, 250 U.S. 273, 39 S.Ct. 468, 63 L.Ed. 679 for the proposition that movants have absolutely no standing to question the jurisdiction of the grand jury to subpoena them. In the Blair case, the witnesses, who were denied standing to test a grand jury's jurisdiction, actually appeared before the jury and then and there refused to testify. Therefore, the grand jury was performing its traditional function. Here, as shown above, it is not. Without at all presuming to question the current vitality of the Blair case, I feel safe in holding that the courts, since they are being utilized as a tool of the Department of Justice for criminal antitrust investigative proceedings, have the right to determine that they are not being so used in an investigation which can never reach fruition.⁶

As I have implied previously, the gravamen of the moving papers is that the subpoenas under attack have absolutely no validity. This, movants argue, follows since the investigation being conducted looks toward criminal indictments for violations of the federal antitrust laws by persons in the insurance business and the insurance business is exempt from the operation of those laws, at least insofar as the activities of the movants are concerned. This exemption is contended for under the provisions of the McCarran-Ferguson Insurance Act of 1945, the relevant portions of which are set out below.

Title 15 U.S.C. "§ 1011. Declaration of policy.

"Congress declares that the 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.

"§ 1012. Regulation by State law; Federal law relating specifically to insurance; applicability of certain Federal laws after June 30, 1948.

"(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, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of Ocober 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law.

"§ 1013. Suspension until June 30, 1948, of application of certain Federal laws; Sherman Anti-Trust Act applicable to agreements to, or acts of, boycott, coercion, or intimidation.

"(a) Until June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, and the Act of June 19, 1936, known as the Robinson-Patman Anti-Discrimination Act, shall not apply to the business of insurance or to acts in the conduct thereof.

"(b) 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.

* * * * * *

"§ 1015. Definition of `State'

"As used in this chapter, the term `State' includes the several States, Alaska, Hawaii, Puerto Rico, Guam, and the District of Columbia."

A short review of the history of this legislation is necessary to an understanding of its application to the case at bar. The Supreme Court had upheld rather stringent state regulations of...