Mathis v. AUTO. CLUB INTER-INS. EXCHANGE

• Decision Date: 13 April 1976
• Docket Number: No. 73 CV 656-W-1.,73 CV 656-W-1.
• Citation: 410 F. Supp. 1037
• Parties: Charlene MATHIS, Plaintiff, v. AUTOMOBILE CLUB INTER-INSURANCE EXCHANGE et al., Defendants.
• Court: U.S. District Court — Western District of Missouri

410 F. Supp. 1037

Charlene MATHIS, Plaintiff, v. AUTOMOBILE CLUB INTER-INSURANCE EXCHANGE et al., Defendants.

No. 73 CV 656-W-1.

United States District Court, W. D. Missouri, W. D.

April 13, 1976.

Charles C. Shafer, Jr., A. Howard Chamberlin, Kansas City, Mo., for plaintiff.

Lewis C. Green, Green, Hennings & Henry, St. Louis, Mo., Harry P. Thomson, Jr., Shughart, Thomson & Kilroy, Thomas J. Conway, Popham, Popham, Conway, Sweeny & Fremont, Kansas City, Mo., for defendants.

MEMORANDUM AND ORDER

JOHN W. OLIVER, District Judge.

I.

This is an antitrust action for treble damages and injunctive relief under the Sherman Act, 15 U.S.C. § 1 et seq., and the Clayton Act, 15 U.S.C. § 12 et seq. Defendants are the Automobile Club of Missouri (hereinafter the Club), a not-for-profit corporation organized under the laws of Missouri; the Automobile Club Inter-Insurance Exchange (hereinafter ACIIE), a reciprocal inter-insurance exchange organized under the laws of Missouri;¹ and the Club Exchange Corporation, the attorney-in-fact for the subscribers to the Exchange.² Jurisdiction is predicated on 28 U.S.C. § 1337.

Plaintiff alleges that she was required to purchase a membership with the Club in order to obtain automobile insurance from ACIIE. She claims that the requirement of continuing Club membership constitutes an illegal tying arrangement in violation of the antitrust laws. See Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969); Northern Pacific Railway Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958); International Salt Co., Inc. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 (1947). She also alleges that state insurance laws in Missouri do not regulate the practices of which she complains. She seeks actual damages, measured by the amount of the yearly fee for Club membership ($18.00) and trebled, pursuant to 15 U.S.C. § 15; injunctive relief to prevent defendants from conditioning automobile insurance on the payment of the Club membership fee, and reasonable attorneys' fees. In the alternative, plaintiff asks for a pro rata refund of the membership fee for those whose insurance has been terminated.³

Defendants, in essence, admit that insurance provided through ACIIE is available only to members of the Club. If a person desires to obtain automobile insurance through ACIIE he or she must first join the Club and pay the membership fee. Similarly, renewals of ACIIE insurance are made only to those who are members in good standing of the Club. Defendant claims that its rule limiting automobile insurance to members of the Club was fashioned for the business purpose of limiting the risks involved, since, it is argued, Club members are considered to be better drivers than the general public.

Defendants have moved for summary judgment on the ground that the conduct about which plaintiff complains is exempt from federal antitrust laws under the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. That Act exempts insurance carriers from federal antitrust suits where the business of insurance is "regulated by State law," 15 U.S.C. § 1012(b). Plaintiff contends (1) that Missouri State law does not, in fact, regulate the specific conduct alleged to be in violation of the federal antitrust laws, and (2) that plaintiff's allegations come within the boycott exception to the McCarran-Ferguson exemption, 15 U.S.C. § 1013(b).⁴ We find and conclude that the McCarran-Ferguson exemption is applicable here, and that defendants' motion for summary judgment should be granted.

II. THE McCARRAN-FERGUSON EXEMPTION

The McCarran-Ferguson Act was the Congressional response to the Supreme Court's reversal of the doctrine that insurance transactions were not subject to federal regulation under the Commerce Clause.⁵ The Fifth Circuit has succinctly stated the historical basis of the act:

In 1869 the Supreme Court held that "issuing a policy of insurance is not a transaction of commerce." Paul v. Virginia, 75 U.S. (8 Wall.) 168, 183, 19 L.Ed. 357 (1869). After that decision, it was widely assumed that congressional regulation of the insurance business was improper. But in 1944 the Supreme Court held that insurance transactions were subject to congressional regulation in general, and the strictures of the anti-trust laws in particular. United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). Congress responded to the South-Eastern Underwriters decision with the McCarran-Ferguson Act. That Act "was an attempt to turn back the clock, to assure that the activities of insurance companies in dealing with their policyholders would remain subject to state regulation." Securities & Exch. Comm'n. v. National Securities, Inc., 393 U.S. 453, 459, 89 S.Ct. 564, 568, 21 L.Ed.2d 668 (1969). Congress was particularly concerned lest federal anti-trust laws interfere with the rate-making regulatory schemes of individual states. Id. at 458-459, 89 S.Ct. at 567-568. Meicler v. Aetna Casualty and Surety Co., 506 F.2d 732, 733 (5th Cir. 1975).

In S.E.C. v. National Securities, Inc., supra, the Court dealt with the scope of the McCarran-Ferguson exemption in the context of an action alleging a violation of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b). Defendants were alleged to have carried out a fraudulent scheme in connection with the merger of two insurance companies. In holding that McCarran-Ferguson had no applicability to this situation, the Court delineated the type of regulation which was contemplated by the Congress:

Congress was concerned with the type of state regulation that centers around the contract of insurance, the transaction which Paul v. Virginia held was not "commerce." The relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement — these were the core of the "business of insurance." Undoubtedly, other activities of insurance companies relate so closely to their status as reliable insurers that they too must be placed in the same class. But whatever the exact scope of the statutory term, it is clear where the focus was — it was on the relationship between the insurance company and the policyholder. Statutes aimed at protecting or regulating this relationship, directly or indirectly, are laws regulating the "business of insurance." Id. 393 U.S. at 460, 89 S.Ct. at 568, 21 L.Ed.2d at 676.

It is then the insured-insurer relationship which is the focus of the McCarran-Ferguson exemption. Courts have continually applied the exemption to suits by policyholders where the individual states regulate that basic "core" of the business of insurance. See, e. g., Dexter v. Equitable Life Assurance Society, 527 F.2d 233 (2d Cir. 1975); Addrisi v. Equitable Life Assurance Society, 503 F.2d 725 (9th Cir. 1974); Meicler v. Aetna Casualty and Surety Co., supra; Ohio A.F.L.-C.I.O. v. Insurance Rating Board, 451 F.2d 1178 (6th Cir. 1971). Most recently in Lawyers Title Co. v. St. Paul Title Insurance Corp., 526 F.2d 795 (8th Cir. 1975), the Eighth Circuit held that an antitrust action alleging unfairly restrained competition through predatory pricing of title insurance in the St Louis, Missouri metropolitan area was barred by the McCarran-Ferguson exemption. Judge Lay concluded that the State of Missouri had enacted a "comprehensive scheme for the control of title insurance pricing" and therefore no federal antitrust action could be maintained, regardless of the effectiveness of state regulations. Id. at 797.

We turn then to an examination of the statutory scheme of insurance regulation in Missouri. If the state "has generally, authorized or permitted certain standards of conduct" in the insurer-insured relationship, then it must be concluded that it is regulating the business of insurance within the meaning of the McCarran-Ferguson Act. Ohio A.F. L.-C.I.O. v. Insurance Rating Board, supra, at 1181 (quoting California League of Independent Insurance Producers v. Aetna Casualty & Surety Co., 175 F.Supp. 857, 860 (N.D.Cal.1970)).

III. MISSOURI STATUTORY SCHEME

The operation of reciprocal or inter-insurance exchanges in Missouri is governed by V.A.M.S. §§ 379.650 to 379.800. The subscribers to the exchange must file, through their attorney-in-fact, a verified declaration concerning the nature of their business, including a copy of the form of policy contract under which insurance is to be issued. V.A. M.S. § 379.670. The exchange must receive a certificate of authority from the state director of insurance by stating that it is complying with all the statutory requirements for such an organization. V.A.M.S. §§ 379.750(1) (Supp. 1975). The director of insurance, upon notice and opportunity for hearing, may revoke or suspend the certificate of any exchange that has not complied with the conditions for operation contained in §§ 379.650 to 379.790. V.A.M.S. § 379.750(2) (Supp.1975).

Moreover, under § 379.780, an inter-insurance exchange is specifically subject to rate regulation under the Casualty and Surety Rate Regulatory Law, V.A. M.S. §§ 379.420-510. It is also subject to the provisions of the Missouri Unfair Practices and Frauds Act, V.A.M.S. § 375.930 et seq., which expressly regulates "trade practices in the business of insurance in accordance with the intent of Congress as expressed in the McCarran-Ferguson Act." V.A.M.S. § 375.930. Under the Unfair Practices Act, Missouri proscribes any unfair discrimination between individuals "in the amount of premium, policy fees, or rates charged for any policy or contract . . . or in any of the terms or conditions of such contract or in any other manner whatever . . .." V.A.M.S. § 375.936(8)(b) (Supp.1975) Emphasis added. The state superintendent of insurance is empowered to investigate for possible violations of the Unfair Practices and Frauds Act, hold hearings on alleged...