NASSAU CTY. ASS'N OF INS. AGTS., INC. v. Aetna Cas. & Sur. Co.

• Decision Date: 13 July 1972
• Docket Number: No. 71 Civ. 4101.,71 Civ. 4101.
• Citation: 345 F. Supp. 645
• Parties: The NASSAU COUNTY ASSOCIATION OF INSURANCE AGENTS, INC., et al., Plaintiffs, v. AETNA CASUALTY & SURETY COMPANY et al., Defendants.
• Court: U.S. District Court — Southern District of New York

345 F. Supp. 645

The NASSAU COUNTY ASSOCIATION OF INSURANCE AGENTS, INC., et al., Plaintiffs, v. AETNA CASUALTY & SURETY COMPANY et al., Defendants.

No. 71 Civ. 4101.

United States District Court, S. D. New York.

July 13, 1972.

Donner, Fagelson & Hariton, Bay Shore, N. Y., for plaintiffs; Frederick Fagelson, of counsel.

Davis, Polk & Wardwell, New York City, for certain defendants; Henry L. King, Richard Miles Berman, New York City, of counsel.

Aranow, Brodsky, Bohlinger, Benetar, Einhorn & Dann, New York City, for defendants (Consolidated Mutual Ins. Co., Long Island Ins. Co., Cosmopolitan Mutual Ins. Co., and New York Central Mutual Fire Ins. Co.); Alfred J. Bohlinger and Robert J. Ward, New York City, of counsel.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for Aetna Co. defendant; Morris B. Abram, Sidney S. Rosdeitcher, New York City, of counsel.

Donovan, Donovan, Maloof & Walsh, New York City, for Great American Ins. Companies and Zurich Ins. Companies; John P. Walsh, New York City, of counsel.

Webster, Sheffield, Fleischmann, Hitchcock & Brookfield, New York City, for Merchants Mutual Ins. Co.; C. Kenneth Shank, Jr., New York City, of counsel.

Boyle, Feller & Hirsch, New York City, for American Fidelity Fire Insurance Co.; Leo H. Hirsch, Jr., New York City, of counsel.

Gottesman, Wolgel & Smith, New York City, for Peerless Ins. Co. and Netherlands Ins. Co.; Harold H. Wolgel, New York City, of counsel.

Cordes, Purcell, Jewell & Ingrao, Mineola, N. Y., for Farm Family Mutual Ins. Co.; Stephen A. Fritz, Mineola, N. Y., of counsel.

LeBoeuf, Lamb, Leiby & Macrae, New York City, for Michigan Mutual Ins. Co. and Millers Michigan Ins. Co.; Taylor R. Briggs, Kimba Wood Lovejoy, New York City, of counsel.

Lord, Day & Lord, New York City, for Lumbermens Mutual Casualty Co., American Motorists Ins. Co., American Manufacturers Mutual Ins. Co. and Federal Mutual Ins. Co.; Thomas D. Brislin, New York City, of counsel.

Hart & Hume, New York City, for Transamerica Ins. Co. and Maryland Casualty Co.; William D. Hand, Jr., New York City, of counsel.

POLLACK, District Judge.

This is a private antitrust suit. Plaintiffs are the Nassau, Suffolk and Queens County Associations of Insurance Agents. The three associations have a combined membership of 1000 independent insurance agents. The defendants are approximately 184 companies which are alleged to sell insurance in New York State.

The complaint premises jurisdiction on the "Sherman Act, 15 U.S.C. Sections 1-7, the Clayton Act, 15 U.S.C. Sections 12-27, 44, and the McCarran-Ferguson Act, 15 U.S.C. 1011-15."

Defendants have moved to dismiss the complaint upon two grounds. They urge under the Federal Rules of Civil Procedure 12(b) (6) that the plaintiffs lack a claim cognizable under the antitrust laws and are not members of any class which has a sufficient claim. They also argue, in the alternative, under Federal Rules of Civil Procedure 41(b), that plaintiffs' attempt to join 184 insurance companies as defendants fails to satisfy the standards for joinder of defendants, Federal Rules of Civil Procedure 20(a), and that the misjoinder is sufficiently unfair to justify dismissal of the action for failure to comply with Rule 20(a), Federal Rules of Civil Procedure 41(b).

According to the allegations of the complaint, an independent insurance agent signs an agency agreement with one or more insurance companies, which entitles him to act to procure insurance contracts for that company or companies. Cancellation of the agency agreement is said to result in cancellation or nonrenewal of the insurance contracts the agent has placed with the company as well as incalculable indirect damage to the agent's reputation and business prospects. Each agency agreement contains a termination at will clause, and the threat of loss of the agency affiliation is alleged to be "overwhelming, coercive and intimidating."

The complaint alleges that the defendant insurance companies have maintained a policy of cancelling or threatening to cancel the agency contracts of independent agents for three major reasons:

1.) failure of the agent to maintain a balance between the types of insurance he sells (the so-called "balanced book" requirement)

2. inadequate volume of sales by the agent,

3. excessive loss ratio on policies sold by the agent.

The complaint states that "thousands upon thousands" of agency agreements have been terminated on these grounds, leading, in turn, to cancellation or non-renewal of "hundreds of thousands" of insurance contracts.

The balanced book requirement is claimed by plaintiffs to be per se illegal as a tying arrangement among various types of insurance contracts, since it has the effect of conditioning the agent's ability to sell one kind of policy (the tying product) upon increased sales by him of another type of policy (the tied product). The requirement that an agent maintain a given volume of sales is claimed to supplement the tie-in because the agent must sell different varieties of insurance to meet the volume level set. The termination of agency agreements because of an excessive loss ratio resulting from policies procured by the agent is attacked as "unconscionable and in bad faith and against public policy."

The complaint characterizes termination or the threat of termination for any or all of these three reasons as constituting

illegal coercion, illegal intimidation, illegal restraints of trade, all of which are in violation of the Clayton Act, the Sherman Act, the McCarran-Ferguson Act, and are unconscionable and in bad faith and violate the defendants' contractual obligation to the plaintiff agents and their insureds under the common law and the Uniform Commercial Code.

In effect, then, the complaint alleges that the cancellation policy which insurance companies are claimed to follow is an attempt to enforce a tying arrangement among various types of insurance policies, in violation of Section 3 of the Clayton Act, 15 U.S.C. Section 14 and Section 1 of the Sherman Act, 15 U.S.C. Section 1, and that the attempt to coerce agents to comply satisfies § 3(b) of the McCarran-Ferguson Act, 15 U.S.C. Section 1013(b), which provides that the Sherman Act is applicable to agreements or acts of coercion or intimidation arising from the business of insurance.

The plaintiff associations seek not only to sue on behalf of their own members but to bring a class suit on behalf of three more inclusive groups:

1.) All independent insurance agents in the State of New York who between November 1st, 1967 and April 30th, 1971 have had their contracts terminated by the defendants for reasons characterized by the defendants as "poor loss ratio", "inadequate volume" or "unbalanced book".

2.) All independent insurance agents in the State of New York who between November 1st, 1967 and April 30th, 1971 in order to prevent termination by the defendants have yielded to the coercion, intimidation and other unconscionable practices of the defendants.

3.) All innocent policyholders in the State of New York who between November 1st, 1967 and April 30th, 1971, having met all the existing underwriting requirements sic but were nevertheless cancelled, nonrenewed or refused normal increases in coverage merely because their agents had their agency contracts terminated by the defendants for reasons characterized by the defendants as "poor loss ratio," "inadequate volume", or "unbalanced book".

The claims of plaintiffs' members and insureds are claimed to be typical of the claims of all three groups for whom recovery is sought.

Recovery of $1,250,000,000 is sought as single damages and plaintiffs also seek an injunction requiring that defendants "restore" agents illegally terminated and a declaratory judgment that defendants have unlawfully sought to tie various kinds of insurance and to coerce agents.

The motion to dismiss raises the issue whether a non profit voluntary association may assert the rights of its members under Section 4 of the Clayton Act, 15 U.S.C. Section 15, and the related question whether an association may bring a class suit on behalf of the class of its members in an antitrust context.

Defendants claim that the association plaintiffs do not and could not claim that they have themselves suffered injury by reason of any violation of the antitrust laws. Defendants rely upon several cases, most recently Cordova v. Bache & Co., 321 F.Supp. 600, 604 (S. D.N.Y.1970) (Mansfield, J.), which seemingly hold squarely that associations may not assert their members' causes of action under Section 4.

Plaintiffs, on the other hand, ask the Court to allow them to bring this suit because of their identity of interest with their members and because they are asserting fundamental rights which should outweigh rules of practice or court administration such as plaintiffs perceive the standing requirement to be. Plaintiffs' brief stresses that individual agents are afraid to bring suit in anticipation of reprisals and that defendants, whose acts of intimidation stand admitted for purposes of the motion, should not be rewarded—or their actions allowed to escape scrutiny—by overly technical conceptions.

Plaintiffs rely primarily upon cases which have granted associations the right to raise constitutional issues, or issues arising under other statutes or administrative determinations, on behalf of their membership. In addition, their brief asserts that the associations have suffered damage through loss of membership and diminution of revenues arising from acts affecting the business of their member-agents and should therefore be allowed to sue in their own right.

There are four decisions which have stated that an association does not hold and may not assert the rights of its members under the antitrust...