Ohio AFL-CIO v. Insurance Rating Board

• Citation: 451 F.2d 1178
• Decision Date: 30 November 1971
• Docket Number: No. 71-1202.,71-1202.
• Parties: OHIO AFL-CIO et al., Plaintiffs-Appellants, v. The INSURANCE RATING BOARD et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

451 F.2d 1178 (1971)

OHIO AFL-CIO et al., Plaintiffs-Appellants, v. The INSURANCE RATING BOARD et al., Defendants-Appellees.

No. 71-1202.

United States Court of Appeals, Sixth Circuit.

November 30, 1971.

Stewart R. Jaffy, Columbus, Ohio, for plaintiffs-appellants; Clayman Jaffy & Taylor, Charles E. Taylor, Columbus, Ohio, on brief.

Rudolph Janata, Columbus, Ohio, for defendants-appellees; Watters & Donovan, John P. Walsh, Warren Herland, New York City, on brief; Wright, Harlor, Morris & Arnold, Columbus, Ohio, on brief, for the Insurance Rating Board and United States Fidelity Guaranty Co.

Before PHILLIPS, Chief Judge, and McCREE and MILLER, Circuit Judges.

WILLIAM E. MILLER, Circuit Judge.

This is an antitrust action instituted by Ohio AFL-CIO, The United Autoworkers of Ohio, and Ira Thompson as a licensed automobile operator in Ohio carrying automobile liability insurance, against the Insurance Rating Board (IRB), one of its members, United States Fidelity and Guaranty Company (USF & G), and Eugene Brown, the Ohio Superintendent of Insurance, alleging violations of the Sherman Antitrust Act by a combination and conspiracy in the fixing of prices of automobile insurance premiums. It is alleged that rate increases were instituted by the IRB in Ohio in 1965, 1966 and 1968 on a statewide average for automobile liability insurance of 4.47%, 13.5% and for automobile liability and property damage of 7.9% respectively, without any state regulation.

The complaint seeks injunctive relief against the charging of rates other than the rates made effective in November 1966, against the acceptance of any further filing for rate increases during the pendency of the action, and against any combination or conspiracy to restrain trade or to monopolize trade and commerce in violation of the Sherman Antitrust Act. There is also a claim for treble damages and other statutory benefits.

There are general allegations in the complaint to the effect that the IRB and its predecessors and its members and subscribers acting in concert with various departments of insurance among the several states have violated and are now violating the Sherman Antitrust Act by unlawfully contracting, combining and conspiring to restrain trade in interstate commerce with respect to the business of automobile casualty insurance and by unlawfully contracting, combining and conspiring to control, regulate and dictate terms and fix the prices upon which automobile liability and collision insurance shall be sold throughout Ohio and other states.

It is alleged that the IRB is composed of 129 insurance companies which are members and subscribers, all of whom have started charging increased premiums approved by the IRB on July 10, 1968, for automobile insurance "all without any state regulation to the detriment of the members of the Ohio AFL-CIO, the United Autoworkers of Ohio, Ira Thompson, and all others similarly situated." It is further alleged that the insurance companies having membership in the IRB write approximately 17% of the automobile liability insurance in Ohio and approximately 22% of the physical damage insurance in that state and "through their rates and practices influence all automobile insurance rates charged throughout the state." The complaint proceeds to allege further that under Ohio law, Revised Code Chapter 3937, the IRB, its members and affiliates and other insurance companies are permitted to set the effective date of any rate increases that they desire to institute; that such rate increases become effective immediately upon the date set by the said insurance companies; that such rate increases have never been challenged in the State of Ohio by the Department of Insurance or by any one except the plaintiffs; and that "the Department does not even employ or have on its staff an actuary so as to be able to examine the rate filing." In essence the complaint is that there is an absence of state regulation in Ohio and that that state has abdicated its function of regulating the automobile insurance industry in favor of regulation by the automobile insurance industry itself. The defendants, IRB, USF & G, and the Superintendent of Insurance, moved to dismiss the complaint on the ground of lack of jurisdiction of the Court because of the exemption of the business of insurance from the operation of the antitrust laws provided for by the McCarran Act, 15 U.S.C. Sec. 1011 et seq. In the alternative, they moved for dismissal of the complaint for failure to state a claim on which relief could be granted and for summary judgment on the ground that there is no genuine issue as to any material fact and that defendants are entitled to judgment as a matter of law.

The district court in its opinion held that the Ohio statutory scheme for regulating the business of insurance constituted regulation within the meaning of 15 U.S.C. Sec. 1012(b), providing that the antitrust laws "shall be applicable to the business of insurance to the extent that such business is not regulated by State law." Answering the plaintiffs' argument that the Ohio scheme of regulation was not effective and therefore could not be deemed to constitute the kind of regulation contemplated by the McCarran Act, the district court stated: "A court is not empowered to make a policy judgment as to the type of regulation which is desirable. The Ohio legislature has adopted a statutory scheme which sets standards for insurance rates. This court is not concerned with the wisdom of the standards but with the limited question of whether or not the legislation is regulation under the McCarran Act."

Citing Federal Trade Commission v. National Casualty Co., 357 U.S. 560, 564, 78 S.Ct. 1260, 2 L.Ed.2d 1540, the court held that Ohio had provided general standards for the operation of the business of insurance and consequently that Ohio had "regulated" the business of insurance within the meaning of the statutory exemption. Pursuant to this opinion the court dismissed the complaint for lack of jurisdiction of the subject matter without considering the alternative motion for summary judgment. On appeal, the principal issue before us is whether the district court was correct in its conclusion that Ohio regulated the business of automobile insurance so as to qualify for the McCarran Act exemption.

Upon consideration of the applicable Ohio statutes we conclude that the business of insurance in Ohio is "regulated" to the extent contemplated by the McCarran Act.

The Supreme Court in Paul v. Virginia, 8 Wall. 168, 19 L.Ed. 357 (1868), held that the transaction of insurance business does not constitute interstate commerce and that the states were therefore free to subject such business to state regulation. See also Hooper v. California, 155 U.S. 648, 655, 15 S.Ct. 207, 39 L.Ed. 297 (1895), and New York Life Insurance Co. v. Deer Lodge County, 231 U.S. 495, 510, 34 S.Ct. 167, 58 L.Ed. 332 (1913). Consequently, the insurance business was extensively regulated by the various states. In 1944 however, the court in United States v. Southeastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, re-examined this question and came to the conclusion that an insurance company conducting a substantial part of its business across state lines is engaged in interstate commerce and is subject to regulation by Congress under the Commerce Clause of the Constitution. In consequence it was held that the Sherman Antitrust Act is applicable to the business of insurance. Reacting to this decision, Congress enacted legislation in 1945 and 1947, declaring that it was in the public interest for the business of insurance to continue to be regulated by the several states and specifically exempting such business from the operation of the antitrust laws to the extent that such business is regulated by state law. 15 U.S.C. Secs. 1011 and 1012.¹

In Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 429-430, 66 S.Ct. 1142, 1155, 90 L.Ed. 1342 (1946), it was held that the purpose of Congress in enacting the McCarran Act was broadly to "give support to the existing and future state systems for regulating and taxing the business of insurance." A number of authorities have considered the question of what constitutes "regulation" within the meaning of the McCarran Act so as to activate the McCarran Act exemption. Without examining these cases in detail, none of which has failed to apply the exemption, we think the United States District Court for the Northern District of California made a correct statement of the law in California League of Independent Insurance Producers v. Aetna Casualty & Surety Co., 175 F.Supp. 857, 860 (1959), when it said:

This Court is of the opinion that a State regulates the business of insurance within the meaning of § 1012(b) when a State statute generally proscribes (F.T.C. v. National Cas. Co., 1958, 357 U.S. 560, 78 S.Ct. 1260, 2 L.Ed.2d 1540) or permits or authorizes certain conduct on the part of the insurance companies. In F.T.C. v. National Cas. Co., supra, the Court held that there was State regulation within the meaning of § 1012(b) when a State act generally prohibited "certain standards of conduct." 357 U.S. at page 564, 78 S.Ct. at page 1262. From the above case it would seem to follow that if a state has generally authorized or permitted certain standards of conduct, it is regulating the business of insurance under the McCarran Act.

Examining the applicable Ohio statutes, we find that the state has adopted a comprehensive scheme for the regulation of automobile liability and property damage insurance, although concededly its scheme might not be as extensive or as stringent as some of the other states. The conclusory statements of the complaint in this case that Ohio has not regulated this type of insurance business or that it has not effectively done so are, in our view, untenable.

The McCarran Act does not define the term "regulation" and no satisfactory definition...