Pierucci v. Continental Cas. Co.

• Decision Date: 01 September 1976
• Docket Number: Civ. A. No. 76-736.
• Citation: 418 F. Supp. 704
• Parties: Donal PIERUCCI v. CONTINENTAL CASUALTY COMPANY.
• Court: U.S. District Court — Eastern District of Pennsylvania

418 F. Supp. 704

Donal PIERUCCI v. CONTINENTAL CASUALTY COMPANY.

Civ. A. No. 76-736.

United States District Court, W. D. Pennsylvania.

September 1, 1976.

Jay D. Glasser, Pittsburgh, Pa., for plaintiff.

W. Arch Irvin, Jr., Pittsburgh, Pa., for defendant.

MEMORANDUM AND ORDER: DEFENDANT'S MOTION TO DISMISS

KNOX, District Judge.

This suit was brought by plaintiff on behalf of himself and others similarly situated versus Continental Casualty Company, on its own behalf and on behalf of all others similarly situated claiming that a conspiracy and restraint of trade has existed and still exists in violation of the antitrust laws with respect to contracts of professional liability insurance issued to architects, engineers and others, providing professional liability protection. The complaint in paragraphs 4-7 inclusive contains allegations seeking a class action to consist of plaintiffs of all past and present architects and engineers who have purchased policies of professional liability insurance from the representative defendant or other members of the class of defendants. Defendant has filed a motion to dismiss claiming that a class action should not be permitted and also claiming that the defendant is exempt from the operation of the antitrust laws as an insurance company pursuant to the provisions of the McCarran Ferguson Act, 15 U.S.C. §§ 1011-1015.

I. Class Action.

The class action will be denied. Pursuant to Rule 23(c) the court determines that the case cannot be maintained as a class action, because it is not shown that the claims of the plaintiffs are typical of those of the other members of the class and with respect to the allegations of coercion and tying, it would appear that to the extent a class action is sought under 23(b)(3), the same would become unmanageable.

This court has held that where there are claims of tying resulting in coercion, a class action cannot be maintained because the claims of the individual plaintiffs are not necessarily typical of those of the class and for the further reason the result would be a myriad of mini law suits to determine the exact extent of coercion in each individual case. Therefore, the class action is not superior to other available means for determining the controversy and it further does not appear in view of the allegations of coercion that the party opposing the class has acted or refused to act on grounds generally applicable to the class.

There has as yet been no motion to certify a class action under our Rule 34(c)^* but nevertheless under Rule 23(c) FRCP, the court is required to determine the matter us soon as practical. The question has already been fully argued to the court and we now determine that the case shall not be maintained as a class action. See Stavrides v. Mellon Bank, NA, (W.D.Pa.1975) 69 F.R.D. 424 and Ungar v. Dunkin' Donuts, 531 F.2d 1211 (3d Cir. 1976), wherein the court held that a class action was inappropriate where there was a claim of tying arrangement in a franchise case.

II. Application of the Insurance Exemption to the Antitrust Laws.

The relevant sections of the McCarran Ferguson Act are found at 15 U.S.C. Chapter 20, §§ 1011, 1012 and 1013:

§ 1011. "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. Mar. 9, 1945, c. 20, § 1, 59 Stat. 33."

§ 1012. "(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 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, shall be applicable to the business of insurance to the extent that such business is not regulated by State law. Mar. 9, 1945, c. 20, § 2, 59 Stat. 34; Jul. 25, 1947 c. 326, 61 Stat. 448."

§ 1013. "(a) Until June 20, 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, 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. Mar. 9, 1945, c. 20, § 3, 59 Stat. 34; July 25, 1947, c. 326, 61 Stat. 448."

It is common knowledge that this act limiting the effect of the antitrust laws upon the insurance business was passed by Congress to alleviate the effect upon the insurance companies of the case of U. S. v. South-Eastern Underwriters Assn., 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944) which undermined the early decision of the U.S. Supreme Court in Paul v. Virginia, 8 Wall. U.S. 168, 19 L.Ed. 357 (1869) holding that contracts of insurance were not commerce at all. U. S. v. South-Eastern Underwriters Association indicated that the insurance business was subject to the antitrust laws.

The complaint in this case does charge coercion and tying arrangements with respect to certain clauses contained in contracts of professional liability insurance and alleges that defendant and other insurance companies as co-conspirators engaged in an unlawful combination and conspiracy to cause an unreasonable restraint of interstate trade and commerce in violation of the Sherman Antitrust Act 15 U.S.C. §§ 1 and 2 in fixing the prices of professional liability insurance and also fixing the terms of such policies. It is particularly claimed that the limitations contained in the policy period are such as to render the policy inapplicable to many claims brought against the plaintiff as an architect for professional liability involving professional errors, omissions and negligence for which defendant could not be held liable notwithstanding that plaintiff considered that he had bought coverage.

The language in the policy complained of is:

"The insurance afforded by this policy applies to errors, omissions and negligent acts which occur within the United States of America, its territories or possessions, or Canada during this policy period if claim therefor is first made against the insured during this policy period."

It would seem that with such language in the policy the coverage is a snare and a delusion. For instance if the engineer or architect would make an error or omission on June 15, 1969 (the policy originally was June 27, 1968-June 15, 1969), but claim was not made against the insured until July 1, 1969, there would be no coverage because the claim was not first made during the policy period. This would be particularly true in case the insured secured coverage from another company for the ensuing year. When one considers that claims against architects and engineers are often made some years later when the defect comes to light, it is apparent that very little protection is afforded by such a policy. The plaintiff therefore claims that he is coerced into renewing the policy in the same company forever.

With respect to the McCarran Ferguson Act, the Supreme Court has spoken in SEC v. National Securities, Inc., 393 U.S. 453, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969) and held that the Act in question does not bar remedies sought against an insurance company even though they affect a matter subject to state regulations. The case involved a merger of insurance companies approved by the Arizona Insurance Department as to which the SEC objected claiming that there were violations of Rule 10(b)(5) of the SEC. The lower court had dismissed the complaint for failure to state a claim upon which relief could be granted in light of the McCarran Ferguson Act and the Ninth Circuit had affirmed. The United States Supreme Court held, however, that the act in question did not bar remedies under the Securities Act even though they did affect matters subject to the State Insurance Director and remanded the case for trial in the district court.

Again, in Schwartz v. Commonwealth Land Title Insurance Co. 384 F.Supp. 302 (E.D.Pa.1974), Judge Becker in the Eastern District of Pennsylvania held that laxness on the part of the Pennsylvania Insurance Department, if any, in allowing title insurance companies to collect certain charges did not constitute non-regulation within the provisions of the McCarran Ferguson Act where there was no evidence that the regulatory scheme was a mere sham or pretense. A motion to dismiss treated as a motion for summary judgment filed by the defendant was granted. The court relied heavily upon Ohio AFL-CIO v. Insurance Rating Board, 451 F.2d 1178 (6th Cir. 1971) and the dissent of Mr. Justice Douglas on denial of certiorari.

There is no contention in this case that the very comprehensive regulation of the insurance business adopted by the Pennsylvania Legislature as contained in 40 Purdon's P.S. § 341, et seq. is a sham and a pretense. As pointed out hereafter, there may have been errors or some inadvertence in approving a policy in this form but that does not take the case out from under the McCarran Ferguson Act.

The first amendment to the complaint filed by plaintiffs in an attempt to meet the original motion to dismiss alleges that plaintiffs and other members of the class ...