U.S. v. Title Ins. Rating Bureau of Arizona, Inc., 82-5130

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: Before POOLE and BOOCHEVER; BOOCHEVER
• Citation: U.S. v. Title Ins. Rating Bureau of Arizona, Inc., 700 F.2d 1247 (9th Cir. 1983)
• Decision Date: 07 March 1983
• Docket Number: No. 82-5130,82-5130
• Parties: 1983-1 Trade Cases 65,261 UNITED STATES of America, Plaintiff-Appellee, v. TITLE INSURANCE RATING BUREAU OF ARIZONA, INC., Defendant-Appellant.

Page 1247

700 F.2d 1247

1983-1 Trade Cases 65,261

UNITED STATES of America, Plaintiff-Appellee, v. TITLE INSURANCE RATING BUREAU OF ARIZONA, INC., Defendant-Appellant.

No. 82-5130.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 15, 1982.

Decided March 7, 1983.

Philip P. Berelson, Brown & Bain, P.A., Phoenix, Ariz., John F. Graybeal, John C. Christie, Washington, D.C., for defendant-appellant.

Stephen Ross, Gordon L. Lang, David A. Blotner, Antitrust Div., Dept. of Justice, Washington, D.C., for plaintiff-appellee.

Kenneth R. Reed, Sp. Asst. Atty. Gen., Phoenix, Ariz., for amicus curiae.

On Appeal from the United States District Court for the District of Arizona.

Before POOLE and BOOCHEVER, Circuit Judges, and McNICHOLS, ^* Senior District Judge.

BOOCHEVER, Circuit Judge:

The United States, Arizona and two private plaintiffs sued the Title Insurance Rating Bureau of Arizona, Inc. ("TIRBA") for fixing the prices of escrow services. Plaintiffs were granted summary judgment, despite two defenses offered by TIRBA: the McCarran-Ferguson Act exemption for the "business of insurance" and the state action immunity. The judgment of the district court is affirmed.

FACTS

TIRBA is a title insurance rating bureau licensed by the State of Arizona. It has thirteen insurer members and additional subscribers, all engaged in the business of title insurance.

Prior to 1977, Arizona law required title insurers to file only their title insurance rates with the state director of insurance. Ariz.Rev.Stat.Ann. Sec. 20-376 (amended 1977). In 1977, the statute was amended to require title insurers to file their rates charged for escrow services. Ariz.Rev.Stat.Ann. Sec. 20-376 (West Supp. 1982-1983). A title insurer was allowed to file its own rates, or, at its option, to have a title insurance rating bureau of which it was a member or subscriber file rates on its behalf. Ariz.Rev.Stat.Ann. Secs. 20-376(A-C). The statute authorizes but does not require cooperative action by title insurance companies in rate making.

In October and November 1977, TIRBA's Board of Directors held a series of meetings at which escrow rates for services performed by title insurers and their agents were discussed and classified. On November 7, the TIRBA Board approved its rate schedule for escrow services and authorized its submission to the Arizona Department of Insurance. The schedule was delivered to the department, which approved it. Amendments, corrections and additions were filed over the next few months, which were also approved.

On September 23, 1980, the United States filed this action pursuant to section 4 of the Sherman Act, 15 U.S.C. Sec. 4 (1976), to enjoin and restrain TIRBA from engaging in continuing violations of section 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1976). Specifically, the government alleged that TIRBA, its members, and its subscribers engaged in an illegal combination to fix and maintain fees for escrow services in Arizona. Two private actions were filed by individual plaintiffs on their own behalf and as representatives of the class of those who had purchased escrow services in the state after September 23, 1976. The State of Arizona filed a complaint similar to the one filed by the United States, for itself and 100 political subdivisions of the state which had purchased escrow services, and as parens patriae on behalf of all persons in the state who had purchased escrow services. The private plaintiffs and the state sought treble damages as well as injunctive relief. These parties settled their claims with TIRBA and are not affected by this appeal.

On June 23, 1981, the district court granted the federal government's motion for summary judgment and denied TIRBA's motion for summary judgment. United States v. Title Insurance Rating Bureau of Arizona, Inc., 517 F.Supp. 1053 (D.Ariz.1981). On December 21, 1981, the district court entered a final judgment in favor of the United States.

Two issues are presented in this appeal:

1. Is the provision of escrow services by title insurers part of the "business of insurance" exempted from the Sherman Act by the McCarran-Ferguson Act?

2. Is uniform price setting by title insurers immune from the Sherman Act under the state action doctrine where state law allows insurers to file their rates through a rating bureau?

DISCUSSION

I. Standard of Review

The parties have stipulated to the facts. The questions presented are solely issues of law. On an appeal from summary judgment, this court's review is identical to that of the trial court, i.e., a de novo determination of the legal issues involved. State ex rel. Edwards v. Heimann, 633 F.2d 886, 888 n. 1 (9th Cir.1980).

II. McCarran Act Exemption

Various title insurers jointly set their prices for escrow services and filed those rates with the state through TIRBA. Section 2(b) of the McCarran Act provides that the federal antitrust laws shall be applicable to the "business of insurance" to the extent that such business is not regulated by state law. 15 U.S.C. Sec. 1012(b) (1976). Thus, the question is whether the provision of escrow services by title insurance companies is part of the business of title insurance.

In considering the McCarran Act exemption it is important to keep in mind the Supreme Court's warnings that the exemption is a limited one; it is to be narrowly construed; and that it exempts the "business of insurance" and not the "business of insurance companies." Union Labor Life Insurance Company v. Pireno, --- U.S. ----, 102 S.Ct. 3002, 3007, 3010, 73 L.Ed.2d 647 (1982). Also, it is not dispositive that Arizona law defines the "business of title insurance" to include "the performance by a title insurer or title insurance agent of escrow services," Ariz.Rev.Stat.Ann. Sec. 20-1562(2)(b) (West Supp.1982-1983), because the definition of "business of insurance" for McCarran Act purposes is a matter of federal law. Securities and Exchange Commission v. Variable Annuity Life Insurance Co., 359 U.S. 65, 69, 79 S.Ct. 618, 620, 3 L.Ed.2d 640 (1959).

The Supreme Court has discussed the meaning of the "business of insurance" in several recent cases. None, however, discusses title insurance.

In Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 99 S.Ct. 1067, 59 L.Ed.2d 261, reh'g denied, 441 U.S. 917, 99 S.Ct. 2017, 60 L.Ed.2d 389 (1979), Blue Shield entered into agreements with pharmacies whereby participating pharmacies would supply prescription drugs at their cost plus $2. A nonparticipating pharmacy brought an antitrust action alleging a price fixing agreement between Blue Shield and the participating pharmacies. Blue Shield defended on the basis that the agreements were part of the "business of insurance" under Sec. 2(b) of the McCarran Act.

The Supreme Court disagreed. Looking to the structure of the McCarran Act and its legislative history, the Court discussed three characteristics of the "business of insurance" that Congress had intended to exempt through Sec. 2(b).

First, the Court observed that parts of the legislative history of the Act "strongly suggest that Congress understood the business of insurance to be the underwriting and spreading of risk." 440 U.S. at 220-21, 99 S.Ct. at 1078. Blue Shield's Pharmacy Agreements did not spread or underwrite risks; they merely enabled Blue Shield to minimize costs in supplying drugs and thus to maximize profits.

Second, in enacting the McCarran Act, Congress had been concerned with the "relationship between insurer and the insured, the type of policy which could be issued, its reliability, interpretation, and enforcement--these were the core of the 'business of insurance.' " 440 U.S. at 215-16, 99 S.Ct. at 1075. The Pharmacy Agreements were not "between insurer and insured." The mere fact that the agreements resulted in cost savings which might result in lower insurance premiums bears too tenuous a relationship to the business of insurance to be controlling. If accepted, this argument would shield as the business of insurance almost every decision made by an insurance company resulting in enhanced income or lower costs.

Finally, the Court noted that in enacting the McCarran Act the primary concern of Congress was to exempt cooperative ratemaking from the antitrust laws. Therefore, the exemption is limited to parties within the insurance industry. Thus, the Sec. 2(b) exemption was inapplicable because the Pharmacy Agreement was with druggists, who are wholly outside the insurance industry.

Recently, the Supreme Court reaffirmed the Royal Drug analysis of the McCarran Act in Union Labor Life Insurance Co. v. Pireno, --- U.S. ----, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982). Union Labor Life Insurance ("ULL") issued health insurance policies covering certain chiropractic treatments, but limited the company's liability to "reasonable" charges for "necessary" medical care and services. ULL arranged with the State Chiropractic Association to use the advice of its Peer Review Committee to determine reasonable charges and necessary services. On several occasions the Committee determined that Pireno's treatments were unnecessary or his charges unreasonable. Pireno sued, alleging that ULL had used the Committee's peer review practices as a vehicle for a conspiracy to fix prices. ULL contended that its use of the Peer Review Committee was part of its "business of insurance."

The Supreme Court disagreed, finding Royal Drug to be controlling. First, ULL's use of the Peer Review Committee played no part in the spreading or underwriting of the policyholder's risk. Second, ULL's use of the Committee was not an integral part of the policy relationship between the insurer and the insured. The use of the Committee to evaluate claims is separate and distinct from the contract between ULL and the insured, and at most results in a cost savings to ULL. Finally, with regard to the third Royal Drug criterion, it is plain that the peer review...