United States v. Insurance Board of Cleveland
| Decision Date | 14 August 1956 |
| Docket Number | Civ. A. No. 28042. |
| Citation | 144 F. Supp. 684 |
| Parties | UNITED STATES of America, Plaintiff, v. INSURANCE BOARD OF CLEVELAND, Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
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J. Howard McGrath, Atty. Gen., H. G. Morison, Asst. Atty. Gen., Marcus A. Hollabaugh, Sp. Asst. to Atty. Gen., Don C. Miller, U. S. Atty., Cleveland, Ohio, Robert B. Hummel, Sp. Asst. to Atty. Gen., David E. Clarke, Norman H. Seidler, Attys., Antitrust Division, Cleveland, Ohio, John R. Anderson, Atty., Antitrust Division, Delaware, Ohio, Harry E. Pickering, Atty., Antitrust Division, Cleveland, Ohio, for the Government.
Frank X. Cull, M. R. Gallagher, Hauxhurst, Inglis, Sharp & Cull, Cleveland, Ohio, for defendant.
Proceeding under Section 4 of Title 15 United States Code Annotated, the Government on February 27, 1951 filed its Complaint against the Insurance Board of Cleveland alleging that the Board combined and conspired with its officers, trustees and members to restrain and monopolize interstate commerce in the business of selling and writing fire insurance in Cuyahoga County, Ohio and has attempted to monopolize such trade and commerce in violation of Sections 1 and 2 of the Sherman Anti-Trust Act, 15 U.S. C.A. §§ 1, 2.
The Board is the sole defendant, but its officers, trustees and members are referred to in the Complaint as co-conspirators.
In substance it is the Government's claim that the conspiracy is evidenced by the operation and enforcement of the regulations of the Board which prevent its members from —
(1) representing any insurance company that appoints agents who are not members of the Board;
(2) placing or accepting brokerage or exchange business of agents of mutual fire insurance companies;
(3) placing or accepting exchange or brokerage business with non-Board agents except on a discriminatory basis;
(4) representing insurance companies that sell insurance at cut rates;
(5) representing mutual insurance companies;
(6) representing insurance companies that operate branch offices and solicit or sell insurance directly to the insured or contribute to the overhead expense of agents.
The Government's case is based entirely upon its claim that the challenged rules of the Board constitute boycotts that are illegal, and it seeks an injunction restraining the Board, its officers, trustees and members from "carrying out any provision of the regulations which are herein alleged to be illegal, and from making, becoming a party to, or carrying out any regulation of like character, effect or purpose."
In its Answer the Board does not deny the existence or enforcement of the rules against which complaint is made, but asserts that the rules are appropriate means adopted for the purpose of accomplishing proper objectives; that their operation results in no disparity of economic power or hardship among the persons affected thereby, and that competition and business enterprise are either not affected or are improved by the operation of the rules.
It is the defendant's position that if the rules be considered as boycotts, the restraints they impose are reasonable "in the light of the circumstances in which they operate" and do not violate the provisions of the Sherman Act, 15 U.S.C.A. §§ 1-7, 15 note.
In its Supplemental Answer the Board raises the issue of mootness as to three of the rules under attack.
Both parties have moved for summary judgment, thereby conceding there is no genuine issue as to any material fact.
The case has been submitted on the pleadings, consisting of the Complaint and the Answer and Supplemental Answer of the defendant; a stipulation of the parties together with exhibits annexed thereto; numerous requests for admissions and the responses; affidavits of three persons submitted by defendant, and a lengthy deposition of a former President of the Insurance Board.
Voluminous briefs have been filed by both parties. The briefs contain detailed explanations of the various facets of the insurance business and extensive and elaborate arguments upon the effect of each of the challenged rules of the Board together with analyses and discussions of the many authorities cited and relied upon by both parties. Also outlined in the briefs are the various practices of the Board designed to promote and elevate the ethical and professional standards of its members and insurance agents generally; its program of sponsoring and conducting educational classes in insurance which are available to Board members and non-Board members alike; its activities in assisting the State Superintendent of Insurance in the enforcement of the relevant statutes; and its collaboration with the State Board of Fire Insurance Agents in advocating or opposing legislation affecting the insurance business.
While a full exposition of all matters treated in the briefs might serve better to illuminate the controversy, this could be accomplished only by extending this opinion beyond readable limits. Inasmuch as questions of law only are presented, it will be sufficient to state generally the salient facts about the Board, the independent agency system under which its members do business, and to outline the nature and effect of the challenged rules.
The Insurance Board of Cleveland is a non-profit corporation organized under the laws of Ohio. It was originally established as a trade organization in 1846 and undoubtedly is the oldest trade organization in Cuyahoga County. While it has undergone changes of name and corporate structure, it has functioned continuously throughout its existence as a trade association. Its membership consists exclusively of independent fire insurance agents doing business in Cuyahoga County, Ohio who represent insurance companies organized under the stock ownership plan. Its territorial jurisdiction is confined to Cuyahoga County, Ohio and at the time of filing the Complaint its rules applied only to fire and inland marine insurance. Insurance companies or their employees are ineligible for membership. The members of the Board bear all of the overhead expense of their businesses and enter into agency contracts with such insurance companies as they choose to represent. All agents who are members of the Board operate under the American Agency System and by contract with the companies they represent, obtain "expiration rights" to the policies they write. This secures to them a proprietary interest in their businesses. According to the defendant, this assures to the individual agent that degree of independence that enables him best to serve the interests of his customers and the community. It is one of the principal objects of the Board to secure for its members freedom from Insurance Company domination. The members of the Board do not represent Mutual fire insurance companies, and agents or employees of such companies are not eligible for membership in the association. At the time of the filing of the Complaint the Board had a membership of about 472 agents representing 175 stock fire insurance companies.
The position of an independent agent is unique. Insurance companies who conduct their business in any locality solely through such agents are almost entirely dependent upon the agents for the volume and quality of their business. This situation is accurately described in paragraph 18 of the Complaint, the allegations of which are admitted by the defendant:
The Board occupies a dominant position in the fire insurance business in Cuyahoga County. At the time of the filing of the Complaint the members of the Board wrote more than eighty per cent. of the fire insurance business in this area. As will hereinafter more fully appear, the Board was reorganized in 1953 and its membership now includes independent agents who write casualty and surety insurance as well as coverage for fire and inland marine risks. Whether the proportion of business done by Board members in the larger field now within the Board's jurisdiction is greater or less than eighty per cent. is not shown.
The Government's attack is leveled at six of the rules of the Board. They are —
(1) the In or Out rule
(2) the Reciprocity or non-intercourse rule
(3) the Non-deviation rule
(4) the Direct Writer rule
(5) the rule that disqualifies for membership agents whose policy writing and recording expenses are borne by insurance companies, and
(6) the Mutual rule.
The provisions of each of the foregoing rules will be stated separately in connection with the discussion of the issues raised as to each.
Defendant contends that the rules of the Board and the activities of its members are entirely local in their operation and effect and beyond the reach of the Sherman Anti-trust Act. This claim may be disposed of with brief comment. In United States v....
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