UNR Industries, Inc. v. Continental Ins. Co.

• Decision Date: 30 November 1984
• Docket Number: No. 83 A 2523,83 A 2523
• Citation: 607 F. Supp. 855
• Parties: UNR INDUSTRIES, INC., et al., Plaintiffs, v. CONTINENTAL INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

607 F. Supp. 855

UNR INDUSTRIES, INC., et al., Plaintiffs, v. CONTINENTAL INSURANCE COMPANY, et al., Defendants.

No. 83 A 2523, etc.

United States District Court, N.D. Illinois, E.D.

November 30, 1984.

COPYRIGHT MATERIAL OMITTED

Malcolm M. Gaynor, Richard M. Bendix, Jr., Schwartz, Cooper, Kolb & Gaynor Chtd., Mark D. Romness, William S. Leavitt, Chicago, Ill., Ronald A. Oster, Joseph O'Malley, Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., for debtor in possession.

J. William Cuncannan, Sarah M. Stegemoeller, DeFrees & Fiske, Chicago, Ill., for Official Creditors Committee.

Peter C. John, Douglas J. Lipke, Matthew J. Gehringer, Phelan, Pope & John, Ltd., Louis W. Levit, Levit & Mason, Ltd., Chicago, Ill., for Zurich Ins. Co.

Lloyd E. Williams, Anthony P. Katauskas, Jacobs, Williams & Montgomery, Ltd., Chicago, Ill., for Commercial Union Ins. Co.

John G. Jacobs, Robert Plotkin, Jonah Orlofsky, Plotkin & Jacobs, Chicago, Ill., Stuart Parker, Siff & Newman, P.C., New York City, for American Mut. Liability Co.

Daniel J. Pope, Coffield, Ungaretti, Harris & Slavin, Chicago, Ill., for American Re-Insurance Co.

Thomas L. Aries, Merrill C. Hoyt, Harvey J. Cohen, Aries, Hoyt & Williams, Stanley B. Block, Donald W. Jenkins, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for Continental Ins. Co. and Underwriters Adjusting Co.

Thomas C. Walker, James E. O'Halloran, Jr., O'Halloran, Lively & Walker, Northbrook, Ill., for Corroon & Black of Illinois, Inc.

Gerald G. Saltarelli, Ronald Butler, James I. Rubin, Ellen M. Babbit, Butler, Rubin, Newcomer, Sattarelli & Boyd, Michael J. Gallagher, Cassiday, Schade & Gloor, Chicago, Ill., for Bituminous Cas. Corp.

Philip J. McGuire, Michael E. Dowd, Dowd & Dowd, Ltd., Chicago, Ill., for Northbrook Excess and Surplus Ins. Co.

Philip C. Stahl, Donald Vogelsang, Gary M. Elden, Reuben & Proctor, Chicago, Ill., for Nat. Sur. Corp. and Fireman's Fund Ins. Co.

Perry L. Fuller, Robert E. Nord, Fritz K. Huszagh, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., for Continental Cas. Ins. Co.

Patrick W. O'Brien, Kenneth J. Jurek, Hope G. Nightingale, Mayer, Brown & Platt, Chicago, Ill., for Ins. Service Office, Inc.

Donald M. Haskell, Michael Sehr, William F. Ryan, Haskell & Perrin, Chicago, Ill., for Home Ins. Co.

Michael J. Dolesh, David M. Spector, Isham, Lincoln & Beale, Chicago, Ill., for Employers Reinsurance Co.

MEMORANDUM OPINION AND ORDER

WILLIAM T. HART, District Judge.

UNR Industries, Inc. and its affiliates are debtors in Chapter 11 bankruptcy proceedings in this district. As part of those proceedings UNR initiated this adversary action to enforce its rights as an insured under numerous liability insurance policies with the various defendant insurance companies, and for other relief. After the decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), and before the Bankruptcy Amendments of 1984 this court withdrew the reference of the adversary proceeding. Presently before the Court are several motions to dismiss directed against the two federal law counts and some of the state law counts in UNR's first amended complaint.

I. Count 1

Count 1 alleges that defendant insurance companies Continental, Bituminous, and Zurich (the "primary carriers"), along with Underwriters Adjustment Company, violated Section One of the Sherman Act, 15 U.S.C. § 1, by conspiring to deprive UNR of its right to full indemnification for and defense of asbestos-related claims under policies previously issued by the primary carriers. Specifically, UNR alleges that defendants agreed to a formula capping the liability of each primary carrier for asbestos claims at a stated percentage of UNR's total liability, thereby forcing UNR to pay at least 35% of both the cost of defending asbestos claims and the cost of any judgments. This formula is claimed to be in violation of each defendant's contract of insurance which provides for full indemnification and defense of UNR in asbestos claims. Defendants also allegedly misled UNR as to the availability of full indemnification and defense under its policies. UNR claims defendants forced it to comply with their formula by misleading UNR as to the meaning of their policies, threatening to withdraw all indemnification for and defense of asbestos claims, and threatening to institute litigation concerning UNR's policies. Continental, as the only defendant whose policy was current at the time of the alleged conspiracy, is said to have agreed to enforce the agreement by threatening to cancel its policies midstream, demand higher premiums, and impose a $15,000 deductible for all asbestos claims arising after January 1, 1976.

UNR claims that defendants have made good on the above threats. Defendants have sued UNR concerning the interpretation of UNR'S policies. Continental did in fact impose a $15,000 deductible in early 1976, by 1978 had increased the deductible to $30,000, and subsequently added an asbestos exclusion to its policies. When in 1981 UNR demanded full indemnification for and defense of its asbestos claims Zurich, Bituminous and Continental responded by terminating all payments for indemnification and defense.

The motion to dismiss count 1 has two bases. Defendants first argue the activities alleged do not violate the antitrust laws. Second, they argue that even if they have violated the antitrust laws their activities are exempt from antitrust scrutiny under the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-15.

UNR's answer to defendants' motion offers three theories to support its claim that defendants have violated the antitrust laws. The first and most strongly argued theory is that defendants' combined refusal to abide by their contracts of insurance constitutes "retroactive price-fixing." If the price-fixing label is applicable to these facts then the complaint adequately states a claim under the antitrust laws, since price-fixing is a per se antitrust violation. Arizona v. Maricopa County Medical Society, 457 U.S. 332, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982).

To bring defendants' actions under the heading of price-fixing, UNR first points out that the price paid and the value received by a consumer are economically equivalent. From that equivalence UNR argues that competitors can price-fix in two different ways. The first and traditional method is for competing sellers to agree on a price (usually higher than that which competitive forces would have set) to be charged in the future. The second method, and the method charged in UNR's complaint, is for sellers to sell at a competitive price but then agree among themselves to deliver less of the product or service than is called for by the sale contract. Put simply, UNR's argument is that charging more than something is worth and delivering less than what was bought both have the same result: the consumer gets back less value than he paid out. Since both methods give the same bad result, argues UNR, both methods deserve the same bad label: price-fixing.

The Seventh Circuit has recently stated that the "mere attachment of a per se label by a plaintiff to defendants' conduct does not automatically invoke the per se doctrine and eliminate the requirement that the plaintiff allege and prove the anticompetitive effects of defendants' conduct. The defendants' conduct must be analyzed to determine whether it should receive per se treatment." Bunker Ramo Corp. v. United Business Forms, Inc., 713 F.2d 1272, 1284 (7th Cir.1983).

Here, such analysis reveals defendants' conduct is not per se illegal. The flaw in UNR's argument is that it confuses the conduct the antitrust laws are aimed at with what they try to achieve. The antitrust laws are based on the assumption that consumers are best served by a competitive market and to that extent can be said to promote consumer welfare. Reiter v. Sonotone Corp., 442 U.S. 330, 343, 99 S.Ct. 2326, 2333, 60 L.Ed.2d 931 (1979); Sutliff, Inc. v. Donovan Companies, 727 F.2d 648 (7th Cir.1984). But the Sherman Act does not outlaw every action that hurts consumer welfare, it outlaws "every contract, combination ... or conspiracy in restraint of trade." 15 U.S.C. § 1 (emphasis supplied). As the Supreme Court has said, the antitrust laws do "not purport to afford remedies for all torts committed by or against persons engaged in interstate commerce." Hunt v. Crumboch, 325 U.S. 821, 826, 65 S.Ct. 1545, 1548, 89 L.Ed. 1954 (1945). See also Sutliff, 727 F.2d at 655 ("the Sherman Act did not make ordinary business torts federal torts for which treble damages could be recovered'). Therefore, while every antitrust violation is presumed to harm consumers, not every harm to a consumer is or can be presumed to be an antitrust violation. All UNR's argument shows is that it is a consumer and has been harmed by conspiring sellers, but that allegation is not sufficient to state an antitrust claim.

Another way to see the flaw in UNR's argument is to remember that per se status (which is what UNR is after) has been conferred on price-fixing not merely because it harms consumers (which it does) but because it harms consumers in a particular way — by (almost always) restraining competition. Maricopa, 457 U.S. 332, 102 S.Ct. 2466, 73 L.Ed.2d 48. The price-fixing label can by analogy attach to conduct more subtle than a simple conspiracy to directly fix prices, Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 100 S.Ct. 1925, 64 L.Ed.2d 580 (1980) (agreement to stop selling on credit); In re Wheat Rail Freight Rate Antitrust Litigation, 579 F.Supp. 517 (N.D.Ill.1984) (agreement on how freight rates would be calculated), but the analogy is successful only if the challenged conduct is, like traditional price-fixing, virtually certain to reduce competition. Catalano, 446 U.S. at 649-50, 100 S.Ct. at 1928-29; Bunker Ramo Corp. v. United Business Forms, Inc., 713 F.2d 1272, 1284 (7th Cir.1983) ("only...