Workers' Compensation Ins. Antitrust Litigation, In re

• Citation: 867 F.2d 1552
• Decision Date: 10 February 1989
• Docket Number: No. 87-5378,87-5378
• Parties: , 1989-1 Trade Cases 68,432 In re WORKERS' COMPENSATION INSURANCE ANTITRUST LITIGATION. AUSTIN PRODUCTS CO., A & M Moving & Storage Co., Tony Downs Foods Co., Butterfield Foods Co., The Diocese of Winona, Briggs Transportation Co., on behalf of themselves and all other similarly situated, Appellants, v. The WORKERS' COMPENSATION INSURERS' RATING ASSOCIATION OF MINNESOTA, The Travelers Insurance Company, Aetna Casualty & Surety Company, The Home Insurance Company, Fireman's Fund Insurance Company, St. Paul Fire & Marine Insurance Company, Employers Mutual Liability Insurance Company, Federated Mutual Insurance Company, Liberty Mutual Insurance Company, Sentry Insurance, a Mutual Company; Michigan Mutual Insurance Company, Twin City Fire Insurance Company, Excalibur Insurance Company, Continental Insurance Company, Transport Insurance Company, Employers Insurance of Wausau, A Mutual Co., Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 1552

867 F.2d 1552

57 USLW 2522, 1989-1 Trade Cases 68,432

In re WORKERS' COMPENSATION INSURANCE ANTITRUST LITIGATION.

AUSTIN PRODUCTS CO., A & M Moving & Storage Co., Tony Downs

Foods Co., Butterfield Foods Co., The Diocese of Winona,

Briggs Transportation Co., on behalf of themselves and all

other similarly situated, Appellants, v. The WORKERS' COMPENSATION INSURERS' RATING ASSOCIATION OF

MINNESOTA, The Travelers Insurance Company, Aetna Casualty &

Surety Company, The Home Insurance Company, Fireman's Fund

Insurance Company, St. Paul Fire & Marine Insurance Company,

Employers Mutual Liability Insurance Company, Federated

Mutual Insurance Company, Liberty Mutual Insurance Company,

Sentry Insurance, a Mutual Company; Michigan Mutual

Insurance Company, Twin City Fire Insurance Company,

Excalibur Insurance Company, Continental Insurance Company,

Transport Insurance Company, Employers Insurance of Wausau,

A Mutual Co., Appellees.

No. 87-5378.

United States Court of Appeals,

Eighth Circuit.

Submitted June 16, 1988.

Decided Feb. 10, 1989.

K. Craig Wildfang, Minneapolis, Minn., for appellants.

James B. Loken, Minneapolis, Minn., for appellees.

Before LAY, Chief Judge, BROWN, ^* Senior Circuit Judge, and BEAM, Circuit Judge.

LAY, Chief Judge.

In April 1983, the plaintiffs, ¹ who are Minnesota employers, filed a complaint in federal district court alleging that the defendants, who underwrite workers' compensation insurance in Minnesota, and the Workers' Compensation Insurers Rating Association of Minnesota (WCIRAM) had entered into a cooperative agreement not to charge less than the maximum lawful rate set by the Commissioner of Insurance. The plaintiffs alleged that the agreement was illegal under both the Sherman Act, 15 U.S.C. Sec. 1, and the Minnesota Antitrust Law of 1971, Minn.Stat. Secs. 325D.49 to 325D.66, specifically, Minn.Stat. Secs. 325D.51 and 325D.53. The complaint alleged price fixing between 1979 and 1983 by the various compensation insurance carriers. The complaint asserted as well that the defendants agreed to boycott, coerce and intimidate other insurance companies and purchasers of workers' compensation insurance in order to enforce or maintain adherence to fixed prices and to prevent competition. The defendants filed a motion to dismiss for failure to state a claim upon which relief could be granted. Defendants asserted that their conduct was exempt from the application of the federal antitrust laws under the McCarran-Ferguson Act [hereinafter also referred to as Act]. In two separate opinions, ² the district court held the McCarran-Ferguson Act exemption applicable in that the alleged practice constituted "the business of insurance," regulated by the state of Minnesota and that no evidence of boycott, coercion or intimidation existed. The district court therefore granted summary judgment for the defendants. ³ We reverse the grant of summary judgment on the boycott issue.

Following the passage by Congress in 1945 of the McCarran-Ferguson Act, 15 U.S.C. Secs. 1011-1015 (1982 and Supp.1986), ⁴ the Minnesota legislature passed a comprehensive regulatory scheme for all types of insurance sold in Minnesota. The Legislature expressed its intended exemption from the federal antitrust laws by stating:

The purpose of this act is to regulate trade practices in the business of insurance in accordance with the intent of [C]ongress as expressed in the [McCarran Act], by defining, or providing for the determination of, all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.

Act of Mar. 24, 1947, ch. 129 Sec. 1, 1947 Minn.Laws, 188 (current codification at Minn.Stat. Sec. 72A.17 (1988)). Prior to the passage of the McCarran-Ferguson Act, the Minnesota legislature had made it compulsory for all employers to carry workers' compensation insurance. Act of Mar. 12, 1937, ch. 64, Sec. 1, 1937 Minn.Laws 109-10 (current codification at Minn.Stat. Secs. 176.021-176.031 (1988)). Until 1984, the State Commissioner of Insurance was required to "adopt a schedule of workers' compensation insurance rates for use in [the] state * * *." Minn.Stat. Sec. 79.071(1) (1982). Before 1979, no insurance rates could be set other than those established by WCIRAM and "approved as adequate and reasonable by the commissioner." Minn.Stat. Sec. 79.21 (1978).

On June 7, 1979, the Legislature amended section 79.21 to allow insurers to "write insurance at rates that are lower than the rates approved by the commissioner provided the rates are not unfairly discriminatory." Minn.Stat. Sec. 79.21 (1980). The revised statute mandated only that "[n]o insurer shall write insurance at a rate that exceeds" the Commissioner's approved rate schedule. Id.

The fundamental issues on appeal focus on the amendment of the Minnesota statute and whether the "deregulation" of price setting authorized by the statute was such to remove state regulation of price competition from protection by section 2(b) of the McCarran-Ferguson Act. An additional issue relates to the section 3(b) McCarran-Ferguson Act exception and whether there exists sufficient evidence of boycott, coercion or intimidation to overcome a summary judgment.

We hold, first, that the legislative amendment has not removed the state from regulation of private cooperative price fixing and that the defendants' exemption from the federal antitrust laws under section 2(b) of the Act still applies. Second, we hold that sufficient evidence exists as to proof of an agreement to boycott under the 3(b) exception of the Act. The district court accordingly erred in holding that the exception to McCarran-Ferguson Act immunity did not apply and in granting summary judgment. We therefore reverse and remand the case for further proceedings.

We deal with the issues separately.

The Business of Insurance

A conditional predicate to exemption from the federal antitrust laws under McCarran-Ferguson Act section 2(b) is that the state law must be enacted "for the purpose of regulating the business of insurance * * *." 15 U.S.C. Sec. 1012(b) (1982 and Supp.1987) (emphasis added). Plaintiffs urge that the challenged practice engaged in by private insurers is not the business of insurance under the tests established by the Supreme Court in Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982) and in Group Life & Health Ins. 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). These tests require first, that the practice result in the transfer or spread of a policy holder's risk; second, that the practice be an integral part of the policy relationship between the insurer and the insured; and third, that the practice be limited to entities within the insurance industry.

The district court rejected plaintiffs' argument, relying on the statement in Royal Drug that "[i]t is clear from the legislative history [of the McCarran-Ferguson Act] that fixing of rates is the "business of insurance." ⁵ Plaintiffs urge that this reference to the "fixing of rates" relates to only "cooperative rate making," which involves affirmative participation by the state. Plaintiffs urge further that a private agreement by the defendants does not involve transferring or spreading a policy holder's risk. ⁶ They argue that the horizontal agreement between insurers is entirely separate from their vertical contract with the policy holders. Further, they urge that these constituted factual issues in the application of the Royal Drug tests and that summary judgment was therefore improper. Defendants rely on many cases which have held that rate setting through a rating association is the business of insurance and is exempt under the McCarran-Ferguson Act. See, e.g., Proctor v. State Farm Mut. Auto. Ins. Co., 675 F.2d 308, 321-25 (D.C.Cir.), cert. denied, 459 U.S. 839, 103 S.Ct. 86, 74 L.Ed.2d 81 (1982) (horizontal price fixing among insurers through joint use of reimbursement formula for insurance claims is part of the business of insurance); Owens v. Aetna Life & Casualty Co., 654 F.2d 218, 225-26 (3d Cir.), cert. denied, 454 U.S. 1092, 102 S.Ct. 657, 70 L.Ed.2d 631 (1981) (joint rate setting and risk classification through rating association are the business of insurance); Ohio AFL-CIO v. Insurance Rating Bd., 451 F.2d 1178 (6th Cir.1971) (fixing of automobile insurance premiums by rating organization and its members is part of the business of insurance), cert. denied, 409 U.S. 917, 93 S.Ct. 215, 34 L.Ed.2d 180 (1972); Schwartz v. Commonwealth Land Title Ins. Co., 374 F.Supp. 564, 572-75 (E.D.Pa.1974) (conspiracy among insurance companies and their rating association to fix title insurance sellers' charge is part of the business of insurance); California League of Indep. Ins. Producers v. Aetna Casualty & Sur. Co., 179 F.Supp. 65 (N.D.Cal.1959) (price fixing of commissions to be paid insurance agents is part of the business of insurance). ⁷ Aside from the support for the defendants' position found in Royal Drug and National Securities, we find that fixing of rates by the compensation carriers, whether by private or by state-approved rate setting, is integral to the price charged to policy holders and to the contractual relationship with the insured. Although a price fixing agreement may maximize profit, it is axiomatic that the fixing of rates is central to transferring and spreading the insurance risk. As has been noted, "[t]he classic market means of changing the size of customer pools would be through price changes." Sullivan & Wiley, Recent Antitrust Developments: Defining the Scope of Exemptions, Expanding Coverage, and Refining the Rule of Reason, 27 UCLA L.Rev. 265, 283 (1979) [hereinafter Sullivan & Wiley]. The legislative history shows that private rate setting activity was the focus of...