Courts Narrow McCarran-Ferguson Antitrust Exemption for "Business of Insurance"; Viability of "State Action" Doctrine as an Alternative

Prepared for Members and Committees of Congress

In Paul v. Virginia (75 U.S. (8 Wall.) 168 (1868)), the Supreme Court ruled that “[i]ssuing a
policy of insurance is not a transaction of [interstate] commerce.” United States v. South-Eastern
Underwriters Ass’n. (322 U.S. 533 (1944)) held that the federal antitrust laws were applicable to
an insurance association’s interstate activities in restraint of trade. Although the 1944 Court did
not specifically overrule its prior determination, the case was viewed as a reversal of 75 years of
precedent and practice, and created significant apprehension about the continued viability of state
insurance regulation and taxation of insurance premiums. Congress’ response was the 1945
McCarran-Ferguson Act. It prohibits application of the federal antitrust laws and similar
provisions in the Federal Trade Commission (FTC) Act, as well as most other federal statutes, to
the “business of insurance” to the extent that such business is regulated by State law—except that
the antitrust laws are applicable if it is determined that an insurance practice amounts to a
boycott. Early McCarran-Ferguson decisions mostly favored insurance companies. After 1969,
however, the exemption for the “business of insurance” was generally limited to activities
surrounding insurance companies’ relationships with their policyholders. In 2003, the Supreme
Court ruled that McCarran case law prohibiting the indirect application of federal antitrust (or
other) laws to the “business of insurance” would no longer control with respect to those areas
over which Congress has unquestionable legislative authority (e.g., ERISA, civil rights,
securities), notwithstanding insurance-company involvement. None of the bills introduced in the th

109 Congress to limit or amend McCarran-Ferguson were enacted, but the issue is continuing to th

receive attention in the 110 Congress. Senator Leahy has introduced S. 618, a bipartisan measure
to eliminate the antitrust exemption provided by McCarran-Ferguson and to restore the FTC’s
authority to investigate the insurance industry. Representative DeFazio has introduced H.R. 1081,
an identical, and similarly bipartisan, bill in the House. Both, however, would retain the
exemption for the applicability of the FTC Act, “as it relates to areas other than unfair
competition.” Even in the event the McCarran exemption were to be severely limited or totally
eliminated, however, the state-action doctrine in antitrust law has the potential to mitigate the
consequences of either. State action stands for the proposition that the federal antitrust laws do
not apply to the states, nor to private individuals acting either under state order or authorization.
To the extent that state regulation of insurance embodies “clearly articulated” state policy, and
regulators “actively supervise” the activities of insurance companies, the industry’s antitrust
exemption could actually be broadened to include actions not clearly “the business of insurance.”
(Those phrases have been firmly embedded in the state-action-doctrine jurisprudence in the
antitrust law for more than 25 years.) This report will be updated as needed. See CRS Report
RL31982, Insurance Regulation: History, Background, and Recent Congressional Oversight,
CRS Report RL32789, Insurance Regulation: Issues, Background, and Current Legislation, CRS
Report RL33439, Insurance Regulation in the United States and Abroad, CRS Report RL33892,
Post-Katrina Insurance Issues Surrounding Water Damage Exclusions in Homeowners’ Insurance
Policies, and CRS Report RS22506, Surplus Lines Insurance: Background and Current
Legislation for information on other issues affecting or concerning insurance regulation,
including a discussion of issues surrounding the option of federal chartering and regulation of
insurance companies, which would generally make the federal antitrust laws applicable to those
entities opting for federal regulation.

Introduc tion ..................................................................................................................................... 1
What Is “Insurance” and Whose Law Defines It?...........................................................................1
Statutory Terminology in McCarran-Ferguson................................................................................2
“Business of Insurance”............................................................................................................2
“Regulated by State Law”.........................................................................................................4
Agreements to “Boycott, Coerce or Intimidate”: The Boycott Exception................................5
Recent Legislation Concerning McCarran-Ferguson......................................................................6
The State Action Doctrine and its Relevance to McCarran Immunity............................................9
Conclusion ..................................................................................................................................... 10
Author Contact Information...........................................................................................................11

In Paul v. Virginia (75 U.S. (8 Wall.) 168 (1868)), the Supreme Court ruled that “[i]ssuing a
policy of insurance is not a transaction of [interstate] commerce.” United States v. South-Eastern
Underwriters Ass’n. (322 U.S. 533 (1944)) held that the federal antitrust laws were applicable to
an insurance association’s interstate activities in restraint of trade. Although the 1944 Court did
not specifically overrule its prior determination, the case was viewed as a reversal of 75 years of
precedent and practice, and created significant apprehension about the continued viability of state
insurance regulation and taxation of insurance premiums. Congress’ response was the 1945 12
McCarran-Ferguson Act. In addition to preserving the states’ ability to tax insurance premiums,
McCarran-Ferguson prohibits application of the federal antitrust laws and similar provisions in
the Federal Trade Commission Act, as well as most other federal statutes, to the “business of 3
insurance” to the extent that such business is regulated by State law—except that the antitrust 4
laws are applicable if it is determined that an insurance practice amounts to a boycott.
Inasmuch as “[t]he primary purpose of the McCarran-Ferguson Act was to preserve state
regulation of the activities of insurance companies since it was the power of the states to regulate 5
and tax insurance companies that was threatened after ... South-Eastern Underwriters ...,” we
first answer the questions, “What is insurance?”; and, “is it defined pursuant to state or federal
law?” Then, given that the statute addresses itself to the “business of insurance,” this report sets
out some judicial opinions about just what does—and does not—constitute the “business of
insurance,” as well as state regulation of such business, and the scope of McCarran’s “boycott” th
exception. Finally, it will note legislation introduced to date in the 110 Congress, as well as th
some McCarran-related legislation introduced in the 109 Congress, and discuss, briefly, the
possible consequences of similarly worded measures, especially in light of the non-statutory
state-action doctrine in antitrust law.

In response to the Securities and Exchange Commission’s insistence that insurers issuing variable 6
annuity contracts register them as securities under the federal securities laws, the insurers
asserted that McCarran-Ferguson shielded them from federal regulation, but that even if it did 7
not, they qualified for the insurance exemptions from the federal securities laws. The Supreme
Court, reversing lower court decisions, held that neither state regulation of variable annuities nor

1 15 U.S.C. §§ 1011-1015.
2 15 U.S.C. §§ 1011, 1012(b).
3 15 U.S.C. § 1012(b).
4 15 U.S.C. § 1013(b).
5 Richard Cordero, Exemption or Immunity from Federal Antitrust Liability Under McCarran-Ferguson (15 U.S.C.
1011-1013 and State Action and Noerr-Pennington Doctrines for Business of Insurance and Persons Engaged in It,
116 ALR FED 163, 194 (1993).
6 Under a variable annuity contract, annuity payments are not fixed but vary according to the performance of an
underlying investment portfolio.
7 Securities and Exchange Commission (SEC) v. Variable Annuity Life Ins. Co. (VALIC), 359 U.S. 65, 68 (1959):
The question common to the exemption provisions of the Securities Act and the Investment Company Act and to s
2(b) of the McCarran-Ferguson Act is whether respondents are issuing contracts of insurance.

their issuance by insurers qualified the annuities as “insurance.” Accordingly, neither insurers nor
state regulators could (1) invoke McCarran-Ferguson as a shield against federal regulation of
variable annuities or (2) qualify as beneficiaries of the insurance exclusions in the federal
securities laws. Moreover, the case established that the definition of “insurance” under McCarran-
Ferguson is a federal, not a state, question.
NationsBank v. VALIC8 made a similar determination concerning the sale of fixed annuities,
which are sold both by insurers and by banks. The Court agreed with the Comptroller of the
Currency that in the provision of fixed annuities, “banks are essentially offering financial
investment instruments of the kind congressional authorization permits them to broker. Hence, [it
was reasonable to characterize the] permission NationsBank sought as an ‘incidental powe[r] ... 9
necessary to carry on the business of banking.’”

The scope of McCarran-Ferguson protection—the statute’s applicability in instances in which
insurance companies are actors in an area in which the federal government clearly has not ceded
its regulatory authority to the states—has been addressed numerous times, both by the Supreme
Court and the lower federal courts. Generally, it has been found that federal statutes are not
trumped by McCarran except where the “business of insurance” is directly involved, or where a 10
state insurance regulatory scheme or state insurance administration would be adversely affected.
Securities and Exchange Commission (SEC) v. National Securities, Inc.,11 limited the scope of the
term “business of insurance” to activities that involved only insurance companies’ relationships 12
with their policyholders. The merger of two insurance companies was challenged by the SEC,
which alleged violations of federal securities laws, despite the merger’s approval by the Arizona
Director of Insurance. National Securities argued that the merger was in compliance with state
law, and that the McCarran-Ferguson Act precluded application of an inconsistent federal law.
The Court disagreed, holding that a state statute aimed at protecting the stockholders of insurance

8 513 U.S. 251 (1995).
9 Id. at 260.
10 See, e.g., Kentucky Assn of Health Plans, Inc. v. Miller, 538 U.S. 329 (2003) (case law interpreting the McCarran-
Ferguson Act no longer to be used to inform decisions concerning the applicability of ERISA (Employee Retirement
Income Security Act of 1974) to state laws that regulate insurance), andCRS Report RS21497, Reconciling McCarran-
Ferguson (Insurance) Case Law and ERISA Preemption: Kentucky Ass'n of Health Plans, Inc. v. Miller, by Janice E.
Rubin, discussing that case; Humana, Inc. v. Forsyth, 525 U.S. 299, 310 (1999) (McCarran does not preclude
application of federal law when such application “does not directly conflict with state regulation” or frustrate state th
policy); Moore v. Liberty Nat. Life Ins. Co., 267 F.3d 1209 (11 Cir. 2001) (civil rights/antidiscrimination laws); In Re
MetLife Demutualization Litigation, 156 F.Supp.2d 254 (E.D.N.Y. 2001) (securities acts); Patton v. Triad Guar. Ins. th
Corp., 277 F.3d 1294 (11 Cir. 2002) (Real Estate Settlement Procedures Act).
11 393 U.S. 453 (1969).
12 See, e.g., Note, The McCarran-Ferguson Act: A Time for Procompetitive Reform, 47 TULANE L. REV. 1271, 1281
(1976). See also, Gary Keith Nedrow, Comment, The McCarran-Ferguson Act’s Antitrust Exemption for the ‘Business
of Insurance: A Shrinking Umbrella, 43 TENN. L. REV. 329 (1976); Peter B. Steffen, Comment, After Fabe: Applying
the Pireno Definition ofBusiness of Insurance to First-Clause McCarran-Ferguson Act Cases, 2000 U. CHI. L. REV.
447 (2000).

companies was not a statute regulating the “business of insurance”: “whatever the exact scope of
the statutory term, it is clear where the focus was [in McCarran]—it was on the relationship
between the insurance company and the policyholder. [Only s]tatutes aimed at protecting or 13
regulating this relationship ... are laws regulating the ‘business of insurance.’”
About 25 years after National Securities limited the term “business of insurance” to activities
involving only insurance companies’ relationships with their policyholders, the Court extended
that ruling. It held, in U.S. Department of Treasury v. Fabe, that state laws addressing the
liquidation of insurers constitute “the business of insurance”—and, under McCarran-Ferguson,
preempt conflicting federal statutes—but only to the extent that they are necessary to protect the 14
insolvent’s policyholders. The United States had argued that an Ohio statute determining the 15
order in which claims against an insolvent insurance company are to be paid should be
preempted by the federal priority statute authorizing the payment of U.S. claims against an 16
insolvent entity. The Court disagreed, however, with respect to the payment of policyholder
claims and payment of the administrative expenses “reasonably necessary to” the payment of
policyholder claims, and said: “[t]he primary purpose of a statute that distributes the insolvent
insurer’s assets to policyholders in preference to other creditors is identical to the primary 17
purpose of the insurance company itself: the payment of claims made against policies.”
Later decisions continued the distinction made by Fabe between statutes that address the
“business of insurance” and may, therefore, “reverse-preempt” conflicting federal statutes, and
those that will be preempted under traditional, constitutional principles. For example, 18
International Ins. Co. v. Duryee involved an Ohio statute that “effectively prohibit[ed] out-of-
state insurance companies from removing cases from [Ohio] state to federal court by barring such
companies from further business in Ohio.” The United States Court of Appeals for the Sixth
Circuit emphatically stated there, that “[t]he McCarran-Ferguson Act was not meant to protect a 19
statute so tangentially related to insurance from the general rule of federal law supremacy.” The 20
court first quoted from a 1922 Supreme Court ruling, Terral v. Burke Const. Co.,
[A] state may not, in imposing conditions upon the privilege of a foreign corporations doing
business in the state, exact from it a waiver of the exercise of its constitutional right to resort
to the federal courts, or thereafter withdraw the privilege of doing business because of its 21
exercise of such right, whether waived in advance or not.
And then it quoted from Fabe itself:

13 393 U.S. at 460 (emphasis added).
14 508 U.S. 491 (1993).
15 Ohio Rev. Stat. § 3903.01 et seq.
16 The Federal Priority Statute is found at 37 U.S.C. § 3713.
17 508 U.S. at 505-506.
18 96 F.3d 837 (6th Cir. 1996).
19 Id. at 838.
20 257 U.S. 529 (1922).
21 Id. at 532-33.

the Fabe Court found that the “broad category of laws enactedfor the purpose of regulating
the business of insurance ... necessarily encompasses more than just the business of 22
Group Life & Health Insurance Co. v. Royal Drug Co. stands for the proposition that McCarran-23
Ferguson’s “exemption is for the ‘business of insurance,’ not the ‘business of insurers.’”
Independent retail pharmacies charged Blue Shield of Texas with price fixing in the negotiation of
Pharmacy Agreements, based on which the insurance company had issued policies that facially
entitled policyholders to purchase prescription drugs from any pharmacy. In reality, the
independents argued, insureds were more likely to choose pharmacies that had entered into the
“Pharmacy Agreements” because at those establishments (mostly larger, chain pharmacies)
policyholders were required to pay only $2 for each prescription drug purchased; a “Pharmacy
Agreement”-pharmacy would be reimbursed for its costs and the $2 charge would be its profit. At
nonparticipating pharmacies (mostly smaller, independent stores), insureds would be expected to
pay the entire cost of any drug, and then seek reimbursement from Blue Shield for 75% of the
cost. The Supreme Court rejected Blue Shield’s argument that the McCarran-Ferguson Act made
the Pharmacy Agreements immune to prosecution under the antitrust laws, the Court emphasizing
that although “the agreements between Blue Shield and the participating pharmacies ... [may]
serve ... to minimize the costs Blue Shield incurs in fulfilling its underwriting obligations,” they
“do not involve any underwriting or spreading of risk,” are not integral to the relationship 24
between the insurer and the insured, and are not limited to entities within the insurance industry.
In Gilchrist v. State Farm Mutual Auto Ins. Co.,25 the United States Court of Appeals for the
Eleventh Circuit appeared not to continue the Royal Drug reasoning. When policyholders
challenged the practice of certain automobile insurers of improperly limiting the scope of
insurance coverage for auto body repairs, the court distinguished some earlier decisions
concerning the scope of the McCarran-Ferguson exemption. The appeals court first emphasized
that Royal Drug (as well as a later case in which chiropractors challenged the insurance-company 26
policy of peer reviewing chiropractic fees and practices) concerned challenges by non-
policyholders to insurance companies’ agreements with third parties. But, it noted, “Gilchrist [on
the other hand] is a policyholder whose claim is that Insurers have charged excessive premiums 27
for inferior repair work on her automobile.” That, it said, is a direct challenge to the insurance
policy itself, and the company’s rate-making decisions, “the paradigmatic example of the conduct 28
that Congress intended to protect by the McCarran-Ferguson Act.”
Courts have almost unanimously determined that state regulation need not meet the standards of
federal antitrust law in order for McCarran-Ferguson to apply, and that the federal government

22 96 F.3d at 839, quoting from 508 U.S. at 505.
23 440 U.S. 205, 211 (1979).
24 Id.. at 211-214 (emphasis added).
25 390 F.3d 1327 (11th Cir. 2004).
26 Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119 (1982).
27 390 F.3d at 1334.
28 Id. at 1331.

may not require “uniform state regulation.”29 However, whether state regulation needs to meet 30
any particular standard to qualify as preempted “regulation”has remained a question. In 1958, in 31
Federal Trade Commission (FTC) v. National Casualty Co., for example, the Court had already
decided that McCarran-Ferguson “withdrew from the ... Commission the authority to regulate
[insurers’] advertising practices in those States which are regulating those practices under their 32
own laws”;and that the FTC could not, therefore, order the multistate-insurance-company
defendants to stop using advertising that the Commission deemed false, deceptive, and 33
misleading in violation of section 5 of the FTC Act. But the Court expressly declined to
examine whether the states’ laws had been effectively applied, finding it sufficient that “[e]ach
State in question ha[d] enacted prohibitory legislation which proscribe[d] unfair insurance 34
advertising and authorize[d] enforcement through a scheme of administrative supervision.”
Most decisions have found it sufficient for McCarran-Ferguson “regulated by state law” purposes
that state insurance departments have jurisdiction over insurance practices and the authority to 35
act, whether they exercise their authority or not. In 1982, however, a federal district court in
Florida held that “it is essential to conduct some sort of inquiry into the adequacy and 36
effectiveness of state legislation asserted to preempt the antitrust laws.”
Whether the boycott referred to in the statute is solely a boycott of entities within the insurance
industry, or a consumer-protection facet of the otherwise industry-friendly McCarran law, was 37
addressed in St. Paul Fire Marine Insurance Co. v. Barry, where the Supreme Court ultimately
found in favor of the latter. In St. Paul, doctors sued four companies that sold medical malpractice

29 See, e.g., Prudential Ins. Co. v. Benjamin, 328 U.S. 408 (1946), discussed in Application of Federal Antitrust Laws to
the Insurance Industry, 46 MINN. L.REV.1088, 1094 (n. 33) (1962).
30The basic question is whether McCarran requires effective enforcement of a state regulatory scheme or whether state
regulation without more is sufficient to preclude application of federal antitrust laws.” William J. Rands, Comment,
State Regulation Under the McCarran Act, 47 TULANE L.REV. 1069 (June 1973). That is not surprising, according to th
the authors of the ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS (5 ed. 2002)(hereinafter, ABA
ALD), given that theobjective of the McCarran Act was to preserve existing forms of state regulation, which typically
involved the delegation of administrative power, in state insurance codes, to insurance departments or commissions.
At 1373.
31 357 U.S. 560 (1958).
32 Id. at 563 (footnote omitted). See also, Federal Trade Commission v. Travelers Health Association (362 U.S. 293,
297-299 (1960)), in which the Supreme Court had earlier limited the reach of state regulation “asserted to preempt the
antitrust laws; Travelers Health had involved interpretation of a Nebraska statute, which prohibited unfair or
deceptive acts and practices” in Nebraska and in “any other State.the Court held that “regulated by State law
“referred only to regulation by the State where the business activities have their operative force.” (362 U.S. at 301-
33 Section 5 (15 U.S.C. § 45) prohibits “unfair or deceptive acts ... in or affecting commerce.”
34 357 U.S. at 564.
35 See, e.g., Arroyo-Melecio v. Puerto Rican American Insurance Co., 398 F.3d 56, 66, note 7 (1st Cir. 2005); In re
Insurance Antitrust Litigation, 723 F.Supp. 464, 474 (N.D. Cal. 1989), quoting, Feinstein v. Nettleship Co., 714 F.2d
928, 933 (“It is not necessary to point to a state statute which gives express approval to a particular practice; rather, it is
sufficient that a state regulatory scheme possess jurisdiction over the challenged practice.”)
36 Escrow Disbursement Insurance Agency, Inc. v. American Title and Insurance Co., Inc., 550 F. Supp. 1192, 1199
(S.D. Fla. 1982).
37 438 U.S. 531 (1978).

insurance, alleging that one of the companies had changed its malpractice policy in a manner
unfavorable to the doctors, who were then unable to take their business elsewhere because the
other companies refused to sell them malpractice policies of any sort. This, the doctors charged,
was the result of an unlawful conspiracy and constituted a boycott in violation of the antitrust
laws. The district court held that the purpose of McCarran’s “boycott” language was to protect 38
industry members from being “black-listed.” The court of appeals reversed, finding that the
protection of insurance consumers by the “usual reading of ‘boycott, coercion, or intimidation’ 39
does not ... pose a grave danger to state authority.” The Supreme Court agreed, holding that the 40
“conduct in question accords with the common understanding of a boycott”: if Congress had
intended to limit the scope of the boycott exception to industry members, the Court said, it would 41
have done so explicitly.
In Hartford Fire Ins. Co. v. California,42 however, a divided Court—differentiating between
“conspiracy” and “boycott,” refused to find for the nineteen states which alleged that the practices
of several U.S. and foreign insurers—acting to force other insurers to sell only policies with terms
similar to those in the defendants’ policies—violated the antitrust laws. It distinguished between a
true boycott (which the Court defined as a concerted refusal to deal on matters unrelated or
collateral to the insurance contract at hand) and a McCarran-protected mere concerted refusal to
deal on certain contract terms deemed to be central to the insurance contract, but noted that absent
McCarran-Ferguson, either would violate the antitrust laws:
A conspiracy is a combination of two or more persons acting in concert to accomplish a
common unlawful purpose. ... Of course as far as the Sherman Act (outside the exempted
insurance field) is concerned, concerted agreements on contract terms are unlawful. ... The
McCarran-Ferguson Act, however, makes that conspiracy lawful ... unless the refusal to deal 43
is a ‘boycott.

Two bills that would “end the insurance industry’s exemption from the requirements of [the 44
antitrust] laws,” by amending the McCarran-Ferguson Act have been introduced thus far in the th

110 Congress. The identical bills—S. 618 (Leahy, with the co-sponsorship of Senators Specter,

Lott, Reid, and Landrieu) and H.R. 1081 (DeFazio, with the co-sponsorship of Representatives
Taylor, Jindal, Melancon, Alexander, and Jones [NC])—would specify that the Federal Trade

38 The district court’s language is quoted id. at 536.
39 555 F.2d 3, 9 (1st Cir. 1977).
40 438 U.S. at 552.
41 Id. at 550.
42 509 U.S. 764 (1993), aff’g in part, revg in part, the appeal of In re Insurance Antitrust Litigation (footnote 35,
supra); the appeal, which reversed the district court decision on grounds other than the ones decided there, is found at th
938 F.2d 919 (9 Cir. 1991).
43 Id. At 783, 803, 809-810 (citations omitted). Hartford was quoted or cited in, e.g., Slagle v. ITT Hartford, 102 F.3d
494, 499 (11th Cir. 1996) (“In terms of the McCarran-Ferguson Act, the termboycott means more than just ‘an
absolute refusal to deal on any terms.’” Quoting, Hartford, 509 U.S. at 801); and in N.J. Auto. Ins. Plan v. Sciarra, 103
F.Supp. 2d 388, 407 (D.N.J. 1998) (“... at most, [plaintiffs’] allegations [that involuntary insurance plan insurers
refusal to sanction certain methodologies] constitute a concerted refusal to deal except on certain terms, and not a
boycott, as explained by the United States Supreme Court in Hartford.”)
44 Senator Leahy, remarks upon introducing S. 618. 153 CONGRESSIONAL RECORD S2045 (February 15, 2007).

Commission Act “as it relates to unfair methods of competition”45 would, in addition to the 4647
Sherman Act and Clayton Act, be applicable to the “business of insurance,” thus eliminating 48
the phrase “to the extent that such business is not regulated by State law.” Both would, however,
specify that the Federal Trade Commission Act, “as it relates to areas other than unfair methods 49
of competition” would continue to be applicable to the “business of insurance to the extent that 50
such business is not regulated by State law.”
Both measures would delete 15 U.S.C. § 1013, in which the 79th Congress (1) made the antitrust
laws inapplicable to the “business of insurance” until June 30, 1948; but (2) specified, at the same
time, that the antitrust laws would nevertheless be applicable to boycotts, coercion, or 51
intimidation, or agreements to create or further those activities. Also, they would each restore
the authority of the Federal Trade Commission, pursuant to its 15 U.S.C. § 46(a) powers, to 52
investigate the insurance industry; that authority was removed in 1980 by section 5 of P.L. 96-
252, Federal Trade Commission Antitrust Improvements Act of 1980,except to the extent that
such studies were specifically requested by Congress. Lastly, each would permit the Department
of Justice and the FTC to “issue joint statements of their antitrust enforcement policies regarding 53
joint activities in the business of insurance.”

45 The FTC Act is codified at 15 U.S.C. §§ 41 et. seq. Section 5 (15 U.S.C. § 45) contains the Commission’s
unfairness” jurisdiction.
46 15 U.S.C. §§ 1-7.
47 15 U.S.C. §§ 12 - 27.
48 Section 2(a)(1)(A) of each bill, amending 15 U.S.C. § 1012.
49 Section 2(a)(1)(B) of each bill (emphasis added).
50 It is noted that the bills’ insertions, as prescribed, would result in a run-on sentence as there is no punctuation
specified between the first insertion (“as it relates to unfair methods of competition,” presumably ending with “the
business of insurance”), and the second, which makes the FTC Act,as it relates to areas other than unfair methods of
competition” applicable to the business of insuranceto the extent that such business is not regulated by State law. It
is further noted that it might be preferable to not retain the phrase,That after June 30, 1948: as the bills’ are currently
drafted, the new provision would read, [t]hat after June 30, 1948, the [antitrust laws] and ... the Federal Trade
Commission Act ... as it relates to unfair methods of competition shall be applicable to the business of insurance.
From that date to the date of enactment of any proposed change, the antitrust laws were, in fact, not applicable to the
“business of insurance.
51 Section 2(a)(2) of each bill. If the antitrust laws are fully applicable to the “business of insurance,” there would be no
need for a “boycott exception.
52 Section 2(b) of each bill. 15 U.S.C. § 46(a) allows the Commission
[t]o gather and compile information concerning, and to investigate from time to time the
organization, business, conduct, practices, and management of any person, partnership, or
corporation engaged in or whose business affects commerce [except with respect to banks, savings
and loans, credit unions, or common carriers, each of which is regulated by an independent
53 Section 3 of each bill. Other examples of policy statements or guidance jointly issued by the FTC and the Antitrust
Division of the Department of Justice includeAntitrust GuidanceHurricanes Katrina and Rita (issued September
27, 2005); “Statements of Antitrust Enforcement Policy in Health Care (first promulgated in 1993 and revised in
1996); and “Antitrust Guidelines for Collaborations Among Competitors” (issued in April 2000):
To provide guidance to business people, the Federal Trade Commission (FTC) and the U.S.
Department of Justice (“DOJ”) (collectively, “the Agencies”) previously issued guidelines
addressing several special circumstances in which antitrust issues related to competitor
collaborations may arise. But none of these Guidelines represents a general statement of the
Agencies’ analytical approach to competitor collaborations. The increasing varieties and use of
competitor collaborations have yielded requests for improved clarity regarding their treatment
under the antitrust laws.

The Senate bill was addressed in March 7, 2007, hearings before the Senate Judiciary Committee,
“The McCarran-Ferguson Act and Antitrust Immunity: Good for Consumers?” Hearings before
the House Judiciary Committee have not yet been scheduled. The House bill has also been
referred to the House Energy and Commerce and Financial Services Committees “for
consideration of such provisions as fall within the jurisdiction of the committee concerned.”
Two of the bills in the 109th Congress that remained pending in committee (S. 1525, Senate
Judiciary; H.R. 3359, House Judiciary, House Energy and Commerce) would have,
notwithstanding McCarran-Ferguson, prohibited commercial insurers who provide medical
malpractice insurance from “price fixing, bid rigging, or market allocation in connection with”
such provision. Joint rate setting, generally accepted as a method of establishing premium rates,
has long been considered valid as a McCarran-Ferguson “business of insurance” activity, and 54
many states explicitly authorize it. The courts’ increasingly narrow interpretation of “the
business of insurance” would, however, arguably exclude at least the latter two, specified
activities, even absent such language; similarly, such language in future bills would not likely be
necessary to enable courts to find, for example, that bid-rigging or market allocation are outside
the scope of McCarran protection.
H.R. 2400 would have established a Commission—the Emergency Malpractice Liability
Commission (EMLIC)—to “examine the causes of soaring medical malpractice premiums and
propose a comprehensive strategy to alleviate the impact of the crisis” there; and submit a report
of its findings to Congress, which would have been obligated to hold hearings on the report
within six months after it was received. The Commission would have been directed, for example,
to “investigate and determine whether a causal relationship exists between skyrocketing
malpractice insurance premiums, jury awards, decreased accessibility and affordability of health
care; and the increase in the number of physicians moving, quitting or retiring from practices....”
The bill remained pending in the House Energy and Commerce Committee.
H.R. 2401 (House Judiciary), unlike the bills discussed above, would have applied without
reference to any specific line of insurance. It would have amended McCarran-Ferguson to clarify
that the antitrust laws would be generally applicable, except with respect to the smallest entities in

The new Antitrust Guidelines for Collaborations among Competitors (“Competitor Collaboration
Guidelines) are intended to explain how the Agencies analyze certain antitrust issues raised by
collaborations among competitors. Preamble to Guidelines, at 1.
All of the Guidelines are reachable from a page on the Antitrust Divisions website,
54 McKinneys Consolidated Laws of New York, Insurance Law § 2301, e.g., states: “The purpose of this article is to
promote the public welfare by regulating insurance rates to the end that they not be excessive, inadequate or unfairly
discriminatory, to promote price competition and competitive behavior among insurers, to provide rates that are
responsive to competitive market conditions, to improve the availability and reliability of insurance and to authorize
and regulate cooperative action among insurers within the scope of this article. (Emphasis added). Section 2316,
which sets out several prohibited, anti-competitive practices of insurance entities, including the making of agreements
to restrain trade (§ 2316(a)(3)), nevertheless states in subsection (c) that[n]othing in this section shall be construed as
applying to or prohibiting cooperative action authorized and regulated under this article.” Illinois law, e.g.., declares the
purpose of its Insurance Code to be the regulation of “trade practices in the business of insurance in accordance with
the intent of Congress as expressed in [15 U.S.C.A. §§ 1011 et seq. (McCarran-Ferguson Act)]. 215 Ill. Cons. Stat.
(ILCS) 5/421. Exceptions to the prohibitions set out in the Illinois Antitrust Act includethe activities (including, but
not limited to, the making of or participating in joint underwriting or joint reinsurance arrangement) of any insurer, ...)
to the extent that such activities are subject to regulation by the Director of Insurance of this State .... 740 ILCS

the insurance industry, to such activities as price fixing (e.g., currently permissible joint rate
setting), geographic market allocation, “tying the purchase of insurance to the sale or purchase or
another type of insurance,” or monopolization of “any part of the business of insurance.”
Contracts or conspiracies for the purpose of joint collection of historical loss data, however,
would be explicitly permitted. Again, however, given the courts’ narrowing definition of the
“business of insurance,” they would not be likely, in any event, to find such activities as market
allocation, tying, or monopolization protected by McCarran-Ferguson from the application of the
antitrust laws.
Senator Specter, together with Senators Leahy, Lott, and Landrieu, introduced S. 4025,
“Insurance Industry Antitrust Enforcement Act of 2006,” to “subject the insurance industry to 55
Federal antitrust law.” The bill would have amended § 2(b) of McCarran-Ferguson (15 U.S.C. §
1012(b)) to clarify that the federal antitrust laws would be applicable to the business of insurance
“except to the extent [that] the conduct of a person engaged in the business of insurance is
undertaken pursuant to a clearly articulated policy of a State [and] that is actively supervised by 56
that State; ...” Those words appeared to represent tacit acknowledgment that (1) the original
purpose of McCarran-Ferguson was to assure the ability of the states to regulate the business of
insurance; and (2) the existence of the state action doctrine in antitrust law. That doctrine might
easily afford immunity from prosecution under the federal antitrust laws to both (a) the narrowly
interpreted “business of insurance” protection provided by McCarran-Ferguson, and (b) any other
activity of insurance companies that the states choose to authorize and actively regulate.
S. 2509, introduced by Senators Sununu and Johnson, would have made, with certain exceptions,
the federal antitrust laws applicable to federally licensed insurance producers “to the same extent
as other businesses are subject to such laws,” and would have retained the McCarran-Ferguson
“business of insurance” exemption “to the extent that such insurers and producers are subject to 57
State law.”

The state action doctrine, first enunciated by the Supreme Court in Parker v. Brown,58 has come
to stand for the proposition that federalism dictates that the antitrust laws are not applicable to the
states. It has, over the years since 1943, been interpreted, clarified and expanded to the point that
it now confers antitrust immunity not only on the states qua states (including state agencies and
officials acting in their official state capacities), or those private individuals who act in
furtherance of state-directed activity, but also on those who act pursuant to state-sanctioned, but
not necessarily mandated, courses of action. Its essence is captured in the two-part test set out in 59
California Retail Liquor Dealers Ass’n v. Midcal Aluminum Inc. There, the Court made clear
first, that the challenged restraint must be “one clearly articulated and affirmatively expressed as

55 Statement of Senator Specter accompanying introduction of S. 4025, 152 CONGRESSIONAL RECORD S10712
(September 29, 2006).
56 Section 2(3) of S. 4025, adding § 1012(b)(1).
57 S. 2509, §§ 1702(a), 1702(a)(2).
58 317 U.S. 341 (1943).
59 445 U.S. 97 (1980).

state policy” (most generally via legislatively enacted statute), and second, the policy must be 60
“actively supervised” (i.e., enforced) by the State itself. It is, thus, apparent that, since at least
1980, “regulated by state law” has been a prong of the judicially created state action doctrine in
antitrust law, a doctrine which was developing simultaneously with McCarran-Ferguson case law.

As McCarran-Ferguson immunity for activities constituting the “business of insurance” has
steadily been narrowed since the act’s passage in 1945, and legislative action toward limiting or
abolishing the exemption entirely has increased, the doctrine of state action immunity from
prosecution under the federal antitrust laws has steadily been expanded since the doctrine was
first announced in 1943. Presently, entities acting at the behest or authorization of a state
regulatory scheme—so long as that scheme is envisioned by the state legislature in “clearly
articulated” language, and so long as the state exercises sufficient “active supervision” over the
authorized but possibly anticompetitive activities of private entities—become the equivalent of
“derivative beneficiaries” of the states’ own immunity from prosecution under the federal
antitrust laws. Although virtually every state maintains some form of insurance regulation,
whether existing state regulation of the insurance industry is sufficient to satisfy the “active 61
supervision” prong of Mical may not, however, always be clear or assured.

60 Id. at 105.
61 See, e.g., discussion, supra, at pp. 4-5, “Regulated by State Law.“The intensity and specificity of state regulation
needed to qualify for McCarran Act immunity is less than required for the state action doctrine. ABA ALD at 1373.
For example, in at least one case decided at the administrative level using a McCarran analysis, and judicially using a
state action analysis, although both opinions came to essentially the same conclusion—certain writers of title insurance
were found to have violated federal prohibitions, the state action analysis also faulted the quality and quantity of state
regulation.” After the Federal Trade Commission refused to find that the practice of setting rates for title searches
constituted the “business of insurance” for McCarran purposes, and so violated § 5 of the FTC Act (15 U.S.C. § 45,
which prohibits unfair or deceptive practices, in or affecting commerce) (see In the Matter of Ticor Insurance
Company, Final Order and Opinion, 112 F.T.C. 344 (1989)); the Supreme Court decided the case on state action
grounds (Federal Trade Commission v. Ticor Title Ins. Co., 504 U.S. 621 (1992)). In addition to being dismissive of
any McCarran immunity for the insurance-company actions, the Supreme Court found that not all of the state
regulatory regimes in question met the doctrine’s requirements (particularly those with so-called “negative option”
schemes under which the filed joint rates not disapproved were deemed to be approved): “The mere potential for state
supervision is not an adequate substitute for a decision by the State. ... we decline to formulate a rule that would lead to
a finding of active state supervision where in fact there [is] none. Our decision should be read in light of the gravity of
the antitrust offense, the involvement of private actors throughout, and the clear absence of state supervision. We do not
[, however,] imply that some particular form of state or local regulation is required to achieve ends other than the
establishment of uniform prices.” (504 U.S. 621, 638, 639) (emphasis added).
Another commentator also believes that McCarran-Ferguson was enacted precisely “because Congress must have felt
that the amount of regulation required to trigger state action immunity was an inadequate protection. ... In other words,
McCarran necessarily requires less [state] regulation than the State Action doctrine requires to trigger some kind of
limited immunity.” Phil Goodin, Note, Keeping the Foxes from Guarding the Henhouse: The Effect of Humana v.
Forsyth on McCarran-Fergusons Exemption for the Business of Insurance, 86 IOWA L. REV. 979, 984 (March 2001).

Janice E. Rubin
Legislative Attorney, 7-9079