MCarran Ferguson act and supreme court and boycott and coercion or intimidation

The MF Act, 15 USC 1011-15, has three sections that should concern us. Section 1011 (p. 96 of casebook) reiterates the general approach to state regulation of insurance before South-Eastern. You should notice two things regarding 1011. First, state regulation of insurance "is in the public interest" (therefore, long live state departments of insurance) and second, Congressional "silence" regarding insurance regulation (i.e., the fact that Congress passes no law regarding the regulation of insurance) does not mean that Congress couldn't do so. Congressional silence should therefore not set up a "barrier" to continued state regulation of insurance.

1012 then specifies that it is the "business of insurance" (nowhere defined) that is the focus of state regulation. No Act of Congress, unless it specifically deals with the "business of insurance" and thus overrides state law, should be construed as invalidating any state regulatory provision regarding insurance. Thus, there is no such thing as "inadvertent" or "implied" regulation of insurance by the federal government. If it wants to wade into the "business of insurance," it must do so with explicitness. This provision also allows Congress, however, to pass laws that have an "oblique" effect on insurance companies--for example, Congress can tax them-- without violating the principle that the states almost exclusively regulate insurance companies. Finally, 1012 speaks of the applicability of the Sherman Act to the "business of insurance" to the extent that it is not regulated by state law. Thus, courts would scrutinize insurance practices for potential violations of the Sherman Act.

1013 further specifies the scope of court review with respect to the Sherman Act. The insurance industry, broadly construed, will not be able to participate in boycotts, coercion or intimidation. The interpretation of this clause is at the heart of the case assigned for today, Hartford Fire Insurance Co. v. California (509 US 764 (1993)).

A Road Map in Construing the Statute

The period since the enactment of MF, therefore, has been one of considerable uncertainty in spelling out precisely the federal role in the "business of insurance." MF's ambiguities have contributed to this uncertainty. It might be best to understand these ambiguities by considering five questions of the statute (following Jerry). In order to understand if an insurer's activity is exempt from federal regulation, the following "road map" should be pursued.

1. Is the challenged activity of the insurer within the "business of insurance?" If so, that activity is normally exempt from federal regulation and is subject only to the states. The "business of insurance" is undefined in the Act, but suggests to me the core functions of the insurance industry--drafting, underwriting, selling, interpreting and implementing policies of insurance. The meaning of the phrase "business of insurance" has, as you no doubt would surmise, been examined many times by courts.

2. If the challenged activity is within the "business of insurance," is a federal statute that one might want to apply to the insurance industry one that "specifically relates" to the business of insurance? If so, the federal statute can override state regulation. If this question is answered affirmatively, the insurer is subject to federal regulation on a particular practice. If you answer it negatively, you are still not "home free" (i.e., only the state controls)--see the next question.

3. If the challenged activity is within the "business of insurance" but does not "specifically relate" to the business of insurance, is the federal statute one that operates "to invalidate, impair, or supersede" (1012) a state law enacted "for the purpose of regulating the business of insurance?" If it serves to do this, the statute is invalid. If it does not invalidate, impair or supersede such a state law, the federal and state regulatory schemes may operate side by side, with both applying to the insurance companies.

4. If a federal antitrust statute is applied to the challenged activity, is that insurer "regulated" by state law (1012(b))? If so, the antitrust statute cannot apply to the activity.

5. However, if we are focusing on the Sherman Act itself, this Act is applicable to the insurer activity in 1013(b). The question here to consider is if the Sherman Act is applied to the challenged activity, does the activity involve an "agreement to boycott, coerce or intimidate?" If so, MF does not protect the activity from challenge under the Sherman Act.

Conclusion

Almost every one of these questions is subject to insistent questions. For example, if an "agreement to boycott" is illegal, what is exactly a boycott? What does it mean to agree to boycott? The next mini-essay will show that the Supreme Court isn't it agreement on this one (5-4 vote).

Thus, the best way to conclude this treatment of the statute is to emphasize that the walls between federal and state insurance regulation are porous; nothing is set in "stone." By and large the regulatory process will continue as a state-run process, but MF permits Congress to enter into the fray almost any time they want. The fact that Congress has not done so very much does not mean that it cannot. Indeed, various bills for further Congressional oversight of the insurance industry are in various House and Senate committees. MF allows it. Politics and the vagaries of historical experience will determine when and if Congress uses its MF powers with respect to the business of insurance.