The McCarran-Ferguson Exemption From the Antitrust Law for the Business of Insurance : History, Scope and the State Action Doctrine

Until 1944, the general understanding in the United States was that insurance companies were subject to regulation by the states, and were not subject to federal legislation, including the federal antitrust laws. In that year, in a landmark decision, United States v. South-Eastern Underwriters Association, 322U.S.533(1944), the U.S. Supreme Court held that insurance companies were engaged“incommerce,”and therefore their activities were within the scope of the antitrust laws. In response, Congress quickly passed the McCarran-Ferguson Act, 15 U.S.C. 1051 etseq. That statute provides, with certain limitations, that to the extent that the “business of insurance” is “regulated by state law,” the activity will be immune from antitrust challenge -- both from governmental enforcement and by private litigants. There is extensive case-law interpreting these requirements. First and foremost, the exemption does not extend to all activities of insurance companies, but only to the “business of insurance.” Behavior most likely within the scope of this exemption are agreements between or among insurance companies, including agreement to share information and to submit common rates to regulators, and relations between insurance companies and their customers, the policyholders. On the other hand, agreeements between an insurer and a third party which is not a member of the insurance industry are typically not within this exemption. More controversial as to whether it fits within this provision are relationships between an insurance company and its agents, and unilateral activities by insurance companies. In order to invoke the challenged exemption, the challenged activity also must be “regulated by state law.” This requirement is relatively easily met. It is satisfied if the conduct is within the general scope of state regulation, even if the state has not actively or directly supervised the particular conduct under consideration. In addition to these two general requirements, the McCarran-Ferguson Act contains a provision which specifically excludes from the exemption “any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation.” The definition of a “boycott” draws upon the jurisprudence of section 1 of the Sherman Act, which makes a “group boycott” or concerted refusal to deal” unlawful. However, these terms are not interpreted in identical fashion for the Sherman Act and the McCarran-Ferguson Act.