Judge Intends to Dismiss 19 States’ Conspiracy Suit Against Insurers

A federal judge intends to dismiss a massive suit by California and 18 other states accusing some of the nation’s largest insurers of conspiring to unfairly limit liability coverage for government and business, lawyers said Friday.

In a tentative opinion, U.S. District Judge William W. Schwarzer concluded that the defendants are immune under an act that grants an exemption to insurance companies from most federal antitrust laws, the attorneys said.

The action came in a 58-page “notice of intended decision” that was sent by Schwarzer to lawyers in the case, state Deputy Atty. Gen. Jesse Markham said.

Markham cautioned that the action, a common court practice, did not represent a final decision by the judge. A hearing in the case is set before Schwarzer on Sept. 15, and the judge could revise the opinion after further arguments from attorneys, Markham noted. In any event, the judge’s final ruling is likely to be appealed to the U.S. 9th Circuit Court of Appeals.

Federal Law

“The opinion indicates fairly clearly that the conduct alleged by the states would constitute a violation of the law for a non-exempt industry,” Markham said. “But the judge apparently feels constrained by the (federal law) to find that such conduct, however otherwise unlawful, nevertheless must go unchallenged.”

State officials said the judge had also tentatively concluded that Lloyds of London, which was accused of colluding with U.S. insurers to limit coverage, could not be sued because it is a foreign company.

State Deputy Atty. Gen. Thomas Greene expressed disappointment but voiced hope that the judge might change his mind after hearing further arguments.

“We’re still in the ballgame,” Greene said. “Remember, we’re dealing with a fairly complicated industry in a cutting-edge lawsuit. It’s far more likely a tentative decision would be overturned in this kind of case than in others.”

Lawyers representing some of the 32 insurance companies named as defendants in the suit confirmed that the judge had indicated that he intends to dismiss the case but declined further comment.

Not Final

“The decision is a proposed one and is not yet final,” said Dolores A. Dalton, an Oakland attorney representing Hartford Fire Insurance Co. “Because it is just proposed, the judge would prefer we not comment.”

The suit was filed in March, 1988, by state Atty. Gen. John K. Van de Kamp and other attorneys general contending that the insurers were responsible for the “liability crisis” that plagued public agencies, businesses and nonprofit organizations in the mid-1980s.

The suit charged that the companies used secret agreements, internal pressure and threats of boycotts to make insurance unavailable or prohibitively expensive and to try to eliminate all coverage for pollution damage.

The states contended that four large U.S. companies--Hartford, Allstate, Cigna and Aetna--tried to eliminate the most common type of general liability policy, a so-called “occurrence” form that covers all losses that occur while the policy is in effect, no matter when claims are filed.

The insurers plotted to shift the standard policy being offered customers to the more limited “claims-made” form, covering only those losses both suffered and claimed during the life of the policy, the states said.

Rate Increases

The insurers denied that they had entered into a conspiracy and said that increases in rates were attributable to their losses on insurance claims and declines in their investment income.

Even if the states’ allegations were true, the insurers said, the McCarran-Ferguson Act exempts the insurance business from federal antitrust suits and leaves regulation to the states. The only exception to the law is an agreement or an act to “boycott, coerce or intimidate” and no such conduct had occurred, the insurers said.