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Court to Rule on Antitrust Exemptions for Insurers

TIMES STAFF WRITER

Insurers and attorneys general from 19 states squared off Friday in the U.S. 9th Circuit Court of Appeals in San Francisco to determine the scope of federal antitrust exemptions afforded to insurance companies.

At issue was whether 32 insurers--including Aetna Life & Casualty, Hartford Insurance and Lloyd’s of London--could effectively force the rest of the industry to restrict certain types of coverage by virtue of antitrust exemptions under the McCarran-Ferguson Act.

Normally, collusive activity in industry is barred by federal law. But insurers operate under special rules that allow them to share forms and price-setting information provided they do not participate in a market boycott or force compliance through coercion or intimidation.

In this case, several states and about two dozen private companies alleged that insurers had conspired to limit liability coverage in the mid-1980s by changing policy forms that were commonly used in the industry.

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Although insurers deny the allegations, Friday’s arguments did not deal with the merits of this individual case. Instead, three appellate judges were asked to determine how broadly the McCarran-Ferguson exemptions should be interpreted. They were also asked to decide whether U.S. laws could be used to restrict the activity of foreign insurers, such as Lloyd’s of London.

Attorneys from both sides expressed confidence about the final outcome of the case, but they stressed that the issue was not likely to be completely resolved any time soon. The justices have an indefinite amount of time to decide the case, and attorneys expect that the loser will appeal to the U.S. Supreme Court.

“This is years away from resolution,” said Thomas Greene, supervising deputy attorney general in California’s antitrust division.

The case, which was originally filed in 1988, was spurred by the mayor of Lafayette, Calif., who complained that he was unable to find liability coverage for this small Northern California town in 1985, Greene said.

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The California Attorney General’s Office began a two-year investigation and determined that Hartford Insurance, in an attempt to limit its own risk, illegally persuaded other major players in the industry to shrink the scope of liability coverage in the mid-1980s. That allegedly led to a nationwide insurance crisis, in which companies and cities found that they could not get adequate protection for certain risks at a reasonable cost.

The California attorney general filed suit. Eighteen other states and several private companies joined in while the case bounced through the court system.

Friday’s hearing was to overturn a ruling by U.S. District Judge William Schwarzer that said the insurers could not be prosecuted for the alleged conspiracy because they were protected by McCarran-Ferguson. The attorneys general maintained that Schwarzer was interpreting McCarran-Ferguson too broadly, while the insurers said it was properly applied.

Arguments over the veracity of the allegations will not be heard until the questions of federal law are decided, Greene added.

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