Court to Decide Antitrust Case Against Insurers : Insurance: California and 18 other states claim that the industry conspired to drop certain types of liability coverage.
The Supreme Court agreed Monday to decide whether the insurance industry can be forced to pay damages for allegedly conspiring to limit some types of liability coverage.
A ruling in the case, due early next year, could shake up the insurance industry. If the justices were to side with attorneys from California and 18 other states, the major insurers could face enormous damage claims.
However, a ruling that kills the lawsuit may renew pressure in Congress to end the insurance industry’s exemption from federal antitrust laws.
In 1988, state attorneys accused four insurance giants of having conspired with European “reinsurers” to stop covering some liability risks for businesses and government agencies. The four domestic companies--Hartford Fire, Aetna, Allstate and the Insurance Co. of North America--were alleged to have sought an agreement to end coverage for risks such as the liability for pollution clean-up.
But the insurance industry says the suit should be killed prior to a trial because it is immune from such antitrust claims. In 1945, Congress in the McCarran-Ferguson Act exempted insurers from the antitrust laws on the theory that cooperation and regulation, rather than pure competition, would create a stable industry. So long as the insurers did not engage in “boycott, coercion or intimidation,” they could not be sued for exchanging information, the law said.
A federal judge in San Francisco initially threw out the suit, but last year the U.S. 9th Circuit Court of Appeals revived it and said the case should go to trial. According to the appeals court, domestic insurers lose their antitrust immunity when they work with foreign firms. In addition, the court said their plans to stop selling some types of coverage, if true, represent an illegal boycott.
Appealing to the Supreme Court, lawyers for the insurers said this decision has left the industry “in a state of paralyzing uncertainty.” On Monday, the justices said they will hear arguments early next year in the case of Hartford Fire vs. California.
In other business, the court agreed to decide whether accountants, lawyers and actuaries can be forced to pay damages to retirees if their advice leads to the under-funding of a pension plan. The dispute arose over the pension plan of Kaiser Steel Corp., a plan that was taken over by the federal Pension Benefit Guaranty Corp.
Federal law allows beneficiaries to sue a plan’s administrators as fiduciaries. But the courts are split over whether non-fiduciaries, such as accountants, can also be held liable. The case of Mertens vs. Hewitt Associates will be heard early next year, with a ruling due by next July.
Meanwhile, the court rejected two challenges to California business regulations.
A series of foreign-owned companies with operations in California contended that the state’s “unitary tax” scheme forced them to pay more than their fair share of taxes. The Bush Administration agreed and urged the justices to hear the appeal.
But without comment, the case of Barclays Bank vs. Franchise Tax Board was dismissed. Had the court taken the case and ruled for the multinational firms, the state could have been forced to refund $792 million in taxes.
The justices also refused to hear a challenge to Proposition 65, the state measure that requires consumers to be warned of their possible exposure to cancer-causing agents.
Lawyers for manufacturers contended that federal laws regulating pesticides and other hazardous substances preempted similar state laws. The federal courts in California disagreed, as did the high court in Chemical Specialties Manfacturers Assn. vs. Allenby.
RELATED STORY: A8
