Supreme Court Clears Way for Antitrust Suit Against Insurers : Boycott: But it also blunted a ruling that would have weakened a crucial federal exemption for the industry.
In an anxiously awaited decision, the U.S. Supreme Court voted 5 to 4 on Monday to let a trial go forward in San Francisco on a massive antitrust lawsuit charging several large insurance industry players with conspiring to scale back coverage for pollution damage and other costly incidents.
But in an accompanying 5-4 opinion that pleased the industry, the court blunted an appeals court ruling that would have weakened the industry’s historic exemption from federal antitrust laws. The exemption, created by the 1945 McCarran-Ferguson Act, was meant to allow insurers to share information about risks in order to set realistic prices and create a stable market.
The 1988 lawsuit, brought by California and 18 other states, accuses four U.S. insurance giants--aided by brokers, international reinsurance firms and an important trade group--of trying to coerce the rest of the industry to sharply limit the scope of “commercial general liability” coverage.
Municipalities and businesses buy such coverage to protect themselves against lawsuits arising from personal injuries or property damage caused by toxic waste pollution, asbestos and other hazards. During the “liability crisis” of the mid-1980s, such coverage became either unavailable or prohibitively expensive for many communities and businesses.
The attorneys general charge that part of the reason for the scarcity and high prices was the conspiracy, which they said was by led by Hartford Fire Insurance Co., Aetna Casualty & Surety Co., Allstate Insurance Co. and Cigna Corp. The states contend that the plot amounted to an illegal boycott--specifically barred by McCarran-Ferguson--because the four banded together with international market participants to force their will on U.S. competitors.
The split ruling partially upholds the appeals court in affirming that McCarran-Ferguson does not protect insurers from prosecution for boycotts or certain other kinds of coercive behavior. The trial will determine whether the behavior alleged in the lawsuit constituted such a boycott.
The court also ruled that foreign companies may be sued under U.S. antitrust laws.
Michael Strumwasser, a lawyer who represents Insurance Commissioner John Garamendi, said Monday’s ruling is significant because it provides a way to prevent industry giants from trampling on the rest of the industry.
If the big players were allowed to get away with limiting commercial general liability coverage, Strumwasser said, “who knows what they’d decide not to write next--fire insurance in California, hurricane insurance in Florida?”
But Hartford’s corporate parent, ITT Hartford, called the decision a “substantial victory upholding the original intent” of McCarran-Ferguson. “Even though the Supreme Court did not dismiss the case in its entirety, it narrowed the case substantially,” the company said. A disappointed Robert Hunter, head of the National Insurance Consumer Organization, reluctantly agreed. “Basically, the court said there’s a very narrow eye of the needle that the attorneys general will have to pass through in order to prove a boycott,” he said.
Garamendi said in a statement, “The federal antitrust immunity continues to impede the competitive market and to confound the courts, as today’s intricate web of 5-4 decisions shows.” He said the solution is for Congress to repeal McCarran-Ferguson, a call that was echoed Monday by Sen. Howard H. Metzenbaum (D-Ohio).
“Although today’s decision will put a stop to the most blatant insurer boycotts . . . the insurance industry will still be able to collude on the prices and terms of coverage regardless of how much it costs consumers,” Metzenbaum said.
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