Uniforce Temporary Personnel, Inc. v. National Council on Compensation Insurance

United States Court of Appeals,

Eleventh Circuit.

No. 95-4589.

UNIFORCE TEMPORARY PERSONNEL, INC., Uniforce Services, Inc.,

Plaintiffs-Appellants,

v.

NATIONAL COUNCIL ON COMPENSATION INSURANCE, INC., a Florida not

for profit corporation, National Council on Compensation Insurance,

an unincorporated business entity, National Workers' Compensation

Reinsurance Pool, an unincorporated business entity, Does 1-3,

Defendants-Appellees,

Liberty Mutual Insurance Company, Travelers Insurance Company,

Insurance Company of North America, Defendants-Appellees.

July 18, 1996.

Appeal from the United States District Court for the Southern

District of Florida. (No. 94-8343-CIV-KLR), Kenneth L. Ryskamp,

Judge.

Before HATCHETT and BLACK, Circuit Judges, and CLARK, Senior

Circuit Judge.

HATCHETT, Circuit Judge.

This appeal presents the issue of whether certain business

practices in the insurance industry limit competition in the

temporary help industry through monopolization or constitute an

agreement in restraint of trade in violation of the Sherman Act.

We affirm the district court's ruling that the business practices

employed in this case do not violate the Sherman Act.

BACKGROUND

Uniforce Temporary Personnel, Inc. and Uniforce Services, Inc.

(collectively Uniforce) engage in the business of providing

temporary employees for other businesses. In order for Uniforce to

place its employees with businesses, Uniforce must first obtain

workers compensation insurance. Generally, businesses can obtain

workers compensation insurance for their employees through one of

three markets: (1) the voluntary market, (2) the self-insurance

market, and (3) the "assigned risk" or residual market. Uniforce,

however, only qualifies for workers compensation insurance from the

residual market. The insurance industry calls such workers

compensation policies "assigned risk" policies.

Policyholders of "assigned risk" policies pay higher insurance

premiums than policyholders of policies obtained through the

voluntary or self-insurance market. The premiums are higher

because of the combined loss experience of the insurance carriers

in the residual market and because these carriers oftentimes

contract their duties under the "assigned risk" policies to other

insurance carriers called "servicing carriers." These servicing

carriers draft the "assigned risk" policies, collect the premiums,

provide loss control services, and perform other services required

of a worker's compensation carrier. In return for these services,

the insurer pays substantial servicing fees.

PROCEDURAL HISTORY

On June 15, 1994, Uniforce filed this lawsuit against the

National Council on Compensation Insurance, Inc. (NCCI), the

National Workers Compensation Reinsurance Pool (the pool), and

insurance companies Liberty Mutual Insurance Company, Travelers

Insurance Company, and Insurance Company of North America

(collectively insurance carriers), alleging that their business

practices in the insurance industry limit competition in the

temporary help industry through monopolization of the

administration of workers compensation insurance and price fixing

in violation of 15 U.S.C. § 2 of the Sherman Act.

In its complaint, Uniforce also alleges that NCCI, the pool,

and the insurance carriers' conduct constitutes an agreement in

restraint of trade including a conspiracy to restrain the temporary

help industry in violation of 15 U.S.C. § 1 of the Sherman Act.1

In addition, Uniforce sought a declaratory judgment on the issue of

whether NCCI and the pool are insurance carriers and a judgment

declaring the state that has overall responsibility for regulating

and supervising the business of NCCI and the pool as it affects the

temporary help industry.

Prior to discovery, NCCI, the pool, and insurance carriers

(hereinafter appellees) moved for summary judgment on the grounds

that: 1) the McCarran-Ferguson Act bars Uniforce's federal

antitrust claims because the alleged activity involves the business

of insurance; and 2) Uniforce fails to state a claim under the

Sherman Act. The district court granted summary judgment on each

of Uniforce's claims.2

CONTENTIONS

Uniforce contends that the McCarran-Ferguson Act's bar on

antitrust claims involving the business of insurance does not apply

in this case because the appellees' rate-making, classification and

1

Uniforce also alleged that the rules under which assigned

risk policies operate constitute a violation of equal protection

and due process rights. Uniforce, however, does not appeal the

district court's ruling as to this claim.

2

The district court also found that the file rate and Noer-

Pennington doctrines also barred Uniforce's antitrust claims.

Because we find that the McCarran-Ferguson Act bars Uniforce's

claims, we do not address the district court's alternative

grounds for granting summary judgment.

allocation of risk, and other activities involving the

administration of workers compensation insurance concern the

"business of insurers" and not the "business of insurance." In the

alternative, Uniforce contends that its antitrust claims fall

within the "boycott" exception to the McCarran-Ferguson Act's bar

on antitrust claims. Uniforce also contends that the district

court erred in concluding that it failed to state a claim under the

Sherman Act merely because appellees do not compete in the

temporary help industry.

Appellees contend that the activities Uniforce complains of

fall squarely within the meaning of "the business of insurance."

Appellees also contend that Uniforce fails to allege facts

sufficient to constitute a boycott within the meaning of the

McCarran-Ferguson Act and therefore assert that the McCarran-

Ferguson Act bars Uniforce's antitrust claims. Finally, even

assuming that the McCarran-Ferguson Act does not bar Uniforce's

claims, the appellees contend that their practices in the insurance

industry could not violate the Sherman Act in this action because

they do not compete in the temporary help industry.

ISSUES

We address two issues on appeal: 1) whether the McCarran-

Ferguson Act bars antitrust claims involving rate-making practices

in the insurance industry; and 2) whether a competitive

relationship must exist between parties in order to assert a viable

claim under the Sherman Act.

DISCUSSION

We review the district court's grant of summary judgment de

novo and apply the same legal standards that bound the district

court in rendering its decision. Canadyne-Georgia Corp. v.

Continental Ins. Co., 999 F.2d 1547, 1554 (11th Cir.1993).

A. The McCarran-Ferguson Act

The McCarran-Ferguson Act exempts the business of insurance

from antitrust laws if: 1) state law regulates such activity; and

2) the complained of activity does not constitute a "boycott." 15

U.S.C. §§ 1011, 1012, 1013(b) (1988). The McCarran-Ferguson Act

provides in pertinent part:

Congress hereby declares that the continued regulation and

taxation by the several States of the business of insurance is

in the public interest, and that silence on the part of the

Congress shall not be construed to impose any barrier to the

regulation or taxation of such business by the several States.

15 U.S.C. § 1011 (1988). The McCarran-Ferguson Act further

provides that "[n]o Act of Congress shall be construed to

invalidate, impair, or supersede any law enacted by any State for

the purpose of regulating the business of insurance, or which

imposes a fee or tax upon such business, unless such Act

specifically relates to the business of insurance...." 15 U.S.C.

§ 1012(b) (1988).

Uniforce concedes that the McCarran-Ferguson Act exempts

conduct involving the business of insurance in most instances, but

argues that the McCarran-Ferguson Act does not apply to its

antitrust claims because they involve the "business of insurers,"

and not the business of insurance.3 Uniforce defines the business

3

Uniforce also concedes that the states in question regulate

the appellees' activities in the insurance industry. Uniforce,

however, characterizes the states' regulation of the appellees'

activities as superficial. Because Uniforce has failed to submit

any affidavits from state officials supporting its conclusion, we

of insurers as "the manipulation of the cost of workers

compensation insurance" through the classification and allocation

of risk and the contracting of the insurers' duties under the

"assigned risk" policy to servicing carriers. Employing this

definition, Uniforce claims that the appellees' activities create

and impose unreasonable premiums for "assigned risk" policies while

depriving the temporary employment industry of access to the

voluntary market.

Simply put, Uniforce's antitrust claims center on the

appellees' rate-making activity. We therefore must determine

whether appellees' rate-making activity falls within the business

of insurance for purposes of the McCarran-Ferguson Act. Courts

make three inquiries when determining whether the practice

complained of constitutes the business of insurance:

first, whether the practice has the effect of transferring or

spreading a policyholder's risk; second, whether the practice

is an integral part of the policy relationship between the

insurer and the insured; and third, whether the practice is

limited to entities within the insurance industry.

Union Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S.Ct. 3002,

3004, 73 L.Ed.2d 647 (1982). In this case, we find that appellees'

rate-making activity satisfies each of these criterion. First, in

computing the premium for the "assigned risk" policies, appellees

combine the loss experiences of insurance carriers in the residual

market and in effect spread the policyholder's risk. Second,

appellees' rate-making activity produces the premiums for the

"assigned risk" policies and this premium is an integral part of

conclude that the states in question sufficiently regulate the

appellees' activities.

the policy relationship between the insurer and the insured.

Third, the appellees' rate-making activity is limited to entities

4

within the insurance industry. Thus, appellees' rate-making

activity clearly constitutes the business of insurance for purposes

of the McCarran-Ferguson Act. See also Group Life & Health Ins.

Co. v. Royal Drug Co., 440 U.S. 205, 224, 99 S.Ct. 1067, 1080, 59

L.Ed.2d 261 (1979) ("the fixing of insurance rates is the "business

of insurance' ").

In the alternative, Uniforce argues that appellees' conduct

falls within the "boycott" exception to the McCarran-Ferguson Act's

antitrust exemption. Specifically, Uniforce alleges that appellees

have conspired to "boycott, coerce, and intimidate" it and other

temporary help companies to deprive the temporary help industry of

access to the voluntary market for workers compensation insurance.

Uniforce therefore argues that the McCarran-Ferguson Act does not

entitle the appellees to immunity from its antitrust claims. In

response, the appellees argue that the "boycott" exception cannot

apply in this case because Uniforce's antitrust claims do not

involve allegations of a "refusal to deal." We agree.

The McCarran-Ferguson Act provides in pertinent part:

"Nothing contained in this chapter shall render the said Sherman

Act inapplicable to any agreement to boycott, coerce, or

intimidate, or act of boycott, coercion, or intimidation." 15

4

Uniforce urges this court to reach a different conclusion

merely because appellees NCCI and the pool are not insurance

companies. We reject this argument noting that our review

requires us to examine whether the practice complained of is

limited to "entities within the insurance industry" and does not

require that these entities be insurance companies.

U.S.C. § 1013(b) (1988). For purposes of the McCarran-Ferguson

Act, the Supreme Court defines a "boycott" as the refusal to deal

in a collateral transaction as a means to coerce terms respecting

a primary transaction. Hartford Fire Ins. v. California, 509 U.S.

764, ----, 113 S.Ct. 2891, 2912-13, 125 L.Ed.2d 612 (1993) ("It is

the refusal to deal beyond the targeted transaction that gives the

great coercive force to a commercial boycott"). In this case, the

primary transaction concerns the purchase of workers compensation

insurance. Uniforce does not allege that appellee refused to deal

with it in a collateral transaction—i.e., the purchase of health

insurance—in an attempt to coerce the terms of its purchase of

workers compensation insurance. Consequently, we conclude that the

alleged acts do not constitute a "boycott" within the meaning of

the McCarran-Ferguson Act. Accordingly, we hold that the McCarran-

Ferguson Act bars Uniforce's antitrust claims against the

appellees.

B. The Sherman Act

Even assuming that the McCarran-Ferguson Act does not bar

Uniforce's federal antitrust claims, its claims fail as a matter of

law. In its complaint, Uniforce alleges that appellees'

rate-making activity in the insurance industry limits competition

in the temporary help industry and thereby violates section 2 of

the Sherman Act. Section 2 of the Sherman Act provides:

Every person who shall monopolize, or attempt to monopolize,

or combine or conspire with any other person or persons, to

monopolize any part of the trade or commerce among the several

States ... shall be deemed guilty of a felony, and, on

conviction thereof, shall be punished by fine not exceeding

one million dollars....

15 U.S.C. § 2 (1988). This court noted that monopolization within

the meaning of the Sherman Act "by its terms, applies in a

situation where there is competition and competitors." Ad-Vantage

Telephone Directory Consultants v. GTE Directories Corp., 849 F.2d

1336, 1348 (11th Cir.1987). In Ad-Vantage Telephone Directory, we

held that "[i]n order to demonstrate "an area of effective

competition' one must [first] establish a competitive

relationship." Ad-Vantage Telephone Directory, 849 F.2d at 1348-

49. In this case, Uniforce cannot demonstrate that a competitive

relationship exists between it and the appellees because the

appellees do not compete in the temporary help business. Uniforce

also cannot demonstrate a competitive relationship between the

insurance industry and the temporary help industry. Uniforce

counter-argues that it has standing under section 2 of the Sherman

Act as a consumer of the appellees' product and services to

challenge appellees' rate-making activities. We, however, do not

reach the standing issue because Uniforce fails as a matter of law

to state a claim under the Sherman Act. Accordingly, we affirm the

district court's grant of summary judgment for failure to state a

claim for which relief can be granted.

CONCLUSION

For the reasons stated above, we hold that the McCarran-

Ferguson Act bars Uniforce's antitrust claims. Accordingly, we

affirm the district court's grant of summary judgment in favor of

the appellees on each of Uniforce's claims.

AFFIRMED.