Petition — Proctor v. State Farm Mutual Automobile Insurance
Supreme Court brief1979
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IN THE
Supreme Court of the United States
OctToBer TerM, 1977
No. 77" 580
Purtur M. Proctor, et aAL., Petitioners
We
StaTE FarM MutvaL AUTOMOBILE
INSURANCE COMPANY, ET AL., Respondents
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR
THE DISTRICT OF COLUMBIA CIRCUIT
Jerry S. COHEN
Micnraet D. HAvusFELD
Koun, Miisterin & COHEN
1776 K Street, N.W.
Washi .gton, D.C. 20006
Attorneys for Petitioners
— ——
Pugess of Braon S. ADAMS PRINTING, INC., WasHineton, D.C,
=
INDEX TO BRIEF
Page
SN ED ‘oc dicceakiecetdekesbccenadcsnanas 1
SED nsavccbedddenketkendsbeeendeeensdseee 2
GURSTIENS THO ccccccrccecccccccessvccsvcecs 2
Statutory Provisions INVOLVED ..........0eeeeeeee: 3
IS Ge nc kk Vaks b Cha en be tks 660k sen ees 4
Reasons ror GRANTING THE WRIT ...........2+000005 8
I. On An Important Question of Federal Law, the
Decision of the District of Columbia Cireunit
Court of Appeals Is In Direct Conflict With a
DOU. GE Tee GOD ick cx.ncccvencécccseoss 8
II. The Decision of the Di®rict of Columbia Court
of Appeals So Far Departs from the Accepted
and Usual Course of Judicial Conduct Involving
an Important Issue as to Call for this Court’s
Jurisdiction and is Inconsistent with other De-
ee, Ge Ge ES 9 kc abnndcacesneatacseces 13
Nn de dss odetekien eke daeseniees 17
EEO OEE FEE IRE ROOT ARE ED la
_--
ii AUTHORITIES
CASES: Page
American Family Life Insurance Co. v. Planned Mar-
keting Associates, 389 F. Supp. 1141 (E.D.Va.
Se Sadnesenacncsdpurenuus ues caeeeeseetiaes 12
Anderson v. Medical Service, 1976 Trade Cas. 60,884
{' eS. YO Rrra ee 12
Battle v. Liberty National Life Insurance Co., 493 F.2d
Oo (Sth Cir. 1974), cert. denied, 419 U.S, 1110
[EY -aaienilebceiiwd aden oa dec tae dees 12
California v. FPC, 369 U.S, 482, 82 S.Ct. 901, 8 L.Ed,
Sp We CUED 64040 ciSUees bees Uebead as beneeusue 11
DeVoto v. Pacific Fidelity Life Insurance Company,
354 . Supp. 847 (N.D. Cal. 1973) ...........6.. 12
Frankford ? al v. Blue Cross, 417 F. Supp. 1104
Fe eS ok Gx ode was eculecses bein bikak 12
Poller v, CBS, Ine., 368 U.S. 464 (1962) aehe wuda 2,13, 15
Royal Drug Co. v. Group Life & Health Insurance Co.,
419 Ff. Supp. 343, (W.D. Tex. 1976) ............. 12
Securitics and Exchange Commission v. National See-
urities, 393 US, 453, 89 S.Ct. 564 (1969) ....2, 8,9, 10
Travelers Insurance Co. v. Blue Gross, 481 F.2d 80, (3d
Cir, 1972), cert. denied, 114 U.S. 1093 (1973) ..... 12
U.S. v. Diebold, Ine., 369 U.S. 654 (1962) ......... 2,13, 15
U.S. v. First City National Bank, 386 U.S. 361, 87 S.Ct.
3 & 2) Ey ERP eee ey 11
U.S. v. MeKesson & Robbins, Ine., 351 U.S. 305, 76 S.Ct.
937, 100 L.Ed. 1200 (1966) ........cccccccccccces 11
—— inv. State Farm Mutual Automobile Ins. Co.,
Civ. No, 75-1799 (N.D. Cal., Sept. 16, 1976)
STATUTES:
The Sherman Act, Section 1, (15 U.S.C. 1)
The MeCarran-Ferguson Act, (15 U.S.C. 1011)
3
(15U.S.C.1012(a)).... 3
U.S.C, 1012(b)) .... 3
4
4
(15
(15 U.S.C, 1013(a))....
(15 U.S.C, 1013(b)) ....
PM ED nop cc ncuckduaieetobinceeneducus: 2
IN THE
Supreme Court of the United States
Ocroper TERM, 4977
No.
Puitur M,. Proctor, er Av., Petitioners
Vv.
State FarM MutrvaL AUTOMOBILE
INSURANCE COMPANY, ET AL., Respondents
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR
THE DISTRICT OF COLUMBIA CIRCUIT
Petitioners Phillip M. Proctor, et al. respectfully
pray that a Writ of Certiorari issue to review the
judgment and opinion of the United States Court of
Appeals for the District of Columbia Cireuit entered
in this proceeding on June 17, 1977, and the Order de-
nying Petitioners’ Motion for Rehearing and Sugges-
tion for Rehearing en banc entered on July 22, 1977.
OPINIONS BELOW
The Opinion of the Court of Appeals (App. 1a) ° is
reported at 1977-1 Trade Cases, {61,481 (C.A. D.C.
'** App.’’ refers to Appendix to this Petition.
2
1977). The Opinion of the United States District Court
for the District of Columbia (App. 33a) is reported at
406 F. Supp. 27 (D.D.C, 1975).
JURISDICTION
The judgment of the Court of Appeals for the Dis-
trict of Columbia Cireuit was entered on June 17,
1977. A timely Petition for Rehearing and Suggestion
for Rehearing en bane was denied on July 22, 1977, and
this Petition for Certiorari was filed within ninety
(90) days of that date. The jurisdiction of this Court
is invoked under 28 U.S.C, 1254 (1).
QUESTIONS PRESENTED
1. Whether, in light of this Court’s decision in SEC
v. National Securities, the MeCarran-Ferguson Act
exception to the federal antitrust laws can be read to
extend absolute immunity to insurance companies who
combine and conspire to fix prices of independent sup-
pliers.
2. Whether, in light of this Court’s decisions in
United States v. Dicbold, Inc. and Poller v. Columbia
Broadcasting System, Inc., the widespread and incon-
sistent recent use of summary judgments against
plaintiffs in complex antitrust cases is improper, and
more specifically, a deprivation of their Seventh
Amendment right to tria) by jury.
3
STATUTORY PROVISIONS INVOLVED
FEDERAL ANTITRUST LAWS
Section 1, Sherman Act
Every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or com-
merce among the several States, or with foreign na-
tions, is declared to be illegal: * * * (15 U.S.C. 1).
McCarran-Ferguson Act
Congress declares that the continued regulation and
taxation by the several States of the business of insur-
ance 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 busi-
ness by the several States (15 U.S.C. 1011).
(a) The business of insurance, and every person en-
gaged therein shall be subject to the laws of the several
States which relate to the regulation or taxation of
such business (15 U.S.C. 1012(a)).
(b) No Act of Congress shall be construed to invali-
date, 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, un-
less such Act specifically relates to the business of in-
surance: Provided, That after June 30, 1948, the Act
of July 2, 1890, as amended, known as the Sherman
Act, and the Act of October 15, 1914, as amended,
known as the Clayton Act, and the Act of September
26, 1914, known as the Federal Trade Commission Act,
as amended, shall be applicable to the business of in-
surance to the extent that such business is not regu-
lated by State law (15 U.S.C. 1012(b)).
* * * * * * * & ao o
+
(a) Until June 30, 1948, the Act of July 2, 1890, as
amended, known as the Sherman Act, and the Act of
October 15, 1914, as amended, known as the Clayton
Act, and the Act of September 26, 1914, known as the
Federal Trade Commission Act, and the Act of June
19, 1936, known as the Robinson-Patman Anti-Dis-
crimination Act, shall not apply to the business of in-
surance or to acts in the conduct thereof (15 U.S.C.
1013(a)).
(b) Nothing contained in this chapter shall render
the said Sherman Act inapplicable to any agreement
to boycott, coerce, or intimidate, or act of boycott, co-
ereion, or intimidation (15 U.S.C. 1013(b)).
STATEMENT OF FACTS
_- Petitioners are the owners and operators of inde-
pendent body shops, which businesses are engaged in
the repair of automobile material damage. ‘‘ Automo-
bile material damage”’ is any damage to an automobile
resulting from a collision, fire, or other peril for which
automobile property and physical damage insurance is
available.
The shop of Petitioner Phillip M. Proctor, d/b/a
Proctor Auto Service, is located in Altoona, Pennsyl-
vania; the shops of Petitioners William W. Cumming,
Jr., d/b/a Cumming Motors, Ine. and Richard T.
Hogg, d/b/a Dick Hogg, Ine. are located in the Greater
Philadelphia area; and Petitioner Old Dominion Body
Shop, Inc., was located in Alexandria, Virginia.
Respondent insurance companies sell, among other
forms of insurance, automobile p:operty and physical
damage insurance. Under the terms of their policies,
they agree to pay and/or reimburse insureds for the
i)
repair of automobile damage according to the terms of
the individual policies involved.
In approximately 1968 or early 1969, respondents
adopted a national policy with regaru to controlling
the cost of automobile damage claims. They embarked
upon a campaign in which the insurance company de-
termined the amount it would pay for auto damage
repairs, as opposed to negotiating an agreed price with
the body shop. Among the measures employed by the
companies to control their costs was the setting by the
companies of the hourly labor rate, the time allowed to
complete work and the prices and discounts to be paid
for parts used in repairs.
Inasmuch as labor rates consist of approximately 50
to 51 percent of the total outlay of repair costs, the
principal element of all insurance company cost se-
verity programs was directed at fixing and controlling
the hourly body shop labor rates. Respondent insur-
ance companies accomplished this by creating the fic-
tion of the ‘‘prevailing,’’ ‘‘going,’’ or ‘*competitive’’
hourly rate in a given area and directing their ap-
praisers and adjusters to calculate estimates only at
such rates. They then would pay to petitioners and
others similarly situated an amount for the repair of
an automobile computed at the fixed hourly rate.
All of the respondent insurance companies knew
the labor rate each was paying—the prevailing rate.
They knew that if they all did not act together, that
rate would rise if any one or more companies acceded
to an increase. If one or more companies agreed to
pay a rate higher than the prevailing rate, then those
companies would secure the better garages to do their
insureds’ repair work. This would cause customer dis-
6
satisfaction and create possible delays in the repairs
of the remaining companies’ insureds’ repair work.
No one company alone, acting independently, could
effectively control the labor rate. Each knew that uni-
form action was invited, anticipated and needed. Each
knew that cooperation was essential to the successful
*‘control”’ of the labor rate.
The prevailing or competitive hourly rate in each
area then, became the common formula to which all
respondents adhered in writing estimates. Respondents
are the joint arbitrators of the prevailing or competi-
tive rate in any given area. A body shop is not free to
adjust its labor rate to reflect its own costs or other
business judgments.
Respondent enforced this rate through the use of
various coercive tactics culminating ultimately in a
group boycott of those shops which failed to yield to
the coercive pressures.
Respondents established and utilized drive-in faeili-
ties to which they directed all their insureds to take
driveable vehicles for an estimate of damages. They
recognized that this was one of their best means of
controlling damage repair costs because the company
would be writing its own estimate of damages, utiliz-
ing the hourly rate fixed by the companies without
regard to the individual repair shop which ultimately
would have to repair the vel:icle. Drive-ins also enabled
companies to direct their insureds to take their ve-
hicles to the insurance company ‘‘back-up’’ shops.
Additionally, the companies compute the time to fix
or repair damaged parts by reference to set figures
contained in auto damage manuals. The manuals, how-
7
ever, state that the times cited therein are merely
guides or estimates to be used by the appraiser in
judging the actual time for repair after viewing the
damaged vehicle. The companies, however, have
adopted a uniform policy of using the ‘‘guide’’ times
as absolute, and do not deviate from such figures ex-
cept in extraordinary circumstances.
In order to insure the success of their formula, the
companies secured agreements, sometimes in writing
and sometimes orally, with ‘‘back-up’’, ‘‘captive’’,
‘‘preferred’’, ‘‘cooperative’’ or ‘‘competitive’’ shops,
wherein these shops agree to accept, in advance—sight
unseen—estimates written by the companies at prices
and labor rates fixed by them.
Respondents fostered use of such shops through
their drive-in facilities in which, as stated previously,
they were able to direct the insured to such shops.
Approximately 90 per cent of all body shop repairs
are insurance related.
If independent body shops such as petitioners re-
fused to accede to respondents’ fixed estimates, they
were faced with losing the business to the back-up
shops. The independent shop was placed in the posi-
tion of ‘‘‘take-it-or-leave-it’’—accept our figure or go
out of business.
It is the combination and conspiracy by respondent
insurance companies to establish and fix the hourly
labor rates to be paid to petitioners and other shops
similarly situated which is the heart of this case.
8
REASONS FOR GRANTING THE WRIT
I. On An Important Question of Federal Law, the Decision of
the District of Columbia Circuit Court of Appeals Is In Direct
Conflict With a Decision of this Court.
The landmark case interpreting the meaning of the
‘*business of insurance’’ within the MceCarran-Fergu-
son Act is Securities and Exchange Commission V.
National Securities, 393 U.S. 453, 89 S. Ct. 564 (1969).
There, after a recitation of the history of the Act, the
Supreme Court cone'ided that:
‘‘The statute did not purport to make the States
supreme in regulating all the activities of insur-
ance companies; its language refers not to the per-
sons or companies who are subject to state regu-
lation, but to laws ‘regulating the business of in-
surance.” Insurance companies may do many
things which are subject to paramount federal
reguiation; only when they are engaged in the
business of insurance, does the statute apply.”’
Id. at 459-60.
The Supreme Court then proceeded to designate
those areas which are clearly the business of insurance.
The Court stated:
‘*Certainly the fixing of rates is part of this busi-
ness; that is what Southeastern Underwriters was
all about. The selling and advertising of policies,
. and the licensing of companies and their
agents, are also within the scope of the statute.
Congress was concerned with the type of state reg-
ulation that centers around the contract of insur-
ance, the transaction which Paul v. Virginia held
was not commerce.’’ SEC v. National Securities,
393 U.S. at 460.
The Court continued:
“The relationship between insurer and insured,
tle type of policy which could be issued, its relia-
bility, its interpretation—these were the core of
the ‘business of insurance.’ ’’ Id.
Where the above activities have been present, Courts
of Appeals and District Courts have had few prob-
lems in determining the purview of the MeCarran-
Ferguson exception. The troublesome area has resulted
from the additional statement the Supreme Court
made in National Securities:
‘*‘Undoubtedly, other activities of the insurance
companies relate so closely to their status as reli-
able insurers, that they too must be placed in the
same class.” Id.
This case falls within that category.
It is because of the judicial confusion and conflict-
ing decisional law that has been spawned by this lan-
guage that petitioners contend that clarification by
this Court is both appropriate and necessary. Peti-
tioners also respectfully submit that the instant case
provides an appropriate vehicle for such clarification ;
the Court below analyzed and interpreted the relevant
portion of this Court’s National Securities decision in
a much more expansive fashion than can be found in
any other reported decision.
The Court cf Appeals below held that a combina-
tion and conspiracy between automobile insurance
companies to fix the hourly rates they will pay to body
shops supplying service to their insureds is immune
to antitrust attack because it relates so closely to their
10
status as reliable insurers.' Neither Congress nor the
Supreme Court in National Securities, supra, indi-
eated or intended such breadth to the ‘‘business of in-
surance’? provision of the MeCarran-Ferguson excep-
tion.
Certainly fixing prices to be paid to suppliers and
hoyeotting those that do not comply is not the business
of insurance as that term is commonly understood.
Indeed, the Supreme Court concluded its discussion
of the term ‘business of insurance”’ in National Se-
curities, supra, by stating:
‘*But whatever the exact scope of the statutory term,
it is clear where the focus was—it was on the re-
lationship between the insurance company and the
policy-holder—statutes aimed at protecting or reg-
ulating this relationship, direetly or indirectly,
are laws regulating the ‘business of insurance’.”’
Id. at 460.
In this case it is unchallenged that none of the fol-
lowing activities were involved in the conspiracy—the
fixing of rates, the selling and advertising of policies,
and the licensing of companies and their agents. Nor
is it alleged that this price fixing conspiracy focused
in any way on the relationship between the insurance
companies and their policy holders. The policies in-
volved simply agree to compensate the insured for
damages to his automobile after a specified amount has
‘ Paradoxically, one of the respondent insurance companies herein
filed a counterclaim alleging that the body shops were fixing the
labor rates they would charge to the respondent insurance com-
panies, If in fact petitioners were to fix the prices which they would
charge insureds to perform repair work, that would be an obvious
violation of the Sherman Act. However, t.> import of the Court of
Appeals decision is that the insurance companies are immune from
engaging in the same per se violations of the antitrust laws for
which the body shops would be liable.
11
heen deducted. The obligation of respondent insurance
companies under their contracts with insureds is not
to secure services for such insureds at prices commen-
surate with sums offered by insureds; rather, it is to
pay for body shop work and other repairs at prices set
hy a competitive market place.
This cease concerns both a vertical and horizontal
scheme—horizontal between the insurance companies
involved, and vertical, between them and captive shops
—to fix the prevailing labor rate that they will pay on
behalf of their insureds for auto body repair work.
The purpose of the vertical arrangements with favored
shops Was not to secure repair services at prices com-
mensurate with the sums offered by respondents.
Rather they were designed to interfere with normal
competitive conditions and to substitute prices fixed
bv respondents, rather than competition, regardless
of the quality of the work involved.
Nor are petitioners challenging the claims practices
in which respondents are involved. Rather, they are
charging a horizontal agreement between insurance
companies and captive shops to set a prevailing labor
rate. No amount of legal rationalization or sophistry
can turn such an illegal price fixing arrangement into
the business of insurance.
As this Court has emphasized, exemptions to the
antitrust laws are to be narrowly construed. U.S. v.
First City National Bank, 386 U.S. 361, 87 S.Ct. 1088,
18 L.Ed. 2d 151 (1967); California v. FPC, 369 U.S.
482, 82 S.Ct. 901, 8 L.Ed. 2d 54 (1962) ; U.S. v. McKes-
son & Robbins, Inc., 351 U.S. 305, 76 S.Ct. 937, 100
L.Ed. 1209 (1956). But even the broadest construc-
tion will not bring into the ambit of the business of
12
insurance a bald agreement to fix the labor rate which
respondents will accept in body shop estimates involv-
ing work done on insured’s automobiles and to boy-
cott those who will not agree to write estimates at such
rates,
As to the confusion arising within the Federal judi-
cial system regarding the interpretation of the above
quoted excerpts of this Court’s opinion in SEC v.
National Securities, supra, compare the cases cited by
the Court below: Royal Drug Co. v. Group Life &
Hlealth Insurance Co., 419 F. Supp. 343, 347-48 (W.D.
Tex. 1976); Workman v. State Farm Mutual Automo-
bile Ins. Co,, Civ. No. 75-1799 (N.D. Cal., Sept. 16,
1976); Frankford Hospital v. Blue Cross, 417 F. Supp.
1104 (E.D. Pa., 1976); Anderson v. Medical Service,
1976 Trade Cas, 160,884 (E.D. Va. Feb. 10, 1976);
Travelers Insurance Co, v. Blue Cross, 481 F.2d 80,
82-83 (3d Cir. 1972), cert. denied, 414 U.S. 1093 (1973) ;
American Family Life Insurance Co. v. Planned Mar-
keting Associates, 389 F.Supp. 1141 (F.D.Va,. 1974) ;
DeVoto v. Pacific Fidelity Life Insurance Company,
354 F.Supp. 847 (N.D. Cal. 1973) and Battle vy. Lib-
erty National Life Insurance Co., 493 F.2d 39, 51 (5th
Cir. 1974), cert. denied, 419 U.S. 1110 (1975).
It is essential, therefore, that this Court decide this
important question of antitrust law. The antitrust in-
sulation for insurance companies established by the
Court of Appeals carries the ‘‘business of insurance”’
eoncept farther than any other Circuit has gone to
date. It extends antitrust immunity to insurance com-
panies for price fixing practices which in no way af-
fect their relationship with insur.ds and into an area
where only third party suppliers of service and in-
13
sureds should properly and legally be involved, In
effect, the ‘business of insurance’’ concept has been
extended to include business relationships to which the
insurance companies are not appropriate parties. This
is contrary to the purpose and intent of the MeCarran-
Ferguson Act and conflicts with the decision of this
Court in SEC v. National Securities, supra.
Il. The Decision of the District of Columbia Court of Appeals
So Far Departs from the Accepted and Usual Course of Judicial
Conduct Involving an Important Issue as to Call for this Court's
Jurisdiction and is Inconsistent with other Decisions of this
Court.
In Poller v. CBS, Ine., 368 U.S. 464, 473 (1962), this
Court cautioned against oe summary judgments
in antitrust eases by drawing inferences from the evi-
dence which should have been reserved for the jury.
In U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962),
this Court also stated that in considering a summary
judgment motion, it was the job of the various Federal
courts to put the best face possible on the evidence from
appellees’ point of view. However, despite Poller and
Diebold, federal courts have in recent years been in-
creasingly granting and affirming summary judgment
motions for defendants in complex antitrust litigation.
Petitioners respectfully submit that given the
course of the recent decisional law, the time has come
for this Court to reaffirm Poller and Diebold.
This case presents a particularly good vehicle for
the Court to do this. Not only were a mass of disputed
facts left entirely unresolved without either a hearing
or even oral arguments being allowed on the motion;
in affirming the District Court’s granting of summary
14
judgment, the Court of Appeals, despite its finding
that the Distriet Court applied the wrong rule of law
to the question of hoyeott, coercion and intimidation,’
conchided that respondents did not come forward with
sufficient evidentiary support for their allegation of a
boveott to justify a full trial on the merits of that
claim."
If the decision helow stands, it means in effect that
appellants from district court decisions in cases such
as this must in fact try their case to courts of appeals
instead of toa jury. In substituting trial by appeal brief
for trial by jury, it usurps the appropriate function
of the jury as the final arbiter of facts, inferences to
he drawn therefrom, and the credibility of witnesses.
Indeed, here, the Court of Appeals accepted at face
value respondents’ statement of facts with all infer-
ences drawn in their favor.
*The arguments in the Distriet Court were primarily legal in
nature and related to the breadth of the MeCarran-Ferguson Act
exception, The Court of Appeals rejected the legal prineiples relied
on by the Distriet Court in granting summary judgment relating
to the breadth of the Act as it applies to boveott, coercion and
intimidation, It also vejected the statement of the Distriet Court
that:
The allegations of boyeott, coercion and intimidation do
not raise questions of material fact sufficient to preclude the
operation of Rule 55.'" (Emphasis added )
Nevertheless, the Court of Appeals determined on the basis of the
Appeal Briefs and pleadings that there were not sufficient facts on
the reeord to warrant submitting this case to a jury.
‘Contrary to the stated understanding of the Court of Appeals,
at the same time respondents filed their summary judgment motion
on the basis of the MeCarran-Ferguson Act in the Distriet Court,
they also filed a motion for summary jucement on the ground that
there was no genuine issue as to any material fact. That motion has
never heen determined by the District Court and remains open.
15
The decision below in addition to usurping a party’s
Seventh Amendment right to trial by jury, also emas-
culates both the letter and spirit of this Court’s Poller
and Dirhold decisions.
The weaknesses in the Court of Appeals’ decision
are succinetly set forth in the dissenting opinion of
Cirenit Judge Wright. He wrote:
The court, after rejecting the legal principles
relied on by the Distriet Court in granting sum-
mary judgment to appellees, analyzes the evidence
itself and comes to the same result. While the
temptation to avoid the jury trials in antitrust
causes is understandable, I would resist that temp-
tation in this case since I believe the evidence
offered by both sides on the motion for summary
judgment was sufficient to have a jury resolve, on
proper instructions, the issues raised relating to
the business of insurance, conspiracy, and boveott.
The Supreme Court has cautioned against affirm-
ing summary judgments in antitrust eases by
drawing inferences from the evidence that should
have been reserved for the jury. See, e.g., Poller
v. (BS, Inc., 368 U.S, 464, 473 (1962). This cau-
tion applies, in my judgment, with particular em-
phasis where the District Court has granted sum-
mary judgment after applying the wrong legal
principles to its appraisal of the evidence,
Most of the evidence offered by both sides on
appellees’ motion for summary judgment is fairly
outlined in the court’s opinion. On that evidence
a jury could reasonably have found, as appellants
suggest, that the conspiracy cousisted of an agree-
ment among appellee avtomobile insurers to gain
an advantage over their competitors by limiting
appellees’ cost of car repairs through boycott of
car repairmen. who refuse to make car repairs at
the dictated prices.
16
In addition, other evidence fairly shows that the
automobile repair industry is one marked by com-
petition as to both price and quality of service. It
would also support a finding that insurers were
concerned that poor service caused by paying too
low a rate for repairs would lead to dissatisfaction
among insureds. Accordingly, it is not unreason-
able to suggest, as appellants have done, that a
jury pl conclude that concerted action was
needed if appellee insurance companies were tu
achieve both low cost repairs and adequate ser-
viee, The record would also support a finding that
appellee insurance companies sought to attain that
objective by communicating among themselves on
such matters as the most effective use of the in-
surers’ drive-in claim service where claims would
he adjusted and checks drawn for presentation to
‘captive’? repair shops. In addition, there is evi-
dence that some insurers issued two-party settle-
ment checks naming as payees the insured and a
‘captive’? body shop. Obviously the effect of this
activity was to steer customers away from dis-
favored shops and would, in my opinion, justify a
finding of boycott, especially since such steering
would seem an integral part of effectuating the
insurers’ plan to direct volume business to their
‘captive’ shops, thereby putting price pressure on
independents.
By sketching the evidence favorable to appel-
lants, 1 do not mean to suggest that a reading of
hboyeott or conspiracy in restraint of trade is in-
evitable on the evidence in this case. Certainly the
pujority has a point in its observation that persons
acting independently might have an incentive to
adopt some of the elements of the claims adjust-
ment scheme adopted by the appellee insurers.* My
position, however, is simply that it is not the job of
this court to put the best s:ace possible on the
evidence from appellees’ point of view. Under the
17
law, on appellees’ motion for summary judgment
precisely the opposite approach is required. F..,
United States vy. Diebold, lune., 369 U.S. 654, 655
(1962). Under the proper standard, I submit, ap-
pellants tendered sufficient evidence to go to the
jury. (footnotes omitted )
This case involves the critical and basic question of a
right to jury trial as constitutionally guaranteed and
the appropriate function of the trier of fact and the
Appeals Court within the judicial system. Its resolu-
tion affeets the crux of judicial relationships and sets
the limits within which an Appellate Court can replace
the jury in determining factual disputes. It is impera-
tive that this Court reaffirm Poller and Diebold, and
definitively resolve these fundamental issues.
CONCLUSION
For these reasons, a Writ of Certiorari should issue
to review the Judgment and Opinion of the Court of
Appeals for the District of Columbia Circuit.
Respectfully submitted.
JERRY S. COHEN
MicHarL D. HAUSFELD
KouN, Mitstein & CoHEN
1776 K Street, N.W.
Washington, D.C. 20006
Attorneys for Petitioners
APPENDIX
la
APPENDIX
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 76-1183
Purp M. Proctor, d/b/a Proctor Auto Service,
ET AL., APPELLANTS
v.
State Farm Mutrvat AvTomMoBiLe
InsuRANCE COMPANY, ET AL.
Appeal from the United States District Court
for the District of Columbia
(Civil Action 249-72)
Argued October 22, 1976
Decided June 17, 1977
Before: Wricht, McGowan and MacKinnon, Circuit
Judges.
Opinion for the Court filed by Circwit Judge McGowan.
Dissenting Opinion filed by Circuit Judge Wricut.
2a
Opinion
McGowan, Cir. J.: Appellants, owners of four auto-
inobile repair shops, brought suit in the Distriet Court
alleging that the claims adjustment and settement prac-
tices of five automobile insurance companies involved
price-fixing and a group boycott in violation of section
1 of the Sherman Act, 15 U.S.C. §1. The District Court
granted summary judgment in favor of the insurance
companies, [1975-2 Trape Cases { 60,641] 406 F. Supp.
27 (DPD. D. C. 1975), on the basis of the MeCarran-Fer-
guson Act, 15 U.S.C. §§ 1011-1015, which confers broad
antitrust immunity upon the ‘‘business of insurance,’’ to
the extent such business is regulated by the state law.’ Al-
though the McCarran Act provides that the Sherman Act
shall remain applicable to ‘‘any agreement to boycott, co-
erce, or intimidate, [and to any] act of boycott, coercion, or
intimidation,’’* the District Court concluded that appel-
lants’ allegations were insufficient to satisfy this ‘‘ boycott
exeeption’’ to the McCarran Act’s antitrust exemption.
* Section 2(b) of the MeCarran-Ferguson Act (hereinafter some-
times referred to as the ‘‘MecCarran Act’’ or ‘‘the Act’’), 15
U.S.C. § 1012(b), provides in relevant part :
‘*(b) No 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 * * * unless such Act specifi-
cally relates to the business of insurance: Provided, That after
June 30, 1948, the Act of July 2, 1890, as amended, known as the
Sherman Act, and the Aet of October 15, 1914, as amended, known
as the Clayton Act, and the Act of September 26, 1914, known as
the Federal Trade Commission Act, as amended, shall be applicable
to the business of insurance to tue extent that such business is not
reguiated by State law.’’
* Section 3(b) of the MeCarran Act, 15 U.S.C. § 1013(b), states
in full:
‘*(b) Nothing contained in this chapver shall render the said
Sherman Act inapplicable to any agreement to boycott, coerce, or
intimidate, or act of boycott, coercion, or intimidation.’’
3a
On appeal the District Court’s decision is challenged
in two respects. Appellants assert, first, that the dis-
puted insurance company practices are not the ‘‘business
of insurance’’ within the meaning of the McCarran Act;
and, second, that material issues of fact precluding
summary judgment were raised under the boycott ex-
ception, properly construed. These questions are not free
from difficulty, given the rhetorical imprecisions of the
MeCarran Act. Although we cannot agree with all of the
District Court’s reasoning on the boycott issue, we affirm.
I.
[Automobile Repair Prices]
Appellants’ complaint charged that appellees had en-
gaged ix, a combination and conspiracy to (1) fix the prices
at which automobile repairs are made and, more specifi-
cally, the hourly labor rates paid to repair shops, the
time allowances for repair jobs, and the prices for parts
used in making repairs; (2) coerce and intimidate repair
shops to eomplete work for insured parties at the fixed
prices; and (3) boyeott shops, such as those owned by
appellants, which refused to accede to the fixed rates.*
‘The complaint also named as defendants two companies retained
by automobile insurance companies for the purpose of adjusting
and settling claims. Separate motions for summary judgment were
granted in favor of these two defendants, and the allegations
against them are not before us on this appeal.
In addition to themselves, appellants purported to sue on behalf
of a nationwide class consisting of approximately 9,200 repair shop
owners and operators. Although the District Court denied certifica-
tion of the class on March 26, 1974, and the propriety of that ruling
is not at issue in the instant appeal, the Automobitive Service
Councils, Ine.—a trade association representing the automobile
repair and service industry—has submitted a brief as amicus curiae,
urging reversal of the summary judgment awarded to appellees on
the basis of the MeCarran-Ferguson Act.
da
Treble damages and injunctive relief were requested pur-
suant to section 4 of the Clayton Act, 15 U.S.C. § 15.
After three vears of extensive discovery, a more refined
version of the price-fixing allegation emerged: appellants
asserted that the five insurance companies had entered
into a horizontal agreement to pay or reimburse their
polievhoders aecording to a common formula which in-
volved the ‘‘prevailing labor rate,’’ a standardized esti-
inate of the amount of labor required, and a compulsory
discount on parts. They characterized as the ‘‘core’’ of
their case the alleged combination and conspiraey to
utilize only the prevailing labor rate in adjusting and
settling claims. Although it was not contended that the
different insurance companies had in fact employed a
common hourly rate at all times,‘ or agreed to set the
hourly rate at a particular dollar amount, appellants
averred that the agreement to adhere to the prevailing
rate had the illegal purpose and effect of slowing down
legitimate inereases in the price of repairs.
[Boycott of Repair Shops}
Mlaborating somewhat on the claim of coercion and in-
timidation made in the complaint, appellants alleged that
the horizontal agreement was implemented through ‘‘ver-
tical arrangements’’ with ‘‘captive’’ or ‘‘preferred’’ re-
pair shops who, under economic pressure, committed
themselves to do repairs for insureds at the prevailing
labor rate. Appellants were able to add little to their
charge that appellees engaged in a group boycott of non-
‘Indeed, deposition testimony by appellant Hogg established
that, in the community in whieh his shop was located, two of the
insurance companies were using a labor rate of $8.00 per hour at the
same time that two of the other appellees were preparing damage
estimates on the basis of $9.00 per hour rate.
5a
cooperative shops, contending only that each insurance
company used drive-in claims facilities to set the amounts
to be paid on each claim and, in some cases, directed
insureds to preferred repair shops. It was not alleged
that appellees had circulated lists of shops to be black-
listed on the one hand or favored on the other, nor was it
argued that individual insurance companies had entered
into combinations or conspiracies with their policyholders
to boycott appellants’ shops.
Appellees moved for summary judgment on two
grounds; first, the asserted failure of appellants to adduce
any evidence in support of their charges of horizontal
agreement, and second, even assuming the truth of appel-
lants’ allegations, the immunity of the alleged practices
from the federal antitrust laws by virtue of the Me-
Carran-Ferguson Act. The District Court granted the
motions on December 18, 1975, relying primarily on the
second ground.
The court observed that the controverted practices, if
in fact indulged by the insurance companies, would be an
integral part of the claims adjustment and settlement
process and, as such, would qualify as the ‘‘business of
insurance’? within the meaning of the McCarran Act. The
court based this holding on its reading of the leading case
of SEC v. National Securities, Inc., 393 U.S. 453 (1969),
and, more specifically, on the following conclusion:
To conclude, the settlement and payment of damage
repair claims is (1) a basic part of the contractual
obligation owed by the insurance company the
insured, whether or not the payment is madé to the
insured or on his behalf, (2) directly affects the rate-
making structure of the insurance company and the
level of premiums to be charged, and (3) is con-
nected directly with the writing of the policy, its
interpretation and enforcement. The practices chal-
6a
lenged here are peculiar to the business of insurance
within the meaning of the McCarran Act.
406 F. Supp. at 30 (emphasis in original).* The court also
found that the challenged practices are regulated by state
law to the degree required to support an exemption from
federal law under the Act.*
Appellants’ attempt to avoid the MeCarran exemption
through allegations of boycott, coercion, and intimidation
was rejected on both factual and legal grounds. The court
concluded, first, that ‘‘the claims of dispute as to material
fact in this connection are vague and lack adequate record
suport.’ Second, and in the district judge’s assessment
‘‘perhaps more important,’’ the court held that even if
appellants’ charges were sufficiently documented, the boy-
cott exception would be inapplicable as a matter of law.
This latter holding was rested on a line of lower court
eases Which had given a narrow construction to the ex-
ception, reading it only to encompass blacklists of insur-
ance companies or agents by other insurance companies
or agents. /d. at 32, citing Transnational Insurance Co. v.
* Although omitted from this concluding paragraph, an addi-
tional proposition in support of the ‘‘ business of insurance’’ hold-
ing appeared carlier in the court's opinion:
‘'The way and method an insurance company discharges claims
under its policies relate closely to its status as a reliable insurer.”’
400 F. Supp. at 29.
*/d. at 30-31, One of the appellants does business in Virgifiia and
three in Pennsylvania. Accordingly, the District Court analyzed the
law of those states to determin» whether the state regulation re-
quirement was satisfied.
* Id. at 31. The court added:
‘There appears to be no collective refusal to deal with plaintiffs
since plaintiffs’ services were utilized throughout the period of this
* .t by persons insured by plaintiffs.’
id,
7a
Rosenlund {1967 Trapr Cases {] 72,025], 261 F. Supp. 12,
16-27 (D. Ore. 1966); Mitgang v. Western Title Insurance
Co., 1974-2 Trape Cases { 75,322, at 98,026 (N.D. Cal.
1974); Addrisi v. Equitable Life Assurance Society
[1974-2 Trape Cases § 75,274], 503 F.2d 725 (9th Cir.
1974), cert. denied, 420 U.S. 929 (1975); Meicler v. Aetna
Casualty & Surety Co. [1975-1 Trape Cases { 60,131), 506
F. 2d 732, 734 (Sth Cir. 1975), aff’g [1974-2 Trape Cases
" 75,414], 372 F. Supp. 509 (S. D. Tex. 1974).
Il.
[Business of Insurance]
We are in svbstantia! agreement with the District
Court’s reasoning on the ‘‘business of insurance’’ issue.
Our differences are essentially matters of emphasis, and
do not affect the ultimate conclusion that the practices
challenged by appellants fall within the statutory phrase.
As the District Court recognized, analysis must begin
with the Supreme Court’s decision in National Securities,
supra. In that case, the SEC brought suit against the
corporate owner of an insurance company, claiming that
misrepresentations in violation of Rule 10b-5 had been
made in connection with the merger of the subsidiary and
another insurance company. The Court held that state
laws aimed at protecting the interests of shareholders of
insurance companies do not regulate the ‘‘business of
insurance’’ as that term is used in the McCarran Act,
and that misrepresentations made to such shareholders
accordingly are not immunized from suit under the federal
securities laws. See 393 U.S. at 457-61.
In reaching this conclusion, the Court noted that the
internal legislative history of the McCarran Act offers
little guidance on the intended meaning of the words
‘*business of insurance.’’ Consequently, the Court relied
heavily on an analysis of the Act’s historical context,
which it described as follows:
8a
The MeCarran-Ferguson Act was passed in reaction
to this Court’s decision in United States v. South-
Eastern Underwriters Assn. (1944-1945 Trape Cases
157,253], 322 U.S. 5383 (1944). Prior to that decision,
it had been assumed, in the language of the leading
ease, that ‘‘[iJssuing a policy of insurance is not a
transaction of commerce.’’ Paul v. Virginia, 8 Wall.
168, 183 (1869). Consequently, regulation of insurance
transactions was thought to rest exclusively with the
States. In South-Eastern Underwriters, this Court
held that insurance transactions were subject to fed-
eral regulation under the Commerce Clause, and that
the antitrust laws, in particular, were applicable to
them. Congress reacted quickly. Even before the opin-
ion was announced, the House had passed a bill ex-
empting the insurance industry from the antitrust laws
90 Cong. Ree. 6565 (1944). Objection in the Senate
killed the bill, 90 Cong. Rec. 8054 (1944), but Congress
clearly remained concerned about the inroads the
Court’s decision might make on the tradition of state
regulation of insurance. The McCarran-Ferguson Act
was the product of this concern. Its purpose was stated
quite clearly in its first section; Congress declared that
‘‘the continued regulation and taxation by the several
States of the business of insurance is in the public
interest.’’ 59 Stat. 33 (1945), 15 U.S.C. §1011. As
this Court said shortly afterward, ‘‘[o]bviously Con-
gress’ purpose was broadly to give support to the
existing and future state systems for regulating and
taxing the business of insurance.’’ Prudential Insur-
ance Co. v. Benjamin, 328 U.S. 408, 429 (1946).
* * * Under the regime of Paul v. Virginia, supra,
States had a free hand in regulating the dealings
between insurers and their policyholders. Their nego-
tiations, and the contract whi-h resulted, were not
considered commerce and were, therefore, left to state
regulation. The South-Eastern Underwriters decision
9a
threatened the continued supremacy of the States in
this area. The MeCarran-Ferguson Act was an at-
tempt to turn back the clock, to assure that the
activities of insurance companies in dealing with their
policyholders would remain subject to state regula-
tion. As the House Report makes clear, ‘(ijt [was]
not t.e intention of Congress in the enactment of this
legislation to clothe the States with any power to
regulate or tax the business of insurance beyond that
which they had been held to possess prior to the
decision of the United States Supreme Court in the
South-Eastern Underwriters Association case.’’ H. R.
Rep. No. 143, 79th Cong., Ist Sess., 3 (1945).
Id. at 458-59.
In light of this history, the Court concluded that the
‘*business of insurance’’ was not intended to cover all of
the activities of insurance companies, but was meant only
to inelude activities centering around the insurance con-
tract and the relationship between the insurance company
and the policyholder, as well as other activities of insur-
ance companies that relate closely to their status as reli-
able insurers:
The statute did not purport to make the States su-
preme in regulating all the activities of insurance
companies; its language refers not to the persons or
companies who are subject to state regulation, but to
laws ‘‘regulating the business of insurance.’’ Insur-
ance companies may do many things which are subject —
to paramount federal regulation; only when they are
engaged in the ‘business of insurance’’ does the
statute apply. Certainly the fixing of rates is part of
this business; that is what South-Eastern Underwrit-
ers was all about. The selling and advertising of
policies, FTC v. National Casualty Co. [1958 Trave
Cases { 69,059], 357 U.S. 560 (1958), and the licens-
ing of companies and their agents, cf. Robertson v.
10a
California, 328 U.S. 440 (1946), are also within the
scope of the statute. Congress was concerned with
the type of state regulation that centers around the
contract of insurance, the transaction which Paul v.
Virginia held was not ‘‘commerce.’’ The relationship
between insurer and insured, the type of policy which
could be issued, its reliability, interpretation, and en-
forcement—these were the core of the ‘‘business of
insurance.’’ Undoubtedly, other activities of insurance
companies relate so closely to their status as reliable
insurers that they too must be placed in the same
class. But whatever the exact scope of the statutory
term, it is clear where the focus was—it was on the
relationship between the insurance company and the
policyholder. Statutes aimed at protecting or regu-
lating this relationship, directly or indirectly, are
laws regulating the “‘business of insurance.’’
Id. at 459-60 (emphasis on last five sentences supplied).
Applying this standard to the facts before us, we have
little doubt that what appellants have characterized as
the ‘‘core’’ of their case, the alleged horizontal agreement
to pay insureds’ claim on the basis of the prevailing labor
rate, as well as appellees’ supposed adherence to a com-
non formula to compute damage estimates, fits within
the ‘‘core’’ of the ‘‘business of insurance.’’ The es-
sence of the automobile insurance contract is the insurance
company’s agreement, in return for a premium, to make
payments to or on behalf of the policyholder for losses
arising out of the ownership, maintenance, or use of an
automobile. The determination by the insurance company
of the amount to be paid in discharge of this contractual
obligation is at the heart of the relationship between
insurer and insured, and is directly connected with the
reliability, interpretation, and enfo:cement of the insur-
ance contract.
lla
[Automobile Repair Business]
We have somewhat more difficulty with appellants’ alle-
gations of vertical arrangements with preferred shops
and a group boycott of non-cooperative shops.* With re-
spect to these latter practices, there is at least a surface
attraction to the argument pressed upon us by appellants,
that what is involved here is the business of automobile
repair rather than the business of insurance. Certainly, to
the extent that these practices involve direct relationships
between the insurance company and non-policyholders, and
are less clearly connected to the terms of the contract be-
tween the insurer and the insured, they are further from
the core of the business of insurance.
Nevertheless, National Securities suggests that activities
may be considered to fall within the business of insurance
if they affect the relationship between the company and the
policyholder ‘‘directly or indirectly.’’ See 393 U.S. at 460,
quoted on pp. 10-11 supra. The question is ultimately one
of line-drawing, based on the facts of the individual case.
And, of course, the fact that a practice may affect other
types of business is not dispositive of whether it is suffi-
ciently related to the business of insurance to come within
the *'~Carran Act’s protection.
In the circumstances of this case, we conclude that the
alleged agreements with preferred shops and the asserted
group boycott of non-cooperative shops are connected
closely enough to the contractual relationships between
appellees and their policy-ne'ders, and with reliability, in-
terpretation, and enforcement of those contracts, to qual-
ify as the business of insurance.’ See Royal Drug Co. v.
*Of course, notwithstanding the fact that appellants have cast
this set of allegations in terms of coercion, intimidation, and boy-
cott, were we to find that these practices are outside the scope of
the ‘‘business of insurance,’’ the McCarran Act would not shelter
them from the antitrust laws, and we would not need to reach the
question of the applicability of the boycott exception.
* The District Court’s characterization of the challenged conduct
l2a
Group Life & Health Insurance Co. (1976-2 Trape Cases
61,000], 419 F. Supp. 343, 347-48 (W.D. Tex. 1976)
(reaching similar conclusion with respect to agreements
between medical insurance company and ‘‘participating
pharmacies,’’ establishing terms of reimbursement to phar-
macies for drugs dispensed to policy-holders). By the very
terms of their allegations, appellants concede that these
practices stemmed solely from appellees’ desire to slow
the rate of increase in the claims payments required to sat-
isfy the companies’ contractual obligations to their policy-
holders.” Notwithstanding their effect on non-policy-hold-
ers, the activities unquestionably grow out of, and are tied
to, the claims adjustment and settlement process. The ar-
rangements with favored shops were designed to secure
repair services for insureds at prices commensurate with
the sums offered by the insurance companies in settlement
of their obligations; and the group boycott, if successfully
executed, would have prevented policyholders from using
repair shops at which those sums might not provide com-
pensation for repairs to the full extent guaranteed by the
insurance contract.
as ‘‘peculiar’’ to the business of insurance, see text accompanying
note 5 supra, is perhaps a helpful way of stating this conclusion.
See American Family Life Assurance Co. v. Planned Marketing
Assoc., Inc. [1975-1 TRADE CASES { 60,210], 389 F. Supp. 1141,
1145 (E.D. Va. 1974) (‘‘In National Securities the court held that
‘the business of insurance’ pertained to those activities peculiar to
the insurance industry.’’)
*°It is not contended that appellees’ effort to give business to
some shops, and take away business from other shops, was moti-
vated by reasons independent of the prices charged by those shops.
Nor is it alleged that appellees were trying to drive existing body
shops out of business in order to facilitate vertical integration by
insurance companies into the auto repai. industry. We therefore
need not decide whether the presence of such factors would have
placed the disputed activities outside the business of insurance.
13a
[Insurance Rates]
Of central significance in this entire context is the close
relationship between the cost of reimbursement damage
claims, on the one hand, and the insurance rates charged
by appellees, on the other."* Any doubt as to whether these
activities should be deemed to fall within the business of
insurance is ponderably eased by that economic reality.
Indeed, in a case involving similar activities, the Third
Cireuit concluded that the substantial impact on rates, in
and of itself, was sufficient to satisfy the statutory stand-
ard, based on the language in National Securities to the
effect that the business of insurance includes ‘‘other activi-
' The Distriet Court made the following finding:
‘* _ . elaims-settlement procedures have a direct connection with
an insuranee company's rate-making structure. The record ciearly
shows a close relationship between the costs of automobile repairs in
Pennsylvania and Virginia, the states where plaintiffs do business,
and the levels of premiums charged by defendants to its insureds.
It is a fact of life that the cost of repairs, including labor charges
and the cost of repair parts, paid in the settlement of damage
claims are an important factor in the ratemaking structure of in-
suranee companies obligated under their policies to pay damage
claims. Claims-settlement practices which include activities com-
plained of in this suit have a vital impact on ratemaking... .”’
406 I. Supp. at 29 (footnote omitted).
This finding was supported by undisputed affidavits submitted by
appellees, including an affidavit by State Farm’s Chief Actuary,
stating in relevant part:
. the costs incurred when the Company pays insureds or
third-party claimants comprise the largest single element in the
premium structure. In 1974 the amount paid to insureds or third-
party claimants to settle automobile physical damage claims in
Virginia and Pennsylvania represented approximately 67.7% of
total earned premiums allocated to physical damage coverages in
those states. Obviously, costs of this magnitude have a direct impact
on the premium levels charged for automobile insurance and the
financial stability of a company such as State Farm.’’
App. 100. More particularly, appellants themselves assert that labor
costs constitute over 50% of the insurance companies’ total outlays
for automobile repairs.
l4a
ties of insurance companies [which] relate so closely to
their status as reliable insurers. * Travelers Insurance Co.
v. Blue Cross (1973-1 Trape Cases J 74,596], 481 F. 2d 80,
82-83 (3d Cir.), cert. denied, 414 U.S. 1093 (1973), citing
National Securities, supra. 393 U.S. at 460. Although its
reasoning was somewhat different, the District Court in
the instant case also concluded that the vital impact of the
practices in question on the rate-making structure neces-
sarily meant that they should be included within the Con-
gressional concept of the business of insurance:
[The] activities complained of in this suit have a vital
impact on rate-making and must, of necessity, be in-
cluded within the term ‘‘business of insurance.’’
... The ‘‘business of insurance’’ can touch relation-
ships between insurance companies and non-policy
holders such as automobile repair shops when such
relationships are closely connected with the insurer-
insured relationship through the profound effect of
the costs of damage claims in the rate-making struc-
ture.
In the Travelers Insurance case, a private insurance company
brought suit against Blue Cross, claiming that Blue Cross had
violated §§ 1 and 2 of the Sherman Act by coercing hospitals into
signing a standard contract prescribing the amounts and terms
under whieh Blue Cross would reimburse the hospitals for services
rendered to its subscribers. The terms of the contract were such that
Blue Cross was able to offer lower rates than competing private
insurance companies. Moreover, there was considerable economic
pressure on the hospitals to sign the contracts, since those which
refused to agree were not reimbursed by Blue Cross in amounts
sufficient to cover their costs. See 481 F. 2d at 82, 84 & n. 12. None-
theless, the Third Cireuit held that the contracts qualified as the
business of insurance, and were not achieved through ‘‘boycott,
coercion, or intimidation.”’
15a
See 406 F. Supp. at 29-30 (emphasis supplied).
We need not decide whether the effect on insurance rates
should be analyzed in terms of appellees’ ‘‘status as reli-
able insurers’’ or, instead, in terms of its connection with
the relationship between insurer and insured; nor must we
decide whether a substantial effect on rates, standing
alone, is enough to qualify an activity as the business of
insurance.’* For the purposes of this case, it is sufficient to
say that the vital impact on appellees’ rates, found by the
District Court, provides additional support for our con-
clusion that the disputed practices are a part of the busi-
ness of insurance.
[Precedent]
While the reasoning and facts vary somewhat from case
to case, our conclusion is also supported by the numerous
decisions, in addition to Travelers Insurance and Royal
Drug, supra, which have upheld similar arrangements be-
tween insurance companies and suppliers of services to in-
sureds, in the face of claims that the practices went beyond
the business of insurance and involved boycotts, coercion,
or intimidation as well. E.g., Workman v. State Farm
Mutual Automobile Ins. Co., Civ. No. 75-1799 (N. D. Cal.,
'’ The proposition that the business of insurance includes any
practice which has a substantial impact on insurance rates apparent-
ly stems from a District Court ease, California Leaque of Inde-
pendent Ins. Producers v. Aetna Cas. & Sur. Co. [1959 TRADE
CASES 69,367], 175 F. Supp. 857 (N. D. Cal. 1959), decided
hefore the Supreme Court's decision in National Securities. See
Travelers Ins. Co. v. Blue Cross, supra, 481 F. 2d at 83: Proctor v.
State Farm, supra, 406 F. Supp. at 29-30. The opinion in National
Securities neither cites nor discusses California Leaque, and at least
one commentator has speculated that the National Securities stand-
ard for determining what constitutes the business of insurance was
intended to be narrower than the ‘‘effect on rates’’ criterion relied
upon in California Leaque. Comment, The McCarron Act’s Anti-
trust Exemption for ‘‘The Business of Insurance’’: A Shrinking
Umbrella, 43 Tenn. L. Rev. 329, 344-46 (1976).
16a
Sept. 16, 1976) (arrangements between automobile insur-
ance company and automobile body repair shops) ; Frank-
ford Hospital v. Blue Cross, (1976-2 Trape Case: J 61,030],
417 F. Supp. 1104 (E. D. Pa. 1976) (agreements between
medical insurance company and hospitals); Anderson v.
Medical Service, 1976-1 Trape Cases § 60,884 (E.D. Va.,
Feb. 10, 1976) (contracts between medical insurance com-
pany and physicians).
The dec’sion of the Fifth Cireuit in Battle v. Liberty
National Life Insurance Co., 493 F. 2d 39 (5th Cir. 1974),
cert. denied, 419 U.S. 1110 (1975), is not to the contrary.
{n that case, a burial insurance company had entered into
a contract with its wholly owned subsidiary, under which
the subsidiary agreed to furnish the merchandise and serv-
ices guaranteed by the burial insurance policies. The sub-
sidiary in turn entered into agreements with a number of
funeral homes and directors, establishing those homes as
‘‘authorized’’ providers of services to the insurance com-
pany’s policyholders, setting the terms by which the sub-
sidiary would reimburse the homes for those services, and
requiring the homes to use certain merchandise suplied or
approved by the subsidiary. An antitrust action on behalf
of the class of affected funeral homes and directors was
brought against the insurance company and its subsidiary,
but the trial court granted a motion to dismiss for failure
to state a claim, in part on the basis of the McCarran-
Ferguson Act. The Fifth Circuit reversed, holding with
respect to the McCarran Act defense that further factual
development was required before the trial court properly
could determine whether the activities in question were part
of the business of insurance. See id. at 49-51.
In reaching this holding, however, the court carefully
distinguished Travelers Insurance, in words which might
apply equally well to the arrangements between appellees
and the repair shops in the case at bar:
17a
Significantly, the relationship between the insurance
company and the hospitals in Blue Cross was a direct
contractual relationship. The result of this contract
was simply the performance of the insurer’s responsi-
bilities owed to the insured under the insurance con-
tract and nothing more.
Id. at 50 (footnote omitted). The court emphasized that
the case before it did not merely involve direct relation-
ships between the insurance company and providers of
services to insured, but instead involved an additional party
—an ‘‘intermediary’’—under whose guise the insurance
company ‘‘may have exceeded the business of providing
burial insurance and encroached upon the business of pro-
viding funeral services.’’ See id. There is, of course, no
such intermediary here and, consequently, the danger that
appellees have gone beyond the business of insurance is less
pronounced. See also note 10 supra.
Appellants and amicus place heavy reliance on the deci-
sions of the District Court for the Northern District of
California in Hill v. National Auto Glass, 293 F. Supp. 295
(N. D. Cal. 1968), 1971 Trape Cases 9 73,594 (N.D. Cal.,
June 1, 1971), holding that an automobile insurance com-
pany was not engaging in the business of insurance when
it directed its policyholders to selected glass shops for the
purchase and installation of automobile windshields. But
that case is distinguishable on its facts since the activities
at stake presumably did not have a substantial impact on
insurance rates, see Travelers Insurance Co. v. Blue Cross,
supra, 481 F. 2d at 83, and it was not conceded, as it is
here, that the insurance company’s only purpose was to
minimize increases in the cost of reimbursing damage
claims, see note 10 & accompanying text supra. To the ex-
tent that the reasoning in these decisions is nevertheless
inconsistent with our holding, we must respectfully disa-
gree. We note, however, that under our construction of the
boycott exception, to which we now turn, the ultimate re-
18a
sult in Hill conceivably might have been the same in any
event, since a principal allegation there was that defend-
ants had conspired to boycott plaintiff’s glass shop. See
293 F. Supp. at 296.
III.
[Scope of Boycott Exception]
Without express acknowledgement by any of the courts
of appeals that have ruled on the matter, a split in the cir-
cuits seem to have developed as to the proper scope of the
McCarran Act’s boycott exception. The District Court in
the instnut ease invoked the narrow construction—limiting
the exception to boycotts of insurance companies by other
insurance companies or agents—which has been adopted
by the Fifth and Ninth Circuits. See Meicler v. Aetna Cas-
valty & Surety Co., [1975-1 Trape Cases § 60,131], 506
F. 2d 732, 734-35 (5th Cir. 1975); Addrisi v. Equitable Life
Assurance Society, [1974-2 Trane Cases § 75,274], 503 F.
2d 725, 728-29 (9th Cir. 1974), cert. denied, 420 U.S. 929
(1975). But see Battle v. Liberty National Life Insurance
Co., [1974-1 Trane Cases J 75,030), 493 F. 2d 39, 51 (5th
Cir. 1974), cert. denied, 419 U.S. 1110 (1975).
On the other hand, there are three circuits whose deci-
sions appear to be premised on a broader construction. In
Monarch Life Insurance Co. v. Loyal Protective Life In-
surance Co., [1963 Trape Cases § 70,978] 326 F. 2d 841 (2d
Cir. 1963), cert. denied, 376 U.S. 952 (1964), the Second
Cireuit regarded the boycott exception as covering ‘‘all
boycotts or agreements to boycott condemned by the Sher-
man Act,’’ id. at 846, althoveh the facts of the case would
have fit within the narrow construction since the suit al-
leged that one insurance company had participated in a
conspiracy to boycott another insurance company. A recent
decision of the Fourth Circuit, holding a complaint to have
stated a claim falling within the boycott exception, also
applied this general approach of constrving the exception
a
ee ree cee
19a
to cover any boycott prohibited by the Sherman Act; but
in that case the allegations would not have come within the
narrow interpretation and, indeed, were similar in some
respects to the charges in the instant case. Ballard v. Blue
Shield, {1976-2 Trave Cases § 61,123], 543 F. 2d 1075, 1078
(4th Cir. 1976).* Finally, in Travelers Insurance Co. v.
Blue Cross, supra, the Third Cireuit considered on its
merits, and rejected without stating what it considered to
be the proper scope of the boycott provision, a claim that
went beyond a mere blacklist of insurance companies or
agents—in particular, a claim that Blue Cross had coerced
hospitals into signing its standard contract setting the
terms of reimbursement for services rendered to its policy-
holders. See 481 F. 2d at 84; note 12 supra.”
We agree with those circuits which have declined to
adopt the narrow construction of the boycott exception,
although, as we shall explain in Part IV below, we do not
find sufficient guidance for our purposes in the general
proposition that the exception encompasses all acts of boy-
cott, coercion, or intimidation, and all agreements to boy-
'*In Ballard, a group of chiropractors charged that six corpora-
tions that sell Blue Cross-Blue Shield health insurance, their physi-
einn-direetors. and a state medical association had ‘‘eonspired to
refuse insuranee coverage for the services offered hy chiropractors
to refuse payment of claims for services rendered by chiropractors
even though claims for identical services by physicians are honored,
and to refuse permission for chiropractors to participate as offiecrs
in the companies offering Blue Shield Plans.’’ 543 F. 2d at 1078.
The complaint asserted that the purpose and effect of these practices
was to eliminate competition from chiropractors in the health serv-
‘eos field. See id. at 1077. The court held that these allegations stated
a claim of group boyeott in violation of the Sherman Act and,
therefore, were within the boycott exception to the MeCarran Act.
Td. at 1078.
Travelers did not chailenge the finding of the trial court that
Blue Cross had at no time tried to influence the relationship be-
tween hospitals and other insurance companies, see 481 F. 2d at 84,
and thus no allegation of boycott was at issue in that case.
7 20a
eott, cveree or intimidate, that are prohibited by the Sher-
man Act. Certainly there is no hint in the plain language
of the provision that only acts and agreements directed
against insuranee companies or agents were to be subject
to the exception. And our examination of the legislative
history of the provision, and the targct at which it was
aimed, convinces us that no such limitation was intended.
[Legislative History}
The narrow construction apparently was first articulated
in Transnational Insurance Co. v. Rosenlund [1967 Trave
Cases § 72,025|, 261 F. Supp. 12 (D. Ore. 1966), and was
grounded in that court’s reading of the legislative history
of the boycott provision:
The legislative history shows that the boycott, coercion
and intimidation exception, was placed in the legisla-
tion to protect insurance agents from the issuance by
insurance companies of a ‘‘black-list,’? which would
name companies or agents which were beyond the pale.
This list, in effeet, was a directive to an agent not
to write insurance in the name of or for the black-listed
company; otherwise, he would be stripped of his
ageney and not permitted to write insurance for any of
the members of the governing organization of insur-
ance companies.’
*91 Congressional Record, p. 1087 (79th Congress, 1st
Session. )
Id. at 26-27 (emphasis in original). This passage was
heavily relied upon by the District Court here, see 406 F.
Supp. at 52, and in each decision cited by the District Court
to support its reading of the boycott exception, see Meicler
v. Aetna Casualty & Surety Co., sunra, 506 F. 2d at 734,
372 F. Supp. at 509; Addrisi v. Equitable Life Assurance
Society, supra, 503 F. 2d at 728-29; Mitgang v. Western
2la
Title Insurance Co., 1974-2 Trape Cases 9 75,322, at 98,026
(N. D. Cal. 1974).
Yet Transnational cited only a single page from the Con-
gressional Record to support its interpretation, 91 Cong.
Ree. 1087 (1945), and the only relevant material on that
page is a speech on the floor of the House by Congressman
Celler merely urging that the boycott exception be drafted
so as to cover, in express terms, agreements to boycott,
coerce, or intimidate, as well as acts of boycott, coercion,
or intimidation.’* While it does emphasize the importance
of preventing insurance companies and agents from black-
listing other insurance companies and agents, there is noth-
ing in the speech to indicate that such activities are the only
ones comprehended by the boycott exception. And Meicler,
Addrissi, and Mitqang neither cite nor discuss any addi-
tional materials from the legislative history which might
support their position.”
The House and Senate Committee Reports on the bill
which ultimately became the McCarran Act provide strong
evidence that the boycott exception was not intended to be
confined to blacklists of insurance companies or agents. In
©The bill which emerged from the Senate expressly covered
agreements as well as acts, but the bill reported out of the House
Judiciary Commitee——the bill to whieh Congressman Celler was
addressing himself-——only referred to acts. As the current statutory
language evidences, see note 2 supra, Congressman Celler’s position
prevailed in the Conference Committee. See 91 Cong. Ree. 1088
(1945) (Congressman Walter agrees to accept express language on
agreements when the bill goes to conference, asserting that House
language covering acts would have encompassed agreements in any
event) ; id. at 1396 (text of bill as it emerged from conference).
It should be noted that the Transnational court did not rest its
rejection of the boyeott allegations in that case solely on its reading
of the legislative history of the boycott provision. Rather, the court
proceeded to examine the record carefully, and concluded that there
was no evidence of any kind of boycott falling within the Sherman
Act. See 261 F. Supp. at 27-28.
22a
its section-by-section analysis of the bill, the Senate Report
describes the boycott provision as follows:
[The boycott section] provides that at no time are the
prohibitions in the Sherman Act against any agree-
ment or act of boycott, coercion, or intimidation sus-
pended. These provisions. of the Sherman Act remain
in full force and effect.
S. Rep. No. 20, 79th Cong., 1st Sess. 3 (1945) (emphasis
supplied). The House Committee Report contains a virtu-
ally identical statement.”
We have examined the floor debates in the House and
Senate and have found nothing to shake our conclusion that
the narrow construction adopted by the District Court must
be rejected. Although there is at least one reference, other
than Congressman Celler’s, to blacklists of insurance com-
panies and agents, see 91 Cong. Rec. 1485-86 (1945) (re-
marks of Sen. O’Mahoney), it demonstrates onl ythat such
blacklists were a concern of the Congress—perhaps even
the principal concern—but does not show that they were
the only concern. Indeed, other remarks by the same
speaker, Senator O’Mahoney (one of the bill’s managers),
indicate that his concern was more general: he was at pains
to make clear that while the McCarran Act approved state
regulation of the business of insurance, it did not sanction
‘‘regulation by private combinations and groups.’’ 7d. at
1483." And it is not surprising that blacklists of insurance
‘TT. R. Rep, No. 143, 79th Cong., Ist Sess. 3 (1945). The only
differenee is that the House Report refers to ‘‘any act of boycott,
coercion, or intimidation’’ whereas the Senate Report, in the first
sentence quoted, refers to ‘‘any agreement or act of boycott, coer-
cion, or intimidation.’’ This difference reflects the fact that the bill
reported out of the House Committee did not expressly cover agree-
ments, whereas the Senate version did. See note 16 & accompanying
text supra.
*° Senator O’Mahoney assessed the import of the boycott exception
sxe onetime:
a eee
wo. — 2. tm
23a
companics and agents should be singled out as an example
of the conduct to be prohibited, since such practices were
apparently widespread prior to the Act. See id. at 1087
(remarks of Congressman Celler) ; id. at 1485-86 (remarks
by Senator O’Mahoney).
A close reading of United States v. South-Eastern Un-
derwriters Association [1944-1945 Trape Cases § 57,253},
322 U.S. 533 (1944), which precipitated the passage of the
McCarran Act, and upon which the Supreme Court relied
heavily to determine the meaning of the ‘business of in-
surance,’’ see Part II supra, provides further support for
our conclusion. The indictment in that case alleged a con-
spiracy by an association of insurance companies and
agents, along with its members, to fix premium rates and
monopolize the insurance business. But the indictment also
charged additional violations of the Sherman Act, involv-
ing practices in aid of the price-fixing and monopolization
scheme; and the Supreme Court used the terms ‘‘boycott,’’
‘‘eoercion,’? and ‘‘intimidation’’ to describe these addi-
tional practices. See 322 U.S. at 535-36, quoted in note 20
infra,
It is thus apparent that the boycott provision of the
McCarran Act was intended to preserve South-Eastern
Underwriters to the extent that the latter subjected acts of
‘‘boycott, coercion, or intimidation’’ to the prohibitions of
the Sherman Act. And the Supreme Court’s opinion reveals
that, while a blacklist of insurance companies and agents
was alleged, another type of boycott was also involved:
policyholders of insurance companies that were not mem-
as follows:
_. any attempt by a small group of insurance companies to
enter into an agreement by which they would penalize any person
or any business which was attempting to do business in the insurance
field in a way that was disapproved by them, would be absolutely
prohibited by this provision.’”’
91 Cong. Ree. 1480 (1945) (emphasis supplied).
24a
bers of the association ‘‘were threatened with boycotts and
withdrawal of all patronage.’’*’ We find it hard to believe
that Congress would have intended a construction of the
hoyeott provision which excludes from its sweep activities
explicitly addressed in the case from which its language
is drawn.
IV.
[Existence of Boycott}
The narrow construction of the boycott provision has the
virtue of embodying a bright-line test, at least to the ex-
tent that all activities which are not directed against in-
surance companies or agents automatically fall outside the
exception. As a result of our rejection of this construction,
we must face the delicate task of determining whether the
practices alleged by appellants constitute ‘‘boycott, coer-
cion, or intimidation’ within the meaning of this provision.
The District Court feared that to read the boycott provi-
sion to include any of these practices would ‘‘emasculate’’
the antitrust exemption provided by the McCarran Act.
406 I’. Supp. at 32, quoting Meicler v. Actna Casualty &
* The Court's opinion deseribes the acts of boyeott, coercion, and
intimation as follows:
“9 * © The conspirators not only fixed premium rates and agents’
commissions, but employed boyeotts together with other types of
eoereion and intimidation to force nonmember insurance companies
into the conspiracies, and fo compel persons who needed insurance
to buy only from S. EB. U. A. members on S. BE. U. A, terms. Com-
panies not members of S. Bh. U. A. were eut off from the opportunity
to reinsure their risks, and their serviees and facilities were dis-
paraged ; independent companies sore punished by a withdrawal of
the right to represent the members of S. E, U. A.; and persons
needing insurance who purchased from non-S. E. U. A. companies
were threatened with boycotts and withdrawal of all patronage. The
two conspiracies were effectively policed by inspection and rating
bureaus in five of the six states, together with loeai boards of insur-
ance agents in certain cities of all six states.
322 U.S. at 535-36 (emphasis supplied).
ee ee
AOD ms. -
a Oe we
2ha
Surety Co., supra, 506 F. 2d at 734. See also Addrisi v.
Equitable Life Assurance Society, supra, 503 F. 2d at 729.
Although we recognize that the terms of the provision are
not self-defining, and are capable of being read in such a
way as to swallow the antitrust exemption, we do not think
the solution is to restrict the boycott exception in a manner
unsupported by its plain language, its legislative history, or
the historical context in which it was passed. Rather, the
terms must be applied in such a way as to accommodate the
respective purposes of the Act’s antitrust exemption, on
the one hand, and the boycott exception to that exemption,
on the other.
The facts in South-Eastern Underwriters are a useful
guidepost. Logically speaking, a simple agreement among
insurance companies to charge premium rates could be
viewed as a boycott agreement, since its observance would
result in a collective refusal to deal with policyholders ex-
cept at a fixed price. See P. Areeda, Antitrust Analysis
380-81 (2d d. 1974). But the Supreme Court’s opinion in
South-Eastern Underwriters did not characterize the basic
rate-fixing agreement in that case in terms of ‘‘boycott,
coercion, or intimidation’’; those terms were reserved for
the additional activities utilized to enforce the agreement.
Since the McCarran Act was passed in response to South-
Eastern Underwriters, and since a construction of the boy-
cott provision to encompass a simple rate-fixing agreement
would indeed emasculate the Act’s antitrust exemption, it
is reasonable to infer that in a rate-setting context some-
thing in the way of enforcement activity would be required
to make out a claim of ‘‘boycott, coercion, or intimidation”’
within the meaning cf the Act.”
21 In the Meicler case decided by the Fifth Cireuit, it appears
that the alleged boycott consisted of nothing more than adherence
by a group of insurance companies to premium rates set by a state
regulatory ageney, or perhaps by private agreement. Although ‘‘ [i]t
cannot be disputed that the terms boycott and coercion, as common-
26a
[Repair Shop Coercion}
Similarly, in the case at bar, appellants’ contention
that the insurance companies entered into a horizontal
agreement to pay or reimburse insureds according to a
common formula based on the prevailing labor rate would
not, as such, state a claim under the boycott provision,
even though such an agreement could perhaps be char-
acterized as a collective refusal to deal except at the pre-
vailing rate. Nor are the arrangements with preferred
shops, in and of themselves, enough to make out a claim
of coercion or intimidation. To be sure, even without the
threat of a complete boycott of those shops which charge
inore than the prevailing rate, repair shops would be
under economie pressure to accede to the terms of the
horizontal agreement and thereby achieve favored status.
But so long as policy holders are not prevented from
utilizing non-preferred shops, the degree of coercive en-
forcement aetivity required to convert mere cooperation
or concert of action into ‘‘boycott, coercion, or intimida-
tion’? is not present. Compare T'ravelers Insurance Co. v.
Blue Cross, diseussed in note 12 supra, 481 F.2d at 84
(economie pressure on hospitals to sign agreements with
Blue Cross did not amount to ‘‘coercion’’), with Battle v.
Liberty National Life Insurance Co., supra, 493 F. 2d at
‘1 (threats to build competing facilities and cancel con-
tracts of funeral homes refusing to cooperate, in addition
to acts of physical violence, held to state a claim of boy-
cott, coercion, or intimidation).
ly defined, might be construed to encompass [this] type of activity,’’
Meicler, supra, 372 F. Supp. ai 513, the foregoing analysis con-
vinees us that the Fifth Cireuit was correct in concluding that the
hoyeott exception was not satisfied, and that a contrary result would
‘‘emasculate’’ the Act’s antitrust exemption. See 506 F. 2d at 734.
Of course, the fact that we would reach the same result without
relying upon the narrow construction of tr’ boycott provision serves
to illustrate that such a construction is not itself necessary to avoid
emaseulation of the Act.
27a
[Repair Shop Boycott}
3y the same token, the allegation that appellees engaged
in a group boyeott of repair shops which refused to accede
to the prevailing labor rate does state a claim within the
hoyeott exception.* There is a distinction, we believe,
between telling policyholders the amount of reimburse-
ment they will receive and informing them as to the
repair shops which have agreed to accept this amount as
payment in full, on the one hand, and collectively refusing
to allow policyholders to use their reimbursement checks
at shops other than the preferred shops, on the other.
Whereas the former merely exerts economic pressure on
the shops, the latter unnecessarily penalizes non-favored
shops, and stifles any market by preventing policyholders
from dealing pressure in the direction of increased prices
with shops which charge more than the prevailing rate.
Moreover, in the latter situation, legitimate increases in
the aetual labor rate are less likely to get reflected in the
amounts paid by the insurance companies, and the profit
muurgins of even the preferred shops might get squeezed
unfairly. Such collective use of the insurance companies’
power, to enforce the terms of a horizontal price-fixing
agreement, would thus constitute ‘‘boycott, coercion, or
intimidation”? within the meaning of the hoyeott provision.*
V.
[Trial v. Summary Judqment}
The question at this stage of the proceedings is whether
appellants have come forward with sufficient evidentiary
support for their allegation of a group boycott to justify
*2 We need not decide whether the boyeott exception would he
satisfied by a claim that each insuranee company, acting independ-
ently of the other insurance companies, entered into a combination
or conspiracy with its policyholders to boycott appellants’ shops,
since appellants have only charged a group boycott by the insurance
companies themselves.
28a
a full trial on the merits of that claim. See, e.g., E. P.
Hinkel & Co. v. Manhattan Co., 506 F.2d 201, 205 (D.C.
Cir. 1974). Rule 56(e) of the Federal Rules of Civil Pro-
cedure provides that a party opposing summary judgment
‘‘may not rest upon the mere allegations ... of his plead-
ing, but . . . must set forth specific facts showing that
there is a genuine issue for trial.’’ Although caution must
he used in granting suinmary judgment in complex anti-
trust actions, see, e.g., Poller v. Columbia Broadcasting
System, Inc. {1962 Trape Cases § 70,228], 368 U.S. 464,
473 (1962), the dictates of rule 56(e) are fully applicable,
and significant evidence substantiating the theory of the
compaint must be produced, if a well-supported motion
for summary judgment is to be defeated. See, e.g., Gor-
don v. New York Stock Erchange, Inc. [1975-1 Trave
Cases {| 60,367], 422 U.S. 659, 686-87 (1975); First Na-
tional Bank v. Cities Service Co. {1968 Trape Cases
{ 72,458], 391 U.S. 253, 274-90 (1968); Solomon v. Hous-
ton Corrugated Box Co. [1976-1 Trape Cases { 60,699},
926 F.2d 389, 393-96 (Sth Cir. 1976); ALW, Inc. v. United
Air Lines, Inc. [1975-1 Trapr Cases § 60,138], 510 F. 2d 52,
o4-57 (9th Cir. 1975). As the Supreme Court noted in
First National Bank v. Cities Service Co., supra at 289-
WW):
... Rule 56(e) should [not], in effect, be read out
of antitrust cases and permit plaintiffs to get to a
jury on the basis of the allegations in their com-
plaints, coupled with the hope that something can
be developed at trial in the way of evidence to sup-
port those allegations .... While we recognize the
importance of preserving litigants’ rights to a trial
on their claims, we are not prepared to extend those
rights to the point of requiring that anyone who files
an antitrust complaint setting forth a valid cause of
action be entitled to a full-dress trial notwithstanding
the absence of any significant probative evidence
tending to support the complaint.
29a
The District Court concluded that appellants’ allegation
of a group boycott lacked adequate record support. See
text accompanying note 7 supra. We agree, and therefore
notwithstanding our disagreement with the District Court’s
narrow construction of the boycott provision, the grant of
summary judgment in favor of appellees must be upheld.
We note, first, that appellants’ own deposition testimony
shows that during the relevant time period each in fact
transacted business with policyholders of most, if not
all, of the insurance companies presently before us. This
does not conclusively rebut appellants’ claim, since the al-
leged group boycott may only have been partially success-
ful or, alternatively, the conspiracy may have been de-
signed only to reduce, not completely eliminate, transac-
tions with non-cooperative shops.” But the absence of a
complete refusal to deal did make it all the more impor-
tant, if appellants wished to survive summary judgment,
for them to come forward with some additional evidence
tending to prove a tacit or express boycott agreement
among appellees.
Appellants have devoted most of their brief to a ram-
bling description of the documents in the record which, in
their view, create a genuine issue of fact with respect to
the boycott claim. But, try as they might, they have been
unable to point to any evidence whatsoever, in a ten-vol-
ume record supplemented by several boxfuls of materials
compiled during three years of extensive discovery, that
supports the existence of a contract, combination, or con-
spiracy among appellees to boycott non-cooperative shops.
None of the documents cited by appellants show any
contacts between or among appellees in furtherance of a
boycott arrangement; and there is no evidence of a black-
2° We cannot agree with the District Court’s opinion to the extent
that it is premised on the belief that a total refusal to deal is neces-
sary to prove a group boycott in violation of the Sherman Act. See
note 7 supra.
30a
list of disfavored repair shops, or any collective decisions
as to which shops should receive preferred status. The
most that can be said is that several of the insurance com-
panies may have adopted similar techniques for control-
ling their spiraling claims payments, such as establishing
drive-in claims facilities and directing insureds away from
‘‘non-captive’’ repair shops. Since those techniques appar-
ently were in the independent self-interest of each indi-
vidual insurance company which adovted them, regardless
of what the other insurance companies decided to do, this
evidence of parallel conduct does not in any way tend to
establish a boycott agreement, tacit or otherwise. See
Turner, The Definition of Agreement Under the Sherman
Act: Conscious Parallelism and Refusals to Deal, 75 Harv.
L. Rev. 655, 681 (1962).
The grant of summary judgment in favor of appellees is,
accordingly,
Affirmed.
Dissenting Opinion
Wricnt, Cir. J., dissenting: The court, after rejecting
the legal principles relied on by the District Court in
granting summary judgment to appellees, analyzes the evi-
dence itself and comes to the same result. While the temp-
tation to avoid the jury trials in antitrust cases is under-
standable, I would resist that temptation in this case since
I believe the evidence offered by both sides on the motion
for summary judgment was sufficient to have a jury re-
solve, on proper instructions, the issues raised relating to
the business of insurance, cc.spiracy, and boycott. The Su-
preme Court has cautioned against affirming summary
judgments in antitrust cases by drawing inferences from
the evidence that should have been reserved for the jury.
See, e.g., Poller v. CBS, Inc. (1962 Trape Cases J 70,2281,
368 U.S. 464, 473 (1962). This caution applies, in my judg-
ment, with particular emphasis where the District Court
sla
has granted sammary judgment after applying the wrong
legal principles to its appraisal of the evidence.
Most of the evidence offered by both sides on appellees’
motion for summary judgment is fairly outlined in the
court’s opinion. On that evidence a jury could reasonably
have found, as appellants suggest, that the conspiracy
consisted of an agreement among appellee automobile in-
surers to gain an advantage over their competitors by
limiting appellees’ cost of car repairs through boycott of
car repairmen who refuse to make car repairs at the dic-
tated prices.
In addition, other evidence fairly shows that the auto-
mobile repair industry is one marked by competition as to
hoth price and quality of service. It would also support a
finding that imsurers were concerned that poor service
caused by paying too low a rate for repairs would lead to
dissatisfaction among insureds. Accordingly, it is not un-
reasonable to suggest, as appellants have done, that a jury
could conelude that concerted action was needed if ap-
pellee insurance companies were to achieve both low cost
repairs and adequate service. The record would also sup-
port a finding that appellee insurance companies sought to
attain that objective by communicating among themselves
on such matters as the most effective use of the insurers’
drive-in claim service where claims would be adjusted and
checks drawn for presentation to ‘‘captive’’ repair shops.
In addition, there is evidence that some insurers issued
two-party settlement checks naming as payees the insured
and a ‘‘eaptive’’ body shop. Obviously the effect of this
activity was to steer customers away from disfavored
shops and would, in my opinion, justify a finding of boy-
cott, especially since such steering would seem an integral
part of effectuating the insurers’ plan to direct volume
business to their ‘‘captive’’ shops, thereby putting price
pressure on independents.’
' While I do not concede the need to reach the question of the
32a
By sketching the evidence favorable to appellants, I do
not mean to suggest that a reading of boycott or conspir-
acy in restraint of trade is inevitable on the evidence in
this ease. Certainly the majority has a point in its observa-
tion that persons acting independently might have an in-
centive to adopt some of the elements of the claims adjust-
ment scheme adopted by the appellee insurers.’ My posi-
tion, however, is simply that it is not the job of this court
to put the best face possible on the evidence from appel-
lees’ point of view. Under the law, on appellees’ motion
tor summary judgment precisely the opposite approach is
required. 2. q., United States v. Diebold, Inc. [1962 Trape
Cases § 70,322], 369 U.S. 654, 655 (1962). Under the proper
standard, I submit, appellants tendered sufficient evidence
to go to the jury.
I respectfully dissent.
scope of the MeCarran-Ferguson Aet’s boveott exeeption. IT do
agree with Part IIT of the majority opinion insofar as it rejeets the
narrow view of that exeeption adopted by the Fifth and Ninth
(irenits.
“1 find unpersuasive the majority’s suggestion that appellees
were not trying to obtain a competitive advantage, but were just
trying to keep the price of car repairs, and thus insurance prem-
iums, down. Even though the object is beneficial, insurers may not
seck to achieve it by conspiring to tamper vith the economies of the
car repair industry, or the insurance industry itself for that matter,
by boyeott. 15 U.S. C. § 1013(b) (1970).
«*
33a
UNITED STATES DISTRICT COURT,
DISTRICT OF COLUMBIA,
CIVIL DIVISION,
Dee. 18, 1975.
Civ. A. No. 249-72.
Phillip M. PROCTOR, d/b/a Proctor Auto Service, et al.,
Plaintiff,
v
STATE FARM MUTUAL AUTOMOBILE INSURANCE
COMPANY, an Illinois Corporation, et al., Defendants.
Memorandum Opinion
Pratt, District Judge.
This is an action by four plaintiffs in the automobile re-
pair business against five automobile insurance companies
and two companies in the business of adjusting damage
claims. Plaintiffs charge defendants with violations of the
Federal antitrust laws and, more specifically, with con-
spiracy to fix prices, in allegedly agreeing to pay only the
prevailing rates for labor and parts in the adjustment of
the damage claims of defendants’ insureds or on their
behalf.
While several other motions are pending, this Memoran-
dum concerns only the two motions for summary judgment
filed on behalf of the five insurance company defendants
on the ground that their activities, whether or not other-
wise constituting Federal antitrust violations, are outside
the scope of the Federal antitrust laws because of the anti-
trust exemption for insurance companies provided by the
McCarran-Ferguson Act, 15 U.S.C. $1011 et seg. (herein-
after referred to as the ‘‘McCarran Act’’). This Act,
passed in response to the Supreme Court’s decision in
34a
United States v. South-Eastern Underwriters Ass'n, 322
U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944) holding that
insurance transactions were subject to Federal regulation
under the commerce clause and that the antitrust laws
were particularly applicable to such transactions, exempts
the insurance business from regulation under the Federal
antitrust laws provided that two criteria are met: (1) that
the ‘‘business of insurance’’ is involved, and (2) that there
is state regulation of the business of insurance.
The MeCarran Act does not apply to the acts of ‘‘boy-
cott, coercion and intimidation.’’ For the reasons which
are set forth, we agree that the McCarran Act exemption
insulates the activities complained of and that the five in-
surance company defendants are entitled to summary
judgment.
A. The adjustment and settlement of claims, of which the
practices challenged herein are an integral part, are
clearly the business of insurance within the meaning
of the McCarran Act.
lor the exemption under the McCarran Act to be oper-
ative, the primary requirement is that the particular prac-
tice coneern the ‘‘business of insurance’’ 15 U.S.C. § 1012
(hb). Although formal proof would seem unnecessary, the
extensive record in this ease shows, and plaintiffs admit,
(Complaint, §12) that the automobile property insurance
business involves the adjustment and settlement of claims.
The insurance policy itself, the premiums paid thereon,
and the payment of any claims are the key elements cf
the business of insuranee. As the Supreme Court said in
the leading case of Securities and Exchange Commission
r. National Securities, Inc., 393 U.S. 453, 460, 89 S.Ct.
564, 568, 21 L.Fd.2d 668 (1969) the term ‘‘business of
insurance’’ includes
‘‘the relationship between the insurer and insured,
35a
‘*the type of policy, which could be issued, its reli-
ability, interpretation, and enforcement * * *
‘*{and] other activities of insurance companies
{which} relate so closely to their status as reliable
insurers * * * ”
Claims-settlement procedures, on the basis of which
plaintiffs have alleged that in settling claims the defend-
ants have agreed among themselves to fix prices for auto-
mobile repairs, concern payments to insureds or on their
behalf. Clearly, such procedures are closely connected with
the relationship between the insurer and insured. The
adjustment practices actually followed depend upon the
type of policy and its coverage and directly concern mat-
ters of policy interpretation and enforcement. The way
and method an insurance company discharges claims un-
der its policies relate closely to its status as a reliable
insurer, Claims-settlement procedures are clearly ‘‘the
lnisiness of insurance’’ as defined in National Securities,
lie., supra,
Finally, claims-settlement procedures have a direct con-
nection with an insurance company’s rate-making struc-
ture. The record clearly shows a close relationship be-
tween the costs of automobile repairs in Pennsylvania
and Virginia, the states where plaintiffs do business, and
the levels of premiums charged by defendants to its in-
sureds. It is a faet of life that the cost of repairs, in-
cluding labor charges and the cost of repair parts, paid
in the settlement of damage claims are an important
faetor in the rate-making structure of insurance com-
panies obligated under their policies to pay damage
claims.’ Claims-settlement practices which include activi-
' As would be expected, the statutes of Pennsylvania and Virginia
wiiich control the establishment of insurance rates require that the
cost of paying claims be reflected in level of premiums to be charged.
40 Pa.Stat. § 1183(a) ; Va.Code, § 38.1-252(3) (1973).
36a
ties complained of in this suit have a vital impact on rate-
making and must, of necessity, be included within the
term ‘business of insurance.’? Travelers Ins. Co. v. Blue
Cross of Western Pa., 361 F.Supp. 774 (W.D.Pa.1972),
aff’d 481 F.2d 80, 83 (3rd Cir. 1973), cert. denied 414 US.
1003, 94 S.Ct. 724, 38 L.ked.2d 550 (1974); California
Leaque of Ind. Ins. Pro. v. Aetna Cas. & S. Co., 175 F.
Supp. 897 (N.D.Cal.1959).
Plaintiffs place great reliance on American Family Life
Insurance Co. v. Planned Marketing Associates, Inc., 398
F.Supp. L141 (1.D.Va.1974).* Such reliance is misplaced
hecause of the entirely different factual setting. The plain-
tiff therein alleged that defendant was attempting to steal
plaintiff’s agents, policy holders and trade secrets. As
Judge Warrimer’s scholarly opinion points out, none of
these activities were peculiar to the business of insurance
and were therefore not exempt by virtue of the McCarran
Act.
Plaintiffs’ assertion that what is involved here is ‘‘the
business of insurance’’ is a clever, but misleading turn of
phrase. It is only partially true and completely misses the
point that while the primary focus of the McCarran Act
is the insurer-insured relationship, such relationship is
not the all-inclusive boundary of that Act. The ‘‘business
of insurance’’ can touch relationships between insurance
eompanies and non-policy holders such as automobile re-
pair shops when such relationships are closely connected
with the insurer-insured relationship through the profound
effect of the costs of damage claims in the rate-making
structure. California Leagy’ of Ind. Ins. Pro. v, Aetna
Cas. & S. Co., supra (price fixing agreement between in-
surance companies concerning size of commissions paid to
agents).
? or what signifieance it may have, this matter was settled be-
tween the parties without appeal.
37a
To conclude, the settlement and payment of damage re-
pair claims is (1) a basic part of the contractual obligation
owed by the insurance company to the insured, whether or
not the payment is made to the insured or on his behalf,
(2) directly affects the rate-making structure of the in-
surance company and the level of premiums to be charged,
and (3) is connected directly with the writing of the policy,
its interpretation and enforcement. The practices chal-
lenged here are peculiar to the business of insurance with-
in the meaning of the McCarran Act.
B. The practices challenged in this case are regulated by
Virginia and Pennsylvania within the meaning of the
McCarran Act.
The second and other requirement of the McCarran Act
is that such practices be ‘‘regulated’’ under state law.
It should be pointed out at the outset that the concept of
state ‘‘regulation,’’ for McCarran Act purposes, is one of
considerable beadth. In this connection, it is the general
rule that
‘*fA] state regulates the business of insurance within
the meaning of §1012(b) when a State statute gen-
erally proscribes (F.T.C. v. National Cas. Co., 1958,
357 U.S. 560, 78 S.Ct. 1260, 2 L.Ed.2d 1540) or permits
or authorizes certain conduct on the part of insurance
companies.’? (Emphasis supplied) California League
of Independent Insurance Producers v. Aetna Cas-
ualty & Surety Co., 175 F.Supp. 857, 860 (N.D.Cal.
1959).
This case was cited with approval in Ohio AFL-CIO v.
Insurance Rating Board, 451 F.2d 1178, 1181 (6th Cir.
1971), cert. denied 409 U.S. 917, 93 S.Ct. 215, 34 L.Ed.2d
180 (1972). See also Crawford v. American Title Ins. Co.,
518 F.2d 217 (N.D.Ala.1974).
38a
While the character and extent of state regulation is the
key to the exemption under the McCarran Act, our re-
search indicates that in every McCarran Act case which has
been reported, the pattern of state regulation has always
been found sufficient to trigger the antitrust exemption.
Such exemption is not affected by whether or not there is a
conflict between the Federal antitrust laws and state regu-
lations, whether or not the state enforces its regulations or
whether such enforcement is effective. The mere existence
of regulatory statutes capable of being enforced appar-
ently is all that is required for the McCarran Act exemp-
tion to be applicable. See Report of Senate Subcommittee
on Anti-Trust and Monopoly, S.Rep. 1834, 86th Cong., 2nd
Sess. 5 (1960).
Since one of the plaintiffs does business in Virginia and
three in Pennsylvania, our attention will now focus briefly
on the laws of these two jurisdictions.
It is clear from the record before us that Virginia and
Pennsylvania extensively regulate the practices challenged
in this suit.
(1) Virginia
Virginia regulates the auto insurance business through
its Bureau of Insurance, State Corporation Commission,
pursuant to the Virginia Code. (6 Va. Code, Title 38.1)
According to the Commissioner of Insurance of Virginia,
this includes the claims-settlement practices of automobile
insurers in the state. (Francis Aff. { 2) Regulation contem-
plates and, in fact, authorizes a degree of uniformity in the
actions of automobile insurance carriers through the (a)
formation of rate service organizations to file proposed
rates and rating plans. Id. §§ 38.1-242, 38.1-279.42; (b) co-
operation among rate service organizations and automo-
bile insurance companies with the exchanye of loss infor-
mation, experience data and information with respect to
rating plans. Jd. § 38.1-279.52 Through its Insurance Bu-
39a
reau, Virginia reviews the claims handling procedures of
automobile insurers to assure that the procedures are fair
to the claimant, the insured, other policy holders and the
members of the public. The Superintendent of Insurance
has authority to take appropriate action to remedy any
situation where an insurer acts improperly or unfairly in
discharging its duty to settle and pay physical damage
claims. (Iraneis Aff. § 2, 3.)
At the same time, Virginia has an antitrust law similar
to Section 1 of the Sherman Act. It has been interpreted
im pari materia with the Sherman Act. Applicable to activi-
ties of insurance companies when not covered by the Vir-
ginia Insurance Code, the state antitrust law prohibits
price-fixing by insurance companies. Blue Cross of Virginia
v. Virginia, 211 Va. 180, 176 S.E.2d 439 (1970). In short,
if the price-fixing allegations of plaintiffs are violations of
the Sherman Act, they are also subject to the Virginia
antitrust Jaw, and because of the McCarran Act the Vir-
ginia law alone is applicable.
(2) Pennsylvania
As in Virginia, the automobile insurance business in
Pennsylvania is extensively regulated by state law. The
Pennsylvania Insurance Department pursuant to the Penn-
sylvania Code is the regulatory agency. 40 Pa.Stat. 41 ef
seq. Certain cooperative practices, as in Virginia, are per-
mitted. Most significantly, it deals more directly with the
automobile damage repair business and gives its Insurarce
Commissioner jurisdiction over unfair settlement or co:a-
promise practices of automobile insurance companies. (40
Pa.Stat. § 1155) Furthermore, the Pennsylvania Motor Ve-
hicle Physical Damage Appraiser Act is a regulatory
scheme closely related to the practices at issue in this case.
(75 Pa. Stat. § 3001 et seq.)
The McCarran Act requires only a general regulation
by states of the business of insurance. In both Virginia
40a
and Pennsylvania, the regulation is specifie and, under the
prevailing authorities, more than sufficient to bring the
MeCarran Act exemption into play.
C. The allegations of boycott, coercion and intimidation
do not preclude the applicability of the McCarran Act
exemption,
While plaintiffs concede that price-fixing in the settle-
ment of damage claims is the core of their complaint, they
also have alleged acts of boycott, coercion and intimida-
tion. On the basis of said allegations, they assert that the
McCarran Act exemption cannot apply because Section
1013(b) of the Act specifically provides that:
‘‘Nothing contained in this chapter shall render the
said Sherman Act inapplicable to any agreement to
boycott, coerce, or intimidate, or act of boycott, coer-
cion, or intimidation.’’
This contention is unavailing for at least two reasons.
First, the claims of dispute as to material fact in this con-
nection are vague and lack adequate record support. There
appears to be no collective refusal to deal with plaintiffs
since plaintiffs’ services were utilized throughout the pe-
riod of this suit by persons insured by plaintiffs.
Second, and perhaps more important, the boycott ex-
ception has been narrowly construed and does not have
the breadth and reach which plaintiffs claim. Three recent
cases are dispositive on the proposition that the ‘‘ ‘boy-
cott? [exception] under the MeCarran Act has a very
narrow meaning... [and] ‘was placed in the legislation
to protect insurance agents from the issuance by insur-
ance companies of a ‘‘blacklist’? which would name
companies or agents . . .’ Transnational Ins. Co. v. Rosen-
lund [1967 Trade Cases § 72025], D.C., 261 F.Supp. 12,
16-27.’’ Mitgang v. Western Title Insurance Co., 1974-2
CCH Trade Cases § 75322 at 98026 (N.D.Cal.1974); see
4la
also Addrisi v. Equitable Life Assurance Society, 503 F.2d
725 (9th Cir. 1974), cert. denied 420 U.S. 929, 95 S.Ct.
1129, 45 L.d.2d 400 (1975), and Meicler v. Aetna Casual-
fy & Surety Co., 372 F.Supp. 509 (S.D.Texas 1974), aff’d
906 I.2d 732 (5th Cir. 1975). In Meicler, which involved a
collective refusal by insurance company defendants to deal
with plaintiff except on the basis of a certain risk reclassi-
fication, the claim was dismissed by reason of the Mc-
Carran Act. The plaintiffs attempt to invoke the ‘‘boy-
eott exception’? was also unsuccessful, the Court stating
‘*Appellant’s broad construction of Section 1013(b) would
emasculate the antitrust exception contained in Section
1012(b) of the MeCarran-Ferguson Act.’’ 506 F.2d at 734.
Plaintiffs’ attempt herein to invoke the ‘‘boyeott excep-
tion’’ would have the same effect and cannot prevail on
the facts of this ease.
The allegations of boycott, coercion and intimidation do
not raise questions of material fact sufficient to preclude
the operation of Rule 56 and, even if such allegations had
such effect, they are insufficient as a matter of law to
prevent the application of the McCarran Act exemption.
CoNncLUSION
lor the reasons above set forth, the practices challenged
are the ‘business of insurance’’ within the meaning of the
McCarran Act and are comprehensively subject to state
regulations by both Virginia and Pennsylvania. Accord-
ingly, the motions for summary judgment by the five
automobile insurance company defendants are granted.
The above Memorandum Opinion shall eomprise the
Court’s Findings of Fact and Conclusions of Law.
An Order consistent with the foregoing has been en-
tered this day.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.