December 11,1970

Honorable Oscar H. Mausy Opinion No. M- 746 Chairman, Senate Committee to Study the Texas Tort Re: Whether certain insurance Claims Act companieshave violated Texas Senate Antitrust laws of the state Austin, Texas or Federal government in the sale of insurance to certainpolitical subdivisions under the Texas Torts Claims Act, under Dear SenatorMausy: the facts submitted?

You have requested our opinion as to,

"Whethercertain insurance companies have violated either the State or Federal Antitrust laws in the sale of insurance to certain political subdivisionsunder the Texas Torts Claims Act, under the facts submitted?"

The facts submitted to this office in connectionwith this request are as follows:

A surveyby your committee of certain counties, cities, school districts,water districts, junior and senior colleges and State agencies in Texas, dated October 7, 1970 resulted in 699 of such governmental subdivisionsreplying to the survey, reporting a total purchase of $2,756,449.00 worth of bodily injury liability insurance coverage. One hundred sixty seven of these 699 counties, cities and school districts reported the purchase of $92,328.00worth of property damage liability insurance coverage and the survey indicates that these 167 entities, at some time during the lastyear, in order to secure the needed bodily injury liability coverage,had been requiredby some 57 different named insurance companies and agencies, to purchase this property damage liability insurancewhich is alleged to be unnecessary

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and worthless **since** the Texas Torts ClaimsAct excludes property damage liability for all Texas governmental unitswhile making such units liable only forbodily injury caused by the negligence of a governmental employee.

The 167 entitieswere composed of 25 cities, 25 counties, 115~

school districts, one water district and one junior college. Each of these 167 entitieswas located and marked on amap and there is no localizedpattern or particular area of the State **more** affected than other areas, but they were widely dispersed geographically throughout the State.

There were 473 of the politicalbodies which answered this surveywho bought bodily injury liability insurancewithout being required to buy property damage liabilitycoverage. These entitieswere also located and marked on amap and this group is alsowidely dispersed geographically throughout the Statewith at least 40 of these political entities physically located in the same place as one or **more** of **the** 167 entities reporting that theywere required to buy the property damage liability insurance in order to securebodily injury liability insurance. None of the remaining 127 entities of the 167 group is located farther than 50miles from a political subdivision reporting the purchase of bodily injury liability coverage alone.

Out of the 57 named insurance companies or agents who
were reported to require property damage liability coverage of the 167 reporting entities, at least 46 of these companies
or agentswere reported in this same survey to have soldbodily injury liability insurancealone to one or more other reporting political entities. The remaining 11 named insurance sellersby their names appear to be four local agenciesmaking only one reported sale and seven insurance companies,none of which were reported on this survey to have sold insurance to
**more** than two of the reporting entities.

We are advised by the Deputy AssistantAdministrator of the State Board of Insurance that no evidence of any combination, conspiracy or agreement among the insurance companies named in this surveyhas **come** to that agency's attention, and that on September 22, 1970, the State Board of Insurance gave notice to the public generally and to all insurance companies, corporations,exchanges,mutuals, reciprocals,associations, Lloyd6 or other insurerswriting automobile insurance in Texas and their agents and representatives,as follows:

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"The Senate~CbmmitteeTo Study the Texas Tort Claims Act has furnished the State Board of Insurance a file of governmental units that allegedlyhave been required to purchase property damage liability insur-' ante as a prerequisite to securing the bodily injury liability insurancedesiredby the Texas Tort Claims Act.
"Since the Texas Tort Claims Act did not waive governmental immunity for damage to property, the Board has held that a **com** pany's action requiring the insured to accept property damage liability insurance (whichis of no specificbenefit to the insured) is a violation of the insurancerating laws of T.exas generally and is specificallya violation of Automobile Series 428, dated August 12, 1969.

"The State Board of Insurancehereby directs each insurer to refund the total property damage liability insurancepremium or premiumswritten for a governmental unit.thatpurchased liability insurance for protection from thehazards createdby the Texas Tort Claims Act, provided that the particular governmental unit concerned requests the premium return."

The InsuranceBoard has not been advised of any governmental unit requesting the referred to premium return that has been refusedby the insurer.

The Antitrust laws of Texas codified at Section 15.01 et. seq., Business and Commerce Code prohibits "monopolies"
as narrowly defined in Section 15.01, "trusts"as defined in Section 15.02 and "conspiraciesto restrain trade" as defined in Section 15.03. The monopoly prohibition is a combination or consolidation of two or more corporationsand no facts in this case indicate such activity. A combination, essential to the formationof a prohibited "trust"or prohibited "conspiracy in restraint of trade", cannot exist

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HonorableOscar H. Mausy, Page 4 (M-746)

unless'two or more persons or business **entities** combine in
some fashion,

and before such combinationbeing independent and capable of acting in competitionwith one another. State
v. Fairbanks-Morse& Co., 246 SW 26 647, (Tex.Civ. App.m, ref. n.r.e.1. The facts submitteddo not reflect any such prohibited combination.

The application of the FederalAntitrust Laws to the facts submittedmust be viewed in reference to the Insurance Antitrust MoratoriumAct (McCarran-FergusonInsuranceRegulationAct) 15U.S.C.A., Sets. 1011-1015 (1945). Section 1012 provides that:

"NOAct'of Congress shall be construed to invalidate, impair, or supersede any law enactedby any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon suchbusiness,unless suchAct specifically relates to the business of insurance: Provided, that after June 30, 1948 theAct of July 2, 1890, as amended,known as the ShermanAct, and the Act of October 15, 1914, as amended, known as the ClaytonAct, and theAct of September 26, 1914, known as the Federal Trade Colnmission

Act, as amended, shall be applicable to the business of insurance to the extent that suchbusiness is not regulatedby State law."

but this provision is qualified in Sec. 3(b) of the same Act, 15 U.S.C.A. Sec. 1013, by declaring:

*'Nothing

contained **in** this Act shall render the said ShermanAct inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation."

Since the factspresentedhere show no "agreements" between the insurers,we must look at the "acts"of the insurance companies, i.e. requiring the purchase of property damage liability insuranceby certain political subdivisions **before** theywould sellbodily injury liability insurance to such entity. If the Ilacts" of the insurance companiesdo not amount to "boycott,coercion or intimidation"and the State has regulations covering the activity concerned (aswe assume that they do as contended in the State Board of Insurance

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Notice dated September 22; 1970; as set out above), then no cause oftaction under the FederalAntitrust Acts would lie and any aggrievedparty must look to his state statutes and regulations forhis remedy. Parker v. Brown, 317U.S. 341, (1940-1943Trade Cases): The Travelers InsuranceCo. v. Blue Cross of Western Pennsylvania, 298 F. Supp. 1109 (1969Trade Cases)

.

Assuming arguendo that the independentacts of the insurance companies constituteda "boycott,coercion or intimidation"and that the ShermanAct is applicable to the fact situationposed, we can immediately eliminate the possibility of a violation of Section 1 of the ShermanAct, 15U.S.C.A. Sec. 1,because there is no combination, agreement or conspiracy ,inrestraint of trade alleged or shown, which is a necessary element of a Section 1 violation. House of Materials, Inc.v. Simplicity Pattern Co., 298 F. 2d 867 72nd Cir., 1962)

.
A monopoly violation of Sec. 2 of the ShermanAct, 15 U.S.C.A. Sec. 2, presupposesmonopoly power in a particular market defined as the power to controlprices or exclude competition. Hiland Dairy, Inc. v. Kroger Co., 402 F. 26 968 (8th Cir. 13

.

69)sion of the number of insurance sellers and the obvious inability of any one of them alone to exercise any monopoly power, no violation of this antitrustprohibition is alleged or shown herein.

Finally, if **an** assumption ismade that the acts of the insurance companies and agents in "tying" the property damage liability insurance to the sale of bodily injury liability insurance is not regulatedby State law, thenwe have two other possible Federal Antitrust laws to examine as to their applicability to these facts. The first of these is price discriminationbetween differentpurchasers of "commodities“ of like grade and quality as prohibitedby the RobinsonPatmanAct15 U.S.C.A. Sec. 13(a). This has **reference** to "products"as distinguished from "services!', Baum v. Investors Diversified Services, Inc. 409 **F.** 2d 872, (C.A. , Ill 1969), and therefore insurance sales are not encompass;d in this federal antitrust law. The second and finalpossible federal antitrust law to be reviewed is the Clayton Antitrust Act, 15 U.S.C;~A. Sec. 14,which typically applies to "tying arrangements11,

but it only applies to the sale or lease of, II

. . .goods,wares, merchandise,machinery, supplies or other commodities"and such things as the lending of money

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Honorable Oscar Ii. **Mausy,** Page 6 (M-746)

and the sale of serviceshas been held not to be included in the covered class and it appears clear that insurance is not covered therein. U.S.-v. InvestorsDiversified Services, Inc., 102'F;'Supp. 645 (D.C.; Minn., 1952)

.

It is, therefore, our opinion,based on the facts **submitted,** that therehas been no violation of the Antitrust laws of **the state**  or federal government, and our opinion is limited to that consideration.

S UMM’A R Y

Based on the facts submitted,~thereis
no violation of theAntitrust laws of the **state** or federal government in the sale of insurance to certainpolitical subdivisions of the State of Texas under the Texas Tort Claims Act.

Preparedby Wayne R. Rodgers Assistant Attorney General

APPROVED: OPINION COMMITTEE"'

~. ,. Kerns Taylor, Chairman W. E. Allen, Co-Chairman Robert OWen Pat Bailey Gordon Cass Ralph Rash

WEADE F. GRIFFIN Staff Legal Assistant

ALFRED WALKER ExecutiveAssistant
NOIAWHITE First Assistant

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