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Union Labor Life Ins Co Vs Pireno - Citation 105188 - Court Judgment | LegalCrystal
Union Labor Life Ins. Co. Vs. Pireno - Court Judgment
LegalCrystal Citation legalcrystal.com/105188
Case Number 458 U.S. 119
Appellant Union Labor Life Ins. Co.
Respondent Pireno
union labor life ins. co. v. pireno - 458 u.s. 119 (1982) u.s. supreme court union labor life ins. co. v. pireno, 458 u.s. 119 (1982) union labor life ins. co. v. pireno no. 81-389 argued april 27, 1982 decided june 28, 1982 * 458 u.s. 119 certiorari to the united states court of appeals for the second circuit syllabus as required by new york law, petitioner union labor life insurance co. (ull) issues health insurance policies covering certain policyholder claims for chiropractic treatments. some ull policies limit the company's liability to "reasonable" charges for "necessary" medical care and services. in order to determine whether particular chiropractors' treatments and fees were necessary and reasonable,.....
Union Labor Life Ins. Co. v. Pireno - 458 U.S. 119 (1982)
U.S. Supreme Court Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982)
Decided June 28, 1982 *
Held: ULL's use of NYSCA's Peer Review Committee does not constitute the "business of insurance" within the meaning of § 2(b) of the McCarran-Ferguson Act, and thus is not exempt from antitrust scrutiny. Group Life Health Ins. Co. v. Royal Drug Co., 440 U. S. 205 , controlling. Pp. 458 U. S. 126 -134.
(a) There are three criteria relevant in determining whether a particular practice is part of the "business of insurance" exempted from the antitrust laws by § 2(b): first, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry. Royal Drug Co., supra. Pp. 458 U. S. 126 -129.
(b) With regard to the first criterion, petitioners' arrangement plays no part in the spreading and underwriting of a policyholder's risk, because it is logically and temporally unconnected to the contract entered by the policyholder and ULL, which was the actual risk-transferring event. As to the second criterion, ULL's use of NYSCA's Peer Review Committee is distinct from ULL's contracts with its policyholders, and constitutes a separate arrangement between the insurer and third parties not engaged in the business of insurance. Nor does the challenged arrangement satisfy this criterion on the asserted ground that it directly involves the "interpretation" and "enforcement" of the insurance contract, because ULL's procedure for deciding whether claims are covered is a matter of indifference to the policyholder, whose only concern is whether his claim is paid, not why it is paid. As respects the third criterion, it may be assumed that the challenged arrangement need not be denied the § 2(b) exemption solely because it involves parties outside the insurance industry -- namely, practicing chiropractors serving on the Peer Review Committee. But such arrangements can hardly be said to lie at the center of the legislative concern underlying § 2(b), which was with the protection of intra -industry cooperation in the underwriting of risks. More importantly, such arrangements may prove contrary to the spirit as well as the letter of § 2(b), because they have the potential to restrain competition in noninsurance markets. Pp. 458 U. S. 130 -134.
BRENNAN, J., delivered the opinion of the Court, in which WHITE, MARSHALL, BLACKMUN, POWELL, and STEVENS, JJ., joined. REHNQUIST, J., filed a dissenting opinion, in which BURGER, C.J., and O'CONNOR, J., joined, post, p. 458 U. S. 134 .
In these cases, we consider an alleged conspiracy to eliminate price competition among chiropractors, by means of a "peer review committee" that advised an insurance company whether particular chiropractors' treatments and fees were "necessary" and "reasonable." The question presented is whether the alleged conspiracy is exempt from federal antitrust laws as part of the "business of insurance" within the meaning of the McCarran-Ferguson Act. [ Footnote 1 ]
Petitioners are the New York State Chiropractic Association (NYSCA), a professional association of chiropractors, and the Union Labor Life Insurance Co. (ULL), a Maryland insurer doing business in New York. As required by New York law, ULL's health insurance policies cover certain policyholder claims for chiropractic treatments. But certain ULL policies limit the company's liability to "the reasonable charges" for " necessary medical care and services."
The Committee was established by NYSCA in 1971, primarily to aid insurers in evaluating claims for chiropractic treatments. [ Footnote 2 ] It is composed of 10 practicing New York chiropractors, who serve on a voluntary basis. At the request of an insurer, the Committee will examine a chiropractor's treatments and charges in a particular case, and will render an opinion on the necessity for the treatments and the reasonableness of the charges made for them. The opinion will be based upon such considerations as the treating chiropractor's experience and specialty degrees; the location of his office; the number of visits and time spent with the patient; the patient's age, occupation, general physical condition, and history of previous treatment; and X-ray findings.
This dispute resulted in the present suit, brought by respondent in the United States District Court for the Southern District of New York. Respondent alleged that the peer review practices of petitioners violated § 1 of the Sherman Act. [ Footnote 3 ] In particular, he claimed that petitioners and others had used the Committee as the vehicle for a conspiracy to fix the prices that chiropractors, including respondent, would be permitted to charge for their services. He concluded that he had been restrained from providing his chiropractic services to the public freely and fully, and that would-be recipients of chiropractic services had been deprived of the benefits of competition. Respondent requested, inter alia, declaratory and injunctive relief against ULL's continued use of NYSCA's Peer Review Committee in evaluating policyholders' claims.
contractual obligations . . . under [its] policies." Id. at 29a-30a. Moreover, the court determined that the peer review practices "involve[d] the spreading of risk, an indispensable element of the business of insurance.'" Id. at 30a. [ Footnote 4 ] Respondents' Sherman Act claim was accordingly dismissed with prejudice.
The Court of Appeals for the Second Circuit reversed. 650 F.2d 387 (1981). Relying upon this Court's recent opinion in Group Life & Health Ins. Co. v. Royal Drug Co., 440 U. S. 205 (1979), the Court of Appeals concluded that the District Court had erred in holding that ULL's use of NYSCA's Peer Review Committee constituted the "business of insurance." [ Footnote 5 ] Accordingly, the Court of Appeals remanded the action for further proceedings. We granted certiorari to resolve a conflict among the Courts of Appeals on the question presented. [ Footnote 6 ] 454 U.S. 1052 (1981).
The only issue before us is whether petitioners' peer review practices are exempt from antitrust scrutiny as part of the "business of insurance." "It is axiomatic that conduct which is not exempt from the antitrust laws may nevertheless be perfectly legal." Group Life & Health Ins. Co. v. Royal Drug Co., supra at 440 U. S. 210 , n. 5. Thus, in deciding these cases, we have no occasion to address the merits of respondent's Sherman Act claims. However, the Sherman Act does express a "longstanding congressional commitment to the policy of free markets and open competition." Community Communications Co. v. Boulder, 455 U. S. 40 , 455 U. S. 56 (1982); see also United States v. Topco Associates, Inc., 405 U. S. 596 , 405 U. S. 610 (1972). Accordingly, our precedents consistently hold that exemptions from the antitrust laws must be construed narrowly. FMC v. Seatrain Lines, Inc., 411 U. S. 726 , 411 U. S. 733 (1973). This principle applies not only to implicit exemptions, see Group Life & Health Ins. Co. v. Royal Drug Co., supra, at 440 U. S. 231 , but also to express statutory exemptions, see United States v. McKesson & Robbins, Inc., 351 U. S. 305 , 351 U. S. 316 (1956). In Royal Drug, supra, this Court had occasion to reexamine the scope of the express antitrust exemption provided for the "business of insurance" by § 2(b) of the McCarran-Ferguson Act. We hold that decision of the question before us is controlled by Royal Drug.
Respondents in Royal Drug were the owners of nonparticipating pharmacies. They sued Blue Shield and several participating pharmacies under § 1 of the Sherman Act, alleging that the Pharmacy Agreements were the instrument by which Blue Shield had conspired with participating pharmacies to fix the retail prices of prescription drugs. Respondents also alleged that the Agreements encouraged Blue Shield's policyholders to avoid nonparticipating pharmacies, thus constituting an unlawful group boycott. The District Court granted summary judgment to Blue Shield and the other petitioners, holding that the challenged Agreements were exempt under § 2(b) of the McCarran-Ferguson Act. But the Court of Appeals disagreed, holding that the Agreements were not the "business of insurance" within the meaning of that Act, and reversed. 440 U.S. at 440 U. S. 210 . This Court affirmed. Looking to "the structure of the Act and its legislative history," id. at 440 U. S. 211 , the Court discussed three characteristics of the business of insurance that Congress had intended to exempt through § 2(b).
First, after noting that one "indispensable characteristic of insurance" is the "spreading and underwriting of a policyholder's risk," id. at 440 U. S. 211 -212, [ Footnote 7 ] the Court observed that parts
of the legislative history of the McCarran-Ferguson Act "strongly suggest that Congress understood the business of insurance to be the underwriting and spreading of risk," id. at 440 U. S. 220 -221. The Court then dismissed Blue Shield's contention that its Pharmacy Agreements involved such activities.
Second, the Court identified "the contract between the insurer and the insured" as "[a]nother commonly understood aspect of the business of insurance." Id. at 440 U. S. 215 . The Court noted that, in enacting the McCarran-Ferguson Act, Congress had been concerned with the
Id. at 440 U. S. 215 -216, quoting SEC v. National Securities, Inc., 393 U. S. 453 , 393 U. S. 460 (1969). The Court then rejected Blue Shield's argument that its Pharmacy Agreements were so closely related to the "reliability, interpretation, and enforcement" of its policies as to fall within the intended scope of § 2(b): "This argument . . . proves too much." 440 U.S. at 440 U. S. 216 .
Id. at 440 U. S. 216 -217.
Id. at 440 U. S. 221 . This was so because of "the widespread view that it [was] very difficult to underwrite risks in an informed and responsible way without intra-industry cooperation." Ibid. The Court was thus reluctant to extend the § 2(b) exemption to the case before it, "because the Pharmacy Agreements involve parties wholly outside the insurance industry." Id. at 440 U. S. 231 .
Plainly, ULL's use of NYSCA's Peer Review Committee plays no part in the "spreading and underwriting of a policyholder's risk." Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. at 440 U. S. 211 . Both the "spreading" and the "underwriting" of risk refer in this context to the transfer of risk characteristic of insurance. See n 7, supra. And as the Court of Appeals below observed:
Turning to the second Royal Drug criterion, it is clear that ULL's use of NYSCA's Peer Review Committee is not an integral part of the policy relationship between insurer and insured. In the first place, the challenged arrangement between ULL and NYSCA is obviously distinct from ULL's contracts with its policyholders. In this sense, the challenged arrangement resembles the Pharmacy Agreements in Royal Drug. There the Court rejected the proposition that the Agreements were " between insurer and insured.'" Group Life & Health Ins. Co. v. Royal Drug Co., supra, at 440 U. S. 215 , quoting SEC v. National Securities, Inc., 393 U.S. at 393 U. S. 460 . Rather, it recognized those Agreements as
440 U.S. at 440 U. S. 216 . Similarly, ULL's use of NYSCA's Peer Review Committee is a separate arrangement between the insurer and third parties not engaged in the business of insurance.
Id. at 440 U. S. 213 -214 (footnotes omitted). Similarly, when presented with policyholder claims for reimbursement, ULL must decide whether the claims are covered by its policies. But these decisions are entirely ULL's, and its use of NYSCA's Peer Review Committee as an aid in its decisionmaking process is a matter of indifference to the policyholder, whose only concern is whether his claim is paid, not why it is paid. As in Royal Drug, petitioners have shown, at the most, that the challenged peer review practices result in "cost savings to [ULL] which may be reflected in lower premiums if the cost savings are passed on to policyholders." Id. at 440 U. S. 216 . To grant the practices a § 2(b) exemption on such a showing "would be plainly contrary to the statutory language, which exempts the business of insurance' and not the `business of insurance companies.'" Id. at 440 U. S. 217 .
" National Securities, 393 U.S. at 393 U. S. 459 ."
We may assume that the challenged peer review practices need not be denied the § 2(b) exemption solely because they involve parties outside the insurance industry. But the involvement of such parties, even if not dispositive, constitutes part of the inquiry mandated by the Royal Drug analysis. As the Court noted there, § 2(b) was intended primarily to protect " intra -industry cooperation" in the underwriting of risks. 440 U.S. at 440 U. S. 221 (emphasis added). Arrangements between insurance companies and parties outside the insurance industry can hardly be said to lie at the center of that legislative concern. More importantly, such arrangements may prove contrary to the spirit, as well as the letter, of § 2(b), because they have the potential to restrain competition in noninsurance markets. Indeed, the peer review practices challenged in the present cases assertedly realize precisely this potential: respondent's claim is that the practices restrain competition in a provider market -- the market for chiropractic services -- rather than in an insurance market. App. 8a. Thus, we cannot join petitioners in depreciating the
fact that parties outside the insurance industry are intimately involved in the peer review practices at issue in these cases. [ Footnote 8 ]
In sum, we conclude that ULL's use of NYSCA's Peer Review Committee does not constitute the "business of insurance" within the meaning of § 2(b) of the McCarran-Ferguson Act. [ Footnote 9 ] The judgment of the Court of Appeals is accordingly
The premise of the dissent is that NYSCA's Peer Review Committee actually constitutes "the claims adjustor" in these cases. See post at 458 U. S. 137 . From this premise, the dissent reasons that, since "claims adjustment is part and parcel of the business of insurance' protected by the McCarran-Ferguson Act," post at 458 U. S. 138 , it necessarily follows that the peer review practices at issue in these cases must enjoy the Act's exemption. The fatal flaw in this syllogism is that NYSCA's Peer Review Committee is not the claims adjustor. As the Court of Appeals noted: "Opinions of the committee are not binding unless the parties agree beforehand that they will be." 650 F.2d at 388. Thus, in a case such as the present ones, ULL is perfectly free to disregard the Committee's evaluation. Even if ULL were to act upon the Committee's opinion, the nonbinding nature of the Committee's evaluation means that, at most, peer review is merely ancillary to the claims adjustment process. We see no reason that such ancillary activities must necessarily enjoy the McCarran-Ferguson exemption from the antitrust laws. Unlike activities that occur wholly within the insurance industry -- such as the claims adjustment process itself -- the ancillary peer review practices at issue in these cases "involve parties wholly outside the insurance industry." See Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. at 440 U. S. 231 . Thus peer review falls afoul of the third Royal Drug criterion in a way in which pure claims adjustment activities cannot.
the Court today exposes to antitrust liability an aspect of the business of insurance designed to promote fair and efficient claims settlement. The Court reaches this conclusion by determining that the peer review process does not spread risk, is not an integral part of the insurance relationship, and is not limited to entities within the insurance industry. Because I find the claims adjustment function of the Peer Review Committee to be at the heart of the relationship between insurance companies and their policyholders, I conclude that such committees are clearly within the sphere of insurance activity which the McCarran-Ferguson Act intended to protect from the effect of the antitrust laws. [ Footnote 2/1 ] This conclusion finds support in the legislative history of the Act and in Royal Drug and its predecessors.
SEC v. National Securities, Inc., 393 U. S. 453 , 393 U. S. 459 (1969). We recognized this congressional purpose in Royal Drug:
Group Life & Health Ins. Co. v. Royal Drug Co., supra, at 440 U. S. 215 -216 (quoting SEC v. National Securities, Inc., supra, at 393 U. S. 460 ). Thus, whatever else was said in Royal Drug about the indispensable characteristic of risk-spreading, the Court found the contractual relationship between the insurer and the insured to be the essence of the "business of insurance."
J. Wickman, Evaluating the Health Insurance Risk 57 (1965). [ Footnote 2/2 ]
It is the claims adjustor -- in this case, petitioners' Peer Review Committee -- which determines whether and to what extent an insured's losses will be covered. The Court thus plainly errs when it concludes that the role of petitioners' Peer Review Committee "is not an integral part of the policy relationship between insurer and insured," ante at 458 U. S. 131 , and "is a matter of indifference to the policyholder." Ante at 458 U. S. 132 . Few insurance matters could be of greater importance to policyholders than whether their claims will be paid, and it is the Peer Review Committee which, in effect, makes that determination. Being a critical component of the relationship
between an insurer and an insured, claims adjustment is part and parcel of the "business of insurance" protected by the McCarran-Ferguson Act. [ Footnote 2/3 ]
This conclusion finds support in a source of guidance completely disregarded by the Court -- the legislative history of McCarran-Ferguson. The passage of the Act was preceded by the introduction in the Senate Committee of a report and a bill prepared by the National Association of Insurance Commissioners. "The views of the NAIC are particularly significant, because the Act ultimately passed was based in large part on the NAIC bill." Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. at 440 U. S. 221 (footnote omitted). Included in that bill were seven specific insurance practices to which the Sherman Act was not to apply, and to which the Court in Royal Drug looked for guidance as to the meaning of the phrase "business of insurance." See id. at 440 U. S. 222 . Among those seven protected practices was the process of claims adjustment:
Apparently unable to discern the difference between a mere method of paying a claim and the more fundamental process of determining whether a claim is covered by the insurance agreement, the Court finds that petitioners' peer review procedure "resembles the Pharmacy Agreements in Royal Drug." Ante at 458 U. S. 131 . But the Pharmacy Agreement at issue in Royal Drug was simply a method of reimbursing policyowners for medication expenses. The policyowners could obtain medication from participating pharmacies simply by paying the amount that otherwise would not be covered by the insurance plan. The pharmacies thus constituted nothing more than in-kind dispensers of insurance payments; they played no role whatsoever in the more fundamental process of assessing the validity of a claim and determining the amount to be paid. Peer review committees, which fulfill such a fundamental role, are thus quite unlike the arrangements considered by the Court in Royal Drug.