In Paul v. Virginia (75 U.S. (8 Wall.) 168 (1868)), the Supreme Court ruled that "[i]ssuing a policy of insurance is not a transaction of [interstate] commerce." United States v. South-Eastern Underwriters Ass ' n. (322 U.S. 533 (1944)) held that the federal antitrust laws were applicable to an insurance association's interstate activities in restraint of trade. Although the 1944 Court did not specifically overrule its prior determination, the case was viewed as a reversal of 75 years of precedent and practice, and created significant apprehension about the continued viability of state insurance regulation and taxation of insurance premiums. Congress' response was the 1945 McCarran-Ferguson Act. In addition to preserving the states' ability to tax insurance premiums, McCarran-Ferguson prohibits application of the federal antitrust laws and similar provisions in the Federal Trade Commission Act, as well as most other federal statutes, to the "business of insurance" to the extent that such business is regulated by State law —except that the antitrust laws are applicable if it is determined that an insurance practice amounts to a boycott. Inasmuch as "[t]he primary purpose of the McCarran-Ferguson Act was to preserve state regulation of the activities of insurance companies since it was the power of the states to regulate and tax insurance companies that was threatened after ... South-Eastern Underwriters ...," we first answer the questions, "What is insurance? "; and, "is it defined pursuant to state or federal law?" Then, given that the statute addresses itself to the "business of insurance," this report sets out some judicial opinions about just what does—and does not—constitute the "business of insurance," as well as state regulation of such business, and the scope of McCarran's "boycott" exception. Finally, it will note some McCarran-related legislation introduced in the 110 th and 109 th Congresses, and discuss, briefly, the possible consequences of the measures, especially in light of the non-statutory state-action doctrine in antitrust law. In response to the Securities and Exchange Commission's insistence that insurers issuing variable annuity contracts register them as securities under the federal securities laws, the insurers asserted that McCarran-Ferguson shielded them from federal regulation, but that even if it did not, they qualified for the insurance exemptions from the federal securities laws. The Supreme Court, reversing lower court decisions, held that neither state regulation of variable annuities nor their issuance by insurers qualified the annuities as "insurance." Accordingly, neither insurers nor state regulators could (1) invoke McCarran-Ferguson as a shield against federal regulation of variable annuities or (2) qualify as beneficiaries of the insurance exclusions in the federal securities laws. Moreover, the case established that the definition of "insurance" under McCarran-Ferguson is a federal, not a state, question. NationsBank v. VALIC made a similar determination concerning the sale of fixed annuities, which are sold both by insurers and by banks. The Court agreed with the Comptroller of the Currency that in the provision of fixed annuities, "banks are essentially offering financial investment instruments of the kind congressional authorization permits them to broker. Hence, [it was reasonable to characterize the] permission NationsBank sought as an 'incidental powe[r] ... necessary to carry on the business of banking.'" The scope of McCarran-Ferguson protection—the statute's applicability in instances in which insurance companies are actors in an area in which the federal government clearly has not ceded its regulatory authority to the states—has been addressed numerous times, both by the Supreme Court and the lower federal courts. Generally, it has been found that federal statutes are not trumped by McCarran except where the "business of insurance" is directly involved, or where a state insurance regulatory scheme or state insurance administration would be adversely affected. Securities and Exchange Commission ( SEC ) v. National Securities, Inc. , limited the scope of the term "business of insurance" to activities that involved only insurance companies' relationships with their policyholders. The merger of two insurance companies was challenged by the SEC, which alleged violations of federal securities laws, despite the merger's approval by the Arizona Director of Insurance. National Securities argued that the merger was in compliance with state law, and that the McCarran-Ferguson Act precluded application of an inconsistent federal law. The Court disagreed, holding that a state statute aimed at protecting the stockholders of insurance companies was not a statute regulating the "business of insurance": " whatever the exact scope of the statutory term, it is clear where the focus was [in McCarran]—it was on the relationship between the insurance company and the policyholder. [Only s]tatutes aimed at protecting or regulating this relationship ... are laws regulating the ' business of insurance. ' " About 25 years after National Securities limited the term "business of insurance" to activities involving only insurance companies' relationships with their policyholders, the Court extended that ruling. It held, in U.S. Department of Treasury v. Fabe , that state laws addressing the liquidation of insurers constitute "the business of insurance"—and, under McCarran-Ferguson, preempt conflicting federal statutes— but only to the extent that they are necessary to protect the insolvent's policyholders. The United States had argued that an Ohio statute determining the order in which claims against an insolvent insurance company are to be paid should be preempted by the federal priority statute authorizing the payment of U.S. claims against an insolvent entity. The Court disagreed, however, with respect to the payment of policyholder claims and payment of the administrative expenses "reasonably necessary to" the payment of policyholder claims, and said: "[t]he primary purpose of a statute that distributes the insolvent insurer's assets to policyholders in preference to other creditors is identical to the primary purpose of the insurance company itself: the payment of claims made against policies." Later decisions continued the distinction made by Fabe between statutes that address the "business of insurance" and may, therefore, "reverse-preempt" conflicting federal statutes, and those that will be preempted under traditional, constitutional principles. For example, International Ins. Co. v. Duryee involved an Ohio statute that "effectively prohibit[ed] out-of-state insurance companies from removing cases from [Ohio] state to federal court by barring such companies from further business in Ohio." The United States Court of Appeals for the Sixth Circuit emphatically stated there, that "[t]he McCarran-Ferguson Act was not meant to protect a statute so tangentially related to insurance from the general rule of federal law supremacy." The court first quoted from a 1922 Supreme Court ruling, Terral v. Burke Const. Co. , [A] state may not, in imposing conditions upon the privilege of a foreign corporation's doing business in the state, exact from it a waiver of the exercise of its constitutional right to resort to the federal courts, or thereafter withdraw the privilege of doing business because of its exercise of such right, whether waived in advance or not. And then it quoted from Fabe itself: the Fabe Court found that the "broad category of laws enacted 'for the purpose of regulating the business of insurance' ... necessarily encompasses more than just the 'business of insurance.'" Group Life & Health Insurance Co. v. Royal Drug Co. stands for the proposition that McCarran-Ferguson's "exemption is for the 'business of insurance,' not the 'business of insurers.'" Independent retail pharmacies charged Blue Shield of Texas with price fixing in the negotiation of Pharmacy Agreements, based on which the insurance company had issued policies that facially entitled policyholders to purchase prescription drugs from any pharmacy. In reality, the independents argued, insureds were more likely to choose pharmacies that had entered into the "Pharmacy Agreements" because at those establishments (mostly larger, chain pharmacies) policyholders were required to pay only $2 for each prescription drug purchased; a "Pharmacy Agreement"-pharmacy would be reimbursed for its costs and the $2 charge would be its profit. At nonparticipating pharmacies (mostly smaller, independent stores), insureds would be expected to pay the entire cost of any drug, and then seek reimbursement from Blue Shield for 75% of the cost. The Supreme Court rejected Blue Shield's argument that the McCarran-Ferguson Act made the Pharmacy Agreements immune to prosecution under the antitrust laws, the Court emphasizing that although "the agreements between Blue Shield and the participating pharmacies ... [may] serve ... to minimize the costs Blue Shield incurs in fulfilling its underwriting obligations," they "do not involve any underwriting or spreading of risk," are not integral to the relationship between the insurer and the insured, and are not limited to entities within the insurance industry. In Gilchrist v. State Farm Mutual Auto Ins. Co. , the United States Court of Appeals for the Eleventh Circuit appeared not to continue the Royal Drug reasoning. When policyholders challenged the practice of certain automobile insurers of improperly limiting the scope of insurance coverage for auto body repairs, the court distinguished some earlier decisions concerning the scope of the McCarran-Ferguson exemption. The appeals court first emphasized that Royal Drug (as well as a later case in which chiropractors challenged the insurance-company policy of peer reviewing chiropractic fees and practices ) concerned challenges by non-policyholders to insurance companies' agreements with third parties. But, it noted, "Gilchrist [on the other hand] is a policyholder whose claim is that Insurers have charged excessive premiums for inferior repair work on her automobile."