Opinion ID: 655302
Heading Depth: 3
Heading Rank: 2

Heading: Caselaw Under the McCarran-Ferguson Act

Text: 32 Our second task is to determine whether Section 17B:30-12(d) regulates the business of insurance as that phrase has been interpreted in caselaw applying the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015. The Supreme Court has explained that [t]hree criteria [are] used to determine whether a practice falls under the 'business of insurance' for purposes of the McCarran-Ferguson Act. Pilot, 481 U.S. at 48-49, 107 S.Ct. at 1553. 33 [F]irst, 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. 34 Hartford Fire Ins. Co. v. California, --- U.S. ----, ----, 113 S.Ct. 2891, 2901, 125 L.Ed.2d 612 (U.S. June 28, 1993) (quoting Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S.Ct. 3002, 3009, 73 L.Ed.2d 647 (1982)). 35 Travelers does not dispute that Section 17B:30-12(d) satisfies the first criterion by spreading the risk of health care coverage among the general population (including those who have handicaps). Cf. Metropolitan Life, 471 U.S. at 743, 105 S.Ct. at 2391 ([The state statute] obviously regulates the spreading of risk: as we have indicated, it was intended to effectuate the legislative judgment that the risk of mental-health care should be shared.). We turn to the second criterion--whether the statute regulates an integral part of the policy relationship between the insurer and the insured. 36 In Metropolitan Life, a somewhat analogous case, the Supreme Court held that a law came within this second criterion because it limit[ed] the type of insurance that an insurer may sell to the policyholder. 471 U.S. at 743, 105 S.Ct. at 2391. Similarly, in this case, Section 17B:30-12(d) prohibits the inclusion of discriminatory terms in insurance policies. Consequently, it would appear to satisfy this criterion. Travelers argues, however, that Section 17B:30-12(d) does not satisfy this criterion because, [a]lthough [it] impose[s] a standard of conduct, [it] do[es] not regulate the terms of insurance policies. (Travelers' Br. at 20-21). 37 Travelers' argument ignores the express provision in the statute that prohibits discrimination in the terms and conditions of [a] policy. N.J.Stat.Ann. § 17B:30-12(d). A law that prohibits certain policy provisions may be every bit as integral to the insurer-insured relationship as one that mandates the inclusion of certain terms. Cf. Metropolitan Life, 471 U.S. at 743, 105 S.Ct. at 2391 (concluding that statute which mandates inclusion of certain policy provisions is integral to the insurer-insured relationship). Thus, we conclude that Section 17B:30-12(d) satisfies the second McCarran-Ferguson criterion. We turn to an analysis of the third criterion. 38 Facially, Section 17B:30-12(d) appears to meet the third criterion that it be limited to entities within the insurance industry. Hartford, --- U.S. at ----, 113 S.Ct. at 2901 (quoting Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S.Ct. 3002, 3009, 73 L.Ed.2d 647 (1982)). Travelers argues, however, that Section 17B:30-12(d) is not technically limited to the insurance industry because it prohibits discrimination by any person and the term person is statutorily defined to include any individual, insurer, company, association, organization, society, partnership, syndicate, trust, business trust, corporation [or] legal entity. In support of its position, Travelers notes that plaintiff has named non-insurers (i.e. Baker and Richardson-Vicks) as defendants. Thus, Travelers likens Section 17B:30-12(d) to a generic unfair trade practice statute which would have equal application to any industry. We find Travelers' argument unpersuasive. 39 We note that Section 17B:30-12(d) regulates only persons who provide life insurance, health insurance and annuities. N.J.Stat.Ann. § 17B:30-1 (West 1985). We also point out that it speaks in terms that are largely unique to the insurance industry (e.g. premium, policy fees, rates, benefits payable). 6 We conclude that the statute is distinguishable from any generic unfair trade practice statute and that it satisfies the third McCarran-Ferguson criterion. 40 We have concluded that the New Jersey statute satisfies each of the three McCarran-Ferguson criteria. Our conclusion is further supported by the reason given by the legislature for enacting the statute which contains Section 17B:30-12(d). The statute's declaration of purpose states: The principal purpose [of the statute] is to regulate trade practices in the business of life insurance, health insurance and annuities in accordance with the intent of Congress as expressed in the [McCarran-Ferguson] Act.... N.J.Stat.Ann. § 17B:30-1 (West 1985). 7 41 Both our common sense reading of the phrase regulates insurance and our application of the McCarran-Ferguson criteria support the conclusion that the New Jersey statute regulates insurance within the meaning of ERISA's saving clause. As such, the statute would appear to be saved from ERISA preemption. Notwithstanding this conclusion, Travelers argues that Section 17B:30-12(d) is preempted because it directly conflicts with ERISA. We now address that argument.