Opinion ID: 723951
Heading Depth: 2
Heading Rank: 3

Heading: McCarran-Ferguson Act Exemptions

Text: 25 The plaintiffs also charge that Transamerica should be held liable under RICO pursuant to the same theories that make the Bank liable. But Transamerica responds that it is exempt from RICO liability under the McCarran-Ferguson Act. That statute provides: 26 (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 specifically relates to the business of insurance. 27 15 U.S.C. § 1012 (1976). Thus, because RICO does not specifically relate to the business of insurance, the initial questions here are (1) whether the conduct by the insurance company in this case constitutes the business of insurance, and (2) whether it is regulated by Ohio insurance law. In Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982), the Supreme Court set out three factors that define when a company is engaging in the business of insurance for the purposes of the McCarran-Ferguson Act to apply: the practice must (1) have the effect of transferring or spreading a policyholder's risk; (2) be an integral part of the policy relationship between the insurer and the insured; and (3) be limited to entities within the insurance industry. Id. at 129, 102 S.Ct. at 3009; see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48-49, 107 S.Ct. 1549, 1553-54, 95 L.Ed.2d 39 (1987). Here Transamerica clearly is engaging in the business of insurance by providing policies that spread the Bank's and the plaintiffs' risks. The policies and the receipt of premiums are the essence of the policy relationship between the insurer and the insured, no matter whether one views the Bank or the plaintiffs as the insured. Finally, it seems clear that the sale of insurance coverage is one that is limited to entities within the insurance industry. Thus, under the Union Labor Life and Pilot Life definition, Transamerica was engaging in the business of insurance. 28 In addition, Ohio has several state-law statutes that regulate insurance premiums, rebates and commissions. See Ohio Rev.Code Ann. § 3937 (certificates and premiums); § 3905.05 (commissions), § 3933.01 (rebates), and § 3901.21(G)(1) (unfair and deceptive acts defined) (Baldwin 1994); see also United States Dep't of Treasury v. Fabe, 508 U.S. 491, 494, 113 S.Ct. 2202, 2204, 124 L.Ed.2d 449 (1993) (addressing question of when, under the McCarran-Ferguson, a state statute is  'for the purpose of regulating the business of insurance' ). Notably, Ohio law does not provide for a direct private cause of action for an insured if an insurance company violates any of these regulations. Instead it creates an administrative review process. See Ohio Rev.Code Ann. §§ 3901.22, 3937.04(B) (Baldwin 1994). In some instances insurance companies may be held criminally liable. Ohio Rev.Code Ann. § 3999. 29 Once it is determined that McCarran-Ferguson applies, the central question depends on whether RICO will invalidate, impair or supersede any section of the Ohio insurance code. Under this analysis, McCarran-Ferguson requires three inquiries: (1) does the federal statute at issue specifically relate to the business of insurance; (2) was the state statute at issue enacted for the purpose of regulating the business of insurance; and (3) would application of the federal statute invalidate, impair or supersede the same statute. Ambrose v. Blue Cross & Blue Shield of Virginia, Inc., 891 F.Supp. 1153, 1158 (E.D.Va.1995) (citing Fabe, 508 U.S. at 501, 113 S.Ct. at 2208). It is clear that RICO does not specifically relate to the business of insurance and that the provisions of Ohio's insurance code, including those on unfair and deceptive practices under Ohio Rev.Code Ann. § 3901.21, obviously were enacted for the purpose of regulating insurance. Thus, the only pertinent question that remains is whether RICO invalidates, impairs or supersedes these sections of the Ohio Revised Code. 30 Recently, this Court in Nationwide Mut. Ins. Co. v. Cisneros, held that the McCarran-Ferguson Act did not bar application of the federal Fair Housing Act to insurers who were accused of discriminating in issuing home owner insurance policies in Ohio, even though the Ohio Revised Code contained provisions also designed to combat discrimination in housing insurance, 52 F.3d 1351, 1363 (6th Cir.1995). The insurance company claimed that the Fair Housing Act impaired or superseded the Ohio Revised Code in two respects. First, it claimed that the Fair Housing Act allowed claims based on disparate impact that were not permissible under the Ohio Revised Code. Id. at 1361. Second, it argued that the Fair Housing Act created a private right of action allowing jury trials and punitive damages that were not permissible under Ohio's administrative review process. Id. at 1363. The Nationwide court held that the issue of whether the Fair Housing Act impaired the Ohio Code because it allowed claims based on disparate impact was not ripe. Id. It then held that allowing additional procedural means, such as jury trials or punitive damages, could not be said to be impairing or superseding Ohio law. Id. Nationwide stands for the proposition that McCarran-Ferguson protects the substantive measures embodied in state law. A party seeking to invoke McCarran-Ferguson cannot simply point to additional procedural measures included in a federal law without identifying some substantive aspect of the state law that is being invalidated, impaired or superseded. Thus, as the plain language of the statute suggests, this is fundamentally a question of what effect RICO has on the state law. Ambrose, 891 F.Supp. at 1166-67. 31 In this case, Transamerica has pointed to several substantive sections of the Ohio Revised Code that would be either impaired or superseded by application of RICO. Most notably, sections 3901.21-.22 of the Ohio Revised Code provide detailed regulation and remedies for unfair and deceptive acts, including making misrepresentations and providing rebates. The different liability under Ohio law for violations, as well as different standards of proof necessary to demonstrate misrepresentations, means that RICO does impair the ability of Ohio to regulate this type of behavior. In particular, RICO calls for treble damages, which Ohio law does not. RICO requires some showing of fraud, whereas Ohio law flatly outlaws rebates in auto insurance regardless of whether fraud is involved. Finally, Ohio law may employ a different standard than the one under RICO to determine when a misrepresentation violates its statute. In short, applying RICO to insurance companies would subject them to a different standard of behavior than the one envisioned by Ohio. By holding insurance companies liable under a federal law, such as RICO, when Ohio law provides for no liability, RICO would impair the regulatory framework within which Ohio expects its insurance companies to do business. 32 In this instance, application of RICO to Transamerica is precluded by McCarran-Ferguson. Consequently, state law governs whatever misconduct Transamerica may have committed. For cases holding insurance companies exempt from RICO actions under McCarran-Ferguson see Ambrose, 891 F.Supp. at 1168; Forsyth v. Humana, Inc., 827 F.Supp. 1498, 1520 (D.Nev.1993); LeDuc v. Kentucky Cent. Life Ins. Co., 814 F.Supp. 820, 829 (N.D.Cal.1992); Everson v. Blue Cross & Blue Shield of Ohio, 898 F.Supp. 532, 542-45 (N.D.Ohio 1994). But see Merchants Home Delivery Serv., Inc. v. Frank B. Hall & Co., 50 F.3d 1486, 1491 (9th Cir.) (holding that RICO is not barred by McCarran-Ferguson because fraudulent collection of money for false claims is not business of insurance), cert. denied, 516 U.S. 964, 116 S.Ct. 418, 133 L.Ed.2d 335 (1995). 33 Some disagreement exists, however, as to whether banks should also be entitled to exemption under McCarran-Ferguson. Compare Gordon v. Ford Motor Credit Co., 868 F.Supp. 1191, 1197 (N.D.Cal.1992) (holding that McCarran-Ferguson does protect finance company from RICO action) with Bermudez v. First of America Bank Champion, N.A., 860 F.Supp. 580, 589-91 (N.D.Ill.1994) (ruling that McCarran-Ferguson does not protect bank). In the present case, the Bank is not protected by McCarran-Ferguson. The Bank cannot claim here that it was engaged in the practice of risk spreading or transferring risk. Instead it was purchasing insurance to protect its own security interest, and then was passing the costs along to the plaintiffs. Indeed, all of the documentation makes clear that the insurance purchased from Transamerica is for the Bank's protection, and is limited to the outstanding balance on the loans held by the Bank. See Bermudez, 860 F.Supp. at 589-91. As the Bermudez court noted [t]he fact that the unlawful practices alleged in the instant case involve a scheme for passing on the cost of insurance premiums does not covert this case into one limited to the insurance industry. Id. at 591. Therefore, because the Bank was not engaged in the practice of insurance, it is not protected from this RICO action by the McCarran-Ferguson exemption.