Opinion ID: 3010847
Heading Depth: 2
Heading Rank: 1

Heading: Preclusion Analysis Under the McCarran-

Text: Ferguson Act As with any other issue of statutory construction, the starting point in the Act's interpretation is the language of the statute itself. Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 210 (1979). Section 2(a) of the statute, by its terms, affirmatively subjects the business of insurance to state regulation. 15 U.S.C. S 1012(a). The statute then takes the further step of proscribing unintended federal interference of state insurance laws by a general mandate that no federal law shall . . . invalidate, impair, or supersede any state law enacted for the purpose of regulating the business of insurance. 15 U.S.C. S 1012(b). This preclusionary mandate does not apply when the federal statute in question specifically relates to the business of insurance, in which case normal supremacy rules control and the federal statute trumps conflicting state law.1 The Supreme Court has extensively reviewed the Act's legislative history, see, e.g., United States Dep't of the Treasury v. Fabe, 508 U.S. 491, 499-500 (1993), Securities and Exchange Comm'n v. National Securities, Inc., 393 U.S. 453, 458-59 (1969), and has fully explained the legislative intent behind the statute's preclusionary approach to federal intrusion on state insurance laws: [C]ongress' purpose was broadly to give support to the existing and future state systems for regulating and taxing the business of insurance. This was done in two _________________________________________________________________ 1. Because the plaintiff 's complaint is not grounded in federal antitrust laws, we focus our analysis on the first clause of section 1012(b). As the Supreme Court noted, the language of the Act distinguishes preclusion analysis where antitrust laws are at issue. United States Dep't of the Treasury v. Fabe, 508 U.S. 491, 504 (1993). 6 ways. One was by removing obstructions which might be thought to flow from its own power, whether dormant or exercised, except as otherwise provided in the Act itself or in future legislation. The other was by declaring expressly and affirmatively that continued state regulation and taxation of this business is in the public interest and that the business and all who engage in it shall be subject to the laws of the several states in these respects. Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 429-30 (1946) (footnote omitted); see also Lac D'Amiante du Quebec, Ltee v. American Home Assurance Co., 864 F.2d 1033, 1038-39 (3d Cir. 1988). If it is determined that the alleged conduct at issue broadly constitutes the business of insurance, and is therefore subject to state regulation under section 1012(a), the next issue is whether the anti-preemption mandate of section 1012(b) precludes a federal cause of action. Here, the statute makes clear that a party is barred from suing under federal law if three distinct requirements are met. First, the federal law at issue does not specifically relate to the business of insurance. Second, the state law regulating the challenged conduct was enacted for the purpose of regulating the business of insurance. Finally, an application of federal law would invalidate, impair, or supersede such state law.2 Fabe, 508 U.S. at 501. _________________________________________________________________ 2. We note at the outset that federal courts have seemingly disagreed as to the proper analytic inquiry into McCarran-Ferguson Act preclusion. See, e.g., Dornberger v. Metropolitan Life Ins. Co. , 961 F.Supp. 506, 516 n.4 (S.D.N.Y. 1997); Ambrose v. Blue Cross & Blue Shield of Virginia, Inc., 891 F.Supp. 1153, 1158 n.4 (E.D. Va. 1995), aff'd, 95 F.3d 41 (4th Cir. 1997) (unpublished per curiam). Some courts draw upon a four-part inquiry similar to that used by district court and the Wexco court. See Kenty v. Bank One, Columbus, N.A., 92 F.3d 384, 391-92 (6th Cir. 1996); American Deposit Corp. v. Schacht, 84 F.3d 834, 838-43 (7th Cir. 1996); Merchants Home Delivery Service, Inc. v. Frank B. Hall & Co., 50 F.3d 1486, 1489 (9th Cir. 1995); Cochran v. Paco, Inc. 606 F.2d 460, 464 (5th Cir. 1979). Other courts have announced a more truncated three-part test that does not require a specific conclusion that the defendant's conduct constitutes the business of insurance. See Doe v. Norwest Bank Minn., 107 F.3d 1297, 1305 n.8 (8th Cir. 1997); United States. v. Rhode Island Insurers' Insolvency Fund, 80 F.3d 616, 619 (1st Cir. 1996). Because of this apparent divergence, it is important to discuss our analysis in detail. 7 The threshold question in determining whether the antipreemption mandate of 15 U.S.C. S 1012(b) applies is whether the challenged conduct broadly constitutes the business of insurance in the first place. 15 U.S.C. S 1012(a). If the contested activities are wholly unrelated to the insurance business, then the McCarran-Ferguson Act has no place in analyzing federal regulation because only when [insurance companies] are engaged in the `business of insurance' does the act apply. National Securities, 393 U.S. at 459-60. In addressing the issue of preclusion under S 1012(b), we read no more into the statute than what it says: unless a federal law specifically relates to the business of insurance, it will not be applied when it invalidates, impairs, or supersedes a state law enacted for the purpose of regulating the business of insurance. If the defendant's conduct does not constitute the business of insurance, then the Act simply does not apply and there is no need to confront preclusion issues under S 1012(b). We cannot imagine how section 1012(b) protects a state law enacted for the purpose of regulating the insurance business when the activity in question does not relate to insurance. To hold otherwise would require us to abandon the structure and purpose of the McCarran-Ferguson Act. Our reading of the Act is amply supported by its legislative history and Supreme Court precedent. As explained by the Supreme Court: The statute did not purport to make the States supreme in regulating all the activities of insurance companies; its language refers not to the persons or companies who are subject to state regulation, but to laws regulating the business of insurance. Insurance companies may do many things which are subject to paramount federal regulation; only when they are engaged in the business of insurance does the statute apply. Certainly the fixing of rates is part of this business. . . . The selling and advertising of policies, and the licensing of companies and their agents are also within the scope of the statute. Congress was concerned with the type of state regulation that centers around the contract of insurance, the transaction 8 which [the Court has previously held] was not commerce. The relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement--these were the core of the business of insurance. Undoubtedly, other activities of insurance companies relate so closely to their status as reliable insurers that they too must be placed in the same class. But whatever the exact scope of the statutory term, it is clear where the focus was--it was on the relationship between the insurance company and the policyholder. Statutes aimed at protecting or regulating this relationship, directly or indirectly are laws regulating the business of insurance. National Securities, 393 U.S. at 459-60 (citations omitted). Thus, under S 1012(a), the Act initially recognizes that regulating the business of insurance rests in the hands of the states. Of these state laws relat[ing] to the regulation or taxation of the insurance business, 15 U.S.C. S 1012(a), the next subsection protects from federal preemption a special class of state laws enacted . . . for the purpose of regulating the business of insurance. 15 U.S.C. S 1012(b). But as explained by the Supreme Court, the categories of laws protected by S 1012(b) necessarily encompasses more than just the `business of insurance'  and include those laws that possess the  `end, intention, or aim' of adjusting, managing, or controlling the business of insurance. Fabe, 508 U.S. at 505 (citation omitted). The focus of section 1012(b) is not directed toward the business of insurance itself, but rather toward a certain subset of laws relating to insurance regulation under section 1012(a). That demarcation line is found in S 1012(b) as laws enacted . . . for the purpose of regulating the business of insurance. Thus, even though the state has a law regulating the challenged activity, a court must still address whether that law was meant to fall within the ambit of the Act's protection. This is achieved by deciding whether the activity in question constitutes the business of insurance and whether the specific state law was enacted with the  `end, intention, or aim' of adjusting, managing, or controlling the business of insurance. Fabe, 508 U.S. at 505. 9