Court Opinion

ID: 9011905
Source: CourtListenerOpinion
Date Created: 2022-11-27 14:05:28.158889+00
Date Added: 2024-06-11T17:11:24.795719
License: Public Domain

ALITO, Circuit Judge,
dissenting:
I believe that the setting of uniform rates for title search and examination services is part of the “business of insurance” within the meaning of Section 2(b) of the MeCarran-Ferguson Act, 15 U.S.C. § 1012(b). I therefore dissent.
I.
Section 2(b) of the MeCarran-Ferguson Act makes the federal antitrust laws inapplicable to the “business of insurance” to the extent that such business is regulated by state law and is not subject to the “boycott” exception contained in Section 3(b), 15 U.S.C. § 1013(b). In this case, as the majority notes (maj. opinion at 1133), the petitioners’ challenged activities are regulated by state law and do not fall within the “boycott” exception, and therefore the applicability of the MeCarran-Ferguson Act turns on whether those activities constitute' the “business of insurance.”
In interpreting this statutory term, the majority properly looks to the Supreme Court’s opinion in Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982). There, the Court, relying on its prior decision in Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979), wrote that three criteria are “relevant in determining whether a particular practice is part of the ‘business of insurance’ exempted from the antitrust laws by § 2(b)....” 458 U.S. at 129, 102 S.Ct. at 3009. These criteria, none of which is “necessarily determinative in itself,” are (id):
[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.
In the present case, the outcome produced by applying these criteria depends on the way-in which the “practice” at issue is defined. The majority views the practice as “the title search and examination . itself’ (Majority Opinion at 1133-34), divorced from the issuance of the title insurance policy. The Commission took a similar approach, stating that it drew “a sharp distinction” between these two activities. Commission Opinion at 33; J.A. at 160.
Once the pertinent practice is defined in this way, it can be argued with considerable force, as the majority and the-Commission have done, that most if not all of the Royal Drug-Pireno criteria cannot be met. Indeed, with respect to the first criterion, I fully agree with the majority that “[t]he title search and examination does not itself spread or transfer risk.” Majority Opinion at 1133-34. Likewise, as to the third criterion, I cannot quarrel with the majority’s conclusion that the practice of conducting title searches and examinations is not and has not historically .been limited to entities within the insurance industry. Majority Opinion at 1133-34.
*1142If, however, the practice at issue is defined differently — as the process of issuing title insurance, an indispensable component of which is the title and search examination-then the Royal Drug-Pireno criteria point to an entirely different result. The practice of issuing title insurance clearly transfers and spreads risk, is “an integral part of the policy relationship between the insurer and the insured,” and is “limited to entities within the insurance industry.” Pireno, 458 U.S. at 129, 102 S.Ct. at 3009.
Thus, the decisions reached by the majority and the Commission are correct only if they have correctly defined the “practice” that must be tested against the Royal Drug-Pireno criteria. And neither Royal Drug nor Pireno explains how a court should go about defining the scope of the “practice” to which their criteria should be applied.
II.
While Royal Drug and Pireno do not address this issue, earlier decisions of the lower courts take the sensible view that a title search and examination performed as part of the process of issuing title insurance cannot be dissected from the rest of the policy-issuing process for the purpose of applying the McCarran-Ferguson Act.
In Commander Leasing Co. v. Transamerica Title Insurance Co., 477 F.2d 77 (10th Cir.1973), the court of appeals upheld the district court’s determination that title search and examination was not a “separate business” but rather a “condition precedent” to the issuance of title insurance and a part of the “business of insurance.” Id. at 81. Similarly, in Schwartz v. Commonwealth Land Title Insurance Co., 374 F.Supp. 564, 574 (E.D.Pa.1974), Judge Becker aptly wrote:
The investigation of the risk of loss prior to deciding whether to insure that risk is clearly part of the business of insurance _ [I]t would be in our view unrealistic, indeed ostrich-like, to separate the title search process from the pure insurance aspect of the title companies’ activities and ... to call only the latter “the business of insurance.”
See also McIlhenny v. American Title Ins. Co., 418 F.Supp. 364, 368-69 (E.D.Pa.1976).
I agree with this analysis. The Commission and the majority do not dispute that conducting a title search and examination is an indispensable element of the process of issuing a title insurance policy. They do not claim that any insurer issues title insurance without first performing such a search and examination, and in fact the statutes of many states expressly require title insurers to perform a title search and examination before issuing a policy. See, e.g., N.J.Stat.Ann. 17:46B-9 (West 1985); 40 Pa.Cons.Stat.Ann. § 910-7 (1992). As a result, I believe that it is indeed “unrealistic” and “ostrich-like” to pretend that a title search and examination performed as part of the title insurance policy issuance process is a separate “practice” from the rest of that process.1
We must not forget that “the starting point in a case involving construction of the McCarran-Ferguson Act, like the starting point in any case involving the meaning of a statute, is the language of the statute itself.” Royal Drug Co., 440 U.S. at 210, 99 S.Ct. at 1073; see also Department of the Treasury v. Fabe, — U.S. -, -, 113 S.Ct. 2202, *11432207, 124 L.Ed.2d 449 (1993). By its terms, Section 2(b) applies, without any qualification relevant here, to the “business of insurance,” and the “ordinary understanding of that phrase” (Royal Drug Co., 440 U.S. at 211, 99 S.Ct. at 1073) certainly includes those preparatory and administrative activities that are an indispensable part of the issuance of insurance policies.
Moreover, I see nothing in “the structure of the [McCarran-Ferguson] Act and its legislative history” (id.) that is sufficient to undermine this interpretation. I recognize that Congress’s “primary concern” in enacting Section 2(b) was to ensure that “cooperative ratemaking efforts be exempt from the antitrust laws” (id. at 221, 99 S.Ct. at 1078), but I do not think that the Act’s structure or legislative history demonstrate that Congress intended to limit Section 2(b)’s reach strictly to this area of “primary concern.” On the contrary, the precursor bill proposed by the National Association of Insurance Commissioners (NAIC) contained a specific exemption that seems applicable to the activities challenged in this case. This exemption applied to “any cooperative or joint ... investigation [ ] or inspection agreement relating to insurance.” 90 Cong.Rec. A4406 (1944). The Supreme Court has found that “[t]he views of the NAIC are particularly significant, because the Act ultimately passed was based in large part on the NAIC bill.” Royal Drug, 440 U.S. at 221, 99 S.Ct. at 1078 (footnote omitted). Moreover, the Court has long recognized that Section 2(b) is not confined to the fixing of rates. As it stated in SEC v. National Securities, Inc., 393 U.S. 453, 460, 89 S.Ct. 564, 568, 21 L.Ed.2d 668 (1969):
The selling and advertising of policies, FTC v. National Casualty Co., 357 U.S. 560 [78 S.Ct. 1260, 2 L.Ed.2d 1540] (1958), and the licensing of companies and their agents, cf. Robertson v. California, 328 U.S. 440 [66 S.Ct. 1160, 90 L.Ed. 1366] (1946), are also within the scope of the statute.... 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.
To be sure, the Court has held that Section 2(b) does not extend to certain insurance company activities that are not indispensable parts of the policy issuance process. See Pireno, supra (use of peer chiropractic review committee to determine whether charges were reasonable and necessary); Royal Drug Co., supra (price-fixing agreements between health benefit insurer and pharmacies); SEC v. National Securities, Inc., supra (misrepresentations and omissions in insurers’ communications to stockholders); SEC v. Variable Annuity Life Ins. Co. of America, 359 U.S. 65, 79 S.Ct. 618, 3 L.Ed.2d 640 (1959) (issuance of annuities involving no true underwriting of risks); see also Fabe, — U.S. at -, 113 S.Ct. at 2209 (“Pireno and Royal Drug held only that ‘ancillary activities’ that do not affect performance of the insurance contract or enforcement of contractual obligations” are not entitled to antitrust exemption). But the majority in this case goes much further and holds that a central and indispensable element of the process of issuing title insurance does not constitute part of “the business of insurance.” Whether the majority’s decision represents sound antitrust policy, I do not believe that it is supported by the language, structure, or legislative history of the McCarran-Fergu-son Act, and I therefore respectfully dissent.2

. I am not persuaded by the Commission’s reliance on footnote nine of Royal Drug Co., 440 U.S. at 213-14 n. 9, 99 S.Ct. at 1074 n. 9. In that case, the Court held that the "business of insurance” did not encompass agreements between Blue Shield and participating pharmacies regarding the prices that Blue Shield would pay the pharmacies for prescription drugs furnished to Blue Shield policyholders. While I find footnote nine somewhat unclear, I think it is best understood to mean only that the "business of insurance” under Section 2(b) does not necessarily encompass everything that an insurance company must do, following issuance of policies, in order to ensure that promised policy benefits are provided to its insureds. See Pireno, 458 U.S. at 130, 102 S.Ct. at 3009 ("business of insurance” does not include arrangements that come into play only after the insurance contract is entered). By contrast, title searches and examinations occur before the title insurance contract is entered and play an essential role in defining the risk that is transferred. Thus, I do not think that footnote nine is controlling here.

. Because I would reverse the Commission's order based on Section 2(b), I do not address the alternative grounds for reversal advanced by the petitioners.