Court Opinion

ID: 9428888
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:25:03.964905+00
Date Added: 2024-06-11T17:23:15.858215
License: Public Domain

Justice Rehnquist,
with whom The Chief Justice and Justice O’Connor join,
dissenting.
Purporting to rely upon our recent decision in Group Life & Health Ins. Co. v. Royal Drug Co., 440 U. S. 205 (1979), *135the Court today exposes to antitrust liability an aspect of the business of insurance designed to promote fair and efficient claims settlement. The Court reaches this conclusion by determining that the peer review process does not spread risk, is not an integral part of the insurance relationship, and is not limited to entities within the insurance industry. Because I find the claims adjustment function of the Peer Review Committee to be at the heart of the relationship between insurance companies and their policyholders, I conclude that such committees are clearly within the sphere of insurance activity which the McCarran-Ferguson Act intended to protect from the effect of the antitrust laws.1 This conclusion finds support in the legislative history of the Act and in Royal Drug and its predecessors.
For many years statutes such as the Sherman Act were thought not applicable to the business of insurance, this Court having held in Paul v. Virginia, 8 Wall. 168, 183 (1869), that “[ijssuing a policy of insurance is not a transaction of commerce.” When this Court held in United States v. South-Eastern Underwriters Assn., 322 U. S. 533 (1944), that the business of insurance was a part of interstate commerce subject to the Sherman Act, Congress responded quickly to reestablish the preeminence of States in regulating such business. Congress’ response — the McCarranFerguson Act — sought primarily to protect the contractual relationship between the insurer and the insured:
“Under the regime of Paul v. Virginia, supra, States had a free hand in regulating the dealings between insurers and their policyholders. Their negotiations, and the contract which resulted, were not considered commerce and were, therefore, left to state regulation. The *136South-Eastern Underwriters decision threatened the continued supremacy of the States in this area. The McCarran-Ferguson Act was an attempt to turn back the clock, to assure that the activities of insurance companies in dealing with their policyholders would remain subject to state regulation.” SEC v. National Securities, Inc., 393 U. S. 453, 459 (1969).
We recognized this congressional purpose in Royal Drug:
“ ‘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.’” Group Life & Health Ins. Co. v. Royal Drug Co., supra, at 215-216 (quoting SEC v. National Securities, Inc., supra, at 460).
Thus, whatever else was said in Royal Drug about the indispensable characteristic of risk-spreading, the Court found the contractual relationship between the insurer and the insured to be the essence of the “business of insurance.”
Central to this contractual relationship is the process of claims adjustment — the determination of the actual payments to be made to the insured for losses covered by the insurance contract. The key representation of the insurance company and the principal expectation of the policyholder is that prompt payment will be made when the event insured against actually occurs. As one commentator has stated:
“Up until the time there is a claim and a payment is made, the only tangible evidence of insurance is a piece of paper. In other words, the real product of insurance *137is the claims proceeds. Selection of the prospect, qualifying him for coverage that suits his needs, delivery of a policy, collecting premiums for perhaps years, making changes in coverage to meet changing situations, all of these are but preambles to the one purpose for which the insurance was secured, namely to collect dollars if and when an unforeseen event takes place.” J. Wickman, Evaluating the Health Insurance Risk 57 (1965).2
It is the claims adjustor — in this case petitioners’ Peer Review Committee — which determines whether and to what extent an insured’s losses will be covered. The Court thus plainly errs when it concludes that the role of petitioners’ Peer Review Committee “is not an integral part of the policy relationship between insurer and insured,” ante, at 131, and “is a matter of indifference to the policyholder.” Ante, at 132. New insurance matters could be of greater importance to policyholders than whether their claims will be paid, and it is the Peer Review Committee which in effect makes that determination. Being a critical component of the relation*138ship between an insurer and an insured, claims adjustment is part and parcel of the “business of insurance” protected by the McCarran-Ferguson Act.3
This conclusion finds support in a source of guidance completely disregarded by the Court — the legislative history of McCarran-Ferguson. The passage of the Act was preceded by the introduction in the Senate Committee of a report and a bill prepared by the National Association of Insurance Commissioners. “The views of the NAIC are particularly significant, because the Act ultimately passed was based in large part on the NAIC bill.” Group Life & Health Ins. Co. v. Royal Drug Co., 440 U. S., at 221 (footnote omitted). Included in that bill were seven specific insurance practices to which the Sherman Act was not to apply, and to which the Court in Royal Drug looked for guidance as to the meaning of the phrase “business of insurance.” See id., at 222. Among those seven protected practices was the process of claims adjustment: “the said Sherman Act shall not apply ... to any cooperative or joint service, adjustment, investigation, or inspection agreement relating to insurance.” 90 Cong. Rec. A4406 (1944) (emphasis added). Other statements in the legislative history support the conclusion that claims adjustment was to be protected:
*139“[W]e come squarely to the question of whether State regulation is adequate to handle insurance, or whether that business should be subject to the provisions of the antitrust laws. ... A great number of fire-insurance companies have cooperated in mutual agreement — and of necessity — through the Southeastern Underwriters Association and rating bureaus, adjusting policy rates to risks, classifying insurable property either in co-insurance or in re-insurance, making appraisals of losses, and working out systems of inspection to improve protection against fires. All of this has been done with splendid success. It would be a pity indeed, after all these years, to have the government intervene. The business of insurance involves long contracts. The fidelity of performance of those contracts will not brook intervention.” Id., at 6530 (remarks of Rep. Satterfield) (emphasis added).
See also id., at 6543 (remarks of Rep. Jennings); id., at 6550-6551 (remarks of Rep. Ploeser).
The role of claims adjustment in the insurance relationship and the legislative history of the Act thus unmistakably demonstrate that claims settlement procedures such as petitioners’ Peer Review Committee were to be accorded protection from the antitrust laws as the “business of insurance.” New practices followed by insurance companies today present a fairer or more efficient means of claims resolution than professional peer review committees. Insurance claimants seek reimbursement for virtually every form of medical treatment and care, and determining the reasonableness and necessity of such expenses requires the expertise of a practicing physician. Because the entire spectrum of human ailments are involved, the views of one physician are seldom sufficient; specialists from many fields of medicine must be consulted. New if any insurance companies can afford to staff their claims settlement departments with such a broad range of physicians. The companies thus must either make less than *140satisfactory claims determinations, or must turn to an outside group of experts such as petitioners’ Committee.
Although the Court protests that its decision says nothing about petitioners’ antitrust liability, there can be little doubt that today’s decision will vastly curtail the peer review process. New professionals or companies will be willing to expose themselves to possible antitrust liability through such activity. The Court thus not only misreads the McCarranFerguson Act and our prior precedents, but also eliminates an aspect of the American insurance industry which has long redounded to the benefit of insurance companies and policyholders alike.

 Since the Court declines to reach the question of whether petitioners’ Committee is regulated by state law as required by the McCarran-Ferguson Act, I likewise do not discuss it. I note, however, that the District Court found petitioners’ Committee to be so regulated. App. to Pet. for Cert, in No. 81-389, pp. 31a-32a.

 Other commentators agree with this assessment of the importance of claims settlement:
“The adjustment (including payment) of claims represents the final act in the insurance process. The payment of a claim by an insurance company brings the insurance contract ‘to life’ in a fashion far more vivid than does any other single act in connection with the purchase, issuance, and maintenance of the contract.” Butler, Loss Adjustment in Fire Insurance, in Property and Liability Insurance Handbook 219 (J. Long & D. Gregg eds. 1965).
“Claim administration is the last link in the process of insurance — a process that begins with actuarial analysis and continues through sales, underwriting, investment, and policy service. . . . [Tjhe expectation of the policyowner that an insurer is willing to meet its obligations, through claims administration, is an important part in the decision to purchase insurance. Indeed, it is the claim administration function that delivers on the product sold to the policyowner.” C. Cissley, Claim Administration: Principles and Practices iii (1980).

 Apparently unable to discern the difference between a mere method of paying a claim and the more fundamental process of determining whether a claim is covered by the insurance agreement, the Court finds that petitioners’ peer review procedure “resembles the Pharmacy Agreements in Royal Drug." Ante, at 131. But the Pharmacy Agreement at issue in Royal Drug was simply a method of reimbursing policyowners for medication expenses. The policyowners could obtain medication from participating pharmacies simply by paying the amount that otherwise would not be covered by the insurance plan. The pharmacies thus constituted nothing more than in-kind dispensers of insurance payments; they played no role whatsoever in the more fundamental process of assessing the validity of a claim and determining the amount to be paid. Peer review committees, which fulfill such a fundamental role, are thus quite unlike the arrangements considered by the Court in Royal Drug.