Antitrust Law Daily Wrap Up, ANTITRUST—5th Cir.: Sherman Act claims against insurance broker preempted by McCarron-Ferguson; state law claims survive, (Sep 24, 2015)

By Jody Coultas, J.D.

Despite having antitrust standing, Sanger Insurance Agency could not state Sherman Act claims against a veterinary insurance company based on the McCarran-Ferguson exemption, according to the U.S. Court of Appeals in New Orleans (Sanger Insurance Agency v. HUB International, Ltd., September 23, 2015, Costa, G.). However, the court reversed a lower court’s dismissal of state antitrust and tortious interference claims.

HUB International, Ltd. serves as the Broker of Record and Administrator of an insurance program (Program) issued through the American Veterinary Medical Association Professional Liability Insurance Trust that offered professional liability, workers’ compensation, and other insurance products nationwide to members of the American Veterinary Medical Association. Sanger claimed that the Program accounted for a 90 percent share of the market for veterinary professional liability insurance and constituted a monopoly.

HUB also entered into exclusive dealing arrangements with its insurers to prevent them from writing veterinary insurance through other brokers, such as Sanger. After learning that Sanger was soliciting business from its insurers, HUB expressed its concerns about its insurers offering coverage outside of the Program and objected to its insurers’ increasing Program premiums, apparently based on the threat Sanger posed as a competitor.

Sanger sued HUB and its parent company for violations of Sections 1 and 2 of the Sherman Act, the Texas Free Enterprise and Antitrust Act, the Texas Insurance Code which prohibit unfair competition and deceptive acts in the insurance business, and for tortious interference with prospective business relations. The district court dismissed the case in its entirety.

Antitrust standing. Standing to assert an antitrust case exists only if a plaintiff shows: (1) an injury in fact proximately caused by the defendants’ conduct; (2) an antitrust injury; and (3) proper plaintiff status, which assures that other parties are not better situated to bring suit.

The district court erred in holding that Sanger lacked standing to assert its antitrust claims, according to the court. HUB argued that because Sanger had not begun brokering veterinary insurance, it could not have been injured by HUB’s alleged efforts to maintain its hold on the industry. A plaintiff who never entered a particular market but would have if not for an antitrust violation may challenge an antitrust violation. Sanger clearly established an intention and preparedness to enter the business of brokering veterinary insurance. In fact, Sanger sold Continental professional liability policies to approximately ten equine and large-animal veterinarians before HUB purportedly forced Continental to stop issuing the policies. Sanger was prepared to enter the market, with an office and staff, as well as adequate facilities and equipment. Also, Sanger marketed its services to members of the Texas Equine Veterinary Association and conducted discussions internally and with veterinarians, insurance companies, brokers, and consultants about entering the market. Finally, the allegations of anticompetitive conduct were directly related to the obstacle that kept Sanger from entering the market.

McCarron-Ferguson exemption. The McCarran-Ferguson Act provides that general federal laws not directed at insurance do not “invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance.” Specifically, the McCarran-Ferguson Act exempts from antitrust law activities that (1) constitute the “business of insurance,” (2) are regulated by state law, and (3) do not amount to acts of “boycott, coercion or intimidation.” To determine whether a particular practice is part of the business of insurance exempted from the antitrust laws” under the Act, courts look first at 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.

Because HUB’s alleged exclusive dealing arrangements with insurers constituted “the business of insurance, the McCarron-Ferguson exemption applied, according to the court. Sanger argued that it was not seeking to broker insurance through the Association’s Program or otherwise challenge that HUB arrangement, but rather only challenged HUB’s use of its market power to prevent insurers from working with other brokers who seek to insure members of other veterinary associations. Routine dealings between insurers and brokers or agents constitute the business of insurance even if that relationship may not be “distinctively different from ordinary relationships with dealers marketing a product or service.” Also, HUB’s exclusive dealing preventing insurers from writing insurance for other group plans fortified the insurance program operated by HUB.

The second element of the exemption requires that the challenged activities “are regulated pursuant to state law,” which is not a high bar. HUB’s motion for summary judgment discussed only Texas law on this issue, but clearly sought dismissal of Sanger’s claims in full. The court recognized that Texas and other states regulate insurance.

Sanger could not avoid the McCarran-Ferguson exemption, according to the court. The McCarran-Ferguson Act does not exempt it from antitrust scrutiny when it amounts to a “boycott, coercion, or intimidation.” The actions of the insurers as a group—refusing to work with Sanger—do not involve any “collateral transactions” (they directly implicate potential transactions between the insurers and Sanger) and therefore did not constitute a boycott.

Alternate arguments. HUB argued that Sanger failed to provide legally adequate expert testimony to define the market. HUB filed a motion to strike Sanger’s expert, alleging that the expert improperly “assumes the only professional liability policy available is the Zurich policy offered through the [Program].” Given the reversal on standing grounds, the district court may address HUB’s motion to strike in the first instance on remand.

HUB also argued that no antitrust violation occurred, because the procompetitive benefits of any alleged exclusivity agreements outweighed the costs. Finally, HUB contended that the alleged exclusive dealing agreements did not exist. On remand, the district court may consider after additional briefing, if it chooses to allow these arguments, the court noted.

The case is No. 14-40854.

Attorneys: Jeffrey Scott Levinger (Levinger, PC), Derrick Scott Boyd (Simpson, Boyd & Powers, PLLC) and Roger Dickert Sanders (Sanders, O'Hanlon, Motley & Young, PLLC) for Sanger Insurance Agency. Steven John Lownds (Quilling, Selander, Lownds, Winslett & Moser, PC) for HUB International, Ltd. and HUB International Midwest, Ltd.

Companies: Sanger Insurance Agency; HUB International, Ltd.; HUB International Midwest, Ltd.

Cases: Antitrust LouisianaNews MississippiNews TexasNews