Volume 6 Issue 3 Article 1 1961 PPuuppss,, PPllaannttss aanndd PPaacckkaaggee PPoolliicciieess -- OOrr tthhee IInnssuurraannccee AAnnttiittrruusstt EExxeemmppttiioonn RRee--EExxaammiinneedd Richard A. Wiley Follow this and additional works at: https://digitalcommons.law.villanova.edu/vlr Part of the Antitrust and Trade Regulation Commons, and the Insurance Law Commons RReeccoommmmeennddeedd CCiittaattiioonn Richard A. Wiley, Pups, Plants and Package Policies - Or the Insurance Antitrust Exemption Re-Examined, 6 Vill. L. Rev. 281 (1961). Available at: https://digitalcommons.law.villanova.edu/vlr/vol6/iss3/1 This Article is brought to you for free and open access by Villanova University Charles Widger School of Law Digital Repository. It has been accepted for inclusion in Villanova Law Review by an authorized editor of Villanova University Charles Widger School of Law Digital Repository. Wiley: Pups, Plants and Package Policies - Or the Insurance Antitrust Ex Villanova Law Review VOLUME 6 SPRING 1961 NUMBER 3 PUPS, PLANTS AND PACKAGE POLICIES - OR THE INSURANCE ANTITRUST EXEMPTION RE-EXAMINED* RICHARD A. WILEYt I. INTRODUCTION. S THE INSURANCE BUSINESS subject to the federal antitrust laws? If so, to what extent? If not, should it be? These questions have once again been brought sharply to the fore as a result of a series of federal court decisions during the last two years. Most recently, the United States District Court for the Northern District of Ohio, on the merits, held the so-called "mutual rule," under which the members of a local independent insurance agents board refused to deal in mutual insurance, to be an unreasonable re- straint of trade in violation of sections 1 and 2 of the Sherman Act.' About a year ago the United States District Court for the Southern District of New York denied motions to quash subpoenas duces tecum issued by a grand jury investigating possible antitrust viola- tions in the aviation insurance industry.2 The court based its deci- sion on the ground that the federal antitrust laws were not completely inapplicable to the insurance industry, following the Supreme Court decision of less than a month before in F.T.C. v. Travelers Health Ass'n,8 in which the Court had held that a Nebraska statute pro- * This article was submitted in partial fulfillment of the requirements for the degree of Master of Laws at Harvard University. t A.B., Bowdoin College, 1948; B.C.L., Oxford University, 1951; LL.M., Harvard University, 1959. Member of the Massachusetts Bar; Associate, Bingham, Dana & Gould, Boston; Lecturer on Law, Boston University School of Law. 1. United States v. Insurance Bd., 188 F. Supp. 949 (N.D. Ohio 1960). 2. In re Grand Jury Investigation of the Aviation Ins. Ind., 183 F. Supp. 374 (S.D.N.Y. 1960). 3. 362 U.S. 293 (1960). (281) Published by Villanova University Charles Widger School of Law Digital Repository, 1961 1 VILLAViNllaOnVovAa LaLwA RWev ieRwE, VVoIlE. 6W, Iss. 3 [19[6V1O], LAr. t. 16: p. 281 hibiting unfair or deceptive practices in the insurance business either in Nebraska or "in any other state" did not afford a Nebraska mail- order insurance company exemption from the regulatory jurisdiction of the Federal Trade Commission over deceptive advertising practices. Finally, late in 1959, the United States District Court for the Northern District of California, in denying a motion to dismiss for lack of jurisdiction, held the Sherman Act to be applicable to price fixing conspiracies among insurance companies effectuated by boycott, coer- cion and intimidation.4 Underlying this series of recent cases, followed or distinguished in most of them, and the natural starting point for a consideration of the questions raised above is the per curiam opinion of the Supreme Court almost three years ago in National Cas. Co. v. F.T.C. and American Hosp. & Life Ins. Co. v. F.T.C.5 Each case involved the mailing across state lines of allegedly misleading accident and health insurance advertising literature. The facts of the two cases, which had been consolidated for purposes of appeal, may be simply stated. The National Casualty Company, domiciled in Detroit, was licensed to conduct an insurance business in every state, the District of Columbia and Hawaii. Most of its business was solicited through independent commission agents in the various states; the adver- tising material in question was prepared at the home office of the company and shipped in bulk to agents who distributed it locally and assumed the distribution expense; less than five per cent of the solicitations were conducted by direct mail advertising from the home office; more than eighty per cent of the policies issued by the home office were issued on the basis of an application taken by an agent in the state of residence of the insured; only five per cent of the pre- miums received by the company were sent to the home office di- rectly by mail from the policyholders; and the company did not advertise through radio, television or other media of mass com- munication. The facts were substantially the same for the business of the American Hospital and Life Insurance Company, except that this latter company was licensed to write accident and health insur- ance in only fourteen states, including its domiciliary state of Texas. As a result of complaints, the F.T.C. issued cease and desist orders charging that the companies' advertising was false, misleading and deceptive in violation of section 5 of the Federal Trade Commission 4. California League of Independent Ins. Producers v. Aetna Cas. & Sur. Co., 179 F. Supp. 65 (N.D. Cal. 1959). For an approving comment see 46 VA. L. Rzv. 781 (1960). A motion to dismiss had previously been granted as to an earlier version of the complaint. 175 F. Supp. 857 (N.D. Cal. 1959). 5. 357 U.S. 560 (1958). https://digitalcommons.law.villanova.edu/vlr/vol6/iss3/1 2 Wiley: Pups, Plants and Package Policies - Or the Insurance Antitrust Ex SPRING 1961] INSURANCE ANTITRUST EXEMPTION Act.' In each of these orders the F.T.C. specifically found that it had jurisdiction over the practices involved.7 Appeals were taken by the companies to the Circuit Courts of Appeal for the Fifth and Sixth Circuits on the jurisdictional issue, and in each instance the F.T.C. was reversed.8 The ground for reversal in each case was that jurisdiction had been taken from the F.T.C. by the provisions of the McCarran-Ferguson Act of 1945 under which the business of insurance had been subjected to regulation by the states and in which Congress had declared that the Sherman Act, the Clayton Act and the Federal Trade Commission Act, all as amended, should apply to the business of insurance only to the extent that that business had not been regulated by state law.' The Supreme Court affirmed on the jurisdictional issue. The three principal arguments advanced by the F.T.C. were discussed by the Court, however, in terms which raised more questions than they an- swered. First, the Court determined, at least for the "instant cases," that nothing in the legislative history of the McCarran-Ferguson Act warranted the F.T.C. contention that the state "regulation" required to oust Commission jurisdiction must consist of definite state adminis- trative standards and actions, and not mere statutory prohibition, with regard to the particular insurance practice concerned.'" Second, the Court expressly found that most of the states in which the com- panies were distributing their advertising literature in fact had their own statutes forbidding unfair and deceptive practices and apparently. further found that the mere existence of those statutes was sufficient to keep the Federal Trade Commission Act from applying." Third, the Court carefully left open the question of the "intent of Congress with regard to interstate insurance practices which the States cannot for constitutional reasons regulate effectively . . . ." On this branch of the case the Court simply stated that the question did not now arise be- cause the particular advertising program there involved required the use of company agents to distribute the material locally and because the states had "ample means" to regulate this advertising within their own boundaries. 2 6. 38 Stat. 719 (1914), as amended, 15 U.S.C. § 45(a) (1) (1958). 7. National Cas. Co., 52 F.T.C. 1385 (May 21, 1956); American Hosp. & Life Ins. Co., 52 F.T.C. 1100 (April 24, 1956). 8. National Cas. Co. v. F.T.C., 245 F. 2d 883 (6th Cir. 1957); American Hosp. & Life Ins. Co. v. F.T.C., 243 F. 2d 719 (Sth Cir. 1957). 9. 59 Stat. 33 (1945), as amended, 15 U.S.C. §§ 1011-1015 (1958). 10. 357 U.S. 560, 564-65 (1958). 11. Id. at 562-63. 12. Id. at 563-64. On this point the F.T.C. had argued to the Court that re- jection of F.T.C. jurisdiction would create a "no man's land" which Congress could not have intended. Brief for the Petitioner, p. 41. Both Circuit Courts of Appeal Published by Villanova University Charles Widger School of Law Digital Repository, 1961 3 Villanova Law Review, Vol. 6, Iss. 3 [1961], Art. 1 VILLANOVA LAW REVIEW [VOL. 6: p. 281 National Casualty and American Hospital & Life have attracted surprisingly little critical commentary although the cases represent the first direct consideration by the Court of the particular problems in- volved. 3 The three legal issues before the Court in those cases are, nevertheless, of major significance far beyond the field of accident and health insurance advertising, which is just one narrow phase of the problem of governmental regulation of the insurance business. Indeed, those three issues are vital in determining the applicability in general of the federal antitrust laws to that business, a determination not yet squarely presented to the Supreme Court but currently made in- creasingly important because of the recent rise in the number of in- surance antitrust cases and the comprehensive investigation into in- surance antitrust practices now being conducted by the Antitrust and Monopoly Subcommittee of the Senate Committee on the Judiciary. 4 also recognized that an "irreducible area" of F.T.C. jurisdiction probably existed but that it simply was not presented in the record of these two cases. 245 F.2d 883, 886-87 (6th Cir. 1957); 243 F.2d 719, 724 (5th Cir. 1957). The extent of this area was later substantially defined in F.T.C. v. Travelers Health Ass'n, 362 U.S. 293 (1960). 13. They were not mentioned in the Harvard Law Review's annual survey of the Supreme Court's work, The Supreme Court, 1957 Term, 72 HARV. L. Rev. 77 (1958). But see Note, 57 MIcH. L. lRv. 289 (1958) where the third problem, extraterritorial application of the state unfair trade practice laws, is discussed. See also Note, 20 OHIO ST. L.J. 156 (1959). 14. This investigation was authorized by S. lRs. 231, 85th Cong., 2d Sess. (1958), 104 CoNe,. R~c. 1503 (daily ed. Feb. 5, 1958). It was designed to inquire into arbitrary and uniform insurance rates and restrictive measures impeding the entry of new insurance companies which seek to charge lower rates. S. Rep. No. 1200, 85th Cong., 2d Sess. 6 (1958). In this sense the current investigation follows in the tradition of the several earlier extensive inquiries into insurance. These principal earlier investigations, which will be discussed in the course of this paper, were the Armstrong Investigation of life insurance in New York (1905), the Merritt Investigation of fire insurance in New York (1911), the Lockwood In- vestigation of housing conditions, which also considered fire insurance rate making, in New York (1922), and the Temporary National Economic Committee (TNEC) Investigation into the concentration of economic power conducted by a special federal committee in 1938-1940. The insurance phase of this last investigation considered only the life insurance business but, significantly, included both the insurance and investment phases of that branch of insurance. However, the current Senate investigation is intended to go beyond these earlier inquiries in the sense that it proposes to review the entire status of insurance regulation by the states and will attempt to determine whether any revision should be made by Congress of the substantially complete exemption from the federal antitrust laws now afforded insurance by the McCarran-Ferguson Act. 104 CONG. R c. 1491 (daily ed. Feb. 5, 1958) (statement by Senator Kefauver). Indeed, the scope of the investigation will be extremely comprehensive. It is apparently felt that the fact that in 1957 some 8% of the national income went into $26 billion of life, casualty and property insurance premiums justifies a very detailed inquiry into the industry. With regard to property insurance, the investigators propose to con- sider the following topics: (1) how rates are established; (2) uniformity in policy forms; (3) standards applied by states in approval of rates; (4) reasons for exclusion of investment income in fire insurance rate making; (5) whether deviations from "bureau" rates are readily granted; (6) whether companies are free to adopt new merchandising methods which will bring insurance to the public at lower cost; (7) restrictions on entry and licensing of new firms; (8) discriminatory state capital and surplus requirements against out-of-state insurers; (9) mergers and acquisitions; (10) enforcement of state unfair trade practice acts; and (11) control https://digitalcommons.law.villanova.edu/vlr/vol6/iss3/1 4 Wiley: Pups, Plants and Package Policies - Or the Insurance Antitrust Ex SPRING 1961] INSURANCE ANTITRUST EXEMPTION It is the purpose of this paper to examine in this broader con- text the implications of the Court's treatment of only the first two of the three issues recently placed before it. The third issue, the problem of the extraterritorial reach of state law, would in itself re- quire a separate paper. I have no intention of attempting to rationalize all of the antitrust cases involving the insurance industry and to restate the law in that field. My purpose, rather, is to explore two specific problems. First, under the existing McCarran-Ferguson Act language, what degree of state regulation is required to exclude application of the federal antitrust laws? Second, to what extent have the states actually achieved the requisite degree of regulation? Under this second heading an attempt will be made to determine the actual state of the law with regard to two selected insurance transactions or prac- tices in which antitrust problems might arise, to appraise the effective- ness of the present legal treatment of those practices, whether by application of state prohibitory laws or by direct state regulation, and to make suggestions as to the course the law should take in the future with regard to those practices. These two problems are inherent in any attempt to apply the federal antitrust laws to the business of insurance. Unless and until Congress elects to change the present provisions of the McCarran- Ferguson Act, these problems cannot honestly be avoided, either by parties or courts, in any insurance antitrust litigation. Nor can they be avoided by Congress, state insurance commissioners or the by states over switching assets from one state to another under the "zone" examina- tion system. With regard to life insurance, the investigators will focus on the problem of size and economic power and the potential for good or evil in development of the economy resulting from increasing concentration of savings in life insurance companies. The Senate Subcommittee also proposes to review the question con- sidered earlier by the TNEC, i.e., whether maximum insurance benefits at the lowest cost consistent with. financial stability are being provided by life insurance com- panies. Address entitled The Congress Looks at Insurance, by Donald P. McHugh, Counsel of the Senate Antitrust and Monopoly Subcommittee, American Manage- ment Ass'n, New York City, May 6, 1958. Subcommittee Press Release, May 6, 1958. See also N.Y. Times, May 7, 1958, p. 58, col. 1 (city ed.). The Subcommittee investigation was under the overall supervision of former Senator Joseph C. O'Mahoney, Democrat of Wyoming, who was a member of the TNEC and who played a leading role in events leading up to passage of the McCarran-Ferguson Act in 1945. Senator Estes Kefauver, Democrat of Tennessee, has headed the general study of the effectiveness of the McCarran-Ferguson Act. In August 1958 the Subcommittee began with five days of hearings on aviation casualty insurance and air travel insurance. Other hearings were held in May, June and August 1959 on ocean marine insurance and state fire and casualty rating laws and in May 1960 on non-admitted alien insurers and surplus line insurers. Hearings Before the Subcommittee on Antitrust and Monopoly of the Senate Committee on the Judiciary, 85th Cong., 2d Sess., 9 pts. (1959-60). As yet the only report issued has been one covering aviation and ocean marine insurance. S. RXp. No. 1834, 86th Cong., 2d Sess. (1960). A summary review of the investigation thus far ap- pears in Knowlton, Present Status of the Investigation of the Business of and the Regulation of Insurance by the Antitrust Subcommittee of the United States Sen- ate, 1960 INs. L.J. 641. Published by Villanova University Charles Widger School of Law Digital Repository, 1961 5 Villanova Law Review, Vol. 6, Iss. 3 [1961], Art. 1 286 VILLANOVA LAW REVIEW [VOL. 6: p. 281 insurance industry in considering the necessity for any revision of the McCarran-Ferguson Act and its present partial exemption of the insurance business from the federal antitrust laws. II. BACKGROUND For tyros in insurance a few preliminary words about the de- velopment of the industry's present unique status under the federal antitrust laws may be helpful before delving into detailed consideration of the two problems selected. The history of the unusual relationship between the federal gov- ernment, the states and the business of insurance is largely the story of fire insurance in the United States. Early insurance regulation in the middle of the nineteenth century was undertaken by the states rather than by the federal government.') While the more sophisticated Eastern states, in which most of the large companies of the day were domiciled, attempted to develop affirmative supervision of insurance through establishment of sound underwriting practices, the newer Western states were pursuing a different course. These states sought to favor their own small domestic companies against the Eastern "agency" companies by enacting laws requiring large deposits from the so-called "foreign," i.e., out-of-state, insurers and by imposing heavy taxes on their local operations.1" After the Civil War these state impositions, coupled with dis- astrous losses suffered in several major city conflagrations, forced Eastern fire insurance companies to seek relief from Congress. The 15. Insurance, which began in the United States in the late 18th Century, was not subject to statutory supervision marked by effective regulation until the 1830s. Prior to that time regulation consisted generally of simple charter limitations on capital imposed by the states. The first continuing administrative supervision of insurance began with appointment of an insurance commissioner by New Hampshire in 1851. Massachusetts soon followed in 1858 with an insurance department headed by the famous Elizur Wright, who has been called the "father of life insurance." By 1890 some seventeen states had administrative supervision of insurance. Three- fourths of the states in 1919 had a single full-time official heading their insurance departments. At the present time every state has a regulatory agency for insurance. The supervisory officials have been organized since 1871 in a cooperative body now known as the National Association of Insurance Commissioners (hereinafter re- ferred to as NAIC), whose efforts are directed toward improving state regulation of insurance. 1 RICHARDS, INSURANCE § 40 (5th ed. 1952). The functions of the NAIC are described in Martin, The NAIC and State Insurance Department Func- tions, 1952 INS. L.J. 583. 16. For example, Wisconsin required every foreign insurer to take $25,000 worth of her state bonds. 1876-77 INSURANcE BLUs BOOK, Fire Insurance, 1860-1869, 29-34 (Centennial Issue 1877). For an early state case upholding a 3% premium tax against the argument that it would interfere with interstate commerce, see People v. Thurber, 13 Ill. 554 (1852). A good description of the various burdens imposed by Western states appears in Nehemkis, Paul v. Virginia: The Need for Re- Examination, 27 Gio. L.J. 519, 523-25 (1939). https://digitalcommons.law.villanova.edu/vlr/vol6/iss3/1 6 Wiley: Pups, Plants and Package Policies - Or the Insurance Antitrust Ex SPRING 1961] INSURANCE ANTITRUST EXEMPTION newly organized National Board of Fire Underwriters unsuccessfully sought the creation of an Insurance Bureau and an Insurance Com- missioner as part of the Treasury Department at Washington to whom all deposits and fees were to be paid.17 Frustrated before Congress, the National Board turned to the courts. In May, 1866, one Samuel B. Paul was appointed agent in Virginia by several New York fire insurance companies. His principals refused to comply with the local statutory requirement of a deposit of bonds prerequisite to doing business. Nevertheless, Paul sold a single policy, was indicted for violation of the statute and was convicted. There can be little ques- tion that this was a "put-up'' case in which the fire insurance com- panies hoped that the Supreme Court would rule that insurance was interstate commerce and thus outside the reach of burdensome state statutes.'8 But the companies once again met disappointment, for the Supreme Court affirmed the conviction in the famous, and extremely trouble- some, decision, Paul v. Virginia.9 In the course of his opinion Mr. Justice Field made two categorical statements which were to plague the Court and to influence the development of constitutional law for the next seventy-five years: first, the issuance of a policy of insurance is not a transaction of commerce; second, insurance policies are not commodities or articles of commerce which have any existence independent of the parties to them.2° The real impact of Paul v. Virginia, however, was not made felt through applications of these two narrower versions of its meaning. Despite the fact that nothing 17. The National Board of Fire Underwriters was formed in 1866 as a "trade association" for joint action after the fire insurance companies had in November, 1865, appointed a committee to draft a suitable proposal for presentation to Con- gress. INSURANcE BLuE BOOK, op. cit. supra note 16 at 32. A copy of the Memorial to Congress by the National Board of Fire Underwriters appears in 13 INS. MONITOR AND WALL ST. Rgv. 191 (1865). The Insurance Monitor is one of many early in- surance trade periodicals, most of which have long since been discontinued. A good bibliography of these, and also of the modern insurance trade literature, will be found in 2 BULEY, THE AMERICAN LIFE CONVENTION (1906-1952) 1133 (1953). The bill based on the National Board proposal, H.R. 738, 39th Cong., 1st Sess. (1866), was reported favorably by the House Judiciary Committee but was laid on the table without any further action. CONG. GLOBE, 39th Cong., 1st Sess. 3490 (1866). Editorial opinion in the insurance trade press of the day indicates that the industry saw in this bill an escape from harrassment by the states. 14 INS. MONITOR AND WALL ST. REv. 53 (1866); 2 INS. TIMEs 179 (1869). The unsuccessful 1866 bill was only the first of many subsequent attempts by the insurance industry, even as late as 1933, to secure federal supervision of the business. These later proposals are summarized in Mr. Justice Jackson's dissent in United States v. South-Eastern Underwriters Ass'n, 322 U,S. 533, 592 n.13 (1944) (dissenting opinion). 18. The National Board of Fire Underwriters cooperated in the appeal and paid $15,000 toward counsel fees and costs. PROCEEDINGS, 3D ANN. MEETING, NATIONAL BOARD or FIRE UNDERWRITERS 40-42 (1869). The events surrounding the case are described in detail in Nehemkis, supra note 16, at 525-26. 19. 75 U.S. (8 Wall.) 168 (1868). 20. Id. at 182-85. Published by Villanova University Charles Widger School of Law Digital Repository, 1961 7 Villanova Law Review, Vol. 6, Iss. 3 [1961], Art. 1 VILLANOVA LAW REVIEW [VOL. -6: p. 281 in the original case itself justified such an extension, in many later cases the Court relied upon it to. find that the entire "business of insurance," as distinguished from the mere insurance policy or its issuance, was not in interstate commerce. Under this reading of the case marine insurance and life insurance were swept indiscrimin- ately from under the reach of federal power.2 It is, therefore, no surprise that the one federal court case which prior to 1943 con- sidered the applicability of the federal antitrust laws to insurance flatly dismissed a private antitrust action on the authority of Paul v. Virginia and its satellite cases and did not even consider its decision worth reporting officially.22 The first direct federal action against the insurance business came on November 20, 1942, with the indictment by a grand jury at Atlanta of 198 fire insurance companies and 27 individuals under sections 1 and 2 of the Sherman Act.23 The companies were charged with conspiring through the South-Eastern Underwriters Association, a 21. Hooper v. California, 155 U.S. 648, 653 (1895) (upholding a state bonding requirement imposed on a foreign marine insurer); New York Life Ins. Co. v. Cravens, 178 U.S. 389, 401 (1900) (upholding a state statute modifying normal life insurance policy terms). It is also significant that reliance upon Paul v. Virginia in an early Canadian case has continued to this day in that country substantially the same division between the roles of central and local governments in insurance regulation as exists in the United States. In Parsons v. Citizens Ins. Co., [1879] 3 Can. Sup. Ct. 215, two justices of the Canadian Supreme Court expressly relied on Paul v. Virginia in holding valid an Ontario provincial statute requiring certain conditions to be included in a fire insurance policy despite the provisions of the British North America Act of 1867, which reserved to the Dominion government exclusive power over "trade and commerce." See opinions of Fournier, J., at 277, and Henry, J., at 288. This case was subsequently affirmed or. another ground, without decision on the question of insurance as "trade or commerce," by the Judicial Committee of the Privy Council. Citizens Ins. Co. of Canada v. Parsons, [1881] A.C. 96 (P.C. Ont.). On the problem of insurance as "trade or commerce" in Canada, see also Angers pro Regina v. Queen Ins. Co., 21 L.C.J. 307 (Q.B. 1877), aff'd per curiam, [1878] 3 A.C. 1090 (P.C. Que.). For a discussion of the impact of these cases on the Canadian scheme of insurance regulation see MacDonald, The Regulation of Insurance in Canada, 24 CAN. B. Rev. 257, 265 (1946) ; Gray, More on the Regulation of Insurance, 24 CAN. B. Rv. 481 (1946). 22. Lown v. Underwriters Ass'n, 6 Fed. Anti-Trust Dec. 1048 (D.C. Sup. Ct. 1915) (plaintiff sought to restrain the defendant association and certain fire insurance companies from fixing premium rates). 23. 26 Stat. 209 (1890), as amended, 15 U.S.C. §§ 1, 2 (1958). The decision of the Department of Justice to prosecute South-Eastern Underwriters Association apparently resulted from an appeal by Attorney General Roy McKittrick of Missouri after that state had struggled for some 20 years to handle the problem of rate- fixing combinations by fire insurance companies under its own state laws. See Joint Hearings Before the Subcommittees of the Committees on the Judiciary on S. 1362, H.R. 3269, and H.R. 3270, 78th Cong., 1st Sess., pts. 1-3, at 23-78 (1943) (herein- after cited as 1943 Hearings). Missouri's battles with the fire insurance companies make an amazing story which began with an order by that state's insurance super- intendent in 1922 reducing fire insurance rates as he was authorized to do under Missouri's then new rating law, Mo. Rnv. STAT. § 6283 (1919). The legal struggle continued through dozens of court cases in both state and federal courts during the next 20 years and ultimately involved bribery of the insurance superintendent by "Boss" Pendergast and substantial losses to policyholders in the companies af- fected. For a brief synopsis of the history of this litigation see Note, 41 ILL. L. Rv. 647, 654 (1947). https://digitalcommons.law.villanova.edu/vlr/vol6/iss3/1 8 Wiley: Pups, Plants and Package Policies - Or the Insurance Antitrust Ex SPRING 1961] INSURANCE ANTITRUST EXEMPTION regional rating bureau, to fix premium rates on fire insurance and allied lines and with using boycotts to force other insurance com- panies into the conspiracy and to compel persons to purchase insur- ance only from Association members, all in restraint of trade in six Southeastern states. The district judge sustained a demurrer dismissing the indictment, relying on Paul v. Virginia and the ac- cumulated precedent of seventy-five years that insurance was not commerce and was, therefore, outside the antitrust laws.24 Shortly after the district judge had rendered his decision, and even prior to the Supreme Court's noting probable jurisdiction in the case," a series of three bills proposing a complete and blanket exemption of the insurance business from the federal antitrust laws was introduced into Congress on behalf of the fire insurance com- panies.26 Joint Subcommittees of the Committees on the Judiciary of both houses of Congress held eleven days of hearings, scattered over a period of nine months, on these bills.27 However, before the hearings were completed, the Supreme Court on June 5, 1944, handed down its decision in the South-Eastern Underwriters case holding that the 24. United States v. South-Eastern Underwriters Ass'n, 51 F. Supp. 712 (N.D. Ga. 1943). The district court opinion was issued on August 5, 1943. 25. The Supreme Court noted probable jurisdiction on October 10, 1943. See 320 U.S. 776 (1943). 26. H.R. 3270, 78th Cong., 1st Sess. (1943) was introduced by Mr. Walter on Sept. 20, 1943. 89 CONG. Rxc. 7686 (1943). The text of this bill, which was quite simple, appears as follows at 90 CoNc. REc. 6549 (1944): "That nothing contained in the act of July 2, 1890, known as the Sherman Act, or the act of October 15, 1914, as amended, known as the Clayton Act, shall be construed to apply to the business of insurance or to acts in the conduct of that business or in anywise to impair the regulation of that business by the several States." Other bills to the same effect were H.R. 3269, 78th Cong., 1st Sess. (1943) introduced by Mr. Hancock also on Sept. 20, 1943, 89 CONG. 1gc. 7686 (1943), and S. 1362, 78th Cong., 1st Sess. (1943) introduced by Senators Bailey and Van Nuys on Sept. 21, 1943, 89 CoNG. Rxc: 7689 (1943). These complete exemption bills were the pro- posals of the fire insurance industry. 2 BULtY, THg AMERICAN Lips CONVENTION (1906-1952) 940 (1953). It appears that the life insurance business took no active part in promoting these bills. Statement of Mr. Leroy Lincoln, President of the Metropolitan Life Insurance Company, appearing at 1944 AMERICAN Ln CONVZN- TION PROCPZ-INGs 75. For a description of the pressures exerted on Congressmen by the fire insurance companies, see 89 CONG. Rc. 10144-145 (1943) ; 89 CoNG. RIc. A 5272 (1943). Material prepared by the National Board of Fire Underwriters raised the spectre of federal control of the insurance business unless the complete exemption bills were passed. See National Board Pamphlet, Recent Attempts to Apply the Federal Anti-trust Laws to the Fire Insurance Business Focus Attention on a Matter of Vital Importance Which Calls for Action by Congress 4 (1943). This pamphlet, sent to fire insurance agents throughout the country, was accom- panied by a National Board letter dated Sept. 23, 1943 (the complete exemption bills had been introduced only three days before) urging that each agent write his Congressman in support of passage of the bills but warning that agents should write up their own views and not simply send along the printed pamphlet. Both documents are on file at the Insurance Library Association of Boston. 27. The 1943 Hearings supra note 23 were published in six parts. Hearings were held on Oct. 20, 27, Nov. 3, Dec. 3, 14, 15 and 21, 1943, and on Mar. 30, May 26, 27 and June 23, 1944. Published by Villanova University Charles Widger School of Law Digital Repository, 1961 9