Order Code RL33683
CRS Report for Congress
Received through the CRS Web
Courts Narrow McCarran-Ferguson Antitrust
Exemption for “Business of Insurance”;
Possible Congressional Response
Updated November 13, 2006
Janice E. Rubin
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress

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Courts Narrow McCarran-Ferguson Antitrust Exemption
for “Business of Insurance”; Possible Congressional
Response
Summary
In Paul v. Virginia (75 U.S. (8 Wall.) 168 (1868)), the Supreme Court ruled that
“[i]ssuing a policy of insurance is not a transaction of [interstate] commerce.” United
States v. South-Eastern Underwriters Ass’n. (322 U.S. 533 (1944)) held that the
federal antitrust laws were applicable to an insurance association’s interstate
activities in restraint of trade. Although the 1944 Court did not specifically overrule
its prior determination, the case was viewed as a reversal of 75 years of precedent and
practice, and created significant apprehension about the continued viability of state
insurance regulation and taxation of insurance premiums. Congress’ response was
the 1945 McCarran-Ferguson Act. It prohibits application of the federal antitrust
laws and similar provisions in the Federal Trade Commission Act, as well as most
other federal statutes, to the “business of insurance” to the extent that such business
is regulated by State law — except that the antitrust laws are applicable if it is
determined that an insurance practice amounts to a boycott. Early McCarran-
Ferguson decisions mostly favored insurance companies. After 1969, however, the
exemption for the “business of insurance” was generally limited to activities
surrounding insurance companies’ relationships with their policyholders. In 2003,
the Supreme Court ruled that McCarran case law prohibiting the indirect application
of federal antitrust (or other) laws to the “business of insurance” would no longer
control with respect to those areas over which Congress has unquestionable
legislative authority (e.g., ERISA, civil rights, securities), notwithstanding insurance-
company involvement. Although none of the bills introduced in the 109th Congress
to limit or amend McCarran-Ferguson has yet been enacted, activity surrounding,
e.g., the medical malpractice insurance issue suggests the likelihood of future
legislation. In addition, Senators Specter and Leahy have co-sponsored legislation
that seeks, without completely abolishing the antitrust provisions of McCarran-
Ferguson, to substantially limit that statute so as to continue to allow state regulation
and taxation of the industry while at the same time removing most of McCarran’s
purported impediment to use of the federal antitrust statutes. Given that that
legislation specifically allows for conduct that is the product of a state’s “clearly
articulated” and “actively supervised” policy, however, it would seem that it may not
significantly lessen — and may actually expand — the scope of permissible activity
by entities in the insurance industry. The phrases, “clearly articulated” and “actively
supervised,” have been firmly embedded in the state-action-doctrine jurisprudence
of the antitrust law; that doctrine stands for the proposition that the system of
federalism mandates that the federal antitrust laws do not apply to the states, nor to
private individuals acting either under state order or authorization. Legislation that
would provide the option of federal chartering and regulation to insurance companies
would generally make the federal antitrust laws applicable to those entities opting for
federal regulation. This report, which was based in part on the Appendix to CRS
Report RL31982, Insurance Regulation: History, Background, and Recent
Congressional Oversight, will be updated as needed. Other issues impacting or
concerning insurance regulation are addressed in CRS Report RL32789, CRS Report
RL33439, and CRS Report RS22506.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
What Is “Insurance” and Whose Law Defines It? . . . . . . . . . . . . . . . . . . . . . 1
Statutory Terminology in McCarran-Ferguson . . . . . . . . . . . . . . . . . . . . . . . 2
“Business of Insurance” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
“Regulated by State Law” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Boycott Exception: Agreements to “Boycott, Coerce or Intimidate” . . 5
Possible Implications of Legislation in the 109th Congress
Concerning McCarran-Ferguson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The State Action Doctrine and its Relevance to McCarran Immunity . . . . . 8
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

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Courts Narrow McCarran-Ferguson Antitrust
Exemption for “Business of Insurance”;
Possible Congressional Response
Introduction
In Paul v. Virginia (75 U.S. (8 Wall.) 168 (1868)), the Supreme Court ruled that
“[i]ssuing a policy of insurance is not a transaction of [interstate] commerce.” United
States v. South-Eastern Underwriters Ass’n. (322 U.S. 533 (1944)) held that the
federal antitrust laws were applicable to an insurance association’s interstate
activities in restraint of trade. Although the 1944 Court did not specifically overrule
its prior determination, the case was viewed as a reversal of 75 years of precedent and
practice, and created significant apprehension about the continued viability of state
insurance regulation and taxation of insurance premiums. Congress’ response was
the 1945 McCarran-Ferguson Act. In addition to preserving the states’ ability to tax
insurance premiums, McCarran-Ferguson prohibits application of the federal antitrust
laws and similar provisions in the Federal Trade Commission Act, as well as most
other federal statutes, to the “business of insurance” to the extent that such business
is regulated by State law — except that the antitrust laws are applicable if it is
determined that an insurance practice amounts to a boycott.
Inasmuch as “[t]he primary purpose of the McCarran-Ferguson Act was to
preserve state regulation of the activities of insurance companies since it was the
power of the states to regulate and tax insurance companies that was threatened after
... South-Eastern Underwriters ...,”1 we first answer the questions, “What is
insurance?”; and, “is it defined pursuant to state or federal law?” Then, given that
the statute addresses itself to the “business of insurance,” this report sets out some
judicial opinions about just what does — and does not — constitute the “business of
insurance,” as well as state regulation of such business, and the scope of McCarran’s
“boycott” exception. Finally, it will note some pending McCarran-related legislation,
and discuss, briefly, the bills’ possible consequences, especially in light of the non-
statutory state-action doctrine in antitrust law.
What Is “Insurance” and Whose Law Defines It?
In response to the Securities and Exchange Commission’s insistence that
1 Richard Cordero, Exemption or Immunity from Federal Antitrust Liability Under
McCarran-Ferguson (15 U.S.C. 1011-1013 and State Action and Noerr-Pennington
Doctrines for Business of Insurance and Persons Engaged in It, 116 ALR FED 163, 194
(1993).

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insurers issuing variable annuity contracts register them as securities under the
federal securities laws,2 the insurers asserted that McCarran-Ferguson shielded them
from federal regulation, but that even if it did not, they qualified for the insurance
exemptions from the federal securities laws.3 The Supreme Court, reversing lower
court decisions, held that neither state regulation of variable annuities nor their
issuance by insurers qualified the annuities as “insurance.” Accordingly, neither
insurers nor state regulators could (1) invoke McCarran-Ferguson as a shield against
federal regulation of variable annuities, or (2) qualify as beneficiaries of the insurance
exclusions in the federal securities laws. Moreover, the case established that the
definition of “insurance” under McCarran-Ferguson is a federal question, not a state
one.
NationsBank v. VALIC4 made a similar determination concerning the sale of
fixed annuities, which are sold both by insurers and by banks. The Court agreed with
the Comptroller of the Currency that in the provision of fixed annuities, “banks are
essentially offering financial investment instruments of the kind congressional
authorization permits them to broker. Hence, [it was reasonable to characterize the]
permission NationsBank sought as an ‘incidental powe [r] ... necessary to carry on
the business of banking.’”5
Statutory Terminology in McCarran-Ferguson
“Business of Insurance”. Securities and Exchange Commission (SEC) v.
National Securities, Inc.,6 limited the scope of the term “business of insurance” to
activities that involved only insurance companies’ relationships with their
policyholders.7 The merger of two insurance companies was challenged by the SEC,
which alleged violations of federal securities laws, despite the merger’s approval by
the Arizona Director of Insurance. National Securities argued that the merger was
in compliance with state law, and that the McCarran-Ferguson Act precluded
application of an inconsistent federal law. The Court disagreed, holding that a state
statute aimed at protecting the stockholders of insurance companies was not a statute
regulating the “business of insurance”: “whatever the exact scope of the statutory
term, it is clear where the focus was [in McCarran] — it was on the relationship
2 Under a variable annuity contract, annuity payments are not fixed but vary according to
the performance of an underlying investment portfolio.
3 Securities and Exchange Commission (SEC) v. Variable Annuity Life Ins. Co. (VALIC),
359 U.S. 65, 68 (1959): “The question common to the exemption provisions of the
Securities Act and the Investment Company Act and to s 2(b) of the McCarran-Ferguson Act
is whether respondents are issuing contracts of insurance.”
4 513 U.S. 251 (1995).
5 Id. at 260.
6 393 U.S. 453 (1969).
7 See, e.g., Note, The McCarran-Ferguson Act: A Time for Procompetitive Reform, 47
TULANE L. REV. 1271, 1281 (1976). See also, Gary Keith Nedrow, Comment, The
McCarran-Ferguson Act’s Antitrust Exemption for the ‘Business of Insurance’: A Shrinking
Umbrella, 43 TENN. L. REV. 329 (1976); Peter B. Steffen, Comment, After Fabe: Applying
the Pireno Definition of ‘Business of Insurance’ to First-Clause McCarran-Ferguson Act
Cases, 2000 U. CHI. L. REV. 447 (2000).

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between the insurance company and the policyholder. [Only s]tatutes aimed at
protecting or regulating this relationship ... are laws regulating the ‘business of
insurance.’”8
About 25 years after National Securities limited the term “business of
insurance” to activities involving only insurance companies’ relationships with their
policyholders, the Court extended that ruling. It held, in U.S. Department of
Treasury v. Fabe, that state laws addressing the liquidation of insurers constitute “the
business of insurance” — and, under McCarran-Ferguson, preempt conflicting
federal statutes — but only to the extent that they are necessary to protect the
insolvent’s policyholders.9 The United States had argued that an Ohio statute
determining the order in which claims against an insolvent insurance company are
to be paid10 should be preempted by the federal priority statute authorizing the
payment of U.S. claims against an insolvent entity.11 The Court disagreed,
however,with respect to the payment of policyholder claims and payment of the
administrative expenses “reasonably necessary to” the payment of policyholder
claims, and said: “[t]he primary purpose of a statute that distributes the insolvent
insurer’s assets to policyholders in preference to other creditors is identical to the
primary purpose of the insurance company itself: the payment of claims made against
policies.”12
Group Life & Health Insurance Co. v. Royal Drug Co. stands for the proposition
that McCarran-Ferguson’s “exemption is for the ‘business of insurance,’ not the
‘business of insurers.’”13 Independent retail pharmacies charged Blue Shield of
Texas with price fixing in the negotiation of Pharmacy Agreements, based on which
the insurance company had issued policies that facially entitled policyholders to
purchase prescription drugs from any pharmacy. In reality, the independents argued,
insureds were more likely to choose pharmacies that had entered into the “Pharmacy
Agreements” because at those establishments (mostly larger, chain pharmacies)
policyholders were required to pay only $2 for each prescription drug purchased; a
“Pharmacy Agreement”-pharmacy would be reimbursed for its costs and the $2
charge would be its profit. At nonparticipating pharmacies (mostly smaller,
independent stores), insureds would be expected to pay the entire cost of any drug,
and then seek reimbursement from Blue Shield for 75% of the cost. The Supreme
Court rejected Blue Shield’s argument that the McCarran-Ferguson Act made the
Pharmacy Agreements immune to prosecution under the antitrust laws, the Court
emphasizing that although “the agreements between Blue Shield and the participating
pharmacies ... [may] serve ... to minimize the costs Blue Shield incurs in fulfilling
its underwriting obligations,” they “do not involve any underwriting or spreading of
risk,” are not integral to the relationship between the insurer and the insured, and are
8 393 U.S. at 460 (emphasis added).
9 508 U.S. 491 (1993).
10 Ohio Rev. Stat. § 3903.01 et seq.
11 The Federal Priority Statute is found at 37 U.S.C. § 3713.
12 508 U.S. at 505-506.
13 440 U.S. 205, 211 (1979).

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not limited to entities within the insurance industry.14
Gilchrist v. State Farm Mutual Auto Ins. Co.,15 however, appears not to continue
the Royal Drug reasoning. There, when policyholders challenged the practice of
certain automobile insurers of improperly limiting the scope of insurance coverage
for auto body repairs, the United States Court of Appeals for the Eleventh Circuit
distinguished some earlier decisions concerning the scope of the McCarran-Ferguson
exemption. The appeals court emphasized that Royal Drug (as well as a later case
in which chiropractors challenged the insurance-company policy of peer reviewing
chiropractic fees and practices16) concerned challenges by non-policyholders to
insurance companies’ agreements with third parties. “Gilchrist is a policyholder
whose claim is that Insurers have charged excessive premiums for inferior repair
work on her automobile.”17 That is a direct challenge to the insurance policy itself,
and the company’s rate-making decisions, “the paradigmatic example of the conduct
that Congress intended to protect by the McCarran-Ferguson Act.”18
“Regulated by State Law”. Until relatively recently, courts had almost
unanimously determined that state regulation did not need to meet the standards of
federal antitrust law in order for McCarran-Ferguson to apply, and that the federal
government could not require “uniform state regulation.”19 However, whether state
regulation needed to meet any particular standard to qualify as preempted
“regulation” remained a question.20 In 1958, in Federal Trade Commission (FTC)
v. National Casualty Co.,21 for example, the Court decided that McCarran-Ferguson
“withdrew from the ... Commission the authority to regulate [insurers’] advertising
practices in those States which are regulating those practices under their own laws.”22
The FTC could not, therefore, order the multistate-insurance-company defendants
to stop using advertising that the Commission found false, deceptive, and misleading,
thus violating the FTC Act.23 The Court expressly declined to examine whether the
states’ laws had been effectively applied, finding it sufficient that “[e]ach State in
14 Id.. at 211-214 (emphasis added).
15 390 F.3d 1327 (11th Cir. 2004).
16 Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119 (1982).
17 390 F.3d at 1334.
18 Id. at 1331.
19 See, e.g., Prudential Ins. Co. v. Benjamin, 328 U.S. 408 (1946), discussed in Application
of Federal Antitrust Laws to the Insurance Industry, 46 MINN. L.REV.1088, 1094 (n. 33)
(1962).
20 “The basic question is whether McCarran requires effective enforcement of a state
regulatory scheme or whether state regulation without more is sufficient to preclude
application of federal antitrust laws.” William J. Rands, Comment, State Regulation Under
the McCarran Act, 47 TULANE L.REV. 1069 (June 1973).
21 357 U.S. 560 (1958).
22 Id. at 563 (footnote omitted).
23 Section 5 (15 U.S.C. § 45) prohibits “unfair or deceptive acts ... in or affecting
commerce.”

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question ha[d] enacted prohibitory legislation which proscribe[d] unfair insurance
advertising and authorize[d] enforcement through a scheme of administrative
supervision.”24 On the other hand, a federal district court in Florida held, in 1982,
that “it is essential to conduct some sort of inquiry into the adequacy and
effectiveness of state legislation asserted to preempt the antitrust laws.”25
By the late 1980s, the apparent, sole requirement that states merely have on their
statute books a law regulating the “business of insurance,” whether or not that law
was effectively enforced, was generally deemed not sufficient to activate the
McCarran exemption. Lower courts continued to echo the Supreme Court’s 1996
reasoning in Travelers Health Association (see note 26, supra). Travelers Health
involved an Ohio statute that “effectively prohibit[ed] out-of-state insurance
companies from removing cases from [Ohio] state to federal court by barring such
companies from further business in Ohio.” The United States Court of Appeals for
the Sixth Circuit emphatically stated there, that “[t]he McCarran-Ferguson Act was
not meant to protect a statute so tangentially related to insurance from the general
rule of federal law supremacy.”26
Boycott Exception: Agreements to “Boycott, Coerce or Intimidate”.
Whether the boycott referred to in the statute is solely a boycott of entities within the
insurance industry, or a consumer-protection facet of the otherwise industry-friendly
McCarran law, was addressed in St. Paul Fire Marine Insurance Co. v. Barry,27
where the Supreme Court ultimately found in favor of the latter. In St. Paul, doctors
sued four companies that sold medical malpractice insurance, alleging that one of the
companies had changed its malpractice policy in a manner unfavorable to the doctors,
who were then unable to take their business elsewhere because the other companies
refused to sell them malpractice policies of any sort. This, the doctors charged, was
the result of an unlawful conspiracy and constituted a boycott in violation of the
antitrust laws. The district court held that the purpose of McCarran’s “boycott”
language was to protect industry members from being “black-listed.”28 The court of
appeals reversed, finding that the protection of insurance consumers by the “usual
reading of ‘boycott, coercion, or intimidation’ does not ... pose a grave danger to state
authority.”29 The Supreme Court agreed, holding that the “conduct in question
24 357 U.S. at 564.
25 Escrow Disbursement Insurance Agency, Inc. v. American Title and Insurance Co., Inc.,
550 F. Supp. 1192, 1199 (S.D. Fla. 1982). The Supreme Court had already limited the reach
of state regulation “asserted to preempt the antitrust laws” in an action that interpreted a
Nebraska statute, which prohibited “unfair or deceptive acts and practices” in Nebraska and
in “any other State.” Federal Trade Commission v. Travelers Health Association (362 U.S.
293, 297-299 (1960)) held that “regulated by State law” “referred only to regulation by the
State where the business activities have their operative force.”
26 International Ins. Co. v. Duryee, 96 F.3d 837, 838 (6th Cir. 1996).
27 438 U.S. 531 (1978).
28 The district court’s language is quoted id. at 536.
29 555 F.2d 3, 9 (1st Cir. 1977).

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accords with the common understanding of a boycott”:30 if Congress had intended
to limit the scope of the boycott exception to industry members, the Court said, it
would have done so explicitly.31
In Hartford Fire Ins. Co. v. California,32 however, a divided Court —
differentiating between “conspiracy” and “boycott,” refused to find for the nineteen
states which alleged that the practices of several U.S. and foreign insurers — acting
to force other insurers to sell only policies with terms similar to those in the
defendants’ policies — violated the antitrust laws. It distinguished between a true
boycott (which the Court defined as a concerted refusal to deal on matters unrelated
or collateral to the insurance contract at hand) and a McCarran-protected mere
concerted refusal to deal on certain contract terms deemed to be central to the
insurance contract, but noted that absent McCarran-Ferguson, either would violate
the antitrust laws:
A conspiracy is a combination of two or more persons acting in concert to
accomplish a common unlawful purpose. ... Of course as far as the Sherman Act
(outside the exempted insurance field) is concerned, concerted agreements on
contract terms are unlawful. ... The McCarran-Ferguson Act, however, makes
that conspiracy lawful ... unless the refusal to deal is a ‘boycott.’33
The scope of McCarran-Ferguson protection — the statute’s applicability in
instances in which insurance companies are actors in an area in which the federal
government clearly has not ceded its regulatory authority to the states — has been
addressed numerous times, both by the Supreme Court and the lower federal courts.
Generally, it has been found that federal statutes are not trumped by McCarran except
where the “business of insurance” is directly involved, or where a state insurance
regulatory scheme or state insurance administration would be adversely affected.34
30 438 U.S. at 552.
31 Id. at 550.
32 509 U.S. 763 (1993).
33 Id. At 783, 803, 809-810 (citations omitted). Hartford was quoted or cited in, e.g., Slagle
v. ITT Hartford, 102 F.3d 494, 499 (11th Cir. 1996) (“In terms of the McCarran-Ferguson
Act, the term ‘boycott’ means more than just ‘an absolute refusal to deal on any terms.’”
Quoting, Hartford, 509 U.S. at 801); and in N.J. Auto. Ins. Plan v. Sciarra, 103 F.Supp. 2d
388, 407 (D.N.J. 1998) (“... at most, [plaintiffs’] allegations [that involuntary insurance plan
insurers’ refusal to sanction certain methodologies] constitute a concerted refusal to deal
except on certain terms, and not a boycott, as explained by the United States Supreme Court
in Hartford.”)
34 See, e.g., CRS Report RS21497, Reconciling McCarran-Ferguson (Insurance) Case Law
and ERISA Preemption: Kentucky Ass’n of Health Plans, Inc. v. Miller. See, also, Kentucky
Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329 (2003) (case law interpreting the
McCarran-Ferguson Act no longer to be used to inform decisions concerning the
applicability of ERISA (Employee Retirement Income Security Act of 1974) to state laws
that regulate insurance); Humana, Inc. v. Forsyth, 525 U.S. 299, 310 (1999) (McCarran does
not preclude application of federal law when such application “does not directly conflict
with state regulation” or “frustrate” state policy); Moore v. Liberty Nat. Life Ins. Co., 267
(continued...)

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Possible Implications of Legislation in the 109th Congress
Concerning McCarran-Ferguson
Two of the bills pending in committee (S. 1525, Senate Judiciary; H.R. 3359,
House Judiciary, House Energy and Commerce) would, notwithstanding McCarran-
Ferguson, prohibit commercial insurers who provide medical malpractice insurance
from “price fixing, bid rigging, or market allocation in connection with” such
provision. Joint rate setting, generally accepted as a method of establishing premium
rates, has long been considered valid as a McCarran-Ferguson “business of
insurance” activity, and many states explicitly authorize it.35 The courts’
increasingly narrow interpretation of “the business of insurance” would, however,
even absent such language, arguably exclude at least the latter two activities.
H.R. 2400 would establish a Commission — the Emergency Malpractice
Liability Commission (EMLIC) — to “examine the causes of soaring medical
malpractice premiums and propose a comprehensive strategy to alleviate the impact
of the crisis” there; and submit a report of its findings to Congress, which is to hold
hearings on the report within six months after it is received. Among the
Commission’s mandates are to “investigate and determine whether a causal
relationship exists between skyrocketing malpractice insurance premiums, jury
awards, decreased accessibility and affordability of health care; and the increase in
the number of physicians moving, quitting or retiring from practices ....” The bill is
pending in the House Energy and Committee.
S. 2401 (House Judiciary), unlike the preceding bills, applies without reference
to any specific line of insurance. It would amend the law to clarify that the antitrust
34 (...continued)
F.3d 1209 (11th Cir. 2001) (civil rights/antidiscrimination laws); In Re MetLife
Demutualization Litigation, 156 F.Supp.2d 254 (E.D.N.Y. 2001) (securities acts); Patton v.
Triad Guar. Ins. Corp., 277 F.3d 1294 (11th Cir. 2002) (Real Estate Settlement Procedures
Act).
35 McKinney’s Consolidated Laws of New York, Insurance Law § 2301, e.g., states: “The
purpose of this article is to promote the public welfare by regulating insurance rates to the
end that they not be excessive, inadequate or unfairly discriminatory, to promote price
competition and competitive behavior among insurers, to provide rates that are responsive
to competitive market conditions, to improve the availability and reliability of insurance and
to authorize and regulate cooperative action among insurers within the scope of this article.
(Emphasis added). Section 2316, which sets out several prohibited, anti-competitive
practices of insurance entities, including the making of agreements to restrain trade (§
2316(a)(3)), nevertheless states in subsection (c) that “[n]othing in this section shall be
construed as applying to or prohibiting cooperative action authorized and regulated under
this article.” Illinois law, e.g.., declares the purpose of its Insurance Code to be the
regulation of “trade practices in the business of insurance in accordance with the intent of
Congress as expressed in [15 U.S.C.A. §§ 1011 et seq. (McCarran-Ferguson Act)].” 215 Ill.
Cons. Stat. (ILCS) 5/421. Exceptions to the prohibitions set out in the Illinois Antitrust
Act include “the activities (including, but not limited to, the making of or participating in
joint underwriting or joint reinsurance arrangement) of any insurer, ...) to the extent that
such activities are subject to regulation by the Director of Insurance of this State ....” 740
ILCS 10/5(5).

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laws are generally applicable, except with respect to the smallest entities in the
insurance industry, to such activities as price fixing (e.g., currently permissible joint
rate setting), geographic market allocation, “tying the purchase of insurance to the
sale or purchase or another type of insurance,” or monopolization of “any part of the
business of insurance.” Contracts or conspiracies for the purpose of joint collection
of historical loss data, however, would be explicitly permitted. Again, however,
given their narrowing definition of the “business of insurance,” courts are not likely
to find such activities as market allocation, tying, or monopolization protected by
McCarran-Ferguson from the application of the antitrust laws.
Senator Specter, together with Senators Leahy, Lott, and Landrieu, introduced
S. 4025, “Insurance Industry Antitrust Enforcement Act of 2006,” to “subject the
insurance industry to Federal antitrust law.”36 The bill would amend § 2(b) of
McCarran-Ferguson (15 U.S.C. § 1012(b)) to clarify that the federal antitrust laws
would be applicable to the business of insurance “except to the extent [that] the
conduct of a person engaged in the business of insurance is undertaken pursuant to
a clearly articulated policy of a State [and] that is actively supervised by that State;
...”37 Those words appear to represent a tacit acknowledgment of two things: first,
that the original purpose of McCarran-Ferguson was to assure the ability of the states
to regulate the business of insurance; and second, the existence of the state action
doctrine in antitrust law. That doctrine might easily afford immunity from
prosecution under the federal antitrust laws to both (a) the narrowly interpreted
“business of insurance” protection provided by McCarran-Ferguson, and (b) any
other activity of insurance companies that the states choose to authorize and actively
regulate.
S. 2509, introduced by Senators Sununu and Johnson, would, with certain
exceptions, make the federal antitrust laws applicable to federally licensed insurance
producers “to the same extent as other businesses are subject to such laws,” and
would retain the McCarran-Ferguson “business of insurance” exemption “to the
extent that such insurers and producers are subject to State law.”38
The State Action Doctrine and its Relevance to McCarran
Immunity
The state action doctrine, first enunciated by the Supreme Court in Parker v.
Brown,39 has come to stand for the proposition that federalism dictates that the
antitrust laws are not applicable to the states. It has, over the years since 1943, been
interpreted, clarified and expanded to the point that it now confers antitrust immunity
not only on the states qua states (including state agencies and officials acting in their
official state capacities), or those private individuals who act in furtherance of state-
directed activity, but also on those who act pursuant to state-sanctioned, but not
36 Statement of Senator Specter accompanying introduction of S. 4025, 152 CONGRESSIONAL
RECORD S10712 (September 29, 2006).
37 Section 2(3) of S. 4025, adding § 1012(b)(1).
38 S. 2509, §§ 1702(a), 1702(a)(2).
39 317 U.S. 341 (1943).

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necessarily mandated, courses of action. Its essence is captured in the two-part test
set out in California Retail Liquor Dealers Ass’n v. Midcal Aluminum Inc.40 There,
the Court made clear first, that the challenged restraint must be “one clearly
articulated and affirmatively expressed as state policy” (most generally via
legislatively enacted statute), and second, the policy must be “actively supervised”
(i.e., enforced) by the State itself.41 It is, thus, apparent that, since at least 1980,
“regulated by state law” has been a prong of the judicially created state action
doctrine in antitrust law, a doctrine which was developing simultaneously with
McCarran-Ferguson case law.
40 445 U.S. 97 (1980).
41 Id. at 105.

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Conclusion
State action immunity from prosecution under the federal antitrust laws for
entities acting at the behest or authorization of a state regulatory scheme — so long
as that scheme is envisioned by the state legislature in “clearly articulated” language,
and so long as the state exercises sufficient “active supervision” over the authorized
but possibly anticompetitive activities of private entities — has steadily been
expanded since the doctrine was first announced in 1943. The expansion of state-
action immunity has occurred as a parallel development to the narrowing of
McCarran-Ferguson immunity for activities constituting the “business of insurance.”
Although virtually every state maintains some form of insurance regulation, whether
existing state regulation of the insurance industry is sufficient to satisfy the “active
supervision” prong of Mical may not, however, always be clear or assured.42
crsphpgw
42 See, e.g., discussion, supra, at pp. 4-5, “Regulated by State Law.” According to the
authors of the ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS (5th ed.
2002), “The intensity and specificity of state regulation needed to qualify for McCarran Act
immunity is less than required for the state action doctrine.” At 1373. For example, after
the Federal Trade Commission refused to find that the practice of setting rates for title
searches constituted the “business of insurance” for McCarran purposes, and so violated §
5 of the FTC Act (15 U.S.C. § 45, which prohibits unfair or deceptive practices, in or
affecting commerce) (In the Matter of Ticor Insurance Company, Final Order and Opinion,
112 F.T.C. 344 (1989)), the Supreme Court decided the case on state action grounds
(Federal Trade Commission v. Ticor Title Ins. Co., 504 U.S. 621 (1992)). In addition to
being dismissive of any McCarran immunity for the insurance-company actions, the
Supreme Court found that not all of the state regulatory regimes in question met the
doctrine’s requirements (particularly those with so-called “negative option” schemes under
which the filed joint rates not disapproved were deemed to be approved): “The mere
potential for state supervision is not an adequate substitute for a decision by the State. ...
we decline to formulate a rule that would lead to a finding of active state supervision where
in fact there [is] none. Our decision should be read in light of the gravity of the antitrust
offense, the involvement of private actors throughout, and the clear absence of state
supervision. We do not [, however,] imply that some particular form of state or local
regulation is required to achieve ends other than the establishment of uniform prices.” (504
U.S. 621, 638, 639) (emphasis added).
Another commentator believes that McCarran-Ferguson was enacted precisely
“because Congress must have felt that the amount of regulation required to trigger state
action immunity was an inadequate protection. ... In other words, McCarran necessarily
requires less [state] regulation than the State Action doctrine requires to trigger some kind
of limited immunity.” Phil Goodin, Note, Keeping the Foxes from Guarding the Henhouse:
The Effect of Humana v. Forsyth on McCarran-Ferguson’s Exemption for the Business of
Insurance, 86 IOWA L. REV. 979, 984 (March 2001).

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