McCarran-Ferguson Act of 1945

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McCarran-Ferguson Act of 1945

The McCarran-Ferguson Act of 1945 (15 U.S.C.A. § 1011 et seq.) gives states the authority to regulate the "business of insurance" without interference from federal regulation, unless federal law specifically provides otherwise.The act provides that the "business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business." Congress passed the McCarran-Ferguson Act primarily in response to the Supreme Court case of United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944). Before the South-Eastern Under-writers case, the issuing of an insurance policy was not thought to be a transaction in commerce, which would subject the insurance industry to federal regulation under the Commerce Clause. In South-Eastern Underwriters, the Court held that an insurance company that conducted substantial business across state lines was engaged in interstate commerce and thus was subject to federal antitrust regulations. Within a year of South-Eastern Underwriters, Congress enacted the McCarran-Ferguson Act in response to states' concerns that they no longer had broad authority to regulate the insurance industry in their boundaries.

The McCarran-Ferguson Act provides that state law shall govern the regulation of insurance and that no act of Congress shall invalidate any state law unless the federal law specifically relates to insurance. The act thus mandates that a federal law that does not specifically regulate the business of insurance will not preempt a state law enacted for that purpose. A state law has the purpose of regulating the insurance industry if it has the "end, intention or aim of adjusting, managing, or controlling the business of insurance" (U.S. Dept. of Treasury v. Fabe, 508 U.S. 491, 113 S. Ct. 2202, 124 L. Ed. 2d 449 [1993]).

The act does not define the key phrase "business of insurance." Courts, however, analyze three factors when determining whether a particular commercial practice constitutes the business of insurance: whether the practice has the effect of transferring or spreading a policy-holder's risk, whether the practice is an integral part of the policy relationship between the insurer and the insured, and whether the practice is limited to entities within the insurance industry (Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 102 S. Ct. 3002, 73 L. Ed. 2d 647 [1982]).

The McCarran-Ferguson Act does not prevent the federal government from regulating the insurance industry. It provides only that states have broad authority to regulate the insurance industry unless the federal government enacts legislation specifically intended to regulate insurance and to displace state law. The McCarran-Ferguson Act also provides that the sherman anti-trust act of 1890, 15 U.S.C.A. § 1 et seq., the clayton act of 1914, 15 U.S.C.A. § 12 et seq., and the Federal Trade Commission Act of 1914, 15 U.S.C.A. §§ 41–51, apply to the business of insurance to the extent that such business is not regulated by state law.

Courts have distinguished between the general regulatory exemption of the McCarran-Ferguson Act and the separate exemption provided for the Sherman Act, which is the federal Antitrust Law. Cases involving the applicability of the Sherman Act to state-regulated insurance practices take a narrower approach to the phrase "business of insurance" and apply the three criteria set forth in the Pireno case. In other cases that do not involve the federal antitrust exemption of the McCarran-Ferguson Act, the Supreme Court takes a broader approach. It has thus defined laws enacted for the purpose of regulating the business of insurance to include laws "aimed at protecting or regulating the performance of an insurance contract" (Fabe). Insurance activities that fall within this broader definition of the business of insurance include those that involve the relationship between insurer and insured, the type of policies issued, and the policies' reliability, interpretation, and enforcement (Securities & Exchange Commission v. National Securities, 393 U.S. 453, 89 S. Ct. 564, 21 L. Ed. 2d 668 [1969]).

Further readings

Macey, Jonathan R., and Geoffrey P. Miller. 1993. "The McCarran-Ferguson Act of 1945: Reconceiving the Federal Role in Insurance Regulation." New York University Law Review 68 (April).

Russ, Lee R., and Thomas F. Segalla. 1995. Couch on Insurance. 3d ed. Rochester, N.Y.: Clark Boardman Callaghan.

References in periodicals archive ?
The federal McCarran-Ferguson Act, a 1945 law, gives states jurisdiction over the business of insurance, except in cases in which Congress has actively decided to give the federal government over those matters.
372 purports to repeal the McCarran-Ferguson Act antitrust exemption for health insurers.
One of the most expansive aspects of the McCarran-Ferguson Act is the enablement of states to regulate insurance, as well as requiring states to establish regulations regarding the licensing of agents.
The NAIC opposes this legislation because of its potential to restrict a state's ability to protect consumers at the state level, which is contrary to the McCarran-Ferguson Act.
Marcon says that ISO's decision to stop producing advisory rates will improve the public's perception of how prices arc determined and their fairness, and help blunt attempts to alter state regulation and the McCarran-Ferguson Act.
16) Likewise, the Property Casualty Insurers Association of America ("PCI") sued HUD in the Northern District of Illinois, contending that the rule was procedurally defective because HUD did not adequately consider the inconsistency between disparate impact liability versus the nature of insurance and the McCarran-Ferguson Act.
Defeated efforts to repeal the McCarran-Ferguson Act, which would have opened the door to federalizing the regulation of insurance companies.
Virginia and the McCarran-Ferguson Act of 1945 returned regulation of insurance to the states we have had increasing encroachment of the federal government on the insurance industry.
The suit also contends that, "That is not only a perverse result, but it also flies in the face of the McCarran-Ferguson Act, which entrusts insurance regulation to the states.
This was confirmed through the McCarran-Ferguson Act of 1945, reiterated through a congressional resolution included in the 1999 Gramm-Leach-Bliley Act, and again through provisions of the Dodd-Frank Act.
Recently, he persuaded the Fourth Circuit Court of Appeals to uphold an order compelling arbitration of international insurance disputes in Sweden and to hold that the McCarran-Ferguson Act does not empower state law to reverse-preempt the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.