Porter Ch. 2 Flashcards
Describe background of Paul v. Virginia
Paul applied to become licensed insurer in home state of VA for NY insurers. VA denied because insurers had not deposited required foreign insurer bond. Paul sold policies anyway and was arrested
Describe Supreme Court verdict for Paul v. Virginia
Insurance is a contract delivered locally, thus insurance contract not interstate commerce. States could continue to regulate own insurance market without violating Constitution
Briefly describe 2 schools of thought about insurance compacts
- Compacts deter open and free competition
- In public’s best interests if it prevented insolvencies
Briefly describe the Sherman Act of 1890
Prohibits collusion in attempts to gain monopoly power
List activities for which the SEUA received criminal indictments
- Continuing agreement and concert of action to take control of 90% of the fire & allied lines market
- Fixing premium rates and agents’ commissions
- Using boycott and other forms of coercion and intimidation to force non-SEUA members to comply
- Withdrawing rights of agents to represent SEUA members if they also represented non-SEUA companies
- Threatening insurance consumers with boycott and loss of patronage if they didn’t purchase insurance from SEUA members
Briefly describe why the indictments against SEUA were initially dismissed
Based on U.S. Supreme Court’s decision in Paul v. Virginia
2 key questions considered by the court when making the decision on SEUA
- Did Congress intend the Sherman Act to prohibit insurer’s conduct of restraining/ monopolizing business?
- Do insurance transactions across state lines constitute “commerce among several states”, which will subject them to Congressional regulation?
List some factors considered when determining whether insurance transactions across state lines constitutes “commerce among several states”
- Insurance is not a business that is distinct in each of the states - it is interconnected and interdependent among the states
- Only 18 out of more than 200 SEUA members were domiciled in 1 of the 6 SEUA states
- Intangible products, such as electric impulses of telegraph transmissions, were subject to Congressional regulation
- Other businesses make sales contracts in states where they do not have headquarters, and these are subject to the Commerce Clause
- Not a single business conducting business across state lines is beyond the regulatory powers of congress. Insurers should not be an exception
Immediate effect of the SEUA decision
Federal legislation now applied to insurance
* The Sherman Act (1890) - prohibits collusion in attempts to gain monopoly power
* The Clayton Act (1914) - identified and made illegal practices that lessened competition or created monopoly power
Describe 2 practices prohibited by the Clayton Act of 1914
- Price discrimination
- Tying: requiring purchase of 1 product to purchase another
Briefly describe the Robinson-Patman Act (1936)
Amendment to Clayton Act; required price differences to be justified by reduced operating costs
State regulators and insurance industry believed some forms of cooperation necessary. As a result, a subcommittee on Federal Legislation was established. List some of its recommendations
- Congress must be pressured to enact legislation under Commerce Clause which allows states to continue to regulate insurance
- Sherman Act and Clayton Act must be amended to allow cooperative arrangements to establish adequate rates and coverages
- FTC Act and Robinson-Patman Act must be amended to exclude insurance
Describe the McCarran-Ferguson Act of 1945
Returned regulation of insurance back to states, as it was “in the public interest”
List the exceptions for which the McCarran-Ferguson Act will not apply
- If states are not regulating the activities
- Sherman Act continues to apply to the use of boycott, coercion, or intimidation
- If Congress passes a law that applies only to the insurance industry, it will supersede any state regulation
Following the McCarran-Ferguson Act, the NAIC and state legislatures began developing and implementing various insurance laws. Briefly describe what these laws were designed to do.
- Allow cooperation in setting rates
- Keep Congress from interfering
