509 U.S. 764, 817, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1998)
In the late 1970s, ISO, an association of approximately 1,400 domestic property and casualty insurers that serves as the almost exclusive source of support services for CGL insurance in the United States, began revising its 1973 standard CGL policy form.1 The 1973 form provided occurrence-based coverage for sudden and accidental pollution and did not cap defense costs.2 Primary insurers including Hartford Fire Insurance Company, Allstate Insurance Company, Aetna Casualty and Surety Company, and CIGNA Corporation sought four changes: a shift to claims-made coverage with a retroactive date, elimination of pollution coverage, and a legal defense cost cap.3
After ISO proposed 1984 forms that omitted some of these changes, Hartford persuaded General Reinsurance Corporation, the largest American reinsurer, to procure the modifications or derail the program.4 The Reinsurance Association of America agreed to boycott the 1984 forms unless the changes were added, and domestic and London reinsurers informed ISO they would withhold reinsurance until the forms were altered.5 ISO then withdrew the 1984 forms and adopted 1986 forms containing a retroactive date and pollution exclusion; it later withdrew support services for the 1973 form.6
Separate agreements among London reinsurers required primary insurers to switch to claims-made policies and excluded pollution coverage from reinsurance contracts covering North American risks.7 Nineteen states and many private plaintiffs filed 36 complaints alleging that these actions violated section 1 of the Sherman Act.8 The cases were consolidated in the Northern District of California.9
The District Court granted motions to dismiss in 1989, holding the conduct fell within McCarran-Ferguson immunity and applying international comity to the foreign defendants.10 The Ninth Circuit reversed in 1991.11 The Supreme Court granted certiorari in 1992.12
Whether the McCarran-Ferguson Act precludes application of the Sherman Act to the alleged conduct of domestic defendants?13
Section 2(b) of the McCarran-Ferguson Act provides that the Sherman Act applies to the business of insurance to the extent such business is not regulated by state law, while section 3(b) makes the Sherman Act applicable to any agreement to boycott, coerce, or intimidate or act of boycott, coercion, or intimidation regardless of state regulation.14
No. The complaints allege that domestic primary insurers including Hartford Fire Insurance Company, Allstate Insurance Company, Aetna Casualty and Surety Company, and CIGNA Corporation conspired with domestic and foreign reinsurers to force changes to ISO CGL forms by persuading General Reinsurance Corporation and the Reinsurance Association of America to withhold reinsurance unless the 1984 forms incorporated a retroactive date, pollution exclusion, and defense cost cap.15
ISO withdrew the 1984 forms and adopted the 1986 forms containing those provisions. It later withdrew support services for the 1973 form. The conduct falls within the boycott exception of section 3(b) rather than qualifying for immunity under section 2(b).16 The Court of Appeals correctly held that the alleged agreements and acts constitute boycotts, coercion, or intimidation, so the McCarran-Ferguson Act does not preclude Sherman Act liability for the domestic defendants.17
The McCarran-Ferguson Act does not preclude application of the Sherman Act to the alleged conduct of the domestic defendants.18
Related opinions on this issue
Joined by O'connor, Kennedy, And Thomas, Jj.
Justice Scalia joined the majority's judgment and Parts I and II-A on the McCarran-Ferguson issues but dissented from the analysis of what constitutes a boycott under section 3(b).19 He maintained that a boycott requires a refusal to deal that expands beyond the targeted transaction to use unrelated transactions as leverage.20 The reinsurers' insistence on particular primary policy terms as a condition of reinsurance is not a boycott because the terms of the primary policies are central to the reinsurance contract itself.21
Under his view the alleged conduct amounted only to a concerted agreement on terms protected by McCarran-Ferguson immunity rather than an unlawful boycott.22
Whether the alleged agreements among primary insurers and reinsurers constitute a boycott under section 3(b) of the McCarran-Ferguson Act?23
A section 3(b) boycott requires concerted action involving refusals to deal that are used as leverage through expansion beyond the targeted transaction, as distinguished from a mere concerted agreement on contract terms.24 Enforcement activity such as coordinated refusals to reinsure unless desired policy changes are made elevates the conduct to the level of a boycott.25
Yes. The complaints describe how Hartford persuaded General Re to procure the desired changes or derail the ISO program, after which the Reinsurance Association of America agreed to boycott the 1984 forms and London reinsurers informed ISO they would withhold reinsurance until the forms included the retroactive date, pollution exclusion, and defense cost cap.26
These refusals to deal occurred at the behest of the primary insurer defendants and were conditioned on ISO adopting the changes, constituting enforcement activity that made the conduct a boycott rather than a simple agreement on terms.27 The allegations concerning the Fifth, Sixth, and Eighth Claims for Relief in the California Complaint and corresponding claims in the Connecticut Complaint sufficiently plead such boycotts to survive a motion to dismiss.28
The alleged agreements among primary insurers and reinsurers constitute a boycott under section 3(b) of the McCarran-Ferguson Act for the Fifth, Sixth, and Eighth Claims for Relief in the California Complaint and corresponding claims in the Connecticut Complaint.29
Related opinions on this issue
Joined by O'connor, Kennedy, And Thomas, Jj.
Justice Scalia dissented on the boycott definition.30 He argued that the reinsurers' refusal to reinsure coverages written on disfavored ISO forms until changes were made was not a boycott. The terms of the primary policies are the subject matter insured by reinsurance and therefore central rather than collateral to the refused transaction. He viewed the conduct as a permissible concerted agreement on terms that McCarran-Ferguson protects.31
He would have required allegations that the reinsurers refused all reinsurance even on unrelated risks before finding a boycott.32
Whether the principle of international comity precludes the exercise of jurisdiction over claims against foreign defendants for conduct occurring abroad?33
The Sherman Act applies to foreign conduct that was meant to produce and did produce substantial effects in the United States.34 Even assuming a court may decline jurisdiction on comity grounds, no true conflict exists.35 This is because the foreign defendants can comply with both United States and foreign law since foreign law does not require the conduct prohibited by the Sherman Act.36
No. The Fifth, Sixth, and Eighth Claims for Relief in the California Complaint allege that London reinsurers conspired to coerce primary insurers in the United States to offer only claims-made CGL coverage and to exclude pollution coverage from reinsurance contracts covering North American risks, producing substantial effects on the American insurance market.37
Although British law regulates the London reinsurance market, it does not require the defendants to act in a manner prohibited by the Sherman Act, so no true conflict exists that would counsel against exercising jurisdiction.38 The Court of Appeals correctly concluded that international comity does not bar the exercise of Sherman Act jurisdiction over the foreign conduct alleged.39
The principle of international comity does not preclude the exercise of jurisdiction over claims against foreign defendants for conduct occurring abroad.40
Related opinions on this issue
Joined by O'connor, Kennedy, And Thomas, Jj.
Justice Scalia dissented on the extraterritorial application of the Sherman Act.41 He contended that prescriptive comity principles drawn from the Restatement (Third) of Foreign Relations Law require courts to refrain from applying United States law when the activity takes place primarily abroad, the defendants are British corporations and subjects, Great Britain maintains a comprehensive regulatory scheme over the London market, and the McCarran-Ferguson Act indicates only slight United States interest in regulation.42 He would have held that the Sherman Act does not reach the alleged foreign conduct and instructed the District Court to dismiss the three counts against the London reinsurers for failure to state a claim.43