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McCarran-Ferguson Precludes Federal Antitrust Claims Against Title Insurance Company

Blogs, McCarran-Ferguson

In re New Jersey Title Insurance Litigation, Civil Action No. 08-1425 (D.N.J. Jul. 6, 2010), involved title insurance purchasers who represented a putative class of similarly situated consumers claimed that various insurance providers engaged in an unlawful price-fixing conspiracy.

The federal district court in that case determined that the action should be dismissed on, among other grounds, reverse preemption under the McCarran-Ferguson Act, 15 U.S.C. 1012(b), as to the plaintiffs’ federal antitrust claims.

Citing Legal Asset Funding, LLC v. Travelers Cas. & Sur. Co., 155 F.Supp.2d 90 (D.N.J. 2001), the court said that, “[g]enerally speaking, this section ‘creates a reverse-preemption doctrine for insurance legislation. That is, a state statute that regulates insurance presumptively preempts a contrary Congressional statute unless the Congressional statute specifically relates to insurance.'”

To determine whether, under McCarran-Ferguson, state law applied to the exclusion of federal law, the court framed the questions as (1) whether title insurance constitutes the “business of insurance” under McCarran, and (2) whether title insurance is “regulated by state law.”

The court reviewed the three risk factors derived from Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982), for determining whether a particular practice constitutes the “business of insurance” for purposes of section 1012(b): namely (1) does the practice “ha[ve] the effect of transferring or spreading a policyholder’s risk”; (2) is the practice “an integral part of the policy relationship between the insurer and the insured”; and (3) is the practice “limited to entities within the insurance industry.” 

The court concluded that, under each of these factors, the the collective rate-setting of title insurance rates constituted the business of insurance.

In this regard, the court noted that it had reached the same conclusion as the 5th and 10th Circuit Courts of Appeals (in Crawford v. Am. Title Ins. Co., 518 F.2d 217 (5th Cir. 1975), and Commander Leasing Co. v. Transamerica Title Ins. Co., 477 F.2d 77 (10th Cir. 1973)).

The court then addressed regulating by the state, and concluded that there was no question that the state of New Jersey regulated title insurance rates.

Because title insurance constituted the “business of insurance” within the meaning of McCarran-Ferguson, and because New Jersey regulated title insurance, McCarran-Ferguson applied and reverse-preempted the plaintiffs’ antitrust claims under federal law.