Hartford Fire Insurance Co. v. California
125 L. Ed. 2d 612, 113 S. Ct. 2891 (1993)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
U.S. antitrust laws apply to conduct by foreign defendants that is meant to and does produce a substantial effect in the United States; international comity does not preclude jurisdiction unless foreign law requires the defendants to act in a manner prohibited by U.S. law. Under the McCarran-Ferguson Act, a "boycott" involves a concerted refusal to deal that is collateral to the primary transaction, used as leverage to coerce the target, not a mere concerted refusal to deal on specified terms within the transaction itself.
Facts:
- U.S. primary insurers, who sell insurance directly to consumers, historically used standard Commercial General Liability (CGL) policy forms developed by the Insurance Services Office (ISO), an industry association.
- Primary insurers regularly purchase 'reinsurance' to cover portions of their own risk, often from a major market of reinsurers based in London.
- A group of domestic primary insurers, including Hartford Fire Insurance Company, wanted to make the standard CGL forms more restrictive by moving from 'occurrence' to 'claims-made' coverage, adding a pollution exclusion, and capping legal defense costs.
- When ISO committees rejected these proposed changes, the domestic insurers enlisted the help of domestic and foreign reinsurers.
- These reinsurers, including many from London, collectively agreed to refuse to provide reinsurance for any CGL policies written on the existing, less restrictive ISO forms.
- Faced with the threat of a reinsurance boycott and pressure from the reinsurers, ISO withdrew its proposed 1984 forms and replaced them with new, more restrictive '1986 CGL forms' that incorporated several of the changes demanded by the defendants.
- In separate alleged conspiracies, groups of London-based reinsurers agreed among themselves to withhold reinsurance for all pollution liability coverage and for occurrence-based policies, further restricting the availability of such coverage in the U.S. market.
Procedural Posture:
- Nineteen states and various private plaintiffs filed antitrust lawsuits against domestic and foreign insurers in the U.S. District Court for the Northern District of California, which consolidated the actions.
- The defendants filed motions to dismiss for failure to state a cause of action.
- The District Court granted the defendants' motions, ruling that the conduct was 'the business of insurance' regulated by the states and thus immune from antitrust law under the McCarran-Ferguson Act.
- The District Court further held that the conduct did not fall within the Act's 'boycott' exception and separately dismissed claims against the London-based defendants on grounds of international comity.
- The plaintiffs (appellants) appealed to the U.S. Court of Appeals for the Ninth Circuit.
- The Court of Appeals reversed the dismissal, holding that the conduct constituted a 'boycott' and that international comity did not bar jurisdiction over the foreign defendants.
- The defendants (petitioners) successfully petitioned the U.S. Supreme Court for a writ of certiorari.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the principle of international comity prevent a U.S. court from exercising Sherman Act jurisdiction over foreign reinsurers whose conduct was intended to and did produce a substantial effect in the U.S., where their home country's law did not compel the challenged conduct? And, does a concerted agreement among insurers and reinsurers on standardized insurance policy terms constitute a "boycott" falling outside the McCarran-Ferguson Act's antitrust exemption?
Opinions:
Majority - Souter
No, the principle of international comity does not prevent a U.S. court from exercising jurisdiction. The Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States. A court should not decline to exercise this jurisdiction on comity grounds unless there is a 'true conflict' between domestic and foreign law. A true conflict exists only where a person subject to regulation by two states cannot comply with the laws of both, such as when foreign law requires conduct that U.S. law forbids. Here, the London reinsurers did not argue that British law required them to engage in the alleged conspiracies; therefore, their ability to comply with the laws of both countries was not impossible, and no true conflict existed.
Majority - Scalia
No, a concerted agreement on terms is not a 'boycott' under the McCarran-Ferguson Act. A boycott is a refusal to deal that is used as leverage to achieve an objective collateral to the refused transaction. For example, refusing to buy lumber from a wholesaler because the wholesaler also sells to the public is a boycott. In contrast, a concerted agreement to transact only on certain terms—like the reinsurers agreeing to only reinsure policies with specific language—is a form of cartelization, not a boycott. However, the plaintiffs' complaints contained some allegations that could be construed as a boycott, such as threatening to refuse all reinsurance from primary insurers who wrote any policies on disfavored forms. Because these allegations claim pressure collateral to a specific transaction, they are sufficient to survive a motion to dismiss.
Dissenting - Scalia
Yes, international comity should prevent the court from exercising jurisdiction over the London reinsurers. The majority's 'true conflict' test is too narrow and misdirected. The proper inquiry is one of 'prescriptive comity,' which is a canon of statutory interpretation presuming Congress does not intend its laws to apply where it would be unreasonable under international law. A reasonableness analysis involves balancing factors, including the location of the conduct, the nationality of the parties, and the regulatory interests of the foreign nation. Here, the conduct occurred primarily in the United Kingdom, which has a comprehensive regulatory scheme for its reinsurance market. It is therefore unreasonable to apply the Sherman Act, and the claims against the foreign defendants should be dismissed for failure to state a claim.
Analysis:
This decision significantly narrowed two potential defenses in antitrust law. First, it established the stringent 'true conflict' test for international comity, making it very difficult for foreign defendants to escape the reach of U.S. antitrust laws unless their home country's laws compelled them to violate U.S. law. This strengthens the extraterritorial application of the Sherman Act. Second, by adopting a narrow, technical definition of 'boycott' under the McCarran-Ferguson Act, the Court distinguished boycotts from other anticompetitive agreements. This preserves a broader sphere of antitrust immunity for state-regulated insurance activities that involve concerted agreements on policy terms, so long as the parties do not use collateral pressure to enforce them.
Unlock the full brief for Hartford Fire Insurance Co. v. California