Education

Judge Dismisses Lawsuit Against Insurance Firms

By Peter Schmidt — October 04, 1989 2 min read

A federal district judge has dismissed a lawsuit filed by the attorneys general of 19 states accusing leading insurance companies of conspiring to restrict liability-insurance coverage offered to municipalities and school districts.

The suit alleged that 32 U.S. and international insurance companies, reinsurers, and an industry trade group violated federal antitrust laws by agreeing to eliminate certain unprofitable forms of insurance.

Judge William Schwarzer of the U.S. District Court for the Northern District of California dismissed the suit last month, holding that the firms’ alleged violations did not constitute an illegal boycott.

A 1945 federal law exempts insurers from antitrust laws unless they are engaged in a boycott, intimidation, or coercion.

The attorneys general launched the suit in 1988, after a two-year investigation into insurance problems that forced many districts to eliminate athletic and day-care programs. (See Education Week, March 30, 1988.)

The attorneys general contend the insurers manipulated the insurance market to gain support for legislation changing tort laws in their favor.

The insurance industry has argued that a dramatic increase in the size of damage awards against cities and districts forced insurers to raise premiums and curtail coverage in order to meet costs.

The states will appeal the judge’s ruling to the U.S. Court of Appeals for the Ninth Circuit, Assistant Attorney General Michael F. Brockmeyer of Maryland said last week.

The states represented in the suit are Alabama, Alaska, Arizona, California, Colorado, Connecticut, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, New Jersey, New York, Ohio, Pennsylvania, Washington, West Virginia, and Wisconsin.

Attorney General James Mattox of Texas has filed a similar suit in state court.

Insurance-industry representatives hailed the district court’s decision. Craig A. Berrington, general counsel for the American Insurance Association, called the ruling “welcome vindication” from “spurious and politically motivated charges.”

The court’s finding indicates “actions taken by insurers during the liability crisis of the mid-1980’s were appropriate, were adequately overseen by state regulators, and did not in any way violate antitrust laws,” the Insurance Information Institute said in a statement.

“Insurers hope this brings down the curtain on a sorry spectacle of taxpayers’ money being wasted on senseless litigation,” the organization added.

But Senator Howard M. Metzenbaum, Democrat of Ohio, said the decision underscores the need for legislation he has filed to repeal the McCarran-Ferguson Act, the 1945 measure exempting insurers from antitrust laws.

“Insurance companies have always fought off attempts to limit their special protection from federal law by claiming that only the states have the power to regulate insurance,” he said in a press release. “This case proves that states are in fact powerless to protect their citizens from the monopolistic practices of the insurance industry.”

A version of this article appeared in the October 04, 1989 edition of Education Week as Judge Dismisses Lawsuit Against Insurance Firms