Suit against insurers is upheld Huge antitrust action could be far-reaching

June 29, 1993|By Lyle Denniston | Lyle Denniston,Washington Bureau

WASHINGTON -- The state of Maryland, other states and private companies got the Supreme Court's permission yesterday to go ahead with an enormous lawsuit against the insurance industry, an antitrust claim that threatens to reach overseas, even to Lloyd's of London.

The court ruled unanimously that American insurance companies are not immune to the legal challenge, and decided by a separate 5-4 vote that British insurers were not exempt from the claim, even though they operate entirely in the heavily regulated Lloyd's market in London.

As the case has developed over the past five years, it has been described by states' legal officers as "a nuclear attack on the insurance industry."

The lawsuit contends that American insurance companies, worrying about the escalating payoffs they were having to make for casualty and property damage insurance, set out on a plan to narrow that coverage significantly for state and local government and for private companies.

When they failed to get new industry rules adopted to curb their exposure to such claims, the lawsuit complains, the U.S. firms decided to get out of that kind of insurance coverage altogether. They allegedly then enlisted the London reinsurance market to join in a boycott of other U.S. firms that had continued to write such policies.

Without reinsurance, the other companies could not afford to stay in business, so the boycott would be an effective enforcement method for pulling them back into line and bringing about an end to the unwanted coverage.

Maryland's part in the case stirred a political ruckus at the beginning, when Gov. William Donald Schaefer, at the urging of insurers in the state, complained that the state's participation would be bad for the business climate.

Attorney General J. Joseph Curran Jr., however, went ahead, and yesterday he proclaimed at least a tentative victory, calling it "a tremendous legal boost" for the court to have allowed the case to go forward. The court decision, he said, will assure that the case goes to trial in San Francisco federal court.

The four American companies sued in the case, Hartford Fire Insurance Co., Aetna Casualty and Surety Co., Allstate Insurance Co. and CIGNA Corp., had contended that the usual immunity the insurance industry has to federal regulation under the 1945 McCarran-Ferguson Act barred the antitrust lawsuit against them.

The court, however, ruled yesterday that their immunity does not exist when the antitrust claim is that they engaged in an attempt to boycott other insurance companies. That part of the ruling was unanimous.

The London insurers and reinsurance companies involved in the case also claimed that, as part of the Lloyd's market in London under the direct supervision of British government regulators, they were beyond the reach of American antitrust law. By a 5-4 vote, the court rejected that claim, thus rebuffing not only the plea of the London companies, but also of the British government, which had joined in the appeal to the Supreme Court.

The court voted to restrict the kind of boycott claims it would allow, but permitted a claim that the alleged boycott was designed to bring uncooperative U.S. insurers into line, by threatening them with the loss of all their reinsurance.

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