United States Court of Appeals Fourth Circuit

361 F.
2d 870
ALLSTATE INSURANCE COMPANY, Government

Employees Insurance
Company, Nationwide Mutual Insurance Company, North
Carolina
Farm Bureau Mutual Insurance Company, and State Farm
Mutual
Automobile Insurance Company Appellants,
v.
Edwin S. LANIER, Commissioner of Insurance for the State of
North Carolina, and T. Wade Bruton, Attorney
General of the State of North Carolina, Appellees.
No. 10192.
United States Court of Appeals Fourth Circuit.

Argued Feb. 11, 1966.
Decided May 27, 1966.
Howard Adler, Jr., Washington, D.C. (Herbert A. Bergson, Donald L.

Hardison, Washington, D.C., and J., Melville Broughton, Jr., and
Broughton & Broughton, Releigh, N.C., and Bergson & Borkland,
Washington, D.C., on brief), for appellants.
Charles D. Barham, Jr., Asst. Atty. Gen of North Carolina (Thomas Wade
Bruton, Atty. Gen. of North Carolina, on brief), for appellees.
Before SOBELOFF, BOREMAN and BRYAN, Circuit Judges.
SOBELOFF, Circuit Judge:
The State of North Carolina maintains a system of automobile insurance

regulation under which uniform rates and standards are promulgated upon the
initiative of a rating bureau composed of all the insurance companies, whose
proposals are then finally approved, modified or disapproved by the
Commissioner of Insurance. North Carolina Gen. Stats. 58-246 to 58-248.8
(1965). All companies selling insurance must adhere to the established rates
and standards as a condition of doing business in the State. Deviations from the
prescribed rates are permitted with the approval of the Insurance
Commissioner, but since a 1961 amendment to the Act, his authority is
restricted to authorizing upward deviations only. See id. 58-248.2, as amended
by 1961 North Carolina Session Laws, ch. 1006. Thus, the individual
companies are effectively precluded from competing through offering lower
premium rates, although they may still offer dividend return features, improved
services, etc.
2
Appellants, five large insurance companies doing 29% Of the total business in
North Carolina, filed suit in the District Court for the Eastern District of North
Carolina to obtain a judgment declaring the statute invalid insofar as it restricts
competition by prohibiting the offering of lower premium rates. They alleged
that the North Carolina statute had been pre-empted by the provisions of the
Sherman Act, 15 U.S.C.A. 1-7 (1958), and the McCarran-Ferguson Act, 15
U.S.C.A. 1011-1015 (1958).1 On cross-motions for summary judgment, the
District Court dismissed the complaint on the ground that since the rating
bureau was established and administered under the active supervision of the
State, it was not subject to attack under the federal antitrust laws, which
condemn only private noncompetitive activities. We think this ruling was
correct.
In Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), the
Supreme Court held that the antitrust laws were inapplicable to an agricultural
proration program which, while restricting competition among raisin growers
and maintaining minimum prices, was established and actively supervised
under the California Agricultural Prorate Act.
'We may assume for present purposes that the California prorate program
would violate the Sherman Act if it were organized and made effective solely
by virtue of a contract, combination or conspiracy of private persons, individual
or corporate. We may assume also, without deciding, that Congress could, in
the exercise of its commerce power, prohibit a state from maintaining a
stabilization program like the present because of its effect on interstate
commerce. * * * But it is plain that the prorate program here was never
intended to operate by force of individual agreement or combination. It derived
its authority and efficacy from the legislative command of the state and was not
intended to operate or become effective without that command. We find
nothing in the language of the Sherman Act or in its history which suggests that
its purpose was to restrain a state or its officers or agents from activities
directed by its legislature. In a dual system of government in which, under the
Constitution, the states are sovereign, save only as Congress may

constitutionally subtract from their authority, an unexpressed purpose to nullify
a state control over its officers and agents is not lightly to be attributed to
Congress.' 317 U.S. at 350-351, 63 S.Ct. at 313.
5
The District Court's finding in the present case that the North Carolina rating
bureau was operated under the active supervision of the State is not challenged
in this court,2 and we find no merit in the distinction suggested by appellants
between the injunction sought in Parker v. Brown and the declaration of
preemption sought here. The central question in both cases is whether a
program of regulation established and actively supervised by a state is subject
to the antitrust laws. Absent congressional action departing from the rule of
Parker v. Brown, the North Carolina statutory plan is clearly valid.3
Nothing in the 1945 McCarran-Ferguson Act or its legislative history suggests a

limitation upon the principle of Parker v. Brown. The statute was passed in
response to the Supreme Court's decision in United States v. South-Eastern
Underwriters Assoc., 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944)
(hereafter SEUA), upholding an indictment against a group of private insurance
companies charged with employing boycotts, coercion and intimidation to
further a conspiracy to maintain noncompetitive premium rates. Because of
earlier court decisions indicating that insurance was not part of commerce for
the purpose of state regulation,4 there was widespread fear that the SEUA case
might endanger state autonomy in the regulation and taxation of the insurance
business.
To allay these fears Congress declared in section 1 of the McCarran-Ferguson

Act that
'* * * the continued regulation and taxation by the several States of the business
of insurance is in the public interest, and * * * silence on the part of Congress
shall not be construed to impose any barrier to the regulation or taxation of such
business by the several States.'
Section 2(a) of the Act reinforces this precept by expressly subjecting insurance
companies to state regulation,5 and section 2(b) provides that unless a federal
statute is made specifically applicable to the insurance business, it shall not
'invalidate, impair or supersede' any state insurance law.6 And while the
antitrust laws were made applicable by section 2(b) to insurance companies,7
the debates explicitly recognized the continuing vitality of Parker v. Brown and
of state created and state supervised rating bureaus like the one now under
consideration.8
10
In short, the dominant purpose of Congress in passing the McCarran-Ferguson

Act was to 'give support to the existing and future state systems for regulating
and taxing the business of insurance' and 'to throw the whole weight of its
power behind the state systems.' Prudential Ins. Co. v. Benjamin, 328 U.S. 408,
429-430, 66 S.Ct. 1142, 1155, 90 L.Ed. 1342 (1946). The statute did no more
than clarify the boundaries of state and federal jurisdiction over the insurance
business, and in no wise sought to affect the controlling substantive principle of
Parker v. Brown. We are concerned here with no scheme delegating sovereign
authority to a private group, or authorizing purely private combinations in
violation of the antitrust laws.9 The North Carolina statute merely permits the
carriers who belong to the rating bureau to propose rates but final authority to
approve or disapprove is lodged in the Insurance Commissioner. On this basis,
the District Court properly held that the statute was not subject to antitrust
challenge. Whether the statutory plan embodies the wisest and most effective
type of regulation is, of course, not a judicial question. The decision is
11
Affirmed.
The matter was heard in the District Court by a single District Judge. No
suggestion was made that only a three-judge district court had jurisdiction to
declare the North Carolina statute invalid. There is no doubt, however, that no
three-judge district court is required to adjudicate an attack on a state statute on
the ground that it has been pre-empted by an act of Congress. Swift & Co. v.
Wickham, 382 U.S. 111, 86 S.Ct. 258, 15 L.Ed.2d 194 (1965)
The United States filed a memorandum in the District Court urging invalidation
of the North Carolina program on the ground that it permitted the unsupervised
establishment of minimum premiums by private companies. Compare Asheville
Tobacco Bd. of Trade, Inc. v. FTC, 263 F.2d 502, 508-509 (4th Cir. 1959).
Following the District Court's finding that establishment of rates was a
governmental function, however, the United States has not joined in this appeal
See Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S.
127, 135-136, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961); Miley v. John Hancock Mut.
Life Ins. Co., 148 F.Supp. 299, 303 (D.Mass.1957), aff'd mem., 242 F.2d 758
(1957); Hitchcock v. Collenberg, 140 F.Supp. 894 (D.Md.1956), aff'd mem.,
353 U.S. 919, 77 S.Ct. 679, 1 L.Ed.2d 718 (1957)
See e.g., New York Life Ins. Co. v. Deer Lodge County, 231 U.S. 495, 34 S.Ct.
167, 58 L.Ed. 332 (1913); Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L.Ed. 357
(1869). These cases did not deal with the question posed in SEUA: Whether
insurance was 'commerce' falling within the regulatory powers of the federal
government
5
'The business of insurance, and every person engaged therein, shall be subject
to the laws of the several States which relate to the Regulation or texation of
such business.' 15 U.S.C.A. 1012(a)
15 U.S.C.A. 1012(b)
Ibid. Similarly, section 4 of the Act specified that the National Labor Relations
Act, 29 U.S.C.A. 151-167, and the Fair Labor Standards Act, 29 U.S.C.A. 201219, were applicable to insurance. 15 U.S.C.A. 1014
Senator Ferguson, co-sponsor of the bill, declared

'This bill would permit-- and I think it fair to say that it is intended to permit-rating bureaus, because in the last session we passed a bill for the District of
Columbia allowing rating. What we saw as wrong was the fixing of rates
without statutory authority in the States; but we believe that State rights should
permit a State to say that it believes in a rating bureau. * * *' 91 Cong.Rec.
1481.
See Also Id. at 1479 (Sen. Ferguson); 1480, 1481 (Sen. Murdock); 1480, 1485
(Sen. O'Mahoney, Senate conferee on the bill, citing with approval Parker v.
Brown). The President expressed the same view: 'The antitrust laws do not
conflict with affirmative regulation of insurance by the States such as agreed
insurance rates if they are affirmatively approved by State officials.' Id. at 1479
(letter from President Roosevelt to Senator Radcliffe).
Compare, e.g., Asheville Tobacco Bd. of Trade, Inc. v. FTC, 263 F.2d 502 (4th
Cir. 1959); United States v. Maryland State Licensed Beverage Ass'n, 138
F.Supp. 685 (D.Md.1956)

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361 F.

ALLSTATE INSURANCE COMPANY, Government

United States Court of Appeals Fourth Circuit.

Howard Adler, Jr., Washington, D.C. (Herbert A. Bergson, Donald L.

The State of North Carolina maintains a system of automobile insurance

Constitution, the states are sovereign, save only as Congress may

Nothing in the 1945 McCarran-Ferguson Act or its legislative history suggests a

To allay these fears Congress declared in section 1 of the McCarran-Ferguson

In short, the dominant purpose of Congress in passing the McCarran-Ferguson

Senator Ferguson, co-sponsor of the bill, declared

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