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Owens v. Aetna Life & Casualty Co.

decided as amended july 7 1981.: June 29, 1981.



Before Gibbons, Weis and Sloviter, Circuit Judges.

Author: Gibbons


William Owens and Jean Owens appeal from an order granting summary judgment in favor of Aetna Life & Casualty Co., Aetna Casualty & Surety Co., Durward M. Stayton and Donald Millure (collectively "the Aetna Defendants") on their eight count complaint against those defendants and others. Of the eight counts, two alleged violations of the federal antitrust laws, five alleged causes of action under New Jersey law, and one, on behalf of Jean Owens, is described as "derivative."*fn1 Although the notice of appeal is addressed to a judgment which dismissed all counts against the Aetna Defendants, the appellants seek review of it only insofar as it granted summary judgment on Counts 1 and 2 of the amended complaint. Appellant's Brief at 6. Addressing those counts, we affirm the grant of summary judgment.*fn2


William Owens is an insurance broker licensed in the State of New Jersey. An insurance broker is "an individual who, for a commission or brokerage consideration, shall act or aid in any manner in negotiating contracts of insurance, or soliciting or effecting insurance as agent for an insured or prospective insured, other than himself; or an individual who, being a licensed agent (for an insurance company), places insurance in an insurance company which he does not represent as agent." N.J.S.A. 17:22-6.2. A broker acts for the insured for the purpose of making the application and procuring an insurance policy. Coro Brokerage, Inc. v. Rickard, 29 N.J. 295, 148 A.2d 817 (1959). Owens also alleges that he was, at the time relevant to this action, an agent of the Aetna Defendants. An insurance agent is "an individual ... authorized in writing by any insurance company lawfully authorized to transact business in (New Jersey), to act as its agent, with authority to solicit, negotiate and effect contracts of insurance in its behalf...." N.J.S.A. 17:22-6.1. Owens claims that he specialized in medical professional liability or malpractice insurance. Reading the allegations in his complaint, his affidavits, and the interrogatories, admissions and depositions on file in the light most favorable to him, it appears that his business was the placement, as a broker, of medical malpractice insurance on behalf of physicians, and the solicitation of such business on behalf of Aetna.

The Aetna Defendants include Aetna Casualty & Surety Co., an underwriter of liability insurance including medical malpractice coverage, and its parent, Aetna Life & Casualty Company. Stayton and Millure are, respectively, General Manager and Marketing Manager of Aetna's Haddonfield, New Jersey office. Other named defendants include the Medical Society of New Jersey, a professional organization of physicians, Federal Insurance Company and its parent, Chubb & Son, Inc. (Chubb), which also underwrite medical malpractice insurance, and six individuals engaged, like Owens, in the insurance brokerage business under the name Joseph A. Britton Agency (Britton Agency). The Medical Society of New Jersey is the owner of a group policy of medical malpractice insurance issued by Chubb. Britton Agency is the broker for the Medical Society of New Jersey. A fact finder could conclude that Britton Agency is in essentially the same business as Owens, acting as broker in placing medical malpractice insurance on behalf of the Medical Society of New Jersey and soliciting the Medical Society's business as agent on behalf of Chubb.*fn3

The events giving rise to this suit began in 1974 when Aetna announced that it would no longer market medical malpractice insurance in New Jersey. Owens alleges Aetna's withdrawal from the New Jersey market had a serious financial impact on his insurance business since he lost his current source of insurance. Moreover, another source was not readily available since Britton Agency was the exclusive agent for Chubb/Federal, the major remaining company offering malpractice insurance in New Jersey.

The initial complaint was the subject of a motion for a more definite statement, which was granted in October 1975. An amended complaint alleges a number of state law claims including fraudulent inducement of the sale of Owens' business, libel, unlawful interference with his business relationships, and violation of unspecified portions of the New Jersey antitrust laws. The factual allegations in support of these state law claims are in many respects duplicative of those supporting Counts I and II, which this appeal addresses. Those counts charge a conspiracy among the defendants in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and a conspiracy to monopolize the business of medical malpractice insurance in violation of Section 2 of that Act, 15 U.S.C. § 2. The issue to be decided is whether, considering "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits if any" there is any "genuine issue as to any material fact," and whether "the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Reading the allegations of the complaint generously, it charges (1) that the Aetna Defendants and Chubb conspired to divide the liability insurance market in New Jersey so that only Chubb would write medical malpractice insurance in New Jersey, and do so only on a group basis for the Medical Society of New Jersey, while Aetna would do so in other states, and would, without competition from Chubb, sponsor all group automobile and homeowners' insurance arranged by the Medical Society for its members; (2) that the Aetna Defendants and Chubb boycotted him; and (3) that the defendants conspired in other ways to drive Owens out of business. Those allegations must, however, be tested not in the abstract, but in light of an extensive record of depositions, interrogatories, admissions, and affidavits. Examining those, we must, after first determining all issues of disputed fact in Owens' favor, decide whether as a matter of law either section of the Sherman Act would provide grounds for relief. The district court concluded that neither would, because any activity Owens could hope to prove was exempt from antitrust scrutiny by virtue of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015 (1976), and because there was no evidence that the Aetna Defendants boycotted him or conspired to drive Owens out of business.


Before turning to the specific facts in the extensive record, a brief description of the regulatory scheme for liability insurers licensed to do business in New Jersey will help to place those facts in context. A key provision of that scheme is N.J.S.A. 17:29A-15, which prohibits any insurer, broker or agent from charging, demanding or receiving a premium for any policy of insurance except in accordance with a rating system on file with and approved by the New Jersey Insurance Commissioner. The statutory standard for the Commissioner's approval is a rate "not unreasonably high or inadequate for the safety and soundness of the insurer, and which (does) not unfairly discriminate between risks in this State involving the same hazards and expense elements...." N.J.S.A. 17:29A-4. While individual insurers may make their own rate filings with the Commissioner the statute also contemplates that filings will be made on behalf of insurers by licensed rating organizations, which are organizations "engaged in the business of rate-making for two or more insurers." N.J.S.A. 17:29A-1(f). Each rating organization must admit, without discrimination, any insurer engaged in issuing the kind of insurance for which that organization has been approved by the Commissioner for rate-making. N.J.S.A. 17:29A-3. Thus the New Jersey statutory scheme affirmatively encourages joint action in rate-making. Rate-making, moreover, includes the classification of risks, such that rates may vary somewhat according to the degree of risk. N.J.S.A. 17:29A-4(a). Thus both the rates and the classifications of risks may be the result of joint action among firms that would otherwise be competitors, subject to approval by the Commissioner.

Among the rates and classifications are those applicable to mass marketing of property and liability insurance through employer or association groups. Pursuant to general rule-making authority, N.J.S.A. 17:1-8.1 & 17:1C-6(e), the Commissioner has adopted comprehensive regulations for such mass marketing plans. N.J.A.C. 11:2-12.1 to 12.15. A mass marketing plan is one in which insurance "is offered to employees of particular employers or to members of particular associations or organizations" and for which "some rate, coverage, underwriting or substantial service advantage is provided which is not available from the same insurer on a nonplan basis." N.J.A.C. 11.2-12.2(2), (3). Premiums and policy forms for mass marketing plans must comply with the same filing and approval requirements as individual insurance, and are governed by the same standards for such approval. N.J.A.C. 11:2-12.5. In order for the Commissioner to discharge the responsibility for approving classifications and rates, the New Jersey law authorizes him to require disclosure of loss and expense experience in this state and elsewhere. N.J.S.A. 17:29A-5. Insurers selling mass marketing plans must maintain separate statistics for any plans providing some rate or coverage advantage not available from the same insurer on a nonplan basis. N.J.A.C. 11:2-12.6. No insurer may sell insurance pursuant to a mass marketing plan if a condition of membership in an organization through which it is offered is the purchase of insurance through the plan or if the member is subject to a penalty by reason of nonparticipation. N.J.A.C. 11:2-12.8.

Thus under New Jersey law there is (1) comprehensive state regulation of rates and classifications of risk; (2) state encouragement of and comprehensive regulation of rate-filings by rating organizations, which file rating-systems for many insurance companies; and (3) state recognition and regulation of differences in rates and coverages between insurance issued pursuant to mass marketing plans and that issued in the form of individual policies. Moreover, because the Commissioner may insist on disclosure of loss experience in other states, he can prevent discrimination in rates and classifications against insureds in this state.

In this case we are dealing with insurance "(a)gainst loss or damage resulting from accident to or injury suffered by any person for which loss or damage the insured is liable," N.J.S.A. 17:17-1(e), i. e., the generic category of liability insurance. That type of insurance covers not the occurrence of the casualty, but rather the indemnification for damages for legal liability and the cost of defending a lawsuit. As the caseload statistics of any court system in the United States attest, two of the major categories of risk of such liability are automobile accidents and medical malpractice. For purposes of state regulation these two kinds of coverage present similar problems. As outlined above, the state pursues the competing but equally important goals of assuring insurer solvency and preventing unfair discrimination by substituting state determination of rates and coverages for free competition among insurers. In such a regulatory climate where competition on the basis of rates and coverage is eliminated, but underwriting profits are still desired, competition will occur in the selection of risks, with companies seeking to capture the low-risk classifications of insurance and avoid the high-risk classifications, for which the rates charged may be higher, but not sufficiently high to attract insurers. In other words, for liability insurance the effort inevitably will be to select those insureds statistically less likely to incur liability. An automobile liability insurer which can succeed in confining its coverage to automobile owners over age 25, below age 60, with no driving age children in the family and with a breadwinner who commutes to work on public transportation, will be more likely to make an underwriting profit than will the company which insures teenage drivers, older drivers, and drivers who use their cars to commute to work every day. A company writing medical malpractice coverage which insures only pediatricians and internists is much more likely to make an underwriting profit than one which insures orthopedists and other surgeons. If competition is permitted in risk selection the socially undesirable consequences may be either that those most at risk cannot obtain insurance at all, or that the solvency of companies which wind up insuring them will be impaired. Either consequence violates the basic principle of insurance, that of risk spreading. The least expensive insurance for any category of insurance, overall, will always be that in which the pool of insureds includes the largest universe.

There are several methods by which a state can deal with the social consequences of adverse risk selection. It could eliminate rate-fixing, so that the less desirable risks always could get coverage by paying more money. In the case of high-risk medical specialties such as orthopedists and other surgeons, that would result in passing insurance costs on to patients, a not particularly attractive solution when one remembers that many patients are needy. It could devise an assigned-risk scheme which eliminated competition in risk selection.*fn4 Short of that step, it could approve a rating-system which tends to encourage maximization of the pool of risks by operation of the forces of the market. One method of doing so is permitting the sale of insurance pursuant to a mass marketing plan which provides a financial incentive for purchasing coverage through an association. The key to the success of such an approach is to fix a group rate low enough to encourage low-risk insureds to forego purchasing individual policies, but high enough, considering the number of group members, to produce an underwriting profit even when the high-risk insureds are covered. New Jersey's regulations governing mass marketing plans, of which the rating-system applicable to the New Jersey Medical Society policy is one, adopt this latter approach. The Commissioner has approved a rating-system for a group rate filed on behalf of a number of companies in connection with voluntary associations such as the Medical Society.

The necessary consequence of a group marketing plan is that the broker for an association, or the agent for an insurance company which successfully solicits that association's group policy on its behalf, forecloses other brokers or agents from selling individual policies to those association members who chose group coverage. Foreclosure occurs only to the extent that members elect group coverage, however, for under N.J.A.C. 11:2-12.8, association members remain free to obtain individual coverage if they prefer.


Also helpful for an appreciation of the record is an understanding of the relevant federal law, and its relationship to the New Jersey regulatory scheme. The McCarran-Ferguson Act provides in relevant part:

Sec. 2(a) 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 taxation of such business.

(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State Law.

Sec. 3.

(b) Nothing contained in this chapter shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation.

59 Stat. 33-34, as amended, 61 Stat. 448 (codified at 15 U.S.C. §§ 1012-1013 (1976)). The Act was passed in response to the decision in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944), which overruled Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L. Ed. 357 (1869). The latter case had held that a policy of insurance is not a transaction of commerce, and for 75 years it was assumed that federal commerce clause legislation did not apply to the insurance industry. During that time state law had of necessity filled a federal regulatory vacuum. After the South-Eastern Underwriters decision, Congress anticipated that many of those state regulatory laws might be challenged on statutory supremacy or commerce clause grounds, so it enacted the quoted provisions, which in part defer to state regulation. The Act makes applicable to the business of insurance the Sherman and Clayton Acts "to the extent that such business is not regulated by state law." State regulation may not, however, shield conduct which amounts to boycott, coercion or intimidation. But before the deference to state regulation comes into operation, the conduct must be found to be the "business of insurance."

The McCarran-Ferguson Act contains no definition of the "business of insurance." The term appears in a statute creating a limited exemption to the antitrust laws, however, and thus falls within the compass of the general rule that even express exemptions from antitrust laws are narrowly construed.*fn5 Thus the Court has held that the exemption is not applicable to all activities of insurance companies, but only to those activities falling within the "ordinary understanding" of the statutory phrase. Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 211, 99 S. Ct. 1067, 1073, 59 L. Ed. 2d 261 (1979); SEC v. National Securities, Inc., 393 U.S. 453, 459-60, 89 S. Ct. 564, 568, 21 L. Ed. 2d 668 (1969). The earmark of insurance is the underwriting and spreading of risks in exchange for a premium. SEC v. Variable Annuity Life Insurance Co., 359 U.S. 65, 73, 79 S. Ct. 618, 623, 3 L. Ed. 2d 640 (1959). That activity encompasses, however, more than making contracts between an insurer and an insured. As the Supreme Court has demonstrated in its review of the relevant legislative history, backers of the McCarran-Ferguson Act were acutely aware of the data-gathering aspects of the insurance business.

Because of the widespread view that it is very difficult to underwrite risks in an informed and responsible way without intra-industry cooperation, the primary concern of both representatives of the insurance industry and the Congress was that cooperative ratemaking efforts be exempt from the antitrust laws. The passage of the McCarran-Ferguson Act was preceded by the introduction in the Senate Committee of a report and a bill submitted by the National Association of Insurance Commissioners on November 16, 1944. The views of the NAIC are particularly significant, because the Act ultimately passed was based in large part on the NAIC bill. The report emphasized that the concern of the insurance commissioners was that smaller enterprises and insurers other than life insurance companies were unable to underwrite risks accurately, and it therefore concluded:

"For these and other reasons this subcommittee believes it would be a mistake to permit or require the unrestricted competition contemplated by the antitrust laws to apply to the insurance business. To prohibit combined efforts for statistical and rate-making purposes would be a backward step in the development of a progressive business. We do not regard it as necessary to labor this point any further because Congress itself recently recognized the necessity for concert of action in the collection of statistical data and rate making when it enacted the District of Columbia Fire Insurance Rating Act." Id., at A4405 (emphasis added).

The bill proposed by the NAIC enumerated seven specific practices to which the Sherman Act was not to apply. Each of the specific practices involved intra-industry cooperative or concerted activities.

The floor debates also focused simply on whether cooperative ratemaking should be exempt. Thus, Senator Ferguson, in explaining the purpose of the bill, stated:

"This bill would permit and I think it is 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. I think the insurance companies have convinced many members of the legislature that we cannot have open competition in fixing rates on insurance. If we do, we shall have chaos. There will be failures, and failures always follow losses." 91 Cong.Rec. 1481 (1945).

The consistent theme of the remarks of other Senators also indicated a primary concern that cooperative ratemaking would be protected from the antitrust laws. Id., at 1444 and 1485 (remarks of Sen. O'Mahoney); 485 (remarks of Sen. Taft). President Roosevelt, in signing the bill, also emphasized that the bill would allow cooperative rate regulation. He stated that "Congress did not intend to permit private rate fixing, which the Antitrust Act forbids, but was willing to permit actual regulation of rates by affirmative action of the States." S. Rosenman, The Public Papers and Addresses of Franklin D. Roosevelt, 1944-1945 Vol., p. 587 (1950).

Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. at 221-24, 99 S. Ct. at 1078-1079.

Even mindful of the rule of construction that exemptions to the antitrust laws must be narrowly construed, it is clear that at least the following activities are the business of insurance, either because they pertain to risk-spreading or to the contract between the insurer and the insured:

1. preparing and filing a rating-schedule, either on behalf of an individual company or jointly through a rating bureau;

2. deciding upon rating classification differences between individual policies and group marketing plans, either individually or jointly through a rating bureau;

3. authorizing agents to solicit individual or group policies;*fn6

4. accepting or rejecting coverages tendered by brokers.

Each of these activities is exempt from the antitrust laws by virtue of section 2(b) of the McCarran-Ferguson Act so long as these activities are regulated by state law and do not amount to boycott, coercion, or intimidation.

As we have seen, each of these activities is regulated by New Jersey insurance law. That law prohibits the sale of a liability insurance policy in the state except in accordance with an approved rating-system on file with the Commissioner. N.J.S.A. 17:29A-15. The state licenses rating bureaus, regulates their membership, and affirmatively encourages their use. N.J.S.A. 17:29A-2(1)-(3). Differences between mass marketing (group) and individual policies, as well as rates and classifications of policies, are all subject to control by the Commissioner of Insurance. N.J.S.A. 17:29A-4; N.J.A.C. 11:2-12.1 to 12.15. Regulation even reaches across the state lines to assure that in deciding on the propriety of New Jersey rating-systems, experience in other states is taken into account. N.J.S.A. 17:29A-5. The appointment of agents is also regulated by state law. N.J.S.A. 17:22-6.15, 6.20. No commissions may be paid to an unlicensed broker or agent. N.J.S.A. 17:22-6.18.

Plainly, in the four respects set forth in the preceding paragraph, the business of insurance is regulated by New Jersey law. Thus before Owens can successfully resist a summary judgment on his Sherman Act claims, he must raise a genuine issue of material fact suggesting that the activities of which he complains either are outside those four areas, or if within them, amount to a boycott, coercion or intimidation.


With the foregoing interrelated regulatory schemes in mind we turn to Owens' three claimed antitrust violations; the combination or conspiracy to give Chubb a monopoly in the New Jersey medical malpractice field, the boycott claim, and the conspiracy to drive him out of business. Each requires separate analysis.


As to the market division charge, we may assume, without deciding, (1) that a naked agreement between insurance companies to divide markets geographically, not the subject of state regulation, does fall within the proscriptions of the Sherman Act if it has the required effect on competition, cf. United States v. Topco Associates, Inc., 405 U.S. 596, 92 S. Ct. 1126, 31 L. Ed. 2d 515 (1972); and (2) that insurance brokers may be injured in their business or property by such an agreement. Moreover, reading the amended complaint generously, we do assume that Owens could attempt to prove such a naked agreement not regulated by state law. We are not, however, reviewing the grant of a Rule 12(b)(6) motion, but rather the grant of summary judgment after the compilation of an extended record. That record includes 36 volumes of deposition testimony, extensive interrogatories and admissions, and affidavits in support of and in opposition to Aetna's summary judgment motion. It establishes no issue of material fact as to what Owens could hope to establish at trial.

Neither in his pleadings and affidavits in the district court nor here did Owens advance any theory of liability based on concert of action with respect to withdrawal from the New Jersey market among the Aetna Defendants alone. Both the amended complaint and his legal argument posit concert of action between the Aetna Defendants on the one hand and Chubb and the Britton Agency on the other. However, despite an ample opportunity to develop it, Owens presented no evidence from which an inference could be drawn of any such concert of action outside the field of concerted activity authorized and regulated by New Jersey.

The starting point for analysis must be Owens' complaint in which he alleges that in 1974 he was an independent agent for Aetna specializing in solicitation of individual policies of medical malpractice insurance. He charges that

During 1974, AETNA was seeking through Insurance Services Office of New York an unjustifiable rate increase from the New Jersey Insurance Department which would put plaintiff out of business and enable defendants CHUBB & SON, INC., FEDERAL INSURANCE CO., and JOSEPH A. BRITTON AGENCY to acquire plaintiff's lucrative business and clientele and having a direct effect of enabling AETNA to abandon the State of New Jersey as far as medical malpractice is concerned which they would not have otherwise been permitted to do.

(Amended Complaint, paragraph 31). It is established in the record (JA 56), and undisputed, that Insurance Service Office is a rating bureau of which Aetna is a member. There is no dispute that Aetna did "abandon" writing medical malpractice insurance in New Jersey in 1974. In a deposition, Robert S. Hansen, Vice President of the Aetna Life and Casualty Co., testified:

Q Does Aetna sell medical malpractice insurance in New Jersey?

A No, we do not.

Q Did Aetna ever sell medical malpractice insurance in New Jersey?

A Yes, we did.

Q When did it cease writing medical malpractice insurance in New Jersey?

A I would say sometime in 1974.

Q Did Aetna cease writing medical malpractice insurance elsewhere in the United States at or about that time?

A Yes, we did. In fact, we ceased writing it in most of the United States at that time.

Q Were you involved in the decision which was reached by Aetna with respect to those matters?

A Yes, I was.

Q Are you familiar with the reasons for which Aetna withdrew from the medical malpractice market generally in the United States ...

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