With the enactment of the McCarran Act, Congress confirmed the principle of retaining state insurance regulation and declared that the federal antitrust laws should apply to the business of insurance only to the extent that the business is not regulated by the state. Thus as long as the states regulate the business of insurance, this immunity would appear to be rather broad. However, the actual scope of the McCarran antitrust exemption depends upon judicial interpretation of three key elements in the Act: (1) business of insurance, (2) regulation by State law, and (3) boycotts.

The McCarran Act applies to the business of insurance. If the activities under consideration do not constitute the business of insurance, even if performed by an insurer, an insurance agent, or some other person associated with an insurer, the McCarran Act does not apply and its antitrust exemption is unavailable. Not only would such activities be subject to antitrust, they also would be subject to any relevant federal law (even though not specifically relating to insurance). This is true whether or not such activities are regulated by the states. Thus crucial to the vitality of the McCarran Act is the scope which the courts give to the concept of the business of insurance.

Following the enactment of the McCarran Act, most persons in the insurance industry and regulatory communities believed that the language "business of insurance" provided a broad umbrella. Even though there was the boycott proviso and variable annuities had been found to wander off the insurance reservation, these situations were rare exceptions rather than the general rule. The term "business of insurance" is very broad language. The drafters intended that such language be construed in a broad manner. Early unsuccessful challenges vindicated the drafters’ intent. Consequently, the McCarran Act comfort index was quite high.

Change began to set in with SEC v. National Securities, Inc. Here the SEC brought an action charging the defendant with obtaining stockholder approval of an insurance company merger by means of fraudulent statements in proxy materials, thereby violating the federal securities laws. The defense rested upon the insurance commissioner approval of the merger under State law providing that the commissioner should disapprove such a transaction if it were inequitable to the stockholders of the domestic insurer. It was argued that the McCarran Act barred the assertion of SEC jurisdiction since the federal securities laws do not specifically apply to insurance. The Supreme Court disagreed. Since proxy solicitations to stockholders were of little concern to the policyholders, they did not constitute the doing of the business of insurance, hence the McCarran Act does not here preclude the application of the federal securities laws fraud provisions. The Court reasoned that the "business of insurance" language does not embrace everything in which an insurer is involved but rather includes only those activities or conduct affecting the relationship between the insurer and its policyholders. That is, the McCarran Act’s protection depends upon the nature of the activity or conduct involved, not simply upon the involvement of an insurance company.

The Court emphasized that the focus of the McCarran Act is on the relationship between the insurer and the policyholders, not on whether the regulation concerned general corporate acts of the insurer. The Court said that

The Court went on to note examples of activities included within the concept of the business of insurance such as ratemaking, selling and advertising of policies, and the licensing of insurance companies and their agents.

On the one hand, the Court made clear that the "business of insurance" language is subject to limits and does not afford carte blanche immunity. On the other hand, the insurer-policyholder relationship test appeared to be both broad and embracing of the vast range of insurance company activities. While the National Securities decision gently rocked the boat in clearly indicating the existence of outside parameters as to what constitutes the business of insurance, such parameters appeared sufficiently broad so as not to cause shock waves throughout the industry. Even though insurance company involvement does not necessarily render a particular activity or conduct the business of insurance, the enunciated test that the McCarran language is limited to those activities or conduct affecting the relationship between the insurer and its policyholders appeared to continue to provide broad McCarran Act protection.

Ten years later, however, the Court dropped a bombshell in Group Life & Health Co. v. Royal Drug (1979) with an aftershock 3 years thereafter in Union Labor Life Insurance Co. v. Pireno (1982). Both cases involved arrangements by a health insurer with health care providers in efforts to reduce the cost of health insurance. Also, in both cases, other health care providers brought actions alleging such conduct violated the antitrust laws. The availability of the McCarran Act defense turned upon whether the insurers’ contracts with the health providers constituted the business of insurance. In finding they did not, along with the National Securities decision, the Court established three criteria in determining whether a given activity or conduct is the business of insurance.

Does Such Activity or Conduct Have the Effect of Transferring or Spreading Policyholder Risk? In Royal Drug, the Court found that the provider agreements between the insurer and pharmacies to curb the cost of prescription drugs did not involve spreading policyholder risk, but rather were merely arrangements to reduce the cost of goods and services to the insurer. Similarly, in Pireno, the Court found that the use of a peer review group to curb health care costs did not transfer risk, but rather simply determined whether particular costs fell within the scope of the risk which had already been transferred when the insurance policy was purchased.

Does the Activity or Conduct Constitute an Integral Part of the Relationship between the Insurer and the Insured? In both cases, the Court pointed out that the agreements with health care providers were not between and were quite distinct from the agreements between the policyholder and the insurer.

Is the Activity or Conduct Limited to Entities within the Insurance Industry? In both cases, the challenged activity involved third parties wholly outside the insurance industry and involved goods and services other than insurance. The McCarran Act was intended to primarily protect intra industry cooperation rather than arrangements with parties outside the insurance industry.

With Royal Drug and Pireno, the Supreme Court cast a pall over those in the insurance industry and regulatory communities relying on the McCarran antitrust exemption. Particularly troublesome is the first criterion as to the transferring and spreading of policyholder risk, a concept which is subject to substantial stretching or technical narrowing as the mood strikes the Court.

An affirmative finding of all three elements clearly establishes the conduct as a part of the business of insurance. However, an unresolved issue is whether each and every one of these three criteria must be met before the McCarran protection becomes available or whether they are factors to be weighed in arriving at a decision. If all three are required, the scope of the McCarran exception would appear to have been severely circumscribed.

The Court’s opinions in National Securities, Royal Drug, Pireno, and more recently in Metropolitan Life fail to establish whether all three elements must be met in every case. Some lower court decisions suggest that this is not necessary. Furthermore, such a requirement may necessitate overturning previous Supreme Court decisions which have previously stated that certain types of activity do constitute the business of insurance. Consequently, the ultimate ramifications of these cases are yet to be seen. Nevertheless, there is little doubt that they pose significant limitations on the scope of the business of insurance vis-à-vis the broader concept held prior to their findings. Especially when insurers venture beyond insurance confines and deal with parties outside the insurance industry, the McCarran Act appears to have lost a considerable amount of its insulating quality. But if the activity or conduct under consideration is essentially confined to the insurance arena, there is substantial likelihood that such will continue to fall within McCarran’s embrace as the business of insurance.

In 1993, in a non-antitrust case United States Department of the Treasury v. George Fabe, the Supreme Court backed away from a continuing narrowing of the scope of the McCarran Act. Fabe involved a state insurance liquidation law which accorded the claims of federal, state, and local governments a fifth level priority behind administrative expenses, specified wage claims, policyholder claims, and general creditor claims. The federal government asserted that its claims were entitled to first priority under the federal priority law. The Ohio Superintendent of Insurance maintained that the Ohio priority scheme should prevail since it falls within the reverse preemption structure of the McCarran Act. The Court decided to hear the case to resolve a conflict among federal courts of appeal on the issue "whether a state statute governing priority of claims against an insolvent insurer is a ‘law enacted . . . for the purpose of regulating the business of insurance’ within the meaning of [the McCarran Act]."

The Court emphasized its decision in SEC v. National Securities when it quoted the opinion of that case, that is, "[t]he relationship between the insurer and insured, the type of policy which could be issued, its reliability, interpretation and enforcement—these were the core of the business of insurance." The Court rejected the government’s contention that the state insurance liquidation law was a bankruptcy law rather than an insurance law, noting that the primary purpose of distributing the insolvent insurers’ assets to the policyholders in preference to other creditors is identical to the purpose of the insurer—that is, the payment of claims. Thus since the priority of policyholders in the payment of claims under the state insurance law constitutes the business of insurance, under the reverse preemption of the McCarran Act, the federal priority statute must give way in favor of the state insurance liquidation law.

The Fabe decision suggests that the Court arrested the trend toward reading the McCarran Act out of existence. While not reversing Royal Drug and Pireno, Fabe indicates that all facets of performing an insurance contract constitute the business of insurance, which are exempt from conflicting federal law because it does not specifically relate to the business of insurance. Second, the Court may have elevated the importance of the relationship between the insurer and the insured vis-à-vis the other two tests set forth by Royal Drug and Pireno in determining what falls within the scope of the business of insurance for purposes of the McCarran Act. However, it should be noted that the judicial rebroadening of the scope of the "business of insurance" occurred in a non-antitrust situation, whereas that phrase may be more narrowly construed when federal antitrust law is sought to be applied.

Even if the activities under consideration constitute the business of insurance, to the extent they are not "regulated by State law," they lose their antitrust immunity.

Prevailing Standard. In Federal Trade Commission v. National Casualty Co., the Supreme Court established the standard in which insurance legislation which proscribes conduct and authorizes enforcement through a scheme of administrative supervision (which is not a mere pretense) satisfies the "regulated by State law" requirement of the McCarran Act. With subsequent lower court elaboration, the prevailing articulation of the standard became whether state law "proscribes, permits, or authorizes" the challenged conduct. As long as there is a statute or regulation covering the general area under consideration which is capable of being enforced, or as long as the regulatory scheme is comprehensively and meaningfully administered, it need not address every detail of the business of insurance.

However, to meet the McCarran standard, the state law needs to detail insurance regulation as distinguished from general law (which only incidentally applies to the insurance industry). That is, the regulation needs to directly or indirectly be aimed at protecting or regulating the policyholder-insurer relationship. Regulation of other conduct does not suffice to invoke the McCarran antitrust exemption. Also, the law needs to be the law of the state in which the challenged activity is practiced and has its impact.

Effective Regulation Test. For the most part, challenges to the availability of the McCarran antitrust exemption based upon an assertion that the activity under consideration was not "regulated by State law" have not proven to be successful. However, the argument has been advanced, both in a judicial context and by critics of state insurance regulation, that this standard should only be met if state regulation is effective. Not only should the state possess the capacity to effectively regulate, but also the antitrust immunity should depend upon the quality of administration and enforcement as well as upon the laws themselves. It is argued that parties should not escape the discipline of the antitrust laws unless they are, in fact, subject to the discipline of state regulation.

The adoption of the effective state regulation test would, in effect, place the courts in an oversight role as to the effectiveness of state law. This would, at least in part, usurp the congressional oversight function. To date, the Supreme Court has not directly passed on the effectiveness test despite many opportunities to do so. Whether over time it will continue to avoid giving such test judicial imprimatur is not certain. Thus the potential for narrowing the McCarran antitrust exemption with respect to the "regulated by State law" exists although perhaps with less force than is the situation with respect to the business of insurance standard.

The third element in defining the scope of the McCarran antitrust exemption relates to boycotts. The United States v. South-Eastern Underwriters Association case involved a criminal indictment brought under the federal antitrust laws against the association, its officers, and its 198 stock insurer members writing fire and allied lines. The defendants were alleged to have conspired to fix premium rates and agents’ commissions and to have employed boycotts, coercion, and intimidation against nonmember insurers to force compliance with the fixed rates. Since blatant and abusive boycotts gave rise to the South-Eastern Underwriters case and since the McCarran Act was enacted in response to this case, it is not surprising that Congress was unwilling to exempt boycotts in the McCarran Act.

Therefore, in order to successfully raise the McCarran Act as a defense against an antitrust challenge, not only must the challenged activity constitute the business of insurance and be regulated by State law; in addition, such conduct or activity cannot constitute a boycott. Since finding a boycott bars the availability of the McCarran antitrust exemption, the issue of what constitutes a boycott has become a central battleground in insurance antitrust regulation.

In general, a boycott can be defined as a group or concerted refusal to deal. This refers to a method of pressuring a target party with whom one has a dispute by withholding and getting others to withhold patronage or services from the target. It should be noted that a unilateral, as distinguished from a group, refusal to deal does not constitute a boycott. However, this does not prevent a plaintiff from alleging a group refusal to bring the case under the antitrust law.

Because of the history of the origin of the boycott provision in the McCarran Act, one line of lower court cases found that the term boycott, as used in the Act, was limited to protecting only insurers and agents from the type of activities which arose in the South-Eastern Underwriters case. Other lower courts held that a McCarran boycott extended to customers of insurance services and products and to other persons outside the insurance industry.

Not until the Supreme Court decision in St. Paul Fire & Marine Insurance Co. v. Barry (1978) did the Court directly address the issue as to what is a boycott under the McCarran Act. In the Barry case, physicians sued the four insurers writing medical malpractice insurance in Rhode Island, alleging that three of the four insurers refused to deal on any terms with the policyholders of the fourth insurer (St. Paul) so as to compel those policyholders to purchase St. Paul’s new claims made policies (which the physicians did not like) instead of the old occurrence type policies (which the physicians preferred). The crucial issue was what constituted a boycott in the McCarran Act sense. The Court determined that the term "boycott" should be interpreted in the tradition of the antitrust laws which includes concerted refusals to deal with customers who are the ultimate target of the boycotters.

Although Barry broadened the scope of a boycott to include customers of an insurance company, it did not specifically define the type of concerted refusal to deal which gives rise to a boycott. One type is an absolute refusal to deal on any terms. This type was alleged in Barry and found to be within the embrace of the McCarran Act term. But the Court refrained from saying what is not a boycott in the McCarran Act sense.

In addition to absolute refusals to deal, there can be conditional refusals to deal, which are refusals to deal except on certain terms. As the dissent in Barry pointed out, most practices condemned by the Sherman Act (the basic antitrust law) can be cast in terms of a conditional refusal to deal. For example, an allegation of price fixing can be viewed as a group refusal to deal except on certain terms, that is, the price agreed upon. Yet, in enacting the McCarran Act, Congress intended to permit insurers to agree as to rates subject to state insurance regulatory oversight. However, if price fixing is construed to be a boycott, the McCarran Act antitrust immunity does not apply and congressional intent is thwarted. Or, assuming insurers develop and utilize an agreed upon policy form, a plaintiff can simply allege a refusal to deal except on the insurers’ terms as to the content of the policy. If such conditional refusals to deal are deemed to be boycotts, the term has become so broad in the context of insurance company activities that the McCarran Act antitrust exemption becomes a virtual nullity.

Although Barry makes clear that an absolute refusal to deal is conduct embraced by the term "boycott," this case neither decided nor gave clear signals as to whether a conditional refusal to deal gives rise to a boycott. Thus the lower courts were left to wrestle with the issue.

Of those few lower courts which have gone as far as acknowledging that a conditional refusal to deal might give rise to a boycott, most suggest some limiting principles. For a conditional refusal to deal to achieve boycott status, according to these courts, one or more of the following additional elements need to be present: (1) some mechanism to enforce an agreement made between competitors, (2) the condition for refusal must be unreasonable, or (3) the purpose or the effect must be to significantly limit the target’s freedom to obtain the refused product or service or to compete for business.

In short, since Barry, the McCarran term "boycott" has been expanded to embrace insurers’ concerted absolute refusals to deal with their customers. If, in addition, the boycott concept ultimately expands to conditional refusals to deal without limit, the McCarran antitrust exemption possesses minimal value since most antitrust complaints can be couched in terms of a refusal to deal. However, as to those lower courts even willing to consider whether a conditional refusal to deal is a boycott, most would require some additional element, such as those just noted, to find a boycott. Thus the trend appeared to be toward achieving a reasonable definition of boycott so as not to emasculate the McCarran antitrust exemption.

In 1993, the United States Supreme Court revisited the issue of what constitutes a boycott in Hartford Insurance Co. v. California. This decision arose out of an antitrust action brought in 1988 by the attorney generals of 19 states and numerous private parties against four large United States primary insurers, a number of domestic reinsurers, domestic insurance and reinsurance trade associations, the Insurance Service Office, a domestic reinsurance broker, and several London based reinsurers.

Plaintiffs alleged that the defendants conspired, in violation of Sec. 1 of the Sherman Act, to restrict the terms of coverage of commercial general liability (CGL) insurance available in the United States. The purpose of the alleged conspiracy was to force certain primary insurers (that is, insurers who sell insurance directly to the consumer) to change the terms of their CGL policies to conform to the policies defendant insurers desired to sell. The defendant insurers sought to restrict the terms of the CGL policy so that the traditional occurrence trigger of coverage would be replaced with a claims made trigger which affords coverage only for claims made during the policy period. Other allegations included a like conspiracy to include in the policy form a retroactive date provision restricting coverage to incidents which occurred after a certain date (thereby avoiding liability for incidents which occurred prior to the effective date of the policy but remained undiscovered until after that date), elimination of coverage for sudden and accidental pollution, and limitation of legal defense costs.

Two basic insurer operational features play an essential role in the effort to establish a conspiracy in this case. First, most property and liability insurers rely on outside support services for the type of coverage they want to sell. The Insurance Services Office (ISO), an association of nearly 1,400 domestic property and liability insurers including the primary defendants, provides the almost exclusive support services for CGL insurance. For example, ISO develops standard policy forms and files them with the state insurance departments. It also provides actuarial and rating information. Most ISO members would find it difficult, if not impossible, to write CGL coverages if such support services were withdrawn from them. The second critical operational feature is the importance of having access to reinsurance. Primary insurers purchase reinsurance to cover a portion of the risk which they assume from the consumer. Reinsurance not only protects the primary insurer from catastrophic loss, it enables the primary insurer to sell more direct insurance to the public than its financial resources would otherwise permit. In short, for most CGL writing insurers, the availability of ISO support services and of adequate reinsurance is essential.

The plaintiffs maintained that the primary defendant insurers tried to persuade ISO to revise the standard policy form in accordance with their wishes. Allegedly, when ISO refused, the primary carriers persuaded a number of domestic and foreign reinsurers to refuse to provide reinsurance coverage to those insurers continuing to write coverage on the old CGL policy form. Because of the restricted availability of essential reinsurance, ISO is alleged to have been compelled to revise its CGL form, thereby limiting the scope of such coverage in the United States. Plaintiffs argue that the concerted activity of the defendant insurers and reinsurers resulted in a refusal of reinsurers to deal with insurers opting to provide insurance on the old CGL form. This pressure to force a general acceptance and use of the revised CGL standard policy form, plaintiffs argued, constituted a boycott which falls outside the McCarran Act antitrust exemption.

It had been anticipated that the Supreme Court decision in this case would resolve important issues concerning the McCarran Act insurance exemption from the antitrust laws. In responding to the lower court decision, the Supreme Court considered several issues. However, the issue most germane here is whether an agreement among primary insurers and reinsurers on the standardized policy forms and terms of coverage constitutes a boycott causing such activity to fall outside McCarran Act antitrust exemption.

The Court found that a boycott for the purposes of the McCarran Act occurs when, in order to coerce a target entity into terms on a particular transaction, the parties refuse to engage in other unrelated transactions with the target.

It is not a boycott for a group of insurers to refuse to deal with another insurer on a single issue. It is the expansion of the refusal to deal beyond the targeted transaction which gives rise to the coercive force. Using unrelated transactions as leverage to achieve the desired terms gives rise to a boycott. But it is not a boycott for reinsurers to refuse to deal with an insurer which is unwilling to utilize a standardized policy form agreed to by other insurers and reinsurers. Thus the Supreme Court refrained from opting for a very expansive definition of what constitutes a boycott, thereby rendering it more difficult for plaintiffs to avoid the application of the McCarran Act antitrust defense.

The 1980s and early 1990s have witnessed the introduction of numerous bills in Congress to alter the status of the McCarran Act. These range from a total repeal of the Act to more limited versions which would repeal the proviso clause that gives rise to the antitrust exemption. Some would alter the proviso both to apply the antitrust laws in general to the insurance business and at the same time provide safe harbors for certain specified collective activities of insurers (for example, gathering of historical loss data, certain limited ratemaking activity by property and liability insurers, and joint residual market mechanisms). Another bill affirms the continued regulation of insurance at the state level by retaining the antitrust exemption but redirects certain enumerated activities currently under state control (for example, price fixing, dividing territories between competitors, tying arrangements, and trending of loss data) to regulation under federal antitrust. And quite importantly, several bills would directly or indirectly vest authority in the Federal Trade Commission over unfair and deceptive trade practices.

As of 1994, the McCarran Act had proved resistant to change or repeal. However, in very recent years, the advocates of change have been persistent with proposed amendments moving further in the congressional legislative process than ever before. Thus, while far from certain, congressional changes posing far- reaching implications for insurers, agents, regulators, and insurance consumers became quite possible. However, the Fall 1994 elections resulted in Republican control of both the United States Senate and the House of Representatives. Among other things, this has resulted in the Republicans assuming chairmanship of the various committees dealing with insurance matters. In addition, the defeat and/or retirement of key senators and congressmen who had been active in the efforts to repeal or modify the McCarran Act and/or introduce substantial amounts of direct insurance regulation suggests a significant change in the legislative environment concerning insurance matters.

The persistent calls for reform are rooted in at least three concerns.

First, congressional concern was prompted by the liability insurance availability crisis in the 1980s when, after a period of very poor underwriting results and a sharp decline in interest rates, property and liability insurers sought to recover by increased premium rates and cutting back on or getting out of unprofitable lines of business. The situation was exacerbated by an explosion of tort law activity both in numbers of claims brought and in the level of claims. Purchasers of liability insurance, frustrated by the high cost and limited availability of insurance coverages, turned to Congress to obviate the McCarran Act antitrust exemption as a shield protecting insurers from reducing rates.

Upon investigation, the Department of Justice, industry analysts, and various independent scholars found that the liability crisis was not attributable to failure in state insurance regulation nor to insurer anticompetitive behavior. Nevertheless, some members in Congress and persons in federal agencies continued to adhere to the belief, or at least the rhetoric, that the crisis arose from a conspiracy by insurers to fix prices and conduct other anticompetitive behavior. Consequently, the efforts continued in Congress to limit the antitrust exemption for insurance.

A second rationale for repealing or limiting the McCarran antitrust immunity is that insurance should be subject to the antitrust laws like other industries. Failure to do so is contrary to belief in the competitive free enterprise system.

This rationale not only ignores the fact that many industries have been granted partial or total immunity from antitrust, but also that the ultimate objective is not antitrust per se but rather effective competition. Thus it has been argued that it makes little sense to foist an antitrust remedy on the insurance business which promises little in the way of increased competition in an already highly competitive industry. Instead, such a remedy would engraft its own generally underappreciated defects on the insurance industry without a clear awareness of the consequences. Furthermore, imposing antitrust fails to address the liability insurance affordability and availability problem that gave rise to the proposal in the first place.

A third rationale for altering the McCarran Act antitrust exemption is to open the door to federal regulation. This is most clearly reflected in those bills which remove the bar to Federal Trade Commission activity. Furthermore, to the extent antitrust applies, except to the extent that the state action doctrine is available, conflicting state policy and regulation would be preempted.

Much of the commentary supporting federal proposals for reform treat the McCarran Act as if it is simply an exemption to the antitrust laws. This view ignores the fundamental purpose underlying the Act, which was to delineate the boundaries of federal and state power as to insurance and its regulation. In the absence of congressional action, the South-Eastern Underwriters Association decision would have subjected insurance to all commerce-clause-based federal legislation and would have preempted at least some state insurance regulation as a burden on interstate commerce. However, in the Prudential case, the Supreme Court made clear that, through the McCarran Act, Congress

Consequently, since 1945, the insurance industry structure and operations and the corresponding development of insurance regulation evolved within the framework of the McCarran Act and, for the most part, outside the parameters of antitrust. Any proposal to legislatively change or eliminate the McCarran antitrust exemption threatens to undermine the fundamental bedrock upon which the business of insurance is based, with major foreseen and unforeseen implications not only for the industry and the regulators but also for the insurance-consuming public which they both serve.

In general, state antitrust law is based upon or parallels federal antitrust. However, for the most part, state law has exempted insurers from state antitrust.

When California voters adopted the reform initiative Proposition 103 in 1988, among other things, they repealed the state insurance antitrust exemption other than for limited safe harbor exceptions for data collection, joint arrangements to assure availability of coverage, and certain limited agent-broker activities. However, Proposition 103 focused on the conduct of property and liability insurers so that the state’s antitrust law might be extended to life insurance companies as well. Subsequent to the adoption of Proposition 103, other states have reconsidered their antitrust exemptions for insurance. Thus the uncertainty and risk from state antitrust exposure appears to be increasing as efforts are being made in some states to repeal or modify the state antitrust exemptions for insurance.

In addition, as noted above in Hartford Insurance Co. v. California, the Attorney Generals of 19 states joined in a major nationwide federal antitrust action against primary insurers and reinsurers under the Sherman Act. This action to narrow, if not emasculate, the McCarran antitrust exemption through a broad definition of boycott poses a curious anomaly in that state attorney generals advanced a position undermining their own states’ insurance regulatory systems. Nor is this an isolated example. In Federal Trade Commission v. Ticor, 36 state attorney generals, including those from three of the states whose insurance regulators’ level of supervision was at issue, filed an amicus curiae ("friend of the court") brief urging a narrow interpretation of the state action doctrine immunity to antitrust. The attorney generals supported the Federal Trade Commission’s position that state regulation was insufficient to give rise to the state action defense. When one element of state government—for example, the state attorney generals—invokes broad applicability of federal antitrust at the expense of their own states’ regulatory systems enacted by state legislatures and implemented by state insurance regulators, the potential for further narrowing of antitrust immunity would appear to be increased.

It is beyond the scope of this discussion to review in detail state insurance antitrust activity. Suffice to say that state antitrust may become a much more significant factor than has been historically the case. Certainly, it is a development that bears close watching.

In summary, the McCarran Act affords insurers federal antitrust immunity if the conduct under consideration is the business of insurance, is regulated by state law, and does not constitute a boycott. With the Royal Drug, Pireno, and Barry decisions, by judicial interpretation of these three standards of McCarran, the scope of the McCarran Act antitrust exemption has been significantly eroded, perhaps even to the point of judicially depriving the Act of much vitality and effect. But the recent Fabe and Hartford cases appear to have arrested, at least to some extent, the trend toward an extreme narrowing of the McCarran Act scope. For the moment, from a judicial perspective, the McCarran Act continues to possess considerable scope and vigor, albeit more limited than once thought.

Whether the judicial narrowing will resume, reverse, or stabilize is yet to be determined. Clearly the door has been opened to applying antitrust to the insurance business. Not only may the door be pushed open wider by future federal and/or state judicial decisions, but also possibly by congressional and/or state legislative activity.