UNITED STATES DEPARTMENT OF TREASURY ET AL. v. FABE, SUPERINTENDENT OF INSURANCE OF OHIO
No. 91-1513
Supreme Court of the United States
Argued December 8, 1992-Decided June 11, 1993
508 U.S. 491
James R. Rishel argued the cause for respondent. With him on the brief were David A. Kopech and Zachary T. Donovan.*
*Briefs of amici curiae urging affirmance were filed for the Bureau of Insurance, Commonwealth of Virginia, et al. by Harold B. Gold and Randolph N. Wisener; for the Council of State Governments et al. by Richard Ruda and Michael J. Wahoske; for the National Association of Insurance
A brief of amici curiae was filed for the State of Michigan et al. by Frank J. Kelley, Attorney General of Michigan, Thomas L. Casey, Solicitor General, and Harry G. Iwasko, Jr., and Janet A. VanCleve, Assistant Attorneys General, and by the Attorneys General for their respective States as follows: Grant Woods of Arizona, Robert A. Butterworth of Florida, Robert T. Stephan of Kansas, J. Joseph Curran, Jr., of Maryland, Marc Racicot of Montana, Robert J. Del Tufo of New Jersey, Daniel E. Lungren of California, Larry EchoHawk of Idaho, Michael E. Carpenter of Maine, Hubert H. Humphrey III of Minnesota, Frankie Sue Del Papa of Nevada, and Tom Udall of New Mexico.
JUSTICE BLACKMUN delivered the opinion of the Court.
The federal priority statute,
We hold that the Ohio priority statute escapes preemption to the extent that it protects policyholders. Accordingly, Ohio may effectively afford priority, over claims of the United States, to the insurance claims of policyholders and to the costs and expenses of administering the liquidation.
I
The Ohio priority statute was enacted as part of a complex and specialized administrative structure for the regulation of insurance companies from inception to dissolution. The statute proclaims, as its purpose, “the protection of the interests of insureds, claimants, creditors, and the public generally.” § 3903.02(D). Chapter 3903 broadly empowers the State‘s Superintendent of Insurance to place a financially impaired insurance company under his supervision, or into rehabilitation, or into liquidation. The last is authorized when the superintendent finds that the insurer is insolvent, that placement in supervision or rehabilitation would be futile, and that “further transaction of business would be hazardous, financially or otherwise, to [the insurer‘s] policyholders, its creditors, or the public.” § 3903.17(C). As liquidator, the superintendent is entitled to take title to all assets, § 3903.18(A); to collect and invest moneys due the insurer, § 3903.21(A)(6); to continue to prosecute and commence in the name of the insurer any and all suits and other legal proceedings, § 3903.21(A)(12); to collect reinsurance and unearned premiums due the insurer, §§ 3903.32 and 3903.33; to evaluate all claims against the estate, § 3903.43; and to make payments to claimants to the extent possible, § 3903.44. It seems fair to say that the effect of all this is to empower the liquidator to continue to operate the insurance company in all ways but one-the issuance of new policies.
Pursuant to this statutory framework, the Court of Common Pleas for Franklin County, Ohio, on April 30, 1986, declared American Druggists’ Insurance Company insolvent. The court directed that the company be liquidated, and it appointed respondent, Ohio‘s Superintendent of Insurance, to serve as liquidator. The United States, as obligee
Respondent Superintendent brought a declaratory judgment action in the United States District Court for the Southern District of Ohio seeking to establish that the federal priority statute does not pre-empt the Ohio law designating the priority of creditors’ claims in insuranceliquidation proceedings. Under the Ohio statute, as noted above, claims of federal, state, and local governments are entitled only to fifth priority, ranking behind (1) administrative expenses, (2) specified wage claims, (3) policyholders’ claims, and (4) claims of general creditors. § 3903.42.2
Respondent argued that the Ohio priority scheme, rather than the federal priority statute, governs the priority of claims of the United States because it falls within the anti-
The District Court granted summary judgment for the United States. Relying upon the tripartite standard for divining what constitutes the “business of insurance,” as articulated in Union Labor Life Ins. Co. v. Pireno, 458 U. S. 119 (1982), the court considered three factors:
“’first, whether the practice has the effect of transferring or spreading a policyholder‘s risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance
industry.‘” App. to Pet. for Cert. 36a (quoting Pireno, 458 U. S., at 129).
A divided Court of Appeals reversed. 939 F. 2d 341 (CA6 1991). The court held that the Ohio priority scheme regulates the “business of insurance” because it protects the interests of the insured. Id., at 350-351. Applying Pireno, the court determined that the Ohio statute (1) transfers and spreads the risk of insurer insolvency; (2) involves an integral part of the policy relationship because it is designed to maintain the reliability of the insurance contract; and (3) focuses upon the protection of policyholders by diverting the scarce resources of the liquidating entity away from other creditors. 939 F. 2d, at 351-352.4
Relying upon the same test to reach a different result, one judge dissented. He reasoned that the liquidation of insolvent insurers is not a part of the “business of insurance” because it (1) has nothing to do with the transfer of risk between insurer and insured that is effected by means of the insurance contract and that is complete at the time the contract is entered; (2) does not address the relationship between insurer and the insured, but the relationship among those left at the demise of the insurer; and (3) is not confined to policyholders, but governs the rights of all creditors. Id., at 353-354 (opinion of Jones, J.).
We granted certiorari, 504 U. S. 907 (1992), to resolve the conflict among the Courts of Appeals on the question whether a state statute governing the priority of claims
II
The McCarran-Ferguson Act was enacted in response to this Court‘s decision in United States v. South-Eastern Underwriters Assn., 322 U. S. 533 (1944). Prior to that decision, it had been assumed that “[i]ssuing a policy of insurance is not a transaction of commerce,” Paul v. Virginia, 8 Wall. 168, 183 (1869), subject to federal regulation. Accordingly, “the States enjoyed a virtually exclusive domain over the insurance industry.” St. Paul Fire & Marine Ins. Co. v. Barry, 438 U. S. 531, 539 (1978).
The emergence of an interconnected and interdependent national economy, however, prompted a more expansive jurisprudential image of interstate commerce. In the intervening years, for example, the Court held that interstate commerce encompasses the movement of lottery tickets from State to State, Lottery Case, 188 U. S. 321 (1903), the transport of five quarts of whiskey across state lines in a private automobile, United States v. Simpson, 252 U. S. 465 (1920), and the transmission of an electrical impulse over a wire between Alabama and Florida, Pensacola Telegraph Co. v. Western Union Telegraph Co., 96 U. S. 1 (1878). It was not long before the Court was forced to come to terms with these decisions in the insurance context. Thus, in South-Eastern Underwriters, it held that an insurance company that conducted a substantial part of its business across state lines was engaged in interstate commerce and thereby was subject to the antitrust laws. This result, naturally, was widely perceived as a threat to state power to tax and regulate the
The first section of the McCarran-Ferguson Act makes its mission very clear: “Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.”
III
“[T]he starting point in a case involving construction of the McCarran-Ferguson Act, like the starting point in any case involving the meaning of a statute, is the language of the statute itself.” Group Life & Health Ins. Co. v. Royal Drug Co., 440 U. S. 205, 210 (1979). Section 2(b) of the McCarran-Ferguson Act provides: “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
This Court has had occasion to construe this phrase only once. On that occasion, it observed: “Statutes aimed at protecting or regulating this relationship [between insurer and insured], directly or indirectly, are laws regulating the ‘business of insurance,‘” within the meaning of the phrase. SEC v. National Securities, Inc., 393 U. S. 453, 460 (1969). The opinion emphasized that the focus of McCarran-Ferguson is upon the relationship between the insurance company and its policyholders:
“The relationship between 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.’ Undoubtedly, other activities of insurance companies relate so closely to their status as reliable insurers that they too must be placed in the same class. But whatever the exact scope of the statutory term, it is clear where the focus was-it was on the relationship between the insurance company and the policyholder.” Ibid.
In that case, two Arizona insurance companies merged and received approval from the Arizona Director of Insurance, as required by state law. The Securities and Exchange Commission sued to rescind the merger, alleging that the merger-solicitation papers contained material misstatements, in violation of federal law. This Court held that, insofar as the Arizona law was an attempt to protect the inter-
In the present case, on the other hand, there is a direct conflict between the federal priority statute and Ohio law. Under the terms of the McCarran-Ferguson Act,
Minimizing the analysis of National Securities, petitioners invoke Royal Drug and Pireno in support of their argument that the liquidation of an insolvent insurance company is not part of the “business of insurance” exempt from pre-emption under the McCarran-Ferguson Act. Those cases identified the three criteria, noted above, that are relevant in determining what activities constitute the “business of insurance.” See Pireno, 458 U. S., at 129. Petitioners argue that the Ohio priority statute satisfies none of these criteria. According to petitioners, the Ohio statute merely determines the order in which creditors’ claims will be paid, and has nothing to do with the transfer of risk from insured to insurer. Petitioners also contend that the Ohio statute is not an integral part of the policy relationship between insurer and insured and is not limited to entities within the insurance industry because it addresses only the relationship between policyholders and other creditors of the defunct corporation.
To be sure, the Ohio statute does not directly regulate the “business of insurance” by prescribing the terms of the
There can be no doubt that the actual performance of an insurance contract falls within the “business of insurance,” as we understood that phrase in Pireno and Royal Drug. To hold otherwise would be mere formalism. The Court‘s statement in Pireno that the “transfer of risk from insured to insurer is effected by means of the contract between the parties...and... is complete at the time that the contract is entered,” 458 U. S., at 130, presumes that the insurance
Both Royal Drug and Pireno, moreover, involved the scope of the antitrust immunity located in the second clause of § 2(b). We deal here with the first clause, which is not so narrowly circumscribed. The language of § 2(b) is unambiguous: The first clause commits laws “enacted ... for the purpose of regulating the business of insurance” to the States, while the second clause exempts only “the business of insurance” itself from the antitrust laws. To equate laws “enacted ... for the purpose of regulating the business of insurance” with the “business of insurance” itself, as petitioners urge us to do, would be to read words out of the statute. This we refuse to do.6
Our plain reading of the McCarran-Ferguson Act also comports with the statute‘s purpose. As was stated in Royal Drug, the first clause of § 2(b) was intended to further Congress’ primary objective of granting the States broad regulatory authority over the business of insurance. The second clause accomplishes Congress’ secondary goal, which was to carve out only a narrow exemption for “the business of insurance” from the federal antitrust laws. 440 U. S., at 218, n. 18. Cf. D. Howard, Uncle Sam versus the Insurance Commissioners: A Multi-Level Approach to Defining the “Business of Insurance” Under the McCarran-Ferguson Act, 25 Willamette L. Rev. 1 (1989) (advocating an interpretation of the two clauses that would reflect their dual purposes); Note, The Definition of “Business of Insurance” Under the McCarran-Ferguson Act After Royal Drug, 80 Colum. L. Rev. 1475 (1980) (same).
Petitioners, however, also contend that the Ohio statute is not an insurance law but a bankruptcy law because it comes into play only when the insurance company has become insolvent and is in liquidation, at which point the insurance company no longer exists. We disagree. The primary purpose of a statute that distributes the insolvent insurer‘s assets to
IV
Finding little support in the plain language of the statute, petitioners resort to its legislative history. Petitioners rely principally upon a single statement in a House Report:
“It is not the intention of Congress in the enactment of this legislation to clothe the States with any power to regulate or tax the business of insurance beyond that which they had been held to possess prior to the decision of the United States Supreme Court in the Southeastern Underwriters Association case.” H. R. Rep. No. 143, 79th Cong., 1st Sess., 3 (1945).
From this statement, petitioners argue that the McCarran-Ferguson Act was an attempt to “turn back the clock” to the time prior to South-Eastern Underwriters. At that time, petitioners maintain, the federal priority statute would have superseded any inconsistent state law.
Even if we accept petitioners’ premise, the state of the law prior to South-Eastern Underwriters is far from clear. Petitioners base their argument upon United States v. Knott, 298 U. S. 544 (1936), which involved the use and disposition of funds placed with the Florida treasurer as a condition of an insurer‘s conducting business in the State. According to petitioners, Knott stands for the proposition that the federal priority statute pre-empted inconsistent state laws even before South-Eastern Underwriters. But this proffered analogy to Knott unravels upon closer inspection. In that case,
More importantly, petitioners’ interpretation of the statute is at odds with its plain language. The McCarran-Ferguson Act did not simply overrule South-Eastern Underwriters and restore the status quo. To the contrary, it transformed the legal landscape by overturning the normal rules of preemption. Ordinarily, a federal law supersedes any inconsistent state law. The first clause of § 2(b) reverses this by imposing what is, in effect, a clear-statement rule, a rule that state laws enacted “for the purpose of regulating the business of insurance” do not yield to conflicting federal statutes unless a federal statute specifically requires otherwise. That Congress understood the effect of its language becomes apparent when we examine other parts of the legislative history.7 The second clause of § 2(b) also broke new ground: It
Petitioners’ argument appears to find its origin in the Court‘s statement in National Securities that “[t]he McCarran-Ferguson Act was an attempt to turn back the clock, to assure that the activities of insurance companies in dealing with their policyholders would remain subject to state regulation.” 393 U. S., at 459. The Court was referring to the primary purpose underlying the Act, namely, to restore to the States broad authority to tax and regulate the insurance industry. Petitioners would extrapolate from this general statement an invitation to engage in a detailed point-by-point comparison between the regime created by McCarran-Ferguson and the one that existed before. But it is impossible to compare our present world to the one that existed at a time when the business of insurance was believed to be beyond the reach of Congress’ power under the Commerce Clause.
V
We hold that the Ohio priority statute, to the extent that it regulates policyholders, is a law enacted for the purpose of regulating the business of insurance. To the extent that it is designed to further the interests of other creditors, however, it is not a law enacted for the purpose of regulating the business of insurance. Of course, every preference accorded to the creditors of an insolvent insurer ultimately may redound to the benefit of policyholders by enhancing the reliability of the insurance company. This argument, however, goes too far: “But in that sense, every business decision made by an insurance company has some impact on its reliability ... and its status as a reliable insurer.” Royal Drug, 440 U. S., at 216-217. Royal Drug rejected the notion that such
We also hold that the preference accorded by Ohio to the expenses of administering the insolvency proceeding is reasonably necessary to further the goal of protecting policyholders. Without payment of administrative costs, liquidation could not even commence. The preferences conferred upon employees and other general creditors, however, do not escape pre-emption because their connection to the ultimate aim of insurance is too tenuous. Cf. Langdeau v. United States, 363 S. W. 2d 327 (Tex. Civ. App. 1962) (state statute according preference to employee wage claims is not a law enacted for the purpose of regulating the business of insurance). By this decision, we rule only upon the clash of priorities as pronounced by the respective provisions of the federal statute and the Ohio Code. The effect of this decision upon the Ohio Code‘s remaining priority provisions-includ-
The judgment of the Court of Appeals is affirmed in part and reversed in part, and the case is remanded to that court for further proceedings consistent with this opinion.
It is so ordered.
JUSTICE KENNEDY, with whom JUSTICE SCALIA, JUSTICE SOUTER, and JUSTICE THOMAS join, dissenting.
With respect and full recognition that the statutory question the majority considers with care is difficult, I dissent from the opinion and judgment of the Court.
We consider two conflicting statutes, both attempting to establish priority for claims of the United States in proceedings to liquidate an insolvent insurance company. The first is the federal priority statute,
Relying primarily on our decision in SEC v. National Securities, Inc., 393 U. S. 453 (1969), the majority concludes
The key to our analysis in National Securities was the construction of the term “business of insurance.” In National Securities we said that statutes designed to protect or regulate the relationship between an insurance company and its policyholder, whether this end is accomplished in a direct or an indirect way, are laws regulating the business of insurance. 393 U. S., at 460. While noting that the exact scope of the McCarran-Ferguson Act was unclear, we observed that in passing the Act “Congress was concerned with the type of state regulation that centers around the contract of insurance.” Ibid. There is general agreement that the primary concerns of an insurance contract are the spreading and the underwriting of risk, see 1 G. Couch, Cyclopedia of Insurance Law § 1.3 (2d ed. 1984); R. Keeton, Insurance Law § 1.2(a) (1971), and we have often recognized this central principle. See Union Labor Life Ins. Co. v. Pireno, 458 U. S. 119, 127, and n. 7 (1982); Group Life & Health Ins. Co. v. Royal Drug Co., 440 U. S. 205, 211-212 (1979).
When the majority applies the holding of National Securities to the case at bar, it concludes that the Ohio statute is not pre-empted to the extent it regulates the “performance of an insurance contract,” ante, at 505, by ensuring that “policyholders ultimately will receive payment on their claims,” ante, at 506. Under the majority‘s reasoning, see ante, at 493, 508, any law which redounds to the benefit of policyholders is, ipso facto, a law enacted to regulate the business of insurance. States attempting to discern the scope of powers
The function of the Ohio statute before us is to regulate the priority of competing creditor claims in proceedings to liquidate an insolvent insurance company. On its face, the statute‘s exclusive concentration is not policyholder protection, but creditor priority. The Ohio statute states that its comprehensive purpose is “the protection of the interests of insureds, claimants, creditors, and the public generally, with minimum interference with the normal prerogatives of the owners and managers of insurers.”
Further, insurer insolvency is not an activity of insurance companies that “relate[s] so closely to their status as reliable insurers,” ibid., as to qualify liquidation as an activity constituting the “core of the ‘business of insurance.‘” Ibid. Respondent maintains, and the majority apparently agrees, that nothing is more central to the reliability of an insurer than facilitating the payment of policyholder claims in the event of insurer insolvency. This assertion has a certain intuitive appeal, because certainly the payment of claims is of primary concern to policyholders, and policyholders have a vital interest in the financial strength and solvency of their insurers. But state insolvency laws requiring policyholder claims to be paid ahead of the claims of the rest of the insurer‘s creditors do not increase the reliability or the solvency of the insurer; they operate, by definition, too late in the day for that. Instead they operate as a state-imposed safety net for the benefit of those insured. In my view, the majority too easily dismisses the fact that the policyholder has become a creditor and the insurer a debtor by reason of the insurance company‘s demise. Ante, at 506. Whereas we said in National Securities that the focus of the McCarran-Ferguson Act is the relationship between insurer and insured, 393 U. S., at 460, the Ohio statute before us regulates a different relationship: the relationship between the policyholder and the other competing creditors. This is not the regulation of the business of insurance, but the regulation of creditors’ rights in an insolvency proceeding.
I do not share the view of the majority that it is fair to characterize the effect of Ohio‘s liquidation scheme as “em-power[ing] the liquidator to continue to operate the [insolvent] insurance company in all ways but one-the issuance of new policies.” Ante, at 494. The change accomplished by the Ohio statute is not just a cosmetic change in management. Once the Ohio Court of Common Pleas directs the
In my view, one need look no further than our opinion in National Securities to conclude that the Ohio insolvency statute is not a law “enacted... for the purpose of regulating the business of insurance.” Even so, our decisions in Pireno and Royal Drug further undercut the Court‘s holding, despite the majority‘s attempt to distinguish them. My disagreement with the Court on this point turns on a close interpretation of
“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, ... unless such Act specifically relates to the business of insurance: Provided, That ... [the federal antitrust statutes] shall be applicable to the business of insurance to the extent that such business is not regulated by State Law.”
It is true that laws enacted for the purpose of regulating the business of insurance are something different from activities of insurers constituting the business of insurance, ibid., but in my mind this distinction does not compel a conclusion that cases such as Royal Drug and Pireno have no application here. As an initial matter, it would be unusual to conclude that the meaning of the phrase “business of insurance” is transformed from one clause to the next. Such a conclusion runs counter to the basic rule of statutory construction that identical words used in different parts of the same Act are intended to have the same meaning. Sullivan v. Stroop, 496 U. S. 478, 484 (1990); Atlantic Cleaners & Dyers, Inc. v. United States, 286 U. S. 427, 433 (1932). While maxims of statutory construction admit of exceptions, there are other obstacles to adopting the view that cases such as Royal Drug and Pireno apply only in the antitrust realm. First, nothing in Royal Drug or Pireno discloses a purpose
Royal Drug and Pireno are best viewed as refinements of this Court‘s analysis in National Securities, tailored to address activities of insurance companies that would implicate the federal antitrust laws were it not for the McCarran-Ferguson Act. Although these cases were decided in accordance with the rule that exemptions from the antitrust laws are to be construed narrowly, see Pireno, 458 U. S., at 126; Royal Drug, 440 U. S., at 231, I see no reason why general principles derived from them are not applicable to any case involving the scope of the term “business of insurance” under the McCarran-Ferguson Act.
An examination of Pireno and Royal Drug reveals that those decisions merely expand upon the statements we made about the business of insurance in National Securities. In National Securities, we determined that the essence of the business of insurance involves those activities central to the relationship between the insurer and the insured. 393 U. S., at 460. Pireno reiterates that principle and identifies three factors which shed light on the task of determining whether a particular activity has the requisite connection to the
The Ohio statute here does not qualify as regulating the business of insurance under Pireno‘s tripartite test for the same reason that it fails to do so under National Securities: It regulates an activity which is too removed from the contractual relationship between the policyholder and the insurance company. First, the risk of insurer insolvency addressed by the statute is distinct from the risk the policyholder seeks to transfer in an insurance contract. The transfer of risk from insured to insurer is effected “by means of the contract between the parties-the insurance policy-and that transfer is complete at the time that the contract is entered.” Id., at 130. As to the second prong, the Ohio statute does not regulate the relationship between the insured and the insurer, but instead addresses the relationship among all creditors the insurer has left in the lurch. Finally, it is plain that the statute is not limited to entities within the insurance industry. The statute governs the rights of all creditors of insolvent insurance companies, including employees, general creditors, and stockholders, as well as government entities.
Quite apart from my disagreement with the majority over which of our precedents have relevance to the issue before us, I think the most serious flaw of its analytic approach is disclosed in the compromise holding it reaches. The Court comes to the conclusion that the Ohio insolvency statute is a regulation of the business of insurance only to the extent that policyholder claims (as well as administrative expenses necessary to facilitate the payment of those claims) are given priority ahead of the claims of the Federal Government. At
Even though Ohio‘s insurance liquidation statute is not a law enacted for the purpose of regulating the business of insurance, I underscore that no provision of federal law precludes Ohio from establishing procedures to address the liquidation of insolvent insurance companies. The State‘s prerogative to do so, however, does not emanate from its recognized power to enact laws regulating the business of insurance under the McCarran-Ferguson Act, but from the longstanding decision of Congress to exempt insurance companies from the federal bankruptcy code.