laws of Pennsylvania and the anti-trust and conspiracy statutes and common law of various other states. The defendants have moved to dismiss the complaint on the grounds that the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, exempts insurance companies from the operation of the anti-trust laws in states, such as Pennsylvania, which regulate the insurance business. They also argue that since the federal claims must be dismissed, this court either cannot or should not exercise pendent jurisdiction over plaintiff's state law claims.
II. The McCarran-Ferguson Act
The McCarran-Ferguson Act was passed in 1945 in response to United States v. South-Eastern Underwriter's Ass'n., 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944). That decision overruled prior precedent specifically Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L. Ed. 357 (1869), and held that the insurance business was subject to the anti-trust laws.
Fearing that South-Eastern Underwriters would be construed as limiting the states' power to oversee the insurance business, Congress declared that "the continued regulation and taxation by the several States of the business of insurance is in the public interest." 15 U.S.C. § 1011. The purpose of the Act was to "give support to the existing and future state systems for regulating and taxing the business of insurance." Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 429, 66 S. Ct. 1142, 1155, 90 L. Ed. 1342 (1946). To carry out this policy, the Act provided, inter alia, a three-year moratorium in which various federal laws would be inapplicable to the insurance business. The states were encouraged to create their own regulatory schemes by the Act's proviso that at the end of the moratorium the Sherman, Clayton and Federal Trade Commission Acts "shall be applicable to the business of insurance to the extent that such business is not regulated by State law." 15 U.S.C. § 1012. The relevant inquiry in deciding the motion before me is thus (1) whether the practice of the defendants challenged here falls within the term "business of insurance" and (2) whether it is "regulated by state law."
That the title insurance industry in general is pervasively regulated by the Commonwealth of Pennsylvania cannot seriously be disputed and plaintiff makes no attempt to do so. The scope and nature of this regulation is adequately set forth in the thoughtful opinion of my colleague, Judge Edward R. Becker, in Schwartz v. Commonwealth Land Title Insurance Co., 374 F. Supp. 564, 567-69 (E.D. Pa. 1974), and need not be repeated.
This extensive regulation coupled with the fact that the complaint essentially challenges the provisions of title insurance policies (and therefore appears to involve the business of insurance) facially supports the defendants' position that the McCarran-Ferguson Act is a bar to this suit. The plaintiff, however, advances three arguments in support of his contention that the motion to dismiss must be denied. First, plaintiff asserts that, despite initial appearances, a closer analysis will reveal the activities of which complaint is made do not constitute the "business of insurance" as that term has been judicially construed. Second, the plaintiff asserts the specific practice at issue here is not sufficiently regulated by Pennsylvania to fall within the Act, despite the pervasive general regulation of the title insurance industry by the Commonwealth. Finally, the plaintiff contends defendants' practices come within the exception contained in section 3(b) of the Act, 15 U.S.C. § 1013(b). I will address these arguments seriatim.
A. The Business of Insurance.
In Securities and Exchange Commission v. National Securities, Inc., 393 U.S. 453, 459-60, 89 S. Ct. 564, 568-69, 21 L. Ed. 2d 668 (1969), Mr. Justice Marshall delineated the type and scope of activity intended by Congress to be encompassed within the term "business of insurance:"
Insurance companies may do many things which are subject to paramount federal regulation; only when they are engaged in the "business of insurance" does the statute apply. Certainly the fixing of rates is part of this business; that is what South-Eastern Underwriters was all about. The selling and advertising of policies, FTC v. National Casualty Co., 357 U.S. 560, 78 S. Ct. 1260, [2 L. Ed. 2d 1540] (1958), and the licensing of companies and their agents, cf. Robertson v. People of State of California, 328 U.S. 440, 66 S. Ct. 1160, [90 L. Ed. 1366] (1946), are also within the scope of the statute. Congress was concerned with the type of state regulation that centers around the contract of insurance, the transaction which Paul v. Virginia held was not "commerce." 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. Statutes aimed at protecting or regulating this relationship, directly or indirectly are laws regulating the "business of insurance." (Emphasis added.)