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INSURANCE BD. UNDER THE SOC. INS. PLAN OF BETHLEHE

June 2, 1986

THE INSURANCE BOARD UNDER THE SOCIAL INSURANCE PLAN OF BETHLEHEM STEEL CORPORATION AND SUBSIDIARY COMPANIES, and PENNSYLVANIA BLUE SHIELD, Plaintiffs
v.
WILLIAM MUIR, ACTING INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA, Defendant



The opinion of the court was delivered by: CALDWELL

WILLIAM W. CALDWELL, United States District Judge

 MEMORANDUM

 I. Introduction

 Plaintiffs, the Insurance Board Under the Social Insurance Plan of Bethlehem Steel Corporation and Subsidiary Companies (Board), Pennsylvania Blue Shield (Blue Shield) and Blue Cross of Western Pennsylvania (Blue Cross) have, pursuant to Fed. R. Civ. P. 59(e), filed a motion to alter or amend judgment. They seek to have us reverse our memorandum and order of February 28, 1986, Insurance Board v. Muir, 628 F. Supp. 1537 (M.D. Pa. 1986). We concluded there that certain agreements between the Board and Blue Shield and the Board and Blue Cross were part of the business of insurance and hence subject to regulation by the Pennsylvania Department of Insurance even though the agreements were entered into as part of the Board's responsibility to administer the Social Insurance Plan of Bethlehem Steel Corporation and Subsidiary Companies (Plan) under the Employee Retirement and Income Security Act of 1974 (ERISA). 29 U.S.C. § 1001 et seq. The motion, addressed to our sound discretion, see Quality Prefabrication, Inc. v. Daniel J. Keating Co., 675 F.2d 77 (3d Cir. 1982); Florencio Roman, Inc. v. Puerto Rico Maritime Shipping Authority, 454 F. Supp. 521 (D. P.R. 1978), is forcefully, thoroughly and cleverly argued but we must deny it for the reasons set forth below.

 II. Discussion.

 A. The Court Properly Applied the Judicially Created Criteria For Determining What Is the "Business of Insurance" Under the McCarran-Ferguson Act.

 1. The First Criterion Is Not Necessarily Determinative of What Constitutes the Business of Insurance.

 As set forth in our previous memorandum, the judicially created criteria for determining what constitutes the "business of insurance" under the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., are as follows:

 
1. whether the practice being considered has the effect of transferring or spreading a policy holder's risk;
 
2. whether the practice is an integral part of the policy relationship between the insurer and the insured; and
 
3. whether the practice is limited to entities within the insurance industry.

 Insurance Board, supra at 1540.

 We made no determination concerning the first criterion and plaintiffs claim we erred in not doing so. They argue that insurance must involve the transfer or spreading of risk and when such transfer or spreading is absent, there is no business of insurance which can be regulated. According to plaintiffs the first criterion is an indispensable part of the test and when no risk has been undertaken, there is no need to consider, as we did, the remaining two criteria. Of course, in connection with this argument, plaintiffs assert that the agreements do not, in fact, impose any risk upon Blue Cross and Blue Shield (sometimes referred to hereinafter collectively as the "Blues") and hence ERISA preempts state regulation.

 We disagree with plaintiffs that risk is the essential condition for determining that a practice is the business of insurance and that the remaining two criteria can be ignored once it is determined that risk is absent from the practice or agreement at issue. That all three criteria must be examined could not have been more plainly put by the Supreme Court when it stated in Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 129, 102 S. Ct. 3002, 3009, 73 L. Ed. 2d 647, 656 (1982) (brackets added) that "none of these criteria is necessarily determinative in itself . . . ." Plaintiffs accuse us of taking this statement out of context. They point to other language in that case which, in their view, supports their contention that the element of risk is the crucial factor. Thus, in Pireno, the Court stated that "one 'indispensable characteristic of insurance' is the 'spreading and underwriting of a policyholder's risk.'" Id. at 127, 102 S. Ct. at 3008, 73 L. Ed. 2d at 655 (quoting Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 211-12, 99 S. Ct. 1067, 1073, 59 L. Ed. 2d 261, 268 (1979)). Based upon ...


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