Insurers Urge 11th Circuit to Overturn Fla. Ruling That Usurps State Regulation of Insurance

The four national property/casualty insurance industry trade associations filed an amicus brief late last week with the 11th Circuit Court of Appeals opposing the use of a national class action to resolve insurance rate regulation issues that fall under the purview of state insurance regulators.

The brief was filed in the case of Gilchrist, et al. v. State Farm Mutual Automobile Insurance Co., et al.

In November 2002, the U.S. District Court for the Northern District of Florida certified a countrywide class of auto insurance policyholders who claim that Allstate, GEICO, Nationwide and State Farm conspired to violate antitrust laws by requiring the use of non-OEM replacement parts to repair their damaged vehicles. Such a practice allegedly caused premiums to be above competitive levels for the actual quality of the insurance policy provided and reduced the quality of the insurance offered to class members.

The Alliance of American Insurers (Alliance), the American Insurance Association (AIA), the National Association of Independent Insurers (NAII), and the National Association of Mutual Insurers (NAMIC), are asking the federal appeals court for the 11th Circuit to reverse the lower court’s class certification order.

The brief contends that by granting class status, the court has ignored the provisions of the McCarran-Ferguson Act, which allow states to regulate insurance, and also is ignoring the fact that under the filed-rate doctrine, insurers cannot be attacked in court once a state insurance regulator has approved a rate.

“We feel very strongly that the court erred in its decision to grant class status to this group of policyholders,” said Alliance General Counsel Ann Spragens. “Class certification in an anti-trust case puts a gun to the insurer’s head. If we can’t persuade the court to overturn the grant of class certification, insurers will feel enormous pressure to settle. Even though the law in the 11th Circuit is strongly in their favor, insurers are being threatened with the potential for triple damages that could reach into the billions of dollars.”

“So long as insurance remains state regulated, each state must give deference to the laws passed by the other states,” said David Snyder, AIA vice president and assistant general counsel. “If one state’s court can, in essence, become a national insurance regulator through the artifice of a class action, we would rather the national regulator be established by statute, be required to include all of the balancing and due process that is involved in a modern regulatory system, and act under a regulatory system that is focused on solvency regulation and that encourages competition.”

“We don’t think this is an issue ripe for certification of class action, especially since insurers are not mandating the use of aftermarket parts,” said Jim Taylor, counsel for the NAII. “Certified aftermarket parts have proven to be a great tool in controlling claim costs, and if insurers are prohibited from using them, everyone will pay more for insurance because of the exorbitantly high cost of original equipment manufacturer parts.”

“Setting and determining rates is clearly the business of insurance, and rate regulation is within the exclusive jurisdiction of the states and their regulators who have the unique expertise to determine appropriate rates of insurance for their citizens,” said Gregg Dykstra, vice president and general counsel of NAMIC. “It is, as a practical reality, impossible for the plaintiffs to establish through common proof that all of the millions of class members from different states with different regulatory approaches paid excessive rates.”

In addition to the joint insurance trade arguments, no fewer than 15 additional friend-of-the-court briefs are being filed in this case – all asking that the class certification be rejected.