Court Overturns Ruling on Auto Rate Settings

The 11th Circuit Court of Appeals has overturned a lower court ruling that would have reportedly given a single jury the power to set rates for auto insurance across the country.

In the case of Gilchrist, et al. v. State Farm Mutual Automobile Insurance Co., et al. the U.S. District Court for the Northern District of Florida certified a countrywide class action suit alleging that several major insurers conspired to violate antitrust laws by requiring the use of nonoriginal equipment manufactured replacement parts to repair damaged vehicles.

The other insurers involved in the suit were Allstate, GEICO, and Nationwide. Gilchrist argued that this practice caused premiums to be higher than their policies were worth. The Court of Appeals dismissed the case based of the McCarran-Ferguson Act, which limits federal antitrust laws from interfering with states regulatory authority over the business of insurance.

“We are pleased that the Court of Appeals stepped in and reversed this ruling, which would have allowed insurers to be held hostage to the threat of class action claims. By reaffirming McCarran-Furguson, the court is saying that rate-making and the performance of the insurance contract, which are at the heart of the business of insurance, are exempt from federal antitrust jurisdiction,” said Ann Spragens, legal division senior vice president for the Property Casualty Insurers Association of America (PCI).

“By granting class action status to this case, the lower court erred by ignoring the provisions of McCarran-Furguson,” said Robert Hurns, manager, legislative database and counsel for PCI. “At its core, this case was a dispute over rates. Insurance companies operate in an environment of intensive regulation that involves the setting of rates and resolving rate disputes. State regulators, not courts or juries, have the expertise in these issues and are clearly in the best position to make decisions about these matters.”

Due to the important ramifications of this case all of the national insurance trade associations, several state insurance departments, the National Association of Insurance Commissioners, U.S. Chamber of Commerce and many other groups filed amicus briefs urging that the lower court decision be overturned.