What Was the United States V. The South-Eastern Underwriters Association?

The term United States v. The South-Eastern Underwriters Association refers to a landmark U.S. Supreme Court case involving the federal antitrust statute and the insurance industry. The case was decided on June 5, 1944. The Supreme Court ruled that the industry is subject to regulation by the United States Congress, under the Commerce Clause. This means that the court determined insurance to be a business that crosses state lines and is, therefore, subject to antitrust laws. Congress passed a law a year later exempting the insurance industry from federal scrutiny.

Understanding the U.S. v. The South-Eastern Underwriter Association

The insurance industry is an important part of the financial sector. But there have been questions about how insurers should be regulated, largely because these companies do business in multiple states. The debate of whether insurers should be regulated on a state or federal level became key for lawmakers in the early 20th century.

The case of U.S. vs. The South-Eastern Underwriter Association came before the Supreme Court on appeal from a Northern District of Georgia court. The South-Eastern Underwriters Association had control of 90% of fire and other insurance markets in six southern states. This was believed to have given the company an unfair monopoly, brought on through price fixing.

The case focused on whether insurance was a type of interstate commerce that should fall under the United States Commerce Clause and the Sherman Antitrust Act, which was passed into law in 1890 and outlawed monopolies of any kind. The Supreme Court held that insurers that conducted significant portions of their business across state lines actually engaged in interstate commerce. The ruling held that the industry could be regulated by federal law.

The following year, Congress made a move to overturn the Supreme Court ruling when it passed the McCarran-Ferguson Act. The Act prescribed that insurance regulation was a matter for individual states to decide—not the federal government. The McCarran-Ferguson Act, therefore, exempted the insurance industry from most federal regulations, including antitrust laws.

Special Considerations

The McCarran-Ferguson Act is commonly thought of as a form of regulation. But the Act neither regulates the insurance industry, nor requires states to regulate the products offered by insurance companies. Rather, it offers an "Act of Congress," which does not clearly aim to regulate the "business of insurance" by not preempting state laws or regulations that do regulate insurance transactions.

Competition for interstate insurance remains a key element of health care reform. In February 2010, the House of Representatives voted to amend the McCarran–Ferguson Act by passing the Health Insurance Industry Fair Competition Act. Similar attempts to update insurance antitrust provisions are ongoing with efforts to replace or amend the Affordable Care Act (ACA), also known as Obamacare.

Former President Donald Trump also signed the Competitive Health Insurance Reform Act of 2020 into law on Jan. 13, 2021. The bill, which was introduced by Rep. Peter DeFazio (D-OR), places restrictions on the insurance industry, allowing federal authorities to take action against companies that engage in any behavior that may stifle competition, such as price-fixing. Although it was lauded by the Department of Justice, the industry objected, saying it added unnecessary financial burden and red tape on insurers.