The Supreme Court/The Supreme Court.iso/pc/ascii/1991/91_1513/91_1513.zd

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SUPREME COURT OF THE UNITED STATES
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No. 91-1513
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UNITED STATES DEPARTMENT OF THE TREAS-
URY and MITCHELL A. LEVINE, ASSISTANT
COMMISSIONER, PETITIONERS v. GEORGE
FABE, SUPERINTENDENT OF
INSURANCE OF OHIO
on writ of certiorari to the united states court
of appeals for the sixth circuit
[June 11, 1993]

  Justice Kennedy, with whom Justice Scalia, Justice
Souter and Justice Thomas join, dissenting.
  With respect, and full recognition that the statutory
question the majority considers with care is difficult, I
dissent from the opinion and judgment of the Court.
  We consider two conflicting statutes, both attempting to
establish priority for claims of the United States in
proceedings to liquidate an insolvent insurance company.
The first is the federal priority statute, 31 U. S. C. 3713,
which requires a debtor's obligations to the United States
to be given first priority in insolvency proceedings.  The
second, Ohio's insurance company liquidation statute, Ohio
Rev. Code Ann. 3903.42 (1989), provides that claims of
the Federal Government are to be given fifth priority in
proceedings to liquidate an insolvent insurer.  Under
usual principles of pre-emption, the federal priority statute
trumps the inconsistent state law.  See Florida Lime &
Avocado Growers, Inc. v. Paul, 373 U. S. 132, 142-143
(1963).  The question is whether the McCarran-Ferguson
Act, which provides an exemption from pre-emption for
certain State laws -enacted . . . for the purpose of regulat-
ing the business of insurance,- 59 Stat. 34, as amended,
15 U. S. C. 1012(b), alters this result.
  Relying primarily on our decision in S.E.C. v. National
Securities, Inc., 393 U. S. 453 (1969), the majority con-
cludes that portions of Ohio's priority statute are saved
from pre-emption by the McCarran-Ferguson Act.  I agree
that National Securities is the right place to begin the
analysis.  As the Court points out, National Securities is
the one case in which we have considered the precise
statutory provision that is controlling here to determine
whether a state law applicable to insurance companies
was a law enacted for the purpose of regulating the
business of insurance.  I disagree, however, with the
Court's interpretation of that precedent.
  The key to our analysis in National Securities was the
construction of the term -business of insurance.-  In
National Securities we said that statutes designed to
protect or regulate the relationship between an insurance
company and its policyholder, whether this end is accom-
plished in a direct or an indirect way, are laws regulating
the business of insurance.  393 U. S., at 460.  While
noting that the exact scope of the McCarran-Ferguson Act
was unclear, we observed that in passing the Act, -Con-
gress was concerned with the type of state regulation that
centers around the contract of insurance.- Ibid.  There is
general agreement that the primary concerns of an
insurance contract are the spreading and the underwriting
of risk, see 1 G. Couch, Cyclopedia of Insurance Law 1.3
(2d ed. 1984), R. Keeton, Insurance Law 1.2(a) (1971),
and we have often recognized this central principle.  See
Union Labor Life Ins. Co. v. Pireno, 458 U. S. 119, 127,
and n.7 (1982); Group Life & Health Ins. Co, v. Royal
Drug Co., 440 U. S. 205, 211-212 (1979).
  When the majority applies the holding of National
Securities to the case at bar, it concludes that the Ohio
statute is not pre-empted to the extent it regulates the
-performance of an insurance contract,- ante, at 13, by
ensuring that -policyholders ultimately will receive pay-
ment on their claims,- ante, at 14.  Under the majority's
reasoning, see ante, at 1, 16, any law which redounds to
the benefit of policyholders is, ipso facto, a law enacted
to regulate the business of insurance.  States attempting
to discern the scope of powers reserved for them under
the McCarran-Ferguson Act will find it difficult, as do I,
to reconcile our precedents in this area with the decision
the Court reaches today.  The majority's broad holding is
not a logical extension of our decision in National Securi-
ties and indeed is at odds with it.
  The function of the Ohio statute before us is to regulate
the priority of competing creditor claims in proceedings to
liquidate an insolvent insurance company.  On its face,
the statute's exclusive concentration is not policyholder
protection, but creditor priority.  The Ohio statute states
that its comprehensive purpose is -the protection of the
interests of insureds, claimants, creditors, and the public
generally, with minimum interference with the normal
prerogatives of the owners and managers of insurers.-
Ohio Rev. Code Ann. 3903.02(D) (1989).  It can be said
that Ohio's insolvency scheme furthers the interests of
policyholders to the extent the statute gives policyholder
claims priority over the claims of the defunct insurer's
other creditors.  But until today that result alone would
not have qualified Ohio's liquidation statute as a law
enacted for the purpose of regulating the business of
insurance.  The Ohio law does not regulate or implicate
the -true underwriting of risks, the one earmark of
insurance.-  S.E.C. v. Variable Annuity Life Ins. Co. of
America, 359 U. S. 65, 73 (1959) (footnote omitted).  To
be sure, the Ohio priority statute increases the probability
that an insured's claim will be paid in the event of
insurer insolvency.  But such laws, while they may
-furthe[r] the interests of policyholders,- ante, at 10, have
little to do with the relationship between an insurer and
its insured, National Securities, 393 U. S., at 460, and as
such are not laws regulating the business of insurance
under the McCarran-Ferguson Act.  The State's priority
statute does not speak to the transfer of risk embodied in
the contract of insurance between the parties.  Granting
policyholders priority of payment over other creditors does
not involve the transfer of risk from insured to insurer,
the type of risk spreading that is the essence of the
contract of insurance.
  Further, insurer insolvency is not an activity of insur-
ance companies that -relate[s] so closely to their status as
reliable insurers,- ibid., as to qualify liquidation as an
activity constituting the -core of the `business of insur-
ance.'-  Ibid.  Respondent maintains, and the majority
apparently agrees, that nothing is more central to the reli-
ability of an insurer than facilitating the payment of
policyholder claims in the event of insurer insolvency.
This assertion has a certain intuitive appeal, because
certainly the payment of claims is of primary concern to
policyholders, and policyholders have a vital interest in
the financial strength and solvency of their insurers.  But
state insolvency laws requiring policyholder claims to be
paid ahead of the claims of the rest of the insurer's
creditors do not increase the reliability or the solvency of
the insurer; they operate, by definition, too late in the day
for that.  Instead they operate as a state-imposed safety
net for the benefit of those insured.  In my view, the
majority too easily dismisses the fact that the policyholder
has become a creditor and the insurer a debtor by reason
of the insurance company's demise.  Ante, at 14.  Whereas
we said in National Securities that the focus of the
McCarran-Ferguson Act is the relationship between
insurer and insured, 393 U. S., at 460, the Ohio statute
before us regulates a different relationship: the rela-
tionship between the policyholder and the other competing
creditors.  This is not the regulation of the business of
insurance, but the regulation of creditors' rights in an
insolvency proceeding.
  I do not share the view of the majority that it is fair
to characterize the effect of Ohio's liquidation scheme as
-empower[ing] the liquidator to continue to operate the
[insolvent] insurance company in all ways but one-the
issuance of new policies.- Ante, at 2.  The change accom-
plished by the Ohio statute is not just a cosmetic change
in management.  Once the Ohio Court of Common Pleas
directs the Superintendent of Insurance to liquidate an
insolvent insurance company, the process of winding up
the activities of the insolvent insurance company begins.
No new policies issue, and existing policies are recalled
and settled.  See 3903.19.  The Ohio priority statute
does not regulate the ongoing business of insurance; it
facilitates disbursement of a defunct insurance business'
assets in a way the Ohio Legislature deems equitable.  As
we were careful to note in National Securities, the
McCarran-Ferguson Act -did not purport to make the
States supreme in regulating all the activities of insurance
companies.-  393 U. S., at 459 (emphasis omitted).  The
McCarran-Ferguson Act does not displace the standard
pre-emption analysis for the state regulation of insurance
companies; it does so for the state regulation of the
business of insurance.  Ibid.  That the Ohio statute is
within the class of state laws applicable to insurance
companies does not mean the law regulates an integral
aspect of the contractual insurance transaction.
  In my view, one need look no further than our opinion
in National Securities to conclude that the Ohio insolvency
statute is not a law -enacted . . . for the purpose of
regulating the business of insurance.-   Even so, our
decisions in Pireno and Royal Drug further undercut the
Court's holding, despite the majority's attempt to distin-
guish them.  My disagreement with the Court on this
point turns on a close interpretation of 1012(b) of the
McCarran-Ferguson Act, which states as follows:
-No Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for
the purpose of regulating the business of insur-
ance, . . . unless such Act specifically relates to the
business of insurance: Provided, That . . . [the federal
antitrust statutes] shall be applicable to the business
of insurance to the extent that such business is not
regulated by State Law.-  1012(b).
The phrase -business of insurance- is used three times
and in two different clauses of the Act.  The first clause
of 1012(b) is directed to the States, and provides that
state laws enacted for the purpose of regulating the
business of insurance are saved from pre-emption if there
is no conflicting federal law which relates specifically to
the business of insurance.  The second clause of 1012(b)
is directed at insurers, and allows insurers an exemption
from the federal antitrust laws for activities regulated by
state law which qualify as the business of insurance.
Respondent has argued that cases such as Royal Drug and
Pireno, which addressed whether certain activities of
insurers constituted the -business of insurance- under the
second clause of 1012(b), do not control cases in which
the first clause of 1012(b) is at issue.  On the way to
accepting respondent's suggestion, the majority observes,
ante, at 12, that the phrase -business of insurance- in the
first clause of 1012(b) is -not so narrowly circumscribed-
as the identical phrase in the second clause.
  It is true that laws enacted for the purpose of regulat-
ing the business of insurance are something different from
activities of insurers constituting the business of insur-
ance, ante, at 12, but in my mind this distinction does not
compel a conclusion that cases such as Royal Drug and
Pireno have no application here.  As an initial matter, it
would be unusual to conclude that the meaning of the
phrase -business of insurance- is transformed from one
clause to the next.  Such a conclusion runs counter to the
basic rule of statutory construction that identical words
used in different parts of the same act are intended to
have the same meaning.  Sullivan v. Stroop, 496 U. S.
478, 484 (1990); Atlantic Cleaners & Dyers, Inc. v. United
States, 286 U. S. 427, 433 (1932).  While maxims of
statutory construction admit of exceptions, there are other
obstacles to adopting the view that cases such as Royal
Drug and Pireno apply only in the antitrust realm.  First,
nothing in Royal Drug or Pireno discloses a purpose to
limit their reach in this way.  Indeed while we have had
numerous opportunities to examine and to apply the
McCarran-Ferguson Act in different contexts, we have
never hinted that the meaning of the phrase "business of
insurance" changed whether we addressed laws "enacted
for the purpose of regulating the business of insurance"
or activities of insurers constituting the "business of insur-
ance."  Further, the suggestion that Pireno's three-tier test
has application only in antitrust cases is discredited by
our decisions citing the Pireno test in contexts unrelated
to antitrust.  For instance, we have employed the Pireno
test to determine whether certain state laws fall within
the pre-emption saving clause of the Employee Retirement
Income Security Act.  See Pilot Life Ins. Co. v. Dedeaux,
481 U. S. 41, 48-49 (1987); Metropolitan Life Ins. Co. v.
Massachusetts, 471 U. S. 724, 742-743 (1985).
  Royal Drug and Pireno are best viewed as refinements
of this Court's analysis in National Securities, tailored to
address activities of insurance companies that would
implicate the federal antitrust laws were it not for the
McCarran-Ferguson Act.  Although these cases were
decided in accordance with the rule that exemptions from
the antitrust laws are to be construed narrowly, see
Pireno, 458 U. S., at 126; Royal Drug, 440 U. S., at 231,
I see no reason that general principles derived from them
are not applicable to any case involving the scope of the
term -business of insurance- under the McCarran-
Ferguson Act.
  An examination of Pireno and Royal Drug reveals that
those decisions merely expand upon the statements we
made about the business of insurance in National Securi-
ties.  In National Securities, we determined that the
essence of the business of insurance involves those activi-
ties central to the relationship between the insurer and
the insured.  393 U. S., at 460.  Pireno reiterates that
principle and identifies three factors which shed light on
the task of determining whether a particular activity has
the requisite connection to the policyholder and insurance
company relationship as to constitute the business of
insurance.  Pireno considers: -first, whether the practice
has the effect of transferring or spreading a policyholder's
risk; second, whether the practice is an integral part of
the policy relationship between the insurer and the
insured; and third, whether the practice is limited to
entities within the insurance industry.-  458 U. S., at 129.
  The Ohio statute here does not qualify as regulating the
business of insurance under Pireno's tripartite test for the
same reason that it fails to do so under National Securi-
ties: it regulates an activity which is too removed from the
contractual relationship between the policyholder and the
insurance company.  First, the risk of insurer insolvency
addressed by the statute is distinct from the risk the
policyholder seeks to transfer in an insurance contract.
The transfer of risk from insured to insurer is effected -by
means of the contract between the parties-the insurance
policy-and that transfer is complete at the time that the
contract is entered.- Id., at 130.  As to the second prong,
the Ohio statute does not regulate the relationship be-
tween the insured and the insurer, but instead addresses
the relationship among all creditors the insurer has left
in the lurch.  Finally, it is plain that the statute is not
limited to entities within the insurance industry.  The
statute governs the rights of all creditors of insolvent
insurance companies, including employees, general credi-
tors, and stockholders, as well as government entities.
  Quite apart from my disagreement with the majority over
which of our precedents have relevance to the issue before
us, I think the most serious flaw of its analytic approach
is disclosed in the compromise holding it reaches.The Court comes to the conclusion that the Ohio insol-
vency statute is a regulation of the business of insurance
only to the extent that policyholder claims (as well as
administrative expenses necessary to facilitate the pay-
ment of those claims) are given priority ahead of the
claims of the Federal Government.  At one level the
majority opinion may seem rather satisfying, for it gives
something to Ohio's regulatory scheme (policyholder claims
displace the federal priority) and something to the federal
scheme (the Federal Government's priority displaces all
other claimants).  The equitable result is attractive
enough given the conflicting interests here.  But I should
have thought that a law enacted to determine the priority
of creditor claims in proceedings to liquidate an insolvent
insurance company either is the regulation of the business
of insurance or is not.  Of course a single state statutory
scheme may regulate many aspects of insurance business-
es, some of which may, and some of which may not,
constitute the ``business of insurance'' under our prece-
dents.  For instance in National Securities we held that
an Arizona law authorizing a State official to approve
mergers of insurance companies was a law regulating the
business of insurance to the extent the official acted to
ensure that the merger did not ``substantially reduce the
security of and service to be rendered to policyholders,''
393 U. S., at 462, but not when the official acted to
ensure that the merger was not ``[i]nequitable to the
stockholders of any insurer.'' Id., at 457.  But the subject
of the regulation in the case before us is quite different
from the portion of the Arizona statute held to be the
business of insurance in National Securities.  The Arizona
law regulated the business of insurance because by
allowing a State official to ensure that the merger of two
insurance companies did not reduce the ``security of and
service to be rendered policyholders,'' id., at 462, the State
law functioned to preserve the reliability of an ongoing
insurance business.  In contrast, as explained, supra, at
4, the Ohio liquidation statute before us does not increase
the reliability or solvency of the insurer.  Instead it
operates to allocate the assets of a defunct insurer.  This
is so whether the claims of policyholders are ranked first
under the state law or dead last.  The inquiry under
McCarran-Ferguson is whether a law regulating the
priority of creditor claims regulates the business of
insurance.  If so, the order in which Ohio chooses to rank
creditor (and policyholder) priority is beyond the concern
of the Act.
  Even though Ohio's insurance liquidation statute is not
a law enacted for the purpose of regulating the business
of insurance, I underscore that no provision of federal law
precludes Ohio from establishing procedures to address the
liquidation of insolvent insurance companies.  The State's
prerogative to do so, however, does not emanate from its
recognized power to enact laws regulating the business of
insurance under the McCarran-Ferguson Act, but from the
long-standing decision of Congress to exempt insurance
companies from the federal bankruptcy code.  11 U. S. C.
109 (b)(2), (d).  The States are not free to enact legisla-
tion inconsistent with the federal priority statute, and in
my view the majority errs in applying the McCarran-
Ferguson Act to displace the traditional principles of pre-
emption that should apply.  I would reverse the judgment
of the Court of Appeals.