Sample Questions
Question 1
Easy
Which statement best describes the effect of the McCarran-Ferguson Act of 1945 on the U.S. insurance regulatory framework?
Solution
B is correct. Congress passed McCarran-Ferguson in 1945 in direct response to the Supreme Court's decision in U.S. v. South-Eastern Underwriters, which had held that insurance was interstate commerce subject to federal law. The Act declared that continued state regulation and taxation of insurance was in the public interest, thereby confirming the states as the primary regulators. It also exempted the business of insurance from federal antitrust laws to the extent that activity is regulated by state law, making the exemption conditional rather than absolute.
Question 2
Medium
Applying the criteria courts use to define the 'business of insurance,' which activity is most likely entitled to the McCarran-Ferguson antitrust exemption?
Solution
A is correct. Courts ask whether a practice transfers or spreads policyholder risk, is an integral part of the policy relationship between insurer and insured, and is confined to entities within the insurance industry. Setting premium rates goes to the core risk-transfer function and satisfies these criteria, so it falls within the business of insurance eligible for the exemption. Ancillary provider arrangements and ordinary commercial purchases do not spread policyholder risk, and boycotts are expressly outside the exemption.
Question 3
Hard
A personal auto insurer signs uniform agreements with a network of independent body shops setting the hourly labor rates it will reimburse on covered repairs. Shops excluded from the network sue the insurer under federal antitrust law. What is the most likely outcome and its basis?
Solution
D is correct. The federal exemption reaches only the business of insurance, and courts apply a functional test asking whether the practice transfers or spreads the policyholder's risk, whether it is an integral part of the policy relationship between insurer and insured, and whether it is confined to entities within the insurance industry. A rate schedule negotiated with independent repair shops is a cost-containment arrangement with parties outside the industry that leaves the risk borne under the policy unchanged, so it fails the first and third prongs and remains subject to antitrust review even though the insurer's ultimate claim cost is affected. The choice resting on the indemnity amount the schedule fixes repeats the losing argument that anything touching claim payments is insurance; the size of an indemnity payment is a cost of doing business, not the transfer of risk that defines the exemption. The choice resting on state regulation of claim settlement practices mis-scopes the state-regulation condition: satisfying it presupposes that the practice is the business of insurance in the first place, which this arrangement is not. The choice calling the arrangements a concerted boycott reaches the right result through the separate statutory carve-out for boycott, coercion, and intimidation; nothing in the facts shows concerted refusal to deal, and invoking that carve-out is unnecessary once the practice falls outside the business of insurance. The choice asking for a statute on reimbursable labor rates treats the state-law condition as requiring a statute aimed at the specific practice, whereas the condition looks to whether the business of insurance is generally regulated by state law.
