                        December     11, 1970


Honorable Oscar H. Mausy       Opinion No. M- 746
Chairman, Senate Committee
   to Study the Texas Tort     Re:    Whether certain insurance
   Claims Act                         companies have violated
Texas Senate                          Antitrust laws of the state
Austin, Texas                         or Federal government in
                                      the sale of insurance to
                                      certain political subdivi-
                                      sions under the Texas
                                      Torts Claims Act, under
Dear Senator Mausy:                   the facts submitted?
       You have requested our opinion as to,
           "Whether certain insurance companies
      have violated either the State or Federal
      Antitrust laws in the sale of insurance to
      certain political subdivisions under the
      Texas Torts Claims Act, under the facts
      submitted?"
The facts submitted to this office in connection with this
request are as follows:
       A survey by your committee of certain counties,
cities, school districts, water districts, junior and senior
colleges and State agencies in Texas, dated October 7, 1970
resulted in 699 of such governmental subdivisions replying
to the survey, reporting a total purchase of $2,756,449.00
worth of bodily injury liability insurance coverage. One
hundred sixty seven of these 699 counties, cities and school
districts reported the purchase of $92,328.00 worth of
property damage liability insurance coverage and the survey
indicates that these 167 entities, at some time during the
last year, in order to secure the needed bodily injury lia-
bility coverage, had been required by some 57 different named
insurance companies and agencies, to purchase this property
damage liability insurance which is alleged to be unnecessary




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Honorable Oscar II.Mausy, Page 2 (M-746)


and worthless since the Texas Torts Claims Act excludes prop-
erty damage liability for all Texas governmental units while
making such units liable only for bodily injury caused by the
negligence of a governmental employee.
       The 167 entities were composed of 25 cities, 25
counties, 115~school districts, one water district and one
junior college. Each of these 167 entities was located and
marked on a map and there is no localized pattern or partic-
ular area of the State more affected than other areas, but
they were widely dispersed geographically throughout the State.
       There were 473 of the political bodies which answered
this survey who bought bodily injury liability insurance with-
out being required to buy property damage liability coverage.
These entities were also located and marked on a map and this
group is also widely dispersed geographically throughout the
State with at least 40 of these political entities physically
located in the same place as one or more of the 167 entities
reporting that they were required to buy the property damage
liability insurance in order to secure bodily injury liability
insurance. None of the remaining 127 entities of the 167
group is located farther than 50 miles from a political sub-
division reporting the purchase of bodily injury liability
coverage alone.
       Out of the 57 named insurance companies or agents who
were reported to require property damage liability coverage
of the 167 reporting entities, at least 46 of these companies
or agents were reported in this same survey to have sold bod-
ily injury liability insurance alone to one or more other re-
porting political entities. The remaining 11 named insurance
sellers by their names appear to be four local agencies making
only one reported sale and seven insurance companies, none of
which were reported on this survey to have sold insurance to
more than two of the reporting entities.

       We are advised by the Deputy Assistant Administrator
of the State Board of Insurance that no evidence of any com-
bination, conspiracy or agreement among the insurance compan-
ies named in this survey has come to that agency's attention,
and that on September 22, 1970, the State Board of Insurance
gave notice to the public generally and to all insurance com-
panies, corporations, exchanges, mutuals, reciprocals, associ-
ations, Lloyd6 or other insurers writing automobile insurance
in Texas and their agents and representatives, as follows:


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      "The Senate~Cbmmittee To Study the Texas
      Tort Claims Act has furnished the State
      Board of Insurance a file of governmental
      units that allegedly have been required to
      purchase property damage liability insur-'
      ante as a prerequisite to securing the bod-
      ily injury liability insurance desired by
      the Texas Tort Claims Act.
      "Since the Texas Tort Claims Act did not
      waive governmental immunity for damage to
      property, the Board has held that a com-
      pany's action requiring the insured to
      accept property damage liability insur-
      ance (which is of no specific benefit
      to the insured) is a violation of the
      insurance rating laws of T.exasgenerally
      and is specifically a violation of Auto-
      mobile Series 428, dated August 12, 1969.
      "The State Board of Insurance hereby di-
      rects each insurer to refund the total
      property damage liability insurance pre-
      mium or premiums written for a governmen-
      tal unit.that purchased liability insur-
      ance for protection from the hazards
      created by the Texas Tort Claims Act,
      provided that the particular governmen-
      tal unit concerned requests the premium
      return."
The Insurance Board has not been advised of any governmental
unit requesting the referred to premium return that has been
refused by the insurer.
       The Antitrust laws of Texas codified at Section 15.01
et. seq., Business and Commerce Code prohibits "monopolies"
as narrowly defined in Section 15.01, "trusts" as defined
in Section 15.02 and "conspiracies to restrain trade" as de-
fined in Section 15.03. The monopoly prohibition is a com-
bination or consolidation of two or more corporations and no
facts in this case indicate such activity. A combination,
essential to the formation of a prohibited "trust" or pro-
hibited "conspiracy in restraint of trade", cannot exist




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Honorable Oscar H. Mausy, Page 4 (M-746)


unless'two or more persons or business entities combine in
some fashion,and before such combination being independent
and capable of acting in competition with one another. State
v. Fairbanks-Morse & Co., 246 SW 26 647, (Tex. Civ. App.m,
ref. n.r.e.1. The facts submitted do not reflect any such
prohibited combination.
       The application of the Federal Antitrust Laws to the
facts submitted must be viewed in reference to the Insurance
Antitrust Moratorium Act (McCarran-Ferguson Insurance Regula-
tion Act) 15 U.S.C.A., Sets. 1011-1015 (1945). Section 1012
provides that:
      "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 insurance, or
      which imposes a fee or tax upon such busi-
      ness , unless such Act specifically relates
      to the business of insurance: Provided,
      that after June 30, 1948 the Act of July 2,
      1890, as amended, known as the Sherman Act,
      and the Act of October 15, 1914, as amended,
      known as the ClaytonAct, and the Act of
      September 26, 1914, known as the Federal
      Trade ColnmissionAct, as amended, shall
      be applicable to the business of insurance
      to the extent that such business is not
      regulated by State law."
but this provision is qualified in Sec. 3(b) of the same
Act, 15 U.S.C.A. Sec. 1013, by declaring:
       *'Nothingcontained in this Act shall render
       the said Sherman Act inapplicable to any
       agreement to boycott, coerce, or intimi-
       date, or act of boycott, coercion, or
       intimidation."
       Since the facts presented here show no "agreements"
between the insurers, we must look at the "acts" of the
insurance companies, i.e. requiring the purchase of property
damage liability insurance by certain political subdivisions
before they would sell bodily injury liability insurance to
such entity. If the Ilacts"of the insurance companies do not
amount to "boycott, coercion or intimidation" and the State
has regulations covering the activity concerned (as we assume
that they do as contended in the State Board of Insurance
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Honorable Oscar H. nausy, Page      5   (M-746)


Notice dated September 22; 1970; as set out above), then no
cause oftaction under the Federal Antitrust Acts would lie
and any aggrieved party must look to his state statutes and
regulations for his remedy. Parker v. Brown, 317 U.S. 341,
(1940-1943 Trade Cases): The Travelers Insurance Co. v. Blue
Cross of Western Pennsylvania, 298 F. Supp. 1109 (1969 Trade
Cases) .
       Assuming arguendo that the independent acts of the
insurance companies constituted a "boycott, coercion or
intimidation" and that the Sherman Act is applicable to the
fact situation posed, we can immediately eliminate the
possibility of a violation of Section 1 of the Sherman Act,
15 U.S.C.A. Sec. 1, because there is no combination, agree-
ment or conspiracy ,in restraint of trade alleged or shown,
which is a necessary element of a Section 1 violation. House
of Materials, Inc. v. Simplicity Pattern Co., 298 F. 2d 867
72nd Cir., 1962) .
       A monopoly violation of Sec. 2 of the Sherman Act, 15
U.S.C.A. Sec. 2, presupposes monopoly power in a particular
market defined as the power to control prices or exclude com-
petition. Hiland Dairy, Inc. v. Kroger Co., 402 F. 26 968
(8th Cir. 13
           69)sion
               .                                of the number
of insurance sellers and the obvious inability of any one of
them alone to exercise any monopoly power, no violation of
this antitrust prohibition is alleged or shown herein.
       Finally, if an assumption is made that the acts of
the insurance companies and agents in "tying" the property
damage liability insurance to the sale of bodily injury lia-
bility insurance is not regulated by State law, then we have
two other possible Federal Antitrust laws to examine as to their
applicability to these facts. The first of these is price
discrimination between different purchasers of "commodities“
of like grade and quality as prohibited by the Robinson-
Patman Act15 U.S.C.A. Sec. 13(a). This has reference to
"products" as distinguished from "services!',Baum v. Investors
Diversified Services, Inc. 409 F. 2d 872, (C. A. , Ill
1969), and therefore insurance sales are not encompass;d in
this federal antitrust law. The second and final possible
federal antitrust law to be reviewed is the Clayton Antitrust
Act, 15 U.S.C;~A.Sec. 14, which typically applies to "tying
arrangements11,but it only applies to the sale or lease of,
II
 . . . goods, wares, merchandise, machinery, supplies or
other commodities" and such things as the lending of money

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    Honorable Oscar Ii.Mausy, Page 6 (M-746)


    and the sale of services has been held not to be included
    in the covered class and it appears clear that insurance
    is not covered therein. U.S.-v. Investors Diversified
    Services, Inc., 102'F;'Supp. 645 (D. C.; Minn., 1952).
          It is, therefore, our opinion, based on the facts
    submitted, that there has been no violation of the Antitrust
    laws of the state or federal government, and our opinion
    is limited to that consideration.
                          S U M M’A R Y

               Based on the facts submitted,~there is
          no violation of the Antitrust laws of the
          state or federal government in the sale of
          insurance to certain political subdivisions
          of the State of Texas under the Texas Tort
          Claims Act.




    Prepared by Wayne R. Rodgers
    Assistant Attorney General
    APPROVED:
    OPINION ~.
             COMMITTEE"'
             ,.
    Kerns Taylor, Chairman
    W. E. Allen, Co-Chairman
    Robert OWen
    Pat Bailey
    Gordon Cass
    Ralph Rash
    WEADE F. GRIFFIN
    Staff Legal Assistant
    ALFRED WALKER
    Executive Assistant
    NOIA WHITE
    First Assistant

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