OCTOBER TERM, 1992
Syllabus
UNITED STATES DEPARTMENT OF TREASURY ET AL.
v. FABE,
SUPERINTENDENT OF INSURANCE OF OHIO
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH
CIRCUIT
No. 91-1513. Argued December 8, 1992-Decided June 11, 1993
In proceedings under Ohio law to liquidate an insolvent
insurance company, the United States asserted that its claims as
obligee on various of the company's surety bonds were entitled to
first priority under 31 U. S. C. § 3713(a)(1)(A)(iii). Respondent
Fabe, the liquidator appointed by the state court, brought a
declaratory judgment action in the Federal District Court to
establish that priority in such proceedings is governed by an Ohio
statute that ranks governmental claims behind (1) administrative
expenses, (2) specified wage claims, (3) policyholders' claims, and
(4) general creditors' claims. Fabe argued that the federal
priority statute does not pre-empt the Ohio law because the latter
falls within §2(b) of the McCarran-Ferguson Act, which provides,
inter alia: "No Act of Congress shall be construed to ...
supersede any law enacted by any state for the purpose of
regulating the business of insurance .... " The court granted
summary judgment for the United States on the ground that the state
statute does not involve the "business of insurance" under the
tripartite standard articulated in
Union Labor Life Ins. Co.
v.
Pireno, 458
U. S. 119, 129. The Court of Appeals disagreed and, in
reversing, held that the Ohio scheme regulates the "business of
insurance" because it protects the interests of the insured.
Held: The Ohio priority statute escapes federal
pre-emption to the extent that it protects policyholders, but it is
not a law enacted for the purpose of regulating the business of
insurance to the extent that it is designed to further the
interests of creditors other than policyholders. Pp. 499-510.
(a) The McCarran-Ferguson Act's primary purpose was to restore
to the States broad authority to tax and regulate the insurance
industry in response to
United States v.
South-Eastern
Underwriters Assn., 322
(b) The Ohio statute, to the extent that it regulates
policyholders, is a law enacted "for the purpose of regulating the
business of insurance." Because that phrase refers to statutes
aimed at protecting or regulating, directly or indirectly, the
relationship between the insurance company and its policyholders,
SEC v.
National Securities, Inc., 393 U. S. 453, 460, the
federal priority statute must yield to the conflicting Ohio
stat-
492
Syllabus
ute to the extent that the latter furthers policyholders'
interests.
Pireno does not support petitioners' argument to
the contrary, since the actual performance of an insurance contract
satisfies each prong of the
Pireno test: performance of the
terms of an insurance policy (1) facilitates the transfer of risk
from the insured to the insurer; (2) is central to the policy
relationship between the insurer and the insured; and (3) is
confined entirely to entities within the insurance industry. Thus,
such actual performance is an essential part of the "business of
insurance." Because the Ohio statute is integrally related to the
performance of insurance contracts after bankruptcy, it is a law
"enacted ... for the purpose of regulating the business of
insurance" within the meaning of §2(b). This plain reading of the
McCarran-Ferguson Act comports with the statute's purpose. Pp.
500-506.
(c) Petitioners' contrary interpretation based on the
legislative history is at odds with § 2(b)'s plain language and
unravels upon close inspection. Pp. 506-508.
(d) The preference accorded by Ohio to the expenses of
administering the insolvency proceeding is reasonably necessary to
further the goal of protecting policyholders, since liquidation
could not even commence without payment of administrative costs.
The preferences conferred upon employees and other general
creditors, however, do not escape pre-emption because their
connection to the ultimate aim of insurance is too tenuous. Pp.
508-510.
939 F.2d
341, affirmed in part, reversed in part, and remanded.
BLACKMUN, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and WHITE, STEVENS, and O'CONNOR, JJ., joined.
KENNEDY, J., filed a dissenting opinion, in which SCALIA, SOUTER,
and THOMAS, JJ., joined,
post, p. 510.
Robert A. Long, Jr., argued the cause for
petitioners.
With him on the briefs were Solicitor General Starr, Assistant
Attorney General Gerson, Deputy Solicitor General Mahoney, and
William Kanter.
James R. Rishel argued the cause for respondent. With him
on the brief were
David A. Kopech and
Zachary T.
Donovan. *
*Briefs of
amici curiae urging affirmance were filed for
the Bureau of Insurance, Commonwealth of Virginia, et al. by
Harold B. Gold and
Randolph N Wisener; for the
Council of State Governments et al. by
Richard Ruda and
Michael J.
Wahoske; for the National Association of
Insurance
493
JUSTICE BLACKMUN delivered the opinion of the Court. The federal
priority statute, 31 U. S. C. § 3713, accords first priority to the
United States with respect to a bankrupt debtor's obligations. An
Ohio statute confers only fifth priority upon claims of the United
States in proceedings to liquidate an insolvent insurance company.
Ohio Rev. Code Ann. § 3903.42 (1989). The federal priority statute
preempts the inconsistent Ohio law unless the latter is exempt from
pre-emption under the McCarran-Ferguson Act, 59 Stat. 33, as
amended, 15 U. S. C. § 1011
et seq. In order to resolve this
case, we must decide whether a state statute establishing the
priority of creditors' claims in a proceeding to liquidate an
insolvent insurance company is a law enacted "for the purpose of
regulating the business of insurance," within the meaning of § 2(b)
of the McCarran-Ferguson Act, 15 U. S. C. § 1012(b).
We hold that the Ohio priority statute escapes preemption to the
extent that it protects policyholders. Accordingly, Ohio may
effectively afford priority, over claims of the United States, to
the insurance claims of policyholders and to the costs and expenses
of administering the liquidation.
Commissioners by
Susan E. Martin; for the National
Conference of Insurance Guaranty Funds et al. by F.
James
Foley; for the National Conference of Insurance Legislators by
Stephen W Schwab; for Salvatore R. Curiale by
Mathias E.
Mone and
Adam Liptak; for James A. Gordon by
Paul W
Grimm; for Lewis Melahn by
W Dennis Cross; and for
Stephen
A brief of
amici curiae was filed for the State of
Michigan et al. by
Frank J.
Kelley, Attorney General
of Michigan,
Thomas L. Casey, Solicitor General, and
Harry G.
Iwasko, Jr., and
Janet A. VanCleve,
Assistant Attorneys General, and by the Attorneys General for their
respective States as follows:
Grant Woods of Arizona,
Robert A. Butterworth of Florida,
Robert T. Stephan
of Kansas, J.
Joseph Curran, Jr., of Maryland,
Marc
Racicot of Montana,
Robert J.
Del Tufo of New
Jersey,
Daniel E. Lungren of California,
Larry
EchoHawk of Idaho,
Michael E. Carpenter of Maine,
Hubert H. Humphrey III of Minnesota,
Frankie Sue Del
Papa of Nevada, and
Tom Udall of New Mexico.
494
But when Ohio attempts to rank other categories of claims above
those pressed by the United States, it is not free from federal
pre-emption under the McCarran- Ferguson Act.
I
The Ohio priority statute was enacted as part of a complex and
specialized administrative structure for the regulation of
insurance companies from inception to dissolution. The statute
proclaims, as its purpose, "the protection of the interests of
insureds, claimants, creditors, and the public generally." §
3903.02(D). Chapter 3903 broadly empowers the State's
Superintendent of Insurance to place a financially impaired
insurance company under his supervision, or into rehabilitation, or
into liquidation. The last is authorized when the superintendent
finds that the insurer is insolvent, that placement in supervision
or rehabilitation would be futile, and that "further transaction of
business would be hazardous, financially or otherwise, to [the
insurer's] policyholders, its creditors, or the public." §
3903.17(C). As liquidator, the superintendent is entitled to take
title to all assets, § 3903.18(A); to collect and invest moneys due
the insurer, § 3903.21(A)(6); to continue to prosecute and commence
in the name of the insurer any and all suits and other legal
proceedings, § 3903.21(A)(12); to collect reinsurance and unearned
premiums due the insurer, §§ 3903.32 and 3903.33; to evaluate all
claims against the estate, § 3903.43; and to make payments to
claimants to the extent possible, § 3903.44. It seems fair to say
that the effect of all this is to empower the liquidator to
continue to operate the insurance company in all ways but one-the
issuance of new policies.
Pursuant to this statutory framework, the Court of Common Pleas
for Franklin County, Ohio, on April 30, 1986, declared American
Druggists' Insurance Company insolvent. The court directed that the
company be liquidated, and it appointed respondent, Ohio's
Superintendent of Insurance, to serve as liquidator. The United
States, as obligee
495
on various immigration, appearance, performance, and payment
bonds issued by the company as surety, filed claims in excess of
$10.7 million in the state liquidation proceedings. The United
States asserted that its claims were entitled to first priority
under the federal statute, 31 U. S. C. § 3713(a)(1)(A)(iii), which
provides: "A claim of the United States Government shall be paid
first when ... a person indebted to the Government is insolvent and
... an act of bankruptcy is committed." 1
Respondent Superintendent brought a declaratory judgment action
in the United States District Court for the Southern District of
Ohio seeking to establish that the federal priority statute does
not pre-empt the Ohio law designating the priority of creditors'
claims in insuranceliquidation proceedings. Under the Ohio statute,
as noted above, claims of federal, state, and local governments are
entitled only to fifth priority, ranking behind (1) administrative
expenses, (2) specified wage claims, (3) policyholders' claims, and
(4) claims of general creditors. § 3903.42.2
1 In its entirety, § 3713 reads:
"(a)(I) A claim of the United States Government shall be paid
first when-
"(A) a person indebted to the Government is insolvent and-
"(i) the debtor without enough property to pay all debts makes a
volun-
tary assignment of property;
"(ii) property of the debtor, if absent, is attached; or "(iii)
an act of bankruptcy is committed; or
"(B) the estate of a deceased debtor, in the custody of the
executor or administrator, is not enough to pay all debts of the
debtor.
"(2) This subsection does not apply to a case under title
11.
"(b) A representative of a person or an estate (except a trustee
acting under title 11) paying any part of a debt of the person or
estate before paying a claim of the Government is liable to the
extent of the payment for unpaid claims of the Government."
2 In its entirety, § 3903.42 reads:
"The priority of distribution of claims from the insurer's
estate shall be in accordance with the order in which each class of
claims is set forth in
496
Respondent argued that the Ohio priority scheme, rather than the
federal priority statute, governs the priority of claims of the
United States because it falls within the anti-
this section. Every claim in each class shall be paid in full or
adequate funds retained for such payment before the members of the
next class receive any payment. No subclasses shall be established
within any class. The order of distribution of claims shall be:
"(A) Class 1. The costs and expenses of administration,
including but not limited to the following:
"(1) The actual and necessary costs of preserving or recovering
the
assets of the insurer;
"(2) Compensation for all services rendered in the liquidation;
"(3) Any necessary filing fees;
"(4) The fees and mileage payable to witnesses; "(5) Reasonable
attorney's fees;
"(6) The reasonable expenses of a guaranty association or
foreign guaranty association in handling claims.
"(B) Class 2. Debts due to employees for services performed to
the extent that they do not exceed one thousand dollars and
represent payment for services performed within one year before the
filing of the complaint for liquidation. Officers and directors
shall not be entitled to the benefit of this priority. Such
priority shall be in lieu of any other similar priority that may be
authorized by law as to wages or compensation of employees.
"(C) Class 3. All claims under policies for losses incurred,
including third party claims, all claims against the insurer for
liability for bodily injury or for injury to or destruction of
tangible property that are not under policies, and all claims of a
guaranty association or foreign guaranty association. All claims
under life insurance and annuity policies, whether for death
proceeds, annuity proceeds, or investment values, shall be treated
as loss claims. That portion of any loss, indemnification for which
is provided by other benefits or advantages recovered by the
claimant, shall not be included in this class, other than benefits
or advantages recovered or recoverable in discharge of familial
obligations of support or by way of succession at death or as
proceeds of life insurance, or as gratuities. No payment by an
employer to an employee shall be treated as a gratuity. Claims
under nonassessable policies for unearned premium or other premium
refunds.
"(D) Class 4. Claims of general creditors.
"(E) Class 5. Claims of the federal or any state or local
government.
Claims, including those of any governmental body for a penalty
or forfeit-
497
pre-emption provisions of the McCarran- Ferguson Act, 15 U. S.
C. § 1012.3
The District Court granted summary judgment for the United
States. Relying upon the tripartite standard for divining what
constitutes the "business of insurance," as articulated in
Union
Labor Life Ins. Co. v.
Pireno, 458 U. S. 119 (1982), the
court considered three factors:
"'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
ure, shall be allowed in this class only to the extent of the
pecuniary loss sustained from the act, transaction, or proceeding
out of which the penalty or forfeiture arose, with reasonable and
actual costs occasioned thereby. The remainder of such claims shall
be postponed to the class of claims under division (H) of this
section.
"(F) Class 6. Claims filed late or any other claims other than
claims under divisions (G) and (H) of this section.
"(G) Class 7. Surplus or contribution notes, or similar
obligations, and premium refunds on assessable policies. Payments
to members of domestic mutual insurance companies shall be limited
in accordance with law. "(H) Class 8. The claims of shareholders or
other owners."
3 Section 1012 reads:
"(a) State regulation
"The business of insurance, and every person engaged therein,
shall be subject to the laws of the several States which relate to
the regulation or taxation of such business.
"(b) Federal regulation
"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 business, 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 Clayton Act,
and the Act of September 26, 1914, known as the Federal Trade
Commission Act, as amended, ... shall be applicable to the business
of insurance to the extent that such business is not regulated by
State Law."
498
industry.'" App. to Pet. for Cert. 36a (quoting Pireno,
458 U. S., at 129).
Reasoning that the liquidation of an insolvent insurer possesses
none of these attributes, the court concluded that the Ohio
priority statute does not involve the "business of insurance." App.
to Pet. for Cert. 45a.
A divided Court of Appeals reversed.
939 F.2d
341 (CA6 1991). The court held that the Ohio priority scheme
regulates the "business of insurance" because it protects the
interests of the insured.
Id., at 350-351. Applying
Pireno, the court determined that the Ohio statute (1)
transfers and spreads the risk of insurer insolvency; (2) involves
an integral part of the policy relationship because it is designed
to maintain the reliability of the insurance contract; and (3)
focuses upon the protection of policyholders by diverting the
scarce resources of the liquidating entity away from other
creditors. 939 F. 2d, at 351-352.4
Relying upon the same test to reach a different result, one
judge dissented. He reasoned that the liquidation of insolvent
insurers is not a part of the "business of insurance" because it
(1) has nothing to do with the transfer of risk between insurer and
insured that is effected by means of the insurance contract and
that is complete at the time the contract is entered; (2) does not
address the relationship between insurer and the insured, but the
relationship among those left at the demise of the insurer; and (3)
is not confined to policyholders, but governs the rights of all
creditors.
Id., at 353-354 (opinion of Jones, J.).
We granted certiorari, 504 U. S. 907 (1992), to resolve the
conflict among the Courts of Appeals on the question whether a
state statute governing the priority of claims
4 One judge concurred separately on the ground that the
McCarranFerguson Act was not intended to modify the longstanding,
traditional state regulation of insurance company liquidations. See
939 F. 2d, at 352 (opinion of Edgar, J.).
499
against an insolvent insurer is a "law enacted ... for the
purpose of regulating the business of insurance," within the
meaning of § 2(b) of the McCarran-Ferguson Act.5
II
The McCarran-Ferguson Act was enacted in response to this
Court's decision in
United States v.
South-Eastern
Underwriters Assn., 322 U. S. 533 (1944).
Prior to that decision, it had been assumed that "[i]ssuing a
policy of insurance is not a transaction of commerce,"
Paul
v.
Virginia, 8 Wall. 168, 183 (1869), subject to federal
regulation. Accordingly, "the States enjoyed a virtually exclusive
domain over the insurance industry."
St. Paul Fire &
Marine Ins. Co. v.
Barry, 438 U. S. 531, 539
(1978).
The emergence of an interconnected and interdependent national
economy, however, prompted a more expansive jurisprudential image
of interstate commerce. In the intervening years, for example, the
Court held that interstate commerce encompasses the movement of
lottery tickets from State to State,
Lottery Case, 188 U. S. 321 (1903), the
transport of five quarts of whiskey across state lines in a private
automobile,
United States v.
Simpson, 252 U. S. 465 (1920), and
the transmission of an electrical impulse over a wire between
Alabama and Florida,
Pensacola Telegraph Co. v.
Western
Union Telegraph Co., 96 U. S. 1 (1878). It was
not long before the Court was forced to come to terms with these
decisions in the insurance context. Thus, in
South-Eastern
Underwriters, it held that an insurance company that conducted
a substantial part of its business across state lines was engaged
in interstate commerce and thereby was subject to the antitrust
laws. This result, naturally, was widely perceived as a threat to
state power to tax and regulate the
5 Compare the result reached by the Sixth Circuit in this
litigation with
Gordon v.
United States Dept. of
Treasury, 846 F.2d
272 (CA4), cert. denied, 488 U. S. 954 (1988), and
Idaho ex rel. Soward v.
United States, 858 F.2d
445 (CA9 1988), cert. denied, 490 U. S. 1065 (1989).
500
insurance industry. To allay those fears, Congress moved quickly
to restore the supremacy of the States in the realm of insurance
regulation. It enacted the McCarran- Ferguson Act within a year of
the decision in
South-Eastern Underwri ters.
The first section of the McCarran-Ferguson Act makes its mission
very clear: "Congress hereby declares that the continued regulation
and taxation by the several States of the business of insurance is
in the public interest, and that silence on the part of the
Congress shall not be construed to impose any barrier to the
regulation or taxation of such business by the several States." 15
U. S. C. § 1011. Shortly after passage of the Act, the Court
observed: "Obviously Congress' purpose was broadly to give support
to the existing and future state systems for regulating and taxing
the business of insurance."
Prudential Ins. Co. v.
Benjamin, 328
U. S. 408, 429 (1946). Congress achieved this purpose in two
ways. The first "was by removing obstructions which might be
thought to flow from [Congress'] own power, whether dormant or
exercised, except as otherwise expressly provided in the Act itself
or in future legislation."
Id., at 429-430. The second "was
by declaring expressly and affirmatively that continued state
regulation and taxation of this business is in the public interest
and that the business and all who engage in it 'shall be subject
to' the laws of the several states in these respects."
Id.,
at 430.
III
"[T]he starting point in a case involving construction of the
McCarran- Ferguson Act, like the starting point in any case
involving the meaning of a statute, is the language of the statute
itself."
Group Life &
Health Ins. Co. v.
Royal Drug Co.,
440 U. S. 205, 210
(1979). Section 2(b) of the McCarran-Ferguson Act provides: "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
501
of insurance ... unless such Act specifically relates to the
business of insurance." 15 U. S. C. § 1012(b). The parties agree
that application of the federal priority statute would "invalidate,
impair, or supersede" the Ohio priority scheme and that the federal
priority statute does not "specifically relat[e] to the business of
insurance." All that is left for us to determine, therefore, is
whether the Ohio priority statute is a law enacted "for the purpose
of regulating the business of insurance."
This Court has had occasion to construe this phrase only once.
On that occasion, it observed: "Statutes aimed at protecting or
regulating this relationship [between insurer and insured],
directly or indirectly, are laws regulating the 'business of
insurance,'" within the meaning of the phrase. SEe v.
National
Securities, Inc., 393 U. S. 453, 460
(1969). The opinion emphasized that the focus of McCarran-Ferguson
is upon the relationship between the insurance company and its
policyholders:
"The relationship between insurer and insured, the type of
policy which could be issued, its reliability, interpretation, and
enforcement-these were the core of the 'business of insurance.'
Undoubtedly, other activities of insurance companies relate so
closely to their status as reliable insurers that they too must be
placed in the same class. But whatever the exact scope of the
statutory term, it is clear where the focus was-it was on the
relationship between the insurance company and the policyholder."
Ibid.
In that case, two Arizona insurance companies merged and
received approval from the Arizona Director of Insurance, as
required by state law. The Securities and Exchange Commission sued
to rescind the merger, alleging that the merger-solicitation papers
contained material misstatements, in violation of federal law. This
Court held that, insofar as the Arizona law was an attempt to
protect the inter-
502
ests of an insurance company's shareholders, it did not fall
within the scope of the McCarran- Ferguson Act.
Ibid. The
Arizona statute, however, also required the Director, before
granting approval, to make sure that the proposed merger "would not
'substantially reduce the security of and service to be rendered to
policyholders.'"
Id., at 462. The Court observed that this
section of the statute "clearly relates to the 'business of
insurance.'"
Ibid. But because the "paramount federal
interest in protecting shareholders [was] perfectly compatible with
the paramount state interest in protecting policyholders," id., at
463, the Arizona statute did not preclude application of the
federal securities laws.
In the present case, on the other hand, there is a direct
conflict between the federal priority statute and Ohio law. Under
the terms of the McCarran-Ferguson Act, 15 U. S. C. § 1012(b),
therefore, federal law must yield to the extent the Ohio statute
furthers the interests of policyholders.
Minimizing the analysis of
National Securities,
petitioners invoke
Royal Drug and
Pireno in support
of their argument that the liquidation of an insolvent insurance
company is not part of the "business of insurance" exempt from
pre-emption under the McCarran- Ferguson Act. Those cases
identified the three criteria, noted above, that are relevant in
determining what activities constitute the "business of insurance."
See
Pireno, 458 U. S., at 129. Petitioners argue that the
Ohio priority statute satisfies none of these criteria. According
to petitioners, the Ohio statute merely determines the order in
which creditors' claims will be paid, and has nothing to do with
the transfer of risk from insured to insurer. Petitioners also
contend that the Ohio statute is not an integral part of the policy
relationship between insurer and insured and is not limited to
entities within the insurance industry because it addresses only
the relationship between policyholders and other creditors of the
defunct corporation.
To be sure, the Ohio statute does not directly regulate the
"business of insurance" by prescribing the terms of the
503
insurance contract or by setting the rate charged by the
insurance company. But we do not read
Pireno to suggest that
the business of insurance is confined entirely to the writing of
insurance contracts, as opposed to their performance.
Pireno
and
Royal Drug held only that "ancillary activities" that do
not affect performance of the insurance contract or enforcement of
contractual obligations do not enjoy the antitrust exemption for
laws regulating the "business of insurance."
Pireno, 458 U.
S., at 134, n. 8. In
Pireno, we held that use of a peer
review committee to advise the insurer as to whether charges for
chiropractic services were reasonable and necessary was not part of
the business of insurance. The peer review practice at issue in
that case had nothing to do with whether the insurance contract was
performed; it dealt only with calculating what fell within the
scope of the contract's coverage.
Id., at 130. We found the
peer review process to be "a matter of indifference to the
policyholder, whose only concern is
whether his claim is
paid, not
why it is paid" (emphases in original).
Id., at 132. Similarly, in
Royal Drug, we held that
an insurer's agreements with participating pharmacies to provide
benefits to policyholders was not part of the business of
insurance. "The benefit promised to Blue Shield policyholders is
that their premiums will cover the cost of prescription drugs
except for a $2 charge for each prescription. So long as that
promise is kept, policyholders are basically unconcerned with
arrangements made between Blue Shield and participating
pharmacies." 440 U. S., at 213-214 (footnote omitted).
There can be no doubt that the actual performance of an
insurance contract falls within the "business of insurance," as we
understood that phrase in
Pireno and
Royal Drug. To
hold otherwise would be mere formalism. The Court's statement in
Pireno that the "transfer of risk from insured to insurer is
effected by means of the contract between the parties ... and ...
is complete at the time that the contract is entered," 458 U. S.,
at 130, presumes that the insurance
504
contract in fact will be enforced. Without performance of the
terms of the insurance policy, there is no risk transfer at all.
Moreover, performance of an insurance contract also satisfies the
remaining prongs of the
Pireno test: It is central to the
policy relationship between insurer and insured and is confined
entirely to entities within the insurance industry. The Ohio
priority statute is designed to carry out the enforcement of
insurance contracts by ensuring the payment of policyholders'
claims despite the insurance company's intervening bankruptcy.
Because it is integrally related to the performance of insurance
contracts after bankruptcy, Ohio's law is one "enacted by any State
for the purpose of regulating the business of insurance." 15 U. S.
C. § 1012(b).
Both
Royal Drug and
Pireno, moreover, involved the
scope of the antitrust immunity located in the
second clause
of § 2(b). We deal here with the first clause, which is not so
narrowly circumscribed. The language of § 2(b) is unambiguous: The
first clause commits laws "enacted ... for the purpose of
regulating the business of insurance" to the States, while the
second clause exempts only "the business of insurance" itself from
the antitrust laws. To equate laws "enacted ... for the purpose of
regulating the business of insurance" with the "business of
insurance" itself, as petitioners urge us to do, would be to read
words out of the statute. This we refuse to do.6
6The dissent contends that our reading of the McCarran-Ferguson
Act "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."
Post, at 515. This
argument might be plausible if the two clauses actually employed
identical language. But they do not. As explained above, the first
clause contains the word "purpose," a term that is significantly
missing from the second clause. By ignoring this word, the dissent
overlooks another maxim of statutory construction: "that a court
should '''give effect, if possible, to every clause and word of a
statute."'"
Moskal v.
United States, 498 U. S. 103, 109-110
(1990), quoting
United States v.
Menasche, 348 U. S. 528, 538-539
(1955), and
Montclair v.
Ramsdell, 107 U. S. 147, 152
(1883).
505
The broad category of laws enacted "for the purpose of
regulating the business of insurance" consists of laws that possess
the "end, intention, or aim" of adjusting, managing, or controlling
the business of insurance. Black's Law Dictionary 1236, 1286 (6th
ed. 1990). This category necessarily encompasses more than just the
"business of insurance." For the reasons expressed above, we
believe that the actual performance of an insurance contract is an
essential part of the "business of insurance." Because the Ohio
statute is "aimed at protecting or regulating" the performance of
an insurance contract,
National Securities, 393 U. S., at
460, it follows that it is a law "enacted for the purpose of
regulating the business of insurance," within the meaning of the
first clause of § 2(b).
Our plain reading of the McCarran- Ferguson Act also comports
with the statute's purpose. As was stated in
Royal Drug, the
first clause of § 2(b) was intended to further Congress' primary
objective of granting the States broad regulatory authority over
the business of insurance. The second clause accomplishes Congress'
secondary goal, which was to carve out only a narrow exemption for
"the business of insurance" from the federal antitrust laws. 440 U.
S., at 218, n.18. Cf. D. Howard, Uncle Sam versus the Insurance
Commissioners: A Multi-Level Approach to Defining the "Business of
Insurance" Under the McCarran-Ferguson Act, 25 Willamette L. Rev. 1
(1989) (advocating an interpretation of the two clauses that would
reflect their dual purposes); Note, The Definition of "Business of
Insurance" Under the McCarran- Ferguson Act After
Royal
Drug, 80 Colum. L. Rev. 1475 (1980) (same).
Petitioners, however, also contend that the Ohio statute is not
an insurance law but a bankruptcy law because it comes into play
only when the insurance company has become insolvent and is in
liquidation, at which point the insurance company no longer exists.
We disagree. The primary purpose of a statute that distributes the
insolvent insurer's assets to
506
policyholders in preference to other creditors is identical to
the primary purpose of the insurance company itself: the payment of
claims made against policies. And "mere matters of form need not
detain us."
National Securities, 393 U. S., at 460. The Ohio
statute is enacted "for the purpose of regulating the business of
insurance" to the extent that it serves to ensure that, if
possible, policyholders ultimately will receive payment on their
claims. That the policyholder has become a creditor and the insurer
a debtor is not relevant.
IV
Finding little support in the plain language of the statute,
petitioners resort to its legislative history. Petitioners rely
principally upon a single statement in a House Report:
"It is not the intention of Congress in the enactment of this
legislation to clothe the States with any power to regulate or tax
the business of insurance beyond that which they had been held to
possess prior to the decision of the United States Supreme Court in
the Southeastern Underwriters Association case." H. R. Rep.
No. 143, 79th Cong., 1st Sess., 3 (1945).
From this statement, petitioners argue that the McCarranFerguson
Act was an attempt to "turn back the clock" to the time prior to
South-Eastern Underwriters. At that time, petitioners
maintain, the federal priority statute would have superseded any
inconsistent state law.
Even if we accept petitioners' premise, the state of the law
prior to
South-Eastern Underwriters is far from clear.
Petitioners base their argument upon
United States v.
Knott, 298 U.
S. 544 (1936), which involved the use and disposition of funds
placed with the Florida treasurer as a condition of an insurer's
conducting business in the State. According to petitioners,
Knott stands for the proposition that the federal priority
statute pre-empted inconsistent state laws even before
South-Eastern Underwriters. But this proffered analogy to
Knott unravels upon closer inspection. In that case,
507
the Court applied the federal priority statute only when the
State had not specifically legislated the priority of claims. 298
U. S., at 549-550 ("But it is settled that an inchoate lien is not
enough to defeat the [Federal Government's] priority .... Unless
the law of Florida effected ... either a transfer of title from the
company, or a specific perfected lien in favor of the Florida
creditors, the United States is entitled to priority"). Moreover,
other cases issued at the same time reached a different result.
See,
e. g., Conway v.
Imperial Life Ins. Co., 207 La.
285, 21 So. 2d 151 (1945) (Louisiana statute specifically providing
that deposited securities are held by state treasurer in trust for
benefit and protection of policyholders supersedes federal priority
statute).
More importantly, petitioners' interpretation of the statute is
at odds with its plain language. The McCarran- Ferguson Act did not
simply overrule
South-Eastern Underwriters and restore the
status quo. To the contrary, it transformed the legal landscape by
overturning the normal rules of preemption. Ordinarily, a federal
law supersedes any inconsistent state law. The first clause of §
2(b) reverses this by imposing what is, in effect, a
clear-statement rule, a rule that state laws enacted "for the
purpose of regulating the business of insurance" do not yield to
conflicting federal statutes unless a federal statute specifically
requires otherwise. That Congress understood the effect of its
language becomes apparent when we examine other parts of the
legislative history.7 The second clause of § 2(b) also broke new
ground: It
7 Elaborating upon the purpose animating the first clause of §
2(b) of the McCarran-Ferguson Act, Senator Ferguson observed:
"What we have in mind is that the insurance business, being
interstate commerce, if we merely enact a law relating to
interstate commerce, or if there is a law now on the statute books
relating in some way to interstate commerce, it would not apply to
insurance. We wanted to be sure that the Congress, in its wisdom,
would act specifically with reference to insurance in enacting the
law." 91 Congo Rec. 1487 (1945).
This passage later confirms that "no existing law and no future
law should, by mere implication, be applied to the business of
insurance" (statement of Mr. Mahoney).
Ibid.
508
"embod[ied] a legislative rejection of the concept that the
insurance industry is outside the scope of the antitrust laws-a
concept that had prevailed before the
South-Eastern
Underwriters decision."
Royal Drug, 440 U. S., at
220.
Petitioners' argument appears to find its origin in the Court's
statement in
National Securities that "[t]he
McCarran-Ferguson Act was an attempt to turn back the clock, to
assure that the activities of insurance companies in dealing with
their policyholders would remain subject to state regulation." 393
U. S., at 459. The Court was referring to the primary purpose
underlying the Act, namely, to restore to the States broad
authority to tax and regulate the insurance industry. Petitioners
would extrapolate from this general statement an invitation to
engage in a detailed point-by-point comparison between the regime
created by McCarran-Ferguson and the one that existed before. But
it is impossible to compare our present world to the one that
existed at a time when the business of insurance was believed to be
beyond the reach of Congress' power under the Commerce Clause.
v
We hold that the Ohio priority statute, to the extent that it
regulates policyholders, is a law enacted for the purpose of
regulating the business of insurance. To the extent that it is
designed to further the interests of other creditors, however, it
is not a law enacted for the purpose of regulating the business of
insurance. Of course, every preference accorded to the creditors of
an insolvent insurer ultimately may redound to the benefit of
policyholders by enhancing the reliability of the insurance
company. This argument, however, goes too far: "But in that sense,
every business decision made by an insurance company has some
impact on its reliability ... and its status as a reliable
insurer."
Royal Drug, 440 U. S., at 216-217.
Royal
Drug rejected the notion that such
509
indirect effects are sufficient for a state law to avoid
preemption under the McCarran-Ferguson Act.
Id., at
217.8
We also hold that the preference accorded by Ohio to the
expenses of administering the insolvency proceeding is reasonably
necessary to further the goal of protecting policyholders. Without
payment of administrative costs, liquidation could not even
commence. The preferences conferred upon employees and other
general creditors, however, do not escape pre-emption because their
connection to the ultimate aim of insurance is too tenuous. Cf.
Langdeau v.
United States, 363 S. W. 2d 327 (Tex.
Civ. App. 1962) (state statute according preference to employee
wage claims is not a law enacted for the purpose of regulating the
business of insurance). By this decision, we rule only upon the
clash of priorities as pronounced by the respective provisions of
the federal statute and the Ohio Code. The effect of this decision
upon the Ohio Code's remaining priority provisions-includ-
8 The dissent assails our holding at both ends, contending that
it at once goes too far and not quite far enough. On the one hand,
the dissent suggests that our holding is too "broad" in the sense
that "any law which redounds to the benefit of policyholders is,
ipso facto, a law enacted to regulate the business of
insurance."
Post, at 511. But this is precisely the argument
we reject in the text, as evidenced by the narrowness of our actual
holding. Uncomfortable with our distinction between the priority
given to policyholders and the priority afforded other creditors,
the dissent complains, on the other hand, that this is evidence of
a "serious flaw."
Post, at 517. But the dissent itself
concedes that a state statute regulating the liquidation of
insolvent insurance companies need not be treated as a package
which stands or falls in its entirety.
Post, at 518. Given
this concession, it is the dissent's insistence upon an
all-or-nothing approach to this particular statute that is flawed.
The dissent adduces no support for its assertion that we must deal
with the various priority provisions of the Ohio law as if they
were all designed to further a single end. That was not the
approach taken by this Court in
National Securities, which
carefully parsed a state statute with dual goals and held that it
regulated the business of insurance only to the extent that it
protected policyholders.
Supra, at 502. And the dissent
misinterprets our pronouncement on the clash of priorities as a
"compromise holding,"
post, at 517, forgetting that the
severability of the various priority provisions is a question of
state law.
510
ing any issue of severability-is a question of state law to be
addressed upon remand. Cf.
Stanton v.
Stanton,
421 U. S. 7, 17-18
(1975) (invalidating state statute specifying greater age of
majority for males than for females and remanding to state court to
determine age of majority applicable to both groups under state
law).
The judgment of the Court of Appeals is affirmed in part and
reversed in part, and the case is remanded to that court for
further proceedings consistent with this opinion.
It is so ordered.
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 regulating the business of
insurance," 59 Stat. 34, as amended, 15 U. S. C. § 1012(b), alters
this result.
Relying primarily on our decision in
SEe v.
National
Securities, Inc., 393 U. S. 453 (1969), the
majority concludes
511
that portions of Ohio's priority statute are saved from
preemption 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 accomplished 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 "Congress 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 505, by
ensuring that "policyholders ultimately will receive payment on
their claims,"
ante, at 506. Under the majority's reasoning,
see
ante, at 493, 508, 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
512
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
Securities 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."
SEC 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 502, 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
513
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 insurance
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 insurance.'"
Ibid. Respondent maintains, and the majority apparently
agrees, that nothing is more central to the reliability 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 506.
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 relationship 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 494. The change accomplished by the Ohio
statute is not just a cosmetic change in management. Once the Ohio
Court of Common Pleas directs the
514
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
preemption 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 distinguish them. My disagreement with the
Court on this point turns on a close interpretation of 15 U. S. C.
§ 1012(b), 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 insurance, ... 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."
515
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 504, 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 regulating the
business of insurance are something different from activities of
insurers constituting the business of insurance,
ibid., 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
516
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 insurance." 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 of 1974. 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
McCarranFerguson 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 why
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 Securities. In
National Securities, we determined that the essence of the
business of insurance involves those activities 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
517
policyholder and insurance company relationship as to constitute
the business of insurance.
Pireno considers:
"[FJirst, 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
Securities:
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 policyand 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 between 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 creditors, 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 insolvency 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 payment of
those claims) are given priority ahead of the claims of the Federal
Government. At
518
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 businesses,
some of which may, and some of which may not, constitute the
"business of insurance" under our precedents. 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 513, 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 reg-
519
ulates 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 longstanding 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 legislation
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.
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