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An Overview...
In the absence of insurance, three possible individuals bear
the burden of an economic loss; the individual suffering the loss;
the individual causing the loss via negligence or unlawful conduct;
or lastly, a particular party who has been allocated the burden
by the legislature, such as employers under Workmen's Compensation
statutes.
While types of insurance vary widely, their primary goal is to
allocate the risks of a loss from the individual to a great number
of people. Each individual pays a "premium" into a pool,
from which losses are paid out. Regardless of whether the particular
individual suffers the loss or not the premium is not returnable.
Thus, when a building burns down, the loss is spread to the people
contributing to the pool. In general, insurance companies are
the safekeepers of the premiums. Because of its importance in
maintaining economic stability, the government and the courts
use a heavy hand in ensuring these companies are regulated and
fair to the consumer.
Up until 1944, insurance was not considered "commerce"
and not subject to federal regulation. But in United States v.
South-Eastern Underwriters Association, the Supreme Court held
that Congress could regulate insurance transactions that were
truly interstate. Congress then enacted the McCarran-Ferguson
Act (15 USCS § § 1011) which provided that the laws
of the several states should control the insurance business, but
that the Sherman Act,the Clayton Act, and the Federal Trade Commission
Act were applicable to the insurance business to the extent that
it was unregulated by state law.
The McCarran-Ferguson Act, broadly speaking, gives states the
power to regulate the insurance industry. While state insurance
statutes override most federal laws, some portions of federal
law (like federal tax laws) are always commanding. Therefore,
when researching whether a particular law governs, a good rule
of thumb is to ask whether the inquiry is related to the "business
of insurance" (where state law governs), or whether it is
related to peripherals of the industry (labor, tax, securities
- where federal law governs).
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