The opinion of the court was delivered by: POLLACK
This is a private antitrust suit. Plaintiffs are the Nassau, Suffolk and Queens County Associations of Insurance Agents. The three associations have a combined membership of 1000 independent insurance agents. The defendants are approximately 184 companies which are alleged to sell insurance in New York State.
The complaint premises jurisdiction on the "Sherman Act, 15 U.S.C. Sections 1-7, the Clayton Act, 15 U.S.C. Sections 12-27, 44, and the McCarran-Ferguson Act, 15 U.S.C. 1011-15."
Defendants have moved to dismiss the complaint upon two grounds. They urge under the Federal Rules of Civil Procedure 12(b)(6) that the plaintiffs lack a claim cognizable under the antitrust laws and are not members of any class which has a sufficient claim. They also argue, in the alternative, under Federal Rules of Civil Procedure 41(b), that plaintiffs' attempt to join 184 insurance companies as defendants fails to satisfy the standards for joinder of defendants, Federal Rules of Civil Procedure 20(a), and that the misjoinder is sufficiently unfair to justify dismissal of the action for failure to comply with Rule 20(a), Federal Rules of Civil Procedure 41(b).
According to the allegations of the complaint, an independent insurance agent signs an agency agreement with one or more insurance companies, which entitles him to act to procure insurance contracts for that company or companies. Cancellation of the agency agreement is said to result in cancellation or nonrenewal of the insurance contracts the agent has placed with the company as well as incalculable indirect damage to the agent's reputation and business prospects. Each agency agreement contains a termination at will clause, and the threat of loss of the agency affiliation is alleged to be "overwhelming, coercive and intimidating."
The complaint alleges that the defendant insurance companies have maintained a policy of cancelling or threatening to cancel the agency contracts of independent agents for three major reasons:
1.) failure of the agent to maintain a balance between the types of insurance he sells (the so-called "balanced book" requirement)
2. inadequate volume of sales by the agent,
3. excessive loss ratio on policies sold by the agent.
The complaint states that "thousands upon thousands" of agency agreements have been terminated on these grounds, leading, in turn, to cancellation or non-renewal of "hundreds of thousands" of insurance contracts.
The balanced book requirement is claimed by plaintiffs to be per se illegal as a tying arrangement among various types of insurance contracts, since it has the effect of conditioning the agent's ability to sell one kind of policy (the tying product) upon increased sales by him of another type of policy (the tied product). The requirement that an agent maintain a given volume of sales is claimed to supplement the tie-in because the agent must sell different varieties of insurance to meet the volume level set. The termination of agency agreements because of an excessive loss ratio resulting from policies procured by the agent is attacked as "unconscionable and in bad faith and against public policy."
The complaint characterizes termination or the threat of termination for any or all of these three reasons as constituting
illegal coercion, illegal intimidation, illegal restraints of trade, all of which are in violation of the Clayton Act, the Sherman Act, the McCarran-Ferguson Act, and are unconscionable and in bad faith and violate the defendants' contractual obligation to the plaintiff agents and their insureds under the common law and the Uniform Commercial Code.
In effect, then, the complaint alleges that the cancellation policy which insurance companies are claimed to follow is an attempt to enforce a tying arrangement among various types of insurance policies, in violation of Section 3 of the Clayton Act, 15 U.S.C. Section 14 and Section 1 of the Sherman Act, 15 U.S.C. Section 1, and that the attempt to coerce agents to comply satisfies § 3(b) of the McCarran-Ferguson Act, 15 U.S.C. Section 1013(b), which provides that ...