Like any other industry, the world of insurance is carefully regulated by a bevy of agencies and legislatures on every levels. These rules are meant to protect consumers, entrepreneurs, motorists, and beyond while also allowing insurance companies to provide an essential service to the public.
That doesn’t mean that every rule and regulation is appropriate. These are often crafted under the influence of actors as varied as industry lobbyists and poorly informed politicians. Sometimes they fall too short. Sometimes they reach too far. Sometimes they come with unintended consequences.
At the David Nelson Agency, we respect and appreciate the infrastructure that protects everyone involved. We feel it our responsibility to not only understand how we got here but help those we serve in Chicagoland and beyond understand it, too.
1. Paul v. Virginia (1869)
In Paul v. Virginia, a licensed insurance agent from New York sought to operate in Virginia. At the time, there were laws on the book prohibiting insurance agents from operating in Virginia without being licensed specifically in that state. This was not an uncommon practice at the time. The insurance industry had long operated this way.
Paul wanted to change this. He argued that this violated the law on two levels. First, he felt it violated the Privileges and Immunities Clause, which ensures that the privileges afforded to individuals by one state must be respected by others (think: marriage or driver’s licenses). Second, he said these practices violated the Commerce Clause, which grants the federal government the ability to regulate commerce conducted between states.
The Supreme Court disagreed with Paul. They found that a corporation is not the same as an individual in the context of the Privileges and Immunities Clause, meaning states had a right to decide whether a corporation could operate within its borders and how. Perhaps more important, the Court found that insurance does not qualify as commerce. This served as the framework for state-based regulation moving forward.
Sometimes this ruling didn’t generate regulations that were specific to insurance operations. Instead, the ruling opened the door for local insurance companies to push for different types of regulations which would impact their bottom line.
This played out in the world of Chicagoland insurance in the wake of the Great Chicago Fire in 1871. Unprepared to meet the demands of their clients in the wake of the crisis, dozens of insurance companies were driven into bankruptcy at the time. As a result the Illinois insurance industry led the nation in terms of implementing regulations related fire-safety.
2. United States v. South-Eastern Underwriters Association (1944)
You didn’t really think the matter of interstate commerce would be settled that easily, did you? Neither did the courts. At the time of the case, the South-Eastern Underwriters Association controlled 90% of the insurance market across six Southern states. The government argued that this violated anti-trust laws. This argument, however, flew in the face of the Paul v. Virginia decision, as it hinged on the idea that insurance was a form of commerce that should be subject to federal regulation.
This time around, the Supreme Court agreed, functionally overturning its prior decision. But Congress was having none of it. The very next year, they passed the McCarran-Ferguson Act. This essentially exempted the insurance agency from the vast majority of federal regulations, keeping control in the hands of the states.
3. Cramer v. Insurance Exchange Agency (1996)
This particular piece of caselaw holds a special place in our hearts because it was decided by the Illinois State Supreme Court. It’s a little more complex than some of the cases we’ve discussed so far, though, as it relies heavily on complicated intersections tied to prior caselaw.
In fairness, this is one of those cases related to insurance regulations where the particulars of the conflict are less important than the outcome. That outcome was that insurers who engage in bad faith practices – particularly those where terms are established to dodge providing coverage based on a technicality in order to maximize profit – could and should be held accountable for unscrupulous behavior.
In other words, the Illinois insurance world isn’t allowed to make promises they never intended to keep. This precedent has stood the test of time nationwide. At the David Nelson Agency, we’re all too happy to comply with this one.
4. Kentucky Association of Health Plans, Inc. v. Miller (2003)
For years, health insurance providers could select which providers subscribers could go to for service. In Kentucky, this became especially problematic. A largely rural landscape paired with corporate interests to make healthcare accessibility exceptionally difficult.
Kentucky decided it was done with the practice. They passed a series of “Any Willing Provider” (AWP) laws, requiring that insurance companies cover services offered by any provider willing to comply with the terms set forth by the insurance company.
The Kentucky Association of Health Plans, Inc. argued that these laws were pre-empted by the Employee Retirement Income Security Act. The act prohibits states from passing laws which relate to any employee benefit plan.
In a unanimous decision, the U.S. Supreme Court upheld the AWP laws, as they were specific to the insurance industry and not directed solely at employee benefit plans. This reaffirmed the authority of states to regulate insurance, but it zeroed in on health insurance this time around.
5. National Federation of Independent Business v. Sebelius (2012)
Regardless of your opinion of the Affordable Care Act, the Supreme Court’s decision on its constitutionality marked a major turning point when it came to the balance of federal and state oversight of the insurance industry.
The heart of the case was disagreement over the “individual mandate.” This would require individuals to secure health insurance or face a tax penalty. The National Federation of Independent Business argued that this represented an overreach of the federal government’s ability to regulate commerce and exceeded their ability to tax. In a 5-4 decision, the Court decided that the mandate did fall within the federal government’s scope of spending and taxation, upholding the mandate. This decision allowed for the Affordable Care Act’s most significant component to move forward.
The decision was more complicated than that, though. It found that the mandated Medicaid expansion amounted to coercion, as it conditioned access to federal Medicaid funding on compliance with federal preferences on public policy.
What does this mean for people who need health insurance in Illinois? It has certainly impacted everything from taxes to healthcare accessibility. But as of 2019, the individual mandate is no longer in play at the federal level. The most important thing for those who need insurance in Illinois is understanding that the federal government, when willing, can intervene to expand insurance access if they deem it necessary.
6. Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (2016)
Robert Montanile was part of a union for elevator constructors. In 2008, he was tragically struck and severely injured by a drunk driver. His insurance wound up paying out $120,000 to cover his medical costs. Montanile also received a $500,000 settlement from a civil lawsuit.
If that seems like how the system is supposed to work, we agree. But it wound up being a lot more complicated than that. His plan was governed by the Employee Retirement Income Security Act of 1974 (ERISA). This law allows insurance providers to enforce the terms of their policies in civil suits. The National Elevator Industry Health Benefit Plan included terms which allowed them to recoup their payouts based on compensation their subscribers received from third parties. In this case, that would mean Montanile would need to pay the plan back $120,000 from his civil settlement.
At first, this case seemed pretty straightforward. The law is the law. The Supreme Court, however, disagreed. They concluded that third party payments not directly tied to an ERISA payout could not be recouped under that law.
For people who need something like auto insurance in Illinois from the David Nelson Agency, this decision might feel irrelevant. Its ramifications, however, have been felt throughout the insurance world. In conjunction with cases like Cramer v. Insurance Exchange Agency, this caselaw means insurance companies cannot put profit over people in a manner that undermines the promises made to the consumer.
7. King v. Burwell (2015)
The best way to think about this case is to look at it as the other side of the Sebelius coin. That case was specific to the legitimacy of tax penalties associated with failure to procure health insurance. This one deals with whether tax credits may be offered on the state and federal levels who rise to the challenge. It’s stick v. carrot.
The individual mandate might exist no more, but King v. Burwell guaranteed that tax credits would still be considered legal on both levels, rejecting King’s argument that the government was overstepping its bounds. The decision was particularly impactful when it comes to insurance in Illinois, where tax credits can significantly lower your monthly premiums.
Conclusion
Is this a comprehensive list of important court decisions on the subject of insurance? Absolutely not, but we’re also not trying to write a novel here. There have been many others and there will likely be many more decisions down the road that change the world of insurance in Illinois and beyond. But no matter what comes next, one thing will remain true: the David Nelson Agency will always have your back when you need Illinois insurance coverage.