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Third Circuit Holds McCarran Act Does Not Bar False Advertising Claim By Insurer Against Another Insurer


HLD, v. 30, n. 3 (March 2002)

Third Circuit Holds McCarran Act Does Not Bar False Advertising Claim By Insurer Against Another Insurer

Highmark, Inc. (Highmark) and UPMC Health Plan (UPMC) are both insurers in Pennsylvania licensed to underwrite health plans. Both Highmark and UPMC offer insurance plans marketed to employers and subscribers in Western Pennsylvania, and both offer network-based plans. UPMC published a full-page advertisement in the Pittsburgh Post-Gazette that compared features of UPMC's and Highmark's plans. Highmark sought injunctive relief and damages, alleging that UPMC's ad contained false statements and deceptive advertising in violation of the Lanham Act. The trial court granted a preliminary injunction, finding that UPMC's ad contained nine separate literally false statements. UPMC appealed, arguing that the Lanham Act did not apply because the ad did not substantially affect interstate commerce. In addition, UPMC argued that the McCarran-Ferguson Act (McCarran Act) barred the application of the Lanham Act because applying the Lanham Act would supersede Pennsylvania's Unfair Insurance Practices Act (UIPA).

The Third Circuit held that the McCarran Act did not bar Highmark's claim. First, the court held that the UPMC's ad substantially affected interstate commerce because the newspaper in which the ad appeared was distributed interstate, the ad referred to health plans that offer care to patients who reside outside of Pennsylvania, subscribers may be referred to out-of-state facilities, and the ad may have an impact on out-of-state parties. Second, the appeals court held that, although the ad does constitute part of the "business of insurance" under the McCarran Act, the McCarran Act did not apply to bar federal jurisdiction. The court focused on the question of whether applying the Lanham Act would "invalidate, impair or supersede the state regulation of deceptive and false practices in violation of the McCarran Act." In concluding that the Lanham Act did not conflict with or supersede the UIPA, the court emphasized that the UIPA does not confer a private cause of action and is enforceable only through the State Commissioner of Insurance. Further, the appeals court noted that in Sabo v. Metropolitan Life Ins. Co., 137 F.3d 817 (3d Cir. 2000), it stated "that Pennsylvania's non-recognition of a private remedy under the UIPA represents a reasoned state policy of exclusive administrative enforcement or that the vindication of UIPA norms should be limited or rare." The court rejected UPMC's argument that the Lanham Act supersedes the UIPA by providing different standards of liability, stating that "[i]f different standards of liability were enough to render the UIPA ineffective under the McCarran Act, then this Court would not have allowed the RICO claims to proceed in Sabo." The court also held that the Lanham Act's more liberal remedies did not bar Highmark's claim and noted that "[t]he UIPA itself, in light of its non-exclusive nature, does not provide a basis for the Court to determine if different federal and state remedies can be a basis for preclusion under the McCarran Act." The court noted that, although Pennsylvania courts have not decided the issue of whether insurers can bring private false advertising claims, a review of precedent indicated that such claims would be allowed.

Third, the appeals court held that the trial court properly granted the injunction. Noting that the trial court found nine separate literally false claims, the appeals court determined that Highmark was not required to prove actual consumer deception. Given the evidence, the appeals court found that the trial court did not err in concluding that Highmark had a reasonable probability of success on the merits.

Highmark, Inc. v. UPMC Health Plan, Inc., No. 01-1377, 2001 WL 1641243 (3d Cir. Dec. 21, 2001) (19 pages).

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