United States Department of Treasury v. Fabe

PETITIONER: United States Department Of Treasury et al.
RESPONDENT: Fabe
LOCATION: North Carolina General Assembly

DOCKET NO.: 91-1513
DECIDED BY: Rehnquist Court (1991-1993)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 508 US 491 (1993)
ARGUED: Dec 08, 1992
DECIDED: Jun 11, 1993

ADVOCATES:
James R. Rishel - on behalf of the Respondent
Robert A. Long, Jr. - on behalf of the Petitioners

Facts of the case

Question

Media for United States Department of Treasury v. Fabe

Audio Transcription for Oral Argument - December 08, 1992 in United States Department of Treasury v. Fabe

William H. Rehnquist:

We'll hear argument next in number 91-1513, United States Department of Treasury v. George Fabe.

Mr. Long, you may proceed.

Robert A. Long, Jr.:

Thank you, Mr. Chief Justice, and may it please the Court:

For more than 200 years, Congress has determined the priority of Federal claims against insolvent debtors.

The Federal priority statute, section 3713 of title 31, provides that claims of the United States in nonbankruptcy proceedings shall be paid first.

This Court has repeatedly held that only the plainest inconsistency would warrant our finding an implied exception to the operation of so clear a command.

The question in this case is whether the McCarran-Ferguson Act created an exception to the clear command of section 3713.

In our view, it did not, and our argument has three basic points.

First, the McCarran Act exemption applies to the business of insurance.

A State statute regulating the priority of claims against the estate of an insolvent insurance company does not regulate any business activity of insurance companies.

Consequently, it is not a regulation of the business of insurance within the ordinary meaning of those words.

Second, the State priority statute does not possess the three characteristics of the regulation of the business of insurance identified in this Court's decisions.

It does not result in the transfer or spreading of risk.

It is not an integral part of the contractual relationship between insurer and insured, and it involves entities wholly outside the insurance industry.

Well, may I ask, Mr. Long why the statute doesn't perhaps meet the National Securities test since it is aimed at protecting directly or indirectly the relationship between the insurer and the insured to the extent that it covers the payout in the event of insolvency.

I mean, there... to that extent, it seems to perhaps meet the test.

Robert A. Long, Jr.:

Well, let me give a two-part answer to that question.

Well, maybe not the whole statute, but insofar as it protects the insured.

Robert A. Long, Jr.:

Well, first of all, I think the test that this Court has developed in cases since National Securities is a three-part test.

It's considerably narrower than simply whether the State regulation has some effect on the risk that the policyholder will not be paid.

We think that test would be too broad if it were simply reduced back to that single factor.

The other part of the answer is, in fact, the priority statute has relatively little to do with whether a policyholder's claim is paid.

Of course, it only comes into play in the event that the insurer becomes insolvent, and that's likely to be viewed as a relatively unlikely event by a policyholder.

If it does happen, though, the real insurance against insolvency--

Well, it's more likely these days, isn't it?

It might be a real concern.

Robert A. Long, Jr.:

--It may be more likely these days, and if it is a real concern of a policyholder, the real insurance against insolvency is not the priority statute, it is insurance guaranty funds, which have been established by all 50 States to pay claims of policyholders in the event the insurance company becomes insolvent.

Well, that may be, but I still think to the extent that the statute tries to deal with this situation, that it may very well be covered by McCarran-Ferguson.

Robert A. Long, Jr.:

Well, to the extent that it does and that it meets the other factors that this Court has identified, it could be, but as I say, we don't think that it is... has a... is sufficiently close to the contractual relationship.

It only applies in the event of insolvency.