The 79th Congress passed the McCarran–Ferguson Act in 1945 after the Supreme Court ruled in United States v. South-Eastern Underwriters Association that the federal government could regulate insurance companies under the authority of the Commerce Clause in the U.S. Constitution and that the federal antitrust laws applied to the insurance industry.
In 1942, at the request of the Attorney General of Missouri (whose insurance regulators felt powerless to correct abuses they had identified since 1922),[6] the Department of Justice investigated and a grand jury in Georgia indicted the South-Eastern Underwriters Association, 27 of its officers and 198 member companies.
[2] The indictment charged the defendants with two counts of antitrust violations: (1) conspiracy under Section 1 of the Sherman Act to fix the premium rates on certain fire insurance policies and boycott non-complying independent sales agencies that did not comply; and (2) monopolization of markets for the sale of fire insurance policies in the states of Alabama, Florida, Georgia, North Carolina, South Carolina, and Virginia in violation of Section 2 of the Sherman Act.
The question in the case, which the Court formulated itself, was "whether the Commerce Clause grants to Congress the power to regulate insurance transactions stretching across state lines."
[10] The South-Eastern Underwriters case, however, involved the question whether the business of insurance was "interstate commerce" sufficient to allow Congressional regulation.
Chief Justice Stone argued that the writing of insurance in one state to cover risk in another was not "interstate commerce" as a constitutional matter and that the actions charged were not within the purview of the Sherman Act.
His opinion was largely based on the Court's previous decision on the negative implications of the Commerce Clause.
[13] Since the Paul case in 1868,[5] it had been widely believed that the federal government was excluded from regulating the insurance industry.