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In the absence of insurance, three possible individuals bear the
burden of an economic loss; the individual suffering the loss the
individual causing the loss via negligence or unlawful conduct;
or lastly, a particular party who has been allocated the burden
by the legislature, such as employers under Workmen's Compensation
statutes.
While types of insurance vary widely, their primary
goal is to allocate the risks of a loss from the individual to a
great number of people. Each individual pays a "premium"
into a pool, from which losses are paid out. Regardless of whether
the particular individual suffers the loss or not the premium is
not returnable. Thus, when a building burns down, the loss is spread
to the people contributing to the pool. In general, insurance companies
are the safekeepers of the premiums. Because of its importance in
maintaining economic stability, the government and the courts use
a heavy hand in ensuring these companies are regulated and fair
to the consumer.
Up until 1944, insurance was not considered "commerce"
and not subject to federal regulation. But in United States v. South-Eastern
Underwriters Association, the Supreme Court held that Congress could
regulate insurance transactions that were truly interstate. Congress
then enacted the which provided that the laws of the several states
should control the insurance business, but that the Sherman Act,the
Clayton Act, and the Federal Trade Commission Act were applicable
to the insurance business to the extent that it was unregulated
by state law.
The McCarran-Ferguson Act, broadly speaking, gives
states the power to regulate the insurance industry. While state
insurance statutes override most federal laws, some portions of
federal law (like federal tax laws) are always commanding. Therefore,
when researching whether a particular law governs, a good rule of
thumb is to ask whether the inquiry is related to the "business
of insurance" (where state law governs), or whether it is related
to peripherals of the industry (labor, tax, securities - where federal
law governs).
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