State insurance law precludes Lanham Act claim

Insurance Products Marketing, Inc. v. Conseco Life Ins. Co., 2011 WL 3841269 (D.S.C.)

Plaintiffs sued for violations of the Lanham Act, misappropriation, invasion of privacy, state law unfair trade practices, and breach of a previous settlement agreement. They alleged that, after settlement of the prior dispute, the Conseco defendants sent letters to their policyholders stating that plaintiffs were still defendants’ agents, profiting from use of IPM’s name and causing IPM lost profits.

Defendants argued that the Lanham Act claim was preempted (technically precluded) by the McCarran-Ferguson Act, which preserves state regulation of insurance companies unless a federal act specifically relates to the business of insurance. Federal jurisdiction is barred under the McCarran Act if: (1) the federal law at issue does not specifically relate to the business of insurance; (2) the state law regulating the activity was enacted for the purpose of regulating the business of insurance; and (3) applying federal law would invalidate, impair, or supersede the state law.

Here, the activity complained of was advertising to policyholders, which was part of the business of insurance, so the Act applied. A number of courts have found that advertising insurance policies isn’t within the business of insurance, but the facts here were distinguishable because this was an ad dispute between two rival insurance companies. (I’m not sure I follow.) Another court has found that Lanham Act claims between insurer-competitors are precluded by the McCarran-Ferguson Act. Here, defendant’s statements were made to its policyholders, which is part of the business of insurance.

Since the Lanham Act doesn’t specifically relate to the business of insurance, the next questions were whether the state law regulating the activity was enacted as insurance regulation and whether applying federal law would invalidate, impair, or supersede the state law. The relevant South Carolina statute governs false or misleading practices in the business of insurance, so that’s taken care of. Plaintiffs argued that applying the Lanham Act would complement state law, but the court disagreed. Federal law impairs a state law if there’s a direct conflict, a frustration of declared state policy, or interference with a state administrative regime, and federal law supersedes state law if it displaces state law and provides a substitute rule.

Here, the court found that applying the Lanham Act would frustrate South Carolina’s declared state policy of “defining, or providing the determination of, all the practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.” (I don’t really get this. Wouldn’t you first need to decide that the Lanham Act defines unfair/deceptive claims differently than state law to say that there was any frustration of this purpose? That’s the usual way courts analyze Lanham Act conflicts in other areas, for example whether the FDCA precludes a Lanham Act claim.)

So the Lanham Act claim was dismissed, as was the state statutory unfair trade practices claim because the alleged conduct involved the business of insurance and was thus exempted from the general statute and expressly governed by the state insurance trade practices act.

The misappropriation of identity claim survived as adequately pled, and plaintiffs were granted leave to amend to allege the breach of contract claim more specifically.