Firms' Gap Insurance Demands Did Not Violate Sherman, Bank Holding Company Act

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A seller of motor vehicle gap insurance products could not maintain Sherman Act or Bank Holding Company Act claims against a financial services firm and two affiliate entities for the firm's refusal to purchase, from car dealers, credit transactions that included the complaining seller's gap insurance products, the federal district court in Covington, Kentucky, has held.

The complaining insurance seller failed to allege a cognizable antitrust injury stemming from the defendants' conduct and did not establish an unlawful tying arrangement prohibited by the Bank Holding Company Act, the court determined. Dismissal of the claims was granted.

Gap insurance is a type of policy covering the difference, in the event of a "total" loss, between what a car buyer owes on a car and what the primary insurance carrier pays out as its market value at the time of loss. The defendants allegedly would buy credit transactions containing gap insurance products only if those products were on their "approved list," which included products from their own subsidiary but not the complaining company.

Antitrust Injury

The only injury that the plaintiff alleged from the defendants' tying, reciprocal dealing, and exclusive dealing related to its own ability to sell gap insurance products, the court observed. Even if the defendants' alleged actions caused it to lose business, that injury alone was not an antitrust injury because no harm occurred either to the consumer or to competition as a whole.

Although the insurance seller claimed that the conduct decreased competition within the market, it did not allege facts that demonstrated competition was actually diminished. It failed to state how many gap insurance providers existed and how many were on the approved list, thus rendering it impossible to tell the extent to which competition may have been affected.

Moreover, the insurance seller failed to allege an injury that flowed from that which made the defendants' act unlawful. Its alleged injury flowed from its exclusion from the approved list, not from the alleged tying arrangement itself. The Sherman Act did not prohibit use of an approved list by a buyer, or restrict that buyer's freedom to select the entity from which it would purchase products, noted the court.

Tying, Reciprocal Dealing, Exclusive Dealing

Even if the insurance seller had not failed to plead antitrust injury, which was fatal to its Sherman Act claims, its allegations against the defendants had not described a tying arrangement, reciprocal dealing, or exclusive dealing that was prohibited by the Sherman Act, in the court's view.

Bank Holding Company Act

The defending financial services firm and its two affiliate entities did not engage in an unlawful tying arrangement prohibited by the Bank Holding Company Act (BHCA) through their credit transaction purchasing practices, the court stated. The complaining gap insurance seller was unable to establish the first element for a BHCA claim—the firm's imposition of an anticompetitive tying arrangement by conditioning an extension of credit upon borrower's obtaining additional credit or services from the bank—because the defendants did not extend any credit or provide a service. Rather, they purchased credit transactions that had already been completed between the car dealer and the car buyer.

No tying arrangement existed because the defendants did not require dealers to include gap insurance products in the credit transactions the defendants purchased, or even to buy gap insurance products at all.

The decision is Midwest Agency Services, Inc. v. J.P. Morgan Chase Bank, N.A., 2010-1 Trade Cases ¶76,940.