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Rejecting an argument that the Pennsylvania Unfair Insurance Practices Act is the “exclusive” remedy for addressing unfair insurance practices, a federal appeals court has ruled that an insurer can use the federal Lanham Act to sue another insurer for false and misleading advertising. In Highmark Inc. v. UPMC Health Plan Inc., a unanimous three-judge panel of the 3rd U.S. Circuit Court of Appeals found that the Lanham Act does not conflict with, invalidate, impair or supersede UIPA. As a result, the court found that an insurer’s Lanham Act suit against another insurer is not barred by the McCarran Act. The court also upheld an injunction issued by U.S. District Judge William L. Standish that ordered UPMC to stop running ads that included false criticisms of Highmark’s policies. UPMC also argued that Highmark’s suit should have been barred by the doctrine of “unclean hands” because it had run misleading ads of its own several years ago. Senior Circuit Judge Max Rosenn disagreed, saying “Highmark’s inappropriate use of a term in its 1999 advertisement does not excuse current deceptive and misleading advertisements to the public.” The suit stems from the intense rivalry between Highmark and UPMC in the market for employee health insurance plans. Allegheny County, Pa., offered its non-union employees the choice of either taking UPMC’s plan or Highmark’s “CommunityBlue Direct” plan beginning in February 2001. On two dates in early February, UPMC ran full-page ads in the Pittsburgh Post-Gazette that purported to compare features of its plans with Highmark’s. Highmark filed suit under the Lanham Act, claiming that the ads were false and misleading. Standish agreed and ordered that the ads be pulled and that a “corrective” ad be published. On appeal, UPMC argued that the federal courts had no jurisdiction because the ads did not “substantially affect” interstate commerce. It also argued that the McCarran Act — which protects the right of states to regulate the insurance industry — barred an insurer from suing a rival under the Lanham Act. On the jurisdiction argument, UPMC said the Lanham Act’s interstate commerce requirement was not met because it directed its ad to employees of Allegheny County and the health plans are sold only in Pennsylvania. Judge Standish found that the ads affected interstate commerce in five ways — the newspaper is distributed beyond the state; the health plans offer emergency care outside Pennsylvania; the Highmark plan has subscribers outside Pennsylvania; subscribers of either plan may be referred to an out-of-state hospital; and the ads might have had an impact on parties outside Pennsylvania. The 3rd Circuit agreed, saying the evidence clearly showed that Highmark has subscribers outside the state and that UPMC covers emergency treatment outside Pennsylvania. The more intricate legal question was whether the McCarran Act bars the Lanham Act claim. The question, Rosenn said, was whether such a Lanham Act claim would “impair” the Pennsylvania UIPA. Judge Standish found that UIPA is enforceable only by the state insurance commissioner but that UIPA is not the exclusive remedy for unfair insurance practices since Pennsylvania courts have allowed private claims against insurers for fraud and deceit under the Unfair Trade Practices and Consumer Protection Law. Judge Rosenn agreed and said the 3rd Circuit, too, had rejected the argument that UIPA is exclusive by allowing a RICO claim in Sabo v. Metropolitan Life Insurance Co. UPMC’s lawyers — Christine L. Donohue, Bryan S. Neft and David W. Snyder of Klett Rooney’s Pittsburgh office — argued that Sabo was distinguishable. In their brief, they said: “Although a RICO claim may provide a remedy for conduct that falls under the rubric of the UIPA, a court adjudicating a RICO claim will not necessarily ‘determine’ whether such conduct constitutes an ‘unfair method of competition’ or an ‘unfair or deceptive act or practice’ in the insurance industry.” Rosenn was harshly critical, saying “to state that proposition illustrates its invalidity” because any insurer that violates RICO has participated in an unfair method of competition. “UPMC’s assertion is akin to a claim that a conviction of murder is not necessarily a finding that such a person is guilty of a violent crime,” Rosenn wrote in an opinion joined by Circuit Judges Samuel A. Alito and Maryanne Trump Barry. “Allowing Highmark’s private action to proceed under the Lanham Act is merely a logical extension of Sabo and not the huge leap UPMC would make of it,” Rosenn wrote. UPMC argued that since the standard to obtain a permanent injunction under the Lanham Act is less formidable than under the UIPA, the UIPA would be rendered literally ineffective by the Lanham Act because plaintiffs, given a choice, will elect to file claims with an easier burden of proof. Rosenn again pointed to Sabo, saying “if different standards of liability were enough to render the UIPA ineffective under the McCarran Act, then this court would not have allowed RICO claims to proceed.” Likewise, Rosenn rejected UPMC’s argument that the Lanham Act’s more liberal remedies would impair the “administrative scheme” embodied in the UIPA. “More liberal remedies are found under RICO than the UIPA. … This did not prevent the court from allowing a RICO claim to proceed,” Rosenn wrote. Finally, UPMC argued that common law claims are not available to insurers. Rosenn disagreed, saying that while the Pennsylvania courts have not yet squarely addressed the question of whether an insurer can bring a false advertising claim, a decision from the Pennsylvania Superior Court suggests that they would be allowed. In Pekular v. Eich, Rosenn said, the court held that UIPA is not exclusive, but instead “coexists” with common law remedies such as fraud and deceit. UPMC argued that Pekular is limited to authorizing fraud and deceit actions. But Rosenn found that “the court’s language, however, is not so narrowly drawn. It speaks of ‘existing common law remedies’ and illustrates them with fraud and deceit.” As a result, Rosenn said, “there is no reason to believe that Highmark’s common law claims, already in existence at the time of the UIPA enactment, would be barred by the Pennsylvania courts.” Highmark was represented by attorneys Michael E. Lowenstein, Daniel I. Booker, Gary L. Kaplan and Gregory M. Luyt of Reed Smith’s Pittsburgh office.

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