LRRA Preemption Upheld in ALPS Case

Petition for rehearing en banc In the 9th Circuit

In yet another highly important appellate decision supporting the industry, and in which the National Risk Retention Association appeared as amicus curiae (friend of the court) the 9th Circuit has upheld the Federal Liability Risk Retention Act’s preemption status.  Before the decision becomes final, however, the court will have to address a petition for "rehearing en banc" by the entire 9th Circuit panel.

NRRA had previously filed its Amicus Curiae brief in the case before the United States Court of Appeals for the Ninth Circuit.  In Attorney's Liability Protection Society, Inc., a Risk Retention Group (ALPS) v. Ingaldson, Fitzgerald, P.C., FKA Ingaldson, Maassen & Fitzgerald, P.C., the Ninth Circuit's Cross-Appellate Panel held that Alaska Statute §21.96.100(d)’s prohibition on reimbursements of fees and costs incurred by an insurer defending a non-covered claim was preempted by the Liability Risk Retention Act of 1986, 15 U.S.C. §§ 3901-3906.

The panel determined that the Alaska statute placed a restriction on Alaska contracts that was not contemplated by the Liability Risk Retention Act, and that was not precluded by all other states. The panel further determined that no exception applied to save the Alaska law from preemption.

"This will be a major victory if the 9th Circuit upholds its own opinion," NRRA Executive Director Joe Deems said. "While NRRA’s brief was not quoted or specifically mentioned, our arguments were clearly heard."

In the opinion written by District Court Judge Dorothy W. Nelson, the Court held that "Attorneys Liability Protection Society (ALPS) appeals from the district court’s grant of summary judgment to Ingaldson Fitzgerald, P.C. (Ingaldson), which denied ALPS reimbursement of defense fees expended in an underlying insurance litigation. Ingaldson cross-appeals the district court’s grant of summary judgment to ALPS that the claims asserted in the underlying litigation were not covered by the policy ALPS issued to Ingaldson. We REVERSE the district court’s order denying ALPS reimbursement of defense fees, AFFIRM the district court’s conclusion that the underlying claims were not covered, and REMAND for proceedings consistent with this opinion."

Ingaldson’s policy with ALPS insured the firm against claims arising from “an act, error or omission in professional services that were or should have been rendered by Ingaldson, and expressly excluded from coverage any claims arising from conversion or disputes over fees.  Importantly, the policy also required Ingaldson to reimburse ALPS for fees and costs that ALPS incurred in defending non-covered claims.  In 2008, the bankruptcy trustee for the bankrupt estate of a former client of Ingaldson, in conjunction with another former client of the firm, brought a claim against Ingaldson in the U.S. Bankruptcy Court for the District of Alaska. The suit concerned Ingaldson disbursing from and withdrawing fees and costs against a $150,000 retainer. The former client and the trustee sought recovery of that retainer, and asserted claims against Ingaldson for, among other things, restitution, disgorgement, and conversion.

Deems praised NRRA's Government Affairs Committee for its efforts to submit the Amicus brief on this matter.

"Our GAC Litigation Subcommittee had the courage to undertake this amicus effort despite ALPS not being a member of NRRA," Deems said. "It is a benefit of which both current members and potential adversaries should be aware: We take care of our own!"

NRRA has had a successful run participating in various cases upholding the Federal Liability Risk Retention Act. The string of victories includes:

  • In a case cited in the ALPS opinion, NRRA provided an amicus brief in Allied Professionals Insurance Co. RRG v. Wadsworth (Ziegler) (2014). In that landmark case, the Second Circuit Court of Appeals in New York, held that the LRRA preempts New York State's "direct action" statute.
  • In Speece v. Allied Professionals Insurance Co. RRG (2014), the Nebraska Supreme Court ruled that the LRRA preempted Nebraska state law which prohibited the enforcement of “arbitration” clauses in RRG insurance contracts.
  • In Courville v. Allied Professionals Insurance Company and Rathman (2015), a Louisiana Court of Appeals held that the LRRA preempts Louisiana’s Direct Action Statute. The deciding factor in the Courville case and others was that certain state laws which unfavorably attempt to regulate the business of insurance for risk retention groups are preempted.

Following the opinion rendered on September 23, 2016 and Ingaldson's attempt to circumvent that decision with its petition for "rehearing en banc," meaning a request for rehearing before the entire 9th Circuit Appellate panel, "it remains to be seen what the ultimate decision will be," Deems said, but added that "we maintain positive hopes that the 9th Circuit will uphold its own decision, particularly in light of the other favorable authority NRRA has vigilantly helped to create."  

 

For further information on NRRA's advocacy benefits to members, contact executive director, Joe Deems at NRRA, (818) 995-3274, or joe.deems@gmail.com, or Ken House at (860) 558-1148, khousejr@sbcglobal.net.