We want to very much thank our ever-reliable industry news source, the Risk Retention Reporter (RRR) for its permission to reprint the following article seen in its March edition. In the case of Allied Professionals Ins. Co. RRG v. Anglesey, the RRG industry has chalked up another significant victory, when on March 12, 2020 the United States Court of Appeals for the Ninth Circuit ruled in favor of Allied Professionals (APIC), affirming the preemptive provisions of the Liability Risk Retention Act (LRRA).
In reading this article, you will see that NRRA Executive Director, Joe Deems, points out two (2) of the more subtle, but important, characteristics of the preemptive features of the LRRA argued by Allied Chairman Mike Schroeder before the court:
First, that almost every state has adopted risk retention group regulations that mirror the LRRA, rendering other state laws attempting to “regulate” the business of “foreign” RRGs inconsistently in violation of their own state laws!
Second, educating the courts to more fully explain in this context the way in which the wording of the LRRA clearly prohibits two (2) separate activities: a) laws that attempt to “regulate” the business of the RRG, e.g., tell us what you can and cannot have in your policies, and b) activities that otherwise “discriminate” against the RRG. “Discrimination,” as the courts have pointed out, is distinguished as a separate offense under the statute from laws and rules that ”regulate.” The two prohibitions are separate and distinct from one another.
The United States Court of Appeals for the Ninth Circuit (the Court) has ruled in favor of Allied Professionals Risk Retention Group, Inc. (APIC) in a ruling that affirmed the preemptive provisions of the Liability Risk Retention Act (LRRA).
The case — Allied Professionals Ins. Co. RRG v. Anglesey — has its beginnings in chiropractic treatment given by Dr. Michael Anglesey, a Washington-based chiropractor, to Eliseo Gutierrez which allegedly resulted in Mr. Gutierrez suffering a stroke.
Later that year, Dr. Anglesey renewed his coverage with APIC, but did not mention the potential malpractice claim against him by Mr. Gutierrez and Mrs. Gutierrez during the renewal process. Later when Dr. Anglesey notified APIC of the potential claim, the company advised him that it was denying coverage and rescinding his 2012 and 2013 insurance policies.
Anglesey then planned to execute a consent judgement in favor of Mr. Gutierrez and Mrs. Gutierrez, and assign his rights against APIC to them. Mr. Gutierrez and Mrs. Gutierrez then agreed to seek satisfaction from APIC as opposed to Dr. Anglesey. In response, APIC demanded that all claims against it be sent to arbitration, as per the arbitration clause in the underlying policies.
Dr. Anglesey refused the motion for arbitration and APIC filed suit on April 28, 2014 in the Central District of California. The district court ruled that APIC did not have standing to compel arbitration. APIC appealed that decision to the Ninth Circuit.
The Defendants (Dr. Anglesey; Mr. and Mrs. Gutierrez) argued that the LRRA did not preempt a Washington anti-arbitration statute because the LRRA is “reverse-preempted” by the McCarran-Ferguson Act, which is “generally under stood to protect state regulation of insurance.”
The Court opinion, written by Judge Richard Clifton, stated the Court has “repeatedly held that the LRRA is an exception to the McCarran-Ferguson Act’s preference for state regulation of insurance,” as per the prior Ninth Circuit decision in Attorney’s Liability Protection Society, Inc., a RRG (ALPS) v. Ingaldson, Fitzgerald, P.C.
The Defendants further contended that the preemptive language of the LRRA was only intended to prevent states from passing laws that prevented RRGs from operating as an insurance company. According, to the decision this would “construe the LRRA as an anti-discrimination statute,” with the purpose of preventing states from treating RRGs differently than other carriers.
Judge Clifton contested that point, writing that to narrowly interpret the LRRA in the fashion of the Defendants argument would “jeopardize the purpose of the statute.”
Judge Clifton continues that the LRRA was passed to support a struggling insurance market, and to do so the LRRA eliminated the need for RRGs to comply with numerous non-chartering state statutes that would, in aggregate, “thwart the inter-state operation [of]…risk retention groups.”
In conclusion, the Court held that “the Washington anti-arbitration statute is preempted by the LRRA as it applies to risk retention groups chartered in another state.”
The National Risk Retention Association filed an amicus curiae brief in support of APIC and the Court granted the motion to file the brief, and the Risk Retention Reporter reached out to NRRA Executive Director Joe Deems for comment. Comments from Deems are included below:
“We are not only pleased with the opinion, but it also gets us one step closer to addressing two of the functional issues raised (and argued) in this case: First, that almost every state has adopted risk retention group laws that mirror the LRRA. Accordingly, other state laws in their states (like you see in this case) attempting to ‘regulate’ the business of RRGs registered to do business in their state are actually and simultaneously in violation of their own state (RRG) laws.
“Second, the courts need to finally address the more subtle issue that the LRRA actually prohibits two (2) separate activities: a) laws that attempt to ‘regulate’ the RRG, e.g., tell us what we can and cannot have in our policies, and b) activities that actually ‘discriminate’ against the RRG. Discrimination, as this court points out, is codified as a separate offense under the statute. Illegal ‘regulation’ and ‘discrimination’ are separate and distinct under the statute, and the language of the LRRA completely supports that proposition.”
Reprinted from the March 2020 Risk Retention Reporter — Volume 34, Number 4