The Federal Liability Risk Retention Act (LRRA) was passed in 1986 and signed into law by Ronald Reagan. No federal agency, however, is responsible for oversight or regulation of this law. The primary regulatory authority for a risk retention group is its state of domicile. The law curtails the regulatory authority of non-domiciliary states.
Over the years, this regulatory approach has caused some issues. As principal advocate for risk retention and purchasing groups, the National Risk Retention Association (NRRA) backs RRGs and PGs before state regulatory authorities and the National Association of Insurance Commissioners (NAIC).
As part of this effort, NRRA has been an advocate and a source of information and education for state and federal regulators and legislators. NRRA has attempted to provide clarity on various issues, including:
1. Assessment of premium taxes: What rate of tax is permissible? When and how are taxes paid?
2. Assessment of fees: Is a fee a “tax”? Is it applied in a non-discriminatory manner?
3. Registration requirements for risk retention and purchasing groups in non-domiciliary states: Does the state requirement comport with federal law?
4. Types of insurance coverage: Is it “liability” as defined in the Act? What authority does a non-domiciliary state have to require insurance policy filing or review?
5. Risk retention group structure: Does the risk retention group fulfill the Act’s requirement for ownership and control?
6. Capitalization: What requirements can be imposed by statute?
7. Financial responsibility: Is the state within the exception provided by federal law?
8. Warranty: Do the activities of the risk retention group violate state law?
Over the years since its founding in 1987, NRRA has demonstrated its support for risk retention groups and purchasing groups by participating in several significant lawsuits and informal administrative procedures that protected their rights. NRRA has helped win some major decisions in which the federal and state high courts upheld the preemption provisions of the LRRA, and has otherwise effectively thwarted or redirected prospectively damaging legislation. In doing so, among other actions, NRRA has:
- Filed Amicus Briefs challenging both regulator overreaching and state laws that violate the LRRA;
- Effected a carve-out exempting risk retention groups from the effect of Dodd-Frank legislation before the Federal Insurance Office (FIO)
- Persuaded the Governor of New Jersey to veto insurance legislation adverse to our members;
- Reported years of state regulatory violations to the U.S. Government Accountability Office;
- Challenged NAIC on regulatory initiatives discriminating against the industry;
- Assisted in defeating New Mexico legislation banning RRGs from writing medical malpractice insurance in the state;
- And created a positive program to promote purchasing group advocacy.
NRRA has been a critical advocate for RRGs in the courts, filing numerous amicus briefs that challenged regulator overreach and state laws that violated the LRRA. Key cases include:
- National Risk Retention Association vs. Brown (1997): NRRA successfully challenged excessive capitalization, bond, and filing fees.
- National Warranty Insurance Company vs. Greenfield (2000): This case overruled Oregon’s requirement to use only authorized insurers belonging to state guaranty fund which excluded RRGs
- ALAS & HARRG vs. Fitzgerald (2001): This case successfully overturned an illegal tax, finding that it was a fee barred by the LRRA.
- Auto Dealers RRG v. Poizner (2008): NRRA took on California by filing an Amicus Brief that resulted in a preliminary injunction prohibiting the California Department of Insurance from issuing an illegal cease-and-desist order.
- Association of Non-profits Insurance Co. RRG (ANI) (2013): The Ninth Circuit Court of Appeals ruled in favor of ANI, holding that the former Nevada State Insurance Commissioner erred in issuing a cease and desist order against ANI which had been doing business for nine years without challenge previously. NRRA coordinated and led the group effort on the Amicus Curiae briefing on the case, spanning several years.
- Allied Professionals Insurance Co. RRG v. Wadsworth (Ziegler) (2014): In this landmark case, the Second Circuit Court of Appeals in New York, following NRRA’s Amicus briefing in support of APIC, held that the LRRA preempts New York State’s “direct action” statute.
- Speece v. Allied Professionals Insurance Co. RRG (2014): The Nebraska Supreme Court, again following NRRA Amicus support briefing and citing Wadsworth, ruled that the LRRA preempted Nebraska state law which prohibited the enforcement of “arbitration” clauses in RRG insurance contracts.
- Courville v. Allied Professionals Insurance Company and Rathman (2015): A Louisiana Court of Appeals held that the LRRA “preempts” Louisiana’s “Direct Action“ Statute. This case follows a series of favorable decisions overruling direct action and anti-arbitration statutes. The deciding factor in Courville, similar to earlier decisions, was the fact that certain state laws which unfavorably regulate the business of insurance for risk retention groups are preempted.
- Attorney’s Liability Protection Society, Inc., a Risk Retention Group (ALPS) v. Ingaldson, 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.
- Reis v. OOIDA, RRG. The Georgia Supreme Court affirmed in its 2018 unanimous decision that the Liability Risk Retention Act (LRRA) preempts state insurance laws that regulate the business of foreign RRGs in that state, holding that the statute in question, allowing “direct action” litigation against any insurers of motor carriers under Georgia state law cannot be applied to foreign RRGs. NRRA filed an extensive Amicus Curiae brief covering and distinguishing the entire history of key judicial rulings upholding LRRA preemption.
NRRA continues to be proactive in its approach to numerous issues being pursued within the NAIC, GAO, and FIO. This has sometimes resulted in the insertion of specific language in proposed rules that exempted RRGs from what otherwise would be harsh treatment of RRGs and Purchasing Groups. More recently, NRRA has supported the Ophthalmic Mutual Insurance Company (OMIC) the largest insurer of eye physicians and surgeons in the U.S. towards the passage of 2015 Wisconsin Act 55, effective July 14, 2015, which finally permitted RRGs to write health care liability insurance for providers in Wisconsin. The act includes amendments to laws that had kept risk retention groups from insuring Wisconsin physicians, nurse anesthetists, hospitals, and other medical entities.
- Charter Risk Retention Insurance Company v. Rolka: When the laws of Pennsylvania challenged the right of a risk retention group insuring limousine companies to operate in that state, NRRA filed an amicus brief supporting the right of the insurance carrier to operate. The court found that NRRA position was correct and held that federal law preempts state law.
- Mears Transportation Group v. State of Florida: NRRA filed a brief supporting the proposition that a state could not require a risk retention group to require that a class of business purchase insurance only from a company which participated in the state insurance guaranty fund.
- Preferred Physicians Mutual Risk Retention Group v. Pataki: The State of New York provided free excess insurance coverage of $1,000,000 to doctors insured with New York licensed insurers. NRRA joined with Preferred in challenging this as the group was not licensed in New York thereby, in effect, creating indirect state regulation.
- National Risk Retention Association v. Brown: The State of Louisiana required that any risk retention group have at least $5,000,000 in capital and surplus, file a bond or funds of $100,000 with the State, and annually submit a detailed plan of operation together with a fee of $1,000 to be allowed to operate. Joining with three risk retention groups, NRRA challenged these requirements as the state’s actions were preempted by the LRRA. In prevailing, NRRA established that federal law did preempt such state requirements.
- Opthalmic Mutual Insurance Company v. Musser: NRRA joined with Opthalmic in challenging a Wisconsin law that required health-care providers to prove financial responsibility by carrying insurance obtained from an insurer licensed in the state.
- National Warranty Insurance Company v. Greenfield: The State of Oregon’s law required that reimbursement insurance policies covering the liability of certain service contracts be written with an “authorized” insurer in the state. This requirement barred risk retention groups from selling this coverage in the state. Joining with National Warranty, NRRA challenged the law and won a major victory in establishing that such a requirement was discriminatory and in violation of the LRRA and the preemption of federal law.
- Attorney’s Liability Assurance Society, Inc., and Housing Authority RRG, Inc., v. Frank M. Fitzgerald: Fitzgerald, in his official capacity as Commissioner of the Office of Financial and Insurance Services for the State of Michigan, oversaw the State of Michigan’s imposition of a fee on risk retention groups that was referred to as a tax. The “tax” was determined to be a regulatory fee and therefore barred by the Liability Risk Retention Act. In addition, the court held that employee-related coverage issued by the two risk retention groups are not barred by the Risk Retention Act. The court accepted the arguments put forward by ALAS, HARRG, and NRRA that the statutory language only excludes risk retention groups from writing workers compensation coverage. NRRA can share a piece of the credit for this victory. United States District Judge Enslen relied substantially on the precedent created by NRRA in its Louisiana litigation, National Risk Retention Association v. Brown. The court affirmed without opinion and cited the amicus curiae brief submitted by NRRA in this proceeding. In addition, the court invited the plaintiffs to submit requests for reimbursement of their legal fees pursuant to Sections 1983 and 1988 of Title 42 of the United States Code. The court relied on the Oregon risk retention litigation, National Warranty Ins. Co. v. Greenfield, to support this ruling on fee reimbursement.
- In 2002, NRRA started a multi-year campaign to seek an expansion of the Liability Risk Retention Act allowing risk retention groups to offer coverage other than commercial liability and commercial property coverage. NRRA initiated the formation of a group that became known as the Council for Expanding the Risk Retention Act (“CERRA”). CERRA included representatives from consumer organizations, real estate interests, housing authorities, captive domicile associations, a state legislator organization, and others. Over 30 organizations joined the effort.
NRRA members along with counsel developed position papers, drafted legislation, wrote opinion pieces, and made numerous visits to Congressional and Senatorial offices. NRRA was able to obtain support from various insurance trade publications and trade associations. An amendment was proposed to the Terrorism Risk Insurance Act, but was not successful as it was ruled not germane by the Senate. Amending the Liability Risk Retention Act was placed on the agenda of the House Financial Services Committee, where it remains today.
- In 2003, NRRA led a successful effort to educate and persuade NAIC that it should not pass a resolution opposing the expansion of the Liability Risk Retention Act. The effort involved numerous meetings and testimony explaining the beneficial role of risk retention groups in the commercial liability market and the relative safety and security of risk retention groups. As a result, NAIC did not take an adversarial position.In 2003, the U.S. Department of Housing and Urban Development issued a rule which caused healthcare facilities with professional liability insurance from captives not rated at least B-double-plus from A.M. Best (and, in some cases, licensed in each state where risks are covered) to be disqualified from obtaining HUD-backed financing. This rule blocked a large number of healthcare facilities, perhaps a majority, from obtaining this desirable federally-backed financing. NRRA worked with a coalition to get HUD to change this rule and filed comments as part of the federal rule making process. The revised rules permitted rating from Demotech, a rating service that was more responsive to captives.
- NRRA began gathering information to respond to inquiries from the Government Accountability Office (GAO), which was charged by the Chairman of the House Financial Services Committee with preparing a study on risk retention groups and their effect on the marketplace. NRRA provided information to the GAO, which helped establish the positive impact risk retention groups made on the commercial liability market. NRRA provided extensive documentation regarding problems with numerous states. NRRA also continued its advocacy role with the NAIC.
- NRRA organized and implemented a response to the GAO Report, which had positive and negative implications for risk retention groups. NRRA provided extensive follow-up information to both federal and state authorities. NRRA also testified at NAIC meetings, prepared position papers, had numerous meetings with state regulators, and continued its advocacy.
- Washington State Responds Positively to NRRA’s Concerns: In a letter to NRRA’s legal counsel dated September 8, 2006, the Office of the Insurance Commissioner of Washington State indicated that it had decided to start using the NAIC registration form for RRGs not domiciled in that state. NRRA had previously written to the Commissioner to object to language in the Washington form that required the applicant to agree that it was not registered until it had received notification from the Commissioner’s Office.”NRRA appreciates the attention paid by Washington State to the concerns of RRGs registering there,” said Brian Donovan, NRRA Board Chair, “The Liability Risk Retention Act, like many statutes, is not as clear as we would like on some issues, and Washington’s response to our concerns is a big help to our members.”
- NRRA sends letter to Missouri’s Department of Insurance regarding Proposed Rule 20 C.S.R. 2 00- 18.020 (Proposed Rule): The Proposed Rule is to establish requirements and provide interpretive language “to effectuate the provisions of Sections 407.1200 to 407.1227, RSMO, regarding assuring the faithful performance of a provider’s obligations to its contract holders.” The current language of Section 407.1203.1.3 (1) does not conflict with the LRRA because it requires that a reimbursement insurance policy be issued by “an insurer authorized to transact insurance in the state.” However, the interpretation of the Proposed Rule requiring a “valid certificate of authority” does conflict with federal law because an RRG is not required to have such a certificate.
- Auto Dealers Risk Retention Group vs. Poizner: In February 2008, NRRA filed an amicus brief supporting Auto Dealers RRG’s position stemming from the issuance of a 2009 cease and desist order by the California Department of Insurance (“CA DOI”). The major issues arising from this case included (1) the role and limits of authority of the non-domiciliary state regulator, particularly its authority to determine whether an RRG qualifies as such under the Risk Retention Act, (2) whether “liability” as defined under the LRRA was intended to include contractual liability (California has argued for some time that only tort-based liability is permissible under the LRRA), and (3) the ability of a non-domiciliary state to take administrative action (e.g. a cease and desist order) against RRGs, when the LRRA requires states to bring actions in a “court of competent jurisdiction.” A major victory was achieved on March 7, 2008, when the federal judge issued a preliminary injunction prohibiting the CA DOI from enforcing the cease and desist order.
- H.R. 5792: The Increasing Insurance Coverage Options for Consumers Act of 2008 was introduced April 17, 2008. The bill proposed expanding the LRRA to include the authority for RRGs to write commercial property coverage. H.R. 5792 did not pass the 110th Congress. However, NRRA continued promoting legislation to expand LRRA.
- NRRA reached a settlement on the New Jersey/Indemnity Insurance Corporation of D.C. matter. There was a victory regarding the Kentucky Administrative Costs Assessment. A letter was finalized regarding the Coalition for Competitive Insurance Rates. NRRA wrote a response to escalate “re-registration” efforts and similar overreaching inquiries being imposed by California. NRRA published a position paper on the MMSEA (Medicare, Medicaid and SCHIP Extension Act of 2007) reporting requirements.
- H.R. 4802: The Risk Retention Modernization Act of 2010 proposed allowing risk retention groups to sell commercial property insurance. Its purpose was creating new uniform, baseline corporate governance standards for risk retention groups and establishing a mechanism resolving disputes between non-domiciliary states and RRGs. The bill was introduced by Rep. Dennis Moore (D-Kansas) and Rep. John Campbell (R-California). NRRA was instrumental in sponsoring the legislation.
- Alliance of Nonprofits for Insurance Risk Retention Group vs. Nevada: After nine years successfully doing business in Nevada, ANI was suddenly issued a “cease and desist” order by the insurance commissioner, Brett Barratt, claiming that ANI was not an authorized insurer because it could not, by law, participate in the state insurance guarantee fund. NRRA mobilized a significant offensive and put together a combination of amicus briefings, one on behalf of NRRA and three other entities, with other groups filing their own supportive “amicus” briefs.
- H.R. 2126: The Risk Retention Modernization Act, introduced June 3, 2011, was substantially similar to H.R. 4208. The bill endeavored to establish a dispute resolution mechanism dealing with state actions that put burdensome requirements on RRGs – this time, through the newly formed FIO established under Dodd-Frank. This bill was at the time the most recent legislation cosponsored by NRRA. It is assigned to the House Committee on Financial Services and is co-sponsored by Rep. John Campbell (R-California) and Rep. Peter Welch (D-Vermont).
- NRRA Challenges GAO Report on Risk Retention Groups: In a letter to Alicia Puente Cackley, Director of the GAO’s Financial Markets and Community Investment Division, Joseph Deems, NRRA Executive Director, called upon the GAO to rectify errors in the original GAO documents.
- Association of Non-profits Insurance Co. – Las Vegas: The 9th circuit Court of Appeals ruled in favor of the Association of Non-profits Insurance Co. RRG (ANI), holding that the former Nevada State Insurance Commissioner, strongly supported by the California DOI, erred in issuing a cease and desist order against ANI which had been doing business for nine years without challenge previously. NRRA coordinated and led the group effort on the Amicus Curiae briefing on the case, spanning several years.
- Allied Professionals Ins. Co. RRG v. Wadsworth – New York: The 2nd Circuit Court of Appeals in New York, following NRRA’s Amicus briefing in support of Allied Professionals Insurance Co., held that the LRRA preempts New York State’s “direct action” statute. In the underlying case, APIC denied renewal of coverage to a chiropractor insured who failed to disclose that he had sexually molested one of his patients. The patient secured a judgment against the chiropractor and then proceeded to file suit against APIC under the New York State direct action statute. The District Court and the Circuit Court of Appeals decisively ruled that under the federal law the direct action statute cannot be applied to a risk retention group. “The federal Liability Risk Retention Act of 1986 contains sweeping preemption language that sharply limits the authority of states to regulate, directly or indirectly, the operation of risk retention groups chartered in another state,” Circuit Court Judge Gerard Lynch wrote in his opinion upholding the District Court judgment.
- Speece v. Allied Professionals Insurance Co. RRG: The Nebraska Supreme Court ruled that the LRRA preempted Nebraska state law which prohibited the enforcement of “arbitration” clauses in RRG insurance contracts. A chiropractor sued Allied Professionals Insurance Company, a risk retention group, claiming that an arbitration provision in the Allied policy was illegal under state law. Allied appealed the district court ruling in favor of the chiropractor. The Supreme Court overruled the district court in a sweeping opinion that the federal Liability Risk Retention Act (LRRA) preempts the state law. The district (trial) court then later ruled in January 2015 that the policy provisions were not unconscionable” and ordered the matter into arbitration pursuant to the terms of the policy, requiring the arbitration to take place in APIC’s home state of California.
- 2015 Wisconsin Act 55: NRRA supported the Ophthalmic Mutual Insurance Company (OMIC), the largest insurer of eye physicians and surgeons in the U.S., on the passage of 2015 Wisconsin Act 55. The state law permits RRGs to write health care liability insurance for providers in Wisconsin. The Wisconsin legislature passed the act, effective July 14, 2015, that includes amendments to laws that had kept risk retention groups from insuring Wisconsin physicians, nurse anesthetists, hospitals, and other medical entities. In 1990, Wisconsin had passed legislation preventing health care providers to obtain medical professional liability coverage from “unauthorized” nondomestic insurers, including risk retention groups. OMIC was unsuccessful challenging the new law in court. Attempts to work with the Office of the Commissioner of Insurance to reinstate risk retention groups had been ineffective.
- Courville v. Allied Professionals Insurance Company and Rathman: A Louisiana Court of Appeals held on June 5, 2015 that the LRRA “preempts” Louisiana’s “Direct Action” Statute in the case. This case followed a series of favorable decisions overruling direct action and anti-arbitration The deciding factor in Courville, similar to earlier favorable decisions, is the fact that certain state laws which unfavorably attempt to regulate the business of insurance for risk retention groups are preempted by the federal law. The Louisiana Appellate Court also stated that it was following the reasoning in a 2014 decision in the federal District Court of Appeals in New York, Wadsworth v. Allied Professionals Insurance Company, which held that application of New York’s direct action statute would violate the LRRA. NRRA filed multiple “amicus curiae” briefs in several cases during these years.
- Attorney’s Liability Protection Society, Inc., a Risk Retention Group (ALPS) v. Ingaldson, 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 successfully 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. 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.
- Restoration RRG vs. Ross & the Wisconsin Department of Safety and Professional Services (DSPS). The United States Court of Appeals for the Seventh Circuit vacated and remanded Restoration Risk Retention Group, Inc. v. Ross, D.S.P.S., et al., sending it back to the District (trial) Court for the Western District of Wisconsin on January 12. In March 2017, NRRA had filed an amicus curiae (“friend of the court”) brief on behalf of Restoration RRG, which offers general liability insurance for franchise owners of Servpro Industries, Inc., challenging a prior action by the DSPS for its discrimination against RRGs. “ServPro” franchisees provide building remediation services for property losses, and which had been registered (authorized) to conduct business in Wisconsin since 2006 with no prior challenges. The briefing provided the 7th Circuit with years of data supporting claims of systemic discrimination against RRGs in Wisconsin. The case arose out of a 2015 refusal by the Wisconsin Department of Safety and Professional Services (DSPS) to issue a business license to a Servpro franchisee on the pretext that it was not insured by a carrier “authorized” to write policies in that State.
- Reis v. OOIDA, RRG. The anxiously awaited decision in the case was issued on May 7, 2018 by the Georgia Supreme Court, as another major judicial venue affirmed in a unanimous decision what NRRA had been advocating for years – – that the Liability Risk Retention Act (LRRA) preempts state insurance laws that regulate the business of foreign RRGs in that state. The statute in question allows “direct action” litigation against any insurers of motor carriers under Georgia state law. In its Amicus Curiae brief, NRRA provided a legal analysis covering the entire historical key judicial rulings in the many cases in which it assisted in obtaining decisions upholding LRRA preemption involving various state insurance laws. “Imposing Georgia’s Direct Action Statutes on foreign RRGs like OOIDA, would improperly regulate their business operations,” it argued, and “the harmful economic impact on OOIDA, as well as on the 109 other foreign RRGs doing business in Georgia, would undermine the intent of the LRRA by threatening the existence of affordable liability insurance coverage….” The Supreme Court agreed.
- The favorable judicial landscape for RRGs continues to expand. Predictably, the Reis/OOIDA decision relies heavily upon Wadsworth v. Allied Professionals Ins. Co., (Federal 2d Circuit 2014[above]). Coincidentally, on May 4, 2018, in another case in New York citing to Wadsworth, a New York appellate court in Nadkos, Inc. v. Preferred Contractors Insurance Company, RRG (PCIC), upheld a decision by the trial court that PCIC had not violated a state insurance law mandating a timely notice of disclaimer of coverage, on the specific grounds that the statute would have the effect of regulating the business of PCIC, a foreign risk retention group.