NRRA Contests California Insurance Dept. COVID-19 2020-3 and 2020-4 Bulletins

Letter lays out body of case law on why the LRRA preempts such state orders

On June 12, 2020, on behalf of its RRG members registered in California, NRRA sent an exhaustive letter to the California Commissioner of Insurance, Ricardo Lara, providing the Department with a comprehensive summary of all state and federal appellate decisions in support of NRRA’s vigorous request that the Department “relieve” NRRA’s member RRGs from having to comply with Commissioner Lara’s COVID-19 Bulletins 2020-3 and 2020-4.

The singular basis of the letter is the fact that under all of the important appellate decisions, particularly cases on point decided by the federal 9th Circuit Court of Appeals in California, these orders by Commissioner Lara are categorically preempted by the Liability Risk Retention Act of 1986 (LRRA) at 15 U.S.C. 3901 et seq.

The letter, complete with numerous “footnotes” of citations to every relevant state and federal case from all over the country, describes in compelling detail that any state law or “order” that has the effect of “regulating,” either directly or indirectly, the business of any RRG is preempted as described in very simple language in the LRRA.

Leading up to NRRA’s decision to write the letter, a growing number of NRRA members registered as “foreign” RRGs operating in California had received letters from state “Rate Specialist Bureau” analysts advising the RRGs that they must comply with the Bulletins 2020-3 and 2020-4 orders.

The Bulletins are orders related to the operation of insurance companies that sell certain identified lines of business. The operational order was/is 1) a directive to provide premium “refunds” to California policyholders; 2) a directive to inform California policyholders of the refund, calculation thereof, and further solicit feedback on the policy holder’s actual or estimated experience; and 3) a directive to provide “reports” to the Department of Insurance of actions taken consistent with the Bulletins.

The first compliance date was June 12, so NRRA drafted the letter on behalf of its members to respectfully comply with that date, despite its noted probable unenforceability.

Equally erroneous in the California DOI reasoning (but not cited in or forming any of the bases recited in the NRRA letter) is that statements made in the text of Bulletins 2020-3 and 2020-4 belie the reasoning for the orders. That reasoning is predicated on the notion that certain (identified) lines of coverages presupposed that the measures of risk had become substantially overstated as a result of the pandemic (i.e., that some insurance companies were reaping windfall profits because of the pandemic) and suggested the need for the Commissioner to summarily order all carriers to comply.

So, as usual, it did not really matter that while auto insurers perhaps were having to deal with fewer claims because people were not driving as much, while insurers of “pressure vessels” (e.g., boilers) had no decline in exposures, the “dragnet” bulletins were issued nevertheless.

According to NRRA Executive Director Joe Deems, who authored the letter, contained therein were numerous other considerations typically not taken into account by the California Department of Insurance.

As the letter states, “Please bear in mind that the vast majority of RRGs are small companies pooling their resources to protect their owner-members. An adverse order in one state could absolutely have a negative economic effect on many of these companies in other states where they are registered.… Many RRGs are voluntarily assisting their members with economic relief as they can afford to do so, importantly, with the oversight and approval of the regulators of their respective states of domicile…. ” The letter emphasizes the 2019 “Best Practices” now adopted by the NAIC.

NRRA will continue to post status reports on the results of this initiative. “States’ efforts to copycat one another in an effort to show off their regulatory muscles have always been in the sights of NRRA. Those efforts obviously have been exacerbated by the pandemic,” says Nancy Gray, NRRA Chairman.

Readers are advised that NRRA’s May 26 webinar, “RRG COVID-19 Industry Resources,” is highly relevant to this discussion — not to mention that it was highly-rated. If you missed it, it’s not too late to view and listen to the webinar. To go to the webinar, click here.