The Liability Risk Retention Act is a federal statute which is not overseen or regulated by any federal agency. The primary regulatory authority for a risk retention group is its state of domicile. Other states have regulatory authority curtailed by federal law.

This unusual regulatory scheme has created over the years a number of issues and problems. NRRA, as the principal advocate for risk retention groups and purchasing groups, has represented their interests to state regulatory authorities and to their association, the National Association of Insurance Commissioners.

In this effort, NRRA has been both an advocate and a source of information and education for state regulators and legislators. NRRA has also provided this service to federal legislators – Senators and Congressmen – and their staffs.

Some of the issues that have arisen in this context are: (1) The 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?).

1992
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 the law of the state.

1993
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 could purchase insurance only from a company which participated in the state insurance guaranty fund.

1994
Preferred Physicians Mutual Risk Retention Group v. Patacki. 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.

1997
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 submit a detailed plan of operation annually 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 the federal law did preempt such state requirements.

1998
Opthalmic Mutual Insurance Company v. Musser. NRRA joined with Opthalmic in challenging a Wisconsin law which required health-care providers to prove financial responsibility by carrying insurance obtained from an insurer licensed in the state.

2000
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.

2001
Attorney’s Liability Assurance Society, Inc., and Housing Authority RRG, Inc., v. Frank M. Fitzgerald, in his official capacity as Commissioner of the Office of Financial and Insurance Services for the State of Michigan.

The State of Michigan imposed a fee on risk retention groups which was referred to as a tax, but was determined to be a regulatory fee and was therefore barred by the Liability Risk Retention Act. In addition, the Court held that the employee-related coverages 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 coverages.

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, affirmed without opinion, and also 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.

2002
In 2002, NRRA started a multiyear campaign to seek to expand the Liability Risk Retention Act to permit risk retention groups to offer coverage other than commercial liability and, in particular, 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 counsel and members 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 parliamentarian. Amending the Liability Risk Retention Act was placed on the agenda of the House Financial Services Committee, where it remains today.

2003
In 2003, NRRA lead a successful effort to educate and persuade the NAIC that it should not pass a resolution opposing the expansion of the Liability Risk Retention Act. The effort involved numerous meetings and the presentation of testimony to explain the beneficial role of risk retention groups in the commercial liability market and the relative safety and security of risk retention groups. The NAIC did not take an adversarial position, as a result.

In 2003, The U.S. Department of Housing and Urban Development issued a rule which caused health care 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 health care 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.

2004
NRRA began the process of gathering information to respond to the inquiries of the Government Accountability Office, which had been charged by the Chairman of the House Financial Services Committee with preparing a study of the operation of risk retention groups and their effect on the marketplace. NRRA provided information to the GAO, which helped to establish the positive impact of risk retention groups on the commercial liability market. NRRA provided extensive documentation regarding problems with numerous states. NRRA also continued its advocacy role with the NAIC.

2005
NRRA organized and implemented a response to the GAO Report, which had both positive and negative implications for risk retention groups. NRRA has provided extensive follow-up information to both federal and state authorities. NRRA presented testimony at NAIC meetings, prepared position papers, had numerous meetings with state regulators, and otherwise continued its advocacy.

2006
Washington State Responds Positively to NRRA's Concerns

In a letter dated September 8, 2006, to NRRA's legal counsel, 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.

A copy of this letter can be found in the Members-only Resource Archives.


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.

A copy of this letter can be found in the Members-only Resource Archives.


COURT CASES

Victory for ALAS, HARRG and NRRA in Michigan
By Phillip Olsson of Olsson, Frank and Weeda, P.C.

NRRA can share a piece of the credit for this victory because United States District Judge Enslen relies substantially on the precedent created by NRRA in its Louisiana litigation, National Risk Retention Association v. Brown 127F. Supp. 195 (N.D. La. 1996), affirmed without opinion, 114F. 3rd 1183 (5th Cir. 1997) and also cites the amicus curiae brief submitted by NRRA in this proceeding.

The Enslen decision holds that the fee imposed by Michigan on risk retention groups is a regulatory fee, not a tax, and is therefore barred by the Liability Risk Retention Act. In addition, the Court holds that the employee-related coverages issued by the two risk retention groups are not barred by the Risk Retention Act. The Court accepts the arguments put forward by ALAS, HARRG and NRRA that the statutory language only excludes risk retention groups from writing workers and compensation coverages.

The new decision from the Michigan court is extremely important to risk retention gro ups because it provides a second opinion, which accords with the 1996 decision in National Risk Retention Association v. Brown, holding that non-domiciliary states may not impose significant regulatory fees on risk retention groups.

In addition, the Court has now 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 relies on the recent Oregon risk retention litigation, National Warranty Ins. Co. v. Greenfield, 24F. Supp. 2d 1096, 1109-10 (D. Or. 1998) to support this ruling on fee reimbursement.

For a copy of the Court's Decision, CLICK HERE.
(PDF file, 1.4MB, requires Adobe Acrobat 3.0 or newer to read.)

The National Risk Retention Association has taken a lead role as a participant in litigation that has defined and interpreted the Liability Risk Retention Act of 1986. For a brief summary of these activities click here.

Details of the two most recent court cases in which the plaintiffs and NRRA prevailed on behalf of its members are available to NRRA members in the Member Links section. Click Here

About NRRA's Legal Counsel

Robert "Skip" Myers serves as the General Counsel for the National Risk Retention Association. Mr. Myers is a partner in the insurance group of the law firm of Morris, Manning and Martin, LLP and managing partner of the Washington, D.C. office. He practices in the areas of insurance regulation, antitrust and trade association law. Morris, Manning & Martin, LLP, is a full-service commercial law firm representing clients throughout the United States with offices in Atlanta, Charlotte, Princeton, and Washington, D.C.

Click here to go to the Morris, Manning and Martin, LLP firm web site.