Insurance Co. of State of Pa. v. Corcoran, 678

• Decision Date: 22 June 1988
• Docket Number: No. 678,D,678
• Parties: The INSURANCE COMPANY OF the STATE OF PENNSYLVANIA, Plaintiff-Appellant, v. James P. CORCORAN, Superintendent of Insurance of the State of New York, Defendant-Appellee. ocket 87-7858.
• Court: U.S. Court of Appeals — Second Circuit

Page 88

850 F.2d 88

57 USLW 2006

The INSURANCE COMPANY OF the STATE OF PENNSYLVANIA Plaintiff-Appellant, v. James P. CORCORAN, Superintendent of Insurance of the State of New York, Defendant-Appellee.

No. 678, Docket 87-7858.

United States Court of Appeals Second Circuit.

Argued April 5, 1988.

Decided June 22, 1988.

Edward P. Krugman, New York City (Patricia Dobberstein, Gary S. Hammersmith, Jeanne Lahiff (awaiting admission), Cahill Gordon & Reindel, New York City, of counsel), for plaintiff-appellant.

Hugh B. Weinberg, New York City (Robert Abrams, Atty. Gen. of the State of New York, Harvey M. Berman, Ann Horowitz, Asst. Attys. Gen., Martin Minkowitz, Deputy Superintendent and General Counsel of the Insurance Dept. of the State of New York, New York City, of counsel), for defendant-appellee.

Jon Harkavy, New York City (Theodore V.H. Mayer, John J. Sarchio, Steven W. Pelak, William R. Maguire, Hughes Hubbard & Reed, New York City, of counsel), for amicus curiae The Risk and Ins. Management Society, Inc.

Sandra L. Gilfillan, Kansas City, Mo., for amicus curiae National Ass'n of Ins. Com'rs.

Before LUMBARD, OAKES and WINTER, Circuit Judges.

WINTER, Circuit Judge:

The Product Liability Risk Retention Act of 1981 ("RRA"), as amended by the Liability Risk Retention Act of 1986, 15 U.S.C. Secs. 3901-3906 (1982 & Supp. IV 1986), authorizes persons or businesses with similar or related liability exposure to form "purchasing groups" for the purpose of purchasing liability insurance on a group basis and "risk retention groups" for the purpose of self-insuring. 15 U.S.C. Secs. 3901(a)(4) & (5). Because purchasing and risk retention groups are illegal under some states' laws, and state regulation or prohibition of such groups would otherwise be protected by the McCarron-Ferguson Act, 15 U.S.C. Sec. 1012 (1982), the RRA contains express preemption provisions. This appeal raises the question of whether those provisions prohibit the application of all state policy-form and rate regulation to purchasing groups. Both the language and the legislative history of the RRA indicate that Congress did not intend to preempt all such regulation. We therefore affirm.

BACKGROUND

We briefly trace the history of the RRA, which consists for pertinent purposes of two major pieces of legislation. In the mid-1970's, many businesses believed they faced a crisis in purchasing product liability insurance. Premiums had increased dramatically, and some companies appear to have been unable to obtain product liability coverage at any price. After four years of study, Congress enacted legislation in 1981 ("1981 Act"), 15 U.S.C. Secs. 3901-3904 (1982), to reduce the cost and increase the availability of product liability insurance. In particular, the 1981 Act enabled insureds to purchase product liability insurance on a group basis through purchasing groups or to self-insure through insurance cooperatives called risk retention groups. S.Rep. No. 172, 97th Cong., 1st Sess. 1 (1981); see also H.R.Rep. No. 190, 97th Cong., 1st Sess. 4, reprinted in 1981 U.S.Code Cong. & Admin.News 1432, 1432 (same). Section 4 of the 1981 Act provided for the preemption of specific state regulatory measures regarding purchasing groups, see infra note 1, while Section 3 contained somewhat different preemption provisions regarding risk retention groups.

The 1981 Act applied only to product liability and completed operations insurance. Municipalities, professionals, and businesses soon complained that premiums for all kinds of liability insurance were skyrocketing and that coverage was frequently no longer available at any price. In response, Congress passed legislation in 1986 ("1986 Act") amending the 1981 Act so that it applied to all commercial liability insurance.

This case involves the Nurse Practitioners Professional Liability Purchasing Group. Nurse practitioners are registered nurses who have completed additional training and have been certified as nurse practitioners by the American Nurses' Association. The almost 30,000 nurse practitioners in the United States provide care at a level between traditional nursing services and physicians' care. Until 1987, the Interstate Indemnity Company was the only insurance carrier providing professional liability coverage to nurse practitioners. Interstate's policy provided $1,000,000 per occurrence/$3,000,000 aggregate annual loss coverage for a premium of $58 per year. In the spring of 1987, Interstate announced its intended withdrawal from the nurse-practitioner market. Thereafter, Interstate wrote no new policies and offered only one-year transitional coverage at an annual premium of $1,500, an increase of nearly 2500 percent.

After Interstate's announcement, plaintiff-appellant Insurance Company of the State of Pennsylvania ("State of Penn"), an insurer authorized to do business in New York, decided to offer such insurance on a nationwide basis to members of the Nurse Practitioners Professional Liability Purchasing Group, at rates considerably less than Interstate was charging. The rub that led to this litigation was that State of Penn planned to use a uniform nationwide policy form and to charge uniform nationwide rates on the assumption that the RRA preempted state policy-form and rate-approval regulation. However, the Superintendent of Insurance of the State of New York advised insurers writing or planning to write policies for purchasing groups in New York that the RRA did not relieve insurers of their obligation to comply with the policy-form and rate-approval requirements of Article 23 of the New York State Insurance Law, N.Y.Ins.Law Secs. 2301-2342 (McKinney 1985 & Supp.1988).

State of Penn then filed an action for declaratory and injunctive relief in the Southern District and sought a preliminary injunction prohibiting the Superintendent from enforcing Article 23. After the parties agreed to treat the motion papers as cross-motions for summary judgment, Judge Keenan granted summary judgment for the Superintendent on the ground that the RRA does not entirely preempt the Superintendent's authority to require insurers of purchasing groups to comply with New York's policy-form and rate-approval laws.

DISCUSSION

The pertinent provision of the RRA, Section 4(a)(2), exempts purchasing groups from:

any State law, rule, regulation, or order to the extent that such law, rule, regulation, or order would--

(2) make it unlawful for an insurer to provide or offer to provide insurance on a basis providing, to a purchasing group or its members, advantages, based on their loss and expense experience, not afforded to other persons with respect to rates, policy forms, coverages, or other matters; ...

15 U.S.C. Sec. 3903(a)(2). State of Penn argues that Section 4(a)(2) should be read as preempting all state regulation that would impair the creation or operation of purchasing groups. Because state policy-form and rate regulation might raise the cost of insurance to purchasing groups and their members, frustrate purchasing groups' mass marketing plans, and subject purchasing groups to multiple and inconsistent state regulatory rules, State of Penn asserts that such regulation is preempted by Section 4(a)(2). We disagree.

Section 4(a)(2) expressly preempts only those state laws that prohibit insurers from offering purchasing groups "advantages based on their loss and expense experience." (Emphasis added). It does not purport to prevent state regulators from rejecting a policy form differing from that used for non-members of a purchasing group or from rejecting a lower rate than is generally available to non-members if these differences are not "based on their loss and expense experience." On its face, therefore, Section 4(a)(2) does not preempt all state regulatory authority over policy forms and rates where purchasing groups are involved.

State of Penn also draws our attention to Section 6(a) of the 1986 Act, 15 U.S.C. Sec. 3905(a), which states that "[n]othing in this chapter shall be construed to exempt a risk retention group or purchasing group ... from the policy form or coverage requirements of any State motor vehicle no-fault or motor vehicle financial responsibility insurance law." It argues that under the principle of expressio unius est exclusio alterius its interpretation of Section 4(a)(2) is required because Section 6(a) "implies that the Act does exempt purchasing groups from state policy form and coverage requirements outside the motor vehicle area." Brief of Appellant at 19 (emphasis in original). Whatever strained implication might flow from reading Section 6(a) in isolation is convincingly dispelled by examining it in the context of Section 4(a), however. Under Section 4(a), some state policy-form and rate requirements may not apply to liability insurance sold to purchasing groups, a partial federal preemption; while under Section 6(a), all state policy-form and coverage requirements apply to motor vehicle no-fault and automobile financial responsibility insurance laws, an express rejection of federal preemption. No inconsistency thus occurs when the plain meaning of both sections is given effect. Indeed, in light of Section 4(a)'s express preemption of specific state laws, application of the principle of expressio unius est exclusio alterius leads directly to the conclusion that state regulation not expressly mentioned in Section 4(a) remains in force.

The legislative history strongly supports the conclusion that Congress meant what it said in Section 4(a). Because purchasing groups and risk retention groups were illegal under many state laws, the 1981 Act explicitly addressed the relative role of state and federal regulation. Congress considered and then rejected the creation of a comprehensive federal regulatory scheme for purchasing and risk retention groups. See H.R.Rep. No. 190, 97th Cong., 1st Sess. 6-7, reprinted in 1981 U.S.Code Cong. & Admin.News at 1435; see also Home Warranty...