National Risk Retention Ass'n v. Brown

• Decision Date: 03 June 1996
• Docket Number: Civil Action No. 95-1026-A.
• Citation: 927 F. Supp. 195
• Parties: NATIONAL RISK RETENTION ASSOCIATION, et al. v. James H. "Jim" BROWN, in his Capacity as Commissioner of Insurance of the State of Louisiana.
• Court: U.S. District Court — Middle District of Louisiana

927 F. Supp. 195

NATIONAL RISK RETENTION ASSOCIATION, et al. v. James H. "Jim" BROWN, in his Capacity as Commissioner of Insurance of the State of Louisiana.

Civil Action No. 95-1026-A.

United States District Court, M.D. Louisiana.

June 3, 1996.

Donald T.W. Phelps, Adams & Reese, Baton Rouge, Louisiana, for Plaintiffs National Risk Retention Association, Association of Trial Lawyers Assurance, Mutual Risk Retention Group, Non-Profits Mutual Risk Retention Group, Inc. and American Association of Orthodontists Insurance Co.

Julie Z. Fusilier, Baton Rouge, Louisiana, Christopher Lee Whittington, Greenwald & Whittington, Baton Rouge, Louisiana, Claire I. Lemoine, State of Louisiana, Department of Insurance, Baton Rouge, Louisiana, for Defendant.

RULING ON MOTIONS FOR SUMMARY JUDGMENT

JOHN V. PARKER, Chief Judge.

This matter is before the court on cross motions for summary judgment. Each side has filed a response to the other's motion for summary judgment. Oral argument is not necessary. Jurisdiction is based on 28 U.S.C. § 1331.

Plaintiffs filed a complaint with this court seeking a declaratory judgment and injunctive relief. Plaintiffs claim that defendant is enforcing certain provisions of Louisiana's insurance code¹ which have been preempted by federal law.

Defendant moves for summary judgment, arguing that as a matter of law, the challenged provisions of Louisiana law are not preempted by federal law. Defendant also asks the court to find that as a matter of law, defendant has no authority regarding plaintiff, American Association of Orthodontists Insurance Company's (AAOIC) participation in Louisiana's Patient's Compensation Fund.

Plaintiffs move for summary judgment, arguing that the provisions of Louisiana law at issue are preempted by federal law. Neither side disputes the factual allegations of the other nor claims that any genuine issues of material fact are in dispute.

THE UNDISPUTED FACTS

Plaintiffs are the National Risk Retention Association (NRRA), American Trial Lawyers Assurance, A Mutual Risk Retention Group (ATLA Mutual), Non-Profits Mutual Risk Retention Group, Inc. (Non-Profits), and American Association of Orthodontists Insurance Company (AAOIC). NRRA is a national trade association representing risk retention groups. ATLA Mutual, Non-Profits, and AAOIC are risk retention groups as defined by the Liability Risk Retention Act of 1986 (LRRA).² ATLA Mutual, Non-Profits, and AAOIC were all chartered or incorporated in states other than Louisiana, and all provide or seek to provide insurance coverage within Louisiana. Defendant, Brown, is the Commissioner of Insurance for the State of Louisiana.

Because AAOIC has not fully complied with the Louisiana application process for risk retention groups chartered in other states who want to do business in Louisiana as enforced by the defendant under the authority granted to him by Louisiana's insurance code, defendant will not grant AAOIC a certificate of registration so that it can conduct business as a risk retention group in Louisiana. The NRRA, ATLA Mutual, Non-Profits, and AAOIC claim that defendant is enforcing provisions of Louisiana's Insurance Code which have been preempted by federal law. Plaintiffs claim that if defendant is not enjoined from enforcing these laws and regulations, risk-retention groups which have been chartered in other states will not be able to do business in Louisiana because of the financial burden imposed by the state.

DISCUSSION

Summary Judgment

Summary judgment is appropriate if the moving party establishes that there is no genuine issue of material fact and that he or she is entitled to judgment as a matter of law.³ Neither party contends that material facts are in dispute. The only disputed questions are questions of law.

Preemption

The Supremacy Clause, Article VI, Clause 2 of the Constitution, provides that "the Laws of the United States ... shall be the supreme Law of the Land ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." Federal preemption of state law may arise explicitly from a statute's language or implicitly from its structure and purpose. Intent to preempt does not have to be inferred from the substantive portions of a statute where Congress has included an express preemption section providing a reliable indicium of congressional intent. The alleged preemption in this case is express.

Risk Retention Groups

In 1981, Congress passed the Product Liability Risk Retention Act of 1981 (PLRRA),⁴ authorizing the creation of risk-retention groups, which were defined as interstate, industry wide insurance groups insuring their members against product liability and completed operations claims.⁵ Congress created this new type of self-insurance because of a concern over the availability of affordable product liability insurance.⁶

Rather than creating a federal regulatory scheme for risk retention groups, the act provided that a risk retention group which had been approved by the insurance authority of any state could act as a risk retention group nationwide.⁷ Once a risk retention group is approved by a particular state that state's minimum capitalization requirements and other insurance regulation measures are binding on the risk retention group on a national basis, because of the presumption that if a risk retention group has sufficient financial strength to support risks assumed in one state, it has sufficient strength to underwrite risks nationwide.⁸ In order to give effect to this scheme and because of the recognition that risk retention groups are in the business of selling insurance to group members rather than the general public, the Act expressly preempted regulation of risk-retention groups by any state other than the one which chartered the group.⁹

The Congress amended the PLRRA by the Liability Risk Retention Act of 1986 (LRRA).¹⁰ The LRRA amended the PLRRA to expand the scope of coverage which could be provided by risk retention groups to include all types of liability coverage.¹¹ Under the LRRA, risk retention groups are still generally exempt from regulation by non chartering states. Section 3902(a) of the LRRA provides that:

A risk retention group is exempt from any State law, rule, regulation, or order to the extent that such law, rule, regulation, or order would —

(1) ... regulate, directly or indirectly, the operation of a risk retention group.¹²

(4) otherwise discriminate against a risk retention group or any of its members, except that nothing in this section shall be construed to affect the applicability of State laws generally applicable to persons or corporations.¹³

However, since risk retention groups are no longer restricted to narrow groups of coverages, the Congress gave non chartering state insurance commissioners more authority over the regulation of risk-retention groups in order to preserve some of the traditional role states play in regulating insurance and protecting the public.¹⁴ The Congress formulated exceptions to the exemption from state law created by § 3902(a)(1) allowing regulation by non chartering states to the degree that:

Any State may require such a (risk retention) group to —

(D) register with and designate the State insurance commissioner as its agent solely for the purpose of receiving service of legal documents or process;

(E) submit to an examination by the State insurance commissioner in any State in which the group is doing business to determine the group's financial condition, if —

(i) the commissioner of the jurisdiction in which the group is chartered has not begun or has refused to initiate an examination of the group; and

(ii) any such examination shall be coordinated to avoid unjustified duplication and unjustified repetition.

(F) comply with a lawful order issued —

(i) in a delinquency proceeding commenced by the State insurance commissioner if there has been a finding of financial impairment under subparagraph (E); ...

(H) comply with an injunction issued by a court of competent jurisdiction, upon a petition by the State insurance commissioner alleging that the group is in hazardous financial condition or is financially impaired.¹⁵

Risk retention groups wishing to operate in a state other than the one in which they were chartered are required to submit financial documents to the insurance commissioners of those states and the insurance commissioners can scrutinize the documents to ascertain the financial responsibility of the risk-retention group. Section 3902(d) says:

Each risk retention group shall submit —

(1) to the insurance commissioner of the State in which it is chartered —

(A) before it may offer insurance in any State, a plan of operation or a feasibility study which includes the coverages, deductibles, coverage limits, rates, and rating classification systems for each line of insurance the group intends to offer; and

(B) revisions of such plan or study if the group intends to offer any additional lines of liability insurance;

(2) to the insurance commissioner of each State in which it intends to do business, before it may offer insurance in such State —

(A) a copy of such plan or study (which shall include the name of the State in which it is chartered and its principal place of business); and

(B) a copy of any revisions to such plan or study, ... and

(3) to the insurance commissioner of each State in which it is doing business, a copy of the group's annual financial statement submitted to the State in which the group is chartered as an insurance company, which statement shall be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves....¹⁶

Lastly, §§ 3902(f) and 3905(d) clarified the residual authority of non chartering states under the LRRA.

Section 3902(f) says:

Subject to the provisions of subsection (a)(1)(G) of this section (relating to injunctions) and paragraph (2), nothing in this chapter shall be

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