State of Fla., Dept. of Ins. v. National Amusement Purchasing Group, Inc., 89-3930

• Decision Date: 09 July 1990
• Docket Number: No. 89-3930,89-3930
• Citation: 905 F.2d 361
• Parties: STATE OF FLORIDA, DEPARTMENT OF INSURANCE, Plaintiff-Appellee, v. NATIONAL AMUSEMENT PURCHASING GROUP, INC., Risk Retention Service Corporation, Bel-Air Insurance Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 361

905 F.2d 361

STATE OF FLORIDA, DEPARTMENT OF INSURANCE, Plaintiff-Appellee, v. NATIONAL AMUSEMENT PURCHASING GROUP, INC., Risk Retention

Service Corporation, Bel-Air Insurance Company,

Defendants-Appellants.

No. 89-3930.

United States Court of Appeals, Eleventh Circuit.

July 9, 1990.

Alan C. Gold, Rassner, Malove, Rassner, Kramer & Gold, South Miami, Fla., for defendants-appellants.

Dennis S. Silverman, Dept. of Ins., State of Fla., Tallahassee, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Florida.

Before HATCHETT and CLARK, Circuit Judges, and MORGAN, Senior Circuit Judge.

PER CURIAM:

In this case, we affirm for the reasons stated in the district court's order, pertinent portions of which are below ^* :

On October 14, 1987, the court conducted a hearing upon plaintiff's motion for a preliminary injunction.... By agreement of the parties, trial of the action was advanced and consolidated with the preliminary injunction hearing as authorized by Federal Rule of Civil Procedure 65(a)(2)....

This case turns upon the court's construction of the Product Liability Risk Retention Act of 1981 (the "Act"), as amended by the Liability Risk Retention Act of 1986, 15 U.S.C. Secs. 3901-3906 (1982 & Supp. V 1987). Such Act authorizes persons and businesses with similar or related liability exposure to purchase liability insurance on a group basis through purchasing groups or to self-insure through insurance cooperatives called risk retention groups. 15 U.S.C. Sec. 3901(a)(4), (5). Aimed at reducing the cost and increasing the availability of commercial liability insurance, the Act expressly preempts state laws which make purchasing and risk retention groups illegal.

One of the defendants in this case, National Amusement Purchasing Group, Inc. ("National Amusement"), is a purchasing group formed pursuant to section 2(a)(5) of the Act. A purchasing group is defined under the Act as any group which

(A) has as one of its purposes the purchase of liability insurance on a group basis; (B) purchases such insurance only for its group members and only to cover their similar or related liability exposure, as described in sub-paragraph (C); (C) is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and (D) is domiciled in any State.

15 U.S.C. Sec. 3901(a)(5). A Missouri corporation whose members include several Florida businesses, National Amusement purchased insurance coverage for its members from defendant Bel-Aire Insurance Company, a Missouri insurer authorized by the Missouri Division of Insurance to sell insurance in Missouri. Defendant Risk Retention Service Corporation (RRSC) is also a Missouri corporation, allegedly formed to service risk purchasing groups such as National Amusement.

On April 10, 1987, through RRSC, National Amusement sent notice to plaintiff in this case, the State of Florida, Department of Insurance (the "department"), that it planned to offer liability coverage to businesses located in Florida, through policies

issued by Bel-Aire. Plaintiff responded by filing suit on August 27, 1987, seeking declaratory and injunctive relief from defendants' alleged violations of the insurance laws of Florida. Plaintiff contends that, pursuant to section 627.949 of the Florida Statutes, a purchasing group may purchase insurance or coverage on a risk located in Florida only from: (1) a risk retention group that is certificated or licensed in one of the states of the United States; (2) an authorized insurer; or (3) an eligible surplus lines insurer. Because Bel-Aire is none of the three, plaintiff argues that all three defendants are, or have been, transacting the business of insurance in Florida in noncompliance with applicable provisions of the Florida Insurance Code. Defendants argue in response that the federal Liability Risk Retention Act preempts the state laws cited by plaintiff, thus exempting defendants from any Florida law that would otherwise prevent the activities at issue here.

DISCUSSION

Under Florida law, with limited exceptions, persons who transact the business of insurance in Florida must have a certificate of authority issued by the Department of Insurance. Sec. 624.401(1). Any unauthorized insurer transacting the business of insurance in Florida is subject to liability for a civil penalty of not more than $1,000 for each nonwillful violation or not more than $10,000 for each willful violation. Sec. 626.910. In addition, any person who represents or aids an unauthorized insurer may be subjected to criminal liability. Sec. 626.902(1). The most notable exception to the certificate of authority requirement is that permitting the lawful transaction of surplus lines insurance, defined as insurance not procurable from an authorized insurer. Sec. 624.402. Although the surplus lines insurer need not have a certificate of authority, he must be approved by the department, and the insurance written must be placed only by or through a licensed Florida surplus lines agent. Sec. 626.915. Importantly, each surplus lines policy must carry a warning that the insurer is not licensed by the State of Florida and that the protection provided by the Florida Insurance Guaranty Act does not apply. Sec. 626.924.

The Liability Risk Retention Act has created another category of insurer which may legally transact insurance business within Florida--the risk retention group. See Fla.Stat. Sec. 624.11(2) (risk retention groups, organized under the provisions of the Act and properly licensed and authorized in an appropriate jurisdiction, may transact insurance in Florida, subject to selected provisions of the Florida Insurance Code). Under the Act, persons or businesses with similar types of risk may form and own their own insurance company to insure against their liability exposures. 15 U.S.C. Sec. 3901(a)(4). Chartered in the group's state of domicile, the risk retention group is regulated primarily by the domiciliary state. The authority of non-domiciliary states to license and regulate risk retention groups is largely preempted. In sweeping preemption language, the Act provides in section 3(a)(1) 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 ... make unlawful, or regulate, directly or indirectly, the operation of a risk retention group except that the jurisdiction in which it is chartered may regulate the formation and operation of such a group." 15 U.S.C. Sec. 3902(a)(1). Specific exceptions to this broad preemption are enumerated in subsequent subsections. See 15 U.S.C. Sec. 3902(a)(1)(A)-(I). Notably, non-domiciliary states are permitted to: (1) tax business written by a risk retention group in such state; (2) require compliance with the state's unfair claims and deceptive trade practices laws; (3) require notice on policies issued by a risk retention group that the non-domiciliary state's insurance laws do not apply and state insurance insolvency guaranty funds are not available; and (4) subject the group, under some circumstances, to an examination by the state insurance commissioner as to the group's financial condition. In sum, with respect to risk retention groups, Congress carefully crafted a scheme which, on the one hand, provides In addition to risk retention groups, the Act recognizes a separate alternative to traditional insurance--purchasing groups. For these groups, section 4 of the Act provides a separate and very different preemption scheme. Unlike the risk retention section which broadly preempts state law while enumerating specific laws that states may enforce, the section pertaining to purchasing groups expressly preempts a limited number of specific state laws while also providing that "[n]othing in this chapter shall be construed to affect the authority of any State to make use of any of its powers to enforce the laws of such State with respect to which a purchasing group is not exempt under this chapter." 15 U.S.C. Sec. 3903(g). As noted in the House Report on the 1986 amendments to the Act:

for broad preemption of a non-domiciliary state's licensing and regulatory laws but which, on the other hand, explicitly preserves for those states several very important powers.

In enacting the 1981 Act, it was recognized that there were a number of identifiable kinds of State laws that prevented the establishment and functioning of purchasing groups. Those laws were listed in Section 4(a) of the 1981 Act and it is those laws that are preempted. Subject to the prohibition on discrimination against purchasing groups, the states remained able to apply all their other laws to purchasing groups and those dealing with such groups. This approach is carried forward into the 1986 Act. Therefore, the Committee did not consider it necessary to itemize all the other laws to which purchasing groups remain subject.

H.R.Rep. No. 865, 99th Cong., 2d Sess. 19, reprinted in 1986 U.S.Code Cong. & Admin.News 5303, 5316. In other words, both the language and the history of the Act suggest that Congress intended there to be limited preemption of state laws relative to purchasing groups.

Notwithstanding such suggestion, defendants in this case argue that section 4 of the Act was intended to effect a complete preemption of state licensing laws, including those prohibitions against the unauthorized transaction of insurance business. In essence, defendants would have this court recognize a fourth category of insurer which may lawfully transact insurance in Florida, an insurer which is neither licensed in the state, nor approved as a surplus lines insurer in the state, nor registered as a risk retention group in the state.

In support of their argument, defendants first...