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Risk Retention Group Wins Right to Operate in California Under Federal Law Contact: David Kirby WASHINGTON, DC, March 7, 2008 – The Self-Insurance Institute of America, Inc. (SIIA) today hailed the judgment by a federal court in California that prevented the California Insurance Department from barring a Montana-licensed risk retention group to operate there, concluding that the federal Liability Risk Retention Act (LRRA) preempts such state action.
The U.S. District Court of the Eastern District of California granted full relief to ADI-MED RRG, which was contesting California’s cease-and-desist order against it.
“This is a great victory for the self-insurance/alternative risk transfer industry,” said Mike Ferguson, chief operating officer of SIIA. “It upholds the principle of federal preemption of state regulation under the LRRA.”
While the LRRA says that all states must accept risk retention groups licensed in any other state, this is believed to be the first court test of the federal preemption principle, and one that should provide precedent for future cases. The LRRA does not provide a method for federal enforcement of the principle other than litigation.
The federal court was reviewing the legality of an injunction issued by the California insurance commissioner restricting ADI-MED RRG from issuing excess stop-loss policies for participating employers that sponsor ERISA self-insured group health plans, concluding that such policies constitute “health insurance,” which RRGs are prohibited to write by the LRRA.
ADI-MED RRG countered that such policies are not health insurance and are, in fact, issued for contractual liability associated with financial losses attributable to a plan sponsor’s (employer) financial obligation to the health plan and its beneficiaries (plan participants) above a predetermined level. As such, non-domiciliary states have no regulatory authority.
SIIA is a national trade association serving the self-insurance and alternative risk transfer (ART) industries. Information about SIIA and a complete conference program are available at www.siia.org. ### |
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