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Rehearing Requested for LRRA Preemption Ninth Circuit Court Decision

Court Ruling Gavel
October 28, 2016

The U.S. Court of Appeals for the Ninth Circuit upheld the federal Liability Risk Retention Act (LRRA) preemption status in September 2016 in Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., Nos. 13–35115, 13–35172, 2016 U.S. App. LEXIS 17396 (9th Cir. 2016). Now Ingaldson is attempting to circumvent that decision with a petition for "rehearing en banc," a request for rehearing before the entire Ninth Circuit appellate panel.

The National Risk Retention Association (NRRA) had previously filed an amicus curiae brief in the case before the U.S. Court of Appeals for the Ninth Circuit. In the case, the Ninth Circuit's cross-appellate panel held that the Alaska Statute § 21.96.100(d) "prohibition on reimbursements of fees and costs incurred by an insurer defending a non-covered claim was preempted by the Liability Risk Retention Act of 1986, 15 U.S.C. §§ 3901–3906)."

"The panel determined that the Alaska statute placed a restriction on Alaska contracts that was not contemplated by the Liability Risk Retention Act, and that was not precluded by all other states," the court's September 23, 2016, ruling says. "The panel further determined that no exception applied to save the Alaska law from preemption."

"This will be a major victory if the Ninth Circuit upholds its own opinion," said NRRA Executive Director Joe Deems, as quoted in an October 27, 2016, NRRA press release. "While NRRA's brief was not quoted or specifically mentioned, our arguments were clearly heard."

In the opinion written by Judge Dorothy W. Nelson, the court held the following.

Attorneys Liability Protection Society (ALPS) appeals from the district court's grant of summary judgment to Ingaldson Fitzgerald, P.C. (Ingaldson), which denied ALPS reimbursement of defense fees expended in an underlying insurance litigation. Ingaldson cross-appeals the district court's grant of summary judgment to ALPS that the claims asserted in the underlying litigation were not covered by the policy ALPS issued to Ingaldson. We REVERSE the district court's order denying ALPS reimbursement of defense fees, AFFIRM the district court's conclusion that the underlying claims were not covered, and REMAND for proceedings consistent with this opinion.

As detailed in the background of the case included in the ruling, "Ingaldson's policy with ALPS insured the firm against claims arising from 'an act, error or omission in professional services that were or should have been rendered by [Ingaldson]. The policy expressly excluded from coverage any claims arising from conversion or disputes over fees." Importantly, the ruling says, the "policy also required Ingaldson to reimburse ALPS for fees and costs that ALPS incurred in defending non-covered claims."

"In 2008, the bankruptcy trustee for the bankrupt estate of a former client of Ingaldson, in conjunction with another former client of the firm, brought a claim against Ingaldson in the U.S. Bankruptcy Court for the District of Alaska," the ruling says. "The suit concerned Ingaldson disbursing from and withdrawing fees and costs against a $150,000 retainer. The former client and the trustee sought recovery of that retainer, and asserted claims against Ingaldson for, among other things, restitution, disgorgement, and conversion."

According to the NRRA press release, Mr. Deems praised NRRA's Government Affairs Committee for its efforts to submit the amicus brief on this matter.

"Our GAC Litigation Subcommittee had the courage to undertake this amicus effort despite ALPS not being a member of NRRA," Mr. Deems said, as quoted in the press release. "It is a benefit of which both current members and potential adversaries should be aware: we take care of our own!"

NRRA has had a successful run in participating in various cases upholding the federal Liability Risk Retention Act, the press release says. The "string of victories" listed in the press release is as follows.

—In a case cited in the ALPS opinion, NRRA provided an amicus brief in Wadsworth v. Allied Prof’ls Ins. Co., 748 F.3d 100 (2d Cir. N.Y. 2014). In that landmark case, the U.S. Court of Appeals for the Second Circuit in New York held that the LRRA preempts New York State's "direct action" statute.

—In Speece v. Allied Profs. Ins. Co., 289 Neb. 75 (Neb. 2014), the Nebraska Supreme Court ruled that the LRRA preempted Nebraska state law that prohibited the enforcement of "arbitration" clauses in risk retention group insurance contracts.

—In Courville v. Allied Profs. Ins. Co., 174 So. 3d 659 (La. App. 1 Cir. 2015), a Louisiana court of appeals held that the LRRA preempts Louisiana's direct action statute. The deciding factor in the Courville case and others was that certain state laws that unfavorably attempt to regulate the business of insurance for risk retention groups are preempted.

In the Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., case, "it remains to be seen what the ultimate decision will be," Mr. Deems said in the press release, but added that "we maintain positive hopes that the Ninth Circuit will uphold its own decision, particularly in light of the other favorable authority NRRA has vigilantly helped to create."

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