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RRG fighting Nevada move to bar auto liability cover

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CARSON CITY, Nev.—The Nevada insurance regulator's ban on a Vermont-domiciled risk retention group writing first-dollar automobile liability coverage in the state violates federal law, according to the RRG and others in the captive industry.

Such a stance also could negatively affect the state's ambitions as a captive domicile, some contend.

But the state's insurance commissioner says the federal Liability Risk Retention Act provides a “carve out” for states with regard to mandated coverages. Nevada Commissioner of Insurance Brett J. Barratt also argues that case law supports his determination and says Nevada's stance in this case is consistent with the way it has treated RRGs on other mandated coverages, such as workers compensation.

Mr. Barratt last month ordered the Alliance of Nonprofits for Insurance, Risk Retention Group to cease writing first-dollar or mandated motor vehicle financial responsibility coverage in the state within 60 days of his order. The order also said other RRGs would be barred from writing the coverage.

The commissioner's order allows ANI to write excess liability coverage in Nevada, provided it sets up a fronting arrangement with an authorized Nevada insurer.

Kimberly Maxson-Rushton, a partner with Las Vegas law firm Cooper Levenson April Niedelman & Wagenheim P.A., who represents the risk retention group, said she has asked Nevada's attorney general to review the order and hopes there is a mechanism for reversing the ruling.

But an appeal in federal court is likely, she said. “It is likely that we will pursue a federal action, probably within the next 30 days,” Ms. Maxson-Rushton said. In addition to seeking a federal injunction against the Nevada order, ANI would seek costs and damages. “I believe we have pretty solid claims for damages,” she said.

The dispute is the latest pitting state officials against RRGs (see box).

ANI formed as an RRG in 2001 to provide a stable source of reasonably priced liability insurance for nonprofits and to help those organizations develop effective loss control and risk management programs. It writes coverage in 24 states and the District of Columbia.

“The interesting thing is (Nevada) allowed this particular group to write this coverage for nine years,” said Robert H. Myers Jr., general counsel for the National Risk Retention Assn. and a partner in the insurance group at Morris, Manning & Martin L.L.P. in Washington. “You'd think that would carry some weight.”

This year, though, the Nevada Department of Motor Vehicles stopped allowing ANI insureds to register their vehicles because ANI wasn't included in the list of insurers with valid certificates of authority issued by the state's insurance division. In May, the division notified the RRG that it wasn't authorized to write first-dollar auto liability policies.

ANI subsequently requested a hearing before the insurance commissioner, which led to the July order.

“Having read that decision, we were concerned that decisions were being made that might have been based on the motor vehicle statute as opposed to the insurance statute,” said James L. Wadhams, president/chairman of the Nevada Captive Insurance Assn. “We think the decision probably should be reconsidered.”

Mr. Wadhams, an attorney with Jones Vargas in Las Vegas, wrote the Nevada commissioner on behalf of the association asking him to reconsider the ruling. His letter argued that the state insurance division's position “is at odds with controlling federal law, will adversely affect insurance consumers and will damage Nevada's reputation as a premier captive insurance company domicile.”

“It's a mystery to me why the insurance department would do that,” said the NRRA's Mr. Myers. “All you have to do is understand what the law says and you'd come up with the right decision.”

“I'm aware of their thoughts and feelings in the matter. I respectfully disagree,” said Mr. Barratt. “In the Liability Risk Retention Act, there is a carve-out for states to handle their mandated coverages.”

“It's not our law. We just ended up having to interpret the DMV's law under the insurance code,” the Nevada insurance commissioner said.

“What had happened in 2009 and 2010 is the Department of Motor Vehicles had obtained a new method of auditing their insurance providers and through that new method they caught ANI as an unauthorized insurance provider,” said Michael Lynch, deputy commissioner in the captive section of the Nevada Department of Insurance.

Insurers holding a Nevada certificate of authority are subject to the Nevada Insurance Guaranty Assn. Under the LRRA, RRGs can't be required or permitted to be members of such state guaranty associations.

“In ANI's case, all they ever needed to do to comply with DMV's requirements was to get a fronting carrier,” Mr. Lynch said. “But ANI didn't want to go that route.”

“We believe that's inconsistent with the LRRA as well,” said Ms. Maxson-Rushton. In addition, “There's a cost associated with that,” she said, and fronting costs would defeat ANI's purpose of providing affordable insurance to nonprofits.

David F. Provost, deputy commissioner of the Captive Insurance Division of the Vermont Department of Banking, Insurance, Securities and Health Care Administration in Montpelier, said he hopes Nevada will reconsider its ruling.

“We do agree, obviously, with ANI that they should be allowed to write in Nevada and we do think there are some recent decisions that the Nevada commissioner didn't look at,” Mr. Provost said.

“We do hope they will reverse it,” he said. “If ANI appeals the ruling, we'll probably file an amicus brief.”