BALTIMORE-The Maryland Insurance Administration is reviewing its earlier decision to assess a $1,000 anti-fraud fee against risk retention groups operating in the state.

Steven Larsen, who took over as Maryland insurance commissioner about two months ago, said he would re-evaluate a decision made prior to his joining the department that RRGs licensed in other states are liable for the fee.

"I will examine their arguments and see if there is any merit to their position," Mr. Larsen said, referring to a letter the National Risk Retention Assn. sent to the department protesting the fee. Mr. Larsen said a decision will be made as quickly as possible.

At issue is the Maryland Insurance Administration's interpretation of a new law that imposes a $1,000 fraud prevention fee on "each insurer, health maintenance organization, non-profit health service plan, fraternal benefit society or any entity operating in the state under the regulatory jurisdiction of the commissioner."

RRGs around the country that operate in Maryland have received-by certified mail-letters from the Maryland Insurance Administration demanding payment of the fee, which is used to help fund the administration's Insurance Fraud Division.

NRRA, the trade group representing RRGs and service providers, however, says the federal Risk Retention Act specifically pre-empts non-domiciliary states from imposing fees on RRGs.

"The Risk Retention Act is very specific on what non-domiciliary states can and cannot do," said Jon Harkavy, chairman of NRRA's government affairs committee and vp and general counsel for USA Risk Services in Arlington, Va.

The Risk Retention Act says states cannot regulate non-domiciliary RRGs but permits them to impose premium and other applicable taxes in a non-discriminatory way, Mr. Harkavy said.

"This ($1,000) assessment, which both the Maryland Insurance Administration and the statute describe as a 'fee,' is clearly not 'applicable premium and other taxes'. . .and thus cannot be levied by Maryland against its non-domiciliary RRGs," Mr. Harkavy wrote to the Maryland Insurance Administration.

Mr. Harkavy said he hopes the issue can be resolved amicably, adding that he thinks the Insurance Department made its decision without a complete understanding of the pre-emption provisions of the Risk Retention Act.

"I don't believe they were aware of the pre-emption provisions of the law, and we hope once they are so aware they will drop the assessment," he said.

Mr. Harkavy also stressed that the situation in Maryland is entirely different from that in Louisiana, where the NRRA successfully fought a 1995 law and department application procedures that imposed a wide variety of fees as well as capital and surplus requirements on RRGs licensed

in other states that wanted to issue policies to members in Lou-isiana.

Those requirements were struck down by a federal judge, who said Louisiana's requirements were just the kind pre-empted by the Risk Retention Act (BI, June 10, 1996).

The 5th U.S. Circuit Court of Appeals earlier this year affirmed the lower court ruling.

"In Louisiana, there was a broad assault on the very foundation of the Risk Retention Act. Louisiana was trying to do everything that a non-domiciliary state is pre-empted from doing," Mr. Harkavy said.

By contrast, in Maryland, "there is no animus, just an overly broad interpretation of an existing law," he added.

Still, RRG managers and others worry that if the groups don't challenge fees that states attempt to impose on their operations, such requirements will proliferate and inflate their overhead.

"These things begin to add up," said Rosita Steele, executive vp and chief operating officer of American Assn. of Orthodontists Services Inc. in St. Louis. Her organization provides management services to a Vermont-domiciled RRG for orthodontists.

Congress specifically excluded RRGs from state assessments-other than premium taxes-because of legislators' desire that RRGs be able to operate in the most cost-efficient way for policyholder-owners, Ms. Steele said.

State fees are "a cost that is passed on to the consumer," said Karen Cutts, managing editor of The Risk Retention Reporter, a Pasadena, Calif.-based newsletter.

In light of the favorable court decisions involving the Louisiana law, NRRA's Mr. Harkavy says the group will become more aggressive in challenging state requirements on RRGs that are pre-empted by the Risk Retention Act.

Passed by Congress in 1981 and later expanded in 1986, the Risk Retention Act allows RRGs, which are special, multiple-owner captives, to operate throughout the United States after meeting the licensing requirements of one state. RRGs can write coverage only for members, not for the public. RRGs can write all commercial liability lines except workers compensation.

Sixty-eight RRGs now are licensed, nearly half of which are domiciled in Vermont, which has an attractive captive statute.