New Jersey sets roadblock for RRGs insuring taxis

TRENTON, N.J.—Bills in the New Jersey Legislature aimed at making changes to state taxicab laws contain language that would block risk retention groups' ability to cover New Jersey taxi operators, and would seem to run counter to efforts to promote the state as a captive domicile.

The provision in question in Senate Bill 1823 and its companion bill in the state Assembly also appear at odds with the federal Liability Risk Retention Act of 1986 and a 2000 federal appellate court ruling related to a similar measure in Oregon.

“The bill as originally drafted was designed to protect passengers in taxicabs,” including insurance requirements for cab operators, said Gregg Sgambati, founder and president of the Mahwah, N.J.-based New Jersey Captive Insurance Assn.

“Later an amendment was put in to require that any insurance company from which a taxicab operation purchases coverage needs to be an admitted company and a member of the guaranty association,” Mr. Sgambati said.

The guaranty association requirement effectively would rule out risk retention groups from covering taxi operators because a section of the LRRA stipulates that risk retention groups can't be required or permitted to be members of such state guaranty associations.

In a 2000 ruling in National Warranty Insurance Co. vs. Mike Greenfield, the 9th U.S. Circuit Court of Appeals upheld a lower court ruling that the LRRA pre-empted an Oregon law that would have blocked RRGs from selling reimbursement insurance policies to auto dealers in the state.

The Oregon law had required auto dealers selling service warranty policies to prove financial responsibility by purchasing reimbursement coverage from “authorized” insurers, which were required to be members of the Oregon Insurance Guaranty Assn.

The guaranty association language in the New Jersey bill would violate the LRRA, said Robert H. Myers Jr., partner in the insurance group of Morris, Manning & Martin L.L.P. in Washington and general counsel of the National Risk Retention Assn.

“The National Warranty case is evidence of that,” he said. “I think the language of the act is pretty darn clear.”

At least three risk retention groups write taxicab coverage in New Jersey, Mr. Sgambati said. “We can only believe the legislators, however it came about, believed (the amendment) was a way to provide additional protection to passengers who have to make a claim against an insurance company,” he said.

But, he said, if the bill were enacted as worded, “It would appear to take the risk retention groups out of the world of insuring taxicabs in New Jersey.” And, the NJCIA president said, such a measure could be counter to efforts to promote New Jersey as a captive domicile.

“Anytime you're taking a risk retention group—which is a form of a captive insurance company—out of the picture of doing business in the state, it could send the wrong message to captive managers who might one day promote New Jersey as a domicile and to the industry as a whole,” Mr. Sgambati said.

The bill was held back from presentation and voting at the May 27 meeting of the Senate Transportation Committee and, with the Legislature set to begin its summer recess at the end of June, it's possible that it won't be taken up again until fall. “We're going to continue to pursue this with legislators,” Mr. Sgambati said. “The risk retention groups involved have also had their attorneys in the picture.”

Though previous efforts to form a captive domicile in New Jersey have been unsuccessful, captive legislation was introduced again this year, with the Assembly's Financial Institutions and Insurance Committee voting in late May to move a bill to the full Assembly for a vote. The Senate version of the bill remains in that chamber's Commerce Committee, but Mr. Sgambati said he's “quite optimistic” a New Jersey captive law will be enacted this year.

Formed in December 2009, the NJCIA is actively recruiting members. “We're standing by and starting to nurture the community, creating networking events,” Mr. Sgambati said. “The association usually comes after the legislation,” he said. “We're doing things a little differently.”