In the recent case of Alliance of Nonprofits for Ins. v. Scott J. Kipper, et al., the Ninth Circuit determined that the Liability Risk Retention Act of 1986 (“LRRA”) preempted an order issued in 2010 by the Nevada Insurance Commissioner barring the Alliance of Nonprofits for Insurance Risk Retention Group (the “Alliance”) from issuing first dollar automobile insurance policies (the “Order”). The LRRA is a federal law which authorizes risk retention groups (“RRG”) to provide liability insurance coverage. The LRRA broadly preempts “any [s]tate law, rule, regulation, or order to the extent that such law, rule, regulation, or order would . . . make unlawful, or regulate, directly or indirectly, the operation of [an RRG].” 15 U.S.C. § 3902(a)(1).
The Alliance, an RRG chartered in Vermont, registered to transact liability insurance in Nevada with the Division of Insurance of Nevada’s Department of Business and Industry (the “Division”), but never obtained a certificate of authority from the Division. The Alliance offered its Nevada members first dollar automobile liability coverage to satisfy Nevada’s motor vehicle financial responsibility statute, which requires certain minimum coverages for car owners.
The Nevada Insurance Commissioner reasoned that the state minimum coverage requirements could only be met by purchasing coverage from an insurer that had a certificate of authority issued by the Division, which the Alliance does not. The Order required the Alliance to cease writing first dollar policies and suggested the Alliance could continue writing such policies through a fronting arrangement with an authorized insurer that holds a valid Nevada certificate of authority.
The three-judge panel of the Ninth Circuit disagreed and found for the Alliance, stating that the LRRA’s preemption powers apply, the Order did not fit into any of the exceptions to the LRRA’s preemption powers, and the Order was unjustifiably discriminatory against the Alliance. According to the panel’s opinion, it did not matter whether the Alliance could write dollar one policies via a fronting arrangement workaround, if the Alliance “and presumably other foreign RRGs . . . would be the only insurance companies required to take those steps.” Accordingly, the 9th Circuit mandated that the authorized insurer requirement under Nevada’s motor vehicle financial responsibility statute be read to include a registered RRG.