Opinion ID: 4515580
Heading Depth: 3
Heading Rank: 2

Heading: The LRRA’s Preemptive Effect

Text: The answer to the question posed in this case is that the LRRA does preempt Washington’s anti-arbitration statute, RCW § 48.18.200(1)(b), as it applies to risk retention groups chartered in other states. In reaching this conclusion, we follow the guide of our own precedent and that of the Second Circuit. See Attorneys Liab. Prot. Soc’y, Inc. v. Ingaldson Fitzgerald, P.C., 838 F.3d 976 (9th Cir. 2016); Wadsworth, 748 F.3d 100.
preempt the LRRA Defendants first contend that the LRRA does not preempt the Washington anti-arbitration statute because it is “reverse-preempted” by the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. The McCarran-Ferguson Act is generally understood to protect state regulation of insurance. The Washington Supreme Court relied upon the McCarran-Ferguson Act in holding that RCW § 48.18.200(1)(b) is shielded from preemption by the Federal Arbitration Act. James River Ins. Co., 292 P.3d at 124. Although our court has not opined on the precise issue of the relationship between the McCarran-Ferguson Act and the Federal Arbitration Act, we have repeatedly held that the LRRA is an exception to the McCarran-Ferguson Act’s preference for state regulation of insurance. See Attorneys 8 ALLIED PROFESSIONALS INS. CO. V. ANGLESEY Liab. Prot. Soc’y, Inc., 838 F.3d at 982 n.4 (“We have squarely held that even though the McCarran-Ferguson Act reserves insurance regulation to the states, the LRRA was meant to be an exception for [risk retention groups].”); Nat’l Warranty Ins. Co., 214 F.3d at 1077 (“Even with a general presumption that insurance law should ordinarily be regulated under state law, as reinforced by the McCarran-Ferguson Act, the language and purpose of the LRRA clearly indicate an intent to preempt state laws regulating [risk retention groups].”). Under our precedent, therefore, the McCarran-Ferguson Act does not “reverse-preempt” the LRRA. 2. The LRRA preempts Washington’s anti-arbitration statute Defendants next contend that the LRRA was specifically designed not to preempt all state laws, including ones like the Washington anti-arbitration statute. “When considering whether the LRRA preempts a state law, we first determine whether the challenged aspect of the state law offends the LRRA’s broad preemption language. If so, we consider whether one of the LRRA’s exceptions, which are contained in §§ 3902(a)(1) and 3905, applies to save the state law. If no exception applies, the law is preempted.” Attorneys Liab. Prot. Soc’y, Inc., 838 F.3d at 980 (citations omitted). We conclude that Washington’s anti-arbitration statute offends the LRRA’s preemption language and that no exception applies to save the law. The LRRA states in relevant part, “[e]xcept as provided in this section, a risk retention group is exempt from any State law, rule, regulation, or order to the extent that such law, rule, regulation, or order would – (1) make unlawful, or ALLIED PROFESSIONALS INS. CO. V. ANGLESEY 9 regulate, directly or indirectly, the operation of a risk retention group[.]” 15 U.S.C. § 3902(a). Defendants argue this language ought to be construed narrowly. They contend that the LRRA only requires non-chartering states to refrain from passing laws which prevent risk retention groups from “operating” as an insurance company, and that the anti-arbitration statute in question does not concern their operation. In doing so, Defendants construe the LRRA as an anti-discrimination statute, one which is designed only to keep states from treating risk retention groups differently than other insurance companies. Defendants’ understanding of the statute is mistaken. The LRRA’s preemption provision is broadly worded, and this court has repeatedly held that the LRRA has a broad preemptive effect. See Attorneys Liab. Prot. Soc’y, Inc., 838 F.3d at 980–81 (“The LRRA …broadly preempts ‘any [non-chartering] State law . . . .’” (quoting 15 U.S.C. § 3902(a)(1))); All. of Nonprofits for Ins., Risk Retention Group v. Kipper, 712 F.3d 1316, 1321 (9th Cir. 2013) (“The LRRA broadly preempts ‘any State ... order to the extent that such ... order would ... make unlawful, or regulate, directly or indirectly, the operation of [an RRG].’” (quoting 15 U.S.C. § 3902(a)(1)) (alterations in original)); Nat’l Warranty Ins. Co. RRG, 214 F.3d at1077 (“[T]he language and purpose of the LRRA clearly indicate an intent to preempt state laws regulating [risk retention groups].”). This broad effect requires that the term “operation” be read generously. We have previously held that an Alaska statute which prohibited insurance providers from seeking reimbursement of fees incurred defending a non-covered claim regulated the “operation” of a foreign risk retention group. See Attorneys Liab. Prot. Soc’y, Inc., 838 F.3d at 980. The state statute placed “a restriction on Alaska contracts that is ‘not 10 ALLIED PROFESSIONALS INS. CO. V. ANGLESEY contemplated by the LRRA, and that is not [precluded] by all other states,’” and therefore regulated the risk retention group’s operations in conflict with the LRRA. Id. at 981 (quoting Wadsworth, 748 F.3d at 108) (alteration in original). Similarly, Washington’s anti-arbitration statute places a restriction on risk retention groups that is not required by the LRRA or by all other states. Thus, the Washington anti-arbitration statute “regulate[s], directly or indirectly, the operation of a risk retention group.” 15 U.S.C. § 3902(a)(1). Moreover, Defendants’ reading of the LRRA would jeopardize the purpose of the statute. The LRRA was not enacted simply to keep states from discriminating against risk retention groups. Instead, as described above, the LRRA was passed by Congress in an effort to support a struggling insurance market. In order to do so, the Act “eliminat[ed] the need for compliance with numerous non-chartering state statutes that, in the aggregate, would thwart the interstate operation [of] . . . risk retention groups.” H.R.Rep. No. 97190, at 12 (1981), reprinted in 1981 U.S.C.C.A.N. 1432, 1441 (House report for the PLRRA); see also H.R. Rep. No. 99-865, at 8–9 (1986), reprinted in 1986 U.S.C.C.A.N. 5303, 5305–06 (House report for the LRRA explaining that it “is necessary to exempt risk retention and purchasing groups from State law . . . in order to achieve the beneficial effects of such groups referred to above.”). Allowing a state such as Washington to force foreign risk retention groups to alter their contracts would threaten this goal. As the anti-arbitration statute “offends the LRRA’s broad preemption language,” it may only be “save[d]” if an exception in 15 U.S.C. §§ 3902(a)(1) or 3905 applies. Attorneys Liab. Prot. Soc’y, Inc., 838 F.3d at 980. These exceptions generally “authorize[] nonchartering states to ALLIED PROFESSIONALS INS. CO. V. ANGLESEY 11 require risk retention groups to comply only with certain basic registration, capitalization, and taxing requirements, as well as various claim settlement and fraudulent practice laws.” Wadsworth, 748 F.3d at 106. Defendants contend that the Washington anti-arbitration statute falls into two of these exceptions. First, they argue that the anti-arbitration statute is an example of Washington requiring foreign risk retention groups to “comply with the unfair claim settlement practices law of the State.” 15 U.S.C. § 3902(a)(1)(A). Second, they claim the Washington statute falls under the exception for state laws “regarding deceptive, false, or fraudulent acts or practices.” 15 U.S.C. § 3902(a)(1)(G). Defendants fail to explain how an anti-arbitration statute is an “unfair claim settlement practices law” or how it deals with “deceptive, false, or fraudulent acts,” and we do not find support for either contention. Washington’s anti-arbitration statute offends the LRRA’s broad preemption language and fails to fall into one of its exceptions. Therefore, the statute is preempted by the LRRA as it applies to out of state risk retention groups.