Opinion ID: 6968400
Heading Depth: 2
Heading Rank: 5

Heading: The Exception Regarding “Financial Responsibility” Regulation.

Text: The preemptive effects of the LRRA are not unlimited, however, and in passing the LRRA in 1986 Congress harbored concerns about the fact that the LRRA’s amendments to the PLRRA served to greatly increase the scope of preemption; operations of RRGs are no longer to be limited to “narrow groups of coverages,” as they were in 1981. To ensure that the 1986 amendments did not drastically alter the states’ traditional role in regulating insurance, Congress sought to “augment[] the authority of nonchartering states to regulate solvency, trade practices and other matters”' and “contemplated that States may enact statutes and issue regulations to protect the public to the extent such action is not exempt by th[e] Act.” H.R.Rep. No. 865 at 18 (1986), reprinted in 1986 U.S.C.C.A.N. 5303, 5304, 5315. Congress thus incorporated into the LRRA 15 U.S.C. § 3905(d), a “saving provision,” 3 which carved out an exception to preemption: under the exception, states were not bound by the LRRA when crafting “financial responsibility” statutes, as long as they did not discriminate against RRGs. § 3905(d) states: Subject to the provisions of section 3902(a)(4) of this title relating to discrimination, nothing in this chapter shall be construed to preempt the authority of a State to specify acceptable means of demonstrating financial responsibility where the State has required a demonstration of financial responsibility as a condition for obtaining a license or permit to undertake specified activities. Such means may include or exclude insurance coverage obtained from an admitted insurance company, an excess lines company, a risk retention group, or any other source regardless of whether coverage is obtained directly from an insurance company or through a broker, agent, purchasing group or any other person. 15 U.S.C. § 3905(d). Under this language, a state can require a licensee to demonstrate that he is insured by a state-licensed insurer, even if this means that non-domestic RRGs turn out to be among the pool of non-qualifying insurers. Indeed, legislative history from the day the Senate passed the LRRA reveals that Congress specifically intended to preserve for states the right to exclude non-domestic RRGs on the basis of financial responsibility: I am particularly pleased, Mr. President, that language contained in the House bill recognizing the right of a State to require proof of financial responsibility before the undertaking of certain activities and to prescribe the manner for meeting that requirement, is retained in this amendment. As I stated on the floor at the time of the passage of the Senate bill, requirements of financial responsibility are usually the result of a State’s concern about third parties who might be injured by the insured’s activities. In the State of Washington, for instance, many activities require prior proof of insurance by a carrier admitted to do business in the State. Such laws would continue to be valid notwithstanding the fact that they might preclude participation in an out-of-State risk retention group for the purpose of meeting the requirement. 132 Cong. Rec. S15446-01 (daily ed. Oct. 6, 1986) (statement of Sen. Gorton). The language of the Wisconsin statute mirrors the scenario envisioned in the legislative history and thus fits into the preemption exception contained in § 3905(d). 8 655.23, Wis. Stats, states: (3) (a) [EJvery health care provider either shall insure and keep insured the health care provider’s liability by a policy of health care liability insurance issued by an insurer authorized to do business in this state or shall qualify as a self-insurer. (Emphasis added). By matching up the exception contained in § 3905(d) with 8 655.23, it is clear that § 655.23 squares with the exception: — 8 3905(d) requires that a state statute relate to “proof of financial responsibility as a condition for obtaining a license”; § 655.23 relates to proof of financial responsibility for licensed health care providei-s. — 8 3905(d) states that this “financial responsibility” proof may include insurance coverage obtained from an admitted insurer; the proof required by 8 655.23 includes insurance coverage obtained from an admitted insurer. — 8 3905(d) states that this “financial responsibility” proof may exclude risk retention groups; the proof required by 8 655.23 excludes non-domestic RRGs, just as it excludes all other non-domestic insurers. Because § 655.23 matches the requisites of 8 3905(d) and reflects the very statutory language contained in the legislative history, we hold that 8 655.23 clearly fits within the exception contained in 8 3905(d).