A federal judge in Las Vegas has struck down Nevada laws limiting the ability of "risk retention groups" to offer auto insurance in the state.
Judge James Mahan last week issued an order finding the state laws are pre-empted by federal law.
He ruled in a lawsuit filed last year by the Alliance of Nonprofits for Insurance (ANI), a nonprofit “risk retention group” domiciled in Vermont that had been selling insurance to fellow nonprofits in Nevada and other states.
The suit was filed against the Nevada Division of Insurance as ANI complained that because of the state division limiting its operations, ANI’s charitable customers were being forced to find more expensive insurance from for-profit companies.
The suit was filed after state Insurance Commissioner Brett Barratt ordered ANI to stop selling “first dollar” automobile insurance in the state because, he said, ANI wasn’t authorized to sell it.
This came as a shock to ANI, as it had been selling “first dollar” auto liability insurance since 2001 in Nevada, providing the minimum coverage required by the state ($15,000 per person, $30,000 per accident for bodily injury and $10,000 for property damage). Under Barratt’s 2010 order, ANI could continue to sell insurance in excess of the state minimums.
Barratt, in a 2010 interview with the Las Vegas Sun, said ANI had been selling the first-dollar insurance without the division’s knowledge.
He said that for legal and regulatory reasons, “risk retention groups” like ANI were unable to sell first-dollar auto liability insurance in Nevada.
While there had not been a concern about the financial viability or claims-paying ability of ANI, Barratt said in 2010, it and other risk-retention groups were unable to participate in the Nevada Insurance Guaranty Association, which collects assessments from member insurance companies and would cover claims in the event of the failure of a NIGA insurer.
Mahan, in his ruling last week, found Barratt’s order was contrary to the federal Liability Risk Retention Act and that the federal law governs the risk retention group issue under the Supremacy Clause of the U.S. Constitution.
In a statement this week, the National Risk Retention Association said ANI is rated "A-Excellent" by A.M. Best.
"This ruling strongly affirms the authority of Risk Retention Groups to operate free of most state regulation under the Liability Risk Retention Act of 1986 and should send a message to other states that attempt to restrict the operation of RRGs," Brian Braley, president of the association, said in a statement.
He added that the association is supporting legislation in Congress to provide an enforcement mechanism to relieve risk retention groups of having to assert their rights through costly litigation in the federal courts.
The association said that around the country, there are more than 250 risk retention groups active writing some $2.5 billion in gross annual premiums.
Attorneys for Nevada Attorney General Catherine Cortez Masto, in defending Barratt’s order, unsuccessfully argued that the federal law included exceptions giving states some authority over risk retention groups.
This accomplished "Congress’ desire to preserve the states’ authority to enact statutes and regulations where the protection of the public is concerned," Nevada’s attorneys wrote in a court filing.
"A motor vehicle is a powerful and heavy machine capable of causing death, disfigurement, and property damage, and as such it is dangerous to its owner and the public at large. A state has the right to protect its citizens," Nevada’s filing in the case said. "Nevada’s financial responsibility law does this by requiring first dollar coverage from insurers who are subject to complete jurisdiction and oversight by the insurance commissioner."