NU Online News Service, March 28, 1:47 p.m.EDT

The National Risk Retention Association (NRRA) sent a letter toGovernor Chris Christie of New Jersey advising him that a billpending in the state legislature would discriminate against riskretention groups, in direct violation of federal law.

In the letter, Robert H. Myers Jr., NRRA general counsel, statesthat an amendment to Assembly Bill 1471, requiring taxicab driversto obtain insurance from an insurer that is a member of the NewJersey Property-Liability Guaranty Association, would discriminateagainst RRGs "in a manner prohibited by federal law."

The New Jersey legislation would exclude RRGs from providingliability insurance to taxicab drivers because the federalLiability Risk Retention Act of 1986 (LRRA) expressly prohibitsRRGs from becoming members of  state guarantyassociations, Myers says in a statement.

LRRA authorizes RRGs licensed in a single state to operatenationally without additional licensing and free of most regulationby other states.

Gregg Sgambati, president of the New Jersey Captive Association,reminds NU Online News Service via e-mail that Congress is lookingto review LRRA. "We know that some congressional action is on thehorizon. The fact that there are articles within the LRRAthat need clarification is evident by the time that is beingconsumed on legislative action concerning RRGs in some states."

He adds, "It should be emphasized that this [New Jersey]legislation only relates to RRGs writing taxicab liabilityinsurance. While New Jersey may have concerns about RRGs in thisbusiness, it does not imply that the state is averse to RRGsoperating in the state nor the possibility of adding RRGs to thestate's captive insurance statutes in the future."

"To put it from the legislators' point of view, they are lookingto protect taxicab passengers from an inability to collect a claimif an RRG failed."

Sgambati notes, "While one has to applaud that intent, it ispreferable to address this intent with a bill that does not disruptthe current industry while Congress works on the LRRA."

Myers points out in his letter that federal courts have ruled infavor of the preemption provision of the LRRA. He cites a case inwhich the Ninth U.S. Circuit Court of Appeals "held that the LRRApreempted provisions of the Oregon Service Contract Act whichunlawfully discriminated against RRGs by requiring automobiledealers to obtain liability insurance from the Oregon InsuranceGuaranty Association."

The court ruled in that instance that the Oregon law "may notcategorically exclude coverage from all RRGs," Myerssays. 

GAO REPORT

The Government Accountability Office is currently examining thedirect and indirect regulation of RRGs by non-domiciliarystates.

At the Captive Insurance Companies Association (CICA) conferencein Tucson earlier this month, the GAO arranged for dialogue in twoseparate sessions: one for captive managers and one for captiveowners.

GAO representatives asked for examples of challenges to RRGowners in both domiciliary and non-domiciliary states.

In a list of questions obtained by NU Online News Service, theGAO asked if the identified challenges affected costs or efficiencyof RRGs, and if "regulatory or legal actions taken by stateregulators [are] contrary to LRRA."

The GAO also asked about:

• Trends that have been observed in terms of the amount and typeof coverage offered.
• Whether RRGs are having an impact on the availability ofcommercial liability insurance coverage.
• If RRGs are having an impact on the affordability of commercialliability coverage.

The GAO also wanted to know what potential risk and benefitscould result from extending the LRRA to permit RRGs to providecommercial property insurance.