A federal appellate court has upheld authority of risk retentiongroups to provide commercial liability insurance, except workerscompensation, without being licensed in every state.

The decision sustains a July 2011 ruling by a Nevada districtcourt that the Nevada Division of Insurance overstepped its boundswhen it barred the Alliance of Nonprofits for Insurance RiskRetention Group (RRG) from automobile liability insurance policiesfor its non-profit association members.

Robert H. “Skip” Myers, Jr., counsel for the National RiskRetention Association in Washington, D.C., says the decision shouldclarify that an RRG operating under the Liability Risk RetentionAct “can operate in any state just as if it were licensed.”

However, the decision reverses a portion of the lower courtruling mandating that Nevada pay the legal fees the allianceincurred by challenging the Nevada insurance agency'sdecision.

The unanimous decision of a three-judge panel was handed downApril 8.

The appeals court panel decision holds that the authority topre-empt state law outside of the domiciliary state authorized bythe National Risk Retention Act did not “unambiguously confer aright to be free from state law” under the U.S.Constitution.

The issue of the ability of RRGs not to be licensed in allstates outside of the domiciliary state was raised by stateregulators as recently as several weeks ago at an industryconference in Washington, D.C.

Lawyers for the state of California argued the case in additionto lawyers for the state of Nevada, and the states of Vermont andWashington submitted documents in support.

“The Liability Risk Retention Act broadly preempts 'any statelaw, rule, regulation or order to the extent such law, rule, ororder would … make unlawful, or regulate, directly or indirectly,the operation of a risk retention group,” Judge Norman Randy Smith, writing for the appellate court, says.

Joseph Deems, Executive Director of the National Risk RetentionAssociation, hailed the decision as “a victory for risk retentiongroups.”

Deems adds, “As in other cases where states have attemptedto impose requirements on RRGs that violate federal law exemptingthem from most regulation outside their home State, the9^th Circuit issued an unqualified opinion upholding thepreemption provisions of the Liability Risk Retention Act of 1986,”Deems said.

While the NRAA is disappointed with the court's decision to denyattorneys' fees, they have been granted in other cases.

“The inability to recover attorneys' fees is no deterrent tolarger companies and associations like NRRA,” says Deems, who addsthat the association will this ruling to “resist unlawfuloverregulation by the states.”