Anderson Kill & Olick P.C. has written a white paper on the federal Nonadmitted and Reinsurance Reform Act (“NRRA”), a sub-section of the Dodd-Frank Act, concluding that the legislation was not intended to apply to captive insurance companies. It further stated that the ambiguity in the NRRA's wording, if not clarified, likely will result in unnecessary litigation, inconsistent rulings, and waste of both private and public resources.
“A strong case can be made that the NRRA does not apply to captive insurance and an even stronger case can be made that the NRRA was not intended to apply,” said Phillip England, who heads the firm's Alternative Risk and Captive Insurance Services practice. “Bottom line, captives should not have to move from a domicile because of the NRRA. Congress should amend the law to make clear that the NRAA does not apply to captive insurance companies. In the meantime, the prudent course is to wait for further clarification and not redomesticate from one state to another solely based on this statute.”
Regarding Congressional legislative intent, Mr. England suggested, “Legislative intent is very significant in interpreting how a law should be implemented. It is also an important factor in how the courts will rule when litigation occurs. The clarifying statements by two primary architects of the NRRA – former sub-committee chair, Judy Biggert, and Congressman Scott Garrett of New Jersey – are significant in this regard. Those statements clearly indicate that it goes against the intent of the NRRA to levy self-procurement taxes on 100 percent of the premiums paid to a captive by a 'home-state' policyholder that has material risks located outside of that state.”
Mr. England added, “The passage of the NRRA could not have been meant to strike down years of existing tax treatment or Supreme Court rulings regarding state taxation of captive insurance companies. Congress, in its haste to insert a minor provision aimed at surplus lines insurance into the already unwieldy Dodd Frank Act, inadvertently upended one of the organizing principles of the captive insurance world – regulation and state taxation by the captive's domicile.”
Mr. England concluded, “States that try to apply the NRRA to captive insurance companies are likely to face litigation.”
A coalition of industry representatives formed the Coalition for Captive Insurance Clarity (“CCIC”) and is working with Congress to craft new language to clarify ambiguities in the law.
“This is further independent corroboration that the NRRA does not apply to captive insurance,” said Richard Smith, Executive Director of the Vermont Captive Insurance Association and co-founder of the CCIC. “We will continue to work actively to correct this error.”
According to Daniel Towle, Vermont's Director of Financial Services, “The fact that some states may incorrectly apply the NRRA to some of their largest companies located in their state is likely to send a very unwelcoming message to those companies. We hope that states will look at this act more closely and understand that the NRRA should not be applied to captive insurers.”
For a complete copy of the Anderson Kill white paper, visit: http://www.andersonkill.com/webpdfext/NRRAs_Captive_Ins_Co.pdf.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].