Cypress Insurance Co. of Phoenix has settled with Washington's insurance commissioner, Mike Kreidler, and will pay $573,905 in unpaid premium taxes and $302,915 in interest and penalties after Commissioner Kreidler ordered it in May to stop transacting insurance without a license and to pay tax on its written premiums.
Cypress' sole insured is Microsoft Corp., headquartered in Redmond, Washington, and its subsidiaries.
According to Commissioner Kreidler, from 2008 through 2018, Cypress collected more than $91 million in written premium from Microsoft and its companies. State law requires insurance companies to pay a two percent tax based on their written premiums. The tax revenue is sent to the state general fund to pay for a variety of programs.
Before 2008, Microsoft's purchasing practices complied with state insurance laws, according to the commissioner.
“I am pleased with the outcome of this settlement,” Commissioner Kreidler said. “Cypress is now complying with Washington state law, and the state will receive some of the money owed. Captives are a gray area in state law and this is the first case where we've tested them.”
Cypress did not hold a certificate of authority or place insurance through a surplus line broker. As of July 1, Cypress obtained new policies through a surplus line broker. Surplus line brokers are licensed and pay premium tax. Surplus line insurance typically covers risks that other insurers do not.
Going forward, Commissioner Kreidler said, his office will look at other captives that do business in Washington state.
“I encourage captives insuring risks in Washington – and that want to be proactive in the interest of fairness – to contact my office to start conversations about their portfolios,” Commissioner Kreidler said. “I want to make sure that all insurers pay their fair share as part of doing business here.”
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].