New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

David A. Paterson
Governor

Eric R. Dinallo
Superintendent

OGC Op. No. 09-01-02

The Office of General Counsel issued the following opinion on January 8, 2009, representing the position of the New York State Insurance Department.

Re: ABC Risk Retention Group, Inc.

Questions Presented:

1) Is ABC Risk Retention Group, Inc. (“ABCRRG”), a captive risk retention group domiciled in Arizona, authorized to do business in New York State?

2) Given that: XYZ Transportation was registered with the New York Secretary of State as a foreign corporation doing business in New York; XYZ Transportation maintained its main terminal in New York State; the accident giving rise to the lawsuit the inquirer’s client has instituted against XYZ Transportation took place in New York State; and the inquirer’s client and the driver of the tractor trailer are both New York State residents, do these connections to New York State give the inquirer’s client recourse, through the New York State Insurance Department (“Department”), for payment of his damages for which XYZ Transportation is responsible?

3) Given that: ABCRRG is registered as a risk retention group in New York State; ABCRRG is in receivership in Arizona; and XYZ Transportation is unable to pay claims, is there any fund or other protection available in New York State to pay the inquirer’s client for the amount of damages for which XYZ Transportation or its insurer, ABCRRG, may be responsible?

Conclusions:

1) No, ABCRRG is not an authorized insurer licensed in New York State. However, ABCRRG is registered in New York State as a risk retention group under the federal Liability Risk Retention Act of 1986 (“LRRA”), 15 U.S.C. §§ 3901 et seq., and N.Y. Ins. Law § 5904. As such, ABCRRG may provide liability insurance for its similarly-risked members and reinsurance for others similarly-risked.

2) No, the Department is not the guarantor of ABCRRG’s insurance obligations and is not responsible for the payment of judgments rendered against ABCRRG’s insureds, even those arising out of accidents that occurred in New York State.

3.) No. Under § 3902 of the LRRA and N.Y. Ins. Law § 5906(a), a risk retention group may not participate in state insurance insolvency guaranty association to which an insurer licensed in the state is required to belong, including the New York Property/Casualty Insurance Security Fund (“the Fund”) established under Article 76 of the New York Insurance Law.

Facts:

On December 12, 2003, ABCRRG became registered as a risk retention group in New York State pursuant to N.Y. Ins. Law § 5904. ABCRRG’s members are in the short and long-haul trucking business.

The inquirer advised that he represents a client who is the plaintiff in a lawsuit that was filed in New York State Supreme Court, County of Ontario, on August 28, 2008. The lawsuit arose from a March 2008 accident involving the inquirer’s client’s automobile and a tractor trailer. The inquirer asserts that XYZ Transportation is a foreign corporation authorized to do business in this State. Soon after the commencement of the lawsuit, XYZ Transportation shut down its operation, and it is the inquirer’s understanding is that it has more debts than assets. On September 16, 2008 the inquirer received a letter from XYZ Transportation’s local defense counsel with which he or she forwarded a copy of the Order for Appointment of Receiver and Injunction issued by the Superior Court of the State of Arizona.

The inquirer reports that ABCRRG issued a policy of trucking liability insurance to XYZ Transportation, one of the defendants in the lawsuit that the inquirer has brought on behalf of his client. It is the inquirer’s understanding that ABCRRG was established by XYZ Trucking, and that ABCRRG insures XYZ Trucking’s liability for its tractor trailers.

The inquirer further reports that he has spoken to an Arizona attorney for the Receiver of ABCRRG in the Arizona court proceeding. He evidently informed the inquirer that the Receiver is in the process of collecting the assets of ABCRRG and that a claims procedure will be established so that claims against ABCRRG can be asserted and paid, but it is not expected that any claimants will receive the full dollar value of their claims.

On August 13, 2008, ABCRRG notified the Department by letter that on August 12, 2008, the State of Arizona Department of Insurance (“Arizona DOI”) issued to it an Order Summarily Suspending the Certificate of Authority and Notification of Rights and that, pursuant to the Order, it was working under the direction of the Arizona DOI. The Order was issued based upon
a finding of fact that ABCRRG’s inability to collect the insurance premiums owed to it by XYZ Transportation reduced its capital and surplus to negative $300,000, rendering ABCRRG being in a hazardous financial condition so as to render its operation hazardous or its condition unsound and in its capital and surplus being impaired. The Department later learned that the Order of Suspension was withdrawn by the Arizona DOI on August 26, 2008.

On August 27, 2008, the Department was informed by the Arizona DOI that the Arizona DOI had, the day before, commenced an action in the Superior Court of the State of Arizona, County of Maricopa, in which the Director of Insurance of the State of Arizona sought to be appointed as receiver of ABCRRG and to have the Court issue a temporary restraining order, preliminary and permanent injunction restraining ABCRRG from the transaction of its business. The Verified Complaint alleges that ABCRRG, Inc. is a wholly–owned subsidiary of XYZ America, Inc., a privately held transportation company domiciled in Florida and its affiliates, one such affiliate being XYZ Transportation, LLC. The same day as the action was filed, the court issued an Order Directing Full and Exclusive Possession and Control of Insurer, granting the Arizona Director of Insurance to take possession and control of ABCRRG pending a hearing on the appointment of a receiver, with power of management and control.

Subsequently, the Department received notice from the Arizona DOI that ABCRRG was placed into rehabilitation receivership by the court on September 10, 2008. In connection with the rehabilitation receivership, two individuals were named as Special Deputy Receivers on behalf of the Arizona Director of Insurance, in her capacity as Receiver. The Receiver was directed under the Order, among other things, to attempt to rehabilitate the business of ABCRRG and to take custody and control of its records, property and assets; and conserve, hold and manage them. The Receivership Order also enjoins ABCRRG, its officers, directors, agents, servants, employees, attorneys, successors, accountants, stockholders and assigns during the pendency of the action from transacting any business of ABCRRG.

The inquirer asks whether his client has any recourse against XYZ Transportation or ABCRRG through the New York Insurance Department or any New York security fund.

Analysis:

ABCRRG is a captive risk retention group that is domiciled and licensed as an insurer in the State of Arizona. Risk retention groups are insuring entities that are governed by the federal Liability Risk Retention Act (“LRRA”), 15 U.S.C. § 3901 et seq. The term “risk retention group’ is defined in § 3901(a)(4), in pertinent part, as follows:

(4) ‘risk retention group’ means any corporation or other limited liability association –

(A) whose primary activity consists of assuming, and spreading all, or any portion, of the liability exposure of its group members;

(B) which is organized for the primary purpose of conducting the activity described under subparagraph (A;

(C) which –

(i) is chartered or licensed as a liability insurance company under the laws of a State and authorized to engage in the business of insurance under the laws of such State; or

(ii) before January 1, 1985, was chartered or licensed and authorized to engage in the business of insurance under the laws of Bermuda or the Cayman Islands and, before such date, had certified to the insurance commissioner of at least one State that it satisfied the capitalization requirements of such State, …

(D) which does not exclude any person from membership in the group solely to provide for members of such a group a competitive advantage over such a person;

(E) which –

(i) has as its owners only persons who comprise the membership of the risk retention group and who are provided insurance by such group; or

(ii) has as its sole owner an organization which has as –

(I) its members only persons who comprise the membership of the risk retention group; and

(II) its owners only persons who comprise the membership of the risk retention group and who are provided insurance by such group;

(F) whose members are engaged in businesses or activities similar or related with respect to the liability to which such members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations;

(G) whose activities do not include the provision of insurance other than –

(i) liability insurance for assuming and spreading all or any portion of the similar or related liability exposure of its group members; and

(ii) reinsurance with respect to the similar or related liability exposure of any other risk retention group (or any member of such other group) which is engaged in businesses or activities so that such group (or member) meets the requirement described in subparagraph (F) for membership in the risk retention group which provides such reinsurance; and

(H) the name of which includes the phrase ‘Risk Retention Group’.

Article 59 of the NewYork Insurance Law implements the LRRA in New York State, and Article 59’s statutory sections parallel those contained in the LRRA.

Pursuant to the LRRA, a risk retention group may write liability (as “liability" is defined in § 3901(a)(2) of the LRRA) insurance for its members who are its owners, all of whom have business-related risks in common that are insured by the risk retention group. A risk retention group licensed as an insurance company in one state may thereafter do a liability insurance business in any other state in which it becomes registered as a risk retention group. Under § 3902(a) of the LRRA, a risk retention group that is registered in a state is exempt from most, but not all, of that state’s insurance laws, rules, regulations and orders, including the requirement that it become licensed in the state before it may conduct an insurance business in the state.

ABCRRG is not an “authorized insurer” as that term is defined in NewYork Insurance Law § 107(a)(10) (McKinney 2006 and 2008 Supp.) because it is neither licensed as an insurer in New York State nor does it have a corporate charter granted pursuant to the laws of New York State granting it authority to transact an insurance business in this State. However, insofar as ABCRRG is registered as a risk retention group in New York State, ABCRRG’s registration enables it to write liability insurance covering the business risks of its members, or reinsurance to another risk retention group whose members have similar insurance risks. However, Annual Statements filed by ABCRRG with the New York State Insurance Department show that ABCRRG never actually wrote any insurance business in New York State.

In any event, the Department is not the guarantor of any of insurance obligations that ABCRRG may have incurred in its doing of a liability insurance business in New York State. Nor is the Property/Casualty Insurance Security Fund, established pursuant to N.Y. Ins. Law § 7601, available to pay any claims against ABCRRG, because under § 7603, the security fund only covers allowed claims that are unpaid by reason of insolvency of an authorized insurer to meet its obligations under certain policies, and, as discussed above, ABCRRG is not an authorized insurer. Moreover, even if Article 76 did allow for insurers other than authorized insurers to participate in the security fund, ABCRRG still could not participate because, under LRRA § 3902(a)(2) (and N.Y. Ins. Law § 5906(a)), a risk retention group is exempt from any State law, rule, regulation or order to the extent that it would require or permit a risk retention group to participate in an insurance insolvency guaranty association to which an insurer licensed in the state is required to belong. As a non-domiciliary risk retention group, ABCRRG does not, and can not, participate in the Property/Casualty Insurance Security Fund.

Inasmuch that the annual statements filed by ABCRRG with the Department indicate that ABCRRG has not written any premiums in New York State, it appears that the insurance policy it issued to XYZ Transportation may not have been issued in New York State. Although XYZ Transportation is a foreign corporation registered with the New York Secretary of State to do business in New York State, and although XYZ Transportation maintained its main trucking terminal in New York State, the accident occurred in New York State, and both the inquirer’s client and the truck driver were New York residents, such nexuses to New York State do not afford the inquirer’s client any recourse through the Department for his claim against either ABCRRG or its insured, XYZ Transportation.

The inquirer may wish to contact the Director of the Arizona DOI, as the Receiver of ABCRRG, on behalf of his client to inquire whether he may be entitled to receive some relief in the pending receivership proceeding in Arizona.

For further information you may contact Principal Attorney Barbara A. Kluger at the New York City Office.