GAO Report On RRGs Seriously Flawed

Insurance Reinsurance Managed Healthcare Review - Spring 2012

On December 8, 2011, the U.S. Government Accountability Office ("GAO") issued a report to Congress entitled "Clarifications Could Facilitate States' Implementation of the Liability Risk Retention Act" ("GAO Report"). The GAO had been charged by Congress with examining: (1) the regulatory health of the RRG industry and; (2) the extent to which non-domiciliary states were exceeding their authority under federal law. The report concluded that: (1) the industry was healthy from a regulatory and financial perspective and; (2) Congress should "clarify" the registration requirement, fee and coverage provisions of the Liability Risk Retention Act, 15 U.S.C. § 3901 et seq. ("LRRA").

However, the GAO's underlying analysis for its findings regarding non-domiciliary state behavior imprecisely conflates multiple issues and is not substantiated by existing case law. In short, the GAO finds "silence" and "ambiguity" under the LRRA's current provisions, when such provisions are indisputably clear and upheld as such by federal courts.

Registration Requirements

The GAO Report incorrectly states that the "LRRA does not provide for a specific process for RRGs to register to conduct business in non-domiciliary states." GAO Report at 24. In fact, the LRRA is quite clear that the registration requirements in a non-domiciliary state are limited to submitting the documents enumerated under 15 U.S.C. § 3902(d)(2). All other state laws are broadly preempted, unless expressly excepted under 15 U.S.C. § 3902(a)(1).

The only federal court to address the issue of registration requirements under the LRRA also has found that the plain language of the LRRA limits registration requirements to those provided under § 3902(d). In National Risk Retention Association v. Brown, 927 F. Supp. 195 (M.D. La. 1996), the court expressly rejected Louisiana's attempt to impose extensive extra-statutory application requirements on a non-domiciliary RRG. Louisiana conditioned registration of a non-domiciliary RRG upon submission of a $600 fee, policy forms and applications, articles of incorporation, bylaws, biographical affidavits and fingerprints of directors and officers, a certificate of compliance from the domiciliary state, a domiciliary state certificate of authority, responses to interrogatories and a completed questionnaire from a domiciliary state regulator.

The court held the Louisiana application requirements were...