Interpretation of the NRRA will likely be unpredictable
Law firm Anderson Kill & Olick, which recently opened a Vermont office to be closer to its extensive captive clientele, released a whitepaper arguing that the Non-admitted Reinsurance Reform Act (NRRA) was probably not intended to apply to captives— but that the intention of lawmakers might not matter when it comes down to enforcing the legislation.
The white paper warns captive owners that any court challenges to the NRRA’s captive application will likely result in inconsistent decisions by different judges. The report reads: “even on the current Supreme Court, different justices tend to take different approaches to statutory interpretation; so it is fair to expect varying results from the hundreds of jurists—from trial and appellate courts alike—that may be asked to determine whether the NRRA applies to captives”.
The report reads: “there are approximately 757 pages of the Congressional Record devoted to debate and discussion regarding the entirety of the Dodd-Frank Act. Of that legislative history, only 26 pages relate to the NRRA. Tellingly, of those pages representing the core record of the act’s legislative intent, the term ‘captive insurance’ is not mentioned even once. Accordingly, it seems abundantly clear that the NRRA was not designed to apply to captive insurance companies.”
Regardless, the authors write: “because the statute’s definition of nonadmitted insurance arguably encompasses property and casualty insurance sold by a captive insurance company (so long as the captive is not licensed to sell insurance in a particular state), certain home states can be expected to argue that the NRRA applies to captives, in an attempt to collect certain taxes arising out of captive insurance transactions with policyholders headquartered in that home state.”
The paper’s authors indicated that the captive industry’s original assumption that the NRRA would be clarified—either through reducing uncertainty in the federal legislature or by states adopting the premium allocation compacts envisioned under the existing law—have been disappointed on both fronts.