Montpelier, VT (PRWEB) February 27, 2013
One of the premier insurance recovery law firms, Anderson Kill & Olick (AKO), has published 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. The independent white paper recently was published in the Bloomberg BNA Daily Tax Report.
AKO’s assessment of the legislation is clear and direct. “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 Phil England, Esquire and Head of the Alternative Risk and Captive Insurance Services Practice group at AKO. “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, England suggests, “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% of the premiums paid to a captive by a "home-state" policyholder that has material risks located outside of that state.”
England concluded, “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.”
England went on to assert, “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 actively with Congress to craft new language to clarify ambiguities in the present 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 (VCIA) 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.”
Captive insurance is a regulated form of self insurance that has existed since the 1960’s, and has been a part of the Vermont insurance industry since 1981, when Vermont passed the Special Insurer Act. Captive insurance companies are formed by companies or groups of companies as a form of alternative insurance to better manage their own risk. Captives are typically used for corporate lines of insurance such as property, general liability, products liability, or professional liability. Growth sectors of the captive insurance industry include professional medical malpractice coverage for doctors and hospitals, and the continued trend of small and mid-sized companies forming captive insurance companies.
For a complete copy of the AKO white paper visit: http://www.andersonkill.com/webpdfext/NRRAs_Captive_Ins_Co.pdf
For information on joining the Coalition for Captive Insurance Clarity please contact Richard Smith of the VCIA at 802-658-8242 or at Smith(at)vcia(dot)com.
Read the full story at http://www.prweb.com/releases/2013/2/prweb10475448.htm.
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