REIS v. OOIDA RISK RETENTIONGROUP, INC.

303 Ga. 659

• Court: Supreme Court of Georgia
• Decided: May 7, 2018
• Docket: S18A0505
• Status: Published

Opinion

303 Ga. 659 FINAL COPY

S18A0505. REIS et al. v. OOIDA RISK RETENTION GROUP, INC.

HINES, Chief Justice.

This is an appeal by plaintiffs Candice Reis and Melvin Williams

(“Plaintiffs”) from the grant of summary judgment to defendant OOIDA Risk

Retention Group, Inc. (“OOIDA”), in this direct action against OOIDA and

others arising from a vehicular collision involving Plaintiffs and a motor carrier

insured by OOIDA. At issue is whether provisions in the federal Liability Risk

Retention Act of 1986 (“the LRRA”), 15 USC § 3901 et seq., preempt Georgia’s

motor carrier and insurance carrier direct action statutes (“direct action

statutes”), OCGA §§ 40-1-112 (c),1 40-2-140 (d) (4),2 in regard to risk retention

1 OCGA § 40-1-112 (c) provides: It shall be permissible under this part for any person having a cause of action arising under this part to join in the same action the motor carrier and the insurance carrier, whether arising in tort or contract. 2 OCGA § 40-2-140 (d) (4) provides: Any person having a cause of action, whether arising in tort or contract, under this Code section may join in the same cause of action the motor carrier and its insurance carrier. groups,3 thereby precluding this direct action against OOIDA. For the reasons

that follow, we conclude that there is federal preemption of this action against

OOIDA, and consequently, we affirm.4

Background

On February 8, 2015, Plaintiffs were in a car when they were involved in

a collision with a 2001 Freightliner driven by defendant Andre Robinson

(“Robinson”) and owned by defendant James Powell (“Powell”), d/b/a Zion

Train Express, Inc. (“Zion Train”), and insured by OOIDA. OOIDA is a

liability risk retention group not chartered or domiciled in Georgia and created

pursuant to the LRRA. OOIDA is registered in Georgia as a foreign risk

retention group.

Plaintiffs filed the present action in superior court against Robinson,

Powell, Zion Train, and OOIDA for alleged damages arising from the collision.

3 A “risk retention group” is, inter alia, a corporation or other limited liability association whose primary activity is assuming and spreading the liability exposure of its group members, is chartered or licensed as a liability insurance company and authorized to do business as such under the insurance laws of a state, and has as its owners and members only those who comprise the membership of the risk retention group. 15 USC § 3901 (a) (4). 4 Plaintiffs filed their appeal in the Court of Appeals, and the Court of Appeals transferred it to this Court on the basis of this Court’s constitutional question jurisdiction as set forth in Ga. Const. of 1983, Art. VI, Sec. VI, Par. II (1). See RES-GA McDonough, LLC v. Taylor English Duma LLP, 302 Ga. 444, 444 n. 1 (807 SE2d 381) (2017). OOIDA moved for summary judgment asserting that the direct action statutes

do not contemplate suits against risk retention groups, and even if they did, they

would be preempted by the LRRA. The superior court concluded that there was

federal preemption of Georgia’s direct action statutes, and therefore, that

OOIDA is not subject to suit under them.

Federal Preemption Doctrine

The Supremacy Clause of the United States Constitution mandates that

federal law will preempt a state law that is inconsistent with it. U. S. Const., Art.

VI, cl. 2. Such preemption may be either express or implied, and “is ‘compelled

whether Congress’[s] command is explicitly stated in the statute’s language or

implicitly contained in its structure and purpose.’” Poloney v. Tambrands, 260

Ga. 850, 850-851 (1) (412 SE2d 526) (1991), quoting Fidelity Federal Savings

& Loan Assn. v. de la Cuesta, 458 U. S. 141, 153 (102 SCt 3014, 73 LE2d 664)

(1982) and Jones v. Rath Packing Co., 430 U. S. 519, 525 (97 SCt 1305, 51

LE2d 604) (1977). And, “(w)hen a federal statute unambiguously precludes

certain types of state (law), we need go no further than the statutory language

to determine whether the state (law) is preempted.” Poloney v. Tambrands,

supra at 851 (1), quoting Exxon Corp. v. Hunt, 475 U. S. 355, 362 (106 SCt 1103, 89 LE2d 364) (1986). However, when Congress has enacted legislation

in an area traditionally regulated by the states, there is an assumption that the

states’ powers are not to be superseded by the federal law unless that was

Congress’s clear and manifest purpose. Wyeth v. Levine, 555 U. S. 555, 565

(129 SCt 1187, 173 LE2d 51) (2009). The business of insurance is such an area

traditionally regulated by the states. See the McCarran-Ferguson Act, 15 USC

§ 1011 et seq.5 Therefore, a state law enacted for the purpose of regulating

insurance would not yield to a conflicting federal law unless the federal law

specifically requires it. 15 USC § 1012;6 United States Dept. of Treasury v.

5 15 USC § 1011 provides: The Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.

6 15 USC § 1012 provides: (a) State regulation The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business. (b) Federal regulation No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended [15 USC § 41 et seq.], shall be applicable to the business of insurance to the extent that such business is not regulated by State law. Fabe, 508 U. S. 491, 507 (113 SCt 2202, 124 LE2d 449) (1993).

History of the LRRA

The original version of the LRRA was enacted by Congress in 1981 as

the “Product Liability Risk Retention Act of 1981” (“PLRRA”), 15 USC §§

3901-3904 (1982), and did not encompass motor vehicle liability insurance but

was limited to product liability insurance. Mears Transp. Group v. State, 34

F3d 1013, 1016 (11th Cir. 1994). The PLRRA was expanded by Congress in

1986 resulting in the LRRA in order to encompass all commercial liability

insurance. Wadsworth v. Allied Professionals Ins. Co., 748 F3d 100, 103 (2d

Cir. 2014).

The LRRA’s Statutory Scheme

The structure of the LRRA is ably explained in Wadsworth. Risk

retention groups are governed by a tripartite scheme composed of both federal

and state regulations:

First, at the federal level, [the LRRA] preempts “any State law, rule, regulation, or order to the extent that such law, rule, regulation or order would . . . make unlawful, or regulate, directly or indirectly, the operation of a risk retention group,” 15 [USC] § 3902 (a) (1) . . . . The second part of the scheme secures the authority of the domiciliary, or chartering, state to “regulate the formation and operation” of risk retention groups. 15 [USC] § 3902 (a) (1). Federal preemption, therefore, functions not in aid of a comprehensive federal regulatory scheme, but rather to allow a risk retention group to be regulated by the state in which it is chartered, and to preempt most ordinary forms of regulation by the other states in which it operates. Thus, [the LRRA] provides for broad preemption of a [nondomiciliary] state’s licensing and regulatory laws. Similarly, [the LRRA] prohibits states from enacting regulations of any kind that discriminate against risk retention groups or their members, but does not exempt risk retention groups from laws that are generally applicable to persons or corporations. 15 [USC] § 3902 (a) (4). While [the LRRA] assigns the primary regulatory supervision of risk retention groups to the single state of domicile, the third part of its regulatory structure explicitly preserves for nondomiciliary states several very important powers. [It] specifically enumerates those reserved powers in subsequent subsections, with many powers of the nondomiciliary state being concurrent with those of the chartering state. See 15 [USC] §§ 3902 (a) (1) (A)-(I), 3905 (d). In particular, subject to [the LRRA’s] anti-discrimination provisions, nondomiciliary states have the authority to specify acceptable means for risk retention groups to demonstrate “financial responsibility” as a condition for granting a risk retention group a license or permit to undertake specified activities within the state’s borders. 15 [USC] § 3905 (d). . . . In short, as compared to the near plenary authority it reserves to the chartering state, [the LRRA] sharply limits the secondary regulatory authority of nondomiciliary states over risk retention groups to specified, if significant, spheres. Wadsworth v. Allied Professionals Ins. Co., supra at 103-104 (citations and

punctuation omitted).

Discussion

As noted, 15 USC § 3902 (a) (1) provides, in relevant part, that “a risk

retention group is exempt from any State law . . . to the extent that such law

. . . would make unlawful, or regulate, directly or indirectly, the operation of a

risk retention group. . . .” And, it is undisputed that OOIDA is a risk retention

group governed by the LRRA and that it is not chartered or domiciled in

Georgia. Therefore, 15 USC § 3902 (a) (1), insofar as it relates to the powers of

nondomiciliary states, governs the authority of Georgia to impose regulations

on OOIDA’s operations in Georgia. In the case at bar, the superior court

concluded that the LRRA preempted Georgia’s direct action statutes after

finding that the statutes would “‘regulate, directly or indirectly the operation of

the risk retention group as prohibited by 15 [USC] § 3902 (a) (1).’”

Plaintiffs urge that the direct action statutes7 do not regulate the operation

of risk retention groups but rather are “financial responsibility laws,” as set forth

7 Plaintiffs focus solely on OCGA § 40-1-112 (c); however, their challenge also implicates OCGA § 40-2-140 (d) (4). in 15 USC § 3905,8 and therefore, are not preempted by the LRRA. They argue

that the direct action statutes qualify as financial responsibility laws because

they are in the nature of an indemnity policy benefitting the public, that the

purpose of requiring an indemnity insurance policy, formerly a bond, is to

evidence the financial responsibility of the motor carrier, and that the Federal

Motor Carrier Safety Act designates laws requiring insurance or a bond for

motor carriers as financial requirement laws. See 49 CFR § 387.7 (a).9 They

8 15 USC § 3905 provides in relevant part: (a) No exemption from State motor vehicle no-fault and motor vehicle financial responsibility laws

Nothing in this chapter shall be construed to exempt a risk retention group or purchasing group authorized under this chapter from the policy form or coverage requirements of any State motor vehicle no-fault or motor vehicle financial responsibility insurance law. ... (d) State authority to specify acceptable means of demonstrating financial responsibility

Subject to the provisions of section 3902(a)(4) of this title relating to discrimination, nothing in this chapter shall be construed to preempt the authority of a State to specify acceptable means of demonstrating financial responsibility where the State has required a demonstration of financial responsibility as a condition for obtaining a license or permit to undertake specified activities. Such means may include or exclude insurance coverage obtained from an admitted insurance company, an excess lines company, a risk retention group, or any other source regardless of whether coverage is obtained directly from an insurance company or through a broker, agent, purchasing group, or any other person.

9 49 CFR § 387.7 (a) provides: (a) No motor carrier shall operate a motor vehicle until the motor carrier has obtained and has in effect the minimum levels of financial responsibility as set forth in § 387.9 of this subpart. further cite Mears Transp. Group v. State, supra, in support of their argument

that the direct action statutes are really financial responsibility laws. But,

Plaintiffs’ argument is unavailing. As acknowledged by Plaintiffs, Mears did

not involve direct action statutes. Rather, Mears was a challenge by for-profit

passenger transportation companies, and the risk retention group from which

they purchased insurance, to the validity of a Florida statute10 which required

owners and operators of for-hire transportation vehicles to maintain certain

specified insurance coverage, expressly for the purpose of proving financial

responsibility. Id. at 1014. The direct action statutes are not financial

responsibility laws as they in no manner assure the financial soundness or

solvency of a risk retention group. Rather, the direct action statutes provide a

10 The statute at issue was Fla. Stat. § 324.031 which provided, in relevant part: The owner or operator of a taxicab, limousine, jitney, or any other for-hire passenger transportation vehicle may prove financial responsibility by providing satisfactory evidence of holding a motor vehicle liability policy as defined in s. 324.021(8) or s. 324.151, which policy is issued by an insurance carrier which is a member of the Florida Insurance Guaranty Association. The operator or owner of any other vehicle may prove his or her financial responsibility by: (1) Furnishing satisfactory evidence of holding a motor vehicle liability policy . . . ; (2) Furnishing a certificate of self-insurance showing a deposit of cash . . . ; (3) Furnishing a certificate of self-insurance issued by the department . . . . (Emphasis supplied.) vehicle for directly naming a risk retention group as a party in a lawsuit.

In contrast, Wadsworth, like the present case, involved a state direct action

statute. In Wadsworth, the plaintiff filed a personal injury action against a

chiropractor in New York. Judgment was entered against the chiropractor, which

judgment the chiropractor failed to satisfy. The plaintiff then filed a direct

action against the chiropractor’s insurer, a risk retention group not domiciled in

New York, pursuant to a New York insurance law11 that required insurance

policies issued in New York to contain a provision permitting, in specified

circumstances, a party with an unsatisfied judgment to maintain a direct action

against the tortfeasor’s insurer for the satisfaction of that judgment. Id. at 101.

Like Georgia, New York’s insurance law regarding risk retention groups largely

mirrored the structure of the LRRA. Id. at 104; see OCGA § 33-40-1 et seq.

The Wadsworth court found that such a direct action statute, which is in

derogation of the common law, vested a substantive right in an injured party

against a tortfeasor’s insurer. Wadsworth at 104-105. Similarly, a prior

Georgia direct action statute addressing motor carriers and insurance carriers has

11 The statute at issue was N.Y. Ins. Law § 3420 (a) (2). been held to be substantive in nature, rather than procedural.12 Hidalgo v. Ohio

Security Ins. Co., 2011 WL 12711470, at n. 3 (N.D. Ga. 2011), citing Shapiro

v. Aetna Cas. & Sur. Co., 234 FSupp. 41, 42 (N.D. Ga. 1963). The Wadsworth

court focused on Congress’s intent to exempt risk retention groups broadly from

any requirement of state law that would make it difficult for such groups to form

or to operate on a multi-state basis. Wadsworth at 107. It concluded that an

expansive reading of the preemption language furthered the purpose of the

LRRA. Id. That court confirmed its prior determination that,

[i]n enacting the LRRA, . . . Congress desired to decrease insurance rates and increase the availability of coverage by promoting greater competition within the insurance industry. . . . Congress intended to exempt [risk retention groups] broadly from state law requirements that make it difficult for risk retention groups to form or to operate on a multi-state basis.

Id. (Citations and punctuation omitted.) Indeed, other courts have

12 Former OCGA § 46-7-12 (c) provided: It shall be permissible under this article for any person having a cause of action arising under this article to join in the same action the motor carrier and the insurance carrier, whether arising in tort or contract. acknowledged the broad preemptive effect of the LRRA.13 The Wadsworth court

further concluded that application of the direct action statute to a foreign risk

retention group would “undoubtedly ‘regulate, directly or indirectly,’ those

groups by subjecting them to lawsuits” filed in other states by claimants who are

not parties to the contracts with the insureds. Id. at 108. The court expressed

concern, as did the superior court in the present case, that “[t]he cost of litigation

might well result in higher attorneys’ fees, costs, and potential recoveries.” Id.

Section 3902 (b) of the LRRA expressly provides that “[t]he exemptions

specified in subsection (a) apply to laws governing the insurance business . . . .”

(Emphasis supplied.) It has been held that whether a practice is part of “the

business of insurance” can be determined by consideration of three

characteristics: whether the practice effectively transfers or spreads a

13 See, e.g., Mora v. Lancet Indem. Risk Retention Group, 2017 WL 818718, *5 (D. Md. Mar. 1, 2017) (“[C]ourts across the country have concluded that the LRRA’s preemption is sweeping and covers most state insurance laws.”); Attorneys Liability Protection Society v. Ingaldson Fitzgerald, P.C., 838 F3d 976, 980 (9th Cir. 2016) (“When considering whether the LRRA preempts a state law, we first determine whether the challenged aspect of the state law offends the LRRA’s broad preemption language.”); Speece v. Allied Professionals Ins. Co., 289 Neb. 75, 86 (853 NW2d 169) (2014) (“We agree with the Second Circuit’s reading of the LRRA [in Wadsworth].”); Alliance of Nonprofits for Ins., Risk Retention Group v. Kipper, 712 F3d 1316, 1321 (9th Cir. 2013) (“The LRRA broadly preempts ‘any State . . . order to the extent that such . . . order would . . . make unlawful, or regulate, directly or indirectly, the operation of (an RRG).’”). policyholder’s risk; whether it is an integral part of the contractual relationship

between the insurer and the insured; and whether the practice is limited to entities

within the insurance industry. Union Labor Life Ins. Co. v. Pireno, 458 U. S.

119, 129 (102 SCt 3002, 73 LE2d 647) (1982). The direct action statutes would

impact operation of the business of insurance of a risk retention group inasmuch

as application of the statutes would result in the spreading of risk and associated

increases in costs due to the additional financial burden of defending

unanticipated lawsuits in which they are directly named as parties, in affecting

the relationship between an insurer and insured by creating possible conflicts of

interest between the insurer and the policyholder, and in limiting their application

to insurers of motor carriers. Therefore, the direct action statutes would regulate

the operation of risk retention groups. See Speece v. Allied Professionals Ins.

Co., 289 Neb. 75, 88 (853 NW2d 169) (2014).

The clear goal of the LRRA is to streamline the operations of risk retention

groups like OOIDA by subjecting them to consistent regulation overseen by their

chartering state. Wadsworth, supra at 108. The direct action statutes subject

insurers of motor carriers to lawsuits as parties, and thus, exposes them directly

to liability and any consequent damages. As such, direct action statutes both directly and indirectly regulate the operations of insurers of motor carriers in

Georgia. While this type of regulating may be permissible with respect to

traditional insurance carriers, it is not allowed in the case of a foreign risk

retention group by the express act of Congress in the LRRA. 15 USC § 3902 (a)

(1). And, we cannot disregard Congress’s command. Poloney v. Tambrands,

supra at 850-851 (1).

In summary, application of the direct action statutory provisions, OCGA §§

40-1-112 (c), 40-2-140 (d) (4), to the risk retention group OOIDA is preempted

by the LRRA. Accordingly, the superior court properly granted summary

judgment to OOIDA.

Judgment affirmed. All the Justices concur. Decided May 7, 2018.

OCGA §§ 40-1-112 (c), 40-2-140 (d) (4); constitutional question. Newton

Superior Court. Before Judge Ozburn.

Jason & Bradley, Daniel C. Jason, for appellants.

McMickle, Kurey & Branch, Scott W. McMickle, Zach M. Matthews, for

appellees.

Levy & Pruett, Susan J. Levy, H. Lee Pruett, amici curiae.