Allied Professionals Insurance v. Michael Anglesey ( 2020 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ALLIED PROFESSIONALS No. 18-56513
INSURANCE COMPANY,
A Risk Retention Group, Inc., D.C. No.
an Arizona corporation, 8:14-cv-00665-CBM-
Plaintiff-Appellee, SH
v.
OPINION
MICHAEL SCOTT ANGLESEY;
ELISEO GUTIERREZ;
VERONICA GUTIERREZ,
Defendants-Appellants.
Appeal from the United States District Court
for the Central District of California
Consuelo B. Marshall, District Judge, Presiding
Argued and Submitted January 23, 2020
Pasadena, California
Filed March 12, 2020
Before: Richard R. Clifton and Kenneth K. Lee, Circuit
Judges, and Frederic Block,* District Judge.
Opinion by Judge Clifton
*
The Honorable Frederic Block, United States District Judge for the
Eastern District of New York, sitting by designation.
2 ALLIED PROFESSIONALS INS. CO. V. ANGLESEY
SUMMARY**
Preemption / Washington Law / Arbitration
The panel affirmed the district court’s order compelling
arbitration, and held that the Washington anti-arbitration
statute was preempted by the federal Liability Risk Retention
Act of 1986 (“LRRA”) as it applied to risk retention groups
chartered in another state.
The LRRA broadly preempts the authority of non-
chartering states to regulate the operation of risk retention
groups within their borders. A Washington state statute,
RCW § 48.18.200(1)(b), has been held to prohibit binding
arbitration agreements in insurance contracts in that state.
The panel held that the federal McCarran-Ferguson Act,
which generally protects state regulation of insurance, did
not reverse-preempt the LRRA. The panel also held that
Washington’s anti-arbitration statute offended the LRRA’s
preemption language and that no exception applied to save
the law. The panel concluded that the Washington statute
was preempted by the LRRA as it applied to out of state risk
retention groups.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
ALLIED PROFESSIONALS INS. CO. V. ANGLESEY 3
COUNSEL
Andrea J. Clare (argued), Telquist Mcmillen Clare, PLLC,
Richland, Washington, for Defendants-Appellants.
Michael John Schroeder (argued), Michael J. Schroeder, P.C.,
Orange, California; Michael B. Kadish, The Kadish Law
Group, P.C., Santa Monica, California; for Plaintiff-Appellee.
Joseph E. Deems, Deems Law Offices, APC, Encino,
California, for Amicus Curiae National Risk Retention
Association.
OPINION
CLIFTON, Circuit Judge:
The Liability Risk Retention Act of 1986 (“LRRA”), 15
U.S.C. § 3901 et seq., broadly preempts the authority of non-
chartering states to regulate the operation of risk retention
groups within their borders. A Washington state statute,
RCW § 48.18.200(1)(b), has been held to prohibit binding
arbitration agreements in insurance contracts in that state.
Dep’t. of Transp. v. James River Ins. Co., 292 P.3d 118, 123
(Wash. 2013) (“[W]e hold that unless the legislature
specifically provides otherwise, RCW 48.18.200 prohibits
binding arbitration agreements in insurance contracts.”). This
case asks us to determine whether the LRRA preempts this
provision as it applies to a risk retention group chartered in
Arizona but doing business in Washington. We hold that it
does.
4 ALLIED PROFESSIONALS INS. CO. V. ANGLESEY
I. Background
Plaintiff-Appellee Allied Professionals Insurance
Company (“APIC”) is a risk retention group, a liability
insurance company owned by its insured members, chartered
in Arizona and doing business in Washington. APIC
previously insured Dr. Michael Scott Anglesey, a
chiropractor in Washington. In December 2012, Dr. Anglesey
provided chiropractic treatment to Mr. Eliseo Gutierrez which
allegedly resulted in Mr. Gutierrez suffering a stroke. A few
months later, Dr. Anglesey renewed his coverage with APIC
but, in doing so, did not inform the company of the potential
malpractice claim against him by Mr. and Mrs. Gutierrez.
When Dr. Anglesey later notified APIC of this potential
claim, the company advised him that it was denying coverage
and rescinding his 2012 and 2013 insurance policies.
A year later, Dr. Anglesey informed APIC that he was
planning to execute a consent judgment in favor of Mr. and
Mrs. Gutierrez and to assign his rights against APIC to them.
They had agreed to seek satisfaction on the judgment from
APIC and not from Dr. Anglesey. APIC responded by
demanding that all claims against APIC be sent to arbitration,
pursuant to the arbitration clause in the underlying policies.
Dr. Anglesey refused, and APIC filed this lawsuit on April
28, 2014, in the Central District of California against both
Dr. Anglesey and Mr. and Mrs. Gutierrez (collectively,
“Defendants”).1
1
After the commencement of this action in district court, a
Washington state court held the settlement agreement between
Dr. Anglesey and Mr. and Mrs. Gutierrez to be reasonable and entered the
stipulated judgment. Dr. Anglesey and Mr. and Mrs. Gutierrez have filed
ALLIED PROFESSIONALS INS. CO. V. ANGLESEY 5
The district court initially held that APIC did not have
standing to bring the underlying action to compel Defendants
to arbitrate. APIC appealed that decision to this court. We
ruled that APIC had standing to bring the action against Dr.
Anglesey to seek rescission of the policy and declaratory
relief and had standing against all Defendants to compel
arbitration of those claims. Allied Prof’ls Ins. Co. v. Anglesey,
680 Fed. Appx. 586 (9th Cir. 2017). On remand, the district
court granted APIC’s motion to compel arbitration, granted
the motion to stay proceedings pending arbitration, denied a
motion by Defendants to transfer venue to the Eastern District
of Washington, and certified a controlling interlocutory
question of law to this court under 28 U.S.C. § 1292(b). This
court granted permission to appeal.
II. Discussion
The question certified by the district court is “whether the
Liability Risk Retention Act preempts Wash. Rev. Code
§ 48.18.200(1)(b) as applied to risk retention groups.” “The
district court’s decision to grant or deny a motion to compel
arbitration is reviewed de novo.” Bushley v. Credit Suisse
First Boston, 360 F.3d 1149, 1152 (9th Cir. 2004). We
review conclusions of law de novo. See Mull for Mull v.
Motion Picture Indus. Health Plan, 865 F.3d 1207, 1209 (9th
Cir. 2017).
suit against APIC in the Eastern District of Washington based on APIC’s
denial of coverage. That suit is stayed pending a decision in this action.
6 ALLIED PROFESSIONALS INS. CO. V. ANGLESEY
A. Regulatory Structure
Congress enacted the Product Liability Risk Retention
Act of 1981 (“PLRRA”) as a response to “a seemingly
unprecedented crisis in the insurance markets, during which
many businesses were unable to obtain product liability
coverage at any cost.” Wadsworth v. Allied Prof’ls Ins. Co.,
748 F.3d 100, 102 (2d Cir. 2014). The Act supports the
formation of risk retention groups, organizations “whose
primary activity consists of assuming, and spreading all, or
any portion, of the liability exposure of its group members.”
15 U.S.C. § 3901(a)(4)(A). “Under the PLRRA, [a risk
retention group] is permitted to provide product liability
insurance in all states, free of insurance regulation by those
states, if it complies with the insurance laws of the state it
chooses as its ‘chartering jurisdiction.’” Nat’l Warranty Ins.
Co. RRG v. Greenfield, 214 F.3d 1073, 1075 (9th Cir. 2000)
(quoting 15 U.S.C. § 3901(a)(4)(C)(i)). The PLRRA only
covers risk retention groups in the product liability insurance
market. In 1986, Congress enacted the LRRA to expand the
benefits of the PLRRA to all commercial liability insurance.
The PLRRA and LRRA create a “tripartite” regulatory
scheme for risk retention groups. See Wadsworth, 748 F.3d at
103. First, at the federal level, the statutes preempt state laws
regulating the operation of risk retention groups. 15 U.S.C.
§ 3902(a)(1). Second, at the state level, they authorize the
chartering state to regulate the groups’ formation and
operation. Id. Finally, also at the state level, they “sharply
limit[] the secondary regulatory authority of nondomiciliary
states over risk retention groups to specified, if significant,
spheres.” Wadsworth, 748 F.3d at 104; see also 15 U.S.C.
§§ 3902(a)(1)(A)–(I); 15 U.S.C. § 3905. These regulatory
divisions allow for “the efficient operation of risk retention
ALLIED PROFESSIONALS INS. CO. V. ANGLESEY 7
groups by eliminating the need for compliance with numerous
non-chartering state statutes that, in the aggregate, would
thwart the interstate operation [of] ... risk retention groups.”
H.R.Rep. No. 97-190, at 12 (1981), reprinted in 1981
U.S.C.C.A.N. 1432, 1441.
B. The LRRA’s Preemptive Effect
The answer to the question posed in this case is that the
LRRA does preempt Washington’s anti-arbitration statute,
RCW § 48.18.200(1)(b), as it applies to risk retention groups
chartered in other states. In reaching this conclusion, we
follow the guide of our own precedent and that of the Second
Circuit. See Attorneys Liab. Prot. Soc’y, Inc. v. Ingaldson
Fitzgerald, P.C., 838 F.3d 976 (9th Cir. 2016); Wadsworth,
748 F.3d 100.
1. The McCarran-Ferguson Act does not reverse-
preempt the LRRA
Defendants first contend that the LRRA does not preempt
the Washington anti-arbitration statute because it is
“reverse-preempted” by the McCarran-Ferguson Act, 15
U.S.C. § 1011 et seq. The McCarran-Ferguson Act is
generally understood to protect state regulation of insurance.
The Washington Supreme Court relied upon the
McCarran-Ferguson Act in holding that RCW
§ 48.18.200(1)(b) is shielded from preemption by the Federal
Arbitration Act. James River Ins. Co., 292 P.3d at 124.
Although our court has not opined on the precise issue of the
relationship between the McCarran-Ferguson Act and the
Federal Arbitration Act, we have repeatedly held that the
LRRA is an exception to the McCarran-Ferguson Act’s
preference for state regulation of insurance. See Attorneys
8 ALLIED PROFESSIONALS INS. CO. V. ANGLESEY
Liab. Prot. Soc’y, Inc., 838 F.3d at 982 n.4 (“We have
squarely held that even though the McCarran-Ferguson Act
reserves insurance regulation to the states, the LRRA was
meant to be an exception for [risk retention groups].”); Nat’l
Warranty Ins. Co., 214 F.3d at 1077 (“Even with a general
presumption that insurance law should ordinarily be regulated
under state law, as reinforced by the McCarran-Ferguson Act,
the language and purpose of the LRRA clearly indicate an
intent to preempt state laws regulating [risk retention
groups].”). Under our precedent, therefore, the
McCarran-Ferguson Act does not “reverse-preempt” the
LRRA.
2. The LRRA preempts Washington’s anti-arbitration
statute
Defendants next contend that the LRRA was specifically
designed not to preempt all state laws, including ones like the
Washington anti-arbitration statute. “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. If so, we consider
whether one of the LRRA’s exceptions, which are contained
in §§ 3902(a)(1) and 3905, applies to save the state law. If no
exception applies, the law is preempted.” Attorneys Liab.
Prot. Soc’y, Inc., 838 F.3d at 980 (citations omitted). We
conclude that Washington’s anti-arbitration statute offends
the LRRA’s preemption language and that no exception
applies to save the law.
The LRRA states in relevant part, “[e]xcept as provided
in this section, a risk retention group is exempt from any
State law, rule, regulation, or order to the extent that such
law, rule, regulation, or order would – (1) make unlawful, or
ALLIED PROFESSIONALS INS. CO. V. ANGLESEY 9
regulate, directly or indirectly, the operation of a risk
retention group[.]” 15 U.S.C. § 3902(a). Defendants argue
this language ought to be construed narrowly. They contend
that the LRRA only requires non-chartering states to refrain
from passing laws which prevent risk retention groups from
“operating” as an insurance company, and that the
anti-arbitration statute in question does not concern their
operation. In doing so, Defendants construe the LRRA as an
anti-discrimination statute, one which is designed only to
keep states from treating risk retention groups differently than
other insurance companies.
Defendants’ understanding of the statute is mistaken. The
LRRA’s preemption provision is broadly worded, and this
court has repeatedly held that the LRRA has a broad
preemptive effect. See Attorneys Liab. Prot. Soc’y, Inc., 838
F.3d at 980–81 (“The LRRA …broadly preempts ‘any
[non-chartering] State law . . . .’” (quoting 15 U.S.C.
§ 3902(a)(1))); All. of Nonprofits for Ins., Risk Retention
Group v. Kipper, 712 F.3d 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].’” (quoting 15 U.S.C.
§ 3902(a)(1)) (alterations in original)); Nat’l Warranty Ins.
Co. RRG, 214 F.3d at1077 (“[T]he language and purpose of
the LRRA clearly indicate an intent to preempt state laws
regulating [risk retention groups].”). This broad effect
requires that the term “operation” be read generously. We
have previously held that an Alaska statute which prohibited
insurance providers from seeking reimbursement of fees
incurred defending a non-covered claim regulated the
“operation” of a foreign risk retention group. See Attorneys
Liab. Prot. Soc’y, Inc., 838 F.3d at 980. The state statute
placed “a restriction on Alaska contracts that is ‘not
10 ALLIED PROFESSIONALS INS. CO. V. ANGLESEY
contemplated by the LRRA, and that is not [precluded] by all
other states,’” and therefore regulated the risk retention
group’s operations in conflict with the LRRA. Id. at 981
(quoting Wadsworth, 748 F.3d at 108) (alteration in original).
Similarly, Washington’s anti-arbitration statute places a
restriction on risk retention groups that is not required by the
LRRA or by all other states. Thus, the Washington
anti-arbitration statute “regulate[s], directly or indirectly, the
operation of a risk retention group.” 15 U.S.C. § 3902(a)(1).
Moreover, Defendants’ reading of the LRRA would
jeopardize the purpose of the statute. The LRRA was not
enacted simply to keep states from discriminating against risk
retention groups. Instead, as described above, the LRRA was
passed by Congress in an effort to support a struggling
insurance market. In order to do so, the Act “eliminat[ed] the
need for compliance with numerous non-chartering state
statutes that, in the aggregate, would thwart the interstate
operation [of] . . . risk retention groups.” H.R.Rep. No. 97-
190, at 12 (1981), reprinted in 1981 U.S.C.C.A.N. 1432,
1441 (House report for the PLRRA); see also H.R. Rep. No.
99-865, at 8–9 (1986), reprinted in 1986 U.S.C.C.A.N. 5303,
5305–06 (House report for the LRRA explaining that it “is
necessary to exempt risk retention and purchasing groups
from State law . . . in order to achieve the beneficial effects of
such groups referred to above.”). Allowing a state such as
Washington to force foreign risk retention groups to alter
their contracts would threaten this goal.
As the anti-arbitration statute “offends the LRRA’s broad
preemption language,” it may only be “save[d]” if an
exception in 15 U.S.C. §§ 3902(a)(1) or 3905 applies.
Attorneys Liab. Prot. Soc’y, Inc., 838 F.3d at 980. These
exceptions generally “authorize[] nonchartering states to
ALLIED PROFESSIONALS INS. CO. V. ANGLESEY 11
require risk retention groups to comply only with certain
basic registration, capitalization, and taxing requirements, as
well as various claim settlement and fraudulent practice
laws.” Wadsworth, 748 F.3d at 106. Defendants contend that
the Washington anti-arbitration statute falls into two of these
exceptions. First, they argue that the anti-arbitration statute is
an example of Washington requiring foreign risk retention
groups to “comply with the unfair claim settlement practices
law of the State.” 15 U.S.C. § 3902(a)(1)(A). Second, they
claim the Washington statute falls under the exception for
state laws “regarding deceptive, false, or fraudulent acts or
practices.” 15 U.S.C. § 3902(a)(1)(G). Defendants fail to
explain how an anti-arbitration statute is an “unfair claim
settlement practices law” or how it deals with “deceptive,
false, or fraudulent acts,” and we do not find support for
either contention.
Washington’s anti-arbitration statute offends the LRRA’s
broad preemption language and fails to fall into one of its
exceptions. Therefore, the statute is preempted by the LRRA
as it applies to out of state risk retention groups.
III. Conclusion
The Washington anti-arbitration statute is preempted by
the LRRA as it applies to risk retention groups chartered in
another state. We affirm the order of the district court
compelling arbitration.2
2
Defendants moved to certify a question to the Washington Supreme
Court. Specifically, Defendants proposed to ask that court whether RCW
§ 48.18.200(1)(b) applied to prohibit the arbitration clause in this risk
retention contract. The question of whether that statute, if so interpreted,
12 ALLIED PROFESSIONALS INS. CO. V. ANGLESEY
AFFIRMED and REMANDED FOR FURTHER
PROCEEDINGS.
has been preempted by the LRRA is a question of federal law, not state
law. We deny the motion to certify.
We grant the motion of the National Risk Retention Association for
leave to file an amicus curiae brief in support of APIC.