Group plans to sue over right to sell insurance to nonprofits

By Steve Green

Wednesday, Oct. 6, 2010 | 2:05 a.m.

A group offering insurance products to nonprofits is preparing to sue Nevada’s insurance commissioner after he ordered the company to stop selling “first dollar” automobile insurance in the state.

The dispute pits the Alliance of Nonprofits for Insurance (ANI), a “risk retention group” domiciled in Vermont, against the Nevada Division of Insurance and state Insurance Commissioner Brett Barratt.

The alliance was upset in April when the Nevada Department of Motor Vehicles stopped accepting registrations for vehicles insured by ANI; and in May when the Division of Insurance told ANI it was not authorized to sell first-dollar auto policies but could do so if it worked with an authorized “fronting” company.

ANI had been selling “first dollar” auto liability insurance since 2001 in Nevada, providing the minimum coverage required by the state ($15,000 per person, $30,000 per accident for bodily injury and $10,000 for property damage). ANI can continue to sell insurance in excess of the state minimums.

ANI didn’t appear on a list of approved first-dollar auto insurance sellers provided this year by the Division of Insurance to the DMV when the DMV launched an electronic vehicle registration system.

Barratt, in an interview, said ANI had been selling the first-dollar insurance without the division’s knowledge. He said that for legal and regulatory reasons, “risk retention groups” like ANI are unable to sell first-dollar auto liability insurance in Nevada.

While ANI is registered with the state, it does not have a certificate of authority to sell first-dollar auto insurance, he said.

Unlike regular insurance companies, risk retention groups and “captive” insurance companies exist to serve niche markets.

While there has not been a concern about the financial viability or claims-paying ability of ANI, Barratt said, it and other risk-retention groups are unable to participate in the Nevada Insurance Guaranty Association, which collects assessments from member insurance companies and would cover claims in the event of the failure of a NIGA insurer.

“Insurers that hold a Nevada certificate of authority are authorized to write first-dollar automobile liability insurance and are subject to NIGA, which ensures that any insurance claims Nevada consumers have with an insurer that becomes insolvent are paid,” Barratt wrote in an order involving ANI. “NIGA pays said claims through its statutory authority to assess member insurers.”

ANI’s attorneys have drafted a lawsuit to challenge Barratt on the issue — a lawsuit that may clarify a situation marked by conflicting views of the law.

“We welcome that,” Barratt said of the suit in an interview Monday.

“We want to make sure we get this right,” he said, adding Nevada remains friendly to risk-retention groups and niche market “captive insurers” and appreciates their contributions to the markets they serve.

ANI isn’t so conciliatory in talking about Barratt and the Insurance Division.

“When we first heard of this, we assumed there was some bureaucratic snafu, since we had been insuring nonprofit vehicles in Nevada since 2001 and there had never been a problem with any registration,” said Pamela Davis, CEO in Santa Cruz, Calif., of Alliance Member Services serving ANI and the Nonprofits’ Insurance Alliance of California.

“We clearly stated on our application as an RRG in Nevada in 2001 that we would be writing commercial auto and for 10 years have been reporting to the Division of Insurance the amount of auto and other insurance premium we write in the state. Furthermore, we have been paying premium tax,” she said. “Sadly, the Division of Insurance would not see the error of their ways and our many nonprofit members in Nevada have had to move their auto insurance elsewhere. In addition to losing about $160,000 in premium, our reputation has been damaged, and this has cost us a lot in legal fees, and nonprofits have been denied a great, cost-effective option for their insurance.”

“This is such a waste of charitable dollars,” Davis said. “ANI is a 501c3 nonprofit like its member-insureds. Our original capital came from $5 million grants from the Bill and Melinda Gates Foundation and the David & Lucile Packard Foundation. ANI insures about 3,000 nonprofits across the country. Together with its California affiliate, we insure 10,000 nonprofits. Nevada is the only state giving us any problem.”

Davis said since the problem emerged in April, ANI’s 17 nonprofit customers in Nevada were inconvenienced with vehicle registration problems and in having to find new insurance — insurance at rates likely higher than the nonprofit ANI offered.

ANI still offers in Nevada other types of insurance to nonprofits: sexual abuse liability, general liability, social services professional liability and directors and officers liability.

The group is opposed to the auto insurance fronting company suggestion.

“Their suggestion that we use a ‘fronting company’ is tantamount to suggesting that we just forget about the (federal) Risk Retention Act (authorizing risk-retention groups). This is exactly what the establishment insurance industry would like to have happen so that we would have to pay in the neighborhood of 10 percent of our premium to an admitted insurance company for the privilege of “playing’ in Nevada and using them as a front,” Davis said. “This law regarding who is authorized to write this business in Nevada was written before there were such things as risk-retention groups.

“We offer million-dollar policies,” she said. “This whole thing is about the first $15,000. So, in essence, the Division of Insurance is acting like this a big ‘consumer protection’ issue, but they are happy to have us charge for and provide $985,000 in coverage to the Nevada consumer without their oversight, but they absolutely can’t bear us to offer the first $15,000 — although we have done it successfully in Nevada since 2001 and now in 22 other states and the District of Columbia.

“This is not about us. It is about the last vestiges of an established industry trying to hold on to turf. More than 50 percent of commercial insurance premium is now in alternative insurance arrangements, and there is a move afoot to introduce federal regulation of insurance. I believe that is what this is really about — just one more

effort to exert state authority,” she said.