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Wadsworth v. Allied Professionals Insurance Co.

United States Court of Appeals, Second Circuit

April 4, 2014

RENATA WADSWORTH, Plaintiff - Appellant,
v.
ALLIED PROFESSIONALS INSURANCE COMPANY, A RISK RETENTION GROUP, INC., Defendant - Appellee

Argued, February 3, 2014

Plaintiff-appellant Renata Wadsworth sued defendant-appellee Allied Professionals Insurance Company (" APIC" ), a nondomiciliary risk retention group, under New York's direct action statute, N.Y. Ins. Law § 3420, to recover an unsatisfied state court judgment that had been entered against APIC's insured. The United States District Court for the Northern District of New York (Norman A. Mordue, Judge) granted summary judgment to APIC finding that any construction of New York law that would impose § 3420's direct action requirement on foreign risk retention groups was preempted by the Liability Risk Retention Act of 1986 (" LRRA" ), 15 U.S.C. § 3901, et seq. We hold that the LRRA preempts the application § 3420 to foreign risk retention groups.

MICHAEL C. PEREHINEC JR., Holmberg, Galbraith & Miller, LLP, Ithaca, New York, for Plaintiff-Appellant Renata Wadsworth.

RICK A. CIGEL (Michael B. Kadish, on the brief), The Cigel Law Group, P.C., Los Angeles, California, for Defendant-Appellee Allied Professionals Insurance Company, a Risk Retention Group, Inc.

Jeffrey B. Randolph, Law Offices of Jeffrey Randolph, Glen Rock, New Jersey, for Amicus Curiae National Risk Retention Association.

Before: LEVAL, CALABRESI and LYNCH, Circuit Judges.

OPINION

Page 101

Gerard E. Lynch, Circuit Judge

The federal Liability Risk Retention Act of 1986, 15 U.S.C. § 3901, et seq. (" the LRRA" or " the Act" ), contains sweeping preemption language that sharply limits the authority of states to regulate, directly or indirectly, the operation of risk retention groups chartered in another state. Id. § 3902(a). A provision of New York's insurance law requires that any insurance policy issued in that state contain a provision permitting, under certain circumstances, an injured party with an unsatisfied judgment to maintain a direct action against her tortfeasor's insurer for the satisfaction of that judgment. N.Y. Ins. Law § 3420(a)(2). This case requires us to determine whether the LRRA preempts the application of § 3420(a)(2) to a risk retention group that is domiciled in Arizona, but issues insurance policies in New York. We hold that it does.

BACKGROUND

In 2005, plaintiff-appellant Renata Wadsworth sought treatment from Dr. John Ziegler, an Ithaca, New York chiropractor. During her four visits with him, Ziegler repeatedly touched Wadsworth in an inappropriate, sexual manner without her consent. Wadsworth reported Ziegler's conduct to local authorities, who arrested him. Ziegler later pled guilty to third-degree assault for his actions against Wadsworth.

Wadsworth subsequently filed a civil action against Ziegler seeking damages for emotional injury and lost income stemming from the sexual assault. Following a bench trial, the Supreme Court of Tompkins County, New York (M. John Sherman, Judge ), entered a $101,175 judgment in Wadsworth's favor, which Ziegler failed

Page 102

to satisfy. Invoking N.Y. Ins. Law § 3420, and satisfying the conditions precedent of that provision, see infra p. 12, Wadsworth then sued defendant-appellee Allied Professionals Insurance Company (" APIC" ), which was Ziegler's insurance carrier at the time of the sexual assault. APIC is registered in New York as a federal risk retention group,[1] and is recognized as such by the New York Department of Financial Services. Domiciled in Arizona, APIC has over 4,000 insureds in New York, including acupuncturists, chiropractors, and massage therapists.

APIC removed the case to the United States District Court for the Northern District of New York, and the parties cross-moved for summary judgment. In a Memorandum-Decision and Order, the district court (Norman A. Mordue, Judge ) granted APIC's motion and denied Wadsworth's, concluding that any construction of New York law that would impose § 3420's direct action requirement on foreign risk retention groups was preempted by the LRRA.[2]

Wadsworth timely appealed, and upon de novo review of the district court's grant of summary judgment, Swatch Grp. Mgmt. Servs. Ltd. v. Bloomberg L.P., 742 F.3d 17, 24 (2d Cir. 2014), we now affirm.

DISCUSSION

Before turning to the preemption analysis, we briefly outline the history and structure of the various statutory schemes implicated by this case.

I. The Liability Risk Retention Act of 1986[3]

Under the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., the business of insurance is generally regulated by the states rather than the federal government. In the late 1970s, however, Congress perceived a seemingly unprecedented crisis in the insurance markets, during which many businesses were unable to obtain product liability coverage at any cost. And when businesses could obtain coverage, their options were unpalatable. Premiums often amounted to as much as six percent of gross sales, and ...


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