September 14, 2017
from the United States District Court for the Western
District of Wisconsin. No. 3:16-cv-00296-jdp - James D.
Peterson, Chief Judge.
Wood, Chief Judge, and Ripple and Hamilton, Circuit Judges.
Ripple, Circuit Judge.
Risk Retention Group, Inc. ("Restoration Risk")
brought this action seeking injunctive and declaratory relief
against the Secretary of the Wisconsin Department of Safety
and Professional Services ("WDSPS"), and the Trades
Credentialing Unit ("TCU") of the WDSPS.
Restoration Risk claims that TCU's new interpretation of
a Wisconsin statute is incorrect or, in the alternative, that
the Liability Risk Retention Act ("LRRA"), 15
U.S.C. §§ 3901-3906, preempts the statute as
interpreted by TCU.
district court denied Restoration Risk's motions for a
preliminary injunction and for partial summary judgment. It
granted the defendants' motion for partial judgment on
the pleadings. In doing so, the district court agreed with
TCU's new interpretation of the Wisconsin statute, which
effectively barred Restoration Risk from operating in
Wisconsin. It also concluded that TCU's interpretation
was not preempted by the LRRA.
the parties stipulated to a voluntary dismissal without
prejudice of all remaining claims, the district court entered
a final judgment in favor of the defendants. Restoration Risk
timely filed this appeal.
reasons set forth in this opinion, we vacate the district
court's judgment and remand the case so that the district
court can determine whether intervening amendments to the
Wisconsin statute render this litigation moot.
begin our analysis with a description of risk retention
groups ("RRGs") and of the federal statutory scheme
at issue in this case.
retention group is a form of insurance company; the hallmark
of such an entity is that it insures only its owners,
sometimes referred to as shareholders or members. See
All. of Nonprofits for Ins., Risk Retention Grp. v.
Kipper, 712 F.3d 1316, 1319 n.l (9th Cir.
2013). Risk retention groups grew in popularity
because, with the increase in product liability litigation,
some manufacturers struggled to find affordable product
liability insurance. Ophthalmic Mut. Ins. Co. v.
Musser, 143 F.3d 1062, 1064 (7th Cir. 1998). Indeed,
some manufacturers had to choose between
"unpalatable" insurance options (such as premiums
that amounted to "as much as six percent of gross
sales" or rates that rose "twenty-five fold in a
single year") or shutting their doors. Home Warranty
Corp. v. Caldwell, 777 F.2d 1455, 1463 (11th Cir. 1985).
address this situation, Congress enacted the Products
Liability Risk Retention Act ("PLRRA") to encourage
and permit "manufacturers to pool their resources into
risk retention groups to provide those members of the group
with insurance coverage." Musser, 143 F.3d at
1064. Because insurance regulation traditionally is left to
the states, the PLRRA explicitly preempted state laws that
inhibited the formation of risk retention groups. Congress
later expanded the PLRRA by enacting the Liability Risk
Retention Act ("LRRA").
this statutory scheme, Congress sought to protect the
establishment of risk retention groups, to subject them
primarily to the regulatory requirements of their state of
incorporation, and to limit the ability of other states to
impose other unnecessarily burdensome regulations upon them.
See generally Wadsworth v. Allied Profls Ins. Co.,
748 F.3d 100, 103 (2d Cir. 2014). Congress sought to achieve
these goals by taking the following steps.
the statute 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
U.S.C. § 3902(a). We refer to this clause as the
having exempted, in a general way, risk retention groups from
state regulation, the statute then restores state regulation
in a manner calibrated to ensure the effectiveness of these
groups. The statute provides that a risk retention
group's domiciliary, or chartering, state is the only
state allowed to regulate its formation and operation.
Musser, 143 F.3d at 1064. The risk retention group
must be "subject to that state's insurance
regulatory laws, including adequate rules and regulations
allowing for complete financial examination of all books and
records, including but not limited to proof of
solvency." Id. At that point, the risk
retention group may operate in any state. Id.
the statute recognized that other states had important, but
limited, interests in imposing some regulation on
risk retention groups operating within their borders. The
statute accomplishes this goal by reserving certain
regulatory powers for nonchartering states by
"saving" them from the general preemption clause
and giving nonchartering states concurrent authority with
chartering states for certain areas of regulation.
See 15 U.S.C. § 3905. Relevant to Restoration
Risk's claims, the LRRA saves from preemption
nonchartering state laws that require risk retention groups
"to ... demonstrate[e] 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." 15 U.S.C.
§ 3905(d). We refer to this as the "financial
responsibility savings clause."
complicate matters, however, the seemingly finely tuned
allocation of authority is subject to an antidiscrimination
clause that prohibits states from "otherwise
discriminat[ing] against a risk retention group or any of its
members, " but does not exempt risk retention groups
from any laws that are generally applicable to individuals or
corporations. 15 U.S.C. § 3902(a)(4). We refer to this
as the "antidiscrimination clause."
Risk is a risk retention group chartered in Vermont. Its
shareholder-insureds are businesses that clean and restore
buildings after disasters such as floods and fires. In
Wisconsin, these businesses are categorized and regulated as
"dwelling contractors." At the time this suit was
filed, Wisconsin required dwelling contractors to obtain an
annual certificate of financial responsibility from TCU, a
requirement they can satisfy with proof of a "policy of
general liability insurance issued by an insurer authorized
to do business in [Wisconsin]." Wis.Stat. Ann. §
101.654(2)(a) (West 2010).Since 2006, dwelling contractors in
Wisconsin could meet this state requirement by securing
general liability insurance from Restoration Risk, which was
registered with the Wisconsin Office of the Commissioner of
Insurance ("OCT'). This arrangement worked