880 F.3d 339
7th Cir.2018Background
- Restoration Risk Retention Group (RRG), domiciled in Vermont, provides general liability insurance to businesses that restore buildings after disasters; those businesses are regulated in Wisconsin as "dwelling contractors."
- Wisconsin Stat. §101.654(2)(a) required dwelling contractors to show a policy from an insurer "authorized to do business in [Wisconsin]." Historically TCU/OCI treated LRRA‑registered RRGs (like Restoration Risk) as satisfying that requirement.
- In 2015 TCU changed its interpretation, asserting that "authorized to do business" requires a Certificate of Authority from Wisconsin’s Office of the Commissioner of Insurance (OCI), thereby barring Restoration Risk from qualifying.
- Restoration Risk sued seeking declaratory and injunctive relief, arguing TCU’s interpretation is incorrect and preempted by the Liability Risk Retention Act (LRRA); it also asserted constitutional claims (later dismissed without prejudice).
- The district court upheld TCU’s interpretation and rejected Restoration Risk’s preemption argument; the court entered judgment for defendants and allowed an appeal.
- After the district court decision Wisconsin amended §101.654 to add an alternative: proof from an insurer "eligible to provide insurance as a surplus lines insurer in one or more states," prompting the court of appeals to vacate and remand so the district court can determine whether the amendment moots the dispute and how it affects preemption analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether TCU’s interpretation of §101.654(2)(a) requires a Wisconsin Certificate of Authority | Restoration Risk: statute historically allowed LRRA‑registered RRGs acknowledged by OCI; TCU’s new requirement is incorrect and unlawfully bars RRGs | Wisconsin/TCU: "authorized to do business" means an insurer must hold a Certificate of Authority from OCI | Court of appeals accepted district court’s factual holding that TCU adopted the Certificate of Authority interpretation but did not finally resolve validity — remanded for determination in light of statutory amendment |
| Whether the LRRA preempts Wisconsin’s regulation as interpreted by TCU | Restoration Risk: LRRA preempts state laws that unlawfully regulate operation of RRGs; Certificate of Authority requirement is preempted | Wisconsin: requirement is a financial responsibility condition saved from preemption by 15 U.S.C. §3905(d) (financial responsibility savings clause) | District court held LRRA did not preempt; appellate court vacated and remanded to allow district court to reassess preemption in light of statutory amendment |
| Whether federal courts have subject‑matter jurisdiction over Restoration Risk’s claims | Restoration Risk: asserts federal right under LRRA and pleaded nonfrivolous Fourteenth Amendment claims | Defendants did not contest jurisdiction; court analyzed whether claims were substantial | Court of appeals: federal jurisdiction proper (28 U.S.C. §1331 and §1983 claims pleaded were not frivolous) |
| Whether the 2017 amendment to §101.654 moots the case | Restoration Risk: amendment retains "authorized to do business" language and may not cure preemptive problems | Defendants: amendment adds surplus‑lines eligibility path that may allow Restoration Risk to qualify; insufficient information to decide — remand needed | Court of appeals: vacated judgment and remanded for district court to determine effect of amendment and whether appeal is moot |
Key Cases Cited
- All. of Nonprofits for Ins., Risk Retention Grp. v. Kipper, 712 F.3d 1316 (9th Cir. 2013) (describing nature and regulation of RRGs)
- Ophthalmic Mut. Ins. Co. v. Musser, 143 F.3d 1062 (7th Cir. 1998) (explaining PLRRA/LRRA purpose: domiciliary state regulation and operation across states)
- Wadsworth v. Allied Prof’ls Ins. Co., 748 F.3d 100 (2d Cir. 2014) (discussing LRRA’s allocation of regulatory authority between chartering and nonchartering states)
- Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) (federal courts may enjoin state regulation that is preempted by federal law)
- Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378 (2015) (limitations on equity relief where Congress manifests intent to limit court’s equitable powers)
- Metro. Life Ins. Co. v. Ward, 470 U.S. 869 (1985) (discussing state tax/regulatory discrimination against out‑of‑state insurers)
- Rice v. Panchal, 65 F.3d 637 (7th Cir. 1995) (party cannot create federal jurisdiction merely by anticipating a preemption defense)
- Roppo v. Travelers Commercial Ins. Co., 869 F.3d 568 (7th Cir. 2017) (explaining substantiality standard for federal claims that invoke jurisdiction)