Riverport Insurance Company v. Countrywide Payroll & HR Solutions Inc. (PLR1), 3:15-cv-00297

Background

Riverport Insurance (residual-market workers’ compensation carrier) sued Countrywide entities and SUNZ seeking declaratory relief, rescission, and breach of contract relating to policies Riverport issued in Tennessee, Indiana, Arkansas, and Iowa.
Riverport alleges Countrywide should have been classified as a Professional Employer Organization (PEO) and that its clients should have been issued multiple coordinated assigned-risk policies, resulting in misclassification, increased risk, and under-collected premiums.
Countrywide counterclaimed, alleging Riverport mishandled and denied claims in bad faith and breached contract.
Both sides moved to dismiss the other’s claims for failure to exhaust state administrative remedies before filing suit in federal court; Riverport also moved to dismiss Countrywide’s counterclaims on the same basis.
Each involved state (TN, IA, AR, IN) has statutorily prescribed assigned-risk procedures and multi-level administrative review (plan administrator then state insurance commissioner) for classification, premium disputes, cancellations, and related remedies.
The district court considered whether exhaustion of those administrative remedies was required before federal adjudication and dismissed all claims without prejudice for failure to exhaust.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Riverport may sue in federal court without first exhausting state administrative remedies for assigned-risk classification and premium disputes	Riverport sought federal declaratory and rescission relief directly in district court	Countrywide argued Riverport must exhaust the state administrative review processes before litigating	Court held Riverport must exhaust administrative remedies first; claims dismissed without prejudice
Whether Countrywide’s counterclaims about mishandled claims required exhaustion	Riverport argued Countrywide failed to use administrative processes for claims and premium disputes	Countrywide argued insurer conduct can be litigated in federal court	Court held Countrywide must exhaust administrative remedies too; counterclaims dismissed without prejudice
Whether assigned-risk policy rescission/cancellation is governed by state law and must be resolved administratively	Riverport sought rescission based on alleged misclassification and underwriting rules	Countrywide argued rescission relief is barred absent administrative exhaustion and contrary to state law procedures	Court held rescission/cancellation disputes implicate complex state regulatory schemes and require administrative exhaustion
Whether the court should keep jurisdiction over claims involving multiple state plans rather than require state review	Riverport implied federal resolution was appropriate	Countrywide emphasized state expertise and uniformity, and availability of administrative remedies	Court held administrative processes are more appropriate; federal suit premature until administrative remedies exhausted

Key Cases Cited

Ohio Nat’l Life Ins. Co. v. United States, 922 F.2d 320 (6th Cir.) (factual attack on subject-matter jurisdiction; court may weigh evidence)
Ready Mix, USA, LLC v. Jefferson Cnty, 380 S.W.3d 52 (Tenn.) (exhaustion of administrative remedies doctrine and judicial discretion to dismiss)
Colonial Pipeline Co. v. Morgan, 263 S.W.3d 827 (Tenn.) (deference to agency expertise when regulatory scheme exists)
Accident Fund v. Baerwaldt, 579 F. Supp. 729 (W.D. Mich.) (state regulatory schemes govern insurance matters)
Owens v. Brock, 860 F.2d 1363 (6th Cir.) (subject-matter jurisdiction defects can be raised by court sua sponte)