State Board of Insurance v. Todd Shipyards Corporation

rwhitingrwhiting
edited October 2019 in Dearie.Excess

Does this ruling no longer apply because of the provisions in Dodd-Frank? The ruling of this case, as per the Wiki, is: "under McCarran-Ferguson, the home state could not tax or regulate the transaction." Under Dodd-Frank, only the home state is able to tax and regulate the transaction, correct? So, Dodd-Frank essentially supersedes this ruling? Just want to make sure I have this right.

Comments

  • grahamgraham

    I see what you mean - it seems like Dodd-Frank potentially contradicts the Todd precedent but I don't know how to resolve this based on the syllabus readings.

    • Although not discussed in the syllabus, parts of Dodd-Frank have been nullified by Congress so all of that is up the air at the moment. Note also, that much of the Dodd-Frank material has been removed from the syllabus. (There are still bits and pieces of it left in Chapter 30 of Odomirok and NAIC.Solvency, but it feels like Dodd-Frank is not as relevant as it once was.)
    • Also, the Dearie reading was published in 2018 so I would take Dearie as the definitive source. In other words: in most cases the home state cannot tax/regulate direct placement / independent procurement.

    The Dearie text did have some extra information about Todd but I felt it was too detailed to include in the wiki. It says the following:

    • While a number of subsequent decisions have distinguished Todd Shipyards, the current case law would still protect a direct placement transaction from state regulation provided the following circumstances apply:
    • ==> The insured does not access the non-admitted insurer through a resident agent or surplus lines broker.
    • ==>There is no activity by the non-admitted insurer in the state either in the making or in the performance of the contract.
    • ==> The transaction takes place "solely" (or, in New York, "principally") outside of the state where the insured is located.

    I believe that in most situations, these 3 circumstances would apply. So as I mentioned in the wiki, despite subsequent decisions that distinguished this case, Todd is likely still valid in most jurisdictions.

  • rwhitingrwhiting
    Thanks. I think it’s unlikely this case will come up, but if it does, I’ve memorized a canned response anyhow.
  • rwhitingrwhiting
    edited October 2019
    Wait a second: regarding your second point, unless you’re implying something different, I thought one of the key provisions was that, under NRRA, *only* the insured’s home state can regulate / tax a surplus lines transaction?

    EDIT: Ah, sorry. I see you’re getting at something different, as independent procurement / direct placement is separate from surplus lines placement. This is all very nuanced, but is making more sense.
  • grahamgraham

    Gr8!

  • HaleyIRHaleyIR

    what is the specific "federal law[s] applying exclusively to insurance" that was applied in the Todd ruling?

  • Staff - ACStaff - AC

    The federal law that superseded state law was the Interstate Commerce Clause of the U.S. Constitution, which grants Congress the power to regulate interstate commerce. The insurance contract here adheres to such interstate commerce.

    This law does not seem to apply "exclusively" to insurance, to the layperson. I suspect there is some legalese involved in the use of "exclusively."

  • HaleyIRHaleyIR

    Okay, that is helpful context. Thanks!

  • Staff - ACStaff - AC

    Sure, good luck.

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