Monday, October 4, 2021

District Court Enforces Summons to Delaware Dept of Insurance for Micro-Captive Information (10/4/21)

The district court has enforced the IRS summons issued to the Delaware Department of Insurance (“DDOI”) for information and documents on about 200 micro-captive insurance companies that DDOI issued certificates of authority.  United States v. Del. Dep't of Ins., No. 20-829, 2021 U.S. Dist. LEXIS 186623 (D. Del. Sep. 29, 2021), CL here.  I previously wrote on the Magistrate’s Report and Recommendation (“Report”) to enforce the summons.  Magistrate Judge Recommends Enforcement of IRS Summons to Delaware Dept of Insurance for Information Filed by Micro-Captives (Federal Tax Procedure Blog 7/19/21), here.  Substantial portions of the district court’s Background are simply a copy and paste from the Magistrate’s Report.

DDOI raised arguments of error in the Magistrate’s Report related to the interpretation and application of the McCarran-Ferguson Act (“MFA”):

(1) by applying a “threshold test” of whether the conduct at issue constitutes the business of insurance for a non-antitrust case; and (2) by determining that the challenged conduct does not constitute the “business of insurance.” DDOI also argues that the Report erred by failing to recommend dismissal of the Petition on the grounds that the MFA reverse-preempted the Summons.

The resolution of this issue gets into arcana of the MFA, so I won’t delve into it here in detail.  In summary, the district court held that, in non-antitrust cases, there was a threshold requirement for MFA that the activity in question constitute the business of insurance.  In doing so, the district court has an interesting discussion of precedential authority in the Third Circuit regarding whether a subsequent panel opinion that seems inconsistent with an earlier panel precedential decision can reverse the earlier holding without en banc consideration.  The Court finds that, under Third Circuit, authority, the prior precedential opinion controls.  Interesting.

The district court also affirmed the Magistrate’s Report’s finding that the activity in question was record maintenance rather than insurance subject to MFA.

The district court then summarily rejected the DDOI argument for reverse preemption under the MFA.

 JAT Comment:

Good.  Probably foreordained but the promoters, if thinking realistically, knew it was all about delay, and somehow engaged DDOI to help them achieve the delay.

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