The insurance commissioner for the State of Washington, Mike Kreidler, has imposed a $2.5 million fine on Alaska Air’s Hawaii-domiciled captive insurance company for unpaid tax, interest, and penalties.
The fine handed to ASA Assurance, its insureds and affiliates, included a fee of $1.8 million for unpaid premium tax, $0.2 million in interest, and $0.36 million in penalties.
It also received a fine of $0.1 million against ASA for violating the state’s insurance laws.
In addition, the order stated that ASA does not hold a certificate of authority to transact insurance in Washington state.
Earlier this year in January, ASA filed a report under the insurance commissioner's captive insurer self-reporting plan. According to the order, the insureds self-reported “some, but not all of the insurance policies issued by ASA”.
However, on 30 August the insurance commissioner withdrew the benefits of its self-reporting plan previously offered to ASA.
The self-reporting plan was introduced by Kreidler last year for captives that unlawfully insured risk in the state, offering them a reduced fine and premium tax penalty if they self-report during the 18-month grace period between 1 January 2019 and 30 June 2020.
From 1 July this year onwards, the fine amount and tax penalty increase for every six months that the captive insurer waits to self-report, up until the 30 June 2020 closing date.
Seattle-based insurance lawyer, Steven Beeghly said: “As a Washington state insurance attorney, I plan to closely follow the arguments Alaska Air’s captive ASA will make here in Washington state should they fully litigate in the administrative hearing they have demanded.”
Beeghly continued: “I am also keenly interested to see how their Hawaii captive will be used prospectively, and if they go down the same path or not as Microsoft and place coverage in the future through a licensed surplus line broker.”
He added: “I would imagine they are exploring all defences and theories both in this current matter and to determine the best future use of their captive.”
In August last year, Microsoft’s captive insurer, Cypress Insurance, was ordered to pay $0.8 million to the Washington state insurance commissioner as part of a settlement agreement with the state.
After the order, Matthew Queen, general counsel and chief compliance officer at Venture Captive Management, suggested captives do not have to do business in Washington state and should do everything they can to stay out of the state.
Others such as John Dies, managing director of tax controversy at alliantgroup, said that while Washington’s stance has been “very aggressive”, other states are considering taking similar action.
At the 2018 European Captive Forum, Captive Insurance Companies Association president Dan Towle identified home states unlawfully taxing captives as the greatest threat facing the captive industry.
