Microsoft’s decision to settle with the Washington state Office of the Insurance Commissioner reveals a troubling trend according to Matthew Queen, general counsel & chief compliance officer at Venture Captive Management.
Microsoft’s captive insurer, Cypress Insurance, will pay $876,820—$573,905 in unpaid premium taxes and $302,915 in interest and penalties—to the Washington state Insurance Commissioner, Mike Kreidler, as part of a settlement agreement with the state.
Queen suggested that Microsoft’s decision to settle reflects a reality about the American justice system.
He explained: “Justice is available, but it is frequently not worth the time or money.”
“Defense costs and plea deals have reduced the speedy right to trial into the exception to the rule rather than the standard operating procedure.”
He continued: “The public lacks the facts to assess the legal merits of the case and will never know the full story due to the decision to settle.”
“This trend is troubling in light of New Jersey’s Johnson & Johnson (J&J) decision, which held that captives are subject to the Non-admitted and Reinsurance Reform Act and home states have the right to assess taxes based on the captive’s total gross written premiums—not just the premiums associated with the taxing state.”
According to Queen this “radical extension of state power” appears to represent a violation of the 14th Amendment’s Due Process Clause.
Queen added: “Some of the state’s arguments appear weak.”
“In particular, Washington’s focus on the captive’s lack of a surplus lines broker’s license or the existence of a surplus lines broker should be irrelevant as Microsoft has the absolute right to purchase insurance from a non-admitted carrier pursuant to Allgeyer v Louisiana.”
“It appears that Washington has taken a similarly aggressive position [to the J&J case] with respect to its premiums taxes and intends to continue litigation on this front until it’s stopped by strong defense counsel.”