Saturday, June 15, 2024

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Delaware DoI takes battle with IRS to Supreme Court

The Delaware Department of Insurance (DDOI) has appealed to the Supreme Court to stay proceedings and recall the mandate of the Third Circuit Court of Appeals, which would require the DDOI to provide the Internal Revenue Service (IRS) with specific 831(b) documentation.

In April the DDOI lost its latest attempt to block an IRS summons concerning 831(b) captives managed by Artex Risk Solutions and Tribeca Strategic Advisors, wholly owned by Artex, in the State.

The IRS originally issued its summons to the DDOI on 30 October, 2017 during its investigation into Artex and Tribeca, seeking filings and communications between the Department and the captive managers.

The United States Court of Appeals for the Third Circuit on 21 April affirmed the District Court’s decision that the McCarran-Ferguson Act does not protect the documents requested and the threshold for constituting the ‘business of insurance’ was not met.

“The issue is the order of the Third Circuit Court of Appeals affirming the decision of the United States District Court for the District of Delaware enforcing an IRS summons that requires the Department to violate Delaware insurance law,” the DDOI said in its appeal to the Supreme court.

The DDOI said that these courts found in error and that a state insurance regulatory statute did not reverse-preempt a federal statute having nothing to do with insurance regulation.

“This error raises “critical questions” of federalism that require Supreme Court intervention to settle the circuit split caused by the Third Circuit Court of Appeals’ interpretation of the McCarran-Ferguson Act.”

The DDOI argued that the Third Circuit’s precedential opinion and simultaneous issuance of the mandate will cause irreparable harm.

“It requires a state Insurance Commissioner to violate the express command contained in the insurance laws of his own state, an outcome that upends Congress’ stated purpose in enacting the McCarran-Ferguson Act,” the DDOI said.

Section 69203 of the Delaware Insurance Code is at the heart of this dispute as the provision prevents the Insurance Commissioner from releasing certain information provided by Delaware insurance companies in the licensing and financial examination process without a written agreement to hold that information confidential and “in a manner consistent with the statute”.