WSR 25-11-025
NOTICE OF APPEAL
OFFICE OF THE GOVERNOR
[Filed May 13, 2025, 1:44 p.m.]
March 3, 2025
CLIC Risk Retention Group, Inc.
c/o Christopher Payne
2 North Central Avenue, Suite 1800
Phoenix, AZ 85004
Via email: chris@clicrrg.com
Re: APA Appeal - Washington Administrative Code (WAC) 314-55-082(2).
Dear Mr. Payne:
On January 17, 2025, the Governor's Office received the appeal you filed on behalf of CLIC Risk Retention Group, Inc. in response to the Washington State Liquor and Cannabis Board's decision to deny CLIC's petition to amend WAC 314-55-082(2). This regulation requires Washington cannabis licensees to obtain insurance coverage to protect the consumer if any claims, suits, actions, costs, damages, or expenses arise from any negligent or intentional act or omission of the cannabis licensee. Under RCW 34.05.330(3), an agency's denial of a petition to repeal or amend a rule may be appealed to the Governor.
WAC 314-55-082 requires cannabis licensees to provide the Board with a certificate of insurance demonstrating that the licensee has obtained insurance that meets the requirements detailed in WAC 314-55-082. Such requirements include the following:
(1)Commercial general liability insurance: The licensee must carry and maintain commercial general liability insurance or commercial umbrella insurance for bodily injury and property damage arising out of licensed activities at all times. The limits of liability insurance will not be less than $1,000,000. Upon board request, a licensee must provide proof of insurance.
[…]
(2)Insurance carrier rating: The insurance required in subsection (1) of this section must be issued by an insurance company authorized to do business within the state of Washington. Insurance is to be placed with a carrier that has a rating of A - Class VII or better in the most recently published edition of Best's Reports. If an insurer is not admitted, all insurance policies and procedures for issuing the insurance policies must comply with chapters 48.15 RCW and 284-15 WAC.
WAC 314-55-082(1)-(2). The insurance carrier rating requirements in WAC 314-55-082(2) have been in place since 2013, after the voters of Washington state elected to legalize and regulate the cannabis industry through Initiative 502 in 2012.
On October 31, 2024, CLIC petitioned the Liquor and Cannabis Board to amend WAC 314-55-082(2) to account for captive insurers—and specifically, to accommodate CLIC or other risk retention groups that lack the required insurance carrier rating. CLIC's petition requests that the Board take any of three actions:
a)amend WAC 314-55-082(2) to account for captive insurers;
b)amend WAC 314-55-082(2) to include other federally approved rating agencies in the code section, and/or;
c)issue a decision allowing CLIC RRG to issue insurance policies within the state.
Pet. at 1-2. The petition argues that "subsection (2) is ambiguous as to whether a non-admitted insurer must have the stated rating" if the non-admitted insurer is in compliance with the subsection's third sentence. Id. at 4. Resolving this alleged ambiguity, the petition argues, "would benefit captive insurers seeking to issue cannabis policies in Washington State, as well as cannabis licensees seeking to obtain cannabis insurance in the state." Id. at 6.
A captive insurer is an insurance company that is wholly owned by the insured, and insures risks for which the parent company or companies have not purchased commercial insurance.1 A risk retention group is a type of captive insurer that is owned by its members and may insure only the "similar or related" commercial or professional liability exposures of its members, and is regulated by its chartering state.2 CLIC's petition states that "[c]aptive insurance companies serve as a correcting mechanism for failures in the insurance market and are formed when insurance is unavailable, policy terms are inadequate or premiums are higher than justified by the exposure." Pet. at 2.
1
Wash. State Dept. of Revenue and Office of Insurance Commissioner, Captive Insurance Study (Jan. 18, 2021) at 8, https://www.insurance.wa.gov/sites/default/files/documents/captive-insurance-study.pdf.
2
Id. at 20.
WAC 314-55-082 regulates cannabis licensees, not their insurers. And the issues that captive insurance is designed to solve do not appear to be a problem for cannabis licensees in Washington. In its response denying your petition on December 18, 2024, the Liquor and Cannabis Board stated that its licensing staff "have not received complaints or heard concerns from licensees in recent years of being unable to obtain the required insurance." Resp. at 4. The Board further noted that "[w]hether or not captive insurers should be allowed to insure cannabis licensees" is an open question that implicates complex considerations. Id. It would be premature for the Board to resolve an alleged ambiguity in WAC 314-55-082(2) or otherwise amend its regulations to accommodate captive insurers before this open policy question is resolved.
CLIC appealed the Board's denial of its petition on January 17, 2025. In its appeal, CLIC alleges that "the Board failed to consider the preemptive effect of" a federal law that regulates risk retention groups. App. at 2. This argument was not raised in CLIC's petition to the Board, which contains no reference to this federal law. See generally Pet. It appears to have been raised only in an email to the Board dated November 14, 2024. Pet. attachment (PDF p.29). This email contains no argument concerning the federal law's application to WAC 314-55-082, but merely attaches several "documents concerning Risk Retention Groups, and recent legislative matters around the country." These documents' applicability to Washington's cannabis industry and the Liquor and Cannabis Board's regulations is not apparent or explained; they include, for example, a letter regarding proposed legislation in another state related to motor vehicle liability insurance policies. Id. (PDF pp.30-37). Consideration of an issue not squarely presented to the Board is not appropriate in this appeal.
Furthermore, the appeal's characterization of the Board's reasons for denying the petition is incomplete and unpersuasive. App. at 13-14. As discussed above, the Board reasonably concluded that it need not prioritize amending its regulations to accommodate captive insurers before the complex policy considerations associated with their involvement in Washington's cannabis industry have been resolved, and before there is any demonstrated need to do so.
The Liquor and Cannabis Board denied CLIC's petition to amend WAC 314-55-082(2) after careful consideration, and I am not persuaded that it erred in doing so. CLIC's petition is denied.
Sincerely,
Bob Ferguson
Governor of Washington