Client Services / Tax / Captive Insurance and Reinsurance

Captive Insurance and Reinsurance

McDermott Will & Emery lawyers are pioneers in the structuring of alternative risk transfer mechanisms as well as in the legal aspects of the adjustment of self-insured claims that inevitably arise.  Our client services focus not only on the development of creative risk retention/transfer solutions but on the operation of efficient risk management programs specifically designed to enhance business performance by aligning economic incentives with loss minimization to lower the enterprise’s cost of risk.  The lawyers comprising our captive insurance and reinsurance practice provide legal advice on a wide variety of issues, transactions and disputes across the risk-funding spectrum.

Structuring Captives and Other Alternative Risk Transfer Mechanisms

McDermott Will & Emery lawyers regularly advise on the structure and operation of alternative risk financing mechanisms in numerous contexts using various jurisdictions and formats, including deductibles and self-insured retentions (SIRs), trusts, retro programs, offshore and onshore captives, risk retention groups (RRGs), risk purchasing groups (RPGs) and self-insurance groups (SIGs).  We are knowledgeable in stock, mutual and reciprocal formats and combine our insurance regulatory, federal and state tax, securities law and litigation experience to optimize the recommended structure of the program.  By applying innovative approaches to familiar and extraordinary problems, we have achieved tax efficient and regulatory compliant results in commonplace and complex insurance environments.  We work across a broad array of industries, including health care and construction, and in conventional as well as specialized areas of coverage such as employee benefits, terrorism, pandemic and other emerging types of risk.

Over the past 25 years, we have enthusiastically maintained and updated a wide network of personal and institutional contacts, including senior governmental insurance regulators and potential project service partners.  We are on a first-name basis with regulators in the major captive domiciles, including Arizona, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, the District of Columbia, Hawaii, Nevada, South Carolina and Vermont.  We maintain an extensive library of organic documents needed to incorporate single-parent and group-ownership captive insurers in these and other captive domiciles.  We also have generated and archived many forms of surplus notes, subordinated debentures, reinsurance trust agreements, letters of credit, parent guarantees, reciprocal attorney-in-fact documents, captive risk financing offering circulars, etc.  We regularly counsel clients on securities law compliance and draft and update dozens of group captive disclosure documents annually for various formats, domiciles and factual situations.

Tax Planning and Audit

McDermott has a major practice focusing on the federal, state and local tax treatment of commercial and captive insurance and reinsurance companies and their products.  We provide a full range of legal services in this area, including planning advice and representing of clients in contested settings at U.S. Internal Revenue Service (IRS) administrative proceedings and in federal and state courts.  Firm lawyers have a wealth of experience and have obtained successful outcomes representing captives and their owners in tax controversies in federal district courts and the U.S. Claims Court, and on appeals of tax issues to the U.S. Courts of Appeal.  Firm lawyers also advise clients regarding state income and premium tax planning and controversies in numerous jurisdictions.

Policy Review and Interpretation

We regularly draft and interpret policy forms, facultative certificates and treaty provisions for clients involved in all aspects of the insurance and reinsurance industry.  These documents often are customized to achieve internal and external consistency and for applicability with particular insurance and reinsurance programs.

We have examined most forms of reinsurance contracts and have analyzed the effects of the intricacies of these agreements for insurer and reinsurer clients.  In some cases, we have reconstructed past reinsurance programs by locating evidence of reinsurance certificates and other indicia of contracts in order to assess claims exposure.

Litigation and Dispute Resolution

Our lawyers have served as U.S.-wide counsel to numerous policyholders, as well as major U.S. property and casualty insurers and reinsurers, for a variety of claims, ranging from environmental, mass tort and other long-tail claims to more specialized claims, such as directors and officers liability, errors and omissions, and business interruption.  We provide counsel on national trial coordination, claims and coverage positions, including all aspects of liabilities facing clients.  Additionally, we develop and coordinate national positions on key policy and treaty language; work with underwriters on policy, certificate and treaty wording; and analyze insurance and reinsurance law nationally and internationally.

Notwithstanding appropriate claim handling, disputes between captives and their “fronting” carriers, as well as cedents and their reinsurers, are inevitable.  Many reinsurance contracts require mandatory arbitration, yet other options may be available, including mediation and litigation.  Our vast experience litigating complex coverage disputes enables us to develop successful strategies for resolving claims through litigation or alternative dispute resolution, as appropriate, in the United States and internationally.

Similarly, group captives and their participants can become adverse in, for example, withdrawal and dissolution situations.  We have represented numerous captives or captive participants in resolving disputes of this nature.

Through our understanding of the developing case law on significant issues involving insurance and reinsurance, including underwriting and claims handling procedures, we ensure that our clients are kept abreast of emerging trends and their potential impact on how they conduct business.

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Tax Client Services

McDermott Will & Emery

McDermott Will and Emery