Our Mini-Theme: Captive Insurance

In 2002, the IRS made rulings (Rev. Rulings 2002-89, 90, and 91) which were to result in a cataclysmic change to the way U.S. businesses obtain insurance. These 2002 rulings essentially legitimized for tax purposes the concept of the in-house insurance company, commonly referred to as a "captive insurance company." 

From 2002 to the present, the formation of new captive insurance companies for U.S. business grew by the thousands each year, to where now nearly every major U.S. company, non-profit, and even a very large number of middle-market companies have their own captive insurance company. “Captives,” as they are referred to, allow businesses the multiple advantages of retaining underwriting profits, fine-tuning their enterprise risk-management, and also often providing for better tax efficiency. 

To support the growing number of practitioners who were either forming new captives for their clients, or were regularly involved with their clients' existing captives, the Business Law Section in 2011 formed the Captive Insurance Committee. Starting as all new committees do with only a small handful of members, the committee has become one of the fastest growing committees within the section, and now makes its debut with this series of articles in Business Law Today

First, Delaware attorney Ed Ianni starts us off with a discussion of the benefits of a captive to private business owners, and how they may structure a captive to fit within their overall wealth preservation and estate planning structure. 

Prof. Beckett Cantley of John Marshall Law School and tax attorney Hale Stewart then lead us through the thicket of common tax issues involving captives, including a very important discussion of the IRS safe harbor rules. 

Next, general counsel for one of the largest captive management firms, Dana Sheridan, and I visit the practical factors that professionals should consider in the important decision as to the choice of domicile for a captive insurance company, including whether the captive should be domestic or foreign. 

Finally, we end our debut with a collection of my own observations about this new sector, organized by my 10 worst and 10 best things about captives. 

We hope that you enjoy these articles, and learn about how captive insurance companies provide daily benefit to the vast majority of significant businesses in the United States, and of their limitations. For those who might desire more, the committee will be sponsoring a presentation at the 2014 Business Law Section Spring Meeting featuring Prof. Beckett Cantley, Dana Sheridan, and tax attorney John Colvin, titled "Captive Insurance and Organizational Risk Management: Issues and Solutions."

Additional Resources

For other materials on this topic, please refer to the following. 

Business Law Section 2014 Spring Meeting 

Program: Captive Insurance and Organizational Risk Management: Issues and Solutions
Thursday, April 10, 2014 2:30 PM - 4:30 PM
Presented by: Captive Insurance
Co-sponsoring Committee: Middle Market and Small Business 

BLS Programs Material Library 

Captive Insurance Companies: Solving the Rubik's Cube of Regulation (PDF) (Audio)
2012 Spring Meeting
Presented by: Captive Insurance 
Captive Insurance Companies: Introduction and Update (PDF) (Audio)
2011 Annual Meeting
Presented by: Captive Insurance 

CLE Products 

Using the Captive Insurance Company: New Regulations and New Pitfalls for Your Clients (Audio CD ROM)
Recording Date: May 23, 2012
Running Time: 90 minutes
Credit Hours: 1.5 
The panel discusses emerging regulatory pitfalls associated with the use of captive insurance companies. Panelists cover federal anti-avoidance jurisprudence and its application to captives, followed by a discussion of state-level issues such as self-procurement taxes.

These issues have a significant impact on the entire captive insurance company life cycle from formation to administration and ultimately liquidation. This program is useful to all professionals who seek a better understanding of the U.S. regulatory issues involved with captive insurance companies, and want to understand whether a captive is an effective option for a client's goals. This audio CD-ROM includes full program audio and PDF course materials.



Nominations Sought for Section Leadership Positions

Do you know anyone who has what it takes to be a good Section leader? The Nominating Committee of the Section needs your recommendations for leadership positions for the 2017-2018 association year. Nominees will be selected for: Chair-elect (who automatically assumes the position of chair the following year); Secretary (who automatically assumes the position of vice chair the following year); Content Officer; two Section Delegates to the ABA House of Delegates; and five additional Council members for a four-year term expiring in 2021. The Nominating Committee will take into account the following principles in making its selections. It will: select nominees who have been substantial and active contributors to the Section; seek geographic diversity in the leadership of the Section; strive for representation from a broad cross-section of the areas of law represented in the Section; and seek to draw leaders from a broad cross-section of the various sectors of practice, including corporate law departments, government, academia and private law firms; and actively recruit nominees that reflect the diversity of the Section. Please send your nominations by email to susan.tobias@americanbar.org no later than November 18.

Question: Between November 2, 2015 and November 4, 2015, Harris Poll conducted an online survey of 2,017 adults ages 18 and older on behalf of NerdWallet, Inc. to understand U.S. consumers’ credit card payment habits and feelings around different types of debt. The results of this study were published in the 2015 American Household Credit Card Debt Study. According to the 2015 American Household Credit Card Debt Study, what percentage of U.S. adults would be more embarrassed to tell others about credit card debt than any other type of debt?
A. 10%
B. 35%
C. 55%
D. 90%

Question: From the late 1600s to the early 1800s, “debtors’ prisons” were commonplace with many cities and states operating brick-and-mortar detention facilities that were designed for incarcerating individuals who were unable or unwilling to pay their debts. Imprisonment for indebtedness was so commonplace that two signatories of the Declaration of Independence were jailed for failure to pay their debts. Can you name those two signatories?

The November issue of Business Law Today will focus on Nonprofits. Articles will range from the “Delaware Advantage” to nonprofit organizations needing nonprofit lawyers. In addition, other features include keeping pace with disruptive technological change, insurance bad faith recoveries, and constitutional issues in granting Americans a “Right to Dispute.”

Do you have a great idea for a BLT article? Would you like to see more of a featured column? Let us know how we can make Business Law Today the best resource for you and your clients. We welcome any suggestions. Please send us your feedback here.

Business Law Section Fall Meeting
November 18-19, 2016
Washington, DC

Business Law Section Spring Meeting
April 6-8, 2017
New Orleans, LA

Miscellaneous IT Related Legal News (MIRLN) 25 September - 15 October 2016 (v19.14)

BLT is a web-based publication drawing upon the best of the Section's resources, including featured articles and other information from around the Section. Stay informed on the latest business law practice news and information that will benefit you and your clients.