new i. relevant facts · 2020. 3. 9. · of the washington state bail bonds association that the...

OIC’S PETITION FOR REVIEW

Docket No. 08-2019-INS-00063

LA – 1598499 - 1

1 State of Washington Office of Insurance Commissioner

Insurance 5000 Building

PO Box 40255

Olympia, WA 98504-0255

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WASHINGTON STATE OFFICE OF THE INSURANCE COMMISSIONER

In the Matter of:

REGAN BAIL BONDS, INC.,

and

DAVID A. REGAN,

Respondents.

Docket No. 08-2019-INS-00063

Agency No. 19-0370


The Washington State Office of the Insurance Commissioner (“Insurance

Commissioner” or “OIC”) submits written argument for the Presiding Officer’s consideration,

pursuant to the Presiding Officer’s correspondence of February 10, 2020 and RCW

34.05.464(6). ALJ Schuh made incorrect factual determinations and erroneously interpreted

and applied the Insurance Code and related regulations to this case. ALJ Schuh also erred in

his application of Washington case law to this case.

ALJ Schuh improperly denied OIC’s Motion for Summary Judgment (“OIC’s MSJ”)

and improperly granted Respondents’ Motion for Summary Judgment (“Respondents’ MSJ”).

The undisputed material facts set forth in OIC’s Amended Cease and Desist Order, Order No.

19-0370 (“the Cease and Desist Order”), demonstrate that Respondents acted as an insurer and

transacted insurance in Washington without proper authorization. Therefore, only the OIC, and

not Respondents, are entitled to judgment as a matter of law. OIC respectfully requests that the

Presiding Officer reverse the Initial Order, deny Respondents’ MSJ, grant OIC’s MSJ, and

uphold the Cease and Desist Order.

In the alternative, the Presiding Officer should remand this matter for an evidentiary

hearing with the instruction that the bail bonds at issue are insurance and not self-insurance, if

OIC’s facts are proven. If the matter is remanded, the Presiding Officer should order ALJ

Schuh to compel OIC’s requested discovery, which was improperly denied.

I. Relevant Facts

Regan Bail Bonds Inc. (“Regan Bail Bonds”) is a resident business entity first licensed

as an insurance producer in Washington on September 6, 2005. Regan Bail Bonds is authorized

Received electronically 03-06-20 RC


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State of Washington Office of Insurance Commissioner


PO Box 40255


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to sell the surety line of insurance as an insurance producer and is appointed by three (3)

insurers. Regan Bail Bonds does not possess a Certificate of Authority issued by the Insurance

Commissioner to act as an insurer and transact the business of insurance in Washington. David

A. Regan (“Regan”) is a resident insurance producer first licensed in Washington on May 1,

2000. He is authorized to sell the surety line of insurance as an insurance producer and is

appointed by four (4) insurers. He is also the Designated Responsible Licensed Person

(“DRLP”) for Regan Bail Bonds and responsible for the entity’s compliance with Washington

insurance laws and regulations. RCW 48.17.090(3)(b). Regan and Regan Bail Bonds are

collectively referred to hereafter as the “Respondents.”

On February 17, 2019, OIC received a complaint regarding Respondents’ bail bond

practices. The Complainant is a resident surety insurance producer first licensed in Washington

in 2001. He has worked in the bail industry since 1999. He provided supporting documentation

and alleged that Respondents were “acting as its own surety company and not licensed in that

capacity.” Ex. 2, p. 1; Ex. 3. He further provided OIC a sworn declaration. Ex. 4. He declares

that the conduct at issue was discovered by a Clark County Clerk who reported to the President

of the Washington State Bail Bonds Association that the “bonds did not look right.” Ex. 4,

para. 3. The Complainant also declares:

The bail bonds were almost an exact copy of the forms used by an admitted insurer.

Regan Bail Bonds Inc. was able to post the bonds that name it as surety in Clark

County because the forms gave the appearance of a valid surety bond.

Id., at para. 6. He “was concerned because Clark County requires bail bonds to be backed by

an admitted insurer” and “the bail bonds that [he] reviewed were not property bonds nor are

property bonds generally accepted in Clark County, except on a case by case basis which

requires approval by a judge.” Id., at paras. 4 and 7. Lastly, Respondents are “receiving an

unfair advantage over the bail bond agencies that conduct business legally” as “Regan Bail

Bonds, Inc. is retaining more by not paying premiums to an insurer and at times is severely

underpricing the bail bonds in a manner that extinguishes fair competition.” Id., at para. 5.

Based on its investigation, OIC found that since January 1, 2018, Respondents posted

325 surety bonds in which Regan Bail Bonds is the named surety. See Jessica Bullington

Declaration dated November 13, 2019 (“Bullington Decl.”); See also Exs. 1, 12, 33.

Respondents provided a power of attorney (“POA”) form as evidence for the majority of these


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bail bonds. Bullington Decl., at para. 14. When used by Respondents’ appointed insurers, the

POA form appoints a representative of Regan Bail Bonds as Attorney-in-Fact to act on the

surety insurer’s behalf in executing bail bonds. Exs. 20, 25, 29. In addition, the POA form

authorizes Respondents to sign the insurer’s name and affix the insurer’s corporate seal. Id.

In order to execute and guarantee the majority of the bail bonds at issue, Respondents

altered the bail bond documents (a bail bond cover sheet and a POA form) they used when

properly posting corporate surety bail bonds on behalf of their appointed and authorized

insurers, International Fidelity Insurance Company (“IFIC”) and Allegheny Casualty Company

(“ACC”).1 Exs. 3, 4, 19, 20, 22, 24, 25, 33. Respondents removed IFIC’s corporate seal affixed

on the POA form, two bar codes, a form identification number and altered IFIC’s POA form

despite it clearly stating: “THIS POWER OF ATTORNEY IS VOID IF ALTERED OR

ERASED…” IFIC’s Vice President, Robert Kersnick (“Kersnick”), contacted Regan about his

improper use of IFIC’s POA form. Regan informed Kersnick that he “might have” used IFIC’s

“forms as a template for his property bond business.” Ex. 22, para. 3. Regan also stated to

Kersnick that “some of the various Washington State Counties had accepted the altered POA

permitting the Agent to post under some sort of ‘property pledge’ or ‘deposit’ by the Agent

directly with the court.” Id., at para. 4. OIC gathered many bail bond cover sheets that were

altered by Respondents and state:

That we, REGAN BAIL BONDS, a Washington Corporation, as surety (identified by

power of attorney # __, Are held and firmly bound unto the court of jurisdiction, in the

penal sum of $ ___ For the payment where of well and truly to be bade we bind

ourselves… The condition of this obligation is such that if the above said principal,

shall appear at the next regular or special term as ordered by the court to answer the

charge/s of _______... Ex. 1, p. 7; Ex. 3, pp. 12, 14; Ex. 33, pp. 1, 3, 5, 7, 9, 11, and ending at p. 122. OIC also

gathered many POA forms that were altered by Respondents and state:

KNOW ALL MEN BY THESE PRESENTS, that Regan Bail Bonds, a corporation

duly organized and existing under the laws of the State of Washington, has constituted

and appointed, and does hereby constitute and appoint, its true and lawful Attorney-in-

Fact, with full power and authority to sign the company’s name and affix its corporate

seal to, and deliver on its behalf as surety, any and all obligations herein provided, and

the execution of such obligations in pursuance of these presents shall be as binding

1 IFIC and ACC are part of an insurance group and use the same POA form. See Bullington Decl., p. 3, para. 15.


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upon the company as fully and to all intents and purposes…

Ex. 1, p. 8; Ex. 12.

Respondents reported to OIC that Regan Bail Bonds “posts corporate surety bonds as

well as individual bonds also known as property bonds.” Ex. 10, para. 3. Respondents provided

three (3) reports entitled “Property bond report 1,” “Property Bonds 2,” and “Property Bonds

3.” Ex. 12, pp. 260-264, 265-271, 272-291. The reports state “Insurer: Regan Bail Bonds

Property” and list the bail bonds at issue as “property bonds.” Id., at pp. 260, 265, 272.

Respondents further assert their “actions fall under its licensing by the State of

Washington Department of Licensing.” Respondents’ MSJ, p. 1. The Washington Department

of Licensing (“DOL”) provided OIC with a sworn declaration that explains relevant

Washington law and regulation regarding bail bonds. Ex. 34. DOL clarifies that “OIC is

responsible for authorizing all insurance business in Washington” and OIC determines

“whether an individual bail bond product is insurance.” Id., at paras. 12-13 (Emphasis added.)

In regards to property bail bonds, DOL explains:

A property bail bond agent is a ‘surety that posts security in the form of personal or real

estate for compensation to assure the appearance of a defendant.’ WAC 308-19-030(4).

A bail bond is not a property bail bond if the agent does not identify to the court the

specific property being used to secure the bond. (Emphasis added.) Id., at para. 16. The Complainant also explains that “[a] valid property bond

is not evidenced by a power of attorney” but “a property bond is a single sheet with language

showing that the bail bond company or the owner of the bail bond company has pledged his

personal or real property to guarantee the defendant will show up to court.” Ex. 4, para. 7. The

bail bonds at issue are secured by the general corporate assets of the corporation, not by cash

deposits or specific pieces of real or personal property. OIC Investigator Bullington requested

documentation from Respondents to support their assertion that the bail bonds are property

bonds, but Respondents did not provide such documentation. Exs. 11, 13.

Regan Bail Bonds collected and retained the full premium for the bail bonds

Respondents executed and guaranteed. Ex. 12, p. 259. Six (6) individuals, including Regan,

executed these bonds on behalf of Regan Bail Bonds. These bail bonds were executed in 17

different Washington courts and involved 228 defendants. 276 of the 325 bail bonds were

executed and guaranteed by Regan Bail Bonds in municipal, district, or superior court in Clark


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County. The 325 bail bonds had liabilities of almost $4 million, including liabilities at the

onset of OIC’s investigation of almost $2 million. Regan Bail Bonds collected approximately

$294,570.20 in premium from defendants. OIC also found that Janet Capps, acting on Regan

Bail Bonds’ behalf, executed at least 37 of the 325 bail bonds in Washington. Janet Capps is

not licensed in Washington as an insurance producer.

On July 30, 2019, following OIC’s investigation, the Insurance Commissioner ordered

Respondents to immediately cease and desist from specific conduct in violation of the

Insurance Code. The Insurance Commissioner issued the Cease and Desist Order pursuant to

his authority under RCW 48.02.080, RCW 48.17.063, and RCW 48.15.023(5)(a). On August 9,

2019, Respondents timely filed a demand for hearing. On November 14, 2019, the parties

submitted competing Motions for Summary Judgment. Respondents acknowledge “…all of the

material facts laid out in the OIC [Cease and Desist] Order are undisputed.” Respondents’ MSJ,

p. 13, Section A. Respondents agree:

[I]t is a bail bond company; it has the authority to act as an appointed insurance

producer to execute corporate surety bonds on behalf of specified insurers; and, in

certain instances, Regan acted as its own ‘surety’ without naming an insurance

company/insurer to guarantee performance on the bond.

Id. Regan further declares:

I have reviewed OIC’s Cease and Desist Order, wherein it is alleged that Regan posted

325 bonds listed Regan as surety, with 142 posted in Clark County Superior Court. I

agree and stipulate that such is true.

Regan Declaration (“Regan Decl.”), p. 3, para. 18. On February 5, 2020, ALJ Schuh issued an

Initial Order Denying OIC’s Motion for Summary Judgment and Granting Respondents’

Motion for Summary Judgement (“Initial Order”). In response, OIC submits this petition for

review and respectfully requests that the Presiding Officer reverse the Initial Order, grant

OIC’s MSJ, deny Respondents’ MSJ and uphold the Cease and Desist Order.

II. Issues

The question on review is whether this Court should uphold ALJ Schuh’s Initial Order

setting aside the Cease and Desist Order. ALJ Schuh decided that “the transactions at issue do

not constitute insurance or insurance transactions” and “[a]ccordingly, the Office of the

Insurance Commissioner does not have jurisdiction over those transactions.” Paras. 2.1-2.2.


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III. Argument

The Presiding Officer should reverse the Initial Order, grant OIC’s MSJ, deny

Respondents’ MSJ and uphold the Cease and Desist Order. The undisputed material facts set

forth in the Cease and Desist Order demonstrate that Respondents acted as an insurer and

transacted insurance in Washington without proper authorization. One of Respondents’

employees also conducted insurance business without properly being licensed as an insurance

producer. Respondents’ conduct violated the Insurance Code and OIC had ample authority to

order Respondents to cease and desist from such conduct.

A. Legal Standard

On review, the “reviewing officer shall exercise all the decision-making power that the

reviewing officer would have had to decide and enter the final order had the reviewing officer

presided over the hearing...” RCW 34.05.464(4). “The reviewing officer shall personally

consider the whole record or such portions of it as may be cited by the parties.” RCW

34.05.464(5). “[U]nless a statute or due process requires a different quantum of proof, the

preponderance of the evidence standard applies to resolve disputes in administrative

proceedings.” Fox v. Dep’t of Ret. Sys., 154 Wn. App. 517, 525 (2009) (citing Thompson v.

Dep’t of Licensing, 138 Wn.2d 783, 797 (1999). Here, based upon the undisputed material

facts, the Presiding Officer should reverse the Initial Order, grant OIC’s MSJ, deny

Respondents’ MSJ and uphold the Cease and Desist Order.2

B. The evidence establishes that Respondents acted as an insurer and transacted

insurance, specifically surety insurance, without the proper authorization in

Washington and thereby violated RCW 48.05.030, RCW 48.15.020(1) RCW

48.28.010, and RCW 48.17.530(1)(l).

The Presiding Officer should find that based on the undisputed material facts set forth

in the Cease and Desist Order, Respondents acted as an insurer and transacted insurance,

specifically surety insurance, without the proper authorization in Washington and thereby

violated RCW 48.05.030, RCW 48.15.020(1), RCW 48.28.010 and RCW 48.17.530(1)(l). The

bail bonds executed and guaranteed by Respondents meet the Insurance Code’s definitions of

insurance, insurance transaction, and surety insurance. See RCW 48.01.040, RCW 48.01.060

2 See Final Order at p. 7, Global Rescue, LLC, Docket No. 10-0039 (requiring Global Rescue to be authorized as

an insurer by certificate of authority before it acts as an insurer and transacts insurance in Washington).


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and RCW 48.11.080. In the Initial Order, ALJ Schuh did not apply a relevant Insurance Code

statute, RCW 48.01.060, to Respondents’ conduct. Under RCW 48.01.060, the bail bonds

constitute insurance transactions because Respondents insured defendants’ appearance at court

proceedings. ALJ Schuh also incorrectly interpreted RCW 48.01.040 and RCW 48.11.080, and

erred in his application of these statutes and related regulations to Respondents’ conduct.

Under RCW 48.01.040, RCW 48.01.060, RCW 48.11.080, Respondents transacted insurance,

specifically surety insurance, in Washington.

1. Respondents transacted insurance.

Respondents transacted insurance in Washington and, as a result, their conduct falls

under OIC’s regulatory authority. In 1947, the Washington legislature broadly and plainly

defined insurance as “a contract whereby one undertakes to indemnify another or pay a

specified amount upon determinable contingencies.” RCW 48.01.040 (Emphasis added.) This

statute offers two ways a contract may qualify as insurance. Respondents’ bail bonds are

contracts that qualify as insurance on both grounds.

The bail bonds executed and guaranteed by Respondents meet the definition of

insurance on the grounds that Respondents agree to pay a specified amount upon determinable

contingencies. It is undisputed that Respondents executed and guaranteed the bail bonds at

issue. Regan Decl., p. 3, para. 18 and Respondents’ MSJ, at p. 2. As recognized by ALJ Schuh,

“‘bail bond’ means the contract between the defendant, the surety and/or the court to insure the

appearance of the accused before the court(s) at such time the court may direct. WAC 308-19-

030(3) (in pertinent part).” Initial Order, para. 5.22. (Emphasis added.) This regulation explains

a bail bond is a contract between the defendant, the surety and the court, to insure the

appearance of the accused. For each of the 325 bail bonds at issue, Respondents entered into a

contract with a criminal defendant whereby Regan Bail Bonds, a Washington corporation, has

undertaken (Respondents agreed in exchange for compensation from defendant) to pay a

specified amount (the bail bond amount) upon a determinable contingency (if defendant fails to

appear).3 The altered bail bond cover sheets used by Respondents state:

3 Per Respondents’ Motion for a Protective Order, p. 5: “The defendant will pay the bonding company [Regan

Bail Bonds] a fee for the bonding company to post the bond (often a percentage of the value of the bond). The

posting of the bond promises the court that the bonding company will pay the value of the bond if they are not

able to produce the defendant after a failure to appear at subsequent court dates.” (Emphasis added.)


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That we, Regan Bail Bonds, a Washington Corporation, as surety (identified by power

of attorney # __, Are held and firmly bound unto the court of jurisdiction, in the penal

sum of $ ___ For the payment where of well and truly to be bade we bind ourselves…

The condition of this obligation is such that if the above said principal, shall appear at

the next regular or special term as ordered by the court to answer the charge/s of

_______...

Ex. 1, p. 7; Ex. 3, pp. 12, 14; Ex. 33, pp. 1, 3, 5, 7, 9, 11, and ending at p. 122. Per the

language of the bail bond cover sheets, Respondents agreed to pay a specified amount (“in the

penal sum of $___”) upon a determinable contingency (“The condition of this obligation is

such that if the above said principal, shall appear…”) and, therefore, transacted insurance

under RCW 48.01.040.

Alternatively, Respondents’ bail bond contracts also qualify as insurance because

Respondents indemnify the defendant against a loss. “Indemnify” is defined as “1a: to secure

or protect against hurt or loss or damage... b: to exempt from incurred penalties or liabilities”.

Webster’s Third New International Dictionary of the English Language 1147 (2002).4

Respondents agreed, in exchange for compensation from defendant, to pay the Court the value

of the bail bond upon a determinable contingency of the defendant failing to appear.5

Respondents acknowledge “should a defendant fail to appear, the Court looks to Regan (not

the defendant) to pay.” Respondents’ MSJ, pp. 15-16. Each defendant has paid Respondents a

premium and, in exchange, Respondents have guaranteed to the Court that in the event that the

defendant does not appear, Respondents will pay the value of the bail bond to the Court. If the

defendant does not appear, the defendant is exempt from incurring penalties or liabilities

regarding the amount of the bail bond. ALJ Schuh erred in his factual determination that

Respondents did not “indemnify anyone or pay on behalf of anyone by posting these bonds.”

Paras. 4.22 and 4.24.

Lastly, Respondents’ conduct falls under the Insurance Code’s definition of an

insurance transaction. RCW 48.01.060(5). ALJ Schuh erred in stating the bail bonds purchase

the defendant’s release from jail (para. 5.27); bail bonds “guarantee that an individual charged

4 Washington courts use Webster’s Third New International Dictionary in the absence of other authority. GR 14

(appendix). In the Initial Order, ALJ Schuh did not correctly reference this definition as guidance, but instead

references the definition from Black’s Law Dictionary 769 (6th ed. 1995). 5 For further discussion, see OIC’s Motion for Summary Judgment, pp. 8-11; OIC’s Response to Respondent’s

Motion for Summary Judgment, pp. 2-3.


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with a crime will appear for the defendants’ next court appearance after being released from

custody...”6 See also WAC 308-19-030(3)(stating a bail bond is a contract that insures the

appearance of the accused.) The bail bonds executed and guaranteed by Respondents clearly

constitute insurance transactions as they insure the defendants’ appearance at future court

proceedings.

a. ALJ Schuh impermissibly narrowed the definition of insurance by eliminating

a fundamental phrase from the definition of insurance.

ALJ Schuh did not follow well-established canons of statutory interpretation when he

narrowed the Insurance Code’s definition of insurance to “the presence of indemnification.”

Para. 5.18. He did so on the basis that the legislature’s definition was “remarkably broad and

vague.” Id. Specifically, the Initial Order contains the following flawed reasoning:

OIC emphasized the phrase ‘undertakes…to pay a specified amount upon determinable

contingencies,’ arguing that such is precisely what a bond company does. However,

that phrase describes a great many contracts – if not most contracts – that are clearly

not insurance contracts. Therefore, in conjunction with the authorities recited above, I

hold that the key to identifying a transaction as insurance is the presence of

indemnification.

Id. However, ALJ Schuh’s subjective opinion that the statutory language is broad and vague is

not an excuse to ignore the plain language enacted by the legislature.

ALJ Schuh’s decision to drastically narrow the Insurance Code’s definition is

unsupported by the plain language of the statute and the ordinary rules of statutory

construction. “Statutes must be interpreted and construed so that all the language used is given

effect, with no portion rendered meaningless or superfluous.” Whatcom County v. Bellingham,

128 Wn.2d 537, 546 (1996) (citations omitted.) By eliminating “pay a specified amount upon

determinable contingencies” from the definition of insurance, ALJ Schuh did not follow this

important canon of statutory interpretation. Further,

The goal of statutory interpretation is to ‘ascertain and give effect to the legislature’s

intent and purpose.’ The primary source to be used is the plain language of the statute.

If the plain language of the statute is unambiguous, then this court’s inquiry is at an

end. The statute is to be enforced in accordance with its plain meaning.

Burns v. City of Seattle, 161 Wn.2d 129 (2007) (citations omitted.) RCW 48.01.040 is

unambiguous and evidences the legislature’s intent for a broad definition of insurance in

6 1 New Appleman on Insurance Law Library Edition, Volume 11, § 144.08.


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Washington State.7 ALJ Schuh’s interpretation of the statute is problematic because his

interpretation renders a fundamental and regularly cited portion of the statute meaningless.

Additionally, ALJ Schuh’s interpretation of “insurance” as defined by RCW 48.01.040

is not supported by the cases he cites in his ruling. Paras. 5.15 to 5.17. For instance, in State ex

rel. Fishback v. Universal Service Agency, 87 Wash. 413 (1915), the Washington Supreme

Court analyzed and applied the Insurance Code’s earlier 1911 definition of the term insurance.8

Similarly, in Para. 5.17, ALJ Schuh cites to Physicians Def. Co. v. Cooper, 199 F. 576 (9th Cir.

1912), a case that only addresses the California definition of insurance at the time and not

Washington’s definition of insurance. These authorities do not address, let alone support, ALJ

Schuh’s interpretation of “insurance” under current Washington law.

b. ALJ Schuh impermissibly narrowed the definition of insurance by adding

extra statutory elements to the definition of insurance.

ALJ Schuh further erred by adding elements of risk-shifting and risk-distribution to the

definition of insurance. These elements are not included in the Insurance Code’s definition of

insurance. RCW 48.01.040. It is axiomatic that a court or tribunal “cannot add words or

clauses to an unambiguous statute, when the legislature has chosen not to include that

language.”9 The Insurance Code’s definition of insurance is unambiguous and, therefore, ALJ

Schuh erred in adding new elements to the Insurance Code’s definition of insurance.

In addition, the taxation cases that ALJ Schuh cites do not support adding these

elements to Washington State’s definition of insurance. Para. 5.16. In these cases, the courts

did not interpret RCW 48.01.040; they are therefore inapplicable. Furthermore, the courts

grapple with the definition of insurance for the purposes of taxation and not for the purposes of

Washington insurance regulation. See In re Estate of Smiley, 35 Wn. 2d 863, 866 (“whether the

amounts derived from the contracts are proceeds of insurance within the meaning of

inheritance tax statutes”) (Emphasis added.); Amerco, Inc. v. C.I.R., 979 F.2d 162, 165 (9th Cir.

7 Kyrkos v. State Farm Mut. Auto Ins. Co., 121 Wn. 669, 674 (1993)(Discussing RCW 48.01.040 and stating

“When a statute is unambiguous, its meaning must be derived from the actual language chose by the

Legislature.”)(citations omitted.) 8 Fishback, 87 Wash. at 423 (citing Sect. 1 of the Wa. Insurance Code (1911 Wash. Laws, ch. 49) which defines

“insurance” as “a contract whereby one party called the insurer, for a consideration, undertakes to pay money or

its equivalent, or to do an act valuable to another party called the insured, or his beneficiary, upon the happening

of the hazard or peril insured against, whereby the party insured or his beneficiary suffers loss or injury.”) 9 State v. Delgado, 148 Wn.2d 723, 727 (2003).


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1992) (interpreting insurance for the purposes of federal taxation). All insurers must comply

with the Insurance Code. RCW 48.01.020; RCW 48.01.040; RCW 48.01.060. The definition

of insurance is necessarily broad because the Insurance Commissioner is required to take

action against both licensed insurers and those who are acting as insurers without

authorization. Entities acting as insurers without authorization often avoid characterizing

themselves as insurers or referring to their contracts as insurance policies. Whereas, entities

seeking recognition as a “bona fide insurance company” under federal taxation standards are

attempting to be recognized as insurers because of the taxation benefits and seek to

demonstrate they constitute insurers. As a result, a state’s definition of insurance must be

broader than the federal definition because it allows states to take action against those entities

who are acting as unauthorized insurers. See, e.g., RCW 48.02.080; RCW 48.05.030; RCW

48.05.140; RCW 48.15.023.

In summary, non-insurance tax authorities are not instructive for interpreting

Washington’s statutory definition of insurance. ALJ Schuh incorrectly relied on these cases

and, in doing so, inappropriately added the elements of risk-shifting and risk-distribution to the

tribunal’s analysis of whether Respondents’ contracts constituted insurance under the

Insurance Code. The Initial Order’s interpretation of insurance threatens to undermine OIC’s

ability to take action against unauthorized insurers who attempt to avoid regulation.

The undisputed material facts set forth in the Cease and Desist Order establish

Respondents’ conduct meets the definition of insurance in Washington and are, therefore,

subject to the Insurance Commissioner’s regulatory authority.

2. Respondents transacted surety insurance, which is insurance.

Under the Insurance Code, Respondents’ conduct also falls under the definition of

surety insurance, which is regulated by the Insurance Commissioner as a particular variety of

insurance. RCW 48.11.080(2) and RCW 48.11.080(4).10 “Surety insurance” includes “bail

bond insurance” and “guaranteeing the performance of contracts, other than insurance policies,

and guaranteeing and executing bonds, undertakings, and contracts of suretyship.” RCW

48.11.080(2) and RCW 48.11.080(4). “Bail bonds guarantee that an individual charged with a

crime will appear for the defendant’s next court appearance after being released from

10 See also Chapter 48.28 RCW.


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custody.”11 Respondents acknowledge the following: “By law, Regan is deemed ‘surety’

because it is the entity ‘that guarantees performance of the bail bond contract for

compensation.’ See, WAC 308-19-030(5).”12 Respondents’ MSJ, at p. 2. Per their own

acknowledgment, Respondents guaranteed and executed bail bond contracts, which is the exact

conduct defined as surety insurance by the Insurance Code.13

a. Respondents guaranteed undertakings and contracts of suretyship.

These bail bond contracts also constitute guaranteeing undertakings and contracts of

suretyship, which also fall within the definition of “surety insurance.” RCW 48.11.080(4). In

discussing RCW 48.11.080, the Washington Supreme Court states:

Suretyship is a contractual relation whereby one person, called the surety, agrees to be

answerable for the debt or default of another, called the principal.

Seattle-First Nat’l Bank v. Wash. Ins. Guar. Ass’n, 116 Wn.2d 398, 406 (1991).14 OIC’s

regulation, WAC 284-17-001(16), also states “‘Surety’ means that limited line of authority of

insurance or bond that covers obligations to pay the debts of, or answer the default of

another…” Respondents have insured against debts or defaults of criminal defendants. Seattle-

First Nat’l Bank, at 398.15 Specifically, Respondents have entered into bail bond contracts with

the defendants, wherein Respondents collected premium from defendants and, in exchange,

have agreed to answer the debts or defaults of the defendants by paying the bond amount to the

court in the event of defendants’ non-appearance.

ALJ Schuh overlooked that Respondents acknowledge they have executed and

guaranteed the performance of bail bond contracts for compensation. Respondents’ MSJ, p. 2.

para. 2. Respondents’ statements and evidence presented by OIC support the finding that

11 1 New Appleman on Insurance Law Library Edition, Vol. 11, §144.08 Bail Bonds (2019). 12 See also Respondents’ MSJ, p. 7 (stating “…the bond company makes its own promise to the Court to secure or

pay, and it remains responsible/liable for that (its own) promise”; See also Ex. 10, p. 3, para. 6. 13 See also Nat’l Bank of Wash. v. Equity Investors, 86 Wn.2d 545, 553 (1976) (stating “The undertakings of

compensated sureties are regarded as in the nature of insurance contracts and controlled by rules applicable

thereto”) (citations omitted). 14 See also 1 Couch on Ins. Third Edition § 1:14, Suretyship (stating “Suretyship is a contractual relation resulting

from an agreement whereby one person, the surety, engages to be answerable for the debt, default, miscarriage of

another, the principal.”) 15 Nat’l Bank, supra, 86 Wn.2d at 553-554 (“The compensated surety sells protection as a sort of commodity. It

has solicited the sale of its protection for purposes of gain and its business assumes that losses will occur for

which it must pay.”)

https://advance.lexis.com/api/document/collection/analytical-materials/id/5CMJ-TK70-R03M-224F-00000-00?cite=1%20New%20Appleman%20on%20Insurance%20Law%20Library%20Edition%20%C2%A7%20144.08&context=1000516&icsfeatureid=1517130


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Respondents transacted surety insurance under RCW 48.11.080 by transacting “bail bond

insurance … guaranteeing the performance of contracts, other than insurance policies, and

guaranteeing and executing bonds.” RCW 48.11.080(2) and RCW 48.11.080(4).

ALJ Schuh incorrectly ruled that Respondents “may purchase surety insurance, in this

case bail bond insurance.” Para. 5.37. Respondents did not purchase surety insurance;

Respondents transacted surety insurance as they entered into contractual arrangements with

defendants, collected premium from defendants and, in return, executed and guaranteed the

performance of bail bond contracts. Exs. 1, 3, 12, and 33. Respondents understood the proper

avenue to post bail bonds on behalf of authorized insurers, as they have acted on behalf of

multiple insurers and posted bail bonds properly guaranteed by such insurers. See e.g. Exs. 20,

25, and 29. Instead of acting as insurance producers, for which they hold proper licensure,

Respondents here acted as the obligor of bail bonds representing a total of $3,693,056 in

liabilities. Ex. 1, p. 3.

The undisputed material facts set forth in the Cease and Desist Order establish

Respondents’ conduct meets the definition of surety insurance in Washington.16 As a result, the

Presiding Officer should find Respondents transacted surety insurance in Washington and are

therefore, subject to the Insurance Commissioner’s regulatory authority.

3. Respondents’ conduct is not self-insurance.

ALJ Schuh erroneously concluded, without citation to relevant authority or meaningful

analysis, that Respondents’ bail bonds constituted self-insurance. See Paras. 5.42-5.46. Self-

insurance is defined by the Insurance Code as “a formal program of advance funding and

management of entity financial exposure to a risk of loss that is not transferred through the

purchase of an insurance policy or contract.”17 The definition indicates self-insurance is the

total retention of all the risk without a transfer “through the purchase of an insurance policy or

contract” from another entity. Self-insurance consists of an arrangement in which an entity

reserves its own funds in order to defray its own future risk. Kyrkos v. State Farm Mut. Auto.

16 See also People v. Miranda, No. 012208C2009, 2009 WL 2170254 (N. Y. June 22, 2009) (finding a corporation

that is “bail bond business” and “insurance business” under New York Insurance law is required to be licensed

and rejecting the bail bond posted by the corporation.) The opinion is available electronically:

https://law.justia.com/cases/new-york/other-courts/2009/2009-51560.html. 17 RCW 48.62.021(6)

https://law.justia.com/cases/new-york/other-courts/2009/2009-51560.html


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Ins. Co., 121 Wn.2d 669, 674, 675 (1993).18 Here, Respondents did not initially face a risk and

did not set aside their own funds for such risk. The risk is that the defendant will not appear in

court. This risk is not Respondents’ risk. The risk only becomes the Respondents’ risk when

criminal defendants pay Respondents a premium, and in exchange, Respondents assume the

risk of non-appearance by the defendants. There was risk-shifting from the defendants to

Respondents as Respondents guaranteed the defendants’ appearances and accepted premium

for such insurance. Under the Insurance Code and discussed case law, Respondents’ conduct

does not constitute self-insurance. Instead, Respondents transacted insurance under RCW

48.01.040, RCW 48.01.060 and RCW 48.11.080, with Respondents acting as a surety insurer

under RCW 48.01.050 and Chapter 48.28 RCW, which Respondents were not, and are not,

authorized to do.

Additionally, Respondents’ website does not explain that they are a “self-insurer.” Exs.

16 and 17. The website also does not represent to the public that Respondents execute bail

bonds guaranteed by Regan Bail Bonds, Inc. Id. Under the “How Does Bail Work: The Bail

Bondsman” section of their website, Respondents state:

After the courts determine the amount of bail for the defendant, they (the defendant)

can then contact a bail bondsman to handle their case if they can’t afford bail. The bail

bond agency has backing by an insurance company that permits them to pledge to pay

the bond in full if the defendant fails to make court appearances. In exchange for

making this payment and keeping this promise to the court, the bail bondsman collects

a premium from the defendant or their friends & family.

(Emphasis added.) Ex. 16, p. 2, para. 2. Respondents’ website also advertises under the “FAQS

- How does bail work?” section, three different methods of release: Surety bail bond, cash bail

and pre-trial release program. Ex. 17, pp. 1-2. The website explains:

Surety bail bond is when the bail agent guarantees to the court that they will pay the

full bail bond amount if a defendant fails to appear for their scheduled court

appearances. The bail agent’s guarantee is made through a surety insurance company

that financially backs the bail agent if they are unable to pay the court.19

18See also Bordeaux, Inc. v. Am. Safety Ins. Co., 145 Wn. App. 687, 696 (2008) (stating “traditional insurance

involves risk shifting, while self-insurance involves risk retention: … In self-insurance the company,

governmental entity or individual chooses not to purchase insurance but rather retains the risk of loss. In order to

protect against losses, the self-insured will often set aside funds on a regular basis to provide its own pool from

which losses will be paid.”)


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(Emphasis added.) Id., at p. 1. For the other method of bail, Respondents state: ‘Cash bail’

requires an individual to post the total amount of the Bail (not just 10%) in American currency

cash.... Id. Further, under the FAQ section, “Why don’t I get my premium back?”

Respondents state: “Like any type of insurance there is a premium cost and because we provide

insurance to the courts we charge a nonrefundable fee called the premium…” (Emphasis

added.) Id., at p. 2.20 A reasonable person, such as a defendant or a defendant’s family

member, would view the website and believe that Respondents provide bail bonds guaranteed

by an insurer. The undisputed content of the website, which was not discussed by ALJ Schuh,

shows Respondents clearly acted outside of their authority as a bail bond agency and transacted

insurance as an insurer without proper authorization.

Respondents acted as an insurer, under RCW 48.01.050 and Chapter 48.28 RCW, and

transacted insurance, under RCW 48.01.040, RCW 48.01.060 and RCW 48.11.080. Therefore,

Respondents are subject to the Insurance Commissioner’s regulatory authority.21

4. ALJ Schuh did not properly defer to the OIC’s interpretation of the statutes at

issue in this case

Washington case law requires that a court “give substantial weight to an agency’s

construction of statutory language and legislative intent where the statute, or code provision,

falls within the agency’s area of expertise.” Regan v. Dep’t of Licensing, 130 Wn. App. 39, 50,

121 P.3d (2005) (citation omitted). “An agency’s interpretation of the statutes it administers

should be upheld if it reflects a plausible construction of the statute’s language and is not

contrary to legislative intent.” Premera v. Kreidler, 133 Wn. App. 23, 37, 131 P.3d 930 (2006)

(citing Seatoma Convalescent Ctr. v. Dep’t of Soc. & Health Servs., 82 Wn. App. 495, 518

(1996)). Specifically, with regard to the Insurance Commissioner, the courts have explained

that “…we defer to the Commissioner’s interpretation of insurance statutes and rules.” Id., at

31 (citing Credit Gen. Ins. Co. v. Zewdu, 82 Wn. App. 620, 627, 919 (1996)). This rule of

20 ALJ Schuh erred in accepting Respondents’ mischaracterization of the premium they collected as a “non-

refundable fee.” Para. 5.27. In Respondents’ own reports, they refer to the money collected from defendants as

premium. Ex. 12, p. 259. The money collected is premium under the Insurance Code. See RCW 48.17.170. 21 RCW 48.05.030(1)(stating “No person shall act as an insurer and no insurer shall transact insurance in this state

other than as authorized by a certificate of authority issued to it by the commissioner...”) See also RCW

48.02.080, RCW 48.15.020, RCW 48.15.023, RCW 48.17.530(1)(l), and RCW 48.28.010.


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deference acknowledges and respects the unique regulatory authority and discretion the

legislature has granted the Insurance Commissioner to interpret and enforce the Insurance

Code. See RCW 48.02.060(1)-(2). ALJ Schuh did not provide any deference to the Insurance

Commissioner’s construction of the Insurance Code and, as a result, has frustrated the

Insurance Commissioner’s authority to regulate and administer the Insurance Code and protect

Washington consumers.

The Washington Supreme Court has recognized “[t]o effectuate its purpose, the Code

vests the Insurance Commissioner with broad authority.” National Federations of Retired

Persons v. Insurance Comm’r, 120 Wn.2d 101, 109 (1992) (recognizing “The Commissioner

has the authority expressly conferred by or reasonably implied from the provisions of the code.

RCW 48.02.060(1).”) ALJ Schuh properly discussed the Insurance Commissioner’s authority

pursuant to RCW 48.01.010 and RCW 48.01.020. Paras. 5.9 and 5.10. He did not properly

discuss RCW 48.02.060. ALJ Schuh noted “the authority of the insurance commissioner is that

which is conferred upon him by the insurance code. RCW 48.02.060.” Para. 5.11. In addition

to this language, RCW 48.02.060 also provides that the Insurance Commissioner “has the

authority expressly conferred upon him by or reasonably implied from the provisions of the

code.” (Emphasis added.) RCW 48.02.060(1). ALJ Schuh’s analysis of OIC’s authority to

issue the Cease and Desist Order should have taken into account this significant component of

RCW 48.02.060.

Taking into account OIC’s investigation, the evidence presented, relevant statutes and

regulations, the case law regarding OIC’s interpretation of the laws the agency administers,

and OIC’s regulatory authority, the Insurance Commissioner was amply justified in issuing the

Cease and Desist Order against the Respondents for acting as an insurer and transacting

insurance without the proper authorization.

5. ALJ Schuh ignored the Declaration of Jennifer Richards, on behalf of the

Washington Department of Licensing (“DOL”).

DOL provided OIC with a sworn declaration explaining the Washington laws and

regulations concerning bail bonds. Ex. 34. ALJ Schuh did not reference the declaration at all,

despite the significance of DOL’s explanation of a bail bond agent’s authority to post bail

bonds in Washington. For instance, DOL recognizes three (3) types of bail bonds: cash bail


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bond, property bail bond and corporate surety bail bond. Id., at para. 10. DOL explains:

The surety in the context of bail bonds is ‘the deposit/owner of cash if a cash bail bond,

the property owner(s) if a property bond, the insurance company if a corporate surety

bond, that guarantees the performance of the bail bond contract for compensation.’

WAC 308-18-30(5).”

Id. ALJ Schuh discusses this regulation as follows: “It is relevant to observe that the regulation

does not limit property to real property. That implies that the bond company may post real or

personal property to secure the bond.” Paras. 5.28, 5.29. ALJ Schuh ignored DOL’s

explanation that “a bail bond is not a property bail bond if the agent does not identify to

the court the specific property being used to secure the bond.” Ex. 34, para. 16 (Emphasis

added.) Respondents did not identify to the tribunal any specific property being used to secure

the bail bonds. RCW 18.185.010(5) also states that a bail bond agency is a “business that sells

and issues corporate surety bail bonds or that provides security in the form of personal or real

property to ensure the appearance of a criminal defendant before the courts of this state or the

United States.” Id., at para. 9. Respondents consistently referred to the bail bonds as

“individual” or “property bail bonds” to OIC and in their own records of the bail bonds.

However, the bail bonds at issue do not constitute “individual” or “property bail bonds” under

DOL’s law and regulation. OIC established the bail bonds constitute corporate surety bail

bonds and insurance under Washington law and regulation and are, therefore, subject to the

Insurance Commissioner’s regulatory authority.22 ALJ Schuh erred in many factual

determinations that accepted the Respondents’ self-serving mischaracterizations of their own

conduct, while ignoring the Insurance Commissioner’s evidence on the same topics. Paras.

4.12, 4.18, 4.19, 4.22, and 4.24.

6. ALJ Schuh erred in placing weight on the Court’s acceptance of the bail bonds

and ignored many material facts presented by the Complainant.

ALJ Schuh should not have placed significance on the Courts’ acceptance of the bail

bonds in his analysis of whether Respondents have transacted insurance under the Insurance

Code. In Para. 5.21, the ALJ states:

At first blush, one could argue that forfeiting a bail bond when a defendant fails to

appear indemnifies the court. However, the transactions at issue were offered by

22 See Chapters 48.05 and 48.28 RCW, RCW 18.185.010(5), WAC 308-19-030(16) and RCW 19.72.060.


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Respondents and accepted by the courts as bail bonds. That circumstance must be

taking into account when considering the presence of indemnification.

ALJ Schuh further states:

… Arguably the court may have been prejudiced by accepting a bail bond that was not

secured in the manner it may have believed it to be. However, since the court has the

authority to accept any bail bond it deems to be sufficient, it is the court’s responsibility

to review the bail bonds offered and it is the court’s privilege to decline any bail bond it

finds to be deficient.

Para. 5.41. The Insurance Commissioner is responsible for regulating insurance in Washington

and the Insurance Code sets forth what conduct constitutes insurance and surety insurance. See

RCW 48.01.020 (scope of the Insurance Code), RCW 48.02.060, RCW 48.01.050 (“insurer”

defined), Chapter 48.05 RCW, RCW 48.01.040 (“insurance” defined), RCW 48.01.060

(“insurance transaction” defined), RCW 48.11.080 (“surety insurance” defined), and Chapter

48.28 RCW.

Furthermore, ALJ Schuh disregarded the factual statements made by the Complainant

about Clark County and the reasons why Respondents’ conduct may have gone unnoticed by

Washington Courts. The Complainant has ample experience in the bail industry, including

being an insurance producer since 1999. Ex. 4, p. 1, para. 2. ALJ Schuh erroneously referred to

the Complainant as an insurance company. Para. 5.42. ALJ Schuh referred consistently to the

Regan Decl. to support his findings of fact,23 but only briefly referenced the Complainant’s

declaration. In part because of the Complainants’ statements, the Insurance Commissioner was

concerned that Respondents conduct was deceptive and continuing in nature. In addition,

contrary to the ALJ Schuh’s statements in Para. 5.41, the defendants are harmed by

Respondents’ conduct because the bonds were are not guaranteed by an admitted and qualified

insurer. Accordingly, the Insurance Commissioner has not ensured Respondents are solvent

and in compliance with several other requirements.24 These requirements are essential to the

Insurance Commissioner’s protection of consumers, such as the 266 defendants, and OIC’s

role in overseeing a stable insurance industry. Lastly, the Cease and Desist order was necessary

23 See paras. 4.6-4.10; 4.13. 24 In Washington, a surety insurer is required to “maintain unimpaired a combined total of: $2,000,000 of paid-in

capital stock or basic surplus plus $2,000,000 in additional surplus.” RCW 48.05.340(1). In addition to

capital/stock requirements, a surety insurer must comply with many other requirements set forth by the Insurance

Code, such as RCW 48.05.040, RCW 48.05.250, RCW 48.05.280, Chapter 48.19 RCW, and RCW 48.28.010.

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to stop the Respondents from acting as an insurer and transacting insurance without proper

authorization.

7. ALJ Schuh improperly denied OIC's discovery requests.

If the Presiding Officer decides to remand the matter, OIC requests the Presiding

Officer order ALJ Schuh to compel OIC's requested discovery, which he improperly denied.

OIC established the discovery is proper under the AP A and the civil rules governing discovery

and should have been permitted by the Court. See OIC's Response to Respondents' Motion for

Protective Order ("OIC's Response"), filed with OAH on October 22, 2019. After hearing oral

argument from the parties, ALJ Schuh ruled on Respondents' Motion and denied the majority

of OIC's discovery. See Audio Recording of October 25, 2019 Oral Argument regarding

Respondents' Motion for Protective Order, attached hereto and filed concurrently with this

Petition. See also OAH Order Granting Respondents' Motion for Protective Order, issued on

October 31, 2019.

ALJ Schuh erred in his ruling that the Respondents are not required to answer

Interrogatories Nos. 5, 6, 7, 8, 11, 12, 13, and 14, and Requests for Production Nos. 1, 2 and 3.

OIC established the information sought is relevant to the pending action, proper, and should be

allowed under the rules of evidence, as adopted by WAC 284-02-070(2)(e), and subject to the

APA evidentiary standard set forth by RCW 34.05.452. See OIC's Response. OIC was

prejudiced by ALJ Schuh's decision to deny the majority of OIC's discovery requests. The

information was reasonably calculated by OIC to lead to relevant evidence to OIC's theory of

the case and the subject matter of the Cease and Desist Order.

IV. CONCLUSION

20 Based on the evidence, authority, and arguments made above, OIC has the authority

21 and undisputed factual basis to issue the Cease and Desist Order. OIC respectfully requests that

22 the Presiding Officer reverse the Initial Order, deny Respondents' MSJ, grant OIC's MSJ, and

uphold the Cease and Desist Order. 23

Respectfully submitted this '-#-!day of March, 2020.

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26 Insurance Enforcement Specialist

OIC'S PETITION FOR REVIEW Docket No. 08-2019-INS-00063

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CERTIFICATE OF SERVICE

The undersigned ce1tifies under the penalty of perjury under the laws of the State

of Washington that I am now and at all times herein mentioned, a citizen of the United

States, a resident of the State of Washington, over the age of eighteen years, not a party to

or interested in the above-entitled action, and competent to be a witness herein.

On the date given below I caused to be served the foregoing OJC's Petition For

Review and the audio recording MP3 file of the 10-25-19 Motion Hearing On

Respondent's Motion for Protective Order before ALJ Schuh on the following individuals

in the mam1er indicated:

Julia Eisentrout Reviewing Officer Office of the Insurance Commissioner Hearings Unit 5000 Capitol Blvd SE Tumwater, WA 98501 [email protected] [email protected]

By email.

Spencer D. Freeman Attorney at Law Freeman Law Fim1, Inc. 1107-½ Tacoma Avenue South Tacoma, WA 98402 [email protected] [email protected]

By email pursuant to the electronic service agreement between the parties.

,� SIGNED this \..f' day of March, 2020, at Tumwater, Washington.

�,J/2ff!}t, �ech

Paralegal

OIC'S PETITION FOR REVIEW DOCKET NO. 08-2019-INS-00063

LA-1598499



PO Box 40255 Olympia, WA 98504-0255

new i. relevant facts · 2020. 3. 9. · of the washington state bail bonds association that the...

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