| In what can only be viewed as a major victory for state businesses in general and builders in particular, Thurston County Superior Court Judge Gary Tabor ruled that the Washington State Department of Labor & Industries’ (L&I) “Retro Cap” rule, which caps to ten percent the amount of money that groups involved in Retrospective Rating insurance plans can retain from rating refunds, is unlawful.
L&I was sued by a coalition of business groups led by the Building Industry Association of Washington (BIAW) challenging the agency’s authority to implement a “Retro Cap” rule. The lawsuit contended L&I cannot impose restrictions on the contractual administrative fee arrangements between associates that sponsor Retro plans and their members.
Commenting that, “my job as a judge is to call them as I see them,” Tabor found that L&I’s rule — which was strongly supported by labor unions — exceeded the state agency’s statutory authority as granted by the Legislature, violated rule-making procedures under the Regulatory Reform Act and was arbitrary and capricious.
The lawsuit also charged the rule violated the Legislature’s requirements that any administrative rules imposed on Retro programs by L&I conform to “recognized insurance principles.”
Three national insurance experts submitted written testimony that capping earnings of third-party administrators like BIAW is not a “recognized insurance principle.” Tabor agreed, succinctly noting that the rule “is not a recognized insurance principle.”
In a labor-driven move aimed at reducing the amount of money groups can funnel into political activity, L&I adopted the controversial rule despite staunch opposition from retro groups.
Retro programs refund insurance premiums to member-employers with good safety records — money if paid to the state, they would lose. The balance of the unrefunded money, or what is basically the insurers profit after the refunds, is used by many groups to support political activities.
According to L&I’s own records, hundreds of retro employer-participants, those the rule was supposedly designed to “protect,” submitted comments urging L&I not to adopt the “Retro Cap” rule, while the sole comments advocating the “Retro Cap” came from unions.
“It is noteworthy that it is not the participating employer companies crying foul,” said Tabor.
The decision to invalidate the rule is remarkable because the court is required to give L&I an extremely high level of deference, and must uphold the agency action (adopting the rule) unless it is found “arbitrary and capricious.”
“We feel vindicated by this decision,” said BIAW President Bob Camp. “This decision is a wake-up call for state agencies and labor unions that think they have carte blanche to ignore laws.”. | 
