regan bail bonds, inc., and david a. regan's reply to oic ... · lucky bail bonds, inc. et...

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STATE OF WASHINGTON OFFICE OF ADMINISTRATIVE HEARINGS

, ·•

In the Matter of Docket No. 08-2019-INS-00063

REGAN BAIL BONDS, INC.,

and 12

REGAN BAIL BONDS, INC. AND DA YID A. REGAN'S REPLY TO OIC'S RESPONSE TO REGAN MOTION FOR SUMMARY JUDGMENT

13 DAVID A. REGAN,

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Respondents.

Respondents Regan Bail Bond, Inc. and David A. Regan (collectively "Regan")

hereby file this Reply to the Office of Insurance Commissioner's ("OIC") Response to

Regan's Motion for Summary Judgment. As outlined herein, in Regan's Motion for

Summary Judgment, and in Regan's Response to OIC's Motion for Summary Judgment,

OIC cannot establish the Regan Bonds, subject of OIC's Cease and Desist Order dated

July 30, 2019 ("Order"), are insurance and governed by state insurance statutes. In fact,

the Regan Bonds are not insurance.

I. INTRODUCTION

As outlined in Regan's Motion for Summary Judgment and Regan's Response to

the OIC's Motion for Summary Judgment, the Regan bonds are not governed by

REGAN'S REPLY TO OIC RESPONSE TO REGAN MOTION FOR SUMMARY JUDGMENT - 1

FREEMAN LAW FIRM, INC. 1107 ½ Tacoma Avenue South

Tacoma, WA 98042 (253) 383-4500 • (253) 383-4501 (fax)

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insurance statutes because they amount to self-insurance, do not involve risk-shifting or

risk-distribution, and fail to satisfy any definition of "surety insurance.,,

The OIC's position fatally fails to address a key point, asserted by Regan from

the onset: Upon posting of a bond, Regan takes custody of the defendant. Thus,

Regan's promise is not to guarantee performance of the defendant or protect the

defendant against a financial loss. Rather, Regan promises to bring the defendant to

court, of which Regan has custody. By acting as its own surety in posting the Regan

bonds, Regan guarantees its own performance. It is curious that OIC fails to address this

long well-established fact, a truth in the bail industry for over a hundred years.

That Regan is guaranteeing its own performance, and not that of the defendant, is

fatal to OIC's entire position. In its Response, the OIC states: {1) "Respondents also

indemnified the defendant against financial loss. . . " OIC Response, p 2; (2)

"Respondents assume the risk of non-appearance by the defendant. .. Therefore, risk has

shifted from the defendant to Respondents ... " OIC Response, p 5; and, (3) "the

arrangement is a classic insurance arrangement. .. " OIC Response, p 6.

The bonding company solely guarantees its own actions (which is precisely why

the bonding company has the right to apprehend the defendant wherever the defendant

may be). The defendant pays the bonding company a fee for the service of being

released from jail into the bonding company's custody, not for any insurance,

indemnification, or protection against a financial loss.

OIC requests two declarations submitted in support of Regan's Motion be

ignored, the Declaration of Kim Shomer and the Declaration of Spencer Freeman.

Regarding the Declaration of Kim Shomer, the OIC argues that the declaration should be

ignored because Ms. Shomer has been an attorney for Regan, is married to Spencer

REGAN'S REPLY TO OIC RESPONSE TO REGAN MOTION FOR SUMMARY JUDGMENT- 2


Tacoma, WA 98042 (2S3) 383-4S00 • {253) 383-4501 (fax)

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Freeman, and works at times with Mr. Freeman.• These facts could be relevant on the

issue of bias if a trier of fact was presented with different/conflicting perceptions,

opinions, or facts and needed to decide which were more credible.

Potential bias by a witness is only an issue if there are competing facts. Here,

OIC offers absolutely no contradiction to the facts in Ms. Shomer's declaration. None.

Her statements were specific to the bail industry in Washington (not Regan specific) and

she is one of a few qualified to make such statements (not contradicted by the OIC).

OIC's comments about Ms. Shomer, and their 99-page exhibit, are a feeble attempt to

distract the Court from gaining a true understanding of the industry. The OIC cannot

contradict the statements in Ms. Shomer's declaration because they are accurate. One

has to wonder the purpose of OIC's request to ignore these facts without presenting

contradictory evidence. 2

The contents of Mr. Freeman's declaration are attacked on the issue of relevance.

Mr. Freeman presented evidence that throughout the bail industry in Washington, bail

bond companies commonly file bonds listing themselves as the sole surety and courts

accept them. OIC is correct in the definition of relevance, but incorrect in whether these

asserted facts are relevant. At issue here is whether bonds posted by bail bonds

companies with the bail bond company acting as the sole surety are deemed insurance.

Given that such bonds have been posted and accepted by the courts for years is relevant,

as it makes it less likely that such bonds are deemed insurance. OIC forgets the

1 Contrary to OIC assertion, Regan did not attempt to hide Ms. Shomer's representation of Regan. In fact, evidence of such was presented by the OIC during Regan's Motion for Protectiv Order. This was a known fact. 2 Because the OIC attacks Ms. Shomer without presenting any facts contrary to her declaration, the OIC has directly attempted to impugn Ms. Shomer's integrity without cause. OIC's attorney is young, admitted to the Washington State Bar in May 2018. She will do well to learn when it i appropriate to attack another's integrity, especially without asserting contradicting facts. OIC's presentation on this issue is unnecessary gamesmanship. REGAN'S REPLY TO OIC RESPONSE TO REGAN MOTION FOR SUMMARY JUDGMENT- 3

FREEMAN LAW FIRM, INC, 1107 ½ Tacoma Avenue South

Tacoma, WA 98042

(253) 383-4500 • (253) 383-4501 (fax)

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importance of a Courts' acceptance of such bonds (Courts, not the OIC, have the

ultimate say).

II. ARGUMENT

The OIC fails to address the key fact that upon posting a bond, a bail bond

company takes custody of the criminal defendant. The United States Supreme Court

confirmed the common law rule regarding the authority of bondsman, finding that when

bail is given, the criminal defendant out on bail is regarded as delivered to the custody of

the sureties, the dominion being a continuance of the original imprisonment. Taylor v.

Taintor, 83 U.S. 366, 371, 16 Wall. 366, 21 L.Ed. 287 (1872). This concept has been

accepted and uncontradicted since this 1872 Supreme Court ruling.

This concept also plays a meaningful part in determining a bail bond companies'

liability and role in the State of Washington. For example:

• It is why the bail bondsmen can enter the home of a defendant at any time, and the property and homes of third parties upon reasonable belief the defendant is present. See Applegate v. Lucky Bail Bonds, Inc. et al., 197 Wn.App. 153 (2016).

• If a defendant fails to appear, bonds are not automatically due to be paid. Rather, the bonding companies are afforded 60 days to perform their promise of returning the defendant to court. State v. Kramer, 167 Wn.2d 548 (2009).

• If a bonding company pays the value of the bond, the bonding company still has an opportunity to seek a refund of all or some of the monies for the following year if the bonding company is the direct cause for the return of the defendant. RCW 10.19.140.

• However, if the bonding company was not involved in the return of the defendant the bonding company has no claim for reimbursement. RCW 10.19 .140. This is because the issue is not the defendant's performance in returning to court, but the bail bond company's performance in its promise to return the defendant to Court.

• If a bond is posted and a defendant is released but immediately picked up by ICE (without actually leaving the jail), the bail bond company is still held liable for the bond.

The bail bond contract is simply NOT an insurance contract. There is no risk REGAN'S REPLY TO OIC RESPONSE TO REGAN FREEMAN LAW FIRM, INC. MOTION FOR SUMMARY JUDGMENT - 4 1107 ½ Tacoma Avenue South

Tacoma, WA 98042 (253) 383-4500 • (253) 383-4501 (fax)

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shifted from the defendant to the bonding company and the bonding company does not

protect the defendant against a financial loss by virtue of the bail bond contract. The

contract is for the defendant to pay a fee to the bonding company for the bonding

company to secure the defendant's release from jail and take custody of the defendant.

The bonding company's liability is based upon its own promise to return the defendant

to Court.

With the Regan bonds, Regan acts as its own sole surety, promising its own assets

to back the bonds.

A. Regan's Bonds are not Insurance, nor Surety Insurance.

The OIC's assertion that the Regan bonds are insurance is premised upon the

incorrect understanding of the bail bond company's role. First, the OIC asserts that

Regan is indemnifying the defendant by protecting the defendant against the potential

financial loss. Specifically, OIC states:

For each bail bond, Respondents also indemnified the defendant against a financial loss as Respondents agreed, in exchange for compensation from the defendant, to pay the Court the value of the bail bond if the defendant fails to appear. For cash bail, a defendant would post bail to the Court and guarantee to the Court to suffer a financial loss if he fails to appear. Here, the defendant has paid Respondents, and in exchange, Respondents have guaranteed to the Court, in the event that the defendant does not appear, to suffer financial loss by paying the value of the bail bond.

OIC Response, p 2.

The OIC is wrong. By posting the bail bond, Regan does not agree to indemnify

24 the defendant. Rather, Regan makes two promises: first to return the defendant to court

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26 of whom it takes custody, and second to pay the Court if Regan fails in its first promise.


FREEMAN LA \V FIRM, INC. 1107 ½ Tacoma Avenue South

Tacoma, WA 98042

(253) 383-4S00 • (253) 383-4S0 I (fax)

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These are the promises and obligations of Regan, not indemnifying the defendant. 3

Second, the OIC asserts that Regan has agreed to pay a specified amount upon

determinable contingencies, and thus there must be an insurance contract. However, the

OIC fails to properly address Courts' interpretation of RCW 48.01.040 and the true

definition of insurance. The OIC's interpretation and application of Physicians' Def

Co. v. Cooper, 199 F. 576 (9th Cir 1912) is flawed.4 Physicians' Def Co., in conjunction

with Babcock v. ING Life Ins. & Annuity Co., No. 12-CV-5093-TOR, 2013 U.S. Dist.

LEXIS 1035, at 25 (E.D. Wash. Jan. 2, 2013), and State v. Universal Service Agency, 87

Wash. 413,424, 151 P. 768 (1915), stands for the proposition that for insurance to exist,

there must be an insurer and a beneficiary - that one party by contract becomes security

to another party to protect the other party against loss. While the OIC warns of the

limitation of the use of these cases, OIC also appears to agree with the standing

assertions of the cases. By acting as its own surety, Regan is guaranteeing its own

actions, there is no "other party" or "beneficiary."

The OIC asserts that the bail bond contract between the bonding company (Regan

here) and a criminal defendant creates a relationship wherein the bonding company

provides protection for the criminal defendant against financial loss. This is simply not

true and is contrary to the baseline premise of bail bonds, as explained several times.

Applying RCW 48.01.040 and defining "insurance," the OIC asserts that by

defining insurance to be a contract "to pay a specified amount upon determinable

contingencies/' the state legislature included the act of self-surety. The OIC has ignored

24 3 The OIC's statement regarding cash bail shows ignorance regarding Courts' imposition of bail.

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At times, Courts' bail imposition may be "cash only," "cash or bond," or "bond only." These are not interchangeable, and each creates different relationships. 4 The OICs assertion that the age of Physicians' Def Co. and that it was decided by the Ninth Circuit renders it of limited use is specious. The OIC has the chance to present case law contradicting Physicians' Def Co., but failed to do so. REGAN'S REPLY TO OIC RESPONSE TO REGAN MOTION FOR SUMMARY JUDGMENT - 6


Tacoma, WA 98042 (2S3) 383-4500 • (253) 383-4501 (fax)

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material from State Supreme Court interpretations of this statute and the required base

line premise that to be insurance, one must insure another. As explained multiple times,

Regan is not insuring the defendant, Regan is insurance itself.

B. The OIC does not have authority to regulate the Regan bonds.

Just because the OIC defines a contract or transaction as "insurance" does not

make it so. Self-insurance is not governed by state insurance statutes. OIC's assertion

that the Regan bonds are not self-insurance is based upon the same material lack of

understanding of the role of the bail bond company. Further, insurance must include

both risk-shifting and risk-distribution. The OIC completely ignores these requirements

in its response. Finally, OIC defines the Regan bonds to be corporate surety bonds

merely because Regan is a corporation posting the bonds, ignoring the clear definition of

"surety insurance."

1. The Regan bonds are self-insurance.5

When Regan acts as its own surety, it is promising that its own assets (rather than

that of an insurance company in case of a corporate surety bond) back the bond. This is

a clear act of self-insurance. As OIC states in its Response, "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' to any other entity." OIC Response, p 5. See also

Kyrkos v. State Farm Mutual Automobile Insurance Company, 121 Wash.2d 669, 674

(1993); Stamp v. Department of Labor and Industries, 122 Wash.2d 536, 542 (1993);

Everett Concrete Prods., Inc. v. Department of Labor & Indus., 109 Wash. 2d 819, 822

5 In its Response, the OIC states that Regan asserts "for the first time" in its summary judgment motion that the Regan bonds involve self-insurance. This is a non-sequitur. The Motion for Summary Judgment is the first time Regan has had the opportunity to present any substantive legal argument. REGAN'S REPLY TO OJC RESPONSE TO REGAN MOTION FOR SUMMARY JUDGMENT - 7

FREEMAN LAW FIRM, INC, I 107 ½ Tacoma Avi:nuc South

Tacoma, WA 98042 (253) 383-4500 - (253) 383-4501 (fax)

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(1988). Exactly the case here.

If Regan had posted the bonds with an insurance company backing ( corporate

surety bonds), then its risk would have been transferred to the insurance company. Here,

Regan retains its own risk. The fallacy of the OIC is their assertion that Regan's role as

a bail bond company is to protect the criminal defendant against financial loss. It isn't.

By the OIC's own assertions defining self-insurance, the Regan bonds are self

insurance. Regan does not assume risk of non-appearance by defendant, Regan assumes

the risk that Regan will not be able to produce a defendant of whom Regan has custody.

There is no risk shifting.

2. There is no evidence of risk-shifting or risk-distribution, and thus the Regan bonds are not insurance.

In Regan's Motion for Summary Judgment, Regan outlined the law that required

both risk-shifting and risk-distribution to be present in order for a transaction to be 14

15 defined as "insurance," citing In re Estate of Smiley, 35 Wash. 2d 863, 867, 216 P.2d

16 212, 214 (1950), citing Helvering v. Le Gierse, 312 U.S. 531 (other citations omitted);

17 Amerco, Inc. v. Comm'r IRS, 919 F.2d 162, 165 (9th Cir. 1992), citing Beech Aircraft

Corp. v. United States, 191 F.2d 920, 922 (10th Cir. 1986); and Robert E. Keeton and

19 Alan I. Widiss, Insurance Law§ 1.3(b){2) (1988).

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The OIC's only response to this assertion is that the cases involve tax issues. The

OIC fails to present any argument, at all, why a transaction could be deemed non

insurance in one context but insurance in another. Such assertion is absolutely illogical

and unsupported. The reality is that for a transaction to be defined as "insurance," per

the Washington State Supreme Court {citing U.S. Supreme Court law), there must be

both risk-shifting and risk-distribution.

There is no risk-shifting or risk-distribution in Regan's act as the sole surety on

the Regan bonds. OIC does not even attempt to argue there is (as it cannot). Rather, REGAN'S REPLY TO OIC RESPONSE TO REGAN FREEMAN LAW FIRM, INC. MOTION FOR SUMMARY JUDGMENT- 8 1107 ½ Tacoma Avenue South

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OIC merely states that the Regan bonds fall under the definition of "insurance,"

"insurance transaction," "surety insurance," and "insurer." For the reasons stated in

Regan's Motion for Summary Judgment, Regan's Response to the OIC's Motion for

Summary Judgment, and herein, the Regan bonds are not and do not involve

"insurance. "6

3. The Regan bonds are not "corporate surety bonds."

The OIC argues that the Regan bonds are not individual bonds pursuant to RCW

19.72.020 but are corporate surety bonds pursuant to RCW 19.72.060.7 OIC further

states that within RCW Chapter 19.72, "insurance determinations are left to the OIC."

That is incorrect. What is defined as "insurance" is not left to the discretion of the OIC,

but to the Courts based upon statutes, statutory interpretation, and case law.

transaction is not insurance just because the OIC says so.

A

The OIC distinguishes "individual sureties" and "corporate sureties" based solely

upon whether the surety is an "individual" or a "corporation."8 Such is not the case. For

a long time, the law has recognized corporations as individuals. Moreover, the state

legislature specifically and explicitly defines "corporate surety bond" to be "surety

6 Quite instructive is the definition of"surety insurance," as outlined in Regan's Response to OIC's Motion for Summary Judgment. "Surety" and "surety insurance" are two different things. "Surety insurance'' is the insurance that provides coverage for the potential debt or default if the surety does not meet its duties. Only surety insurance is governed by RCW Title 48. There is no "surety insurancen in the Regan bonds - Regan is the surety. 7 The OIC points out that the Insurance Commissioner is required to participate fully in the implementation ofRCW Chapter 19.72. However, such is simply not determinative of nor relevant to what is defined as "insurance" under the law. • In furtherance of its definition of a "corporate surety bond," the OIC states that the Regan bond were corporate surety bonds because Regan is a domestic corporation that has guaranteed bail bonds for compensation and the bonds were secured by the general corporate assets of the corporation. OIC Response, p 7. However, the OIC cites to no statute or case law that defines "corporate surety bond" as such. REGAN'S REPLY TO OIC RESPONSE TO REGAN MOTION FOR SUMMARY JUDGMENT - 9


Tacoma. WA 98042 (253) 383-4500- (2S3) 383-4S01 (fax)

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insurance." RCW 19.72.060. Hence, if a posted bond is not "surety insurance/' it is in

fact posted as an individual surety.

Such is expressly recognized by Pierce County Superior Court, which states:

1. Pursuant to the provisions of RCW 19.72.040 and the provisions of this resolution, each surety (hereinafter Petitioner) seeking to operate a bail bond business in Pierce County shall file with the Pierce County Superior Court Clerk's office a Petition for Order of Justification. Each surety desiring to transact property bail bonds in any of the courts of Pierce County shall be required to obtain an Order of Justification (Initial Petition).

Pierce Co. Sup. Ct. Judges' Resolution Justification of Sureties, dated February 3, 1997,

in relevant part ( emphasis added).

RCW 19.72.040 is specific to individual sureties. It is clear that the courts

recognize bail bond businesses ( corporations or otherwise) to be individual sureties.

14 According to the OIC's interpretation, Pierce County Superior Court would be wrong -

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an example of how the OIC is attempting to thwart court discretion and court

interpretation. The OIC does not regulate the Courts but is subservient to Court ruling.

Corporate sureties are solely defined by surety insurance. RCW 19.72.060 states:

18 "Corporate Surety. See surety insurance." In defining surety insurance, RCW

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48.11.080 states:

"Surety insurance" includes:

(2) Bail bond insurance.

( 4) Guaranteeing the performance of contracts, other than insurance policies, and guaranteeing and executing bonds, undertakings, and contracts of suretyship.

RCW 48.11.080, in relevant part.

The Regan bonds are not bail bond insurance, they are the bail bonds themselves.



Tacoma, WA 98042

(253) 383-4500 • (253) 383-4501 (fax)

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Equally, the Regan bonds do not fall under the definition of "surety insurance" under

subsection (4). The Washington State Supreme Court analyzes "surety insurance" as

follows:

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. Hence, surety insurance is commonly defined as insurance against debts on the part of persons who have undertaken contract obligations.

8 Seattle-First Nat'/ Bank v. Wash. Ins. Guar. Ass'n, 116 Wn.2d 398,406 (1991).

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A surety is a person or party that agrees to be answerable for a debt or default.

Surety insurance is the insurance that provides coverage for the potential debt or default

if the surety does not meet its duties. Surety and surety insurance are not the same thing.

Only the latter is governed by RCW Title 48 as surety insurance.

Here, the Regan bonds are simply not surety insurance. The contract of

14 suretyship is not insurance, a subsequent contract to protect the surety's obligations is.

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Regan's bonds are part of a suretyship contract, not surety insurance.

The Legislature granted Courts full discretion to accept any bonds it deems

sufficient. Unless properly deemed "surety insurance," bonds accepted by the Courts

simply must be "individual bonds." The OIC attempts to thwart Court discretion by

asserting Regan conflates individual bonds with property bonds and that the "statutory

scheme" ''only recognizes property bonds." OIC Response, p 7. The assertion that the

statutory scheme only recognizes "property bonds" is completely misleading, contrary to

the statutes, and wholly unsupported.

III. CONCLUSION

By virtue of the bail bond contract and posting the bail bond, Regan took custody

of the defendants. Regan did not thereafter guarantee the defendant's performance nor



Tacoma, WA 98042 (253) 383-4500 • (253) 383-4501 (fax)

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protect defendants from a financial loss. Rather, Regan promised only its own

performance in returning the defendant, whom was in Regan's custody. By filing the

bonds as the sole surety, Regan guaranteed its own performance with its own assets.

The Regan bonds are simply not insurance or surety insurance. The OIC's

continual misunderstanding of the role of a bonding company and manipulations of the

law does not change this reality. As such, the Regan bonds are not subject to the

insurance statutes or the oversight of OIC. Therefore, Regan's Motion for Summary

Judgment should be granted.

Dated this 10th day of December 2019.

FREEMAN LAW FIRM, INC.

::2=~ WSBAN~S.-FREEMAN LAW FIRM, INC. Attorney for Regan Bail Bonds, Inc. and David A. Regan

-



Tacoma, WA 98042

(253) 383-4500 • (253} 383-4501 (fax)

regan bail bonds, inc., and david a. regan's reply to oic ... · lucky bail bonds, inc. et...

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