August 13, 2018
Cypress Insurance Co. of Phoenix has settled with Washington state Insurance Commissioner Mike Kreidler to pay $573,905 in unpaid premium taxes and $302,915 in interest and penalties after Kreidler ordered them in May to stop transacting insurance without a license and to pay tax on its written premiums.
Cypress’ sole insured is Microsoft Corp., headquartered in Redmond, Wash., and its subsidiaries.
From 2008 through 2018, Cypress collected more than $91 million in written premium from Microsoft and its companies. State law requires insurance companies to pay a 2 percent tax based on their written premiums. The tax revenue is sent to the state general fund to pay for a variety of programs.
Before 2008, Microsoft’s purchasing practices complied with state insurance laws.
“I am pleased with the outcome of this settlement,” Kreidler said. “Cypress is now complying with Washington state law, and the state will receive some of the money owed. Captives are a gray area in state law and this is the first case where we’ve tested them.”
Cypress did not hold a certificate of authority or place insurance through a surplus line broker. As of July 1, Cypress obtained new policies through a surplus line broker. Surplus line brokers are licensed and pay premium tax. Surplus line insurance typically covers risks that other insurers do not.
Going forward, Kreidler’s office will look at other captives that do business in Washington state.
“I encourage captives insuring risks in Washington – and that want to be proactive in the interest of fairness – to contact my office to start conversations about their portfolios,” Kreidler said. “I want to make sure that all insurers pay their fair share as part of doing business here.”