Chapter 091
2010 -- S 2715 SUBSTITUTE B
Enacted 06/19/10
A N A C T
RELATING TO
INSURANCE
Introduced By: Senators Lynch, Walaska, and Bates
Date Introduced: March 24, 2010
It is enacted by the
General Assembly as follows:
SECTION 1. Sections 27-34-1, 27-34-2, 27-34-3, 27-34-5,
27-34-6, 27-34-7, 27-34-8,
27-34-9, 27-34-10,
27-34-11, 27-34-12, 27-34-14, 27-34-15, 27-34-16, 27-34-17 and 27-34-19 of
the General Laws in Chapter 27-34 entitled "Rhode
Island Insurers' Insolvency Fund" are hereby
amended to read as follows:
27-34-1.
Short title. -- This chapter shall be known and
may be cited as the "Rhode
Island Insurers' Insolvency Fund Act" “
Association Act”.
27-34-2.
Purpose. -- The purpose of this chapter is to
provide a mechanism for the
payment of covered claims under certain insurance policies to
avoid excessive delay in payment
and to avoid to the extent provided in this
chapter, minimize financial loss to claimants or
policyholders because of the insolvency of an insurer, and to create
an entity provide an
association to assess the cost of the such
protection and distribute it equitably among member
insurers.
27-34-3.
Scope. -- This chapter shall apply to all kinds of
direct insurance, but shall not
be applicable to the following:
(1) Life, annuity,
health, or disability insurance;
(2) Mortgage guaranty,
financial guaranty or other forms of insurance offering protection
against investment risks. For purposes of this section
“financial guaranty insurance” include any
insurance under which loss is payable upon proof of occurrence
of any of the following events to
the damage of an insured claimant or obligee:
(i)
Failure of any obligor or obligors on any debt instrument or other monetary
obligation,
including common or preferred stock, to pay when due the
principal, interest, dividend or
purchase price of such instrument or obligation, whether
failure is the result of a financial default
or insolvency and whether or not the obligation is
incurred directly or as a guarantor by, or on
behalf of, another obligor which has also defaulted;
(ii) Changes in the
level of interest rates whether short-term or long-term, or in the
difference between interest rates existing in various markets;
(iii) Changes in the
rate of exchange of currency, or from the inconvertibility of one
currency into another for any reason;
(iv)
Changes in the value of specific assets or commodities, or price
levels in general;
(3) Fidelity or surety
bonds, or any other bonding obligations;
(4) Credit insurance,
vendors’ single interest insurance, or collateral protection insurance
or any similar insurance protecting the interests of a
creditor arising out of a creditor-debtor
transaction. For purposes of this section “credit insurance”
means insurance on accounts
receivable;
(5) Insurance of warranties
or service contracts including insurance that provides for the
repair, replacement or service of goods or property,
indemnification for repair, replacement or
service for the operational or structural failure of the
goods or property due to a defect in
materials, workmanship or normal wear and tear, or provides
reimbursement for the liability
incurred by the issuer of agreements or service contracts that
provide such benefits;
(6) Title insurance;
(7) Ocean marine
insurance, except that portion of the marine protection and indemnity
insurance covering liability of the insured for personal
injury, illness, or death to employees and
insurance covering pleasure craft.
(8) Commercial lines
excess liability insurance
(8)(9)
Any transaction or combination of transactions between a person,
including
affiliates of the person, and an insurer, including affiliates
of the such insurer, which involves the
transfer of investment or credit risk unaccompanied by
transfer of insurance risk; and
(9) Any insurance
provided by or guaranteed by government; or
(10) Any transaction or
combination of transactions between a protected cell and the
general account or another protected cell of a protected cell
company organized under the
Protected Cell Companies Act,
chapter 64 of this title, as those terms are defined in this chapter.
27-34-5.
Definitions. -- As used in this chapter:
(1) "Account"
means any one of the three (3) accounts created by section 27-34-6;
(2)
"Affiliate" means a person, who directly or indirectly, through one
or more
intermediaries, controls, is controlled by, or is under common
control with an insolvent insurer
another on December 31 of the year next immediately
preceding the date the insurer becomes an
insolvent insurer;
(3) “Association”
means the
section 27-34-6.
(4) “Association
similar to the association” means any guaranty association, security fund
or other insolvency mechanism that affords protection
similar to that of the association. The term
shall also include any property and casualty insolvency
mechanism that obtains assessments or
other contributions from insurers on a pre-insolvency
basis.
(5) “Assumed claims
transaction” means the following:
(i)
Policy obligations that have been assumed by the insolvent insurer, prior to
the entry
of a final order of liquidation, through a merger
between the insolvent insurer and another entity
obligated under the policies, and for which assumption
consideration has been paid to the
applicable guaranty associations, if the merged entity is a
non-member insurer;
(ii) Policy
obligations that have been assumed by the insolvent insurer, prior to the entry
of a final order of liquidation, pursuant to a plan,
approved by the domestic commissioner of the
assuming insurer, which:
(A) Transfers the
direct policy obligations and future policy renewals from one insurer to
another insurer; and
(B) For which
assumption consideration has been paid to the applicable guaranty
associations, if the assumption is from a non-member insurer.
(C) For purposes of
this section the term non-member insurer also includes a self-insurer,
non-admitted insurer and risk retention group; or
(iii) An assumption
reinsurance transaction in which all of the following has occurred:
(A) The insolvent
insurer assumed, prior to the entry of a final order of liquidation, the
claim or policy obligations of another insurer or entity
obligated under the claims or policies;
(B) The assumption of
the claim or policy obligations has been approved, if such
approval is required, by the appropriate regulatory
authorities; and
(C) As a result of
the assumption, the claim or policy obligations became the direct
obligations of the insolvent insurer through a novation of the claims or policies.
(6) “Assumption
Consideration” shall mean the consideration received by a guaranty
association to extend coverage to the policies assumed by a
member insurer from a non-member
insurer in any assumed claims transaction including
liabilities that may have arisen prior to the
date of the transaction. The assumption consideration
shall be in an amount equal to the amount
that would have been paid by the assuming insurer during
the three (3) calendar years prior to the
effective date of the transaction to the applicable guaranty
associations if the business had been
written directly by the assuming insurer.
(i)
In the event that the amount of the premiums for the three (3) year period
cannot be
determined, the assumption consideration will be determined by multiplying
one hundred thirty
percent (130%) against the sum of the unpaid losses, loss
adjustment expenses, and incurred but
not reported losses, as of the effective date of the
assumed claims transaction, and then
multiplying such sum times the applicable guaranty association
assessment percentage for the
calendar year of the transaction.
(ii) The funds paid
to a guaranty association shall be allocated in the same manner as any
assessments made during the three (3) year period. The guaranty
association receiving the
assumption consideration shall not be required to recalculate or
adjust any assessments levied
during the prior three (3) calendar years as a result of
receiving the assumption consideration.
Assumption consideration paid by an insurer may be
recouped in the same manner as other
assessments made by a guaranty association.
(7)(3)
"Claimant" means any insured making a first party claim or any
person instituting
a liability covered claim; provided that
no person who is an affiliate of the insolvent insurer may
be a claimant;
(4) "Commercial
lines excess liability insurance" means any commercial lines liability
insurance written over an underlying policy with policy limits
of at least three hundred thousand
dollars ($300,000) or a self-insured retention of at least
three hundred thousand dollars
($300,000);
(5) "Commercial
lines insurance" means any insurance to which this chapter applies
which is not personal lines insurance;
(8)(6)
"Commissioner" means the commissioner of insurance director
of the department
of business regulation or his or her designee;
(9)(7)
"Control" means the possession, direct or indirect, of the power to
direct or cause
the direction of the management and policies of a person,
whether through the ownership of
voting securities, by contract other than a commercial
contract for goods or nonmanagement
services, or otherwise, unless the power is the result of an
official position with, or corporate
office held by, the person. Control shall be presumed to
exist if any person, directly or indirectly,
owns, controls, holds with the power to vote, or holds
proxies representing, ten percent (10%) or
more of the voting securities of any other person. This presumption
may be rebutted by a showing
that control does not exist in fact;
(10)(8)
"Covered claim" means the following:
(i)
an An unpaid
claim, including one for unearned premiums, submitted by a claimant,
which arises out of and is within the coverage and subject
to the applicable limits of an insurance
policy to which this chapter applies issued by an insurer
if the insurer becomes an insolvent
insurer after the effective date of this chapter and the
policy was either issued by the insurer or
assumed by the insurer in an assumed claims transaction, and:
(A)(i) The claimant or insured is a resident of this state
at the time of the insured event;
provided, that for entities other than an individual, the
residence of a claimant, or insured or
policyholder is the state in which its principal place of business
is located at the time of the
insured event; or
(B)(ii)
The claim is a first-party claim for damage to property from which
the claim
arises is permanently located with a permanent location in this state.
(ii) Except as
provided elsewhere in this section, "Covered claim" “covered
claim” shall
not include any amount:
(A) Any amount
awarded Awarded as punitive or exemplary
damages;
(B) Any amount sought
Sought as a return of premium under any
retrospective rating
plan; or
(C) Any amount due
Due any reinsurer,
insurer, insurance pool, or underwriting
association, health maintenance organization, hospital plan
corporation, professional health
service corporation or self-insurer as subrogation recoveries, reinsurance recoveries,
contribution,
indemnification or otherwise. No ;
provided, that a claim for any amount, due any reinsurer,
insurer, insurance pool, underwriting association, health
maintenance organization, hospital plan
corporation, professional health service corporation or
self-insurer may be asserted against
a
person insured under a policy issued by an insolvent
insurer which has become an insolvent
insurer, which, if it were not a claim by or for the benefit
of a reinsurer, insurer, insurance pool,
or underwriting association, would be a "covered
claim", may be filed directly with the receiver
of the insolvent insurer, but in no event may any the
claim be asserted against the insured of the
insurer other than to the extent the claim exceeds the
association obligation limitations set forth in
section 27-34-8 of this chapter;
(D) Any claims
excluded pursuant to section 27-34-11.5 due to the high net worth of an
insured;
(E) Any first party
claims by an insured that is an affiliate of the insolvent insurer;
(F) Any fee or other
amount relating to goods or services sought by or on behalf of any
attorney or other provider of goods or services retained by
the insolvent insurer or an insured
prior to the date it was determined to be insolvent;
(G) Any fee or other
amount sought by or on behalf of any attorney or other provider of
goods or services retained by any insured or claimant in
connection with the assertion or
prosecution of any claim, covered or otherwise, against the
association;
(H) Any claims for
interest; or
(I) Any claim filed with the association or a liquidator for
protection afforded under the
insured’s policy for incurred-but-not-reported losses.
(9) "Fund"
means the
34-6;
(10)(11)
"Insolvent insurer" means an insurer licensed to transact insurance
in this state
any of the kinds of insurance within the scope of this
chapter, either at the time the
policy was
issued; when the obligation with respect to the covered
claim was assumed under an assumed
claims transaction;
or when the insured event occurred, and against which an whom
a final order
of liquidation with a finding of insolvency has
been entered after the effective date of this chapter
with a finding of insolvency by a court of competent jurisdiction in the insurer's
state of domicile
or in this state under the provision(s) of chapter 14.3
of this title which order of liquidation has
not been stayed or been the subject of a writ of supersedeas or other comparable order;
(12) “Insured” means
any named insured, any additional insured, any vendor, lessor
or
any other party identified as an insured under the
policy.
(13) "Line of
credit" means an irrevocable stand-by commitment whereby the association
or member insurer and a qualified financial institution
or group of qualified financial institutions
enter into a formal and binding contract in which the
qualified financial institution or group of
qualified financial institutions agree to lend a certain amount
of money within a stated period of
time.
(14)(11) (a) "Member insurer" means any person who:
(i) Writes any kind of insurance to which this chapter
applies, under section 27-34-3,
including the exchange of reciprocal or interinsurance
contracts; and
(ii) Is licensed to
transact insurance in this state; and
(b) An insurer shall
cease to be a member insurer effective on the day following the
termination or expiration of its license to transact the kinds of
insurance to which this chapter
applies, however, the insurer shall remain liable as a member
insurer for any and all obligations,
including obligations for assessments levied prior to the
termination or expiration of the insurer’s
license and assessment levied after the termination or
expiration, which relate to any insurer that
became an insolvent insurer prior to the termination or
expiration of the insurer’s license.
(iii) Is not
otherwise excepted from membership by statute or
regulation.
(15)(12)
" Net direct written premiums" means direct gross premiums written in
this
state on insurance policies to which this chapter applies, including
policy and membership fees,
less the following amounts: (i)
Return return premiums, (ii) Premiums
on those policies not taken
and (iii)Dividends dividends
or unabsorbed premiums paid or credited to policyholders on the
that direct business. "Net direct written
premiums" does not include premiums on contracts
between insurers or reinsurers;
(16) “Novation” means that the assumed claim or policy
obligations became the direct
obligations of the insolvent insurer through consent of the
policyholder and that thereafter the
ceding insurer or entity initially obligated under the
claims or policies is released by the
policyholder from performing its claim or policy obligations. Consent
may be express or implied
based upon the circumstances, notice provided and conduct
of the parties.
(17) “Ocean Marine
insurance” means any form of insurance, regardless of the name,
label or marketing designation of the insurance policy, which
insures against maritime perils or
risks and other related perils or risks, which are usually
insured against by traditional marine
insurance, such as hull and machinery, marine builders risk,
and marine protection and indemnity.
Perils and risk insured against include without
limitation loss, damage, expense or legal liability
of the insured for loss, damage or expense arising out
of or incident to ownership, operation,
chartering, maintenance, use, repair or construction of any vessel,
craft or instrumentality in use
in ocean or inland waterways for commercial purposes,
including liability of the insured for
personal injury, injury, illness or death or for loss or
damage to the property of the insured or
another person.
(18)(13)
"Person" means any individual, aggregation of individuals,
corporation,
partnership, association, or voluntary organization
other entity;
(14) "Personal
lines insurance" means any insurance to which this chapter applies issued
for personal, family, or household purposes;
(15) "Pleasure
craft" means watercraft, other than a seaplane on the water or a
houseboat,
not greater than thirty-five (35) feet in length used
solely for pleasure and not used for:
(i)
Charter or hire; or
(ii) To carry
persons or property for fee or any commercial use; and
(19) "Qualified
financial institution" shall have the same meaning as the term in section
27-1.1-3.
(20) “Receiver” means
liquidator, rehabilitator, conservator or ancillary receiver, as the
context requires.
(21) “Self-insurer”
means a person that covers its liability through a qualified individual
or group self-insurance program or any other formal
program created for the specific purpose of
covering liabilities typically covered by insurance.
(16)(22)
"Self-insured retention" means:
(i)
Any fund or other arrangement to pay claims other than by an insurance company;
or
(ii) Any arrangement
under which an insurance company has no obligation to pay claims
on behalf of an insured if it is not reimbursed by the
insured.
27-34-6.
Creation of the fund Creation of the association.
-- There is created a
nonprofit unincorporated legal entity to be known as the "
“
known as the "
in subdivision 27-34-5(12) shall be and remain members of the fund association
as a condition of
their authority to transact insurance in this state. The fund
association shall perform its functions
under a plan of operation established and approved under
section 27-34-9 and shall exercise its
powers through a board of directors established under
section 27-34-7. For the purposes of
administration and assessment, the fund there shall be
divided into three (3) separate accounts: (1)
the workers' compensation insurance account; (2) the automobile
insurance account; and (3) the
account for all other insurance to which this chapter
applies.
27-34-7.
Board of directors. -- (a) The
board of directors of the fund association shall
consist of not less than five (5) nor more than nine (9)
eleven (11) persons serving terms as
established in the plan of operation. The members of the board
shall be selected by member
insurers subject to the approval of the commissioner.
Vacancies on the board shall be filled for
the remaining period of the term by a majority vote of
the remaining board insurer members
subject to the approval of the commissioner. Two (2)
persons, may be public representatives, and
may be appointed by the commissioner to the board of
directors. Vacancies of positions held by
public representatives shall be filled by the commissioner.
A public representative may not be an
officer, director or employee of an insurance company or any
person engaged in the business of
insurance. For the purposes of this section, term “director”
shall mean an individual serving on
behalf of an insurer member of the board of directors or a
public representative on the board of
directors.
(b) In approving
selections to the board, the commissioner shall consider among other
things whether all member insurers are fairly represented.
(c) Members of the
board of directors may be reimbursed from the assets of the fund
association for expenses incurred by them as members of the board
of directors.
(d) Any board member
who is an insurer in receivership shall be terminated as a board
member, effective as of the date of the entry of the order
of receivership. Any resulting vacancies
on the board shall be filled for the remaining period of
the term in accordance with the provisions
of subsection (a).
(e) In the event that
a director shall, because of illness, nonattendance at meetings or any
other reason, be deemed unable to satisfactorily perform
the designated functions as a director by
missing three (3) consecutive board meetings, the board of
directors may declare the office vacant
and the member or director shall be replaced in
accordance with the provisions of subsection (a).
(f) If the
commissioner has reasonable cause to believe that a director failed to disclose
a
known conflict of interest with his or her duties on the
board, failed to take appropriate action
based on a known conflict or interest with his or her
duties on the board, or has been indicted or
charged with a felony, or misdemeanor involving moral
turpitude, the commissioner may suspend
that director pending the outcome of an investigation or
hearing by the commissioner or the
conclusion of any criminal proceedings. A company elected to the
board may replace a suspended
director prior to the completion of an investigation, hearing
or criminal proceeding. In the event
that the allegations are substantiated at the conclusion
of an investigation, hearing or criminal
proceeding, the office shall be declared vacant and the member
or director shall be replaced in
accordance with the provisions of subsection (a).
27-34-8. Powers
and duties of the fund.-- Powers and duties of the
association. -- (a)
The fund association shall:
(1) (i) Be obligated to pay covered
claims existing prior to the determination order of the
insolvency liquidation; of a member insurer or
arising within sixty (60) days after the
determination order of the insolvency liquidation
or before the policy expiration date if less than
sixty (60) days after the determination order
of insolvency liquidation or before the insured
replaces the policy or causes its cancellation if he or she
the insured does so within sixty (60)
days of the determination order of liquidation.
The obligations shall be satisfied by paying to the
claimant an amount as follows:
(A)(i) The full amount of a covered claim for benefits
under a workers' compensation
insurance coverage;
(B)(ii)
An amount not exceeding ten thousand dollars ($10,000), per policy for a
covered
claim for the return of unearned premium;
(C)(iii)
An amount not exceeding five hundred thousand dollars ($500,000), per claimant
for all other covered claims for insolvencies occurring
on or after January 1, 2008 and an amount
not exceeding three hundred thousand dollars ($300,000)
per claimant for all other covered
claims for insolvencies occurring prior to January 1, 2008.
(ii) In no event
shall the fund association be obligated to pay a claimant an
amount in
excess of the obligation of the insolvent insurer under the
policy or coverage from which the
claim arises. Notwithstanding any other provision of this
chapter, a covered claim shall not
include any a claim filed with the fund guaranty
association after the final date set by the court for
the filing of claims against the liquidator or receiver
of an insolvent insurer. The fund shall pay
only that amount of each unearned premium, which is in
excess of one hundred dollars ($100)
For the purpose of filing a claim under this
subsection, notice of claims to the liquidator of the
insolvent insurer shall be deemed notice to the association or
its agent and a list of claims shall be
periodically submitted to the association or association similar to
the association in another state
by the liquidator;
(iii) Any obligation
of the association to defend an insured shall cease upon the
association’s payment or tender of an amount equal to the lesser of
the association’s covered
claim obligation limit or the applicable policy limit.
(2) Be deemed the
insurer to the extent of its obligation on the covered claims and to that
extent, subject to the limitation provided in this chapter, shall have all of the rights, duties and
obligations of the insolvent insurer as if the insurer had not
become insolvent, including, but not
limited to, the right to pursue and retain salvage and
subrogation recoverable on covered claim
obligations to the extent paid by the association. The
association shall not be deemed the
insolvent insurer for the purpose of conferring jurisdiction;
(3) Allocate claims
paid and expenses incurred among the three (3) accounts separately,
and assess member insurers separately for each account
amounts necessary to pay the obligations
of the fund association under subdivision (a)
(1) of this subsection subsequent to an insolvency,
the expenses of handling covered claims subsequent to an
insolvency and other expenses
authorized by this chapter. The assessments of each member
insurer shall be in the proportion that
the net direct written premiums of the member insurer for
the calendar year preceding the
assessment on the kinds of insurance in the account bears to the
net direct written premiums of all
member insurers for the calendar year preceding the
assessment on the kinds of insurance in the
account. Each member insurer shall be notified of the
assessment not later than thirty (30) days
before it is due.
A
No member insurer may not be assessed in any one year on any
account an amount
greater than two percent (2%) of that member insurer's net
direct written premiums for the
calendar year preceding the assessment on the kinds of
insurance in the account. If the maximum
assessment, together with the other assets of the fund association
in any account, does not provide
in any one year in any account an amount sufficient to
make all necessary payments from that
account, each member insurer shall be assessed the additional
amount that must be obtained to
make all necessary payments of the underfunded account
from the other two accounts, subject to
the same limitation of two percent (2%) of that member
insurer's net direct written premiums for
the calendar year preceding the assessment on the kinds
of insurance in the account. The
additional assessments shall be considered loans by and between
the separate accounts. Amounts
borrowed under this subsection shall be paid back to the
separate accounts from which they were
borrowed, out of assets, including, but not limited to,
existing and future assessments in the
account receiving the loan. An interest charge shall be
levied on all amounts borrowed under this
subsection based on the average prime rate of interest for each
year the money remains unpaid. If
the amounts borrowed remain unpaid on the seventh yearly
anniversary as a result of the inability
of the borrowing account to make repayment, then the
amount borrowed and interest which is not
repaid, starting with the principal and interest of the
first year, shall be considered uncollectible.
The funds available shall be prorated and the unpaid
portion shall be paid as soon after this as
funds become available. The fund shall pay claims in any
order which it deems reasonable,
including the payment of claims as they are received from the
claimants or in groups or categories
of claims. The
fund association may exempt or defer, in whole or in part, the
assessment of any
member insurer if the assessment would cause the member
insurer's financial statement to reflect
amounts of capital or surplus less than the minimum amounts
required for a certificate of
authority by any jurisdiction in which the member insurer is
authorized to transact insurance.
However, during the period of deferment, no dividends
shall be paid to shareholders or
policyholders. Deferred assessments shall be paid when the payment
will not reduce capital or
surplus below required minimums. The payments Payments shall be refunded to those companies
receiving larger assessments by virtue of the deferment, or, at
the election of any company,
credited against future assessments.
(4) Investigate claims
brought against the fund association and adjust, compromise,
settle, and pay covered claims to the extent of the fund's
association’s obligation and deny all
other claims, and may review settlements, releases, and
judgments to which the insolvent insurer
or its insured were parties, to determine the extent to
which the settlements, releases, and
judgments may be properly contested. The association shall pay claims in any order that
it may
deem reasonable, including the payment of claims as they
are received from the claimants or in
groups or categories of claims. The association shall have
the right to appoint and to direct legal
counsel retained under liability insurance policies for the
defense of covered claims;
(5) Notify the
insured claimants in this state as deemed necessary by the
commissioner
directs under section 27-34-10(b)(1) and upon the commissioner’s request, to the extent
records
are available to the association;
(6) (i) Have the right to review and
contest as set forth in this subsection settlements,
releases, compromises, waivers and judgments to which the
insolvent insurer or its insureds were
parties prior to the entry of the order of liquidation. In an
action to enforce settlements, releases
and judgments to which the insolvent insurer or its insureds were parties prior to the entry of the
order of liquidation, the association shall have the right
to assert the following defenses, in
addition to the defenses available to the insurer:
(A) The association
is not bound by a settlement, release, compromise or waiver executed
by an insured or the insurer, or any judgment entered
against an insured or the insurer by consent
or through a failure to exhaust all appeals, if the
settlement, release, compromise, waiver or
judgment was:
(I) Executed or
entered into within one hundred twenty (120) days prior to the entry of an
order of liquidation, and the insured or the insurer did
not use reasonable care in entering into the
settlement, release, compromise, waiver or judgment, or did not
pursue all reasonable appeals of
an adverse judgment; or
(II) Executed by or
taken against an insured or the insurer based on default, fraud,
collusion or the insurer’s failure to defend.
(B) If a court of
competent jurisdiction finds that the association is not bound by a
settlement, release, compromise, waiver or judgment for the
reasons described in subparagraph
(i)(A),
the settlement, release, compromise, waiver or judgment shall be set aside, and
the
association shall be permitted to defend any covered claim on the
merits. The settlement, release,
compromise, waiver or judgment may not be considered as evidence
of liability or damages in
connection with any claim brought against the association or any
other party under this chapter.
(C) The association
shall have the right to assert any statutory defenses or rights of offset
against any settlement, release, compromise or waiver
executed by an insured or the insurer, or
any judgment taken against the insured or the insurer.
(ii)
As to any covered claims arising from a judgment under any decision, verdict or
finding based on the default of the insolvent insurer or its
failure to defend, the association, either
on its own behalf or on behalf of an insured may apply
to have the judgment, order, decision,
verdict or finding set aside by the same court or
administrator that entered the judgment, order,
decision, verdict or finding and shall be permitted to defend
the claim on the merits.
(7)(6)
Handle claims through its employees or through one or more insurers or other
persons designated as servicing facilities. Designation of a
servicing facility is subject to the
approval of the commissioner, but the designation may be
declined by a member insurer;
(8)(7)
Reimburse each servicing facility for obligations of the fund association
paid by
the facility and for expenses incurred by the facility
while handling claims on behalf of the fund
association and shall pay the other expenses of the fund association
authorized by this chapter;
and
(9)(8) (i) The association shall obtain
a line of credit for the benefit of each account, in
an amount not to exceed the applicable maximum to ensure
the immediate availability of funds
for purposes of future claims and expenses attributable
to an insurer insolvency in that account.
The line of credit shall be obtained from qualified
financial institutions. The line of credit shall
provide for a thirty (30) day notice of termination or
nonrenewal to the commissioner and the
association and shall provide funding to the association within
three (3) business days of receipt
of written notice from the commissioner of an insolvent
insurer in that account. Each member
insurer upon receipt of notice from the association shall
make immediate payment for its
proportionate share of the amount borrowed based on the premium for
the preceding calendar
year. The maximum line of credit or preinsolvency
assessment for each account shall be subject
to prior review and approval by the commissioner at the
time of origination.
(ii) If the
association cannot obtain a line of credit, the association may obtain Obtain an
irrevocable line of credit agreement from each member insurer in
an amount not to exceed the
member insurer's maximum assessment pursuant to subdivision
(3) of this subsection to ensure
the immediate availability of funds for the purposes of
future claims and expenses attributable to
an insurer insolvency;
(ii) Any amount
drawn from the fund under any line of credit shall be considered a
payment toward the member insurer's assessment provided for
in subdivision (3) of this
subsection;
(iii) The member
insurer shall provide funding to the fund association under the
line of
credit within three (3) business days of receipt of a
written request from the fund association for a
draw-down under the line of credit;
(iv)
The line of credit agreement shall be subject to prior review and
approval by the
commissioner at the time of origination and any subsequent
renewal. It shall include any
commercially reasonable provisions the fund association
or the commissioner may deem
advisable, including a provision that the line of credit is
irrevocable or for a stated period of time
and provides for thirty (30) day notice to the fund
association and the commissioner that the line
is being terminated or not renewed;
(v)(iii)
If a line of credit is not given as provided for in this section, the member
insurer
shall be responsible for the payment of an assessment of up
to the member's proportionate share
of the applicable maximum as set forth in this
subsection which shall be paid into a pre-
insolvency assessment fund in each account.
(10) Submit, not
later than ninety (90) days after the end of the association’s fiscal year, a
financial report for the preceding fiscal year in a form
approved by the commissioner.
(b) The fund association
may:
(1) Employ or retain those
persons as are necessary to handle claims and perform other
duties of the fund association;
(2) Borrow funds
necessary to effect the purposes of this chapter in accord
accordance
with the plan of operation;
(3) Sue or be sued;
(4) Negotiate and
become a party to any contracts necessary to carry out the purpose of
this chapter;
(5) Perform
any other acts necessary or proper to effectuate the purpose of this chapter;
and
(6) Refund to the
member insurers in proportion to the contribution of each member
insurer to that account that amount by which the assets of
the account exceed the liabilities, if, at
the end of any calendar year, the board of directors
finds that the assets of the fund association in
any account exceed the liabilities of that account as
estimated by the board of directors for the
coming year.
(c) Suits involving
the association:
(1) Except for
actions by the receiver, all actions relating to or arising out of this chapter
against the association shall be brought in the courts in
this state. The courts shall have exclusive
jurisdiction over all actions relating to or arising out of this
chapter against the association.
(2) The exclusive
venue in any action by or against the association is in the
county superior court. The association may, at its option,
waive this venue as to specific actions.
27-34-9.
Plan of operation. -- (a) The
fund association shall submit to the commissioner
a plan of operation and any amendments to the plan of
operation necessary or suitable to assure
the fair, reasonable, and equitable administration of the
fund association. The plan of operation
and any amendments to it shall become
effective upon approval in writing by the commissioner.
(b) If the fund association
fails to submit a suitable plan of operation or suitable
amendments to the plan, the commissioner shall, after notice and
hearing, adopt and promulgate
any reasonable rules necessary or advisable to effectuate
the provisions of this chapter. The rules
shall continue in force until modified by the commissioner
or superseded by a plan or
amendments to it submitted by the fund association
and approved by the commissioner.
(c) All member insurers
shall comply with the plan of operation.
(d) The plan of
operation shall:
(1) Establish the procedures
where all of the powers and duties of the fund under section
27-34-8 will be performed;
(2) Establish
the procedures for handling the assets of the fund association;
(3) Require that
written procedures be established for the disposition of liquidating
dividends or other monies received from the estate of the
insolvent insurer;
(4)(3) Require
that written procedures be established to designate Establish the
amount
and method of reimbursing members of the board of
directors under section 27-34-7;
(5)(4)
Establish procedures by which claims may be filed with the fund association
and
establish acceptable forms of proof of covered claims. Notice
of claims to the receiver or
liquidator of the insolvent insurer shall be deemed notice to
the fund or its agent, and a list of
claims shall be periodically submitted to the fund or
similar organization in another state by the
receiver or liquidator;
(6)(5)
Establish regular places and times for meetings of the board of directors;
(7)(6)
Establish Require that written procedures be established for
records to be kept of
all financial transactions of the fund association,
its agents, and the board of directors;
(8)(7)
Provide that any member insurer aggrieved by any final action or decision of
the
fund association may appeal to the commissioner
within thirty (30) days after the action or
decision;
(9)(8)
Establish the procedures by under which selections for the board
of directors will
be submitted to the commissioner; and
(10)(9)
Contain additional provisions necessary or proper for the execution of the
powers
and duties of the fund association.
(e) The plan of
operation may provide that any or all powers and duties of the fund
association, except those under sections 27-34-8(a)(3) and
27-34-8(b)(2), may be are delegated to
a corporation, association, similar to the
association or other organization which performs or will
perform functions similar to those of the fund association,
or its equivalent, in two or more
states. That The corporation,
association, similar to the association or organization shall be
reimbursed as a servicing facility would be reimbursed and shall
be paid for its performance of
any other functions of the fund association.
A delegation under this subsection shall take effect
only with the approval of both the board of directors and
the commissioner, and may be made
only to a corporation, association, or organization which extends
protection not substantially less
favorable and effective than that provided by this chapter.
27-34-10.
Duties and powers of the commissioner. -- (a) The commissioner shall:
(1) Notify the fund
association of the existence of an insolvent insurer not later than
three (3) days after he or she receives notice of the
determination of the insolvency. The fund
association shall be entitled to a copy of any a
complaint seeking an order of liquidation with a
finding of insolvency against a member insurer company
at the same time that the complaint is
filed with a court of competent jurisdiction; and
(2) Upon request of
the board of directors, provide Provide
the fund association with a
statement of the net direct written premiums of each member
insurer; and upon request of the
board of directors.
(3) Notify the fund
of all filings made under section 27-35-2 except as prohibited under
section 27-35-6. The commissioner shall provide copies of all
of these filings to the fund upon
request.
(b) The commissioner
may:
(1) Require that the
fund notify the insured of the insolvent insurer and any other
interested parties of the determination of insolvency and of
their rights under this chapter. The
notification shall be by mail at their last known address, where
available, but if sufficient
information for notification by mail is not available, notice by
publication in a newspaper of
general circulation shall be sufficient;
(1)(2)
Suspend or revoke, after notice and hearing, the certificate of authority to
transact
insurance in this state of any member insurer which that
fails to pay an assessment when due or
fails to comply with the plan of operation. As an
alternative, the commissioner may levy a fine on
a member insurer that fails to pay as assessment when
due. The fine shall not exceed five percent
(5%) of the unpaid assessment per month, except that a
fine not be less than one hundred dollars
($100) per month; and
(2)(3)
Revoke the designation of any servicing facility if he or she finds claims are
being
handled unsatisfactorily. ; and
(3) Examine, audit,
or otherwise regulate the association.
(c) Any A final action or order of the commissioner under this
chapter shall be subject to
judicial review in a court of competent jurisdiction.
27-34-11.
Effect of paid claims. -- (a) Any
person recovering under this chapter shall be
deemed to have assigned his or her any rights
under the policy to the fund association to the
extent of his or her recovery from the fund association.
Every insured or claimant seeking the
protection of this chapter shall cooperate with the fund association
to the same extent as the
person would have been required to cooperate with the
insolvent insurer. The fund association
shall have no cause of action against the insured of the
insolvent insurer for any sums it has paid
out except any causes of action as the insolvent
insurer would have had if the sums had been paid
by the insolvent insurer and except as provided in
subsection (b) of this section and section 27-
34-11.5. In the case of an insolvent insurer operating
on a plan with assessment liability,
payments of claims of the association shall not operate to
reduce the liability of the insureds to
the receiver, liquidator or statutory successor for
unpaid assessments.
(b) The fund association
shall have the right to recover from the following persons the
amount of any "covered claim" paid on behalf of
the person pursuant to this chapter:
(1) Any insured
whose net worth on December 31 of the year next preceding the date the
insurer became an insolvent insurer exceeded fifty million
dollars ($50,000,000) and whose
liability obligations to other persons are satisfied in whole
or in part by payments made under this
chapter; provided, that there is no recovery of any
prejudgment interest on any pending or future
claims against this insured, including claims presently in
suit or on appeal; and
(2) Any a
person who is an affiliate of the insolvent insurer and whose liability
obligations to other persons are satisfied in whole or in part by
payments made under this chapter
all amounts paid by the association on behalf of that
person pursuant to the chapter, whether for
indemnity, defense or otherwise.
(c) The receiver,
liquidator, or statutory successor of an insolvent insurer shall be bound
by granted the utmost deference with regard to
settlements of covered claims by the fund or a
similar organization in another state. The court having
jurisdiction shall grant these claims
priority equal to that which the claimant would have been
entitled in the absence of this chapter
against the assets of the insolvent insurer. The expenses of
the fund or similar organization in
handling claims shall be accorded the same priority as the
liquidator's expenses
(d) The association
and any association similar to the association in another state shall be
entitled to file a claim in the liquidation of an insolvent
insurer for any amounts paid by them on
covered claim obligations as determined under this chapter or
similar laws in other states and
shall receive dividends and other distributions at the
priority set forth in section 27-14.3-46.
(d)(e)
The fund association shall periodically file with the receiver or
liquidator of the
insolvent insurer statements of the covered claims paid by the fund
association and estimates of
anticipated claims on the fund that association which
shall preserve the rights of the fund
association against the assets of the insolvent insurer.
27-34-12.
Nonduplication of recovery Exhaustion
of other coverage. -- (a)(1)
Any
person having a claim against an insurer under any provision
in an insurance policy other than a
policy of an insolvent insurer which is also a covered claim, shall be required first to exhaust first
his or her right under that all coverage provided by any other policy, including
the right to a
defense under the other policy, if the claim under the other
policy arises from the same facts,
injury or loss that gave rise to the covered claim against
the association. The requirement
to
exhaust shall apply without regard to whether the other
insurance policy is a policy written by a
member insurer. However, no person shall be required to
exhaust any right under the policy of an
insolvent insurer or any right under a life insurance policy.
(2) Any amount
payable on a covered claim under this chapter shall be reduced by the
full applicable limits stated in the other insurance
policy, or by the amount of any
the recovery
under the other insurance policy as provided
herein. The association shall receive a full credit for
the stated limits, unless the claimant demonstrates that
the claimant used reasonable efforts to
exhaust all coverage and limits applicable under the other
insurance policy. If the claimant
demonstrates that the claimant used reasonable efforts to exhaust
all coverage and limits
applicable under the other insurance policy, or if there are no
applicable stated limits under the
policy, the association shall receive a full credit for the
total recovery.
(i)
The credit shall be deducted from the lesser of:
(A) The association’s
covered claim limit;
(B) The amount of the
judgment or settlement of the claim; or
(C) The policy limits
of the policy of the insolvent insurer.
(ii) In no case,
however, shall the obligation of the association exceed the covered claim
limit embodied in section 27-34-8.
(b) Any person
having a claim or legal right of recovery under any governmental
insurance or guaranty program which is also a covered claim,
shall be required to exhaust first his
or her right under that program. Any amount payable on a
covered claim under this chapter shall
be reduced by the amount of any recovery under the
program.
(3) Except to the
extent that the claimant has a contractual right to claim defense under an
insurance policy issued by another insurer, nothing in this
section shall relieve the association of
the duty to defend under the policy issued by the
insolvent insurer. This duty shall, however, be
limited by any other limitation on the duty to defend
embodied in this chapter.
(4) A claim under a
policy providing liability coverage to a person who may be jointly
and severally liable as a joint tortfeasor
with the person covered under the policy of the insolvent
insurer that gives rise to the covered claim shall be
considered to be a claim arising from the same
facts, injury or loss that gave rise to the covered claim
against the association.
(5) For purposes of
this section, a claim under an insurance policy other than a life
insurance policy shall include, but is not limited to:
(i)
A claim against a health maintenance organization, a hospital plan corporation,
a
nonprofit hospital, medical or dental service corporation or
disability insurance policy; and
(ii) Any amount payable
by or on behalf of a self-insurer.
(6) The person
insured by the insolvent insurer’s policy may not be pursued by a third-
party claimant for any amount paid to the third-party by
which the association’s obligation is
reduced by the application of this section.
(b)(c) Any
person having a claim which may be recovered from more than one insurers'
insolvency fund insurance
guaranty association or its equivalent shall seek recovery first from the
fund association or its equivalent of the place of
residence of the insured, except that if it is a first
party claim for damage to property with a permanent
location he or she the person shall seek
recovery first from the fund or its equivalent in the state
association of the location of the
property. , and,
if If it is a
workers' compensation claim, he or she the person shall seek
recovery
first from the fund or its equivalent of the state association
of the residence of the claimant. Any
recovery under this chapter shall be reduced by the amount of
recovery from any other another
insurance insolvency fund guaranty association or
its equivalent.
27-34-14.
Tax exemption. -- The fund association
shall be exempt from the payment of
all fees and all taxes levied by this state or any of its
subdivisions, except taxes levied on real or
personal property.
27-34-15.
Recognition of assessments in rates Recoupment of assessments.
-- The
rates and premiums charged for insurance policies to which
this chapter section applies shall
include amounts sufficient to recoup a sum equal to the
amounts paid to the fund association by
the member insurer less any amounts returned to the
member insurer by the fund association. ,
and those rates
Rates shall not be deemed excessive because
they contain an amount reasonably
calculated to recoup assessments paid by the member insurer.
27-34-16.
Immunity. -- There shall be no liability on the
part of, and no cause of action
of any nature shall arise against, any member insurer,
the fund association, or its agents or
employees, the board of directors, or any persons serving as
an alternate or substitute
representative of any director, or the commissioner or his or her representative representatives
for
any action taken or not taken any failure to
act by them in the performance of their powers and
duties under this chapter.
27-34-17.
Stay of proceedings. -- All proceedings in which
the insolvent insurer is a
party or is obligated to defend a party in any court in this
state shall, subject to waiver by the
association in specific cases involving covered claims, be stayed for six (6) months and any such
additional time that as may be determined by the
court from the date the insolvency is determined
or an ancillary proceeding is instituted in this state,
whichever is later, to permit proper defense
by the fund association of all pending
causes of action. As to any covered claims arising from a
judgment under any decision, verdict, or finding, based on the
default of the insolvent insurer or
its failure to defend an insured, the fund either on its
own behalf or on behalf of the insured may
apply to have the judgment, order, decision, verdict, or
finding set aside by the same court or
administrator that made the judgment, order, decision, verdict, or
finding, and shall be permitted
to defend against the claim on the merits. The liquidator, receiver, or statutory successor of
an
insolvent insurer covered by this chapter shall permit access
by the board or its authorized
representative to any such of the insolvent insurer's
records that are necessary for the board in
carrying out its functions under this chapter with regard to
covered claims. In addition, the
liquidator, receiver, or statutory successor shall provide the
board or its representative with copies
of the records upon the request by the board and at the
expense of the board.
27-34-19. Prohibition
against advertising of membership in fund Prohibition against
advertising of membership in association. -- No person shall make, publish, or circulate, or
cause to be made, published, or circulated, any statement
that uses the existence of the fund
association for the purposes of sale, solicitation, or inducement
to purchase any form of insurance
within the scope of this chapter.
SECTION 2. Sections 27-34-13 and 27-34-18 of the General
Laws in Chapter 27-34
entitled "Rhode Island Insurers' Insolvency Fund"
are hereby repealed.
27-34-13.
Examination of the fund. -- The fund
shall be subject to examination and
regulation by the commissioner. The board of directors shall
submit to the commissioner, not
later than March 30 of each year, a financial report for
the preceding calendar year in a form
approved by the commissioner.
27-34-18.
Termination and distribution of fund. --
(a) The commissioner shall by order
terminate the operation of the fund as to any kind of insurance
within the scope of this chapter
with respect to which he or she has found, after hearing,
that there is in effect a statutory or
voluntary plan which:
(1) Is a permanent
plan which is adequately funded or for which adequate funding is
provided; and
(2) Extends or will
extend to
benefits with respect to insolvent insurers not substantially
less favorable and effective to the
policyholders and residents than the protection and benefits
provided with respect to the kind of
insurance under this chapter.
(b) The commissioner
shall by the same order authorize the discontinuance of future
payments by insurers to the fund with respect to the same
kinds of insurance; provided, that
assessments and payments shall continue, as necessary, to
liquidate covered claims, and related
expenses, not covered by the other plan.
(c) In the event the
operation of any account of the fund shall be terminated as to all
kinds of insurance within its scope, the fund as soon as
possible after this shall distribute the
balance of monies and assets remaining in the account, after
discharge of the functions of the
fund with respect to prior insurer insolvencies not
covered by the other plan, together with related
expenses, to the insurers which are then writing in this state
policies of the kinds of insurance in
the account, pro rata upon the basis of the aggregate of
the payments made by the respective
insurers to the account during the period of five (5) years
next preceding the date of the order.
Upon completion of the distribution with respect to
all of the accounts specified in section 27-34-
6, this chapter shall be deemed to have expired.
SECTION 3. Chapter 27-34 of the General Laws entitled
"Rhode Island Insurers'
Insolvency Fund" is
hereby amended by adding thereto the following sections:
27-34-10.5.
Coordination among guaranty associations. – (a)
The association may join
one or more organizations of other state associations of
similar purposes, to further the purposes
and administer the powers and duties of the association.
The association may designate one or
more of these organizations to act as a liaison for the
association and, to the extent the association
authorizes, to bind the association in agreements or settlements
with receivers of insolvent
insurance companies or their designated representatives.
(b) The association,
in cooperation with other obligated or potentially obligated guaranty
associations, or their designated representatives, shall make all
reasonable efforts to coordinate
and cooperate with receivers, or their designated
representatives, in the most efficient and
uniform manner, including the use of uniform data standards
as promulgated or approved by the
national association of insurance commissioners.
27-34-11.5. Net
worth exclusion. – (a) For purposes of this
section “high net worth
insured” shall mean any insured, excluding state and local
governments, whose net worth exceeds
fifty million dollars ($50,000,000) on December 31 of the
year prior to the year in which the
insurer becomes an insolvent insurer; provided that an
insured’s net worth on that date shall be
deemed to include the aggregate net worth of the insured and
all of its subsidiaries and affiliates
as calculated on a consolidated basis.
(b)(1) The
association shall not be obligated to pay any first-party claims by a high net
worth insured.
(2) The association
shall have the right to recover from the high net worth insured all
amounts paid by the association to or on behalf of such
insured, whether for indemnity, defense
or otherwise.
(c) The association
shall not be obligated to pay any claim that would otherwise be a
covered claim that is an obligation to or on behalf of a
person who has a net worth greater than
that allowed by the insurance guaranty association law of
the state of residence of the claimant at
the time specified by that state’s applicable law, and
which association has denied coverage to
that claimant on that basis.
(d) The association
shall establish reasonable procedures subject to the approval of the
commissioner for requesting financial information from insureds on a confidential basis for
purposes of applying this section, provided that the financial
information may be shared with any
other association similar to the association and the
liquidator for the insolvent insurer on the same
confidential basis. Any request to an insured seeking financial
information must advise the
insured of the consequences of failing to provide the
financial information. If an insured refuses
to provide the requested financial information where it
is requested and available, the association
may, until such time as the information is provided,
provisionally deem the insured to be a high
net worth insured for the purpose of denying a claim
under subsection (b) of this section.
(e) In any lawsuit
contesting the applicability of this section where the insured has
refused to provide financial information under the procedure
established pursuant to subsection
(d) of this section, the
insured shall bear the burden of proof concerning its net worth at the
relevant time. If the insured fails to prove that its net
worth at the relevant time was less than the
applicable amount, the court shall award the association its
full costs, expenses and reasonable
attorney’s fees in contesting the claim.
27-34-12.5.
Prevention of insolvencies. – To aid in the
detection and prevention of
insurer insolvencies:
(1) The board of
directors may, upon a majority vote, make recommendations to the
commissioner on matters generally related to improving or
enhancing regulation for solvency.
(2) At the conclusion
of any domestic insurer insolvency in which the association was
obligated to pay covered claims, the board of directors may,
upon a majority vote, prepare a
report on the history and causes of the insolvency, based on
the information available to the
association and submit the report to the commissioner.
(3) Reports and
recommendations provided under this section shall not be considered
public documents.
SECTION 4. This act shall take effect upon passage.
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LC01952/SUB B
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