Title 27
Insurance

Chapter 34
Rhode Island Property and Casualty Insurance Guaranty Association

§ 27-34-5. Definitions.

As used in this chapter:

(1) “Account” means any one of the three (3) accounts created by § 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 another on December 31 of the year immediately preceding the date the insurer becomes an insolvent insurer.

(3) “Association” means the Rhode Island insurance guaranty association created under § 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-year (3) 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-year (3) 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) “Claimant” means any person instituting a covered claim; provided that no person who is an affiliate of the insolvent insurer may be a claimant.

(8) “Commissioner” means the director of the department of business regulation or his or her designee.

(9) “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) “Covered claim” means:

(i) 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 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) 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, insured, or policyholder is the state in which its principal place of business is located at the time of the insured event; or

(B) The claim is a first-party claim for damage to property with a permanent location in this state.

(ii) Except as provided elsewhere in this section, “covered claim” shall not include:

(A) Any amount awarded as punitive or exemplary damages;

(B) Any amount sought as a return of premium under any retrospective rating plan;

(C) Any amount 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 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 other than to the extent the claim exceeds the association obligation limitations set forth in § 27-34-8;

(D) Any claims excluded pursuant to § 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.

(11) “Insolvent insurer” means an insurer licensed to transact insurance in this state 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 whom a final order of liquidation 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.

(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)(i) “Member insurer” means any person who:

(A) Writes any kind of insurance to which this chapter applies, under § 27-34-3, including the exchange of reciprocal or interinsurance contracts;

(B) Is licensed to transact insurance in this state; and

(C) Is not otherwise excepted from membership by statute or regulation.

(ii) 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 assessments 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.

(15) “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 premiums; (ii) Premiums on policies not taken; and (iii) Dividends paid or credited to policyholders on 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, that 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) “Person” means any individual, aggregation of individuals, corporation, partnership, or other entity.

(19) “Qualified financial institution” shall have the same meaning as the term in § 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.

(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.