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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4802 Introduced in House (IH)]

111th CONGRESS
  2d Session
                                H. R. 4802

   To modernize the Liability Risk Retention Act of 1986 and expand 
   coverage to include commercial property insurance, and for other 
                               purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             March 10, 2010

    Mr. Moore of Kansas (for himself, Mr. Campbell, and Ms. Kosmas) 
 introduced the following bill; which was referred to the Committee on 
                           Financial Services

_______________________________________________________________________

                                 A BILL

 
   To modernize the Liability Risk Retention Act of 1986 and expand 
   coverage to include commercial property insurance, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Risk Retention Modernization Act of 
2010''.

SEC. 2. OVERSIGHT OF COMPLIANCE WITH PREEMPTION OF STATE LAW UNDER THE 
              LIABILITY RISK RETENTION ACT OF 1986.

    The Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.) 
is amended by adding at the end the following new section:

         ``oversight of compliance with preemption of state law

    ``Sec. 8.  (a) Survey.--The Secretary of the Treasury shall survey 
and evaluate the extent to which States are in compliance with the 
prohibition under this Act of State regulation of risk retention groups 
and purchasing groups that are not domiciliaries of such State and 
periodically submit to the President and Congress reports on such 
compliance.
    ``(b) Disputes.--In any dispute in which an issue arises of whether 
this Act preempts the regulation of a risk retention group or 
purchasing group by a State, any party to the dispute may make a 
written submission to the Secretary of the Treasury to request a 
determination as to whether the regulation at issue is preempted by 
this Act.
    ``(c) Standard.--The Secretary of Treasury may only issue a 
determination under paragraph (b) that the regulation at issue is 
preempted by this Act if the regulation imposes a requirement upon the 
risk retention group that is inconsistent with the provisions of this 
Act.
    ``(d) Regulations, Policies, and Procedures.--Not later than 90 
days after the effective date in section 11 of the Risk Retention 
Modernization Act of 2010, the Secretary of the Treasury shall publish 
in the Federal Register final regulations, policy statements, 
guidelines, or procedures to implement this section.
    ``(e) Applicability of Administrative Procedures Act.--
Determinations issued pursuant to subsection (b) shall be subject to 
the applicable provisions of subchapter II of chapter 5 of title 5, 
United States Code (relating to administrative procedure).
    ``(f) Judicial Review.--Any party to the dispute may seek review of 
a final order of the Secretary of the Treasury under subsection (b) in 
the United States Court of Appeals for the District of Columbia 
Circuit.''.

SEC. 3. CORPORATE GOVERNANCE STANDARDS.

    The Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.), 
as amended by section 2 of this Act, is further amended by adding at 
the end the following new section:

                    ``corporate governance standards

    ``Sec. 9. 
    ``(a) Governance Standards.--The Secretary of the Treasury shall, 
not later 30 days after the effective date in section 11 of the Risk 
Retention Modernization Act of 2010, issue corporate governance 
standards for risk retention groups, which shall include requirements 
that--
            ``(1) the governing body of a risk retention group shall at 
        all times include a majority of independent directors;
            ``(2) any material relationship between a director of a 
        risk retention group and a service provider shall--
                    ``(A) be documented by a written contract that--
                            ``(i) is for a term of not more than 5 
                        years; and
                            ``(ii) may be terminated at any time for 
                        cause after providing reasonable notice as set 
                        forth in the contract;
                    ``(B) be approved upon commencement and upon any 
                renewal by a majority of the independent directors of a 
                risk retention group; and
                    ``(C) be approved by the insurance commissioner of 
                the State in which such service provider is chartered;
            ``(3) unless the insurance commissioner of the State in 
        which the risk retention group is chartered permits the 
        governing body of a risk retention group to exercise the 
        function as a whole, such risk retention group shall have an 
        audit committee of its governing body with a written charter 
        defining the purposes of the committee, which shall include--
                    ``(A) providing oversight of--
                            ``(i) the integrity of financial 
                        statements;
                            ``(ii) compliance with legal and regulatory 
                        requirements;
                            ``(iii) the qualifications, independence, 
                        and performance of auditors and actuaries; and
                            ``(iv) the performance of service 
                        providers; and
                    ``(B) reviewing the annual audited financial 
                statements and quarterly statements with the management 
                of the risk retention group;
                    ``(C) reviewing the annual audited financial 
                statements with the auditor of the risk retention group 
                and, if advisable, reviewing quarterly financial 
                statements with such auditor;
                    ``(D) establishing policies with respect to risk 
                assessment and risk management;
                    ``(E) meeting separately and periodically, either 
                directly or through designated representatives of the 
                committee, with the management and auditor of the risk 
                retention group;
                    ``(F) reviewing with the auditor of the risk 
                retention group any audit problems or difficulties and 
                the response to such problems or difficulties by the 
                management of the risk retention group;
                    ``(G) establishing clear policies regarding the 
                hiring of employees or former employees of the current 
                or former auditor of the risk retention group;
                    ``(H) requiring, through contract or negotiation, 
                the auditor of the risk retention group to rotate 
                partners with primary responsibility for the audit of 
                the risk retention group and the partner responsible 
                for reviewing such audit, in order to assure that no 
                individual performs these services for more than five 
                consecutive years; and
                    ``(I) reporting regularly on the foregoing matters 
                to the governing body of the group;
            ``(4) a risk retention group shall adopt and provide upon 
        request to the members of such risk retention group governance 
        standards that address--
                    ``(A) the means of providing evidence of each the 
                ownership interest of each member of the risk retention 
                group;
                    ``(B) the process by which the governing body of 
                the risk retention group is elected by the members of 
                the risk retention group;
                    ``(C) qualification standards for and 
                responsibilities of directors of the risk retention 
                group;
                    ``(D) access to the management and independent 
                advisors of the risk retention group by the directors 
                of the risk retention group;
                    ``(E) compensation of directors of the risk 
                retention group, if any;
                    ``(F) orientation and education of directors of the 
                risk retention group;
                    ``(G) succession of management of the risk 
                retention group; and
                    ``(H) annual performance evaluations of the 
                management, officers, and members of the risk retention 
                group by the governing body of the risk retention 
                group;
            ``(5) a risk retention group shall adopt a code of business 
        conduct and ethics applicable to directors, officers, and 
        employees of the risk retention group that address--
                    ``(A) conflicts of interest;
                    ``(B) corporate opportunities;
                    ``(C) confidentiality;
                    ``(D) fair dealing;
                    ``(E) protection and proper use of the assets of 
                the risk retention group;
                    ``(F) compliance with applicable laws and 
                regulations; and
                    ``(G) reporting of any illegal or unethical 
                behavior which affects the operation of the risk 
                retention group; and
            ``(6) any manager or chief executive officer of a risk 
        retention group shall promptly notify the domestic regulator in 
        writing if either becomes aware of any material noncompliance 
        with any governance standard required by this section, if such 
        noncompliance is not cured within a reasonable period from 
        detection not to exceed 60 days.
    ``(b) Definitions.--In this section:
            ``(1) Auditor.--The term `auditor' means the person 
        providing certification of the annual financial statement of a 
        risk retention group provided to a State in section 3(d)(3).
            ``(2) Director.--The term `director' means a member of the 
        governing body of a risk retention group.
            ``(3) Independent director.--The term `independent 
        director' means a director of a risk retention group that the 
        governing body of such risk retention group determines has no 
        material relationship with--
                    ``(A) such risk retention group;
                    ``(B) a member of such risk retention group; or
                    ``(C) an officer, director, or employee of such 
                member.
            ``(4) Material relationship.--The term `material 
        relationship' means a relationship between an entity or an 
        individual and a risk retention group where such entity or 
        individual, or a member of the immediate family of such 
        individual or any business with which such individual or entity 
        is affiliated, receives compensation or payment from such risk 
        retention group during any 12-month period in an amount of--
                    ``(A) 5 percent or more of the gross written 
                premiums of such risk retention group for such 12-month 
                period; or
                    ``(B) 2 percent or more of the surplus of such risk 
                retention group as measured at the end of any fiscal 
                quarter falling within such 12-month period.
            ``(5) Member.--The term `member' means a person or entity 
        that--
                    ``(A) is insured by a risk retention group; and
                    ``(B) maintains an ownership interest in such risk 
                retention group in accordance with the laws of the 
                State in which such risk retention group is domiciled.
            ``(6) Service provider.--The term `service provider' 
        means--
                    ``(A) a provider of regular ongoing insurance, 
                corporate, or regulatory services to a risk retention 
                group, including management companies, auditors, 
                accountants, actuaries, investment advisors, lawyers, 
                manager general underwriters, and any other parties 
                responsible for underwriting, determining rates, 
                collecting premiums, adjusting and settling claims or 
                the preparation of financial statements;
                    ``(B) does not include defense counsel retained by 
                a risk retention group to defend claims, unless the 
                amount of fees paid to such counsel would otherwise 
                result in it having a material relationship with the 
                risk retention group.
    ``(c) Supersedure.--
            ``(1) In general.--The provisions of this section shall 
        supersede any State law relating to the corporate governance 
        standards required for risk retention groups and purchasing 
        groups.
            ``(2) Definitions.--In this subsection:
                    ``(A) State.--The term `State' includes a State and 
                the District of Columbia, any political subdivisions 
                thereof, and any agency or instrumentality of a State.
                    ``(B) State law.--The term `State law' includes all 
                laws, decisions, rules, regulations, or other State 
                action having the effect of law, of any State.''.

SEC. 4. COMMERCIAL PROPERTY INSURANCE.

    The Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.) 
is further amended--
            (1) in section 2 (15 U.S.C. 3901)--
                    (A) in subsection (a)--
                            (i) in paragraph (4)--
                                    (I) in subparagraph (C)(i) by 
                                striking ``a liability'' and inserting 
                                ``an''; and
                                    (II) in subparagraph (G)(i), by 
                                inserting ``or commercial property'' 
                                after ``liability'';
                            (ii) in paragraph (5)(A), by inserting ``or 
                        commercial property'' after ``liability'';
                            (iii) in paragraph (6), by striking ``and'' 
                        at the end;
                            (iv) in paragraph (7)(B), by striking the 
                        final period and inserting ``; and''; and
                            (v) by adding at the end the following new 
                        paragraph:
            ``(8) `commercial property insurance' means insurance that 
        indemnifies a business, nonprofit organization, or governmental 
        entity for damage to, theft of, or destruction of real property 
        or business property, owned by or leased to such business, 
        nonprofit organization, or governmental entity, including 
        insurance that indemnifies a business, nonprofit organization, 
        or governmental entity for damage to, theft of, or destruction 
        of furniture, fixtures, and inventory, from any and all perils 
        or causes of loss and against consequential loss or damage, 
        including business interruption, other than noncontractual 
        legal liability for such loss or damage.''; and
                    (B) in subsection (b), by inserting ``, commercial 
                property'' after ``of liability'';
            (2) in section 3 (15 U.S.C. 3902)--
                    (A) in subsection (a)(1)(C), by inserting ``or 
                commercial property'' after ``liability'';
                    (B) in subsection (b), by inserting ``or commercial 
                property'' after ``liability'' each place it appears; 
                and
                    (C) in subsection (d)(1)(B), by inserting ``or 
                commercial property'' after ``liability'';
            (3) in section 4 (15 U.S.C. 3903)--
                    (A) in subsection (b)--
                            (i) in paragraph (1), by inserting ``or 
                        commercial property'' after ``liability''; and
                            (ii) in paragraph (2)--
                                    (I) by redesignating subparagraphs 
                                (B) and (C) as subparagraphs (C) and 
                                (D), respectively; and
                                    (II) by inserting after 
                                subparagraph (A) the following new 
                                subparagraph:
                    ``(B) commercial property insurance;''; and
                    (B) in subsection (d)(1)(B), by inserting ``and 
                commercial property'' after ``liability''; and
            (4) in section 6(b) (15 U.S.C. 3905(b)), by inserting ``or 
        commercial property'' after ``liability'' each place it 
        appears.

SEC. 5. FINANCIAL STATEMENTS; DISCLOSURE REQUIREMENTS; FIDUCIARY DUTY; 
              AND UNDERSCORING THE EXEMPTION.

    The Liability Risk Retention Act of 1986 is amended as follows:
            (1) Financial statements.--In section 3(d)(3) (15 U.S.C. 
        3902(d)(3))--
                    (A) by redesignating subparagraphs (A) and (B) as 
                clauses (i) and (ii), respectively, and moving the 
                margins two ems to the right;
                    (B) by striking ``which statement shall be 
                certified'' and inserting ``which statement shall--''
                    ``(A) be certified'';
                    (C) in subparagraph (A)(ii) (as designated by 
                subparagraphs (A) and (B)), by striking the period and 
                inserting a semicolon; and
                    (D) by adding at the end the following new 
                subparagraphs:
                    ``(B) be filed not later than the earlier of--
                            ``(i) June 1, for the preceding calendar 
                        year; and
                            ``(ii) such time as the State in which the 
                        risk retention group is chartered requires; and
                    ``(C) if not prepared in conformity with statutory 
                accounting principles, include appropriate notes for 
                conversion of such statement to statutory accounting 
                principles.''.
            (2) Disclosure requirements.--In section 3 (15 U.S.C. 
        3902)--
                    (A) in subsection (a)(1)--
                            (i) in subparagraph (G), by striking 
                        ``jurisdiction;'' and inserting ``jurisdiction; 
                        and'';
                            (ii) in subparagraph (H), by striking 
                        ``impaired; and'' and inserting ``impaired.''; 
                        and
                            (iii) by striking subparagraph (I); and
                    (B) by adding at the end the following new 
                subsection:
    ``(i) Each risk retention group shall provide to each member of 
such group, on the front page and the declaration page of each 
insurance policy issued by such group, in bold 12-point or larger type, 
the following notice: `This policy is issued by your risk retention 
group of which you are a part owner. Your risk retention group is 
primarily regulated under the laws of ______ and may not be subject to 
all of the insurance laws and consumer protections of your State. If 
your risk retention group fails, it may not be protected by a State 
insurance insolvency guaranty fund.'. The risk retention group shall 
insert the name of the State in which the risk retention group is 
chartered or licensed in place of the blank space.''.
            (3) Fiduciary duty.--In section 3 (15 U.S.C. 3902) by 
        adding at the end the following new subsection:
    ``(j) The board of directors of a risk retention group shall have a 
fiduciary duty to operate in the best interests of the group.''.
            (4) Underscoring the exemption.--(A) in section 3 (15 
        U.S.C. 3902)--
                            (i) in subsection (a) in the matter 
                        preceding paragraph (1), by striking ``Except 
                        as provided'' and inserting ``Except as 
                        specifically provided''; and
                            (ii) in subsection (f)(1), by inserting 
                        ``or purchasing group'' after ``risk retention 
                        group''; and
            (B) in section 4(a) in the matter preceding paragraph (1) 
        (15 U.S.C. 3903(a)), by striking ``Except as provided'' and 
        inserting ``Except as specifically provided''.

SEC. 6. STUDY ON UNLAWFUL STATE REGULATION OF RISK RETENTION GROUPS.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study of--
            (1) instances where nondomiciliary States attempt to 
        unlawfully regulate, directly or indirectly, the operation of 
        risk retention groups through unilateral ``cease and desist'' 
        orders or other means;
            (2) costs to risk retention groups associated with State 
        actions referred to in paragraph (A) above, including but not 
        limited to legal fees and cessation of business operations;
            (3) the ability of risk retention groups to pay for costs 
        associated with challenging nondomiciliary States that violate 
        the Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et 
        seq.) by applying their laws in an extra-territorial manner; 
        and
            (4) possible legislative solutions that would reinforce and 
        underscore the foundation of the Liability Risk Retention Act 
        of 1986, which exempts risk retention groups and purchasing 
        groups from laws of a State other than their chartering State, 
        except as specifically provided in the Act as well as ways to 
        reduce or eliminate costs if a particular risk retention group 
        prevails in a State or Federal court of competent jurisdiction.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Comptroller General shall submit to the Committee on 
Banking, Housing, and Urban Affairs of the Senate and the Committee on 
Financial Services of the House of Representatives a report containing 
the results of the study under subsection (a) and any recommendations 
for actions that Congress should consider to ensure that States do not 
interfere with or regulate, directly or indirectly, risk retention 
groups or purchasing groups in an extra-territorial manner precluded by 
sections 3 and section 4 of the Liability Risk Retention Act of 1986 
(15 U.S.C. 3902 and 3903).
    (c) Definitions.--In this section, the terms ``risk retention 
group'' and ``purchasing group'' have the meaning given such terms in 
section 2 of the Liability Risk Retention Act of 1986 (15 U.S.C. 3901).

SEC. 7. TECHNICAL CORRECTION AND AMENDMENT TO SHORT TITLE.

    (a) Technical Correction.--Section 3(a)(1) of the Liability Risk 
Retention Act of 1986 (15 U.S.C. 3902(a)(1)) is amended by striking 
``many'' and inserting ``any''.
    (b) Short Title.--Section 1 of the Liability Risk Retention Act of 
1986 (15 U.S.C. 3901 note) is amended by striking ``Liability Risk 
Retention Act'' and inserting ``Risk Retention Act''.

SEC. 8. EFFECTIVE DATE.

    The amendments made by sections 3, 4, and 5 shall take effect on 
the date that is 18 months after the date of the enactment of this Act.
                                 <all>
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