I 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Risk Retention Mod5 ernization Act of 2010’’. 


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1 SEC. 2. OVERSIGHT OF COMPLIANCE WITH PREEMPTION 

2 OF STATE LAW UNDER THE LIABILITY RISK 

3 RETENTION ACT OF 1986. 

4 The Liability Risk Retention Act of 1986 (15 U.S.C. 

5 3901 et seq.) is amended by adding at the end the fol6 lowing new section: 

7 ‘‘OVERSIGHT OF COMPLIANCE WITH PREEMPTION OF

8 STATE LAW

9 ‘‘SEC. 8. (a) SURVEY.—The Secretary of the Treas10 ury shall survey and evaluate the extent to which States 

11 are in compliance with the prohibition under this Act of 

12 State regulation of risk retention groups and purchasing 

13 groups that are not domiciliaries of such State and peri14 odically submit to the President and Congress reports on 

15 such compliance. 

16 ‘‘(b) DISPUTES.—In any dispute in which an issue 

17 arises of whether this Act preempts the regulation of a 

18 risk retention group or purchasing group by a State, any 

19 party to the dispute may make a written submission to 

20 the Secretary of the Treasury to request a determination 

21 as to whether the regulation at issue is preempted by this 

22 Act. 

23 ‘‘(c) STANDARD.—The Secretary of Treasury may 

24 only issue a determination under paragraph (b) that the 

25 regulation at issue is preempted by this Act if the regulaVerDate Nov 24 2008 16:44 Mar 11, 2010 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H4802.IH H4802

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1 tion imposes a requirement upon the risk retention group 

2 that is inconsistent with the provisions of this Act. 

3 ‘‘(d) REGULATIONS, POLICIES, AND PROCEDURES.— 

4 Not later than 90 days after the effective date in section 

5 11 of the Risk Retention Modernization Act of 2010, the 

6 Secretary of the Treasury shall publish in the Federal 

7 Register final regulations, policy statements, guidelines, or 

8 procedures to implement this section. 

9 ‘‘(e) APPLICABILITY OF ADMINISTRATIVE PROCE10 DURES ACT.—Determinations issued pursuant to sub11 section (b) shall be subject to the applicable provisions of 

12 subchapter II of chapter 5 of title 5, United States Code 

13 (relating to administrative procedure). 

14 ‘‘(f) JUDICIAL REVIEW.—Any party to the dispute 

15 may seek review of a final order of the Secretary of the 

16 Treasury under subsection (b) in the United States Court 

17 of Appeals for the District of Columbia Circuit.’’. 

18 SEC. 3. CORPORATE GOVERNANCE STANDARDS. 

19 The Liability Risk Retention Act of 1986 (15 U.S.C. 

20 3901 et seq.), as amended by section 2 of this Act, is fur21 ther amended by adding at the end the following new sec22 tion: 

23 ‘‘CORPORATE GOVERNANCE STANDARDS

24 ‘‘SEC. 9. 

25 ‘‘(a) GOVERNANCE STANDARDS.—The Secretary of 

26 the Treasury shall, not later 30 days after the effective 


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1 date in section 11 of the Risk Retention Modernization 

2 Act of 2010, issue corporate governance standards for risk 

3 retention groups, which shall include requirements that— 

4 ‘‘(1) the governing body of a risk retention 

5 group shall at all times include a majority of inde6 pendent directors; 

7 ‘‘(2) any material relationship between a direc8 tor of a risk retention group and a service provider 

9 shall— 

10 ‘‘(A) be documented by a written contract 

11 that— 

12 ‘‘(i) is for a term of not more than 5 

13 years; and 

14 ‘‘(ii) may be terminated at any time 

15 for cause after providing reasonable notice 

16 as set forth in the contract; 

17 ‘‘(B) be approved upon commencement and 

18 upon any renewal by a majority of the inde19 pendent directors of a risk retention group; and 

20 ‘‘(C) be approved by the insurance com21 missioner of the State in which such service 

22 provider is chartered; 

23 ‘‘(3) unless the insurance commissioner of the 

24 State in which the risk retention group is chartered 

25 permits the governing body of a risk retention group 


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1 to exercise the function as a whole, such risk reten2 tion group shall have an audit committee of its gov3 erning body with a written charter defining the pur4 poses of the committee, which shall include— 

5 ‘‘(A) providing oversight of— 

6 ‘‘(i) the integrity of financial state7 ments; 

8 ‘‘(ii) compliance with legal and regu9 latory requirements; 

10 ‘‘(iii) the qualifications, independence, 

11 and performance of auditors and actuaries; 

12 and 

13 ‘‘(iv) the performance of service pro14 viders; and 

15 ‘‘(B) reviewing the annual audited finan16 cial statements and quarterly statements with 

17 the management of the risk retention group; 

18 ‘‘(C) reviewing the annual audited financial 

19 statements with the auditor of the risk reten20 tion group and, if advisable, reviewing quarterly 

21 financial statements with such auditor; 

22 ‘‘(D) establishing policies with respect to 

23 risk assessment and risk management; 

24 ‘‘(E) meeting separately and periodically, 

25 either directly or through designated representVerDate Nov 24 2008 16:44 Mar 11, 2010 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H4802.IH H4802

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1 atives of the committee, with the management 

2 and auditor of the risk retention group; 

3 ‘‘(F) reviewing with the auditor of the risk 

4 retention group any audit problems or difficul5 ties and the response to such problems or dif6 ficulties by the management of the risk reten7 tion group; 

8 ‘‘(G) establishing clear policies regarding 

9 the hiring of employees or former employees of 

10 the current or former auditor of the risk reten11 tion group; 

12 ‘‘(H) requiring, through contract or nego13 tiation, the auditor of the risk retention group 

14 to rotate partners with primary responsibility 

15 for the audit of the risk retention group and 

16 the partner responsible for reviewing such 

17 audit, in order to assure that no individual per18 forms these services for more than five consecu19 tive years; and 

20 ‘‘(I) reporting regularly on the foregoing 

21 matters to the governing body of the group; 

22 ‘‘(4) a risk retention group shall adopt and pro23 vide upon request to the members of such risk reten24 tion group governance standards that address— 


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1 ‘‘(A) the means of providing evidence of 

2 each the ownership interest of each member of 

3 the risk retention group; 

4 ‘‘(B) the process by which the governing 

5 body of the risk retention group is elected by 

6 the members of the risk retention group; 

7 ‘‘(C) qualification standards for and re8 sponsibilities of directors of the risk retention 

9 group; 

10 ‘‘(D) access to the management and inde11 pendent advisors of the risk retention group by 

12 the directors of the risk retention group; 

13 ‘‘(E) compensation of directors of the risk 

14 retention group, if any; 

15 ‘‘(F) orientation and education of directors 

16 of the risk retention group; 

17 ‘‘(G) succession of management of the risk 

18 retention group; and 

19 ‘‘(H) annual performance evaluations of 

20 the management, officers, and members of the 

21 risk retention group by the governing body of 

22 the risk retention group; 

23 ‘‘(5) a risk retention group shall adopt a code 

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1 tors, officers, and employees of the risk retention 

2 group that address— 

3 ‘‘(A) conflicts of interest; 

4 ‘‘(B) corporate opportunities; 

5 ‘‘(C) confidentiality; 

6 ‘‘(D) fair dealing; 

7 ‘‘(E) protection and proper use of the as8 sets of the risk retention group; 

9 ‘‘(F) compliance with applicable laws and 

10 regulations; and 

11 ‘‘(G) reporting of any illegal or unethical 

12 behavior which affects the operation of the risk 

13 retention group; and 

14 ‘‘(6) any manager or chief executive officer of 

15 a risk retention group shall promptly notify the do16 mestic regulator in writing if either becomes aware 

17 of any material noncompliance with any governance 

18 standard required by this section, if such noncompli19 ance is not cured within a reasonable period from 

20 detection not to exceed 60 days. 

21 ‘‘(b) DEFINITIONS.—In this section: 

22 ‘‘(1) AUDITOR.—The term ‘auditor’ means the 

23 person providing certification of the annual financial 

24 statement of a risk retention group provided to a 

25 State in section 3(d)(3). 


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1 ‘‘(2) DIRECTOR.—The term ‘director’ means a 

2 member of the governing body of a risk retention 

3 group. 

4 ‘‘(3) INDEPENDENT DIRECTOR.—The term 

5 ‘independent director’ means a director of a risk re6 tention group that the governing body of such risk 

7 retention group determines has no material relation8 ship with— 

9 ‘‘(A) such risk retention group; 

10 ‘‘(B) a member of such risk retention 

11 group; or 

12 ‘‘(C) an officer, director, or employee of 

13 such member. 

14 ‘‘(4) MATERIAL RELATIONSHIP.—The term 

15 ‘material relationship’ means a relationship between 

16 an entity or an individual and a risk retention group 

17 where such entity or individual, or a member of the 

18 immediate family of such individual or any business 

19 with which such individual or entity is affiliated, re20 ceives compensation or payment from such risk re21 tention group during any 12-month period in an 

22 amount of— 

23 ‘‘(A) 5 percent or more of the gross writ24 ten premiums of such risk retention group for 

25 such 12-month period; or 


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1 ‘‘(B) 2 percent or more of the surplus of 

2 such risk retention group as measured at the 

3 end of any fiscal quarter falling within such 12- 

4 month period. 

5 ‘‘(5) MEMBER.—The term ‘member’ means a 

6 person or entity that— 

7 ‘‘(A) is insured by a risk retention group; 

8 and 

9 ‘‘(B) maintains an ownership interest in 

10 such risk retention group in accordance with 

11 the laws of the State in which such risk reten12 tion group is domiciled. 

13 ‘‘(6) SERVICE PROVIDER.—The term ‘service 

14 provider’ means— 

15 ‘‘(A) a provider of regular ongoing insur16 ance, corporate, or regulatory services to a risk 

17 retention group, including management compa18 nies, auditors, accountants, actuaries, invest19 ment advisors, lawyers, manager general under20 writers, and any other parties responsible for 

21 underwriting, determining rates, collecting pre22 miums, adjusting and settling claims or the 

23 preparation of financial statements; 

24 ‘‘(B) does not include defense counsel re25 tained by a risk retention group to defend 


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1 claims, unless the amount of fees paid to such 

2 counsel would otherwise result in it having a 

3 material relationship with the risk retention 

4 group. 

5 ‘‘(c) SUPERSEDURE.— 

6 ‘‘(1) IN GENERAL.—The provisions of this sec7 tion shall supersede any State law relating to the 

8 corporate governance standards required for risk re9 tention groups and purchasing groups. 

10 ‘‘(2) DEFINITIONS.—In this subsection: 

11 ‘‘(A) STATE.—The term ‘State’ includes a 

12 State and the District of Columbia, any polit13 ical subdivisions thereof, and any agency or in14 strumentality of a State. 

15 ‘‘(B) STATE LAW.—The term ‘State law’ 

16 includes all laws, decisions, rules, regulations, 

17 or other State action having the effect of law, 

18 of any State.’’. 

19 SEC. 4. COMMERCIAL PROPERTY INSURANCE. 

20 The Liability Risk Retention Act of 1986 (15 U.S.C. 

21 3901 et seq.) is further amended— 

22 (1) in section 2 (15 U.S.C. 3901)— 

23 (A) in subsection (a)— 

24 (i) in paragraph (4)— 


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1 (I) in subparagraph (C)(i) by 

2 striking ‘‘a liability’’ and inserting 

3 ‘‘an’’; and 

4 (II) in subparagraph (G)(i), by 

5 inserting ‘‘or commercial property’’ 

6 after ‘‘liability’’; 

7 (ii) in paragraph (5)(A), by inserting 

8 ‘‘or commercial property’’ after ‘‘liability’’; 

9 (iii) in paragraph (6), by striking 

10 ‘‘and’’ at the end; 

11 (iv) in paragraph (7)(B), by striking 

12 the final period and inserting ‘‘; and’’; and 

13 (v) by adding at the end the following 

14 new paragraph: 

15 ‘‘(8) ‘commercial property insurance’ means in16 surance that indemnifies a business, nonprofit orga17 nization, or governmental entity for damage to, theft 

18 of, or destruction of real property or business prop19 erty, owned by or leased to such business, nonprofit 

20 organization, or governmental entity, including in21 surance that indemnifies a business, nonprofit orga22 nization, or governmental entity for damage to, theft 

23 of, or destruction of furniture, fixtures, and inven24 tory, from any and all perils or causes of loss and 

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1 ness interruption, other than noncontractual legal li2 ability for such loss or damage.’’; and 

3 (B) in subsection (b), by inserting ‘‘, com4 mercial property’’ after ‘‘of liability’’; 

5 (2) in section 3 (15 U.S.C. 3902)— 

6 (A) in subsection (a)(1)(C), by inserting 

7 ‘‘or commercial property’’ after ‘‘liability’’; 

8 (B) in subsection (b), by inserting ‘‘or 

9 commercial property’’ after ‘‘liability’’ each 

10 place it appears; and 

11 (C) in subsection (d)(1)(B), by inserting 

12 ‘‘or commercial property’’ after ‘‘liability’’; 

13 (3) in section 4 (15 U.S.C. 3903)— 

14 (A) in subsection (b)— 

15 (i) in paragraph (1), by inserting ‘‘or 

16 commercial property’’ after ‘‘liability’’; and 

17 (ii) in paragraph (2)— 

18 (I) by redesignating subpara19 graphs (B) and (C) as subparagraphs 

20 (C) and (D), respectively; and 

21 (II) by inserting after subpara22 graph (A) the following new subpara23 graph: 

24 ‘‘(B) commercial property insurance;’’; and 


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1 (B) in subsection (d)(1)(B), by inserting 

2 ‘‘and commercial property’’ after ‘‘liability’’; 

3 and 

4 (4) in section 6(b) (15 U.S.C. 3905(b)), by in5 serting ‘‘or commercial property’’ after ‘‘liability’’ 

6 each place it appears. 

7 SEC. 5. FINANCIAL STATEMENTS; DISCLOSURE REQUIRE8 MENTS; FIDUCIARY DUTY; AND UNDER9 SCORING THE EXEMPTION. 

10 The Liability Risk Retention Act of 1986 is amended 

11 as follows: 

12 (1) FINANCIAL STATEMENTS.—In section 

13 3(d)(3) (15 U.S.C. 3902(d)(3))— 

14 (A) by redesignating subparagraphs (A) 

15 and (B) as clauses (i) and (ii), respectively, and 

16 moving the margins two ems to the right; 

17 (B) by striking ‘‘which statement shall be 

18 certified’’ and inserting ‘‘which statement 

19 shall—’’ 

20 ‘‘(A) be certified’’; 

21 (C) in subparagraph (A)(ii) (as designated 

22 by subparagraphs (A) and (B)), by striking the 

23 period and inserting a semicolon; and 

24 (D) by adding at the end the following new 

25 subparagraphs: 


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1 ‘‘(B) be filed not later than the earlier 

2 of— 

3 ‘‘(i) June 1, for the preceding cal4 endar year; and 

5 ‘‘(ii) such time as the State in which 

6 the risk retention group is chartered re7 quires; and 

8 ‘‘(C) if not prepared in conformity with 

9 statutory accounting principles, include appro10 priate notes for conversion of such statement to 

11 statutory accounting principles.’’. 

12 (2) DISCLOSURE REQUIREMENTS.—In section 3 

13 (15 U.S.C. 3902)— 

14 (A) in subsection (a)(1)— 

15 (i) in subparagraph (G), by striking 

16 ‘‘jurisdiction;’’ and inserting ‘‘jurisdiction; 

17 and’’; 

18 (ii) in subparagraph (H), by striking 

19 ‘‘impaired; and’’ and inserting ‘‘impaired.’’; 

20 and 

21 (iii) by striking subparagraph (I); and 

22 (B) by adding at the end the following new 

23 subsection: 

24 ‘‘(i) Each risk retention group shall provide to each 

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1 tion page of each insurance policy issued by such group, 

2 in bold 12-point or larger type, the following notice: ‘This 

3 policy is issued by your risk retention group of which you 

4 are a part owner. Your risk retention group is primarily 

5 regulated under the laws of llllll and may not 

6 be subject to all of the insurance laws and consumer pro7 tections of your State. If your risk retention group fails, 

8 it may not be protected by a State insurance insolvency 

9 guaranty fund.’. The risk retention group shall insert the 

10 name of the State in which the risk retention group is 

11 chartered or licensed in place of the blank space.’’. 

12 (3) FIDUCIARY DUTY.—In section 3 (15 U.S.C. 

13 3902) by adding at the end the following new sub14 section: 

15 ‘‘(j) The board of directors of a risk retention group 

16 shall have a fiduciary duty to operate in the best interests 

17 of the group.’’. 

18 (4) UNDERSCORING THE EXEMPTION.—(A) in 

19 section 3 (15 U.S.C. 3902)— 

20 (i) in subsection (a) in the matter pre21 ceding paragraph (1), by striking ‘‘Except 

22 as provided’’ and inserting ‘‘Except as spe23 cifically provided’’; and 


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1 (ii) in subsection (f)(1), by inserting 

2 ‘‘or purchasing group’’ after ‘‘risk reten3 tion group’’; and 

4 (B) in section 4(a) in the matter preceding 

5 paragraph (1) (15 U.S.C. 3903(a)), by striking ‘‘Ex6 cept as provided’’ and inserting ‘‘Except as specifi7 cally provided’’. 

8 SEC. 6. STUDY ON UNLAWFUL STATE REGULATION OF RISK 

9 RETENTION GROUPS. 

10 (a) STUDY.—The Comptroller General of the United 

11 States shall conduct a study of— 

12 (1) instances where nondomiciliary States at13 tempt to unlawfully regulate, directly or indirectly, 

14 the operation of risk retention groups through uni15 lateral ‘‘cease and desist’’ orders or other means; 

16 (2) costs to risk retention groups associated 

17 with State actions referred to in paragraph (A) 

18 above, including but not limited to legal fees and 

19 cessation of business operations; 

20 (3) the ability of risk retention groups to pay 

21 for costs associated with challenging nondomiciliary 

22 States that violate the Liability Risk Retention Act 

23 of 1986 (15 U.S.C. 3901 et seq.) by applying their 

24 laws in an extra-territorial manner; and 


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1 (4) possible legislative solutions that would rein2 force and underscore the foundation of the Liability 

3 Risk Retention Act of 1986, which exempts risk re4 tention groups and purchasing groups from laws of 

5 a State other than their chartering State, except as 

6 specifically provided in the Act as well as ways to re7 duce or eliminate costs if a particular risk retention 

8 group prevails in a State or Federal court of com9 petent jurisdiction. 

10 (b) REPORT.—Not later than 1 year after the date 

11 of the enactment of this Act, the Comptroller General shall 

12 submit to the Committee on Banking, Housing, and 

13 Urban Affairs of the Senate and the Committee on Finan14 cial Services of the House of Representatives a report con15 taining the results of the study under subsection (a) and 

16 any recommendations for actions that Congress should 

17 consider to ensure that States do not interfere with or reg18 ulate, directly or indirectly, risk retention groups or pur19 chasing groups in an extra-territorial manner precluded 

20 by sections 3 and section 4 of the Liability Risk Retention 

21 Act of 1986 (15 U.S.C. 3902 and 3903). 

22 (c) DEFINITIONS.—In this section, the terms ‘‘risk 

23 retention group’’ and ‘‘purchasing group’’ have the mean24 ing given such terms in section 2 of the Liability Risk 

25 Retention Act of 1986 (15 U.S.C. 3901). 


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1 SEC. 7. TECHNICAL CORRECTION AND AMENDMENT TO 

2 SHORT TITLE. 

3 (a) TECHNICAL CORRECTION.—Section 3(a)(1) of 

4 the Liability Risk Retention Act of 1986 (15 U.S.C. 

5 3902(a)(1)) is amended by striking ‘‘many’’ and inserting 

6 ‘‘any’’. 

7 (b) SHORT TITLE.—Section 1 of the Liability Risk 

8 Retention Act of 1986 (15 U.S.C. 3901 note) is amended 

9 by striking ‘‘Liability Risk Retention Act’’ and inserting 

10 ‘‘Risk Retention Act’’. 

11 SEC. 8. EFFECTIVE DATE. 

12 The amendments made by sections 3, 4, and 5 shall 

13 take effect on the date that is 18 months after the date 

14 of the enactment of this Act. 

Æ 


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