Source: https://gfms.org/law/rhodeisland
Timestamp: 2019-04-26 12:00:07+00:00

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The following statutory enactment is presented on this website for informational purposes only. Neither GFMS® nor the fund/association makes any representation as to the accuracy or correctness of the enactment as presented, and neither shall be responsible for or bound by any inaccuracy or lack of correctness thereof. Any interested party should consult with an attorney if he/she has any questions with respect to the foregoing. This disclaimer is not in lieu of, but in addition to, the "Legal Disclaimer" contained at the bottom of this enactment, which is incorporated by reference herein.
This chapter shall be known and may be cited as the "Rhode Island Property & Casualty Insurance Guaranty Association Act".
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 the extent provided in this chapter, minimize financial loss to claimants or policyholders because of the insolvency of an insurer, and to provide an association to assess the cost of such protection among insurers.
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.
This chapter shall be liberally construed to effect the purpose under § 27-34-2 which will constitute an aid and guide to interpretation.
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.
B) For which assumption consideration has been paid to the applicable guaranty associations, if the assumption is from a non-member insurer.
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.
B) The claim is a first-party claim for damage to property with a permanent location in this state.
I) Any claim filed with the association or a liquidator for protection afforded under the insured's policy for incurred-but-not-reported losses.
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.
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.
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.
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.
(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.
a) The board of directors of the association shall consist of not less than five (5) nor more than 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 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 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).
C) 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.
(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.
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 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 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 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 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. 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.
(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.
9) (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.
(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.
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 association in any account exceed the liabilities of that account as estimated by the board of directors for the coming year.
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 Providence county superior court. The association may, at its option, waive this venue as to specific actions.
a) The 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 association. The plan of operation and amendments shall become effective upon approval in writing by the commissioner.
b) If the 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 association and approved by the commissioner.
c) All member insurers shall comply with the plan of operation.
5) Establish procedures by which claims may be filed with the association and establish acceptable forms of proof of covered claims.
10) Contain additional provisions necessary or proper for the execution of the powers and duties of the association.
e) The plan of operation may provide that any or all powers and duties of the association, except those under §§ 27-34-8(a)(3) and 27-34-8(b)(2), are delegated to a corporation, association, similar to the association or other organization which performs or will perform functions similar to those of the association, or its equivalent, in two or more states. 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 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.
2) Provide the association with a statement of the net direct written premiums of each member insurer upon request of the board of directors.
3) Examine, audit, or otherwise regulate the association.
c) A final action or order of the commissioner under this chapter shall be subject to judicial review in a court of competent jurisdiction.
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.
a) Any person recovering under this chapter shall be deemed to have assigned any rights under the policy to the association to the extent of his or her recovery from the association. Every insured or claimant seeking the protection of this chapter shall cooperate with the association to the same extent as the person would have been required to cooperate with the insolvent insurer. The association shall have no cause of action against the insured of the insolvent insurer for 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 § 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 association shall have the right to recover from a person who is an affiliate of the insolvent insurer 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 granted the utmost deference with regard to settlements of covered claims by the fund or a similar organization in another state.
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 § 27-14.3-46.
e) The association shall periodically file with the receiver or liquidator of the insolvent insurer statements of the covered claims paid by the association and estimates of anticipated claims on the association which shall preserve the rights of the association against the assets of the insolvent insurer.
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.
a) 1) Any person having a claim against an insurer, shall be required first to exhaust 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 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.
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 § 27-34-8.
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.
(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) Any person having a claim which may be recovered from more than one insurance guaranty association or its equivalent shall seek recovery first from the 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 the person shall seek recovery first from the association of the location of the property. If it is a workers' compensation claim, the person shall seek recovery first from the association of the residence of the claimant. Any recovery under this chapter shall be reduced by the amount of recovery from another insurance guaranty association or its equivalent.
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.
The 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.
The rates and premiums charged for insurance policies to which this section applies shall include amounts sufficient to recoup a sum equal to the amounts paid to the association by the member insurer less any amounts returned to the member insurer by the association. Rates shall not be deemed excessive because they contain an amount reasonably calculated to recoup assessments paid by the member insurer.
There shall be no liability on the part of, and no cause of action of any nature shall arise against, any member insurer, the 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 representatives for any action taken or any failure to act by them in the performance of their powers and duties under this chapter.
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 such additional time 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 association of all pending causes of action. 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 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.
No person shall make, publish, or circulate, or cause to be made, published, or circulated, any statement that uses the existence of the association for the purposes of sale, solicitation, or inducement to purchase any form of insurance within the scope of this chapter.

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