Opinion ID: 202647
Heading Depth: 2
Heading Rank: 1

Heading: Law 253: The Compulsory Liability Insurance System

Text: 4 The following facts are drawn from the complaint and, where noted, from relevant statutory and case law. On December 27, 1995, in response to financial losses from uncompensated damages to motor vehicles in traffic accidents, the Commonwealth of Puerto Rico (Commonwealth) enacted the Compulsory Motor Vehicle Liability Insurance Act, Act No. 253 (Law 253), codified at P.R. Laws Ann. tit. 26, §§ 8051-61. Under Law 253, liability insurance coverage is required for all motor vehicles that travel on public thoroughfares. Law 253 provides each insured vehicle owner with $3000 of coverage for damages caused to third parties per accident in exchange for a uniform premium, initially set at $99 for each private passenger vehicle and $148 for each commercial vehicle. Arroyo-Melecio v. P.R. Am. Ins. Co., 398 F.3d 56, 60-61 (1st Cir.2005) (citing P.R. Laws Ann. tit. 26, §§ 8052(j), 8056(a)). 5 All private insurers — defined under Law 253 as those with more than 1% of the total volume of vehicle liability premiums in Puerto Rico, P.R. Laws Ann. tit. 26, § 8052(b) — are required to provide compulsory liability insurance in one of two ways. First, private insurers are bound to provide the compulsory liability insurance to those motor vehicle owners that request it, id. § 8054(a), unless those owners meet certain statutory criteria, most of which identify applicants who are bad drivers or otherwise of high risk, Arroyo-Melecio, 398 F.3d at 61. Second, private insurers are required to provide compulsory liability insurance as members of the JUA, to which they must belong. The JUA is an association of all private insurers in Puerto Rico, which provides compulsory liability insurance to all drivers, including those high-risk drivers whom private insurers are not required to insure. Id. (footnote omitted). Through the JUA, the risk of insuring these high-risk drivers is thus spread among all the private insurers. Id. at 62. 6 Every vehicle owner must either: (1) pay the premium for compulsory liability insurance to the Secretary of the Treasury at the time that the owner acquires or renews a vehicle license, effectively as part of the license payment; or (2) opt out of the compulsory liability insurance scheme by privately purchasing liability insurance with comparable or better coverage. Id. at 61 n. 2 (citing P.R. Laws Ann. tit. 26, § 8061). 2 In the case of those vehicle owners who pay the Secretary for compulsory liability insurance, [t]he [JUA] shall receive from the Secretary of the Treasury the total amount of the compulsory liability insurance premiums received by said official, for its eventual distribution among the private insurers and the [JUA] itself, as the case may be. P.R. Laws Ann. tit. 26, § 8055(c). The JUA's administrative and operating expenses are charged to the amount received from the corresponding premiums according to this distribution. Id. 7 If a vehicle owner does not present a Certificate of Compliance proving that he carries traditional liability insurance, he must pay the compulsory liability insurance premium on the date of issuance or renewal of the vehicle license, and may then seek reimbursement directly from the JUA or from his insurer, who will, in turn, seek reimbursement from the JUA. 3 Thus, the funds transferred from the Secretary to the JUA appear to consist of: (1) premium payments from individuals seeking to purchase insurance through the JUA who paid the Secretary, as required by the statute, when they obtained or renewed their vehicle licenses, (2) duplicate premium payments from individuals who are purchasing the compulsory insurance directly from a private insurer, but who paid the compulsory assessment to the Secretary along with their license fees (and who thus are eligible for a refund from the JUA), and (3) duplicate premium payments from individuals who have adequate traditional liability coverage, but who did not obtain the Certificate of Compliance that would have exempted them from the compulsory assessment (who also are eligible for a refund). The JUA is responsible for distributing the premiums it receives from the Secretary to its member insurers for the coverage they provide. Arroyo-Melecio, 398 F.3d at 61 n. 2. 4 8 The JUA is required to file an annual statement with the Insurance Commissioner detailing its financial condition, transactions, and affairs for the preceding calendar year. Because a portion of the total amount of premiums received by the JUA may be owed to third parties who seek refunds for duplicate payments — i.e., vehicle owners who bought insurance from a private insurer but also paid the compulsory liability premium when obtaining licenses, or private insurers who have reimbursed their insureds for payment of the compulsory premium — the JUA is required by regulation to set aside these premiums and accumulate them in a separate reserve account (Reserve). 5