Code of Virginia

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Code of Virginia
Title 38.2. Insurance
Chapter 10. Organization, Admission and Licensing of Insurers

Article 2. Conversion of Domestic Stock Insurer to Mutual Insurer.

§ 38.2-1006. Conversion of a domestic stock insurer to a mutual insurer.

A. Any domestic stock life insurer may become a mutual life insurer, and to that end may carry out a plan for the acquisition of shares of its capital stock by purchase, gift or bequest, if the plan:

1. Has been adopted by a vote of a majority of the directors of the insurer;

2. Has been approved by a vote of the holders of at least two-thirds of the stock outstanding at a meeting called for that purpose;

3. Has been submitted to and approved by the Commission; and

4. Has been approved by a majority vote of the policyholders voting at a meeting called for that purpose. Only those policyholders whose insurance is then in force and has been in force for at least one year before the meeting shall be entitled to vote.

B. For the purpose of this article, "policyholder" shall include the employer, or the president, secretary or other executive officer of any corporation or association, to which a master group policy has been issued, but shall exclude the holders of certificates or policies issued under or in connection with a master group policy.

Code 1950, §§ 38-420, 38-424; 1952, c. 317, §§ 38.1-489, 38.1-493; 1986, c. 562.

§ 38.2-1007. Notice to policyholders of meeting to approve conversion.

At least thirty days before the meeting of policyholders required by § 38.2-1006, the insurer shall mail notice of the meeting to each policyholder at the last known address or shall deliver the notice in person to the policyholder.

Code 1950, § 38-421; 1952, c. 317, § 38.1-490; 1986, c. 562.

§ 38.2-1008. Conduct of and voting at meeting.

The meeting required by § 38.2-1006 shall be conducted in the manner provided in the plan, subject to the following requirements:

1. Policyholders may vote in person, by proxy, or by mail, but all votes shall be cast by ballot; and

2. A representative of the Commission shall supervise the procedure of the meeting and shall appoint an adequate number of inspectors to oversee the voting at the meeting. The inspectors, acting under any rules and regulations prescribed by the Commission, shall have power to determine all questions concerning the verification and validity of the ballots, the qualifications of the voters, and the canvass of the vote. The inspectors shall certify the results of the voting to the representative of the Commission and to the insurer.

All necessary expenses incurred by the Commission or its representative in connection with the meeting shall be paid by the insurer.

Code 1950, § 38-422; 1952, c. 317, § 38.1-491; 1986, c. 562.

§ 38.2-1009. Payment for shares pursuant to conversion plan.

Every payment for the acquisition of any shares of the capital stock of the insurer, the purchase price of which is not fixed by the plan, shall be subject to the approval of the Commission. Neither the plan, nor any payment under the plan, nor any payment not fixed by the plan, shall be approved by the Commission if the making of the payment reduces the surplus to policyholders to an amount less than that required at that time for the licensure of domestic mutual insurers.

Code 1950, § 38-423; 1952, c. 317, § 38.1-492; 1986, c. 562.

§ 38.2-1010. How acquired shares held.

Until all shares are acquired, the acquired shares shall be held in trust for the policyholders of the insurer as provided in this article and shall be assigned and transferred on the books of the insurer to not less than three nor more than five trustees and shall be held by them in trust. Shares transferred to the trustees shall be voted by them at all corporate meetings at which stockholders have the right to vote until all of the capital stock of the insurer is acquired. The trustees shall be appointed and vacancies in the office of trustee shall be filled as provided in the plan adopted under § 38.2-1006. The trustees shall file with the insurer and with the Commission a verified acceptance of their appointment and a declaration that they will faithfully discharge their duties as such trustees.

Code 1950, § 38-425; 1952, c. 317, § 38.1-494; 1986, c. 562.

§ 38.2-1011. Disposition of dividends after payments provided in conversion plan.

After the payment of stockholder dividends as provided in the plan adopted under § 38.2-1006, and after paying the necessary expenses of executing the trust all dividends and other sums received by the trustees on the shares of acquired stock, shall be immediately repaid to the insurer for the benefit of those who are or may become policyholders of the insurer and entitled to participate in the profits of the insurer. These payments shall be added to and become a part of the earned surplus of the insurer.

Code 1950, § 38-426; 1952, c. 317, § 38.1-495; 1986, c. 562.

§ 38.2-1012. Jurisdiction to compel completion of mutualization.

Whenever (i) a plan of mutualization approved in accordance with the laws of this Commonwealth has been in effect for more than five years, and (ii) the insurer has acquired in the name of its trustees under the plan at least ninety percent of its outstanding stock, and (iii) the plan itself contains no provision for the compulsory completion of mutualization inconsistent with the terms of this article, circuit courts shall have jurisdiction to compel completion of the mutualization of the insurer upon the petition of either the insurer or any stockholder of the insurer.

1954, c. 20, § 38.1-495.1; 1986, c. 562.

§ 38.2-1013. Venue of proceedings.

The petition may be filed in the circuit court of record with general equity jurisdiction in the county or city in which the principal office of the insurer is located.

1954, c. 20, § 38.1-495.2; 1986, c. 562.

§ 38.2-1014. Parties and process.

Necessary parties to the proceeding shall be (i) the insurer, (ii) the registered holders of all its stock still outstanding in the hands of the public, and (iii) its policyholders as a class. Process may be served on the policyholders as a class by publication but any policyholder may, on motion, be admitted as an individual party. The court shall appoint an attorney to represent all other policyholders.

1954, c. 20, § 38.1-495.3; 1986, c. 562.

§ 38.2-1015. Determining value of stock outstanding; dismissal of petition or entry of decree requiring payment for and transfer of stock.

The court shall determine the per share fair cash value as of the date of the filing of the petition of the stock remaining in the hands of the public. If the court finds that on that basis, completion of mutualization may not be effected without jeopardizing the solvency of the insurer or the security of its policyholders, the petition shall be dismissed. Otherwise, the court shall enter an appropriate decree to require (i) the payment into court by the insurer of the aggregate amount due the remaining stockholders, with any interest and costs, which may include attorneys' fees that the court may require, and (ii) the transfer and delivery to the insurer of all stock certificates still outstanding in the hands of the public. Upon payment by the insurer, the trustees under the plan of mutualization shall be considered, for all purposes of the plan of mutualization, to have acquired all of its outstanding stock. The holders of the stock shall possess no further right with respect to the stock, except to receive its fair cash value as determined by the court. The court shall retain jurisdiction over the distribution of the funds.

1954, c. 20, § 38.1-495.4; 1986, c. 562.

§ 38.2-1016. Amendment of charter and bylaws; change of name; retirement and cancellation of stock; when mutualization effective; assets and liabilities; officers and directors; general restrictions and powers.

A. Upon acquisition by the trustees of all of the capital stock of the insurer pursuant to the provisions of this article, the charter of the insurer shall be amended to reflect its mutualization. The charter may be amended in any other respect considered necessary by the board of directors and trustees of the insurer in accordance with the provisions of this article and Article 11 (§ 13.1-705 et seq.) of Chapter 9 of Title 13.1. Upon the amendment of the charter of the insurer, the board of directors named in the amendment shall adopt any changes in the bylaws considered necessary, and the bylaws and any amendments to them shall be filed with the Commission within thirty days after adoption.

B. As soon as the charter of the insurer has been amended as provided in this section, the capital stock of the insurer held by the trustees shall be assigned to the insurer and shall be retired and cancelled. Certification of that action by the proper officers of the insurer shall be made to the Commission, and the trustees acting under the plan shall be discharged. The insurer shall then immediately become a mutual insurer owning all the assets of the converted stock insurer and subject to all its liabilities.

C. The officers and directors of the insurer named in the amended charter shall continue as the officers and directors of the mutual insurer until their successors are duly elected in accordance with the provisions of the amended charter and the bylaws adopted under it.

D. The converted mutual insurer, except as otherwise provided in this title, shall be subject to all the general restrictions and have all the general powers imposed and conferred upon nonstock corporations by law.

1954, c. 20, § 38.1-495.5; 1956, c. 431; 1986, c. 562.