Virginia Law

As used in this chapter:

"Association" means the joint underwriting association established pursuant to the provisions of this chapter.

"Commercial liability insurance" means the commercial classes of insurance defined in §§ 38.2-117 and 38.2-118, but for the purposes of this chapter, does not include medical malpractice insurance as defined in § 38.2-2800, nuclear liability or any risks, lines, or subclassifications that are determined by the Commission to be uninsurable; provided, no such determination shall be based solely upon evidence that no insurers are then insuring such risk, line, or subclassification. The Commission may exclude from this definition any other line, subclassification or type of commercial liability insurance as it deems appropriate.

"Incidental coverage" means any other type of liability insurance covering activities directly related to the continued and efficient delivery of business and professional services that: (i) cannot be separately obtained in the voluntary market because commercial liability insurance is being provided pursuant this chapter; and (ii) cannot be separately obtained through other involuntary market mechanisms.

"Market assistance plan" means a voluntary association of insurers and insurance agents licensed to do business in the Commonwealth that is formed, pursuant to a plan of operation filed with and approved by the Commission, to assist with the individual placement of commercial liability insurance coverage that is not reasonably available on the voluntary market.

"Net direct premiums written" means gross direct premiums written in this Commonwealth on all policies of liability insurance less (i) all return premiums on the policy, (ii) dividends paid or credited to policyholders, and (iii) the unused or unabsorbed portions of premium deposits on liability insurance. For the purposes of this chapter, "liability insurance" means the classes of insurance defined in §§ 38.2-117 through 38.2-119, and the liability portions of the insurance defined in §§ 38.2-124, 38.2-125 and 38.2-130 through 38.2-132.

1988, cc. 769, 783.

The Commission may authorize the formation of a voluntary market assistance plan to assist in the individual placement of coverage for any lines, subclassifications, or types of commercial liability insurance. Such plan shall not be an insurer capable of assuming insurance risks.

1988, cc. 769, 783.

A. After investigation, notice, and hearing, the Commission shall be empowered to activate a Joint Underwriting Association with respect to any line, subclassification or type of commercial liability insurance coverage if it finds that such line, subclassification, or type of commercial liability insurance coverage is not reasonably available for a significant number of any class, type, or group of such risks in the voluntary market or through a market assistance plan. The Association shall consist of all insurers licensed to write and engaged in writing the classes of insurance defined in §§ 38.2-117 through 38.2-119, and the liability portions of the insurance defined in §§ 38.2-124, 38.2-125 and 38.2-130 through 38.2-132 within this Commonwealth on a direct basis except those exempted from rate regulation by subsection C of § 38.2-1902. Each such insurer shall be a member of the Association as a condition of its license to write such insurance in this Commonwealth.

B. The purpose of the Association shall be to provide markets for commercial liability insurance for persons with eligible risks who are unable to obtain commercial liability insurance coverage, including incidental coverage, through the voluntary market. It shall also be the purpose of the Association to do so on a self-supporting basis without subsidy from its members.

C. 1. The Association shall not commence underwriting operations for any line, subclassification or type of commercial liability insurance coverage until so ordered by the Commission. At the direction of the Commission, the Association shall commence operations in accordance with the provisions of this chapter.

2. If the Commission determines at any time that a line, subclassification or type of commercial liability insurance coverage is reasonably available at adequate levels in the voluntary market, the Association shall, at the direction of the Commission, cease its underwriting operations for that line, subclassification, or type of commercial liability insurance coverage.

D. The Commission shall also determine after investigation and a hearing whether the Association shall be the exclusive source of any line, subclassification or type of commercial liability insurance which it finds not to be reasonably available pursuant to subsection A of this section and the type of policy or policies that shall be issued for any line, subclassification or type of commercial liability insurance. If the Commission determines that a claims-made policy will be issued for any line, subclassification or type of coverage, the Commission shall also provide for the guaranteed availability of insurance that covers claims which (i) result from incidents occurring during periods when the basic claims-made policies are in force; and (ii) are reported after the expiration of the basic claims-made policies. The Commission may from time to time after an investigation and hearing reexamine and reconsider any determination made pursuant to this subsection.

E. Pursuant to this chapter and the plan of operation required by § 38.2-2904, the Association shall have the power on behalf of its members to:

1. Issue, or cause to be issued, policies of commercial liability insurance to eligible applicants, including incidental coverages, subject to limits specified in the plan of operation but not to exceed one million dollars for each claimant under any one policy and three million dollars for all claimants under one policy in any one year;

2. Provide a means for establishing eligibility of a risk for obtaining insurance through the plan;

3. Underwrite the insurance and adjust and pay losses on the insurance;

4. Appoint a service company or companies to perform functions enumerated in this subsection;

5. Provide a means for the equitable apportionment of profits or losses and expenses among participating insurers;

6. Develop rules for the classification of risks and rates which reflect the past and prospective loss experience and a rating plan which reasonably reflects the prior claims experience of the insureds;

7. Assume reinsurance from its members;

8. Reinsure its risks in whole or in part; and

9. Take such other action as is necessary for the efficient and equitable operation and termination of the Association.

1988, cc. 769, 783.

A. When the Association has ceased all of its underwriting operations by order of the Commission under subdivision 2 of subsection C of § 38.2-2901, it shall be subject during its continued existence to the following:

1. The Association shall remain in existence for the sole purpose of completing its orderly dissolution.

2. The Association shall refund to all of its members all preliminary assessments, contributions and other funds paid to the Association that have not been reimbursed prior to dissolution.

3. The board of the Association shall satisfy and discharge its obligations and, subject to the approval of the Commission, shall have authority to do all other acts required to conclude its business affairs, including but not limited to, transfer of policies in force to approved carriers.

B. When the Commission finds the Association has met its obligations incident to termination of its business affairs, the Commission shall by order issue a certificate of dissolution and the existence of the Association shall cease.

1988, cc. 769, 783.

A. The Association shall be governed by a board of 11 directors, including one who shall be elected chairman. Two directors shall be appointed by each of the following three insurance industry trade associations: (i) the American Insurance Association; (ii) the Property Casualty Insurers Association of America; and (iii) the National Association of Mutual Insurance Companies. One director shall be appointed by each of the following two insurance agents' trade associations: (a) the Independent Insurance Agents of Virginia and (b) the Professional Insurance Agents Association of Virginia and the District of Columbia. The Commission shall appoint three directors not affiliated with the aforementioned trade associations. If, for any reason, any of the trade associations fail to appoint a director or directors within a reasonable period of time, the Commission shall have the power to make the appointment.

B. All board members, including the chairman, shall be appointed to serve for two-year terms beginning on a date designated by the plan.

C. Six directors shall constitute a quorum for the transaction of any business or exercise of any power of the Association. The directors of the Association shall act by vote of a majority of those present. The directors shall serve without salary, but each director shall be reimbursed for actual and necessary expenses incurred in the performance of his or her official duties as a director of the Association.

1988, cc. 769, 783; 2014, c. 198.

A. Within forty-five days after appointment of the members of the board, the directors of the Association shall submit to the Commission for review a proposed plan of operation consistent with this chapter.

B. The plan of operation shall provide for economic, fair and nondiscriminatory administration and for the prompt and efficient provision of commercial liability insurance. The plan shall contain other provisions governing:

1. Preliminary assessment of all members for initial expenses necessary to commence operations;

2. Establishment of necessary facilities;

3. Management of the Association;

4. Assessment of members to defray losses and expenses;

5. Reasonable and objective minimum underwriting standards;

6. Acceptance and cession of reinsurance;

7. Appointment of servicing carriers or other servicing arrangements;

8. The establishment of premium payment plans;

9. Procedures for determining amounts of insurance to be provided by the Association;

10. Procedures for the recoupment of preliminary assessments and other assessments of members as authorized by this chapter; and

11. Any other matters necessary for the efficient and equitable operation and termination of the Association.

C. The plan of operation shall be subject to approval by the Commission after consultation with the members of the Association and representatives of interested individuals and organizations. If the Commission disapproves all or any part of the proposed plan of operation, the directors shall within fifteen days submit for review an appropriate revised plan of operation. If the directors fail to do so, the Commission shall promulgate a plan of operation. The plan of operation approved or promulgated by the Commission shall become effective and operational upon order of the Commission.

D. At any time after the Association is activated, and after investigation, notice, and hearing, the Commission may order the submission of a supplemental plan of operation if it finds that any line, subclassification or type of commercial liability insurance not covered by the existing plan of operation is not reasonably available according to the terms of subsection A of § 38.2-2901. Such supplemental plan of operation shall be submitted within forty-five days of the Commission's order and shall be subject to all other provisions of this chapter governing the plan of operation.

E. Amendments to the plan of operation may be made by the directors of the Association, subject to the approval of the Commission.

1988, cc. 769, 783.

A. All policies issued by the Association shall be subject to the group retrospective premium adjustment and to the stabilization reserve fund required by § 38.2-2906. No policy form shall be used by the Association unless it has been filed with the Commission and either (i) the Commission has approved it or (ii) thirty days have elapsed and the Commission has not disapproved the form or endorsement for one or more of the reasons enumerated in subsection A of § 38.2-317.

B. Policies shall be issued by the Association, after receipt of the premium or portion of the premium prescribed by the plan of operation, to applicants that (i) meet the minimum underwriting standards of the Association, and (ii) have no unpaid or uncontested premium due as evidenced by the applicant having failed to make written objection to premium charges within thirty days after billing.

C. Any policy issued by the Association may be cancelled for any one of the following reasons:

1. Nonpayment of premium or portion of the premium;

2. Suspension or revocation of the insured's license to conduct business;

3. Failure of the insured to meet the minimum underwriting standards;

4. Failure of the insured to meet other minimum standards prescribed by the plan of operation; or

5. Nonpayment of any stabilization reserve fund charge.

D. The rates, rating plans, rating rules, rating classifications, premium payment plans and territories applicable to the insurance written by the Association, and related supplementary rate information shall be subject to the provisions of Chapter 20 (§ 38.2-2000 et seq.) of this title. Due consideration shall be given to the past and prospective loss and expense experience for the line, subclassification or type of commercial liability insurance written in this Commonwealth, trends in the frequency and severity of losses, the investment income of the Association, and other information the Commission requires. All rates shall be on an actuarially sound basis, giving due consideration to the stabilization reserve fund, and shall be calculated to be self-supporting. The Commission shall take all appropriate steps to make available to the Association the loss and expense experience of insurers writing or having written the same line, subclassification or type of commercial liability insurance in this Commonwealth.

E. All policies issued by the Association shall be subject to a nonprofit group retrospective premium adjustment to be approved by the Commission under which the final total premium for all policyholders for each line, subclassification or type of commercial liability insurance issued each year by the Association, as a group, will be calculated based upon the experience of all such policyholders. The experience of all such policyholders shall be calculated following the end of each year and shall be based upon earned premiums, administrative expenses, loss and loss adjustment expenses, and taxes, plus a reasonable allowance for contingencies and servicing, for each line, subclassification or type of commercial liability insurance. Policyholders shall be given full credit for all investment income, net of expenses and a reasonable management fee on policyholder supplied funds. Any final premium resulting from a retrospective premium adjustment will be collected from those moneys in the stabilization reserve fund set forth in § 38.2-2906 that are attributable to the policies written for the particular line, subclassification or type of commercial liability insurance or group of such risks for which activation occurred pursuant to § 38.2-2901. The maximum premium for all policyholders as a group shall be limited as provided in § 38.2-2906.

F. 1. If the stabilization reserve fund account for one or more lines, subclassifications or types of commercial liability insurance is exhausted in the payment of the maximum final premium for all such policies issued during the year for which a deficit exists, the Association shall certify to the Commission the estimated amount of any remaining deficit for any year's policies. Within sixty days after such certification, the Commission shall authorize the Association to recover from the members their respective share of such deficit. No member insurer may be assessed in any year an amount greater than two percent of the member's direct gross premium income as defined in § 58.1-2500 from liability insurance for the calendar year preceding the assessment. If an assessment in any year is not sufficient to eliminate such deficit, a like assessment may be made the ensuing year but not thereafter.

2. A member shall be permitted to recover any assessment made by the Association under subdivision 1 of this subsection by deducting the member's share of the deficit from future premium taxes due the Commonwealth. The amount of premium tax deduction for each member's share of the deficit shall be apportioned by the Commission so that in the aggregate, the total premium tax deduction permitted for all members in any one taxable year shall not exceed 0.05 of one percent of the direct gross premium income for the liability insurance written by member insurers defined in subsection A of § 38.2-2901. To the extent that the said 0.05 of one percent is reached in any one taxable year, any amount not so offset may be carried over to a subsequent year or years.

G. In the event that sufficient funds are not available for the sound financial operation of the Association, subject to recoupment as provided in this chapter and the plan of operation, all members shall, on a temporary basis, contribute to the financial requirements of the Association in the manner provided in this chapter. The contribution shall be reimbursed to the members by the procedure set forth in subdivision 2 of subsection F of this section.

H. The Commission shall examine the business of the Association as often as it deems appropriate to make certain that the group retrospective premium adjustments are being calculated and applied in a manner consistent with this section. If the Commission finds that the group retrospective premium adjustments are not being made in a manner consistent with this section, it shall issue an order to the Association, specifying (i) how such calculation and application are not consistent and (ii) stating what corrective action shall be taken.

1988, cc. 769, 783.

A. When an Association is activated under this chapter, a stabilization reserve fund shall be created for the lines, subclassifications and types of commercial liability insurance for which such activation occurred. The fund shall be administered by five directors appointed by the Commission, one of whom shall be a representative of the Commission, two of whom shall be representatives of the Association, and two of whom shall be representatives of the Association's policyholders.

B. The directors of the fund shall act by majority vote of those present with three directors constituting a quorum for the transaction of any business or the exercise of any power of the fund. The directors shall serve without salary, but each director shall be reimbursed for actual and necessary expenses incurred in the performance of his or her official duties as a director of the fund. The directors shall not be subject to any personal liability with respect to the administration of the fund.

C. Each policyholder shall pay to the Association a stabilization reserve fund charge equal to one-third of the annual premium due for commercial liability insurance obtained through the Association. The means of payment shall be set forth in the plan of operation and shall be separately stated in the policy. The Association shall cancel the policy of any policyholder who fails to pay the stabilization reserve fund charge. Upon the termination of any policy during the term of the policy, payments made to the stabilization reserve fund shall be returned to the policyholder on a pro rata basis identical to that applied in computing that portion of the premium which is returned to the policyholder.

D. All moneys received by the fund shall be held in a separate restricted cash account or accounts under the sole control of an independent fund manager to be selected by the directors of the fund. The fund manager shall account separately for the moneys paid to the fund for each year's policies written for a given line, subclassification or type of commercial liability insurance. The fund manager may invest the moneys held, subject to the approval of the directors. All investment income shall be credited to the fund. All expenses of administration of the fund shall be charged against the fund. The moneys held shall be used solely for the following purposes: (i) to reimburse the Association for any and all expenses, taxes, licenses and fees paid by the Association which are properly chargeable or allocable to the stabilization reserve fund, and (ii) to pay any retrospective premium adjustment charge levied by the Association. Payment of retrospective premium adjustment charges and other authorized payments shall be made by the directors of the fund upon certification to them by the Association of the amount due. If all moneys accruing to the fund for a particular year's policies for a given line, subclassification or type of commercial liability insurance are exhausted in payment of retrospective premium adjustment charges for the particular year, all liability and obligations of the holders of said policies with respect to the payment of retrospective premium adjustment charges shall terminate and shall be conclusively presumed to have been discharged.

E. The Association shall promptly pay the fund manager all stabilization reserve fund charges that it collects from its policyholders under subsection C of this section.

F. Upon dissolution of the Association, all assets remaining in the fund shall be distributed equitably to the policyholders who have contributed to the fund under procedures authorized by the directors. Distribution of assets remaining in the fund shall be made after final disposition of all claims, expenses, and liabilities against the fund, including reimbursement of preliminary organizational assessments made pursuant to subsection B of § 38.2-2904.

1988, cc. 769, 783.

Each insurer that is a member of the Association shall participate in the contributions to finance the operation of the Association in the proportion that the net direct premiums written by each member during the preceding calendar year bears to the aggregate net direct premiums written in this Commonwealth by all members of the Association. However, the net direct premiums written by each member shall exclude that portion of premiums attributable to the operation of the Association. Each insurer's participation in the Association shall be determined annually on the basis of such premiums written during the preceding calendar year in the manner set forth in the plan of operation.

1988, cc. 769, 783.

Any insurer, applicant or other person aggrieved by any action or decision of the Association or of any insurer as a result of its participation in the Association, may appeal to the board of directors of the Association. The decision of the board of directors may be appealed to the Commission within thirty days from the date the aggrieved person received notice of the board's action.

1988, cc. 769, 783.

The Association shall file an annual statement with the Commission within three months of the close of each fiscal year. The annual statement shall contain information on its transactions, conditions, operations and affairs during the preceding fiscal year. The form and content of the annual statement shall be subject to the Commission's approval. The Commission may at any time require the Association to furnish additional information on its transactions, condition or any matter connected with the Association considered to be material and of assistance in evaluating the scope, operation and experience of the Association.

1988, cc. 769, 783.

The Commission shall examine the affairs of the Association at least annually. The examination shall be conducted and the report of the examination filed in the manner prescribed in §§ 38.2-1317 through 38.2-1321. The expenses of each examination shall be borne and paid by the Association.

1988, cc. 769, 783.

No member of the board of directors of the Association or of the board of directors of the stabilization reserve fund who is a public officer or employee shall forfeit his office or employment, or incur any loss or diminution in the rights and privileges associated with his office or employment, because of membership on either board.

1988, cc. 769, 783.

For any policy issued by the Association, the commission payable to the person that places the risk with the Joint Underwriting Association or services the risk shall be limited to five percent of the annual premium for the policy or $1,000, whichever is less.

1988, cc. 769, 783.

There shall be no liability imposed on the part of, and no civil cause of action of any nature shall arise against, the Association or the stabilization reserve fund, their boards of directors, agents, and employees; any service carrier or its employees; any participating insurer or its employees; any licensed producer; the Commission, its authorized representatives, members or employees; or any committee established by the Association's board of directors or its members or employees for any statements or actions made in good faith in carrying out the provisions of this chapter.

1988, cc. 769, 783.