Virginia Law

The purpose of this chapter is to regulate the formation and operation of risk retention groups and purchasing groups in this Commonwealth formed pursuant to the provisions of the federal Liability Risk Retention Act of 1986 to the extent permitted by such law.

1987, c. 585; 1992, c. 588.

As used in this chapter:

"Commissioner" means the commissioner, director, or superintendent of insurance in a state other than the Commonwealth of Virginia.

"Completed operations liability" means liability arising out of the installation, maintenance, or repair of any product at a site which is not owned or controlled by (i) any person who performs that work or (ii) any person who hires an independent contractor to perform that work; but shall include liability for activities which are completed or abandoned before the date of the occurrence giving rise to the liability.

"Domicile," for purposes of determining the state in which a purchasing group is domiciled, means (i) for a corporation, the state in which the purchasing group is incorporated; and (ii) for an unincorporated entity, the state of its principal place of business.

"Hazardous financial condition" means that, based on its present or reasonably anticipated financial condition, a risk retention group, although not yet financially impaired or insolvent, is unlikely to be able (i) to meet obligations to policyholders with respect to known claims and reasonably anticipated claims or (ii) to pay other obligations in the normal course of business.

"Insurance" means primary insurance, excess insurance, reinsurance, surplus lines insurance, and any other arrangement for shifting and distributing risk which is determined to be insurance under the laws of this Commonwealth.

"Liability" means legal liability for damages, including costs of defense, legal costs and fees, and other claims expenses, because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of (i) any business, whether profit or nonprofit, trade, product, services, including professional services, premises, or operations or (ii) any activity of any state or local government, or any agency or political subdivision thereof. Liability does not include personal risk liability and an employer's liability with respect to its employees other than legal liability under the federal Employers Liability Act (45 U.S.C. § 51 et seq.).

"Personal risk liability" means liability for damages because of injury to any person, damage to property, or other loss or damage resulting from any personal, familial, or household responsibilities or activities.

"Plan of operation" or "feasibility study" means an analysis which presents the expected activities and results of a risk retention group including, at a minimum:

1. Information sufficient to verify that its members are engaged in businesses or activities similar or related with respect to the liability to which such members are exposed by virtue of any related, similar or common business, trade, product, services, premises or operations;

2. For each state in which it intends to operate, the coverages, deductibles, coverage limits, rates, and rating classification systems for each line of insurance the group intends to offer;

3. Historical and expected loss experience of the proposed members and national experience of similar exposures, to the extent this experience is reasonably available;

4. Pro forma financial statements and projections;

5. Appropriate opinions by a qualified independent casualty actuary, including a determination of minimum premium or participation levels required to commence operations and to prevent a hazardous financial condition;

6. Identification of management, underwriting and claims procedures, marketing methods, managerial oversight methods, investment policies, and reinsurance agreements;

7. Identification of each state in which the risk retention group has obtained, or sought to obtain, a charter and license, and a description of its status in each such state; and

8. Such other matters as may be prescribed by the commissioner or commission for liability insurance companies authorized by the insurance laws of the state in which the risk retention group is chartered.

"Product liability" means liability for damages because of any personal injury, death, emotional harm, consequential economic damage, or property damage, including damages resulting from the loss of use of property, arising out of the manufacture, design, importation, distribution, packaging, labeling, lease, or sale of a product, but does not include the liability of any person for those damages if the product involved was in the possession of such a person when the incident giving rise to the claim occurred.

"Purchasing group" means any group which:

1. Has as one of its purposes the purchase of liability insurance on a group basis;

2. Purchases such insurance only for its group members and only to cover their similar or related liability exposure, as described in subdivision 3;

3. Is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and

4. Is domiciled in any state.

"Risk retention group" means any corporation or other limited liability association:

1. Whose primary activity consists of assuming and spreading all, or any portion, of the liability exposure of its group members;

2. Which is organized for the primary purpose of conducting the activity described under subdivision 1;

3. Which (i) is chartered and licensed as a liability insurance company and authorized to engage in the business of insurance under the laws of any state or (ii) before January 1, 1985, was chartered or licensed and authorized to engage in the business of insurance under the laws of Bermuda or the Cayman Islands and, before such date, had certified to the insurance commissioner of at least one state that it satisfied the capitalization requirements of such state, except that any such group shall be considered to be a risk retention group only if it has been engaged in business continuously since such date and only for the purpose of continuing to provide insurance to cover product liability or completed operations liability;

4. Which does not exclude any person from membership in the group solely to provide for members of such a group a competitive advantage over such a person;

5. Which (i) has as its members only persons who have an ownership interest in the group and which has as its owners only persons who are members who are provided insurance by the risk retention group or (ii) has as its sole member and sole owner an organization which is owned by persons who are provided insurance by the risk retention group;

6. Whose members are engaged in businesses or activities similar or related with respect to the liability of which such members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations;

7. Whose activities do not include the provision of insurance other than (i) liability insurance for assuming and spreading all or any portion of the liability of its group members and (ii) reinsurance with respect to the liability of any other risk retention group, or any members of such other group, which is engaged in businesses or activities so that such group or member meets the requirement described in subdivision 6 from membership in the risk retention group which provides such reinsurance; and

8. The name of which includes the phrase "Risk Retention Group" and does not include deceptive or misleading words, designations or phrases.

"State" means any state of the United States or the District of Columbia.

1987, c. 585; 1992, c. 588.

A. A risk retention group seeking to be chartered in this Commonwealth shall be chartered and licensed as a liability insurance company authorized by the insurance laws of this Commonwealth to write only liability insurance pursuant to this chapter and, except as provided elsewhere in this chapter, shall comply with (i) all of the laws, rules, regulations and requirements applicable to such insurers chartered and licensed in this Commonwealth and with (ii) § 38.2-5103 to the extent such requirements are not a limitation on laws, rules, regulations or requirements of this Commonwealth.

B. Notwithstanding any other provision to the contrary, all risk retention groups chartered in this Commonwealth shall file with the Commission and the National Association of Insurance Commissioners (NAIC), an annual statement in a form prescribed by the NAIC and in diskette form, if required by the Commission, and completed in accordance with its instructions and the NAIC Accounting Practices and Procedures Manual.

C. Before it may offer insurance in any state, each risk retention group shall also submit for approval to the Commission a plan of operation or feasibility study. The risk retention group shall submit an appropriate revision in the event of any subsequent material change in any item of the plan of operation or feasibility study, within ten days of any such change. The group shall not offer any additional kinds of liability insurance, in this Commonwealth or any other state, until a revision of the plan or study is approved by the Commission.

D. At the time of filing its application for licensure, the risk retention group shall provide to the Commission in summary form the following information: the identity of the initial members of the group, the identity of those individuals who organized the group or who will provide administrative services or otherwise influence or control the activities of the group, the amount and nature of initial capitalization, the coverages to be afforded, and the states in which the group intends to operate.

1987, c. 585; 1992, c. 588.

Risk retention groups chartered in states other than this Commonwealth and seeking to do business as a risk retention group in this Commonwealth shall observe and abide by the laws of this Commonwealth as follows:

1. Before offering insurance in this Commonwealth, a risk retention group shall submit to the Commission on a form prescribed by the Commission:

a. A statement identifying the state or states in which the risk retention group is chartered and licensed as a liability insurance company, date of chartering, its principal place of business, and such other information including information on its membership, as the Commission may require to verify that the risk retention group is qualified under the definition set forth in this chapter;

b. A copy of its plan of operations or a feasibility study and revisions of such plan or study submitted to its state of domicile; however, the provision relating to the submission of a plan of operation or a feasibility study shall not apply with respect to product liability or completed operations liability as defined in this chapter which was offered before October 27, 1986, by any risk retention group which had been chartered and operating for not less than three years before such date;

c. A copy of any revision to its plan of operation or feasibility study required by this chapter at the same time that the revision is submitted to the Commissioner of its chartering state; and

d. A statement of registration which designates the clerk of the Commission as its agent for the purpose of receiving service of legal documents or process.

2. Any risk retention group doing business in this Commonwealth shall submit to the Commission:

a. A copy of the group's financial statement submitted to its state of domicile, which shall be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves made by a member of the American Academy of Actuaries or a loss reserve specialist who is qualified under criteria established by the National Association of Insurance Commissioners;

b. A copy of each examination of the risk retention group as certified by the commissioner or public official conducting the examination;

c. Upon request by the Commission, a copy of any information or document pertaining to any outside audit performed with respect to the risk retention group; and

d. Such information as may be required to verify its continuing qualification as a risk retention group under the definition set forth in this chapter.

3. All premiums paid for coverages within this Commonwealth to risk retention groups shall be subject to taxation, including the assessment set forth in § 38.2-400, at the same rate and subject to the same interest, fines and penalties for nonpayment as applicable to foreign admitted insurers. Each risk retention group shall pay the taxes for risks insured within the Commonwealth. Further, each risk retention group shall report all premiums paid to it for risks insured within this Commonwealth.

4. Any risk retention group, its agents and representatives, shall comply with § 38.2-510.

5. Any risk retention group shall comply with the provisions of §§ 38.2-500, 38.2-501, 38.2-502, 38.2-503, 38.2-504, 38.2-506, and 38.2-512 regarding deceptive, false, or fraudulent acts or practices. However, the provisions of this subdivision do not relieve a risk retention group from the requirements of any other state statutes regarding deceptive, false, or fraudulent acts or practices.

6. Any risk retention group must submit to an examination by the Commission to determine its financial condition if the commissioner of the jurisdiction in which the group is chartered has not initiated an examination or does not initiate an examination within sixty days after a request by the Commission. Any such examination shall be coordinated to avoid unjustified repetition and conducted in an expeditious manner and in accordance with the NAIC's Examiner Handbook.

7. Every application form for insurance from a risk retention group and any policy issued by a risk retention group shall contain in ten point type on the front page and the declaration page, the following notice:

NOTICE

This policy is issued by your risk retention group. Your risk retention group may not be subject to all of the insurance laws and regulations of your state. State insurance insolvency guaranty funds are not available for your risk retention group.

8. The following acts by a risk retention group are hereby prohibited:

a. The solicitation or sale of insurance by a risk retention group to any person who is not eligible for membership in such group; and

b. The solicitation or sale of insurance by, or operation of, a risk retention group that is in a hazardous financial condition or is financially impaired.

9. No risk retention group shall be allowed to do business in this Commonwealth if an insurance company is directly or indirectly a member or owner of such risk retention group, other than in the case of a risk retention group all of whose members are insurance companies.

10. The terms of any insurance policy provided by a risk retention group shall not provide or be construed to provide insurance policy coverage prohibited generally by the laws of this Commonwealth or declared unlawful by the Supreme Court of Virginia. For the purpose of this subdivision, a risk retention group shall comply with §§ 38.2-227, 38.2-2200, 38.2-2204 and any other applicable laws of this Commonwealth.

11. A risk retention group not chartered in this Commonwealth and doing business in this Commonwealth shall comply with a lawful order issued in a voluntary dissolution proceeding or in a delinquency proceeding commenced by a state insurance commissioner or the Commission if there has been a finding of financial impairment after an examination under this section.

1987, c. 585; 1992, c. 588.

A. The provisions of Chapter 16 of Title 38.2 shall not apply to a risk retention group.

B. A risk retention group shall participate in any mechanisms established pursuant to § 38.2-2015 for the equitable apportionment of liability insurance losses and expenses.

1987, c. 585.

Repealed by Acts 2001, c. 706, cl. 2, effective September 1, 2002.

Any purchasing group meeting the criteria established under the provisions of the federal Liability Risk Retention Act of 1986 shall be exempt from any law of this Commonwealth relating to the creation of groups for the purchase of insurance, prohibition of group purchasing, or any law that would discriminate against a purchasing group or its members. A purchasing group shall be subject to all other applicable laws of this Commonwealth.

1987, c. 585.

A. An insurer shall be exempt from any law of this Commonwealth which prohibits providing, or offering to provide, to a purchasing group or its members advantages based on their loss and expense experience not afforded to other persons with respect to rates, policy forms, coverages, or other matters.

B. Any insurer who transacts the business of insurance in this Commonwealth with a purchasing group or its members shall comply with the provisions of § 38.2-1024 and all other statutes in Title 38.2 which are applicable to licensed insurers, unless the insurer has received prior approval of the Commission to issue surplus lines insurance pursuant to Chapter 48 of this title.

1987, c. 585.

A. A purchasing group which intends to do business in this Commonwealth shall furnish notice to the Commission, on forms prescribed by the Commission, which shall:

1. Identify the state in which the group is domiciled;

2. Identify all other states in which the group intends to do business;

3. Specify the lines and classifications of liability insurance which the purchasing group intends to purchase;

4. Identify the insurance company from which the group intends to purchase its insurance, the domicile of such company, and the business address of such company;

5. Specify the method by which, and the person(s), if any, through whom insurance will be offered to its purchasing groups located in this Commonwealth;

6. Identify the principal place of business of the group including the business address of the group; and

7. Provide such other information as may be required by the Commission to verify that the purchasing group is qualified under the definition set forth in this chapter.

B. A purchasing group shall, within ten days, notify the Commission of any changes in any items set forth in subsection A of this section.

C. The purchasing group shall register with and designate the clerk of the Commission as its agent solely for the purpose of receiving service of legal documents or process, except that such requirements shall not apply in the case of a purchasing group:

1. Which (i) was domiciled before April 1, 1986, and (ii) is domiciled on and after October 27, 1986, in any state of the United States;

2. Which (i) before October 27, 1986, purchased insurance from an insurance carrier licensed in any state and (ii) since October 27, 1986, purchases its insurance from an insurance carrier licensed in any state;

3. Which was a purchasing group under the requirements of the Product Liability Risk Retention Act of 1981 before October 27, 1986; and

4. Which does not purchase insurance that was not authorized for purposes of an exemption under that Act, as in effect before October 27, 1986.

D. Each purchasing group that is required to give notice pursuant to subsection A of this section shall also furnish such information as may be required by the Commission to (i) verify that the entity qualifies as a purchasing group; (ii) determine where the purchasing group is located; and (iii) determine appropriate tax treatment.

E. Any purchasing group which was doing business in Virginia prior to the enactment of this subsection shall, within thirty days after July 1, 1992, furnish notice to the Commission pursuant to the provisions of subsection A of this section and furnish such information as may be required pursuant to subsections B and C of this section.

1987, c. 585; 1992, c. 588.

A. A purchasing group may not purchase insurance from a risk retention group that is not chartered in a state or from an insurer not admitted in the state in which the purchasing group is located, unless the purchase is effected through a licensed agent or broker acting pursuant to the surplus lines laws and regulations of such state.

B. No purchasing group may purchase insurance providing for a deductible or self-insured retention applicable to the group as a whole; however, coverage may provide for a deductible or self-insured retention applicable to individual members.

1987, c. 585; 1992, c. 588.

The Commission is authorized to make use of any of the powers established under Titles 12.1 and 38.2 to enforce the laws of this Commonwealth so long as those powers are not specifically preempted by the Product Liability Risk Retention Act of 1981, as amended by the Risk Retention Amendments of 1986. This includes, but is not limited to, the Commission's power to investigate, issue subpoenas, conduct depositions and hearings, issue orders, and impose penalties. The Commission shall be deemed a state court of competent jurisdiction, independent of its Bureau of Insurance, in all judicial proceedings to enforce the provisions of this chapter.

1987, c. 585; 1995, c. 843.

A risk retention group which violates any provision of this chapter will be subject to fines and penalties applicable to licensed insurers generally, including revocation of its license or the right to do business in this Commonwealth.

1987, c. 585.

Any person acting, or offering to act, as an agent or surplus lines broker for a risk retention group or purchasing group, which solicits members, sells insurance coverage, purchases coverage for its members located within this Commonwealth or otherwise does business in this Commonwealth shall, before commencing any such activity, comply with the applicable provisions of Chapters 18 and 48 of this title, relating to property and casualty insurance agents and surplus lines brokers.

1987, c. 585.

Any risk retention group and any insurer who transacts the business of insurance in this Commonwealth with a purchasing group or its members shall not be exempt from the policy form or coverage requirements of this Commonwealth's motor vehicle financial responsibility insurance law. For the purpose of this section, any risk retention group and any insurer who transacts the business of insurance in this Commonwealth with a purchasing group or its members shall comply with §§ 38.2-2200 through 38.2-2207, §§ 38.2-2209, 38.2-2211, 38.2-2216, and §§ 38.2-2218 through 38.2-2225 and any other applicable law of this Commonwealth.

1987, c. 585.

Nothing in this chapter shall be construed to affect the applicability of state laws which are generally applicable to persons or corporations.

1987, c. 585.

An order issued by any district court of the United States enjoining a risk retention group from soliciting or selling insurance, or operating, in any state, or in all states or in any territory or possession of the United States upon a finding that such a group is in a hazardous financial condition shall be enforceable in the courts of the state.

1987, c. 585.