The Risk Retention Act of 1986
greatly expanded the alternative insurance mechanisms established in the
Products Liability Risk Retention Act of 1981. It now permits all types of
businesses, not just manufacturers and professionals, to create groups to
purchase liability coverage as a Purchasing Group or to self-insure through a
Risk Retention Groups organized in a single state.
Section 4(a) (2) of the Act
establishes the fundamentals of pre-emption of state law applicable to RPG's. It
exempts RPG's from:
Any State law, rule, regulation
or order to the extent that such law, rule, regulation, or order would -
(1) prohibit the
establishment of a purchasing group;
(2) make it unlawful for an
insurer to provide or offer to provide insurance on a basis providing, 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, coverage, or other matters;
(3) prohibit a
Purchasing Group or its members from purchasing insurance on the group basis
described in paragraph (2) of this subsection;...
15 U.S.C. S 3903 (a) (1) - (3).
Congress intended to free RPG's
of multiple and inconsistent state regulation which results when each state
tries to exercise jurisdiction over the RPG's policy forms and coverage charge
rates. Only the state where the group is located has authority to regulate the
policy form and rates. Even that states authority is limited because the state
may not impose requirements that undermine the ability of the members to create
meaningful group coverage. On the other hand, 'RPG's’ are prohibited from
offering coverage which is unlawful under state law or been "declared
unlawful by the highest court of the state whose law applies to such
policy". 15 U.S.C. S 3905(C). The legislative history provides examples of
what was intended by this section of the Act. The Act identifies coverage for
punitive damages, and for intentional, fraudulent or criminal conduct as
unlawful. Finally, states may regulate the terms of a liability policy to
the extent necessary to satisfy motor vehicle financial responsibility laws as
per 15 U.S.C. 5 3905(a). So long as the state does not discriminate against the
insurer of the group, because the insurer of the Group is not an admitted
insurer, a state can assert its Financial Responsibility Laws as to the "TERMS
THE POLICY MUST PROVIDE".
Most state laws define,
"doing an insurance business", that is subject to state regulation as
noted below. Most state insurance laws require insurance companies "doing
insurance business within this state" to obtain a certificate of authority
or approval as a non-admitted insurer. State laws list certain acts that
constitute the "doing of an insurance business" in the state. Thus a
state may require an insurer to obtain a license or be approved as a Surplus
Lines Insurer before conducting business in the state. Most state laws have a
list of certain acts which are "exempt" from statutory
licensing because they do not constitute "doing insurance business". A
sample of one such exemption is noted:
The provisions of this section shall
not apply:
To transactions in this
state, except group credit life or group credit accident and health
insurance transactions, involving group or blanket insurance policies
or group annuity contract where the group policy or contract is issued
and developed pursuant to the group or blanket insurance laws of the
jurisdiction in which the insurer is authorized to do business and the
policyholder has its principal place of business. or otherwise has a bona
fide status.
Thus in most states
the issuance of a certificate of participation to a member in the state
where the member resides, to become a member of a group insurance program
issued in another state, does not constitute "doing an insurance
business" in that state.
An Insurance Company is
not "doing business in a state", when the insurer provides
coverage to a member located in a specific state other than the state where
the Master Policy is issued. When the Purchasing Group is located in another
state, and merely issues a participation certificate from the Master Group
Contract Policy to a member in another state, under most state GROUP laws
this would not constitute "doing business in that state".
A. The Group Master
Policy Contract, independently drafted and developed by the Industry
Association as a freely negotiated non-adhesive agreement under contract
law, provides that:
1. The members are
made aware by signing an agreement of acceptance and being issued a
coverage contract that identifies their coverage contract as being a
limited and restricted coverage contract. The members believe that a
principal benefit of any liability insurance policy is being able to
purchase coverage only for those exposures, activities, risks,
hazards, location, acts, error, omissions, and services, which the
Master Policy and participating certificate; (1) SPECIFICALLY
identifies, (2) for which the member directly pays a premium, and (3)
which is listed as a coverage provided under the coverage
contract agreement form issued to the member as a participant in the
Associations Group Master Policy. The RPG members believe that the
limited and restricted aspects of the Master Policy, enables them to
reach a more reasonable and responsible settlement with claimants. The
RPG Master Policy program has far fewer coverage disputes between
the Insurance Company, The Named Insured industry Association,
and the RPG Associations participating members, because of the signed
agreements and contractual understandings required to be acknowledged by
each participating member when signing the coverage contract Receipt
form.
The principal
contracting parties, i.e., the RPG Industry Association, and the
insurance company issuing the Master Policy to the Named Insured Risk
Retention Purchasing Group Industry Association, mutually agree
to effect the manuscript liability coverage contract agreement developed
independently by the industry Association. The Master Policy is a
freely negotiated agreement, developed as a non-adhesive contract
between the parties, and issued by one or more insurance companies to
the Named Insured Purchasing Group. The RPG Master Policy only provides
coverage for the named perils and specifically identified risks and
exposures quoted, issued to the member, and separately noted on the
coverage endorsement form issued to each member. Only the LISTED risks
and exposures noted on the coverage endorsement form, will be considered
as insured activities or services under the coverage contract. To
eliminate the Purchasing Group, and the insurers, ability to limit and
restrict coverage to only those listed as insured activities, locations,
or risks covered by the coverage contract would significantly impact the
rates and future availability of coverage for RPG Association members.
The Industry Association and its members have reviewed the trade off
factors to traditional insurance and unanimously decided in favor of
securing and controlling their own future availability and affordability
of coverage to Industry Association members. By developing and effecting
their own insurance program, under the Federal Risk Retention Act, the
RPG Association and its members believe they can control their own
future insurance needs and services.
2. The Industry
Association and its members are convinced that the prompt reporting of
potential losses leads to prompt claim settlements and lower insurance
costs. Claims administration is an essential part of the Industry
Associations Insurance program. Because the Industry Risk Retention
Purchasing Group is not in the business of insurance, the
Association does not look for ways to deny coverage. Accordingly, the
Executive and/or Claims Committee will not deny coverage where an
individual insured member is provided coverage under the intent and
purpose of the Manuscript industry developed coverage contract. The RPG
Association, however, will insist that coverage be denied where no
coverage was intended or a premium was paid by the member for such
coverage.
The RPG
Associations Master Policy Contract has been effected in the state of
Utah, under Utah Laws, Rules, and Regulations. Coverage is freely
chosen, and "INDIVIDUALLY PROCURED" by each member as a
participant in a Group Master Policy Contract, already issued and in
effect in the state of Utah, with the RPG Association as "THE
Named Insured". All coverage matters are reviewed by one or more
Association committees, prior to any review by the Insurance
company. The RPG Association, as THE NAMED INSURED, has the right
and obligation to identify and be involved in any claim made against the
Master Policy contract to which the Association is The Named Insured.
The Industry Association Purchasing Group has elected and agreed that
coverage disputes will only be considered in Utah. The coverage
contracts Forum Selection clause, and the Risk Retention Acts single
state regulation, dictate where coverage disputes will be determined.
Coverage provided
to members is based on the actual risk and exposures developed by the
member and agreed to be insured by the Named Insured Purchasing Group.
The Association will only quote and provide coverage for those risks and
exposures qualified to be insured under the Master Policy. The actual
risks and exposures rated and insured may not be measured by time. The
risk and exposure rate charge is based on the actual risk and exposure,
which the Association determines, based on the DISCOVERY QUESTIONNAIRE
and any separate inspection.
3. The RPG
Association requires participating members to; (1) follow certain
operating standards, (2) may have clients or participants sign release
forms, and (3) provide certain disclosures or warnings to clients or
participants as may be suggested by the activity or service. The RPG
Association requires each member to accept certain warranties and
coverage contract limitations which are essential to the integrity of
the Group Program. The RPG Industry Association expects all
participating members to effect those risk management and loss
prevention programs recommended by the Industry Association. To meet the
minimum standards developed by the Industry Association a member must
complete a Discovery Questionnaire and receive a formal quotation. The
Discovery Questionnaire and quotation become a part of any coverage
contract issued to the member.
The Industry Association
understands that states would prefer persons who participate in the commercial
business of insurance to meet certain qualifying standards in order to protect
consumers in their state. The members of this Association, "as
consumers" themselves, believe that the Industry Risk Retention
Purchasing Group is the vehicle by which the member can protect himself. The RPG
Industry Association is not at the mercy or will of any insurance
company, the insurance industry, or any licensed insurance agent. The Purchasing
Group is organized, managed, and operated by the industry Association members.
Any state action to regulate the Industry Risk Retention Purchasing Group
Association represents action directly against the Risk Purchasing Group and the
consumers the states claim to represent.
If RPG Association members lose
confidence in their Executive Committee, they may elect a new committee. If the
members become unsatisfied with any of the independent contractors employed by
the RPG Association they can be replaced. If any member is still unsatisfied
with the insurance program, the member may withdraw from the RPG Association
program and seek coverage from a more highly regulated standard commercial
insurance carrier.
Conclusion
State insurance laws were
designed to regulate "the business of insurance". They were
established to regulate the conduct of insurance companies that have
unequal bargaining powers and issue the industry designed and developed ADHESIVE
POLICY CONTRACT under insurance law. The Industry Risk Retention Purchasing
Group and the consumer members themselves have designed, authored, and
developed their own insurance program to fit their industries own
specific needs. This Industry developed insurance program is administered and
operated by the members themselves. It is not logical to apply various state
insurance laws to the operations of a single state issued Group Master Policy.
State Insurance Departments, and
various state licensing agencies, have attempted since 1986 to regulate the
activities of RPG's by asserting state regulation over the RPG's insurer,
or by regulating the Group through a state licensed insurance agent. By
asserting state laws, rules and regulations against the Risk Retention
Purchasing Group Association, states will ultimately be adversely regulating the
free choice of consumers in their state.
Industries were provided the
opportunity by the U.S. Congress to develop insurance programs developed and
designed by the Industry itself which meet the specialized insurance needs of
their particular industry. Any attempt by state regulation to limit the choice
of consumers in their state by regulating RPG Groups will produce
a negative consumer effect. Limiting consumers choice is not the desired
result or in the best interest of the consumers for whom state regulation has
been developed.
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