SECTIONS 125-140 - California Statutes

INSURANCE CODE

SECTION 125-140

125. This chapter shall be known and may be cited as the California
Risk Retention Act of 1991.

126. The Legislature finds and declares that the provisions of this
chapter are for the purpose of providing a means for a bona fide
for-profit or nonprofit association or individual business to insure
against liability and those obligations imposed by statute.

127. Unless the context otherwise requires, the general provisions
hereinafter set forth shall govern the application of this chapter
and supersede any other provisions of law in conflict.

128. The purposes of this chapter are as follows:
(a) To regulate the formation and operation of risk retention
groups and purchasing groups in this state formed pursuant to the
federal Liability Risk Retention Act of 1986, to the extent permitted
by that law.
(b) To promote the formation and operation of risk retention
groups and purchasing groups in this state. Californians who are
experiencing difficulty in obtaining liability coverage are
encouraged to form and operate risk retention and purchasing groups
in this state.
(c) To authorize the formation of a risk retention group for
directors and officers of corporations, whether for profit or
nonprofit, who are engaged in the same line of business with respect
to the liability risks faced by those officers and directors within
the meaning of the federal Liability Risk Retention Act of 1986.

130. The following definitions govern this chapter:
(a) "Commissioner" means the Insurance Commissioner of this state
or the commissioner, director, or superintendent of insurance of any
other state.
(b) "Domicile," for purposes of determining the state in which a
purchasing group is domiciled, means the following:
(1) For a corporation, the state in which the purchasing group is
incorporated and registered to do business pursuant to the federal
Liability Risk Retention Act (15 U.S.C. Sec. 3901 and following).
(2) For an unincorporated entity, the state of its principal place
of business and in which it is registered to do business under the
federal Liability Risk Retention Act (15 U.S.C. 3901 and following).
(c) "Hazardous financial condition" means that, based on its
present or reasonably anticipated financial condition, a risk
retention group is unlikely to be able to do either of the following:
(1) Meet obligations to policyholders with respect to known claims
and reasonably anticipated claims.
(2) Pay other obligations in the normal course of business.
(d) "Insurance" means primary insurance, excess insurance,
reinsurance, surplus lines insurance, and any other arrangement for
shifting and distributing risk that is determined to be insurance
under the laws of this state.
(e) (1) "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 the other persons resulting from or arising
out of any of the following:
(A) Any business, whether profit or nonprofit, trade, product,
services, including professional services, premises, or operations.
(B) Any activity of any state or local government, or any agency
or political subdivision thereof.
(2) "Liability" includes financial responsibility required by the
state for any activity for which an individual is required to obtain
a license or certificate to provide a service. For purposes of this
subdivision, a state agency has discretion to accept or deny proof of
financial responsibility.
(3) "Liability" does not include personal risk liability or an
employer's liability with respect to its employees other than legal
liability under the Federal Employers' Liability Act (45 U.S.C. Sec.
51 et seq.).
(f) "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, rather than from responsibilities or activities
referred to in subdivision (f).
(g) "Plan of operation or a feasibility study" with respect to
risk retention groups chartered in California includes analysis which
presents the expected activities and results of a risk retention
group including, at a minimum, all of the following:
(1) Information to demonstrate that its members are engaged in
businesses or activities similar or related with respect to the
liability to which those 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
that 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.
(h) "Public entity" includes the state, the Regents of the
University of California, a county, city, district, public authority,
public agency, and any other political subdivision or public
corporation in the state.
(i) "Purchasing group" means any group which does all of the
following:
(1) Has as one of its purposes the purchase of liability insurance
on a group basis.
(2) Purchases that insurance only for its group members and only
to cover their similar or related liability exposure, as described in
paragraph (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.
(4) Is domiciled in any state.
(j) "Risk Retention Administration Account" means an account
within the Insurance Fund to be used as a depository of moneys
received under this chapter or appropriated by the Legislature for
the purpose of administering this chapter.
(k) "Risk retention group" means any corporation, public entity,
or other limited liability association formed under the laws of any
state, Bermuda, or the Cayman Islands that meets all of the following
criteria:
(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 paragraph (1).
(3) Which is either of the following:
(A) Chartered and licensed as a liability insurance company and
authorized to engage in the business of insurance under the laws of
any state.
(B) 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 that date, has certified to
the insurance commissioner of at least one state that it satisfied
the capitalization requirements of that state, except that any group
is considered to be a risk retention group only if it has been
engaged in business continuously since that date and only for the
purpose of continuing to provide insurance to cover product liability
or completed operations liability as those terms were defined in the
Product Liability Risk Retention Act of 1981 before the date of the
enactment of the federal Liability Risk Retention Act of 1986.
(4) Does not exclude any person from membership in the group
solely to provide for members of the group a competitive advantage
over that person.
(5) Has as its members only persons who comprise the membership of
the risk retention group and as its owners only persons who comprise
the membership of the risk retention group and who are provided
insurance by that group.
(6) Whose members are engaged in businesses or activities similar
or related with respect to the liability of which those 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 for the following:
(A) Liability insurance for assuming and spreading all or any
portion of the liability of its group members.
(B) Reinsurance with respect to the liability of any other risk
retention group or any members of that other group that is engaged in
businesses or activities so that the group or member meets the
requirement described in paragraph (6) from membership in the risk
retention group that provides that reinsurance.
(8) The name of which includes the phrase "risk retention group."
(l) "State" means any state of the United States or the District
of Columbia.

131. (a) An entity seeking to be licensed in this state as a risk
retention group shall be organized under the laws of this state and
licensed as a liability insurance company pursuant to Article 3
(commencing with Section 699) of Chapter 1 of Part 2.
(b) An entity that has not completed its chartering and licensing
as a risk retention group in its domiciliary state is subject to the
requirements of Article 8 (commencing with Section 820) of Chapter 1
of Part 2.
(c) In addition to the requirements of Article 3 (commencing with
Section 699) of Chapter 1 of Part 2, a risk retention group licensed
in this state shall submit to the commissioner a feasibility study or
plan of operations and all other documentation required by the
federal Liability Risk Retention Act of 1986 (15 U. S.C. Section 3901
et seq.) to be submitted by a risk retention group to a
nonchartering state.

132. Risk retention groups chartered, incorporated, or licensed in
states other than this state and seeking to do business as a risk
retention group in this state shall file a notice of operation with
the commissioner of its intention to do business in this state. The
notice shall be filed with the commissioner within 60 days of the
filing by the group of any notice filed with its chartering state of
its intention to do business in this state, but in no event may a
notice of intended operation be filed with the commissioner less than
60 days prior to the group commencing business in this state. In
doing business in this state the risk retention group shall observe
and abide by the laws of this state including the following:
(a) A risk retention group shall submit to the commissioner all of
the following:
(1) 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
other information, including information on its membership, as the
commissioner of this state may require to verify that the risk
retention group is qualified under subdivision (k) of Section 130.
(2) A copy of its plan of operations or a feasibility study and
revisions of the plan or study submitted to the state in which the
risk retention group is chartered and licensed. However, the
provision relating to the submission of a plan of operation or a
feasibility study does not apply with respect to any line or
classification of liability insurance which (A) was defined in the
Product Liability Risk Retention Act of 1981 before October 27, 1986,
and (B) was offered before that date by any risk retention group
which had been chartered and operating for not less than three years
before that date.
(3) A statement of registration which designates the commissioner
as its agent for the purpose of receiving service of legal documents
or process.
(4) A registration filing fee shall accompany the statement of
registration, which shall be deposited in the Risk Retention
Administration Account, which is hereby created within the Insurance
Fund. Notwithstanding Section 13340 of the Government Code, moneys in
the account are continuously appropriated to the department for
purposes of this chapter.
(b) Any risk retention group within this state shall submit to the
commissioner all of the following:
(1) Upon commencement of business within this state and annually
thereafter, a copy of the group's annual financial statement
submitted to the state in which the risk retention group is chartered
and licensed 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 qualified loss reserve specialist.
(2) Upon request by the commissioner, a copy of each examination
of the risk retention group as certified by the commissioner or
public official conducting the examination and all documentation
received as part of the examination.
(3) Upon request by the commissioner, a copy of any outside audit
performed with respect to the risk retention group.
(c) (1) As authorized under the federal Liability Risk Retention
Act of 1986 (15 U.S.C. Sec. 3902 (a)(1)(B)), each risk retention
group is liable for the payment of premium taxes and taxes on
premiums for business done or located within this state, and shall
report to the commissioner the gross premiums written, less returned
premiums, on business done within this state. The risk retention
group is subject to taxation, and any applicable fines and
nonconformance fees related thereto, on the same basis as a foreign
admitted insurer. Nonconformance fees shall be paid to the department
and deposited in the Risk Retention Administration Account within
the Insurance Fund.
(2) To the extent licensed surplus line brokers are utilized
pursuant to Chapter 6 (commencing with Section 1760) of Part 2, they
shall report to the commissioner the premiums for direct business for
risks resident or located within this state which those licensees
have placed with or on behalf of, a risk retention group not
chartered in this state.
(d) Any risk retention group, its agents and representatives shall
comply with Article 6.5 (commencing with Section 790) of Chapter 1
of Part 2.
(e) Any risk retention group shall comply with the laws of this
state regarding deceptive, false, or fraudulent acts or practices.
However, if the commissioner seeks an injunction regarding that
conduct, the injunction shall be obtained from a court of competent
jurisdiction.
(f) Any risk retention group shall submit to an examination upon
request by the commissioner to determine its financial condition if
the commissioner of the jurisdiction in which the group is chartered
and licensed has not initiated an examination or does not initiate an
examination within 60 days after a request by the commissioner of
this state.
(g) Every application form for insurance from a risk retention
group and every policy issued by a risk retention group shall contain
in 10-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."

(h) The following acts by a risk retention group are hereby
prohibited:
(1) The solicitation or sale of insurance by a risk retention
group to any person who is not eligible for membership in that group.
(2) The solicitation or sale of insurance by, or operation of, a
risk retention group that is in a hazardous financial condition.
(i) No risk retention group may offer insurance policy coverage
prohibited by Section 533.5 or declared unlawful by the Supreme Court
of California.
(j) The risk retention group shall make its initial registration
by filing the materials specified in subdivision (a). The initial
registration is valid until December 31 of the year in which it was
made, as long as the risk retention group is in compliance with this
chapter. To maintain the registration in force, the risk retention
group shall continue in compliance with this chapter and shall file
the following items with the commissioner on or before December 31 of
each year:
(1) An annual reporting statement on a form prescribed by the
commissioner.
(2) An annual renewal fee to be determined by the commissioner,
limited to the actual cost of administering this section, not to
exceed three hundred dollars ($300).
(3) Any other information required by the commissioner to
determine whether the risk retention group is in compliance with the
requirements of this chapter.
(k) The risk retention group shall notify the commissioner in
writing of any changes in the information provided according to
subdivision (a) within 30 days of the effective date of the change.

133. (a) No risk retention group shall be required or permitted to
join or contribute financially to any insurance insolvency guaranty
fund, or similar mechanism, in this state, nor shall any risk
retention group, or its insureds or claimants against its insureds,
receive any benefit from any such fund for claims arising under the
insurance policies issued by that risk retention group.
(b) When a purchasing group obtains insurance covering its members'
risks from an insurer not authorized in this state or a risk
retention group, no such risks, wherever located, shall be covered by
any insurance guaranty fund or similar mechanism in this state.
(c) When a purchasing group obtains insurance covering its members'
risks from an authorized admitted insurer, only risks located in
this state shall be covered by the state insurance guaranty fund.
(d) A risk retention group shall not participate in this state's
joint underwriting associations, California Automobile Assigned Risk
Plan, Fair Access to Insurance Requirements Plan, and market
assistance plans.

134. (a) A purchasing group that intends to do business in this
state shall, prior to doing business, furnish to the commissioner
notice, which shall do the following:
(1) Identify the state in which the group is domiciled.
(2) Specify the lines and classifications of liability insurance
that the purchasing group intends to purchase.
(3) Identify the insurance company or companies from which the
group intends to purchase its insurance and the domicile of that
company.
(4) Specify the method by which, and the person or persons, if
any, through whom, insurance will be offered to its members whose
risks are resident or located in this state.
(5) Identify the principal place of business of the group.
(6) Provide other information that may be required by the
commissioner to verify that the purchasing group is qualified under
subdivision (i) of Section 130.
(b) The purchasing group shall register with and designate the
commissioner as its agent solely for the purpose of receiving service
of legal documents or process, for which a filing fee in the amount
of three hundred dollars ($300) shall be submitted to the
commissioner for deposit in the Risk Retention Administration Account
within the Insurance Fund, except that these requirements do not
apply in the case of a purchasing group that did all of the
following:
(1) Was domiciled before April 1, 1986, and is domiciled on and
after October 27, 1986, in any state of the United States.
(2) Before October 27, 1986, purchased insurance from an insurance
carrier licensed in any state, and since October 27, 1986, purchased
its insurance from an insurance carrier licensed in any state.
(3) Was a purchasing group under the requirements of the Product
Liability Risk Retention Act of 1981 (15 U.S.C. Sec. 3901 et seq.)
before October 27, 1986.
(4) Does not purchase insurance that was not authorized for
purposes of an exemption under that act, as in effect before October
27, 1986.
(c) Any purchasing group that was doing business in this state
prior to the enactment of this chapter shall, within 30 days after
January 1, 1990, furnish notice to the commissioner pursuant to
subdivision (a) and furnish information that may be required pursuant
to subdivisions (b) and (c).
(d) Each purchasing group that is required to give notice pursuant
to subdivision (a) shall also furnish information that may be
required by the commissioner to:
(1) Verify that the entity qualifies as a purchasing group.
(2) Determine where the purchasing group is located.
(3) Determine appropriate tax treatment.
(4) Verify that the purchasing group is in compliance with this
chapter.
(e) Any purchasing group that intends to do business in this state
shall make its initial registration by submitting to the
commissioner the materials listed in subdivision (a). The
registration is valid until December 31 of the year in which it was
made, as long as the purchasing group is in compliance with this
chapter. To maintain the registration, the purchasing group shall
continue to comply with this chapter. Additionally, the purchasing
group shall file the following documents with the commissioner on or
before January 31 of each year:
(1) An annual reporting statement on a form prescribed by the
commissioner.
(2) An annual renewal fee, to be determined by the commissioner,
limited to the actual cost of administering this section, not to
exceed two hundred dollars ($200).
(3) Any other information required by the commissioner to
determine whether the purchasing group is in compliance with this
chapter or other applicable provisions of this code.
(f) The purchasing group shall notify the commissioner in writing
of any changes in the information provided according to subdivision
(a) within 30 days of the effective date of the change.

135. (a) No purchasing group may offer insurance policy coverage
prohibited by Section 533.5 or declared invalid by the Supreme Court
of California.
(b) A purchasing group which obtains liability insurance from an
insurer not admitted in this state or a risk retention group shall
inform each of the members of the group which have a risk resident or
located in this state all of the following:
(1) The risk is not protected by an insurance insolvency guaranty
fund in this state.
(2) The risk retention group or such insurer may not be subject to
all insurance laws and regulations of this state.

136. The powers authorized by this chapter shall only be exercised
to the extent these powers are not preempted by the Product Liability
Risk Retention Act of 1981, as amended by the Risk Retention
Amendments of 1986.

137. (a) No person, firm, association, or corporation shall act or
aid in any manner in soliciting, negotiating, or procuring liability
insurance in this state from a risk retention group unless that
person, firm, association, or corporation is licensed as a fire and
casualty broker-agent in accordance with Chapter 5 (commencing with
Section 1621) of Part 2 and is authorized to act as an insurance
broker; except salaried employees or officers of a risk retention
group, provided no part of the compensation of such person is on a
commission basis or otherwise based on production of business.
(b) No person, firm, association, or corporation shall act or aid
in any manner in soliciting, negotiating, or procuring liability
insurance from an insurer not authorized to do business in this state
on behalf of a purchasing group located in this state unless that
person, firm, association, or corporation is licensed as a surplus
line broker in accordance with Chapter 6 (commencing with Section
1760) of Part 2. A nonresident person may be licensed as a surplus
lines broker for purposes of placing insurance on behalf of a
purchasing group.
(c) Any person, firm, association, or corporation licensed
pursuant to Chapter 5 (commencing with Section 1621) of Part 2, on
business placed with risk retention groups or written through a
purchasing group, shall inform each prospective insured of the
provisions of the notice required by subdivision (g) of Section 132
in the case of a risk retention group and subdivision (b) of Section
135 in the case of a purchasing group.

138. There shall be no civil liability on the part of any agent or
broker who places liability insurance coverage on behalf of any risk
retention group which is incorporated and licensed in this state in
the event of an insolvency by the risk retention group.

140. The commissioner may order a purchasing group or risk
retention group to cease and desist from the solicitation or sale of
insurance by, or the operations of, a risk retention group or
purchasing group whose officers, organizers, or directors have
engaged in any of the acts or omissions set forth in subdivision (a)
of Section 1668.5. That order shall be made in accordance with the
procedures set forth in Article 14.5 (commencing with Section 1065.1)
of Chapter 1 of Part 2.