SECTIONS 1280-1284 - California Statutes

INSURANCE CODE

SECTION 1280-1284

1280. This chapter shall not in any way affect the rights, duties,
or obligations of members of or subscribers at any reciprocal or
interinsurance exchange which has been adjudged insolvent and ordered
to be liquidated prior to the date this code takes effect. All such
rights, duties, or obligations shall be governed by the law
applicable thereto prior to such date.

1280.5. This chapter and the other provisions of this code shall
not apply to nor affect unincorporated interindemnity or reciprocal
or interinsurance contracts between members of, or persons marketing
their products through, nonprofit cooperative marketing associations
organized and operating under Chapter 4 (commencing with Section
11701) of Division 6 of the Food and Agricultural Code which
indemnify solely in respect to losses to those members or persons
from damage to, or destruction of, crops in process of handling or
marketing, or facilities at a fixed location for processing, handling
or marketing the crops, and which do not collect in advance of loss
moneys other than for necessary expense of administration.

1280.7. This chapter and the other provisions of this code, except
as set forth in this paragraph, shall not apply to or affect
unincorporated interindemnity or reciprocal or interinsurance
contracts between members of a cooperative corporation, organized and
operating under Part 2 (commencing with Section 12200) of Division 3
of Title 1 of the Corporations Code, whose members consist solely of
physicians and surgeons licensed in California, which contracts
indemnify solely in respect to medical malpractice claims against
those members, and which do not collect in advance of loss any moneys
other than contributions by each member to a collective reserve
trust fund or for necessary expenses of administration. However,
interindemnity, reciprocal, or interinsurance contracts with respect
to the following types of claims, in addition to medical malpractice
claims, may be entered into in conjunction with contracts with
respect to medical malpractice claims if the reserve trust fund is at
least twenty million dollars ($20,000,000):
(1) Bodily injury or property damage arising out of the conduct
and of the operations of the member's professional practice occurring
on the member's premises.
(2) Officers', directors', and administrators' liability, to the
extent that the member's professional practice is operated as a
professional corporation or group.
(3) Nonowned automobile coverage.
The provisions of Chapter 3 (commencing with Section 330) of Part
1 of Division 1 shall apply to unincorporated interindemnity or
reciprocal or interinsurance contracts. Those unincorporated
interindemnity or reciprocal or interinsurance contracts shall comply
with all of the following requirements:
(a) Each participating member shall enter into and, concurrently
therewith, receive an executed copy of a trust agreement, which shall
govern the collection and disposition of all funds of the
interindemnity arrangement.
The trust agreement shall, at a minimum, contain provision for all
the following matters:
(1) An initial trust corpus of not less than ten million dollars
($10,000,000), which corpus shall be a trust fund to secure
enforcement of the interindemnity arrangement. The average
contribution to the initial trust corpus shall be not less than
twenty thousand dollars ($20,000) per member participating in the
interindemnity arrangement. The average contribution to the trust
fund shall continue at all times to be not less than twenty thousand
dollars ($20,000) per participating member unless the interindemnity
arrangement is qualified to admit members under the terms of
subdivision (k). No such interindemnity arrangement shall become
operative until the requisite minimum reserve trust fund has been
established by contributions from not fewer than 500 participating
members.
(2) The reserve trust fund created by the trust agreement shall be
administered by a board of trustees of three or more members, all of
whom shall be physicians and surgeons licensed in California,
participating members in the interindemnity arrangement, and elected
biennially or more frequently by at least a majority of all members
participating in the interindemnity arrangement.
(3) The members of the board of trustees are fiduciaries and the
board shall be the custodian of all funds of the interindemnity
arrangement, and all those funds shall be deposited in the bank or
banks and savings and loan associations in California as the board
may designate. Each account shall require two or more signatories for
withdrawal of funds in excess of ten thousand dollars ($10,000). The
authorized signatories shall be appointed by the board and, as to
any withdrawal in excess of one hundred thousand dollars ($100,000),
at least one of the two or more authorized signatories shall be a
physician and surgeon licensed in California and a participating
member in the interindemnity arrangement. Each signatory on those
accounts shall maintain, at all times while empowered to draw on
those funds, for the benefit of the interindemnity arrangement, a
bond against loss suffered through embezzlement, mysterious
disappearance, holdup or burglary, or other loss issued by a bonding
company licensed to do business in California in a penal sum of not
less than one hundred thousand dollars ($100,000).
(4) All funds held in trust that are in excess of current
financial needs shall be invested and reinvested from time to time,
under the direction of the board of trustees, in eligible securities,
as defined in Section 16430 of the Government Code, in portfolios of
eligible securities, in exchange traded financial futures contracts
or exchange traded options contracts to hedge investment in those
eligible securities, or in certificates of deposits or time deposits
issued by banks and savings and loan associations in California duly
insured by instrumentalities of the United States government.
Pursuant to the authority contained in Section 1 of Article XV of
the California Constitution, the restrictions upon rates of interest
contained in Section 1 of Article XV of the California Constitution
shall not apply to any obligations of, loans made by, or forbearances
of, any trust established by a cooperative corporation providing
indemnity pursuant to this section.
(5) The income earned on the corpus of the trust fund shall be the
source for the payment of the claims, costs, judgments, settlements,
and costs of administration contemplated by the interindemnity
arrangement, and to the extent the income is insufficient for those
purposes, the board of trustees shall have the power and authority to
assess participating members for all amounts necessary to meet the
obligations of the interindemnity arrangement in accordance with the
terms thereof. If necessary in the best interests of the
interindemnity arrangement, the board of trustees may make
assessments to increase the corpus of the trust fund in accordance
with the terms of the interindemnity arrangement. Any assessment
levied against a member shall be the personal obligation of the
member. Any person who obtains a final judgment of recovery for
medical malpractice or other liability authorized by this section
against a member of the interindemnity arrangement shall have, in
addition to any other remedy, the right to assert directly all rights
to indemnification that the judgment debtor has under the
interindemnity arrangement. The final judgment shall be a lien on the
reserve trust fund to secure payment of the judgment, limited to the
extent of the judgment debtor's rights to indemnification.
Any change in the assessment agreement between the interindemnity
arrangement and its membership shall be submitted to the entire
membership for ratification. If the ratification process is to be
performed by a mail ballot, a ballot shall be sent to each member by
first-class mail, postage prepaid. Within 45 days after the posted
date on the mail ballot, each member who decides to vote on the
assessment change shall return his or her ballot to the
interindemnity arrangement for the tallying of the ballots. An
affirmative vote of 75 percent of those voting shall be required to
effectuate any change in the assessment agreement.
If a change in the assessment agreement is to be submitted to
members at a properly called meeting, the membership shall be
notified of the meeting and the proposed assessment change by
first-class mail, postage prepaid, posted at least 45 days prior to
the meeting. Seventy-five percent of those present in person or by
proxy at the meeting shall be required to effectuate any change in
the assessment agreement.
(6) Each participating member shall be covered by the
interindemnity arrangement for not less than one million dollars
($1,000,000) for each occurrence of professional negligence or other
liability authorized by this section, with the terms and conditions
of the coverage to be specified in the trust agreement, except that
the interindemnity arrangement may provide participating members with
an aggregate limit for all payments on behalf of the member and may
provide participating members with less than one million dollars
($1,000,000) of coverage for each occurrence of professional
negligence or other liability authorized by this section if the
interindemnity arrangement obtains for the benefit of the members
reinsurance of excess limits coverage in an amount that when added to
the coverage provided by the interindemnity arrangement would equal
not less than one million dollars ($1,000,000) for each occurrence of
professional negligence or other liability authorized by this
section.
Any change in the coverage provided by the trust agreement between
the interindemnity arrangement and its membership shall be submitted
to the entire membership for ratification. If the ratification
process is to be performed by a mail ballot, a ballot shall be sent
to each member by first-class mail, postage prepaid. Within 45 days
after the posted date on the mail ballot, each member who decides to
vote on the coverage change shall return his or her ballot to the
interindemnity arrangement for the tallying of the ballot. An
affirmative vote of 75 percent of those voting shall be required to
effectuate any change in the coverage provided by the trust
agreement, except that at least 50 percent of the entire membership
must agree to any change.
If any change is to be submitted to members at a properly called
meeting, the membership shall be notified of the meeting and the
proposed coverage change by first-class mail, postage prepaid, posted
at least 45 days prior to the meeting. An affirmative vote of 75
percent of the membership present at the meeting, in person or by
proxy, shall be required to effectuate any change, except that at
least 50 percent of the entire membership must agree to any change.
(7) Withdrawal of all, or any portion of, the corpus of the
reserve trust fund shall be upon the written authorization signed by
at least two-thirds of the members of the board of trustees.
(8) The board of trustees shall cause both of the following to be
furnished to each member participating in the interindemnity
arrangement, and to be filed with the Commissioner of Corporations:
(A) Within 90 days after the end of each fiscal year, a statement
of the assets and liabilities of the interindemnity arrangement as of
the end of that year, a statement of the revenue and expenditures of
the interindemnity arrangement, and a statement of the changes in
corpus of the reserve trust for that year, in each case accompanied
by a certificate signed by a firm of independent certified public
accountants selected by the board of trustees indicating that the
firm has conducted an audit of those statements in accordance with
generally accepted auditing standards and indicating the results of
the audit.
(B) Within 45 days after the end of each of the first three
quarterly periods of each fiscal year, a statement of the assets and
liabilities of the interindemnity arrangement as of the end of the
quarterly period, a statement of the revenue and expenditures of the
interindemnity arrangement, and a statement of the changes in corpus
of the reserve trust for the period, in each case accompanied by a
certificate signed by a majority of the members of the board of
trustees to the effect that the statements were prepared from the
official books and records of the interindemnity arrangement.
(C) In addition to the statements required to be filed pursuant to
this paragraph, the board of trustees shall annually file with the
Commissioner of Corporations an authorization for disclosure to the
commissioner of all financial records pertaining to the
interindemnity arrangement. For the purpose of this subparagraph, the
authorization for disclosure shall also include the financial
records of any association, partnership, or corporation that has
management or control of the funds or the operation of the
interindemnity arrangement.
(9) The trust agreement shall also provide for all the following:
(A) In the event a participating member who is in full compliance
with the trust agreement, including the payment of all outstanding
dues and assessments, dies, the initial contribution made by the
decedent shall be returned to the member's estate or designated
beneficiary; the indemnity coverage shall continue for the benefit of
the decedent's estate in respect of occurrences during the time the
decedent was a participating member; and neither the person receiving
the repayment of the initial contribution nor the decedent's estate
shall be responsible for any assessments levied following the death
of the member.
(B) A participating member who is then in full compliance with the
trust agreement and who has reached the age of 65 and who has
retired completely from the practice of medicine may elect to retire
from the interindemnity arrangement, in which case the member shall
not be responsible for assessments levied following the date notice
of retirement is given to the trust. Following that retirement, the
indemnity coverage shall continue for the benefit of the member in
respect of occurrences prior to the time the member retired from the
interindemnity arrangement. That retired member's initial
contribution shall be repaid 10 years from the date the notice of
retirement is received by the trust, or an earlier date as specified
in the trust agreement. The board of trustees may reduce the age for
retirement to not less than 55 years subject to all other
requirements in this paragraph and any additional requirements deemed
necessary by the board.
(C) During any period in which a participating member, who is then
in full compliance with the trust agreement, has, in the judgment of
the board of trustees, become unable to perform any and every duty
of his or her regular professional occupation, the participating
member may request disability status in accordance with the terms of
the interindemnity arrangement. During any period of disability
status, the member shall not be responsible for assessments levied
during the period and, if so provided in the interindemnity
arrangement, all indemnity coverage, both as to defense and payment
of claims, shall terminate as to occurrences arising out of the
actions of the participating member during the period of disability
status.
(D) In the event a participating member fails to pay any
assessment when due, the board of trustees may terminate that person'
s membership status if the failure to pay is not cured within 30 days
from the date the assessment was due. Upon that termination the
former participating member shall not be entitled to the return of
all or any part of his or her initial contribution, and the indemnity
coverage shall thereupon terminate as to all claims then pending
against that person and in respect to all occurrences prior to the
date of that termination of membership. However, in the event the
interindemnity arrangement is then providing legal defense services
to that person, the interindemnity arrangement shall continue to
provide those services for a period of 10 days following that
termination.
(E) In the event a participating member fails to comply with any
provision of the trust agreement (other than a failure to pay
assessments when due), the board of trustees may terminate that
person's membership status if the failure to comply is not cured
within 60 days from the date the person is notified of the failure,
provided that before that membership status may be terminated the
person shall be given the right to call for a hearing before the
board of trustees (to be held before the expiration of the 60-day
period), at which hearing the person shall be given the opportunity
to demonstrate to the board of trustees that no failure to comply has
occurred or, if it has occurred, that it has been cured. Upon that
termination, the former participating member shall not be entitled to
the return of all or any part of his or her initial contribution,
and the indemnity coverage shall thereupon terminate as to all claims
then pending against the person and in respect to all occurrences
prior to the date of the termination of membership. However, in the
event the interindemnity arrangement is then providing legal defense
services to that person, the interindemnity arrangement shall
continue to provide those services for a period of 10 days following
the termination.
(F) A participating member who is then in full compliance with the
trust agreement may elect voluntarily to terminate his or her
membership in the interindemnity arrangement. Upon that voluntary
termination, that person may further elect to cease being responsible
for future assessments, or to continue to pay those assessments
until the time as the person's initial contribution is repaid. In the
event the person elects to cease being responsible for future
assessments, the indemnity coverage shall thereupon terminate and the
person shall either be responsible for his or her own exposure for
acts committed while a participating member in the interindemnity
arrangement, or he or she may request the interindemnity arrangement
to purchase or provide, at the cost of the person, coverage for that
exposure. The initial contribution of the person shall be repaid on
the 10th anniversary of the date the contribution was made. In the
event the person elects to continue to be responsible for
assessments, the indemnity coverage shall continue in respect of
occurrences prior to the date of the voluntary termination, and the
initial contribution of the person shall be repaid at the time as the
board of trustees is satisfied that (i) there are no claims pending
against the person in respect of occurrences during the time the
person was a participating member, and (ii) the statute of
limitations has run on all claims that might be asserted against that
person in respect of occurrences during that time. In no event shall
that repayment be made earlier than the 10th anniversary of the date
the contribution was made.
Any person whose membership in an interindemnity arrangement is
involuntarily terminated for failure to pay assessments or who
voluntarily terminates that membership and elects to be responsible
for his or her own exposure for acts committed while a participating
member, shall not be eligible to become a member of any other
interindemnity arrangement for a period of five years after the
termination unless, on the effective date of the act which amended
this section during the 1985-86 Regular Session, the person had on
file with the Department of Corporations a copy of a subscription
agreement signifying the person's agreement to transfer membership or
had paid a minimum of ten thousand dollars ($10,000) to another
interindemnity arrangement that was granted a permit to organize
prior to January 1, 1985.
(G) The board of trustees shall have the right to terminate the
membership of a participating member if the board of trustees
determines that the termination is in the best interests of the
interindemnity arrangement even though that person has complied with
all of the provisions of the trust agreement. A termination may be
effected only if at least two-thirds of the members of the board of
trustees indicate in writing their decision to terminate. If the
board of trustees proposes to terminate a member, the member shall
have the right to call a special meeting of all participating members
in accordance with the rules established by the board of trustees
for the purpose of voting on whether or not the member shall be
terminated. The member shall not be terminated if at least two-thirds
of the participating members present, in person or by proxy,
indicate that the member should not be terminated. In the event a
member is terminated, the person shall elect either: (i) to request
the return of his or her initial contribution, in which case the
contribution shall be repaid and the indemnity coverage shall
thereupon terminate as to all claims then pending against the person
and in respect to all occurrences prior to the date of the
termination of membership. However, in the event the interindemnity
arrangement is then providing legal defense services to the person,
the interindemnity arrangement shall continue to provide those
services for a period of 30 days to enable the person to assume his
or her own defense; or (ii) to release all rights to the return of
the initial contribution, in which case the indemnity coverage shall
continue for the benefit of the member in respect of occurrences
during the time the person was a participating member and the person
shall have no responsibility for assessments levied following that
termination. The interindemnity arrangement may provide that if a
member is terminated and fails to make the election set forth herein
within 45 days of the date of notification of termination of
membership, the participating member shall be deemed to have elected
to release all rights to a return of his or her initial contribution,
in which case indemnity coverage shall apply for the benefit of the
member with respect to occurrences occurring prior to the
termination.
(10) Each member participating in the interindemnity arrangement
shall have the right of access to, and the inspection of, the books
and records of the interindemnity arrangement, which rights shall be
similar to the corporate shareholders pursuant to Section 3003 of the
Corporations Code, or, commencing January 1, 1977, Sections 1600 to
1605, inclusive, of the Corporations Code.
(11) There shall be a meeting of all members participating in the
interindemnity arrangement, at least annually, after not less than 10
days' written notice has been given, at a location reasonably
convenient to the participating members and on a date that is within
a reasonable period of time following the distribution of the annual
financial statements.
(12) Notwithstanding Sections 12453 and 12703 of the Corporations
Code, on any matter to be voted upon by the membership at either a
regular or special meeting, a member shall have the right to vote in
person or by written proxy filed with the corporate secretary prior
to the meeting. No proxy shall be made irrevocable, nor be valid
beyond the earliest of the following dates:
(A) The date of expiration set forth in the proxy.
(B) The date of termination of membership.
(C) Eleven months from the date of execution of the proxy.
(D) Such time as may be specified in the bylaws, not to exceed 11
months.
(13) The interindemnity arrangement, and the reserve trust fund
incident thereto, shall be subject to termination at any time by the
vote or written consent of not less than three-fourths of the
participating members.
(b) The board of trustees shall cause to be recorded with the
office of the county recorder of the county of the principal place of
business of the interindemnity arrangement within 90 days following
the end of each fiscal year, a written statement, executed by a
majority of the board of trustees under penalty of perjury, reciting
that each member participating in the interindemnity arrangement was
mailed a copy of the annual financial statement and quarterly audit
certificates by first-class mail, postage prepaid, required pursuant
to paragraph (8) of subdivision (a).
(c) Each person solicited to become a participating member in an
interindemnity arrangement shall receive in writing, at least 48
hours prior to the execution by the prospective participating member
of the trust agreement, and at least 48 hours prior to the payment by
the prospective participating member of any consideration in
connection with the interindemnity arrangements, the following
information:
(1) A copy of the articles of incorporation and bylaws of the
cooperative corporation and a copy of the form of trust agreement to
be executed by the prospective participating member.
(2) A disclosure statement regarding the interindemnity
arrangement. The disclosure statement shall contain on the first or
cover page a legend in boldface type reading substantially as
follows:
"THE INTERINDEMNITY ARRANGEMENT CONTEMPLATED HEREIN PROVIDES THAT
PARTICIPATING MEMBERS HAVE UNLIMITED PERSONAL LIABILITY FOR
ASSESSMENTS THAT MAY BE LEVIED TO PAY FOR THE PROFESSIONAL NEGLIGENCE
OR OTHER LIABILITY AUTHORIZED BY THIS SECTION. NO ASSURANCES CAN BE
GIVEN REGARDING THE AMOUNT OR FREQUENCY OF ASSESSMENTS WHICH MAY BE
LEVIED, OR THAT ALL PARTICIPATING MEMBERS WILL MAKE TIMELY PAYMENT OF
THEIR ASSESSMENTS TO COVER THE PROFESSIONAL NEGLIGENCE OR OTHER
LIABILITY AUTHORIZED BY THIS SECTION."
(3) The disclosure statement shall further contain all of the
following information:
(A) The amount, nature, and terms and conditions of the
professional negligence or other liability relating to a member's
professional practice coverage available under the interindemnity
arrangement.
(B) The amount of the initial contribution required of each
participating member and a statement of the minimum number of members
and aggregate contributions required for the interindemnity
arrangement to commence.
(C) The names, addresses, and professional experience of each
member of the board of trustees.
(D) The requirements for admission as a participating member.
(E) A statement of the services to be provided under the
interindemnity arrangement to each participating member.
(F) A statement regarding the obligation of each member to pay
assessments and the consequences for failure to do so.
(G) A statement of the rights and obligations of a participating
member in the event the member dies, retires, becomes disabled, or
terminates participation for any reason, or the interindemnity
arrangement terminates for any reason.
(H) A statement regarding the services to be provided, indicating
whether these services will be delegated to others pursuant to a
contractual arrangement. For those services delegated to others
pursuant to a contractual arrangement, a statement fully disclosing
and itemizing all consideration received directly or indirectly under
the arrangement, and indicating what the consideration is for, and
how, when, and to whom the consideration will be paid.
(I) A statement of the voting rights of the members and the
circumstances under which participation of a member may be terminated
and under which the interindemnity arrangement may be terminated.
(J) If any statement of estimated or projected financial
information for the interindemnity arrangement is used, a statement
of the estimation or projection and a summary of the data and
assumptions upon which it is based.
(4) A list with the names and addresses of current participating
members of the interindemnity arrangement.

(d)
No officer, director, trustee, employee, or member of the
interindemnity arrangement or the cooperative corporation shall
receive, or be entitled to receive, any payment, bonus, salary,
income, compensation, or other benefit whatsoever, either from the
reserve trust fund or the income therefrom or from any other funds of
the interindemnity arrangement or the members thereof based on the
number of participating members, or the amount of the reserve trust
fund or other funds of the interindemnity arrangement.
(e) A peer review committee or committees shall be established by
the trust agreement to review the qualifications of any physician and
surgeon to participate or continue to participate in the
interindemnity arrangement, and to review the quality of medical
services rendered by any participating member, as well as the
validity of medical malpractice claims made against participating
members. Any physician and surgeon, prior to becoming a participating
member of the interindemnity arrangement, shall be reviewed and
approved by a majority of the members of the peer review committee.
No peer review committee, or any of its members, shall be liable for
any action taken by the committee in reviewing the qualifications of
a physician and surgeon to participate or continue to participate, or
the quality of medical services rendered, or the validity of a
medical malpractice claim, unless it is alleged and proved that the
action was taken with actual malice.
(f) The following are hereby defined as unfair methods of
competition and deceptive acts or practices with respect to
cooperative corporations or interindemnity arrangements provided for
in this section:
(1) Making any false or misleading statement as to, or issuing,
circulating, or causing to be made, issued, or circulated, any
estimate, illustration, circular, or statement misrepresenting the
terms of any interindemnity arrangement or the benefits or advantages
promised thereby, or making any misleading representation or any
misrepresentation as to the financial condition of the interindemnity
arrangement, or making any misrepresentation to any participating
member for the purpose of inducing or tending to induce the member to
lapse, forfeit, or surrender his or her rights to indemnification
under the interindemnity arrangement. It shall be a false or
misleading statement to state or represent that a cooperative
corporation or interindemnity arrangement is or constitutes
"insurance" or an "insurance company" or an "insurance policy."
(2) Making or disseminating or causing to be made or disseminated
before the public in this state, in any newspaper or other
publication, or any advertising device, or by public outcry or
proclamation, or in any other manner or means whatsoever, any
statement containing any assertion, representation, or statement with
respect to those cooperative corporations or interindemnity
arrangements, or with respect to any person in the conduct of those
cooperative corporations or interindemnity arrangements, which is
untrue, deceptive, or misleading, and which is known, or which by the
exercise of reasonable care should be known, to be untrue,
deceptive, or misleading. It shall be a false or misleading statement
to state or represent that a cooperative corporation or
interindemnity arrangement is or constitutes "insurance" or an
"insurance company" or an "insurance policy."
(3) Entering into any agreement to commit, or by any concerted
action committing, any act of boycott, coercion, or intimidation
resulting in or tending to result in an unreasonable restraint of, or
monopoly in, those cooperative corporations or interindemnity
arrangements.
(4) Filing with any supervisory or other public official, or
making, publishing, disseminating, circulating, or delivering to any
person, or placing before the public, or causing directly or
indirectly, to be made, published, disseminated, circulated, or
delivered to any person, or placed before the public any false
statement of financial condition of a cooperative corporation or
interindemnity arrangement with intent to deceive.
(5) Making any false entry in any book, report, or statement of a
cooperative corporation or interindemnity arrangement with intent to
deceive any agent or examiner lawfully appointed to examine into its
condition or into any of its affairs, or any public official to whom
a cooperative corporation or interindemnity arrangement is required
by law to report, or who has authority by law to examine into its
condition or into any of its affairs, or, with like intent, willfully
omitting to make a true entry of any material fact pertaining to a
cooperative corporation or interindemnity arrangement in any book,
report, or statement of a cooperative corporation or interindemnity
arrangement.
(6) Making or disseminating, or causing to be made or
disseminated, before the public in this state, in any newspaper or
other publication, or any other advertising device, or by public
outcry or proclamation, or in any other manner or means whatever,
whether directly or by implication, any statement that a cooperative
corporation or interindemnity arrangement is a member of the
California Insurance Guarantee Association, or insured against
insolvency as defined in Section 119.5. This paragraph shall not be
interpreted to prohibit any activity of the California Insurance
Guarantee Association or of the commissioner authorized, directly or
by implication, by Article 14.2 (commencing with Section 1063) of
Chapter 1.
(7) Knowingly committing or performing with a frequency as to
indicate a general business practice any of the following unfair
claims settlement practices:
(A) Misrepresenting to claimants pertinent facts or provisions
relating to any coverage at issue.
(B) Failing to acknowledge and act promptly upon communications
with respect to claims arising under those interindemnity
arrangements.
(C) Failing to adopt and implement reasonable standards for the
prompt investigation and processing of claims arising under those
interindemnity arrangements.
(D) Failing to affirm or deny coverage of claims within a
reasonable time after proof of claim requirements have been completed
and submitted by the participating member.
(E) Not attempting in good faith to effectuate prompt, fair, and
equitable settlements of claims in which liability has become
reasonably clear.
(F) Compelling participating members to institute litigation to
recover amounts due under an interindemnity arrangement by offering
substantially less than the amounts ultimately recovered in actions
brought by those participating members when those participating
members have made claims under those interindemnity arrangements for
amounts reasonably similar to the amounts ultimately recovered.
(G) Attempting to settle a claim by a participating member for
less than the amount to which a reasonable person would have believed
he or she was entitled by reference to written or printed
advertising material accompanying or made part of an application for
membership in an interindemnity arrangement.
(H) Attempting to settle claims on the basis of an interindemnity
arrangement that was altered without notice to the participating
member.
(I) Failing, after payment of a claim, to inform participating
members, upon request by them, of the coverage under which payment
has been made.
(J) Making known to claimants a practice of the cooperative
corporation or interindemnity arrangement of appealing from
arbitration awards in favor of claimants for the purpose of
compelling them to accept settlements or compromises less than the
amount awarded in arbitration.
(K) Delaying the investigation or payment of claims by requiring a
claimant, or his or her physician, to submit a preliminary claim
report, and then requiring the subsequent submission of formal proof
of loss forms, both of which submissions contain substantially the
same information.
(L) Failing to settle claims promptly, where liability has become
apparent, under one portion of an interindemnity arrangement in order
to influence settlements under other portions of the interindemnity
arrangement.
(M) Failing to provide promptly a reasonable explanation of the
basis relied on in the interindemnity arrangement, in relation to the
facts of applicable law, for the denial of a claim or for the offer
of a compromise settlement.
(N) Directly advising a claimant not to obtain the services of an
attorney.
(O) Misleading a claimant as to the applicable statute of
limitations.
(g) Notwithstanding any contrary provisions of Part 2 (commencing
with Section 12200) of Division 3 of Title 1 of the Corporations
Code, it shall not be necessary to hold a meeting of members of the
cooperative corporation for the purpose of electing directors if the
bylaws provide the election may be held by first-class mail
balloting. First-class mail balloting may also be used in conjunction
with a meeting at which directors are to be elected and all mail
ballots shall count toward establishing a quorum for the meeting for
the limited purpose of the issues set forth in the mail ballot.
Directors shall be elected as follows:
(1) The candidates receiving the highest number of votes, up to
the number of directors to be elected, by a specified date at least
45 days but not later than 60 days after the ballots are first
mailed, postage prepaid, to the members (or the date of a meeting of
members held in conjunction therewith) shall be elected.
(2) In the event that no candidate receives a majority of the
votes cast for a vacant office, a runoff election shall be held
between the two candidates receiving the highest number of votes
cast. The runoff election shall be held at least 45 days but not more
than 60 days after the ballots for the election are mailed, postage
prepaid. In the event that there is more than one office for which no
candidate receives a majority of the votes cast, the candidates for
the runoff shall be twice the number of vacant offices, and shall be
those persons who received the highest number of votes therefor.
Those first-class mail ballots shall be kept on file for a period
of three months after all vacant board positions have been filled,
and shall be subject to inspection at any reasonable time by any
members of the cooperative corporation.
(h) No officer, director, trustee, or member of the interindemnity
arrangement or the cooperative corporation, or any entity in which
that person has a material financial interest, shall enter into or
renew any transaction or contract with the trust unless the material
facts as to the transaction or contract and as to the interest of the
person are fully disclosed to the participating members, and the
transaction or contract is approved by an affirmative vote of at
least 75 percent of the membership present at a meeting, in person or
by proxy. If any transaction or contract is to be submitted to
members at a properly called meeting, the membership shall be
notified of the meeting and of the transaction or contract by
first-class mail, postage prepaid, at least 45 days prior to the
meeting.
(i) Services provided to the trust pursuant to a delegated
contractual arrangement shall be embodied in a written contract. Each
written contract shall provide for reasonable consideration to the
parties. In addition, each written contract shall be disclosed
annually to participating members in a disclosure report containing
the information described in subparagraph (H) of paragraph (3) of
subdivision (c). The disclosure report shall be sent to participating
members by first-class mail, postage prepaid, and shall be mailed
separately from any statements, records, or other documents. The
disclosure requirements of this subdivision shall apply to all
existing and future written contracts.
(j) Upon request of the Commissioner of Corporations, an
interindemnity arrangement shall immediately forward to the
commissioner a current list of participating members, including the
names, addresses, and telephone numbers of those members.
(k) Notwithstanding any provision to the contrary, whenever the
membership of a cooperative organization, organized pursuant to Part
2 (commencing with Section 12200) of Division 3 of Title 1 of the
Corporations Code and consisting solely of physicians and surgeons
licensed in this state amounts to 2,000 or more members and the trust
fund is at least forty million dollars ($40,000,000), which is
available to the public for malpractice claims or other claims
authorized by this section, the cooperative is authorized to admit
members without a contribution to that trust fund if assessments are
charged to each of those members within the first 50 months in an
amount equal to the amount of the contribution to the reserve fund
that would otherwise be required.

1281. Reciprocal or interinsurance contracts, the exchange thereof,
the subscribers, attorneys in fact, agents, and representatives, and
all matters incident to or concerned with such contracts and
relationship, shall be subject to and regulated by all of the
provisions of this code, whether or not such provisions specifically
refer to reciprocals or interinsurance exchanges, except as otherwise
exempted in this chapter.
When any provision of this code, other than in this chapter, is
made applicable to reciprocal insurers, such provision shall be
construed in accordance with the fundamental nature of a reciprocal
insurer. In the event of any direct conflicts between such other law
and the provisions of this chapter, the latter shall prevail. Such
other law may, however, be used to supplement or explain the
provisions of this chapter.

1282. (a) The following provisions of this code shall not be
applicable to reciprocal or interinsurance exchanges and their
contracts, subscribers, attorneys in fact, agents, and
representatives, unless such provisions are referred to and
specifically made applicable or incorporated by reference by other
portions of this code, and, in such event, such provisions shall be
applicable only to the extent required by such reference or
incorporation:
(1) Sections 700.01, 700.02, 700.03, and 700.04;
(2) Sections 707, 708, 709, 710, and 711;
(3) Section 760.5;
(4) Sections 984, 986, and 987 of Article 13 (commencing with
Section 980) of Chapter 1, Part 2, Division 1, relating to
insolvency;
(5) Sections 1044, 1045, and 1047;
(6) Sections 1104.2, 1104.3, 1104.4, 1104.5, 1104.6, 1104.7, and
1104.8, except with respect to incorporated attorneys in fact;
(7) Section 1140;
(8) Section 1140.5, except with respect to incorporated attorneys
in fact;
(9) Section 1152;
(10) Sections 1153, 1153.5, and 1154;
(11) Article 2.5 (commencing with Section 1160.1) of Chapter 2,
Part 2, Division 1, relating to life insurer investments in housing
projects;
(12) Section 1194.8;
(13) Article 5 (commencing with Section 1220) of Chapter 2, Part
2, Division 1, relating to investments in loans on life insurance
policies;
(14) Article 2 (commencing with Section 1580) of Chapter 4, Part
2, Division 1, relating to alien insurers;
(15) Article 3 (commencing with Section 1600) of Chapter 4, Part
2, Division 1, relating to agent for service of process;
(16) Article 16 (commencing with Section 1758.1) of Chapter 5,
Part 2, Division 1, relating to variable contract agents;
(17) Chapter 6 (commencing with Section 1760) of Part 2, Division
1, relating to surplus line brokers;
(18) Chapter 8 (commencing with Section 1831) of Part 2, Division
1, relating to life insurance analysts;
(19) Articles 1 (commencing with Section 3010) and 2 (commencing
with Section 3030) of Chapter 3, Part 1, Division 2, relating to
incorporated fire and marine insurers;
(20) Chapter 4 (commencing with Section 4010) of Part 1, Division
2, relating to general mutual insurers;
(21) Chapter 5 (commencing with Section 5050) of Part 1, Division
2, relating to county mutual fire insurers;
(22) Chapter 6 (commencing with Section 7080) of Part 1, Division
2, relating to county mutual fire reinsurers;
(23) Chapter 7 (commencing with Section 9080) of Part 1, Division
2, relating to fraternal fire insurers;
(24) Articles 3 (commencing with Section 10150) and 3a (commencing
with Section 10159.1) of Chapter 1, Part 2, Division 2, relating to
life insurance policies;
(25) Sections 10170, 10171, 10172, and 10173, relating to payment
and proceeds of life insurance policies;
(26) Chapter 2 (commencing with Section 10200) of Part 2, Division
2, relating to group life policies;
(27) Chapter 2.5 (commencing with Section 10220) of Part 2,
Division 2, relating to blanket life policies;
(28) Chapter 3 (commencing with Section 10240) of Part 2, Division
2, relating to burial contracts;
(29) Sections 10430, 10431, 10432, and 10433, relating to
restrictions on business of life insurers;
(30) Articles 1a (commencing with Section 10440), 2 (commencing
with Section 10450), 3 (commencing with Section 10478), 3a
(commencing with Section 10489.1), 4 (commencing with Section 10490),
and 5 (commencing with Section 10506) of Chapter 5, Part 2, Division
2, relating to internal affairs of mutual insurers, registration and
valuation of life policies, standard valuation law, exempt
societies, pension funds and separate accounts;
(31) Chapter 6 (commencing with Section 10510) of Part 2, Divison
2, relating to incorporated life insurers issuing policies on a
reserve basis;
(32) Chapter 10 (commencing with Section 10970) of Part 2,
Division 2, relating to fraternal benefit societies;
(33) Chapter 10A (commencing with Section 11400) of Part 2,
Division 2, relating to firemen's, policemen's, or peace officers'
benefit and relief associations;
(34) Chapter 11 (commencing with Section 11420) of Part 2,
Division 2, relating to change by assessment plan life insurers to
reserve plan;
(35) Chapter 11A (commencing with Section 11491) of Part 2,
Division 2, relating to nonprofit hospital service plans;
(36) Chapter 12 (commencing with Section 11520) of Part 2,
Division 2, relating to grants and annuities societies;
(37) Chapter 13 (commencing with Section 11525) of Part 2,
Division 2, relating to voluntary mutualization of certain
incorporated insurers;
(38) Article 3 (commencing with Section 11600), of Chapter 1, Part
3, Division 2, relating to capital requirements of incorporated
insurers;
(39) Chapter 4 (commencing with Section 11770) of Part 3, Division
2, relating to the State Compensation Insurance Fund;
(40) Sections 12050, 12051, 12052, and 12110, relating to
incorporated surety insurers;
(41) Part 5 (commencing with Section 12140) of Division 2,
relating to motor clubs;
(42) Part 6 (commencing with Section 12340) of Division 2,
relating to insurance covering land, but not including Sections
12640.19, 12660, and 12661.

1283. The provisions of Part 7, Division 2 of the Revenue and
Taxation Code shall be applicable to reciprocal or interinsurance
exchanges.

1284. Notwithstanding any other provision of this chapter or of
this code, any reciprocal or interinsurance exchange which meets all
of the conditions of this section shall be exempted from all reserve
requirements of this code to which it would otherwise be subject:
(a) The subscribers are comprised of a local hospital district
formed pursuant to Division 23 (commencing with Section 32000) of the
Health and Safety Code and the individual participating members of
its attending medical staff, or any hospital (as defined in Section
1250 of the Health and Safety Code) and the individual participating
members of its attending medical staff. As used in this section,
"attending medical staff" refers to licensed physicians and surgeons,
podiatrists, and dentists who have hospital privileges at any
hospital and not to interns or residents who are employees of such
hospital.
(b) The physicians and surgeons on the attending medical staff are
independent contractors, whether individually, through professional
corporations, or through partnership or clinic arrangements, and the
creation of the reciprocal or interinsurance exchange will not affect
the prerogatives of such physicians and surgeons in accepting
patients, charging fees, or similar issues in the management of a
medical practice. This subdivision shall not be construed to limit
the authority of a peer review committee to impose such restrictions
on the staff privileges of a participating member of the attending
medical staff as deemed warranted by the peer review procedure and
medical audit methods provided by subdivision (h).
(c) The initial capitalization for the reciprocal or
interinsurance exchange specified in subdivisions (d), (e), and (f)
shall be equivalent to the total professional and comprehensive
general patient liability losses paid by the hospital and its
participating medical staff members during the 10 calendar years
immediately preceding the year in which the application for the
organizational permit is filed. For the medical staff, "total
professional and comprehensive general patient liability losses"
shall include all losses paid by the participating medical staff
members, whether based on their practice in the hospital or outside
the hospital. Such combined total shall be funded or secured by equal
contributions from the hospital and, collectively, the individual
participating members of its attending medical staff. Such funds
shall be used to pay for the losses incurred for awards, settlements,
and legal fees relating to alleged acts of medical malpractice
committed by the hospital or any or all of its participating medical
staff members, whether committed in or out of the hospital, and for
the operational costs of the reciprocal or interinsurance exchange.
Upon determination of the aggregate paid professional and
comprehensive general patient liability claims of the preceding 10
years by a survey, such paid claims shall be categorized as provided
by subdivisions (d) and (e). In the case of a hospital which has been
in existence for less than 10 years, or which has substantially
expanded its facilities over the preceding 10 years, or which has
paid for no professional liability losses during the preceding 10
years, the commissioner may establish such capitalization
requirements as he deems necessary and proper as compared to the
amounts specified in subdivisions (d) and (e).
(d) A primary medical liability risk fund shall be maintained in
an amount at least equivalent to the aggregate dollar amount of paid
incident claims of one hundred thousand dollars ($100,000) or less
per each incident for both the hospital and the participating members
of the attending medical staff as provided by subdivision (c).
(e) A catastrophic medical liability risk fund shall be maintained
in an amount at least equivalent to the aggregate dollar amount of
paid incident claims in excess of one hundred thousand dollars
($100,000) per incident for both the hospital and the participating
members of the attending medical staff as provided in subdivision
(c). These funds shall be either (1) deposited as cash or secured by
letters of credit, certificates of deposit or promissory notes, or
(2) be obtained through an executed and delivered loan commitment
with a duration of at least one year by a banking institution
qualified to do business in California or other forms of credit or
assets readily convertible to cash to meet liabilities of the
reciprocal or interinsurance exchange organized pursuant to this
section.
(f) All funds or assets collected by a reciprocal or
interinsurance exchange established under this section and maintained
in a form as set forth in subdivisions (d) and (e) shall be admitted
assets valued at face value and be held in accordance with Section
1370 of the Insurance Code, except that a credit commitment shall not
be considered an admitted asset for the purpose of regulating
investment of assets.
(g) The reciprocal or interinsurance exchange may seek from a
licensed insurer, or secure in accordance with Chapter 6 (commencing
with Section 1760) of Part 2 of Division 1, excess risk coverage for
amounts above the self-retention limit of subdivisions (c), (d), and
(e). The hospital and the individual members of the attending medical
staff shall have unlimited several liability pursuant to Section
1395 to contribute to any liability not covered by such excess risk
coverage insurance. Such liability shall be based upon each
subscriber's share of the total liability of the reciprocal or
interinsurance exchange as determined by a formula adopted by its
board of directors. In the event that a subscriber fails to pay any
portion of an assessment, then, without releasing the defaulting
subscriber from any obligation to the reciprocal or interinsurance
exchange, the remaining subscribers shall be charged with the unpaid
assessment in accordance with the adopted formula.
(h) The amounts specified in subdivisions (d), and (e) shall be
available in the aggregate to meet the professional and comprehensive
general patient liabilities of the hospital and the participating
members of the attending medical staff, and shall be replenished
annually, or more frequently, if necessary, to an amount equivalent
to that specified in subdivision (c) or (q), whichever is greater.
Such total shall be maintained by a ratio of contributions annually
determined by the governing board of the reciprocal or interinsurance
exchange as fair, just and reasonable between the hospital and the
participating members of the attending medical staff. Assessments may
be required as determined to be necessary by the governing board and
shall be due within 60 days of notice thereof. Failure to pay such
assessments when due shall constitute grounds for termination of
policy benefits or coverage.
(i) Any member of the attending medical staff participating in the
program shall, as a condition of such participation, be subject to
an extensive peer review procedure and a medical audit method of
documenting the quality of medical care.
(j) Any system of rating or assessing individual participating
members of the attending medical staff on the basis of their
respective risk exposure shall be fair, just and reasonable.
(k) A promissory note, for the purposes of subdivision (e), shall
be secured, and such security shall be perfected, by real or personal
property having a market value one and one-half times the face value
of the note.
(l) "Hospital," as used in this section, shall also include any
two or more hospitals when either of the following conditions is met:
(i) They are governed by the same hospital district; or
(ii) Where there is a medical staff subject to a unified medical
audit and peer review procedure.
(m) Any reciprocal or interinsurance exchange which meets all of
the conditions of this section shall be exempt from the California
Insurance Guarantee Association established pursuant to Article 14.2
(commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.
(n) For the purposes of Section 985, minimum capitalization shall
be either the initial capitalization as provided in subdivision (c)
or the minimum capitalization required by subdivision (q), whichever
is greater.
(o) In the event that the reciprocal or interinsurance exchange
has reasonable cause to believe that its minimum capitalization may
be impaired by current liabilities, including reported claims, it
shall issue within 30 days to its subscribers notices of assessments
in amounts sufficient to cure the impairment. Within 30 days of such
notice the subscribers shall pay the assessment or present forms of
indebtedness as provided by subdivision (e), except that with regard
to a promissory note issued by a person or entity other than a
banking institution qualified to do business in California, such note
shall be secured by assets sufficient to assure payment of the debt
should a default occur.
(p) Any notice of assessment issued pursuant to this section shall
be considered an admitted asset at face value and reported as such
for the purpose of determining solvency under Section 985.
(q) Minimum capitalization of a reciprocal or interinsurance
exchange organized and conducted pursuant to this section shall be
determined annually. For the first year following issuance of a
certificate of authority, the minimum capitalization shall be that
specified in subdivision (c). Each year thereafter, the reciprocal or
interinsurance exchange shall conduct a new survey of its
subscribers to reestabish their total professional and comprehensive
patient liability loss history as provided by subdivision (r). If
such recalculation of such history discloses total losses exceeding
the existing minimum capitalization by 20 percent, the minimum
capitalization shall be increased to the amount of such new loss
history within six months. Nothing in this subdivision shall be
construed to preclude the reciprocal or interinsurance exchange from
capitalizing at a level exceeding the minimum capitalization required
by this section.
(r) The survey of subscribers which establishes total and
comprehensive general patient loss liability history shall be
annually recalculated to reflect the following:
(1) All such losses paid by, or on behalf of, the hospital for the
immediately preceding 10 years;
(2) All such losses paid by, or on behalf of, participating
individual members for the immediately preceding 10-calendar-year
period during which they held staff privileges at the subscriber
hospital; and
(3) All such losses paid by, or on behalf of, participating
individual members of the attending medical staff during any portion
of the immediately preceding five-calendar-year period in which they
were not members of the subscriber hospital staff.