§ 27-34-8 - Powers and duties of the fund. - Rhode Island Statutes

SECTION 27-34-8

   § 27-34-8  Powers and duties of the fund.– (a) The fund shall:

   (1) Be obligated to pay covered claims existing prior to thedetermination of the insolvency of a member insurer or arising within sixty(60) days after the determination of the insolvency or before the policyexpiration date if less than sixty (60) days after the determination ofinsolvency or before the insured replaces the policy or causes its cancellationif he or she does so within sixty (60) days of the determination. Theobligations shall be satisfied by paying to the claimant an amount as follows:

   (i) The full amount of a covered claim for benefits under aworkers' compensation insurance coverage;

   (ii) An amount not exceeding ten thousand dollars ($10,000),per policy for a covered claim for the return of unearned premium;

   (iii) An amount not exceeding five hundred thousand dollars($500,000), per claimant for all other covered claims for insolvenciesoccurring on or after January 1, 2008 and an amount not exceeding three hundredthousand dollars ($300,000) per claimant for all other covered claims forinsolvencies occurring prior to January 1, 2008. In no event shall the fund beobligated to pay a claimant an amount in excess of the obligation of theinsolvent insurer under the policy or coverage from which the claim arises.Notwithstanding any other provision of this chapter, a covered claim shall notinclude any claim filed with the fund after the final date set by the court forthe filing of claims against the liquidator or receiver of an insolventinsurer. The fund shall pay only that amount of each unearned premium, which isin excess of one hundred dollars ($100);

   (2) Be deemed the insurer to the extent of its obligation onthe covered claims and to that extent shall have all of the rights, duties andobligations of the insolvent insurer as if the insurer had not become insolvent;

   (3) Allocate claims paid and expenses incurred among thethree (3) accounts separately, and assess member insurers separately for eachaccount amounts necessary to pay the obligations of the fund under subdivision(1) of this subsection subsequent to an insolvency, the expenses of handlingcovered claims subsequent to an insolvency and other expenses authorized bythis chapter. The assessments of each member insurer shall be in the proportionthat the net direct written premiums of the member insurer for the calendaryear preceding the assessment on the kinds of insurance in the account bears tothe net direct written premiums of all member insurers for the calendar yearpreceding the assessment on the kinds of insurance in the account. Each memberinsurer shall be notified of the assessment not later than thirty (30) daysbefore it is due. No member insurer may be assessed in any one year on anyaccount an amount greater than two percent (2%) of that member insurer's netdirect written premiums for the calendar year preceding the assessment on thekinds of insurance in the account. If the maximum assessment, together with theother assets of the fund in any account, does not provide in any one year inany account an amount sufficient to make all necessary payments from thataccount, each member insurer shall be assessed the additional amount that mustbe obtained to make all necessary payments of the underfunded account from theother two accounts, subject to the same limitation of two percent (2%) of thatmember insurer's net direct written premiums for the calendar year precedingthe assessment on the kinds of insurance in the account. The additionalassessments shall be considered loans by and between the separate accounts.Amounts borrowed under this subsection shall be paid back to the separateaccounts from which they were borrowed, out of assets, including, but notlimited to, existing and future assessments in the account receiving the loan.An interest charge shall be levied on all amounts borrowed under thissubsection based on the average prime rate of interest for each year the moneyremains unpaid. If the amounts borrowed remain unpaid on the seventh yearlyanniversary as a result of the inability of the borrowing account to makerepayment, then the amount borrowed and interest which is not repaid, startingwith the principal and interest of the first year, shall be considereduncollectible. The funds available shall be prorated and the unpaid portionshall be paid as soon after this as funds become available. The fund shall payclaims in any order which it deems reasonable, including the payment of claimsas they are received from the claimants or in groups or categories of claims.The fund may exempt or defer, in whole or in part, the assessment of any memberinsurer if the assessment would cause the member insurer's financial statementto reflect amounts of capital or surplus less than the minimum amounts requiredfor a certificate of authority by any jurisdiction in which the member insureris authorized to transact insurance. However, during the period of deferment,no dividends shall be paid to shareholders or policyholders. Deferredassessments shall be paid when the payment will not reduce capital or surplusbelow required minimums. The payments shall be refunded to those companiesreceiving larger assessments by virtue of the deferment, or, at the election ofany company, credited against future assessments.

   (4) Investigate claims brought against the fund and adjust,compromise, settle, and pay covered claims to the extent of the fund'sobligation and deny all other claims, and may review settlements, releases, andjudgments to which the insolvent insurer or its insured were parties, todetermine the extent to which the settlements, releases, and judgments may beproperly contested;

   (5) Notify the insured as the commissioner directs under§ 27-34-10(b)(1);

   (6) Handle claims through its employees or through one ormore insurers or other persons designated as servicing facilities. Designationof a servicing facility is subject to the approval of the commissioner, but thedesignation may be declined by a member insurer;

   (7) Reimburse each servicing facility for obligations of thefund paid by the facility and for expenses incurred by the facility whilehandling claims on behalf of the fund and shall pay the other expenses of thefund authorized by this chapter; and

   (8) Obtain an irrevocable line of credit agreement from eachmember insurer in an amount not to exceed the member insurer's maximumassessment pursuant to subdivision (3) of this subsection to ensure theimmediate availability of funds for the purposes of future claims and expensesattributable to an insurer insolvency;

   (ii) Any amount drawn from the fund under any line of creditshall be considered a payment toward the member insurer's assessment providedfor in subdivision (3) of this subsection;

   (iii) The member insurer shall provide funding to the fundunder the line of credit within three (3) business days of receipt of a writtenrequest from the fund for a draw-down under the line of credit;

   (iv) The line of credit agreement shall be subject to priorreview and approval by the commissioner at the time of origination and anysubsequent renewal. It shall include any commercially reasonable provisions thefund or the commissioner may deem advisable, including a provision that theline of credit is irrevocable or for a stated period of time and provides forthirty (30) day notice to the fund and the commissioner that the line is beingterminated or not renewed;

   (v) If a line of credit is not given as provided for in thissection, the member insurer shall be responsible for the payment of anassessment of up to the member's proportionate share of the applicable maximumas set forth in this subsection which shall be paid into a pre-insolvencyassessment fund in each account.

   (b) The fund may:

   (1) Employ or retain those persons necessary to handle claimsand perform other duties of the fund;

   (2) Borrow funds necessary to effect the purposes of thischapter in accord with the plan of operation;

   (3) Sue or be sued;

   (4) Negotiate and become a party to any contracts necessaryto carry out the purpose of this chapter;

   (5) Perform any other acts necessary or proper to effectuatethe purpose of this chapter; and

   (6) Refund to the member insurers in proportion to thecontribution of each member insurer to that account that amount by which theassets of the account exceed the liabilities, if, at the end of any calendaryear, the board of directors finds that the assets of the fund in any accountexceed the liabilities of that account as estimated by the board of directorsfor the coming year.