Risk Retention Amendments of 1986

100 STAT. 3170 PUBLIC LAW 99-563—OCT. 27, 1986
Public Law 99-563 . . ;..
99th Congress ^ .^^ 7 v j,.,
An Act . ^. /?:,/'. '- — -t
Oct. 27, 1986 To amend the Product Liability Risk Retention Act of 1981 to include coverage of
[S. 2129] other lines of liability insurance, and for other purposes.
Risk Retention Be it enacted by the Senate and House of Representatives of the
Amendments of United States of America in Congress assembled,
1986.
State and local SECTION 1. SHORT TITLE.
governments.
15 use 3901 This Act may be cited as the Risk Retention Amendments of
note. 1986".
SEC. 2. REFERENCES IN THE ACT.
Whenever in this Act an amendment is expressed in terms of an
amendment to a section, the reference shall be deemed to be a
reference to the Product Liability Risk Retention Act of 1981 (15
U.S.C. 3901 et seq.), unless otherwise provided.
SEC. 3. COVERAGE OFFERED BY RISK RETENTION GROUPS.
(a) EXPANSION OF COVERAGE.—Section 2(a) (15 U.S.C. 3901(a)) is
amended—
(1) by striking paragraphs (1) and (3);
(2) by redesignating paragraph (2) as paragraph (1); and
(3) by inserting after paragraph (1), as so redesignated, the
following new paragraphs:
"(2) 'liability'—
"(A) 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 prop­
erty, or other damage or loss to such other persons result­
ing from or arising out of^
"(i) any business (whether profit or nonprofit), trade,
product, services (including professional services),
premises, or operations, or
"(ii) any activity of any State or local government, or
any agency or political subdivision thereof; and
"(B) does not include personal risk liability and an
employer's liability with respect to its employees other than
legal liability under the Federal Employers' Liability Act
(45 U.S.C. 51 et seq.);
"(3) '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 house­
hold responsibilities or activities, rather than from responsibil­
ities or activities referred to in paragraphs (2XA) and (2XB);".
(b) DEFINITIONS.—Such section is further amended—
(1) by striking "and" at the end of paragraph (5);
(2) by striking the period at the end of paragraph (6) and
inserting "; and"; and
(3) by adding at the end thereof the following new paragraph: PUBLIC LAW 99-563—OCT. 27, 1986 100 STAT. 3171
> "(7) 'hazardous financial condition' means that, based on its
present or reasonably anticipated financial condition, a risk
retention group is unlikely to be able—
"(A) to meet obligations to policyholders with respect to
known claims and reasonably anticipated claims; or
< "(B) to pay other obligations in the normal course of
business.".
SEC. 4. REQUIREMENTS RELATING TO RISK RETENTION GROUPS AND
PURCHASING GROUPS.
(a) CHARACTERISTICS OF RISK RETENTION GROUPS AND THEIR MEM­
BERS.—(1) Section 2(a)(4) (15 U.S.C. 3901(a)(4)) is amended by striking
"taxable as a corporation, or as an insurance company, formed
under the laws of any State, Bermuda, or the Cayman Islands".
(2) Subparagraph (A) of such section is amended by striking
"product liability or completed operations liability risk exposure"
and inserting "liability exposure".
(3) Subparagraph (C) of such section is amended to read as follows:
"(C) which—
' : ,^ "(i) is chartered or licensed as a liability insurance
.>: company under the laws of a State and authorized to
engage in the business of insurance under the laws of
such State; or
"(ii) before January 1,1985, was chartered or licensed
and authorized to engage in the business of insurance
under the laws of Bermuda or the Cayman Islands and,
before such date, had certified to the insurance
commissioner of at least one State that it satisfied the
capitalization requirements of such State, except that
any such group shall be considered to be a risk reten­
tion group only if it has been engaged in business
I , ,> continuously since such date and only for the purpose
of continuing to provide insurance to cover product
: liability or completed operations liability (as such
terms were defined in this section before the date of the
enactment of the Risk Retention Act of 1986);".
(4) Such section is further amended—
(A) by striking "and" at the end of subparagraph (D); and
(B) by striking subparagraph (E) and inserting the following
new subparagraphs:
"(E) which—
"(i) has as its owners only persons who comprise the
membership of the risk retention group and who are
provided insurance by such group; or
"(ii) has as its sole owner an organization which has
£is—
"(I) its members only persons who comprise the
membership of the risk retention group; and
"(II) its owners only persons who comprise the
membership of the risk retention group and who
are provided insurance by such group;
"(F) whose members are engaged in businesses or activi­
ties similar or related with respect to the liability to which
such members are exposed by virtue of any related, similar,
or common business, trade, product, services, premises, or
operations; :'^'"fM:
''*r;t,^ Corporations.
Business and
industry.
Bermuda.
Cayman Islands. 100 STAT. 3172 PUBLIC LAW 99-563—OCT. 27, 1986
"(G) whose activities do not include the provision of
insurance other than—
"(i) habihty insurance for assuming and spreading all
* ^ "^ or any portion of the similar or related liability expo­
sure of its group members; and
•^ '<^^ "(ii) reinsurance with respect to the similar or
related liability exposure of any other risk retention
group (or any member of such other group) which is
engaged in businesses or activities so that such group
(or member) meets the requirement described in
subparagraph (F) for membership in the risk retention
group which provides such reinsurance; and
>…: "(jj) ^jjg name of which includes the phrase 'Risk Reten­
tion Group'.",
(b) CHARACTERISTICS OF PURCHASING GROUPS.—Section 2(aX5) (15
U.S.C. 3901(aX5)) is amended to read as follows:
"(5)'purchasing group'means any group which—
"(A) has as one of its purposes the purchase of liability
insurance on a group basis;
"(B) purchases such insurance only for its group members
and only to cover their similar or related liability exposure,
as described in subparagraph (C);
"(C) is composed of members whose businesses or activi­
ties are similar or related with respect to the liability to
which members are exposed by virtue of any related, simi­
lar, or common business, trade, product, services, premises,
or operations; and
"(D) is domiciled in any State;". '^ – ^
SEC. 5. CONCERNING SCOPE OF EXEMPTIONS RELATING TO RISK RETEN-
TION GROUPS.
(a) IN GENERAL.—Section 3(b) (15 U.S.C. 3902(b)) is amended to
read as follows:
Business and "0>) The exemptions specified in subsection (a) apply to laws
industry. governing the insurance business pertaining to—
"(1) liability insurance coverage provided by a risk retention
group for— –•' ;
"(A) such group; or
"(B) any person who is a member of such group;
"(2) the sale of liability insurance coverage for a risk reten­
tion group; and
;; "(3) the provision of^-
^ "(A) insurance related services;
Securities. "(B) mgmagement, operations, and investment activities;
Claims. ^ "(C) loss Control and claims administration (including loss
' ' control and claims administration services for uninsured
risks regained by any member of such group);
for a risk retention group or any member of such group with
respect to liability for which the group provides insurance.".
(b) PLANS OF OPERATION, FEASIBILITY STUDIES, AND FINANCIAL
STATEMENTS.—Section 3 (15 U.S.C. 3902) is further amended—
(1) in subsection (aXD—
(A) by striking subparagraph (D) and redesignating sub­
paragraphs (E), (F), and (G) as subparagraphs (D), (E), and
(F), accordingly; and PUBLIC LAW 99-563—OCT. 27, 1986 100 STAT. 3173
' (B) by striking all that follows after "documents or proc­
ess" in subparagraph (D) (as redesignated) and inserting a
semicolon; and
(2) by adding at the end of such section the following new
subsection:
"(d) Each risk retention group shall submit—
"(1) to the insurance commissioner of the State in which it is
chartered—
"(A) before it may offer insurance in any State, a plan of
operation or a feasibility study which includes the
coverages, deductibles, coverage limits, rates, and rating
classification systems for each line of insurance the
group intends to offer; and
"(B) revisions of such plan or study if the group intends to
offer any additional lines of liability insurance;
"(2) to the insurance commissioner of each State in which it
intends to do business, before it may offer insurance in such
State—
"(A) a copy of such plan or study (which shall include the
name of the State in which it is chartered and its principal
place of business); and
"(B) a copy of any revisions to such plan or study, as
provided in paragraph (IXB) (which shall include any
change in the designation of the State in which it is char­
tered); and
"(3) to the insurance commissioner of each State in which it is
doing business, a copy of the group's annual financial statement
submitted to the State in which the group is chartered as an
insurance company, which statement shall be certified by an
independent public accountant and contain a statement of opin­
ion on loss and loss adjustment expense reserves made by—
"(A) a member of the American Academy of Actuaries, or
"(B) a qualified loss reserve specialist.".
(c) EXAMINATION OF FINANCIAL CONDITION.—Section 3(aXlXE) (as 15 use 3902.
redesignated by subsection (b)) is amended—
(1) by striking clause (i);
,^ (2) by redesignating clause (ii) as clause (i); and
(3) by adding at the end the following new clause:
"(ii) any such examination shall be coordinated to
avoid unjustified duplication and unjustified repeti­
tion;".
(d) COMPLIANCE WITH DELINQUENCY PROCEEDING ORDERS.—Section
3(aXlXF) (as redesignated by subsection (b)) is amended to read as
follows:
"(F) comply with a lawful order issued—
"(i) in a delinquency proceeding commenced by the
State insurance commissioner if there has been a find­
ing of financial impairment under subparagraph (E); or
"(ii) in a voluntary dissolution proceeding;".
(e) ADDITIONAL STATE LAW REQUIREMENTS.—Section 3(aXl) (15
U.S.C. 3902(aXl)) is further amended by adding at the end the
following new subparagraphs:
"(G) comply with any State law regarding deceptive,
false, or fraudulent acts or practices, except that if the Fraud.
State seeks an injunction regarding the conduct described
in this subparagraph, such injunction must be obtained
from a court of competent jurisdiction; 100 STAT. 3174 PUBLIC LAW 99-563—OCT. 27, 1986
"(H) comply with an injunction issued by a court of
competent jurisdiction, upon a petition by the State insur­
ance commissioner alleging that the group is in hazardous
.; jj, financial condition or is financially impaired; and
"(I) provide the following notice, in 10-point type, in any
insurance policy issued by such group:
;.,, tj :?''^w rn -c'-s^x^ nfiJ • ,,, :^j:7 ••.•KM '^ii' ,- ^:
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.' ".
SEC. 6. ADDITIONAL REQUIREMENTS RELATING TO PURCHASING GROUPS.
Post, p. 3175. Section 4 (15 U.S.C. 3903) is amended by adding at the end the
following new subsections:
"(d)(1) A purchasing group which intends to do business in any
State shall furnish notice of such intention to the insurance commis­
sioner of such State. Such notice—
"(A) shall identify the State in which such group is domiciled;
"(B) shall specify the lines and classifications of liability
insurance which the purchasing group intends to purchase;
"(C) shall identify the insurance company from which the
group intends to purchase insurance and the domicile of such
company; and
"(D) shall identify the principal place of business of the group.
"(2) Such purchasing group shall notify the commissioner of any
such State £is to any subsequent changes in any of the items
provided in such notice.
"(e) A purchasing group shall register with and designate the
State insurance commissioner of each State in which it does busi­
ness as its agent solely for the purpose of receiving service of legal
,,, ^ documents or process, except that such requirement shall not apply
in the case of a purchasing group—
"(1) which—
"(A) was domiciled before April 1,1986; and
"(B) is domiciled on and after the date of the enactment
of this Act;
in any State of the United States;
"(2) which— ' '
"(A) before the date of the enactment of this Act, pur-
!.'^ chased insurance from an insurance carrier licensed in any
State; and
"(B) since such date of enactment, purchases its insur­
ance from an insurance carrier licensed in any State;
"(3) which w£is a purchasing group under the requirements of
this Act before the date of the enactment of the Risk Retention
Amendments of 1986; and
"(4) as long as such group does not purchase insurance that
was not authorized for purposes of an exemption under this Act
as in effect before the date of the enactment of the Risk
Retention Amendments of 1986.
. . "(f) A purchasing group may not purchase insurance from a risk
retention group that is not chartered in a State or from an insurer
not admitted in the State in which the purchasing group is located,
unless the purchase is effected through a licensed agent or broker PUBLIC LAW 99-563—OCT. 27, 1986 100 STAT. 3175
acting pursuant to the surplus lines laws and regulations of such
State.".
SEC. 7. CONCERNING AUTHORITY OF STATES TO ENJOIN CERTAIN CON­
DUCT.
. Section 3 (15 U.S.C. 3902), as amended by section 5(b) of this Act, is
further amended by adding at the end the following new subsection:
"(e) Nothing in this section shall be construed to affect the
authority of any Federal or State court to enjoin—
"(1) the solicitation or sale of insurance by a risk retention
group to any person who is not eligible for membership in such
group; or
"(2) the solicitation or sale of insurance by, or operation of, a , ,
risk retention group that is in hazardous financial condition or
is financially impaired.".
SEC. 8. ADDITIONAL CLARIFICATION OF PERMISSIBLE STATE AUTHOR­
ITY.
(a) CLARIFICATION OF STATE AUTHORITY RESPECTING RISK RETEN­
TION GROUPS.—Section 3 (15 U.S.C. 3902), as amended by sections
5(b) and 7 of this Act, is further amended by adding at the end the
following new subsections:
"(f)(1) Subject to the provisions of subsection (a)(1)(G) (relating to
injunctions) and paragraph (2), nothing in this Act shall be con­
strued to affect the authority of any State to make use of any of its
powers to enforce the laws of such State with respect to which a risk
retention group is not exempt under this Act.
"(2) If a State seeks an injunction regarding the conduct described
in paragraphs (1) and (2) of subsection (e), such injunction must be
obtained from a Federal or State court of competent jurisdiction.
"(g) Nothing in this Act shall affect the authority of any State to
bring an action in any Federal or State court.
"(h) Nothing in this Act shall be construed to affect the authority
of any State to regulate or prohibit the ownership interest in a risk
retention group by an insurance company in that State, other than
in the case of ownership interest in a risk retention group whose
members are insurance companies.".
(b) CLARIFICATION OF STATE AUTHORITY RESPECTING PURCHASING
GROUPS.—Section 4 (15 U.S.C. 3903), as amended by section 6 of this
Act, is further amended—
(1) in subsection (a), by inserting "and section 6" after "sec­
tion"; and '-
(2) by adding at the end the following new subsections: -^ "
"(g) Nothing in this Act shall be construed to affect the authority
of any State to make use of any of its powers to enforce the laws of
such State with respect to which a purchasing group is not exempt
under this Act.
"(h) Nothing in this Act shall affect the authority of any State to
bring an action in any Federal or State court.".
(c) OTHER CLARIFICATION.—The Act is further amended by adding
at the end the following new section:
"CLARIFICATION CONCERNING PERMISSIBLE STATE AUTHORITY
"SEC. 6. (a) Nothing in this Act shall be construed to exempt a risk Motor vehicles.
retention group or purchasing group authorized under this Act from ^^ ^SC 3905. 100 STAT. 3176 PUBLIC LAW 99-563—OCT. 27, 1986
the policy form or coverage requirements of any State motor vehicle
no-fault or motor vehicle financial responsibility insurance law.
"(b) The exemptions provided under this Act shall apply only to
the provision of liability insurance by a risk retention group or the
purchase of liability insurance by a purchasing group, and nothing
in this Act shall be construed to permit the provision or purchase of
any other line of insurance by any such group.
"(c) The terms of any insurance policy provided by a risk retention
group or purchased by a purchasing group shall not provide or be
construed to provide insurance policy coverage prohibited generally
by State statute or declared unlawful by the highest court of the
State whose law applies to such policy.
15 use 3902. "(d) Subject to the provisions of section 3(a)(4) relating to discrimi­
nation, nothing in this Act shall be construed to preempt the
authority of a State to specify acceptable means of demonstrating
financial responsibility where the State has required a demonstra­
tion of financial responsibility as a condition for obtaining a license
or permit to undertake specified activities. Such means may include
or exclude insurance coverage obtained from an admitted insurance
company, an excess lines company, a risk retention group, or any
other source regardless of whether coverage is obtained directly
from an insurance company or through a broker, agent, purchasing
group, or any other person.".
SEC. 9. INJUNCTIVE POWERS OF FEDERAL COURTS.
The Act, as amended by section 8(c) of this Act, is further
amended by adding at the end the following new section:
"INJUNCTIVE ORDERS ISSUED BY UNITED STATES DISTRICT COURTS
15 use 3906. "SEC. 7. Any district court of the United States may issue an order
enjoining a risk retention group from soliciting or selling insurance,
or operating, in any State (or in all States) or in any territory or
possession of the United States upon a finding of such court that
such group is in hazardous financial condition. Such order shall be
binding on such group, its officers, agents, and employees, and on
any other person acting in active concert with any such officer,
agent, or employee, if such other person has actual notice of such
order.".
SEC, 10. OVERSIGHT OF IMPLEMENTATION; REPORT TO CONGRESS.
15 use 3901 (a) IN GENERAL.—(1) Not later than September 1, 1987, and not
note. later than September 1, 1989, the Secretary of Commerce shall
submit reports to the Congress concerning implementation of this
Act.
(2) Such report shall be based on—
(A) the Secretary's consultation with State insurance commis­
sioners, risk retention groups, purcheising groups, and other
interested parties; and
(B) the Secretary's analysis of other information available to
the Secretary.
(b) CONTENTS OF THE REPORT.—The report shall describe the Sec­
retary's views concerning—
(1) the contribution of this Act toward resolution of problems
–.^l'; . ^'^ relating to the unavailability and unaffordability of liability
insurance; ^ iv-5» PUBLIC LAW 99-563—OCT. 27, 1986 100 STAT. 3177
(2) the extent to which the structure of regulation and
preemption established by this Act is satisfactory;
(3) the extent to which, in the implementation of this Act, the
public is protected from unsound financial practices and other
commercial abuses involving risk retention groups and purchas­
ing groups;
(4) the causes of any financial difficulties of risk retention
groups and purchasing groups;
(5) the extent to which risk retention groups and purchasing
groups have been discriminated against under State laws, prac­
tices, and procedures contrary to the provisions and underlying
policy of this Act and the Product Liability Risk Retention Act
(as amended by this Act); and
(6) such other comments and conclusions as the Secretary
deems relevant to assessment of the implementation of this Act.
SEC. 11. EFFECTIVE DATE; APPLICABILITY.
(a) GENERAL RULE.—Subject to subsection (b), this Act shall take
effect on the date of its enactment.
(b) SPECIAL RULE REGARDING FEASIBIUTY STUDY.—The provisions
of section 3(d) of the Liability Risk Retention Act of 1986 (as added
by section 5(b) of this Act), relating to the submission of a feasibility
study, shall not apply with respect to any line or classification of
liability insurance wMch—
(1) was defined in the Product Liability Risk Retention Act of
1981 before the date of the enactment of this Act; and
(2) was offered before such date of enactment by any risk
retention group which has been chartered and operating for not
less than 3 years before such date of enactment.
(c) RULE REGARDING POLLUTION LIABILITY.—
(1) Section 210 of the Superfund Amendments and Reauthor­
ization Act of 1986 is amended by inserting "(a)" following
"Pollution Liability Insurance" and adding at the end thereof
the following:
"(b) For purposes of subsection (a) of this section, the powers and
authorities of States addressed by the Risk Retention Amendments
of 1986 are in addition to those of this Act.".
(2) Nothing in this Act shall be construed, interpreted or
applied to diminish the obligations of any person to establish or
maintain evidence of financial responsibility or otherwise
comply with any of the requirements of Federal environmental
laws, including but not limited to the (I!omprehensive Environ­
mental Response, C!ompensation and Liability Act of 1980 and
the Solid Waste Disposal Act.
SEC. 12. TECHNICAL AND CONFORMING AMENDMENTS.
(a) IN THE SHORT TITLE.—Section 1 (15 U.S.C.
amended to read as follows: 15 use 3901
note.
15 use 3901
note.
15 use 3901
note.
Ante, p. 1716.
42 use 9671
note.
15 use 3901
note.
42 use 9601
note.
42 use 6901
note.
3901, note) is Ante, p. 3170.
SHORT TITLE
"SECTION 1. This Act may be cited as the 'Liability Risk Retention
Act of 1986'."
(b) IN SECTION 2(b).—Section 2(b) (15 U.S.C. 3901(b)) is amended by
striking "product liability and product liability insurance" and
inserting "liability, personal risk liability, and insurance". Liability
Risk Retention
Act of 1986. 100 STAT. 3178 PUBLIC LAW 99-563—OCT. 27, 1986
(c) IN SECTION 3(a)(1)(C).—Section 3(a)(1)(C) (15 U.S.C. 3902(a)(lXC))
is amended by striking "product liability or completed operations".
(d) IN SECTION 4(b).—Section 4(b) (15 U.S.C. 3903(b)) is amended—
(1) in paragraph (1), by striking "product liability or
completed operations liability insurance, and comprehensive
general liability insurance which includes either of these
coverages," and inserting "liability insurance"; and
(2) in paragraph (2), by striking "product liability or com­
pleted operations insurance, and comprehensive general".
Approved October 27, 1986. ' ' ; ' '
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LEGISLATIVE HISTORY—S. 2129 (H.R. 5225):
HOUSE REPORTS: No. 99-865 accompanying H.R. 5225 (Cbmm. on Energy and
Commerce).
SENATE REPORTS: No. 99-294 (Comm. on Commerce, Science, and Transportation).
CONGRESSIONAL RECORD, Vol. 132 (1986):
July 17, considered and passed Senate.
Sept. 23, H.R. 5225 considered and passed House; proceedings vacated and S.
2129, amended, passed in lieu.
Oct. 6, Senate concurred in House amendments with an amendment.
Oct. 9, House concurred in Senate amendment.