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Key: (1) language to be deleted (2) new language

  

                         Laws of Minnesota 1987 

                        CHAPTER 192-H.F.No. 1421 
           An act relating to insurance; regulating the formation 
          and operation of risk retention groups; prescribing 
          the powers and duties of the commissioner; defining 
          terms; prescribing penalties; proposing coding for new 
          law as Minnesota Statutes, chapter 60E.  
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
    Section 1.  [60E.01] [PURPOSE.] 
    The purpose of this act is to regulate the formation and 
operation of risk retention groups in this state formed under 
the federal Liability Risk Retention Act of 1986. 
    Sec. 2.  [60E.02] [DEFINITIONS.] 
    Subdivision 1.  [SCOPE.] For the purposes of this act, the 
terms defined in this section have the meanings given them. 
    Subd. 2.  [COMMISSIONER.] "Commissioner" means the 
commissioner of commerce in Minnesota or the commissioner, 
director, or superintendent of insurance in any other state. 
    Subd. 3.  [COMPLETED OPERATIONS LIABILITY.] "Completed 
operations liability" means liability arising out of the 
installation, maintenance, or repair of a product at a site 
which is not owned or controlled by a person who performs that 
work; or a person who hires an independent contractor to perform 
that work; but includes liability for activities which are 
completed or abandoned before the date of the occurrence giving 
rise to the liability. 
    Subd. 4.  [DOMICILE.] "Domicile," for purposes of 
determining the state in which a purchasing group is domiciled, 
means for a corporation, the state in which the purchasing group 
is incorporated; and for an unincorporated entity, the state of 
its principal place of business. 
    Subd. 5.  [HAZARDOUS FINANCIAL CONDITION.] "Hazardous 
financial condition" means that, based on its present or 
reasonably anticipated financial condition, a risk retention 
group, although not yet financially impaired or insolvent, is 
unlikely to be able to meet obligations to policyholders with 
respect to known claims and reasonably anticipated claims; or to 
pay other obligations in the normal course of business. 
    Subd. 6.  [INSURANCE.] "Insurance" means primary insurance, 
excess insurance, reinsurance, surplus lines insurance, and any 
other arrangement for shifting and distributing risk which is 
determined to be insurance under the laws of this state.  
    Subd. 7.  [LIABILITY.] "Liability":  (1) 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 other persons resulting from or arising out of: 
    (a) a business (whether profit or nonprofit), trade, 
product, services (including professional services), premises, 
or operations; or 
    (b) an activity of a state or local government, or an 
agency or political subdivision of a state or local government; 
and 
    (2) 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, 
United States Code, title 45, section 51, et seq. 
    Subd. 8.  [PERSONAL RISK LIABILITY.] "Personal risk 
liability" means liability for damages because of injury to a 
person, damage to property, or other loss or damage resulting 
from personal, familial, or household responsibilities or 
activities, rather than from responsibilities or activities 
referred to in subdivision 7. 
    Subd. 9.  [PLAN OF OPERATION OR FEASIBILITY STUDY.] "Plan 
of operation" or "feasibility study" means an analysis that 
presents the expected activities and results of a risk retention 
group including, at a minimum: 
    (1) the coverages, deductibles, coverage limits, rates, and 
rating classification systems for each line of insurance the 
group intends to offer; 
    (2) historical and expected loss experience of the proposed 
members and national experience of similar exposures; 
    (3) pro forma financial statements and projections; 
    (4) 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; 
    (5) identification of management, underwriting procedures, 
managerial oversight methods, investment policies; and 
    (6) other matters prescribed by the commissioner for 
liability insurance companies authorized by the insurance laws 
of the state. 
    Subd. 10.  [PRODUCT LIABILITY.] "Product liability" means 
liability for damages because of personal injury, death, 
emotional harm, consequential economic damage, or property 
damage, including damages resulting from the loss of use of 
property, arising out of the manufacture, design, importation, 
distribution, packaging, labeling, lease, or sale of a product, 
but does not include the liability of a person for those damages 
if the product involved was in the possession of the person when 
the incident giving rise to the claim occurred. 
    Subd. 11.  [PURCHASING GROUP.] "Purchasing group" means a 
group that: 
    (1) has as one of its purposes the purchase of liability 
insurance on a group basis; 
    (2) purchases the insurance only for its group members and 
only to cover their similar or related liability exposure, as 
described in clause (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 a related, similar, or common 
business, trade, product, services, premises, or operations; and 
    (4) is domiciled in a state. 
    Subd. 12.  [RISK RETENTION GROUP.] "Risk retention group" 
means a corporation or other limited liability association 
formed under the laws of a state, Bermuda, or the Cayman Islands:
    (1) whose primary activity consists of assuming and 
spreading all, or a portion, of the liability exposure of its 
group members; 
    (2) which is organized for the primary purpose of 
conducting the activity described under clause (1); 
    (3) which: 
    (a) is chartered and licensed as a liability insurance 
company and authorized to engage in the business of insurance 
under the laws of a state; or 
    (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, had 
certified to the insurance commissioner of at least one state 
that it satisfied the capitalization requirements of the state, 
except that the group shall be 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 such terms were defined in the Product Liability 
Risk Retention Act of 1981 before the date of the enactment of 
the Risk Retention Act of 1986; 
    (4) which does not exclude a person from membership in the 
group solely to provide for members of the group a competitive 
advantage over that person; 
    (5) which: 
    (a) has as its members only persons who have an ownership 
interest in the group and which has as its owners only persons 
who are members who are provided insurance by the risk retention 
group; or 
    (b) has as its sole member and sole owner an organization 
which is owned by persons who are provided insurance by the risk 
retention group; 
    (6) whose members are engaged in businesses or activities 
similar or related with respect to the liability of which the 
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: 
    (a) liability insurance for assuming and spreading all or a 
portion of the liability of its group members; and 
    (b) reinsurance with respect to the liability of any other 
risk retention group, or any members of the other group, which 
is engaged in businesses or activities so that the group or 
member meets the requirement described in clause (6) from 
membership in the risk retention group which provides the 
reinsurance; and 
    (8) the name of which includes the phrase "risk retention 
group." 
    Subd. 13.  [STATE.] "State" means a state of the United 
States or the District of Columbia. 
    Sec. 3.  [60E.03] [RISK RETENTION GROUPS CHARTERED IN THIS 
STATE.] 
    A risk retention group seeking to be chartered in this 
state must be chartered and licensed as a liability insurance 
company authorized by the insurance laws of this state and, 
except as provided elsewhere in this act, must comply with all 
of the laws, rules, and requirements applicable to insurers 
chartered and licensed in this state and with section 4 to the 
extent those requirements are not a limitation on laws, rules, 
or requirements of this state.  Before it may offer insurance in 
a state, a risk retention group shall also submit for approval 
to the commissioner of commerce a plan of operation or a 
feasibility study and revisions of the plan or study if the 
group intends to offer additional lines of liability insurance. 
    Sec. 4.  [60E.04] [RISK RETENTION GROUPS NOT CHARTERED IN 
THIS STATE.] 
    Subdivision 1.  [REGULATION.] Risk retention groups 
chartered in states other than this state and seeking to do 
business as a risk retention group in this state must observe 
and abide by the laws of this state as set forth in subdivisions 
2 to 12. 
    Subd. 2.  [NOTICE OF OPERATIONS AND DESIGNATION OF 
COMMISSIONER AS AGENT.] Before offering insurance in this state, 
a risk retention group shall submit to the commissioner: 
    (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, the commissioner may require to verify that 
the risk retention group is qualified under section 2, 
subdivision 12; 
    (2) a copy of its plan of operations or a feasibility study 
and revisions of the plan or study submitted to its state of 
domicile; provided, however, that the provision relating to the 
submission of a plan of operation or a feasibility study shall 
not apply with respect to a line or classification of liability 
insurance that was defined in the Product Liability Risk 
Retention Act of 1981 before October 27, 1986, and was offered 
before that date by a risk retention group that had been 
chartered and operating for not less than three years before 
that date; and 
    (3) a statement of registration that designates the 
commissioner as its agent for the purpose of receiving service 
of legal documents or process. 
    Subd. 3.  [FINANCIAL CONDITION.] A risk retention group 
doing business in this state shall submit to the commissioner: 
    (1) a copy of the group's financial statement submitted to 
its state of domicile, 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, under criteria established by the National 
Association of Insurance Commissioners; 
    (2) a copy of each examination of the risk retention group 
as certified by the commissioner or public official conducting 
the examination; 
    (3) a copy of an audit performed with respect to the risk 
retention group; and 
    (4) the information required to verify its continuing 
qualification as a risk retention group under section 2, 
subdivision 12. 
    Subd. 4.  [TAXATION.] (a) All premiums paid for coverages 
within this state to risk retention groups are subject to 
taxation at the same rate and subject to the same interest, 
fines, and penalties for nonpayment as that applicable to 
foreign admitted insurers. 
    (b) To the extent agents or brokers are utilized, they 
shall report and pay the taxes for the premiums for risks which 
they have placed with or on behalf of a risk retention group not 
chartered in this state. 
    (c) To the extent agents or brokers are not utilized or 
fail to pay the tax, each risk retention group shall pay the tax 
for risks insured within the state.  Each risk retention group 
shall report all premiums paid to it for risks insured within 
the state. 
    Subd. 5.  [COMPLIANCE WITH UNFAIR CLAIMS SETTLEMENT 
PRACTICES LAW.] A risk retention group, its agents and 
representatives, shall comply with section 72A.20, subdivisions 
12 and 12a. 
    Subd. 6.  [DECEPTIVE, FALSE, OR FRAUDULENT PRACTICES.] A 
risk retention group shall comply with sections 72A.17 to 72A.32 
regarding deceptive, false, or fraudulent acts or practices.  
However, if the commissioner seeks an injunction regarding this 
conduct, the injunction must be obtained from a court of 
competent jurisdiction. 
    Subd. 7.  [EXAMINATION REGARDING FINANCIAL CONDITION.] A 
risk retention group must submit to an examination by the 
commissioner to determine its financial condition if the 
commissioner of the jurisdiction in which the group is chartered 
has not initiated an examination or does not initiate an 
examination within 60 days after a request by the commissioner 
of commerce.  The examination must be coordinated to avoid 
unjustified repetition and conducted in an expeditious manner 
and in accordance with the National Association of Insurance 
Commissioner's Examiner Handbook. 
    Subd. 8.  [NOTICE TO PURCHASERS.] A policy issued by a risk 
retention group must 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 rules of your state.  State insurance 
insolvency guaranty funds are not available for your risk 
retention group. 
    Subd. 9.  [PROHIBITED ACTS REGARDING SOLICITATION OR SALE.] 
The following acts by a risk retention group are prohibited: 
    (1) the solicitation or sale of insurance by a risk 
retention group to a person who is not eligible for membership 
in the group; and 
    (2) the solicitation or sale of insurance by, or operation 
of, a risk retention group that is in a hazardous financial 
condition or is financially impaired. 
    Subd. 10.  [PROHIBITION ON OWNERSHIP BY AN INSURANCE 
COMPANY.] No risk retention group shall be allowed to do 
business in this state if an insurance company is directly or 
indirectly a member or owner of the risk retention group, other 
than in the case of a risk retention group all of whose members 
are insurance companies. 
    Subd. 11.  [PROHIBITED COVERAGE.] No risk retention group 
may offer insurance policy coverage prohibited by the insurance 
laws or rules of this state or declared unlawful by the highest 
court of this state. 
    Subd. 12.  [DELINQUENCY PROCEEDINGS.] A risk retention 
group not chartered in this state and doing business in this 
state must comply with a lawful order issued in a voluntary 
dissolution proceeding or in a delinquency proceeding commenced 
by a state insurance commissioner if there has been a finding of 
financial impairment after an examination under section 4, 
subdivision 7. 
    Sec. 5.  [60E.05] [COMPULSORY ASSOCIATIONS.] 
    No risk retention group shall be permitted to join or 
contribute financially to an 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 a benefit from the fund for claims arising out 
of the operations of the risk retention group. 
    A risk retention group shall participate in this state's 
joint underwriting associations and mandatory liability pools as 
provided by Minnesota Statutes, chapters 60A to 72A and 340A. 
    Sec. 6.  [60E.06] [COUNTERSIGNATURES NOT REQUIRED.] 
    A policy of insurance issued to a risk retention group or a 
member of that group shall not be required to be countersigned 
as otherwise provided in Minnesota Statutes, chapters 60A to 72A.
    Sec. 7.  [60E.07] [PURCHASING GROUPS; EXEMPTION FROM 
CERTAIN LAWS RELATING TO THE GROUP PURCHASE OF INSURANCE.] 
    A purchasing group meeting the criteria established under 
the Federal Liability Risk Retention Act of 1986 is exempt from 
any law of this state relating to the creation of groups for the 
purchase of insurance, prohibition of group purchasing or any 
law that would discriminate against a purchasing group or its 
members.  In addition, an insurer is exempt from any law of this 
state that prohibits providing, or offering to provide, to a 
purchasing group or its members advantages based on their loss 
and expense experience not afforded to other persons with 
respect to rates, policy forms, coverages, or other matters.  A 
purchasing group is subject to all other applicable laws of this 
state. 
    Sec. 8.  [60E.08] [NOTICE AND REGISTRATION REQUIREMENTS OF 
PURCHASING GROUPS.] 
    Subdivision 1.  [NOTICE TO COMMISSIONER.] A purchasing 
group that intends to do business in this state shall furnish 
notice to the commissioner which shall: 
    (1) identify the state in which the group is domiciled; 
    (2) specify the lines and classifications of liability 
insurance which the purchasing group intends to purchase; 
    (3) identify the insurance company from which the group 
intends to purchase its insurance and the domicile of the 
company; 
    (4) identify the principal place of business of the group; 
and 
    (5) provide other information required by the commissioner 
to verify that the purchasing group is qualified under section 
2, subdivision 11. 
    Subd. 2.  [SERVICE OF PROCESS.] 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.  These requirements do not apply to a purchasing group 
that: 
    (1) was domiciled before April 2, 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 Retention Act of 1981 before October 27, 1986; 
and 
    (4) does not purchase insurance that was not authorized for 
purposes of an exemption under the act referred to in clause 
(3), as in effect before October 27, 1986. 
    Sec. 9.  [60E.09] [RESTRICTIONS ON INSURANCE PURCHASED BY 
PURCHASING GROUPS.] 
    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 acting pursuant to the surplus lines laws and 
regulations of the state. 
    Sec. 10.  [60E.10] [ADMINISTRATIVE AND PROCEDURAL AUTHORITY 
REGARDING RISK RETENTION GROUPS AND PURCHASING GROUPS.] 
    The commissioner of commerce may use any of the powers 
established under the insurance laws and rules of this state to 
enforce the laws and rules of this state so long as those powers 
are not specifically preempted by the Product Liability Risk 
Retention Act of 1981, as amended by the Risk Retention 
Amendments of 1986.  This includes, but is not limited to, the 
commissioner's administrative authority to investigate, issue 
subpoenas, conduct depositions and hearings, issue orders, and 
impose penalties.  With regard to an investigation, 
administrative proceedings, or litigation, the commissioner can 
rely on the procedural law and rules of the state.  The 
injunctive authority of the commissioner in regard to risk 
retention groups is restricted by the requirement that an 
injunction be issued by a court of competent jurisdiction. 
    Sec. 11.  [60E.11] [PENALTIES.] 
    A risk retention group that violates a provision of this 
act will be subject to fines and penalties applicable to 
licensed insurers generally, including revocation of its license 
and/or the right to do business in this state. 
    Sec. 12.  [60E.12] [DUTY ON AGENTS OR BROKERS TO OBTAIN 
LICENSE.] 
    A person acting, or offering to act, as an agent or broker 
for a risk retention group or purchasing group, that solicits 
members, sells insurance coverage, purchases coverage for its 
members located within the state or otherwise does business in 
this state shall, before commencing this activity, obtain a 
license from the commissioner. 
    Sec. 13.  [60E.13] [BINDING EFFECT OF ORDERS ISSUED IN 
UNITED STATES DISTRICT COURT.] 
    An order issued by any district court of the United States 
enjoining a risk retention group from soliciting or selling 
insurance, or operating, in a state, or in all states or in a 
territory or possession of the United States, upon a finding 
that the group is in a hazardous financial condition shall be 
enforceable in the courts of the state. 
    Sec. 14.  [60E.14] [RULES.] 
    The commissioner may adopt rules relating to risk retention 
groups as may be necessary or desirable to carry out the 
provisions of this act. 
    Sec. 15.  [EFFECTIVE DATE.] 
    This act is effective on the day following enactment. 
    Approved May 20, 1987

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