The purpose of this chapter is to regulate the formation and the operation of risk retention groups and purchasing groups in this state formed pursuant to the federal Liability Risk Retention Act of 1986, to the extent permitted by federal law. This chapter shall be known and may be cited as the 'Alabama Risk Retention Act.'

Premium taxes and taxes on premiums paid for coverage of risks resident, or located in this state by a purchasing group, or any members of the purchasing groups shall be both:

(1) Imposed at the same rate and subject to the same interest, fines, and penalties as that applicable to premium taxes and taxes on premiums paid for similar coverage from a similar insurance source by other insureds.

(2) Paid first by the insurance source, and if not by that source, by the agent or broker for the purchasing group, and if not by the agent or broker then by the purchasing group, and if not by the purchasing group then by each of its members.

The commissioner is authorized to make use of any of the powers established under the Insurance Code of this state to enforce the laws of this state not specifically preempted by the Risk Retention Act of 1986, including the commissioner's administrative authority to investigate, issue subpoenas, conduct depositions and hearings, issue orders, impose penalties, and seek injunctive relief. With regard to any investigation, administrative proceedings, or litigation, the commissioner can rely on the procedural laws of this state. The injunctive authority of the commissioner, in regard to risk retention groups, is restricted by the requirement that any injunction be issued by a court of competent jurisdiction.

(a) Risk retention groups. Persons representing or aiding a risk retention group in the solicitation or negotiation of liability insurance in this state and the risk retention group with respect thereto shall be subject to Chapters 7 and 8A of this title.

(b) Purchasing groups.

(1) No person, firm, association, or corporation shall act or aid in any manner in soliciting, negotiating, or procuring liability insurance in this state for a purchasing group from an authorized insurer or a risk retention group chartered in a state unless the person, firm, association, or corporation is licensed as an insurance producer in accordance with Chapter 7, commencing with Section 27-7-1, of this title.

(2) No person, firm, association, or corporation shall act or aid in any manner in soliciting, negotiating, or procuring liability insurance coverage in this state for any member of a purchasing group under a purchasing group's policy unless that person, firm, association, or corporation is licensed as an insurance producer in accordance with Chapter 7, commencing with Section 27-7-1, of this title.

(3) No person, firm, association, or corporation shall act or aid in any manner in soliciting, negotiating, or procuring liability insurance from an insurer not authorized to do business in this state on behalf of a purchasing group located in this state unless the person, firm, association, or corporation is licensed as a surplus line broker in accordance with Chapter 10, commencing with Section 27-10-1, of this title.

(c) Residence requirement. For purposes of acting as a producer for a risk retention group or purchasing group, pursuant to subsections (a) and (b), any requirement of residence in this state shall not apply.

(d) Notice. Every person, firm, association, or corporation licensed, pursuant to the provisions of Chapter 7, commencing with Section 27-7-1, of this title, on business placed with risk retention groups or written through a purchasing group, shall inform each prospective insured of the provisions of the notice required by subdivision (6) of Section 27-31A-4 in the case of a risk retention group and subsection (b) of Section 27-31A-9 in the case of a purchasing group.

An order issued by any district court of the United States 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 that the group is in hazardous financial or financially impaired condition shall be enforceable in the courts of the state.

This chapter shall not apply to any liability self-insurance fund established by counties pursuant to Title 11, Chapter 30.

The commissioner may promulgate and enforce, and from time to time amend, the rules and regulations relating to risk retention groups as may be necessary to carry out this chapter.

As used in this chapter, the following terms shall have the following meanings, respectively, unless the context clearly indicates otherwise:

(1) COMMISSIONER. The Insurance Commissioner of this state or the commissioner, director, or superintendent of insurance in any other state.

(2) COMPLETED OPERATIONS LIABILITY. Liability arising out of the installation, maintenance, or repair of any product at a site which is not owned or controlled by either of the following:

a. Any person who performs that work.

b. Any person who hires an independent contractor to perform that work, but shall include liability for activities which are completed or abandoned before the date of the occurrence giving rise to the liability.

(3) DOMICILE. For purposes of determining the state in which a purchasing group is domiciled:

a. For a corporation, the state in which the purchasing group is incorporated.

b. For an unincorporated entity, the state of its principal place of business.

(4) HAZARDOUS FINANCIAL CONDITION. 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 do either of the following:

a. To meet obligations to policyholders with respect to their own claims and reasonably anticipated claims.

b. To pay other obligations in the normal course of business.

(5) INSURANCE. 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.

(6) LIABILITY.

a. 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 either of the following:

1. Any business, whether profit or nonprofit, trade, product, services, including professional services, premises, or operations.

2. Any activity of any state or local government, or any agency, or political subdivision thereof.

b. Liability 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.

(7) PERSONAL RISK LIABILITY. Liability for damages because of injury to any person, damage to property, or other loss or damage resulting from any personal, familial, or household responsibilities or activities, rather than from responsibilities or activities referred to in subdivisions (6)a. and b. of this section.

(8) PLAN OF OPERATION or FEASIBILITY STUDY. An analysis which presents the expected activities and results of a risk retention group including at a minimum all of the following:

a. Information sufficient to verify that its members are engaged in businesses or activities similar or related with respect to the liability to which the members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations.

b. For each state in which it intends to operate, the coverages, deductibles, coverage limits, rates, and rating classification systems for each line of insurance the group intends to offer.

c. Historical and expected loss experience of the proposed members and national experience of similar exposures to the extent that this experience is reasonably available.

d. Pro forma financial statements and projections.

e. 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.

f. Identification of management, underwriting and claims procedures, marketing methods, managerial oversight methods, investment policies, and reinsurance agreements.

g. Identification of each state in which the risk retention group has obtained, or sought to obtain, a charter and license, and a description of its status in each state.

h. Other matters as may be prescribed by the Commissioner of Insurance, or like official, in which the risk retention group is chartered for liability insurance companies authorized by the insurance laws of that state.

(9) PRODUCT LIABILITY. Liability for damages because of any 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 any person for those damages if the product involved was in the possession of the person when the incident giving rise to the claim occurred.

(10) PURCHASING GROUP. Any group which meets all of the following:

a. Has as one of its purposes the purchase of liability insurance on a group basis.

b. Purchases the insurance only for its group members and only to cover their similar or related liability exposure, as described in subdivision (10)c.

c. Is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations.

d. Is domiciled in any state.

(11) RISK RETENTION GROUP. Any corporation or other limited liability association which meets all of the following:

a. Its primary activity consists of assuming and spreading all, or any portion, of the liability exposure of its group members.

b. It is organized for the primary purpose of conducting the activity described under subdivision (11)a.

c. It is either of the following:

1. Chartered and licensed as a liability insurance company and authorized to engage in the business of insurance under the laws of any state.

2. Before January 1, 1985, it 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 any such group shall be considered to be a risk retention group only if it has been engaged in business continuously since such date and only for the purpose of continuing to provide insurance to cover product liability or completed operations liability, as the terms were defined in the Product Liability Risk Retention Act of 1981 before the date of the enactment of the Liability Risk Retention Act of 1986.

d. It does not exclude any person from membership in the group solely to provide for their members a competitive advantage over the person denied.

e. It either:

1. Has as its owners only persons who comprise the membership of the risk retention group and who are provided insurance by the group.

2. Has as its sole owner an organization which has as:

(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 that group.

f. Its 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.

g. Its activities do not include providing insurance other than both of the following:

1. Liability insurance for assuming and spreading all or any portion of the liability of its group members.

2. Reinsurance with respect to the liability of any other risk retention group, or any members of that other group, which is engaged in businesses or activities so that the group or member meets the requirement described in subdivision (6), a. and b. from membership in the risk retention group which provides the reinsurance.

h. The name of which includes the phrase 'Risk Retention Group.'

(12) STATE. Any state of the United States or the District of Columbia.

(a) A risk retention group shall, pursuant to Title 27, be chartered and licensed to write only liability insurance pursuant to this chapter and, except as provided elsewhere in this chapter, shall comply with all of the laws, rules, regulations, and requirements applicable to the insurers chartered and licensed in this state and with Section 27-31A-4, to the extent the requirements are not a limitation on laws, rules, regulations, or requirements of this state.

(b) Before it may offer insurance in any state, each risk retention group shall also submit for approval to the Commissioner of Insurance a plan of operation or feasibility study. The risk retention group shall submit an appropriate revision in the event of any subsequent material change in any item of the plan of operation or feasibility study within 10 days of the change. The group shall not offer any additional kinds of liability insurance, in this state or in any other state, until a revision of the plan or study is approved by the commissioner.

(c) At the time of filing its application for charter, the risk retention group shall provide to the commissioner in summary form the following information: the identity of the initial members of the group, the identity of those individuals who organized the group or who will provide administrative services, or otherwise influence or control the activities of the group, the amount and nature of initial capitalization, the coverages to be afforded, and the states in which the group intends to operate. Upon receipt of this information, the commissioner shall forward the information to the National Association of Insurance Commissioners. Notification to the National Association of Insurance Commissioners is in addition to and shall not be sufficient to satisfy the requirements of Section 27-31A-4 or any other sections of this chapter.

Risk retention groups chartered and licensed in states other than this state and seeking to do business as a risk retention group in this state shall comply with the laws of this state as follows:

(1) Notice of operations and designation of commissioner as agent.

a. Before offering insurance in this state, a risk retention group shall submit to the commissioner both of the following:

1. A statement identifying the state or states in which the risk retention group is chartered and licensed as a liability insurance company, charter date, its principal place of business, and other information, including information on its membership, as the commissioner of this state may require to verify that the risk retention group is qualified pursuant to subdivision (11) of Section 27-31A-2.

2. A copy of its plan of operations or feasibility study and revisions of the plan or study submitted to the state in which the risk retention group is chartered and licensed, provided that the provision relating to the submission of a plan of operation or feasibility study shall not apply with respect to any line or classification of liability insurance which was both:

(i) Defined in the Product Liability Risk Retention Act of 1981 before October 27, 1986.

(ii) Offered before that date by any risk retention group which had been chartered and operating for not less than three years before that date.

b. The risk retention group shall submit a copy of any revision to its plan of operation or feasibility study required by subsection (b) of Section 27-31A-3 at the same time that the revision is submitted to the commissioner of its chartering state.

c. The risk retention group shall designate the commissioner as its agent for the purpose of receiving service of legal documents or process with a statement of registration, for which a filing fee shall be determined by the commissioner.

(2) Financial condition. - Any risk retention group doing business in this state shall submit to the commissioner all of the following:

a. A copy of the group's financial statement submitted to the state in which the risk retention group is chartered and licensed which shall be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves made by a member of the American Academy of Actuaries, or a qualified loss reserve specialist, under criteria established by the National Association of Insurance Commissioners.

b. A copy of each examination of the risk retention group as certified by the commissioner or public official conducting the examination.

c. Upon request by the commissioner, a copy of any information or document pertaining to any outside audit performed with respect to the risk retention group.

d. Information as may be required to verify its continuing qualification as a risk retention group pursuant to subdivision (11) of Section 27-31A-2.

(3) Taxation.

a. Each risk retention group shall be liable for the payment of premium taxes and taxes on premiums of direct business for risks resident or located within this state, and shall report to the commissioner the net premiums written for risks resident or located within this state. The risk retention group shall be subject to taxation, and any applicable fines and penalties related thereto, on the same basis as a foreign admitted insurer.

b. To the extent licensed agents or brokers are utilized pursuant to Section 27-31A-12, they shall report to the commissioner the premiums for direct business for risks resident or located within this state which the licensees have placed with or on behalf of a risk retention group not chartered in this state.

c. To the extent that insurance agents or brokers are utilized pursuant to Section 27-31A-12, any agent or broker shall keep a complete and separate record of all policies procured from each risk retention group, which record shall be open to examination by the commissioner, as provided in Section 27-2-20. These records shall, for each policy and each kind of insurance provided thereunder, include the following:

1. The limit of liability.

2. The time period covered.

3. The effective date.

4. The name of the risk retention group which issued the policy.

5. The gross premium charged.

6. The amount of return premiums, if any.

(4) Compliance with Trade Practices Law. - Any risk retention group, its agents, and representatives shall comply with the Trade Practices Law, Chapter 12 (commencing with Section 27-12-1), Title 27, regarding deceptive, false, or fraudulent acts or practices. If the commissioner seeks an injunction regarding that conduct, the injunction shall be obtained from a court of competent jurisdiction.

(5) Examination regarding financial condition. - Any risk retention group shall submit to an examination by the commissioner to determine its financial condition if the commissioner of the jurisdiction in which the group is chartered and licensed has not initiated an examination or does not initiate an examination within 60 days after a request by the commissioner of this state. The examination shall be coordinated to avoid unjustified repetition and conducted in an expeditious manner and in accordance with the Examiner Handbook of the National Association of Insurance Commissioners.

(6) Notice to purchasers. - Every application form for insurance from a risk retention group, and every policy, on its front and declaration pages, issued by a risk retention group, shall contain in ten point type the following notice:

NOTICE

'This policy is issued by your risk retention group. Your risk retention group may not be subject to all of the insurance laws and regulations of your state. State insurance insolvency guaranty funds are not available for your risk retention group.'

(7) Prohibited acts regarding solicitation or sale. - The following acts by a risk retention group are prohibited:

a. The solicitation or sale of insurance by a risk retention group to any person who is not eligible for membership in the group.

b. The solicitation or sale of insurance by, or operation of, a risk retention group that is in hazardous financial condition or financially impaired.

(8) 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 numbers are insurance companies.

(9) Prohibited coverage. - The terms of any insurance policy issued by any risk retention group shall not provide, or be construed to provide, coverage prohibited generally by statute of this state or declared unlawful by the highest court of this state whose law applies to that policy.

(10) Delinquency proceedings. - A risk retention group not chartered in this state and doing business in this state shall 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 subdivision (5) of this section.

(11) Penalties. - A risk retention group that violates this chapter will be subject to fines and penalties including revocation of its right to do business in this state, applicable to licensed insurers generally.

(12) Operation prior to enactment of this chapter. - In addition to complying with this section, any risk retention group operating in this state prior to enactment of this chapter shall, within 30 days after May 17, 1993, comply with subdivision (1)a of this section.

(a) No risk retention group shall be required or permitted to join or contribute financially to any insurance insolvency guaranty fund, or similar mechanism, in this state, nor shall any risk retention group, or its insureds or claimants against its insureds, receive any benefit from any fund for claims arising under the insurance policies issued by that risk retention group.

(b) When a purchasing group obtains insurance covering its members' risks from an insurer, not authorized in this state or a risk retention group, no risk, wherever resident or located, shall be covered by any insurance guaranty fund or similar mechanism in this state.

(c) When a purchasing group obtains insurance covering its members' risks from an authorized insurer, only risks resident or located in this state shall be covered by the Alabama Insurance Guaranty Association, subject to Chapter 42 (commencing with Section 27-42-1), Title 27.

(d) Notwithstanding Article 2 (commencing with Section 27-26-20), Chapter 26, Title 27, the commissioner may require or exempt a risk retention group from participating in any mechanism established or authorized under the law of this state for the equitable apportionment among insurers of casualty insurance losses and expenses incurred on policies written through that mechanism. The risk retention group shall submit sufficient information to the commissioner to enable the commissioner to apportion on a nondiscriminatory basis the risk retention group's proportionate share of any losses and expenses.

A policy of insurance issued to a risk retention group, or any member of that group, shall not be required to be countersigned as otherwise provided in Section 27-3-28 or 27-7-28.

A purchasing group and its insurer or insurers shall be subject to all applicable laws of this state, except that a purchasing group and its insurer or insurers shall be exempt, in regard to casualty insurance for the purchasing group, from any law that would do any of the following:

(1) Prohibit the establishment of a purchasing group.

(2) Make it unlawful for an insurer to provide or offer to provide insurance on a basis providing, 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.

(3) Prohibit a purchasing group or its members from purchasing insurance on a group basis described in subdivision (2) of this section.

(4) Prohibit a purchasing group from obtaining insurance on a group basis because the group has not been in existence for a minimum period of time or because any member has not belonged to the group for a minimum period of time.

(5) Require that a purchasing group must have a minimum number of members, common ownership or affiliation, or certain legal form.

(6) Require that a certain percentage of a purchasing group must obtain insurance on a group basis.

(7) Otherwise discriminate against a purchasing group or any of its members.

(8) Require that any insurance policy issued to a purchasing group or any of its members be countersigned by an insurance agent or broker residing in this state.

(a) A purchasing group which intends to do business in this state shall, prior to doing business, furnish notice to the commissioner which shall include all of the following:

(1) Identify the state in which the group is domiciled.

(2) Identify all other states in which the group intends to do business.

(3) Specify the lines and classifications of liability insurance which the purchasing group intends to purchase.

(4) Identify the insurance company or companies from which the group intends to purchase its insurance and the domicile of any company.

(5) Specify the method by which, and the person or persons, if any, through whom insurance will be offered to its members whose risks are resident or located in this state.

(6) Identify the principal place of business of the group.

(7) Provide other information as may be required by the commissioner to verify that the purchasing group is qualified under subdivision (10) of Section 27-31A-2.

(b) A purchasing group shall, within 10 days, notify the commissioner of any changes in any of the items set forth in subsection (a) of this section.

(c) The purchasing group shall register with and designate the commissioner, or other appropriate authority, as its agent solely for the purpose of receiving service of legal documents or process, for which a filing fee shall be determined by the commissioner, except that the requirements shall not apply in the case of a purchasing group which only purchases insurance that was authorized under the federal Products Liability Risk Retention Act of 1981, and:

(1) Which in any state of the United States:

a. Was domiciled before April 1, 1986, and

b. Is domiciled on and after October 27, 1986;

(2) Which:

a. Before October 27, 1986, purchased insurance from an insurance carrier licensed in any state, and

b. Since October 27, 1986, purchased its insurance from an insurance carrier licensed in any state; and

(3) Which was a purchasing group under the requirements of the Product Liability Risk Retention Act of 1981 before October 27, 1986.

(d) Each purchasing group that is required to give notice pursuant to subsection (a) of this section shall also furnish the information as may be required by the commissioner to do all of the following:

(1) Verify that the entity qualifies as a purchasing group.

(2) Determine where the purchasing group is located.

(3) Determine appropriate tax treatment.

(e) Any purchasing group which was doing business in this state prior to the enactment of this chapter shall, within 30 days after May 17, 1993, furnish notice to the commissioner pursuant to subsection (a) of this section and furnish information, as may be required, pursuant to subsections (b) and (c) of this section.

(a) 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.

(b) A purchasing group which obtains casualty insurance from an insurer not admitted in this state, or a risk retention group, shall inform each of the members of the group which have a risk resident or located in this state that the risk is not protected by an insurance insolvency guaranty fund in this state, and that the risk retention group or that insurer may not be subject to all insurance laws and regulations of this state.

(c) No purchasing group may purchase insurance providing for a deductible or self-insured retention applicable to the group as a whole. Coverage may provide for a deductible or self-insured retention applicable to individual members.

(d) Purchases of insurance by purchasing groups are subject to the same standards regarding aggregate limits which are applicable to all purchases of group insurance.