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Current Status Bill Number:View additional legislative information at the LPITS web site.4897 Type of Legislation:General Bill GB Introducing Body:House Introduced Date:20020313 Primary Sponsor:Cato All Sponsors:Cato Drafted Document Number:l:\council\bills\skb\18255zcw02.doc Residing Body:House Current Committee:Labor, Commerce and Industry Committee 26 HLCI Subject:Nursing home insurance, joint underwriting association established for the underwriting of History Body Date Action Description Com Leg Involved ______ ________ ______________________________________ _______ ____________ House 20020313 Introduced, read first time, 26 HLCI referred to Committee Versions of This Bill
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING CHAPTER 94 TO TITLE 38 RELATING TO INSURANCE, SO AS TO ESTABLISH A JOINT UNDERWRITING ASSOCIATION FOR THE WRITING OF NURSING HOME INSURANCE.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Title 38 of the 1976 Code is amended by adding:
Section 38-94-10. The purposes of this chapter are to:
(1) promote the public welfare by establishing a mechanism to provide medical malpractice liability insurance to those required to have such insurance;
(2) provide controls over such mechanism in order to lower expenses and prevent abuses;
(3) provide for competitive bidding of servicing carriers or managers; and
(4) provide controls over the application process to prevent fraud and inaccuracies as well as other improper practices.
Section 38-94-20. As used in this chapter:
(1) 'Association' means any joint underwriting association established pursuant to this chapter.
(2) 'Licensed health care providers' means physicians and surgeons, nurses, oral surgeons, dentists, pharmacists, chiropractors, podiatrists, hospitals, nursing homes, or any similar major category of licensed health care providers.
(3) 'Medical malpractice insurance' means medical professional liability insurance or insurance protection against the legal liability of the insured and against loss, damage, or expense incident to a claim arising out of the death or injury of any person as the result of negligence or malpractice in rendering or failing to render professional service by any licensed physician, licensed health care provider, or hospital.
(4) 'Net direct premiums' means gross direct premiums written on bodily injury liability insurance, other than automobile liability insurance, homeowners liability insurance, and farmowners liability insurance, including the liability component of multiple peril package policies, as computed by the director, or his designee, less return premiums or the unused or unabsorbed portions of premium deposits.
Section 38-94-30. (A) A joint underwriting association is created, consisting of all insurers authorized to write within this State, on a direct basis commercial multiple peril (liability portion), medical malpractice, and other liability. Every such insurer is and must remain a member of the association as a condition of its authority to continue to transact this kind of insurance in this State.
(B) The purpose of the association is to provide professional liability insurance on a self-supporting basis to the fullest extent possible.
(C) The association is activated when the Department of Insurance finds and declares the existence of an emergency because of the unavailability of professional liability insurance or the unavailability of such insurance on a reasonable basis through normal channels.
Section 38-94-40. The association has the power on behalf of its members to:
(1) issue, or cause to be issued, policies of insurance to applicants including incidental coverages including, but not limited to, premises or operations liability coverage on the premises where services are rendered, all subject to limits of liability as specified in the plan of operation but not to exceed five hundred thousand dollars for each claimant under one policy and one million dollars for all claimants under one policy in any one year;
(2) underwrite professional liability insurance and to adjust and pay losses with respect thereto or to appoint service companies to perform those functions; and
(3) cede and assume reinsurance.
Section 38-94-50. The association is encouraged to pursue reinsurance relationships where risk of loss is transferred to the reinsurer.
Section 38-94-60. (A) Upon application by the members of a professional association seeking creation of a joint underwriting association, the Department of Insurance shall promulgate a plan of operation consistent with this chapter. The plan of operation is operative no later than thirty days after the declaration of an emergency by the Department of Insurance.
(B) The plan of operation shall provide for economic, fair, and nondiscriminatory administration and for the prompt and efficient provision of professional liability insurance and may contain other provisions including, but not limited to, preliminary assessment of all members for initial expenses necessary to commence operations, establishment of necessary facilities, management of the association, assessment of the members to defray losses and expenses, commission arrangements, reasonable and objective underwriting standards, acceptance and cession of reinsurance, appointment of servicing carriers, and procedures for determining amounts of insurance to be provided by the association.
(C) The plan of operation shall provide that any profit achieved by the association must be added to the reserves of the association or returned to the policyholders as a dividend but under no circumstances whatsoever shall any profit be paid over to or received by an insurer either in currency or any other benefit of any kind. The plan of operation shall include a provision that surplus shall be accumulated over time to a level where the premium to surplus ratio is two to one.
(D) Amendments to the plan of operation may be made by the directors of the association with the approval of the director, or his designee, or must be made at the direction of the director, or his designee, after proper notice and public hearing.
Section 38-94-70. (A) Upon the activation of the plan of operation, any professional licensed in this State is entitled to apply to the association for coverage. The application shall be made on behalf of the applicant by a licensed agent or broker authorized in writing by the applicant.
(B) If the association determines that the applicant meets the underwriting standards of the association as set forth in the approved plan of operation and there is no unpaid, uncontested premium due from the applicant for any prior insurance of the same kind, the association, upon receipt of the premium, or a portion thereof as prescribed by the plan of operation, shall cause to be issued a policy of professional liability insurance for a term of one year.
(C) The rates, rating plans, rating rules, rating classifications, territories, and policy forms applicable to insurance written by the association and the statistical and experience data relating thereto are subject to this chapter and to those provisions of Chapter 73, Title 38, Code of Laws of South Carolina, 1976, which are not inconsistent with this chapter.
Section 38-94-80. The director, or his designee, may obtain complete statistical data in respect to professional liability losses and reparation costs as well as all other costs or expenses which underlie or are related to professional liability insurance. The director, or his designee, may promulgate any statistical plan he considers necessary for the purpose of gathering data referable to loss and loss adjustment expense experience and other expense experience. When the statistical plan is promulgated all members of the association shall adopt and use it. The director, or his designee, also may obtain statistical data in respect to the costs of compensating victims of professional liability. The director, or his designee, may require from any person obtaining insurance through the association loss, claim, or expense data.
Section 38-94-90. Within a time that the director, or his designee, directs, the association shall submit, for the approval of the director, or his designee, an initial filing, in proper form, of policy forms, classifications, rates, rating plans, and rating rules applicable to professional liability insurance to be written by the association. If the director, or his designee, disapproves the initial filing, in whole or in part, the association shall amend the filing, in whole or in part, in accordance with the direction of the director, or his designee. If the director, or his designee, is unable to approve the filing or amended filing, within the time specified, he shall promulgate the policy forms, classifications, rates, rating plans, and rules to be used by the association in making rates for and writing the insurance.
Section 38-94-100. (A) Policy forms and rate structure must be on a claims made basis and coverage provided by the association only on that basis.
(B) The policy may not contain any limitation in relation to the existing law in tort as provided by the statute of limitations of this State.
(C) The policy form shall not require as a condition precedent to settlement or compromise of any claim the consent or acquiescence of the insured. However, such settlement or compromise is not considered an admission of fault or wrongdoing by the insured.
(D) The premium rate charged for coverage must be at rates established on an actuarially sound basis, including consideration of trends in the frequency and severity of losses and must be calculated to be self-supporting.
Section 38-94-110. The association may provide a rate increase or assessment subject to the approval of the director, or his designee.
Section 38-94-120. Any deficit sustained by the association in any year must be recouped, pursuant to the plan of operation and the rating plan then in effect, by one or both of the following procedures:
(1) an assessment upon the policyholders, which may not exceed one additional annual premium at the then current rate;
(2) a rate increase applicable prospectively.
Section 38-94-130. (A) After the initial year of operation, rates, rating plans, and rating rules, and any provision for recoupment through policyholder assessment or premium rate increase must be based upon the association's loss and expense experience and investment income, together with any other information based upon this experience and income as the director, or his designee, considers appropriate. The resultant premium rates must be on an actuarially sound basis and must be calculated to be self-supporting.
(B) If sufficient funds are not available for the sound financial operation of the association, pending recoupment as provided in Section 38-83-110, all members, on a temporary basis, shall contribute to the financial requirements of the association in the manner provided for in Section 38-83-130. Any such contribution must be reimbursed to the members following recoupment as provided in Section 38-94-110.
Section 38-94-140. (A) All insurers which are members of the association shall participate in its writings, expenses, and losses in the proportion that the net direct premiums of each member, excluding that portion of premiums attributable to the operation of the association, written during the preceding calendar year bear to the aggregate net direct premiums written in this State by all members of the association. Each insurer's participation in the association must be determined annually on the basis of the net direct premiums written during the preceding calendar year, as reported in the annual statements and other reports filed by the insurer with the Department of Insurance. The assessment of a member insurer, after hearing, may be ordered deferred in whole or in part upon application by the insurer if, in the opinion of the director, or his designee, payment of the assessment may render the insurer insolvent or in danger of insolvency or otherwise may leave the insurer in a condition that further transaction of the insurer's business may be hazardous to its policyholders, creditors, members, subscribers, stockholders, or the public.
(B) If payment of an assessment against a member insurer is deferred by order of the director, or his designee, in whole or in part, the amount by which the assessment is deferred must be assessed against other member insurers in the same manner as provided in this section. In the order of deferral or in subsequent orders as may be necessary, the director, or his designee, shall prescribe a plan by which the assessment deferred must be repaid to the association by the impaired insurer with interest at the six-month treasury bill rate adjusted semiannually. Profits, dividends, or other funds of the association to which the insurer is otherwise entitled may not be distributed to the impaired insurer but must be applied toward repayment of any assessment until the obligation has been satisfied. The association shall distribute the repayments, including interest on them, to the other member insurers on the basis on which assessments were made.
(C) An assessment made for the purpose of starting the joint underwriting association shall be repaid to insurers if approved by the director, or his designee.
Section 38-94-150. Every member of the association is bound by the approved plan of operation of the association and the rules of the board of directors of the association.
Section 38-94-160. (A) If the authority of an insurer to transact commercial multiple peril (liability portion), medical malpractice, and other liability, in this State terminates for any reason, its obligations as a member of the association continue until all its obligations are fulfilled and the director, or his designee, has so found and certified to the board of directors.
(B) If a member insurer merges into or consolidates with another insurer authorized to transact insurance in this State or another insurer authorized to transact insurance in this State has reinsured the insurer's entire general liability business in this State, both the insurer and its successor or assuming reinsurer, as the case may be, are liable for the insurer's obligations to the association.
(C) Any unsatisfied net liability of any insolvent member of the association must be assumed by and apportioned among the remaining members in the same manner in which assessments or gain and loss are apportioned and the association shall acquire and have all rights and remedies allowed by law in behalf of the remaining members against the estate or funds of the insolvent insurer for funds due the association.
Section 38-94-170. (A) The initial board shall consist of two individuals who are licensed agents or brokers and one consumer representative to be appointed by the director, or his designee, two members representing multiple facility operators which shall be defined as any company operating five or more facilities in South Carolina; two independent operators which shall be defined as any company operating less than five facilities in South Carolina, two representatives of facilities designated as nonprofit or hospital related, two members representing insurers and one member from the Department of Insurance. All board members must be appointed by the director, or his designee.
(B) The American Insurance Association, the Alliance of American Insurers, the South Carolina Health Care Association and the National Association of Independent Insurers and any individual, group, or insurance agent trade or professional association may nominate qualified individuals for consideration.
(C) The terms of office for the initial and subsequent members of the board shall be as provided in the plan of operation. Members of the board must be appointed for the terms specified in the plan and shall serve until their successors are appointed and qualify. Any vacancy must be filled for the unexpired term only. Such plan shall provide for the appointment by the director of three individuals who are licensed as agents or brokers in this State.
(D) The approved plan of operation of the association may make provision for combining insurers under common ownership or management into groups for voting, assessment, and all other purposes and may provide that not more than one of the officers or employees of such a group may serve as a director at any one time. The Director of the Department of Insurance is chairman of the board of directors, ex officio, and he, or his designee, must preside at all meetings of the board but has no vote except in the case of a tie.
Section 38-94-180. Any applicant for an association policy, any person insured under such a policy, and any member of the association may request a hearing pursuant to the plan of operations approved by the director, or his designee.
Section 38-94-190. (A) The association shall file in the office of the Department of Insurance annually by March first a statement containing information with respect to its transactions, condition, operations, and affairs during the preceding year. The statement shall contain information prescribed by the director, or his designee, and must be in the form he directs.
(B) The director, or his designee, at any reasonable time, may require the association to furnish additional information concerning its transactions, condition, or any matter connected therewith considered to be material and of assistance in evaluating the scope, operations, and experience of the association.
Section 38-94-200. The director, or his designee, shall make an examination into the financial condition and affairs of the association at least once every three years and shall file a report thereon with the Department of Insurance, the Governor, and the General Assembly. The expenses of the examination must be paid by the association.
Section 38-94-210. The servicing carriers or managers for the association may be competitively bid as provided for in this subsection. If the carriers or managers are competitively bid, then the director, or his designee, must appoint a committee or committees of individuals as he considers qualified to establish standards and procedures for the consideration and evaluation of bids. The committee must include incentive and disincentive programs that encourage proper claims processing of policies and claims handling. Insurers, or other vendors in conjunction with a licensed insurer, may submit bids. The committee or committees must evaluate and award contracts pursuant to the final approval of the director, or his designee. The director may require a bid fee to cover the expenses of implementing this section. A servicing carrier or manager may be an entity other than a licensed insurance carrier if that entity can prove to the satisfaction of the director that it has the experience and capability to perform the duties of a servicing carrier or manager.
Section 38-94-220. Meetings of the board and its committees will be conducted in accordance with Chapter 4 of Title 30, the South Carolina Freedom of Information Act. Meetings of the board and its committees will be public unless the matter being discussed is one for which a public body is permitted to hold a closed meeting under Section 30-4-70, in which event, the board or committee as applicable, may enter executive session for the purpose of considering the matter. The board, upon the majority vote of the members present, may by roll call vote call for consideration of the matter in executive session. However, if it is determined either by the chair or by a majority of the board that the matter is not properly the subject of an exception to the South Carolina Freedom of Information Act, the board shall discontinue consideration of the matter and move on to other matters, if any, appropriate for discussion in executive session. Thereafter, the chair, or other presiding official, shall terminate the executive session and reconvene the public session for consideration of matters requiring action. Only members of the board or committee may remain for executive sessions unless the board or committee deems otherwise and requests such other person(s) to be in attendance.
Section 38-94-230. The director, or his designee, may survey the market from time to time to determine market conditions. The director, or his designee, may permit the joint underwriting association to merge into a mutual insurance company pursuant to Title 38, Chapter 19. The transaction shall be considered a merger under Section 38-19-815."
SECTION 2. This act takes effect upon approval by the Governor.
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