H*2019 Session 107 (1987-1988)
H*2019(Rat #0379, Act #0360 of 1988) General Bill, By J.D. Bradley, Boan and
P.T. Bradley
Similar(S 103)
A Bill to provide a plan for the writing of legal professional liability
insurance for attorneys through a Joint Underwriting Association upon a
finding of an emergency by the Insurance Commission because this insurance is
not available through normal channels or at a reasonable cost.
12/03/86 House Prefiled
12/03/86 House Referred to Committee on Labor, Commerce and Industry
01/13/87 House Introduced and read first time HJ-31
01/13/87 House Referred to Committee on Labor, Commerce and
Industry HJ-32
01/12/88 House Committee report: Favorable Labor, Commerce and
Industry HJ-217
01/13/88 House Amended HJ-354
01/13/88 House Read second time HJ-354
01/14/88 House Read third time and sent to Senate HJ-408
01/19/88 Senate Introduced and read first time SJ-13
01/19/88 Senate Referred to Committee on Banking and Insurance SJ-1
02/18/88 Senate Committee report: Favorable Banking and Insurance SJ-10
02/24/88 Senate Read second time SJ-52
02/25/88 Senate Read third time and enrolled SJ-23
03/08/88 Ratified R 379
03/14/88 Signed By Governor
03/14/88 Effective date 03/14/88
03/14/88 Act No. 360
03/22/88 Copies available
(A360, R379, H2019)
AN ACT TO PROVIDE A PLAN FOR THE WRITING OF LEGAL PROFESSIONAL LIABILITY
INSURANCE FOR ATTORNEYS THROUGH A JOINT UNDERWRITING ASSOCIATION UPON A FINDING
OF AN EMERGENCY BY THE INSURANCE COMMISSION BECAUSE THIS INSURANCE IS NOT
AVAILABLE THROUGH NORMAL CHANNELS OR AT A REASONABLE COST.
Be it enacted by the General Assembly of the State of South Carolina:
Findings
SECTION 1. The General Assembly declares that there exists the potential for a
legal professional liability insurance crisis for attorneys in this State because
of the high cost of liability insurance and a want of competition. These
conditions could result in a situation in which liability insurance would not be
available to attorneys in the State.
The public interest requires that a contingency program for providing legal
professional liability insurance be enacted and that the Insurance Commission of
South Carolina (Commission) activate this program upon finding that an emergency
exists because insurance is not available through normal channels or is not
available on a reasonable basis because of lack of competition or otherwise.
Definitions
SECTION 2. As used in this act:
(1) "Association" means any joint underwriting association
established pursuant to this act.
(2) "Legal professional liability insurance" means insurance
protection against the legal liability of the insured and against loss, damage,
or expense incident to a claim arising out of legal service to or representation
of any person as the result of negligence or malpractice in rendering or failing
to render professional service.
(3) "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 Chief
Insurance Commissioner (Commissioner) less return premiums or the unused or
unabsorbed portions of premium deposits.
Joint underwriting association created
SECTION 3. (A) A Joint underwriting association is created, consisting of all
insurers authorized to write within this State, on a direct basis, bodily injury
liability insurance, other than automobile bodily injury liability insurance,
homeowners liability insurance, and farmowners liability insurance, including
insurers covering such peril in multiple peril package policies. 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 legal professional liability
insurance on a self-supporting basis to the fullest extent possible.
(C) The association is activated when the Commission finds and declares the
existence of an emergency because of the unavailability of legal professional
liability insurance or the unavailability of such insurance on a reasonable basis
through normal channels.
Powers of association
SECTION 4. 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 such as, 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
million dollars for all claimants under one policy in any one year;
(2) underwrite legal professional liability insurance and to adjust and pay
losses with respect thereto or to appoint service companies to perform those
functions;
(3) cede and assume reinsurance.
Plan of operation
SECTION 5. (A) Not less than thirty nor more than ninety days after the effective
date of this act the Commissioner, after consultation with the members of the
association, representatives of the public, the South Carolina Bar, and other
affected individuals and organizations, shall promulgate a plan of operation
consistent with this act. The plan of operation becomes effective and operative
no later than thirty days after the declaration of an emergency by the
Commission. (B) The Plan of operation shall provide for economic, fair, and
nondiscriminatory administration and for the prompt and efficient provision of
legal 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.
(D) Amendments to the plan of operation may be made by the directors of the
association with the approval of the Commissioner or must be made at the
direction of the Commissioner after proper notice and public hearing.
Legal professional liability insurance coverage by association
SECTION 6. Upon the activation of the plan of operation, any attorney licensed
in this State is entitled to apply to the association for coverage. The
application may be made on behalf of the applicant by a licensed agent or broker
authorized in writing by the applicant. 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 legal professional liability
insurance for a term of one year.
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 act and to
those provisions of Chapter 73, Title 38, Code of Laws of South Carolina, 1976,
which are not inconsistent with this act.
Gathering of data
SECTION 7. The Commissioner shall obtain complete statistical data in respect to
legal professional liability losses and reparation costs as well as all other
costs or expenses which underlie or are related to legal professional liability
insurance. The Commissioner shall 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
Commissioner also shall obtain statistical data in respect to the costs of
compensating victims of legal professional liability. The Commissioner may
require from any person obtaining insurance through the association loss, claim,
or expense data. This information or data is confidential and the attorney-client
privilege must be preserved.
Structuring rates
SECTION 8. In structuring rates for legal professional liability insurance and
determining the profit or loss of the association in respect to such insurance,
consideration must be given by the Commissioner to all investment income.
Filing of forms
SECTION 9. Within a time that the Commissioner directs, the association shall
submit, for the Commissioner's approval, an initial filing, in proper form, of
policy forms, classifications, rates, rating plans, and rating rules applicable
to legal professional liability insurance to be written by the association. If
the Commissioner 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 Commissioner. If the Commissioner 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.
Specification of coverage basis
SECTION 10. (A) The Commissioner shall specify whether policy forms and the rate
structure must be on a "claims-made" or "occurrence" basis
and coverage may be provided by the association only on the basis specified by
the Commissioner. The Commissioner shall specify the claims-made basis only if
the contract makes provision for residual occurrence coverage upon the
retirement, death, disability, or removal from the State of the insured.
Provision may be made for a premium charge allocable to any residual occurrence
coverage and the premium charges for the residual coverage must be segregated and
separately maintained for such purpose which may include the reinsurance of all
or part of that portion of the risk.
(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 whether on a claims-made or occurrence basis may 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 either or both claims-made or occurrence
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.
Rate increases or assessments
SECTION 11. The association may provide a rate increase or assessment subject to
the Commissioner's approval.
Recoupment of deficits
SECTION 12. 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.
Change in premium rates after initial year of operation
SECTION 13. 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 Commissioner considers appropriate. The
resultant premium rates must be on an actuarially sound basis and must be
calculated to be self-supporting.
If sufficient funds are not available for the sound financial operation of the
association, pending recoupment as provided in Section 12 of this act, all
members, on a temporary basis, shall contribute to the financial requirements of
the association in the manner provided for in Section 14 of this act. Any such
contribution must be reimbursed to the members following recoupment as provided
in Section 12 of this act.
Participation of insurers
SECTION 14. All insurers which are members of the association shall participate
in its writings, expenses, profits, 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 Commissioner. No member may be obligated in any one
year to reimburse the association because of its proportionate share in the
deficit from operations of the association in that year in excess of one percent
of its surplus to policyholders and the aggregate amount not so reimbursed must
be reallocated among the remaining members in accordance with the method of
determining participation prescribed in this section after excluding from the
computation the total net direct premiums of all members not sharing in the
excess deficit. If the deficit from operations allocated to all members of the
association in any calendar year exceeds one percent of their respective surplus
to policyholders, the amount of the deficit must be allocated to each member in
accordance with the method of determining participation prescribed in this
section.
Members bound by approved plan
SECTION 15. 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.
Continuation of obligations
SECTION 16. (A) If the authority of an insurer to transact bodily injury
liability insurance, other than automobile, homeowners, or farmowners, in this
State terminates for any reason, its obligations as a member of the association
continue until all its obligations are fulfilled and the Commissioner 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.
Board of directors
SECTION 17. The association is governed by a board of seven directors, one of
whom is appointed by the Governor, with the advice and consent of the Senate, to
represent the general public and three of whom are members of the South Carolina
Bar appointed by the Governor. Three directors are elected by cumulative voting
by members of the association, whose votes in the election must be weighed in
accordance with each member's net direct premiums written during the preceding
calendar year. 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 insurer representatives of the board of directors must be elected
at a meeting of the members or their authorized representatives, which must be
held at a time and place designated by the Commissioner. The Commissioner 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.
Appeals
SECTION 18. Any applicant for insurance through the association, any person
insured pursuant to this act, or his representative, or any insurer adversely
affected, or claiming to be adversely affected, by any ruling, action, or
decision by or on behalf of the association, may appeal to the Commission within
thirty days after the ruling, action, or decision.
Annual statement
SECTION 19. The association shall file in the office of the Commissioner 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 Commissioner and must be
in the form he directs.
The Commissioner, 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.
Examinations
SECTION 20. The Commissioner shall make an examination into the financial
condition and affairs of the association at least annually and shall file a
report thereon with the Commission, the Governor, and the General Assembly. The
expenses of the examination must be paid by the association.
Time effective
SECTION 21. This act takes effect upon approval by the Governor. |