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Bill Number: 2016 Ratification Number: 97 Act Number 62 Introducing Body: House Subject: The writing of professional liability insurance for professionals
(A62, R97, H2016)
AN ACT TO PROVIDE A PLAN FOR THE WRITING OF PROFESSIONAL LIABILITY INSURANCE FOR PROFESSIONALS LICENSED AND REGULATED BY THE STATE THROUGH A JOINT UNDERWRITING ASSOCIATION UPON A FINDING OF AN EMERGENCY BY THE INSURANCE COMMISSION BECAUSE THIS INSURANCE IS NOT AVAILABLE THROUGH NORMAL MEANS OR ON A REASONABLE BASIS TO PROFESSIONALS LICENSED AND REGULATED BY THE STATE.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The General Assembly declares that there exists the potential for a professional liability insurance crisis for professionals licensed and regulated by the State because of the high cost of liability insurance and a failure of competition. These conditions could result in a situation in which liability insurance would not be available to professionals licensed and regulated by the State.
The public interest requires that a contingency program for providing professional liability insurance be enacted and that the Insurance Commission of South Carolina 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.
SECTION 2. As used in this act:
(1) "Association" means any joint underwriting association established pursuant to this act.
(2) "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 service to or representation of any person as the result of negligence or malpractice in rendering or failing to render a 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 less return premiums or the unused or unabsorbed portions of premium deposits.
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 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 professional liability insurance or the unavailability of such insurance on a reasonable basis through normal channels.
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 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.
Creation of JUA by professional association
SECTION 5. (A) Upon application by the members of a professional association seeking creation of a joint underwriting association, the Commissioner shall promulgate a plan of operation consistent with this act. The plan of operation is 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 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.
(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.
Coverage by the association
SECTION 6. 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.
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.
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 43, Title 38, Code of Laws of South Carolina, 1976, which are not inconsistent with this act.
Costs of professional liability insurance
SECTION 7. The Commissioner shall 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 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 professional liability. The Commissioner may require from any person obtaining insurance through the association loss, claim, or expense data.
SECTION 8. In structuring rates for 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 so that investment income is a part of the rate-making and setting process.
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 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.
SECTION 10. (A) Policy forms and rate structure must be on an occurrence 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 11. The association may provide a rate increase or assessment subject to the Commissioner's approval.
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.
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.
SECTION 14. 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 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.
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.
Termination of an insurer, obligation
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.
SECTION 17. Each joint underwriting association is governed by a board of seven directors, one of whom is appointed by the Governor to represent the general public and four of whom are appointed by the Governor and represent professionals covered under the association. Two directors are the Chairman of the Labor, Commerce and Industry Committee of the House of Representatives or his designee and the Chairman of the Banking and Insurance Committee of the Senate or his designee, both of whom shall serve ex officio. 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 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.
Appeal from ruling
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.
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.
Examination of finances
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.
SECTION 21. This act takes effect upon approval by the Governor.