LIABILITY RISK RETENTION ACT OF 1986
99–563
Statute Compilation
United States House of Representatives
Office of the Legislative Counsel
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Liability Risk Retention Act of 1986
1533
97
1981-09-25
LIABILITY RISK RETENTION ACT OF 1986
[As Amended Through P.L. 99–563, Enacted October 27, 1986]
[Currency: This publication is a compilation of the text of Public Law 97-45. It was last amended by the public law listed in the As Amended Through note above and below at the bottom of each page of the pdf version and reflects current law through the date of the enactment of the public law listed at https://www.govinfo.gov/app/collection/comps/]
[Note: While this publication does not represent an official version of any Federal statute, substantial efforts have been made to ensure the accuracy of its contents. The official version of Federal law is found in the United States Statutes at Large and in the United States Code. The legal effect to be given to the Statutes at Large and the United States Code is established by statute (1 U.S.C. 112, 204).]

AN ACT
to facilitate the ability of product sellers to establish product liability risk retention groups, to facilitate the ability of such sellers to purchase product liability insurance on a group basis, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

short title
Section 1.
[15 U.S.C. 3901 note]
This Act be cited as the “Liability Risk Retention Act of 1986”.

definitions
Sec. 2.
[15 U.S.C. 3901]
(a)
As used in this Act—
(1)
“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 applicable State or Federal law;
(2)
“liability”—
(A)
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 such other persons resulting from or arising out of—
(i)
any business (whether profit or nonprofit), trade, product, services (including professional services), premises, or operations, or
(ii)
any activity of any State or local government, or any agency or political subdivision thereof; and
(B)
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.);
(3)
“personal risk liability” means 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 referred to in paragraphs (2)(A) and (2)(B);
(4)
“risk retention group” means any corporation or other limited liability association—
(A)
whose primary activity consists of assuming and spreading all, or any portion, of the liability exposure of its group members;
(B)
which is organized for the primary purpose of conducting the activity described under subparagraph (A);
(C)
which—
(i)
is chartered or licensed as a liability insurance company under the laws of a State and authorized to engage in the business of insurance under the laws of such State; or
(ii)
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 such date, had certified to the insurance commissioner of at least one State that it satisfied the capitalization requirements of such 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 such terms were defined in this section before the date of the enactment of the Risk Retention Act of 19861);
^1
So in law. The reference in clause (ii) to the “Risk Retention Act of 1986” probably should be to the “Risk Retention Amendments of 1986”.
(D)
which does not exclude any person from membership in the group solely to provide for members of such a group a competitive advantage over such a person;
(E)
which—
(i)
has as its owners only persons who comprise the membership of the risk retention group and who are provided insurance by such group; or
(ii)
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 such group;
(F)
whose members are engaged in businesses or activities similar or related with respect to the liability to which such members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations;
(G)
whose activities do not include the provision of insurance other than—
(i)
liability insurance for assuming and spreading all or any portion of the similar or related liability exposure of its group members; and
(ii)
reinsurance with respect to the similar or related liability exposure of any other risk retention group (or any member of such other group) which is engaged in businesses or activities so that such group (or member) meets the requirement described in subparagraph (F) for membership in the risk retention group which provides such reinsurance; and
(H)
the name of which includes the phrase “Risk Retention Group”.
(5)
“purchasing group” means any group which—
(A)
has as one of its purposes the purchase of liability insurance on a group basis;
(B)
purchases such insurance only for its group members and only to cover their similar or related liability exposure, as described in subparagraph (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; and
(D)
is domiciled in any State;
(6)
“State” means any State of the United States or the District of Columbia; and
(7)
“hazardous financial condition” means that, based on its present or reasonably anticipated financial condition, a risk retention group is unlikely to be able—
(A)
to meet obligations to policyholders with respect to known claims and reasonably anticipated claims; or
(B)
to pay other obligations in the normal course of business.
(b)
Nothing in this Act shall be constructed to affect either the tort law or the law governing the interpretation of insurance contracts of any State, and the definitions of liability, personal risk liability, and insurance under any State law shall not be applied for the purposes of this Act, including recognition or qualification of risk retention groups or purchasing groups.

risk retention groups
Sec. 3.
[15 U.S.C. 3902]
(a)
Except as provided in this section, a risk retention group is exempt from any State law, rule, regulation, or order to the extent that such law, rule, regulation, or order would—
(1)
make unlawful, or regulate, directly or indirectly, the operation of a risk retention group except that the jurisdiction in which it is chartered may regulate the formation and operation of such a group and any State may require such a group to-
(A)
comply with the unfair claim settlement practices law of the State;
(B)
pay, on a nondiscriminatory basis, applicable premium and other taxes which are levied on admitted insurers and surplus lines insurers, brokers, or policyholders under the laws of the State;
(C)
participate, on a nondiscriminatory basis, in any mechanism established or authorized under the law of the State for the equitable apportionment among insurers of liability insurance losses and expenses incurred on policies written through such mechanism;
(D)
register with and designate the State insurance commissioner as its agent solely for the purpose of receiving service of legal documents or process;
(E)
submit to an examination by the State insurance commissioner in any State in which the group is doing business to determine the group's financial condition, if
(i)
the commissioner of the jurisdiction in which the group is chartered has not begun or has refused to initiate an examination of the group; and
(ii)
any such examination shall be coordinated to avoid unjustified duplication and unjustified repetition;
(F)
comply with a lawful order issued—
(i)
in a delinquency proceeding commenced by the State insurance commissioner if there has been a finding of financial impairment under subparagraph (E); or
(ii)
in a voluntary dissolution proceeding;
(G)
comply with any State law regarding deceptive, false, or fraudulent acts or practices, except that if the State seeks an injunction regarding the conduct described in this subparagraph, such injunction must be obtained from a court of competent jurisdiction;
(H)
comply with an injunction issued by a court of competent jurisdiction, upon a petition by the State insurance commissioner alleging that the group is in hazardous financial condition or is financially impaired; and
(I)
provide the following notice, in 10-point type, in any insurance policy issued by such group:

“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.”
(2)
require or permit a risk retention group to participate in any insurance insolvency guaranty association to which an insurer licensed in the State is required to belong;
(3)
require any insurance policy issued to a risk retention group or any member of the group to be countersigned by an insurance agent or broker residing in that State; or
(4)
otherwise discriminate against a risk retention group or any of its members, except that nothing in this section shall be construed to affect the applicability of State laws generally applicable to persons or corporations.
(b)
The exemptions specified in subsection (a) apply to laws governing the insurance business pertaining to—
(1)
liability insurance coverage provided by a risk retention group for—
(A)
such group; or
(B)
any person who is a member of such group;
(2)
the sale of liability insurance coverage for a risk retention group; and
(3)
the provision of—
(A)
insurance related services;
(B)
management, operations, and investment activities; or
(C)
loss control and claims administration (including loss control and claims administration services for uninsured risks retained by any member of such group);
for a risk retention group or any member of such group with respect to liability for which the group provides insurance.
(c)
A State may require that a person acting, or offering to act, as an agent or broker for a risk retention group obtain a license from that State, except that a State may not impose any qualification or requirement which discriminates against a nonresident agent or broker.
(d)
Each risk retention group shall submit—
(1)
to the insurance commissioner of the State in which it is chartered—
(A)
before it may offer insurance in any State, a plan of operation or a feasibility study which includes the coverages, deductibles, coverage limits, rates, and rating classification systems for each line of insurance the group intends to offer; and
(B)
revisions of such plan or study if the group intends to offer any additional lines of liability insurance;
(2)
to the insurance commissioner of each State in which it intends to do business, before it may offer insurance in such State—
(A)
a copy of such plan or study (which shall include the name of the State in which it is chartered and its principal place of business); and
(B)
a copy of any revisions to such plan or study, as provided in paragraph (1)(B) (which shall include any change in the designation of the State in which it is chartered); and
(3)
to the insurance commissioner of each State in which it is doing business, a copy of the group's annual financial statement submitted to the State in which the group is chartered as an insurance company, which statement shall be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves made by—
(A)
a member of the American Academy of Actuaries, or
(B)
a qualified loss reserve specialist.
(e)
Nothing in this section shall be construed to affect the authority of any Federal or State court to enjoin—
(1)
the solicitation or sale of insurance by a risk retention group to any person who is not eligible for membership in such group; or
(2)
the solicitation or sale of insurance by, or operation of, a risk retention group that is in hazardous financial condition or is financially impaired.
(f)
(1)
Subject to the provisions of subsection (a)(1)(G) (relating to injunctions) and paragraph (2), nothing in this Act shall be construed to affect the authority of any State to make use of any of its powers to enforce the laws of such State with respect to which a risk retention group is not exempt under this Act.
(2)
If a State seeks an injunction regarding the conduct described in paragraphs (1) and (2) of subsection (e), such injunction must be obtained from a Federal or State court of competent jurisdiction.
(g)
Nothing in this Act shall affect the authority of any State to bring an action in any Federal or State court.
(h)
Nothing in this Act shall be construed to affect the authority of any State to regulate or prohibit the ownership interest in a risk retention group by an insurance company in that State, other than in the case of ownership interest in a risk retention group whose members are insurance companies.

purchasing groups
Sec. 4.
[15 U.S.C. 3903]
(a)
Except as provided in this section and section 6, a purchasing group is exempt from any State law, rule, regulation, or order to the extent that such law, rule, regulation, or order would—
(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 the group basis described in paragraph (2) of this subsection;
(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 a certain legal form;
(6)
require that a certain percentage of a purchasing group must obtain insurance on a group basis;
(7)
require that any insurance policy issued to a purchasing group or any members of the group be countersigned by an insurance agent or broker residing in that State; or
(8)
otherwise discriminate against a purchasing group or any of its members.
(b)
The exemptions specified in subsection (a) apply to—
(1)
liability insurance provided to—
(A)
a purchasing group; or
(B)
any person who is a member of a purchasing group; and
(2)
the provision of—
(A)
liability coverage;
(B)
insurance related services; or
(C)
management services;
to a purchasing group or member of the group.
(c)
A State may require that a person acting, or offering to act, as an agent or broker for a purchasing group obtain a license from that State, except that a State may not impose any qualification or requirement which discriminates against a nonresident agent or broker.
(d)
(1)
A purchasing group which intends to do business in any State shall furnish notice of such intention to the insurance commissioner of such State. Such notice—
(A)
shall identify the State in which such group is domiciled;
(B)
shall specify the lines and classifications of liability insurance which the purchasing group intends to purchase;
(C)
shall identify the insurance company from which the group intends to purchase insurance and the domicile of such company; and
(D)
shall identify the principal place of business of the group.
(2)
Such purchasing group shall notify the commissioner of any such State as to any subsequent changes in any of the items provided in such notice.
(e)
A purchasing group shall register with and designate the State insurance commissioner of each State in which it does business as its agent solely for the purpose of receiving service of legal documents or process, except that such requirements shall not apply in the case of a purchasing group—
(1)
which—
(A)
was domiciled before April 1, 1986; and
(B)
is domiciled on and after the date of the enactment of this Act;
in any State of the United States;
(2)
which—
(A)
before the date of the enactment of this Act, purchased insurance from an insurance carrier licensed in any State; and
(B)
since such date of enactment, purchases its insurance from an insurance carrier licensed in any State;
(3)
which was a purchasing group under the requirements of this Act before the date of the enactment of the Risk Retention Amendments of 1986; and
(4)
as long as such group does not purchase insurance that was not authorized for purposes of an exemption under this Act as in effect before the date of the enactment of the Risk Retention Amendments of 1986.
(f)
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 such State.
(g)
Nothing in this Act shall be construed to affect the authority of any State to make use of any of its powers to enforce the laws of such State with respect to which a purchasing group is not exempt under this Act.
(h)
Nothing in this Act shall affect the authority of any State to bring an action in any Federal or State court.

applicability of securities laws
Sec. 5.
[15 U.S.C. 3904]
(a)
The ownership interests of members in a risk retention group shall be—
(1)
considered to be exempted securities for purposes of section 5 of the Securities Act of 1933 and for purposes of section 12 of the Securities Exchange Act of 1934; and
(2)
considered to be securities for purposes of the provisions of section 17 of the Securities Act of 1933 and the provisions of section 10 of the Securities Exchange Act of 1934.
(b)
A risk retention group shall not be considered to be an investment company for purposes of the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.).
(c)
The ownership interests of members in a risk retention group shall not be considered securities for purposes of any State blue sky law.

clarification concerning permissible state authority
Sec. 6.
[15 U.S.C. 3905]
(a)
Nothing in this Act shall be construed to exempt a risk retention group or purchasing group authorized under this Act from the policy form or coverage requirements of any State motor vehicle no-fault or motor vehicle financial responsibility insurance law.
(b)
The exemptions provided under this Act shall apply only to the provision of liability insurance by a risk retention group or the purchase of liability insurance by a purchasing group, and nothing in this Act shall be construed to permit the provision or purchase of any other line of insurance by any such group.
(c)
The terms of any insurance policy provided by a risk retention group or purchased by a purchasing group shall not provide or be construed to provide insurance policy coverage prohibited generally by State statute or declared unlawful by the highest court of the State whose law applies to such policy.
(d)
Subject to the provisions of section 3(a)(4) relating to discrimination, nothing in this Act shall be construed to preempt the authority of a State to specify acceptable means of demonstrating financial responsibility where the State has required a demonstration of financial responsibility as a condition for obtaining a license or permit to undertake specified activities. Such means may include or exclude insurance coverage obtained from an admitted insurance company, an excess lines company, a risk retention group, or any other source regardless of whether coverage is obtained directly from an insurance company or through a broker, agent, purchasing group, or any other person.

injunctive orders issued by united states district courts
Sec. 7.
[15 U.S.C. 3906]
Any district court of the United States may issue an order 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 of such court that such group is in hazardous financial condition. Such order shall be binding on such group, its officers, agents, and employees, and on any other person acting in active concert with any such officer, agent, or employee, if such other person has actual notice of such order.