2025 -- H 5548

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LC001767

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2025

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A N   A C T

RELATING TO INSURANCE -- VOLUNTARY RESTRUCTURING OF SOLVENT

INSURERS

     Introduced By: Representatives Kennedy, Azzinaro, Edwards, Solomon, O'Brien,
Kazarian, and Diaz

     Date Introduced: February 26, 2025

     Referred To: House Corporations

     (Dept. of Business Regulation)

It is enacted by the General Assembly as follows:

     SECTION 1. Section 27-14.5-1 of the General Laws in Chapter 27-14.5 entitled

"Voluntary Restructuring of Solvent Insurers" is hereby amended to read as follows:

     27-14.5-1. Definitions.

     As used in this chapter:

     (1) “Applicant” means a commercial run-off insurer applying under § 27-14.5-4.

     (2) “Assessment deficit” means the amount that the assessment for the previous year under

§ 27-14.5-5 is less than, and “assessment surplus” is the amount that the assessment for the previous

year exceeds:

     (i) The run-off insurer’s proportionate share of regulatory expenditure for the previous

year, if the run-off insurer was domiciled in Rhode Island on March 15 of the previous year; or

     (ii) The redomestication expenditure for the previous year attributable to the run-off

insurer, if the run-off insurer was not domiciled in Rhode Island on March 15 of the previous year.

     (3) “Assumption policyholder” means a policyholder whose policy is reinsured under an

assumption reinsurance agreement between the applicant and a reinsurer.

     (4) “Assumption reinsurance agreement” has the meaning given in § 27-53.1-3(b), subject

to the following:

     (i) The agreement may be conditioned upon the court’s entry of an implementation order.

     (ii) If any policy subject to the agreement is protected through a guarantee association, then

the assuming insurer must have been and be licensed, and must have been and be a member of the

guarantee association, in all states known to the applicant in which either: (A) Any property covered

under the policy has a permanent situs; or (B) The policyholder resided while the policy was in

force.

     (5) “Class of creditors” means:

     (i) All voting policyholders, including those without known claims;

     (ii) Voting creditors, other than policyholders; or

     (iii) Any separate class of creditors as the court may in its discretion determine should

approve the commutation plan.

     (6) “Commercial run-off insurer” means:

     (i) A run-off insurer domiciled in Rhode Island, or the protected cell of the insurer, whose

business, excluding all business subject to an assumption reinsurance agreement, includes only the

reinsuring of any line(s) of business other than life and/or the insuring of any line(s) of business

other than life, workers’ compensation, and personal lines insurance; or

     (ii) A Rhode Island domestic insurance company, or the protected cell of that insurer,

meeting the requirements of subsection (i) whose liabilities consist of commercial liabilities

transferred to said company with the approval of the commissioner and pursuant to the regulations

issued by the department under this chapter. The amount of the commercial liabilities transferred

must be less than or equal to the amount of assets transferred to the newly formed or re-activated

company.

     (7) “Commissioner” means the director of the department or designee.

     (8) “Commutation plan” means a plan for extinguishing the outstanding liabilities of a

commercial run-off insurer.

     (9) “Creditor” means:

     (i) Any person who has a claim against the applicant; or

     (ii) A policyholder other than an assumption policyholder.

     (10) “Department” means the department of business regulation.

     (11) “Guarantee association” means a guarantee association or foreign guarantee

association, as those terms are defined in § 27-14.3-3(10), that is potentially obligated with respect

to the applicant’s policies.

     (12) “Implementation order” means an order under § 27-14.5-4(c).

     (13) “Insurer” has the meaning given in § 27-14.3-3(12).

     (14) “Person” means an individual, corporation, partnership, association, joint stock

company, trust, unincorporated organization, or any similar entity or any combination of the

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foregoing acting in concert.

     (15) “Personal lines insurance” means insurance issued for personal, family, or household

purposes.

     (16) “Policy” means a contract of insurance or a contract of reinsurance.

     (17) “Policyholder” means an insured or a reinsured of the insurer.

     (18) “Proportionate share” means, for a particular run-off insurer as of December 31 of the

previous year, the ratio of:

     (i) The gross assets of that run-off insurer; to

     (ii) The gross assets of all run-off insurers, other than those that were not domiciled in

Rhode Island on March 15 of that calendar year.

     (19) “Redomestication expenditure” means, for any calendar year:

     (i) The amount that the department’s expenditures attributable to the regulation of run-off

insurers increases as a result of any run-off insurer redomiciling to Rhode Island on or after March

15 of that year; less

     (ii) Filing fees, examination costs, and any other fees in relation to insurance regulation in

this state paid to this state by run-off insurers that redomiciled to Rhode Island on or after March

15 of that year, but excluding any premium taxes.

     (20) “Regulatory expenditure” means, for any calendar year:

     (i) The amount of the department’s expenditures attributable to the regulation of run-off

insurers domiciled in Rhode Island on March 15 of that year; less

     (ii) Filing fees, examination costs, and any other fees in relation to insurance regulation in

this state paid to this state by run-off insurers domiciled in Rhode Island on March 15 of that year,

but excluding any premium taxes.

     (21) “Run-off insurer” means an insurer that:

     (i) Is domiciled in Rhode Island;

     (ii) Has liabilities under policies for property and casualty lines of business;

     (iii) Has ceased underwriting new business; and

     (iv) Is only renewing ongoing business to the extent required by law or by contract.

     (22) “Voluntary restructuring” means the act of reorganizing the legal ownership,

operational, governance, or other structures of a solvent insurer, for the purpose of enhancing

organization and maximizing efficiencies, and shall include the transfer of assets and liabilities to

or from an insurer, or the protected cell of an insurer pursuant to an insurance business transfer

plan. A voluntary restructuring under this chapter may be approved by the commissioner only if,

in the commissioner’s opinion, it would have no material adverse impact on the insurer’s

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policyholders, reinsureds, or claimants of policies subject to the restructuring.

     SECTION 2. Sections 27-34-3, 27-34-5, 27-34-8 and 27-34-11.5 of the General Laws in

Chapter 27-34 entitled "Rhode Island Property and Casualty Insurance Guaranty Association" are

hereby amended to read as follows:

     27-34-3. Scope.

     This chapter shall apply to all kinds of direct insurance, but shall not be applicable to the

following:

     (1) Life, annuity, health, or disability insurance;

     (2) Mortgage guaranty, financial guaranty, or other forms of insurance offering protection

against investment risks. For purposes of this section, “financial guaranty insurance” includes any

insurance under which loss is payable upon proof of occurrence of any of the following events to

the damage of an insured claimant or obligee:

     (i) Failure of any obligor or obligors on any debt instrument or other monetary obligation,

including common or preferred stock, to pay when due the principal, interest, dividend, or purchase

price of such instrument or obligation, whether failure is the result of a financial default or

insolvency and whether or not the obligation is incurred directly or as a guarantor by, or on behalf

of, another obligor which has also defaulted;

     (ii) Changes in the level of interest rates whether short-term or long-term, or in the

difference between interest rates existing in various markets;

     (iii) Changes in the rate of exchange of currency, or from the inconvertibility of one

currency into another for any reason;

     (iv) Changes in the value of specific assets or commodities, or price levels in general;

     (3) Fidelity or surety bonds, or any other bonding obligations;

     (4) Credit insurance, vendors’ single interest insurance, or collateral protection insurance

or any similar insurance protecting the interests of a creditor arising out of a creditor-debtor

transaction. For purposes of this section, “credit insurance” means insurance on accounts

receivable;

     (5) Insurance Other than coverages that may be set forth in a cybersecurity insurance

policy, insurance of warranties or service contracts including insurance that provides for the repair,

replacement, or service of goods or property, indemnification for repair, replacement, or service

for the operational or structural failure of the goods or property due to a defect in materials,

workmanship, or normal wear and tear, or provides reimbursement for the liability incurred by the

issuer of agreements or service contracts that provide such benefits;

     (6) Title insurance;

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     (7) Ocean marine insurance, except that portion of the marine protection and indemnity

insurance covering liability of the insured for personal injury, illness, or death to employees and

insurance covering pleasure craft;

     (8) Any transaction or combination of transactions between a person, including affiliates

of the person, and an insurer, including affiliates of such insurer, which involves the transfer of

investment or credit risk unaccompanied by transfer of insurance risk;

     (9) Any insurance provided by or guaranteed by government; or

     (10) Any transaction or combination of transactions between a protected cell and the

general account or another protected cell of a protected cell company organized under the Protected

Cell Companies Act, chapter 64 of this title, as those terms are defined in this chapter.

     27-34-5. Definitions.

     As used in this chapter:

     (1) “Account” means any one of the three (3) accounts created by § 27-34-6.

     (2) “Affiliate” means a person, who directly or indirectly, through one or more

intermediaries, controls, is controlled by, or is under common control with another on December

31 of the year immediately preceding the date the insurer becomes an insolvent insurer.

     (3) “Association” means the Rhode Island insurance guaranty association created under § 

27-34-6.

     (4) “Association similar to the association” means any guaranty association, security fund,

or other insolvency mechanism that affords protection similar to that of the association. The term

shall also include any property and casualty insolvency mechanism that obtains assessments or

other contributions from insurers on a pre-insolvency basis.

     (5) “Assumed claims transaction” means the following:

     (i) Policy obligations that have been assumed by the insolvent insurer, prior to the entry of

a final order of liquidation, through a merger between the insolvent insurer and another entity

obligated under the policies, and for which assumption consideration has been paid to the applicable

guaranty associations, if the merged entity is a non-member insurer;

     (ii) Policy obligations that have been assumed by the insolvent insurer, prior to the entry

of a final order of liquidation, pursuant to a plan, approved by the domestic commissioner of the

assuming insurer, which:

     (A) Transfers the direct policy obligations and future policy renewals from one insurer to

another insurer; and

     (B) For which assumption consideration has been paid to the applicable guaranty

associations, if the assumption is from a non-member insurer.

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     (C) For purposes of this section, the term non-member insurer also includes a self-insurer,

non-admitted insurer, and risk retention group; or

     (iii) An assumption reinsurance transaction in which all of the following has occurred:

     (A) The insolvent insurer assumed, prior to the entry of a final order of liquidation, the

claim or policy obligations of another insurer or entity obligated under the claims or policies;

     (B) The assumption of the claim or policy obligations has been approved, if such approval

is required, by the appropriate regulatory authorities; and

     (C) As a result of the assumption, the claim or policy obligations became the direct

obligations of the insolvent insurer through a novation of the claims or policies.

     (6) “Assumption consideration” shall mean the consideration received by a guaranty

association to extend coverage to the policies assumed by a member insurer from a non-member

insurer in any assumed claims transaction including liabilities that may have arisen prior to the date

of the transaction. The assumption consideration shall be in an amount equal to the amount that

would have been paid by the assuming insurer during the three (3) calendar years prior to the

effective date of the transaction to the applicable guaranty associations if the business had been

written directly by the assuming insurer.

     (i) In the event that the amount of the premiums for the three-year (3) period cannot be

determined, the assumption consideration will be determined by multiplying one hundred thirty

percent (130%) against the sum of the unpaid losses, loss adjustment expenses, and incurred but

not reported losses, as of the effective date of the assumed claims transaction, and then multiplying

such sum times the applicable guaranty association assessment percentage for the calendar year of

the transaction.

     (ii) The funds paid to a guaranty association shall be allocated in the same manner as any

assessments made during the three-year (3) period. The guaranty association receiving the

assumption consideration shall not be required to recalculate or adjust any assessments levied

during the prior three (3) calendar years as a result of receiving the assumption consideration.

Assumption consideration paid by an insurer may be recouped in the same manner as other

assessments made by a guaranty association.

     (7) “Claimant” means any person instituting a covered claim; provided that no person who

is an affiliate of the insolvent insurer may be a claimant.

     (8) “Commissioner” means the director of the department of business regulation or his or

her the commissioner’s designee.

     (9) “Control” means the possession, direct or indirect, of the power to direct or cause the

direction of the management and policies of a person, whether through the ownership of voting

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securities, by contract other than a commercial contract for goods or nonmanagement services, or

otherwise, unless the power is the result of an official position with, or corporate office held by, the

person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds

with the power to vote, or holds proxies representing, ten percent (10%) or more of the voting

securities of any other person. This presumption may be rebutted by a showing that control does

not exist in fact.

     (10) “Covered claim” means:

     (i) An unpaid claim, including one for unearned premiums, submitted by a claimant, which

arises out of and is within the coverage and subject to the applicable limits of an insurance policy

to which this chapter applies, if the policy was issued by an insurer that becomes an insolvent

insurer after the effective date of this chapter and the policy was either issued by the insurer or

assumed by the insurer in an assumed claims transaction, and:

     (A) The claimant or insured is a resident of this state at the time of the insured event;

provided, that for entities other than an individual, the residence of a claimant, insured, or

policyholder is the state in which its principal place of business is located at the time of the insured

event; or

     (B) The claim is a first-party claim for damage to property with a permanent location in

this state.

     (ii) Covered claim includes claim obligations that arose through the issuance of an

insurance policy by a member insurer, which are later allocated, transferred, merged into, novated,

assumed by, or otherwise made the sole responsibility of a member or non-member insurer if:

     (A) The original member insurer has no remaining obligations on the policy after the

transfer;

     (B) A final order of liquidation with a finding of insolvency has been entered against the

insurer that assumed the member’s coverage obligations by a court of competent jurisdiction in the

insurer’s state of domicile;

     (C) The claim would have been a covered claim, as defined in this section, if the claim had

remained the responsibility of the original member insurer and the order of liquidation had been

entered against the original member insurer, with the same claim submission date and liquidation

date; and

     (D) In cases where the member’s coverage obligations were assumed by a non-member

insurer, the transaction received prior regulatory or judicial approval.

     (iii) Covered claim includes claim obligations that were originally covered by a non-

member insurer including, but not limited to, a self-insurer, non-admitted insurer or risk retention

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group, but subsequently became the sole direct obligation of a member insurer before the entry of

a final order of liquidation with a finding of insolvency against the member insurer by a court of

competent jurisdiction in its state of domicile, if the claim obligations were assumed by the member

insurer in a transaction of one of the following types:

     (A) A merger in which the surviving company was a member insurer immediately after the

merger;

     (B) An assumption reinsurance transaction that received any required approvals from the

appropriate regulatory authorities; or

     (C) A transaction entered into pursuant to a plan approved by the member insurer’s

domiciliary regulator.

     (iv) Except as provided elsewhere in this section, “covered claim” shall not include:

     (A) Any amount awarded as punitive or exemplary damages;

     (B) Any amount sought as a return of premium under any retrospective rating plan;

     (C) Any amount due any reinsurer, insurer, insurance pool, or underwriting association,

health maintenance organization, hospital plan corporation, professional health service corporation,

or self-insurer as subrogation recoveries, reinsurance recoveries, contribution, indemnification or

otherwise. No claim for any amount due any reinsurer, insurer, insurance pool, underwriting

association, health maintenance organization, hospital plan corporation, professional health service

corporation, or self-insurer may be asserted against a person insured under a policy issued by an

insolvent insurer other than to the extent the claim exceeds the association obligation limitations

set forth in § 27-34-8;

     (D) Any claims excluded pursuant to § 27-34-11.5 due to the high net worth of an insured;

     (E) Any first party claims by an insured that is an affiliate of the insolvent insurer;

     (F) Any fee or other amount relating to goods or services sought by or on behalf of any

attorney or other provider of goods or services retained by the insolvent insurer or an insured prior

to the date it was determined to be insolvent;

     (G) Any fee or other amount sought by or on behalf of any attorney or other provider of

goods or services retained by any insured or claimant in connection with the assertion or

prosecution of any claim, covered or otherwise, against the association;

     (H) Any claims for interest; or

     (I) Any claim filed with the association or a liquidator for protection afforded under the

insured’s policy for incurred-but-not-reported losses.

     (11) “Cybersecurity insurance” means for purposes of this section includes first and third-

party coverage, in a policy or endorsement, written on a direct, admitted basis for losses and loss

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mitigation arising out of or relating to data privacy breaches, unauthorized information network

security intrusions, computer viruses, ransomware, cyber extortion, identity theft, and similar

exposures.

     (11)(12) “Insolvent insurer” means an insurer licensed to transact insurance in this state

either at the time the policy was issued; when the obligation with respect to the covered claim was

assumed under an assumed claims transaction; or when the insured event occurred, and against

whom a final order of liquidation has been entered after the effective date of this chapter with a

finding of insolvency by a court of competent jurisdiction in the insurer’s state of domicile.

     (12)(13) “Insured” means any named insured, any additional insured, any vendor, lessor,

or any other party identified as an insured under the policy.

     (13)(14) “Line of credit” means an irrevocable stand-by commitment whereby the

association or member insurer and a qualified financial institution or group of qualified financial

institutions enter into a formal and binding contract in which the qualified financial institution or

group of qualified financial institutions agree to lend a certain amount of money within a stated

period of time.

     (14)(15)(i) “Member insurer” means any person who:

     (A) Writes any kind of insurance to which this chapter applies, under § 27-34-3, including

the exchange of reciprocal or interinsurance contracts;

     (B) Is licensed to transact insurance in this state; and

     (C) Is not otherwise excepted from membership by statute or regulation.

     (ii) An insurer shall cease to be a member insurer effective on the day following the

termination or expiration of its license to transact the kinds of insurance to which this chapter

applies, however, the insurer shall remain liable as a member insurer for any and all obligations,

including obligations for assessments levied prior to the termination or expiration of the insurer’s

license and assessments levied after the termination or expiration, which relate to any insurer that

became an insolvent insurer prior to the termination or expiration of the insurer’s license.

     (15)(16) “Net direct written premiums” means direct gross premiums written in this state

on insurance policies to which this chapter applies, including policy and membership fees, less the

following amounts: (i) Return premiums; (ii) Premiums on policies not taken; and (iii) Dividends

paid or credited to policyholders on that direct business. “Net direct written premiums” does not

include premiums on contracts between insurers or reinsurers.

     (16)(17) “Novation” means that the assumed claim or policy obligations became the direct

obligations of the insolvent insurer through consent of the policyholder and that thereafter the

ceding insurer or entity initially obligated under the claims or policies is released by the

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policyholder from performing its claim or policy obligations. Consent may be express or implied

based upon the circumstances, notice provided, and conduct of the parties.

     (17)(18) “Ocean marine insurance” means any form of insurance, regardless of the name,

label, or marketing designation of the insurance policy, that insures against maritime perils or risks

and other related perils or risks, which are usually insured against by traditional marine insurance,

such as hull and machinery, marine builders risk, and marine protection and indemnity. Perils and

risk insured against include without limitation: loss, damage, expense, or legal liability of the

insured for loss, damage, or expense arising out of or incident to ownership, operation, chartering,

maintenance, use, repair, or construction of any vessel, craft, or instrumentality in use in ocean or

inland waterways for commercial purposes, including liability of the insured for personal injury,

injury, illness, or death or for loss or damage to the property of the insured or another person.

     (18)(19) “Person” means any individual, aggregation of individuals, corporation,

partnership, or other entity.

     (19)(20) “Qualified financial institution” shall have the same meaning as the term in § 27-

1.1-3.

     (20)(21) “Receiver” means liquidator, rehabilitator, conservator, or ancillary receiver, as

the context requires.

     (21)(22) “Self-insurer” means a person that covers its liability through a qualified

individual or group self-insurance program or any other formal program created for the specific

purpose of covering liabilities typically covered by insurance.

     (22)(23) “Self-insured retention” means:

     (i) Any fund or other arrangement to pay claims other than by an insurance company; or

     (ii) Any arrangement under which an insurance company has no obligation to pay claims

on behalf of an insured if it is not reimbursed by the insured.

     27-34-8. Powers and duties of the association.

     (a) The association shall:

     (1)(i) Be obligated to pay covered claims existing prior to the order of liquidation; arising

within sixty (60) days after the order of liquidation or before the policy expiration date if less than

sixty (60) days after the order of liquidation or before the insured replaces the policy or causes its

cancellation if the insured does so within sixty (60) days of the order of liquidation. The obligations

shall be satisfied by paying to the claimant an amount as follows:

     (A) The full amount of a covered claim for benefits under a workers’ compensation

insurance coverage;

     (B) An amount not exceeding ten thousand dollars ($10,000), per policy for a covered

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claim for the return of unearned premium;

     (C) An amount not exceeding one million dollars ($1,000,000) for all first-party property

loss claims arising from a single occurrence under a policy covering commercial or residential

property for all other covered claims for insolvencies occurring after January 1, 2026. An amount

not exceeding five hundred thousand dollars ($500,000), per claimant for all other covered claims

for insolvencies occurring on or after January 1, 2008, and an amount not exceeding three hundred

thousand dollars ($300,000) per claimant for all other covered claims for insolvencies occurring

prior to January 1, 2008.

     (D) In no event shall the association be obligated to pay an amount in excess of five

hundred thousand dollars ($500,000) for all first and third-party claims under a policy or

endorsement providing, or that is found to provide, cybersecurity insurance coverage and arising

out of or related to a single insured event, regardless of the number of claims made or the number

of claimants.

     (ii) In no event shall the association be obligated to pay a claimant an amount in excess of

the obligation of the insolvent insurer under the policy or coverage from which the claim arises.

Notwithstanding any other provision of this chapter, a covered claim shall not include a claim filed

with the guaranty association after the final date set by the court for the filing of claims against the

liquidator or receiver of an insolvent insurer. For the purpose of filing a claim under this subsection,

notice of claims to the liquidator of the insolvent insurer shall be deemed notice to the association

or its agent and a list of claims shall be periodically submitted to the association or association

similar to the association in another state by the liquidator.

     (iii) Any obligation of the association to defend an insured shall cease upon the

association’s payment or tender of an amount equal to the lesser of the association’s covered claim

obligation limit or the applicable policy limit;

     (2) Be deemed the insurer to the extent of its obligation on the covered claims and to that

extent, subject to the limitation provided in this chapter, shall have all rights, duties, and obligations

of the insolvent insurer as if the insurer had not become insolvent, including, but not limited to, the

right to pursue and retain salvage and subrogation recoverable on covered claim obligations to the

extent paid by the association. The association shall not be deemed the insolvent insurer for the

purpose of conferring jurisdiction;

     (3) Allocate claims paid and expenses incurred among the three (3) accounts separately,

and assess member insurers separately for each account amounts necessary to pay the obligations

of the association under subdivision (a)(1) subsequent to an insolvency, the expenses of handling

covered claims subsequent to an insolvency, and other expenses authorized by this chapter. The

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assessments of each member insurer shall be in the proportion that the net direct written premiums

of the member insurer for the calendar year preceding the assessment on the kinds of insurance in

the account bears to the net direct written premiums of all member insurers for the calendar year

preceding the assessment on the kinds of insurance in the account. Each member insurer shall be

notified of the assessment not later than thirty (30) days before it is due.

     A member insurer may not be assessed in any one year on any account an amount greater

than two percent (2%) of that member insurer’s net direct written premiums for the calendar year

preceding the assessment on the kinds of insurance in the account. If the maximum assessment,

together with the other assets of the association in any account, does not provide in any one year in

any account an amount sufficient to make all necessary payments from that account, each member

insurer shall be assessed the additional amount that must be obtained to make all necessary

payments of the underfunded account from the other two accounts, subject to the same limitation

of two percent (2%) of that member insurer’s net direct written premiums for the calendar year

preceding the assessment on the kinds of insurance in the account. The additional assessments shall

be considered loans by and between the separate accounts. Amounts borrowed under this

subsection shall be paid back to the separate accounts from which they were borrowed, out of

assets, including, but not limited to, existing and future assessments in the account receiving the

loan. An interest charge shall be levied on all amounts borrowed under this subsection based on the

average prime rate of interest for each year the money remains unpaid. If the amounts borrowed

remain unpaid on the seventh yearly anniversary as a result of the inability of the borrowing account

to make repayment, then the amount borrowed and interest which is not repaid, starting with the

principal and interest of the first year, shall be considered uncollectible. The funds available shall

be prorated and the unpaid portion shall be paid as soon after this as funds become available. The

association may exempt or defer, in whole or in part, the assessment of any member insurer if the

assessment would cause the member insurer’s financial statement to reflect amounts of capital or

surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in

which the member insurer is authorized to transact insurance. However, during the period of

deferment, no dividends shall be paid to shareholders or policyholders. Deferred assessments shall

be paid when the payment will not reduce capital or surplus below required minimums. Payments

shall be refunded to those companies receiving larger assessments by virtue of the deferment, or,

at the election of any company, credited against future assessments;

     (4) Investigate claims brought against the association and adjust, compromise, settle, and

pay covered claims to the extent of the association’s obligation and deny all other claims. The

association shall pay claims in any order that it may deem reasonable, including the payment of

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claims as they are received from the claimants or in groups or categories of claims. The association

shall have the right to appoint and to direct legal counsel retained under liability insurance policies

for the defense of covered claims and to appoint and direct other service providers for covered

services;

     (5) Notify claimants in this state as deemed necessary by the commissioner and upon the

commissioner’s request, to the extent records are available to the association;

     (6)(i) Have the right to review and contest as set forth in this subsection settlements,

releases, compromises, waivers, and judgments to which the insolvent insurer or its insureds were

parties prior to the entry of the order of liquidation. In an action to enforce settlements, releases,

and judgments to which the insolvent insurer or its insureds were parties prior to the entry of the

order of liquidation, the association shall have the right to assert the following defenses, in addition

to the defenses available to the insurer:

     (A) The association is not bound by a settlement, release, compromise, or waiver executed

by an insured or the insurer, or any judgment entered against an insured or the insurer by consent

or through a failure to exhaust all appeals, if the settlement, release, compromise, waiver, or

judgment was:

     (I) Executed or entered into within one hundred twenty (120) days prior to the entry of an

order of liquidation, and the insured or the insurer did not use reasonable care in entering into the

settlement, release, compromise, waiver, or judgment, or did not pursue all reasonable appeals of

an adverse judgment; or

     (II) Executed by or taken against an insured or the insurer based on default, fraud, collusion,

or the insurer’s failure to defend.

     (B) If a court of competent jurisdiction finds that the association is not bound by a

settlement, release, compromise, waiver, or judgment for the reasons described in subparagraph

(i)(A), the settlement, release, compromise, waiver, or judgment shall be set aside, and the

association shall be permitted to defend any covered claim on the merits. The settlement, release,

compromise, waiver, or judgment may not be considered as evidence of liability or damages in

connection with any claim brought against the association or any other party under this chapter.

     (C) The association shall have the right to assert any statutory defenses or rights of offset

against any settlement, release, compromise, or waiver executed by an insured or the insurer, or

any judgment taken against the insured or the insurer.

     (ii) As to any covered claims arising from a judgment under any decision, verdict, or

finding based on the default of the insolvent insurer or its failure to defend, the association, either

on its own behalf or on behalf of an insured, may apply to have the judgment, order, decision,

LC001767 - Page 13 of 25

verdict, or finding set aside by the same court or administrator that entered the judgment, order,

decision, verdict, or finding and shall be permitted to defend the claim on the merits;

     (7) Handle claims through its employees or through one or more insurers or other persons

designated as servicing facilities. Designation of a servicing facility is subject to the approval of

the commissioner, but the designation may be declined by a member insurer;

     (8) Reimburse each servicing facility for obligations of the association paid by the facility

and for expenses incurred by the facility while handling claims on behalf of the association and

shall pay the other expenses of the association authorized by this chapter;

     (9)(i) The association shall obtain a line of credit for the benefit of each account, in an

amount not to exceed the applicable maximum to ensure the immediate availability of funds for

purposes of future claims and expenses attributable to an insurer insolvency in that account. The

line of credit shall be obtained from qualified financial institutions. The line of credit shall provide

for a thirty-day (30) notice of termination or nonrenewal to the commissioner and the association

and shall provide funding to the association within three (3) business days of receipt of written

notice from the commissioner of an insolvent insurer in that account. Each member insurer upon

receipt of notice from the association shall make immediate payment for its proportionate share of

the amount borrowed based on the premium for the preceding calendar year. The maximum line of

credit or preinsolvency assessment for each account shall be subject to prior review and approval

by the commissioner at the time of origination.

     (ii) If the association cannot obtain a line of credit, the association may obtain an

irrevocable line of credit agreement from each member insurer in an amount not to exceed the

member insurer’s maximum assessment pursuant to subdivision (a)(3) to ensure the immediate

availability of funds for the purposes of future claims and expenses attributable to an insurer

insolvency.

     Any amount drawn under any line of credit shall be considered a payment toward the

member insurer’s assessment provided for in subdivision (a)(3).

     The member insurer shall provide funding to the association under the line of credit within

three (3) business days of receipt of a written request from the association for a draw-down under

the line of credit.

     The line of credit agreement shall be subject to prior review and approval by the

commissioner at the time of origination and any subsequent renewal. It shall include any

commercially reasonable provisions the association or the commissioner may deem advisable,

including a provision that the line of credit is irrevocable or for a stated period of time and provides

for thirty-day (30) notice to the association and the commissioner that the line is being terminated

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or not renewed.

     (iii) If a line of credit is not given as provided for in this section, the member insurer shall

be responsible for the payment of an assessment of up to the member’s proportionate share of the

applicable maximum as set forth in this subsection which shall be paid into a pre-insolvency

assessment fund in each account;

     (10) Submit, not later than ninety (90) days after the end of the association’s fiscal year, a

financial report for the preceding fiscal year in a form approved by the commissioner.

     (b) The association may:

     (1) Employ or retain persons as are necessary to handle claims and perform other duties of

the association;

     (2) Borrow funds necessary to effect the purposes of this chapter in accordance with the

plan of operation;

     (3) Sue or be sued;

     (4) Negotiate and become a party to any contracts necessary to carry out the purpose of

this chapter;

     (5) Perform any other acts necessary or proper to effectuate the purpose of this chapter;

and

     (6) Refund to the member insurers in proportion to the contribution of each member insurer

to that account that amount by which the assets of the account exceed the liabilities, if, at the end

of any calendar year, the board of directors finds that the assets of the association in any account

exceed the liabilities of that account as estimated by the board of directors for the coming year.

     (c) Suits involving the association:

     (1) Except for actions by the receiver, all actions relating to or arising out of this chapter

against the association shall be brought in the courts in this state. The courts shall have exclusive

jurisdiction over all actions relating to or arising out of this chapter against the association.

     (2) The exclusive venue in any action by or against the association is in the Providence

county superior court. The association may, at its option, waive this venue as to specific actions.

     27-34-11.5. Net worth exclusion.

     (a) For purposes of this section, “high net worth insured” shall mean any insured, excluding

state and local governments, whose net worth exceeds fifty million dollars ($50,000,000) on

December 31 of the year prior to the year in which the insurer becomes an insolvent insurer;

provided that an insured’s net worth on that date shall be deemed to include the aggregate net worth

of the insured and all of its subsidiaries and affiliates as calculated on a consolidated basis.

     (b)(1) The association shall not be obligated to pay any first-party claims by a high net

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worth insured.

     (2) The association shall have the right to recover from the high net worth insured all

amounts paid by the association to or on behalf of such insured, whether for indemnity, defense, or

otherwise.

     (3) The association may also, at its sole discretion and without assumption of any ongoing

duty to do so, pay any cybersecurity insurance obligations covered by a policy or endorsement of

an insolvent company on behalf of a high net worth insured as defined in subsection (a) of this

section. In that case, the association shall recover from the high net worth insured under this section

all amounts paid on its behalf, all allocated claim adjusted expenses related to such claims, the

association’s attorneys’ fees, and all court costs in any action necessary to collect the full amount

to the association’s reimbursement under this section.

     (c) The association shall not be obligated to pay any claim that would otherwise be a

covered claim that is an obligation to or on behalf of a person who has a net worth greater than that

allowed by the insurance guaranty association law of the state of residence of the claimant at the

time specified by that state’s applicable law, and which association has denied coverage to that

claimant on that basis.

     (d) The association shall establish reasonable procedures subject to the approval of the

commissioner for requesting financial information from insureds on a confidential basis for

purposes of applying this section, provided that the financial information may be shared with any

other association similar to the association and the liquidator for the insolvent insurer on the same

confidential basis. Any request to an insured seeking financial information must advise the insured

of the consequences of failing to provide the financial information. If an insured refuses to provide

the requested financial information where it is requested and available, the association may, until

such time as the information is provided, provisionally deem the insured to be a high net worth

insured for the purpose of denying a claim under subsection (b).

     (e) In any lawsuit contesting the applicability of this section where the insured has refused

to provide financial information under the procedure established pursuant to subsection (d), the

insured shall bear the burden of proof concerning its net worth at the relevant time. If the insured

fails to prove that its net worth at the relevant time was less than the applicable amount, the court

shall award the association its full costs, expenses, and reasonable attorney’s fees in contesting the

claim.

     SECTION 3. Chapter 27-17 of the General Laws entitled "Reciprocal Exchanges and

Interinsurers" is hereby repealed in its entirety.

CHAPTER 27-17

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Reciprocal Exchanges and Interinsurers

     27-17-1. Admission of foreign exchanges and interinsurers.

     Any reciprocal exchange or interinsurer formed and doing business under the laws of any

state of the United States, other than the state of Rhode Island, for the purpose of transacting any

or all of the kinds of insurance which an insurance company may be authorized to transact in this

state, other than life or title insurance, may be permitted to transact that business in this state upon

complying with the provisions of this chapter.

     27-17-2. Power of subscribers to exchange reciprocal and interinsurance contracts.

     (a) Individuals, partnerships, trustees, and all corporations of this state, designated

throughout this chapter as “subscribers”, are authorized to exchange reciprocal or interinsurance

contracts with each other and with individuals, partnerships, trustees, and corporations of other

states.

     (b) The right of a corporation to exchange those contracts is declared to be incidental to the

purpose for which the corporation is organized and as much granted as the rights and powers

expressly conferred. Whenever a trustee acting in a representative capacity insures property held

in trust at a reciprocal exchange, the trustee may assume the liability and be entitled to the rights of

a subscriber, but in doing this shall not personally or individually be liable under the power of

attorney executed on behalf of the trust.

     (c) The contracts and the exchange of contracts and the subscribers, their attorneys in fact,

and representatives, shall be regulated by this chapter and by no other statute of this state relating

to insurance, except as otherwise specifically provided in this chapter.

     27-17-3. Execution by attorney — Office in state.

     The contracts shall be executed by an attorney in fact, designated in this chapter as

“attorney”, duly authorized and acting for the subscribers, and the attorney may be a foreign

corporation. An office or offices of the attorney, referred to in this chapter as a reciprocal exchange

or interinsurer, acting for subscribers in issuing contracts or policies insuring property or interests

in this state, shall be maintained in this state.

     27-17-4. Declaration filed by attorney — Requirements for admission.

     The attorney shall file with the insurance commissioner, referred to in this chapter as the

“commissioner”, a declaration verified by the oath of the attorney, or when the attorney is a

corporation, by the oath of its president or oaths of its treasurer and secretary setting forth:

     (1) The name of the attorney and the name or designation of the exchange under which the

contracts are to be issued, which name or designation shall not be so similar to any other name or

designation previously adopted by an attorney or by any insurance organization in this state so as

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to confuse or mislead;

     (2) The kind or kinds of insurance to be effected or exchanged;

     (3) A copy of the form of policy contract or agreement under or by which the insurance is

to be effected or exchanged and forms of application for that insurance;

     (4) A certified copy of the power of attorney or other authorization of the attorney under

or by which the attorney is to effect or exchange the insurance contracts;

     (5) The location of the office or offices from which the contracts or agreements are to be

issued;

     (6)(i) That, except as to the kinds of insurance specifically mentioned in this subdivision,

applications have been made for insurance upon at least one hundred (100) separate risks, the

liability to the exchange for premiums due on the risks shall aggregate not less than six hundred

thousand dollars ($600,000), represented by executed contracts or bona fide applications to become

concurrently effective, or, in lieu of this amount, the exchange or interinsurer is possessed of a

surplus of not less than three hundred thousand dollars ($300,000). The minimum amount of

surplus established as a requirement for the writing of other lines of insurance as specified in this

section shall be in addition to that required by the provisions of this subdivision;

     (ii) In the case of employers’ liability or workers’ compensation insurance, applications

shall have been made for indemnity upon at least one hundred (100) separate risks having a total

annual premium of not less than two million five hundred thousand dollars ($2,500,000), as

represented by executed contracts or bona fide applications to become concurrently effective, or,

in lieu of this amount, the exchange or interinsurer is possessed of a surplus of not less than one

hundred thousand dollars ($100,000);

     (iii) In the case of automobile insurance, applications shall have been made for insurance

for at least two hundred (200) separate risks, or for insurance the premiums due the exchange on

the risks shall aggregate not less than two hundred thousand dollars ($200,000) represented by

executed contracts or bona fide applications to become concurrently effective on any or all classes

of automobile insurance effected by the subscribers through the attorney, or, in lieu of this amount,

the exchange or interinsurer is possessed of a surplus of not less than one hundred thousand dollars

($100,000);

     (iv) The surplus as provided in this subdivision shall not be acceptable unless invested in

securities of the United States of America, the state of Rhode Island, or any other state of the United

States or political subdivision of the state;

     (7) That there shall be maintained at the exchange, available for the payment of losses,

assets conforming to the requirements of §§ 27-17-7 — 27-17-12;

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     (8) A financial statement under oath in the form prescribed by the commissioner;

     (9) An instrument authorizing the service of process as provided for in this chapter; and

     (10) A certificate from the proper official of the state where the principal office is

maintained, that the subscribers and the attorney have complied with all provisions of law and are

authorized in that state to transact the classes of business which are sought to be transacted in this

state.

     27-17-5. Service of process.

     Concurrently with the filing of the declaration provided for by the terms of § 27-17-4, the

attorney shall file with the commissioner an instrument in writing duly executed by the attorney for

the subscribers, conditioned that upon the issuance of the certificate of authority provided for in §

27-17-6, an action may be brought in any county in which the cause of action arises or where the

claimant resides, and service of process may be had upon the commissioner in all suits in this state

arising out of any policies, contracts, or agreements issued, which service shall be valid and binding

upon all subscribers exchanging at any time reciprocal or interinsurance contracts through the

attorney. Three (3) copies of the process shall be served, and the commissioner shall file one copy

in his or her office, forward one copy to the attorney, and return one copy with his or her admission

of service. Service of process may also be had upon all subscribers by serving the attorney at the

office. Service of process shall not be had upon subscribers or any of them in any suit or proceeding

in this state, except in the manner provided in this section, and any suit or other proceeding may be

begun and prosecuted or defended by them under the name or designation adopted by them. A

service fee of five dollars ($5.00) shall accompany each service and be paid to the commissioner.

     27-17-6. Certificate of authority to do business.

     If it shall appear upon examination by the commissioner that an exchange or interinsurer

has complied with all of the requirements of this chapter and that the persons holding positions of

executive and managerial authority are of good repute and will conduct the affairs of the exchange

with safety to the public and its policyholders, the commissioner shall issue a certificate stating that

the exchange or interinsurer has complied with all of the requirements of this chapter which shall

authorize the exchange or interinsurer to transact the kind of business specifically provided in the

certificate. The certificate shall expire on the first day of April of the following year, and shall be

renewed every year as of the first day of April of that year. The commissioner may, after a hearing,

revoke or suspend any certificate of authority issued pursuant to this section, in the case of violation

of any of the provisions of this chapter, after reasonable notice of the hearing has been given to the

attorney in fact in writing, which notice shall be sufficiently adequate to allow the attorney in fact

to appear and show cause why the action should not be taken.

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     27-17-7. Reinsurance reserve.

     There shall be maintained at all times by the exchange a reinsurance reserve in cash or

securities authorized by the laws of the state in which the principal office of the attorney is located

for the investment of similar funds of insurance companies doing the same kind of business, in an

amount equal to fifty percent (50%) of the net annual premium deposits collected and credited to

the accounts of subscribers on policies having one year or less to run and pro rata on those for

longer periods or, in lieu of this amount, one hundred percent (100%) of the net unearned premium

deposits collected and credited to the accounts of subscribers calculated separately for each policy

in force as of any given date.

     27-17-8. “Net premium deposits” defined.

     “Net premium deposits,” as used in this chapter, mean the premium deposits made by

subscribers after deduction from them of the amount paid as return premiums upon cancelled

contracts and reinsurance in companies or associations licensed to do business in this state.

     27-17-9. Contingent reserve.

     In addition to the reserves provided for in §§ 27-17-7 and 27-17-10, there shall also be

maintained at all times by the exchange, as assets, a contingent reserve in cash or securities as stated

in § 27-17-7 of not less than the amount of minimum capital required of a stock insurance company

incorporated under the law of any other state of the United States to do the kind or kinds of

insurance which the exchange is authorized to write under § 27-17-1.

     27-17-10. Claim or loss reserve.

     There shall also be maintained at all times in the hands of the attorney, as a claim or loss

reserve, in cash or securities as stated in § 27-17-7, assets sufficient to discharge all liabilities on

all outstanding or accrued losses arising under policies issued, which are to be calculated in

accordance with the laws of this state relating to similar reserves for companies insuring similar

risks.

     27-17-11. Advance of funds for reserves — Maintenance.

     If it appears that the amount of funds required in §§ 27-17-7 — 27-17-10 has not been

accumulated or maintained, then the subscribers, or the attorney for them, shall immediately

advance any sums needed to comply with the provisions of §§ 27-17-7 — 27-17-10 and the

advanced funds shall not be treated as a liability of the exchange, and the advances shall be repaid

only out of the surplus over and above the minimum required by §§ 27-17-7 — 27-17-10. If the

subscribers, or their attorneys for them, shall fail to advance sums necessary for the maintenance

of the minimum reserves and surplus within thirty (30) days after receipt of notice from the

commissioner, the commissioner may revoke its license to transact business in this state.

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     27-17-12. Deficiencies in reserves.

     If at any time the amounts on hand are less than the requirements specified in this chapter,

the subscribers, or their attorney for them, shall make up the deficiency.

     27-17-13. Certificate of deposit by foreign exchange or interinsurer.

     A foreign reciprocal exchange or interinsurer shall, before being authorized to do business

in this state, furnish to the commissioner a certificate issued by a state treasurer or other state

financial officer of the state where its principal place of business is located, that there has been

deposited with him or her either in cash or securities the sum of one hundred thousand dollars

($100,000) for the benefit of all policyholders.

     27-17-14. Cash premium deposit and contingent liability of subscriber.

     The power of attorney under which any contracts of insurance are exchanged pursuant to

this chapter shall provide for a cash premium deposit and a contingent liability of the subscriber

during each annual period of the term of each contract of insurance issued to the subscriber to be

fixed in the power of attorney, but in an amount not less than one nor more than ten (10) times the

amount of the annual portion of the cash premium deposit stated in the contract, except that

exchanges which have a required surplus equal to three hundred fifty thousand dollars ($350,000)

or to the minimum capital, if any, required of a stock insurance company transacting the same kind

or kinds of business, whichever is greater, may issue policies without contingent liability; provided,

that the exchange which shall have issued policies without contingent liability after the acquisition

of the surplus may continue to do so only so long as it maintains a surplus in the amount required

by this section, and no exchange shall issue any non-assessable policies, except during a time as it

shall continue to maintain the surplus.

     27-17-15. Reports and examination of affairs of exchanges.

     The attorney shall, within the time limited for filing the annual statement by insurance

companies transacting the same kind of business, make a report under oath to the commissioner for

each calendar year in any form the commissioner may prescribe, showing the financial condition

of the affairs at the office where the contracts are issued, and shall at any reasonable time furnish

any additional information and reports required by the commissioner. The records, affairs, and

financial condition of the exchange shall be subject to examination by the commissioner, and the

examination shall be at the expense of the office examined. The commissioner may, in lieu of the

examination provided for in this section, accept a certified copy of the report of examination made

by the insurance department of the state where the principal office is located.

     27-17-16. Penalty for doing business without compliance.

     Any attorney who exchanges any contracts of insurance of the kind and character specified

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in this chapter, or any attorney or representative of the attorney who solicits or negotiates any

applications for the attorney without the attorney first complying with the provisions of this chapter,

shall be deemed guilty of a misdemeanor, and upon conviction shall be subjected to a fine of not

less than one hundred dollars ($100) nor more than one thousand dollars ($1,000).

     27-17-17. Permits to solicit powers of attorney and applications.

     For the purposes of complying with the requirements of this chapter as set forth in § 27-

17-4(6) and upon issuance of a permit by the commissioner and under any conditions as he or she

may impose, powers of attorney and applications for the insurance contracts may be solicited

without compliance with the provisions of this chapter, but no attorney or other person shall execute

or issue the contracts of insurance until all of the provisions of this chapter have been complied

with and a certificate of authority issued by the commissioner.

     27-17-18. Insertion of provisions in standard policies.

     The attorney may insert in any form of policy prescribed by the laws of this state or adopted

by this state, any provisions or conditions required by the plan of reciprocal or interinsurance;

provided, that the provisions or conditions shall not be in conflict with the laws of this state.

     27-17-19. Fees and taxes.

     The exchanges shall be subject to the same fees and taxes provided by the laws of this state,

now or after this enacted, applicable to insurance companies organized or admitted to do the same

kind or kinds of business under the laws of this state.

     27-17-20. Applicability of insurance producers’ laws.

     The provisions of the general insurance laws of this state regarding the appointment,

licensing, qualification, and regulation of insurance producers shall not apply to an exchange or its

attorney, or to a traveling salaried employee, or to an executive officer or the attorney if a

corporation, but shall apply to any other person, partnership, or corporation representing the

reciprocal or interinsurance exchange in soliciting, negotiating, or effecting of business in this state.

     27-17-21. Applicability of rating laws.

     The provisions of the laws of this state regulating the making and applying of insurance

rates and providing for the licensing of rating organizations as set forth in chapters 6 and 9 of this

title and §§ 27-2-13, 27-5-1 — 27-5-11 and 27-8-4 — 27-8-6 shall apply to reciprocal or

interinsurance contracts, but nothing contained in those sections shall be construed to prohibit the

return of savings or dividends to subscribers or policyholders.

     27-17-22. Maximum liability on policy.

     No reciprocal exchange or interinsurer shall issue or deliver any policy insuring property

or interests in this state, the liability on which shall exceed an amount equivalent to ten percent

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(10%) of its surplus, unless the excess of liability over the ten percent (10%) is reinsured in a

company which maintains financial standards at least equal to those required by the laws of this

state.

     27-17-23. Exchange of workers’ compensation insurance.

     Employers are expressly authorized to exchange contracts of workers’ compensation

insurance, at any reciprocal exchange licensed in this state to do that kind of business, but all these

exchanges shall be subject to the provisions of the laws of this state relating to the business of

workers’ compensation insurance.

     27-17-24. Retaliatory laws.

     The retaliatory laws of this state shall be applicable to reciprocal or interinsurance

exchanges.

     27-17-25. Hearings on rules and decisions of commissioner.

     Any party in interest aggrieved by any order or decision of the commissioner or by any

rule or regulation adopted and promulgated by the commissioner may, within thirty (30) days after

notice of it to other known parties in interest, make written request to the commissioner for a

hearing. Within twenty (20) days after receipt of the written request, the commissioner shall hear

the party or parties and shall give not less than ten (10) days’ written notice of the time and place

of the hearing. Within fifteen (15) days after the hearing, the commissioner shall affirm, reverse,

or modify his or her previous action, specifying his or her reasons for the action. Pending the

hearing and decision on the hearing, the commissioner may suspend or postpone the effective date

of his or her previous action. At any hearing before the commissioner, observance of formal rules

of pleading or evidence shall not be required.

     27-17-26. Judicial review of orders and decisions of commissioner.

     Any final order or decision of the commissioner shall be subject to review by petition filed

within twenty (20) days after notice of it at the instance of any party in interest in the superior court

for the counties of Providence and Bristol, and the matter shall be heard de novo in the superior

court and decisions on issues of fact shall be in accordance with the preponderance of the evidence

presented there. The court shall determine whether the order or decision of the commissioner shall

be stayed pending the review. The court may, in disposing of the issue before it, modify, affirm, or

reverse the order or decision of the commissioner in whole or in part. Appeal may be taken from

the decision of the superior court to the supreme court, and the appeal shall follow the course of

equity.

     27-17-27. Severability.

     In the event any section, part, or provisions of this chapter is held to be illegal, that section,

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part, or provision shall not affect any other section, part, or provision of the chapter, but the

remaining sections, parts, and provisions shall be and remain in full force and effect.

     SECTION 4. This act shall take effect on January 1, 2026.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO INSURANCE -- VOLUNTARY RESTRUCTURING OF SOLVENT

INSURERS

***

     This act would make numerous technical corrections related to insurance, provides a

definition for "cybersecurity insurance", and would repeal the chapter relating to reciprocal

exchanges and interinsurers.

     This act would take effect on January 1, 2026.

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