Second Amended and Restated Plan of Operation

Massachusetts Insurers Insolvency Fund

Article 1. Plan of Operation.

This Plan of Operation (the "Plan") of the Massachusetts Insurers Insolvency Fund (the "Fund") shall become effective upon written approval by the Commissioner of Insurance (the "Commissioner") and shall conform to the provisions of Chapter 1 75D, G.L., Mass., enacted as Chapter 261, Laws 1970, "An Act establishing an Insurer insolvency fund for the protection of the policyholders," as it may be amended from time to time (the "Act").  Section references herein are to sections of the Act.

Article 2. Board of Directors.

A. The Fund shall be governed by a Board of Directors (the "Board") In accordance with Sections 3 and 4 of the Act. 

1. The Board shall consist of nine members, eight member insurers nominated by member insurers subject to the approval of the Commissioner and one member appointed from time to time by the Commissioner as a representative of insurance producers.

2. The member of the Board appointed by the Commissioner shall serve until such member's successor is appointed by the Commissioner. 
    
3. By mail vote, on a cumulative weighted basis, the ballots for which shall be mailed to member insurers at least thirty days prior to the first annual meeting of the Board in 2004, the member insurers shall nominate three directors for a three-year term including two directors to succeed the two member insurer directors whose terms are to expire at such meeting. By similar mail vote prior to each annual meeting of the Board thereafter, the member insurers shall nominate directors to serve for a three-year term to succeed the member insurer directors whose terms are to expire at such annual meeting. In case of a vacancy on the Board, the remaining member companies serving on the Board shall nominate a member insurer in the case of a vacancy of a member insurer director, or a person designated by the Commissioner in the case of a member appointed by the Commissioner, in either case to serve out the un-expired term subject to approval by the Commissioner.

4. Each member insurer of the Board shall designate the person who shall serve as its representative on the Board and may change such designation or be represented by an alternate at any time.
   
5. The Board shall elect a Chairman and such other officers as it may deem appropriate from members of the Board, each to serve for a period of one year.

B. At any meeting of the Board, each member of the Board shall have one vote. A majority of the Board shall constitute a quorum for the transaction of business and the acts of a majority of the Board members present at a meeting at which a quorum is present shall be the act of the Board; except that an affirmative vote of five Board members shall be required to:

1. approve a contract with a servicing facility,

2. levy an assessment or provide for a refund, or

3. borrow money.

C. An annual meeting of the Board shall be held at the office of the Commissioner in October, unless the Board upon proper notice shall designate some other date or place. At each such meeting, the Board shall:
    
1. Review the Plan and thereafter submit any proposed amendments to the membership for approval or rejection by a weighted majority vote of those voting.
   
2. Review each outstanding contract with a servicing facility and make any necessary corrections, improvements or additions.
    
3. Review operating expenses and covered claims costs and determine whether an assessment or a refund of a prior assessment, and if so the amount of either, would be appropriate for the proper administration of the Fund. The Board may waive collection from or refund to a member insurer when the amount thereof is less than $10.00.
    
4. Review, consider and act on any other matters it may deem appropriate.

D. The Board shall hold an emergency meeting promptly after receiving notice from the Commissioner of the insolvency of a member insurer. At such meeting or any subsequent meeting the Board shall:
    
1. Consider whether the insolvency is within the scope of the Act.
    
2. Consider and decide what method or methods shall be adopted to pay and discharge covered claims of the insolvent insurer. In no event shall an insolvent insurer be appointed as a servicing facility. If the Board decides to contract with a servicing facility, the Board shall endeavor to secure the receiver's, liquidator's or statutory successor's participation in such contract to assist the Fund in the performance of its legally imposed duties. The Fund shall pursue all recoveries permitted to the insolvent insurer.
    
3. Consider and decide what immediate action, if any, should be taken to assure proper retention of the records of the insolvent insurer necessary to the prompt and economical handling by the Fund of covered claims. In this effort, the Board, or a designated servicing facility, shall work closely with the receiver, liquidator or statutory successor and seek such person's approval of having the Board, or a designated servicing facility, take direct physical control of that portion of the insolvent insurer's records deemed by the Board to be necessary for the discharge of its duties imposed by law.
    
4. Consider and decide what persons, if any, should be hired by the Fund to implement and carry out the directives of the Board made pursuant to its statutorily imposed duties.
    
5. Consider and decide to what extent and in what manner the Board shall review and contest settlements and releases or judgments, orders, decisions, verdicts and findings to which the insolvent insurer or its insureds were parties in accordance with Sections 5(1 )(d) and 15 of the Act.
    
6. Consider and decide whether an assessment should be levied on, or a refund made to, member insurers. Notices of assessment to member insurers shall be in sufficient detail as to fully inform member insurers with respect thereto. The Board may waive collection from or refund to a member insurer when the amount thereof is less than $10.00.
    
7. Take all steps permitted by law and deemed necessary to protect the Fund's rights against the estate of the insolvent insurer.
    
8. Consider and decide any other matters it may deem appropriate.

E. The Board may establish a schedule of regular meetings as it may deem appropriate. Special meetings of the Board may be called by the Chairman and shall be called at the request of any two Board members. Not less than five days written notice shall be given to each Board member of the time, place and purpose of any meeting; provided that an emergency meeting may be called upon not less than twenty-four hours oral or written notice designed to afford each member of the Board reasonable opportunity to attend such meeting. Any Board member not present may consent in writing to action taken by the Board. Any action approved by the required number of Board members at an emergency or special meeting, including those consenting in writing, shall be as valid as if authorized at a regular meeting of the Board. At any emergency or special meeting, the Board may consider and decide any matter it may deem appropriate.

F. Members of the Board may participate in a meeting of the Board through the use of a conference telephone or similar communications equipment, by means of which all persons participating in the meeting are able to hear each other, and the participation by such means shall constitute presence in person at such meeting.

G. Members of the Board shall serve without compensation: but they may be reimbursed for necessary travel expenses incurred in attendance at Board meetings. Such expenses shall be submitted to the Board for approval and subsequent payment.

Article 3. Operations.

A. The Board may employ such personnel as are necessary to handle claims and perform other duties of the Fund. The Board may use the mailing address of any such person, firm or organization as the official address of the Fund. Such persons, firms or organizations shall keep such records of their activities as may be required by the Board.

B. The Board may open one or more bank accounts for use in Fund business. Reasonable delegation of deposit and withdrawal authority to such accounts for Fund business may be made consistent with prudent fiscal policy. The Board may borrow money from any person or organization, including a member insurer, or from an appointed servicing facility, as the Board may deem appropriate. 

C. The Board may levy a non-pro rata assessment against member insurers to cover the reasonable costs of administration of the Fund, the amount of such assessment to be credited against any subsequent pro rata assessments.

D. The Board may contract with one or more persons, firms, or organizations to act as servicing facilities, following receipt of notice from the Commissioner of the insolvency of a member insurer. Such contract terms shall comply with the Act and be subject to the approval of the Commissioner. Such contract terms may include:

1. Terms of payment to the servicing facility.

2. Extent of authority delegated to the servicing facility.

3. Procedures for giving the receiver, liquidator or statutory successor timely notice, sufficient to protect the Fund's rights, of each and every covered claim not otherwise reported to such person.

4. Procedures for the handling of covered claims as defined in the Act.

5. Procedures for the printing or preparation of forms necessary for the proper handling of covered claims.

6. Requirement of a bond for faithful performance.

7. Any other provisions deemed appropriate by the Board.

E. The Board shall develop procedures for discovering and reporting to the Commissioner any member insurer that may be insolvent or in a financial condition hazardous to its policyholders or the public. No such reports shall be considered public documents.

The Board, at its annual meeting, or at any other meeting called for that purpose, shall review the Act and related laws and regulations with a view toward making recommendations to the Commissioner for the detection and prevention of insurer insolvencies.

The Fund shall report the history and cause of each insolvency processed and shall maintain a continuing file of such reports.

Article 4. Records and Reports.

A. A written record of the proceedings of each Board meeting shall be made. The original of this record shall be retained by the Chairman with copies being furnished to each Board member and the Commissioner. Copies of such written record shall be provided to any member insurer, upon request.

B. The Board shall make an annual report to the Commissioner and to the member insurers. Such report shall include a review of the Fund's activities and an accounting of its income and disbursements for the preceding year.

C. After the appointment of a receiver, liquidator or statutory successor and the levy of on assessment by the Fund, the Board shall annually appoint an audit committee composed of three member insurers willing to serve.  Such committee shall see to the proper auditing of all books and records of the Fund and shall report its findings to the Board. Such report shall be available to all member insurers, upon request.

Article 5. Membership.

A. Insurers which were admitted, as of January 1, 1971 to transact in the Commonwealth the kinds of insurance covered by the Act are members of the Fund. Each insurer admitted after January 1, 1971, to transact the kinds of insurance covered by the Act shall automatically become, effective on the date of its admission, a member of the Fund. An insurer which ceases to be admitted after January 1, 1971, shall automatically cease to be a member on the day following the termination or expiration of its license to transact the kinds of insurance covered by the Act; provided that such insurer shall remain liable for any assessments based on insolvencies occulting prior to the termination of its license.

B. Any member insurer aggrieved by an action or decision of the Fund shall appeal to the Board before appealing to the Commissioner. If such member insurer is aggrieved by a final action or decision of the Board, or if the Board does not act on such complaint within 30 days, the member insurer may appeal to the Commissioner within 30 days after such action or decision of the Board or the expiration of such 30 days.

Article 6. Indemnification of Officers, Directors and Others.

A. Definitions. For purposes of this Article 6:

1. "Director/officer" means each member of the Board, each individual serving as a representative of a member insurer on the Board, each employee, officer or agent of the Fund, each employee, officer or agent of any association or other entity which performs services, including without limitation claims handling services, on behalf of the Fund (in their capacity of performing such services on behalf of the Fund only) and each person who is serving or has served at the request of the Fund or such other entity as a director, officer, trustee, fiduciary, principal, partner, member of a committee, employee, consultant or agent of any other entity (sometimes referred to in this Article 6 as a "Fund Related Entity").

2. "Proceeding" means any action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom, brought in or before, or threatened to be brought in or before any court, tribunal, administrative or legislative body or agency, and any claim which could be the subject of a Proceeding.

3. "Expense" means any fine or penalty, and any liability fixed by a judgment, order, decree or award in a Proceeding, any interest payable on account of such liability, any amount reasonably paid in settlement of a Proceeding and any attorneys or other professional fees and other costs, charges and disbursements reasonably incurred in connection with the investigation, defense, appeal or settlement of a Proceeding.

B. Indemnification. Except as limited by law or as provided in Sections C and D of this Article 6, each Director/officer (and the successors, assigns, heirs and personal representatives thereof) shall be indemnified and held harmless by the Fund from and against any and all expenses incurred by the Director/officer in connection with each Proceeding in which the Director/officer is involved as a result of his or her serving or having served as a Director/officer or as a result of any action alleged to have been taken or omitted as a Director/officer, whether such service, action or omission takes place before or after the date of the effectiveness of this Article 6.

C. Indemnification Not Available. No indemnification shall be provided to a Director/officer with respect to a Proceeding as to which it shall have been adjudicated that the Director/officer did not act in good faith in the reasonable belief that the Director/officer's action was in the best interests of the Fund or Fund Related Entity or with respect to a criminal Proceeding, as to which it shall have been adjudicated that the Director/officer believed his or her conduct was unlawful.

D. Settlement. In the event that a Proceeding is compromised or settled so as to impose any liability or obligation on a Director/officer or upon the Fund or Fund Related Entity, no indemnification shall be provided as to said Director/officer with respect to such Proceeding if it is determined (I) by a majority of the disinterested Directors of the Fund then in office (which for purposes hereof shall exclude member insurers whose representatives on the Board are parties to such Proceeding) or (II) in the absence of any disinterested Directors or at the request of a majority of the disinterested Directors, by a majority of the member insurers, that with respect to the matter involved in such Proceeding said Director/officer did not act in good faith in the reasonable belief that the Director/officer's action was in the best interests of the Fund or Fund Related Entity. In lieu of submitting the question to a vote of disinterested Directors or member insurers, as provided above, the Fund may deny indemnification to said Director/officer with respect to such Proceeding, if there has been obtained at the request of a majority of the Directors then in office an opinion in writing of independent legal counsel, other than counsel to the Fund, to the effect that said Director/officer did not act in good faith in the reasonable belief that said Director/officer's action was in the best interests of the Fund or Fund Related Entity.

E. Advances. The Fund shall pay sums on account of indemnification, including, without limitation, attorneys fees and related disbursements, In advance of a final disposition of a Proceeding upon receipt of an undertaking by the Director/officer to repay such sums if it is subsequently established that the Director/officer is not entitled to indemnification pursuant to Sections C and D of this Article 6, which undertaking may be accepted without reference to the financial ability of the Director/officer to make repayment.

F. Partial Indemnification. If a Director/officer is entitled under any provision of this Article 6 to indemnification by the Fund for a portion of the expense of any Proceeding but not, however, for the total amount thereof, the Fund shall nevertheless indemnify the Director/officer for the portion of such expense to which the Director/officer is entitled.

G. Allocation of Indemnification Expense. The expense of indemnification provided hereunder shall be assessed against and paid by the member insurers in the proportion that the net direct written premiums of each member insurer for the calendar year preceding such assessment bears to the net direct written premiums of all member insurers for the calendar year preceding such assessment, except in the case of insurers who shall cease to be a member of the Fund, as to which assessments shall be as follows: any insurer which ceases to be a member of the Fund shall remain liable for assessments on account of the expense of indemnification with respect to any and all acts and omissions occurring prior to the time such insurer ceases to be a member of the Fund, and, in the case of such insurers, the assessment for indemnification expense shall be in the proportion that the net direct written premiums of the insurer for the calendar year preceding the year in which the act or omission with respect to which indemnification is claimed bears to the net direct written premiums of all member insurers for the calendar year preceding the year in which the act or omission with respect to which indemnification is claimed.

H. Non-Exclusive. Nothing in this Article 6 shall limit any lawful rights to indemnification existing independently of this Article 6. This Article 6 is intended to operate as a supplement and additional safeguard to, and not in place of, the immunity granted by Section 14 of the Act.

I. Amendment. The provisions of this Article 6 may be amended or repealed by the member insurers; provided however that no amendment or repeal of such provisions shall adversely affect the rights of a person or entity entitled to indemnification under this Article 6 with respect to acts or omissions occurring prior to such amendment or repeal.