Second Amended and Restated Plan of Operation

Rhode Island Property & Casualty Insurance Guaranty Association

Article 1. Plan of Operation.

This Plan of Operation (the "Plan") of the Rhode Island Property & Casualty Insurance Guaranty Association (formerly known as the Rhode Island Insurers Insolvency Fund) (the "Association") shall become effective upon written approval by the Superintendent of Insurance (the "Superintendent") and shall conform to the provisions of the Rhode Island Property & Casualty Insurance Guaranty Association Act (the "Act"), R.I.G.L. s. 27-34, et seq, as it may be amended from time to time. All section references herein are to sections of the Act.

Article 2. Board of Directors.

A. The Association shall be governed by a Board of Directors (the "Board") in accordance with Section 7 of the Act.

1. The Board shall consist of not less than five (5) nor more than eleven (11) persons.  No less than five (5) nor more than nine (9) of those persons will be representatives of member insurers, subject to the approval of the Superintendent.  Two (2) persons may be public representatives appointed by the Superintendent.  A public representative may not be an officer, director or employee of an insurance company or engaged in the business of insurance.  In addition, the Superintendent may sit as an Ex-Officio member of the Board, and as such, he or she shall be entitled to have notice of and to attend all meetings of the Board, including those times during which the Board shall meet in Executive Session; however, the Superintendent shall have no vote.

2. The members of the initial Board shall serve until the first annual meeting of the Board or until their successors are duly elected and qualified.

3. By mail vote, the ballots for which shall be mailed to member insurers at least thirty days prior to the first annual meeting of the Board, the member insurers shall nominate three directors for a three year term, two for a two year term and two for a one year term. 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 directors whose terms are to expire at such annual meeting. In case of a vacancy on the Board, the remaining member insurers serving on the Board shall nominate a member insurer to serve out the unexpired term subject to approval by the Superintendent.

4. Each member insurer on 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 Chair and such other officers as it may deem appropriate from members of the Board, each to serve for a period of one year.

B. Except during such times as the Board shall meet in Executive Session, Board meetings shall be open to members of the public upon invitation by, or with the consent of, either the Board or the Superintendent. 
      
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 acts of the Board; an affirmative vote of a majority of the full Board 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 Superintendent 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 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 Association. 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 Superintendent 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 Association in the performance of its legally imposed duties. The Association 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 Association 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 Association 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 Section 8(1)(d) 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 Association'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, including telephone meetings, of the Board may be called by the Chair 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, including a telephone 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.  The Association shall establish and maintain written procedures to designate the amount and method of reimbursing members of the Board.

Article 3. Operations.

A. The Board may employ such personnel as are necessary to handle claims and perform other duties of the Association. The Board may use the mailing address of any such person, firm or organization as the official address of the Association. 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 Association business. Reasonable delegation of deposit and withdrawal authority to such accounts for Association 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 Association, 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 Superintendent of the insolvency of a member insurer. Such contract terms shall comply with the Act and be subject to the approval of the Superintendent. 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 Association's rights, of each and every covered claim not otherwise reported to him.

4. Procedures for 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.

Article 4. Records and Reports.

A. A written record of the proceedings of each Board meeting shall be made. Copies shall be furnished to each Board member and the Superintendent. Copies of such written record shall be provided to any member insurer, upon request.

B. The Board shall make an annual written report to the Superintendent and to the member insurers. Such report shall include a review of the Association'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 an assessment by the Association, the Board shall annually appoint certain of the member insurers to serve as an Audit Committee.  Such committee shall see to the proper auditing of all books and records of the Association and shall report its findings to the Board. Such report shall be available to all member insurers, upon request.
 
D. The Association shall establish written procedures for the disposition of liquidating dividends or other monies received from the estate of an insolvent insurer.

Article 5. Membership.

A. Insurers which were admitted, as of July 1, 1988, to transact in Rhode Island the kinds of insurance covered by the Act are members of the Association. Each insurer admitted after July 1, 1988, to transact the kinds of insurance covered by the Act shall automatically become, effective on the date of its admission, a member of the Association. An insurer which ceases to be admitted after July 1, 1988, 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 occurring prior to the termination of its license.

B. Any member insurer aggrieved by an action or decision of the Association shall appeal to the Board before appealing to the Superintendent. 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 Superintendent 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. "Directors/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 Association, each employee, officer or agent of any association or other entity which performs services, including without limitation claims handling services, on behalf of the Association (in their capacity of performing such services on behalf of the Association only) and each person who is serving or has served at the request of the Association 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 an "Association 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.

B. Indemnification. The Association shall indemnify and hold harmless any Director/officer that is made a party to any threatened, pending or completed Proceeding (any such Director/officer being referred to hereinafter as "Indemnitee"), by reason of the fact that Indemnitee is or was a Director/officer or by reason of any action alleged to have been taken or omitted in any such capacity, whether such service, action or omission takes place before or after the effective date of this Article 6, if:

(i) Indemnitee conducted itself in good faith;

(ii) Indemnitee reasonably believed (i) in the case of conduct as director, officer, employee or agent of the Association, that Indemnitee's conduct was in the best interest of the Association, (ii) in the case of conduct as an officer, director, member, trustee, fiduciary, employee or agent of a Association Related Entity, that Indemnitee's conduct was in the best interest of the Association Related Entity or the Association, and (iii) in all other cases, that Indemnitee's conduct was at least not opposed to the best interest of the Association; and

(iii) In the case of any criminal Proceeding, Indemnitee had no reasonable cause to believe Indemnitee's conduct was unlawful. 

Indemnification may be made against judgments, penalties, fines, interest, settlements and reasonable expenses, including attorneys' fees, actually incurred by Indemnitee in connection with the Proceeding, except that if the Proceeding was by or in the right of the Association, indemnification may be made only against such reasonable expenses and shall not be made in respect of any Proceeding in which Indemnitee shall have been adjudged to be liable to the Association. Determination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, be determinative that Indemnitee did not meet the requisite standard of conduct set forth in this Section B.

C. Indemnification Not Available. Indemnitee shall not be indemnified under Section B in respect of any Proceeding charging improper personal benefit to Indemnitee, whether or not involving action in Indemnitee's capacity as Director/officer, in which Indemnitee shall have been adjudged to be liable on the basis that personal benefit was improperly received by Indemnitee.

D. Successful Defense of Proceedings. If Indemnitee is successful, on the merits or otherwise, in the defense of any Proceeding referred to in Section B, Indemnitee shall be indemnified against reasonable expenses, including attorneys' fees, incurred by Indemnitee in connection with the Proceeding. Indemnitee shall also be entitled to indemnification if and to the extent that, upon application of Indemnitee to a court of appropriate jurisdiction and such notice as the court shall require, the court determines that Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not Indemnitee has met the standard of conduct set forth in Section B or has been adjudged liable in the circumstances described in Section C, except that indemnification with respect to any Proceeding by or in the right of the Association or in which liability shall have been adjudged in the circumstances described in Section C shall be limited to expenses, including attorneys' fees.

E. Determination that Indemnification is Available. No indemnification under Section B shall be made by the Association unless authorized in each specific case after a determination has been made that indemnification of Indemnitee is permissible in the circumstances because Indemnitee has met the standard of conduct set forth in Section B. Such determination shall be made:
 
(i) by the Board by a majority vote of a quorum consisting of directors not at the time parties to the Proceeding and whose representatives on the Board are not at the time parties to the Proceeding; or

(ii) if such a quorum cannot be obtained, then by a majority vote of a committee of the Board, duly designated to act in the matter by a majority vote of the full Board (in which designation directors who are parties to the Proceeding may participate), consisting solely of two (2) or more directors not at the time parties to the Proceeding and whose representatives on the Board are not at the time parties to the Proceeding; or

(iii) by special legal counsel, selected by the Board or a committee thereof by vote as set forth in items (i) or (ii) of this Section E, or, if the requisite quorum of the full Board cannot be obtained therefore and such committee cannot be established, by a majority vote of the full Board (in which selection directors who are parties to the Proceeding may participate); or

(iv) if no quorum or committee as provided in items (i) or (ii) of this Section E can be constituted, by a majority vote of the full Board (in which vote directors who are parties to the Proceeding may participate) after providing each member insurer of the Association notice of its intention to make such determination and asking such member insurers to provide the Association with notice of any objections thereto; provided that any such determination shall not be effective until sixty (60) days following such Board notice and shall not be effective at all in the event a majority of the member insurers provide notice to the Association within such sixty (60) day period of their objection to such determination.

Authorization of indemnification and determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination that indemnification is permissible is made by special legal counsel, authorization of indemnification and determination as to reasonableness of expenses shall be made in a manner specified in item (iii) of this Section E for the selection of such counsel.

F. Advances. Reasonable expenses, including attorneys' fees, incurred by Indemnitee in a Proceeding shall be paid or reimbursed by the Association in advance of the final disposition of such Proceeding upon receipt by the Association of:
 
(i) a written affirmation by Indemnitee of Indemnitee's good faith belief that Indemnitee has met the standard of conduct necessary for indemnification by the Association as authorized in this Article 6; and

(ii) a written undertaking by or on behalf of Indemnitee to repay such amount if it shall ultimately be determined that Indemnitee has not met such standard of conduct, and after a determination that the facts then known to those making the determination would not preclude indemnification under this Agreement. The undertaking required by this subsection (ii) shall be an unlimited general obligation of Indemnitee but need not be secured and may be accepted without reference to financial ability to make repayment.

G. Disclosure to Members. Any indemnification of, or advance of expenses to, Indemnitee in accordance with this Article 6, if arising out of a Proceeding by or in the right of the Association, shall be reported in writing to the member insurers of the Association.

H. Partial Indemnification. If Indemnitee is entitled under any provision of this Article 6 to indemnification by the Association for a portion of the liability or expense of any Proceeding but not, however, for the total amount thereof, the Association shall nevertheless indemnify Indemnitee for the portion of such Expense to which Indemnitee is entitled.

I. 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 members of the Association, as to which assessments shall be as follows: any insurer which ceases to be a member of the Association 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 Association, 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.

J. 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 16 of the Act.
 
K. 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.