Amended and Restated Plan of Operation

Virginia Property and Casualty Insurance Guaranty Association

Article 1. Plan of Operation.

This plan of operation, hereinafter referred to as the Plan, shall become effective upon written approval of the State Corporation Commission following approval by member insurers transacting at least 60 percent of the total net direct premiums written for the kinds of insurance covered by Chapter 16 of Title 38.2 of the Code of Virginia (the "Code") (which Chapter is hereinafter referred to sometimes as the "Virginia Property and Casualty Insurance Guaranty Association Act" and sometimes as the "Act") as specified under Section 38.2-1601.

Article 2. Board of Directors.

A. There shall be a Board of Directors in accordance with the provisions of Section 38.2-1605 of the Code of Virginia.

1. The Board of Directors shall consist of nine member insurers who shall serve three year terms. Each member of the Board shall designate its representative and may designate any alternate from the same member insurer. The Board of Directors shall be elected by the member insurers and shall fairly represent all types of member insurers. The initial board appointed by the State Corporation Commission shall serve for a period of three years. In the event the Commission shall determine that all types of member insurers are not fairly represented, it shall disapprove the membership of the Board and order another election. In the interim between such disapproval and the subsequent election, the Commission may appoint a temporary Board of Directors which fairly represents the member insurers.

2. Each Director shall serve for a period of three years.

3. Upon the election of the Board of Directors, the Association shall notify the State Corporation Commission.

4. The members elected to the Board of Directors shall elect a Chairman from among the designated representatives of its members.

5. Vacancies occurring on the Board of Directors between annual meetings of the Association shall be filled by a majority vote of the remaining members of the Board. Vacancies occurring in elective offices between annual meetings shall be filled by a majority vote of the Board. Directors and officers selected in this fashion shall serve for the unexpired term.

B. At any meeting of the Board of Directors, each member of the Board shall have one vote. A majority of the Board (including members consenting in writing as authorized by Article 2 Section D.8 of this Plan) 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; except that an affirmative vote of five Board members is required to:

1. approve a contract with a servicing facility.

2. levy an assessment or provide for a refund.

3. borrow money.

C. The Association shall hold an annual meeting of member insurers at the office of the Bureau of Insurance of the State Corporation Commission in Richmond on the second Tuesday in May, unless the Board upon proper notice shall designate some other date or place.

The Association shall elect directors when replacement is needed.

Each member insurer shall have one vote.

At each annual meeting the Board shall:

1. Review the plan and submit proposed amendments, if any, to the membership for approval or rejection. A majority vote of those voting shall be necessary for approval of amendments.

2. Review each outstanding contract with servicing facilities and, to the extent possible, make any necessary corrections, improvements or additions.

3. Review operating expenses and covered claims costs and determine if an assessment, or a refund of a prior assessment, is necessary for the proper administration of the Association and, if so, the amount of such assessment or refund. If such assessment or refund is determined to be necessary, the Board shall levy such assessment or make such refund in accordance with Sections 38.2-1606 A.3 and 38.2-1606 B.6 of the Code. The Board may waive the collection or any refund from or to a member insurer when the amount produces an assessment or refund of less than $10.00.

4. Review, consider and act on any other matters deemed by it to be necessary and proper for the administration of the Association.

D. The Board shall hold an emergency meeting promptly after receiving notice from the Commission of the insolvency of any member insurer. At such meeting or a subsequent meeting the Board shall:
 
1. Consider and determine whether or not an insurer has, in fact, become an insolvent insurer within the meaning of the Act.

2. Consider and decide what method or methods, as permitted under Section 38.2-1606 A.6 of the Code, shall be adopted to pay and discharge covered claims of the insolvent insurer for each of the three categories of kinds of insurance as identified in Section 38.2-1604 of the Code but in no event shall an insolvent insurer be appointed as a servicing facility. If the Board decides to appoint a servicing facility, every effort should be made to secure the receiver, liquidator or statutory successor's participation in such contract to assist the Association in the performance of its legally imposed duties.

3. Consider and decide what immediate action, if any, should be taken to assure the proper retention of the records of the insolvent insurer necessary to the prompt, 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 the liquidator's, receiver's, or statutory successor'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 broad directives of the Board made pursuant to its statutorily imposed duties. Such persons may include a managing secretary who should be knowledgeable about insurance matters, conversant with the law as it relates to covered claims, and administratively capable of implementing the Board's directives and who would have such authority as is properly delegated to him by the Board. Such persons may include attorneys at law, insurance actuaries, accountants, claimsmen and others whose advice is deemed by the board to be necessary to the discharge of its duties. The Board may agree to compensate such persons as to best serve the interest of the Association.

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 38.2-1606 A.4 and 38.2-1616 of the Code.

6. Consider and decide what assessment, if any, should be levied or whether any refund should be made to member insurers. If such assessment or refund is determined to be necessary or appropriate, the Board shall levy such assessment or make such refund in accordance with Sections 38.2-1606 A.3 and 38.2-1606 B.6 of the Code. Notices of assessments to member insurers shall be in sufficient detail as to form a basis for the payment of such assessment by the member insurers. The Board may waive the collection or refund from or to a member insurer when the amount produces an assessment or refund of less than $10.00.

7. Determine how the insureds of the insolvent insurer and any other interested parties shall be notified of the determination of insolvency and of their rights under Chapter 16 of Title 38.2 of the Code. In the event the Board is not satisfied that the Association will receive a complete and accurate list of recent addresses of such insureds within 30 days of the date of the determination of insolvency, it may give such notice by publication one time in daily newspapers in the eight larger metropolitan areas of the Commonwealth, including the metropolitan Washington area. In the event the Board has reason to believe that the insolvent insurer had no insureds residing in Virginia, it shall not be obligated to publish or otherwise give such notice.

8. The Association shall take all steps permitted by law, and deemed necessary or appropriate to protect the Association's rights against the estate of the insolvent insurer.

9. Consider and decide any other matter deemed by it to be necessary or appropriate for the proper administration of the Association.

E. The Board may determine a schedule of such other regular meetings as it may deem appropriate and special meetings of the Board may be called by the Chairman and shall be called at the request of any two Board members and not less than 5 days written notice shall be given to each Board member of the time and place and purpose or purposes of any special meeting, except that an emergency meeting may be held upon at least 48 hours oral or written notice, provided each member of the Board has reasonable opportunity to attend. Any Board member not present may consent in writing to any specific action taken by the Board. Any action approved by the required number of Board members at such emergency or special meeting, including those consenting in writing, shall be as valid a Board action as though authorized at a regular meeting of the Board. At such emergency meeting the Board may consider and decide any matter deemed by it to be necessary for the proper administration of the Association.

F. Any action which the Board might take at a special meeting may be taken without a meeting if a consent in writing, setting forth the action, shall be signed either before or after such action by all of the Directors. Such consent shall have the same force and effect as a unanimous vote.

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

H. 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, or such person or persons as may from time to time be designated by the Board, for approval and subsequent payment

Article 3. Operations.

A. The official address of the Association shall be the address of the Chairman of the Board unless otherwise designated by the Board.

B. All claims may be filed with the Association and claimants will be furnished with acceptable forms of proof of loss for submission to the Association.

C. The Board may employ such persons, firms or corporations to perform such administrative functions as are necessary for the Board's performance of the duties imposed on the Association. The Board may use the mailing address of such a person, firm or corporation as the official office address of the Association. Such persons, firms or corporations shall keep such records of its activities as may be required by the Board.

D. The Board may submit to arbitration any questions or disputes which fall within the scope of the Guiding Principles for Settling Disputes Between and Among Property and Casualty Insurance Guaranty Associations as to Responsibility for Claims and in connection therewith may enter into such agreements to effect such arbitration as the Board may from time to time determine to be appropriate or desirable.

E. 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 in its judgment deems advantageous for the Association and the public.

F. The Board may levy a non-pro rata assessment to cover the reasonable costs of administering the Association, such assessment to be credited against any subsequent pro rata assessment.

G. The Board may contract with one or more persons, firms or corporations to serve as servicing facilities, should the Board receive notice from the Commission of an insolvency of a member insurer. Such contract terms shall comply with the Virginia Property and Casualty Insurance Guaranty Association Act and be subject to the approval of the Commission. 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 timely notice, sufficient to protect the Association's rights of subrogation against the receiver, liquidator or statutory successor of each and every covered claim not otherwise reported to the receiver, liquidator or statutory successor.

4. Procedures contemplated for the handling of covered claims as defined in the Virginia Property and Casualty Insurance Guaranty Association Act. These procedures shall include the right to request from or offer to any person arbitration of his covered claim.

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

6. Requirement of bond for faithful performance.

7. Any other provisions deemed necessary or desirable by the Board of Directors.

H. The Board of Directors, at its annual meeting, or at any other meeting called for this purpose, shall review the insurance laws and regulations with a view toward making recommendations to the Commission for the detection and prevention of insurer insolvencies.

The Association shall develop forms for reporting and shall report the history and cause of each domestic 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 Commission. Copies of such written record shall be provided to each member insurer, upon request.

B. The Board shall make an annual report to the Commission 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 past year.

C. After the appointment of a receiver, liquidator or statutory successor and the levy of an assessment by the Association, the Board shall, once every year appoint an audit committee composed of three member insurers willing to serve, at least two of which are not already represented on the Board, receiving the largest assessment within the last calendar year. Such committee shall see to the proper auditing of all books and records of the Association and shall report the 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 June 25, 1970, to transact the kinds of insurance covered by the Virginia Property and Casualty Insurance Guaranty Association Act in the State of Virginia shall be members of this Association. Each insurer admitted after June 25, 1970, to transact the kinds of insurance covered by the Virginia Property and Casualty Insurance Guaranty Association Act shall automatically become, effective on the date of its admission, a member of this Association. An insurer which ceases to be admitted after June 25, 1970, shall automatically cease to be a member effective on the day following the termination or expiration of its license to transact the kinds of insurance covered by the Virginia Property and Casualty Insurance Guaranty Association Act, provided 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 Commission. If such member insurer is aggrieved by the 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 Commission within 30 days after the action or decision of the Board or the expiration of the 30 days.

Article 6. Indemnification of Officers, Directors and Others.

A. Definitions. For purposes of this Article 6:

"Director" and "officer" mean each member of the Board of Directors of the Association and each individual serving or who has served as a representative of a member insurer on the Board of Directors of the Association or as an alternative representative or who is or was an officer of the Association, as the case may be, or who, while a director or officer of the Association is or was serving at the Association's request as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. A director or officer shall be considered to be serving an employee benefit plan at the Association's request if his duties to the Association also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan.

"Individual" includes, unless the context requires otherwise, the estate, heirs, executors, personal representatives and administrators of an individual.

"Expenses" includes but is not limited to counsel fees.

"Liability" means the obligation to pay a judgment, settlement, penalty, fine, including any excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding.

"Official capacity" means: (i) when used with respect to a member of the Board of Directors or an individual serving as a representative of a member on the Board of Directors, the office of director in the Association; (ii) when used with respect to an officer, the office in the Association held by him; or (iii) when used with respect to an employee or agent, the employment or agency relationship undertaken by him on behalf of the Association. "Official capacity" does not include service for any foreign or domestic corporation or other partnership, joint venture, trust, employee benefit plan or other enterprise.

"Party" includes an individual who was, is or is threatened to be made a named defendant or respondent in a proceeding.
"Proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal.

B. Except as provided in Paragraph C of this Article, the Association shall indemnify every individual made a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if: (i) he conducted himself in good faith; and (ii) he believed, in the case of conduct in his official capacity with the Association, that his conduct was in its best interests and, in all other cases, that his conduct was at least not opposed to its best interests (or in the case of conduct with respect to an employee benefit plan, that his conduct was for a purpose he believed to be in the interests of the participants of and beneficiaries of the plan); and (iii) he had no reasonable cause to believe, in the case of any criminal proceeding, that his conduct was unlawful.

C. Indemnification Not Permitted. The Association shall not indemnify any individual against his willful misconduct or a knowing violation of the criminal law or against any liability incurred by him in any proceeding charging improper personal benefit to him, whether or not by or in the right of the Association or involving action in his official capacity, in which he was adjudged liable by a court of competent jurisdiction on the basis that personal benefit was improperly received by him.

D. Effect of Judgment or Conviction. The termination of a proceeding by judgment, order, settlement or conviction is not, of itself, determinative that an individual did not meet the standard of conduct set forth in Paragraph B of this Article or that the conduct of such individual constituted willful misconduct or a knowing violation of the criminal law.

E. Determination and Authorization. Unless ordered by a court of competent jurisdiction, any indemnification under Paragraph B of this Article shall be made by the Association only as authorized in the specific case upon a determination that indemnification of the individual is permissible in the circumstances because: (i) he met the standard of conduct set forth in Paragraph B of this Article and, with respect to a proceeding by or in the right of the Association in which such individual was adjudged liable to the Association, he is fairly and reasonably entitled to indemnification in view of all of the relevant circumstances even though he was adjudged liable; and (ii) the conduct of such individual did not constitute willful misconduct or a knowing violation of the criminal law.

Such determination shall be made: (i) by the Board of Directors by a majority vote of a quorum consisting of members of the Board of Directors who are not and no designated representative of which are at the time parties to the proceeding; or (ii) if such a quorum cannot be obtained, by a majority vote of a committee duly designated by the Board of Directors (in which designation members of the Board of Directors who are parties and members whose designated representatives are parties may participate), consisting solely of two or more members of the Board of Directors not at the time parties to the proceeding and no designated representative of which are parties to the proceeding; or (iii) by special legal counsel selected by the Board of Directors or its committee in the manner heretofore provided or, if such a quorum of the Board of Directors cannot be obtained and such a committee cannot be designated, selected by a majority vote of the Board of Directors (in which selection members of the Board of Directors who are parties and members whose designated representatives are parties may participate); or (iv) by the member insurers, but member insurers who are at the time parties to the proceeding and members whose designated representatives are parties to the proceeding may not vote on the determination. Authorization of indemnification, evaluation as to reasonableness of expenses and determination and authorization of advancements for expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those selecting such counsel.

F. Expenses. The Association may pay for or reimburse the reasonable expenses incurred by any individual who is a party to a proceeding in advance of final disposition of the proceeding if: (i) he furnished the Association a written statement of his good faith belief that he has met the standard of conduct described in Paragraph B of this Article and a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that indemnification of such individual in the specific case is not permissible; and (ii) a determination is made that the facts then known to those making the determination would not preclude indemnification under this Article. An undertaking furnished to the Association in accordance with the provisions of this Paragraph shall be an unlimited general obligation of the individual furnishing the same but need not be secured and may be accepted by the Association without reference to financial ability to make repayment.

G. Indemnification of Employees and Agents. The Association may, but shall not be required to, indemnify and advance expenses to employees and agents of the Association and any 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 to the same extent as provided in this Article with respect to directors and officers.
 
H. Partial Indemnification. If a person is entitled under any provision of this Article 6 to indemnification by the Association for a portion of the liability incurred in any Proceeding but not, however, for the total amount thereof, the Association shall nevertheless indemnify such person for the portion of such liability to which such person 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 a member 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 is intended to operate as a supplement and additional safeguard to, and not in place of, the immunity granted by Section 38.2-1615 of the Code.

K. Amendment. The provisions of this Article may be amended or repealed by the member insurers, pursuant to the provisions of Section C. l of Article 2 of this Plan, 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 with respect to acts or omissions occurring prior to such amendment or repeal.

Article 7. Conformity to Statute.

Chapter 16 of Title 38.2 of the Code as written, and as may be amended, is incorporated as part of this Plan and as such is attached hereto.