The Vermont Statutes Online

Title 8: Banking and Insurance

Chapter 132: Reciprocal Insurers

• § 4831. Definitions

  As used in this chapter, unless the context clearly requires otherwise:

  (1) “Attorney” means the attorney-in-fact of a reciprocal insurer.

  (2) “Reciprocal” insurance is that resulting from an interchange among persons, known as subscribers, of reciprocal agreements of indemnity, the interchange being effectuated through an attorney-in-fact common to all such persons.

  (3) “Subscribers” are persons who enter into reciprocal insurance agreements under this chapter. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4832. Scope of chapter; existing insurers

  (a) All authorized reciprocal insurers shall be governed by those provisions of this chapter not expressly made applicable to domestic reciprocal insurers.

  (b) Existing authorized reciprocal insurers shall after March 31, 1971 comply with this chapter, and shall make such amendments to their subscribers’ agreement, power of attorney, policies, and other documents and accounts and perform such other acts as may be required for such compliance. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4833. Insuring powers of reciprocals

  (a) A reciprocal insurer may, upon qualifying therefor as provided for by this title, transact any kind or kinds of insurance defined by this title, other than life or title insurances.

  (b) Such an insurer may purchase reinsurance upon the risk of any subscriber or subscribers, and may assume or cede reinsurance as to any kind of insurance it is authorized to transact direct. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 1997, No. 49, § 1, eff. June 26, 1997.)

• § 4834. Name; suits

  A reciprocal insurer shall:

  (1) Have and use a business name. The name shall include the word “reciprocal,” or “interinsurer,” or “interinsurance,” or “exchange,” or “underwriters,” or “underwriting,” or “association.”

  (2) Sue and be sued in its own name. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 1997, No. 49, § 2, eff. June 26, 1997.)

• § 4835. Attorney

  (a) The attorney of a foreign reciprocal insurer, which is duly authorized to transact insurance in this State, shall not, by virtue of discharge of its duties as such attorney with respect to the insurer’s transactions in this State, be deemed to be doing business in this State within the meaning of any laws of this State applying to foreign persons, firms, or corporations.

  (b) The subscribers and the attorney-in-fact comprise a reciprocal insurer and a single entity as to all operations under the insurer’s certificate of authority. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4836. Organization of reciprocal insurer

  (a) Two or more persons may organize a domestic reciprocal insurer and make application to the Commissioner for a certificate of authority to transact insurance.

  (b) The proposed attorney shall fulfill the requirements of and shall execute and file with the Commissioner when applying for a certificate of authority a declaration setting forth:

  (1) the name of the insurer;

  (2) the location of the insurer’s principal office, which shall be the same as that of the attorney and shall be maintained within this State;

  (3) the kinds of insurance proposed to be transacted;

  (4) the names and addresses of the original subscribers;

  (5) the designation and appointment of the proposed attorney and a copy of the power of attorney;

  (6) the names and addresses of the officers and directors of the attorney, if a corporation, or its members, if a firm or a limited liability company;

  (7) the powers of the subscribers’ advisory committee and the names and terms of office of the members thereof;

  (8) that all monies paid to the reciprocal shall, after deducting therefrom any sum payable to the attorney, be held in the name of the insurer and for the purposes specified in the subscribers’ agreement;

  (9) a statement that each of the original subscribers has in good faith applied for insurance of a kind proposed to be transacted, and that the insurer has received from each such subscriber the full premium or premium deposit required for the policy applied for, for a term of not less than six months at an adequate rate previously filed with and approved by the Commissioner;

  (10) a statement of the financial condition of the insurer, a schedule of its assets, and a statement that the surplus as required by this title is on hand; and

  (11) a copy of each policy, endorsement, and application form it then proposes to issue or use.

  (c) The declaration shall be acknowledged by the attorney in the manner required for the acknowledgment of deeds. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 1997, No. 49, § 3, eff. June 26, 1997; 2003, No. 55, § 1; 2021, No. 105 (Adj. Sess.), § 231, eff. July 1, 2022.)

• § 4837. Certificate of authority

  (a) The certificate of authority of a reciprocal insurer shall be issued to its attorney in the name of the insurer.

  (b) The Commissioner may refuse, suspend, or revoke the certificate of authority, in addition to other grounds therefor, for failure of the attorney to comply with any applicable provisions of this title. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4838. Power of attorney

  (a) The rights and powers of the attorney of a reciprocal insurer shall be as provided in the power of attorney given it by the subscribers. A valid power of attorney shall be in writing, executed by the subscriber, and duly executed by the attorney-in-fact.

  (b) The power of attorney must set forth:

  (1) the powers of the attorney;

  (2) the general services to be performed by the attorney;

  (3) the maximum amount to be deducted from advance premiums or deposits to be paid to the attorney and the general items of expense in addition to losses, to be paid by the insurer; and

  (4) except as to nonassessable policies, a provision for a contingent several liability of each subscriber in a specified amount.

  (c) The power of attorney may:

  (1) provide for the right of substitution of the attorney and revocation of the power of attorney and rights thereunder;

  (2) impose such restrictions upon the exercise of the power as are agreed upon by the subscribers;

  (3) provide for the exercise of any right reserved to the subscribers directly or through their advisory committee; and

  (4) contain other lawful provisions deemed advisable.

  (d) The terms of any power of attorney or agreement collateral thereto shall be reasonable and equitable, and no such power or agreement shall be used or be effective in this State until approved by the Commissioner. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 2009, No. 137 (Adj. Sess.), § 16, eff. May 29, 2010; 2013, No. 29, § 45, eff. May 13, 2013.)

• § 4839. Modifications

  Modifications of the terms of the subscribers’ agreement or of the power of attorney of a domestic reciprocal insurer shall be made jointly by the attorney and the subscribers’ advisory committee. No such modification shall be effective retroactively, nor as to any insurance contract issued prior thereto. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4840. Attorney’s bond

  (a) Concurrently with the filing of the declaration provided for in section 4836 of this title, the attorney of a domestic reciprocal insurer shall file with the Commissioner a bond in favor of this State for the benefit of all persons damaged as a result of breach by the attorney of the conditions of his or her bond which shall be executed by the attorney and by an authorized corporate surety, and which shall be in the form as set forth in subsection (b) of this section. The bond shall be executed subject to the Commissioner’s approval.

  (b) The bond shall be in the penal sum of $250,000.00 aggregate in form, conditioned that the attorney will faithfully account for all monies and other property of the insurer coming into his or her hands, and that he or she will not withdraw or appropriate to his or her own use from the funds of the insurer, any monies or property to which he or she is not entitled under the power of attorney.

  (c) The bond shall provide that it is not subject to cancellation unless 30 days’ notice in writing of cancellation is given both the attorney and the Commissioner.

  (d) The Commissioner may waive or reduce the requirements of this section for an attorney that is under common ownership or control with a reciprocal insurer. The Commissioner may reduce by 50 percent the bond amount required by this section for an attorney that is not under common ownership or control with a reciprocal insurer if the Commissioner finds sufficient evidence of financial responsibility, notwithstanding the reduction of the bond amount. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 1997, No. 49, § 4, eff. June 26, 1997; 2003, No. 55, § 2; 2007, No. 178 (Adj. Sess.), § 9.)

• § 4841. Deposit in lieu of bond

  In lieu of the bond required under section 4840 of this title, the attorney may maintain on deposit in the office of the Commissioner, subject to the same conditions as the bond, a like amount in:

  (1) cash;

  (2) securities qualified as insurer investments; or

  (3) a letter of credit issued for the benefit of and acceptable to the Commissioner. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 1997, No. 49, § 5, eff. June 26, 1997; 2003, No. 55, § 3.)

• § 4842. Action on bond

  Action on the attorney’s bond or to recover against any such deposit made in lieu thereof may be brought at any time by one or more subscribers suffering loss through a violation of its conditions, or by a receiver or liquidator of the insurer. Amounts recovered on the bond shall be deposited in and become part of the insurer’s funds. The total aggregate liability of the surety shall be limited to the amount of the penalty of such bond. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4843. Services of process; judgment

  (a) Legal process shall be served upon a domestic reciprocal insurer by serving the insurer’s attorney at his or her principal office.

  (b) Any judgment based upon legal process so served shall be binding upon each of the insurer’s subscribers as their respective interests may appear, but in an amount not exceeding their respective contingent liabilities, if any, the same as though personal service of process was had upon each such subscriber. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4844. Contributions to insurer

  The attorney or other parties may advance to a domestic reciprocal insurer upon reasonable terms such funds as it may require from time to time in its operations. Sums so advanced shall not be treated as a liability of the insurer and, except upon liquidation of the insurer, shall not be withdrawn or repaid except out of the insurer’s realized earned surplus in excess of its minimum required surplus. No such withdrawal or repayment shall be made without the prior written approval of the Commissioner. This section does not apply to bank loans or to other loans made upon security. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4845. Financial condition; method of determining

  In determining the financial condition of a reciprocal insurer, the Commissioner shall apply the following rules:

  (1) The Commissioner shall charge as liabilities the same reserves as are required of incorporated insurers issuing nonassessable policies on a reserve basis.

  (2) The surplus deposits of subscribers shall be allowed as assets, except that any premium deposit delinquent for 90 days shall first be charged against such surplus deposit.

  (3) The surplus deposits of subscribers shall not be charged as a liability.

  (4) All premium deposits delinquent less than 90 days shall be allowed as assets.

  (5) An assessment levied upon subscribers, and not collected, shall not be allowed as an asset.

  (6) The contingent liability of subscribers shall not be allowed as an asset.

  (7) The computation of reserves shall be based upon premium deposits other than membership fees and without any deduction for expenses and the compensation of the attorney. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 2003, No. 55, § 4.)

• § 4846. Subscribers

  Any individual or entity that is duly organized under the laws of this State or the laws of another jurisdiction may make application for, enter into agreement for, and hold policies or contracts in or with and be a subscriber of any domestic, foreign, or alien reciprocal insurer. Any corporation organized under the laws of this State, including nonprofit corporations organized under the provisions of Title 11B of the Vermont Statutes Annotated, shall, in addition to the rights, powers, and franchises specified in its articles of incorporation, have full power and authority as a subscriber to exchange insurance contracts through such reciprocal insurer. The right to exchange such contracts is declared to be incidental to the purposes for which such corporations are organized and to be as fully granted as the rights and powers expressly conferred upon such corporations. Government or governmental agencies, state or political subdivisions thereof, boards, associations, estates, trustees, or fiduciaries are authorized to exchange nonassessable reciprocal interinsurance contracts with each other and with individuals and lawful entities to the same extent that individuals and lawful entities are herein authorized to exchange reciprocal interinsurance contracts. Any officer, representative, trustee, receiver, or legal representative of any such subscriber shall be recognized as acting for or on its behalf for the purpose of such contract but shall not be personally liable upon such contract by reason of acting in such representative capacity. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 1997, No. 49, § 6, eff. June 26, 1997; 2009, No. 137 (Adj. Sess.), § 17, eff. May 29, 2010; 2021, No. 105 (Adj. Sess.), § 232, eff. July 1, 2022.)

• § 4847. Subscribers’ advisory committee

  (a) The advisory committee of a domestic reciprocal insurer exercising the subscribers’ rights shall be selected under such rules as the subscriber adopts.

  (b) Not less than two-thirds of the committee shall be subscribers.

  (c) The committee shall:

  (1) supervise the finances of the insurer;

  (2) supervise the insurer’s operations to such extent as to ensure conformity with the subscribers’ agreement and power of attorney;

  (3) procure the audit of the accounts and records of the insurer and of the attorney at the expense of the insurer; and

  (4) have such additional powers and functions as may be conferred by the subscribers’ agreement. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 2003, No. 55, § 5; 2021, No. 105 (Adj. Sess.), § 233, eff. July 1, 2022.)

• § 4848. Subscribers’ liability

  (a) The liability of each subscriber, other than as to a nonassessable policy, for the obligations of the reciprocal insurer shall be an individual, several and proportionate liability, and not joint.

  (b) Except as to a nonassessable policy, each subscriber shall have a contingent assessment liability, in the amount provided for in the power of attorney or in the subscribers’ agreement, for payment of actual losses and expenses incurred while his or her policy was in force.

  (c) Each assessable policy issued by the insurer shall contain a statement of the contingent liability, set in type of the same prominence as the insuring clause. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 2013, No. 29, § 46, eff. May 13, 2013.)

• § 4849. Subscribers’ liability on judgment

  (a) No action shall lie against any subscriber upon any obligation claimed against the insurer until a final judgment has been obtained against the insurer and remains unsatisfied for 30 days.

  (b) Any such judgment shall be binding upon each subscriber only in such proportion as his or her interests may appear and in amount not exceeding his or her contingent liability, if any. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4850. Assessments

  (a) Assessments may from time to time be levied upon subscribers of a domestic reciprocal insurer liable therefor under the terms of their policies by the attorney upon approval in advance by the subscribers’ advisory committee and the Commissioner; or by the Commissioner in liquidation of the insurer.

  (b) Each subscriber’s share of a deficiency for which an assessment is made, but not exceeding in any event his or her aggregate contingent liability as computed in accordance with section 4852 of this title, shall be computed by applying to the premium earned on the subscriber’s policy or policies during the period to be covered by the assessment, the ratio of the total deficiency to the total premiums earned during such period upon all policies subject to the assessment.

  (c) In computing the earned premiums for the purposes of this section, the gross premium received by the insurer for the policy shall be used as a base, deducting therefrom solely charges not recurring upon the renewal or extension of the policy.

  (d) No subscriber shall have an offset against any assessment for which he or she is liable, on account of any claim for unearned premium or losses payable. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4851. Time limit for assessments

  Every subscriber of a domestic reciprocal insurer having contingent liability shall be liable for, and shall pay his or her share of, any assessment, as computed and limited in accordance with this chapter, if:

  (1) while his or her policy is in force or within one year after its termination, he or she is notified by either the attorney or the Commissioner of his or her intentions to levy such assessment; or

  (2) if an order to show cause why a receiver, conservator, rehabilitator, or liquidator of the insurer should not be appointed is issued while his or her policy is in force or within one year after its termination. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4852. Aggregate liability

  No one policy or subscriber as to a policy shall be assessed or charged with an aggregate of contingent liability as to obligations incurred by a domestic reciprocal insurer in any one calendar year, in excess of the amount provided for in the power of attorney or in the subscribers’ agreement, computed solely upon premium earned on such policy during that year. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4853. Nonassessable policies

  (a) If a reciprocal insurer has a surplus of assets over all liabilities at least equal to the minimum capital stock and surplus required to be maintained by a domestic stock insurer authorized to transact like kinds of insurance, upon application of the attorney and as approved by the subscribers’ advisory committee, the Commissioner shall issue his or her certificate authorizing the insurer to extinguish the contingent liability of subscribers under its policies then in force in this State, and to omit provisions imposing contingent liability in all policies delivered or issued for delivery in this State for so long as all of the surplus remains unimpaired.

  (b) Upon impairment of such surplus, the Commissioner shall immediately revoke the certificate. The revocation shall not render subject to contingent liability any policy then in force and for the remainder of the period for which the premium has previously been paid; but after the revocation no policy shall be issued or renewed without providing for contingent assessment liability of the subscriber.

  (c) The Commissioner shall not authorize a domestic reciprocal insurer so to extinguish the contingent liability of any of its subscribers or in any of its policies to be issued, unless it is qualified to and does extinguish the liability of all its subscribers and in all policies for all kinds of insurance transacted by it. Nevertheless, if required by the laws of another state in which the insurer is transacting insurance as an authorized insurer, the insurer may issue policies providing for the contingent liability of such of its subscribers as may acquire such policies in that state, and need not extinguish the contingent liability applicable to policies previously in force in that state. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 2021, No. 105 (Adj. Sess.), § 234, eff. July 1, 2022.)

• § 4854. Subscribers’ share in assets

  Upon the liquidation of a domestic reciprocal insurer, its assets remaining after discharge of its indebtedness and policy obligations, the return of any contributions of the attorney or other persons to its surplus, and the return of any unused premium, savings, or credits then standing on subscribers’ account, shall be distributed to its subscribers who were such within the 12 months prior to the last termination of its certificate of authority, according to a reasonable formula that the Commissioner approves. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4855. Merger or conversion

  (a) A domestic reciprocal insurer, upon affirmative vote of not less than two-thirds of its subscribers who vote on such merger pursuant to due notice and the approval of the Commissioner of the terms therefor, may merge with another reciprocal insurer or be converted to a stock or mutual insurer.

  (b) Such a stock or mutual insurer shall be subject to the same capital or surplus requirements and shall have the same rights as a like domestic insurer transacting like kinds of insurance.

  (c) The Commissioner shall not approve any plan for merger or conversion that is inequitable to subscribers, or that, if for conversion to a stock insurer, does not give each subscriber preferential right to acquire stock of the proposed insurer proportionate to his or her interest in the reciprocal insurer as determined in accordance with section 4854 of this chapter and a reasonable length of time within which to exercise such right. (Added 1971, No. 31, § 1, eff. March 31, 1971.)

• § 4856. Impaired reciprocals

  (a) If the assets of a domestic reciprocal insurer are at any time insufficient to discharge its liabilities, other than any liability on account of funds contributed by the attorney or others, and to maintain the required surplus, its attorney shall immediately make up the deficiency or levy an assessment upon the subscribers for the amount needed to make up the deficiency, but subject to the limitation set forth in the power of attorney or policy.

  (b) If the attorney fails to make up such deficiency or to make the assessment within 30 days after the Commissioner orders him or her to do so, or if the deficiency is not fully made up within 60 days after the date the assessment was made, the insurer shall be deemed insolvent and shall be proceeded against as authorized by this title.

  (c) If liquidation of such an insurer is ordered, an assessment shall be levied upon the subscribers for such an amount, subject to limits as provided by this chapter, as the Commissioner determines to be necessary to discharge all liabilities of the insurer, exclusive of any funds contributed by the attorney or other persons, but including the reasonable cost of the liquidation. (Added 1971, No. 31, § 1, eff. March 31, 1971; amended 2021, No. 105 (Adj. Sess.), § 235, eff. July 1, 2022.)