KRS 304.41-050: Policies -- Cancellation -- Rate -- Nonprofit group retrospective rating

plan -- Deficit -- Contributions by members.

(1) All policies issued by the association shall be written for the term of one (1) year.

The directors of the association may elect to issue policies on an occurrence basis or

a claims made basis. No policy form shall be used by the association unless it has

been filed with the commissioner and either (a) the commissioner has approved it,

or (b) thirty (30) days has lapsed and the c ommissioner has not disapproved it in

accordance with KRS Chapter 304, Subtitle 14.

(2) Cancellation of the association's policies shall be governed by the laws and

regulations governing the cancellation of other policies of casualty insurance,

except that the association may also cancel any of its policies in the event of

nonpayment of any stabilization reserve fund charge, by mailing or delivering to the

insured at the address shown on the policy, written notice stating when not less than

ten (10) days thereafter cancellation shall be effective.

(3) The rates, rating plan, rating rules, rating classifications and territories applicable to

the insurance written by the association and statistics relating thereto shall be

subject to KRS Chapter 304, Subtitle 13, giving due consideration to the past and

prospective loss and expense experience for legal professional liability insurance

written and to be written in this state, trends in the frequency and severity of losses,

the investment income of the associatio n, and such other information as the

commissioner may require. All rates shall be on an actuarially sound basis, giving

due consideration to the group retrospective rating plan and the stabilization reserve

fund, and shall be calculated to be self -supporting. The commissioner shall make

available to the association the loss and expense experience of insurers previously

writing legal professional liability insurance in this state.

(4) All policies issued by the association shall be subject to a nonprofit gro up

retrospective rating plan to be approved by the commissioner, under which the final

premium for all policyholders of the association as a group will be equal to the

administrative expenses, loss and loss adjustment expenses and taxes, plus a

reasonable allowance for contingencies and servicing. Policyholders shall be given

full credit for all investment income, net of expenses and a reasonable management

fee on policyholder supplied funds. The standard premium before retrospective

adjustment for each policy issued by the association shall be established on the basis

of the association's rates, rating plans, rating rules, rating classifications, and

territories then in effect. The maximum final premium for all policyholders of the

association as a group shall be limited as provided in KRS 304.41 -060(4). Since the

business of the association is subject to the nonprofit group retrospective rating plan

required by this subsection, there shall be a presumption that the rates filed and

premiums for the business of the association are not excessive.

(5) The commissioner shall examine the business of the association as often as he or

she deems appropriate to assure that the group retrospective rating plan is being

operated in a manner consistent with this section. If the commissioner finds that it is

not being so operated, he or she shall issue an order to the association, specifying in

what respects its operation is deficient and stating what corrective action shall be

taken.

(6) The association shall certify to th e commissioner the estimated amount of any

deficit remaining after the stabilization reserve fund has been exhausted in payment

of the maximum final premium for all policyholders of the association. Within sixty

(60) days after such certification, the comm issioner shall authorize the members of

the association to commence recoupment of their respective shares of the deficit by

applying a surcharge to be determined by the association at a rate not to exceed two

percent (2%) of the annual premiums on future p olicies affording those kinds of

insurance which form the basis for their participation in the association under

procedures established by the association. The association shall amend the amount

of its certification of deficit to the commissioner as the va lues of its incurred losses

become finalized, and the members of the association shall amend their recoupment

procedure accordingly.

(7) In the event that sufficient funds are not available for the sound financial operation

of the association, pending recoupment as provided in subsection (6) of this section,

all members shall, on a temporary basis, contribute to the financial requirements of

the association in the manner provided for in KRS 304.41 -080. Any such

contribution shall be reimbursed to the member s by recoupment as provided in

subsection (6) of this section.