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Article 1. General Provisions of California Insurance Code >> Division 1. >> Part 2. >> Chapter 3. >> Article 1.
This chapter shall not in any way affect the rights, duties,
or obligations of members of or subscribers at any reciprocal or
interinsurance exchange which has been adjudged insolvent and ordered
to be liquidated prior to the date this code takes effect. All such
rights, duties, or obligations shall be governed by the law
applicable thereto prior to such date.
This chapter and the other provisions of this code shall
not apply to nor affect unincorporated interindemnity or reciprocal
or interinsurance contracts between members of, or persons marketing
their products through, nonprofit cooperative marketing associations
organized and operating under Chapter 4 (commencing with Section
11701) of Division 6 of the Food and Agricultural Code which
indemnify solely in respect to losses to those members or persons
from damage to, or destruction of, crops in process of handling or
marketing, or facilities at a fixed location for processing, handling
or marketing the crops, and which do not collect in advance of loss
moneys other than for necessary expense of administration.
(a) This chapter and the other provisions of this code,
except as set forth in this paragraph, shall not apply to or affect
unincorporated interindemnity or reciprocal or interinsurance
contracts between members of a cooperative corporation, organized and
operating under Part 2 (commencing with Section 12200) of Division 3
of Title 1 of the Corporations Code, whose members consist solely of
physicians and surgeons licensed in California, which contracts
indemnify solely in respect to medical malpractice claims against
those members, and which do not collect in advance of loss any moneys
other than contributions by each member to a collective reserve
trust fund or for necessary expenses of administration. However,
interindemnity, reciprocal, or interinsurance contracts with respect
to the following types of claims, in addition to medical malpractice
claims, may be entered into in conjunction with contracts with
respect to medical malpractice claims if the reserve trust fund is at
least twenty million dollars ($20,000,000):
(1) Bodily injury or property damage arising out of the conduct and of the operations of the member's professional practice occurring on the member's premises.
(2) Officers', directors', and administrators' liability, to the extent that the member's professional practice is operated as a professional corporation or group.
(3) Nonowned automobile coverage. The provisions of Chapter 3 (commencing with Section 330) of Part 1 of Division 1 shall apply to unincorporated interindemnity or reciprocal or interinsurance contracts. Those unincorporated interindemnity or reciprocal or interinsurance contracts shall comply with all of the following requirements:
(b) Each participating member shall enter into and, concurrently therewith, receive an executed copy of a trust agreement, which shall govern the collection and disposition of all funds of the interindemnity arrangement. The trust agreement shall, at a minimum, contain provision for all the following matters:
(1) An initial trust corpus of not less than ten million dollars ($10,000,000), which corpus shall be a trust fund to secure enforcement of the interindemnity arrangement. The average contribution to the initial trust corpus shall be not less than twenty thousand dollars ($20,000) per member participating in the interindemnity arrangement. The average contribution to the trust fund shall continue at all times to be not less than twenty thousand dollars ($20,000) per participating member unless the interindemnity arrangement is qualified to admit members under the terms of subdivision (k). No such interindemnity arrangement shall become operative until the requisite minimum reserve trust fund has been established by contributions from not fewer than 500 participating members.
(2) The reserve trust fund created by the trust agreement shall be administered by a board of trustees of three or more members, all of whom shall be physicians and surgeons licensed in California, participating members in the interindemnity arrangement, and elected biennially or more frequently by at least a majority of all members participating in the interindemnity arrangement.
(3) The members of the board of trustees are fiduciaries and the board shall be the custodian of all funds of the interindemnity arrangement, and all those funds shall be deposited in the bank or banks and savings and loan associations in California as the board may designate. Each account shall require two or more signatories for withdrawal of funds in excess of ten thousand dollars ($10,000). The authorized signatories shall be appointed by the board and, as to any withdrawal in excess of one hundred thousand dollars ($100,000), at least one of the two or more authorized signatories shall be a physician and surgeon licensed in California and a participating member in the interindemnity arrangement. Each signatory on those accounts shall maintain, at all times while empowered to draw on those funds, for the benefit of the interindemnity arrangement, a bond against loss suffered through embezzlement, mysterious disappearance, holdup or burglary, or other loss issued by a bonding company licensed to do business in California in a penal sum of not less than one hundred thousand dollars ($100,000).
(4) All funds held in trust that are in excess of current financial needs shall be invested and reinvested from time to time, under the direction of the board of trustees, in eligible securities, as defined in Section 16430 of the Government Code, in portfolios of eligible securities, in exchange traded financial futures contracts or exchange traded options contracts to hedge investment in those eligible securities, or in certificates of deposits or time deposits issued by banks and savings and loan associations in California duly insured by instrumentalities of the United States government. Pursuant to the authority contained in Section 1 of Article XV of the California Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligations of, loans made by, or forbearances of, any trust established by a cooperative corporation providing indemnity pursuant to this section.
(5) The income earned on the corpus of the trust fund shall be the source for the payment of the claims, costs, judgments, settlements, and costs of administration contemplated by the interindemnity arrangement, and to the extent the income is insufficient for those purposes, the board of trustees shall have the power and authority to assess participating members for all amounts necessary to meet the obligations of the interindemnity arrangement in accordance with the terms thereof. If necessary in the best interests of the interindemnity arrangement, the board of trustees may make assessments to increase the corpus of the trust fund in accordance with the terms of the interindemnity arrangement. Any assessment levied against a member shall be the personal obligation of the member. Any person who obtains a final judgment of recovery for medical malpractice or other liability authorized by this section against a member of the interindemnity arrangement shall have, in addition to any other remedy, the right to assert directly all rights to indemnification that the judgment debtor has under the interindemnity arrangement. The final judgment shall be a lien on the reserve trust fund to secure payment of the judgment, limited to the extent of the judgment debtor's rights to indemnification. Any change in the assessment agreement between the interindemnity arrangement and its membership shall be submitted to the entire membership for ratification. If the ratification process is to be performed by a mail ballot, a ballot shall be sent to each member by first-class mail, postage prepaid. Within 45 days after the posted date on the mail ballot, each member who decides to vote on the assessment change shall return his or her ballot to the interindemnity arrangement for the tallying of the ballots. An affirmative vote of 75 percent of those voting shall be required to effectuate any change in the assessment agreement. If a change in the assessment agreement is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and the proposed assessment change by first-class mail, postage prepaid, posted at least 45 days prior to the meeting. Seventy-five percent of those present in person or by proxy at the meeting shall be required to effectuate any change in the assessment agreement.
(6) Each participating member shall be covered by the interindemnity arrangement for not less than one million dollars ($1,000,000) for each occurrence of professional negligence or other liability authorized by this section, with the terms and conditions of the coverage to be specified in the trust agreement, except that the interindemnity arrangement may provide participating members with an aggregate limit for all payments on behalf of the member and may provide participating members with less than one million dollars ($1,000,000) of coverage for each occurrence of professional negligence or other liability authorized by this section if the interindemnity arrangement obtains for the benefit of the members reinsurance of excess limits coverage in an amount that when added to the coverage provided by the interindemnity arrangement would equal not less than one million dollars ($1,000,000) for each occurrence of professional negligence or other liability authorized by this section. Any change in the coverage provided by the trust agreement between the interindemnity arrangement and its membership shall be submitted to the entire membership for ratification. If the ratification process is to be performed by a mail ballot, a ballot shall be sent to each member by first-class mail, postage prepaid. Within 45 days after the posted date on the mail ballot, each member who decides to vote on the coverage change shall return his or her ballot to the interindemnity arrangement for the tallying of the ballot. An affirmative vote of 75 percent of those voting shall be required to effectuate any change in the coverage provided by the trust agreement, except that at least 50 percent of the entire membership must agree to any change. If any change is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and the proposed coverage change by first-class mail, postage prepaid, posted at least 45 days prior to the meeting. An affirmative vote of 75 percent of the membership present at the meeting, in person or by proxy, shall be required to effectuate any change, except that at least 50 percent of the entire membership must agree to any change.
(7) Withdrawal of all, or any portion of, the corpus of the reserve trust fund shall be upon the written authorization signed by at least two-thirds of the members of the board of trustees.
(8) The board of trustees shall cause both of the following to be furnished to each member participating in the interindemnity arrangement, and to be filed with the Commissioner of Business Oversight:
(A) Within 90 days after the end of each fiscal year, a statement of the assets and liabilities of the interindemnity arrangement as of the end of that year, a statement of the revenue and expenditures of the interindemnity arrangement, and a statement of the changes in corpus of the reserve trust for that year, in each case accompanied by a certificate signed by a firm of independent certified public accountants selected by the board of trustees indicating that the firm has conducted an audit of those statements in accordance with generally accepted auditing standards and indicating the results of the audit.
(B) Within 45 days after the end of each of the first three quarterly periods of each fiscal year, a statement of the assets and liabilities of the interindemnity arrangement as of the end of the quarterly period, a statement of the revenue and expenditures of the interindemnity arrangement, and a statement of the changes in corpus of the reserve trust for the period, in each case accompanied by a certificate signed by a majority of the members of the board of trustees to the effect that the statements were prepared from the official books and records of the interindemnity arrangement.
(C) In addition to the statements required to be filed pursuant to this paragraph, the board of trustees shall annually file with the Commissioner of Business Oversight an authorization for disclosure to the commissioner of all financial records pertaining to the interindemnity arrangement. For the purpose of this subparagraph, the authorization for disclosure shall also include the financial records of any association, partnership, or corporation that has management or control of the funds or the operation of the interindemnity arrangement.
(9) The trust agreement shall also provide for all the following:
(A) In the event a participating member who is in full compliance with the trust agreement, including the payment of all outstanding dues and assessments, dies, the initial contribution made by the decedent shall be returned to the member's estate or designated beneficiary; the indemnity coverage shall continue for the benefit of the decedent's estate in respect of occurrences during the time the decedent was a participating member; and neither the person receiving the repayment of the initial contribution nor the decedent's estate shall be responsible for any assessments levied following the death of the member.
(B) A participating member who is then in full compliance with the trust agreement and who has reached the age of 65 years and who has retired completely from the practice of medicine may elect to retire from the interindemnity arrangement, in which case the member shall not be responsible for assessments levied following the date notice of retirement is given to the trust. Following that retirement, the indemnity coverage shall continue for the benefit of the member in respect of occurrences prior to the time the member retired from the interindemnity arrangement. That retired member's initial contribution shall be repaid 10 years from the date the notice of retirement is received by the trust, or an earlier date as specified in the trust agreement. The board of trustees may reduce the age for retirement to not less than 55 years subject to all other requirements in this paragraph and any additional requirements deemed necessary by the board.
(C) During any period in which a participating member, who is then in full compliance with the trust agreement, has, in the judgment of the board of trustees, become unable to perform any and every duty of his or her regular professional occupation, the participating member may request disability status in accordance with the terms of the interindemnity arrangement. During any period of disability status, the member shall not be responsible for assessments levied during the period and, if so provided in the interindemnity arrangement, all indemnity coverage, both as to defense and payment of claims, shall terminate as to occurrences arising out of the actions of the participating member during the period of disability status.
(D) In the event a participating member fails to pay any assessment when due, the board of trustees may terminate that person' s membership status if the failure to pay is not cured within 30 days from the date the assessment was due. Upon that termination the former participating member shall not be entitled to the return of all or any part of his or her initial contribution, and the indemnity coverage shall thereupon terminate as to all claims then pending against that person and in respect to all occurrences prior to the date of that termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to that person, the interindemnity arrangement shall continue to provide those services for a period of 10 days following that termination.
(E) In the event a participating member fails to comply with any provision of the trust agreement (other than a failure to pay assessments when due), the board of trustees may terminate that person's membership status if the failure to comply is not cured within 60 days from the date the person is notified of the failure, provided that before that membership status may be terminated the person shall be given the right to call for a hearing before the board of trustees (to be held before the expiration of the 60-day period), at which hearing the person shall be given the opportunity to demonstrate to the board of trustees that no failure to comply has occurred or, if it has occurred, that it has been cured. Upon that termination, the former participating member shall not be entitled to the return of all or any part of his or her initial contribution, and the indemnity coverage shall thereupon terminate as to all claims then pending against the person and in respect to all occurrences prior to the date of the termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to that person, the interindemnity arrangement shall continue to provide those services for a period of 10 days following the termination.
(F) A participating member who is then in full compliance with the trust agreement may elect voluntarily to terminate his or her membership in the interindemnity arrangement. Upon that voluntary termination, that person may further elect to cease being responsible for future assessments, or to continue to pay those assessments until the time as the person's initial contribution is repaid. In the event the person elects to cease being responsible for future assessments, the indemnity coverage shall thereupon terminate and the person shall either be responsible for his or her own exposure for acts committed while a participating member in the interindemnity arrangement, or he or she may request the interindemnity arrangement to purchase or provide, at the cost of the person, coverage for that exposure. The initial contribution of the person shall be repaid on the 10th anniversary of the date the contribution was made. In the event the person elects to continue to be responsible for assessments, the indemnity coverage shall continue in respect of occurrences prior to the date of the voluntary termination, and the initial contribution of the person shall be repaid at the time as the board of trustees is satisfied that (i) there are no claims pending against the person in respect of occurrences during the time the person was a participating member, and (ii) the statute of limitations has run on all claims that might be asserted against that person in respect of occurrences during that time. In no event shall that repayment be made earlier than the 10th anniversary of the date the contribution was made. Any person whose membership in an interindemnity arrangement is involuntarily terminated for failure to pay assessments or who voluntarily terminates that membership and elects to be responsible for his or her own exposure for acts committed while a participating member, shall not be eligible to become a member of any other interindemnity arrangement for a period of five years after the termination unless, on the effective date of the act which amended this section during the 1985-86 Regular Session, the person had on file with the Department of Business Oversight a copy of a subscription agreement signifying the person's agreement to transfer membership or had paid a minimum of ten thousand dollars ($10,000) to another interindemnity arrangement that was granted a permit to organize prior to January 1, 1985.
(G) The board of trustees shall have the right to terminate the membership of a participating member if the board of trustees determines that the termination is in the best interests of the interindemnity arrangement even though that person has complied with all of the provisions of the trust agreement. A termination may be effected only if at least two-thirds of the members of the board of trustees indicate in writing their decision to terminate. If the board of trustees proposes to terminate a member, the member shall have the right to call a special meeting of all participating members in accordance with the rules established by the board of trustees for the purpose of voting on whether or not the member shall be terminated. The member shall not be terminated if at least two-thirds of the participating members present, in person or by proxy, indicate that the member should not be terminated. In the event a member is terminated, the person shall elect either: (i) to request the return of his or her initial contribution, in which case the contribution shall be repaid and the indemnity coverage shall thereupon terminate as to all claims then pending against the person and in respect to all occurrences prior to the date of the termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to the person, the interindemnity arrangement shall continue to provide those services for a period of 30 days to enable the person to assume his or her own defense; or (ii) to release all rights to the return of the initial contribution, in which case the indemnity coverage shall continue for the benefit of the member in respect of occurrences during the time the person was a participating member and the person shall have no responsibility for assessments levied following that termination. The interindemnity arrangement may provide that if a member is terminated and fails to make the election set forth herein within 45 days of the date of notification of termination of membership, the participating member shall be deemed to have elected to release all rights to a return of his or her initial contribution, in which case indemnity coverage shall apply for the benefit of the member with respect to occurrences occurring prior to the termination.
(10) Each member participating in the interindemnity arrangement shall have the right of access to, and the inspection of, the books and records of the interindemnity arrangement, which rights shall be similar to the corporate shareholders pursuant to Section 3003 of the Corporations Code, or, commencing January 1, 1977, Sections 1600 to 1605, inclusive, of the Corporations Code.
(11) There shall be a meeting of all members participating in the interindemnity arrangement, at least annually, after not less than 10 days' written notice has been given, at a location reasonably convenient to the participating members and on a date that is within a reasonable period of time following the distribution of the annual financial statements.
(12) Notwithstanding Sections 12453 and 12703 of the Corporations Code, on any matter to be voted upon by the membership at either a regular or special meeting, a member shall have the right to vote in person or by written proxy filed with the corporate secretary prior to the meeting. No proxy shall be made irrevocable, nor be valid beyond the earliest of the following dates:
(A) The date of expiration set forth in the proxy.
(B) The date of termination of membership.
(C) Eleven months from the date of execution of the proxy.
(D) Such time as may be specified in the bylaws, not to exceed 11 months.
(13) The interindemnity arrangement, and the reserve trust fund incident thereto, shall be subject to termination at any time by the vote or written consent of not less than three-fourths of the participating members.
(c) The board of trustees shall cause to be recorded with the office of the county recorder of the county of the principal place of business of the interindemnity arrangement within 90 days following the end of each fiscal year, a written statement, executed by a majority of the board of trustees under penalty of perjury, reciting that each member participating in the interindemnity arrangement was mailed a copy of the annual financial statement and quarterly audit certificates by first-class mail, postage prepaid, required pursuant to paragraph (8) of subdivision (a).
(d) Each person solicited to become a participating member in an interindemnity arrangement shall receive in writing, at least 48 hours prior to the execution by the prospective participating member of the trust agreement, and at least 48 hours prior to the payment by the prospective participating member of any consideration in connection with the interindemnity arrangement, the following information:
(1) A copy of the articles of incorporation and bylaws of the cooperative corporation and a copy of the form of trust agreement to be executed by the prospective participating member.
(2) A disclosure statement regarding the interindemnity arrangement. The disclosure statement shall contain on the first or cover page a legend in boldface type reading substantially as follows: "THE INTERINDEMNITY ARRANGEMENT CONTEMPLATED HEREIN PROVIDES THAT PARTICIPATING MEMBERS HAVE UNLIMITED PERSONAL LIABILITY FOR ASSESSMENTS THAT MAY BE LEVIED TO PAY FOR THE PROFESSIONAL NEGLIGENCE OR OTHER LIABILITY AUTHORIZED BY THIS SECTION. NO ASSURANCES CAN BE GIVEN REGARDING THE AMOUNT OR FREQUENCY OF ASSESSMENTS WHICH MAY BE LEVIED, OR THAT ALL PARTICIPATING MEMBERS WILL MAKE TIMELY PAYMENT OF THEIR ASSESSMENTS TO COVER THE PROFESSIONAL NEGLIGENCE OR OTHER LIABILITY AUTHORIZED BY THIS SECTION."
(3) The disclosure statement shall further contain all of the following information:
(A) The amount, nature, and terms and conditions of the professional negligence or other liability relating to a member's professional practice coverage available under the interindemnity arrangement.
(B) The amount of the initial contribution required of each participating member and a statement of the minimum number of members and aggregate contributions required for the interindemnity arrangement to commence.
(C) The names, addresses, and professional experience of each member of the board of trustees.
(D) The requirements for admission as a participating member.
(E) A statement of the services to be provided under the interindemnity arrangement to each participating member.
(F) A statement regarding the obligation of each member to pay assessments and the consequences for failure to do so.
(G) A statement of the rights and obligations of a participating member in the event the member dies, retires, becomes disabled, or terminates participation for any reason, or the interindemnity arrangement terminates for any reason.
(H) A statement regarding the services to be provided, indicating whether these services will be delegated to others pursuant to a contractual arrangement. For those services delegated to others pursuant to a contractual arrangement, a statement fully disclosing and itemizing all consideration received directly or indirectly under the arrangement, and indicating what the consideration is for, and how, when, and to whom the consideration will be paid.
(I) A statement of the voting rights of the members and the circumstances under which participation of a member may be terminated and under which the interindemnity arrangement may be terminated.
(J) If any statement of estimated or projected financial information for the interindemnity arrangement is used, a statement of the estimation or projection and a summary of the data and assumptions upon which it is based.
(4) A list with the names and addresses of current participating members of the interindemnity arrangement.
(1) Bodily injury or property damage arising out of the conduct and of the operations of the member's professional practice occurring on the member's premises.
(2) Officers', directors', and administrators' liability, to the extent that the member's professional practice is operated as a professional corporation or group.
(3) Nonowned automobile coverage. The provisions of Chapter 3 (commencing with Section 330) of Part 1 of Division 1 shall apply to unincorporated interindemnity or reciprocal or interinsurance contracts. Those unincorporated interindemnity or reciprocal or interinsurance contracts shall comply with all of the following requirements:
(b) Each participating member shall enter into and, concurrently therewith, receive an executed copy of a trust agreement, which shall govern the collection and disposition of all funds of the interindemnity arrangement. The trust agreement shall, at a minimum, contain provision for all the following matters:
(1) An initial trust corpus of not less than ten million dollars ($10,000,000), which corpus shall be a trust fund to secure enforcement of the interindemnity arrangement. The average contribution to the initial trust corpus shall be not less than twenty thousand dollars ($20,000) per member participating in the interindemnity arrangement. The average contribution to the trust fund shall continue at all times to be not less than twenty thousand dollars ($20,000) per participating member unless the interindemnity arrangement is qualified to admit members under the terms of subdivision (k). No such interindemnity arrangement shall become operative until the requisite minimum reserve trust fund has been established by contributions from not fewer than 500 participating members.
(2) The reserve trust fund created by the trust agreement shall be administered by a board of trustees of three or more members, all of whom shall be physicians and surgeons licensed in California, participating members in the interindemnity arrangement, and elected biennially or more frequently by at least a majority of all members participating in the interindemnity arrangement.
(3) The members of the board of trustees are fiduciaries and the board shall be the custodian of all funds of the interindemnity arrangement, and all those funds shall be deposited in the bank or banks and savings and loan associations in California as the board may designate. Each account shall require two or more signatories for withdrawal of funds in excess of ten thousand dollars ($10,000). The authorized signatories shall be appointed by the board and, as to any withdrawal in excess of one hundred thousand dollars ($100,000), at least one of the two or more authorized signatories shall be a physician and surgeon licensed in California and a participating member in the interindemnity arrangement. Each signatory on those accounts shall maintain, at all times while empowered to draw on those funds, for the benefit of the interindemnity arrangement, a bond against loss suffered through embezzlement, mysterious disappearance, holdup or burglary, or other loss issued by a bonding company licensed to do business in California in a penal sum of not less than one hundred thousand dollars ($100,000).
(4) All funds held in trust that are in excess of current financial needs shall be invested and reinvested from time to time, under the direction of the board of trustees, in eligible securities, as defined in Section 16430 of the Government Code, in portfolios of eligible securities, in exchange traded financial futures contracts or exchange traded options contracts to hedge investment in those eligible securities, or in certificates of deposits or time deposits issued by banks and savings and loan associations in California duly insured by instrumentalities of the United States government. Pursuant to the authority contained in Section 1 of Article XV of the California Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligations of, loans made by, or forbearances of, any trust established by a cooperative corporation providing indemnity pursuant to this section.
(5) The income earned on the corpus of the trust fund shall be the source for the payment of the claims, costs, judgments, settlements, and costs of administration contemplated by the interindemnity arrangement, and to the extent the income is insufficient for those purposes, the board of trustees shall have the power and authority to assess participating members for all amounts necessary to meet the obligations of the interindemnity arrangement in accordance with the terms thereof. If necessary in the best interests of the interindemnity arrangement, the board of trustees may make assessments to increase the corpus of the trust fund in accordance with the terms of the interindemnity arrangement. Any assessment levied against a member shall be the personal obligation of the member. Any person who obtains a final judgment of recovery for medical malpractice or other liability authorized by this section against a member of the interindemnity arrangement shall have, in addition to any other remedy, the right to assert directly all rights to indemnification that the judgment debtor has under the interindemnity arrangement. The final judgment shall be a lien on the reserve trust fund to secure payment of the judgment, limited to the extent of the judgment debtor's rights to indemnification. Any change in the assessment agreement between the interindemnity arrangement and its membership shall be submitted to the entire membership for ratification. If the ratification process is to be performed by a mail ballot, a ballot shall be sent to each member by first-class mail, postage prepaid. Within 45 days after the posted date on the mail ballot, each member who decides to vote on the assessment change shall return his or her ballot to the interindemnity arrangement for the tallying of the ballots. An affirmative vote of 75 percent of those voting shall be required to effectuate any change in the assessment agreement. If a change in the assessment agreement is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and the proposed assessment change by first-class mail, postage prepaid, posted at least 45 days prior to the meeting. Seventy-five percent of those present in person or by proxy at the meeting shall be required to effectuate any change in the assessment agreement.
(6) Each participating member shall be covered by the interindemnity arrangement for not less than one million dollars ($1,000,000) for each occurrence of professional negligence or other liability authorized by this section, with the terms and conditions of the coverage to be specified in the trust agreement, except that the interindemnity arrangement may provide participating members with an aggregate limit for all payments on behalf of the member and may provide participating members with less than one million dollars ($1,000,000) of coverage for each occurrence of professional negligence or other liability authorized by this section if the interindemnity arrangement obtains for the benefit of the members reinsurance of excess limits coverage in an amount that when added to the coverage provided by the interindemnity arrangement would equal not less than one million dollars ($1,000,000) for each occurrence of professional negligence or other liability authorized by this section. Any change in the coverage provided by the trust agreement between the interindemnity arrangement and its membership shall be submitted to the entire membership for ratification. If the ratification process is to be performed by a mail ballot, a ballot shall be sent to each member by first-class mail, postage prepaid. Within 45 days after the posted date on the mail ballot, each member who decides to vote on the coverage change shall return his or her ballot to the interindemnity arrangement for the tallying of the ballot. An affirmative vote of 75 percent of those voting shall be required to effectuate any change in the coverage provided by the trust agreement, except that at least 50 percent of the entire membership must agree to any change. If any change is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and the proposed coverage change by first-class mail, postage prepaid, posted at least 45 days prior to the meeting. An affirmative vote of 75 percent of the membership present at the meeting, in person or by proxy, shall be required to effectuate any change, except that at least 50 percent of the entire membership must agree to any change.
(7) Withdrawal of all, or any portion of, the corpus of the reserve trust fund shall be upon the written authorization signed by at least two-thirds of the members of the board of trustees.
(8) The board of trustees shall cause both of the following to be furnished to each member participating in the interindemnity arrangement, and to be filed with the Commissioner of Business Oversight:
(A) Within 90 days after the end of each fiscal year, a statement of the assets and liabilities of the interindemnity arrangement as of the end of that year, a statement of the revenue and expenditures of the interindemnity arrangement, and a statement of the changes in corpus of the reserve trust for that year, in each case accompanied by a certificate signed by a firm of independent certified public accountants selected by the board of trustees indicating that the firm has conducted an audit of those statements in accordance with generally accepted auditing standards and indicating the results of the audit.
(B) Within 45 days after the end of each of the first three quarterly periods of each fiscal year, a statement of the assets and liabilities of the interindemnity arrangement as of the end of the quarterly period, a statement of the revenue and expenditures of the interindemnity arrangement, and a statement of the changes in corpus of the reserve trust for the period, in each case accompanied by a certificate signed by a majority of the members of the board of trustees to the effect that the statements were prepared from the official books and records of the interindemnity arrangement.
(C) In addition to the statements required to be filed pursuant to this paragraph, the board of trustees shall annually file with the Commissioner of Business Oversight an authorization for disclosure to the commissioner of all financial records pertaining to the interindemnity arrangement. For the purpose of this subparagraph, the authorization for disclosure shall also include the financial records of any association, partnership, or corporation that has management or control of the funds or the operation of the interindemnity arrangement.
(9) The trust agreement shall also provide for all the following:
(A) In the event a participating member who is in full compliance with the trust agreement, including the payment of all outstanding dues and assessments, dies, the initial contribution made by the decedent shall be returned to the member's estate or designated beneficiary; the indemnity coverage shall continue for the benefit of the decedent's estate in respect of occurrences during the time the decedent was a participating member; and neither the person receiving the repayment of the initial contribution nor the decedent's estate shall be responsible for any assessments levied following the death of the member.
(B) A participating member who is then in full compliance with the trust agreement and who has reached the age of 65 years and who has retired completely from the practice of medicine may elect to retire from the interindemnity arrangement, in which case the member shall not be responsible for assessments levied following the date notice of retirement is given to the trust. Following that retirement, the indemnity coverage shall continue for the benefit of the member in respect of occurrences prior to the time the member retired from the interindemnity arrangement. That retired member's initial contribution shall be repaid 10 years from the date the notice of retirement is received by the trust, or an earlier date as specified in the trust agreement. The board of trustees may reduce the age for retirement to not less than 55 years subject to all other requirements in this paragraph and any additional requirements deemed necessary by the board.
(C) During any period in which a participating member, who is then in full compliance with the trust agreement, has, in the judgment of the board of trustees, become unable to perform any and every duty of his or her regular professional occupation, the participating member may request disability status in accordance with the terms of the interindemnity arrangement. During any period of disability status, the member shall not be responsible for assessments levied during the period and, if so provided in the interindemnity arrangement, all indemnity coverage, both as to defense and payment of claims, shall terminate as to occurrences arising out of the actions of the participating member during the period of disability status.
(D) In the event a participating member fails to pay any assessment when due, the board of trustees may terminate that person' s membership status if the failure to pay is not cured within 30 days from the date the assessment was due. Upon that termination the former participating member shall not be entitled to the return of all or any part of his or her initial contribution, and the indemnity coverage shall thereupon terminate as to all claims then pending against that person and in respect to all occurrences prior to the date of that termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to that person, the interindemnity arrangement shall continue to provide those services for a period of 10 days following that termination.
(E) In the event a participating member fails to comply with any provision of the trust agreement (other than a failure to pay assessments when due), the board of trustees may terminate that person's membership status if the failure to comply is not cured within 60 days from the date the person is notified of the failure, provided that before that membership status may be terminated the person shall be given the right to call for a hearing before the board of trustees (to be held before the expiration of the 60-day period), at which hearing the person shall be given the opportunity to demonstrate to the board of trustees that no failure to comply has occurred or, if it has occurred, that it has been cured. Upon that termination, the former participating member shall not be entitled to the return of all or any part of his or her initial contribution, and the indemnity coverage shall thereupon terminate as to all claims then pending against the person and in respect to all occurrences prior to the date of the termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to that person, the interindemnity arrangement shall continue to provide those services for a period of 10 days following the termination.
(F) A participating member who is then in full compliance with the trust agreement may elect voluntarily to terminate his or her membership in the interindemnity arrangement. Upon that voluntary termination, that person may further elect to cease being responsible for future assessments, or to continue to pay those assessments until the time as the person's initial contribution is repaid. In the event the person elects to cease being responsible for future assessments, the indemnity coverage shall thereupon terminate and the person shall either be responsible for his or her own exposure for acts committed while a participating member in the interindemnity arrangement, or he or she may request the interindemnity arrangement to purchase or provide, at the cost of the person, coverage for that exposure. The initial contribution of the person shall be repaid on the 10th anniversary of the date the contribution was made. In the event the person elects to continue to be responsible for assessments, the indemnity coverage shall continue in respect of occurrences prior to the date of the voluntary termination, and the initial contribution of the person shall be repaid at the time as the board of trustees is satisfied that (i) there are no claims pending against the person in respect of occurrences during the time the person was a participating member, and (ii) the statute of limitations has run on all claims that might be asserted against that person in respect of occurrences during that time. In no event shall that repayment be made earlier than the 10th anniversary of the date the contribution was made. Any person whose membership in an interindemnity arrangement is involuntarily terminated for failure to pay assessments or who voluntarily terminates that membership and elects to be responsible for his or her own exposure for acts committed while a participating member, shall not be eligible to become a member of any other interindemnity arrangement for a period of five years after the termination unless, on the effective date of the act which amended this section during the 1985-86 Regular Session, the person had on file with the Department of Business Oversight a copy of a subscription agreement signifying the person's agreement to transfer membership or had paid a minimum of ten thousand dollars ($10,000) to another interindemnity arrangement that was granted a permit to organize prior to January 1, 1985.
(G) The board of trustees shall have the right to terminate the membership of a participating member if the board of trustees determines that the termination is in the best interests of the interindemnity arrangement even though that person has complied with all of the provisions of the trust agreement. A termination may be effected only if at least two-thirds of the members of the board of trustees indicate in writing their decision to terminate. If the board of trustees proposes to terminate a member, the member shall have the right to call a special meeting of all participating members in accordance with the rules established by the board of trustees for the purpose of voting on whether or not the member shall be terminated. The member shall not be terminated if at least two-thirds of the participating members present, in person or by proxy, indicate that the member should not be terminated. In the event a member is terminated, the person shall elect either: (i) to request the return of his or her initial contribution, in which case the contribution shall be repaid and the indemnity coverage shall thereupon terminate as to all claims then pending against the person and in respect to all occurrences prior to the date of the termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to the person, the interindemnity arrangement shall continue to provide those services for a period of 30 days to enable the person to assume his or her own defense; or (ii) to release all rights to the return of the initial contribution, in which case the indemnity coverage shall continue for the benefit of the member in respect of occurrences during the time the person was a participating member and the person shall have no responsibility for assessments levied following that termination. The interindemnity arrangement may provide that if a member is terminated and fails to make the election set forth herein within 45 days of the date of notification of termination of membership, the participating member shall be deemed to have elected to release all rights to a return of his or her initial contribution, in which case indemnity coverage shall apply for the benefit of the member with respect to occurrences occurring prior to the termination.
(10) Each member participating in the interindemnity arrangement shall have the right of access to, and the inspection of, the books and records of the interindemnity arrangement, which rights shall be similar to the corporate shareholders pursuant to Section 3003 of the Corporations Code, or, commencing January 1, 1977, Sections 1600 to 1605, inclusive, of the Corporations Code.
(11) There shall be a meeting of all members participating in the interindemnity arrangement, at least annually, after not less than 10 days' written notice has been given, at a location reasonably convenient to the participating members and on a date that is within a reasonable period of time following the distribution of the annual financial statements.
(12) Notwithstanding Sections 12453 and 12703 of the Corporations Code, on any matter to be voted upon by the membership at either a regular or special meeting, a member shall have the right to vote in person or by written proxy filed with the corporate secretary prior to the meeting. No proxy shall be made irrevocable, nor be valid beyond the earliest of the following dates:
(A) The date of expiration set forth in the proxy.
(B) The date of termination of membership.
(C) Eleven months from the date of execution of the proxy.
(D) Such time as may be specified in the bylaws, not to exceed 11 months.
(13) The interindemnity arrangement, and the reserve trust fund incident thereto, shall be subject to termination at any time by the vote or written consent of not less than three-fourths of the participating members.
(c) The board of trustees shall cause to be recorded with the office of the county recorder of the county of the principal place of business of the interindemnity arrangement within 90 days following the end of each fiscal year, a written statement, executed by a majority of the board of trustees under penalty of perjury, reciting that each member participating in the interindemnity arrangement was mailed a copy of the annual financial statement and quarterly audit certificates by first-class mail, postage prepaid, required pursuant to paragraph (8) of subdivision (a).
(d) Each person solicited to become a participating member in an interindemnity arrangement shall receive in writing, at least 48 hours prior to the execution by the prospective participating member of the trust agreement, and at least 48 hours prior to the payment by the prospective participating member of any consideration in connection with the interindemnity arrangement, the following information:
(1) A copy of the articles of incorporation and bylaws of the cooperative corporation and a copy of the form of trust agreement to be executed by the prospective participating member.
(2) A disclosure statement regarding the interindemnity arrangement. The disclosure statement shall contain on the first or cover page a legend in boldface type reading substantially as follows: "THE INTERINDEMNITY ARRANGEMENT CONTEMPLATED HEREIN PROVIDES THAT PARTICIPATING MEMBERS HAVE UNLIMITED PERSONAL LIABILITY FOR ASSESSMENTS THAT MAY BE LEVIED TO PAY FOR THE PROFESSIONAL NEGLIGENCE OR OTHER LIABILITY AUTHORIZED BY THIS SECTION. NO ASSURANCES CAN BE GIVEN REGARDING THE AMOUNT OR FREQUENCY OF ASSESSMENTS WHICH MAY BE LEVIED, OR THAT ALL PARTICIPATING MEMBERS WILL MAKE TIMELY PAYMENT OF THEIR ASSESSMENTS TO COVER THE PROFESSIONAL NEGLIGENCE OR OTHER LIABILITY AUTHORIZED BY THIS SECTION."
(3) The disclosure statement shall further contain all of the following information:
(A) The amount, nature, and terms and conditions of the professional negligence or other liability relating to a member's professional practice coverage available under the interindemnity arrangement.
(B) The amount of the initial contribution required of each participating member and a statement of the minimum number of members and aggregate contributions required for the interindemnity arrangement to commence.
(C) The names, addresses, and professional experience of each member of the board of trustees.
(D) The requirements for admission as a participating member.
(E) A statement of the services to be provided under the interindemnity arrangement to each participating member.
(F) A statement regarding the obligation of each member to pay assessments and the consequences for failure to do so.
(G) A statement of the rights and obligations of a participating member in the event the member dies, retires, becomes disabled, or terminates participation for any reason, or the interindemnity arrangement terminates for any reason.
(H) A statement regarding the services to be provided, indicating whether these services will be delegated to others pursuant to a contractual arrangement. For those services delegated to others pursuant to a contractual arrangement, a statement fully disclosing and itemizing all consideration received directly or indirectly under the arrangement, and indicating what the consideration is for, and how, when, and to whom the consideration will be paid.
(I) A statement of the voting rights of the members and the circumstances under which participation of a member may be terminated and under which the interindemnity arrangement may be terminated.
(J) If any statement of estimated or projected financial information for the interindemnity arrangement is used, a statement of the estimation or projection and a summary of the data and assumptions upon which it is based.
(4) A list with the names and addresses of current participating members of the interindemnity arrangement.
(e) No officer, director,
trustee, employee, or member of the interindemnity arrangement or the
cooperative corporation shall receive, or be entitled to receive,
any payment, bonus, salary, income, compensation, or other benefit
whatsoever, either from the reserve trust fund or the income
therefrom or from any other funds of the interindemnity arrangement
or the members thereof based on the number of participating members,
or the amount of the reserve trust fund or other funds of the
interindemnity arrangement.
(f) A peer review committee or committees shall be established by the trust agreement to review the qualifications of any physician and surgeon to participate or continue to participate in the interindemnity arrangement, and to review the quality of medical services rendered by any participating member, as well as the validity of medical malpractice claims made against participating members. Any physician and surgeon, prior to becoming a participating member of the interindemnity arrangement, shall be reviewed and approved by a majority of the members of the peer review committee. No peer review committee, or any of its members, shall be liable for any action taken by the committee in reviewing the qualifications of a physician and surgeon to participate or continue to participate, or the quality of medical services rendered, or the validity of a medical malpractice claim, unless it is alleged and proved that the action was taken with actual malice.
(g) The following are hereby defined as unfair methods of competition and deceptive acts or practices with respect to cooperative corporations or interindemnity arrangements provided for in this section:
(1) Making any false or misleading statement as to, or issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, or statement misrepresenting the terms of any interindemnity arrangement or the benefits or advantages promised thereby, or making any misleading representation or any misrepresentation as to the financial condition of the interindemnity arrangement, or making any misrepresentation to any participating member for the purpose of inducing or tending to induce the member to lapse, forfeit, or surrender his or her rights to indemnification under the interindemnity arrangement. It shall be a false or misleading statement to state or represent that a cooperative corporation or interindemnity arrangement is or constitutes "insurance" or an "insurance company" or an "insurance policy."
(2) Making or disseminating or causing to be made or disseminated before the public in this state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, any statement containing any assertion, representation, or statement with respect to those cooperative corporations or interindemnity arrangements, or with respect to any person in the conduct of those cooperative corporations or interindemnity arrangements, which is untrue, deceptive, or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading. It shall be a false or misleading statement to state or represent that a cooperative corporation or interindemnity arrangement is or constitutes "insurance" or an "insurance company" or an "insurance policy."
(3) Entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion, or intimidation resulting in or tending to result in an unreasonable restraint of, or monopoly in, those cooperative corporations or interindemnity arrangements.
(4) Filing with any supervisory or other public official, or making, publishing, disseminating, circulating, or delivering to any person, or placing before the public, or causing directly or indirectly, to be made, published, disseminated, circulated, or delivered to any person, or placed before the public any false statement of financial condition of a cooperative corporation or interindemnity arrangement with intent to deceive.
(5) Making any false entry in any book, report, or statement of a cooperative corporation or interindemnity arrangement with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to whom a cooperative corporation or interindemnity arrangement is required by law to report, or who has authority by law to examine into its condition or into any of its affairs, or, with like intent, willfully omitting to make a true entry of any material fact pertaining to a cooperative corporation or interindemnity arrangement in any book, report, or statement of a cooperative corporation or interindemnity arrangement.
(6) Making or disseminating, or causing to be made or disseminated, before the public in this state, in any newspaper or other publication, or any other advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, whether directly or by implication, any statement that a cooperative corporation or interindemnity arrangement is a member of the California Insurance Guarantee Association, or insured against insolvency as defined in Section 119.5. This paragraph shall not be interpreted to prohibit any activity of the California Insurance Guarantee Association or of the commissioner authorized, directly or by implication, by Article 14.2 (commencing with Section 1063) of Chapter 1.
(7) Knowingly committing or performing with a frequency as to indicate a general business practice any of the following unfair claims settlement practices:
(A) Misrepresenting to claimants pertinent facts or provisions relating to any coverage at issue.
(B) Failing to acknowledge and act promptly upon communications with respect to claims arising under those interindemnity arrangements.
(C) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under those interindemnity arrangements.
(D) Failing to affirm or deny coverage of claims within a reasonable time after proof of claim requirements have been completed and submitted by the participating member.
(E) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
(F) Compelling participating members to institute litigation to recover amounts due under an interindemnity arrangement by offering substantially less than the amounts ultimately recovered in actions brought by those participating members when those participating members have made claims under those interindemnity arrangements for amounts reasonably similar to the amounts ultimately recovered.
(G) Attempting to settle a claim by a participating member for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application for membership in an interindemnity arrangement.
(H) Attempting to settle claims on the basis of an interindemnity arrangement that was altered without notice to the participating member.
(I) Failing, after payment of a claim, to inform participating members, upon request by them, of the coverage under which payment has been made.
(J) Making known to claimants a practice of the cooperative corporation or interindemnity arrangement of appealing from arbitration awards in favor of claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
(K) Delaying the investigation or payment of claims by requiring a claimant, or his or her physician, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.
(L) Failing to settle claims promptly, where liability has become apparent, under one portion of an interindemnity arrangement in order to influence settlements under other portions of the interindemnity arrangement.
(M) Failing to provide promptly a reasonable explanation of the basis relied on in the interindemnity arrangement, in relation to the facts of applicable law, for the denial of a claim or for the offer of a compromise settlement.
(N) Directly advising a claimant not to obtain the services of an attorney.
(O) Misleading a claimant as to the applicable statute of limitations.
(h) Notwithstanding any contrary provisions of Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code, it shall not be necessary to hold a meeting of members of the cooperative corporation for the purpose of electing directors if the bylaws provide the election may be held by first-class mail balloting. First-class mail balloting may also be used in conjunction with a meeting at which directors are to be elected and all mail ballots shall count toward establishing a quorum for the meeting for the limited purpose of the issues set forth in the mail ballot. Directors shall be elected as follows:
(1) The candidates receiving the highest number of votes, up to the number of directors to be elected, by a specified date at least 45 days but not later than 60 days after the ballots are first mailed, postage prepaid, to the members (or the date of a meeting of members held in conjunction therewith) shall be elected.
(2) In the event that no candidate receives a majority of the votes cast for a vacant office, a runoff election shall be held between the two candidates receiving the highest number of votes cast. The runoff election shall be held at least 45 days but not more than 60 days after the ballots for the election are mailed, postage prepaid. In the event that there is more than one office for which no candidate receives a majority of the votes cast, the candidates for the runoff shall be twice the number of vacant offices, and shall be those persons who received the highest number of votes therefor. Those first-class mail ballots shall be kept on file for a period of three months after all vacant board positions have been filled, and shall be subject to inspection at any reasonable time by any members of the cooperative corporation.
(i) No officer, director, trustee, or member of the interindemnity arrangement or the cooperative corporation, or any entity in which that person has a material financial interest, shall enter into or renew any transaction or contract with the trust unless the material facts as to the transaction or contract and as to the interest of the person are fully disclosed to the participating members, and the transaction or contract is approved by an affirmative vote of at least 75 percent of the membership present at a meeting, in person or by proxy. If any transaction or contract is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and of the transaction or contract by first-class mail, postage prepaid, at least 45 days prior to the meeting.
(j) Services provided to the trust pursuant to a delegated contractual arrangement shall be embodied in a written contract. Each written contract shall provide for reasonable consideration to the parties. In addition, each written contract shall be disclosed annually to participating members in a disclosure report containing the information described in subparagraph (H) of paragraph (3) of subdivision (d). The disclosure report shall be sent to participating members by first-class mail, postage prepaid, and shall be mailed separately from any statements, records, or other documents. The disclosure requirements of this subdivision shall apply to all existing and future written contracts.
(k) Upon request of the Commissioner of Business Oversight, an interindemnity arrangement shall immediately forward to the commissioner a current list of participating members, including the names, addresses, and telephone numbers of those members.
(l) Notwithstanding any provision to the contrary, whenever the membership of a cooperative organization, organized pursuant to Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code and consisting solely of physicians and surgeons licensed in this state amounts to 2,000 or more members and the trust fund is at least forty million dollars ($40,000,000), which is available to the public for malpractice claims or other claims authorized by this section, the cooperative is authorized to admit members without a contribution to that trust fund if assessments are charged to each of those members within the first 50 months in an amount equal to the amount of the contribution to the reserve fund that would otherwise be required.
(f) A peer review committee or committees shall be established by the trust agreement to review the qualifications of any physician and surgeon to participate or continue to participate in the interindemnity arrangement, and to review the quality of medical services rendered by any participating member, as well as the validity of medical malpractice claims made against participating members. Any physician and surgeon, prior to becoming a participating member of the interindemnity arrangement, shall be reviewed and approved by a majority of the members of the peer review committee. No peer review committee, or any of its members, shall be liable for any action taken by the committee in reviewing the qualifications of a physician and surgeon to participate or continue to participate, or the quality of medical services rendered, or the validity of a medical malpractice claim, unless it is alleged and proved that the action was taken with actual malice.
(g) The following are hereby defined as unfair methods of competition and deceptive acts or practices with respect to cooperative corporations or interindemnity arrangements provided for in this section:
(1) Making any false or misleading statement as to, or issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, or statement misrepresenting the terms of any interindemnity arrangement or the benefits or advantages promised thereby, or making any misleading representation or any misrepresentation as to the financial condition of the interindemnity arrangement, or making any misrepresentation to any participating member for the purpose of inducing or tending to induce the member to lapse, forfeit, or surrender his or her rights to indemnification under the interindemnity arrangement. It shall be a false or misleading statement to state or represent that a cooperative corporation or interindemnity arrangement is or constitutes "insurance" or an "insurance company" or an "insurance policy."
(2) Making or disseminating or causing to be made or disseminated before the public in this state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, any statement containing any assertion, representation, or statement with respect to those cooperative corporations or interindemnity arrangements, or with respect to any person in the conduct of those cooperative corporations or interindemnity arrangements, which is untrue, deceptive, or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading. It shall be a false or misleading statement to state or represent that a cooperative corporation or interindemnity arrangement is or constitutes "insurance" or an "insurance company" or an "insurance policy."
(3) Entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion, or intimidation resulting in or tending to result in an unreasonable restraint of, or monopoly in, those cooperative corporations or interindemnity arrangements.
(4) Filing with any supervisory or other public official, or making, publishing, disseminating, circulating, or delivering to any person, or placing before the public, or causing directly or indirectly, to be made, published, disseminated, circulated, or delivered to any person, or placed before the public any false statement of financial condition of a cooperative corporation or interindemnity arrangement with intent to deceive.
(5) Making any false entry in any book, report, or statement of a cooperative corporation or interindemnity arrangement with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to whom a cooperative corporation or interindemnity arrangement is required by law to report, or who has authority by law to examine into its condition or into any of its affairs, or, with like intent, willfully omitting to make a true entry of any material fact pertaining to a cooperative corporation or interindemnity arrangement in any book, report, or statement of a cooperative corporation or interindemnity arrangement.
(6) Making or disseminating, or causing to be made or disseminated, before the public in this state, in any newspaper or other publication, or any other advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, whether directly or by implication, any statement that a cooperative corporation or interindemnity arrangement is a member of the California Insurance Guarantee Association, or insured against insolvency as defined in Section 119.5. This paragraph shall not be interpreted to prohibit any activity of the California Insurance Guarantee Association or of the commissioner authorized, directly or by implication, by Article 14.2 (commencing with Section 1063) of Chapter 1.
(7) Knowingly committing or performing with a frequency as to indicate a general business practice any of the following unfair claims settlement practices:
(A) Misrepresenting to claimants pertinent facts or provisions relating to any coverage at issue.
(B) Failing to acknowledge and act promptly upon communications with respect to claims arising under those interindemnity arrangements.
(C) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under those interindemnity arrangements.
(D) Failing to affirm or deny coverage of claims within a reasonable time after proof of claim requirements have been completed and submitted by the participating member.
(E) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
(F) Compelling participating members to institute litigation to recover amounts due under an interindemnity arrangement by offering substantially less than the amounts ultimately recovered in actions brought by those participating members when those participating members have made claims under those interindemnity arrangements for amounts reasonably similar to the amounts ultimately recovered.
(G) Attempting to settle a claim by a participating member for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application for membership in an interindemnity arrangement.
(H) Attempting to settle claims on the basis of an interindemnity arrangement that was altered without notice to the participating member.
(I) Failing, after payment of a claim, to inform participating members, upon request by them, of the coverage under which payment has been made.
(J) Making known to claimants a practice of the cooperative corporation or interindemnity arrangement of appealing from arbitration awards in favor of claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
(K) Delaying the investigation or payment of claims by requiring a claimant, or his or her physician, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.
(L) Failing to settle claims promptly, where liability has become apparent, under one portion of an interindemnity arrangement in order to influence settlements under other portions of the interindemnity arrangement.
(M) Failing to provide promptly a reasonable explanation of the basis relied on in the interindemnity arrangement, in relation to the facts of applicable law, for the denial of a claim or for the offer of a compromise settlement.
(N) Directly advising a claimant not to obtain the services of an attorney.
(O) Misleading a claimant as to the applicable statute of limitations.
(h) Notwithstanding any contrary provisions of Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code, it shall not be necessary to hold a meeting of members of the cooperative corporation for the purpose of electing directors if the bylaws provide the election may be held by first-class mail balloting. First-class mail balloting may also be used in conjunction with a meeting at which directors are to be elected and all mail ballots shall count toward establishing a quorum for the meeting for the limited purpose of the issues set forth in the mail ballot. Directors shall be elected as follows:
(1) The candidates receiving the highest number of votes, up to the number of directors to be elected, by a specified date at least 45 days but not later than 60 days after the ballots are first mailed, postage prepaid, to the members (or the date of a meeting of members held in conjunction therewith) shall be elected.
(2) In the event that no candidate receives a majority of the votes cast for a vacant office, a runoff election shall be held between the two candidates receiving the highest number of votes cast. The runoff election shall be held at least 45 days but not more than 60 days after the ballots for the election are mailed, postage prepaid. In the event that there is more than one office for which no candidate receives a majority of the votes cast, the candidates for the runoff shall be twice the number of vacant offices, and shall be those persons who received the highest number of votes therefor. Those first-class mail ballots shall be kept on file for a period of three months after all vacant board positions have been filled, and shall be subject to inspection at any reasonable time by any members of the cooperative corporation.
(i) No officer, director, trustee, or member of the interindemnity arrangement or the cooperative corporation, or any entity in which that person has a material financial interest, shall enter into or renew any transaction or contract with the trust unless the material facts as to the transaction or contract and as to the interest of the person are fully disclosed to the participating members, and the transaction or contract is approved by an affirmative vote of at least 75 percent of the membership present at a meeting, in person or by proxy. If any transaction or contract is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and of the transaction or contract by first-class mail, postage prepaid, at least 45 days prior to the meeting.
(j) Services provided to the trust pursuant to a delegated contractual arrangement shall be embodied in a written contract. Each written contract shall provide for reasonable consideration to the parties. In addition, each written contract shall be disclosed annually to participating members in a disclosure report containing the information described in subparagraph (H) of paragraph (3) of subdivision (d). The disclosure report shall be sent to participating members by first-class mail, postage prepaid, and shall be mailed separately from any statements, records, or other documents. The disclosure requirements of this subdivision shall apply to all existing and future written contracts.
(k) Upon request of the Commissioner of Business Oversight, an interindemnity arrangement shall immediately forward to the commissioner a current list of participating members, including the names, addresses, and telephone numbers of those members.
(l) Notwithstanding any provision to the contrary, whenever the membership of a cooperative organization, organized pursuant to Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code and consisting solely of physicians and surgeons licensed in this state amounts to 2,000 or more members and the trust fund is at least forty million dollars ($40,000,000), which is available to the public for malpractice claims or other claims authorized by this section, the cooperative is authorized to admit members without a contribution to that trust fund if assessments are charged to each of those members within the first 50 months in an amount equal to the amount of the contribution to the reserve fund that would otherwise be required.
Reciprocal or interinsurance contracts, the exchange thereof,
the subscribers, attorneys in fact, agents, and representatives, and
all matters incident to or concerned with such contracts and
relationship, shall be subject to and regulated by all of the
provisions of this code, whether or not such provisions specifically
refer to reciprocals or interinsurance exchanges, except as otherwise
exempted in this chapter.
When any provision of this code, other than in this chapter, is
made applicable to reciprocal insurers, such provision shall be
construed in accordance with the fundamental nature of a reciprocal
insurer. In the event of any direct conflicts between such other law
and the provisions of this chapter, the latter shall prevail. Such
other law may, however, be used to supplement or explain the
provisions of this chapter.
(a) The following provisions of this code shall not be
applicable to reciprocal or interinsurance exchanges and their
contracts, subscribers, attorneys in fact, agents, and
representatives, unless such provisions are referred to and
specifically made applicable or incorporated by reference by other
portions of this code, and, in such event, such provisions shall be
applicable only to the extent required by such reference or
incorporation:
(1) Sections 700.01, 700.02, 700.03, and 700.04;
(2) Sections 707, 708, 709, 710, and 711;
(3) Section 760.5;
(4) Sections 984, 986, and 987 of Article 13 (commencing with Section 980) of Chapter 1, Part 2, Division 1, relating to insolvency;
(5) Sections 1044, 1045, and 1047;
(6) Sections 1104.2, 1104.3, 1104.4, 1104.5, 1104.6, 1104.7, and 1104.8, except with respect to incorporated attorneys in fact;
(7) Section 1140;
(8) Section 1140.5, except with respect to incorporated attorneys in fact;
(9) Section 1152;
(10) Sections 1153, 1153.5, and 1154;
(11) Article 2.5 (commencing with Section 1160.1) of Chapter 2, Part 2, Division 1, relating to life insurer investments in housing projects;
(12) Section 1194.8;
(13) Article 5 (commencing with Section 1220) of Chapter 2, Part 2, Division 1, relating to investments in loans on life insurance policies;
(14) Article 2 (commencing with Section 1580) of Chapter 4, Part 2, Division 1, relating to alien insurers;
(15) Article 3 (commencing with Section 1600) of Chapter 4, Part 2, Division 1, relating to agent for service of process;
(16) Article 16 (commencing with Section 1758.1) of Chapter 5, Part 2, Division 1, relating to variable contract agents;
(17) Chapter 6 (commencing with Section 1760) of Part 2, Division 1, relating to surplus line brokers;
(18) Chapter 8 (commencing with Section 1831) of Part 2, Division 1, relating to life insurance analysts;
(19) Articles 1 (commencing with Section 3010) and 2 (commencing with Section 3030) of Chapter 3, Part 1, Division 2, relating to incorporated fire and marine insurers;
(20) Chapter 4 (commencing with Section 4010) of Part 1, Division 2, relating to general mutual insurers;
(21) Chapter 5 (commencing with Section 5050) of Part 1, Division 2, relating to county mutual fire insurers;
(22) Chapter 6 (commencing with Section 7080) of Part 1, Division 2, relating to county mutual fire reinsurers;
(23) Chapter 7 (commencing with Section 9080) of Part 1, Division 2, relating to fraternal fire insurers;
(24) Articles 3 (commencing with Section 10150) and 3a (commencing with Section 10159.1) of Chapter 1, Part 2, Division 2, relating to life insurance policies;
(25) Sections 10170, 10171, 10172, and 10173, relating to payment and proceeds of life insurance policies;
(26) Chapter 2 (commencing with Section 10200) of Part 2, Division 2, relating to group life policies;
(27) Chapter 2.5 (commencing with Section 10220) of Part 2, Division 2, relating to blanket life policies;
(28) Chapter 3 (commencing with Section 10240) of Part 2, Division 2, relating to burial contracts;
(29) Sections 10430, 10431, 10432, and 10433, relating to restrictions on business of life insurers;
(30) Articles 1a (commencing with Section 10440), 2 (commencing with Section 10450), 3 (commencing with Section 10478), 3a (commencing with Section 10489.1), 4 (commencing with Section 10490), and 5 (commencing with Section 10506) of Chapter 5, Part 2, Division 2, relating to internal affairs of mutual insurers, registration and valuation of life policies, standard valuation law, exempt societies, pension funds and separate accounts;
(31) Chapter 6 (commencing with Section 10510) of Part 2, Divison 2, relating to incorporated life insurers issuing policies on a reserve basis;
(32) Chapter 10 (commencing with Section 10970) of Part 2, Division 2, relating to fraternal benefit societies;
(33) Chapter 10A (commencing with Section 11400) of Part 2, Division 2, relating to firemen's, policemen's, or peace officers' benefit and relief associations;
(34) Chapter 11 (commencing with Section 11420) of Part 2, Division 2, relating to change by assessment plan life insurers to reserve plan;
(35) Chapter 11A (commencing with Section 11491) of Part 2, Division 2, relating to nonprofit hospital service plans;
(36) Chapter 12 (commencing with Section 11520) of Part 2, Division 2, relating to grants and annuities societies;
(37) Chapter 13 (commencing with Section 11525) of Part 2, Division 2, relating to voluntary mutualization of certain incorporated insurers;
(38) Article 3 (commencing with Section 11600), of Chapter 1, Part 3, Division 2, relating to capital requirements of incorporated insurers;
(39) Chapter 4 (commencing with Section 11770) of Part 3, Division 2, relating to the State Compensation Insurance Fund;
(40) Sections 12050, 12051, 12052, and 12110, relating to incorporated surety insurers;
(41) Part 5 (commencing with Section 12140) of Division 2, relating to motor clubs;
(42) Part 6 (commencing with Section 12340) of Division 2, relating to insurance covering land, but not including Sections 12640.19, 12660, and 12661.
(1) Sections 700.01, 700.02, 700.03, and 700.04;
(2) Sections 707, 708, 709, 710, and 711;
(3) Section 760.5;
(4) Sections 984, 986, and 987 of Article 13 (commencing with Section 980) of Chapter 1, Part 2, Division 1, relating to insolvency;
(5) Sections 1044, 1045, and 1047;
(6) Sections 1104.2, 1104.3, 1104.4, 1104.5, 1104.6, 1104.7, and 1104.8, except with respect to incorporated attorneys in fact;
(7) Section 1140;
(8) Section 1140.5, except with respect to incorporated attorneys in fact;
(9) Section 1152;
(10) Sections 1153, 1153.5, and 1154;
(11) Article 2.5 (commencing with Section 1160.1) of Chapter 2, Part 2, Division 1, relating to life insurer investments in housing projects;
(12) Section 1194.8;
(13) Article 5 (commencing with Section 1220) of Chapter 2, Part 2, Division 1, relating to investments in loans on life insurance policies;
(14) Article 2 (commencing with Section 1580) of Chapter 4, Part 2, Division 1, relating to alien insurers;
(15) Article 3 (commencing with Section 1600) of Chapter 4, Part 2, Division 1, relating to agent for service of process;
(16) Article 16 (commencing with Section 1758.1) of Chapter 5, Part 2, Division 1, relating to variable contract agents;
(17) Chapter 6 (commencing with Section 1760) of Part 2, Division 1, relating to surplus line brokers;
(18) Chapter 8 (commencing with Section 1831) of Part 2, Division 1, relating to life insurance analysts;
(19) Articles 1 (commencing with Section 3010) and 2 (commencing with Section 3030) of Chapter 3, Part 1, Division 2, relating to incorporated fire and marine insurers;
(20) Chapter 4 (commencing with Section 4010) of Part 1, Division 2, relating to general mutual insurers;
(21) Chapter 5 (commencing with Section 5050) of Part 1, Division 2, relating to county mutual fire insurers;
(22) Chapter 6 (commencing with Section 7080) of Part 1, Division 2, relating to county mutual fire reinsurers;
(23) Chapter 7 (commencing with Section 9080) of Part 1, Division 2, relating to fraternal fire insurers;
(24) Articles 3 (commencing with Section 10150) and 3a (commencing with Section 10159.1) of Chapter 1, Part 2, Division 2, relating to life insurance policies;
(25) Sections 10170, 10171, 10172, and 10173, relating to payment and proceeds of life insurance policies;
(26) Chapter 2 (commencing with Section 10200) of Part 2, Division 2, relating to group life policies;
(27) Chapter 2.5 (commencing with Section 10220) of Part 2, Division 2, relating to blanket life policies;
(28) Chapter 3 (commencing with Section 10240) of Part 2, Division 2, relating to burial contracts;
(29) Sections 10430, 10431, 10432, and 10433, relating to restrictions on business of life insurers;
(30) Articles 1a (commencing with Section 10440), 2 (commencing with Section 10450), 3 (commencing with Section 10478), 3a (commencing with Section 10489.1), 4 (commencing with Section 10490), and 5 (commencing with Section 10506) of Chapter 5, Part 2, Division 2, relating to internal affairs of mutual insurers, registration and valuation of life policies, standard valuation law, exempt societies, pension funds and separate accounts;
(31) Chapter 6 (commencing with Section 10510) of Part 2, Divison 2, relating to incorporated life insurers issuing policies on a reserve basis;
(32) Chapter 10 (commencing with Section 10970) of Part 2, Division 2, relating to fraternal benefit societies;
(33) Chapter 10A (commencing with Section 11400) of Part 2, Division 2, relating to firemen's, policemen's, or peace officers' benefit and relief associations;
(34) Chapter 11 (commencing with Section 11420) of Part 2, Division 2, relating to change by assessment plan life insurers to reserve plan;
(35) Chapter 11A (commencing with Section 11491) of Part 2, Division 2, relating to nonprofit hospital service plans;
(36) Chapter 12 (commencing with Section 11520) of Part 2, Division 2, relating to grants and annuities societies;
(37) Chapter 13 (commencing with Section 11525) of Part 2, Division 2, relating to voluntary mutualization of certain incorporated insurers;
(38) Article 3 (commencing with Section 11600), of Chapter 1, Part 3, Division 2, relating to capital requirements of incorporated insurers;
(39) Chapter 4 (commencing with Section 11770) of Part 3, Division 2, relating to the State Compensation Insurance Fund;
(40) Sections 12050, 12051, 12052, and 12110, relating to incorporated surety insurers;
(41) Part 5 (commencing with Section 12140) of Division 2, relating to motor clubs;
(42) Part 6 (commencing with Section 12340) of Division 2, relating to insurance covering land, but not including Sections 12640.19, 12660, and 12661.
The provisions of Part 7, Division 2 of the Revenue and
Taxation Code shall be applicable to reciprocal or interinsurance
exchanges.
Notwithstanding any other provision of this chapter or of
this code, any reciprocal or interinsurance exchange which meets all
of the conditions of this section shall be exempted from all reserve
requirements of this code to which it would otherwise be subject:
(a) The subscribers are comprised of a local hospital district formed pursuant to Division 23 (commencing with Section 32000) of the Health and Safety Code and the individual participating members of its attending medical staff, or any hospital (as defined in Section 1250 of the Health and Safety Code) and the individual participating members of its attending medical staff. As used in this section, "attending medical staff" refers to licensed physicians and surgeons, podiatrists, and dentists who have hospital privileges at any hospital and not to interns or residents who are employees of such hospital.
(b) The physicians and surgeons on the attending medical staff are independent contractors, whether individually, through professional corporations, or through partnership or clinic arrangements, and the creation of the reciprocal or interinsurance exchange will not affect the prerogatives of such physicians and surgeons in accepting patients, charging fees, or similar issues in the management of a medical practice. This subdivision shall not be construed to limit the authority of a peer review committee to impose such restrictions on the staff privileges of a participating member of the attending medical staff as deemed warranted by the peer review procedure and medical audit methods provided by subdivision (h).
(c) The initial capitalization for the reciprocal or interinsurance exchange specified in subdivisions (d), (e), and (f) shall be equivalent to the total professional and comprehensive general patient liability losses paid by the hospital and its participating medical staff members during the 10 calendar years immediately preceding the year in which the application for the organizational permit is filed. For the medical staff, "total professional and comprehensive general patient liability losses" shall include all losses paid by the participating medical staff members, whether based on their practice in the hospital or outside the hospital. Such combined total shall be funded or secured by equal contributions from the hospital and, collectively, the individual participating members of its attending medical staff. Such funds shall be used to pay for the losses incurred for awards, settlements, and legal fees relating to alleged acts of medical malpractice committed by the hospital or any or all of its participating medical staff members, whether committed in or out of the hospital, and for the operational costs of the reciprocal or interinsurance exchange. Upon determination of the aggregate paid professional and comprehensive general patient liability claims of the preceding 10 years by a survey, such paid claims shall be categorized as provided by subdivisions (d) and (e). In the case of a hospital which has been in existence for less than 10 years, or which has substantially expanded its facilities over the preceding 10 years, or which has paid for no professional liability losses during the preceding 10 years, the commissioner may establish such capitalization requirements as he deems necessary and proper as compared to the amounts specified in subdivisions (d) and (e).
(d) A primary medical liability risk fund shall be maintained in an amount at least equivalent to the aggregate dollar amount of paid incident claims of one hundred thousand dollars ($100,000) or less per each incident for both the hospital and the participating members of the attending medical staff as provided by subdivision (c).
(e) A catastrophic medical liability risk fund shall be maintained in an amount at least equivalent to the aggregate dollar amount of paid incident claims in excess of one hundred thousand dollars ($100,000) per incident for both the hospital and the participating members of the attending medical staff as provided in subdivision (c). These funds shall be either (1) deposited as cash or secured by letters of credit, certificates of deposit or promissory notes, or (2) be obtained through an executed and delivered loan commitment with a duration of at least one year by a banking institution qualified to do business in California or other forms of credit or assets readily convertible to cash to meet liabilities of the reciprocal or interinsurance exchange organized pursuant to this section.
(f) All funds or assets collected by a reciprocal or interinsurance exchange established under this section and maintained in a form as set forth in subdivisions (d) and (e) shall be admitted assets valued at face value and be held in accordance with Section 1370 of the Insurance Code, except that a credit commitment shall not be considered an admitted asset for the purpose of regulating investment of assets.
(g) The reciprocal or interinsurance exchange may seek from a licensed insurer, or secure in accordance with Chapter 6 (commencing with Section 1760) of Part 2 of Division 1, excess risk coverage for amounts above the self-retention limit of subdivisions (c), (d), and (e). The hospital and the individual members of the attending medical staff shall have unlimited several liability pursuant to Section 1395 to contribute to any liability not covered by such excess risk coverage insurance. Such liability shall be based upon each subscriber's share of the total liability of the reciprocal or interinsurance exchange as determined by a formula adopted by its board of directors. In the event that a subscriber fails to pay any portion of an assessment, then, without releasing the defaulting subscriber from any obligation to the reciprocal or interinsurance exchange, the remaining subscribers shall be charged with the unpaid assessment in accordance with the adopted formula.
(h) The amounts specified in subdivisions (d), and (e) shall be available in the aggregate to meet the professional and comprehensive general patient liabilities of the hospital and the participating members of the attending medical staff, and shall be replenished annually, or more frequently, if necessary, to an amount equivalent to that specified in subdivision (c) or (q), whichever is greater. Such total shall be maintained by a ratio of contributions annually determined by the governing board of the reciprocal or interinsurance exchange as fair, just and reasonable between the hospital and the participating members of the attending medical staff. Assessments may be required as determined to be necessary by the governing board and shall be due within 60 days of notice thereof. Failure to pay such assessments when due shall constitute grounds for termination of policy benefits or coverage.
(i) Any member of the attending medical staff participating in the program shall, as a condition of such participation, be subject to an extensive peer review procedure and a medical audit method of documenting the quality of medical care.
(j) Any system of rating or assessing individual participating members of the attending medical staff on the basis of their respective risk exposure shall be fair, just and reasonable.
(k) A promissory note, for the purposes of subdivision (e), shall be secured, and such security shall be perfected, by real or personal property having a market value one and one-half times the face value of the note.
(l) "Hospital," as used in this section, shall also include any two or more hospitals when either of the following conditions is met:
(i) They are governed by the same hospital district; or
(ii) Where there is a medical staff subject to a unified medical audit and peer review procedure.
(m) Any reciprocal or interinsurance exchange which meets all of the conditions of this section shall be exempt from the California Insurance Guarantee Association established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.
(n) For the purposes of Section 985, minimum capitalization shall be either the initial capitalization as provided in subdivision (c) or the minimum capitalization required by subdivision (q), whichever is greater.
(o) In the event that the reciprocal or interinsurance exchange has reasonable cause to believe that its minimum capitalization may be impaired by current liabilities, including reported claims, it shall issue within 30 days to its subscribers notices of assessments in amounts sufficient to cure the impairment. Within 30 days of such notice the subscribers shall pay the assessment or present forms of indebtedness as provided by subdivision (e), except that with regard to a promissory note issued by a person or entity other than a banking institution qualified to do business in California, such note shall be secured by assets sufficient to assure payment of the debt should a default occur.
(p) Any notice of assessment issued pursuant to this section shall be considered an admitted asset at face value and reported as such for the purpose of determining solvency under Section 985.
(q) Minimum capitalization of a reciprocal or interinsurance exchange organized and conducted pursuant to this section shall be determined annually. For the first year following issuance of a certificate of authority, the minimum capitalization shall be that specified in subdivision (c). Each year thereafter, the reciprocal or interinsurance exchange shall conduct a new survey of its subscribers to reestablish their total professional and comprehensive patient liability loss history as provided by subdivision (r). If such recalculation of such history discloses total losses exceeding the existing minimum capitalization by 20 percent, the minimum capitalization shall be increased to the amount of such new loss history within six months. Nothing in this subdivision shall be construed to preclude the reciprocal or interinsurance exchange from capitalizing at a level exceeding the minimum capitalization required by this section.
(r) The survey of subscribers which establishes total and comprehensive general patient loss liability history shall be annually recalculated to reflect the following:
(1) All such losses paid by, or on behalf of, the hospital for the immediately preceding 10 years;
(2) All such losses paid by, or on behalf of, participating individual members for the immediately preceding 10-calendar-year period during which they held staff privileges at the subscriber hospital; and
(3) All such losses paid by, or on behalf of, participating individual members of the attending medical staff during any portion of the immediately preceding five-calendar-year period in which they were not members of the subscriber hospital staff.
(a) The subscribers are comprised of a local hospital district formed pursuant to Division 23 (commencing with Section 32000) of the Health and Safety Code and the individual participating members of its attending medical staff, or any hospital (as defined in Section 1250 of the Health and Safety Code) and the individual participating members of its attending medical staff. As used in this section, "attending medical staff" refers to licensed physicians and surgeons, podiatrists, and dentists who have hospital privileges at any hospital and not to interns or residents who are employees of such hospital.
(b) The physicians and surgeons on the attending medical staff are independent contractors, whether individually, through professional corporations, or through partnership or clinic arrangements, and the creation of the reciprocal or interinsurance exchange will not affect the prerogatives of such physicians and surgeons in accepting patients, charging fees, or similar issues in the management of a medical practice. This subdivision shall not be construed to limit the authority of a peer review committee to impose such restrictions on the staff privileges of a participating member of the attending medical staff as deemed warranted by the peer review procedure and medical audit methods provided by subdivision (h).
(c) The initial capitalization for the reciprocal or interinsurance exchange specified in subdivisions (d), (e), and (f) shall be equivalent to the total professional and comprehensive general patient liability losses paid by the hospital and its participating medical staff members during the 10 calendar years immediately preceding the year in which the application for the organizational permit is filed. For the medical staff, "total professional and comprehensive general patient liability losses" shall include all losses paid by the participating medical staff members, whether based on their practice in the hospital or outside the hospital. Such combined total shall be funded or secured by equal contributions from the hospital and, collectively, the individual participating members of its attending medical staff. Such funds shall be used to pay for the losses incurred for awards, settlements, and legal fees relating to alleged acts of medical malpractice committed by the hospital or any or all of its participating medical staff members, whether committed in or out of the hospital, and for the operational costs of the reciprocal or interinsurance exchange. Upon determination of the aggregate paid professional and comprehensive general patient liability claims of the preceding 10 years by a survey, such paid claims shall be categorized as provided by subdivisions (d) and (e). In the case of a hospital which has been in existence for less than 10 years, or which has substantially expanded its facilities over the preceding 10 years, or which has paid for no professional liability losses during the preceding 10 years, the commissioner may establish such capitalization requirements as he deems necessary and proper as compared to the amounts specified in subdivisions (d) and (e).
(d) A primary medical liability risk fund shall be maintained in an amount at least equivalent to the aggregate dollar amount of paid incident claims of one hundred thousand dollars ($100,000) or less per each incident for both the hospital and the participating members of the attending medical staff as provided by subdivision (c).
(e) A catastrophic medical liability risk fund shall be maintained in an amount at least equivalent to the aggregate dollar amount of paid incident claims in excess of one hundred thousand dollars ($100,000) per incident for both the hospital and the participating members of the attending medical staff as provided in subdivision (c). These funds shall be either (1) deposited as cash or secured by letters of credit, certificates of deposit or promissory notes, or (2) be obtained through an executed and delivered loan commitment with a duration of at least one year by a banking institution qualified to do business in California or other forms of credit or assets readily convertible to cash to meet liabilities of the reciprocal or interinsurance exchange organized pursuant to this section.
(f) All funds or assets collected by a reciprocal or interinsurance exchange established under this section and maintained in a form as set forth in subdivisions (d) and (e) shall be admitted assets valued at face value and be held in accordance with Section 1370 of the Insurance Code, except that a credit commitment shall not be considered an admitted asset for the purpose of regulating investment of assets.
(g) The reciprocal or interinsurance exchange may seek from a licensed insurer, or secure in accordance with Chapter 6 (commencing with Section 1760) of Part 2 of Division 1, excess risk coverage for amounts above the self-retention limit of subdivisions (c), (d), and (e). The hospital and the individual members of the attending medical staff shall have unlimited several liability pursuant to Section 1395 to contribute to any liability not covered by such excess risk coverage insurance. Such liability shall be based upon each subscriber's share of the total liability of the reciprocal or interinsurance exchange as determined by a formula adopted by its board of directors. In the event that a subscriber fails to pay any portion of an assessment, then, without releasing the defaulting subscriber from any obligation to the reciprocal or interinsurance exchange, the remaining subscribers shall be charged with the unpaid assessment in accordance with the adopted formula.
(h) The amounts specified in subdivisions (d), and (e) shall be available in the aggregate to meet the professional and comprehensive general patient liabilities of the hospital and the participating members of the attending medical staff, and shall be replenished annually, or more frequently, if necessary, to an amount equivalent to that specified in subdivision (c) or (q), whichever is greater. Such total shall be maintained by a ratio of contributions annually determined by the governing board of the reciprocal or interinsurance exchange as fair, just and reasonable between the hospital and the participating members of the attending medical staff. Assessments may be required as determined to be necessary by the governing board and shall be due within 60 days of notice thereof. Failure to pay such assessments when due shall constitute grounds for termination of policy benefits or coverage.
(i) Any member of the attending medical staff participating in the program shall, as a condition of such participation, be subject to an extensive peer review procedure and a medical audit method of documenting the quality of medical care.
(j) Any system of rating or assessing individual participating members of the attending medical staff on the basis of their respective risk exposure shall be fair, just and reasonable.
(k) A promissory note, for the purposes of subdivision (e), shall be secured, and such security shall be perfected, by real or personal property having a market value one and one-half times the face value of the note.
(l) "Hospital," as used in this section, shall also include any two or more hospitals when either of the following conditions is met:
(i) They are governed by the same hospital district; or
(ii) Where there is a medical staff subject to a unified medical audit and peer review procedure.
(m) Any reciprocal or interinsurance exchange which meets all of the conditions of this section shall be exempt from the California Insurance Guarantee Association established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.
(n) For the purposes of Section 985, minimum capitalization shall be either the initial capitalization as provided in subdivision (c) or the minimum capitalization required by subdivision (q), whichever is greater.
(o) In the event that the reciprocal or interinsurance exchange has reasonable cause to believe that its minimum capitalization may be impaired by current liabilities, including reported claims, it shall issue within 30 days to its subscribers notices of assessments in amounts sufficient to cure the impairment. Within 30 days of such notice the subscribers shall pay the assessment or present forms of indebtedness as provided by subdivision (e), except that with regard to a promissory note issued by a person or entity other than a banking institution qualified to do business in California, such note shall be secured by assets sufficient to assure payment of the debt should a default occur.
(p) Any notice of assessment issued pursuant to this section shall be considered an admitted asset at face value and reported as such for the purpose of determining solvency under Section 985.
(q) Minimum capitalization of a reciprocal or interinsurance exchange organized and conducted pursuant to this section shall be determined annually. For the first year following issuance of a certificate of authority, the minimum capitalization shall be that specified in subdivision (c). Each year thereafter, the reciprocal or interinsurance exchange shall conduct a new survey of its subscribers to reestablish their total professional and comprehensive patient liability loss history as provided by subdivision (r). If such recalculation of such history discloses total losses exceeding the existing minimum capitalization by 20 percent, the minimum capitalization shall be increased to the amount of such new loss history within six months. Nothing in this subdivision shall be construed to preclude the reciprocal or interinsurance exchange from capitalizing at a level exceeding the minimum capitalization required by this section.
(r) The survey of subscribers which establishes total and comprehensive general patient loss liability history shall be annually recalculated to reflect the following:
(1) All such losses paid by, or on behalf of, the hospital for the immediately preceding 10 years;
(2) All such losses paid by, or on behalf of, participating individual members for the immediately preceding 10-calendar-year period during which they held staff privileges at the subscriber hospital; and
(3) All such losses paid by, or on behalf of, participating individual members of the attending medical staff during any portion of the immediately preceding five-calendar-year period in which they were not members of the subscriber hospital staff.
