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THE RISK
RETENTION ACT What is the Liability Risk Retention Act? The Liability Risk Retention Act
(LRRA) is a federal law that was passed by Congress in 1986 to help How does the Risk Retention Act work? In passing the Liability Risk
Retention Act, Congress provided insurance buyers with a marketplace solution
to the “liability crises”, enabling them to have greater control of their
liability insurance programs. What is a Risk Retention Group? A Risk Retention Group (RRG) is a
liability insurance company that is owned by its members. Under the Liability Risk Retention Act
(LRRA), RRGs must be domiciled in a state.
Once licensed by its state of domicile, an RRG can insure members in
all states. Because the LRRA is a
federal law, it preempts state regulation, making it much easier for RRGs to
operate nationally. As Insurance companies, RRGs retain risk RRGs, as insurers, issue policies
to their members and bear risk. RRGs
require members to capitalize the company. Who can be a member of an RRG? The LRRA requires that members be
homogeneous, i.e., engaged in similar businesses or activities that expose
them to similar liabilities. What kinds of insurance coverage do risk retention groups
provide? The type of insurance coverage
permitted is set forth in the Liability Risk Retention Act’s (LRRA’s)
definition of “liability”, which includes all types of third-party liability,
such as general liability, errors and omissions, directors and officers,
medical malpractice, professional liability, products liability, and so
forth. The LRRA does not extend to
workers compensation, property insurance, or to personal lines insurance,
such as homeowners and personal auto insurance coverage. |
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