The Legal Relationship Among a Reciprocal Insurer's Subscribers, Advisory Committee and Attorney-in-Fact

Abstract

The increase in the number and importance of reciprocals or inter-insurance exchanges has led to greater regulation of this form of insurer, which was once largely exempt from government oversight in many jurisdictions. Currently, jurisprudence varies among the states. Although the National Association of Insurance Commissioners (hereinafter “NAIC”) drafted the Reciprocal Attor- ney-in-Fact Model Act (hereinafter “Reciprocal Act”) to provide uniformity in the treatment of reciprocals, the Reciprocal Act is seriously flawed in the manner it treats the relative rights and duties of the advisory committee and of the attorney-in-fact, which respectively govern and administer the reciprocal. To achieve a greater understanding of inter-insurance exchanges, this article will discuss: (1) the nature of reciprocal insurance; (2) state regulation of reciprocals; (3) the role of subscribers, (4) the advisory committee, and (5) the attorney-in- fact; (6) practical aspects of the relationship between the attorney- in-fact and the advisory committee; and (7) conflicts between the advisory committee and the attorney in fact. This article will also advance general proposals to treat problems relating to reciprocals.