Reciprocal inter-insurance exchange
Encyclopedia
A reciprocal inter-insurance exchange, is an insurance company referred to in United States
state legislation as either a reciprocal insurance
exchange, a reciprocal interinsurance exchange, or perhaps most properly a reciprocal inter-insurance exchange and is managed by an attorney in fact (AIF). Sometimes they are referred to simply as "reciprocals".
A reciprocal interinsurance exchange is unincorporated: each member of the exchange is individually and severally liable to indemnify all the other members. As to the unincorporated personal liability of each member of a reciprocal inter-insurance exchange, there is an important distinction when compared to a partnership: members of a reciprocal inter-insurance exchange are not jointly liable, as are partners of a law firm.
Reciprocals are sometimes confused with an incorporated mutual insurance
company. Reciprocals have been compared to limited liability company
(LLC) and limited partnership
s (LP). Both the reciprocal and the LLC are made up of members. Members of a reciprocal are also sometimes referred to as subscribers. Members enter into a direct partnership with most of the features associated with a mutual agency
. As is also true in the case of the LLC, there is no incorporated limited liability
entity owned by shareholders. Share ownership and limited liability evidenced by stock certificate
s are not issued to each owner. However, legislation has been enacted that limits liability of members to only the assets held by the reciprocal. Therefore, for liability purposes, membership in a reciprocal is similar to ownership of shares of a corporation.
Members of a reciprocal may be either a natural person
, an LLC or LP, a partnership
, or a corporation
. In some states, municipalities form reciprocals to cross-indemnify
towns, cities, villages, and counties.
The AIF is a stakeholder and a trustee
who holds the deposits made by each member. All property entrusted to the AIF in a reciprocal remains, at all times, the property of the subscribers. In that regard, the AIF is a classic trustee, and the members are the beneficiaries
of the trust
.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
state legislation as either a reciprocal insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
exchange, a reciprocal interinsurance exchange, or perhaps most properly a reciprocal inter-insurance exchange and is managed by an attorney in fact (AIF). Sometimes they are referred to simply as "reciprocals".
A reciprocal interinsurance exchange is unincorporated: each member of the exchange is individually and severally liable to indemnify all the other members. As to the unincorporated personal liability of each member of a reciprocal inter-insurance exchange, there is an important distinction when compared to a partnership: members of a reciprocal inter-insurance exchange are not jointly liable, as are partners of a law firm.
Reciprocals are sometimes confused with an incorporated mutual insurance
Mutual insurance
A mutual insurance company is an insurance company which has no shareholders but instead is owned entirely by its policyholders. The primary form of financial business set up as a mutual company in the United States has been mutual insurance. Under this idea, what would have been profits are...
company. Reciprocals have been compared to limited liability company
Limited liability company
A limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...
(LLC) and limited partnership
Limited partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
s (LP). Both the reciprocal and the LLC are made up of members. Members of a reciprocal are also sometimes referred to as subscribers. Members enter into a direct partnership with most of the features associated with a mutual agency
Agency (law)
The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another to create a legal relationship with a third party...
. As is also true in the case of the LLC, there is no incorporated limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...
entity owned by shareholders. Share ownership and limited liability evidenced by stock certificate
Stock certificate
In corporate law, a stock certificate is a legal document that certifies ownership of a specific number of stock shares in a corporation...
s are not issued to each owner. However, legislation has been enacted that limits liability of members to only the assets held by the reciprocal. Therefore, for liability purposes, membership in a reciprocal is similar to ownership of shares of a corporation.
Members of a reciprocal may be either a natural person
Natural person
Variously, in jurisprudence, a natural person is a human being, as opposed to an artificial, legal or juristic person, i.e., an organization that the law treats for some purposes as if it were a person distinct from its members or owner...
, an LLC or LP, a partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
, or a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
. In some states, municipalities form reciprocals to cross-indemnify
Indemnity
An indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. The indemnitor may or may not be responsible for the loss suffered by the indemnitee...
towns, cities, villages, and counties.
The AIF is a stakeholder and a trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
who holds the deposits made by each member. All property entrusted to the AIF in a reciprocal remains, at all times, the property of the subscribers. In that regard, the AIF is a classic trustee, and the members are the beneficiaries
Beneficiary
A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example: The beneficiary of a life insurance policy, is the person who receives the payment of the amount of insurance after the death of the insured...
of the trust
Trust company
A trust company is a corporation, especially a commercial bank, organized to perform the fiduciary of trusts and agencies. It is normally owned by one of three types of structures: an independent partnership, a bank, or a law firm, each of which specializes in being a trustee of various kinds of...
.
See also
- Limited liability companyLimited liability companyA limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...
- Limited partnershipLimited partnershipA limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
- USAAUSAAUnited Services Automobile Association is a Fortune 500 financial services company offering banking, investing, and insurance to people and families that serve, or served, in the United States military. In 2011, there were 8.4 million members. The company reported a net worth of $19.3 billion in...
- Farmers Insurance Group