Fictitious Grouping Law (FGL) — a fictitious grouping law prohibits the making of groups solely for the purpose
of purchasing insurance. FGLs prohibit or limit the sale of insurance to groups
that do not have an official or legal status as a group. Many states have
statutes dealing with "unfair practices" in the sale or purchase of
insurance. Among other issues, these laws place limitations on the sale of
insurance to groups without common ownership or a common group interest or
purpose.
Because a wrap-up insurance program entails the purchase of insurance by one
entity for many separate and distinct entities, fictitious grouping laws can
limit, preclude, or restrict the use of wrap-ups in a particular jurisdiction.
These types of restrictions generally appear either in the unfair practices
section of the jurisdiction's insurance statutes or in a section of the
statutes called "fictitious grouping" laws. See, for example, Idaho
Code Sect. Section 41–1317.
FICTITIOUS GROUPS
(1) No insurer, whether an authorized insurer or
an unauthorized insurer, shall make available through any rating plan or form,
property, casualty or surety insurance to any firm, corporation, or association
of individuals, any preferred rate or premium based upon any fictitious
grouping of such firm, corporation, or individuals. For the purposes of this
section a "fictitious" group is one in which members of such group do
not have a common insurable interest as to the subject of the insurance and the
risk or risks insured or to be insured….