BILL NUMBER: AB 522 CHAPTERED
BILL TEXT
CHAPTER 134
FILED WITH SECRETARY OF STATE JULY 27, 2007
APPROVED BY GOVERNOR JULY 27, 2007
PASSED THE SENATE JULY 16, 2007
PASSED THE ASSEMBLY JULY 20, 2007
AMENDED IN SENATE JUNE 25, 2007
AMENDED IN ASSEMBLY APRIL 19, 2007
INTRODUCED BY Assembly Member Duvall
FEBRUARY 21, 2007
An act to amend Section 1763 of, and to amend and repeal Section
1764.1 of, the Insurance Code, relating to nonadmitted insurers.
LEGISLATIVE COUNSEL'S DIGEST
AB 522, Duvall. Nonadmitted insurers.
Existing law generally provides that a surplus line broker may
solicit and place insurance, other than as excepted, with nonadmitted
insurers only if that insurance can not be procured from insurers
admitted for the particular class or classes of insurance and that
actually write the particular type of insurance in this state.
This bill would provide that this requirement does not apply to
extensions of coverage by a nonadmitted insurer, of or for the same
risks, and to the same insured under an existing surplus lines
policy, as specified.
Existing law, until January 1, 2008, specifies various duties of
nonadmitted insurers and surplus line brokers transacting business in
this state. Specifically, it gives applicants and policyholders
notice of the power to cancel the policy within 5 days under
specified circumstances, and notice that the broker fee must be
returned and that the premium must be prorated when a policy is
canceled. It imposes a similar requirement with respect to personal
insurance and associated umbrella policies.
This bill, by repealing the January 1, 2008, termination date,
would extend these provisions indefinitely.
Existing law, operative on January 1, 2008, specifies various
duties of nonadmitted insurers and surplus line brokers transacting
business in this state, but without the above-specified requirements.
This bill would repeal this provision.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1763 of the Insurance Code is amended to read:
1763. (a) A surplus line broker may solicit and place insurance,
other than as excepted in Section 1761, with nonadmitted insurers
only if that insurance can not be procured from insurers admitted for
the particular class or classes of insurance and that actually write
the particular type of insurance in this state. Each surplus line
broker shall be responsible to ensure that a diligent search is made
among insurers that are admitted to transact and are actually writing
the particular type of insurance in this state before procuring the
insurance from a nonadmitted insurer. Each surplus line broker shall
file with the commissioner or his or her designee, within 60 days of
placing any insurance with a nonadmitted insurer, a written report,
that shall be kept confidential, regarding the insurance. This report
shall include the name and address of the insured, the identity of
the insurer or insurers, a description of the subject and location of
the risk, the amount of premium charged for the insurance, a copy of
the declarations page of the policy or a copy of the surplus line
broker's certificate or binder evidencing the placement of insurance,
and other pertinent information that the commissioner may reasonably
require. In addition, each surplus line broker shall file a
standardized form to be prescribed by the commissioner setting forth
the diligent efforts to place the coverage with admitted insurers and
the results of these efforts. The form shall be signed by a person
licensed under this code who has made the diligent search required by
this section or who supervised an unlicensed person or persons who
actually conducted the search. The insurance shall not be placed with
a nonadmitted insurer for the purpose of procuring a rate lower than
the lowest rate that will be accepted by any admitted insurer except
as provided by subdivision (c). The commissioner may make and
publish reasonable rules and regulations, consistent with this
chapter, in respect to transactions governed thereby and the basis or
bases for his or her determinations hereunder.
(b) It shall be prima facie evidence that a diligent search among
admitted insurers has been made if the standardized form filed as
required by subdivision (a) establishes that three admitted insurers
that actually write the particular type of insurance in this state
have declined the risk, or that fewer than three admitted insurers
actually write the particular type of insurance. The commissioner, or
his or her designee, may review the form for the accuracy of the
information provided on it, including, but not limited to, whether
the listed insurers actually write that type of insurance, and
whether the three insurers declined the risk. The commissioner may
take disciplinary action against the person signing the form for any
misrepresentation made in the form due to the negligence of or the
result of an intentional act by that person or the person or persons
who actually conducted the search. Those actions may include any
action authorized to be taken against a licensed person by this code.
Nothing in this subdivision shall preclude the commissioner or his
or her designee from directing the surplus line broker to conduct a
further or additional search among admitted insurers for similar
placements in the future.
(c) It shall be conclusively presumed that insurance is placed in
violation of this section if the insurance is actually placed with a
nonadmitted insurer at a lower rate of premium or lower premium than
the lowest rate of premium or the lowest premium that could be
obtained from an admitted insurer unless, at the time the insurance
attaches, there is filed with the commissioner a statement describing
the insurance, specifying the rate and the nearest procurable rates
from admitted insurers. The statement shall include an explanation of
the reasons that the insurance must be placed with a nonadmitted
insurer even though it is available from an admitted insurer. Unless
the commissioner, or his or her designee, within five days after that
filing notifies the filing broker that in his or her opinion the
placing of the insurance constitutes a violation of this section, the
broker may thereafter maintain in effect that insurance. If within
that five-day period the commissioner notifies the surplus line
broker that the insurance is in violation of this section and orders
the broker to effect termination of that insurance within 10 days
from the notice, and the broker fails or refuses to effect that
termination, that failure or refusal is a violation of this section.
(d) Statements filed under this section are not subject to public
inspection unless the commissioner determines that the public
interest or the welfare of the filing broker requires that any
statement be made public.
(e) For purposes of this section, "type of insurance" means the
hazard or combination of hazards covered by a contract of insurance.
(f) Notwithstanding subdivision (a), this section shall not apply
to insurance issued or delivered in this state by a nonadmitted
Mexican insurer by and through a surplus line broker affording
coverage exclusively in the Republic of Mexico on property located
temporarily or permanently in, or operations conducted temporarily or
permanently within, the Republic of Mexico.
(g) This section does not apply to the extension of coverage by a
nonadmitted insurer, of or for the same risks, and to the same
insured under an existing surplus lines policy. Such an extension may
not exceed 90 days in the aggregate during any 12-month period. The
extension may not include a change in coverage, terms, and
conditions, or limits. Any additional premium charged for the
extension shall be determined pro rata, based on the same rate of
premium as the existing surplus lines policy.
SEC. 2. Section 1764.1 of the Insurance Code, as amended by
Section 1 of Chapter 95 of the Statutes of 2004, is amended to read:
1764.1. (a) (1) Every nonadmitted insurer, in the case of
insurance to be purchased by a resident of this state pursuant to
Section 1760, and surplus line broker, in the case of any insurance
with a nonadmitted carrier to be transacted by the surplus line
broker, shall be responsible to ensure that, at the time of accepting
an application for any insurance policy, other than a renewal of
that policy, issued by a nonadmitted insurer, the signature of the
applicant on the disclosure statement set forth in subdivision (b) is
obtained. In fulfillment of this responsibility, the nonadmitted
insurer and the surplus line broker may rely, if it is reasonable
under all the circumstances to do so, on the disclosure statement
received from any licensee involved in the transaction as prima facie
evidence that the disclosure statement and appropriate signature
from the applicant have been obtained. The surplus line broker shall
maintain a copy of the signed disclosure statement in his or her
records for a period of at least five years. These records shall be
made available to the commissioner and the insured upon request. This
disclosure shall be signed by the applicant, and is not subject to
any limited power of attorney agreement between the applicant and an
agent or broker, or a surplus line broker. The disclosure statement
shall be in boldface 16-point type on a freestanding document. In
addition, every policy issued by a nonadmitted insurer and every
certificate evidencing the placement of insurance shall contain, or
have affixed to it by the insurer or surplus line broker, the
disclosure statement set forth in subdivision (b) in boldface
16-point type on the front page of the policy.
(2) In any case where the applicant has not received and completed
the signed disclosure form required by this section, he or she may
cancel the insurance so placed. The cancellation shall be on a pro
rata basis as to premium, and the applicant shall be entitled to the
return of any broker's fees charged for the placement.
(b) The following notice shall be provided to policyholders and
applicants for insurance as provided by subdivision (a), and shall be
printed in English and in the language principally used by the
surplus line broker and nonadmitted insurer to advertise, solicit, or
negotiate the sale and purchase of surplus line insurance. The
surplus line broker and nonadmitted insurer shall use the appropriate
bracketed language for application and issued policy disclosures:
"NOTICE:
1. THE INSURANCE POLICY THAT YOU (HAVE PURCHASED) (ARE APPLYING TO
PURCHASE) IS BEING ISSUED BY AN INSURER THAT IS NOT LICENSED BY THE
STATE OF CALIFORNIA. THESE COMPANIES ARE CALLED "NONADMITTED" OR
"SURPLUS LINE" INSURERS.
2. THE INSURER IS NOT SUBJECT TO THE FINANCIAL SOLVENCY REGULATION
AND ENFORCEMENT WHICH APPLIES TO CALIFORNIA LICENSED INSURERS.
3. THE INSURER DOES NOT PARTICIPATE IN ANY OF THE INSURANCE
GUARANTEE FUNDS CREATED BY CALIFORNIA LAW. THEREFORE, THESE FUNDS
WILL NOT PAY YOUR CLAIMS OR PROTECT YOUR ASSETS IF THE INSURER
BECOMES INSOLVENT AND IS UNABLE TO MAKE PAYMENTS AS PROMISED.
4. CALIFORNIA MAINTAINS A LIST OF ELIGIBLE SURPLUS LINE INSURERS
APPROVED BY THE INSURANCE COMMISSIONER. ASK YOUR AGENT OR BROKER IF
THE INSURER IS ON THAT LIST, OR VIEW THAT LIST AT THE WEB SITE OF THE
CALIFORNIA DEPARTMENT OF INSURANCE: WWW.INSURANCE.CA.GOV.
5. FOR ADDITIONAL INFORMATION ABOUT THE INSURER YOU SHOULD ASK
QUESTIONS OF YOUR INSURANCE AGENT, BROKER, OR "SURPLUS LINE" BROKER
OR CONTACT THE CALIFORNIA DEPARTMENT OF INSURANCE, AT THE FOLLOWING
TOLL-FREE TELEPHONE NUMBER: ____.
6. IF YOU, AS THE APPLICANT, REQUIRED THAT THE INSURANCE POLICY
YOU HAVE PURCHASED BE BOUND IMMEDIATELY, EITHER BECAUSE EXISTING
COVERAGE WAS GOING TO LAPSE WITHIN TWO BUSINESS DAYS OR BECAUSE YOU
WERE REQUIRED TO HAVE COVERAGE WITHIN TWO BUSINESS DAYS, AND YOU DID
NOT RECEIVE THIS DISCLOSURE FORM AND A REQUEST FOR YOUR SIGNATURE
UNTIL AFTER COVERAGE BECAME EFFECTIVE, YOU HAVE THE RIGHT TO CANCEL
THIS POLICY WITHIN FIVE DAYS OF RECEIVING THIS DISCLOSURE. IF YOU
CANCEL COVERAGE, THE PREMIUM WILL BE PRORATED AND ANY BROKER FEE
CHARGED FOR THIS INSURANCE WILL BE RETURNED TO YOU."
(c) When a contract is issued to an industrial insured neither the
nonadmitted insurer nor the surplus line broker is required to
provide the notice required in this section except on the
confirmation of insurance, the certificate of placement, or the
policy, whichever is first provided to the insured, nor is the
insurer or surplus line broker required to obtain the insured's
signature. The producer shall ensure that the notice affixed to the
confirmation of insurance, certificate of placement, or the policy is
provided to the insured. The producer shall insert the current
toll-free telephone number of the Department of Insurance as provided
in paragraph 4 of the notice.
(1) An industrial insured is an insured:
(A) Which employs at least 25 employees on average during the
prior 12 months; and
(B) Which has aggregate annual premiums for insurance for all
risks other than workers' compensation and health coverage totaling
no less than twenty-five thousand dollars ($25,000); or
(C) Which obtains insurance through the services of a full-time
employee acting as an insurance manager or a continuously retained
insurance consultant. A "continuously retained insurance consultant"
does not include: (i) Any agent or broker through whom the insurance
is being placed, (ii) any subagent or subproducer involved in the
transaction, or (iii) any agent or broker which is a business
organization employing or contracting with any person mentioned in
clauses (i) and (ii).
(2) The surplus line broker shall be responsible to ensure that
the applicant is an industrial insured. A surplus line broker who
reasonably relies on information provided in good faith by the
applicant, whether directly or through the producer, shall be deemed
to be in compliance with this requirement.
(d) For purposes of compliance with the requirement of subdivision
(a) that the signature of the applicant be obtained, the following
shall apply:
(1) Where the insurance transaction is not conducted at an
in-person, face-to-face meeting, the applicant's signature on the
disclosure form may be transmitted by the applicant to the agent or
broker via facsimile or comparable electronic transmittal.
(2) In the case of commercial lines coverage, or personal
insurance coverage subject to Section 675 and any umbrella coverage
associated therewith, where an applicant requires that insurance
coverage be bound immediately, either because existing coverage will
lapse within two business days of the time the insurance is bound or
because the applicant is required to have coverage in place within
two business days, and the applicant cannot meet in person with the
agent or broker to sign the disclosure form, the agent or broker may
obtain the signature of the applicant within five days of binding
coverage, provided that the applicant may cancel the insurance so
placed within five days of receiving the disclosure form from the
agent or broker. The cancellation shall be on a pro rata basis, and
the applicant shall be entitled to the rescission or return of any
broker's fees charged for the placement. When a policy is canceled,
the broker shall inform the applicant that the broker fee must be
returned and that the premium must be prorated.
(e) Notwithstanding subdivision (a), this section shall not apply
to insurance issued or delivered in this state by a nonadmitted
Mexican insurer by and through a surplus line broker affording
coverage exclusively in the Republic of Mexico on property located
temporarily or permanently in, or operations conducted temporarily or
permanently within, the Republic of Mexico.
SEC. 3. Section 1764.1 of the Insurance Code, as added by Section
2 of Chapter 95 of the Statutes of 2004, is repealed.