California Legislature—2013–14 Regular Session

Assembly Bill No. 1053

Introduced by Assembly Member Cooley

February 22, 2013

An act to amend Section 1764.1 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 1053, as introduced, Cooley. Insurance: nonadmitted insurer: surplus line brokers: disclosure.

(1) Existing law requires every nonadmitted insurer and every surplus line broker, as applicable, to obtain, at the time of accepting an application for an insurance policy, other than a renewal of that policy, the signature of the applicant on a disclosure, as specified. An industrial insured is not required to receive the disclosure except on confirmation of insurance. An industrial insured is defined as, among other things, having 25 or more employees on average during the prior 12 months and having aggregate annual premiums for insurance for all risks other than workers’ compensation and health coverage totaling no less than $25,000. A violation of this requirement is a crime punishable by imprisonment in the state prison, or in a county jail for not exceeding one year or by a fine of not more than $10,000, or by both.

This bill would change the definition of industrial insured by increasing the industrial insured’s aggregate annual premiums for insurance for all risks other than workers’ compensation and health coverage to no less than $50,000. Because this bill would change the definition of a crime, it is a state-mandated local program.

(2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 1764.1 of the Insurance Code is amended
to read:

1764.1.  

(a) (1) Every nonadmitted insurer, in the case of
insurance to be purchased by a home state insured pursuant to
Section 1760, and surplus line broker, in the case of any insurance
with a nonadmitted carrier for a home state insured to be transacted
by the surplus line broker, shall be responsible to ensure that, at
the time of accepting an application for an 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 a 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 a 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 a case in which 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 home state insureds
and home state insured 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 THAT
APPLY 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. THE INSURER SHOULD BE LICENSED EITHER AS A
FOREIGN INSURER IN ANOTHER STATE IN THE UNITED
STATES OR AS A NON-UNITED STATES (ALIEN) 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 ____. ASK WHETHER OR NOT THE
INSURER IS LICENSED AS A FOREIGN OR NON-UNITED
STATES (ALIEN) INSURER AND FOR ADDITIONAL
INFORMATION ABOUT THE INSURER. YOU MAY ALSO
CONTACT THE NAIC’S INTERNET WEB SITE AT
WWW.NAIC.ORG.

5. FOREIGN INSURERS SHOULD BE LICENSED BY A
STATE IN THE UNITED STATES AND YOU MAY CONTACT
THAT STATE’S DEPARTMENT OF INSURANCE TO OBTAIN
MORE INFORMATION ABOUT THAT INSURER.

6. FOR NON-UNITED STATES (ALIEN) INSURERS, THE
INSURER SHOULD BE LICENSED BY A COUNTRY
OUTSIDE OF THE UNITED STATES AND SHOULD BE ON
THE NAIC’S INTERNATIONAL INSURERS DEPARTMENT
(IID) LISTING OF APPROVED NONADMITTED
NON-UNITED STATES INSURERS. ASK YOUR AGENT,
BROKER, OR “SURPLUS LINE” BROKER TO OBTAIN MORE
INFORMATION ABOUT THAT INSURER.

7. CALIFORNIA MAINTAINS A LIST OF APPROVED
SURPLUS LINE INSURERS. ASK YOUR AGENT OR BROKER
IF THE INSURER IS ON THAT LIST, OR VIEW THAT LIST
AT THE INTERNET WEB SITE OF THE CALIFORNIA
DEPARTMENT OF INSURANCE:
WWW.INSURANCE.CA.GOV.

8. 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’S 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 that does both of the
following:

(A) Employs at least 25 employees on average during the prior
12 months.

(B) Has aggregate annual premiums for insurance for all risks
other than workers’ compensation and health coverage totaling no
less than begin delete twenty-five thousand dollars ($25,000) end delete begin insert fifty thousand
dollars ($50,000) end insert or 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 begin delete : (i) an agent or
broker through whom the insurance is being placed, (ii) a subagent
or subproducer involved in the transaction, or (iii) an agent or
broker that is a business organization employing or contracting
with a person mentioned in clauses (i) and (ii). end delete begin insert any of the following: end insert

begin insert

(i) An agent or broker through whom the insurance is being
placed.

end insert begin insert

(ii) A subagent or subproducer involved in the transaction.

end insert begin insert

(iii) An agent or broker that is a business organization
employing or contracting with a person mentioned in clauses (i)
and (ii).

end insert

(2) The surplus line broker shall be responsible for ensuring
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) If 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’s 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. 2.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.