BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 131 (Gaines) Hearing Date: May 11, 2011
As Amended: May 3, 2011
Fiscal: No
Urgency: No
SUMMARY Would clarify the allocation of Department of
Insurance reporting requirements under the surplus lines law
when multiple brokers are involved in a single surplus lines
transaction by permitting delegation of the responsibility by
mutual agreement among the brokers as a recognized option.
DIGEST
Existing law
1. Requires insurers that "transact" insurance in California
be "admitted" to transact in the state. "Admitted" is the
Insurance Code terminology for being licensed to transact
insurance in this state;
2. Provides that "transact" as it applies to insurance
includes solicitation, negotiations preliminary to the
execution of an insurance contract, execution of the
contract, and transaction of matters subsequent to the
execution of, and arising out of, the insurance contract;
3. Authorizes licensed "surplus lines brokers", when a risk
cannot be placed with an admitted insurer, to place the
risk with an insurer that is not fully licensed in
California, subject to rules and financial requirements
designed to strengthen the public's confidence when dealing
with such entities;
4. Imposes various duties on surplus lines broker to ensure
compliance with the Surplus Lines law;
5. Among these duties is a requirement that on or before the
first day of March of each year, a surplus line broker must
file with the Insurance Commissioner a sworn statement of
all business transacted under his or her surplus line
SB 131 (Gaines), Page 2
license during the prior calendar year.
6. Requires each surplus line broker to file with the
Insurance Commissioner a confidential written report
regarding the insurance placement within 60 days of placing
any insurance with a nonadmitted insurer. The report is
required to contain various matters, including the insured's
name and address, identity of the insurer/insurers, a
description of the subject and location of the risk, the
premium charged for the insurance, a copy of the
declarations page or of the surplus line broker's
certificate or binder evidencing the placement, and other
pertinent information that the commissioner may reasonably
require.
7. Provides that when multiple surplus line brokers are each
involved in placing a policy, only the one responsible for
negotiating, effecting the placement, remitting the premium
to the nonadmitted insurer or its representatives and filing
the confidential written report described above is
considered" transacting" under their surplus line broker's
license.
This bill
1.Permits, if multiple surplus lines brokers are involved in a
single transaction, that only one shall include the report
concerning the transaction in the required sworn statement of
business transacted which is filed with the Insurance
Commissioner.
2.Allows the surplus line brokers to delegate by agreement the
responsibility for filing the confidential written report on
the transaction which must be provided to the Insurance
Commissioner if the agreement is:
a. Made by all surplus line brokers involved in the
transaction;
b. Signed by all the surplus line brokers involved in
the transaction; and
c. Provides by its terms that the agreement shall be
made available to the commissioner or his or her
designee, upon request.
SB 131 (Gaines), Page 3
COMMENTS
1. Purpose of the bill According to the sponsors, SB 131's
purpose is clarify the reporting requirements under the
Surplus Lines law when multiple surplus lines brokers are
involved in a single insuring transaction. The bill will
permit the surplus line brokers involved in a placement to
designate among themselves, by a written agreement between
and signed by all the participating brokers, which broker is
responsible for the required filings. This approach is said
to be a better fit for actual practice in the marketplace.
The bill requires that agreement must be made available to
the Insurance Commissioner upon request
2. Background and Discussion:
This bill is intended to clarify responsibilities of surplus
lines brokers under California law when a single transaction
involves participation by multiple surplus lines brokers.
The Department of Insurance has been extensively involved in
"vetting" this proposed bill to maintain suitable reporting
for compliance and regulatory purposes and to improve the
fit between statutory requirements and marketplace
practices.
3. Summary of Arguments in Support:
According to this bill's sponsor, American International
Group, (AIG) surplus line placements generally involve more
than one insurance producer. In the typical placement, an
insured will interact with a broker, generally referred to
as a "retail agent", who does not hold a surplus line
broker's license and thus cannot place business with a
surplus line insurer. When the retail agent is unable to
find coverage in California for the insured, he/she will
seek the services of a surplus line broker in order to find
a surplus line insurer willing to write coverage.
Multiple surplus line brokers are often involved in a
surplus line placement. Section 1774(b) provides that when
two or more surplus line brokers are involved in a
placement, only the broker who is responsible for
negotiating, effecting the placement, remitting the premium
SB 131 (Gaines), Page 4
to the surplus line insurer, and filing the confidential
report with the Insurance Commissioner is the broker who is
considered to be transacting business under the surplus line
broker license. As the broker transacting business, this
broker is responsible for remitting surplus line premium
taxes and making the various filings that are required by
the Insurance Code. The required filings are submitted to
the Surplus Line Association of California.
By way of example, a surplus line placement could include
two surplus line brokers, Broker A and Broker B. Broker A
is approached by a potential insured or a retail agent on
the insured's behalf after the insured or retail agent has
been unable to place insurance with an insurer that is
licensed to transact insurance in California and writes the
type of insurance required by the insured. Broker A goes
to Broker B to obtain a surplus lines policy for the client
of Broker A. In accordance with a written agreement that
Broker B has with a surplus line insurer, Broker B quotes
the risk and then binds coverage when the quote is accepted.
Broker B then invoices Broker A for collection of the policy
premium and the required surplus line premium taxes.
The Surplus Lines Association interprets Section 1774(b) to
mean that in a placement involving more than one surplus
line broker, the broker who is closest to the surplus line
insurer is the broker transacting business and thus
responsible for the required filings. This would be Broker
B in the example provided above. In actual practice,
however, the surplus line broker who is closest to the
insured is the broker who is negotiating and effecting a
surplus line placement. This would be Broker A in our
example.
4. Summary of Arguments in Opposition:
a. None
5. Amendments: The California Department of Insurance is
requesting clarifying amendments as follows:
a. On page 2, line 17 and 18 strike out "under his or
her surplus line broker's license." and insert:
, only the one who is responsible for filing the
SB 131 (Gaines), Page 5
confidential written report pursuant to subdivision
(a) of Section 1763 shall be considered transacting
business and
b. On page 2, line 28, strike out "all of"
c. On page 2, between lines 28 and 29 insert:
referenced in (1) and (2)
a. On page 2, line 30, after "brokers", insert:
referenced in (1) and (2)
6. Prior and Related Legislation:
a. AB 315 (Solorio) is a pending measure to conform
California's surplus lines law to the mandatory surplus
line reforms of the Nonadmitted and Reinsurance Reform
Act (NRRA) set forth in Title V of the Dodd Frank Wall
Street Reform and Consumer Protection Act. It is
anticipated that these two bills will be subject to
technical conformity amendments as the bills move
forward.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
American International Group, (AIG) (Sponsor)
Opposition
None
Consultant: Ken Cooley (916) 651-4110