COMMITTEE SUBSTITUTE

FOR

COMMITTEE SUBSTITUTE

FOR

Senate Bill No. 467

(By Senators Minard, Jenkins and Minear)

____________

[Originating in the Committee on Finance;

reported February 26, 2002.]

____________


A BILL to amend and reenact sections one, two, three, four, six and seven, article thirty-seven, chapter thirty-three of the code of West Virginia, one thousand nine hundred thirty-one, as amended; and to further amend said article by adding thereto two new sections, designated sections eight and nine, all relating to licensing and authority of managing general agents; defining terms; requiring managing general agents to be licensed; setting minimum fees for licensure and license renewal; bonding and insurance requirements; designating the secretary of state as agent for service; requiring advertising to be approved; requiring insurers to have independent audited financial statements; increasing the authority of the commissioner, including the authority to order penalties in an amount not exceeding ten thousand dollars for a violation of the article; institution of civil suits; and providing short title and effective date.

Be it enacted by the Legislature of West Virginia:
That sections one, two, three, four, six and seven, article thirty-seven, chapter thirty-three of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted; and that said article be further amended by adding thereto two new sections, designated sections eight and nine, all to read as follows:
ARTICLE 37. MANAGING GENERAL AGENTS.
§33-37-1. Definitions.
For the purposes of this article:
(a) "Actuary" means a person who is a member in good standing of the American academy of actuaries.
(b) "Home state" means the District of Columbia and any state or territory of the United States in which a managing general agent is incorporated or maintains its principal place of business. If neither the state in which the managing general agent is incorporated, nor the state in which it maintains its principal place of business has adopted this article, or a substantially similar law governing managing general agents, the managing general agent may declare another state, in which it conducts business, to be its "home state".
(b) (c) "Insurer" means any person, firm, association or corporation engaged as indemnitor, surety or contractor in the business of entering into contracts of insurance or of annuities as limited to: duly licensed in this state as an insurance company pursuant to article three of this chapter.
(1) Any insurer who is doing an insurance business, or has transacted insurance in this state, and against whom claims arising from that transaction may exist now or in the future:
(2) This includes, Insurer includes, but is not limited to, any domestic insurer as defined in section six, article one of this chapter and any foreign insurer as defined in section seven of said article, including any stock insurer, mutual insurer, reciprocal insurer, farmers' mutual fire insurance company, fraternal benefit society, hospital service corporation, medical service corporation, dental service corporation, health service corporation, health care corporation, health maintenance organization, captive insurance company or risk retention group.
(c) "Managing general agent" means any person, firm, association or corporation who negotiates and binds ceding reinsurance contracts on behalf of an insurer or manages all or part of the insurance business of an insurer, including the management of a separate division, department or underwriting office, and acts as an agent for such insurer whether known as a managing general agent, manager or other similar term, who, with or without the authority, either separately or together with affiliates, produces, directly or indirectly, and underwrites an amount of gross direct written premium equal to or greater than five percent of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year, together with one or more of the following:
(1) Adjusts or pays claims in excess of an amount determined by the commissioner; or
(2) Negotiates reinsurance on behalf of the insurer.
Notwithstanding the preceding provision, the following persons are not to be considered as managing general agents for the purposes of this article:
(1) An employee of the insurer;
(2) A United States manager of the United States branch of an alien insurer;
(3) An underwriting manager that, pursuant to contract, manages all or part of the insurance operations of the insurer, is under common control with the insurer, is subject to the holding company regulatory act, and whose compensation is not based on the volume of premiums written without regard to the profitability of the business written;
(4) The attorney-in-fact authorized by and acting for the subscribers of a reciprocal insurer or inter-insurance exchange under powers of attorney
(d) "Managing general agent" means any person, firm, association or corporation who:
(1) Manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office); and
(2) Acts as an agent for the insurer whether known as a managing general agent, manager or other similar term who, with or without the authority, either separately or together with affiliates, produces, directly or indirectly, and underwrites an amount of gross direct written premium equal to or more than five percent of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year together with one or more of the following activities related to the business produced:
(A) Adjusts or pays claims in excess of ten thousand dollars per claim; or
(B) Negotiates reinsurance on behalf of the insurer.
(3) Notwithstanding the provisions of this subsection, the following persons are not be considered managing general agents for the purposes of this article:
(A) An employee of the insurer;
(B) A U. S. manager of the United States branch of an alien insurer;
(C) An underwriting manager which, pursuant to contract, manages all or part of the insurance operations of the insurer, is under common control with the insurer, subject to the holding company regulatory act, and whose compensation is not based on the volume of premiums written; and
(D) The attorney in fact authorized by and acting for the subscribers of a reciprocal insurer or inter insurance exchange under powers of attorney.
(e) "Person" means an individual or a business entity.
(d) (f) "Underwrite" means the authority to accept or reject risk on behalf of the insurer. as authorized by the insurer.
§33-37-2. Licensure.
(a) Any person, or a person working for a firm, association or corporation, shall not act in the capacity of a managing general agent with respect to risks located in this state for an insurer licensed in this state unless such person is licensed and appointed as an agent of the insurer in this state.
(b) Any person, or a person working for a firm, association or corporation, shall not act in the capacity of a managing general agent representing an insurer domiciled in this state with respect to risks located outside this state unless such person is licensed and appointed as an agent of the insurer in this state. The license held by such person may be a nonresident license.
(c) The commissioner may require a bond in an amount acceptable to him or her for the protection of the insurer.
(d) The commissioner may require the managing general agent to maintain an errors and omissions policy of liability insurance.
(a) A domestic insurer may not permit a person to act, and a person may not act, in the capacity of a managing general agent for an insurer domiciled in this state unless the person is licensed in this state to act as a managing general agent.
(b) A foreign or alien insurer may not permit a person to act, and a person may not act, in the capacity of a managing general agent representing an insurer unless the person is licensed in this state to act as a managing general agent.
(c) A person may not act in the capacity of a managing general agent with respect to risks located in this state for an insurer licensed in this state unless the person is a licensed insurance producer in this state.
(d) The commissioner may license as a managing general agent any person that has complied with the requirements of this article and any rules concerning licensure that may be promulgated by the commissioner. The commissioner may refuse to issue a license, subject to the right of the applicant to demand a hearing on the application, if the commissioner believes that the applicant, any person named on the application, or any member, principal, officer or director of the applicant is not trustworthy or competent to act as a managing general agent; that his or her license has been revoked or suspended for those reasons; or that the applicant has failed to comply with any prerequisite for issuance of the license.
(e) Any person seeking a license pursuant to subsection (d) of this section shall apply for the license in a form acceptable to the commissioner and shall pay to the commissioner a nonrefundable application fee in an amount prescribed by the commissioner. The application fee shall be not less than five hundred dollars nor more than one thousand dollars. Every licensed managing general agent shall pay to the commissioner a nonrefundable annual renewal fee in an amount prescribed by the commissioner. The renewal fee shall be not less than two hundred dollars nor more than one thousand dollars. Between the first day of May and the first day of June of the renewal year, each licensed managing general agent shall submit to the commissioner the renewal fee and a renewal application form as prescribed by the commissioner. All fees shall be collected by the commissioner, paid into the state treasury and placed to the credit of the special revenue account provided for in section thirteen, article three of this chapter. Each license issued pursuant to this article expires at midnight on the thirtieth day of June next following the day of issuance.
(f) The commissioner may require a bond in an amount acceptable to him or her for the protection of the insurer.
(g) The commissioner may require a managing general agent to maintain an errors and omissions policy that is acceptable to the commissioner.
(h) Except where prohibited by state or federal law, by submitting an application for license, the applicant has appointed the secretary of state as the agent for service of process on the applicant in any action or proceeding arising in this state out of or in connection with the exercise of the license. The appointment of the secretary of state as agent for service of process is irrevocable during the period within which a cause of action against the applicant may arise out of transactions with respect to subjects of insurance in this state. Service of process on the secretary of state shall conform to the provisions of section twelve, article four of this chapter.
(i) An applicant shall provide evidence, in a form acceptable to the commissioner, of its designations or contracts as a managing general agent. The commissioner may refuse to renew the license of a person that has not been designated by, or otherwise authorized to act for, an insurer as a managing general agent.
§33-37-3. Required contract provisions.
Any A person, or a person working for a firm, association or corporation acting in the capacity of a managing general agent shall not may not place business with an insurer unless there is in force a written contract between the parties which sets forth the responsibilities of each party and, whereby where both parties share responsibility for a particular function, which specifies the division of such the responsibilities, and which contains the following minimum provisions:
(a) The insurer may terminate the contract for cause upon written notice to the managing general agent. The insurer may suspend the underwriting authority of the managing general agent during the pendency of any dispute regarding the cause for termination;
(b) The managing general agent will shall render accounts to the insurer detailing all transactions and remit all funds due under the contract to the insurer on not less than a monthly basis;
(c) All funds collected for the account of an insurer will be held by the managing general agent in a fiduciary capacity in a bank which is a member of the federal reserve system with a federal deposit insurance corporation insured financial institution. This account shall be used for all payments on behalf of the insurer. The managing general agent may retain no more than three months estimated claims payments and allocated loss adjustment expenses;
(d) The managing general agent shall maintain separate Separate records of business written by the managing general agent shall be maintained that he or she writes. The insurer shall have access to and the right to copy all accounts and records related to its business in a form usable by it, The and the commissioner shall have access to all books, bank accounts and records of the managing general agent in a form usable to him or her the commissioner;
(e) The contract may not be assigned, in whole or part, by the managing general agent;
(f) The contract shall contain appropriate underwriting guidelines including:
(f) Appropriate underwriting guidelines, including:
(1) The maximum annual premium volume;
(2) The basis of the rates to be charged;
(3) The types of risks which may be written;
(4) Maximum limits of liability;
(5) Applicable exclusions;
(6) Territorial limitations;
(7) Policy cancellation provisions; and
(8) The maximum policy period.
The insurer shall have the right to may cancel or nonrenew any policy of insurance subject to the applicable laws and rules concerning the cancellation and non renewal of insurance policies;
(g) If the contract permits the managing general agent to settle claims on behalf of the insurer:
(1) All claims must shall be reported to the company in a timely manner; and
(2) A copy of the claim file will shall be sent to the insurer at its request or as soon as it becomes known that the claim:
(A) Has the potential to exceed an amount determined by the commissioner or exceeds the limit set by the company, whichever is less;
(B) Involves a coverage dispute;
(C) May exceed the managing general agents claims settlement authority;
(D) Is open for more than six months; or
(E) Is closed by payment of an amount set by the commissioner or an amount set by the company, whichever is less;
(3) All claim files will be are the joint property of the insurer and managing general agent. However, upon an order of liquidation of the insurer, such files shall the files become the sole property of the insurer or its estate. The managing general agent shall have reasonable access to and the right to copy the files on a timely basis;
(4) Any settlement authority granted to the managing general agent may be terminated for cause upon the insurer's written notice to the managing general agent or upon the termination of the contract. The insurer may suspend the settlement authority during the pendency of any dispute regarding the cause for termination.
(h) If Where electronic claims files are in existence, the contract must address the timely transmission of the data contained in such the files;
(i) If the contract provides for a sharing of interim profits by the managing general agent, and the managing general agent has the authority to determine the amount of the interim profits by establishing loss reserves or controlling claim payments, or in any other manner, interim profits will may not be paid to the managing general agent until one year after they are earned for property insurance business and five years after they are earned on casualty business: Provided, That no such profits may be paid until they have been verified pursuant to section four of this article. business and not until the profits have been verified pursuant to section four of this article;
(j) The managing general agent may use only advertising material pertaining to the business issued by an insurer that has been approved in writing by the insurer in advance of its use;
(j) (k) The managing general agent shall not:
(1) Bind reinsurance or retrocessions on behalf of the insurer, except that the managing general agent may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the insurer contains reinsurance underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which such the automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules;
(2) Commit the insurer to participate in insurance or reinsurance syndicates;
(3) Appoint any agent producer without assuring that the agent producer is lawfully licensed to transact the type of insurance for which he or she is appointed;
(4) Without prior approval of the insurer, pay or commit the insurer to pay a claim over a specified amount, net of reinsurance, which shall not exceed one percent of the insurer's policyholder's surplus as of the thirty-first day of December of the last completed calendar year;
(5) Collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer, without prior approval of the insurer. If prior approval is given, a report must shall be promptly forwarded to the insurer;
(6) Permit Except as provided in subsection (g), section four of this article, permit its subproducer to serve on the insurer's board of directors;
(7) Jointly employ an individual who is employed with the insurer; or
(8) Appoint a submanaging general agent.
§33-37-4. Duties of insurers.
(a) The insurer shall have on file an independent financial examination, in a form acceptable to the commissioner, of each managing general agent with which it has done business.
(a) The insurer shall have on file an independent audited financial statement or reports for the two most recent fiscal years that demonstrate that the managing general agent has a positive net worth. If the managing general agent has been in existence for less than two fiscal years, the managing general agent shall include financial statements or reports, certified by an officer of the managing general agent and prepared in accordance with generally accepted accounting principles, for any completed fiscal years and for any month during the current fiscal year for which financial statements or reports have been completed. Any audited financial statement or audited annual report prepared on a consolidated basis shall include a columnar consolidating or combining worksheet that shall be filed with the report and include the following:
(1) Amounts shown on the consolidated audited financial report;
(2) Amounts for each entity stated separately; and
(3) Explanations of consolidating and eliminating entries.
(b) If a managing general agent establishes loss reserves, the insurer shall annually obtain the opinion of an actuary in a form consistent with the requirements for actuarial certifications as imposed upon the insurer by statute or rule of the commissioner, attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the managing general agent. This required actuary's opinion is in addition to any other required loss reserve certification.
(c) The insurer shall at least semiannually conduct an on-site review of the underwriting and claims processing operations of the managing general agent.
(d) Binding authority for all reinsurance contracts or participation in insurance or reinsurance syndicates shall rest with an officer of the insurer, who shall not be affiliated with the managing general agent.
(e) Within thirty days of entering into or terminating a contract with a managing general agent, the insurer shall provide written notification of such appointment or termination to the commissioner. A notice of appointment of a managing general agent Written notification of entering into a contract with a managing general agent shall include a statement of duties which such agent the applicant is expected to perform on behalf of the insurer, the lines of insurance for which such agent the applicant is to be authorized to act and any other information the commissioner may request requested by the commissioner.
(f) An insurer shall review its books and records each quarter to determine if any producer as defined by subsection (c) (d), section one of this article has become, by operation of said subsection, a managing general agent as defined therein in said section. If the insurer determines that a producer has become a managing general agent as defined in subsection (c), section one, the insurer shall promptly notify the producer and the commissioner of such that determination and the insurer and producer must shall fully comply with the provisions of this article within thirty days thereafter.
(g) An insurer shall not appoint to its board of directors an officer, director, employee, subproducer or controlling shareholder of its managing general agents. This subsection shall not apply to relationships governed by the Insurance Holding Company Systems Regulatory Act or the Business Transacted with Producer Controlled Insurer Act.
§33-37-6. Penalties and liabilities.
(a) If the commissioner finds after a hearing conducted in accordance with section thirteen, article two of this chapter that any person has violated any provision of this article, the commissioner may order:
(a) If the commissioner finds that the managing general agent or any other person has violated any provision of this article, or any rule or order promulgated under this article, after a hearing conducted in accordance with section thirteen, article two of this chapter, the commissioner may order:
(1) For each separate violation, a penalty in an amount of one thousand dollars not exceeding ten thousand dollars;
(2) Revocation or suspension of the managing general agent's license or the producer's license or both; and
(3) Reimbursement by the managing general agent of the insurer, the rehabilitator or liquidator of the insurer for any losses incurred by the insurer and its policyholders and creditors caused by a violation of this article committed by the managing general agent;
(b) The decision, determination or order of the commissioner pursuant to subsection (a) of this section shall be is subject to judicial review pursuant to section fourteen, article two of this chapter.
(c) If it was found that because of any violation that the insurer has suffered any loss or damage, the commissioner may maintain a civil action brought on behalf of the insurer, and its policyholders or creditors for recovery of compensatory damages for the benefit of the insurer and its policyholders and creditors or other appropriate relief.
(d) If an order of rehabilitation or liquidation of the insurer has been entered pursuant to article ten of this chapter and the receiver appointed under that order determines that the managing general agent or any other person has not materially complied with this article, or any rule or order promulgated under this article, and the insurer suffered any loss or damage from the managing general agent's or another person's noncompliance, the receiver may maintain a civil action for recovery of damages or other appropriate sanctions for the benefit of the insurer.
(e) Nothing contained in this section shall affect affects the right of the commissioner to impose any other penalties provided for in this chapter.
(f) Nothing contained in this article is intended to or shall in any manner limit or restrict the rights of policyholders, claimants and creditors.
§33-37-7. Rule-making authority.
The commissioner is thereby authorized to may promulgate reasonable rules for the implementation and administration of the provisions of this article, pursuant to chapter twenty-nine-a of this code.
§33-37-8. Short title.
This article may be cited as the managing general agents act.
§33-37-9. Effective date.
An insurer may not continue to use the services of a managing general agent on and after the first day of July, two thousand three, unless the use is in compliance with this article.