H. B. 2715
(By Delegates H. White, Hrutkay
and R. M. Thompson)
[Introduced January 28, 2003
; referred to the
Committee on Banking and Insurance then Finance.]
A BILL to amend and reenact article twelve-c, chapter thirty-three
of the code of West Virginia, one thousand nine hundred
thirty-one, as amended, relating to nonadmitted insurers and
the regulation of surplus lines insurance; defining terms for
implementation of the NAIC nonadmitted insurers model act;
establishing consistency among states; providing specific
provisions from the model; liberalizing reciprocity for
licensing nonresident surplus lines licensees; providing
grounds upon which the commission may deny a nonadmitted
insurer access to the state; providing for the regulation of
surplus lines; enforcement; violations; penalties; service of
process; and eliminating certain conflicting excess line
related provisions.
Be it enacted by the Legislature of West Virginia:
That article twelve-c, chapter thirty-three of the code of
West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted to read as follows:
ARTICLE 12C. SURPLUS LINE.
§33-12C-1. Short title.
This article shall be known and may be cited as "The
Nonadmitted Insurance Act."
§33-12C-2. Purpose - Necessity for regulation.
This article shall be liberally construed and applied to
promote its underlying purposes which include:
(a) Protecting persons seeking insurance in this state;
(b) Permitting surplus lines insurance to be placed with
reputable and financially sound nonadmitted insurers and exported
from this state pursuant to this article;
(c) Establishing a system of regulation which will permit
orderly access to surplus lines insurance in this state and
encourage admitted insurers to provide new and innovative types of
insurance available to consumers in this state;
(d) Providing a system through which persons may purchase
insurance other than surplus lines insurance, from nonadmitted
insurers pursuant to this article;
(e) Protecting revenues of this state; and
(f) Providing a system pursuant to this article which subjects
nonadmitted insurance activities in this state to the jurisdiction
of the insurance commissioner and state and federal courts in suits
by or on behalf of the state.
§33-12C-3. Definitions.
As used in this article:
(a) "Admitted insurer" means an insurer licensed to do an
insurance business in this state.
(b) "Business entity" means a corporation, association,
partnership, limited liability company, or other legal entity.
(c) "Capital," as used in the financial requirements of
section five of this article, means funds paid in for stock or
other evidence of ownership.
(d) "Commissioner" means the insurance commissioner of West
Virginia, or the commissioner's deputies or staff, or the
commissioner, director or superintendent of insurance in any other
state.
(e) "Eligible surplus lines insurer" means a nonadmitted
insurer with which a surplus lines licensee may place surplus lines
insurance pursuant to section five of this article.
(f) "Export" means to place surplus lines insurance with a
nonadmitted insurer.
(g) "Foreign decree" means any decree or order in equity of a
court located in any United States jurisdiction, including a
federal court of the United States, against any person engaging in
the transaction of insurance in this state.
(h) "Individual" means any private or natural person as
distinguished from a partnership, corporation, limited liability company or other legal entity.
(i) "Insurance" means any of the lines of authority in section
ten, article one of this chapter.
(j) "Insurance producer" means a person required to be
licensed under the laws of this state to sell, solicit or negotiate
insurance. Wherever the word "agent" appears in this chapter, it
shall mean an individual insurance producer.
(k) "Insurer" means any person, corporation, association,
partnership, reciprocal exchange, interinsurer, Lloyds insurer,
insurance exchange syndicate, fraternal benefit society, and any
other legal entity engaged in the business of making contracts of
insurance under section two, article one of this chapter.
(l) "Kind of insurance" means one of the types of insurance
required to be reported in the annual statement which must be filed
with the commissioner by admitted insurers.
(m) "License" means a document issued by this state's
insurance commissioner authorizing an individual to act as a
surplus lines licensee for the lines of authority specified in the
document. The license itself does not create any authority,
actual, apparent or inherent, in the holder to represent or commit
an insurer.
(n) "Nonadmitted insurer" means an insurer not licensed to do
an insurance business in this state.
(o) "Person" means any natural person or other entity, including, but not limited to, individuals, partnerships,
associations, trusts or corporations.
(p) "Policy" or "contract" means any contract of insurance,
including, but not limited to, annuities, indemnity, medical or
hospital service, workers' compensation, fidelity or suretyship.
(q) "Reciprocal state" means a state that has enacted
provisions substantially similar to:
(1) Subsection (f) of section five, paragraph (E) of
subdivision (2) of section five, subdivision (10) of subsection (p)
of section five, and subdivision (4) of subsection (q) of section
five of this article; and
(2) The NAIC model allocation schedule and reporting form.
(r) "Surplus," as used in the financial requirements of
section five of this article, means funds over and above
liabilities and capital of the company for the protection of
policyholders.
(s) "Surplus lines insurance" means any property and casualty
insurance in this state on properties, risks or exposures, located
or to be performed in this state, permitted to be placed through a
surplus lines licensee with a nonadmitted insurer eligible to
accept such insurance, pursuant to section five of this article.
Wherever the term "excess line" appears in this chapter, it shall
mean surplus lines insurance.
(t) "Surplus lines licensee" means an individual licensed under section five of this article to place insurance on
properties, risks or exposures located or to be performed in this
state with nonadmitted insurers eligible to accept such insurance.
Wherever the term "excess line broker" appears in this chapter, it
shall mean surplus lines licensee.
(u) "Transaction of insurance"
(1) For purposes of this article, any of the following acts in
this state effected by mail or otherwise by a nonadmitted insurer
or by any person acting with the actual or apparent authority of
the insurer, on behalf of the insurer, is deemed to constitute the
transaction of an insurance business in or from this state:
(A) The making of or proposing to make, as an insurer, an
insurance contract;
(B) The making of or proposing to make, as guarantor or
surety, any contract of guaranty or suretyship as a vocation and
not merely incidental to any other legitimate business or activity
of the guarantor or surety;
(C) The taking or receiving of an application for insurance;
(D) The receiving or collection of any premium, commission,
membership fees, assessments, dues or other consideration for
insurance or any part thereof;
(E) The issuance or delivery in this state of contracts of
insurance to residents of this state or to persons authorized to do
business in this state;
(F) The solicitation, negotiation, procurement or effectuation
of insurance or renewals thereof;
(G) The dissemination of information as to coverage or rates,
or forwarding of applications, or delivery of policies or
contracts, or inspection of risks, the fixing of rates or
investigation or adjustment of claims or losses or the transaction
of matters subsequent to effectuation of the contract and arising
out of it, or any other manner of representing or assisting a
person or insurer in the transaction of risks with respect to
properties, risks or exposures located or to be performed in this
state;
(H) The transaction of any kind of insurance business
specifically recognized as transacting an insurance business within
the meaning of the statutes relating to insurance;
(I) The offering of insurance or the transacting of insurance
business; or
(J) Offering an agreement or contract which purports to alter,
amend or void coverage of an insurance contract.
(2) The provisions of this subsection shall not operate to
prohibit employees, officers, directors or partners of a commercial
insured from acting in the capacity of an insurance manager or
buyer in placing insurance on behalf of the employer, provided that
the person's compensation is not based on buying insurance.
(3) The venue of an act committed by mail is at the point where the matter transmitted by mail is delivered or issued for
delivery or takes effect.
(v) "Line of insurance" means coverage afforded under the
particular policy that is being placed.
(w) "Model allocation schedule and reporting form" means the
current version of the NAIC model allocation schedule and reporting
form for surplus lines insurers.
(x) "Wet marine and transportation insurance" means:
(1) Insurance upon vessels, crafts, hulls and other interests
in them or with relation to them;
(2) Insurance of marine builder's risks, marine war risks and
contracts of marine protection and indemnity insurance;
(3) Insurance of freight and disbursements pertaining to a
subject of insurance within the scope of this subsection; and
(4) Insurance of personal property and interests therein, in
the course of exportation from or importation into any country, or
in the course of transportation coastwise or on inland waters,
including transportation by land, water or air from point of origin
to final destination, in connection with any and all risks or
perils of navigation, transit or transportation, and while being
prepared for and while awaiting shipment, and during any incidental
delays, transshipment, or reshipment; provided, however, that
insurance of personal property and interests therein shall not be
considered wet marine and transportation insurance if the property has:
(A) Been transported solely by land; or
(B) Reached its final destination as specified in the bill of
lading or other shipping document; or
(C) The insured no longer has an insurable interest in the
property.
§33-12C-4. Placement of insurance business.
(a) An insurer shall not engage in the transaction of
insurance unless authorized by a license in force pursuant to the
laws of this state, or exempted by this article or otherwise
exempted by the insurance laws of this state.
(b) A person shall not engage in a transaction of insurance or
shall in this state directly or indirectly act as agent for, or
otherwise represent or aid on behalf of another, a nonadmitted
insurer in the solicitation, negotiation, procurement or
effectuation of insurance, or renewals thereof, or forwarding of
applications, or delivery of policies or contracts or inspection of
risks, or fixing of rates, or investigation or adjustment of claims
or losses, or collection or forwarding of premiums, or in any other
manner represent or assist the insurer in the transaction of
insurance.
(c) A person who represents or aids a nonadmitted insurer in
violation of this section shall be subject to the penalties set
forth in section seven of this article. No insurance contract entered into in violation of this section shall preclude the
insured from enforcing his or her rights under the contract in
accordance with the terms and provisions of the contract of
insurance and the laws of this state, to the same degree those
rights would have been enforceable had the contract been lawfully
procured.
(d) If the nonadmitted insurer fails to pay a claim or loss
within the provisions of the insurance contract and the laws of
this state, a person who assisted or in any manner aided directly
or indirectly in the procurement of the insurance contract, shall
be liable to the insured for the full amount under the provisions
of the insurance contract.
(e) This section shall not apply to a person, properly
licensed as an agent in this state who, for a fee and pursuant to
a written agreement, is engaged solely to offer to the insured
advice, counsel or opinion, or service with respect to the
benefits, advantages or disadvantages promised under any proposed
or in-force policy of insurance if the person does not, directly or
indirectly, participate in the solicitation, negotiation or
procurement of insurance on behalf of the insured;
(f) The insurance must be procured only through an individual
licensed surplus lines licensee;
(g) This section shall not apply to a person acting in
material compliance with the insurance laws of this state in the placement of the types of insurance identified in subdivisions (1),
(2), (3) and (4) below:
(1) Surplus lines insurance as provided in section five of
this article. For the purposes of this subsection, a licensee
shall be considered to be in material compliance with the insurance
laws of this state, unless the licensee committed a violation of
section five of this article that proximately caused loss to the
insured;
(2) Transactions for which a license to do business is not
required of an insurer under the insurance laws of this state;
(3) Reinsurance provided that, unless the commissioner waives
the requirements of this subsection:
(A) The assuming insurer is authorized to do an insurance or
reinsurance business by its domiciliary jurisdiction and is
authorized to write the type of reinsurance in its domiciliary
jurisdiction; and
(B) The assuming insurer satisfies all legal requirements for
such reinsurance in the state of domicile of the ceding insurer;
(4) The property and operation of railroads or aircraft
engaged in interstate or foreign commerce, wet marine and
transportation insurance;
(5) Transactions subsequent to issuance of a policy not
covering properties, risks or exposures located, or to be performed
in this state at the time of issuance, and lawfully solicited, written or delivered outside this state.
§33-12C-5. Surplus lines insurance.
(a) Surplus lines insurance may be placed by a surplus lines
licensee if:
(1) Each insurer is an eligible surplus lines insurer; and
(2) Each insurer is authorized to write the type of insurance
in its domiciliary jurisdiction; and
(3) The full amount or line of insurance cannot be obtained
from insurers who are admitted to do business in this state. The
full amount or type of insurance may be procured from eligible
surplus lines insurers, provided that a diligent search is made by
the individual insurance producer among the insurers who are
admitted to transact and are actually writing the particular type
of insurance in this state if any are writing it; and
(4) All other requirements of this article are met.
(b) Subject to subdivision (3), subsection (a) of this
section, a surplus lines licensee may place any coverage with a
nonadmitted insurer eligible to accept the insurance, unless
specifically prohibited by the laws of this state.
(c) A surplus lines licensee shall not place coverage with a
nonadmitted insurer, unless, at the time of placement, the surplus
lines licensee has determined that the nonadmitted insurer:
(1) Has established satisfactory evidence of good repute and
financial integrity; and
(2) Qualifies under one of the following paragraphs:
(A) Has capital and surplus or its equivalent under the laws
of its domiciliary jurisdiction which equals the greater of:
(i)(I) The minimum capital and surplus requirements under the
law of this state; or
(II) Fifteen million dollars;
(ii) The requirements of subparagraph (i), paragraph (A) of
this subdivision may be satisfied by an insurer's possessing less
than the minimum capital and surplus upon an affirmative finding of
acceptability by the commissioner. The finding shall be based upon
such factors as quality of management, capital and surplus of any
parent company, company underwriting profit and investment income
trends, market availability and company record and reputation
within the industry. In no event shall the commissioner make an
affirmative finding of acceptability when the nonadmitted insurer's
capital and surplus is less than four million five hundred thousand
dollars; or
(B) In the case of an insurance exchange created by the laws
of a state other than this state:
(i) The syndicates of the exchange shall maintain under terms
acceptable to the commissioner capital and surplus, or its
equivalent under the laws of its domiciliary jurisdiction, of not
less than seventy-five million dollars in the aggregate; and
(ii) The exchange shall maintain under terms acceptable to the commissioner not less than fifty percent of the policyholder
surplus of each syndicate in a custodial account accessible to the
exchange or its domiciliary commissioner in the event of insolvency
or impairment of the individual syndicate; and
(iii) In addition, each individual syndicate to be eligible to
accept surplus lines insurance placements from this state shall
meet either of the following requirements:
(I) For insurance exchanges which maintain funds in an amount
of not less than fifteen million dollars for the protection of all
exchange policyholders, the syndicate shall maintain under terms
acceptable to the commissioner minimum capital and surplus, or its
equivalent under the laws of the domiciliary jurisdiction, of not
less than five million dollars; or
(II) For insurance exchanges which do not maintain funds in an
amount of not less than fifteen million dollars for the protection
of all exchange policyholders, the syndicate shall maintain under
terms acceptable to the commissioner minimum capital and surplus,
or its equivalent under the laws of its domiciliary jurisdiction,
of not less than the minimum capital and surplus requirements under
the laws of its domiciliary jurisdiction or fifteen million
dollars, whichever is greater; or
(C) In the case of a Lloyd's plan or other similar group of
insurers, which consists of unincorporated individual insurers, or
a combination of both unincorporated and incorporated insurers:
(i) The plan or group maintains a trust fund that shall
consist of a trusteed account representing the group's liabilities
attributable to business written in the United States; and
(ii) In addition, the group shall establish and maintain in
trust a surplus in the amount of one hundred million dollars; which
shall be available for the benefit of United States surplus lines
policyholders of any member of the group.
(iii) The incorporated members of the group shall not be
engaged in any business other than underwriting as a member of the
group and shall be subject to the same level of solvency regulation
and control by the group's domiciliary regulator as are the
unincorporated members.
(iv) The trust funds shall be maintained in an irrevocable
trust account in the United States in a qualified financial
institution, consisting of cash, securities, letters of credit or
investments of substantially the same character and quality as
those which are eligible investments for the capital and statutory
reserves of admitted insurers to write like kinds of insurance in
this state and, in addition, the trust required by subparagraph
(ii) of this subdivision shall satisfy the requirements of the
standard trust agreement required for listing with the national
association of insurance commissioners (NAIC) International
Insurers Department or any successor thereto; or
(D) In the case of a group of incorporated insurers under common administration, which has continuously transacted an
insurance business outside the United States for at least three
years immediately prior to this time, and which submits to this
state's authority to examine its books and records and bears the
expense of the examination:
(i) The group shall maintain an aggregate policyholders'
surplus of ten billion dollars; and
(ii) The group shall maintain in trust a surplus in the amount
of ten billion dollars; which shall be available for the benefit of
United States surplus lines policyholders of any member of the
group; and
(iii) Each insurer shall individually maintain capital and
surplus of not less than twenty-five million dollars per company.
(iv) The trust funds shall satisfy the requirements of the
standard trust agreement requirement for listing with the NAIC
International Insurers Department or any successor thereto, and
shall be maintained in an irrevocable trust account in the United
States in a qualified financial institution, and shall consist of
cash, securities, letters of credit or investments of substantially
the same character and quality as those which are eligible
investments for the capital and statutory reserves of admitted
insurers to write like kinds of insurance in this state.
(v) Additionally, each member of the group shall make
available to the commissioner an annual certification of the member's solvency by the member's domiciliary regulator and its
independent public accountant; or
(E) Except for an exchange or plan complying with paragraph
(B), (C) or (D) of this subdivision, an insurer not domiciled in
one of the United States or its territories shall satisfy the
capital and surplus requirements of paragraph (A), subdivision (2),
subsection (c) of this section and shall have in force a trust fund
of not less than the greater of:
(i) Five million four hundred thousand dollars; or
(ii) Thirty percent of the United States surplus lines gross
liabilities, excluding aviation, wet marine and transportation
insurance liabilities, not to exceed sixty million dollars, to be
determined annually on the basis of accounting practices and
procedures substantially equivalent to those promulgated by this
state, as of the thirty-first day of December next preceding the
date of determination, where:
(I) The liabilities are maintained in an irrevocable trust
account in the United States in a qualified financial institution,
on behalf of U.S. policyholders consisting of cash, securities,
letters of credit or other investments of substantially the same
character and quality as those which are eligible investments
pursuant to article eight of this chapter for the capital and
statutory reserves of admitted insurers to write like kinds of
insurance in this state. The trust fund, which shall be included in any calculation of capital and surplus or its equivalent, shall
satisfy the requirements of the Standard Trust Agreement required
for listing with the NAIC International Insurers Department or any
successor thereto; and
(II) The insurer may request approval from the commissioner to
use the trust fund to pay valid surplus lines claims; provided,
however, that the balance of the trust fund is never less than the
greater of five million four hundred thousand dollars or thirty
percent of the insurer's current gross U.S. surplus lines
liabilities, excluding aviation, wet marine and transportation
insurance liabilities; and
(III) In calculating the trust fund amount required by this
subsection, credit shall be given for surplus lines deposits
separately required and maintained for a particular state or U.S.
territory, not to exceed the amount of the insurer's loss and loss
adjustment reserves in the particular state or territory;
(F) An insurer or group of insurers meeting the requirements
to do a surplus lines business in this state at the effective date
of this law shall have two years from the date of enactment to meet
the requirements of paragraph (E) of this subdivision, as follows: