April 26, 1993
BULLETIN #577
RE: APPLICATION OF AB2608 AND SB~I145 TO TRANSACTIONS INVOLVING PURCHASING GROUPS
Attached is a letter from Mr. Dennis Ward, Chief, Enforcement Division of the
California Department of Insurance clarifying the applicability of SB1145 and AB2608 to
Purchasing Groups operating under the Risk Retention Act.
If you have questions, please address them to:
Mr. Dennis Ward
Chief, Enforcement Division
Department of Insurance
45 Fremont Street 24th Floor
San Francisco, CA 94105
James S. Pugh
Assistant Manager
JSP/imb
Enclosure
State of California
THE CALIFORNIA DEPARTMENT OF INSURANCE
45 Fremont Street, 24th Floor
San Francisco, CA 94105
March 29, 1993
Mr. Arthur D. Freeman, Jr.
The Surplus Line Association of California
388 Market Street
San Francisco, CA 94100
Dear Mr. Freeman:
The purpose of this letter is to clarify the application of AB 2608 and SB 1145 to
transactions involving purchasing groups operating under the Risk Retention Act.
With respect to the disclosure requirements of SB 1145, this Department believes that
each California member of the purchasing group should receive the disclosure statements
required pursuant to Section 1764.1(a) and 1764.1(b). Further, since the insurance
purchased by a purchasing group is commercial insurance coverage, the limited exemption
provided in Section 1764.1(d) would apply to each member of the purchasing group. Also, to
the extent a member of the purchasing group qualifies as an "industrial
insured", then the provisions of Section 1764.1(c) would apply to that member.
The provisions of AB 2608 apply to the California members of any purchasing group doing
business in the State of California. Thus, any purchasing group which is buying insurance
on a group basis for its California members must purchase the insurance from an insurer
admitted in California unless it is determined, after a diligent search of the admitted
market, that the coverage is not available; in which case the coverage may be placed
through a licensed surplus line broker with a nonadmitted insurer in accordance with all
other laws and regulations governing the placement of surplus line insurance. Any surplus
line broker participating in such a placement is responsible to ensure that a diligent
search of the admitted market is conducted. When placing coverage for California members
of a purchasing group, the surplus line broker is required to file the SL-1 and SL-2
forms. The SL-1 should include a copy of the declaration page of the master policy and
copies of all certificates of insurance issued to the California members of the purchasing
group. The SL-2 should reflect the efforts made to procure coverage with admitted carriers
for the California members of the purchasing group and the results of those efforts. Only
one SL-1 and SL-2 are required for each purchasing group. Any new California members added
to the purchasing group's coverage during the policy term should be reported to your
Association as an endorsement; and, the filing should include a copy of the certificate
issued to the new member of the purchasing group. At renewal, another search of the
admitted market must be conducted. If coverage is renewed with the nonadmitted insurer,
then the surplus line broker must file new SL-1 and SL-2 forms.
If the purchasing group procures individual policies for its members, then each
placement made on behalf of a California member of the group must comply with AB 2608. In
other words, a separate SL-1 and SL-2 must be completed and filed for each California
member whose coverage is placed with a nonadmitted insurer.
The provisions of AB 2608, as well as all other California surplus line laws and
regulations, apply to any purchasing group which has members residing in California. If a
purchasing group domiciled in another state has purchased insurance from an insurer not
licensed in California, the purchasing group must still attempt to place coverage for its
California members with an insurer licensed in California before seeking to place the
coverage with a nonadmitted insurer.
We would appreciate your assistance in sending a bulletin to your members concerning
the application of California surplus lines laws and regulations to placements made on
behalf of purchasing groups. If you or your members have any questions regarding this
matter, please direct them to the attention of the undersigned.
Very truly yours,
DENNIS C. WARD
Chief, Enforcement Division
DCW:gg |
