December 18, 1997
BULLETIN #812
RE: 1997 LEGISLATION: AB 245 AND AB 816
This bill summarizes legislation of interest to SLA members that was enacted in 1997
and will go into effect January 1, 1998.
Some explanation is necessary because both AB 245 and AB 816, in part, have overlapping
language that appears to amend insurance Code section 1764.1. The Legislature linked AB
245 and SB 816 together before passing both of them. The result is that the amendments to
code sections other than section 1764.1 in both bills will go into effect, but only the
amendments to Insurance Code section 1764.1 in section 3 of AB 816 will go into effect.
AB 245 (Cunneen):
AB 245 adopts new Insurance Code section 1763.2 which codifies long established custom
and practice by recognizing that licensed surplus line brokers have the capacity to act
both as "retailers" and "wholesalers."
Specifically, it authorizes surplus line brokers to "originate business" (in
other words, to act as a retailer) and to "accept business from any other originating
licensee" (that is, to act as a wholesaler). It also permits surplus line brokers,
when acting in a wholesale capacity, to compensate the originating licensees from whom
they accept business.
The bill also requires any originating licensee in a surplus line transaction to use
"due care and diligence" in collecting, preparing and transmitting information
to the surplus line broker.
The language in this bill relating to the signed D-1 disclosure statement in Insurance
Code section 1764.1 was, in effect, superseded by section 3 of AB 816.
AB 816 (Brewer):
AB 816 does all of the following:
- Expands existing law to permit surplus line brokers and retail producers to obtain a
signed D-1 disclosure statement from an applicant for any type of insurance, not just
commercial insurance, by fax or comparable electronic transmittal where the transaction is
not conducted at an in-person, face-to-face meeting. The requirement for the surplus line
broker to maintain a copy of the signed D-1 disclosure statement for five years remains in
effect.
- Authorizes surplus line brokers and nonadmitted insurers to rely on a signed D-1
disclosure statement received from any licensee involved in a surplus line transaction to
comply with Insurance Code section 1764.1 but only "if it is reasonable under all the
circumstances to do so."
- Exempts special lines' surplus line brokers from the requirement of using nonadmitted
insurers on the List of Eligible Surplus Line Insurers.
- Requires any special lines' surplus line broker, on written request by the commissioner,
to provide information concerning any nonadmitted insurer with whom the broker has dealt
or proposes to deal, and a signed statement identifying the information and the reasons
for any omissions.
- Authorizes the commissioner to order the licensee to place no further insurance on
California risks with a nonadmitted insurer if the commissioner believes it is in the
public interest and finds the insurer to be in unsound financial condition, disreputable,
or lacking in integrity.
- Adds spacecraft insurance to the special line exemption for aircraft insurance under
Insurance Code section 1760.5(a)(3).
Assembly Bill No. 245
CHAPTER 102
An act to amend Section 1764.1 of, and to add Section 1763.2 to, the Insurance Code,
relating to insurance.
[Approved by Governor July 21, 1997.
Filed with Secretary of State July 21, 1997.]
LEGISLATIVE COUNSEL'S DIGEST
AB 245, Cunneen. Insurance: surplus line brokers.
(1) Existing law generally requires insurance transacted in the state
to be provided by an admitted insurer. However, existing law permits the sale of insurance
from nonadmitted insurers in certain cases if various requirements are met, including
insurance that cannot be obtained from admitted insurers. Existing law generally requires
insurance from nonadmitted insurers to be transacted by surplus line brokers.
This bill would provide that a licensed surplus line broker may originate surplus lines
business, or may accept that business from any other originating licensee. The bill would
require the originating licensee to use due care and diligence in the collection,
preparation, and transmission of the information to the surplus line broker.
(2) Existing law requires every nonadmitted insurer or surplus line broker, for any
insurance with a nonadmitted carrier, to make a specified disclosure to the policyholder
and applicant.
This bill would provide that, 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 any licensee involved in
the transaction as prima facie evidence -that the disclosure statement and appropriate
signature from the applicant have been obtained.
(3) The bill would incorporate additional amendments to Section 1764.1 of the Insurance
Code proposed by AB 816, contingent upon the prior enactment of that bill.
The people of the State of California do enact as follows:
SECTION 1. Section 1763.2 is added to the Insurance Code, to read:
1763.2. A licensed surplus line broker may originate surplus lines business, or may
accept that business from any other originating licensee duly licensed for the type or
types of insurance involved, and may compensate those licensees therefor.
(b) For any information involved in any insurance transaction described in subdivision
(a), or involved in the eligibility of the risk for placement with a surplus line broker,
the originating licensee shall use due care and diligence in the collection, preparation,
and transmission of the information to the surplus line broker.
SEC. 2. 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
resident of this state pursuant to Section 1760, and surplus line broker, in the case of
any insurance with a nonadmitted carrier to be transacted by the surplus line broker,
shall be responsible to ensure that, at the time of accepting an application for any
insurance 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
any 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 any 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 any case where 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 policyholders and 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 WHICH
APPLIES 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. FOR ADDITIONAL INFORMATION ABOUT THE 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: ."
(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:
(A) Which employs at least 25 employees on average during the prior 12 months; and
(B) Which has aggregate 'annual premiums for insurance for all risks other than workers'
compensation and health coverage totaling no less than twenty-five thousand dollars
($25,000); or
(C) Which 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: (i) Any agent or broker through whom
the insurance is being placed, (ii) any subagent or subproducer involved in the
transaction, or (iii) any agent or broker which is a business organization employing or
contracting with any person mentioned in clauses (i) and (ii).
(2) The surplus line broker shall be responsible to ensure 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) In the case of commercial insurance coverages, for purposes of compliance with the
requirement of subdivision (a) that the signature of the applicant be obtained, the
following shall apply:
(1) Where 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) 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.
(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. 3. Section 1764.1 of the Insurance Code is amended to read:
1764.1. (a) (1) Every no nonadmitted insurer, in the case of insurance to be purchased by
a resident of this state pursuant to Section 1760, and surplus line broker, in the case of
any insurance with a nonadmitted carrier to be transacted by the surplus line broker,
shall be responsible to ensure that, at the time of accepting an application for any
insurance 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 reasonably rely on
the disclosure statement received from any 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 any 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 any case where 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 policyholders and 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 AM 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 WHICH
APPLIES 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. FOR ADDITIONAL INFORMATION ABOUT THE 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:
. " (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, 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:
(A) Which employs at least 25 employees on average during the prior 12 months; and
(B) Which has aggregate annual premiums for insurance for all risks other than workers'
compensation and health coverage totaling no less than twenty-five thousand dollars
($25,000); or
(C) Which 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: (i) Any agent or broker through whom
the insurance is being placed, (ii) any subagent-or subproducer involved in the
transaction, or (iii) any agent or broker which is a business organization employing or
contracting with any person mentioned in clauses (i) and (ii).
(2) The surplus line broker shall be responsible to ensure 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) Where 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 insurance coverages, 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.
(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. 4. Section 3 of this bill incorporates amendments to Section 1764.1 of the Insurance
Code proposed by both this bill and Assembly Bill 816. It shall only become operative if
(1) both bills are enacted and become effective on or before January 1, 1998, (2) each
bill amends Section 1764.1 of the Insurance Code, and (3) this bill is enacted after
Assembly Bill 816, in which case Section 2 of this bill shall not become operative.
Assembly Bill No. 816
CHAPTER 436
An act to amend Sections 1760.5 and 1764.1 of the Insurance Code, relating to
insurance.
[Approved by Governor September 21, 1997. Filed with Secretary of State September 22,
1997.]
LEGISLATIVE COUNSEL'S DIGEST
AB 816, Brewer. Surplus line brokers: disclosure statements.
Existing law generally requires insurance to be transacted in this state with admitted
insurers, but permits insurance to be transacted with nonadmitted insurers through surplus
lines brokers, and places various restrictions on that insurance.
Existing law provides that certain of these restrictions do not apply to reinsurance, and
certain transportation insurance, but requires that insurance, other than reinsurance, to
be placed by a special lines' surplus line broker. This bill would extend the exemption to
spacecraft insurance.
This bill would also provide that the placement of special lines' insurance by a surplus
line broker is not subject to a requirement that the insurer establish its financial
stability with the Insurance Commissioner and meet related requirements.
This bill would authorize the commissioner to order a licensee to no longer place special
lines' insurance with a particular insurer. Since a violation these provisions would be a
misdemeanor, the bill would impose a state-mandated local program.
Existing law requires that the signature of an applicant be obtained on a disclosure
statement with respect to insurance purchased from a nonadmitted insurer or surplus line
broker. In the case of commercial insurance coverage a faxed signature or comparable
electronic transmittal is authorized, as specified.
This bill would delete the applicability of that provision only to commercial insurance
coverage.
The bill would incorporate additional changes to Section 1764.1 of the Insurance Code
proposed by AB 245, contingent upon the prior enactment of that bill.
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.
The people of the State of California do enact as follows:
SECTION 1. Section 1760.5 of the Insurance Code is amended to read:
1760.5. (a) The provisions of this chapter limiting the insurance that may be placed with
nonadmitted insurers and requiring any report thereof shall not apply to:
(1) Reinsurance of the liability of an admitted insurer.
(2) Insurance against perils of navigation, transit or transportation upon hulls, freights
or disbursements, or other shipowner interests; upon goods, wares, merchandise and all
other personal property and interests therein, in course of exportation from or
importation into any country, or transportation coastwise, including transportation by
land or water from point of origin to final destination and including war risks; and
marine builder's risks, drydocks and marine railways, including insurance of ship
repairer's liability, and protection and indemnity insurance, but excluding insurance
covering bridges or tunnels.
(3) Aircraft or spacecraft insurance.
(4) Insurance on property or operations of railroads engaged in interstate commerce.
(b) The insurance specified in paragraphs (2), (3), and (4) of subdivision (a) may be
placed with a nonadmitted insurer only by and through a special lines' surplus line
broker. The license of a special lines' surplus line broker shall be applied for and
procured and shall be subject to the same fees for filing on issuance in the same manner
as the license of a surplus line broker, except that in lieu of the bond required by
Section 1765, there shall be delivered to the commissioner a bond in the form, amounts,
and conditions specified in Sections 1663 and 1665 for an insurance broker and only one
fee shall be collected from one person for both licenses. The licensee in respect to the
business shall be subject to all the provisions of this chapter except Sections 1761,
1763, 1765.1, and 1775.5.
(c) The commissioner may address to any licensed special lines' surplus lines broker a
written request for full and complete information respecting the financial stability,
reputation, and integrity of any nonadmitted insurer with whom the licensee has dealt or
proposes to deal in the transaction of insurance specified in paragraphs (2), (3), or (4)
of subdivision (a). The licensee so addressed shall promptly furnish in written or printed
form so much of the information requested as he or she can produce together with a signed
statement identifying the same and giving reasons for omissions, if any. After due
examination of the information and accompanying statement, the commissioner may, if he or
she believes it to be in the public interest, order in writing the licensee to place no
further insurance business on property located or operations conducted within or on the
lives of persons who are residents of this state with that non admitted insurer on behalf
of any person. Any placement with that nonadmitted insurer made by a licensee after
receipt of the order is a violation of this chapter. The commissioner may issue an order
if he or she finds that a nonadmitted insurer with whom the licensee has dealt or proposes
to deal in the transaction of insurance is in an unsound financial condition, is
disreputable, or is lacking in integrity. The order shall also include notice of a hearing
to be held at a time and place fixed therein, which shall be not less than 20 nor more
than 30 days from service of the order upon the licensee.
(d) The commissioner may, in respect to business written or placed under the provisions of
this section, require information and reports thereof that the commissioner considers
necessary, convenient, or advisable.
(e) Each placing of insurance in violation of this chapter is a misdemeanor. (f) The
commissioner may revoke, suspend, or deny any license granted pursuant to this code in
accordance with the procedure provided in Article 13 (commencing with Section 1737) of
Chapter 5, or any certificate of authority granted pursuant to this code in accordance
with the procedure provided in Section 704 whenever the commissioner finds that the
licensee or holder of the certificate has committed a violation of this section.
(g) The premium for insurance placed by or through a special lines' surplus line broker
pursuant to this section shall not be subject to the tax imposed upon the broker based
upon gross premiums paid for insurance placed under authority conferred by the license.
SEC. 2. 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
resident of this state pursuant to Section 1760, and surplus line broker, in the case of
any insurance with a nonadmitted carrier to be transacted by the surplus line broker,
shall be responsible to ensure that, at the time of accepting an application for any
insurance policy issued by a nonadmitted insurer, the signature of the applicant on the
disclosure statement set forth in subdivision (b) is 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 any 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 any case where 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 policyholders and 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 WHICH
APPLIES 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. FOR ADDITIONAL INFORMATION ABOUT THE 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
(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:
(A) Which employs at least 25 employees on average during the prior 12 months; and
(B) Which has aggregate annual premiums for insurance for all risks other than workers'
compensation and health coverage totaling no less than twenty-five thousand dollars
($25,000); or
(C) Which 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: (i) Any agent or broker through whom
the insurance is being placed, (ii) any subagent or subproducer involved in the
transaction, or (iii) any agent or broker which is a business organization employing or
contracting with any person mentioned in clauses (i) and (ii).
(2) The surplus line broker shall be responsible to ensure 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) Where 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 insurance coverages, 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.
(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. 3. Section 1764.1 of the Insurance Code is amended to read:
1764.1. (a) (1) Every non admitted insurer, in the case of insurance to be purchased by
a resident of this state pursuant to Section 1760, and surplus line broker, in the case of
any insurance with a nonadmitted carrier to be transacted by the surplus line broker,
shall be responsible to ensure that, at the time of accepting an application for any
insurance 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
any 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 any 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 any case where 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 policyholders and 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 WHICH
APPLIES 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. FOR ADDITIONAL INFORMATION ABOUT THE 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
(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:
(A) Which employs at least 25 employees on average during the prior 12 months; and
(B) Which has aggregate annual premiums for insurance for all risks other than workers'
compensation and health coverage totaling no less than twenty-five thousand dollars
($25,000); or
(C) Which 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: (i) Any agent or broker through whom
the insurance is being placed, (ii) any subagent or subproducer involved in the
transaction, or (iii) any agent or broker which is a business organization employing or
contracting with any person mentioned in clauses (i) and (ii).
(2) The surplus line broker shall be responsible to ensure 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:
(l) Where 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 insurance coverages, 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.
(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 ' fine
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. 4. Section 3 of this bill incorporates amendments to Section 1764.1 of the Insurance
Code proposed by both this bill and AB 245. It shall only become operative if (1) both
bills are enacted and become effective on or before January 1, 1998, (2) each bill amends
Section 1764.1 of the Insurance Code, and (3) this bill is enacted after AB 245, in which
case Section 2 of this bill shall not become operative.
SEC. 5. 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.
Notwithstanding Section 17580 of the Government Code, unless otherwise
specified, the provisions of this act shall become operative on the same
date that the act takes effect pursuant to the California Constitution.
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