TWENTY-SIXTH LEGISLATURE, 2012
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO INSURANCE.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that Title V, Subtitle B, of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, known as the Nonadmitted and Reinsurance Reform Act of 2010, incorporated language addressing excess and surplus lines insurance. Congress recommended in the Nonadmitted and Reinsurance Reform Act of 2010 that states adopt uniform requirements, forms, and procedures, such as an interstate compact, to facilitate the reporting, payment, collection, and allocation of premium taxes for nonadmitted insurance.
The legislature also finds that the surplus lines insurance multi-state compliance compact, or SLIMPACT, was drafted to streamline surplus lines insurance taxation and regulation. SLIMPACT is an interstate compact that is a direct response to the Dodd-Frank Wall Street Reform and Consumer Protection Act's request for uniformity and simplicity in state surplus lines tax collection and allocation.
The legislature further finds that SLIMPACT has been endorsed by the National Conference of Insurance Legislators, the Council of State Governments, the National Conference of State Legislatures, and the majority of insurance industry and producer groups who advocated for federal surplus lines reform.
The legislature additionally finds that nine states have enacted legislation to join SLIMPACT. A tenth state is needed to effectuate the compact for tax clearinghouse and rulemaking purposes. It is the intent of the legislature for Hawaii to become the tenth state to join SLIMPACT and thus streamline surplus lines taxation and regulation in Hawaii.
The purpose of this Act is to:
(1) Direct the insurance commissioner to join the surplus lines insurance multi-state compliance compact; and
(2) Enact the surplus lines insurance multi-state compliance compact.
SECTION 2. The legislature finds that Act 68, Session Laws of Hawaii 2011, amended the insurance code to comply with the Nonadmitted and Reinsurance Reform Act of 2010 relating to surplus lines insurance. Act 68 also permitted the insurance commissioner to participate in a multi-state cooperative to collect surplus lines premium taxes and fees.
The legislature finds that clarifying amendments directing the insurance commissioner to join the surplus lines insurance multi-state compliance compact are necessary.
The purpose of this part is to amend sections of the insurance code to require participation in the surplus lines insurance multi-state compliance compact.
SECTION 3. Section 431:8-302, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:
"(d) The commissioner [
to] shall enter into [ a cooperative agreement or interstate
agreement or compact] the surplus lines insurance multi-state compliance
compact adopted by the National Conference of Insurance Legislators, and known
as SLIMPACT, to establish additional and alternative nationwide uniform
eligibility requirements that shall be applicable to unauthorized insurers
domiciled in another state."
SECTION 4. Section 431:8-315, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:
"(e) The commissioner [
(1)] (A) Enter into [ a
cooperative agreement, reciprocal agreement, or compact with other states] the
surplus lines insurance multi-state compliance compact adopted by the National Conference
of Insurance Legislators, and known as SLIMPACT, to facilitate and provide
for the collection, allocation, and disbursement of premium taxes attributable
to the placement of surplus lines insurance; and
(B) Conform to the requirements of the federal Nonadmitted and Reinsurance Reform Act of 2010; and
(2)] (A) Provide for uniform methods
of allocation and reporting among surplus lines insurance risk classifications;
(3) Conform to the requirements of the
federal Nonadmitted and Reinsurance Reform Act of 2010; (4)] (B) Share information among
states relating to surplus lines insurance premium taxes; and
(5)] (C) [ Utilize] Use
a method adopted in cooperation with other states to allocate risk and compute
the tax due on the portion of premium attributable to each risk classification
and to each state where properties, risks, or exposures are located.
The commissioner shall assess the insured for the cost of
cooperative agreement, reciprocal agreement, or] compact to collect
and distribute the premium taxes. Upon application of the insured, the commissioner shall
refund the insured for excess payments of taxes received by the State that are
the result of the statewide tax rate."
SECTION 5. The purpose of this part is to enact the surplus lines insurance multi-state compliance compact.
SECTION 6. Chapter 431, article 8, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:
"Part . surplus lines insurance multi-state
§431:8-A Enactment of compact. The surplus lines insurance multi-state compliance compact is enacted into law and entered into by this State with all other states legally joining this compact in the form as substantially follows in this part.
§431:8-B Purpose. The purposes of this compact are to:
(1) Implement the express provisions of the Nonadmitted and Reinsurance Reform Act;
(2) Protect the premium tax revenues of the compacting states through facilitating the payment and collection of premium tax on nonadmitted insurance; protect the interests of the compacting states by supporting the continued availability of such insurance to consumers; provide for allocation of premium tax for nonadmitted insurance of multi-state risks among the states in accordance with uniform allocation formulas to be developed, adopted, and implemented by the commission;
(3) Streamline and improve the efficiency of the surplus lines market by eliminating duplicative and inconsistent tax and regulatory requirements among the states; and promote and protect the interest of surplus lines licensees who assist insureds and surplus lines insurers, thereby ensuring the continued availability of surplus lines insurance to consumers;
(4) Streamline regulatory compliance with respect to nonadmitted insurance placements by providing for exclusive single-state regulatory compliance for nonadmitted insurance of multi-state risks, in accordance with rules to be adopted by the commission, thereby providing certainty regarding compliance to all persons who have an interest in these transactions, including but not limited to insureds, regulators, surplus lines licensees, other insurance producers, and surplus lines insurers;
(5) Establish a clearinghouse for receipt and dissemination of premium tax and clearinghouse transaction data related to nonadmitted insurance of multi-state risks, in accordance with rules to be adopted by the commission;
(6) Improve coordination of regulatory resources and expertise between state insurance departments, other state agencies, and state surplus lines stamping offices, with respect to nonadmitted insurance;
(7) Adopt uniform rules to provide for premium tax payment, reporting, allocation, and data collection and dissemination for nonadmitted insurance of multi-state risks and single-state risks, in accordance with rules to be adopted by the commission, thereby promoting the overall efficiency of the nonadmitted insurance market;
(8) Adopt uniform mandatory rules with respect to regulatory compliance requirements for foreign insurer eligibility requirements and surplus lines policyholder notices;
(9) Establish the surplus lines insurance multi-state compliance compact commission;
(10) Coordinate reporting of clearinghouse transaction data on nonadmitted insurance of multi-state risks among compacting states and contracting states; and
(11) Perform these and other related functions as may be consistent with the purposes of the surplus lines insurance multi-state compliance compact.
§431:8-C Definitions. As used in this compact:
"Admitted insurer" means an insurer that is licensed or authorized to transact the business of insurance under the law of the home state; for purposes of this compact, the term shall not include a domestic surplus lines insurer as may be defined by applicable state law.
"Affiliate" means, with respect to an insured, an entity that controls, is controlled by, or is under common control with the insured.
"Allocation formula" means the uniform methods adopted by the commission by which insured risk exposures are apportioned to each state to calculate premium taxes due.
"Bylaws" means the bylaws established by the commission for its governance, or for directing or controlling the commission's actions or conduct.
"Clearinghouse" means the commission's operations involving the acceptance, processing, and dissemination among the compacting states, contracting states, surplus lines licensees, insureds, and other persons, of premium tax and clearinghouse transaction data for nonadmitted insurance of multi-state risks, in accordance with this compact and rules to be adopted by the commission.
"Clearinghouse transaction data" means information regarding nonadmitted insurance of multi-state risks required to be reported, accepted, collected, processed, and disseminated by surplus lines licensees for surplus lines insurance and insureds for independently procured insurance under this compact and rules to be adopted by the commission. The term includes information related to single-state risks if a state elects to have the clearinghouse collect taxes for the state on single-state risks.
"Commission" means the surplus lines insurance multi-state compliance compact commission established by this compact.
"Commissioner" means the chief insurance regulatory official of a state.
"Compacting state" means a state that has enacted this compact legislation and has not withdrawn pursuant to section 431:8-O(a) or been terminated pursuant to section 431:8-O(b).
"Contracting state" means a state that has not enacted this compact legislation but has entered into a written contract with the commission to use the services of and fully participate in the clearinghouse.
"Control", an entity has "control" over another entity if the entity directly or indirectly or acting through one or more persons owns, controls, or has the power to vote twenty-five per cent or more of any class of voting securities of the other entity; or the entity controls in any manner the election of a majority of the directors or trustees of the other entity.
"Home state" means with respect to an insured, the state in which an insured maintains the insured's principal place of business or, in the case of an individual, the state in which the individual maintains the individual's principal residence; provided that if one hundred per cent of the insured risk is located out of the state where the insured maintains the insured's principal place of business or the state where the individual maintains the principal residence, the home state shall be the state where the greatest percentage of the insured's taxable premium for that insurance contract is allocated.
"Independently procured insurance" means insurance procured by an insured directly from a surplus lines insurer or other nonadmitted insurer under the laws of the home state.
"Insurer eligibility requirements" means the criteria, forms, and procedures established to qualify as a surplus lines insurer under the law of the home state; provided that the criteria, forms, and procedures are consistent with the express provisions of the Nonadmitted and Reinsurance Reform Act on and after July 21, 2011.
"Member" means a person chosen by a compacting state as the compacting state's representative to the commission; provided that each compacting state is limited to one vote.
"Multi-state risk" means a risk with insured exposures in more than one state.
"Nonadmitted and Reinsurance Reform Act" means the Nonadmitted and Reinsurance Reform Act of 2010, 15 United States Code 8201 et seq., which is subtitle B of title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
"Nonadmitted insurance" means surplus lines insurance and independently procured insurance.
"Nonadmitted insurer" means an insurer that is not authorized or admitted to transact the business of insurance under the law of the home state.
"Noncompacting state" means a state that has not adopted this compact.
"Policyholder notice" means the disclosure notice or stamp that is required to be furnished to an applicant or a policyholder in connection with a surplus lines insurance placement.
"Premium tax" means, with respect to nonadmitted insurance, a tax, fee, assessment, or other charge imposed by a government entity directly or indirectly based on a payment made as consideration for the nonadmitted insurance, including premium deposits, assessments, registration fees, and other compensation, given in consideration for a contract of insurance.
"Principal place of business" means, with respect to determining the home state of the insured, the state where the insured maintains the insured's headquarters and where the insured's high-level officers direct, control, and coordinate the business activities of the insured.
"Purchasing group" means a group formed pursuant to the Liability Risk Retention Act of 1986, which has, as one of the group's purposes, the purchase of liability insurance on a group basis, and purchases liability insurance only for its group members and only to cover the members' similar or related liability exposure, and is composed of members with similar or related business or activity liability exposure due to the members' related, similar, or common business, trade, product, services, premises, or operations and is domiciled in any state.
"Rule" means a statement of general or particular applicability and future effect adopted by the commission designed to implement, interpret, or prescribe law or policy, or describing the organization, procedure, or practice requirements of the commission that shall have the force and effect of law in the compacting states.
"Single-state risk" means a risk with insured exposures in only one state.
"Stamping office" means the insurance division of the department of commerce and consumer affairs or a similar entity of another state.
"State" means a state, district, or territory of the United States of America.
"State transaction documentation" means information required under the laws of the home state to be filed by surplus lines licensees to report surplus lines insurance and verify compliance with surplus lines laws, and by insureds to report independently procured insurance.
"Surplus lines insurance" means insurance procured by a surplus lines licensee from a surplus lines insurer or other nonadmitted insurer as permitted under the law of the home state. For purposes of this compact, the term also means excess lines insurance as may be defined by applicable state law.
"Surplus lines insurer" means a nonadmitted insurer eligible under the law of the home state to accept business from a surplus lines licensee. For purposes of this compact, the term also means an insurer that is permitted to write surplus lines insurance under the laws of the state where the insurer is domiciled.
"Surplus lines licensee" means an individual, firm, or corporation licensed under the law of the home state to place surplus lines insurance.
§431:8-D Establishment of the commission and venue. (a) The compacting states hereby create and establish a joint public agency known as the surplus lines insurance multi-state compliance compact commission.
(b) Pursuant to section 431:8-E, the commission may adopt mandatory rules to establish exclusive home state authority regarding nonadmitted insurance of multi-state risks, allocation formulas, clearinghouse transaction data, a clearinghouse for receipt and distribution of allocated premium tax and clearinghouse transaction data, and uniform rulemaking procedures and rules to finance, administer, operate, and enforce compliance with the provisions of this compact and the bylaws and rules.
(c) Pursuant to section 431:8-E, the commission may adopt mandatory rules establishing foreign insurer eligibility requirements and a concise and objective policyholder notice regarding the nature of a surplus lines placement.
(d) The commission is a body corporate and politic, and an instrumentality of the compacting states.
(e) The commission is solely responsible for the commission's liabilities, except as otherwise specifically provided in this compact.
(f) Venue is proper and judicial proceedings by or against the commission shall be brought solely and exclusively in a court of competent jurisdiction where the principal office of the commission is located. The commission may waive venue and jurisdictional defenses to the extent the commission adopts or consents to participate in alternative dispute resolution proceedings.
§431:8-E Authority to establish mandatory rules. The commission shall adopt mandatory rules that establish:
(1) Allocation formulas for each type of nonadmitted insurance coverage, which shall be used by each compacting state and contracting state in acquiring premium tax and clearinghouse transaction data from surplus lines licensees and insureds to report to the clearinghouse. The allocation formulas shall be established with input from surplus lines licensees and shall be based upon readily available data with simplicity and uniformity for the surplus lines licensee as a material consideration;
(2) Uniform clearinghouse transaction data reporting requirements for all information reported to the clearinghouse;
(3) Methods by which compacting states and contracting states shall require surplus lines licensees and insureds to pay premium tax and report clearinghouse transaction data to the clearinghouse, including processing clearinghouse transaction data through state stamping offices, state insurance departments, or other state-designated agencies or entities;
(4) That nonadmitted insurance of multi-state risks shall be subject to all regulatory compliance requirements of the home state exclusively. Home state regulatory compliance requirements applicable to surplus lines insurance shall include licensure requirements for persons to sell, solicit, or negotiate surplus lines insurance; insurer eligibility requirements or other approved nonadmitted insurer requirements, diligent search requirements, and state transaction documentation and clearinghouse transaction data regarding the payment of premium tax under this compact and in rules to be adopted by the commission. Home state regulatory compliance requirements applicable to independently procured insurance placements shall include providing state transaction documentation and clearinghouse transaction data regarding the payment of premium tax under this compact and in rules to be adopted by the commission;
(5) That each compacting state and contracting state may charge its own rate of taxation on the premium allocated to the compacting state or contracting state based on the applicable allocation formula; provided that the state shall establish a single rate of taxation applicable to all nonadmitted insurance transactions and no other tax, fee assessment, or other charge by a governmental or quasi-governmental agency shall be permitted. Notwithstanding the foregoing, stamping office fees may be charged as a separate, additional cost, unless such fees are incorporated into a state's single rate of taxation;
(6) That a change in the rate of taxation by a compacting state or contracting state is restricted to changes made prospectively with at least ninety days advance notice to the commission;
(7) That each compacting state and each contracting state shall require premium tax payments either annually, semiannually, or quarterly, using only one or more of the following dates: March 1, June 1, September 1, and December 1;
(8) That each compacting state and contracting state shall prohibit any other state agency or political subdivision from requiring surplus lines licensees to provide clearinghouse transaction data and state transaction documentation other than to the insurance department or tax officials of the home state or a single designated agent of the insurance department or tax officials of the home state;
(9) The obligation of the home state itself, through a designated agent, or surplus lines stamping or service office, to collect clearinghouse transaction data from surplus lines licensees and from insureds for independently procured insurance, where applicable, for reporting to the clearinghouse;
(10) A method for the clearinghouse to periodically report to compacting states, contracting states, surplus lines licensees, and insureds who independently procure insurance all premium taxes owed to each of the compacting states and contracting states, the dates upon which payment of such premium taxes is due, and a method to pay them through the clearinghouse;
(11) That each surplus lines licensee is required to be licensed only in the home state of each insured for whom surplus lines insurance has been procured;
(12) That a policy considered to be surplus lines insurance in the insured's home state shall be considered surplus lines insurance in all compacting states and contracting states, and taxed as a surplus lines transaction in all states to which a portion of the risk is allocated. Each compacting state and contracting state shall require each surplus lines licensee to pay to every other compacting state and contracting state premium taxes on each multi-state risk through the clearinghouse at the tax rate charged on surplus lines transactions in the other compacting states and contracting states on the portion of the risk in the compacting state or contracting state, as determined by the applicable uniform allocation formula adopted by the commission. A policy considered to be independently procured insurance in the insured's home state shall be considered independently procured insurance in all compacting states and contracting states. Each compacting state and each contracting state shall require the insured to pay every other compacting state and contracting state the independently procured insurance premium tax on each multi-state risk through the clearinghouse pursuant to the uniform allocation formula adopted by the commission;
(13) Uniform foreign insurer eligibility requirements as authorized by the Nonadmitted and Reinsurance Reform Act;
(14) A uniform policyholder notice; and
(15) Uniform treatment of purchasing group surplus lines insurance placements.
§431:8-F Powers of the commission. The commission shall have the power to:
(1) Adopt rules and operating procedures, pursuant to section 431:8-I of this compact, which shall have the force and effect of law and shall be binding in the compacting states to the extent and in the manner provided in this compact;
(2) Bring and prosecute legal proceedings or actions in the name of the commission; provided that the standing of a state insurance department to sue or be sued under applicable law shall not be affected;
(3) Issue subpoenas requiring the attendance and testimony of witnesses and the production of evidence; provided that the commission shall not be empowered to demand or subpoena records or data from nonadmitted insurers;
(4) Establish and maintain offices, including a clearinghouse for the receipt of premium tax and clearinghouse transaction data regarding nonadmitted insurance of multi-state risks, single-state risks for states that elect to require surplus lines licensees to pay premium tax on single-state risks through the clearinghouse, and tax reporting forms;
(5) Purchase and maintain insurance and bonds;
(6) Borrow, accept, or contract for services of personnel, including employees of a compacting state or stamping office, under an open, transparent, objective, competitive process and procedure adopted by the commission;
(7) Hire employees, professionals, or specialists; elect or appoint officers; fix their compensation; define their duties and give them appropriate authority to carry out the purposes of the compact, and determine their qualifications, under an open, transparent, objective, competitive process and procedure adopted by the commission; and establish the commission's personnel policies and programs relating to conflicts of interest, rates of compensation, qualifications of personnel, and other related personnel matters;
(8) Accept, receive, use, and dispose of any appropriate donations and grants of money, equipment, supplies, materials, and services; provided that the commission shall avoid at all times any appearance of impropriety or conflict of interest;
(9) Lease, purchase, accept appropriate gifts or donations of, or otherwise own, hold, improve, or use any real, personal, or mixed property; provided that the commission shall avoid at all times any appearance of impropriety or conflict of interest;
(10) Sell, convey, mortgage, pledge, lease, exchange, abandon, or otherwise dispose of any real, personal, or mixed property;
(11) Provide for tax audit rules and procedures for the compacting states with respect to the allocation of premium taxes, including:
(A) Minimum audit standards, including sampling methods;
(B) Review of internal controls;
(C) Cooperation and sharing of audit responsibilities between compacting states;
(D) Handling of refunds or credits due to overpayments or improper allocation of premium taxes;
(E) Taxpayer records to be reviewed, including a minimum retention period; and
(F) Authority of compacting states to review, challenge, or reaudit taxpayer records;
(12) Enforce compliance by compacting states and contracting states with rules and bylaws pursuant to section 431:8-O;
(13) Provide for dispute resolution among compacting states and contracting states;
(14) Advise compacting states and contracting states on tax issues relating to insurers, insureds, surplus lines licensees, agents, or brokers domiciled or doing business in noncompacting states, consistent with the purposes of this compact;
(15) Make available advice and training to those personnel in state stamping offices, state insurance departments, or other state departments for record keeping, tax compliance, and tax allocations; and be a resource for state insurance departments and other state departments;
(16) Establish a budget and make expenditures;
(17) Borrow money;
(18) Appoint and oversee committees, including advisory committees composed of members, state insurance regulators, state legislators or their representatives, insurance industry and consumer representatives, and other interested persons as designated in this compact and the bylaws;
(19) Establish an executive committee of not more than fifteen representatives, including officers elected by the commission and other representatives as provided for herein and determined by the bylaws. Representatives of the executive committee shall serve a one-year term and shall be entitled to one vote each. The executive committee shall have the power to act on behalf of the commission, except for rulemaking, when the commission is not in session. The executive committee shall oversee the day-to-day activities of the administration of the compact, including the activities of the operations committee created under paragraph (20) and section 431:8-G(c) and compliance and enforcement of the provisions of the compact, the bylaws and rules, and other duties as provided in this compact and as deemed necessary;
(20) Establish an operations committee of not more than fifteen representatives to provide analysis, advice, determinations, and recommendations regarding technology, software, and systems integration to be acquired by the commission and to provide analysis, advice, determinations, and recommendations regarding the establishment of mandatory rules to be adopted by the commission;
(21) Enter into contracts with contracting states to enable contracting states to use the services of and fully participate in the clearinghouse under the terms and conditions set forth in the contracts;
(22) Adopt and use a corporate seal; and
(23) Perform other functions that are necessary or appropriate to achieve the purposes of this compact consistent with state regulation of the business of insurance.
§431:8-G Organization of the commission. (a) The following provisions shall govern commission membership, voting, and bylaws:
(1) Each compacting state shall have and is limited to one member. A member shall be chosen through a process and according to the qualifications and method of selection determined by the compacting state. In the absence of a selection provision, the member shall be appointed by the governor of the compacting state. A member may be removed or suspended from office as provided by the law of the compacting state represented by the member. A vacancy occurring in the commission shall be filled in accordance with the laws of the compacting state represented by the member whose position has become vacant;
(2) Each member is entitled to one vote and shall have an opportunity to participate in the governance of the commission in accordance with the bylaws;
(3) The commission, by a majority vote of the members, shall prescribe bylaws to govern its conduct as necessary or appropriate to carry out the purposes and exercise the powers of the compact, including:
(A) Establishing the fiscal year of the commission;
(B) Providing reasonable procedures for holding meetings of the commission, the executive committee, and the operations committee;
(C) Providing reasonable standards and procedures for the establishment and meetings of committees and governing any general or specific delegation of any authority or function of the commission;
(D) Providing reasonable procedures for calling and conducting meetings of the commission that consist of a majority of commission members, ensuring reasonable advance notice of each meeting and providing for the right of citizens to attend each meeting with enumerated exceptions designed to protect the public's interest, the privacy of individuals, and insurers' and surplus lines licensees' proprietary information, including trade secrets. The commission may meet in camera only after a majority of the entire membership votes to close a meeting in toto or in part. As soon as practicable, the commission shall make public a copy of the vote to close the meeting revealing the vote of each member with no proxy votes allowed, and votes taken during the meeting;
(E) Establishing the titles, duties, authority, and reasonable procedures for the election of the officers of the commission;
(F) Providing reasonable standards and procedures for the establishment of the personnel policies and programs of the commission. Notwithstanding any civil service or other similar laws of a compacting state, the bylaws shall exclusively govern the personnel policies and programs of the commission;
(G) Adopting a code of ethics to address permissible and prohibited activities of commission members and employees; and
(H) Providing a mechanism for winding up the operations of the commission and the equitable disposition of surplus funds that exist after the termination of the compact after the payment or reservation or both of the commission's debts and obligations; and
(4) The commission shall publish its bylaws in a convenient form and file a copy of the bylaws and any amendments to the bylaws with the appropriate agency or officer in each of the compacting states.
(b) The following provisions shall govern the commission's executive committee, personnel, and chairperson:
(1) An executive committee of the commission is established. All actions of the executive committee, including compliance and enforcement, are subject to the review and ratification of the commission as provided in the bylaws. The executive committee shall have no more than fifteen representatives, or one representative for each state if there are fewer than fifteen compacting states, who are appointed and shall serve for a term in accordance with the bylaws;
(2) The executive committee shall have the authority and duties as set forth in the bylaws, including:
(A) Managing the affairs of the commission in a manner consistent with the bylaws and purposes of the commission;
(B) Establishing and overseeing an organizational structure within, and appropriate procedures for, the commission to provide for the creation of rules and operating procedures;
(C) Overseeing the offices of the commission; and
(D) Planning, implementing, and coordinating communications and activities with other state, federal, and local government organizations to advance the goals of the commission;
(3) The commission shall annually elect officers from the executive committee, with the officers having the authority and duties as specified in the bylaws; and
(4) The executive committee may, subject to the approval of the commission and according to terms and conditions, and for a period and compensation that the commission determines to be appropriate, appoint or retain an executive director. The executive director shall serve as secretary to the commission but shall not serve as a member of the commission. The executive director shall hire and supervise other persons as authorized by the commission.
(c) The following provisions shall govern the commission's operations committee:
(1) An operations committee is established. All actions of the operations committee are subject to the review and oversight of the commission and the executive committee, and shall be approved by the commission. The executive committee shall accept the determinations and recommendations of the operations committee, unless good cause is shown why those determinations and recommendations should not be approved. Disputes as to whether good cause exists to reject a determination or recommendation of the operations committee shall be resolved by the majority vote of the commission. The operations committee shall have no more than fifteen representatives or one representative for each state if there are fewer than fifteen compacting states, who are appointed and shall serve for a term in accordance with the bylaws. The operations committee shall have responsibility for:
(A) Evaluating technology requirements for the clearinghouse, assessing existing systems used by state regulatory agencies and state stamping offices to maximize the efficiency and successful integration of the clearinghouse technology systems with state and state stamping office technology platforms, and to minimize costs to the states, state stamping offices, and the clearinghouse;
(B) Making recommendations to the executive committee based on the operations committee's analysis and determination of the clearinghouse technology requirements and compatibility with existing state and state stamping office systems;
(C) Evaluating the most suitable proposals for adoption as mandatory rules, assessing the proposals for ease of integration by states and likelihood of successful implementation, and reporting to the executive committee the operations committee's determinations and recommendations; and
(D) Other duties and responsibilities delegated to the operations committee by the bylaws, the executive committee, or the commission; and
(2) All representatives of the operations committee shall be individuals who have extensive experience or employment in the surplus lines insurance business, including executives and attorneys employed by surplus lines insurers, surplus lines licensees, law firms, state insurance departments, or state stamping offices, or any combination of these entities; provided, however, that the representative from a compacting state that uses the services of a state stamping office shall be the chief operating officer or a senior manager of the state stamping office.
(d) The following provisions shall govern the commission's legislative and advisory committees:
(1) A legislative committee composed of state legislators or their designees is established to monitor the operations of and make recommendations to the commission, including the executive committee; provided that the bylaws shall determine the manner of selecting the members of the legislative committee and the term of office of the legislative committee members. Before the commission adopts any uniform standard, revision to the bylaws, annual budget, or other significant matter as provided in the bylaws, the executive committee shall consult with and report to the legislative committee; and
(2) The commission may establish additional advisory committees as the bylaws provide, for carrying out the commission's functions.
(e) The commission shall maintain the commission's corporate books and records in accordance with the bylaws.
(f) The following provisions shall govern the commission's qualified immunity, defense, and indemnification:
(1) The members, officers, executive director, employees, and representatives of the commission, members of the executive committee, and members of any other committee of the commission, personally and in their official capacity, are immune from suit and liability for a claim for damage to or loss of property, personal injury, or other civil liability caused by or arising out of an actual or alleged act, error, or omission that occurred, or that the person against whom the claim is made had a reasonable basis for believing occurred within the scope of commission employment, duties, or responsibilities; provided that nothing in this paragraph shall be construed to protect a person from suit or liability or both for damage, loss, injury, or liability caused by the intentional or wilful or wanton misconduct of that person;
(2) The commission shall defend a member, officer, executive director, employee, or representative of the commission, the executive committee, or any other committee of the commission in any civil action seeking to impose liability arising out of an actual or alleged act, error, or omission that occurred, or that the person against whom the claim is made had a reasonable basis for believing occurred, within the scope of commission employment, duties, or responsibilities; provided that the actual or alleged act, error, or omission did not result from that person's intentional or wilful or wanton misconduct. Nothing in this paragraph shall be construed to prohibit the person from retaining the person's own counsel; and
(3) The commission shall indemnify and hold harmless a member, officer, executive director, employee, or representative of the commission, executive committee, or other committee of the commission for the amount of a settlement or judgment obtained against the person arising out of an actual or alleged act, error, or omission that occurred, or that the person had a reasonable basis for believing occurred, within the scope of commission employment, duties, or responsibilities; provided that the actual or alleged act, error, or omission did not result from the intentional or wilful or wanton misconduct of that person.
§431:8-H Meetings and acts of the commission. (a) The commission shall meet and take actions that are consistent with the provisions of this compact and the bylaws.
(b) Each member of the commission may cast the vote to which the compacting state represented by the member is entitled and may participate in the business and affairs of the commission. A member shall vote in person or by other means provided in the bylaws. The bylaws may provide for members' participation in meetings by telephone or other means of communication.
(c) The commission shall meet at least once during each calendar year and shall hold additional meetings according to the bylaws.
(d) Public notice shall be given of all meetings, and all meetings shall be open to the public, except as set forth in the rules or in this compact.
(e) The commission shall adopt rules concerning the meetings consistent with the principles contained in the Government in the Sunshine Act, 5 United States Code 552b, as amended.
(f) The commission and the commission's committees may close a meeting, or a part of a meeting, upon a determination by the commission by majority vote that an open meeting would be likely to do any of the following:
(1) Relate solely to the commission's internal personnel practices and procedures;
(2) Disclose matters specifically exempted from disclosure by federal or state statute;
(3) Disclose trade secrets or commercial or financial information that is privileged or confidential;
(4) Involve accusing a person of a crime, or formally censuring a person;
(5) Disclose information of a personal nature where disclosure would constitute a clearly unwarranted invasion of personal privacy;
(6) Disclose investigative records compiled for law enforcement purposes; or
(7) Specifically relate to the commission's issuance of a subpoena or the commission's participation in a civil action or other legal proceeding.
(g) For a meeting or part of a meeting that is closed pursuant to subsection (f), the commission's legal counsel or the counsel's designee shall certify that the meeting may be closed and shall reference each relevant exemptive provision. The commission shall keep minutes that fully and clearly describe all matters discussed in the meeting and shall provide a full and accurate summary of actions taken and the reasons for the actions, including a description of the views expressed and the record of a roll call vote. All documents considered in connection with an action shall be identified in the minutes. All minutes and documents of a closed meeting shall remain under seal, subject to release by a majority vote of the commission.
§431:8-I Rules and operating procedures; rulemaking functions of the commission. (a) The commission shall adopt reasonable rules to effectively and efficiently achieve the purposes of this compact. If the commission exercises its rulemaking authority in a manner that is beyond the scope of the purposes of this compact, or the powers granted by this compact, the action by the commission shall be invalid and shall have no force or effect.
(b) Rules shall be made pursuant to a rulemaking process that substantially conforms to the Model State Administrative Procedure Act of 1981, Uniform Laws Annotated, vol. 15, p. 1 (2000) as amended, as appropriate for the operations of the commission.
(c) A rule, operating procedure, or amendment to a rule shall be effective on the date specified in the rule, operating procedure, or amendment.
(d) Not later than thirty days after a rule is adopted, any person may file a petition for judicial review of the rule; provided that the filing of a petition for judicial review shall not stay or otherwise prevent the rule from becoming effective, unless the court finds that the petitioner has a substantial likelihood of success. The court shall give deference to the actions of the commission consistent with applicable law and shall not find the rule to be unlawful if the rule represents a reasonable exercise of the commission's authority.
§431:8-J Commission records and enforcement. (a) The commission shall adopt rules establishing conditions and procedures for public inspection and copying of the commission's information and official records; provided that information and records involving the privacy of individuals, insurers, or insureds, or surplus lines licensee trade secrets, shall not be subject to public inspection and copying. State transaction documentation and clearinghouse transaction data collected by the clearinghouse shall be used for only those purposes expressed in or reasonably implied under the provisions of this compact, and the commission shall afford the state transaction documentation and clearinghouse transaction data the broadest protections as permitted by applicable law for proprietary information, trade secrets, or personal data. The commission may adopt additional rules under which the commission may make available to federal and state agencies, including law enforcement agencies, records and information otherwise exempt from disclosure, and may enter agreements with the agencies to receive or exchange information or records subject to nondisclosure and confidentiality provisions.
(b) Except for privileged records, data, and information, the laws of a compacting state pertaining to confidentiality or nondisclosure shall not relieve a compacting state member of the duty to disclose any relevant records, data, or information to the commission; provided that disclosure to the commission shall not waive or otherwise affect a confidentiality requirement. Except as otherwise expressly provided for in this compact, the commission shall not be subject to the compacting state's laws pertaining to confidentiality and nondisclosure with respect to records, data, and information in the commission's possession. Confidential information of the commission shall remain confidential after the information is provided to a member. The commission shall maintain the confidentiality of information provided by a member if that information is confidential under the member's state's law.
(c) The commission shall monitor compacting states for compliance with the bylaws and rules. The commission shall provide written notice of noncompliance to a compacting state that does not comply with the bylaws and rules. If a compacting state that receives a notice of noncompliance fails to remedy the noncompliance within the time specified in the notice of noncompliance, the compacting state shall be considered in default as set forth in section 431:8-O(b).
§431:8-K Dispute resolution. (a) The commission shall attempt, upon the request of a member, to resolve disputes or other issues that are subject to this compact and that may arise between two or more compacting states, contracting states, or noncompacting states. A member may not bring an action in a court with competent jurisdiction alleging a violation of a provision, standard, or requirement of this compact, unless the commission, at the member's request, has attempted to resolve the dispute concerning the alleged violation.
(b) The commission shall provide alternative dispute resolution procedures to resolve any disputes between insureds or surplus lines licensees concerning tax calculation or allocation or related issues that are the subject of this compact.
(c) Alternative dispute resolution procedures provided under this section shall be used in circumstances where a dispute arises as to which state constitutes the home state.
§431:8-L Review of commission decisions. (a) Except as necessary for adopting rules to fulfill the purposes of this compact, the commission shall not otherwise regulate insurance in the compacting states.
(b) No later than thirty days after the commission has given notice of a rule or allocation formula, a third-party filer or compacting state may appeal the determination to a review panel appointed by the commission. The commission shall adopt rules to establish procedures for the appointment of review panels and to provide for notice and hearing in the appeal. An allegation that the commission, in making a compliance or tax determination, acted arbitrarily, capriciously, or in a manner that is an abuse of discretion or otherwise not in accordance with the law, is subject to judicial review in accordance with section 431:8-D(f).
(c) The commission may monitor, review, and reconsider commission decisions upon a finding that the determinations or allocations do not meet the relevant rule. Where appropriate, the commission may withdraw or modify a determination or allocation after proper notice and hearing, subject to the appeal process in subsection (b).
§431:8-M Finance. (a) The commission shall pay or provide for the payment of the reasonable expenses of the commission's establishment and organization. To fund the cost of the commission's initial operations, the commission may accept contributions, grants, and other forms of funding from state stamping offices, compacting states, and other sources.
(b) The commission shall collect a fee, payable by the insured directly or through a surplus lines licensee, on each transaction processed through the compact clearinghouse, to cover the cost of the operations and activities of the commission and the commission's staff. The revenue from the fee shall be sufficient to cover the commission's annual budget.
(c) The commission's budget for a fiscal year shall not be approved until it has been subject to notice and comment, as provided in section 431:8-I.
(d) The commission shall be regarded as performing essential governmental functions in exercising the commission's powers and functions and carrying out the provisions of this compact and any law relating to this compact. The commission shall not be required to pay a tax or assessment of any kind levied by a state or political subdivision upon property used by the commission for, or income or revenue resulting from, the purposes described in this subsection, including any profit from a sale or exchange.
(e) The commission shall keep complete and accurate accounts of all of the commission's internal receipts, including grants, donations, and disbursements for all funds under its control. The internal financial accounts of the commission shall be subject to the accounting procedures established under the bylaws. The financial accounts and reports of the commission, including the system of internal controls and procedures of the commission, shall be audited annually by an independent certified public accountant. Upon the determination of the commission, but not less than every three years, the review of the independent auditor shall include a management and performance audit of the commission. The commission shall make an annual report to the governors and legislatures of the compacting states, including a report of the independent audit. The commission's internal accounts shall not be confidential, and the materials shall be shared with the commissioner, the controller, or the stamping office of a compacting state upon request; provided that work papers related to an internal or independent audit and any information regarding the privacy of individuals, or licensees' and insurers' proprietary information, including trade secrets, shall remain confidential.
(f) A compacting state shall not have a claim to, or ownership of, property held by or vested in the commission or to commission funds held pursuant to this compact.
(g) The commission shall not make political contributions to candidates for elected office, elected officials, political parties, or political action committees. The commission shall not engage in lobbying, except with respect to changes to this compact.
§431:8-N Compacting states; effective date; amendment. (a) Any state is eligible to become a compacting state.
(b) The compact shall become effective and binding upon legislative enactment of the compact into law by two compacting states. The commission established by this compact shall become effective for purposes of adopting rules and creating the clearinghouse when there are a total of ten compacting states and contracting states or, when there are compacting states and contracting states representing more than forty per cent of the surplus lines insurance premium volume based on records of the percentage of surplus lines insurance premium set forth in the following table:
Surplus Line Insurance Premiums by State (Appendix A)
Premiums based Share of total
State on taxes paid premiums
Alabama $445,746,000 1.47%
Alaska $89,453,519 0.29%
Arizona $663,703,267 2.18%
Arkansas $201,859,750 0.66%
California $5,622,450,467 18.49%
Colorado $543,781,333 1.79%
Connecticut $329,358,800 1.08%
Delaware $92,835,950 0.31%
Florida $2,660,908,760 8.75%
Georgia $895,643,150 2.95%
Hawaii $232,951,489 0.77%
Idaho $74,202,255 0.24%
Illinois $1,016,504,629 3.34%
Indiana $412,265,320 1.36%
Iowa $135,130,933 0.44%
Kansas $160,279,300 0.53%
Kentucky $167,996,133 0.55%
Louisiana $853,173,280 2.81%
Maine $60,111,200 0.20%
Maryland $434,887,600 1.43%
Massachusetts $708,640,225 2.33%
Michigan $703,357,040 2.31%
Minnesota $393,128,400 1.29%
Mississippi $263,313,175 0.87%
Missouri $404,489,860 1.33%
Montana $64,692,873 0.21%
Nebraska $92,141,167 0.30%
Nevada $354,271,514 1.17%
New Hampshire $102,946,250 0.34%
New Jersey $1,087,994,033 3.58%
New Mexico $67,608,458 0.22%
New York $2,768,618,083 9.11%
North Carolina $514,965,060 1.69%
North Dakota $36,223,943 0.12%
Ohio $342,000,000 1.12%
Oklahoma $319,526,400 1.05%
Oregon $312,702,150 1.03%
Pennsylvania $780,666,667 2.57%
Rhode Island $71,794,067 0.24%
South Carolina $412,489,825 1.36%
South Dakota $38,702,120 0.13%
Tennessee $451,775,240 1.49%
Texas $3,059,170,454 10.06%
Utah $142,593,412 0.47%
Vermont $41,919,433 0.14%
Virginia $611,530,667 2.01%
Washington $739,932,050 2.43%
West Virginia $130,476,250 0.43%
Wisconsin $248,758,333 0.82%
Wyoming $40,526,967 0.13%
Total $30,400,197,251 100.00%
This data is data from calendar year 2005, excerpted from a study dated February 27, 2007, by Mackin & Company.
Thereafter, it shall become effective and binding as to any other compacting state upon the enactment of the compact into law by that state. Notwithstanding the foregoing, the clearinghouse operations and the duty to report clearinghouse transaction data shall begin on the first January 1 or July 1 following the first anniversary of the commission's effective date. The commission shall set a date for the reporting of clearinghouse transaction data by states that become compacting states after the commission's effective date and shall provide at least ninety days' advance notice of the date for the reporting of clearinghouse data to surplus lines licensees and all other interested parties.
(c) Amendments to this compact may be proposed by the commission for enactment by the compacting states. An amendment to this compact is not effective and binding upon the commission and the compacting states unless and until all compacting states enact the amendment into law.
§431:8-O Withdrawal; default; termination. (a) The following provisions shall govern withdrawal from the compact:
(1) Once effective, the compact shall continue in force and remain binding upon every compacting state; provided that a compacting state may withdraw from the compact by enacting a statute specifically repealing the statute that enacted the compact into law;
(2) The effective date of a compacting state's withdrawal under paragraph (1) shall be the effective date of the repealing statute; provided that the withdrawal under paragraph (1) shall not apply to a tax or compliance determination that has already been approved on the date the repealing statute becomes effective, except by mutual agreement of the commission and the withdrawing state, unless the approval of the tax or compliance determination is rescinded by the commission;
(3) The member of the withdrawing state shall immediately notify the executive committee of the commission in writing upon the introduction of legislation repealing this compact in the withdrawing state;
(4) The commission shall notify the other compacting states of the introduction of the legislation within ten days after the commission's receipt of notice under paragraph (3);
(5) A withdrawing state is responsible for all obligations, duties, and liabilities incurred through the effective date of the state's withdrawal, including obligations the performance of which extend beyond the effective date of withdrawal. To the extent those obligations may have been released or relinquished by mutual agreement of the commission and the withdrawing state, the commission's determinations prior to the effective date of the state's withdrawal continue to be effective and shall be given full force and effect in the withdrawing state, unless formally rescinded by the commission; and
(6) Reinstatement following withdrawal of any compacting state shall occur upon the effective date of the withdrawing state's legislature reenacting the compact.
(b) The following provisions shall govern default by a compacting state:
(1) If the commission determines that a compacting state has defaulted in the performance of any of the compacting state's obligations or responsibilities under this compact or under the bylaws or rules, the commission shall, after notice and hearing under the bylaws, suspend all rights, privileges, and benefits conferred by this compact on the defaulting state, effective on the effective date of default as fixed by the commission. The grounds for the suspension of a compacting state for default include failure of a compacting state to perform its obligations or responsibilities and any other grounds designated in commission rules. The commission shall immediately notify the defaulting state in writing of the defaulting state's suspension, pending a cure of the default. The commission shall stipulate the conditions and the time period within which the defaulting state shall cure its default. If the defaulting state fails to cure the default within the time period specified by the commission, the defaulting state shall be terminated from this compact, and all rights, privileges, and benefits conferred by this compact shall be terminated on the effective date of the state's termination from this compact;
(2) Decisions of the commission that have already been issued on the effective date of a state's termination shall remain in force in the defaulting state in the same manner as if the defaulting state had withdrawn voluntarily pursuant to subsection (a); and
(3) Reinstatement following termination of a compacting state requires a legislative reenactment of the compact.
(c) The following provisions shall govern termination of the compact:
(1) The compact shall dissolve effective on the date of the withdrawal or termination for default of the compacting state whose withdrawal or termination reduces membership in the compact to one compacting state; and
(2) Upon the dissolution of this compact, the compact becomes void and shall have no further force or effect, and the business and affairs of the commission shall be wound up and any surplus funds shall be distributed in accordance with the bylaws and rules.
§431:8-P Severability and construction. (a) The provisions of this compact are severable, and if any phrase, clause, sentence, or provision of this compact is deemed unenforceable, the remaining provisions of the compact shall be enforceable.
(b) The provisions of this compact shall be liberally construed to effectuate the compact's purposes.
(c) Any headings and captions of sections and subsections used in this compact are for convenience only and shall be ignored in construing the substantive provisions of this compact.
§431:8-Q Binding effect of compact and other laws. (a) The following provisions shall govern the effect of the compact on other laws:
(1) Except as provided in paragraph (2), nothing in this compact shall prevent the enforcement of any other law of a compacting state;
(2) Decisions of the commission and rules and other requirements of the commission shall constitute the exclusive rule or determination applicable to the compacting states. A law or regulation regarding nonadmitted insurance of multi-state risks that is contrary to rules of the commission shall be preempted with respect to the following:
(A) Clearinghouse transaction data reporting requirements;
(B) Allocation formula;
(C) Clearinghouse transaction data collection requirements;
(D) Premium tax payment time frames and rules concerning dissemination of data among the compacting states for nonadmitted insurance of multi-state risks and single-state risks;
(E) Exclusive compliance with surplus lines law of the home state of the insured;
(F) Rules for reporting to a clearinghouse for receipt and distribution of clearinghouse transaction data related to nonadmitted insurance of multi-state risks;
(G) Uniform foreign insurers eligibility requirements;
(H) Uniform policyholder notice; and
(I) Uniform treatment of purchasing groups procuring nonadmitted insurance; and
(3) Except as provided in paragraph (2), a rule, uniform standard, or other requirement of the commission constitutes the exclusive provision that a commissioner may apply to compliance or tax determinations; provided that an action taken by the commission shall not abrogate or restrict:
(A) The access of any person to state courts;
(B) The availability of alternative dispute resolution under section 431:8-K;
(C) Remedies available under state law related to breach of contract, tort, or other laws not specifically directed to compliance or tax determinations;
(D) State law relating to the construction of insurance contracts; or
(E) The authority of the attorney general of the state, including maintaining any actions or proceedings, as authorized by law.
(b) The following provisions shall govern the binding effect of this compact:
(1) Except as provided in this subsection, lawful actions of the commission, including rules adopted by the commission, are binding upon the compacting states;
(2) Agreements between the commission and the compacting states are binding in accordance with the terms of the agreements;
(3) Upon the request of a party to a conflict over the meaning or interpretation of a commission action, and upon a majority vote of the compacting states, the commission may issue advisory opinions regarding the meaning or interpretation in dispute. This paragraph may be implemented by rule at the discretion of the commission; and
(4) If a provision of this compact exceeds the constitutional limits imposed on the legislature of a compacting state, the conferral upon the commission of obligations, duties, powers, and jurisdiction through this compact is ineffective as to the compacting state, and the obligations, duties, powers, and jurisdiction shall remain in the compacting state and shall be exercised by the agency of the compacting state to which the obligations, duties, powers, or jurisdiction are delegated by law in effect at the time this compact becomes effective."
SECTION 7. In codifying the new sections added by section 6 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.
SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 9. This Act shall take effect upon its approval.
Surplus Lines Insurance; Surplus Lines Insurance Multi-State Compliance Compact
Directs the insurance commissioner to join the surplus lines insurance multi-state compliance compact. Enacts the surplus lines insurance multi-state compliance compact. (SB2168 HD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.