HB142INTRODUCED
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HB142
RRT1YNN-1
By Representative Ellis
RFD: Insurance
First Read: 07-Feb-24
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5 RRT1YNN-1 02/02/2024 FC (L)ma 2024-494
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First Read: 07-Feb-24
SYNOPSIS:
Under existing law, a person may not act as an
agent for an insurance company unless the agent is
licensed. The law allows an exception for surplus line
brokers who issue policies under certain conditions
when policies may not be available for certain
coverages.
This bill would update the laws relating to
surplus line brokers to adopt revisions to the
Nonadmitted Insurance Model Act by the National
Association of Insurance Commissioners (NAIC).
This bill would also adopt the federal exemption
requirement for diligent search efforts, allow surplus
line brokers to file reports on placed coverage
quarterly rather than on a 30 day rolling basis, ensure
nonresident surplus line brokers comply with the same
requirements as resident surplus line brokers, codify
broker fees while requiring disclosure in the policy
for consumer protection, eliminate zero premium
reporting, adopt the federal definition of home state,
and repeal the Surplus Lines Insurance Multi-State
Compliance Compact Act in this state.
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A BILL
TO BE ENTITLED
AN ACT
Relating to the Department of Insurance; to amend
Sections 27-10-1 and 27-10-2 of the Code of Alabama 1975,
relating to unauthorized insurers and exceptions; to amend
Sections 27-10-20 through 27-10-26, 27-10-30, and 27-10-31 of
the Code of Alabama 1975, relating to surplus line brokers and
surplus line insurance; and to repeal Chapter 61 of Title 27,
Code of Alabama 1975, providing for membership by this state
in the Surplus Lines Insurance Multi-State Compliance Compact
Act.
BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
Section 1. Sections 27-10-1 and 27-10-2 of the Code of
Alabama 1975, are amended to read as follows:
"§27-10-1
(a) No In this state, no person shall in this state,
directly or indirectly, act as agent for, or otherwise
represent, directly or indirectly, or aid on behalf of
another, any insurer not then authorized to transact such
insurance in this state in the solicitation, negotiation, or
effectuation of insurance or annuity contracts, forwarding of
applications, delivery of policies or contracts, inspection of
risks, fixing of rates, investigation or adjustment of losses,
collection of premiums, or in any other manner in the
transaction of insurance with respect to subjects of insurance
resident, located or to be performed in this state.
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resident, located or to be performed in this state.
(b) This section shall not apply to:
(1) Acceptance of service of process by the
commissioner under Section 27-10-52;
(2) Surplus lines insurance or coverage specified in
Section 27-10-34 and other transactions as to which a
certificate of authority is not required of an insurer ;
(3) Adjustment of losses as authorized in Section
27-10-35;
(4) Transactions for which a certificate of authority
to do business is not required of an insurer under the laws of
this state;
(5) Reinsurance effectuated in accordance with this
title; or
(6) The property and operations of the shipbuilding
and/or ship repair industry engaged in interstate or foreign
commerce and vessels, cargoes, watercraft, piers, wharves,
graven docks, dry docks, marine railways , and building ways,
commonly known as wet marine.
(c) This section shall not be deemed to render invalid,
as between the parties thereto, any insurance contract entered
into in violation of this section No insurance contract entered
into in violation of this section shall preclude the insured
from enforcing his or her rights under the contract in
accordance with the terms and provisions of the contract and
the laws of this state to the same degree those rights would
have been enforceable had the contract been lawfully
procured."
"§27-10-2
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"§27-10-2
(a) Any person who in this state willfully represents
or aids an unauthorized insurer in violation of Section
27-10-1 shall, in addition to any other applicable penalty,
shall be liable for the full amount of any loss sustained by
the insured under any such contract and for the amount of any
premium taxes which may be payable under Section 27-10-35 by
reason of such contract.
(b) Any independent adjuster who, directly or
indirectly, enters into an investigation investigates or
adjustment of any loss arising under a contract of an
insurance or annuity contract issued by an unauthorized
insurer and covering at time of issuance a subject of
insurance resident, located or to be performed in this state
shall be liable for the full amount of any loss suffered by
the insured under such contract. The commissioner may, after a
hearing, may revoke the license of such an independent
adjuster. This subsection does not apply as to surplus lines
contracts lawfully written under this chapter, or exempted
under Section 27-10-34, or to insurance contracts procured by
the insured on his or her own behalf and on which the tax is
paid as required by Section 27-10-35 , or to transactions as to
which the insurer is not required to have a certificate of
authority."
Section 2. Sections 27-10-20 through 27-10-26,
27-10-30, and 27-10-31 of the Code of Alabama 1975, are
amended to read as follows:
"§27-10-20
If certain insurance coverages cannot be procured on
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If certain insurance coverages cannot be procured on
terms acceptable to the insureds from authorized insurers,
such coverages, designated "surplus lines," may be procured
from unauthorized insurers subject to the terms and conditions
of either subdivisions (1) or (2) of this section:
(1)a. The insurance must be procured through a licensed
surplus line broker;
b. The full amount of insurance required must not be
procurable, after diligent effort has been made to do so, from
among the insurers authorized to transact and actually
transacting that kind and class of insurance in this state or
has been procured to the full extent such insurers are willing
to insure;
c. A surplus line transaction conducted in accordance
with 15 U.S.C. § 8205 may be exempt from the diligent effort
requirement;
c.d. The insurance must not be procured for the purpose
of securing advantages as to a lower premium rate than would
be accepted by an authorized insurer; and
d.e. This section, and this surplus line law, does not
apply as to life insurance or disability insurance.
(2) The insurance contracts of insurance are issued to
an industrial insured, defined as an insured:
a. Which procures the insurance of any risk by use of
services of a full-time employee acting as an insurance
manager or buyer or the services of a regularly and
continuously retained, qualified insurance consultant;
b. Whose aggregate annual premiums for insurance on all
risks other than workmen's compensation and group insurance
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risks other than workmen's compensation and group insurance
total at least twenty-five thousand dollars ( $25,000.00); and
c. Which has at least 25 employees."
"§27-10-21
Within 30 days after the effective date of any such
insurance, If surplus line insurance was transacted in the
preceding calendar quarter, the surplus line broker shall file
a written quarterly report with as prescribed by the
commissioner setting forth facts from which it can be
determined whether under Section 27-10-20 the coverage has
been lawfully placed as a surplus line. If so required by the
commissioner, the report shall be in the form of the broker's
affidavit. If so required by the commissioner, the report
shall be accompanied by a written statement signed by the
insured to the effect that acknowledging the coverage was
placed in with an unauthorized insurer with the insured's
knowledge and consent."
"§27-10-22
Every insurance contract procured and delivered as a
surplus line coverage pursuant to this article shall be
initialed by, or bear the name and license number of , the
surplus line broker who procured it and shall have stamped
upon it the following:
"This contract is registered and delivered as a surplus
line coverage under the Alabama Surplus Line Insurance Law."
"§27-10-23
Insurance contracts procured as "surplus line"
coverages from unauthorized insurers in accordance with this
article shall be fully valid and enforceable as to all parties
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article shall be fully valid and enforceable as to all parties
and shall be given acceptance and recognition recognized in
all matters and respects to the same effect and extent as like
contracts issued by authorized insurers."
"§27-10-24
(a) Any person, while licensed as a resident insurance
producer in this state for the property and casualty lines of
authority and who is deemed by the commissioner to have had
sufficient sufficiently experience experienced in the
insurance business to be competent for the purpose may be
licensed as a surplus line broker for the same types and kinds
of insurance that he or she as a resident producer is
currently licensed to handle as follows:
(1) Application to the commissioner for the license
shall be made on forms as designated and furnished by the
commissioner.
(2) License fee in the amount stated in required by
Section 27-4-2 shall be paid to the commissioner. The license
shall expire on December 31 next after its issue.
(3) Prior to the issuance of the license, the applicant
shall file with the commissioner , and thereafter for as long
as any license remains in effect he or she shall keep in force
and unimpaired, a bond in favor of the State of Alabama in the
penal sum of at least fifty thousand dollars ($50,000),
aggregate liability, with authorized corporate sureties
approved by the commissioner to remain in force for the
duration of the license or any renewal . The amount of the bond
may be increased if deemed necessary by the commissioner,
considering the amount of surplus lines tax paid in previous
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considering the amount of surplus lines tax paid in previous
years. The bond shall be conditioned that the broker will
conduct business under the license in accordance with the
provisions of the surplus line insurance law and that he or
she will promptly remit the taxes as provided by the law. No
bond shall be terminated unless at least 30 days' prior
written notice thereof is given to the broker and the
commissioner.
(b) A business entity acting as a surplus line broker
shall designate each licensed individual producer acting under
the license, each of whom shall be responsible for the
business entity's compliance with the insurance laws, rules,
and regulations of this state. A separate fee shall be paid
for each individual producer acting under a business entity
license as surplus line broker, as set forth in Section
27-4-2.
(c) A nonresident person may be licensed as a surplus
line broker for the same types of insurance that he or she is
currently licensed in good standing to handle in his or her
domiciled state, as follows:
(1) The nonresident shall comply with the requirements
established in subsection (a).
(c)(1)(2) Each licensed nonresident surplus line broker
shall be considered to have performed acts equivalent to and
constituting an appointment of the commissioner as his or her
attorney to receive service of legal process issued against
the nonresident in this state upon causes of action arising
within this state out of transactions under the nonresident's
surplus line broker license. Service upon the commissioner as
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surplus line broker license. Service upon the commissioner as
such attorney shall constitute effective legal service upon
the nonresident.
(2)(3) The appointment shall be irrevocable for as long
as there may be any such cause of action in this state against
the nonresident.
(3)(4) Service of process under this section shall be
made by leaving three copies of the summons and complaint, or
other process, with the commissioner, along with payment of
the fee prescribed in Section 27-4-2, and the service shall be
sufficient service upon the nonresident if notice of the
service and a copy of the summons and complaint or other
process are sent by registered or certified mail to the
defendant by the commissioner; and the defendant's return and
the certificate of the commissioner certifying compliance
herewith shall be filed in the office of the clerk of court,
or in the court or tribunal wherein the action is pending. The
certificate of the commissioner shall show the date of the
mailing by registered or certified mail of the notice of the
service and copy of the summons and complaint, or other
process, to the nonresident defendant and the date of the
receipt of the return card and shall be signed by the
commissioner. The commissioner may give the nonresident
defendant notice of the service upon him or her, in lieu of
the notice of service provided for herein to be given by
registered or certified mail, in the following manner:
a. By having a notice of service and a copy of the
summons and complaint, or other process, served upon the
nonresident defendant, if found within the State of Alabama,
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nonresident defendant, if found within the State of Alabama,
by any officer duly qualified to serve legal process within
the State of Alabama or, if the nonresident defendant is found
to be outside of the State of Alabama, by a sheriff, deputy
sheriff, or United States marshal or deputy United States
marshal, or any duly constituted officer qualified to serve
like process in the state or the jurisdiction where the
nonresident defendant is found.
b. The officer's return showing service, when made,
shall be filed in the office of the clerk of the court, or in
the court or tribunal wherein the action is pending, on or
before the return day of the process or as the court or
tribunal may allow, and the court or tribunal in which the
action is pending may order a continuance, or continuances, as
may be necessary to afford the nonresident defendant
reasonable opportunity to defend the action.
(4)(5) The commissioner shall keep on file for a period
of not less than three years a copy of the summons and
complaint or other process served upon the commissioner,
together with a record of all such process and of the day,
hour, and manner of service."
"§27-10-25
(a) A licensed surplus line broker may accept and place
surplus line business for any insurance producer licensed in
this state for the kind and class of insurance involved and
may compensate the producer therefor. No producer shall
knowingly misrepresent to the broker any material fact
involved in any insurance or in the eligibility thereof for
placement with an unauthorized insurer.
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placement with an unauthorized insurer.
(b) Notwithstanding Section 27-12-17(b), a reasonable
fee for each policy may be charged by the filing surplus lines
broker for each policy placed in lawful compliance with
Section 27-10-20. This per-policy fee shall be itemized
separately to the customer before purchase, enumerated in the
policy or a notice delivered with the policy, and is subject
to the surplus line broker tax required under Section
27-10-31."
"§27-10-26
(a) A surplus line broker shall not knowingly place
surplus line insurance with an insurer that is unsound
financially, or that is ineligible under this section. The
broker shall ascertain the financial condition of the
unauthorized insurer before placing insurance therewith.
(b) The broker shall not so insure may only place
insurance with any an insurer meeting one of the following:
(1) With anyAn insurer which is not an authorized
insurer in at least one state of the United States for the
kind of insurance involved, and with capital or surplus, or
both, amounting to at least five million dollars ($5,000,000);
or guaranteed trust fund amounting to at least five million
dollars ($5,000,000).
(2) With anAn alien insurer not authorized to transact
insurance in at least one state of the United States , or an
unauthorized insurer listed on the Quarterly Listing of Alien
Insurers maintained by the International Insurers Department
of the National Association of Insurance Commissioners and
unless the insurer shall have established an effective trust
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unless the insurer shall have established an effective trust
fund of at least two million five hundred thousand dollars
($2,500,000) within the United States administered by a
recognized financial institution and held for the benefit of
all its policyholders or policyholders and creditors in the
United States, and with capital or surplus, or both, amounting
to at least fifteen million dollars ($15,000,000).
(3) With aA foreign or alien insurer which has
transacted insurance as an authorized insurer in its domicile
state or country of domicile for not less than five years,
unless it is a wholly owned subsidiary of an insurer
authorized to transact insurance in this state or unless it
makes a deposit in this state as may be permitted under
subsection (c).
(4) With anAn insurer the voting control of which is
held controlled, in whole or substantial part , by any
government or governmental agency.
(5) In anyAny insurer made ineligible as a surplus line
insurer by order of the commissioner received by or known to
the broker. The commissioner may issue an order of
ineligibility if he or she finds that the insurer:
a. Does not meet the financial requirements of this
section;
b. Has without just cause refused to pay valid claims
arising under its contracts in this state or has otherwise
conducted its affairs in a manner as to result in injury or
loss to the insuring public of this state; or
c. Has conducted its affairs in a manner as to result
in the avoidance of payment of tax as required by Sections
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in the avoidance of payment of tax as required by Sections
27-10-31 and 27-10-35.
(c) When it appears after a search of surplus lines
insurers that any particular insurance risk which is eligible
to be placed in accordance with the surplus line law but on
which insurance coverage, in whole or in part, is not
procurable from foreign or alien insurers meeting all of the
requirements of subsection (b) but is procurable from a
foreign or alien insurer meeting all of the requirements of
subsection (b) except for paragraph subdivision (3), then the
surplus line broker may file a supplemental signed statement
setting forth the facts and advising the department that the
part of the risk as shall be unprocurable, as aforesaid, is
being placed with named unauthorized insurers which meet all
of the requirements of subsection (b) except for paragraph
subdivision (3), in the amounts and percentages set forth in
the statement. These named unauthorized insurers, before
accepting any risk in this state, shall deposit with the
department cash or securities acceptable to the commissioner
and with a market value of not less than one million dollars
($1,000,000), which deposit shall be held by the department
for the benefit of Alabama policyholders only. The deposit
shall be held in the same manner as other deposits as
described in Section 27-3-11. The commissioner may adopt
reasonable rules for the implementation and administration of
this section."
"§27-10-30
(a) Each surplus line broker shall, on or before the
first day of March of each year, file with the commissioner a
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first day of March of each year, file with the commissioner a
verified statement of all surplus line insurance transacted by
him or her during the preceding calendar year. If no surplus
line insurance was transacted in the preceding calendar year,
no statement is required.
(b) The statement shall be on forms as prescribed and
furnished by the commissioner and shall show:
(1) Gross amount of each kind of insurance transacted;
(2) Aggregate gross premiums charged, exclusive of sums
collected to cover state or federal taxes;
(3) Aggregate of returned premiums and taxes paid to
insureds;
(4) Aggregate of net premiums; and
(5) Additional information as required by the
commissioner."
"§27-10-31
(a) On or before the first day of March each year, the
surplus line broker shall remit to the State Treasurer through
the commissioner, as a tax imposed for the privilege of
transacting business as a surplus line broker in this state, a
tax of six percent on the direct premiums, less return
premiums and exclusive of sums collected to cover state or
federal taxes, on surplus line insurance issued to insureds
whose home state is this state as the term "home state" is
defined in 15 U.S.C. § 8206, subject to tax transacted by the
broker during the preceding calendar year as shown by the
annual statement filed with the commissioner.
(b) The tax under the provisions of this section shall
be subject to deduction of the full amount of all expenses of
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be subject to deduction of the full amount of all expenses of
examination of the surplus line broker by the commissioner in
the same manner as that allowed for domestic insurers for
examination expenses under the provisions of subdivision (5)
of subsection (c) of Section 27-4A-3. All taxes collected
under this section shall be deposited in the State Treasury to
the credit of the State General Fund.
(c) This section shall not be effective if the Surplus
Lines Insurance Multi-State Compliance Compact is not enacted
into law by two compacting states. "
Section 3. Chapter 61 of Title 27 of the Code of
Alabama 1975, is repealed.
Section 4. This act shall become effective on July 1,
2024.
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