RULES AND REGULATIONS
Title 31—INSURANCE
INSURANCE DEPARTMENT
[ 31 PA. CODE CH. 124 ]
Surplus Insurance Lines
[43 Pa.B. 6345]
[Saturday, October 26, 2013]The Insurance Department (Department) amends Chapter 124 (relating to surplus lines insurance) under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412), regarding the general rulemaking authority of the Department, and Article XVI of The Insurance Company Law of 1921 (act) (40 P. S. §§ 991.1601—991.1626), regarding surplus lines.
Purpose
The purpose of this final-form rulemaking is to update Chapter 124 in accordance with amendments made to the act in 2002, 2010 and 2011. See the act of July 10, 2002 (P. L. 749, No. 110); the act of March 22, 2010 (P. L. 147, No. 14); and the act of June 30, 2011 (P. L. 194, No. 28) (Act 28). Chapter 124 sets forth duties and requirements regarding surplus lines agents, writing producers and surplus lines insurers transacting business in this Commonwealth.
Comments and Responses
Notice of proposed rulemaking was published at 43 Pa.B. 1269 (March 9, 2013) with a 30-day comment period. Comments were received from the Independent Agent and Brokers of Pennsylvania (IA&B) and the Insurance Federation of Pennsylvania (IFP).
The IA&B noted that most changes were editorial in nature and necessary to update the regulations in accordance with Act 28 and the Nonadmitted and Reinsurance Reform Act of 2010 (Pub. L. No. 111-203). The IA&B also noted the positive changes simplifying the diligent search process and recognized that further simplification may require legislative action.
The IFP questioned the reference to repealed section 1605(3) of the act (40 P. S. § 991.1605(3)) in § 124.10 (relating to eligible surplus lines insurer filing requirements) as inconsistent with Act 28 and recommended that § 124.10 be revised to recognize that the Department may rely upon the National Association of Insurance Commissioners ISITE database for immediate access to documents filed by foreign insurers. The IFP also objected to the ''additional information'' clause in subsections (a) and (b). Otherwise, the IFP expressed general support for the rulemaking.
On May 8, 2013 the Independent Regulatory Review Commission (IRRC) submitted a comment with regard to the proposed rulemaking noting that language in proposed § 124.10(a)(4) and (b)(3) was nonbinding and unclear.
In response to IRRC's comment and the comment from the IFP, the Department revised § 124.10 to delete proposed subsections (a)(4) and (b)(3). In recognition of the availability of certain information in the ISITE database as noted by the IFP, the Department revised subsection (a) to permit a foreign insurer requesting placement on the eligible surplus lines list to submit only the jurat page instead of the entire financial statement. However, the Department retained the authority to request this information in situations when the Department cannot determine from the jurat page whether the requirements of section 1605(a) of the act are met. Additionally, the Department revised subsection (b) to note that submission of the jurat page will also be sufficient for foreign insurers on the Department's list unless the Department requires further information to determine whether the requirements of section 1605(a) of the act continue to be met.
Affected Parties
The final-form rulemaking applies to surplus lines agents, writing producers and surplus lines insurers transacting business in this Commonwealth.
Fiscal Impact
State government
The final-form rulemaking will strengthen and clarify existing regulatory requirements. There will not be material increase in cost to the Department as a result of this final-form rulemaking.
General public
While the final-form rulemaking will not have immediate fiscal impact on the general public, the general public will benefit to the extent that the proposed rulemaking enhances the efficiency and effectiveness of the Commonwealth's regulation of surplus lines insurance under Article XVI of the act.
Political subdivisions
The final-form rulemaking will not impose additional costs on political subdivisions.
Private sector
The final-form rulemaking will not impose significant costs on surplus lines licensees, writing producers or surplus lines insurers transacting business in this Commonwealth.
Paperwork
The final-form rulemaking will not impose additional paperwork on the Department.
Effectiveness/Sunset Date
The final-form rulemaking will become effective 30 days after publication in the Pennsylvania Bulletin. The Department continues to monitor the effectiveness of regulations on a triennial basis. Therefore, a sunset date has not been assigned.
Contact Person
Questions or comments regarding the final-form rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Insurance Department, 1326 Strawberry Square, Harrisburg, PA 17120, fax (717) 705-3873, psalvatore@pa.gov within 30 days after the publication in the Pennsylvania Bulletin.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on February 22, 2013, the Department submitted a copy of the notice of proposed rulemaking, published at 43 Pa.B. 1269, to IRRC and the Chairpersons of the Senate Banking and Insurance Committee and the House Insurance Committee for review and comment.
Under section 5(c) of the Regulatory Review Act, IRRC and the House and Senate Committees were provided with copies of the comments received during the public comment period, as well as other documents when requested. In preparing the final-form rulemaking, the Department has considered all comments from IRRC, the House and Senate Committees and the public.
Under section 5.1(j.2) of the Regulatory Review Act (71 P. S. § 745.5a(j.2)), on September 18, 2013, the final-form rulemaking was deemed approved by the House and Senate Committees. Under section 5.1(e) of the Regulatory Review Act, IRRC met on September 19, 2013, and approved the final-form rulemaking.
Findings
The Commissioner finds that:
(1) Public notice of intention to adopt this final-form rulemaking was given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) The adoption of this final-form rulemaking in the manner provided in this order is necessary and appropriate for the administration and enforcement of the authorizing statutes.
Order
The Commissioner, acting under the authorizing statutes, orders that:
(a) The regulations of the Department, 31 Pa. Code Chapter 124, are amended by adding § 124.11, deleting §§ 124.8 and 124.9 and amending §§ 124.3—124.7 and 124.10 to read as set forth in Annex A.
(b) The Department shall submit this order and Annex A to the Office of General Counsel and Office of Attorney General for approval as to form and legality as required by law.
(c) The Department shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) The final-form rulemaking takes effect 30 days following publication in the Pennsylvania Bulletin.
MICHAEL F. CONSEDINE,
Insurance Commissioner(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 43 Pa.B. 5903 (October 5, 2013).)
Fiscal Note: Fiscal Note 11-251 remains valid for the final adoption of the subject regulations.
Annex A
TITLE 31. INSURANCE
PART VIII. MISCELLANEOUS PROVISIONS
CHAPTER 124. SURPLUS LINES INSURANCE § 124.3. Conditions of binding authority.
(a) A surplus lines licensee may not exercise binding authority in this Commonwealth on behalf of an eligible surplus lines insurer unless there is in force a written contract executed by all parties to the contract setting forth the terms, conditions and limitations governing the exercise of binding authority by the surplus lines licensee. The written contract must, at a minimum, contain the following:
(1) A description of the classes of insurance for which the surplus lines licensee holds binding authority.
(2) The geographical limits of the binding authority.
(3) The maximum dollar limitations on the binding authority for any one risk for each class of insurance.
(4) The maximum policy period for which the surplus lines licensee may bind a risk.
(5) A prohibition against delegation of binding authority by the surplus lines licensee or, if the binding authority is delegable by the surplus lines licensee, a prohibition against delegation of binding authority by the surplus lines licensee without the prior written approval of the eligible surplus lines insurer.
(6) A provision in the following or substantially similar language:
It is understood and agreed that all insurance placed pursuant to this agreement on risks resident, located, or to be performed in this Commonwealth, shall be effected and written in accordance with Article XVI of the act of May 17, 1921 (P. L. 682, No. 284) (40 P. S. §§ 991.1601—991.1625).(b) An executed copy of the written contract shall be maintained by the surplus lines licensee in its office. The copy shall be available at all reasonable times for examination by the Department without notice for at least 5 years following termination of the contract.
(c) If a surplus lines licensee, who is qualified under this chapter to exercise binding authority on behalf of the eligible surplus lines insurer, delegates binding authority to any other surplus lines licensee, the instrument delegating binding authority shall specifically identify the binding authority agreement between the delegating surplus lines licensee and the eligible surplus lines insurer. An executed copy of the instrument delegating binding authority shall be maintained by both the surplus lines licensee delegating binding authority and the surplus lines licensee to whom the authority is delegated in their offices. The copy shall be available at all reasonable times for examination by the Department without notice for at least 5 years following termination of the contract.
§ 124.4. Evidence of insurance.
(a) Section 1612 of the act (40 P. S. § 991.1612) requires the surplus lines licensee, upon placing surplus lines insurance, to deliver the contract of insurance to the insured or to the writing producer. A cover note, binder or other evidence of insurance shall be delivered by the surplus lines licensee if the contract of insurance is not immediately available.
(b) Delivery of the contract or other evidence of insurance by the surplus lines licensee shall occur within 15 calendar days after:
(1) Coverage has been bound by the surplus lines licensee, if the surplus lines licensee holds binding authority on behalf of the eligible surplus lines insurer.
(2) The surplus lines licensee has received written notification from the eligible surplus lines insurer or other nonadmitted insurer that it has assumed the risk, if the surplus lines licensee does not hold binding authority on behalf of the eligible surplus lines insurer.
(c) Under section 1624 of the act (40 P. S. § 991.1624), a contract or other evidence of insurance delivered by the surplus lines licensee shall contain a service of process clause substantially similar to the following:
SERVICE OF PROCESS CLAUSE It is agreed that in the event of the failure of the Insurer(s) or Underwriter(s) herein to pay any amount claimed to be due hereunder, the Insurer(s) or Underwriter(s) herein, at the request of the Insured (or reinsured), will submit to the jurisdiction of any court of competent jurisdiction within the United States of America and will comply with all requirements necessary to give such court jurisdiction, and all matters arising hereunder shall be determined in accordance with the law and practice of such court. It is further agreed that in any such action instituted against any one of them upon this contract, Insurer(s) or Underwriter(s) will abide by the final decision of such court or of any appellate court in the event of an appeal.Service of process shall be made pursuant to the procedures provided by 42 Pa.C.S. Ch. 53 Subch. B (relating to interstate and international procedure). When making service of process by mail, such process shall be mailed to ______ . The above-named is authorized and directed to accept service of process on behalf of the Insured(s) or Underwriter(s) in any such action or upon the request of the insured (or reinsured) to give a written undertaking to the insured (or reinsured) that it or they will enter a general appearance for the Insurer(s) or Underwriter(s) in the event such an action shall be instituted.Further, pursuant to any statute of any state, territory or district of the United States of America, which makes provisions therefor, the Insured(s) or Underwriter(s) hereby designates the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute or his successor or successors in office, as the true and lawful attorney upon whom any lawful process may be served in any action, suit or proceeding instituted by or on behalf of the insured (or reinsured) or any beneficiary hereunder arising out of his contract of insurance (or reinsurance), and hereby designates the above-named as the person on whom such process or a true copy thereof shall be served.§ 124.5. Diligent search of admitted insurers.
Under section 1604(2)(i) of the act (40 P. S. § 991.1604(2)(i)), surplus lines insurance may be procured through a surplus lines licensee from nonadmitted insurers if a diligent search is made among the admitted insurers who are writing, in this Commonwealth, coverage comparable to the coverage being sought. The following minimum requirements and conditions apply to the conduct of a diligent search among admitted insurers under section 1604(2)(i) of the act.
(1) Under section 1609(a)(1)(i) of the act (40 P. S. § 991.1609(a)(1)(i)), the writing producer shall execute and forward to the surplus lines licensee a written statement, in a form prescribed by the Department, declaring that a diligent effort to procure the desired coverage from admitted insurers was made. A diligent effort will be deemed to have been made if the writing producer has documented a declination of coverage from at least three admitted insurers which are writing, in this Commonwealth, coverage comparable to the coverage being sought. A declination may be documented by any of the following:
(i) A written declination from the admitted insurer.
(ii) A written record of an oral declination made by the person who initially received the declination or by another person working for the business from information transmitted by the person who received the declination. The written record must include:
(A) The name, office location and phone number of the admitted insurer or firm acting in the capacity of underwriting manager for the admitted insurer.
(B) The name and position of the person contacted.
(C) The date of contact.
(D) An explanation of the declination.
(iii) A written record that the writing producer contacted an admitted insurer who failed to respond within 5 business days, which includes the manner in which the contact was made and the information required under subparagraph (ii)(A)—(C).
(iv) A written record that the risk does not meet the underwriting guidelines of the admitted insurer. The written record must include:
(A) The name of the admitted insurer.
(B) Reference to the underwriting guidelines upon which the declination is based.
(2) A declination shall be obtained from the admitted insurer or recorded by the writing producer at or near the time of receipt of the declination and maintained for at least 5 years following termination of the contract.
(3) A declination of coverage by an admitted insurer shall be made by a person who is a full-time employee of the admitted insurer and who has underwriting responsibility for that admitted insurer or by a full-time employee of a firm acting in the capacity of underwriting manager for the admitted insurer.
(4) For purposes of this paragraph, the term ''affiliate'' is used as defined in section 1401 of The Insurance Company Law of 1921 (40 P. S. § 991.1401).
(i) A declination may not be obtained from an admitted insurer which is an affiliate of an admitted insurer from which a declination has already been obtained.
(ii) Surplus lines insurance may not be placed with a nonadmitted insurer that is an affiliate of an admitted insurer from which a declination has been obtained.
(iii) The restrictions in subparagraphs (i) and (ii) do not apply if the affiliated insurers write independently of each other using separate and independently developed underwriting criteria and marketing plans, and for underwriting purposes, compete with each other for the same type of coverage or class of insurance.
(5) Under section 1609(a)(2) of the act, the surplus lines licensee shall file with the Department a written declaration of the licensee's lack of knowledge of how the coverage could have been procured from admitted insurers and shall simultaneously file the written declaration of the writing producer required under section 1609(a)(1) of the act. Under section 1609(a)(3) of the act, if the surplus lines licensee acts as both the writing producer and surplus lines licensee in a particular transaction, the surplus lines licensee is required to execute the declarations required under section 1609(a)(1) and (2) of the act.
§ 124.6. Export list coverages.
(a) Under section 1604(2)(ii) of the act (40 P. S. § 991.1604(2)(ii)), the Commissioner may create and maintain an export list of insurance coverages for which the full amount or kind of insurance cannot be obtained from admitted insurers.
(b) The diligent search requirement of section 1604(2)(i) of the act and the reporting requirements of section 1609(a) of the act (40 P. S. § 991.1609(a)) do not apply to the placement of an insurance coverage which appears on the export list.
(c) Within 45 calendar days after the placement of an insurance coverage which appears on the most recent export list published by the Commissioner, the surplus lines licensee shall file with the Department or its designee a written declaration reporting the transaction on a form prescribed by the Department.
§ 124.7. Unique forms of coverages.
Under section 1604(2)(iii) of the act (40 P. S. § 991.1604(2)(iii)), surplus lines insurance may be procured through a surplus lines licensee from nonadmitted insurers if the kind of insurance sought to be obtained from admitted insurers requires a unique form of coverage not available in the admitted market. Within 45 calendar days after a unique form of coverage has been placed, the surplus lines licensee shall file with the Department or its designee, a written declaration reporting the transaction on a form prescribed by the Department.
§ 124.8. (Reserved).
§ 124.9. (Reserved).
§ 124.10. Eligible surplus lines insurer filing requirements.
(a) A request to consider a foreign insurer for placement on the Department's eligible surplus lines insurer list under section 1605(b) of the act (40 P. S. § 991.1605(b)) shall be made in writing by or on behalf of an insurer and include the following:
(1) Certificate of authority. A copy of the certificate of authority of the insurer or similar document setting forth its authority to issue policies and insure risks in the jurisdiction in which the insurer is incorporated, formed or organized.
(2) Financial statement. A copy of the jurat page from the latest annual financial report or statement of the insurer signed by the officers of the insurer and filed with the insurance regulatory authority or other governmental authority in the jurisdiction in which the insurer is incorporated, formed or organized. If the Department is unable to determine from the jurat page of the latest annual financial report or statement whether the insurer meets the requirements of section 1605(a) of the act, the insurer shall, upon request, forward to the Department:
(i) A copy of the entire annual financial report or statement. The copy must include all supplemental reports, exhibits and schedules required as part of the annual statement filing.
(ii) A copy of each subsequent quarterly financial report or statement of the insurer signed by the officers of the insurer and filed with the insurance regulatory authority or other governmental authority in the jurisdiction in which the insurer is incorporated, formed or organized.
(3) Kind of insurance. A written statement by an officer of the insurer identifying the kinds of insurance coverages the insurer intends to write and the types of risks the insurer intends to insure in this Commonwealth.
(b) After placement on the eligible surplus lines insurer list, a foreign insurer shall submit to the Department the information required under subsection (a)(2) within 30 days after the date required for filing in its domiciliary jurisdiction. If the Department cannot determine from the information provided whether the insurer continues to meet the requirements of section 1605(a) of the act, the insurer shall submit the information required under subsection (a) upon request.
(c) A request to consider an alien insurer for placement on the Department's eligible surplus lines insurer list under section 1605(b) of the act shall be made in writing by or on behalf of an insurer and include documentation evidencing that the insurer is listed on the Quarterly Listing of Alien Insurers maintained by the International Insurers Department of the National Association of Insurance Commissioners.
(d) After placement on the eligible surplus lines insurer list, a nonadmitted insurer shall notify the Department within 10 business days if the nonadmitted insurer no longer satisfies the requirements of section 1605 of the act.
§ 124.11. Exempt commercial purchaser.
For the Department to determine whether a surplus lines licensee has placed business for an exempt commercial purchaser under section 1610(a.1) of the act (40 P. S. § 991.1610(a.1)), the surplus lines licensee shall file, with the Department or its designee, a written declaration reporting the transaction on a form prescribed by the Department.
[Pa.B. Doc. No. 13-1982. Filed for public inspection October 25, 2013, 9:00 a.m.]
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