text:
(a) (1) The commissioner is authorized to act as the groupwide supervisor for any internationally active insurance group in accordance with this section. However, the commissioner may otherwise acknowledge another regulatory official as the groupwide supervisor when the internationally active insurance group meets any of the following conditions:

(A) Does not have substantial insurance operations in the United States.

(B) Has substantial insurance operations in the United States, but not in this state.

(C) Has substantial insurance operations in the United States and this state, but the commissioner has determined pursuant to the factors set forth in subdivisions (b) and (f) that the other regulatory official is the appropriate groupwide supervisor.

(2) An insurance holding company system that does not otherwise qualify as an internationally active insurance group may request that the commissioner make a determination or acknowledgment as to a groupwide supervisor pursuant to this section.

(b) In cooperation with other state, federal, and international regulatory agencies, the commissioner shall identify a single groupwide supervisor for an internationally active insurance group. The commissioner may determine that he or she is the appropriate groupwide supervisor for an internationally active insurance group that conducts substantial insurance operations concentrated in the state. However, the commissioner may acknowledge that a regulatory official from another jurisdiction is the appropriate groupwide supervisor for the internationally active insurance group. The commissioner shall consider all of the following factors when making a determination or acknowledgment pursuant to this subdivision:

(1) The place of domicile of the insurers within the internationally active insurance group that hold the largest share of the group’s written premiums, assets, or liabilities.

(2) The place of domicile of the top-tiered insurer or insurers in the insurance holding company system of the internationally active insurance group.

(3) The location of the executive offices or largest operational offices of the internationally active insurance group.

(4) Whether another regulatory official is acting, or is seeking to act, as the groupwide supervisor under a regulatory system that the commissioner determines to be either of the following:

(A) Substantially similar to the system of regulation provided under the laws of this state.

(B) Otherwise sufficient in terms of providing for groupwide supervision, enterprise risk analysis, and cooperation with other regulatory officials.

(5) Whether another regulatory official acting, or seeking to act, as the groupwide supervisor provides the commissioner with reasonably reciprocal recognition and cooperation.

However, a commissioner identified pursuant to this section as the groupwide supervisor may determine that it is appropriate to acknowledge another supervisor to serve as the groupwide supervisor. The acknowledgment of the groupwide supervisor shall be made after consideration of the factors listed in paragraphs (1) to (5), inclusive, and shall be made in cooperation with and subject to the acknowledgment of other regulatory officials involved with supervision of members of the internationally active insurance group, and in consultation with the internationally active insurance group.

(c) Notwithstanding any other law, when another regulatory official is acting as the groupwide supervisor of an internationally active insurance group, the commissioner shall acknowledge that regulatory official as the groupwide supervisor. However, if there is a material change in the internationally active insurance group that results in either (1) the internationally active insurance group’s insurers domiciled in this state holding the largest share of the group’s premiums, assets, or liabilities, or (2) this state being the place of domicile of the top-tiered insurer or insurers in the insurance holding company system of the internationally active insurance group, the commissioner shall make a determination or acknowledgment as to the appropriate groupwide supervisor for that internationally active insurance group pursuant to subdivision (b).

(d) Pursuant to Section 1215.6, the commissioner is authorized to collect from any insurer registered pursuant to Section 1215.4 all information necessary to determine whether the commissioner may act as the groupwide supervisor of an internationally active insurance group or if the commissioner may acknowledge another regulatory official to act as the groupwide supervisor. Prior to issuing a determination that an internationally active insurance group is subject to groupwide supervision by the commissioner, the commissioner shall notify the insurer registered pursuant to Section 1215.4 and the ultimate controlling person within the internationally active insurance group. The internationally active insurance group shall have not less than 30 days to provide the commissioner with additional information pertinent to the pending determination. The commissioner shall publish on the department’s Internet Web site the identity of internationally active insurance groups that the commissioner has determined are subject to groupwide supervision by the commissioner.

(e) If the commissioner is the groupwide supervisor for an internationally active insurance group, the commissioner is authorized to engage in any of the following groupwide supervision activities:

(1) Assess the enterprise risks within the internationally active insurance group to ensure both of the following:

(A) The material financial condition and liquidity risks to the members of the internationally active insurance group that are engaged in the business of insurance are identified by management.

(B) Reasonable and effective mitigation measures are in place.

(2) Request, from any member of an internationally active insurance group subject to the commissioner’s supervision, information necessary and appropriate to assess enterprise risk, including, but not limited to, information about the members of the internationally active insurance group regarding any of the following:

(A) Governance, risk assessment, and management.

(B) Capital adequacy.

(C) Material intercompany transactions.

(3) Coordinate and, through the authority of the regulatory officials of the jurisdictions where members of the internationally active insurance group are domiciled, compel development and implementation of reasonable measures designed to ensure that the internationally active insurance group is able to timely recognize and mitigate enterprise risks to members of that internationally active insurance group that are engaged in the business of insurance.

(4) Communicate with other state, federal, and international regulatory agencies for members within the internationally active insurance group and share relevant information subject to the confidentiality provisions of Section 1215.8, through supervisory colleges as set forth in Section 1215.7 or otherwise.

(5) Enter into agreements with, or obtain documentation from, any insurer registered pursuant to Section 1215.4, any member of the internationally active insurance group, and any other state, federal, and international regulatory agencies for members of the internationally active insurance group, providing the basis for or otherwise clarifying the commissioner’s role as groupwide supervisor, including provisions for resolving disputes with other regulatory officials. These agreements or documentation shall not serve as evidence in any proceeding that any insurer or person within an insurance holding company system not domiciled or incorporated in this state is doing business in this state or is otherwise subject to jurisdiction in this state.

(6) Other groupwide supervision activities, consistent with the authorities and purposes enumerated above, as considered necessary by the commissioner.

(f) If the commissioner acknowledges that another regulatory official from a jurisdiction that is not accredited by the NAIC is the groupwide supervisor, the commissioner is authorized to reasonably cooperate, through supervisory colleges or otherwise, with groupwide supervision undertaken by the groupwide supervisor if the following conditions are satisfied:

(1) The commissioner’s cooperation is in compliance with the laws of this state.

(2) The regulatory official acknowledged as the groupwide supervisor also recognizes and cooperates with the commissioner’s activities as a groupwide supervisor for other internationally active insurance groups when applicable. When that recognition and cooperation is not reasonably reciprocal, the commissioner is authorized to refuse recognition and cooperation.

(g) The commissioner is authorized to enter into agreements with, or obtain documentation from, any insurer registered pursuant to Section 1215.4, any affiliate of the insurer, and other state, federal, or international regulatory agencies for members of the internationally active insurance groups, that provide the basis for, or otherwise clarify, a regulatory official’s role as groupwide supervisor.

(h) A registered insurer subject to this section shall be liable for and shall pay the reasonable expenses of the commissioner’s participation in the administration of this section, including the engagement of attorneys, actuaries, and any other professionals and all reasonable travel expenses.

history: (History: Added by Stats. 2015, Ch. 213, Sec. 7. (AB 553) Effective August 17, 2015.)


kind: section

code: INS

citation: INS § 1216

text: This article may be cited as the Business Transacted with Producer Controlled Insurer Act.

history: (History: Added by Stats. 1992, Ch. 614, Sec. 7. Effective January 1, 1993.)

division: 1. GENERAL RULES GOVERNING INSURANCE

part: 2. THE BUSINESS OF INSURANCE

chapter: 2. Incorporated Insurers

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 2. Incorporated Insurers > 4.8. Business Transacted with Producer Controlled Insurer


text:
As used in this article, the following terms have the following meanings:

(a) “Accredited state” means a state in which the insurance department or regulatory agency having jurisdiction over the business of insurance has qualified as meeting the minimum financial regulatory standards promulgated and established from time to time by the National Association of Insurance Commissioners’ (NAIC) Financial Regulation Standards and Accreditation Program.

(b) “Control” or “controlled” has the meaning ascribed in Section 1215.

(c) “Controlled insurer” means an admitted insurer which is controlled, directly or indirectly, by a producer.

(d) “Controlling producer” means a producer who, directly or indirectly, controls an insurer.

(e) “Admitted insurer” or “insurer” means any person, firm, association, or corporation admitted to transact any property or casualty insurance business in this state. The following are not insurers for the purposes of this article:

(1) All residual market pools and joint underwriting authorities or associations.

(2) All captive insurers, other than risk retention groups as defined in the federal Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Sec. 9671), the federal Liability Risk Retention Act of 1986 (15 U.S.C. Sec. 3901 et seq.), and the California Risk Retention Act of 1991 (Chapter 1.5 (commencing with Section 125) of Part 1). For the purposes of this article, captive insurers are either insurance companies which are owned by another organization and whose exclusive purpose is to insure risks of the parent organization and affiliated companies, or in the case of groups and associations, insurance organizations which are owned by the insureds and whose exclusive purpose is to insure risks of member organizations and group or association members and their affiliates.

(f) “Producer” means a fire and casualty licensee or licensees or any other person, firm, association, or corporation, when, for any compensation, commission, or other thing of value, the person, firm, association, or corporation acts or aids in any manner in soliciting, negotiating, or procuring the making of any insurance contract on behalf of an insured other than the person, firm, association, or corporation.

history: (History: Amended by Stats. 2014, Ch. 71, Sec. 99. (SB 1304) Effective January 1, 2015.)

article: 4.8. Business Transacted with Producer Controlled Insurer


text: This article shall apply to insurers as defined in subdivision (e) of Section 1216.1, either domiciled in this state or domiciled in a state that is not an accredited state which has in effect a substantially similar law. All provisions of Article 4.7 (commencing with Section 1215) of Chapter 2 of Part 2 of Division 1, to the extent that this article does not confer greater authority upon the commissioner or impose more restrictive requirements upon any person, shall continue to apply to all parties within insurance holding company systems which are subject both to Article 4.7 and to this article.


text:
(a) (1) The provisions of this section shall apply if, in any calendar year, the aggregate amount of gross written premium of business placed with a controlled insurer by a controlling producer is equal to or greater than 5 percent of the admitted assets of the controlled insurer, as reported in the controlled insurers’ quarterly statement filed as of September 30 of the prior year.

(2) Notwithstanding paragraph (1) of subdivision (a), the provisions of this section shall not apply if:

(A) The controlling producer both (i) places insurance only with the controlled insurer, or only with the controlled insurer and a member or members of the controlled insurer’s holding company system, or the controlled insurer’s parent, affiliate, or subsidiary and receives no compensation based upon the amount of premiums written in connection with that insurance; and (ii) accepts insurance placements only from nonaffiliated subproducers, and not directly from insureds.

(B) The controlled insurer, except for insurance business written through a residual market facility such as the California Automobile Assigned Risk Plan, accepts insurance business only from a controlling producer, a producer controlled by the controlled insurer, or a producer that is a subsidiary of the controlled insurer.

(b) A controlled insurer shall not accept business from a controlling producer and a controlling producer shall not place business with a controlled insurer unless there is a written contract between the controlling producer and the insurer specifying the responsibilities of each party, and the contract has been approved by the board of directors of the insurer and contains the following minimum provisions:

(1) The controlled insurer may terminate the contract for cause upon written notice to the controlling producer. The controlled insurer shall suspend the authority of the controlling producer to write business during the pendency of any dispute regarding the cause for the termination.

(2) The controlling producer shall render accounts to the controlled insurer detailing all material transactions, including information necessary to support all commissions, charges, and other fees received by, or owing to, the controlling producer.

(3) The controlling producer shall remit all funds due under the terms of the contract to the controlled insurer on at least a monthly basis. The due date shall be fixed so that premiums or installments of premiums collected shall be remitted no later than 90 days after the effective date of any policy placed with the controlled insurer under this contract.

(4) All funds collected for the controlled insurer’s account shall be held by the controlling producer in a fiduciary capacity, in one or more appropriately identified bank accounts in banks that are members of the Federal Reserve System, in accordance with the provisions of the insurance law as applicable. However, funds of a controlling producer not required to be licensed in this state shall be maintained in compliance with the requirements of the controlling producer’s domiciliary jurisdiction.

(5) The controlling producer shall maintain separately identifiable records of business written for the controlled insurer.

(6) The contract shall not be assigned in whole or in part by the controlling producer.

(7) The controlled insurer shall provide the controlling producer with its underwriting standards, rules and procedures, manuals setting forth the rates to be charged, and the conditions for the acceptance or rejection of risks. The controlling producer shall adhere to the standards, rules, procedures, rates, and conditions. The standards, rules, procedures, rates, and conditions shall be the same as those applicable to comparable business placed with the controlled insurer by a producer other than the controlling producer.

(8) The rates and terms of the controlling producer’s commissions, charges or other fees, and the purposes for those charges or fees. The rates of the commissions, charges, and other fees shall be no greater than those applicable to comparable business placed with the controlled insurer by producers other than controlling producers. For purposes of this paragraph and paragraph (7), examples of “comparable business” includes the same lines of insurance, same kinds of insurance, same kinds of risks, similar policy limits, and similar quality of business.

(9) If the contract provides that the controlling producer, on insurance business placed with the insurer, is to be compensated contingent upon the insurer’s profits on that business, then this compensation shall not be determined and paid until at least five years after the premiums on liability insurance are earned and at least one year after the premiums are earned on any other insurance. In no event shall the commissions be paid until the adequacy of the controlled insurer’s reserves on remaining claims has been independently verified pursuant to paragraph (1) of subdivision (d).

(10) A limit on the controlling producer’s writings in relation to the controlled insurer’s surplus and total writings. The insurer may establish a different limit for each line or subline of business. The controlled insurer shall notify the controlling producer when the applicable limit is approached and shall not accept business from the controlling producer if the limit is reached. The controlling producer shall not place business with the controlled insurer if it has been notified by the controlled insurer that the limit has been reached.

(11) The controlling producer may negotiate but shall not bind reinsurance on behalf of the controlled insurer on business the controlling producer places with the controlled insurer, except that the controlling producer may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the controlled insurer contains underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which those automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules.

(c) Every controlled insurer shall have an audit committee of the board of directors composed of independent directors. The audit committee shall annually meet with management, the insurer’s independent certified public accountants, and an independent casualty actuary, or other independent loss reserve specialist acceptable to the commissioner, to review the adequacy of the insurer’s loss reserves.

(d) (1) In addition to any other required loss reserve certification, the controlled insurer shall annually, on April 1 of each year, file with the commissioner an opinion of an independent casualty actuary, or other independent loss reserve specialist, acceptable to the commissioner, reporting loss ratios for each line of business written and attesting to the adequacy of loss reserves established for losses incurred and outstanding as of yearend, including incurred but not reported losses, on business placed by the producer.

(2) The controlled insurer shall annually report to the commissioner the amount of commissions paid to the producer, the percentage the amount represents of the net premiums written and comparable amounts and percentages paid to noncontrolling producers for placements of the same kinds of insurance.


text: The controlling producer shall, prior to the effective date of the policy, deliver written notice to the prospective insured disclosing the relationship between the producer and the controlled insurer; except that, if the business is placed through a subproducer who is not a controlling producer, the controlling producer shall retain in its records a signed commitment from the subproducer that the subproducer is aware of the relationship between the insurer and the producer and that the subproducer has or will notify the insured of the relationship between the controlling producer and the controlled insurer.


text:
(a) (1) If the commissioner believes that the controlling producer or any other person has not materially complied with this article, or any regulation or order issued or promulgated pursuant to this article, and after notice and an opportunity to be heard, the commissioner may order the controlling producer to cease placing business with the controlled insurer.

(2) If the commissioner finds that because of any material noncompliance that the controlled insurer or any policyholder thereof has suffered any loss or damage, the commissioner may bring a civil action or intervene in an action brought by or on behalf of the insurer or policyholder for recovery of compensatory damages for the benefit of the insurer or policyholder or other appropriate relief.

(3) Nothing in paragraph (1) shall be construed to limit any authority granted to the commissioner by any other provision of law to issue orders or take actions prior to the holding of a hearing.

(b) If an order for liquidation or rehabilitation of the controlled insurer has been entered pursuant to Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1, and the receiver appointed under that order believes that the controlling producer or any other person has not materially complied with this article, or any regulation or order issued or promulgated pursuant to this article, and the insurer suffered any loss or damage therefrom, the receiver may maintain a civil action for recovery of damages or other appropriate sanctions for the benefit of the insurer.

(c) Nothing contained in this section shall affect the right of the commissioner to impose any other penalties authorized by any other provision of law.

(d) Nothing contained in this section is intended to or shall in any manner limit or diminish the rights of policyholders, claimants, creditors, or other third parties.


text: Controlled insurers and controlling producers who are not in compliance with Section 1216.3 of this act on its effective date shall have 60 days to do so and shall comply with Section 1216.4 beginning with all policies written or renewed on or after March 1, 1993.


citation: INS § 1220

text: Domestic incorporated life insurers may also invest any funds in loans upon any of their own policies in an amount not exceeding the reserve against such policy at the time the loan is made, but policy loans shall not be deposited with the commissioner under Article 2, Chapter 5, Part 2, Division 2.

history: (History: Enacted by Stats. 1935, Ch. 145.)

article: 5. Life Insurance Policies

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 2. Incorporated Insurers > 5. Life Insurance Policies


citation: INS § 1221

text: The amount thus loaned by an insurer upon its own policies shall be credited to the insurer in determining the amount of deposit required to comply with the provisions of Article 2, Chapter 5, Part 2, Division 2. Such loans shall be deducted from the net value of the registered policies.

article: 5. Life Insurance Policies


citation: INS § 1230

text:
The Legislature declares that the purpose of this article is to establish guidelines for life insurers to use in life insurance policies which contain a provision for periodic adjustment of policy loan interest rates and are issued after the effective date of this article.

It is the intent of the Legislature that the life insurance industry make available to the people of the State of California who purchase new life insurance policies after the effective date of this act the benefits of higher dividends or lower premiums, or both, resulting from the increased earnings through the use of higher policy loan interest rates.

history: (History: Added by Stats. 1982, Ch. 1351, Sec. 3.)

article: 5.5. Life Insurance Policy Loans

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 2. Incorporated Insurers > 5.5. Life Insurance Policy Loans


citation: INS § 1231

text:
For the purposes of this article the “published monthly average” means:

(a) Moody’s Corporate Bond Yield Average-Monthly Average Corporates as published by Moody’s Investors Service, Inc. or any successor thereto.

(b) In the event that Moody’s Corporate Bond Yield Average-Monthly Average Corporates is no longer published, a substantially similar average, established by the Legislature.

article: 5.5. Life Insurance Policy Loans


citation: INS § 1232

text:
(a) Policies issued on or after the effective date of this article shall provide for policy loan interest rates at either of the following rates:

(1) A provision permitting a maximum interest rate of not more than 8 percent per annum.

(2) A provision permitting an adjustable maximum interest rate established from time to time by the life insurer as permitted by law.

(b) The rate of interest charged on a policy loan made under paragraph (2) of subdivision (a) shall not exceed the higher of the following:

(1) The published monthly average for the calendar month ending two months before the date on which the rate is determined.

(2) The rate used to compute the cash surrender values under the policy during the applicable period plus 1 percent per annum.

(c) Any insurer offering insurance policies with an adjustable policy loan interest rate shall establish a written pricing or dividend policy in order that the holders of the policies shall receive a benefit from any earnings of the insurer resulting from the use of the adjustable rate, either by means of higher dividends or lower premiums or a combination of both.

article: 5.5. Life Insurance Policy Loans


citation: INS § 1233

text: If the maximum rate of interest is determined pursuant to paragraph (2) of subdivision (a) of Section 1232, the policy shall contain a provision setting forth the frequency at which the rate is to be determined for that policy.

article: 5.5. Life Insurance Policy Loans


citation: INS § 1234

text:
The maximum rate for each policy shall be determined at regular intervals at least once every 12 months, but not more frequently than once in any three-month period.

At the intervals specified in the policy:

(1) The rate being charged may be increased whenever the increase as determined under subdivision (b) of Section 1232 would increase that rate by one-half of 1 percent or more per annum.

(2) The rate being charged shall be reduced whenever the reduction as determined under subdivision (b) of Section 1232 would decrease that rate by one-half of 1 percent or more per annum.

article: 5.5. Life Insurance Policy Loans


citation: INS § 1235

text:
The life insurer shall do all of the following:

(1) Notify the policyholder at the time a cash loan is made of the initial rate of interest on the loan.

(2) Notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan. Notice need not be given to the policyholder when a further premium loan is added, except as provided in paragraph (3).

(3) Send to policyholders with loans reasonable advance notice of any increase in the rate.

(4) Include in the required notices the substance of the pertinent provisions of subdivision (a) of Section 1232 and Section 1233.

article: 5.5. Life Insurance Policy Loans


citation: INS § 1236

text: The loan value of the policy shall be equivalent to the cash surrender value of the policy, the minimum requirements of which are specified in Sections 10160 through 10165 for life insurance and in Section 11043, for fraternal benefit society policies or certificates, but no policy shall terminate in a policy year as the sole result of change in the interest rate during that policy year. The life insurer shall maintain coverage during that policy year until the time at which it would otherwise have terminated if there had been no change during that policy year.

article: 5.5. Life Insurance Policy Loans


citation: INS § 1237

text: The substance of the pertinent provisions of Section 1232 and 1233 shall be set forth in the policies to which the provisions apply.

article: 5.5. Life Insurance Policy Loans


citation: INS § 1238

text:
For the purposes of this section:

(1) The rate of interest on policy loans permitted under this section includes the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy.

(2) “Policy loan” includes any premium loan made under a policy to pay one or more premiums that were not paid to the life insurer as they fell due.

(3) “Policyholder” includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer.

(4) “Policy” includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans.

article: 5.5. Life Insurance Policy Loans


citation: INS § 1239

text: No other provision of law shall apply to policy loan interest rates unless made specifically applicable to these rates.

article: 5.5. Life Insurance Policy Loans


text: The provisions of this article shall not apply to any insurance contract issued before the effective date of this article unless the policyholder agrees in writing to the applicability of these provisions.

article: 5.5. Life Insurance Policy Loans


citation: INS § 1240

text:
The following definitions shall apply in this article:

(a) “Foreign currency” means a currency other than that of the United States.

(b) “Foreign investment” means an investment in a foreign jurisdiction, or an investment in a person, real estate, or asset domiciled in a foreign jurisdiction, that is substantially of the same kind, class, and investment grade as those eligible for investment under this code, other than under Section 1210 or 1241. An investment shall not be a foreign investment if the issuing person, qualified primary credit source, or qualified guarantor is a domestic jurisdiction or a person domiciled in a domestic jurisdiction, unless both of the following apply:

(1) The issuing person is a shell business entity.

(2) The investment is not assumed, accepted, guaranteed, or insured or otherwise backed by a domestic jurisdiction or a person, that is not a shell business entity, domiciled in a domestic jurisdiction.

(c) For purposes of subdivision (b), the following definitions apply:

(1) “Shell business entity” means a business entity having no economic substance, except as a vehicle for owning interests in assets issued, owned, or previously owned by a person domiciled in a foreign jurisdiction.

(2) “Qualified guarantor” means a guarantor against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction.

(3) “Qualified primary credit source” means the credit source to which an insurer looks for payment as to an investment and against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction.

(d) “Foreign jurisdiction” means a jurisdiction other than the United States or any of its political subdivisions.

history: (History: Repealed and added by Stats. 2008, Ch. 129, Sec. 3. Effective January 1, 2009.)

article: 6. Foreign Investments

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 2. Incorporated Insurers > 6. Foreign Investments


citation: INS § 1241

text:
(a) Subject to the limitation in Section 1242, and except for those foreign investments permitted under Section 1192.95, a domestic insurer may acquire foreign investments of substantially the same type as those that an insurer is permitted to acquire pursuant to this code, if, as a result of the acquisition and after giving effect to the investment, both of the following apply:

(1) The aggregate amount of foreign investments then held by the insurer does not exceed:

(A) Twenty percent of admitted assets, for an insurer with admitted assets equal to or in excess of five hundred million dollars ($500,000,000).

(B) Five percent of admitted assets, for an insurer with admitted assets less than five hundred million dollars ($500,000,000).

(2) The aggregate amount of foreign investments then held by the insurer in a single foreign jurisdiction does not exceed:

(A) Ten percent of admitted assets, for any foreign jurisdiction that has a sovereign debt rating of SVO 1.

(B) Three percent of admitted assets, for any foreign jurisdiction that has a sovereign debt rating lower than SVO 1.

(b) Subject to the limitations of Section 1242, an insurer may acquire investments denominated in foreign currencies, whether or not they are foreign investments acquired under subdivision (a) of this section, or additional foreign currency exposure as a result of the termination or expiration of a hedging transaction as defined in Section 1211 with respect to investments denominated in a foreign currency, if the following requirements are met:

(1) The aggregate amount of investments then held by an insurer under this subdivision denominated in foreign currencies does not exceed:

(A) Ten percent of admitted assets, for an insurer described in subparagraph (A) of paragraph (1) of subdivision (a).

(B) Three percent of admitted assets, for an insurer described in subparagraph (B) of paragraph (1) of subdivision (a).

(2) The aggregate amount of investments then held by an insurer under this subdivision denominated in the foreign currency of a single foreign jurisdiction does not exceed:

(A) Ten percent of admitted assets, for an insurer described in subparagraph (A) of paragraph (1) of subdivision (a) for a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 3 percent of admitted assets as to any other foreign jurisdiction.

(B) Three percent of admitted assets, for an insurer described in subparagraph (B) of paragraph (1) of subdivision (a).

(3) An investment shall not be considered denominated in a foreign currency if the acquiring insurer enters into one or more contracts in transactions permitted under Section 1211 and the business entity counterparty agrees under the contract or contracts to exchange all payments made on the foreign currency denominated investment for United States currency at a rate that effectively insulates the investment cashflows against future changes in currency exchange rates during the period the contract or contracts are in effect.

(c) In addition to investments permitted under subdivisions (a) and (b), a domestic insurer that is authorized to do business in a foreign jurisdiction, and that has outstanding insurance, annuity, or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in the foreign currency of that jurisdiction may acquire foreign investments respecting that jurisdiction, subject to the limitations of Section 1242. However, investments made under this subdivision in obligations of foreign governments, their political subdivisions, and government-sponsored enterprises shall not be subject to the limitations of Section 1242 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer shall not exceed the greater of the following:

(1) The amount that the insurer is required by the law of the foreign jurisdiction to invest in the foreign jurisdiction.

(2) One hundred fifteen percent of the amount of the insurer’s reserves, net of reinsurance and other obligations under the contracts.

(d) In addition to investments permitted under subdivisions (a) and (b), an insurer that is not authorized to do business in a foreign jurisdiction, but that has outstanding insurance, annuity, or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in the foreign currency of that jurisdiction may acquire foreign investments respecting that jurisdiction, and may acquire investments denominated in the currency of that jurisdiction subject to the limitations of Section 1242. However, investments made under this subdivision in obligations of foreign governments, their political subdivisions, and government-sponsored enterprises shall not be subject to the limitations of Section 1242 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer shall not exceed 105 percent of the amount of the insurer’s reserves, net of reinsurance and other obligations under the contracts on lives or risks resident or located in the foreign jurisdiction.

(e) The investments acquired under this section shall be subject to Sections 1200, 1201, and 1202.

(f) Nothing in this section shall in any way restrict or limit Canadian investments otherwise permitted by this code. Canadian investments acquired under other sections of this code shall not be considered foreign investments for purposes of the limitations set forth in this section.

(g) Investments made pursuant to Section 1192.9 in investment companies shall be governed by this article to the extent specified in Section 1192.9.

history: (History: Repealed and added by Stats. 2008, Ch. 129, Sec. 5. Effective January 1, 2009.)

article: 6. Foreign Investments


text:
(a) No domestic insurer shall acquire any investment respecting a foreign jurisdiction, or any investment denominated in the currency of that foreign jurisdiction, if that jurisdiction is designated as a state sponsor of terrorism by the United States Secretary of State pursuant to Section 6(j) of the Export Administration Act, Section 40 of the Arms Export Control Act, and Section 620A of the Foreign Assistance Act.

(b) If any investment made pursuant to Section 1241 later becomes prohibited by this section, that investment shall not be retained as an investment made pursuant to this code.

history: (History: Repealed and added by Stats. 2008, Ch. 129, Sec. 7. Effective January 1, 2009.)

article: 6. Foreign Investments


text:
(a) The Legislature finds and declares all of the following:

(1) The federal Securities and Exchange Commission has determined that business activities in foreign states sponsoring terrorism, such as Iran, that are subject to sanctions by the United States may materially harm the share value of foreign companies. Shares in these foreign companies may be held in the portfolio of insurance companies issuing policies to California consumers.

(2) Publicly traded companies in the United States are substantially restricted in doing business in or with foreign states, such as Iran, that the United States Department of State has identified as sponsoring terrorism.

(3) Identifying companies with business activities in foreign states, such as Iran, that sponsor terrorism and ensuring that those investments are financially sound is an important public policy priority.

(4) It is the government of Iran, and not the people of Iran, that is responsible for Iran’s support of terrorism and that commits egregious violations of human rights under which its own citizens are required to live.

(b) As used in this section, the following definitions shall apply:

(1) “Business operations” means maintaining, selling, or leasing equipment, facilities, personnel, or any other apparatus of business or commerce in Iran, including the ownership or possession of real or personal property located in Iran.

(2) “Company” means a sole proprietorship, organization, association, corporation, partnership, venture, or other entity, its subsidiary or affiliate that exists for profitmaking purposes or to otherwise secure economic advantage. “Company” also means a company owned or controlled, either directly or indirectly, by the government of Iran, that is established or organized under the laws of or has its principal place of business in the Islamic Republic of Iran.

(3) “Government of Iran” means the government of Iran or its instrumentalities or political subdivisions. “Government of Iran” also means an individual, company, or public agency located in Iran that provides material or financial support to the Islamic Republic of Iran.

(4) “Invest” or “investment” means the purchase, ownership, or control of stock of a company, association, or corporation, the capital stock of a mutual water company or corporation, bonds issued by the government or a political subdivision of Iran, corporate bonds or other debt instruments issued by a company, or the commitment of funds or other assets to a company, including a loan or extension of credit to that company.

(5) “Iran” means the Islamic Republic of Iran or a territory under the administration or control of Iran.

(c) (1) Investments by a domestic insurer included on the list of companies by the Department of General Services pursuant to subdivision (b) of Section 2203 of the Public Contract Code shall be treated as nonadmitted assets. Utilization of this list by a domestic insurer to review its investments shall be deemed automatic compliance by the department.

(2) On or before June 30, 2013, and annually thereafter, the insurer shall determine what investments it has in companies included on the Department of General Services list.

(d) The insurer shall provide the department, on an annual basis, a list of investments the insurer has in companies included on the Department of General Services list described in subdivision (c), including, but not limited to, the issuer, by name, of the stock, bonds, securities, and other evidence of indebtedness.

(e) If the insurer sells or transfers all of its investments in companies included on the Department of General Services list described in subdivision (c), this section shall not apply to that insurer.

(f) This section shall cease to be operative if both of the following apply:

(1) Iran is removed from the United States Department of State’s list of countries that have been determined to repeatedly provide support for acts of international terrorism.

(2) Pursuant to the appropriate federal statute, the President of the United States determines and certifies to the appropriate committee of the Congress of the United States that Iran has ceased its efforts to design, develop, manufacture, or acquire a nuclear explosive device or related materials and technology.

(g) The provisions of this section are severable. If any provision of this section or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

history: (History: Added by Stats. 2012, Ch. 479, Sec. 1. (AB 2160) Effective January 1, 2013. Conditionally inoperative as provided in subd. (f).)

article: 6. Foreign Investments


citation: INS § 1242

text:
(a) (1) Except as otherwise specified in Section 1241, a domestic insurer shall not acquire directly or indirectly through an investment subsidiary, an investment under Section 1241 if, as a result of and after giving effect to the investment, the insurer would hold more than 3 percent of its admitted assets in investments of all kinds issued, assumed, accepted, insured, or guaranteed by a single person, or 5 percent of its admitted assets in investments in the voting securities of a depository institution or any company that controls the institution.

(2) The 3 percent limitation in paragraph (1) shall not apply to the aggregate amounts insured by a single financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization.

(b) A domestic insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Section 1241 if, as a result of and after giving effect to the investment, the insurer’s aggregate medium and lower grade investments do not comply with the limitations of Section 1196.1.

history: (History: Added by Stats. 2008, Ch. 129, Sec. 8. Effective January 1, 2009.)

article: 6. Foreign Investments


citation: INS § 1250

text: When any domestic incorporated insurer has, pursuant to the laws of this State, invested any of its funds in purchases of, or loans upon, the stock or obligations of a corporation or of a nation, state, or political or municipal division of a state, if the commissioner has reason to believe that such stock or obligations are not amply secured or are not yielding an income, he may direct the insurer to report to him under oath the amount of the stock or obligation, the security therefor and its market value.

article: 7. Valuation of Investments

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 2. Incorporated Insurers > 7. Valuation of Investments


citation: INS § 1251

text: A stock, bond or other evidence of debt if in default as to principal or interest, or if not amply secured, shall not be valued as an asset of the insurer above its market value.

article: 7. Valuation of Investments


citation: INS § 1252

text:
All bonds or other evidences of debt held by an admitted incorporated insurer if amply secured and if not in default as to principal or interest may, in the discretion of the commissioner, be valued as follows:

(a) If purchased at par, at the par value.

(b) If purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield the effective rate of interest on the price at which the purchase was made.

(c) In such valuation, the purchase price shall in no case be taken at a higher figure than the actual market value at the time of purchase.

The commissioner shall have full discretion in determining the method of calculating values according to the foregoing rule, the values found by him in accordance with such method being final and binding.

article: 7. Valuation of Investments


citation: INS § 1253

text: Any such insurer may report such bonds or other evidence of debt at market value or book value, but in no event at an aggregate value exceeding the aggregate of the values calculated according to the rule prescribed by section 1252.

article: 7. Valuation of Investments


citation: INS § 1254

text:
Any asset of an insurer which is found by the commissioner to be insolvent or threatened with insolvency shall be reduced in value, if necessary, to reflect its proper value.

Where the asset is subject to an offset or lien which the commissioner has reasonable grounds to believe is about to be exercised or enforced, the commissioner may require that the asset and the liability which gives rise to the offset or lien be reduced proportionately.

The commissioner shall grant a hearing to establish the value of an asset upon written demand of the insurer.

history: (History: Added by Stats. 1967, Ch. 1614.)

article: 7. Valuation of Investments


citation: INS § 1260

text: Incorporated insurers or reciprocal insurers who are members of what is commonly known as a “group” or “fleet” may enter into reinsurance transactions between members of the same “group” or “fleet” unless otherwise specifically prohibited by law.

history: (History: Added by Stats. 1967, Ch. 451.)

article: 8. Reinsurance Transactions

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 2. Incorporated Insurers > 8. Reinsurance Transactions


citation: INS § 1280

text: This chapter shall not in any way affect the rights, duties, or obligations of members of or subscribers at any reciprocal or interinsurance exchange which has been adjudged insolvent and ordered to be liquidated prior to the date this code takes effect. All such rights, duties, or obligations shall be governed by the law applicable thereto prior to such date.

chapter: 3. Reciprocal Insurers

article: 1. General Provisions

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 1. General Provisions


text: This chapter and the other provisions of this code shall not apply to nor affect unincorporated interindemnity or reciprocal or interinsurance contracts between members of, or persons marketing their products through, nonprofit cooperative marketing associations organized and operating under Chapter 4 (commencing with Section 11701) of Division 6 of the Food and Agricultural Code which indemnify solely in respect to losses to those members or persons from damage to, or destruction of, crops in process of handling or marketing, or facilities at a fixed location for processing, handling or marketing the crops, and which do not collect in advance of loss moneys other than for necessary expense of administration.

history: (History: Amended by Stats. 1982, Ch. 454, Sec. 101.)

article: 1. General Provisions


text:
(a) This chapter and the other provisions of this code, except as set forth in this paragraph, shall not apply to or affect unincorporated interindemnity or reciprocal or interinsurance contracts between members of a cooperative corporation, organized and operating under Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code, whose members consist solely of physicians and surgeons licensed in California, which contracts indemnify solely in respect to medical malpractice claims against those members, and which do not collect in advance of loss any moneys other than contributions by each member to a collective reserve trust fund or for necessary expenses of administration. However, interindemnity, reciprocal, or interinsurance contracts with respect to the following types of claims, in addition to medical malpractice claims, may be entered into in conjunction with contracts with respect to medical malpractice claims if the reserve trust fund is at least twenty million dollars ($20,000,000):

(1) Bodily injury or property damage arising out of the conduct and of the operations of the member’s professional practice occurring on the member’s premises.

(2) Officers’, directors’, and administrators’ liability, to the extent that the member’s professional practice is operated as a professional corporation or group.

(3) Nonowned automobile coverage.

The provisions of Chapter 3 (commencing with Section 330) of Part 1 of Division 1 shall apply to unincorporated interindemnity or reciprocal or interinsurance contracts. Those unincorporated interindemnity or reciprocal or interinsurance contracts shall comply with all of the following requirements:

(b) Each participating member shall enter into and, concurrently therewith, receive an executed copy of a trust agreement, which shall govern the collection and disposition of all funds of the interindemnity arrangement.

The trust agreement shall, at a minimum, contain provision for all the following matters:

(1) An initial trust corpus of not less than ten million dollars ($10,000,000), which corpus shall be a trust fund to secure enforcement of the interindemnity arrangement. The average contribution to the initial trust corpus shall be not less than twenty thousand dollars ($20,000) per member participating in the interindemnity arrangement. The average contribution to the trust fund shall continue at all times to be not less than twenty thousand dollars ($20,000) per participating member unless the interindemnity arrangement is qualified to admit members under the terms of subdivision (k). No such interindemnity arrangement shall become operative until the requisite minimum reserve trust fund has been established by contributions from not fewer than 500 participating members.

(2) The reserve trust fund created by the trust agreement shall be administered by a board of trustees of three or more members, all of whom shall be physicians and surgeons licensed in California, participating members in the interindemnity arrangement, and elected biennially or more frequently by at least a majority of all members participating in the interindemnity arrangement.

(3) The members of the board of trustees are fiduciaries and the board shall be the custodian of all funds of the interindemnity arrangement, and all those funds shall be deposited in the bank or banks and savings and loan associations in California as the board may designate. Each account shall require two or more signatories for withdrawal of funds in excess of ten thousand dollars ($10,000). The authorized signatories shall be appointed by the board and, as to any withdrawal in excess of one hundred thousand dollars ($100,000), at least one of the two or more authorized signatories shall be a physician and surgeon licensed in California and a participating member in the interindemnity arrangement. Each signatory on those accounts shall maintain, at all times while empowered to draw on those funds, for the benefit of the interindemnity arrangement, a bond against loss suffered through embezzlement, mysterious disappearance, holdup or burglary, or other loss issued by a bonding company licensed to do business in California in a penal sum of not less than one hundred thousand dollars ($100,000).

(4) All funds held in trust that are in excess of current financial needs shall be invested and reinvested from time to time, under the direction of the board of trustees, in eligible securities, as defined in Section 16430 of the Government Code, in portfolios of eligible securities, in exchange traded financial futures contracts or exchange traded options contracts to hedge investment in those eligible securities, or in certificates of deposits or time deposits issued by banks and savings and loan associations in California duly insured by instrumentalities of the United States government.

Pursuant to the authority contained in Section 1 of Article XV of the California Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligations of, loans made by, or forbearances of, any trust established by a cooperative corporation providing indemnity pursuant to this section.

(5) The income earned on the corpus of the trust fund shall be the source for the payment of the claims, costs, judgments, settlements, and costs of administration contemplated by the interindemnity arrangement, and to the extent the income is insufficient for those purposes, the board of trustees shall have the power and authority to assess participating members for all amounts necessary to meet the obligations of the interindemnity arrangement in accordance with the terms thereof. If necessary in the best interests of the interindemnity arrangement, the board of trustees may make assessments to increase the corpus of the trust fund in accordance with the terms of the interindemnity arrangement. Any assessment levied against a member shall be the personal obligation of the member. Any person who obtains a final judgment of recovery for medical malpractice or other liability authorized by this section against a member of the interindemnity arrangement shall have, in addition to any other remedy, the right to assert directly all rights to indemnification that the judgment debtor has under the interindemnity arrangement. The final judgment shall be a lien on the reserve trust fund to secure payment of the judgment, limited to the extent of the judgment debtor’s rights to indemnification.

Any change in the assessment agreement between the interindemnity arrangement and its membership shall be submitted to the entire membership for ratification. If the ratification process is to be performed by ballot, a ballot shall be sent to each member by first-class mail, postage prepaid, or by electronic transmission. Within 45 days after the posted date on the ballot, each member who decides to vote on the assessment change shall return their mail or electronic ballot to the interindemnity arrangement for the tallying of the ballots. An affirmative vote of 75 percent of those voting shall be required to effectuate any change in the assessment agreement.

If a change in the assessment agreement is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and the proposed assessment change by first-class mail, postage prepaid, or by electronic transmission at least 45 days prior to the meeting. Seventy-five percent of those present in person or by proxy at the meeting shall be required to effectuate any change in the assessment agreement.

(6) Each participating member shall be covered by the interindemnity arrangement for not less than one million dollars ($1,000,000) for each occurrence of professional negligence or other liability authorized by this section, with the terms and conditions of the coverage to be specified in the trust agreement, except that the interindemnity arrangement may provide participating members with an aggregate limit for all payments on behalf of the member and may provide participating members with less than one million dollars ($1,000,000) of coverage for each occurrence of professional negligence or other liability authorized by this section if the interindemnity arrangement obtains for the benefit of the members reinsurance of excess limits coverage in an amount that when added to the coverage provided by the interindemnity arrangement would equal not less than one million dollars ($1,000,000) for each occurrence of professional negligence or other liability authorized by this section.

Any change in the coverage provided by the trust agreement between the interindemnity arrangement and its membership shall be submitted to the entire membership for ratification. If the ratification process is to be performed by ballot, a ballot shall be sent to each member by first-class mail, postage prepaid, or by electronic transmission. Within 45 days after the posted date on the ballot, each member who decides to vote on the coverage change shall return their mail or electronic ballot to the interindemnity arrangement for the tallying of the ballot. An affirmative vote of 75 percent of those voting shall be required to effectuate any change in the coverage provided by the trust agreement, except that at least 50 percent of the entire membership must agree to any change.

If any change is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and the proposed coverage change by first-class mail, postage prepaid, or by electronic transmission at least 45 days prior to the meeting. An affirmative vote of 75 percent of the membership present at the meeting, in person or by proxy, shall be required to effectuate any change, except that at least 50 percent of the entire membership must agree to any change.

(7) Withdrawal of all, or any portion of, the corpus of the reserve trust fund shall be upon the written authorization signed by at least two-thirds of the members of the board of trustees.

(8) The board of trustees shall cause both of the following to be furnished to each member participating in the interindemnity arrangement by first-class mail, postage prepaid, or by electronic transmission, and to be filed with the Commissioner of Financial Protection and Innovation:

(A) Within 90 days after the end of each fiscal year, a statement of the assets and liabilities of the interindemnity arrangement as of the end of that year, a statement of the revenue and expenditures of the interindemnity arrangement, and a statement of the changes in corpus of the reserve trust for that year, in each case accompanied by a certificate signed by a firm of independent certified public accountants selected by the board of trustees indicating that the firm has conducted an audit of those statements in accordance with generally accepted auditing standards and indicating the results of the audit.

(B) Within 45 days after the end of each of the first three quarterly periods of each fiscal year, a statement of the assets and liabilities of the interindemnity arrangement as of the end of the quarterly period, a statement of the revenue and expenditures of the interindemnity arrangement, and a statement of the changes in corpus of the reserve trust for the period, in each case accompanied by a certificate signed by a majority of the members of the board of trustees to the effect that the statements were prepared from the official books and records of the interindemnity arrangement.

(C) In addition to the statements required to be filed pursuant to this paragraph, the board of trustees shall annually file with the Commissioner of Financial Protection and Innovation an authorization for disclosure to the commissioner of all financial records pertaining to the interindemnity arrangement. For the purpose of this subparagraph, the authorization for disclosure shall also include the financial records of any association, partnership, or corporation that has management or control of the funds or the operation of the interindemnity arrangement.

(9) The trust agreement shall also provide for all the following:

(A) In the event a participating member who is in full compliance with the trust agreement, including the payment of all outstanding dues and assessments, dies, the initial contribution made by the decedent shall be returned to the member’s estate or designated beneficiary; the indemnity coverage shall continue for the benefit of the decedent’s estate in respect of occurrences during the time the decedent was a participating member; and neither the person receiving the repayment of the initial contribution nor the decedent’s estate shall be responsible for any assessments levied following the death of the member.

(B) A participating member who is then in full compliance with the trust agreement and who has reached the age of 65 years and who has retired completely from the practice of medicine may elect to retire from the interindemnity arrangement, in which case the member shall not be responsible for assessments levied following the date notice of retirement is given to the trust. Following that retirement, the indemnity coverage shall continue for the benefit of the member in respect of occurrences prior to the time the member retired from the interindemnity arrangement. That retired member’s initial contribution shall be repaid 10 years from the date the notice of retirement is received by the trust, or an earlier date as specified in the trust agreement. The board of trustees may reduce the age for retirement to not less than 55 years subject to all other requirements in this paragraph and any additional requirements deemed necessary by the board.

(C) During any period in which a participating member, who is then in full compliance with the trust agreement, has, in the judgment of the board of trustees, become unable to perform any and every duty of their regular professional occupation, the participating member may request disability status in accordance with the terms of the interindemnity arrangement. During any period of disability status, the member shall not be responsible for assessments levied during the period and, if so provided in the interindemnity arrangement, all indemnity coverage, both as to defense and payment of claims, shall terminate as to occurrences arising out of the actions of the participating member during the period of disability status.

(D) In the event a participating member fails to pay any assessment when due, the board of trustees may terminate that person’s membership status if the failure to pay is not cured within 30 days from the date the assessment was due. Upon that termination the former participating member shall not be entitled to the return of all or any part of their initial contribution, and the indemnity coverage shall thereupon terminate as to all claims then pending against that person and in respect to all occurrences prior to the date of that termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to that person, the interindemnity arrangement shall continue to provide those services for a period of 10 days following that termination.

(E) In the event a participating member fails to comply with any provision of the trust agreement (other than a failure to pay assessments when due), the board of trustees may terminate that person’s membership status if the failure to comply is not cured within 60 days from the date the person is notified of the failure, provided that before that membership status may be terminated the person shall be given the right to call for a hearing before the board of trustees (to be held before the expiration of the 60-day period), at which hearing the person shall be given the opportunity to demonstrate to the board of trustees that no failure to comply has occurred or, if it has occurred, that it has been cured. Upon that termination, the former participating member shall not be entitled to the return of all or any part of their initial contribution, and the indemnity coverage shall thereupon terminate as to all claims then pending against the person and in respect to all occurrences prior to the date of the termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to that person, the interindemnity arrangement shall continue to provide those services for a period of 10 days following the termination.

(F) A participating member who is then in full compliance with the trust agreement may elect voluntarily to terminate their membership in the interindemnity arrangement. Upon that voluntary termination, that person may further elect to cease being responsible for future assessments, or to continue to pay those assessments until the time as the person’s initial contribution is repaid. In the event the person elects to cease being responsible for future assessments, the indemnity coverage shall thereupon terminate and the person shall either be responsible for their own exposure for acts committed while a participating member in the interindemnity arrangement, or they may request the interindemnity arrangement to purchase or provide, at the cost of the person, coverage for that exposure. The initial contribution of the person shall be repaid on the 10th anniversary of the date the contribution was made. In the event the person elects to continue to be responsible for assessments, the indemnity coverage shall continue in respect of occurrences prior to the date of the voluntary termination, and the initial contribution of the person shall be repaid at the time as the board of trustees is satisfied that (i) there are no claims pending against the person in respect of occurrences during the time the person was a participating member, and (ii) the statute of limitations has run on all claims that might be asserted against that person in respect of occurrences during that time. In no event shall that repayment be made earlier than the 10th anniversary of the date the contribution was made.

Any person whose membership in an interindemnity arrangement is involuntarily terminated for failure to pay assessments or who voluntarily terminates that membership and elects to be responsible for their own exposure for acts committed while a participating member, shall not be eligible to become a member of any other interindemnity arrangement for a period of five years after the termination unless, on the effective date of the act which amended this section during the 1985–86 Regular Session, the person had on file with the Department of Financial Protection and Innovation a copy of a subscription agreement signifying the person’s agreement to transfer membership or had paid a minimum of ten thousand dollars ($10,000) to another interindemnity arrangement that was granted a permit to organize prior to January 1, 1985.

(G) The board of trustees shall have the right to terminate the membership of a participating member if the board of trustees determines that the termination is in the best interests of the interindemnity arrangement even though that person has complied with all of the provisions of the trust agreement. A termination may be effected only if at least two-thirds of the members of the board of trustees indicate in writing their decision to terminate. If the board of trustees proposes to terminate a member, the member shall have the right to call a special meeting of all participating members in accordance with the rules established by the board of trustees for the purpose of voting on whether or not the member shall be terminated. The member shall not be terminated if at least two-thirds of the participating members present, in person or by proxy, indicate that the member should not be terminated. In the event a member is terminated, the person shall elect either: (i) to request the return of their initial contribution, in which case the contribution shall be repaid and the indemnity coverage shall thereupon terminate as to all claims then pending against the person and in respect to all occurrences prior to the date of the termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to the person, the interindemnity arrangement shall continue to provide those services for a period of 30 days to enable the person to assume their own defense; or (ii) to release all rights to the return of the initial contribution, in which case the indemnity coverage shall continue for the benefit of the member in respect of occurrences during the time the person was a participating member and the person shall have no responsibility for assessments levied following that termination. The interindemnity arrangement may provide that if a member is terminated and fails to make the election set forth herein within 45 days of the date of notification of termination of membership, the participating member shall be deemed to have elected to release all rights to a return of their initial contribution, in which case indemnity coverage shall apply for the benefit of the member with respect to occurrences occurring prior to the termination.

(10) Each member participating in the interindemnity arrangement shall have the right of access to, and the inspection of, the books and records of the interindemnity arrangement, which rights shall be similar to the corporate shareholders pursuant to Section 3003 of the Corporations Code, or, commencing January 1, 1977, Sections 1600 to 1605, inclusive, of the Corporations Code.

(11) There shall be a meeting of all members participating in the interindemnity arrangement, at least annually, after not less than 10 days’ written notice has been given, at a location reasonably convenient to the participating members and on a date that is within a reasonable period of time following the distribution of the annual financial statements.

(12) Notwithstanding Sections 12453 and 12703 of the Corporations Code, on any matter to be voted upon by the membership at either a regular or special meeting, a member shall have the right to vote in person or by written proxy filed with the corporate secretary prior to the meeting. No proxy shall be made irrevocable, nor be valid beyond the earliest of the following dates:

(A) The date of expiration set forth in the proxy.

(B) The date of termination of membership.

(C) Eleven months from the date of execution of the proxy.

(D) Such time as may be specified in the bylaws, not to exceed 11 months.

(13) The interindemnity arrangement, and the reserve trust fund incident thereto, shall be subject to termination at any time by the vote or written consent of not less than three-fourths of the participating members.

(c) The board of trustees shall cause to be recorded with the office of the county recorder of the county of the principal place of business of the interindemnity arrangement within 90 days following the end of each fiscal year, a written statement, executed by a majority of the board of trustees under penalty of perjury, reciting that each member participating in the interindemnity arrangement was mailed a copy of the annual financial statement and quarterly audit certificates by first-class mail, postage prepaid, required pursuant to paragraph (8) of subdivision (a).

(d) Each person solicited to become a participating member in an interindemnity arrangement shall receive in writing, at least 48 hours prior to the execution by the prospective participating member of the trust agreement, and at least 48 hours prior to the payment by the prospective participating member of any consideration in connection with the interindemnity arrangement, the following information:

(1) A copy of the articles of incorporation and bylaws of the cooperative corporation and a copy of the form of trust agreement to be executed by the prospective participating member.

(2) A disclosure statement regarding the interindemnity arrangement. The disclosure statement shall contain on the first or cover page a legend in boldface type reading substantially as follows:

“THE INTERINDEMNITY ARRANGEMENT CONTEMPLATED HEREIN PROVIDES THAT PARTICIPATING MEMBERS HAVE UNLIMITED PERSONAL LIABILITY FOR ASSESSMENTS THAT MAY BE LEVIED TO PAY FOR THE PROFESSIONAL NEGLIGENCE OR OTHER LIABILITY AUTHORIZED BY THIS SECTION. NO ASSURANCES CAN BE GIVEN REGARDING THE AMOUNT OR FREQUENCY OF ASSESSMENTS WHICH MAY BE LEVIED, OR THAT ALL PARTICIPATING MEMBERS WILL MAKE TIMELY PAYMENT OF THEIR ASSESSMENTS TO COVER THE PROFESSIONAL NEGLIGENCE OR OTHER LIABILITY AUTHORIZED BY THIS SECTION.”

(3) The disclosure statement shall further contain all of the following information:

(A) The amount, nature, and terms and conditions of the professional negligence or other liability relating to a member’s professional practice coverage available under the interindemnity arrangement.

(B) The amount of the initial contribution required of each participating member and a statement of the minimum number of members and aggregate contributions required for the interindemnity arrangement to commence.

(C) The names, addresses, and professional experience of each member of the board of trustees.

(D) The requirements for admission as a participating member.

(E) A statement of the services to be provided under the interindemnity arrangement to each participating member.

(F) A statement regarding the obligation of each member to pay assessments and the consequences for failure to do so.

(G) A statement of the rights and obligations of a participating member in the event the member dies, retires, becomes disabled, or terminates participation for any reason, or the interindemnity arrangement terminates for any reason.

(H) A statement regarding the services to be provided, indicating whether these services will be delegated to others pursuant to a contractual arrangement. For those services delegated to others pursuant to a contractual arrangement, a statement fully disclosing and itemizing all consideration received directly or indirectly under the arrangement, and indicating what the consideration is for, and how, when, and to whom the consideration will be paid.

(I) A statement of the voting rights of the members and the circumstances under which participation of a member may be terminated and under which the interindemnity arrangement may be terminated.

(J) If any statement of estimated or projected financial information for the interindemnity arrangement is used, a statement of the estimation or projection and a summary of the data and assumptions upon which it is based.

(4) A list with the names and addresses of current participating members of the interindemnity arrangement.

(e) No officer, director, trustee, employee, or member of the interindemnity arrangement or the cooperative corporation shall receive, or be entitled to receive, any payment, bonus, salary, income, compensation, or other benefit whatsoever, either from the reserve trust fund or the income therefrom or from any other funds of the interindemnity arrangement or the members thereof based on the number of participating members, or the amount of the reserve trust fund or other funds of the interindemnity arrangement.

(f) A peer review committee or committees shall be established by the trust agreement to review the qualifications of any physician and surgeon to participate or continue to participate in the interindemnity arrangement, and to review the quality of medical services rendered by any participating member, as well as the validity of medical malpractice claims made against participating members. Any physician and surgeon, prior to becoming a participating member of the interindemnity arrangement, shall be reviewed and approved by a majority of the members of the peer review committee. No peer review committee, or any of its members, shall be liable for any action taken by the committee in reviewing the qualifications of a physician and surgeon to participate or continue to participate, or the quality of medical services rendered, or the validity of a medical malpractice claim, unless it is alleged and proved that the action was taken with actual malice.

(g) The following are hereby defined as unfair methods of competition and deceptive acts or practices with respect to cooperative corporations or interindemnity arrangements provided for in this section:

(1) Making any false or misleading statement as to, or issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, or statement misrepresenting the terms of any interindemnity arrangement or the benefits or advantages promised thereby, or making any misleading representation or any misrepresentation as to the financial condition of the interindemnity arrangement, or making any misrepresentation to any participating member for the purpose of inducing or tending to induce the member to lapse, forfeit, or surrender their rights to indemnification under the interindemnity arrangement. It shall be a false or misleading statement to state or represent that a cooperative corporation or interindemnity arrangement is or constitutes “insurance” or an “insurance company” or an “insurance policy.”

(2) Making or disseminating or causing to be made or disseminated before the public in this state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, any statement containing any assertion, representation, or statement with respect to those cooperative corporations or interindemnity arrangements, or with respect to any person in the conduct of those cooperative corporations or interindemnity arrangements, which is untrue, deceptive, or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading. It shall be a false or misleading statement to state or represent that a cooperative corporation or interindemnity arrangement is or constitutes “insurance” or an “insurance company” or an “insurance policy.”

(3) Entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion, or intimidation resulting in or tending to result in an unreasonable restraint of, or monopoly in, those cooperative corporations or interindemnity arrangements.

(4) Filing with any supervisory or other public official, or making, publishing, disseminating, circulating, or delivering to any person, or placing before the public, or causing directly or indirectly, to be made, published, disseminated, circulated, or delivered to any person, or placed before the public any false statement of financial condition of a cooperative corporation or interindemnity arrangement with intent to deceive.

(5) Making any false entry in any book, report, or statement of a cooperative corporation or interindemnity arrangement with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to whom a cooperative corporation or interindemnity arrangement is required by law to report, or who has authority by law to examine into its condition or into any of its affairs, or, with like intent, willfully omitting to make a true entry of any material fact pertaining to a cooperative corporation or interindemnity arrangement in any book, report, or statement of a cooperative corporation or interindemnity arrangement.

(6) Making or disseminating, or causing to be made or disseminated, before the public in this state, in any newspaper or other publication, or any other advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, whether directly or by implication, any statement that a cooperative corporation or interindemnity arrangement is a member of the California Insurance Guarantee Association, or insured against insolvency as defined in Section 119.5. This paragraph shall not be interpreted to prohibit any activity of the California Insurance Guarantee Association or of the commissioner authorized, directly or by implication, by Article 14.2 (commencing with Section 1063) of Chapter 1.

(7) Knowingly committing or performing with a frequency as to indicate a general business practice any of the following unfair claims settlement practices:

(A) Misrepresenting to claimants pertinent facts or provisions relating to any coverage at issue.

(B) Failing to acknowledge and act promptly upon communications with respect to claims arising under those interindemnity arrangements.

(C) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under those interindemnity arrangements.

(D) Failing to affirm or deny coverage of claims within a reasonable time after proof of claim requirements have been completed and submitted by the participating member.

(E) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.

(F) Compelling participating members to institute litigation to recover amounts due under an interindemnity arrangement by offering substantially less than the amounts ultimately recovered in actions brought by those participating members when those participating members have made claims under those interindemnity arrangements for amounts reasonably similar to the amounts ultimately recovered.

(G) Attempting to settle a claim by a participating member for less than the amount to which a reasonable person would have believed they were entitled by reference to written or printed advertising material accompanying or made part of an application for membership in an interindemnity arrangement.

(H) Attempting to settle claims on the basis of an interindemnity arrangement that was altered without notice to the participating member.

(I) Failing, after payment of a claim, to inform participating members, upon request by them, of the coverage under which payment has been made.

(J) Making known to claimants a practice of the cooperative corporation or interindemnity arrangement of appealing from arbitration awards in favor of claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.

(K) Delaying the investigation or payment of claims by requiring a claimant, or their physician, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.

(L) Failing to settle claims promptly, where liability has become apparent, under one portion of an interindemnity arrangement in order to influence settlements under other portions of the interindemnity arrangement.

(M) Failing to provide promptly a reasonable explanation of the basis relied on in the interindemnity arrangement, in relation to the facts of applicable law, for the denial of a claim or for the offer of a compromise settlement.

(N) Directly advising a claimant not to obtain the services of an attorney.

(O) Misleading a claimant as to the applicable statute of limitations.

(h) Notwithstanding any contrary provisions of Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code, it shall not be necessary to hold a meeting of members of the cooperative corporation for the purpose of electing directors if the bylaws provide the election may be held by first-class mail balloting or balloting by electronic transmission. First-class mail balloting or balloting by electronic transmission may also be used in conjunction with a meeting at which directors are to be elected and all mail and electronic ballots shall count toward establishing a quorum for the meeting for the limited purpose of the issues set forth in the mail and electronic ballot. Directors shall be elected as follows:

(1) The candidates receiving the highest number of votes, up to the number of directors to be elected, by a specified date at least 45 days but not later than 60 days after the ballots are first mailed, postage prepaid, to the members (or the date of a meeting of members held in conjunction therewith) shall be elected.

(2) In the event that no candidate receives a majority of the votes cast for a vacant office, a runoff election shall be held between the two candidates receiving the highest number of votes cast. The runoff election shall be held at least 45 days but not more than 60 days after the ballots for the election are mailed, postage prepaid. In the event that there is more than one office for which no candidate receives a majority of the votes cast, the candidates for the runoff shall be twice the number of vacant offices, and shall be those persons who received the highest number of votes therefor.

A record of the mail and electronic ballots shall be kept on file for a period of three months after all vacant board positions have been filled, and shall be subject to inspection at any reasonable time by any members of the cooperative corporation.

(i) No officer, director, trustee, or member of the interindemnity arrangement or the cooperative corporation, or any entity in which that person has a material financial interest, shall enter into or renew any transaction or contract with the trust unless the material facts as to the transaction or contract and as to the interest of the person are fully disclosed to the participating members, and the transaction or contract is approved by an affirmative vote of at least 75 percent of the membership present at a meeting, in person or by proxy. If any transaction or contract is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and of the transaction or contract by first-class mail, postage prepaid, or by electronic transmission at least 45 days prior to the meeting.

(j) Services provided to the trust pursuant to a delegated contractual arrangement shall be embodied in a written contract. Each written contract shall provide for reasonable consideration to the parties. In addition, each written contract shall be disclosed annually to participating members in a disclosure report containing the information described in subparagraph (H) of paragraph (3) of subdivision (d). The disclosure report shall be sent to participating members by first-class mail, postage prepaid, or by electronic transmission, and shall be sent separately from any statements, records, or other documents. The disclosure requirements of this subdivision shall apply to all existing and future written contracts.

(k) Upon request of the Commissioner of Financial Protection and Innovation, an interindemnity arrangement shall immediately forward to the commissioner a current list of participating members, including the names, addresses, and telephone numbers of those members.

(l) Notwithstanding any provision to the contrary, whenever the membership of a cooperative organization, organized pursuant to Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code and consisting solely of physicians and surgeons licensed in this state amounts to 2,000 or more members and the trust fund is at least forty million dollars ($40,000,000), which is available to the public for malpractice claims or other claims authorized by this section, the cooperative is authorized to admit members without a contribution to that trust fund if assessments are charged to each of those members within the first 50 months in an amount equal to the amount of the contribution to the reserve fund that would otherwise be required.

history: (History: Amended by Stats. 2023, Ch. 204, Sec. 8. (AB 1140) Effective January 1, 2024.)

article: 1. General Provisions


citation: INS § 1281

text:
Reciprocal or interinsurance contracts, the exchange thereof, the subscribers, attorneys in fact, agents, and representatives, and all matters incident to or concerned with such contracts and relationship, shall be subject to and regulated by all of the provisions of this code, whether or not such provisions specifically refer to reciprocals or interinsurance exchanges, except as otherwise exempted in this chapter.

When any provision of this code, other than in this chapter, is made applicable to reciprocal insurers, such provision shall be construed in accordance with the fundamental nature of a reciprocal insurer. In the event of any direct conflicts between such other law and the provisions of this chapter, the latter shall prevail. Such other law may, however, be used to supplement or explain the provisions of this chapter.

history: (History: Amended by Stats. 1971, Ch. 341.)

article: 1. General Provisions


citation: INS § 1282

text:
(a) The following provisions of this code shall not be applicable to reciprocal or interinsurance exchanges and their contracts, subscribers, attorneys in fact, agents, and representatives, unless such provisions are referred to and specifically made applicable or incorporated by reference by other portions of this code, and, in such event, such provisions shall be applicable only to the extent required by such reference or incorporation:

(1) Sections 700.01, 700.02, 700.03, and 700.04;

(2) Sections 707, 708, 709, 710, and 711;

(3) Section 760.5;

(4) Sections 984, 986, and 987 of Article 13 (commencing with Section 980) of Chapter 1, Part 2, Division 1, relating to insolvency;

(5) Sections 1044, 1045, and 1047;

(6) Sections 1104.2, 1104.3, 1104.4, 1104.5, 1104.6, 1104.7, and 1104.8, except with respect to incorporated attorneys in fact;

(7) Section 1140;

(8) Section 1140.5, except with respect to incorporated attorneys in fact;

(9) Section 1152;

(10) Sections 1153, 1153.5, and 1154;

(11) Article 2.5 (commencing with Section 1160.1) of Chapter 2, Part 2, Division 1, relating to life insurer investments in housing projects;

(12) Section 1194.8;

(13) Article 5 (commencing with Section 1220) of Chapter 2, Part 2, Division 1, relating to investments in loans on life insurance policies;

(14) Article 2 (commencing with Section 1580) of Chapter 4, Part 2, Division 1, relating to alien insurers;

(15) Article 3 (commencing with Section 1600) of Chapter 4, Part 2, Division 1, relating to agent for service of process;

(16) Article 16 (commencing with Section 1758.1) of Chapter 5, Part 2, Division 1, relating to variable contract agents;

(17) Chapter 6 (commencing with Section 1760) of Part 2, Division 1, relating to surplus line brokers;

(18) Chapter 8 (commencing with Section 1831) of Part 2, Division 1, relating to life insurance analysts;

(19) Articles 1 (commencing with Section 3010) and 2 (commencing with Section 3030) of Chapter 3, Part 1, Division 2, relating to incorporated fire and marine insurers;

(20) Chapter 4 (commencing with Section 4010) of Part 1, Division 2, relating to general mutual insurers;

(21) Chapter 5 (commencing with Section 5050) of Part 1, Division 2, relating to county mutual fire insurers;

(22) Chapter 6 (commencing with Section 7080) of Part 1, Division 2, relating to county mutual fire reinsurers;

(23) Chapter 7 (commencing with Section 9080) of Part 1, Division 2, relating to fraternal fire insurers;

(24) Articles 3 (commencing with Section 10150) and 3a (commencing with Section 10159.1) of Chapter 1, Part 2, Division 2, relating to life insurance policies;

(25) Sections 10170, 10171, 10172, and 10173, relating to payment and proceeds of life insurance policies;

(26) Chapter 2 (commencing with Section 10200) of Part 2, Division 2, relating to group life policies;

(27) Chapter 2.5 (commencing with Section 10220) of Part 2, Division 2, relating to blanket life policies;

(28) Chapter 3 (commencing with Section 10240) of Part 2, Division 2, relating to burial contracts;

(29) Sections 10430, 10431, 10432, and 10433, relating to restrictions on business of life insurers;

(30) Articles 1a (commencing with Section 10440), 2 (commencing with Section 10450), 3 (commencing with Section 10478), 3a (commencing with Section 10489.1), 4 (commencing with Section 10490), and 5 (commencing with Section 10506) of Chapter 5, Part 2, Division 2, relating to internal affairs of mutual insurers, registration and valuation of life policies, standard valuation law, exempt societies, pension funds and separate accounts;

(31) Chapter 6 (commencing with Section 10510) of Part 2, Divison 2, relating to incorporated life insurers issuing policies on a reserve basis;

(32) Chapter 10 (commencing with Section 10970) of Part 2, Division 2, relating to fraternal benefit societies;

(33) Chapter 10A (commencing with Section 11400) of Part 2, Division 2, relating to firemen’s, policemen’s, or peace officers’ benefit and relief associations;

(34) Chapter 11 (commencing with Section 11420) of Part 2, Division 2, relating to change by assessment plan life insurers to reserve plan;

(35) Chapter 11A (commencing with Section 11491) of Part 2, Division 2, relating to nonprofit hospital service plans;

(36) Chapter 12 (commencing with Section 11520) of Part 2, Division 2, relating to grants and annuities societies;

(37) Chapter 13 (commencing with Section 11525) of Part 2, Division 2, relating to voluntary mutualization of certain incorporated insurers;

(38) Article 3 (commencing with Section 11600), of Chapter 1, Part 3, Division 2, relating to capital requirements of incorporated insurers;

(39) Chapter 4 (commencing with Section 11770) of Part 3, Division 2, relating to the State Compensation Insurance Fund;

(40) Sections 12050, 12051, 12052, and 12110, relating to incorporated surety insurers;

(41) Part 5 (commencing with Section 12140) of Division 2, relating to motor clubs;

(42) Part 6 (commencing with Section 12340) of Division 2, relating to insurance covering land, but not including Sections 12640.19, 12660, and 12661.

history: (History: Amended by Stats. 1980, Ch. 209, Sec. 1.)

article: 1. General Provisions


citation: INS § 1283

text: The provisions of Part 7, Division 2 of the Revenue and Taxation Code shall be applicable to reciprocal or interinsurance exchanges.

history: (History: Added by Stats. 1941, Ch. 112.)

article: 1. General Provisions