2009 California Insurance Code - Section 1760-1780 :: Chapter 6. Surplus Line Brokers

1760.  (a) Any person may negotiate and effect insurance to protect
himself, herself, or itself against loss, damage, or liability with
any nonadmitted insurer.
   (b) Every person that effects insurance governed by this chapter
shall pay the tax imposed by Part 7.5 (commencing with Section 13201)
of Division 2 of the Revenue and Taxation Code.

1760.5.  (a) The provisions of this chapter limiting the insurance
that may be placed with nonadmitted insurers and requiring any report
thereof shall not apply to:
   (1) Reinsurance of the liability of an admitted insurer.
   (2) Insurance against perils of navigation, transit or
transportation upon hulls, freights or disbursements, or other
shipowner interests; upon goods, wares, merchandise and all other
personal property and interests therein, in the course of exportation
from or importation into any country, or transportation coastwise,
including transportation by land or water from point of origin to
final destination and including war risks; and marine builder's
risks, drydocks and marine railways, including insurance of ship
repairer's liability, and protection and indemnity insurance, but
excluding insurance covering bridges or tunnels.
   (3) Aircraft or spacecraft insurance.
   (4) Insurance on property or operations of railroads engaged in
interstate commerce.
   (b) The insurance specified in paragraphs (2), (3), and (4) of
subdivision (a) may be placed with a nonadmitted insurer only by and
through a special lines' surplus line broker. The license of a
special lines' surplus line broker shall be applied for and procured
and shall be subject to the same fees for filing on issuance in the
same manner as the license of a surplus line broker, except that in
lieu of the bond required by Section 1765, there shall be delivered
to the commissioner a bond in the form, amounts, and conditions
specified in Sections 1663 and 1665 for an insurance broker and only
one fee shall be collected from one person for both licenses. The
licensee in respect to the business shall be subject to all the
provisions of this chapter except Sections 1761, 1763, 1765.1, and
1775.5.
   (c) The commissioner may address to any licensed special lines'
surplus line broker a written request for full and complete
information respecting the financial stability, reputation, and
integrity of any nonadmitted insurer with whom the licensee has dealt
or proposes to deal in the transaction of insurance specified in
paragraphs (2), (3), or (4) of subdivision (a). The licensee so
addressed shall promptly furnish in written or printed form so much
of the information requested as he or she can produce together with a
signed statement identifying the same and giving reasons for
omissions, if any. After due examination of the information and
accompanying statement, the commissioner may, if he or she believes
it to be in the public interest, order in writing the licensee to
place no further insurance business on property located or operations
conducted within or on the lives of persons who are residents of
this state with that nonadmitted insurer on behalf of any person. Any
placement with that nonadmitted insurer made by a licensee after
receipt of the order is a violation of this chapter. The commissioner
may issue an order if he or she finds that a nonadmitted insurer
with whom the licensee has dealt or proposes to deal in the
transaction of insurance is in an unsound financial condition, is
disreputable, or is lacking in integrity. The order shall also
include notice of a hearing to be held at a time and place fixed
therein, which shall be not less than 20 nor more than 30 days from
service of the order upon the licensee.
   (d) The commissioner may, in respect to business written or placed
under the provisions of this section, require information and
reports thereof that the commissioner considers necessary,
convenient, or advisable.
   (e) Each placing of insurance in violation of this chapter is a
misdemeanor.
   (f) The commissioner may revoke, suspend, or deny any license
granted pursuant to this code in accordance with the procedure
provided in Article 13 (commencing with Section 1737) of Chapter 5,
or any certificate of authority granted pursuant to this code in
accordance with the procedure provided in Section 704 whenever the
commissioner finds that the licensee or holder of the certificate has
committed a violation of this section.
   (g) The premium for insurance placed by or through a special lines'
surplus line broker pursuant to this section shall not be subject to
the tax imposed upon the broker based upon gross premiums paid for
insurance placed under authority conferred by the license.
   (h) Special lines' surplus line brokers may advertise and solicit
in conformity with Section 1773, except that they are not subject to
the limitation that any nonadmitted insurer's name appearing in the
advertisements or solicitations must be authorized to accept
placements under Section 1765.1.

1760.6.  For purposes of Section 1760.5, "spacecraft" means
missiles, satellites, staffed and unstaffed space vehicles, any
objects intended for launch, or objects launched or assembled in
outer space, including, but not limited to, the space shuttle and any
transportation, communication, information, or other system intended
to be employed in outer space, together with related equipment,
devices, components, and parts.

1760.7.  In addition to the authority granted by Section 1760.5, the
commissioner has the discretion to direct special lines' surplus
line brokers to not place further business with an insurer whose
eligibility has been withdrawn pursuant to Section 1765.1.

1761.  Except as provided in sections 1760 and 1760.5, a person
within this State shall not transact any insurance on property
located or operations conducted within, or on the lives or persons of
residents of this State with nonadmitted insurers, except by and
through a surplus line broker licensed under this chapter and upon
the terms and conditions prescribed in this chapter.

1762.  For purposes of Sections 1764, 1764.1, and 1764.3, the term
"certificate" means a surplus line broker certificate as defined in
Section 48.

1763.  (a) A surplus line broker may solicit and place insurance,
other than as excepted in Section 1761, with nonadmitted insurers
only if that insurance can not be procured from insurers admitted for
the particular class or classes of insurance and that actually write
the particular type of insurance in this state. Each surplus line
broker shall be responsible to ensure that a diligent search is made
among insurers that are admitted to transact and are actually writing
the particular type of insurance in this state before procuring the
insurance from a nonadmitted insurer. Each surplus line broker shall
file with the commissioner or his or her designee, within 60 days of
placing any insurance with a nonadmitted insurer, a written report,
that shall be kept confidential, regarding the insurance. This report
shall include the name and address of the insured, the identity of
the insurer or insurers, a description of the subject and location of
the risk, the amount of premium charged for the insurance, a copy of
the declarations page of the policy or a copy of the surplus line
broker's certificate or binder evidencing the placement of insurance,
and other pertinent information that the commissioner may reasonably
require. In addition, each surplus line broker shall file a
standardized form to be prescribed by the commissioner setting forth
the diligent efforts to place the coverage with admitted insurers and
the results of these efforts. The form shall be signed by a person
licensed under this code who has made the diligent search required by
this section or who supervised an unlicensed person or persons who
actually conducted the search. The insurance shall not be placed with
a nonadmitted insurer for the purpose of procuring a rate lower than
the lowest rate that will be accepted by any admitted insurer except
as provided by subdivision (c). The commissioner may make and
publish reasonable rules and regulations, consistent with this
chapter, in respect to transactions governed thereby and the basis or
bases for his or her determinations hereunder.
   (b) It shall be prima facie evidence that a diligent search among
admitted insurers has been made if the standardized form filed as
required by subdivision (a) establishes that three admitted insurers
that actually write the particular type of insurance in this state
have declined the risk, or that fewer than three admitted insurers
actually write the particular type of insurance. The commissioner, or
his or her designee, may review the form for the accuracy of the
information provided on it, including, but not limited to, whether
the listed insurers actually write that type of insurance, and
whether the three insurers declined the risk. The commissioner may
take disciplinary action against the person signing the form for any
misrepresentation made in the form due to the negligence of or the
result of an intentional act by that person or the person or persons
who actually conducted the search. Those actions may include any
action authorized to be taken against a licensed person by this code.
Nothing in this subdivision shall preclude the commissioner or his
or her designee from directing the surplus line broker to conduct a
further or additional search among admitted insurers for similar
placements in the future.
   (c) It shall be conclusively presumed that insurance is placed in
violation of this section if the insurance is actually placed with a
nonadmitted insurer at a lower rate of premium or lower premium than
the lowest rate of premium or the lowest premium that could be
obtained from an admitted insurer unless, at the time the insurance
attaches, there is filed with the commissioner a statement describing
the insurance, specifying the rate and the nearest procurable rates
from admitted insurers. The statement shall include an explanation of
the reasons that the insurance must be placed with a nonadmitted
insurer even though it is available from an admitted insurer. Unless
the commissioner, or his or her designee, within five days after that
filing notifies the filing broker that in his or her opinion the
placing of the insurance constitutes a violation of this section, the
broker may thereafter maintain in effect that insurance. If within
that five-day period the commissioner notifies the surplus line
broker that the insurance is in violation of this section and orders
the broker to effect termination of that insurance within 10 days
from the notice, and the broker fails or refuses to effect that
termination, that failure or refusal is a violation of this section.
   (d) Statements filed under this section are not subject to public
inspection unless the commissioner determines that the public
interest or the welfare of the filing broker requires that any
statement be made public.
   (e) For purposes of this section, "type of insurance" means the
hazard or combination of hazards covered by a contract of insurance.
   (f) Notwithstanding subdivision (a), this section shall not apply
to insurance issued or delivered in this state by a nonadmitted
Mexican insurer by and through a surplus line broker affording
coverage exclusively in the Republic of Mexico on property located
temporarily or permanently in, or operations conducted temporarily or
permanently within, the Republic of Mexico.
   (g) This section does not apply to the extension of coverage by a
nonadmitted insurer, of or for the same risks, and to the same
insured under an existing surplus lines policy. Such an extension may
not exceed 90 days in the aggregate during any 12-month period. The
extension may not include a change in coverage, terms, and
conditions, or limits. Any additional premium charged for the
extension shall be determined pro rata, based on the same rate of
premium as the existing surplus lines policy.

1763.1.  (a) The commissioner may by order declare eligible for
placement with a nonadmitted insurer and exempt from all requirements
of Section 1763 except the filing of a confidential written report,
any type of insurance coverage or risk for which he or she finds,
after a public hearing, that there is not a reasonable or adequate
market among admitted insurers. The commissioner or his or her
designee shall maintain an export list showing all those exempt
coverages and risks. A public hearing shall be held annually or more
often at the commissioner's discretion and reasonable notice of a
hearing shall be given to all interested parties including surplus
line brokers, admitted insurers, trade associations representing
admitted insurers, agents and brokers, and consumer groups. The
hearing shall not be required to be conducted in accordance with
Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code. Any such order by the commissioner
shall continue in effect until terminated by the commissioner. Where
the commissioner receives written comments or testimony or otherwise
determines, prior to a hearing that a type of insurance on the export
list is more available in the admitted market the commissioner may
remove the type of insurance from the list. The eligibility of any
type of insurance to remain on the list is subject to an annual
affirmative finding by the commissioner, however, when written
comment or testimony is received prior to a hearing, the eligibility
of that type of insurance to remain on the export list shall be
reviewed at the next hearing and that type of insurance may not
remain on the export list without an affirmative decision by the
commissioner or his or her designee that there is not a reasonable or
adequate market among admitted insurers. The commissioner or his or
her designee shall notify all surplus line brokers of any removal.
For purposes of this section, the commissioner shall not be
authorized to include on the export list as eligible for placement
with a nonadmitted insurer, automobile or motor vehicle liability
insurance, insurance on residential property, as defined under
Section 10087, or any insurance written by the California FAIR plan.
   (b) The surplus line advisory organization authorized by Chapter
6.1 (commencing with Section 1780.50) shall pay the costs for a
maximum of two public hearings per year held by the commissioner or
his or her designee pursuant to this section.
   (c) Except for the removal of a type of insurance from the export
list pursuant to subdivision (a), nothing in this section shall
authorize the commissioner to declare any type of insurance
ineligible for exportation.

1763.2.  (a) A licensed surplus line broker may originate surplus
lines business, or may accept that business from any other
originating licensee duly licensed for the type or types of insurance
involved, and may compensate those licensees therefor.
   (b) For any information involved in any insurance transaction
described in subdivision (a), or involved in the eligibility of the
risk for placement with a surplus line broker, the originating
licensee shall use due care and diligence in the collection,
preparation, and transmission of the information to the surplus line
broker.

1763.5.  In addition to the requirements of Section 1763, no surplus
line broker shall solicit from, or place with, any nonadmitted
insurer, any insurance covering private passenger automobiles if that
insurance contains in whole or in part the limits of coverage
provided under the California Automobile Assigned Risk Plan unless
the surplus line broker, producing agent, broker, or insured has
first submitted to the California Automobile Assigned Risk Plan a
properly completed and executed application in accordance with the
requirements of the plan for the coverage provided by the plan and
the plan itself has determined that the application is ineligible for
the limits of coverage applied for and so notifies the surplus line
broker or insured in writing.
   For purposes of this section, a private passenger automobile
includes motorcycles, but does not include a fleet of five or more
automobiles rated for business use and used in a business.

1764.  (a) A licensed surplus line broker may issue evidence of
insurance, including binders, covernotes, and certificates evidencing
the placement of insurance with an eligible nonadmitted insurer, and
with prior written authority, may issue policies of the insurer.
   (b) Certificates may be issued pursuant to subdivision (a) or (b)
of Section 1764.2. The certificates shall be in the name of the
surplus line broker and not in the name of the nonadmitted insurer,
shall be signed by the surplus line broker, and shall contain all of
the matters specified in Insurance Code Section 381.
   (c) Policies may only be issued pursuant to subdivision (a) of
Section 1764.2. The policies shall contain all of the matters
specified in Section 381 and shall be countersigned by the surplus
line broker.

1764.1.  (a) (1) Every nonadmitted insurer, in the case of insurance
to be purchased by a resident of this state pursuant to Section
1760, and surplus line broker, in the case of any insurance with a
nonadmitted carrier to be transacted by the surplus line broker,
shall be responsible to ensure that, at the time of accepting an
application for an insurance policy, other than a renewal of that
policy, issued by a nonadmitted insurer, the signature of the
applicant on the disclosure statement set forth in subdivision (b) is
obtained. In fulfillment of this responsibility, the nonadmitted
insurer and the surplus line broker may rely, if it is reasonable
under all the circumstances to do so, on the disclosure statement
received from a licensee involved in the transaction as prima facie
evidence that the disclosure statement and appropriate signature from
the applicant have been obtained. The surplus line broker shall
maintain a copy of the signed disclosure statement in his or her
records for a period of at least five years. These records shall be
made available to the commissioner and the insured upon request. This
disclosure shall be signed by the applicant, and is not subject to
any limited power of attorney agreement between the applicant and an
agent or broker, or a surplus line broker. The disclosure statement
shall be in boldface 16-point type on a freestanding document. In
addition, every policy issued by a nonadmitted insurer and every
certificate evidencing the placement of insurance shall contain, or
have affixed to it by the insurer or surplus line broker, the
disclosure statement set forth in subdivision (b) in boldface
16-point type on the front page of the policy.
   (2) In a case in which the applicant has not received and
completed the signed disclosure form required by this section, he or
she may cancel the insurance so placed. The cancellation shall be on
a pro rata basis as to premium, and the applicant shall be entitled
to the return of any broker's fees charged for the placement.
   (b) The following notice shall be provided to policyholders and
applicants for insurance as provided by subdivision (a), and shall be
printed in English and in the language principally used by the
surplus line broker and nonadmitted insurer to advertise, solicit, or
negotiate the sale and purchase of surplus line insurance. The
surplus line broker and nonadmitted insurer shall use the appropriate
bracketed language for application and issued policy disclosures:
                                     "NOTICE:
   1. THE INSURANCE POLICY THAT YOU [HAVE PURCHASED] [ARE APPLYING TO
PURCHASE] IS BEING ISSUED BY AN INSURER THAT IS NOT LICENSED BY THE
STATE OF CALIFORNIA. THESE COMPANIES ARE CALLED "NONADMITTED" OR
"SURPLUS LINE" INSURERS.
   2. THE INSURER IS NOT SUBJECT TO THE FINANCIAL SOLVENCY REGULATION
AND ENFORCEMENT THAT APPLY TO CALIFORNIA LICENSED INSURERS.
   3. THE INSURER DOES NOT PARTICIPATE IN ANY OF THE INSURANCE
GUARANTEE FUNDS CREATED BY CALIFORNIA LAW. THEREFORE, THESE FUNDS
WILL NOT PAY YOUR CLAIMS OR PROTECT YOUR ASSETS IF THE INSURER
BECOMES INSOLVENT AND IS UNABLE TO MAKE PAYMENTS AS PROMISED.
   4. CALIFORNIA MAINTAINS A LIST OF ELIGIBLE SURPLUS LINE INSURERS
APPROVED BY THE INSURANCE COMMISSIONER. ASK YOUR AGENT OR BROKER IF
THE INSURER IS ON THAT LIST, OR VIEW THAT LIST AT THE INTERNET WEB
SITE OF THE CALIFORNIA DEPARTMENT OF INSURANCE: www.insurance.ca.gov.
   5. FOR ADDITIONAL INFORMATION ABOUT THE INSURER, YOU SHOULD ASK
QUESTIONS OF YOUR INSURANCE AGENT, BROKER, OR "SURPLUS LINE" BROKER
OR CONTACT THE CALIFORNIA DEPARTMENT OF INSURANCE, AT THE FOLLOWING
TOLL-FREE TELEPHONE NUMBER: ____.
   6.  IF YOU, AS THE APPLICANT, REQUIRED THAT THE INSURANCE POLICY
YOU HAVE PURCHASED BE BOUND IMMEDIATELY, EITHER BECAUSE EXISTING
COVERAGE WAS GOING TO LAPSE WITHIN TWO BUSINESS DAYS OR BECAUSE YOU
WERE REQUIRED TO HAVE COVERAGE WITHIN TWO BUSINESS DAYS, AND YOU DID
NOT RECEIVE THIS DISCLOSURE FORM AND A REQUEST FOR YOUR SIGNATURE
UNTIL AFTER COVERAGE BECAME EFFECTIVE, YOU HAVE THE RIGHT TO CANCEL
THIS POLICY WITHIN FIVE DAYS OF RECEIVING THIS DISCLOSURE. IF YOU
CANCEL COVERAGE, THE PREMIUM WILL BE PRORATED AND ANY BROKER'S FEE
CHARGED FOR THIS INSURANCE WILL BE RETURNED TO YOU."

   (c) When a contract is issued to an industrial insured neither the
nonadmitted insurer nor the surplus line broker is required to
provide the notice required in this section except on the
confirmation of insurance, the certificate of placement, or the
policy, whichever is first provided to the insured, nor is the
insurer or surplus line broker required to obtain the insured's
signature. The producer shall ensure that the notice affixed to the
confirmation of insurance, certificate of placement, or the policy is
provided to the insured. The producer shall insert the current
toll-free telephone number of the Department of Insurance as provided
in paragraph 5 of the notice.
   (1) An industrial insured is an insured:
   (A) Which employs at least 25 employees on average during the
prior 12 months; and
   (B) Which has aggregate annual premiums for insurance for all
risks other than workers' compensation and health coverage totaling
no less than twenty-five thousand dollars ($25,000); or
   (C) Which obtains insurance through the services of a full-time
employee acting as an insurance manager or a continuously retained
insurance consultant. A "continuously retained insurance consultant"
does not include: (i) an agent or broker through whom the insurance
is being placed, (ii) a subagent or subproducer involved in the
transaction, or (iii) an agent or broker that is a business
organization employing or contracting with a person mentioned in
clauses (i) and (ii).
   (2) The surplus line broker shall be responsible to ensure that
the applicant is an industrial insured. A surplus line broker who
reasonably relies on information provided in good faith by the
applicant, whether directly or through the producer, shall be deemed
to be in compliance with this requirement.
   (d) For purposes of compliance with the requirement of subdivision
(a) that the signature of the applicant be obtained, the following
shall apply:
   (1) If the insurance transaction is not conducted at an in-person,
face-to-face meeting, the applicant's signature on the disclosure
form may be transmitted by the applicant to the agent or broker via
facsimile or comparable electronic transmittal.
   (2) In the case of commercial lines coverage, or personal
insurance coverage subject to Section 675 and any umbrella coverage
associated therewith, where an applicant requires that insurance
coverage be bound immediately, either because existing coverage will
lapse within two business days of the time the insurance is bound or
because the applicant is required to have coverage in place within
two business days, and the applicant cannot meet in person with the
agent or broker to sign the disclosure form, the agent or broker may
obtain the signature of the applicant within five days of binding
coverage, provided that the applicant may cancel the insurance so
placed within five days of receiving the disclosure form from the
agent or broker. The cancellation shall be on a pro rata basis, and
the applicant shall be entitled to the rescission or return of any
broker's fees charged for the placement. When a policy is canceled,
the broker shall inform the applicant that the broker's fee must be
returned and that the premium must be prorated.
   (e) Notwithstanding subdivision (a), this section shall not apply
to insurance issued or delivered in this state by a nonadmitted
Mexican insurer by and through a surplus line broker affording
coverage exclusively in the Republic of Mexico on property located
temporarily or permanently in, or operations conducted temporarily or
permanently within, the Republic of Mexico.

1764.2.  No surplus line broker shall issue any evidence of
insurance or cause or purport to cause any risk to be insured by a
nonadmitted insurer or advise any insured or applicant for insurance
that coverage has been or will be obtained from a nonadmitted insurer
unless:
   (a) The broker has prior written authority from the nonadmitted
insurer to cause the risk to be insured;
   (b) The broker has received advice in the ordinary course of
business that the coverage has been obtained; or
   (c) A policy of insurance covering the insured for the risk has
actually been issued by the nonadmitted insurer and delivered to the
insured or his or her representative.

1764.3.  If the surplus line broker acts in reliance on advice
received in accordance with subdivision (b) of Section 1764.2, the
broker shall deliver the policy to the insured or his or her
representative, and, if the delivery is not made within 30 days after
the date of the issuance of the certificate or upon which the risk
has been bound or the insured or applicant has been advised that
coverage has been or will be obtained, he or she shall deliver to the
insured either of the following:
   (a) A photostatic copy of evidence that the insurance has been
bound.
   (b) If the nonadmitted insurer is located outside the United
States, a cover note, placing slip or similar document evidencing
coverage issued or certified to by any broker located outside the
United States who actually placed that insurance with the nonadmitted
insurer.

1764.4.  The prior written authority, policy of insurance or copy of
evidence that insurance has been bound referred to in Section
1764.2, shall contain authentication by all persons assuming any risk
of loss, and, if there is more than one such person, both it and any
document issued or certified by the placing broker pursuant to
subdivision (b) of Section 1764.3 , shall contain a specification of
whether their obligation is joint or several, and if the latter, the
proportion of the obligation assumed by each person.

1764.5.  If insurance results from a transaction in which any
provision of Sections 1764.2 to 1764.4 is violated, such insurance is
subject to cancellation by the insured or by order of the
commissioner. Such cancellation shall be without penalty to the
insured.

1764.7.  Any person who willfully violates Section 1760.5, 1761,
1763, 1764, 1764.1, 1764.2, 1764.3, 1764.4, 1765.1, 1765.2, 1767, or
1780 is guilty of a public offense and punishable by imprisonment in
the state prison, or in a county jail for not exceeding one year or
by fine not exceeding ten thousand dollars ($10,000), or by both.

1765.  (a) A license under this chapter shall be applied for and
renewed by the filing with the commissioner of a written application
therefor, in accordance with Section 1652.
   (b) Subject to subdivision (f), the commissioner shall issue a
license authorizing any applicant who is trustworthy and competent to
transact an insurance brokerage business in a manner as to safeguard
the interest of the insured, to act as a surplus line broker from
the date of the license until the expiration date specified in
Section 1630.
   (c) An applicant for a surplus line broker's license shall, as
part of the application and a condition of the issuance of the
license, file a bond to the people of the State of California in the
sum of fifty thousand dollars ($50,000), conditioned that the
licensee will fully and faithfully comply with the requirements of
this chapter, and all applicable provisions of this code. The bond
shall be subject to Sections 1662 and 1663. A surplus line broker
bond is not required for an individual licensed as a surplus line
broker who transacts only on behalf of a licensed surplus line broker
organization.
   (d) The filing fee for a license to act as a surplus line broker
shall be one thousand dollars ($1,000) every two years, or for any
initial fractional license year. For an individual licensed as a
surplus line broker who only transacts on behalf of a surplus line
broker organization, the filing fee shall be five hundred dollars
($500) every two years, or for any initial fractional license year.
Every applicant for a business entity license, as provided in
subdivision (a) of Section 1765.2, shall provide the names of all
persons who may exercise the power and perform the duties under the
license. Whenever an organization licensed as a surplus line broker
desires to change, remove, or add to the natural person or persons
who are to transact insurance under authority of its license, it
shall immediately file an application or notice with the commissioner
for an endorsement changing its license accordingly, on a form
prescribed by the commissioner. The fee for adding or removing from
any surplus line broker's license issued to an organization the name
of any natural person, named thereon, shall be twenty-four dollars
($24). The commissioner shall require that the qualifying examination
provided by subdivision (a) of Section 1676 be taken by any natural
person named by the organization to exercise its agency or brokerage
powers who would be required to take and pass the qualifying
examination. That natural person or persons and the organization are
in all other respects subject to the provisions of this chapter and
the insurance laws.
   (e) The department is authorized to collect additional license
fees resulting from the increases in license fees provided by Chapter
29 of the Statutes of 2008 and shall credit any overpayment
resulting from reductions in license fees provided by that act.
   (f) A business entity licensed under this chapter shall provide
two hours of appropriate training to its employees who solicit,
negotiate, or effect insurance coverage placed by a nonadmitted
insurer. The training shall be given to each eligible employee every
five years. The surplus line advisory organization authorized
pursuant to Chapter 6.1 (commencing with Section 1780.50) shall
develop the curriculum for the training.
   (g) The license shall be renewed in accordance with, and subject
to, Sections 1717, 1718, 1719, and 1720.
   (h) The commissioner may deny, suspend, or revoke any license
applied for or granted pursuant to this chapter on all or any one of
the grounds and in accordance with the procedures provided in Article
6 (commencing with Section 1666) and Article 13 (commencing with
Section 1737) of Chapter 5, whenever the commissioner finds that the
applicant or licensee has committed a violation of any provision of
this code.

1765.1.  No surplus line broker shall place any coverage with a
nonadmitted insurer unless the insurer is domiciled in the Republic
of Mexico and the placement covers only liability arising out of the
ownership, maintenance, or use of a motor vehicle, aircraft, or boat
in the Republic of Mexico, or, at the time of placement, the
nonadmitted insurer meets the following requirements:
   (a) (1) Has established its financial stability, reputation, and
integrity, for the class of insurance the broker proposes to place,
by satisfactory evidence submitted to the commissioner through a
surplus line broker.
   (2) Meets one of the following requirements with respect to its
financial stability:
   (A) Has capital and surplus that together total at least fifteen
million dollars ($15,000,000). "Capital" shall be as defined in
Section 36. "Surplus" shall be defined as assets exceeding the sum of
liabilities for losses reported, expenses, taxes, and all other
indebtedness and reinsurance of outstanding risks as provided by law
and paid-in capital in the case of an insurer issuing or having
outstanding shares of capital stock. The type of assets to be used in
calculating capital and surplus shall be as follows: at least
fifteen million dollars ($15,000,000) shall be in the form of cash,
or securities of the same character and quality as specified in
Sections 1170 to 1182, inclusive, or in readily marketable securities
listed on regulated United States' national or principal regional
securities exchanges. The remaining assets shall be in the form just
described, or in the form of investments of substantially the same
character and quality as described in Sections 1190 to 1202,
inclusive. In calculating capital and surplus under this section, the
term "same character and quality" shall permit, but not require, the
commissioner to approve assets maintained in accordance with the
laws of another state or country. The commissioner shall be guided by
any limitations, restrictions, or other requirements of this code or
the National Association of Insurance Commissioners' Accounting
Practices and Procedures Manual in determining whether assets
substantially similar to those described in Sections 1190 to 1202,
inclusive, qualify. The commissioner shall retain the discretion to
disapprove or disallow any asset that is not of a sound quality, or
that he or she deems to create an unacceptable risk of loss to the
insurer or to policyholders. Letters of credit will not qualify as
assets in the calculation of surplus. If less than fifteen million
dollars ($15,000,000), the commissioner has affirmatively found that
the capital and surplus is adequate to protect California
policyholders. The commissioner shall consider, on determining
whether to make this finding, factors such as quality of management,
the capital and surplus of any parent company, the underwriting
profit and investment income trends, and the record of claims payment
and claims handling practices of the nonadmitted insurer.
   (B) In the case of an "Insurance Exchange" created and authorized
under the laws of individual states, maintains capital and surplus of
not less than fifty million dollars ($50,000,000) in the aggregate.
"Capital" shall be as defined in Section 36. "Surplus" shall be
defined as assets exceeding the sum of liabilities for losses
reported, expenses, taxes, and all other indebtedness and reinsurance
of outstanding risks as provided by law and paid-in capital in the
case of an insurer issuing or having outstanding shares of capital
stock. The type of assets to be used in calculating capital and
surplus shall be as follows: at least fifteen million dollars
($15,000,000) shall be in the form of cash, or securities of the same
character and quality as specified in Sections 1170 to 1182,
inclusive, or in readily marketable securities listed on regulated
United States' national or principal regional securities exchanges.
The remaining assets shall be in the form just described, or in the
form of investments of substantially the same character and quality
as described in Sections 1190 to 1202, inclusive. In calculating
capital and surplus under this section, the term "same character and
quality" shall permit, but not require, the commissioner to approve
assets maintained in accordance with the laws of another state or
country. The commissioner shall be guided by any limitations,
restrictions, or other requirements of this code or the National
Association of Insurance Commissioners' Accounting Practices and
Procedures Manual in determining whether assets substantially similar
to those described in Sections 1190 to 1202, inclusive, qualify. The
commissioner shall retain the discretion to disapprove or disallow
any asset that is not of a sound quality, or that he or she deems to
create an unacceptable risk of loss to the insurer or to
policyholders. Letters of credit shall not qualify as assets in the
calculation of surplus. In the case of an Insurance Exchange which
maintains funds for the protection of all Insurance Exchange
policyholders, each individual syndicate seeking to accept surplus
line placements of risks resident, located, or to be performed in
this state shall maintain minimum capital and surplus of not less
than six million four hundred thousand dollars ($6,400,000). Each
individual syndicate shall increase the capital and surplus required
by this paragraph by one million dollars ($1,000,000) each year until
it attains a capital and surplus of fifteen million dollars
($15,000,000). In the case of Insurance Exchanges that do not
maintain funds for the protection of all Insurance Exchange
policyholders, each individual syndicate seeking to accept surplus
line placement of risks resident, located, or to be performed in this
state shall meet the capital and surplus requirements of
subparagraph (A) of this paragraph.
   (C) In the case of a syndicate that is part of a group consisting
of incorporated individual insurers, or a combination of both
incorporated and unincorporated insurers, that at all times maintains
a trust fund of not less than one hundred million dollars
($100,000,000) in a qualified United States financial institution as
security to the full amount thereof for the United States surplus
line policyholders and beneficiaries of direct policies of the group,
including all policyholders and beneficiaries of direct policies of
the syndicate, and the full balance in the trust fund is available to
satisfy the liabilities of each member of the group of those
syndicates, incorporated individual insurers or other unincorporated
insurers, without regard to their individual contributions to that
trust fund, and the trust complies with the terms of and conditions
specified in paragraph (1) of subdivision (b), the syndicate is
excepted from the capital and surplus requirements of subparagraph
(A) of paragraph (2). The incorporated members of the group shall not
be engaged in any business other than underwriting as a member of
the group and shall be subject to the same level of solvency
regulation and control by the group's domiciliary regulator as are
the unincorporated members.
   (b) (1) In addition, to be eligible as a surplus line insurer, an
insurer not domiciled in one of the United States or its territories
shall have in force in the United States an irrevocable trust account
in a qualified United States financial institution, for the
protection of United States policyholders, of not less than five
million four hundred thousand dollars ($5,400,000) and consisting of
cash, securities acceptable to the commissioner which are authorized
pursuant to Sections 1170 to 1182, inclusive, readily marketable
securities acceptable to the commissioner that are listed on a
regulated United States national or principal regional security
exchange, or clean and irrevocable letters of credit acceptable to
the commissioner and issued by a qualified United States financial
institution. The trust agreement shall be in a form acceptable to the
commissioner. The funds in the trust account may be included in any
calculation of capital and surplus, except letters of credit, which
shall not be included in any calculation.
   (2) In the case of a syndicate seeking eligibility under
subparagraph (C) of paragraph (2) of subdivision (a), the syndicate
shall, in addition to the requirements of that subparagraph, at a
minimum, maintain in the United States a trust account in an amount
satisfactory to the commissioner that is not less than the amount
required by the domiciliary state of the syndicate's trust. The trust
account shall comply with the terms and conditions specified in
paragraph (1).
   (3) In the case of a group of incorporated insurers under common
administration that maintains a trust fund of not less than one
hundred million dollars ($100,000,000) in a qualified United States
financial institution for the payment of claims of its United States
policyholders, their assigns, or successors in interest and that
complies with the terms and conditions of paragraph (1) that has
continuously transacted an insurance business outside the United
States for at least three years, that is in good standing with its
domiciliary regulator, whose individual insurer members maintain
standards and a financial condition reasonably comparable to admitted
insurers, that submits to this state's authority to examine its
books and bears the expense of examination, and that has an aggregate
policyholder surplus of ten billion dollars ($10,000,000,000), the
group is excepted from the capital and surplus requirements of
subdivision (a).
   (c) Has caused to be provided to the commissioner the following
documents:
   (1) The financial documents as specified below, each showing the
insurer's condition as of a date not more than 12 months prior to
submission:
   (A) A copy of an annual statement, prepared in the form prescribed
by the NAIC. For an alien insurer, in lieu of an annual statement, a
licensee may submit a form as set forth by regulation and as
prepared by the insurer, and, if listed by the IID, a copy of the
complete information as required in the application for listing by
the IID.
   (B) A copy of an audited financial report on the insurer's
condition that meets the standards of subparagraph (D) for foreign
insurers or subparagraph (E) for alien insurers.
   (C) If the insurer is an alien:
   (i) A certified copy of the trust agreement referenced in
subdivision (b).
   (ii) A verified copy of the most recent quarterly statement or
list of the assets in the trust.
   (D) Financial reports filed pursuant to this section by foreign
insurers shall conform to the following standards:
   (i) Financial documents shall be certified.
   (ii) An audited financial report shall constitute a supplement to
the insurer's annual statement, as required by the annual statement
instructions issued by the NAIC.
   (iii) An audited financial report shall be prepared by an
independent certified public accountant or accounting firm in good
standing with the American Institute of Certified Public Accountants
and in all states where licensed to practice; and be prepared in
conformity with statutory accounting practices prescribed, or
otherwise permitted, by the insurance regulator of the insurer's
domiciliary jurisdiction.
   (iv) An audited financial report shall include information on the
insurer's financial position as of the end of the most recent
calendar year, and the results of its operations, cashflows, and
changes in capital and surplus for the year then ended.
   (v) An audited financial report shall be prepared in a form and
using language and groupings substantially the same as the relevant
sections of the insurer's annual statement filed with its domiciliary
jurisdiction, and presenting comparatively the amounts as of
December 31 of the most recent calendar year and the amounts as of
December 31 of the preceding year.
   (E) Financial reports filed pursuant to this section by alien
insurers shall conform to the following standards:
   (i) Except as provided in clause (ii) of subparagraph (C),
financial documents should be certified, if certification of a
financial document is not available, the document shall be verified.
   (ii) Financial documents should be expressed in United States
dollars, but may be expressed in another currency, if the exchange
rate for the other currency as of the date of the document is also
provided.
   (iii) The responses provided pursuant to subparagraph (A) of
paragraph (1) on the form submitted in lieu of an annual statement
should follow the most recent ISI Guide to Alien Reporting Format,
"Standard Definitions of Accounting Items." Responses that do not
agree with a standard definition shall be fully explained in the
form.
   (iv) An audited financial report shall be prepared by an
independent licensed auditor in the insurer's domiciliary
jurisdiction or in any state.
   (v) An audited financial report shall be prepared in accord with
either (I) Generally Accepted Auditing Standards that prescribe
Generally Accepted Accounting Principles, or (II) International
Accounting Standards as published and revised from time to time by
the International Auditing Guidelines published by the International
Auditing Practice Committee of the International Federation of
Accountants; and shall include financial statement notes and a
summary of significant accounting practices.
   (F) The commissioner may accept, in lieu of a document described
above, any certified or verified financial or regulatory document,
statement, or report if the commissioner finds that it possesses
reliability and financial detail substantially equal to or greater
than the document for which it is proposed to be a substitute.
   (G) If one of the financial documents required to be submitted
under subparagraphs (A) and (B) is dated within 12 months of
submission, but the other document is not so dated, the licensee may
use the outdated document if it is accompanied by a supplement. The
supplement must meet the same requirements which apply to the
supplemented document, and must update the outdated document to a
date within the prescribed time period, preferably to the same date
as the nonsupplemented document.
   (2) A certified copy of the insurer's license issued by its
domiciliary jurisdiction, plus a certification of good standing,
certificate of compliance, or other equivalent certificate, from
either that jurisdiction or, if the jurisdiction does not issue those
certificates, from any state where it is licensed.
   (3) Information on the insurer's agent in California for service
of process, including the agent's full name and address. The agent's
address must include a street address where the agent can be reached
during normal business hours.
   (4) The complete street address, mailing address, and telephone
number of the insurer's principal place of business.
   (5) A certified or verified explanation, report, or other
statement, from the insurance regulatory office or official of the
insurer's domiciliary jurisdiction, concerning the insurer's record
regarding market conduct and consumer complaints; or, if that
information cannot be obtained from that jurisdiction, then any other
information that the licensee can procure to demonstrate a good
reputation for payment of claims and treatment of policyholders.
   (6) A verified statement, from the insurer or licensee, on whether
the insurer or any affiliated entity is currently known to be the
subject of any order or proceeding regarding conservation,
liquidation, or other receivership; or regarding revocation or
suspension of a license to transact insurance in any jurisdiction; or
otherwise seeking to stop the insurer from transacting insurance in
any jurisdiction. The statement shall identify the proceeding by
date, jurisdiction, and relief or sanction sought; and shall attach a
copy of the relevant order.
   (7) A certified copy of the most recent report of examination or
an explanation if the report is not available.
   (8) A list of all California surplus line brokers authorized by
the insurer to issue policies on its behalf, and any additions to or
deletions from that list.
   (d) (1) Has provided any additional information or documentation
required by the commissioner that is relevant to the financial
stability, reputation, and integrity of the nonadmitted insurer. In
making a determination concerning financial stability, reputation,
and integrity of the nonadmitted insurer, the commissioner shall
consider any analyses, findings, or conclusions made by the National
Association of Insurance Commissioners (NAIC) in its review of the
insurer for purposes of inclusion on or exclusion from the list of
authorized nonadmitted insurers maintained by the NAIC. The
commissioner may, but shall not be required to, rely on, adopt, or
otherwise accept any analyses, findings, or conclusions of the NAIC,
as the commissioner deems appropriate. In the case of a syndicate
seeking eligibility under subparagraph (C) of paragraph (2) of
subdivision (a), the commissioner may, but shall not be required to,
rely on, adopt, or otherwise accept any analyses, findings, or
conclusions of any state, as the commissioner deems appropriate, as
long as that state, in its method of regulation and review, meets the
requirements of paragraph (2).
   (2) The regulatory body of the state shall regularly receive and
review the following: (A) an audited financial statement of the
syndicate, prepared by a certified or chartered public accountant;
(B) an opinion of a qualified actuary with regard to the syndicate's
aggregate reserves for payment of losses or claims and payment of
expenses of adjustment or settlement of losses or claims; (C) a
certification from the qualified United States financial institution
that acts as the syndicate's trustee, respecting the existence and
value of the syndicate's trust fund; and (D) information concerning
the syndicate's or its manager's operating history, business plan,
ownership and control, experience and ability, together with any
other pertinent factors, and any information indicating that the
syndicate or its manager make reasonably prompt payment of claims in
this state or elsewhere. The regulatory body of the state shall have
the authority, either by law or through the operation of a valid and
enforceable agreement, to review the syndicate's assets and
liabilities and audit the syndicate's trust account, and shall
exercise that authority with a frequency and in a manner satisfactory
to the commissioner.
   (e) Has established that:
   (1) All documents required by subdivisions (c) and (d) have been
filed. Each of the documents appear after review to be complete,
clear, comprehensible, unambiguous, accurate, and consistent.
   (2) The documents affirm that the insurer is not subject in any
jurisdiction to an order or proceeding that:
   (A) Seeks to stop it from transacting insurance.
   (B) Relates to conservation, liquidation, or other receivership.
   (C) Relates to revocation or suspension of its license.
   (3) The documents affirm that the insurer has actively transacted
insurance for the three years immediately preceding the filing made
under this section, unless an exemption is granted. As used in this
paragraph, "insurer" does not include a syndicate of underwriting
entities. The commissioner may grant an exemption if the licensee has
applied for exemption and demonstrates either of the following:
   (A) The insurer meets the condition for any exception set forth in
subdivision (a), (b), or (c) of Section 716.
   (B) If the insurer has been actively transacting insurance for at
least 12 months, and the licensee demonstrates that the exemption is
warranted because the insurer's current financial strength, operating
history, business plan, ownership and control, management
experience, and ability, together with any other pertinent factors,
make three years of active insurance transaction unnecessary to
establish sufficient reputation.
   (4) The documents confirm that the insurer holds a license to
issue insurance policies (other than reinsurance) to residents of the
jurisdiction that granted the license unless an exemption is
granted. The commissioner may grant an exemption if the licensee has
applied for an exemption and demonstrates that the exemption is
warranted because the insurer proposes to issue in California only
commercial coverage, and is wholly owned and actually controlled by
substantial and knowledgeable business enterprises that are its
policyholders and that effectively govern the insurer's destiny in
furtherance of their own business objectives.
   (5) The information filed pursuant to paragraph (5) of subdivision
(c) or otherwise filed with or available to the commissioner,
including reports received from California policyholders, shall
indicate that the insurer makes reasonably prompt payment of claims
in this state or elsewhere.
   (6) The information available to the commissioner shall not
indicate that the insurer offers in California a licensee products or
rates that violate any provision of this code.
   (f) Has been placed on the list of eligible surplus line insurers
by the commissioner. The commissioner shall establish a list of all
surplus line insurers that have met the requirements of subdivisions
(a) to (e), inclusive, and shall publish a master list at least
semiannually. Any insurer receiving approval as an eligible surplus
line insurer shall be added by addendum to the list at the time of
approval, and shall be incorporated into the master list at the next
date of publication. If an insurer appears on the most recent list,
it shall be presumed that the insurer is an eligible surplus line
insurer, unless the commissioner or his or her designee has mailed or
causes to be mailed notice to all surplus line brokers that the
commissioner has withdrawn the insurer's eligibility. Upon receipt of
notice, the surplus line broker shall make no further placements
with the insurer. Nothing in this subdivision shall limit the
commissioner's discretion to withdraw an insurer's eligibility.
   (g) (1) Except as provided by paragraph (2), whenever the
commissioner has reasonable cause to believe, and determines after a
public hearing, that any insurer on the list established pursuant to
subdivision (f), (A) is in an unsound financial condition, (B) does
not meet the eligibility requirements under subdivisions (a) to (e),
inclusive, (C) has violated the laws of this state, or (D) without
justification, or with a frequency so as to indicate a general
business practice, delays the payment of just claims, the
commissioner may issue an order removing the insurer from the list.
Notice of hearing shall be served upon the insurer or its agent for
service of process stating the time and place of the hearing and the
conduct, condition, or ground upon which the commissioner would make
his or her order. The hearing shall occur not less than 20 days, nor
more than 30 days after notice is served upon the insurer or its
agent for service of process.
   (2) If the commissioner determines that an insurer's immediate
removal from the list is necessary to protect the public or an
insured or prospective insured of the insurer, or, in the case of an
application by an insurer to be placed on the list which is being
denied by the commissioner, the commissioner may issue an order
pursuant to paragraph (1) without prior notice and hearing. At the
time an order is served pursuant to this paragraph to an insurer on
the list, the commissioner shall also issue and serve upon the
insurer a statement of the reasons that immediate removal is
necessary. Any order issued pursuant to this paragraph shall include
a notice stating the time and place of a hearing on the order, which
shall be not less than 20 days, nor more than 30 days after the
notice is served.
   (3) Notwithstanding paragraphs (1) and (2), in any case where the
commissioner is basing a decision to remove an insurer from the list,
or deny an application to be placed on the list, on the failure of
the insurer or applicant to comply with, meet or maintain any of the
objective criteria established by this section, or by regulation
adopted pursuant to this section, the commissioner may so specify
this fact in the order, and no hearing shall be required to be held
on the order.
   (4) Notwithstanding paragraphs (1) and (2), the commissioner may,
without prior notice or hearing, remove from the list established
pursuant to subdivision (f) any insurer that has failed or refused to
timely provide documents required by this section, or any
regulations adopted to implement this section. In the case of removal
pursuant to this paragraph, the commissioner shall notify all
surplus line brokers of the action.
   (h) In addition to any other statements or reports required by
this chapter, the commissioner may also address to any licensee a
written request for full and complete information respecting the
financial stability, reputation and integrity of any nonadmitted
insurer with whom the licensee has dealt or proposes to deal in the
transaction of insurance business. The licensee so addressed shall
promptly furnish in written or printed form so much of the
information requested as he or she can produce together with a signed
statement identifying the same and giving reasons for omissions, if
any. After due examination of the information and accompanying
statement, the commissioner may, if he or she believes it to be in
the public interest, order the licensee in writing to place no
further insurance business on property located or operations
conducted within or on the lives of persons who are residents of this
state with the nonadmitted insurer on behalf of any person. Any
placement in the nonadmitted insurer made by a licensee after receipt
of that order is a violation of this chapter. The commissioner may
issue an order when documents submitted pursuant to subdivisions (c)
and (d) do not meet the criteria of subdivisions (a) to (e),
inclusive, or when the commissioner obtains documents on an insurer
and the insurer does not meet the criteria of subdivisions (a) to
(e), inclusive.
   (i) The commissioner shall require, at least annually, the
submission of records and statements as are reasonably necessary to
ensure that the requirements of this section are maintained.
   (j) The commissioner shall establish by regulation a schedule of
fees to cover costs of administering and enforcing this chapter.
   (k) (1) Insurance may be placed on a limited basis with insurers
not on the list established pursuant to this section if all of the
following conditions are met:
   (A) The use of multiple insurers is necessary to obtain coverage
for 100 percent of the risk.

        (B) At least 80 percent of the risk is placed with admitted
insurers or insurers that appear on the list of eligible nonadmitted
insurers.
   (C) The placing surplus line broker submits to the commissioner,
or his or her designee, copies of all documentation relied upon by
the surplus line broker to make the broker's determination that the
financial stability, reputation, and integrity of the unlisted
insurer or insurers, are adequate to safeguard the interest of the
insured under the policy. This documentation, and any other
documentation regarding the unlisted insurer requested by the
commissioner, shall be submitted no more than 30 days after the
insurance is placed with the unlisted insurer for the initial
placement by that broker with the particular unlisted insurer, and
annually thereafter for as long as the broker continues to make
placements with the unlisted insurer pursuant to this paragraph.
   (D) The insured has aggregate annual premiums for all risks other
than workers' compensation or health coverage totaling no less than
one hundred thousand dollars ($100,000).
   (2) Insurance may not be placed pursuant to paragraph (1) if any
of the following applies:
   (A) The unlisted insurer has for any reason been objected to by
the commissioner pursuant to this section, removed from the list, or
denied placement on the list.
   (B) The insurance includes coverage for employer-sponsored
medical, surgical, hospital, or other health or medical expense
benefits payable to the employee by the insurer.
   (C) The insurance is mandatory under the laws of the federal
government, this state, or any political subdivision thereof, and
includes any portion of limits of coverage mandated by those laws.
   (D) The insured is a multiple employer welfare arrangement, as
defined in Section 1002(40)(A) of Title 29 of the United States Code,
or any other arrangement among two or more employers that are not
under common ownership or control, which is established or maintained
for the primary purpose of providing insurance benefits to the
employees of two or more employers.
   (E) Unlisted insurers represent a disproportionate portion of the
lower layers of the coverage.
   (3) Nothing in this section is intended to alter any duties of a
surplus line broker pursuant to subdivision (b) of Section 1765 or
other laws of this state to safeguard the interests of the insured
under the policy in recommending or placing insurance with a
nonadmitted insurer.
   (4) Placements authorized by this subdivision are intended to
provide sophisticated insurance purchasers with a means to obtain
necessary commercial insurance coverage from nonadmitted insurers not
listed by the commissioner in situations where it is not
commercially possible to fully obtain that coverage from either
admitted or listed insurers. This subdivision shall not be deemed to
permit surplus line brokers to place with nonadmitted insurers common
commercial or personal line coverages for insureds that can be
placed with insurers that are admitted or listed pursuant to this
section, whether the insured is an individual insured, or a group
created primarily for the purpose of purchasing insurance.
   (l) As used in this section:
   (1) "Certified" means an originally signed or sealed statement,
dated not more than 60 days before submission, made by a public
official or other person, attached to a copy of a document, that
attests that the copy is a true copy of the original, and that the
original is in the custody of the person making the statement.
   (2) "Domiciliary jurisdiction" means the state, nation, or
subdivision thereof under the laws of which an insurer is
incorporated or otherwise organized.
   (3) "Domiciliary state of the syndicate's trust" means the state
in which the syndicate's trust fund is principally maintained and
administered for the benefit of the syndicate's policyholders in the
United States.
   (4) "IID" means the International Insurers Department.
   (5) "Insurer" means (unless the context indicates otherwise)
"nonadmitted" insurers that are either "foreign" or "alien" insurers,
as those terms are defined in Sections 25, 27, and 1580, and
syndicates whose members consist of individual incorporated insurers
who are not engaged in any business other than underwriting as a
member of the group and individual unincorporated insurers, provided
all the members are subject to the same level of solvency regulation
and control by the group's domiciliary regulator. The term "insurer"
includes all nonadmitted insurers selling insurance to or through
purchasing groups as defined in the Liability Risk Retention Act of
1986 (15 U.S.C. Sec. 3901 et seq.) and the California Risk Retention
Act of 1990 (Chapter 1.5 (commencing with Section 125) of Part 1 of
Division 1), except insurers that are risk retention groups as
defined by those acts.
   (6) "ISI" means Insurance Solvency International.
   (7) "Licensee" means a surplus line broker as defined in Section
47.
   (8) "NAIC" means the National Association of Insurance
Commissioners or its successor organization.
   (9) "NAIIO" means the Nonadmitted Alien Insurer Information Office
of the NAIC or its successor office.
   (10) "State" means any state of the United States; the District of
Columbia; a commonwealth, or a territory.
   (11) "Verified" means a document or copy accompanied by an
originally signed statement, dated not more than 60 days before
submission, from a responsible executive or official who has
authority to provide the statement and knowledge whereof he or she
speaks, attesting either under oath before a notary public, or under
penalty of perjury under California law, that the assertions made in
the document are true.
   (m) With respect to a nonadmitted insurer that is listed as an
authorized surplus line insurer as of December 31, 1994, pursuant to
Sections 2174.1 to 2174.14, inclusive, of Title 10 of the California
Code of Regulations, this section shall not be effective until the
subsequent expiration of the listing of that insurer. Nothing in the
bill that amended this section during the 1994 portion of the 1993-94
Regular Session is intended to repeal or imply there is not
authority to adopt, or to have adopted, or to continue in force, any
regulation, or part thereof, with respect to surplus line insurance
which is not clearly inconsistent with it.

1765.2.  (a) A license under this chapter may be issued to an
individual or any legal business entity. If issued to a business
entity or individual that maintains more than one surplus line office
from which it transacts that business with California residents, it
shall name the natural person or persons located at each such surplus
line office maintained by the licensee who is or are to be
responsible for the proper discharge at each office of all duties
placed upon the licensee acting as a surplus line broker and each of
these natural persons must be licensed as a surplus line broker. Each
natural person shall meet all of the requirements for the license.
   (b) Every application for a license filed by a corporation shall
contain the names and addresses of all stockholders owning 10 percent
or more of the corporation's stock, and of all officers and
directors of the corporation. Every licensed corporation shall file a
written notice with the commissioner of all changes, except address
changes, of its stockholders who own 10 percent or more of the
corporation's stock and of all officers and directors of the
corporation.

1765.3.  Any natural person applying for a license to act as a
surplus line broker shall prove his or her competency by showing he
or she holds an existing license to act as a fire and casualty
broker-agent, which requires passing the qualifying examination for
such an insurance broker's license.

1765.4.  If an applicant for any license under this chapter, within
one year from the date of the receipt by the commissioner of the
application, whether or not the filing is complete, neither fully
qualifies for and receives such license on a permanent basis, nor is
denied its issue, such application is automatically denied without
prejudice to the filing of a new application for such license.

1766.  A payment of premium to a surplus line broker acting for a
person other than himself or herself in negotiating, continuing, or
renewing any policy of insurance under this chapter shall be deemed
to be payment to the insurer, notwithstanding any conditions or
stipulations in the policy or contract. Nothing in this section shall
be deemed to relieve a surplus line broker or special lines' surplus
line broker of any obligation owed to an insured or applicant.

1767.  A resident surplus line broker at all times shall maintain in
good faith an office in this state and if he or she maintains more
than one surplus line office in this state, he or she shall designate
one of them as his or her principal surplus line office in this
state and shall notify the commissioner of that designation. He or
she shall report to the commissioner the addresses of all surplus
line offices maintained by him or her in this state and any change in
location of any of those offices. A nonresident surplus line broker
at all times shall maintain in good faith an office in the state or
territory of the United States in which he or she is licensed as a
resident surplus line broker, and if he or she maintains more than
one surplus line office in that state, he or she shall designate one
of them as his or her principal surplus line office in that state and
shall notify the commissioner of the designation. A resident
licensee shall report to the commissioner the addresses of all
surplus line offices maintained in this state and any change in
location of any of those offices. Nonresident licensees shall report
to the commissioner the addresses of all surplus line offices
maintained in the state or territory of the United States in which
the resident surplus line license is maintained and any change in
location of any of those offices.

1768.  A resident surplus line broker shall keep in this state
complete records of the business transacted by him or her with
nonadmitted insurers under his or her license as a surplus line
broker. A nonresident surplus line broker shall keep in the state
where he or she is licensed as a resident surplus line broker
complete records of the business transacted by him or her with
nonadmitted insurers under his or her California nonresident surplus
line broker license. After notice and hearing, the commissioner shall
promulgate reasonable rules and regulations specifying the manner
and type of records to be maintained by surplus line brokers and the
location or locations where those records shall be kept.

1769.  Whenever required so to do by the commissioner, such surplus
line broker shall furnish to the commissioner a list of the admitted
insurers from which the entire amount of insurance desired was not
obtainable.

1770.  The commissioner, whenever he deems necessary, may examine
the books and accounts of any surplus line broker for the purpose of
determining whether or not the broker is conducting his business in
accordance with the provisions of this chapter. For the purpose of
making such examination such broker shall allow the commissioner free
access at all times to all the broker's books and papers, and the
commissioner shall thoroughly inspect and examine all of the broker's
affairs.

1771.  The costs and expenses of all examinations by the
commissioner shall be paid as prescribed in Section 736.

1772.  (a) A surplus line insurer may be sued upon any cause of
action arising in this state under any surplus line insurance
contract made by it, or any evidence of insurance issued or delivered
by the surplus line broker, pursuant to the procedure set forth in
Sections 1610 to 1620, inclusive. Any policy or evidence of insurance
issued by the surplus line insurer or the surplus line broker shall
contain a provision stating the substance of this section, and
designating the person to whom the commissioner shall mail process.
   (b) Every surplus line insurer assuming a surplus line insurance
shall be deemed thereby to have subjected itself to this chapter.
   (c) The remedies provided by this section shall be in addition to
any other methods provided by law for service of process.

1773.  Surplus line brokers may advertise and solicit using print,
electronic media, direct mail, and all other advertising or marketing
media. These advertisements and solicitations may include a
description of nonadmitted insurance products available through the
surplus line broker, and may include the name of any nonadmitted
insurer, provided that all of the following apply: (a) the insurer is
authorized to accept placements from the surplus line broker
pursuant to Section 1765.1, (b) a nonadmitted insurer's name is not
used in connection with any nonadmitted insurance product of that
insurer, (c) the unlicensed status of the insurer or of the insurance
products is disclosed in type of a size no smaller than any
telephone number, address, or fax number appearing in the
advertisement or solicitation, and (d) the advertisement or
solicitation does not contain any assertion, representation, or
statement with respect to the business of insurance, or with respect
to any person in the conduct of his or her insurance business, that
is untrue, deceptive, or misleading, and that is known, or that by
the exercise of reasonable care should be known, to be untrue,
deceptive, or misleading. If the insurance is available from an
eligible nonadmitted insurer that is a member of a group of insurers,
advertisements and solicitations in accordance with this section may
include the name of the group. A surplus line broker's
advertisements and solicitations shall not include any information
about a nonadmitted insurer's premiums or rates.

1774.  (a) On or before the first day of March of each year the
surplus line broker shall file with the commissioner a sworn
statement of all business transacted under his or her surplus line
license during the last preceding calendar year. Such statement shall
contain an account of the business done by the surplus line broker
for the prior year.
   (b) For purposes of this chapter, "business done" or "business
transacted" under a surplus line broker's license means all insurance
regarding which that surplus line broker is required to file a
confidential written report with the commissioner or the commissioner'
s designee pursuant to subdivision (a) of Section 1763. If two or
more persons licensed as surplus line brokers are involved in placing
a policy, only the one who is responsible for negotiating, effecting
the placement, remitting the premium to the nonadmitted insurer or
its representatives and filing the confidential written report
pursuant to subdivision (a) of Section 1763, shall be considered
transacting under his or her surplus line broker's license.
   (c) The date on which the surplus line broker transacting a policy
prepares a bill or invoice for payment of all or part of the
premiums due, shall be considered the date on which that business was
done or transacted, subject to paragraph (d). This date shall be
shown on the face of the bill or invoice and shall be referred to as
the "invoice date."
   (d) (1) The invoice date shall be no more than 60 days after the
policy effective date and no more than 60 days after the insurance
was placed with a nonadmitted insurer, except as provided in
paragraph (2) of this section.
   (2) For purposes of this chapter, the amount of gross premium to
be reported, if premiums are billed and payable in installments,
shall be the amount of the installment premium, provided the amount
and due date of each installment, or the basis for determining each
installment, is identifiable in the policy or an endorsement, and
either of the following conditions is satisfied:
   (A) Installments under the policy are not billed more frequently
than once per month.
   (B) If more than one installment is billed in any month, the
commissioner determines, in his or her discretion, that the
installment billing method used does not unduly burden the
commissioner's ability to accurately determine the amount of premium
paid by the insured.

1775.  All such reports and statements shall be made on blanks
furnished to the surplus line broker by the commissioner on
application therefor.

1775.1.  (a) For the calendar year 1995, and each calendar year
thereafter, every surplus line broker whose annual tax for the
preceding calendar year was five thousand dollars ($5,000) or more
shall make monthly installment payments on account of the annual tax
on business done during the current calendar year imposed by Section
1775.5.
   (b) Notwithstanding any other provision, the commissioner may
relieve a surplus line broker of his or her obligation to make
monthly payments where the broker establishes to the satisfaction of
the commissioner that either the broker has ceased to transact
business in this state, or his or her annual tax for the current year
will be less than five thousand dollars ($5,000).

1775.2.  On or before February 1 of each year, the commissioner
shall post on the department's Internet Web site the installment
payment forms prescribed by the commissioner to accompany surplus
line tax remittances if monthly installment payments are required by
Section 1775.1. Failure to secure those forms shall not relieve any
broker from making or paying monthly installment payments.

1775.3.  Each surplus line broker required to make monthly
installment payments shall remit them on or before the first day of
the third calendar month following the end of the accounting month in
which the business was done. The annual payment under Section 1775.5
shall be in lieu of an installment payment under this section for
the accounting month of December. Remittances for those payments
shall be made payable to the commissioner and shall be made by
electronic fund transfer in accordance with Section 1775.8 or
delivered to the office of the commissioner, accompanied by an
installment payment form prescribed by the commissioner if remittance
by electronic fund transfer is not mandatory under Section 1775.8.

1775.4.  (a) The amount of the payment shall be 3 percent of the
gross premiums less return premiums upon business done by the surplus
line broker under the authority of his or her license during the
calendar month ending two calendar months immediately preceding the
due date of the payment, as specified in Section 1775.3, excluding
gross premiums and return premiums paid by him or her upon business
governed by the provisions of Section 1760.5. If during any calendar
month those return premiums upon business done by a surplus line
broker exceed the gross premiums upon the business done by him or her
in that calendar month, then no payment shall be payable by him or
her in respect to that calendar month, and he or she may carry
forward that excess to the next succeeding calendar month or months
and apply it in reduction of the taxable premiums on business done by
him or her in that succeeding calendar month or months. Even though
no payment shall be payable by the broker, he or she shall file a
return showing that his or her return premiums exceeded his or her
gross premiums.
   (b) In determining the applicability of subdivision (a) of Section
1775.1 to a surplus line broker who has acquired the business of
another surplus line broker, the amount of tax liability of the
acquired broker for the immediately preceding calendar year shall be
added to the amount of the tax liability of the acquiring broker for
the immediately preceding calendar year.
   (c) All amounts paid, other than penalties and interest, shall be
allowed as a credit on the annual tax imposed by Section 1775.5.
   (d) If the total amount of monthly installment payments for any
calendar year exceeds the amount of annual tax for that year, the
excess shall be treated as an overpayment of annual tax and be
allowed as a credit or refund.
   (e) A penalty of 10 percent of the amount of the monthly payment
due shall be levied upon and paid by any surplus line broker who
fails to make the necessary payment within the time required, plus
interest at the rate of 1 percent per calendar month or fraction
thereof from the due date of the payment until the date payment is
received by the commissioner, but not for any period after the due
date of the annual tax. The penalty and interest shall be applied as
prescribed in Section 12636.5 of the Revenue and Taxation Code. The
commissioner may remit the penalty in a case where he or she finds,
as a result of examination or otherwise, that the failure of, or
delay in, payment arose out of excusable mistake or excusable
inadvertence.
   (f) For any part of a payment required that was not made within
the time required by law, when the nonpayment or late payment was due
to fraud on the part of the taxpayer, a penalty of 25 percent of the
amount unpaid shall be added thereto, in addition to all other
penalties otherwise imposed.
   (g) The commissioner, upon a showing of good cause, may extend for
not to exceed 10 days the time for making a monthly payment. The
extension may be granted at any time, provided that a request
therefor is filed with the commissioner within or prior to the period
for which the extension may be granted. Any surplus line broker to
whom an extension is granted shall, in addition to the monthly
payment, pay interest at the rate of 1 percent per month, or fraction
thereof, from the due date until the annual tax due date.

1775.5.  (a) Every surplus line broker shall annually, on or before
the first day of March of each year pay to the Insurance Commissioner
for the use of the State of California a tax of 3 percent of the
gross premiums less return premiums upon business done by him or her
under authority of his or her license during the preceding calendar
year, excluding any portions of premiums upon business done involving
the risk finance portion of any blended finite risk product used in
the financing element of state or federal Superfund environmental
settlements involving remediation of soil or groundwater
contamination or by the provisions of Section 1760.5. If during any
calendar year 3 percent of such return premiums upon business done by
a surplus line broker exceed 3 percent of the gross premiums upon
such business done by him or her in that year, then he or she may
either carry forward such excess to the next succeeding year and
apply it as a credit against 3 percent of gross premiums on such
business done by him or her in such succeeding year, or he or she may
elect to receive, and thereupon be paid a refund equal to the amount
of taxes theretofore paid by him or her on such excess of return
premiums paid over gross premiums received.
   (b) For the purpose of determining such tax, the total premium
charged for all such nonadmitted insurance placed in a single
transaction with one underwriter or group of underwriters, whether in
one or more policies, shall be allocated to this state in such
proportion as the total premium on the insured properties or
operations in this state, as computed on the exposure in this state
on the basis of any single standard rating method in use in all
states or countries where such insurance applies, bears to the total
premium so computed in all states or countries in which such
nonadmitted insurance may apply. This provision shall not apply to
interstate motor transit operations conducted between this and other
states. With respect to such operations surplus line tax shall be
payable on the entire premium charged on all nonadmitted insurance,
less the following:
   (1) Such portion of the premium as is determined, as herein
provided, to have been charged for operations in other states taxing
such premium on operations in such states of an insured maintaining
its headquarters office in this state.
   (2) The premium for any operations outside of this state of an
insured who maintains a headquarters operating office outside of this
state and a branch office in this state.
   (c) A penalty of 10 percent of the amount of the payment due
pursuant to this section shall be levied upon and paid by any surplus
line broker who fails to make the necessary payment within the time
required, plus interest at the rate of 1 percent per calendar month
or fraction thereof, from March 1, the due date of the annual tax,
until the date the payment is received by the commissioner. The
penalty and interest shall be applied as prescribed in Section
12636.5 of the Revenue and Taxation Code. The commissioner, upon a
showing of good cause, may extend for a period not to exceed 30 days,
the time for filing a tax return or paying any amount required to be
paid with the return. The extension may be granted at any time,
provided that a request therefor is filed with the commissioner
within, or prior to, the period for which the extension may be
granted.
   Any surplus line broker to whom an extension is granted shall, in
addition to the tax, pay interest at the rate of 1 percent per month
or fraction thereof from March 1, until the date of payment. The
commissioner may remit the penalty in a case where the commissioner
finds, as a result of examination or otherwise, that the failure of
or delay in payment arose out of excusable mistake or excusable
inadvertence.
   (d) For any part of a payment required by this section or by
Section 1775.4 which was not made within the time required by law,
when such nonpayment or late payment was due to fraud on the part of
the broker, a penalty of 25 percent of the amount unpaid shall be
added thereto, in addition to all other penalties otherwise imposed.
   (e) For the purposes of this section these terms shall have the
following meanings:
   (1) "Blended finite risk product" means a contractual arrangement
combining risk finance with traditional risk transfer, where a
distinct portion of the program cost represents the funding of a
known, existing, nonfortuitous future cost, obligation,
responsibility, or liability at its discounted net present value, and
another portion of the program cost represents risk transfer for
losses which have yet to occur related to the cost, obligation,
responsibility, or liability that is the subject of the program.
   (2) "Risk financing" means that portion of any blended finite risk
product which represents the funding of a known, existing,
nonfortuitous future cost, obligation, responsibility, or liability.
   (3) "Risk finance" or "financing element" means a method of
funding for a known future cost over a long time horizon in
current-value dollars using the principle of net present value
discounting.

1775.6.  All tax moneys received by the commissioner pursuant to
this chapter shall be transmitted to the State Treasurer to be
deposited in the State Treasury to the credit of the Insurance Tax
Fund. Upon transmitting moneys to the State Treasurer, the
commissioner shall furnish the Controller with a record of the amount
transmitted and the surplus line brokers from whom the moneys have
been received.

1775.7.  The money in the Insurance Tax Fund received from the
commissioner pursuant to Section 1775.6 is hereby appropriated as
follows:
   (a) To pay the refunds authorized by this chapter.
   (b) The balance of the money in the fund shall, on order of the
Controller, be transferred to the State General Fund.

1775.8.  (a) On and after January 1, 1994, and before January 1,
1995, every surplus line broker whose annual taxes for business done
in calendar year 1992 or whose quarterly taxes for business done in
calendar year 1993 exceed fifty thousand dollars ($50,000) shall make
payment by electronic funds transfer. On and after January 1, 1995,
every surplus line broker whose annual taxes for business done in
calendar year 1993 or in any calendar year thereafter exceed twenty
thousand dollars ($20,000) shall make payment by electronic funds
transfer. The surplus line broker shall choose one of the acceptable
methods described in Section 45 for completing the electronic funds
transfer.
   (b) Payment is deemed complete on the date the electronic funds
transfer is initiated, if settlement to the state's demand account
occurs on or before the banking day following the date the transfer
is initiated. If settlement to the state's demand account does not
occur on or before the banking day following the date the transfer is
initiated, payment is deemed to occur on the date settlement occurs.
   (c) (1) Any surplus line broker required to remit taxes by
electronic funds transfer pursuant to this section who remits those
taxes by means other than an appropriate electronic funds transfer,
shall be assessed a penalty in an amount equal to 10 percent of the
taxes due at the time of the payment.
   (2) If the department finds that a surplus line broker's failure
to make payment by an appropriate electronic funds transfer in
accordance with subdivision (a) is due to reasonable cause or
circumstances beyond the surplus line broker's control, and occurred
notwithstanding the exercise of ordinary care and in the absence of
willful neglect, that surplus line broker shall be relieved of the
penalty provided in paragraph (1).
   (3) Any surplus line broker seeking to be relieved of the penalty
provided in paragraph (1) shall file with the department a statement
under penalty of perjury setting forth the facts upon which the claim
for relief is based.

1775.9.  (a) If the commissioner determines that the amount of tax
reported by the surplus line broker is less than the tax disclosed by
the commissioner's examination, the commissioner shall permit the
surplus line broker to provide additional information demonstrating
that the surplus line broker owes a lesser amount. If within 60 days,
or such additional time as the commissioner deems appropriate, the
commissioner and the surplus line broker cannot agree on the amount
owed, the commissioner shall propose in writing to the State Board of
Equalization a deficiency assessment for the difference pursuant to
subdivision (b) of Section 12422 of the Revenue and Taxation Code.
   (b) Section 12636.5, Article 3 (commencing with Section 12421) and
Article 4 (commencing with Section 12491) of Chapter 4 of, and
Article 1 (commencing with Section 12951) and Article 2 (commencing
with Section 12977) of Chapter 7 of, Part 7 of Division 2 of the
Revenue and Taxation Code shall apply to surplus line brokers, except
where inconsistent with the provisions of this chapter, in which
case this chapter shall govern.

1776.  Any surplus line broker who willfully fails or refuses to
report to the commissioner any insurance on subject matter located
within this state placed under his or her name with nonadmitted
insurers, or who, by willful omission from the records required to be
maintained by him or her for that purpose, attempts to evade the
payment of taxes on any such insurance, is, in addition to being
required to pay the tax, together with a penalty equal in amount to
the tax, guilty of a misdemeanor.
   It is a misdemeanor for any surplus line broker or special lines'
surplus line broker to accept or pay directly or indirectly any
consideration or remuneration for or in connection with the placing
of insurance that, if done by a person within this state, is governed
by the provisions of this chapter, when the placing was not done by
a person licensed therefor pursuant to this chapter.
   It is a misdemeanor for any agent or broker to solicit, negotiate,
or effect any insurance governed by the provisions of this chapter
in nonadmitted insurers, except by and through a surplus line broker
or special lines' surplus line broker licensed pursuant to this
chapter. Except in the case of insurance specified in subdivision (b)
of Section 1760.5, it is a misdemeanor for any surplus line broker
or special lines' surplus line broker to accept, place, pay, or
permit the payment of commission or other remuneration on insurance
placed by him or her under authority of his or her license to any
person other than one holding a license to act as an insurance agent,
insurance broker, surplus line broker, or special lines' surplus
line broker, except that the business may be accepted by such surplus
line broker or special lines' surplus line broker directly from an
insured or other person who would likewise be entitled to place the
business directly with an admitted insurer without the solicitation,
negotiation, or effecting thereof by an insurance agent or broker.
   The commissioner may deny, suspend, or revoke any license issued
pursuant to this code if he or she finds after notice and hearing in
accordance with the procedure provided in Article 13 (commencing with
Section 1737) of Chapter 5 that the licensee has violated any
provisions of this section.
   The permission granted in this chapter to place any insurance in a
nonadmitted insurer shall not be deemed or construed to authorize
any insurer to do business in this state.
   Placement activities of a licensed surplus line broker in
accordance with this chapter, including, but not limited to, policy
issuance, shall not be deemed or construed to be business done by the
insurer in this state.

1778.  When a surplus line broker's license is revoked for any
reason other than the insufficiency of his sureties, a new license
shall not be issued to him within one year after such revocation and
until all indebtedness of the broker on former business has been paid
to the commissioner.

1779.  Every insured for whom insurance has been effected with
nonadmitted insurers shall, upon request in writing by the
commissioner, produce for the commissioner's examination all
policies, contracts, and other documents evidencing such insurance,
and shall disclose to the commissioner the amount of the gross
premiums paid or agreed to be paid for such insurance. For refusal to
obey such request, such insured shall forfeit to the State of
California the sum of one thousand dollars ($1,000) for each refusal.

1780.  A licensee or applicant for a license under this chapter
shall notify the commissioner, in writing, of any change in the
address from which he intends to conduct his business.