2013 North Dakota Century Code Title 26.1 Insurance Chapter 26.1-44 Surplus Lines Insurance
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CHAPTER 26.1-44
SURPLUS LINES INSURANCE
26.1-44-01. Surplus lines insurance valid.
Insurance contracts procured as surplus lines coverage from nonadmitted insurers in
accordance with this chapter are valid and enforceable as to all parties and must be given
recognition in all matters and respects to the same effect as like contracts issued by admitted
insurers.
26.1-44-01.1. Definitions.
1. "Admitted insurer" means an insurer licensed to engage in the business of insurance
in this state.
2. "Eligible surplus lines insurer" means a nonadmitted insurer with which a surplus lines
producer may place surplus lines insurance pursuant to section 26.1-44-03.
3. "Exempt commercial purchaser" means any person purchasing commercial insurance
that, at the time of placement, meets the following requirements:
a. The person employs or retains a qualified risk manager to negotiate insurance
coverage.
b. The person has paid aggregate nationwide commercial property and casualty
insurance premiums in excess of one hundred thousand dollars in the
immediately preceding twelve months.
c. (1) The person meets at least one of the following criteria:
(a) The person possesses a net worth in excess of twenty million dollars,
as such amount is adjusted pursuant to paragraph 2.
(b) The person generates annual revenues in excess of fifty million
dollars, as such amount is adjusted pursuant to paragraph 2.
(c) The person employs more than five hundred full-time or full-time
equivalent employees per individual insured or is a member of an
affiliated group employing more than one thousand employees in the
aggregate.
(d) The person is a not-for-profit organization or public entity generating
annual budgeted expenditures of at least thirty million dollars, as such
amount is adjusted pursuant to paragraph 2.
(e) The person is a municipality with a population in excess of fifty
thousand persons.
(2) Each fifth January first occurring after July 21, 2010, and ongoing thereafter,
the amounts in subparagraphs a, b, and d of paragraph 1 will be adjusted to
reflect the percentage change for such five-year period in the consumer
price index for all urban consumers published by the bureau of labor
statistics of the department of labor.
4. "Home state".
a. Except as provided in subdivision b, "home state" means, with respect to an
insured:
(1) The state in which an insured maintains its principal place of business or, in
the case of an individual, the individual's principal residence; or
(2) If one hundred percent of the insured risk is located out of the state referred
to in paragraph 1, the state to which the greatest percentage of the insured's
taxable premium for that insurance contract is allocated.
b. If more than one insured from an affiliated group are named insureds on a single
nonadmitted insurance contract, the term "home state" means the home state, as
determined pursuant to subdivision a, of the member of the affiliated group that
has the largest percentage of premium attributed to it under such insurance
contract.
5. "Independently procured insurance" means insurance procured directly by an insured
from a nonadmitted insurer.
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"Kind of insurance" means one of the types of insurance required to be reported in the
annual statement which must be filed with the commissioner by admitted insurers.
"Nonadmitted insurance" means any property and casualty insurance permitted to be
placed directly or through a surplus lines producer with a nonadmitted insurer eligible
to accept such insurance pursuant to section 26.1-44-03.
"Nonadmitted insurer" means an insurer not licensed to engage in the business of
insurance in this state but does not include a risk retention group as defined in
paragraph 4 of subdivision a of section 2 of the Liability Risk Retention Act of 1986
[15 U.S.C. 3901(a)(4)].
"Reciprocal state" means a state that has:
a. Entered into a nonadmitted insurance compact; or
b. Otherwise adopted the allocation schedule and reporting forms prescribed by a
multistate agreement for nonadmitted insurance.
"Surplus lines insurance" means any property and casualty insurance in this state on
properties, risks, or exposures, located or to be performed in this state, permitted to be
placed through a surplus lines producer with a nonadmitted insurer eligible to accept
such insurance pursuant to section 26.1-44-03.
"Surplus lines producer" means a person licensed under chapter 26.1-26 to place
insurance on properties, risks, or exposures located or to be performed in this state
with nonadmitted insurers eligible to accept such insurance pursuant to section
26.1-44-03.
"Type of insurance" means coverage afforded under the particular policy that is being
placed.
26.1-44-02. Duty to file evidence of insurance and affidavits.
Each surplus lines producer, within sixty days after the placing of any surplus lines
insurance where the insured's home state is this state, shall execute and file a written report
regarding the insurance which must be kept confidential by the commissioner. The report must
include:
1. The name and address of the insured;
2. The identity of the insurer or insurers;
3. A description of the subject and location of the risk;
4. The amount of premium charged for the insurance;
5. A tax allocation spreadsheet detailing the portion of premium attributable to properties,
risks, or exposures located in each state;
6. Any other pertinent information as the commissioner may reasonably require; and
7. An affidavit on a form prescribed by the commissioner as to the diligent efforts to place
the coverage with admitted insurers and the results of that effort. The affidavit must be
open to public inspection. The affidavit must affirm that the insured was expressly
advised in writing prior to placement of the insurance that:
a. The surplus lines insurer with whom the insurance was to be placed is not
licensed in this state and is not subject to the state's supervision; and
b. In the event of the insolvency of the surplus lines insurer, losses will not be paid
by the state insurance guaranty fund.
A surplus lines producer seeking to place nonadmitted insurance for an exempt commercial
purchaser is not required to make a due diligence search or to file the affidavit in subsection 7 if
the surplus lines producer has disclosed to the exempt commercial purchaser that such
insurance may or may not be available from the admitted market that may provide greater
protection with more regulatory oversight and the exempt commercial purchaser has
subsequently requested in writing the surplus lines producer to procure or place such insurance
from a nonadmitted insurer.
26.1-44-03. Surplus lines insurance.
The placement of nonadmitted insurance is subject to this section only if the insured's home
state is this state. Surplus lines insurance may be placed by a surplus lines producer if:
1. Each insurer is an eligible surplus lines insurer;
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Each insurer is authorized to write the kind of insurance in its domiciliary jurisdiction;
The full amount or type of insurance cannot be obtained from insurers who are
admitted to do business in this state. The full amount or type of insurance may be
procured from eligible surplus lines insurers provided that a diligent search is made
among the insurers who are admitted to transact and are actually writing the particular
type of insurance in this state if any are writing it;
At the time of placement the surplus lines producer has determined that the
nonadmitted insurer:
a. Has established satisfactory evidence of good repute and financial integrity and
has capital and surplus or its equivalent under the laws of its domiciliary
jurisdiction which equals the greater of:
(1) (a) The minimum capital and surplus requirements under the law of this
state; or
(b) Fifteen million dollars.
(2) The requirements of paragraph 1 may be satisfied by an insurer possessing
less than the minimum capital and surplus upon an affirmative finding of
acceptability by the commissioner. The finding must be based upon such
factors as quality of management, capital and surplus of any parent
company, company underwriting profit and investment income trends,
market availability, and company record and reputation within the industry.
The commissioner may not make an affirmative finding of acceptability when
the nonadmitted insurer's capital and surplus is less than four million five
hundred thousand dollars; or
b. For an insurer not domiciled in the United States or its territories, the insurer is
listed on the quarterly listing of alien insurers maintained by the national
association of insurance commissioners international insurers department; and
All other requirements of this chapter are met.
26.1-44-03.1. Surplus lines tax.
1. If the insured's home state is this state, in addition to the full amount of gross
premiums charged by the insurer for the insurance, every surplus lines producer shall
collect and pay to the commissioner a sum equal to one and three-fourths percent of
the gross premiums charged, assessments, membership fees, subscriber fees, policy
fees, and service fees, less any return premiums, for surplus lines insurance provided
by the surplus lines producer. Where the insurance covers properties, risks, or
exposures located or to be performed both in and out of this state, the sum payable
must be computed based on:
a. An amount equal to one and three-fourths percent on that portion of the gross
premiums allocated to this state plus;
b. An amount equal to the portion of the premiums allocated to other states or
territories on the basis of the tax rates and fees applicable to other properties,
risks, or exposures located or to be performed outside of this state less;
c. The amount of gross premiums allocated to this state and returned to the insured.
2. The tax on any portion of the premium unearned at termination of insurance having
been credited by the state to the surplus lines producer must be returned to the
policyholder directly by the surplus lines producer. The surplus lines producer is
prohibited from rebating, for any reason, any part of the tax.
3. Under section 26.1-44-11, the state has entered the surplus lines insurance multistate
compliance compact for the purpose of collecting, allocating, and disbursing to
reciprocal states any funds collected pursuant to subdivision b of subsection 1
applicable to other properties, risks, or exposures located or to be performed outside
of this state. To the extent that other states where portions of the properties, risks, or
exposures reside have failed to enter into a compact or reciprocal allocation procedure
with this state, the net premium tax collected must be retained by this state.
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4.
5.
At the time of filing the verified report as set forth in section 26.1-44-06.1, each surplus
lines producer shall pay the premium tax due for the policies written during the period
covered by the report.
If the insured's home state is this state, in determining the amount of premiums taxable
in this state, all premiums written, procured, or received in this state must be
considered written on properties, risks, or exposures located or to be performed in this
state, except premiums which are properly allocated or apportioned and reported as
taxable premiums of a reciprocal state.
26.1-44-03.2. Domestic surplus lines insurers.
1. A North Dakota domestic insurer may be designated a domestic surplus lines insurer
if:
a. The insurer possesses a policyholder surplus of at least fifteen million dollars;
b. The designation is in compliance with a resolution of the insurer's board of
directors; and
c. The commissioner has provided written approval of the designation.
2. A domestic surplus lines insurer may write surplus lines insurance in North Dakota and
any other jurisdiction in which the insurer is eligible. A domestic surplus lines insurer
may insure in this state any risk if:
a. Produced pursuant to chapter 26.1-44;
b. The premium is subject to surplus lines premium tax pursuant to section
26.1-44-03.1; and
c. Issued pursuant to the surplus lines insurance multistate compliance compact.
3. For purposes of the federal Nonadmitted and Reinsurance Reform Act of 2010
[15 U.S.C. 8201 et seq.], a domestic surplus lines insurer is considered a nonadmitted
insurer as defined under that Act, with respect to risks insured in this state.
4. A domestic surplus lines insurer may not issue a policy designed to satisfy the motor
vehicle financial responsibility requirements in chapter 26.1-41 or any other law
mandating insurance coverage by a licensed insurance company.
5. Except as specifically exempted from such requirements, a domestic surplus lines
insurer is subject to compliance with all financial examination and solvency
requirements that apply to domestic insurers under chapter 26.1-03 regarding
examinations and reports.
6. A domestic surplus lines insurer is not subject to the provisions of chapter 26.1-38.1
regarding the life and health insurance guaranty association nor to chapter 26.1-39
regarding property and casualty insurance.
26.1-44-04. Service of process.
Any insurer desiring to transact any business under this chapter, by any surplus lines
producer in this state, shall appoint in writing the commissioner as its true and lawful attorney,
upon whom legal process in any action or proceeding against it must be served, and in the
writing, shall agree that any legal process against it, which is served upon the attorney, is of the
same legal force and validity as if served upon the insurer, and that the authority continues in
force so long as any liability remains outstanding in this state. Copies of the appointment
certified by the commissioner are sufficient evidence thereof and must be admitted in evidence
with the same force and effect as the original. Legal process may not be served upon the
insurer except as provided by this section. In any suit on a policy on behalf of the owner or
holder of the policy, the service of process must be made as provided by this section, but the
action must be prosecuted in the county of the policyholder's residence.
26.1-44-05. Consumer notice.
If the insured's home state is this state, the surplus lines producer shall give the following
consumer notice to every person applying for insurance with a nonadmitted insurer. The notice
must be printed in sixteen-point type on a separate document affixed to the application. The
applicant shall sign and date a copy of the notice to acknowledge receiving it. The surplus lines
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producer shall maintain the signed notice in its file for a period of five years from expiration of
the policy. The surplus lines producer shall tender a copy of the signed notice to the insured at
the time of delivery of each policy the producer transacts with a nonadmitted insurer. The copy
must be a separate document affixed to the policy.
"Notice: 1. An insurer that is not licensed in this state is issuing the insurance policy that you
have applied to purchase. These companies are called "nonadmitted" or "surplus lines" insurers.
2. The insurer is not subject to the financial solvency regulation and enforcement that applies to
licensed insurers in this state. 3. These insurers generally do not participate in insurance
guaranty funds created by state law. These guaranty funds will not pay your claims or protect
your assets if the insurer becomes insolvent and is unable to make payments as promised. 4.
Some states maintain lists of approved or eligible surplus lines insurers and surplus lines
producers may use only insurers on the lists. Some states issue orders that particular surplus
lines insurers cannot be used. 5. For additional information about the above matters and about
the insurer, you should ask questions of your insurance producer or surplus lines producer. You
may also contact your insurance department consumer help line."
26.1-44-06. Records of surplus lines producer.
If the insured's home state is this state, each surplus lines producer shall keep in this state a
full and true record of each surplus lines insurance contract placed by or through the producer,
including a copy of the policy, certificate, cover note, or other evidence of insurance showing
each of the following applicable items:
1. Amount of the insurance, risks, and perils insured;
2. Brief description of the property insured and its location;
3. Gross premium charged;
4. Any return premium paid;
5. Rate of premium charged upon the several items of property;
6. Effective date and terms of the contract;
7. Name and address of the insured;
8. Name and address of the insurer;
9. Amount of tax and other sums to be collected from the insured;
10. Allocation of taxes by state;
11. Identity of the producer of record;
12. Any confirming correspondence from the insurer or its representative; and
13. The application.
The surplus lines producer shall keep open the record of each contract at all reasonable times
to examination by the commissioner without notice for a period not less than five years following
termination of the contract. In lieu of maintaining offices in this state, each nonresident surplus
lines producer shall make available to the commissioner any and all records that the
commissioner deems necessary for examination.
26.1-44-06.1. Reports - Summary of exported business.
If the insured's home state is this state, on or before April first of each year, each surplus
lines producer shall file with the commissioner on forms prescribed by the commissioner a
verified report of all surplus lines insurance transacted during the preceding calendar year,
including:
1. Aggregate gross premiums written;
2. Aggregate return premiums;
3. Amount of aggregate tax remitted to this state; and
4. Amount of aggregate tax due or remitted to each other state for which an allocation is
made pursuant to section 26.1-44-03.1.
A verified report is not required to be filed when a surplus lines producer has transacted no
surplus lines insurance during the preceding calendar year.
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26.1-44-07. Actions against insurers issuing insurance - Venue - Service of process Time for answer.
Every insurer making insurance under this chapter is deemed to be doing business in this
state as an unlicensed concern and may be sued upon any claim for relief arising under any
policy of insurance so issued and delivered by the insurer. The suit must be brought in the
district court of the county in which the plaintiff resides. Service of summons and complaint in
the suit must be made upon the commissioner in the manner provided by section 26.1-44-04.
26.1-44-08. Civil penalty for failure to file statement and pay tax - Action for recovery Revocation of license - Conditions prerequisite to reissuance - Hearing procedure and
judicial review.
Every surplus lines producer who fails or refuses to make and file the verified report
required by section 26.1-44-06.1, and to pay the taxes required to be paid prior to the first day of
May after such tax is due, is liable for a fine of twenty-five dollars for each day of delinquency.
The tax and fine may be recovered in an action to be instituted by the commissioner in the
name of the state, the attorney general representing the commissioner, in any court of
competent jurisdiction, and the fine, when so collected, must be paid to the state treasurer and
placed to the credit of the general fund. The commissioner, if satisfied that the delay in filing the
verified report and the payment of the tax was excusable, may waive all or any part of the fine.
The commissioner may revoke or suspend the surplus lines producer's license if any surplus
lines producer fails to make and file the verified report and pay the taxes, or refuses to allow the
commissioner to inspect and examine the producer's records of the business transacted by the
producer pursuant to this chapter, or fails to keep the records in the manner required by the
commissioner, or falsifies the affidavit referred to in section 26.1-44-02.
If the license of a surplus lines producer is revoked, whether by the action of the
commissioner or by judicial proceedings, another license may not be issued to that surplus lines
producer until two years have elapsed from the effective date of the revocation, nor until all
taxes and fines are paid, nor until the commissioner is satisfied that full compliance with this
chapter will be had.
26.1-44-09. Rulemaking authority.
The commissioner may adopt reasonable rules to implement this chapter.
26.1-44-10. Independently procured insurance - Duty to report and pay tax.
If the insured's home state is this state, in accordance with subsection 9 of section
26.1-02-05, each insured in this state who independently procures or continues or renews
insurance with a nonadmitted insurer on properties, risks, or exposures located or to be
performed in whole or in part in this state, other than insurance procured through a surplus lines
producer, is subject to the same requirements under this chapter as apply to a surplus lines
producer.
26.1-44-11. Enactment of surplus lines insurance multistate compliance compact.
The surplus lines insurance multistate compliance compact is enacted into law and entered
by this state with all other states legally joining therein in the form substantially as follows:
ARTICLE I - PURPOSE
The purposes of this compact are:
1. To implement the express provisions of the Nonadmitted and Reinsurance Reform Act.
2. To protect the premium tax revenues of the compacting states through facilitating the
payment and collection of premium tax on nonadmitted insurance; and to protect the
interests of the compacting states by supporting the continued availability of such
insurance to consumers; and to provide for allocation of premium tax for nonadmitted
insurance of multistate risks among the states in accordance with uniform allocation
formulas to be developed, adopted, and implemented by the commission.
3. To streamline and improve the efficiency of the surplus lines market by eliminating
duplicative and inconsistent tax and regulatory requirements among the states; and
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promote and protect the interest of surplus lines licensees who assist such insureds
and surplus lines insurers, thereby ensuring the continued availability of surplus lines
insurance to consumers.
4. To streamline regulatory compliance with respect to nonadmitted insurance
placements by providing for exclusive single-state regulatory compliance for
nonadmitted insurance of multistate risks, in accordance with rules to be adopted by
the commission, thereby providing certainty regarding such compliance to all persons
who have an interest in such transactions, including insureds, regulators, surplus lines
licensees, other insurance producers, and surplus lines insurers.
5. To establish a clearinghouse for receipt and dissemination of premium tax and
clearinghouse transaction data related to nonadmitted insurance of multistate risks, in
accordance with rules to be adopted by the commission.
6. To improve coordination of regulatory resources and expertise between state
insurance departments and other state agencies, as well as state surplus lines
stamping offices, with respect to nonadmitted insurance.
7. To adopt uniform rules to provide for premium tax payment, reporting, allocation, data
collection and dissemination for nonadmitted insurance of multistate risks and
single-state risks, in accordance with rules to be adopted by the commission, thereby
promoting the overall efficiency of the nonadmitted insurance market.
8. To adopt uniform mandatory rules with respect to regulatory compliance requirements
for:
a. Foreign insurer eligibility requirements.
b. Surplus lines policyholder notices.
9. To establish the surplus lines insurance multistate compliance compact commission.
10. To coordinate reporting of clearinghouse transaction data on nonadmitted insurance of
multistate risks among compacting states and contracting states.
11. To perform these and such other related functions as may be consistent with the
purposes of the surplus lines insurance multistate compliance compact.
ARTICLE II - DEFINITIONS
For purposes of this compact, the following definitions apply:
1. "Admitted insurer" means an insurer that is licensed, or authorized, to transact the
business of insurance under the law of the home state; for purposes of this compact,
"admitted insurer" does not include a domestic surplus lines insurer as may be defined
by applicable state law.
2. "Affiliate" means with respect to an insured, any entity that controls, is controlled by, or
is under common control with the insured.
3. "Allocation formula" means the uniform methods promulgated by the commission by
which insured risk exposures will be apportioned to each state for the purpose of
calculating premium taxes due.
4. "Bylaws" means those bylaws established by the commission for its governance, or for
directing or controlling the commission's actions or conduct.
5. "Clearinghouse" means the commission's operations involving the acceptance,
processing, and dissemination, among the compacting states, contracting states,
surplus lines licensees, insureds and other persons, of premium tax and clearinghouse
transaction data for nonadmitted insurance of multistate risks, in accordance with this
compact and rules to be adopted by the commission.
6. "Clearinghouse transaction data" means the information regarding nonadmitted
insurance of multistate risks required to be reported, accepted, collected, processed,
and disseminated by surplus lines licensees for surplus lines insurance and insureds
for independently procured insurance under this compact and rules to be adopted by
the commission. Clearinghouse transaction data includes information related to
single-state risks if a state elects to have the clearinghouse collect taxes on
single-state risks for such state.
7. "Commission" means the surplus lines insurance multistate compliance compact
commission established by this compact.
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"Commissioner" means the chief insurance regulatory official of a state, including
commissioner, superintendent, director, or administrator or their designees.
"Compacting state" means any state that has enacted this compact legislation and
which has not withdrawn pursuant to article XIV, subsection 1, or been terminated
pursuant to article XIV, subsection 2.
"Contracting state" means any state that has not enacted this compact legislation but
has entered a written contract with the commission to utilize the services of and fully
participate in the clearinghouse.
"Control", an entity has "control" over another entity if:
a. The entity directly or indirectly or acting through one or more other persons owns,
controls, or has the power to vote twenty-five percent or more of any class of
voting securities of the other entity; or
b. The entity controls in any manner the election of a majority of the directors or
trustees of the other entity.
"Home state":
a. Except as provided in subdivision b, the term "home state" means, with respect to
an insured:
(1) The state in which an insured maintains its principal place of business or, in
the case of an individual, the individual's principal residence; or
(2) If one hundred percent of the insured risk is located out of the state referred
to in paragraph 1, the state to which the greatest percentage of the insured's
taxable premium for that insurance contract is allocated.
b. If more than one insured from an affiliated group are named insureds on a single
nonadmitted insurance contract, the term "home state" means the home state, as
determined pursuant to subdivision a, of the member of the affiliated group that
has the largest percentage of premium attributed to it under such insurance
contract.
"Independently procured insurance" means insurance procured by an insured directly
from a surplus lines insurer or other nonadmitted insurer as permitted by the laws of
the home state.
"Insurer eligibility requirements" means the criteria, forms, and procedures established
to qualify as a surplus lines insurer under the law of the home state provided that such
criteria, forms, and procedures are consistent with the express provisions of the
Nonadmitted and Reinsurance Reform Act on and after July 21, 2011.
"Member" means the person or persons chosen by a compacting state as its
representative or representatives to the commission provided that each compacting
state is limited to one vote.
"Multistate risk" means a risk with insured exposures in more than one state.
"Nonadmitted and Reinsurance Reform Act" means the Nonadmitted and Reinsurance
Reform Act of 2010 [Pub. L. 111-203; 124 Stat.1589; 15 U.S.C. 8201 et seq.] which is
subtitle B of title V of the Dodd-Frank Wall Street Reform and Consumer Protection
Act.
"Nonadmitted insurance" means surplus lines insurance and independently procured
insurance.
"Nonadmitted insurer" means an insurer that is not authorized or admitted to transact
the business of insurance under the law of the home state.
"Noncompacting state" means any state that has not adopted this compact.
"Policyholder notice" means the disclosure notice or stamp that is required to be
furnished to the applicant or policyholder in connection with a surplus lines insurance
placement.
"Premium tax" means with respect to nonadmitted insurance, any tax, fee,
assessment, or other charge imposed by a government entity directly or indirectly
based on any payment made as consideration for such insurance, including premium
deposits, assessments, registration fees, and any other compensation given in
consideration for a contract of insurance.
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23.
"Principal place of business" means with respect to determining the home state of the
insured, the state where the insured maintains its headquarters and where the
insured’s high-level officers direct, control, and coordinate the business activities of the
insured.
24. "Purchasing group" means any group formed pursuant to the Liability Risk Retention
Act which has as one of its purposes the purchase of liability insurance on a group
basis, purchases such insurance only for its group members and only to cover their
similar or related liability exposure and is composed of members whose businesses or
activities are similar or related with respect to the liability to which members are
exposed by virtue of any related, similar, or common business, trade, product,
services, premises, or operations and is domiciled in any state.
25. "Rule" means a statement of general or particular applicability and future effect
promulgated by the commission designed to implement, interpret, or prescribe law or
policy or describing the organization, procedure, or practice requirements of the
commission which shall have the force and effect of law in the compacting states.
26. "Single-state risk" means a risk with insured exposures in only one state.
27. "State" means any state, district, or territory of the United States of America.
28. "State transaction documentation" means the information required under the laws of
the home state to be filed by surplus lines licensees in order to report surplus lines
insurance and verify compliance with surplus lines laws, and by insureds in order to
report independently procured insurance.
29. "Surplus lines insurance" means insurance procured by a surplus lines licensee from a
surplus lines insurer or other nonadmitted insurer as permitted under the law of the
home state; for purposes of this compact, "surplus lines insurance" also means excess
lines insurance as may be defined by applicable state law.
30. "Surplus lines insurer" means a nonadmitted insurer eligible under the law of the home
state to accept business from a surplus lines licensee; for purposes of this compact,
"surplus lines insurer" also means an insurer that is permitted to write surplus lines
insurance under the laws of the state where such insurer is domiciled.
31. "Surplus lines licensee" means an individual, firm, or corporation licensed under the
law of the home state to place surplus lines insurance.
ARTICLE III - ESTABLISHMENT OF THE COMMISSION AND VENUE
1. The compacting states hereby create and establish a joint public agency known as the
surplus lines insurance multistate compliance compact commission.
2. Pursuant to article IV, the commission may adopt mandatory rules that establish
exclusive home state authority regarding nonadmitted insurance of multistate risks,
allocation formulas, clearinghouse transaction data, a clearinghouse for receipt and
distribution of allocated premium tax and clearinghouse transaction data, and uniform
rulemaking procedures and rules for the purpose of financing, administering,
operating, and enforcing compliance with the provisions of this compact, its bylaws,
and rules.
3. Pursuant to article IV, the commission may adopt mandatory rules establishing foreign
insurer eligibility requirements and a concise and objective policyholder notice
regarding the nature of a surplus lines placement.
4. The commission is a body corporate and politic, and an instrumentality of the
compacting states.
5. The commission is solely responsible for its liabilities except as otherwise specifically
provided in this compact.
6. Venue is proper and judicial proceedings by or against the commission must be
brought solely and exclusively in a court of competent jurisdiction where the principal
office of the commission is located. The commission may waive venue and
jurisdictional defenses to the extent it adopts or consents to participate in alternative
dispute resolution proceedings.
ARTICLE IV - AUTHORITY TO ESTABLISH MANDATORY RULES
The commission shall adopt mandatory rules that establish:
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Allocation formulas for each type of nonadmitted insurance coverage, which allocation
formulas must be used by each compacting state and contracting state in acquiring
premium tax and clearinghouse transaction data from surplus lines licensees and
insureds for reporting to the clearinghouse created by the compact commission. Such
allocation formulas will be established with input from surplus lines licensees and be
based upon readily available data with simplicity and uniformity for the surplus lines
licensee as a material consideration.
Uniform clearinghouse transaction data reporting requirements for all information
reported to the clearinghouse.
Methods by which compacting states and contracting states require surplus lines
licensees and insureds to pay premium tax and to report clearinghouse transaction
data to the clearinghouse, including processing clearinghouse transaction data
through state stamping and service offices, state insurance departments, or other
state-designated agencies or entities.
That nonadmitted insurance of multistate risks must be subject to all of the regulatory
compliance requirements of the home state exclusively. Home state regulatory
compliance requirements applicable to surplus lines insurance must include persons
required to be licensed to sell, solicit, or negotiate surplus lines insurance; insurer
eligibility requirements or other approved nonadmitted insurer requirements; diligent
search; and state transaction documentation and clearinghouse transaction data
regarding the payment of premium tax as set forth in this compact and rules to be
adopted by the commission. Home state regulatory compliance requirements
applicable to independently procured insurance placements must include providing
state transaction documentation and clearinghouse transaction data regarding the
payment of premium tax as set forth in this compact and rules to be adopted by the
commission.
That each compacting state and contracting state may charge its own rate of taxation
on the premium allocated to such state based on the applicable allocation formula
provided that the state establishes one single rate of taxation applicable to all
nonadmitted insurance transactions and no other tax, fee assessment, or other charge
by any governmental or quasi-governmental agency be permitted. Notwithstanding the
foregoing, stamping office fees may be charged as a separate, additional cost unless
such fees are incorporated into a state's single rate of taxation.
That any change in the rate of taxation by any compacting state or contracting state be
restricted to changes made prospectively on not less than ninety days' advance notice
to the compact commission.
That each compacting state and contracting state shall require premium tax payments
either annually, semiannually, or quarterly utilizing one or more of the following dates
only: March first, June first, September first, and December first.
That each compacting state and contracting state prohibit any other state agency or
political subdivision from requiring surplus lines licensees to provide clearinghouse
transaction data and state transaction documentation other than to the insurance
department or tax officials of the home state or one single designated agent thereof.
The obligation of the home state by itself, through a designated agent, surplus lines
stamping, or service office, to collect clearinghouse transaction data from surplus lines
licensees and from insureds for independently procured insurance, where applicable,
for reporting to the clearinghouse.
A method for the clearinghouse to periodically report to compacting states, contracting
states, surplus lines licensees, and insureds who independently procure insurance all
premium taxes owed to each of the compacting states and contracting states, the
dates upon which payment of such premium taxes are due, and a method to pay them
through the clearinghouse.
That each surplus lines licensee is required to be licensed only in the home state of
each insured for whom surplus lines insurance has been procured.
That a policy considered to be surplus lines insurance in the insured's home state shall
be considered surplus lines insurance in all compacting states and contracting states,
Page No. 10
and taxed as a surplus lines transaction in all states to which a portion of the risk is
allocated. Each compacting state and contracting state shall require each surplus lines
licensee to pay to every other compacting state and contracting state premium taxes
on each multistate risk through the clearinghouse at such tax rate charged on surplus
lines transactions in such other compacting states and contracting states on the
portion of the risk in each such compacting state and contracting state as determined
by the applicable uniform allocation formula adopted by the commission. A policy
considered to be independently procured insurance in the insured's home state must
be considered independently procured insurance in all compacting states and
contracting states. Each compacting state and contracting state shall require the
insured to pay every other compacting state and contracting state the independently
procured insurance premium tax on each multistate risk through the clearinghouse
pursuant to the uniform allocation formula adopted by the commission.
13. Uniform foreign insurer eligibility requirements as authorized by the Nonadmitted and
Reinsurance Reform Act.
14. A uniform policyholder notice.
15. Uniform treatment of purchasing group surplus lines insurance placements.
ARTICLE V - POWERS OF THE COMMISSION
The commission may:
1. Promulgate rules and operating procedures, pursuant to article VIII of this compact,
which must have the force and effect of law and must be binding in the compacting
states to the extent and in the manner provided in this compact;
2. Bring and prosecute legal proceedings or actions in the name of the commission,
provided that the standing of any state insurance department to sue or be sued under
applicable law may not be affected;
3. Issue subpoenas requiring the attendance and testimony of witnesses and the
production of evidence, provided, however, the commission is not empowered to
demand or subpoena records or data from nonadmitted insurers;
4. Establish and maintain offices, including the creation of a clearinghouse for the receipt
of premium tax and clearinghouse transaction data regarding nonadmitted insurance
of multistate risks, single-state risks for states that elect to require surplus lines
licensees to pay premium tax on single-state risks through the clearinghouse, and tax
reporting forms;
5. Purchase and maintain insurance and bonds;
6. Borrow, accept, or contract for services of personnel, including employees of a
compacting state or stamping office, pursuant to an open, transparent, objective,
competitive process and procedure adopted by the commission;
7. Hire employees, professionals, or specialists, and elect or appoint officers, and to fix
their compensation, define their duties and give them appropriate authority to carry out
the purposes of the compact, and determine their qualifications, pursuant to an open,
transparent, objective, competitive process and procedure adopted by the
commission; and to establish the commission's personnel policies and programs
relating to conflicts of interest, rates of compensation, and qualifications of personnel,
and other related personnel matters;
8. Accept any and all appropriate donations and grants of money, equipment, supplies,
materials, and services, and to receive, utilize, and dispose of the same, provided that
at all times the commission shall avoid any appearance of impropriety or conflict of
interest or both;
9. Lease, purchase, accept appropriate gifts or donations of, or otherwise to own, hold,
improve, or use, any property, real, personal, or mixed, provided that at all times the
commission shall avoid any appearance of impropriety or conflict of interest or both;
10. Sell, convey, mortgage, pledge, lease, exchange, abandon, or otherwise dispose of
any property, real, personal, or mixed;
11. Provide for tax audit rules and procedures for the compacting states with respect to
the allocation of premium taxes, including:
a. Minimum audit standards, including sampling methods;
Page No. 11
b.
c.
d.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
1.
Review of internal controls;
Cooperation and sharing of audit responsibilities between compacting states;
Handling of refunds or credits due to overpayments or improper allocation of
premium taxes;
e. Taxpayer records to be reviewed, including a minimum retention period; and
f. Authority of compacting states to review, challenge, or reaudit taxpayer records;
Enforce compliance by compacting states and contracting states with rules and bylaws
pursuant to the authority set forth in article XIV;
Provide for dispute resolution among compacting states and contracting states;
Advise compacting states and contracting states on tax-related issues relating to
insurers, insureds, surplus lines licensees, agents, or brokers domiciled or doing
business in noncompacting states, consistent with the purposes of this compact;
Make available advice and training to those personnel in state stamping offices, state
insurance departments, or other state departments for recordkeeping, tax compliance,
and tax allocations; and to be a resource for state insurance departments and other
state departments;
Establish a budget and make expenditures;
Borrow money;
Appoint and oversee committees, including advisory committees comprised of
members, state insurance regulators, state legislators or their representatives,
insurance industry and consumer representatives, and such other interested persons
as may be designated in this compact and the bylaws;
Establish an executive committee of not less than seven nor more than fifteen
representatives, which must include officers elected by the commission and such other
representatives as provided for herein and determined by the bylaws. Representatives
of the executive committee shall serve a one-year term. Representatives of the
executive committee must be entitled to one vote each. The executive committee must
have the power to act on behalf of the commission, with the exception of rulemaking,
during periods when the commission is not in session. The executive committee shall
oversee the day-to-day activities of the administration of the compact, including the
activities of the operations committee created under this article and compliance and
enforcement of the provisions of the compact, its bylaws, and rules, and such other
duties as provided herein and as deemed necessary;
Establish an operations committee of not less than seven and not more than fifteen
representatives to provide analysis, advice, determinations, and recommendations
regarding technology, software, and systems integration to be acquired by the
commission and to provide analysis, advice, determinations, and recommendations
regarding the establishment of mandatory rules to be adopted by the commission;
Enter contracts with contracting states so that contracting states can utilize the
services of and fully participate in the clearinghouse subject to the terms and
conditions set forth in such contracts;
Adopt and use a corporate seal; and
Perform such other functions as may be necessary or appropriate to achieve the
purposes of this compact consistent with the state regulation of the business of
insurance.
ARTICLE VI - ORGANIZATION OF THE COMMISSION
a. Each compacting state must have and is limited to one member. Each state shall
determine the qualifications and the method by which it selects a member and set
forth the selection process in the enabling provision of the legislation that enacts
this compact. In the absence of such a provision, the member must be appointed
by the governor of such compacting state. Any member may be removed or
suspended from office as provided by the law of the state from which that
member must be appointed. Any vacancy occurring in the commission must be
filled in accordance with the laws of the compacting state wherein the vacancy
exists.
Page No. 12
b.
c.
d.
2.
a.
b.
c.
Each member is entitled to one vote and must have an opportunity to participate
in the governance of the commission in accordance with the bylaws.
The commission, by a majority vote of the members, shall prescribe bylaws to
govern its conduct as may be necessary or appropriate to carry out the purposes
and exercise the powers of the compact, including:
(1) Establishing the fiscal year of the commission;
(2) Providing reasonable procedures for holding meetings of the commission,
the executive committee, and the operations committee;
(3) Providing reasonable standards and procedures for the establishment and
meetings of committees, and governing any general or specific delegation of
any authority or function of the commission;
(4) Providing reasonable procedures for calling and conducting meetings of the
commission which consist of a majority of commission members, ensuring
reasonable advance notice of each such meeting and providing for the right
of citizens to attend each such meeting with enumerated exceptions
designed to protect the public's interest, the privacy of individuals, and
insurers' and surplus lines licensees' proprietary information, including trade
secrets. The commission may meet in camera only after a majority of the
entire membership votes to close a meeting in toto or in part. As soon as
practicable, the commission shall make public a copy of the vote to close
the meeting revealing the vote of each member with no proxy votes allowed,
and votes taken during such meeting;
(5) Establishing the titles, duties, and authority and reasonable procedures for
the election of the officers of the commission;
(6) Providing reasonable standards and procedures for the establishment of the
personnel policies and programs of the commission. Notwithstanding any
civil service or other similar laws of any compacting state, the bylaws must
exclusively govern the personnel policies and programs of the commission;
(7) Promulgating a code of ethics to address permissible and prohibited
activities of commission members and employees; and
(8) Providing a mechanism for winding up the operations of the commission and
the equitable disposition of any surplus funds that may exist after the
termination of the compact after the payment or reserving or both of all of its
debts and obligations.
The commission shall publish its bylaws in a convenient form and file a copy
thereof and a copy of any amendment thereto, with the appropriate agency or
officer in each of the compacting states.
An executive committee of the commission is established. All actions of the
executive committee, including compliance and enforcement, are subject to the
review and ratification of the commission as provided in the bylaws. The
executive committee may have no more than fifteen representatives, or one for
each state if there are less than fifteen compacting states, who shall serve for a
term and be established in accordance with the bylaws.
The executive committee must have such authority and duties as may be set
forth in the bylaws, including:
(1) Managing the affairs of the commission in a manner consistent with the
bylaws and purposes of the commission;
(2) Establishing and overseeing an organizational structure within, and
appropriate procedures for the commission to provide for the creation of
rules and operating procedures;
(3) Overseeing the offices of the commission; and
(4) Planning, implementing, and coordinating communications and activities
with other state, federal, and local government organizations in order to
advance the goals of the commission.
The commission annually shall elect officers from the executive committee, with
each having such authority and duties as may be specified in the bylaws.
Page No. 13
d.
3.
4.
5.
6.
The executive committee, subject to the approval of the commission, shall
appoint or retain an executive director for such period, upon such terms and
conditions, and for such compensation as the commission determines
appropriate. The executive director shall serve as secretary to the commission,
but may not be a member of the commission. The executive director shall hire
and supervise such other persons as may be authorized by the commission.
a. An operations committee is established. All actions of the operations committee
are subject to the review and oversight of the commission and the executive
committee and must be approved by the commission. The executive committee
must accept the determinations and recommendations of the operations
committee unless good cause is shown why such determinations and
recommendations should not be approved. Any disputes as to whether good
cause exists to reject any determination or recommendation of the operations
committee must be resolved by the majority vote of the commission.
The operations committee may not have more than fifteen representatives or
one for each state if there are fewer than fifteen compacting states, who shall
serve for a term and must be established as set forth in the bylaws.
The operations committee must have responsibility for:
(1) Evaluating technology requirements for the clearinghouse, assessing
existing systems used by state regulatory agencies and state stamping
offices to maximize the efficiency and successful integration of the
clearinghouse technology systems with state and state stamping office
technology platforms, and to minimize costs to the states, state stamping
offices, and the clearinghouse.
(2) Making recommendations to the executive committee based on its analysis
and determination of the clearinghouse technology requirements and
compatibility with existing state and state stamping office systems.
(3) Evaluating the most suitable proposals for adoption as mandatory rules,
assessing such proposals for ease of integration by states, and likelihood of
successful implementation and to report to the executive committee its
determinations and recommendations.
(4) Such other duties and responsibilities as are delegated to it by the bylaws,
the executive committee, or the commission.
b. All representatives of the operations committee must be individuals who have
extensive experience or employment or both in the surplus lines insurance
business, including executives and attorneys employed by surplus lines insurers,
surplus lines licensees, law firms, state insurance departments or state stamping
offices or any combination of these entities. Operations committee
representatives from compacting states, which utilize the services of a state
stamping office, shall appoint the chief operating officer or a senior manager of
the state stamping office to the operations committee.
a. A legislative committee composed of state legislators or their designees is
established to monitor the operations of and make recommendations to, the
commission, including the executive committee, provided that the manner of
selection and term of any legislative committee member must be as set forth in
the bylaws. Prior to the adoption by the commission of any uniform standard,
revision to the bylaws, annual budget, or other significant matter as may be
provided in the bylaws, the executive committee shall consult with and report to
the legislative committee.
b. The commission may establish additional advisory committees as its bylaws may
provide for the carrying out of its functions.
The commission shall maintain its corporate books and records in accordance with the
bylaws.
a. The members, officers, executive director, employees, and representatives of the
commission, the executive committee, and any other committee of the
commission must be immune from suit and liability, either personally or in their
Page No. 14
1.
2.
3.
4.
5.
6.
official capacity, for any claim for damage to or loss of property or personal injury
or other civil liability caused by or arising out of any actual or alleged act, error, or
omission that occurred, or that the person against whom the claim is made had a
reasonable basis for believing occurred within the scope of commission
employment, duties, or responsibilities; provided that nothing in this subdivision
may be construed to protect any such person from suit or liability or both for any
damage, loss, injury, or liability caused by the intentional or willful or wanton
misconduct of that person.
b. The commission shall defend any member, officer, executive director, employee,
or representative of the commission, the executive committee or any other
committee of the commission in any civil action seeking to impose liability arising
out of any actual or alleged act, error, or omission that occurred within the scope
of commission employment, duties, or responsibilities, or that the person against
whom the claim is made had a reasonable basis for believing occurred within the
scope of commission employment, duties, or responsibilities, provided that
nothing herein may be construed to prohibit that person from retaining that
person's own counsel, and provided further that the actual or alleged act, error, or
omission did not result from that person's intentional or willful or wanton
misconduct.
c. The commission shall indemnify and hold harmless any member, officer,
executive director, employee, or representative of the commission, executive
committee, or any other committee of the commission for the amount of any
settlement or judgment obtained against that person arising out of any actual or
alleged act, error, or omission that occurred within the scope of commission
employment, duties, or responsibilities, or that such person had a reasonable
basis for believing occurred within the scope of commission employment, duties,
or responsibilities, provided that the actual or alleged act, error, or omission did
not result from the intentional or willful or wanton misconduct of that person.
ARTICLE VII - MEETINGS AND ACTS OF THE COMMISSION
The commission shall meet and take such actions as are consistent with the
provisions of this compact and the bylaws.
Each member of the commission may cast a vote to which that compacting state is
entitled and may participate in the business and affairs of the commission. A member
shall vote in person or by such other means as provided in the bylaws. The bylaws
may provide for members' participation in meetings by telephone or other means of
communication.
The commission shall meet at least once during each calendar year. Additional
meetings must be held as set forth in the bylaws.
Public notice must be given of all meetings and all meetings must be open to the
public, except as set forth in the rules or otherwise provided in the compact.
The commission shall promulgate rules concerning its meetings consistent with the
principles contained in the Government in the Sunshine Act [5 U.S.C. 552b], as may
be amended.
The commission and its committees may close a meeting, or portion thereof, where it
determines by majority vote that an open meeting would be likely to:
a. Relate solely to the commission's internal personnel practices and procedures;
b. Disclose matters specifically exempted from disclosure by federal and state
statute;
c. Disclose trade secrets or commercial or financial information that is privileged or
confidential;
d. Involve accusing a person of a crime, or formally censuring a person;
e. Disclose information of a personal nature where disclosure would constitute a
clearly unwarranted invasion of personal privacy;
f. Disclose investigative records compiled for law enforcement purposes; or
g. Specifically relate to the commission's issuance of a subpoena, or its participation
in a civil action or other legal proceeding.
Page No. 15
7.
1.
2.
3.
4.
1.
2.
3.
For a meeting, or portion of a meeting, closed pursuant to this provision, the
commission's legal counsel or designee shall certify that the meeting may be closed
and shall reference each relevant exemptive provision. The commission shall keep
minutes which must fully and clearly describe all matters discussed in a meeting and
must provide a full and accurate summary of actions taken, and the reasons therefore,
including a description of the views expressed and the record of a roll call vote. All
documents considered in connection with an action must be identified in such minutes.
All minutes and documents of a closed meeting must remain under seal, subject to
release by a majority vote of the commission.
ARTICLE VIII - RULES AND OPERATING PROCEDURES RULEMAKING FUNCTIONS OF THE COMMISSION
The commission shall adopt reasonable rules in order to effectively and efficiently
achieve the purposes of this compact. Notwithstanding the foregoing, in the event the
commission exercises its rulemaking authority in a manner that is beyond the scope of
the purposes of this compact, or the powers granted hereunder, then such an action
by the commission is invalid and has no force or effect.
Rules must be made pursuant to a rulemaking process that substantially conforms to
the Model State Administrative Procedure Act of 1981, Uniform Laws Annotated,
vol. 15, p. 1 (2000) as amended, as may be appropriate to the operations of the
commission.
All rules and amendments, thereto, must become effective as of the date specified in
each rule, operating procedure, or amendment.
Not later than thirty days after a rule is adopted, any person may file a petition for
judicial review of the rule, provided that the filing of such a petition may not stay or
otherwise prevent the rule from becoming effective unless the court finds that the
petitioner has a substantial likelihood of success. The court shall give deference to the
actions of the commission consistent with applicable law and may not find the rule to
be unlawful if the rule represents a reasonable exercise of the commission's authority.
ARTICLE IX - COMMISSION RECORDS AND ENFORCEMENT
The commission shall adopt rules establishing conditions and procedures for public
inspection and copying of its information and official records, except such information
and records involving the privacy of individuals, insurers, insureds, or surplus lines
licensee trade secrets. State transaction documentation and clearinghouse transaction
data collected by the clearinghouse must be used for only those purposes expressed
in or reasonably implied under the provisions of this compact, and the commission
shall afford this data the broadest protections as permitted by any applicable law for
proprietary information, trade secrets, or personal data. The commission may adopt
additional rules under which it may make available to federal and state agencies,
including law enforcement agencies, records and information otherwise exempt from
disclosure, and may enter agreements with such agencies to receive or exchange
information or records subject to nondisclosure and confidentiality provisions.
Except as to privileged records, data, and information, the laws of any compacting
state pertaining to confidentiality or nondisclosure may not relieve any compacting
state member of the duty to disclose any relevant records, data, or information to the
commission, provided that disclosure to the commission may not be deemed to waive
or otherwise affect any confidentiality requirement, and further provided that, except as
otherwise expressly provided in this section, the commission may not be subject to the
compacting state's laws pertaining to confidentiality and nondisclosure with respect to
records, data, and information in its possession. Confidential information of the
commission must remain confidential after such information is provided to any
member, and the commission shall maintain the confidentiality of any information
provided by a member that is confidential under that member's state law.
The commission shall monitor compacting states for compliance with duly adopted
bylaws and rules. The commission shall notify any noncomplying compacting state in
writing of its noncompliance with commission bylaws or rules. If a noncomplying
compacting state fails to remedy its noncompliance within the time specified in the
Page No. 16
1.
2.
3.
1.
2.
3.
1.
2.
3.
4.
5.
notice of noncompliance, the compacting state must be deemed to be in default as set
forth in article XIV.
ARTICLE X - DISPUTE RESOLUTION
Before a member may bring an action in a court of competent jurisdiction for violation
of any provision, standard, or requirement of the compact, the commission shall
attempt, upon the request of a member, to resolve any disputes or other issues that
are subject to this compact and which may arise between two or more compacting
states, contracting states, or noncompacting states, and the commission shall
promulgate a rule providing alternative dispute resolution procedures for such
disputes.
The commission shall also provide alternative dispute resolution procedures to resolve
any disputes between insureds or surplus lines licensees concerning a tax calculation
or allocation or related issues which are the subject of this compact.
Any alternative dispute resolution procedures must be utilized in circumstances where
a dispute arises as to which state constitutes the home state.
ARTICLE XI - REVIEW OF COMMISSION DECISIONS
Except as necessary for adopting rules to fulfill the purposes of this compact, the
commission may not otherwise regulate insurance in the compacting states.
Not later than thirty days after the commission has given notice of any rule or
allocation formula, any third-party filer or compacting state may appeal the
determination to a review panel appointed by the commission. The commission shall
adopt rules to establish procedures for appointing such review panels and provide for
notice and hearing. An allegation that the commission, in making compliance or tax
determinations acted arbitrarily, capriciously, or in a manner that is an abuse of
discretion or otherwise not in accordance with the law, is subject to judicial review in
accordance with subsection 6 of article III.
The commission may monitor, review, and reconsider commission decisions upon a
finding that the determinations or allocations do not meet the relevant rule. Where
appropriate, the commission may withdraw or modify its determination or allocation
after proper notice and hearing, subject to the appeal process in subsection 2.
ARTICLE XII - FINANCE
The commission shall pay or provide for the payment of the reasonable expenses of
its establishment and organization. To fund the cost of its initial operations, the
commission may accept contributions, grants, and other forms of funding from the
state stamping offices, compacting states, and other sources.
The commission shall collect a fee payable by the insured directly or through a surplus
lines licensee on each transaction processed through the compact clearinghouse, to
cover the cost of the operations and activities of the commission and its staff in a total
amount sufficient to cover the commission's annual budget.
The commission's budget for a fiscal year may not be approved until it has been
subject to notice and comment as set forth in article VIII.
The commission must be regarded as performing essential governmental functions in
exercising such powers and functions and in carrying out the provisions of this
compact and of any law relating thereto, and may not be required to pay any taxes or
assessments of any character, levied by any state or political subdivision thereof, upon
any of the property used by it for such purposes, or any income or revenue therefrom,
including any profit from a sale or exchange.
The commission shall keep complete and accurate accounts of all its internal receipts,
including grants and donations, and disbursements for all funds under its control. The
internal financial accounts of the commission must be subject to the accounting
procedures established under its bylaws. The financial accounts and reports, including
the system of internal controls and procedures of the commission, must be audited
annually by an independent certified public accountant. Upon the determination of the
commission, but not less frequently than every three years, the review of the
independent auditor must include a management and performance audit of the
commission. The commission shall make an annual report to the governor and
Page No. 17
6.
7.
1.
2.
3.
4.
legislature of the compacting states, which must include a report of the independent
audit. The commission's internal accounts may not be confidential and such materials
may be shared with the commissioner, the controller, or the stamping office of any
compacting state upon request, provided, however, that any workpapers related to any
internal or independent audit and any information regarding the privacy of individuals,
and licensees' and insurers' proprietary information, including trade secrets, must
remain confidential.
A compacting state may not have any claim to or ownership of any property held by or
vested in the commission or to any commission funds held pursuant to the provisions
of this compact.
The commission may not make any political contributions to candidates for elected
office, elected officials, political parties, or political action committees. The commission
may not engage in lobbying except with respect to changes to this compact.
ARTICLE XIII - COMPACTING STATES, EFFECTIVE DATE, AND AMENDMENT
Any state is eligible to become a compacting state.
The compact must become effective and binding upon legislative enactment of the
compact into law by two compacting states, provided the commission must become
effective for purposes of adopting rules, and creating the clearinghouse when there
are a total of ten compacting states and contracting states or, alternatively, when there
are compacting states and contracting states representing greater than forty percent of
the surplus lines insurance premium volume based on records of the percentage of
surplus lines insurance premium set forth in subsection 4. Thereafter, it must become
effective and binding as to any other compacting state upon enactment of the compact
into law by that state. Notwithstanding the foregoing, the clearinghouse operations and
the duty to report clearinghouse transaction data must begin on the first January first
or July first following the first anniversary of the commission's effective date. For states
that join the compact subsequent to the effective date, a start date for reporting
clearinghouse transaction data must be set by the commission provided surplus lines
licensees and all other interested parties receive not less than ninety days' advance
notice.
Amendments to the compact may be proposed by the commission for enactment by
the compacting states. An amendment may not become effective and binding upon the
commission and the compacting states unless and until all compacting states enact
the amendment into law.
Surplus lines insurance premiums by state:
Premiums Based Share of Total
State
on Taxes Paid
Premiums
Alabama
$445,746,000
1.47%
Alaska
89,453,519
0.29%
Arizona
663,703,267
2.18%
Arkansas
201,859,750
0.66%
California
5,622,450,467
18.49%
Colorado
543,781,333
1.79%
Connecticut
329,358,800
1.08%
Delaware
92,835,950
0.31%
Florida
2,660,908,760
8.75%
Georgia
895,643,150
2.95%
Hawaii
232,951,489
0.77%
Idaho
74,202,255
0.24%
Illinois
1,016,504,629
3.34%
Indiana
412,265,320
1.36%
Iowa
135,130,933
0.44%
Kansas
160,279,300
0.53%
Kentucky
167,996,133
0.55%
Louisiana
853,173,280
2.81%
Maine
60,111,200
0.20%
Page No. 18
1.
Maryland
434,887,600
1.43%
Massachusetts
708,640,225
2.33%
Michigan
703,357,040
2.31%
Minnesota
393,128,400
1.29%
Mississippi
263,313,175
0.87%
Missouri
404,489,860
1.33%
Montana
64,692,873
0.21%
Nebraska
92,141,167
0.30%
Nevada
354,271,514
1.17%
New Hampshire
102,946,250
0.34%
New Jersey
1,087,994,033
3.58%
New Mexico
67,608,458
0.22%
New York
2,768,618,083
9.11%
North Carolina
514,965,060
1.69%
North Dakota
36,223,943
0.12%
Ohio
342,000,000
1.12%
Oklahoma
319,526,400
1.05%
Oregon
312,702,150
1.03%
Pennsylvania
780,666,667
2.57%
Rhode Island
71,794,067
0.24%
South Carolina
412,489,825
1.36%
South Dakota
38,702,120
0.13%
Tennessee
451,775,240
1.49%
Texas
3,059,170,454
10.06%
Utah
142,593,412
0.47%
Vermont
41,919,433
0.14%
Virginia
611,530,667
2.01%
Washington
739,932,050
2.43%
West Virginia
130,476,250
0.43%
Wisconsin
248,758,333
0.82%
Wyoming
40,526,967
0.13%
Total
$30,400,197,251
100.00%
This data is 2005 calendar year data excerpted from a study dated February 27, 2007,
by Mackin & Company.
ARTICLE XIV - WITHDRAWAL, DEFAULT, AND TERMINATION
a. Once effective, the compact must continue in force and remain binding upon
each and every compacting state, provided that a compacting state may withdraw
from the compact, "withdrawing state", by enacting a statute specifically repealing
the statute which enacted the compact into law.
b. The effective date of withdrawal is the effective date of the repealing statute.
However, the withdrawal may not apply to any tax or compliance determinations
approved on the date the repealing statute becomes effective, except by mutual
agreement of the commission and the withdrawing state unless the approval is
rescinded by the commission.
c. The member of the withdrawing state shall immediately notify the executive
committee of the commission in writing upon the introduction of legislation
repealing this compact in the withdrawing state.
d. The commission shall notify the other compacting states of the introduction of
such legislation within ten days after its receipt of notice thereof.
e. The withdrawing state is responsible for all obligations, duties, and liabilities
incurred through the effective date of withdrawal, including any obligations, the
performance of which extend beyond the effective date of withdrawal. To the
extent those obligations may have been released or relinquished by mutual
agreement of the commission and the withdrawing state, the commission's
determinations prior to the effective date of withdrawal must continue to be
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2.
3.
1.
2.
3.
4.
1.
effective and be given full force and effect in the withdrawing state, unless
formally rescinded by the commission.
f. Reinstatement following withdrawal of any compacting state must occur upon the
effective date of the withdrawing state reenacting the compact.
a. If the commission determines that any compacting state has at any time
defaulted, "defaulting state", in the performance of any of its obligations or
responsibilities under this compact, the bylaws or duly promulgated rules then
after notice and hearing as set forth in the bylaws, all rights, privileges, and
benefits conferred by this compact on the defaulting state must be suspended
from the effective date of default as fixed by the commission. The grounds for
default include failure of a compacting state to perform its obligations or
responsibilities and any other grounds designated in commission rules. The
commission shall immediately notify the defaulting state in writing of the
defaulting state's suspension pending a cure of the default. The commission shall
stipulate the conditions and the time period within which the defaulting state shall
cure its default. If the defaulting state fails to cure the default within the time
period specified by the commission, the defaulting state must be terminated from
the compact and all rights, privileges, and benefits conferred by this compact
must be terminated from the effective date of termination.
b. Decisions of the commission that are issued on the effective date of termination
must remain in force in the defaulting state in the same manner as if the
defaulting state had withdrawn voluntarily pursuant to subsection 1.
c. Reinstatement following termination of any compacting state requires a
reenactment of the compact.
a. The compact dissolves effective upon the date of the withdrawal or default of the
compacting state which reduces membership in the compact to one compacting
state.
b. Upon the dissolution of this compact, the compact becomes null and void and
must have no further force or effect, and the business and affairs of the
commission must be wound up and any surplus funds shall be distributed in
accordance with the rules and bylaws.
ARTICLE XV - SEVERABILITY AND CONSTRUCTION
The provisions of this compact are severable and if any phrase, clause, sentence, or
provision is deemed unenforceable, the remaining provisions of the compact must be
enforceable.
The provisions of this compact must be liberally construed to effectuate its purposes.
Throughout this compact the use of the singular includes the plural and vice versa.
Any headings and captions of articles, subsections, and subdivisions used in this
compact are for convenience only and must be ignored in construing the substantive
provisions of this compact.
ARTICLE XVI - BINDING EFFECT OF COMPACT AND OTHER LAWS
a. Nothing herein prevents the enforcement of any other law of a compacting state
except as provided in subdivision b.
b. Decisions of the commission, and any rules, and any other requirements of the
commission must constitute the exclusive rule, or determination applicable to the
compacting states. Any law or regulation regarding nonadmitted insurance of
multistate risks that is contrary to rules of the commission is preempted with
respect to the following:
(1) Clearinghouse transaction data reporting requirements;
(2) Allocation formula;
(3) Clearinghouse transaction data collection requirements;
(4) Premium tax payment timeframes and rules concerning dissemination of
data among the compacting states for nonadmitted insurance of multistate
risks and single-state risks;
(5) Exclusive compliance with surplus lines law of the home state of the
insured;
Page No. 20
(6)
c.
2.
a.
b.
c.
d.
Rules for reporting to a clearinghouse for receipt and distribution of
clearinghouse transaction data related to nonadmitted insurance of
multistate risks;
(7) Uniform foreign insurers eligibility requirements;
(8) Uniform policyholder notice; and
(9) Uniform treatment of purchasing groups procuring nonadmitted insurance.
Except as stated in subdivision b, any rule, uniform standard, or other
requirement of the commission must constitute the exclusive provision that a
commissioner may apply to compliance or tax determinations. Notwithstanding
the foregoing, no action taken by the commission may abrogate or restrict: the
access of any person to state courts; the availability of alternative dispute
resolution under article X; remedies available under state law related to breach of
contract, tort, or other laws not specifically directed to compliance or tax
determinations; state law relating to the construction of insurance contracts; or
the authority of the attorney general of the state, including maintaining any
actions or proceedings, as authorized by law.
All lawful actions of the commission, including all rules adopted by the
commission, are binding upon the compacting states, except as provided herein.
All agreements between the commission and the compacting states are binding
in accordance with their terms.
Upon the request of a party to a conflict over the meaning or interpretation of
commission actions, and upon a majority vote of the compacting states, the
commission may issue advisory opinions regarding the meaning or interpretation
in dispute. This provision may be implemented by rule at the discretion of the
commission.
In the event any provision of this compact exceeds the constitutional limits
imposed on the legislature of any compacting state, the obligations, duties,
powers, or jurisdiction sought to be conferred by that provision upon the
commission must be ineffective as to that state and those obligations, duties,
powers, or jurisdiction must remain in the compacting state and must be
exercised by the agency thereof to which those obligations, duties, powers, or
jurisdiction are delegated by law in effect at the time this compact becomes
effective.
Page No. 21
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