2009 California Insurance Code - Section 1780.50-1780.67 :: Chapter 6.1. Surplus Line Advisory Organization

1780.50.  (a) The Legislature finds and declares that consumers in
the State of California have insurance needs which cannot always be
met through the admitted insurance market. For this reason, many
insurance consumers need access to insurance underwritten by
nonadmitted insurers, as permitted by law. To help ensure that
insurance consumers have access to financially sound and reputable
nonadmitted insurers, it is in the public interest to authorize a
surplus line advisory organization within the State of California to
perform certain duties delegated by the Insurance Commissioner, as
provided in this chapter.
   (b) The Legislature further finds and declares that it is in the
public interest for the surplus line advisory organization authorized
under this chapter to be composed of surplus line brokers or persons
involved in the business of surplus line insurance. The advisory
organization's activities shall constitute an integral part of the
business of insurance. The advisory organization will facilitate the
state's ability to monitor and regulate the transfer of risk on a
sound basis through surplus line brokers to nonadmitted insurers in
accordance with Chapter 6 (commencing with Section 1760) and may
perform certain functions in this state's system of monitoring and
regulating the persons and entities involved in this state in the
surplus line segment of the insurance industry.
   (c) The Legislature further finds and declares that the
authorization of a surplus line advisory organization to perform the
duties delegated by the Insurance Commissioner, as provided in this
chapter, will further the policies of the State of California
expressed in the findings set forth in this section. The oversight,
supervision, and examination by the Insurance Commissioner provided
for in this chapter are intended to subject the activities of the
advisory organization to active state supervision.
   (d) The Legislature further finds and declares that, as it is the
obligation and duty of the elected Insurance Commissioner to regulate
the business of insurance in the State of California, it is in the
public interest to grant the Insurance Commissioner the authority and
discretion to utilize the expertise and knowledge of a surplus line
advisory organization to assist in carrying out that responsibility,
as provided in this chapter.

1780.51.  (a) As used in this chapter, "surplus line advisory
organization" shall mean the organization authorized to perform the
duties delegated by the commissioner under this chapter and to
exercise the authority incidental thereto.
   (b) All references in this chapter to "advisory organization"
shall mean "surplus line advisory organization."
   (c) As used in this chapter, the term "surplus line law" shall
refer to Chapter 6 (commencing with Section 1760).
   (d) All references in this chapter to the "commissioner" shall
mean the Insurance Commissioner of the State of California.

1780.52.  (a) The surplus line advisory organization shall be deemed
a joint arrangement established by statute to assure the
availability of insurance on a sound basis under paragraph (2) of
subdivision (b) of Section 1861.03.
   (b) All surplus line brokers licensed under the surplus line law
shall be deemed to be members of the advisory organization.

1780.53.  The commissioner shall remain fully responsible for
supervising the implementation and administration of the surplus line
law and for all regulatory decisions and initiatives in connection
therewith, and nothing in this chapter shall be deemed or construed
to diminish or impair the commissioner's authority and
responsibility.

1780.54.  To be authorized to perform the duties delegated by the
commissioner under this chapter and to exercise the authority
incidental thereto, an organization must satisfy the requirements of
this section.
   (a) The organization must be a private, nonprofit organization
that has all the following qualifications:
   (1) Experience in professional surplus line brokerage, advisory,
and regulatory activity in California or whose members possess that
experience.
   (2) The administrative capability and recordkeeping facilities to
process all surplus line filings in California.
   (3) The data processing capability and the necessary personnel to
perform appropriate security review of all nonadmitted insurers.
   (4) The capability to perform the duties that may be delegated by
the commissioner under this chapter and to exercise the authority
incidental thereto.
   (b) An organization that has the qualifications described in
subdivision (a) must file with the commissioner all of the following:
   (1) A copy of its constitution, its articles of agreement or
association, or its certificate of incorporation.
   (2) A copy of its bylaws, if any.
   (3) A current list of its members.
   (4) The name and address of a resident of this state as agent for
service of process.
   (5) A plan of operation identifying the duties set forth in
Section 1780.56 that the organization proposes to perform and
describing how the organization will perform those duties.
   (6) Any other documents, evidence, or information necessary to
show that the organization complies with the provisions of this
chapter.
   (c) The advisory organization shall file with the commissioner
every material change in the documents required by subdivision (b),
including every amendment to its plan of operation required by
subdivision (d).
   (d) The advisory organization's plan of operation shall be amended
whenever necessary to conform to and effectuate the purposes of any
amendments to this chapter or to the surplus line law or the
regulations pertaining thereto. Further, the plan of operation shall
be amended in response to any written request reasonably made by the
commissioner to improve the advisory organization's effectiveness in
performing the duties delegated by the commissioner under this
chapter. The commissioner's requests under this subdivision shall be
consistent with technical and economic feasibility and established
techniques or practices for performing the types of activities
encompassed by the duties delegated by the commissioner.

1780.55.  (a) Within 120 days after the filing of the documents
required by subdivision (b) of Section 1780.54, the commissioner
shall notify the organization in writing of the commissioner's
determination to approve or disapprove the organization's
qualifications and its plan of operation and which, if any, of the
duties identified in the plan of operation the commissioner has
determined to delegate to the organization. The commissioner and the
organization shall confer to resolve any and all issues that the
commissioner may raise concerning the organization's qualifications,
its plan of operation, or which duties should be delegated to the
organization. Any determination by the commissioner to disapprove the
organization's qualifications or plan of operation or not to
delegate one or more of the duties identified in the plan of
operation shall be accompanied by a statement of the commissioner's
reasons therefor.
   (b) The commissioner may provisionally approve the organization's
qualifications and plan of operation and may provisionally delegate
one or more of the duties identified in the plan of operation pending
the commissioner's determinations under subdivision (a).
   (c) Upon approval of the organization's qualifications and plan of
operation and upon delegation to the organization of one or more of
the duties identified in the plan of operation, the organization
shall commence operations as the advisory organization under this
chapter, consistent with the duties delegated by the commissioner. In
the event of provisional approval and delegation pursuant to
subdivision (b), the organization shall operate as the advisory
organization under this chapter during the period of, and consistent
with, the provisional approval and delegation by the commissioner.
   (d) Any amendment to the advisory organization's plan of operation
that is required by subdivision (d) of Section 1780.54 shall be
approved or disapproved pursuant to the procedures set forth in this
section.
   (e) The time periods set forth in this section may be extended by
consent of the organization and the commissioner.
   (f) The decision whether to delegate or withdraw one or more of
the duties identified in the plan of operation is committed to the
commissioner's sound discretion. The commissioner may, upon not less
than one year's notice to the advisory organization, withdraw one or
more functions that have been delegated to the advisory organization
in order that any one or more functions so withdrawn may be performed
by the Department of Insurance.

1780.56.  (a) The commissioner may delegate one or more of the
following duties to a qualified surplus line advisory organization
under this chapter:
   (1) To receive, review, and record all documents required by law,
regulation, or order to be filed with the commissioner or his or her
designee with respect to foreign and alien nonadmitted insurers and
any insurance placed with nonadmitted insurers, except that the
advisory organization shall not receive documents submitted pursuant
to subdivision (c) of Section 1763. The review under this subdivision
shall be for completeness, accuracy, and any other matters the
commissioner reasonably may direct the advisory organization to
review. The advisory organization shall notify the filing surplus
line broker in writing of any filing that the advisory organization
determines to be incomplete or inaccurate, and shall request the
filing broker to correct the problem. The advisory organization may,
or as directed by the commissioner shall, notify the commissioner of
incomplete or inaccurate filings.
   (2) To conduct a security review and analysis of all foreign and
alien nonadmitted insurers with which surplus line brokers place or
propose to place insurance covering property or risks located or
persons residing in this state, and to provide to the commissioner a
report on any foreign or alien nonadmitted insurer based on that
review and analysis. The review and analysis under this subdivision
shall take account of any matters the commissioner reasonably may
direct the advisory organization to review and any other matters the
advisory organization considers necessary or appropriate.
   (3) To make confidential recommendations to the commissioner as to
the suitability of any foreign or alien nonadmitted insurer to
insure property or risks located or persons residing in this state or
whether any foreign or alien nonadmitted insurer should be added to
or removed from any list of either eligible or disapproved
nonadmitted insurers maintained by the commissioner. The advisory
organization's recommendations shall be based on any review and
analysis that it performs under this chapter and on any additional
information that may come to the advisory organization's attention or
that the commissioner reasonably may request the advisory
organization to consider.
   (4) To report to the commissioner and other appropriate
authorities instances of actual fraudulent or illegal insurance
activity in the surplus line market that come to the advisory
organization's attention and any facts that come to the advisory
organization's attention that, in the reasonable judgment of the
advisory organization, may indicate the presence of fraudulent or
illegal insurance activity in the surplus line market or potential
risk of harm to consumers of surplus line insurance.
   (5) To maintain and report information necessary or that
reasonably may be requested by the commissioner for the calculation
and collection of premium taxes on surplus line insurance premiums.
   (6) To respond to any request by the commissioner for comments on
any proposed legislation or regulation affecting the placement of
insurance pursuant to the surplus line law.
   (7) To receive and disseminate to its members information relating
to surplus line insurance, to educate its members about the surplus
line law and the regulations pertaining thereto, and to perform any
specific educational activities that the commissioner reasonably may
request.
   (8) To communicate with organizations of admitted insurers with
respect to the proper use of the surplus line market.
   (9) To enter into written arrangements with the commissioner
whereby the advisory organization will perform any other functions
that, in the judgment of the commissioner and the advisory
organization, will help the commissioner provide effective and
cost-efficient supervision of the surplus line market.
   (b) If the commissioner delegates to the advisory organization one
or more of the duties set forth in subdivision (a), the advisory
organization also shall be authorized to assess a stamping fee for
each policy, declarations page, cover note, or other premium bearing
document submitted to the advisory organization. The stamping fee
shall be established from time to time by the governing body of the
advisory organization, shall reflect all reasonable costs associated
with the services provided by the advisory organization, and may be
reviewed by the commissioner for reasonableness as part of the
commissioner's examination of the advisory organization. Except as
otherwise provided in this subdivision, the stamping fee may not
exceed three-fourths of 1 percent of the premium for the insurance.
Any proposed increase in the stamping fee above three-fourths of 1
percent shall be filed with the commissioner along with a written
explanation of the reason for the increase, and the increase shall
take effect upon the expiration of 60 days after the date of filing
unless the commissioner disapproves it within that time. Within 60
days after the date of filing, the commissioner may provisionally
approve the proposed increase, in which event the increase shall take
effect immediately. The proposed increase shall be deemed fully
approved upon the expiration of 120 days after the date of filing
unless the commissioner disapproves the proposed increase within that
time. The stamping fee shall be paid by the surplus line broker,
provided, however, that the surplus line broker shall be allowed to
receive and collect the stamping fee from the insured.
   (c) Nothing in this chapter shall affect any delegation by the
commissioner pursuant to the surplus line law, provided, however,
that once the commissioner delegates one or more of the duties set
forth in this section and the advisory organization commences
operations under this chapter, no other organization may
simultaneously perform the same duties under this chapter or exercise
the authority incidental thereto.
   (d) The advisory organization may cease performing the duties
delegated by the commissioner under this chapter and exercising the
authority incidental thereto at any time upon 180 days' written
notice to the commissioner. The commissioner may require the advisory
organization to continue performing the duties under this chapter
for up to an additional 180 days, and the commissioner shall be
entitled, following receipt of notice from the advisory organization
under this subdivision, to obtain copies of all unprivileged files,
documents, and records maintained by the advisory organization on
behalf of the commissioner under this chapter.
   (e) The commissioner's findings, determinations, rules, rulings,
and orders under this chapter shall apply only to the advisory
organization's right to perform the duties delegated by the
commissioner under this chapter and to exercise the authority
incidental thereto. Nothing in this chapter shall be deemed or
construed to affect the advisory organization's right to exist and
function as a private, nonprofit organization, with all powers
attendant thereto, and to engage in lawful activities other than
under the authority of this chapter.

1780.57.  If the commissioner delegates to the surplus line advisory
organization one or more of the duties set forth in Section 1780.56,
the advisory organization also shall be authorized to exercise the
authority, in connection with those duties and incidental thereto:
   (a) To facilitate and encourage compliance by its members with the
laws of California and the rules and regulations of the commissioner
relating to surplus line insurance.
   (b) To maintain files for all documents received under this
chapter and any other files the commissioner reasonably may direct
the advisory organization to maintain.
   (c) To provide comments on any proposed legislation or regulation.
   (d) To make contracts necessary or appropriate to effect the
purposes of this chapter and to perform the duties delegated by the
commissioner under this chapter and to exercise the authority
incidental thereto.
   (e) To employ and retain whatever persons are necessary to perform
the duties delegated by the commissioner under this chapter and to
exercise the authority incidental thereto.
   (f) To perform any other acts necessary or appropriate to monitor
the surplus line business and to effect the purposes of this chapter
as well as the surplus line law and the regulations pertaining
thereto, consistent with the duties delegated by the commissioner
under this chapter.

1780.58.  (a) The surplus line advisory organization shall be
subject to the supervision of the commissioner, including, but not
limited to, the powers of the commissioner pursuant to Article 6.5
(commencing with Section 790) of Chapter 1 of Part 2 of Division 1,
and Article 1 (commencing with Section 12919) of Chapter 2 of
Division 3.
   (b) The advisory organization shall prepare and submit an annual
report on the performance of its duties under this chapter in the
form and manner required by the commissioner and may advise the
commissioner from time to time concerning any other matters relevant
to its duties or the regulation of the surplus line market.
   (c) The commissioner shall, at least once every three years, make
or cause to be made an examination of the advisory organization,
including the reasonableness of its costs. The examination may be
made by independent auditors retained for that purpose by the
commissioner. The reasonable cost of the examination shall be paid to
the commissioner or, if the commissioner retains independent
auditors for that purpose, directly to the independent auditors, by
the advisory organization upon presentation by the commissioner, or
by the independent auditors, of a detailed account of the cost. The
commissioner shall furnish two copies of the examination report to
the advisory organization.
   (d) Within 20 days of receiving the commissioner's examination
report, the advisory organization may request a hearing on the report
or on any facts or recommendations contained therein by mailing
written notice to the commissioner specifying the matters to be
considered at the hearing. The commissioner shall hold a hearing
within 60 days on those aspects of the examination report and on any
other aspects of the report that the commissioner designates for
consideration.

1780.59.  (a) If, as a result of the commissioner's examination of
the surplus line advisory organization or otherwise, there is good
cause to believe that the advisory organization does not comply with
any provision of this chapter or with any written request reasonably
made by the commissioner pursuant to the provisions of this chapter,
the commissioner shall give notice in writing to the advisory
organization, stating in what manner and to what extent noncompliance
is alleged to exist and specifying a reasonable time, not less than
10 days thereafter, in which the noncompliance may be corrected.
Notices under this section shall be confidential as between the
commissioner and the advisory organization unless a hearing is held
under Section 1780.60.
   (b) For purposes of this chapter, noncompliance includes any
material failure by the advisory organization to perform adequately
the duties delegated by the commissioner under this chapter or
exercise properly the authority incidental thereto.

1780.60.  (a) If there is good cause to believe that the surplus
line advisory organization's noncompliance with any provision of this
chapter is willful, or if within the period prescribed by the
commissioner in the notice required by subdivision (a) of Section
1780.59 the advisory organization does not make the changes necessary
to correct the noncompliance specified by the commissioner or
establish to the satisfaction of the commissioner that noncompliance
does not exist, then the commissioner may hold a hearing in
connection therewith, provided that within a reasonable period of
time, which shall not be less than 30 days before the date of the
hearing, the commissioner shall mail written notice specifying the
matters to be considered at the hearing to the advisory organization.
The notice shall conform to the requirements for an accusation as
prescribed by Section 11503 of the Government Code. If no notice has
been given as provided in subdivision (a) of Section 1780.59, notice
shall be given as to the manner and extent of noncompliance that is
alleged to exist. The hearing shall not include any subjects not
specified in the notices required by subdivision (a) of Section
1780.59 or this section, except that if the hearing relates to or is
based upon any aspect of the commissioner's examination report on the
advisory organization, the hearing shall also include any other
aspect of the report that the advisory organization designates for
consideration.
   (b) In the event the commissioner reasonably determines that the
advisory organization is engaged in fraudulent activity or
malfeasance in the performance of the duties delegated by the
commissioner under this chapter or in the exercise of the authority
incidental thereto or otherwise is in violation of or noncompliance
with any provision of this chapter, and that conduct has resulted, or
is likely to result, in a significant, adverse, and immediate effect
on the public or the commissioner's ability to regulate the surplus
line business that, because of the emergency nature of the effect on
the public or the commissioner's ability to regulate the surplus line
business, cannot reasonably be remedied under the other provisions
of this chapter, the commissioner may issue an order, without prior
hearing, directing the advisory organization to cease and desist from
the conduct or suspending or revoking all or part of the advisory
organization's authorization to perform the duties delegated by the
commissioner under this chapter, in addition to imposing any other
penalty provided for in this code. An order under this subdivision
may, if necessary, also direct the advisory organization to preserve
documents and records and to grant immediate access by the
commissioner's authorized representatives to the advisory
organization's premises to examine and make copies of any and all
unprivileged documents and records of the advisory organization
maintained on behalf of the commissioner pursuant to this chapter.
Within five days after issuing an order under this subdivision, the
commissioner shall issue the notice and shall thereafter hold the
hearing under subdivision (a) of this section, provided, however,
that:
   (1) The notice shall include a statement of the factual bases for
issuance of the order under this subdivision.
   (2) The notice shall be delivered to the advisory organization's
offices within one day of issuance.
   (3) The advisory organization shall be granted a hearing upon 10
days' written request to the commissioner or upon the hearing date
set by the commissioner, whichever is earlier.
   (4) Within 10 days following the hearing under this subdivision,
the commissioner shall confirm, modify, or withdraw the summary order
issued prior to hearing under this subdivision.

1780.61.  If, after a hearing pursuant to subdivision (d) of Section
1780.58 or subdivision (a) of Section 1780.60, the commissioner
finds:
   (a) That the advisory organization has violated or failed to
comply with any provision of this chapter, the commissioner may issue
an order to the advisory organization, specifying in what respect
the violation or noncompliance exists and stating when, within a
reasonable period of time, the violation or noncompliance shall
cease.
   (b) That the advisory organization has failed to comply with a
final order of the commissioner under subdivision (a) within the time
prescribed by the commissioner's order or by any extension thereof
which the commissioner may grant, the commissioner may issue an order
suspending or revoking all or part of the advisory organization's
authorization to perform the duties delegated by the commissioner
under this chapter, in addition to imposing any other penalty
provided for in this chapter.
   (c) That the advisory organization has willfully engaged in any
fraudulent or dishonest act or practice, the commissioner may issue
an order suspending or revoking all or part of the advisory
organization's authorization to perform the duties delegated by the
commissioner under this chapter, in addition to imposing any other
penalty provided for in this code.

1780.62.  Except as otherwise provided in this chapter, the
proceedings required or authorized by subdivision (d) of Section
1780.58 and by Sections 1780.60 and 1780.61 shall be conducted in
accordance with the provisions of Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code, and
the commissioner shall have all the powers granted therein. Hearings
shall be conducted by administrative law judges chosen under Section
11502 of the Government Code or appointed by the commissioner.

1780.63.  (a) Any finding, determination, rule, ruling, or order
made by the commissioner under this chapter shall be subject to
review by the courts of this state, and proceedings on review shall
be conducted in accordance with the provisions of the Code of Civil
Procedure. In proceedings on review, the court shall apply the
substantial evidence standard set forth in subdivision (c) of Section
1094.5 of the Code of Civil Procedure.
   (b) Notwithstanding any other provision of law to the contrary, a
petition for judicial review of any finding, determination, rule,
ruling, or order of the commissioner may be filed within 30 days
after the effective date thereof. Upon application by the advisory
organization, a court may for good cause stay or enjoin the effect of
any finding, determination, rule, ruling, or order of the
commissioner issued pursuant to this chapter.
   (c) The advisory organization shall have legal standing to bring
and defend actions, in the name of the advisory organization, in
administrative and judicial proceedings, with all powers attendant
thereto.

1780.64.  (a) If the surplus line advisory organization, or any of
its officers, committee members, agents, or employees, fails to
comply with a final order of the commissioner under this chapter, the
advisory organization or the person shall be liable to the state in
an amount not exceeding one hundred dollars ($100), but if the
failure is willful, the advisory organization or the person shall be
liable to the state in an amount not exceeding five thousand dollars
($5,000) for the failure. The commissioner shall collect the amount
so payable and may bring an action in the name of the people of the
State of California to enforce collection. These penalties may be in
addition to any other penalties provided by law.
   (b) A willful violation of any provision of this chapter by any
person is a misdemeanor.

1780.65.  Any action by the surplus line advisory organization may
be reviewed by the commissioner upon petition by any person adversely
affected thereby, but only after all applicable remedies available
under the advisory organization's constitution, articles, and bylaws,
if any, have been exhausted.

1780.66.  (a) There shall be no liability on the part of, and no
cause of action of any nature shall arise against, the surplus line
advisory organization, or its members, officers, committee members,
agents, or employees, or the Department of Insurance, the
commissioner, or employees or representatives of the Department of
Insurance, for any action taken or omitted by any of them in the
performance of their duties or the exercise of their authority under
this chapter, unless it can be shown that any of the parties
specified in this subdivision acted in bad faith. The performance of
any duty to the advisory organization delegated by the commissioner
under this chapter or the exercise of any authority incidental
thereto is an official duty of the advisory organization. Nothing in
this subdivision shall be deemed or construed to grant any immunity,
or any defense to liability, to a surplus line broker for that broker'
s failure to comply with the surplus line law or the regulations
pertaining thereto.
   (b) The advisory organization's communications with the
commissioner and other appropriate authorities pursuant to its
performance of the duties delegated by the commissioner under this
chapter or its exercise of the authority incidental thereto shall be
considered communications by an interested person to another
interested person under the provisions of subdivision (c) of Section
47 of the Civil Code and shall be deemed confidential communications
as defined in Section 12919.
   (c) The immunities and privileges afforded by this section shall
not affect the availability of any other immunities or privileges
afforded by law and shall not affect any of the rights of hearing and
review under, or any other provisions of, this chapter.

1780.67.  (a) No person shall serve on the governing body of the
surplus line advisory organization if in the past 10 years that
person has been disciplined for violating the insurance laws or
regulations of this state. The commissioner may waive this provision
if the prior violation is not material to the person's fitness to
serve.
   (b) At least 30 days prior to the election of its governing body,
the advisory organization shall advise the commissioner of the names
of the persons nominated for election to the governing body. If,
prior to the election, the commissioner objects on reasonable grounds
to the fitness to serve of any nominee or nominees, the nominee or
nominees shall not qualify for that election.
   (c) The advisory organization shall select and determine the terms
of employment of its employees. The name and qualifications of any
candidate for the permanent full-time position of executive director,
manager, or chief operating officer of the advisory organization
shall be submitted for the commissioner's review. If, within 30 days
after the submission of the candidate's name and qualifications to
the commissioner, the commissioner disapproves on reasonable grounds
that candidate's fitness to serve, the candidate shall not serve as
the executive director, manager, or chief operating officer of the
advisory organization.