2009 California Insurance Code - Section 729-738 :: Article 4. Examination By Commissioner

729.  As used in this article, the following terms have the
following meanings:
   (a) "Company" means any person engaging in, or proposing or
attempting to engage in, any transaction or kind of insurance or
surety business and any person or group of persons who may otherwise
be subject to the administrative, regulatory, or taxing authority of
the commissioner.
   (b) "Examiner" means any individual or firm authorized by the
commissioner to conduct an examination under this article.
   (c) "Person" means any person, association, organization, business
trust, partnership, limited liability company, or corporation, or
any affiliate thereof.

730.  (a) The commissioner, whenever he or she deems necessary or
whenever he or she is requested by verified petition, signed by 25
persons interested as shareholders, policyholders, or creditors of
any admitted insurer showing that the insurer is insolvent under this
code, or upon information that any insurer has violated any
provision of Article 7 (commencing with Section 800), shall examine
the business and affairs of the insurer. The commissioner shall so
examine every domestic insurer before issuing to it a certificate of
authority other than a renewal.
   (b) The commissioner may conduct an examination under this article
of any company as often as the commissioner in his or her discretion
deems appropriate but shall, at a minimum, conduct an examination of
every insurer admitted in this state not less frequently than once
every five years. In scheduling and determining the nature, scope,
and frequency of the examinations, the commissioner shall consider
the results of financial statement analyses and ratios, changes in
management or ownership, actuarial opinions, reports of independent
certified public accountants, market analysis results, including
consumer complaint analysis, evaluation of ongoing regulatory
activities, analysis of data derived from industry surveys or
interrogatories, and other criteria as set forth in the Examiner's
Handbook or in the Market Regulation Handbook adopted by the National
Association of Insurance Commissioners which are in effect when the
commissioner exercises discretion under this section.
   (c) For purposes of completing an examination of any company under
this article, the commissioner may examine or investigate any
person, or the business of any person, insofar as the examination or
investigation is, in the discretion of the commissioner, necessary or
material to the examination of the company.
   (d) In lieu of an examination under this article of any foreign or
alien insurer admitted in this state, the commissioner may accept an
examination report on the company as prepared by the insurance
department of the company's state of domicile or port-of-entry state
until January 1, 1994. Thereafter, these reports may only be accepted
if (1) the insurance department was at the time of the examination
accredited under the National Association of Insurance Commissioner's
Financial Regulation Standards and Accreditation Program, or (2) the
examination is performed under the supervision of an accredited
insurance department or with the participation of one or more
examiners who are employed by an accredited state insurance
department and who, after a review of the examination work papers and
report, state under oath that the examination was performed in a
manner consistent with the standards and procedures required by their
insurance department.

731.  Whenever any foreign insurer applies for admission the
commissioner may make, or cause to be made by the insurance authority
of the State where the insurer is organized, an examination of its
insurance business and affairs.

732.  An insurer organized or existing under the laws of any country
outside of the United States shall be deemed to be organized, within
the meaning of this article, in any State wherein such insurer
maintains the deposits to protect policyholders as required by this
code.

733.  In making such examination the commissioner:
   (a) Shall have free access to all the books and papers of the
company.
   (b) Shall thoroughly inspect and examine all its affairs.
   (c) Shall ascertain its condition and ability to fulfill its
obligations.
   (d) Shall ascertain if it has complied with all laws applicable to
its insurance transactions.
   (e) May appraise or cause to be appraised by competent appraisers
appointed by him or her all property in which the insurer has or
claims an interest, or which is security, in any form, for the
payment of any debt or obligation to the insurer. All such appraisals
of real property shall be in writing.
   (f) Shall, in conducting the examination, observe those guidelines
and procedures set forth in the Examiner's Handbook adopted by the
National Association of Insurance Commissioners. The commissioner may
also employ other guidelines or procedures which the commissioner
may deem appropriate.
   (g) May retain attorneys, appraisers, independent actuaries,
independent certified public accountants, or other professionals and
specialists as examiners, or any of the employees of the department
assigned by the commissioner to carry out the purposes of this
article, the cost of which shall be borne by the company subject to
examination.

734.  Every company or person from whom information is sought, and
its officers, directors, employees, and agents, shall provide to the
examiners appointed pursuant to this article, timely, convenient, and
free access at all reasonable hours at its offices to all books,
records, accounts, papers, documents, and any or all computer or
other recordings relating to the property, assets, business, and
affairs of the company being examined. The officers, directors,
employees, and agents of the company or person shall assist the
examiners and aid in the examination so far as it is in their power
to do so. The commissioner shall have the power to issue subpoenas,
to administer oaths, and to examine under oath any person as to any
matter pertinent to the examination. If he or she finds the books to
be carelessly or improperly kept or posted, he or she shall employ
sworn experts to rewrite, post, and balance the books at the insurer'
s expense.

734.1.  (a) No later than 60 days following completion of the
examination, the examiner in charge shall file with the department a
verified written report of the examination under oath. Upon receipt
of the verified report, the department shall transmit the report to
the company examined, together with a notice that the company has 30
days to make a written submission or rebuttal with respect to any
matters contained in the examination report.
   (b) Within 30 days of the end of the period allowed for the
receipt of written submissions or rebuttals, the commissioner shall
fully consider and review the report, together with any written
submissions or rebuttals and any relevant portions of the examiner's
workpapers, and shall either adopt the report as filed or with
modifications or corrections, or reject the report with directions to
the examiners to reopen the examination for purposes of obtaining
additional data, documentation, or information, and refiling pursuant
to subdivision (a).
   (c) (1) Nothing contained in this article shall be construed to
limit the commissioner's authority to terminate or suspend any
examination in order to pursue other legal or regulatory action
pursuant to the insurance laws of this state.
   (2) If the commissioner terminates or suspends an examination that
includes an examination of claims practices, the commissioner shall
within 10 days of the termination or suspension transmit a copy of
the complete examination file to the State Bureau of Audits. The
State Auditor shall audit the file pursuant to Section 10527 of the
Government Code to determine the propriety of the termination or
suspension.

735.  The hereinafter designated officer of each domestic insurer
shall inform the members present at the next meeting of its governing
body of the receipt from the office of the commissioner of the
report of every examination of such insurer, both in the form first
formally prepared by the examiners and in the form as finally settled
and officially filed by the commissioner or a deputy designated by
him. Such officer shall also inform such members that a copy of such
report is available for inspection of any member of such governing
body. There shall be entered in the minutes of each such meeting the
fact that such officer did so inform the members present.
   The officer above referred to, in the case of a stock or mutual
insurer, shall be its secretary or comparable officer if there is no
secretary. This section shall specifically apply to reciprocals and
interinsurance exchanges and in that case the officer above referred
to shall be the principal individual, partner or officer of its
attorney-in-fact, and "governing body" shall have reference to the
body exercising the subscribers' rights provided for in Section 1308.

735.5.  (a) Nothing contained in this article shall be construed to
limit the commissioner's authority to use and, if appropriate, to
make public, any final or preliminary examination report, any
examiner or company workpapers or other documents, or any other
information discovered or developed during the course of any
examination in the furtherance of any legal or regulatory action
which the commissioner may, in his or her discretion, deem
appropriate.
   (b) Nothing contained in this code shall prevent or be construed
as prohibiting the commissioner from disclosing the content of an
examination report, preliminary examination report or results, market
analysis data, or any matter relating thereto, to the insurance
department of this or any other state or country, or to law
enforcement officials of this or any other state or agency of the
federal government at any time, or to the National Association of
Insurance Commissioners, provided the recipient of the report or
matters relating thereto agrees in writing to hold it confidential
and in a manner consistent with this article, unless the prior
written consent of the company to which it pertains has been
obtained.
   (c) All working papers, recorded information, documents, and
copies thereof produced by, obtained by, or disclosed to the
commissioner or any other person in the course of an examination made
pursuant to this article shall be given confidential treatment and
are not subject to subpoena and shall not be made public by the
commissioner or any other person, except to the extent provided in
subdivision (a) or (b).

736.  All examinations and analyses performed pursuant to Section
730 shall be at the expense of the insurer, organization, or person
examined, except that special examinations which are in addition to
regular examinations may be at the expense of the state in the
discretion of the commissioner. The costs and expenses of all of
those examinations shall be paid from the support appropriation for
the Department of Insurance current at the time of the examination
but shall be charged to and collected from the insurer, organization
or person examined. If any insurer, organization, or person refuses
to pay those costs and expenses promptly when due, the commissioner
may refuse to issue its certificate of authority, certificate of
exemption, or license, as the case may be, and may revoke any
existing certificate of authority, certificate of exemption, or
license.

736.5.  The provisions of Section 736 notwithstanding, the revenue
raised from the examination of insurers and other persons under this
article in the 1996-97 fiscal year shall not exceed the examination
fee revenue estimate for the 1996-97 Governor's Budget by more than
two million dollars ($2,000,000).

737.  (a) No cause of action shall arise nor shall any liability be
imposed against the commissioner, the commissioner's authorized
representatives, or any examiner appointed by the commissioner for
any statements made or conduct performed in good faith while carrying
out the provisions of this article.
   (b) No cause of action shall arise, nor shall any liability be
imposed against any person for the act of communicating or delivering
information or data to the commissioner or the commissioner's
authorized representative or examiner pursuant to an examination made
under this article, if the act of communication or delivery was
performed in good faith and without fraudulent intent or the intent
to deceive.
   (c) This section shall not abrogate or modify in any way any
common law or statutory privilege or immunity previously enjoyed by
any person identified in subdivision (a).
   (d) A person identified in subdivision (a) shall be entitled to an
award of attorney's fees and costs if he or she is the prevailing
party in a civil cause of action for libel, slander, or any other
relevant tort arising out of activities engaged in while carrying out
the provisions of this article and the party bringing the action was
not substantially justified in doing so. For purposes of this
section, a proceeding is substantially justified if it had a
reasonable basis in law or fact at the time that it was initiated.

738.  The commissioner shall have the same powers and authority to
examine the State Compensation Insurance Fund as are conferred upon
him by law relative to the examination of other insurers except where
the fund is specifically exempted by reference.