Laws and Regulations - 2005 Legislation

Last Update: October 2005

AB 1043 (Harman)

Signed by the Governor on 9/22/05 Effective 1/1/06. Eliminates the 120-day deadline for the return of unearned premium for premium financed policies, and would apply a 25-day deadline for the return of gross unearned premium on personal lines policies. The bill imposes a 80-day deadline for the return of gross unearned premium when an insurer endorses, rejects, declines, cancels, or surrenders a certain type of commercial insurance policy, or a workers compensation policy. The bill imposes specified requirements on insurers, brokers, and others with respect to returning unearned premiums, including providing notice, paying interest on unearned premium premium not timely returned, and applying offsets to amounts owed to insureds. Requires an insurer to provide an accounting to both the insured and the agent or broker regarding the calculation of an unearned premium refund, and provides that the Insurance Commissioner may adopt regulations regarding this accounting.

AB 1424 (Saldana)

Signed by the Governor on 9/6/05 effective 1/1/06. Clarifies that surplus line brokers are subject to the same lien provisions that apply to other insurers when found to be deficient in premium tax payments to the state. The bill provides that these lien rights extend to all property and franchises of every kind and nature belonging to the surplus line broker. The bill clarifies that the lien levied on surplus line brokers shall not exceed the amount of unpaid tax collected by the surplus line broker.

AB 729 (Koretz)

Signed by the Governor on 9/22/05 effective 1/1/06. Requires surplus line brokers organized as limited liability companies (LLCs) to provide the state written evidence of security for claims against them in the form of errors and omissions (E&O) coverage or acceptable alternative security equal to $100,000 for each claim multiplied by the number of licensees rendering professional services on behalf of the company with a minimum required amount of $500,000. The maximum coverage is not required to exceed $5 million. The LLC surplus line brokers E&O cover cannot be nonrenewed, cancelled or terminated without providing written notice to the commissioner within 10 days. This bill requires that premium taxes collected by LLC surplus line brokers be applied first to any interest and penalties due and then to the tax owed. Surplus line brokers organized as LLCs are responsible to maintain security for payment of their deductible limit or self-insured retention liability. Makes additional specified changes to various existing regulatory requirements governing insurance agents, brokers and production agencies.

AB 1424 - (Saldana)

Would clarify that surplus line brokers are subject to the same lien provisions that apply to other insurers when found to be deficient in premium tax payments to the state.  The bill would provide that these lien rights would extend to all property and franchises of every kind and nature belonging to the surplus line broker.  The bill has been amended to clarify that the lien levied on surplus line brokers shall not exceed the amount of unpaid tax collected by the surplus line broker.

Status:  Pending consideration on the Senate floor.

AB 729 - (Koretz)

Would require surplus line brokers organized as limited liability companies (LLCs) to provide the state written evidence of security for claims against them in the form of errors and omissions (E&O) coverage or acceptable alternative security equal to $100,000 for each claim multiplied by the number of licensees rendering professional services on behalf of the company with a minimum required amount of $500,000.  The maximum coverage would not be required to exceed $5 million.  The LLC surplus line broker's E&O cover cannot be nonrenewed, cancelled or terminated without providing written notice to the commissioner within 10 days.  This bill would require that premium taxes collected by LLC surplus line brokers be applied first to any interest and penalties due and then to the tax owed.  The bill was amended to remove language that would allow the commissioner to assess penalties on surplus line brokers.  The bill was also amended to remove a provision not allowing the LLC surplus line brokers E&O deductibility to exceed 3 percent.  However, surplus line brokers would be responsible to maintain security for payment of their deductible limit or self-insured retention liability.

Status:  The bill is pending in the Senate Appropriations Committee.

AB 1043 - (Harman)

Would eliminate the 120-day deadline for the return of unearned premium for premium financed policies, and would apply a 25-day deadline for the return of gross unearned premium.  The bill would impose a 60-day deadline for the return of gross unearned premium when an insurer endorses, rejects, declines, cancels, or surrenders a certain type of commercial insurance policy, or a worker's compensation policy.  The bill would impose specified requirements on insurers, brokers, and other with respect to returning unearned premiums, providing notice, and applying offsets to amounts owed to insureds.  It would require an insurer to provide an accounting to the insured regarding the calculation of an unearned premium refund, and would provide that the Insurance Commissioner may adopt regulations regarding this accounting.

Status:  The bill is pending consideration in the Senate Appropriations Committee.

S.B. 938 (Dunn)

Would require that an insurance agent or broker acting on behalf of a client in a transaction involving commercial insurance, as defined, use reasonable care, skill, and diligence in performing services on behalf of the client. The bill also says agents and brokers acting on behalf of their clients owe the client the duties of good faith, honesty, loyalty and integrity. The bill would impose specific requirements on agents or brokers acting on behalf of a client with respect to making inquiries of insurers, obtaining coverage, disclosing information to the client, and charging fees to the client. The bill would allow the commissioner to adopt regulations to implement these provisions.

A.B. 1043 (Harman)

Would revise and recast the provisions of the state insurance code relevant to the return and accounting for unearned premium for both admitted and nonadmitted companies. The bill would impose a 60-day deadline for the return of gross unearned premium. This bill would eliminate the 120-day deadline for return of unearned premium for premium financed policies and would impose a 25-day deadline for the return of gross unearned premium. The bill would also require an accounting of the insured regarding the calculation of an unearned premium refund.

A.B. 1424 (Saldana)

Would clarify that surplus line brokers are subject to the same lien provisions as insurers for the failure to pay premium taxes. The bill as amended would subject surplus line brokers to state lien rights on the tax collected by surplus line brokers, impose a penalty on any surplus line broker that fails to remit the surplus line premium tax and would disallow a corporate dissolution or bankruptcy discharge unless all tax obligations are paid.