33-2-1602. Managing general agent -- required contract provisions. A person acting in the capacity of a managing general agent may not place business with an insurer unless there is in force a written contract between the parties that sets forth the responsibilities of each party. Whenever both parties share responsibility for a particular function, the written contract must specify the division of responsibilities. The contract must provide at least the following:
(1) The insurer may terminate the contract for cause upon written notice to the managing general agent. The insurer may suspend the underwriting authority of the managing general agent during the pendency of any dispute regarding the cause for termination.
(2) The managing general agent shall render accounts to the insurer, detailing all transactions, and shall remit all funds due under the contract to the insurer on not less than a monthly basis.
(3) All funds collected for the account of an insurer must be held by the managing general agent in a fiduciary capacity in a bank that is a member of the federal reserve system. This account must be used for all payments on behalf of the insurer. The managing general agent may not retain more than 3 months' estimated claims payments and allocated loss adjustment expenses.
(4) Separate records of business written by the managing general agent must be maintained. The insurer has access to and may copy all accounts and records that are related to its business, in a form usable by the insurer. The commissioner has access to all books, bank accounts, and records of the managing general agent in a form usable to the commissioner. The records must be retained pursuant to 33-3-401.
(5) The contract may not be assigned in whole or in part by the managing general agent.
(6) The contract must contain appropriate underwriting guidelines, including:
(a) the maximum annual premium volume;
(b) the basis of the rates to be charged;
(c) the types of risks that may be written;
(d) maximum limits of liability;
(e) any applicable exclusions;
(f) the territorial limitations;
(g) policy cancellation provisions; and
(h) the maximum policy period.
(7) The insurer may cancel or decline to renew any policy of insurance, as provided by law.
(8) If the contract permits the managing general agent to settle claims on behalf of the insurer:
(a) all claims must be reported to the company in a timely manner;
(b) a copy of the claims file must be sent to the insurer at its request or as soon as it becomes known that the claim:
(i) has the potential to exceed an amount determined by the commissioner or actually exceeds the limit set by the company, whichever is less;
(ii) involves a coverage dispute;
(iii) may exceed the managing general agent's claims settlement authority;
(iv) is open for more than 6 months; or
(v) is closed by payment of an amount set by the commissioner or an amount set by the company, whichever is less;
(c) all claims files are the joint property of the insurer and managing general agent. However, upon an order of liquidation of the insurer, the files become the sole property of the insurer or its estate. The managing general agent has reasonable access to and may copy the files on a timely basis.
(d) any settlement authority granted to the managing general agent may be terminated for cause upon the insurer's written notice to the managing general agent or upon the termination of the contract. The insurer may suspend the settlement authority during the pendency of any dispute regarding the cause for termination.
(9) When electronic claims files are in existence, the contract must address the timely transmission of the data.
(10) If the contract provides for a sharing of interim profits by the managing general agent and the managing general agent has the authority to determine the amount of the interim profits, whether by establishing loss reserves or controlling claim payments or in any other manner, interim profits may not be paid to the managing general agent until:
(a) 1 year after they are earned for property insurance business;
(b) 5 years after they are earned on casualty business; and
(c) the profits have been verified.
(11) The managing general agent may not:
(a) bind reinsurance or retrocessions on behalf of the insurer, except that the managing general agent may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the insurer contains reinsurance underwriting guidelines, including for reinsurance assumed and ceded:
(i) a list of reinsurers with which automatic agreements are in effect;
(ii) the coverages and amounts or percentages that may be reinsured; and
(iii) commission schedules;
(b) commit the insurer to participate in insurance or reinsurance syndicates;
(c) appoint any producer without ensuring that the producer is lawfully licensed to transact the type of insurance for which the producer is appointed;
(d) without prior approval of the insurer, pay or commit the insurer to pay a claim over a specified amount, net of reinsurance, which may not exceed 1% of the insurer's policyholder's surplus as of December 31 of the last-completed calendar year;
(e) collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer without the prior approval of the insurer. If prior approval is given, a report must be promptly forwarded to the insurer.
(f) permit its subproducer to serve on the insurer's board of directors;
(g) jointly employ an individual who is employed with the insurer; or
(h) appoint a submanaging general agent.
History: En. Sec. 15, Ch. 596, L. 1993.