Surplus lines insurance -- Unauthorized insurers.

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  • (1) Notwithstanding Section 31A-15-102, when this state is the home state as defined in Section 31A-3-305, a nonadmitted insurer may make an insurance contract for coverage of a person in this state and on a risk located in this state, subject to the limitations and requirements of this section.
  • (2)
    • (a) For a contract made under this section, the insurer may, in this state:
      • (i) inspect the risks to be insured;
      • (ii) collect premiums;
      • (iii) adjust losses; and
      • (iv) do another act reasonably incidental to the contract.
    • (b) An act described in Subsection (2)(a) may be done through:
      • (i) an employee; or
      • (ii) an independent contractor.
  • (3)
    • (a) Subsections (1) and (2) do not permit a person to solicit business in this state on behalf of an insurer that has no certificate of authority.
    • (b) Insurance placed with a nonadmitted insurer shall be placed by a surplus lines producer licensed under Chapter 23a, Insurance Marketing - Licensing Producers, Consultants, and Reinsurance Intermediaries.
    • (c) The commissioner may by rule prescribe how a surplus lines producer may:
      • (i) pay or permit the payment, commission, or other remuneration on insurance placed by the surplus lines producer under authority of the surplus lines producer's license to one holding a license to act as an insurance producer; and
      • (ii) advertise the availability of the surplus lines producer's services in procuring, on behalf of a person seeking insurance, a contract with a nonadmitted insurer.
  • (4) For a contract made under this section, a nonadmitted insurer is subject to Sections 31A-23a-402, 31A-23a-402.5, and 31A-23a-403 and the rules adopted under those sections.
  • (5) A nonadmitted insurer may not issue workers' compensation insurance coverage to an employer located in this state, except:
    • (a) for stop loss coverage issued to an employer securing workers' compensation under Subsection 34A-2-201(2);
    • (b) a cannabis production establishment as defined in Section 4-41a-102; or
    • (c) a medical cannabis pharmacy as defined in Section 26-61a-102.
  • (6)
    • (a) The commissioner may by rule prohibit making a contract under Subsection (1) for a specified class of insurance if authorized insurers provide an established market for the class in this state that is adequate and reasonably competitive.
    • (b) The commissioner may by rule place a restriction or a limitation on and create special procedures for making a contract under Subsection (1) for a specified class of insurance if:
      • (i) there have been abuses of placements in the class; or
      • (ii) the policyholders in the class, because of limited financial resources, business experience, or knowledge, cannot protect their own interests adequately.
    • (c) The commissioner may prohibit an individual insurer from making a contract under Subsection (1) and all insurance producers from dealing with the insurer if:
      • (i) the insurer willfully violates:
        • (A) this section;
        • (B) Section 31A-4-102, 31A-23a-402, 31A-23a-402.5, or 31A-26-303; or
        • (C) a rule adopted under a section listed in Subsection (6)(c)(i)(A) or (B);
      • (ii) the insurer fails to pay the fees and taxes specified under Section 31A-3-301; or
      • (iii) the commissioner has reason to believe that the insurer is:
        • (A) in an unsound condition;
        • (B) operated in a fraudulent, dishonest, or incompetent manner; or
        • (C) in violation of the law of its domicile.
    • (d)
      • (i) The commissioner may issue one or more lists of nonadmitted foreign insurers whose:
        • (A) solidity the commissioner doubts; or
        • (B) practices the commissioner considers objectionable.
      • (ii) The commissioner shall issue one or more lists of nonadmitted foreign insurers the commissioner considers to be reliable and solid.
      • (iii) In addition to the lists described in Subsections (6)(d)(i) and (ii), the commissioner may issue other relevant evaluations of nonadmitted insurers.
      • (iv) An action may not lie against the commissioner or an employee of the department for a written or oral communication made in, or in connection with the issuance of, a list or evaluation described in this Subsection (6)(d).
    • (e) A foreign nonadmitted insurer shall be listed on the commissioner's "reliable" list only if the nonadmitted insurer:
      • (i) delivers a request to the commissioner to be on the list;
      • (ii) establishes satisfactory evidence of good reputation and financial integrity;
      • (iii)
        • (A) delivers to the commissioner a copy of the nonadmitted insurer's current annual statement certified by the insurer and, each subsequent year, delivers to the commissioner a copy of the nonadmitted insurer's annual statement within 60 days after the day on which the nonadmitted insurer files the annual statement with the insurance regulatory authority where the nonadmitted insurer is domiciled; or
        • (B) files the nonadmitted insurer's annual statements with the National Association of Insurance Commissioners and the nonadmitted insurer's annual statements are available electronically from the National Association of Insurance Commissioners;
      • (iv)
        • (A) is in substantial compliance with the solvency standards in Chapter 17, Part 6, Risk-Based Capital, or maintains capital and surplus of at least $15,000,000, whichever is greater; or
        • (B) in the case of any "Lloyd's" or other similar incorporated or unincorporated group of alien individual insurers, maintains a trust fund that:
          • (I) shall be in an amount not less than $50,000,000 as security to its full amount for all policyholders and creditors in the United States of each member of the group;
          • (II) may consist of cash, securities, or investments of substantially the same character and quality as those which are "qualified assets" under Section 31A-17-201; and
          • (III) may include as part of this trust arrangement a letter of credit that qualifies as acceptable security under Section 31A-17-404.1; and
      • (v) for an alien insurer not domiciled in the United States or a territory of the United States, is listed on the Quarterly Listing of Alien Insurers maintained by the National Association of Insurance Commissioners International Insurers Department.
  • (7)
    • (a) Subject to Subsection (7)(b), a surplus lines producer may not, either knowingly or without reasonable investigation of the financial condition and general reputation of the insurer, place insurance under this section with:
      • (i) a financially unsound insurer;
      • (ii) an insurer engaging in unfair practices; or
      • (iii) an otherwise substandard insurer.
    • (b) A surplus line producer may place insurance under this section with an insurer described in Subsection (7)(a) if the surplus line producer:
      • (i) gives the applicant notice in writing of the known deficiencies of the insurer or the limitations on the surplus line producer's investigation; and
      • (ii) explains the need to place the business with that insurer.
    • (c) A copy of the notice described in Subsection (7)(b) shall be kept in the office of the surplus line producer for at least five years.
    • (d) To be financially sound, an insurer shall satisfy standards that are comparable to those applied under the laws of this state to an authorized insurer.
    • (e) An insurer on the "doubtful or objectionable" list under Subsection (6)(d) or an insurer not on the commissioner's "reliable" list under Subsection (6)(e) is presumed substandard.
  • (8)
    • (a) A policy issued under this section shall:
      • (i) include a description of the subject of the insurance; and
      • (ii) indicate:
        • (A) the coverage, conditions, and term of the insurance;
        • (B) the premium charged the policyholder;
        • (C) the premium taxes to be collected from the policyholder; and
        • (D) the name and address of the policyholder and insurer.
    • (b) If the direct risk is assumed by more than one insurer, the policy shall state:
      • (i) the names and addresses of all insurers; and
      • (ii) the portion of the entire direct risk each assumes.
    • (c) A policy issued under this section shall have attached or affixed to the policy the following statement: "The insurer issuing this policy does not hold a certificate of authority to do business in this state and thus is not fully subject to regulation by the Utah insurance commissioner. This policy receives no protection from any of the guaranty associations created under Title 31A, Chapter 28, Guaranty Associations."
  • (9) Upon placing a new or renewal coverage under this section, a surplus lines producer shall promptly deliver to the policyholder or the policyholder's agent evidence of the insurance consisting either of:
    • (a) the policy as issued by the insurer; or
    • (b) if the policy is not available upon placing the coverage, a certificate, cover note, or other confirmation of insurance complying with Subsection (8).
  • (10) If the commissioner finds it necessary to protect the interests of insureds and the public in this state, the commissioner may by rule subject a policy issued under this section to as much of the regulation provided by this title as is required for a comparable policy written by an authorized foreign insurer.
  • (11)
    • (a) A surplus lines transaction in this state shall be examined to determine whether it complies with:
      • (i) the surplus lines tax levied under Chapter 3, Department Funding, Fees, and Taxes;
      • (ii) the solicitation limitations of Subsection (3);
      • (iii) the requirement of Subsection (3) that placement be through a surplus lines producer;
      • (iv) placement limitations imposed under Subsections (6)(a), (b), and (c); and
      • (v) the policy form requirements of Subsections (8) and (10).
    • (b) The examination described in Subsection (11)(a) shall take place as soon as practicable after the transaction. The surplus lines producer shall submit to the examiner information necessary to conduct the examination within a period specified by rule.
    • (c)
      • (i) The examination described in Subsection (11)(a) may be conducted by the commissioner or by an advisory organization created under Section 31A-15-111 and authorized by the commissioner to conduct these examinations. The commissioner is not required to authorize an additional advisory organization to conduct an examination under this Subsection (11)(c).
      • (ii) The commissioner's authorization of one or more advisory organizations to act as examiners under this Subsection (11)(c) shall be:
        • (A) by rule; and
        • (B) evidenced by a contract, on a form provided by the commissioner, between the authorized advisory organization and the department.
    • (d)
      • (i)
        • (A) A person conducting the examination described in Subsection (11)(a) shall collect a stamping fee of an amount not to exceed 1% of the policy premium payable in connection with the transaction.
        • (B) A stamping fee collected by the commissioner shall be deposited in the General Fund.
        • (C) The commissioner shall establish a stamping fee by rule.
      • (ii) A stamping fee collected by an advisory organization is the property of the advisory organization to be used in paying the expenses of the advisory organization.
      • (iii) Liability for paying a stamping fee is as required under Subsection 31A-3-303(1) for taxes imposed under Section 31A-3-301.
      • (iv) The commissioner shall adopt a rule dealing with the payment of stamping fees. If a stamping fee is not paid when due, the commissioner or advisory organization may impose a penalty of 25% of the stamping fee due, plus 1-1/2% per month from the time of default until full payment of the stamping fee.
    • (e) The commissioner, representatives of the department, advisory organizations, representatives and members of advisory organizations, authorized insurers, and surplus lines insurers are not liable for damages on account of statements, comments, or recommendations made in good faith in connection with their duties under this Subsection (11)(e) or under Section 31A-15-111.
    • (f) An examination conducted under this Subsection (11) and a document or materials related to the examination are confidential.
  • (12)
    • (a) For a surplus lines insurance transaction in the state entered into on or after May 13, 2014, if an audit is required by the surplus lines insurance policy, a surplus lines insurer:
      • (i) shall exercise due diligence to initiate an audit of an insured, to determine whether additional premium is owed by the insured, by no later than six months after the expiration of the term for which premium is paid; and
      • (ii) may not audit an insured more than three years after the surplus lines insurance policy expires.
    • (b) A surplus lines insurer that does not comply with this Subsection (12) may not charge or collect additional premium in excess of the premium agreed to under the surplus lines insurance policy.




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