ALABAMA STATE INSURANCE LAW (CODE)

Transcription

1 Chapter Fifteen ALABAMA STATE INSURANCE LAW (CODE) OVERVIEW The purpose of this chapter is to acquaint the student with state specific insurance laws and regulations. State Government 1. The insurance industry is regulated by Alabama State Government. 2. Since insurance is a state regulated industry, the Alabama Department of Insurance (DOI), is part of the executive branch of the state government. Insurance Regulation Insurance Commissioner 1. Appointment and Qualifications a. The Commissioner of Insurance is selected based on training, experience, and capacity and is appointed by the Governor for the duration of the Governor s term of office. b. If the Commissioner becomes a candidate for public office or becomes a member of a political committee, he/she must immediately vacate the office of Commissioner. 2. Powers and Duties a. The Commissioner s powers and duties include: 1) Organizing and supervising the Department of Insurance. 2) Enforcing insurance law. 3) Executing agreements with federal and state governmental entities and private persons. 4) Examining and investigating insurance matters. 5) Invoking remedy for enforcing orders or insurance law. b. The Commissioner may: 1) Delegate powers to his/her representatives. 2) Examine the insurance affairs of any: a) General agent, producer, surplus line broker, solicitor, or adjuster. b) Person having a contractual right, or a right through power of attorney, to manage or control an insurer. c) Person promoting or forming a domestic insurer, insurance holding corporation, or corporation to finance a domestic insurer. d) Attorney of a reciprocal insurer. e) Corporation that a domestic insurer controls. 3. Hearings a. The Commissioner may hold a hearing for any purpose he/she deems necessary. He/she may suspend or postpone an action s effective date, pending a hearing. b. The Commissioner must hold a hearing if required by law, or upon written demand by a person aggrieved by any act of the Commissioner. The hearing must be held within 30 days after the Commissioner receives a demand. 4. Penalties for Violations Each violation of insurance law is a misdemeanor punishable by a fine of up to $1,000 or imprisonment for up to 1 year and/or hard labor. This is in addition to any applicable denial, suspension, or revocation of Certificate of Authority or license. 233 Property & Casualty

2 Insurer s Authorization 1. An insurance company must have the following in order to start up and be Domiciled and Authorized as a new company operating in the State of Alabama: a. $1,000,000 in Surplus. b. A minimum number of applications as determined by state law. c. Premiums collected for the minimum number of applications as determined by state law. 2. Certificate of Authority a. A person or insurer must have a Certificate of Authority to act as an insurer in, or from, Alabama. b. An insurer is not required to have a Certificate of Authority to: 1) Issue policies or liquidate assets and liabilities, if doing so does not involve collecting new premiums. 2) Issue a policy covering only nonresident persons, locations, or services, if the policy is not solicited, written, or delivered in this state. 3) Transact surplus lines business or reinsurance. c. A foreign insurer is not required to have a Certificate of Authority in order to invest in Alabama real estate or in securities. 3. Qualifications for Authority to Transact Insurance a. To qualify for and keep a Certificate of Authority, an insurer must: 1) Be an incorporated stock or mutual insurer, a reciprocal insurer, or a Lloyd s organization. 2) Be competent, trustworthy, and experienced. 3) Be affiliated only with persons whose operations have not injured insurers, stockholders, policyholders, creditors, or the public. b. To qualify for and keep a Certificate of Authority, a foreign insurer must maintain required reserves and must have been an insurer for at least 5 years. c. An insurer may not qualify for a Certificate of Authority if its voting control is held by any government agency. 4. Certificate of Authority Application and Issuance a. An insurer applying for a Certificate of Authority must file its application with the Commissioner. b. The application must: 1) State the kinds of insurance to be transacted and the insurer s name and home office s address. 2) Include a copy of: a) The insurer s charter or articles of incorporation, bylaws, financial statement, last examination, and evidence of any required deposit. b) An appointment of the Commissioner as the recipient of service of legal process. 3) Include, if other than a life insurer, an affidavit that it has complied with the law for the past 12 months. 4) Include, if a foreign reciprocal insurer, copies of its power of attorney or of its subscribers agreement. 5) Include, if a foreign or alien insurer, its Certificate of Authority from its home state/country. 6) Include, if an alien insurer, a copy of its appointment and of the authority of its manager in the United States. c. The Commissioner must issue a Certificate of Authority to any insurer meeting the application requirements. d. A Certificate of Authority is the property of Alabama. An insurer must promptly return an expired, suspended, or terminated Certificate of Authority to the Commissioner. Property & Casualty 234

3 5. Continuance and Expiration of Certificate A Certificate of Authority: a. Continues in force as long as the insurer is entitled and until suspended, revoked or terminated at the insurer s request. b. Expires on May 31 st unless continued by paying the continuation fee before March 1 st and filing an annual financial statement. c. May be reinstated by paying a reinstatement and a continuation fee. d. May be amended by the Commissioner to reflect changes in the insurer s charter or powers. 6. Suspension or Revocation of Certificate a. The Commissioner may suspend or revoke an insurer s Certificate of Authority: 1) As required by insurance law. 2) If the insurer no longer meets the application requirements. 3) If a foreign insurer s home state suspends or revokes its authority to transact insurance. b. Except for insolvency, impairment, or a. 3) above, the Commissioner must notify the insurer at least 10 days before suspending or revoking its Certificate of Authority, stating the reason(s) for the suspension or revocation. 7. Producer Required An insurer must transact insurance business through licensed insurance producers. Exceptions: Producers are not required for life or disability insurance delivered and solicited outside Alabama, or for title, marine, or aircraft insurance. 8. Retaliatory Law When another state s laws impose material obligations on Alabama insurers or producers that exceed similar material obligations imposed by Alabama, the Commissioner must impose similar obligations on the other state s insurers or producers doing business in Alabama. Licensing Requirements - Obtaining a License 1. License Application and Exam a. To receive a resident insurance producer license, unless exempted, a resident individual must: 1) Be at least 18 years of age. 2) Have not committed any act that is a ground for license denial, suspension, or revocation. 3) Complete 20 hours of prelicensing education per line of authority, unless exempted under item c. below. 4) Pass a written exam and pay an exam fee, unless exempted under item c. below. 5) Submit a Uniform Application for licensure to the Commissioner. Note: An individual failing the exam must reapply for licensure. An individual failing the second attempt must wait 3 months before retaking the exam. An individual failing the fourth attempt must wait 6 months before retaking the exam. b. Persons exempt from this licensure requirement include all producers and service representatives licensed before 2002, unless the license was terminated and out of effect for 12 consecutive months. c. To act as an insurance producer, a business entity must designate a licensed individual producer as the person responsible for its compliance with state law, pay any required fees, and be issued an insurance producer license by the Commissioner. 2. Licensure a. A producer may be licensed for one or more of the following lines of insurance: 1) Life (and annuities) 2) Disability 3) (Commercial lines of) Property 235 Property & Casualty

4 4) Surety and (commercial lines of) casualty 5) Variable life and variable annuity products 6) Personal lines (of property and casualty) 7) Limited line credit 8) Bail bond 9) Auto 10) Industrial (a.k.a. debit) fire 11) Rental vehicle 12) Any other line that state law permits b. A person meeting licensing requirements for a service representative must be issued a service representative license in property and casualty insurance. c. A producer or service representative license remains in effect unless revoked or suspended as long as the license renewal fee is paid and education requirements for resident individual producers and service representatives are met when due. d. A lapsed producer or service representative license may be reinstated within 12 months, by paying twice the renewal fee. e. A producer or service representative may request a waiver of renewal requirements if unable to comply with them due to extenuating circumstance (e.g. military duty). 3. Temporary License a. A temporary producer license may be issued without an exam or prelicensing course if the Commissioner deems it necessary for servicing insurance business in any of the following cases: 1) To the spouse or representative of a producer who dies or becomes disabled. 2) To a licensed business entity s member or employee if its designated producer dies or becomes disabled. 3) To a designee of a producer entering active service in the U.S. armed forces. 4) In any other situation, if in the public interest. b. The Commissioner may issue a temporary producer license to an otherwise qualified applicant who has not passed the exam if the applicant is active in study, instruction, or field training approved by the Commissioner and is under an insurer s supervision. Note: The application must include a Notice of Appointment from the insurer and the insurer s request for the license. c. The applicant must pay the appropriate license fee. d. A temporary license is valid for up to 6 months and may be renewed once for a producer s disabling or confining illness or injury. e. The temporary license s holder may receive a producer s license by passing the exam and surrendering the temporary license. f. The Commissioner may revoke or limit a temporary license as necessary to protect insureds and the public. Note: A temporary producer can receive full commissions under a temporary license. 4. Nonresident License a. To receive a nonresident producer license, a nonresident must: 1) Submit either a Uniform Application or a copy of the license application he/she submitted to his/her home state. 2) Pay the required fees. 3) Be a resident of a state issuing nonresident producer licenses to Alabama residents on the same basis. 4) Hold a current resident producer license in good standing in his/her home state. Property & Casualty 236

5 b. A producer, regardless of residency, who moves to a different state must submit a change of address and provide certification from the new resident state within 30 days. Note: Make sure that your mailing address is current with the department of insurance. If the notice is returned to the insurance department as undeliverable or the address is not current, it will be handled the same way as an address change violation. You will be fi ned $50 for not keeping your address current with the department. You have 30 days to update any mailing address, mailing address, or name change with the insurance department to avoid the $50 fi ne. c. A surplus line broker or limited lines producer in another state may receive a nonresident surplus line broker or limited lines producer license, respectively. d. A nonresident producer who complies with his/her home state s continuing education requirements is deemed to comply with Alabama s continuing education requirements if the person s home state acknowledges fulfillment of its requirements on the same basis. 5. Exceptions a. A person previously licensed for the same lines of insurance in another state is exempt from prelicensing education and exam requirements if: 1) Currently licensed in that state. 2) The license application in Alabama is received within 90 days after the previous license is cancelled. 3) The prior state certifies that the applicant was in good standing. b. A producer licensed in another state who moves to this state must apply for a resident license within 90 days after establishing legal residency. License Maintenance 1. Licensure a. A producer or service representative license states the licensee s name and address, PIN, dates of issue and expiration, lines of insurance, and any other information the Commissioner deems necessary. b. A licensee who fails to notify the Commissioner of a change in name, mailing address, and/or within 30 days shall be fined $ License Revocation, Suspension, or Nonrenewal a. The Commissioner may suspend, revoke, or refuse to issue or to renew a license for 1 or more of the following grounds: 1) Any reason for which the Commissioner would have refused to issue the license had he/she known of the reason. 2) Providing incorrect, misleading, incomplete, or materially untrue information in any communication to the Commissioner. 3) Obtaining a license through misrepresentation or fraud. 4) Intentionally misrepresenting an application or contract. 5) Committing any unfair trade practice or fraud. 6) Using fraudulent, coercive, or dishonest practices. 7) Demonstrating incompetence, untrustworthiness, or financial irresponsibility. 8) Improperly withholding or misappropriating any property belonging to an insurer or insured. 9) Violating insurance law or any order, subpoena, rule, or regulation of any state s insurance regulatory authority. 10) Having been convicted of a felony. 11) Having a license denied, suspended, or revoked in any other jurisdiction. 12) Forging another s name to any insurance document. 237 Property & Casualty

6 13) Using reference material when taking a licensure exam. 14) Accepting insurance business from an individual who is not licensed. 15) Failing to comply with a child support obligation or to pay state income tax. EXAM TIP: KNOW THAT A PRODUCER S LICENSE MAY BE SUSPENDED OR REVOKED FOR ANY 1 OR MORE OF THE ABOVE. b. The Commissioner may also fine the person up to $10,000 per violation. EXAM TIP: KNOW THAT THE $10,000 FINE IS PER VIOLATION. 3. Assumed Name, Records Maintenance, and Reporting of Administrative or Criminal Actions A producer must: a. Notify the Commissioner before using a name other than the producer s legal name. b. Keep complete records of his/her transactions for 3 years, 2 years for limited lines credit insurance, and provide a verified copy to the Commissioner upon request. c. Give an insured its records about the insured s policies upon request. d. Report being the subject of: 1) Any administrative action in another jurisdiction or by another agency in Alabama to the Commissioner within 30 days after the final disposition of the matter. 2) Any criminal prosecution in any jurisdiction to the Commissioner within 30 days after the date of the initial pretrial hearing. Continuing Education Requirement 1. A producer or service representative must complete at least 24 classroom hours, at least 3 of which are in ethics or business practices, per biennial reporting period of courses, instructional programs, or seminars approved by the Commissioner. a. Any person newly licensed, for 12 months after the license s effective date. b. Any officer of an insurer, if he/she is not involved in sales. c. Any person who only works in an office and is not licensed as a nonresident in any other state this person is only required to complete 6 classroom hours per year. d. Alabama Legislature members who are active during any part of the biennial reporting period. 2. If a licensee fails to meet the above requirements, or submits a false Certificate of Compliance, his/ her license may be suspended after a hearing. 3. The Commissioner may grant an extension: a. Of 3 months to comply with these requirements, upon the licensee s request. If the request is denied, the licensee must meet the requirements within 30 days after notice of the denial. b. Of more than 3 months if the licensee shows that special circumstances apply. 4. By signing an application for license renewal, a producer certifies that he/she has met these requirements. The insurer may sign the application on the producer s behalf but may not be held liable for a producer s failure to meet these requirements or to maintain records. Appointment and Termination Appointment 1. To be appointed to an insurance company a producer must: a. Be licensed for a line of insurance to solicit or negotiate that line of insurance. b. Be appointed by an insurer in order to act on its behalf. Note: A producer is not required to be appointed by an insurer if he/she is not acting on an insurer s behalf. 2. An insurer accepting business from a person it has not appointed and who is not licensed for that line of insurance may be fined up to 3 times the premium received. Property & Casualty 238

7 3. A licensee regularly placing insurance with an insurer without being appointed by the insurer may have his/her license suspended or revoked. If this happens, the license may not be reinstated for at least 1 year. 4. An insurer appointing a producer must file a Notice of Appointment with the Commissioner and pay the appropriate fee within 15 days after executing the agency contract or accepting the producer s first insurance application, whichever happens first. 5. The Commissioner must verify that the producer is eligible for appointment within 30 days after receiving the notice. If the Commissioner determines that the producer is not eligible, he/she must notify the insurer within 5 days after making that determination. 6. An insurer renewing a producer s appointment must pay the required renewal fee. Termination ALABAMA STATE INSURANCE LAW (CODE) CHAPTER FIFTEEN 1. When an insurance company terminates an agency contract or a producer s appointment, the insurer must follow the terms of the agency contract. 2. An insurer must notify the Commissioner within 30 days after terminating a producer s appointment. The insurer must also send the producer a copy of the termination notice within 15 days after sending the notice to the Commissioner. 3. A producer may file written comments about the termination with the Commissioner and the insurer within 30 days after receiving the notice. 4. The Commissioner, an insurer, and a producer, in the absence of actual malice, may not be held liable for making information available to regulatory or law enforcement agencies. Unfair Trade Practices, Prohibited Activities 1. Definitions For the purpose of unfair trade practices and prohibited activities, the following words have the following meanings: a. Negotiate To confer with or offer advice to a policy buyer about a policy s benefits, terms, or conditions. Note: This defi nition applies only if the person doing the negotiating sells insurance. b. Service Representative An insurer s or managing general agent s salaried employee, other than an insurer s officer, manager, or managing general agent, who works with producers in selling or negotiating only property insurance. 2. Unfair Trade Practices The following are unfair trade practices: a. Twisting A person may not misleadingly compare policies in order to induce a policy s lapse, forfeit, surrender, exchange, or conversion. b. Falsification of Financial Information 1) A person may not make any false: a) Statement about an insurer s financial condition with intent to deceive. b) Entry in an insurer s book, report, or statement with intent to deceive an examiner. 2) Any person falsifying financial information may be fined $500 to $5,000. c. Boycott, Coercion, or Intimidation A person may not commit any act of boycott, coercion, or intimidation resulting in unreasonable restraint of, or monopoly in, the insurance business. d. Malicious Statements about Financial Condition (Defamation) A person may not make any oral or written statement that is false concerning, maliciously critical of, or derogatory to an insurer s financial condition with intent to injure any person transacting insurance business. e. Unfair Discrimination A person may not unfairly discriminate between individuals of the same class and life expectancy in a life or disability policy s or an annuity s rates or benefits, or in a disability policy s terms or conditions. 239 Property & Casualty

8 3. Prohibited Activities The information presented in a. and b. below applies to producers and service representatives, but not to surplus line brokers or title insurance. a. Fiduciary Duties All funds a producer receives are held in a fiduciary capacity (i.e. in trust); the licensee may not fail to account for and pay the funds to the person entitled to them. b. Commissions 1) An insurer or producer may not pay any valuable consideration to any person for services as a producer or service representative unless the person is licensed as a producer or service representative, respectively. Doing so is punishable by a fine of 3 times the commission paid. Note: The Commissioner may revoke a producer s or insurer s license for failing to pay the fi ne. 2) Commissions may be paid to a temporary producer, a deceased producer s representative, or, if deferred commissions, to a person who was licensed when the commissions were earned. 3) A producer sharing commissions with a person other than a producer licensed for the same lines of insurance may have his/her license suspended or revoked for 1 year. c. Financial Inducements 1) A person may not, as an inducement to buy insurance, deliver capital, stock, shares, securities, or any contract promising returns. Doing so is punishable by license refusal or revocation. 2) A person may not issue or deliver any life policy or annuity including language that may mislead a purchaser to believe he/she will receive something other than a policy or annuity. 3) An insurer or producer may not deliver a life policy containing benefits in the form of coupons or guaranteed annual endowment benefits, unless separately specifying the premiums for the benefits. d. Rebates and Other Inducements 1) A person may not, other than as expressed in a contract, offer any valuable consideration (e.g. premium rebate, dividend favor) as an inducement to buy the contract. 2) A named insured under a property, casualty, or surety contract may not knowingly receive any valuable consideration, other than as expressed in a contract, as an inducement to buy the contract. 3) These prohibitions do not apply to: a) Property insurance covering the interests of the seller or vendor. b) Blanket disability insurance. c) Credit life or credit disability insurance. d) Any individual, isolated, nonrecurring, unadvertised transaction not in the regular course of business. 4) A person may not use the word free to describe life or disability insurance connected with the sale of any goods, merchandise, or services. 5) The Commissioner may, after a hearing, revoke the Certificate of Authority of any insurer and the licenses of any producer violating these requirements. Note: A person is not allowed to advertise or give free insurance to induce the purchase of property. Free insurance includes insurance for which the charge is less than the cost. e. Charges, False Representations in Insurance Application 1) A person may not collect a premium or charge for insurance without providing insurance. The premium collected may not exceed the premium specified in the policy. 2) A person may not knowingly make a false or fraudulent statement or representation in an insurance application. Property & Casualty 240

9 3) A person failing to abide by these rules may have his/her license denied, suspended or revoked; may be convicted of a misdemeanor; may be fined up to $1,000, imprisoned for up to 1 year; or be subject to any combination of these actions. Each violation is punishable as a separate offense. EXAM TIP: KNOW THE FOLLOWING UNFAIR TRADE PRACTICES, PROHIBITED ACTIVITIES: TWISTING DEFAMATION REBATING COERCION 4. Cease and Desist Order If someone is believed to have engaged, or to be engaging, in an unfair trade practice or prohibited activity, the Commissioner must: a. Notify the person that a hearing shall be held within 10 days. b. Let the person explain, at the hearing, why a Cease and Desist Order should not be issued. c. Issue a Cease and Desist Order if doing so is appropriate. Domestic Abuse Insurance Protection Act 1. It is unfair discrimination for an insurer to: a. Deny, nonrenew, cancel, restrict, or exclude coverage because of an applicant s or insured s status as, relationship with, or assistance to a victim of abuse. b. Exclude or limit coverage or deny a claim, except under a liability policy, because of an insured s status as, relationship with, or assistance to a victim of abuse. c. Charge a higher premium because of an applicant s or insured s status as, relationship with, or assistance to a victim of abuse. d. Terminate health coverage for a victim of abuse, if the victim does not qualify for continuation or conversion of coverage under COBRA, because: 1) The victim has divorced or separated from the abuser/primary insured. 2) The victim has lost custody of another victim of abuse. 3) The abuser s coverage has been terminated. 2. An insurer may disclose information that an applicant, insured, or claimant is a victim of abuse, only: a. To the victim or his/her designee (in writing). b. To a health care provider. c. As required by law or ordered by the Commissioner. d. When necessary for a valid business purpose, only to: 1) A reinsurer seeking to indemnify a policy covering the victim, if necessary to underwrite or satisfy its obligations under the reinsurance agreements. 2) A party to a sale, transfer, merger, or consolidation of the insurer s business. 3) Medical or claims personnel contracting with the insurer, if necessary to process an application, perform the insurer s duties, or protect the victim. 4) To an attorney representing the insurer. 5) To the policyowner or assignee, at policy delivery, if the policy contains information about the status of the victim of abuse. 6) To any other entity deemed appropriate by the Commissioner. 3. An insurer may not require an applicant to disclose information about acts of abuse or status as a victim of abuse. 241 Property & Casualty

10 4. To be considered a victim of abuse, a person must provide evidence of abuse to an insurer or demonstrate that a condition is related to abuse. 5. An insurer refusing an application or denying a claim from a person having an abuse-related medical condition, or status, or an association or relationship with a victim of abuse must advise the applicant or the insured, in writing, of the specific reasons for the action. Property and Casualty Insurance Regulation Binders 1. A binder must include all usual policy terms and any applicable endorsements. 2. A binder may be oral or written. 3. A binder is valid for up to 90 days until the policy is issued and may, with the Commissioner s written approval, be extended or renewed. 4. A binder is commonly known as a Temporary Insuring Agreement or a Temporary Insurance Policy. 5. A binder does not guarantee that the policy will be issued and the binder may be cancelled at any time by the insurance company if the insured is found to be an excessive risk. Adjuster 1. Definition and License Requirement a. Adjuster A person who, for compensation, investigates and negotiates claim settlements on the insurer s behalf. This term does not include an insurer s salaried employee or an attorney licensed in Alabama. b. A person must be a licensed adjuster in order to act as, or claim to be, an adjuster. c. The Commissioner must issue a license to each qualified person, firm, or corporation applying for an adjuster license and paying the required license fee. d. Each person in a licensed firm or corporation who exercises powers under the license must also hold an adjuster license. e. To be qualified for an adjuster license, an individual must be: 1) At least 19 years of age. 2) An Alabama resident, or a resident of a state that allows Alabama resident adjusters to act as adjusters in that state. 3) An attorney, a licensed adjuster s full-time salaried employee, or an individual with claims handling experience, education, or training. 4) Trustworthy and of good character. 2. License Exemption for Nonresident Adjusters a. An adjuster sent to Alabama to investigate or adjust a particular, unique, and unusual loss is exempt from license requirements. b. A producer may occasionally act as an adjuster without being duly licensed. c. A producer s compensation may not be retrospectively reduced or increased because of losses under insurance he/she sold or serviced. 3. Maintenance of License and Records a. An adjuster license continues in force, until terminated, as long as renewal is requested and the renewal fee is paid on or before December 31 st annually. b. An adjuster license may be reinstated if renewal is requested and the renewal fee is paid by the February 15 th after the license expires. c. The Commissioner may suspend an adjuster license for up to 12 months, or may revoke or refuse to renew such license: 1) For any reason for which the license would not have been issued. 2) For attempting to obtain the license through misrepresentation or fraud. Property & Casualty 242

11 3) For violating any applicable insurance law or any rule, regulation, or order of the Commissioner. 4) For misappropriating or illegally withholding money or property belonging to another and received in the process of conducting business. 5) For being convicted of a felony involving moral turpitude. 6) For using fraudulent or dishonest practices or demonstrating incompetence or untrustworthiness. d. Any party aggrieved by license suspension, revocation, or discontinuance may appeal the Commissioner s order. e. An adjuster must keep a public office, which may be in his/her home, and keep and maintain records of all transactions for 1 year. He/she must promptly notify the Commissioner of any change of address. Surplus Line Insurance 1. Conditions for Procuring Coverage If certain insurance coverage cannot be procured from authorized insurers, such coverage (a.k.a. surplus lines) may be procured from unauthorized insurers. One of the following requirements must be met: a. The insurance must be procured through a licensed surplus line broker, who first makes a diligent effort to get the insurance from authorized insurers. The insurance may not be procured solely to secure a lower premium. b. Insurance must be for an industrial insured an insured having at least 25 employees, one of whom is a full-time insurance consultant, manager, or buyer, and annually paying premiums on all risks, except Workers Compensation and group insurance, of at least $25, Broker s Affidavit A surplus line broker must file a report with the Commissioner within 30 days after the effective date of any surplus line insurance. The Commissioner may require the report to be in the form of an affidavit. 3. Endorsement of Contract A surplus line contract must: a. Be initialed by, or bear the name and license number of, the procuring broker. b. Bear a stamp stating, This contract is registered and delivered as a surplus line coverage under the Alabama Surplus Line Insurance Law. 4. Surplus Line Broker s License a. Must have a resident and home state Property & Casualty license b. A non-resident can be licensed in Alabama if licensed as a surplus lines producer in their home state. c. Any resident property licensee the Commissioner deems competent by virtue of experience may be licensed as a surplus line broker for transacting surplus lines property insurance. d. Such a licensee must apply to the Commissioner on designated forms, pay the required license fee, and file and maintain a bond of at least $50,000. e. The license expires on December 31 st after its issuance. f. A nonresident surplus line broker is deemed to have irrevocably appointed the Commissioner to receive service of legal process. 5. Placement of Business a. A licensed surplus line broker may accept and place surplus line business for any duly licensed resident producer and may compensate such producer. b. A producer may not knowingly misrepresent any material fact to a broker. 243 Property & Casualty

12 EXAM TIP: THE FOLLOWING ARE THE KEY POINTS REGARDING WHAT IS REQUIRED OF A SURPLUS LINES BROKER: MUST MAINTAIN A BOND IN THE AMOUNT OF $50,000. MUST FILE A REPORT WITH THE COMMISSIONER WITHIN 30 DAYS OF THE EFFECTIVE DATE OF SURPLUS LINES INSURANCE. A CONTRACT MUST BE INITIALED BY, OR HAVE THE PRODUCER S NAME AND LICENSE NUMBER. A CONTRACT MUST BEAR A STAMP STATING, THE CONTRACT IS A SURPLUS LINE COVERAGE UNDER ALABAMA LAW. Unauthorized Insurers Process Act 1. An unauthorized foreign or alien insurer that transacts any insurance business with an Alabama resident or with an authorized corporation is deemed to have appointed the Commissioner to receive service of legal process on its behalf. 2. This makes the insurer subject to the jurisdiction of Alabama s courts in actions initiated under such contracts by insureds or beneficiaries. Insurance Guaranty Association 1. The Alabama Insurance Guaranty Association: a. Pays covered claims under property and casualty policies, except ocean marine policies, to avoid excessive delays in payment and to prevent claimants and policyholders financial losses due to an insurer s insolvency. b. Helps detect and prevent insurer insolvency. c. Proportionately assesses member insurers for the cost of such protection. 2. The Association is obligated to pay covered claims existing before an insurer s insolvency: a. In full under Workers Compensation. b. That exceed $100 and are less than $150,000 for all other coverage. 3. The Association may: a. Investigate, adjust, pay, and deny claims. b. Reimburse its servicing facilities (usually member insurers) for claims paid and expenses incurred on the Association s behalf. c. Employ persons and borrow funds as necessary. d. Sue or be sued. e. Negotiate and enter contracts. f. Proportionately refund excess assessments. Property Insurance Regulation Industrial Fire Policies 1. Definition, Method of Payment, Indemnity Limits a. Industrial Fire Insurance Fire policies issued by insurers through producers operating on the debit agency system, a system under which a weekly or monthly collection percentage is paid based on either actual weekly or monthly premiums collected, or on increases in weekly or monthly premiums collected. b. An industrial fire policy must charge either a weekly or a monthly premium. An insurer may not issue a weekly and a monthly industrial fire policy on the same risk. c. The face amount of an industrial fire policy: 1) With weekly premiums that covers buildings and other structures or contents may not exceed $7,500. 2) With monthly premiums must be $40,000 for the building or dwelling and $20,000 for contents. Property & Casualty 244

13 d. Discounts for advance premium payments may not exceed 5% for premiums paid 6 months in advance; 10% for premiums paid 12 months in advance. Premiums may not be collected more than 12 months in advance. 2. Policy and Forms a. An industrial fire policy may not use the caption The Standard Fire Policy. b. The words industrial, monthly, weekly premium, or home service must be incorporated as a part of the policy caption. c. All policies and endorsements are subject to approval by the Insurance Department. d. All industrial fire policies must be marketed by a producer licensed for industrial (debit) fire or property and casualty. 3. Rate Filings and Annual Statistical Reports a. Industrial fire and allied lines rates and subsequent changes must be filed with the Insurance Department for approval. b. Every insurer must annually, by or on July 1 st, file a statistical report showing a classification schedule for premiums and losses for the previous year s industrial fire business in Alabama. Note: The report must show separate statistics for fi re and lightning, extended, and all additional coverages. Casualty Insurance Regulation Auto Policies 1. Financial Responsibility, Mandatory Coverage a. Security Requirements 1) The DMV Director will determine, within 20 days after receiving an accident report, the security amount necessary to satisfy any judgment for damages recoverable against each operator or owner, if both of the following apply: a) The accident results in bodily injury, death, or property damages exceeding $500. b) The Director does not have enough evidence that the operator or owner has been released from liability, or has a written agreement or conditional release for paying an agreed amount in installments for all resulting claims. 2) If the operator or owner does not deposit the required security within 60 days after the Director receives the report, the Director shall suspend the person s license and vehicle registration. Exception: A security deposit is not required if the operator or owner has an auto liability policy or bond in effect at the time of the accident. b. Coverage (Evidence of Insurance) 1) Every auto owner must cover his/her auto with a liability policy, bond, or cash deposit, carry evidence of such liability coverage, and display the evidence to a law enforcement officer upon request. 2) An auto liability policy must provide at least the following minimum liability limits: a) $25,000 for bodily injury or death per person per accident. b) $50,000 for bodily injury or death to 2 or more persons per accident. c) $25,000 for property damage per accident. Note: Calculate the 25/50/25 mandatory limits to a Combined Single limit. The maximum $50,000 BI per accident and the $25,000 PD per accident indicates that the maximum paid out for any one claim is $75,000. This is known as a Combined Single Limit. 3) An auto liability bond or cash deposit must be for at least $50, Property & Casualty

14 c. Registration Suspension 1) The Department must suspend an auto s registration 45 days after notifying the owner of suspension for violating the security requirement, unless the owner provides proof of insurance within 30 days. 2) Upon providing proof of insurance and paying the $100 fee to the Department of Revenue the suspension will be terminated. 3) Upon the second violation within a 4-year period, the registration will be suspended for 4 months. A $200 fee is required prior to the 4-month suspension period ending and if paid within the 4 months, the suspension will be terminated after exhausting the suspension period. d. False Proof of Insurance If the Director determines that an auto s owner has submitted a false proof of insurance, the Department shall suspend the auto s registration. After 6 months, the owner may reinstate the registration by paying a reinstatement fee and providing proof of insurance. e. Class C Offenses It is a Class C: 1) Felony to, with fraudulent intent, alter, forge, or counterfeit an insurance card to make it appear valid or to sell or make available an invalid or counterfeit evidence of insurance. 2) Misdemeanor to: a) Operate an auto with a suspended registration or without liability coverage. b) Fail to display, or knowingly display an invalid evidence of insurance to a law enforcement officer upon request. c) Attempt to register an auto subject to a notice of registration suspension. EXAM TIP: KNOW THE PRIMARY DIFFERENCE BETWEEN A CLASS C MISDEMEANOR AND A CLASS C FELONY IS THAT THE CLASS C FELONY IS ABOUT FRAUD AND FORGERY. THERE ARE NO CLASS A OR CLASS B OFFENSES ON THE EXAM. 2. Policy Cancellation/Nonrenewal a. Grounds An auto liability policy in effect for at least 60 days may be cancelled only for: 1) Nonpayment of premium. 2) Material misrepresentation. 3) The insured s violation of any policy terms and conditions. 4) The named insured s failure to disclose: a) In an application, upon request, his/her auto accidents and moving traffic violations for the past 36 months. b) Necessary eligibility or rating information. 5) Any insured s false or fraudulent claim. 6) Failing to maintain a membership, if a prerequisite to the policy s purchase, in any group or organization. 7) Any customary driver s: a) License suspension or revocation, or drug addiction, within 36 months before the cancellation notice. b) Epilepsy or heart attacks, if he/she fails to provide a physician s certification that he/she can safely operate an auto without special qualification. c) Accident or conviction record or condition that makes operating an auto dangerous to the public. d) Excessive alcohol consumption. Property & Casualty 246

15 e) Conviction or bail forfeiture, within 36 months before the cancellation notice, for: i) Any felony. ii) Criminal negligence resulting in death, homicide, or assault while driving an auto. iii) Operating an auto while intoxicated or under the influence of drugs. iv) Being intoxicated while in, about, or having custody of, an auto. v) Leaving the scene of an accident. vi) Stealing an auto. vii) Making false statements in a driver s license application. viii) 3 or more speeding violations in any state. 8) The insured auto s: a) Mechanical defect endangering public safety. b) Use in carrying passengers for hire or compensation (except for carpooling). c) Use in transporting flammables or explosives. d) Use as an authorized emergency vehicle. e) Change in shape or condition that increases the risk insured. f) Failure to be inspected or to qualify under an inspection law. EXAM TIP #1: KNOW THE REASONS THAT AN AUTO POLICY CAN BE CANCELLED. COMMON EXAMPLES OF REASONS ARE: IF A DRIVER IS ADDICTED TO DRUGS OR USES ALCOHOL IN EXCESS, SUFFERS FROM EPILEPSY, ETC. IF AN INSURED S AUTO IS UNSAFE TO DRIVE. EXAM TIP #2: KNOW THE GROUNDS FOR CANCELLATION/NONRENEWAL UNDER 2.A (1-8). b. Cancellation Notice and Proof of Delivery 1) The insurer must notify the named insured at least 20 days before cancelling an auto policy; at least 10 days, stating the reason for cancellation, if cancelling for nonpayment of premium. 2) The notice must either state the reason(s) for cancellation or must state that the reason(s) shall be given upon the named insured s written request if the request is made within 15 days before the cancellation. 3) Proof that a notice or explanation has been mailed constitutes proof that the notice or explanation has been given. c. Nonrenewal Notice A minimum of 20 days notice to the insured is required if the insurer chooses to nonrenew the policy upon its expiration. 3. Uninsured/Underinsured Motorist Coverage a. An auto liability policy must provide or offer Uninsured Motorists Coverage unless the named insured rejects it in writing. b. The term uninsured auto includes autos for which: 1) Neither the owner nor driver carries bodily injury liability insurance. 2) Any bodily injury coverage is below the required minimum limits. 3) The insurer becomes insolvent after the policy is issued. 4) The sum of all bodily injury liability coverage is less than the damages that the injured person is legally entitled to recover. c. An injured person s recovery under Uninsured Motorist Coverage is limited to the primary coverage plus up to 2 additional coverages for additional autos covered by any one auto policy. d. The minimum Bodily Injury Limits are $25,000 per person and $50,000 per accident for 2 or more persons. It mirrors Alabama s required Coverage Limits. 247 Property & Casualty

16 Note #1: It is illegal to be uninsured an uninsured motor vehicle is any vehicle that has limits of coverage under that which is required by state law. Example: A vehicle with 20/40/10 would be considered to be an uninsured vehicle and illegal. Note #2: It is not illegal to be underinsured an underinsured motor vehicle is any vehicle that has coverage that meets Alabama required limits of 25/50 25 but has coverage in an amount less than the actual damage sustained. Example: An insured may have 50/100/50 in coverage and be at fault in an accident that sustains 150,000 BI and 100,000 PD. The insured is underinsured. However, the insured is legal because they have met the legal requirements of 25/50/ Automobile Assigned Risk Plan a. An insurer cancelling an auto policy, other than for nonpayment of premium, must notify the named insured that he/she might be eligible for insurance through the Automobile Assigned Risk Plan. This is generally available to drivers who are unable to obtain it through normal channels. b. All auto liability insurers must be a member of the Plan, which accepts applications from persons entitled to, but unable to get, auto liability policies through ordinary methods. c. Any applicant or insured affected by any Plan decision may appeal to the Superintendent. A person aggrieved by the Superintendent s order or act may appeal within 10 days to the appropriate court. 5. Rate Reductions for Older Persons a. Auto liability rates filed with the Commissioner must reduce premiums for a primary driver age 55 or older who successfully completes an approved accident prevention course, as evidenced by a Certificate of Completion from the course s sponsor. b. To qualify for this premium reduction, an individual age 55 or older must complete 8 classroom hours in an approved auto accident prevention course. c. The reduction must be effective for 3 years, unless the insured is involved in an at-fault accident or is found guilty of a moving violation. Workers Compensation 1. Definitions a. Employee (a.k.a. Worker) Every person serving another under any contract of hire, including aliens and minors legally working, and including employees of Tannehill Furnace and Foundry Commission. Exceptions: The term does not include product demonstrators and does not include licensed real estate agents operating under a licensed broker. b. Injury (a.k.a. Personal Injury) Injury by accident arising out of and in the course of employment. Note: This term includes occupational diseases (e.g. carpal tunnel; occupational pneumoconiosis, which is a lung disease caused by breathing small dust particles; occupational exposure to radiation). 2. Policy Provisions, Employer Liability, and Right to Compensation a. An insurer must be authorized by the Commissioner to transact Workers Compensation insurance. Its business plan and policies must be approved by the Commissioner before use. b. Self-Insurance 1) A self-insurer must annually file evidence of compliance with liability requirements. 2) The Commissioner may, after 60 days notice and a hearing, revoke a self-employer s Certificate of Compliance for financial reasons, the employer s failure to pay obligations, or violation of any rule or regulation. 3) A new certificate may be granted upon application. Property & Casualty 248

17 c. An employer failing to secure compensation is guilty of a misdemeanor and may be fined $100 to $1,000 in addition to being liable for twice the compensation payable for an employee s injury or death. d. An employee may place a lien upon any amount the insurer pays the employer. e. An employee may not agree to pay any Workers Compensation costs without the Commissioner s approval. f. When an employer s negligence, not an employee s willful misconduct, results in the employees compensable injury or death, the employee s representative must receive damages for the spouse and next of kin. 3. Prohibited Defenses An uninsured employer may not claim that an employee was negligent (unless the employee was guilty of willful negligence or misconduct), that a fellow employee caused the injury, or that the employee assumed the incidental risk. 4. Exempt Persons The following are exempt from Workers Compensation requirements: a. Domestic employees or farm laborers. b. An employee whose employment is casual and not in the employer s usual trade, business, profession, or occupation. c. Employees of an employer regularly employing fewer than 5 employees in any one business. d. A municipality with a population of less than 2,000. e. A corporation s officer, if he/she elects to be exempt from coverage by filing written certification with the Department and the employer s insurer. f. Any school board that does not have enough funds to comply. g. Certified volunteer fire departments. h. Any legally organized rescue squads that meet minimum personnel and equipment standards. i. An independent contractor regularly employing fewer than 5 employees in any one business, if he/she helps construct single-family, detached residential dwellings and files an Affidavit of Exemption with the Workers Compensation Division. 5. Limits of Immunity under Exclusive Remedy An employer, insurer, person, firm, association, trust, fund, or corporation is immune from civil, but not criminal, liability for Workers Compensation claims. Exception: A person or entity may be held civilly liable for claims based on the person s or entity s willful conduct. 6. Compensation Benefits a. Total Disability Compensation is 66 2/3% of the employee s average weekly wage, subject to a maximum and a minimum. For a temporary disability, if this amount is less than the minimum, the employee receives his/her average weekly wage. b. Temporary Partial Disability Compensation is 66 2/3% of the difference between the employee s average weekly wage before and after the injury, payable for up to 300 weeks. Note: If the employee leaves the employer, compensation ceases until the employee secures other employment and provides a written affidavit verifying the new compensation amount payable. c. Permanent Partial Disability Compensation is 66 2/3% of the employee s average weekly wage, payable for up to a certain number of weeks based upon the disability s extent. d. Multiple Disabilities 1) If an employee suffers a temporary total disability before or while suffering a permanent partial disability caused by a different injury, the benefit period for temporary total disability may not be deducted from the benefit period for permanent partial disability. Note: If the disabilities are caused by the same injury, compensation may not be paid for more than 300 weeks. 249 Property & Casualty