REPORT TITLE:
Insurance


DESCRIPTION:
Defines a stock insurer.  Specifies that an appointment is
required from an insurer for whom policies are being solicited or
sold.  Mandates ten-day cancellation notices and thirty-day
nonrenewal notices for insurance policies.  (SD1)

 
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                                                        2472
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 2000                                S.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO INSURANCE.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Chapter 431, Hawaii Revised Statutes, is amended
 
 2 by adding to part I of article 3 a new section to be
 
 3 appropriately designated and to read as follows:
 
 4      "§431:3-    Stock insurer.  A stock insurer means an
 
 5 incorporated insurer with capital stock divided into shares and
 
 6 owned by its stockholders to whom the earnings are distributed as
 
 7 dividends on their shares."
 
 8      SECTION 2.  Chapter 431, Hawaii Revised Statutes, is amended
 
 9 by adding to part II of article 9 a new section to be
 
10 appropriately designated and to read as follows:
 
11      "§431:9-    Appointment required.  (a)  No person engaging
 
12 in the business of insurance in this State shall do so without
 
13 holding the required appointment.
 
14      (1)  No general agent, subagent, or solicitor in this State
 
15           shall solicit or take applications for, procure, or
 
16           place for others any insurance policy without having an
 
17           appointment with the insurer.
 
18      (2)  No subagent or solicitor in this State shall solicit or
 
19           take applications for, procure, or place for others any
 

 
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 1           insurance policy without having an appointment with a
 
 2           general agent who holds an appointment with the
 
 3           insurer.
 
 4      (b)  Any person violating this section shall be subject to
 
 5 penalties as provided in section 431:9-201."
 
 6      SECTION 3.  Chapter 431, Hawaii Revised Statutes, is amended
 
 7 by adding to part II of article 10 a new section to be
 
 8 appropriately designated and to read as follows:
 
 9      "§431:10-    Notice of cancellation or nonrenewal.  In the
 
10 case of cancellation of a policy, the insurer shall give written
 
11 notice to the insured not less than ten days prior to the
 
12 effective date of cancellation.  For nonrenewal of a policy, the
 
13 insurer shall give written notice to the insured not less than
 
14 thirty days prior to the effective date of nonrenewal.  If under
 
15 title 24 or a policy, a longer time period is required for a
 
16 notice of cancellation or nonrenewal for the policy, the longer
 
17 period shall be applicable.  Cancellation or nonrenewal shall not
 
18 be deemed valid unless evidence of mailing is provided."
 
19      SECTION 4.  Section 431:2-209, Hawaii Revised Statutes, is
 
20 amended as follows:
 
21      (1)  By amending subsection (c) to read:
 
22      "(c)  One year after conclusion of the transactions to which
 
23 they relate, the commissioner may destroy any correspondence,
 

 
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 1 void or obsolete filings relating to rates, certificate of
 
 2 authority applications, foreign or alien insurers' annual
 
 3 statements and valuation reports, cards, and expired bonds.
 
 4 Three years after the conclusion of the transactions to which
 
 5 they relate, the commissioner may destroy any claim files,
 
 6 working papers of examinations, reports of examination by
 
 7 insurance supervisory officials of other states, void or obsolete
 
 8 filings relating to license applications, records of hearings and
 
 9 investigations, and any similar records, documents, or memoranda
 
10 now or hereafter in the commissioner's possession."
 
11      (2)  By amending subsection (e) to read:
 
12      "(e)  The following records and reports on file with the
 
13 commissioner shall be confidential and protected from discovery,
 
14 production, and disclosure for so long as the commissioner deems
 
15 prudent:
 
16      (1)  Complaints and investigation reports;
 
17      (2)  Working papers of an examination [reports;],
 
18           complaints, and investigation reports;
 
19      (3)  Proprietary information, including trade secrets,
 
20           commercial information, and business plans, which, if
 
21           disclosed may result in competitive harm to the person
 
22           providing [said] the information;
 
23      (4)  Any documents or information received from the National
 

 
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 1           Association of Insurance Commissioners, the federal
 
 2           government, or insurance departments of other states,
 
 3           territories, and commonwealths that are confidential in
 
 4           other jurisdictions.  The commissioner shall be
 
 5           authorized to share information, including otherwise
 
 6           confidential information with the National Association
 
 7           of Insurance Commissioners, the federal government, or
 
 8           insurance departments of other states, territories, and
 
 9           commonwealths so long as the statutes or regulations of
 
10           the other jurisdictions permit them to maintain the
 
11           same level of confidentiality as required under Hawaii
 
12           law."
 
13      SECTION 5.  Section 431:2-215, Hawaii Revised Statutes, is
 
14 amended to read as follows:
 
15      "[[]§431:2-215[]]  Insurance regulation fund.(a)  There is
 
16 established a special fund to be designated as the insurance
 
17 regulation fund.  All assessments, fees, fines, penalties, and
 
18 reimbursements collected by or on behalf of the insurance
 
19 division under title 24, except for the commissioner's education
 
20 and training fund (section 431:2-214), the patients' compensation
 
21 fund (Act 232, Session Laws of Hawaii 1984), the drivers
 
22 education fund underwriters fee (section 431:10C-115), and the
 
23 captive insurance administrative fund (section 431:19-101.8)[,]
 

 
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 1 to the extent provided by section 431:19-101.8(b), shall be
 
 2 deposited into the insurance regulation fund.  All sums
 
 3 transferred into the insurance regulation fund may be expended by
 
 4 the commissioner to carry out the commissioner's duties and
 
 5 obligations under title 24.
 
 6      (b)  The insurance regulation fund shall be used to defray
 
 7 any administrative costs, including personnel costs, associated
 
 8 with the programs of the division, and costs incurred by
 
 9 supporting offices and divisions.  Any law to the contrary
 
10 notwithstanding, the commissioner may use the moneys in the fund
 
11 to employ, or retain, by contract or otherwise, without regard to
 
12 chapters 76 and 77, hearings officers, attorneys, investigators,
 
13 accountants, examiners, and other necessary professional,
 
14 technical, and support personnel to implement and carry out the
 
15 purposes of title 24; provided that any position, except any
 
16 attorney position, that is subject to chapters 76 and 77 prior to
 
17 [July 1, 1999] the effective date of this Act shall remain
 
18 subject to chapters 76 and 77.
 
19      (c)  Moneys in the special fund shall not revert to the
 
20 general fund.
 
21      (d)  The commissioner shall determine the amount or amounts
 
22 to be assessed and the time any moneys from assessments are due
 
23 for each line or type of insurance or entity regulated under
 

 
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 1 title 24; provided that:
 
 2      (1)  The criteria for making the assessment shall be
 
 3           established by rule; provided further that the
 
 4           commissioner shall have provisional authority to make
 
 5           assessments prior to adoption of the rule but this
 
 6           provisional authority shall not extend beyond two years
 
 7           from [June 28, 1999;] the effective date of this Act;
 
 8      (2)  The insurers or entities under title 24 shall be
 
 9           provided reasonable notice of when their respective
 
10           assessments are due;
 
11      (3)  The assessments by line or type shall bear a reasonable
 
12           relationship to the costs of regulating the line or
 
13           type of insurance, including any administrative costs
 
14           of the division; and
 
15      (4)  The sum total of all assessments made and collected
 
16           shall not exceed the special fund ceiling or ceilings
 
17           related to the fund that are established by the
 
18           legislature.
 
19 As used in this subsection, "reasonable notice" means a period of
 
20 at least sixty days.
 
21      (e)  The commissioner may suspend an assessment of any
 
22 insurer if the commissioner determines that an insurer or entity
 

 
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 1 may reach insolvency or other financial difficulty if the
 
 2 assessment is made against that insurer or entity.
 
 3      (f)  The commissioner shall prepare an annual report to the
 
 4 director, governor, and the legislature of the use of the fund.
 
 5 The report shall describe assessments by line or type of
 
 6 insurance, and expenditures made from the fund including non-
 
 7 payroll operating expenses.  The report shall be submitted to the
 
 8 legislature no later than twenty days prior to the convening of
 
 9 each regular legislative session."
 
10      SECTION 6.  Section 431:7-203, Hawaii Revised Statutes, is
 
11 amended by amending subsection (a) to read as follows:
 
12      "(a)  In the event any person has paid to the commissioner
 
13 any tax, fee, or other charge in error or in excess of that which
 
14 the person is lawfully obligated to pay under this code, the
 
15 commissioner, upon written request made by the person to the
 
16 commissioner within the time set forth in section 431:7-204.6,
 
17 shall authorize a refund thereof out of the insurance regulation
 
18 fund [of this State], except that a tax refund shall be payable
 
19 out of the general fund, by submitting a voucher therefor to the
 
20 comptroller of this State subject to the following limitations:
 
21      (1)  No recourse may be had except under section 40-35 or by
 
22           appeal for refunds of taxes paid pursuant to an
 
23           assessment by the commissioner; provided that if the
 

 
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 1           assessment by the commissioner [shall contain] contains
 
 2           clerical errors, transposition of figures,
 
 3           typographical errors, and errors in calculation or if
 
 4           there [shall be] is an illegal or erroneous assessment
 
 5           because the assessment is not in accordance with this
 
 6           code, the refund procedures in subsection (a) shall
 
 7           apply; and
 
 8      (2)  No refund or overpayment credit shall be made unless
 
 9           the original payment of the tax was due to the law
 
10           having been interpreted or applied [in] with respect to
 
11           the taxpayer concerned differently than [in] with
 
12           respect [of] to taxpayers generally.
 
13      As to all tax payments for which a refund or credit is not
 
14 authorized by this subsection (including, without prejudice to
 
15 the generality of the foregoing, cases of unconstitutionality),
 
16 the remedies provided by appeal or under section 40-35 are
 
17 exclusive."
 
18      SECTION 7.  Section 431:8-302, Hawaii Revised Statutes, is
 
19 amended by amending subsection (b) to read as follows:
 
20      "(b)  Before placing insurance with any unauthorized
 
21 insurer, the broker shall ascertain the financial condition of
 
22 the insurer and:
 
23      (1)  In the case of a foreign insurer, shall maintain in the
 

 
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 1           broker's office a current certificate, in proper form,
 
 2           from the regulatory authority in the domicile of the
 
 3           unauthorized insurer to the effect that the insurer has
 
 4           capital and surplus, or its equivalent under the laws
 
 5           of its domiciliary jurisdiction, which equals the
 
 6           minimum capital and surplus requirements of this State
 
 7           for that kind of insurer as set out in article 3; or
 
 8      (2)  In the case of an alien insurer, shall maintain in the
 
 9           broker's office evidence of the financial
 
10           responsibility of the insurer.  Evidence satisfactory
 
11           to the commissioner that the insurer maintains in the
 
12           United States an irrevocable trust fund in either a
 
13           national bank or a member of the federal reserve system
 
14           in an amount not less than [$2,500,000] $5,400,000 for
 
15           the protection of all its policyholders in the United
 
16           States consisting of cash, securities, letters of
 
17           credit, or of investments of substantially the same
 
18           character and quality as those which are eligible
 
19           investments for the capital and statutory reserves of
 
20           authorized insurers writing like kinds of insurance in
 
21           this State, shall constitute prima facie evidence of
 
22           responsibility.
 
23 Upon request by the commissioner, the broker shall immediately
 

 
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 1 submit to the commissioner the items described in this
 
 2 subsection."
 
 3      SECTION 8.  Section 431:9-105, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (e) to read as follows:
 
 5      "(e)  Following a catastrophe in this State, a Hawaii
 
 6 license shall not be required of a nonresident independent
 
 7 adjuster for the adjustment of losses; provided:
 
 8      (1)  The common losses suffered that are to be adjusted are
 
 9           a direct result of that catastrophe;
 
10      (2)  The adjuster provides to the licensing branch of the
 
11           insurance division a certified copy of the adjuster's
 
12           current license in another [state's current license.]
 
13           state.  That other state shall have a similar licensing
 
14           requirements to section [431:9-217;] 431:9-222;
 
15      (3)  That within three working days of when the nonresident
 
16           independent adjuster begins work, the insurance
 
17           company, independent adjusting company, general agent,
 
18           or subagent that is utilizing the adjuster shall
 
19           provide on its letterhead to the licensing branch of
 
20           the insurance division:
 
21           (A)  The name of the adjuster;
 
22           (B)  The adjuster's Hawaii mailing and business
 
23                addresses and phone numbers; and
 

 
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 1           (C)  The adjuster's permanent [nonresident] home and
 
 2                business addresses and phone numbers.
 
 3      For the purpose of this subsection, a catastrophe exists
 
 4 when due to a sudden, specific, and natural or manmade disaster
 
 5 or phenomenon, there arises property losses in Hawaii that are
 
 6 covered by insurance.  These losses must be so severe that
 
 7 resident licensed and independent adjusters will be unable to
 
 8 adjust the losses within a reasonable time as determined by the
 
 9 division."
 
10      SECTION 9.  Section 431:9-201, Hawaii Revised Statutes, is
 
11 amended to read as follows:
 
12      "§431:9-201  License required.(a)  No person engaging in
 
13 the business of insurance in this State shall act as, be
 
14 appointed as, or hold oneself out to be a general agent,
 
15 subagent, solicitor, or adjuster unless so licensed by this
 
16 State.
 
17      (b)  No general agent, subagent, or solicitor in this State
 
18 shall solicit or take applications for, procure, or place for
 
19 others any class of insurance for which the general agent,
 
20 subagent, or solicitor is not licensed and does not hold an
 
21 appointment from the insurer in this State for that class of
 
22 insurance.
 
23      (c)  A regular salaried officer or employee of an authorized
 

 
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 1 insurer shall not be required to be licensed by reason of
 
 2 rendering assistance to, or on behalf of a licensed general
 
 3 agent, subagent, or solicitor, provided that the salaried officer
 
 4 or employee devotes substantially all of the officer's or
 
 5 employee's time to activities other than the solicitation of
 
 6 applications for insurance or annuity contracts and receives no
 
 7 commission or other compensation directly dependent upon the
 
 8 amount of business obtained.
 
 9      (d)  Any person violating this section shall be [fined not
 
10 more than $1,000] assessed a civil penalty not to exceed $5,000
 
11 for each factually different violation.
 
12      (e)  Any person who knowingly violates this section shall be
 
13 assessed a civil penalty of not less than $3,000 and not more
 
14 than $10,000 for each violation.
 
15      (f)  Each repetition of an act that constitutes a violation
 
16 subject to subsection (d) or (e) shall constitute a separate
 
17 violation."
 
18      SECTION 10.  Section 431:10B-108, Hawaii Revised Statutes,
 
19 is amended by amending subsection (c) to read as follows:
 
20      "(c)  The benefits provided by the policy form shall not be
 
21 deemed reasonable in relation to the premium charged or to be
 
22 charged if the ratio of losses incurred to premiums earned is not
 
23 at least sixty per cent.  The commissioner may adopt by rules
 

 
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 1 prima facie acceptable premium rates that shall reasonably be
 
 2 expected to produce a sixty per cent loss ratio.  The prima facie
 
 3 rates shall be usable without actuarial or statistical
 
 4 justification when filed together with an otherwise acceptable
 
 5 policy form[.]; provided that the ratio of losses for the most
 
 6 recent three years is at least sixty per cent.  The rules shall
 
 7 specify the plans of benefits to which the premium rates shall
 
 8 apply."
 
 9      SECTION 11.  Section 431:10C-307.7, Hawaii Revised Statutes,
 
10 is amended by amending subsection (b) to read as follows:
 
11      "(b) Violation of subsection (a) is a criminal offense and
 
12 shall constitute a:
 
13      (1)  Class B felony if the value of the benefits, recovery,
 
14           or compensation obtained or attempted to be obtained is
 
15           more than $20,000;
 
16      (2)  Class C felony if the value of the benefits, recovery,
 
17           or compensation obtained or attempted to be obtained is
 
18           more than $300; or
 
19      (3)  Misdemeanor if the value of the benefits, recovery, or
 
20           compensation obtained or attempted to be obtained is
 
21           [less than $300.] $300 or less."
 
22      SECTION 12.  Section 431:11-105, Hawaii Revised Statutes, is
 
23 amended by amending subsection (a) to read as follows:
 

 
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 1      "(a)  Every insurer who is authorized to do business in this
 
 2 State and who is a member of an insurance holding company system
 
 3 shall register with the commissioner, except a foreign insurer
 
 4 subject to registration requirements and standards adopted by
 
 5 statute or regulation in the jurisdiction of its domicile that
 
 6 are substantially similar to those contained in this section and
 
 7 section 431:11-106(a)(1), (b), and (d).  [The insurer shall file
 
 8 a copy of the registration statement and summary of its
 
 9 registration statement as required by subsections (b) and (c)
 
10 with the National Association of Insurance Commissioners.]  The
 
11 insurer [also] shall file a copy of the summary of its
 
12 registration statement as required by subsection (c) in each
 
13 state in which that insurer is authorized to do business if
 
14 requested by the commissioner of that state.  Any insurer who is
 
15 subject to registration under this section shall register within
 
16 fifteen days after it becomes subject to registration, and
 
17 annually thereafter by March 15 of each year for the previous
 
18 calendar year, unless the commissioner for good cause shown
 
19 extends the time for registration, and then within the extended
 
20 time.  The commissioner may require any insurer who is a member
 
21 of a holding company system who is not subject to registration
 
22 under this section to furnish a copy of the registration
 
23 statement or other information filed by the insurance company
 

 
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 1 with the insurance regulatory authority of domiciliary
 
 2 jurisdiction."
 
 3      SECTION 13.  Section 431:11-111, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "§431:11-111  Sanctions.  (a)  Any insurer failing, without
 
 6 just cause, to file any registration statement as required in
 
 7 this article shall be [required, after notice and hearing, to pay
 
 8 a penalty of $100 for each day's delay,] liable for a fine in an
 
 9 amount of not less than $100 and not more than $500 for each day
 
10 of delinquency to be recovered by the commissioner and the
 
11 penalty so recovered shall be paid into the insurance regulation
 
12 fund [of this State.  The maximum penalty under this subsection
 
13 is $5,000].  The commissioner may reduce the penalty if the
 
14 insurer demonstrates to the commissioner that the imposition of
 
15 the penalty would constitute a financial hardship to the insurer.
 
16      (b)  Every director or officer of an insurance holding
 
17 company system who knowingly violates, participates in, or
 
18 assents to, or who knowingly [shall permit] permits any of the
 
19 officers or agents of the insurer to engage in any transactions
 
20 or make investments which have not been properly reported or
 
21 submitted pursuant to sections 431:11-105(a), 431:11-106(a)(2),
 
22 or 431:11-106(b) or who violates this article, shall [pay, in
 
23 their individual capacity, a civil forfeiture of not more than
 

 
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 1 $5,000 per violation, after notice and hearing before the
 
 2 commissioner.] be subject to a fine of not less than $100 and not
 
 3 more than $10,000 per violation.  In determining the amount of
 
 4 the [civil forfeiture,] fine, the commissioner shall take into
 
 5 account the appropriateness of the [forfeiture] fine with respect
 
 6 to the gravity of the violation, the history of previous
 
 7 violations, and such other matters as justice may require.
 
 8      (c)  Whenever it appears to the commissioner that any
 
 9 insurer subject to this article or any director, officer,
 
10 employee, or agent thereof has engaged in any transaction or
 
11 entered into a contract which is subject to section 431:11-106
 
12 and which would not have been approved had the approval been
 
13 requested, the commissioner may order the insurer to cease and
 
14 desist immediately any further activity under that transaction or
 
15 contract.  After notice and hearing, the commissioner may also
 
16 order the insurer to void any of the contracts and restore the
 
17 status quo if that action is in the best interest of the
 
18 policyholders, creditors, or the public.
 
19      (d)  Whenever it appears to the commissioner that any
 
20 insurer or any director, officer, employee, or agent thereof has
 
21 committed a wilful violation of this article, the commissioner
 
22 may cause criminal proceedings to be instituted against the
 
23 insurer or the responsible director, officer, employee, or agent
 

 
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 1 thereof.  Any insurer who wilfully violates this article [may be
 
 2 fined not more than $5,000.] shall be subject to a fine of not
 
 3 less than $100 and not more than $10,000 per violation.  Any
 
 4 individual who wilfully violates this article [may be fined in
 
 5 the individual's capacity not more than $5,000,] shall be subject
 
 6 to a fine in the individual's capacity of not less than $100 and
 
 7 not more than $10,000 per violation, or be imprisoned for not
 
 8 more than one year.
 
 9      (e)  Any officer, director, or employee of an insurance
 
10 holding company system who wilfully and knowingly subscribes to
 
11 or makes, or causes to be made, any false statements [or], false
 
12 reports, or false filings with the intent to deceive the
 
13 commissioner in the performance of the commissioner's duties
 
14 under this article, upon conviction thereof, shall be imprisoned
 
15 for not more than one year, or fined $5,000, or both.  Any fines
 
16 imposed shall be paid by the officer, director, or employee in
 
17 [their] the person's individual capacity."
 
18      SECTION 14.  Section 431:15-335, Hawaii Revised Statutes, is
 
19 amended by amending subsection (a) to read as follows:
 
20      "(a)  All unclaimed funds subject to distribution remaining
 
21 in the liquidator's hands when the liquidator is ready to apply
 
22 to the court for discharge, including the amount distributable to
 
23 any creditor, shareholder, member, or other person who is unknown
 

 
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 1 or cannot be found, shall be deposited with the [insurance
 
 2 regulation fund,] director of finance, and shall be paid without
 
 3 interest except in accordance with section 431:15-332 to the
 
 4 person entitled thereto or the person's legal representative upon
 
 5 proof satisfactory to the [insurance regulation fund] director of
 
 6 finance of the person's right thereto.  Any amount on deposit not
 
 7 claimed within six years from the discharge of the liquidator
 
 8 shall be deemed to have been abandoned and shall be escheated
 
 9 without formal escheat proceedings and be deposited with the
 
10 [insurance regulation fund.] general fund."
 
11      SECTION 15.  Section 432:2-102, Hawaii Revised Statutes, is
 
12 amended by amending subsection (b) to read as follows:
 
13      "(b)  Nothing in this article shall exempt fraternal benefit
 
14 societies from the provisions and requirements of [sections
 
15 416-19 and 416-20.] section 431:2-215."
 
16      SECTION 16.  Statutory material to be repealed is bracketed.
 
17 New statutory material is underscored.
 
18      SECTION 17.  This Act shall take effect upon its approval.
 

 
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