Reference Title: surplus lines insurance; brokers

AN ACT
AMENDING SECTIONS 20-167, 20-401, 20-407, 20-408, 20-409, 20-412, 20-413, 20-414, 20-415, 20-416, 20-417, 20-418, 20-419, 20-420 AND 20-422, ARIZONA REVISED STATUTES; REPEALING SECTIONS 20-410 AND 20-411, ARIZONA REVISED STATUTES; AMENDING TITLE 20, CHAPTER 2, ARTICLE 5, ARIZONA REVISED STATUTES, BY ADDING NEW SECTIONS 20-410 AND 20-411 AND SECTION 20-411.01; RELATING TO SURPLUS LINES INSURANCE.

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 20-167, Arizona Revised Statutes, is amended to read:

20-167 . Fees

A. The director shall collect in advance the following fees, which, subsequent to issuance of a receipt evidencing any payment, shall not be refunded by the director:

	Not Less Than:	Not More Than:
1. For filing charter documents:
(a) Original charter documents, articles of incorporation, bylaws, or record of organization of insurers, or certified copies thereof, required to be filed with the director and not also subject to filing in the office of the corporation commission	$ 25.00	$ 75.00
(b) Amended charter documents	10.00	30.00
(c) No charge or fee shall be required for filing with the director any of such documents also required by law to be filed in the office of the corporation commission.
2. Certificate of authority:
(a) Issuance:
Fraternal benefit societies	$ 10.00	$ 30.00
Medical or hospital service corporations, or domestic benefit insurers	25.00	75.00
All other insurers	65.00	195.00
(b) Renewal:
Fraternal benefit societies, or domestic benefit insurers	10.00	30.00
Medical or hospital service corporations	25.00	75.00
Domestic stock life and disability insurers only or either	500.00	1,500.00
Domestic life and disability reinsurer only or either	$1,500.00	$4,500.00
All other insurers	45.00	135.00
3. Filing annual statement	100.00	300.00
4. Licenses and examinations:
(a) Licenses:
Surplus line LINES broker's license, biennially	200.00	600.00
All other licenses, biennially	20.00	60.00
(b) Examinations for license, agents, brokers and solicitors:
Examination on laws and one kind of insurance	5.00	15.00
Examination on laws and two or more kinds of insurance	10.00	30.00
5. Miscellaneous:
Fee accompanying service of process upon director	$ 5.00	$ 15.00
Certificate of director, under seal	1.00	3.00
Copy of document filed in director's office, per page	0.50	1.50

B. The director shall remit to the state treasurer, to be placed in the state general fund, all fees and FOR licenses so collected. No refund shall be allowed for any unused portion of a fee nor shall fees be prorated, except that the fee for an initial license if applied for in the second half of the biennial term shall not exceed one-half of the license fee.

C. The license fees prescribed by this section shall be payment in full with respect thereto of all demands for any and all state, county, district and municipal license fees, license taxes, business privilege taxes and business privilege fees and charges of every kind.

D. Each domestic stock life and disability insurer only or either, which pays the renewal fee required under the provisions of subsection A of this section, shall be entitled to a credit in the amount of four hundred fifty-five dollars to apply to the premium tax then owed by such company pursuant to the provisions of section 20-224, but such credit shall not be cumulative.

E. Each domestic life and disability reinsurer only or either, which pays the renewal fee required under the provisions of subsection A of this section, shall be entitled to a credit in the amount of fourteen hundred fifty-five dollars to apply to the premium tax then owed by such company pursuant to the provisions of section 20-224, but such credit shall not be cumulative.

F. The director may contract for the examination for the licensing of adjusters, agents, brokers, SURPLUS LINES BROKERS and solicitors. When the director does so, the fee for examinations for licenses pursuant to this section shall be payable directly to the contractor by the applicant for examination. The director may agree to a reasonable examination fee to be charged by the contractor. Such fee may exceed the amounts prescribed in subsection A, paragraph 4, subdivision (b) of this section.

G. Beginning July 1, 1986 and every year thereafter, if the revenue collected from fees for the prior calendar year is less than ninety-five per cent or more than one hundred ten per cent of the appropriated budget for the beginning fiscal year, the director shall revise the fees within the limits prescribed by subsection A of this section on a uniform percentage basis among all fee categories and shall adjust the credits prescribed by subsections D and E OF THIS SECTION as necessary in order to retain any required uniformity. Fees shall be revised in such a manner that the revenue derived from the fees equals at least ninety-five per cent but not more than one hundred ten per cent of the appropriated budget for the beginning fiscal year , and such revised fee schedule shall be effective July 1 of the subsequent year.

H. THE DIRECTOR MAY CONTRACT WITH A VOLUNTARY DOMESTIC ORGANIZATION OF SURPLUS LINES BROKERS TO PERFORM ANY TRANSACTION PRESCRIBED IN CHAPTER 2, ARTICLE 5 OF THIS TITLE, INCLUDING THE ACCEPTANCE OR MAINTENANCE OF THE REPORTS REQUIRED BY SECTION 20-408. THE DIRECTOR MAY ALLOW THE CONTRACTOR TO CHARGE A STAMPING FEE. THE SURPLUS LINES BROKER SHALL PAY THE STAMPING FEE ESTABLISHED PURSUANT TO THIS SECTION DIRECTLY TO THE CONTRACTOR.

I. FOR THE PURPOSES OF SUBSECTION H OF THIS SECTION, "STAMPING FEE" MEANS A REASONABLE FILING FEE CHARGED BY A CONTRACTOR FOR ANY TRANSACTION PRESCRIBED IN CHAPTER 2, ARTICLE 5 OF THIS TITLE, INCLUDING THE ACCEPTANCE OR MAINTENANCE OF THE REPORTS REQUIRED BY SECTION 20-408.

Sec. 2. Section 20-401, Arizona Revised Statutes, is amended to read:

20-401 . Definitions

In sections 20-401.01 to 20-401.07, inclusive THIS ARTICLE , unless the context otherwise requires:

1. "DILIGENT EFFORT" MEANS HAVING SOUGHT INSURANCE FOR THE SAME RISK FROM AT LEAST THREE INSURERS AUTHORIZED IN THIS STATE TO WRITE THE PARTICULAR INSURANCE COVERAGE OR TYPE, CLASS OR KIND OF INSURANCE.

1. 2. "Foreign decree" means any decree or order in equity of a court located in a reciprocal state, including a court of the United States located therein, obtained by a qualified party against any insurer incorporated or authorized to do business in this state.

2. 3. "Qualified party" means a state regulatory agency acting in its capacity to enforce the insurance laws of such state.

3. 4. "Reciprocal state" means any state or territory of the United States the laws of which give to insurers organized under the laws of this state the same right to defend actions as that granted to foreign insurers under the laws of this state and the laws of which contain procedures substantially similar to those specified in this article for the enforcement of decrees or orders in equity issued by courts located in other states or territory of the United States against any insurer incorporated or authorized to do business in such state or territory.

Sec. 3. Section 20-407, Arizona Revised Statutes, is amended to read:

20-407 . Surplus lines; brokers

Any portion or all of an insurance coverage which THAT cannot be procured from authorized insurers, which coverages are designated in this article as "surplus line, LINES ", may be procured from unauthorized insurers subject to the following conditions:

1. The insurance shall be IS procured through a licensed surplus line LINES broker, referred to in this article as the "broker . " .

2. The insurance coverage shall IS A RECOGNIZED SURPLUS LINE PURSUANT TO SECTION 20-409 OR THE INSURANCE COVERAGE IS not be procurable, after diligent effort has been made to do so, PROCURE COVERAGE from among a substantial number of insurers authorized to transact that kind of insurance in this state, or THE COVERAGE has been procured to the full extent such THE insurers are willing to insure, and the placing of insurance with an unauthorized insurer shall IS not be for the purpose of securing advantages either as to premium rate or terms of the insurance contract.

Sec. 4. Section 20-408, Arizona Revised Statutes, is amended to read:

20-408 . Report of broker

A. Within five SIXTY days subsequent to AFTER procuring any surplus line LINES insurance, the broker shall execute and file with the director his A report thereof in duplicate and under oath, setting forth facts from which it may be determined whether the requirements of section 20-407 have been met , and . In addition thereto THE REPORT SHALL ALSO CONTAIN the following:

1. THE name and address of the insurer, and THE name and address of the person named in the policy pursuant to section 20-419 to whom the director shall send copies of legal process.

2. THE number of the policy issued.

3. THE name and address of the insured.

4. Nature and amount of liability assumed by the insurer.

5. 4. THE premium, and premium rate if applicable INCLUDING TAXABLE POLICY FEES .

6. Other information reasonably required by the director.

5. THE IDENTITY OF THE SPECIFIC RECOGNIZED SURPLUS LINES COVERAGE WRITTEN OR A SUMMARY THAT DESCRIBES THE DILIGENT EFFORT MADE TO PLACE THE COVERAGE WITH AN AUTHORIZED INSURER THAT SHALL NOT BE OPEN TO PUBLIC INSPECTION.

6. THE POLICY EFFECTIVE DATES THAT SHALL NOT BE OPEN TO PUBLIC INSPECTION.

B. The director shall prescribe and furnish the required report form.

C. THE DIRECTOR MAY DIRECT A BROKER TO FILE THE BROKER'S REPORT REQUIRED BY THIS SECTION WITH A VOLUNTARY DOMESTIC ORGANIZATION OF SURPLUS LINES BROKERS WITH WHICH THE DIRECTOR HAS CONTRACTED TO ACCEPT REPORTS PURSUANT TO SECTION 20-167.

D. A BROKER MAY COLLECT FROM THE INSURED THE STAMPING FEE PRESCRIBED IN SECTION 20-167.

Sec. 5. Section 20-409, Arizona Revised Statutes, is amended to read:

20-409 . Recognized surplus lines

A. If after a hearing thereon the director finds that a particular insurance coverage or type, class or kind of coverage is not readily procurable from authorized insurers, he may by order declare such coverage or coverages to be recognized surplus lines until the director's further order. The broker's affidavit provided for in section 20-408 shall not be required as to coverages while so recognized.

B. Any such THE order shall be IS subject to modification , and BY THE DIRECTOR. The director shall so modify as to any coverage found by him to be IF THE DIRECTOR DETERMINES THAT THE COVERAGE IS no longer entitled to such recognition AS SURPLUS LINES after a hearing held upon his own ON THE DIRECTOR'S initiative or upon ON THE request of any insurance agent, surplus line LINES broker, broker, insurer, rating or advisory organization, or other person.

Sec. 6. Repeal

Sections 20-410 and 20-411 , Arizona Revised Statutes, are repealed.

Sec. 7. Title 20, chapter 2, article 5, Arizona Revised Statutes, is amended by adding new sections 20-410 and 20-411, to read:

20-410 . Validity of surplus lines insurance; disclosure; policy fees

A. INSURANCE CONTRACTS PROCURED AS SURPLUS LINES COVERAGE ARE FULLY VALID AND ENFORCEABLE AS TO ALL PARTIES AND SHALL BE RECOGNIZED IN ALL MATTERS IN THE SAME MANNER AS LIKE CONTRACTS ISSUED BY AUTHORIZED INSURERS.

B. ANY POLICY AND ANY EVIDENCE OF SURPLUS LINES COVERAGE FROM AN UNAUTHORIZED INSURER PURSUANT TO THIS ARTICLE AND THAT IS ISSUED FOR DELIVERY TO THE INSURED SHALL CONTAIN A CONSPICUOUSLY STAMPED OR WRITTEN NOTICE IN BOLD-FACED TYPE THAT STATES:

PURSUANT TO ARIZONA REVISED STATUTES SECTION 20-401.01, SUBSECTION B, PARAGRAPH 1, THIS POLICY IS ISSUED BY AN INSURER THAT DOES NOT POSSESS A CERTIFICATE OF AUTHORITY FROM THE DIRECTOR OF THE ARIZONA DEPARTMENT OF INSURANCE. IF THE INSURER THAT ISSUED THIS POLICY BECOMES INSOLVENT, INSUREDS OR CLAIMANTS WILL NOT BE ELIGIBLE FOR INSURANCE GUARANTY FUND PROTECTION PURSUANT TO ARIZONA REVISED STATUTES TITLE 20.

C. A SURPLUS LINES BROKER MAY CHARGE AND RECEIVE A FEE IN ADDITION TO THE PREMIUM FOR SERVICES PROVIDED IN THE TRANSACTION OF SURPLUS LINES INSURANCE IF BEFORE EFFECTING ANY COVERAGE BOTH OF THE FOLLOWING CONDITIONS ARE MET:

1. THE SERVICE FEES AND THE SPECIFIC SERVICES FOR WHICH THE FEES ARE CHARGED ARE DISCLOSED TO THE INSURED OR THE INSURED'S REPRESENTATIVE AND ARE AGREED TO IN WRITING BY THE INSURED OR THE INSURED'S REPRESENTATIVE.

2. THE TAXES PRESCRIBED IN SECTION 20-416 ARE PAID ON ANY FEES CHARGED TO THE INSURED.

20-411 . Licensing of surplus lines broker; examination; bond

A. A PERSON SHALL NOT ACT AS A SURPLUS LINES BROKER IN THIS STATE UNLESS THE PERSON POSSESSES A CURRENT SURPLUS LINES BROKER LICENSE ISSUED BY THE DIRECTOR.

B. ANY LICENSED AGENT OR BROKER THAT MAINTAINS AN OFFICE IN THIS STATE MAY BE LICENSED AS A SURPLUS LINES BROKER IF THE DIRECTOR DETERMINES THAT THE AGENT OR BROKER IS COMPETENT AND TRUSTWORTHY. THE DIRECTOR SHALL PRESCRIBE AND FURNISH APPLICATION FORMS.

C. BEGINNING ON JANUARY 1, 1998, EACH APPLICANT FOR AN ORIGINAL LICENSE AS A SURPLUS LINES BROKER AND EACH APPLICANT FOR RENEWAL OF A SURPLUS LINES BROKER LICENSE WHO HAS NOT PREVIOUSLY TAKEN AND PASSED A SURPLUS LINES BROKER LICENSE EXAMINATION IN THIS STATE SHALL TAKE AND PASS TO THE DIRECTOR'S SATISFACTION A WRITTEN EXAMINATION GIVEN BY OR UNDER THE SUPERVISION OF THE DIRECTOR. THE EXAMINATION SHALL REASONABLY TEST THE APPLICANT'S KNOWLEDGE OF SURPLUS LINES INSURANCE AND THE LEGAL RESPONSIBILITIES OF A SURPLUS LINES BROKER. ANY PERSON OR ANY OFFICER, DIRECTOR, GENERAL PARTNER OR MANAGING PARTNER OF A CORPORATION OR PARTNERSHIP LICENSED AS A SURPLUS LINES BROKER FOR FIVE CONTINUOUS YEARS IMMEDIATELY BEFORE JANUARY 1, 1998 SHALL PASS THE EXAMINATION PRESCRIBED IN THIS SECTION ON OR BEFORE JANUARY 1, 2000.

D. BEFORE THE DIRECTOR ISSUES THE LICENSE, THE APPLICANT SHALL FILE WITH THE DIRECTOR AND SHALL MAINTAIN IN EFFECT, FOR AS LONG AS THE LICENSE OR ANY RENEWAL OF THE LICENSE REMAINS IN EFFECT, A BOND IN FAVOR OF THIS STATE IN THE AGGREGATE AMOUNT OF TWENTY-FIVE THOUSAND DOLLARS WITH AN AUTHORIZED CORPORATE SURETY APPROVED BY THE DIRECTOR. THE AGGREGATE LIABILITY OF THE SURETY FOR ALL BREACHES OF THE CONDITIONS OF THE BOND SHALL NOT EXCEED THE AMOUNT OF THE BOND. THE SURETY SHALL CONDITION THE BOND ON AN AGREEMENT BY THE SURPLUS LINES BROKER TO DO ALL OF THE FOLLOWING:

1. CONDUCT BUSINESS UNDER THE LICENSE ACCORDING TO THIS ARTICLE.

2. PROMPTLY REMIT THE TAXES PRESCRIBED IN SECTION 20-416.

3. PROPERLY ACCOUNT FOR ALL MONIES RECEIVED BY THE SURPLUS LINES BROKER THROUGH TRANSACTIONS UNDER THE LICENSE.

E. A SURETY SHALL NOT TERMINATE A BOND ISSUED PURSUANT TO THIS SECTION UNLESS THE SURETY FILES A WRITTEN NOTICE OF TERMINATION WITH THE DIRECTOR AT LEAST THIRTY DAYS BEFORE TERMINATING THE BOND.

F. THE DIRECTOR MAY ISSUE A SURPLUS LINES BROKER LICENSE TO ANY CORPORATION OR PARTNERSHIP IF ALL OF THE FOLLOWING CONDITIONS APPLY:

1. AT LEAST ONE INDIVIDUAL IN EACH OFFICE OR PLACE WHERE INSURANCE IS TRANSACTED IS LICENSED AS AN AGENT OR BROKER UNDER THIS TITLE AND THE INDIVIDUAL HAS PASSED THE EXAMINATION REQUIRED BY THIS SECTION.

2. IF THE LICENSE IS TO BE ISSUED IN A TRADE NAME, THE DIRECTOR DETERMINES THAT THE TRADE NAME IS LAWFULLY REGISTERED TO A CORPORATION OR PARTNERSHIP.

3. THE BUSINESS TO BE TRANSACTED IS WITHIN THE SCOPE OF THE PARTNERSHIP AGREEMENT, ARTICLES OF INCORPORATION OR SIMILAR CHARTER DOCUMENT.

4. THE PROSPECTIVE LICENSEE AGREES TO PROMPTLY NOTIFY THE DIRECTOR OF ALL CHANGES TO ITS MEMBERS, DIRECTORS AND OFFICERS.

G. A CORPORATION OR PARTNERSHIP LICENSED AS A SURPLUS LINES BROKER SHALL NOT USE A NAME THAT MIGHT CAUSE CONFUSION OR A NAME SO SIMILAR TO THE NAME OF ANOTHER CORPORATION OR PARTNERSHIP ALREADY LICENSED THAT USE OF THE NAME MIGHT CAUSE A CONFLICT. IN THE CASE OF A CONFLICT OF NAMES BETWEEN TWO OR MORE CORPORATIONS OR PARTNERSHIPS, THE DIRECTOR MAY PERMIT OR REQUIRE THE NEWLY LICENSED CORPORATION OR PARTNERSHIP TO USE IN THIS STATE A MODIFICATION OF ITS NAME. THE DIRECTOR SHALL NOT ISSUE A LICENSE TO A CORPORATION OR PARTNERSHIP THAT USES AN ASSUMED NAME THAT DECEIVES OR MISLEADS ANY PERSON AS TO THE NATURE OF THE BUSINESS THAT IS OR WILL BE CONDUCTED BY THE CORPORATION OR PARTNERSHIP.

H. THE LICENSE PRESCRIBED IN THIS SECTION EXPIRES AND IS SUBJECT TO RENEWAL AS PRESCRIBED IN SECTION 20-294. THE DIRECTOR SHALL CHARGE THE SURPLUS LINES BROKER LICENSE FEE PRESCRIBED IN SECTION 20-167.

I. TO THE EXTENT NOT INCONSISTENT WITH THIS ARTICLE, SECTIONS 20-302, 20-311, 20-313, 20-314, 20-316.01, 20-317 AND 20-318 APPLY TO SURPLUS LINES BROKERS.

Sec. 8. Title 20, chapter 2, article 5, Arizona Revised Statutes, is amended by adding section 20-411.01, to read:

20-411.01 . Licensing of Mexican insurance surplus lines broker; bond

A. ANY LICENSED AGENT OR BROKER THAT MAINTAINS AN OFFICE IN THIS STATE MAY BE LICENSED AS A MEXICAN INSURANCE SURPLUS LINES BROKER TO TRANSACT INSURANCE BUSINESS AS PRESCRIBED IN SECTION 20-422 IF THE DIRECTOR DETERMINES THAT THE AGENT OR BROKER IS COMPETENT AND TRUSTWORTHY AND THE LICENSED AGENT OR BROKER COMPLIES WITH ALL OF THE REQUIREMENTS OF SECTION 20-411 EXCEPT SUBSECTION C. THE DIRECTOR SHALL PRESCRIBE AND FURNISH APPLICATION FORMS.

B. NOTWITHSTANDING SUBSECTION A OF THIS SECTION, THE BOND AMOUNT REQUIRED FOR A LICENSE PURSUANT TO THIS SECTION IS ONE THOUSAND DOLLARS.

C. ANY SURPLUS LINES BROKER LICENSED PURSUANT TO SECTION 20-411 MAY TRANSACT THE INSURANCE BUSINESS PRESCRIBED IN SECTION 20-422 WITHOUT BEING LICENSED UNDER THIS SECTION.

Sec. 9. Section 20-412, Arizona Revised Statutes, is amended to read:

20-412 . Acceptance of surplus lines business by broker

A licensed surplus line LINES broker may accept and OR place surplus line LINES business from any insurance agent or broker licensed in this state for the kind of insurance involved, and may compensate the agent or broker therefor. The broker shall have the right to receive from the insurer the customary commission.

Sec. 10. Section 20-413, Arizona Revised Statutes, is amended to read:

20-413 . Placing of surplus lines coverage; endorsement by broker; list of unauthorized insurers; removal from list; definition

A. A surplus lines broker shall not knowingly place any surplus lines coverage with an UNAUTHORIZED insurer, LLOYD'S ASSOCIATION, insurance exchange or syndicate of an insurance exchange that does not meet the minimum capital and surplus FINANCIAL requirements of this section or THAT is declared by the director to be in an unsound A HAZARDOUS financial condition, improperly managed or unreliable in insurance transactions. A surplus lines broker may place surplus lines coverage with a syndicate of an UNAUTHORIZED insurance exchange even if another syndicate of the insurance exchange is declared by the director to be in an unsound A HAZARDOUS financial condition, improperly managed or unreliable in insurance transactions, as long as that syndicate does not participate in insuring the risk and unless the declaration of the director specifies that the insurance exchange shall not accept surplus lines placements.

B. Before placing insurance with An unauthorized foreign insurer authorized to transact insurance on an admitted or surplus lines basis in at least one other state , the surplus lines broker shall determine the financial condition of the foreign insurer and shall deliver to the director a current certificate in proper form. The certificate shall set forth the names of the public official or officials that have supervision over the foreign insurer in any other state and shall certify that the foreign insurer possesses SHALL POSSESS a minimum capital and surplus of at least five million dollars and maintains SHALL MAINTAIN a deposit of at least two million five hundred thousand dollars in public custody in trust, in part, for the purpose of protecting all of the foreign insurer's policyholders.

C. As to AN UNAUTHORIZED alien insurers INSURER other than A title insurers, prior to placing insurance with any unauthorized insurer, the broker shall submit to the director evidence of the financial responsibility of the insurer. Evidence satisfactory to the director that the insurer maintains and will continue to maintain INSURER SHALL POSSESS MINIMUM CAPITAL AND SURPLUS OF AT LEAST FIFTEEN MILLION DOLLARS AND SHALL MAINTAIN within the United States in public depositories or trust institutions approved by the director assets in the amount of two million five hundred thousand dollars . constitutes prima facie evidence of such responsibility. If the director determines from evidence available to him that the public interest reasonably requires that a larger deposit be made and maintained by any company, then the director may make such requirement and until complied with no broker may place any insurance with such company. THE DIRECTOR MAY REQUIRE THE UNAUTHORIZED ALIEN INSURER TO MAINTAIN A LARGER DEPOSIT IF THE DIRECTOR DETERMINES THAT THE PUBLIC INTEREST REASONABLY REQUIRES A LARGER DEPOSIT. A BROKER SHALL NOT KNOWINGLY PLACE ANY INSURANCE WITH THE UNAUTHORIZED ALIEN INSURER UNTIL THE INSURER COMPLIES WITH THE DIRECTOR'S REQUIREMENT TO MAINTAIN A LARGER DEPOSIT.

D. ANY UNAUTHORIZED LLOYD'S ASSOCIATION OR ANY SIMILAR ASSOCIATION OF INDIVIDUAL OR INCORPORATED INSURERS UNDER A COMMON ADMINISTRATION SHALL MAINTAIN A TRUST FUND IN THE UNITED STATES OF AT LEAST ONE HUNDRED MILLION DOLLARS AS JOINT AND SEVERAL SECURITY FOR ALL UNITED STATES POLICYHOLDERS OF ANY MEMBER OF THE ASSOCIATION. THE DIRECTOR MAY REQUIRE THE ASSOCIATION TO MAINTAIN A LARGER FUND IF THE DIRECTOR DETERMINES THAT THE PUBLIC INTEREST REASONABLY REQUIRES A LARGER FUND. A BROKER SHALL NOT KNOWINGLY PLACE ANY INSURANCE WITH THE ASSOCIATION UNTIL THE ASSOCIATION COMPLIES WITH THE DIRECTOR'S REQUIREMENT TO MAINTAIN A LARGER FUND.

D. E. Before placing insurance with An unauthorized insurance exchange authorized to transact insurance on an admitted or surplus lines basis in at least one other state , the surplus lines broker shall determine the financial condition of the insurance exchange and shall deliver to the director a current certificate in proper form. The certificate shall set forth the names of the public official or officials that have supervision over the insurance exchange in any other state and shall certify the amount of capital and surplus that the insurance exchange or syndicate with which a risk is to be placed possesses and the amount of the deposit in trust that the exchange possesses. Each insurance exchange shall maintain a SHALL POSSESS minimum AGGREGATE capital and surplus of at least fifty million dollars. Each syndicate of the insurance exchange with which a risk is to be placed shall maintain a POSSESS minimum AGGREGATE capital and surplus of at least four million dollars until December 31, 1996. Beginning January 1, 1997 each syndicate with which a risk is to be placed shall maintain a POSSESS minimum capital and surplus of at least five million dollars. The insurance exchange shall maintain a deposit of AT LEAST two million five hundred thousand dollars in public custody in trust, in part, for the purpose of protecting all of the policyholders of the insurance exchange. Each syndicate of an insurance exchange authorized QUALIFIED to transact surplus lines insurance in this state shall file with the director on or before March JUNE 1 an annual statement for the preceding year in a form prescribed by the national association of insurance commissioners. The annual statement is in addition to any other document required of the insurance exchange by the director. Nothing in this subsection requires the director to determine the actual financial condition or claims practices of a syndicate of an insurance exchange.

F. IF THE SURPLUS LINES BROKER DELIVERS A CERTIFICATE IN A FORM PRESCRIBED BY THE DIRECTOR, IT IS PRIMA FACIE EVIDENCE OF THE INSURER'S COMPLIANCE WITH THE FINANCIAL REQUIREMENTS OF THIS SECTION. THE CERTIFICATE SHALL STATE THE NAMES OF THE PUBLIC OFFICIALS OR OTHER PERSONS WHO HAVE SUPERVISION OVER THE INSURER IN ANY OTHER STATE AND SHALL CERTIFY THE AMOUNT OF CAPITAL AND SURPLUS THAT THE INSURER POSSESSES AND THE AMOUNT OF THE TRUST DEPOSIT THAT THE INSURER MAINTAINS, AS DETERMINED FROM THE RECORDS AND KNOWLEDGE OF THE PUBLIC OFFICIALS OR OTHER PERSONS, TOGETHER WITH ANY SUPPORTING DOCUMENTATION THAT THE DIRECTOR REQUIRES. THE CERTIFYING SURPLUS LINES BROKER OF AN ALIEN INSURER MAY DELIVER OTHER EVIDENCE ACCEPTABLE TO THE DIRECTOR TO ESTABLISH THAT THE ALIEN INSURER MEETS THE FINANCIAL REQUIREMENTS OF THIS SECTION. THE CERTIFYING SURPLUS LINES BROKER MAY WITHDRAW THE CERTIFICATE BY PROVIDING WRITTEN NOTICE OF INTENT TO WITHDRAW TO THE DIRECTOR AND THE AFFECTED INSURER. THE WITHDRAWAL IS NOT EFFECTIVE UNTIL FORTY-FIVE DAYS AFTER DELIVERY OF THE NOTICE TO ALL PARTIES. THE WITHDRAWAL IS NOT GROUNDS FOR REMOVAL FROM THE LIST PURSUANT TO SUBSECTION H IF, BEFORE THE WITHDRAWAL BECOMES EFFECTIVE, ANOTHER LICENSED SURPLUS LINES BROKER DELIVERS TO THE DIRECTOR A REPLACEMENT CERTIFICATE BASED ON THE QUALIFYING DOCUMENTATION ALREADY ON FILE WITH THE DEPARTMENT.

E. G. The director may periodically publish a list of unauthorized insurers and insurance exchanges that MAY write surplus lines insurance IN THIS STATE established on the basis of documentation provided to the director pursuant to subsections B, C and D and such other information as he may reasonably require THIS SECTION . The director may mail a copy of the list to each licensed surplus lines broker at the last address on the records of the department. This subsection is not deemed to require the director to determine the actual financial condition or claims practices of any unauthorized insurer or insurance exchange , and the appearance of an unauthorized insurer or insurance exchange upon ON the list indicates only that the insurer or insurance exchange appears to be financially sound and to have satisfactory claims practices and that the director has no credible evidence to the contrary . The A broker shall restrict all surplus lines business placed by him THE BROKER with an unauthorized insurer or insurance exchange to those insurers and insurance exchanges qualified with the director as provided in this section.

H. THE DIRECTOR MAY REFUSE TO ADD AN INSURER TO THE LIST ESTABLISHED PURSUANT TO SUBSECTION G OR MAY REMOVE AN INSURER FROM THAT LIST IF THE DIRECTOR BELIEVES THAT THE INSURER:

1. IS IN A HAZARDOUS FINANCIAL CONDITION.

2. NO LONGER MEETS THE REQUIREMENTS OF THIS ARTICLE.

3. DOES NOT HAVE THE ENDORSEMENT OF A SURPLUS LINES BROKER PURSUANT TO SUBSECTION F.

4. DOES NOT COMPLY WITH ALL APPLICABLE PROVISIONS OF THIS TITLE.

5. IS IMPROPERLY MANAGED.

6. IS UNRELIABLE IN INSURANCE TRANSACTIONS.

F. I. For a violation of this section, In addition to any other penalty provided by law, the director shall revoke the broker's license and IF A SURPLUS LINES BROKER'S LICENSE IS REVOKED FOR A VIOLATION OF THIS SECTION, THE DIRECTOR shall not license the broker again within a period of two years thereafter.

G. Mexican insurers placing vehicle insurance coverages in Mexico only through licensed Arizona surplus lines brokers are exempt from the deposit requirements prescribed in subsections B, C and D.

H. J. For THE purposes of subsections A, B, C and E F, G AND H , "insurer" means an unauthorized insurer , LLOYD'S ASSOCIATION, INSURANCE EXCHANGE OR SYNDICATE OF AN INSURANCE EXCHANGE .

Sec. 11. Section 20-414, Arizona Revised Statutes, is amended to read:

20-414 . Records of surplus lines brokers

Each surplus line LINES broker shall keep in his office in this state a full and true record of each surplus line LINES contract procured by him THE BROKER , and such record may be examined BY THE DIRECTOR at any time within three years thereafter by the director AFTER THE EXPIRATION OR CANCELLATION DATE OF THE INSURANCE POLICY . The record shall include such of the following items as are applicable:

1. Name and address of the insurer.

2. Name and address of the insured.

3. Amount of insurance.

4. Gross premium charged.

5. Return premium paid, if any.

6. Rate of premium charged on the several items of coverage.

7. Effective date of the contract and the terms thereof.

8. Brief general description of the risks insured against and the property insured.

Sec. 12. Section 20-415, Arizona Revised Statutes, is amended to read:

20-415 . Statement of surplus lines insurance business transacted by broker; reporting periods

A. BEGINNING JANUARY 1, 1998, each surplus line LINES broker shall on or before March 1 of each year file SEMIANNUALLY with the director a verified statement of all surplus line LINES insurance BUSINESS transacted by him THE BROKER during the preceding calendar year PERIOD FOR WHICH THE STATEMENT IS BEING FILED . The statement shall be on a form prescribed and furnished by the director and shall show:

1. Gross amount of each kind of insurance transacted.

2. Aggregate gross premiums charged.

3. Aggregate of return premiums paid to insureds.

4. Aggregate of net premiums.

5. Such additional information as may reasonably be required by the director.

B. THE STATEMENT IS DUE ON OR BEFORE MARCH 1 OF EACH YEAR FOR THE PRECEDING JULY THROUGH DECEMBER AND ON OR BEFORE SEPTEMBER 1 OF EACH YEAR FOR THE PRECEDING JANUARY THROUGH JUNE.

Sec. 13. Section 20-416, Arizona Revised Statutes, is amended to read:

20-416 . Tax on surplus lines

A. On or before March 1 of each year THE DUE DATE PRESCRIBED IN SECTION 20-415 , each surplus line LINES broker shall remit to the state treasurer through the director a tax on the premiums, exclusive of sums collected to cover federal and state taxes, and examination fees AND STAMPING FEES COLLECTED PURSUANT TO SECTION 20-167 , on surplus line LINES insurance subject to tax transacted by him THE BROKER during the preceding calendar year REPORTING PERIOD , as shown by his annual THE statement OF SURPLUS LINES BUSINESS filed with the director. The tax is at the rate of three per cent of the gross premiums , INCLUDING POLICY FEES OTHER THAN STAMPING FEES PRESCRIBED IN SECTION 20-167, less premiums returned on account of cancellation or reduction of premium and shall exclude gross premiums and returned premiums upon business exempted from surplus line LINES provisions under section 20-420. The surplus line LINES broker shall collect the tax from the insured in addition to the full amount of the gross premium charged by the insurer for the insurance. The surplus line LINES broker shall return the tax on any portion of the premium unearned at the termination of the insurance policy to the policyholder. The surplus line LINES broker is prohibited from absorbing the tax and from rebating, for any reason, any part of the tax or commission.

B. NOTWITHSTANDING SECTION 20-415 AND SUBSECTION A OF THIS SECTION, IF A SURPLUS LINES BROKER FAILS TO TIMELY RENEW THE LICENSE HELD BY THE BROKER TO TRANSACT SURPLUS LINES INSURANCE AND THE BROKER'S LICENSE IS REVOKED BY ORDER OF THE DIRECTOR OR THE DIRECTOR ACCEPTS THE CONSENT TO VOLUNTARY TERMINATION OF THE LICENSE, THE BROKER SHALL FILE A STATEMENT OF SURPLUS LINES BUSINESS FROM THE END OF THE LAST REPORTING PERIOD COVERED BY THE STATEMENT FILED BY THE BROKER THROUGH THE DATE THE LICENSE WAS LAST VALID AND SHALL REMIT ALL OUTSTANDING SURPLUS LINES TAXES TO THE DIRECTOR. THE BROKER SHALL FILE THE STATEMENT OF SURPLUS LINES BUSINESS AND SHALL REMIT ANY OUTSTANDING SURPLUS LINES TAXES WITHIN THIRTY DAYS AFTER THE NONRENEWAL, REVOCATION OR VOLUNTARY TERMINATION OF THE LICENSE.

B. C. Except as provided in subsection C D of this section, for the purpose of determining the surplus line LINES tax, the total premium charged for surplus line LINES insurance placed in a single transaction with one underwriter or group of underwriters, whether in one or more policies, shall be allocated to this state in the proportion as the total premium on the insured properties or operations in this state, computed on the exposure in this state on the basis of any single standard rating method in use in all states or countries where the insurance applies, bears to the total premium so computed in all the states or countries.

C. D. The surplus line LINES tax on insurance on motor transit operations conducted between this and other states is payable on the total premium charged on all surplus line LINES insurance less the portion of the premium determined as provided in subsection B C of this section charged for operations in other states taxing the premium of an insured maintaining its headquarters office in this state or the premium for operations outside of this state of an insured maintaining its headquarters office outside of this state and A branch office in this state.

D. E. Such tax shall be apportioned in the manner provided by section 20-224, subsection C.

F. ALL SURPLUS LINES TAXES COLLECTED PURSUANT TO THIS SECTION ARE MONIES THAT BELONG TO THIS STATE AND CONSTITUTE A DEBT TO THIS STATE.

Sec. 14. Section 20-417, Arizona Revised Statutes, is amended to read:

20-417 . Failure to remit tax; civil penalty

If any surplus line LINES broker fails to remit the surplus line LINES tax provided for by section 20-416, he THE BROKER is liable for a civil penalty of not to exceed twenty-five dollars for each additional day of delinquency. The director shall collect the tax by distraint and shall recover the civil penalty by an action in the name of this state against the insured, the surplus line LINES broker and the surety on the bond filed pursuant to section 20-411. All civil penalties are payable into the general fund of this state.

Sec. 15. Section 20-418, Arizona Revised Statutes, is amended to read:

20-418 . Revocation or suspension of license

A. The director may revoke or suspend any surplus line LINES broker's license:

1. If the broker fails to file his annual statement or to remit the tax on or before the date required by this article COMPLY WITH ANY REQUIREMENT OF THIS ARTICLE .

2. If the broker fails to maintain an office in this state or to keep the records required by this article, or to allow the director to examine his records.

3. 2. For any of the causes for which an agent's license may be revoked or suspended.

B. The procedures provided by this title for the suspension or revocation of an agent's license shall be applicable to suspension or revocation of a surplus line LINES broker's license.

Sec. 16. Section 20-419, Arizona Revised Statutes, is amended to read:

20-419 . Legal process against surplus lines insurer

A. Every unauthorized nonresident insurer issuing or delivering a surplus line LINES policy through a surplus line LINES broker in this state shall conclusively be deemed thereby to have irrevocably appointed the director as its attorney for acceptance of service of all legal process issued in this state in any action or proceeding under or arising out of such policy, and service of such process upon the director shall be lawful personal service upon the nonresident insurer.

B. Service of process in such an action or proceeding against an unauthorized resident insurer issuing or delivering a surplus line LINES policy through a surplus line LINES broker in this state shall be valid if served upon any person within this state who transacts an insurance business in this state on behalf of such insurer.

C. Each surplus line LINES policy shall contain a provision stating the substance of subsection A or B, whichever is applicable, and designating the person to whom process shall be mailed as provided in subsection D.

D. Duplicate copies of legal process against such a nonresident insurer shall be served upon the director, and at THE time of service the plaintiff shall pay to the director five dollars, taxable as costs in the action. The director shall forthwith mail one copy of the process so served to the person designated by the nonresident insurer in the policy for the purpose, by registered CERTIFIED mail with return receipt requested. Legal process against such a resident insurer shall be served upon any person within this state who transacts an insurance business within this state on behalf of such insurer. The plaintiff shall mail notice of service and a copy of THE process to the person designated by the resident insurer in the policy for the purpose, by registered CERTIFIED mail with return receipt requested. Any insurer shall have forty days after date of mailing within which to plead, answer or otherwise defend the action.

Sec. 17. Section 20-420, Arizona Revised Statutes, is amended to read:

20-420 . Exemptions from surplus lines provisions

A. The sections of this article relating to surplus line LINES coverages shall not apply to reinsurance, nor to the following classes of insurance when placed by licensed agents or brokers of this state:

1. Ocean marine and foreign trade insurance.

2. Insurance on subjects located, resident or to be performed wholly outside this state, or on vehicles or aircraft owned and principally garaged outside this state.

3. Insurance on property or operations of railroads engaged in interstate commerce.

B. Agents and brokers so placing any such insurance with an unauthorized insurer shall keep a record of each coverage in detail as required of surplus line LINES insurance by section 20-414. The record shall be preserved for not less than three years from the effective EXPIRATION OR CANCELLATION date of the insurance, POLICY and shall be so kept available in this state and open to the examination of the director.

Sec. 18. Section 20-422, Arizona Revised Statutes, is amended to read:

20-422 . Alien insurance for coverage in Mexico

A. No A person shall in this state NOT solicit or accept applications IN THIS STATE for vehicle insurance which OR COLLECT A COMMISSION ON A POLICY THAT is to be effective in Mexico and only outside the geographical limits of this state and THAT is to be issued by an alien insurer or insurers not authorized to transact insurance in this state, unless such THAT person is a duly licensed surplus line broker, his or her agents or employees PURSUANT TO SECTION 20-411 OR 20-411.01 OR ANY AGENT OR EMPLOYEE OF THAT LICENSED PERSON or any other authorized insurance agent in this state provided that the agent obtains the surplus line coverage through a duly THAT licensed surplus line broker PERSON .

B. Such insurance shall be deemed to be surplus line insurance for the purposes hereof, and shall be subject to the applicable provisions of this article relative to surplus line insurance, including but not limited to provisions for licensing of surplus line brokers, broker's records, and annual statement, taxation of the premiums on the surplus line insurance and payment of the tax, and legal process against the surplus line insurer. The director may, pursuant to section 20-409, treat such insurance as a recognized surplus line. Section 20-420, relating to exemptions from surplus line provisions, shall not apply with respect to this section.

B. EXCEPT FOR SECTIONS 20-411, 20-411.01, 20-414 AND 20-418, THE INSURANCE PRESCRIBED BY THIS SECTION IS NOT SUBJECT TO THIS ARTICLE.

C. ANY POLICY AND ANY EVIDENCE OF COVERAGE FROM AN ALIEN INSURER ISSUED PURSUANT TO THIS SECTION AND FOR DELIVERY TO THE INSURED IN THIS STATE SHALL CONTAIN A CONSPICUOUSLY STAMPED OR WRITTEN NOTICE IN BOLD-FACED TYPE THAT STATES:

THIS POLICY IS ISSUED BY AN INSURANCE COMPANY THAT IS NOT REGULATED BY THE ARIZONA DEPARTMENT OF INSURANCE. THE INSURANCE COMPANY MAY NOT PROVIDE CLAIMS SERVICE AND MAY NOT BE SUBJECT TO SERVICE OF PROCESS IN ARIZONA. IF THE INSURANCE COMPANY BECOMES INSOLVENT, INSUREDS OR CLAIMANTS WILL NOT BE ELIGIBLE FOR PROTECTION UNDER ARIZONA LAW.

Sec. 19. Reports

A. Notwithstanding section 20-415, subsection A, Arizona Revised Statutes, on or before March 1, 1998, each surplus lines broker shall report all surplus lines business transacted under the broker's license during 1997.

B. Pursuant to section 20-415, Arizona Revised Statutes, as amended by this act, each surplus lines broker shall file the first semiannual statement on or before September 1, 1998.

Sec. 20. Requirements for enactment

Pursuant to article IX, section 22, Constitution of Arizona, this act is effective only on the affirmative vote of at least two-thirds of the members of each house of the legislature and is effective immediately on the signature of the governor or, if the governor vetoes this act, on the subsequent affirmative vote of at least three-fourths of the members of each house of the legislature.

APPROVED BY THE GOVERNOR APRIL 24, 1997.

FILED IN THE OFFICE OF THE SECRETARY OF STATE APRIL 25, 1997.