HOUSE BILL NO. 3314 103RD GENERAL ASSEMBLY
INTRODUCED BY REPRESENTATIVE HINMAN.
7088H.01I JOSEPH ENGLER, Chief Clerk
AN ACT To repeal sections 374.205, 375.772, 375.773, 375.775, 375.777, and 382.230, RSMo, and to enact in lieu thereof six new sections relating to guaranty associations.
Be it enacted by the General Assembly of the state of Missouri, as follows:
Section A. Sections 374.205, 375.772, 375.773, 375.775, 375.777, and 382.230, 2 RSMo, are repealed and six new sections enacted in lieu thereof, to be known as sections 3 374.205, 375.772, 375.773, 375.775, 375.777, and 382.230, to read as follows: 374.205. 1. (1) The director or any of the director's examiners may conduct an 2 examination pursuant to sections 374.202 to 374.207 of any company as often as the director 3 in his or her sole discretion deems appropriate, but shall, at a minimum, conduct a financial 4 examination of every insurer licensed in this state at least once every five years. In 5 scheduling and determining the nature, scope and frequency of examinations, the director 6 may consider such matters as the results of financial statement analyses and ratios, changes in 7 management or ownership, actuarial opinions, reports of independent certified public 8 accountants, consumer complaints, and other criteria as set forth in the Examiners' Handbook 9 adopted by the National Association of Insurance Commissioners and in effect when the 10 director exercises discretion pursuant to this section. 11 (2) For purposes of completing an examination of any company pursuant to sections 12 374.202 to 374.207, the director may examine or investigate any person, or the business of 13 any person, insofar as such examination or investigation is, in the sole discretion of the 14 director, necessary or material to the examination of the company. 15 (3) In lieu of a financial examination pursuant to section 374.207 of any foreign or 16 alien insurer licensed in this state, the director may accept a financial examination report on
EXPLANATION — Matter enclosed in bold-faced brackets [thus] in the above bill is not enacted and is intended to be omitted from the law. Matter in bold-face type in the above bill is proposed language. HB 3314 2
17 the company as prepared by the insurance department or other appropriate agency for the 18 company's state of domicile or port-of-entry state until January 1, 1994. After January 1, 19 1994, such reports may only be accepted if such insurance department or other appropriate 20 agency was at the time of the examination accredited pursuant to the National Association of 21 Insurance Commissioners' Financial Regulation Standards and Accreditation Program or the 22 examination is performed under the supervision of an accredited insurance department or 23 other appropriate agency or with the participation of one or more examiners who are 24 employed by such an accredited state insurance department or other appropriate agency and 25 who, after a review of the examination workpapers and report, state under oath that the 26 examination was performed in a manner consistent with the standards and procedures 27 required by their insurance department or other appropriate agency. 28 2. (1) Upon determining that an examination should be conducted, the director or the 29 director's designee shall issue an examination warrant appointing one or more examiners to 30 perform the examination and instructing them as to the scope of the examination. In 31 conducting the examination, the examiner shall observe those guidelines and procedures set 32 forth in the Examiners' Handbook adopted by the National Association of Insurance 33 Commissioners. The director may also employ such other guidelines or procedures as the 34 director may deem appropriate. 35 (2) Every company or person from whom information is sought, its officers, directors 36 and agents shall provide to the examiners appointed pursuant to subdivision (1) of this 37 subsection timely, convenient and free access at all reasonable hours at its offices to all books, 38 records, accounts, papers, documents and any or all computer or other recordings relating to 39 the property, assets, business and affairs of the company being examined. The company or 40 person being examined shall provide within ten calendar days any record requested by an 41 examiner during a market conduct examination, unless such company or person demonstrates 42 to the satisfaction of the director that the requested record cannot be provided within ten 43 calendar days of the request. All policy records for each policy issued shall be maintained for 44 the duration of the current policy term plus two calendar years and all claim files shall be 45 maintained for the calendar year in which the claim is closed plus three calendar years. The 46 officers, directors, employees and agents of the company or person shall facilitate the 47 examination and aid in the examination so far as it is in their power to do so. The refusal of 48 any company, by its officers, directors, employees or agents, to submit to examination or to 49 comply with any reasonable written request of the examiners shall be grounds for suspension 50 or refusal of, or nonrenewal of, any license or authority held by the company to engage in an 51 insurance or other business subject to the director's jurisdiction. Any such proceeding for 52 suspension, revocation or refusal of any license or authority shall be conducted pursuant to 53 section 374.046. HB 3314 3
54 (3) The director or any of the director's examiners may issue subpoenas to administer 55 oaths and to examine under oath any person as to any matter pertinent to the examination. 56 Upon the failure or refusal of any person to obey a subpoena, the director may petition a court 57 of competent jurisdiction, and upon proper showing, the court may enter an order compelling 58 the witness to appear and testify or produce documentary evidence. Failure to obey the court 59 order shall be punishable as contempt of court. Such subpoenas may also be enforced 60 pursuant to the provisions of sections 375.881 and 375.1162. 61 (4) When making an examination pursuant to sections 374.202 to 374.207, the 62 director may retain attorneys, appraisers, independent actuaries, independent certified public 63 accountants or other professionals and specialists as examiners, the cost of which shall be 64 borne directly by the company which is the subject of the examination. 65 (5) The provisions of sections 374.202 to 374.207 shall not be construed to limit the 66 director's authority to terminate or suspend any examination in order to pursue other legal or 67 regulatory action pursuant to the insurance laws of this state. Findings of fact and 68 conclusions made pursuant to any examination shall be prima facie evidence in any legal or 69 regulatory action. 70 (6) Nothing contained in sections 374.202 to 374.207 shall be construed to limit the 71 director's authority to use and, if appropriate, to make public any final or preliminary 72 examination report, any examiner or company workpapers or other documents, or any other 73 information discovered or developed during the course of any examination in the furtherance 74 of any legal or regulatory action which the director may, in his or her sole discretion, deem 75 appropriate. 76 3. (1) All examination reports shall be comprised of only facts appearing upon the 77 books, records, or other documents of the company, its agents or other persons examined, or 78 as ascertained from the testimony of its officers or agents or other persons examined 79 concerning its affairs, and such conclusions and recommendations as the examiners find 80 reasonably warranted from the facts. 81 (2) No later than sixty days following completion of the examination, the examiner in 82 charge shall file with the department a verified written report of examination under oath. 83 Upon receipt of the verified report, the department shall transmit the report to the company 84 examined, together with a notice which shall afford the company examined a reasonable 85 opportunity of not more than thirty days to make a written submission or rebuttal with respect 86 to any matters contained in the examination report. 87 (3) Within thirty days of the end of the period allowed for the receipt of written 88 submissions or rebuttals, the director shall fully consider and review the report, together with 89 any written submissions or rebuttals and any relevant portions of the examiner's workpapers 90 and either initiate legal action or enter an order: HB 3314 4
91 (a) Adopting the examination report as filed or with modification or corrections. If 92 the examination report reveals that the company is operating in violation of any law, 93 regulation or prior order of the director, the director may order the company to take any action 94 the director considers necessary and appropriate to cure such violation; 95 (b) Rejecting the examination report with directions to the examiners to reopen the 96 examination for purposes of obtaining additional data, documentation or information, and 97 refiling pursuant to subsection 1 of this section; 98 (c) Calling for an investigatory hearing with no less than twenty days' notice to the 99 company for purposes of obtaining additional documentation, data, information and 100 testimony; or 101 (d) Calling for such regulatory action as the director deems appropriate, provided that 102 this order shall be a confidential internal order directing the department to take certain action. 103 (4) All orders entered pursuant to paragraph (a) of subdivision (3) of this subsection 104 shall be accompanied by findings and conclusions resulting from the director's consideration 105 and review of the examination report, relevant examiner workpapers and any written 106 submissions or rebuttals. Any such order shall be considered a final administrative decision 107 and may be appealed pursuant to section 536.150 and shall be served upon the company by 108 certified mail, together with a copy of the adopted examination report. Within thirty days of 109 the issuance of the adopted report, the company shall file affidavits executed by each of its 110 directors stating under oath that they have received a copy of the adopted report and related 111 orders. In lieu of the preceding affidavit requirement, in the case of an adopted market 112 conduct report, rather than an adopted financial examination report, the company may file an 113 affidavit executed by its general counsel or chief legal officer stating under oath that the 114 general counsel or chief legal officer has received a copy of the adopted market conduct 115 report and related orders. Any hearing conducted pursuant to paragraph (c) of subdivision (3) 116 of this subsection by the director or authorized representative shall be conducted as a 117 nonadversarial confidential investigatory proceeding as necessary for the resolution of any 118 inconsistencies, discrepancies or disputed issues apparent upon the face of the filed 119 examination report or raised by or as a result of the director's review of relevant workpapers 120 or by the written submission or rebuttal of the company. Within twenty days of the 121 conclusion of any such hearing, the director shall enter an order pursuant to paragraph (a) of 122 subdivision (3) of this subsection. In conducting a hearing pursuant to paragraph (c) of 123 subdivision (3) of this subsection: 124 (a) The director shall not appoint an examiner as an authorized representative to 125 conduct the hearing. The hearing shall proceed expeditiously with discovery by the company 126 limited to the examiner's workpapers which tend to substantiate any assertions set forth in any 127 written submission or rebuttal. The director or his or her representative may issue subpoenas HB 3314 5
128 for the attendance of any witnesses or the production of any documents deemed relevant to 129 the investigation whether under the control of the department, the company or other persons. 130 The documents produced shall be included in the record, and testimony taken by the director 131 or his or her representative shall be under oath and preserved for the record. The provisions 132 of this section shall not require the department to disclose any information or records which 133 would indicate or show the existence of any investigation or activity of a criminal justice 134 agency; and 135 (b) The hearing shall proceed with the director or his or her representative posing 136 questions to the persons subpoenaed. Thereafter, the company and the department may 137 present testimony relevant to the investigation. Cross-examination shall be conducted only 138 by the director or the director's representative. The company and the department shall be 139 permitted to make closing statements and may be represented by counsel of their choice. 140 (5) Upon the adoption of the examination report pursuant to paragraph (a) of 141 subdivision (3) of this subsection, the director shall continue to hold the content of the 142 examination report as private and confidential information for a period of ten days except to 143 the extent provided in this subdivision. Thereafter, the director may open the report for public 144 inspection so long as no court of competent jurisdiction has stayed its publication. Nothing 145 contained in the insurance laws of this state shall prevent or be construed as prohibiting the 146 director from disclosing the content of an examination report, preliminary examination report 147 or results, or any matter relating thereto, to the insurance department of this or any other state 148 or country, or to law enforcement officials of this or any other state or agency of the federal 149 government at any time, so long as such agency or office receiving the report or matters 150 relating thereto agrees in writing to hold it confidential and in a manner consistent with this 151 section. In the event the director determines that legal or regulatory action is appropriate as a 152 result of any examination, he or she may initiate any proceedings or actions as provided by 153 law. 154 4. All working papers, recorded information, documents and copies thereof produced 155 by, obtained by or disclosed to the director or any person in the course of an examination 156 made pursuant to this section shall be given confidential treatment and are not subject to 157 subpoena and may not be made public by the director or any other person, except to the extent 158 provided in subdivision (5) of subsection 3 of this section. Access may also be granted to the 159 National Association of Insurance Commissioners. Such parties shall agree in writing prior to 160 receiving the information to provide to it the same confidential treatment as required by this 161 section, unless the prior written consent of the company to which it pertains has been 162 obtained. 163 5. Notwithstanding any other law to the contrary, the director may share 164 documents, materials, or other information, including confidential and privileged HB 3314 6
165 documents, materials, or information under this section, with the Missouri property and 166 casualty insurance guaranty association or the Missouri life and health insurance 167 guaranty association regarding any member insurer, as such term is defined under 168 sections 375.772 and 376.718, if the director determines that the member insurer may be 169 subject to a future delinquency proceeding under sections 375.1150 to 375.1246 of the 170 Insurers Supervision, Rehabilitation and Liquidation Act. The director may disclose 171 the information described in this subsection so long as the parties agree in writing to 172 hold that information confidential in a manner consistent with sections 375.1150 to 173 375.1246 and use that information to prepare for a future delinquency proceeding of a 174 member insurer. Access to the information disclosed by the director to the guaranty 175 association shall be limited to the guaranty association's staff and legal counsel. The 176 board of directors of the guaranty association may have access to the information 177 disclosed by the director to the guaranty association once the member insurer is subject 178 to a delinquency proceeding under sections 375.1150 to 375.1246 subject to any terms 179 and conditions established by the director. The director may also disclose the 180 information described in this subsection to associations in other states, and with any 181 organization of one or more state associations having similar purposes, so long as the 182 recipient of such information agrees in writing to hold the information confidential, in a 183 manner consistent with sections 375.1150 to 375.1246, and uses that information to 184 prepare for a possible delinquency proceeding of the member insurer. Access to the 185 information disclosed by the director under this subsection shall be limited to the 186 association's staff and legal counsel. The board of directors of the association may have 187 access to the information disclosed by the director to the association once the member 188 insurer is subject to a delinquency proceeding under sections 375.1150 to 375.1246 189 subject to any terms and conditions established by the director. If the director 190 determines that a delinquency proceeding is likely, he or she may cooperate with the 191 association and with any organization of one or more state associations having similar 192 purposes to provide for an orderly transition to liquidation in order to minimize any 193 delay in the handling and payment of claims. 375.772. 1. There is created a nonprofit unincorporated legal entity to be known as 2 the "Missouri Property and Casualty Insurance Guaranty Association", hereinafter referred to 3 as "association". All member insurers shall be and remain members of the association as a 4 condition of their authority to transact insurance in this state. The association shall perform 5 its functions under a plan of operation and through a board of directors established by section 6 375.776. 7 2. As used in sections 375.771 to 375.779, the following terms mean: 8 (1) "Account", any one of the four accounts established by section 375.773; HB 3314 7
9 (2) "Affiliate", a person who directly or indirectly through one or more intermediaries 10 controls, is controlled by, or is under common control with another person; 11 (3) "Affiliate of an insolvent insurer", a person who directly or indirectly through one 12 or more intermediaries controls, is controlled b