130th Ohio General Assembly
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H. B. No. 122  As Introduced
As Introduced

129th General Assembly
Regular Session
2011-2012
H. B. No. 122


Representative Hottinger 



A BILL
To amend sections 3901.17, 3905.30, 3905.31, 3905.33, 3905.34, 3905.36, 3905.37, and 3905.38 and to enact section 3905.331 of the Revised Code to exempt state surplus lines insurance from regulation in Ohio when Ohio is not the home state of the insured and to make other changes to the law regulating surplus lines insurance.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:
Section 1.  That sections 3901.17, 3905.30, 3905.31, 3905.33, 3905.34, 3905.36, 3905.37, and 3905.38 be amended and section 3905.331 of the Revised Code be enacted to read as follows:
Sec. 3901.17.  (A) As used in this section:
(1) "Captive insurer" has the meaning defined in section 3905.36 of the Revised Code.
(2) "Insurer" includes, but is not limited to, any person that is an affiliate of or affiliated with the insurer, as defined in division (A) of section 3901.32 of the Revised Code, and any person that is a subsidiary of the insurer as defined in division (F) of section 3901.32 of the Revised Code.
(3) "Laws of this state relating to insurance" has the meaning defined in division (A)(1) of section 3901.04 of the Revised Code.
(4) "Person" has the meaning defined in division (A) of section 3901.19 of the Revised Code.
(5) "Home state" has the same meaning as in section 3905.30 of the Revised Code.
(B) Any of the following acts in this state, effected by mail or otherwise, by any foreign or alien insurer not authorized to transact business within this state, any nonresident person acting on behalf of an insurer, or any nonresident insurance agent subjects the insurer, person, or agent to the exercise of personal jurisdiction over the insurer, person, or agent to the extent permitted by the constitutions of this state and of the United States:
(1) Issuing or delivering contracts of insurance to residents of this state or to corporations authorized to do business therein;
(2) Making or proposing to make any insurance contracts;
(3) Soliciting, taking, or receiving any application for insurance;
(4) Receiving or collecting any premium, commission, membership fee, assessment, dues, or other consideration for any insurance contract or any part thereof;
(5) Disseminating information as to coverage or rates, forwarding applications, inspecting risks, fixing rates, investigating or adjusting claims or losses, or transacting any matters subsequent to effecting a contract of insurance and arising out of it;
(6) Doing any kind of business recognized as constituting the doing of an insurance business under Title XXXIX of the Revised Code or subject to regulation by the superintendent of insurance under the laws of this state relating to insurance.
Any such act shall be considered to be the doing of an insurance business in this state by such insurer, person, or agent and shall be its agreement that service of any lawful subpoena, notice, order, or process is of the same legal force and validity as personal service of the subpoena, notice, order, or process in this state upon the insurer, person, or agent.
(C) Service of process in judicial proceedings shall be as provided by the Rules of Civil Procedure. Service in or out of this state of notice, orders, or subpoenas in administrative proceedings before the superintendent shall be as provided in section 3901.04 of the Revised Code.
(D) Service of any notice, order, subpoena, or process in any such action, suit, or proceeding shall, in addition to the manner provided in division (C) of this section, be valid if served upon any person within this state who, in this state on behalf of such insurer, person, or agent is or has been:
(1) Soliciting, procuring, effecting, or negotiating for insurance;
(2) Making, issuing, or delivering any contract of insurance;
(3) Collecting or receiving any premium, membership fees, assessment, dues, or other consideration for insurance;
(4) Disseminating information as to coverage or rates, forwarding applications, inspecting risks, fixing rates, investigating or adjusting claims or losses, or transacting any matters subsequent to effecting a contract of insurance and arising out of it.
(E) Nothing in this section shall limit or abridge the right to serve any subpoena, order, process, notice, or demand upon any insurer, person, or agent in any other manner permitted by law.
(F) Every person investigating or adjusting any loss or claim under a policy of insurance not excepted under division (I) of this section and issued by any such insurer and covering a subject of insurance that was resident, located, or to be performed in this state at the time of issuance shall immediately report the policy to the superintendent.
(G) Each If this state is the home state of the insured, each such insurer that does any of the acts set forth in division (B) of this section in this state by mail or otherwise shall be subject to a tax of five per cent on the gross premiums, membership fees, assessments, dues, and other considerations received on all contracts of insurance covering subjects of insurance resident, located, or to be performed within this state. Such insurer shall annually, on or before the first day of July, pay such tax to the treasurer of state, as calculated on a form prescribed by the treasurer of state. If the tax is not paid when due, the tax shall be increased by a penalty of twenty-five per cent. An interest charge computed as set forth in section 5725.221 of the Revised Code shall be made on the entire sum of the tax plus penalty, which interest shall be computed from the date the tax is due until it is paid. The treasurer of state shall determine and report all claims for penalties and interest accruing under this section to the attorney general for collection the requirements of section 3905.36 of the Revised Code.
For purposes of this division, payment is considered made when it is received by the treasurer of state, irrespective of any United States postal service marking or other stamp or mark indicating the date on which the payment may have been mailed.
(H) No contract of insurance effected in this state by mail or otherwise by any such insurer is enforceable by the insurer.
(I) This section does not apply to:
(1) Insurance obtained pursuant to sections 3905.30 to 3905.36 of the Revised Code;
(2) The transaction of reinsurance by insurers;
(3) Transactions in this state involving a policy solicited, written, and delivered outside this state covering only subjects of insurance not resident, located, or to be performed in this state at the time of issuance, provided such transactions are subsequent to the issuance of the policy;
(4) Transactions in this state involving a policy of group life or group accident and sickness insurance solicited, written, and delivered outside this state;
(5)(4) Transactions involving contracts of insurance independently procured through negotiations occurring entirely outside this state which are reported to the superintendent and with respect to which the tax provided by is paid in accordance with section 3905.36 of the Revised Code is paid;
(6)(5) An attorney at law acting on behalf of the attorney's clients in the adjustment of claims or losses;
(7) Except as provided in division (G) of this section, any insurance company underwriter issuing contracts of insurance to employer insureds or contracts of insurance issued to an employer insured. For purposes of this section, an "employer insured" is an insured to whom all of the following apply:
(a) The insured procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer or the services of a regularly and continuously qualified insurance consultant. As used in division (I)(7)(a) of this section, a "regularly and continuously qualified insurance consultant" does not include any person licensed under Chapter 3905. of the Revised Code.
(b) The insured's aggregate annual premiums for insurance on all risks total at least twenty-five thousand dollars; and
(c) The insured has at least twenty-five full-time employees.
(8)(6) Ocean marine insurance;
(9)(7) Transactions involving policies issued by a captive insurer.
Sec. 3905.30.  (A) As used in sections 3905.30 to 3905.38 of the Revised Code:
(1)(a) Notwithstanding section 3905.01 of the Revised Code, "home state" means the state in which an insured maintains its principal place of business or, in the case of an individual, the individual's principal residence except in the case of either of the following:
(b) If one hundred per cent of the insured risk is located out of the state in which an insured maintains its principal place of business or principle residence as described in division (A)(1)(a) of this section, "home state" means the state to which the greatest percentage of the insured's taxable premium for that insurance contract is allocated.
(c) If more than one insured from an affiliated group are named insureds on a single unauthorized insurance contract, "home state" means the state in which the member of the affiliated group that has the largest percentage of premium attributed to it under such insurance contract an insured maintains its principal place of business.
(2) "Principal place of business" means the state where the insured maintains the insured's headquarters and where the insured's high-level officers direct, control, and coordinate the business activities of the insured.
(B) The superintendent of insurance may issue a surplus line lines broker's license to any natural person who is a resident of this or any other state or to a business entity that is organized under the laws of this or any other state. To be eligible for a resident surplus line lines broker's license, a person must have both a property license and a casualty license. To be eligible for a nonresident surplus line lines broker's license, a person must hold an active surplus line lines broker license in the person's home state. A nonresident surplus line lines broker shall obtain a nonresident license with a property and casualty line of authority in this state if the broker is or will be personally performing the due diligence requirements under section 3905.33 of the Revised Code.
(C) A surplus line lines broker's license permits the person named in the license to negotiate for and obtain insurance, other than life insurance, on property or persons in this state from insurers not authorized to transact business in this state. Each such license expires on the thirty-first day of January next after the year in which it is issued, and may be then renewed.
Sec. 3905.31.  (A) No person not licensed under section 3905.30 of the Revised Code shall take or receive any application for such insurance upon property or persons in this state, or receive or collect a premium or any part thereof for any unauthorized insurance company, or attempt or assist in any such act, or perform any act in this state concerning any policy or contract of insurance of any unauthorized insurance company provided that any duly licensed property and casualty agent may place business with an agent licensed under section 3905.30 of the Revised Code and may accept compensation therefor, if such insurance is written in conformity with the insurance laws of this state. This
(B) This section does not apply to any selling, soliciting, or negotiating of surplus lines insurance by a surplus lines broker that takes place in an insured's home state if the home state of the insured is a state other than this state.
(C) This section does not apply to those engaged in the act of adjusting claims or losses in connection with any policy of insurance written under the provisions of sections 3905.30 to 3905.35 of the Revised Code.
Sec. 3905.33.  (A) No person licensed under section 3905.30 of the Revised Code shall solicit, procure an application for, bind, issue, renew, or deliver a policy with any insurer that is not eligible to write insurance on a surplus line an unauthorized basis in this state.
To Unless the superintendent of insurance enters into a multistate agreement or compact under division (E) of this section, the superintendent may establish the eligibility of an unauthorized insurer, the superintendent of insurance may request by requesting copies of the insurer's most recent financial statements; instruments such as domestic trust agreements, powers of attorney, and investment management contracts; biographies of the owners and managers of the insurer; and any other information the superintendent believes may be helpful in determining an insurer's suitability eligibility. The suitability eligibility of each unauthorized insurer is subject to the continuous scrutiny and discretion of the superintendent.
(B)(1) No insurance agent or surplus line lines broker shall solicit, procure, place, or renew any insurance with an unauthorized insurer unless the an agent or surplus line lines broker has complied with the due diligence requirements of this section and is unable to procure the requested insurance from an authorized insurer.
Due diligence requires the an agent or surplus line broker to contact at least five of the authorized insurers the agent or surplus line broker represents, or as many insurers as the agent or surplus line broker represents, that customarily write the kind of insurance required by the insured. Due diligence is presumed if declinations are received from each authorized insurer contacted. If any authorized insurer fails to respond within ten days after the initial contact, the agent or surplus line broker may assume the insurer has declined to accept the risk.
(2) Due diligence shall only be performed by an agent licensed in this state that holds an active property and casualty insurance license.
(3) An insurance agent or surplus line lines broker is exempt from the due diligence requirements of this section if the agent or surplus line broker is procuring insurance from a risk purchasing group or risk retention group as provided in Chapter 3960. of the Revised Code.
(4) An insurance agent or surplus lines broker is exempt from the due diligence requirements of this section if the agent or surplus lines broker is seeking to procure or place unauthorized insurance for a person that qualifies as an exempt commercial purchaser under section 3905.331 of the Revised Code and both of the following are true:
(a) The surplus lines broker procuring or placing the surplus lines insurance has disclosed to the exempt commercial purchaser that the insurance may or may not be available from the authorized market that may provide greater protection with more regulatory oversight.
(b) After receipt of the disclosure required under division (B)(4)(a) of this section, the exempt commercial purchaser has requested in writing that the insurance agent or broker procure or place the insurance from an unauthorized insurer.
(C) An Except when exempt from due diligence requirements under division (B) of this section, an insurance agent who procures or places insurance through a surplus line lines broker shall obtain an affidavit from the insured acknowledging that the insurance policy is to be placed with a company or insurer not authorized to do business in this state and acknowledging that, in the event of the insolvency of the insurer, the insured is not entitled to any benefits or proceeds from the Ohio insurance guaranty association. The affidavit must be on a form prescribed by the superintendent. The agent shall submit the original originally executed affidavit to the surplus line lines broker within thirty days after the effective date of the policy. If no other agent is involved, the surplus line lines broker shall obtain the affidavit from the insured.
The surplus line lines broker shall keep maintain the original originally executed affidavit or a copy of the affidavit, and the originating agent shall keep a copy of the affidavit, for at least five years after the effective date of the policy to which the affidavit pertains. A copy of the affidavit shall be given to the insured at the time the insurance is bound or a policy is delivered.
(D) The superintendent may adopt rules in accordance with Chapter 119. of the Revised Code to carry out the purposes of sections 3905.30 to 3905.38 of the Revised Code.
(E) For the purpose of carrying out the "Nonadmitted and Reinsurance Reform Act of 2010," 15 U.S.C. 8201 et seq., 124 Stat. 1589, or any successor or replacement law, the superintendent may enter into a multi-state agreement or compact for determining eligibility for placement of unauthorized insurance and for payment, reporting, collection, and allocation of the tax on unauthorized insurance. The multi-state agreement or compact also may include eligibility for placement of unauthorized insurance and payment, reporting, collection, and allocation of the tax on unauthorized insurance for risks that are not multi-state, and for independently procured insurance in the unauthorized market.
Sec. 3905.331.  (A) A person purchasing commercial insurance qualifies as an exempt commercial purchaser if, at the time of placement, the exempt commercial purchaser satisfies all of the following requirements:
(1) The person employs or retains a qualified risk manager to negotiate insurance coverage.
(2) The person has paid aggregate nationwide commercial property and casualty insurance premiums in excess of one hundred thousand dollars in the immediately preceding twelve months.
(3) The person satisfies at least one of the following criteria:
(a) The person possesses a net worth in excess of twenty million dollars, as adjusted pursuant to division (B) of this section.
(b) The person generates annual revenues in excess of fifty million dollars, as adjusted pursuant to division (B) of this section.
(c) The person employs more than five hundred full-time or full-time equivalent employees per individual insured or is a member of an affiliated group employing more than one thousand employees in the aggregate.
(d) The person is a not-for-profit organization or public entity generating annual budgeted expenditures of at least thirty million dollars, as adjusted pursuant to division (B) of this section.
(e) The person is a municipality with a population in excess of fifty thousand persons.
(B) Effective on January 1, 2015, and every five years thereafter, the superintendent of insurance shall adjust the dollar amounts in division (A) of this section to reflect the percentage change for that five-year period in the consumer price index for all urban consumers published by the bureau of labor statistics of the United States department of labor.
(C) A qualified risk manager employed or retained to negotiate insurance by an exempt commercial purchaser under this section shall satisfy all of the following requirements:
(1) The person is an employee of, or third-party consultant retained by, the commercial policyholder.
(2) The person provides skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis and the purchase of insurance.
(3) The person satisfies one of the following:
(a) The person has obtained a bachelor's degree or a higher degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by a state insurance commissioner or other state regulatory official or entity to demonstrate minimum competence in risk management, and either has three years of experience in risk financing, claims administration, loss prevention and insurance analysis, or purchasing commercial lines of insurance or has one of the following designations:
(i) A designation as a chartered property and casualty underwriter issued by the American institute for CPCU/insurance of America;
(ii) A designation as an associate in risk management issued by the American institute for CPCU/insurance institute of America;
(iii) A designation as certified risk manager issued by the national alliance for insurance education and research;
(iv) A designation as a RIMS fellow issued by the global risk management institute;
(v) Any other designation, certification, or license determined by the superintendent to demonstrate minimum competency in risk management.
(b) The person has at least seven years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; and has any one of the designations specified in division (B)(3)(a) of this section;
(c) The person has at least ten years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance;
(d) The person has a graduate degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the superintendent to demonstrate minimum competence in risk management.
Sec. 3905.34.  Each person licensed under section 3905.30 of the Revised Code shall keep a separate account of the business done under the person's license. On or before the thirty-first day of January March or when required under a multi-state agreement or compact entered into by the superintendent of insurance as authorized by division (E) of section 3905.33 of the Revised Code, each surplus line lines broker shall file with the superintendent of insurance the portion of that account that details of the business done during the preceding calendar year in the format prescribed by the superintendent. The account must show the amount of such insurance, the name of the insured, a brief description of the type of insurance, the location of the property, the gross premium charged, the name of the insurer, the date of the policy and term thereof, and a report in the same detail of all such policies canceled and the gross return premiums thereon.
Sec. 3905.36.  (A) Except as provided in divisions (B) and (C) of this section, every Every insured association, company, corporation, or other person that enters, directly or indirectly, into any agreements independent procurement or direct placement agreement with any insurance company, association, individual, firm, underwriter, or Lloyd's, not authorized to do business in this state, whereby the insured shall procure, continue, or renew contracts of insurance covering subjects of insurance resident, located, or to be performed within this state, with such unauthorized insurance company, association, individual, firm, underwriter, or Lloyd's, for which insurance there is a gross premium, membership fee, assessment, dues, or other consideration charged or collected, shall file the details of the transaction annually, on or before the thirty-first day of March, return to the superintendent of insurance a statement under oath showing the name and address of the insured, name and address of the insurer, subject of the insurance, general description of the coverage, and amount of gross premium, fee, assessment, dues, or other consideration for such insurance for the preceding calendar year and shall at the same time pay to the treasurer of state a tax of five per cent of such gross premium, fee, assessment, dues, or other consideration, after a deduction for return premium, if any, as calculated on a form in the prescribed by the treasurer of state. All format or in compliance with any requirements of a multi-state agreement or compact entered into by the superintendent pursuant to division (E) of section 3905.33 of the Revised Code. An insurer may submit the required details of the transaction and remit the tax payment on behalf of an insured.
All taxes collected under this section by the treasurer of state shall be paid into the general revenue fund. If the tax is not paid when due, the tax shall be increased by a penalty of twenty-five per cent. An interest charge computed as set forth in section 5725.221 of the Revised Code shall be made on the entire sum of the tax plus penalty, which interest shall be computed from the date the tax is due until it is paid. For purposes of this section, payment is considered made when it is received by the treasurer of state, irrespective of any United States postal service marking or other stamp or mark indicating the date on which the payment may have been mailed.
The superintendent of insurance, in the superintendent's sole discretion, may waive the twenty-five per cent penalty and interest charge thereon for a first-time, inadvertent nonpayment of the tax when due if the nonpayment is reported immediately upon discovery and the outstanding tax is thereafter immediately paid to the superintendent.
(B) This section does not apply to:
(1) Transactions in this state involving a policy solicited, written, and delivered outside this state covering only subjects of insurance not resident, located, or to be performed in this state at the time of issuance, provided such transactions are subsequent to the issuance of the policy An insured otherwise exempt from the payment of premium or franchise taxes under state or federal law;
(2) Attorneys-at-law acting on behalf of their clients in the adjustment of claims or losses;
(3) Transactions involving policies issued by a captive insurer. For this purpose, a "captive insurer" means any of the following:
(a) An insurer owned by one or more individuals or organizations, whose exclusive purpose is to insure risks of one or more of the parent organizations or individual owners and risks of one or more affiliates of the parent organizations or individual owners;
(b) In the case of groups and associations, insurers owned by the group or association whose exclusive purpose is to insure risks of members of the group or association and affiliates of the members;
(c) Other types of insurers, licensed and operated in accordance with the captive insurance laws of their jurisdictions of domicile and operated in a manner so as to self-insure risks of their owners and insureds.
(4) Professional or medical liability insurance procured by a hospital organized under Chapter 3701. of the Revised Code;
(5) Insurance with an initial policy period of more than three years and that is procured to cover known events related to environmental remediation that occurred prior to the effective date of that insurance;
(6) Insurance procured on behalf of an entity that manufactures, packages, and sells, as more than fifty per cent of the entity's business, pharmaceutical products for human use where the production, packaging, and sale of such products are subject to regulation by an agency of the United States;
(7) A political subdivision or any combination or consortium of two or more political subdivisions.
(C) In transactions that are subject to sections 3905.30 to 3905.35 of the Revised Code, each Each person licensed under section 3905.30 of the Revised Code shall pay to the treasurer of state, on or before the thirty-first day of March of each year, five per cent of the balance of the gross premiums charged for insurance placed or procured under the license after a deduction for return premiums, as reported on a form in the prescribed by the treasurer of state format or in compliance with any requirements of a multi-state agreement or compact entered into by the superintendent pursuant to division (E) of section 3905.33 of the Revised Code. The tax shall be collected from the insured by the surplus line lines broker who placed or procured the policy of insurance at the time the policy is delivered to the insured. No license issued under section 3905.30 of the Revised Code shall be renewed until payment is made. If the tax is not paid when due, the tax shall be increased by a penalty of twenty-five per cent. An interest charge computed as set forth in section 5725.221 of the Revised Code shall be made on the entire sum of the tax plus penalty, which interest shall be computed from the date the tax is due until it is paid. For purposes of this section, payment is considered made when it is received by the treasurer of state, irrespective of any United States postal service marking or other stamp or mark indicating the date on which the payment may have been mailed.
The superintendent, in the superintendent's sole discretion, may waive the twenty-five per cent penalty and interest charge thereon for a first-time, inadvertent nonpayment of the tax when due if the nonpayment is reported immediately upon discovery and the outstanding tax is thereafter immediately paid to the superintendent.
(D) As used in this section:
(1) "Political subdivision" means any county; municipal corporation; township; township police district; township fire district; joint fire district; joint ambulance district; joint emergency medical services district; fire and ambulance district; joint recreation district; township waste disposal district; township road district; community college district; technical college district; detention facility district; a district organized under section 2151.65 of the Revised Code; a combined district organized under sections 2151.65 and 2152.41 of the Revised Code; a joint-county alcohol, drug addiction, and mental health service district; a drainage improvement district created under section 6131.52 of the Revised Code; a union cemetery district; a county school financing district; a city, local, exempted village, cooperative education, or joint vocational school district; or a regional student education district created under section 3313.83 of the Revised Code, any public division, district, commission, authority, department, board, officer, or institution of any one or more of those subdivisions, that is entirely or substantially supported by public tax moneys.
(2) "Municipal corporation" means all municipal corporations, including those that have adopted a charter under Article XVIII, Ohio Constitution.
Sec. 3905.37.  No person, company, association, or corporation shall fail to make the report required in section 3905.36 of the Revised Code and to furnish all the information that is required by the treasurer of state to determine the amount due under that section.
Sec. 3905.38.  (A) Sections 3905.30 to 3905.37 of the Revised Code do not apply in any case where this state is not the home state of the insured.
(B) Sections 3905.36 to 3905.38, inclusive, of the Revised Code do not extend to private citizens, firms, or corporations, residents of this state, who seek to provide indemnity among themselves, from fire loss or other casualty, by exchange of private contracts for protection only and not for profit, nor apply to life or accident and sickness insurance. Sections 3905.30 through 3905.37, inclusive, of the Revised Code do not apply to ocean marine insurance when placed by licensed agents of this state.
Section 2.  That existing sections 3901.17, 3905.30, 3905.31, 3905.33, 3905.34, 3905.36, 3905.37, and 3905.38 of the Revised Code are hereby repealed.
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