SECTIONS 769.80-769.87 - California Statutes

INSURANCE CODE

SECTION 769.80-769.87

769.80. This act shall be known and may be cited as the Managing
General Agents Act.

769.81. As used in this article:
(a) "Actuary" means a person who is a member in good standing of
the American Academy of Actuaries, the Casualty Actuarial Society, or
the Society of Actuaries, and is qualified to sign a statement of
actuarial opinion on loss reserves.
(b) "Insurer" means any person, firm, association, or corporation
duly licensed as an insurer and operating under a certificate of
authority in this state.
(c) "Managing General Agent" (MGA) means any person, firm,
association, partnership, or corporation who negotiates and binds
ceding reinsurance contracts on behalf of an insurer or manages all
or part of the insurance business of an insurer (including the
management of a separate division, department or underwriting office)
and acts as an agent for that insurer whether known as an MGA,
manager, or other similar term, who, with or without the authority,
either separately or together with affiliates, produces, directly or
indirectly, and underwrites an amount of gross direct written premium
equal to or more than 5 percent of the policyholder surplus as
reported in the last annual statement of the insurer in any one
quarter or year together with one or more of the following: (1)
adjusts or pays claims in excess of an amount determined by the
commissioner, or (2) negotiates reinsurance on behalf of the insurer.
Notwithstanding the above, the following persons shall not be
considered as MGAs for the purposes of this act:
(1) An employee of the insurer.
(2) A United States manager of the United States branch of an
alien insurer.
(3) An underwriting manager which, pursuant to contract, manages
the insurance operations of the insurer, is under common control with
the insurer, subject to the holding company regulatory act, and
whose compensation is not based on the volume of premiums written.
(4) The attorney-in-fact authorized by and acting for the
subscribers of a reciprocal insurer or interinsurance exchange under
powers of attorney.
(d) "Underwrite" means the authority to accept or reject risk on
behalf of the insurer.

769.82. (a) No producer shall act in the capacity of an MGA with
respect to risks located in this state for an insurer which holds a
certificate of authority unless that producer is licensed as a fire
and casualty broker-agent or as a life agent in this state.
(b) No producer shall act in the capacity of an MGA representing
an insurer domiciled in this state with respect to risks located
outside this state unless that producer is licensed as a fire and
casualty broker-agent or as a life agent in this state.
(c) The commissioner may require a fidelity bond in an amount
acceptable to him or her for the protection of the insurer.
(d) The commissioner may require the MGA to maintain an errors and
omissions policy. If a policy is not generally available at a
reasonable cost, the commissioner may, by rule, suspend the
requirement of this subdivision until that coverage becomes generally
available at a reasonable cost.

769.83. No producer acting in the capacity of an MGA shall place
business with an insurer unless there is in force a written contract
between the parties which sets forth the responsibilities of each
party and where both parties share responsibility for a particular
function, specifies the division of such responsibilities, and which
contains the following minimum provisions:
(a) The insurer may terminate the contract for cause upon written
notice to the MGA. The insurer may suspend the underwriting authority
of the MGA during the pendency of any dispute regarding the cause
for termination.
(b) The MGA shall render accounts to the insurer detailing all
transactions and remit all funds due under the contract to the
insurer on not less than a monthly basis.
(c) All funds collected for the account of an insurer shall be
held by the MGA in a fiduciary capacity in a bank or savings
association the deposits of which are insured by the Bank Insurance
Fund or the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation. This account shall be used for all payments
on behalf of the insurer. The MGA may retain no more than three
months estimated claims payments and allocated loss adjustment
expenses. The requirements of this subdivision shall be in addition
to the requirements of Sections 1734 and 1735.
(d) Separate records of business written by the MGA shall be
maintained. The insurer shall have access to and the right to copy
all accounts and records related to its business in a form usable by
the insurer and the commissioner shall have access to all books, bank
accounts, and records of the MGA in a form usable to the
commissioner. Those records shall be retained by the MGA, and shall
be the joint property of the insurer and MGA.
(e) The contract may not be assigned in whole or part by the MGA.
(f) Appropriate underwriting guidelines including:
(1) The maximum annual premium volume.
(2) The basis of the rates to be charged.
(3) The types of risks which may be written.
(4) Maximum limits of liability.
(5) Applicable exclusions.
(6) Territorial limitations.
(7) Policy cancellation provisions.
(8) The maximum policy period.
The insurer shall have the right to cancel or nonrenew any policy
of insurance, except as limited by any other provision of this code.
(g) If the contract permits the MGA to settle claims on behalf of
the insurer:
(1) All claims shall be reported to the insurer in a timely
manner.
(2) A copy of the claim file shall be sent to the insurer at its
request or as soon as it becomes known that the claim is subject to
any of the following:
(A) Has the potential to exceed an amount determined by the
commissioner or exceeds the limit set by the company, whichever is
less.
(B) Involves a coverage dispute.
(C) May exceed the MGA's claims settlement authority.
(D) Is open for more than six months.
(E) Is closed by payment of an amount set by the commissioner or
an amount set by the insurer, whichever is less.
(3) All claim files shall be the joint property of the insurer and
MGA. However, upon an order of liquidation of the insurer such files
shall become the sole property of the insurer or its estate; the MGA
shall have reasonable access to and the right to copy the files on a
timely basis.
(4) Any settlement authority granted to the MGA may be terminated
for cause upon the insurer's written notice to the MGA or upon the
termination of the contract. The insurer may suspend the settlement
authority during the pendency of any dispute regarding the cause for
termination.
(h) Where electronic claims files are in existence, the contract
shall address the timely transmission of the data.
(i) If the contract provides for a sharing of interim profits by
the MGA, and the MGA has the authority to determine the amount of the
interim profits by establishing loss reserves or controlling claim
payments, or in any other manner, interim profits will not be paid to
the MGA until one year after they are earned for property insurance
business and five years after they are earned on casualty business
and not until the profits have been verified pursuant to Section
769.84.
(j) The MGA shall not do any of the following:
(1) Bind reinsurance or retrocessions on behalf of the insurer,
except that the MGA may bind facultative reinsurance contracts
pursuant to obligatory facultative agreements if the contract with
the insurer contains reinsurance underwriting guidelines including,
for both reinsurance assumed and ceded, a list of reinsurers with
which such automatic agreements are in effect, the coverages and
amounts or percentages that may be reinsured and commission
schedules. This paragraph shall not operate to prohibit transactions
which are subject to Chapter 6.5 (commencing with Section 1781.1) of
Part 2 of Division 1, if the MGA has complied with all of the
requirements of that chapter.
(2) Commit the insurer to participate in insurance or reinsurance
syndicates.
(3) Appoint any agent without assuring that the agent is lawfully
licensed to transact the type of insurance for which he or she is
appointed.
(4) Without prior approval of the insurer, pay or commit the
insurer to pay a claim over a specified amount, net of reinsurance,
which shall not exceed 1 percent of the insurer's policyholder's
surplus as of December 31 of the last completed calendar year.
(5) Collect any payment from a reinsurer or commit the insurer to
any claim settlement with a reinsurer, without prior approval of the
insurer. If prior approval is given, a report shall be promptly
forwarded to the insurer.
(6) Permit any agent appointed pursuant to paragraph (3) to serve
on the insurer's board of directors.
(7) Jointly employ an individual who is employed with the insurer.
(8) Appoint a sub-MGA.

769.84. (a) The insurer shall have on file an independent financial
examination, in a form acceptable to the commissioner, of each MGA
with which it has done business.
(b) If an MGA establishes loss reserves, the insurer shall
annually obtain the opinion of an actuary attesting to the adequacy
of loss reserves established for losses incurred and outstanding on
business produced by the MGA. This is in addition to any other
required loss reserve certification.
(c) The insurer shall periodically (at least semiannually) conduct
an onsite review of the underwriting and claims processing
operations of the MGA.
(d) Binding authority for all reinsurance contracts or
participation in insurance or reinsurance syndicates shall rest with
an officer of the insurer, who shall not be affiliated with the MGA.
(e) Within 30 days of entering into or termination of a contract
with an MGA, the insurer shall provide written notification of such
appointment or termination to the commissioner. Notices of
appointment of an MGA shall include a statement of duties which the
applicant is expected to perform on behalf of the insurer, the lines
of insurance for which the applicant is to be authorized to act, and
any other information the commissioner may request.
(f) An insurer shall review its books and records each quarter to
determine if any producer has become, by operation of Section 769.81,
an MGA as defined in that section. If the insurer determines that a
producer has become an MGA pursuant to the above, the insurer shall
promptly notify the producer and the commissioner of that
determination and the insurer and the producer shall fully comply
with this article within 30 days.
(g) An insurer shall not appoint to its board of directors an
officer, director, employee, any agent appointed pursuant to
paragraph (3) of subdivision (j) of Section 769.83, or controlling
shareholder of its MGAs. This subdivision shall not apply to
relationships governed by Article 4.7 (commencing with Section 1215)
of Chapter 2 of Part 2 of Division 1.

769.85. The acts of the MGA are considered to be the acts of the
insurer on whose behalf it is acting. An MGA may be examined as if it
were the insurer.

769.86. (a) If the commissioner finds after hearing that any person
has violated any provision of this article he or she may order any
of the following:
(1) For each separate violation, a penalty in an amount not to
exceed twenty-five thousand dollars ($25,000).
(2) Revocation or suspension of the producer's license.
(b) Hearings held pursuant to subdivision (a) shall be conducted
in accordance with Chapter 5 (commencing with Section 11500) of Part
1 of Division 3 of Title 2 of the Government Code, except that the
hearings shall be conducted by administrative law judges chosen under
Section 11502 or appointed by the commissioner.
(c) The decision, determination, or order of the commissioner
pursuant to subdivision (a) shall be subject to judicial review.
(d) Nothing contained in this section shall affect the right of
the commissioner to impose any other penalties provided for in this
code, nor limit any other authority required or authorized by this
code to be exercised by the commissioner.
(e) Nothing contained in this article is intended to or shall in
any manner limit or restrict the rights of policyholders, claimants,
and auditors.

769.87. The commissioner may adopt reasonable rules and regulations
for the implementation and administration of this article.