58-44-1      Definition of terms.
58-44-2      Application of chapter to licensed insurers--Application of chapter 58-5A.
58-44-3      Application of chapter based on gross written premium on business placed with controlled insurer.
58-44-4      Chapter not applicable under certain circumstances.
58-44-5      Written contract required--Provisions.
58-44-6      Audit committee of controlled insurer--Annual meeting.
58-44-7      Annual report of loss ratios and loss reserves.
58-44-8      Notice from controlling broker to prospective insured--Subbroker.
58-44-9      Consequences of noncompliance with chapter--Civil action by director.
58-44-10      Civil action in behalf of insurer for violation while under order for liquidation or rehabilitation.
58-44-11      Rights of director to impose penalties.
58-44-12      Rights of third parties.
58-44-13      Time limit for compliance.
58-44-14      Disapproval of contract between controlling broker and controlled insurer.
58-44-15      Promulgation of rules.
58-44-16      Exception to application of chapter.

58-44-1. Definition of terms.

Terms used in this chapter mean:

(1)    "Accredited state," any state in which the insurance department or regulatory agency has qualified as meeting the minimum financial regulatory standards promulgated and established by the National Association of Insurance Commissioners (NAIC);

(2)    "Control" or "controlled," as defined in chapter 58-5A;

(3)    "Controlled insurer," any licensed insurer which is controlled, directly or indirectly, by a broker;

(4)    "Controlling broker," any person who, directly or indirectly, controls an insurer and for any compensation, commission, or other thing of value, acts or aids in any manner in soliciting, negotiating, or procuring the making of any insurance contract on behalf of an insured other than the controlling broker;

(5)    "Licensed insurer" or "insurer," any person duly licensed to transact a property and casualty insurance business in this state. The term does not include any residual market pool or any joint underwriting authority or association.

Source: SL 1992, ch 358, § 1; SL 2016, ch 232, § 16.

58-44-2. Application of chapter to licensed insurers--Application of chapter 58-5A.

This chapter applies to licensed insurers, either domiciled in this state or domiciled in a state that is not an accredited state. All provisions of chapter 58-5A, to the extent they are not superseded by this chapter, apply to all parties within holding company systems.

Source: SL 1992, ch 358, § 2.

58-44-3. Application of chapter based on gross written premium on business placed with controlled insurer.

The provisions of this chapter apply if, in any calendar year, the aggregate amount of gross written premium on business placed with a controlled insurer by a controlling broker is equal to or greater than five percent of the admitted assets of the controlled insurer, as reported in the controlled insurers' quarterly statement filed as of September thirtieth of the prior year.

Source: SL 1992, ch 358, § 3.

58-44-4. Chapter not applicable under certain circumstances.

The provisions of this chapter do not apply if:

(1)    The controlling broker:

(a)    Places insurance only with the controlled insurer, or only with the controlled insurer and a member or members of the controlled insurer's holding company system, or the controlled insurer's parent, affiliate or subsidiary and receives no compensation based upon the amount of premiums written in connection with the insurance; and

(b)    Accepts insurance placements only from nonaffiliated brokers, and not directly from insureds; and

(2)    The controlled insurer, except for insurance business written through a residual market facility, accepts insurance business only from a controlling broker, a broker controlled by the controlled insurer, a broker that is a subsidiary of the controlled insurer. Residual market facility includes government insurance programs, risk pools, and assigned risk plans.

Source: SL 1992, ch 358, § 4.

58-44-5. Written contract required--Provisions.

A controlled insurer may not accept business from a controlling broker and a controlling broker may not place business with a controlled insurer unless there is a written contract between the parties specifying the responsibilities of each party, and the contract has been approved by the board of directors of the insurer and the director of insurance and contains the following minimum provisions:

(1)    The controlled insurer may terminate the contract for cause, upon written notice to the controlling broker. The controlled insurer shall suspend the authority of the controlling broker to write business during the pendency of any dispute regarding the cause for the termination;

(2)    The controlling broker shall provide accounts to the controlled insurer detailing all material transactions, including information necessary to support all commissions, charges and other fees received by, or owing to, the controlling broker;

(3)    The controlling broker shall remit all funds due under the terms of the contract to the controlled insurer on at least a monthly basis. The due date shall be fixed so that premiums or installments collected shall be remitted no later than ninety days after the effective date of any policy placed with the controlled insurer under this contract;

(4)    All funds collected for the controlled insurer's account shall be held by the controlling broker in a fiduciary capacity, in one or more appropriately identified bank accounts in banks that are members of the federal reserve system, in accordance with the provisions of the insurance law as applicable. However, funds of a controlling broker not required to be licensed in this state shall be maintained in compliance with the requirements of the controlling broker's domiciliary jurisdiction;

(5)    The controlling broker shall maintain separately identifiable records of business written for the controlled insurer;

(6)    The contract may not be assigned in whole or in part by the controlling broker;

(7)    The controlled insurer shall provide the controlling broker with its underwriting standards, rules and procedures, manuals setting forth the rates to be charged, and the conditions for the acceptance or rejection of risks. The controlling broker shall adhere to the standards, rules, procedures, rates, and conditions. The standards, rules, procedures, rates, and conditions shall be the same as those applicable to comparable business placed with the controlled insurer by a broker other than the controlling broker;

(8)    The rates and terms of the controlling broker's commissions, charges, or other fees and the purposes for those charges or fees. The rates of the commissions, charges, and other fees may be no greater than those applicable to comparable business placed with the controlled insurer by brokers other than controlling brokers. For purposes of this subdivision and subdivision (7) of this section, examples of "comparable business" include the same lines of insurance, same kinds of insurance, same kinds of risks, similar policy limits, and similar quality of business;

(9)    If the contract provides that the controlling broker, on insurance business placed with the insurer, is to be compensated contingent upon the insurer's profits on that business, then the compensation may not be determined and paid until at least five years after the premiums on liability insurance are earned and at least one year after the premiums are earned on any other insurance. In no event may the commissions be paid until the adequacy of the controlled insurer's reserves on remaining claims has been independently verified pursuant to § 58-44-6;

(10)    A limit on the controlling broker's writings in relation to the controlled insurer's surplus and total writings. The insurer may establish a different limit for each line or subline of business. The controlled insurer shall notify the controlling broker when the applicable limit is approached and may not accept business from the controlling broker if the limit is reached. The controlling broker may not place business with the controlled insurer if it has been notified by the controlled insurer that the limit has been reached; and

(11)    The controlling broker may negotiate but may not bind reinsurance on behalf of the controlled insurer on business the controlling broker places with the controlled insurer. However, the controlling broker may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the controlled insurer contains underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules.

Source: SL 1992, ch 358, § 5.

58-44-6. Audit committee of controlled insurer--Annual meeting.

Every controlled insurer shall establish an audit committee of the board of directors composed of independent directors. The audit committee shall annually meet with management, the insurer's independent certified public accountants, and an independent casualty actuary or other independent loss reserve specialist acceptable to the director to review the adequacy of the insurer's loss reserves.

Source: SL 1992, ch 358, § 6.

58-44-7. Annual report of loss ratios and loss reserves.

In addition to any other required loss reserve certification, the controlled insurer shall annually, on April first of each year, file with the director an opinion of an independent casualty actuary or other independent loss reserve specialist acceptable to the director reporting loss ratios for each line of business written and attesting to the adequacy of loss reserves established for losses incurred and outstanding as of year-end, including incurred but not reported, on business placed by the broker.

The controlled insurer shall annually report to the director the amount of commissions paid to the controlling broker, the percentage the amount represents of the net premiums written and comparable amounts and percentage paid to noncontrolling brokers for placements of the same kinds of insurance.

Source: SL 1992, ch 358, § 7.

58-44-8. Notice from controlling broker to prospective insured--Subbroker.

The controlling broker, prior to the effective date of the policy, shall deliver written notice to the prospective insured disclosing the relationship between the controlling broker and the controlled insurer. If the business is placed through a broker who is not a controlling broker, the controlling broker shall retain in his records a signed commitment from the subbroker that the subbroker is aware of the relationship between the insurer and the broker and that the subbroker has or will notify the insured.

Source: SL 1992, ch 358, § 8.

58-44-9. Consequences of noncompliance with chapter--Civil action by director.

If the director believes that the controlling broker or any other person has not complied with this chapter, or any regulation or order, the director may order the controlling broker to cease placing business with the controlled insurer or any other conduct in violation of this chapter, or both pursuant to § 58-4-7. In addition, if it is found that because of noncompliance that the controlled insurer or any policyholder has suffered any loss or damage, the director may maintain a civil action or intervene in an action brought by or on behalf of the insurer or policyholder for recovery of compensatory damages for the benefit of the insurer or policyholder or other appropriate relief.

Source: SL 1992, ch 358, § 9.

58-44-10. Civil action in behalf of insurer for violation while under order for liquidation or rehabilitation.

If an order for liquidation or rehabilitation of the controlled insurer has been entered pursuant to chapter 58-29B, and the receiver appointed under that order believes that the controlling broker or any other person has not complied with this chapter, or any regulation or order, and the insurer suffered any loss or damage therefrom, the receiver may maintain a civil action for recovery of damages or other appropriate sanctions for the benefit of the insurer.

Source: SL 1992, ch 358, § 10.

58-44-11. Rights of director to impose penalties.

Nothing contained in this section affects the right of the director to impose any other penalties provided for in this title.

Source: SL 1992, ch 358, § 11.

58-44-12. Rights of third parties.

Nothing contained in this section alters or affects the rights of policyholders, claimants, creditors, or other third parties.

Source: SL 1992, ch 358, § 12.

58-44-13. Time limit for compliance.

Controlled insurers and controlling brokers who are not in compliance with §§ 58-44-3 to 58-44-7, inclusive, on July 1, 1992, shall have sixty days to come into compliance and shall comply with § 58-44-8 beginning with all policies written or renewed on or after September 30, 1992.

Source: SL 1992, ch 358, § 13.

58-44-14. Disapproval of contract between controlling broker and controlled insurer.

The director may disapprove the contract in § 58-44-5 pursuant to §§ 58-5-85 and 58-5-86 if it would adversely affect the insurer or would violate any law.

Source: SL 1992, ch 358, § 14.

58-44-15. Promulgation of rules.

The director may promulgate rules, pursuant to chapter 1-26, for accreditation; requirements for insurers, agents, or brokers, whether controlled or not; contracts between the parties; bank accounts; standards of disapproval of the contracts between the parties; reporting requirements; limitation of business between the parties; and reinsurance agreements and negotiations.

Source: SL 1992, ch 358, § 15.

58-44-16. Exception to application of chapter.

This chapter applies to all persons doing insurance business notwithstanding any provision in this title which exempts them from other insurance laws except any insurer licensed pursuant to chapter 58-35 which does not have more than one million dollars in direct written premiums and more than one thousand policyholders in any calendar year.

Source: SL 1992, ch 358, § 16.