CHAPTER 58-3

EXAMINATION OF INSURERS AND INSURANCE PRODUCERS

58-3-1    Examination of insurers--Scope.

58-3-1.1    Company defined.

58-3-2    Examination of alien insurer--Limited extent.

58-3-3    Applicant for initial certificate of authority to do insurance business in state--Examination by director.

58-3-3.1    Examination assessment fee--Insurance examination fund established for proceeds.

58-3-3.2    Payments from insurance examination fund.

58-3-3.3    Reimbursement to agents involved with insurance examinations--Insurer reimbursements.

58-3-3.4    Application of examination fund to farm mutual insurers and captive insurance companies.

58-3-4    Examination of foreign or alien insurer or rating organization by insurance supervisory official of another state--Examination by director unnecessary--Accreditation of examiner.

58-3-5    Examination of agents, managers, and promoters.

58-3-6    Place where examination conducted.

58-3-7    Information to be available--Cooperation of persons being examined.

58-3-7.1    Observance of guidelines and procedures by examiner.

58-3-7.2    Penalty upon refusal to submit to examination--Suspension, refusal of, or nonrenewal of, license.

58-3-7.3    Examination under oath--Authority of director or examiner.

58-3-7.4    Insurer's claim files subject to examination--File maintenance requirements.

58-3-8    Examination disclosing inadequate records--Correction of accounts.

58-3-9    Valuation of real estate involved in examination--Appraisers, appointment, prompt appraisal, report--Expense of appraisal, liability of person examined.

58-3-10    Examination reports required.

58-3-11    Contents of examination reports.

58-3-12    Examination reports--Copy to company examined--Review by director--Order.

58-3-12.1    Examinations other than financial examinations--Examination report--Optional or mandatory.

58-3-12.2    Market conduct examination--Draft examination report.

58-3-12.3    Draft examination report not governed by §§ 58-3-10 to 58-3-18.

58-3-12.4    Confidentiality of draft examination report.

58-3-13    Filed examination report admissible in evidence.

58-3-14    Withholding of report from public inspection.

58-3-15    Expenses of examination paid by person examined.

58-3-16    58-3-16. Repealed by SL 1977, ch 404, § 3

58-3-17    Order adopting examination report as final decision--Service--Affidavit of receipt.

58-3-18    Confidential investigative hearing--Inconsistencies in examination report.

58-3-19    Conducting hearing--Discovery.

58-3-20    Use of information discovered during examination for legal or regulatory action.

58-3-21    Disclosure of contents of examination report to insurance department or law enforcement agencies--Confidentiality.

58-3-22    Confidentiality of disclosed information--Exceptions--Access by National Association of Insurance Commissioners.

58-3-23    Preclusion of examiner--Grounds.

58-3-24    Liability of director or examiner--Liability for communicating or delivering information--Intent.

58-3-25    Implementation of examination report's recommendations.

58-3-26    Promulgation of rules for examination.

58-3-27    Application of chapter.

58-3-1. Examination of insurers--Scope.

The director of the Division of Insurance shall examine the affairs, transactions, accounts, records, and assets of each company, authorized insurer, management company, an owned or controlled subsidiary of the insurer, and each rating organization, as often as he deems advisable. He shall examine each domestic insurer not less frequently than every five years. During an examination, the director may also examine any person or the business of any person that the director considers is necessary, material or affects the business of the insurer.

Source: SL 1966, ch 111, ch 2, § 16 (1); SL 1992, ch 338, § 2.

58-3-1.1. Company defined.

As used in this chapter, the term, company, means any person engaging in or proposing or attempting to engage in any insurance business and any person or group of persons who may otherwise be subject to the administrative, regulatory, or taxing authority of the director.

Source: SL 1992, ch 338, § 1.

58-3-2. Examination of alien insurer--Limited extent.

Examination of an alien insurer may be limited to its insurance transactions and affairs in the United States. Examination of a reciprocal insurer may also include examination of its attorney in fact in so far as the transactions of the attorney in fact relate to the insurer.

Source: SL 1966, ch 111, ch 2, § 16 (1).

58-3-3. Applicant for initial certificate of authority to do insurance business in state--Examination by director.

The director shall examine each insurer or rating organization receiving an initial certificate of authority to do business in this state within one year from the date of the licensure except those qualifying under §§ 58-3-4 and 58-6-13.

Source: SL 1966, ch 111, ch 2, § 16 (2); SL 1992, ch 338, § 3.

58-3-3.1. Examination assessment fee--Insurance examination fund established for proceeds.

Any insurer subject to chapter 58-3 shall pay to the Division of Insurance an annual examination assessment fee of three hundred dollars by March first of each year. There is established within the state treasury the insurance examination fund, into which shall be deposited the proceeds from the examination assessment fees. If the director determines that additional fees are needed to meet the anticipated needs of the examination fund, the director may increase the annual examination assessment fee or levy additional examination assessment fees of up to one hundred fifty dollars per insurer whenever the insurance examination fund falls below fifty thousand dollars. However, the director may not increase the annual examination fee to an amount exceeding one thousand dollars.

Source: SL 1997, ch 283, § 1; SL 2011, ch 213, § 1.

58-3-3.2. Payments from insurance examination fund.

All money in the insurance examination fund is continuously appropriated for the purposes specified in this chapter. All costs of examinations, including travel expenses, living expense allowances, and per diem as compensation of examiners shall be paid from the fund. The fund shall also pay the costs of consultants, attorneys, actuaries, accountants, and other experts as shall be determined at the director's discretion to be reasonably necessary to assist in the conduct of the examination or analyses of the financial affairs of insurance companies. Any person so retained shall be under the direction and control of the director and shall act in a purely advisory capacity.

Source: SL 1997, ch 283, § 2.

58-3-3.3. Reimbursement to agents involved with insurance examinations--Insurer reimbursements.

The director may require persons who are not employees of the division who have been retained by the director to conduct or participate in examinations to bill and receive payments directly from the insurance company being examined. An insurer paying the costs of its examination pursuant to § 58-3-15 may receive reimbursements from the insurance examination fund upon completion of the examination.

Source: SL 1997, ch 283, § 3.

58-3-3.4. Application of examination fund to farm mutual insurers and captive insurance companies.

The provisions of §§ 58-3-3.1 to 58-3-3.3, inclusive, 58-3-7.4, and 58-3-11 do not apply to farm mutual insurers subject to chapter 58-35 and captive insurance companies subject to chapter 58-46 unless the farm mutual or captive insurance company wrote premiums in excess of one million dollars in the prior calendar year.

Source: SL 1997, ch 283, § 6; SL 2004, ch 297, § 1; SL 2013, ch 257, § 29.

58-3-4. Examination of foreign or alien insurer or rating organization by insurance supervisory official of another state--Examination by director unnecessary--Accreditation of examiner.

In lieu of making his own examination, the director may, in his discretion, accept a full report of the last recent examination of a foreign or alien insurer, or rating organization, certified to by the insurance supervisory official of another state, territory, commonwealth, or district of the United States.

Beginning January 1, 1994, these examinations may only be accepted if the state insurance agency was at the time of the examination accredited under the National Association of Insurance Commissioners' Financial Regulation Standards and Accreditation Program or the examination is performed under the supervision of an accredited state insurance agency or with the participation of one or more examiners who are employed by an accredited state insurance agency and who, after a review of the examination work papers and report, state under oath that the examination was performed in a manner consistent with the standards and procedures required by their own state insurance agency.

Source: SL 1966, ch 111, ch 2, § 16 (3); SL 1992, ch 338, § 4.

58-3-5. Examination of agents, managers, and promoters.

For the purpose of ascertaining compliance with this title, the director may as often as the director deems advisable examine the accounts, records, documents, and transactions, pertaining to or affecting its insurance affairs or proposed insurance affairs, of:

(1)    Any insurance producer, surplus line broker, or general agent;

(2)    Any person having a contract under which the person enjoys in fact the exclusive or dominant right to manage or control an insurer;

(3)    Any person holding the shares of voting stock or policyholder proxies of a domestic insurer, for the purpose of controlling the management thereof, as voting trustee or otherwise;

(4)    Any person engaged in or proposing to be engaged in or assisting in the promotion or formation of a domestic insurer or insurance holding corporation, or corporation to finance a domestic insurer or the production of its business.

Source: SL 1966, ch 111, ch 2, § 17; SL 2001, ch 286, § 61.

58-3-6. Place where examination conducted.

The director shall conduct any such examination at the home office, if a domestic or foreign insurer, or United States branch office, if an alien insurer, of the insurer, or in any of its branch or agency offices; or with respect to persons other than insurers, at the office or other place of business of such person or at any place where his records are kept.

Source: SL 1966, ch 111, ch 2, § 18 (1).

58-3-7. Information to be available--Cooperation of persons being examined.

Every person being examined, its officers, employees, insurance producers, and representatives shall produce and make freely available to the director or the director's examiners the accounts, records, documents, files, assets, and other relevant information in their possession or control relating to the subject of the examination, and shall otherwise facilitate and aid the examination as far as reasonably possible.

Source: SL 1966, ch 111, ch 2, § 18 (2); SL 2001, ch 286, § 62; SL 2012, ch 241, § 1.

58-3-7.1. Observance of guidelines and procedures by examiner.

The examiner shall observe those guidelines and procedures set forth in the Examiners Handbook adopted by the National Association of Insurance Commissioners as adopted by rule by the director pursuant to chapter 1-26. The director may also establish additional guidelines or procedures the director considers appropriate.

Source: SL 1992, ch 338, § 5; SL 1993, ch 357, § 1; SL 1995, ch 273, § 2.

58-3-7.2. Penalty upon refusal to submit to examination--Suspension, refusal of, or nonrenewal of, license.

The refusal of any company, by its officers, directors, employees, or insurance producers, to submit to examination or to comply with any reasonable written request of the examiners constitutes grounds for suspension or refusal of, or nonrenewal of any license or authority held by the insurer or person to engage in an insurance or other business subject to the director's jurisdiction.

Source: SL 1992, ch 338, § 6; SL 2001, ch 286, § 63.

58-3-7.3. Examination under oath--Authority of director or examiner.

The director or any examiner authorized by the director may issue subpoenas, administer oaths, and examine under oath any person as to any matter pertinent to the examination. Subpoenas may be enforced pursuant to chapters 1-26, 15-6, and 21-34.

Source: SL 1992, ch 338, § 7.

58-3-7.4. Insurer's claim files subject to examination--File maintenance requirements.

Each insurer's claim files for policies or certificates are subject to examination pursuant to chapter 58-3 by the director of insurance. To aid in the examination:

(1)    The insurer shall maintain claim data that is accessible and retrievable for examination. An insurer shall be able to provide the claim number, line of coverage, date of loss, and date of payment of the claim, date of denial, or date closed without payment. This claim data shall be available for all open and closed files for five years;

(2)    Detailed documentation shall be contained in each claim file in order to permit reconstruction of the insurer's activities relative to each claim;

(3)    Each relevant document within the claim file shall be noted as to date received, date processed, or date mailed. Dated correspondence is sufficient to document the date mailed for the purposes of this subdivision;

(4)    For those insurers that do not maintain hard copy files, claim files shall be accessible from a computer, microfilm, Cathode Ray Tube (CRT), micrographics, or other similar electronic means and be capable of duplication to hard copy; and

(5)    Claim information obtained in a telephone conversation or personal interview with any source which is used in the claim determination shall be documented in the claim file.

Source: SL 1997, ch 283, § 5; SL 2009, ch 257, § 1.

58-3-8. Examination disclosing inadequate records--Correction of accounts.

If the director finds accounts to be inadequate, or inadequately kept or posted, he may employ experts to rewrite, post, or balance them at the expense of the person being examined if such person has failed to complete or correct such accounting after the director has given him notice and a reasonable opportunity to do so.

Source: SL 1966, ch 111, ch 2, § 18 (3).

58-3-9. Valuation of real estate involved in examination--Appraisers, appointment, prompt appraisal, report--Expense of appraisal, liability of person examined.

If the director deems it necessary to value any real estate involved in any such examination, he may make written request of the person being examined to appoint one or more competent appraisers approved by the director, for the purpose of appraising such property. If no such appointment is made within ten days after such request is delivered to such person, the Department of Labor and Regulation may appoint the appraiser or appraisers. Any such appraisal shall be made promptly, and a copy of the report thereof shall be furnished to the director. The reasonable expense of the appraisal shall be borne by the person being examined.

Source: SL 1966, ch 111, ch 2, § 18 (4); SL 2003, ch 272 (Ex. Ord. 03-1), § 20; SL 2011, ch 1 (Ex. Ord. 11-1), § 162, eff. Apr. 12, 2011.

58-3-10. Examination reports required.

The director or his examiner shall make a full and true report of each examination.

Source: SL 1966, ch 111, ch 2, § 20 (1).

58-3-11. Contents of examination reports.

The report shall be comprised only of facts appearing from the books, papers, records, or documents of the person being examined, or ascertained from the statements of individuals concerning its affairs and the examiner's conclusions and recommendations based on procedures and guidelines adopted by the National Association of Insurance Commissioners or state statutes or rules. The director shall adopt the procedures and guidelines and their effective date by rule promulgated pursuant to chapter 1-26.

Source: SL 1966, ch 111, ch 2, § 20 (2); SL 1992, ch 338, § 8; SL 1993, ch 357, § 2; SL 1994, ch 375, § 4; SL 1997, ch 283, § 4.

58-3-12. Examination reports--Copy to company examined--Review by director--Order.

No later than sixty days following completion of the examination, the examiner in charge shall file with the division a written report of examination under oath. Upon receipt of the report, the division shall transmit the report to the company examined. The company may make a written submission or rebuttal with respect to any matters contained in the examination report within thirty days of transmittal of the report.

Within thirty days of receipt of written submissions or rebuttals, if any, the director shall fully consider and review the report, together with any written submissions or rebuttals and any relevant portions of the examiner's work papers, and enter an order:

(1)    Adopting the examination report as filed or with modification or corrections. If the examination report reveals that the company is operating in violation of any law, regulation or prior order of the director, the director may order the company to take any action the director considers necessary and appropriate to cure the violation;

(2)    Rejecting the examination report with directions to the examiners to reopen the examination for purposes of obtaining additional data, documentation, or information, and refiling pursuant to the procedures in subdivision (1) for the initial report; or

(3)    Calling for an investigatory hearing with no less than twenty days' notice to the company for purposes of obtaining additional documentation, data, information, and testimony.

Source: SL 1966, ch 111, ch 2, § 20 (3); SL 1992, ch 338, § 9; SL 2023, ch 163, § 1.

58-3-12.1. Examinations other than financial examinations--Examination report--Optional or mandatory.

Notwithstanding §§ 58-3-10 and 58-3-12, for examinations, other than financial examinations, subject to the provisions of this chapter, the director or the examiner may issue an examination report. If an examination report is issued pursuant to this section, the applicable provisions of this chapter apply. If the person being examined makes a written request for an examination report within thirty days of receipt of written notice by the director of the completion of the examination, the director or examiner shall issue the examination report within sixty days of the date of the receipt of the request or the completion of the examination, whichever is later.

Source: SL 2005, ch 262, § 1.

58-3-12.2. Market conduct examination--Draft examination report.

Prior to the completion of a market conduct examination, the director may request that the examiner in charge provide a draft examination report that is not to be filed under oath. The draft examination report does not constitute the conclusion of the examination and does not trigger the provisions of § 58-3-12 until filed with the division under oath. Once the division has received the draft examination report, the director may share the draft examination report with the company examined to facilitate the resolution of the examination. The examiner in charge shall submit the examination report under oath and trigger the provisions of § 58-3-12 within one hundred eighty days of the director sharing the draft examination report pursuant to this section, unless the secretary provides a longer timeframe to allow additional consideration of the draft examination report by the company being examined. Nothing in this section applies to financial examinations.

Source: SL 2014, ch 232, § 1.

58-3-12.3. Draft examination report not governed by §§ 58-3-10 to 58-3-18.

The provisions of §§ 58-3-10 to 58-3-18, inclusive, do not apply to the draft examination report.

Source: SL 2014, ch 232, § 2.

58-3-12.4. Confidentiality of draft examination report.

Each draft examination report described in § 58-3-12.2 is confidential. No draft examination report may be released except pursuant to a court order.

Source: SL 2014, ch 232, § 3.

58-3-13. Filed examination report admissible in evidence.

The report when so filed shall be admissible in evidence, in any action or proceeding brought by the director against the person examined, or against its officers, representatives, or insurance producers, of the facts stated therein. The director and the director's examiners may at any time testify and offer other proper evidence as to information secured during the course of an examination, whether or not a written report of the examination has at that time been either made, served, or filed in the director's office.

Source: SL 1966, ch 111, ch 2, § 20 (4); SL 2001, ch 286, § 64.

58-3-14. Withholding of report from public inspection.

Upon the adoption of the examination report under subdivision 58-3-12(1), the director shall continue to hold the content of the examination report as confidential information for a period of thirty days except to the extent provided in §§ 58-3-20, 58-3-21, and 58-3-22. Thereafter, the director may open the report for public inspection so long as no court of competent jurisdiction has stayed its publication.

Source: SL 1966, ch 111, ch 2, § 20 (5); SL 1992, ch 338, § 21.

58-3-15. Expenses of examination paid by person examined.

Each person so examined, other than as to examinations pursuant to § 58-3-5, shall pay the travel expenses, a reasonable living expense allowance, and a per diem as compensation of examiners, as necessarily incurred on account of the examination, all at reasonable rates customary therefor and as established or adopted by the director, upon presentation of a detailed account of charges and expenses. The account may be so presented periodically during the course of the examination or at the termination of the examination.

The division may retain at the insurer's expense, consultants, attorneys, actuaries, accountants, and other experts not otherwise a part of the director's staff as shall be reasonably necessary to assist in the conduct of the examination. Any person so retained shall be under the direction and control of the director and shall act in a purely advisory capacity. Each insurer producing records, books, and papers for examination pursuant to this chapter is liable for and shall pay the expense of the examination.

Source: SL 1966, ch 111, ch 2, § 19; SL 1977, ch 404, § 2; SL 1995, ch 273, § 1.