2022 -- S 2746

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LC005311

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2022

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A N   A C T

RELATING TO INSURANCE -- SURPLUS LINES INSURANCE

     Introduced By: Senator Roger Picard

     Date Introduced: March 24, 2022

     Referred To: Senate Commerce

     (Dept. of Business Regulation)

It is enacted by the General Assembly as follows:

     SECTION 1. Section 27-3-38 of the General Laws in Chapter 27-3 entitled "Surplus Lines

Insurance" is hereby amended to read as follows:

     27-3-38. Surplus line brokers -- License -- Affidavit of inability to obtain insurance --

Reports and records -- Premium tax -- Notice to purchasers.

     (a) The insurance commissioner may issue a surplus line broker's license to any person

authorizing the licensee to procure, subject to the restrictions provided in this section, policies of

insurance, except life and health and accident, except as allowed under § 27-3-38.3, from eligible

surplus lines insurers. Residents of this state must hold a property and casualty insurance producer

license to qualify for a surplus lines broker license. This license may be denied, suspended, or

revoked by the insurance commissioner whenever, in the commissioner's judgment, any of the

bases under § 27-2.4-14 exist. Before any license is issued by the insurance commissioner and

before each renewal of a license, there shall be filed in his or her office a written application by the

person desiring the license in the form, and containing any information, that the insurance

commissioner may prescribe. For the purposes of carrying out the provisions of the Nonadmitted

and Reinsurance Reform Act of 2010, the commissioner is authorized to utilize the national

insurance producer database of the National Association of Insurance Commissioners (NAIC), or

any other equivalent uniform national database, for the licensure of a person as a surplus lines

producer and for renewal of such license. For insureds whose home state is this state, a person shall

not procure a contract of surplus lines insurance with a nonadmitted insurer unless the person

possesses a current surplus lines insurance license issued by the commissioner.

     (b) A Rhode Island resident business entity acting as a surplus line broker may elect to

obtain a surplus line broker license. Application shall be made using the uniform business entity

application. Prior to approving the application, the commissioner shall find both of the following:

     (1) The business entity has paid the appropriate fees.

     (2) The business entity has designated a licensed surplus line broker responsible for the

business entity's compliance with the insurance laws and rules of this state.

     (c) When any policy of insurance is procured under the authority of that license, there shall

be executed, both by the licensee and by the insured, affidavits setting forth facts showing that the

insured, or a licensed Rhode Island producer, were unable, after diligent effort, to procure from no

less than three (3) admitted insurers the full amount of insurance required to protect the property

owned or controlled by the insured or the risks insured. Provided, however, the aforementioned

affidavit shall not be required when insuring the following interest: amusement parks and devices,

environmental improvement and/or remediation sites, vacant property or property under

renovation, demolition operations, event cancellation due to weather, railroad liability,

discontinued products, fireworks and pyrotechnics, warehouseman's legal liability, excess property

coverage, private flood, and contingent liability. In addition, no such affidavit is required for

exempt commercial purchasers as defined by the Nonadmitted and Reinsurance Reform Act of

2010. For purposes of this section, residual market mechanisms shall not be considered authorized

insurers. Prior to renewing, continuing, or extending any policy, the licensed surplus line broker

must confirm that the insurer is on the insurance commissioner's list of approval surplus line

insurers in this state.

     (d) The licensee shall keep a complete and separate record of all policies procured from

approved surplus lines insurers under the license and these records shall be open to the examination

of both the insurance commissioner and tax administrator at all reasonable times and shall show

the exact amount of each kind of insurance permitted under this section which has been procured

for each insured; the gross premiums charged by the insurers for each kind of insurance permitted

under this section which were returned to each insured; the name of the insurer or insurers which

issued each of these policies; the effective dates of these policies; and the terms for which these

policies were issued. The licensee shall file a yearly report with the insurance commissioner on a

form prescribed by the insurance commissioner showing the business procured under the surplus

line license for the preceding calendar year, and the report shall be due annually on or before April

1.

     (e) Every person, firm, or corporation licensed pursuant to the provisions of this section

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shall file with the insurance commissioner, at the time of the insurance producer license renewal,

sufficient information, as determined by the insurance commissioner, whether a licensee or a person

acting on the licensee's behalf, has paid to the tax administrator, for all policies procured by the

licensee pursuant to the license during the next preceding calendar year, a tax, computed at the rate

of four percent (4%) on the gross premiums charged the insured by the insurers, less the amount of

premiums returned to the insured.

     (f) Every application form for insurance from a surplus lines insurer, every affidavit form

executed by the insured, and every policy (on its front and declaration pages) issued by the surplus

lines insurer, shall contain in ten-point (10) type the following notice:

     NOTICE

     THIS INSURANCE CONTRACT HAS BEEN PLACED WITH AN INSURER NOT

LICENSED TO DO BUSINESS IN THE STATE OF RHODE ISLAND BUT APPROVED AS A

SURPLUS LINES INSURER. THE INSURER IS NOT A MEMBER OF THE RHODE ISLAND

INSURERS INSOLVENCY FUND. SHOULD THE INSURER BECOME INSOLVENT, THE

PROTECTION AND BENEFITS OF THE RHODE ISLAND INSURERS INSOLVENCY FUND

ARE NOT AVAILABLE.

     SECTION 2. Section 27-4.4-4 of the General Laws in Chapter 27-4.4 entitled "The

Standard Nonforfeiture Law for Individual Deferred Annuities" is hereby amended to read as

follows:

     27-4.4-4. Minimum values.

     (a) The minimum values as specified in §§ 27-4.4-5 -- 27-4.4-8 and 27-4.4-10 of any paid-

up annuity, cash surrender, or death benefits available under an annuity contract shall be based

upon minimum nonforfeiture amounts as defined in this section.

     (b) The minimum nonforfeiture amount at any time at or prior to the commencement of

any annuity payments shall be equal to an accumulation up to that time at rates of interest as

provided in subsection (d) of this section, the net considerations as defined in this section paid prior

to that time, decreased by the sum of:

     (1) Any prior withdrawals from or partial surrenders of the contract accumulated at rates

of interest as provided in subsection (d) of this section; and

     (2) The amount of any indebtedness to the company on the contract, including interest due

and accrued;

     (3) An annual contract charge of fifty dollars ($50.00), accumulated at rates of interest as

provided in subsection (d) of this section; and

     (4) Any premium tax paid by the company for the contract, accumulated at rates of interest

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as provided in subsection (d) of this section.

     (c) The net considerations for a given contract year used to define the minimum

nonforfeiture amount shall be an amount equal to eighty-seven and one-half percent (87.5%) of the

gross considerations credited to the contract during that contract year.

     (d) The interest rate used in determining minimum nonforfeiture amounts shall be an

annual rate of interest determined as the lesser of three percent (3%) per annum and the following,

which shall be specified in the contract if the interest rate will be reset:

     (1) The five (5) year Constant Maturity Treasury Rate reported by the Federal Reserve as

of a date, or average over a period, rounded to the nearest one twentieth of one percent (1/20%),

specified in the contract no longer than fifteen (15) months prior to the contract issue date or

redetermination date under subdivision (4) of this subsection;

     (2) Reduced by one hundred twenty-five (125) basis points;

     (3) Where the resulting interest rate is not less than one percent (1%) fifteen (15) basis

points (0.15%); and

     (4) The interest rate shall apply for an initial period and may be redetermined for additional

periods. The redetermination date, basis and period, if any, shall be stated in the contract. The basis

is the date or average over a specified period that produces the value of the five (5) year Constant

Maturity Treasury Rate to be used at each redetermination date.

     (e) During the period or term that a contract provides substantive participation in an equity

indexed benefit, it may increase the reduction described in subsection (d)(2) of this section above

by up to an additional one hundred (100) basis points to reflect the value of the equity index benefit.

The present value at the contract issue date, and at each redetermination date thereafter, of the

additional reduction shall not exceed the market value of the benefit. The commissioner of

insurance may require a demonstration that the present value of the reduction does not exceed the

market value of the benefit. Lacking such a demonstration that is acceptable to the commissioner,

the commissioner may disallow or limit the additional reduction.

     (f) The commissioner of insurance may adopt rules to implement the provisions of

subsection (e) of this section and to provide for further adjustments to the calculation of minimum

nonforfeiture amounts for contracts that provide substantive participation in an equity index benefit

and for other contracts that the commissioner determines adjustments are justified.

     SECTION 3. Section 27-7.1-11.1 of the General Laws in Chapter 27-7.1 entitled "Workers'

Compensation Insurance" is hereby amended to read as follows:

     27-7.1-11.1. Challenge and review of application of rating system.

     (a) An advisory organization and every insurer subject to this chapter which makes its own

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rate shall provide within this state reasonable means where any person aggrieved by the application

of its rating system may upon that person's written request be heard in person or by the person's

authorized representative representative's written request to review the manner in which the rating

system has been applied in connection with the insurance afforded the aggrieved person.

     (b) Any party affected by the action of an advisory organization or the insurer may, within

thirty (30) days after written notice of that action, make application, in writing, for an appeal to the

director, setting forth the basis for the appeal and the grounds to be relied upon by the applicant. If

the advisory organization or insurer fails to grant or reject the request within thirty (30) days after

it is made, the applicant may proceed in the same manner as if the application has been rejected.

     (c) The director shall review the application and, if the director finds that the application is

made in good faith and that it sets forth on its face grounds which reasonably justify holding a

hearing, the director shall conduct a hearing held not less than ten (10) days after written notice to

the applicant and to an advisory organization or insurer. The director, after a hearing, shall affirm

or reverse the action of an advisory organization or insurer.

     (d) If, after a hearing held under this section, it is determined that the rates charged by an

insurer are in excess of the appropriate rate, the overcharge shall be refunded to the insured.

     SECTION 4. Section 27-29-4 of the General Laws in Chapter 27-29 entitled "Unfair

Competition and Practices" is hereby amended to read as follows:

     27-29-4. Unfair methods of competition and unfair or deceptive acts or practices

defined.

     The following are defined as unfair methods of competition and unfair and deceptive acts

or practices in the business of insurance:

     (1) Misrepresentations and false advertising of policies or contracts. Making, issuing,

circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, or

statement, sales presentation, omission, or comparison misrepresenting the terms of any policy

issued or to be issued or the benefits, conditions, or advantages promised by any policy or the

dividends or share of the surplus to be received on any policy, or making any false or misleading

statement as to the dividends or share of surplus previously paid on any policy, or making any

misleading representation or any misrepresentation as to the financial condition of any insurer, or

as to the legal reserve system upon which any life insurer operates, or using any name or title of

any policy or class of policies misrepresenting the true nature of that policy or class of policies, or

making any misrepresentation to any policyholder insured in any company including any

intentional misquote of a premium rate, for the purpose of inducing or tending to induce the

policyholder to lapse, forfeit, or surrender his or her insurance, or misrepresenting for the purpose

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of effecting a pledge or assignment of or effecting a loan against any policy, or misrepresenting

any policy as being share or stock;

     (2) False information and advertising generally. Making, publishing, disseminating,

circulating, or placing before the public or causing, directly or indirectly, to be made, published,

disseminated, circulated, or placed before the public in a newspaper, magazine, or other

publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio or

television station, or in any other way, an advertisement, announcement, or statement containing

any assertion, representation, or statement with respect to the business of insurance or with respect

to any person in the conduct of his or her insurance business that is untrue, deceptive, or misleading;

     (3) Defamation. Making, publishing, disseminating, or circulating, directly or indirectly,

or aiding, abetting, or encouraging the making, publishing, disseminating, or circulating of any oral

or written statement or any pamphlet, circular, article of literature that is false or maliciously critical

of or derogatory to the financial condition of an insurer, and that is calculated to injure any person

engaged in the business of insurance;

     (4) Boycott, coercion, and intimidation. Entering into any agreement to commit, or by any

concerted action committing, any act of boycott, coercion, or intimidation resulting in or tending

to result in unreasonable restraint of, or monopoly in, the business of insurance;

     (5)(i) False financial statements. Knowingly filing with any supervisory or other public

official, or knowingly making, publishing, disseminating, circulating, or delivering to any person,

or placing before the public or causing directly or indirectly, to be made, published, disseminated,

circulated, delivered to any person, or placed before the public any false material statement of

financial condition of an insurer; or

     (ii) Knowingly making any false entry of a material fact in any book, report, or statement

of any insurer or knowingly omitting to make a true entry of any material fact pertaining to the

business of the insurer in any book, report, or statement of the insurer;

     (6) Stock operations and advisory board contracts. Issuing or delivering or permitting

agents, officers, or employees to issue or deliver agency company stock or other capital stock, or

benefit certificates or shares in any common law corporation, or securities of any special or

advisory board contracts or other contracts of any kind promising returns and profits as an

inducement to insurance;

     (7)(i) Unfair discrimination. Making or permitting any unfair discrimination between

individuals of the same class and equal expectation of life in the rates charged for any policy of life

insurance or of life annuity or in the dividends or other benefits payable on any such policy or life

annuity, or in any other of the terms and conditions of the policy;

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     (ii) Making or permitting any unfair discrimination between individuals of the same class

and of essentially the same hazard in the amount of premium, policy fees, or rates charged for any

policy or contract of accident or health insurance or in the benefits payable under any policy or

contract, or in any of the terms or conditions of that policy, or in any other manner;

     (iii) Making or permitting any unfair discrimination between individuals or risks of the

same class and of essentially the same hazards by refusing to issue, refusing to renew, canceling,

or limiting the amount of insurance coverage on a property or casualty risk because of the

geographic location of the risk, unless:

     (A) The refusal, cancellation, or limitation is for a business purpose that is not a pretext for

unfair discrimination; or

     (B) The refusal, cancellation, or limitation is required by law or regulation;

     (iv) Making or permitting any unfair discrimination between individuals or risks of the

same class and of essentially the same hazards by refusing to issue, refusing to renew, canceling,

or limiting the amount of insurance coverage on a residential property risk, or the personal property

contained in the residential property risk, because of the age of the residential property, unless:

     (A) The refusal, cancellation, or limitation is for a business purpose that is not a pretext for

unfair discrimination; or

     (B) The refusal, cancellation, or limitation is required by law or regulation;

     (v) Refusing to insure, refusing to continue to insure, or limiting the amount of coverage

available to an individual because of the sex or marital status of the individual; nothing in this

subsection shall prohibit an insurer from taking marital status into account for the purpose of

defining persons eligible for dependent benefits;

     (vi) To terminate, or to modify coverage, or to refuse to issue or refuse to renew any

property or casualty policy solely because the applicant or insured or any employee of either is

mentally or physically impaired; provided, that this subsection shall not apply to accident and health

insurance sold by a casualty insurer and, provided that this subsection shall not be interpreted to

modify any other provision of law relating to the termination, modification, issuance or renewal of

any insurance policy or contract; or

     (vii) Making or permitting any unfair discrimination by treating persons in a domestic

partnership as defined in § 27-29-2, differently than persons in a marriage for the purposes of

premiums, policy fees, or rates charged for policies of casualty, fire, homeowners, accident and

sickness, marine, or automobile insurance;

     (8)(i) Rebates. Except as otherwise expressly provided by law, knowingly permitting or

offering to make or making any policy or agreement as to the policy other than as plainly expressed

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in the policy issued on it, or paying or allowing or giving or offering to pay, allow, or give, directly

or indirectly, as inducement to the policy, any rebate of premiums payable on the policy, or any

special favor or advantage in the dividends or other benefits on the policy, or any valuable

consideration or inducement not specified in the policy, or giving, selling, or purchasing or offering

to give, sell, or purchase as inducement to the policy, or in connection with the policy, any stocks,

bonds, or other securities of any insurance company or other corporation, association, or

partnership, or any dividends or profits accrued on the security, or anything of value not specified

in the policy;

     (ii) Nothing in subdivision (7) of this section or paragraph (i) of this subdivision shall be

construed as including within the definition of discrimination or rebates any of the following

practices:

     (A) In the case of any contract of life insurance policies or life annuity, annuities paying

bonuses to policyholders or abating their premiums in whole or in part out of surplus accumulated

from nonparticipating insurance; provided, that any bonuses or abatement of premiums shall be fair

and equitable to policyholders and for the best interests of the company and its policyholders;

     (B) In the case of life insurance policies issued on the industrial debit plan, making

allowance to policyholders who have continuously for a specified period made premium payments

directly to an office of the insurer in an amount that fairly represents the saving in collection

expenses; and

     (C) Readjustment of the rate of premium for a group insurance policy based on the loss or

expense experience under it, at the end of the first or any subsequent policy year of insurance under

the policy, which may be made retroactive only for the policy year;

     (D) Engaging in an arrangement that would not violate § 106 of the Bank Holding

Company Act Amendments of 1972 (12 U.S.C. 1972), as interpreted by the Board of Governors of

the Federal Reserve System, or § 5(q) of the Home Owners' Loan Act, 12 U.S.C. 1464(q);

     (E) The offer or provision by insurers or producers, by or through employees, affiliates or

third-party representatives, of value-added products or services at no or reduced cost when such

products or services are not specified in the policy of insurance if the product or service:

     (I) Relates to the insurance coverage; and

     (II) Is primarily designed to satisfy one or more of the following:

     (aa) Provide loss mitigation or loss control;

     (bb) Reduce claim costs or claim settlement costs;

     (cc) Provide education about liability risks or risk of loss to persons or property;

     (dd) Monitor or assess risk, identify sources of risk, or develop strategies for eliminating

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or reducing risk;

     (ee) Enhance health;

     (ff) Enhance financial wellness through items such as education or financial planning

services;

     (gg) Provide post-loss services;

     (hh) Incent behavioral changes to improve the health or reduce the risk of death or disability

of a customer (defined for purposes of this subsection as policyholder, potential policyholder,

certificate holder, potential certificate holder, insured, potential insured or applicant); or

     (ii) Assist in the administration of the employee or retiree benefit insurance coverage.

     (III) The cost to the insurer or producer offering the product or service to any given

customer must be reasonable in comparison to that customer's premiums or insurance coverage for

the policy class.

     (IV) If the insurer or producer is providing the product or service offered, the insurer or

producer must ensure that the customer is provided with contact information to assist the customer

with questions regarding the product or service.

     (V) The commissioner may adopt regulations when implementing the permitted practices

set forth in this statute to ensure consumer protection. Such regulations, consistent with applicable

law, may address, among other issues, consumer data protections and privacy, consumer disclosure

and unfair discrimination.

     (VI) The availability of the value-added product or service must be based on documented

objective criteria and offered in a manner that is not unfairly discriminatory. The documented

criteria must be maintained by the insurer or producer and produced upon request by the

department.

     (VII) If an insurer or producer does not have sufficient evidence, but has a good-faith belief

that the product or service meets the criteria in subsection 8(ii)(E)(II) of this section, the insurer or

producer may provide the product or service in a manner that is not unfairly discriminatory as part

of a pilot or testing program for no more than one year. An insurer or producer must notify the

department of such a pilot or testing program offered to consumers in this state prior to launching

and may proceed with the program unless the department objects within twenty-one days of notice.

     (F)(I) Offering or giving non-cash gifts, items, or services, including meals to or charitable

donations on behalf of a customer, in connection with the marketing, sale, purchase, or retention of

contracts of insurance, as long as the cost does not exceed an amount determined to be reasonable

by the commissioner per policy year per term. The offer must be made in a manner that is not

unfairly discriminatory. The customer may not be required to purchase, continue to purchase or

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renew a policy in exchange for the gift, item or service.

     (II) Offering or giving non-cash gifts, items, or services including meals to or charitable

donations on behalf of a customer, to commercial or institutional customers in connection with the

marketing, sale, purchase, or retention of contracts of insurance, as long as the cost is reasonable

in comparison to the premium or proposed premium and the cost of the gift or service is not

included in any amounts charged to another person or entity. The offer must be made in a manner

that is not unfairly discriminatory. The customer may not be required to purchase, continue to

purchase or renew a policy in exchange for the gift, item or service.

     (III) Conducting raffles or drawings to the extent permitted by state law, as long as there is

no financial cost to entrants to participate, the drawing or raffle does not obligate participants to

purchase insurance, the prizes are not valued in excess of a reasonable amount determined by the

commissioner and the drawing or raffle is open to the public. The raffle or drawing must be offered

in a manner that is not unfairly discriminatory. The customer may not be required to purchase,

continue to purchase or renew a policy in exchange for the gift, item or service.

     (iii) An insurer, producer or representative of either may not offer or provide insurance as

an inducement to the purchase of another policy or otherwise use the words "free", "no cost" or

words of similar import, in an advertisement.

     (9)(i) Free choice of insurance producer or insurer. When any person, firm, or corporation

engaged in the business of lending money on the security of real or personal property, or in the

business of negotiating, purchasing, selling, or holding loans on the security of real property, or in

the business of building, selling, or financing the sale or purchase of real property, or any trustee,

director, officer, agent, or other employee of that person, firm, or corporation, requires that property

insurance be procured for the property, the borrower, debtor, or purchaser shall have free choice of

insurance producer and insurer through or by which the insurance is to be placed or written, subject

only to the right of the builder, creditor, lender, or seller:

     (A) To require evidence, to be produced at a reasonable time prior to commencement or

renewal of risk, that the insurance providing reasonable coverage has been obtained in an amount

equal to the amount required by the builder, creditor, lender, or seller;

     (B) To require insurance in an insurer authorized to do business and having a licensed

resident insurance producer agent in this state; and

     (C) To refuse to accept insurance in a particular insurer on reasonable grounds related to

solvency;

     (ii) When any contractor or subcontractor is required to procure a surety bond or policy of

insurance with respect to any building or construction contract that is about to be, or that has been

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bid or entered into, the contractor or subcontractor shall have free choice of insurance producer and

insurer through or by which the surety bond or insurance is to be written; provided, that the owner

or contractor shall have the right: (A) To require evidence, to be produced at a reasonable time

prior to commencement or renewal of risk, that the insurance providing reasonable coverage has

been obtained in an amount equal to the amount required by the builder, creditor, lender, or seller;

(B) To require insurance in an insurer authorized to do business and having a licensed resident

insurance producer in this state; and (C) To refuse to accept insurance in a particular insurer on

reasonable grounds related to solvency; provided, that the owner or contractor shall have the right

to approve the form, sufficiency, or manner of execution of the surety bond or policy or insurance

furnished by the insurance company or insurance producer selected by the contractor or

subcontractor;

     (iii) No person who lends money or extends credit may:

     (A) Solicit insurance for the protection of real property after a person indicates interest in

securing a first mortgage credit extension until that person has received a commitment in writing

from the lender as to a loan or credit extension;

     (B) Unreasonably reject a policy furnished by the borrower for the protection of the

property securing the creditor lien. A rejection shall not be deemed unreasonable if it is based on

reasonable standards, uniformly applied, relating to the extent of coverage required and the

financial soundness and the services of an insurer. The standards shall not discriminate against any

particular type of insurer, nor shall the standards call for rejection of a policy because it contains

coverage in addition to that required in the credit transaction;

     (C) Require that any borrower, mortgagor, purchaser, insurer, or insurance producer pay a

separate charge, in connection with the handling of any policy required as security for a loan on

real estate, or pay a separate charge to substitute the policy of one insurer for that of another. This

subsection does not include the interest that may be charged on premium loans or premium

advancements in accordance with the terms of the loan or credit document;

     (D) Use or disclose, without the prior written consent of the borrower, mortgagor, or

purchaser taken at a time other than the making of the loan or extension of credit, information

relative to a policy that is required by the credit transaction, for the purpose of replacing the

insurance; or

     (E) Require any procedures or conditions of duly licensed insurance producers or insurers

not customarily required of those insurance producers or insurers affiliated or in any way connected

with the person who lends money or extends credit;

     (iv) Every person who lends money or extends credit and who solicits insurance on real

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and personal property subject to paragraph (iii) of this subdivision shall explain to the borrower in

writing that the insurance related to the credit extension may be purchased from an insurer or

insurance producer of the borrower's choice, subject only to the lender's right to reject a given

insurer or insurance producer as provided in paragraph (iii)(B) of this subdivision. Compliance

with disclosures as to insurance required by truth-in-lending laws or comparable state laws shall be

compliance with this subsection;

     (v) This requirement for a commitment shall not apply in cases where the premium for the

required insurance is to be financed as part of the loan or extension of credit involving personal

property transactions;

     (vi) The commissioner shall have the power to examine and investigate those insurance-

related activities of any person or insurer that the commissioner believes may be in violation of this

section. Any affected person may submit to the commissioner a complaint or material pertinent to

the enforcement of this section;

     (vii) Nothing in this section shall prevent a person who lends money or extends credit from

placing insurance on real or personal property in the event the mortgagor, borrower, or purchaser

has failed to provide required insurance in accordance with the terms of the loan or credit document;

     (viii) Nothing contained in this section shall apply to credit life or credit accident and health

insurance.

     (10) Notice of free choice of insurance producer or insurer. Every debtor, borrower, or

purchaser of property with respect to which insurance of any kind on the property is required in

connection with a debt or loan secured by the property or in connection with the sale of the property,

shall be informed in writing by the builder, creditor, lender, or seller, of his or her right of free

choice in the selection of the insurance producer and insurer through or by which the insurance is

to be placed. There shall be no interference, either directly or indirectly, with the borrower's,

debtor's, or purchaser's free choice of an insurance producer and of an insurer that complies with

the requirements of this section, and the builder, creditor, lender, seller, owner, or contractor shall

not refuse the policy tendered by the borrower, debtor, purchaser, contractor, or subcontractor.

Upon notice of any refusal of the tendered policy, the insurance commissioner shall order the

builder, creditor, lender, seller, owner, or contractor to accept the tendered policy, if the

commissioner determines that the refusal is not in accordance with the requirements of this section.

Failure to comply with an order of the insurance commissioner shall be deemed a violation of this

section;

     (11) Using insurance information to detriment of another. Whenever the instrument

requires that the purchaser, mortgagor, or borrower furnish insurance of any kind on real property

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being conveyed or is collateral security to a loan, the mortgagee, vendor, or lender shall refrain

from disclosing or using any and all insurance information to his or her or its own advantage and

to the detriment of either the borrower, purchaser, mortgagor, insurance company, or agency

complying with the requirements relating to insurance;

     (12) Prohibited group enrollments. No insurer shall offer more than one group policy of

insurance through any person unless that person is licensed, at a minimum, as an insurance

producer. This prohibition shall not apply to employer-employee relationships, or to any of these

enrollments;

     (13) Failure to maintain complaint handling procedures. No insurer shall fail to maintain a

complete record of all the complaints it received since the date of its last examination pursuant to

the general laws providing for examination of insurers. This record shall indicate the total number

of complaints, their classification by line of insurance, the nature of each complaint, the disposition

of each complaint, and the time it took to process each complaint. For the purposes of this

subsection, "complaint" means any written communication primarily expressing a grievance;

     (14) Misrepresentation in insurance applications. Making false or fraudulent statements or

representations on or relative to an application for a policy, for the purpose of obtaining a fee,

commission, money, or other benefit from any insurers, insurance producer, or individual person;

     (15) Requiring that repairs be made to an automobile at a specified auto body repair shop

or interfering with the insured's or claimant's free choice of repair facility. The insured or claimant

shall be promptly informed by the insurer of his or her free choice in the selection of an auto body

repair shop. Once the insured or claimant has advised the insurer that an auto body repair shop has

been selected, the insurer may not recommend that a different auto body repair shop be selected to

repair the automobile. An auto body repair shop may file a complaint with the department of

business regulation alleging a violation of this subsection (15). Whenever the department of

business regulation has reason to believe that an insurer has violated this subsection (15), the

department shall conduct an investigation and may convene a hearing. A complaint filed by an auto

body repair shop must be accompanied by a statement written and signed by the insured or claimant

setting forth the factual basis of the complaint, and the insured or claimant must voluntarily appear

and testify at any administrative proceedings on the complaint; and

     (16) Requiring that motor vehicle glass repair be made at a specified motor vehicle glass

repair shop or interfering with the insured's or claimant's free choice of a licensed repair facility.

The insured or claimant shall be promptly informed by the insurer of his or her free choice in the

selection of a licensed motor vehicle glass repair shop. The insurer shall not require a person to use

or employ unfair or deceptive acts or practices, threaten, coerce, or intimidate to induce a person to

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use or select a particular licensed motor vehicle glass repair shop to provide motor vehicle glass

repair services. An insurer shall not knowingly contract with, refer motor vehicle glass repair

services to, or otherwise negotiate with an unlicensed motor vehicle glass repair shop, as defined

in chapter 38.5 of title 5. Once the insured or claimant has advised the insurer that a motor vehicle

glass repair shop has been selected, the insurer may not recommend that a different motor vehicle

glass repair shop be selected to repair the motor vehicle glass, and an insurer shall not assign or

dispatch the repair work or forward a related policy or policyholder's contact or repair scheduling

information to a different licensed motor vehicle glass repair shop without the knowledge and

consent of the insured. An insured may at any point in time elect to change the insured's choice of

licensed motor vehicle glass repair shop. However, an insurer authorized to conduct business in the

state may provide directly, or through other means, including electronic transmissions, specific,

truthful, and non-deceptive information regarding the features and benefits available to the insured

under the policy to assist the insured in selecting a licensed motor vehicle glass repair shop or

scheduling a licensed motor vehicle glass repair shop to perform motor vehicle glass repair, or enter

into any preferred provider agreements and/or participate in direct repair programs or direct repair

networks with licensed motor vehicle glass repair shops. A motor vehicle glass repair shop may

file a complaint with the department of business regulation alleging a violation of this subsection

(16). Whenever the department of business regulation has reason to believe that an insurer has

violated this subsection (16), the department shall conduct an investigation and may convene a

hearing. A complaint filed by a motor vehicle glass repair shop must be accompanied by a statement

written and signed by the insured or claimant setting forth the factual basis of the complaint, and

the insured or claimant must voluntarily appear and testify at any administrative proceedings on

the complaint.

     SECTION 5. Section 27-34.2-6 of the General Laws in Chapter 27-34.2 entitled "Long

Term Care Insurance" is hereby amended to read as follows:

     27-34.2-6. Disclosure and performance standards for long-term care insurance.

     (a) The director may adopt regulations that establish:

     (1) Standards for full and fair disclosure setting forth the manner, content, and required

disclosures for the sale of long term care insurance policies, terms of renewability, initial and

subsequent conditions of eligibility, nonduplication of coverage provisions, coverage of

dependents, preexisting conditions, termination of insurance, continuation or conversion,

probationary periods, limitations, exceptions, reductions, elimination periods, requirements for

replacement, recurrent conditions, and definitions of terms; and

     (2) Reasonable rules and regulations that are necessary, proper, or advisable to the

LC005311 - Page 14 of 32

administration of this chapter including the procedure for the filing or submission of policies

subject to this chapter. This provision may not abridge any other authority granted the director by

law.

     (b) No long term care insurance policy may:

     (1) Be cancelled, nonrenewed, or terminated on the grounds of the age or the deterioration

of the mental or physical health of the insured individual or certificate holder; or

     (2) Contain a provision establishing a new waiting period in the event existing coverage is

converted to or replaced by a new or other form within the same company, except with respect to

an increase in benefits voluntarily selected by the insured individual or group policyholder; or

     (3) Provide coverage for skilled nursing care only or provide more coverage for skilled

care in a facility than coverage for lower levels of care.

     (c) A long term care policy must provide:

     (1) Home health care benefits that are at least fifty percent (50%) of those provided for care

in a nursing facility. The evaluation of the amount of coverage shall be based on aggregate days of

care covered for home health care when compared to days of care covered for nursing home care;

and

     (2) Home health care benefits which meet the National Association of Insurance

Commissioners' minimum standards for home health care benefits in long term care insurance

policies.

     (d)(1) No long term care insurance policy or certificate other than a policy or certificate

issued to a group as defined in § 27-34.2-4(4)(i) shall use a definition of "preexisting condition"

which is more restrictive than the following: "preexisting condition" means a condition for which

medical advice or treatment was recommended by, or received from a provider of health care

services, within six (6) months preceding the effective date of coverage of an insured person;

     (2) No long term care insurance policy or certificate other than a policy or certificate issued

to a group as defined in § 27-34.2-4(4)(i) may exclude coverage for a loss or confinement which is

the result of a preexisting condition, unless the loss or confinement begins within six (6) months

following the effective date of coverage of an insured person;

     (3) The director may extend the limitation periods set forth in subdivisions § 27-34.2-6(d)

(1) and (d)(2) of this subsection as to specific age group categories in specific policy forms upon

findings that the extension is in the best interest of the public;

     (4) The definition of "preexisting condition" does not prohibit an insurer from using an

application form designed to elicit the complete health history of an applicant, and, on the basis of

the answers on that application, from underwriting in accordance with that insurer's established

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underwriting standards. Unless otherwise provided in the policy or certificate, a preexisting

condition, regardless of whether it is disclosed on the application, need not be covered until the

waiting period described in subdivision § 27-34.2-6(d)(2) of this subsection expires. No long term

care insurance policy or certificate may exclude or use waivers or riders of any kind to exclude,

limit or reduce coverage or benefits for specifically named or described preexisting diseases or

physical conditions beyond the waiting period described in subdivision § 27-34.2-6(d)(2) of this

subsection, unless the waiver or rider has been specifically approved by the director as set forth in

§ 27-34.2-8. This shall not permit exclusion or limitation of benefits on the basis of Alzheimer's

disease, other dementias, or organic brain disorders.

     (e)(1) No long term care insurance policy may be delivered or issued for delivery in this

state if the policy:

     (i) Conditions eligibility for any benefits on a prior hospitalization or institutionalization

requirement; or

     (ii) Conditions eligibility for benefits provided in an institutional care setting on the receipt

of a higher level of institutional care.

     (iii) Conditions eligibility for any benefits other than waiver of premium, post-

confinement, post-acute care or recuperative benefits on a prior institutionalization requirement.

     (2)(i) A long-term care insurance policy containing post-confinement, post-acute care or

recuperative benefits shall clearly label in a separate paragraph of the policy or certificate entitled

"Limitations or Conditions on Eligibility for Benefits" such limitations or conditions, including any

required number of days of confinement or rider shall not condition eligibility for non-institutional

benefits on the prior or continuing receipt of skilled care services.

     (ii) A long-term care insurance policy or rider that conditions eligibility of noninstitutional

benefits on the prior receipt of institutional care shall not require a prior institutional stay of more

than thirty (30) days.

     (3) No long-term insurance policy or rider that provides benefits only following

institutionalization shall condition such benefits upon admission to a facility for the same or related

conditions within a period of less than thirty (30) days after discharge from the institution.

     (f) The commissioner may adopt regulations establishing loss ratio standards for long term

care insurance policies provided that a specific reference to long term care insurance policies is

contained in the regulation.

     (g) Right to return -- Free look. Long term care insurance applicants shall have the right to

return the policy or certificate within thirty (30) days of its delivery and to have the premium

refunded if, after examination of the policy or certificate, the applicant is not satisfied for any

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reason. Long term care insurance policies and certificates shall have a notice prominently printed

on the first page or attached to the policy or certificate stating in substance that the applicant shall

have the right to return the policy or certificate within thirty (30) days of its delivery and to have

the premium refunded if, after examination of the policy or certificate other than a certificate issued

pursuant to a policy issued to a group defined in § 27-34.2-4(4)(i), the applicant is not satisfied for

any reason. This subsection shall also apply to denials of applications and any refund must be made

within thirty (30) days of the return or denial.

     (g)(1) Long-term care insurance applicants shall have the right to return the policy,

certificate or rider to the company or an agent/insurance producer of the company within thirty (30)

days of its receipt and to have the premium refunded if, after examination of the policy, certificate

or rider, the applicant is not satisfied for any reason.

     (2) Long-term care insurance policies, certificates and riders shall have a notice

prominently printed on the first page or attached thereto including specific instructions to

accomplish a return. This requirement shall not apply to certificates issued pursuant to a policy

issued to a group defined in § 27-34.2-4. The following free look statement or language

substantially similar shall be included:

     "You have thirty (30) days from the day you receive this policy, certificate or rider to

review it and return it to the company if you decide not to keep it. You do not have to tell the

company why you are returning it. If you decide not to keep it, simply return it to the company at

its administration office. Or you may return it to the agent/insurance producer that you bought it

from. You must return it within thirty (30) days of the day you first received it. The company will

refund the full amount of any premium paid within thirty (30) days after it receives the returned

policy, certificate or rider. The premium refund will be sent directly to the person who paid it. The

returned policy, certificate or rider will be void as if it had never been issued."

     (h)(1) An outline of coverage shall be delivered to a prospective applicant for long term

care insurance at the time of initial solicitation through means which prominently direct the

attention of the recipient to the document and its purpose;

     (2) The commissioner shall prescribe a standard format, including style, arrangement, and

overall appearance, and the content of an outline of coverage;

     (3) In the case of insurance producer solicitations, an insurance producer must deliver the

outline of coverage prior to the presentation of an application or enrollment form;

     (4) In the case of direct response solicitations, the outline of coverage must be presented in

conjunction with any application or enrollment form;

     (5) In the case of a policy issued to a group defined in subdivision § 27-34.2-4(4)(i) of this

LC005311 - Page 17 of 32

act chapter, an outline of coverage shall not be required to be delivered, provided that the

information described in subdivision §§ 27-34.2-6(6)(i) -- subdivision through 27-34.2-6(6)(vi) is

contained in other materials relating to enrollment. Upon request, these other materials shall be

made available to the commissioner.

     (6) The outline of coverage shall include:

     (i) A description of the principal benefits and coverage provided in the policy;

     (ii) A description of the eligibility triggers for benefits and how those triggers are met;

     (ii)(iii) A statement of the principal exclusions, reductions, and limitations contained in the

policy;

     (iii)(iv) A statement of the terms under which the policy or certificate, or both, may be

continued in force or discontinued, including any reservation in the policy of a right to change

premiums. Continuation or conversion provisions of group coverage shall be specifically described;

     (iv)(v) A statement that the outline of coverage is only a summary, not a contract of

insurance, and that the policy or group master policy contains governing contractual provisions;

     (v)(vi) A description of the terms under which the policy or certificate may be returned and

the premium refunded; and

     (vi)(vii) A brief description of the relationship of cost of care and benefits.; and .

     (vii)(viii) A statement that discloses to the policyholder or certificate holder whether the

policy is intended to be a federally tax-qualified long-term care insurance contract under §

7702B(b) of the Internal Revenue Code of 1986, as amended, et seq.

     (i) A certificate issued pursuant to a group long term care insurance policy which policy is

delivered or issued for delivery in this state shall include:

     (1) A description of the principal benefits and coverage provided in the policy;

     (2) A statement of the principal exclusions, reductions, and limitations contained in the

policy; and

     (3) A statement that the group master policy determines governing contractual provisions.

     (4)(j) If an application for a long-term care insurance contract or certificate is approved,

the issuer shall deliver the contract or certificate of insurance to the applicant no later than thirty

(30) days after the date of approval.

     (j)(k) At the time of policy delivery, a policy summary shall be delivered for an individual

life insurance or annuity policy which provides long term care benefits within the policy or by rider.

In the case of direct response solicitations, the insurer shall deliver the policy summary upon the

applicant's request, but regardless of request shall make the delivery no later than at the time of

policy delivery. In addition to complying with all applicable requirements, the summary shall also

LC005311 - Page 18 of 32

include:

     (1) An explanation of how the long term care benefit interacts with other components of

the policy, including deductions from death benefits;

     (2) An illustration of the amount of benefits, the length of benefits, and the guaranteed

lifetime benefits, including a statement that any long-term care inflation projection option required

by § 27-34.2-13, is not available under the policy for each covered person;

     (3) Any exclusions, reductions, and limitations on benefits of long term care benefits; and

     (4) A statement that any long-term care inflation protection option required by 230-RICR-

20-35-1 is not available under this policy. If inflation protection was not required to be offered, or

if inflation protection was required to be offered but was rejected, a statement that inflation

protection is not available under this policy that proves long-term care benefits, and an explanation

of other options available under the policy, if any, to increase the funds available to pay for the

long-term care benefits.

     (4)(5) If applicable to the policy type, the summary shall also include:

     (i) A disclosure of the effects of exercising other rights under the policy;

     (ii) A disclosure of guarantees related to long term care costs of insurance charges A

disclosure of guarantees, fees or other costs related to long-term care costs of insurance charges in

the base policy and any riders; and

     (iii) Current and projected periodic and maximum lifetime benefits.

     (5)(6) The provisions of the policy summary listed above may be incorporated into a basic

illustration or into the life insurance policy summary which is required to be delivered in

accordance with chapter 4 of this title and the rules and regulations promulgated under § 27-4-23.

     (k)(l) Any time a long term benefit, funded through a life insurance vehicle by the

acceleration of the death benefit, is in benefit payment status, a monthly report shall be provided to

the policyholder. The report shall include:

     (1) Any long term care benefits paid out during the month;

     (2) Any costs or changes that apply or will apply to the policy or any riders;

     (2)(3) An explanation of any changes in the policy, e.g. death benefits or cash values, due

to long term care benefits being paid out; and

     (3)(4) The amount of long term care benefits existing or remaining.

     (l)(m) Any policy or rider advertised, marketed, or offered as long term care or nursing

home insurance shall comply with the provisions of this chapter.

     (m)(n) If a claim under a long-term care insurance contract is denied, the issuer shall, within

sixty (60) days of the date of a written request by the policyholder or certificate holder, or a

LC005311 - Page 19 of 32

representative thereof:

     (1) Provide a written explanation of the reasons for the denial; and

     (2) Make available all information directly related to the denial.

     (o) Any policy, certificate or rider advertised, marketed or offered as long-term care or

nursing home insurance, as defined in § 27-34.2-4, shall comply with the provisions of this chapter.

     SECTION 6. Section 27-65-1 of the General Laws in Chapter 27-65 entitled "Commercial

Special Risks" is hereby amended to read as follows:

     27-65-1. Commercial special risks.

     (a) Commercial special risks. Notwithstanding any other provisions of this title to the

contrary and except as limited in subsection (b) of this section, insurers shall not be required to file

with, nor to receive approval from, the insurance division of the department of business regulation

for policy forms or rates used in the insurance of commercial special risks located in this state.

Commercial special risks are defined as:

     (1) Risks written as commercial lines insurance, defined as insurance issued for purposes

other than for personal, family or household and that are written on an excess or umbrella basis;

     (2) Those risks, or portions of them, written as commercial lines insurance, defined as

insurance issued for purposes other than for personal, family or household and that are not rated

according to manuals, rating plans, or schedules including "A" rates;

     (3) Risks written as commercial lines insurance that employ or retain the services of a "risk

manager" and that also meet any one of the following criteria:

     (i) Net worth over ten million dollars ($10,000,000);

     (ii) Net revenue/sales of over five million dollars ($5,000,000);

     (iii) More than twenty-five (25) employees per individual company or fifty (50) employees

per holding company in the aggregate;

     (iv) Aggregates premiums of over thirty thousand dollars ($30,000), excluding group life,

group health, workers' compensation and professional liability (including, but not limited to, errors

and omissions and directors and officers liability);

     (v) Is a not for profit or public entity with an annual budget or assets of at least twenty-five

million dollars ($25,000,000); or

     (vi) Is a municipality with a population of over twenty thousand (20,000);

     (4) Specifically designated commercial special risks including:

     (i) All risks classified as highly protected risks.

     "Highly protected risk" means a fire resistive building that meets the highest standards of

fire safety according to insurance company underwriting requirements;

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     (ii) All commercial insurance aviation risks;

     (iii) All credit property insurance risks that are defined as "insurance of personal property

of a commercial debtor against loss, with the creditor as sole beneficiary" or "insurance of personal

property of a commercial debtor, with the creditor as primary beneficiary and the debtor as

beneficiary of proceeds not paid to the creditor." For the purposes of this definition, "personal

property" means furniture, fixtures, furnishings, appliances, and equipment designed for use in a

business trade or profession and not used by a debtor for personal or household use;

     (iv) All boiler and machinery and equipment breakdown risks;

     (v) All inland marine risks written as commercial lines insurance defined as insurance

issued for purposes other than for personal, family, or household;

     (vi) All fidelity and surety risks;

     (vii) All crime and burglary and theft risks; and

     (viii) All directors and officers, fiduciary liability, employment practices liability, kidnap

and ransom and management liability risks.

     (b) Notwithstanding subsection (a) of this section, the following lines of business shall

remain subject to all filing and approval requirements contained in this title even if written for risks

which qualify as commercial special risks:

     (1) Life insurance;

     (2) Annuities;

     (3) Accident and health insurance;

     (4) Automobile insurance that is mandated by statute;

     (5) Workers' compensation and employers' liability insurance; and

     (6) Issuance through residual market mechanisms.

     (c) Any insurer that provides coverage to a commercial special risk shall disclose to the

insured that forms used and rates charges are exempt from filing and approval requirements by this

subsection. Records of all such disclosures shall be maintained by the insurer.

     (d) Brokers for exempt commercial policyholders as defined in subdivision (a)(3) of this

section shall be exempt from the due diligence requirements of § 27-3-38(b).

     (e) Notwithstanding any other provisions of this title, the requirements of § 27-5-2 shall

not apply to any policy insuring one or more commercial special risks located in this state.

     SECTION 7. Title 27 of the General Laws entitled "INSURANCE" is hereby amended by

adding thereto the following chapter:

CHAPTER 6.1

LENDER PLACED INSURANCE

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     27-6.1-1. Purpose.

     The purpose of this chapter is to:

     (1) Promote the public welfare by regulating lender-placed insurance on real property.

     (2) Create a legal framework within which lender-placed insurance on real property may

be written in this state.

     (3) Help maintain the separation between lenders/servicers and insurers/insurance

producers.

     (4) Minimize the possibilities of unfair competitive practices in the sale, placement,

solicitation and negotiation of lender-placed insurance.

     27-6.1-2 Scope.

     (a) This chapter applies to insurers and insurance producers engaged in any transaction

involving lender-placed insurance as defined in this chapter.

     (b) All lender-placed insurance written in connection with mortgaged real property,

including manufactured and mobile homes, is subject to the provisions of this chapter, except:

     (1) Transactions involving extensions of credit primarily for business, commercial or

agricultural purposes.

     (2) Insurance offered by the lender or servicer and elected by the mortgagor at the

mortgagor's option.

     (3) Insurance purchased by a lender or servicer on real estate owned property.

     (4) Insurance for which no specific charge is made to the mortgagor or the mortgagor's

account.

     27-6.1-3. Definitions.

     As used in this chapter:

     (1) "Affiliate" means a person that directly, or indirectly through one or more

intermediaries, controls or is controlled by, or is under common control with, the person specified.

     (2) "Commissioner" shall have the meaning established in § 42-14-5.

     (3) "Individual lender-placed insurance" means coverage for individual real property

evidenced by a certificate of coverage under a master lender-placed insurance policy or a lender-

placed insurance policy for individual real property.

     (4) "Insurance producer" means a person or entity (or its affiliates) required to be licensed

under the laws of this state to sell, solicit or negotiate insurance.

     (5) "Insurer" means an insurance company, association or exchange authorized to issue

lender-placed insurance in this state (or its affiliates).

     (6) "Investor" means a person or entity (and its affiliates) holding a beneficial interest in

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loans secured by real property.

     (7) "Lapse" means the moment in time in which a mortgagor has failed to secure or

maintain valid and/or sufficient insurance upon mortgaged real property as required by a mortgage

agreement.

     (8) "Lender" means a person or entity (and its affiliates) making loans secured by an

interest in real property.

     (9) "Lender-placed insurance" means insurance obtained by a lender or servicer when a

mortgagor does not maintain valid and/or sufficient insurance upon mortgaged real property as

required by the terms of the mortgage agreement. It may be purchased unilaterally by the lender or

servicer, who is the named insured, subsequent to the date of the credit transaction, providing

coverage against loss, expense or damage to collateralized property as a result of fire, theft,

collision or other risks of loss that would either impair a lender, servicer or investor's interest or

adversely affect the value of collateral covered by limited dual interest insurance. It is purchased

according to the terms of the mortgage agreement as a result of the mortgagor's failure to provide

evidence of required insurance.

     (10) "Loss ratio" means the ratio of incurred losses to earned premium.

     (11) "Master lender-placed insurance policy" means a group policy issued to a lender or

servicer providing coverage for all loans in the lender or servicer's loan portfolio as needed.

     (12) "Mortgage agreement" means the written document that sets forth an obligation or a

liability of any kind secured by a lien on real property and due from, owing or incurred by a

mortgagor to a lender on account of a mortgage loan, including the security agreement, deed of

trust and any other document of similar effect, and any other documents incorporated by reference.

     (13) "Mortgage loan" means a loan, advance, guarantee or other extension of credit from a

lender to a mortgagor.

     (14) "Mortgage transaction" means a transaction by the terms of which the repayment of

money loaned or payment of real property sold is to be made at a future date or dates.

     (15) "Mortgagee" means the person who holds mortgaged real property as security for

repayment of a mortgage agreement.

     (16) "Mortgagor" means the person who is obligated on a mortgage loan pursuant to a

mortgage agreement.

     (17) "Person" means an individual or entity.

     (18) "Real estate owned property" means property owned or held by a lender or servicer

following foreclosure under the related mortgage agreement or the acceptance of a deed in lieu of

foreclosure.

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     (19) "Replacement cost value (RCV)" is the estimated cost to replace covered property at

the time of loss or damage without deduction for depreciation. RCV is not market value, but it is

instead the cost to replace covered property to its pre-loss condition.

     (20) "Servicer" means a person or entity (and its affiliates) contractually obligated to

service one or more mortgage loans for a lender or investor. The term "servicer" includes entities

involved in subservicing arrangements.

     27-6.1-4. Term of Insurance Policy.

     (a) Lender-placed insurance shall become effective no earlier than the date of lapse of

insurance upon mortgaged real property subject to the terms of a mortgage agreement and/or any

other state or federal law requiring the same.

     (b) Individual lender-placed insurance shall terminate on the earliest of the following dates:

     (1) The date the insurance that is acceptable under the mortgage agreement becomes

effective, subject to the mortgagor providing sufficient evidence of such acceptable insurance.

     (2) The date the applicable real property no longer serves as collateral for a mortgage loan

pursuant to a mortgage agreement.

     (3) Such other date as specified by the individual policy or certificate of insurance.

     (4) Such other date as specified by the lender or servicer.

     (5) The termination date of the policy.

     (c) An insurance charge shall not be made to a mortgagor for lender-placed insurance for

a term longer than the scheduled term of the lender-placed insurance, nor may an insurance charge

be made to the mortgagor for lender-placed insurance before the effective date of the lender-placed

insurance.

     27-6.1-5. Calculation of coverage and payment of premiums.

     (a) Any lender-placed insurance coverage, and subsequent calculation of premium, should

be based upon the replacement cost value of the property as best determined as follows:

     (1) The dwelling coverage amount set forth in the most recent evidence of insurance

coverage provided by the mortgagee ("last known coverage amount" or "LKCA"), if known to the

lender or servicer.

     (2) The insurer shall inquire of the insured, at least once ,as to the LKCA; and if it is not

able to obtain the LKCA from the insured or in another manner, the insurer may proceed as set

forth below.

     (3) If the LKCA is unknown, the replacement cost of the property serving as collateral as

calculated by the insurer, unless the use of replacement cost for this purpose is prohibited by other

state or federal law.

LC005311 - Page 24 of 32

     (4) If the LKCA is unknown and the replacement cost is not available or its use is

prohibited, the unpaid principal balance of the mortgage loan.

     (b) In the event of a covered loss, any replacement cost coverage provided by an insurer in

excess of the unpaid principal balance of the mortgage loan shall be paid to the mortgagor.

     (c) An insurer shall not write lender-placed insurance for which the premium rate differs

from that determined by the schedules of the insurer on file with the commissioner as of the

effective date of any such policy.

     27-6.1-6. Prohibited Practices.

     (a) An insurer or insurance producer shall not issue lender-placed insurance on mortgaged

property that the insurer or insurance producer or an affiliate of the insurer or insurance producer

owns, performs the servicing for, or owns the servicing right to the mortgaged property.

     (b) An insurer or insurance producer shall not compensate a lender, insurer, investor or

servicer (including through the payment of commissions) on lender-placed property insurance

policies issued by the insurer.

     (c) An insurer or insurance producer shall not share lender-placed insurance premium or

risk with the lender, investor or servicer that obtained the lender-placed insurance.

     (d) An insurer or insurance producer shall not offer contingent commissions, profit sharing,

or other payments dependent on profitability or loss ratios to any person affiliated with a servicer

or the insurer in connection with lender-placed insurance.

     (e) An insurer shall not provide free or below-cost outsourced services to lenders, investors

or servicers, and an insurer will not outsource its own functions to lenders, insurance producers,

investors or servicers on an above-cost basis.

     (f) An insurer or insurance producer shall not make any payments, including, but not

limited to, the payment of expenses to a lender, insurer, investor or servicer for the purpose of

securing lender-placed insurance business or related outsourced services.

     27-6.1-7. Non-circumvention.

     Nothing in this chapter shall be construed to allow an insurance producer or an insurer

solely underwriting lender-placed insurance to circumvent the requirements set forth within this

chapter. Any such part of any requirements, limitations or exclusions provided herein apply in any

part to any insurer or insurance producer involved in lender-placed insurance.

     27-6.1-8. Evidence of Coverage.

     (a) Lender-placed insurance shall be set forth in an individual policy or certificate of

insurance. A copy of the individual policy, certificate of insurance, or other evidence of insurance

coverage shall be mailed, first class mailed, or delivered in person to the last known address of the

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mortgagor or delivered in accordance with chapter 27 of title 42. Notwithstanding any other

statutory or regulatory required information, the individual policy or certificate of insurance

coverage shall include the following information:

     (1) The address and identification of the insured property;

     (2) The coverage amount or amounts if multiple coverages are provided;

     (3) The effective date of the coverage;

     (4) The term of coverage;

     (5) The premium charge for the coverage;

     (6) Contact information for filing a claim; and

     (7) A complete description of the coverage provided.

     27-6.1-9. Filing, Approval and Withdrawal of Forms and Rates.

     (a) All policy forms and certificates of insurance to be delivered or issued for delivery in

this state and the schedules of premium rates pertaining thereto shall be filed with the

commissioner.

     (b) The commissioner shall review the rates to determine whether the rates are excessive,

inadequate or unfairly discriminatory. This analysis shall include a determination as to whether

expenses included by the insurer in the rate are appropriate.

     (c) All insurers shall re-file lender-placed property insurance rates at least once every four

(4) years.

     (d) All insurers writing lender-placed insurance shall have separate rates for lender placed

insurance and voluntary insurance obtained by a mortgage servicer on real estate owned property.

     (e) Upon the introduction of a new lender-placed insurance program, the insurer shall

reference its experience in existing programs in the associated filings. Nothing in this chapter shall

limit an insurer's discretion, as actuarially appropriate, to distinguish different terms, conditions,

exclusions, eligibility criteria or other unique or different characteristics. Moreover, an insurer may,

where actuarially acceptable, rely upon models or, in the case of flood filings where applicable

experience is not credible, on Federal Emergency Management Agency (FEMA) National Flood

Insurance Program (NFIP) data.

     (f) No later than April 1 of each year, each insurer with at least one hundred thousand

dollars ($100,000) in direct written premium for lender-placed insurance in this state during the

prior calendar year shall report to the commissioner the following information for the prior calendar

year. This report shall be separately produced for each lender-placed program and presented on

both an individual-jurisdiction and countrywide basis containing the following information:

     (1) Actual loss ratio;

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     (2) Earned premium;

     (3) Any aggregate schedule rating debit/credit to earned premium;

     (4) Itemized expenses;

     (5) Paid losses; and

     (6) Loss reserves, including case reserves and reserves for incurred but not reported losses.

     (g) Except in the case of lender-placed flood insurance, to which this paragraph does not

apply, if an insurer experiences an annual loss ratio of less than thirty-five percent (35%) in any

lender placed program for two (2) consecutive years, it shall submit a rate filing (either adjusting

its rates or supporting their continuance) to the commissioner no more than ninety (90) days after

the submission of the data required pursuant to subsection (f) of this section.

     (h) Except as specifically set forth in this section, rate and form filing requirements shall

be subject to the insurance laws of this state.

     27-6.1-10. Enforcement and judicial review.

     The commissioner shall have all rights and powers to enforce the provisions of this chapter

as provided by § 42-14-16 of the general laws of this state. All proceedings, including judicial

review, shall be conducted in accordance with the administrative procedures act chapter 35 of title

42 of the general laws. Any penalties shall be assessed in accordance with § 42-14-16.

     27-6.1-11. Regulatory authority.

     The commissioner may, after notice and hearing, promulgate reasonable regulations and

orders to carry out and effectuate the provisions of this chapter.

     27-6.1-12. Severability provisions.

     If any provision of this chapter, or the application of the provision to any person or

circumstance, is for any reason held to be invalid, the remainder of the chapter and the application

of such provision to other persons or circumstances shall not be affected thereby.

     SECTION 8. Section 27-3-39 of the General Laws in Chapter 27-3 entitled "Surplus Lines

Insurance" is hereby repealed.

     27-3-39. Surplus line broker's bond.

     (a) No license to act as a resident surplus line broker in this state shall be issued until a

certificate of the general treasurer is deposited with the insurance commissioner on a blank

furnished by the insurance commissioner, stating that the licensee has filed with the general

treasurer a bond in the penal sum of twenty-five thousand dollars ($25,000) executed by the

licensee as principal and by a surety company authorized to transact business in this state as surety,

and conditioned upon the licensee faithfully complying with all of the requirements of § 27-3-38.

     (b) Any bond required by this section shall be continuous while the principal is licensed to

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act as a surplus line broker in this state; provided, that before the bond may be cancelled, the

insurance commissioner must have been notified in writing by the surety of the proposed

cancellation at least thirty (30) days prior to the date cancellation is to become effective; and,

provided, that in the event of cancellation, any license covered by the bond shall be suspended by

the insurance commissioner pending the substitution of a similar bond for the cancelled bond. The

surety shall be released from further liability under any bond covering a license revoked,

terminated, or expired as to any acts committed after the date that license is revoked, terminated,

or expired. The aggregate liability of the surety for any and all claims or recoveries that arise under

any bond shall in no event exceed the amount of the penal sum of the bond. The commissioner may

promulgate standards and procedures for collecting under bonds issued pursuant to this section.

     (c) Authorized surplus line agents or brokers of a licensed firm may meet the requirements

of this section with a bond in the name of the licensed firm, continuous in form and in the amounts

set forth in subsection (a).

     SECTION 9. Section 27-4-6 of the General Laws in Chapter 27-4 entitled "Life Insurance

Policies and Reserves" is hereby repealed.

     27-4-6. Terms to be stated in policy -- Rebates prohibited.

     (a) No life insurance corporation doing business in this state, nor any insurance producer

of the corporation, shall permit, offer, or make any contract of insurance or agreement as to any

contract other than as plainly expressed in the policy issued on the contract or agreement; nor shall

any company or any officer, insurance producer, or representative of the company or producer pay,

allow, or give, or offer to pay, allow, or give, directly or indirectly, as inducement to any person to

insure, or give, sell, or purchase, or offer to give, sell, or purchase as an inducement or in connection

with any insurance, any stocks, bonds, or other securities of any insurance company or other

corporation, association, or partnership, or any dividends or profits accruing on the securities, or

any valuable consideration or inducement of any kind not specified in the policy, nor shall any

person knowingly receive as an inducement any rebate of premium, or any special favor or

advantage in the dividends or other benefits, or any paid employment or contract for services of

any kind, or any valuable consideration or inducement of any kind, not specified in the policy.

     (b) Nothing in this section shall be construed to forbid a company transacting industrial

insurance on a weekly payment plan from returning to policyholders who have made premium

payments for a period of at least one year, directly to the company at its home or district offices, a

percentage of the premium which the company would have paid for the weekly collection of the

premiums.

     SECTION 10. Section 27-6-46 of the General Laws in Chapter 27-6 entitled "Fire and

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Marine Insurance Rating" is hereby repealed.

     27-6-46. Terms to be stated in policy -- Rebates prohibited.

     No insurer, or any officer, insurance producer, or representative of an insurer, shall make

any contract for insurance, on property on risks located within this state, or against any liability,

casualty, accident, or hazard that may arise or occur in this state, or any agreement as to that

contract, other than as plainly expressed in the policy issued or to be issued on the agreement or

contract; or shall any insurer, or officer, insurance producer, or representative of an insurer, directly

or indirectly, in any manner, pay or allow or offer to pay or allow to the insured named in the policy

or to any employee of the insured as an inducement to that insurance, or after the insurance shall

have been effected, any rebate from the premium which is specified in the policy or any special

favor or advantage in the dividends or other benefit to accrue on the policy; or any valuable

consideration or inducement not specified in the policy or contract of insurance, or give, sell, or

purchase, as an inducement to that insurance, or in connection with that insurance, any stock, bonds,

or other securities of any insurance or other corporation or association, or any dividends or profits

accrued on the securities, or anything of value not specified in the policy, or shall any insurance

producer or his or her representatives, or any other person, directly or indirectly, either by sharing

commissions or in any manner pay or allow or offer to pay or allow to the insured named in the

policy, or to any employee of the insured, as an inducement to that insurance, or after the insurance

shall have been effected, any rebate from the premium which is specified in the policy, or shall any

insured, or party, or applicant for insurance, his or her or its employee, agent, or representative

knowingly receive or accept, or agree to accept, or agree to receive or accept, directly or indirectly,

any rebate of premium or any part of the premium or all or any part of any commission on the

premium, or any favor or advantage, or share in any benefit to accrue under any contract of

insurance, or any valuable consideration or inducement, other than what is specified in the policy;

provided, that nothing in this section shall prevent any insurer from the distribution of surplus,

dividends, savings, or the unused or unabsorbed portion of premiums and premium deposits to

participating policyholders, or shall this section prevent any insurer, or its insurance producer, from

paying commissions to a licensed insurance producer who shall have negotiated for the insurance,

or shall it prevent any licensed insurance producer from sharing or dividing a commission earned

or received by the insurance producer with any other licensed insurance producers who shall have

aided the insurance producer in respect to the insurance for the negotiation of which that

commission shall have been earned or paid; but no insurer or agent, or broker shall pay or allow

commissions or brokerage to any person acting as an insurance producer in this state who is

required by law to be licensed but is not licensed. Sections 27-8-7 -- 27-8-10 shall not apply to the

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kinds of insurance subject to the provisions of this chapter.

     SECTION 11. Section 27-9-44 of the General Laws in Chapter 27-9 entitled "Casualty

Insurance Rating" is hereby repealed.

     27-9-44. Terms to be stated in policy -- Rebates prohibited.

     No insurer, or any officer, insurance producer, or their representative, shall make any

contract for insurance, on property or risks located within this state, or against any liability,

casualty, accident, or hazard that may arise or occur in this state, or any agreements as to any

contract, other than as plainly expressed in the policy issued or to be issued on the agreement or

contract; nor shall any insurer, or officer, insurance producer, or their representative, directly or

indirectly, in any manner, pay or allow or offer to pay or allow to the insured named in the policy

or to any employee of the insured as an inducement to the insurance, or after the insurance shall

have been effected, any rebate from the premium which is specified in the policy or any special

favor or advantage in the dividends or other benefit to accrue on the policy, or any valuable

consideration or inducement, not specified in the policy or contract of insurance, or give, sell, or

purchase, as an inducement to the insurance, or in connection with the insurance, any stock, bonds,

or other securities of any insurance or other corporation or association, or any dividends or profits

accrued on the stock, bonds, or securities, or anything of value, not specified in the policy, nor shall

any insurance producer or representative, or any other person, directly or indirectly, either by

sharing commissions or in any manner, pay or allow or offer to pay or allow to the insured named

in the policy, or to any employee of the insured, as an inducement to the insurance, or after the

insurance shall have been effected, any rebate from the premium which is specified in the policy,

nor shall any insured, or party, or applicant for insurance, his, her or its employee, agent, or

representative, knowingly receive or accept, or agree to accept, or agree to receive or accept,

directly or indirectly, any rebate of a premium or any part of the premium or all or any part of any

commission on the premium, or any favor or advantage, or share in any benefit to accrue under any

contract of insurance, or any valuable consideration or inducement, other than what is specified in

the policy; provided, that nothing in this section shall prevent any insurer from the distribution of

surplus, dividends, savings, or the unused or unabsorbed portion of premiums and premium

deposits to participating policyholders, nor shall this section prevent any insurer, or its agent, from

paying commissions to a licensed insurance producer who shall have negotiated for the insurance,

nor shall it prevent any licensed insurance producer from sharing or dividing a commission earned

or received by the insurance producer with any other licensed insurance producer who shall have

aided the insurance producer in respect to the insurance for the negotiation of which the commission

shall have been earned or paid; but no insurer, or insurance producer shall pay or allow

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commissions or brokerage to any person acting as an insurance producer in this state who is

required by law to be licensed but is not licensed. As used in this section, the word "insurance"

includes suretyship and the word "policy" includes bond. Sections 27-8-7 -- 27-8-10 shall not apply

to the kinds of insurance subject to the provisions of this chapter.

     SECTION 12. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO INSURANCE -- SURPLUS LINES INSURANCE

***

     This act would clarify and update various insurance statutes including surplus lines

licensing; would eliminate the need for an "in person" hearing defaulting to the administrative

procedures act; would reduce the standard non forfeiture interest rate on a go forward basis; would

update the rebating laws; update and clarify the long term care insurance statute; would add

additional lines of insurance to the commercial special risks statute; and would add a new chapter

addressing lender placed insurance.

     This act would take effect upon passage.

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