Chapter 09-302

Chapter 302

2009 -- H 5903

Enacted 11/13/09

A N A C T

RELATING TO INSURANCE -- EXAMINATIONS

Introduced By: Representative Brian P. Kennedy

Date Introduced: February 26, 2009

It is enacted by the General Assembly as follows:

SECTION 1. Sections 27-13.1-1, 27-13.1-2, 27-13.1-3, 27-13.1-4, 27-13.1-5 and 27-

13.1-6 of the General Laws in Chapter 27-13.1 entitled "Examinations" are hereby amended to

read as follows:

27-13.1-1. Purpose. -- The purpose of this chapter is to provide an effective and efficient

system for examining the activities, operations, financial ~~conditions~~ condition, and affairs of all

persons transacting the business of insurance in this state and all persons otherwise subject to the

jurisdiction of the director. The provisions of this chapter are intended to enable the director to

adopt a flexible system of examinations ~~which~~ that directs resources as may be deemed

appropriate and necessary for the administration of the insurance and insurance related laws of

this state.

27-13.1-2. Definitions. -- The following terms, as used in this chapter, shall have the

~~following~~ respective meanings hereinafter as set forth:

(1) "Company" means ~~any~~ a person engaging in or proposing or attempting to engage in

any transaction or kind of insurance or surety business and any person or group of persons who

may otherwise be subject to the administrative, regulatory, or taxing authority of the director;

(2) "Department" means the department of business regulation;

(3) "Director" means the director of the department of business regulation of this state or

his or her designee;

(4) "Examiner" means ~~any~~ an individual or firm having been authorized by the director

to conduct an examination or financial analysis under this chapter;

(5) "Insurer" means any insurance company doing business in this state; and

(6) "Person" means ~~any~~ an individual, aggregation of individuals, trust, association,

partnership or corporation, or any affiliate ~~of them~~ thereof.

27-13.1-3. Authority, scope, and scheduling of examinations. -- (a) The director or any

of his or her examiners may conduct an examination under this chapter of any company as often

as the director in his or her sole discretion deems appropriate, but shall, at a minimum, conduct an

examination of every insurer licensed in this state not less frequently than once every five (5)

years. In scheduling and determining the nature, scope, and frequency of the examinations, the

director shall consider ~~any~~ such matters as the results of financial statement analyses and ratios,

changes in management or ownership, actuarial opinions, reports of independent certified public

accountants, and other criteria as set forth in the Financial Condition Examiners' Handbook

adopted by the National Association of Insurance Commissioners and in effect when the director

exercises discretion under this section.

(b) For ~~the~~ purposes of completing an examination of ~~any~~ a company under this chapter,

the director may examine or investigate any person, or the business of any person, in so far as the

examination or investigation is, in the sole discretion of the director, necessary or material to the

examination of the company.

in this state, the director may accept an examination report on the company as prepared by the

insurance department for the company's state of domicile or port of entry state only if:

(1) The insurance department was at the time of the examination accredited under the

National Association of Insurance Commissioners' financial regulation standards and

accreditation program; or

(2) The examination is performed under the supervision of an accredited insurance

department or with the participation of one or more examiners who are employed by an

accredited state insurance department 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 insurance department.

27-13.1-4. Conduct of examinations. -- (a) Upon determining that an examination

should be conducted, the director or the director's designee shall issue an examination warrant

appointing one or more examiners to perform the examination and instructing them as to the

scope of the examination. In conducting the examination, the examiner shall observe those

guidelines and procedures set forth in the Examiners' Handbook ~~in effect at the time of the~~

~~examination~~ adopted by the National Association of Insurance Commissioners. The director may

also employ ~~any~~ such other guidelines or procedures as the director may deem appropriate.

(b) Every company or person from whom information is sought, its officers, directors,

and agents ~~must~~ shall provide to the examiners appointed under subsection ~~(d)~~ (a) timely,

convenient and free access at all reasonable hours at its offices to all books, records, accounts,

papers, documents, and any or all computer or other recordings relating to the property, assets,

business, and affairs of the company being examined. The officers, directors, employees, and

agents of the company or person must facilitate the examination and aid in the examination so far

as it is in their power to do so. The refusal of ~~any~~ a company, by its officers, directors, employees,

or agents, to submit to examination or to comply with any reasonable written request of the

examiners shall be grounds for suspension or refusal of, or nonrenewal of any license or authority

held by the company to engage in an insurance or other business subject to the director's

jurisdiction. Any such proceedings for suspension, revocation, or refusal of ~~any~~ a license or

authority shall be conducted pursuant to ~~that section of~~ the Administrative Procedures Act,

chapter 35 of title 42~~, governing emergency suspensions~~. Nothing in this subsection shall

preclude the director from initiating action pursuant to ~~chapter~~ chapters 14.1, 14.3, or any other

chapter of this title.

to administer oaths, and to examine under oath any person as to any matter pertinent to the

examination. Upon the failure or refusal of any person to obey a subpoena, the director may

petition a court of competent jurisdiction, and upon proper showing, the court may enter an order

compelling the witness to appear and testify or produce documentary evidence. Failure to obey

the court order shall be punishable as contempt of court. Such subpoena may also be enforced

pursuant to section 42-14-16.

(d) When making an examination under this chapter, the director may retain attorneys,

appraisers, independent actuaries, independent certified public accountants, or other professionals

and specialists as examiners, the cost of which shall be borne by the company ~~which~~ that is the

subject of the examination.

(e) Nothing contained in this chapter shall be construed to limit the director's authority to

terminate or suspend ~~any~~ an examination in order to pursue other legal or regulatory action

pursuant to the insurance laws of this state. Findings of fact and conclusions made pursuant to

~~any~~ an examination shall be prima facie evidence in any legal or regulatory action.

(f) Nothing contained in this chapter shall be construed to limit the director's authority to

use and, if appropriate, to make public any final or preliminary examination report, any examiner

or company work papers or other documents, or any other information discovered or developed

during the course of ~~any~~ an examination in the furtherance of any legal or regulatory action ~~which~~

that the director may, in his or her sole discretion, deem appropriate.

27-13.1-5. Examination reports. -- (a) General description. - ~~All~~ An examination ~~reports~~

report shall be comprised of only facts appearing upon the books, records, or other documents of

the company, its agents or other persons examined, or as ascertained from the testimony of its

officers or agents or other persons examined concerning its affairs, and ~~the~~ such conclusions and

recommendations as the examiners find reasonably warranted from the facts.

(b) Filing of examination report. - No later than sixty (60) days following ~~the~~ completion

of the examination, the examiner in charge shall file with the department a verified written report

of examination under oath. Upon receipt of the verified report, the department shall transmit the

report to the company examined, together with a notice that shall require that the company

examined file with the ~~commissioner~~ director a written response to all comments and

recommendations contained in the examination report within thirty (30) days. The response shall

include a written plan of how and when the comments and recommendations contained in the

examination report will be corrected and/or implemented. For each comment and

recommendation, the response must include an implementation date and a completion date for

each corrective action. In lieu of these requirements, the company may submit a rebuttal to any

comment or recommendation contained in the examination report.

allowed for the receipt of written responses or rebuttals, the director shall fully consider and

review the report, together with any written responses or rebuttals and any relevant portions of the

examiner's workpapers 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; or

(2) Rejecting the examination report with directions to the examiners to reopen the

examination for the purposes of obtaining additional data, documentation, or information, and

refiling pursuant to this section; and

(3) Calling for an investigatory hearing with no less than twenty (20) days notice to the

company for the purposes of obtaining additional documentation, data, information, and

testimony.

(d) Orders and procedures. - (1) All orders entered pursuant to this section shall be

accompanied by findings and conclusions resulting from the director's consideration and review

of the examination report, relevant examiner workpapers, and any written responses or rebuttals.

Any order shall be considered a final administrative decision and may be appealed pursuant to the

Administrative Procedures Act, chapter 35 of title 42, and shall be served upon the company by

certified mail, together with a copy of the adopted examination report. Within thirty (30) days of

the issuance of the adopted report, the company shall file affidavits executed by each of its

directors stating under oath that they have received a copy of the adopted report and related

orders.

(2) (i) Any hearing conducted under this section by the director or authorized

representative shall be conducted as a nonadversarial confidential investigatory proceeding as

necessary for the resolution of any inconsistencies, discrepancies, or disputed issues apparent

upon the face of the filed examination report or raised by or as a result of the director's review of

relevant workpapers or by the written response or rebuttal of the company. Within twenty (20)

days of the conclusion of any hearing, the director shall enter an order pursuant to this section.

(ii) The director ~~may appoint legal counsel and a member of the insurance division's~~

~~examination~~ ~~section as authorized representatives~~ shall not appoint an examiner as an authorized

representative to conduct the hearing. The hearing shall proceed expeditiously with discovery by

the company limited to the examiner's workpapers ~~which~~ that tend to substantiate any assertions

set forth in any written response or rebuttal. The director or his or her representative may issue

subpoenas for the attendance of any witnesses or the production of any documents deemed

relevant to the investigation whether under the control of the department, the company, or other

persons. The documents produced shall be included in the record and testimony taken by the

director or his or her representative shall be under oath and preserved for the record.

(iii) Nothing contained in this section shall require the department to disclose any

information or records that would indicate or show the existence or content of any investigation

or activity of a criminal justice agency.

(iv) The hearing shall proceed with the director or his or her representative posing

questions to the persons subpoenaed ~~persons~~. ~~After this, the~~ Thereafter, the company and the

department may present testimony relevant to the investigation. Cross-examination shall be

conducted only by the director or his or her representatives. The company and the department

shall be permitted to make closing statements and may be represented by counsel of their choice.

(e) Publication and use. - (1) Upon the adoption of the examination report under this

section, the director shall continue to hold the content of the examination report as private and

confidential information for a period of thirty (30) days ~~following the mailing of the notice of~~

~~order~~, except to the extent provided in subsection (b). After this, the commissioner may open the

report for public inspection so long as no court of competent jurisdiction has stayed its

publication;

(2) Nothing contained in this title~~, or any other provision of law,~~ shall prevent or be

construed as prohibiting the commissioner from disclosing the content of an examination report,

preliminary examination report or results, or any matter relating ~~to the report~~ thereto, to the

insurance department of this or any other state or country, or to law enforcement officials of this

or any other state or agency of the federal government at any time, so long as the agency or office

receiving the report or matters relating ~~to it~~ thereto agrees in writing to hold it confidential and in

a manner consistent with this chapter;

(3) In the event the director determines that regulatory action is appropriate as a result of

any examination, he or she may initiate any proceedings or actions as provided by law.

(f) ~~Confidentiality Privilege for, and confidentiality of ancillary information~~ Privilege

for, and confidentiality of ancillary information. – (1)(i) ~~All working papers, recorded~~

~~information, documents, and copies of them~~ Except as provided in section 5(e) above and in this

subsection, documents, materials, or other information, including, but not limited to, all working

papers, and copies thereof, created, produced by, obtained by, or disclosed to the director or any

other person in the course of an examination made under this chapter, or in the course of analysis

by the director of the financial condition or market conduct of a company shall be confidential by

law and privileged, ~~must be given confidential treatment and are not subject to subpoena and may~~

~~not~~ ~~be made public by the director or any other person, except to the extent provided in~~

~~subsection~~ ~~(e). Access may also be granted to the National Association of Insurance~~

~~Commissioners.~~ ~~The parties must agree in writing prior to receiving the information to provide to~~

it ~~the same confidential treatment as required by this section, unless the prior written consent of~~

~~the~~ ~~company to which it pertains has been obtained.~~ shall not be subject to the Access to Public

Records Act, chapter 38-2, shall not be subject to subpoena, and shall not be subject to discovery

or be admissible in evidence in any private civil action. The director is authorized to use the

documents, materials, or other information in the furtherance of any regulatory or legal action

brought as part of the director's official duties.

(ii) Documents, materials or other information, including, but not limited to, all working

papers, and copies thereof, in the possession or control of the National Association of Insurance

Commissioners and its affiliates and subsidiaries shall be confidential by law and privileged, shall

not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any

private civil action if they are:

(A) Created, produced or obtained by or disclosed to the National Association of

Insurance Commissioners and its affiliates and subsidiaries in the course of the National

Association of Insurance Commissioners and its affiliates and subsidiaries assisting an

examination made under this chapter, or assisting a director in the analysis of the financial

condition or market conduct of a company; or

(B) Disclosed to the National Association of Insurance Commissioners and its affiliates

and subsidiaries under subdivision (3) of this subsection by a director or commissioner.

(iii) For the purposes of paragraph (f)(1)(i), "act" includes the law of another state or

jurisdiction that is substantially similar to this act.

(2) Neither the director nor any person who received the documents, material or other

information while acting under the authority of the director, including the National Association of

Insurance Commissioners and its affiliates and subsidiaries, shall be permitted to testify in any

private civil action concerning any confidential documents, materials or information subject to

subdivision (f)(1).

(3) In order to assist in the performance of the director's duties, the director:

(i) May share documents, materials or other information, including the confidential and

privileged documents, materials or information subject to subdivision (f)(1), with other state,

federal and international regulatory agencies, with the National Association of Insurance

Commissioners and its affiliates and subsidiaries, and with state, federal and international law

enforcement authorities, provided that the recipient agrees to maintain the confidentiality and

privileged status of the document, material, communication or other information;

(ii) May receive documents, materials, communications or information, including

otherwise confidential and privileged documents, materials or information, from the National

Association of Insurance Commissioners and its affiliates and subsidiaries, and from regulatory

and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as

confidential or privileged any document, material or information received with notice or the

understanding that it is confidential or privileged under the laws of the jurisdiction that is the

source of the document, material or information; and

(iii) May enter into agreements governing sharing and use of information consistent with

this subsection.

(4) No waiver of any applicable privilege or claim of confidentiality in the documents,

materials or information shall occur as a result of disclosure to the director under this section or

as a result of sharing as authorized in subdivision (f)(3).

(5) A privilege established under the law of any state or jurisdiction that is substantially

similar to the privilege established under this subsection shall be available and enforced in any

proceeding in, and in any court of, this state.

(6) In this subsection, the terms "department," "insurance department," "law enforcement

agency," "regulatory agency," and the "National Association of Insurance Commissioners"

include, but are not limited to, their employees, agents, consultants and contractors.

27-13.1-6. Conflict of interest. -- (a) No An examiner may not be appointed by the

director if the examiner, either directly or indirectly, has a conflict of interest or is affiliated with

the management of or owns a pecuniary interest in any person subject to examination under this

chapter. This section shall not be construed to automatically preclude an examiner from being:

(1) A policyholder or claimant under an insurance policy;

(2) A grantor of a mortgage or similar instrument on the examiner's residence to a

regulated entity if done under customary terms and in the ordinary course of business;

(3) An investment owner in shares of regulated diversified investment companies; or

(4) A settlor or beneficiary of a "blind trust" into which any otherwise impermissible

holdings have been placed.

(b) Notwithstanding the requirements of this section, the director may retain from time to

time on an individual basis, qualified actuaries, certified public accountants, or other similar

individuals who are independently practicing their professions, even though ~~those~~ these persons

may from time to time be similarly employed or retained by persons subject to examination under

this chapter.

SECTION 2. Chapter 27-13.1 of the General Laws entitled "Examinations" is hereby

amended by adding thereto the following sections:

27-13.1-3.1. Authority, scope and scheduling of financial analysis. – (a) The director

and any of his or her examiners may conduct annual and quarterly financial analysis under this

chapter of each company licensed in this state. All authority granted in conducting an

examination under this chapter shall apply to the conduct of a financial analysis of a company

except that a warrant is not required and the financial analysis will be conducted based on

guidelines and procedures set forth in the Financial Analysis Handbook as adopted by the

National Association of Insurance Commissioners. The director may also employ any other

guidelines or procedures as the director may deem appropriate.

(b) The financial analysis of a company is a continuous process utilized primarily for

monitoring the financial strength of a company and therefore a final report is not required,

however, where there are significant financial concerns a financial examination under this chapter

will be conducted and an examination report will be issued in accordance with section 27-13.1-5.

financial analysis process are considered to be confidential financial analysis workpapers in

accordance with subsection 27-13.1-5(f).

(d) The total cost of the financial analysis shall be borne by the company as set forth in

section 27-13.1-7.

27-13.1-8. Immunity from liability. – (a) No cause of action shall arise nor shall any

liability be imposed against the director, the directors authorized representatives or an examiner

appointed by the director for any statements made or conduct performed in good faith while

carrying out the provisions of this chapter.

(b) No cause of action shall arise, nor shall any liability be imposed against any person

for the act of communicating or delivering information or data to the director or the director's

authorized representative or examiner pursuant to an examination made under this chapter, if the

act of communication or delivery was performed in good faith and without fraudulent intent or

the intent to deceive.

privilege or immunity heretofore enjoyed by any person identified in subsection (a) herein.

(d) A person identified in subsection (a) herein shall be entitled to an award of attorney's

fees and costs if he or she is the prevailing party in a civil cause of action for libel, slander or any

other relevant tort arising out of activities in carrying out the provisions of this chapter and the

party bringing the action was not substantially justified in doing so. For purposes of this section a

proceeding is "substantially justified" if it has a reasonable basis in law or fact at the time that it

was initiated.

SECTION 3. This act shall take effect upon passage.

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LC02049

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