20-701 Scope of article
A. This article shall apply to domestic stock insurers and domestic mutual insurers
only, except that subsection B of section 20-715 and subsection C of section 20-719 shall
apply also to foreign and alien mutual insurers.
B. Any domestic stock or mutual insurer which as of September 1, 1954, had duly
filed its articles of incorporation and was lawfully in process of completing its
organization, shall complete its organization according to such procedures as were
provided by laws in force immediately prior to January 1, 1955. Any other domestic stock
or mutual insurer in process of organization on January 1, 1955 shall be governed by such
provisions of this article as the director deems to be practicably applicable, and
otherwise according to laws in force immediately prior to January 1, 1955.
C. Existing domestic stock and mutual insurers are governed by the applicable
provisions of this article.
20-702 "Mutual" insurer defined
A "mutual" insurer is an incorporated insurer without capital stock or shares, and
which is owned by its policyholders.
20-703 "Stock" insurer defined
A "stock" insurer is an incorporated insurer with capital divided into shares and
owned by its shareholders.
20-704 Applicability of general corporation laws
The general statutes of this state relating to corporations formed for profit,
except where inconsistent with the provisions of this title and the reasonable
implications thereof, shall apply to domestic stock and mutual insurers.
20-705 Articles of incorporation
A. Five or more individuals aged eighteen years or more may incorporate a stock
insurer and ten or more such individuals may incorporate a mutual insurer. Not less than
two thirds of the incorporators shall be citizens of the United States residing in this
state. The articles of incorporation shall be signed and acknowledged by the
incorporators as deeds are required to be acknowledged.
B. The articles of incorporation shall state:
1. The name of the corporation. If a mutual, the word "mutual" shall be a part of
the name.
2. The duration of its existence, which may be perpetual.
3. The kinds of insurance the corporation is formed to transact, according to the
definitions thereof in this title. If the corporation is to be a limited stock insurer,
the articles shall provide for limitations upon the insuring powers of the corporation
consistent with the provisions of section 20-708.
4. If a stock corporation, its authorized capital, the classes and number of shares
into which divided, the par value of each such share and the respective rights of each
such class. Shares without par value shall not be authorized.
5. If a mutual corporation, the maximum contingent liability of its members, other
than as to nonassessible policies, for payment of losses and expenses incurred, which
liability shall be as stated in the articles of incorporation but not less than one nor
more than six times the premium for the member's policy at the annual premium rate for a
term of one year.
6. The number of directors, not less than five nor more than fifteen, who shall
conduct the affairs of the corporation, and the names and addresses of the corporation's
first directors and officers for stated terms of office of not less than two months or
more than one year.
7. The time of the annual meeting of stockholders or members.
8. The city or town in this state in which the principal place of business is to be
located, and the counties, states and countries in which business may be transacted.
9. The limitations, if any, on the corporation's indebtedness.
10. If a stock corporation, the extent, if any, to which stock of the corporation
shall be liable to assessment.
11. Such other provisions, not inconsistent with law, as deemed appropriate by the
incorporators.
12. The names and addresses of the incorporators.
C. The provisions of this section shall apply to stock and mutual insurers
incorporated in this state after January 1, 1955.
20-706 Filing, recording and publication of articles; appointment of agent to receive process; issuance of certificate
A. The articles of incorporation shall be filed in the office of the corporation
commission, and certified copies thereof shall be filed with the director of insurance
and recorded in the office of the county recorder in each county of the state in which
the corporation proposes to transact business.
B. The articles of incorporation shall be published at least six times in a
newspaper published in or having a general circulation in the county of the corporation's
principal place of business. Upon completion of publication, and within three months
after recording the certified copy of the articles in the office of the county recorder
of such county, an affidavit of publication shall be filed in the office of the
corporation commission.
C. The corporation shall appoint a statutory agent located in this state upon whom
all process in any action or proceeding may be served and shall file duplicate originals
of such appointment in the director's office and in the corporation commission's
office. Any termination of such statutory agent shall not take effect until the
corporation has appointed a new, valid statutory agent.
D. Upon completion of the filing and recording as to the articles of incorporation,
and filing of the appointment of a statutory agent for service of process, the
corporation commission shall issue to the corporation a certificate of
incorporation. The corporation shall not transact business as an insurer until it has
applied for and received from the director a certificate of authority as provided by this
title.
20-707 Amendment of articles
A. The articles of incorporation of a stock insurer increasing or reducing
authorized capital or for other purposes may be amended in accordance with the general
laws of this state applying to corporations formed for profit. No amendment shall reduce
authorized capital below the amount required by this title for the kinds of insurance
thereafter to be transacted.
B. The articles of incorporation of a mutual insurer may be amended by the
affirmative vote of two thirds of its members present in person or by proxy at a regular
or special meeting of members of which notice in writing setting forth the proposed
amendment was mailed to all members at least thirty days in advance. A certificate of
the amendments, signed and acknowledged by the president and attested by the secretary of
the corporation, shall be filed, recorded and published, as required of the original
articles of incorporation.
20-708 Limited stock insurers
A. Domestic limited stock insurers may be formed, with capital and surplus as
specified in sections 20-210 and 20-211, to transact life and disability insurance only
or both, except as provided in subsection B of this section, but such an insurer may not:
1. Issue any policy or policies or combination of policies of life or disability
insurance whether individual or group as a direct writer.
2. Accept any risk as a reinsurer under which the maximum possible benefits payable
on the death or on the disability of any one insured shall exceed five thousand dollars
nor without reinsuring the excess over three thousand dollars by noncancellable
reinsurance authorized under section 20-261. Any risk accepted as a reinsurer under this
paragraph shall be a risk under which the ceding life or disability insurer remains
liable for the payment of all policyholder claims.
B. Prior to, but not after January 31, 1980, any domestic limited stock insurer
that on January 31, 1969 was the holder of a valid certificate of authority and that on
or before such date had policy forms approved as provided by this title and had sold and
issued any such policies shall continue to have the right and privilege to issue life and
disability policies direct without regard to the prohibition prescribed in subsection A
of this section, but such company shall not:
1. Issue any policy or combination of life insurance policies or accept any risk
direct under which the maximum possible benefits payable on the death of any one insured
shall exceed five thousand dollars nor without reinsuring the excess over three thousand
dollars by noncancellable reinsurance authorized under section 20-261.
2. Issue any policy or combination of disability insurance policies, or accept any
disability risk direct under which the maximum possible benefits payable to or on account
of any one insured shall exceed five thousand dollars.
3. Issue pure endowment policies or annuity contracts, but this paragraph does not
prohibit the insurer from issuing life insurance endowment policies, limited payment life
and other standard plans of life insurance policies, nor from providing therein standard
settlement options.
C. With appropriate powers in its articles of incorporation by increase of its
authorized and paid-in capital and its surplus funds to the minimum amount required by
this title as for an insurer newly formed and on application to the director, a domestic
limited stock insurer may become a domestic stock insurer free from the restrictions
otherwise imposed by this section.
D. A domestic limited stock insurer may accept reinsurance of risks of life or
disability stock insurers or stock reinsurers, subject to limits as to amount of
insurance as to anyone insured as set forth in this section.
20-709 Formation of mutual insurer; applications for insurance
A. Upon issuance of its certificate of incorporation as provided in subsection D of
section 20-706, the directors and officers of a domestic mutual corporation formed for
the purpose of becoming a mutual insurer may open books for the registration of such
requisite applications for insurance policies as they may accept, and may receive
deposits of premiums thereon.
B. All such applications shall be in writing signed by the applicant, covering
subjects of insurance resident, located or to be performed in this state.
C. All such applications shall provide that:
1. Issuance of the policy is contingent upon completion of organization of the
insurer and issuance to it of a proper certificate of authority.
2. No insurance is provided until the certificate of authority has been so issued.
3. The prepaid premium or deposit, and membership or policy fee, if any, shall be
refunded in full to the applicant if the organization is not completed and the
certificate of authority issued before a specified reasonable date, which date shall be
not later than one year following date of issuance of the certificate of incorporation.
D. All qualifying premiums collected shall be in cash.
E. Solicitation for qualifying applications for insurance shall be by licensed
agents of the corporation, and the director shall upon application therefor issue
temporary agent's licenses expiring on the date specified pursuant to paragraph 3 of
subsection C of this section to individuals appointed by the corporation and qualified as
for a resident agent's license except as to the taking of an examination. The director
may suspend or revoke any such license for the same causes and pursuant to the same
procedures applicable to suspension or revocation of licenses of agents in general under
article 3 of chapter 2 of this title.
20-710 Formation of mutuals; trust deposit of premiums; issuance of policies
A. All sums collected by a domestic mutual corporation as premiums and fees on
qualifying applications for insurance therein shall be deposited in trust in a bank or
trust company of this state under a written trust agreement consistent with this section
and with paragraph 3 of subsection C of section 20-709. The corporation shall file an
executed copy of the trust agreement with the director.
B. Upon issuance to the corporation of a certificate of authority as an insurer for
the kind of insurance for which the applications were solicited, all funds so held in
trust shall become the funds of the insurer, and the insurer shall forthwith issue and
deliver its policies for which premiums had been paid and accepted. The insurance
provided by such policies shall be effective as of the date of the certificate of
authority.
20-711 Initial qualification of domestic mutual insurers
A. When newly organized a domestic mutual insurer may be authorized to transact any
one kind of insurance other than title insurance.
B. When applying for an original certificate of authority as an insurer, a domestic
mutual insurer shall be otherwise qualified under this title, and shall have received and
accepted bona fide applications with respect to substantial insurable subjects for
insurance coverage of a substantial character of the kind of insurance proposed to be
transacted, shall have collected in full and in cash the proper premium at a rate not
less than that usually charged by stock insurers for comparable coverages, shall have
surplus funds on hand as at completion of issuance of all such policies so applied for,
or, in lieu of such applications, premiums and surplus, may deposit surplus, all in
accordance with that portion of the following schedule which applies to the one kind of
insurance the insurer then proposes to transact:
Minimum Minimum Minimum Maximum number number amount of amount of of of Minimum insurance insurance
Kind of applicants subjects premium each each
insurance accepted covered collected subject subject
______
Life (i) 300 300 Annual $1,000 $20,000
Disability (ii) 300 300 Quarter 100 monthly 200 monthly indemnity indemnity
Property (iii) 100 250 Annual 1,000 30,000
Marine and
Transportation 100 250 Annual 1,000 30,000
Vehicle (iv) 100 250 Annual 15,000 30,000
Casualty (iv) 100 250 Annual 15,000 30,000
Surety 100 250 Annual 1,000 50,000
C. The following provisions in the schedule shall govern as to the one kind of
insurance the insurer then proposes to transact:
1. Under (i). No group insurance, nor term policies for terms of less than ten
years shall be included.
2. Under (ii). No group or blanket or family plans of insurance shall be
included. In lieu of weekly indemnity a like premium value in medical, surgical and
hospital benefits may be provided. Any accidental death or dismemberment benefit
provided shall not exceed two thousand dollars.
3. Under (iii). Only insurance of the owner's interest in real property may be
included, and all such coverages shall be in compliance with the provisions of subsection
E of section 20-260 (two properties reasonably subject to loss from the same fire may not
be insured by the same insurer if results in excess of limit of risk).
4. Under (iv). Shall include insurance of legal liability for bodily injury and
property damage to which the maximum and minimum insured amounts apply.
5. Under (v). The deposit in the amount specified shall thereafter be
maintained. The deposit is subject to the provisions of this title governing deposits of
insurers in general.
20-712 Additional kinds of insurance authorized to be issued by mutual insurer
A domestic mutual insurer after being authorized to transact one kind of insurance
shall be authorized by the director to transact such additional kinds of insurance as are
authorized under section 20-209 and upon otherwise qualifying therefor and depositing and
thereafter maintaining on deposit as required through the director unimpaired surplus
funds in an amount not less than the amount of minimum required capital stock required of
a domestic stock insurer transacting like kinds of insurance, and subject further to the
additional surplus requirements of section 20-211.
20-713 Bylaws of mutual insurer
A. The initial board of directors of a domestic mutual insurer shall adopt original
bylaws for the government of the corporation and conduct of its business. The bylaws
shall be subject to the approval of the insurer's members at the next succeeding annual
meeting of members, and no bylaw provision shall thereafter be effective which is not so
approved. Bylaws shall be revoked or modified only by vote of the insurer's members at a
meeting of which notice was given as provided in the bylaws.
B. The bylaws shall provide that each member of the insurer is entitled to one vote
in the election of corporate directors and on all matters coming before membership
meetings, and that such vote may be exercised in person or by proxy.
C. The insurer shall promptly file with the director of insurance a copy, certified
by the insurer's secretary, of such bylaws and of every modification thereof or of
addition thereto. The director shall disapprove any bylaw provision deemed by him to be
unlawful, inadequate, unfair or detrimental to the proper interests and protection of the
insurer's members or any class thereof. The insurer shall not, after receiving written
notice of such disapproval and during the existence thereof, effectuate any bylaw
provision so disapproved.
20-714 Quorum of members of mutual insurer
A domestic mutual insurer may in its bylaws adopt a reasonable provision for
determining a quorum of members at any meeting thereof, but no provision recognizing a
quorum of fewer than a simple majority of all the insurer's members shall be effective
unless approved as reasonable by the director of insurance. This section shall not
affect any other provision of law requiring vote of a larger percentage of members for a
specified purpose.
20-715 Membership in mutual insurer
A. Each holder of one or more insurance policies or contracts issued by a domestic
mutual insurer, other than a contract of reinsurance, is a member of the insurer with all
the rights and obligations of such membership, and each such policy or contract so issued
shall so specify.
B. Any person, government or governmental agency, state or political subdivision
thereof, public or private corporation, board, association, firm, estate, trustee or
fiduciary may be a member of a domestic, foreign or alien mutual insurer.
20-716 Rights of mutual insurer member
With respect to the management, records and affairs of the insurer, a member of a
domestic mutual insurer shall have the same character of rights and relationship as a
stockholder has toward a domestic stock insurer.
20-717 Contingent liability of mutual insurer members
A. Each member of a domestic mutual insurer shall, except as otherwise provided in
this article with respect to nonassessable policies, have a contingent liability, pro
rata and not one for another, for the discharge of its obligations, which contingent
liability shall be in such maximum amount as it stated in the insurer's articles of
incorporation.
B. Each policy issued by the insurer shall contain a statement of the contingent
liability, if any, of its members.
C. Termination of the policy of any such member shall not relieve the member of
contingent liability for his proportion, if any, of the obligations of the insurer which
accrued while the policy was in force.
D. Unrealized contingent liability of members does not constitute an asset of the
insurer in any determination of its financial condition.
20-718 Enforcement of contingent liability
A. If at any time the assets of a domestic mutual insurer are less than its
liabilities and the minimum amount of surplus required of it by this title for authority
to transact the kinds of insurance being transacted, and the deficiency is not cured from
other sources, its directors shall levy an assessment only upon its members who, at any
time within the twelve months immediately preceding the date notice of such assessment
was mailed to them, held policies providing for contingent liability, and such members
shall be liable to the insurer for the amount so assessed.
B. The assessment shall be for such an amount as is required to cure such
deficiency and to provide a reasonable amount of working funds above such minimum amount
of surplus, but such working funds so provided shall not exceed five per cent of the
insurer's liabilities as of the date upon which the amount of such deficiency was
determined.
C. No one policy or member as to such policy shall be assessed or charged with an
aggregate of contingent liability as to obligations incurred by the insurer in any one
calendar year, in excess of the number of times the premium as stated in the policy as
computed solely upon premium earned on such policy during that year.
D. No member shall have an offset against any assessment for which he is liable, on
account of any claim for unearned premium or loss payable.
E. As to life insurance, any part of such an assessment upon a member which remains
unpaid following notice of assessment, demand for payment and lapse of a reasonable
waiting period as specified in such notice, may, if approved by the director of insurance
as being in the best interests of the insurer and its members, be secured by placing a
lien upon the cash surrender values and accumulated dividends held by the insurer to the
credit of such member.
20-719 Issuance of nonassessable policies by mutual insurers
A. While it maintains on deposit with the state treasurer through the director
surplus funds in an amount not less than the paid-in capital required of a domestic stock
insurer transacting like kinds of insurance, a domestic mutual insurer may extinguish the
contingent liability of its members as to all its policies in force, and may omit
provisions imposing contingent liability in all its policies currently issued.
B. When such surplus funds have been so deposited and the director has so
ascertained, he shall issue to the insurer at its request his certificate authorizing
such extinguishment and omission of contingent liability.
C. A foreign or alien mutual insurer may issue nonassessable policies to its
members in this state in accordance with its charter and the laws of its domicile.
20-720 Revocation of authority to issue nonassessable policies
A. The director shall revoke the authority of a domestic mutual insurer to issue
policies without contingent liability if at any time the insurer's assets are less than
the sum of its liabilities and the surplus required for such authority, or if the
insurer, by resolution of its board of directors approved by a majority of its members,
requests that the authority be revoked.
B. Upon revocation of such authority for any cause the insurer shall not thereafter
issue new policies without contingent liability, nor renew or accept further premiums on
old policies without endorsing them to provide for such liability.
20-721 Participating policies
A. If so provided in its articles of incorporation, a domestic stock or domestic
mutual insurer may issue any or all of its policies with or without participation in
profits, savings or unabsorbed portions of premiums, may classify policies issued on a
participating or nonparticipating basis, and may determine the right to participate and
the extent of participation of any class or classes of policies. Any such classification
or determination shall be reasonable, and shall not unfairly discriminate as between
policyholders within the same such classification. A life insurer may issue both
participating and nonparticipating policies only if the right or absence of right to
participate is reasonably related to the premium charged.
B. No dividend, otherwise earned, shall be made contingent upon the payment of
renewal premium on any policy.
20-722 Stock dividends
A. A domestic stock insurer shall not pay any cash dividend to stockholders except
out of that part of its available surplus funds which is derived from realized net
profits on its business.
B. A stock dividend may be paid out of any available surplus funds in excess of the
aggregate amount of surplus loaned to the insurer pursuant to section 20-725.
C. A dividend otherwise proper, may be payable out of the insurer's earned surplus
even though its total surplus is then less than the aggregate of its past contributed
surplus resulting from issuance of its capital stock at a price in excess of the par
value thereof.
20-723 Dividends to mutual policyholders
A. The directors of a domestic mutual insurer may from time to time apportion and
pay or credit to its members dividends only from that part of its surplus funds which
represents net realized savings and net realized earnings from its business.
B. A dividend otherwise proper may be payable from such savings and earnings even
though the insurer's total surplus is then less than the aggregate of its contributed
surplus.
20-724 Illegal dividends; classification
A. Any director of a domestic stock or mutual insurer who knowingly votes for or
concurs in declaration or payment of an illegal dividend to stockholders or members is
guilty of a class 2 misdemeanor, and is jointly and severally liable, together with other
such directors, for any loss thereby sustained by the insurer.
B. The stockholders or members knowingly receiving such an illegal dividend shall
be liable in the amount thereof to the insurer.
C. The director of insurance may revoke or suspend the certificate of authority of
an insurer which has declared or paid an illegal dividend.
20-725 Borrowed surplus
A. A domestic stock or mutual insurer may borrow money to defray the expenses of
its organization, provide it with surplus funds or for any purpose required by its
business, on a written agreement that the money is required to be repaid only out of the
insurer's surplus in excess of that stipulated in the agreement. The agreement may
provide for interest at the rate agreed on, but not exceeding twelve per cent per year.
This interest only constitutes a liability of the insurer if the director has approved
payment of the interest.
B. The surplus note shall provide that the holder's interest is subordinate to the
claims of policyholders, claimants and beneficiaries and to all other classes of
creditors other than surplus noteholders and that interest payments and principal
payments require prior approval of the director.
C. Money so borrowed, together with the interest if so stipulated in the agreement,
shall not form a part of the insurer's legal liabilities or be the basis of any setoff
until the director approves repayment. Until the money and interest are repaid, financial
statements filed or published by the insurer shall show as a footnote the amount
remaining unpaid plus any accrued, unpaid interest, pursuant to the accounting practices
and procedures manual adopted by the national association of insurance commissioners.
D. Before entering a loan transaction as described in this section, a domestic
mutual insurer shall file with the director a statement of the purposes of the loan and a
copy of the proposed loan agreement, which shall be subject to the director's
approval. The loan and agreement shall be deemed approved unless within fifteen days
after the date of filing the insurer is notified in writing of the director's disapproval
and the reasons for the disapproval. The director shall disapprove any proposed loan or
agreement if the director finds that the loan is reasonably unnecessary or excessive for
the purpose intended, that the terms of the loan agreement are not fair and equitable to
the parties and to other similar lenders, if any, or to the insurer or that the
information so filed by the insurer is inadequate, specifying the inadequacies.
E. A mutual insurer shall repay the loan or a substantial portion of the loan when
the loan is no longer reasonably necessary for the purpose originally intended and after
receiving the director's approval for repayment.
F. This section does not apply to loans obtained by the insurer in the ordinary
course of business from banks and other financial institutions nor to loans secured by a
pledge of assets.
G. Any eligible investment as prescribed in chapter 3, article 2 of this title may
be contributed or borrowed pursuant to this section subject to any limitations provided
in that article for that investment.
20-726.01 Insider trading by officers, directors and principal stockholders
A. Every person who is directly or indirectly the beneficial owner of more than ten
per cent of any class of equity security of a domestic stock insurance company, or who is
a corporate director or an officer of such company, shall file in the office of the
director before the first day of July, 1966, or thereafter within ten days after he
becomes such beneficial owner, corporate director or officer, a statement, in such form
as the director may prescribe, of the amount of all classes of equity securities of such
company of which he is the beneficial owner, and within ten days after the close of each
calendar month thereafter, if there has been a change in such ownership during such
month, shall file in the office of the director a statement, in such form as the director
may prescribe, indicating his ownership at the close of the calendar month and such
changes in his ownership as have occurred during such calendar month.
B. For the purpose of preventing the unfair use of information which may have been
obtained by such beneficial owner, corporate director or officer by reason of his
relationship to such company, any profit realized by him from any purchase and sale, or
any sale and purchase, of any equity security of such company within any period of less
than six months unless such equity security was acquired in good faith in connection with
a debt previously contracted, shall inure to and be recoverable by the company,
irrespective of any intention on the part of such beneficial owner, director or officer
in entering into such transaction of holding the equity security purchased or of not
repurchasing the equity security sold for a period exceeding six months. Suit to recover
such profit may be instituted at law or in equity in any court of competent jurisdiction
by the company or by the owner of any security of the company in the name and in behalf
of the company if the company shall fail or refuse to bring such suit within sixty days
after the request or shall fail diligently to prosecute the same thereafter, but no such
suit shall be brought more than two years after the date such profit was realized. This
subsection shall not be construed to cover any transaction where such beneficial owner
was not such both at the time of the purchase and sale, or the sale and purchase, of the
equity security involved, or any transaction or transactions which the director may by
rules or regulations exempt as not comprehended within the purpose of this subsection.
C. It shall be unlawful for any such beneficial owner, corporate director or
officer, directly or indirectly, to sell any equity security of such company if the
person selling the equity security or his principal:
1. Does not own the equity security sold; or
2. If owning the equity security, does not deliver it against such sale within
twenty days thereafter, or does not within five days after such sale deposit it in the
mails or other usual channels of transportation, but no person shall be deemed to have
violated this provision if he proves that notwithstanding the exercise of good faith he
was unable to make such delivery or deposit within such time, or that to do so would
cause undue inconvenience or expense.
D. The provisions of subsection B of this section shall not apply to any purchase
and sale, or sale and purchase, and the provisions of subsection C of this section shall
not apply to any sale, of an equity security not then or theretofore held by him in an
investment account, by a dealer in the ordinary course of his business and incident to
the establishment or maintenance by him of a primary or secondary market, otherwise than
on an exchange as presently defined in the securities exchange act of 1934, for such
security.
E. The provisions of this section shall not apply to foreign or domestic arbitrage
transactions unless made in contravention of such rules and regulations as the director
may adopt in order to carry out the purposes of this section.
F. The term "equity security" means:
1. Any stock or similar security.
2. Any security convertible, with or without consideration, into such a security,
or carrying any warrant or right to subscribe to or purchase such a security.
3. Any such warrant or right.
4. Any other security which the director shall deem to be of similar nature and
consider necessary or appropriate, by such rules and regulations as he may prescribe in
the public interest or for the protection of investors, to treat as an equity security.
G. The provisions of subsections A, B and C of this section shall not apply to
equity securities of a domestic stock insurance company having a class of equity
securities which are registered or are required to be registered pursuant to section 12
of the securities exchange act of 1934, as amended, or as may be amended, or of a
domestic stock insurance company not having a class of equity securities held of record
by one hundred or more persons.
H. The director shall have the power to make such rules and regulations as may be
necessary for the execution of the functions vested in him by subsections A through G of
this section, and may for such purpose classify domestic stock insurance companies,
securities, and other persons or matters within his jurisdiction under this section. No
provision of subsections A, B and C of this section imposing any liability shall apply to
any act done or omitted in good faith in conformity with any rule or regulation of the
director, in the event that such rule or regulation may, after such act or omission, be
amended or rescinded or determined by judicial or other authority to be invalid for any
reason.
20-726 Prohibited interests of officers and directors in certain transactions
A. No director or officer of an insurer shall accept, except for the insurer, or be
the beneficiary of any fee, brokerage, gift or other emolument in addition to his fixed
salary or compensation, because of any investment, loan, deposit, purchase, sale,
exchange, reinsurance or other similar transaction made by or for the insurer, or be
pecuniarily interested therein in any capacity except on behalf of the insurer.
B. No insurer shall guarantee the financial obligation of any of its officers or
directors.
C. This section shall not prohibit such a director or officer from becoming a
policyholder of the insurer and enjoying thereunder the rights customarily provided
therein for holders of such policies.
D. This section shall not prohibit any transaction which meets the requirements of
title 10, chapter 8, article 6.
20-727 Management and exclusive agency contracts
A. No domestic stock or mutual insurer shall make any contract whereby any person
or persons are granted or are to enjoy in fact the management of the insurer to the
substantial exclusion of its board of directors, or are to have the controlling or
preemptive right to produce substantially all insurance business for the insurer, unless
such contract is filed with the director of insurance and be subject to his approval. The
contract shall be deemed approved unless disapproved by the director within twenty days
after date of filing, subject to such reasonable extension of time as the director may
require by notice given within such twenty days. Any disapproval shall be delivered to
the insurer in writing, stating the grounds therefor.
B. The director shall disapprove any such contract if he finds that it:
1. Subjects the insurer to excessive charges.
2. Is to extend for an unreasonable length of time.
3. Does not contain fair and adequate standards of performance.
4. Contains other inequitable provisions or provisions which impair the proper
interests of stockholders or members of the insurer.
20-728 Impairment of capital or assets
A. If the capital stock of a stock insurer becomes impaired, or the assets of a
mutual insurer are less than its liabilities and the minimum amount of surplus required
of it by this title for authority to transact the kinds of insurance being transacted,
the director shall at once determine the amount of the deficiency and serve notice upon
the insurer to make good the deficiency within ninety days after service of such notice.
B. The deficiency may be made good in cash or in assets eligible under this title
for the investment of the insurer's funds, or if a stock insurer, by reduction of the
insurer's capital to an amount not below the minimum required for the kinds of insurance
thereafter to be transacted, or if a mutual insurer, by amendment of its certificate of
authority to cover only such kind or kinds of insurance for which the insurer has on
deposit sufficient surplus.
C. If the deficiency is not made good and proof thereof filed with the director
within the ninety day period, the insurer shall be deemed insolvent and the director
shall institute delinquency proceedings against it as authorized by this title. If the
deficiency exists because of increased loss reserves required by the director, or because
of disallowance by the director of certain assets or reduction of the value at which
carried in the insurer's accounts, the director may in his discretion and upon
application and good cause shown, extend for not more than an additional ninety days the
period within which the deficiency may be so made good and proof thereof so filed.
20-729 Conversion of stock insurer to mutual insurer
A. A domestic stock insurer other than a title insurer may become a domestic mutual
insurer pursuant to such plan and procedure as may be approved in advance by the director
of insurance.
B. The director shall not approve any such plan, procedure or mutualization unless:
1. It is equitable to both stockholders and policyholders.
2. It is subject to approval by a vote of the holders of not less than
three-fourths of the insurer's capital stock having voting rights and by a vote of not
less than two-thirds of the insurer's policyholders who vote on such plan in person, by
proxy or by mail pursuant to such notice and procedure as may be approved by the
director.
3. If a life insurer, the right to vote thereon is limited to those policyholders
whose policies have face amounts of not less than one thousand dollars and have been in
force for one year or more.
4. Mutualization will result in retirement of shares of the insurer's capital stock
at a price not in excess of the fair market value thereof as determined by competent
disinterested appraisers.
5. The plan provides for the purchase of the shares of any non-consenting
stockholder in accordance with the provisions of title 10, chapter 13 and such
nonconsenting stockholders shall have all the rights and restrictions applicable under
such section to stockholders of a private corporation who do not consent to the agreed
manner of converting the shares of stock of such private corporation upon proposal for
consolidation.
6. The plan provides for definite conditions to be fulfilled by a designated early
date upon which such mutualization will be deemed effective.
7. The mutualization leaves the insurer with surplus funds reasonably adequate for
the security of its policyholders and to continue successfully in business in the states
in which it is then authorized to transact insurance, and for the kinds of insurance
included in its certificate of authority.
C. This section shall not apply to mutualization under order of court pursuant to
rehabilitation or reorganization of an insurer under article 4 of chapter 3 of this
title.
20-730 Conversion of mutual insurer to stock insurer
A. A domestic mutual insurer may become a domestic stock insurer pursuant to such
plan and procedure as it approved in advance by the director of insurance.
B. The director shall not approve any such plan or procedure unless:
1. Equitable to the insurer's members.
2. Subject to approval by vote of not less than three fourths of the insurer's
current members voting thereon in person, by proxy, or by mail at a meeting of members
called for the purpose pursuant to such notice and procedure as may be approved by the
director. If a life insurer, the right to vote may be limited to members whose policies
have face amounts of not less than one thousand dollars and have been in force one year
or more.
3. The equity of each policyholder in the insurer is determinable under a fair
formula approved by the director, which equity shall be based upon not less than the
insurer's entire surplus, after deducting contributed or borrowed surplus funds, plus a
reasonable present equity in its reserves and in all nonadmitted assets.
4. The policyholders entitled to participate in the purchase of stock or
distribution of assets shall include all current policyholders and all existing persons
who had been a policyholder of the insurer within three years prior to the date such plan
was submitted to the director.
5. The plan gives to each policyholder of the insurer as specified in paragraph 4
of this section a preemptive right to acquire his proportionate part of all of the
proposed capital stock of the insurer, within a designated reasonable period, and to
apply upon the purchase thereof the amount of his equity in the insurer as determined
under paragraph 3 of this section.
6. Shares are so offered to policyholders at a price not greater than that
thereafter offered to others nor at more than double the par value of the shares.
7. The plan provides for payment to each policyholder not electing to apply his
equity in the insurer for or upon the purchase price of stock to which preemptively
entitled, of cash in the amount of not less than fifty per cent of the amount of his
equity not so used for the purchase of stock, and which cash payment together with stock
so purchased, if any, shall constitute full payment and discharge of the policyholder's
equity as an owner of such mutual insurer.
8. The plan, when completed, would provide for the converted insurer paid-in
capital stock in an amount not less than the minimum paid-in capital required of a
domestic stock insurer transacting like kinds of insurance, together with surplus funds
in amount not less than one half of such required capital.
20-731 Merger or consolidation of stock insurers; hearings; notice
A. Any domestic stock insurer except a title insurer may merge or consolidate with
another domestic or foreign stock insurer by complying with the provisions of general law
governing the merger or consolidation of stock corporations formed for profit, but
subject to subsection B of this section.
B. No merger or consolidation is effective under this section unless in advance of
the merger or consolidation the plan and agreement have been filed with and approved in
writing by the director of insurance. The director may hold a public hearing on the plan
and agreement as prescribed in section 20-161, and the director shall approve the merger
or consolidation unless the director finds the plan or agreement:
1. Is contrary to law.
2. Is unfair in the terms and conditions of the issuance and exchange of
securities.
3. Would substantially reduce the security of and service to be rendered to
policyholders of the domestic insurer in this state or elsewhere.
C. Any public hearing referred to in subsection B of this section shall be held
within thirty days after the plan and agreement of merger is filed, and at least
twenty-five days' written notice thereof shall be given by the director to the insurer
corporations involved. Not less than ten days' written notice of the hearing shall be
given by the insurer corporations to their shareholders. The insurers filing the plan
and agreement, shareholders, any person to whom written notice of hearing was sent and
any other person whose interest may be affected thereby shall have the right to present
evidence, examine and cross-examine the witnesses and offer oral and written arguments at
the hearing. The director shall make a determination within thirty days after the
conclusion of the hearing. Except as otherwise provided in this subsection, the
provisions of title 41, chapter 6, article 10 shall apply to hearings, orders and
appeals.
D. A domestic title insurer may merge or consolidate with another domestic or
foreign title insurer by complying with the provisions of section 20-1576.
20-732 Acceptance of reinsurance by stock insurers; definition
A. A domestic stock insurer or a domestic limited stock insurer may accept
reinsurance for the same kinds of insurance and within the same limits as it is
authorized to transact directly, unless the reinsurance is prohibited by its articles of
incorporation. If a reinsurance contract constitutes all or substantially all of the
insurance business, the reinsuring agreement shall not become effective unless filed with
and approved in writing by the director. If not acted upon within thirty days, the
agreement shall be deemed approved unless the director notifies the parties to the
agreement that a thirty day extension to the time period has been imposed. Any person may
request a hearing regarding the decision of the director pursuant to title 41, chapter 6,
article 10.
B. A domestic stock insurer or limited stock insurer may reinsure all or
substantially all its business in force, or substantially all of a major class thereof,
with another insurer by an agreement of reinsurance, but no agreement shall become
effective unless filed with and approved in writing by the director.
C. The director shall approve the agreement within a reasonable time after filing
unless the director finds that it is inequitable to the stockholders of the domestic
insurer or would substantially reduce the protection or service to its policyholders. If
the director does not approve the agreement the director shall notify the insurer in
writing specifying the reasons for the disapproval of the agreement.
D. For the purposes of this section, "reinsurance" means a contract by which an
insurer procures a third person to insure the insurer against loss or liability by reason
of original insurance, or a contract that one insurer makes with another insurer to
protect the latter from a risk already assumed.
20-733 Merger or consolidation of mutual insurers
A. A domestic mutual insurer shall not merge or consolidate with a stock insurer.
B. A domestic mutual insurer may merge or consolidate with another mutual insurer
in accordance with procedures prescribed by general laws applying to corporations formed
for profit, except as provided by this section.
C. The plan and agreement for merger or consolidation shall be submitted to and
approved by at least two thirds of the members of each mutual insurer involved voting
thereon at meetings called for the purpose pursuant to such reasonable notice and
procedure as has been approved by the director of insurance. If a life insurer, the
right to vote may be limited to members whose policies are in face amount of not less
than one thousand dollars and have been in force one year or more.
D. No such merger or consolidation shall be effectuated unless in advance thereof
the plan and agreement therefor have been filed with and approved in writing by the
director of insurance. The director shall give his approval within a reasonable time
after filing unless he finds the plan or agreement:
1. Inequitable to the policyholders of any domestic insurer involved.
2. Would substantially reduce the security of and service to be rendered to
policyholders of the domestic insurer in this state or elsewhere.
E. If the director does not approve the plan or agreement he shall so notify the
insurer in writing specifying his reasons therefor.
20-734 Acceptance of reinsurance by mutual insurers
A. A domestic mutual insurer may accept reinsurance for the same kinds of insurance
and within the same limits as it is authorized to transact direct unless such reinsurance
is prohibited by its articles of incorporation.
B. A domestic mutual insurer may reinsure all or substantially all its business in
force, or all or substantially all of a major class thereof, with another insurer, stock
or mutual, by an agreement of bulk reinsurance after compliance with this section.
C. In advance of such reinsurance the agreement therefor shall be filed with and be
subject to the approval of the director within a reasonable time after filing. The
director shall not approve the agreement unless he finds it to be fair and equitable to
each domestic insurer involved, and that such reinsurance if effectuated would not
substantially reduce the protection or service to its policyholders. If the director
does not so approve, he shall so notify each insurer involved in writing specifying his
reasons therefor.
D. The plan and agreement for such reinsurance shall be approved by vote of not
less than two thirds of each domestic mutual insurer's members voting thereon at meetings
of members called for the purpose, pursuant to such reasonable notice and procedure as
the director may approve. If a life insurer, the right to vote may be limited to members
whose policies have face amounts of not less than one thousand dollars and have been in
force one year or more.
E. If for reinsurance of a mutual insurer in a stock insurer, the agreement shall
provide for payment in cash to each member of the insurer entitled thereto as upon a
conversion of such insurer pursuant to paragraph 4 of subsection B of section 20-730, of
his equity in the business reinsured as determined under a fair formula approved by the
director, which equity shall be based upon the member's equity in the reserves, assets,
whether or not admitted assets, and surplus, if any, of the mutual insurer to be taken
over by the stock insurer.
20-735 Distribution of assets of mutual insurer upon liquidation
A. Upon any liquidation of a domestic mutual insurer, its assets remaining after
discharge of its indebtedness, policy obligations, repayment of contributed or borrowed
surplus, if any, and expenses of administration, shall be distributed to existing persons
who were its members at any time within thirty-six months next preceding the date the
liquidation was authorized or ordered, or the date of last termination of the insurer's
certificate of authority, whichever date is the earliest.
B. The distributive share of each such member shall be in the proportion that the
aggregate premiums earned by the insurer on the policies of the member during the
combined periods of his membership bear to the aggregate of all premiums so earned on the
policies of all such members. The insurer may, and if a life insurer shall, make a
reasonable classification of its policies so held by such members and a formula based
upon such classification for determining the equitable distributive share of each such
member. Such classification and formula shall be subject to the approval of the director
of insurance.
20-736 Transfer of direct obligations; assignment; notice; findings; approval; applicability
A. An authorized insurer shall not transfer or assign the insurer's direct
obligations under any insurance contract or policy, including annuities and any
guaranteed investment contract, on subjects located, resident or to be performed in this
state, that were incurred or assumed under the insurer's authority to transact business
as an insurer in this state or under a certificate of exemption pursuant to section
20-401.05 to any other insurer or other party by operation of law, including any law that
permits the division of a corporation into two or more resulting corporations, unless the
affected contract holder or policyholder consents to or fails to reject the transfer or
assignment within one hundred eighty days after receiving a fair, adequate and
nonmisleading notice of the transfer or assignment or unless the director approves the
transfer or assignment pursuant to this section.
B. The director shall not approve any transfer or assignment described in
subsection A of this section unless the director makes all of the following findings:
1. The transaction is fair, reasonable and not contrary to law.
2. The transaction will not substantially reduce the security of and service to be
rendered to contract holders and policyholders in this state.
3. The transaction will not be hazardous to or prejudicial against insureds in this
state.
4. The nature and details of the transaction have been adequately disclosed.
5. The transaction will not have an adverse effect on the financial condition of
any insurer.
6. The persons who will control the operation of the insurer or other party to
which the obligations to contract holders and policyholders in this state are transferred
or assigned possess sufficient competence, experience and integrity.
7. The plans or proposals for administration of the contracts and policies subject
to the transfer or assignment are fair and reasonable.
8. The insurer or other party to which or through which the obligations to contract
holders and policyholders in this state are transferred or assigned are at all material
times authorized or exempted pursuant to section 20-401.05 to transact that kind or kinds
of insurance in this state and are in compliance with all applicable legal requirements.
9. The transfer or assignment will not impair any rights to recovery from any
insurance guaranty fund or similar association.
C. Nothing in this section limits or otherwise affects:
1. The lawful administration of a delinquency proceeding or other similar
proceeding initiated against an insurer for the purpose of liquidating, rehabilitating,
reorganizing or conserving the insurer.
2. The powers of the receiver or other similar entity in the delinquency proceeding
or other similar proceeding.
3. The jurisdiction of a court presiding over the delinquency proceeding or other
similar proceeding.
4. The exercise of powers and duties as prescribed by the ARIZONA property and
casualty insurance guaranty fund, the ARIZONA life and disability insurance guaranty fund
or any similar organization in any other state.
D. In order to carry out the requirements of this section, the director may use
independent contractor examiners, analysts and other technical and professional services
in accordance with sections 20-148 and 20-159. All examination and examination related
expenses related to the implementation of this section shall be borne by the insurer from
which the obligations would be transferred or assigned by virtue of the transaction, and
shall be paid by the insurance examiners' revolving fund pursuant to section 20-159.
E. This section does not apply to:
1. The transfer of private passenger automobile insurance policies from one insurer
to an affiliated insurer pursuant to section 20-1631, subsection L.
2. The transfer or assignment of the direct obligations of an authorized insurer
pursuant to a contract of assumption reinsurance.
3. The transfer or assignment of the direct obligations of an authorized insurer
pursuant to a provision of a bona fide indemnity reinsurance contract by which the
reinsurer becomes directly liable under the policies or contracts to which the
reinsurance contract relates.
4. A transfer or assignment resulting from a division or merger of a corporation
that was filed for regulatory approval in the corporation's state of domicile on or
before December 31, 1996.
20-761 "Reciprocal" insurance defined
"Reciprocal" insurance is that resulting from an inter-exchange among persons, known
as "subscribers," of reciprocal agreements of indemnity, the inter-exchange being
effectuated through an "attorney-in-fact" common to all such persons.
20-762 "Reciprocal insurer" defined
A "reciprocal insurer" means an unincorporated aggregation of subscribers operating
individually and collectively through an attorney-in-fact to provide reciprocal insurance
among themselves.
20-763 Scope of article
All authorized reciprocal insurers shall be governed by those sections of this
article not expressly made applicable to domestic reciprocals.
20-764 Compliance by existing insurers
Existing authorized reciprocal insurers shall after January 1, 1955 comply with the
provisions of this article, and shall make such amendments to their subscribers'
agreement, power of attorney, policies and other documents and accounts and perform such
other acts as may be required for such compliance.
20-765 Powers of reciprocal insurers
A. A reciprocal insurer may, upon qualifying therefor as provided for by this
title, transact any kind or kinds of insurance defined by this title, other than life or
title insurances.
B. Such an insurer may purchase reinsurance upon the risk of any subscriber, and
may grant reinsurance as to any kind of insurance it is authorized to transact directly.
20-766 Name of insurer; designation by name as party in action
A reciprocal insurer shall have and use a business name which shall include the word
"reciprocal," "inter-insurer," "inter-insurance," "exchange," "underwriters" or
"underwriting," and shall sue and be sued in its own name.
20-767 Attorney-in-fact of reciprocal insurers
A. "Attorney," as used in this article refers to the attorney-in-fact of a
reciprocal insurer. The attorney may be an individual, firm or corporation.
B. The attorney of a foreign or alien reciprocal insurer, which insurer is duly
authorized to transact insurance in this state, shall not, by virtue of discharge of its
duties as such attorney with respect to the insurer's transactions in this state, be
thereby deemed to be doing business in this state within the meaning of any laws of this
state applying to foreign firms or corporations.
20-768 Required surplus funds
A. A domestic reciprocal insurer formed under this article, if it has otherwise
complied with the provisions of this title, may be authorized to transact insurance if it
deposits and maintains on deposit with the state treasurer through the office of the
director to transact property or vehicle insurance, surplus funds of not less than six
hundred thousand dollars.
B. A domestic reciprocal insurer may be authorized to transact additional kinds of
insurance if it has otherwise complied with the provisions of this title and possesses
and so maintains on deposit surplus funds in amount equal to the minimum capital required
of a stock insurer for authority to transact a like combination of kinds of insurance.
20-769 Organization of reciprocal insurer
A. Twenty-five or more persons domiciled in this state may organize a domestic
reciprocal insurer and make application to the director for a certificate of authority to
transact insurance.
B. The proposed attorney shall fulfill the requirements of and shall execute and
file with the director, when applying for a certificate of authority, a declaration
setting forth:
1. The name of the insurer.
2. The location of the insurer's principal office, which shall be the same as that
of the attorney and shall be maintained within this state.
3. The kinds of insurance proposed to be transacted.
4. The names and addresses of the original subscribers.
5. The designation and appointment of the proposed attorney and a copy of the power
of attorney.
6. The names and addresses of the officers and directors of the attorney, if a
corporation, or its members, if a firm.
7. The powers of the subscribers' advisory committee, and the names and terms of
office of the members thereof.
8. That all monies paid to the reciprocal shall, after deducting therefrom any sum
payable to the attorney, be held in the name of the insurer and for the purposes
specified in the subscribers' agreement.
9. A copy of the subscribers' agreement.
10. A statement that each of the original subscribers has in good faith applied for
insurance of a kind proposed to be transacted, and that the insurer has received from
each such subscriber the full premium or premium deposit required for the policy applied
for, for a term of not less than six months at an adequate rate theretofore filed with
and approved by the director.
11. A statement of the financial condition of the insurer, a schedule of its assets
and a statement that the surplus as required by section 20-768 is on hand.
12. A copy of each policy, endorsement and application form it then proposes to
issue or use.
C. The declaration shall be acknowledged by the attorney in the manner required for
the acknowledgement of deeds.
20-770 Certificate of authority
A. The certificate of authority of a reciprocal insurer shall be issued to its
attorney in the name of the insurer.
B. The director may refuse, suspend or revoke the certificate of authority, in
addition to other grounds therefor, for failure of the attorney to comply with any
provision of this title.
20-771 Power of attorney
A. The rights and powers of the attorney of a reciprocal insurer shall be as
provided in the power of attorney given it by the subscribers.
B. The power of attorney shall set forth:
1. The powers of the attorney.
2. That the attorney is empowered to accept service of process on behalf of the
insurer.
3. The general services to be performed by the attorney.
4. The maximum amount to be deducted from advance premiums or deposits to be paid
to the attorney and the general items of expense in addition to losses, to be paid by the
insurer.
5. Except as to nonassessable policies, a provision for a contingent several
liability of each subscriber in a specified amount which amount shall be not less than
one nor more than ten times the premium or premium deposit stated in the policy.
C. The power of attorney may:
1. Provide for the right of substitution of the attorney and revocation of the
power of attorney and rights thereunder.
2. Impose such restrictions upon the exercise of the power as are agreed upon by
the subscribers.
3. Provide for the exercise of any right reserved to the subscribers directly or
through their advisory committee.
4. Contain other lawful provisions deemed advisable.
D. The terms of any power of attorney or agreement collateral thereto shall be
reasonable and equitable, and no such power or agreement shall be used or be effective in
this state until approved by the director.
20-772 Modifications of agreement
Modification of the terms of the subscribers' agreement or of the power of attorney
of a domestic reciprocal insurer shall be made jointly by the attorney and the
subscribers' advisory committee. No such modification shall be effective retroactively,
nor effective as to any insurance contract issued prior thereto.
20-773 Bond of attorney
A. Concurrently with the filing of the declaration provided for in section 20-769,
the attorney of a domestic reciprocal insurer shall file with the director a bond in
favor of the state for the benefit of all persons damaged as a result of breach by the
attorney of the conditions of his bond as set forth in subsection B of this section. The
bond shall be executed by the attorney and by an authorized corporate surety, and shall
be subject to the director's approval.
B. The bond shall be in the penal sum of twenty-five thousand dollars, aggregate in
form, conditioned that the attorney will faithfully account for all monies and other
property of the insurer coming into his hands, and that he will not withdraw or
appropriate to his own use from the funds of the insurer, any monies or property to which
he is not entitled under the power of attorney.
C. The bond shall provide that it is not subject to cancellation unless thirty days
advance notice in writing of cancellation is given both the attorney and the director.
20-774 Deposit in lieu of bond of attorney
In lieu of the bond provided for in section 20-773, the attorney may maintain on
deposit with the state treasurer through the office of the director a like amount in cash
or in value of securities qualified under this title as insurers' investments, and
subject to the same conditions as the bond.
20-775 Action on bond
Action on the attorney's bond or to recover against any deposit made in lieu thereof
may be brought at any time by one or more subscribers suffering loss through a violation
of its conditions, or by a receiver or liquidator of the insurer. Amounts recovered on
the bond shall be deposited in and become part of the insurer's funds. The total
aggregate liability of the surety shall be limited to the amount of the penalty of the
bond.
20-776 Service of legal process; liabilities under judgment on such service
A. Legal process shall be served upon a domestic reciprocal insurer by serving the
insurer's attorney at his principal offices or by serving the director of insurance as
the insurer's attorney-in-fact.
B. Any judgment based upon legal process so served shall be binding upon each of
the insurer's subscribers as their respective interests may appear, but in an amount not
exceeding their respective contingent liabilities, if any, the same as though personal
service of process was had upon each such subscriber.
20-777 Annual statement
A. The annual statement of a reciprocal insurer shall be made and filed by its
attorney.
B. The statement shall be supplemented by such information as may be required by
the director relative to the affairs and transactions of the attorney.
20-778 Contributions to insurer
The attorney or other parties may advance to a domestic reciprocal insurer upon
reasonable terms such funds as it may require from time to time in its
operations. Amounts so advanced shall not be treated as a liability of the insurer, and,
except upon liquidation of the insurer, shall not be withdrawn or repaid except out of
the insurer's realized earned surplus in excess of its minimum required surplus. No such
withdrawal or repayment shall be made without the advance approval of the director.
20-779 Financial condition; determination
In determining the financial condition of a reciprocal insurer the director shall
apply the following rules:
1. He shall charge as liabilities the same reserves as are required of incorporated
insurers issuing nonassessable policies on a reserve basis.
2. The surplus deposits of subscribers shall be allowed as assets, except that any
premium deposit delinquent for ninety days shall first be charged against the surplus
deposit.
3. The surplus deposits of subscribers shall not be charged as a liability.
4. All premium deposits delinquent less than ninety days shall be allowed as
assets.
5. An assessment levied upon subscribers, and not collected, shall not be allowed
as an asset.
6. The contingent liability of subscribers shall not be allowed as an asset.
7. The computation of reserves shall be based upon premium deposits other than
membership fees and without any deduction for the compensation of the attorney.
20-780 Subscribers
Individuals, partnerships and corporations of this state may make application, enter
into agreement for and hold policies or contracts in or with and be a subscriber of any
domestic, foreign or alien reciprocal insurer. Any corporation organized under the laws
of this state shall, in addition to the rights, powers and franchises specified in its
articles of incorporation, have full power and authority as a subscriber to exchange
insurance contracts through such reciprocal insurance. The right to exchange such
contracts is declared to be incidental to the purposes for which such corporations are
organized and to be as fully granted as the rights and powers expressly conferred upon
such corporations. Government or governmental agencies, state or political subdivisions
thereof, boards, associations, estates, trustees or fiduciaries are authorized to
exchange nonassessable reciprocal inter-insurance contracts with each other and with
individuals, partnerships and corporations to the same extent that individuals,
partnerships and corporations are authorized to exchange reciprocal inter-insurance
contracts. Any officer, representative, trustee, receiver or legal representative of any
such subscriber shall be recognized as acting for or on its behalf for the purpose of the
contract but shall not be personally liable upon the contract by reason of acting in such
representative capacity.
20-781 Subscribers' advisory committee
A. The advisory committee of a domestic reciprocal insurer exercising the
subscribers' rights shall be selected under such rules as the subscribers adopt.
B. Not less than two thirds of the committee shall be subscribers other than the
attorney, or any person employed by, representing or having a financial interest in the
attorney.
C. The committee shall:
1. Supervise the finances of the insurer.
2. Supervise the insurer's operations to such extent as to assure conformity with
the subscribers' agreement and power of attorney.
3. Procure the audit of the accounts and records of the insurer and of the attorney
at the expense of the insurer.
4. Have such additional powers and functions as may be conferred by the
subscribers' agreement.
20-782 Subscriber's liability
A. The liability of each subscriber, other than as to a nonassessable policy, for
the obligations of the reciprocal insurer shall be an individual, several and
proportionate liability, and not joint.
B. Except as to a nonassessable policy each subscriber shall have a contingent
assessment liability, in the amount provided for in the power of attorney or in the
subscribers' agreement, for payment of actual losses and expenses incurred while his
policy was in force. Such contingent liability may be at the rate of not less than one
nor more than ten times the premium or premium deposit stated in the policy, and the
maximum aggregate thereof shall be computed in the manner set forth in section 20-786.
C. Each assessable policy issued by the insurer shall contain a statement of the
contingent liability, set in type of the same prominence as the insuring clause.
20-783 Liability of subscriber on judgment against insurer
A. No action shall lie against any subscriber upon any obligation claimed against
the insurer until a final judgment has been obtained against the insurer and remains
unsatisfied for thirty days.
B. Any such judgment shall be binding upon each subscriber only in such proportion
as his interests may appear and in an amount not exceeding his contingent liability, if
any.
20-784 Assessments
A. Assessments may from time to time be levied upon subscribers of a domestic
reciprocal insurer liable therefor under the terms of their policies by the attorney upon
approval in advance by the subscribers' advisory committee and the director, or by the
director in liquidation of the insurer.
B. Each subscriber's share of a deficiency for which an assessment is made, but not
exceeding in any event his aggregate contingent liability as computed in accordance with
section 20-786, shall be computed by applying to the premium earned on the subscriber's
policy or policies during the period to be covered by the assessment, the ratio of the
total deficiency to the total premiums earned during such period upon all policies
subject to the assessment.
C. In computing the earned premiums for the purposes of this section, the gross
premium received by the insurer for the policy shall be used as a base, deducting
therefrom solely charges not recurring upon the renewal or extension of the policy.
D. No subscriber shall have an offset against any assessment for which he is
liable, on account of any claim for unearned premium or losses payable.
20-785 Time limit for assessment
Every subscriber of a domestic reciprocal insurer having contingent liability shall
be liable for, and shall pay his share of any assessment, as computed and limited in
accordance with this article, if:
1. While his policy is in force or within one year after its termination, he is
notified by either the attorney or the director of his intentions to levy such
assessment.
2. An order to show cause why a receiver, conservator, rehabilitator or liquidator
of the insurer should not be appointed is issued while his policy is in force or within
one year after its termination.
20-786 Limitation on liability
No one policy or subscriber as to such policy, shall be assessed or charged with an
aggregate of contingent liability as to obligations incurred by a domestic reciprocal
insurer in any one calendar year, in excess of the amount provided for in the power of
attorney or in the subscribers' agreement, computed solely upon premium earned on such
policy during that year.
20-787 Nonassessable policies
A. If a reciprocal insurer has a surplus of assets over all liabilities at least
equal to the minimum capital stock generally required of a domestic stock insurer
authorized to transact like kinds of insurance, upon application of the attorney and as
approved by the subscribers' advisory committee the director shall issue his certificate
authorizing the insurer to extinguish the contingent liability of subscribers under its
policies then in force in this state, and to omit provisions imposing contingent
liability in all policies delivered or issued for delivery in this state for so long as
all such surplus remains unimpaired.
B. Upon impairment of the surplus, the director shall forthwith revoke the
certificate. The revocation shall not render subject to contingent liability any policy
then in force and for the remainder of the period for which the premium has theretofore
been paid, but after such revocation no policy shall be issued or renewed without
providing for contingent assessment liability of the subscriber.
C. The director shall not authorize a domestic reciprocal insurer so to extinguish
the contingent liability of any of its subscribers or in any of its policies to be
issued, unless it qualifies to and does extinguish such liability of all its subscribers
and in all such policies for all kinds of insurance transacted by it, but if required by
the laws of another state in which the insurer is transacting insurance as an authorized
insurer, the insurer may issue policies providing for the contingent liability of such of
its subscribers as may acquire such policies in such state, and need not extinguish the
contingent liability applicable to policies theretofore in force in such state.
20-788 Distribution of savings
A reciprocal insurer may from time to time return to its subscribers any unused
premiums, savings or credits accruing to their accounts. Any such distribution shall not
unfairly discriminate between classes of risks, or policies, or between subscribers, but
this shall not prevent retrospective rating, nor distribution on a retrospective plan.
20-789 Subscriber's share in assets
Upon the liquidation of a domestic reciprocal insurer, its assets remaining after
discharge of its indebtedness and policy obligations, the return of any contributions of
the attorney or other persons to its surplus made as provided in section 20-778, and the
return of any unused premium, savings or credits then standing on subscribers' accounts,
shall be distributed to its subscribers who were such within the twelve months prior to
the last termination of its certificate of authority, according to such reasonable
formula as the director may approve.
20-790 Merger or conversion
A. A domestic reciprocal insurer upon affirmative vote of not less than two thirds
of its subscribers who vote on such merger pursuant to due notice and the approval of the
director of the terms therefor, may merge with another reciprocal insurer or be converted
to a stock or mutual insurer.
B. Such a stock or mutual insurer shall be subject to the same capital requirements
and shall have the same rights as a like domestic insurer transacting like kinds of
insurance.
C. The director shall not approve any plan for merger or conversion which is
inequitable to subscribers, or which, if for conversion to a stock insurer, does not give
each subscriber preferential right to acquire stock of the proposed insurer proportionate
to his interest in the reciprocal insurer as determined in accordance with section 20-789
and a reasonable length of time within which to exercise such right.
20-791 Impaired reciprocal insurers
A. If the assets of a reciprocal insurer are at any time insufficient to discharge
its liabilities, other than any liability on account of funds contributed by the attorney
or others, and to maintain the required surplus, its attorney shall forthwith make up the
deficiency or levy an assessment upon the subscribers for the amount needed to make up
the deficiency, but subject to the limitation set forth in the power of attorney or
policy.
B. If the attorney fails to make up the deficiency or to make the assessment within
thirty days after the director orders him to do so, or if the deficiency is not fully
made up within sixty days after the date the assessment was made, the insurer shall be
deemed insolvent and shall be proceeded against as authorized by this title.
C. If liquidation of such an insurer is ordered, an assessment shall be levied upon
the subscribers for such an amount, subject to limits as provided by this article, as the
director determines to be necessary to discharge all liabilities of the insurer,
exclusive of any funds contributed by the attorney or other persons, but including the
reasonable cost of the liquidation.
20-792 Ownership of real property
Legal title of real property acquired as an eligible investment in accordance with
section 20-556 must be held in the name of the reciprocal insurer. Notwithstanding any
other provision in this section, all deeds, notes, mortgages or other documents relating
to the purchase, sale, lease, encumbrance or other interest in such real property may be
executed in the name of the reciprocal insurer by its attorney-in-fact.
20-821 Scope of article; rules; authority of director
A. Hospital service corporations, medical service corporations, dental service
corporations, optometric service corporations and hospital, medical, dental and
optometric service corporations incorporated in this state are governed by this article
and are exempt from all other provisions of this title, except as expressly provided by
this article and any rule adopted by the director pursuant to section 20-143 relating to
contracts of such service corporations. No insurance law enacted after January 1, 1955
applies to such corporations unless the law specifically refers to corporations.
B. Chapter 2, article 12 of this title, sections 20-223, 20-234, 20-261, 20-261.01,
20-261.02, 20-261.03, 20-261.04, 20-1133, 20-1377, 20-1408, 20-1692, 20-1692.01,
20-1692.02 and 20-1692.03 and chapters 15, 17 and 20 of this title and any rules adopted
to implement these provisions apply to all corporations governed by this article.
C. Chapter 21 of this title applies to a hospital service corporation, a medical
service corporation or a hospital and medical service corporation.
20-822 Definitions
In this article, unless the context otherwise requires:
1. "Department" means the department of insurance.
2. "Director" means the director of the department of insurance.
3. "Hospital service corporations", "medical service corporations", "dental service
corporations", "optometric service corporations" and "hospital, medical, dental and
optometric service corporations" mean corporations organized under the laws of this state
for the purpose of establishing, maintaining, and operating nonprofit hospital service or
medical or dental or optometric service plans, or a combination of such plans, whereby
hospital, medical or dental or optometric service may be provided by hospitals, which
within the meaning of this article may include extended care facilities and home health
agencies, or by physicians, which within the meaning of this article may include
professional and technical personnel under the direction of a physician, or by
podiatrists, or by dentists which may include those engaged in the general practice of
dentistry as well as the specialized or restricted practice of dentistry, or by
optometrists which may include those engaged in the general practice of optometry as well
as the specialized or restricted practice of optometry, with which the corporations have
contracted for such purpose, to such of the public as become subscribers to the
corporations under contracts which entitle each subscriber to certain hospital, medical,
dental or optometric service, or in the case of hospital service corporations or medical
service corporations, all such services, or whereby as operating expense or refunds,
payments may be made to subscribers with respect to any such service that is rendered by
a hospital, physician, podiatrist, dentist or optometrist with which the corporations
have not so contracted.
20-823 Incorporation of hospital, medical, dental and optometric service corporations
The corporation as defined in section 20-822 shall be organized under the laws of
this state relating to private corporations not for pecuniary profit, insofar as such
laws are not inconsistent with any of the provisions of this article.
20-824 Application for certificate; fee
Such a corporation may issue contracts to its subscribers only when the director of
insurance has, by certificate of authority, authorized it so to do. Application for a
certificate of authority shall be made on forms supplied or approved by the director
containing such information as he deems necessary. Each application for a certificate of
authority shall be accompanied by the fee prescribed by article 2 of chapter 1 of this
title for medical, hospital, dental and optometric service corporations and copies of the
following documents:
1. Articles of incorporation.
2. Bylaws.
3. Proposed contracts between the applicant and participating hospitals,
physicians, dentists or optometrists showing the terms under which service is to be
furnished to subscribers.
4. Proposed contracts to be issued to subscribers.
5. A table of rates to be charged to subscribers.
6. Financial statement of the corporation, including the amounts of contributions
paid or agreed to be paid to the corporation for working capital, and the name or names
of each contributor and the terms of each contribution.
7. A statement of the area in which the corporation proposes to operate.
20-825.01 Minimum capital or surplus required; application
A corporation that is exempt from the risk-based capital requirement prescribed in
section 20-488.08 shall maintain unimpaired capital or surplus, or both, in the amount of
at least twenty-five thousand dollars.
20-825 Certificate of authority; requirements
The director shall issue a certificate of authority authorizing the applicant to
issue contracts to its subscribers when it is shown to the satisfaction of the director
that:
1. The applicant is established as a bona fide, nonprofit hospital service
corporation, medical service corporation, dental service corporation or optometric
service corporation or combination thereof.
2. The contracts between the applicant and the participating hospitals, physicians,
dentists or optometrists obligate each hospital, physician, dentist or optometrist
executing them to render service to which each subscriber may be entitled under the terms
of the contract to be issued to the subscribers.
3. The amounts provided as working capital of the corporation are repayable,
without interest, out of operating expenses.
4. The amount of money actually available for working capital is sufficient to
carry on the plan for a period of six months from the date of issuance of the certificate
of authority.
5. The applicant has secured contracts of participation from sufficient hospitals,
physicians, dentists or optometrists or any combination thereof to provide ample
protection for its subscribers within the area proposed to be served by the applicant.
20-826.01 Hospital or medical service corporations; clinical trials; cancer; definitions A. A hospital service corporation or medical service corporation is not obligated to pay any costs, other than covered patient costs, that are directly associated with a cancer clinical trial that is offered in this state and in which the subscriber participates voluntarily. A cancer clinical trial is a course of treatment in which all of the following apply: 1. The treatment is part of a scientific study of a new therapy or intervention that is being conducted at an institution in this state, that is for the treatment, palliation or prevention of cancer in humans and in which the scientific study includes all of the following: (a) Specific goals. (b) A rationale and background for the study. (c) Criteria for patient selection. (d) Specific directions for administering the therapy and monitoring patients. (e) A definition of quantitative measures for determining treatment response. (f) Methods for documenting and treating adverse reactions. 2. The treatment is being provided as part of a study being conducted in a phase I, phase II, phase III or phase IV cancer clinical trial. 3. The treatment is being provided as part of a study being conducted in accordance with a clinical trial approved by at least one of the following: (a) One of the national institutes of health. (b) A national institutes of health cooperative group or center. (c) The United States food and drug administration in the form of an investigational new drug application. (d) The United States department of defense. (e) The United States department of veterans affairs. (f) A qualified research entity that meets the criteria established by the national institutes of health for grant eligibility. (g) A panel of qualified recognized experts in clinical research within academic health institutions in this state. 4. The proposed treatment or study has been reviewed and approved by an institutional review board of an institution in this state. 5. The personnel providing the treatment or conducting the study: (a) Are providing the treatment or conducting the study within their scope of practice, experience and training and are capable of providing the treatment because of their experience, training and volume of patients treated to maintain expertise. (b) Agree to accept reimbursement as payment in full from the corporation at the rates that are established by the corporation and that are not more than the level of reimbursement applicable to other similar services provided by health care providers with the corporation's provider network. 6. There is no clearly superior, noninvestigational treatment alternative. 7. The available clinical or preclinical data provide a reasonable expectation that the treatment will be at least as efficacious as any noninvestigational alternative. B. Pursuant to the patient informed consent document, no party is liable for damages associated with the treatment provided during any phase of a cancer clinical trial. C. Each contract delivered or issued for delivery in this state shall provide benefits under the contract, and those benefits shall not supplant any portion of the clinical trial that is customarily paid for by government, biotechnical, pharmaceutical or medical device industry sources. D. This section does not create any private right or cause of action for or on behalf of any patient against the corporation. This section provides solely an administrative remedy to the director for any violation of this section or any related rule. E. Nothing in this section prohibits the corporation from imposing deductibles, coinsurance or other cost sharing measures in relation to benefits provided pursuant to this section. F. A trade association that represents hospital service corporations, medical service corporations and health care services organizations as defined in section 20-1051 may select a representative to voluntarily serve on the institutional review board of an institution in this state that reviews and approves the proposed treatment or study conducted during the cancer clinical trial. G. For the purposes of this section: 1. "Cooperative group" means a formal network of facilities that collaborates on research projects and that has an established national institutes of health approved peer review program operating within the group, including the national cancer institute clinical cooperative group and the national cancer institute community clinical oncology program. 2. "Institutional review board" means any board, committee or other group that is both: (a) Formally designated by an institution to approve the initiation of and to conduct periodic review of biomedical research involving human subjects and in which the primary purpose of such review is to assure the protection of the rights and welfare of the human subjects and not to review a clinical trial for scientific merit. (b) Approved by the national institutes of health office for protection from research risks. 3. "Multiple project assurance contract" means a contract between an institution and the United States department of health and human services that defines the relationship of the institution to the United States department of health and human services and that sets out the responsibilities of the institution and the procedures that will be used by the institution to protect human subjects. 4. "Patient" means the subscriber or the subscriber's covered dependent. 5. "Patient cost" means any fee or expense that is covered under the contract and that is for a service or treatment that would be required if the patient were receiving usual and customary care. Patient cost does not include the cost: (a) Of any drug or device provided in a phase I cancer clinical trial. (b) Of any investigational drug or device. (c) Of nonhealth services that might be required for a person to receive treatment or intervention. (d) Of managing the research of the clinical trial. (e) That would not be covered under the patient's contract. (f) Of treatment or services provided outside this state. 20-826.02 Subscription contracts; varying copayments and deductibles allowed A. Except as provided in sections 20-1379 and 20-2304, a corporation may offer one or more subscription contracts that contain a choice of deductibles, coinsurance, copayments, out-of-pocket and any other cost sharing levels. Plans offered under this section shall clearly disclose in marketing materials, certificates of coverage and contracts the insured's financial responsibilities. A corporation that offers such a subscription contract shall continue to provide any mandated health coverage that is required by this state or by federal law. B. This section does not prohibit a health benefits plan that is intended to qualify as a high deductible health plan as defined by 26 United States Code section 223(c)(2) from requiring the application of deductibles, copayments or coinsurance to benefits provided under the health benefits plan. 20-826 Subscription contracts; definitions
A. A contract between a corporation and its subscribers shall not be issued unless
the form of such contract is approved in writing by the director.
B. Each contract shall plainly state the services to which the subscriber is
entitled and those to which the subscriber is not entitled under the plan, and shall
constitute a direct obligation of the providers of services with which the corporation
has contracted for hospital, medical, dental or optometric services.
C. Each contract, except for dental services or optometric services, shall be so
written that the corporation shall pay benefits for each of the following:
1. Performance of any surgical service that is covered by the terms of such
contract, regardless of the place of service.
2. Any home health services that are performed by a licensed home health agency and
that a physician has prescribed in lieu of hospital services, as defined by the director,
providing the hospital services would have been covered.
3. Any diagnostic service that a physician has performed outside a hospital in lieu
of inpatient service, providing the inpatient service would have been covered.
4. Any service performed in a hospital's outpatient department or in a freestanding
surgical facility, if such service would have been covered if performed as an inpatient
service.
D. Each contract for dental or optometric services shall be so written that the
corporation shall pay benefits for contracted dental or optometric services provided by
dentists or optometrists.
E. Any contract, except accidental death and dismemberment, applied for that
provides family coverage shall, as to such coverage of family members, also provide that
the benefits applicable for children shall be payable with respect to a newly born child
of the insured from the instant of such child's birth, to a child adopted by the insured,
regardless of the age at which the child was adopted, and to a child who has been placed
for adoption with the insured and for whom the application and approval procedures for
adoption pursuant to section 8-105 or 8-108 have been completed to the same extent that
such coverage applies to other members of the family. The coverage for newly born or
adopted children or children placed for adoption shall include coverage of injury or
sickness including necessary care and treatment of medically diagnosed congenital defects
and birth abnormalities. If payment of a specific premium is required to provide coverage
for a child, the contract may require that notification of birth, adoption or adoption
placement of the child and payment of the required premium must be furnished to the
insurer within thirty-one days after the date of birth, adoption or adoption placement in
order to have the coverage continue beyond the thirty-one day period.
F. Each contract that is delivered or issued for delivery in this state after
December 25, 1977 and that provides that coverage of a dependent child shall terminate
upon attainment of the limiting age for dependent children specified in the contract
shall also provide in substance that attainment of such limiting age shall not operate to
terminate the coverage of such child while the child is and continues to be both
incapable of self-sustaining employment by reason of mental retardation or physical
handicap and chiefly dependent upon the subscriber for support and maintenance. Proof of
such incapacity and dependency shall be furnished to the corporation by the subscriber
within thirty-one days of the child's attainment of the limiting age and subsequently as
may be required by the corporation, but not more frequently than annually after the
two-year period following the child's attainment of the limiting age.
G. No corporation may cancel or refuse to renew any subscriber's contract without
giving notice of such cancellation or nonrenewal to the subscriber under such contract.
A notice by the corporation to the subscriber of cancellation or nonrenewal of a
subscription contract shall be mailed to the named subscriber at least forty-five days
before the effective date of such cancellation or nonrenewal. The notice shall include or
be accompanied by a statement in writing of the reasons for such action by the
corporation. Failure of the corporation to comply with the provisions of this subsection
shall invalidate any cancellation or nonrenewal except a cancellation or nonrenewal for
nonpayment of premium.
H. A contract that provides coverage for surgical services for a mastectomy shall
also provide coverage incidental to the patient's covered mastectomy for surgical
services for reconstruction of the breast on which the mastectomy was performed, surgery
and reconstruction of the other breast to produce a symmetrical appearance, prostheses,
treatment of physical complications for all stages of the mastectomy, including
lymphedemas, and at least two external postoperative prostheses subject to all of the
terms and conditions of the policy.
I. A contract that provides coverage for surgical services for a mastectomy shall
also provide coverage for mammography screening performed on dedicated equipment for
diagnostic purposes on referral by a patient's physician, subject to all of the terms and
conditions of the policy and according to the following guidelines:
1. A baseline mammogram for a woman from age thirty-five to thirty-nine.
2. A mammogram for a woman from age forty to forty-nine every two years or more
frequently based on the recommendation of the woman's physician.
3. A mammogram every year for a woman fifty years of age and over.
J. Any contract that is issued to the insured and that provides coverage for
maternity benefits shall also provide that the maternity benefits apply to the costs of
the birth of any child legally adopted by the insured if all of the following are true:
1. The child is adopted within one year of birth.
2. The insured is legally obligated to pay the costs of birth.
3. All preexisting conditions and other limitations have been met by the insured.
4. The insured has notified the insurer of the insured's acceptability to adopt
children pursuant to section 8-105, within sixty days after such approval or within sixty
days after a change in insurance policies, plans or companies.
K. The coverage prescribed by subsection J of this section is excess to any other
coverage the natural mother may have for maternity benefits except coverage made
available to persons pursuant to title 36, chapter 29 but not including coverage made
available to persons defined as eligible under section 36-2901, paragraph 6, subdivisions
(b), (c), (d) and (e). If such other coverage exists the agency, attorney or individual
arranging the adoption shall make arrangements for the insurance to pay those costs that
may be covered under that policy and shall advise the adopting parent in writing of the
existence and extent of the coverage without disclosing any confidential information such
as the identity of the natural parent. The insured adopting parents shall notify their
insurer of the existence and extent of the other coverage.
L. The director may disapprove any contract if the benefits provided in the form of
such contract are unreasonable in relation to the premium charged.
M. The director shall adopt emergency rules applicable to persons who are leaving
active service in the armed forces of the United States and returning to civilian status
including:
1. Conditions of eligibility.
2. Coverage of dependents.
3. Preexisting conditions.
4. Termination of insurance.
5. Probationary periods.
6. Limitations.
7. Exceptions.
8. Reductions.
9. Elimination periods.
10. Requirements for replacement.
11. Any other condition of subscription contracts.
N. Any contract that provides maternity benefits shall not restrict benefits for
any hospital length of stay in connection with childbirth for the mother or the newborn
child to less than forty-eight hours following a normal vaginal delivery or ninety-six
hours following a cesarean section. The contract shall not require the provider to
obtain authorization from the corporation for prescribing the minimum length of stay
required by this subsection. The contract may provide that an attending provider in
consultation with the mother may discharge the mother or the newborn child before the
expiration of the minimum length of stay required by this subsection. The corporation
shall not:
1. Deny the mother or the newborn child eligibility or continued eligibility to
enroll or to renew coverage under the terms of the contract solely for the purpose of
avoiding the requirements of this subsection.
2. Provide monetary payments or rebates to mothers to encourage those mothers to
accept less than the minimum protections available pursuant to this subsection.
3. Penalize or otherwise reduce or limit the reimbursement of an attending provider
because that provider provided care to any insured under the contract in accordance with
this subsection.
4. Provide monetary or other incentives to an attending provider to induce that
provider to provide care to an insured under the contract in a manner that is
inconsistent with this subsection.
5. Except as described in subsection O of this section, restrict benefits for any
portion of a period within the minimum length of stay in a manner that is less favorable
than the benefits provided for any preceding portion of that stay.
O. Nothing in subsection N of this section:
1. Requires a mother to give birth in a hospital or to stay in the hospital for a
fixed period of time following the birth of the child.
2. Prevents a corporation from imposing deductibles, coinsurance or other cost
sharing in relation to benefits for hospital lengths of stay in connection with
childbirth for a mother or a newborn child under the contract, except that any
coinsurance or other cost sharing for any portion of a period within a hospital length of
stay required pursuant to subsection N of this section shall not be greater than the
coinsurance or cost sharing for any preceding portion of that stay.
3. Prevents a corporation from negotiating the level and type of reimbursement with
a provider for care provided in accordance with subsection N of this section.
P. Any contract that provides coverage for diabetes shall also provide coverage for
equipment and supplies that are medically necessary and that are prescribed by a health
care provider including:
1. Blood glucose monitors.
2. Blood glucose monitors for the legally blind.
3. Test strips for glucose monitors and visual reading and urine testing strips.
4. Insulin preparations and glucagon.
5. Insulin cartridges.
6. Drawing up devices and monitors for the visually impaired.
7. Injection aids.
8. Insulin cartridges for the legally blind.
9. Syringes and lancets including automatic lancing devices.
10. Prescribed oral agents for controlling blood sugar that are included on the plan
formulary.
11. To the extent coverage is required under medicare, podiatric appliances for
prevention of complications associated with diabetes.
12. Any other device, medication, equipment or supply for which coverage is required
under medicare from and after January 1, 1999. The coverage required in this paragraph
is effective six months after the coverage is required under medicare.
Q. Nothing in subsection P of this section prohibits a medical service corporation,
a hospital service corporation or a hospital, medical, dental and optometric service
corporation from imposing deductibles, coinsurance or other cost sharing in relation to
benefits for equipment or supplies for the treatment of diabetes.
R. Any hospital or medical service contract that provides coverage for prescription
drugs shall not limit or exclude coverage for any prescription drug prescribed for the
treatment of cancer on the basis that the prescription drug has not been approved by the
United States food and drug administration for the treatment of the specific type of
cancer for which the prescription drug has been prescribed, if the prescription drug has
been recognized as safe and effective for treatment of that specific type of cancer in
one or more of the standard medical reference compendia prescribed in subsection S of
this section or medical literature that meets the criteria prescribed in subsection S of
this section. The coverage required under this subsection includes covered medically
necessary services associated with the administration of the prescription drug. This
subsection does not:
1. Require coverage of any prescription drug used in the treatment of a type of
cancer if the United States food and drug administration has determined that the
prescription drug is contraindicated for that type of cancer.
2. Require coverage for any experimental prescription drug that is not approved for
any indication by the United States food and drug administration.
3. Alter any law with regard to provisions that limit the coverage of prescription
drugs that have not been approved by the United States food and drug administration.
4. Notwithstanding section 20-841.05, require reimbursement or coverage for any
prescription drug that is not included in the drug formulary or list of covered
prescription drugs specified in the contract.
5. Notwithstanding section 20-841.05, prohibit a contract from limiting or
excluding coverage of a prescription drug, if the decision to limit or exclude coverage
of the prescription drug is not based primarily on the coverage of prescription drugs
required by this section.
6. Prohibit the use of deductibles, coinsurance, copayments or other cost sharing
in relation to drug benefits and related medical benefits offered.
S. For the purposes of subsection R of this section:
1. The acceptable standard medical reference compendia are the following:
(a) The American medical association drug evaluations, a publication of the
American medical association.
(b) The American hospital formulary service drug information, a publication of the
American society of health system pharmacists.
(c) Drug information for the health care provider, a publication of the United
States pharmacopoeia convention.
2. Medical literature may be accepted if all of the following apply:
(a) At least two articles from major peer reviewed professional medical journals
have recognized, based on scientific or medical criteria, the drug's safety and
effectiveness for treatment of the indication for which the drug has been prescribed.
(b) No article from a major peer reviewed professional medical journal has
concluded, based on scientific or medical criteria, that the drug is unsafe or
ineffective or that the drug's safety and effectiveness cannot be determined for the
treatment of the indication for which the drug has been prescribed.
(c) The literature meets the uniform requirements for manuscripts submitted to
biomedical journals established by the international committee of medical journal editors
or is published in a journal specified by the United States department of health and
human services as acceptable peer reviewed medical literature pursuant to section
186(t)(2)(B) of the social security act (42 United States Code section 1395x(t)(2)(B)).
T. A corporation shall not issue or deliver any advertising matter or sales
material to any person in this state until the corporation files the advertising matter
or sales material with the director. This subsection does not require a corporation to
have the prior approval of the director to issue or deliver the advertising matter or
sales material. If the director finds that the advertising matter or sales material, in
whole or in part, is false, deceptive or misleading, the director may issue an order
disapproving the advertising matter or sales material, directing the corporation to cease
and desist from issuing, circulating, displaying or using the advertising matter or sales
material within a period of time specified by the director but not less than ten days and
imposing any penalties prescribed in this title. At least five days before issuing an
order pursuant to this subsection, the director shall provide the corporation with a
written notice of the basis of the order to provide the corporation with an opportunity
to cure the alleged deficiency in the advertising matter or sales material within a
single five day period for the particular advertising matter or sales material at
issue. The corporation may appeal the director's order pursuant to title 41, chapter 6,
article 10. Except as otherwise provided in this subsection, a corporation may obtain a
stay of the effectiveness of the order as prescribed in section 20-162. If the director
certifies in the order and provides a detailed explanation of the reasons in support of
the certification that continued use of the advertising matter or sales material poses a
threat to the health, safety or welfare of the public, the order may be entered
immediately without opportunity for cure and the effectiveness of the order is not stayed
pending the hearing on the notice of appeal but the hearing shall be promptly instituted
and determined.
U. Any contract that is offered by a hospital service corporation or medical
service corporation and that contains a prescription drug benefit shall provide coverage
of medical foods to treat inherited metabolic disorders as provided by this section.
V. The metabolic disorders triggering medical foods coverage under this section
shall:
1. Be part of the newborn screening program prescribed in section 36-694.
2. Involve amino acid, carbohydrate or fat metabolism.
3. Have medically standard methods of diagnosis, treatment and monitoring including
quantification of metabolites in blood, urine or spinal fluid or enzyme or DNA
confirmation in tissues.
4. Require specially processed or treated medical foods that are generally
available only under the supervision and direction of a physician who is licensed
pursuant to title 32, chapter 13 or 17, that must be consumed throughout life and without
which the person may suffer serious mental or physical impairment.
W. Medical foods eligible for coverage under this section shall be prescribed or
ordered under the supervision of a physician licensed pursuant to title 32, chapter 13 or
17 as medically necessary for the therapeutic treatment of an inherited metabolic
disease.
X. A hospital service corporation or medical service corporation shall cover at
least fifty per cent of the cost of medical foods prescribed to treat inherited metabolic
disorders and covered pursuant to this section. A hospital service corporation or
medical service corporation may limit the maximum annual benefit for medical foods under
this section to five thousand dollars, which applies to the cost of all prescribed
modified low protein foods and metabolic formula.
Y. Any contract between a corporation and its subscribers is subject to the
following:
1. If the contract provides coverage for prescription drugs, the contract shall
provide coverage for any prescribed drug or device that is approved by the United States
food and drug administration for use as a contraceptive. A corporation may use a drug
formulary, multitiered drug formulary or list but that formulary or list shall include
oral, implant and injectable contraceptive drugs, intrauterine devices and prescription
barrier methods if the corporation does not impose deductibles, coinsurance, copayments
or other cost containment measures for contraceptive drugs that are greater than the
deductibles, coinsurance, copayments or other cost containment measures for other drugs
on the same level of the formulary or list.
2. If the contract provides coverage for outpatient health care services, the
contract shall provide coverage for outpatient contraceptive services. For the purposes
of this paragraph, "outpatient contraceptive services" means consultations, examinations,
procedures and medical services provided on an outpatient basis and related to the use of
United States food and drug prescription contraceptive methods to prevent unintended
pregnancies.
3. This subsection does not apply to contracts issued to individuals on a nongroup
basis.
Z. Notwithstanding subsection Y of this section, a religious employer whose
religious tenets prohibit the use of prescribed contraceptive methods may require that
the corporation provide a contract without coverage for all federal food and drug
administration approved contraceptive methods. A religious employer shall submit a
written affidavit to the corporation stating that it is a religious employer. On receipt
of the affidavit, the corporation shall issue to the religious employer a contract that
excludes coverage of prescription contraceptive methods. The corporation shall retain the
affidavit for the duration of the contract and any renewals of the contract. Before
enrollment in the plan, every religious employer that invokes this exemption shall
provide prospective subscribers written notice that the religious employer refuses to
cover all federal food and drug administration approved contraceptive methods for
religious reasons. This subsection shall not exclude coverage for prescription
contraceptive methods ordered by a health care provider with prescriptive authority for
medical indications other than to prevent an unintended pregnancy. A corporation may
require the subscriber to first pay for the prescription and then submit a claim to the
corporation along with evidence that the prescription is for a noncontraceptive purpose.
A corporation may charge an administrative fee for handling these claims. A religious
employer shall not discriminate against an employee who independently chooses to obtain
insurance coverage or prescriptions for contraceptives from another source.
AA. For the purposes of:
1. This section:
(a) "Inherited metabolic disorder" means a disease caused by an inherited
abnormality of body chemistry and includes a disease tested under the newborn screening
program prescribed in section 36-694.
(b) "Medical foods" means modified low protein foods and metabolic formula.
(c) "Metabolic formula" means foods that are all of the following:
(i) Formulated to be consumed or administered enterally under the supervision of a
physician who is licensed pursuant to title 32, chapter 13 or 17.
(ii) Processed or formulated to be deficient in one or more of the nutrients
present in typical foodstuffs.
(iii) Administered for the medical and nutritional management of a person who has
limited capacity to metabolize foodstuffs or certain nutrients contained in the
foodstuffs or who has other specific nutrient requirements as established by medical
evaluation.
(iv) Essential to a person's optimal growth, health and metabolic homeostasis.
(d) "Modified low protein foods" means foods that are all of the following:
(i) Formulated to be consumed or administered enterally under the supervision of a
physician who is licensed pursuant to title 32, chapter 13 or 17.
(ii) Processed or formulated to contain less than one gram of protein per unit of
serving, but does not include a natural food that is naturally low in protein.
(iii) Administered for the medical and nutritional management of a person who has
limited capacity to metabolize foodstuffs or certain nutrients contained in the
foodstuffs or who has other specific nutrient requirements as established by medical
evaluation.
(iv) Essential to a person's optimal growth, health and metabolic homeostasis.
2. Subsection E of this section, the term "child", for purposes of initial coverage
of an adopted child or a child placed for adoption but not for purposes of termination of
coverage of such child, means a person under the age of eighteen years.
3. Subsection Z of this section, "religious employer" means an entity for which all
of the following apply:
(a) The entity primarily employs persons who share the religious tenets of the
entity.
(b) The entity primarily serves persons who share the religious tenets of the
entity.
(c) The entity is a nonprofit organization as described in section 6033(a)(2)(A)i
or iii of the internal revenue code of 1986, as amended.
20-827 Participating health care professionals; definition
A. A corporation holding a certificate of authority under this article may enter
into contracts only with licensed hospitals approved for participation by the board of
directors of the corporation, and with physicians, surgeons, dentists, optometrists,
certified registered nurses, registered nurse practitioners, psychologists and
chiropractors duly licensed and qualified to practice in this state, and may enter into
contracts of participation with any hospital maintained and operated by this state or any
political subdivision of this state.
B. A person subject to this article shall not:
1. Restrict or prohibit, by means of a policy or contract, whether written or
otherwise, a licensed health care professional's good faith communication with the health
care professional's patient concerning the patient's health care or medical needs,
treatment options, health care risks or benefits.
2. Terminate a contract with or refuse to renew a contract with a health care
professional solely because the professional in good faith does any of the following:
(a) Advocates in private or in public on behalf of a patient.
(b) Assists a patient in seeking reconsideration of a decision made by the person
to deny coverage for a health care service.
(c) Reports a violation of law to an appropriate authority.
C. For the purposes of this section, "health care professional" has the same
meaning prescribed in section 20-3151.
20-828 Deposit for protection of members
A. Corporations governed by this article shall at all times have on deposit with
the state treasurer the following amounts:
1. If newly formed under this article, two hundred thousand dollars.
2. If formed under prior law, such amount as was so required under prior law.
B. Every such corporation each year shall deposit with the state treasurer, not
later than February 1, an amount equal to two per cent of the gross subscriptions
collected during the preceding calendar year, until the deposit of the corporation
reaches a total of five hundred thousand dollars. All such deposits shall be held by the
state treasurer in trust for the benefit and protection of the subscribers of the
corporation making the deposit.
C. The deposit prescribed by this section shall be subject to withdrawal in whole
or in part on the order of and as directed by the director, but may, with the approval of
the director, be invested pursuant to section 35-313. Interest earned on the deposits
shall be payable to the corporation making the deposit.
D. An unsettled final judgment, arising upon a certificate of participation against
such a corporation, shall be a lien on the deposit prescribed by this section, subject to
execution after thirty days from the entry of final judgment. If the deposit is reduced
thereby, it shall be replenished within ninety days.
E. Upon the liquidation or dissolution of the corporation and the satisfaction of
all its liabilities, any balance remaining in the deposit in the hands of the state
treasurer and any other assets of the insurer shall be distributed to the holders of
certificates of participation in good standing at the time proceedings for the
liquidation or dissolution of the corporation were commenced, prorated according to the
gross amount of subscriptions which have been paid on the certificates up to the time
such proceedings were commenced.
20-829 Directors
The directors of such a corporation shall at all times include representatives of:
1. Administrators or trustees of hospitals which have contracted with the
corporation to render hospital service to subscribers, if the corporation is a hospital
service corporation or a hospital and medical service corporation.
2. Physicians and surgeons licensed to practice in this state who have contracted
with the corporation to render medical service to subscribers, if the corporation is a
medical service corporation or a hospital and medical service corporation.
3. Dentists licensed to practice in this state who have contracted with the
corporation to render dental service to subscribers and who constitute a majority of the
directors of the corporation, if the corporation is a dental service corporation.
4. Optometrists licensed to practice in this state who have contracted with the
corporation to render optometric service to subscribers, if the corporation is an
optometric service corporation.
5. The general public, exclusive of hospital representatives and physicians,
dentists and optometrists. 20-830 Expenses and investments
A. The operating and administrative expenses of any such corporation, including all
costs in connection with solicitation of subscribers to the corporation and capital
expenditures, shall not exceed thirty per cent of paid subscriptions during the first
year of operation, twenty-five per cent of paid subscriptions during the second year of
operation, and twenty per cent of paid subscriptions in any year thereafter.
B. All funds not set aside for operating expenses shall be placed in a reserve that
may be expended only for payment to participating hospitals, physicians, dentists,
optometrists, certified registered nurses, registered nurse practitioners, psychologists
and chiropractors for services to subscribers, for payment to subscribers for coverage on
prescription drugs when provision is so made in subscription contracts, or as a refund to
the subscribers. The funds of the corporation shall be invested as prescribed by article
2, chapter 3 of this title for domestic insurers.
20-831 Annual statement; examination
A. Not later than March 31 of each year every corporation shall file with the
director a statement of its financial condition, transactions and affairs as of the
preceding December 31 as prescribed in sections 20-223 and 20-234 and shall pay the
annual renewal fee prescribed in section 20-167.
B. At the time of filing its annual statement as required by section 20-223, a
corporation shall also disclose to the director, in the form or manner prescribed by the
director, information similar to that required of other corporations transacting business
in this state pursuant to title 10, chapter 39, article 2 that is not already filed with
or available to the director.
C. The director may appoint an examiner, deputy examiner or other person to examine
into the affairs of the corporation who has the power of visitation and examination, is
entitled to free access to all the books, papers and documents relating to the business
of the corporation and may summon the officers, agents or employees or any other persons
and require them to testify under oath concerning the affairs, transactions and condition
of the corporation. An examination shall be conducted at least every five years.
D. The corporation shall pay the cost of the examination and audit, but the
corporation is not required to pay for more than one audit or examination in any one
year. The corporation shall pay the costs as provided for insurers pursuant to section
20-159.
E. A corporation that fails to timely file the annual statement required under
subsection A of this section or fails to provide information required under subsection B
of this section is subject to the penalties prescribed in section 20-223.
20-832 Limitation on salaries
A corporation shall not:
1. Pay to any officer, agent or employee of the corporation any salary,
compensation or emolument amounting in any year to more than five thousand dollars,
unless the board of directors of the corporation, first authorizes the salary,
compensation or emolument.
2. Make any agreement with any officer, agent or employee whereby the corporation
agrees that for any services rendered or to be rendered the officer, agent or employee
will receive a salary, compensation or emolument for a period of more than three years
from the date of the agreement.
3. Pay any bonus, commission or dividend to any director of the corporation.
20-833 Relationship of health care professional and patient; financial incentives; definition
A. Nothing in this article alters the relationship of physician and patient,
dentist and patient or optometrist and patient.
B. The corporation shall not in any way influence the subscriber in the
subscriber's free choice of hospital, physician, dentist or optometrist other than to
limit its benefits to participating hospitals, physicians, dentists and optometrists.
C. Nothing in this article abridges the right of any physician, hospital, dentist
or optometrist to decline patients in accordance with the standards and practices of such
physician, hospital, dentist or optometrist, and the corporation shall not be deemed to
be engaged in the corporate practice of medicine, dentistry or optometry.
D. A contract between the corporation and a health care professional shall not
contain a financial incentive plan that includes a specific payment made to or withheld
from the health care professional as an inducement to deny, reduce, limit or delay
medically necessary care that is covered by the contract with a subscriber or group of
subscribers for a specific disease or condition. This section does not prohibit per diem
or per case payments, diagnostic related grouping payments, or financial incentive plans,
including capitation payments or shared risk arrangements, that are not connected to
specific medical decisions relating to a subscriber or a group of subscribers for a
specific disease or condition. Each corporation shall file with its annual report a
written statement with the director that certifies that the corporation is in compliance
with this subsection.
E. For the purposes of this section, "health care professional" has the same
meaning prescribed in section 20-3151.
20-834 Dissolution; unfair practices
Such a corporation shall be subject to the provisions of article 4 of chapter 3 of
this title (rehabilitation and liquidation) and article 6 of chapter 2 of this title
(unfair practices).
20-835 Judicial review of decisions of director
All orders of the director of insurance made pursuant to this article shall be
subject to the provisions of article 2 of chapter 1 of this title, including the right of
hearing, rehearing and appeal.
20-836 Limitation on liability
No liability shall attach to any corporation holding a certificate of authority
under this article by reason of the failure on the part of any of its participating
hospitals, physicians, dentists or optometrists to render service, except as provided by
this article, to any of its subscribers, nor for the negligence, malpractice or other
acts of its participating hospitals, physicians, dentists or optometrists.
20-837 Tax exemption; exceptions
A. Every corporation doing business pursuant to this article is declared to be a
nonprofit and benevolent institution and to be exempt from state, county, district,
municipal and school taxes, including the taxes prescribed by this title, and excepting
only the fees prescribed by section 20-167 and taxes on real and tangible personal
property located within this state. Each corporation is subject to a state tax of 2.0
per cent on net premiums that are received to effect or maintain the corporation's
subscription contracts, except that the tax shall not apply with respect to any coverage
concerning which the corporation's relationship is as administrative or fiscal agent for
national, state or municipal government or any political subdivision or body thereof, and
such tax shall not apply with respect to any premiums received from funds of national,
state or municipal government or any political subdivision or body thereof. Such tax
shall be determined, filed and reported in the manner prescribed in section 20-224. The
failure by a corporation to pay the tax on or before the prescribed payment dates results
in a civil penalty determined pursuant to section 20-225.
B. A corporation may claim a premium tax credit if the corporation qualifies for a
credit pursuant to section 20-224.03 or 20-224.04.
20-838 Subscribers and employees exempt from corporate indebtedness
The private property of the subscribers, agents, officers, directors, members and
employees of any corporation holding a certificate of authority under this article shall
be wholly exempt from any of the debts, obligations and liabilities of the corporation.
20-839 Exemption of certain hospital plans
A. This article shall not apply to any corporation operating or maintaining a
hospital service plan, medical service plan, dental service plan or optometric service
plan, participation in which is limited to its employees and the employees of other
persons or corporations with which such corporation may have contracted to provide such
services.
B. As used in this section, the term "employees" shall include members of the
families of employees.
20-840 Continuation of existing certificates, licenses and rights
This article shall not be construed in any manner to abrogate, amend or annul any
certificate, license or right acquired prior to January 1, 1955 by any corporation,
insurer, hospital, physician, dentist, optometrist, individual or subscriber under or
pursuant to Laws 1945, 1st special session, chapter 13, and all of such certificates,
licenses and rights shall be and they are continued in full force and effect.
20-841.01 Prohibiting denial of chiropractic contract benefits; direct reimbursement
If a subscription contract of a hospital and medical service corporation provides
for or offers reimbursement for any service which is within the lawful scope of the
practice of a chiropractor holding a certificate or license issued by the state in which
the services are rendered, a subscriber covered under such contract may select either a
physician or duly certified or licensed chiropractor to provide the examination, care or
treatment for which the subscriber is eligible and which falls within the scope of
practice of the chiropractor or physician. Reimbursement for the cost of the service may
be made directly to the person licensed or certified pursuant to title 32, chapter 8 or
13 who has a participation contract with the hospital and medical service corporation or
to the subscriber if the cost of the service has not been reimbursed to another provider
or health care institution.
20-841.02 Prohibiting denial of psychologist contract benefits
If a subscription contract of a hospital and medical service corporation provides
for or offers reimbursement for any service which is within the lawful scope of the
practice of a psychologist holding a certificate or license issued by the state in which
the services are rendered, a subscriber covered under such contract may select either a
physician or duly certified or licensed psychologist to provide the examination, care or
treatment for which the subscriber is eligible and which falls within the scope of
practice of the psychologist or physician.
20-841.03 Prohibiting denial of contract benefits; nurses; reimbursement
If a subscription contract of a hospital and medical service corporation provides or
offers reimbursement for any service which is within the scope of the practice of a
registered nurse practitioner or a certified registered nurse qualified under the rules
adopted by the state board of nursing regarding extended nursing practice and licensed
pursuant to title 32, chapter 15, the hospital and medical service corporation shall not
deny benefits to a subscriber who receives the services of the certified registered nurse
or registered nurse practitioner. The cost of the service may be reimbursed directly to
the certified registered nurse or registered nurse practitioner if the certified
registered nurse or registered nurse practitioner has a participation contract with the
hospital and medical service corporation or to the subscriber if another provider or
health care institution was not reimbursed for the cost of the service.
20-841.04 Standing referrals to network health care professionals; definition
A. Any corporation that offers a health benefits plan shall establish a procedure
by which a subscriber may apply for a standing referral to a network health care
professional. The corporation shall provide a subscriber with a standing referral if all
of the following conditions are met:
1. The subscriber is a covered member of that corporation.
2. The subscriber has a disease or condition that is life threatening,
degenerative, chronic or disabling.
3. The subscriber's primary care physician in conjunction with a network health
care professional determines that the subscriber's health care requires a network health
care professional's expertise.
4. The subscriber's primary care physician determines that the subscriber's disease
or condition will require ongoing medical care for an extended period of time.
5. The standing referral is made by the subscriber's primary care physician to a
network health care professional who is responsible for providing and coordinating the
subscriber's specialty care.
6. The network health care professional is authorized by the corporation to provide
the services under the standing referral.
B. The corporation may limit the number of visits and time period for which a
subscriber may receive a standing referral.
C. If the subscriber receives a standing referral or any other referral from the
subscriber's primary care physician, that referral remains in effect even if the primary
care physician leaves the corporation's network.
D. If the treating health care professional leaves the network or the subscriber
ceases to be a covered member, the standing referral expires.
E. This section does not apply to any corporation that holds a certificate of
authority to operate either as a dental service corporation or an optometric service
corporation.
F. For the purposes of this section, "network health care professional" means a
practitioner of a health profession as defined in section 32-3101 who is under written
contract with the corporation to provide services in a specialty discipline that is
recognized by an American medical specialty board.
20-841.05 Prescription drug formulary; definitions A. A corporation with a prescription drug benefit that uses a drug formulary as a component of the subscription contract shall provide to its subscribers notice in the contract and any disclosure form regarding the applicable drug formulary. The corporation shall write the notice so that the language and format are easy to understand. The notice shall include an explanation of what a drug formulary is, how the corporation determines which prescription drugs are included or excluded and how often the corporation reviews the contents of the drug formulary. B. A corporation described in subsection A of this section shall: 1. Develop and maintain a process by which health care professionals may request authorization for a medically necessary formulary or nonformulary prescription drug during nonbusiness hours. If the corporation does not maintain that process, the corporation shall reimburse a subscriber for the subscriber's out-of-pocket expense minus any deductible or copayment for a prescription drug that was purchased by the subscriber without preauthorization but that was later approved by the corporation. 2. Develop and maintain a process by which health care professionals may request authorization for medically necessary nonformulary prescription drugs. The corporation shall approve an alternative prescription drug when either of the following conditions is met: (a) The equivalent prescription drug on the formulary has been ineffective in the treatment of the subscriber's disease or condition. (b) The equivalent prescription drug on the formulary has caused an adverse or harmful reaction in the subscriber. C. If the subscriber's pharmacy benefit plan does not require authorization, subsection B, paragraph 2 of this section does not apply. D. If the subscriber's treating health care professional makes a determination that the subscriber meets any of the conditions described in subsection B of this section, any denial to cover the nonformulary prescription drug by the corporation shall be made in writing by a licensed pharmacist or medical director. The written denial shall contain an explanation of the denial, including the medical or pharmacological reasons why the authorization was denied, and the licensed pharmacist or medical director who made the denial shall sign it. The corporation shall send a copy of the written denial to the subscriber's treating health care professional who requested the authorization. The corporation shall maintain copies of all written denials and shall make the copies available to the department for inspection during regular business hours. E. Any subscription contract that is issued, amended or renewed by a corporation and that includes prescription drug benefits shall not limit or exclude coverage for at least sixty days after the corporation's notice or the pharmacy's notice pursuant to subsection F of this section to the subscriber, whichever occurs first, for a prescription drug for a subscriber to refill a previously prescribed drug if the prescription drug was previously approved for coverage under the drug formulary or pharmacy benefit plan for the subscriber's medical condition and the health care professional continues to prescribe the prescription drug for the same medical condition. The limitation or exclusion prohibited by this subsection applies if the prescription drug is appropriately prescribed and is considered safe and effective for treating the subscriber's medical condition. This subsection does not prohibit the health care professional from prescribing another prescription drug that is covered by the drug formulary and that is medically appropriate for the subscriber, including generic drug substitutions. F. A corporation shall provide written notice of the removal of any prescription drug from the corporation's drug formulary to each pharmacy vendor with which the corporation has a contract. On notice from the corporation, the contracted pharmacy vendor at the point of dispensing a prescription drug that has been removed from the drug formulary shall notify the subscriber by means of a verbal consultation or other direct communication with a subscriber that the subscriber may be required to consult with a health care professional to obtain a new prescription for a replacement drug after the sixty day period prescribed in subsection E of this section. The notice prescribed in this subsection is not required if the pharmacy vendor is a pharmacy that is owned by the corporation or a corporate affiliate of that corporation. G. This section does not: 1. Prohibit a corporation from applying deductibles, coinsurance or other cost containment or quality assurance measures. 2. Apply to a corporation that provides a multitiered benefit plan that allows access to prescription drugs without authorization by the corporation. 3. Apply to any corporation that holds a certificate of authority to operate either as a dental service corporation or an optometric service corporation. H. For the purposes of this section: 1. "Health care Professional" means a person who has an active nonrestricted license pursuant to title 32 and is authorized to write drug prescriptions to treat medical conditions. 2. "Prescription drug" means any prescription medication as defined in section 32-1901 that is prescribed by a health care professional to a subscriber to treat the subscriber's condition. 20-841.06 Continuity of care; definition
A. Any corporation that offers a health benefits plan shall allow any new
subscriber whose health care provider is not a member of the provider network, on written
request of the subscriber to the corporation, to continue an active course of treatment
with that health care provider during a transitional period after the effective date of
the enrollment if both of the following apply:
1. The subscriber has either:
(a) A life threatening disease or condition, in which case the transitional period
is not more than thirty days after the effective date of the enrollment.
(b) Entered the third trimester of pregnancy on the effective date of the
enrollment, in which case the transitional period includes the delivery and any care up
to six weeks after the delivery that is related to the delivery.
2. The subscriber's health care provider agrees in writing to do all of the
following:
(a) Except for copayment, coinsurance or deductible amounts, accept as payment in
full reimbursement from the corporation at the rates that are established by the
corporation and that are not more than the level of reimbursement applicable to similar
services by health care providers within the provider network.
(b) Comply with the corporation's quality assurance and utilization review
requirements and provide to the corporation any necessary medical information related to
the care.
(c) Comply with the corporation's policies and procedures pursuant to this article
including procedures relating to referrals and obtaining preauthorization, claims
handling and treatment plan approval by the corporation.
B. A corporation shall allow any subscriber whose health care provider is
terminated from the provider network by the corporation except for reasons of medical
incompetence or unprofessional conduct, on written request of the subscriber to the
corporation, to continue an active course of treatment with that health care provider
during a transitional period after the date of the provider's disaffiliation from the
provider network, if both of the following apply:
1. The subscriber has either:
(a) A life threatening disease or condition, in which case the transitional period
is not more than thirty days after the date of the provider's disaffiliation from the
provider network.
(b) Entered the third trimester of pregnancy on the date of the provider's
disaffiliation, in which case the transition period includes the delivery and any care up
to six weeks after the delivery that is related to the delivery.
2. The subscriber's health care provider agrees in writing to do all of the
following:
(a) Except for copayment, coinsurance or deductible amounts, continue to accept as
payment in full reimbursement from the corporation at the rates applicable before the
beginning of the transitional period.
(b) Comply with the corporation's quality assurance and utilization review
requirements and provide to the corporation any necessary medical information related to
the care.
(c) Comply with the corporation's policies and procedures pursuant to this article
including procedures relating to referrals and obtaining preauthorization, claims
handling and treatment plan approval by the corporation.
C. This section does not require a corporation to provide coverage for benefits
that are not covered by the subscriber's contract and does not diminish or impair any
preexisting condition limitation in the contract.
D. This section does not extend to a health care provider who is not a member of
the provider network any contractual rights or remedies beyond those rights or remedies
related to and necessary for the provision of covered services to the specific subscriber
during the required transitional period.
E. This section does not apply to any corporation that holds a certificate of
authority to operate either as a dental service corporation or an optometric service
corporation.
F. For the purposes of this section, "health care provider" means any physician who
is licensed in this state pursuant to title 32, chapter 13 or 17.
20-841.07 Medical supplies
Any corporation that provides coverage for medical supplies shall provide coverage
for those medical supplies through one or more participating vendors who are reasonably
accessible to subscribers as determined by the department in terms of hours of service
and areas of coverage within the geographic service area of the health care plan.
20-841.08 Prohibiting denial of occupational or physical therapist contract benefits If a hospital service corporation or medical service corporation subscription contract provides coverage for occupational or physical therapy services, and provides both an in-network and out-of-network benefit, a service corporation shall not deny a claim for covered occupational or physical therapy services obtained out-of-network solely on the basis that a physician did not refer the insured to the occupational or physical therapist or prescribe specific occupational or physical therapy services. A service corporation may impose coinsurance, copayments, deductibles, dollar caps, limitations on the number of visits, provider network restrictions or other cost containment measures as a condition of coverage of occupational and physical therapy services for both in-network and out-of-network benefits. 20-841 Prohibiting denial of certain contract benefits
A. Notwithstanding any provision of any subscription contract of a hospital and
medical service corporation, benefits shall not be denied under the contract for any
medical or surgical service performed by a holder of a license issued pursuant to title
32, chapter 7 or 11, if the service performed is within the lawful scope of such person's
license, and if the service is surgical, such person is a member of the staff of an
accredited hospital, and if such contract would have provided benefits if such service
had been performed by a holder of a license issued pursuant to title 32, chapter 13.
B. If a subscription contract of a hospital and medical service corporation
provides for or offers eye care services, the subscriber shall have freedom of choice to
select either an optometrist or a physician and surgeon skilled in diseases of the eye to
provide the examination, care, or treatment for which the subscriber is eligible and
which falls within the scope of practice of the optometrist or physician and
surgeon. Unless such subscription contract otherwise provides, there shall be no
reimbursement for ophthalmic materials, lenses, spectacles, eyeglasses, or appurtenances
thereto.
C. If any subscription contract of a hospital and medical service corporation is
written to provide coverage for psychiatric, drug abuse or alcoholism services,
reimbursement for such services shall be made in accordance with the terms of the
contract without regard to whether the covered services are rendered in a psychiatric
special hospital or general hospital. Reimbursement for the cost of the service may be
made directly to the person licensed or certified pursuant to title 32, chapter 13 or
19.1 or to the subscriber if the cost of the service has not been reimbursed to another
provider or health care institution.
20-842 Prohibition against excluding coverage because of previous tests for a condition
An insurance contract offered by a hospital, medical, dental or optometric service
corporation shall not exclude coverage of a condition if the insured person has
previously had tests for the condition and the condition was not found to exist. There
must be evidence that a condition actually existed before the insurance contract was
entered into in order to exclude coverage of the condition.
20-843 Eligibility; prohibiting cancellation because of eligibility for certain benefits
A. Except as specifically provided in sections 20-1379 and 20-1380, with respect to
the determination of whether a person is an eligible individual, a hospital and medical
service corporation shall not consider the availability of or a person's eligibility for
medical assistance pursuant to title XIX of the social security act (P.L. 89-97; 79 Stat.
344; 42 United States Code section 1396a (1980)) when considering eligibility for
coverage or calculating payments under a plan for eligible subscribers.
B. To the extent that payment for covered expenses has been made under the state
program pursuant to title XIX of the social security act for health care items or
services that are furnished to an individual, the state is considered to have acquired
the rights of the individual to payment by any other party for those health care items or
services. On presentation of proof that the state program pursuant to title XIX of the
social security act has paid for covered items or services, the hospital and medical
service corporation shall pay the state program pursuant to title XIX of the social
security act according to the coverage provided in the contract.
C. A hospital and medical service corporation may not impose on a state agency that
has been assigned the rights of an individual who is eligible for medical assistance and
who is covered for health benefits from the insurer any requirements that are different
from the requirements applicable to an agent or assignee of any other covered individual.
D. A hospital or medical service corporation shall not cancel or fail to renew the
contract of any person based on that person's eligibility for or enrollment in a program
funded under title XIX of the social security act or title 36, chapter 29 or 34. Nothing
in this section prohibits cancellation or failure to renew for nonpayment of monies due
under the contract.
20-844 Right to open enrollment period; subscribers; definition
A. With respect to subscribers who are members of a group with more than one
carrier, if there is an insolvency of a hospital service corporation, medical service
corporation, dental service corporation, optometric service corporation or hospital,
medical, dental and optometric service corporation, all other carriers that participated
in an open enrollment period shall offer subscribers of the insolvent corporation who are
members of that group a thirty day open enrollment period beginning on the date the
insolvency is declared. Each carrier shall offer these subscribers the same coverages
and rates that it currently offers to other subscribers in the group without any waiting
periods or preexisting conditions, exclusions, limitations or restrictions. On
declaration of insolvency, the corporation shall notify each group contract holder of the
insolvency. Each group contract holder shall notify its remaining carrier or carriers of
the insolvency and notify its members of their rights to open enrollment as provided in
this section.
B. Sections 20-1069.01 and 20-1409 apply to all corporations within the scope of
section 20-821.
C. For purposes of this section, "carrier" means an insurer, a health care services
organization, a hospital service corporation, a medical service corporation, a dental
service corporation, an optometric service corporation or a hospital, medical, dental and
optometric service corporation or any combination.
20-845 Suspension or revocation of certificate of authority; civil penalties
A. The director may suspend or revoke a certificate of authority issued to a
corporation pursuant to this article if the director finds that any of the following
conditions exist:
1. The corporation is operating significantly in contravention of its basic
organizational documents or in a manner contrary to that described in, and reasonably
inferred from, any other information submitted pursuant to sections 20-824 and 20-825.
2. The corporation has issued subscription contracts that do not comply with the
requirements of section 20-826.
3. The corporation can no longer be expected to meet its obligations to
subscribers.
4. The corporation, or any authorized person on its behalf, has advertised or
merchandised its services in a materially untrue, misleading, deceptive or unfair manner.
5. The corporation has failed to substantially comply with this article or any rule
adopted pursuant to this article.
6. The corporation is in an unsound condition or in such a condition as to render
its further transaction of business in this state hazardous to its subscribers or to the
residents of this state.
B. If the certificate of authority of a corporation is suspended, the corporation
shall not accept, during the period of the suspension, any additional subscribers except
newborn children or other newly acquired dependents of existing subscribers and shall not
engage in any advertising or marketing.
C. If the certificate of authority of a corporation is revoked, the corporation
shall proceed, immediately following the effective date of the order of revocation, to
conclude its affairs and shall conduct no further business except as may be essential to
the orderly conclusion of business. The director, by written order, may permit any
further operation of the corporation as the director finds to be in the best interest of
subscribers to the end that subscribers shall be afforded the greatest practical
opportunity to obtain continuing hospital, medical, dental or optometric coverage as
applicable.
D. Notwithstanding subsections B and C of this section, a corporation that has had
its certificate of authority suspended or revoked, or that is subject to an adverse
action by the director, is entitled to a hearing pursuant to title 41, chapter 6, article
10 and, except as provided in section 41-1092.08, subsection H, is entitled to judicial
review pursuant to title 12, chapter 7, article 6.
E. If, after a hearing, the director finds grounds pursuant to subsection A of this
section to suspend or revoke a corporation's certificate of authority, the director may
impose, in lieu of or in addition to that suspension or revocation, the following civil
penalties that shall be remitted to the state treasurer for deposit, pursuant to sections
35-146 and 35-147, in the state general fund:
1. For an unintentional violation, not more than one thousand dollars for each
violation and not more than an aggregate of ten thousand dollars in any six month period.
2. For an intentional violation, not more than five thousand dollars for each
violation and not more than an aggregate of fifty thousand dollars in any six month
period.
20-861 Definitions
In this article, unless the context otherwise requires:
1. "Benefit contract" means an agreement for the provision of benefits.
2. "Benefit member" means an adult who is a member of a fraternal benefit society
and who is designated by the laws or rules of the society to be a benefit member under a
benefit contract.
3. "Certificate" means a document that is issued as written evidence of the benefit
contract.
4. "Fraternal benefit society" means a society, order or supreme lodge without
capital stock, including an incorporated or unincorporated society that is exempt under
section 20-893, that is conducted solely for the benefit of its members and their
beneficiaries, is not for profit, operates on a lodge system with a ritualistic form of
work, has a representative form of government and provides benefits according to this
article.
5. "Laws" means the articles of incorporation, constitution and bylaws of the
society.
6. "Lodge" means a subordinate member of the society, including any camp, court,
council, branch or other designated unit.
7. "Premiums" means rates, dues or other required contributions that are payable
under the certificate.
8. "Rules" means the rules, regulations and resolutions that are adopted by the
supreme governing body or board of directors and that are intended to apply to the
members of the society.
9. "Society" means a fraternal benefit society.
20-862 Lodge system
A. A society operates on the lodge system if the society has a supreme governing
body and subordinate lodges into which members are elected, initiated or admitted
according to the society's laws, rules and ritual. The laws of the society shall require
subordinate lodges to hold meetings at least once in each month in furtherance of the
purposes of the society.
B. A society may organize and operate lodges for children who are under the minimum
age for adult membership. A local lodge shall not require membership or initiation for
children, and children shall not have a voice or vote in the management of the society.
20-863 Representative form of government
A society has a representative form of government if:
1. It has a supreme governing body constituted in one of the following ways:
(a) The supreme governing body is an assembly that is composed of delegates who are
elected directly by the members or at intermediate assemblies or conventions of members
or their representatives, together with other delegates that may be prescribed by the
society's laws. A society may provide for the election of delegates by mail. The
elected delegates shall constitute a majority in number and shall have not less than
two-thirds of the votes and not less than the number of votes that is required to amend
the society's laws. The assembly shall be elected and shall meet at least once every
four years. The assembly shall elect a board of directors to conduct the business of the
society between meetings of the assembly. Vacancies on the board of directors that occur
between elections may be filled in the manner prescribed by the society's laws.
(b) The supreme governing body is a board that is composed of persons who are
elected directly by the members or their representatives in intermediate assemblies,
together with any other person that may be prescribed by the society's laws. A society
may provide for the election of board members by mail. Board members shall serve not
more than one four year term. Vacancies that occur on the board between elections may be
filled in the manner prescribed by the society's laws. Time served by a new board member
while filling a vacancy for the first time shall not count toward the one term
limitation. The persons elected to the board shall constitute a majority in number and
shall have not less than the number of votes required to amend the society's laws. A
person who fills the unexpired term of an elected board member is considered to be an
elected member. The board shall meet at least quarterly to conduct the business of the
society.
2. The officers of the society are elected either by the supreme governing body or
the board of directors.
3. Only benefit members are eligible for election to the supreme governing body and
the board of directors.
4. Each voting member has one vote, and no vote may be cast by proxy.
20-864 Purposes and powers
A. A society shall operate for the benefit of its members and their beneficiaries
and shall:
1. Provide benefits pursuant to section 20-875.
2. Operate for social, intellectual, educational, charitable, benevolent, moral,
fraternal, patriotic or religious purposes. This benefit may also be extended to other
persons.
B. The society may carry out its purposes directly or indirectly through subsidiary
corporations or affiliated organizations. A subsidiary corporation or affiliated
organization shall not transact insurance business or engage in any other activity
regulated under this title unless the subsidiary corporation or affiliated organization
complies with all of the applicable provisions of law. A society or a subsidiary
corporation or affiliated organization through which a society carries out its purposes
shall not own or operate a funeral home or undertaking establishment.
C. A society may adopt laws and rules for the government of the society, admission
of members and management of society affairs. The society may amend any law or rule and
shall have any other powers that are necessary and incidental to carry out the purposes
of the society.
20-865 Qualifications for membership
A. A society shall specify all of the following:
1. Eligibility standards for each membership class. If the society provides
benefits on the lives of children, the minimum age for adult membership shall be not less
than fifteen years of age or more than twenty-one years of age.
2. Admission procedures for each membership class.
3. The rights and privileges of each membership class, except that only benefit
members may vote on the management of the insurance affairs of the society.
B. A society may admit social members who have no voice in or vote on the
management of the insurance affairs of the society.
C. Membership rights in the society are not assignable.
20-866 Location of office; publications; grievance procedure
A. The principal office of a domestic society shall be located in this state. The
meetings of the society's supreme governing body may be held in any state, district,
province or territory in which the society has at least one subordinate lodge or in any
other place that is determined by the supreme governing body. Business that is
transacted at an out of state meeting is valid in all respects as if the meeting were
held in this state. The minutes of the proceedings of the supreme governing body and the
board of directors shall be in English.
B. A society may publish an official publication in which any notice, report or
statement required by the society's laws to be given to its members is published. A
required notice, report or statement shall be conspicuously printed in the
publication. If the records of the society show that two or more members have the same
mailing address, an official publication that is mailed to one member is deemed to be
mailed to all members at the same address unless a member requests a separate copy.
C. By June 1 of each year, the society shall publish and mail to each benefit
member a synopsis of the society's annual statement that explains the condition of the
society. The synopsis may be published in the society's official publication.
D. A society may establish grievance or complaint procedures by law or rule.
20-867 Exemption from liability
A. The officers and members of the supreme governing body or a subordinate body of
a society are not personally liable for any benefits that are provided by the society.
B. A society may indemnify and reimburse any person who is or was a director,
officer, employee or agent of a society or who is or was serving at the request of the
society as a director, officer, employee or agent of any other firm, corporation or
organization for expenses reasonably incurred by and liabilities imposed on the person in
connection with or arising out of any action, suit or proceeding or the threat of an
action, suit or proceeding in which the person may be involved. In a civil action a
person shall not be indemnified or reimbursed if a court of competent jurisdiction finds
that the person breached a duty owed as a director, officer, employee or agent of the
society or the matter is the subject of a settlement, unless the person acted in good
faith for a purpose the person reasonably believed to be in or not opposed to the best
interests of the society. In a criminal action a person shall not be indemnified or
reimbursed if the person negotiates a plea bargain or is found guilty in a court of
competent jurisdiction of an offense relating to his position of director, officer,
employee or agent of the society unless the person had no reasonable cause to believe
that his conduct was unlawful. The supreme governing body or board of directors by a
majority vote of a quorum consisting of persons who were not parties to the action, suit
or proceeding or a court of competent jurisdiction shall determine if the person acted in
good faith. The termination of an action, suit or proceeding or a plea of no contest
does not create a conclusive presumption that the person failed to act in good
faith. The right of indemnification and reimbursement does not abrogate any other right
to which the person is entitled as a matter of law and inures to the benefit of the
heirs, executors and administrators of the person.
C. A society may purchase and maintain insurance on behalf of a person who is or
was a director, officer, employee or agent of the society or who is or was serving at the
request of the society as a director, officer, employee or agent of any other firm,
corporation or organization against any liability that is asserted against the person and
that the person incurred in his capacity as a director, officer, employee or agent. A
society may purchase and maintain insurance pursuant to this subsection regardless of the
society's ability to indemnify the person.
D. A director, officer, employee, member or volunteer of a society who serves
without compensation is not personally liable and no action may be maintained against him
in his individual capacity for damages resulting from an act or omission within the scope
of his duties and responsibilities unless the act or omission was caused by wanton or
wilful misconduct.
20-868 Waiver
The laws of the society may provide that a subordinate body or any subordinate
officers or members shall not waive any provision of the laws of the society. A
provision prohibiting waiver is binding on the society, its members and every member's
beneficiaries.
20-869 Organization
Beginning on January 1, 1995, a domestic fraternal benefit society may be organized
as follows:
1. Seven or more citizens of the United States, a majority of whom are citizens of
this state, who desire to form a fraternal benefit society may make, sign and acknowledge
articles of incorporation before an officer who is competent to take acknowledgement of
deeds. The articles of incorporation shall state all of the following:
(a) The proposed corporate name of the society. The proposed name shall not so
closely resemble the name of any society or insurance company as to be misleading or
confusing.
(b) The purposes for which the society is being formed and the mode in which its
corporate powers will be exercised. The purposes shall not include powers that are more
liberal than those granted by this article.
(c) The names and residences of the incorporators and the names, residences and
official titles of all of the officers, trustees, directors or other persons who are to
have and exercise the general control and the management of the affairs and funds of the
society for the first year or until the ensuing election at which all of the officers
shall be elected by the supreme governing body and that shall be held not later than one
year from the date of issuance of the permanent certificate of authority.
2. The applicants shall file with the director the articles of incorporation, duly
certified copies of the constitution and laws and rules, copies of all proposed forms of
certificates, applications and circulars to be issued by the society and a bond
conditioned on the return to the applicants of the advance payments if the organization
is not completed within one year. The bond with sureties approved by the director shall
be in an amount determined by the director of not less than three hundred thousand
dollars or more than one million five hundred thousand dollars. All of the documents
that are filed with the director shall be in English. If the purposes of the society
conform to the requirements of this article and if all applicable provisions of law have
been complied with, the director shall certify, retain and file the articles of
incorporation and shall furnish to the incorporators a preliminary certificate of
authority authorizing the society to solicit members pursuant to this section.
3. A preliminary certificate of authority is not valid after one year from its date
of issuance or after a further period of time of not more than one year that is
authorized by the director for good cause unless the five hundred applicants as required
by this section have been secured and the organization has been completed pursuant to
this article. The articles of incorporation and all proceedings authorized by the
articles of incorporation become null and void one year from the date of the preliminary
certificate or at the expiration of the extended period, unless the society has completed
its organization and received a final certificate of authority to do business pursuant to
this section.
4. On receipt of the preliminary certificate of authority from the director, the
society may solicit members for the purpose of completing its organization, shall collect
from each applicant the amount of not less than one regular monthly premium in accordance
with its table of rates and shall issue to each applicant a receipt for the amount
collected. A society shall not incur liability other than for the return of the advance
payment, issue any certificate or pay, allow or offer or promise to pay or allow any
death or disability benefit to any person until:
(a) Actual bona fide applications for benefits have been secured on not less than
five hundred applicants and any necessary evidence of insurability has been furnished to
and approved by the society.
(b) At least ten subordinate lodges have been established into which the five
hundred applicants have been admitted.
(c) The treasurer or other corresponding officer of the society submits to the
director a sworn statement showing that at least five hundred applicants have each paid
in cash at least one regular monthly payment pursuant to this section and that the
payments in the aggregate amount to at least one hundred fifty thousand dollars. The
advance premiums shall be held in trust during the period of organization. If the
society does not qualify for a certificate of authority within one year, the premiums
shall be returned to the applicants.
5. The director may make any examination and require further information as the
director deems advisable. After the society presents satisfactory evidence that it has
complied with any applicable provisions of law, the director shall issue a certificate of
authority to that effect. The certificate of authority is prima facie evidence of the
existence of the society at the date of the certificate. The director shall record the
certificate of authority. A certified copy of the record may be given in evidence.
6. An incorporated society that is authorized to transact business in this state,
on or before January 1, 1995 is not required to reincorporate.
20-870 Amendment to society laws
A. The supreme governing body of a domestic society may amend its laws in
accordance with its laws at any regular or special meeting, or if the laws provide, by
referendum. A referendum may be held in accordance with the society's laws by the vote
of the voting members of the society, the vote of the delegates or representatives of
voting members or the vote of local lodges. An amendment that is referred shall not be
adopted unless within six months from the date of the submission of the referendum a
majority of the members voting consent to the amendment.
B. A society may provide for voting by mail.
C. A society shall file a certified copy of any amendment to its laws within ninety
days after the amendment is enacted.
20-871 Authority to maintain institutions
A. A society may create, maintain and operate or establish an organization to
operate not for profit institutions to further the purposes of the society as prescribed
by section 20-864. An institution established pursuant to this section may provide
services for free or for a reasonable charge.
B. The society shall report in each annual statement any real or personal property
that the society owns, holds or leases for the purposes of any institutions established
pursuant to this section, except that the property shall not be allowed as an admitted
asset of the society.
20-872 Reinsurance
A. Pursuant to a reinsurance agreement, a domestic fraternal benefit society may
cede any part or all of its risks to an insurer other than another fraternal benefit
society that has the power to take the reinsurance and that is authorized to transact
business in this state, or if the reinsurer is not authorized to transact business in
this state, that is approved by the director. A society may not reinsure substantially
all of its insurance in force without the written permission of the director. A society
may take credit for the reserves on the ceded risks to the extent that the risks are
reinsured. Any credit taken by a ceding society is not allowed as an admitted asset or
as a deduction from liability for reinsurance that is made, ceded, renewed or otherwise
effective after January 1, 1995, unless the reinsurance is payable by the assuming
insurer on the basis of the liability of the ceding society under the contract or
contracts reinsured without diminution because of the insolvency of the ceding society.
B. Notwithstanding subsection A of this section, a society may reinsure the risks
of another society in a consolidation or merger that is approved by the director pursuant
to section 20-873.
20-873 Consolidation or merger
A. A domestic fraternal benefit society may consolidate or merge with any other
society if it complies with this section. The society shall file the following with the
director:
1. A certified copy of the written contract that contains in full the terms and
conditions of the consolidation or merger.
2. A sworn statement by the president and secretary or other corresponding officers
of each society that shows the financial condition of each society on a date designated
by the director. The date shall not be earlier than December 31 next preceding the date
of the contract.
3. A verified certificate of the president and secretary or other corresponding
officers of each society stating that the consolidation or merger has been approved by a
two-thirds vote of the supreme governing body of each society and that the vote was
conducted at a regular or special meeting of each society, or if permitted by the laws of
the society, by mail.
4. Evidence that at least sixty days before the action of the supreme governing
body of each society the text of the contract was furnished to all members of each
society either by mail or publication in full in the official publication of each
society. The affidavit of any officer of the society or of any person who is authorized
by the society to mail any notice or document stating that the notice or document was
addressed and mailed is prima facie evidence that the notice or document was furnished to
the addressees.
B. The director shall approve the consolidation or merger and shall issue a
certificate of approval if the director finds that the contract conforms with the
requirements of this section, that the financial statements are correct and that the
consolidation or merger is just and equitable to the members of each society. On the
director's approval, the contract is in full force and effect, except that if one of the
parties to the contract is incorporated under the laws of any other state or territory,
the consolidation or merger does not become effective until the consolidation or merger
is approved pursuant to the laws of that state or territory and a certificate of approval
is filed with the director of insurance in this state. If the laws of the other state or
territory do not provide for consolidation or merger, the consolidation or merger does
not become effective until it has been approved by and a certificate of approval is filed
with the director of insurance in that state or territory.
C. After the consolidation or merger becomes effective, all of the rights,
franchises and interests of the consolidated or merged societies in and to real, personal
and mixed property are vested in the society resulting from or remaining after the
consolidation or merger. No other instrument is necessary to convey any property
interests, except that conveyances of real property shall be evidenced by proper
deeds. The title to any real estate or any interest in real estate that is vested under
the laws of this state in any of the societies that are consolidated or merged does not
revert or is not impaired in any way by reason of the merger or consolidation but vests
absolutely in the society that results from or remains after the consolidation or merger.
20-874 Conversion of fraternal benefit society to mutual life insurance company
A domestic fraternal benefit society may convert to and be licensed as a mutual life
insurance company by complying with the requirements of this title relating to mutual
insurers. The board of directors shall prepare a plan of conversion in writing. The
plan of conversion shall prescribe the terms and conditions of conversion. The
affirmative vote of two-thirds of the members of the supreme governing body at a regular
or special meeting is required for approval of the plan. A plan of conversion is not
effective unless it is approved by the director. The director may approve the plan of
conversion if the director finds that the proposed change conforms to the law and is not
prejudicial to the certificate holders of the society.
20-875 Benefits
A. A fraternal benefit society may provide the following contractual benefits in
any form:
1. Death benefits.
2. Endowment benefits.
3. Annuity benefits.
4. Temporary or permanent disability benefits.
5. Hospital, medical or nursing benefits.
6. Monument or tombstone benefits to the memory of deceased members.
7. Any other benefits that are authorized for life insurers and that are not
prescribed by this article.
B. A society shall specify by rule those persons who may be issued or covered by
the contractual benefits prescribed by subsection A. The rules shall be consistent with
providing benefits to members and dependents of members. On the application of an adult
member, a society may provide benefits on the lives of children who are under the minimum
age for adult membership.
C. Any benefit or combination of benefits authorized by this section may be
provided in the same certificate, and the certificates may be participating.
20-876 Beneficiaries
A. At all times the owner of a benefit contract may change the beneficiary or
beneficiaries in accordance with the laws or rules of the society unless the owner waives
this right and requests in writing that the beneficiary designation be irrevocable. A
society may limit the scope of beneficiary designations and shall provide that no
revocable beneficiary has or may obtain any vested interest in the proceeds of a
certificate until the certificate becomes due and payable in conformity with the
provisions of the benefit contract.
B. A society may provide for the payment of funeral benefits to the extent of that
portion of any payment under a certificate that reasonably appears to be due to any
person who is equitably entitled to the payment and who incurred expenses resulting from
the burial of a member. Any amount paid pursuant to this section shall not exceed one
thousand dollars.
C. If a lawful beneficiary to whom death benefits are payable does not exist at the
death of a person insured under a benefit contract, the benefit shall be paid to the
estate of the deceased insured, except to the extent that funeral benefits have been paid
pursuant to subsection B. If the owner of the certificate is a person other than the
insured, the benefits shall be paid to the certificate owner.
20-877 Benefits not attachable
Any money or other benefit, charity, relief or aid that a society pays, provides or
renders is not subject to attachment, garnishment or other process and shall not be
seized, taken, appropriated or applied to pay any debt or liability of any member,
beneficiary or other person who may have a right under a benefit contract, either before
or after the society pays the benefit.
20-878 Benefit contract
A. A society shall issue to each owner of a benefit contract a certificate that
specifies the amount of benefits provided under the certificate. The certificate shall
state that it constitutes the benefit contract as of the date of issuance of the
certificate, together with any riders or endorsements attached to the certificate, the
laws of the society, the application for membership, the application for insurance and
declaration of insurability, if any, signed by the applicant and all amendments to any of
these. A copy of the application for insurance and declaration of insurability, if any,
shall be endorsed on or attached to the certificate. All statements on the application
are representations and not warranties. Any waiver of this provision is void.
B. Any amendments to the laws of the society that are made or enacted after the
certificate is issued are binding on the owner and beneficiaries and govern and control
the benefit contract in all respects as if the amendments were made and in force before
the time of the application for insurance. An amendment does not destroy or diminish any
benefits that the society contracted to give the owner as of the date of issuance.
C. A person on whose life a benefit contract is issued before the person attains
the age of majority is bound by the terms of the application.
D. The laws of the society shall provide that if the society's reserves as to any
or all classes of certificates become impaired, the board of directors or other
corresponding body may require that the owner pay to the society the amount of the
owner's equitable proportion of the deficiency as ascertained by the board or other
corresponding body. If the payment is not made the payment stands as an indebtedness
against the certificate and draws interest in an amount not exceeding the rate specified
for certificate loans under the certificate or the owner may accept a proportionate
reduction in benefits under the certificate, or both. The society may specify the manner
of the election and which alternative is presumed if no election is made.
E. Copies of any documents under this section that are certified by the secretary
or other corresponding officer of the society shall be received in evidence on the terms
and conditions of those documents.
F. A certificate shall not be delivered or issued for delivery in this state unless
a copy of the form is filed with and approved by the director in the manner provided for
like policies issued by life and disability insurers in this state. Every life, accident
and sickness, health or disability insurance certificate and every annuity certificate
that is issued on or after January 1, 1996 shall be filed with and approved by the
director and shall meet the standard contract provision requirements that are not
inconsistent with this title for like policies issued by life and disability insurers in
this state. A society may provide a grace period for the payment of premiums of one full
month in its certificates. The certificate shall state the amount of premiums that are
payable under the certificate and shall recite or prescribe the substance of any of the
society's laws or rules in effect at the time of issuance of the certificate that, if
violated, will result in the termination of or reduction of benefits payable under the
certificate. If the laws or rules of the society provide for the expulsion or suspension
of a member, the certificate shall state that a member who is expelled or suspended may
maintain the certificate in force by continuing to pay the required premium, unless the
member was expelled or suspended for the nonpayment of premium or during the contestable
period for material misrepresentation in the application for membership or insurance.
G. Benefit contracts that are issued on the lives of persons who are under the
society's minimum age for adult membership may provide for the transfer of control of
ownership to the insured at an age specified in the certificate. The society may require
that an application for membership be approved in order to effect this transfer and may
provide for the regulation, government and control of the certificates and all rights,
obligations and liabilities incident to and connected with the certificate. The
certificate shall specify ownership rights before the transfer.
H. A society may specify the terms and conditions on which benefit contracts may be
assigned.
20-879 Nonforfeiture benefits, cash surrender value, certificate loans and other options
A. For certificates that are issued before January 1, 1996, the value of every
paid-up nonforfeiture benefit and the amount of any cash surrender value, loan or other
option granted shall comply with the applicable provisions of law that were in effect
before January 1, 1995.
B. For certificates that are issued on or after January 1, 1996 and for which
reserves are computed pursuant to the commissioner's 1941 standard ordinary mortality
table, the commissioner's 1941 standard industrial table, the commissioner's 1958
standard ordinary mortality table, the commissioner's 1980 standard mortality table or
any other more recent table that is applicable to life insurers, every paid-up
nonforfeiture benefit and the amount of any cash surrender value, loan or other option
granted shall not be less than the corresponding amount that is ascertained and based on
those tables for life insurance policies containing like benefits.
20-880 Investments
A society shall invest its funds only in those investments that are authorized by
this title. A foreign or alien society that is permitted or seeking to do business in
this state and that invests its funds in accordance with the laws of the state, district,
territory, country or province in which it is incorporated is deemed to meet the
requirements of this section for the investment of funds.
20-881 Funds
A. Unless otherwise provided in the benefit contract, all assets shall be held,
invested and disbursed for the use and benefit of the society, and no member or
beneficiary has any individual rights in the assets and is not entitled to any
apportionment on the surrender of any part of the assets.
B. A society may create, maintain, invest, disburse and apply any special fund or
funds necessary to carry out any purpose permitted by the laws of the society.
C. Pursuant to a resolution of the supreme governing body, a society may establish
and maintain one or more separate accounts and issue contracts on a variable basis,
subject to the provisions of this title regulating life insurers. To the extent that the
society deems it necessary in order to comply with any applicable federal or state law,
the society may:
1. Adopt special procedures for the conduct of the business and affairs of a
separate account.
2. For persons who have beneficial interests in a separate account, provide special
voting and other rights, including, without limitation, special rights and procedures
relating to investment policy, investment advisory services, selection of certified
public accountants and selection of a committee to manage the business and affairs of the
account.
3. Issue contracts on a variable basis. Section 20-878, subsections B and D do not
apply to these contracts.
20-882 Applicable insurance provisions
Fraternal benefit societies are governed by this article and are subject to and
governed by the following articles and sections of this title to the extent that the
articles and sections apply to the societies and are not modified by the provisions of
this article:
1. Chapter 1, articles 1 and 2 of this title.
2. Chapter 2, article 1 of this title, except that sections 20-209 through 20-214,
20-224, 20-224.01, 20-224.02, 20-225, 20-226, 20-227 and 20-229 do not apply to fraternal
benefit societies.
3. Sections 20-501 through 20-505 and 20-511 through 20-514.
4. Chapter 3, article 2 of this title, except that section 20-535, section 20-536,
subsections B and C and section 20-556, paragraphs 4 and 6 do not apply to limitations
with respect to monies invested in real property for home or branch office purposes.
5. Chapter 3, article 4 of this title.
6. Chapter 3, article 8 of this title.
7. Sections 20-1110, 20-1111, 20-1115, 20-1133 and 20-1135.
8. Section 20-1408.
20-883 Tax exemption; exception
Every authorized society and every society that is exempt under section 20-893 is
deemed to be a charitable and benevolent institution and is exempt from all state,
county, district, municipal and school taxes, including the taxes prescribed by this
title, except that a society is subject to the fees prescribed by chapter 1, article 2 of
this title and taxes on real and tangible personal property located in this state.
20-884 Valuation
A. The standards of valuation for certificates that are issued before January 1,
1996 are the standards of valuation that were in effect immediately before January 1,
1995.
B. The minimum standards of valuation for certificates that are issued on or after
January 1, 1996 shall be based on the following tables:
1. For certificates of life insurance: the commissioner's 1941 standard ordinary
mortality table, the commissioner's 1941 standard industrial mortality table, the
commissioner's 1958 standard ordinary mortality table, the commissioner's 1980 standard
ordinary mortality table or a more recent table that applies to life insurers.
2. For annuity and pure endowment certificates, total and permanent disability
benefits, accidental death benefits and noncancellable accident and health benefits: the
tables that are authorized for use by like insurers in this state.
C. The tables listed under subsection B shall be under the valuation methods and
standards, including interest assumptions, that are in accordance with the laws of this
state applicable to life insurers issuing policies containing like benefits.
D. The director may accept other standards for valuation if the director finds that
the reserves produced by those standards will not be less in the aggregate than the
reserves computed in accordance with the minimum valuation standards prescribed by this
section. The director may vary the standards of mortality that apply to all benefit
contracts on substandard lives or other extra hazardous lives issued by a society
authorized to do business in this state.
E. With the consent of the director of insurance in the domiciliary state of the
society and under any conditions that the director of insurance in this state may impose,
a society may establish and maintain reserves on its certificates in excess of the
reserves required by the standards of valuation, except that the contractual rights of a
benefit member are not affected by the excess reserves.
20-885 Reports
Each fraternal benefit society shall file reports as follows:
1. Unless the director extends the time for filing for good cause shown, on or
before March 1 each society transacting business in this state shall annually file with
the director a true statement of its financial condition, transactions and affairs for
the preceding calendar year and shall pay the fee prescribed by section 20-167 for filing
the statement. The statement shall be in the general form and context that is approved
by the national association of insurance commissioners for fraternal benefit societies,
supplemented by any additional information that the director requires.
2. At the time of filing its annual statement pursuant to paragraph 1 of this
section, each society shall also file with the director a valuation of its certificates
in force as of the preceding December 31. On a showing of good cause the director may
extend the time for filing the valuation for a period of not more than two calendar
months. The valuation shall be conducted pursuant to section 20-884. A qualified
actuary shall certify the valuation and underlying data, or at the expense of the
society, an actuary of the department of insurance in the domiciliary state of the
society shall verify the valuation and underlying data.
20-886 Certificate of authority; termination
A certificate of authority issued to a society remains in effect on payment of the
annual renewal fee prescribed by section 20-167 unless the society voluntarily terminates
or the director suspends or revokes the certificate.
20-887 Examination of societies; limitation on disclosure
A. The director or the director's designee may examine any domestic, foreign or
alien society that is authorized or applying for authorization to transact business in
this state in the same manner as prescribed by section 20-156.
B. The director shall not make public any financial statement, report or finding
pending, during or after an examination or investigation of a domestic or foreign
society. The director shall not make public any financial statement, report or finding
affecting the status, standing or rights of the society until a copy of the statement,
report or finding is served on the society at its home office and the society is afforded
a reasonable opportunity to answer and make a showing in connection with the statement,
report or finding.
C. On a statement from the director, the society shall pay for the expenses of each
examination and valuation, including the compensation and actual expenses of the
examiners.
20-888 Admission of foreign or alien societies
A foreign or alien society shall not transact business in this state unless the
director issues a certificate of authority to the foreign or alien society pursuant to
sections 20-215 and 20-216. A foreign or alien society applying for a certificate of
authority shall substantially comply with this article.
20-889 Injunction; delinquency or dissolution proceedings
A court in this state shall not hear an application or petition for injunction
against a domestic, foreign or alien society or lodge, any delinquency or other
proceeding for dissolution of a society or the appointment of a conservator or receiver
unless the application or petition is filed in the name of this state on the relation of
the director pursuant to chapter 3, article 4 of this title.
20-890 Licensing of insurance producers
A. An insurance producer of a society or its subsidiary or affiliated organizations
shall be licensed pursuant to chapter 2, article 3 of this title. The director may waive
the examination for licensure if the applicant was licensed after January 1, 1955 and has
been an active soliciting representative of a society in this state for not less than six
months immediately preceding the application.
B. A regular salaried officer, employee or member of a licensed society who devotes
substantially all of that individual's services to activities other than the solicitation
of fraternal insurance contracts and who receives for the solicitation of those contracts
no commission or other compensation directly dependent on the amount of business
solicited is not subject to examination and licensure pursuant to this section.
C. An insurance producer, representative or member of the society who devotes or
intends to devote less than fifty per cent of that individual's time to the solicitation
and procurement of insurance contracts is exempt from subsection A. This exemption does
not apply to an insurance producer of a subsidiary corporation or affiliated
organization. From time to time each society shall submit to the director the names and
addresses of all persons who are actively engaged in its behalf as insurance producers.
D. A person who in the preceding calendar year has solicited and procured life
insurance contracts on behalf of a fraternal benefit society in an amount of insurance of
more than one hundred thousand dollars, or in the case of any other kind or kinds of
insurance that the society may write, on the persons of more than one hundred
individuals, is presumed to be devoting or intending to devote more than fifty per cent
of that individual's time to the solicitation or procurement of insurance contracts for
societies.
E. In this state a person shall not solicit, forward applications or assist in
placing insurance of residents of this state in any fraternal benefit society that is not
authorized to transact business in this state.
20-891 Unfair acts and practices
Each society authorized to transact business in this state is subject to chapter 2,
article 6 of this title, except that nothing in chapter 2, article 6 of this title
applies to or affects the right of a society to determine its eligibility requirements
for membership or to offer its benefits exclusively to members or persons eligible for
membership in the society through a subsidiary corporation or affiliated organization of
the society.
20-892 Violation; classification
A. A person who knowingly or wilfully makes a false or fraudulent statement or
representation in or relating to an application for membership or for the purpose of
obtaining money from or a benefit in a society is guilty of a class 6 felony.
B. A person who wilfully makes a false or fraudulent statement in a verified report
or declaration under oath required by this article or who makes a false or fraudulent
statement of a material fact that is contained in a sworn statement concerning the death
or disability of an insured for the purpose of procuring the payment of a benefit named
in the certificate is guilty of perjury and is subject to section 13-2702.
C. A person who solicits membership for or who in any manner assists in procuring
membership in a society that is not licensed to do business in this state is guilty of a
violation and is subject to section 20-114.
D. A person who wilfully violates, neglects or refuses to comply with this article
is guilty of a violation and is subject to section 20-114.
20-893 Exemption of societies from insurance laws
A. Except as otherwise provided by this article, the following fraternal benefit
societies are exempt from compliance with this article and all other insurance laws of
this state:
1. Fraternal benefit societies that were doing business in this state on January 1,
1955 and that provide benefits exclusively through local or subordinate lodges.
2. Fraternal benefit societies that admit to membership only those persons who are
engaged in one or more crafts or hazardous occupations, in the same or similar lines of
business, and that insure only their own members, their families, the descendants of
members and the ladies' auxiliaries to those societies.
B. Except for a society prescribed by subsection A, a fraternal benefit society
that is exempt from the requirements of this article pursuant to this section shall not
give to or allow any person any compensation for procuring new members.
C. A society that is organized and incorporated before January 1, 1955, that
provides for benefits in case of death or disability resulting solely from an accident
and that does not obligate itself to pay natural death or sick benefits may secure a
certificate of authority under this article if it was authorized before January 1,
1955. The society has all of the privileges and is subject to all of the provisions of
this article, except that the provisions of this article relating to medical
examinations, standard provisions, prohibited provisions, valuations of certificates and
incontestability do not apply.
D. The director by examination or otherwise may require any information that will
enable him to determine if the society is exempt from this article.
20-1001 Definitions
In this article, unless the context otherwise requires:
1. "Member" means an individual who is enrolled in a group prepaid dental plan as a
principal subscriber together with such person's dependents who are entitled to dental
care services under the plan solely because of their status as dependents of the
principal subscriber.
2. "Membership coverage" means any certificate or contract issued to a member
setting out the dental coverage to which such member is entitled.
3. "Prepaid dental plan" means any contractual arrangement whereby any prepaid
dental plan organization undertakes to provide directly or to arrange for prepaid dental
services and to pay or make reimbursement for any remaining portion of such prepaid
dental services on a prepaid basis through insurance or otherwise.
4. "Prepaid dental plan organization" means any person who undertakes to conduct
one or more prepaid dental plans providing only dental services.
5. "Prepaid dental services" means services included in the practice of dentistry
as described in section 32-1202.
6. "Provider" means any person licensed or otherwise authorized to furnish prepaid
dental services in this state.
20-1002 Establishment of prepaid dental plan organizations
A. No person, unless authorized pursuant to article 3 or article 9 of this chapter,
may establish or operate a prepaid dental plan organization in this state, or sell or
offer to sell, or solicit offers to purchase, or receive advance or periodic
consideration in conjunction with a prepaid dental plan without obtaining and maintaining
a certificate of authority pursuant to this article.
B. Within ninety days after the effective date of this article, every prepaid
dental plan organization operating in this state shall submit an application for a
certificate of authority to the director. Each such applicant may continue to operate as
an organization until the director acts upon the application.
20-1003 Application for certificate of authority
A. An application for a certificate of authority to operate as a prepaid dental
plan organization shall be filed with the director in a form prescribed by the director,
shall be verified by an officer or authorized representative of the applicant and shall
set forth, or be accompanied by, the following:
1. A copy of any basic organizational document of the applicant such as the
articles of incorporation, articles of association, partnership agreement, trust
agreement or other applicable documents and all amendments to the documents.
2. A copy of any bylaws, rules and regulations or similar document regulating the
conduct of the internal affairs of the applicant.
3. A list of the names, addresses and official positions of the persons who are
responsible for the conduct of the affairs of the applicant, including all members of the
board of directors, board of trustees, executive committee or other governing board or
committee, the principal officers in the case of a corporation and the partners of
members in the case of a partnership or association.
4. If the prepaid dental plan organization is a corporation, evidence that the
board of directors of the corporation includes:
(a) Dentists who are duly licensed pursuant to title 32, chapter 11 and who have
contracted with the corporation to render dental service to members.
(b) Members of the prepaid dental plan, who shall comprise at least one-third of
the members of the board.
5. A copy of any contract made or to be made between any providers or persons
listed in paragraph 3 and the applicant.
6. A statement generally describing the prepaid dental plan organization and its
dental plan or plans, facilities and personnel, as approved by the director.
7. A copy of the form of membership coverage that is to be issued to the members.
8. A copy of the form of any group contract that is to be issued to employers,
unions, trustees or other applicants.
9. Financial statements showing the applicant's assets, liabilities and sources of
financial support. If the applicant's financial affairs are audited by independent
certified public accountants, a copy of the applicant's most recent regular certified
financial statement shall satisfy this requirement unless the director determines that
additional or more recent financial information is required for the proper administration
of this article.
10. A description of the proposed method of marketing the plan, a financial plan
that includes a three-year projection of the initial operating results anticipated and a
statement as to the sources of working capital as well as any other sources of funding.
11. A power of attorney duly executed by the applicant, if not domiciled in this
state, appointing the director, the director's successors in office and duly authorized
deputies as the true and lawful attorney of the applicant in and for this state, on whom
all lawful process in any legal action or proceeding against the prepaid dental plan
organization on a cause of action arising in this state may be served.
12. A statement reasonably describing the geographic area or areas to be served, as
approved by the director.
13. The fee prescribed in section 20-167 for issuance of a certificate of authority.
14. Any other information the director may require.
B. Within ten days after any significant modification of information previously
furnished pursuant to subsection A of this section, a prepaid dental plan organization
shall file notice of that modification with the director.
20-1004 Issuance of certificate of authority
Issuance of a certificate of authority shall be granted by the director if the
director is satisfied that the following conditions are met:
1. The persons responsible for conducting the affairs of the prepaid dental plan
organization are competent and trustworthy and are professionally capable of providing or
arranging for the provision of services offered.
2. The prepaid dental plan organization constitutes an appropriate mechanism to
achieve an effective prepaid dental plan, in accordance with regulations issued by the
director, that shall include at least the basic dental services appropriate to that plan
as determined by the director.
3. The prepaid dental plan organization is financially responsible and may
reasonably be expected to meet its obligations to members and prospective members. In
making this determination the director shall consider at least:
(a) The financial soundness of the prepaid dental plan's arrangements for services
and the schedule of charges used.
(b) Any agreement with an insurer, a hospital or a medical service corporation, a
government or any other organization for insuring the payment of the cost of prepaid
dental services or the provisions for automatic applicability of an alternative coverage
in the event of discontinuance of the plan.
(c) The sufficiency of an agreement with providers for the provision of prepaid
dental services.
4. Each officer responsible for conducting the affairs of the prepaid dental plan
organization has filed with the director, subject to the director's approval, a fidelity
bond in the amount of fifty thousand dollars.
20-1005 Deposit requirement; exception
A. A prepaid dental plan organization shall maintain on deposit with the state
treasurer through the director's office a surety bond, guaranteeing services under the
plan, or cash or securities eligible for investment of capital funds, in the following
amounts depending on the number of members entitled to dental care services pursuant to
contracts issued by the plan:
Number of members Deposit
5,000 or less $ 25,000
5,001 - 7,500 30,000
7,501 - 10,000 50,000
10,001 - 15,000 75,000
15,001 - 20,000 100,000
20,001 - 25,000 125,000
25,001 - 30,000 150,000
30,001 - 40,000 175,000
40,001 and above 200,000
B. The deposit prescribed by subsection A shall be held by the state treasurer in
trust for the benefit and protection of persons covered by a prepaid dental plan.
C. Any securities within the description of subsection A, with the approval of the
director, may be exchanged for similar securities or cash of equal amount. Interest on
securities deposited shall be payable to the prepaid dental plan organization depositing
such securities.
D. An unpaid final judgment arising upon a membership coverage shall be a lien on
the deposit prescribed by subsection A, subject to execution after thirty days from the
entry of final judgment. If the deposit is reduced, it shall be replenished within
ninety days by the prepaid dental plan organization.
E. Upon liquidation or dissolution of a prepaid dental plan organization and the
satisfaction of all its debts and liabilities, any balance remaining of the cash or
securities deposit prescribed in subsection A together with any other assets of the
prepaid dental plan organization shall be returned by the director to the prepaid dental
plan organization.
F. The deposit prescribed by subsection A shall not apply with respect to a prepaid
dental plan organization which is funded by the federal, state or a municipal government
or any political subdivision or body to the extent and for such period of time that the
prepaid dental plan organization can demonstrate to the director the presence of
operational commitments from such sources equivalent to such deposit.
20-1006.01 Risk-based capital requirements; minimum capital and surplus
A. A prepaid dental plan organization shall comply with chapter 2, article 12 of
this title.
B. A prepaid dental plan organization that is exempt from the risk-based capital
requirements prescribed in section 20-488.08 shall maintain unimpaired capital or
surplus, or both, in an amount of at least twenty-five thousand dollars.
20-1006 Reserve requirement; exception
A. A prepaid dental plan organization at all times shall maintain for protection of
members a financial reserve consisting of two per cent of prepaid charges collected from
members for the plan, until such reserve totals five hundred thousand dollars. Such
reserve shall be in addition to the deposit prescribed by section 20-1005.
B. The reserve prescribed by subsection A of this section shall not apply with
respect to a prepaid dental plan organization which is funded by the federal, state or a
municipal government or any political subdivision or body and meets the requirements of
section 20-1005, subsection F.
20-1007 Membership coverage by prepaid dental plan organizations
A. Every member in a prepaid dental plan shall be issued a membership coverage form
by the prepaid dental plan organization.
B. Any contract applied for that provides family coverage shall, as to such
coverage of individuals in the family, also provide that the benefits applicable for
children shall be payable with respect to a newly born child of the insured from the
instant of such child's birth, to a child adopted by the insured, regardless of the age
at which the child was adopted, and to a child who has been placed for adoption with the
insured and for whom the application and approval procedures for adoption pursuant to
section 8-105 or 8-108 have been completed to the same extent that such coverage applies
to other members in the family. If payment of a specific premium is required to provide
coverage for a child, the contract may require that notification of birth, adoption or
adoption placement of the child and payment of the required premium shall be furnished
to the insurer within thirty-one days after the date of birth, adoption or adoption
placement in order to have the coverage continue beyond the thirty-one day period.
C. No membership coverage or amendment shall be issued or delivered to any person
in this state until a copy of the form of the membership coverage or amendment has been
filed with and approved by the director.
D. A membership coverage shall contain a clear and complete statement of a
contract, or a reasonably complete summary if it is a certificate of contract, of:
1. The prepaid dental services or other benefits to which the member is entitled
under the prepaid dental plan.
2. Any limitations of the services, kind of services or benefits to be provided,
including any deductible or co-payment feature.
3. Where and in what manner information is available as to how services may be
obtained.
4. The member's obligation respecting charges for the prepaid dental plan.
E. A membership coverage and advertising and sales material shall contain no
provisions or statements that are unjust, unfair, inequitable, misleading or deceptive or
that encourage misrepresentation or that are untrue.
F. The director shall approve any form of membership coverage if the requirements
of subsections D and E are met and the prepaid dental plan is able in the judgment of the
director to meet its financial obligations under the membership coverage. It is unlawful
to issue such form until approved. If the director does not disapprove any such form
within thirty days after the filing, it shall be deemed approved. If the director
disapproves a form of membership coverage, the director shall notify the prepaid dental
plan organization, specifying the reasons for disapproval. The director shall grant a
hearing on such disapproval within fifteen days after a request in writing is received
from the prepaid dental plan organization.
G. As used in subsection B of this section, the term "child", for purposes of
initial coverage of an adopted child or a child placed for adoption but not for purposes
of termination of coverage of such child, means a person under the age of eighteen years.
20-1008 Examination of prepaid dental plan organization
A. The director may once in each six months for the first three years after
organization and once each year thereafter, or more often if deemed necessary by the
director, visit each prepaid dental plan organization organized under the laws of this
state and examine its financial condition and its ability to meet its liabilities and its
compliance with the laws of this state affecting the conduct of its business. The
director may annually visit and examine each prepaid dental plan organization not
organized under the laws of this state but authorized to transact business in this state.
B. The director may in like manner examine each prepaid dental plan organization
applying for an initial certificate of authority to do business in this state.
C. In lieu of making an examination, the director may accept a full report of the
most recent examination of a foreign or alien prepaid dental plan organization, certified
to by the appropriate examining official of another state, territory, commonwealth or
district of the United States.
D. On request by the director of the department of insurance, the director of the
department of health services or another person the director of the department of
insurance determines to be qualified may participate in the examinations and visits
described in this section to verify the existence of an effective prepaid dental plan and
to review the delivery of services by the prepaid dental plan organization. 20-1009 Annual report to director
A. Every prepaid dental plan organization annually on or before the first day of
March shall file with the director a report of its financial condition, transactions and
affairs as of the preceding December 31 as prescribed in sections 20-223 and 20-234 and
shall pay the annual renewal fee prescribed in section 20-167.
B. The prepaid dental plan organization shall also submit any reports required by
chapter 2, article 12 of this title.
C. A prepaid dental plan organization that fails to timely file the annual report
required under subsection A of this section is subject to the penalties prescribed in
section 20-223.
20-1010 Taxes
A. On the tax payment dates prescribed in section 20-224, each prepaid dental plan
organization shall pay to the director for deposit, pursuant to sections 35-146 and
35-147, in a form prescribed by the director a tax for transacting a prepaid dental plan
in the amount of 2.0 per cent of prepaid net charges received from members.
B. The failure by an organization to pay the tax imposed by this section results in
a civil penalty determined pursuant to section 20-225.
C. A prepaid dental plan organization may claim a premium tax credit if the
organization qualifies for a credit pursuant to section 20-224.03 or 20-224.04.
20-1011 Operational expenses
No more than thirty per cent of prepaid charges in the first year of operation,
twenty-five per cent of prepaid charges in the second year of operation and twenty per
cent of prepaid charges in any subsequent year shall be used for the marketing and
administrative expenses of a prepaid dental plan organization, including all costs
related to soliciting members and providers.
20-1012 Prohibited practices
Chapter 2, article 6 of this title, relating to unfair trade practices and frauds,
shall apply to prepaid dental plan organizations, except to the extent the director
determines that the nature of prepaid dental plan organizations render particular
provisions inappropriate.
20-1013 Regulation of agents
The director shall, after notice and hearing, promulgate such rules and regulations
as are necessary to provide for the licensing of agents which shall include provisions
for examination, licensing, annual fees and disciplinary procedures similar to those
provided in chapter 2, article 3 of this title.
20-1014 Examination
The director may conduct an examination of the affairs of any prepaid dental plan
organization as often as the director deems it necessary for the protection of the
interests of the people of this state. 20-1015 Suspension or revocation of certificate of authority; civil penalties
A. The director may suspend or revoke any certificate of authority issued to a
prepaid dental plan organization pursuant to this article if the director finds that any
of the following conditions exists:
1. The prepaid dental plan organization is operating significantly in contravention
of its basic organizational documents or in a manner contrary to that described in, and
reasonably inferred from, any other information submitted pursuant to section 20-1003.
2. The prepaid dental plan organization issued membership coverage that does not
comply with the requirements of section 20-1007.
3. The prepaid dental plan does not provide or arrange for basic dental services
appropriate to such plan as determined by the director.
4. The prepaid dental plan organization can no longer be expected to meet its
obligations to members or prospective members.
5. The prepaid dental plan organization, or any authorized person on its behalf,
has advertised or merchandised its services in a materially untrue, misleading, deceptive
or unfair manner.
6. The prepaid dental plan organization has failed to substantially comply with
this article or any rules adopted pursuant to this article.
7. The prepaid dental plan organization is in an unsound condition or in such a
condition as to render its further transaction of business in this state hazardous to its
members or to the residents of this state.
B. If the certificate of authority of a prepaid dental plan organization is
suspended, the organization shall not accept, during the period of the suspension, any
additional members except newborn children or other newly acquired dependents of existing
members and shall not engage in any advertising or solicitation.
C. If the certificate of authority of a prepaid dental plan organization is
revoked, the organization shall proceed, immediately following the effective date of the
order of revocation, to conclude its affairs and shall conduct no further business except
as may be essential to the orderly conclusion of solicitation. The director, by written
order, may permit such further operation of the organization as the director finds to be
in the best interest of members to the end that members shall be afforded the greatest
practical opportunity to obtain continuing prepaid dental plan coverage.
D. Notwithstanding subsections B and C of this section, a prepaid dental plan
organization that has had its certificate of authority denied, suspended or revoked, or
that is subject to an adverse action by the director, is entitled to a hearing pursuant
to title 41, chapter 6, article 10 and, except as provided in section 41-1092.08,
subsection H, is entitled to judicial review pursuant to title 12, chapter 7, article 6.
E. If, after a hearing, the director finds grounds pursuant to subsection A of this
section to suspend or revoke an organization's certificate of authority, the director may
impose, in lieu of or in addition to that suspension or revocation, the following civil
penalties that shall be remitted to the state treasurer for deposit, pursuant to sections
35-146 and 35-147, in the state general fund:
1. For an unintentional violation, not more than one thousand dollars for each
violation and not more than an aggregate of ten thousand dollars in any six month period.
2. For an intentional violation, not more than five thousand dollars for each
violation and not more than an aggregate of fifty thousand dollars in any six month
period.
20-1016 Rehabilitation, liquidation or conservation of prepaid dental plan organization
Any rehabilitation, liquidation or conservation of a prepaid dental plan
organization shall be deemed to be the rehabilitation, liquidation or conservation of an
insurer and shall be conducted pursuant to chapter 3, article 4 of this title.
20-1018 Advertising matter or sales materials A prepaid dental plan organization shall not issue or deliver any advertising matter or sales material to any person in this state until the prepaid dental plan organization files the advertising matter or sales material with the director. This section does not require a prepaid dental plan to have the prior approval of the director to issue or deliver the advertising matter or sale material. If the director finds that the advertising matter or sales material, in whole or in part, is false, deceptive or misleading, the director may issue an order disapproving the advertising matter or sales material, directing the prepaid dental plan organization to cease and desist from issuing, circulating, displaying or using the advertising matter or sales material within a period of time specified by the director but not less than ten days and imposing any penalties prescribed in this title. At least five days before issuing an order pursuant to this section, the director shall provide the prepaid dental plan organization with a written notice of the basis of the order to provide the prepaid dental plan organization with an opportunity to cure the alleged deficiency in the advertising matter or sales material within a single five day period for the particular advertising matter or sales material at issue. The prepaid dental plan organization may appeal the director's order pursuant to title 41, chapter 6, article 10. Except as otherwise provided in this section, a prepaid dental plan organization may obtain a stay of the effectiveness of the order as prescribed in section 20-162. If the director certifies in the order and provides a detailed explanation of the reasons in support of the certification that continued use of the advertising matter or sales material poses a threat to the health, safety or welfare of the public, the order may be entered immediately without opportunity for cure and the effectiveness of the order is not stayed pending the hearing on the notice of appeal but the hearing shall be promptly instituted and determined. 20-1019 Order of benefit determination for dental care
A. If a person receiving dental care is a member of a prepaid dental plan and is an
insured or certificate holder under an indemnity health insurance policy which provides
benefits for the same treatment as the person's prepaid dental plan, the indemnity health
insurance policy, if issued after the effective date of this section, shall pay benefits
to its insured or certificate holder or the assignee thereof without regard to the
existence of the prepaid dental plan.
B. Notwithstanding subsection A, the indemnity plan insurer is not obligated to pay
any amount for a procedure covered without charge to the member of the prepaid dental
plan or to pay in excess of the amount of the member's obligation under the prepaid
dental plan.
C. In the event that the member's copayment obligation under the prepaid dental
plan has been met, then the indemnity insurer shall remit any payments due under this
section directly to its insured or certificate holder.
D. The director may adopt rules to enforce this section.
20-1021 Lloyd's association defined
As used in this article, unless the context otherwise requires, "Lloyd's
association" means any aggregation of individuals, called "underwriters," who under a
common name engage in the business of insurance for profit through an attorney-in-fact
having authority to obligate the underwriters severally, within such limits as may be
lawfully specified in the power of attorney, on contracts of insurance made or issued by
such attorney-in-fact, in the name of such aggregation of individuals, to and with any
person or persons insured.
20-1022 Forms of insurance authorized
Lloyd's associations are authorized to make any insurance as provided in this
article, except life insurance or title insurance, on the Lloyd's plan, by complying with
the requirements set forth in this article. Every policy form issued in this state by a
Lloyd's association shall comply with all applicable provisions of chapters 5 and 6 of
this title, and in addition shall contain, prominently displayed, in type not
substantially smaller than the type used for the name of the company, the legend "not
domesticated in Great Britain" or other equivalent language indicating that the insurer
is not an alien Lloyd's association or insurer.
20-1023 "Attorney" defined; office
Policies of insurance may be executed by an attorney or by an attorney-in-fact, or
other representative, hereby designated "attorney", authorized by and acting for the
underwriters who constitute the Lloyd's association. The principal office of such
attorney shall be maintained at such place as may be designated by the underwriters in
their articles of agreement.
20-1024 Application for license; contents
The attorney shall file with the director a verified application for a certificate
of authority setting forth and accompanied by:
1. The name of the attorney or attorneys and the title under which the business is
to be conducted, which title shall contain the name Lloyd's and the name of the country
or state under which it is organized, and shall not be so similar to any name or title in
use in this state as to be likely to confuse or deceive.
2. The location of the principal office.
3. The kind or combination of kinds of insurance to be written, as defined in
article 2 of chapter 2 of this title.
4. A copy of the form of power of attorney by virtue of which the attorney is to
act for and bind the several underwriters, and a copy of the articles of agreement
entered into between the underwriters themselves and the attorney.
5. The names and addresses of all underwriters, whose number shall not be smaller
than three.
6. A financial statement showing in detail the assets contributed or accumulated in
the hands of the attorneys-in-fact, committee of underwriters, trustees, or other
officers of such Lloyd's association, together with the liabilities incurred and
outstanding and the income received and disbursements made by the attorney for the
underwriters.
7. An instrument executed by each and all of the underwriters specially empowering
the attorney to accept service of process for each underwriter in any action on any
policy or contract of insurance, and an instrument from the attorney to the director
delegating the attorney's powers in this respect to the director.
20-1025 Surplus required
No attorney shall be licensed for the underwriters doing business as a Lloyd's
association under this article unless the surplus of such association, required to be
maintained under section 20-210, shall be at least four hundred thousand dollars in cash,
or other admitted assets.
20-1026 Reserves for liabilities and losses
Underwriters doing business as a Lloyd's association shall compute reserve
liabilities for all outstanding business and for all incurred losses upon the same basis
required for stock insurance companies doing the same class and character of business in
ARIZONA.
20-1027 Liability of underwriters; limitation
An underwriter in a Lloyd's association may limit his total liability on all risks
to the amount of his subscription as expressed in his power of attorney and agreement
with the attorney-in-fact, provided that at least half of the subscription of each
underwriter shall be paid or contributed to the guaranty fund in cash or securities
constituting admitted assets. Each underwriter shall be responsible solely for his own
liability as fixed in the contract of insurance and shall not be liable as a partner, and
in no event shall the liability of an underwriter exceed the amount of his total
underwriters agreement executed in favor of his attorney or attorneys-in-fact.
20-1028 Liability of additional or substituted underwriters; authority of deputy, substitute or successor attorney
Additional or substituted underwriters shall be bound in the same manner and to the
same extent as original subscribers to the articles of agreement and power of attorney on
file with the director. The acts of the duly appointed deputy, substitute or successor
attorney or any attorney or attorneys licensed under this chapter, in accepting powers of
attorney from underwriters, in making and issuing policies and contracts of insurance,
and in doing any additional acts incident thereto, shall be deemed authorized by the
certificate of authority issued to the original attorney or attorneys.
20-1029 Division of profits
No profits shall accrue to an underwriter, except upon the basis of his actual
investment in cash or securities, disregarding any obligation or subscription to pay in
additional cash or securities at a later date.
20-1030 Actions on policies or insurance contracts; process; judgments; costs
Action on any policy or contract of insurance issued by an attorney for the
underwriters may be brought against the attorney. In such action, summons and process
shall be served on either the director or on the attorney-in-fact, and when so served
shall have the same effect as if served on the attorney and on each underwriter
personally. A judgment in any such action against the attorney shall be binding upon and
be judgment against each and all of the underwriters as their several liabilities may
appear in the contract of insurance on which the action is brought. Any such summons or
other process shall be served in accordance with the provisions of section 20-222, and
the provisions of that section shall be in all respects applicable thereto.
20-1031 Deposit required of Lloyd's association
The deposit requirements of section 20-213 and section 20-583 shall in all respects
apply to any Lloyd's association, foreign or domestic, provided that the director shall
not issue a certificate of authority to any Lloyd's association unless it has deposited
in trust with the state treasurer of ARIZONA or in public custody in any other state or
states cash or securities eligible for the investment of capital funds of domestic
insurers in an amount not less than four hundred thousand dollars.
20-1032 Revocation of license
If any attorney-in-fact or underwriter of a Lloyd's association shall violate any of
the provisions of this title, or any of the other laws of the state of ARIZONA which are
applicable to them, the certificate of authority issued to such attorney shall be revoked
and the right to do business in ARIZONA shall be cancelled.
20-1033 Laws applicable to Lloyd's association
A. The provisions of this article are applicable to domestic and foreign Lloyd's
associations.
B. To the extent not modified by the provisions of this article, Lloyd's
associations shall be subject to and governed by the other applicable provisions of this
title.
20-1051 Definitions
In this article, unless the context otherwise requires:
1. "Director" means the director of the department of insurance.
2. "Enrollee" means an individual who has been enrolled in a health care plan.
3. "Evidence of coverage" means any certificate, agreement or contract issued to an
enrollee and setting out the coverage to which the enrollee is entitled.
4. "Genetic information" means information about genes, gene products and inherited
characteristics that may derive from the individual or a family member, including
information regarding carrier status and information derived from laboratory tests that
identify mutations in specific genes or chromosomes, physical medical examinations,
family histories and direct analysis of genes or chromosomes.
5. "Health care plan" means any contractual arrangement whereby any health care
services organization undertakes to provide directly or to arrange for all or a portion
of contractually covered health care services and to pay or make reimbursement for any
remaining portion of the health care services on a prepaid basis through insurance or
otherwise. A health care plan shall include those health care services required in this
article or in any rule adopted pursuant to this article.
6. "Health care services" means services for the purpose of diagnosing, preventing,
alleviating, curing or healing human illness or injury.
7. "Health care services organization" means any person that undertakes to conduct
one or more health care plans. Unless the context otherwise requires, health care
services organization includes a provider sponsored health care services organization.
8. "Health status-related factor" means any factor in relation to the health of the
individual or a dependent of the individual enrolled or to be enrolled in a health care
services organization including:
(a) Health status.
(b) Medical condition, including physical and mental illness.
(c) Claims experience.
(d) Receipt of health care.
(e) Medical history.
(f) Genetic information.
(g) Evidence of insurability, including conditions arising out of acts of domestic
violence as defined in section 20-448.
(h) The existence of a physical or mental disability.
9. "Network plan" means health care services that are provided by a health care
services organization under which the financing and delivery of health care services are
provided, in whole or in part, through a defined set of providers under contract with the
health care services organization.
10. "Person" means any natural or artificial person including, but not limited to,
individuals, partnerships, associations, providers of health care, trusts, insurers,
hospital or medical service corporations or other corporations, prepaid group practice
plans, foundations for medical care and health maintenance organizations.
11. "Provider" means any physician, hospital or other person that is licensed or
otherwise authorized to furnish health care services in this state.
12. "Provider sponsored health care services organization" means a provider
sponsored organization that provides at least one health care plan only to medicare
beneficiaries under the medicare-plus-choice program established under the balanced
budget act of 1997 (42 United States Code sections 1395w-21 through 1395w-28 and title
XVIII, part C of the social security act, sections 1851 through 1859).
13. "Provider sponsored organization" means an entity that:
(a) Is a legal aggregation of providers that operate collectively to provide health
care services to medicare beneficiaries under the medicare-plus-choice program
established under the balanced budget act of 1997 (42 United States Code sections
1395w-21 through 1395w-28 and title XVIII, part C of the social security act, sections
1851 through 1859).
(b) Acts through a licensed firm or corporation that has authority over the entity's
activities and responsibility for satisfying the requirements of this article relating to
the operation of a provider sponsored health care services organization.
(c) Provides a substantial proportion of the health care services required to be
provided under the medicare-plus-choice program established under the balanced budget act
of 1997 (42 United States Code sections 1395w-21 through 1395w-28 and title XVIII, part C
of the social security act, sections 1851 through 1859) directly through providers or
affiliated groups of providers.
20-1052.01 Establishment of provider sponsored health care services organizations; rules; limitations
A. No person shall establish or operate a provider sponsored health care services
organization in this state, or sell or offer to sell, or solicit offers to purchase, or
receive advance or periodic consideration in conjunction with a health care plan without
obtaining and maintaining a certificate of authority pursuant to this article.
B. To operate as a provider sponsored health care services organization in this
state, the firm or corporation shall:
1. Be a provider sponsored organization as defined in this article.
2. To the extent that the requirements are not preempted by federal law, meet the
requirements prescribed in this article that apply to health care services organizations.
C. In addition to the general rule making authority vested in the director pursuant
to chapter 1, article 2 of this title, the director may also adopt rules that:
1. Are necessary to implement the provider sponsored health care services
organization provisions of this article.
2. Impose solvency requirements of a provider sponsored health care services
organization that are the same as the requirements pursuant to the medicare-plus-choice
program established under the balanced budget act of 1997 (42 United States Code sections
1395w-21 through 1395w-28 and title XVIII, part C of the social security act, sections
1851 through 1859) and any rules adopted under the medicare-plus-choice program.
D. A certificate of authority issued to a provider sponsored health care services
organization pursuant to this article is a limited certificate of authority that
authorizes the provider sponsored health care services organization to provide coverage
for health care services only to medicare beneficiaries pursuant to the
medicare-plus-choice program established under the balanced budget act of 1997 (42 United
States Code sections 1395w-21 through 1395w-28 and title XVIII, part C of the social
security act, sections 1851 through 1859).
E. The solvency standards adopted by rule pursuant to this section apply only to a
provider sponsored health care services organization that provides coverage for health
care services only to medicare beneficiaries pursuant to the medicare-plus-choice program
established under the balanced budget act of 1997 (42 United States Code sections
1395w-21 through 1395w-28 and title XVIII, part C of the social security act, sections
1851 through 1859).
F. Nothing in this section applies to an insurer, health care services
organization, hospital service corporation, medical service corporation, dental service
corporation, optometric service corporation or hospital, medical, dental and optometric
service corporation or any other person licensed under this title other than a provider
sponsored organization that is licensed as a provider sponsored health care services
organization.
20-1052 Establishment of health care services organizations
A. A person shall not establish or operate a health care services organization in
this state, or sell or offer to sell, or solicit offers to purchase, or receive advance
or periodic consideration in conjunction with a health care plan without obtaining and
maintaining a certificate of authority pursuant to this article.
B. A health care services organization shall be incorporated under the laws of this
or any other state.
C. A health care services organization shall possess and maintain unimpaired
capital or surplus, or both, in the amount of one million five hundred thousand dollars
at the time of obtaining a certificate of authority. Thereafter, a health care services
organization that is subject to the unimpaired capital or surplus requirements of this
section shall maintain unimpaired capital or surplus, or both, in the amount of one
million dollars or in the amount prescribed in chapter 2, article 12 of this title,
whichever is greater.
D. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1053 Application for certificate of authority
A. An application for a certificate of authority to operate as a health care
services organization shall be filed with the director in a form prescribed by the
director, shall be verified by an officer or authorized representative of the applicant
and shall set forth, or be accompanied by, the following:
1. A copy of the articles of incorporation and all amendments to the articles.
2. A copy of the bylaws, rules and regulations, or similar document, if any,
regulating the conduct of the internal affairs of the applicant.
3. A list of the names, addresses and official positions of the persons who are to
be responsible for the conduct of the affairs of the applicant, including all members of
the board of directors, board of trustees, executive committee, or other governing board
or committee, the principal officers in the case of a corporation, and the partners or
members in the case of a partnership or association.
4. A copy of any contract made or to be made between any providers or persons
listed in paragraph 3 and the applicant.
5. A statement generally describing the health care services organization and its
health care plan or plans, facilities and personnel, as approved by the director.
6. A copy of the form of evidence of coverage to be issued to the enrollees.
7. A copy of the form of the group contract, if any, that is to be issued to
employers, unions, trustees or other organizations.
8. Financial statements showing the applicant's assets, liabilities and sources of
financial support. If the applicant's financial affairs are audited by independent
certified public accountants, a copy of the applicant's most recent regular certified
financial statement shall be deemed to satisfy this requirement unless the director
determines that additional or more recent financial information is required for the
proper administration of this article.
9. A description of the proposed method of marketing the plan, a financial plan
that includes a three-year projection of the initial operating results anticipated, and a
statement as to the sources of working capital as well as any other sources of funding.
10. A power of attorney duly executed by the applicant, if not domiciled in this
state, appointing the director and the director's successors in office, and duly
authorized deputies, as the true and lawful attorney of the applicant in and for this
state, upon whom all lawful process in any legal action or proceeding against the health
care services organization on a cause of action arising in this state may be served.
11. A statement reasonably describing the geographic area or areas to be served, as
approved by the director.
12. The fee prescribed by section 20-167.
13. A plan for the risk of insolvency as prescribed in section 20-1069.
14. Such other information as the director may require.
B. Within ten days following any significant modification of information previously
furnished pursuant to subsection A of this section, a health care services organization
shall file a notice of the modification with the director.
C. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1054 Issuance of certificate of authority
A. Issuance of a certificate of authority shall be granted within the time
prescribed in section 20-216 by the director if the director is satisfied that the
following conditions are met:
1. The persons responsible for conducting the affairs of the health care services
organization are competent and trustworthy and are professionally capable of providing or
arranging for the provision of health and medical services being offered.
2. The health care services organization constitutes an appropriate mechanism to
achieve an effective health care plan pursuant to this title and any rule that is adopted
by the director.
3. The health care services organization is financially responsible and may
reasonably be expected to meet its obligations to enrollees and prospective
enrollees. In making this determination, the director may consider:
(a) The financial soundness of the health care plan's arrangements for health care
services and the schedule of charges used in connection therewith.
(b) Any agreement with an insurer, a hospital or a medical service corporation, a
government or any other organization for insuring the payment of the cost of health care
services or the provision for automatic applicability of an alternative coverage in the
event of discontinuance of the plan.
(c) Any agreement with providers for the provision of health care services.
4. Each officer responsible for conducting the affairs of the health care services
organization has filed with the director, subject to the director's approval, a fidelity
bond in the amount of fifty thousand dollars.
B. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1055 Deposit requirement
A. A health care services organization at all times shall maintain on deposit with
the state treasurer through the director's office cash, or securities eligible for the
investment of capital funds of domestic insurers under this title, or other financial
security approved by the director in an amount of not less than five hundred thousand
dollars.
B. The deposit prescribed by subsection A shall be held by the state treasurer in
trust for the benefit and protection of persons covered by a health care plan and for the
satisfaction of all debts and liabilities of the health care services organization.
C. Any securities within the description of subsection A, with the approval of the
director, may be exchanged for similar securities or cash of equal amount. Interest on
securities so deposited shall be payable to the health care services organization
depositing them.
D. An unsettled final judgment arising upon an evidence of coverage shall be a lien
on the deposit prescribed by subsection A, subject to execution after thirty days from
the entry of final judgment. If the deposit is reduced, it shall be replenished within
ninety days by the health care services organization.
E. Upon liquidation, dissolution or withdrawal of a health care services
organization and the satisfaction of all of its debts and liabilities, any balance
remaining of the cash or securities deposit prescribed in subsection A together with any
other assets of the health care services organization shall be returned by the director
to the health care services organization.
F. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1056 Reserve requirement; exception
A. A health care services organization at all times shall maintain for the
protection of enrollees a financial reserve consisting of two per cent of charges
collected from enrollees for the health care plan, until said reserve totals one million
dollars. Such reserve shall be in addition to the deposit prescribed by section 20-1055.
B. The reserve prescribed by subsection A of this section shall not apply with
respect to a health care services organization which is funded by the federal, the state
or a municipal government or any political subdivision or body thereof.
C. Beginning January 1, 1991, a health care services organization shall deposit on
a quarterly basis the two per cent of charges collected from enrollees under subsection A
of this section in trust with the state treasurer through the director's office. This
amount shall be deposited in cash or securities eligible for the investment of capital
funds of domestic insurers under this title or other financial security approved by the
director until the amount reaches one million dollars. The state treasurer shall hold
the deposit prescribed by this section in trust for the benefit and protection of persons
covered by a health care services organization.
D. Any securities within the description of subsection C of this section, with the
approval of the director, may be exchanged for similar securities or cash of equal
amount. Interest on securities so deposited is payable to the health care services
organization depositing them. The deposited cash or securities shall be considered an
admitted asset of the organization for the purpose of meeting the unimpaired capital or
surplus requirement of section 20-1052, subsection C.
E. On liquidation, dissolution or withdrawal of a health care services organization
and the satisfaction of all of its debts and liabilities, any balance remaining of the
cash or securities deposit prescribed in subsection C of this section together with any
other assets of the health care services organization shall be returned by the director
to the health care services organization.
F. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1057.01 Standing referrals to network health care professionals; definition
A. A health care services organization shall establish a procedure by which an
enrollee may apply for a standing referral to a network health care professional. The
health care services organization shall provide an insured with a standing referral if
all of the following conditions are met:
1. The enrollee is a covered member of that health care services organization.
2. The enrollee has a disease or condition that is life threatening, degenerative,
chronic or disabling.
3. The enrollee's primary care physician in conjunction with a network health care
professional determines that the enrollee's health care requires a network health care
professional's expertise.
4. The enrollee's primary care physician determines that the enrollee's disease or
condition will require ongoing medical care for an extended period of time.
5. The standing referral is made by the enrollee's primary care physician to a
network health care professional who is responsible for providing and coordinating the
enrollee's specialty care.
6. The network health care professional is authorized by the health care services
organization to provide the services under the standing referral.
B. The health care services organization may limit the number of visits and time
period for which an enrollee may receive a standing referral.
C. If the enrollee receives a standing referral or any other from the enrollee's
primary care physician, that referral remains in effect even if the primary care
physician leaves the health care services organization's network.
D. If the treating health care professional leaves the network or the enrollee
ceases to be a covered member, the standing referral expires.
E. For the purposes of this section, "network health care professional" means a
practitioner of a health profession as defined in section 32-3101 who is under written
contract with the health care services organization to provide services in a specialty
discipline that is recognized by an American medical specialty board.
20-1057.02 Prescription drug formulary; definitions
A. A health care services organization with a prescription drug benefit that uses a
drug formulary as a component of the evidence of coverage shall provide to its enrollees
notice in the evidence of coverage and the disclosure form prescribed in section 20-1076
regarding the applicable drug formulary. The health care services organization shall
write the notice so that the language and format are easy to understand. The notice shall
include an explanation of what a drug formulary is, how the health care services
organization determines which prescription drugs are included or excluded and how often
the health care services organization reviews the contents of the drug formulary.
B. A health care services organization described in subsection A of this section
shall:
1. Develop and maintain a process by which health care professionals may request
authorization for a medically necessary formulary or nonformulary prescription drug
during nonbusiness hours. If the health care services organization does not maintain that
process, the health care services organization shall reimburse an enrollee for the
enrollee's out-of-pocket expense minus any deductible or copayment for a prescription
drug that was purchased by the enrollee without preauthorization but that was later
approved by the health care services organization.
2. Develop and maintain a process by which health care professionals may request
authorization for medically necessary nonformulary prescription drugs. The health care
services organization shall approve an alternative prescription drug when either of the
following conditions is met:
(a) The equivalent prescription drug on the formulary has been ineffective in the
treatment of the enrollee's disease or condition.
(b) The equivalent prescription drug on the formulary has caused an adverse or
harmful reaction in the enrollee.
C. If the health care services organization's pharmacy benefit plan does not
require authorization, subsection B, paragraph 2 of this section does not apply.
D. If the enrollee's treating health care professional makes a determination that
the enrollee meets any of the conditions described in subsection B of this section, any
denial to cover the nonformulary prescription drug by the health care services
organization shall be made in writing by a licensed pharmacist or medical director. The
written denial shall contain an explanation of the denial, including the medical or
pharmacological reasons why the authorization was denied, and the licensed pharmacist or
medical director who made the denial shall sign it. The health care services organization
shall send a copy of the written denial to the enrollee's treating health care
professional who requested the authorization. The health care services organization shall
maintain copies of all written denials and shall make the copies available to the
department for inspection during regular business hours.
E. Any evidence of coverage that is issued, amended or renewed by a health care
services organization and that includes prescription drug benefits shall not limit or
exclude coverage for at least sixty days after the health care services organization's
notice or the pharmacy's notice pursuant to subsection F of this section to the enrollee,
whichever occurs first, for a prescription drug for an enrollee to refill a previously
prescribed drug if the prescription drug was previously approved for coverage under the
drug formulary or pharmacy benefit plan for the enrollee's medical condition and the
health care professional continues to prescribe the prescription drug for the same
medical condition. The limitation or exclusion prohibited by this subsection applies if
the prescription drug is appropriately prescribed and is considered safe and effective
for treating the enrollee's medical condition. This subsection does not prohibit the
health care professional from prescribing another prescription drug that is covered by
the drug formulary and that is medically appropriate for the enrollee, including generic
drug substitutions.
F. A health care services organization shall provide written notice of the removal
of any prescription drug from the health care services organization's drug formulary to
each pharmacy vendor with which the health care services organization has a contract. On
notice from the health care services organization, the contracted pharmacy vendor at the
point of dispensing a prescription drug that has been removed from the drug formulary
shall notify the enrollee by means of a verbal consultation or other direct communication
with an enrollee that the enrollee may be required to consult with a health care
professional to obtain a new prescription for a replacement drug after the sixty day
period prescribed in subsection E of this section. The notice prescribed in this
subsection is not required if the pharmacy vendor is a pharmacy that is owned by a health
care services organization or a corporate affiliate of that health care services
organization.
G. This section does not:
1. Prohibit a health care services organization from applying deductibles,
coinsurance or other cost containment or quality assurance measures.
2. Apply to a health care services organization that provides a multitiered benefit
plan that allows access to prescription drugs without authorization by the health care
services organization.
H. For the purposes of this section:
1. "Health care professional" means a person who has an active nonrestricted
license pursuant to title 32 and is authorized to write drug prescriptions to treat
medical conditions.
2. "Prescription drug" means any prescription medication as defined in section
32-1901 that is prescribed by a health care professional to an enrollee to treat the
enrollee's condition.
20-1057.03 Chiropractic care; definitions
A. Every health care services organization shall provide coverage for chiropractic
services provided by network chiropractic providers pursuant to this section.
B. A health care services organization is not required to provide coverage for
chiropractic services obtained from a provider who is not a member of the health care
services organization's provider network.
C. An enrollee may obtain medically necessary chiropractic services from a network
chiropractic provider through self-referral for a minimum of twelve visits in an annual
contract period, unless the enrollee's evidence of coverage with the health care services
organization allows for additional visits or benefits.
D. This section does not:
1. Require a health care services organization to provide services that are not
covered by the enrollee's evidence of coverage and does not diminish or impair any
preexisting condition limitation in the evidence of coverage.
2. Prohibit an enrollee from seeking chiropractic services in addition to the
limits prescribed in this section from any chiropractic provider if the enrollee accepts
financial responsibility for those services.
E. Nothing in this section prohibits the use of deductibles, coinsurance,
copayments or other cost sharing in relation to the chiropractic benefits offered.
F. For the purposes of this section:
1. "Chiropractic services" means only nonsurgical and noninvasive treatment of neck
and back pain through physiotherapy, musculoskeletal manipulation and other physical
corrections of musculoskeletal conditions within the scope of the chiropractic practice.
2. "Musculoskeletal" means any function of the musculoskeletal system that is
integrated with neurological function and is expressed by biological regulatory
mechanisms.
3. "Network chiropractic provider" means a chiropractic physician who is licensed
pursuant to title 32, chapter 8 and who is under written contract with the health care
services organization to provide services pursuant to this section.
4. "Self-referral" means obtaining treatment by a provider without referral from a
primary care physician.
20-1057.04 Continuity of care; definition
A. A health care services organization shall allow any new enrollee whose health
care provider is not a member of the provider network, on written request of the enrollee
to the health care services organization, to continue an active course of treatment with
that health care provider during a transitional period after the effective date of the
enrollment if both of the following apply:
1. The enrollee has either:
(a) A life threatening disease or condition, in which case the transitional period
is not more than thirty days after the effective date of the enrollment.
(b) Entered the third trimester of pregnancy on the effective date of the
enrollment, in which case the transitional period includes the delivery and any care up
to six weeks after the delivery that is related to the delivery.
2. The enrollee's health care provider agrees in writing to do all of the
following:
(a) Except for copayment, coinsurance or deductible amounts, accept as payment in
full reimbursement from the health care services organization at the rates that are
established by the health care services organization and that are not more than the level
of reimbursement applicable to similar services by health care providers within the
provider network.
(b) Comply with the health care services organization's quality assurance and
utilization review requirements and provide to the health care services organization any
necessary medical information related to the care.
(c) Comply with the health care services organization's policies and procedures
pursuant to this article including procedures relating to referrals and obtaining
preauthorization, claims handling and treatment plan approval by the health care services
organization.
B. A health care services organization shall allow any enrollee whose health care
provider is terminated from the provider network by the health care services organization
except for reasons of medical incompetence or unprofessional conduct, on written request
of the enrollee to the health care services organization, to continue an active course of
treatment with that health care provider during a transitional period after the date of
the provider's disaffiliation from the provider network, if both of the following apply:
1. The enrollee has either:
(a) A life threatening disease or condition, in which case the transitional period
is not more than thirty days after the date of the provider's disaffiliation from the
provider network.
(b) Entered the third trimester of pregnancy on the date of the provider's
disaffiliation, in which case the transition period includes the delivery and any care up
to six weeks after the delivery that is related to the delivery.
2. The enrollee's health care provider agrees in writing to do all of the
following:
(a) Except for copayment, coinsurance or deductible amounts, continue to accept as
payment in full reimbursement from the health care services organization at the rates
applicable before the beginning of the transitional period.
(b) Comply with the health care services organization's quality assurance and
utilization review requirements and provide to the health care services organization any
necessary medical information related to the care.
(c) Comply with the health care services organization's policies and procedures
pursuant to this article including procedures relating to referrals and obtaining
preauthorization, claims handling and treatment plan approval by the health care services
organization.
C. This section does not require a health care services organization to provide
coverage for benefits that are not covered by the enrollee's evidence of coverage and
does not diminish or impair any preexisting condition limitation in the evidence of
coverage.
D. This section does not extend to a health care provider who is not a member of
the provider network any contractual rights or remedies beyond those rights or remedies
related to and necessary for the provision of covered services to the specific enrollee
during the required transitional period.
E. For the purposes of this section, "health care provider" means any physician who
is licensed in this state pursuant to title 32, chapter 13 or 17.
20-1057.05 Medical supplies
Any health care services organization that provides coverage for medical supplies
shall provide coverage for those medical supplies through one or more participating
vendors who are reasonably accessible to enrollees as determined by the department in
terms of hours of service and areas of coverage within the geographic service area of the
health care plan.
20-1057.06 Prior authorization
A health care services organization shall not request information from a health care
professional that does not apply to the medical condition at issue for the purposes of
determining whether to approve or deny a prior authorization request.
20-1057.07 Health care services organizations; clinical trials; cancer; definitions
A. A health care services organization is not obligated to pay any costs, other
than covered patient costs, that are directly associated with a cancer clinical trial
that is offered in this state and in which the enrollee participates voluntarily. A
cancer clinical trial is a course of treatment in which all of the following apply:
1. The treatment is part of a scientific study of a new therapy or intervention
that is being conducted at an institution in this state, that is for the treatment,
palliation or prevention of cancer in humans and in which the scientific study includes
all of the following:
(a) Specific goals.
(b) A rationale and background for the study.
(c) Criteria for patient selection.
(d) Specific directions for administering the therapy and monitoring patients.
(e) A definition of quantitative measures for determining treatment response.
(f) Methods for documenting and treating adverse reactions.
2. The treatment is being provided as part of a study being conducted in a phase I,
phase II, phase III or phase IV cancer clinical trial.
3. The treatment is being provided as part of a study being conducted in accordance
with a clinical trial approved by at least one of the following:
(a) One of the national institutes of health.
(b) A national institutes of health cooperative group or center.
(c) The United States food and drug administration in the form of an
investigational new drug application.
(d) The United States department of defense.
(e) The United States department of veterans affairs.
(f) A qualified research entity that meets the criteria established by the national
institutes of health for grant eligibility.
(g) A panel of qualified recognized experts in clinical research within academic
health institutions in this state.
4. The proposed treatment or study has been reviewed and approved by an
institutional review board of an institution in this state.
5. The personnel providing the treatment or conducting the study:
(a) Are providing the treatment or conducting the study within their scope of
practice, experience and training and are capable of providing the treatment because of
their experience, training and volume of patients treated to maintain expertise.
(b) Agree to accept reimbursement as payment in full from the health care services
organization at the rates that are established by the organization and that are not more
than the level of reimbursement applicable to other similar services provided by health
care providers with the organization's provider network.
6. There is no clearly superior, noninvestigational treatment alternative.
7. The available clinical or preclinical data provide a reasonable expectation that
the treatment will be at least as efficacious as any noninvestigational alternative.
B. Pursuant to the patient informed consent document, no party is liable for
damages associated with the treatment provided during any phase of a cancer clinical
trial.
C. Each contract or evidence of coverage delivered or issued for delivery in this
state shall provide benefits under the contract or evidence coverage, and those benefits
shall not supplant any portion of the clinical trial that is customarily paid for by
government, biotechnical, pharmaceutical or medical device industry sources.
D. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
E. This section does not create any private right or cause of action for or on
behalf of any patient against the health care services organization. This section
provides solely an administrative remedy to the director for any violation of this
section or any related rule.
F. Nothing in this section prohibits the health care services organization from
imposing deductibles, coinsurance or other cost sharing measures in relation to benefits
provided pursuant to this section.
G. A trade association that represents health care services organizations and
hospital service corporations and medical service corporations as defined in section
20-822 may select a representative to voluntarily serve on the institutional review board
of an institution in this state that reviews and approves the proposed treatment or study
conducted during the cancer clinical trial.
H. For the purposes of this section:
1. "Cooperative group" means a formal network of facilities that collaborates on
research projects and that has an established national institutes of health approved peer
review program operating within the group, including the national cancer institute
clinical cooperative group and the national cancer institute community clinical oncology
program.
2. "Institutional review board" means any board, committee or other group that is
both:
(a) Formally designated by an institution to approve the initiation of and to
conduct periodic review of biomedical research involving human subjects and in which the
primary purpose of such review is to assure the protection of the rights and welfare of
the human subjects and not to review a clinical trial for scientific merit.
(b) Approved by the national institutes of health office for protection from
research risks.
3. "Multiple project assurance contract" means a contract between an institution
and the United States department of health and human services that defines the
relationship of the institution to the United States department of health and human
services and that sets out the responsibilities of the institution and the procedures
that will be used by the institution to protect human subjects.
4. "Patient" means the enrollee or the enrollee's covered dependent.
5. "Patient cost" means any fee or expense that is covered under the contract or
evidence of coverage and that is for a service or treatment that would be required if the
patient were receiving usual and customary care. Patient cost does not include the cost:
(a) Of any drug or device provided in a phase I cancer clinical trial.
(b) Of any investigational drug or device.
(c) Of nonhealth services that might be required for a person to receive treatment
or intervention.
(d) Of managing the research of the clinical trial.
(e) That would not be covered under the patient's contract.
(f) Of treatment or services provided outside this state.
20-1057.08 Prescription contraceptive drugs and devices; definition
A. If a health care services organization issues evidence of coverage that provides
coverage for:
1. Prescription drugs, the evidence of coverage shall provide coverage for any
prescribed drug or device that is approved by the United States food and drug
administration for use as a contraceptive. A health care services organization may use a
drug formulary, multitiered drug formulary or list but that formulary or list shall
include oral, implant and injectable contraceptive drugs, intrauterine devices and
prescription barrier methods if the health care services organization does not impose
deductibles, coinsurance, copayments or other cost containment measures for contraceptive
drugs that are greater than the deductibles, coinsurance, copayments or other cost
containment measures for other drugs on the same level of the formulary or list.
2. Outpatient health care services, the evidence of coverage shall provide coverage
for outpatient contraceptive services. For the purposes of this paragraph, "outpatient
contraceptive services" means consultations, examinations, procedures and medical
services provided on an outpatient basis and related to the use of United States food and
drug prescription contraceptive methods to prevent unintended pregnancies.
B. Notwithstanding subsection A, a religious employer whose religious tenets
prohibit the use of prescribed contraceptive methods may require that the health care
services organization provide coverage that excludes all federal food and drug
administration approved contraceptive methods. A religious employer shall submit a
written affidavit to the health care services organization stating that it is a religious
employer. On receipt of the affidavit, the health care services organization shall
provide coverage to the religious employer that excludes prescription contraceptive
methods. The health care services organization shall retain the affidavit for the
duration of the coverage and any renewals of the coverage.
C. Before enrollment in the health care plan, every religious employer that invokes
this exemption shall provide prospective enrollees written notice that the religious
employer refuses to cover all federal food and drug administration approved contraceptive
methods for religious reasons.
D. Subsection B does not exclude coverage for prescription contraceptive methods
ordered by a health care provider with prescriptive authority for medical indications
other than to prevent an unintended pregnancy. A health care services organization may
require the enrollee to first pay for the prescription and then submit a claim to the
health care services organization along with evidence that the prescription is for a
noncontraceptive purpose. A health care services organization may charge an
administrative fee for handling claims under this subsection.
E. A religious employer shall not discriminate against an employee who
independently chooses to obtain insurance coverage or prescriptions for contraceptives
from another source.
F. This section does not apply to evidences of coverage issued to individuals on a
nongroup basis.
G. For the purposes of this section, "religious employer" means an entity for which
all of the following apply:
1. The entity primarily employs persons who share the religious tenets of the
entity.
2. The entity serves primarily persons who share the religious tenets of the
entity.
3. The entity is a nonprofit organization as described in section 6033(a)(2)(A)i or
iii of the internal revenue code of 1986, as amended.
20-1057.09 Health care services organizations; varying copayments and deductibles allowed A. EXCEPT AS PROVIDED IN SECTIONS 20-1379 AND 20-2304, A HEALTH CARE SERVICES ORGANIZATION MAY OFFER ONE OR MORE HEALTH CARE PLANS THAT CONTAIN A CHOICE OF DEDUCTIBLES, COINSURANCE, COPAYMENTS, OUT-OF-POCKET AND ANY OTHER COST SHARING LEVELS. PLANS OFFERED UNDER THIS SECTION SHALL CLEARLY DISCLOSE IN MARKETING MATERIALS, CERTIFICATES OF COVERAGE AND CONTRACTS THE INSURED'S FINANCIAL RESPONSIBILITIES. A HEALTH CARE SERVICES ORGANIZATION THAT OFFERS SUCH A HEALTH CARE PLAN SHALL CONTINUE TO PROVIDE ANY MANDATED HEALTH COVERAGE THAT IS REQUIRED BY THIS STATE OR BY FEDERAL LAW. B. THIS SECTION DOES NOT PROHIBIT A HEALTH BENEFITS PLAN THAT IS INTENDED TO QUALIFY AS A HIGH DEDUCTIBLE HEALTH PLAN AS DEFINED BY 26 UNITED STATES CODE SECTION 223(c)(2) FROM REQUIRING THE APPLICATION OF DEDUCTIBLES, COPAYMENTS OR COINSURANCE TO BENEFITS PROVIDED UNDER THE HEALTH BENEFITS PLAN. 20-1057 Evidence of coverage by health care services organizations; renewability; definitions
A. Every enrollee in a health care plan shall be issued an evidence of coverage by
the responsible health care services organization.
B. Any contract, except accidental death and dismemberment, applied for that
provides family coverage shall, as to such coverage of family members, also provide that
the benefits applicable for children shall be payable with respect to a newly born child
of the enrollee from the instant of such child's birth, to a child adopted by the
enrollee, regardless of the age at which the child was adopted, and to a child who has
been placed for adoption with the enrollee and for whom the application and approval
procedures for adoption pursuant to section 8-105 or 8-108 have been completed to the
same extent that such coverage applies to other members of the family. The coverage for
newly born or adopted children or children placed for adoption shall include coverage of
injury or sickness including necessary care and treatment of medically diagnosed
congenital defects and birth abnormalities. If payment of a specific premium is required
to provide coverage for a child, the contract may require that notification of birth,
adoption or adoption placement of the child and payment of the required premium must be
furnished to the insurer within thirty-one days after the date of birth, adoption or
adoption placement in order to have the coverage continue beyond the thirty-one day
period.
C. Any contract, except accidental death and dismemberment, that provides coverage
for psychiatric, drug abuse or alcoholism services shall require the health care services
organization to provide reimbursement for such services in accordance with the terms of
the contract without regard to whether the covered services are rendered in a psychiatric
special hospital or general hospital.
D. No evidence of coverage or amendment to the coverage shall be issued or
delivered to any person in this state until a copy of the form of the evidence of
coverage or amendment to the coverage has been filed with and approved by the director.
E. An evidence of coverage shall contain a clear and complete statement if a
contract, or a reasonably complete summary if a certificate of contract, of:
1. The health care services and the insurance or other benefits, if any, to which
the enrollee is entitled under the health care plan.
2. Any limitations of the services, kind of services, benefits or kind of benefits
to be provided, including any deductible or copayment feature.
3. Where and in what manner information is available as to how services may be
obtained.
4. The enrollee's obligation, if any, respecting charges for the health care plan.
F. An evidence of coverage shall not contain provisions or statements that are
unjust, unfair, inequitable, misleading or deceptive, that encourage misrepresentation or
that are untrue.
G. The director shall approve any form of evidence of coverage if the requirements
of subsections E and F of this section are met. It is unlawful to issue such form until
approved. If the director does not disapprove any such form within forty-five days after
the filing of the form, it is deemed approved. If the director disapproves a form of
evidence of coverage, the director shall notify the health care services organization.
In the notice, the director shall specify the reasons for the director's disapproval.
The director shall grant a hearing on such disapproval within fifteen days after a
request for a hearing in writing is received from the health care services organization.
H. A health care services organization shall not cancel or refuse to renew an
enrollee's evidence of coverage that was issued on a group basis without giving notice of
the cancellation or nonrenewal to the enrollee and, on request of the director, to the
department of insurance. A notice by the organization to the enrollee of cancellation or
nonrenewal of the enrollee's evidence of coverage shall be mailed to the enrollee at
least sixty days before the effective date of such cancellation or nonrenewal. The notice
shall include or be accompanied by a statement in writing of the reasons as stated in the
contract for such action by the organization. Failure of the organization to comply with
this subsection shall invalidate any cancellation or nonrenewal except a cancellation or
nonrenewal for nonpayment of premium, for fraud or misrepresentation in the application
or other enrollment documents or for loss of eligibility as defined in the evidence of
coverage. A health care services organization shall not cancel an enrollee's evidence of
coverage issued on a group basis because of the enrollee's or dependent's age, except for
loss of eligibility as defined in the evidence of coverage, sex, health status-related
factor, national origin or frequency of utilization of health care services of the
enrollee. An evidence of coverage issued on a group basis shall clearly delineate all
terms under which the health care services organization may cancel or refuse to renew an
evidence of coverage for an enrollee or dependent. Nothing in this subsection prohibits
the cancellation or nonrenewal of a health benefits plan contract issued on a group basis
for any of the reasons allowed in section 20-2309. A health care services organization
may cancel or nonrenew an evidence of coverage issued to an individual on a nongroup
basis only for the reasons allowed by subsection N of this section.
I. A health care plan that provides coverage for surgical services for a mastectomy
shall also provide coverage incidental to the patient's covered mastectomy for surgical
services for reconstruction of the breast on which the mastectomy was performed, surgery
and reconstruction of the other breast to produce a symmetrical appearance, prostheses,
treatment of physical complications for all stages of the mastectomy, including
lymphedemas, and at least two external postoperative prostheses subject to all of the
terms and conditions of the policy.
J. A contract that provides coverage for surgical services for a mastectomy shall
also provide coverage for mammography screening performed on dedicated equipment for
diagnostic purposes on referral by a patient's physician, subject to all of the terms and
conditions of the policy and according to the following guidelines:
1. A baseline mammogram for a woman from age thirty-five to thirty-nine.
2. A mammogram for a woman from age forty to forty-nine every two years or more
frequently based on the recommendation of the woman's physician.
3. A mammogram every year for a woman fifty years of age and over.
K. Any contract that is issued to the enrollee and that provides coverage for
maternity benefits shall also provide that the maternity benefits apply to the costs of
the birth of any child legally adopted by the enrollee if all the following are true:
1. The child is adopted within one year of birth.
2. The enrollee is legally obligated to pay the costs of birth.
3. All preexisting conditions and other limitations have been met and all
deductibles and copayments have been paid by the enrollee.
4. The enrollee has notified the insurer of the enrollee's acceptability to adopt
children pursuant to section 8-105 within sixty days after such approval or within sixty
days after a change in insurance policies, plans or companies.
L. The coverage prescribed by subsection K of this section is excess to any other
coverage the natural mother may have for maternity benefits except coverage made
available to persons pursuant to title 36, chapter 29 but not including coverage made
available to persons defined as eligible under section 36-2901, paragraph 6, subdivisions
(b), (c), (d) and (e). If such other coverage exists the agency, attorney or individual
arranging the adoption shall make arrangements for the insurance to pay those costs that
may be covered under that policy and shall advise the adopting parent in writing of the
existence and extent of the coverage without disclosing any confidential information such
as the identity of the natural parent. The enrollee adopting parents shall notify their
health care services organization of the existence and extent of the other coverage. A
health care services organization is not required to pay any costs in excess of the
amounts it would have been obligated to pay to its hospitals and providers if the natural
mother and child had received the maternity and newborn care directly from or through
that health care services organization.
M. Each health care services organization shall offer membership to the following
in a conversion plan that provides the basic health care benefits required by the
director:
1. Each enrollee including the enrollee's enrolled dependents leaving a group.
2. Each enrollee and the enrollee's dependents who would otherwise cease to be
eligible for membership because of the age of the enrollee or the enrollee's dependents
or the death or the dissolution of marriage of an enrollee.
N. A health care services organization shall not cancel or nonrenew an evidence of
coverage issued to an individual on a nongroup basis, including a conversion plan, except
for any of the following reasons and in compliance with the notice and disclosure
requirements contained in subsection H of this section:
1. The individual has failed to pay premiums or contributions in accordance with
the terms of the evidence of coverage or the health care services organization has not
received premium payments in a timely manner.
2. The individual has performed an act or practice that constitutes fraud or the
individual made an intentional misrepresentation of material fact under the terms of the
evidence of coverage.
3. The health care services organization has ceased to offer coverage to
individuals that is consistent with the requirements of sections 20-1379 and 20-1380.
4. If the health care services organization offers a health care plan in this state
through a network plan, the individual no longer resides, lives or works in the service
area served by the network plan or in an area for which the health care services
organization is authorized to transact business but only if the coverage is terminated
uniformly without regard to any health status-related factor of the covered individual.
5. If the health care services organization offers health coverage in this state in
the individual market only through one or more bona fide associations, the membership of
the individual in the association has ceased but only if that coverage is terminated
uniformly without regard to any health status-related factor of any covered individual.
O. A conversion plan may be modified if the modification complies with the notice
and disclosure provisions for cancellation and nonrenewal under subsection H of this
section. A modification of a conversion plan that has already been issued shall not
result in the effective elimination of any benefit originally included in the conversion
plan.
P. Any person who is a United States armed forces reservist, who is ordered to
active military duty on or after August 22, 1990 and who was enrolled in a health care
plan shall have the right to reinstate such coverage upon release from active military
duty subject to the following conditions:
1. The reservist shall make written application to the health plan within ninety
days of discharge from active military duty or within one year of hospitalization
continuing after discharge. Coverage shall be effective upon receipt of the application
by the health plan.
2. The health plan may exclude from such coverage any health or physical condition
arising during and occurring as a direct result of active military duty.
Q. The director shall adopt emergency rules applicable to persons who are leaving
active service in the armed forces of the United States and returning to civilian status
consistent with the provisions of subsection P of this section including:
1. Conditions of eligibility.
2. Coverage of dependents.
3. Preexisting conditions.
4. Termination of insurance.
5. Probationary periods.
6. Limitations.
7. Exceptions.
8. Reductions.
9. Elimination periods.
10. Requirements for replacement.
11. Any other conditions of evidences of coverage.
R. Any contract that provides maternity benefits shall not restrict benefits for
any hospital length of stay in connection with childbirth for the mother or the newborn
child to less than forty-eight hours following a normal vaginal delivery or ninety-six
hours following a cesarean section. The contract shall not require the provider to
obtain authorization from the health care services organization for prescribing the
minimum length of stay required by this subsection. The contract may provide that an
attending provider in consultation with the mother may discharge the mother or the
newborn child before the expiration of the minimum length of stay required by this
subsection. The health care services organization shall not:
1. Deny the mother or the newborn child eligibility or continued eligibility to
enroll or to renew coverage under the terms of the contract solely for the purpose of
avoiding the requirements of this subsection.
2. Provide monetary payments or rebates to mothers to encourage those mothers to
accept less than the minimum protections available pursuant to this subsection.
3. Penalize or otherwise reduce or limit the reimbursement of an attending provider
because that provider provided care to any insured under the contract in accordance with
this subsection.
4. Provide monetary or other incentives to an attending provider to induce that
provider to provide care to an insured under the contract in a manner that is
inconsistent with this subsection.
5. Except as described in subsection S of this section, restrict benefits for any
portion of a period within the minimum length of stay in a manner that is less favorable
than the benefits provided for any preceding portion of that stay.
S. Nothing in subsection R of this section:
1. Requires a mother to give birth in a hospital or to stay in the hospital for a
fixed period of time following the birth of the child.
2. Prevents a health care services organization from imposing deductibles,
coinsurance or other cost sharing in relation to benefits for hospital lengths of stay in
connection with childbirth for a mother or a newborn child under the contract, except
that any coinsurance or other cost sharing for any portion of a period within a hospital
length of stay required pursuant to subsection R of this section shall not be greater
than the coinsurance or cost sharing for any preceding portion of that stay.
3. Prevents a health care services organization from negotiating the level and type
of reimbursement with a provider for care provided in accordance with subsection R of
this section.
T. Any contract or evidence of coverage that provides coverage for diabetes shall
also provide coverage for equipment and supplies that are medically necessary and that
are prescribed by a health care provider including:
1. Blood glucose monitors.
2. Blood glucose monitors for the legally blind.
3. Test strips for glucose monitors and visual reading and urine testing strips.
4. Insulin preparations and glucagon.
5. Insulin cartridges.
6. Drawing up devices and monitors for the visually impaired.
7. Injection aids.
8. Insulin cartridges for the legally blind.
9. Syringes and lancets including automatic lancing devices.
10. Prescribed oral agents for controlling blood sugar that are included on the plan
formulary.
11. To the extent coverage is required under medicare, podiatric appliances for
prevention of complications associated with diabetes.
12. Any other device, medication, equipment or supply for which coverage is required
under medicare from and after January 1, 1999. The coverage required in this paragraph
is effective six months after the coverage is required under medicare.
U. Nothing in subsection T of this section:
1. Entitles a member or enrollee of a health care services organization to
equipment or supplies for the treatment of diabetes that are not medically necessary as
determined by the health care services organization medical director or the medical
director's designee.
2. Provides coverage for diabetic supplies obtained by a member or enrollee of a
health care services organization without a prescription unless otherwise permitted
pursuant to the terms of the health care plan.
3. Prohibits a health care services organization from imposing deductibles,
coinsurance or other cost sharing in relation to benefits for equipment or supplies for
the treatment of diabetes.
V. Any contract or evidence of coverage that provides coverage for prescription
drugs shall not limit or exclude coverage for any prescription drug prescribed for the
treatment of cancer on the basis that the prescription drug has not been approved by the
United States food and drug administration for the treatment of the specific type of
cancer for which the prescription drug has been prescribed, if the prescription drug has
been recognized as safe and effective for treatment of that specific type of cancer in
one or more of the standard medical reference compendia prescribed in subsection W of
this section or medical literature that meets the criteria prescribed in subsection W of
this section. The coverage required under this subsection includes covered medically
necessary services associated with the administration of the prescription drug. This
subsection does not:
1. Require coverage of any prescription drug used in the treatment of a type of
cancer if the United States food and drug administration has determined that the
prescription drug is contraindicated for that type of cancer.
2. Require coverage for any experimental prescription drug that is not approved for
any indication by the United States food and drug administration.
3. Alter any law with regard to provisions that limit the coverage of prescription
drugs that have not been approved by the United States food and drug administration.
4. Notwithstanding section 20-1057.02, require reimbursement or coverage for any
prescription drug that is not included in the drug formulary or list of covered
prescription drugs specified in the contract or evidence of coverage.
5. Notwithstanding section 20-1057.02, prohibit a contract or evidence of coverage
from limiting or excluding coverage of a prescription drug, if the decision to limit or
exclude coverage of the prescription drug is not based primarily on the coverage of
prescription drugs required by this section.
6. Prohibit the use of deductibles, coinsurance, copayments or other cost sharing
in relation to drug benefits and related medical benefits offered.
W. For the purposes of subsection V of this section:
1. The acceptable standard medical reference compendia are the following:
(a) The American medical association drug evaluations, a publication of the
American medical association.
(b) The American hospital formulary service drug information, a publication of the
American society of health system pharmacists.
(c) Drug information for the health care provider, a publication of the United
States pharmacopoeia convention.
2. Medical literature may be accepted if all of the following apply:
(a) At least two articles from major peer reviewed professional medical journals
have recognized, based on scientific or medical criteria, the drug's safety and
effectiveness for treatment of the indication for which the drug has been prescribed.
(b) No article from a major peer reviewed professional medical journal has
concluded, based on scientific or medical criteria, that the drug is unsafe or
ineffective or that the drug's safety and effectiveness cannot be determined for the
treatment of the indication for which the drug has been prescribed.
(c) The literature meets the uniform requirements for manuscripts submitted to
biomedical journals established by the international committee of medical journal editors
or is published in a journal specified by the United States department of health and
human services as acceptable peer reviewed medical literature pursuant to section
186(t)(2)(B) of the social security act (42 United States Code section 1395x(t)(2)(B)).
X. A health care services organization shall not issue or deliver any advertising
matter or sales material to any person in this state until the health care services
organization files the advertising matter or sales material with the director. This
subsection does not require a health care services organization to have the prior
approval of the director to issue or deliver the advertising matter or sales material.
If the director finds that the advertising matter or sales material, in whole or in part,
is false, deceptive or misleading, the director may issue an order disapproving the
advertising matter or sales material, directing the health care services organization to
cease and desist from issuing, circulating, displaying or using the advertising matter or
sales material within a period of time specified by the director but not less than ten
days and imposing any penalties prescribed in this title. At least five days before
issuing an order pursuant to this subsection, the director shall provide the health care
services organization with a written notice of the basis of the order to provide the
health care services organization with an opportunity to cure the alleged deficiency in
the advertising matter or sales material within a single five day period for the
particular advertising matter or sales material at issue. The health care services
organization may appeal the director's order pursuant to title 41, chapter 6, article 10.
Except as otherwise provided in this subsection, a health care services organization may
obtain a stay of the effectiveness of the order as prescribed in section 20-162. If the
director certifies in the order and provides a detailed explanation of the reasons in
support of the certification that continued use of the advertising matter or sales
material poses a threat to the health, safety or welfare of the public, the order may be
entered immediately without opportunity for cure and the effectiveness of the order is
not stayed pending the hearing on the notice of appeal but the hearing shall be promptly
instituted and determined.
Y. Any contract or evidence of coverage that is offered by a health care services
organization and that contains a prescription drug benefit shall provide coverage of
medical foods to treat inherited metabolic disorders as provided by this section.
Z. The metabolic disorders triggering medical foods coverage under this section
shall:
1. Be part of the newborn screening program prescribed in section 36-694.
2. Involve amino acid, carbohydrate or fat metabolism.
3. Have medically standard methods of diagnosis, treatment and monitoring including
quantification of metabolites in blood, urine or spinal fluid or enzyme or DNA
confirmation in tissues.
4. Require specially processed or treated medical foods that are generally
available only under the supervision and direction of a physician who is licensed
pursuant to title 32, chapter 13 or 17, that must be consumed throughout life and without
which the person may suffer serious mental or physical impairment.
AA. Medical foods eligible for coverage under this section shall be prescribed or
ordered under the supervision of a physician licensed pursuant to title 32, chapter 13 or
17 as medically necessary for the therapeutic treatment of an inherited metabolic
disease.
BB. A health care services organization shall cover at least fifty per cent of the
cost of medical foods prescribed to treat inherited metabolic disorders and covered
pursuant to this section. An organization may limit the maximum annual benefit for
medical foods under this section to five thousand dollars, which applies to the cost of
all prescribed modified low protein foods and metabolic formula.
CC. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
DD. For the purposes of:
1. This section:
(a) "Inherited metabolic disorder" means a disease caused by an inherited
abnormality of body chemistry and includes a disease tested under the newborn screening
program prescribed in section 36-694.
(b) "Medical foods" means modified low protein foods and metabolic formula.
(c) "Metabolic formula" means foods that are all of the following:
(i) Formulated to be consumed or administered enterally under the supervision of a
physician who is licensed pursuant to title 32, chapter 13 or 17.
(ii) Processed or formulated to be deficient in one or more of the nutrients
present in typical foodstuffs.
(iii) Administered for the medical and nutritional management of a person who has
limited capacity to metabolize foodstuffs or certain nutrients contained in the
foodstuffs or who has other specific nutrient requirements as established by medical
evaluation.
(iv) Essential to a person's optimal growth, health and metabolic homeostasis.
(d) "Modified low protein foods" means foods that are all of the following:
(i) Formulated to be consumed or administered enterally under the supervision of a
physician who is licensed pursuant to title 32, chapter 13 or 17.
(ii) Processed or formulated to contain less than one gram of protein per unit of
serving, but does not include a natural food that is naturally low in protein.
(iii) Administered for the medical and nutritional management of a person who has
limited capacity to metabolize foodstuffs or certain nutrients contained in the
foodstuffs or who has other specific nutrient requirements as established by medical
evaluation.
(iv) Essential to a person's optimal growth, health and metabolic homeostasis.
2. Subsection B of this section, "child", for purposes of initial coverage of an
adopted child or a child placed for adoption but not for purposes of termination of
coverage of such child, means a person under the age of eighteen years.
20-1058 Examination of health care services organizations
A. The director may once in each six months for the first three years after
organization and once each year thereafter, or more often if deemed necessary by the
director, visit each health care services organization organized under the laws of this
state to examine its financial condition, its ability to meet its liabilities and its
compliance with the laws of this state affecting the conduct of its business. The
director may annually similarly visit and examine, either alone or jointly with
representatives of the insurance supervising departments of other states, each health
care services organization not organized under the laws of this state but authorized to
transact business in this state.
B. The director may in like manner examine each health care services organization
applying for an initial certificate of authority to do business in this state.
C. In lieu of making an examination, the director may accept a full report of the
last recent examination of a foreign or alien health care services organization,
certified to by the insurance supervisory official of another state, territory,
commonwealth or district of the United States.
D. The director of the department of health services may participate in the
examinations and visits described in this section and section 20-1064 to review the
delivery of health and medical services by the health care services organization.
E. All examinations and examination related expenses shall be borne by the health
care services organization and shall be paid by the insurance examiners' revolving fund
in accordance with sections 20-156 and 20-159.
F. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1059.01 Admitted assets; health care delivery assets
A. This section applies to reporting entities that directly provide health care
services to enrollees.
B. In addition to the assets allowed by section 20-501, the following are admitted
assets to the extent the assets conform with the accounting practices and procedures
manual adopted by the national association of insurance commissioners:
1. Furniture, medical equipment and fixtures and leasehold improvements that are
used for the direct delivery of health care services.
2. Pharmaceuticals, surgical supplies and durable medical equipment that are used
for the direct delivery of health care services.
20-1059 Annual report to director
A. Every health care services organization annually on or before March 31 shall
file with the director a report of its financial condition, transactions and affairs as
of the preceding December 31 as prescribed in sections 20-223 and 20-234 and shall pay
the annual renewal fee prescribed in section 20-167.
B. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
C. A health care services organization that fails to timely file the annual report
required under subsection A of this section is subject to the penalties prescribed in
section 20-223.
20-1060 Taxes; exemption
A. Except as provided in subsection C of this section, on the tax payment dates
prescribed in section 20-224, each health care services organization shall pay to the
director for deposit, pursuant to sections 35-146 and 35-147, in a form prescribed by the
director a tax for transacting a health care plan in the amount of 2.0 per cent of net
charges received from enrollees.
B. The failure by an organization to pay the tax imposed by this section results in
a civil penalty determined pursuant to section 20-225.
C. Payments received by health care services organizations from the secretary of
health and human services pursuant to a contract issued pursuant to 42 United States Code
section 1395mm(g) are not taxable under this section.
D. A health care services organization may claim a premium tax credit if the
organization qualifies for a credit pursuant to section 20-224.03 or 20-224.04.
20-1061 Prohibited practices; definition
A. Chapter 2, article 6 of this title relating to unfair trade practices and frauds
applies to health care services organizations, except to the extent the director
determines that the nature of health care services organizations renders particular
provisions inappropriate.
B. A person subject to this article shall not:
1. Restrict or prohibit, by means of a policy or contract, whether written or
otherwise, a licensed health care professional's good faith communication with the health
care professional's patient concerning the patient's health care or medical needs,
treatment options, health care risks or benefits.
2. Terminate a contract with or refuse to renew a contract with a health care
professional solely because the professional in good faith does any of the following:
(a) Advocates in private or in public on behalf of a patient.
(b) Assists a patient in seeking reconsideration of a decision made by the person
to deny coverage for a health care service.
(c) Reports a violation of law to an appropriate authority.
C. A contract between the health care services organization and a health care
professional shall not contain a financial incentive plan that includes a specific
payment made to or withheld from the health care professional as an inducement to deny,
reduce, limit or delay medically necessary care that is covered by the evidence of
coverage with an enrollee or group of enrollees for a specific disease or condition.
This section does not prohibit per diem or per case payments, diagnostic related grouping
payments, or financial incentive plans, including capitation payments or shared risk
arrangements, that are not connected to specific medical decisions relating to an
enrollee or a group of enrollees for a specific disease or condition. Each health care
services organization shall file with its annual report a written statement with the
director that certifies that the health care services organization is in compliance with
this subsection.
D. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
E. For the purposes of this section, "health care professional" has the same
meaning prescribed in section 20-3151.
20-1062 Regulation of agents
The director may, after notice and hearing, promulgate such reasonable rules and
regulations as are necessary to provide for the licensing of agents which shall include
provisions for examination, licensing, annual fees and disciplinary procedures similar to
those proposed in chapter 2, article 3 of this title.
20-1063 Powers of insurers and hospital and medical service corporations
A. An insurer, or a hospital or medical service corporation, authorized to do
business in this state either directly or through a subsidiary or an affiliate may
organize and operate a health care services organization under the provisions of this
article. Notwithstanding any other law to the contrary, any two or more such insurers,
hospital or medical service corporations, or subsidiaries or affiliates thereof, may
jointly organize and operate a health care services organization.
B. Any such insurer or hospital or medical service corporation may contract with a
health care services organization to provide coverage in the event of the failure of the
health care services organization to meet its obligations.
C. Any such insurer or hospital or medical service corporation which is in
compliance with title 20 generally and which in the judgment of the director shall have
complied with provisions of this title that are comparable to or more restrictive than
the provisions of this article shall be deemed to have satisfied all provisions of this
article and shall not be required to comply also in any specific manner with this article
except sections 20-1051 through 20-1054 as the director shall deem appropriate, and
except as per rules or regulations the director may promulgate to safeguard public health
or safety.
20-1064 Examination
A. The director may conduct an examination of the affairs of any health care
services organization as often as the director deems it necessary for the protection of
the interests of the people of this state and for this purpose shall have the powers set
forth in this title with respect to examinations of insurers.
B. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1065 Suspension or revocation of certificate of authority; civil penalties
A. The director may suspend or revoke any certificate of authority issued to a
health care services organization under this article if the director finds that any of
the following conditions exists:
1. The health care services organization is operating significantly in
contravention of its basic organizational documents or in a manner contrary to that
described in, and reasonably inferred from, any other information submitted under section
20-1053.
2. The health care services organization issues evidences of coverage that do not
comply with the requirements of section 20-1057.
3. The health care plan does not constitute an appropriate mechanism to achieve an
effective health care plan pursuant to this title or any rule that is adopted by the
director.
4. The health care services organization can no longer be expected to meet its
obligations to enrollees or prospective enrollees.
5. The health care services organization, or any authorized person on its behalf,
has advertised or merchandised its services in a materially untrue, misleading, deceptive
or unfair manner.
6. The health care services organization has failed to substantially comply with
this article or any rule that is adopted pursuant to this article.
7. The health care services organization is in unsound condition or in such
condition as to render its further transaction of business in this state hazardous to its
enrollees or to the residents of this state.
B. If the certificate of authority of a health care services organization is
suspended, the health care services organization shall not enroll, during the
period of such suspension, any additional enrollees except newborn children or other
newly acquired dependents of existing enrollees and shall not engage in any advertising
or solicitation.
C. If the certificate of authority of a health care services organization is
revoked, the organization shall proceed, immediately following the effective date of the
order of revocation, to conclude its affairs and shall conduct no further business except
as may be essential to the orderly conclusion of solicitation. The director, by written
order, may permit such further operation of the organization as the director may find to
be in the best interest of enrollees to the end that enrollees shall be afforded the
greatest practical opportunity to obtain continuing health care coverage.
D. Notwithstanding subsections B and C of this section, a health care services
organization that has had its certificate of authority denied, suspended or revoked is
entitled to a hearing pursuant to title 41, chapter 6, article 10 and, except as provided
in section 41-1092.08, subsection H, is entitled to judicial review pursuant to title 12,
chapter 7, article 6.
E. If, after a hearing, the director finds grounds pursuant to subsection A of this
section to suspend or revoke a health care services organization's certificate of
authority, the director may impose, in lieu of or in addition to that suspension or
revocation, the following civil penalties that shall be remitted to the state treasurer
for deposit, pursuant to sections 35-146 and 35-147, in the state general fund:
1. For an unintentional violation, not more than one thousand dollars for each
violation and not more than an aggregate of ten thousand dollars in any six month period.
2. For an intentional violation, not more than five thousand dollars for each
violation and not more than an aggregate of fifty thousand dollars in any six month
period.
F. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1066 Rehabilitation, liquidation or conservation of health maintenance organization
A. Any rehabilitation, liquidation, or conservation of a health care services
organization shall be deemed to be the rehabilitation, liquidation, or conservation of an
insurer and shall be conducted as provided in chapter 3, article 4 of this title. In
addition to the grounds set forth in chapter 3, article 4 of this title, failure to
comply with section 20-1069 constitutes a ground for the rehabilitation, liquidation or
conservation of a health care services organization.
B. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1068 Statutory construction and relationship to other laws
A. Except as they relate to an insurer or a hospital or medical service
corporation, the provisions of this title are applicable to health care services
organizations only as provided in this article, chapter 1 of this title, chapter 2,
article 12 of this title, chapter 3, articles 1 and 2 of this title, sections 20-223,
20-233, 20-234, 20-261, 20-261.01, 20-261.02, 20-261.03, 20-261.04, 20-1133, 20-1135,
20-1379 and 20-1380, section 20-1408, subsections C through K, chapter 6, article 16 of
this title and chapters 11, 15, 17, 20 and 21 of this title.
B. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1069.01 Right to open enrollment period; enrollees; definitions
A. With respect to enrollees who are members of a group with more than one carrier,
if there is an insolvency of a health care services organization, each open enrollment
carrier shall offer enrollees of the insolvent health care services organization who are
members of that group a thirty day open enrollment period beginning on the date the
insolvency is declared unless the director determines that an open enrollment carrier
lacks sufficient health care delivery resources to assure that health care services will
be available and accessible to all of the group enrollees of the insolvent health care
services organization. Each open enrollment carrier shall offer these enrollees the same
coverages and rates that it offered to the enrollees at the last regular open enrollment
period without any waiting periods or preexisting conditions, exclusions, limitations or
restrictions. On declaration of insolvency, the health care services organization shall
notify each group contract holder of the insolvency. Each group contract holder shall
notify its remaining open enrollment carrier or carriers of the insolvency and notify its
members of their right to open enrollment as provided in this section.
B. In addition to or instead of the procedure prescribed in subsection A of this
section, the court may approve an alternative plan by the receiver to offer successor
coverages to some or all of the enrollees of an insolvent health care services
organization if the court finds that the alternative plan is fair and in the best
interests of the estate.
C. The court may order that an offer of successor coverage pursuant to subsection B
of this section terminates the obligations of an insolvent health care services
organization to an enrollee as of the effective date of the coverage that would be
effective under that offer if accepted, regardless of whether the enrollee accepts the
offer.
D. For purposes of this section:
1. "Carrier" means an insurer, a health care services organization, a hospital
service corporation, a medical service corporation, a dental service corporation, an
optometric service corporation or a hospital, medical, dental and optometric service
corporation or any combination.
2. "Court" has the same meaning prescribed in section 20-611.
3. "Health care services organization" means an organization that is licensed under
this article and a service corporation that is regulated under article 3 of this chapter,
but only as to managed care products that the service corporation offers pursuant to this
article.
4. "Open enrollment carrier" means any carrier that participated in an open
enrollment with the insolvent health care services organization at a group's last regular
open enrollment period.
5. "Receiver" has the same meaning prescribed in section 20-611.
6. "Successor", if used in reference to a health care services organization or
carrier, means a carrier to whom the director has allocated a group or nongroup enrollee
that was covered by the insolvent health care services organization.
20-1069 Contingency for insolvency; plan; contents; definition
A. A health care services organization shall have a plan for the risk of insolvency
that is continuously acceptable to the director and that provides for funding of all of
the following:
1. Continuation of benefits for the duration of the contract period under the
enrollee's health care plan or for sixty days from the date insolvency is declared,
whichever is longer.
2. Continuation of benefits to enrollees who are confined on the date of insolvency
in an inpatient facility until their discharge.
B. Entitlement to continuation of benefits under subsection A is contingent on
timely payment of the premium by the enrollee or by the enrollee's representative to the
health care services organization or its agent, administrator, conservator or receiver.
C. Each plan for the risk of insolvency shall include both:
1. An actuarial memorandum describing the basis on which the actuary concludes that
the plan for the risk of insolvency will meet the requirements of subsection A.
2. A certification of a qualified actuary that to the best of the actuary's
knowledge and judgment the rates charged will support the benefits outlined under the
evidence of coverage and that the plan for the risk of insolvency satisfies the
requirements of subsection A.
D. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
E. As soon as practicable after commencement of a delinquency proceeding, the
receiver shall submit a report to the court concerning the adequacy of the plan for the
risk of insolvency, including an analysis of the amount of funds available under the plan
and the costs of continuation of benefits as required under subsection A. The receiver
shall update the report with reasonable frequency as directed by the court.
F. If at any time the receiver determines that the plan for the risk of insolvency
is inadequate to pay the cost of continuation of benefits as required under subsection A,
the receiver shall immediately notify the court and contract providers.
G. For purposes of this section, "continuation of benefits" includes benefits
provided by contract providers, noncontract providers and employee providers on staff
with the health care services organization, subject to any authorization procedures
applicable before the declaration of insolvency.
20-1070 Acquisitions and mergers
A. No health care services organization may merge with another foreign or domestic
health care services organization or may be acquired by a person except on approval by
the director and by complying with the provisions of general law governing the merger or
consolidation of stock corporations and the other provisions of this section.
B. If the health care services organization is being acquired and if more than
twenty-five per cent of the stock or ownership or control is being acquired, the
acquiring person shall file the statement described by section 20-481.03 with the
director at least thirty days before the effective date of the acquisition.
C. In the case of a merger the plan of merger shall be filed with the director at
least sixty days before the effective date of the merger.
D. The director shall approve the acquisition or merger if the acquiring or merging
persons have met the requirements for a certificate of authority. The director shall
make the decision either to approve or disapprove the acquisition or merger within thirty
days of the filing of the acquisition statement pursuant to subsection B of this section
or the plan of merger pursuant to subsection C of this section.
E. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1071 Prohibition against excluding coverage because of previous tests for a condition
A. An insurance contract offered by a health care services organization shall not
exclude coverage of a condition if the insured person has previously had tests for the
condition and the condition was not found to exist. There must be evidence that a
condition actually existed before the insurance contract was entered into in order to
exclude coverage of the condition.
B. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1072 Nonliability of enrollees for provider or hospital charges; penalty
A. Every written contract between a health care services organization and a
provider or hospital shall set forth that if the organization fails to pay for covered
health care services as set forth in the enrollee's evidence of coverage or contract the
enrollee is not liable to the provider or hospital for any amounts owed by the
organization and the provider or hospital shall not bill or otherwise attempt to collect
from the enrollee the amount owed by the organization.
B. If the written contract between the contracting provider or hospital and the
organization fails to contain the required prohibition stated in subsection A, the
enrollee is not liable to the contracting provider or hospital for any amounts owed by
the organization.
C. No contracting provider or agent, trustee or assignee of the contracting
provider or hospital may maintain an action at law against an enrollee to collect any
amounts owed by the organization for which the enrollee is not liable to the contracting
provider under subsection A.
D. Nothing in this section impairs the right of a provider or hospital to charge,
collect from, attempt to collect from or maintain an action at law against an enrollee
for any of the following:
1. Copayment or coinsurance amounts.
2. Health care services not covered by the organization, including out of area
claims that are not paid by an organization on behalf of an enrollee.
3. Health care services rendered after the termination of the contract between the
health care services organization and the provider or hospital, unless the health care
services were rendered during confinement in an inpatient facility and the confinement
began prior to the date of termination, or unless the provider has assumed
post-termination treatment obligations under the contract.
E. Nothing in this section prohibits an enrollee from seeking health care services
from a contracting or noncontracting provider or hospital and accepting financial
responsibility for these services.
F. No provider or hospital may charge an enrollee of a health care services
organization more than the amount the provider or hospital contracted to charge the
enrollee pursuant to the provider's contract or hospital's contract with the health care
services organization.
G. Nothing in this section prohibits any person from informing an enrollee of
either the cost of health care services performed or the status of any bill submitted to
an organization in connection with health care services provided to an enrollee. Any
information provided to an enrollee pursuant to this subsection shall include a statement
that the information is not a bill and is for the enrollee's information only. The
statement shall include the following disclosure prominently displayed at the top of the
page in all capital letters: "Do not pay this statement. This is not a bill. The
information provided below is for information purposes only."
H. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
I. The director shall impose a penalty against any health care provider or hospital
in violation of this section of up to three times the amount of the provider or hospital
charges at issue.
J. The director shall investigate any complaint filed pursuant to this section and
enforce the requirements of this section. 20-1073 Eligibility; prohibiting cancellation because of eligibility for certain benefits
A. Except as specifically provided in sections 20-1379 and 20-1380, with respect to
the determination of whether a person is an eligible individual, a health care services
organization shall not consider the availability of or a person's eligibility for medical
assistance under a program pursuant to title XIX of the social security act (P.L. 89-97;
79 Stat. 344; 42 United States Code section 1396a (1980)) when considering eligibility
for coverage or calculating payments under its plan for eligible enrollees.
B. To the extent that payment for covered expenses has been made under the state
program pursuant to title XIX of the social security act for health care items or
services furnished to an individual, the state is considered to have acquired the rights
of the individual to payment by any other party for those health care items or
services. On presentation of proof that the state program pursuant to title XIX of the
social security act has paid for covered items or services, the health care services
organization shall make payments to the state program pursuant to title XIX of the social
security act according to the coverage provided in the evidence of coverage.
C. A health care services organization may not impose on a state agency that has
been assigned the rights of an individual who is eligible for medical assistance and who
is covered for health benefits from the insurer any requirements that are different from
the requirements applicable to an agent or assignee of any other covered individual.
D. A health care services organization shall not cancel or fail to renew the
contract of any person based on that person's eligibility for or enrollment in a program
funded under title XIX of the social security act or title 36, chapter 29 or 34. Nothing
in this section prohibits cancellation or failure to renew for nonpayment of monies due
under the contract.
20-1074 Contract termination; duty to report; provision for continued services during insolvency; definitions
A. Each month a health care services organization shall submit to the director a
list of all written provider contracts that have been terminated during the prior
month. The list shall be in writing and shall include the name and address of each
provider whose contract has been terminated but shall not include the reasons for
termination.
B. A health care services organization shall include in its contracts with
providers a statement that requires the provider to provide services to enrollees at the
same rates and subject to the same terms and conditions established in the contract for
the duration of the period after the health care services organization is declared
insolvent, until the earliest of the following:
1. The expiration of the period during which the health care services organization
is required to continue benefits as described in section 20-1069, subsection A.
2. A notification from the receiver pursuant to section 20-1069, subsection F or a
determination by the court that the organization cannot provide adequate assurance it
will be able to pay contract providers' claims for covered services that were rendered
after the health care services organization is declared insolvent.
3. A determination by the court that the insolvent organization is unable to pay
contract providers' claims for covered services that were rendered after the health care
services organization is declared insolvent.
4. A determination by the court that continuation of the contract would constitute
undue hardship to the provider.
5. A determination by the court that the health care services organization has
satisfied its obligations to all enrollees under its health care plans.
C. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
D. For the purposes of this section:
1. "Court" has the same meaning prescribed in section 20-611.
2. "Delinquency proceeding" has the same meaning prescribed in section 20-611.
20-1075 Transactions with affiliates
A. A health care services organization shall not attempt to sell or otherwise
transfer to an affiliate ARIZONA assets in excess of ten per cent of the organization's
unimpaired capital or surplus as reported in its most recent annual statement, without
prior approval by the director. If the director does not disapprove such sale or
transfer within forty-five days of the date received by the director, the sale or
transfer is deemed approved.
B. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1076 Health care plans; disclosure form; enrollee notification
A. Each health care services organization that offers a health care plan to the
public shall provide disclosure forms as required by this section. The disclosure form
shall be in a form prescribed by the director and shall include the following:
1. A separate roster of plan primary care physicians who are licensed pursuant to
title 32, chapter 13, 17 or 29, including the physician's degree and practice specialty,
the year first licensed to practice medicine and, if different, the year initially
licensed to practice in ARIZONA.
2. In concise and specific terms:
(a) The full premium cost of the plan.
(b) Any copayment, coinsurance or deductible requirements that an enrollee or the
enrollee's family may incur in obtaining coverage under the plan and any reservation by
the plan to change premiums.
(c) The health care benefits to which an enrollee would be entitled. The disclosure
shall state where and in what manner an enrollee may obtain services, including the
procedures for selecting or changing primary care physicians and the locations of
hospitals and outpatient treatment centers that are under contract with the health care
services organization.
3. Any limitations of the services, kinds of service, benefits and exclusions that
apply to the plan. A description of limitations shall include:
(a) Procedures for emergency room, nighttime or weekend visits and referrals to
specialist physicians.
(b) Whether services received outside the plan are covered and in what manner they
are covered.
(c) Procedures an enrollee must follow, if any, to obtain prior authorization for
services.
(d) The circumstances under which prior authorization is required for emergency
medical care and a statement as to whether and where the plan provides twenty-four hour
emergency services.
(e) The circumstances under which the plan may retroactively deny coverage for
emergency medical treatment and nonemergency medical treatment that had prior
authorization under the plan's written policies.
(f) A statement regarding whether or not plan providers must comply with any
specified numbers, targeted averages or maximum durations of patient visits. If any of
these are required of plan providers, the disclosure shall state the specific
requirements.
(g) The procedures to be followed by an enrollee for consulting a physician other
than the primary care physician, and whether the enrollee's physician, the plan's medical
director or a committee must first authorize the referral.
(h) The necessity of repeating prior authorization if the specialist care is
continuing.
(i) Whether a point of service option is available, and if so, how it is
structured.
4. Grievance procedures for claim or treatment denials, dissatisfaction with care
and access to care issues.
5. Subject to section 20-1057.02, a response to whether a plan physician is
restricted to prescribing drugs from a plan list or plan formulary and the extent to
which an enrollee will be reimbursed for costs of a drug that is not on a plan list or
plan formulary.
6. A response to whether plan provider compensation programs include any incentives
or penalties that are intended to encourage plan providers to withhold services or
minimize or avoid referrals to specialists. If these types of incentives or penalties are
included, the health care services organization shall provide a concise description of
them. The health care services organization may also include, in a separate section, a
concise explanation or justification for the use of these incentives or penalties.
7. A description of the health care services organization's continuity of care
policies pursuant to section 20-1057.04.
8. A statement that the disclosure form is a summary only, and that the plan
evidence of coverage should be consulted to determine governing contractual provisions.
B. A health care services organization shall not disseminate a completed disclosure
form until the form is submitted to the director. For purposes of this section, a health
care services organization is not required to submit to the director its separate roster
of plan physicians or any roster updates.
C. On request, a health care services organization shall provide the information
required under subsection A of this section to all employers who are considering
participating in a health care plan that is offered by the health care services
organization or to an employer that is considering renewal of a plan that is provided by
the health care services organization.
D. An employer shall provide to its eligible employees the disclosures required
under subsection A of this section no later than the initiation of any open enrollment
period or at least ten days before any employee enrollment deadline that is not
associated with an open enrollment period.
E. An employer shall not execute a contract with a health care services
organization until the employer receives the information required under subsection A of
this section.
F. Nothing in this section provides any private right or cause of action to or on
behalf of any enrollee, prospective enrollee, employer or other person, whether a
resident or nonresident of this state. This section provides solely an administrative
remedy to the director of the department of insurance for any violation of this section
or any related rule.
G. Unless preempted under federal law or unless federal law imposes greater
requirements than this section, this section applies to a provider sponsored health care
services organization.
20-1077 Use of freestanding urgent care centers; policies
A health care services organization that requires its enrollees to use a
freestanding urgent care center as a condition of coverage or a reduction in copayment,
coinsurance or deductible amounts for covered health care services shall:
1. Develop and maintain policies for the appropriate referral of its enrollees to
freestanding urgent care centers. The health care services organization's medical
director shall approve these policies.
2. Inform its enrollees through an appropriate means as to when to seek care at a
freestanding urgent care center instead of using a higher level of care, such as a
hospital emergency department.
3. At least every two years, review the performance of and recredential the
freestanding urgent care centers under contract with the health care services
organization.
20-1078 Rules
The director may adopt rules pursuant to title 41, chapter 6 to carry out this
article.
20-1081 Domestic life and disability reinsurer
This article applies only to domestic life and disability reinsurers.
20-1082 Definitions
In this article, unless the context otherwise requires:
1. "Affiliated" has the same meaning prescribed in section 20-481.
2. "Credit life and disability reinsurer" means a domestic life and disability
reinsurer that reinsures only credit life insurance or credit disability insurance that
is issued according to chapter 6, article 10 of this title by an insurer that is
authorized to transact insurance in this state, as certified in a form prescribed by the
director and reaffirmed annually in conjunction with the annual statement filed pursuant
to section 20-223.
3. "Domestic life and disability reinsurer" means an incorporated stock reinsurer
holding a certificate of authority to accept insurance ceded by any domestic insurer or
foreign insurer.
4. "Unaffiliated" means not affiliated with another insurer as defined in section
20-104.
20-1083 Law applicable to domestic life and disability reinsurers
A. All other provisions of this title that are not inconsistent with the provisions
of this article apply to domestic life and disability reinsurers.
B. Notwithstanding section 20-223, an unaffiliated credit life and disability
reinsurer shall submit an annual statement in a form acceptable to the director and the
annual statement of the reinsurer is due August 1 if the reinsurer's fiscal year ends on
the preceding December 31 or November 1 if the reinsurer's fiscal year ends on a
preceding date other than the preceding December 31.
C. Notwithstanding section 20-223, subsection A, an unaffiliated credit life and
disability reinsurer is exempt from the management discussion and analysis requirements
prescribed in the accounting practices and procedures manual adopted by the national
association of insurance commissioners.
D. Notwithstanding section 20-731 and any rule that requires a hearing on the
withdrawal of an insurer from this state, a hearing on a merger with or on withdrawal
from this state by an unaffiliated credit life and disability reinsurer is not required,
unless the requirement of a hearing applies to another party to the transaction.
E. The following do not apply to unaffiliated credit life and disability
reinsurers:
1. The requirement of an examination at least once every five years pursuant to
section 20-156, subsection A.
2. Any rule adopted pursuant to section 20-223, subsection A relating to audited
financial statements.
3. Chapter 2, article 12 of this title.
4. The quantitative restrictions or limitations imposed on the investments of
insurers by this title.
5. Chapter 3, article 8 of this title.
6. Section 20-722.
20-1084 Articles of incorporation
A. Five or more individuals aged eighteen years or more may incorporate a domestic
life and disability reinsurer. Not less than two-thirds of the incorporators shall be
citizens of the United States residing in this state.
B. In addition to the requirements of title 10, chapter 2, article 1, the articles
of incorporation shall state:
1. The limitation upon the powers of the corporation consistent with this article.
2. The number of directors, not less than five nor more than fifteen, who shall
conduct the affairs of the corporation, and the names and addresses of the corporation's
first directors and officers for stated terms of office of not less than two months or
more than one year.
3. The time of the annual meeting of shareholders.
4. The city or town in this state in which the principal place of business is to be
located, and the counties, states and countries in which business may be transacted.
5. The limitations, if any, on the corporation's indebtedness.
6. The extent, if any, to which stock of the corporation shall be liable to
assessment.
20-1085 Capital
A. To qualify for initial authority to transact business a domestic life and
disability reinsurer shall possess and thereafter maintain minimum required capital stock
in the amount of one hundred thousand dollars.
B. To qualify for initial authority to transact business, an unaffiliated credit
life and disability reinsurer shall possess and thereafter maintain unimpaired capital
stock in the amount of seventy-five thousand dollars. An unaffiliated credit life and
disability reinsurer may comply with this subsection with a clean, irrevocable and
unconditional letter of credit that contains an evergreen clause and that is payable to
the director in trust for the protection of all ceding insurers, affected policyholders
and related expenses and that is issued or confirmed by a qualified United States
financial institution as defined in section 20-261.03, subsection A. For the purposes of
this subsection, an evergreen clause provides for automatic renewal.
20-1086 Surplus
A. A life and disability reinsurer shall have on organization initial surplus in an
amount not less than one-half of its minimum required capital stock and shall thereafter
maintain one-half of such initial surplus.
B. This section does not apply to unaffiliated credit life and disability
reinsurers.
20-1087 Deposits
A. The director shall not issue a certificate of authority to any life and
disability reinsurer unless the reinsurer has deposited in trust with the state treasurer
through the director's office cash or securities eligible for the investment of capital
funds of domestic insurers under this title in an amount not less than the minimum
paid-in capital stock required pursuant to this article to be maintained for authority to
transact the kinds of insurance to be transacted.
B. This section does not apply to unaffiliated credit life and disability
reinsurers that deliver to the director a letter of credit pursuant to section 20-1085,
subsection B.
20-1088 Limit of risk
Domestic life and disability reinsurers may be formed, with capital and surplus as
specified in sections 20-1085 and 20-1086 to accept any risk as a reinsurer under which
the maximum possible benefits payable on the death or on the disability of any one
insured shall not exceed five thousand dollars if the excess over three thousand dollars
is reinsured by noncancellable reinsurance authorized under section 20-261. _hen the
reinsurer's paid-in capital reaches one hundred thousand dollars, the reinsurer may
reinsure risks without the restrictions of this section and may reinsure as otherwise
provided for pursuant to this title. Any risk accepted pursuant to this section shall be
a risk under which the ceding life or disability insurer remains liable for the payment
of all policyholder claims.
20-1089 Certificates of authority
A. Any domestic limited stock insurer formed and existing pursuant to section
20-708 which does not come within the provisions of section 20-708, subsection B, and
which holds a valid certificate of authority as such an insurer, shall become a domestic
life and disability reinsurer on the effective date of this article. If such reinsurer
meets the requirements for a renewal certificate of authority under the provisions of
this article, it shall have its authority renewed under such provisions beginning with
the first certificate of authority renewal following the effective date of this article.
B. Any domestic limited stock insurer formed and existing pursuant to section
20-708 which comes within the provisions of section 20-708, subsection B, which holds a
valid certificate of authority as such an insurer, but which was transformed into a
domestic life and disability reinsurer by operation of the provisions of subsection D of
section 20-210 shall be a domestic life and disability reinsurer, but shall continue to
have such right and privilege to issue life and disability policies direct to the public
as is provided in section 20-708. If such reinsurer meets the requirements for a renewal
certificate of authority under the provisions of this article, it shall have its
authority renewed under such provisions beginning with the first certificate of authority
renewal following the effective date of this article.
20-1090 Reorganization; limitation
Any domestic life and disability reinsurer, with appropriate powers in its articles
of incorporation and with the necessary capital and surplus, and upon application to the
director, may become a domestic life and disability insurer free from the restrictions
otherwise imposed by this article. Except as provided in subsection B of section
20-1089, domestic life and disability reinsurers shall not have authority to transact
insurance directly with the public.
20-1091 Transfers to this article
Any life and disability insurer may relinquish its authority to write policies
direct and, upon application to the director, may become a life and disability reinsurer
under the provisions of this article.
20-1092 Control of assets; definition
A. The director may require that a domestic life and disability stock reinsurer
designate and comply with either or a combination of the following:
1. That pursuant to all written agreements with ceding insurers, assets in an
amount up to the net reserves established by such reinsurer be deposited by or withheld
from such reinsurer as security for the payment of obligations under any reinsurance
agreement if such assets are held subject to withdrawal by, and under the control of, any
ceding insurer.
2. That pursuant to all written agreements, assets in an amount up to the net
reserves established by the reinsurer be placed in a trust account or custodial account
with a bank which is a member of the federal reserve system located in the United States
or in any bank located in this state.
B. For the purposes of this section, "net reserves" means the gross policy and
claim reserves established by the reinsurer less policy and claim reserves retroceded
and, on risks retained by the reinsurer, less policy loans, net deferred and uncollected
premiums, and premiums due and unpaid.
20-1093 Reciprocity
The amount required to be deposited or placed in a trust or custodial account
pursuant to section 20-1092 shall be reduced by any amount deposited or placed in a trust
or custodial account pursuant to the laws of another state.
20-1094.01 Reserve requirements
A. An unaffiliated credit life and disability reinsurer shall secure liabilities
that are assumed under a reinsurance agreement subject to approval pursuant to this
article in any of the following:
1. With funds withheld.
2. With funds that are maintained in a trust fund that complies with section
20-261.02 and in an amount that is not less than one hundred ten per cent of the amount
of the liabilities assumed.
3. With clean, irrevocable and unconditional letters of credit that comply with
section 20-261.02, subsection B.
B. For the purposes of this section, the director shall value securities in the
manner prescribed in sections 20-511 and 20-512.
20-1094 Approval of reinsurance agreements
Notwithstanding section 20-732, an unaffiliated credit life and disability reinsurer
shall file with the director all reinsurance agreements and amendments to which the
reinsurer is a party. The agreement or amendment is not effective until the agreement or
amendment is approved by the director. The agreement is deemed approved if the director
does not disapprove the agreement within thirty days after the reinsurer files the
agreement with the director.
20-1095.01 Service companies; permits; rules and regulations; application of laws
A. No service company may offer or issue a service contract unless the service
company has qualified for and been issued a permit by the director.
B. The director shall adopt rules and regulations which provide for the application
for permit, renewal procedures, fees, refund of the unearned portion of the contract
price and approval of forms. Service companies are subject to the provisions of chapter
1 of this title and to this article.
20-1095.02 Exemptions; definition
A. The provisions of this article, except for section 20-1095.09, do not apply to
the following:
1. Warranties issued by manufacturers or sellers.
2. Service contract programs if a motor vehicle manufacturer has financial
responsibility for performance.
3. Warranties and service contracts issued by a corporation other than a
manufacturer or seller in connection with consumer products that are distributed by the
corporation if the issuing corporation:
(a) Is an affiliate of a consumer products manufacturer.
(b) By March 1 of each year submits to the director an independently audited
financial statement in which at least one officer of the issuing corporation attests and
a certified public accountant certifies that the issuing corporation has and maintains a
net worth in excess of one hundred million dollars. Any information, documents and
copies that are obtained by or disclosed to the director or any other person pursuant to
this subdivision are not available for public inspection, except that the director may
use this information in any proceeding relating to this article.
4. A service company which issues a service contract to persons other than a
consumer.
5. A service company which is in the business of selling or servicing any one of
the following:
(a) Appliances or electronic equipment, or both.
(b) Residential heating, cooling or air conditioning systems.
(c) Mechanical equipment, other than motor vehicles or their components.
6. Any person licensed pursuant to title 32, chapter 10, or not required to be
licensed because exempt pursuant to section 32-1121, subsection A, paragraph 13.
B. The director may employ independent examiners pursuant to section 20-156 to
review and analyze the financial statements that are submitted pursuant to subsection A,
paragraph 3 of this section.
C. A motor vehicle dealer who is licensed under title 28, chapter 10, who sells a
service contract program approved by the director pursuant to section 20-1095.06 and who
notifies the director pursuant to section 20-1095.07 shall be exempt from the remainder
of the requirements of this article.
D. For the purposes of this section, "affiliate" means a corporation that is owned
or controlled by or is under common control with a manufacturer.
20-1095.03 Qualifications for permit
A. The director shall not issue a permit to a service company unless all of the
following conditions are met:
1. If the applicant is a corporation, the applicant is a solvent corporation
incorporated under the laws of this state or another state, district, territory or
possession of the United States.
2. The applicant furnishes proof as necessary to the director that the directors
and management of the service company are competent and trustworthy and are capable of
successfully managing the service company's affairs in compliance with law.
3. The applicant files cash, alternatives to cash or a surety bond as required by
section 20-1095.04.
4. The applicant is in compliance and continues to be in compliance with all
applicable laws.
5. The applicant pays the initial fee prescribed in section 20-167.
B. This article does not require the director to determine the actual financial
condition or claims practices of any service company, motor vehicle dealer or service
contract administrator. The approval of a service contract program or the issuance of a
permit indicates only that the entity appears to be financially sound and to have
satisfactory claims practices and that the director has no credible evidence to the
contrary. 20-1095.04 Filing of cash, alternatives to cash or surety bond
A. To assure faithful performance of its obligations to contract holders, every
service company shall, prior to the issuance of a permit, file with or for the benefit of
the director cash or alternatives to cash which at all times have a value of at least one
hundred thousand dollars.
B. The service company may file alternatives to cash such as certificates of
deposit purchased from a financial institution licensed to conduct business in this state
or bonds of the United States government.
C. In lieu of the cash or alternatives to cash required by this section, the
applicant may file with the director a surety bond in the amount required by subsection A
which is issued by a surety insurer licensed to do business in this state and which is
for the same purpose as required in subsection A. The surety bond is subject to the
approval of the director. The surety insurer shall not cancel the bond or subject the
bond to cancellation unless thirty days' written notice is given to the director.
D. If alternatives to cash are made in the form of certificates of deposit or a
bond, it shall be irrevocably pledged to the director. The service company is entitled
to any accrued interest earned from the alternatives to cash.
E. The service company shall not impair or encumber the cash, alternatives to cash
or surety bond filed under this section and shall pledge the cash, alternatives to cash
or surety bond to the director. The service company shall maintain the cash,
alternatives to cash or surety bond in force until such time as all of the service
company's contractual obligations to contract holders are fulfilled.
20-1095.05 Contracts not in compliance; validity
Any service company contract issued in violation of this article is an enforceable
and valid contract unless invalidated for other reasons.
20-1095.06 Approval of motor vehicle service contract program; requirements for approval
A. A service contract administrator or an insurer shall file with the director an
application for approval of a motor vehicle service contract program. The fee prescribed
in section 20-167 shall accompany each application.
B. The director shall approve a motor vehicle service contract program prior to
sale in this state if it meets any of the following requirements:
1. It is insured by mechanical reimbursement insurance.
2. A surety bond issued by an insurer authorized to conduct surety business in this
state has been posted with the director conditioned to pay all obligations, up to the sum
of the bond, of motor vehicle service contracts written by the motor vehicle dealer
during the term of the bond, notwithstanding when the loss occurs during the term of the
service contract. The minimum amount of the bond is fifty thousand dollars. The service
contract administrator or insurer shall increase the amount of the bond depending on the
number of contracts in force at the end of the motor vehicle dealer's preceding
accounting year in the following amounts:
Number of contracts Bond amount
1-250 $ 50,000
251-500 $100,000
501-750 $150,000
751-1,000 $200,000
1,001-and over $250,000
3. Cash or securities equal to the amount of the bond required by paragraph 2 are
filed with the state treasurer through the director's office for the purpose of
guaranteeing performance under service contracts issued by the motor vehicle dealer.
C. The director shall approve the service contract program within thirty days of
filing if the program meets the requirements of this section or disapprove the program
specifying the deficiencies in it.
D. The director may disapprove a motor vehicle service contract program that has
previously been approved if the program no longer meets the requirements of this section,
the service contract administrator or insurer becomes insolvent or the service contract
administrator, insurer or a licensed motor vehicle dealer engages in any unfair trade
practice described in section 20-1095.09.
E. If the director disapproves a motor vehicle service contract program, the
director shall notify, by certified mail, all licensed motor vehicle dealers selling the
program. On receiving the notice the motor vehicle dealers shall not continue to sell
the program.
20-1095.07 Notification to director of intent to sell contract; sale of unapproved contract; violation; classification
A. Any licensed motor vehicle dealer, acting through its regularly employed sales
personnel, may sell any motor vehicle service contract program approved pursuant to
section 20-1095.06.
B. Prior to commencing the sale of any approved service contract program, the
licensed motor vehicle dealer shall, by certified mail, inform the director of the intent
to sell the identified program. No fee is required for such notification.
C. The director shall maintain a file of all approved motor vehicle service
contract programs and a list of the motor vehicle dealers selling a specific program.
D. A person who sells an unapproved motor vehicle service contract program is
guilty of a class 2 misdemeanor.
E. A motor vehicle service contract is not invalid solely by reason of not being
approved as required by this article.
F. The director may adopt rules and regulations prescribing the form of application
for approval of a motor vehicle service contract program, the form of surety bond, the
criteria for the policy of mechanical reimbursement insurance, refund of the unearned
portion of the contract price and to provide procedures for hearings in connection with
the disapproval of a motor vehicle service contract program.
20-1095.08 Nonrenewal, revocation or suspension of permit
The director may refuse to renew or may revoke or suspend any permit issued to a
service company pursuant to this article if, after notice and a hearing, the director
finds any of the following:
1. Any judgment in favor of a contract holder or his heir or assignees has become
final and has not been paid in full within sixty days.
2. The service company has violated any provision of this article.
3. In the opinion of the director, the service company is insolvent.
20-1095.09 Unfair trade practices; violation of article; cease and desist order
A. The director may order any service company, its agents, officials and
representatives, a motor vehicle dealer or an administrator to cease and desist from
engaging in any unfair trade practices if upon notice and a hearing it is determined that
the person has engaged in such practices. Unfair trade practices include:
1. The making of any false or misleading statements, either oral or written, in
connection with the sale, offer to sell or advertisement of a service contract.
2. The omission of any material statement in connection with the sale, offer to
sell or advertisement of a service contract, which under the circumstances should have
been made in order to make the statements that were made not misleading.
3. The making of any false or misleading statements, either oral or written, about
the benefits or services available under the service contract.
4. The failure to perform the services promised under the service contract within a
reasonable time and in a competent or workmanlike manner.
B. If the director determines that the provisions of this article have been
violated, the director, in addition to the authority to revoke or suspend a permit as
provided in section 20-1095.08, may issue an order requiring the person violating the
provisions of this article to cease and desist from such method, act or practice. The
director shall make a written record of the director's findings.
20-1095.10 Scope and limitations of article
A. This article applies to any home warranty or home protection contract, and to
service contracts covering motor vehicles.
B. This article does not alter or diminish any right, privilege or authority
granted to any insurer under any section of this title.
C. All service companies operating pursuant to a permit as required by this article
and those items exempt pursuant to section 20-1095.02 are exempt from the applicability
of the insurance laws of this state, except if the laws are specifically made applicable.
20-1095 Definitions
In this article, unless the context otherwise requires:
1. "Consumer" means a buyer other than for purposes of resale of any consumer
product, any person to whom the product is transferred during the duration of an implied
or written warranty or service contract applicable to the product and any other person
who is entitled by the terms of the warranty or service contract or under applicable
federal or state law to enforce against the warrantor or service company the obligations
of the warranty or service contract. A consumer also means the buyer or seller of
residential property.
2. "Consumer product" means any tangible personal property which is distributed in
commerce and which is normally used solely for personal, family or household purposes
including any such property intended to be attached to or installed in any real property
without regard to whether it is so attached or installed.
3. "Home warranty or home protection contract" means a service contract as defined
in paragraph 8, subdivision (b) of this section.
4. "Mechanical reimbursement insurance" means an insurance policy issued to a motor
vehicle dealer to insure the performance of a motor vehicle service contract to a
consumer if the motor vehicle dealer or the service contract administrator becomes
insolvent or ceases to do business. All such policies shall provide that all purchasers
of motor vehicle service contracts are covered if the motor vehicle dealer, the service
contract administrator or the insurer becomes insolvent or ceases to do business.
5. "Motor vehicle service contract program" means contractual documents, including
service contract forms, claim forms and other forms, used in connection with the sale of
service contracts by motor vehicle dealers.
6. "Residential property" means a house, townhouse, condominium or other habitable
structure consisting of no more than four units which is used principally as a residence.
7. "Service company" means any person who performs or arranges to perform services
pursuant to a service contract which the person issues.
8. "Service contract" means a written contract for a prepaid separately stated
consideration to perform, over a fixed period of time or for a specified duration,
services relating to the maintenance or repair, including replacement, of:
(a) A consumer product.
(b) All or any part of the structural components, the appliances or the electrical,
plumbing, heating, cooling or air conditioning systems of residential property.
9. "Service contract administrator" means an entity which agrees to provide
contract forms, process claims and procure insurance for and on behalf of a motor vehicle
dealer in the performance of the obligations pursuant to the motor vehicle service
contract but which may not itself perform actual repairs.
10. "Warranty" means:
(a) Any written affirmation by a manufacturer or seller of fact or written promise
made in connection with the sale of a consumer product which relates to the nature of the
material or workmanship and affirms or promises that the material or workmanship is free
of defects or will meet a specified level of performance over a specified period of time.
(b) Any undertaking by a manufacturer or seller in writing in connection with the
sale of a consumer product to refund, repair, replace or take other remedial action with
respect to such a product if the product fails to meet the specifications set forth in
the undertaking, which written affirmation, promise or undertaking becomes part of the
basis of the bargain for purposes other than resale of such product and if there is no
separate identifiable charge to the consumer.
20-1096.01 Formation of mechanical reimbursement reinsurer; articles of incorporation
A. Five or more individuals who are eighteen years of age or older may incorporate
as a mechanical reimbursement reinsurer. Not less than two-thirds of the incorporators
shall be citizens of the United States residing in this state.
B. In addition to the requirements of title 10, chapter 2, article 1, the articles
of incorporation shall state:
1. The limitation upon the powers of the corporation consistent with this article.
2. The number of directors, not less than five nor more than fifteen, who shall
conduct the affairs of the corporation and the names and addresses of the corporation's
first directors and officers for stated terms of office of not less than two months or
more than one year.
3. The time of the annual meeting of shareholders.
4. The city or town in this state in which the principal place of business is to be
located and the counties, states and countries in which business may be transacted.
5. The limitations, if any, on the corporation's indebtedness.
6. The extent, if any, to which stock of the corporation is liable to assessment.
20-1096.02 Capital
To qualify for its initial authority to transact business and to qualify for renewal
of its authority to transact business, a mechanical reimbursement reinsurer is required
to possess and thereafter maintain minimum required capital stock in an amount of one
hundred thousand dollars.
20-1096.03 Surplus
A mechanical reimbursement reinsurer is required to have upon organization initial
surplus in an amount not less than one-half of its minimum required capital stock and
shall thereafter maintain one-half of the initial surplus.
20-1096.04 Qualifications
The director shall not issue a certificate of authority to a mechanical
reimbursement reinsurer unless all of the following conditions are met:
1. The applicant is a corporation incorporated under the laws of this state.
2. The applicant furnishes such proof as necessary to the director that the
directors and management of the reinsurer are competent and trustworthy and are capable
of successfully managing its affairs in compliance with law.
3. The applicant makes the deposit as required by section 20-1096.06.
4. The applicant is in compliance and continues to be in compliance with all
applicable laws.
5. The applicant pays the initial fee prescribed in section 20-167.
20-1096.05 Annual reports; renewal of certificate of authority
A. No later than April 1 of each year, a mechanical reimbursement reinsurer shall
submit to the director a report written in a form designated by the director and signed
by the president and secretary of the reinsurer that clearly indicates the method being
used to determine policy and loss reserves and the amount in the policy and loss
reserves.
B. The reinsurer shall accompany the annual report with an application for renewal
of the certificate of authority, together with the fee prescribed in section 20-167.
20-1096.06 Filing of cash or alternatives to cash
A. To assure faithful performance of its reinsurance obligations each mechanical
reimbursement reinsurer shall, prior to the issuance of a certificate of authority, file
with or for the benefit of the director cash or alternatives to cash which at all times
have a value of at least one hundred thousand dollars.
B. The reinsurer may file alternatives to cash which shall be certificates of
deposit purchased from a financial institution licensed to conduct business in this state
or bonds of the United States government.
C. If alternatives to cash are made in the form of certificates of deposit or a
bond, it shall be irrevocably pledged to the director. The reinsurer is entitled to any
accrued interest earned from the alternatives to cash.
20-1096.07 Reserves
Each mechanical reimbursement reinsurer shall maintain policy and loss reserves in
those amounts as the director deems sufficient.
20-1096.08 Nonrenewal, revocation or suspension of certificate of authority
The director may refuse to renew or may revoke or suspend any certificate of
authority issued to a mechanical reimbursement reinsurer pursuant to this article if,
after notice and a hearing, the director finds any of the following:
1. In the opinion of the director the policy and loss reserves maintained by the
mechanical reimbursement reinsurer are insufficient to cover future losses.
2. In the opinion of the director, the mechanical reimbursement reinsurer is
insolvent.
3. The mechanical reimbursement reinsurer has not filed its annual report or paid
its renewal fee on a timely basis.
4. The mechanical reimbursement reinsurer has violated any provisions of this
article.
20-1096.09 Cease and desist order; violation of article
If a hearing is held pursuant to the provisions of this title, and if the director
determines that the provisions of this article have been violated, the director shall, in
addition to the authority to revoke or suspend a certificate of authority, issue an order
requiring the person violating the provisions of this article to cease and desist from
such method, act or practice. The director shall make a written record of his findings.
20-1096.10 Rules and regulations
The director may adopt those rules as are necessary to implement the provisions of
this article.
20-1096.11 Scope and limitations of article
A. This article does not alter or diminish any right, privilege or authority
granted to any insurer under any section of this title.
B. All mechanical reimbursement reinsurers operating pursuant to a certificate of
authority as required by this article are exempt from the applicability of the insurance
laws of this state, except if the laws are specifically made applicable.
20-1096 Definitions
In this article, unless the context otherwise requires:
1. "Consumer" means a buyer other than for purposes of resale of any consumer
product, any person to whom the product is transferred during the duration of an implied
or written warranty or service contract applicable to the product and any other person
who is entitled by the terms of the warranty or service contract or under applicable
federal or state law to enforce against the warrantor or issuer of the service contract
the obligations of the warranty or service contract. A consumer also means the buyer or
seller of residential property.
2. "Consumer product" means any tangible personal property which is distributed in
commerce and which is normally used solely for personal, family or household purposes
including any such property intended to be attached to or installed in any real property
without regard to whether it is so attached or installed.
3. "Mechanical reimbursement insurance" means an insurance policy issued to a motor
vehicle dealer or to insure the performance of a service contract to a consumer if the
motor vehicle dealer or the issuer of a service contract becomes insolvent or ceases to
do business or, if approved by the director, similar such insurance.
4. "Mechanical reimbursement reinsurer" or "reinsurer" means a domestic reinsurer
reinsuring mechanical reimbursement insurance.
5. "Motor vehicle service contract program" means contractual documents, including
service contract forms, claim forms and other forms, used in connection with the sale of
service contracts by motor vehicle dealers.
6. "Residential property" means a house, townhouse, condominium or other habitable
structure consisting of no more than four units which is used principally as a residence.
7. "Service contract" means a written contract for a prepaid separately stated
consideration to perform, over a fixed period of time or for a specified duration,
services relating to the maintenance or repair, including replacement, of:
(a) A consumer product.
(b) All or any part of the structural components, the appliances or the electrical,
plumbing, heating, cooling or air conditioning systems of residential property.
8. "Warranty" means:
(a) Any written affirmation by a manufacturer or seller of fact or written promise
made in connection with the sale of a consumer product which relates to the nature of the
material or workmanship and affirms or promises that the material or workmanship is free
of defects or will meet a specified level of performance over a specified period of time.
(b) Any undertaking by a manufacturer or seller in writing in connection with the
sale of a consumer product to refund, repair, replace or take other remedial action with
respect to such a product if the product fails to meet the specifications set forth in
the undertaking, which written affirmation, promise or undertaking becomes part of the
basis of the bargain for purposes other than resale of such product and if there is no
separate identifiable charge to the consumer.
20-1097.01 Exceptions
This article does not apply to:
1. Any lawyer referral services authorized by the state bar of ARIZONA.
2. Retainer contracts made by attorneys-at-law with individual or group clients
with fees based on estimates of the nature and the amount of the legal services to be
provided.
3. The furnishing of legal assistance by employee organizations to their members in
matters relating to employment or occupations.
4. The furnishing of legal assistance to members or dependents of churches,
cooperatives, educational institutions, credit unions, labor unions or other
organizations of employees in which the organization contracts directly with a lawyer or
a law firm for the provision of legal services.
20-1097.02 Certificate of authority; requirements; issuance
A. No person may enter into any contract with any other person in which the
contract purports to extend certain prepaid legal insurance without the person having
first obtained a certificate of authority from the director.
B. An applicant shall file with the department an application for a certificate of
authority on a form to be furnished by the department which shall include the following:
1. The names and, for the preceding five years, all addresses and all occupations
of officers and directors of the corporation.
2. A certified copy of the corporate articles and bylaws and, for the three most
recent years, the corporation's annual statement and report, if applicable.
3. A copy of any insurance or reinsurance contract executed by the corporation for
insuring the payment of the cost for legal services or the provision for automatic
applicability of an alternative coverage in the event the applicant is unable to perform
its obligations.
4. The forms to be used for any proposed contract between the applicant and
individual purchasers of the applicant's prepaid legal insurance contract, any contracts
between the applicant and participating attorneys under the program, any contracts
between the applicant and other persons who perform administration, marketing or
management services and all forms relating to the provision of services to beneficiaries
or purchasers of the prepaid legal insurance contracts.
5. A narrative plan detailing the proposed conduct of the prepaid legal insurance
business within this state which must include all of the following:
(a) The geographical area in which business is intended to be conducted in the
first five years of operation.
(b) The proposed marketing method to be used by the corporation.
(c) A current statement of the assets and liabilities of the applicant.
(d) Forms of all service contracts the applicant chooses to offer showing the rates
to be charged for each form of contract.
(e) Such other documents and information as the director may reasonably require.
C. The director shall, within sixty days after the filing of the application,
either issue a certificate pursuant to the application or provide the applicant with a
written explanation as to why the application has been denied.
D. The director shall issue the certificate if he is satisfied that the applicant
has:
1. Demonstrated that it is competent.
2. Provided the director with a business plan which is consistent with the
interests of the potential insureds and of the public.
3. Met all other requirements of this article.
20-1097.03 Deposit required
A. A prepaid legal insurance corporation shall maintain on deposit with the state
treasurer through the director's office a surety bond, guaranteeing services under its
contracts, or cash or securities eligible for investment of capital funds in the amount
required by section 20-213.
B. The deposit prescribed by subsection A of this section shall be held by the
state treasurer in trust for the benefit and protection of persons covered by a prepaid
legal contract.
C. Any securities within the description of subsection A of this section, with the
approval of the director, may be exchanged for similar securities or cash of equal
value. Interest on securities deposited shall be payable to the prepaid legal insurance
corporation depositing such securities.
D. An unpaid final judgment arising from a legal insurance contract shall be a lien
on the deposit prescribed by subsection A of this section, subject to execution thirty
days from the entry of final judgment. If the deposit is reduced, it shall be
replenished within ninety days by the prepaid legal insurance corporation.
E. Upon liquidation or dissolution of a prepaid legal insurance corporation and
satisfaction of all debts and liabilities, any balance remaining of the cash or
securities deposit prescribed in subsection A of this section together with any other
assets of the corporation shall be returned by the director to the corporation.
F. The director may at any time enter an order increasing the amount of the deposit
required by this section if:
1. He finds there has been a substantial change in the facts, including an increase
in the amount of premiums, membership fees or similar charges in force in this state, on
which the original determination was based.
2. Other circumstances arise which lead the director to conclude that it is
reasonably necessary in order to protect the purchasers of such contracts.
20-1097.04 Prepaid legal insurance contract provisions
A. A corporation may not issue a contract or certificate of prepaid legal insurance
in this state unless a copy of the form has been filed with and approved by the
department.
B. A corporation may write prepaid legal insurance contracts as individual, group,
payroll deduction, blanket or franchise contracts. Each contractual obligation for
prepaid legal insurance shall be evidenced by a contract. The corporation shall issue a
certificate of the contract's coverage to each person protected under a group policy.
C. The department shall approve a contract form which contains all of the
following:
1. A list and description of the legal service payments promised or the legal
matters for which expenses are to be reimbursed and any limits on the amounts to be paid
or reimbursed.
2. A clear statement of the name of the corporation issuing the contract and the
full address of its principal place of business.
3. A statement that the individual beneficiary may retain at his own expense,
except if the policy provides otherwise, any attorney authorized to practice law in this
state.
D. Contracts with certificates issued under group policies must contain a full
statement of the benefits provided and exceptions to the benefits but may summarize the
other terms of the master contract.
E. No contract, except a policy issued by a mutual or reciprocal insurance company,
may provide for assessments on contract beneficiaries or policyholders or for reduction
of benefits for the purpose of maintaining a corporation's solvency.
20-1097.05 Prepaid legal insurance contracts; rates
Rates shall not be considered unfairly discriminatory when they are averaged broadly
among persons covered under group, blanket or franchise contracts. Rates for legal
insurance shall be established consistent with the requirements of title 20, chapter 2,
article 4.1.
20-1097.06 Contracts for underwriting
A corporation may contract with any company licensed to transact insurance in this
state or any corporation organized pursuant to this title, under which contracts such
company agrees, for consideration consisting of a specified premium, to assume the
monetary obligations of the prepaid legal insurance contracts issued by the corporation
upon the failure of the corporation itself to meet such obligations within the specified
period. The corporation shall file each contract with the director, and such contract is
subject to the approval of the director as to the fairness of its terms and
premiums. Such contracts are deemed approved sixty days after the date of filing them
with the director unless, before the expiration of the sixty day period, the director
notifies the corporation in writing of the director's disapproval.
20-1097.07 Fees and taxes
A. Any prepaid legal insurance corporation licensed pursuant to this article shall
pay those fees prescribed by section 20-167 and those taxes prescribed by section 20-224.
B. A prepaid legal insurance corporation may claim a premium tax credit if the
corporation qualifies for a credit pursuant to section 20-224.03 or 20-224.04.
20-1097.08 Advertising and solicitation of legal services
The director may require that any advertising or sales material for use in the sale
or the presentation for sale of any legal insurance contract be approved by him. Ten
days after written demand from the director, the corporation shall provide the
advertising or sales material to the department. The director shall disapprove the
material should he determine that it is in whole or in part false, deceptive or
misleading and shall notify the corporation of his disapproval within thirty days of
receipt of the material.
20-1097.09 Liability of corporation; civil penalty
A. Notwithstanding section 20-1097.13, subsection C, if after a hearing the
director finds that an insurance producer or salesperson of a corporation authorized to
sell prepaid legal insurance contracts has made wilful misrepresentations, the director
may impose a civil penalty on the prepaid legal insurance corporation of not more than
one hundred thousand dollars for each wilful misrepresentation.
B. Notwithstanding section 20-1097.13, subsection C, if after a hearing the
director finds that an insurance producer or salesperson of a corporation authorized to
sell prepaid legal insurance contracts has made negligent misrepresentations, the
director may impose a civil penalty on the prepaid legal insurance corporation of not
more than ten thousand dollars for each misrepresentation.
C. No order of the director pursuant to this section or order of the court to
enforce it, or the holding of a hearing, may in any manner relieve or absolve any person
affected by the order or hearing from any other liability, penalty or forfeiture under
law.
D. Any monies collected from any civil penalty imposed pursuant to this section
shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund.
20-1097.10 Capital, surplus and reserve requirements
The director shall not authorize an applicant to sell prepaid legal insurance
contracts within this state unless the applicant:
1. Possesses and thereafter maintains unimpaired capital of at least six hundred
thousand dollars.
2. Possesses and thereafter maintains surplus funds in an amount equal to at least
fifty per cent of the capital requirement prescribed in paragraph 1 of this section.
3. Possesses and thereafter maintains an unearned premium reserve which meets the
requirements prescribed in section 20-506.
20-1097.11 Assets; valuation; reporting
A. The assets of a prepaid legal insurance corporation shall be reported at values
determined pursuant to sections 20-511 through 20-515. If the director deems it necessary
to value any real estate, he may employ one or more appraisers for that purpose, and the
reasonable expense thereof and shall be borne by the corporation.
B. The corporation shall include the information required by subsection A in its
annual statement filed with the director pursuant to section 20-1097.12.
20-1097.12 Annual statement and information; penalty
Any corporation licensed pursuant to this article shall file an annual statement and
information and shall be subject to the same administrative action and civil and criminal
penalties as prescribed by sections 20-223 and 20-233.
20-1097.13 Suspension or revocation of authorization or registration; appeal; civil penalty; rules
A. The director may suspend or revoke the authorization of a corporation or
insurance producer to engage in the sale of prepaid legal insurance contracts for any of
the following causes:
1. Material misstatement, misrepresentation or fraud in registration.
2. Any wilful attempt to circumvent the requirements of this article.
3. Wilful misrepresentation or wilful deception with regard to any contract issued
or sold under this article.
4. Any material misrepresentation to a contract holder or other interested party
regarding the adjustment of the claim or the payment of a claim under the provisions of a
contract issued or sold under the terms of this article, if the misrepresentation is made
with the intent and for the purpose of affecting settlement of such claim on less
favorable terms than those provided in and contemplated by the contract.
5. Fraudulent or dishonest practices in the conduct of its business.
6. Misappropriation, conversion or unlawful withholding of monies belonging to a
legal services corporation or to others received in the conduct of business under this
article.
7. Failure to comply with or wilful violation of any provision of this article, or
order or rule of the department adopted pursuant to this article.
B. Any corporation or insurance producer of a corporation whose certificate or
license has been suspended or revoked by the director for cause under this section may
request a hearing pursuant to title 41, chapter 6, article 10.
C. The director may impose a civil penalty in an amount not to exceed two thousand
five hundred dollars for an insurance producer or ten thousand dollars for a corporation
in lieu of suspension or revocation of authorization or registration if under this
article the director deems the civil penalty in lieu of suspension or revocation to be a
satisfactory means of fulfilling the intent of this article. A civil penalty imposed
under this subsection shall be deposited, pursuant to sections 35-146 and 35-147, in the
state general fund.
D. The director shall adopt rules not inconsistent with the provisions of this
article, as the director deems advisable for effectuating its orderly administration.
20-1097 Definitions
In this article, unless the context otherwise requires:
1. "Prepaid legal insurance contracts" means a contractual obligation to indemnify
for specific legal services rendered in the normal and ordinary course of business by an
active member of the state bar of ARIZONA.
2. "Prepaid legal insurance corporation" or "corporation" means any corporation
organized for the purpose of selling prepaid legal insurance contracts in this state or
any insurer licensed pursuant to this title.
20-1098.01 Licensing; authority
A. If allowed by its articles of incorporation, bylaws or other organizational
document, a captive insurer may apply to the director for a license to transact any
insurance, except that:
1. A pure captive insurer shall not insure risks other than the risks of its
affiliates or controlled unaffiliated business.
2. A group captive insurer shall not insure risks other than the risks of its group
members and the members' affiliates.
3. An agency captive insurer shall not:
(a) Insure any risks other than those placed by or through its owners.
(b) Insure life or disability insurance risks.
4. A protected cell captive insurer shall not insure any risks other than those of
its participants.
5. In addition to any other applicable restrictions, a captive insurer shall not
insure any of the following types of insurance business:
(a) Hospital service corporations, medical service corporations, dental service
corporations, optometric service corporations or hospital, medical, dental and optometric
service corporations as defined in section 20-822.
(b) Health care services organizations as defined in section 20-1051.
(c) Prepaid dental plan organizations as defined in section 20-1001.
(d) Prepaid legal insurance contracts as defined in section 20-1097.
(e) Business of title insurance as defined in section 20-1562.
(f) Personal motor vehicle or homeowner's insurance coverage or any component of
that insurance coverage.
(g) Commercial motor vehicle insurance policies unless the insured affiliate
qualifies as a self-insurer pursuant to section 28-4007 or substantially similar
self-insurance requirements of another state.
(h) Mortgage guaranty insurance as defined in section 20-1541.
(i) Workers' compensation or employers' liability insurance policies except in
connection with a self-insurance program as prescribed in subsections B and C of this
section.
6. Nothing in paragraphs 1 through 5 of this subsection prohibits a captive insurer
from accepting reinsurance. A captive insurer shall not accept or cede reinsurance except
as provided in section 20-1098.11.
7. A captive insurer that writes life insurance or disability insurance shall
comply with all applicable state and federal laws.
B. A pure captive insurer may provide direct coverage of workers' compensation in
this state if the workers' compensation coverage is provided under a self-insurance
program approved by the industrial commission of ARIZONA under section 23-961. A captive
insurance program authorized by section 23-961 is subject to and shall comply with all
requirements of title 23, chapter 6, applicable to self-insurance.
C. A pure captive insurer may provide direct coverage of workers' compensation or
employers' liability insurance in another state in connection with a self-insurance
program that is qualified as a self-insurance program under the applicable state or
federal law, as determined by the agency or other entity that has jurisdiction over the
self-insurance program.
D. A captive insurer shall not transact insurance business in this state unless:
1. It first obtains from the director a license authorizing it to transact captive
insurance business in this state.
2. Its board of directors or, for reciprocal insurers, its subscribers' advisory
committee, holds at least one meeting each year in this state.
3. It maintains its principal place of business in this state.
4. It appoints a resident statutory agent to accept service of process and to
otherwise act on its behalf in this state and files the appointment with the director.
In the case of a captive insurer formed as a corporation or reciprocal insurer, if the
statutory agent cannot with reasonable diligence be found at the registered office of the
captive insurer, the director is an agent of the captive insurer on whom any process,
notice or demand may be served.
E. Before receiving a license, a captive insurer shall file with the director the
following:
1. If formed as a corporation, a certified copy of its articles of incorporation,
bylaws or other organizational document, a statement under oath of its president and
secretary showing its financial condition and any other statement or document required by
the director.
2. If formed as a reciprocal insurer, a certified copy of the power of attorney of
its attorney-in-fact, a certified copy of its subscribers' agreement, a statement under
oath of its attorney-in-fact showing its financial condition and any other statement or
document required by the director.
F. In addition to the information required by subsection E of this section each
applicant captive insurer shall file with the director evidence of all of the following:
1. The amount and liquidity of its assets relative to the risks to be assumed.
2. The adequacy of the expertise, experience and character of the person or persons
who will manage the captive insurer.
3. The overall soundness of its plan of operation.
4. The adequacy of the loss prevention programs of its insureds.
5. The engagement of a competent manager that resides in this state.
6. The establishment of business relationships with any accountants, banks,
attorneys and other professionals that are acceptable to the department.
7. The ability of the captive insurer's owners to pay claims to third parties if
the captive insurer is unable to pay those claims.
8. Other factors deemed relevant by the director in ascertaining whether the
proposed captive insurer will be able to meet its policy obligations.
G. In addition to the information required by subsections E and F of this section,
if the applicant is seeking authority as a protected cell captive insurer, the applicant
shall file:
1. A business plan that demonstrates, in a manner acceptable to the director, how
the applicant will account for the loss and expense experience of each protected cell and
report that information to the director.
2. A statement acknowledging that all financial records of the protected cell
captive insurer, including records pertaining to protected cells, shall be available for
inspection or examination by the director or the director's designee.
3. Its form for all participant contracts.
4. Evidence that the protected cell captive insurer will allocate expenses fairly
and equitably to each protected cell.
H. A captive insurer shall notify the director within thirty days of any material
change in the information filed pursuant to this section.
I. Notwithstanding title 39, chapter 1, information submitted pursuant to this
section is confidential and the director and the director's employees and agents shall
not provide the information to any other person without the written consent of the
captive insurer, except that:
1. This section does not apply to the department's use of information submitted by
a captive insurer for any regulatory purpose, disciplinary action or hearing.
2. The director shall provide information submitted by a captive insurer that is
required by a subpoena issued in connection with an administrative, civil or criminal
investigation by a government agency.
3. The information may be discoverable by a party in a civil action or contested
case to which the captive insurer that submitted the information is a party, if the party
seeking to discover the information demonstrates all of the following:
(a) The information sought is relevant to and necessary for the furtherance of the
action or case.
(b) The information sought is unavailable from other nonconfidential sources.
(c) A subpoena issued by a judicial or administrative officer of competent
jurisdiction has been submitted to the director.
4. The director may disclose the information to a public official that has
jurisdiction over the regulation of insurance in another state if the public official
agrees in writing to maintain the confidentiality of the information and the laws of the
state in which the public official serves allow or require the information to be and
remain confidential.
5. The director may provide the information to the industrial commission. The
industrial commission shall maintain the confidentiality of the information in accordance
with this subsection.
J. A captive insurer shall pay to the director a nonrefundable fee for the issuance
and renewal of a captive insurance license pursuant to section 20-167. The captive
insurer shall pay the renewal fee when the captive insurer files the annual report
prescribed in section 20-1098.07.
K. If the director is satisfied that the documents and statements that the captive
insurer has filed comply with this article, the director may grant the captive insurer a
license that authorizes the captive insurer to transact insurance business in this state.
If the plan of operation includes the reinsurance of workers' compensation or employers'
liability risks resident, located or to be performed in this state, the director may
provide the industrial commission with an opportunity to review the plan of operation and
advise the director as to its soundness.
L. The director shall approve or deny an application for a license to transact
captive insurance business within thirty days after the director deems the application
complete. 20-1098.02 Names of companies
A. A captive insurer shall not adopt a name that is the same, deceptively similar
to or likely to be confused with or mistaken for any other existing business name
registered in this state.
B. The name of a captive insurer that is a mutual company shall contain the word
"mutual". 20-1098.03 Minimum capital and surplus; letter of credit
A. The director shall not issue a license to a captive insurer unless the insurer
possesses and thereafter maintains minimum unimpaired paid-in capital and surplus in
combination as follows:
1. In the case of a pure captive insurer, at least two hundred fifty thousand
dollars.
2. In the case of a group captive insurer, at least five hundred thousand dollars.
3. In the case of an agency captive insurer, at least five hundred thousand
dollars.
4. In the case of a protected cell captive insurer, at least one million dollars.
5. In the case of a captive insurer that is organized as a reciprocal insurer, at
least five hundred thousand dollars in free surplus.
6. In the case of a pure or group captive insurer that transacts only reinsurance,
one-half of the applicable amount prescribed in paragraph 1 or 2 of this subsection.
B. All minimum capital and surplus requirements shall be in the form of cash or an
irrevocable and unconditional letter of credit that contains an evergreen clause, that is
payable to, filed with and held by the director in trust for the protection of all
policyholders, ceding insurers and related expenses and that meets the following
conditions:
1. The letter of credit shall be issued or confirmed by a qualified United States
financial institution as defined in section 20-261.03, subsection A and shall comply with
the requirements prescribed by the director.
2. The captive insurer shall not be directly or contingently liable for any letter
of credit comprising its capital or surplus and its assets shall not be pledged as
security for the letter of credit.
C. The director may prescribe additional capital and surplus requirements based on
the type, volume and nature of insurance. The captive insurer may pledge, with the
approval of the department, any additional prescribed capital and surplus, whether in the
form of cash, another allowable asset or any irrevocable and unconditional letter of
credit that contains an evergreen clause. 20-1098.04 Formation of captive insurers; redomestication
A. An agency captive insurer or protected cell captive insurer shall be
incorporated as a stock insurer with its capital divided into shares and held by the
stockholders.
B. A group captive insurer may be formed in any of the following ways:
1. Incorporated as a stock insurer with its capital divided into shares and held by
the stockholders.
2. Incorporated as a mutual insurer without capital stock, the governing body of
which is elected by the member organizations of its association.
3. Organized as a reciprocal insurer pursuant to article 2 of this chapter, except
that three or more persons may organize a captive reciprocal insurer and the captive
reciprocal insurer subscribers' advisory committee must have one person that is a
resident of this state.
4. Incorporated as a nonprofit corporation pursuant to title 10, chapter 25.
C. A pure captive insurer may be formed in any of the following ways:
1. Incorporated as a stock insurer with its capital divided into shares and held by
the stockholders.
2. Incorporated as a nonprofit corporation pursuant to title 10, chapter 25.
D. Each owner of an agency captive insurer shall be licensed as an insurance
producer or managing general agent.
E. A captive insurer shall have at least three incorporators at least one of whom
shall be a resident of this state.
F. The capital stock of a captive insurer incorporated as a stock insurer may be
authorized with no par value.
G. The articles of incorporation or bylaws of a captive insurer that is formed as a
corporation may authorize a quorum of a board of directors to consist of at least
one-third of the fixed or prescribed number of directors. The subscribers' agreement or
other organizing document of a captive insurer formed as a reciprocal insurer may
authorize a quorum of a subscribers' advisory committee to consist of at least one-third
of the number of its members.
H. A captive insurer organized as a stock insurer shall have at least one member of
the board of directors who is a resident of this state. A captive insurer that is formed
as a reciprocal insurer shall have at least one member of the subscribers' advisory
committee who is a resident of this state.
I. Any foreign or alien insurer may become a domestic captive insurer by complying
with the requirements of this article relating to the organization and licensing of a
domestic captive insurer of the same type, and by complying with all applicable
requirements of the laws of this state relating to the formation and authorization of a
corporation. The domestic captive insurer is entitled to a license to continue its
business and is subject to the authority and jurisdiction of this state. 20-1098.05 Protected cell captive insurers
A. One or more sponsors may form a protected cell captive insurer as prescribed in
this article.
B. A protected cell captive insurer may establish and maintain one or more
protected cells to insure the risks of one or more participants, subject to the following
conditions:
1. A protected cell captive insurer shall not have any stockholders other than its
participants and sponsors.
2. A protected cell captive insurer shall separately account for each protected
cell in its books and records to reflect the financial condition and results of
operations of each protected cell, net income or loss of each protected cell, dividends
or other distributions to participants of each protected cell and any other factors
prescribed in the participant contract or required by the director.
3. The assets of a protected cell are not chargeable with liabilities arising out
of any other insurance business the protected cell captive insurer may conduct.
4. A protected cell captive insurer shall not sell, exchange or transfer assets,
issue a dividend or make a distribution between or among any of its protected cells
without the written consent of all its protected cells.
5. A protected cell captive insurer shall not sell, exchange or transfer assets,
issue a dividend or make a distribution to a sponsor or participant unless the director
approves the transaction and determines that the transaction will not cause insolvency or
impairment of any protected cell.
6. At the time of filing its annual report pursuant to section 20-1098.07 a
protected cell captive insurer shall annually file with the department:
(a) An accounting statement, in the form the director requires, detailing the
financial experience of each protected cell.
(b) Any other financial reports prescribed by the director.
7. A protected cell captive insurer shall notify the director in writing within ten
days after learning of any protected cell that is insolvent or otherwise unable to meet
its claim or expense obligations.
8. A protected cell captive insurer shall obtain the director's written approval of
any participant contract before the contract becomes effective.
9. The addition of a new participant or the withdrawal of a participant from an
existing protected cell is deemed a change in the captive insurer's business plan and
requires the director's prior approval.
10. With respect to each protected cell, the insurance business written by a
protected cell captive insurer shall be any of the following:
(a) Assumed from an insurance company licensed under the laws of any state.
(b) Reinsured by a reinsurer authorized or accredited by this state.
(c) Secured by a trust fund or an irrevocable letter of credit with an evergreen
clause. 20-1098.06 Protected cell captive insurers; sponsors; participants
A. A risk retention group shall not be either a sponsor or a participant in a
protected cell captive insurer.
B. An association, corporation, limited liability company, partnership, trust or
any other business entity may be a participant in any protected cell captive insurer
formed or licensed under this article.
C. A sponsor may be a participant in a protected cell captive insurer.
D. A participant need not be a shareholder of a protected cell captive insurer or
any affiliate of a protected cell captive insurer.
E. A participant shall insure only its own risks through a protected cell captive
insurer. 20-1098.07 Annual report
A. Not later than ninety days after the end of the captive insurer's fiscal year,
the captive insurer shall submit to the director a report of its financial condition that
is verified by oath of two of its executive officers and that is supplemented by
additional information as required by the director. Except as provided in section
20-1098.03, a captive insurer may submit a report that uses generally accepted accounting
principles unless the director requires the captive insurer to use statutory accounting
principles with any useful or necessary modifications or adaptations of those principles
required by the director for the type of insurance and kinds of insurers to be reported
on.
B. The captive insurer's financial statements shall be audited by an independent
certified public accountant unless the director determines that an audit is not
necessary. The audit shall include a reconciliation of differences, if any, between the
audited financial report and the statement or form filed with the department.
C. Unless exempted by the director, the annual report shall include an opinion as
to the adequacy of the captive insurer's loss reserves and loss expense reserves. A
member in good standing of the casualty actuarial society, a member in good standing of
the American academy of actuaries or an individual who has demonstrated competence in
loss reserve evaluations to the director shall certify the opinion. 20-1098.08 Examinations
A. Whenever the director determines it to be prudent, the director may examine the
business, transactions and affairs of each captive insurer to ascertain the captive
insurer's financial condition and ability to fulfill its obligations and whether the
captive insurer has complied with this article.
B. Section 20-1098.01, subsection I applies to all examination reports, preliminary
examination reports or results, working papers, recorded information, documents and
copies of any of those reports, results, papers, information or documents produced by,
obtained by or disclosed to the director in the course of an examination made under this
section.
C. The director may use independent contractor examiners pursuant to sections
20-148 and 20-159 to conduct examinations pursuant to this section. All examinations and
examination related expenses shall be borne by the captive insurer and shall be paid by
the insurance examiners' revolving fund pursuant to section 20-159. 20-1098.09 Grounds and procedures for license suspension or revocation
The director may suspend, revoke or refuse to renew the license of a captive insurer
to transact insurance business in this state for any of the following reasons:
1. Insolvency or impairment of capital and surplus.
2. Refusal or failure to submit an annual report as prescribed in section
20-1098.07 or any other report or statement required by law or by lawful order of the
director.
3. Failure to comply with the provisions of its own articles of incorporation,
bylaws or other organizational document.
4. Failure to submit to an examination or any legal obligation related to the
examination as prescribed in section 20-1098.08.
5. Refusal or failure to pay the cost of an examination as prescribed in section
20-1098.08.
6. Use of methods that, although not otherwise specifically prohibited by law,
render its operation hazardous or its condition unsound with respect to the public or to
its policyholders.
7. Failure to otherwise comply with this article. 20-1098.10 Legal investments
A. A group captive insurer, an agency captive insurer and a protected cell captive
insurer shall comply with the investment requirements prescribed in chapter 3, article 2
of this title. Notwithstanding any other provision of this title, the director may
approve the use of alternative reliable methods of valuation and rating.
B. A pure captive insurer is not subject to restrictions on allowable investments,
except that the director may prohibit or limit any investment that threatens the solvency
or liquidity of the pure captive insurer.
C. Only a pure captive insurer may make loans to its affiliates. A note shall
evidence the loan. Before making any such loan, the pure captive insurer shall obtain the
director's written approval to make the loan and approval for the form of the note. 20-1098.11 Reinsurance
A. Except with the approval of the director, a captive insurer may only provide
reinsurance on risks ceded by any other insurer in accordance with the limitations
prescribed in section 20-1098.01 and as otherwise allowed under this article.
B. A captive insurer may take credit for reserves on risks or portions of risks
ceded to a reinsurer that is in compliance with sections 20-261 and 20-261.01 through
20-261.04. Prior approval of the director shall be required for ceding or taking credit
for the reserves on risks or portions of risks ceded to a reinsurer if the reinsurer is
not in compliance with sections 20-261 and 20-261.01 through 20-261.04.
C. Notwithstanding this article, a pure captive insurer may cede to and assume
risks from a pooling arrangement subject to the approval of the director. 20-1098.12 Rating organization; exemption
A captive insurer is not required to join a rating organization.
20-1098.13 Associations; benefits; prohibitions
Except as otherwise provided in section 20-1098.01, subsection B for a
self-insurance program approved under section 23-961, a captive insurer shall not join or
contribute financially to any plan, pool, association or guaranty or insolvency fund in
this state. A captive insurer or its insured, a parent, an affiliate, group members, a
member organization of an association or a claimant under any captive insurance shall not
receive any benefit from the plan, pool, association or guaranty or insolvency fund for
claims arising out of the operations of the captive insurer. 20-1098.14 Rules
The director may adopt rules pursuant to title 41, chapter 6 to carry out this
article.
20-1098.15 Applicability
A. Chapter 2, article 6 of this title relating to unfair trade practices and frauds
applies to captive insurers, except to the extent the director determines the nature of
captive insurance renders particular portions of chapter 2, article 6 of this title
inappropriate.
B. All other provisions of this title that are not inconsistent with this article
apply to captive insurers except to the extent the director determines the nature of
captive insurance renders particular provisions of this title inappropriate.
C. A captive insurer that is formed as a corporation is subject to the applicable
provisions of title 10 except as otherwise prescribed in this article.
D. The provisions of article 1 of this chapter relating to mergers, consolidations,
conversions, mutualizations and redomestications apply in determining the procedures to
be followed by captive insurers in carrying out those transactions, except that the
director may waive or modify the requirements for a public notice and hearing prescribed
in section 20-731. 20-1098.16 Captive manager
A captive insurer shall engage a manager who is a resident of this state. The
captive manager shall maintain the books and records of the captive insurer's business,
transactions and affairs at a location that is in this state and that is accessible to
the director. The captive manager shall promptly notify the director of any failure of
the captive insurer to comply with this article. The director may require a captive
insurer to discharge a captive manager for failure to substantively fulfill the captive
manager's duties under this article.
20-1098.17 Captive fees report; effect of fees payment
A. The department of insurance shall submit an annual report that provides a list
of the fees collected from captive insurers to the governor, the president of the senate
and the speaker of the house of representatives and shall provide a copy of this report
to the secretary of state and the director of the ARIZONA state library, archives and
public records.
B. The fees paid by a captive insurer pursuant to section 20-167, subsection H are
payment in full and in lieu of all other demands for all state, county, district,
municipal and school taxes, licenses and excises of whatever kind or character, except
for:
1. A tax on real and tangible personal property that is located within this state.
2. The transaction privilege tax and the use tax that is imposed pursuant to title
42, chapter 5, articles 1 and 4.
3. The transaction privilege tax and use tax that is imposed by any county, city or
town. 20-1098.18 Captive insurance regulatory and supervision fund; purpose
A. The captive insurance regulatory and supervision fund is established within the
department consisting of monies deposited pursuant to section 20-1098.01, subsection J.
The director shall administer the fund as prescribed in subsection B of this section.
Monies in the fund are exempt from the provisions of section 35-190 relating to lapsing
of appropriations, except that, on the close of each fiscal year, all unencumbered monies
in the fund exceeding one hundred thousand dollars revert to the state general fund.
B. The director shall use monies in the captive insurance regulatory and
supervision fund to pay the costs of administering this article and for reasonable
expenses incurred in promoting this state's captive insurance industry.
C. The department shall not receive a general fund appropriation for operation of
the captive insurance program and promotion of this state's captive insurance industry
for any fiscal year in which the department had at least twenty-five captive insurers
holding an active certificate of authority as of the immediately preceding calendar year
end. 20-1098 Definitions
In this article, unless the context otherwise requires:
1. "Affiliate" has the same meaning prescribed in section 20-481.
2. "Agency captive insurer" means a captive insurer that is owned by one or more
business entities that are licensed in any state as insurance producers or managing
general agents and that only insure risks on policies placed through their owners.
3. "Association" means any lawfully formed association of individuals, corporations
or partnerships that has been in existence for at least one year and that is organized
for a primary purpose other than insuring its members.
4. "Business entity" has the same meaning prescribed in section 20-281.
5. "Captive insurer" means any pure captive insurer, agency captive insurer, group
captive insurer or protected cell captive insurer that is domiciled in this state and
that is formed and licensed under this article.
6. "Controlled unaffiliated business" means a company that satisfies all of the
following:
(a) Is not an affiliate of the captive insurer providing coverage or reinsurance.
(b) Has an existing contractual relationship with an affiliate of the captive
insurer providing coverage or reinsurance out of which the subject risk of loss arises.
(c) Whose risk management function is controlled by an affiliate of the captive
insurer providing coverage or reinsurance.
7. "Group" means either:
(a) A risk retention group formed pursuant to section 20-2402 and either the
product liability risk retention act of 1981 (15 United States Code section 3901) or the
liability risk retention act of 1986 (P.L. 99-563).
(b) An industry group or association that directly or through its members satisfies
at least one of the following criteria:
(i) Owns or controls, or holds with power to vote, all outstanding voting
securities of a group captive insurer incorporated as a stock insurer.
(ii) Has complete voting control over a group captive insurer incorporated as a
mutual insurer.
(iii) Constitutes all of the subscribers of a group captive insurer formed as a
reciprocal insurer.
8. "Group captive insurer" means a captive insurer that insures only the risks of
the group members and their affiliates.
9. "Industry group" means two or more individuals or business entities that each:
(a) Procure the insurance of any risk or risks by use of the services of a
full-time employee or third party consultant acting as an insurance manager or buyer.
(b) Have aggregate annual premiums for insurance on all risks that total at least
twenty-five thousand dollars.
10. "Manager" means a person who is experienced in the field of captive insurance
and who maintains all documents relating to a captive insurer's operations, transactions
and affairs in this state and assists the captive insurer in its management and
compliance with this article.
11. "Participant" means an entity and any affiliates of the entity that are insured
by a protected cell captive insurer pursuant to a participant contract.
12. "Participant contract" means a contract by which a protected cell captive
insurer insures a participant's risks and limits the participant's losses to the assets
of the protected cell.
13. "Protected cell" means a separate account established and maintained by a
protected cell captive insurer for one participant.
14. "Protected cell captive insurer" means a captive insurer:
(a) In which the minimum capital and surplus required by applicable law is provided
by one or more sponsors.
(b) That is formed and licensed under this article.
(c) That insures the risks of separate participants through a contract.
(d) That segregates each participant's liability through one or more protected
cells.
15. "Pure captive insurer" means any company that insures risks of its affiliate or
controlled unaffiliated business.
16. "
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