Sections 27-6B-2 to 27-6B-6, inclusive, of this chapter may be cited as the 'Alabama Business Transacted With Producer Controlled Property and Casualty Insurer Law.'
As used in this chapter, the following terms shall have the following meanings, respectively, unless the context clearly indicates otherwise:
(1) ACCREDITED STATE. A state in which the Department of Insurance meets the minimum financial qualifications and regulatory standards promulgated and established, from time to time, by the National Association of Insurance Commissioners.
(2) COMMISSIONER. The Commissioner of Insurance.
(3) CONTROL or CONTROLLED. The same as defined in subsection (3) of Section 27-29-1.
(4) CONTROLLED INSURER. A licensed insurer who is controlled, directly or indirectly, by a producer.
(5) CONTROLLING PRODUCER. A producer who, directly or indirectly controls an insurer.
(6) LICENSED INSURER or INSURER. Any person, firm, association, or corporation duly licensed to transact a property and casualty insurance business in this state. For the purposes of this chapter the following are not licensed insurers:
a. A risk retention group as defined in the Superfund Amendments Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (1986) and the Risk Retention Act (commencing with Section 3901 of Title 15, U.S.C., 1982 and 1986 of Supp. to Title 15, U.S.C.).
b. A residual market pool and a joint underwriting authority or association.
c. A captive insurer, which, for the purposes of this chapter, is an insurance company owned by another organization whose exclusive purpose is to insure risks of the parent organization and any affiliated company or, in the case of any group and association, an insurance organization owned by the insured whose only purpose is to insure risks to any member-organization, group member or affiliate of the member.
(7) PRODUCER. An insurance broker or brokers or any other person, firm, association, or corporation, when, for any compensation, commission, or other thing of value, the person, firm, association, or corporation acts or aids in any manner in soliciting, negotiating, or procuring the making of any insurance contract on behalf of another insured person, firm, association, or corporation. The term is not intended to include an exclusive agent or any independent agent acting on behalf of the controlled insurer and any subagent or representative of the agent, who acts in the solicitation of, negotiation for, or procurement or making of an insurance contract, if the agent is not also acting in the capacity of an insurance broker in the transaction in question.
This chapter shall apply to any licensed insurer as defined in Section 27-6B-2, either domiciled in this state or domiciled in a state that is not an accredited state but having in effect a substantially similar law. The Alabama Insurance Holding Company System Regulatory Act, Chapter 29 (commencing with Section 27-29-1) of Title 27, to the extent it is not superseded by this chapter, shall continue to apply to all parties within holding company systems subject to this chapter.
(a) Unless there is a written contract between the controlling producer and the insurer approved by the board of directors of the insurer and specifying the responsibilities of each party, a controlled insurer shall not accept business from a controlling producer and a controlling producer shall not place business with a controlled insurer. The contract between a controlling producer and a controlled insurer shall, as a minimum, contain the following:
(1) A provision that, upon written notice to the controlling producer, the controlled insurer may terminate the contract for cause. The controlled insurer shall suspend the authority of the controlling producer to write business during any pending dispute regarding the cause for the termination.
(2) A provision requiring the controlling producer to give a detailed accounting to the controlled insurer on any material transaction, including information necessary to support all commissions, charges, and other fees received by, or owing to, the controlling producer.
(3) A provision requiring the controlling producer to send all funds due, under the terms of the contract, to the controlled insurer on at least a monthly basis. The contract shall require the due date to be fixed so that premiums or any installment collected are remitted no later than ninety days after the effective date of any policy placed with the controlled insurer under the contract.
(4) A provision requiring all funds collected for the account of the controlled insurer to be held by the controlling producer in a fiduciary capacity, in one or more appropriately identified bank accounts in a bank that is a member of the Federal Reserve System, in accordance with any applicable insurance law. Funds of a controlling producer, not required to be licensed in this state, shall be maintained in compliance with the requirements of the domiciliary jurisdiction of the controlling producer.
(5) A provision requiring the controlling producer to maintain separate identifiable records of business written for the controlled insurer.
(6) A provision prohibiting the controlling producer from assigning the contract in whole or in part.
(7) A provision that the rates and terms of the commissions, charges, and other fees of the controlling producer shall be no greater than those applicable to comparable business placed with the controlled insurer by producers other than controlling producers. For purposes of this subsection and subsection (d), examples of 'comparable business' includes the same lines of insurance, the same kinds of insurance, the same kinds of risks, similar policy limits, and similar quality of business.
(8) A provision that if the contract provides that the controlling producer, on insurance business placed with the insurer, is to be compensated contingent upon the insurer's profits on that business, the compensation shall not be determined and paid until at least five years after the premiums on liability insurance are earned and at least one year after the premiums are earned on any other insurance. In no event may the commissions be paid until the adequacy of the controlled insurer's reserves on remaining claims has been independently verified pursuant to the reporting requirements of subsection (f).
(9) A provision that the insurer may establish a different limit for each line or sub-line of business written by the controlling producer. The controlled insurer shall notify the controlling producer when the limit is approached and shall not accept business from the controlling producer if the limit is reached. The controlling producer shall not place business with the controlled insurer if it has been notified by the controlled insurer that the limit has been reached.
(10) A provision that the controlling producer may negotiate but may not bind reinsurance on behalf of the controlled insurer on business the controlling producer places with the controlled insurer, except that the controlling producer may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the controlled insurer contains underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which the automatic agreements are in effect, the coverages, and amounts, or percentages that may be reinsured, and commission schedules.
(11) The controlled insurer shall provide the controlling producer with its underwriting standards, rules, and procedures, and manuals setting forth the rates to be charged, and the conditions for the acceptance or rejection of risks. The controlling producer shall adhere to the standards, rules, procedures, rates, and conditions. The standards, rules, procedures, rates, and conditions shall be the same as those applicable to comparable business placed with the controlled insurer by a producer other than the controlling producer.
(b) This section shall apply if, in any calendar year, the aggregate amount of gross written premium on business placed with a controlled insurer by a controlling producer is equal to or greater than five percent of the admitted assets of the controlled insurer, as reported by the controlled insurer in the quarterly statement filed as of September 30 of the year immediately preceding.
(c) This section shall not apply if:
(1) The controlling producer:
a. Places insurance only with the controlled insurer, or only with the controlled insurer and one or more members of the holding company system of the controlled insurer, or only with the parent, affiliate, or subsidiary of the controlled insurer and receives no compensation based upon the amount of premium written in connection with the insurance, and
b. Accepts insurance placements only from non-affiliated subproducers and not directly from insureds, and
(2) The controlled insurer, except for insurance business written through a residual market facility such as the Automobile Assigned Risk Plan, accepts insurance business only from a controlling producer, a producer controlled by the controlled insurer, or a producer that is a subsidiary of the controlled insurer.
(e) Each controlled insurer shall have an audit committee of the board of directors composed of independent directors. The audit committee shall annually meet with management, the insurer's independent certified public accountants, and an independent casualty actuary, or other independent loss reserve specialist acceptable to the commissioner to review the adequacy of the insurer's loss reserves.
(f) The controlled insurer shall report the following:
(1) In addition to any other required loss reserve certification, the controlled insurer shall annually, on April 1 of each year, file with the commissioner an opinion of an independent casualty actuary (or other independent loss reserve specialist acceptable to the commissioner) reporting loss ratios for each line of business written and attesting to the adequacy of loss reserves established for losses incurred and outstanding as of year-end (including incurred but not reported) on business placed by the producer.
(2) At least annually, the controlled insurer shall report to the commissioner, the amount of the commissions to be paid to the producer, the percentage the amount represents of the net premiums written, and comparable amounts and percentage paid to noncontrolling producers for placements of the same kinds of insurance.
The producer, prior to the effective date of the policy, shall deliver written notice to the prospective insured disclosing the relationship between the producer and the controlled insurer. Except that, if the business is placed through a subproducer who is not a controlling producer, the controlling producer shall retain records of a signed commitment from the subproducer that the subproducer is aware of the relationship between the insurer and the producer and that the subproducer has or will notify the insured.
(a) If the commissioner believes that the controlling producer or any other person has not materially complied with this chapter, or any regulation or order promulgated hereunder, after notice and opportunity to be heard, the commissioner may order the controlling producer to cease placing business with the controlled insurer.
(b) If it was found that because of the material non-compliance that the controlled insurer or any policyholder thereof has suffered any loss or damage, the commissioner may maintain a civil action or intervene in an action brought by or on behalf of the insurer or policyholder for recovery of compensatory damages for the benefit of the insurer or policyholder, or other appropriate relief.
(c) If an order for liquidation or rehabilitation of the controlled insurer has been entered, pursuant to Chapter 32 of Title 27, and the receiver appointed under that order believes that the controlling producer or any other person has not substantially complied with this chapter, or any regulation or order promulgated under this chapter, and the insurer suffers any loss or damage because of the noncompliance, the receiver may maintain a civil action for recovery of damages or other appropriate sanctions or remedies for the benefit of the insurer.
(d) Nothing contained in this section shall affect the right of the commissioner to impose any other penalties provided for in the insurance law.
(e) This chapter shall be construed to preserve the rights of policyholders, claimants, creditors, or other third parties.