Senate Study Bill 1099 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED DEPARTMENT OF COMMERCE/INSURANCE DIVISION BILL) A BILL FOR An Act establishing regulations to permit access to surplus 1 lines insurance in this state, and providing civil and 2 criminal penalties, coordinating provisions, and repeals, 3 and including effective date provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 1311DP (15) 84 av/nh

S.F. _____ H.F. _____ DIVISION I 1 SURPLUS LINES INSURANCE 2 Section 1. NEW SECTION . 515I.1 Purpose. 3 1. The purposes of this division are to do all of the 4 following: 5 a. Establish a system of regulation which will permit 6 orderly access to surplus lines insurance in this state. 7 b. Encourage admitted insurers to make new and innovative 8 types of insurance available to consumers in this state. 9 c. Protect persons seeking insurance in this state. 10 d. Permit surplus lines insurance to be placed with 11 reputable and financially sound nonadmitted insurers. 12 e. Provide a system through which persons may independently 13 procure surplus lines insurance. 14 f. Protect revenues of this state. 15 g. Foster a national system of regulation of surplus 16 lines insurance by collaborating with other state insurance 17 commissioners. 18 h. Provide a system which subjects surplus lines insurance 19 activities in this state to the jurisdiction of the insurance 20 commissioner and state and federal courts in suits by or on 21 behalf of the state. 22 2. This division shall be liberally construed to promote 23 these purposes. 24 Sec. 2. NEW SECTION . 515I.2 Definitions. 25 As used in this chapter, unless the context otherwise 26 requires: 27 1. “Admitted insurer” means an insurer licensed to do 28 insurance business in this state. 29 2. “Affiliate” means, with respect to an insurer, any entity 30 that controls, is controlled by, or is under common control 31 with the insurer. 32 3. “Affiliated group” means any group of entities that are 33 affiliates. 34 4. “Commercial insurance” means insurance for businesses or 35 -1- LSB 1311DP (15) 84 av/nh 1/ 22

S.F. _____ H.F. _____ professionals. 1 5. “Commissioner” means the commissioner of insurance, or 2 the commissioner’s designees. 3 6. “Control” means either of the following: 4 a. That an entity directly or indirectly, or acting through 5 one or more other persons, owns, controls, or has the power 6 to vote twenty-five percent or more of any class of voting 7 securities of another entity. 8 b. That an entity controls in any manner the election of a 9 majority of the directors or trustees of another entity. 10 7. “Eligible surplus lines insurer” means a nonadmitted 11 insurer that has filed an application with the commissioner 12 and been approved for placement of surplus lines insurance and 13 appears on the Iowa listing of nonadmitted companies. 14 8. “Exempt commercial purchaser” means any person purchasing 15 commercial insurance that, at the time of placement, meets all 16 of the following requirements: 17 a. The person employs or retains a qualified risk manager to 18 negotiate insurance coverage. 19 b. The person has paid aggregate nationwide commercial 20 property and casualty insurance premiums in excess of one 21 hundred thousand dollars in the immediately preceding twelve 22 months. 23 c. The person meets at least one of the following criteria: 24 (1) The person possesses a net worth in excess of twenty 25 million dollars except that beginning on January 1, 2015, and 26 on January 1 every five years thereafter, this amount shall be 27 adjusted to reflect the percentage change in the consumer price 28 index for all urban consumers for the most recent available 29 five-year period published by the United States department of 30 labor, bureau of labor statistics. 31 (2) The person generates annual revenues in excess of fifty 32 million dollars except that beginning on January 1, 2015, and 33 on January 1 every five years thereafter, this amount shall be 34 adjusted to reflect the percentage change in the consumer price 35 -2- LSB 1311DP (15) 84 av/nh 2/ 22

S.F. _____ H.F. _____ index for all urban consumers for the most recent available 1 five-year period published by the United States department of 2 labor, bureau of labor statistics. 3 (3) The person employs more than five hundred full-time or 4 full-time equivalent employees per individual insured or is a 5 member of an affiliated group employing more than one thousand 6 employees in the aggregate. 7 (4) The person is a nonprofit organization or public entity 8 generating annual budgeted expenditures of at least thirty 9 million dollars except that beginning on January 1, 2015, and 10 on January 1 every five years thereafter, this amount shall be 11 adjusted to reflect the percentage change in the consumer price 12 index for all urban consumers for the most recent available 13 five-year period published by the United States department of 14 labor, bureau of labor statistics. 15 (5) The person is a municipality with a population in excess 16 of fifty thousand persons. 17 9. “Home state” means: 18 a. Except as provided in paragraph “b” , with respect to an 19 insured either of the following: 20 (1) The state in which an insured maintains its principal 21 place of business or, in the case of an individual, the 22 individual’s principal residence. 23 (2) If one hundred percent of the insured risk is located 24 out of the state described in subparagraph (1), the state to 25 which the greatest percentage of the insured’s taxable premium 26 for that insurance policy or contract is allocated. 27 b. If more than one insured from an affiliated group is a 28 named insured on a single surplus lines insurance policy or 29 contract, the home state, as determined pursuant to paragraph 30 “a” , subparagraph (1), of the member of the affiliated group 31 that has the largest percentage of premium attributed to it 32 under such insurance policy or contract. 33 10. “Independently procured insurance” means insurance 34 obtained by a person directly from a nonadmitted insurer. 35 -3- LSB 1311DP (15) 84 av/nh 3/ 22

S.F. _____ H.F. _____ 11. “Insurer” means the same as defined in section 507.1, 1 subsection 2. 2 12. “Nonadmitted insurer” means an insurer not licensed to 3 do insurance business in this state. 4 13. “Person” means the same as defined in section 507.1, 5 subsection 2. 6 14. “Placement” or “placed” means that an eligible surplus 7 lines insurer has accepted a premium and issued an insurance 8 policy or contract for a particular risk. 9 15. “Premium tax” means the tax imposed by the state on 10 a contract of insurance equal to the applicable percent, as 11 provided in section 432.1. 12 16. “Qualified risk manager” means a person who meets all 13 of the following requirements: 14 a. The person is an employee of, or third party consultant 15 retained by a commercial insurance policyholder. 16 b. The person provides skilled services in loss prevention, 17 loss reduction, or risk and insurance coverage analysis, and 18 purchase of insurance. 19 c. The person meets one of the following requirements: 20 (1) The person has a bachelor’s degree from an accredited 21 college or university in risk management, business 22 administration, finance, economics, or any other field 23 determined by the commissioner to demonstrate minimum 24 competence in risk management; and meets both of the following 25 requirements: 26 (a) Has three years of experience in risk financing, claims 27 administration, loss prevention, risk and insurance coverage 28 analysis, or purchasing commercial lines of insurance. 29 (b) Has one of the following designations: 30 (i) Chartered property and casualty underwriter. 31 (ii) Associate in risk management. 32 (iii) Certified risk manager. 33 (iv) Risk and insurance management society fellow. 34 (v) Any other designation, certification, or license 35 -4- LSB 1311DP (15) 84 av/nh 4/ 22

S.F. _____ H.F. _____ determined by the commissioner to demonstrate minimum 1 competency in risk management. 2 (2) The person has at least seven years of experience in 3 risk financing, claims administration, loss prevention, risk 4 and insurance coverage analysis, or purchasing commercial lines 5 of insurance; and has any one of the designations specified in 6 subparagraph (1), subparagraph division (b). 7 (3) The person has at least ten years of experience in risk 8 financing, claims administration, loss prevention, risk and 9 insurance coverage analysis, or purchasing commercial lines of 10 insurance. 11 (4) The person has a graduate degree from an accredited 12 college or university in risk management, business 13 administration, finance, economics, or any other field 14 determined by the commissioner to demonstrate minimum 15 competence in risk management. 16 17. “Surplus lines insurance” means any property and 17 casualty insurance in this state on properties, risks, or 18 exposures, located or to be performed in this state, that is 19 placed through a surplus lines insurance producer with an 20 eligible surplus lines insurer. For purposes of this chapter 21 only, “surplus lines insurance” also includes disability 22 insurance that is in excess of policy limits available from an 23 admitted insurer. 24 18. “Surplus lines insurance producer” means a person 25 licensed pursuant to chapter 522B to sell, solicit, or 26 negotiate surplus lines insurance. 27 Sec. 3. NEW SECTION . 515I.3 Placement of surplus lines 28 insurance business with nonadmitted insurers. 29 1. Surplus lines insurance may be placed by a surplus lines 30 insurance producer with a nonadmitted insurer only if all of 31 the following requirements are met: 32 a. The proposed nonadmitted insurer is an eligible surplus 33 lines insurer. 34 b. The proposed nonadmitted insurer is authorized to write 35 -5- LSB 1311DP (15) 84 av/nh 5/ 22

S.F. _____ H.F. _____ the type of insurance sought in this state in its domiciliary 1 jurisdiction. 2 c. Unless otherwise exempt from this requirement, after a 3 diligent search the full amount or type of insurance cannot be 4 obtained from an admitted insurer. 5 d. All other requirements of this chapter are met. 6 2. a. In addition to the full amount of gross premiums 7 charged by the nonadmitted insurer for the insurance on which 8 a premium tax is imposed, a surplus lines insurance producer 9 shall collect and pay to the state of Iowa in a manner and 10 pursuant to a schedule as directed by the commissioner as 11 provided in section 515I.5, subsection 6, the appropriate 12 amount of premium tax as provided in section 432.1 for surplus 13 lines insurance. The commissioner shall adopt rules to specify 14 the use of credits or deductions that may be applied to the 15 premium tax. 16 b. If the surplus lines insurance covers properties, risks, 17 or exposures located or to be performed both in and outside of 18 this state, the surplus lines insurance producer shall allocate 19 the premium tax among the various states according to the 20 methods set forth in division II of this chapter. 21 c. The tax on any portion of the premium unearned at the 22 termination of the surplus lines insurance that has been 23 credited by the state shall be returned to the policyholder 24 directly by the surplus lines insurance producer. The surplus 25 lines insurance producer is prohibited from rebating, for any 26 reason, any part of the tax. 27 3. This section shall not apply to a person properly 28 licensed as an insurance producer, who, for a fee and pursuant 29 to a written agreement, is engaged solely to offer advice, 30 counsel, opinion, or service to an insured with respect to 31 the benefits, advantages, or disadvantages promised under 32 any proposed or in-force policy of insurance if the person 33 does not, directly or indirectly, participate in the sale, 34 solicitation, or negotiation of insurance on behalf of the 35 -6- LSB 1311DP (15) 84 av/nh 6/ 22

S.F. _____ H.F. _____ insured. 1 4. Insurance placed under this section shall be valid and 2 enforceable as to all parties. 3 Sec. 4. NEW SECTION . 515I.4 Requirements for eligible 4 surplus lines insurers. 5 1. When this state is the home state of the insured, a 6 nonadmitted insurer shall not place any surplus lines insurance 7 business in this state unless the insurer has been approved 8 for such activity by the commissioner. A nonadmitted insurer 9 seeking to qualify as an eligible surplus lines insurer shall 10 submit a request to so qualify in a form and format as directed 11 by the commissioner which demonstrates all of the following: 12 a. Capital and surplus or its equivalent under the laws of 13 the insurer’s domiciliary jurisdiction which equals the greater 14 of either of the following: 15 (1) The minimum capital and surplus requirements under the 16 laws of this state. 17 (2) Fifteen million dollars. 18 b. If the nonadmitted insurer is not domiciled in a state or 19 territory of the United States, verification of the insurer’s 20 listing on the national association of insurance commissioners 21 quarterly listing of alien insurers as maintained by the 22 national association of insurance commissioners international 23 insurers department. 24 c. Evidence that the nonadmitted insurer is in good standing 25 with its domiciliary regulator. 26 2. The commissioner may waive the requirements of this 27 section or set specific requirements on a case-by-case 28 basis upon an affirmative finding of acceptability by 29 the commissioner that the placement of insurance with the 30 nonadmitted insurer is necessary and will not be detrimental 31 to the public and to policyholders. In determining whether 32 business may be placed with a nonadmitted insurer, the 33 commissioner shall consider all of the following: 34 a. The interests of the public and policyholders. 35 -7- LSB 1311DP (15) 84 av/nh 7/ 22

S.F. _____ H.F. _____ b. The length of time the insurer has been licensed to 1 do insurance business in its domiciliary jurisdiction and 2 elsewhere. 3 c. The unavailability of particular coverages from other 4 admitted insurers or eligible surplus lines insurers in this 5 state. 6 d. The size of the nonadmitted insurer as measured by 7 the insurer’s assets, capital and surplus, reserves, premium 8 writings, insurance in force, or other appropriate criteria. 9 e. The kinds of business the nonadmitted insurer writes, the 10 insurer’s net exposure, and the extent to which the insurer’s 11 business is diversified among several lines of insurance and 12 geographic locations. 13 f. The past and projected trend in the size of the 14 nonadmitted insurer’s capital and surplus considering such 15 factors as premium growth, operating history, loss and expense 16 ratios, or other appropriate criteria. 17 3. Eligible surplus lines insurers shall not be required to 18 file or seek approval of their forms and rates. 19 Sec. 5. NEW SECTION . 515I.5 Duties of surplus lines 20 insurance producers. 21 1. A surplus lines insurance producer shall not issue 22 or deliver any evidence of insurance or purport to insure 23 or represent that insurance will be or has been written by 24 an eligible surplus lines insurer, unless the producer has 25 authority from the insurer to bind the risk to be insured, or 26 has received information from the insurer in the regular course 27 of business that the coverage has been granted. 28 2. Upon placement of surplus lines insurance, the surplus 29 lines insurance producer shall promptly deliver to the insured 30 the policy or contract, or if the policy or contract is not 31 then available, a certificate cover note, binder, or other 32 evidence of insurance. The certificate cover note, binder, 33 or other evidence of insurance shall contain information as 34 specified by the commissioner by rule. 35 -8- LSB 1311DP (15) 84 av/nh 8/ 22

S.F. _____ H.F. _____ 3. As soon as is reasonably possible after the placement 1 of the insurance, the surplus lines insurance producer shall 2 deliver a copy of the policy or contract or, if not available, 3 a certificate of insurance to the insured to replace any 4 evidence of insurance previously issued. Each policy or 5 contract or certificate of insurance shall contain or have 6 attached a complete record of all policy or contract insuring 7 agreements, conditions, exclusions, clauses, endorsements, or 8 any other material facts that would regularly be included in 9 the policy or contract. 10 4. If, after delivery of any evidence of insurance, there 11 is any change in the identity of the eligible surplus lines 12 insurer, or the proportion of the risk assumed by such insurer, 13 or any other material change in coverage as stated in the 14 original evidence of insurance, or in any other material change 15 as to the insurance coverage so evidenced, the surplus lines 16 insurance producer shall promptly issue and deliver to the 17 insured an appropriate substitute for, or endorsement of the 18 original document, accurately showing the current status of 19 the coverage and the surplus lines insurer responsible for the 20 coverage. 21 5. Each surplus lines insurance producer shall keep a 22 full and true record of each surplus lines insurance policy 23 or contract placed by an eligible surplus lines insurer and 24 issued or delivered by that person which covers risks wholly 25 or partly located or to be performed in this state. These 26 records and any other records deemed reasonably necessary by 27 the commissioner shall be made available to the commissioner 28 for examination upon request. Records shall be maintained for 29 a period of not less than five years following termination of 30 the surplus lines insurance policy or contract. 31 6. A surplus lines insurance producer shall file a report 32 and remit all premium taxes due to this state for all surplus 33 lines insurance placed by an eligible surplus lines insurer and 34 issued or delivered by that person during the reporting period 35 -9- LSB 1311DP (15) 84 av/nh 9/ 22

S.F. _____ H.F. _____ established by the commissioner. The specific requirements 1 for the timing of and content of the report and the manner of 2 filing shall be specified by the commissioner by rule. If 3 the commissioner elects to participate in a clearinghouse as 4 described in division II of this chapter, each surplus lines 5 insurance producer shall file reports and remit premium taxes 6 according to the guidelines of the clearinghouse. 7 Sec. 6. NEW SECTION . 515I.6 Actions against eligible 8 surplus lines insurers. 9 An eligible surplus lines insurer may be sued upon a cause of 10 action arising in this state under a surplus lines insurance 11 policy or contract placed by the insurer or upon evidence of 12 insurance placed by the insurer and issued or delivered in 13 this state by a surplus lines insurance producer. A policy 14 or contract issued by an eligible surplus lines insurer shall 15 contain a provision stating the substance of this section and 16 designating the person upon whom service of process can be made 17 on behalf of the insurer. 18 Sec. 7. NEW SECTION . 515I.7 Effect of payment to surplus 19 lines insurance producer. 20 A payment of premium to a surplus lines insurance producer 21 acting for a person other than the producer in procuring, 22 continuing, or renewing any policy or contract of surplus lines 23 insurance procured under this chapter shall be deemed to be 24 payment to the eligible surplus lines insurer, notwithstanding 25 any other conditions or stipulations that are inserted in the 26 policy or contract of insurance. 27 Sec. 8. NEW SECTION . 515I.8 Referrals to surplus lines 28 insurance producers. 29 A surplus lines insurance producer may accept referrals 30 to place surplus lines insurance from any other licensed 31 insurance producer and the surplus lines insurance producer may 32 compensate the referring insurance producer for the referral. 33 Sec. 9. NEW SECTION . 515I.9 Exempt commercial purchasers. 34 A surplus lines insurance producer seeking to procure or 35 -10- LSB 1311DP (15) 84 av/nh 10/ 22

S.F. _____ H.F. _____ place surplus lines insurance in this state for an exempt 1 commercial purchaser is not required to make a diligent search 2 to determine whether the full amount or type of insurance 3 sought by such exempt commercial purchaser can be obtained from 4 an admitted insurer if both of the following requirements are 5 met: 6 1. The surplus lines insurance producer has disclosed 7 to the exempt commercial purchaser that such insurance may 8 be available from an admitted insurer that may provide the 9 purchaser with greater protection and with more regulatory 10 oversight. 11 2. The exempt commercial purchaser has subsequently 12 requested in writing that the surplus lines insurance producer 13 place such insurance with an eligible surplus lines insurer. 14 Sec. 10. NEW SECTION . 515I.10 Independently procured 15 surplus lines insurance —— premium tax —— penalty. 16 1. A person who directly procures, continues, or renews a 17 surplus lines insurance policy or contract independently and 18 without using a surplus lines insurance producer on properties, 19 risks, or exposures located or to be performed in whole or in 20 part in this state shall file a written report regarding the 21 transaction with the commissioner, in a manner and method as 22 directed by the commissioner by rule. 23 2. Each person who has independently procured a surplus 24 lines insurance policy or contract shall pay a premium tax at 25 a rate appropriate to the amount of premium tax equal to the 26 applicable percent, as provided in section 432.1. The tax 27 shall be remitted via a method and schedule and in a manner as 28 directed by the commissioner by rule. 29 3. If an independently procured surplus lines insurance 30 policy or contract covers properties, risks, or exposures 31 only partially located or to be performed in this state, the 32 tax payable shall be computed on the portion of the premium 33 properly attributable to the properties, risks, or exposures 34 located or to be performed in this state. If the commissioner 35 -11- LSB 1311DP (15) 84 av/nh 11/ 22

S.F. _____ H.F. _____ has elected to participate in a clearinghouse as described in 1 division II of this chapter, reports and premium tax payments 2 shall be remitted according to clearinghouse procedures. 3 4. If the information provided to the commissioner is 4 insufficient to substantiate the method of computation, or if 5 the commissioner determines that the method of computation is 6 incorrect, the commissioner shall determine the equitable and 7 appropriate amount of tax due to this state. In making such a 8 determination, the commissioner shall consider any available 9 relevant information. 10 5. The commissioner may assess a penalty of one percent of 11 the delinquent amount of taxes owed per month as specified in 12 section 507A.9. 13 Sec. 11. NEW SECTION . 515I.11 Violations and penalties. 14 1. The commissioner may declare a surplus lines insurer 15 ineligible to place surplus lines insurance in the state if at 16 any time the commissioner has reason to believe that a surplus 17 lines insurer meets any of the following conditions: 18 a. Is in unsound financial condition or has acted in an 19 untrustworthy manner. 20 b. No longer meets the standards set forth in this chapter. 21 c. Has willfully violated the laws of this state. 22 d. Does not conduct its claims settlement practices in a 23 fair and reasonable manner. 24 e. Has committed an unfair or deceptive insurance trade 25 practice under chapter 507B. 26 2. The commissioner may suspend, revoke, or refuse to renew 27 the license of a surplus lines insurance producer or impose any 28 sanction or penalty allowed under chapter 507B after notice and 29 hearing for one or more of the following grounds: 30 a. Removal of the resident surplus lines insurance 31 producer’s principal place of business from this state without 32 notice to the commissioner. 33 b. Removal of the resident surplus lines insurance 34 producer’s office accounts and records from this state during 35 -12- LSB 1311DP (15) 84 av/nh 12/ 22

S.F. _____ H.F. _____ the period for which the accounts and records are required to 1 be maintained. 2 c. Closure of the surplus lines insurance producer’s 3 office for a period of more than thirty business days, unless 4 permission is granted by the commissioner. 5 d. Failure to file required reports with the commissioner 6 or the commissioner’s designee. 7 e. Failure to remit surplus lines insurance premium taxes to 8 this state as directed by the commissioner. 9 f. Violating any provision of this chapter. 10 g. For any cause for which an insurance producer license 11 could be denied, revoked, or suspended, or renewal refused or a 12 civil penalty imposed under chapter 522B. 13 3. The commissioner may initiate an administrative 14 proceeding against a surplus lines insurance producer for the 15 collection of unpaid premium taxes. The commissioner may 16 assess a penalty of one percent of the delinquent amount of 17 taxes owed per month as specified in section 507A.9 and any 18 other penalties allowed by law. 19 4. A person that represents or aids a nonadmitted insurer 20 in violation of this chapter shall be subject to criminal 21 penalties as set forth in section 507A.10. 22 Sec. 12. NEW SECTION . 515I.12 Cease and desist orders —— 23 civil and criminal penalties. 24 1. Upon a determination by the commissioner, after a 25 hearing conducted pursuant to chapter 17A, that a surplus lines 26 insurance producer, an eligible surplus lines insurer, or a 27 nonadmitted insurer has violated a provision of this chapter, 28 the commissioner shall reduce the findings of the hearing to 29 writing and deliver a copy of the findings to the producer 30 or insurer. The commissioner may issue an order requiring 31 the producer or insurer to cease and desist from engaging in 32 the conduct resulting in the violation and may assess a civil 33 penalty of not more than fifty thousand dollars against the 34 producer or insurer. 35 -13- LSB 1311DP (15) 84 av/nh 13/ 22

S.F. _____ H.F. _____ 2. a. Upon a determination by the commissioner that a 1 surplus lines insurance producer, an eligible surplus lines 2 insurer, or a nonadmitted insurer has engaged, is engaging, 3 or is about to engage in any act or practice constituting a 4 violation of this chapter or a rule adopted or order issued 5 under this chapter, the commissioner may issue a summary order, 6 including a brief statement of findings of fact, conclusions 7 of law, and policy reasons for the decision, and directing the 8 producer or insurer to cease and desist from engaging in the 9 act or practice or to take other affirmative action as is in 10 the judgment of the commissioner necessary to comply with the 11 requirements of this chapter. 12 b. A surplus lines insurance producer, an eligible surplus 13 lines insurer, or a nonadmitted insurer to whom a summary order 14 has been issued under this subsection may contest the order by 15 filing a request for a contested case proceeding and hearing as 16 provided in chapter 17A and in accordance with rules adopted by 17 the commissioner. However, the producer or insurer shall have 18 at least thirty days from the date that the order is issued in 19 order to file the request. Section 17A.18A is inapplicable to 20 a summary order issued under this subsection. If a hearing 21 is not timely requested, the summary order becomes final by 22 operation of law. The order shall remain effective from the 23 date of issuance until the date the order becomes final by 24 operation of law or is overturned by a presiding officer or 25 court following a request for hearing. 26 c. A surplus lines insurance producer, an eligible surplus 27 lines insurer, or a nonadmitted insurer violating a summary 28 order issued under this subsection shall be deemed in contempt 29 of that order. The commissioner may petition the district 30 court to enforce the order as certified by the commissioner. 31 The district court shall find the producer or insurer in 32 contempt of the order if the court finds after hearing that 33 the producer or insurer is not in compliance with the order. 34 The court may assess a civil penalty against the producer or 35 -14- LSB 1311DP (15) 84 av/nh 14/ 22

S.F. _____ H.F. _____ insurer and may issue further orders as it deems appropriate. 1 3. A person acting as a surplus lines insurance producer, 2 an eligible surplus lines insurer, or nonadmitted insurer who 3 willfully violates any provision of this chapter, or any rule 4 adopted or order issued under this chapter, is guilty of a 5 class “D” felony. 6 4. A person acting as a surplus lines insurance producer, 7 an eligible surplus lines insurer, or nonadmitted insurer who 8 willfully violates any provision of this chapter, or any rule 9 adopted or order issued under this chapter, when such violation 10 results in a loss of more than ten thousand dollars, is guilty 11 of a class “C” felony. 12 5. The commissioner may refer such evidence as is available 13 concerning violations of this chapter or of any rule adopted 14 or order issued under this chapter, or of the failure of a 15 person to comply with the licensing requirements of chapter 16 522B, to the attorney general or the proper county attorney who 17 may, with or without such reference, institute the appropriate 18 criminal proceedings under this chapter. 19 6. This chapter does not limit the power of the state to 20 punish any person for any conduct that constitutes a crime 21 under any other statute. 22 Sec. 13. NEW SECTION . 515I.13 Insurance policy or contract 23 remains valid. 24 A policy or contract of insurance issued or delivered by an 25 eligible surplus lines insurer or a nonadmitted insurer which 26 is otherwise valid and contains a condition or provision not 27 in compliance with the requirements of this chapter is not 28 thereby rendered invalid but shall be construed and applied in 29 accordance with the conditions and provisions which would have 30 applied had the policy or contract been issued or delivered in 31 full compliance with this chapter. 32 Sec. 14. NEW SECTION . 515I.14 Severability. 33 If any provision of this chapter, or the application of the 34 provision of this chapter to any person or circumstance, is 35 -15- LSB 1311DP (15) 84 av/nh 15/ 22

S.F. _____ H.F. _____ held invalid, the remainder of the chapter and the application 1 of the provision to persons or circumstances other than those 2 as to which it is held invalid, shall not be affected by that 3 holding. 4 Sec. 15. NEW SECTION . 515I.31 Purpose. 5 1. The purpose of this division is to establish a mechanism 6 by which a surplus lines insurance producer or insured shall 7 allocate premiums and pay premium taxes where placement of 8 surplus lines insurance covers properties, risks, or exposures 9 located or to be performed in multiple states. 10 2. This division shall be liberally construed and applied 11 to promote its underlying purposes which include all of the 12 following: 13 a. To require a surplus lines insurance producer or an 14 insured, under certain circumstances, to collect the entire 15 amount of premium tax due on a multistate risk as assessed 16 by all impacted states where a placement of surplus lines 17 insurance covers properties, risks, or exposures located or to 18 be performed in more than one state. 19 b. To facilitate payment of surplus lines insurance premium 20 taxes on surplus lines insurance placed through surplus lines 21 insurance producers on risks located or to be performed solely 22 in this state. 23 c. To facilitate payment of premium taxes by an insured 24 that has independently procured surplus lines insurance in this 25 state for a single state or multistate risk. 26 d. To allow for the imposition of a filing fee by a 27 clearinghouse. 28 Sec. 16. NEW SECTION . 515I.32 Participation in a 29 clearinghouse. 30 1. The commissioner is authorized to participate in a 31 national clearinghouse to facilitate the filing of reports and 32 collection of surplus lines insurance premium taxes for insured 33 risks located solely in this state or in multiple states. 34 Any such clearinghouse shall be maintained by the national 35 -16- LSB 1311DP (15) 84 av/nh 16/ 22

S.F. _____ H.F. _____ association of insurance commissioners or its affiliates or 1 subsidiaries, or an entity endorsed by the association. 2 2. Pursuant to the federal Dodd-Frank Wall Street Reform 3 and Consumer Protection Act, Pub. L. No. 111-203, also known as 4 the Nonadmitted and Reinsurance Reform Act, the commissioner is 5 authorized to collect or require the collection of the entire 6 amount of premium taxes due to all states for a multistate risk 7 which is partially located or to be performed in this state and 8 the remittance of surplus lines insurance premium tax payments 9 to a clearinghouse as described in subsection 1 for delivery to 10 another state, that are attributable to properties, risks, or 11 exposures located or to be performed in that state. 12 3. The commissioner is authorized to impose reasonable 13 filing fees for reports and tax payments made through 14 the clearinghouse to defray the costs of operation of the 15 clearinghouse. 16 Sec. 17. NEW SECTION . 515I.33 Collection and allocation of 17 surplus lines insurance premium taxes on multistate risks. 18 1. In determining the amount of surplus lines insurance 19 premiums taxable in this state, all premiums written, procured, 20 or received in this state for such insurance shall be presumed 21 to be written on properties, risks, or exposures located or 22 to be performed in this state unless a report is filed by the 23 surplus lines insurance producer or insured which indicates 24 that the risk includes properties, risks, or exposures located 25 or to be performed in more than one state. 26 2. If a surplus lines insurance policy or contract covers 27 properties, risks, or exposures located or to be performed 28 in more than one state, the premium tax to be paid to the 29 commissioner of each state shall be computed on that portion 30 of the policy or contract premium that is attributable to 31 properties, risks, or exposures located or to be performed in 32 each state. The surplus lines insurance producer or insured 33 shall determine the amount of premium taxes due by allocating 34 the total premium among the states according to a method 35 -17- LSB 1311DP (15) 84 av/nh 17/ 22

S.F. _____ H.F. _____ specified by the commissioner by rule. If the information 1 provided by the surplus lines insurance producer or insured is 2 insufficient to substantiate the method of allocation used, or 3 if the commissioner determines that the method of allocation 4 used is incorrect, the commissioner shall determine the 5 equitable and appropriate amount of tax due to this state. In 6 making such a determination, the commissioner shall consider 7 any available relevant information. 8 Sec. 18. NEW SECTION . 515I.34 Rulemaking authority. 9 The commissioner shall adopt rules pursuant to chapter 17A 10 to implement the purposes of this chapter. 11 DIVISION II 12 COORDINATING PROVISIONS 13 Sec. 19. Section 507A.4, subsection 1, Code 2011, is amended 14 to read as follows: 15 1. The lawful transaction of surplus lines insurance as 16 permitted by sections 515.120 through 515.122 chapter 515I . 17 Sec. 20. Section 515E.9, Code 2011, is amended to read as 18 follows: 19 515E.9 Purchasing group restrictions. 20 A purchasing group shall not purchase insurance from an 21 insurer not admitted in this state unless the purchase is 22 effected through a duly licensed agent or broker insurance 23 producer acting pursuant to sections 515.120 through 24 515.122 chapter 515I . 25 Sec. 21. Section 522B.6, subsection 2, paragraph g, Code 26 2011, is amended to read as follows: 27 g. Excess and surplus lines insurance provided by certain 28 nonadmitted insurers pursuant to section 515.120 chapter 515I . 29 Sec. 22. REPEAL. Sections 515.120 through 515.122, Code 30 2011, are repealed. 31 Sec. 23. CODE EDITOR’S DIRECTIVE. The Code editor is 32 directed to designate sections 515I.1 through 515I.30 as 33 division I of chapter 515I captioned as “Surplus lines 34 insurance” and to designate sections 515I.31 through 515I.34 as 35 -18- LSB 1311DP (15) 84 av/nh 18/ 22

S.F. _____ H.F. _____ division II of chapter 515I captioned as “Allocation of premium 1 tax on multistate risks”. 2 Sec. 24. EFFECTIVE UPON ENACTMENT. This Act, being deemed 3 of immediate importance, takes effect upon enactment. 4 EXPLANATION 5 This bill establishes new regulations to permit increased 6 access to surplus lines insurance in the state, allows the 7 allocation of premiums and payment of premium taxes on such 8 insurance that is written on multistate risks, allows the 9 commissioner of insurance to participate in a national 10 clearinghouse in regards to the sale of such insurance, and 11 contains penalties, coordinating provisions, repeals, and 12 effective date provisions. 13 The bill creates new Code chapter 515I which is divided into 14 division I and division II. Division I of Code chapter 515I 15 contains regulations that permit the sale of surplus lines 16 insurance in the state by insurers who are not licensed to 17 do insurance business in the state. Such insurers shall be 18 listed as eligible surplus lines insurers if they meet the 19 requirements of the Code chapter and are approved to sell such 20 insurance by the commissioner of insurance. 21 Surplus lines insurance producers that are licensed pursuant 22 to Code chapter 522B to sell, solicit, or negotiate surplus 23 lines insurance are also subject to new regulations and must 24 file reports and remit premium taxes to the state for all 25 surplus lines insurance sold or delivered by the producer, as 26 required by the commissioner by rule. A payment of premium to 27 a producer is deemed to be payment to the insurer. 28 Surplus lines insurance producers may sell insurance issued 29 by an insurer that is not admitted to do business in this 30 state if the insurer is an eligible surplus lines insurer, the 31 insurer is authorized to write the type of insurance being sold 32 in its domiciliary jurisdiction, and a diligent search by the 33 producer indicates that the type of insurance being sold cannot 34 be obtained from an insurer admitted to do insurance business 35 -19- LSB 1311DP (15) 84 av/nh 19/ 22