Title 20 — Insurance

Chapter 1 General Provisions

Article 1 Scope of Title

§ 20-101 Department of insurance and financial institutions; definition

A. The department of insurance and financial institutions is established and shall be administered by the director of the department of insurance and financial institutions.

B. The department shall be known as "DIFI".

C. In this title, unless the context otherwise requires, "commission" or "department" means the department of insurance and financial institutions.

§ 20-101.01 Deputy director

The director shall appoint a deputy director of the insurance division of the department to assist the director with the execution of the laws of this state relating to insurance. The deputy director serves at the pleasure of the director and reports directly to the director.

§ 20-102 Definition of director

In this title, title 6, title 32, chapters 9 and 36, title 41, chapter 31 and title 44, chapter 2.1, unless the context otherwise requires:

1. "Director" or "administrator" means the director of the department of insurance and financial institutions.

2. When used with reference to a member of the governing body of an insurer, director includes trustee.

§ 20-103 Definition of insurance; exceptions

A. For the purposes of this title, except as otherwise provided, "insurance" is a contract by which one undertakes to indemnify another or to pay a specified amount on determinable contingencies.

B. Private ambulance service contracts or private fire protection service contracts are not insurance, and this title does not apply to those contracts.

C. Charitable gift annuities that are issued pursuant to section 20-119 are not insurance and, except as provided in section 20-119, this title does not apply to agreements for those annuities.

D. Collision damage waivers are not insurance, and this title does not apply to those waivers.

E. Direct primary care agreements as defined in section 44-1799.91 are not insurance, and this title does not apply to those agreements.

F. Guaranteed asset protection waivers are not insurance, and this title does not apply to those waivers. For the purposes of this subsection, "guaranteed asset protection waiver" means a contractual agreement that is a part of or an addendum to a borrower's finance agreement wherein a creditor agrees for a separate charge to cancel or waive all or part of the amount due on the borrower's finance agreement in the event of a total physical damage loss or unrecovered theft of a motor vehicle.

§ 20-104 "Insurer" defined

"Insurer" includes every person engaged in the business of making contracts of insurance.

§ 20-105 "Person" defined

"Person" includes an individual, company, insurer, association, organization, society, reciprocal or inter-insurance exchange, partnership, syndicate, business trust, corporation and entity.

§ 20-106 Acts constituting the transaction of business; definition

A. "Transact" with respect to insurance includes any of the following:

1. Solicitation and inducement.

2. Preliminary negotiations.

3. Effectuation of a contract of insurance.

4. Transaction of matters subsequent to effectuation of the contract and arising out of it.

B. Any of the following acts in this state effected by mail or otherwise, by or on behalf of an unauthorized insurer, is deemed to constitute the transaction of an insurance business in this state:

1. The making of or proposing to make, as an insurer, an insurance contract.

2. The making of or proposing to make, as guarantor or surety, any contract of guaranty or suretyship as a vocation and not merely incidental to any other legitimate business or activity of the guarantor or surety.

3. The taking or receiving of any application for insurance.

4. The receiving or collection of any premium, commission, membership fees, assessments, dues or other consideration for any insurance or any part thereof.

5. The issuance or delivery of contracts of insurance to residents of this state or to persons authorized to do business in this state.

6. Directly or indirectly acting as an insurance producer or agent for or otherwise representing or aiding on behalf of another any person or insurer in the solicitation, negotiation, procurement or effectuation of insurance or renewals thereof or in the dissemination of information as to coverage or rates, or forwarding of applications, or delivery of policies or contracts, or inspection of risks, a fixing of rates or investigation or adjustment of claims or losses or in the transaction of matters subsequent to effectuation of the contract and arising out of it, or in any other manner representing or assisting a person or insurer in the transaction of insurance with respect to subjects of insurance resident, located or to be performed in this state. The provisions of this paragraph shall not operate to prohibit full-time salaried employees of a corporate insured from acting in the capacity of an insurance manager or buyer in placing insurance in behalf of such employer.

7. The transaction of any kind of insurance business specifically recognized as transacting an insurance business within the meaning of the statutes relating to insurance.

8. The transacting or proposing to transact any insurance business in substance equivalent to any provisions as provided in paragraphs 1 through 7 of this subsection in a manner designed to evade the laws of this state.

C. In this section, unless the context otherwise requires, "insurer" includes all corporations, associations, partnerships and individuals engaged as principals in the business of insurance and also includes interinsurance exchanges and mutual benefit societies.

§ 20-107 Limitation on transaction of insurance; exception

A. No person shall transact a business of insurance in this state, or relative to a subject of insurance resident, located or to be performed in this state, without complying with the applicable provisions of this title.

B. No provision of this title shall be deemed to require any license or other authority, or impose any penalty or requirement except as provided by section 20-421, of or upon any person for negotiation or procurement of insurance by him upon his own insurable interests, with or from an insurer not authorized to transact insurance in this state.

§ 20-108 Types of insurers excepted

This title does not apply with respect to:

1. Hospital and medical service corporations, except as stated in chapter 4, article 3 of this title.

2. Fraternal benefit societies and associations or orders as defined in section 20-861, except as stated in chapter 4, article 4 of this title.

3. Extended warranty insurers who comply with the bond requirements of section 20-108.01. For the purposes of this paragraph "extended warranty insurer" means any insurer as otherwise defined by this title that does not manufacture, sell or service radio, television or sound reproduction equipment and that:

(a) For a premium charged, not greater than twenty dollars per annum, nor greater than a three-year term, provides a nonrenewable warranty, guaranty or service contract on radio, television or sound reproduction equipment in addition to, or as an extension of, any warranty, guaranty or service provided by the manufacturer of such equipment.

(b) Is not otherwise authorized to transact property or casualty insurance business in this state or any other governmental jurisdiction.

(c) Is not owned or controlled in any degree nor to any extent by a person, persons or business otherwise authorized to transact property or casualty insurance business in this state or any other state or jurisdiction.

(d) Has gross sales in this state not exceeding one hundred thousand dollars annually.

(e) Has maximum contractual contingent liability not exceeding three hundred thousand dollars in this state.

§ 20-108.01 Extended warranty insurers; deposit with state treasurer; powers and duties; definition

A. Every extended warranty insurer shall deposit with the state treasurer and maintain on deposit for the benefit and protection of any person purchasing such extended warranty or guaranty in the event of insolvency of the extended warranty insurer under its contract with any such person either of the following:

1. A bond in the amount of $25,000 issued by an insurance company holding a current certificate of authority issued by the director.

2. Eligible securities as defined in section 20-583 having the lesser of par or market value of not less than $25,000.

B. The director may adopt rules and regulations to enforce this section.

C. For the purposes of this section, "extended warranty insurer" has the same meaning prescribed in section 20-108.

§ 20-109 Existing licenses

A. The expiration dates of certificates of authority and licenses in force immediately prior to January 1, 1955 and lawfully existing under any law repealed by Laws 1954, chapter 64, article 29, are extended as follows:

1. Licenses or certificates of authority of insurers shall expire on April 1, 1955.

2. Licenses or certificates of authority of agents, brokers and solicitors shall expire at midnight on June 30, 1955.

B. Any such expired license or certificate may be renewed, and shall be subject to suspension or revocation, as though originally issued under this title.

§ 20-110 Secondary sources

A secondary source on insurance, including any legal treatise, scholarly publication, textbook or other explanatory text, does not constitute the law or public policy of this state and is not authoritative if the secondary source purports to create, eliminate, expand or restrict a cause of action, right or remedy or if it conflicts with any of the following:

1. The United States Constitution or the Arizona Constitution.

2. State law.

3. This state's case law precedent.

4. Other common law that may have been adopted by this state.

§ 20-111 Health insurers; savings incentive programs; definitions

A. A health insurer may establish a program that provides a savings incentive for enrollees for medically necessary covered health care services that health care providers and health care facilities provide at a price that is below the health insurer's usual reimbursement.

B. The program may enable an eligible enrollee who receives covered health care services from a health care provider or health care facility at a price below the health insurer's usual reimbursement to have the amount the enrollee pays applied toward the enrollee's deductible and out-of-pocket maximum and be reimbursed for a portion of the amount of the difference between the price the enrollee paid and the health insurer's usual reimbursement.

C. For the purposes of this section:

1. "Health care facility" means a hospital, outpatient surgical center, health care laboratory, diagnostic imaging center or urgent care center.

2. "Health care provider" has the same meaning prescribed in section 32-3216.

3. "Health insurer" has the same meaning prescribed in section 32-3216.

4. "Usual reimbursement" means the amount the health insurer would ordinarily pay an in-network health care provider or an in-network health care facility for the service.

§ 20-112 Existing actions or violations

Repeal by this title of any law shall not affect or abate any right accrued, action or proceeding commenced, or any unlawful act committed under such law, prior to January 1, 1955, and punishment or deprivation of license or authority as a consequence thereof as provided by such laws, but all proceedings taken on or after January 1, 1955 with respect thereto shall conform to the applicable provisions of this code insofar as possible. All such laws shall be deemed to continue in force to the extent made necessary by this provision.

§ 20-113 Construction of particular and general provisions

Provisions of this title relative to a particular kind of insurance or a particular type of insurer or to a particular matter shall prevail over provisions relating to insurance in general or insurers in general or to such matter in general.

§ 20-114 Violations; classification

In addition to any other penalty applicable thereto, either under this title or otherwise, violation of any provision of this title is a class 2 misdemeanor and shall be punishable as such where no other penalty is provided therefor.

§ 20-115 Department jurisdiction over certain health care providers; exception; examination; disclosure

A. Any person or other entity, including a provider sponsored organization that operates 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), that provides coverage in this state for medical, surgical, chiropractic, naturopathic medicine, occupational therapy, physical therapy, speech pathology, audiology, professional mental health, dental, hospital or optometric expenses, whether the coverage is by direct payment, reimbursement or otherwise, is presumed to be subject to the jurisdiction of the department unless the person or other entity shows that while providing coverage it is subject to the jurisdiction of another agency of this state, any political subdivision of this or any other state or the federal government.

B. A person or entity that provides coverage for services identified in subsection A may show that it is subject to the jurisdiction of another agency of this state, any political subdivision of this or any other state or the federal government by providing to the director the appropriate certificate, license or other document that is issued by the other governmental agency and that permits or qualifies it to provide those services.

C. Any person or entity that provides coverage in this state for services described in subsection A and is unable to show it is subject to the jurisdiction of another agency of this state, any political subdivision of this or any other state or the federal government:

1. Shall submit to an examination by the director to determine the organization and solvency of the person or the entity and to determine whether or not the person or entity is in compliance with the applicable provisions of this title.

2. Is subject to all appropriate provisions of this title regarding the conduct of its business.

D. Any production agency or administrator which advertises, sells, transacts or administers coverage in this state for services described in subsection A which is provided by any person or entity described in subsection C, if that coverage is not fully insured or otherwise fully covered by an admitted life or disability insurer, nonprofit hospital service plan or nonprofit health care plan, shall advise any purchaser, prospective purchaser or covered person of the lack of insurance or other coverage.

E. Any administrator which advertises or administers coverage in this state for services described in subsection A which is provided by any person or entity described in subsection C shall advise any production agency of the elements of the coverage including the amount of stop-loss insurance in effect.

F. This section does not apply to or prohibit a self-insured program operated by a single employer for the benefit of its employees or the employees of a wholly-owned subsidiary.

§ 20-116 Surety bonds; cash deposit as alternative

Any provision in this title that requires a person to post a surety bond to guarantee the performance of a legal obligation is subject to the provisions of section 35-155 pertaining to accepting a cash deposit as an alternative to a surety bond.

§ 20-117 Definitions

In this title, unless the context otherwise requires:

1. "Deliver" means to cause to be provided, sent or handed over to the intended recipient.

2. "Health care services organization" has the same meaning prescribed in section 20-1051.

3. "Private passenger motor vehicle" means any vehicle that is rated or insured under a family automobile policy, standard automobile policy, personal automobile policy or similar private passenger automobile policy written for personal use, including use by an insured of a motor vehicle in the course of the insured's volunteer work for a tax-exempt organization as described in section 501(c)(3) of the internal revenue code, as opposed to a motor vehicle rated or insured under a commercial automobile policy.

4. "Send", "sending" or "sent" means to deliver by United States mail, personal delivery or fax or by electronic means consistent with the requirements of section 20-239.

5. "Volunteer work" means work performed without compensation other than reimbursement of actual expenses incurred, or disbursement of meals or other incidental benefits.

§ 20-118 Prohibition; definitions

A. A person subject to this title shall not 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.

B. A person subject to this title shall not terminate a contract with or refuse to renew a contract with a health care professional solely because the health care professional in good faith does any of the following:

1. Advocates in private or in public on behalf of a patient.

2. Assists a patient in seeking reconsideration of a decision made by the person to deny coverage for a health care service.

3. Reports a violation of law to an appropriate authority.

C. For the purposes of this section:

1. "Contract" means a written contract under which a licensed health care professional agrees to provide specified health care services to covered persons. Contract does not include a contract of salaried employment.

2. "Health care professional" has the same meaning prescribed in section 20-3151.

3. "Person" includes a service corporation subject to chapter 4, article 3 of this title and a health care services organization subject to chapter 4, article 9 of this title.

§ 20-119 Charitable gift annuities; audited financial statements; disclosure statement; commissions prohibited; definitions

A. On the day a charitable organization enters into an agreement for a charitable gift annuity, the charitable organization shall have:

1. A minimum of three hundred thousand dollars in unrestricted cash, cash equivalents or publicly traded securities, exclusive of assets funding the charitable gift annuity agreement.

2. Been in continuous operation for at least three years or is a successor or affiliate of a charitable organization that has been in continuous operation for at least three years.

3. Had an annual audit of its operations conducted by an independent certified public accountant for the past two fiscal years.

B. Any person offering a charitable gift annuity in this state shall provide the following information in writing to a prospective donor before entering into an agreement for a charitable gift annuity or receiving any transfer of cash or property from the donor:

1. The name and address of the charitable organization offering the charitable gift annuity to the donor.

2. A description of the charitable organization offering the charitable gift annuity, including its state of organization, its date of organization and its current operations.

3. A statement that the charitable organization will make additional financial information, including its most current audited and interim financial statements, available to the donor on request. This statement shall be conspicuous and printed in at least ten point bold-faced type.

4. A disclosure that the charitable gift annuity is not insurance under the laws of this state, is not subject to regulation by the director and is not protected by any state guaranty fund.

5. A disclosure that this state and the department have not approved or disapproved of the charitable gift annuity being offered and have not determined whether any of the information provided to the donor is truthful or complete.

C. If any agreement between a charitable organization and a donor for a charitable gift annuity is entered in violation of this section, the donor may bring an action in a court of competent jurisdiction to recover the amount of the consideration paid for the charitable gift annuity, with interest, taxable court costs and reasonable attorney fees, less the amount of any income received from ownership of the charitable gift annuity, on tender of the charitable gift annuity or the agreement for it. Any such action shall be brought within two years of the date the donor discovered or reasonably should have discovered that the charitable gift annuity transaction did not comply with this section.

D. In connection with the solicitation or negotiation of a charitable gift annuity, a person shall not directly or indirectly pay or accept a commission, fee or other form of compensation contingent on the donation or amount of the charitable gift annuity. This subsection does not prohibit or restrict a charitable organization from paying the regular compensation owed to its employees or the distribution of monies for authorized charitable purposes.

E. For the purposes of this section:

1. "Charitable gift annuity" means a transfer of cash or other property by a donor to a charitable organization in return for an annuity that is payable over one or two lives under which the actuarial value of the annuity is less than the value of the cash or other property transferred and the difference in value is a charitable deduction for federal tax purposes.

2. "Charitable organization" means an entity that is described in section 501(c)(3) or 170(c) of the internal revenue code of 1986.

§ 20-120 Payment bonds for third party intermediary entities; contract provisions; definitions

A. A health care insurer shall not contract with a third party intermediary entity for the delivery or provision of health benefits or services by or through that entity to a group or panel of covered persons, unless the third party intermediary entity at its own expense secures a payment bond or posts a cash deposit pursuant to this section.

B. The following apply to a payment bond required by this section:

1. The payment bond shall be in a face amount that is at least equal to the average monthly payment amount that the third party intermediary entity is entitled to receive under the terms of its contract with the health care insurer.

2. The payment bond shall be executed by a surety company or companies holding a certificate of authority to transact surety business in this state issued by the director pursuant to chapter 2, article 1 of this title.

3. The payment bond serves solely as a source of payment of claims for covered health benefits or services provided by subcontracted health care professionals to the group or panel of covered persons under the contract between the third party intermediary entity and the health care insurer.

4. A subcontracted health care professional who has provided covered health care benefits or services to one or more covered persons under a subcontract with a third party intermediary entity, and who has not been paid in full for the covered benefits or services provided pursuant to the subcontract within ninety days after the date on which the last of the benefits or services were provided, may sue on the payment bond for the unpaid amount owed under the subcontract, may prosecute the action to final judgment and may execute on the judgment against the payment bond. The suit shall commence within one year after the date on which the last of the benefits or services sued for were provided.

5. A health care insurer that pays claims of subcontracted health care professionals for covered health care benefits or services that were the contractual responsibility of a third party intermediary entity may sue on the payment bond for the claims amounts paid, may prosecute the action to final judgment and may execute on the judgment against the payment bond. The suit shall commence within one year after the date on which the last of the claims sued for were paid.

6. The payment bond shall include a provision allowing the prevailing party in a suit on the bond to recover as a part of the judgment a reasonable attorney fee as determined by the court.

7. A health care insurer shall review annually a payment bond secured pursuant to this section to determine whether the face amount of the payment bond needs to be adjusted.

C. The following apply to cash deposits required by this section:

1. A cash deposit posted pursuant to this section shall be in an amount that is at least equal to the average monthly payment amount that the third party intermediary entity is entitled to receive under the terms of its contract with the health care insurer and shall be deposited with and held in trust by the state treasurer.

2. Instead of requiring a third party intermediary to post the entire cash deposit at the outset, for a six month period beginning with the initial contract payment, the health care insurer may withhold from the monthly contract payment to be made to the third party intermediary entity an amount that is equal to one-sixth of the cash deposit required to be posted pursuant to this subsection. The health care insurer shall transfer the monies withheld pursuant to this subsection for deposit with the state treasurer to be held in trust as provided in this section. Monies withheld and not yet deposited with the state treasurer pursuant to this subsection are held in trust for the purposes described in this section and are not the monies of the health care insurer.

3. A cash deposit made pursuant to this section serves solely as a source of payment of claims for covered health benefits or services provided by subcontracted health care professionals to the group or panel of covered persons under the contract between the third party intermediary entity and the health care insurer.

4. A subcontracted health care professional who has provided covered health care benefits or services to one or more covered persons under a subcontract with a third party intermediary entity and who has not been paid in full for the provided benefits or services pursuant to the subcontract within ninety days after the date on which the last of the benefits or services were provided, may sue on the cash deposit for the unpaid amount owed under the subcontract, may prosecute the action to final judgment and may execute on the judgment against the cash deposit. The suit shall commence within one year after the date on which the last of the benefits or services sued for were provided.

5. A health care insurer that pays claims of subcontracted health care professionals for covered health care benefits or services that were the contractual responsibility of a third party intermediary entity may sue on the cash deposit for the claims amounts paid, may prosecute the action to final judgment and may execute on the judgment against the cash deposit. The suit shall not commence before one year after the date on which the last of the claims sued for were paid.

6. Out of monies held on deposit by the state treasurer for a specific third party intermediary entity pursuant to this section, monies may be awarded and paid to the prevailing party in a suit on the cash deposit. The court may award as a part of the judgment on that cash deposit a reasonable attorney fee as determined by the court.

7. A health care insurer shall review annually a cash deposit posted pursuant to this section to determine whether the face amount needs to be adjusted.

D. The following apply to contracts between a third party intermediary entity and a health care insurer:

1. The contract shall require the third party intermediary entity to submit a quarterly report on the timeliness of payments made to all subcontracted health care professionals to the health care insurer to measure compliance with payment timeliness standards.

2. The contract shall require the third party intermediary entity to pay its subcontracted health care professionals within the time period specified under section 20-3102.

E. This section does not:

1. Authorize any entity that does not hold a certificate of authority to engage in the business of insurance in this state.

2. Require a third party intermediary entity to post a payment bond or cash deposit if the entity holds a certificate of authority as an administrator, disability insurer, service corporation or health care services organization.

3. Create any new private right or cause of action for or on behalf of any person, other than a right to sue on a payment bond or cash deposit under subsection B or C of this section. A general creditor or judgment creditor or any other claimant of a third party intermediary entity shall not levy on any payment bond or cash deposit secured or held pursuant to this section.

4. Require a third party intermediary entity that serves as a provider network for an affiliated staff or group model health care services organization under a common line of ownership or control to post a payment bond or cash deposit to that health care services organization. Notwithstanding that a payment bond or cash deposit is not required under this paragraph, the health care services organization may require the third party intermediary entity to meet other payment bond or cash deposit requirements established by the health care services organization. If the health care services organization does not require the third party intermediary entity to post a payment bond or cash deposit, the health care services organization is responsible for payment of claims for covered health benefits or services that are provided by subcontracted health care professionals to covered persons if the third party intermediary entity fails to make payment pursuant to the subcontracts.

5. Require one or more persons who are licensed health care professionals, hospitals or other institutional health care providers to post a payment bond or cash deposit under a contract where the assumption of business risk is limited to benefits or services that may be lawfully furnished within the lawful scope of practice by that person or persons.

6. Limit the ability of a health care insurer to impose additional financial requirements on a third party intermediary entity.

7. Require a third party intermediary entity to post a payment bond or cash deposit if the entity has not been delegated responsibility to process and pay the claims of the health care providers for which the entity has assumed the business risk.

F. Any bond that is secured or deposit that is posted under this section shall be released and returned:

1. To the third party intermediary entity on extinguishment by reinsurance or otherwise of substantially all liability of the insurer for the security of which the bond or deposit is held.

2. To the third party intermediary entity to the extent the bond or deposit is more than the amount required.

3. On proper order of a court of competent jurisdiction to the receiver, conservator, rehabilitator or liquidator of the third party intermediary entity or to any other properly designated official or officials who succeed to the management and control of the third party intermediary entity's assets.

G. A surety shall not terminate a bond issued pursuant to this section unless the surety files a written notice of termination with the director at least thirty days before terminating the bond.

H. A release of deposited monies shall not be made except on application to and the written order of the director. The director is not personally liable for the good faith release of all or any part of a deposit.

I. A third party intermediary entity shall approve or deny claims in the manner prescribed in chapter 20 of this title.

J. This section applies to all contracts between third party intermediary entities and health care insurers that are entered into or renewed from and after December 31, 2000.

K. For the purposes of this section:

1. "Administrator" means an entity that holds a certificate of authority pursuant to chapter 2, article 9 of this title.

2. "Covered persons" means enrollees, insureds, members, subscribers, dependents or other persons who are covered by a contract of disability insurance, subscription contract, evidence of coverage or other prepaid plan or arrangement with a health care insurer.

3. "Health care insurer" means a disability insurer, service corporation or health care services organization.

4. "Health care professional" has the same meaning prescribed in section 20-3151.

5. "Health care services organization" means an entity that holds a certificate of authority pursuant to chapter 4, article 9 of this title.

6. "Service corporation" means an entity that holds a certificate of authority pursuant to chapter 4, article 3 of this title.

7. "Third party intermediary entity" means an entity that assumes business risk through a written contract with a disability insurer, service corporation or health care services organization for the cost of providing covered health care benefits or services to a group or panel of covered persons if not all of those benefits or services will be provided by the entity or by licensed health care professionals who are subcontracted to the entity.

§ 20-121 Health care exchange; abortion coverage; prohibition; exceptions

A. Consistent with the provisions of the patient protection and affordable care act (P.L. 111-148), any qualified health insurance policy, contract or plan offered through any health care exchange operating in this state shall not provide coverage for abortions.

B. Subsection A of this section does not apply to coverage for any abortion:

1. That is necessary to save the life of the woman having the abortion.

2. That is necessary to avert substantial and irreversible impairment of a major bodily function of the woman having the abortion.

3. When the pregnancy is the result of rape or incest.

§ 20-122 Health care sharing ministries; exemption from regulation; definition

A. A health care sharing ministry's practices do not constitute the transaction of insurance business in this state for the purposes of regulation under this title.

B. For the purposes of this section, "health care sharing ministry" means a nonprofit organization that is exempt from federal income tax under section 501 of the internal revenue code and that:

1. Limits its participants to those who share a common set of ethical or religious beliefs.

2. Meets the requirements of 26 United States Code section 5000A(d)(2)(B)(i) and (ii)(I), (II), (III) and (V).

3. Acts as a facilitator among participants who have financial or medical needs and matches those participants with other participants who have the ability to assist those with financial or medical needs consistent with the criteria established by the health care sharing ministry.

4. Provides for the financial and medical needs of a participant through contributions from one participant to another.

5. Suggests amounts that participants may contribute with no assumption of risk or promise to pay among the participants and no assumption of risk or promise to pay by the health care sharing ministry to the participants.

6. Provides a written monthly statement to all participants that lists the total dollar amount of qualified needs submitted to the health care sharing ministry and the amount actually published or assigned to participants for their contribution.

7. Provides a written disclaimer on or accompanying all applications and guideline materials distributed by or on behalf of the ministry that reads, in substance:

Notice: The organization facilitating the sharing of medical expenses is not an insurance company and the ministry's guidelines and plan of operation are not an insurance policy. Whether anyone chooses to assist you with your medical bills will be completely voluntary because participants are not compelled by law to contribute toward your medical bills. Therefore, participation in the ministry or a subscription to any of its documents should not be considered to be insurance. Regardless of whether you receive any payment for medical expenses or whether this ministry continues to operate, you are always personally responsible for the payment of your own medical bills.

§ 20-123 Homeowners insurers; data compilation; annual report; public posting

(Rpld. 1/1/28)

A. Not later than April 1 of each year, each insurer that writes homeowners insurance in this state shall report to the director of the department of insurance and financial institutions in a manner and form as prescribed by the director of the department of insurance and financial institutions the following information on each homeowners insurance policy the insurer had in force during the prior calendar year in the geographic areas of this state designated as heightened fire risk areas by the director of the Arizona department of forestry and fire management for the prior calendar year:

1. If the policy was newly issued or renewed, the date the policy was issued or renewed.

2. If the policy was nonrenewed or canceled by the insurer, the insurer is not required to provide the reason for the nonrenewal or cancellation but shall provide:

(a) The date the policy ended.

(b) If the policy was nonrenewed, whether the policy was nonrenewed due to:

(i) Fire loss risk.

(ii) Condition of the premises.

(c) If the policy was canceled, whether the policy was canceled due to:

(i) Nonpayment of the premium.

(ii) Fire risk loss.

3. The zip code in which the insured property is located, and the director of the department of insurance and financial institutions may request additional geographic information to clarify the location within a specific zip code.

4. The total written premium for the policy.

5. The type of policy form.

6. The policy's deductible.

7. The total number of all of the paid claims for all of the insurer's homeowners policies:

(a) Due to fire loss.

(b) Due to reasons other than fire loss.

8. The total of all losses paid for all of the insurer's homeowners policies:

(a) Due to fire loss.

(b) Due to reasons other than fire loss.

9. The policy's coverage limits.

10. Any other information prescribed by the director of the department in rule, except that in any year the director of the department may require the reporting of any clarifying information that is consistent with the information requested in a data call issued by the national association of insurance commissioners on the residential property insurance market.

B. Except as provided in subsection D of this section, the information reported pursuant to subsection A of this section is confidential and is not subject to disclosure pursuant to title 39, chapter 1, article 2, discovery or subpoena, unless the subpoena is issued by the attorney general, a county attorney or a court at the request of the attorney general, a county attorney or a law enforcement agency, and the subpoena is not admissible in evidence in a private civil action. If a subpoena is issued by the attorney general, a county attorney or any other law enforcement agency to the director for information reported to the director, the director shall provide notice to the insurer of the subpoena unless otherwise prohibited by law.

C. Notwithstanding subsection A of this section and in any year in which the national association of insurance commissioners issues a data call on the residential property insurance market, the director may prescribe a due date other than April 1 for the report required in subsection A of this section that coincides with the due date for the data call.

D. On or before December 31 of each year, the director shall prepare a report that compiles in an aggregated and anonymized manner the information submitted by insurers pursuant to subsection A of this section and shall submit the annual report to the governor, the speaker of the house of representatives and the president of the senate and shall provide a copy of this report to the secretary of state. The director shall make a copy of the report available on the department's publicly accessible website.

§ 20-124 Adoption of rules

The director may adopt rules for the administration of title 6, title 32, chapters 9 and 36, title 41, chapter 31 and title 44, chapter 2.1.

§ 20-125 Sending notices and correspondence

For the purposes of this title, if a notice or correspondence is sent by:

1. Mail, the sender must send the notice or correspondence to the recipient's last known mailing address on file with the insurer.

2. Electronic means, the sender must send the notice or correspondence to the recipient's last known email address as provided by the recipient to the insurer.

§ 20-126 Annual dental loss ratio report; posting; definitions

A. Beginning July 1, 2024 and on or before July 1 of each year thereafter, each dental insurer doing business in this state shall file with the department on a standard form issued by the department an annual report on the dental loss ratio for the preceding calendar year. The dental loss ratio annual report shall include the following:

1. A combined dental loss ratio percentage for all individual dental policies.

2. A combined dental loss ratio percentage for all group dental policies issued to fully insured groups.

B. Not later than August 1 of each year, the department shall post the reported dental loss ratios for each dental insurer on the department's website in a manner that is easily located and identifiable to the public. The department may not post the underlying claims, premiums and other data used to calculate the dental loss ratios and shall treat all claims, premiums and other data as confidential.

C. For the purposes of this section:

1. "Adjusted incurred annual dental claims" means claims that were incurred for services rendered during the preceding calendar year and paid through March 31 of the following year and liability for claims incurred for services rendered during the preceding calendar year that have not been reported or paid through March 31 of the following calendar year.

2. "Dental insurer" means a dental service corporation pursuant to chapter 4, article 3 of this title, prepaid dental plan organization pursuant to chapter 4, article 7 of this title, health care services organization pursuant to chapter 4, article 9 of this title, disability insurer pursuant to chapter 6, article 4 of this title or group or blanket disability insurer pursuant to chapter 6, article 5 of this title that offers, issues or renews a contract, evidence of coverage or policy covering dental services.

3. "Dental loss ratio percentage" means the ratio, stated as a percentage, of the numerator as prescribed in subdivision (a) of this paragraph to the denominator as prescribed in subdivision (b) of this paragraph.

(a) The numerator is the sum of all of the following:

(i) The adjusted incurred annual dental claims in this state.

(ii) The amount spent by a dental insurer on activities that improve the quality of dental care but does not include expenses for advertising, promotions or donations to charitable foundations.

(iii) The amount of claims identified through fraud reduction efforts.

(b) The denominator is the sum of the annual dental insurance premiums earned in this state, excluding:

(i) The annual incurred federal and state taxes, licensing fees and regulatory fees on dental premiums in this state.

(ii) The annual federal income taxes attributed to the dental line of business for the reporting year.

4. "Dental policies" means a contract, evidence of coverage or policy covering dental services, excluding:

(a) A policy, subscription contract, group or blanket disability insurer contract or evidence of coverage that includes dental benefits that are included in the medical benefits of a policy and not administered as stand-alone dental benefits.

(b) A self-funded employer group health or dental plan.

(c) A plan or group of plans covering dental services for which a dental insurer does not have credible experience, as determined by the director.

§ 20-127 Fire insurance review task force; membership; duties; annual report; public posting

(Rpld. 1/1/28)

A. The fire insurance review task force is established in the department and consists of the following members:

1. The director of the department or the director's designee, who shall serve as chairperson of the task force.

2. Two members who are appointed by the director, one of whom is an employee of an insurance company that represents the homeowners insurance industry.

3. One member who is appointed by the director of the department and who represents a wildfire risk reduction organization that is informed on wildfire risk.

4. The state forester or the state forester's designee, who shall serve as vice chairperson of the task force.

5. Four members who are appointed by the state forester and who have expertise in wildfire areas and wildfire prevention and mitigation.

B. Appointed members serve two-year terms beginning and ending on the third Monday in January and may be reappointed for not more than two consecutive terms. On the expiration of a member's term, the member may continue to serve until that member is reappointed to another term or a new member is appointed.

C. Any vacancy in the membership shall be filled in the same manner as the original appointment.

D. The department shall provide the task force with both of the following:

1. The annual aggregated and deidentified insurance premium and policy coverage data reported by insurers pursuant to section 20-123.

2. The total number of consumer complaints for the calendar year that is related to nonrenewal or cancellation of homeowners policies due to risk of fire loss and related to increases in homeowners insurance premiums.

E. The task force shall:

1. Review the data received from the department.

2. Identify possible current and historic trends in homeowners coverage availability, insurance rates, nonrenewal and cancellation.

3. Review data related to fire risk mitigation science and make recommendations related to building codes, defensible space requirements and ordinances that reduce the risk of wildfire.

F. The task force may establish ad hoc work groups to carry out the purposes of this section and consult with experts in the field of wildfire risks and the impact of wildfires and wildfire risk on homeowners insurance premiums.

G. The task force shall hold at least four meetings per calendar year.

H. Task force members are eligible to receive reimbursement of expenses under title 38, chapter 4, article 2.

I. On or before December 31 of each year, the task force shall submit a report of its findings and recommendations to the governor, the speaker of the house of representatives, the president of the senate, the minority leader of the house of representatives and the minority leader of the senate and shall provide a copy of this report to the secretary of state and the department. The director shall post the report on the department's website.

Article 2 Administrative Officers and Procedures

§ 20-141 Director of the department of insurance and financial institutions; appointment; qualifications; compensation

A. The governor shall appoint a director of the department of insurance and financial institutions pursuant to section 38-211.

B. The director shall:

1. Serve at the pleasure of the governor.

2. Be a person with business experience, including being well versed in insurance and financial institution matters.

3. Receive compensation as determined pursuant to section 38-611.

§ 20-142 Powers and duties of director; payment of examination and investigation costs; home health services

A. The director shall enforce this title.

B. The director shall have powers and authority expressly conferred by or reasonably implied from the provisions of this title.

C. The director may conduct examinations and investigations of insurance matters, including examinations and investigations of adjusters, producers and brokers and any other persons who are regulated under this title, in addition to examinations and investigations expressly authorized, as the director deems proper in determining whether a person has violated any provision of this title or for the purpose of securing information useful in the lawful administration of any provision of this title. The examined party shall pay the costs of examinations that are allowed pursuant to subsection D of this section and that are conducted pursuant to this subsection except for examinations of adjusters, producers and brokers. An examined adjuster, producer or broker shall pay the costs allowed pursuant to subsection D of this section only if the adjuster, producer or broker is found to have violated any provision of this title. This state shall pay the cost of any related investigation.

D. The department shall prepare detailed billing statements that provide reasonable specificity of the time and expenses billed in connection with an examination and that cite the statute or rule that authorizes the fees being charged. Notwithstanding any other law, from and after December 31, 2021, a person that is being examined pursuant to any section of this title is responsible for only the direct costs of an examination that are supported by a billing statement that complies with this subsection.

E. The director shall establish guidelines for insurers on home health services that shall be used by the director pursuant to sections 20-826, 20-1342, 20-1402 and 20-1404. The director may use home health services as defined in section 36-151. Guidelines shall include the following:

1. Home health services that are prescribed by a physician or a registered nurse practitioner.

2. Home health services that are determined to cost less if provided in the home than the average length of in-hospital service for the same service.

3. Skilled professional care in the home that is comparable to skilled professional care provided in-hospital and that is reviewed and approved at thirty-day intervals by a physician.

F. Pursuant to section 41-1750, subsection G, the director may receive criminal history record information in connection with the issuance, renewal, suspension or revocation of a license or certificate of authority or the consideration of a merger or acquisition. The director may require a person to submit a full set of fingerprints to the department. The department of insurance and financial institutions shall submit the fingerprints to the department of public safety for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation.

§ 20-143 Rule-making power

A. The director may make reasonable rules necessary for effectuating any provision of this title.

B. The director shall make rules concerning proxies, consents or authorizations in respect of securities issued by domestic stock insurance companies having a class of equity securities held of record by one hundred or more persons to conform with the requirements of section 12(g)(2)(G)(ii) of the securities exchange act of 1934, as amended, and as may be amended. Such rule shall not apply to any such 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. Whenever such equity securities of any such company 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, then, no person shall solicit or permit the use of his name to solicit, in any manner whatsoever, any proxy, consent or authorization in respect of any equity security of such company without having first complied with the rules prescribed by the securities and exchange commission pursuant to section 14 of the securities exchange act of 1934, as amended, or as may be amended.

C. All rules made pursuant to this section shall be subject to title 41, chapter 6.

D. In addition to any other penalty provided, wilful violation of any rule made by the director is a violation of this title.

§ 20-144 Seal of office

A. The director shall have a seal of office consisting of the shield as used in the great seal of the state of Arizona encircled by the words "director of the department of insurance and financial institutions, state of Arizona."

B. Every certificate or license issued by the director shall bear the director's seal.

§ 20-145 Evidentiary effect of certificate of authority

When required, the director shall furnish his certificate as to the authority of any person to transact insurance, and such certificate shall be evidence of the facts set forth therein.

§ 20-146 Supervisor

A. The director shall appoint a supervisor of insurance rates.

B. The supervisor of insurance rates shall be a person versed in insurance rating procedure and familiar with the operation of insurance companies and rating organizations.

C. The supervisor shall be subject to removal for cause.

D. The supervisor of insurance rates shall receive compensation as determined pursuant to section 38-611.

§ 20-147 Assistant director; chief examiner; appointment; qualifications

A. The director shall appoint an assistant director and a chief examiner.

B. The assistant director shall be experienced in the fields of life and disability and property and casualty insurance and the chief examiner shall have had at least five years' experience as a full-time examiner for a state insurance department or departments, or as a full-time staff member of a public accounting or actuarial firm regularly employed to conduct examinations for a state insurance department.

§ 20-148 Deputies and other employees; special services

A. Subject to title 41, chapter 4, article 4, the director shall appoint such other deputies, assistants and clerks, as necessary properly to discharge the duties imposed upon the director under this title.

B. The director may from time to time contract for and procure, on a fee or part time basis, or both, such actuarial, technical and other professional services as he may require for the operation of his office.

C. The compensation of each deputy, actuary, assistant and clerk shall be as determined pursuant to section 38-611.

§ 20-149 Prohibition on certain activities by employees; conflict of interest

A. The director, or any deputy, examiner, assistant or employee of the director shall not be financially interested, directly or indirectly, in any insurer, agency or any entity regulated under this title except as a policyholder or claimant under a policy. As to such matters wherein a conflict of interests does not exist on the part of any such individual, the director may employ from time to time insurance actuaries or other technicians who are independently practicing their professions even though similarly employed by insurers and others.

B. The director or any deputy, examiner, assistant or employee of the director shall not be given nor receive any fee, compensation, loan, gift or other thing of value in addition to the compensation provided by law for any service rendered or to be rendered as such director, deputy or employee or in connection therewith.

C. This section shall not be deemed to prohibit employment by the director of retired or pensioned personnel of insurers or insurance organizations.

D. The director, or any deputy, examiner, assistant or employee of the department whose relative is an owner, partner, director, officer, holder of a beneficial interest of more than five per cent whether as a shareholder or otherwise or a salaried employee of any entity regulated under this title shall be subject to the conflict of interest and disclosure requirements set forth in title 38, chapter 3, article 8.

E. For purposes of subsection D, the term "relative" shall include all persons set forth in section 38-502, paragraph 9.

§ 20-150 Delegation of director's authority

A. Any power, duty or function, whether ministerial or discretionary, vested by this title in the director may be exercised or discharged by any deputy, assistant or examiner or by any other person designated by the director pursuant to section 20-148 acting in the director's name and by his delegated authority.

B. The director shall be responsible for the official acts of his deputy, assistant, examiner or employee or any other person designated by the director pursuant to section 20-148 acting in the director's name and by his authority.

§ 20-151 Issuance of orders and notices by director

A. Orders and notices of the director are not effective unless the orders and notices are in writing and signed by the director or by the director's authority.

B. Every order of the director shall state its effective date and shall concisely state:

1. Its intent or purpose.

2. The grounds on which the order is based.

3. The provisions of this title pursuant to which action is so taken or proposed to be taken, but failure to so designate any provision shall not deprive the director of the right to rely on the provision.

C. The department may send orders and notices in accordance with section 20-117, paragraph 4. If the department sends an order or notice by mail, the department shall send the order or notice, postage prepaid, to the recipient's principal place of business as last of record in the director's office.

§ 20-152 Enforcement

A. If the director has cause to believe that a person has violated any penal provision of this title or other laws relating to insurance, and that prosecution of the person is advisable, he shall certify the facts of such violation to the attorney general, who shall bring and prosecute such action as may be required for the purpose of punishing the violation.

B. If the director has cause to believe that any person is violating or is about to violate any provision of this title or any lawful order of the director, he may certify the facts thereof to the attorney general, who shall bring and prosecute such action as may be required for the purpose of enjoining the violation.

C. The attorney general shall prosecute or defend all proceedings brought pursuant to or resulting from enforcement of this title when requested by the director.

§ 20-153 Records

A. Records of all official transactions, examinations, investigations and proceedings of the department shall be open to public inspection pursuant to section 39-121, except as otherwise provided in this title.

B. The director may destroy records pursuant to sections 41-151.15 and 41-151.19.

§ 20-154 Annual report; list of authorized insurers

A. As early in the calendar year as possible the director shall annually prepare a report for delivery to the commission, the governor and the legislature, showing, with respect to the preceding calendar year:

1. List of authorized insurers transacting insurance in this state, with such report of their financial condition as he deems appropriate.

2. Names of insurers whose businesses were closed during the year, the cause thereof, and amount of assets and liabilities as ascertainable.

3. Names of insurers against which delinquency or similar proceedings were instituted, and a concise statement of the facts with reference to each such proceeding.

4. Name and compensation of each officer, deputy, examiner, assistant and employee of the office of director, and the whole amount, with reasonable itemization, of the expenses of the office of director.

5. Recommendations of the director as to amendment of laws affecting insurance, and as to matters affecting the office of director.

6. Such other pertinent information and matters as the director deems proper.

B. As early as possible in, and with respect to, the current calendar year, the director shall annually make available to the public a list of authorized insurers transacting insurance in this state and offering individual health insurance plans.

C. The director shall cause the report to be printed and delivered for the purpose intended.

§ 20-155 Expenses of administration

All salaries, compensation and other expenses involved in the operation of the office of the director shall not exceed the amount from time to time appropriated or otherwise made available therefor by the legislature, including travel expense incurred by the director, his deputies and assistants within or outside this state in connection with official duties, dues assessed by the national association of insurance commissioners and travel expense incurred by the director and any one or more deputies or assistants designated by him in attendance upon meetings or committee meetings of such association.

§ 20-156 Examination of insurers; financial surveillance fund; definition

A. The director shall examine the affairs, transactions, accounts, records and assets of each authorized insurer as often as the director deems advisable. The director shall so examine each domestic insurer at least once every five years. Examination of an alien insurer shall be limited to its insurance transactions in the United States. The director may examine the business transactions and affairs of each domestic life and disability reinsurer as defined in section 20-1082, service company as defined in section 20-1095 and mechanical reimbursement reinsurer as defined in section 20-1096.

B. The director shall in like manner examine each insurer 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 insurer, certified to by the insurance supervisory official of another state, territory, commonwealth or district of the United States.

D. The expenses of the examinations conducted under this section shall be paid by the insurance examiners' revolving fund as provided in section 20-159. Such expenses shall be limited to preexamination selection and preparation costs, examination costs, postexamination costs and other such costs of evaluations of compliance required by law.

E. The financial surveillance fund is established consisting of monies collected pursuant to subsection F of this section. The fund is a special state fund pursuant to section 35-142, subsection A, paragraph 8. The department shall administer the fund. Monies in the fund are continuously appropriated and are exempt from the provisions of section 35-190 relating to lapsing of appropriations.

F. The director shall annually assess and collect from each domestic insurer, other than a domestic life and disability reinsurer as defined in section 20-1082, a service company as defined in section 20-1095, and a mechanical reimbursement reinsurer as defined in section 20-1096, an amount within the ranges provided in this subsection and on a uniform percentage basis among all fee categories, to pay the costs of employing financial analysts who shall assist the department in conducting financial surveillance of domestic insurers. The director shall deposit all collected monies in the financial surveillance fund. The director shall base the amount of each insurer's assessment on the total admitted assets of the insurer as shown in its annual statement for the calendar year preceding the year in which the assessment is made, according to the following schedule:

Minimum Maximum

Assessment Amount Assessment Amount

Insurers with total admitted

assets of greater than

$1,000,000,000 $15,000 $22,500

Insurers with total admitted

assets of at least $200,000,000

but not more than $1,000,000,000 $ 5,000 $ 7,500

Insurers with total admitted

assets of at least $100,000,000

but not more than $199,999,999 $ 3,000 $ 4,500

Insurers with total admitted assets

of at least $50,000,000 but not

more than $99,999,999 $ 1,500 $ 2,250

Insurers with total admitted assets

of at least $25,000,000 but not

more than $49,999,999 $ 500 $ 750

Insurers with total admitted

assets of not more than

$24,999,999 $ 250 $ 375

G. For the purposes of this section, "insurer" includes health care services organizations, prepaid dental plan organizations, hospital service corporations, medical service corporations, dental service corporations and hospital, medical, dental and optometric service corporations incorporated in this state.

§ 20-157 Access and powers relating to insurers' records

A. Every person being examined and its officers, employees, agents and representatives shall produce and make freely accessible to the director or the director's examiners the accounts, records, documents, files, assets and matters in the person's possession or control relating to the subject of the examination.

B. If the director finds accounts to be inadequate, or improperly kept or posted, the director may employ experts to rewrite, post or balance them at the expense of the person being examined if the person fails to complete or correct the accounting after the director has given the person notice and a reasonable opportunity to do so.

C. If the director deems it necessary to value any real estate involved in any examination, the director may employ one or more competent appraisers for the purpose. The reasonable expense of the appraisal is a part of the cost of examination to be borne by the person being examined.

D. Any insurer or other person licensed under this title may cause its accounts, records, documents and files described in subsection A of this section to be created, recorded, copied or reproduced by any photographic, photostatic, microfilm, microcard, miniature photographic, optical disk, electronic imaging, electronic data processing, electronically transmitted facsimile, printout or reproduction of electronically stored data or other process that accurately reproduces or forms a durable medium for storing the account, record, document or file. If the items so stored are not the original, the original may be destroyed unless held in a custodial or fiduciary capacity, but only if the data is easily accessible to the department in readable form and readable reproduced copies are obtainable. A record so stored is admissible in evidence as the original in any judicial or administrative proceeding whether the original is in existence or not. The introduction of a reproduced record does not preclude admission of the original. This shall not be construed to exclude from evidence any document or copy that is otherwise admissible under the rules of evidence.

§ 20-157.01 Confidentiality of insurer's claim files and records; access by director; definition

A. Pursuant to the director's authority under sections 20-156, 20-157, 20-160, 20-466 and 20-3502, an insurer shall comply with a request to produce any documents, reports or other materials, whether maintained in written or electronic format, from an insurer's claim file or an insurer's record that is required to comply with chapter 28, article 1 of this title.

B. Any documents, reports or other materials that are provided to the director pursuant to this section are confidential and are not subject to disclosure, including discovery or subpoena, unless the subpoena is issued by the attorney general or a county attorney or by a court at the request of the attorney general, a county attorney or any other law enforcement agency. The director may disclose the information only to a state or federal agency or officer pursuant to a lawful request, subpoena or formal discovery procedure. If the requesting party cannot warrant confidentiality pursuant to section 20-158, subsection I, the information that is provided pursuant to discovery, subpoena or lawful request as provided for in this subsection remains confidential. The director shall make reasonable efforts to notify an insurer of any request for a subpoena for documents, reports or other materials in an insurer's claim file or other record that are produced by the insurer pursuant to this section so that the insurer may assert, in a court of competent jurisdiction, any applicable privileges.

C. The director may use the documents, reports or other materials in the furtherance of any regulatory action brought by the director or in actions brought against the director.

D. Subject to the restrictions prescribed in section 20-299, the director shall provide an insurer with a copy of any document the director receives pursuant to this section that the director believes supports a violation of this title or that justifies any regulatory or other action against the insurer. A disclosure pursuant to this subsection is not a waiver of any applicable privilege or claim of confidentiality in the disclosed document.

E. For the purposes of this section, "insurer claim file" includes medical records, repair estimates, adjuster notes, insurance policy provisions, recordings or transcripts of witness interviews and any other records regarding coverage, settlement, payment or denial or adjustment of a claim asserted under an insurance policy.

§ 20-158 Report of examinations by director; information sharing

A. The director shall make a full written report of each examination. The director or the examiner in charge of the examination shall certify the report.

B. The director shall provide a copy of the report to the person examined not less than ten days before filing the report. If the person makes a request in writing within the ten-day period, the director shall consider any objections the person may have to the proposed report and shall not file the report until after making any amendments the director deems proper.

C. The report, when filed, is admissible in evidence in any action or proceeding brought by the director against the person examined, or its officers or agents. The director or the director's examiners may at any time testify and offer other proper evidence as to information secured during the course of an examination, whether or not a written report of the examination has at that time been either made, served or filed in the director's office.

D. The director may withhold from public inspection any examination or investigation report for as long as the director deems prudent.

E. The director may disclose the nonpublic content of a report of examination, a preliminary report or any other matter relating to a report to the insurance department of any other state or jurisdiction, to law enforcement officials of this or any other state or jurisdiction or to an agency of the federal government if the agency or official receiving the report or information agrees in writing to hold the information confidential.

F. Except as provided in this subsection and subsections E and I of this section, documents, materials or other information, including all working papers and copies thereof, created, produced or obtained by or disclosed to the director or the director's deputies, assistants or examiners in the course of an examination or in the course of analysis of the financial condition or market conduct of an insurer are confidential and privileged, are not subject to title 39, chapter 1, article 2, are not subject to subpoena and are not subject to discovery or admissible in evidence in a private civil action. The director may use the documents, materials or other information in the furtherance of any regulatory or legal action brought as part of the director's official duties. Subject to the restrictions prescribed in section 20-299, the director shall provide an insurer being examined with copies of all documents, materials and other information that the director intends to rely on as evidence of an alleged violation of this title or that justifies any regulatory or other action against the insurer to allow the insurer to review the alleged findings and make any objections pursuant to subsection B of this section. A disclosure pursuant to this subsection is not a waiver of any applicable privilege or claim of confidentiality in the disclosed documents, materials or other information.

G. Documents, materials or other information, including all working papers and copies thereof, in the possession or control of the national association of insurance commissioners or its affiliates are confidential and privileged, are not subject to title 39, chapter 1, article 2, are not subject to subpoena and are not subject to discovery or admissible in evidence in any private civil action if the documents, materials or information are either:

1. Created, produced or obtained by or disclosed to the national association of insurance commissioners or its affiliates in the course of assisting the director in the examination or analysis of the financial condition or market conduct of an insurer under this title.

2. Disclosed to the national association of insurance commissioners or its affiliates by the director under subsection E or I of this section.

H. The director, the director's deputies, assistants or examiners and representatives of the national association of insurance commissioners or its affiliates are prohibited from testifying in any private civil action concerning documents, materials or other information that are confidential and privileged pursuant to subsection F or G of this section.

I. The director may:

1. Share nonpublic documents, materials or other information with other state, federal and international regulatory agencies, with the national association of insurance commissioners and its affiliates and subsidiaries and with state, federal and international law enforcement authorities if the recipient agrees and warrants that it has the authority to maintain the confidentiality and privileged status of the documents, materials or other information.

2. Receive documents, materials and other information from the national association of insurance commissioners and its affiliates and subsidiaries and from regulatory and law enforcement officials of other jurisdictions and shall maintain as confidential or privileged any document, material or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information.

3. Enter into agreements that govern the sharing and use of documents, materials and other information and that are consistent with this section.

J. A disclosure to or by the director pursuant to this section or as a result of sharing information pursuant to subsection I of this section is not a waiver of any applicable privilege or claim of confidentiality in the documents, materials or other information disclosed or shared.

§ 20-159 Insurance examiners' revolving fund; definition

A. The director may establish a separate fund designated as the insurance examiners' revolving fund.

B. The fund shall be used for the examination expenses authorized by section 20-156 and to compensate independent contractor examiners as authorized by section 20-148. Independent contractor examiners may be reimbursed or compensated for:

1. Actual travel expenses in amounts customary for such expenses and approved by the director.

2. A reasonable living expense allowance at a rate customary for such expenses and approved by the director.

3. Per diem compensation at a rate customary for such compensation as approved by the director.

C. All persons receiving any reimbursement or compensation from the insurance examiners' revolving fund shall submit to the director for approval a detailed account of all expenses and compensation necessarily incurred on account of an examination. Persons shall not receive or accept any additional emolument on account of an examination. Any reimbursement or compensation made by the fund and approved by the director shall be charged to the person being examined by the director and all receipts shall be credited to the fund.

D. The fund is a special state fund pursuant to section 35-142, subsection A, paragraph 8. Monies in the insurance examiners' revolving fund shall not revert to the general fund.

E. Each authorized insurer shall deposit at a time determined by the director the sum of one hundred dollars with the director to be credited to the insurance examiners' revolving fund. Such deposit not to exceed one hundred dollars shall be returned only if such insurer ceases to transact insurance business in this state.

F. For purposes of this section, "insurer" includes health care services organizations, prepaid dental plan organizations, hospital service corporations, medical service corporations, dental service corporations and hospital, medical, dental and optometric service corporations incorporated in this state.

§ 20-160 Powers of examination; witnesses; subpoenas; perjury

A. The director may take depositions, subpoena witnesses or documentary evidence, administer oaths and examine under oath any individual relative to the affairs of any person being examined or relative to the subject of any hearing or investigation.

B. Witness fees and mileage, if claimed, shall be allowed the same as for testimony in a superior court. Witness fees, mileage and the actual expense necessarily incurred in securing attendance of witnesses and their testimony shall be itemized, and shall be paid by the person being examined if such person is found to have been in violation of the law as to the matter with respect to which such witness was so subpoenaed, or by the person, if other than the director, at whose request the hearing is held.

C. The subpoena shall be served in the same manner as if issued from a superior court. If a person fails to obey a subpoena lawfully served, the director shall forthwith forward a report of such disobedience, together with a copy of the subpoena and proof of service thereof, to the superior court for the county in which the person was required to appear. The court shall forthwith cause such person to be produced and shall impose penalties as though he had disobeyed a subpoena issued out of such court.

D. A person who being under oath testifies falsely or makes any false affidavit during the course of any examination, investigation or hearing, is guilty of perjury.

§ 20-161 Hearings

A. The director may hold hearings for any purpose deemed by him to be necessary and within the scope of this title and shall hold a hearing if required by any provision of this title. Hearings shall be conducted pursuant to title 41, chapter 6, article 10.

B. In a hearing conducted pursuant to this section, an insurer may be represented by a corporate officer.

§ 20-162 Demand for hearing; stay of order

A. A request for a hearing pursuant to title 41, chapter 6, article 10 that is received by the director before the effective date of any order issued by the director or within ten days after the order is delivered shall stay the effectiveness of the order pending the hearing and an order made thereon, except as to action taken or proposed pursuant to section 41-1092.11, subsection B or under an order on hearing, an order pursuant to an order on hearing or an order to make good an impairment of the assets of an insurer.

B. If an automatic stay pursuant to subsection A of this section is not applicable, any party may apply to the director for a stay for cause. If the director fails to grant the stay, the party may appeal the director's decision to the superior court in Maricopa county.

§ 20-163 Notice of hearing

Not less than ten days in advance the director shall give notice of the time and place of the hearing, stating the matters to be considered. If the persons to be given notice are not specified in the provision pursuant to which the hearing is held, the director shall give such notice to all persons directly affected by such hearing.

§ 20-164 Procedure upon hearing

A. Hearings may be closed to the public at the director's discretion, but the hearing shall be open to the public if so requested in writing by any principal party to the hearing.

B. The director shall allow any person affected by the hearing to appear in person and by counsel, to be present during the giving of all evidence, to have a reasonable opportunity to inspect all documentary evidence, to examine witnesses, to present supporting evidence and to have subpoenas issued by the director to compel attendance of witnesses and production of evidence.

§ 20-165 Order on hearing

A. In conducting any hearing the director shall sit as a quasi-judicial officer.

B. Within thirty days after termination of the hearing or of any rehearing thereof or reargument thereon, the director shall make his order on the hearing, covering matters involved in such hearing and in any rehearing or reargument thereof, and shall give a copy of such order to the same persons given notice of the hearing.

C. The order shall contain a concise statement of the facts as found by the director, a concise statement of his conclusions therefrom, and the effective date of the order.

D. The order may affirm, modify or nullify action theretofore taken or may constitute the taking of new action within the scope of the notice of hearing.

§ 20-166 Judicial review

Except as provided in section 41-1092.08, subsection H, an appeal to the superior court in Maricopa county may be taken from any final decision of the director pursuant to title 12, chapter 7, article 6.

§ 20-167 Fees; definition

A. The director shall collect in advance the following fees, determined by the director, which are nonrefundable on payment:

Not Less Than: Not More Than:

1. For filing charter documents:

(a) Original charter documents,

articles of incorporation,

bylaws, or record of

organization of insurers,

or certified copies thereof,

required to be filed with

the director and not also

subject to filing in the

office of the corporation

commission $ 40.00 $ 115.00

(b) Amended charter documents 15.00 45.00

(c) No charge or fee shall be

required for filing with

the director any of such

documents also required

by law to be filed in the

office of the corporation

commission

2. Certificate of authority:

(a) Issuance:

Fraternal benefit societies $ 15.00 $ 45.00

Medical or hospital service

corporations, health care

services organizations or

prepaid dental plan

organizations 40.00 115.00

Mechanical reimbursement

reinsurers 150.00 450.00

All other insurers 100.00 295.00

(b) Renewal:

Fraternal benefit societies 15.00 45.00

Medical or hospital service

corporations, health care

services organizations or

prepaid dental plan

organizations 40.00 115.00

Domestic stock life insurers,

domestic stock disability

insurers or domestic stock

life and disability insurers 750.00 2,250.00

Domestic life reinsurers,

domestic disability

reinsurers or domestic

life and disability

reinsurers 2,250.00 5,500.00

Mechanical reimbursement

reinsurers 2,250.00 5,500.00

All other insurers 70.00 205.00

3. Certificate of registration as an

administrator or application for

renewal under section 20-485.12 $ 100.00 $ 295.00

4. Authority to solicit applications

for and issue policies by means

of mechanical vending machines $ 30.00 $ 90.00

5. Service company permit $ 150.00 $ 450.00

6. Application for motor vehicle

service contract program approval $ 150.00 $ 450.00

7. Life care contract application

or annual report $ 225.00 $ 675.00

8. Filing annual statement $ 150.00 $ 450.00

9. Annual statement filing for

exempt insurer transacting life

insurance, disability insurance

or annuity business pursuant to

section 20-401.05 $ 65.00 $ 100.00

10. Licenses and examinations:

(a) Licenses:

Surplus lines broker's license,

quadrennially $ 600.00 $1,000.00

All other licenses,

quadrennially 60.00 180.00

(b) Examinations for license:

Examination on laws and one kind

of insurance 8.00 25.00

Examination on laws and two or

more kinds of insurance 15.00 45.00

11. Miscellaneous:

Fee accompanying service of

process on director $ 8.00 $ 25.00

Certificate of director,

under seal 0.00 5.00

Copy of document filed in

director's office, per page 0.50 0.75

B. Except as provided in section 20-1098.18, the director shall deposit, pursuant to sections 35-146 and 35-147, all fees collected pursuant to this section in the state general fund. A refund is not allowed for any unused portion of a fee, and the director shall not prorate fees.

C. The license fees prescribed by this section shall be payment in full of all demands for all state, county, district and municipal license fees, license taxes, business privilege taxes and business privilege fees and charges of every kind.

D. The director may contract for the examination for licensing adjusters, insurance producers, bail bond agents, risk management consultants and surplus lines brokers. If the director does so, the fee for examinations for licenses pursuant to this section is payable directly to the contractor by the applicant for examination. The director may agree to a reasonable examination fee to be charged by the contractor. The fee may exceed the amounts prescribed in this section.

E. The director may contract with a voluntary domestic organization of surplus lines brokers to perform any transaction prescribed in chapter 2, article 5 of this title, including the acceptance or maintenance of the reports required by section 20-408. The director may allow the contractor to charge a stamping fee. The surplus lines broker shall pay the stamping fee established pursuant to this section directly to the contractor.

F. Captive insurers shall pay certificate of authority issuance and renewal fees as prescribed by the director.

G. For the purposes of this section, "stamping fee" means a reasonable filing fee charged by a contractor for any transaction prescribed in chapter 2, article 5 of this title, including the acceptance or maintenance of the reports required by section 20-408.

§ 20-168 Preparation and sale of publications

To the extent he reasonably shall deem desirable and in the public interest, the director may prepare or have prepared books, pamphlets and other publications relating to insurance and sell or resell same in such manner and at such prices not less than cost as he shall determine. All monies received by the director from any such sale or resale shall revert to the general fund.

§ 20-169 Supervision by director

Notwithstanding any other law, if on examination pursuant to this article or at any other time it appears to or is in the opinion of the director that any insurance company is insolvent, or its condition is such as to render the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance, or if the insurance company appears to have exceeded its powers or has failed to comply with the law, or if the insurance company gives its consent, the director, on the director's determination, shall do all of the following:

1. Notify the insurance company of the director's determination.

2. Furnish to the insurance company a written list of the director's requirements to abate the determination.

3. If the director makes a further determination to supervise, the director shall notify the insurance company that it is under the supervision of the department of insurance and financial institutions and that the director is applying and effecting the provisions of this article. The insurance company shall comply with the lawful requirements of the director and, if placed under supervision, shall under supervision have sixty days from the date of notice within which to comply with the requirements of the director, subject to the provisions of this article. If the insurance company fails to comply within such time, the director, or a conservator appointed by the director for that purpose, shall immediately, after due and proper notice and hearing, take charge as conservator of the insurance company and all of the property and effects of the insurance company.

§ 20-170 Prohibited acts during sixty day period of supervision

During the period of supervision, the director may appoint a supervisor to supervise such insurance company and may provide that the insurance company may not do any of the following things, during the period of supervision, without the prior approval of the director or his supervisor:

1. Dispose of, convey or encumber any of its assets or its business in force;

2. Withdraw any of its bank accounts;

3. Lend any of its funds;

4. Invest any of its funds;

5. Transfer any of its property;

6. Incur any debt, obligation or liability;

7. Merge or consolidate with another company; or

8. Enter into any new reinsurance contract or treaty.

§ 20-171 Conservatorship; liquidation

A. If, after notice, and after hearing, at the conclusion of the sixty day period, it is determined that such insurance company has failed to comply with the lawful requirements of the director or upon consent by an insurance company, the director may appoint a conservator, who shall immediately take charge of such insurance company and all of the property, books, records, and effects thereof, and conduct the business thereof, and take such steps toward the removal of the causes and conditions, which have necessitated such order, as the director may direct. During the pendency of conservatorship, the conservator shall make such reports to the director from time to time as may be required by the director and shall be empowered to take all necessary measures to preserve, protect, and recover any assets or property of such insurance company, including claims or causes of action belonging to or which may be asserted by such insurance company, and to deal with the same in his own name as conservator, and shall be empowered to file, prosecute, and defend any suit or suits which have been filed or which may thereafter be filed by or against such insurance company which are deemed by the conservator to be necessary to protect all of the interested parties or any property affected thereby. If at the time of appointment of a conservator or at any time during the pendency of such conservatorship it appears that the interest of the policyholders or certificate holders of such insurance company can best be protected by reinsuring the same, the conservator may, with the approval of or at the direction of the director:

1. Reinsure all or any part of such insurance company's policies or certificates of insurance with some solvent insurance company authorized to transact business in this state, and

2. To the extent that such insurance company in conservatorship is possessed of reserves attributable to such policies or certificates of insurance, the conservator may transfer to the reinsuring company such reserves or any portion thereof as may be required to consummate the reinsurance of such policies, and any such reserves so transferred shall not be deemed a preference of creditors.

B. If the director is satisfied that such insurance company is not in condition to continue business in the interest of its policy or certificate holders, under the conservator as above provided, the director shall give notice to the attorney general who shall thereupon apply to any court in Arizona having jurisdiction thereof for leave to file a suit in the nature of quo warranto to forfeit the certificate of authority of such insurance company or to require it to comply with the law or to satisfy the director as to its solvency, and to satisfy the requirement that its condition is such as to render the continuance of its business not hazardous to the public or to the holders of its policies or certificates of insurance. It shall be in the discretion of the director to determine whether or not he will operate the insurance company through a conservator, or report it to the attorney general. When all the policies of an insurance company are reinsured or terminated, and all of its affairs concluded, the director shall report the same to the attorney general, who shall take such action as may be necessary to effect the forfeiture or cancellation of the certificate of authority of the insurance company so reinsured and liquidated. Where the director lends his approval to the merger, consolidation or reinsurance of all the policies of one insurance company with that of another, the same shall be reported to the attorney general who shall proceed to effect the forfeiture or cancellation of the certificate of authority of the insurance company from which the policies were merged, consolidated or reinsured, in the same manner as is provided for the charters of companies totally reinsured or liquidated.

C. The cost incident to the supervisor's and conservator's service shall be fixed and determined by the director and shall be a charge against the assets and funds of the insurance company to be allowed and paid as the director may determine.

§ 20-172 Possession by director of person transacting insurance prior to appointment of receiver; powers of director in possession; stay of possession order; application to title insurance

A. The director may, upon submission of a verified petition stating that an insurer is in such an unsafe or unsound condition that it is or will become unable to meet the anticipated demands of its policyholders and that the condition cannot be corrected by the procedures of sections 20-169, 20-170 or 20-171, obtain an order from the superior court allowing the director to immediately take possession and control of the insurer pending a hearing on the appointment of a receiver. The superior court shall immediately consider the director's petition and shall immediately issue without notice to the affected party such order unless the verified petition filed by the director is faulty. After the order is granted, the director shall immediately, through the attorney general, apply to the superior court for the appointment of a receiver for the insurer. If at any time the court finds that no ground for receivership exists, the receivership shall be dissolved and the director's possession terminated.

B. When the director has taken possession of an insurer and until either the appointment and qualification of the receiver or the adjudication that no ground for the receivership exists, the director shall be vested with the full and exclusive power of management and control. The director shall have the power to continue or to discontinue the business, to stop or to limit the payment of its obligations, to employ any necessary assistants, to execute any instrument in the name of the insurer and to commence, defend and conduct in its name any action or proceeding in which the insurer may be a party.

C. An order issued by the director pursuant to this section shall not be stayed except by order of the superior court and upon the giving of security by the applicant in such sum as will be adequate to protect the insurer's policyholders.

D. The provisions of this section shall apply to all types of insurers including title insurers, hospital service corporations, medical service corporations, dental service corporations, optometric service corporations, and health care service organizations.

§ 20-173 Residence requirement; exemption for officer representing insurer

Notwithstanding the provision of section 38-201, subsection A, to the contrary, a member of a guaranty fund board established pursuant to this title, chapter 3, article 6 or 7, who is appointed to represent an insurer or group of insurers, need not be a resident of this state.

Article 3 Mandated Health Coverage

§ 20-181 Mandated health coverage; report

An organization or individual advocating a legislative proposal that would mandate a health coverage or offering of a health coverage by an insurer, hospital, medical, dental or optometric service corporation, health care services organization or any other health care service contractor as a component of individual or group policies shall submit a report pursuant to section 20-183. The report shall assess both the social and financial impacts of such coverage, including the effectiveness of the treatment or service proposed, according to the factors prescribed in section 20-182.

§ 20-182 Factors for assessing impact; certification of report

A. To the extent that information is available, the report prescribed by section 20-181 shall include, but not be limited to, the following:

1. The social impact:

(a) The extent to which the treatment or service is generally utilized by a significant portion of the population.

(b) The extent to which the insurance coverage is already generally available.

(c) If coverage is not generally available, the extent to which the lack of coverage results in persons avoiding necessary health care treatments.

(d) If the coverage is not generally available, the extent to which the lack of coverage results in unreasonable financial hardship to a patient.

(e) The level of public demand for the treatment or service.

(f) The level of public demand for insurance coverage of the treatment or service.

(g) The level of interest of collective bargaining agents in negotiating privately for inclusion of this coverage in group contracts.

2. The financial impact:

(a) The extent to which the coverage will increase or decrease the cost of the treatment or service.

(b) The extent to which the coverage will increase the appropriate use of the treatment or service.

(c) The extent to which the mandated treatment or service will be a substitute for a more expensive treatment or service.

(d) The extent to which the coverage will increase or decrease the administrative expenses of insurers and the premium and administrative expenses of policyholders.

(e) The impact of this coverage on the total cost of health care.

B. An actuary who is a member of the American academy of actuaries shall prepare the financial impact analysis required by subsection A, paragraph 2 of this section and certify that the analysis is consistent with accepted actuarial techniques.

C. The report required by section 20-181 shall address the specific language of the proposed mandate. A report on a similar proposal in a different jurisdiction is insufficient and does not meet the requirements of section 20-181.

D. An organization, individual or legislator that does not submit a report required by section 20-181 is not subject to any civil sanction or criminal penalty.

§ 20-183 Report procedures and deadlines

A person or a legislator advocating a legislative proposal pursuant to section 20-181 shall submit a written report explaining the factors prescribed in section 20-182 to the joint legislative audit committee established by section 41-1279. The report must be submitted on or before September 1 before the start of the legislative session for which the legislation is proposed. The joint legislative audit committee shall assign the written report to the appropriate legislative committee of reference established pursuant to section 41-2954. The legislative committee of reference shall hold at least one hearing and take public testimony after receiving the report. The legislative committee of reference shall study the written report and deliver a report of its recommendations to the joint legislative audit committee, the speaker of the house of representatives, the president of the senate, the governor and the director of the department of insurance and financial institutions on or before December 1 of the year in which the report is submitted.

Article 4 Payment of Premiums

§ 20-191 Payment of premiums by mail; date of payment

A. Any payment of insurance premium that is deposited, properly addressed and postage prepaid, in an official depository of the United States mail on or before the date the premium is due is deemed timely payment of the premium on the date shown by the postmark or other official mark of the United States mail stamped on the payment envelope. An insurer may establish the postmark date by retaining the postmarked payment envelope. If the insurer does not retain the envelope or the postmark date on the envelope is illegible, the payment date is presumed to be five mail days before the date the insurer receives the payment. An insurer may establish the date of receipt by a record generated in the course of regularly conducted business. For the purposes of this subsection, "mail days" means days on which the United States postal service performs regular mail delivery.

B. If a payment described in subsection A is sent by United States certified or registered mail or certificate of mailing, the date of the registration, certification or certificate, as established by a record authenticated by proper officials of the United States mail, is deemed the date of payment.

C. If the due date of a payment described in subsection A falls on a Saturday, Sunday or legal holiday, the payment is considered timely if sent on the next business day.

Chapter 2 Transaction of Insurance Business

Article 1 Authorization of Insurers and General Requirements

§ 20-201 "Alien" insurer defined

An "alien" insurer is one formed under the laws of a country other than the United States.

§ 20-202 "Charter" defined

"Charter" means articles of incorporation, of agreement or of association, or other basic constituent document of a corporation, or subscribers' agreement and power of attorney of a reciprocal insurer.

§ 20-202.01 Stock insurer's initial free surplus defined

Initial free surplus of a stock insurer is the minimum amount of investment required for the lines authorized over and above the minimum required capital stock.

§ 20-202.02 Mutual insurer's minimum required basic surplus defined

A mutual insurer's minimum required basic surplus is defined as the minimum requirement deposited with the state treasurer through the director's office to qualify for the lines of insurance authorized to be written.

§ 20-202.03 Mutual insurer's initial free surplus defined

A mutual insurer's initial free surplus is defined as the minimum additional assets required of a mutual insurer over and above the minimum required basic surplus for the lines of insurance authorized to be written.

§ 20-202.04 Reciprocal insurer's required basic surplus defined

A reciprocal insurer's required basic surplus is defined as the minimum requirement deposited with the state treasurer through the director's office to qualify for the lines of insurance authorized to be written.

§ 20-202.05 Reciprocal insurer's initial free surplus defined

A reciprocal insurer's initial free surplus is defined as the minimum additional assets required of a reciprocal insurer over and above the minimum required basic surplus for the lines of insurance authorized to be written.

§ 20-203 "Domestic" insurer defined

A "domestic" insurer is one formed under the laws of this state.

§ 20-204 "Foreign" insurer defined

A "foreign" insurer is one formed under the laws of another state of the United States.

§ 20-205 "State," "United States" defined

"State" means any state, commonwealth or territory of the United States, including the District of Columbia, and "United States" includes the states, territories, districts and commonwealths thereof.

§ 20-206 Authority to transact insurance

A. No person shall act as an insurer and no insurer shall transact insurance in this state except as authorized by a subsisting authority granted to it by the director, except as to such transactions as are expressly otherwise provided for in this title. No such authority shall be required for an insurer, formerly so authorized, to enable it to investigate and settle losses under its policies lawfully written in this state, or to liquidate such assets and liabilities of the insurer, other than collection of new premiums, as has resulted from its former authorized operations in this state.

B. An insurer not transacting new insurance business in this state but continuing collection of premiums on and servicing of policies remaining in force as to residents of or risks located in this state, is transacting insurance in this state for the purpose of premium tax requirements only and is not required to have a certificate of authority therefor. This subsection shall not apply to insurers which have withdrawn from this state prior to January 1, 1955.

C. As to an insurance coverage on a subject of insurance not resident, located, or expressly to be performed in this state at time of issuance, and solicited, written and delivered outside the state, no such authority shall be required of an insurer as to subsequent transactions in this state on account thereof.

§ 20-207 General qualifications to transact insurance

To qualify for and hold authority to transact insurance in this state an insurer shall be otherwise in compliance with the provisions of this title and with its charter powers, and shall be an incorporated stock insurer, an incorporated mutual insurer, a reciprocal insurer, or a Lloyd's association of the same general type as may be formed as a domestic insurer under this title. No foreign or alien insurer shall be authorized to transact insurance in this state which does not maintain reserves as required by article 1 of chapter 3 of this title applicable to the kind or kinds of insurance transacted by such insurer.

§ 20-208 Definition of guaranteed investment contract

In this title, unless the context otherwise requires, "guaranteed investment contract" means any unallocated group contract, investment contract, funding agreement, guaranteed interest contract or other similar instrument by whatever name in which an insurance company agrees to guarantee a fixed or variable rate of interest or a future payment that is based on an index or any other similar criteria, that is payable at a predetermined date on monies that are deposited with the insurance company and that is not dependent on the continuance of human life.

§ 20-209 Kinds of insurance an insurer may transact

A. An insurer which otherwise qualifies therefor may be authorized to transact any one kind or combination of kinds of insurance as defined in article 2 of this chapter, except that:

1. A life insurer shall not be authorized to transact any other kind of insurance except disability, but if immediately prior to January 1, 1955 any life insurer lawfully held a subsisting certificate of authority granting it the right to transact in this state additional kinds of insurance other than disability, as long as the insurer is otherwise in compliance with this title the director may continue to authorize such insurer to transact the same kinds of insurance as those specified in such prior certificate of authority.

2. A reciprocal insurer shall not transact life insurance.

3. A title insurer shall not transact any other kind of insurance.

B. A life insurer authorized to transact life insurance in this state may issue guaranteed investment contracts. An insurer authorized to issue guaranteed investment contracts may offer an annuity option as a feature of a guaranteed investment contract.

§ 20-210 Minimum required capital stock or basic surplus

A. Except as provided in subsection B, to qualify for authority to transact any one kind of insurance or combinations of kinds of insurance as shown below, an insurer shall possess and thereafter maintain unimpaired minimum required capital stock, if a stock insurer, or unimpaired minimum required basic surplus, if a mutual or a reciprocal insurer, and free surplus not less than fifty per cent of the initial free surplus, and when first so authorized shall possess initial free surplus, all in amounts not less than as determined from the following table:

Stock Insurers Mutual Insurers Reciprocal Insurers

Minimum Minimum Minimum

Kind or Required Initial Required Initial Required Initial

Kinds of Capital Free Basic Free Basic Free

Insurance Stock Surplus Surplus Surplus Surplus Surplus

Casualty $600,000 $300,000 $600,000 $300,000 $600,000 $300,000

Disability 300,000 150,000 300,000 150,000 300,000 150,000

Life 300,000 150,000 300,000 150,000 Not Applicable

Disability

and life 400,000 200,000 400,000 200,000 Not Applicable

Marine and

Transporta- 600,000 300,000 600,000 300,000 600,000 300,000

tion

Property 600,000 300,000 600,000 300,000 600,000 300,000

Surety 1,000,000 500,000 1,000,000 500,000 1,000,000 500,000

Multiple Line 1,000,000 500,000 1,000,000 500,000 1,000,000 500,000

Vehicle 600,000 300,000 600,000 300,000 600,000 300,000

Title 500,000 250,000 Not Applicable Not Applicable

B. A domestic insurer, including a domestic limited stock insurer subject to the capital and surplus requirements prescribed in subsection D of this section, holding a valid certificate of authority to transact insurance in this state of the kind or kinds as set forth in subsection A prior to the effective date of this section, may, if otherwise qualified, continue to be so authorized while possessing the amount of paid-in capital stock, if a stock insurer, or surplus, if a mutual insurer, required by the laws of this state for such authority immediately prior to the effective date of this section. The director shall not grant such an insurer authority to transact any other or additional kinds of insurance unless such insurer fully complies with the requirements as to capital and surplus, as applied to all kinds of insurance which the insurer proposes to transact, as provided by this section for like insurers applying for original certificates of authority under this title. Upon a change in the control of such an insurer, such insurer shall within one year from the effective date of such change in control meet the capital and surplus requirements for new insurers pursuant to subsection A of this section. For the purposes of this subsection "control" shall have the same meaning and be determined in the same manner as prescribed in section 20-481.

C. Capital and surplus requirements are based upon all kinds of insurance transacted by the insurer in all areas in which the insurer operates or proposes to operate whether or not only a portion of such kinds are to be transacted in this state.

D. Notwithstanding the limitation in the first sentence of subsection B of this section on increased capitalization for authorized insurers, any domestic limited stock insurer which on January 31, 1969 was the holder of a valid certificate of authority shall not be required to meet the capital and initial free surplus requirement of this section, but after January 31, 1980, any such domestic limited stock insurer shall possess and thereafter maintain:

1. Minimum paid-in capital stock of one hundred thousand dollars, and

2. Surplus funds in an amount of not less than one-half such minimum paid-in capital. On and after the effective date of this section any domestic limited stock insurer which holds a valid certificate of authority immediately prior to such effective date and which qualified under the provisions of subsection B of section 20-708 and whose premium income as a direct writer during calendar year 1976 did not exceed fifty per cent of its total premium income including reinsurance premiums from insurance policies and contracts for such year, shall be a domestic life and disability reinsurer and be subject to the provisions of article 10, of chapter 4 of this title.

§ 20-211 Surplus required

A. In addition to the minimum required capital stock, if a stock insurer, or minimum required basic surplus, if mutual or reciprocal insurers, as required by sections 20-210 and 20-212 as to all stock insurers and foreign and alien mutual and reciprocal insurers, by sections 20-768 and 20-212 as to domestic reciprocal insurers, and section 20-711, subsection B and section 20-212 as to domestic mutual insurers, except as stated in subsection C of this section, any foreign or alien insurer, any title insurer, and any domestic insurer shall possess at the time of original authorization in this state initial free surplus as stated in section 20-210, and shall maintain free surplus funds in an amount of not less than one-half such initial free surplus. No other insurer shall be so initially authorized in this state unless it then possesses surplus of not less than initial free surplus as stated in section 20-210, in addition to the minimum required capital stock, if a stock insurer, or minimum required basic surplus, if mutual or reciprocal insurers, otherwise required.

B. In addition to the minimum required capital stock if the insurer is a stock insurer or in addition to the minimum required basic surplus if the insurer is a mutual or reciprocal insurer under this article and chapter 4, article 1 of this title, a domestic, foreign or alien insurer shall possess and maintain any additional free surplus that the director may require based on the type, volume or nature of its business as a necessary condition to avoid rendering its transaction of insurance hazardous to its policyholders or the people of this state. The director may adopt rules to implement this subsection.

C. Subsection A of this section does not apply to a domestic mutual insurer that qualifies on the basis of applications for insurance as provided in section 20-711, or to reinsurers that qualify pursuant to chapter 4, article 10 of this title and that do not within such five year period transact any kind of insurance in addition to that for which initially authorized.

§ 20-212 Funds required to transact additional kinds of insurance

An insurer otherwise qualified may be authorized to transact combinations of kinds of insurance, other than the life and disability combination shown in section 20-210, while possessing and maintaining thereafter additional minimum required capital stock, if a stock insurer, or additional minimum required basic surplus, if a mutual or reciprocal insurer, not less in amount than that determined as follows: For any lawful combination add two hundred thousand dollars for each additional kind of insurance included in the combination to the amount required under section 20-210 for that one kind of insurance in the combination for which the largest amount is required under said section 20- 210, except:

1. Vehicle and disability insurances may be combined with casualty, and in any combination including casualty, without funds in addition to those required because of casualty.

2. With such additional minimum required capital stock or such additional minimum required basic surplus in an amount of not less than five hundred thousand dollars, an insurer, if otherwise qualified, may be authorized to transact all kinds of insurance except life and title insurance. Any domestic stock insurer which on January 1, 1954, was lawfully authorized to transact vehicle insurance, for physical damage only, or casualty insurance, and while possessing paid-in capital of not less than two hundred fifty thousand dollars, may be so authorized to transact all kinds of insurance other than life and title insurances.

3. The amount of such capital or surplus shall not in any event be less than would be required if the insurer proposed to transact in this state all those kinds of insurance which it is transacting elsewhere.

§ 20-213 Deposit requirements

The director shall not issue a certificate of authority to any insurer unless it 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 required capital stock, if a stock insurer, or minimum required basic surplus, if a mutual or reciprocal insurer, required pursuant to this article to be maintained for authority to transact the kinds of insurance to be transacted, except:

1. As to life and disability carriers there shall be maintained with the state treasurer or a trustee approved by the director, a deposit in cash, surety bond or securities as described in sections 20-537 through 20-548 and sections 20-551 through 20-556, in an amount equal to the greatest of:

(a) Minimum required capital stock or minimum required basic surplus pursuant to section 20-210.

(b) Two-thirds of the aggregate reserves as computed under section 20-510.

(c) Twenty-five per cent of the earned premium of the prior year.

2. As to title insurers, the deposit shall be in such amount as is required by article 9 of chapter 6 of this title.

3. As to foreign insurers, in lieu of such deposit or part thereof in this state, the director shall accept the current certificate in proper form of the public official having supervision over insurers in any other state to the effect that a like deposit or part thereof by such insurer is being maintained in public custody in such state in trust for the purpose, among other reasonable purposes of protection of policyholders in this state.

4. As to alien insurers, in lieu of such deposit or part thereof in this state, the director shall accept evidence satisfactory to him that the insurer maintains within the United States by way of deposits with public depositaries, or in trust institutions within the United States approved by the director, assets available for discharge of its United States insurance obligations which assets shall be in amount not less than the outstanding liabilities of the insurer arising out of its insurance transactions in the United States, together with, in the case of title insurers, the sum required by article 9 of chapter 6 of this title, and, in the case of all other insurers, together with the larger of the following sums:

(a) The largest deposit required by this title to be made in this state by any type of domestic insurer transacting like kinds of insurance, or

(b) Three hundred thousand dollars.

5. No deposit requirement for any insurer provided by this section shall exceed five hundred thousand dollars.

§ 20-214 Financial requirements; escalator provisions

If with respect to an insurer lawfully authorized to transact insurance in this state immediately prior to the effective date of this section, this title requires a greater amount of capital, surplus or deposit than required of such insurer immediately prior to such effective date, such insurer shall have a period of one year from and after such effective date within which to comply with any such increased requirement. No such increase shall be required of any domestic stock insurer which as of such effective date, was lawfully authorized to transact in this state only automobile physical damage insurance, and for so long as such insurer does not transact any additional insurance.

§ 20-215 Application for certificate of authority

To apply for an original certificate of authority an insurer shall file with the director its application for a certificate of authority showing its name, location of its home office or principal office in the United States, if an alien insurer, kinds of insurance to be transacted, date of organization or incorporation, form of organization, state or country of domicile and such additional information as the director may reasonably require, together with the following applicable documents:

1. If a foreign or alien insurer, a copy of its corporate charter with all amendments to the charter certified by the public officer with whom the originals are on file in the state or country of domicile.

2. A copy of its bylaws, as amended, certified by its secretary or other officer having custody of the bylaws.

3. A copy of its annual statement as of December 31 last preceding.

4. A copy of the report of the last examination, if any, made of the insurer, certified by the insurance supervisory official of its state of domicile or of entry into the United States.

5. Appointment of the director as its attorney to receive service of legal process if, as to a foreign or alien insurer, such an appointment is not already on file.

6. Appointment of a statutory agent to receive service of legal process, accompanied by his name and address, as to a domestic insurer.

7. If a foreign or alien insurer, a certificate of the public official having supervision of insurance in its state or country of domicile showing that it is authorized to transact the kinds of insurance proposed to be transacted in this state.

8. If an alien insurer, a copy of the appointment and authority of its United States manager, certified by its officer having custody of its records.

9. If a foreign or alien insurer, a certificate as to deposit if to be tendered pursuant to section 20-213.

§ 20-216 Issuance or refusal of certificate

A. If on the completion of an application the director finds that the insurer has met the requirements for and is entitled under this title, the director shall issue to the insurer a proper certificate of authority. If the director does not so find, the director shall issue an order refusing such certificate. The director shall act on an application for a certificate of authority within ninety days after its completion.

B. The certificate, if issued, shall specify the kind or kinds of insurance the insurer is authorized to transact in this state. At the insurer's request, the director may issue a certificate of authority limited to particular types of insurance included within a kind of insurance as defined in this title.

§ 20-217 Certificate of authority; term; termination; delivery upon termination or revocation

A. The certificate of authority issued by the director to an insurer is evidence of its authority to transact in this state the kind of insurance specified in the certificate.

B. A certificate of authority remains in effect until terminated at the request of the insurer or suspended or revoked by the director.

C. A certificate of authority remains the property of this state. Upon termination at the request of the insurer or revocation by the director, the insurer shall immediately deliver the certificate of authority to the director.

D. The director shall not grant the request of an insurer to terminate its certificate of authority if the insurer has any outstanding obligations under a policy of insurance to policyholders or claimants who are residents of this state. This subsection does not apply if the insurer has deposited with the state treasurer securities acceptable to the director in an amount equal to its liabilities, as computed by the director, including its reserves as required by this title in respect to its business in this state for the sole benefit of its policyholders and creditors who are residents of this state. The state treasurer shall hold and administer the deposits pursuant to chapter 3, article 3 of this title. This subsection does not apply if the insurer has fully reinsured such outstanding obligations with a reinsurer under an agreement filed with and approved in writing by the director pursuant to section 20-261. This subsection does not apply when the termination of the insurer's certificate of authority is the result of a merger or consolidation if the emerging or surviving insurer is or becomes authorized to transact business in this state and assumes such outstanding obligations of the terminating insurer.

E. The certificate of authority shall be suspended or revoked if the insurer fails to pay the annual certificate of authority fee denominated a renewal fee in section 20-167 at the time provided in section 20-223.

§ 20-218 Name of insurer

A. No insurer shall be authorized to transact insurance in this state which has or uses a name so similar to that of any insurer already so authorized as to cause uncertainty or confusion. In case of conflict of names between two insurers the director may permit or require the newly authorized insurer to use in this state such supplementation or modification of its name as may reasonably be necessary to avoid such conflict.

B. No insurer shall be authorized to transact insurance in this state which has or uses a name which tends to deceive or mislead as to the type of organization of the insurer.

§ 20-218.01 Appointment of a statutory agent

A. Each domestic insurer shall have and continuously maintain in this state:

1. A known place of business which may be the office of its statutory agent.

2. A statutory agent, which agent may be the director, an individual, who has been a resident of this state for three years, a domestic corporation or a foreign corporation authorized to transact business in this state.

B. Failure to appoint a statutory agent by a domestic insurer may result in the revocation or suspension of such insurer's certificate of authority.

C. The appointment required herein shall be filed with the director.

§ 20-218.02 Change of known place of business or statutory agent

A. A domestic insurer may change its known place of business in this state or its statutory agent in this state, or both, upon filing with the director a statement setting forth:

1. The name of the insurer.

2. The address of its then known place of business.

3. If the address of its known place of business is to be changed, the address to which it is to be changed.

4. The name and address of its then statutory agent.

5. If its statutory agent or his address is to be changed, the name and address of its successor statutory agent, or the new address.

6. That such change was duly authorized by the insurer.

B. If a domestic insurer's statutory agent is changed or resigns, a new statutory agent shall be appointed by the insurer. The termination of an existing statutory agent shall not take effect until the insurer has appointed a new valid statutory agent.

§ 20-219 Mandatory revocation or suspension

The director shall refuse to renew or shall revoke or suspend an insurer's certificate of authority:

1. If such action is required by any provision of this title, or

2. If the insurer no longer meets the requirements for the authority originally granted, on account of deficiency in assets or otherwise.

§ 20-220 Certificate of authority; refusal to renew; revocation or suspension; civil penalty

A. The director may after a hearing refuse to renew or may revoke or suspend an insurer's certificate of authority, in addition to other grounds therefor in this title, if the insurer:

1. Violates any provision of this title other than a provision as to which refusal, suspension or revocation is mandatory.

2. Knowingly fails to comply with any lawful rule or order of the director.

3. Is found by the director to be in unsound condition or in such condition as to render its further transaction of insurance in this state hazardous to its policyholders or to the people of this state.

4. Usually compels claimants under its policies to accept less than the amount due them or to bring suit against it to secure full payment thereof.

5. Refuses to be examined or to produce its accounts, records and files for examination by the director when required.

6. Fails to pay any final judgment rendered against it in this state within thirty days after the judgment becomes final.

7. Is affiliated with and under the same general management or interlocking directorate or ownership as another insurer which transacts direct insurance in this state without having a certificate of authority therefor, except as permitted to a surplus lines insurer under article 5 of this chapter.

B. If after a hearing the director finds grounds pursuant to subsection A to suspend or revoke an insurer's certificate of authority, the director may impose, in lieu of or in addition to such suspension or revocation, the following civil penalties:

1. A penalty not to exceed one thousand dollars for each violation and not to exceed an aggregate of ten thousand dollars within any six-month period with respect to unintentional violations.

2. A penalty not to exceed five thousand dollars for each violation and not to exceed an aggregate of fifty thousand dollars within any six-month period with respect to intentional violations. The insurer shall pay the civil penalty to the director who shall deposit it, pursuant to sections 35-146 and 35-147, in the state general fund. The civil penalty is in addition to any other penalty imposed by law.

C. The director may adopt rules to provide the criteria to be used for identifying insurers who are found to be in a condition that would render the continuance of their business hazardous to their policyholders or the people of this state.

§ 20-220.01 Hazardous financial condition; determination; order

A. The director may consider the following standards, either singly or a combination of two or more, in determining whether the continued operation of any insurer transacting an insurance business in this state may be deemed to be hazardous to its policyholders or creditors or the general public:

1. Adverse findings reported in financial condition and market conduct examination reports, audit reports and actuarial opinions, reports or summaries.

2. The national association of insurance commissioners insurance regulatory information system and its other financial analysis solvency tools and reports.

3. Whether the insurer has made adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the insurer, when considered in light of the assets held by the insurer with respect to the reserves and related actuarial items, including investment earnings on the assets, and the considerations anticipated to be received and retained under the policies and contracts.

4. The ability of an assuming reinsurer to perform and whether the insurer's reinsurance program provides sufficient protection for the insurer's remaining surplus after taking into account the insurer's cash flow and the classes of business written as well as the financial condition of the assuming reinsurer.

5. Whether the insurer's operating loss in the last twelve-month period or any shorter period of time, including net capital gain or loss, change in nonadmitted assets and cash dividends paid to shareholders, is greater than fifty per cent of the insurer's remaining surplus as regards policyholders in excess of the minimum required.

6. Whether the insurer's operating loss in the last twelve-month period or any shorter period of time, excluding net capital gains, is greater than twenty per cent of the insurer's remaining surplus as regards policyholders in excess of the minimum required.

7. Whether a reinsurer, an obligor or any entity within the insurer's insurance holding company system is insolvent, threatened with insolvency or delinquent in payment of its monetary or other obligations and that, in the director's opinion, may affect the insurer's solvency.

8. Contingent liabilities, pledges or guaranties that either individually or collectively involve a total amount that, in the director's opinion, may affect the insurer's solvency.

9. Whether any affiliate or controlling person of an insurer is delinquent in the transmitting to or payment of net premiums to the insurer.

10. The age and collectability of receivables.

11. Whether the management of an insurer, including officers, directors or other persons who directly or indirectly control the operation of the insurer, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the insurer in the position.

12. Whether the management of an insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false and misleading information concerning an inquiry.

13. Whether the insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the director.

14. Whether the management of an insurer either has filed any false or misleading sworn financial statement, has released false or misleading financial statements to lending institutions or to the general public, has made a false or misleading entry or has omitted an entry of material amount in the insurer's books.

15. Whether the insurer has grown so rapidly and to an extent that the insurer lacks adequate financial and administrative capacity to meet its obligations in a timely manner.

16. Whether the insurer has experienced or will experience in the foreseeable future cash flow or liquidity problems.

17. Whether the management of an insurer has established reserves that do not comply with minimum standards established by state insurance laws, rules, statutory accounting standards, sound actuarial principles and standards of practice.

18. Whether the management of an insurer persistently engages in material under reserving that results in adverse development.

19. Whether transactions among affiliates, subsidiaries or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to assure the insurer's ability to meet its outstanding obligations as they mature.

20. Any other finding determined by the director to be hazardous to the insurer's policyholders or creditors or the general public.

B. For the purposes of making a determination of an insurer's financial condition under this section, the director may:

1. Disregard any credit or amount receivable resulting from transactions with a reinsurer that is insolvent, impaired or otherwise subject to a delinquency proceeding.

2. Make appropriate adjustments including disallowance to asset values attributable to investments in or transactions with parents, subsidiaries or affiliates consistent with the accounting practices and procedures manual adopted by the national association of insurance commissioners, state laws and rules.

3. Refuse to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor.

4. Increase the insurer's liability in an amount equal to any contingent liability, pledge or guarantee not otherwise included if there is a substantial risk that the insurer will be called on to meet the obligation undertaken within the next twelve-month period.

C. If the director determines that the continued operation of the insurer licensed to transact business in this state may be hazardous to its policyholders or creditors or the general public, in addition to any other action authorized by this title, the director may issue an order requiring the insurer to:

1. Reduce the total amount of present and potential liability for policy benefits by reinsurance.

2. Reduce, suspend or limit the volume of business being accepted or renewed.

3. Reduce general insurance and commission expenses by specified methods.

4. Increase the insurer's capital and surplus.

5. Suspend or limit the declaration and payment of dividends by an insurer to its stockholders or its policyholders.

6. File reports in a form acceptable to the director concerning the market value of an insurer's assets.

7. Limit or withdraw from certain investments or discontinue certain investment practices to the extent the director deems necessary.

8. Document the adequacy or premium rates in relation to the risks insured.

9. In addition to regular annual statements, file interim financial reports on the form adopted by the national association of insurance commissioners or in a format prescribed by the director.

10. Correct corporate governance practice deficiencies and adopt and use governance practices acceptable to the director.

11. Provide a business plan to the director in order to continue to transact business in this state.

12. Notwithstanding any other law limiting the frequency or amount of premium rate adjustments, adjust rates for any nonlife insurance product written by the insurer that the director considers necessary to improve the financial condition of the insurer.

D. A hearing demanded by an insurer aggrieved by an order of the director as prescribed by rule shall be closed to the public but the hearing shall be open to the public if requested according to section 20-164, subsection A.

E. This section does not limit or supersede any provision of this title or any other provision of law pertaining to the powers of the director or the regulation of the financial condition of insurers transacting insurance in this state.

§ 20-221 Director as agent for service of process

A. Each authorized foreign or alien insurer shall appoint the director as its attorney to receive service of legal process issued against it in this state. The appointment shall be irrevocable, shall bind any successor in interest or to the assets or liabilities of the insurer and shall remain in effect as long as there is in force in this state any contract made by the insurer or obligations arising therefrom.

B. Service of process against a foreign or alien insurer shall be made only by service of process upon the director. Service of process against a domestic insurer shall be made upon the insurer corporation in the manner provided by laws applying to corporations generally, or upon the insurer's attorney-in-fact if a reciprocal insurer.

C. Each foreign or alien insurer at the time of application for a certificate of authority shall file with the director the name and address of a designated person to whom process against it served upon the director is to be forwarded. The insurer may change such designation by a new filing.

D. Any authorized domestic insurer who does not have or maintain a statutory agent shall appoint the director as its attorney to receive service of legal process issued against it in this state.

§ 20-222 Service of process; time to answer

A. Duplicate copies of legal process against an insurer for whom the director is attorney shall be served upon him. At the time of service the plaintiff shall pay to the director five dollars, taxable as costs in the action. Upon receiving such service the director shall promptly forward a copy thereof by registered mail to the person last so designated by the insurer to receive process.

B. Where process is served upon the director as an insurer's attorney, no further proceedings shall be had against the insurer, and the insurer shall not be required to appear, answer or plead until expiration of forty days after date of such service upon the director.

C. Process served upon the director and copy thereof forwarded as in this section provided shall constitute service thereof upon the insurer.

§ 20-223 Annual statement; payment of fees; penalty for failure to file or pay

A. Each authorized domestic insurer shall annually on or before March 31 and each other authorized insurer shall annually on or before March 1 file with the director, or a repository designated by the director, a true statement of its financial condition, transactions and affairs as of the December 31 preceding. The statement shall be completed pursuant to the instructions and accounting practices and procedures that are approved by the national association of insurance commissioners. The statement shall be in such general form and context as approved by the national association of insurance commissioners for the kinds of insurance to be reported upon, and as supplemented for additional information required by the director. Coincident with the filing of its annual statement, each such insurer shall pay such fees prescribed by section 20-167 for filing the annual statement and renewal of its certificate of authority.

B. The statement of an alien insurer shall relate only to its transactions and affairs in the United States unless the director requires otherwise. The statement shall be verified by the insurer's United States manager or other officer duly authorized.

C. The director may refuse to renew, or may suspend or revoke, the certificate of authority of any insurer failing to file its annual statement or pay its fees when due or within any extension of time therefor which the director, for good cause, may have granted.

D. Any insurer failing to file an annual statement or to pay its fees pursuant to this section is subject to payment of a penalty fee not to exceed twenty-five dollars for each day of delinquency.

§ 20-223.01 Annual report of product liability insurer

At the time of filing the annual report each insurer providing product liability insurance or excess insurance above self-insured retention for product liability, either as a separate policy or as part of a package, to one or more manufacturers or sellers in this state shall file with the director a report of the product liability claims made against its insureds, located in this state, which have been closed during the preceding calendar year. This section shall not require the reporting of any information regarding claims closed prior to June 30, 1978. Each report shall be in such form and provide such information as may be required by the director under appropriate rules and regulations promulgated by the director.

§ 20-224 Premium tax; reports

A. On or before March 1 of each year, each authorized domestic insurer, each other insurer and each formerly authorized insurer referred to in section 20-206, subsection B shall file with the director a report in a form prescribed by the director showing total direct premium income including policy membership and other fees and all other considerations for insurance from all classes of business whether designated as a premium or otherwise received by it during the preceding calendar year on account of policies and contracts covering property, subjects or risks located, resident or to be performed in this state, after deducting from such total direct premium income applicable cancellations, returned premiums, the amount of reduction in or refund of premiums allowed to industrial life policyholders for payment of premiums direct to an office of the insurer and all policy dividends, refunds, savings coupons and other similar returns paid or credited to policyholders within this state and not reapplied as premiums for new, additional or extended insurance. No deduction shall be made of the cash surrender values of policies or contracts. Considerations received on annuity contracts, as well as the unabsorbed portion of any premium deposit, shall not be included in total direct premium income, and neither shall be subject to tax. The report shall separately indicate the total direct fire insurance premium income received from property located in the incorporated cities and towns certified by the office of the state fire marshal pursuant to section 9-951, subsection B, as procuring the services of a private fire company.

B. Coincident with the filing of the tax report, each insurer shall pay to the director for deposit, pursuant to sections 35-146 and 35-147, a tax on such net premiums at the following rates:

1. For fire insurance:

(a) On property located in a city or town certified by the office of the state fire marshal pursuant to section 9-951, subsection B, as procuring the services of a private fire company, .66 percent.

(b) On all other property, 2.2 percent.

2. For disability insurance, 2.0 percent.

3. For health care service plans, the rates prescribed under sections 20-837, 20-1010 and 20-1060.

4. For other insurance:

(a) For premiums received in calendar year 2016, 1.95 percent.

(b) For premiums received in calendar year 2017, 1.90 percent.

(c) For premiums received in calendar year 2018, 1.85 percent.

(d) For premiums received in calendar year 2019, 1.80 percent.

(e) For premiums received in calendar year 2020, 1.75 percent.

(f) For premiums received in calendar year 2021 and for each subsequent calendar year, 1.70 percent.

C. Any payments of tax pursuant to subsection F of this section shall be deducted from the tax payable pursuant to subsection B of this section. Each insurer shall reflect the cost savings attributable to the lower tax in fire insurance premiums charged on property located in an incorporated city or town certified by the office of the state fire marshal pursuant to section 9-951, subsection B, as procuring the services of a private fire company. No insurer shall be liable to the state or to any other person, or shall be subject to regulatory action, relating to the calculation or submittal of fire insurance premium taxes based in good faith on the office of the state fire marshal's certification.

D. Eighty-five percent of the tax paid under this section by an insurer on account of premiums received for fire insurance shall be separately specified in the report and shall be apportioned in the manner provided by sections 9-951, 9-952 and 9-972, except that all of the tax so allocated to a fund of a municipality or fire district that has no volunteer firefighters or pension obligations to volunteer firefighters shall be appropriated to the account of the municipality or fire district in the public safety personnel retirement system and all of the tax so allocated to a fund of a municipality or fire district that has both full-time paid firefighters and volunteer firefighters or pension obligations to full-time paid firefighters or volunteer firefighters shall be appropriated to the account of the municipality or fire district in the public safety personnel retirement system where it shall be reallocated by actuarial procedures proportionately to the municipality or fire district for the account of the full-time paid firefighters and to the municipality or fire district for the account of the volunteer firefighters. A municipality or fire district shall provide to the public safety personnel retirement system all information that the system deems necessary to perform the reallocation prescribed by this section. A full accounting of the reallocation shall be forwarded to the municipality or fire district and its local boards.

E. This section does not apply to title insurance. Title insurers shall be taxed as provided in section 20-1566.

F. Any insurer that paid or is required to pay a tax of $50,000 or more on net premiums received during the preceding calendar year, pursuant to subsection B of this section and sections 20-224.01, 20-837, 20-1010, 20-1060 and 20-1097.07, shall file on or before the fifteenth day of each month from March through August a report for that month, on a form prescribed by the director, accompanied by a payment in an amount equal to fifteen percent of the amount paid or required to be paid during the preceding calendar year pursuant to subsection B of this section and sections 20-224.01, 20-837, 20-1010, 20-1060 and 20-1097.07. The payments are due and payable on or before the fifteenth day of each month and shall be made to the director for deposit, pursuant to sections 35-146 and 35-147.

G. Except for the tax paid on fire insurance premiums pursuant to subsections B and D of this section, an insurer may claim a premium tax credit if the insurer qualifies for a credit pursuant to section 20-224.03, 20-224.04, 20-224.06 or 20-224.07.

H. On receipt of a properly documented claim, a refund shall be provided to an insurer from available funds for the excess amount of any fire insurance premium improperly paid by the insurer. The insurer shall reflect the refund in the fire insurance premiums charged on the property that was charged the excessive amount.

I. On or before September 30 of each year, the director of the department of insurance and financial institutions shall report to the directors of the joint legislative budget committee and the governor's office of strategic planning and budgeting on the amount of insurance premium tax credits established by sections 20-224.03, 20-224.04, 20-224.05, 20-224.06 and 20-224.07 that were used during the previous fiscal year.

J. For the purposes of:

1. Subsection B of this section, fire insurance is one hundred percent of fire lines, forty percent of commercial multiple peril nonliability lines, thirty-five percent of homeowners' multiple peril lines, twenty-five percent of farm owners' multiple peril lines and twenty percent of allied lines.

2. Section 20-416, fire insurance is eighty-five percent of fire and allied lines.

K. From and after December 31, 2017, the director may require that reports and payments under this section be submitted electronically. If the director requires electronic submission, the director shall include on the department's official website a list of one or more acceptable third-party services through which an insurer must submit reports and payments.

§ 20-224.01 Additional premium tax; civil penalty

A. Coincident with the filing of the tax report as required in section 20-224, each insurer shall pay to the director, for deposit, pursuant to sections 35-146 and 35-147, a tax of .4312 percent of such net premiums received from all insurance carried for or on vehicles as defined in section 28-101, in addition to other applicable taxes.

B. The tax of .4312 percent of such net premiums received by the director and paid by an insurer on account of premiums received for insurance on certain vehicles as defined in section 28-101 shall be separately specified in the insurer's report required in section 20-224 and is appropriated to the public safety personnel retirement system and shall be transferred by the state treasurer to the board of trustees of the public safety personnel retirement system for deposit in the highway patrol account. If the tax received is greater than the amount necessary to fund the highway patrol account, beginning in the 1991-1992 fiscal year the state treasurer shall deposit the excess in the Arizona highway patrol fund established by section 41-1752 in any amount required by legislative appropriation.

C. An insurer shall report and pay the taxes required by this section in the manner prescribed by section 20-224. An insurer who fails to pay the tax on or before the prescribed payment dates is subject to a civil penalty determined pursuant to section 20-225.

D. An insurer shall not claim a premium tax credit pursuant to section 20-224.03 for the premium taxes paid pursuant to this section.

§ 20-224.02 Credit for overpayment of tax

If an overpayment of the taxes imposed by sections 20-224, 20-224.01, 20-837, 20-1010, 20-1060 and 20-1097.07 results from payments made pursuant to the method prescribed in section 20-224, subsection F, the director shall within three months after the due date refund the overpayment without interest.

§ 20-224.03 Premium tax credit for new employment

A. For taxable years beginning from and after June 30, 2011, a credit is allowed against the premium tax liability imposed pursuant to section 20-224, 20-837, 20-1010, 20-1060 or 20-1097.07 for net increases in full-time employees residing in this state and hired in qualified employment positions in this state as computed and certified by the Arizona commerce authority pursuant to section 41-1525. For the purposes of this section and section 41-1525:

1. A tax credit is not allowed against the portion of the tax payable to the fire fighters' relief and pension fund pursuant to section 20-224 or the portion of the tax payable to the public safety personnel retirement system pursuant to section 20-224.01.

2. A reciprocal insurer and its attorney-in-fact are considered to be the same entity for the purposes of calculating the tax credit under this section.

B. Subject to subsection F of this section, the amount of the tax credit is equal to:

1. $3,000 for each full-time employee hired in a qualified employment position in the first year or partial year of employment. Employees hired in the last ninety days of the taxable year are excluded for that taxable year and are considered to be new employees in the following taxable year.

2. $3,000 for each full-time employee in a qualified employment position for the full taxable year in the second year of continuous employment.

3. $3,000 for each full-time employee in a qualified employment position for the full taxable year in the third year of continuous employment.

C. The capital investment and the new qualified employment positions requirements of section 41-1525, subsection B must be accomplished within twelve months after the start of the required capital investment. A credit may not be claimed until both requirements are met. A business that meets the requirements of section 41-1525, subsection B for a location is eligible to claim first year credits for three years beginning with the taxable year in which those requirements are completed. Employees hired at the location before the beginning of the taxable year but during the twelve-month period allowed in this subsection are considered to be new employees for the taxable year in which all of those requirements are completed. The employees that are considered to be new employees for the taxable year under this subsection shall not be included in the average number of full-time employees during the immediately preceding taxable year until the taxable year in which all of the requirements of section 41-1525, subsection B are completed. An employee working at a temporary worksite in this state while the designated location is under construction is considered to be working at the designated location if all of the following occur:

1. The employee is hired after the start of the required investment at the designated location.

2. The employee is hired to work at the designated location after it is completed.

3. The payroll for the employees destined for the designated location is segregated from other employees.

4. The employee is moved to the designated location within thirty days after its completion.

D. To qualify for a credit under this section, the insurer and the employment positions must meet the requirements prescribed by section 41-1525.

E. A credit is allowed for employment in the second and third year only for qualified employment positions for which a credit was claimed and allowed in the first year.

F. The net increase in the number of qualified employment positions is the lesser of the total number of filled qualified employment positions created at the designated location or locations during the taxable year or the difference between the average number of full-time employees in this state in the current taxable year and the average number of full-time employees in this state during the immediately preceding taxable year. The net increase in the number of qualified employment positions computed under this subsection may not exceed the difference between the average number of full-time employees in this state in the current taxable year and the average number of full-time employees in this state during the immediately preceding taxable year.

G. If the allowable tax credit exceeds the state premium tax liability, the amount of the claim not used as an offset against the state premium tax liability may be carried forward as a tax credit against subsequent years' state premium tax liability for a period not exceeding five taxable years.

H. If the business is sold or changes ownership through reorganization, stock purchase or merger, the new taxpayer may claim first year credits only for the qualified employment positions that it created and filled with an eligible employee after the purchase or reorganization was complete. If a person purchases a taxpayer that had qualified for first or second year credits or if an insurance business changes ownership through reorganization, stock purchase or merger, the new taxpayer may claim the second or third year credits if it meets other eligibility requirements of this section. Credits for which a taxpayer qualified before the changes described in this subsection are terminated and lost at the time the changes are implemented.

I. An insurer that claims a tax credit against state premium tax liability is not required to pay any additional retaliatory tax imposed pursuant to section 20-230 as a result of claiming that tax credit.

J. A failure to timely report and certify to the Arizona commerce authority the information prescribed by section 41-1525, subsection E and in the manner prescribed by section 41-1525, subsection F disqualifies the insurer from the credit under this section. The department of insurance and financial institutions shall require written evidence of the timely report to the Arizona commerce authority.

K. A tax credit under this section is subject to recovery for a violation described in section 41-1525, subsection H.

L. The department may adopt rules necessary for the administration of this section.

M. For the purposes of subsection B, paragraphs 2 and 3 of this section, if a full-time employee in the qualified employment position leaves during the taxable year, the employee may be replaced with another new full-time employee in the same employment position and the new employee will be treated as being in the employee's second or third full year of continuous employment for the purposes of the credit under this section if both of the following apply:

1. The total time the position was vacant from the date the employment position was originally filled to the end of the current tax year totals ninety days or less.

2. The new employee meets all of the same requirements as the original employee was required to meet.

§ 20-224.05 Premium tax credit for health insurance certificates submitted by qualified persons; definitions

A. From and after December 31, 2006, an annual tax credit is allowed against the premium tax liability incurred by a health care insurer pursuant to section 20-224, 20-837 or 20-1060 for an individual or a small business that has received a certificate from the department of revenue pursuant to section 43-210 and obtained health insurance from a health care insurer within ninety days after the date the certificate was issued.

B. The maximum amount of tax credits allowed under this section shall not exceed the aggregate amount of certificates approved by the department of revenue pursuant to section 43-210.

C. For coverage issued to an individual, the amount of the credit is the lesser of:

1. One thousand dollars for coverage on a single person, five hundred dollars for coverage on a child or three thousand dollars for family coverage.

2. Fifty per cent of the health insurance premium.

D. For coverage issued to a small business, the amount of the credit is the lesser of:

1. One thousand dollars for coverage on a single person or three thousand dollars for each employee who elects family coverage.

2. Fifty per cent of the health insurance premium.

E. If the allowable tax credit exceeds the state premium tax liability, the amount of the claim not used as an offset against the state premium tax liability may be carried forward as a tax credit against subsequent years' state premium tax liability for a period not to exceed five taxable years or refunded as allowed under section 20-224.02.

F. The department may adopt rules necessary for the administration of this section.

G. A health care insurer allowed a credit against its premium tax liability under this section shall not be required to pay any additional retaliatory tax levied pursuant to section 20-230 as a result of claiming the credit.

H. For the purposes of this section:

1. "Family" means any of the following:

(a) An adult and the adult's spouse.

(b) An adult, the adult's spouse and all unmarried dependent children under nineteen years of age or under twenty-five years of age if a full-time student.

(c) An adult and the adult's unmarried dependent children under nineteen years of age or under twenty-five years of age if a full-time student.

2. "Health care insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital, medical, dental and optometric service corporation that provides health insurance in this state.

3. "Health insurance" means a licensed health care plan or arrangement that pays for or furnishes medical or health care services and that is issued by a health care insurer. Health insurance does not include limited benefit coverage as defined in section 20-1137.

4. "Small business" means a business that has been in existence for at least one calendar year in this state, that has not provided health insurance to its employees for at least six months and that had between two and twenty-five employees during the most recent calendar year.

§ 20-224.06 Premium tax credit for contributions to school tuition organization; low-income scholarships

A. A credit is allowed against the premium tax liability incurred by an insurer pursuant to section 20-224, 20-837, 20-1010, 20-1060 or 20-1097.07 for the amount of voluntary cash contributions made by the insurer during the tax year to a school tuition organization.

B. The amount of the credit is the total amount of the insurer's contributions for the tax year under subsection A of this section that is preapproved by the department of revenue pursuant to section 43-1183, subsection D.

C. The procedures, conditions, limitations, definitions and other requirements prescribed by section 43-1183 and title 43, chapter 15 apply to the following:

1. Insurers that claim a credit under this section.

2. Claims for credit under this section.

3. School tuition organizations that receive contributions from insurers for the purposes of this section.

4. Schools that qualify to receive scholarship monies contributed by insurers for the purposes of this section.

5. Students who receive scholarships from monies contributed by insurers for the purposes of this section.

D. If the allowable amount of a credit under this section exceeds the insurer's state premium tax liability, the amount of the claim not used to offset the premium tax liability may be carried forward as a credit against the insurer's subsequent years' premium tax liability for a period not to exceed five taxable years.

E. A credit is not allowed if the insurer designates the contribution for the direct benefit of any specific student.

F. An insurer that claims a tax credit against state premium tax liability is not required to pay any additional retaliatory tax imposed pursuant to section 20-230 as a result of claiming that tax credit.

G. The department of insurance and financial institutions, with the cooperation of the department of revenue, shall adopt rules and publish and prescribe forms and procedures necessary for the administration of this section.

§ 20-224.07 Premium tax credit for contributions to school tuition organization; displaced students and students with disabilities

A. A credit is allowed against the premium tax liability incurred by an insurer pursuant to section 20-224, 20-837, 20-1010, 20-1060 or 20-1097.07 for the amount of voluntary cash contributions made by the insurer during the tax year to a school tuition organization.

B. The amount of the credit is the total amount of the insurer's contributions for the tax year under subsection A of this section that is preapproved by the department of revenue pursuant to section 43-1184, subsection D.

C. The procedures, conditions, limitations, definitions and other requirements prescribed by section 43-1184 and title 43, chapter 15 apply to:

1. Insurers that claim a credit under this section.

2. Claims for credit under this section.

3. School tuition organizations that receive contributions from insurers for the purposes of this section.

4. Qualified schools that participate under this section.

5. Students who receive scholarships from monies contributed by insurers for the purposes of this section.

D. If the allowable amount of a credit under this section exceeds the insurer's state premium tax liability, the amount of the claim not used to offset the premium tax liability may be carried forward as a credit against the insurer's subsequent years' premium tax liability for a period not to exceed five taxable years.

E. A credit is not allowed if the insurer designates the contribution for the direct benefit of any specific student.

F. An insurer that claims a tax credit against state premium tax liability is not required to pay any additional retaliatory tax imposed pursuant to section 20-230 as a result of claiming that tax credit.

G. The department of insurance and financial institutions, with the cooperation of the department of revenue, shall adopt rules necessary for the administration of this section.

§ 20-225 Failure to pay tax; penalty; exception

A. Any insurer failing to pay the tax prescribed by sections 20-224, 20-224.01, 20-837, 20-1010, 20-1060 and 20-1097.07 is subject to a civil penalty not to exceed the greater of twenty-five dollars or five percent of the amount due plus interest at the rate of one percent per month from the date the tax was due.

B. The director may refuse to renew the certificate of authority of any insurer failing to pay the tax on or before the date it is due. The director shall revoke the certificate of authority of any insurer failing to pay the tax for more than thirty days after it was due.

C. If the director requires the tax to be paid electronically through a designated third-party service pursuant to section 20-224, subsection K, no penalty accrues with respect to any payment of tax or interest that is late due to delays caused by the third-party service.

§ 20-226 Exclusive character of premium tax; exception

A. With respect to authorized insurers the premium tax provided by section 20-224 shall be payment in full and in lieu of all other demands for any and all state, county, district, municipal and school taxes, licenses and excises of whatever kind or character, excepting only:

1. The fees prescribed by this title.

2. Taxes on real and tangible personal property located within this state.

3. The transaction privilege tax and the use tax imposed as provided in title 42, chapter 5, articles 1 and 4.

4. The transaction privilege taxes and use taxes imposed by any county, city or town.

B. Except as provided in subsection A of this section, the state preempts the field of imposing excise, privilege, franchise, income, license and similar taxes upon insurers and their general agents and agents as such and on the intangible property of insurers or such agents. Except as provided in subsection A of this section, no county, municipality, district, school district or other political subdivision or agency in this state shall levy upon insurers, or upon their general agents and agents as such, any tax additional to such as are levied in this title. Nothing in this section allows a county, city or town to impose a transaction privilege tax or use tax on insurance policies, premiums, brokers or agents.

§ 20-227 Disposition of tax proceeds

The purpose of the taxes provided by this title is to assist in defraying the cost of state government and to lessen the tax burden upon tangible property. All taxes collected under this title shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund and shall be used, together with the revenue from other sources, to pay appropriations for the maintenance of state government, except as provided in subsection C of section 20-224 (firemen's relief and pension fund) and in section 20-224.01 (highway patrol account of the public safety personnel retirement system) and other applicable statutes.

§ 20-228 Exemption of insurers from general corporation reports and fees

Notwithstanding any other statute, no authorized insurer or surplus line insurer is required to file with the corporation commission the annual report required of corporations by section 10-1622 or the certificate of disclosure required of corporations which are exempt from filing an annual report by section 10-1622 or the statement of bankruptcy required by section 10-1623 from corporations filing for bankruptcy. Such an insurer is exempt from filing the annual report, from filing the certificate of disclosure and from payment of the annual registration fee required by section 10-1622 and from the annual report fee required by section 10-122.

§ 20-229 Insurance producer; identification; exceptions

A. An authorized insurer shall not issue a policy covering a subject of insurance resident, located or to be performed in this state unless the policy declaration page or endorsement identifies the name of the producer licensed for that line of authority in this state.

B. Subsection A of this section does not apply to:

1. Reinsurance or life, disability or title insurance.

2. Insurance of the rolling stock, vessels or aircraft of any common carrier in interstate or foreign commerce, or of any vehicle principally garaged and used in another state or covering any liability or other risks incident to the ownership, maintenance or operation thereof.

3. Insurance of property in the course of transportation interstate or in foreign trade, or any liability or risk incident thereto.

4. Insurance of ocean marine risks.

5. Policies issued through salaried insurance producers or issued by insurers not using insurance producers in the general solicitation of business.

6. Bid bonds issued by any surety insurer in connection with any public or private contracts.

7. Policies issued by a vending machine pursuant to section 20-293.

C. A violation of this section shall not invalidate the policy.

§ 20-230 Retaliation

A. When by or pursuant to the laws of any other state or foreign country any premium or income or other taxes, or any fees, fines, penalties, licenses, deposit requirements or other material obligations, prohibitions or restrictions are imposed on insurers domiciled in this state doing business, or that might seek to do business in such other state or country, or on the agents of such insurers, which in the aggregate are in excess of such taxes, fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions or restrictions directly imposed on similar insurers domiciled in such other state or foreign country under the statutes of this state, as long as such laws continue in force or are so applied, the same obligations, prohibitions and restrictions of whatever kind shall be imposed on similar insurers domiciled in such other state or foreign country doing business in this state. Any tax, license or other obligation imposed by any city, county or other political subdivision of a state or foreign country on insurers of this state or their agents shall be deemed to be imposed by such state or foreign country within the meaning of this section. For the purpose of this section, the director shall compute the burden of any tax, license or other obligation imposed by any city, county or other political subdivision of a state or foreign country on insurers of this state or their agents on an aggregate statewide or foreign countrywide basis as an addition to the rate of tax payable by Arizona insurers in such state or foreign country. The addition to the rate of tax payable by Arizona life insurers shall be calculated separately from the addition to the rate of tax payable by other Arizona insurers. In each case, the addition to the rate of tax payable by Arizona insurers shall be calculated by dividing the aggregate of the tax obligations paid by Arizona insurers to any such city, county or other political subdivision of such state or foreign country by the aggregate of their taxable premiums under the premium taxing statute of such state or foreign country. The director may issue rules to carry out the purpose of this section. This section does not apply to ad valorem taxes on real or personal property or to personal income taxes or to assessments on or credits to insurers for the payment of claims of policyholders of insolvent insurers. This subsection does not apply to insurers that do business in this state and that are domiciled in another state or foreign country that does not impose retaliatory taxes, or whose laws, on a reciprocal basis, exempt from retaliatory taxes similar insurers domiciled in this state doing business, or that might seek to do business in the other state or foreign country.

B. If an insurer domiciled in this state is refused authority to transact insurance in another state on a plan and in a manner that is permitted for domestic insurers of such other state, notwithstanding that the insurer of this state is fully qualified for such authority in accordance with the applicable laws of such other state, and if such refusal is not accompanied by a written statement of the grounds therefor, then and thereafter, and for as long as such refusal shall continue, the director may refuse to grant an initial certificate of authority, but not a renewal of an existing certificate of authority, to any insurer domiciled in such other state that may seek to transact in this state a like kind or kinds of insurance.

§ 20-231 Transfer of domicile

A. Any insurer organized under the laws of any other state and admitted to do business in this state for the purpose of writing insurance may, upon complying with all requirements of law relative to the organization of a domestic insurer and by designating its principal place of business at a place in this state, become a domestic insurer. Such a domestic insurer is entitled to a certificate of authority to transact insurance in this state and is subject to the authority and jurisdiction of this state.

B. Any domestic insurer may, upon the approval of the director, transfer its domicile to any other state in which it is admitted to transact insurance. Upon such a transfer the insurer ceases to be a domestic insurer. If otherwise qualified, the director shall admit such insurer to do business in this state as a foreign insurer. The director shall approve any proposed transfer unless he determines the transfer is not in the interest of the policyholders of the insurer in this state.

C. The certificate of authority, appointment of statutory agent and licenses, policy forms, rates, authorizations and other filings and approvals in existence at the time a foreign insurer, admitted to transact insurance in this state, transfers its corporate domicile to this or any other state by merger or otherwise continue in effect upon the transfer of corporate domicile. However, each transferring company shall notify the director of the proposed transfer and shall promptly file any resulting amendments to corporate documents filed or required to be filed with the director.

§ 20-232 Junior achievement program; exemption from licensure

An authorized insurer may sponsor the formation of a junior achievement program approved by the director. A student participating in the program is not an insurance producer as defined in section 20-281 and is not subject to licensure under article 3 of this chapter if the student operates under the direct supervision of a licensed life and disability insurance producer.

§ 20-233 Additional information required of insurer; disclosure to director; violation; classification

A. At the time of filing its annual statement as required by section 20-223, an insurer 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 sections 10-1622 and 10-1623 which is not already filed with or available to the director.

B. The director may refuse to renew or may suspend or revoke the certificate of authority of any insurer failing to provide the disclosures provided by subsection A of this section. Any insurer failing to provide the information required by subsection A at the time of filing its annual statement shall be subject to payment of a late fee not to exceed twenty-five dollars for each day of delinquency.

C. A person executing or contributing information for such a disclosure who intentionally makes an untrue statement of a material fact or withholds any material fact with regard to the information required in subsection A of this section is guilty of a class 6 felony.

§ 20-234 Filing requirement; participation in the insurance regulatory information system

A. On or before March 1 of each year or on or before the earliest date the company is required to file an annual statement with any state if later, each domestic, foreign and alien insurer that is authorized to transact insurance in this state shall file with the national association of insurance commissioners a copy of its annual statement convention blank, along with any additional filings that are prescribed by the director for the preceding year. The filed information shall be in the format and scope that are required by the director and shall include the signed jurat page and the actuarial certification. Any amendments and addendums to the annual statement filing that are filed subsequently with the director also shall be filed with the national association of insurance commissioners. If the director requires an insurer that is admitted to transact insurance by more than one state to file a quarterly financial statement, the insurer shall also file the quarterly statement on diskette or another electronic medium designated by the director with the national association of insurance commissioners.

B. In the absence of actual malice, members of the national association of insurance commissioners, their duly authorized committees, subcommittees, task forces, delegates and employees and all other persons who are charged with the responsibility of collecting, reviewing, analyzing and disseminating the information contained in the annual statement convention blanks are agents of the director and are not subject to civil liability for libel, slander or other cause of action relating to the collection, review, analysis or dissemination of the data and information that are collected.

C. All financial analysis ratios and examination synopses concerning insurance companies that are submitted to the department by the national association of insurance commissioners' insurance regulatory information system are confidential and shall not be disclosed by the department.

D. The director may suspend, revoke or refuse to renew the certificate of authority of any insurer failing to file its annual statement when due or within an extension of time that the director, for good cause, may have granted.

E. A foreign insurer that is domiciled in a state which has a statute substantially similar to subsection A and has complied with that statute is exempt from the requirements of this section.

F. This section does not apply to domestic life and disability reinsurers authorized to transact insurance pursuant to chapter 4, article 10 of this title.

§ 20-235 Insurers; financial disclosure; requirements

A. The director may adopt rules which require each insurer licensed to write property or casualty insurance in this state to report its loss and expense experience, investment income, administrative expenses and other data, as he may require, for classes of risks which he may designate. Such reports shall be in addition to the annual statement required by section 20-223.

B. The department may designate one or more rate service organizations or advisory organizations to gather and compile the experience and data.

C. The director by order may require an insurer authorized to transact insurance in this state to submit statistical and other financial data including the information prescribed in subsection A of this section in a form and content consistent with rules adopted pursuant to subsection A, with any model guideline, regulation, rule or act adopted by the national association of insurance commissioners or with the classification basis used by the insurer. The director shall prescribe the time period and form in which the data shall be submitted.

D. An insurer who fails to provide the information required under subsection C of this section is subject to payment of a late fee of not more than one hundred dollars for each day of delinquency. The director shall notify an insurer of late fees that it will incur as a result of noncompliance with this section at least ten days prior to the date any such late fees become due.

§ 20-236 Civil penalty for failure to respond to a request for verification of financial responsibility

If the director finds after a hearing that, upon certification by the department of transportation, an insurer has failed to respond in writing within thirty days to a financial responsibility verification request pursuant to section 28-4143, the director shall impose a civil penalty of not more than two hundred fifty dollars for each violation but not to exceed an aggregate penalty of twenty thousand dollars in any one six-month period.

§ 20-237 Failure to provide information; penalty

If after a hearing and certification by the department of transportation the director of the department of insurance and financial institutions finds that an insurer has failed to comply with section 28-4148, the director of the department of insurance and financial institutions shall impose a civil penalty for each violation of not more than $250 per day for each day the insurer is in violation of section 28-4148. The director of the department of insurance and financial institutions also may suspend the insurer's certificate of authority until the insurer complies with section 28-4148. No penalty shall be imposed pursuant to this section if noncompliance is determined by the director of the department of insurance and financial institutions to have been inadvertent or accidental. The burden of proving that the noncompliance was inadvertent or accidental shall be on the insurer.

§ 20-238 Health insurance; state regulation; rating areas; definitions

(Conditionally Rpld.)

A. The director, through the adoption of rules or other regulatory and administrative actions within the director's authority, shall ensure that this state retains its full authority to regulate policies, certificates, evidences of coverage and contracts of insurance that are issued or delivered by health insurers taking into consideration the enactment of the act.

B. Notwithstanding any other provision of this title, a health insurer subject to the act shall not issue a contract, policy, certificate or evidence of coverage or otherwise transact insurance if the coverage and benefits provided in the contract, policy, certificate or evidence of coverage are inconsistent with the applicable provisions of the act.

C. Except for coverage under individual and small group policies, certificates, evidences of coverage and contracts that are grandfathered as prescribed by 42 United States Code section 18011, the following rating areas are established and shall be used by all health insurers issuing individual and small group policies, certificates, evidences of coverage or contracts in this state:

1. Mohave, Coconino, Apache and Navajo counties.

2. Yavapai county.

3. La Paz and Yuma counties.

4. Maricopa county.

5. Pinal and Gila counties.

6. Pima and Santa Cruz counties.

7. Graham, Greenlee and Cochise counties.

D. For the purposes of this section:

1. "Act" means the patient protection and affordable care act (P.L. 111-148) as amended by the health care and education reconciliation act (P.L. 111-152) or any rules adopted pursuant to those acts.

2. "Health insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation, dental service corporation, prepaid dental plan organization or hospital, medical, dental and optometric service corporation.

3. "Rating area" means an area within which a health insurer shall not vary rates based on geography.

§ 20-239 Electronic communications and records; applicability; definitions

A. Any notice to a party or any other document that is required under this title in an insurance transaction or that is to serve as evidence of insurance coverage may be delivered, stored and presented by electronic means if it meets the requirements of title 44, chapter 26, article 1. If an insurer uploads a document or notice to a portal or secure website, the insurer shall send a separate notice to the party that specifies that the document or notice has been uploaded and that includes a description of the document or notice that has been uploaded.

B. An insurer may deliver a notice or document by electronic means to a party pursuant to this section if the party electronically consents to that method of electronic delivery and has not withdrawn consent. A named insured that effectuates insurance transactions by electronic means shall be deemed to have consented to receive notices and documents by electronic means in accordance with this section unless the named insured opts out of electronic delivery and elects delivery by hard copy.

C. Either an oral communication with a contemporaneous written record made of the communication or an archived recording of an oral communication subject to the insurer's written record retention policy shall qualify as consent for the purposes of this section. The oral consent prescribed in this subsection applies only to an agreement to the use of electronic communication with the insurer and is not an agreement by the insured to any specific insurance policy or coverage or any other insurance matter.

D. Notwithstanding subsection A of this section, an insurer sending a notice pursuant to section 20-1632, subsection A, for a period of five years after the date of the notice, shall maintain in its files verification that the notice was sent by electronic means with a United States postal service electronic postmark or another email delivery service that provides electronic postmarks substantially similar to a United States postal service electronic postmark. The verification must contain sufficient information from which the department may determine that the notice was properly sent.

E. An insurer providing notice to an insured pursuant to section 20-1632 by electronic means shall also send that notice to the named insured by United States postal service certified mail, certificate of mailing or first class mail using intelligent mail barcode or another similar tracking method used or approved by the United States postal service pursuant to section 20-1632 if either of the following applies:

1. The notice being electronically delivered is rejected for delivery or returned to the insurer.

2. The insurer becomes aware that the email address provided by the party is no longer valid.

F. Delivery of a notice or document pursuant to this section is equivalent to any delivery method required or allowed under this title, including delivery by the United States postal service by first class mail, postage prepaid, certified mail, certificate of mailing or first class mail using intelligent mail barcode or another similar tracking method used or approved by the United States postal service.

G. After the party elects to receive notices and documents by electronic means, if a change in the hardware or software requirements needed to access or retain a notice or document delivered by electronic means creates a material risk that the party will not be able to access or retain a subsequent notice or document to which the consent applies, the insurer must inform the party of:

1. The revised hardware and software requirements for access to and retention of a notice or document delivered by electronic means.

2. The party's right to withdraw consent without the imposition of any fee, condition or consequence.

H. This section does not affect the requirements related to content or timing of any notice or document required under this title.

I. If a provision of this title expressly requires verification or acknowledgment of receipt of a notice or document, the notice or document may be delivered by electronic means only if the method used provides for verification or acknowledgment of receipt.

J. The legal effectiveness, validity or enforceability of any insurance contract or policy executed by a party may not be denied solely because the insurer failed to obtain electronic consent or confirmation of consent.

K. A party's withdrawal of consent:

1. Does not affect the legal effectiveness, validity or enforceability of a notice or document delivered by electronic means to the party before the withdrawal of consent is effective.

2. Is effective within seven days after the insurer receives the withdrawal.

L. If an insurer fails to comply with subsection G of this section, the party may treat that failure as a withdrawal of consent for the purposes of this section.

M. This section does not apply to a notice or document delivered by an insurer in an electronic format before July 24, 2014 to a party who, before that date, has consented to receive a notice or document in an electronic format as otherwise provided by law.

N. If a party's consent to receive certain notices or documents in an electronic format is on file with an insurer before July 24, 2014 and the insurer intends to deliver additional notices or documents to that party in an electronic format pursuant to this section, before delivering the additional notices or documents electronically the insurer must notify the party of both of the following:

1. The notices or documents that may be delivered by electronic means under this section that were not previously delivered electronically.

2. The party's right to withdraw consent to have notices or documents delivered by electronic means.

O. An insurer may not charge a fee to a party who does not consent to receive notices or documents by electronic means and who chooses to receive the notices or documents in hard copy.

P. This section applies only to property, casualty, disability, marine and transportation, surety, prepaid legal, prepaid dental, title, identity theft, workers' compensation and life insurance policies and annuities that are subject to this title, including policies and contracts issued by health care services organizations and hospital, medical, dental and optometric service corporations.

Q. This section does not modify, limit or supersede the electronic signatures in global and national commerce act (P.L. 106-229; 15 United States Code sections 7001 through 7031).

R. For the purposes of this section:

1. "Delivered by electronic means" includes either:

(a) The delivery to an email address at which a party has consented to receive notices or documents.

(b) The posting on an electronic network or site accessible via the internet or a mobile application, computer, mobile device, tablet or other electronic device, together with a separate notice of the posting that includes a description of the document or notice that has been posted and that is provided by email to the email address at which the party has consented to receive notice or by any other delivery method that has been consented to by the party.

2. "Party" means a recipient of any notice or document as part of an insurance transaction, including an applicant, an insured or a policyholder.

§ 20-240 Electronic posting of policies; definitions

A. Notwithstanding section 20-239, an insurer may post property and casualty insurance policies and endorsements that are subject to article 4.1 of this chapter pursuant to section 20-382 on the insurer's website instead of sending the policies and endorsements to the insured, if all of the following conditions are satisfied:

1. The policies and endorsements posted by the insurer on its website do not contain personal information or privileged information.

2. The insurer makes accessible each policy and endorsement:

(a) On the insurer's website while each policy and endorsement remains in use.

(b) For a period of five years after the insurer discontinues the policy or endorsement.

3. The insurer posts its policies and endorsements on the insurer's website in a manner that enables the insured to print and save a copy of the policy and endorsements using programs and applications that are widely available on the internet and free of charge to use.

4. The insurer agrees to respond to requests from the insured in a timely manner and to provide notice in the manner that the insurer customarily communicates with an insured:

(a) At the time of issuance of the initial policy forms and any renewal forms of a method by which the insured may obtain, on request and without charge, a paper or electronic copy of the insured's policy or endorsement.

(b) Of any changes to the forms or endorsements, and of the insured's right to obtain, on request and without charge, a paper or electronic copy of the forms and endorsements.

(c) Of the insurer's specific website address and instructions on how to access the referenced policy and endorsement forms on the insurer's website.

5. On each declarations page delivered to an insured, the insurer clearly identifies the exact policy and endorsement forms purchased by the insured.

B. For the purposes of this section, "personal information" and "privileged information" have the same meanings prescribed in section 20-2102.

§ 20-241 Contracts to provide health care services; form of payment; notice; explanation of benefits; definitions

A. A contract between a health insurer and a health care provider that is issued, amended or renewed on or after January 1, 2020 to provide health care services to the health insurer's enrollees may not restrict the method of payment from the health insurer to the health care provider in which the only acceptable payment method is a credit card payment. A health insurer shall accept tangible checks as a form of acceptable payment.

B. If a health insurer initiates or changes payments to a health care provider using electronic funds transfer payments, including virtual credit card payments, the health insurer shall do the following:

1. Notify the health care provider if any fee is associated with a particular payment method.

2. Advise the health care provider of the available methods of payment and provide clear instructions to the health care provider as to how to select an alternative payment method.

3. Remit or associate with each payment the explanation of benefits.

C. If a health care provider opts out of a method of payment, that decision remains in effect until the health care provider opts back in to the prior method of payment or a new contract is executed.

D. A health insurer that initiates or changes payment to a health care provider using the health care electronic funds transfers and remittance advice transaction pursuant to 45 Code of Federal Regulations sections 162.1601 and 162.1602 may not charge a fee solely to transmit the payment to a health care provider unless the health care provider has consented to the fee. A health care provider agent may charge reasonable fees when transmitting an electronic funds transfer or automatic clearing house related to transaction management, data management, portal services and other value-added services above and beyond the bank transmittal.

E. For the purposes of this section:

1. "Electronic funds transfer payment" means a payment by any method of electronic funds transfer other than a standard health care electronic funds transfers and remittance advice transaction pursuant to 45 Code of Federal Regulations sections 162.1601 and 162.1602.

2. "Health care provider" means a person who is licensed, registered or certified as a health care professional under title 32 or a laboratory or durable medical equipment provider that furnishes services to an enrollee and that separately bills the enrollee for the services.

3. "Health care provider agent" means a person or entity that contracts with a health care provider establishing an agency relationship to process bills for services provided by the health care provider under the terms and conditions of a contract between the agent and health care provider, which may allow the agent to submit bills, request reconsideration and receive reimbursement.

4. "Health insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital, medical, dental and optometric service corporation and includes the health insurer's designee.

§ 20-242 Health insurers; provider networks; notice; options; definitions

A. If a health insurer acquires the provider network of another health insurer, the health insurer that is contracted with a health care provider in the network that has been acquired shall notify, consistent with the notification provisions of the provider contract, each health care provider of the acquired network.

B. A health care provider that is in a provider network that is acquired may do any of the following:

1. Continue the provider relationship with the health insurer that acquired the provider network.

2. Terminate the provider relationship with the health insurer that acquired the provider network in a time and manner consistent with the contract between the health care provider and the health insurer that is contracted with the health care provider.

3. Enter into a contract directly with the health insurer that acquired the provider network.

C. This section does not apply to acquisitions or arrangements that are disclosed in the network contract between a health care provider and a health insurer and to which the health care provider has already agreed.

D. For the purposes of this section:

1. "Health care provider" means a person who is licensed, registered or certified as a health care professional under title 32 or a laboratory or durable medical equipment provider that furnishes services to an enrollee and that separately bills the enrollee for the services.

2. "Health insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital, medical, dental and optometric service corporation and includes the health insurer's designee.

Article 2 Kinds of Insurance; Reinsurance; Limits of Risk

§ 20-251 Definitions not mutually exclusive

It is intended that certain coverages may come within the definitions of two or more kinds of insurance as set forth in this article, and the fact that such a coverage is included within one definition shall not exclude such coverage as to any other kind of insurance within the definition of which such coverage likewise reasonably is includable.

§ 20-252 "Casualty insurance" defined

"Casualty insurance" includes vehicle insurance as defined in section 20-259, and in addition includes:

1. Liability insurance, which is insurance against legal liability for the death, injury or disability of any human being, or for damage to property, and provision of medical, hospital, surgical or disability benefits to injured persons and funeral and death benefits to dependents, beneficiaries or personal representatives of persons killed, irrespective of legal liability of the insured, when issued as an incidental coverage with or supplemental to liability insurance.

2. Workers' compensation and employer's liability insurance, which is insurance of the obligations accepted by, imposed upon or assumed by employers under law for death, disablement or injury of employees.

3. Burglary and theft insurance, which is insurance against loss or damage by burglary, theft, larceny, robbery, forgery, fraud, vandalism, malicious mischief, confiscation or wrongful conversion, disposal or concealment, or from any attempt at any of the foregoing, including supplemental coverages for medical, hospital, surgical and funeral benefits sustained by the named insured or other person as a result of bodily injury during the commission of a burglary, robbery or theft by another, and also insurance against loss of or damage to money, coins, bullion, securities, notes, drafts, acceptances or any other valuable papers and documents, resulting from any cause.

4. Personal property floater insurance, which is insurance upon personal effects against loss or damage from any cause.

5. Glass insurance, which is insurance against loss or damage to glass, including its lettering, ornamentation and fittings.

6. Boiler and machinery insurance, which is insurance against any liability and loss or damage to property or interest resulting from accidents to or explosion of boilers, pipes, pressure containers, machinery or apparatus, and to make inspection of and issue certificates of inspection upon boilers, machinery and apparatus of any kind, whether or not insured.

7. Leakage and fire extinguishing equipment insurance, which is insurance against loss or damage to any property or interest caused by the breakage or leakage of sprinklers, hoses, pumps and other fire extinguishing equipment or apparatus, water pipes and containers, or by water entering through leaks or openings in buildings, and insurance against loss or damage to such sprinklers, hoses, pumps and other fire extinguishing equipment or apparatus.

8. Credit insurance, which is insurance against loss or damage resulting from failure of debtors to pay their obligations to the insured.

9. Malpractice insurance, which is insurance against legal liability of the insured, and against loss, damage or expense incidental to a claim of such liability, and including medical, hospital, surgical and funeral benefits to injured persons, irrespective of legal liability of the insured, arising out of the death, injury or disablement of any person, or arising out of damage to the economic interest of any person, as the result of negligence in rendering expert, fiduciary or professional service.

10. Entertainments insurance, which is insurance indemnifying the producer of any motion picture, television, radio, theatrical, sport, spectacle, entertainment or similar production, event or exhibition against loss from interruption, postponement or cancellation thereof due to death, accidental injury or sickness of performers, participants, directors or other principals.

11. Miscellaneous insurance, which is insurance against any other kind of loss, damage or liability properly a subject of insurance and not within any other kind of insurance as defined in this title, if such insurance is not disapproved by the director as being contrary to law or public policy.

§ 20-253 "Disability insurance" defined

"Disability insurance" is insurance against bodily injury, disablement or death by accident or accidental means, or the expense thereof, or against disablement or expense resulting from sickness, and every insurance appertaining thereto.

§ 20-254 "Life insurance" defined

"Life insurance" is insurance on human lives and insurance appertaining thereto or connected therewith. The transacting of life insurance includes the granting of endowment benefits, additional benefits in the event of death or dismemberment by accident or accidental means, additional benefits in the event of the disability of the insured and optional modes of settlement of proceeds of life insurance. An insurer authorized to transact life insurance may also grant annuities.

§ 20-254.01 "Annuities" defined

"Annuities" encompass all agreements to make periodic payments, other than contracts defined by section 20-254 as "life insurance", where the making or continuance of all or of some of a series of such payments, or the amount of any such payment, is dependent upon the continuance of human life. Except as exemption or other provision is made, all provisions in this title applicable to life insurance shall be deemed applicable also to annuities.

§ 20-255 "Marine and transportation insurance" defined

"Marine and transportation insurance" includes:

1. Insurance against any and all kinds of loss or damage to vessels, craft, aircraft, cars, automobiles and vehicles of every kind, as well as all goods, freight, cargoes, merchandise, effects, disbursements, profits, monies, bullion, precious stones, securities, choses in action, evidences of debt, valuable papers, bottomry and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, including war risks, on or under any seas or other waters, on land or in the air, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment or during any delays, storage, transshipment or reshipment incident thereto, including marine builders' risks and all personal property floater risks.

2. Insurance against any and all kinds of loss or damage to person or to property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage to either, arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance, but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to the person arising out of the ownership, maintenance or use of automobiles.

3. Insurance against any and all kinds of loss or damage to precious stones, jewels, jewelry, gold, silver and other precious metals, whether used in business or trade or otherwise and whether it be in course of transportation or otherwise.

4. Insurance against any and all kinds of loss or damage to bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage) unless fire, tornado, sprinkler leakage, hail, explosion, earthquake, riot or civil commotion or any or all of them are the only hazards to be covered.

5. Insurance against any and all kinds of loss or damage to piers, wharves, docks and slips, excluding the risks of fire, tornado, sprinkler leakage, hail, explosion, earthquake, riot and civil commotion and each of them.

6. Insurance against any and all kinds of loss or damage to other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways.

7. Marine protection and indemnity insurance, which is insurance against, or against legal liability of the insured for, loss, damage or expense arising out of, or incident to, the ownership, operation, chartering, maintenance, use, repair or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person.

§ 20-256 "Property insurance" defined

"Property insurance" is insurance on real or personal property of every kind and interest therein, against loss or damage from any or all hazard or cause, and against loss consequential upon such loss or damage, other than noncontractual legal liability for any such loss or damage. Property insurance shall also include miscellaneous insurance as defined in paragraph 11 of section 20-252 except as to any noncontractual liability coverage includable therein.

§ 20-257 "Surety insurance" defined

"Surety insurance" includes:

1. Fidelity insurance, which is insurance guaranteeing the fidelity of persons holding positions of public or private trust.

2. Insurance guaranteeing the performance of contracts, other than insurance policies, and guaranteeing and executing bonds, undertakings and contracts of suretyship.

3. Insurance indemnifying banks, bankers, brokers, financial or monied corporations or associations against loss, resulting from any cause, of bills of exchange, notes, bonds, securities, evidences of debt, deeds, mortgages, warehouse receipts or other valuable papers, documents, money, precious metals and articles made therefrom, jewelry, watches, necklaces, bracelets, gems, precious and semi-precious stones, including any loss while they are being transported in armored motor vehicles, or by messenger, but not including any other risks of transportation or navigation, and also insurance against loss or damage to such an insured's premises or to his furnishings, fixtures, equipment, safes and vaults therein, caused by burglary, robbery, theft, vandalism or malicious mischief, or any attempt to commit such crimes.

§ 20-258 Multiple line insurers

For the purposes of this title, a multiple line insurer may transact any two or more kinds of insurance, as defined in sections 20-252, 20-253, 20-255, 20-256 and 20-257.

§ 20-259 "Vehicle insurance" defined

"Vehicle insurance" is insurance against loss of or damage to any land vehicle or aircraft or to property while contained therein or thereon or being loaded or unloaded therein or therefrom, from any hazard or cause, and against any loss, liability or expense resulting from or incident to ownership, maintenance or use of any such vehicle or aircraft, together with insurance against accidental death or accidental injury to individuals, including the named insured, while in, entering, alighting from, adjusting, repairing, cranking or caused by being struck by a vehicle or aircraft, if such insurance is issued as a part of insurance on the vehicle or aircraft.

§ 20-259.01 Motor vehicle liability policy; uninsured optional; underinsured optional; subrogation; medical payments liens; definitions

A. Every insurer writing automobile liability or motor vehicle liability policies shall make available to the named insured thereunder and by written notice offer the named insured and at the request of the named insured shall include within the policy uninsured motorist coverage that extends to and covers all persons insured under the policy, in limits not less than the liability limits for bodily injury or death contained within the policy. The offer of limits to a named insured or applicant shall be made on a form approved by the director. An insurance producer that uses such a form in offering uninsured motorist coverage satisfies the insurance producer's standard of care in offering and explaining the nature and applicability of uninsured motorist coverage. The policy declarations page must be sent to the named insured, constitutes the final expression of the named insured's decision to purchase or reject uninsured motorist coverage and is valid for, extends to and covers all persons insured under the policy. An offer form is not required where the named insured purchases such coverage in an amount equal to the limits for bodily injury or death contained in the policy. The offer need not be made in the event of the reinstatement of a lapsed policy or the transfer, substitution, modification or renewal of an existing policy or as a result of a change to the minimum liability limits for bodily injury or death prescribed in section 28-4009. At the request of the named insured, the named insured may purchase and the insurer shall then include within the policy uninsured motorist coverage that extends to and covers all persons insured under the policy in any amount up to the liability limits for bodily injury or death contained within the policy but not less than the limits prescribed in section 28-4009.

B. Every insurer writing automobile liability or motor vehicle liability policies shall also make available to the named insured thereunder and shall by written notice offer the named insured and at the request of the named insured shall include within the policy underinsured motorist coverage that extends to and covers all persons insured under the policy, in limits not less than the liability limits for bodily injury or death contained within the policy. The offer of limits to a named insured or applicant shall be made on a form approved by the director. An insurance producer that uses such a form in offering underinsured motorist coverage satisfies the insurance producer's standard of care in offering and explaining the nature and applicability of underinsured motorist coverage. The policy declarations page must be sent to the named insured, constitutes the final expression of the named insured's decision to purchase or reject underinsured motorist coverage and is valid for, extends to and covers all persons insured under the policy. An offer form is not required where the named insured purchases such coverage in an amount equal to the limits for bodily injury or death contained in the policy. The offer need not be made in the event of the reinstatement of a lapsed policy or the transfer, substitution, modification or renewal of an existing policy or as a result of a change to the minimum liability limits for bodily injury or death prescribed in section 28-4009. At the request of the named insured, the named insured may purchase and the insurer shall then include within the policy underinsured motorist coverage that extends to and covers all persons insured under the policy in any amount authorized by the insured up to the liability limits for bodily injury or death contained within the policy.

C. Any insurer writing automobile liability or motor vehicle liability policies may make available the coverages required by subsections A and B of this section to owners and operators of motor vehicles that are used as public or livery conveyances or rented to others or that are used in the business primarily to transport property or equipment. Subsections A and B of this section do not preclude an insurer writing automobile liability or motor vehicle liability policies in this state from requiring that all motor vehicles that are owned by or registered to the named insured and that are insured by the same insurer or group of insurers under a common management have the same limits of coverage for uninsured and underinsured motorist coverage in amounts as selected or rejected by the named insured.

D. "Uninsured motor vehicles", subject to the terms and conditions of that coverage, includes any insured motor vehicle if the liability insurer of the vehicle is unable to make payment on the liability of its insured, within the limits of the coverage, because of insolvency.

E. "Uninsured motorist coverage", subject to the terms and conditions of that coverage, means coverage for damages due to bodily injury or death if the motor vehicle that caused the bodily injury or death is not insured by a motor vehicle liability policy that contains at least the limits prescribed in section 28-4009. For the purposes of uninsured motorist coverage, an uninsured motorist does not include a person who is insured under a motor vehicle liability policy that complies with section 28-4009.

F. Any payment made under the bodily injury liability portion of a motor vehicle liability policy insuring the motor vehicle that caused the bodily injury or death in an amount equal to or less than the per person or per occurrence bodily injury limits of that policy, regardless of the number of persons receiving payments, precludes any payment under the uninsured motorist coverage based on the fault of the person who is insured under the motor vehicle liability policy.

G. "Underinsured motorist coverage" includes coverage for a person if the sum of the limits of liability under all bodily injury or death liability bonds and liability insurance policies applicable at the time of the accident is less than the total damages for bodily injury or death resulting from the accident. To the extent that the total damages exceed the total applicable liability limits, the underinsured motorist coverage provided in subsection B of this section is applicable to the difference.

H. Uninsured and underinsured motorist coverages are separate and distinct and apply to different accident situations. Underinsured motorist coverage shall not provide coverage for a claim against an uninsured motorist in addition to any applicable uninsured motorist coverage. If multiple policies or coverages purchased by one insured on different vehicles apply to an accident or claim, the insurer may limit the coverage so that only one policy or coverage, selected by the insured, shall be applicable to any one accident. If the policy does not contain a statement that informs the insured of the insured's right to select one policy or coverage as required by this subsection, within thirty days after the insurer receives notice of an accident, the insurer shall notify the insured in writing of the insured's right to select one policy or coverage. For the purposes of this subsection, "insurer" includes every insurer within a group of insurers under a common management.

I. Insurers that make payments for damages to insureds for uninsured motorist coverage may subrogate and sue for reimbursement of the total amount of the payments in the name of the insured against any uninsured motorist responsible for the damages to the insured.

J. Any automobile liability or motor vehicle liability insurer that makes a payment under the medical payments coverage of a motor vehicle insurance policy to or on behalf of any insured for an injury that arises out of an accident that occurs after December 31, 1998 may have a lien against any amount in excess of $5,000 that is paid to or on behalf of that insured under the medical payments coverage of the policy for that accident. The insurer shall compromise the lien in a fair and equitable manner. In order to perfect a lien granted pursuant to this subsection, within sixty days after issuing a payment that is more than $5,000 to the insured under medical payments coverage, the insurer or the insurer's authorized representative shall record in the office of the recorder of the county in which the accident occurred a written statement that sets forth the name and address of the insured as they appear in the records of the insurer, the name and address of the insurer at the insurer's principal office in this state, the amount claimed pursuant to this subsection and, to the best of the insurer's knowledge, the names and addresses of all persons, firms and corporations and their insurance carriers that the insured or the insured's legal representative alleges are liable for damages arising from the accident. Within five days after recording the lien, the insurer shall also mail a copy of the lien, postage prepaid, to the insured and to each person, firm and corporation and their insurance carriers alleged to be liable for damages at the address given in the statement. The recording of the lien is notice of the lien to all persons, firms and corporations that are liable for damages regardless of whether they are named in the lien. The recorder shall endorse on the lien recorded pursuant to this subsection the date and hour of receipt and all facts that are necessary to indicate that the lien has been recorded. The lien may be amended to reflect payments to the insured made after the lien is recorded. Within thirty days after the lien is satisfied, the lienholder shall issue and record a release of the lien.

K. Any common law prohibition against assignments of causes of action for personal injuries is abrogated to the extent provided in subsection I of this section.

L. An insurer is not required to offer, provide or make available coverage conforming to this section in connection with any general commercial liability policy, excess policy, umbrella policy or other policy that does not provide primary motor vehicle insurance for liabilities arising out of the ownership, maintenance, operation or use of a specifically insured motor vehicle.

M. If an insured makes a bodily injury or death claim under uninsured or underinsured motorist coverage based on an accident that involved an unidentified motor vehicle and no physical contact with the motor vehicle occurred, the insured shall provide corroboration that the unidentified motor vehicle caused the accident. For the purposes of this subsection, "corroboration" means any additional and confirming testimony, fact or evidence that strengthens and adds weight or credibility to the insured's representation of the accident.

§ 20-259.02 Coverage to include car pool operators and car pool vehicles; definitions

A. A policy of private passenger vehicle insurance shall not be delivered or issued for delivery in this state unless coverage is provided for the protection of any person insured under such policy while such person is acting as a car pool operator, and for the protection of any vehicle insured under such policy while such vehicle is, or while it is being operated as, a car pool vehicle. Such car pool coverage shall not entail a premium higher than the premium would otherwise have been for such private passenger vehicle.

B. For the purposes of this section:

1. "Car pool operator" has the same meaning prescribed in section 28-4032.

2. "Car pool vehicle" means any motor vehicle when operated by a car pool operator.

3. "Private passenger vehicle" includes a vehicle accommodating no more than fifteen passengers and owned by a commercial organization but used exclusively as a car pool vehicle. Private passenger vehicle does not include vehicles accommodating more than fifteen passengers, vehicles used for commercial purposes or motorcycles.

§ 20-259.03 Uninsured and underinsured motorist coverages; insured; wrongful death recovery

Notwithstanding any other law, in the case of the death of an insured who is covered under the uninsured and underinsured motorist coverages of a motor vehicle liability policy, recovery for wrongful death is limited to any party who is qualified to bring a wrongful death action pursuant to section 12-612 and who is also a surviving insured under the same coverages of the policy. If there are no surviving insureds who qualify to bring a wrongful death action pursuant to section 12-612, the estate of the deceased insured maintains the right of recovery against the uninsured and underinsured motorist coverages of the motor vehicle policy.

§ 20-260 Limit of risk

A. No insurer shall retain any risk on any one subject of insurance, whether located or to be performed in this state or elsewhere, in an amount exceeding ten per cent of its surplus to policyholders, except that a domestic mutual insurer holding a certificate of authority may retain up to such ten per cent or up to the maximum applicable as set forth in section 20-711, whichever is the larger, and a domestic limited stock insurer may retain up to the maximum applicable as set forth in section 20-708.

B. Reinsurance authorized by section 20-261 shall be deducted in determining risk retained. As to surety risks, deduction shall also be made of the amount assumed by any established incorporated cosurety and the value of any security deposited, pledged or held subject to the surety's consent and for the surety's protection.

C. As to alien insurers, other than life insurers domiciled in Canada, this section shall relate only to risks and surplus to policyholders of the insurer's United States branch.

D. This section shall not apply to group life or group or blanket disability insurance, title insurance, insurance of ocean marine risks or marine protection and indemnity risks, workers' compensation insurance, employers' liability coverages, nor to any policy or type of coverage as to which the maximum possible loss to the insurer is not readily ascertainable on issuance of the policy.

E. A "subject of insurance" for the purposes of this section, as to insurance against fire and hazards other than windstorm or earthquake, includes all properties insured by the same insurer which are customarily considered by underwriters to be subject to loss or damage from the same fire or other such hazard insured against.

F. "Surplus to policyholders" for the purpose of this section shall be deemed to include any voluntary reserves which are not required pursuant to law, and shall be determined from the last sworn statement of the insurer on file with the director or by the last report of examination by the director, whichever is the more recent at time of assumption of such risk.

§ 20-261 Authorized reinsurance

A. An insurer shall reinsure its risks, or any part of its risks, only in solvent insurers having surplus to policyholders not less in amount than the minimum required capital stock required under this title of a domestic stock insurer, other than a limited stock insurer or a domestic life and disability reinsurer, authorized to transact like kinds of insurance. A domestic limited stock life insurer or domestic life and disability reinsurer may accept reinsurance of the risks of other limited stock insurers or domestic life and disability reinsurers.

B. An insurer may reinsure in alien insurers if the alien insurers are authorized to transact insurance in at least one state of the United States or have in the United States a duly authorized attorney-in-fact to accept service of legal process against the insurer as to any liability that might arise on account of such reinsurance.

C. A credit shall not be allowed, as an admitted asset or as a deduction from liability, to any ceding insurer for reinsurance unless the reinsurance is payable by the reinsurer on the basis of the liability of the ceding insurer under the contracts reinsured without diminution because of the insolvency of the ceding insurer nor unless under the reinsurance contract the reinsurer assumes the liability for the reinsurance as of the same effective date. The reinsurer shall make payment directly to the ceding insurer or to its statutory successor by whatever name called for the purpose of liquidating or rehabilitating the business of the insurer unless either the reinsurance contract or the policies reinsured required the reinsurer to make payment to the payees under the policies reinsured in the event the ceding insurer becomes insolvent, or the reinsurer with the consent of the direct insured assumes the policy obligations of the ceding insurer to the payees under the policies reinsured in substitution for the obligations of the ceding insurer to those payees.

D. A domestic insurer shall not be a party to any agreement of reinsurance with an unauthorized insurer until the agreement is filed with and approved in writing by the director. The director shall approve the agreement within a reasonable time after filing unless in the director's opinion the effect of the agreement would be to reduce protection or service substantially either to policyholders resident of this state or to policyholders anywhere of the domestic insurer. If the director does not approve the agreement, the director shall notify the domestic insurer in writing specifying the reasons for not approving the agreement.

E. This section does not apply to insurance of ocean marine risks or marine protection and indemnity risks.

F. Unless the director requires the assuming insurer to file assumption reinsurance contracts, assumption reinsurance contracts are exempt from the filing requirements prescribed in subsection D if the assuming insurer has a surplus as to policyholders of at least fifty million dollars as shown in the most recent financial statement that is filed by the insurer with the department.

§ 20-262 Motor vehicle insurance policy; reduction of rate for older person completing accident prevention course; course requirements

A. An insurer issuing motor vehicle liability insurance policies in this state may provide additional reductions in rates for motor vehicle personal injury and property damage coverage to an insured who:

1. Is at least fifty-five years of age.

2. Within the last three years has successfully completed a driver improvement course:

(a) That is approved by the department of transportation, motor vehicle division.

(b) That includes classroom instruction or practice driving of at least the minimum number of hours that the director of the department of transportation requires.

(c) Which is not self-instructed and provides actual classroom or field driving instruction for the minimum number of hours required by the department of transportation.

(d) For which the insured has received a certificate that certifies the completion of the course.

B. Upon successfully completing an approved course, the agency sponsoring the course shall issue to each participant a certificate which is the basis of qualification for the premium reduction authorized by this section.

§ 20-263 Vehicle insurance; prohibited act by insurer; hearing; penalty

A. No insurer shall increase the motor vehicle insurance premium of an insured as a result of an accident not caused or significantly contributed to by the actions of the insured. Any insurer which increases the premium as a result of accident involvement shall notify the insured of the reason for such increase.

B. The director, after a hearing, shall order an insurer that has raised the premium of an insured in violation of subsection A to refund the amount attributable to such premium increase and shall impose a civil penalty not to exceed three hundred dollars. In determining whether an insurer has violated subsection A, the director may conduct such investigation as he deems necessary and the costs shall be paid by the insurer pursuant to section 20-159.

§ 20-264 Automobile insurance; damaged safety equipment deductible optional; definition

A. Any insurer writing private passenger automobile insurance which includes comprehensive coverage for motor vehicle damage shall provide at the option of the insured complete coverage for the repair or replacement of all damaged safety equipment without regard to any deductible.

B. As used in this section, "safety equipment" means the glass used in the windshield, doors and windows and the glass, plastic or other material used in the lights of a motor vehicle.

§ 20-265 Motor vehicle insurance; premium and fee comparisons and complaint ratios

The department of insurance and financial institutions shall compile comparisons of premiums and fees charged at policy inception and complaint ratios for motor vehicle insurance policies that insure six or fewer motor vehicles. The comparisons shall reflect premiums and fees associated with the inception of a policy for not fewer than five hypothetical insureds for urban areas and five hypothetical insureds for rural areas. The department of insurance and financial institutions shall forward copies of the comparisons of premiums and fees charged at policy inception and complaint ratios to the department of transportation. The director of the department of transportation in consultation with the director of the department of insurance and financial institutions shall make the copies available to the public. The department of insurance and financial institutions may include in the comparison information consumer information that describes the nature of bodily injury coverage, property damage coverage, collision coverage, comprehensive coverage, medical payment coverage, uninsured motorist coverage and underinsured motorist coverage.

§ 20-266 Minimum liability policy; availability

An insurer writing or an insurance producer soliciting applications for motor vehicle liability policies that insure six or fewer motor vehicles shall make available a policy for the mandatory minimum motor vehicle liability limits as prescribed in section 28-4009 if requested by a named insured or an applicant who meets the underwriting criteria of the insurer.

§ 20-267 Motor vehicle liability policies; monthly basis; fee

A. An insurer writing or an insurance producer soliciting applications for motor vehicle liability policies shall make available a monthly premium payment plan on policies that insure six or fewer motor vehicles.

B. At the inception of a monthly premium payment plan, an insurer may not require an insured to pay more than an amount equal to one and one-half times the monthly premium in addition to the first month's premium. Premiums for each month of coverage collected thereafter under a monthly premium payment plan may be due and payable not more than thirty days before the month of coverage related to that premium. An insurer may cancel or fail to renew a policy for nonpayment of premium, except that a cancellation or nonrenewal is not effective until the requirements of section 20-1632.01 are met.

C. An insurer or insurance producer may charge a fee pursuant to section 20-465 that is reasonably related to the administrative expenses of the monthly premium payment plan.

D. An insurer or insurance producer may use a premium finance company to meet the requirements of this section. In financing the monthly premium payment plan, at the inception of a premium finance agreement, a premium finance company may not require an insured to pay more than an amount equal to one and one-half times the monthly premium and the first month's premium. Payments collected thereafter under the premium finance agreement may be due and payable not more than every thirty days until the premium finance agreement is satisfied. A premium finance company may cancel a premium finance agreement for nonpayment pursuant to section 6-1415.

§ 20-268 Motor vehicle subrogation

A. If a motor vehicle claim is subject to subrogation, the insured may bring a cause of action separate and apart from the insurer seeking recovery of damages for which the insured has not been compensated by the insurer. Any settlement or judgment of the claim of the insured alone shall not affect the rights of the insurer.

B. If requested in writing by an insured, the insurer shall report to the insured the status of the subrogated claim.

§ 20-269 Motor vehicle insurer; claims process; electronic communications; acknowledgment of receipt; definition

A. For communications related to a motor vehicle insurance policy's claims process and in addition to other forms of communication, an insurer that conducts business in this state shall accept electronic content submissions and communications through a method that is designated by the insurer as an acceptable form of communication between the insurer and the claimant or the claimant's authorized representative. Electronic content submissions and communications may include time-sensitive documents and demands. The insurer shall respond with an acknowledgment of receipt within ten business days.

B. A motor vehicle insurer may accept a fax as a form of communication if another form of electronic communication is also available.

C. For the purposes of this section, "claimant" includes a third-party claimant.

§ 20-270 Residential property insurance; prohibited acts

A. An insurer shall not charge more premium for residential property insurance coverage on a property with a single below deductible claim, not exceeding five hundred dollars in the previous three years, than it would charge for like coverage on the same property if the property had no below deductible claims. For the purposes of this subsection, "below deductible claim" means a claim for indemnification for a loss under a residential property insurance policy that provided coverage for the loss that was closed without any payment because the amount of the loss was less than the amount of the deductible provided by the policy.

B. For the purposes of this section, residential property insurance has the same meaning as the insurance covered under section 20-1651.

§ 20-271 Lienholders; proof; accidents; notice; applicability

A. An insured or claimant shall provide information as part of the proof of loss concerning the existence of any lien or encumbrance against the vehicle involved in the accident or incident giving rise to the damage or loss. A claim shall not be an acceptable proof of loss until satisfactory evidence of the existence of any lien or encumbrance has been provided to the insurer. This section shall not apply if the amount of damages or loss does not exceed two thousand five hundred dollars.

B. An insurer shall be entitled to rely upon information provided by the insured or claimant pursuant to subsection A concerning the existence of any lien or encumbrance against the vehicle. An insurer that acts in good faith upon the information provided by the claimant or insured shall not be liable for any damages arising from the insured's or claimant's failure to provide accurate information to the insurer concerning existence of any lien or encumbrance against the vehicle involved in the accident or incident giving rise to the damage or loss.

C. An insured or claimant shall be liable for any damages arising from the failure of the insured or claimant to provide accurate information pursuant to subsection A regarding the existence of any lien or encumbrance against the vehicle involved in the accident or incident giving rise to the damage or loss.

D. This section shall not apply if an insurer does either of the following with respect to the repair of damages or loss to a vehicle:

1. Issues a release of claims in the names or makes the proceeds payable to both the insured or claimant and all lienholders or vehicle lessors.

2. Makes the proceeds payable to the motor vehicle repair facility after verification by the insurer that the damage or loss has been repaired.

Article 3 Insurance Producer Licensing

§ 20-281 Definitions

In this article, unless the context otherwise requires:

1. "Business entity" means any corporation, association, partnership, limited liability company, limited liability partnership or other legal entity except an individual or sole proprietorship.

2. "Designated producer" means the individual insurance producer that a business entity designates pursuant to section 20-285, subsection C, paragraph 3 as the individual responsible for the business entity's compliance with the insurance laws of this state.

3. "Health or sickness insurance" means disability insurance as defined in section 20-253.

4. "Home state" means the District of Columbia and any state or territory of the United States in which:

(a) An individual insurance producer maintains a principal place of residence or principal place of business and is licensed to act as a resident insurance producer.

(b) A business entity insurance producer maintains its principal place of business and is licensed to act as a resident insurance producer.

5. "Insurance producer" means a person required to be licensed under this article to sell, solicit or negotiate insurance.

6. "Limited line credit insurance" means any form of insurance that is offered in connection with an extension of credit and that is limited to partially or wholly extinguishing that credit obligation, including credit life, credit disability, credit property, credit unemployment, involuntary unemployment, mortgage life, mortgage guaranty, mortgage disability, guaranteed asset or automobile protection insurance and any other form of insurance that is offered in connection with an extension of credit, that is limited to partially or wholly extinguishing that credit obligation and that the director determines should be designated a form of limited line credit insurance.

7. "Limited line insurance" means limited line credit insurance, limited line crop insurance, limited lines travel insurance under section 20-3553 and any other line of insurance that the director deems necessary to recognize for the purposes of complying with section 20-287, subsection C, paragraph 2.

8. "Major line insurance" means life insurance, accident and health or sickness insurance, property insurance, casualty insurance, personal lines insurance and variable insurance contracts, as described in section 20-286.

9. "Member" means, if used in reference to a business entity, a person that holds an ownership interest in the business entity, excluding any interest in publicly traded securities and any interest of less than ten percent of the voting rights.

10. "Negotiate" means the act of conferring directly with or offering advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning any of the substantive benefits, terms or conditions of the contract if the person engaged in that act either sells insurance or obtains insurance from insurers for purchasers.

11. "Nonresident" means a person whose home state is not Arizona.

12. "Person" means an individual or a business entity.

13. "Resident" means a person whose home state is Arizona and who does not hold a resident insurance producer license in another state or territory of the United States or in the District of Columbia.

14. "Sell" means to exchange a contract of insurance by any means, for money or its equivalent, on behalf of an insurer.

15. "Solicit" means attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular company.

§ 20-282 License required

A person shall not sell, solicit or negotiate insurance in this state for any class or classes of insurance unless the person is licensed for that line of authority in accordance with this article.

§ 20-283 Exceptions to insurance producer licensing

A. An insurer is not required to obtain an insurance producer license. In this section, insurer does not include an insurer's officers, directors, employees, subsidiaries or affiliates.

B. The following persons are not required to obtain a license as an insurance producer:

1. An officer, director or employee of an insurer or of an insurance producer, if the officer, director or employee does not receive any commission on policies written or sold to insurer risks residing, located or to be performed in this state and either:

(a) The activities of the officer, director or employee are executive, administrative, managerial, clerical or a combination of these and are only indirectly related to the sale, solicitation or negotiation of insurance.

(b) The functions of the officer, director or employee relate to underwriting, loss control, inspection or the processing, adjusting, investigating or settling of a claim on a contract of insurance.

(c) The officer, director or employee either:

(i) Acts as a special agent or agency supervisor assisting insurance producers and engages in activities that are limited to providing technical advice and assistance to licensed insurance producers and that do not include the sale, solicitation or negotiation of insurance.

(ii) Responds to requests from existing policyholders to transact matters after effectuation of the policy and arising out of the policy and does not engage in negotiation or solicitation, other than to confer with the policyholders regarding the policyholders' requests.

2. A person who does not receive any commission, but who secures and provides information for the purpose of either:

(a) Group life insurance, group annuities, group or blanket accident and health or sickness insurance.

(b) Enrolling individuals under plans, issuing certificates under plans or otherwise assisting in administering plans or performing administrative services related to mass-marketed property and casualty insurance.

3. An employer or association or its officers, directors or employees or the trustees of an employee trust plan, to the extent that the employer or association or officers, directors, employees or trustees are engaged in the administration or operation of a program of employee benefits for the employer's or association's own employees or the employees of its subsidiaries or affiliates and the program involves the use of insurance issued by an insurer, if the employer or association or officers, directors, employees or trustees are not directly or indirectly compensated in any manner by the company that issues the contracts.

4. Employees of insurers or organizations employed by insurers who engage in the inspection, rating or classification of risks or the supervision of the training of insurance producers and who are not individually engaged in the sale, solicitation or negotiation of insurance.

5. A person whose activities in this state are limited to advertising without the intent to solicit insurance in this state through communications in printed publications or other forms of electronic mass media whose distribution is not limited to residents of the state, if the person does not sell, solicit or negotiate insurance that would insure risks residing, located or to be performed in this state.

6. A person who is not a resident of this state and who sells, solicits or negotiates a contract of insurance for commercial property and casualty risks to an insured with risks that are located in more than one state insured under that contract, if that person is otherwise licensed as an insurance producer to sell, solicit or negotiate that insurance in the state where the insured maintains its principal place of business and the contract of insurance insures risks located in that state.

7. A salaried full-time employee who counsels or advises the employee's employer regarding the insurance interests of the employer or its subsidiaries or business affiliates, if the employee does not sell or solicit insurance or receive a commission.

8. A person whose activities in this state are limited to providing a website or other electronic platform for insurers or insurance producers to sell insurance.

9. A person that processes payments or charges for insurance premiums if the person does not sell, solicit or negotiate insurance.

§ 20-284 Application for examination

A. A resident individual applying for an insurance producer license shall pass an examination within the one year period that precedes the date the director received the individual's license application unless the individual is exempt pursuant to section 20-288. The examination shall test the knowledge of the individual concerning the lines of authority for which the application is made, the duties and responsibilities of an insurance producer and the insurance laws of this state.

B. For an individual called into active military service after passing the examination, the one year period prescribed by subsection A of this section shall be extended by the number of days that the individual was in active military service, not to exceed a total of one and one-half years. An individual applying for an insurance producer license pursuant to this subsection shall include with the license application a copy of the documentation from the armed forces showing the period of time that the individual was in active military service. For the purposes of this subsection, active military service does not include periodic and routine service as a military reservist.

C. The director shall make the examination available to applicants for licenses with such frequency as shall meet the reasonable convenience of both the director and applicants, but at least every sixty days. The director may reasonably prescribe by rule the time, places and conduct of examinations. Except as provided in subsection H of this section, the director may require a reasonable waiting period before examination of an applicant who failed to pass a previous similar examination.

D. The director shall ensure that all examinations are given, conducted and graded in a fair and impartial manner and without unfair discrimination as among individuals examined. At the director's discretion, any written examination may be supplemented by an oral examination of the applicant. The director shall inform the applicant of the result of the examination within thirty days after the examination.

E. The director may appoint one or more advisory committees to make recommendations to the director as to the scope, type and conduct of written examinations under this article. The members of the committee shall serve without pay and without expense to the state.

F. An individual who fails to appear for the examination as scheduled or who fails to pass the examination shall reapply for an examination and remit all required fees and forms before being rescheduled for another examination.

G. An individual shall not take an examination for a line of authority for which the individual already holds a license in this state.

H. The director shall not allow an individual to take an examination administered for any line of license authority pursuant to this section more than four times within a twelve month period. If an individual fails an examination for a specific line of authority four times, the individual may not take an examination for that line of authority for one year. For the purposes of this subsection, an individual who fails an examination that covers more than one line of license authority is considered to have failed the examination for each individual line of license authority.

§ 20-285 Application for license

A. A person who applies for a resident insurance producer license shall apply to the director on a form prescribed by the director and shall declare under penalty of denial, suspension or revocation of the license that the statements made in the application are true, correct and complete to the best of the knowledge and belief of the applicant or the applicant's duly authorized representative. The applicant shall provide information concerning the applicant's identity, personal history, business record and experience in insurance and any other pertinent fact the director requires.

B. Before the director approves the application of the individual, the director shall find that the individual:

1. Is at least eighteen years of age.

2. Has not committed any act that is a ground for denial, suspension or revocation prescribed in section 20-295.

3. Has paid the fees prescribed in section 20-167.

4. Has successfully passed the examinations for the lines of authority for which the individual has applied.

C. Before the director approves the application of a business entity, the director shall find that the business entity:

1. Has paid the fees prescribed in section 20-167.

2. Will be acting within the scope of its partnership agreement, articles of incorporation or other chartering documents when the business entity transacts business under the license.

3. Has designated an individually licensed insurance producer who is responsible for the business entity's compliance with the insurance laws of this state.

D. The application of a business entity shall also include the names of all members, officers and directors of the business entity. For any individual who is identified pursuant to this subsection and pursuant to subsection C, paragraph 3 of this section, the director may require the applicant to provide the information required for a license as an individual.

E. Before the director grants a license, the director may require the applicant to:

1. Provide any document that is reasonably necessary to verify the information that is contained in an application and other information including prior criminal records.

2. Submit a full set of fingerprints to the department. The department of insurance and financial institutions shall submit the fingerprints to the department of public safety for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation.

F. A nonresident person who is licensed as an insurance producer in another state, who becomes a resident of this state and who continues to act as an insurance producer shall apply to become a resident licensee pursuant to this section within ninety days.

§ 20-286 Licensure; lines of authority

A. Unless the director denies a license pursuant to section 20-295, the director shall issue a resident insurance producer license to any person who meets the requirements prescribed in sections 20-284 and 20-285. An insurance producer may qualify for a license in one or more of the following lines of authority:

1. Life. Life insurance is coverage on human lives, including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income.

2. Accident and health or sickness. Accident and health or sickness insurance is coverage for sickness, bodily injury or accidental death and may include benefits for disability income.

3. Property. Property insurance is coverage for the direct or consequential loss or damage to property of every kind.

4. Casualty. Casualty insurance is coverage against legal liability, including liability for death, injury, disability or damage to real or personal property.

5. Variable life and variable annuity products. Variable life and variable annuity is insurance coverage that is provided under a variable life insurance contract or a variable annuity.

6. Personal lines. Personal lines is property and casualty insurance coverage that is sold to individuals and families for primarily noncommercial purposes.

7. Credit. Credit insurance is limited line credit insurance.

8. Crop. Crop insurance is limited line crop insurance.

9. Any other line of insurance allowed under state law or rules adopted by the director.

B. The license shall contain the licensee's name, address and identification number, the date of issuance, the lines of authority, the expiration date and any other information the director deems necessary. The director may make the information prescribed by this section available electronically.

C. A licensee shall inform the director in writing within thirty days of any change in the licensee's:

1. Residential, business or e-mail address.

2. Members, directors, officers or designated producer. The director may require that a licensee who notifies the director of a change pursuant to this paragraph submit a full set of fingerprints of each new member, director, officer or designated producer to the director for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation.

3. Name.

D. In order to assist in the performance of the director's duties, the director may contract with a third party to perform any ministerial functions that are related to producer licensing and that the director deems appropriate, including the collection of fees.

§ 20-287 Nonresident licensing

A. Unless the director denies a license pursuant to section 20-295, the director shall issue a nonresident person a nonresident insurance producer license if all of the following apply:

1. The person is currently licensed as a resident and in good standing in the person's home state.

2. The person has submitted the proper request for licensure and has paid the fees prescribed in section 20-167.

3. The person has submitted the application for licensure as an insurance producer that the person submitted to the person's home state or a completed uniform application on a form prescribed by the national association of insurance commissioners.

4. The person's home state issues nonresident insurance producer licenses to residents of this state on the same basis.

B. To remain continuously licensed in this state, a resident insurance producer who moves from this state to another state shall file, within thirty days after requesting a clearance letter, a change of address form as prescribed in section 20-286, subsection C and apply for licensure from the new resident state. After receiving the license from the new resident state, the insurance producer shall immediately notify the director of the new resident license. A fee or license application is not required.

C. Notwithstanding any other provision of this chapter, the director shall issue:

1. A nonresident surplus lines broker license pursuant to subsection A of this section to a person who is licensed as a surplus lines producer or broker in the person's home state. Except as provided in subsection A of this section, this section does not amend or supersede article 5 of this chapter.

2. A nonresident insurance producer license pursuant to subsection A of this section to a person who is licensed in the person's home state to transact limited lines insurance. The license shall grant the person the same scope of authority granted under the license issued by the person's home state. For the purposes of this paragraph, limited lines insurance is any authority that is granted by the home state and that restricts the authority of the license to less than the total authority prescribed in the associated major line insurance.

D. Except as otherwise provided in this title, a nonresident licensee is subject to this title as though the licensee were licensed as a resident.

§ 20-288 Exemption from examination

A. An individual who applies for an insurance producer license in this state and who was previously licensed for the same lines of authority in another state is not required to take an examination if either:

1. The applicant is currently licensed in the other state.

2. The application is received within ninety days after the cancellation of the resident license that the applicant held in another state and the other state issues a certification that, at the time of cancellation, the applicant was in good standing in that state, or other reliable information available to the director indicates that the applicant is or was licensed in good standing for the line of authority requested. This paragraph does not apply to an applicant who fails an examination administered by this state for a specific line of authority four times within a twelve-month period, who becomes licensed as a resident in another state for the specific line of authority and who cancels the license in the other state and applies for a resident license in this state within one year of the last examination administered to the applicant by this state for the specific line of authority.

B. The following applicants are not required to take an examination:

1. An applicant for timely renewal of a license.

2. An applicant for the same type of license that covers the same lines of authority for which the applicant was licensed in this state, other than under a temporary license, within the twelve months preceding the date of application.

3. An applicant for an insurance producer license with authority for limited line insurance as defined in section 20-281, unless the applicant seeks to offer limited line crop insurance.

4. An applicant for a license as a nonresident insurance producer who meets the requirements of section 20-287, subsection A.

5. An applicant for a rental car agent license that is issued pursuant to section 20-331.

6. An applicant for a self-service storage agent license that is issued pursuant to section 20-332.

7. An applicant who resides in a state that does not license adjusters and who will be only adjusting portable electronics insurance policy claims in this state.

§ 20-289 Expiration; surrender; renewal

A. Any license that is issued pursuant to this article, other than a temporary license, continues in force until it expires or the director suspends, revokes or terminates the license. The license is also subject to renewal pursuant to this section.

B. A license that is issued or renewed pursuant to this article or a license that is issued or renewed pursuant to chapter 6, article 9 of this title expires quadrennially as follows:

1. If the licensee is an individual, on the last day of the month of the licensee's birthday, but not less than three years and not more than four years after the last day of the month in which the license is issued or is required to be renewed.

2. If the licensee is a business entity, on the last day of the same month four years after the issuance or renewal due date of the license as provided pursuant to this article.

C. The director may renew a license if the director receives from the licensee all of the following on or before the license expiration date:

1. An application on a form approved by the director.

2. The license fee prescribed in section 20-167.

3. Evidence that the licensee has complied with the continuing education requirements prescribed in chapter 18 of this title.

D. Before renewing a license, the director may require the applicant to:

1. Provide all documents that are reasonably necessary to verify the information that is contained in the application and any other information including prior criminal records.

2. Submit a full set of fingerprints to the department. The department of insurance and financial institutions shall submit the fingerprints to the department of public safety for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation.

E. Any license for which the director does not receive timely application for renewal and full payment of fees expires at midnight on the renewal date. During the year after the expiration of a license under this section, a person who otherwise meets the qualifications for a license may renew an expired license by filing with the director a renewal application, the quadrennial license fee and an additional $100 as a late renewal fee. Any application that is received during this one-year period for the same license that expired under this section is deemed a renewal application. Any application that is received after the one-year period for the same license that expired under this section is deemed a new application.

F. On the written request of a person who is licensed pursuant to this article, the director may accept the voluntary surrender of the person's authority to transact one or more lines of insurance or of the person's entire license. A person who surrenders an authority or a license under this subsection may obtain the same authority or license only if the person complies with the requirements that apply to a person who has not previously held the authority or license.

§ 20-289.01 Inactive license or application status during military service

A. A licensee or applicant who is ordered into active military service may request that the license or application be placed on inactive status by sending the department a written statement that includes all of the following:

1. The licensee's name.

2. The licensee's license number or social security number.

3. The date that the active military service begins.

4. A request for inactive status.

B. The license or application is deemed to be on inactive status while the licensee or applicant is in active military service.

C. A licensee whose license is on inactive status:

1. Shall not sell, solicit or negotiate insurance.

2. May receive renewal or other deferred commissions for selling, soliciting or negotiating insurance in this state if the licensee was required to be licensed under this article at the time of the sale, solicitation or negotiation and held an active license at that time.

D. The time periods for submission of the license renewal fee and for completion of the applicable renewal requirements prescribed in this article and the continuing education requirements that are prescribed in chapter 18, article 1 of this title and that apply to a licensee with an active license are extended for a licensee whose license is on inactive status by the number of days that the licensee is in active military service. A licensee applying for renewal under this section shall include, with the renewal application, a copy of the documentation from the armed forces showing the period of time that the licensee was in active military service.

E. For the purposes of this section, active military service does not include periodic and routine service as a military reservist.

§ 20-290 Insurance producer records; individual licensees

A. An insurance producer shall keep at the insurance producer's principal place of business the usual and customary records that pertain to transactions under the insurance producer's license. The insurance producer shall keep all records for any transaction for three years immediately after the date of completion of the transaction and shall make them available and open to the inspection of the director at any business time during those three years.

B. A business entity insurance producer shall have at least one insurance producer individually licensed for the appropriate lines of authority in each office or place of business in which the business entity transacts insurance in this state.

§ 20-291 Service of process on nonresident licensees

A. Application for and acceptance of any nonresident license pursuant to this article constitutes an irrevocable appointment of the director as the agent of the licensee for the acceptance of service of process issued in this state in any action or proceeding against the licensee arising out of the licensing or out of transactions under the license.

B. Duplicate copies of any process shall be served on the director. At the time of service the plaintiff shall pay the director the fee prescribed in section 20-167. On receiving service the director shall promptly forward a copy by certified mail, return receipt requested, to the licensee at the licensee's last address of record with the director. Process served on the director pursuant to this section constitutes service on the licensee as though the licensee were personally served with process in this state.

§ 20-292 Violation; injunctive relief

If the director has cause to believe that any person is violating or about to violate section 20-282, 20-298, 20-311.01, 20-321.01, 20-331, 20-331.01, 20-332, 20-340.01 or 20-411, the director may order the person to cease and desist and, through the attorney general, may cause a complaint to be filed in the superior court in Maricopa county to enjoin and restrain the person from continuing the violation, engaging in the violation or doing any act in furtherance of the violation. If the director orders the person to cease and desist, the person may file a notice of appeal and may appeal any final order pursuant to title 41, chapter 6, article 10. If the director, through the attorney general, causes a complaint to be filed, the superior court in Maricopa county has jurisdiction of the proceeding and may make and enter an order or judgment awarding the preliminary or final relief as in its judgment is proper.

§ 20-293 Insurance vending machines

A. Only a licensed insurance producer who is authorized by the director may solicit applications for and issue policies by means of mechanical vending machines. The insurance producer shall supervise each machine and shall issue policies only of insurers authorized to transact business in this state. A policy shall not be solicited and issued through a machine if the director finds that the kind of insurance or form of policy to be sold is unsuitable for sale and issuance through vending machines, that use of a vending machine may pose a risk of harm to the public or that the proposed type of vending machine is not reasonably suitable and practical for the purpose.

B. The insurance producer shall display on or near each vending machine evidence of the producer's authority to solicit applications and issue policies in a manner and form as the director may reasonably require. The evidence of authority shall specify the name and address of both the insurer and the insurance producer, the kind of insurance and type of policy to be sold, the place where the machine is to be in operation and the machine's identification number. The authority granted pursuant to this section expires coincident with the insurance producer's license. The director shall suspend, revoke or otherwise terminate the authority to operate a vending machine coincidentally with that of the insurance producer.

§ 20-294 Temporary licensing

A. The director may issue a temporary insurance producer license for not more than one hundred eighty days without requiring an examination if the director deems that the temporary license is necessary for the servicing of an insurance business in the following cases:

1. To the surviving spouse or court appointed personal representative of a licensed insurance producer who dies or becomes a person with a mental or physical disability to allow adequate time for the sale of the insurance business owned by the producer, for the recovery of the producer and return of the producer to the business or to provide for the training and licensing of new personnel to operate the producer's business.

2. To a member or employee of a business entity that is licensed as an insurance producer on the death or disability of an individual who is the designated producer on the business entity application or license.

3. To the designee of a licensed insurance producer who enters active service in the armed forces of the United States.

B. By order the director may impose conditions or limitations on the authority of any temporary licensee in any way the director deems necessary to protect insureds and the public, including requiring the temporary licensee to have a suitable sponsor who is a licensed insurance producer or insurer and who assumes responsibility for all acts of the temporary licensee. Unless the director imposes conditions or limitations pursuant to this subsection, a temporary licensee has the same rights and privileges prescribed in this article for an insurance producer.

C. By order the director may summarily revoke a temporary license if the interests of insureds or the public are endangered. A temporary license may not continue after the owner or the personal representative disposes of the business.

§ 20-295 License denial, suspension or revocation; civil penalty

A. The director may deny, suspend for not more than twelve months, revoke or refuse to renew an insurance producer's license or may impose a civil penalty in accordance with subsection F of this section or any combination of actions for any one or more of the following causes:

1. Providing incorrect, misleading, incomplete or materially untrue information in the license application.

2. Violating any provision of this title or any rule, subpoena or order of the director.

3. Obtaining or attempting to obtain a license through misrepresentation or fraud.

4. Improperly withholding, misappropriating or converting any monies or properties received in the course of doing insurance business.

5. Intentionally misrepresenting the terms of an actual or proposed insurance contract or application for insurance.

6. Having been convicted of a felony.

7. Having admitted or been found to have committed any insurance unfair trade practice or fraud.

8. Using fraudulent, coercive or dishonest practices, or demonstrating incompetence, untrustworthiness or financial irresponsibility in the conduct of business in this state or elsewhere.

9. Having an insurance producer license, or its equivalent, denied, suspended or revoked in any state, province, district or territory.

10. Forging another's name to any document related to an insurance transaction.

11. Aiding or assisting any person in the unauthorized transaction of insurance business.

12. Violating section 41-624, subsection B or C.

13. Violating section 6-1410, 6-1412 or 6-1413.

14. Using the insurance producer's license principally to procure insurance that covers the life, property or insurable interests, other than to insure an interest in property that is being sold under a contract or that is securing a loan, of any of the following:

(a) The licensee.

(b) The licensee's family or relatives to the second degree.

(c) The licensee’s employer.

(d) The licensee’s employees.

(e) A firm or corporation, or its employees, in which the licensee owns a substantial interest.

B. The director may deny, suspend for not more than twelve months, revoke or refuse to renew the license of a business entity:

1. For any of the causes prescribed in subsection A of this section if the cause relates to the designated producer or any member, officer, director or manager of the business entity.

2. If the director finds that an individual insurance producer's violation was known or should have been known by the designated producer or one or more of the members, officers, directors or managers acting on behalf of the business entity and the violation was not seasonably reported to the director and no reasonable corrective action was taken.

C. If the director denies an application for a license, the director shall notify the applicant in accordance with title 41, chapter 6, article 10.

D. The director may revoke, suspend or refuse to renew a license after notice and an opportunity for a hearing in accordance with title 41, chapter 6, article 10.

E. Any hearing required by this section shall be conducted as prescribed in chapter 1, article 2 of this title and title 41, chapter 6, article 10.

F. In addition to or instead of any suspension, revocation or refusal to renew a license pursuant to this section, after a hearing the director may:

1. Impose a civil penalty of not more than two hundred fifty dollars for each unintentional failure or violation, up to an aggregate civil penalty of two thousand five hundred dollars.

2. Impose a civil penalty of not more than two thousand five hundred dollars for each intentional failure or violation, up to an aggregate civil penalty of fifteen thousand dollars.

3. Order the licensee to provide restitution to any party injured by the licensee's action.

G. The licensee shall pay any civil penalty to the director who shall deposit it, pursuant to sections 35-146 and 35-147, in the state general fund. The civil penalty is in addition to any other applicable penalty or restraint either in this article or in any other law and may be recovered in a civil action brought by the director. For the purposes of subsection F of this section, a single publication, exhibition or utterance of any matter in violation of this title is deemed one violation or failure, including an edition of a newspaper, book or magazine, a single representation to an audience, a single broadcast over radio or television or a single exhibition of a motion picture.

H. The director shall retain the authority to enforce this title and impose any penalty or remedy authorized by this title against any person who is under investigation for or charged with a violation of this title even if the person's license has been surrendered or has lapsed by operation of law.

§ 20-296 Effect of suspension or revocation of license

A. The director shall not again issue any license under this title to any person whose license has been revoked until one year after the revocation and the person again qualifies in accordance with the applicable provisions of this title.

B. If the license of a business entity is suspended or revoked, a member, officer or director of or designated producer for the business entity shall not be issued a license or serve as the designated producer for any licensee during the period of the suspension or revocation unless the director determines that the member, officer, director or designated producer was not personally at fault and did not acquiesce in the matter that resulted in the suspension or revocation of the license.

§ 20-297 Assumed business name; trade name

A. An insurance producer doing business under any name other than the producer's legal name shall notify the director on a form prescribed by the director before using the assumed name.

B. The director may deny the use of an assumed business name, require the use of a different assumed business name or require the use of an assumed business name if an insurance producer uses or proposes to use an assumed business name that either:

1. Is so similar to the legal name or name already assumed under this section by any other licensed insurance producer so as to cause uncertainty or confusion.

2. Tends to deceive or mislead the public as to the nature of the business that is or will be conducted.

C. An insurance producer shall notify the director in writing within thirty days after any material change to the information filed with the director under this section.

D. The director shall not issue any license in a trade name except to a business entity and on proof satisfactory to the director that the trade name has been lawfully registered.

§ 20-298 Commissions

A. An insurer or insurance producer shall not pay a commission, service fee, brokerage or other valuable consideration to a person for selling, soliciting or negotiating insurance in this state if that person is required to be licensed under this article and is not so licensed.

B. A person shall not accept a commission, service fee, brokerage or other valuable consideration for selling, soliciting or negotiating insurance in this state if that person is required to be licensed under this article and is not so licensed.

C. Renewal or other deferred commissions may be paid to a person for selling, soliciting or negotiating insurance in this state if the person was required to be licensed under this article at the time of the sale, solicitation or negotiation and was so licensed at that time.

D. An insurer or insurance producer may pay or assign commissions, service fees, brokerages or other valuable consideration to an insurance agency or to persons who do not sell, solicit or negotiate insurance in this state, unless the payment would violate section 20-451.

E. This section does not affect payment of the regular salaries due to a licensee's employees or the distribution in the regular course of business of compensation and profits among a business entity's members or other owners.

§ 20-299 Sharing of information

A. The director may:

1. Share any nonpublic document, material or other information with other state, federal and international regulatory agencies, with the national association of insurance commissioners and its affiliates or subsidiaries and with state, federal and international law enforcement authorities, if the recipient agrees to maintain the confidentiality and privileged status of the document, material or other information and warrants that it has the authority to maintain that confidentiality and privileged status.

2. Receive any document, material or other information from the national association of insurance commissioners and its affiliates or subsidiaries and from regulatory and law enforcement officials of other foreign or domestic jurisdictions and shall maintain as confidential or privileged any document, material or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information.

3. Enter into agreements that govern the sharing and use of documents, materials or other information and that are consistent with this subsection.

B. Any disclosure to the director or sharing of documents, materials or other information in accordance with this section is not a waiver of any applicable privilege or claim of confidentiality in any document, material or other information.

§ 20-300 Reciprocity

A. The director shall waive any requirements, except the requirements prescribed in section 20-287, for a nonresident license applicant who holds a license in good standing from the applicant's home state if the applicant's home state issues nonresident licenses to residents of this state on the same basis.

B. A nonresident insurance producer who satisfies the continuing education requirements for a licensed insurance producer in the producer's home state also satisfies this state's continuing education requirements if the nonresident producer's home state recognizes the satisfaction of its continuing education requirements imposed on producers from this state on the same basis.

§ 20-301 Report of actions

A. Within thirty days after the final disposition of the matter, an insurance producer shall report to the director any administrative action taken against the producer in another jurisdiction or by another governmental agency in this state. The report shall include a copy of the order, consent to order or other relevant dispositive document.

B. Within thirty days after the filing date of a criminal conviction in any jurisdiction, an insurance producer who has been convicted shall report the conviction to the director. The report shall include a copy of the initial indictment, information or complaint filed, the final judgment entered by the court and all other relevant legal documents.

§ 20-302 Rules

The director may adopt rules pursuant to title 41, chapter 6 to carry out this article.

Article 3.1 Managing General Agents

§ 20-311 Definition of managing general agent; exceptions; adjustment or payment of claims

A. In this article, unless the context otherwise requires, "managing general agent" means any person, firm, association or corporation that manages all or part of the insurance business of an insurer, including the management of a separate division, department or underwriting office, and that, with or without authority and either separately or together with affiliates, directly or indirectly produces and underwrites an amount of gross direct written premium that is at least five per cent of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year and that either:

1. Engages in the adjustment or payment of claims in excess of ten thousand dollars per claim.

2. Negotiates reinsurance on behalf of the insurer.

B. Notwithstanding subsection A of this section, for the purposes of this article the following persons are not managing general agents:

1. An employee of the insurer.

2. A United States manager of the United States branch of an alien insurer.

3. An underwriting manager who, pursuant to contract, manages all of the insurance operations of the insurer other than those operations that are managed by the insurer, who is under common control with the insurer, subject to the holding company regulatory act, and whose compensation is not based on the volume of premiums written.

4. The attorney-in-fact who is authorized by and acting for the subscribers of a reciprocal insurer or inter-insurance exchange under powers of attorney.

5. A reinsurance intermediary broker or a reinsurance intermediary manager as defined in section 20-486, who provides administrative services for an insurer and whose compensation consists only of remuneration not related directly or indirectly to direct written premium. For the purposes of this paragraph, reinsurance commissions shall not be considered remuneration related to direct written premium.

C. The director shall establish by rule the dollar amount of adjusted or paid claims that constitutes engaging in the adjustment or payment of claims.

§ 20-311.01 Managing general agents; requirements

A. A person shall not act in the capacity of a managing general agent for an insurer licensed in this state with respect to the risks located in this state unless the person is licensed as an insurance producer by the director.

B. A person shall not act in the capacity of a managing general agent for an insurer domiciled in this state with respect to risks located outside of this state unless the person is licensed as an insurance producer by the director.

§ 20-311.02 Requirements for managing general agent agreements

A. A person, firm, association or corporation acting in the capacity of a managing general agent shall not place business with an insurer unless there is in force a written contract between the parties that sets forth the responsibilities of each party and, if both parties share responsibility for a particular function, specifies the division of the responsibilities. The contract shall contain the following minimum provisions:

1. The insurer may terminate the contract for cause on written notice to the managing general agent. The insurer may suspend the underwriting authority of the managing general agent during the pendency of a dispute regarding the cause for termination.

2. At least each month the managing general agent shall render accounts to the insurer detailing all transactions and remit all monies due under the contract to the insurer.

3. The managing general agent shall hold in a fiduciary capacity all monies that are collected for the account of an insurer in a bank that is an institution that is insured by the federal deposit insurance corporation. The account shall be used for all payments on behalf of the insurer. The managing general agent may retain no more than three months' estimated claims payments and allocated loss adjustment expenses.

4. The managing general agent shall maintain separate records of business that is written by the managing general agent. The insurer shall have access to and the right to copy all accounts and records related to its business in a form usable by the insurer. The director shall have access to all books, bank accounts and records of the managing general agent in a form usable to the director.

5. The managing general agent may not assign the contract in whole or in part.

6. Appropriate underwriting guidelines, including:

(a) The maximum annual premium volume.

(b) The basis of the rates to be charged.

(c) The types of risks that may be written.

(d) Maximum limits of liability.

(e) Applicable exclusions.

(f) Territorial limitations.

(g) Policy cancellation provisions.

(h) The maximum policy period.

7. The insurer may cancel or refuse to renew an insurance policy subject to applicable laws and rules.

8. If the contract permits the managing general agent to settle claims on behalf of the insurer:

(a) All claims shall be reported to the company in a timely manner.

(b) A copy of the claim file shall be sent to the insurer on request or as soon as it becomes known that the claim:

(i) May exceed an amount determined by the director or exceeds the limit set by the company, whichever is less.

(ii) Involves a coverage dispute.

(iii) May exceed the managing general agent's claims settlement authority.

(iv) Is open for more than six months.

(v) Is closed by payment of an amount set by the director or an amount set by the company, whichever is less.

(c) All claim files are the joint property of the insurer and the managing general agent. On an order of liquidation of the insurer the files become the sole property of the insurer or its estate. The managing general agent shall have reasonable access to and the right to copy the files on a timely basis.

(d) Any settlement authority that is granted to the managing general agent may be terminated for cause on the insurer's written notice to the managing general agent or on the termination of the contract. The insurer may suspend the settlement authority during the pendency of a dispute regarding the cause for termination.

9. If electronic claims files exist, provisions on the timely transmission of the data.

10. If the contract provides for the sharing of interim profits by the managing general agent, and the managing general agent has the authority to determine the amount of the interim profits by establishing loss reserves, controlling claim payments or any other manner, interim profits shall not be paid to the managing general agent until one year after the interim profits are earned for property insurance business or five years after the interim profits are earned on casualty business and the interim profits have been verified pursuant to subsection B of this section.

11. The managing general agent shall not:

(a) Bind reinsurance or retrocessions on behalf of the insurer, except that the managing general agent may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the insurer contains reinsurance underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with whom the automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules.

(b) Commit the insurer to participation in insurance or reinsurance syndicates.

(c) Appoint a producer without assuring that the producer is lawfully licensed to transact the type of insurance for which the producer is appointed.

(d) Without prior approval of the insurer, pay or commit the insurer to pay a claim over a specified amount, net of reinsurance, that does not exceed one per cent of the insurer's policyholder's surplus as of December 31 of the last completed calendar year.

(e) Without prior approval of the insurer, collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer. If prior approval is given, a report shall be forwarded promptly to the insurer.

(f) Permit its subproducer to serve on the insurer's board of directors.

(g) Employ jointly an individual who is employed by the insurer.

(h) Appoint a submanaging general agent.

12. The managing general agent may use only advertising material pertaining to the business issued by an insurer that has been approved in writing by the insurer in advance of its use.

B. With respect to its managing general agent, an insurer shall:

1. Require the managing general agent to obtain and maintain a surety bond for the protection of the insurer. The amount of the surety bond shall be ten per cent of the managing general agent's total annual written premium nationwide produced by the managing general agent for the insurer in the prior calendar year, except that the surety bond shall not be in an amount less than one hundred thousand dollars or more than five hundred thousand dollars. The insurer shall make the bond available for inspection by the director.

2. Have on file an independent audited annual financial statement or report for the two most recent fiscal years that prove that the managing general agent has a positive net worth. If the managing general agent has been in existence for less than two fiscal years, the managing general agent shall include financial statements or reports that are certified by an officer of the managing general agent and that are prepared in accordance with generally accepted accounting principles for any completed fiscal years and for any month during the current fiscal year for which the financial statements or reports have been completed. For an audited financial report prepared on a consolidated basis, a managing general agent shall provide to the insurer with the financial report a columnar consolidating worksheet that includes amounts shown on the consolidated audited financial report, amounts for each entity stated separately and explanations of consolidating and eliminating entries.

3. Notwithstanding any other required loss reserve certification, if the managing general agent establishes loss reserves, annually obtain an actuary's opinion attesting to the adequacy of the loss reserves established for losses incurred and outstanding on business that is produced by the managing general agent.

4. Conduct semiannually an on-site review of the managing general agent's underwriting and claims processing operations.

5. Give to an officer of the insurer who is not affiliated with the managing general agent binding authority for all reinsurance contracts or participation in insurance or reinsurance syndicates.

6. Within thirty days of entering into or terminating a contract with a managing general agent, provide to the director written notification of the appointment or termination. A notice of appointment of a managing general agent shall include a statement of the duties that the applicant shall perform on behalf of the insurer, the lines of insurance for which the applicant shall be authorized to act and any other information the director may request.

7. Review its books and records each quarter to determine if a producer has become, by operation, a managing general agent. If the insurer determines that a producer has become a managing general agent, the insurer promptly shall notify the producer and the director of the determination. The insurer and the producer shall comply with this section within thirty days.

C. An insurer shall not appoint to its board of directors an officer, director, employee, subproducer or controlling shareholder of its managing general agents. This subsection does not apply to relationships that are governed by the insurance holding company act or, if applicable, the producer controlled insurer act.

D. The acts of the managing general agent are considered to be the acts of the insurer on whose behalf the managing general agent is acting. A managing general agent may be examined by the director as if the managing general agent were the insurer and the insurer shall bear all expenses of the examination as prescribed by sections 20-156 and 20-159.

E. If after a hearing the director finds that a person has violated this section, the director may order:

1. For each separate violation, a civil penalty in an amount of up to one thousand dollars.

2. Revocation or suspension of the producer's license.

3. The managing general agent to reimburse the insurer or the rehabilitator or liquidator of the insurer for any losses that are incurred by the insurer and that are caused by an act that is committed by the managing general agent in violation of this section.

F. Nothing contained in this section affects the right of the director to impose any other penalties pursuant to this title.

G. Nothing contained in this section limits or restricts the rights of policyholders, claimants and auditors.

H. The director may adopt rules for the implementation and administration of this section.

I. Except as provided in section 41-1092.08, subsection H, the final decision, determination or order of the director pursuant to subsection E of this section is subject to judicial review pursuant to title 12, chapter 7, article 6.

Article 3.2 Adjusters

§ 20-321 Definitions

In this article, unless the context otherwise requires:

1. "Adjuster":

(a) Means any person who for compensation, fee or commission either:

(i) Adjusts, investigates or negotiates settlement of claims arising under property and casualty insurance contracts on behalf of either the insurer or the insured.

(ii) Holds oneself out to perform a service listed in item (i) of this subdivision.

(b) Does not include:

(i) A licensed attorney-at-law who is qualified to practice law in this state.

(ii) A salaried employee of an insurer or of a managing general agent. For the purposes of this item, "salaried employee" means an employee whose compensation is not contingent on the outcome of a claim determination.

(iii) A licensed insurance producer who adjusts or assists in adjustment of losses arising under policies procured through the insurance producer.

(iv) An employee of a political subdivision who adjusts or assists in the adjustment of losses arising under policies covering the political subdivision or persons indemnified by the political subdivision.

(v) An independent contractor retained by a licensed adjuster or a person listed in items (i), (ii), (iii) and (iv) of this subdivision for the sole purpose of providing technical assistance in connection with a claim. Independent contractors may include photographers, estimators, engineers, private detectives or handwriting experts.

(vi) An individual who collects claim information from or furnishes claim information to insureds or claimants and who conducts data entry, including entering data into an automated claims adjudication system, if not more than twenty-five persons, as described in this item, are under the supervision of a single licensed adjuster or licensed producer.

(vii) A licensed insurance producer who supervises or adjusts claims pursuant to item (vi) of this subdivision.

(viii) Registered third-party administrators and their employees who are engaged in administering accident and health or life insurance claims.

(ix) An individual who adjusts, investigates or negotiates settlement of only workers' compensation claims.

2. "Automated claims adjudication system" means a preprogrammed computer system that is designed for the collection, data entry, calculation and final resolution of portable consumer electronic products insurance claims and that:

(a) May be used only by a licensed adjuster, a licensed producer or supervised individuals operating pursuant to this paragraph.

(b) Must comply with all claims payment requirements under this title and be certified as compliant by a licensed adjuster.

3. "Portable consumer electronic products" means electronic devices and related accessories that are portable in nature.

§ 20-321.01 Licensing of adjusters; qualifications; exemption

A. A person shall not act as or claim to be an adjuster unless the person is licensed under this article.

B. To obtain a license as an adjuster a person shall apply to the director for the license and use the forms prescribed and provided by the director. The director shall issue the license to qualified persons on payment of the license fee prescribed in section 20-167.

C. To be licensed as an adjuster the applicant shall meet all of the following qualifications:

1. Be a person who is at least eighteen years of age.

2. Be a resident of this state or a resident of another state that allows residents of this state to act as adjusters in the other state.

3. Take and pass an examination that is given by or under the supervision of the director and that reasonably tests the applicant's knowledge of insurance and legal responsibilities as an adjuster and otherwise comply with section 20-321.02. Notwithstanding subsection D of this section, the requirements under this paragraph and paragraph 2 of this subsection are waived if the applicant holds a current claims certificate issued by a national or state-based claims association with a certification program that is approved by the director and that consists of at least forty hours of preexamination course work, a proctored examination of sufficient length to adequately determine the competency of the applicant and at least twenty-four hours of continuing education required for certification renewals on a biennial basis.

D. An adjuster who is licensed or allowed to act as an adjuster in the state of the adjuster's domicile is not required to be licensed pursuant to this section or meet the qualifications prescribed in this section if the adjuster is sent to this state on behalf of an insurer for the purpose of investigating or making adjustment of a particular loss under an insurance policy or a series of losses resulting from a catastrophe common to all those losses.

E. To determine license eligibility, the director may require fingerprints of applicants and the submission of the fee and the fingerprints as required by section 20-285, subsection E, paragraph 2.

F. The director may contract with nongovernmental entities to perform any ministerial functions, including collection of fees and data related to licensing, that the director deems appropriate.

G. A resident of Canada may apply for a license that grants the applicant the authority only to adjust portable electronics insurance claims in this state if the person has obtained an adjuster license in another state that allows that person to adjust portable electronics insurance claims in that state. A Canadian resident who qualifies for licensure as an adjuster under this subsection is not subject to section 25-320, subsection P.

H. An applicant who resides in a state that does not issue licenses to adjusters and who is otherwise allowed to adjust portable electronics insurance claims in the applicant's resident state may apply for a license that grants the applicant the authority only to adjust portable electronics insurance claims in this state.

§ 20-321.02 Application of other laws

To the extent permitted by this article, sections 20-281 and 20-284, section 20-286, subsections B, C and D, sections 20-287, 20-288, 20-289 and 20-289.01, section 20-290, subsection A and sections 20-291, 20-292, 20-295, 20-296, 20-297, 20-299, 20-301 and 20-302 apply to adjusters.

Article 3.3 Other Insurance Professionals

§ 20-331 Rental car agents; definitions

A. The director may issue to a rental company that has complied with the requirements of this section a license that authorizes the rental company as a rental car agent to offer or sell insurance in connection with and incidental to rental agreements. Notwithstanding section 20-290, subsection B, a rental car agent is not required to have an individual licensee in each office or other rental site or place where insurance is transacted.

B. An applicant for a rental car agent license shall file with the director a written application that is in a form prescribed by the director and that is signed by an officer of the applicant. The application shall specify all locations at which the licensee may conduct business under the license. The licensee shall provide the director at least thirty days' prior notice before conducting business under the license at any additional location.

C. A rental car agent may offer or sell insurance at the rental company office or other rental site or process a preselection of coverage in a master, corporate, group or individual rental agreement for any of the following kinds or types of insurance, separately or in combination:

1. Accident and health or sickness insurance that provides coverage, as applicable, to renters and other rental vehicle occupants for accidental death or dismemberment and reimbursement for medical expenses that result from an accident that occurs during the rental period.

2. Liability insurance that provides coverage, as applicable, to renters and other authorized drivers of rental vehicles for liability that arises from the operation of the rental vehicles, including uninsured and underinsured motorist coverage separately or in combination with other liability insurance.

3. Personal property insurance that provides coverage, as applicable, to renters and other vehicle occupants for the loss of or damage to personal effects that occurs during the rental period.

4. Vehicle breakdown coverage.

5. Physical damage insurance that provides coverage to renters and other authorized drivers of rental vehicles for property damage liability that arises from the operation of the vehicle.

D. A rental car agent is not subject to the continuing education requirements of chapter 18 of this title.

E. A rental car agent shall not offer or sell insurance pursuant to this section unless:

1. The rental period of the rental agreement is ninety consecutive days or less.

2. The rental car agent provides brochures or other written materials to the prospective renter that:

(a) Summarize the material terms and conditions of coverage offered to renters, including the identity of the insurer.

(b) Describe the process for filing a claim.

3. The rental car agent makes the following disclosures to the renter and the renter acknowledges the disclosures in writing:

(a) That the insurance policies offered by the rental car agent may provide a duplication of coverage already provided by a renter's personal automobile insurance policy or by another source of coverage.

(b) That the purchase by the renter of the kinds of insurance prescribed in this section is not required in order to rent a vehicle.

4. Evidence of coverage is stated on the face of the rental agreement.

5. Costs for the insurance are separately itemized in the rental agreement.

6. The insurance is provided under a group or master policy issued to the rental company by an insurer authorized to transact the applicable kinds or types of insurance in this state or by a surplus lines insurer in accordance with article 5 of this chapter.

F. Any salaried employee of a rental car agent may act on behalf and under the supervision of the rental car agent in matters relating to the conduct of business under the license issued pursuant to this section. The conduct of an employee or agent of a rental car agent acting within the scope of employment or agency is deemed the conduct of the rental car agent for purposes of this article.

G. Each rental car agent licensed pursuant to this section shall conduct a training program that provides employees and agents of the rental company with basic instruction about the provisions of this section, including the kinds of coverage prescribed in this section.

H. A rental car agent shall not:

1. Offer or sell insurance except in conjunction with and incidental to rental agreements.

2. Advertise, represent or otherwise portray itself or any of its employees or agents as licensed insurers or insurance producers.

3. Pay any person any compensation, fee or commission dependent on the placement of insurance under the license issued pursuant to this section.

I. Nothing in this section prohibits production payments or incentive payments to an employee if the payments are not dependent on the sale of insurance.

J. To the extent not inconsistent with this article, section 20-281, section 20-286, subsections B, C and D, sections 20-289 and 20-289.01, section 20-290, subsection A and sections 20-291, 20-292, 20-295, 20-296, 20-297, 20-298, 20-299, 20-301 and 20-302 apply to rental car agents.

K. For the purposes of this section:

1. "Rental agreement" means any written agreement that states the terms and conditions that govern the use of a vehicle provided by the rental company for rent or lease for a rental period of ninety days or less.

2. "Rental car agent" means a rental company that is licensed pursuant to this section.

3. "Rental company" means any firm or corporation in the business of renting vehicles to renters under a rental agreement.

4. "Rental period" means the term of the rental agreement.

5. "Rental vehicle" or "vehicle" means a motor vehicle operated by a driver who is not required to possess a commercial driver license to operate the motor vehicle and the motor vehicle is either:

(a) A private passenger motor vehicle, including a passenger van, minivan or sport utility vehicle.

(b) A cargo vehicle, including a cargo van, pickup truck and truck with a gross vehicle weight of less than twenty-six thousand pounds.

6. "Renter" means any person who obtains the use of a vehicle from a rental company under the terms of a rental agreement.

§ 20-331.01 Political subdivision employees; risk management consultant licenses; application of other laws

A. An employee of a political subdivision may be licensed as a risk management consultant for the purposes of title 11, chapter 7, article 5 to carry out the provisions of title 11, chapter 7, article 5. The director shall license these employees in the same manner as insurance producers. The director may waive the examination requirement for a license issued pursuant to this section. The license automatically expires when the employee terminates employment with the political subdivision.

B. To the extent not inconsistent with this article, sections 20-281, 20-284 and 20-285, section 20-286, subsections B, C and D, section 20-288, subsection B and sections 20-289, 20-289.01, 20-290, 20-291, 20-292, 20-295, 20-296, 20-297, 20-298, 20-299, 20-301 and 20-302 apply to risk management consultants.

§ 20-332 Self-service storage agents; license; definitions

A. The director may issue a self-service storage agent license to an operator that has complied with the requirements of this section authorizing the operator to offer or to sell the kinds of insurance prescribed in this section in connection with and incidental to the rental of space at a self-service storage facility.

B. An applicant for a self-service storage agent license shall file a written application in a form prescribed by the director. The application shall specify all locations in this state at which the self-service storage agent may conduct business under the license. Notwithstanding section 20-290, subsection B, a self-service storage agent is not required to have an individual licensee in each self-service storage facility or place where insurance is transacted. The self-service storage agent shall notify the director within thirty days after commencing business under the self-service storage agent's license at any additional locations in this state or of those locations in this state that cease to do business under the license.

C. A self-service storage agent may offer or sell insurance only in connection with and incidental to the rental of space at a self-service storage facility and only with respect to personal property insurance that provides coverage to occupants at the self-service storage facility where the insurance is transacted for the loss of or damage to stored personal property that occurs at that facility.

D. A self-service storage agent shall not offer or sell insurance pursuant to this section unless:

1. The self-service storage agent makes readily available to the prospective occupant brochures or other written materials that:

(a) Summarize the material terms of insurance coverage offered to occupants, including the identity of the insurer, price, benefits, exclusions and conditions.

(b) Disclose that the policies offered by the self-service storage agent may provide a duplication of coverage already provided by an occupant's homeowner's insurance policy, renter's insurance policy, vehicle insurance policy, watercraft insurance policy or other source of property insurance coverage.

(c) State that if insurance is required as a condition of rental, the requirement may be satisfied by the occupant purchasing the insurance prescribed in this section or by presenting evidence of other applicable insurance coverage.

(d) Describe the process for filing a claim.

2. All costs related to the insurance are clearly itemized in writing.

3. Evidence of coverage in a form approved by the insurer is provided to every occupant who purchases the coverage.

4. The insurance is provided by an insurer authorized to transact the applicable kinds of insurance in this state or by a surplus lines insurer pursuant to article 5 of this chapter.

E. An employee or agent of a self-service storage agent may act on behalf of and under the supervision of the self-service storage agent in matters relating to the conduct of business under the license that is issued pursuant to this section. The conduct of an employee or agent of a self-service storage agent acting within the scope of employment or agency is deemed the conduct of the self-service storage agent for purposes of this section.

F. Each self-service storage agent shall provide a training program that gives employees and agents of the self-service storage agent basic instruction about the provisions of this section, including the kinds of insurance coverage prescribed in this section.

G. A self-service storage agent shall not:

1. Offer or sell insurance except in connection with and incidental to the rental of space at a self-service storage facility.

2. Advertise, represent or otherwise portray itself or any of its employees or agents as licensed insurers or insurance producers.

3. Pay any person any commission or other compensation dependent on the sale of insurance under the self-service storage agent license that is issued pursuant to this section.

H. Nothing in this section prohibits:

1. An insurer from paying, and a self-service storage agent from receiving, a commission, service fee or other valuable consideration dependent on the sale of insurance.

2. A self-service storage agent from paying, and its employees or agents from receiving, production payments or incentive payments if the payments are not dependent on the sale of insurance.

I. An operator is not required to be licensed pursuant to this section merely to display and make available to prospective occupants brochures and other promotional materials created by or on behalf of an authorized insurer or by a surplus lines insurer pursuant to article 5 of this chapter.

J. To the extent not inconsistent with this section, sections 20-281, 20-282, 20-283, 20-288 and 20-289, section 20-290, subsection A and sections 20-291, 20-292, 20-293, 20-295, 20-296, 20-297, 20-298, 20-299, 20-301 and 20-302 apply to self-service storage agents. A self-service storage agent is not subject to the continuing education requirements of chapter 18 of this title.

K. For the purposes of this section:

1. "Occupant" means a person or the person's sublessee, successor or assign who is entitled to the use of a leased space or spaces at a self-service storage facility, to the exclusion of others.

2. "Operator" means the owner or owner's managing agent of a self-service storage facility.

3. "Personal property" means movable property that is not affixed to land and includes:

(a) Goods, wares, merchandise, household items and furnishings.

(b) Vehicles, motor vehicles, trailers and semitrailers as those terms are defined in section 28-101.

(c) Watercraft and motorized watercraft as those terms are defined in section 5-301.

4. "Self-service storage agent" means an operator who is licensed pursuant to this section.

5. "Self-service storage facility" means any real property that is used for renting or leasing storage space in which the occupants themselves customarily store and remove personal property on a self-service basis.

Article 3.4 Navigators and Certified Application Counselors

§ 20-336 Definitions

In this article, unless the context otherwise requires:

1. "Certified application counselor" means an individual who is licensed pursuant to this article and who is authorized by the United States department of health and human services to perform the activities and duties of a certified application counselor as described by 45 Code of Federal Regulations section 155.225.

2. "Exchange" means a health benefit exchange that is established or operated by the secretary of the United States department of health and human services pursuant to 42 United States Code section 18031.

3. "Health benefit plan":

(a) Means a hospital and medical service corporation policy or certificate, a health care services organization contract or certificate of coverage, an individual or group or blanket disability policy or certificate of coverage, a certificate of insurance of a group disability policy that is not issued in this state, a multiple employer welfare arrangement or any other arrangement under which health services or health benefits are provided to one or more individuals.

(b) Does not include:

(i) An insurance policy that is designed, advertised and marketed to supplement major medical insurance, which includes accident only, vision only, disability income only, fixed or hospital indemnity, specified disease insurance, credit insurance or Taft-Hartley trusts.

(ii) Coverage that is issued as a supplement to liability insurance.

(iii) Medicare supplemental insurance.

(iv) Workers' compensation insurance.

(v) Automobile medical payment insurance.

(vi) Long-term care insurance.

4. "Issuer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation, dental service corporation, prepaid dental plan organization or hospital, medical, dental and optometric service corporation.

5. "Navigator" means a person who is licensed pursuant to this article and who is certified or compensated by the United States department of health and human services to perform the activities and duties described by 42 United States Code section 18031 and 45 Code of Federal Regulations section 155.215.

§ 20-336.01 Scope and application of article

A. Beginning October 1, 2014, this article applies to a person who acts or claims to be a navigator or certified application counselor.

B. A person who holds a license as an accident and health or sickness insurance producer pursuant to article 3 of this chapter is exempt from the requirements of this article.

C. A person who is working as a navigator or certified application counselor only on tribal lands in this state and who as a condition of employment was required to complete a security background investigation for federal service, including a criminal history records check and fingerprinting, is exempt from the requirements of this article.

§ 20-336.02 License required

A person may not act as or claim to be a navigator or certified application counselor unless the person is licensed pursuant to this article.

§ 20-336.03 Navigators; licensing

A. A person who applies for a navigator license shall apply to the director on a form prescribed by the director and shall declare under penalty of license denial, suspension or revocation that the statements made in the application are true, correct and complete to the best of the knowledge and belief of the applicant or the applicant's duly authorized representative. The applicant shall provide information concerning the applicant's identity, personal history, business record and experience in insurance and any other pertinent fact the director requires.

B. Before the director approves an individual's navigator application, the director shall find that the individual:

1. Is at least eighteen years of age.

2. Has not committed any act that is a ground for license denial, suspension or revocation as prescribed in section 20-295 and has not been convicted of a misdemeanor involving fraud or dishonesty.

3. Has provided evidence of navigator certification from the United States department of health and human services.

4. Has submitted a full set of fingerprints to the director and successfully completed a criminal history records check in a manner prescribed by the director.

5. Has identified the entity with which it is affiliated and supervised.

C. A business entity that acts as a navigator, supervises the activities of individual navigators or receives funding to perform navigator activities shall obtain a navigator entity license. Before the director approves a business entity's navigator application, the director shall find that the business entity:

1. Has not committed any act that is a ground for license denial, suspension or revocation as prescribed in section 20-295 and has not been convicted of a misdemeanor involving fraud or dishonesty.

2. Has designated an individually licensed navigator who is responsible for the business entity's compliance with the insurance laws of this state.

D. A business entity's navigator application shall also include the names of all members, officers and directors of the business entity. For any individual who is identified pursuant to this subsection, the director may require the applicant to provide the information required for a license as an individual.

E. The department of insurance and financial institutions shall submit the fingerprints received pursuant to subsection B of this section to the department of public safety for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange the fingerprint data it receives pursuant to this subsection with the federal bureau of investigation.

F. Unless the person is licensed for that line of authority pursuant to this title, a navigator may not:

1. Sell, solicit or negotiate insurance in this state for any class or classes of insurance.

2. Recommend, endorse or offer opinions about the benefits, terms and features of a particular health benefit plan or offer an opinion about which health benefit plan is better or worse for a particular individual or employer.

3. Provide any information or services related to a health benefit plan or another product not offered in the exchange.

4. Engage in any unfair method of competition or any fraudulent, deceptive or dishonest act or practice.

G. The expiration date for a navigator license issued to a person who also holds a license pursuant to this title is the same as the expiration date for the insurance producer license.

§ 20-336.04 Certified application counselors; licensing

A. An individual who applies for a certified application counselor license shall apply to the director on a form prescribed by the director and shall declare under penalty of license denial, suspension or revocation that the statements made in the application are true, correct and complete to the best of the knowledge and belief of the applicant or the applicant's duly authorized representative. The applicant shall provide information concerning the applicant's identity, personal history, business record and experience in insurance and any other pertinent fact the director requires.

B. Before the director approves an individual's certified application counselor application, the director shall find that the individual:

1. Is at least eighteen years of age.

2. Has not committed any act that is a ground for license denial, suspension or revocation as prescribed in section 20-295 and has not been convicted of a misdemeanor involving fraud or dishonesty.

3. Has met the standards and provided evidence of certification as prescribed by 45 Code of Federal Regulations section 155.225.

4. Has submitted a full set of fingerprints to the director and successfully completed a criminal history records check in a manner prescribed by the director.

5. Has identified the entity with which the individual is affiliated and supervised.

C. The department of insurance and financial institutions shall submit the fingerprints received pursuant to subsection B of this section to the department of public safety for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange the fingerprint data it receives pursuant to this subsection with the federal bureau of investigation.

D. Unless the person is licensed for that line of authority pursuant to this title, a certified application counselor may not:

1. Sell, solicit or negotiate insurance in this state for any class or classes of insurance.

2. Recommend, endorse or offer opinions about the benefits, terms and features of a particular health benefit plan or offer an opinion about which health benefit plan is better or worse for a particular individual or employer.

3. Provide any information or services related to a health benefit plan or another product not offered in the exchange.

4. Engage in any unfair method of competition or any fraudulent, deceptive or dishonest act or practice.

E. The expiration date for a certified application counselor license issued to a person who also holds a license pursuant to this title is the same as the expiration date for the insurance producer license.

§ 20-336.05 Enforcement; rules

A. The director may examine and investigate the business affairs and records of any navigator or certified application counselor to determine whether the individual or entity has engaged or is engaging in any violation of this title.

B. The director may adopt rules pursuant to title 41, chapter 6 to carry out this article.

§ 20-336.06 Application of other laws

To the extent permitted by this article, section 20-281, section 20-286, subsections B, C and D, sections 20-289, 20-289.01, 20-292, 20-295, 20-296, 20-297, 20-299, 20-301, 20-302 and 20-452, article 6 of this chapter and chapter 11, article 1 of this title apply to navigators and certified application counselors.

Article 3.5 Bail Bond Agents and Bail Recovery Agents

§ 20-340 Definitions

In this article, unless the context otherwise requires:

1. "Bail bond" means any contract that is executed by a surety insurer for the release of a person who is arrested or confined for any actual or alleged violation of any federal, state or local criminal law where the released person's attendance in court when required by law and obedience to orders and judgment of any court is guaranteed.

2. "Bail bond agent" means an individual who is appointed by an insurer through a power of attorney to execute or countersign bail bonds in connection with judicial proceedings and who receives or is promised monies or other things of value for that service.

3. "Bail recovery agent" has the same meaning prescribed in section 13-3885.

§ 20-340.01 Bail bond agents; licensure; business entities; place of business; receipt; maintenance of records

A. A person shall not act as a bail bond agent in this state unless the person is licensed by the director in accordance with this article. An applicant for a bail bond agent license shall submit an affidavit attesting to the applicant's residency in this state for at least one year immediately preceding the date of application.

B. Each applicant for a bail bond agent license shall submit a full set of fingerprints to the department of insurance and financial institutions for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation. The department of insurance and financial institutions shall not issue a license until it receives the state and federal criminal history records check and the applicant is qualified for licensure.

C. The director shall not license a resident business entity as a bail bond agent unless each owner and shareholder is individually licensed as a bail bond agent.

D. A person who is licensed as a bail bond agent in this state is not authorized in this state to transact civil bonds in connection with contracts, administrative proceedings or other noncriminal matters on behalf of a surety insurer unless the bail bond agent is also licensed as a casualty producer in this state.

E. Each bail bond agent shall have and maintain a place of business in this state that is accessible to the public and where the bail bond agent principally conducts transactions under the agent's license.

F. As a minimum requirement for permanent office records, each bail bond agent and general lines agent who is engaged in the bail bond business shall maintain a daily bond register that is the original and permanent record of all bonds or undertakings executed by the licensee and that states all of the following:

1. The number of the power of attorney form.

2. The date the bond was executed.

3. The name of the principal.

4. The amount of the bond.

5. The premium charged.

6. The premium reported to the surety company.

7. The security or collateral received.

8. The date the security or collateral was received and the date released.

9. The indemnity agreements.

10. The disposition of the bond.

11. The date of disposition.

G. Each bail bond agent and general lines agent who is engaged in the bail bond business and who accepts monies or any other consideration for any bail bond undertaking shall for each payment received give to the person paying the monies or giving the consideration a prenumbered receipt as evidence of payment. The receipt must state the date, the name of the principal, a description of the consideration or amount of monies received and the purpose for which received, the number of the power of attorney form attached to the bond, the penal sum of the bond, the name of the person making the payment or giving the consideration and the terms under which the monies or other consideration shall be released. Each bail bond agent shall retain a duplicate copy of each receipt issued as part of the agent's records.

H. The bail bond agent shall keep at the agent's place of business the usual and customary records pertaining to transactions made under the license. The licensee shall keep all the records as to any particular transaction available and open to the inspection of the director at any business time during the three years immediately after the date of completion of the transaction.

I. The director may examine the business practices, books and records of any bail bond agent as often as the director deems appropriate. The bail bond agent shall pay the costs incurred for the examination.

§ 20-340.02 Bond of bail bond agents

A. Each applicant for a bail bond agent's license or license renewal shall file with the application and shall maintain in force while licensed a bond in favor of this state executed by a surety insurer authorized to do business in this state. The bond may be continuous in form, and total aggregate liability on the bond shall be at least ten thousand dollars. The applicant shall place the bond on deposit with the state treasurer through the director's office. The bond shall be conditioned on full accounting and due payment to the person entitled to the bond of monies coming into the bail bond agent's possession as an incident to bail bond transactions under the license.

B. The bond remains in force until released by the director or until cancelled by the surety. Without prejudice to any liability previously incurred, the surety may cancel the bond on thirty days' advance written notice filed with the director.

§ 20-340.03 Bail bond agent prohibitions

A. A bail bond agent shall not:

1. Suggest or advise the employment of or name for employment any particular attorney to represent the agent's principal.

2. Solicit business in or around any place where prisoners are confined or in or around any court.

3. Receive or collect for an attorney any monies or other items of value for any attorney fee, cost or other purpose on behalf of an arrestee, unless a receipt is given.

4. For any purpose, directly or indirectly, enter into an arrangement of any kind or have an understanding with any person to inform or notify any bail bond agent directly or indirectly of any of the following:

(a) The existence of a criminal complaint.

(b) The fact of an arrest.

(c) The fact that an arrest of any person is pending or contemplated.

(d) Any information pertaining to matters described in this paragraph or to the persons involved.

5. Participate in the capacity of an attorney at a trial or hearing of a person on whose bond the bail bond agent is the surety.

6. Accept anything of value from a principal except the premium and expenses. The bail bond agent may accept collateral security or other indemnity from the principal or on behalf of the principal that the bail bond agent shall return on final termination of liability on the bond unless the collateral has been forfeited because the defendant did not appear in court. The collateral security or other indemnity required by the bail bond agent must be reasonable in relation to the amount of the bond.

7. Give, authorize, sign or countersign in blank any power of attorney to bonds unless the authorized person is a licensed bail bond agent directly employed by the bail bond agent giving the power of attorney.

8. Advertise as or claim to be a surety company.

9. Employ or assist in the employment of any person who has been convicted in any jurisdiction of theft or of any felony or of any crime involving carrying or the possession of a deadly weapon or dangerous instrument. This paragraph does not apply to a person whose felony conviction has been set aside or whose civil rights have been restored because of a felony conviction, except for a conviction of theft or of any crime involving carrying or the possession of a deadly weapon or dangerous instrument.

B. For the purposes of subsection A, paragraph 9, "employment" means working for a salary, a commission or under contract or owning, operating or controlling any business or agency that solicits, services or assists in any way in dealing in bail bonds.

C. Law enforcement, adjudication and prosecution officials and the officials' employees, attorneys-at-law, officials authorized to admit to bail and state and county officers shall not be bail bond agents and shall not directly or indirectly receive any benefits from the execution of any bail bond. This section does not prohibit a bail bond agent from hiring counsel or asking assistance of a law enforcement officer.

D. In any bail transaction or in connection with any bail transaction, a bail bond agent shall not directly or indirectly charge or collect monies or other valuable consideration from any person except for the following purposes:

1. To pay the premium at the rates that are established by the surety insurer and that are approved by the director.

2. To provide collateral.

3. To be reimbursed for actual and reasonable expenses incurred in connection with the individual bail transaction.

§ 20-340.04 Bail recovery agent prohibitions; criminal records checks

A. A person who has been convicted in any jurisdiction of theft, any felony or any crime involving the carrying or illegal use or possession of a deadly weapon or dangerous instrument may not act as a bail recovery agent.

B. A person shall submit a full set of fingerprints to the department before acting as a bail recovery agent and shall submit a new set of fingerprints on or before September 1 of every third year after initial identification by the bail bond agent in the report that is filed with the director pursuant to section 13-3885, subsection C. The department of insurance and financial institutions shall submit the fingerprints to the department of public safety for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The fingerprint processing fee collected by the department shall be an amount that does not exceed the cost to the department that is charged by the federal bureau of investigation for the fingerprint processing to obtain federal criminal history record information. The department of public safety may exchange this fingerprint data with the federal bureau of investigation. The department of public safety shall provide the criminal history record information to the director pursuant to section 41-1750.

C. Any person who acts as a bail recovery agent on behalf of any bail bond agent and any person who conducts any action relating to a bail recovery or apprehension must be identified by the bail bond agent in the report that is filed with the director pursuant to section 13-3885, subsections C and D.

D. A bail bond agent may not employ a bail recovery agent who does not comply with this section and who has not been identified by the bail bond agent in the report that is filed with the director pursuant to section 13-3885, subsection C. A bail bond agent who is not licensed in this state shall contract with a bail bond agent in this state to retain the services of a bail recovery agent in this state.

§ 20-340.05 Rules

The director shall adopt rules relating to collateral received by bail bond agents, the issuance of contracts and other matters relating to the business of bail bond agents.

§ 20-340.06 Application of other laws

To the extent not inconsistent with this article, sections 20-281, 20-284 and 20-285, section 20-286, subsections B, C and D, section 20-288, subsection B and sections 20-289, 20-289.01, 20-292, 20-295, 20-296, 20-297, 20-298, 20-299, 20-301 and 20-302 apply to bail bond agents.

Article 4 Rates and Rating Organizations

§ 20-341 Purpose of insurance rate regulation

A. The purpose of this article is to promote the public welfare by regulating insurance rates to the end that they shall not be excessive, inadequate or unfairly discriminatory, and to authorize and regulate cooperative action among insurers in rate making and in other matters within the scope of this article. Nothing in this article is intended to prohibit or discourage reasonable competition, or to prohibit or encourage, except to the extent necessary to accomplish the purpose stated in this section, uniformity in insurance rates, rating systems, rating plans or practices. This article shall be liberally interpreted to carry into effect the provisions of this section.

B. Where the rules and regulations of a rating bureau or advisory organization conflict with the law, the rules and regulations do not apply.

§ 20-342 Scope and application of article

A. This article does not apply to:

1. Life insurance.

2. Disability insurance.

3. Reinsurance, except joint reinsurance as provided in section 20-369.

4. Mortgage guaranty insurance.

5. Insurance against loss of or damage to aircraft, their hulls, accessories and equipment, or against liability, other than employers' liability, arising out of the ownership, maintenance or use of aircraft.

6. Insurance of vessels or craft, their cargoes, marine builders' risks, marine protection and indemnity, or other risks commonly insured under marine, as distinguished from inland marine, insurance policies.

7. Insurance risks described in section 20-382, subsection A, paragraph 8.

B. Rates for the types of insurance included in section 20-382 are only subject to sections 20-381 through 20-399.

C. This section and sections 20-341 and 20-356 through 20-374 apply to workers' compensation and employers' liability insurance incident to and written in connection with workers' compensation on risks or operations in this state.

D. This section and sections 20-341 and 20-361 through 20-379 apply to title insurance on risks located in this state and to escrow services performed by a title insurer or title insurance agent as defined in section 20-1562. Those sections are designated as the title insurance rate regulatory provisions of this article and are the only sections of this article that apply to title insurance.

§ 20-343 Definitions

In this article, unless the context otherwise requires:

1. "Board" means the workers' compensation appeals board established by section 20-367.

2. "Classification plan" means the plan or system that groups industries, occupations or operations with a similar exposure to loss into rate classifications for workers' compensation rating, rate making and statistical reporting purposes.

3. "Designated rating organization" means the rating organization selected by the director pursuant to section 20-371, subsection F.

4. "Designated statistical agent" means the organization designated by the director under section 20-371, subsection D.

5. "Experience rating plan" means a mandatory rating plan for all eligible insureds that establishes a workers' compensation rating procedure that compares the actual loss experience of individual insureds to the industry average for the same classification with differences reflected in the insured's premium.

6. "Schedule rating plan" means a rating plan by which an insurer increases or decreases workers' compensation rates to reflect the individual risk characteristics or the loss ratios of the subject of insurance.

7. "Statistical plan" means the plan, system or arrangement used in collecting workers' compensation data.

8. "Uniform plan" means a workers' compensation statistical plan, classification plan or experience rating plan designated by the director pursuant to section 20-371, subsection J.

9. "Uniform rate filing" means the rate filing that is made by the designated rating organization and that includes all of the workers' compensation rates to which insurers transacting workers' compensation insurance in this state shall adhere except as provided in section 20-359, subsections A and B. Uniform rate filing also includes the expected loss ratios, ballast factors and other factors promulgated by the designated rating organization for the uniform experience rating plan.

10. "Workers' compensation rates" means rates for workers' compensation and employers' liability insurance incident to and written in connection with workers' compensation.

§ 20-344 Uniform plans

A. Except as provided in subsections B and C of this section, every rating organization and every insurer that transacts workers' compensation insurance in this state shall adhere to plans approved by the director as the uniform statistical plan, uniform classification plan and uniform experience rating plan for the state.

B. A rating organization may use its own statistical plan to the extent that the statistical plan does not materially conflict with the uniform statistical plan for the purposes of making all reports to the statistical agent designated by the director pursuant to section 20-371, subsection D. The rating organization shall file its statistical plan with the director and receive the director's approval before using its own statistical plan.

C. An insurer may directly or through the rating organization of which it is a member develop subclassifications of the uniform classification plan. The insurer, or a rating organization on the insurer's behalf, shall file each subclassification and the rate for the subclassification with the director, and they shall be on file for a waiting period of at least fifteen days before they become effective. The director shall disapprove the subclassification if the insurer fails to demonstrate that the data produced by the subclassification can be reported consistently with the uniform classification plan and uniform statistical plan or the rate of the subclassification does not meet the standards of section 20-356, paragraph 1.

§ 20-356 Making of rates

All rates subject to this article shall be made in accordance with the following provisions:

1. Rates shall not be excessive, inadequate or unfairly discriminatory. No rate shall be held to be inadequate unless the director finds that the loss experience of the insurer in the classification covered by the rate has been adverse for a continuous period of not less than two years immediately preceding the date of such finding.

2. Due consideration shall be given to past and prospective loss experience within and outside this state, to catastrophe hazards, if any, to a reasonable margin for underwriting profit and contingencies, to dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers, to past and prospective expenses within and outside this state and to all other relevant factors within and outside this state.

3. The systems of expense provisions included in the rates for use by any insurer or group of insurers may differ from those of other insurers or groups of insurers to reflect the requirements of the operating methods of any such insurer or group with respect to any kind of insurance, or with respect to any subdivision or combination thereof for which subdivision or combination separate expense provisions are applicable.

4. Risks may be grouped by classifications for the establishment of rates and minimum premiums. Classification rates may be modified to produce rates for individual risks in accordance with rating plans which establish standards for measuring variations in hazards or expense provisions, or both. Such standards may measure any differences among risks that can be demonstrated to have a probable effect upon losses or expenses.

5. Nothing in this article shall be construed to prohibit payment of dividends by insurers issuing policies on the participating plan, or by mutual or reciprocal insurers, but in the payment of such dividends there shall be no unfair discrimination between policyholders.

6. Except to the extent necessary to meet the provisions of paragraph 1, uniformity among insurers in any matters within the scope of this section is neither required nor prohibited.

§ 20-357 Filing of rating system; definition

A. Every insurer shall file with the director the rating systems the insurer proposes to use. As used in the rate regulatory provisions of this article, "rating systems" includes every manual of classifications, rules and rates, every rating plan and every modification of any of the foregoing. Every filing shall have a proposed effective date and shall indicate the character and extent of the coverage contemplated. If a filing does not include the information on which the insurer supports the filing, and the director does not have sufficient information to determine whether the filing meets the rate regulatory requirements of this article, the director shall require the insurer to furnish information supporting the filing. The supporting information may include the experience or judgment of the insurer or rating organization making the filing, its interpretation of any statistical data on which it relies, the experience of other insurers or rating organizations or any other relevant factors. A filing and any supporting information shall be open to public inspection after the filing becomes effective.

B. A workers' compensation insurer shall satisfy its obligation to make filings by becoming a member of a licensed rating organization that makes filings and by authorizing the director to accept on its behalf filings made by the rating organization. A rating organization shall annually file with the director rates to be effective on January 1. Nothing in this subsection requires an insurer to be a member of the designated rating organization.

C. Each filing shall be on file for a waiting period of at least thirty days before it becomes effective. On written application by the insurer or rating organization making the filing, the director may authorize a filing to become effective before the waiting period expires.

D. On written application of the insured that states the insured's reasons and that is filed with and approved by the director, an insurer may use a rate in excess of the insurer's filed rate on the insured's risk.

E. An insurer shall not make or issue a contract or policy except in accordance with the filings in effect for that insurer as provided in the rate regulatory provisions of this article.

§ 20-358 Disapproval of rates

A. If at any time the director finds that a filing does not meet the standards set forth in section 20-356, he shall, after a hearing held upon not less than ten days' written notice, in which he shall specify the matters to be considered at such hearing, to every insurer and rating organization which made the filing, issue an order specifying in what respects he finds that the filing fails to meet the requirements of the rate regulatory provisions of this article, and stating when, within a reasonable period thereafter, the filing or rating system shall be deemed no longer effective. Copies of the order shall be sent to every such insurer and rating organization. The order shall not affect any contract or policy made or issued prior to the expiration of the period set forth therein.

B. Any person or organization aggrieved with respect to any filing or rating system which is in effect may make written application to the director for a hearing thereon, but the insurer or rating organization which made the filing or uses the rating system shall not be authorized to proceed under this subsection. The application shall specify the grounds to be relied upon by the applicant. If the director finds that the application is made in good faith, that the applicant would be so aggrieved if his grounds are established and that the grounds otherwise justify holding such a hearing, he shall within thirty days after receipt of the application hold a hearing upon not less than ten days' written notice to the applicant and to every insurer and rating organization which made such filing or uses such rating system. If, after the hearing, the director finds that the filing or rating system does not meet the requirements of the rate regulatory provisions of this article, he shall issue an order specifying in what respects he finds that it fails to meet such requirements and stating when, within a reasonable period thereafter, it shall be deemed no longer effective. Copies of the order shall be sent to the applicant and to every such insurer and rating organization. The order shall not affect any contract or policy made or issued prior to the expiration of the period set forth therein.

C. No manual of classifications, rules, rating plan or any modification of any of the foregoing which establishes standards for measuring variations in hazards or expense provisions, or both, and which is being used pursuant to the requirements of section 20-356, shall be disapproved if the rates thereby produced meet the requirements of the rate regulatory provisions of this article.

D. The director may utilize independent contractor examiners experienced in the review of applicable rates and reserves pursuant to sections 20-148 and 20-159 to implement the provisions of this article. All examination and examination related expenses shall be borne by the insurer and shall be paid by the insurance examiners' revolving fund pursuant to section 20-159.

§ 20-359 Deviations from filed workers' compensation rates

A. Every insurer shall adhere to the filings made by the rating organization of which it is a member, except that any member insurer may file with the director:

1. Up to six uniform percentage deviations that decrease or increase the statewide rate portion of the rating organization's rate filing. If more than one deviation is filed by an insurer, each deviation must be established consistent with the underwriting rules that are based on criteria that would lead to a logical distinction of potential risk.

2. A subclassification rate related rule that deviates from the rules or schedule rating plan filed by the insurer's rating organization. An insurer shall not simultaneously apply a deviation and a schedule rating to the same insured risk.

B. In addition to the six uniform percentage deviations authorized under subsection A, paragraph 1 of this section, insurers covering firefighters and fire investigators may file one uniform percentage deviation that increases the statewide rates under the rating organization's rate filing for the class codes associated with firefighters and fire investigators to address the anticipated increase in losses and expenses for claims that are compensable pursuant to section 23-901.09. The deviation filing shall be accompanied by analysis from an actuary that substantively illustrates the basis for the rate increase, including information made available by the industrial commission of Arizona pursuant to section 23-971 and the anticipated and, when available, actual combined loss ratio, claim frequency and claim severity associated with these claims. The supporting documentation submitted with the filing must be sufficient to allow the department to assess the reasonableness of the insurer's assumptions and justification for the deviation and shall include data related to workers' compensation indemnity and medical claims and administrative expenses associated specifically with presumptive coverage related to workers' compensation claims. The insurer may use data or analysis from any of the following sources:

1. The insured or insurer.

2. Self-funded employers providing workers' compensation.

3. The industrial commission of Arizona.

4. A risk retention pool.

5. Studies and information illustrating the state and national frequency of cancer among firefighters and fire investigators.

6. The assigned risk pool or assigned risk.

7. Claims and expense data from other relevant lines of insurance such as long-term disability insurance, group or individual major medical insurance or long-term care insurance.

8. Other available cancer-related statistics.

9. Relevant incurred but not reported workers' compensation claims data.

C. The director may use independent contractor examiners to analyze the supporting justification of a requested deviation under subsection B of this section pursuant to section 20-358, subsection D.

D. Notwithstanding subsection A, paragraph 2 of this section, in addition to the deviation filing authorized under subsection B of this section, insurers may file and apply a schedule rating plan to adjust premiums associated with firefighters and fire investigators class codes, based on loss control programs or activities undertaken by the insurer to reduce losses associated with section 23-901.09. The schedule rating plan must be filed with and approved by the director and shall be in addition to and separate from any other schedule rating plan available to the insurer.

E. Each deviation filed shall be on file with the director for a waiting period of at least thirty days before it becomes effective, except that a deviation filed pursuant to subsection B of this section shall be on file with the director for at least sixty days before it becomes effective. On written application by the insurer making the filing, the director may authorize a filing to become effective before the waiting period expires. A deviation that is filed pursuant to subsection A, paragraph 1 of this section and that is not disapproved by the director expires the following December 31 at midnight in this state unless the director terminates the deviation sooner. A deviation that is filed pursuant to subsection A, paragraph 2 of this section continues until the insurer withdraws the deviation or the director determines that the deviation no longer meets the standards prescribed in section 20-356, paragraph 1. At any time the director may require an insurer to actuarially support a deviation. The insurer that files the deviation shall simultaneously send a copy of the filing to the rating organization of which it is a member and to any designated rating organization.

F. A rating organization shall notify the director if the organization disapproves any deviation relating to workers' compensation insurance. The director shall notify the industrial commission of Arizona of the disapproval within ten days after receipt of the disapproval from the rating organization.

§ 20-361 Licensing of rating organizations

A. A corporation, an unincorporated association, a partnership or an individual, whether located within or outside this state, may apply to the director for a license as a rating organization for insurance subject to this article and shall file all of the following with the director:

1. A copy of its constitution, its articles of agreement or association or its certificate of incorporation and a copy of its bylaws, rules and regulations governing the conduct of its business.

2. A list of its members.

3. The name and address of a resident of this state for service of process, notices and orders.

4. A statement of its qualifications as a rating organization.

5. A financial statement that is certified by an officer of the applicant, that is on a form acceptable to the director and that includes financial information that is current as of not more than ninety days before the date the application is filed with the director. The financial statement shall include an income statement and a balance sheet that is prepared according to generally accepted accounting principles and that is for the two years immediately preceding the date of the financial statement. The applicant shall not submit consolidated income statements or balance sheets.

6. A plan for the orderly and timely transfer to the designated statistical agent or the director of all data collected in accordance with the statistical plan in effect in this state from its member insurers in this state if the rating organization ceases to do business in this state.

B. If the director finds that the applicant is competent and otherwise qualified to act as a rating organization and that its constitution, articles of agreement or association or certificate of incorporation and its bylaws, rules and regulations governing the conduct of its business conform to the requirements of law, the director shall issue a license specifying the kinds of insurance, or subdivisions or classes of risks or parts or combinations thereof, for which the applicant is authorized to act as a rating organization. The director shall either grant or deny an application in whole or in part within sixty days after its filing.

C. Licenses issued pursuant to this section shall remain in effect until suspended or revoked by the director or the director has accepted the surrender of the license. The director may suspend or revoke a license after notice and a hearing if the rating organization ceases to meet the requirements of this section.

§ 20-362 Notice to director of changes in rating organization

Every rating organization shall notify the director promptly of every change in:

1. Its constitution, its articles of agreement or association, or its certificate of incorporation, and its bylaws, rules and regulations governing the conduct of its business.

2. Its list of members and subscribers.

3. The name and address of the resident of this state designated by it upon whom notices or orders of the director or process affecting the rating organization may be served.

§ 20-363 Availability of services of rating organization to members

A. Subject to rules and regulations that have been approved by the director as reasonable, each workers' compensation rating organization shall permit any insurer writing workers' compensation insurance in this state to become a member. The rating organization shall give its members notice of proposed changes in its rules and regulations.

B. Each rating organization shall furnish its rating services without discrimination to its members.

C. Any member or insurer may request that the director review the reasonableness of any rule or regulation in its application to members at a hearing held on at least ten days' written notice to the rating organization and to the member or insurer. If the director finds that the rule or regulation is unreasonable in its application, the director shall order that the rule or regulation does not apply.

D. Every insurer writing workers' compensation insurance in this state shall be a member of one workers' compensation rating organization.

E. A rating organization shall have as members at least five insurers authorized to write and who are writing workers' compensation insurance in this state and whose combined experience is determined by the director to be reasonably adequate for rate making purposes.

§ 20-364 Technical services

A. Any rating organization may provide for the examination of policies, daily reports, binders, renewal certificates, endorsements or other evidence of insurance, or the cancellation thereof, and may make reasonable rules governing their submission. Such rules shall contain a provision that in the event any insurer does not within sixty days furnish satisfactory evidence to the rating organization of the correction of any error or omission previously called to its attention by the rating organization, it shall be the duty of the rating organization to notify the director thereof. All information so submitted shall be confidential.

B. Any rating organization may subscribe for or purchase actuarial, technical or other services, and such services shall be available to all members and subscribers without discrimination.

§ 20-365 Cooperation in rate making

Cooperation among rating organizations and among rating organizations and insurers in rate making and in other matters within the scope of this article is authorized, if the filings resulting from such cooperation are subject to the provisions of this article. The director may review such cooperative activities and practices and if, after a hearing, he finds that any such activity or practice is unfair or unreasonable or otherwise inconsistent with the provisions of this article, he may issue a written order specifying in what respects such activity or practice is unfair or unreasonable or otherwise inconsistent, and requiring the discontinuance of such activity or practice.

§ 20-366 Appeal by member or subscriber from action relating to filings

A. Any member of or subscriber to a rating organization may appeal to the director from the action or decision of the rating organization in approving or rejecting any proposed change in or addition to the filings of the rating organization, and the director shall, after a hearing held upon not less than ten days' written notice to the applicant and to the rating organization, issue an order approving the action or decision of the rating organization or directing it to give further consideration to the proposal, or if the appeal is from the action or decision of the rating organization in rejecting a proposed addition to its filings, the director may, in the event that he shall find that such action or decision was unreasonable, issue an order directing the rating organization to make an addition to its filings, on behalf of its members and subscribers, in a manner consistent with the findings of the director, within a reasonable time after the issuance of the order.

B. In the case of insurance to which this article applies, if the appeal is based upon the failure of the rating organization to make a filing on behalf of such member or subscriber which is based on a system of expense provisions which differs from the system of expense provisions included in a filing made by the rating organization, the director shall, if he grants the appeal, order the rating organization to make the requested filing for use by the applicant. In deciding the appeal the director shall apply the standards set forth in section 20-356.

C. In the case of title insurance, if the appeal is from the action or decision of the rating organization with regard to a rate or a proposed change in or addition to its filings relating to the character and extent of coverage, the director may, in the event that he shall find that such action or decision was unreasonable, issue an order directing the rating organization to proceed in a manner consistent with his findings, within a reasonable time after the issuance of the order. The failure of a title insurance rating organization to take action or make a decision within thirty days after submission to it of a proposal under this article shall constitute a rejection of such proposal within the meaning of this section. If such appeal is based upon the failure of the rating organization to make a filing on behalf of such members or subscriber which is based on a system of expense allocation which differs from the system of expense allocation included in a filing made by the rating organization, the director shall, if he grants the appeal, order the rating organization to make the requested filing for use by the applicant. In deciding such appeal, the director shall apply the standards set forth in section 20-375.

§ 20-367 Workers' compensation appeals board; composition

A. A workers' compensation appeals board is established in the department.

B. The director shall appoint at least nine but not more than eleven members to the board. The members shall serve three-year terms. A member shall not serve more than two consecutive terms.

C. The board shall be comprised of at least:

1. The following voting members:

(a) Five representatives of insurers, one of which is the insurer with the largest Arizona workers' compensation market share as reported by the department of insurance and financial institutions in its latest annual report. Any licensed rating organization that meets the requirements prescribed in section 20-363, subsection E may nominate from its membership in this state one representative for each complete twenty percent share of the total statewide workers' compensation net written premium for the preceding calendar year attributable to its membership. The director shall appoint any remaining insurer representatives needed to constitute five members as ratably as possible based on distribution of the total statewide workers' compensation net written premium for the preceding calendar year.

(b) Four representatives of the public. At least two shall be representatives of employers and the remaining public members shall be persons who are knowledgeable about workers' compensation insurance.

2. One representative from any designated statistical agent who shall serve as a nonvoting advisory member.

D. The board members shall select a chairperson who shall call meetings as needed to consider requests made pursuant to section 20-367.01 or on request of the director.

E. The board shall submit to the director a plan of operation and all amendments that are necessary or suitable to ensure the fair, reasonable and equitable administration of the appeals process. The plan of operation and all amendments are effective on approval by the director.

F. Subject to the powers of the director, the board shall review appeals that are filed pursuant to section 20-367.01. The board may affirm the action of the rating organization or insurer or direct any rating organization or insurer to modify or reverse its application of the rating system that resulted in the appeal.

G. Members of the board are not eligible to receive compensation or travel expenses under title 38, chapter 4, article 2.

§ 20-367.01 Appeals procedure

A. Within a reasonable time after receiving a written request and on payment of a reasonable fee, every rating organization and insurer shall give to any insured affected by a rate that is made or applied by the organization or insurer, or to the insured's authorized representative, all pertinent information related to the rate.

B. If a person is aggrieved by the application of a rating system, the person may send a written request to the workers' compensation appeals board established by section 20-367 to review the manner in which the rating system has been applied to the insurance afforded the aggrieved person. The aggrieved person or that person's representative may present the grievance before the board. A representative of the rating organization whose rating system is the subject of the appeal shall attend any hearing before the board pursuant to this section to explain that application of the rating system to the aggrieved person.

C. If the board does not act on the aggrieved person's request for review within thirty days after receiving the request, the aggrieved person may proceed as if the board had rejected the request for review.

D. The appellant shall pay the cost to record the board's proceedings.

E. The board shall mail a written notice of its decision to the aggrieved person. Within thirty days after the date the board mails the written notice of its decision, the aggrieved person may appeal the action to the director. After a hearing held on at least ten days' written notice to the person and the rating organization or insurer, the director shall affirm, modify or reverse the board's decision. The person appealing the board's decision shall pay the costs of the transcript and record of the appeal to the director.

§ 20-368 Advisory organizations

A. Every group, association or other organization of insurers, whether located within or outside this state, which assists insurers which make their own filings or rating organizations in rate making, by the collection and furnishing of loss or expense statistics, or by the submission of recommendations, but which does not make filings under this article, shall be known as an advisory organization.

B. Every advisory organization shall file with the director:

1. A copy of its constitution, its articles of agreement or association or its certificate of incorporation and a copy of its bylaws, rules and regulations governing its activities.

2. A list of its members.

3. The name and address of a resident of this state upon whom notices or orders of the director or process affecting the advisory organization may be served.

4. An agreement that the director may examine the advisory organization in accordance with the provisions of section 20-370.

C. If, after a hearing, the director finds that the furnishing of such information or assistance involves any act or practice which is unfair or unreasonable or otherwise inconsistent with the provisions of this article, he may issue a written order specifying in what respects such act or practice is unfair or unreasonable or otherwise inconsistent, and requiring the discontinuance of such act or practice.

D. No insurer which makes its own filings nor any rating organization shall support its filings by statistics or adopt rate making recommendations furnished to it by an advisory organization which has not complied with this section or with an order of the director involving such statistics or recommendations issued under subsection C of this section. If the director finds the insurer or rating organization to be in violation of this subsection, he may issue an order requiring the discontinuance of the violation.

§ 20-369 Joint underwriting or joint reinsurance

A. Every group, association or other organization of insurers which engages in joint underwriting or joint reinsurance shall be subject to regulation with respect thereto as provided by this article, subject, however, with respect to joint underwriting, to all other provisions of this article, and with respect to joint reinsurance, to the provisions of sections 20-370 and 20-374.

B. If, after a hearing the director finds that any activity or practice of any such group, association or other organization is unfair or unreasonable or otherwise inconsistent with the provisions of this article, he may issue a written order specifying in what respects the activity or practice is unfair or unreasonable or otherwise inconsistent and requiring the discontinuance of the activity or practice.

§ 20-370 Examinations of rating organizations

A. The director, as often as he deems it expedient, may make or cause to be made an examination of each rating organization licensed in this state, each advisory organization referred to in section 20-368 and each group, association or other organization referred to in section 20-369. The reasonable costs of such examination shall be paid by the rating organization, advisory organization or group, association or other organization examined upon presentation to it of a detailed account of the cost.

B. The officers, managers, agents and employees of the rating organization, advisory organization or group, association or other organization may be examined at any time under oath, and shall exhibit all books, records, accounts, documents or agreements governing its method of operation.

C. The director shall furnish two copies of the examination report to the organization, group or association examined and shall notify the organization, group or association that, within twenty days thereafter, it may request a hearing on the report or on any facts or recommendations in the report. Before filing the report for public inspection, the director shall grant a hearing to the organization, group or association examined.

D. The report of the examination, when filed for public inspection, shall be admissible in evidence in any action or proceeding brought by the director against the organization, group or association examined, or its officers or agents, and shall be prima facie evidence of the facts stated in the report.

E. The director may withhold the report of the examination from public inspection for such time as the director deems proper.

F. In lieu of the examination, the director may accept the report of an examination made by the insurance supervisory official of another state, pursuant to the laws of such state.

§ 20-371 Rate administration

A. The director shall adopt reasonable rules and statistical plans that are reasonably adapted to each of the rating systems on file with the director and that may be modified from time to time. An insurer shall use the rules and statistical plans to record and report its loss and countrywide expense experience in order that the experience of all insurers may be made available, at least annually, in sufficient form and detail to aid the director in determining whether rating systems comply with the standards set forth in this article. The rules and plans may also provide for the recording and reporting of expense experience items that are especially applicable to this state and that are not susceptible to determination by prorating of countrywide expense experience.

B. In adopting the rules and plans, the director shall give due consideration to the rating systems on file with the director, and, in order that the rules and plans may be as uniform as is practicable among the several states, to the rules and to the form of plans used for comparable rating systems in other states.

C. An insurer is not required to record or report its loss experience on a classification basis that is inconsistent with the uniform classification plan.

D. The director may designate an organization the director deems qualified, other than an insurer that has outstanding obligations under a policy of workers' compensation insurance in this state, to act as the director's statistical agent. The statistical agent shall assist the director in gathering and compiling workers' compensation experience and performing other related services as the director may specify. The compilations shall be made available subject to reasonable rules adopted by the director, to insurers and rating organizations, but no insurer shall be required to file its experience with an organization of which it is not a member.

E. Every insurer shall report its loss and expense experience to the rating organization of which it is a member. The rating organization shall report the insurer's experience to the designated statistical agent. If the rating organization is unable to report the experience of its member insurers to the designated statistical agent, every insurer that is a member of the rating organization shall directly report its experience to the designated statistical agent.

F. If there is more than one licensed rating organization that meets the requirements of section 20-363, subsection E, the director shall designate one of the organizations as the designated rating organization for the purpose of annually making and filing with the director statewide workers' compensation insurance rates that become effective on January 1.

G. The designated rating organization shall annually file its rate filing with the director on or before August 1 for rates that become effective on January 1. The director shall disapprove the filing if it does not meet the standards of section 20-356, paragraph 1. An insurer transacting workers' compensation insurance in this state shall adhere to the expected loss ratios, ballast factors and other experience rating factors and to the statewide rates and other rating values made by the designated rating organization for the uniform rate filing, except that an insurer may deviate from the statewide rate portion of the uniform rate filing according to section 20-359, subsections A and B.

H. The director may allow the designated statistical agent and designated rating organization to charge licensed rating organizations that operate in this state a reasonable fee for their services. The licensed rating organizations shall pay the fees on a ratable basis.

I. To further the uniform administration of rate regulatory laws, the director and every insurer and rating organization may exchange information and experience data with insurance supervisory officials, insurers and rating organizations in other states and may consult with them with respect to rate making and the application of rating systems.

J. If more than one rating organization meets the requirements of section 20-363, subsection E, the director shall designate the statistical plan, classification plan or experience rating plan adopted by the designated rating organization or any other rating organization, or the plans of another state, as the uniform statistical plan, the uniform classification plan or the uniform experience rating plan.

K. If the director does not designate a uniform statistical plan, a uniform classification plan or a uniform experience rating plan pursuant to this section, each insurer shall adhere to the statistical plan, classification plan, and experience rating plan adopted by the rating organization of which the insurer is a member in this state.

§ 20-372 Disclosure of information relating to rates

No person or organization shall wilfully withhold information from, or knowingly give false or misleading information to, the director, any statistical agency designated by the director, any rating organization or any insurer, which will affect the rates or premiums chargeable under this article.

§ 20-373 Commissions and fees

Nothing in this article shall abridge or restrict the freedom of contract of insurers, agents or brokers with reference to the amount of commissions or fees to be paid to agents or brokers by insurers, and such payments are expressly authorized.

§ 20-374 Revocation and suspension of licenses

The director may suspend the license of any rating organization or the certificate of authority of any insurer which fails to comply with an order of the director made pursuant to this article within the time limited by the order, or any extension thereof which may be granted by the director. The director shall not suspend the license of any rating organization or the certificate of authority of any insurer for failure to comply with an order until the time prescribed for a review thereof has expired, or if a review has been sought, until the order has been affirmed. The director may determine when a suspension of license or certificate shall become effective, and it shall remain in effect for the period fixed by him, unless he modifies or rescinds the suspension, or until the order upon which suspension is based is modified, rescinded or reversed. No license or certificate shall be suspended or revoked except upon the written order of the director stating his findings, made after a hearing held upon not less than ten days written notice to such person or organization, specifying the alleged violation.

§ 20-375 Making of title insurance rates

A. Every title insurer that shall make its own rates, and every title insurance rating organization, shall make rates that are not excessive nor inadequate for the safety and soundness of any title insurer, that do not unfairly discriminate between risks in this state which involve essentially the same exposure to loss and expense elements, and that give due consideration to all of the following matters:

1. The desirability for stability of rate structures.

2. The necessity, by encouraging growth in assets of title insurers in periods of high business activity, of assuring the financial solvency of title insurers in periods of economic depression.

3. The necessity for paying dividends on the capital stock of title insurers sufficient to induce capital to be invested therein.

B. Every title insurer that shall make its own rates, and every title insurance rating organization, shall adopt basic classifications of policies or contracts of title insurance which shall be used as the basis for rates.

C. Rates within each rate classification may, at the discretion of the title insurer which files its own rates, or at the discretion of the title insurance rating organization, be less than the cost of the expense elements in the case of smaller insurance policies or contracts, and the excess may be charged against the larger insurance policies or contracts without rendering the rates unfairly discriminatory.

D. There shall be no combined rate for the issuance of title insurance policies and escrow services rendered in connection with such insurance.

§ 20-376 Filing of title insurance rates; approval or disapproval

A. Every title insurer shall file with the director its schedules of fees, every manual of classifications, rules and plans pertaining thereto, and every modification of any of the foregoing that it proposes to use concerning its title insurance forms and products in this state. Every filing shall include a proposed effective date and shall indicate the character and extent of the coverage or service contemplated.

B. A title insurer may satisfy its obligations to make filings by becoming a member of, or a subscriber to, a licensed title insurance rating organization that makes filings, and by authorizing the director to accept the rating organization's filings on its behalf. The filings may, at the option of the insurer, govern all of its or certain designated agents in this state. The insurer may also elect to permit all or certain of its agents to make rate filings directly or to subscribe to a licensed title insurance rating organization that makes filings.

C. The director shall review the filings as necessary to carry out the provisions of this article.

D. Subject to the provisions of subsection F of this section, each filing shall be on file for a period of at least thirty days before it becomes effective. The director may, on written notice given within the thirty day waiting period to the person making the filing, extend the waiting period for up to fifteen additional days, to enable the director to complete the review of the filing. The director may grant further extensions of the waiting period only with the consent of the person making the filing. On written application by the person making the filing, the director may authorize all or part of a filing that has been reviewed to become effective before the expiration of the waiting period or any extension of the waiting period.

E. Except in the case of rates filed under subsection F, a filing that has become effective shall be deemed to meet the requirements of this article.

F. When the director finds that any rate for a particular kind or class of risk cannot practicably be filed before it is used, or that any contract or kind of title insurance, by reason of rarity or peculiar circumstances, does not lend itself to advance determination and filing of rates, the director may permit the rate to be used without a previous filing and waiting period.

G. The director shall not have the power to regulate, or require the filing of, rates or fees for reinsurance policies, contracts or agreements, for policies, contracts or agreements of excess coinsurance or for account servicing and subdivision trust services.

§ 20-377 Justification for title insurance rates

A. A title insurance filing shall be accompanied by a statement of the title insurer, title insurance agent, or title insurance rating organization making the filing, setting forth the basis upon which the rate was fixed, and the manner in which fees are to be computed. Any filing may be justified by:

1. The experience or judgment of the title insurer, title insurance agent, or title insurance rating organization making the filing.

2. Its interpretation of any statistical data relied upon.

3. The experience of other title insurers, title insurance agents, or title insurance rating organizations.

4. Any other factors which the title insurer, title insurance agent, or title insurance rating organization deems relevant.

B. The statement and justification shall be open to public inspection after the rate to which they apply becomes effective.

§ 20-378 Disapproval of title insurance filings

A. Before issuing an order of disapproval of a title insurance filing, the director shall hold a hearing upon not less than ten days' written notice, specifying in reasonable detail the matters to be considered at such hearing. Such notice shall be sent to every title insurer, title insurance agent and title insurance rating organization which made such filing. If, after such hearing, the director finds that such filing or a part thereof does not meet the requirements of this article, he shall issue an order specifying in what respects he finds that it so fails, and stating when, within a reasonable period thereafter, such filing or a part thereof shall be deemed no longer effective if the filing or a part thereof has become effective under the provisions of section 20-376. A title insurer, title insurance agent or title insurance rating organization shall have the right at any time to withdraw a filing or a part thereof. Copies of every such order shall be sent to every title insurer, title insurance agent and title insurance rating organization affected. Such an order shall not affect any contract or preliminary report, commitment, binder or title insurance policy made or issued prior to the expiration of the period set forth therein.

B. Any person or organization aggrieved with respect to any filing which is in effect may make written application to the director for a hearing thereon, but the title insurer, title insurance agent or title insurance rating organization which made the filing shall not be authorized to proceed under this subsection. Such an application shall specify in reasonable detail the grounds to be relied upon by the applicant. If the director finds that the application is made in good faith, that the applicant would be so aggrieved if his grounds are established, and that such grounds otherwise justify holding such a hearing, he shall, within thirty days after receipt of such application, hold a hearing upon not less than ten days' written notice to the applicant and to every title insurer, title insurance agent and title insurance rating organization which made such a filing. If, after such hearing, the director finds that the filing or a part thereof does not meet the requirements of this article, he shall issue an order specifying in what respects he finds that such filing or a part thereof fails to meet the requirements of this article and stating when within a reasonable period thereafter such filing or a part thereof shall be deemed no longer effective. Copies of such an order shall be sent to the applicant and to every such title insurer, title insurance agent and title insurance rating organization that made the filing. Such an order shall not affect any contract or policy made or issued prior to the expiration of the period set forth therein.

C. No filing nor any modification thereof shall be disapproved if the rates in connection therewith meet the requirements of this article.

§ 20-379 Deviations in title insurance rates

A. No title insurer or title insurance agent may deviate from its rates that are in effect for the title insurer or title insurance agent pursuant to section 20-376.

B. If the director finds that a title insurer or title insurance agent has charged rates that deviate from its rates filed pursuant to section 20-376, the title insurer or title insurance agent who computed and initially collected the deviation is subject to a civil penalty for each deviation that is equal to the difference between the rate charged and the allowable rate pursuant to section 20-376. To the extent that the deviation results in an overcharge, the director in lieu of a civil penalty may require a refund of the overcharge.

C. If after a hearing the director finds that a title insurer or title insurance agent with such frequency as to indicate a general business practice violated the provisions of this section and section 20-376 with respect to a particular provision of the applicable title insurance rate, the director, in addition to the civil penalty imposed under subsection B of this section, may:

1. For each violation, impose an additional civil penalty of not more than two times the civil penalty imposed under subsection B of this section.

2. Order the title insurance agent to cease and desist from the act or practice.

3. Revoke the title insurance agent's license or suspend the title insurer's certificate of authority.

D. The civil penalties that are imposed under subsections B and C of this section may not in the aggregate exceed fifteen thousand dollars during any one year period for an individual title insurer or title insurance agent licensed pursuant to this title.

Article 4.1 Open Competition Rates and Rating Organizations

§ 20-381 Definitions

In this article, unless the context otherwise requires:

1. "Advisory organization":

(a) Means any person other than a single insurer who assists two or more insurers or rate service organizations in the making of rates by compiling and furnishing loss or expense statistics or other statistical information and data, or by the submission of recommendations as to rates, forms or supplementary rate information.

(b) Does not include a joint underwriting association, any actuarial or legal consultant, any employee of an insurer or insurers under common control or management or their employees or manager.

2. "Loss cost adjustment":

(a) Means that portion of a rate filed by an insurer with the director that includes the insurer’s general expenses, total product expenses, taxes, licenses and fee expenses and underwriting profit and contingencies.

(b) Does not include loss adjustment expenses or prospective loss costs.

3. "Loss cost modification factor" means that rating factor filed by an insurer with the director for the purpose of modifying the rate service organization’s prospective loss cost filing.

4. "Prospective loss costs" means the historical aggregate losses and loss adjustment expenses filed by a rate service organization with the director on which a portion of a rate is based, adjusted through actuarial trending to a future point in time and developed to their ultimate values.

5. "Rate":

(a) Means that cost of insurance per exposure unit whether expressed as a single number or as a prospective loss cost with an adjustment to account for the treatment of expenses, profit and individual insurer variation in loss experience before any application of individual risk variations based on loss or expense considerations.

(b) Does not include the minimum premium.

6. "Rate service organization":

(a) Means any person other than a single insurer who assists insurers by compiling and furnishing loss or expense statistics and recommending, making or filing rates, forms or supplementary rate information.

(b) Does not include a joint underwriting association, any actuarial or legal consultant, any employee of an insurer or insurers under common control or management, or their employees or manager.

7. "Supplementary rate information":

(a) Means any manual or plan of rates, statistical plan, classification, rating schedule, minimum premium, schedule of fees, including membership fees charged by a reciprocal or mutual insurer, rating rule, rate related underwriting rule and other information used by an insurer in making rates.

(b) Does not include the final rate pages that combine the prospective loss costs with the loss cost adjustments.

§ 20-382 Scope of application

A. This article applies to all insurance on risks or on operations in this state, except:

1. Reinsurance, other than joint reinsurance to the extent stated in section 20-391.

2. Any policy of insurance against loss or damage to or legal liability in connection with property located outside this state, any motor vehicle or aircraft principally garaged and used outside this state or any activity wholly carried on outside this state.

3. Insurance of vessels or craft, their cargoes, marine builders' risks, marine protection and indemnity or other risks commonly insured under marine, as distinguished from inland marine, insurance policies.

4. Disability or life insurance.

5. Annuities.

6. Workers' compensation and employers' liability insurance written in connection with workers' compensation.

7. Title insurance.

8. Rates developed by an insurer to be applied individually to the insurance policies of risks, other than medical malpractice risks and industrial insured risks pursuant to section 20-400.10, for which no rate service organization has published a rate or loss costs in this or any other state and for which insufficient similar exposure units and loss experience data exist to develop statistically credible rates for the risk and no homogeneous rating class exists in which the risk could reasonably be placed. With respect to each type of risk covered by this subsection, the insurer shall annually certify by January 30 to the director for the preceding calendar year, on a form acceptable to the director, that the insurer did not have when the risks were written credible experience to establish a rating class for the specific types of risks. The insurer or rate service organization on the insurer's behalf shall file a rate for the specific risks with the director pursuant to section 20-385 when either of the following occurs:

(a) The insurer's written premiums for any specific risk covered by this subsection exceed twenty-five per cent of the insurer's total annual written premium in this state and the insurer has issued contracts for five or more homogeneous risks covered by this subsection in this state in any consecutive three year period, unless an insurer demonstrates to the director that its experience under this subsection does not produce sufficient data to satisfy the requirements of subdivision (b) of this paragraph.

(b) The number of specific risks covered by this subsection and written by the insurer in a specific class meet the standards set forth in the actuarial standard of practice 25 applying to credibility for rate making purposes as adopted by the actuarial standards board as of January 1, 1997.

B. This article does not apply to hospital service or medical service corporations, investment companies, mutual benefit associations or fraternal beneficiary associations.

§ 20-383 Rate standards

A. An insurer shall not charge rates that are excessive, inadequate or unfairly discriminatory. An insurer shall not charge any rate which if continued will have or tend to have the effect of destroying competition or establishing a monopoly.

B. Rates are excessive if they are likely to produce an underwriting profit that is unreasonably high for the class of business or if expenses are unreasonably high in relation to established services rendered. Rates are presumed not to be excessive if a reasonable degree of price competition exists at the consumer level with respect to a particular class of business. A competitive market is presumed to exist unless the director, after a hearing, determines that a reasonable degree of price competition does not exist in the market and issues an order pursuant to section 20-388 to that effect. The order expires no later than one year after its effective date unless the director finds, after a hearing, that there is a continuing lack of reasonable competition in the market. If the director finds, after a hearing, that a reasonable degree of price competition among insurers writing a particular line, subline or class of business does not exist, he may prescribe an allowable percentage of increase in a proposed rate level for such line, subline or class of business. Any insurer making a rate filing exceeding the allowable percentage of increase shall, prior to the effective date of such proposed rate increase, provide the director with sufficient actuarial data to support such increase. The director's order establishing allowable percentages of increase for a particular line, subline or class of business shall expire no later than one year after its effective date. In determining whether a reasonable degree of price competition exists, the director shall consider relevant tests of competition pertaining to market structure, market performance and market conduct, including:

1. The number of insurers actively engaged in the class of business.

2. The market share and changes in market share of insurers.

3. The existence of a degree of rate differentials in a particular class of business.

4. The ease of entry and latent competition of insurers capable of easy entry.

C. Rates are inadequate if they are clearly insufficient to sustain projected losses and expenses in the class of business to which they apply.

D. A rate is not unfairly discriminatory in relation to another in the same class if it reflects equitably the differences in expected losses and expenses. Rates are not unfairly discriminatory because different premiums result for policyholders with like loss exposures but different expense factors, or like expense factors but different loss exposures, if the rates reflect the differences with reasonable accuracy. Rates are not unfairly discriminatory if they are averaged broadly among persons insured under a group, franchise or blanket policy.

§ 20-384 Rating criteria

A. In setting rates, an insurer shall apply the criteria prescribed in this section.

B. An insurer shall give due consideration to past and prospective loss and expense experience within and outside this state, to catastrophe hazards, to a reasonable margin for underwriting profit and contingencies, to investment income from unearned premium and loss reserves, to trends within and outside this state, to reasonable dividends or savings to be allowed or returned by insurers to their policyholders, members or subscribers and to all other factors, including judgment factors.

C. Risks may be classified in any reasonable way for the establishment of rates and minimum premiums. Classifications shall not be based on race, color, creed or national origin. Rates produced may be modified for individual risks in accordance with rating plans or schedules that establish reasonable standards for measuring probable variations in hazards or expenses, or both.

D. The expense provisions included in the rates to be used by an insurer may reflect the operating methods of the insurer and its own expense experience.

E. Rates and supplementary rate information established pursuant to this article shall not be based on or include loss and expense experience attributable to insurance coverage issued to an industrial insured pursuant to section 20-400.10.

§ 20-385 Filing of rates

A. Except as to marine, inland marine and transportation risks, which by general custom of the business are not written according to manual rates and rating plans, and except as provided in subsection F of this section or section 20-400.10, every authorized insurer and every rate service organization which has been designated by any insurer for the filing of rates pursuant to section 20-387, subsection B shall file with the director all rates and supplementary rate information and all changes and amendments to those rates made by it for use in this state within thirty days after they become effective. If a rate service organization files prospective loss costs on behalf of its member insurers with the director, each member insurer that adopts the rate service organization's prospective loss costs shall file, on a form approved by the director, the loss cost adjustment and loss cost modification factors applicable to the prospective loss costs filed by the rate service organization. Each member insurer that does not adopt or that delays adoption of the loss costs filed by the rate service organization shall notify the director of that decision, in a form acceptable to the director, within thirty days after the effective date of the prospective loss costs.

B. For any filing made pursuant to subsection A of this section, the director may require the filing of supporting data including:

1. The experience and judgment of the filer.

2. The experience and judgment of other insurers or rate service organizations.

3. The filer's interpretation of any statistical data relied upon.

4. A description of the methods used in making the rates.

5. A description of the methods used and statistics relied on by the insurer in developing its loss cost modification factor and providing its loss cost adjustment.

6. A description of the methods used and statistics relied on by the rate service organization in developing its prospective loss costs filing.

C. An insurer is not required to file with the director the insurer’s final rate pages that combine the prospective loss costs separately filed by the rate service organization with the loss cost modification factor filed by the insurer.

D. For the purposes of this section, an insurer does not need to file with the director the insurer's final rate pages that combine the prospective loss costs with the loss cost adjustments.

E. On written consent of the insured stating the insured's reasons, the insurer may use a rate in excess of that provided by an otherwise applicable filing on a specific risk, if that rate is filed with the director pursuant to subsection A of this section.

F. For as long as the director deems proper, the director by order may exempt from the requirements of this section any insurance rate, rating class, rating rule or rating program or type the filing of which in the director's opinion is not desirable or necessary for the protection of the public.

G. If, after a hearing, the director finds that a particular market is noncompetitive, the director shall order that all rates or rate changes and all supplementary rate information in the noncompetitive market be filed with the director at least thirty days before the effective date. The order remains in effect until the director determines that a competitive market has been restored.

§ 20-386 Filings open to inspection

The director shall open to public inspection at any reasonable time each filing and supporting information filed pursuant to this article except information in a filing or supporting information that is a trade secret under title 44, chapter 4, article 1. The insurer or filer shall have the burden of asserting to the director that the information is a trade secret. A person may obtain copies of materials open to public inspection upon request and payment of a reasonable charge.

§ 20-387 Delegation of rate making and rate filing obligations

A. An insurer may establish rates and supplementary rate information based on the factors in section 20-384 using, if desired, the recommendations of an advisory organization, or rates and supplementary rate information prepared by a rate service organization, with average expense factors determined by the rate service organization or with such modification for its own expense and loss experience as the credibility of that experience allows.

B. An insurer may discharge its obligations pursuant to section 20-385 by giving notice to the director that it uses rates and supplementary rate information prepared by a designated rate service organization, with such information about modifications of the rates as is necessary to inform the director. The insurer's rates and supplementary rate information are those filed by the rate service organization, including any amendments to the rate as filed, subject to the modifications filed by the insurer.

C. Licensed rate service organizations, advisory organizations and admitted insurers are authorized to exchange information and experience data with rate service organizations, advisory organizations and insurers in this and other states and may consult with them with respect to rate making.

§ 20-388 Disapproval of rates

If the director finds that a rate is not in compliance with section 20-383, the director shall issue an order specifying in what respects it so fails and stating that, within thirty days after the order is issued, the rate is no longer effective. The order does not affect any contract or policy made or issued prior to the effective date of the order. The order shall be served immediately pursuant to section 20-151. Any insurer, rate service organization or advisory organization may request a hearing pursuant to title 41, chapter 6, article 10, and the request for a hearing stays the effectiveness of the order as provided in section 20-162.

§ 20-389 Rate service organizations; license; application

A. A rate service organization shall not provide any service relating to the rates of any insurance subject to this article nor may any insurer utilize the service of such organization for such purposes unless the organization has obtained a license from the director.

B. No rate service organization may refuse to supply any services for which it is licensed in this state to any insurer authorized to do business in this state and offering to pay the fair and usual compensation for the services.

C. A rate service organization applying for a license shall include with its application:

1. A copy of its constitution, charter, articles of organization, agreement, association or incorporation and a copy of its bylaws and any other rules or regulations governing its activities.

2. A list of its members and subscribers.

3. The name and address of one or more residents of this state upon whom notices, process affecting it or orders of the director may be served.

4. A statement showing its technical qualifications for acting in the capacity for which it seeks a license.

5. Any other relevant information or documents the director may require.

D. If the director finds that the applicant and the natural persons through whom it acts are qualified to provide the services proposed and that all requirements of law are met, the director shall issue a license specifying the authorized activity of the applicant. The director shall not issue a license if the proposed activity would tend to establish a monopoly or to lessen or to destroy price competition. Licenses issued pursuant to this section remain in effect until the licensee withdraws from this state or until the license is suspended or revoked.

E. A rate service organization shall promptly file any amendment to a document required to be filed pursuant to this section. Failure to file any such amendment is a ground for suspension of the license during the period of noncompliance. Repeated failures to file such amendments are grounds for revocation of the license.

F. Pending its application to the director for a license to provide services as a rate service organization, every rating organization providing services in this state on the effective date of this section may continue to provide services after that date as a rate service organization subject to the provisions of this article. A rate service organization shall apply for a license within thirty days after the effective date of this article.

§ 20-390 Advisory organizations; filing with director

A. An advisory organization shall not conduct its operations in this state until it files with the director:

1. A copy of its constitution, charter, articles of organization, agreement, association or incorporation and a copy of its bylaws and any other rules or regulations governing its activities.

2. A list of its members and subscribers.

3. The name and address of one or more residents of this state upon whom notices, process affecting it or orders of the director may be served.

B. An advisory organization shall promptly file any amendments to a document required to be filed pursuant to this section.

C. It is unlawful for an advisory organization to engage in any unfair or unreasonable practice.

§ 20-391 Joint underwriting and joint reinsurance organizations; filing with director

A. Every group, association or other organization of insurers which engages in joint underwriting or joint reinsurance through such group, association or organization or by standing agreement among the members shall file with the director:

1. A copy of its constitution, articles of association and bylaws.

2. A list of its members.

3. The name and address of a resident of this state upon whom notices or orders of the director or process may be served.

B. Every such group, association or other organization shall notify the director promptly of any change in the documents required to be filed with the director.

C. If after a hearing the director finds that any activity or practice of any such group, association or other organization is inconsistent with this article, the director may issue a written order specifying the inconsistencies and requiring the discontinuance of such activity or practice.

§ 20-392 Rate agreements among insurers prohibited

A. Except with respect to apportionment agreements among insurers approved by the director pursuant to section 20-395, an insurer shall not assume any obligation to any person, other than a policyholder or other insurers which, with it, are under common control or management or are members of a joint underwriting or joint reinsurance organization, to use or adhere to certain rates or rules. No person other than the director may impose any penalty or other adverse consequence for failure of an insurer to adhere to certain rates or rules.

B. Members and subscribers of rate service organizations or advisory organizations may use the work products and services of such organizations as their individual judgment may dictate. Such use by two or more authorized insurers shall not be sufficient to support a finding that an agreement to adhere exists and may be used only for the purpose of supplementing direct evidence of such an agreement.

§ 20-393 Recording and reporting of experience

The director shall promulgate reasonable rules, including rules providing statistical plans, for use by all insurers in the recording and reporting of loss and expense experience, in order that the experience of such insurers may be made available to the director. No insurer may be required to record or report its experience on a classification basis inconsistent with its own rating system. An insurer may report its experience to any rate service organization or advisory organization with which it affiliates.

§ 20-394 Examination of rate service organizations and joint underwriting and joint reinsurance organizations

The director, as often as considered necessary, may examine each rate service organization, each advisory organization and each group, association or other organization filing pursuant to section 20-391. The director shall examine only those activities conducted pursuant to this article. The director may examine the officers, manager, agents and employees of such organizations at any time under oath. The organization examined shall pay the reasonable costs of the examination upon presentation to it of a detailed account of the costs. The organization examined shall exhibit all books, records, accounts, documents or agreements governing its method of operation. In lieu of the examination the director may accept the report of an examination made by the insurance supervisory official of another state, pursuant to the laws of such state.

§ 20-395 Apportionment agreements among insurers

Insurers may make agreements among themselves with respect to equitable apportionment among them of insurance which may be afforded applicants who are in good faith entitled to but who are unable to procure such insurance through ordinary methods, and such insurers may agree among themselves on the use of reasonable rate modifications for such insurance, with all such agreements and rate modifications subject to the approval of the director.

§ 20-396 Hearing and judicial review

Any insurer, rate service organization or advisory organization to which the director has issued an order or decision may request a hearing pursuant to title 41, chapter 6, article 10 and, except as provided in section 41-1092.08, subsection H, seek judicial review pursuant to title 12, chapter 7, article 6.

§ 20-397 Penalties; exception

A. If the director finds that a person or organization has violated this article or any order of the director issued pursuant to this article after the effective date of such order, the director may, after a hearing, impose a civil penalty of not more than fifty dollars for each violation. If the director finds that a person or organization knowingly violated this article or any order of the director issued pursuant to this article after the effective date of such order, the director may, after a hearing, impose a civil penalty of not more than five hundred dollars for each violation. Such civil penalties, which may not in the aggregate exceed fifty thousand dollars, may be in addition to any other penalty provided by law.

B. It is not a violation of this article if an insurer or rate service organization files a rate or rate change pursuant to section 20-385 which is later disapproved by the director.

C. The director may suspend the license of any rate service organization or insurer which fails to comply with an order of the director within the time prescribed by such order, or any extension of the order which the director may grant. The director shall not suspend the license of any rate service organization or insurer for failure to comply with an order until the time prescribed for an appeal from the order has expired, or if an appeal has been taken, until such order has been affirmed. The director may determine when a suspension of a license becomes effective and it shall remain in effect for the period fixed by the director, unless the director modifies or rescinds such suspension, or until the order upon which such suspension is based is modified, rescinded or reversed.

D. The director shall not impose a penalty or suspend or revoke a license except upon a written order stating the director's findings, made after a hearing held upon not less than ten days' written notice to such person or organization specifying the alleged violation.

§ 20-398 Policy forms; approval or disapproval; exemption

A. Except for fidelity, surety or guaranty bonds or industrial insurance as provided in section 20-400.10, except for any portion of a property insurance policy that contains wildfire protection services, and except as to inland marine risks that by general custom of the business are not written according to manual rates or rating plans, a policy form applying to insurance on risks or operations covered by this article may not be delivered or issued for delivery unless the form has been filed with the director and either the director has issued, within thirty days, an order affirmatively approving or disapproving the form or the thirty-day period has elapsed and the director has not disapproved the form as ambiguous, misleading or deceptive. On written notice given within the thirty-day period to the person making the filing, the director may extend the period for up to fifteen additional days to enable the director to complete the review of the filing.

B. The director, by order, may exempt from the requirements of this section, for as long as the director deems proper, any insurance document or form as specified in the order, to which, in the director's opinion, this section may not practicably be applied, or the filing and approval of which are, in the director's opinion, not desirable or necessary for the protection of the public.

C. Any property insurance policy containing wildfire protection services, including wildfire mitigation and wildfire suppression services conducted by a private entity, that is issued for delivery to an insured in this state shall contain a conspicuously stamped or written notice in bold-faced type that states that the wildfire protection services are not subject to review by the department.

§ 20-399 Payment of dividends

This article does not prohibit or regulate the payment of dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers. A plan for the payment of dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers is not considered a rating plan or system.

Article 4.2 Compliance With Filed Rates

§ 20-400 Scope of provisions

A. This article applies to all insurers having a certificate of authority issued by the director to transact insurance in this state except:

1. Reinsurance.

2. Annuities.

3. Title insurance.

4. Mortgage guaranty insurance.

5. Disability or life insurance.

6. Risks subject to section 20-395.

7. Risks commonly insured under marine and inland marine insurance policies.

8. Personal lines automobile, dwelling and homeowner insurance policies.

9. Any policy of insurance against loss or damage to or legal liability in connection with property located outside this state, any motor vehicle or aircraft principally garaged and used outside this state or any activity wholly carried on outside this state.

B. This article does not apply to hospital service or medical service corporations, investment companies, mutual benefit associations or fraternal beneficiary associations.

§ 20-400.01 Unjustified adjustments

A. No insurer may issue a policy of insurance subject to this article with a premium developed in a manner which is not consistent with a filing made pursuant to sections 20-357 and 20-385.

B. No insurer may make any adjustment to the full manual premium developed for any risk without adequate justification for that adjustment. An adjustment will be presumed to be adequately justified if both:

1. It is applied in a manner consistent with the insurer's filed rules.

2. The insurer's files contain adequate documentation of the facts supporting the adjustment.

C. A misclassification of a risk shall be considered an adjustment without adequate justification.

D. Each insurer shall maintain reasonable records of the information collected or used by it in developing the premium charged for any risk so that such records will be available to enable the director to verify compliance with this section.

§ 20-400.02 Submittal of data comparing premiums charged to filed rates

On the request of the director, each insurer authorized to write any insurance in this state to which this article applies shall submit data to the director establishing the relationship of the aggregate premiums actually charged policyholders by the insurer for each line of insurance to the premiums produced by the insurer's filed unmodified rates for each line of insurance. A rate service organization may file the data on behalf of the insurer. Any insurer whose data indicates that the aggregate premiums actually charged policyholders for each line of insurance exceed the premiums produced by its filed unmodified rates by more than a percentage established by the director by rule, or fall below the premiums produced by its filed unmodified rates by more than a percentage established and published by the director by rule, shall be examined by the director to determine whether the rating plan or filed unmodified rates comply with sections 20-356 and 20-357 or 20-384 and 20-385. The director shall prescribe the time period the data are to cover and the form in which the data are to be submitted.

§ 20-400.03 Penalties

If the director finds after a hearing that the insurer has knowingly, or with such frequency as to indicate a general business practice, violated the provisions of section 20-400.01 with respect to a particular class or that an insurer examined under section 20-400.02 has not complied with sections 20-356 and 20-357 or 20-384 and 20-385, he may, in addition to or in lieu of the penalties provided in section 20-397, do the following:

1. Impose a civil penalty equal to the difference between the premium charged and that which would have been charged without the application of inadequately justified adjustments if a refund pursuant to paragraph 3 of this section has not been ordered.

2. Suspend the insurer's authority to do business in any given class.

3. Require applicable refunds to policyholders.

§ 20-400.04 Examinations

The director may examine each insurer authorized to write any insurance to which this article applies to determine whether such insurer has complied with sections 20-400.01 and 20-400.02.

§ 20-400.05 Examiners and examination related expenses

A. The director shall utilize independent contractor examiners pursuant to section 20-148, subsection B and section 20-159 to perform the examinations required under sections 20-400.01 and 20-400.02.

B. All examination and examination related expenses shall be borne by the insurer and shall be paid by the insurance examiners' revolving fund in accordance with section 20-159.

§ 20-400.07 Report of examination

The director shall make a full written report of each examination under this article in accordance with section 20-158.

§ 20-400.09 Rules

The director may promulgate rules necessary to implement the provisions of this article.

§ 20-400.10 Industrial insureds

A. An industrial insured as defined in section 20-401.07 may purchase and an admitted insurer may sell to an industrial insured a policy of insurance that is subject to article 4.1 of this chapter and that is on a form that has not been filed for review or approval by the director pursuant to article 4.1 of this chapter. The admitted insurer may use rates for a policy provided pursuant to this section that have not been filed for review or approval by the director pursuant to article 4.1 of this chapter.

B. At the inception of each new policy and at the time of each renewal, but not less than annually during the term of the policy, each industrial insured that purchases a policy as provided in this section shall certify to the insurer on a form prescribed by the director that the insured meets the definition of industrial insured prescribed in section 20-401.07.

C. Except as otherwise provided in section 20-407, subsection B, the insurer shall maintain the certification described in subsection B of this section in the insurer's policy file.

D. The following provisions do not apply to insurance issued to industrial insureds pursuant to this section:

1. Section 20-229.

2. Section 20-400.

3. Sections 20-400.01 through 20-400.05 and 20-400.07.

4. Section 20-448, subsection C.

5. Section 20-451.

6. Section 20-452.

7. Section 20-465.

8. Sections 20-1111 through 20-1117.

9. Sections 20-1120, 20-1121 and 20-1122.

10. Article 4.1 of this chapter.

11. Chapter 3, article 6 of this title.

12. Chapter 6, articles 7 and 14 of this title.

E. Any policy issued for delivery to an industrial insured in this state by an insurer pursuant to this section shall contain a conspicuously stamped or written notice in bold-faced type that states:

Pursuant to Arizona Revised Statutes section 20-400.10, this policy and the rates charged for it have not been filed with or approved by the director of the Arizona department of insurance and financial institutions. Certain provisions of Arizona law, specified in Arizona Revised Statutes section 20-400.10, do not apply to this policy. If the insurer that issued this policy becomes insolvent, insureds or claimants will not be eligible for insurance guaranty fund protection pursuant to Arizona Revised Statutes title 20.

F. An insurer shall annually file with the insurer's annual statement filed pursuant to section 20-223 on a form prescribed by the director the following information for the prior year ending December 31 for all policies issued to industrial insureds pursuant to this section:

1. The total number of policies written.

2. The total premiums written.

3. The total premiums earned.

4. The total losses paid.

5. The total losses incurred.

6. The total number of claims incurred.

7. Any other information the director deems appropriate.

Article 5 Unauthorized Insurers

§ 20-401 Definitions

In this article, unless the context otherwise requires:

1. "Affiliated" means, with respect to an insured, any entity that controls, is controlled by or is under common control with the insured. For the purposes of this paragraph, "control" means either:

(a) Directly or indirectly acting through one or more other persons who own, control or have the power to vote twenty-five percent or more of any class of voting securities of the other entity.

(b) Control in any manner over the election of a majority of the directors or trustees of the other entity.

2. "Affiliated group" means any group of entities that are affiliated.

3. "Clearinghouse" means the mechanism or entity established pursuant to a multistate agreement or compact for the receipt and distribution of premium taxes and transaction data related to the sale of unauthorized insurance.

4. "Diligent effort" means having sought insurance for the same risk from at least three insurers authorized in this state to write the particular insurance coverage or type, class or kind of insurance.

5. "Domestic surplus lines insurer" means an insurer that is domiciled in and authorized to transact insurance in this state and that has received approval from the department pursuant to section 20-407.01 to write surplus lines insurance coverage in this state.

6. "Foreign decree" means any decree or order in equity of a court located in a reciprocal state, including a court of the United States located therein, obtained by a qualified party against any insurer incorporated or authorized to do business in this state.

7. "Home state" means one of the following:

(a) The state in which an insured maintains its principal place of business or, in the case of an individual, the individual's principal place of residence.

(b) If one hundred percent of the insured risk is located out of the state that would be the insured's home state pursuant to subdivision (a) of this paragraph, the state to which the greatest percentage of the insured's taxable premium is allocated for the insurance contract in question.

(c) If more than one insured from an affiliated group are named insureds on a single nonadmitted insurance contract, the state as determined pursuant to subdivision (a) of this paragraph of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract.

8. "Multistate risk" means a risk covered by an unauthorized insurer with insured exposures in more than one state.

9. "Qualified party" means a state regulatory agency acting in its capacity to enforce the insurance laws of that state.

10. "Reciprocal state" means any state or territory of the United States the laws of which give to insurers organized under the laws of this state the same right to defend actions as that granted to foreign insurers under the laws of this state and the laws of which contain procedures substantially similar to those specified in this article for the enforcement of decrees or orders in equity issued by courts located in other states or territory of the United States against any insurer incorporated or authorized to do business in that state or territory.

11. "Single-state risk" means a risk with insured exposures in only one state.

12. "Unauthorized insurance", "surplus lines insurance" or "nonadmitted insurance" means any insurance permitted to be placed directly or through a surplus lines broker with an insurer who is not licensed to transact insurance in this state or with a domestic surplus lines insurer.

§ 20-401.01 Unlawful transaction of insurance business; exemptions

A. It is unlawful for any insurer to transact insurance business, as provided by section 20-106, in this state without a certificate of authority from the director.

B. The provisions of subsection A of this section do not apply to:

1. The lawful transaction of surplus lines insurance.

2. The lawful transaction of reinsurance by insurers.

3. Transactions in this state involving a policy lawfully solicited, written and delivered outside of this state covering only subjects of insurance not resident, located or expressly to be performed in this state at the time of issuance, and which transactions are subsequent to the issuance of such policy.

4. Attorneys acting in the ordinary relation of attorney and client in the adjustment of claims or losses.

5. Transactions in this state involving group annuities where the master policy of such groups was lawfully issued and delivered in and pursuant to the laws of a state in which the insurer was authorized to do an insurance business, to a group organized for purposes other than the procurement of insurance, and where the policyholder is domiciled or otherwise has a bona fide situs.

6. Transactions in this state involving any policy of insurance or annuity contract issued prior to August 13, 1972.

7. Transactions in this state relative to a policy issued or to be issued outside this state involving insurance on vessels, craft or hulls, cargoes, marine builder's risk, marine protection and indemnity or other risk, including strikes and war risks commonly insured under ocean or wet marine forms of policy.

8. Transactions in this state involving contracts of insurance not readily obtainable from insurers authorized to transact insurance in this state issued to one or more industrial insureds, as defined in section 20-401.07.

§ 20-401.02 Violation; cease and desist orders; injunctive relief

A. If the director has cause to believe that any insurer is violating or about to violate section 20-401.01, the director may order the insurer to cease and desist and, through the attorney general, may cause a complaint to be filed in the superior court in Maricopa county to enjoin and restrain the insurer from continuing the violation, engaging in the violation or doing any act in furtherance of the violation.

B. If the director orders the insurer to cease and desist, the insurer may request a hearing pursuant to title 41, chapter 6, article 10. Except as provided in section 41-1092.08, subsection H, a final decision of the director is subject to judicial review pursuant to title 12, chapter 7, article 6.

C. If the director, through the attorney general, causes a complaint to be filed, the superior court in Maricopa county shall have jurisdiction of the proceeding and may make and enter an order or judgment awarding the preliminary or final relief as in its judgment is proper.

§ 20-401.03 Service of process in an action by the director

A. Any act of transacting an insurance business in violation of section 20-401.01 by any unauthorized insurer is equivalent to and constitutes an irrevocable appointment by such insurer, binding on the insurer, the insurer's executor or administrator, or successor in interest if a corporation, of the secretary of state or the secretary of state's successor in office to be the true and lawful attorney of such insurer on whom may be served all lawful process in any action, suit or proceeding in any court by the director, through the attorney general, and on whom may be served any notice, order, pleading or process in any proceeding before the director and which arises out of transacting an insurance business in this state by such insurer. Any act of transacting an insurance business in this state by any unauthorized insurer shall be signification of its agreement that any such lawful process in such court action, suit or proceedings and any such notice, order, pleading or process in such administrative proceeding before the director so served shall be of the same legal force and validity as personal service of process in this state on such insurer.

B. Service of process in an action prescribed by subsection A of this section shall be made by delivering to and leaving with the secretary of state, or some person in apparent charge of the secretary of state's office, two copies of such process. Service on the secretary of state as such attorney shall be service on the principal.

C. The secretary of state shall immediately forward, by registered or certified mail, one copy of such process or such notice, order, pleading or process in proceedings before the director to the defendant in such court proceeding to whom the notice, order, pleading or process in such administrative proceeding is addressed or directed at its last known principal place of business and shall keep a record of all process so served on the secretary of state which shall show the day and hour of service. Such service shall be sufficient, provided:

1. Notice of such service and a copy of the court process or the notice, order, pleading or process in such administrative proceeding are sent within ten days thereafter by registered or certified mail by the director or the attorney general in the court proceeding or by the director in the administrative proceeding to the defendant in the court proceeding or to whom the notice, order, pleading or process in such administrative proceeding is addressed or directed at the last known principal place of business of the defendant in the court or administrative proceeding.

2. The defendant's receipt or receipts, issued by the post office with which the letter is registered or certified, showing the name of the sender of the letter and the name and address of the person or insurer to whom the letter is addressed, and an affidavit of the director or the attorney general in court proceeding or of the director in administrative proceeding, showing compliance therewith, are filed with the clerk of the court in which such action, suit or proceeding is pending or with the director in administrative proceedings, on or before the date the defendant in the court or administrative proceeding is required to appear or respond thereto, or within such further time as the court or director may allow.

D. The director or the attorney general shall not be entitled to a judgment or a determination by default in any court or administrative proceeding in which court process or notice, order, pleading or process in proceedings before the director is served under this section until the expiration of thirty days from the date of filing of the affidavit of compliance.

E. This section does not limit or affect the right to serve any process, notice, order or demand on any person or insurer in any other manner now or hereafter allowed by law or rules of the courts.

§ 20-401.04 Action by attorney general to enforce order or decision of court or director; foreign decrees

A. The attorney general, on request of the director, may proceed in the courts of this state or any reciprocal state to enforce an order or decision in any court proceeding or any administrative proceeding before the director or any foreign decree.

B. The director shall determine which states and territories qualify as reciprocal states and shall maintain at all times an up-to-date list of those states.

C. A copy of any foreign decree authenticated as provided by the laws of this state may be filed in the office of the clerk of any superior court in this state. The clerk, on verifying with the director that the decree or order qualified as a foreign decree, shall treat the foreign decree in the same manner as a decree of a superior court in this state. A foreign decree so filed has the same effect and shall be deemed as a decree of a superior court in this state, and is subject to the same procedures, defenses and proceedings for reopening, vacating or staying as a decree of a superior court in this state and may be enforced or satisfied in like manner.

D. At the time of the filing of the foreign decree, the attorney general shall make and file with the clerk of the court an affidavit setting forth the name and last known post office address of the defendant.

E. Promptly on the filing of the foreign decree and the affidavit, the clerk shall mail notice of the filing of the foreign decree to the defendant at the address given and to the director and shall make a note of the mailing in the docket. In addition, the attorney general may mail a notice of the filing of the foreign decree to the defendant and to the director and may file proof of mailing with the clerk. Lack of mailing notice of filing by the clerk does not affect the enforcement proceedings if proof of mailing by the attorney general has been filed.

F. An execution or other process for enforcement of a foreign decree filed under this section shall not issue until thirty days after the date the decree is filed.

G. If the defendant shows the superior court that an appeal from the foreign decree is pending or will be taken, or that a stay of execution has been granted, the court shall stay enforcement of the foreign decree until the appeal is concluded, the time for appeal expires, or the stay of execution expires or is vacated, on proof that the defendant has furnished the security for the satisfaction of the decree required by the state in which it was rendered.

H. If the defendant shows the superior court any ground on which enforcement of a decree of any superior court in this state would be stayed, the court shall stay enforcement of the foreign decree for an appropriate period, on requiring the same security for satisfaction of the decree that is required in this state.

§ 20-401.05 Certificate of exemption; definitions

A. On July 1 of each year, the director shall grant a certificate of exemption to any insurer, employee benefit trust or voluntary employees' beneficiary association transacting life insurance, disability insurance or annuity business, or providing other health or welfare benefits, under the laws of its domicile that:

1. Is organized and operated without profit to any person, firm, partnership, association, corporation or other entity.

2. Is organized and operated exclusively for either of the following purposes:

(a) Aiding educational or scientific institutions that are also organized and operated without profit to any person, firm, partnership, association, corporation or other entity.

(b) Aiding agricultural institutions if the grantee is subject to regulation either as an insurer, a multiple employer welfare arrangement or an employee benefit trust by its state of domicile.

3. Serves a purpose prescribed in paragraph 2 of this subsection by issuing insurance, annuity and employee benefits contracts only to or for the benefit of the educational, scientific or agricultural institutions or their respective members or to individuals engaged in the service of those institutions.

4. Appoints the secretary of state, and the secretary of state's successors in office, as its true and lawful attorney on whom may be served all lawful process in any action, suit or proceeding in any court by the director of the department of insurance and financial institutions, through the attorney general, or any action or proceeding against the insurer, employee benefit trust or voluntary employees' beneficiary association brought by someone other than the director of the department of insurance and financial institutions, which appointment is irrevocable, binds the insurer, employee benefit trust or voluntary employees' beneficiary association or any successor in interest, remains in effect as long as there is in force in this state any contract or policy made or issued by the insurer, employee benefit trust or voluntary employees' beneficiary association or any obligation arising therefrom and must be processed in accordance with sections 20-401.03 and 20-403.

5. Is fully and legally organized and qualified to do business and has been actively doing business under the laws of the state of its domicile for a period of at least twenty years before its application for a certificate of exemption.

6. Files with the director for the director's approval a copy of any policy or contract form issued to residents of this state.

7. Files with the director on or before March 1 of each year a copy of its annual statement prepared pursuant to the laws of its state of domicile, as well as any other financial material as may be requested, including the annual statement or such other financial materials as may be requested relating to any subsidiary or other legal entity operated by the insurer, employee benefit trust or voluntary employees' beneficiary association under a management contract or other form of agreement, and coincident with the filing of its annual statement, pays the filing fee prescribed in section 20-167.

8. Agrees to submit to periodic examinations as may be deemed necessary by the director.

B. On or before March 1 of each year, any insurer holding a certificate of exemption shall file with the director a form of premium tax return prescribed by the director and shall pay the premium tax imposed by section 20-224 on all policies of life insurance and disability insurance in force with residents of this state.

C. After a hearing, the director may refuse to renew, or may revoke or suspend, a certificate of exemption if the director finds that the insurer, employee benefit trust or voluntary employees' beneficiary association no longer meets the requirements of this section, or finds that the insurer, employee benefit trust or voluntary employees' beneficiary association has violated any provision of article 6 of this chapter.

D. For the purposes of this section:

1. "Agricultural institutions" means agricultural growers, shippers, packers, brokers, distributors, wholesalers, receivers and jobbers, or affiliated, associated and related suppliers, industries or firms.

2. "Voluntary employees’ beneficiary association" means an association described in 26 United States Code section 501(c)(9).

§ 20-401.06 Unauthorized transactions; classification

Any unauthorized insurer who knowingly transacts any unauthorized act of an insurance business is guilty of a class 5 felony.

§ 20-401.07 Premium receipts tax on industrial insureds contracting with unauthorized insurer; definitions

A. Every industrial insured under a contract procured from an unauthorized insurer shall pay to the director for coverage on Arizona single-state risks or to the clearinghouse for coverage on multistate risks on or before the dates prescribed by in section 20-415 a premium receipts tax of three per cent of the gross premiums, less premiums returned on account of cancellation or reduction of premium. Such insurance procured by an insured whose home state is Arizona, whether procured through negotiation or an application, in whole or in part occurring or made within or outside of this state, or for which premiums in whole or in part are remitted directly or indirectly from within or outside of this state, shall be deemed to be insurance effectuated or continued in this state.

B. Beginning January 1, 2015 and every five years thereafter, the amounts listed in subsection C, paragraph 1, subdivisions (a) and (e) shall be adjusted to reflect the percentage change for the five-year period in the consumer price index for all urban consumers published by the bureau of labor statistics of the United States department of labor.

C. For the purposes of this section:

1. "Industrial insured" means an insured whose home state is Arizona, that applies for or procures any insurance that is subject to article 4.1 of this chapter through the use of a qualified risk manager, that has aggregate annual gross premiums for insurance on all property and casualty risks that are subject to article 4.1 of this chapter totaling at least one hundred thousand dollars as of the insured's preceding fiscal year end and that meets one of the following criteria:

(a) Possesses a net worth of over twenty million dollars as of the preceding fiscal year end of the industrial insured as verified by a certified public accountant.

(b) Has net revenues or sales exceeding fifty million dollars as of the preceding fiscal year end of the industrial insured as verified by a certified public accountant.

(c) Has more than five hundred full-time employees or equivalent per individual company or is a member of an affiliated group employing more than one thousand employees in the aggregate.

(d) Is a municipality with a population of more than fifty thousand persons.

(e) Is a nonprofit organization or public entity generating annual budgeted expenditures of at least thirty million dollars.

2. "Qualified risk manager" has the same meaning prescribed in the nonadmitted and reinsurance reform act of 2010 (15 United States Code section 8206).

§ 20-402 Validity of contracts

A. The transaction of business in violation of section 20-401.01 by an insurer does not impair the validity of any act or contract of the insurer and does not prevent the insurer from defending any action at law or suit in equity in any court of this state, except that no insurer transacting insurance business in this state without a certificate of authority is permitted to maintain an action in any court of this state to enforce any right, claim or demand arising out of the transaction of the business until the insurer obtains a certificate of authority.

B. If an insurer transacting business in violation of section 20-401.01 fails to pay any claim or loss within the provisions of the insurance contract, any person who acted directly or indirectly as an insurance producer for or otherwise represented or aided the insurer in the solicitation, negotiation, procurement or effectuation of the insurance contract or renewal of the contract is liable to the insured for the full amount of the claim or loss in the manner provided by the provisions of the insurance contract.

§ 20-403 Service of process in an action by someone other than the director

A. The transaction of an insurance business in this state, as provided in section 20-106, by, or on behalf of, an unauthorized nonresident insurer shall be deemed to constitute an appointment by the insurer of the director and the director's successors in office as its attorney, on whom may be served all lawful process issued within this state in any action or proceeding against such insurer brought by someone other than the director and arising out of any such transaction.

B. Such service of process shall be made by delivering to and leaving with the director two copies thereof. At the time of service the plaintiff shall pay $5 to the director, taxable as costs in the action. The director shall immediately mail by registered or certified mail one of the copies of process to the defendant at its principal place of business as last known to the director and shall keep a record of all process so served.

C. Notice of service and a copy of process shall be sent by the plaintiff's attorney to the defendant insurer at its last known principal place of business by registered or certified mail. The defendant insurer's receipt, or registry receipt as to the mailing issued by the post office where registered or certified, showing the name of the sender and name and address of the addressee, and the affidavit of plaintiff's attorney showing compliance with this subsection, shall be filed in the court in which the action is pending on or before the date the defendant insurer is required to appear, or within such further time as the court may allow. A judgment by default against the insurer may not be taken under this section until the expiration of thirty days after the date of filing of the affidavit of compliance.

D. Service of process in an action or proceeding against an unauthorized resident insurer shall be valid if served on any person within this state who transacts an insurance business in this state on behalf of such insurer. Subsection C of this section applies with respect to service of process.

E. Service of process on an insurer in accordance with this section shall be as valid and effective as if served on a defendant personally present in this state.

F. Means provided in this section for service of process on the insurer shall not be deemed to prevent service of process on the insurer by any other lawful means.

G. An insurer that has been so served with process, subject to section 20-405, shall have the right to appear in and defend the action and employ attorneys and other persons in this state to assist in the action's defense or settlement.

§ 20-404 Exemptions

Sections 20-403, 20-405 and 20-406 shall not apply to such transactions as are prescribed in section 20-401.01, paragraphs 1, 2, 3, 4, 5, 7 and 8, nor to any action or proceeding against an unauthorized insurer arising out of the following types of insurance where the policy or contract contains a provision designating the director as its attorney for the acceptance of service of lawful process in any action or proceeding instituted by or on behalf of an insured or beneficiary arising out of any such policy, or where the insurer enters a general appearance in any such action:

1. Ocean marine and foreign trade insurance.

2. Insurance on subjects located, resident or to be performed, wholly outside this state, or on vehicles or aircraft owned and principally garaged outside this state.

3. Insurance on property or operations of railroads engaged in interstate commerce.

§ 20-405 Prerequisites for participating in court action

Before an unauthorized insurer may initiate any action or proceeding in this state, the insurer shall procure a certificate of authority to transact insurance in this state, or deposit with the clerk of the court in which the action or proceeding is pending cash or securities, or file with the clerk a bond with good and sufficient sureties, to be approved by the court, in an amount to be fixed by the court sufficient to secure the payment of any costs and attorney's fees which may be assessed against the unauthorized insurer in the action. The court may in its discretion make an order dispensing with the deposit or bond where the insurer makes a showing satisfactory to the court that it maintains in any state funds or securities, in trust or otherwise, sufficient and available to satisfy any such assessment which may be entered in the action or proceeding, and that the insurer will pay any final judgment entered therein without requiring suit to be brought on the judgment in the state where the funds or securities are located.

§ 20-406 Attorneys' fees in action against insurer

In any action against an unauthorized insurer pursuant to section 20-403, if the insurer has failed for thirty days after demand prior to the commencement of the action to make payment in accordance with the terms of the contract of insurance, and it appears to the court that the refusal was vexatious and without reasonable cause, the court may allow to the plaintiff a reasonable attorney's fee and include such fee in any judgment that may be rendered in the action. The attorney's fee shall not exceed one third of the amount which the court or jury finds the plaintiff is entitled to recover against the insurer, but in no event shall such a fee be less than one hundred dollars. Failure of an insurer to defend any such action shall be deemed prima facie evidence that its failure to make payment was vexatious and without reasonable cause.

§ 20-407 Surplus lines; brokers

A. Any portion or all of an insurance coverage designated in this article as "surplus lines" may be procured from unauthorized insurers subject to the following conditions:

1. The insurance is procured through a surplus lines broker licensed in this state, referred to in this article as the "broker".

2. The insurance coverage is a recognized surplus line pursuant to section 20-409 or the insurance coverage is not procurable, after diligent effort has been made to procure coverage or the coverage has been procured to the full extent the insurers are willing to insure, and the placing of insurance with an unauthorized insurer is not for the purpose of securing advantages either as to premium rate or terms of the insurance contract.

B. Subsection A, paragraph 2 of this section does not apply to the sale of insurance coverage to an industrial insured as defined in section 20-401.07. At the inception of each new policy and at the time of each renewal, but not less than annually during the term of the policy, each industrial insured that purchases a policy as provided in this section shall certify to the broker on a form prescribed by the director that the insured meets the definition of industrial insured prescribed in section 20-401.07. The broker shall maintain the certification in the broker's files. The insurance is surplus lines insurance and is subject to the applicable provisions of this article that relate to surplus lines insurance.

C. This section does not prohibit a resident or nonresident insurance producer licensed in this state for property or casualty insurance from obtaining surplus lines insurance for policyholders through a surplus lines broker if the insurance producer uses a surplus lines broker licensed in this state for the transaction of the insurance with the surplus lines insurer. The surplus lines broker is responsible for compliance with the applicable provisions of this article. The insurance producer may pay a fee or share a commission with a surplus lines broker who procures the surplus coverage on behalf of the insurance producer. For the purposes of this subsection, "transaction" means the acts listed in section 20-106, subsection A.

D. For the transaction of surplus lines insurance, a surplus lines broker licensed in this state shall not receive a fee, commission, brokerage or other valuable consideration from any person who is not licensed in this state as any of the following:

1. An insurance producer pursuant to article 3 of this chapter.

2. A managing general agent pursuant to article 3.1 of this chapter.

3. A surplus lines broker pursuant to section 20-411, 20-411.01 or 20-411.02.

§ 20-407.01 Designation as a domestic surplus lines insurer; requirements; scope of business activity permitted

A. Notwithstanding any other law, a domestic insurer possessing minimum capital and surplus of at least fifteen million dollars, pursuant to a resolution by its board of directors and on the written approval of the director, may be designated as a domestic surplus lines insurer. A domestic surplus lines insurer shall be considered an unauthorized insurer for purposes of writing surplus lines insurance coverage pursuant to the requirements of this article.

B. A domestic surplus lines insurer shall only write surplus lines insurance in this state procured pursuant to the requirements of this article. A domestic surplus lines insurer may write surplus lines insurance in any other jurisdiction in which the insurer is eligible to write surplus lines insurance if the domestic surplus lines insurer complies with any requirements of that jurisdiction.

C. Insurance written by a domestic surplus lines insurer is subject to the tax on premiums required by section 20-416 and is exempt from the tax on premiums required by chapter 2, article 1 of this title.

D. A domestic surplus lines insurer shall be considered a nonadmitted insurer as referenced in 15 United States Code section 8206 with respect to surplus lines insurance issued in this state.

E. Surplus lines insurance policies issued in this state by a domestic surplus lines insurer are not subject to the protection of or other provisions of the Arizona property and casualty insurance guaranty fund established by section 20-662.

F. Surplus lines insurance policies issued in this state by a domestic surplus lines insurer are not subject to and are exempt from all statutory requirements relating to insurance rating and rating plans, policy forms, policy cancellation and nonrenewal in the same manner and to the same extent as a surplus lines insurer domiciled in another state.

§ 20-408 Report of broker; civil penalty

A. A broker procuring surplus lines insurance on behalf of an insured whose home state is Arizona shall file with the director on or before the date specified in section 20-415, subsection B a verified report setting forth facts from which it may be determined whether the requirements of section 20-407 have been met. The report shall also contain or be accompanied by the following:

1. The name of the insurer and the identification number assigned to it by the national association of insurance commissioners.

2. The number of the policy issued.

3. The name and the city, state and zip code of the insured.

4. The premium, including taxable policy fees.

5. The identity of the specific surplus lines coverage written.

6. The policy effective dates that shall not be open to public inspection.

B. The director shall prescribe the required report form.

C. The director may direct a broker to file the broker's report required by this section with a voluntary domestic organization of surplus lines brokers with which the director has contracted to accept reports pursuant to section 20-167.

D. A broker may collect from the insured the stamping fee prescribed in section 20-167.

E. The director may impose and collect a civil penalty of not more than $25 against a broker for each day the report prescribed in subsection A of this section is late.

F. In addition to the requirements of subsection A, paragraph 5 of this section, if the insurance coverage is not a recognized surplus line pursuant to section 20-409, a surplus lines broker shall maintain evidence of compliance with the requirements of section 20-407, subsection A for the duration of the insurance policy and for a period of six years after the expiration of the policy.

§ 20-409 Recognized surplus lines

A. If after a hearing the director finds that a particular insurance coverage or type, class or kind of coverage is not readily procurable from authorized insurers, the director may by order declare such coverage or coverages to be recognized surplus lines until the director's further order.

B. The order is subject to modification by the director. The director shall modify any coverage if the director determines that the coverage is no longer entitled to recognition as surplus lines after a hearing held on the director's initiative or on the request of any insurance producer, surplus lines broker, broker, insurer, rating or advisory organization, or other person.

§ 20-410 Validity of surplus lines insurance; disclosure; policy fees

A. Insurance contracts procured as surplus lines coverage are fully valid and enforceable as to all parties and shall be recognized in all matters in the same manner as like contracts issued by authorized insurers.

B. Any policy and any evidence of surplus lines coverage that are issued by an unauthorized insurer pursuant to this article and that are issued for delivery to the insured shall contain a conspicuously stamped or written notice in bold-faced type that states one of the following:

1. If the surplus lines policy and any evidence of coverage are issued by a surplus lines insurer that is not a domestic surplus lines insurer:

Pursuant to section 20-401.01, subsection B, paragraph 1, Arizona Revised Statutes, this policy is issued by an insurer that does not possess a certificate of authority from the director of the Arizona department of insurance and financial institutions. If the insurer that issued this policy becomes insolvent, insureds or claimants will not be eligible for insurance guaranty fund protection pursuant to title 20, Arizona Revised Statutes.

2. If the surplus lines policy and any evidence of coverage are issued by a domestic surplus lines insurer:

If the insurer that issued this policy becomes insolvent, insureds or claimants will not be eligible for insurance guaranty fund protection pursuant to title 20, Arizona Revised Statutes.

C. A surplus lines broker may charge and receive a fee in addition to the premium for services provided in the transaction of surplus lines insurance if before effecting any coverage both of the following conditions are met:

1. The service fees and the specific services for which the fees are charged are disclosed to the insured or the insured's representative and are agreed to in writing by the insured or the insured's representative.

2. The taxes prescribed in section 20-416 are paid on any fees charged to the insured.

§ 20-411 Licensing of surplus lines broker; examination

A. A person shall not act as a surplus lines broker in this state on behalf of an insured whose home state is Arizona unless the person has a current surplus lines broker license issued by the director.

B. Any individual who is a resident of this state and who is licensed as a resident insurance producer authorized for property or casualty insurance in this state may also be licensed as a resident surplus lines broker if the director determines that the insurance producer is competent. The director shall prescribe and furnish application forms.

C. Each individual applicant for an original license as a resident surplus lines broker or for renewal of a resident surplus lines broker license who has not previously taken and passed a surplus lines broker license examination in this state shall take and pass to the director's satisfaction a written examination given by or under the supervision of the director. The examination shall reasonably test the applicant's knowledge of surplus lines insurance and the legal responsibilities of a surplus lines broker.

D. The director may issue a resident surplus lines broker license to any business entity that is licensed as a resident property or casualty insurance producer in this state and that satisfies all of the requirements prescribed by section 20-285, subsections C and D.

E. At least one individual in each office or place where surplus lines insurance is transacted in this state shall be licensed pursuant to this title as an insurance producer authorized for property or casualty insurance and shall be licensed pursuant to this article as a surplus lines broker.

F. The license prescribed in this section shall expire and be subject to renewal coincidental to, and in the same manner as, other insurance license authority as prescribed in section 20-289. The director shall charge the surplus lines broker license fee prescribed in section 20-167, except that, from and after June 30, 2005, a licensee adding surplus lines broker authority to an existing insurance license shall be charged one-half the surplus lines broker license fee if less than two years remain in the term of the existing insurance license as of the date the director receives the application to add surplus lines broker authority to the existing insurance license.

G. To the extent not inconsistent with this article, section 20-281, section 20-283, subsection B, paragraph 6, section 20-286, subsection C and sections 20-287, 20-289, 20-291, 20-292, 20-295, 20-296, 20-297, 20-298, 20-299, 20-300, 20-301 and 20-302 apply to surplus lines brokers.

H. For the purposes of implementing the nonadmitted and reinsurance reform act of 2010 (15 United States Code section 8201), the director shall participate in the national insurance producer database of the national association of insurance commissioners or any other equivalent national database for the licensure and license renewal of surplus lines brokers on and after July 21, 2012.

§ 20-411.01 Licensing of Mexican insurance surplus lines broker

A. Any resident or nonresident licensed insurance producer that maintains an office in this state may be licensed as a Mexican insurance surplus lines broker to transact insurance business as prescribed in section 20-422 if the director determines that the insurance producer is competent and the insurance producer complies with all of the requirements of section 20-411 except for section 20-411, subsection C. The director shall prescribe and provide application forms.

B. Any surplus lines broker licensed pursuant to section 20-411 or 20-411.02 may transact the insurance business prescribed in section 20-422 without being licensed under this section.

§ 20-411.02 Nonresident surplus lines broker; remittance of tax on insurance procured out of state

A. The director shall license a nonresident person as a surplus lines broker in accordance with section 20-287.

B. Except as otherwise provided, a nonresident surplus lines broker is subject to this title as if the broker were licensed as a resident.

C. A license from this state is not required for a nonresident who procures surplus lines insurance in another state in which the nonresident is licensed solely because of the allocation of premium to this state to determine the surplus lines tax due to this state pursuant to section 20-416, subsection E. The nonresident shall remit the tax according to this article. The director shall prescribe the form of any reports or statements that are necessary for the nonresident to remit the tax.

§ 20-412 Acceptance of surplus lines business by broker

A licensed surplus lines broker may accept or place surplus lines business from any insurance producer licensed in this state for the kind of insurance involved and may compensate the insurance producer therefor. The broker shall have the right to receive from the insurer the customary commission.

§ 20-413 Placing of surplus lines coverage; endorsement by broker; list of unauthorized insurers; removal from list; definition

A. A surplus lines broker shall not knowingly place any surplus lines coverage on behalf of an insured whose home state is Arizona with an unauthorized insurer, Lloyd's association, insurance exchange or syndicate of an insurance exchange that does not meet the minimum financial requirements of this section or that is declared by the director to be in a hazardous financial condition, improperly managed or unreliable in insurance transactions. A surplus lines broker may place surplus lines coverage with a syndicate of an unauthorized insurance exchange even if another syndicate of the insurance exchange is declared by the director to be in a hazardous financial condition, improperly managed or unreliable in insurance transactions, as long as that syndicate does not participate in insuring the risk and unless the declaration of the director specifies that the insurance exchange shall not accept surplus lines placements.

B. An unauthorized foreign insurer authorized to transact insurance on an admitted or surplus lines basis in at least one other state shall possess a minimum capital and surplus that equals the greater of either the minimum capital and surplus requirements imposed by article 1 of this chapter or fifteen million dollars.

C. An unauthorized alien insurer other than a title insurer shall possess minimum capital and surplus of at least fifteen million dollars and shall maintain within the United States in public depositories or trust institutions approved by the director assets in the amount of two million five hundred thousand dollars. The director may require the unauthorized alien insurer to maintain a larger deposit if the director determines that the public interest reasonably requires a larger deposit. A broker shall not knowingly place any insurance with the unauthorized alien insurer until the insurer complies with the director's requirement to maintain a larger deposit. Notwithstanding the requirements of this subsection, a surplus lines broker may place insurance with an alien insurer that is listed on the quarterly listing of alien insurers maintained by the national association of insurance commissioners international insurers department.

D. Any unauthorized Lloyd's association or any similar association of individual or incorporated insurers under a common administration shall maintain a trust fund in the United States of at least one hundred million dollars as joint and several security for all United States policyholders of any member of the association. The director may require the association to maintain a larger fund if the director determines that the public interest reasonably requires a larger fund. A broker shall not knowingly place any insurance with the association until the association complies with the director's requirement to maintain a larger fund.

E. An unauthorized insurance exchange authorized to transact insurance on an admitted or surplus lines basis in at least one other state shall possess minimum aggregate capital and surplus of at least fifty million dollars. Each syndicate of the insurance exchange with which a risk is to be placed shall possess minimum aggregate capital and surplus of at least four million dollars until December 31, 1996. Beginning January 1, 1997 each syndicate with which a risk is to be placed shall possess minimum capital and surplus of at least five million dollars. The insurance exchange shall maintain a deposit of at least two million five hundred thousand dollars in public custody in trust, in part, for the purpose of protecting all of the policyholders of the insurance exchange. Each syndicate of an insurance exchange qualified to transact surplus lines insurance in this state shall file with the director on or before June 1 an annual statement for the preceding year in a form prescribed by the national association of insurance commissioners. The annual statement is in addition to any other document required of the insurance exchange by the director.

F. If the surplus lines broker delivers a certificate in a form prescribed by the director, it is prima facie evidence of the insurer's compliance with the financial requirements of this section. The certificate shall state the names of the public officials or other persons who have supervision over the insurer in any other state and shall certify the amount of capital and surplus that the insurer possesses and the amount of the trust deposit that the insurer maintains, as determined from the records and knowledge of the public officials or other persons, together with any supporting documentation that the director requires. The certifying surplus lines broker of an alien insurer may deliver other evidence acceptable to the director to establish that the alien insurer meets the financial requirements of this section. The certifying surplus lines broker may withdraw the certificate by providing written notice of intent to withdraw to the director and the affected insurer. The withdrawal is not effective until forty-five days after delivery of the notice to all parties. The withdrawal is not grounds for removal from the list pursuant to subsection H if, before the withdrawal becomes effective, another licensed surplus lines broker delivers to the director a replacement certificate based on the qualifying documentation already on file with the department.

G. The director may periodically publish a list of unauthorized insurers that may write surplus lines insurance in this state established on the basis of documentation provided to the director pursuant to this section. The director may mail a copy of the list to each licensed surplus lines broker at the last address on the records of the department. This subsection is not deemed to require the director to determine the actual financial condition or claims practices of any unauthorized insurer, and the appearance of an unauthorized insurer on the list indicates only that the insurer appears to be financially sound and to have satisfactory claims practices. A broker shall restrict all surplus lines business placed by the broker with an unauthorized insurer to those insurers qualified with the director as provided in this section.

H. The director may refuse to add an insurer to the list established pursuant to subsection G or may remove an insurer from that list if the director believes that the insurer:

1. Is in a hazardous financial condition.

2. No longer meets the requirements of this article.

3. Does not have the endorsement of a surplus lines broker pursuant to subsection F.

4. Does not comply with all applicable provisions of this title.

5. Is improperly managed.

6. Is unreliable in insurance transactions.

I. In addition to any other penalty provided by law, if a surplus lines broker's license is revoked for a violation of this section, the director shall not license the broker again within a period of two years thereafter.

J. For the purposes of subsections F, G and H, "insurer" means an unauthorized insurer, Lloyd's association, insurance exchange or syndicate of an insurance exchange.

§ 20-414 Records of surplus lines brokers

Each surplus lines broker shall keep in the broker's principal place of business a full and true record of each surplus lines contract procured by the broker under the license issued pursuant to this article. The director may examine the record at any time within three years after the expiration or cancellation date of the insurance policy. The record shall include the following items as applicable:

1. Name and address of the insurer.

2. Name and address of the insured.

3. Amount of insurance.

4. Gross premium charged.

5. Return premium paid, if any.

6. Rate of premium charged on the several items of coverage.

7. Effective date and terms of the contract.

8. Brief general description of the risks insured against and the property insured.

§ 20-415 Statement of surplus lines insurance business transacted by broker; reporting periods; exception

A. Each surplus lines broker shall file with the director a statement of all surplus lines insurance business covering Arizona risks transacted by the broker during the period for which the statement is being filed. The statement shall be on a form prescribed by the director and shall show:

1. Gross amount of each kind of insurance transacted.

2. Aggregate gross premiums charged.

3. Aggregate of return premiums paid to insureds.

4. Aggregate of net premiums.

5. Such additional information as may reasonably be required by the director.

B. The statement required by subsection A of this section is due on or before February 15 of each year for the preceding July through December and on or before August 15 of each year for the preceding January through June for business covering Arizona single-state risks, except that for multistate transactions occurring on or before December 31, 2014, the statement shall be due on or before the date specified in subsection D of this section.

C. If a clearinghouse is established and is in operation and if the director enters into a multistate agreement or compact pursuant to section 20-416.01, each surplus lines broker shall file quarterly, with the clearinghouse responsible for administering the compact or multistate agreement, a notarized statement of all surplus lines insurance business covering multistate risks transacted by the broker on behalf of insureds whose home state is Arizona during the calendar quarter for which the statement is being filed. The statement shall be on a form prescribed by the clearinghouse and shall include all information required by the clearinghouse. A facsimile of the original notarized statement may be submitted in lieu of the original notarized statement. The broker shall maintain the original notarized statement for a period of six years after the calendar year in which the statement was filed.

D. The statement required by subsection C of this section is due on or before February 15 for the quarter ending the preceding December 31, May 15 for the quarter ending the preceding March 31, August 15 for the quarter ending the preceding June 30 and November 15 for the quarter ending the preceding September 30.

E. A surplus lines broker is not responsible for reporting any fees or remitting any premium taxes or stamping fees due on fees charged by an insurance producer in connection with the transaction of surplus lines insurance.

§ 20-416 Tax on surplus lines

A. On or before the due date prescribed in section 20-415, each surplus lines broker shall remit to the state treasurer through the director a tax on the premiums, exclusive of sums collected to cover federal and state taxes, examination fees and stamping fees collected pursuant to section 20-167, on surplus lines insurance covering Arizona single-state risks subject to tax transacted by the broker during the preceding reporting period, as shown by the statement of surplus lines business filed with the director.

B. On or before the due date prescribed in section 20-415, each surplus lines broker shall remit to the clearinghouse responsible for administering the compact or multistate agreement entered into by the director pursuant to section 20-416.01 a tax on the premiums, exclusive of the sums collected to cover federal and state taxes, examination fees and stamping fees collected pursuant to section 20-167, on surplus lines insurance covering multistate risks subject to tax for insureds whose home state is Arizona transacted by the broker during the preceding reporting period, as shown by the statement of surplus lines business filed with the clearinghouse.

C. The tax required by subsections A and B of this section is at the rate of three percent of the gross premiums, including policy fees other than stamping fees prescribed in section 20-167, and shall not be applied to premiums returned on account of cancellation or reduction of premium and shall not be applied to gross premiums and returned premiums on business exempted from surplus lines provisions under section 20-420. The surplus lines broker shall collect the tax from the insured in addition to the full amount of the gross premium charged by the insurer for the insurance. The surplus lines broker shall return the tax on any portion of the premium unearned at the termination of the insurance policy to the policyholder. The surplus lines broker is prohibited from absorbing the tax and from rebating, for any reason, any part of the tax or commission.

D. Notwithstanding section 20-415 and subsection A of this section, if a surplus lines broker fails to timely renew the license held by the broker to transact surplus lines insurance and the broker's license is revoked by order of the director or the director accepts the consent to voluntary termination of the license, the broker shall file a statement of surplus lines business from the end of the last reporting period covered by the statement filed by the broker through the date the license was last valid and shall remit all outstanding surplus lines taxes to the director. The broker shall file the statement of surplus lines business and shall remit any outstanding surplus lines taxes within thirty days after the nonrenewal, revocation or voluntary termination of the license.

E. Except as provided in subsection F of this section, for the purpose of determining the surplus lines tax, the total premium charged for surplus lines insurance placed in a single transaction with one underwriter or group of underwriters, whether in one or more policies, shall be allocated to this state in the proportion as the total premium on the insured properties or operations in this state, computed on the exposure in this state on the basis of any single standard rating method in use in all states or countries where the insurance applies, bears to the total premium so computed in all the states or countries.

F. The surplus lines tax on insurance on motor transit operations conducted between this and other states is payable on the total premium charged on all surplus lines insurance less the portion of the premium determined as provided in subsection E of this section charged for operations in other states taxing the premium of an insured maintaining its headquarters office in this state or the premium for operations outside of this state of an insured maintaining its headquarters office outside of this state and a branch office in this state.

G. Such tax shall be apportioned in the manner provided by section 20-224, subsection D.

H. All surplus lines taxes collected on Arizona single-state risks pursuant to this section and section 20-416.01 are monies that belong to this state and constitute a debt to this state. All surplus lines tax on coverage procured for an insured whose home state is Arizona that would otherwise be payable to another state as the other state's portion of a multistate risk shall constitute monies of this state and a debt to this state if the other state has not entered into a compact or multistate agreement to which Arizona is a party to effectuate the nonadmitted and reinsurance reform act of 2010 (15 United States Code section 8201).

I. From and after December 31, 2019, the director may require that reports and payments under this section and sections 20-408, 20-416.01 and 20-417 be submitted electronically. If the director requires electronic submission, the director shall include on the department's official website a list of one or more acceptable third-party services through which a surplus lines broker must submit the reports and payments.

§ 20-416.01 Collection and payment of tax on surplus lines; multistate agreement

A. In accordance with the nonadmitted and reinsurance reform act of 2010, the director may enter into a compact or multistate agreement to provide for the reporting, payment, collection and allocation of taxes imposed pursuant to sections 20-401.07 and 20-416 on surplus lines insurance covering multistate risks if, after a hearing conducted pursuant to section 20-161, it is determined that entering into a compact or multistate agreement is in the best interests of this state. In determining whether entering into a compact or multistate agreement is in the best interests of this state, the following factors shall be considered:

1. The impact on the state's gross receipt of premium taxes, if any.

2. The regulatory burden and costs placed on insurance companies, surplus lines brokers and insurance agents doing business in this state.

3. The cost impact on insureds resulting from any regulatory requirements attributable to a compact or multistate agreement, if any.

4. Other factors as may be raised by the director or any other interested party.

B. Taxes imposed pursuant to sections 20-401.07 and 20-416 on unauthorized insurance covering Arizona single-state risks shall not be covered by or payable through any compact or multistate agreement entered into by the director pursuant to subsection A of this section.

C. If a clearinghouse is not established or otherwise in operation or if the director does not enter into a multistate agreement or compact pursuant to subsection A of this section, any statements and taxes otherwise payable to a clearinghouse pursuant to this article shall be filed with the director or with a voluntary domestic organization of surplus lines brokers with which the director has contracted to accept reports pursuant to section 20-167.

D. The director may adopt reasonable rules to effectuate any provision of the nonadmitted and reinsurance reform act of 2010 (15 United States Code section 8201).

§ 20-417 Failure to remit tax; civil penalty; exception

A. If any surplus lines broker fails to remit the surplus lines tax provided for by section 20-416, the broker is liable for a civil penalty of not more than $25 for each additional day of delinquency. The director may collect the tax by distraint and may recover the civil penalty by an action in the name of this state against the insured and the surplus lines broker. All civil penalties are payable into the general fund of this state.

B. If the director requires the surplus lines tax to be paid electronically through a designated third-party service pursuant to section 20-416, a penalty does not accrue for any payment of tax or interest that is late due to delays caused by the third-party service.

§ 20-418 Denial, revocation or suspension of license; civil penalty

A. The director may deny or suspend for not more than twelve months, revoke or refuse to renew any surplus lines broker's license and, in addition or in lieu thereof, may levy a civil penalty and order restitution to any injured party:

1. If the broker fails to comply with any requirement of this article.

2. For any of the causes for which an insurance producer's license may be denied, revoked or suspended.

B. The procedures provided by this title for the denial, suspension or revocation of an insurance producer's license apply to denial, suspension or revocation of a surplus lines broker's license.

§ 20-419 Legal process against surplus lines insurer

A. Every unauthorized nonresident insurer issuing or delivering a surplus lines policy through a surplus lines broker in this state is conclusively deemed to have irrevocably appointed the director as its agent for acceptance of service of all legal process issued in this state in any action or proceeding under or arising out of the policy, and service of the process on the director is lawful personal service on the nonresident insurer.

B. Service of process in an action or proceeding against an unauthorized resident insurer issuing or delivering a surplus lines policy through a surplus lines broker in this state is valid if served on any person within this state who transacts an insurance business in this state on behalf of the insurer.

C. Each surplus lines policy shall contain a provision stating the substance of subsection A or B of this section, whichever is applicable, and designating the person to whom process shall be mailed as provided in subsection D of this section.

D. Duplicate copies of legal process against a nonresident insurer shall be served on the director, and at the time of service the plaintiff shall pay to the director the service of process fee prescribed in section 20-167, taxable as costs in the action. The director shall immediately mail one copy of the process served to the person designated by the nonresident insurer in the policy for the purpose, by certified mail, return receipt requested. Legal process against a resident insurer shall be served on any person within this state who transacts an insurance business within this state on behalf of the insurer. The plaintiff shall mail notice of service and a copy of the process to the person designated by the resident insurer in the policy for the purpose, by certified mail, return receipt requested. An insurer shall have forty days after the date of mailing within which to plead, answer or otherwise defend the action.

§ 20-420 Exemptions from surplus lines provisions

A. The sections of this article relating to surplus lines coverages do not apply to reinsurance or to the following classes of insurance placed by licensed insurance producers of this state:

1. Ocean marine and foreign trade insurance.

2. Insurance on subjects that are located, resident or to be performed wholly outside this state, or on vehicles or aircraft owned and principally garaged outside this state.

3. Insurance for an insured that is a federally recognized Indian tribe or who is a member of a federally recognized Indian tribe on subjects of insurance that are located, resident or to be performed wholly within the boundaries of a federally recognized Indian reservation.

4. Insurance on property or operations of railroads engaged in interstate commerce.

B. Any insurance producer that places any of the classes of insurance prescribed in subsection A of this section with an unauthorized insurer shall keep a record of each coverage in detail as required of surplus lines insurance pursuant to section 20-414. The insurance producer shall preserve the record for not less than three years after the expiration or cancellation date of the insurance policy and shall make the record available in this state and open to the examination of the director.

§ 20-421 Access of director to records of person insured by unauthorized insurer

Upon the director's request any person in this state who is the insured under any policy issued by an unauthorized insurer upon a subject of insurance resident, located or to be performed in this state at the time the policy was issued, shall produce for examination all policies and other documents evidencing and relating to the insurance, and shall disclose the amount of the gross premiums paid or agreed to be paid for the insurance, through whom the insurance was procured, and such other information relative to the placing of the insurance as may reasonably be required.

§ 20-422 Alien insurance for coverage in Mexico

A. A person shall not solicit or accept applications in this state for insurance or collect a commission on a policy that is to be effective in Mexico and only outside the geographical limits of this state and that is to be issued by an alien insurer or insurers not authorized to transact insurance in this state, unless that person is licensed pursuant to section 20-411, 20-411.01 or 20-411.02 or any agent or employee of that licensed person or any other authorized insurance producer in this state provided that the insurance producer obtains the coverage through that licensed person.

B. Except for sections 20-411, 20-411.01, 20-411.02, 20-414 and 20-418, the insurance prescribed in this section is not subject to this article.

C. Any policy and any evidence of coverage that are issued by an alien insurer and that are issued pursuant to this section for delivery to the insured in this state shall contain a conspicuously stamped or written notice in bold-faced type that states:

This policy is issued by an insurance company that is not regulated by the Arizona department of insurance and financial institutions. The insurance company may not provide claims service and may not be subject to service of process in Arizona. If the insurance company becomes insolvent, insureds or claimants will not be eligible for protection under Arizona law.

§ 20-423 Voluntary domestic organization of surplus lines brokers; membership; stamping fee collection; meetings; definition

A. A voluntary domestic organization of surplus lines brokers that contracts with the director pursuant to section 20-167, subsection E shall be incorporated in this state as a nonprofit corporation. A surplus lines broker who is licensed and in good standing in this state may be a member in the organization if the broker pays any required membership fee and dues required to be paid by all members.

B. The organization may collect stamping fees pursuant to section 20-167 from any of the following:

1. A member of the organization.

2. A licensed surplus lines broker who is not a member of the organization.

3. A person who is no longer a licensed surplus lines broker if the stamping fee is paid in connection with transactions that the person effectuated while licensed as a surplus lines broker.

C. The organization shall hold an annual meeting of its members and may hold special meetings of its members. Members may participate in annual and special member meetings through the use of any means of communication if the communication allows all members participating in the meeting to simultaneously hear each other during the meeting and the organization provides a meeting notice that specifies how members can participate. Any member participating by this alternate means of communication is deemed to be present in person at the meeting for purposes of determining a quorum and voting and for any other purpose authorized or required by law.

D. Two percent of the total membership of the organization present in person or by proxy and entitled to vote at a meeting constitutes a quorum for the transaction of business at the meeting.

E. For the purposes of this section, "stamping fee" has the same meaning prescribed in section 20-167.

Article 5.1 Life Insurance Illustrations

§ 20-431 Definitions

In this article, unless the context otherwise requires:

1. "Actuarial standards board" means the board that is established by the American academy of actuaries to develop and adopt standards of actuarial practice.

2. "Basic illustration" means a ledger or proposal that is used in the sale of a life insurance policy and that shows both guaranteed and nonguaranteed elements.

3. "Contract premium":

(a) Means the gross premium that is required to be paid under a fixed premium policy.

(b) Includes the premium for a rider for which benefits are shown in an illustration.

4. "Currently payable scale" means a scale of nonguaranteed elements in effect for a policy form as of the preparation date of the illustration or declared to become effective within the next ninety-five days.

5. "Disciplined current scale":

(a) Means a scale of nonguaranteed elements that constitutes a limit on illustrations currently being illustrated by an insurer and that is reasonably based on recent, actual historical experience as certified annually by an illustration actuary designated by the insurer.

(b) Includes reliance on further guidance in determining the disciplined current scale as contained in standards by the actuarial standards board if the standards comply with all of the following:

(i) Are consistent with this article.

(ii) Limit a disciplined current scale to reflect only actions that have already been taken or events that have already occurred.

(iii) Do not allow a disciplined current scale to include any projected trends of improvements in experience or any assumed improvements in experience beyond the illustration date.

(iv) Do not allow assumed expenses to be less than the minimum-assumed expenses.

6. "Generic name" means a short title descriptive of the policy being illustrated such as "whole life", "term life" or "flexible premium adjustable life".

7. "Guaranteed elements" means the premiums, benefits, values, credits or charges under a policy of life insurance that are guaranteed and that are determined when the policy is issued.

8. "Illustrated scale" means a scale of nonguaranteed elements currently being illustrated that is not more favorable to the policyowner than the lesser of either of the following:

(a) The disciplined current scale.

(b) The currently payable scale.

9. "Illustration" means a presentation or depiction that includes nonguaranteed elements of a life insurance policy over a period of years and that is a basic illustration, supplemental illustration or in-force illustration.

10. "Illustration actuary" means an actuary who meets the requirements prescribed in section 20-431.08 and who certifies the illustrations based on the standard of practice adopted by the actuarial standards board.

11. "In-force illustration" means an illustration that is furnished at any time after the life insurance policy that it depicts has been in force for one year or more.

12. "Lapse-supported illustration" means an illustration of a policy form that fails to meet the definition of self-supporting illustration under a modified persistency rate assumption that uses persistency rates underlying the disciplined current scale for the first five years and one hundred percent policy persistency thereafter.

13. "Minimum-assumed expenses" means the minimum expenses that may be used in calculating the disciplined current scale for a policy form and for which the insurer may annually designate one of the following methods to determine assumed expenses for all policy forms:

(a) Fully allocated expenses, which must be used if a generally recognized expense table is not approved.

(b) Marginal expenses, which may be used only if the marginal expenses are greater than a generally recognized expense table.

(c) A generally recognized expense table based on fully allocated expenses that represents a significant portion of insurance companies and that is approved by the director.

14. "Nonguaranteed elements" means the premiums, benefits, values, credits or charges under a policy of life insurance that are not guaranteed or not determined at issue.

15. "Nonterm group life" means a group policy or individual policies of life insurance that are issued to members of an employer group or other allowed group to which all of the following apply:

(a) The employer or other group representative selects every plan of coverage.

(b) Some portion of the premium is paid by the group or through payroll deduction.

(c) Group underwriting or simplified underwriting is used.

16. "Policyowner" means the owner who is named in the policy or the certificate holder in the case of a group policy.

17. "Policyowner value" includes the cash surrender values and other illustrated benefit amounts that are available at the policyowner's election.

18. "Premium outlay" means the amount of premium that is assumed to be paid by the policyowner or other premium payor out of pocket.

19. "Self-supporting illustration" means an illustration of a policy form for which it can be demonstrated that when using experience assumptions underlying the disciplined current scale for all illustrated points in time on or after the fifteenth policy anniversary or the twentieth policy anniversary for second-or-later-to-die policies, or on policy expiration if sooner, the accumulated value of all policy cash flows equals or exceeds the total policyowner value available.

20. "Supplemental illustration" means an illustration that is furnished in addition to a basic illustration and that may be presented in a different format from the basic illustration but that may depict only a scale of nonguaranteed elements as provided in the basic illustration.

§ 20-431.01 Applicability

A. This article applies to all group and individual life insurance policies and certificates except:

1. Variable life insurance.

2. Individual and group annuity contracts.

3. Credit life insurance.

4. Life insurance policies with no illustrated death benefits on any individual exceeding $10,000.

B. If an insurer markets a policy form with an illustration that is subject to the requirements of this article, the insurer is not required to provide a policy summary to the applicant or the policyowner as otherwise required pursuant to administrative rule.

§ 20-431.02 Group and individual life insurance policy forms; identification for illustrations

A. Each insurer that markets policies shall notify the director whether a policy form will be marketed with or without an illustration. For all policy forms that are actively marketed on January 1, 2026, the insurer shall identify those policy forms and whether an illustration will be used. For all policy forms that are filed after January 1, 2026, the insurer shall make this identification at the time of filing. An insurer may change an identification by providing notice to the director.

B. If the insurer identifies a policy form as one to be marketed without an illustration, any use of an illustration for any policy using that form before the first policy anniversary is prohibited.

C. If the insurer identifies a policy form as one to be marketed with an illustration, a basic illustration shall be prepared and delivered in accordance with this article, except that a basic illustration does not need to be provided to individual members of a group or to individuals who are insured under multiple lives coverage that is issued to a single applicant unless the coverage is marketed to these individuals. For a group life insurance policy or a policy issued to a single applicant on multiple lives, the insurer may furnish either an individual or composite illustration representing coverage on the lives of members of the group or the multiple lives covered.

D. The insurer shall include a quote with the enrollment materials that are provided to potential enrollees of nonterm group life insurance policies that are subject to this article. The quote shall show potential policy values for sample ages and policy years on a guaranteed and nonguaranteed basis appropriate to the group and the coverage. This quote is not considered an illustration for the purposes of this article, but all information provided shall be consistent with the illustrated scale. The insurer shall provide a basic illustration at the delivery of the certificate to enrollees for nonterm group life insurance who have enrolled in more than the minimum premium necessary to provide pure death benefit protection and shall make the basic illustration available to any nonterm group life enrollee on request.

§ 20-431.03 Life insurance policy illustrations; requirements; prohibitions

A. An illustration that is used in the sale of a life insurance policy shall be clearly labeled life insurance illustration and shall contain all of the following:

1. The name of the insurer that issued the policy.

2. The name and business address of the producer or the insurer's authorized representative, if any.

3. The name, age and sex of the proposed insured, unless a composite illustration is allowed under this article.

4. The underwriting or rating classification on which the illustration is based.

5. The generic name of the policy, the company product name, if different from the generic name of the policy, and the form number.

6. The initial death benefit.

7. Dividend option election or application of nonguaranteed elements, if applicable.

B. When using an illustration in the sale of a life insurance policy, an insurer or its producers or other authorized representatives may not:

1. Represent the policy as anything other than a life insurance policy.

2. Use or describe nonguaranteed elements in a manner that is misleading or that has the capacity or tendency to mislead.

3. State or imply that the payment or amount of nonguaranteed elements is guaranteed.

4. Use an illustration that does not comply with this article.

5. Use an illustration that depicts policy performance that is more favorable to the policyowner than that produced by the illustrated scale.

6. Provide an applicant with an incomplete illustration.

7. Represent in any way that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact.

8. Use the term vanish or vanishing premium or a similar term that implies the policy becomes paid up to describe a plan for using nonguaranteed elements to pay a portion of future premiums.

9. Except for policies that can never develop nonforfeiture values, use a lapse-supported illustration.

10. Use an illustration that is not a self-supporting illustration.

C. If an interest rate that is used to determine the illustrated nonguaranteed elements is shown, the interest rate may not be greater than the earned interest rate underlying the disciplined current scale.

§ 20-431.04 Basic illustrations; format; narrative summary; numeric summary; tabular detail; requirements

A. The format of a basic illustration shall conform with the following requirements:

1. The basic illustration shall be labeled with the date on which the illustration was prepared.

2. Each page, including any explanatory notes or pages, shall be numbered. The page numbers must show the relationship to the total number of pages in the illustration.

3. The assumed dates of payment receipt and benefit payout within a policy year shall be clearly identified.

4. If the age of the proposed insured is shown as a component of the tabular detail, the proposed insured's age must be shown as the issue age plus the number of years the policy is assumed to have been in force.

5. The assumed payments on which the illustrated benefits and values are based shall be identified as premium outlay or contract premium, as applicable. For policies that do not require a specific contract premium, the illustrated payments shall be identified as premium outlay.

6. Guaranteed death benefits and values available on surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.

7. If the illustration shows any nonguaranteed elements, those elements cannot be based on a scale more favorable to the policyowner than the insurer's illustrated scale at any duration. These elements shall be clearly labeled nonguaranteed.

8. The guaranteed elements, if any, shall be shown before any nonguaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes the nonguaranteed elements only.

9. The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and shall be shown in close proximity to the corresponding value that is available on surrender.

10. The value that is available on surrender shall be identified by the name this value is given in the policy being illustrated and shall be the amount that is available to the policyowner in a lump sum after deducting surrender charges, policy loans and policy loan interest, as applicable.

11. Illustrations may show policy benefits and values in graphic or chart form in addition to tabular form.

12. Any illustration of nonguaranteed elements shall be accompanied by a statement indicating all of the following:

(a) The benefits and values are not guaranteed.

(b) The assumptions on which the nonguaranteed elements are based are subject to change by the insurer.

(c) The actual results may be more or less favorable.

13. If the illustration shows that the premium payor may have the option to allow policy charges to be paid using nonguaranteed values, the illustration must clearly disclose that a charge continues to be required and that, depending on actual results, the premium payor may need to continue or resume premium outlays. A similar disclosure shall be made for premium outlay of lesser amounts or shorter durations than the contract premium. If a contract premium is due, the premium outlay display may not be left blank or show a zero unless the premium outlay display is accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.

14. If the applicant plans to use dividends or policy values, guaranteed or nonguaranteed, to pay all or a portion of the contract premium or policy charges or for any other purpose, the illustration may reflect those plans and the impact on future policy benefits and values.

B. A basic illustration shall contain a narrative summary that includes the following:

1. A brief description of the policy being illustrated that includes a statement that the policy is a life insurance policy.

2. A brief description of the premium outlay or contract premium, as applicable, for the policy. For a policy that does not require payment of a specific contract premium, the illustration shall show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to maximum premiums allowable to qualify as a life insurance policy under the applicable provisions of the internal revenue code.

3. A brief description of each policy feature, rider or option, guaranteed or nonguaranteed, that is shown in the basic illustration and the impact they may have on the benefits and values of the policy.

4. An identification and brief definition of column headings and key terms that are used in the illustration.

5. A statement that contains in substance the following: "this illustration assumes that the currently illustrated nonguaranteed elements will continue unchanged for all years shown, which is likely not to occur. The actual results may be more or less favorable than the ones shown in this illustration."

C. Following the narrative summary, a basic illustration shall include a numeric summary of the death benefits and values and the premium outlay and contract premium, as applicable. For a policy that provides for a contract premium, the guaranteed death benefits and values shall be based on the contract premium. This summary shall be shown for at least policy years five, ten and twenty and at age seventy, if applicable, on the three bases listed in subsection D of this section. For multiple life policies, the numeric summary shall show policy years five, ten, twenty and thirty.

D. For the purposes of the numeric summary under subsection C of this section, all of the following apply:

1. The three bases include:

(a) Policy guarantees.

(b) Insurer's illustrated scale.

(c) Insurer's illustrated scale used but with the nonguaranteed elements reduced as follows:

(i) Dividends at fifty percent of the dividends that are contained in the illustrated scale used.

(ii) Nonguaranteed credited interest at rates that are the average of the guaranteed rates and the rates that are contained in the illustrated scale used.

(iii) All nonguaranteed charges, including term insurance charges, mortality and expense charges, at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.

2. If coverage ceases before the policy matures or when the policyowner reaches one hundred years of age, the year in which coverage ceases shall be identified for each of the three bases listed in paragraph 1 of this subsection.

E. Statements that are substantially similar to the following shall be included on the same page as the numeric summary and shall be signed by the applicant or, if an illustration is provided at the time of delivery, by the policyholder:

1. A statement to be signed and dated by the applicant or policyowner that states: "I have received a copy of this illustration and understand that any nonguaranteed elements illustrated are subject to change and could be either higher or lower. The agent has told me they are not guaranteed."

2. A statement to be signed and dated by the insurance producer or other authorized representative of the insurer that states: "I certify that this illustration has been presented to the applicant and that I have explained that any nonguaranteed elements illustrated are subject to change. I have made no statements that are inconsistent with the illustration."

F. All of the following tabular details apply to a basic illustration:

1. The basic illustration shall include all of the following for at least each policy year from year one to ten and for every fifth policy year thereafter until the insured reaches one hundred years of age, policy maturity or final expiration and, except for term insurance beyond the twentieth year, for any year in which the premium outlay and contract premium, if applicable, is subject to change:

(a) The premium outlay and mode the applicant plans to pay and the contract premium, as applicable.

(b) The corresponding guaranteed death benefit, as provided in the policy.

(c) The corresponding guaranteed value that is available on surrender, as provided in the policy.

2. For a policy that provides for a contract premium, the guaranteed death benefit and value that is available on surrender shall correspond to the contract premium.

3. Nonguaranteed elements may be shown if the nonguaranteed elements are described in the contract. An illustration for a policy for which the insurer intends to credit terminal dividends, the nonguaranteed elements may be shown if the insurer's current practice is to pay terminal dividends. If any nonguaranteed elements are shown, the nonguaranteed elements must be shown at the same durations as the corresponding guaranteed elements, if any. If a guaranteed benefit or value is not available at any duration for which a nonguaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.

§ 20-431.05 Supplemental illustrations; requirements

A. A supplemental illustration may be provided if:

1. The supplemental illustration is appended to, accompanied by or preceded by a basic illustration that complies with this article.

2. The nonguaranteed elements shown are not more favorable to the policyowner than the corresponding elements based on the scale that is used in the basic illustration.

3. The supplemental illustration contains the same statement required of a basic illustration that nonguaranteed elements are not guaranteed.

4. For a policy that has a contract premium, the contract premium underlying the supplemental illustration is equal to the contract premium shown in the basic illustration. For policies that do not require a contract premium, the premium outlay underlying the supplemental illustration must be equal to the premium outlay shown in the basic illustration.

B. The supplemental illustration shall include a notice referring to the basic illustration for guaranteed elements and other important information.

§ 20-431.06 Delivery of illustrations; record retention; requirements

A. If a basic illustration is used by an insurance producer or other authorized representative of the insurer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this article, shall be submitted to the insurer at the time of policy application. A copy shall also be provided to the applicant.

B. If the policy is issued other than as applied for, a revised basic illustration that conforms to the policy as issued shall be sent with the policy. The revised illustration shall conform to the requirements of this article, shall be labeled revised illustration and shall be signed and dated by the applicant or policyowner and producer or other authorized representative of the insurer not later than the time the policy is delivered. A copy shall be provided to the insurer and the policyowner.

C. If an illustration is not used by an insurance producer or other authorized representative in the sale of a life insurance policy or if the policy is applied for other than as illustrated, the producer or authorized representative shall certify to that effect in writing on a form provided by the insurer. On the same form, the applicant shall acknowledge that an illustration conforming to the policy applied for was not provided and shall further acknowledge an understanding that an illustration conforming to the policy as issued will be provided not later than at the time of policy delivery. The applicant shall submit this form to the insurer at the time of policy application.

D. If the policy is issued, a basic illustration that conforms to the policy as issued shall be sent with the policy and signed in accordance with the requirements of this section not later than the time the policy is delivered. A copy shall be provided to the insurer and the policyowner.

E. If the insurer mails the basic illustration or revised illustration to the applicant or policyowner, the basic illustration or revised illustration shall include instructions for the applicant or policyowner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer. The insurer's obligation under this subsection is satisfied if the insurer can demonstrate that it has made a diligent effort to secure a signed copy of the numeric summary page. The insurer's requirement to make a diligent effort is satisfied if the insurer includes in the mailing a self-addressed, postage prepaid envelope with instructions for returning the signed numeric summary page. If the applicant or policyowner consents to transact insurance electronically, the insurer may send a copy with instructions for signing and returning the signed copy electronically.

F. The insurer shall retain a copy of the basic illustration and a revised basic illustration, if any, signed as applicable, along with any certification that either no illustration was used or that the policy was applied for other than as illustrated until three years after the policy is no longer in force. The insurer does not need to retain a copy if a policy is not issued.

§ 20-431.07 Annual report; notice to policyowners

A. If a policy is designated as one that will use illustrations, the insurer shall provide each policyowner with an annual report on the status of the policy as follows:

1. For universal life policies, the annual report shall include:

(a) The beginning date and end date of the current report period.

(b) The policy value at the end of the previous report period and at the end of the current report period.

(c) The total amounts that have been credited or debited to the policy value during the current report period, identifying each by type and including interest, mortality, expense and riders.

(d) The current death benefit at the end of the current report period on each life covered by the policy.

(e) The net cash surrender value of the policy as of the end of the current report period.

(f) The amount of outstanding loans, if any, as of the end of the current report period.

(g) For fixed premium policies, a notice whether the policy's net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments.

(h) For flexible premium policies, a notice whether the policy's net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, assuming guaranteed interest, mortality and expense loads.

2. For all other policies, where applicable, the annual report shall include the following:

(a) Current death benefit.

(b) Annual contract premium.

(c) Current cash surrender value.

(d) Current dividend.

(e) Application of current dividend.

(f) Amount of outstanding loan.

B. Insurers writing life insurance policies that do not build nonforfeiture values shall be required to provide an annual report with respect to such policies only for those years when the insurer has made a change to nonguaranteed policy elements.

C. If the annual report does not include an in-force illustration, the annual report shall contain the following prominently displayed notice: "important policyowner notice: you should consider requesting more detailed information about your policy to understand how it may perform in the future. You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration. You may annually request, without charge, an illustration by calling (insurer's telephone number), writing to (insurer's name) at (insurer's address or email address) or contacting your agent. If you do not receive a current illustration of your policy within thirty days from the date of your request, you should contact your state insurance department." The insurer may vary the sequential order of the methods for obtaining an in-force illustration.

D. On request of a policyowner, the insurer shall furnish an in-force illustration of current and future benefits and values based on the insurer's present illustrated scale. This illustration shall comply with section 20-431.03, subsections A and B and section 20-431.04, subsections A and F. A signature or other acknowledgment of receipt of this illustration is not required.

E. If the insurer makes an adverse change in nonguaranteed elements that could affect the policy since the last annual report, the annual report shall contain a notice of that fact and shall prominently display the nature of the change.

§ 20-431.08 Illustration actuaries; annual certifications

A. The board of directors of each insurer shall appoint one or more illustration actuaries.

B. The illustration actuary shall certify that the disciplined current scale that is used in illustrations conforms with the actuarial standard of practice for compliance with the national association of insurance commissioners model regulation on life insurance illustrations that is adopted by the actuarial standards board and that the illustrated scales used in insurer authorized illustrations meet the requirements of this article.

C. The illustration actuary shall:

1. Be a member in good standing of the American academy of actuaries.

2. Be familiar with the standard of practice regarding life insurance policy illustrations.

3. After notice and a hearing, not have been found by the director to have:

(a) Violated any provision of, or any obligation imposed by, this title or any other law in the course of the individual's dealings as an illustration actuary.

(b) Been found guilty of fraudulent or dishonest practices.

(c) Demonstrated incompetence, lack of cooperation or untrustworthiness to act as an illustration actuary.

(d) Resigned or been removed as an illustration actuary within the previous five years as a result of acts or omissions indicated in any adverse report on examination or as a result of a failure to adhere to generally acceptable actuarial standards.

4. Notify the director of any action taken by the insurance director of another state for acts similar to those listed in paragraph 3 of this subsection.

5. Disclose the following in the annual certification, as applicable:

(a) Since the last annual certification, whether a currently payable scale applicable for business issued within the previous five years and within the scope of the certification was reduced for reasons other than changes in the experience factors underlying the disciplined current scale.

(b) If nonguaranteed elements illustrated for new policies are not consistent with those illustrated for similar in-force policies.

(c) If nonguaranteed elements illustrated for both new and in-force policies are inconsistent with the nonguaranteed elements actually being paid, charged or credited to the same or similar forms.

6. Disclose in the annual certification the method that is used to allocate overhead expenses for all illustrations as being one of the following:

(a) Fully allocated expenses.

(b) Marginal expenses.

(c) A generally recognized expense table that is based on fully allocated expenses representing a significant portion of insurance companies and that is approved by the director.

D. The illustration actuary shall file the annual certification with the board of directors of the insurer and with the director as follows:

1. Annually for all policy forms for which illustrations are used.

2. Before a new policy form is illustrated.

E. The illustration actuary shall promptly notify the board of directors and the director if an error is found in previous certification.

F. If an illustration actuary is unable to certify the scale for any policy form illustration that the insurer intends to use, the illustration actuary shall notify the board of directors of the insurer and the director promptly of the illustration actuary's inability to certify.

G. A responsible officer of the insurer, other than the illustration actuary, shall certify annually both of the following:

1. That the illustration formats meet the requirements of this article and that the scales used in insurer-authorized illustrations are those scales that have been certified by the illustration actuary.

2. That the company has provided its agents with information about the expense allocation method used in its illustrations as disclosed in subsection C, paragraph 6 of this section.

H. The annual certifications shall be provided to the director each year by the date determined by the director.

I. If an insurer changes the illustration actuary who is responsible for all or a portion of the company's policy forms, the insurer shall notify the director of the change promptly as well as the reason for the change.

§ 20-431.09 Penalties

In addition to any other penalties provided by law, an insurer or producer that violates this article commits an unfair trade practice in violation of section 20-442.

Article 6 Unfair Practices and Frauds

§ 20-441 Purpose of article; definition

A. Among the purposes of this article is the regulation of trade practices in the business of insurance in accordance with the intent of Congress as expressed in the act of Congress of March 9, 1945, 59 Stat. 33, by defining, or providing for the determination of, all such practices in this state that constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.

B. For the purposes of this article, "insurance company" or "insurer" means any:

1. Stock, mutual, reciprocal or title insurer.

2. Fraternal benefit society.

3. Health care services organization.

4. Hospital, medical, dental and optometric service corporation.

5. Prepaid dental plan organization.

6. Mechanical reimbursement reinsurer.

7. Prepaid legal plan.

8. Lloyd's association.

9. Service company as defined in this title.

10. Any other entity licensed under this title.

§ 20-442 Unfair trade practices prohibited

No person shall engage in this state in any trade practice which is prohibited by this article, or defined in this article as, or determined pursuant to this article to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance.

§ 20-443 Misrepresentations and false advertising of policies; false disclosure of compensation

A. A person shall not make, issue or circulate, or cause to be made, issued or circulated, any estimate, illustration, circular, sales material or statement:

1. Misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised or the dividends or share of the surplus to be received.

2. Making any false or misleading statement as to the dividends or share of surplus previously paid on similar policies.

3. Making any misleading representation or any misrepresentation as to the financial condition of any insurer or as to the legal reserve system upon which any life insurer operates.

4. Using any name or title of any policy or class of policies misrepresenting the true nature of the policy.

5. Making any misrepresentation to any policyholder for the purpose of inducing or tending to induce the policyholder to lapse, forfeit, surrender, retain or convert any insurance policy.

6. Referring to the coverage or any of the provisions of chapter 3, article 6 or 7 of this title in connection with the sale or attempted sale of any policy of insurance, except in connection with the notice prescribed in section 20-400.10, subsection E, section 20-410, subsection B and section 20-422, subsection C.

B. An insurance producer, consultant or third party administrator shall not falsely disclose the method or amount of compensation associated with a health benefits plan as defined in section 20-2301.

§ 20-443.01 Misrepresentation in sale of insurance; violation; classification

A. It is unlawful for a person to knowingly make any misrepresentation as proscribed by section 20-443 in the sale of insurance.

B. A person who violates this section is guilty of a class 5 felony.

§ 20-443.02 Stranger originated life insurance

A. Intentionally practicing or planning to initiate a life insurance policy for the benefit of a person or entity that lacks an insurable interest and that, at the time of policy origination, has no insurable interest in the insured is a violation of section 20-1104. Stranger originated life insurance practices include situations in which life insurance is purchased with resources or guarantees from or through a person or entity that, at the time of policy inception, could not lawfully initiate the policy himself or itself, and if, at the time of policy inception, there is an agreement to directly or indirectly transfer the ownership of the policy or the policy benefits to a person or entity that lacks an insurable interest. Trusts that are created to give the appearance of insurable interest and that are used to initiate policies for the benefit of investors with no insurable interest violate section 20-1104 and the prohibition against wagering on life. Intentionally practicing or planning does not include a policy owner's lawful assignment of the policy owner's life insurance policy.

B. Stranger originated life insurance practices do not include:

1. A policy loan by a life insurance company pursuant to the terms of the life insurance policy or accelerated death provisions contained in the life insurance policy, whether issued with the original policy or as a rider.

2. A premium finance loan or any loan made for a policy on or before the date of issuance of the policy by a bank or other licensed financial institution if any of the following apply:

(a) Default on the loan or the transfer of the policy in connection with the default is not pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this section.

(b) The loan proceeds are used solely to pay premiums for the policy and to pay any costs or expenses incurred by the lender or the borrower in connection with the financing.

(c) The owner has not agreed on the date of the premium finance loan to sell, directly or indirectly, the policy or any portion of the policy's death benefit on any date following the issuance of the policy.

(d) The owner does not receive on the date of the premium finance loan a guarantee of the future value of the sale of the policy.

3. A collateral assignment of a life insurance policy by an owner.

4. A loan made by a lender that does not violate title 6, chapter 14, article 1, if the loan does not violate this section.

5. An agreement if all the parties:

(a) Are closely related to the insured by blood or law.

(b) Have a lawful substantial economic interest in the continued life, health and bodily safety of the person insured, or are trusts established primarily for the benefit of such parties.

6. Any designation, consent or agreement by an insured who is an employee of an employer in connection with the purchase by the employer, or trust established by the employer, of life insurance on the life of the employee.

7. A bona fide business succession planning arrangement that is between one or more of the following:

(a) Shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trusts established by its shareholders.

(b) Partners in a partnership or between a partnership and one or more of its partners or one or more trusts established by its partners.

(c) Members in a limited liability company or between a limited liability company and one or more of its members or one or more trusts established by its members.

8. An agreement entered into by a service recipient, or a trust established by the service recipient, and a service provider, or a trust established by the service provider, that performs significant services for the service recipient's trade or business.

C. Nothing in this section prohibits the assignment of a life insurance policy that is not part of a stranger originated life insurance practice as prescribed by subsection A of this section.

§ 20-444 False or deceptive advertising of insurance or status as insurer

A. No person shall make, publish, disseminate, circulate or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, any advertisement, announcement, sales material or statement containing any assertion, representation or statement with respect to the business of insurance or with respect to any person in the conduct of his insurance business, which is untrue, deceptive or misleading.

B. No person that is not an insurer shall assume or use any name which deceptively infers or suggests that it is an insurer.

§ 20-445 Defamation

No person shall make, publish, disseminate or circulate, directly or indirectly, or aid, abet or encourage the making, publishing, disseminating or circulating of any oral or written statement or any pamphlet, circular, article, sales material or literature which is false or maliciously critical of or derogatory to the financial condition of an insurer, and which is calculated to injure any person engaged in the business of insurance, or any domestic corporation or group being formed pursuant to this code for the purpose of becoming an insurer. This provision shall not be deemed to restrict the right, lawfully exercised, of newspapers, magazines, radio and television stations, and similar public media for news dissemination, objectively to publish and disseminate news.

§ 20-446 Acts tending to result in unreasonable restraint or monopoly of insurance business

No person shall enter into any agreement to commit, or by any concerted action commit, any act of boycott, coercion or intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the business of insurance.

§ 20-447 False financial statements or records

A. No person shall file with any public official, or make, publish, disseminate, circulate or deliver to any person, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated or delivered to any person, or placed before the public, any false statement of the financial condition of an insurer with intent to deceive.

B. No person shall make any false entry in any book, report or statement of any insurer or other person required to have records under this title, with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to whom the insurer or person is required by law to report, or who has authority by law to examine into its condition or into any of its affairs, or, with like intent, wilfully omit to make a true entry of any material fact pertaining to the business of the insurer or person in any book, report or statement thereof.

§ 20-448 Unfair discrimination; definitions

A. A person shall not make or permit any unfair discrimination between individuals of the same class and equal expectation of life in the rates charged for any contract of life insurance or of life annuity or in the dividends or other benefits payable or in any other of the terms and conditions of the contract.

B. A person shall not make or permit any unfair discrimination respecting hemophiliacs or between individuals of the same class and of essentially the same hazard in the amount of premium, policy fees or rates charged for any policy or contract of disability insurance or in the benefits payable or in any of the terms or conditions of the contract, or in any other manner whatever. The provisions of this subsection regarding hemophiliacs do not apply to any policy or subscription contract that provides only benefits for specific diseases or for accidental injuries or that provides only indemnity for blood transfusion services or replacement of whole blood products, fractions or derivatives.

C. As to kinds of insurance other than life and disability, a person shall not make or permit any unfair discrimination in favor of particular persons or between insureds or subjects of insurance having substantially like insuring, risk and exposure factors, or expense elements, in the terms or conditions of any insurance contract, or in the rate or amount of premium charged.

D. An insurer shall not refuse to consider an application for life or disability insurance on the basis of a genetic condition, developmental delay or developmental disability.

E. The rejection of an application or the determining of rates, terms or conditions of a life or disability insurance contract on the basis of a genetic condition, developmental delay or developmental disability constitutes unfair discrimination, unless the applicant's medical condition and history and either claims experience or actuarial projections establish that substantial differences in claims are likely to result from the genetic condition, developmental delay or developmental disability.

F. In addition to the provisions in subsection E of this section, the rejection of an application or the determination of rates, terms or conditions of a disability insurance contract on the basis of a genetic condition constitutes unfair discrimination in the absence of a diagnosis of the condition related to information obtained as a result of a genetic test.

G. An insurer that offers life, disability or long-term care insurance contracts may not unfairly discriminate against a living organ donor in the offering, issuance, price or conditions of an insurance policy based solely, and without additional actuarial risks, on that person's status as a living organ donor.

H. An insurer that offers life, disability, property or liability insurance contracts shall not deny a claim incurred or deny, refuse, refuse to renew, restrict, cancel, exclude or limit coverage or charge a different rate for the same coverage solely on the basis that the insured or proposed insured is or has been a victim of domestic violence or is an entity or individual that provides counseling, shelter, protection or other services to victims of domestic violence. If an insurer that offers life, disability, property or liability insurance contracts denies a claim incurred or denies, refuses, refuses to renew, restricts, cancels, excludes or limits coverage or charges a different rate for the same coverage on the basis of a mental or physical condition and the insured or the proposed insured is or has been a victim of domestic violence, the insurer shall submit a written explanation to the insured or proposed insured of the reasons for the insurer's actions, in accordance with section 20-2110. The fact that an insured or proposed insured is or has been the victim of domestic violence is not a mental or physical condition. This subsection is not intended to provide any private right or cause of action to or on behalf of any applicant or insured. It is the specific intent of this subsection to provide solely an administrative remedy to the director for any violation of this section. This subsection does not prevent an insurer from refusing to issue a life insurance policy insuring a person who has been the victim of domestic violence if either of the following is true:

1. The family or household member who commits the act of domestic violence is the applicant for or prospective owner of the policy or would be the beneficiary of the policy and any of the following is true:

(a) The applicant or prospective beneficiary of the policy is known, on the basis of police or court records, to have committed an act of domestic violence.

(b) The insurer has knowledge of an arrest or conviction for a domestic violence related offense by the family or household member.

(c) The insurance company has other reasonable grounds to believe, and those grounds are corroborated, that the applicant or proposed beneficiary of a policy is a family or household member committing acts of domestic violence.

2. The applicant or prospective owner of the policy lacks an insurable interest in the insured.

I. Subsection H of this section does not prevent an insurer that:

1. Offers life or disability insurance contracts from underwriting coverage on the basis of an insured's or proposed insured's mental or physical condition if the underwriting:

(a) Does not consider whether or not the mental or physical condition was caused by an act of domestic violence.

(b) Is the same for an insured or proposed insured who is not the victim of domestic violence as it is for an insured or proposed insured who is the victim of domestic violence.

(c) Does not violate any other rule or law.

2. Offers property or liability insurance contracts from underwriting coverage on the basis of the insured's claims history or characteristics of the insured's property and using rating criteria consistent with section 20-384.

J. Any determination made pursuant to section 20-2537 by the external independent review organization shall not be considered in connection with the evaluation of whether any person subject to this article has complied with this section.

K. A property or liability insurer may exclude coverage for losses caused by an insured's intentional or fraudulent act. The exclusion shall not deny an insured's otherwise covered property loss if the property loss is caused by an act of domestic violence by another insured under the policy and the insured who claims the property loss cooperates in any investigation relating to the loss and did not cooperate in or contribute to the creation of the property loss. The insurer may apply reasonable standards of proof for claims filed under this subsection. The insurer may limit the payment to the insured's insurable interest in the property minus any payment made to any mortgagee or other party with a secured interest in the property. This subsection does not require an insurer to pay any amount that is more than the amount of the loss or property coverage limits. An insurer who pays a claim under this subsection has the right of subrogation against any person except the victim of the domestic violence.

L. All insurers shall adopt and adhere to written policies that are consistent with chapter 11 of this title and that specify the procedures to be followed by employees, contractors, producers, agents and brokers to ensure the privacy of and to help protect the safety of a victim of domestic violence when taking an application, investigating a claim, pursuing subrogation or taking any other action relating to a policy or claim involving a victim of domestic violence. Insurers shall distribute the written policies to employees, contractors, producers, agents and brokers who have access to personal or privileged information regarding domestic violence.

M. For the purposes of this section:

1. "Developmental delay" means a delay of at least one and one-half standard deviations from the norm.

2. "Developmental disability" has the same meaning prescribed in section 36-551.

3. "Domestic violence" means any act that is a dangerous crime against children as defined in section 13-705 or an offense defined in section 13-1201 through 13-1204, 13-1302 through 13-1304, 13-1502 through 13-1504 or 13-1602, section 13-2810, section 13-2904, subsection A, paragraph 1, 2, 3 or 6, section 13-2916 or section 13-2921, 13-2921.01, 13-2923 or 13-3623, if any of the following applies:

(a) The relationship between the victim and the defendant is one of marriage or former marriage or of persons residing or having resided in the same household.

(b) The victim and the defendant have a child in common.

(c) The victim or the defendant is pregnant by the other party.

(d) The victim is related to the defendant or the defendant's spouse by blood or court order as a parent, grandparent, child, grandchild, brother or sister, or by marriage as a parent-in-law, grandparent-in-law, stepparent, step-grandparent, stepchild, step-grandchild, brother-in-law or sister-in-law.

(e) The victim is a child who resides or has resided in the same household as the defendant and is related by blood to a former spouse of the defendant or to a person who resides or has resided in the same household as the defendant.

4. "Gene products" means gene fragments, nucleic acids or proteins derived from deoxyribonucleic acids that would be a reflection of or indicate DNA sequence information.

5. "Genetic condition" means a specific chromosomal or single-gene genetic condition.

6. "Genetic test" means an analysis of an individual's DNA, gene products or chromosomes that indicates a propensity for or susceptibility to illness, disease, impairment or other disorders, whether physical or mental, or that demonstrates genetic or chromosomal damage due to environmental factors, or carrier status for a disease or disorder.

7. "Living organ donor" means a living person who donates an organ to another living person.

§ 20-448.01 Required insurance procedures relating to HIV information; confidentiality; violations; penalties; definitions

A. In this section unless the context otherwise requires:

1. "Confidential HIV-related information" means information concerning whether a person has had an HIV-related test or has HIV infection, HIV-related illness or acquired immune deficiency syndrome and includes information which identifies or reasonably permits identification of that person or the person's contacts.

2. "HIV" means the human immunodeficiency virus.

3. "HIV-related test" means a laboratory test or series of tests for the virus, components of the virus or antibodies to the virus thought to indicate the presence of HIV infection.

4. "Protected person" means a person who takes an HIV-related test or who has been diagnosed as having HIV infection, acquired immune deficiency syndrome or HIV-related illness.

5. "Person" includes all entities subject to regulation under title 20, the employees, contractors and agents thereof, and anyone performing insurance related tasks for such entities, employees, contractors or agents.

B. Except as otherwise specifically authorized or required by this state or by federal law, no person may require the performance of, or perform an HIV-related test without first receiving the specific written informed consent of the subject of the test who has capacity to consent or, if the subject lacks capacity to consent, of a person authorized pursuant to law to consent for that person. Written consent shall be in a form as prescribed by the director.

C. No person who obtains confidential HIV-related information in the course of processing insurance information or insurance applications or pursuant to a release of confidential HIV-related information may disclose or be compelled to disclose that information except to the following:

1. The protected person or, if the protected person lacks capacity to consent, a person authorized pursuant to law to consent for the protected person.

2. A person to whom disclosure is authorized in writing pursuant to a release as set forth in subsection E of this section, including but not limited to a physician designated by the insured or a medical information exchange for insurers operated under procedures intended to ensure confidentiality, provided that in the case of a medical information exchange:

(a) The insurer will not report that blood tests of an applicant showed the presence of the AIDS virus antibodies, but only that unspecified blood test results were abnormal.

(b) Reports must use a general code that also covers results of tests for many diseases or conditions, such as abnormal blood counts that are not related to HIV, AIDS, AIDS related complex or similar diseases.

3. A government agency specifically authorized by law to receive the information. The agency is authorized to redisclose the information only pursuant to this section or as otherwise permitted by law.

4. A person regulated by this title to which disclosure is ordered by a court or administrative body pursuant to section 36-665.

5. The industrial commission or parties to an industrial commission claim pursuant to the provisions of section 23-908, subsection D and section 23-1043.02.

D. Test results and application responses may be shared with the underwriting departments of the insurer and reinsurers, or to those contractually retained medical personnel, laboratories, and insurance affiliates, excluding agents and brokers, which are involved in underwriting decisions regarding the individual's application if disclosure is reasonably necessary to make the underwriting decision regarding such application, and claims information may be shared with claims personnel and attorneys reviewing claims if disclosure is reasonably necessary to process and resolve claims.

E. A release of confidential HIV-related information pursuant to subsection C, paragraph 2 of this section shall be signed by the protected person or, if the protected person lacks capacity to consent, a person authorized pursuant to law to consent for the protected person. A release shall be dated and shall specify to whom disclosure is authorized, the purpose for disclosure and the time period during which the release is effective. A general authorization for the release of medical or other information is not a release of confidential HIV-related information unless the authorization specifically indicates its purpose as a general authorization and an authorization for the release of confidential HIV-related information and complies with the requirements of this section.

F. A person to whom confidential HIV-related information is disclosed pursuant to this section shall not disclose the information to another person except as authorized by this section. This subsection does not apply to the protected person or a person who is authorized pursuant to law to consent for the protected person.

G. If a disclosure of confidential HIV-related information is made pursuant to the provisions of a written release as permitted by subsection C, paragraph 2 of this section, the disclosure shall be accompanied by a statement in writing which warns that the information is from confidential records which are protected by state law that prohibits further disclosure of the information without the specific written consent of the person to whom it pertains or as otherwise permitted by law.

H. The person making a disclosure in accordance with subsection C, paragraphs 3, 4 and 5, and subsection G of this section shall keep a record of all disclosures for the time period prescribed by the director. On request, a protected person or his legal representative shall have access to the record.

I. Except as otherwise provided pursuant to this section or subject to an order or search warrant issued pursuant to section 36-665, no person who receives confidential HIV-related information pursuant to a release of confidential HIV-related information may disclose that information to another person or legal entity or be compelled by subpoena, order, search warrant or other judicial process to disclose that information to another person or legal entity.

J. The director shall adopt rules to implement the allowable tests and testing procedures, written consent to perform a human immunodeficiency virus related test, procedures for confidentiality and disclosure of medical information and procedures for gathering underwriting information and may adopt additional rules reasonable and necessary to implement this section.

K. Notwithstanding any other provision of law to the contrary, nothing in this section shall be interpreted to restrict the director's authority to full access to records of any entity subject to regulation under title 20, including but not limited to all records containing confidential HIV-related information. The director may only redisclose confidential HIV-related information in accordance with this section.

L. A protected person, whose rights provided in this section have been violated by a person or entity described in subsection A, paragraph 5 of this section, has those individual remedies specified in section 20-2118 against such a person or entity.

§ 20-448.02 Genetic testing; informed consent; definitions

A. Except as otherwise specifically authorized or required by this state or by federal law, a person shall not order or require the performance of a genetic test without first receiving the specific written informed consent of the subject of the test who has the capacity to consent or, if the person subject to the test lacks the capacity to consent, of a person authorized pursuant to law to consent for that person. Written consent shall be in a form prescribed by the director. Except as authorized in section 12-2802, the results of a genetic test performed are privileged and confidential and may not be released to any party without the express consent of the subject of the test or the person authorized pursuant to law to consent for that person.

B. For the purposes of this section:

1. "Gene products" means gene fragments, nucleic acids or proteins derived from deoxyribonucleic acids that would be a reflection of or indicate DNA sequence information.

2. "Genetic test" means an analysis of an individual's DNA, gene products or chromosomes that indicates a propensity for or susceptibility to illness, disease, impairment or other disorders, whether physical or mental, or that demonstrates genetic or chromosomal damage due to environmental factors, or carrier status for a disease or disorder.

§ 20-449 Rebates on life or disability insurance

A. Except as otherwise expressly provided by law, no person shall knowingly permit or offer to make or make any contract of life insurance, life annuity or disability insurance, or agreement as to such contract other than as plainly expressed in the contract issued thereon, or pay or allow, or give or offer to pay, allow or give, directly or indirectly, as an inducement to such insurance or annuity, any rebate of premiums payable on the contract, or any special favor or advantage in the dividends or other benefits thereon, or any valuable consideration or inducement whatever not specified in the contract.

B. This section does not prohibit an insurer from retaining an independent third party to conduct a customer feedback effort intended to help the insurer improve the quality of its products or services and to offer an insured business or individual a reasonable incentive to participate in the feedback effort. An incentive is presumed reasonable if it does not exceed two hundred dollars. An insurer may not offer, reference or promote an incentive or feedback effort under this section in connection with an application for or renewal of insurance coverage. For the purposes of this subsection, "feedback effort" means activities that are designed to elicit customer perceptions on a predetermined set of topics that are related to the insurer's products or services, including in-person, telephonic or online surveys, polls, focus groups, interviews, questionnaires and other recognized opinion-gathering mechanisms.

§ 20-450 Practices not prohibited as discrimination or rebates in life and disability insurance; wellness programs; definition

A. Section 20-448 or 20-449 does not include within the definition of discrimination or rebates any of the following practices:

1. In the case of any contract of life insurance or life annuity, paying bonuses to policyholders or otherwise abating policyholders' premiums in whole or part out of surplus accumulated from nonparticipating insurance, but any such bonuses or abatement of premiums shall be fair and equitable to policyholders and for the best interests of the insurer and its policyholders.

2. In the case of life insurance policies issued on the industrial debit plan, making allowance to policyholders who have continuously for a specified period made premium payments directly to an office of the insurer in an amount that fairly represents the saving in collection expense.

3. Readjustment of the rate of premium for a group insurance policy based on the loss or expense experience thereunder, at the end of the first or any subsequent policy year of insurance thereunder, which may be made retroactive only for that policy year.

4. Issuing life or disability policies on a salary savings or payroll deduction plan at a reduced rate commensurate with the savings made by the use of the plan.

5. Payments of implementation credits a life insurer, disability insurer or service corporation makes to offset expenses that a group policyholder incurs when the group policyholder initiates or changes new or existing group coverage. The life insurer, disability insurer or service corporation may either:

(a) Include implementation credits in the premium charged a policyholder and then reimburse the policyholder.

(b) Pay for the implementation credits and provide appropriate disclosure in the group policy.

B. Sections 20-448 and 20-452 do not prohibit any person from providing or offering to provide:

1. In the case of group disability insurance, rewards or incentives under a wellness program that satisfies the requirements for an exception from the general prohibition against discrimination based on a health factor under the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936), including any federal regulations that are adopted pursuant to that act.

2. In the case of individual disability insurance, rewards or incentives under a wellness program that satisfies the equivalent of the requirements for an exception from the general prohibition against discrimination based on a health factor under the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936), including any federal regulations that are adopted pursuant to that act.

3. Products or services that are ancillary or related to any policy of life or disability insurance and that are intended to minimize or prevent claims-related losses or expenses, to deter injury or death or to improve the health or enhance the financial wellness of the insured.

4. Payments of implementation credits a life insurer, disability insurer or service corporation makes to offset expenses that a group policyholder or employer incurs when the group policyholder initiates or changes new or existing group coverage. The life insurer, disability insurer or service corporation may either:

(a) Include implementation credits in the premium charged a policyholder and then reimburse the policyholder. The life insurer, disability insurer or service corporation shall disclose to the policyholder whether implementation credits were included in the premium.

(b) Pay for the implementation credits and provide appropriate disclosure in the group policy.

C. For the purposes of this section, "life insurance" includes disability income policies and supplemental benefit policies.

§ 20-451 Rebates on other than life or disability insurance; definitions

A. Except as allowed in subsection B of this section, an insurer or employee, insurance producer or representative may not knowingly charge, demand or receive a premium for any policy of insurance, other than life or disability insurance, except in accordance with any applicable filing on file with the director. An insurer, employee, insurance producer or representative may not offer, pay, allow or give, directly or indirectly, as an inducement to insurance, or after insurance has been effected, any rebate, discount, abatement, credit or reduction of the premium named in a policy of insurance, or any special favor or advantage in the dividends or other benefits to accrue thereon, or any valuable consideration or inducement whatever, not specified in the policy of insurance, except to the extent provided for in an applicable filing. An insured named in a policy of insurance or any representative or employee of the insured may not knowingly receive or accept, directly or indirectly, any such rebate, discount, abatement, credit or reduction of premium, or any such special favor or advantage or valuable consideration or inducement. This section does not prohibit the payment of commissions or other compensation to duly licensed insurance producers or prohibit any insurer from allowing or returning to its participating policyholders, members or subscribers dividends, savings or unabsorbed premium deposits.

B. An insurer, its employees, insurance producers and representatives may offer or provide products or services that are ancillary or related to any policy of insurance, other than life or disability insurance, that are intended to minimize or prevent claims-related losses or expenses or harm to the public, including fire or smoke detectors, risk audits or assessments and products or services to deter injury, death or property theft or damage. The products and services that may be offered or provided in this subsection are exempt from the prohibitions set forth in subsection A of this section.

C. This section does not prohibit an insurer from retaining an independent third party to conduct a customer feedback effort intended to help the insurer improve the quality of its products or services and to offer an insured business or individual a reasonable incentive to participate in the feedback effort. An incentive is presumed reasonable if it does not exceed $200. An insurer may not offer, reference or promote an incentive or feedback effort under this section in connection with an application for or renewal of insurance coverage.

D. For the purposes of this section:

1. "Feedback effort" means activities that are designed to elicit customer perceptions on a predetermined set of topics that are related to the insurer's products or services, including in-person, telephonic or online surveys, polls, focus groups, interviews, questionnaires and other recognized opinion-gathering mechanisms.

2. "Insurance" includes suretyship.

3. "Policy" includes bond.

§ 20-452 Prohibited inducements

A. Except as allowed in subsection B of this section and sections 20-453 and 20-454, any insurer, insurance producer or other person, as an inducement to insurance or in connection with any insurance transaction, shall not provide in any policy for or offer, sell, buy or offer or promise to buy, sell, give, promise or allow to the insured or prospective insured or to any other person on behalf of the insured or prospective insured in any manner:

1. Any employment.

2. Any shares of stock or other securities issued or at any time to be issued or any interest therein or rights thereto.

3. Any advisory board contract, or any similar contract, agreement or understanding, offering, providing for or promising any special profits.

4. Any prizes, goods, wares, merchandise or tangible property of an aggregate value of more than $100. This paragraph does not prohibit an insurer from retaining an independent third party to conduct a customer feedback effort intended to help the insurer improve the quality of its products or services and to offer an insured business or individual a reasonable incentive to participate in the feedback effort. An incentive is presumed reasonable if it does not exceed $200. An insurer may not offer, reference or promote an incentive or feedback effort under this paragraph in connection with an application for or renewal of insurance coverage. For the purposes of this paragraph, "feedback effort" means activities that are designed to elicit customer perceptions on a predetermined set of topics that are related to the insurer's products or services, including in-person, telephonic or online surveys, polls, focus groups, interviews, questionnaires and other recognized opinion-gathering mechanisms.

B. An insurer, insurance producer or other person may offer or provide products or services that are ancillary or related to any insurance coverage and that are intended to minimize or prevent claims-related losses or expenses or harm to the public, including fire or smoke detectors, risk audits or assessments and products or services to deter injury, death or property theft or damage. The products and services that may be offered or provided in this subsection are exempt from the prohibitions set forth in subsection A of this section.

§ 20-452.01 Designation of particular insurer or person transacting insurance prohibited

No person engaged in the business of financing the purchase of real or personal property or of lending money on the security of real or personal property, and no trustee, director, officer, agent or other employee, or affiliate of, any such person shall require, as a condition precedent to financing the purchase of such property or to lending money upon the security thereof, or as a condition prerequisite for the renewal or extension of any such loan or for the performance of any other act in connection therewith, that the person for whom such purchase is to be financed or to whom the money is to be loaned, or for whom such extension, renewal or other act is to be granted or performed, negotiate any insurance or renewal thereof covering such property through a particular insurer or person transacting insurance.

§ 20-452.02 Exceptions

Section 20-452.01 shall not prevent:

1. The exercise by any person engaged in such business of his right to approve or disapprove of the insurer selected to underwrite the insurance, nor of his right to furnish such insurance or to renew any insurance required by the contract of sale or trust deed or other loan agreement if the borrower or purchaser shall have failed to furnish the insurance or renewal thereof within such reasonable time or form as may be specified in the sale or loan agreement.

2. Any lender from recommending to any borrower or prospective borrower the placing of insurance with a specified insurer, or through a specified insurer or person transacting insurance, as long as such recommendation does not violate the provisions of section 20-452.01.

3. The free choice of insurer or person transacting insurance by any borrower or purchaser at any time, and he may revoke any designation of insurer or person transacting insurance at any time, irrespective of the provisions of any loan or purchase agreement or trust deed.

§ 20-452.03 Evidence of nonviolation

In any trial, hearing or proceeding to determine a violation of section 20-452.01, a written statement or authorization signed by the person for whom any purchase is financed, to whom any money is loaned or for whom any extension, renewal or other act in connection with a loan is to be granted or performed, declaring that such person voluntarily chooses the insurer or person transacting insurance through whom the insurance or its renewal was transacted, and that the choice of such insurer or person transacting insurance was not made a condition precedent to such purchase, loan, extension, renewal or other act, shall be prima facie evidence that no violation of section 20-452.01 has occurred, if the borrower or purchaser in his own handwriting shall have written the name of his chosen insurer or person transacting insurance on a written statement or authorization of such insurer or person transacting insurance.

§ 20-452.04 Investigation by director of alleged violations

The director may investigate any person, whether licensed or not, for the purpose of determining if there has been any violation of section 20-452.01; however, if such investigation be upon a complaint, the complainant must be party to the contract of sale, trust deed, mortgage, or loan agreement, and must make such complaint within three months of the execution or any modification thereof.

§ 20-453 Programs for purchase by policyholders of securities of insurance companies

Notwithstanding the provisions of section 20-452 and notwithstanding any other provision of law, domestic life insurers, whether of the stock, mutual, fraternal or limited capital stock type, shall not be prohibited from engaging in a program whereby the holders of their life insurance policies are offered the right from time to time to buy for cash or to exchange dividends on such policies or other policy values resulting therefrom for securities in domestic corporations engaged in or organized to engage in the insurance business, but no such insurer shall engage in any such program unless the right to buy or the dividends or other policy values subject to exchange result from ownership of or are payable on account of a policy that from its inception is or that, within a period of not to exceed six years from its issue date, becomes a life insurance policy on a permanent plan other than term. From and after being placed on such permanent plan, every such policy shall be in full compliance with sections 20-1231 and 20-1231.01 (standard nonforfeiture law) computed as from the date of being placed on such permanent plan. No such offering shall be deemed to be exempt from title 44, chapter 12.

§ 20-454 Programs for purchase by policyholders of securities of companies not engaged in insurance

Notwithstanding the provisions of section 20-452 and notwithstanding any other provision of law, domestic life insurers, whether of the stock, mutual, fraternal or limited capital stock type that on January 1, 1955 are engaged pursuant to the requirements of title 44, chapter 12 in a program whereby the holders of their life insurance policies are offered the right from time to time to buy for cash or to exchange dividends on such policies or other policy values resulting therefrom for securities in domestic corporations neither engaged in nor organized to engage in the insurance business shall be permitted, subject to the requirements of title 44, chapter 12, to continue to engage in such program notwithstanding the adoption of this title, but no such insurer shall so engage unless the right to buy or the dividends or other policy values subject to exchange result from ownership of or are payable on account of a policy that from its inception is or that, within a period of not to exceed six years from its issue date, becomes a life insurance policy on a permanent plan other than term. From and after being placed on such permanent plan, every such policy shall be in full compliance with sections 20-1231 and 20-1231.01 (standard nonforfeiture law), computed as from the date of being placed on such permanent plan. No such program shall be engaged in by the insurer subsequent to January 1, 1960, except that any such insurer may, subject to title 44, chapter 12, cause to be delivered stock in such corporation for an indefinite period subsequent to such limiting date if the right to acquire the stock arises as a result of a policy actually issued and delivered prior to such date.

§ 20-455 Interlocking ownership or management; multiple directorship

A. Any insurer may retain, invest in or acquire the whole or any part of the capital stock of any other insurer or insurers, or have a common management with any other insurer or insurers, unless such retention, investment, acquisition or common management is inconsistent with any other provision of this title, or unless by reason thereof the business of such insurers with the public is conducted in a manner which substantially lessens competition generally in the insurance business or tends to create a monopoly therein.

B. Any person otherwise qualified may be a director of two or more insurers which are competitors, unless the effect thereof is to substantially lessen competition between insurers generally or tend to create a monopoly.

§ 20-456 Cease and desist order for defined or prohibited practices; civil penalty

A. If after a hearing the director finds that the person charged has engaged or is engaging in any act or practice defined in or prohibited under this article as an illegal or unfair method of competition or an unfair or deceptive act or practice, the director shall order the person to cease and desist from the proscribed acts or practices.

B. If the act or practice is a violation of section 20-443, 20-443.01, 20-444, 20-445, 20-446, 20-447, 20-448, 20-448.01, 20-448.02, 20-449, 20-451, 20-452 or 20-467, chapter 27 of this title or a general business practice of committing or performing acts or omissions proscribed by sections 20-461, 20-468 and 20-469, the director may also impose a civil penalty of not more than one thousand dollars for each act or violation but not to exceed an aggregate penalty of ten thousand dollars unless the person intentionally violates any section enumerated in this subsection, in which case the director may impose a civil penalty of up to five thousand dollars for each act or violation but not to exceed an aggregate penalty of fifty thousand dollars in any six month period.

C. No order of the director pursuant to this section or order of a court to enforce it, or 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.

§ 20-457 Premature disposal of premium notes prohibited

An insurer and its insurance producer shall not hypothecate, sell or dispose of a promissory note received in payment of any part of a premium on a policy of insurance applied for prior to the delivery of the policy.

§ 20-458 Fraudulent statement in application; classification

Any life insurance producer, examining physician or other person who knowingly makes a false or fraudulent statement or representation in or relative to an application for life or disability insurance, or who makes any such statement to obtain a fee, commission, money or benefit is guilty of a class 2 misdemeanor.

§ 20-459 Deferred dividends; life

On and after January 1, 1961, no person shall make or issue or offer to make or issue any contract of life insurance or of life annuity which provides that any premiums, dividends, excess interest, mortality savings, gains from lapses, loadings, or earnings and accumulations therefrom, be payable only to those of a group of policyholders who make premium payments to the end of any period of time in excess of one year.

§ 20-460 Free choice of insurance producer

No casualty or property insurance company, including any subsidiary of any such company, may offer any insurance program in this state to exclusive insurance producers without offering the same insurance program through all of its other authorized insurance producers authorized for similar types of insurance coverage with the exception of employer-employee programs making use of central premium collection.

§ 20-461 Unfair claim settlement practices

A. A person shall not commit or perform with such a frequency to indicate as a general business practice any of the following:

1. Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue.

2. Failing to acknowledge and act reasonably and promptly upon communications with respect to claims arising under an insurance policy.

3. Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under an insurance policy.

4. Refusing to pay claims without conducting a reasonable investigation based upon all available information.

5. Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed.

6. Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.

7. As a property or casualty insurer, failing to recognize a valid assignment of a claim. The property or casualty insurer shall have the rights consistent with the provisions of its insurance policy to receive notice of loss or claim and to all defenses it may have to the loss or claim, but not otherwise to restrict an assignment of a loss or claim after a loss has occurred.

8. Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds.

9. Attempting to settle a claim for less than the amount to which a reasonable person would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application.

10. Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured.

11. Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which the payments are being made.

12. Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.

13. Delaying the investigation or payment of claims by requiring an insured, a claimant or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.

14. Failing to promptly settle claims if liability has become reasonably clear under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.

15. Failing to promptly provide a reasonable explanation of the basis in the insurance policy relative to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.

16. Attempting to settle claims for the replacement of any nonmechanical sheet metal or plastic part which generally constitutes the exterior of a motor vehicle, including inner and outer panels, with an aftermarket crash part which is not made by or for the manufacturer of an insured's motor vehicle unless the part meets the specifications of section 44-1292 and unless the consumer is advised in a written notice attached to or printed on a repair estimate which:

(a) Clearly identifies each part.

(b) Contains the following information in ten point or larger type:

This estimate has been prepared based on the use of replacement parts supplied by a source other than the manufacturer of your motor vehicle. Warranties applicable to these replacement parts are provided by the manufacturer or distributor of these parts rather than the manufacturer of your vehicle.

17. As an insurer subject to section 20-826, 20-1342, 20-1402 or 20-1404, or as an insurer of the same type as those subject to section 20-826, 20-1342, 20-1402 or 20-1404 that issues policies, contracts, plans, coverages or evidences of coverage for delivery in this state, failing to pay charges for reasonable and necessary services provided by any physician licensed pursuant to title 32, chapter 8, 13 or 17, if the services are within the lawful scope of practice of the physician and the insurance coverage includes diagnosis and treatment of the condition or complaint, regardless of the nomenclature used to describe the condition, complaint or service.

18. Failing to comply with chapter 15 of this title.

19. Denying liability for a claim under a motor vehicle liability policy in effect at the time of an accident without having substantial facts based on reasonable investigation to justify the denial for damages or injuries that are a result of the accident and that were caused by the insured if the denial is based solely on a medical condition that could affect the insured's driving ability.

B. Nothing in subsection A, paragraph 17 of this section shall be construed to prohibit the application of deductibles, coinsurance, preferred provider organization requirements, cost containment measures or quality assurance measures if they are equally applied to all types of physicians referred to in this section, and if any limitation or condition placed upon payment to or upon services, diagnosis or treatment by any physician covered by this section is equally applied to all physicians referred to in subsection A, paragraph 16 of this section, without discrimination to the usual and customary procedures of any type of physician. A determination under this section of discrimination to the usual and customary procedures of any type of physician shall not be based on whether an insurer applies medical necessity review to a particular type of service or treatment.

C. In prescribing rules to implement this section, the director shall follow, to the extent appropriate, the national association of insurance commissioners unfair claims settlement practices model regulation.

D. Nothing contained in this section is intended to provide any private right or cause of action to or on behalf of any insured or uninsured resident or nonresident of this state. It is, however, the specific intent of this section to provide solely an administrative remedy to the director for any violation of this section or rule related to this section.

E. The director shall deposit, pursuant to sections 35-146 and 35-147, all civil penalties collected pursuant to this article in the state general fund.

§ 20-462 Timely payment of claims

A. From and after July 15, 1986 any first party claim not paid within thirty days after the receipt of an acceptable proof of loss by the insurer which contains all information necessary for claim adjudication shall be required to pay interest at the legal rate from the date the claim is received by the insurer. The interest shall be calculated on the amount the insurer is legally obligated to pay according to the terms of the insurance contract under which the claim is being submitted.

B. For purposes of determining whether the claim has been paid within thirty days, the date of payment shall be deemed to have been received by the addressee on the date shown by the postmark or other official mark of the United States mail stamped on the payment envelope. If the receipt disputes the date where there is no mark or the mark is not legible, the sender may establish the mailing or transfer date by competent evidence.

C. This section shall not apply to:

1. Claims submitted for payment under medicare, title XVIII of the social security act (42 United States Code section 1301).

2. Claims submitted under a medicare supplement contract where, according to the terms of the supplement contract, claims will be based upon the amount paid by medicare.

3. The payment of a claim shall not be overdue during any period in which the insurer is unable to pay such claim because there is no recipient who is legally able to give a valid release for such payment, or in which the insurer is unable to determine who is entitled to receive such payment, if the insurer has promptly notified the claimant of such inability and has offered in good faith to promptly pay said claim upon determination of who is entitled to receive such payment.

4. Claims submitted to a person who is the processing agent for a foreign insurer or other person providing an insurance program for retirees residing in Arizona.

5. Claims denied in good faith within thirty days after receipt of acceptable proofs of loss.

D. This section shall apply only to claims that are to be paid by the insurer directly to the insured, to a beneficiary named in the contract, or to a provider who has been assigned the right to receive benefits under the contract by the insured.

§ 20-463 Fraud; injunction; penalties; restitution; definitions

A. It is a fraudulent practice and unlawful for a person to knowingly:

1. Present, cause to be presented or prepare with the knowledge or belief that it will be presented an oral or written statement, including computer generated documents, to or by an insurer, reinsurer, purported insurer or reinsurer, insurance producer or agent of a reinsurer that contains untrue statements of material fact or that fails to state any material fact with respect to any of the following:

(a) An application for the issuance or renewal of an insurance policy.

(b) The rating of an insurance policy.

(c) A claim for payment or benefit pursuant to an insurance policy.

(d) Premiums paid on any insurance policy.

(e) Payments made pursuant to the terms of any insurance policy.

(f) An application for a certificate of authority.

(g) The financial condition of an insurer, reinsurer or purported insurer or reinsurer.

(h) The acquisition of an insurer or reinsurer or the concealing of any information concerning any fact material to the acquisition.

2. Solicit or accept new or renewal insurance risks by or for any insolvent insurer, reinsurer or other entity licensed to transact insurance business in this state.

3. Conceal or attempt to conceal from the department or remove or attempt to remove from the home office, place of safekeeping or other place of business of any insurer, reinsurer or other entity licensed to transact insurance business in this state part or all of the assets or records of the assets, transactions and affairs.

4. Divert or attempt or conspire to divert the monies of an insurer, reinsurer, entity licensed to transact insurance business in this state or other person in connection with:

(a) The transaction of insurance or reinsurance.

(b) The conduct of business activities by any insurer, reinsurer or other entity licensed to transact insurance business in this state.

(c) The formation, acquisition or dissolution of any insurer, reinsurer or other entity licensed to transact insurance business in this state.

5. Assist, abet, solicit or conspire with another person to violate paragraph 1 of this subsection.

6. Employ, use or act as a runner, capper or steerer for the purposes of violating paragraph 1 of this subsection.

B. A person who acts without malice, fraudulent intent or bad faith is not subject to liability for filing reports or furnishing orally or in writing other information concerning suspected, anticipated or completed fraudulent insurance acts if the reports or information is provided to or received from:

1. The director or the department.

2. Law enforcement officials and their agents and employees.

3. The national association of insurance commissioners, other state insurance departments, a federal or state agency or bureau established to detect and prevent fraudulent insurance acts, and the agency's or bureau's agents, employees or designees, or an organization established by insurers to assist in the detection and prevention of fraudulent insurance acts, and the organization's agents, employees or designees.

C. A person, or an officer, employee or agent of the person acting within the scope of employment or agency of that officer, employee or agent, identified under subsection B, paragraph 1, 2 or 3 when performing authorized activities without malice, fraudulent intent or bad faith is not subject to civil liability for libel, slander or another relevant tort. No civil cause of action may be brought against the person or entity.

D. A person or entity under subsection B or C is entitled to an award of attorney fees and costs if the person or entity is a prevailing party in a civil cause of action for libel, slander or other relevant tort and the action is not substantially justified. For purposes of this subsection, "substantially justified" means a proceeding that has a reasonable basis in law or fact at the time that it is initiated.

E. Nothing in this section limits any common law right of the person or entity.

F. Nothing in this section is intended to prohibit contact or communication with clients or patients for any lawful purpose, including communication by and between insurers, the insurers' policyholders and claimants under policies issued to the insurers' policyholders regarding the investigation or settlement of any claim.

G. For the purposes of this section:

1. "Runner", "capper" or "steerer" means a person who procures clients at the direction of, or in cooperation with, a person who intends to perform or obtain services or benefits under a contract of insurance or who intends to assert a claim against an insured.

2. "Statement" includes any notice, proof of injury, bill for services, payment for services, hospital or doctor records, x-rays, test reports, medical or legal expenses, or other evidence of loss or injury, or other expense or payment.

§ 20-463.01 Unlawful practices; auto glass repair; policyholders; insurers

A. It is an unlawful practice for a person who sells or repairs auto glass to knowingly:

1. Submit a false claim to an insurer for auto glass repair or replacement or for related services:

(a) If the services were not provided.

(b) Showing work performed in a geographical area that in fact was not the location where the services were provided and that results in a higher payment than would otherwise be paid to the person by the policyholder's insurer.

(c) Not authorized in writing by the owner or lessee of the vehicle.

(d) Showing work performed on a date other than the date the work was actually performed and resulting in a change of insurance coverage status.

2. Advise a policyholder to falsify the date of damage to the auto glass that results in a change of insurance coverage for repair or replacement of the auto glass.

3. Falsely sign on behalf of a policyholder or another person a work order, insurance assignment form or other related form in order to submit a claim to an insurer for auto glass repair or replacement or for related services.

4. Misrepresent to a policyholder or other person:

(a) The price of the proposed repairs or replacement being billed to the policyholder's insurer.

(b) That the insurer has approved the repairs or replacement unless the auto glass repair or replacement facility has verified coverage or obtained authorization directly from the insurance company or any other third party administrator contracted with the insurance company and the evidence has been confirmed by fax, e-mail or other written and recorded communication.

5. Represent to a policyholder or other person that the repair or replacement will be paid for entirely by the policyholder's insurer and at no cost to the policyholder unless the insurance coverage has been verified by a person who is employed by or is a producer contracted with the policyholder's insurer or is a third party administrator contracted with the insurer.

6. Add to the damage of auto glass before repair in order to increase the scope of repair or replacement or encourage a policyholder or other person to add to the damage of auto glass before repair.

7. Perform work clearly and substantially beyond the level of work necessary to repair or replace the auto glass to put the vehicle back into a safe pre-damaged condition in accordance with accepted or approved reasonable and customary glass repair or replacement techniques.

B. It is unlawful for a person who sells or repairs auto glass to intentionally misrepresent the relationship of the glass repair facility to the policyholder's insurer. For the purposes of determining whether a person intended the misrepresentation, it may be presumed that the person intended the misrepresentation if the person was engaged in a regular and consistent pattern of misrepresentation.

C. A violation of this section is subject to enforcement under this article.

D. For the purposes of determining whether a defendant knew of any particular element of the prohibited activity, it may be presumed that the person had knowledge if the person was engaged in a regular and consistent pattern of the prohibited activity.

§ 20-463.02 Advanced driver assistance system; auto glass repair; notice; violations; civil penalties; definitions

A. If a vehicle is equipped with an advanced driver assistance system, an auto glass repair or replacement facility that conducts glass repair, replacement or recalibration shall inform the customer both:

1. If a recalibration of that system is required.

2. If a recalibration of that system is performed that it must meet or exceed the vehicle manufacturer's specifications.

B. An auto glass repair or replacement facility shall provide the customer with an itemized description of the work to be done on the vehicle.

C. An auto glass repair or replacement facility may not represent to a customer that the cost of a repair, replacement or recalibration will be paid for entirely by the customer's insurer and at no cost to the customer unless the cost of the repair, replacement or recalibration is fully covered as provided by the customer's insurance policy.

D. If a recalibration was not performed or not completed successfully, the auto glass repair or replacement facility shall inform the customer and the customer's insurer electronically or in writing that the recalibration was not successful or was not performed and that the vehicle should be taken to a vehicle manufacturer's certified dealership or a qualified auto glass repair or replacement facility capable of performing the recalibration of an advanced driver assistance system that meets or exceeds the vehicle manufacturer's specifications.

E. An auto glass repair or replacement facility that conducts a recalibration for vehicle glass repair or replacement services on a vehicle equipped with an advanced driver assistance system:

1. Is not limited to vehicle glass, tooling, equipment or repair procedures dictated or recommended by the vehicle manufacturer.

2. Shall recalibrate the advanced driver assistance system to meet or exceed the vehicle manufacturer's specifications.

F. An auto glass repair or replacement facility may not bill or charge the customer or the customer's insurer for vehicle glass repair, replacement or recalibration services that are not performed in accordance with the vehicle manufacturer's specifications.

G. A person who violates this section is subject to a civil penalty of $2,500. A violation of this section is subject to enforcement pursuant to this article.

H. For the purposes of this section:

1. "Advanced driver assistance system" means electronic systems that use automated technology, such as sensors and cameras, to detect nearby obstacles or driver errors and that respond to assist drivers to safely operate a vehicle.

2. "Recalibrate" or "recalibration" means to instruct a vehicle's advanced driver assistance system, including internal computers, to readjust targeted cameras, sensors and other technology to function properly in accordance with the vehicle manufacturer's specifications.

§ 20-464 Prohibiting payment for services to persons other than the assignee

A. If an insured assigns to a health care provider performing services covered by the contract payment for benefits under a disability insurance contract, a group disability insurance contract or a blanket disability insurance contract, the contract does not prohibit assignments and the assignment is delivered to the insurer, payment may be made only to the health care provider to whom payment has been assigned.

B. Notwithstanding chapter 4, article 3 of this title, this section applies to a service corporation.

C. This section applies to an insurer whether acting as an insurer or performing administrative services.

§ 20-465 Fees; insurance producers; definition

A. An insurance producer shall not charge or receive any fee or service charge in addition to the premium in connection with the transaction of insurance, unless both of the following apply:

1. The fee or service charge and the specific services for which it is charged are disclosed and agreed to in writing by the insured.

2. The amount of the fee or service charge is reasonably related to the cost of the service rendered and does not duplicate or increase any fee or service charge included in the insurer's rate filing pursuant to this title.

B. If after an examination and a hearing the director determines that an insurance producer has failed to comply with this section, the director may order the insurance producer to refund all or part of the fee or service charge and may impose civil penalties as set forth in section 20-295. The insurance producer shall pay the costs of the examination from monies deposited with the director pursuant to section 20-159 regardless of the findings of the examination.

C. This section does not restrict or prohibit insurance producers from charging and collecting fees included in the insurer's rate filing pursuant to this title.

D. Notwithstanding subsection A of this section, an insurance producer shall not charge or receive any fee or service charge in connection with the transaction of medicare supplement insurance.

E. This section does not apply to insurance producers transacting commercial insurance.

F. This section does not apply to surplus lines brokers transacting surplus lines insurance as set forth in article 5 of this chapter.

G. For the purposes of this section, "commercial insurance" means insurance that insures against the risks arising from business and commercial activity other than insurance maintained by a transportation network company driver under a private passenger automobile insurance policy.

§ 20-466 Fraud unit; investigators; peace officer status; powers; information sharing; assessment

A. The fraud unit is established in the department of insurance and financial institutions. The director of the department of insurance and financial institutions shall appoint an individual to operate the fraud unit in conjunction with operating the automobile theft authority established by section 41-3451.

B. The fraud unit shall work in conjunction with the department of public safety.

C. The director may investigate any act or practice of fraud prohibited by section 20-466.01 and any other act or practice of fraud against an insurer or entity licensed under this title. The director shall administer the fraud unit.

D. The director may employ investigators for the fraud unit. A fraud unit investigator has and shall exercise the law enforcement powers of a peace officer of this state but only while acting in the course and scope of employment for the department of insurance and financial institutions. The director shall adopt guidelines for the conduct of investigations that are substantially similar to the investigative policy and procedural guidelines of the department of public safety for peace officers. Fraud unit investigators shall not preempt the authority and jurisdiction of other law enforcement agencies of this state or its political subdivisions. Fraud unit investigators:

1. Shall have at least the qualifications prescribed by the Arizona peace officer standards and training board pursuant to section 41-1822.

2. Are not eligible to participate in the public safety personnel retirement system established by title 38, chapter 5, article 4 due solely to employment as fraud unit investigators.

E. The director may request the submission of papers, documents, reports or other evidence relating to an investigation under this section. The director may issue subpoenas and take other actions pursuant to section 20-160. The materials are privileged and confidential until the director completes the investigation. Any documents, materials or other information that is provided to the director pursuant to this section is not subject to discovery or subpoena until opened for public inspection by the director or, after notice and a hearing, a court determines that the director would not be unduly burdened by compliance with the subpoena. The director shall keep the identity of an informant confidential, including any information that might identify the informant, unless the request for information is made by a law enforcement agency, the attorney general or a county attorney for purposes of a criminal investigation or prosecution. The director may use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the director's official duties.

F. If the documents, materials or other information the director seeks to obtain by request is located outside this state, the person requested to provide the documents, materials or other information shall arrange for the fraud unit or a representative, including an official of the state in which the documents, materials or other information is located, to examine the documents, materials or other information where it is located. The director may respond to similar requests from other states.

G. An insurer that believes a fraudulent claim has been or is being made shall send to the director, on a form prescribed by the director, information relative to the claim including the identity of parties claiming loss or damage as a result of an accident and any other information the fraud unit may require. The director shall review the report and determine if further investigation is necessary. If the director determines that further investigation is necessary, the director may conduct an independent investigation to determine if fraud, deceit or intentional misrepresentation in the submission of the claim exists. If the director is satisfied that fraud, deceit or intentional misrepresentation of any kind has been committed in the submission of a claim, the director may report the violations of the law to the reporting insurer, to the appropriate licensing agency as defined in section 20-466.04 and to the appropriate county attorney or the attorney general for prosecution.

H. The director may:

1. Share nonpublic documents, materials or other information with other state, federal and international regulatory agencies, with the national association of insurance commissioners and its affiliates and subsidiaries and with state, federal and international law enforcement authorities if the recipient agrees and warrants that it has the authority to maintain the confidentiality and privileged status of the documents, materials or other information.

2. Receive documents, materials and other information from the national association of insurance commissioners and its affiliates and subsidiaries and from regulatory and law enforcement officials of other jurisdictions and shall maintain as confidential or privileged any document, material or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information.

3. Enter into agreements that govern the sharing and use of documents, materials and other information and that are consistent with this section.

I. A disclosure to or by the director pursuant to this section or as a result of sharing information pursuant to subsection H of this section is not a waiver of any applicable privilege or claim of confidentiality in the documents, materials or other information disclosed or shared.

J. The director shall annually assess each insurer as defined in section 20-441, subsection B authorized to transact business in this state up to $1,050 for the administration and operation of the fraud unit and the prosecution of fraud pursuant to this section. Monies collected shall be deposited, pursuant to sections 35-146 and 35-147, in the fraud unit assessment fund established by section 20-466.05.

K. A person, or an officer, employee or agent of the person acting within the scope of employment or agency of that officer, employee or agent, who in good faith files a report or provides other information to the fraud unit pursuant to this section is not subject to civil or criminal liability for reporting that information to the fraud unit.

§ 20-466.01 Fraud; classification

A person who violates section 20-463 or 20-463.01 with the intent to injure, defraud or deceive an insurer is guilty of a class 6 felony.

§ 20-466.02 Injunction; restitution; civil penalties; costs

A. On request by the director, the attorney general may seek and obtain in an action in the superior court an injunction that prohibits a person from engaging in practices or doing any acts that violate section 20-463, 20-463.01 or 23-1028. The court may enter any order or judgment that is necessary to:

1. Prevent any act or practice that is unlawful under section 20-463, 20-463.01 or 23-1028.

2. Return any monies, interest or real or personal property that was acquired by an act or practice that is unlawful under section 20-463, 20-463.01 or 23-1028.

B. An order of restitution may also include expenses incurred and paid by an insurer in connection with any medical evaluation or treatment services.

C. If the court finds that a person has violated section 20-463, 20-463.01 or 23-1028, the attorney general on petition or complaint to the court may recover from that person on behalf of the state a civil penalty of not more than five thousand dollars for each violation.

D. In any action pursuant to this section, the court may award the attorney general costs including reasonable attorney fees and investigative costs for the services rendered.

§ 20-466.03 Notice of penalty for false or fraudulent claims; definition

A. The claims forms provided by an insurer to an insured or any other person for filing a notice or making a claim in connection with a policy or contract issued by the insurer shall include in substance the following statement in at least twelve point type: "For your protection Arizona law requires the following statement to appear on this form. Any person who knowingly presents a false or fraudulent claim for payment of a loss is subject to criminal and civil penalties."

B. For the purposes of this section, "claims form" means any document supplied by an insurer to an insured, claimant or other person that the insured, claimant or other person is required to complete and submit in support of a claim for benefits.

§ 20-466.04 Referrals to other licensing agencies; definition

A. The director shall forward to the appropriate licensing agency the name of any person who is convicted of, enjoined from or penalized for violating section 20-463 or 23-1028. The director shall include any information the director believes is material to the case.

B. A person whose name is forwarded pursuant to subsection A of this section has no cause of action against the director and the department's employees and agents pursuant to any administrative appeal or judicial review.

C. For the purposes of this section, "licensing agency" means any state board, commission, department or agency that issues any occupational or professional license, permit or registration and the state bar of Arizona.

§ 20-466.05 Fraud unit assessment fund

The fraud unit assessment fund is established consisting of monies deposited pursuant to section 20-466, subsection J. Monies in the fund are continuously appropriated. The department shall administer the fund for administering and operating the fraud unit established by section 20-466.

§ 20-467 Return premiums; penalties

All insurers and insurance producers shall comply with the requirements prescribed in sections 6-1415 and 6-1416. In addition to any penalty provided by law, any insurer or insurance producer who fails to comply with the requirements prescribed in sections 6-1415 and 6-1416 is subject to the penalties prescribed in section 20-456.

§ 20-468 Motor vehicle loss; policyholder choice of repair facility

A. For repair facilities other than glass repair facilities and subject to the rights of an insurer to receive notice of loss or claim consistent with the provisions of its policy, a person in this state has the right to choose any repair facility for the repair of a motor vehicle loss. If an insurer provides information about a repair facility, the insurer shall inform the person of this right at the same time as making the recommendation or providing the information. This section does not create a private right or cause of action to or on behalf of any person.

B. If an insured or claimant selects a repair facility to repair the insured's or claimant's motor vehicle in which the insurer owns an interest in that repair facility, the adjuster for the motor vehicle shall not be employed by the repair facility or have any direct authority over that facility's recommendations or decisions relating to the repair of the insured's or claimant's motor vehicle.

§ 20-469 Motor vehicle loss; choice of glass repair facility

Unless otherwise prescribed by contract, a person in this state has the right to choose any glass repair facility for the repair of a loss relating to motor vehicle glass. If an insurer recommends or provides information about a glass repair facility, the insurer shall inform the person of this right at the same time as making the recommendation or providing the information. This section does not create a private right or cause of action to or on behalf of any person. This section provides solely an administrative remedy to the director for any violation of this section.

§ 20-469.01 Third party administrator; glass; violation; classification; definition

A. If a third party administrator recommends or provides information about a glass repair facility to a customer, the third party administrator shall inform the person of the person's right prescribed in section 20-469 to choose any glass repair facility for the repair of the loss relating to motor vehicle glass at the same time as making the recommendation or providing information. An independent adjuster or a third party administrator's automotive physical damage appraiser or claims inspector for automotive glass repair or replacement work in connection with an inspection limited to automotive glass repair or replacement shall not recommend any particular glass repair facility.

B. This section shall not apply to any employee or insurance producer of an insurer.

C. This section shall not create a private right of action.

D. A person who knowingly violates this section is guilty of a petty offense for a first violation and, notwithstanding section 13-802, shall pay a fine of one thousand five hundred dollars for a second violation within eighteen months after a prior violation of this section and three thousand dollars for any subsequent violation within eighteen months after a prior violation of this section.

E. For the purposes of determining whether a defendant acted knowingly, it may be presumed that the person had knowledge if the person was engaged in a regular and consistent pattern of the prohibited activity.

F. For the purposes of this section "third party administrator" means any person who provides administrative service or adjusts or settles claims in connection with automobile glass repair insurance coverage.

Article 7 Insurance on Collateral Security

§ 20-471 Definition of insurance service charge; limit; prohibited use

A. "Insurance service charge" means any charge, other than the insurance premium, for the service of placing, renewing, approving or recording on the records and accounts of any mortgagee, vendor, holder or lender any substitution of insurers or change in insurance on the collateral security for a loan.

B. Except as provided in subsection C of this section, it shall be unlawful for any mortgagee, vendor, holder or lender to charge an insurance company, insurance agency, borrower, mortgagor or purchaser with payment of an insurance service charge.

C. An insurance service charge of eight dollars may be charged as a condition to acceptance of an insurance policy tendered to satisfy the requirements of a real estate mortgage contract when a mortgagee, vendor, holder or lender performs services in connection with this subsection, as follows:

1. An insurance policy is tendered without an authorization signed by the borrower appointing the insurance producer tendering the policy attached thereto, unless a prior authorization not revoked has been delivered to the lender.

2. An insurance policy is tendered without the borrower's mortgage loan number as assigned for payment identification or a legal description of the insured property printed in bold-faced type on the face of the policy.

3. An original, a renewal or a replacement insurance policy is tendered less than ten days prior to an expiration date, renewal date or continuous policy premium anniversary date, or expiration of an insurance binder issued preliminary to issuance of a permanent policy.

4. An insurance policy is tendered by an agent other than an agent appearing on the records of the mortgagee as authorized to represent the borrower at any time during the term of such insurance other than within thirty days prior to the policy's expiration date, renewal or continuous policy premium anniversary date.

§ 20-472 Service charges in connection with insurance on collateral security prohibited when change of ownership

It is unlawful for a mortgagee to require the payment of any insurance service charge for services performed in changing of the mortgagee's records and accounts with regard to a change in ownership of the insured property held as security by the mortgagee and with regard to which the mortgagee issues a written beneficiary statement or assumption statement.

§ 20-473 Obligation of mortgagee to furnish mortgagor copies of insurance policy

Whenever the mortgagee or a person acting for the mortgagee, by the terms of the mortgage agreement retains possession of the original policy of insurance insuring collateral security for a mortgage, and the mortgagee or his agent has procured the issuance of the insurance, then such mortgagee or his agent shall furnish the borrower, mortgagor or purchaser with a copy of the insurance policy.

§ 20-474 Service charges in connection with insurance on collateral security prohibited when mortgagee procures insurance

When a mortgagee or his agent at the inception of the mortgage procures the issuance of insurance for the mortgagor then the mortgagor may substitute a replacement policy within one year after the inception of the original policy procured by the mortgagee and it shall be unlawful for the mortgagee to charge an insurance service charge for services performed in changing the mortgagee's records and accounts.

§ 20-475 Reasonable requirements of security holder are valid

Nothing in this article shall prevent a mortgagee, lender, vendor, or holder from requiring insurance on the collateral security for a loan or exercising a reasonable privilege of approval or disapproval of the insurance provided for such purpose by the borrower, mortgagor or purchaser.

§ 20-475.01 Insurance on mortgaged property; disclosure of expiration date prohibited; exception

When a real property mortgage or a lending agreement in connection with a loan on real property provides that the mortgagor or borrower shall furnish insurance upon the mortgaged property, the mortgagee, assignee or creditor shall not disclose expiration dates or other policy information to other persons, directly or indirectly, for the purpose of permitting any person or persons to solicit the insurance or any renewal thereof without the consent of the policyholder in writing.

§ 20-476 Violation; classification

Intentional violation of this article is a petty offense.

Article 8 Insurance Holding Company Systems

§ 20-481 Definitions

In this article, unless the context otherwise requires:

1. "Affiliate" or person "affiliated" with a specific person means a person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the person specified.

2. "Continuing proxies" means proxies that are valid for more than one annual or special meeting of security holders and any adjournments thereof.

3. "Control" and "controlling" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote or holds proxies representing ten percent or more of the voting securities of any other person. This presumption may be rebutted by a showing made in the manner provided by section 20-481.18 that control does not exist in fact. The director may determine, after furnishing all persons in interest notice and an opportunity to be heard and making specific findings of fact to support such determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.

4. "Enterprise risk" means any activity, circumstance, event or series of events involving one or more affiliates of an insurer that if not remedied promptly is likely to have a material adverse effect on the financial condition or liquidity of the insurer or its insurance holding company system as a whole, including causing the insurer's risk-based capital to decrease to or below a company action level under section 20-488.02, or would cause an insurer to be in hazardous financial condition pursuant to section 20-220.01.

5. "Group capital calculation instructions" means the national association of insurance commissioners group capital calculation instructions as adopted and amended in accordance with the national association of insurance commissioners' procedures.

6. "Group-wide supervisor" means the regulatory official who is authorized to engage in conducting and coordinating group-wide supervision activities and who is determined or acknowledged by the director pursuant to section 20-481.33 to have sufficient significant contacts with the internationally active insurance group.

7. "Insurance holding company system" means two or more affiliated persons, one or more of whom is an insurer.

8. "Insurer" means every person engaged in the business of making contracts of insurance except:

(a) Agencies, authorities or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia or a state or political subdivision of a state.

(b) Nonprofit medical and hospital service associations.

(c) Credit life and disability reinsurers as defined in section 20-1082 that are not affiliated with another insurer as defined in section 20-104.

9. "Internationally active insurance group" means an insurance holding company system that includes an insurer registered pursuant to section 20-481.09 and that meets the following criteria:

(a) Has premiums written in at least three countries.

(b) The percentage of gross premiums written outside the United States is at least ten percent of the insurance holding company system's total gross written premiums.

(c) Based on a three-year rolling average, the total assets of the insurance holding company system are at least $50,000,000,000, or the total gross written premiums of the insurance holding company system are at least $10,000,000,000.

10. "Liquidity stress test framework" means a separate publication by the national association of insurance commissioners that may include any amendment adopted in accordance with national association of insurance commissioners' procedures and instructions and reporting templates for a specific data year and that may contain the following information:

(a) A history of the regulatory liquidity stress testing.

(b) The scope criteria applicable for a specific data year.

11. "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization and any similar entity or any combination of the foregoing acting in concert but does not include any joint venture partnership exclusively engaged in owning, managing, leasing or developing real or tangible personal property.

12. "Scope criteria" means the designated exposure bases and minimum magnitudes that may be used to establish a preliminary list of insurers that are selected into the liquidity stress test framework for a specific year and that are detailed in the liquidity stress test framework.

13. "Security holder of a specified person" means a person who owns any security of such person, including common stock, preferred stock, debt obligations and any other security that is convertible into or that evidences the right to acquire any of the foregoing.

14. "Subsidiary of a specified person" means an affiliate controlled by such person directly or indirectly through one or more intermediaries.

15. "Supervisory college" means a temporary or permanent forum for communication and cooperation between regulators charged with the supervision of entities that belong to an insurance holding company system that has international operations.

16. "Voting security" means a security that carries with it a right to vote in decisions and also includes securities that are convertible into or evidence a right to acquire a security that includes such right to vote.

§ 20-481.01 Investment limitations; exemptions

A. Any domestic insurer, either by itself or in cooperation with one or more persons, may organize or acquire one or more subsidiaries subject to the limitations of this article. Such subsidiaries may conduct any kind of business or businesses and the authority to do so shall not be limited by reason of the fact that such subsidiaries are subsidiaries of a domestic insurer.

B. In addition to investments in common stock, preferred stock, debt obligations and other securities permitted under all other sections of this title, a domestic insurer, pursuant to subsection A of this section, may:

1. Invest in common stock, preferred stock, debt obligations and other securities of one or more subsidiaries in amounts that do not exceed the lesser of ten per cent of such insurer's assets or fifty per cent of such insurer's surplus as regards policyholders, provided that after such investments the insurer's surplus as regards policyholders will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs. In calculating the amount of such investments, investments in domestic or foreign insurance subsidiaries and health care service organizations shall be excluded, and there shall be included total net monies or other consideration expended and obligations assumed in the acquisition or formation of a subsidiary including all organizational expenses and contributions to capital and surplus of such subsidiary whether or not represented by the purchase of capital stock or issuance of other securities, and all amounts expended in acquiring additional common stock, preferred stock, debt obligations, and other securities and all contributions to the capital or surplus, of a subsidiary subsequent to its acquisition or formation.

2. Invest any amount in common stock, preferred stock, debt obligations and other securities of one or more subsidiaries that is engaged or organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer if each subsidiary agrees to limit its investments in any asset so that such investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitations specified in paragraph 1 of this subsection or in chapter 3, article 2 of this title, applicable to the insurer. For the purpose of this paragraph, "the total investment of the insurer" includes any direct investment by the insurer in an asset and the insurer's proportionate share of the investment in an asset by any subsidiary of the insurer, which shall be calculated by multiplying the amount of the subsidiary's investment by the percentage of the insurer's ownership of such subsidiary.

3. With the approval of the director, invest any greater amount in common stock, preferred stock, debt obligations or other securities of one or more subsidiaries, provided that after such investment the insurer's surplus as regards policyholders will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.

C. Investments in common stock, preferred stock, debt obligations or other securities of subsidiaries made pursuant to subsection B of this section are not subject to any of the otherwise applicable restrictions or prohibitions contained in this title applicable to such investment of insurers.

D. Whether any investment pursuant to subsection B of this section meets the applicable requirements is to be determined before the investment is made by calculating the applicable investment limitations as if the investment had already been made, taking into account the then outstanding principal balance on all previous investments in debt obligations, and the value of all previous investments in equity securities as of the date they were made, net of any return of capital invested, not including dividends.

E. If an insurer ceases to control a subsidiary, it shall dispose of any investment in the subsidiary made pursuant to this section within three years from the time of the cessation of control or within such further times as the director may prescribe, unless at any time after such investment has been made, such investment has met the requirements for investment under any other section of this title, and the insurer has so notified the director.

F. For the purposes of this section, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, the following factors shall be considered:

1. The quality and liquidity of investments in affiliates. The director may treat any investment as a disallowed asset for purposes of determining the adequacy of surplus as regards policyholders if in the judgment of the director the investment warrants it.

2. The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria.

3. The extent to which the insurer's business is diversified among the several lines of insurance.

4. The number and size of risks insured in each line of business.

5. The extent of the geographical dispersion of the insurer's insured risks.

6. The nature and extent of the insurer's reinsurance program.

7. The quality, diversification and liquidity of the insurer's investment portfolio.

8. The recent past and projected future trend in the size of the insurer's surplus as regards policyholders.

9. The surplus as regards policyholders maintained by other comparable insurers.

10. The adequacy of the insurer's reserves.

§ 20-481.02 Tender offers; required statements; disclosures; approval or disapproval by director; definition

A. No person other than the issuer shall make a tender for or a request or invitation for tenders of a voting security of a domestic insurer or enter into any agreement to exchange securities or seek to acquire in the open market or in any other place any voting security of a domestic insurer if, after the consummation thereof, such person would, directly or indirectly, by conversion or by the exercise of any right to acquire, be in control of such insurer. No person may enter into an agreement to merge with or to otherwise acquire control of a domestic insurer or a person who controls a domestic insurer unless, at the time the offer, request or invitation is made or the agreement is entered into or before the acquisition of the securities, if no offer or agreement is involved, such person has filed with the director and has sent to such insurer a statement containing the information required by section 20-481.03 and the offer, request, invitation, agreement or acquisition has been approved by the director.

B. With respect to the acquisition of a domestic insurer by a person, directly or indirectly through an affiliate or affiliates, who is not required to file a statement pursuant to subsection A of this section because such person is not primarily engaged in the business of insurance, such person, at least thirty days before the effective date of the acquisition of the domestic insurer, shall file with the director a statement containing the information required by section 20-481.03. If the director finds that the acquisition does not meet the requirements of section 20-481.07, subsection A, the director shall issue an order disapproving the acquisition of the domestic insurer and shall require the person to make an expeditious divestiture of such insurer. The director shall have the authority to take such actions as are necessary to assure such divestiture.

C. A controlling person of a domestic insurer that seeks to divest its controlling interest in the domestic insurer shall file with the director, with a copy to the insurer, a confidential notice of its proposed divestiture at least thirty days before the cessation of control. The director shall determine if the party seeking to divest or to acquire a controlling interest in the insurer will be required to file for and obtain approval of the transaction. The information shall remain confidential until the conclusion of the transaction unless the director determines that confidential treatment will interfere with enforcement of this section. This subsection does not apply if the statement referred to in subsection A of this section is filed.

D. The director may employ insurance analysts, hearing examiners and such other staff as necessary to ensure compliance with this section. Such costs shall be paid by the insurance examiners' revolving fund in accordance with section 20-159.

E. The filing requirements provided in subsection A of this section shall not be deemed in conflict with federal securities acts where such federal securities acts apply. No offer, transaction, proposed transaction, agreement or acquisition subject to approval of the director pursuant to subsection A of this section shall become effective until approved by the director.

F. Notwithstanding subsection C of this section, the acquiring person shall file a preacquisition notification with the director that contains the information prescribed in section 20-481.25, subsection C for all transactions under this section.

G. For the purposes of this section:

1. "Domestic insurer" includes any person controlling a domestic insurer, unless the director determines that the person is either directly or through its affiliates primarily engaged in business other than the business of insurance.

2. Person does not include any securities broker in the usual and customary broker's function holding less than twenty per cent of the voting securities of an insurance company or of any person that controls an insurance company.

§ 20-481.03 Contents of statement

A. The statement to be filed with the director as provided in section 20-481.02 shall be made under oath or affirmation and shall contain the following:

1. The name and address of each person by whom or on whose behalf the tender offer, merger or other acquisition of control referred to in section 20-481.02 is to be effected.

2. If the acquiring party is an individual, the individual's principal occupation and all offices and positions held during the past five years and any convictions of crimes other than minor traffic violations during the past ten years.

3. If the acquiring party is not an individual:

(a) A report of the nature of its business operations during the past five years or for such lesser period as such person and any predecessors thereof shall have been in existence.

(b) An informative description of the business intended to be done by such person and such person's subsidiaries.

(c) A list of all individuals who are or who have been selected to become directors or executive officers of such person, or who perform or will perform functions appropriate to such positions. Such list shall include for each such individual the information required by paragraph 2 of this subsection.

4. The source, nature and amount of the consideration used or to be used in effecting the merger or other acquisition of control, a description of any transaction wherein funds were or are to be obtained for any such purpose including a pledge of the insurer's stocks or the stock of any of its subsidiaries or controlling affiliates, and the identity of persons furnishing such consideration, provided that if a source of such consideration is a loan made in the lender's ordinary course of business, the identity of the lender shall remain confidential, if the person filing such statement so requests.

5. Fully audited financial information as to the earnings and financial condition of each acquiring party for the preceding five fiscal years of each such acquiring party or for such lesser period as such acquiring party and any predecessors thereof have been in existence and similar unaudited information as of a date not earlier than ninety days before the filing of the statement. If audited financial information is unavailable, unaudited financial information may be substituted if such information is acceptable to the director.

6. Any plans or proposals that each acquiring party may have to liquidate such insurer, to sell its assets or merge or consolidate it with any person or to make any other material change in its business or corporate structure or management.

7. The number of shares of any security referred to in section 20-481.02 that each acquiring party proposes to acquire, and the terms of the offer, request, invitation, agreement or acquisition referred to in section 20-481.02 and a statement as to the method by which the fairness of the proposal was arrived at.

8. The amount of each class of any security referred to in section 20-481.02 that is beneficially owned or about which there is a right to acquire beneficial ownership by each acquiring party or that each acquiring party has the right to acquire.

9. A full description of any contracts, arrangements or understandings with respect to any security referred to in section 20-481.02 in which any acquiring party is involved, including but not limited to transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits or the giving or withholding of proxies. Such description shall identify the persons with whom such contracts, arrangements or understandings have been entered into.

10. A description of the purchase of any security referred to in section 20-481.02 during the twelve calendar months preceding the filing of the statement, by any acquiring party, including the dates of purchases, names of the purchasers and consideration paid or agreed to be paid therefor.

11. A description of any recommendations to purchase any security referred to in section 20-481.02 made during the twelve calendar months preceding the filing of the statement, by any acquiring party, or by anyone based on interviews or at the suggestion of such acquiring party.

12. Copies of all tender offers for, requests or invitations for tenders of exchange offers for and agreements to acquire or exchange any securities referred to in section 20-481.02 and any additional soliciting material relating thereto.

13. The terms of any proposed or executed agreement, contract or understanding made with any broker-dealer as to solicitation of securities referred to in section 20-481.02 for tender, and the amount of any fees, commissions or other compensation to be paid to broker-dealers with regard thereto.

14. An agreement by the person required to file the statement referred to in section 20-481.02 that the person will file with the director the annual enterprise risk report pursuant to section 20-481.10, subsection D, paragraph 1 while in control of the insurer.

15. An acknowledgement by the person required to file the statement referred to in section 20-481.02 that the person and all subsidiaries in its control in the insurance holding company system will provide all information requested by the director for the director to evaluate enterprise risk to the insurer.

16. Such additional information as the director may by rule prescribe as necessary or appropriate for the protection of policyholders and security holders of the insurer or in the public interest.

B. The director may require each statement to be accompanied by the fingerprints of any individual named in such statement as an acquiring party or as directors or executive officers of an acquiring party. Such fingerprints shall be taken in an approved manner and certified by a municipal police department, a sheriff's office or another recognized authority acceptable to the director.

§ 20-481.04 Statement filed by partnership, corporation or other group

A. If the person required to file the statement referred to in section 20-481.02 is a partnership, limited partnership, syndicate or other group, the director may require that the information required pursuant to section 20-481.03 shall be given with respect to each partner of such partnership or limited partnership, each member of such syndicate or group and each person who controls such partner or member.

B. If any such partner, member or person is a corporation or the person required to file the statement referred to in section 20-481.02 is a corporation, the director may require that the information required pursuant to section 20-481.03 shall be given with respect to such corporation, each officer and director of such corporation and each person who is directly or indirectly the beneficial owner of more than ten per cent of the outstanding voting securities of such corporation.

§ 20-481.05 Material change of fact; filing amended statement; time

If any material change occurs in the facts set forth in the statement filed with the director and sent to such insurer pursuant to sections 20-481.02 and 20-481.03, an amendment setting forth such change, together with copies of all documents and other material relevant to such change, shall be filed with the director and sent to such insurer within two business days after the person learns of such change.

§ 20-481.06 Use of other statements

If any offer, request, invitation, agreement or acquisition referred to in section 20-481.02 is proposed to be made by means of a registration statement under the securities act of 1933 or in circumstances requiring the disclosure of similar information under the securities exchange act of 1934, or under a state law requiring similar registration or disclosure, the person required to file the statement referred to in section 20-481.02 may use the documents in furnishing the information provided in that statement.

§ 20-481.07 Approval and issues; notice; hearings

A. The director shall approve any merger or other acquisition of control described in section 20-481.02 unless the director finds that:

1. The merger or other acquisition of control:

(a) Is contrary to law.

(b) Is inequitable to the shareholders of any domestic insurer involved.

(c) Would substantially reduce the security of and service to be rendered to policyholders of the domestic insurer in this state or elsewhere.

2. After the change of control the domestic insurer would not be able to satisfy the requirements for the reissuance of a certificate of authority to write the line or lines of insurance for which it is presently licensed.

3. The effect of the merger or other acquisition of control would substantially lessen competition in insurance in this state or tend to create a monopoly. In applying the competitive standard in this paragraph:

(a) The informational requirements of section 20-481.25, subsection C and the standards of section 20-481.25, subsection D apply.

(b) The merger or other acquisition shall not be disapproved if the director finds that any of the situations meeting the criteria provided by section 20-481.25 exist.

(c) The director may condition the approval of the merger or other acquisition on the removal of the basis of disapproval within a specified period of time.

4. The financial condition of any acquiring party might jeopardize the financial stability of the insurer or prejudice the interest of its policyholders.

5. The plans or proposals that the acquiring party has to liquidate the insurer, sell its assets or consolidate or merge it with any person, or to make any other material change in its business or corporate structure or management, are unfair and unreasonable to policyholders of the insurer and are not in the public interest.

6. The competence, experience and integrity of those persons who would control the operation of the insurer are such that it would not be in the interest of policyholders of the insurer and of the public to permit the merger or other acquisition of control.

7. The acquisition is likely to be hazardous or prejudicial to the insurance buying public.

B. The director may conduct a hearing as prescribed in section 20-161 for any transaction requiring the director's approval pursuant to section 20-481.02.

C. The person filing the statement required by section 20-481.02 shall give at least ten days' written notice of the hearing to the insurer and to any other persons designated by the director. The insurer shall give the written notice to its security holders.

D. If the director does not give notice of a hearing pursuant to subsection B of this section, the person filing the statement shall give written notice of the filing on a form prescribed by the director to the insurer and to any other persons designated by the director. The insurer shall give the written notice to its security holders. The person filing the statement, the insurer, any designated recipient of the written notice of the filing and any person whose interests may be affected by the filing have ten days from the date of the written notice to request that the director hold a hearing on the filing pursuant to this section. The request shall specify the grounds for the hearing and the interests that would be affected by the filing.

E. If the director finds that the request is made in good faith, that the interests of the person requesting the hearing would be affected by the filing if the grounds are established and that the grounds otherwise justify holding a hearing, the director shall grant the request for a hearing and issue a notice of hearing to all persons entitled to the notice pursuant to subsection C of this section.

F. If a hearing is scheduled, the person filing the statement, the insurer, any person to whom written notice of hearing was sent and any other person whose interests may be affected shall have the right to present evidence, examine and cross-examine the witnesses and offer oral and written arguments at the hearing.

G. If the proposed acquisition of control will require the approval of other states in addition to this state, the director may hold a public hearing on a consolidated basis for the purpose of receiving public comment on a proposed agency action on request of the person filing the statement referred to in section 20-481.02. The person shall file the statement referred to in section 20-481.02 with the national association of insurance commissioners within five days after making the request for a public hearing. The director may opt out of a consolidated hearing and shall provide notice to the applicant of the opt out within ten days after receiving the statement referred to in section 20-481.02. A hearing held by the director and conducted on a consolidated basis must be public and held in the United States.

H. In connection with a change of control of a domestic insurer, the director shall make a determination that the person acquiring control of the insurer is required to maintain or restore the capital of the insurer to the level required by the laws and rules of this state within sixty days after the date of notification of the change in control that is submitted pursuant to section 20-481.03.

I. The director may retain at the acquiring person's expense attorneys, actuaries, accountants and other experts not part of the director's staff as may be reasonably necessary to assist the director in reviewing the proposed acquisition of control.

J. All statements, amendments or other material filed pursuant thereto, and all notices of public hearing held pursuant to this section, shall be mailed by the insurer to its shareholders within five business days after the insurer has received the statements, amendments, other material or notices. The person making the filing shall pay the expenses of mailing. As security for the payment of the expenses, the person shall file with the director an acceptable bond or other deposit in an amount to be determined by the director.

§ 20-481.08 Appointment of director as agent for service of process; forwarding of process; consent to jurisdiction

Any person who is not a resident, domiciled in this state, or authorized to do business in this state and who files a statement as required by section 20-481.02 shall be deemed to have:

1. Consented to the jurisdiction of the courts of this state for all actions arising under this article.

2. Appointed the director as the person's lawful agent for the purpose of accepting service of process in any action, suit or proceeding that may arise under this article. Copies of all lawful process accepted by the director as an agent shall be transmitted by the director by registered or certified mail to the person at the person's last known address.

§ 20-481.09 Registration of insurers; deadline

A. Every insurer that is authorized to do business in this state and that is a member of an insurance holding company system shall register with the director, except a foreign insurer subject to registration requirements and standards adopted by statute or regulation in the jurisdiction of its domicile that are substantially similar to those contained in this article.

B. Any insurer that is subject to registration under this article shall register within fifteen days after the insurer becomes subject to registration and by March 31 of each year unless the director for good cause extends the time for registration.

C. The director may require any authorized insurer that is a member of an insurance holding company system that is not subject to registration under this section to furnish a copy of the registration statement, the summary prescribed in section 20-481.10 or other information filed by such insurance company with the insurance regulatory authority of its domiciliary jurisdiction.

§ 20-481.10 Form and content of registration statement; disclosure of information; enterprise risk filing

A. Every insurer subject to registration shall file a registration statement on a form provided by the director, which shall contain current information concerning:

1. The capital structure, general financial condition, ownership and management of the insurer and identity of any person controlling the insurer.

2. The identity of every member of the insurance holding company system that directly or indirectly controls the insurer.

3. The following agreements in force, relationships subsisting and transactions currently outstanding or that have occurred during the last calendar year between such insurer and its affiliates:

(a) Loans, other investments or purchases, sales or exchanges of securities of the affiliates by the insurer or of the insurer by its affiliates.

(b) Purchases, sales or exchanges of assets.

(c) Transactions not in the ordinary course of business.

(d) Guarantees or undertakings for the benefit of any affiliate that result in an actual contingent exposure of the insurer's assets to liability, other than insurance contracts entered into in the ordinary course of the insurer's business.

(e) All management and service contracts and all cost sharing arrangements.

(f) Reinsurance agreements.

(g) Dividends and other distributions to shareholders.

(h) Consolidated tax allocation agreements.

4. A pledge of the insurer's stock, including stock of any subsidiary or controlling affiliate, for a loan made to a member of the insurance holding company system.

5. If requested by the director, financial statements of or within an insurance holding company system, including all affiliates. Financial statements may include annual audited financial statements filed with the United States securities and exchange commission pursuant to the securities act of 1933 or the securities exchange act of 1934. An insurer required to file financial statements pursuant to this paragraph may satisfy the request by providing the director with the most recent parent corporation financial statements filed with the United States securities and exchange commission.

6. Other matters concerning transactions between registered insurers and any affiliates as may be included from time to time in any registration forms adopted or approved by the director.

7. A statement that the insurer's board of directors oversees corporate governance and internal controls of the insurer and that the insurer's officers or senior management have approved and implemented and maintain and monitor corporate governance and internal control procedures.

8. Any other information required by the director by rule.

B. All registration statements shall contain a summary outlining all items in the current registration statement representing changes from the prior registration statement.

C. A person within an insurance holding company system that is subject to registration shall provide complete and accurate information to an insurer if this information is reasonably necessary to enable the insurer to comply with this article.

D. The following provisions apply to enterprise risk filings:

1. The ultimate controlling person of each insurer that is subject to registration shall file an annual enterprise risk report that to the best of the ultimate controlling person's knowledge and belief identifies the material risks within the insurance holding company system that could pose enterprise risk to the insurer. The ultimate controlling person shall file the report according to the procedures of the national association of insurance commissioners' financial analysis handbook.

2. Except as otherwise provided in this paragraph, the ultimate controlling person of each insurer that is subject to registration shall concurrently file an annual group capital calculation report as directed by the lead state director or commissioner. The report shall be completed in accordance with the group capital calculation instructions, which may allow the lead state director or commissioner to allow a controlling person that is not the ultimate controlling person to file the group capital calculation report. The report shall be filed with the lead state director or commissioner in accordance with the procedures outlined in the national association of insurance commissioners' financial analysis handbook. The following provisions apply to filing the group capital calculation report:

(a) The following insurance holding companies are exempt from filing the group capital calculation report:

(i) An insurance holding company system that has only one insurer within its holding company structure, that writes only business and is licensed only in its domestic state and that assumes no business from any other insurer.

(ii) An insurance holding company system that is required to perform a group capital calculation specified by the federal reserve board. The lead state director or commissioner shall request the calculation from the federal reserve board under the terms of information sharing agreements that are in effect. If the federal reserve board cannot share the calculation with the lead state director or commissioner, the insurance holding company system is not exempt from the group capital calculation filing.

(iii) An insurance holding company system whose non-United States group-wide supervisor is located within a reciprocal jurisdiction, as described in section 20-3602, subsection H, paragraph 1, that recognizes the United States state regulatory approach to group supervision and group capital.

(iv) An insurance holding company system that provides information to the lead state that meets the requirements for accreditation under the national association of insurance commissioners financial standards and accreditation program through the group-wide supervisor who has determined that the information is satisfactory to allow the lead state to comply with the national association of insurance commissioners group supervision approach in accordance with the national association of insurance commissioners' financial analysis handbook, and whose non-United States group-wide supervisor who is not in a reciprocal jurisdiction recognizes and accepts, as specified by the director, the group capital calculation as a worldwide group capital assessment for United States insurance groups that operate in that jurisdiction.

(b) Notwithstanding subdivision (a), items (iii) and (iv) of this paragraph, a lead state director or commissioner shall require the group capital calculation for United States operations of any non-United States based insurance holding company system where, after any necessary consultation with other supervisors or officials, it is deemed appropriate by the lead state director or commissioner for prudential oversight and solvency monitoring purposes or for ensuring the competitiveness of the insurance marketplace.

(c) Notwithstanding subdivision (a) of this paragraph, the lead state director or commissioner has discretion to exempt the ultimate controlling person from filing the annual group capital calculation report or to accept a limited group capital filing or report in accordance with the criteria as specified by the director or commissioner in regulation.

(d) If the lead state director or commissioner determines that an exemption from filing the group capital calculation report no longer applies to an insurance holding company system, the insurance holding company system shall file the group capital calculation report at the next annual filing date unless reasonable grounds exist for the lead state director or commissioner to grant an extension.

3. The ultimate controlling person of each insurer that is subject to registration and selected into the national association of insurance commissioners liquidity stress test framework shall file the results of a specific year's liquidity stress test with the lead state director or commissioner according to the procedures prescribed in the national association of insurance commissioners' financial analysis handbook. The following provisions apply to the liquidity stress test framework:

(a) The liquidity stress test framework includes scope criteria that are applicable to a specific data year. The scope criteria must be reviewed at least annually by the national association of insurance commissioners financial stability task force or its successor. Any change to the liquidity stress test framework or to a data year for which the scope criteria is to be measured shall be effective on January 1 of the year following the calendar year when the changes are adopted. Insurers that meet at least one threshold of the scope criteria are considered selected into the liquidity stress test framework for the specified data year unless the lead state director or commissioner, in consultation with the national association of insurance commissioners financial stability task force or its successor, determines that the insurer should not be included into the liquidity stress test framework for that data year. Insurers that do not meet at least one threshold of the scope criteria are excluded from the liquidity stress test framework for the specified data year unless the director, in consultation with the national association of insurance commissioners financial stability task force or its successor, determines that the insurer should be included into the liquidity stress test framework for that data year.

(b) An insurance holding company system shall perform and file a specific year's liquidity stress test in accordance with the liquidity stress test framework's instructions and reporting templates for that specific year and any lead state director or commissioner determinations.

§ 20-481.11 Exemption for nonmaterial items

A. No information need be disclosed on the registration statement filed under section 20-481.10 if such information is not material.

B. Unless otherwise prescribed by the director, sales, purchases, exchanges, loans or extensions of credit, or investments, involving one-half of one percent or less of an insurer's admitted assets as of December 31 next preceding shall not be deemed material. For the purposes of this subsection, what is considered material does not apply to the group capital calculation or to the liquidity stress test framework.

§ 20-481.12 Standards

A. Transactions within an insurance holding company system to which an insurer subject to registration is a party are subject to the following standards:

1. The terms are fair and reasonable.

2. Agreements for cost sharing or management services and management must include provisions that are required by rule.

3. Charges or fees for services performed are reasonable.

4. Expenses incurred and payment received are allocated to the insurer in conformity with customary insurance accounting practices consistently applied.

5. The books, accounts and records of each party to all transactions clearly and accurately disclose the nature and details of the transactions including any accounting information that is necessary to support the reasonableness of the charges or fees to the respective parties.

6. The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.

7. If the director deems that an insurer subject to this article is in a hazardous financial condition pursuant to section 20-220.01 or that a condition exists that constitutes grounds for supervision, conservation or a delinquency proceeding, the director may require the insurer to submit a deposit, held by the director, or a bond to protect the insurer for the duration of any outstanding contract or agreement. In determining whether to require a deposit or bond, the director shall consider whether an affiliated person would be able to fulfill the contract or agreement if the insurer were to be placed into liquidation. The director may determine the amount of the deposit or bond, not to exceed the value of the contract or agreement in any one year, and whether the deposit or bond should be required for a single contract, multiple contracts or a contract with a specific person.

8. All records and data of the insurer that are held by an affiliate are the property of the insurer and are subject to the insurer's control. The records and data must be maintained in an identifiable manner and must be segregated or readily capable of being segregated at no additional cost to the insurer. At the request of the insurer, the affiliate shall allow the receiver to obtain a complete set of all records of any type that pertain to the insurer's business, obtain access to the operating systems on which the data is maintained, obtain the software that runs those systems and restrict the use of the data by the affiliate if it is not operating the insurer's business. Notwithstanding any other law, the affiliate shall provide a waiver of any landlord lien or other encumbrance to give the insurer access to all records and data in the event of the affiliate's default under a lease or other agreement. For the purposes of this paragraph, "all records and data" includes claims and claim files, policyholder lists, application files, litigation files, premium records, rate books, underwriting manuals, personnel records, financial records or similar records within the possession, custody or control of the affiliate.

9. Premiums or other funds that belong to the insurer and that are collected by or held by an affiliate are the exclusive property of the insurer and are subject to the control of the insurer. If an insurer is placed into receivership, any right of offset is subject to chapter 3, article 4 of this title.

B. The following transactions involving a domestic insurer and any person in its insurance holding company system, including amendments and modifications of affiliate agreements previously filed pursuant to this section that are subject to any materiality standards contained in paragraphs 1, 2, 3, 4 and 5 of this subsection, may not be entered into unless the insurer notifies the director in writing not less than thirty days before entering the transaction, unless the director permits a shorter notification period, of its intention to enter into the transaction and the director does not disapprove the transaction within that period:

1. Sales, purchases, exchanges, loans or extensions of credit, guarantees or investments if the transactions equal or exceed, with respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders as of December 31 next preceding or, with respect to life insurers, three percent of the insurer's admitted assets as of December 31 next preceding.

2. Loans or extensions of credit to any person who is not an affiliate if the insurer makes the loans or extensions of credit with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of or to make investments in any affiliate of the insurer making such loans or extensions of credit if the transactions equal or exceed, with respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders as of December 31 next preceding or, with respect to life insurers, three percent of the insurer's admitted assets as of December 31 next preceding.

3. Reinsurance agreements or modifications to reinsurance agreements, including:

(a) All reinsurance pooling agreements.

(b) Agreements in which the reinsurance premium or a change in the insurer's liabilities, or the projected reinsurance premium or a change in the insurer's liabilities in any of the next three years, equals or exceeds five percent of the insurer's surplus as regards policyholders as of December 31 next preceding, including those agreements that may require as consideration the transfer of assets from an insurer to a nonaffiliate if an agreement or understanding exists between the insurer and the nonaffiliate that any portion of the assets will be transferred to one or more affiliates of the insurer.

4. All management agreements, service contracts, tax allocation agreements, guarantees and cost sharing arrangements.

5. Guarantees at the time executed by a domestic insurer, provided that a guarantee that is quantifiable as to amount is not subject to the notice requirements of this subsection unless the guarantee exceeds the lesser of one-half of one percent of the insurer's admitted assets or ten percent of the insurer's surplus as regards policyholders as of December 31 next preceding the execution of the guarantee. All guarantees that are not quantifiable as to amount are subject to the notice requirements of this subsection.

6. Direct or indirect acquisitions or investments in a person that controls the insurer or in an affiliate of the insurer in an amount that, together with its present holding in such investments, exceeds two and one-half percent of the insurer's surplus to policyholders. Direct or indirect acquisitions or investments in subsidiaries acquired pursuant to section 20-481.01, or in nonsubsidiary insurance affiliates that are subject to this article, are exempt from this requirement.

7. Any material transaction that is specified by rule and that the director determines may adversely affect the interests of the insurer's policyholders.

C. The notice prescribed in subsection B of this section for amendments or modifications must include the reasons for the change and the financial impact on the domestic insurer. Informal notice shall be given within thirty days after a termination of a previously filed agreement to the director for determination of the type of filing required, if any.

D. Subsection B of this section does not authorize or allow any transactions that would be otherwise contrary to law.

E. A domestic insurer shall not enter into transactions that are part of a plan or series of like transactions with persons within the holding company system if the purpose of those separate transactions is to avoid the statutory threshold amount and thereby avoid the review that otherwise would occur. If the director determines that separate transactions were entered into during any twelve month period for that purpose, the director may order the insurer to cease and desist under section 20-481.26.

F. In reviewing transactions pursuant to subsection B of this section, the director shall consider if the transactions comply with the standards set forth in subsection A of this section and if they adversely affect the interests of policyholders.

G. Within thirty days after an investment of a domestic insurer in any one corporation the director shall be notified of the investment if the total investment in the corporation by the insurance holding company system exceeds ten percent of the corporation's voting securities.

H. The director may adopt rules to exempt transactions involving nonmaterial amounts from the notice requirements of this section.

I. For the purposes of supervision, seizure, conservatorship or receivership proceedings:

1. An affiliate that is a party to an agreement or contract with a domestic insurer that is subject to subsection B, paragraph 4 of this section is subject to the jurisdiction of any supervision, seizure, conservatorship or receivership proceedings against the insurer and to the authority of any supervisor, conservator, rehabilitator or liquidator for the insurer that is appointed pursuant to chapter 3, article 4 of this title for the purpose of interpreting, enforcing and overseeing the affiliate's obligations under the agreement or contract to perform services for the insurer that either:

(a) Are an integral part of the insurer's operations, including management, administrative, accounting, data processing, marketing, underwriting, claims handling, investment or other similar functions.

(b) Are essential to the insurer's ability to fulfill its obligations under insurance policies.

2. The director may require that an agreement or contract pursuant to subsection B, paragraph 4 of this section for the provision of services described in paragraph 1 of this subsection specify that the affiliate consents to the jurisdiction prescribed in this subsection.

§ 20-481.13 Material changes; amended statement; time; reporting of dividends

A. Each registered insurer shall keep current the information required to be disclosed in its registration statement by reporting all material changes or additions on amendment forms provided by the director within fifteen days after the end of each month in which it learns of each such change or addition.

B. Subject to section 20-481.19, each registered insurer shall report to the director all dividends and other distributions to shareholders within five business days following the declaration and at least ten business days before payment of the dividend or distribution.

C. The director may adopt rules that provide for an extension of the reporting times prescribed in subsections A and B of this section.

§ 20-481.14 Termination of registration

The director shall terminate the registration of any insurer which demonstrates that it no longer is a member of an insurance holding company system.

§ 20-481.15 Consolidated registration by affiliates

The director may require or allow two or more affiliated insurers subject to registration to file a consolidated registration statement or consolidated reports amending their consolidated registration statement or their individual registration statements.

§ 20-481.16 Alternative registration for an affiliate

The director may allow an insurer which is authorized to do business in this state and which is part of an insurance holding company system to register on behalf of any affiliated insurer which is required to register under section 20-481.09 and to file all information and material required.

§ 20-481.17 Exemption by director

The provisions of sections 20-481.09 to 20-481.16, inclusive, relating to registration, shall not apply to any insurer, information or transaction if and to the extent that the director by rule, regulation or order shall exempt the insurer, information or transaction.

§ 20-481.18 Disclaimer of affiliation or control; contents; effect on duty to register

A. Any person may file with the director a disclaimer of affiliation or control with any authorized insurer or such a disclaimer may be filed by such insurer or any member of an insurance holding company system.

B. The disclaimer shall fully disclose all material relationships and bases for affiliation or control between such person and such insurer as well as the basis for disclaiming such affiliation or control.

C. A disclaimer of affiliation shall be deemed to have been approved unless the director within thirty days following receipt of a complete disclaimer notifies the filing party that the disclaimer is disallowed. If the director disallows the disclaimer, the disclaiming party may request an administrative hearing, which shall be granted. The disclaiming party is not required to register under this section if the director approves the disclaimer or if the disclaimer is deemed to have been approved.

§ 20-481.19 Extraordinary dividend or distribution; time; notice; approval by director; definition

A. No insurer subject to registration under section 20-481.09 shall pay an extraordinary dividend or make any other extraordinary distribution to its shareholders until thirty days after the director has received notice of the declaration thereof and has not within such period disapproved such payment, or the director shall have approved such payment. Notice of the declaration shall be provided to the director no more than five business days after the declaration.

B. Notwithstanding any other law, an insurer may declare an extraordinary dividend or distribution that is conditional on the approval of the director, and such a declaration shall confer no rights on shareholders until the director has either approved the payment of such dividend or distribution or has not disapproved such payment within thirty days after the notice of such declaration has been received.

C. For the purposes of this section, "extraordinary dividend or distribution" includes any dividend or distribution of cash or other property whose fair market value together with that of other dividends or distributions made within the preceding twelve months exceeds the lesser of either ten per cent of such insurer's surplus as regards policyholders as of December 31 next preceding, or the net gain from operations of such insurer, if such insurer is a life insurer, or the net income, if such insurer is not a life insurer, for the twelve month period ending December 31 next preceding, but shall not include pro rata distributions of any class of the insurer's own securities.

§ 20-481.20 Examination of registered insurers; powers; limits; expense

A. In addition to the powers that the director has under sections 20-156 to 20-160, inclusive, relating to the examination of insurers, the director shall also have the power to examine any insurer registered under section 20-481.09 and its affiliates to ascertain the financial condition of the insurer, including the enterprise risk to the insurer by the ultimate controlling party or by any entity or combination of entities within the insurance holding company system or by the insurance holding company system on a consolidated basis.

B. To determine compliance with this article, the director may order any insurer registered under section 20-481.09 to produce:

1. All records, books or other information papers in the possession of the insurer or its affiliates insofar as the records, books or other information papers in the possession of any affiliate relate to any transactions between or among the insurer and any of its affiliates.

2. Information not in the possession of the insurer if the insurer has the right to access the information pursuant to contractual relationships, statutory obligations or any other method.

C. If the insurer cannot obtain the information requested under subsection B of this section, the insurer shall provide the director with a detailed explanation of the reason that the insurer cannot obtain the information and the identity of the holder of the information. If the director determines that the detailed explanation is without merit, the director, after notice and a hearing pursuant to section 20-161, may order that the insurer pay a penalty of not more than two hundred dollars for each day's delay or that the insurer's certificate of authority be suspended or revoked.

D. The director shall exercise his examination power under subsection A of this section only if the examination of the insurer under sections 20-156 through 20-160, inclusive, is inadequate or the interests of the policyholders of such insurer may be adversely affected.

E. Each registered insurer shall be liable for and shall pay the expenses of such examination in accordance with section 20-159.

F. If an insurer fails to comply with an order under subsection C of this section, the director may examine records, books or other information papers in the possession of any affiliate of the insurer insofar as such records, books or other information papers in the possession of any affiliate relate to any transactions between or among the insurer and any of its affiliates. The director may also issue subpoenas, administer oaths and examine under oath any person for purposes of determining compliance with this section. If a person fails or refuses to obey a subpoena, the director may petition a court of competent jurisdiction seeking relief from the court. The court may enter an order compelling the witness to appear and testify or produce documentary evidence. Each witness is entitled to the same fees and mileage, if claimed, as if the person was a witness in superior court pursuant to section 12-303 and the costs of those fees and mileage and any actual expense necessarily incurred in securing the attendance of witnesses shall be itemized and charged against and paid by the company being examined.

§ 20-481.21 Confidential records; consent to release; release without consent; information sharing

A. All documents, materials or other information that is in the possession or control of the department and that is obtained by or disclosed to the director or any other person in the course of a filing, an examination or an investigation made pursuant to sections 20-481.03, 20-481.10, 20-481.12, 20-481.19 and 20-481.20 is recognized by this state as being proprietary and containing trade secrets, is confidential and privileged, is not subject to title 39, chapter 1, article 2, is not subject to subpoena and is not subject to discovery or admissible as evidence in a private civil action. The director may use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the director's official duties. The director shall not make the documents, materials or other information public without the prior written consent of the insurer to which it pertains unless the director determines, after giving the insurer and its affiliates who would be affected by the publication notice and an opportunity to be heard, that the interests of policyholders, shareholders or the public will be served by the publication. The director may then publish all or any part of the documents, materials or other information as the director deems appropriate.

B. For the purposes of the information that is reported and provided to the department pursuant to section 20-481.10, subsection D, paragraph 2, the director shall maintain the confidentiality of the following:

1. The group capital calculation and the group capital ratio produced within the calculation.

2. Any group capital calculation information that is received from an insurance holding company system supervised by the federal reserve board or any United States group-wide supervisor.

C. For the purposes of the information that is reported and provided to the department pursuant to section 20-481.10, subsection D, paragraph 3, the director shall maintain the confidentiality of the liquidity stress test results and supporting disclosures and any liquidity stress test framework information that is received from an insurance holding company system supervised by the federal reserve board or any non-United States group-wide supervisor.

D. The director may:

1. Share nonpublic documents, materials or other information, including proprietary and trade secret documents and materials, with other state, federal and international regulatory agencies, with the national association of insurance commissioners and with any third-party consultants designated by the director, with state, federal and international law enforcement authorities, including members of any supervisory college described in section 20-481.31, if the recipient agrees and warrants that it has the authority to maintain the confidentiality and privileged status of the documents, materials or other information and has verified in writing the legal authority to maintain confidentiality.

2. Receive documents, materials and other information, including proprietary and trade secret documents and materials, from the national association of insurance commissioners or a third-party consultant designated by the director and from regulatory and law enforcement officials of other jurisdictions and shall maintain as confidential or privileged any document, material or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information.

E. The director shall enter into written agreements with the national association of insurance commissioners and any third-party consultant designated by the director that govern the sharing and use of information provided pursuant to this article and that are consistent with this section and that do all of the following:

1. Specify procedures and protocols regarding the confidentiality and security of information shared with the national association of insurance commissioners or a third-party consultant designated by the director pursuant to this article, including procedures and protocols for sharing information by the national association of insurance commissioners with other state, federal or international regulators. The agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the documents, materials or other information and has verified in writing the legal authority to maintain such confidentiality.

2. Specify that the director has ownership of all information shared with the national association of insurance commissioners or a third-party consultant designated by the director pursuant to this article and the national association of insurance commissioners' or the third-party consultant's use of the information is subject to the direction of the director.

3. Except as provided in section 20-481.10, subsection D, paragraph 3, prohibit the national association of insurance commissioners or a third-party consultant designated by the director from storing the information shared in this article in a permanent database after the underlying analysis is completed.

4. Require prompt notice to be given to an insurer whose confidential information in the possession of the national association of insurance commissioners or a third-party consultant designated by the director pursuant to this article is subject to a request or subpoena to the national association of insurance commissioners or a third-party consultant designated by the director for disclosure or production.

5. Require the national association of insurance commissioners or a third-party consultant designated by the director to consent to intervention by an insurer in any judicial or administrative action in which the national association of insurance commissioners or a third-party consultant designated by the director may be required to disclose confidential information about the insurer shared with the national association of insurance commissioners and its affiliates and subsidiaries pursuant to this article.

6. For reporting pursuant to section 20-481.10, subsection D, paragraph 3, if the agreement involves a third-party consultant, provide notification of the identity of any third-party consultant to all applicable insurers.

F. Notwithstanding subsection D, paragraph 1 of this section, the director may share confidential and privileged documents, material or information reported pursuant to section 20-481.10, subsection D only with the directors or commissioners of insurance of other states having statutes or regulations substantially similar to subsection A of this section and who have agreed in writing not to disclose such information. The sharing of information by the director pursuant to this article does not constitute a delegation of regulatory authority by the director and the director is solely responsible for the administration, execution and enforcement of this article.

G. A disclosure to or by the director pursuant to this section or as a result of sharing information pursuant to subsection D of this section is not a waiver of any applicable privilege or claim of confidentiality in the documents, materials or other information disclosed or shared.

H. Documents, materials or other information in the possession or control of the national association of insurance commissioners or a third-party consultant designated by the director pursuant to this article is confidential by law and privileged, is not subject to title 39, chapter 1, article 2, is not subject to subpoena and is not subject to discovery or admissible in evidence in any private civil action.

I. The group capital calculation and resulting group capital ratio required by section 20-481.10, subsection D, paragraph 2 and the liquidity stress test along with its results and supporting disclosures required by section 20-481.10, subsection D, paragraph 3 are regulatory tools for assessing group risks and capital adequacy and group liquidity risks, respectively, and are not intended as a means to rank insurers or insurance holding company systems generally. Except as otherwise provided in this article, the making, publishing, disseminating, circulating or placing before the public, or causing directly or indirectly to be made, published, disseminated, circulated or placed before the public in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station or any electronic means of communication available to the public, or in any other way as an advertisement, announcement or statement containing a representation or statement with regard to the group capital calculation, group capital ratio, the liquidity stress test results, or supporting disclosures for the liquidity stress test of any insurer or any insurer group, or of any component derived in the calculation by any insurer, broker or other person engaged in any manner in the insurance business would be misleading and is prohibited. If any materially false statement with respect to the group capital calculation, resulting group capital ratio, an inappropriate comparison of any amount to an insurer's or insurance group's group capital calculation or resulting group capital ratio, liquidity stress test result, supporting disclosures for the liquidity stress test or an inappropriate comparison of any amount to an insurer's or insurance group's liquidity stress test result or supporting disclosures is published in any written publication and the insurer is able to demonstrate to the commissioner with substantial proof the falsity of the statement or the inappropriate comparison, the insurer may publish announcements in a written publication if the sole purpose of the announcement is to rebut the materially false statement.

§ 20-481.22 Power to make rules

The director may, upon notice and opportunity for all interested persons to be heard, issue such rules and orders as shall be necessary to carry out the provisions of this article, subject to title 41, chapter 6.

§ 20-481.23 Violations

The following acts or omissions shall be deemed to be violations of this article:

1. The intentional failure to file or make any statement, amendment or other material required to be filed pursuant to sections 20-481.02, 20-481.03, 20-481.04 and 20-481.05.

2. The effectuation or any attempt to effectuate an acquisition of control of, divestiture of or merger with a domestic insurer that is subject to section 20-481.02 without the required approval of the director pursuant to section 20-481.07.

3. The intentional failure to file a registration statement or any amendment thereto required by this article within the time specified for such filing.

4. The payment of a dividend in violation of section 20-481.19.

§ 20-481.24 Adequacy of surplus

For purposes of this article, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, the following factors shall be considered:

1. The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria.

2. The extent to which the insurer's business is diversified among the several lines of insurance.

3. The number and size of risks insured in each line of business.

4. The extent of the geographical dispersion of the insurer's insured risks.

5. The nature and extent of the insurer's reinsurance program.

6. The quality, diversification and liquidity of the insurer's investment portfolio.

7. The recent past and projected future trend in the size of the insurer's investment portfolio.

8. The surplus as regards policyholders maintained by other comparable insurers.

9. The adequacy of the insurer's reserves.

10. The quality and liquidity of investments in affiliates. If in the judgment of the director the investment warrants it, the director may treat any such investment as a disallowed asset for purposes of determining the adequacy of surplus as regards policyholders.

§ 20-481.25 Acquisitions involving insurers not otherwise covered; anticompetitive considerations; civil penalty; definitions

A. Except as provided in subsection B of this section, this section applies to any acquisition in which there is a change in control of an insurer authorized to do business in this state.

B. This section does not apply to the following, except as provided under subsections C and D of this section:

1. A purchase of securities solely for investment purposes as long as the securities are not used by voting or otherwise to cause or attempt to cause the substantial lessening of competition in any insurance market in this state. If a purchase of securities results in a presumption of control as defined in section 20-481, the purchase of securities is not solely for investment purposes unless the insurance director of the insurer's state of domicile accepts a disclaimer of control or affirmatively finds that control does not exist and the disclaimer action or affirmative finding is communicated by the domiciliary insurance director to the director of the department of insurance and financial institutions of this state.

2. The acquisition of a person by another person if both persons are neither directly nor through affiliates primarily engaged in the business of insurance and if preacquisition notification is filed with the director pursuant to subsection C of this section thirty days before the proposed effective date of the acquisition. Preacquisition notification is not required if the acquisition would otherwise be excluded from this section by any other provision of this subsection.

3. The acquisition of already affiliated persons.

4. If, as an immediate result of an acquisition, the combined market share of the involved insurers in any market would not exceed five percent of the total market, there would not be an increase in any market share or the combined market share of the involved insurers in any market would not exceed twelve percent of the total market and the market share increases by more than two percent of the total market. For the purposes of this paragraph, "market" means direct written insurance premiums in this state for a line of business as contained in the annual statement required to be filed by insurers licensed to do business in this state.

5. An acquisition for which a preacquisition notification is required pursuant to this section because of the resulting effect on the ocean marine insurance line of business.

6. An acquisition of an insurer whose domiciliary insurance director finds that the insurer is failing, that there is no feasible alternative to improve the insurer's condition and that the public benefits that would result from improving the insurer's condition through the acquisition exceed the public benefits that would result from not lessening competition and the domiciliary insurance director communicates these findings to the director of the department of insurance and financial institutions of this state.

C. An acquisition under subsection B of this section may be subject to an order pursuant to subsection F of this section unless the acquiring person files a preacquisition notification and the waiting period has expired. The acquired person may file a preacquisition notification. Information submitted under this subsection is confidential. The preacquisition notification shall be in a form and contain the information that is prescribed by the national association of insurance commissioners relating to those markets that are not exempt from the provisions of this section. The director may require additional material and information that the director deems necessary in order to determine if the proposed acquisition, if consummated, would lessen competition or tend to create a monopoly. The information may include an economist's opinion on the competitive impact of the acquisition in this state and a summary of the economist's education and experience that indicates the economist's ability to render an informed opinion. The waiting period begins on the date the director receives a preacquisition notification and ends thirty days after the date of receipt or on termination of the waiting period by the director, whichever is earlier. Before the waiting period ends, the director on a one-time basis may require the submission of additional information that is relevant to the proposed acquisition. The waiting period shall end thirty days after the director receives the additional information or terminates the waiting period, whichever is earlier.

D. An acquisition subject to the provisions of this section shall not substantially lessen competition in any line of insurance in this state or tend to create a monopoly. The director may enter a cease and desist order under subsection F of this section if there is substantial evidence that the effect of the acquisition may be to substantially lessen competition in any line of insurance in this state or may tend to create a monopoly or if the insurer fails to file adequate information pursuant to subsection C of this section. The director has the burden of showing prima facie evidence of a violation of this subsection. In determining if a proposed acquisition would lessen competition or tend to create a monopoly, the director shall consider the following:

1. An acquisition covered under subsection B of this section that involves two or more insurers competing in the same market is prima facie evidence of a violation of this subsection if:

(a) The market is highly concentrated and the involved insurers possess the following market shares:

Insurer A Insurer B

(i) four percent four percent or more

(ii) ten percent two percent or more

(iii) fifteen percent one percent or more

(b) The market is not highly concentrated and the involved insurers possess the following market shares:

Insurer A Insurer B

(i) five percent five percent or more

(ii) ten percent four percent or more

(iii) fifteen percent three percent or more

(iv) nineteen percent one percent or more

A highly concentrated market is a market in which the share of the four largest insurers is seventy-five percent or more of the market. Percentages not shown in the tables are interpolated proportionately to the percentages that are shown. If more than two insurers are involved, exceeding the total of the two columns in the table is prima facie evidence of a violation of this subsection. For the purposes of this paragraph, the insurer with the largest market share is deemed to be insurer A.

2. A significant trend toward increased concentration exists if the aggregate market share of any grouping of the largest insurers in the market, from the two largest to the eight largest, has increased by seven percent or more of the market over a period of time that extends from a base year five to ten years before the acquisition up to the time of the acquisition. Any acquisition or merger under subsection B of this section that involves two or more insurers competing in the same market is prima facie evidence of a violation of this subsection if:

(a) There is a significant trend toward increased concentration in the market.

(b) One of the insurers involved is one of the insurers in a grouping of large insurers whose market share has increased by seven percent or more.

(c) Another involved insurer's market is two percent or more.

E. If an acquisition is not prima facie evidence of a violation of subsection D of this section, the director may establish the requisite anticompetitive effect based on other substantial evidence. If an acquisition is prima facie evidence of a violation of subsection D of this section, a party may establish the absence of the requisite anticompetitive effect based on other substantial evidence. Relevant factors in making a determination under this subsection include market shares, volatility of ranking of market leaders, number of competitors, concentration, trend of concentration in the industry and ease of entry into and exit from the market.

F. If an acquisition violates this section, the director may enter an order:

1. Requiring an involved insurer to cease and desist from doing business in this state with respect to the line or lines of insurance involved in the violation.

2. Denying the application of an acquired or acquiring insurer for a license to do business in this state.

G. The director shall not enter an order pursuant to subsection F of this section unless a hearing is held and notice of the hearing is issued before the end of the waiting period prescribed in subsection C of this section and not less than fifteen days before the hearing. The hearing shall be concluded and the order shall be issued not later than sixty days after the end of the waiting period. The director shall include with each order a written decision setting forth the director's findings of fact and conclusions of law. The order does not become final earlier than thirty days after it is issued. Before the order becomes final the involved insurer may submit a plan to remedy within a reasonable time the anticompetitive impact of the acquisition. Based on the submitted plan or other information, the director shall specify the conditions, if any, that would remedy the aspects of the acquisition causing the violation and shall vacate or modify the order. An order does not apply if the acquisition is not consummated.

H. An order shall not be entered under subsection F of this section if:

1. The acquisition will yield substantial economies of scale or economies in resource utilization that cannot be achieved feasibly in any other way and the public benefits that would arise from the economies exceed the public benefits that would arise from not lessening competition.

2. The acquisition will increase substantially the availability of insurance and the public benefits of the increase exceed the public benefits that would arise from not lessening competition.

I. The director, after notice and a hearing, may impose one or more of the following civil penalties against a person who violates a cease and desist order that is in effect:

1. Up to and including $10,000 for every day of violation.

2. Suspension or revocation of the person's license.

J. An insurer or other person who fails to make a filing required by this section and who fails to demonstrate a good faith effort to comply with the filing requirement is subject to a civil penalty of not more than $50,000.

K. For the purposes of subsection D of this section:

1. "Insurer" means a company or group of companies under common management, ownership or control.

2. "Market" means the relevant product and geographical markets. In determining the relevant product and geographical markets, the director shall consider the definitions or guidelines adopted by the national association of insurance commissioners and information submitted by the parties to the acquisition. In the absence of sufficient information to the contrary, the relevant product market is assumed to be the direct written insurance premium for a line of business that is used in the annual statement required to be filed by insurers doing business in this state. The relevant geographical market is this state.

L. For the purposes of this section:

1. "Acquisition" means any agreement, arrangement or activity that results in a person acquiring directly or indirectly the control of another person, including the acquisition of voting securities, assets, bulk reinsurance and mergers.

2. "Involved insurer" means an insurer that acquires or is acquired, is affiliated with an acquirer or acquired or is the result of a merger.

§ 20-481.26 Penalties; cease and desist order; violation; classification

A. An insurer failing to file without just cause a registration statement required by this article after notice and a hearing shall pay a penalty of two hundred fifty dollars for each day's delay in filing, not to exceed fifty thousand dollars. The director may reduce the penalty if the insurer demonstrates that the imposition of the penalty would constitute a financial hardship to the insurer. The director shall deposit, pursuant to sections 35-146 and 35-147, the penalties collected in the state general fund.

B. Every director or officer of an insurance holding company system who knowingly violates, participates in, assents to or permits an officer or agent of the insurer to engage in transactions or make investments that have not been properly reported or submitted pursuant to section 20-481.02, 20-481.05 or 20-481.09 or who violates this article in his individual capacity after notice and a hearing shall pay a civil penalty of not more than ten thousand dollars for each violation. In determining the amount of the civil penalty, the director shall consider the appropriateness of the penalty with respect to the gravity of the violation, the history of previous violations and other matters as justice may require.

C. If it appears to the director that an insurer subject to this article or a director, officer, employee or agent of the insurer has engaged in a transaction or entered into a contract that is subject to this article and that would not have been approved had such approval been requested, the director may order the insurer to cease and desist immediately any further activity under that transaction or contract. After notice and a hearing the director also may order the insurer to void the contract and restore the status quo if that action is in the best interest of the policyholders, the creditors or the public.

D. A knowing violation of this article is a class 1 misdemeanor. Notwithstanding any other law, an insurer that wilfully violates this article may be fined not more than fifty thousand dollars or an individual who wilfully violates this article may be fined in his individual capacity not more than ten thousand dollars.

E. An officer, director or employee of an insurance holding company system who wilfully and knowingly subscribes to or makes or causes to be made any false statements, reports or filings with the intent to deceive the director in the performance of his duties under this article is guilty of a class 6 felony. No insurance holding company system shall pay a fine on behalf of an officer, director or employee found guilty under this subsection.

F. Whenever it appears to the director that any person has committed a violation of section 20-481.02 and that violation prevents a full understanding by the director of the enterprise risk to the insurer by affiliates or by the insurance holding company system, the violation may serve as an independent basis for disapproving dividends or distributions and for placing the insurer under an order of supervision in accordance section 20-169.

§ 20-481.27 Recovery; liability

A. If an order for liquidation or rehabilitation of a domestic insurer has been entered, the receiver appointed under that order has a right to recover on behalf of the insurer from any parent corporation, holding company or person or affiliate that otherwise controlled the insurer the amount of distributions, other than distributions of shares of the same class of stock, paid by the insurer on its capital stock or to recover any payment in the form of a bonus, termination settlement or extraordinary lump sum salary adjustment made by the insurer or its subsidiary to a director, officer or employee if the distribution or payment is made at any time during the year preceding the petition for liquidation, conservation or rehabilitation, subject to the limitations of subsections B, C and D.

B. No distribution is recoverable if the parent or affiliate shows that when paid the distribution was lawful and reasonable and that the insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the insurer to fulfill its contractual obligations.

C. A person who was a parent corporation or holding company or a person who otherwise controlled the insurer or affiliate at the time the distributions were paid is liable up to the amount of the distributions or payments the person received. A person who otherwise controlled the insurer at the time the distributions were declared is liable up to the amount of distributions he would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they are jointly and severally liable.

D. The maximum amount recoverable under this section is the amount needed in excess of all other available assets of the impaired or insolvent insurer to pay the contractual obligations of the impaired or insolvent insurer and to reimburse any guaranty funds.

E. To the extent that a person liable under subsection C is insolvent or otherwise fails to pay claims due from it, its parent corporation or holding company or a person who otherwise controlled it at the time the distribution was paid is jointly and severally liable for a resulting deficiency in the amount recovered from the parent corporation or holding company or person who otherwise controlled it.

§ 20-481.28 Insurer's license; revocation; suspension; nonrenewal

If it appears to the director that a person has committed a violation of this article which makes the continued operation of an insurer contrary to the interests of policyholders or the public, the director, after giving notice and an opportunity to be heard, may suspend, revoke or refuse to renew the insurer's license or authority to do business in this state for a period he finds is required for the protection of policyholders or the public. The director shall accompany this determination by specific findings of fact and conclusions of law.

§ 20-481.29 Injunctions; prohibitions against voting securities; sequestration of voting securities

A. If it appears to the director that an insurer or a director, officer, employee or agent has committed or is about to commit a violation of this article or of a rule adopted or order issued by the director, the director may apply to the superior court in the county in which the principal office of the insurer is located for an injunction and for other equitable relief as the case and the interest of the insurer's policyholders, creditors and shareholders or the public may require. If the insurer has no office in this state, the director may apply to the superior court in Maricopa county.

B. No security that is the subject of any agreement or arrangement regarding acquisition or that is acquired or to be acquired, in contravention of the provisions of this article or of any rule adopted or order issued by the director may be voted at any shareholder's meeting or may be counted for quorum purposes. Any action of shareholders requiring the affirmative vote of a percentage of shares may be taken as though these securities were not issued and outstanding. No action taken at any meeting may be invalidated by the voting of these securities unless the action would materially affect control of the insurer or unless the courts of this state have so ordered. If an insurer or the director has reason to believe that any security of the insurer has been or is about to be acquired in contravention of the provisions of this article or of any rule adopted or order issued by the director, the insurer or the director may apply to the superior court in the county in which the insurer has its principal place of business to enjoin any offer, request, invitation, agreement or acquisition made in violation of this article or any rule adopted or order issued by the director to enjoin the voting of any security so acquired, to void any vote of the security already cast at any meeting of shareholders and for other equitable relief as the nature of the case and the interest of the insurer's policyholders, creditors and shareholders or the public requires.

C. In any case in which a person has acquired or is proposing to acquire any voting securities in violation of this article or any rule adopted or order issued by the director, the superior court in Maricopa county or the superior court in the county in which the insurer has its principal place of business, on notice as the court deems appropriate and on the application of the insurer or the director, may seize or sequester voting securities of the insurer owned directly or indirectly by that person and issue an order as is appropriate to effectuate the provisions of this article.

D. Notwithstanding any other provisions of law, for the purposes of this section the situs of the ownership of the securities of domestic insurers is deemed to be in this state.

§ 20-481.30 Judicial review; special action

A. Notwithstanding section 20-166, any person aggrieved by any act, determination, rule, regulation or order or any other action of the director pursuant to this article may appeal to the superior court in Maricopa county. The court shall conduct its review without a jury and by trial de novo, except that if all parties, including the director, so stipulate, the review shall be confined to the record. Portions of the record may be introduced by stipulation into evidence in a trial de novo as to those parties so stipulating.

B. The filing of an appeal pursuant to this section shall stay the application of any such rule, regulation, order or other action of the director to the appealing party unless the court, after giving such party notice and an opportunity to be heard, determines that such a stay would be detrimental to the interest of policyholders, shareholders, creditors or the public.

C. Any person aggrieved by any failure of the director to act or make a determination required by this article may institute proceedings for a special action in the superior court in Maricopa county directing the director to act or make such determination.

§ 20-481.31 Supervisory colleges

A. With respect to any insurer registered under section 20-481.09 and in accordance with subsection C of this section, in order to determine compliance by the insurer with this title, the director may participate in a supervisory college for any domestic insurer that is part of an insurance holding company system with international operations. The director, with respect to supervisory colleges, may:

1. Initiate the establishment of a supervisory college.

2. Clarify the membership and participation of other supervisors in the supervisory college.

3. Clarify the functions of the supervisory college and the role of other regulators, including the establishment of a group-wide supervisor.

4. Coordinate the ongoing activities of the supervisory college, including planning meetings, supervisory activities and processes for information sharing.

5. Establish a crisis management plan.

B. Each registered insurer subject to this section shall be liable for and shall pay the reasonable expenses of the director's participation in a supervisory college in accordance with subsection C of this section, including reasonable travel expenses. The director may establish a regular assessment to the insurer for the payment of these expenses. For the purposes of this section, a supervisory college may be convened as either a temporary or permanent forum for communication and cooperation between the regulators charged with the supervision of the insurer or its affiliates.

C. The director may participate in a supervisory college with other regulators charged with supervision of the insurer or its affiliates, including other state, federal and international regulatory agencies. In order to assess the business strategy, financial position, legal and regulatory position, risk exposure, risk management and governance processes, and as part of the examination of individual insurers in accordance with section 20-481.20, the director may enter into agreements in compliance with section 20-481.21 providing the basis for cooperation between the director and the other regulatory agencies and the activities of the supervisory college. This section does not delegate to the supervisory college the authority of the director to regulate or supervise the insurer or its affiliates within its jurisdiction.

§ 20-481.32 Management of domestic insurers subject to registration

A. Notwithstanding the control of a domestic insurer by any person, the officers and directors of an insurer may not be relieved of any obligation or liability to which they are subject by law and the insurer shall be managed so as to assure its separate operating identity consistent with this article.

B. This section does not preclude a domestic insurer from having or sharing a common management or the cooperative or joint use of personnel, property or services with one or more other persons under arrangements meeting the standards of section 20-481.12.

C. At least one-third of the directors of a domestic insurer and at least one-third of the members of each committee of the board of directors of any domestic insurer must be composed of persons who are not officers or employees of the insurer or of any entity controlling, controlled by or under common control with the insurer and who are not beneficial owners of a controlling interest in the voting stock of the insurer or entity. At least one person must be included in any quorum for the transaction of business at any meeting of the board of directors or any committee.

D. The board of directors of a domestic insurer shall establish one or more committees composed solely of directors who are not officers or employees of the insurer or of any entity controlling, controlled by or under common control with the insurer and who are not beneficial owners of a controlling interest in the voting stock of the insurer or any such entity. The committee or committees shall have responsibility for nominating candidates for director for election by shareholders or policyholders, evaluating the performance of officers deemed to be principal officers of the insurer and recommending to the board of directors the selection and compensation of the principal officers.

E. Subsections C and D of this section do not apply to a domestic insurer if the person controlling the insurer, including an insurer, a mutual insurance holding company or a publicly held corporation, has a board of directors and committees that meet the requirements of subsections C and D of this section.

F. An insurer may make application to the director for a waiver from the requirements of this section if the insurer's annual direct written and assumed premium excluding premiums reinsured with the federal crop insurance corporation and federal flood program is less than three hundred million dollars. An insurer may also make application to the director for a waiver from the requirements of this section based on unique circumstances. The director may consider various factors including the type of business entity, volume of business written, availability of qualified board members and the ownership or organizational structure of the entity.

§ 20-481.33 Director's authorization; group-wide supervision; internationally active insurance groups

A. The director may act as the group-wide supervisor for any internationally active insurance group in accordance with this section. However, the director may otherwise acknowledge another regulatory official as the group-wide supervisor where the internationally active insurance group:

1. Does not have substantial insurance operations in the United States.

2. Has substantial insurance operations in the United States but not in this state.

3. Has substantial insurance operations in the United States and this state, but the director has determined pursuant to the factors set forth in subsections C and H of this section that the other regulatory official is the appropriate group-wide supervisor.

B. An insurance holding company system that does not otherwise qualify as an internationally active insurance group may request that the director make a determination or acknowledgment as to a group-wide supervisor pursuant to this section.

C. In cooperation with any other state, federal and international regulatory agency, the director shall identify a single group-wide supervisor for an internationally active insurance group. The director may determine that the director is the appropriate group-wide supervisor for an internationally active insurance group that conducts substantial insurance operations concentrated in this state. However, the director may acknowledge that a regulatory official from another jurisdiction is the appropriate group-wide supervisor for the internationally active insurance group. The director shall consider the following factors when making a determination or acknowledgment under this subsection:

1. The domicile of the insurers within the internationally active insurance group that hold the largest share of the group's written premiums, assets or liabilities.

2. The domicile of the top-tiered insurers in the insurance holding company system of the internationally active insurance group.

3. The location of the executive offices or largest operational offices of the internationally active insurance group.

4. Whether another regulatory official is acting or is seeking to act as the group-wide supervisor under a regulatory system that the director determines to be either:

(a) Substantially similar to the system of regulation provided under the laws of this state.

(b) Otherwise sufficient in terms of providing for group-wide supervision, enterprise risk analysis and cooperation with other regulatory officials.

5. Whether another regulatory official acting or seeking to act as the group-wide supervisor provides the director with reasonably reciprocal recognition and cooperation.

D. A chief regulatory official identified under this section as the group-wide supervisor may determine that it is appropriate to acknowledge another supervisor to serve as the group-wide supervisor. The acknowledgment of the group-wide supervisor shall be made after consideration of the factors listed in subsection C of this section, in cooperation with and subject to the acknowledgment of other regulatory officials involved with supervision of members of the internationally active insurance group and in consultation with the internationally active insurance group.

E. Notwithstanding any other law, if another regulatory official is acting as the group-wide supervisor of an internationally active insurance group, the director shall acknowledge that regulatory official as the group-wide supervisor. If a material change in the internationally active insurance group results in either of the following, the director shall make a determination or acknowledgment as to the appropriate group-wide supervisor for such an internationally active insurance group pursuant to subsection C of this section:

1. The internationally active insurance group's insurers domiciled in this state holding the largest share of the group's premiums, assets or liabilities.

2. This state being the domicile of the top-tiered insurers in the insurance holding company system of the internationally active insurance group.

F. Pursuant to section 20-481.20, the director may collect from any insurer registered pursuant to section 20-481.09 all information necessary to determine whether the director may act as the group-wide supervisor of an internationally active insurance group or whether the director may acknowledge another regulatory official to act as the group-wide supervisor. Before issuing a determination that an internationally active insurance group is subject to group-wide supervision by the director, the director shall notify the insurer registered pursuant to section 20-481.09 and the ultimate controlling person within the internationally active insurance group. The internationally active insurance group has at least thirty days to provide the director with additional information pertinent to the pending determination. The director shall publish on the department's official website the identity of internationally active insurance groups that the director has determined are subject to group-wide supervision by the director.

G. If the director is the group-wide supervisor for an internationally active insurance group, the director may engage in any of the following group-wide supervision activities:

1. Assessing the enterprise risks within the internationally active insurance group to ensure that:

(a) The material financial condition and liquidity risks to the members of the internationally active insurance group that are engaged in the business of insurance are identified by management.

(b) Reasonable and effective mitigation measures are in place.

2. Requesting from any member of an internationally active insurance group subject to the director's supervision information necessary and appropriate to assess enterprise risk, including information about the members of the internationally active insurance group regarding:

(a) Governance, risk assessment and management.

(b) Capital adequacy.

(c) Material intercompany transactions.

3. Coordinating and, through the authority of the regulatory officials of the jurisdictions where members of the internationally active insurance group are domiciled, compelling development and implementation of reasonable measures designed to ensure that the internationally active insurance group is able to timely recognize and mitigate enterprise risks to members of the internationally active insurance group that are engaged in the business of insurance.

4. Communicating with any other state, federal and international regulatory agency for members within the internationally active insurance group and share relevant information subject to the confidentiality provisions of section 20-481.21, through supervisory colleges as set forth in section 20-481.31 or otherwise.

5. Entering into agreements with or obtaining documentation from any insurer registered under section 20-481.09, any member of the internationally active insurance group and any other state, federal and international regulatory agency for members of the internationally active insurance group that provide the basis for or that otherwise clarify the director's role as group-wide supervisor, including provisions for resolving disputes with other regulatory officials. The agreements or documentation may not serve as evidence in any proceeding that any insurer or person within an insurance holding company system that is not domiciled or incorporated in this state is doing business in this state or is otherwise subject to jurisdiction in this state.

6. Other group-wide supervision activities, consistent with the authorities and purposes enumerated in this subsection, as considered necessary by the director.

H. If the director acknowledges that another regulatory official from a jurisdiction that is not accredited by the national association of insurance commissioners is the group-wide supervisor, the director may reasonably cooperate, through supervisory colleges or otherwise, with group-wide supervision undertaken by the group-wide supervisor, if both:

1. The director's cooperation complies with the laws of this state.

2. The regulatory official acknowledged as the group-wide supervisor also recognizes and cooperates with the director's activities as a group-wide supervisor for other internationally active insurance groups where applicable. If such recognition and cooperation is not reasonably reciprocal, the director may refuse recognition and cooperation.

I. The director may enter into agreements with or obtain documentation from any insurer registered under section 20-481.09, any affiliate of the insurer and any other state, federal and international regulatory agency for members of the internationally active insurance group that provide the basis for or otherwise clarify a regulatory official's role as group-wide supervisor.

J. The director may adopt rules necessary for the administration of this section.

Article 8.1 Mutual Holding Company Reorganization

§ 20-482 Definitions

In this article, unless the context otherwise requires:

1. "Board" means the board of directors of a converting mutual insurer.

2. "Conversion" means a process by which a domestic mutual insurer is converted to a domestic stock insurer as part of a reorganization.

3. "Converted stock insurer" means a domestic stock insurer into which a domestic mutual insurer is converted as part of a reorganization.

4. "Converting mutual insurer" means a domestic mutual insurer that is converting to a domestic stock insurer as part of a reorganization.

5. "Effective date" means, with respect to a plan, the date on which the plan or a part of the plan becomes effective as set forth in an order of the director.

6. "Eligible member" means a member of the converting mutual insurer whose insurance policy is in force as of the date on which the board adopts the plan of reorganization or on some other date that the plan specifies as the record date and that the director approves.

7. "Intermediate stock holding company" means a corporation that satisfies all of the following:

(a) The corporation was incorporated under title 10.

(b) A mutual holding company holds directly or indirectly at least a majority of the corporation's voting stock.

(c) The corporation holds directly or indirectly at least a majority of the voting stock of a converted stock insurer.

8. "Member" means:

(a) With respect to a domestic mutual insurer, a member as described in section 20-715.

(b) With respect to a mutual holding company, any holder of one or more policies of insurance, other than a policy of reinsurance, issued by the converted stock insurer resulting from a reorganization involving the organization of a mutual holding company and, if permitted under the articles of incorporation or bylaws of the mutual holding company, may include any holder of one or more policies of insurance, other than a policy of reinsurance, issued by any other insurer that is a direct or indirect subsidiary or affiliate of the mutual holding company.

9. "Membership interest" means:

(a) With respect to a converting mutual insurer, interest as set forth in section 20-716.

(b) With respect to a mutual holding company on and after the effective date of the plan, any right that a member of the mutual holding company may hold by virtue of membership in the mutual holding company arising under the articles of incorporation and bylaws of the mutual holding company, including the right to vote for the board.

10. "Mutual holding company" means a corporation that is formed and existing under the laws of this state and pursuant to the reorganization of a mutual insurance company.

11. "Plan" means a plan of reorganization.

12. "Reorganization" means a process by which a domestic mutual insurer is converted to a domestic stock insurer and a mutual holding company is organized.

13. "Voting stock":

(a) Means stock of any class or any percentage ownership interest having voting power for the election of directors, trustees or management.

(b) Includes stock having voting power only by reason of the happening of a contingency.

§ 20-482.01 Effect of reorganization

A. On the effective date of a plan of reorganization, all of the following occur:

1. The converting mutual insurer becomes a converted stock insurer. The amended or restated articles of incorporation and bylaws of the converting mutual insurer shall be filed with the director as part of the plan and shall become effective on the effective date of the conversion. The director shall amend the certificate of authority of the converting mutual insurer on the effective date of the conversion.

2. All membership interests and rights in surplus of the converting mutual insurer are extinguished and the members of the converting mutual insurer become members of the mutual holding company in accordance with this article and the articles of incorporation and bylaws of the mutual holding company.

3. Any owner of one or more policies of insurance, other than a policy of reinsurance, issued by the converted stock insurer after the effective date of the conversion and, if permitted under the articles of incorporation or bylaws of the mutual holding company, any holder of one or more policies of insurance, other than a policy of reinsurance, issued by any other insurer that is a direct or indirect subsidiary or affiliate of the mutual holding company after the effective date of the reorganization becomes a member of the mutual holding company.

4. The mutual holding company or, if created, an intermediate stock holding company acquires and shall retain all shares of the voting stock of the converted stock insurer.

5. The mutual holding company acquires and shall retain all shares of the voting stock of any intermediate stock holding company.

6. A converted stock insurer continues the corporate existence of the converting mutual insurer. Except as provided in the plan, the conversion does not annul, modify or change any existing license or other authority or any of the existing civil actions, rights, contracts or liabilities of the converting mutual insurer. The converted stock insurer retains all property, debts and choses in action and every other interest belonging to the converting mutual insurer before the conversion without further action needed. On and after the effective date of the conversion, the converted stock insurer may exercise all rights and powers conferred and shall perform all duties imposed by law on insurers writing the classes of insurance written by the converted stock insurer, shall retain the rights and contracts of the converting mutual insurer existing immediately before the conversion and shall be subject to all obligations and liabilities of the converting mutual insurer existing immediately before the conversion, subject to the terms of the plan.

B. Any intermediate stock holding company created at the time of reorganization to hold the stock of the converting mutual insurer shall be incorporated under title 10 and may engage in any business or activity permitted by title 10.

C. The converted stock insurer and any intermediate stock holding company may issue to third parties debt securities, stock other than voting stock and voting stock if all of the following apply:

1. No shares of stock representing a majority of the voting power of all issued and outstanding voting stock of either the converted stock insurer or the intermediate stock holding company, if any, are issued to third parties.

2. A majority of the voting stock of the converted stock insurance company is at all times owned by the mutual holding company or by the intermediate stock holding company, a majority of whose voting stock is held by the mutual holding company, and such majority interest in the converted stock insurance company and any intermediate stock holding company is not conveyed, transferred, assigned, pledged, subjected to a security interest or lien, placed in a voting trust, encumbered or otherwise hypothecated or alienated by the mutual holding company or by the intermediate stock holding company. Any conveyance, transfer, assignment, pledge, security interest, lien, placement in a voting trust, encumbrance or hypothecation or alienation of, in or on a majority of the voting shares of the converted stock insurer or the intermediate stock holding company in violation of this paragraph is void in inverse chronological order as to the shares necessary to constitute a majority of such voting stock.

D. Unless otherwise specified in the plan, the directors and officers of the converting mutual insurer shall serve as directors and officers of the mutual holding company, any intermediate stock holding company and the converted stock insurer until new directors and officers are elected.

§ 20-482.02 Required filings; approval by director and members

A. A domestic mutual insurer may engage in a conversion as part of a reorganization as a mutual holding company, only if the board passes a resolution that the reorganization is fair and equitable to the policyholders and adopts a plan that meets the requirements of this article.

B. After the board has adopted a plan and before the board seeks approval of the plan by the eligible members of the converting mutual insurer, the converting mutual insurer shall file the following documents with the director:

1. The plan of reorganization.

2. The form of notice of the meeting at which the eligible members vote on the plan.

3. The form of any proxies to be solicited from the eligible members. Proxies must offer the eligible members the option of voting in favor of or voting against the plan or abstaining from voting.

4. Information required by the converting mutual insurer's bylaws.

5. Other information or documentation required by the director.

C. The director shall approve or disapprove a plan and other documents submitted under subsection B of this section as prescribed in section 20-482.04. The director must approve or disapprove the plan within sixty days after the director receives a completed filing of the plan and all information requested by the director or within sixty days after the completion of a hearing on the plan, whichever date is later.

D. At any time before the director approves a plan, the board may amend or withdraw the plan.

E. After the director approves a plan, the eligible members of the converting mutual insurer must approve the plan. Approval by the eligible members is subject to the following requirements:

1. All eligible members must be given notice of the plan and of their opportunity to vote on the plan. A copy of the plan or a summary of the plan must accompany the notice. The notice shall be mailed to the last known address of each eligible member, as shown on the records of the converting mutual insurer, within forty-five days after the director approves the plan. The meeting of the eligible members at which a vote on the plan will occur shall be set for a date that is not earlier than the thirtieth day after the date on which the mutual insurer mailed the notice of the meeting. If the converting mutual insurer complies substantially and in good faith with the notice requirements of this paragraph, the converting mutual insurer's failure to give any member or members any required notice does not impair the validity of any action taken under this section.

2. The vote required for approval must be conducted in accordance with the converting mutual insurer's bylaws, except as follows:

(a) Only eligible members may vote on the plan.

(b) An eligible member may vote in person or by proxy at the meeting at which the plan is voted on.

(c) The plan is approved by the eligible members on the affirmative vote of two-thirds or more of the eligible members voting on the plan, unless the bylaws require a greater number of affirmative votes. The converting mutual insurer shall file with the director a certification that the plan of reorganization has been duly adopted by a vote of at least two-thirds of the eligible members.

F. The plan shall be carried out in accordance with its terms on the effective date of the reorganization.

G. Except as otherwise provided in this section, all information and documents obtained by or disclosed to the director or any other person in the course of preparing, filing and processing an application to reorganize, other than information and documents distributed to policyholders or filed and submitted as evidence in connection with a public hearing held pursuant to section 20-482.04, are confidential and not subject to subpoena and must not be made public except to insurance departments of other states, with the prior written consent of the insurer to which such information and documents pertain.

§ 20-482.03 Required plan contents

A plan of reorganization of a domestic mutual insurer shall include all of the following:

1. A statement of the reasons for the proposed action.

2. A description of how the plan will be carried out, including any transaction included within the plan and a description of any mutual holding company, intermediate stock holding company or other corporation organized pursuant to the plan.

3. A description of all significant terms of the reorganization.

4. New or revised intercompany agreements.

5. A description of the overall effect of the plan on policies issued by the converting mutual insurer. The description must show that policyholder interests collectively are properly preserved and protected and that the plan is fair and equitable to the policyholders.

6. The record date for determining whether a member of the converting mutual insurer is an eligible member.

7. The proposed effective date of the reorganization or the manner in which the proposed effective date of the reorganization is established.

8. The proposed amendments to or restatement of the articles of incorporation and bylaws of the converting mutual insurer and the proposed articles of incorporation and bylaws of any mutual holding company, intermediate stock holding company or other corporation organized pursuant to the plan.

9. A description of any plans for the initial sale of voting stock to third parties by the converted stock insurer or any intermediate stockholding company, or a statement that the converted stock insurer or intermediate stock holding company has no current plans for the sale of voting stock.

10. The intention, if any, that a director or officer of the converting mutual insurer, mutual holding company, intermediate stock holding company or other corporation organized pursuant to the plan, within the six-month period following the effective date of the conversion or reorganization, may purchase or acquire shares of capital stock or other securities of an issuer to be issued pursuant to the plan.

11. A provision that all policies in force on the effective date of the conversion or reorganization will remain in force under the terms of those policies and that on the effective date of the reorganization, any voting rights of the members provided for under the policies or under this title are extinguished.

§ 20-482.04 Plan review and approval; general provisions; hearing

A. The director shall review a plan of reorganization that is submitted to the director. On review, the director shall approve the plan if the director finds all of the following:

1. The applicable provisions of this article, and other applicable provisions of law, have been fully met.

2. The plan protects the rights of policyholders.

3. The plan is fair and equitable to the members and the plan does not prejudice the interests of the members.

4. The converted stock insurer has capital or surplus, or any combination thereof, that is required of a domestic stock insurer on initial authorization to transact like kinds of insurance, and otherwise is able to satisfy the requirements of this state for transacting its insurance business.

5. The plan does not substantially reduce the security of the policyholders and the service to be rendered to the policyholders.

6. The financial condition of the mutual holding company or any subsidiary of the mutual holding company does not jeopardize the financial stability of the converted stock insurer.

7. The financial condition of the converting mutual insurer is not jeopardized by the conversion or reorganization, and the conversion or reorganization does not jeopardize the financial stability of the mutual holding company or any subsidiary of the mutual holding company.

8. The competence, experience and integrity of those persons who control the operation of the converted stock insurer are not contrary to the interests of policyholders of the converted stock insurer and of the public in allowing the plan to proceed.

B. To the extent the plan contains a provision that allows for the acquisition or merger of other insurance companies, the director shall apply the standards for scrutinizing mergers and acquisitions provided in section 20-481.07, subsection A, paragraph 3. The director may not approve a plan that fails to meet these standards.

C. An approval of a plan by the director expires if the plan is not carried out within one year after the date of the approval, unless the director extends the time period for good cause on written application for such extension.

D. The director may retain, at the expense of the converting mutual insurer, qualified experts not otherwise a part of the staff of the department to assist in reviewing the plan and supplemental documents.

E. The director may hold a hearing as prescribed in section 20-161 for the purposes of receiving comments on whether a plan should be approved and on any other matter relating to the reorganization. The hearing, if held, shall be held within sixty days after the director receives a completed filing of the plan and all information required by the director.

§ 20-482.05 Status of mutual holding company as corporation; status of insurer; rights and obligations of members; voting; articles of incorporation

A. A mutual holding company is not an insurer for the purposes of this title, except that sections 20-704, 20-713, 20-713.01, 20-714, 20-716, 20-723, 20-730, 20-733 and 20-735 apply to a mutual holding company as if the mutual holding company were a domestic mutual insurer.

B. A mutual holding company may not dissolve or liquidate without approval by the director or unless required by judicial order. The director retains jurisdiction over a mutual holding company, any intermediate stock holding company and any subsidiary of an intermediate stock holding company as provided in this section and section 20-481.20.

C. The members of a mutual holding company have the rights and obligations set forth in this section and in the articles of incorporation and bylaws of the mutual holding company. A member of a mutual holding company may not transfer membership in the mutual holding company or any right arising from such membership. Such limitation on the transfer of membership or rights arising from membership does not restrict the assignment of a policy that is otherwise permissible. A member of a mutual holding company is not personally liable for the acts, debts, liabilities or obligations of the mutual holding company merely by reason of being a member. An assessment of any kind may not be imposed on a member of a mutual holding company. Any premium due under an insurance policy or contract issued to a member of a mutual holding company is not considered an assessment.

D. A membership interest in a mutual holding company does not constitute a security as defined in section 44-1801.

E. Each member of a mutual holding company is entitled to one vote on each matter coming before a meeting of the members and for each director to be elected regardless of the number of policies or amount of insurance and benefits held by such member. The mutual holding company's bylaws shall set forth the voting rights of the members of a mutual holding company.

F. Meetings of the members of a mutual holding company shall be governed in the same manner as if the mutual holding company were a domestic mutual insurer, including provisions governing quorum requirements, the approval of matters by the members and the election of directors by the members.

G. The articles of incorporation of a mutual holding company shall contain all the following provisions:

1. The name of the mutual holding company. The name shall include the words "mutual holding company" or "mutual insurance holding company" or other words connoting the mutual character of the mutual holding company that are approved by the director.

2. A provision specifying that the mutual holding company is not authorized to issue capital stock, whether voting or nonvoting.

3. A provision setting forth any rights of the members of the mutual holding company on dissolution or liquidation.

H. A mutual holding company shall automatically be a party to any rehabilitation or liquidation proceeding involving the converted stock insurer that as a result of a reorganization is a direct or indirect subsidiary of the mutual holding company. In such a proceeding, the assets of the mutual holding company shall be counted as assets of the estate of the converted stock insurer for the purpose of satisfying the claims of the policyholders of the converted stock insurer.

§ 20-482.06 Concurrent reorganization with a domestic or foreign mutual insurer

The concurrent reorganization of a domestic mutual insurer with one or more mutual insurers, domestic or foreign, into a single mutual insurance holding company, whether domestic or foreign, may be accomplished by a joint application and a joint plan of reorganization and may be approved by the director by complying with the requirements of this article. The director may determine that such other procedures are unnecessary to avoid duplicative costs and efforts in satisfying the requirements of this article and effectuating the reorganization.

§ 20-482.07 Foreign mutual insurer reorganization; definition

A. A foreign mutual insurer organized under the laws of any other state, that, if a domestic corporation, would be organized under section 20-709, may reorganize by merging its policyholders' membership interests into an existing domestic mutual holding company in accordance with the requirements of any other law or regulation that applies to the foreign mutual insurer. The reorganization shall continue the corporate existence of the converting mutual insurer as a foreign stock insurance company subsidiary of the existing domestic mutual holding company or as a foreign stock insurance company subsidiary of an intermediate stock holding company. The reorganizing foreign mutual insurer may remain a foreign insurer after the restructuring and may be admitted to do business in this state if it meets the applicable requirements of this title. A foreign mutual insurer that is a party to the reorganization may at the same time redomesticate to this state by complying with the applicable requirements of this state and the foreign mutual insurer's state of domicile.

B. For the purposes of this section, "existing domestic mutual holding company" means a mutual holding company formed under this article.

Article 9 Insurance Administrators

§ 20-485 Definitions; scope

A. In this article, unless the context otherwise requires:

1. "Administrator" means any person who collects charges or premiums from or paid on behalf of, or who adjusts or settles claims by, residents of this state in connection with life or health insurance coverage or annuities other than any of the following:

(a) An employer on behalf of the employer's employees or the employees of one or more subsidiary or affiliated corporations of the employer.

(b) A union on behalf of its members.

(c) An insurer authorized to transact insurance in this state, including its employees and sales representatives, to the extent that it collects charges or premiums from or paid on behalf of, or adjusts or settles claims by, residents of this state in connection with life or health insurance coverage or annuities lawfully issued and delivered or assumed in this state and pursuant to the laws of this state or another state and for which the insurer or an affiliated insurer is presently directly liable.

(d) An insurer authorized to transact insurance in this state, including its employees and sales representatives, to the extent that it collects charges or premiums from or paid on behalf of, or adjusts or settles claims by, residents of this state in connection with life or health insurance coverage or annuities lawfully issued and delivered or assumed in this state and pursuant to the laws of this state or another state and for which an unaffiliated insurer is presently directly liable.

(e) A person other than an insurer, to the extent that the person's activities are limited to the collection of charges or premiums from or paid on behalf of, or the adjustment or settlement of claims by, residents of this state in connection with life and health insurance coverage issued and delivered or assumed by an affiliated insurer authorized to transact insurance in this state and for which the affiliated insurer is presently directly liable.

(f) A life or disability insurance producer who is licensed in this state or an employee of a licensed producer working at the direction and under the supervision of a licensed producer if the producer or the producer's employee does not adjust or settle claims.

(g) A creditor on behalf of the creditor's debtors with respect to insurance covering a debt between the creditor and its debtors.

(h) A trust and its trustees, agents and employees acting pursuant to the trust established in conformity with 29 United States Code section 186.

(i) A trust exempt from taxation under section 501(a) of the internal revenue code and its trustees and employees acting pursuant to the trust, or a custodian and its agents and employees acting pursuant to a custodian account that meets the requirements of section 401(f) of the internal revenue code.

(j) A financial institution or money transmitter that is subject to supervision or examination by federal or state banking authorities if the financial institution or money transmitter does not adjust or settle claims.

(k) A credit card issuing company that advances for and collects premiums or charges from its credit card holders who have authorized such collection, if the company does not adjust or settle claims.

(l) A person who adjusts or settles claims in the normal course of the person's practice or employment as an attorney and who does not collect charges or premiums in connection with life or health insurance coverage or annuities.

(m) An adjuster who is licensed in this state while acting in accordance with an adjuster's license.

(n) A person who acts only as an administrator of one or more bona fide employee benefit plans established by an employer or an employee organization, or both, for which the insurance laws of this state are preempted pursuant to the employee retirement income security act of 1974 (P.L. 93-406; 88 Stat. 829; 29 United States Code sections 1001 through 1461).

(o) A credit card processing company that processes payments or charges for premiums if the company does not adjust or settle claims.

(p) A qualified marketplace platform on behalf of qualified marketplace contractors that have executed a written contract with the qualified marketplace platform that complies with the requirements of section 23-1603, subsection A.

(q) An employee of the group policyholder who collects or remits premiums for group life insurance, group annuities or group or blanket disability insurance if the person does not adjust claims or receive any commissions.

(r) An administrator of a trust that was established to provide life insurance, disability insurance or annuities to participants in the trust and that is also a group policyholder. The administrator may act only as an administrator of the trust and may not adjust or settle claims.

2. "Affiliate" or "affiliated" means a person who directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with a specified person.

3. "Charges" means cost sharing requirements, including applicable coinsurance, copayments, deductibles or other amounts payable by an insured under the terms of an insurance contract.

4. "Control" means the direct or ultimate possession of the power to direct or cause the direction of the management and policies of a person whether through voting rights, contracts, other than commercial contracts for goods or nonmanagement services, or otherwise, unless the power is the result of an official position or corporate office. Control exists if any person, directly or indirectly, owns, controls, holds with the power to vote or holds proxies representing ten percent or more of the voting rights of any other person, including the right to elect or appoint the officers or directors of a nonprofit corporation.

5. "Insurer" means any person who provides life or health insurance coverage in this state or who transacts annuity business in this state. Insurer includes an authorized insurer, hospital, medical, dental or optometric service corporation or health care services organization or any other person providing a plan of insurance subject to the laws of insurance of this state. Insurer does not include a self-insured or a self-funded employee benefit plan if regulation of that plan is preempted pursuant to section 1144(a) of the employee retirement income security act of 1974 (29 United States Code section 1144(a)) but does include an insurer who provides coverage as part of an employee benefit plan.

6. "Principal" means a person who has the authority to enter into written agreements on behalf of the administrator pursuant to section 20-485.01.

7. "Qualified marketplace contractor":

(a) Means any person or organization, including an individual, corporation, limited liability company, partnership, sole proprietor or other entity, that enters into an agreement with a qualified marketplace platform to use the qualified marketplace platform's digital platform to provide services to third-party individuals or entities seeking those services.

(b) Does not include a contractor if the services performed consist of transporting freight, sealed and closed envelopes, boxes or parcels or other sealed and closed containers for compensation.

8. "Qualified marketplace platform":

(a) Means an organization, including a corporation, limited liability company, partnership, sole proprietor or other entity, that both:

(i) Operates a digital website or digital smartphone application that facilitates the provision of services by qualified marketplace contractors to individuals or entities seeking those services.

(ii) Accepts service requests from the public only through its digital website or digital smartphone application and does not accept service requests by telephone, by fax or in person at physical retail locations.

(b) Does not include any digital website or smartphone application if the services facilitated consist of transporting freight, sealed and closed envelopes, boxes or parcels or other sealed and closed containers for compensation.

B. To the extent that an insurer is subject to subsection A, paragraph 1, subdivision (d) of this section, it shall comply with this article except sections 20-485.10 and 20-485.12.

C. This article does not apply to a person acting exclusively as a third party intermediary entity as prescribed in section 20-120.

§ 20-485.01 Written agreement; provisions; maintenance of records

A. No person may act as an administrator and no administrator may collect a premium without a written agreement between the person as administrator and the insurer for whom the services are rendered. Such written agreement shall be retained as part of the official records of both the insurer and the administrator for the duration of the agreement and for five years thereafter.

B. The written agreement shall contain provisions which include the requirements of sections 20-485.03 through 20-485.10 except as those requirements do not apply to the functions performed by the administrator. The agreement shall include a provision that the insurer shall provide thirty days' written notice to the administrator of termination or cancellation of the agreement. The agreement shall also include a provision that the insurer shall provide fifteen days' written notice to the director of termination or cancellation or any other change in the agreement.

C. If a policy is issued to a trustee or trustees, a copy of the trust agreement and any amendments to such agreement shall be furnished to the insurer by the administrator and shall be retained as part of the official records of both the insurer and the administrator for the duration of the policy and for five years thereafter.

§ 20-485.02 Administrator as intermediary between insurer and insured; right of action preserved

If an insurer utilizes the services of an administrator under the terms of a written agreement as required in section 20-485.01, the payment to the administrator of any premiums or charges for insurance by or on behalf of the insured shall be deemed to have been received by the insurer, and the payment of return premiums or claims by the insurer to the administrator shall not be deemed payment to the insured or claimant until such payments are received by the insured or claimant. Nothing in this article shall limit any right of the insurer against the administrator resulting from such administrator's failure to make payments to the insurer, insureds or claimants.

§ 20-485.03 Maintenance of records; access; confidentiality; information sharing; examination

A. Every administrator shall maintain at the administrator's principal administrative office for the duration of the written agreement required by section 20-485.01 and for five years thereafter adequate books and records of all transactions among the administrator, insurers and insured persons. The books and records shall be maintained in accordance with prudent standards of insurance record keeping.

B. The director shall have access to books and records maintained by the administrator for the purpose of examination, audit and inspection. Any trade secrets contained in the books and records, including the identity and addresses of policyholders and certificate holders, shall be confidential, except the director may use the information in any proceedings instituted against the administrator.

C. The director may:

1. Share nonpublic documents, materials or other information with other state, federal and international regulatory agencies, with the national association of insurance commissioners and its affiliates and subsidiaries and with state, federal and international law enforcement authorities if the recipient agrees and warrants that it has the authority to maintain the confidentiality and privileged status of the documents, materials or other information.

2. Receive documents, materials and other information from the national association of insurance commissioners and its affiliates and subsidiaries and from regulatory and law enforcement officials of other jurisdictions and shall maintain as confidential or privileged any document, material or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information.

3. Enter into agreements that govern the sharing and use of documents, materials and other information and that are consistent with this section.

D. A disclosure to or by the director pursuant to this section or as a result of sharing information pursuant to subsection C of this section is not a waiver of any applicable privilege or claim of confidentiality in the documents, materials or other information disclosed or shared.

E. The insurer retains the right of continuing access to books and records maintained by the administrator sufficient to permit the insurer to fulfill all of its contractual obligations to insured persons, subject to any restrictions in the written agreement between the insurer and administrator on the proprietary rights of the parties in such books and records.

F. The director may require an administrator to provide, on a quarterly basis in a form acceptable to the director, additional information that is necessary for the protection of the public.

G. The director may examine the business practices, books and records of any administrator as often as the director deems appropriate. The administrator shall pay the cost of only one examination each year.

§ 20-485.04 Advertising; approval

An administrator may use only such advertising pertaining to the business underwritten by an insurer as has been approved by such insurer in advance of its use.

§ 20-485.05 Inclusion of underwriting standards

The agreement required in section 20-485.01 shall make provision with respect to the underwriting or other standards pertaining to the business underwritten by such insurer.

§ 20-485.06 Charges or premiums collected held in fiduciary capacity; establishment of account; disbursements

A. All insurance charges or premiums collected by an administrator on behalf of or for an insurer or insurers, and return premiums received from such insurer or insurers, shall be held by the administrator in a fiduciary capacity. Such funds shall be immediately remitted to the person or persons entitled to such funds or shall be deposited promptly in a fiduciary bank account established and maintained by the administrator.

B. If charges or premiums deposited in a fiduciary account have been collected on behalf of or for more than one insurer, the administrator shall keep records clearly recording the deposits in and withdrawals from such account on behalf of or for each insurer. The administrator shall, upon request of an insurer, furnish such insurer with copies of such records pertaining to deposits and withdrawals on behalf of or for such insurer.

C. The administrator shall not pay any claim by withdrawals from a fiduciary account. Withdrawals from such account shall be made, as provided in the written agreement between the administrator and the insurer required by section 20-485.01, for any of the following:

1. Remittance to an insurer entitled to such remittance.

2. Deposit in an account maintained in the name of such insurer.

3. Transfer to and deposit in a claims-paying account, with claims to be paid as provided by section 20-485.07.

4. Payment to a group policyholder for remittance to the insurer entitled to such remittance.

5. Payment to the administrator of such administrator's commission, fees or charges.

6. Remittance of return premiums to the person or persons entitled to such return premiums.

§ 20-485.07 Payment of claims on behalf of insurer

All claims paid by the administrator from funds collected on behalf of the insurer shall be paid only on drafts of and as authorized by such insurer.

§ 20-485.08 Delivery of written communications

Any policies, certificates, booklets, termination notices or other written communications delivered by the insurer to the administrator for delivery to its policyholders shall be delivered by the administrator promptly after receipt of instructions from the insurer to do so.

§ 20-485.09 Adjustment or settlement of claims or charges; compensation

A. Compensation to an administrator for any policies where such administrator adjusts or settles claims shall not be contingent on claim experience. This subsection does not prevent the compensation of an administrator from being based on premiums or charges collected or number of claims paid or processed.

B. An administrator may collect charges in accordance with the written agreement between the administrator and the insurer. The written agreement must prescribe the applicable standards for the permissible collection of charges by the administrator. Unless the administrator is licensed as a collection agency pursuant to title 32, chapter 9, the administrator may not collect charges that have remained unpaid on an account that has been inactive for more than twelve months.

§ 20-485.10 Deposit or surety bond of administrators; amount; purpose

Every administrator shall possess and maintain a deposit in favor of this state to be held in trust for the benefit and protection of insureds and insurers whose monies the administrator handles consisting of cash, securities eligible for investment pursuant to chapter 3, articles 1 and 2 of this title, or a surety bond in a form acceptable to the director and issued by a corporate surety authorized to transact business in this state. The amount of the deposit shall be ten per cent of the amount of total funds handled unless the director determines that a lesser amount is adequate for the protection of the public but in no case shall the bond be less than five thousand dollars. The amount of the deposit shall be determined by the total funds handled by the administrator during the preceding year, or if no funds were handled during the preceding year, the amount of funds reasonably estimated to be handled during the current calendar year by the administrator. The amount of such deposit is payable on the failure of the administrator to pay benefits it is legally obligated to pay and shall provide protection to the insurers and insureds against loss by reason of acts of fraud or dishonesty and may include individual bonds or schedule or blanket forms of bonds.

§ 20-485.11 Notice to insureds; statement of charge or premium for coverage; conflict of interest prohibited

A. If the services of an administrator are utilized, such administrator shall provide a written notice approved by the insurer to insured individuals advising them of the identity of and relationship among the administrator, the policyholder and the insurer.

B. If an administrator collects monies, the administrator shall identify and state separately in writing to the person paying to the administrator any charge or premium for insurance coverage the amount of any such charge or premium specified by the insurer for such insurance coverage.

C. The administrator or any employee of the administrator shall not directly or through control of any other person have an ownership interest in any insurer except as a shareholder of less than one per cent of the shares of any publicly owned insurer. The administrator or a principal of the administrator may not receive from an insurer, for the placement of insurance administered by the administrator, a commission whether in monetary or nonmonetary form directly dependent upon the amount of such insurance.

D. Subject to subsection C of this section, before entering into a written agreement pursuant to section 20-485.01 with an unaffiliated insurer, an administrator shall provide written notice to the unaffiliated insurer of the identity of each insurer with which the administrator is affiliated and the nature of the affiliation.

E. If an administrator or an employee of the administrator acts directly or indirectly as an insurance producer with respect to a policy it administers in this state, the administrator shall provide the policyholder and the person insured under that policy with written notice of that relationship.

F. If an administrator or an employee of the administrator acts directly or indirectly as an insurance producer with respect to an insurance policy available in this state that has substantially the same type of coverage as a policy it administers in this state, the administrator shall provide the insurer for which it acts with written notice of the identity of the other insurer and its relationship to it.

§ 20-485.12 Certificate of registration; fees; expiration; revocation; civil penalties; violations; classification; injunctive relief

A. A person may not claim to be an administrator in this state unless the person holds a valid certificate of registration as an administrator issued by the director.

B. An application for a certificate of registration and an application to renew a certificate shall be in the form prescribed by the director and shall be accompanied by the fee prescribed in section 20-167. The fee is not refundable if the application or renewal application is denied. Each application for a certificate shall include the following information and documents:

1. A financial statement that is certified by an officer of the applicant on a form acceptable to the director and that includes current financial information covering the ninety days immediately preceding the date that the application is filed with the director. The financial statement shall include the following:

(a) A disclosure of the total amount of Arizona monies projected to be handled for the next calendar year.

(b) An income statement and a balance sheet prepared in accordance with generally accepted accounting principles for the two years immediately preceding the date that the application is filed. The applicant shall not submit consolidated income statements or balance sheets.

2. All of the administrator's basic organization documents and amendments to these documents, including any articles of incorporation, articles of association, partnership agreement, trade name certificate, trust agreement, shareholder agreement and other applicable document.

3. An organizational chart that identifies each member of the holding company system that directly or indirectly controls the administrator and every affiliate the administrator directly or indirectly controls.

4. The administrator's bylaws, rules or regulations or similar documents that regulate the administrator's internal affairs.

5. Biographical affidavits to be completed by the individuals responsible for the administrator's affairs, including affidavits for all members of the board of directors, the board of trustees, the executive committee or any other governing board or committee, the principal officers of the corporation or the partners or members of the partnership or association, shareholders that directly or indirectly hold at least ten percent of the voting securities of the administrator and any other person who exercises control or influence over the affairs of the administrator. The biographical affidavits shall include information concerning the personal history, business record, insurance experience and other pertinent facts as the director may require, including whether the affiant has been the subject of an investigation by any regulatory authority or has had any license of any type denied, suspended or revoked in any jurisdiction.

6. The administrator's complete name and address for all offices in each jurisdiction.

7. A declaration that states whether the administrator has:

(a) Been previously licensed to transact any kind of insurance in this state or any other jurisdiction and whether that license has been refused, suspended or revoked.

(b) Been indebted to any person, including all of the relevant details.

(c) Had an administrative agreement canceled, including all of the relevant details.

8. The details about the administrator's capacity to collect premiums or administer claims on behalf of the insurer in this state.

9. The written notice, approved by the insurer, that the administrator will provide to insured individuals and that advises the insured individuals of the administrator's identity and the relationship between the administrator and the insurer for each executed insurance administrative agreement filed in this state.

10. An affidavit signed by an officer of the administrator who is authorized by the administrator to verify the facts stated in the application.

C. The director shall issue the certificate of registration unless the director finds that the applicant is not competent or financially responsible, has had an insurance license denied for cause by any state or has failed to comply with any requirement of this article. The certificate remains in effect until the director suspends or revokes the certificate or until the director accepts the voluntary termination of the certificate. On revocation or termination, the administrator shall immediately deliver the certificate to the director.

D. Unless the certificate of registration is surrendered, suspended or revoked, a certificate of registration issued pursuant to this section to an administrator remains in effect for as long as the administrator continues in business in this state and the administrator remains in compliance with all of the requirements applicable to administrators prescribed by this title.

E. On or before March 1 of each year, each administrator that has an effective certificate of registration shall file a renewal application with the director, on a form approved by the director, that consists of a financial statement of the administrator's current financial condition, transactions and affairs as of December 31 of the preceding calendar year. The annual financial statement shall include a disclosure of the total amount of Arizona monies handled for the preceding year, including the income statement and balance sheet required by subsection B of this section and any additional information that the director may require. At least two officers of the administrator shall verify the annual financial statement. The administrator shall include with the annual financial statement the filing fee prescribed in section 20-167. The director may allow an administrator that has failed to file its annual financial statement or pay its fees on time to file the statement and pay the fees if the administrator pays an additional fee to be determined by the director of not more than $25 for each day of delinquency.

F. The director may request further information from the administrator at any time regarding a previously filed application or the annual financial statement prescribed by subsection E of this section.

G. Within thirty days after the change becomes effective, the administrator shall provide the director with written notice of any change in the application on which the certificate of registration was issued and of any change in the administrator's ownership or control.

H. After notice and a hearing, the director may either suspend or revoke a certificate of registration for any reason for which the issuance of a certificate could be denied or for any of the following reasons:

1. The administrator is in an unsound financial condition or in a condition that renders further administrative services in this state by the administrator hazardous to policyholders, claimants, beneficiaries or any other person.

2. The administrator knowingly failed to comply with any lawful order of the director.

3. The administrator violated any provision or requirement of this title or any rule adopted by the director pursuant to this title.

I. In lieu of or in addition to suspension or revocation, if the director finds grounds pursuant to subsection H of this section to suspend or revoke an administrator's certificate of registration, the director may impose a civil penalty of at least $1,000 and not more than $10,000. The civil penalty is in addition to any other penalties that may be imposed for violations of this title or other laws of this state.

J. Any civil penalties imposed pursuant to this section shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund.

K. Any person who violates any provision of this article other than subsection A of this section is guilty of a class 3 misdemeanor. A person who violates subsection A of this section is guilty of a class 5 felony.

L. If the director believes from evidence satisfactory to the director that a person is violating or is about to violate subsection A of this section, the director may order the person to cease and desist and, through the attorney general, may file a complaint in the superior court in the county in which the person transacts insurance business to enjoin or restrain the person from continuing or engaging in the violation or doing any act in furtherance of the violation. If the director orders the person to cease and desist, the person may request a hearing pursuant to title 41, chapter 6, article 10. If a complaint is filed in superior court, the court has jurisdiction over the proceedings and may enter an order or judgment awarding appropriate relief.

Article 10 Reinsurance Intermediaries

§ 20-486 Definitions; director's list

A. In this article, unless the context otherwise requires:

1. "Actuary" means a person who is a member in good standing of the American academy of actuaries.

2. "Controlling person" means a person, firm, association or corporation that directly or indirectly has the power to direct or cause to be directed the management, control or activities of the reinsurance intermediary.

3. "Insurer" means a person, firm, association or corporation licensed to transact insurance business in this state.

4. "Licensed producer" means an insurance producer or reinsurance intermediary who is licensed pursuant to this title.

5. "Reinsurance intermediary" means a reinsurance intermediary broker or a reinsurance intermediary manager.

6. "Reinsurance intermediary broker" means a person, other than an officer or employee of the ceding insurer, or a firm, association or corporation that solicits, negotiates or places reinsurance cessions or retrocessions on behalf of a ceding insurer without the authority or power to bind reinsurance on behalf of the insurer.

7. "Reinsurance intermediary manager" means a person, firm, association or corporation that has authority to bind or manage all or part of the assumed reinsurance business of a reinsurer, including the management of a separate division, department or underwriting office, and that acts as an agent for the reinsurer whether the reinsurer is known as a reinsurance intermediary manager, a manager or another similar term. For the purposes of this article, the following persons are not reinsurance intermediary managers:

(a) An employee of the reinsurer.

(b) The United States manager of a United States branch of an alien reinsurer.

(c) An underwriting manager who, pursuant to contract, manages all of the reinsurance operations of the reinsurer, who is under common control with the reinsurer, subject to the holding company regulatory act, and whose compensation is not based on the volume of premiums written.

(d) The manager of a group, association, pool or organization of insurers that engages in joint underwriting or joint reinsurance and that is subject to examination by the insurance director of the state in which the manager's principal business office is located.

8. "Reinsurer" means a person, firm, association or corporation licensed to transact reinsurance business in this state.

9. "Violation" means the failure of the reinsurance intermediary, insurer or reinsurer for whom the reinsurance intermediary was acting to substantially comply with the provisions of this article.

B. The director may establish and maintain a list of financial institutions as a qualified financial institution if the institution is:

1. Organized, or in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state of the United States.

2. Regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies.

3. Determined by the director to meet the standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the director.

§ 20-486.01 Licensure of reinsurance intermediaries

A. A person, firm, association or corporation shall not act as a reinsurance intermediary broker in this state unless:

1. With respect to a reinsurance intermediary broker who maintains an office in this state, whether directly or as a member or employee of a firm or association or as an officer, director or employee of a corporation, the reinsurance intermediary broker is a licensed producer in this state.

2. With respect to a reinsurance intermediary broker who does not maintain an office in this state, the reinsurance intermediary is a licensed producer in another state having a requirement that is substantially similar to this article or the reinsurance intermediary broker is licensed in this state as a nonresident reinsurance intermediary.

B. A person, firm, association or corporation shall not act as a reinsurance intermediary manager:

1. For a reinsurer domiciled in this state, unless the reinsurance intermediary manager is a licensed producer in this state.

2. In this state if the reinsurance intermediary manager maintains an office either directly or as a member or employee of a firm or association, or as an officer, director or employee of a corporation in this state, unless the reinsurance intermediary manager is a licensed producer in this state.

3. In another state for a nondomestic insurer, unless the reinsurance intermediary manager is a licensed producer in this state or another state under a similar law of that state or the reinsurance intermediary manager is licensed in this state as a nonresident reinsurance intermediary.

C. The director may require a reinsurance intermediary manager to:

1. File a bond from an insurer for the protection of the reinsurer in an amount that is acceptable to the director.

2. Maintain an errors and omissions policy in an amount that is acceptable to the director.

D. The director may issue a reinsurance intermediary license to a person, firm, association or corporation that complies with the requirements of this article. A license that is issued to a firm or association authorizes all the members and designated employees of the firm or association to act as reinsurance intermediaries under the license. Members and designated employees shall be named in the application and any supplements to the application. A license that is issued to a corporation authorizes all of the officers, designated employees and directors of the corporation to act as reinsurance intermediaries on behalf of the corporation. The officers, designated employees and directors shall be named in the application and any supplements to the application. If the applicant for a reinsurance intermediary license is a nonresident, as a condition precedent to receiving or holding a license the applicant shall designate the director as the agent for service of process pursuant to this article. The applicant shall furnish the director with the name and address of a resident of this state on whom may be served notice, orders of the director or process affecting the nonresident reinsurance intermediary. The licensee shall notify promptly the director in writing of every change in its designated agent for service of process. The change does not become effective until it is acknowledged by the director.

E. The director may refuse to issue a reinsurance intermediary license if, in the director's judgment, the applicant, a person named on the application or a member, principal, officer or director of the applicant or controlling person of the applicant gives cause for revocation or suspension of the license or fails to comply with any prerequisite for the issuance of the license. On written request, the director shall furnish a summary of the basis for refusal to issue a license. The summary is privileged and confidential.

F. Attorneys licensed to practice law in this state are exempt from this section when acting in their professional capacity.

G. The director may exempt from this section a reinsurance intermediary broker whose activities with respect to reinsurance comply with all of the following:

1. Has no authorization to bind any party.

2. Compensation is not dependent on the sale or placement of reinsurance and the amount of compensation is not related to the amount of reinsurance or reinsurance premium.

3. Reinsurance related activities are infrequent and incidental to other professional services.

4. Does not handle or control the funds of any party directly or indirectly involved in the reinsurance activities of the reinsurance intermediary broker.

§ 20-486.02 Required contract provisions; reinsurance intermediary brokers

A reinsurance intermediary broker and the insurer it represents as a reinsurance intermediary shall enter into a written contract that specifies the responsibilities of each party. The contract at a minimum shall provide that:

1. The insurer may terminate the reinsurance intermediary broker's authority at any time.

2. The reinsurance intermediary broker shall render accounts to the insurer that accurately detail all material transactions, including information necessary to support all commissions, charges and other fees received by or owed to the reinsurance intermediary broker, and shall remit all monies due to the insurer within thirty days of receipt.

3. All monies collected for the insurer's account be held in a fiduciary capacity by the reinsurance intermediary broker in a bank that is a qualified United States financial institution as defined in section 20-486.

4. The reinsurance intermediary broker comply with the provisions of section 20-486.03.

5. The reinsurance intermediary broker comply with the written standards that are established by the insurer for the cession or retrocession of all risks.

6. The reinsurance intermediary broker disclose to the insurer a relationship it has with a reinsurer to which business will be ceded or retroceded.

§ 20-486.03 Books and records; reinsurance intermediary brokers

A. For at least ten years after a contract of reinsurance transacted by the reinsurance intermediary broker expires, the reinsurance intermediary broker shall maintain a complete record for each transaction that shows:

1. The type of contract, limits, underwriting restrictions, classes or risks and territory.

2. The period of coverage, including effective and expiration dates, cancellation provisions and notice required of cancellation.

3. The reporting and settlement requirements of balances.

4. The rate used to compute the reinsurance premium.

5. The names and addresses of assuming reinsurers.

6. The rates of all reinsurance commissions, including the commissions on any retrocessions that are handled by the reinsurance intermediary broker.

7. Related correspondence and memoranda.

8. Proof of placement.

9. Details regarding retrocessions that are handled by the reinsurance intermediary broker including the identity of persons who receive retrocessions and the percentage of each contract that is assumed or ceded.

10. The financial records, including premium and loss accounts.

11. If the reinsurance intermediary broker procures directly from any assuming reinsurer a reinsurance contract on behalf of a licensed ceding insurer, written evidence that the assuming reinsurer has agreed to assume the risk.

12. If the reinsurance intermediary broker procures through a representative of the assuming reinsurer, other than an employee, a reinsurance contract on behalf of a licensed ceding insurer, written evidence that the reinsurer has delegated binding authority to the representative.

B. The insurer shall have access to and the right to copy and audit all accounts and records related to its business that are maintained by the reinsurance intermediary broker in a form usable by the insurer.

§ 20-486.04 Duties of insurers utilizing the services of a reinsurance intermediary broker

A. An insurer shall not engage the services of a person, firm, association or corporation to act as a reinsurance intermediary broker on its behalf unless the person is licensed as required by section 20-486.01.

B. An insurer may not employ an individual who is employed by the reinsurance intermediary broker with which it transacts business, unless the reinsurance intermediary broker is under common control with the insurer and is subject to the holding company act.

C. The insurer annually shall obtain a copy of the statements on the financial condition of each reinsurance intermediary broker with which it transacts business.

§ 20-486.05 Required contract provisions; reinsurance intermediary managers

A reinsurance intermediary manager and the reinsurer it represents as a reinsurance intermediary shall enter into a written contract that specifies the responsibilities of each party. The reinsurer's board of directors shall approve the contract. At least thirty days before the reinsurer assumes or cedes business through the producer, a true copy of the approved contract shall be filed with the director for approval. The contract at a minimum shall provide that:

1. The reinsurer may terminate the contract for cause on written notice to the reinsurance intermediary manager. The reinsurer immediately may suspend the authority of the reinsurance intermediary manager to assume or cede business during the pendency of a dispute regarding the cause for termination.

2. The reinsurance intermediary manager shall render accounts to the reinsurer that accurately detail all material transactions, including information necessary to support all commissions, charges and other fees received by or owed to the reinsurance intermediary manager, and shall remit all monies due under the contract to the reinsurer on not less than a monthly basis.

3. All monies collected for the reinsurer's account be held in a fiduciary capacity by the reinsurance intermediary manager in a bank that is a qualified United States financial institution as defined in section 20-486. The reinsurance intermediary manager may retain no more than three months' estimated claims payments and allocated loss adjustment expenses. The reinsurance intermediary manager shall maintain a separate bank account for each reinsurer that it represents.

4. The reinsurance intermediary manager comply with the provisions of section 20-481.06.

5. The contract cannot be assigned in whole or in part by the reinsurance intermediary manager.

6. The reinsurance intermediary manager comply with the written underwriting and rating standards that are established by the insurer for the acceptance, rejection or cession of all risks.

7. The rates, terms and purposes of commissions, charges and other fees that the reinsurance intermediary manager may levy against the reinsurer be set forth.

8. If the contract permits the reinsurance intermediary manager to settle claims on behalf of the reinsurer, all claims be reported to the reinsurer in a timely manner and a copy of the claim file be sent to the reinsurer on request or as soon as it becomes known that the claim:

(a) May exceed the lesser of an amount determined by the director or the limit set by the reinsurer.

(b) Involves a coverage dispute.

(c) May exceed the reinsurance intermediary manager's claims settlement authority.

(d) Is open for more than six months.

(e) Is closed by payment of the lesser of an amount set by the director or an amount set by the reinsurer.

All claim files are the joint property of the reinsurer and the reinsurance intermediary manager. On an order of liquidation of the reinsurer the files shall become the sole property of the reinsurer or its estate. The reinsurance intermediary manager shall have reasonable access to and the right to copy the files on a timely basis. Any settlement authority granted to the reinsurance intermediary manager may be terminated for cause on the reinsurer's written notice to the reinsurance intermediary manager or on the termination of the contract. The reinsurer may suspend the settlement authority during the pendency of the dispute regarding the cause of termination.

9. If the contract provides for a sharing of interim profits by the reinsurance intermediary manager, the interim profits shall not be paid until one year after the end of each underwriting period for property business, five years after the end of each underwriting period for casualty business or a later period set by the director for specified lines of insurance and not until the adequacy of reserves on remaining claims is verified pursuant to section 20-486.08, subsection C.

10. The reinsurance intermediary manager annually shall provide the reinsurer with a statement of its financial condition prepared by an independent certified accountant.

11. The reinsurer at least semiannually shall conduct an on-site review of the underwriting and claims processing operations of the reinsurance intermediary manager.

12. The reinsurance intermediary manager shall disclose to the reinsurer a relationship it has with an insurer before ceding or assuming any business with the insurer pursuant to the contract.

13. Within the scope of its actual or apparent authority, the acts of the reinsurance intermediary manager be deemed to be the acts of the reinsurer on whose behalf it is acting.

§ 20-486.06 Books and records; reinsurance intermediary managers

A. For at least ten years after a contract of reinsurance transacted by the reinsurance intermediary manager expires, the reinsurance intermediary manager shall maintain a complete record for each transaction that shows:

1. The type of contract, limits, underwriting restrictions, classes or risks and territory.

2. The period of coverage, including effective and expiration dates, cancellation provisions, notice required of cancellation and disposition of outstanding reserves on covered risks.

3. The reporting and settlement requirements of balances.

4. The rate used to compute the reinsurance premium.

5. The names and addresses of reinsurers.

6. The rates of all reinsurance commissions, including the commissions on any retrocessions that are handled by the reinsurance intermediary manager.

7. Related correspondence and memoranda.

8. Proof of placement.

9. Details regarding retrocessions that are handled by the reinsurance intermediary manager pursuant to section 20-486.08, subsection D including the identity of persons who receive retrocessions and the percentage of each contract that is assumed or ceded.

10. The financial records, including premium and loss accounts.

11. If the reinsurance intermediary manager procures directly from any assuming reinsurer a reinsurance contract on behalf of a licensed ceding insurer, written evidence that the assuming reinsurer has agreed to assume the risk.

12. If the reinsurance intermediary broker procures through a representative of the assuming reinsurer, other than an employee, a reinsurance contract on behalf of a licensed ceding insurer, written evidence that the reinsurer has delegated binding authority to the representative.

B. The reinsurer shall have access to and the right to copy all accounts and records related to its business that are maintained by the reinsurance intermediary manager in a form usable by the reinsurer.

§ 20-486.07 Prohibited acts; reinsurance intermediary managers

The reinsurance intermediary manager shall not:

1. Cede retrocessions on behalf of the reinsurer, except that the reinsurance intermediary manager may cede facultative retrocessions pursuant to obligatory facultative agreements if the contract with the reinsurer contains reinsurance underwriting guidelines for retrocessions. The guidelines shall include a list of reinsurers with whom the automatic agreements are in effect, the coverages and amounts or percentages for each reinsurer that may be reinsured and commission schedules.

2. Commit the reinsurer to participation in reinsurance syndicates.

3. Appoint a producer without assuring that the producer is lawfully licensed to transact the type of reinsurance for which he is appointed.

4. Without prior approval of the reinsurer, pay or commit the reinsurer to pay a claim, net of retrocessions, that exceeds the lesser of an amount specified by the reinsurer or one per cent of the reinsurer's policyholder's surplus as of December 31 of the last complete calendar year.

5. Without prior approval of the reinsurer, collect any payment from a person who receives a retrocession or commit the reinsurer to any claim settlement with a person who receives a retrocession. If prior approval is given, a report shall be forwarded promptly to the reinsurer.

6. Employ jointly an individual who is employed by the reinsurer unless the reinsurance intermediary manager is under common control with the reinsurer subject to the holding company act.

7. Appoint a sub-reinsurance intermediary manager.

§ 20-486.08 Duties of reinsurers utilizing the services of a reinsurance intermediary manager

A. A reinsurer shall not engage the services of a person, firm, association or corporation to act as a reinsurance intermediary manager on its behalf unless the person is licensed as required by section 20-486.01.

B. The reinsurer annually shall obtain a copy of the statements on the financial condition of each reinsurance intermediary manager that the reinsurer has engaged. The statements shall be prepared by an independent certified accountant in a form acceptable to the director.

C. If a reinsurance intermediary manager establishes loss reserves, the reinsurer annually shall obtain the opinion of an actuary attesting to the adequacy of loss reserves that are established for losses incurred and outstanding on business produced by the reinsurance intermediary manager. The actuary's opinion is in addition to any other required loss reserve certification.

D. An officer of the reinsurer who is not affiliated with the reinsurance intermediary manager has binding authority for all retrocessional contracts or participation in reinsurance syndicates.

E. Within thirty days of termination of a contract with a reinsurance intermediary manager, the reinsurer shall provide written notification to the director of the termination.

F. A reinsurer shall not appoint to its board of directors an officer, director, employee, controlling shareholder or subproducer of its reinsurance intermediary manager. This subsection does not apply to relationships that are governed by the holding company act or, if applicable, the broker controlled insurer act.

§ 20-486.09 Examination authority

A. A reinsurance intermediary is subject to examination by the director. The director shall have access to all books, bank accounts and records of the reinsurance intermediary in a form usable to the director.

B. A reinsurance intermediary manager may be examined as if it is the reinsurer.

§ 20-486.10 Penalties and liabilities

A. A reinsurance intermediary, insurer or reinsurer that after a hearing is found by the director to be in violation of this article:

1. For each separate violation, shall pay a penalty in an amount of not to exceed five thousand dollars.

2. Is subject to revocation or suspension of its license.

3. If a violation was committed by the reinsurance intermediary, the reinsurance intermediary shall make restitution to the insurer, reinsurer, rehabilitator or liquidator of the insurer or reinsurer for the net losses incurred by the insurer or reinsurer that are attributable to the violation.

B. This section does not affect the right of the director to impose any other penalty provided for by law.

C. This section does not limit or restrict the rights of policyholders, claimants, creditors or other third parties or confer any rights to these persons.

D. Except as provided in section 41-1092.08, subsection H, the final decision, determination or order of the director pursuant to subsection A of this section is subject to judicial review pursuant to title 12, chapter 7, article 6.

§ 20-486.11 Adoption of rules

The director may adopt rules for the implementation and administration of the provisions of this article.

Article 11 Producer Controlled Property and Casualty Insurance

§ 20-487 Definitions

In this article, unless the context otherwise requires:

1. "Accredited state" means a state in which the insurance department or other regulatory agency has qualified as meeting the minimum financial regulatory standards that are adopted and established by the national association of insurance commissioners.

2. "Control" or "controlled" has the same meaning prescribed in section 20-481.

3. "Controlled insurer" means a licensed insurer who is controlled by a producer.

4. "Controlling producer" means a producer who controls, directly or indirectly, an insurer.

5. "Licensed insurer" or "insurer" means a person, firm, association or corporation that is duly licensed to transact property or casualty insurance business in this state. For the purposes of this article, licensed insurer or insurer does not include a:

(a) Residual market pool and joint underwriting authority or association.

(b) Captive insurer. For the purposes of this subdivision, "captive insurer" means an insurance company, other than a risk retention group as defined in section 20-1098 or 20-2401, that is owned by another organization and whose exclusive purpose is to insure risks to member organizations or group members and their affiliates.

6. "Producer" means an insurance producer 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 an insurance contract on behalf of an insured other than the person, firm, association or corporation.

§ 20-487.01 Applicability

This article applies to licensed insurers that are domiciled in this state or are domiciled in a state that is not an accredited state but that has a similar law in effect. Unless superseded by this article, chapter 2, article 8 of this title applies to all parties within holding company systems that are subject to this article.

§ 20-487.02 Minimum standards

A. A controlled insurer shall not accept business from a controlling producer and a controlling producer shall not place business with a controlled insurer unless there is a written contract between the controlling producer and the controlled insurer that specifies the responsibilities of each party, that has been approved by the board of directors of the insurer and that contains the following minimum provisions:

1. The controlled insurer may terminate the contract for cause on written notice to the controlling producer. The controlled insurer shall suspend the authority of the controlling producer to write business during the pendency of any dispute regarding the cause for the termination.

2. The controlling producer shall render accounts to the controlled insurer detailing all material transactions, including information that is necessary to support all commissions, charges and other fees that are received by or owed to the controlling producer.

3. The controlling producer shall remit at least monthly all monies due under the terms of the contract to the controlled insurer. The due date shall be fixed so that the premiums and installments that are collected are to be remitted no later than ninety days after the effective date of any policy placed with the controlled insurer under the contract.

4. The controlling producer shall hold all monies that are collected for the controlled insurer's account in a fiduciary capacity. Pursuant to law, the monies shall be held in one or more appropriately identified bank accounts in banks that are members of the federal reserve system in accordance with any applicable provisions of this title, except that the monies of a controlling producer that is not required to be licensed in this state shall be maintained in compliance with the requirements of the controlling producer's domiciliary jurisdiction.

5. The controlling producer shall maintain separately identifiable records of business written for the controlled insurer.

6. The controlling producer shall not assign the contract in whole or in part.

7. 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 that are applicable to comparable business placed with the controlled insurer by a producer other than the controlling producer. For the purposes of this paragraph, "comparable business" includes the same lines or kinds of insurance, the same kinds of risks, similar policy limits and similar quality of business.

8. The controlling producer's rates and terms for commissions, charges or other fees and the purposes for those charges or fees. The rates of the commissions, charges and other fees shall not be greater than those that are applicable to comparable business placed with the controlled insurer by producers other than controlling producers. For the purposes of this paragraph, "comparable business" includes the same lines or kinds of insurance, the same kinds of risks, similar policy limits and similar quality of business.

9. If on insurance business placed with the insurer the contract provides that the controlling producer shall be compensated based on the insurer's profits on that business, the controlling producer's 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. The commissions shall not be paid until the adequacy of the controlled insurer's reserves on remaining claims has been independently verified pursuant to subsection C.

10. A limit shall be placed on the controlling producer's writing in relation to the controlled insurer's surplus and total writings. The insurer may establish a different limit for each line or subline of business. The controlled insurer shall notify the controlling producer when the applicable limit is approached and shall not accept business from the controlling producer if the limit is reached. If the controlling producer has been notified by the controlled insurer that the limit has been reached, the controlling producer shall not place business with the controlled insurer.

11. The controlling producer may negotiate but may not bind reinsurance on behalf of the controlled insurer on business that the controlling producer places with the controlled insurer, except that the controlling producer may bind a facultative reinsurance contract pursuant to an obligatory facultative agreement if the contract with the controlled insurer contains underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers for which the obligatory agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules.

B. Each controlled insurer shall have an audit committee of the board of directors that is composed of independent directors. The audit committee shall meet annually with management, the insurer's independent certified public accountants and an independent casualty actuary or other independent loss reserve specialist who is acceptable to the director to review the adequacy of the insurer's loss reserves.

C. In addition to any other required loss reserve certification, on April 1 of each year the controlled insurer shall file with the director an opinion of an independent casualty actuary or other independent loss reserve specialist who is acceptable to the director. The opinion shall report loss ratios for each line of business written and shall attest to the adequacy of loss reserves that are established for losses incurred and outstanding as of the end of the year on business placed by the producer.

D. The controlled insurer shall report annually to the director the amount of commissions paid to the producer, the percentage that the amount represents of the net premiums written and comparable amounts and percentages paid to noncontrolling producers for placements of the same kinds of insurance.

E. This section applies if in any calendar year the aggregate amount of gross written premiums on business placed with a controlled insurer by a controlling producer is equal to or greater than five per cent of the admitted assets of the controlled insurer, as reported in the controlled insurer's quarterly statement that is filed by September 30 of the previous year.

F. Notwithstanding subsection E, this section does not apply if both:

1. The controlling producer does all of the following:

(a) Places insurance only with the controlled insurer, the controlled insurer and a member or members of the controlled insurer's holding company system or the controlled insurer's parent, affiliate or subsidiary and the controlling producer receives no compensation based on the amount of premiums written in connection with that insurance.

(b) Accepts insurance placements only from nonaffiliated subproducers and does not accept insurance placements directly from the insured.

2. Except for insurance business written through a residual market facility, the controlled insurer accepts insurance business only from a controlling producer, a producer that is controlled by the controlled insurer or a producer that is a subsidiary of the controlled insurer.

§ 20-487.03 Disclosure

Before the effective date of the policy, the controlling producer 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 in his records 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.

§ 20-487.04 Penalties

A. If the director believes that a controlling producer or other person has not materially complied with this article or any rule adopted under this article, after notice and an opportunity for a hearing, the director may order the controlling producer to cease placing business with the controlled insurer.

B. If the director finds that due to material noncompliance a controlled insurer or policyholder of the controlled insurer has suffered loss or damage, the director may maintain a civil action or intervene in an action brought by or on behalf of the insurer or policyholder for the recovery of compensatory damages or other appropriate relief for the benefit of the insurer or policyholder.

C. If an order for the liquidation or rehabilitation of the controlled insurer is entered pursuant to chapter 3, article 4 of this title and a receiver who is appointed under that order believes that the controlling producer or other person has not materially complied with this article or rules adopted under this article and that the insurer suffered loss or damage, the receiver may maintain a civil action for the recovery of damages or other appropriate relief for the benefit of the insurer.

D. This section does not affect the right of the director to impose any other penalty provided for by law.

E. This section does not alter or affect the rights of policyholders, claimants, creditors or other third parties.

Article 12 Risk-Based Capital for Insurers

§ 20-488 Definitions

In this article, unless the context otherwise requires:

1. "Adjusted RBC report" means a report that has been adjusted by the director in accordance with section 20-488.01.

2. "Authorized control level event" means any of the following events:

(a) The filing of an RBC report by the insurer indicating that the insurer's total adjusted capital is more than or equal to its mandatory control level RBC but less than its authorized control level RBC.

(b) The notification by the director to the insurer of an adjusted RBC report that indicates the event under subdivision (a) of this paragraph, unless the insurer challenges the adjusted RBC report under section 20-488.06.

(c) If the insurer challenges an adjusted RBC report that indicates the event under subdivision (a) of this paragraph, the notification by the director to the insurer that the director, after a hearing, has rejected the insurer's challenge.

(d) The failure of the insurer to satisfactorily respond to a corrective order, unless the insurer has challenged the corrective order under section 20-488.06.

(e) If the insurer challenges a corrective order and, after a hearing, the director rejects the challenge or modifies the corrective order, the failure of the insurer to satisfactorily respond to the corrective order after its modification or the rejection of the challenge by the director.

3. "Authorized control level RBC" means the number determined under the risk-based capital formula in accordance with the RBC instructions.

4. "Company action level event" means any of the following:

(a) The filing of an RBC report by an insurer indicating either that:

(i) The insurer's total adjusted capital is more than or equal to its regulatory action level RBC but less than its company action level RBC.

(ii) The insurer's total adjusted capital is more than or equal to its company action level RBC but less than the product of its authorized control level RBC and 3.0 and has a negative trend.

(b) The notification by the director to the insurer of an adjusted RBC report that indicates any of the events under subdivision (a) of this paragraph, unless the insurer challenges the adjusted RBC report under section 20-488.06.

(c) If the insurer challenges an adjusted RBC report that indicates either of the events under subdivision (a) of this paragraph, the notification by the director to the insurer that the director, after a hearing, has rejected the insurer's challenge.

5. "Company action level RBC" means, with respect to any insurer, the product of 2.0 and its authorized control level RBC.

6. "Corrective order" means an order that is issued by the director and that specifies corrective actions that the director has determined are required.

7. "Domestic insurer" means a life or health insurer, or both, a property or casualty insurer, or both, or a health organization that is authorized to transact insurance business in this state and that is organized in this state.

8. "Foreign insurer" means a life or health insurer, or both, a property or casualty insurer, or both, or a health organization that is authorized to transact insurance business in this state but that is not domiciled in this state.

9. "Health organization" means a hospital service corporation, medical service corporation, dental service corporation or optometric service corporation or a hospital, medical, dental and optometric service corporation that has a certificate of authority pursuant to chapter 4, article 3 of this title, a prepaid dental plan organization that has a certificate of authority pursuant to chapter 4, article 7 of this title or a health care services organization that has a certificate of authority pursuant to chapter 4, article 9 of this title.

10. "Life or health insurer" means an insurer authorized to transact life insurance, annuities or accident and health insurance in this state, a fraternal benefit society or an authorized property or casualty insurer writing only accident and health insurance, but does not include a health organization.

11. "Mandatory control level event" means any of the following:

(a) The filing of an RBC report by the insurer indicating that the insurer's total adjusted capital is less than its mandatory control level RBC.

(b) The notification by the director to the insurer of an adjusted RBC report that indicates the event under subdivision (a) of this paragraph, unless the insurer challenges the adjusted RBC report under section 20-488.06.

(c) If the insurer challenges an adjusted RBC report that indicates the event under subdivision (a) of this paragraph, the notification by the director to the insurer that the director, after a hearing, has rejected the insurer's challenge.

12. "Mandatory control level RBC" means the product of .70 and the authorized control level RBC.

13. "Negative trend" means, with respect to an insurer, a negative trend over a period of time as determined in accordance with the trend test calculation included in the RBC instructions.

14. "Property or casualty insurer" means an insurer licensed to transact insurance as described in section 20-256 or 20-252, respectively, but does not include monoline mortgage guaranty insurers, financial guaranty insurers and title insurers.

15. "RBC" means risk-based capital.

16. "RBC instructions" means the RBC report, including risk-based capital instructions adopted by the national association of insurance commissioners.

17. "RBC level" means an insurer's company action level RBC, regulatory action level RBC, authorized control level RBC or mandatory control level RBC.

18. "RBC plan" means a comprehensive financial plan containing the elements specified in section 20-488.02, subsection A. If the director rejects the RBC plan and the insurer revises the plan, regardless of the director's recommendation, the plan shall be called the revised RBC plan.

19. "RBC report" means the report required under section 20-488.01.

20. "Regulatory action level event" means, with respect to any insurer, any of the following events:

(a) The filing of an RBC report by the insurer indicating that the insurer's total adjusted capital is more than or equal to its authorized control level RBC but less than its regulatory action level RBC.

(b) The notification by the director to the insurer of an adjusted RBC report that indicates the event under subdivision (a) of this paragraph, unless the insurer challenges the adjusted RBC report under section 20-488.06.

(c) If the insurer challenges an adjusted RBC report that indicates the event under subdivision (a) of this paragraph, the notification by the director to the insurer that the director, after a hearing, has rejected the insurer's challenge.

(d) The failure by the insurer to file an RBC report by the filing date, unless the insurer provides the director with a satisfactory explanation for the failure and cures the failure within ten days after the filing date.

(e) The failure by the insurer to submit an RBC plan to the director within the time period prescribed in section 20-488.02, subsection B.

(f) Notification by the director to the insurer that both:

(i) The RBC plan or revised RBC plan that the insurer submitted is, in the judgment of the director, unsatisfactory.

(ii) If the insurer has not challenged a determination pursuant to section 20-488.06, the notification constitutes a regulatory action level event.

(g) If the insurer challenges pursuant to section 20-488.06 a determination made by the director pursuant to subdivision (f) of this paragraph, the notification by the director to the insurer that the director, after a hearing, has rejected the insurer's challenge.

(h) If the insurer has not challenged the determination pursuant to section 20-488.06, the notification by the director to the insurer that the insurer has failed to adhere to the insurer's RBC plan or revised RBC plan and that states that failure has a substantial adverse effect on the insurer's ability to eliminate the regulatory action level event in accordance with its RBC plan or revised RBC plan.

(i) If the insurer challenges pursuant to section 20-488.06 a determination made by the director pursuant to subdivision (h) of this paragraph, the notification by the director to the insurer that the director, after a hearing, has rejected the insurer's challenge, unless the insurer's failure to adhere to its RBC plan or revised RBC plan does not have a substantial adverse effect on the insurer's ability to eliminate the regulatory action level event.

21. "Regulatory action level RBC" means the product of 1.5 and an insurer's authorized control level RBC.

22. "Total adjusted capital" means the sum of:

(a) An insurer's statutory capital and surplus.

(b) Any other items that the RBC instructions may provide.

§ 20-488.01 Risk-based capital reports

A. On or before the later of March 1 or its annual statement filing due date, each domestic insurer shall annually prepare and submit to the director a report of the insurer's RBC levels as of the end of the previous calendar year. The RBC report shall be in a form and shall contain that information that is required by the RBC instructions. Each domestic insurer shall file its RBC report with both:

1. The national association of insurance commissioners in accordance with the RBC instructions.

2. The insurance director in any state in which the insurer is authorized to transact insurance business on the written request of the insurance director. The insurer shall file its RBC report not later than fifteen days after receiving notice to file its RBC report with that state or the filing date specified in this subsection, whichever is later.

B. A life or health insurer's RBC shall be determined according to the formula set forth in the RBC instructions. The formula shall take into account and may adjust for the covariance between the following risks that are determined in each case by applying the factors in the manner set forth in the RBC instructions:

1. The risk with respect to the insurer's assets.

2. The risk of adverse insurance experience with respect to the insurer's liabilities and obligations.

3. The interest rate risk with respect to the insurer's business.

4. All other business risks and any other relevant risks that are set forth in the RBC instructions.

C. A property or casualty insurer's RBC shall be determined according to the formula set forth in the RBC instructions. The formula shall take into account and may adjust for the covariance between the following risks that are determined in each case by applying the factors in the manner set forth in the RBC instructions:

1. Asset risk.

2. Credit risk.

3. Underwriting risk.

4. All other business risks and any other relevant risks that are set forth in the RBC instructions.

D. A health organization's RBC shall be determined according to the formula set forth in the RBC instructions. The formula shall take into account and may adjust for the covariance between the following risks that are determined in each case by applying the factors in the manner set forth in the RBC instructions:

1. Asset risk.

2. Credit risk.

3. Underwriting risk.

4. All other business risks and any other relevant risks that are set forth in the RBC instructions.

E. If the director determines that an RBC report filed by a domestic insurer is inaccurate, the director shall adjust the RBC report to correct the inaccuracy and shall notify the insurer of the adjustment. The notice shall state the reason for the adjustment. An RBC report that has been adjusted shall be referred to as an adjusted RBC report.

F. Insurers shall maintain capital above the RBC levels required by this article.

§ 20-488.02 Company action level event

A. If a company action level event occurs, the insurer shall prepare and submit to the director an RBC plan. The plan shall:

1. Identify the conditions in the insurer that contribute to the company action level event.

2. Propose corrective actions that the insurer intends to take and that are expected to result in the elimination of the company action level event.

3. Provide projections of the insurer's financial results in the current year and at least the four succeeding years. The projections shall be based on both the absence of corrective actions and the proposed corrective actions, including projections of statutory operating income, net income, capital or surplus. The projections for both new and renewal business may include separate projections for each major line of business and may separately identify each significant income, expense and benefit component.

4. Identify the key assumptions impacting the insurer's projections and the sensitivity of the projections to the assumptions.

5. Identify the quality of and problems associated with the insurer's business, including but not limited to its assets, anticipated business growth and associated surplus strain, extraordinary exposure to risk, mix of business and use of reinsurance in each case, if any.

B. The RBC plan shall be submitted within:

1. Forty-five days after the company action level event occurs.

2. If the insurer challenges an adjusted RBC report pursuant to section 20-488.06, forty-five days after the insurer is notified that the director, after a hearing, has rejected the insurer's challenge.

C. Within sixty days after the insurer submits an RBC plan to the director, the director shall notify the insurer that the RBC plan will be implemented or, in the director's judgment, is unsatisfactory. If the director determines that the RBC plan is unsatisfactory, the notice to the insurer shall set forth the reasons for the director's determination and may set forth proposed revisions that would render the plan satisfactory in the judgment of the director. On receipt of notice from the director, the insurer shall prepare a revised RBC plan. The revised RBC plan may incorporate by reference any revisions proposed by the director. The insurer shall submit the revised RBC plan to the director within:

1. Forty-five days after receiving notice from the director.

2. If the insurer challenges the notice from the director pursuant to section 20-488.06, forty-five days after the insurer is notified that the director, after a hearing, has rejected the insurer's challenge.

D. If the director notifies the insurer that the insurer's RBC plan or revised RBC plan is unsatisfactory, subject to the insurer's right to a hearing pursuant to section 20-488.06 the director may specify in the notice that the notice constitutes a regulatory action level event.

E. Each domestic insurer that files an RBC plan or a revised RBC plan with the director shall file a copy of the plan with the insurance director in any state in which the insurer is authorized to transact business if both:

1. That state has an RBC provision substantially similar to section 20-488.07, subsection A.

2. The insurance director in that state notifies the insurer in writing of its request for the filing. After receiving notice of the request, the insurer shall file a copy of the RBC plan or revised RBC plan in that state no later than fifteen days after the receipt of the notice or the date on which the RBC plan or revised RBC plan is filed pursuant to subsection B or C of this section, whichever is later.

§ 20-488.03 Regulatory action level event

A. If a regulatory action level event occurs, the director shall:

1. Require the insurer to submit an RBC plan or, if applicable, a revised RBC plan.

2. Perform an examination or analysis, as the director deems necessary, of the assets, liabilities and operations of the insurer, including a review of the insurer's RBC plan or revised RBC plan.

3. After conducting the examination or analysis, issue a corrective order specifying any corrective actions that the director determines are required.

B. In determining what corrective actions may be required, the director may consider any factors that the director deems relevant with respect to the insurer based on the director's examination or analysis of the insurer's assets, liabilities and operations, including but not limited to the results of any sensitivity tests undertaken pursuant to the RBC instructions. The RBC plan or revised RBC plan shall be submitted within one of the following:

1. Forty-five days after the regulatory action level event occurs.

2. If the insurer challenges an adjusted RBC report pursuant to section 20-488.06 and the director does not consider the challenge to be frivolous, forty-five days after the insurer is notified that the director, after a hearing, has rejected the insurer's challenge.

3. If the insurer challenges a revised RBC plan pursuant to section 20-488.06, forty-five days after the insurer is notified that the director, after a hearing, has rejected the insurer's challenge.

C. The director may retain actuaries, investment experts and other consultants to review the insurer's RBC plan or revised RBC plan, to examine or analyze the assets, liabilities and operations of the insurer and to formulate the corrective order with respect to the insurer. The affected insurer or another party if ordered by the director shall pay the fees, costs and other expenses relating to any retained consultants.

§ 20-488.04 Authorized control level event

If an authorized control level event occurs with respect to an insurer, the director shall either:

1. Take those actions that are required under section 20-488.03 regarding an insurer to whom a regulatory action level event has occurred.

2. If the director deems it to be in the best interests of the policyholders and creditors of the insurer and of the public, take any actions that are necessary to place the insurer under regulatory control pursuant to chapter 1, article 2 and chapter 3, article 4 of this title. If the director takes these actions, the authorized control level event shall be deemed to be sufficient grounds for the director to take action under chapter 1, article 2 and chapter 3, article 4 of this title, and the director has the rights, powers and duties with respect to the insurer that are set forth in chapter 1, article 2 and chapter 3, article 4 of this title. If the director takes any action under this paragraph pursuant to an adjusted RBC report, the insurer is entitled to the same protection that is afforded to insurers under chapter 1, article 2 and chapter 3, article 4 of this title.

§ 20-488.05 Mandatory control level event

A. If a mandatory control level event occurs, the director shall take any actions that are necessary to place the insurer under regulatory control pursuant to chapter 1, article 2 and chapter 3, article 4 of this title. The mandatory control level event shall be deemed to be sufficient grounds for the director to take action under chapter 1, article 2 and chapter 3, article 4 of this title, and the director has the rights, powers and duties with respect to the insurer that are set forth in chapter 1, article 2 and chapter 3, article 4 of this title. If the director takes any action under this subsection pursuant to an adjusted RBC report, the insurer is entitled to the same protection that is afforded to insurers under chapter 1, article 2 and chapter 3, article 4 of this title.

B. Notwithstanding subsection A, the director may forgo action for up to ninety days after the mandatory control level event if the director finds there is a reasonable expectation that the mandatory control level event may be eliminated within the ninety day period.

§ 20-488.06 Hearings

A. An insurer has the right to a hearing to challenge any determination or action made or taken by the director on the occurrence of any of the following:

1. The notification by the director to the insurer of an adjusted RBC report.

2. The notification by the director to the insurer that both:

(a) The insurer's RBC plan or revised RBC plan is unsatisfactory.

(b) The notice constitutes a regulatory action level event with respect to the insurer.

3. The notification by the director to the insurer that the insurer has failed to adhere to its RBC plan or revised RBC plan and that the insurer's failure has a substantial adverse effect on the ability of the insurer to eliminate the company action level event with respect to the insurer in accordance with its RBC plan or revised RBC plan.

4. The notification by the director to an insurer of a corrective order.

B. The underlying decision or action that is the subject of any notification made by the director pursuant to subsection A of this section is an appealable agency action as defined in section 41-1092.

C. A hearing demanded by an insurer that is aggrieved by a decision or an action by the director pursuant to subsection A of this section is closed to the public, unless a principal party to the hearing requests the hearing to be open to the public pursuant to section 20-164, subsection A.

D. The insurer shall request a hearing within five days after receiving notice by the director under subsection A of this section. On receipt of the request for a hearing, the director shall set a date for the hearing at least ten days but not more than thirty days after the date of receipt of the request.

§ 20-488.07 Confidentiality; information sharing

A. With respect to a domestic insurer or foreign insurer, the director shall keep confidential all information that is contained in RBC reports and that is not required to be set forth in a public annual statement schedule and all RBC plans that are filed with the director, including the results or report of an examination or analysis of an insurer that is performed pursuant to this article and any corrective order that is issued by the director. This information shall not be made public and is not subject to subpoena, except that the director may subpoena the information for the purpose of enforcing the insurance laws of this state.

B. An assertion, representation or statement regarding the RBC levels of an insurer or any component derived by any insurer, insurance producer or other person engaged in the transaction of insurance business shall not be published, disseminated, circulated or placed before the public in any printed medium and shall not be advertised, announced or stated through radio, television or any other electronic medium.

C. Notwithstanding subsection B, an insurer may publish an announcement in a written publication for the purpose of rebutting a materially false statement that is made with respect to the comparison regarding the insurer's total adjusted capital to its RBC levels or with respect to an inappropriate comparison of any other amount to the insurer's RBC levels, that is published in a written publication and that the insurer is able to demonstrate to the director with substantial proof is false or inappropriate.

D. The RBC instructions, RBC reports, adjusted RBC reports, RBC plans and revised RBC plans are intended solely for use by the director in monitoring the solvency of insurers and the need for possible corrective action with respect to insurers. The director shall not use the RBC instructions, RBC reports, adjusted RBC reports, RBC plans and revised RBC plans for rate making, shall not consider or introduce them as evidence in any rate making proceeding and shall not use them to calculate or derive any elements of an appropriate premium level or rate of return for any line of insurance that an insurer or any affiliate is authorized to write.

E. The director may:

1. Share nonpublic documents, materials or other information with other state, federal and international regulatory agencies, with the national association of insurance commissioners and its affiliates and subsidiaries and with state, federal and international law enforcement authorities if the recipient agrees and warrants that it has the authority to maintain the confidentiality and privileged status of the documents, materials or other information.

2. Receive documents, materials and other information from the national association of insurance commissioners and its affiliates and subsidiaries and from regulatory and law enforcement officials of other jurisdictions and shall maintain as confidential or privileged any document, material or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information.

3. Enter into agreements that govern the sharing and use of documents, materials and other information and that are consistent with this section.

F. A disclosure to or by the director pursuant to this section or as a result of sharing information pursuant to subsection E is not a waiver of any applicable privilege or claim of confidentiality in the documents, materials or other information disclosed or shared.

§ 20-488.08 Supplemental provisions; rules; exemption

A. This article is supplemental to any other laws of this state and does not preclude or limit any other powers or duties of the director.

B. The director may adopt rules to implement this article.

C. The director may exempt from the application of the RBC requirements of this article any domestic property and casualty insurer that does all of the following:

1. Writes direct business only in this state.

2. Writes direct annual premiums of two million dollars or less.

3. Assumes no reinsurance in excess of five per cent of the direct premiums written.

D. The director may exempt any health organization from the RBC requirements in this article if the health organization meets all of the following requirements:

1. The health organization writes direct business only in this state.

2. Not more than five per cent of the health organization's gross direct written premiums are attributable to reinsurance assumed from foreign insurers.

3. The health organization writes direct annual premiums for comprehensive medical business of two million dollars or less, or the health organization is a dental service corporation, optometric service corporation or prepaid dental plan organization that covers less than two thousand lives.

§ 20-488.09 Foreign insurers

A. On request of the director, a foreign insurer shall submit an RBC report to the director as of the end of the previous calendar year within the later of:

1. The date that an RBC report would be required to be filed by a domestic insurer.

2. Fifteen days after the foreign insurer receives the request.

B. On the written request of the director, a foreign insurer shall submit to the director a copy of any RBC plan that is filed with the insurance director in any other state.

C. The director may require a foreign insurer to file an RBC plan if under the RBC laws applicable in the insurer's domiciliary state or if the domiciliary state does not have any applicable RBC laws, as determined under this article, both:

1. A company action level event occurs with respect to the foreign insurer.

2. The insurance director in the domiciliary state fails to require the foreign insurer to file an RBC plan.

D. If the director requires a foreign insurer to file an RBC plan pursuant to subsection C of this section, the failure of the foreign insurer to file an RBC plan with the director is grounds for the director to suspend the foreign insurer's certificate of authority.

E. The director may apply to the superior court pursuant to chapter 1, article 2 and chapter 3, article 4 of this title for the liquidation of the property of a foreign insurer found in this state if a mandatory control level event occurs with respect to a foreign insurer and if a domiciliary receiver has not been appointed with respect to the foreign insurer under the rehabilitation and liquidation laws applicable in the foreign insurer's domiciliary state. The occurrence of the mandatory control level event shall be considered to be adequate grounds for the application.

§ 20-488.10 Notice

All notices by the director under this article to an insurer that may result in regulatory action are effective on mailing if they are transmitted by certified mail. Notice that is transmitted in any other way is effective on receipt by the insurer.

§ 20-488.11 Immunity

In addition to any other immunity provided by law, the director, the department or the employees or agents of the department are not liable for any acts when acting in good faith within the scope of their authority under this article.

Article 13 Violent Crime Control and Law Enforcement Act

§ 20-489 Violent crime control and law enforcement act; insurance business; rules

A. The department shall enforce sections 1033 and 1034 of the violent crime control and law enforcement act of 1994 (P.L. 103-322; 18 United States Code sections 1033 and 1034) relating to crimes by or affecting persons who are engaged in the business of insurance and whose activities affect interstate commerce.

B. The director may adopt rules pursuant to title 41, chapter 6 to carry out this section.

§ 20-489.01 Application of other laws

To the extent allowed by this article, section 20-142, subsection F applies to this article.

Article 14 Enforcement of Insurance Policies Affecting Certain Holocaust Victims

§ 20-490 Definitions

In this article, unless the context otherwise requires:

1. "Holocaust victim" means a person who was killed or injured or who lost real or personal property or financial assets as the result of discriminatory laws, policies or actions directed against a discrete group of which the person was a member, during the period beginning in 1920 through 1945, in Germany, areas occupied by Germany or countries allied with Germany.

2. "Insurance policy" includes a life insurance policy, an annuity, a property insurance policy, a casualty insurance policy, a liability insurance policy and reinsurance on a risk covered under such a policy.

3. "Insurer":

(a) Means an insurance company or other entity engaged in the business of insurance or reinsurance in this state.

(b) Includes a capital stock company, a mutual company or a Lloyd's association and any parent, subsidiary or affiliated company in which at least fifty per cent of the stock is in common ownership with an insurer engaged in the business of insurance in this state.

§ 20-490.01 Suspension of limitations period

A. Notwithstanding any other law, a holocaust victim or the heir, assignee, beneficiary or successor of a holocaust victim who resides in this state and who has a claim arising out of an insurance policy that was purchased or in effect in Europe before 1946 and that was delivered, issued for delivery or renewed by an insurer may bring an action against an insurer to recover on that claim in a court of competent jurisdiction in this state.

B. A court shall not dismiss an action brought under subsection A for failure to comply with any applicable limitations period if the action is brought on or before December 31, 2012.

§ 20-490.02 Enforcement; civil penalty

A. An insurer that fails to comply with a claim brought pursuant to this article by denying the claim on the grounds that the claim is not timely or by asserting a statute of limitations defense violates this article.

B. If the director considers it necessary, the director may initiate an examination under section 20-156.

C. If the director believes that an insurer has violated or is violating this article the director may:

1. Issue a cease and desist order.

2. Assess a civil penalty of not more than one thousand dollars for each act or violation but not to exceed an aggregate civil penalty of ten thousand dollars.

3. Refer the matter to the attorney general for appropriate enforcement.

Article 15 Risk Management and Solvency Assessment

§ 20-491 Definitions

In this article, unless the context other requires:

1. "Insurance group" means for the purposes of conducting an ORSA those insurers and affiliates that are included within an insurance holding company system as defined in section 20-481.

2. "Insurer":

(a) Means every person engaged in the business of making contracts of insurance.

(b) Does not include agencies, authorities or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia or a state or political subdivision of a state.

3. "ORSA guidance manual" means the own risk and solvency assessment guidance manual that is developed and adopted by the national association of insurance commissioners.

4. "ORSA summary report" means a confidential high-level ORSA summary of an insurer or insurance group.

5. "Own risk and solvency assessment" or "ORSA" means a confidential internal assessment, appropriate to the nature, scale and complexity of an insurer or insurance group, that is conducted by that insurer or insurance group of the material and relevant risks associated with the insurer's or insurance group's current business plan and the sufficiency of capital resources to support those risks.

§ 20-491.01 Risk management framework required

An insurer shall maintain a risk management framework to assist the insurer with identifying, assessing, monitoring, managing and reporting on its material and relevant risks. This requirement is satisfied if the insurance group of which the insurer is a member maintains a risk management framework applicable to the operations of the insurer.

§ 20-491.02 ORSA requirement

Subject to section 20-491.04, an insurer or the insurance group of which the insurer is a member shall regularly conduct an ORSA consistent with a process comparable to the ORSA guidance manual. The ORSA shall be conducted annually but also at any time when there are significant changes to the risk profile of the insurer or the insurance group of which the insurer is a member.

§ 20-491.03 Submission of ORSA summary report; requirements

A. On the director's request, and not more than once each year, an insurer shall submit to the director an ORSA summary report, or any combination of reports that together contain the information described in the ORSA guidance manual, applicable to the insurer or the insurance group of which the insurer is a member. Notwithstanding any request from the director, if the insurer is a member of an insurance group, the insurer shall submit the report or set of reports required by this subsection if the director is the lead state director or commissioner of the insurance group as determined by the procedures within the financial analysis handbook adopted by the national association of insurance commissioners.

B. The report shall include a signature of the insurer or insurance group's chief risk officer or other executive having responsibility for the oversight of the insurer's enterprise risk management process attesting to the best of that person's belief and knowledge that the insurer applies the enterprise risk management process described in the ORSA summary report and that a copy of the report has been provided to the insurer's board of directors or the appropriate governing committee.

C. An insurer may comply with subsection A of this section by providing the most recent and substantially similar report or reports provided by the insurer or another member of an insurance group of which the insurer is a member to the director or commissioner of another state or to a supervisor or regulator of a foreign jurisdiction if that report provides information that is comparable to the information described in the ORSA guidance manual. Any such report in a language other than English shall be accompanied by a translation of that report into the English language.

§ 20-491.04 Exemptions from article requirements; reports

A. An insurer is exempt from the requirements of this article if both of the following apply:

1. The insurer has annual direct written and unaffiliated assumed premium including international direct and assumed premium, but excluding premium reinsured with the federal crop insurance corporation and federal flood program, less than five hundred million dollars.

2. The insurance group of which the insurer is a member has annual direct written and unaffiliated assumed premium including international direct and assumed premium, but excluding premium reinsured with the federal crop insurance corporation and federal flood program, less than one billion dollars.

B. If an insurer qualifies for exemption pursuant to subsection A, paragraph 1 of this section but the insurance group of which the insurer is a member does not qualify for exemption pursuant to subsection A, paragraph 2 of this section, the ORSA summary report that may be required pursuant to section 20-491.03 shall include every insurer within the insurance group. This requirement is satisfied by the submission of more than one ORSA summary report for any combination of insurers, provided any combination of reports includes every insurer within the insurance group.

C. If an insurer does not qualify for exemption pursuant to subsection A, paragraph 1 of this section but the insurance group of which the insurer is a member does qualify for exemption pursuant to subsection A, paragraph 2 of this section, the only ORSA summary report that may be required pursuant to section 20-491.03 is the report applicable to that insurer.

D. If an insurer does not qualify for exemption pursuant to subsection A, paragraph 1 of this section, the insurer may apply to the director for a waiver from the requirements of this article based on unique circumstances. In deciding whether to grant the insurer's request for waiver, the director may consider the type and volume of business written, ownership and organizational structure and any other factor the director considers relevant to the insurer or insurance group of which the insurer is a member. If the insurer is part of an insurance group with insurers domiciled in more than one state, the director shall coordinate with the lead state director or commissioner of insurance and with the other domiciliary directors or commissioners in considering whether to grant the insurer's request for a waiver.

E. Notwithstanding the exemptions stated in this section, the director may require that an insurer maintain a risk management framework, conduct an ORSA and file an ORSA summary report:

1. Based on unique circumstances including the type and volume of business written, ownership and organizational structure, federal agency requests and international supervisor requests.

2. If the insurer has risk-based capital for a company action level event as defined in section 20-488, meets one or more of the standards of an insurer deemed to be in hazardous financial condition as prescribed in section 20-220.01 or otherwise exhibits qualities of a troubled insurer as determined by the director.

F. If an insurer that qualifies for exemption pursuant to subsection A, paragraph 1 of this section subsequently no longer qualifies for that exemption due to changes in premium reflected in the insurer's most recent annual statement or in the most recent annual statements of the insurers within the insurance group of which the insurer is a member, the insurer has one year after the year the threshold is exceeded to comply with the requirement of this article.

§ 20-491.05 ORSA summary report

A. Subject to the requirements of subsection B of this section, the ORSA summary report shall be prepared consistent with the ORSA guidance manual. Documentation and supporting information shall be maintained and made available on examination or on the request of the director.

B. The review of the ORSA summary report and any additional requests for information shall be made using similar procedures currently used in the analysis and examination of multistate or global insurers and insurance groups.

§ 20-491.06 Confidentiality of ORSA documents; allowable uses

A. Documents, materials or other information, including the ORSA summary report, that is in the director's possession or control and that is obtained by, created by or disclosed to the director or any other person under this article, is recognized by this state as being proprietary and containing trade secrets. All such documents, materials or other information is confidential by law and privileged, is not considered a public record pursuant to title 39, chapter 1, is not subject to subpoena and is not subject to discovery or admissible in evidence in any private civil action. The director is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the director's official duties. The director may not otherwise make the documents, materials or other information public without the prior written consent of the insurer.

B. Neither the director nor any person who received documents, materials or other ORSA-related information, through examination or otherwise, while acting under the authority of the director or with whom such documents, materials or other information is shared pursuant to this article, is allowed or required to testify in any private civil action concerning any confidential documents, materials or other information that is subject to subsection A of this section.

C. In order to assist in the performance of the director's regulatory duties, the director:

1. May share documents, materials or other ORSA-related information, including the confidential and privileged documents, materials or other information subject to subsection A of this section, including proprietary and trade secret documents and materials, with other state, federal and international regulatory agencies, including members of any supervisory college as defined in section 20-481, with the national association of insurance commissioners and with any third-party consultants designated by the director, if the recipient agrees in writing to maintain the confidentiality and privileged status of the ORSA-related documents, materials or other information and has verified in writing the legal authority to maintain confidentiality.

2. May receive documents, materials or ORSA-related information, including otherwise confidential and privileged documents, materials or other information, including proprietary and trade secret information or documents, from regulatory officials of other foreign or domestic jurisdictions, including members of any supervisory college as defined in section 20-481, and from the national association of insurance commissioners and shall maintain as confidential or privileged any document, material or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information.

3. Shall enter into written agreements with the national association of insurance commissioners or a third-party consultant governing sharing and use of information provided pursuant to this article, consistent with this subsection, that do all of the following:

(a) Specify procedures and protocols regarding the confidentiality and security of information shared with the national association of insurance commissioners or a third-party consultant pursuant to this article, including procedures and protocols for sharing by the national association of insurance commissioners with other state regulators from states in which the insurance group has domiciled insurers. The agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the ORSA-related documents, materials or other information and has verified in writing the legal authority to maintain confidentiality.

(b) Specify that ownership of information shared with the national association of insurance commissioners or a third-party consultant pursuant to this article remains with the director and that the national association of insurance commissioners' or a third-party consultant's use of the information is subject to the direction of the director.

(c) Prohibit the national association of insurance commissioners or a third-party consultant from storing the information shared pursuant to this article in a permanent database after the underlying analysis is completed.

(d) Require prompt notice to be given to an insurer whose confidential information in the possession of the national association of insurance commissioners or a third-party consultant pursuant to this article is subject to a request or subpoena to the national association of insurance commissioners or a third-party consultant for disclosure or production.

(e) Require the national association of insurance commissioners or a third-party consultant to consent to intervention by an insurer in any judicial or administrative action in which the national association of insurance commissioners or a third-party consultant may be required to disclose confidential information about the insurer shared with the national association of insurance commissioners or a third-party consultant pursuant to this article.

(f) In the case of an agreement involving a third-party consultant, provide the insurer's written consent.

D. The sharing of information by the director pursuant to this article does not constitute a delegation of regulatory authority or rulemaking, and the director is solely responsible for the administration, execution and enforcement of this article.

E. A waiver of any applicable privilege or claim of confidentiality in the documents, materials or other information does not occur as a result of disclosure to the director under this section or as a result of sharing as authorized in this article.

F. Documents, materials or other information in the possession or control of the national association of insurance commissioners or a third-party consultant pursuant to this article are confidential by law and privileged, are not considered public records pursuant to title 39, chapter 1, are not subject to subpoena and are not subject to discovery or admissible in evidence in any private civil action.

§ 20-491.07 Civil penalties

An insurer who fails to file without just cause the ORSA summary report required by this article after notice and a hearing shall pay a penalty of five hundred dollars for each day's delay in filing, not to exceed one hundred thousand dollars. The director may reduce the penalty if the insurer demonstrates that the imposition of the penalty would constitute a financial hardship to the insurer. The director shall deposit, pursuant to sections 35-146 and 35-147, the penalties collected in the state general fund.

Article 16 Corporate Governance

§ 20-492 Definitions

In this article, unless the context otherwise requires:

1. "Corporate governance annual disclosure" or "CGAD" means a confidential report that is filed by the insurer or insurance group and that is made in accordance with the requirements of this article.

2. "Insurance group" means those insurers and affiliates included within an insurance holding company system as defined in section 20-481.

3. "Insurer":

(a) Means a domestic insurer as defined in section 20-203.

(b) Does not include:

(i) An agency, authority or instrumentality of the United States and its possessions and territories, the Commonwealth of Puerto Rico or the District of Columbia.

(ii) A state.

(iii) A political subdivision of a state.

§ 20-492.01 Disclosure requirements

A. By June 1 of each calendar year, an insurer, or the insurance group of which the insurer is a member, shall submit to the director a corporate governance annual disclosure that contains the information described in section 20-492.03. Notwithstanding any request from the director made pursuant to subsection C of this section, if the insurer is a member of an insurance group, the insurer shall submit the report required by this section to the chief regulatory official of the lead state for the insurance group, in accordance with the laws of the lead state, as determined by the procedures outlined in the most recent financial analysis handbook that is adopted by the national association of insurance commissioners.

B. The CGAD must include a signature of the insurer or insurance group's chief executive officer or corporate secretary attesting to the best of that individual's belief and knowledge that the insurer has implemented the corporate governance practices and that a copy of the disclosure has been provided to the insurer's board of directors or the appropriate committee of the board.

C. An insurer that is not required to submit a CGAD under this section shall do so on the director's request.

D. For the purposes of completing the CGAD, the insurer or insurance group may provide information regarding corporate governance at the ultimate controlling parent level, an intermediate holding company level or the individual legal entity level, depending on how the insurer or insurance group has structured its system of corporate governance. The insurer or insurance group is encouraged to make the CGAD at the level at which the insurer's or insurance group's risk appetite is determined, the level at which the earnings, capital, liquidity, operations and reputation of the insurer are overseen collectively and at which the supervision of those factors are coordinated and exercised or the level at which legal liability for failure of general corporate governance duties would be placed. If the insurer or insurance group determines the level of reporting based on these criteria, it shall indicate which of the three criterion was used to determine the level of reporting and explain any subsequent changes in level of reporting.

E. The review of the CGAD and any additional requests for information shall be made through the lead state as determined by the procedures within the most recent financial analysis handbook that is adopted by the national association of insurance commissioners.

F. Insurers that provide information that is substantially similar to the information required by this article in other documents that are provided to the director, including proxy statements that are filed in conjunction with form B requirements, or other state or federal filings that are provided to the department are not required to duplicate that information in the CGAD but are required to cross-reference the document in which the information is included.

§ 20-492.02 Rules and orders

On notice and an opportunity for all interested persons to be heard, the director may adopt rules and issue orders necessary to carry out this article.

§ 20-492.03 Contents of corporate governance annual disclosure

A. The insurer or insurance group has discretion over the responses to the CGAD inquiries, if the CGAD contains the material information necessary to allow the director to gain an understanding of the insurer's or insurance group's corporate governance structure, policies and practices. The director may request additional information that the director deems material and necessary to provide the director with a clear understanding of the corporate governance policies, the reporting or information system or the controls implementing those policies.

B. Notwithstanding subsection A of this section, the insurer or insurance group shall prepare the CGAD consistent with rules adopted by the department. Documentation and supporting information shall be maintained and made available on examination or on the request of the director.

§ 20-492.04 Confidentiality

A. Documents, materials or other information, including the CGAD, that are in the possession or control of the department and that are obtained by, created by or disclosed to the director or any other person under this article are recognized by this state as being proprietary and containing trade secrets. All such documents, materials or other information are confidential by law and privileged, are not subject to title 39, chapter 1, article 2, are not subject to subpoena and are not subject to discovery or admissible in evidence in any private civil action. The director is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the director's official duties. The director may not otherwise make the documents, materials or other information public without the prior written consent of the insurer. This section does not require written consent of the insurer before the director shares or receives confidential documents, materials or other CGAD-related information pursuant to subsection C of this section.

B. The director or a person who receives documents, materials or other CGAD-related information, through examination or otherwise, while acting under the authority of the director or with whom the documents, materials or other information are shared pursuant to this article is not allowed or required to testify in any private civil action concerning any confidential documents, materials or information subject to subsection A of this section.

C. In order to assist in the performance of the director's regulatory duties, the director may:

1. On request, share documents, materials or other CGAD-related information, including the confidential and privileged documents, materials or information subject to subsection A of this section, including proprietary and trade secret documents and materials, with other state, federal and international financial regulatory agencies, including members of a supervisory college as defined in section 20-481, with the national association of insurance commissioners and with third-party consultants pursuant to section 20-492.05, if the recipient agrees in writing to maintain the confidentiality and privileged status of the CGAD-related documents, materials or other information and verifies in writing the legal authority to maintain confidentiality.

2. Receive documents, materials or other CGAD-related information, including otherwise confidential and privileged documents, materials or information, including proprietary and trade­-secret information or documents, from regulatory officials of other state, federal and international financial regulatory agencies, including members of a supervisory college as defined in section 20-481, and from the national association of insurance commissioners and shall maintain as confidential or privileged any document, material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information.

D. The sharing of information and documents by the director pursuant to this article does not constitute a delegation of regulatory authority or rulemaking, and the director is solely responsible for the administration, execution and enforcement of this article.

E. The disclosure of CGAD-related information or documents to the director or as a result of sharing the information and documents as authorized in this article does not constitute a waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade­-secret materials or other CGAD-related information.

§ 20-492.05 Third-party consultants; confidentiality standards

A. The director may retain, at the insurer's expense, third-party consultants, including attorneys, actuaries, accountants and other experts not otherwise a part of the director's staff, as may be reasonably necessary to assist the director in reviewing the CGAD and related information or the insurer's compliance with this article.

B. Persons who are retained under subsection A of this section are under the direction and control of the director and shall act in a purely advisory capacity.

C. The national association of insurance commissioners and third-party consultants are subject to the same confidentiality standards and requirements as the director.

D. As part of the retention process, a third-party consultant shall verify to the director, with notice to the insurer, that the third-party consultant does not have a conflict of interest and that the third-party consultant has internal procedures in place to monitor compliance with a conflict and to comply with the confidentiality standards and requirements of this article.

E. A written agreement with the national association of insurance commissioners or a third-party consultant governing sharing and use of information provided pursuant to this article shall contain all of the following provisions and expressly require the written consent of the insurer before making public information provided under this article:

1. Specific procedures and protocols for maintaining the confidentiality and security of CGAD-related information that is shared with the national association of insurance commissioners or a third-party consultant pursuant to this article.

2. Procedures and protocols for sharing by the national association of insurance commissioners only with other state regulators from states in which the insurance group has domiciled insurers. The agreement shall provide that the recipient agree in writing to maintain the confidentiality and privileged status of the CGAD-related documents, materials or other information and verify in writing the legal authority to maintain confidentiality.

3. A provision that specifies that ownership of the CGAD-related information that is shared with the national association of insurance commissioners or a third-party consultant remain with the department and that the national association of insurance commissioners' or third-party consultant's use of the information is subject to the direction of the director.

4. A provision that prohibits the national association of insurance commissioners or a third-party consultant from storing the information shared pursuant to this article in a permanent database after the underlying analysis is completed.

5. A provision that requires the national association of insurance commissioners or a third-party consultant to provide prompt notice to the director and to the insurer or insurance group regarding a subpoena, request for disclosure or request for production of the insurer's CGAD-related information.

6. A requirement that the national association of insurance commissioners or a third-party consultant consent to intervention by an insurer in any judicial or administrative action in which the national association of insurance commissioners or a third-party consultant may be required to disclose confidential information about the insurer shared with the national association of insurance commissioners or a third-party consultant pursuant to this article.

§ 20-492.06 Civil penalties

If an insurer fails without just cause to timely file the CGAD as required in this article, after notice and a hearing, the director may impose a civil penalty of $20 for each day's delay not to exceed $2,500. The director shall collect the civil penalty and deposit the monies in the state general fund. The director may reduce the penalty if the insurer demonstrates to the director that the imposition of the penalty would constitute a financial hardship to the insurer.

Chapter 3 Financial Provisions and Procedures

Article 1 Assets and Liabilities

§ 20-501 Eligible assets

In any determination of the financial condition of an insurer, the department shall allow only those assets that are owned by the insurer and that consist of:

1. Cash in the possession of the insurer, or in transit under its control, including the true balance of any deposit in a solvent bank or trust company.

2. Investments, securities, properties and loans acquired or held in accordance with this title, and the following related items:

(a) Interest due or accrued on any bond or evidence of indebtedness that is not in default and that is not valued on a basis including accrued interest.

(b) Declared and unpaid dividends on stock and shares, unless the amount has otherwise been allowed as an asset.

(c) Interest due or accrued on a collateral loan in an amount that is not more than one year's interest.

(d) Interest due or accrued on deposits in solvent banks and trust companies, and interest due or accrued on other assets, if the director determines that the interest is a collectible asset.

(e) Interest due or accrued on a mortgage loan, in an amount that is not more than the amount, if any, of the excess of the value of the property less delinquent taxes on the property over the unpaid principal, but in no event shall interest accrued for a period of more than one hundred eighty days be allowed as an asset.

(f) Rent due or accrued on real property if the rent is not in arrears for more than three months, and rent more than three months in arrears if the payment of the rent is adequately secured by property held in the name of the tenant and conveyed to the insurer as collateral.

(g) The unaccrued portion of taxes paid before the due date on real property.

3. Premium notes, policy loans and other policy assets and liens on policies and certificates of life insurance and annuity contracts and accrued interest, in an amount that is not more than the legal reserve and other policy liabilities carried on each individual policy.

4. For a life insurer, the net amount of uncollected and deferred premiums and annuity considerations.

5. Premiums in the course of collection not more than three months past due, less commissions payable on the premiums. Premiums payable directly or indirectly by the United States or by any of its instrumentalities are not subject to the three months past due limitation.

6. Installment premiums allowed pursuant to the accounting practices and procedures manual adopted by the national association of insurance commissioners.

7. Notes and like written obligations not past due, taken for premiums other than life insurance premiums on policies permitted to be issued on such basis, to the extent of the unearned premium reserves carried on the policies.

8. The full amount of reinsurance that is recoverable by a ceding insurer from a solvent reinsurer and that is authorized under section 20-261.

9. Amounts receivable by an assuming insurer representing funds withheld by a solvent ceding insurer under a reinsurance treaty.

10. Deposits or equities recoverable from underwriting associations, syndicates and reinsurance funds, or from any suspended banking institution, to the extent the director deems those funds are available for the payment of losses and claims and at values determined by the director.

11. Deferred tax assets as allowed pursuant to the accounting practices and procedures manual adopted by the national association of insurance commissioners.

12. Electronic data processing equipment, including operating system software, net of accumulated depreciation, that is necessary for use in the business of the insurer. The insurer shall depreciate the equipment over a period of not more than three years. The admitted value of the equipment shall not be more than the amount allowed pursuant to the accounting practices and procedures manual adopted by the national association of insurance commissioners.

13. Goodwill as allowed pursuant to the accounting practices and procedures manual adopted by the national association of insurance commissioners.

14. Other assets that are not inconsistent with this section and that the director deems are available for the payment of losses and claims, at values determined by the director.

§ 20-502 Assets as deductions from liabilities

Assets may be allowed as deductions from corresponding liabilities, and liabilities may be charged as deductions from assets, and deductions from assets may be charged as liabilities, in accordance with the form of annual statement applicable to such insurer as prescribed by the director, or otherwise in his discretion.

§ 20-503 Assets not allowed as deductions from liabilities

In addition to assets impliedly excluded by section 20-501, the department shall not allow the following as assets in any determination of the financial condition of an insurer:

1. Advances to officers, other than policy loans, whether secured or not, and advances to employees, agents and other persons on personal security only.

2. Stock of the insurer that is owned by the insurer or any equity in the stock, any loans secured by the stock or any proportionate interest in the stock acquired or held through the insurer's ownership of an interest in another firm, corporation or business unit.

3. Furniture, fixtures, furnishings, safes, vehicles, libraries, stationery, literature and supplies, except in the case of title insurers materials and plants as the insurer is expressly authorized to invest in under chapter 6, article 9 of this title and except, in the case of any insurer, personal property as the insurer is permitted to hold pursuant to chapter 3, article 2 of this title, or that is acquired through foreclosure of chattel mortgages acquired pursuant to section 20-555, or that is reasonably necessary for the maintenance and operation of real estate lawfully acquired and held by the insurer other than real estate the insurer uses for home office, branch office and similar purposes.

4. The amount, if any, by which the aggregate book value of investments as carried in the ledger assets of the insurer exceeds the aggregate value as determined under this title.

§ 20-504 Reporting assets not allowed

All assets not allowed and all other assets of doubtful value or character included as assets in any statement by an insurer to the director, or in any examiner's report to him, shall also be reported, to the extent of the value disallowed, as deductions from the gross assets of the insurer except where the director permits a reserve to be carried among the liabilities of the insurer in lieu of any such deduction.

§ 20-505 Liabilities

In any determination of the financial condition of an insurer, capital stock and liabilities to be charged against its assets shall include:

1. The amount of its capital stock outstanding, if any.

2. The amount, estimated consistent with the provisions of this title, necessary to pay all of its unpaid losses and claims incurred on or prior to the date of statement, whether reported or unreported, together with the expenses of adjustment or settlement thereof.

3. With reference to life and disability insurance and annuity contracts:

(a) The amount of reserves on life insurance policies and annuity contracts in force, including disability benefits for both active lives and lives with disabilities and accidental death benefits, in or supplementary thereto, and disability insurance, valued according to the tables of mortality, tables of morbidity, rates of interest, and methods adopted pursuant to this title which are applicable thereto.

(b) Any additional reserves which may be required by the director consistent with practice formulated or approved by the national association of insurance commissioners, on account of such insurance.

4. With reference to insurance other than specified in paragraph 3 of this section, and other than title insurance, the amount of reserves equal to the unearned portions of the gross premiums charged on policies in force, computed in accordance with this article.

5. Taxes, expenses and other obligations due or accrued at the date of the statement.

§ 20-506 Unearned premium reserve

A. With reference to insurance against loss or damage to property, except as provided in section 20-507, and with reference to all general casualty insurance and surety insurance, every insurer shall maintain an unearned premium reserve on all policies in force.

B. The director may require that the reserves be equal to the unearned portions of the gross premiums in force after deducting reinsurance in solvent insurers as computed on each respective risk from the policy's date of issue. The portions of the gross premiums in force, less reinsurance in solvent insurers to be held as a premium reserve, shall be computed according to the accounting practices and procedures manual adopted by the national association of insurance commissioners.

C. This section does not apply to title insurance.

§ 20-507 Unearned premium reserve for marine insurance

With reference to marine insurance, premiums on trip risks not terminated shall be deemed unearned, and the director may require the insurer to carry a reserve thereon equal to one hundred per cent on trip risks written during the month ended as of the date of statement.

§ 20-508 Reserves for disability insurance

For all disability insurance policies the insurer, in addition to claim reserves, shall maintain an active life reserve which shall place a sound value on its liabilities under such policies and be not less than the amounts that are necessary to assure payment of its policyholder obligations including reserves for unearned premiums.

§ 20-509 Increase of inadequate reserves

A. If the director determines that an insurer's unearned premium reserve, however computed, is inadequate, the director may require the insurer to compute the reserve or any part of the reserve according to methods prescribed in this article.

B. If the loss experience of an insurer shows that its loss reserves, however estimated, are inadequate, the director shall require the insurer to maintain loss reserves in an increased amount as needed to make the loss reserves adequate.

C. If the insurer's anticipated losses, loss adjustment expenses, commissions and other acquisition costs and maintenance costs are more than the recorded unearned premium reserve and any future installment premiums on existing policies, the insurer shall establish a premium deficiency reserve by recording an additional liability for the deficiency according to the accounting practices and procedures manual adopted by the national association of insurance commissioners.

§ 20-510 Standard valuation law; operative date; definitions

A. This section may be cited as the standard valuation law.

B. For the purposes of this section, the following definitions apply on or after the operative date of the valuation manual:

1. "Accident and health insurance" means contracts that incorporate morbidity risk and provide protection against economic loss resulting from accident, sickness or medical conditions and as may be specified in the valuation manual.

2. "Appointed actuary" means a qualified actuary who is appointed in accordance with the valuation manual to prepare the actuarial opinion required in subsection F of this section.

3. "Company" means an entity that either:

(a) Has written, issued or reinsured life insurance contracts, accident and health insurance contracts or deposit-type contracts in this state and that has at least one such policy in force or on claim.

(b) Has written, issued or reinsured life insurance contracts, accident and health insurance contracts or deposit-type contracts in any state and that is required to hold a certificate of authority to write life insurance, accident and health insurance or deposit-type contracts in this state.

4. "Deposit-type contract" means contracts that do not incorporate mortality or morbidity risks and as may be specified in the valuation manual.

5. "Life insurance" means contracts that incorporate mortality risk, including annuity and pure endowment contracts, and as may be specified in the valuation manual.

6. "Policyholder behavior" means any action a policyholder, a contract holder or any other person with the right to elect options, such as a certificate holder, may take under a policy or contract subject to this section, including lapse, withdrawal, transfer, deposit, premium payment, loan, annuitization or benefit elections prescribed by the policy or contract but excluding events of mortality or morbidity that result in benefits prescribed in their essential aspects by the terms of the policy or contract.

7. "Principle-based valuation" means a reserve valuation that uses one or more methods or one or more assumptions determined by the insurer and that is required to comply with subsection S of this section as specified in the valuation manual.

8. "Qualified actuary" means an individual who is qualified to sign the applicable statement of actuarial opinion in accordance with the American academy of actuaries qualification standards for actuaries signing those statements and who meets the requirements specified in the valuation manual.

9. "Reserves" means reserve liabilities.

10. "Tail risk" means a risk that occurs either where the frequency of low probability events is higher than expected under a normal probability distribution or where there are observed events of very significant size or magnitude.

11. "Valuation manual" means the manual of valuation instructions adopted by the national association of insurance commissioners as specified in this section.

C. The following apply to reserve valuation for policies and contracts issued before the operative date of the valuation manual:

1. The director shall annually value, or cause to be valued, the reserves for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurance company doing business in this state that are issued before the operative date of the valuation manual. In calculating reserves, the director may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves required of a foreign or alien insurer, the director may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction if the valuation complies with the minimum standard provided by this section.

2. Subsections G, H, I, J, K, L, M, N, O, P and Q of this section apply to all policies and contracts, as appropriate, subject to this section issued on or after the operative date of section 20-1231 and before the operative date of the valuation manual and subsections R, S and T of this section do not apply to those policies and contracts.

3. The minimum standard for the valuation of policies and contracts issued before the operative date of section 20-1231 is the standard provided by the laws in effect immediately before that date.

D. The following apply to reserve valuation for policies and contracts issued on or after the operative date of the valuation manual:

1. The director shall annually value, or cause to be valued, the reserves for all outstanding life insurance contracts, annuity and pure endowment contracts, accident and health contracts and deposit-type contracts of every company issued on or after the operative date of the valuation manual. In lieu of the valuation of the reserves required of a foreign or alien company, the director may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction if the valuation complies with the minimum standard provided by this section.

2. Subsections R, S and T of this section apply to all policies and contracts issued on or after the operative date of the valuation manual.

E. The following apply to actuarial opinion of reserves before the operative date of the valuation manual:

1. Every life insurance company doing business in this state shall annually submit the opinion of a qualified actuary. The opinion shall state whether the reserves and related actuarial items that are held in support of the policies and contracts specified by the director are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts and comply with the applicable laws of this state. The director shall define the specifics of this opinion and shall add any other items to the scope of the opinion as the director deems necessary.

2. For actuarial analysis of reserves and assets supporting reserves:

(a) Every life insurance company, unless exempted by rule, shall annually include in the opinion required by paragraph 1 of this subsection an opinion of the same qualified actuary as to whether, if considered in light of the assets held by the company with respect to the reserves and related actuarial items, including but not limited to the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, the reserves and related actuarial items held in support of the policies and contracts specified by the director make adequate provision for the company's obligations under the policies and contracts, including but not limited to the benefits under and expenses associated with the policies and contracts.

(b) The director may provide for a transition period for establishing any higher reserves that the qualified actuary may deem necessary in order to render the opinion required by this section.

3. The following apply to each opinion required by paragraph 2 of this subsection:

(a) The insurance company shall prepare a memorandum to support each actuarial opinion. The memorandum shall be in a form and substance specified by the director.

(b) If the insurance company fails to provide a supporting memorandum on the request of the director and in the period of time specified by rule or if the director determines that the supporting memorandum does not meet the standards prescribed by rule or is otherwise unacceptable, the director may engage a qualified actuary at the expense of the insurance company to review the opinion and the basis for the opinion and to prepare any supporting memorandum that the director requires.

4. The following apply to each opinion required by paragraph 1 of this subsection:

(a) The company shall submit the opinion with the annual statement reflecting the valuation of the reserves for each year ending on or after December 31, 1996.

(b) The opinion applies to all business in force, including individual and group health insurance plans, and shall be in a form and substance that the director specifies.

(c) The opinion shall be based on standards that are adopted from time to time by the actuarial standards board and on any other additional standards that the director prescribes.

(d) If an opinion is required to be submitted by an alien or foreign company, the director may accept the opinion that is filed by that company with the insurance supervisory official of another state if the director determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state.

(e) Except in cases of fraud or wilful misconduct, the qualified actuary is not liable for damages to any person other than the director and the insurance company for any act, error, omission, decision or conduct with respect to the actuary's opinion.

(f) The director shall define by rule what disciplinary actions the director may take against an insurance company or qualified actuary.

(g) Except as provided in subdivisions (k), (l) and (m) of this paragraph, documents, materials or other information in the possession or control of the department that are a memorandum in support of the opinion, and any other material provided by the company to the director in connection with the memorandum, are confidential by law and privileged and are not subject to public records requests, are not subject to subpoena and are not subject to discovery or admissible in evidence in any private civil action. The director is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as part of the director's official duties.

(h) The director or any person who received documents, materials or other information while acting under the authority of the director is not allowed or required to testify in any private civil action concerning any confidential documents, materials or information subject to subdivision (g) of this paragraph.

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

(i) Share documents, materials or other information, including the confidential and privileged documents, materials or information subject to subdivision (g) of this paragraph, with other state, federal and international regulatory agencies, with the national association of insurance commissioners and its affiliates and subsidiaries, and with state, federal and international law enforcement authorities, if the recipient agrees to maintain the confidentiality and privileged status of the document, material or other information.

(ii) Receive documents, materials or information, including otherwise confidential and privileged documents, materials or information, from the national association of insurance commissioners and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information.

(iii) Enter into agreements governing sharing and use of information consistent with subdivision (g) of this paragraph and this subdivision.

(j) No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the director under this subsection or as a result of sharing as authorized in subdivision (i) of this paragraph.

(k) A memorandum in support of the opinion, and any other material provided by the company to the director in connection with the memorandum, may be subject to subpoena for the purpose of defending an action seeking damages from the actuary submitting the memorandum by reason of an action required by this section or by rules adopted under this section.

(l) The memorandum or other material may otherwise be released by the director with the written consent of the company or to the American academy of actuaries on request stating that the memorandum or other material is required for the purpose of professional disciplinary proceedings and setting forth procedures satisfactory to the director for preserving the confidentiality of the memorandum or other material.

(m) Once any portion of the confidential memorandum is cited by the company in its marketing, is cited before a governmental agency other than a state insurance department or is released by the company to the news media, all portions of the confidential memorandum are no longer confidential.

5. For the purposes of this subsection, "qualified actuary" means a member in good standing of the American academy of actuaries who meets the requirements set forth by the director.

F. The following apply to actuarial opinion of reserves after the operative date of the valuation manual:

1. Every company with outstanding life insurance contracts, accident and health insurance contracts or deposit-type contracts in this state and subject to regulation by the director shall annually submit the opinion of the appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts and comply with applicable laws of this state. The valuation manual will prescribe the specifics of this opinion including any items deemed to be necessary to its scope.

2. Every company with outstanding life insurance contracts, accident and health insurance contracts or deposit-type contracts in this state and subject to regulation by the director, except as exempted in the valuation manual, shall also annually include in the opinion required by paragraph 1 of this subsection an opinion of the same appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified in the valuation manual, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company's obligations under the policies and contracts, including the benefits under and expenses associated with the policies and contracts.

3. The following apply to each opinion required by paragraph 2 of this subsection:

(a) A memorandum, in form and substance as specified in the valuation manual, and acceptable to the director, shall be prepared to support each actuarial opinion.

(b) If the insurance company fails to provide a supporting memorandum at the request of the director within a period specified in the valuation manual or the director determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the valuation manual or is otherwise unacceptable to the director, the director may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare the supporting memorandum required by the director.

4. The following apply to all opinions subject to this subsection:

(a) The opinion shall be in form and substance as specified in the valuation manual and acceptable to the director.

(b) The opinion shall be submitted with the annual statement reflecting the valuation of the reserves for each year ending on or after the operative date of the valuation manual.

(c) The opinion shall apply to all policies and contracts subject to this subsection, plus other actuarial liabilities as may be specified in the valuation manual.

(d) The opinion shall be based on standards adopted from time to time by the actuarial standards board or its successor, and on any additional standards as may be prescribed in the valuation manual.

(e) In the case of an opinion required to be submitted by a foreign or alien company, the director may accept the opinion filed by that company with the insurance supervisory official of another state if the director determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state.

(f) Except in cases of fraud or wilful misconduct, the appointed actuary is not liable for damages to any person, other than the insurance company and the director, for any act, error, omission, decision or conduct with respect to the appointed actuary's opinion.

(g) Disciplinary action by the director against the company or the appointed actuary shall be defined by the director in rule.

G. Except as otherwise provided in subsections H, I, J and Q of this section, the minimum standard for the valuation of all policies and contracts that were issued before the operative date of section 20-1231 is that provided by the laws in effect immediately before January 1, 1955. Except as otherwise provided in subsections H, I, J and Q of this section, the minimum standard for the valuation of all policies and contracts that are issued on or after January 1, 1955 is the commissioners reserve valuation methods defined in subsections K, L, O and P of this section, three and one-half per cent interest or, in the case of life insurance policies and contracts, other than annuity and pure endowment contracts, that are issued on or after July 1, 1974, four per cent interest for those policies that are issued before January 1, 1979, five and one-half per cent interest for single premium life insurance policies and four and one-half per cent interest for all other policies that are issued on and after January 1, 1979, and the following tables:

1. For all ordinary policies of life insurance that are issued on the standard basis, excluding any disability and accidental death benefits in those policies, the commissioners 1941 standard ordinary mortality table for those policies issued before the operative date of section 20-1231, subsection F, paragraph 5, subdivision (b) and the commissioners 1958 standard ordinary mortality table for those policies that are issued on or after the operative date of section 20-1231, subsection F, paragraph 5, subdivision (b) and before the operative date as provided in section 20-1231.01. If any category of these policies is issued on female risks, modified net premiums and present values referred to in this section may be calculated according to an age not more than six years younger than the actual age of the insured. For policies that are issued on or after the operative date of section 20-1231.01, the following tables may be used:

(a) The commissioners 1980 standard ordinary mortality table.

(b) At the election of the insurer for any one or more specified plans of life insurance, the commissioners 1980 standard ordinary mortality table with ten year select mortality factors.

(c) Any ordinary mortality table that is adopted after 1980 by the national association of insurance commissioners and that is approved by the director for use in determining the minimum standard of valuation for those policies.

2. For all industrial life insurance policies that are issued on the standard basis, excluding any disability and accidental death benefits in those policies, the 1941 standard industrial mortality table for those policies that are issued before the operative date of section 20-1231, subsection F, paragraph 5, subdivision (d) and for those policies that are issued on or after the operative date of section 20-1231, subsection F, paragraph 5, subdivision (d) the commissioners 1961 standard industrial mortality table or any industrial mortality table that is adopted after 1980 by the national association of insurance commissioners and that is approved by the director for use in determining the minimum standard of valuation for those policies.

3. For individual annuity and pure endowment contracts, excluding any disability and accidental death benefits in those policies, the 1937 standard annuity mortality table or, at the option of the insurer, the annuity mortality table for 1949, ultimate, or any modification of either of these tables that the director approves.

4. For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in those policies, the group annuity mortality table for 1951, any modification of the group annuity mortality table that is approved by the director or, at the option of the insurer, any of the tables or modifications of tables that are specified for individual annuity and pure endowment contracts.

5. For total and permanent disability benefits in or supplementary to ordinary policies or contracts:

(a) For policies or contracts that are issued on or after January 1, 1966, the tables of period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 disability study of the society of actuaries with due regard to the type of benefit or any tables of disablement rates and termination rates, adopted after 1980 by the national association of insurance commissioners, that are approved by the director for use in determining the minimum standard of valuation for those policies.

(b) For policies or contracts that are issued on or after January 1, 1961 and before January 1, 1966, either of the tables that are specified in subdivision (a) of this paragraph, or at the option of the insurer, the class three disability table (1926).

(c) For policies or contracts that are issued before January 1, 1961, the class three disability table (1926).

(d) For active lives, any table that is used pursuant to subdivision (a), (b) or (c) of this paragraph shall be combined with a mortality table that is allowed for calculating the reserves for life insurance policies.

6. For accidental death benefits in or supplementary to policies:

(a) For policies that are issued on or after January 1, 1966, the 1959 accidental death benefits table or any accidental death benefits table that was adopted after 1980 by the national association of insurance commissioners and that the director approves for use in determining the minimum standard of valuation for those policies.

(b) For policies that are issued on or after January 1, 1961 and before January 1, 1966, either table provided by subdivision (a) of this paragraph or, at the option of the insurer, the intercompany double indemnity mortality table.

(c) For policies that are issued before January 1, 1961, the intercompany double indemnity mortality table.

(d) A table that is allowed under subdivision (a), (b) or (c) of this paragraph shall be combined with a mortality table that is allowed for calculating the reserves for life insurance policies.

7. For group life insurance, life insurance issued on the substandard basis and other special benefits, any tables that the director approves as sufficient with relation to the benefits provided by those policies.

H. Except as provided in subsection I of this section, the minimum standard for the valuation for individual annuity and pure endowment contracts issued on or after the operative date of this subsection and annuities and pure endowments purchased on or after the operative date of this subsection under group annuity and pure endowment contracts shall be the commissioners reserve valuation methods defined in subsections K and L of this section and the following tables and interest rates:

1. For individual annuity and pure endowment contracts that are issued before January 1, 1979, excluding any disability and accidental death benefits in those contracts, the 1971 individual annuity mortality table or any modification of the table that the director approves, and six per cent interest for single premium immediate annuity contracts, and four per cent interest for all other individual annuity and pure endowment contracts.

2. For individual single premium immediate annuity contracts that are issued on or after January 1, 1979, excluding any disability and accidental death benefits in those contracts, the 1971 individual annuity mortality table or any individual annuity mortality table adopted after 1980 by the national association of insurance commissioners and that the director approves for use in determining the minimum standard valuation for those contracts, or any modification of these tables that the director approves, and seven and one-half per cent interest.

3. For individual annuity and pure endowment contracts that are issued on or after January 1, 1979, other than single premium immediate annuity contracts and excluding any disability and accidental death benefits in those contracts, the 1971 individual annuity mortality table or any individual annuity mortality table that is adopted after 1980 by the national association of insurance commissioners and that the director approves for use in determining the minimum standard of valuation for those contracts, or any modification of these tables that the director approves, and five and one-half per cent interest for single premium deferred annuity and pure endowment contracts and four and one-half per cent interest for all other individual annuity and pure endowment contracts.

4. For all annuities and pure endowments that are purchased before January 1, 1979 under group annuity and pure endowment contracts, excluding any disability and accidental death benefits in those contracts, the 1971 group annuity mortality table, or any modification of this table that the director approves, and six per cent interest.

5. For all annuities and pure endowments that are purchased on or after January 1, 1979 under group annuity and pure endowment contracts, excluding any disability and accidental death benefits that are purchased under those contracts, the 1971 group annuity mortality table or any group annuity mortality table that is adopted after 1980 by the national association of insurance commissioners and that the director approves for use in determining the minimum standard of valuation for those annuities and pure endowments, or any modification to these tables that the director approves, and seven and one-half per cent interest.

I. After July 1, 1974, any insurer may file with the director a written notice of its election to comply with subsection H of this section on a specified date before January 1, 1979, which shall be the operative date of subsection H of this section for that insurer if the insurer elects a different operative date for individual annuity and pure endowment contracts from the date that is elected for group annuity and pure endowment contracts. If an insurer does not make an election pursuant to this subsection, the operative date of subsection L of this section shall be January 1, 1979.

J. The minimum standard by calendar year of issue shall be computed as follows:

1. The interest rates that are used in determining the minimum standard for the valuation of the following shall be the calendar year statutory valuation interest rates as defined in this subsection:

(a) All life insurance policies that are issued in a particular calendar year on or after the operative date of section 20-1231.01.

(b) All individual annuity and pure endowment contracts that are issued in a particular calendar year on or after January 1, 1983.

(c) All annuities and pure endowments that are purchased in a particular calendar year on or after January 1, 1983 under group annuity and pure endowment contracts.

(d) The net increase, if any, in a particular calendar year after January 1, 1983 in the amounts that are held under guaranteed interest contracts.

2. As used in this paragraph:

(a) R1 is the lesser of R and 0.09, R2 is the greater of R and 0.09, R is the reference interest rate defined in this subsection and W is the weighting factor defined in this subsection, the calendar year statutory valuation interest rates, or I, shall be determined as follows and the results shall be rounded to the nearer one-quarter of one per cent:

(i) For life insurance:

I = .03 + W(R1 - .03) + W/2 (R2 - .09).

(ii) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options:

I = .03 + W(R - .03).

(iii) Except pursuant to item (ii) of this subdivision, for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options that are valued on an issue year basis, the formula for life insurance under item (i) of this subdivision applies to annuities and guaranteed interest contracts with guarantee durations of more than ten years and the formula for single premium immediate annuities under item (ii) of this subdivision applies to annuities and guaranteed interest contracts with guarantee durations of ten years or less.

(iv) For other annuities with no cash settlement options and guaranteed interest contracts with no cash settlement options, the formula for single premium immediate annuities under item (ii) of this subdivision applies.

(v) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options that are valued on a change in fund basis, the formula for single premium immediate annuities under item (ii) of this subdivision applies.

(b) If the calendar year statutory valuation interest rate for any life insurance policies issued in any calendar year determined without reference to this subdivision differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than one-half of one per cent, the calendar year statutory valuation interest rate for those life insurance policies shall be equal to the corresponding actual rate for the immediately preceding calendar year. For the purposes of applying the immediately preceding sentence, the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year shall be determined for 1980 using the reference interest rate defined in 1979 and shall be determined for each subsequent calendar year regardless of the operative date of section 20-1231.01.

3. For the purposes of this subsection, the weighting factors referred to in the formulas stated above are given in the following tables:

(a) Weighting factors for life insurance:

Guarantee

Duration Weighting

(Years) Factors

Ten years or less .50

More than ten years, but not more than 20 years .45

More than twenty years .35

(b) For life insurance under subdivision (a) of this paragraph, the guarantee duration is the maximum number of years the life insurance can remain in force on a basis guaranteed in the policy or under options to convert to plans of life insurance with premium rates or nonforfeiture values, or both, that are guaranteed in the original policy.

(c) The weighting factor for single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options: .80

(d) Except pursuant to subdivision (c) of this paragraph, weighting factors for other annuities and for guaranteed interest are as specified and in accordance with this subdivision:

(i) For annuities and guaranteed interest contracts valued on an issue year basis:

Guarantee Weighting Factor

Duration for plan type

(Years) A B C

Five years or less .80 .60 .50

More than five years, but not more than ten years .75 .60 .50

More than ten years, but not more than twenty years .65 .50 .45

More than twenty years .45 .35 .35

(ii) For annuities and guaranteed interest contracts valued on a change in fund basis, the factors listed in item (i) of this subdivision increased by

Plan type

A B C

.15 .25 .05

(iii) For annuities and guaranteed interest contracts valued on an issue year basis other than those with no cash settlement options that do not guarantee interest on considerations received more than one year after issue or purchase and for annuities and guaranteed interest contracts valued on a change in fund basis that do not guarantee interest rates on considerations received more than twelve months after the valuation date, the factors shown in item (i) of this subdivision or derived in item (ii) of this subdivision increased by

Plan type

A B C

.05 .05 .05

(iv) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the guarantee duration is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies with guarantee duration of more than twenty years. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the guarantee duration is the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to begin.

(v) A company may elect to value guaranteed interest contracts with cash settlement options and annuities with cash settlement options on either an issue year basis or on a change in fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with no cash settlement options shall be valued on an issue year basis. As used in this subsection, "issue year basis" means a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract and "change in fund basis" means a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of the change in the fund.

4. "Plan type" as used in paragraph 3, subdivision (d) of this subsection means:

(a) Plan type A: A policyholder may withdraw funds at any time only with an adjustment to reflect changes in interest rates or asset values since the insurance company received the funds, without an adjustment but in installments over a period of five years or more, as an immediate life annuity, or a policyholder may not withdraw funds.

(b) Plan type B: Before the interest rate guarantee expires, a policyholder may withdraw funds only with an adjustment to reflect changes in interest rates or asset values since the insurance company received the funds, without an adjustment but in installments over a period of five years or more, or a policyholder may not withdraw funds. At the end of the interest rate guarantee, a policyholder may withdraw funds without an adjustment in a single sum or in installments over a period of less than five years.

(c) Plan type C: A policyholder may withdraw funds before the interest rate guarantee expires in a single sum or in installments over a period of less than five years either without an adjustment to reflect changes in interest rates or asset values since the insurance company received the funds or subject only to a fixed surrender charge that is stipulated in the contract as a percentage of the fund.

5. For the purposes of this subsection, "reference interest rate" means:

(a) For all life insurance, the lesser of the average over a period of thirty-six months and the average over a period of twelve months, ending on June 30 of the calendar year next preceding the year of issue, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's investors service, incorporated.

(b) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the average over a period of twelve months, ending on June 30 of the calendar year of issue or year of purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's investors service, incorporated.

(c) Except pursuant to subdivision (b) of this paragraph, for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options that are valued on an issue year basis, with guarantee duration of more than ten years, the lesser of the average over a period of thirty-six months and the average over a period of twelve months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's investors service, incorporated.

(d) Except pursuant to subdivision (b) of this paragraph, for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options that are valued on a year of issue basis, with guaranteed duration of ten years or less, the average over a period of twelve months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's investors service, incorporated.

(e) For other annuities with no cash settlement options and guaranteed interest contracts with no cash settlement options, the average over a period of twelve months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's investors service, incorporated.

(f) Except pursuant to subdivision (b) of this paragraph, for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options that are valued on a change in fund basis, the average over a period of twelve months, ending on June 30 of the calendar year of the change in the fund, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's investors service, incorporated.

6. If Moody's investors service, incorporated no longer publishes the monthly average of the composite yield on seasoned corporate bonds or if the national association of insurance commissioners determines that the monthly average of the composite yield on seasoned corporate bonds as published by Moody's investor service, incorporated is no longer appropriate for the determination of the reference interest rate, an alternative method for determination of the reference interest rate that the national association of insurance commissioners adopts and the director approves may be substituted.

K. The reserve valuation method for life insurance and endowment benefits shall be determined as follows:

1. Except as otherwise provided in subsections L, O and Q of this section, reserves according to the commissioners reserve valuation method, for the life insurance and endowment benefits of policies providing for a uniform amount of insurance and requiring the payment of uniform premiums, are the excess, if any, of the present value, at the date of valuation, of the future guaranteed benefits provided for by those policies, over the present value of any future modified net premiums. The modified net premiums for any one policy shall be the uniform percentage of the respective contract premiums for the benefits that the present value, at the date of issue of the policy, of all the modified net premiums shall be equal to the sum of the then present value of the benefits provided for by the policy and the excess of subdivision (a) over subdivision (b) of this paragraph as follows:

(a) A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of the policy on which a premium falls due, provided however that the net level annual premium shall not exceed the net level annual premium on the nineteen year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of such policy.

(b) A net one year term premium for the benefits that are provided for in the first policy year.

2. Any life insurance policy that is issued on or after January 1, 1986 for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and that provides an endowment benefit or a cash surrender value or a combination thereof in an amount greater than the excess premium, the reserve according to the commissioners reserve valuation method as of any policy anniversary occurring on or before the assumed ending date defined for the purposes of this paragraph as the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than the excess premium, except as otherwise provided in subsection O of this section, shall be the greater of the reserve as of the policy anniversary calculated as described in paragraph 1 of this subsection and the reserve as of the policy anniversary calculated as described in that paragraph, but with:

(a) The value defined in paragraph 1, subdivision (a) of this subsection being reduced by fifteen per cent of the amount of the excess first year premium.

(b) All present values of benefits and premiums being determined without reference to premiums or benefits provided for by the policy after the assumed ending date.

(c) The policy being assumed to mature on the date as an endowment.

(d) The cash surrender value provided on the date being considered as an endowment benefit.

In making the above comparison the mortality and interest bases stated in subsections G and J of this section shall be used.

3. Reserves according to the commissioners reserve valuation method for:

(a) Life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums.

(b) Group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation that is established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under section 408 of the internal revenue code, as amended.

(c) Disability and accidental death benefits in all policies and contracts.

(d) All other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts, shall be calculated by a method consistent with the principles of paragraphs 1 and 2 of this subsection.

L. The reserve valuation method for annuity and pure endowment benefits shall be determined as follows:

1. This subsection applies to all annuity and pure endowment contracts other than group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation that is established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under section 408 of the internal revenue code, as amended.

2. Reserves according to the commissioners annuity reserve method for benefits under annuity or pure endowment contracts, excluding any disability and accidental death benefits in those contracts, shall be the greatest of the respective excesses of the present values, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits that are provided for by the contracts at the end of each respective contract year, over the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations, required by the terms of the contract, that become payable before the end of the respective contract year. The future guaranteed benefits shall be determined by using the mortality table, if any, and the interest rate or rates specified in the contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of the contracts to determine nonforfeiture values.

M. A company's aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, that are issued on or after the operative date of section 20-1231, shall not be less than the aggregate reserves calculated in accordance with the methods set forth in subsections K, L, O and P of this section and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for the policies. The aggregate reserves for all policies, contracts and benefits shall not be less than the aggregate reserves determined by the qualified actuary to be necessary to render the opinion required by subsection E of this section.

N. Optional reserves may be calculated as follows:

1. At the option of the insurer, reserves for all policies and contracts that are issued before the operative date of section 20-1231 may be calculated according to any standards that produce greater aggregate reserves for all the policies and contracts than the minimum reserves required by the laws in effect immediately before that date.

2. At the option of the insurer, reserves for any category of policies, contracts or benefits that the director establishes and that are issued on or after the operative date of section 20-1231 may be calculated according to any standards that produce greater aggregate reserves for that category than those calculated according to the minimum standard provided in this section, but the rate or rates of interest used for policies and contracts, other than annuity and pure endowment contracts, shall not be greater than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided for in the policy or contract.

3. An insurer that at any time has adopted any standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided by this section, with the director's approval, may adopt any lower standard of valuation, but not lower than the minimum provided by this section. For the purposes of this section, the holding of additional reserves previously determined by the appointed actuary to be necessary to render the opinion required by subsection E of this section shall not be deemed to be the adoption of a higher standard of valuation.

O. Reserves when the valuation net premium exceeds the gross premium charged shall be calculated as follows:

1. If in any contract year the gross premium charged by a company on any policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for the policy or contract shall be the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for the policy or contract, or the reserve calculated by the method actually used for the policy or contract but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality and rate of interest referred to in this subsection are those standards stated in subsections G and J of this section.

2. For any life insurance policy that is issued on or after January 1, 1986, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for that excess and that provides an endowment benefit or a cash surrender value or a combination in an amount greater than the excess premium, this subsection applies as if the method actually used in calculating the reserve for the policy was the method described in subsection K, paragraphs 1 and 3 of this section. The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with subsection K of this section, including paragraph 2 of that subsection, and the minimum reserve calculated in accordance with this subsection.

P. If a plan of life insurance provides for future premium determination, the amounts of which are to be determined by the insurer based on then estimates of future experience, or if the minimum reserves of a plan of life insurance or annuity cannot be determined by the methods described in subsections K, L and O of this section, the reserves that are held under any plan must:

1. Be appropriate in relation to the benefits and the pattern of premiums for that plan.

2. Be computed by a method that is consistent with the principles of this section, as determined by rules adopted by the director related to the minimum standards applicable to the valuation of health plans.

Q. For accident and health insurance contracts issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under subsection D, paragraph 1 of this section. For disability insurance contracts issued on or after the operative date of section 20-1231 and before the operative date of the valuation manual, the minimum standard of valuation is the standard adopted by the director by rule.

R. The following apply to the valuation manual for policies issued on or after the operative date of the valuation manual:

1. For policies issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under subsection D, paragraph 1 of this section, except as provided under paragraph 5 or 7 of this subsection.

2. The operative date of the valuation manual is January 1 of the first calendar year following the first July 1 as of which all of the following have occurred:

(a) The valuation manual has been adopted by the national association of insurance commissioners by an affirmative vote of at least forty-two members, or three-fourths of the members voting, whichever is greater.

(b) The standard valuation law, as amended by the national association of insurance commissioners in 2009, or legislation including substantially similar terms and provisions, has been enacted by states representing greater than seventy-five per cent of the direct premiums written as reported in the following annual statements submitted for 2008: life, accident and health annual statements, health annual statements, or fraternal annual statements.

(c) The standard valuation law, as amended by the national association of insurance commissioners in 2009, or legislation including substantially similar terms and provisions, has been enacted by at least forty-two of the following fifty-five jurisdictions:

(i) The fifty states of the United States.

(ii) American Samoa.

(iii) The United States Virgin Islands.

(iv) The District of Columbia.

(v) Guam.

(vi) The Commonwealth of Puerto Rico.

3. Unless a change in the valuation manual specifies a later effective date, changes to the valuation manual shall be effective on January 1 following the date when all of the following have occurred:

(a) The change to the valuation manual has been adopted by the national association of insurance commissioners by an affirmative vote representing the following:

(i) At least three-fourths of the members of the national association of insurance commissioners voting, but not less than a majority of the total membership.

(ii) Members of the national association of insurance commissioners representing jurisdictions totaling greater than seventy-five per cent of the direct premiums written as reported in the following annual statements most recently available before the vote in item (i) of this subdivision: life, accident and health annual statements, health annual statements, or fraternal annual statements.

(b) The valuation manual becomes effective pursuant to an order of the director.

4. The valuation manual must specify all of the following:

(a) Minimum valuation standards for and definitions of the policies or contracts subject to subsection D, paragraph 1 of this section. The minimum valuation standards shall include all of the following:

(i) The director's reserve valuation method for life insurance contracts, other than annuity contracts, subject to subsection D, paragraph 1 of this section.

(ii) The director's annuity reserve valuation method for annuity contracts subject to subsection D, paragraph 1 of this section.

(iii) Minimum reserves for all other policies or contracts subject to subsection D of this section.

(b) Which policies or contracts or types of policies or contracts that are subject to the requirements of a principle-based valuation in subsection S of this section and the minimum valuation standards consistent with those requirements.

(c) For policies and contracts subject to a principle-based valuation under subsection S of this section:

(i) Requirements for the format of reports to the director under subsection T, paragraph 3 of this section and that shall include information necessary to determine if the valuation is appropriate and in compliance with this section.

(ii) Assumptions shall be prescribed for risks over which the company does not have significant control or influence.

(iii) Procedures for corporate governance and oversight of the actuarial function and a process for appropriate waiver or modification of the procedures.

(d) For policies not subject to a principle-based valuation under subsection S of this section the minimum valuation standard shall either:

(i) Be consistent with the minimum standard of valuation before the operative date of the valuation manual.

(ii) Develop reserves that quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring.

(e) Other requirements, including those relating to reserve methods, models for measuring risk, generation of economic scenarios, assumptions, margins, use of company experience, risk measurement, disclosure, certifications, reports, actuarial opinions and memorandums, transition rules and internal controls.

(f) The data and form of the data required under subsection T of this section, with whom the data must be submitted, and other requirements including data analyses and reporting of analyses.

5. In the absence of a specific valuation requirement or if a specific valuation requirement in the valuation manual is not, in the opinion of the director, in compliance with this section, the company, with respect to the requirements, shall comply with minimum valuation standards prescribed by the director by rule.

6. The director may engage a qualified actuary, at the expense of the company, to perform an actuarial examination of the company and opine on the appropriateness of any reserve assumption or method used by the company, or to review and opine on a company's compliance with any requirement of this section. The director may rely on the opinion, regarding provisions contained in this section, of a qualified actuary engaged by the director of another state, district or territory of the United States. For the purposes of this paragraph, engage includes employment and contracting.

7. The director may require a company to change any assumption or method that in the opinion of the director is necessary in order to comply with the requirements of the valuation manual or this section, and the company shall adjust the reserves as required by the director. The director may take other disciplinary action as allowed pursuant to section 20-152.

S. A company must establish reserves using a principle-based valuation that meets the following conditions for policies or contracts as specified in the valuation manual:

1. Quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the contracts, and for policies or contracts with significant tail risk, that reflects conditions appropriately adverse to quantify the tail risk.

2. Incorporate assumptions, risk analysis methods and financial models and management techniques that are consistent with, but not necessarily identical to, those utilized within the company's overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods.

3. Incorporate assumptions that are derived in one of the following manners:

(a) The assumption is prescribed in the valuation manual.

(b) For assumptions that are not prescribed, the assumptions shall either:

(i) Be established utilizing the company's available experience to the extent it is relevant and statistically credible.

(ii) To the extent that company data is not available, relevant or statistically credible, be established utilizing other relevant, statistically credible experience.

4. Provide margins for uncertainty including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.

T. A company using a principle-based valuation for one or more policies or contracts subject to this section as specified in the valuation manual shall:

1. Establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the valuation manual.

2. Provide to the director and the board of directors an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation. The controls shall be designed to ensure that all material risks inherent in the liabilities and associated assets subject to the valuation are included in the valuation, and that valuations are made in accordance with the valuation manual. The certification shall be based on the controls in place as of the end of the preceding calendar year.

3. Develop, and file with the director on request, a principle-based valuation report that complies with standards prescribed in the valuation manual. A principle-based valuation may include a prescribed formulaic reserve component.

U. A company shall submit mortality, morbidity, policyholder behavior or expense experience and other data as prescribed in the valuation manual.

V. The following apply to confidentiality:

1. For the purposes of this subsection, "confidential information" means:

(a) A memorandum in support of an opinion submitted under subsection F of this section and any other documents, materials and other information, including all working papers, and copies thereof, created, produced or obtained by or disclosed to the director or any other person in connection with the memorandum.

(b) All documents, materials and other information, including all working papers, and copies thereof, created, produced or obtained by or disclosed to the director or any other person in the course of an examination made under subsection R of this section. If an examination report or other material prepared in connection with an examination made under section 20-156 is not held as private and confidential information under section 20-156, an examination report or other material prepared in connection with an examination made under subsection R, paragraph 6 of this section is not confidential information to the same extent as if the examination report or other material had been prepared under section 20-156.

(c) Any reports, documents, materials and other information developed by a company in support of or in connection with an annual certification by the company under subsection T, paragraph 2 of this section evaluating the effectiveness of the company's internal controls with respect to a principle-based valuation and any other documents, materials and other information, including all working papers, and copies thereof, created, produced or obtained by or disclosed to the director or any other person in connection with the reports, documents, materials and other information.

(d) Any principle-based valuation report developed under subsection T, paragraph 3 of this section and any other documents, materials and other information, including all working papers, and copies thereof, created, produced or obtained by or disclosed to the director or any other person in connection with the report.

(e) Any documents, materials, data and other information submitted by a company under subsection U of this section (collectively, "experience data") and any other documents, materials, data and other information, including all working papers, and copies thereof, created or produced in connection with the experience data, in each case that include any potentially company-identifying or personally identifiable information that is provided to or obtained by the director (together with any "experience data", the "experience materials") and any other documents, materials, data and other information, including all working papers, and copies thereof, created, produced or obtained by or disclosed to the director or any other person in connection with the experience materials.

2. The following apply to the privilege for and confidentiality of confidential information:

(a) Except as provided in this subsection, a company's confidential information is confidential by law and privileged, and is not subject to public records requests or subpoenas and shall not be subject to discovery or admissible in evidence in any private civil action. The director is authorized to use the confidential information in the furtherance of any regulatory or legal action brought against the company as a part of the director's official duties.

(b) Neither the director nor any person who received confidential information while acting under the authority of the director shall be allowed or required to testify in any private civil action concerning any confidential information.

(c) In order to assist in the performance of the director's duties, the director may share confidential information:

(i) With other state, federal and international regulatory agencies and with the national association of insurance commissioners and its affiliates and subsidiaries.

(ii) In the case of confidential information specified in paragraph 1, subdivisions (a) and (d) of this subsection only, with the actuarial board for counseling and discipline or its successor on request stating that the confidential information is required for the purpose of professional disciplinary proceedings and with state, federal and international law enforcement officials.

(iii) In the case of items (i) and (ii) of this subdivision, if the recipient agrees, and has the legal authority to agree, to maintain the confidentiality and privileged status of the documents, materials, data and other information in the same manner and to the same extent as required for the director.

(d) The director may receive documents, materials, data and other information, including otherwise confidential and privileged documents, materials, data or information, from the national association of insurance commissioners and its affiliates and subsidiaries, from regulatory or law enforcement officials of other foreign or domestic jurisdictions and from the actuarial board for counseling and discipline or its successor and shall maintain as confidential or privileged any document, material, data or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information.

(e) The director may enter into agreements governing sharing and use of information consistent with this paragraph.

(f) No waiver of any applicable privilege or claim of confidentiality in the confidential information shall occur as a result of disclosure to the director under this section or as a result of sharing as authorized in subdivision (c) of this paragraph.

(g) Privilege established under the law of any state or jurisdiction that is substantially similar to the privilege established under this paragraph shall be available and enforced in any proceeding in and in any court of this state.

3. Notwithstanding paragraph 2 of this subsection, any confidential information specified in paragraph 1, subdivisions (a) and (d) of this subsection:

(a) May be subject to subpoena for the purpose of defending an action seeking damages from the appointed actuary submitting the related memorandum in support of an opinion submitted under subsection F, paragraph 1 of this section or principle-based valuation report developed under subsection T, paragraph 3 of this section by reason of an action required by this section or by rules adopted under this section.

(b) May otherwise be released by the director with the written consent of the company.

(c) Once any portion of a memorandum in support of an opinion submitted under subsection F, paragraph 1 of this section or a principle-based valuation report developed under subsection T, paragraph 3 of this section is cited by the company in its marketing or is publicly volunteered to or before a governmental agency other than a state insurance department or is released by the company to the news media, all portions of the memorandum or report are no longer confidential.

4. For the purposes of this subsection, "regulatory agency", "law enforcement agency" and "national association of insurance commissioners" include the employees, agents, consultants and contractors of those entities.

W. The following apply to single state exemption:

1. The director may exempt specific product forms or product lines of a domestic company that is licensed and doing business only in this state from the requirements of subsection R of this section if:

(a) The director has issued an exemption in writing to the company and has not subsequently revoked the exemption in writing.

(b) The company computes reserves using assumptions and methods used before the operative date of the valuation manual in addition to any requirements established by the director and adopted by rule.

2. For any company granted an exemption under this section, subsections D, E, F, G, H, I, J, K, L, M, N, O, P and Q of this section apply. For any company applying this exemption, any reference to subsection R found in subsections D, E, F, G, H, I, J, K, L, M, N, O, P and Q of this section does not apply.

§ 20-511 Valuation of bonds; limitation

A. All bonds or other evidences of debt having a fixed term and rate of interest and held by any insurer may, if amply secured and not in default as to principal or interest, be valued as follows:

1. If purchased at par, at the par value.

2. If purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at the earliest date callable at par or at maturity and so as to yield in the meantime the effective rate of interest at which the purchase was made, or in lieu of such method, according to such accepted method of valuation as is approved by the director.

The purchase price shall in no case be taken at a higher figure than the actual market value at the time of purchase, plus actual brokerage, transfer, postage or express charges paid in the acquisition of the securities.

B. Unless otherwise provided by valuation established or approved by the national association of insurance commissioners, no such security shall be carried at above the call price for the entire issue during any period within which the security may be so called.

C. The director has full discretion in determining the method of calculating values of bonds as set forth in this section but shall not value bonds in a manner that is inconsistent with the standards promulgated by the securities valuation office of the national association of insurance commissioners.

§ 20-512 Valuation of other securities

A. Securities, other than those referred to in section 20-511, held by an insurer shall be valued, in the discretion of the director, at their market value, or at their appraised value, at prices determined by the director as representing their fair market value but shall not be valued in a manner that is inconsistent with the standards promulgated by the securities valuation office of the national association of insurance commissioners.

B. Preferred or guaranteed stocks or shares while paying full dividends may be carried at a fixed value in lieu of market value, at the discretion of the director and in accordance with such method of computation as the director may approve but shall not be valued in a manner that is inconsistent with the standards promulgated by the securities valuation office of the national association of insurance commissioners.

§ 20-512.01 Valuation of joint ventures, partnerships and limited liability companies

Joint ventures, partnerships and limited liability companies shall be valued based on the underlying equity reported in the entity's financial statements pursuant to the accounting practices and procedures manual adopted by the national association of insurance commissioners.

§ 20-513 Valuation of real and personal property

A. Real property acquired pursuant to a mortgage loan or contract for sale, in the absence of a recent appraisal deemed by the director to be reliable, shall not be valued at an amount greater than the unpaid principal of the defaulted loan or contract at the date of such acquisition, together with any taxes and expenses paid or incurred in connection with such acquisition, and the cost of improvements thereafter made by the insurer and any amounts thereafter paid by the insurer on assessments levied for improvements in connection with the property.

B. Other real property held by an insurer shall be valued at market value as determined by recent appraisal or cost plus capitalized improvements minus normal depreciation, whichever is less. If valuation is based on an appraisal more than three years old, the director may at his discretion call for and require a new appraisal in order to determine fair value.

C. Personal property acquired pursuant to chattel mortgages made in accordance with section 20-555 shall not be valued at an amount greater than the unpaid balance of principal on the defaulted loan at the date of acquisition, together with taxes and expenses incurred in connection with the acquisition, or the fair value of the property, whichever amount is less.

§ 20-514 Valuation of purchase money mortgages

Purchase money mortgages on real property referred to in subsection A of section 20-513 shall be valued in an amount not exceeding the acquisition cost of the real property covered thereby or ninety per cent of the fair value of such real property, whichever is less.

§ 20-515 Valuation of assets held in separate accounts

Assets, unless otherwise approved by the director, allocated to a separate account established pursuant to section 20-651 shall be valued at their market value on the date of valuation, or if there is no readily available market, then as provided under the terms of the contract or the rules or other written agreement applicable to such separate account, provided that unless otherwise approved by the director, the portion if any of the assets of such separate account equal to the company's reserve liability with regard to the guaranteed benefits and funds referred to in subsection C of section 20-651 shall be valued in accordance with the rules otherwise applicable to the company's assets.

§ 20-516 Reserve standards

An insurer shall maintain reserves that place a sound value on its liabilities under its policies, annuities and subscriber contracts. The reserves shall not be less than the amount, estimated and consistent with the provisions of this title, necessary to assure payment of the insurer's unpaid policyholder and contract holder obligations, whether those obligations are reported or reported together with the expenses of adjustment or settlement of the obligations.

§ 20-517 Report of acquisitions and dispositions

A. Each insurer that is domiciled in this state shall file with the director a report that discloses material acquisitions and dispositions of assets or material nonrenewals, cancellations or revisions of ceded reinsurance agreements unless the insurer has submitted the acquisitions and dispositions of assets or material nonrenewals, cancellations or revisions of ceded reinsurance agreements to the director for review, approval or information purposes pursuant to any other law or rule.

B. The insurer shall file the report within fifteen days after the end of the calendar month in which any of the transactions listed in subsection A occur.

C. The insurer shall file a copy of the report, including any exhibits or other attachments that are filed with the report, with the national association of insurance commissioners.

D. All reports that are obtained by or disclosed to the director pursuant to this section are confidential and are not subject to subpoena. The director, the national association of insurance commissioners and any other person may disclose a report to the insurance department of another state but may not make a report public without the prior written consent of the insurer unless the director, after giving the insurer notice and an opportunity to be heard, determines that the interests of the policyholders, shareholders or public will be served by the publication of the report. If the director determines that publication is in the interests of the policyholders, shareholders or public, the director may publish part or all of the report in a manner that the director deems appropriate.

§ 20-518 Acquisitions and dispositions of assets

A. An acquisition or disposition of assets that is not material does not have to be reported pursuant to section 20-517.

B. Asset acquisitions that are subject to section 20-517 and this section include every purchase, lease, exchange, merger, consolidation, succession or other acquisition other than the construction or development of real property by or for the reporting insurer or the acquisition of materials for these purposes.

C. Asset dispositions that are subject to section 20-517 and this section include every sale, lease, exchange, merger, consolidation, mortgage, hypothecation, assignment, abandonment, destruction or other disposition.

D. A report of a material acquisition or disposition of assets pursuant to section 20-517 shall disclose the following information:

1. The date of the transaction.

2. The manner of acquisition or disposition.

3. A description of the assets involved.

4. The nature and amount of the consideration given or received.

5. The purpose of or reason for the transaction.

6. The manner by which the amount of consideration was determined.

7. The gain or loss that is recognized or realized as a result of the transaction.

8. The names of the persons from whom the assets were acquired or to whom the assets were disposed.

E. An insurer shall report material acquisitions and dispositions on a nonconsolidated basis unless the insurer is part of a consolidated group of insurers that utilized a pooling arrangement or one hundred per cent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer ceded substantially all of its direct and assumed business to the pool. An insurer is deemed to have ceded substantially all of its direct and assumed business to a pool if the insurer has less than one million dollars total direct plus assumed written premiums during a calendar year that are not subject to a pooling arrangement and the net income of the business not subject to the pooling arrangement represents less than five per cent of the insurer's capital and surplus.

F. For the purposes of this section and section 20-517, a material acquisition, including the aggregate of any series of acquisitions during any thirty day period, or a material disposition, including the aggregate of any series of related dispositions during any thirty day period, is one that is nonrecurring, that is not in the ordinary course of business and that involves more than five per cent of the reporting insurer's total admitted assets as reported in its most recent statutory statement that is filed with the director.

§ 20-519 Nonrenewals, cancellations or revisions of ceded reinsurance agreements

A. A nonrenewal, cancellation or revision of a ceded reinsurance agreement that is not material does not have to be reported pursuant to section 20-517.

B. A report of a material nonrenewal, cancellation or revision of a ceded reinsurance agreement shall be reported, regardless of which party initiated the nonrenewal, cancellation or revision of ceded reinsurance, if one or more of the following conditions exist:

1. The entire cession has not been renewed or has been cancelled or revised and ceded indemnity and loss adjustment expense reserves after nonrenewal, cancellation or revision represent less than fifty per cent of the comparable reserves that would have been ceded if the nonrenewal, cancellation or revision had not occurred.

2. An authorized or accredited reinsurer has been replaced on an existing cession by an unauthorized reinsurer.

3. The collateral requirements that were previously established for unauthorized reinsurers have been reduced. For example, the requirement to collateralize incurred but not reported claim reserves is waived with respect to one or more unauthorized reinsurers newly participating in an existing cession.

C. For the purposes of subsection B, paragraph 2 or 3 of this section, an insurer shall file a report if the result of the revision affects more than ten per cent of the cession.

D. A report of a material nonrenewal, cancellation or revision of ceded reinsurance agreement pursuant to section 20-517 shall disclose the following information:

1. The effective date of the nonrenewal, cancellation or revision.

2. A description of the transaction, including an identification of the transaction initiator.

3. The purpose of or reason for the transaction.

4. The identity of the replacement reinsurers, if applicable.

E. An insurer shall report all material nonrenewals, cancellations or revisions of ceded reinsurance agreements on a nonconsolidated basis unless the insurer is part of a consolidated group of insurers that uses a pooling arrangement or one hundred per cent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer ceded substantially all of its direct and assumed business to the pool. An insurer is deemed to have ceded substantially all of its direct and assumed business to a pool if the insurer has less than one million dollars total direct plus assumed written premiums during a calendar year that are not subject to a pooling arrangement and the net income of the business not subject to the pooling arrangement represents less than five per cent of the insurer's capital and surplus.

F. For the purposes of this section and section 20-517, a material nonrenewal, cancellation or revision is one that affects for property and casualty business, including accident and health business that is written as property and casualty business, more than fifty per cent of an insurer's ceded written premium, or for life, annuity and accident and health business, more than fifty per cent of an insurer's total reserve credit taken for business ceded, on an annualized basis as indicated in the insurer's most recently filed statement. A filing is not required pursuant to this subsection if the insurer's ceded written premium or the total reserve credit taken for business ceded represents, on an annualized basis, less than ten per cent of the direct plus assumed written premium or ten per cent of the statutory reserve requirement before any cession.

Article 2 Investments

§ 20-531 Scope of article

Except as to section 20-559, this article applies to domestic insurers only. This article shall apply to domestic title insurers except as provided in article 9 of chapter 6 of this title.

§ 20-532 Eligible investments

A. Insurers shall invest in or loan their funds on the security of, and shall hold as assets, only eligible investments as prescribed in this article.

B. Any particular investment that was held by an insurer on January 1, 1955, that was a legal investment at the time it was made and that the insurer was legally entitled to possess immediately before January 1, 1955 is an eligible investment.

C. The eligibility of an investment shall be determined as of the date of its making or acquisition.

D. Any investment limitation based on the amount of the insurer's assets or particular funds shall relate to assets or funds as shown by the insurer's annual statement as of the December 31 last preceding date of investment or on the insurer's most recently required statutory balance sheet filed with the director, unless the accounting practices and procedures manual adopted by the national association of insurance commissioners prescribes the use of a different financial statement.

E. Any investment shall not be disqualified solely because it is held in a security depository if the director has approved the depository.

§ 20-533 Qualification of securities or property as eligible investments

A. No security or investment, other than real and personal property acquired pursuant to section 20-556, shall be eligible for acquisition unless it is interest bearing or interest accruing or dividend or income paying, is not then in default as to principal or interest and the insurer is entitled to receive for its exclusive account and benefit the interest or income accruing on the security or investment, except as provided in subsection D of this section. Defaults in interest or income occurring subsequent to acquisition of an investment shall not affect allowance thereof as an asset.

B. No security or investment shall be eligible for purchase at a price above its market value.

C. No provision of this article shall prohibit the acquisition by an insurer of other or additional securities or property if received as a dividend or as a lawful distribution of assets, or if acquired pursuant to a lawful and bona fide agreement of bulk reinsurance, merger or consolidation. Any investment so acquired through bulk reinsurance, merger or consolidation, which is not otherwise eligible under this article, is subject to the following conditions:

1. The investment qualifies as an asset under the insurance laws of the jurisdiction of the insurer from which the investment was acquired.

2. The insurer shall dispose of the investment within three years after the date of acquisition unless within the period the security has attained the necessary standard of eligibility pursuant to this article.

D. An insurer may invest any of its monies in debt securities which are not interest bearing or interest accruing if, after giving effect to the acquisition of the debt security, the aggregate cost of the securities, other than investments acquired pursuant to subsection C of this section, does not exceed ten per cent of the insurer's total assets.

§ 20-534 Approval of investment

No investment or loan shall be made by an insurer unless it has been authorized or approved by the insurer's board of directors or by a committee authorized thereby and charged with the duty of supervising or making such investment or loan. The minutes of any such committee shall be recorded and regular reports of the committee shall be submitted to the board of directors. This section does not apply to loans made by a life insurer on policies or annuity contracts.

§ 20-535 Limitation on percentage of assets invested with single person; exception

An insurer shall not, except with the consent of the director, have at any one time any combination of investments in or loans upon the security of the obligations, property or securities of any one person, institution, corporation or municipal corporation, aggregating any amount exceeding ten per cent of the insurer's assets. This restriction shall not apply to investments in or loans upon the security of general obligations of the United States or any state of the United States or include policy loans made under section 20-550.

§ 20-536 Investments; type; limitations

A. Every insurer may invest and maintain invested funds in cash and in the securities and investments described in this article without limitation unless a limitation for the securities and investments is otherwise prescribed in this article.

B. Except with the director's consent, an insurer shall not have invested at any one time more than twenty per cent of its assets in the classes of securities described in any one of the following sections of this article:

1. Section 20-546, exclusive of common stocks of public utilities and common stocks acquired under section 20-481.01.

2. Section 20-557.

3. Section 20-552.

C. Except with the director's consent, an insurer shall not have invested at any one time more than ten per cent of its assets in the classes of securities described in any one of the following sections of this article:

1. Section 20-548.

2. Section 20-547.

3. Section 20-543.

4. Section 20-555.

§ 20-536.01 Separate accounts

A. Except as may be provided with respect to reserves for guaranteed benefits referred to in section 20-651, subsection C, amounts allocated to any separate account established pursuant to section 20-651 and accumulations thereon may be invested and reinvested in any class of investments, having due regard for the kind of investments permitted and the qualitative requirements prescribed by the laws of this state governing the investments of life insurance companies, but without regard to the quantitative restrictions or limitations applicable to those investments, provided that separate account investments shall not be acquired through bulk reinsurance, merger or consolidation unless acquired with the specific consent of the director, and shall not include the investments described in section 20-556, paragraph 1. Notwithstanding any other law, section 20-549 applies to and governs investments in each separate account based on the value of its assets. The investments in such separate account or accounts shall not be taken into account in applying the investment limitations otherwise applicable to the investments of the company.

B. Investments in separate accounts shall be kept unencumbered and otherwise unimpaired. No sale, exchange or other transfer of assets may be made by a company between any of its separate accounts or between any other investment account and one or more of its separate accounts unless, in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made, and unless such transfer, whether into or from a separate account, is made by a transfer of cash, or by a transfer of securities having a readily determinable market value, provided that such transfer of securities is approved by the director. The director may approve other transfers among such accounts if, in the director's opinion, such transfers would not be inequitable.

C. Notwithstanding any other law, if approved by the director investments in separate accounts may be pledged as collateral to secure the commitment of a third party to pay in full the obligations of the life insurance company to contract holders of the separate account or separate accounts if the life insurance company becomes insolvent as defined in section 20-611 or is subject to an order of liquidation pursuant to sections 20-616 and 20-621 or if the investments in the separate account or separate accounts are not adequate to discharge the life insurance company's obligations to the contract holders under contracts that are supported by the separate account or separate accounts. The director shall issue an order after a hearing. The order shall establish criteria for the third parties who are eligible to provide credit enhancement for a separate account or separate accounts and to accept assets that are pledged pursuant to this subsection, except that the director may approve any specific transaction regardless of the criteria set forth in the order.

D. Notwithstanding any other law and except as may be provided with respect to reserves for guaranteed benefits under section 20-651, subsection C, amounts that are allocated to any separate account established for variable life contracts, variable annuity contracts and guaranteed investment contracts pursuant to section 20-651, and accumulations on the accounts, may be invested or reinvested in any class of investments permitted under this article subject to the qualitative, but without regard to the quantitative, restrictions or limitations prescribed by the laws of this state. Separate account investments shall not be acquired by bulk reinsurance, merger or consolidation unless the director specifically consents and shall not include investments described in section 20-556, paragraph 1. Section 20-549 applies to and governs investments in each separate account unless the director prescribes standards by order after hearing to allow investments in each separate account to exceed the limits prescribed in section 20-549.

§ 20-537 Investment of funds in United States obligations; accounting

A. An insurer may invest any of its funds in:

1. Bonds or other evidences of indebtedness of the United States or any of its agencies or instrumentalities when such obligations are guaranteed as to principal and interest by the United States or any agency or instrumentality of the United States.

2. Bonds or other evidences of indebtedness which are guaranteed as to principal and interest by the United States or by any agency or instrumentality of the United States.

3. Bonds, debentures or other obligations issued by the federal land banks, the federal intermediate credit banks or the banks for cooperatives and the federal farm credit banks consolidated systemwide bonds.

B. This title does not prohibit the acquisition by an insurer licensed in this state of United States government securities, the purchase of which is permitted by statute, in accordance with the federal reserve system program of book entry accounting.

§ 20-538 Securities of states, territories, counties, municipalities, school districts, political subdivisions, public districts or civil divisions thereof

An insurer may invest any of its funds in bonds or other evidences of indebtedness not in default as to principal or interest, which are valid and legally authorized securities or obligations issued, assumed, or guaranteed by the state of Arizona or any counties, municipalities, school districts, or political subdivisions of any type organized pursuant to the Constitution or statutes of the state of Arizona, or issued, assumed, or guaranteed by any other state or territory of the United States or by any counties, incorporated cities, towns, villages, municipalities, school districts, public districts of any type organized pursuant to statute or constitution in other states or territories where any of the foregoing political subdivisions are so designated, or by a political subdivision thereof, or by any civil division or public instrumentality of one or more of the foregoing, if, by statutory or other legal requirements applicable thereto, such obligations are or may become payable, as to both principal and interest, from taxes levied or required to be levied upon all taxable property or all taxable income within the jurisdiction of such governmental unit. No investment authorized by this section shall include any security issued by any such governmental unit if any default on any other security issued by such governmental unit has occurred within five years of such investment.

§ 20-539 Federally guaranteed loans

An insurer may invest any of its funds in loans guaranteed as to principal and interest by the United States or by any agency or instrumentality thereof, to the extent of such guaranty.

§ 20-540 Governmental revenue bonds and obligations; limitation; definitions

A. An insurer may invest in bonds, notes or evidences of indebtedness of any state, any political subdivision of a state or any political subdivision of the United States that are payable from revenues or earnings specifically pledged for the payment of the principal and interest on such obligations, and for which a sinking fund or reserve fund has been established and is being maintained, but only if no default in payment of principal or interest on the obligations to be purchased has occurred within five years of the date of the investment, or if such obligations were issued less than five years prior to the date of investment, no default in payment of principal or interest has occurred on the obligations to be purchased nor on any other obligations of the issuer within five years of such investment.

B. An insurer shall not invest directly or indirectly in any medium grade or lower grade obligation pursuant to this section if after giving effect to that investment the aggregate amount of all medium grade and lower grade obligations held by the insurer exceeds twenty per cent of its admitted assets and if both of the following apply:

1. No more than ten per cent of the insurer's admitted assets consist of obligations that are rated as class 4, 5 or 6 by the securities valuation office of the national association of insurance commissioners.

2. No more than one per cent of the insurer's admitted assets consist of obligations that are rated as class 5 or 6 by the securities valuation office of the national association of insurance commissioners.

C. For purposes of this section:

1. "Lower grade obligation" means any bond, note or evidence of indebtedness that is rated as class 4, 5 or 6 by the securities valuation office of the national association of insurance commissioners.

2. "Medium grade obligation" means any bond, note or evidence of indebtedness that is rated as class 3 by the securities valuation office of the national association of insurance commissioners.

§ 20-541 Improvement district obligations

An insurer may invest in bonds, notes or evidences of indebtedness issued by any local improvement district in this or any other state to finance local improvements authorized by law, if the principal and interest of such obligations is payable from assessments on real property within such local improvement district. No such investment shall be made unless the face value of all such obligations, and similar obligations outstanding do not exceed fifty per cent of the market value of the real property and improvements upon which the bonds or the assessments for the payment of principal and interest thereon are liens inferior only to the liens for general ad valorem property taxes. No such investment shall be made unless no default in payment of principal or interest on the obligations to be purchased has occurred within five years of the date of investment therein, or if such obligations were issued less than five years prior to the date of investment, no default in payment of principal or interest has occurred on the obligations to be purchased or on any other obligation of the issuer within five years of such investment.

§ 20-543 Acceptances and bills of exchange

An insurer may invest in bank and bankers' acceptances and other bills of exchange of the kind and maturity made eligible pursuant to law for purchase in the open market by federal reserve banks.

§ 20-544 Corporate obligations

An insurer may invest in bonds, debentures, notes, commercial paper and other evidences of indebtedness issued, assumed or guaranteed by any solvent institution created or existing under the laws of the United States or of any state, district or territory of the United States, which are not in default as to principal or interest and which have received an investment grade rating approved by the director. The director shall by order after a hearing prescribe the investment grade rating and the recognized rating agencies for the purposes of this section. Private placement obligations which have not received an investment grade rating may be eligible for investment if the issuer has comparable outstanding obligations which have received an investment grade rating approved by the director. The director shall prescribe standards by order after a hearing by which obligations of issuers which have not received an investment grade rating may be eligible for investment.

§ 20-545 Preferred, guaranteed or preference stock

An insurer may invest in preferred, guaranteed or preference stocks or shares of any solvent institution created or existing under the laws of the United States or of any state, district or territory of the United States if those preferred, preference or guaranteed stocks or shares have received an investment grade rating as approved by the director. The director shall by order after a hearing prescribe the investment grade ratings and the recognized rating agencies for the purposes of this section. Preferred, guaranteed or preference stocks which have not received an investment grade rating may be eligible for investment if the issuer has issued comparable preferred, guaranteed or preference stocks which have received an investment grade rating approved by the director. The director shall prescribe standards by order after a hearing by which preferred, guaranteed or preference stocks which have not received an investment grade rating may be eligible for investment.

§ 20-546 Common stocks

An insurer may invest in nonassessable, except for taxes or wages, common stocks or shares of any solvent institution, created or existing under the laws of the United States or of any state, district or territory of the United States.

§ 20-547 Equipment trust certificates

An insurer may invest in equipment trust obligations or certificates which in the opinion of the director are adequately secured, or other instruments so secured and evidencing an interest in transportation equipment, wholly or in part within the United States, which carry the right to receive determined portions of rental, purchase or other fixed obligatory payments to be made for the use or purchase of the transportation equipment.

§ 20-548 Obligations of receivers or trustees

An insurer may invest in certificates, notes or other obligations issued by trustees or receivers of any institution created or existing under the laws of the United States or of any state, district or territory thereof, which, or the assets of which, are being administered under the direction of any court having jurisdiction, if such obligation in the opinion of the director is adequately secured as to principal and interest.

§ 20-549 Investments not otherwise authorized; limitations; appraisal; cost

A. An insurer may make loans or investments not otherwise qualifying or permitted under this article in an amount not exceeding in the aggregate ten per cent of the insurer's assets, and not exceeding two per cent of such assets as to any one such loan, investment or category of investment, except that such loan or investment shall not be represented by any item described in section 20-503.

B. The insurer shall fulfill the requirements of section 20-534 and shall maintain sufficient information so that the director can reasonably ascertain the market value of the loan or investment. The director may employ appraisers or other experts to assist in determining the value of the loans or investments. The insurer shall pay the cost incurred for any appraisal.

§ 20-550 Policy loans

A life insurer may lend to its policyholder upon pledge of the policy as collateral security a sum not exceeding the applicable cash surrender value specified in the policy.

§ 20-551 Investments or deposits in financial institutions

A. An insurer may invest or deposit any of its funds in share, checking or savings accounts, in certificates of deposit or in any other deposit or account in solvent banks or in foreign branches of such banks, credit unions or savings and loan associations which are insured by an agency of the federal government. Branches of foreign banks located in the United States are deemed banks for the purposes of this subsection as long as they are in compliance with applicable state and federal banking laws and regulations.

B. An insurer may invest in obligations issued, assumed or guaranteed by those multinational development banks in which the United States is a member nation, including the international bank for reconstruction and development, the African development bank, the Asian development bank and the Inter-American development bank.

C. An insurer may invest or deposit its funds in any deposit, account or obligation of a foreign bank that has been determined by the securities valuation office of the national association of insurance commissioners to meet the credit standards for issuing letters of credit in support of the liability of a reinsurer to a ceding insurer or has demonstrated to the director that it meets or exceeds both the following standards:

1. Is domiciled in a country with a sovereign debt rating of "Aaa" or "AAA" for its long-term debt or P1 or A1 for its short-term debt by Moody's investors service or Standard and Poor or an equivalent rating by any other nationally recognized statistical rating organization.

2. Either of the following:

(a) For investment issues with maturities in excess of three hundred sixty-five days, has a long-term debt service rating of "Aa" by Moody's investor service or "AA" by Standard and Poor or an equivalent rating by any other nationally recognized statistical rating organization.

(b) For investment issues with maturities of three hundred sixty-five days or less, has a short-term debt service rating of P1 or A1 by Moody's investors service or Standard and Poor or an equivalent rating by any other nationally recognized statistical rating organization.

D. An insurer may invest or deposit its funds in any deposit, account or obligation of a solvent foreign bank that does not meet the requirements of subsection C of this section, if the amount of the investments or deposits do not exceed one hundred five per cent of the insurer's obligations to policyholders in the foreign country as denominated in the currency of the foreign country and the investments or deposits in the aggregate do not exceed ten per cent of the insurer's surplus as regards policyholders.

E. An investment or deposit made pursuant to subsections C and D of this section shall also be applied to the limitation of the amount of an insurer's assets that may be invested pursuant to section 20-552.

§ 20-552 Foreign securities

A. An insurer may make investments in securities of or in a foreign country possessing characteristics and of a quality similar to those required pursuant to this article for investments in the United States.

B. After giving effect to an investment in securities of or in a foreign country, the aggregate amount of such investments then held by an insurer under this section in a single foreign jurisdiction shall not exceed ten per cent of the insurer's admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or three per cent of the insurer's admitted assets as to any other foreign jurisdiction. For the purposes of this subsection, "SVO" means the securities valuation office of the national association of insurance commissioners or any successor office established by the national association of insurance commissioners.

C. For the purposes of the quantitative limitations set forth in this article, investment in securities of or in a foreign country under this section shall not include a Canadian investment under section 20-552.01.

§ 20-552.01 Canadian investments; definition

A. An insurer may make investments in securities of or in Canada possessing characteristics and of a quality similar to those required pursuant to this article for investments in the United States.

B. Subject to subsections C, D and E of this section, an insurer shall not acquire, directly or indirectly through an investment subsidiary, a Canadian investment otherwise permitted under this article, if after giving effect to the investment, the aggregate amount of Canadian investments then held by the insurer would exceed twenty-five per cent of its admitted assets.

C. As to an insurer that is authorized to do business in Canada or that has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in Canada and denominated in Canadian currency, the limitations of subsection B of this section shall be increased by the greater of:

1. The amount the insurer is required by applicable Canadian law to invest in Canada or to be denominated in Canadian currency.

2. One hundred fifteen per cent of the amount of the insurer's reserves and other obligations under contracts on lives or risks resident or located in Canada.

D. An insurer shall not acquire an investment in Canadian common stock, or shares of any solvent institution created or existing under the laws of Canada, any province of Canada, or any political subdivision of Canada or a province of Canada if, after giving effect to the investment, the aggregate amount of the investments then held by the insurer would exceed twenty per cent of its admitted assets.

E. An insurer shall not acquire an investment in bonds, notes or other evidences of indebtedness that are secured by second mortgages or deeds of trust on improved real property located in Canada if, after giving effect to the investment, the aggregate amount of such investments then held by the insurer would exceed twenty per cent of its admitted assets.

F. For the purposes of this section, unless the context otherwise requires, "investment subsidiary" means a subsidiary of an insurer engaged or organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer if each subsidiary agrees to limit its investment in any asset so that its investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitations or avoid any other provisions of this article applicable to the insurer. For the purposes of this subsection, "total investment of the insurer" includes:

1. Direct investment by the insurer in an asset.

2. The insurer's proportionate share of an investment in an asset by an investment subsidiary of the insurer, which shall be calculated by multiplying the amount of the subsidiary's investment by the percentage of the insurer's ownership interest in the subsidiary.

§ 20-553 Mortgages on real estate; definitions

A. An insurer may invest any of its funds in bonds, notes or other evidences of indebtedness that are secured by first mortgages or deeds of trust on improved, unencumbered real property located in the United States, or that are secured by first mortgages or deeds of trust on leasehold estates having an unexpired term of not less than twenty-one years, inclusive of the term that may be provided by an enforceable option of renewal, in improved, unencumbered real property located in the United States.

B. Real property shall not be deemed to be encumbered within the meaning of this section by reason of the existence of instruments reserving mineral, oil or timber rights, rights-of-way, sewer rights, rights in walls, nor by reason of any liens for taxes or assessments not delinquent, nor by reason of building restrictions or other restrictive covenants, nor when such real property is subject to lease under which rents or profits are reserved to the owner, if in any event the security for the loan is a first lien on the real property and if there is no condition or right of reentry or forfeiture under which, in the case of real property other than leaseholds, the lien can be cut off, subordinated or otherwise disturbed, or under which, in the case of leaseholds, the insurer is unable to continue the lease in force for the duration of the loan.

C. No mortgage loan or loans made or acquired by an insurer on any one property shall, at the time of investment by the insurer, exceed eighty per cent of the value of the real property or leasehold securing the loan, except that the loan or loans may equal the amount of any guaranty by the United States or any agency or instrumentality of the United States.

D. An insurer shall not make or acquire a mortgage loan or loans except after an appraisal made by a qualified appraiser for the purpose of the investment.

E. An insurer may invest any of its funds in an undivided interest or participation in any bond, note or other evidence of indebtedness secured by a first mortgage or deed of trust that would be eligible as an investment by the insurer pursuant to subsection A if the following requirements are met:

1. The mortgagee or beneficiary of the deed of trust is a trustee specifically designated by a participation agreement or otherwise who is required to act as trustee for all persons or institutions owning an interest in or participating in the bonds, notes or other evidences of indebtedness that are secured by the mortgage or deed of trust. The trustee may be one of the participants in the bonds, notes or other evidences of indebtedness secured by the mortgage or deed of trust.

2. The participant in or co-owner of any of the bonds, notes or other evidences of indebtedness does not have any interest in the mortgage or deed of trust superior to that of the insurer.

3. The trustee is under an obligation to distribute all payments, proceeds and recoveries from the notes, bonds, evidences of indebtedness, mortgages and deeds of trust ratably without preference among all participants.

F. No mortgage loan on a leasehold shall be made or acquired pursuant to this section unless the terms of the loan provide for amortization payments to be made by the borrower on the principal of the loan at least once in each year in amounts sufficient completely to amortize the loan within a period of four-fifths of the term of the leasehold, inclusive of the term which may be provided by an enforceable option of renewal, that is unexpired at the time the loan is made, but in no event exceeding thirty-five years.

G. An insurer may invest in construction loans pursuant to this section and the accounting practices and procedures manual adopted by the national association of insurance commissioners, if the real property is improved or will be improved with the proceeds of the construction loan. The insurer shall not report the construction loan in an amount that is more than eighty per cent of the fair value of the property. The appraisal prescribed in subsection D may take into consideration the improvements to be constructed. However, the appraisal shall take into consideration the percentage of completion of the property in determining the fair value of the property securing the amount advanced under the construction loan.

H. At any one time, an insurer shall not invest more than two per cent of its assets in construction loans allowed pursuant to this article.

I. For the purposes of this section:

1. "Construction loan" means a mortgage loan that is less than three years in term, that is made for financing the cost of construction of any building or other improvement to real estate and that is secured by the real estate.

2. "Improved real property" includes all land that has been reclaimed and that is used for the purpose of husbandry, whether for tillage or pasture.

§ 20-554 Purchase money mortgages

An insurer may invest in purchase money mortgages or like securities, received by it upon the sale or exchange of real property theretofore owned by it.

§ 20-555 Security agreements; definition

A. In connection with a mortgage loan on the security of real property designed and used primarily for residential purposes only, which mortgage loan was acquired pursuant to section 20-553, an insurer may lend or invest an amount not exceeding twenty per cent of the amount loaned on or invested in such real property mortgage in a security agreement for a term of not more than five years, representing a first and prior lien, except for taxes not then delinquent, on personal property constituting durable equipment owned by the mortgagor and kept and used in the mortgaged premises.

B. For the purposes of this section, the term "durable equipment" shall include only mechanical refrigerators, air conditioning equipment, mechanical laundering machines, heating and cooking stoves and ranges, and in addition, in the case of apartment houses and hotels, room furniture and furnishings.

C. Prior to the acquisition of a security interest under this section, items of property to be included therein shall be separately appraised by a qualified appraiser and the fair market value thereof determined. No such security interest may exceed in amount the same ratio of loan to the value of the property as is applicable to the companion loan on the real property.

§ 20-556 Real property

An insurer, including for the purposes of this section a reciprocal insurer, may invest in real property only if acquired or used for the following purposes and in the following manner:

1. The land and the building thereon in which it has its principal office, and such other real property as shall be requisite for its convenient accommodation in the transaction of its business, but no such investments shall aggregate more than an amount equal to the excess of the insurer's assets over its required policy reserves plus fifty per cent of the surplus to policyholders required under this title for initial authorization for the kinds of insurance it is transacting at the time the investment is made.

2. Such real property as has been acquired in satisfaction of loans, mortgages, liens, judgments, decrees or debts previously owing to the insurer in the course of its business.

3. Such real property as has been acquired in part payment of the consideration on the sale of real property owned by it, if each transaction effected a net reduction in the insurer's investment in real property.

4. Such real property, or any interest therein, as may be acquired as an investment for the production of income, or as may be acquired to be improved or developed for such investment purpose, pursuant to an existing program therefor. An insurer shall not, except with the director's consent, have at any one time over twenty per cent of its assets invested in all its investments pursuant to this paragraph, nor more than five per cent of its assets so invested in any single parcel or related parcels of real property.

5. The seller's interest in real property subject to an agreement of purchase or sale, but the sum invested in any such parcel of real property shall not exceed two-thirds of the market value of the parcel.

6. Additional real property and equipment incident to real property, if necessary or convenient for the purpose of enhancing the sale or other value of real property previously acquired or held by it, pursuant to the provisions of paragraph 2, 3 or 4 of this section. An insurer shall not, except with the director's consent, have at any time invested in excess of ten per cent of its assets in the investments authorized by this paragraph.

§ 20-557 Second mortgages

A. An insurer may invest in bonds, notes or other evidences of indebtedness that are secured by second mortgages or deeds of trust on improved real property located in the United States. An insurer shall not make or acquire either:

1. A loan or investment if the total of the outstanding indebtedness of the first and second mortgages or deeds of trust exceeds eighty per cent of the value of the real property.

2. A loan secured by a second lien if the borrower, without the approval of the insurer, is entitled to increase the principal amount of the indebtedness secured by the prior first mortgage except to the extent the amount of the increase is applied in reduction of the investment held by the insurer.

B. An insurer may invest in construction loans pursuant to this section if the real property is improved or will be improved with the proceeds of the construction loan and if the insurer's total investment in construction loans is not more than the amount prescribed in section 20-553, subsection H.

§ 20-558 Investment company or trust; mutual funds

An insurer may invest in the securities of any open end management type investment company, investment trust or mutual fund registered with the United States securities and exchange commission or in a common trust fund of a bank regulated by a federal or state agency within the limitations prescribed by this article if the investments held by the investment company or common trust fund, if added to the assets of the insurer on a basis that is in the same proportion that the shares of the investment company or investments in a common trust fund held by the insurer bear to all of the shares of the investment company or investments in a common trust fund outstanding, would not cause the insurer to exceed the limitations contained in this article.

§ 20-559 Investments of foreign and alien insurers

A. Foreign and alien insurers transacting insurance in this state shall have assets of the same general character and quality, and have invested in home office real property as permitted under paragraph 1 of section 20-556, all as specified in this article for domestic insurers, except that other investments authorized by the law of such an insurer's state or country of domicile may be recognized as assets in the discretion of the director.

B. A foreign insurer domiciled in a state that requires insurers domiciled in this state to invest in the securities of such state a stipulated percentage or amount of its reserves under its policies in force in such state, shall likewise be required to invest in similar securities of this state a like percentage or amount of its reserves under its policies in force in this state, and shall from time to time furnish proof of such investments as required by the director.

§ 20-560 Derivative transactions; definitions

A. An insurer, directly or indirectly through an investment subsidiary, may use derivative instruments to engage in hedging transactions, income generation transactions and replication transactions pursuant to this section.

B. An insurer may enter into hedging transactions if, after giving effect to such transactions, all of the following apply:

1. The aggregate statement value of options, caps, floors and warrants not attached to another financial instrument purchased and used in hedging transactions does not exceed seven and one-half per cent of its admitted assets.

2. The aggregate statement value of options, caps and floors written in hedging transactions does not exceed three per cent of its admitted assets.

3. The aggregate potential exposure of collars, swaps, forwards and futures used in hedging transactions does not exceed six and one-half per cent of its admitted assets.

C. An insurer may enter into the following types of income generation transactions if after giving effect to the transactions the aggregate statement value of the fixed income assets that are subject to call or that generate the cash flows for payments under the caps or floors, plus the face value of fixed income securities underlying a derivative instrument subject to call, plus the amount of the purchase obligations under the puts, does not exceed ten per cent of its admitted assets:

1. Sales of covered call options on noncallable fixed income securities, callable fixed income securities if the option expires by its terms before the end of the noncallable period or derivative instruments based on fixed income securities.

2. Sales of covered call options on equity securities, if the insurer holds in its portfolio or can immediately acquire through the exercise of options, warrants or conversion rights already owned, the equity securities subject to call during the complete term of the call option sold.

3. Sales of covered puts on investments that the insurer is permitted to acquire under this article, if the insurer has escrowed or entered into a custodian agreement segregating, cash or cash equivalents with a market value equal to the amount of its purchase obligations under the put during the complete term of the put option sold.

4. Sales of covered caps or floors, if the insurer holds in its portfolio the investments generating the cash flow to make the required payments under the caps or floors during the complete term that the cap or floor is outstanding.

D. An insurer may enter into replication transactions with the prior written approval of the director if both of the following apply:

1. The insurer would otherwise be authorized to invest its funds under this article in the asset being replicated.

2. The asset being replicated is subject to all the provisions of this article relating to the making of investments by the insurer in that type of asset as if the transaction constituted a direct investment by the insurer in the replicated asset.

E. The director may approve of additional transactions involving the use of derivative instruments in excess of the limits of subsection B of this section or for other risk management purposes, except that replication transactions shall be permitted only for risk management purposes.

F. Each derivative instrument shall be one of the following:

1. Traded on a qualified exchange.

2. Entered into with or guaranteed by a business entity.

3. Issued or written with the issuer of the underlying interest on which the derivative instrument is based.

4. Entered into with a qualified foreign exchange.

G. For the purposes of this section, unless the context otherwise requires:

1. "Business entity" includes a sole proprietorship, corporation, limited liability company, association, partnership, joint stock company, joint venture, mutual fund, trust, joint tenancy or other similar form of business organization, whether organized for-profit or not-for-profit.

2. "Cap" means an agreement obligating the seller to make payments to the buyer, with each payment based on the amount by which a reference price or level or the performance or value of one or more underlying interests exceeds a predetermined number, sometimes called the strike rate or strike price.

3. "Collar" means an agreement to receive payments as the buyer of an option, cap or floor and to make payments as the seller of a different option, cap or floor.

4. "Derivative instrument":

(a) Means an agreement, option or instrument or a series or combination that either:

(i) Requires a party to make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof.

(ii) Has a price, performance, value or cash flow based primarily on the actual or expected price, level, performance, value or cash flow of one or more underlying interests.

(b) Includes options, warrants used in a hedging transaction and not attached to another financial instrument, caps, floors, collars, swaps, forwards, futures and any other agreements, options or instruments substantially similar thereto or any series or combination thereof and any agreements, options or instruments permitted under rules adopted to carry out the provisions of this article.

(c) Does not include an investment authorized by sections 20-537 through 20-548, 20-550 through 20-558, 20-561 and 20-562.

5. "Derivative transaction" means a transaction involving the use of one or more derivative instruments.

6. "Floor" means an agreement obligating the seller to make payments to the buyer in which each payment is based on the amount by which a predetermined number exceeds a reference price, level, performance or value of one or more underlying interests.

7. "Forward" means an agreement, other than a future, to make or take delivery of, or effect a cash settlement based on the actual or expected price, level, performance or value of, one or more underlying interests.

8. "Future" means an agreement, traded on a qualified exchange or qualified foreign exchange, to make or take delivery of, or effect a cash settlement based on the actual or expected price, level, performance or value of, one or more underlying interests.

9. "Hedging transaction" means a derivative transaction that is entered into and maintained to reduce either:

(a) The risk of a change in the value, yield, price, cash flow or quantity of assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring.

(b) The currency exchange rate risk or the degree of exposure as to assets or liabilities that an insurer has acquired or incurred or anticipates acquiring or incurring.

10. "Income generation transaction" means a derivative transaction involving the writing of covered call options, covered put options, covered caps or covered floors that is intended to generate income or enhance return.

11. "Option" means an agreement giving the buyer the right to buy or receive, referred to as a "call option", to sell or deliver, referred to as a "put option", to enter into, extend or terminate, or to effect a cash settlement based on the actual or expected price, spread, level, performance or value of one or more underlying interests.

12. "Qualified exchange" means:

(a) A securities exchange registered as a national securities exchange, or a securities market regulated under the securities exchange act of 1934, as amended.

(b) A board of trade or commodities exchange designated as a contract market by the commodity futures trading commission or any successor thereof.

(c) Private offerings, resales and trading through automated linkages.

(d) A designated offshore securities market as defined in securities exchange commission regulations, 17 Code of Federal Regulations part 230, as amended.

(e) A qualified foreign exchange.

13. "Qualified foreign exchange" means a foreign exchange, board of trade or contract market located outside the United States or its territories or possessions if one of the following applies:

(a) The exchange, board of trade or contract market has received regulatory comparability relief under commodity futures trading commission rule 30.10, as set forth in appendix C to 17 Code of Federal Regulations part 30.

(b) The exchange, board of trade or contract market is, or its members are, subject to the jurisdiction of a foreign futures authority that has received regulatory comparability relief under commodity futures trading commission rule 30.10, as set forth in appendix C to 17 Code of Federal Regulations, part 30, as to futures transactions in the jurisdiction where the exchange, board of trade or contract market is located.

(c) Foreign stock index futures contracts are listed on the exchange, board of trade or contract market and the contracts are the subject of no-action relief issued by the commodity futures trading commission office of general counsel if the exchange, board of trade or contract market that qualifies as a qualified foreign exchange under this subdivision is a qualified foreign exchange only as to foreign stock index futures contracts that are the subject of no-action relief.

14. "Replication transaction":

(a) Means a derivative transaction that is intended to replicate the performance of one or more assets that an insurer is authorized to acquire under this article.

(b) Does not include a derivative transaction that is entered into as a hedging transaction.

15. "Swap" means an agreement to exchange or to net payments at one or more times based on the actual or expected price, level, performance or value of one or more underlying interests.

16. "Underlying interest" means the assets, liabilities, other interests or a combination thereof underlying a derivative instrument, including any securities, currencies, rates, indices, commodities or derivative instruments.

17. "Warrant" means an instrument that gives the holder the right to purchase an underlying financial instrument at a given price and time or at a series of prices and times outlined in the warrant agreement. Warrants may be issued alone or in connection with the sale of other securities, including as part of a merger or recapitalization agreement or to facilitate divestiture of the securities of another business entity.

§ 20-561 Collateral loans

A. An insurer may lend its funds in negotiable promissory notes on the pledge of any investment that qualifies under this article, other than real property. The insurer shall not make a loan that is more than seventy-five per cent of the market value of the collateral pledged. The loan documents shall provide that all of the rights and remedies of a secured party provided by the law governing secured transactions in the jurisdiction of the loan are available to the insurer, except that a borrower shall not have more than twenty days to correct a default after the secured party has given notice of default in writing to the borrower.

B. The amount loaned is an admitted asset to the extent that the amount loaned plus the insurer's investments that are like those pledged are not more than the applicable investment limitation or the limitation on the percentage of assets invested with a single person prescribed by this article.

C. Sections 20-553, 20-554, 20-556 and 20-557 apply to loans that are secured by real estate.

§ 20-562 Insurer investments; partnerships; limited liability companies; limitations

A. An insurer that meets the standards prescribed in subsection B may invest in a partnership or limited liability company interest if the investments held by the partnership or limited liability company, if added to the assets of the insurer in the same proportion as the interests in the partnership or limited liability company held by all other partners or members, would not cause the insurer to exceed the limitations prescribed in this article.

B. To be eligible to make any investment provided in this section, an insurer shall possess surplus as regards policyholders of at least:

1. Seven million dollars if the surplus is at least seven per cent of the insurer's admitted assets.

2. One hundred million dollars if the surplus is at least six per cent of the insurer's admitted assets.

3. Two hundred fifty million dollars if the surplus is at least five per cent of the insurer's admitted assets.

C. Except with the director's consent, the eligible insurer investments pursuant to this section are subject to the following limitations:

1. An insurer's investment in a partnership or limited liability company shall not exceed two per cent of the insurer's admitted assets.

2. An insurer's total investments in partnerships and limited liability companies shall not exceed ten per cent of the insurer's admitted assets.

Article 3 Administration of Deposits

§ 20-581 Deposits of insurers

The state treasurer shall accept and hold in trust, when made through the director, deposits of securities or funds by insurers as follows:

1. Deposits required for authority to transact insurance in this state.

2. Deposits of domestic, foreign or alien insurers when made pursuant to the laws of other states, provinces and countries as prerequisite for authority to transact insurance in such state, province or country.

3. Deposits in such additional amounts as are permitted to be made by section 20-587.

§ 20-582 Purpose of deposits

Deposits made under the provisions of section 20-581, shall be held for purposes as follows:

1. When the deposit is required for authority to transact insurance in this state the deposit shall be held for the protection of all the insurer's policyholders within the United States.

2. When the deposit is required pursuant to the laws of another state, province or country, the deposit shall be held for such purposes as are required by such laws, and as specified by the director at the time the deposit is made.

3. When the deposit is required pursuant to the retaliatory provision set forth in section 20-230, the deposit shall be held for purposes as specified in the director's order requiring the deposit.

§ 20-583 Assets eligible for deposit

A. All deposits required for authority to transact insurance in this state shall consist of cash or any combination of the securities described in the following sections: section 20-537, section 20-538 and section 20-551, subsection A. The deposits by domestic stock life and disability insurers only or either of assets described in section 20-538 shall be limited to bonds and other evidences of indebtedness of this state or any of the counties or incorporated cities, towns or duly organized school districts within this state, and the deposits of assets described in section 20-551, subsection A shall be limited to banks or trust companies, credit unions and savings and loan associations which are domiciled in this state, but such limitations shall not apply to that part of those deposits which are in excess of the minimum amount necessary to transact insurance in this state.

B. All such deposits required pursuant to the laws of another state, province or country, or pursuant to the retaliatory provision set forth in section 20-230, shall consist of such assets as are required or permitted by such laws or as required pursuant to the retaliatory provision.

§ 20-584 Trust companies as depositaries

Upon request of the insurer, the state treasurer may designate any solvent trust company or other solvent financial institution having trust powers domiciled in this state as the treasurer's depositary to receive and hold any such deposit. Any such deposit so held shall be at the expense of the insurer.

§ 20-585 Responsibility of state for safekeeping of deposits

The state shall be responsible for the safekeeping and return of all funds and securities deposited pursuant to this title with the state treasurer or in any depositary so designated by him.

§ 20-586 Rights of insurer during solvency

As long as the insurer remains solvent and complies with this title it may:

1. Demand, receive, sue for and recover the income from the securities or cash deposited.

2. Exchange and substitute for the deposited cash or securities, or any part of the cash or securities, cash or eligible securities of equivalent or greater value.

3. Inspect, at reasonable times, any such deposit made in a form other than book entry.

§ 20-587 Excess deposits

An insurer may so deposit cash or eligible securities in an amount exceeding its deposit required or otherwise permitted under this title by not more than one hundred thousand dollars, for the purpose of absorbing fluctuations in the value of securities held in its deposit, and to facilitate the exchange and substitution of securities deposited. During the solvency of the insurer any such excess deposit or part thereof shall be released to the insurer upon its request. During the insolvency of the insurer the excess deposit shall be released only as provided in section 20-588.

§ 20-588 Release of deposits

A. Any deposit made in this state under this title shall be released and returned:

1. To the insurer upon extinguishment by reinsurance or otherwise of substantially all liability of the insurer for the security of which the deposit is held.

2. To the insurer to the extent such deposit is in excess of the amount required.

3. Upon proper order of a court of competent jurisdiction to the receiver, conservator, rehabilitator or liquidator of the insurer, or to any other properly designated official or officials who succeed to the management and control of the insurer's assets.

B. No release of deposited funds shall be made except upon application to and the written order of the director. The director shall have no personal liability for any such release of any such deposit or part thereof so made by him in good faith.

§ 20-589 Levy upon deposits prohibited; exception

No judgment creditor or other claimant of an insurer shall levy upon any deposit held pursuant to this title, or upon any part thereof, but such levy may be permitted if so specified in the director's order requiring the deposit pursuant to the retaliatory provision set forth in section 20-230.

Article 4 Rehabilitation and Liquidation

§ 20-611 Definitions

In this article, unless the context otherwise requires:

1. "Ancillary state" means any state other than a domiciliary state.

2. "Commodity exchange act" means the federal commodity exchange act (7 United States Code chapter 1).

3. "Court" means, unless the context otherwise requires, the judge of the superior court assigned to the delinquency proceeding.

4. "Delinquency proceeding" means any proceeding commenced against an insurer pursuant to this article for the purpose of liquidating, rehabilitating, reorganizing or conserving such insurer.

5. "Domiciliary state" means the state in which an insurer is incorporated or organized, or in the case of an insurer incorporated or organized in a foreign country, the state in which such insurer, having become authorized to do business in such state, has, at the commencement of delinquency proceedings, the largest amount of its assets held in trust and assets held on deposit for the benefit of its policyholders or policyholders and creditors in the United States, and any such insurer is deemed to be domiciled in such state.

6. "Federal home loan bank" means an institution that is established under the federal home loan bank act (12 United States Code sections 1421 through 1449) or its successor statute.

7. "Foreign country" means territory not in any state.

8. "General assets" means all property, real, personal or otherwise, not specifically mortgaged, pledged, deposited or otherwise encumbered for the security or benefit of specified persons or a limited class or classes of persons, and as to such specifically encumbered property the term includes all such property or its proceeds in excess of the amount necessary to discharge the amount or amounts secured thereby. Assets held in trust and assets held on deposit for the security or benefit of all policyholders or all policyholders and creditors in the United States shall be deemed general assets.

9. "Impairment" or "insolvency" means that the capital of a stock insurer or limited capital stock insurer, or the surplus of a mutual or reciprocal insurer, is deemed impaired and the insurer is deemed insolvent, when the insurer is not possessed of assets at least equal to all liabilities and required reserves together with its total issued and outstanding capital stock if a stock insurer, or the minimum surplus if a mutual or reciprocal insurer, required by this title to be maintained for the kind or kinds of insurance it is then authorized to transact.

10. "Insurer" means any person, firm, corporation, association or aggregation of persons doing an insurance business and subject to the insurance supervisory authority of, or to liquidation, rehabilitation, reorganization or conservation by the director or the equivalent insurance supervisory official of another state.

11. "Insurer member" means an insurer that is a member of a federal home loan bank.

12. "Netting agreement" means:

(a) A contract or an agreement including a master agreement that documents one or more transactions between the parties to the agreement for or involving one or more qualified financial contracts and that provides for the netting, liquidation, setoff, termination, acceleration or close out under or in connection with one or more qualified financial contracts or present or future payment or delivery obligations or payment or delivery entitlements thereunder, including liquidation or close-out values relating to the obligations or entitlements, among the parties to the netting agreement. A master agreement, together with all schedules, confirmations, definitions and addenda thereto and transactions under any thereof, shall be treated as one netting agreement.

(b) Any master agreement or bridge agreement for one or more master agreements described in subdivision (a) of this paragraph.

(c) Any security agreement or arrangement or other credit enhancement or guarantee or reimbursement obligation related to any contract or agreement described in subdivision (a) or (b) of this paragraph. Any contract or agreement described in subdivision (a) or (b) of this paragraph relating to agreements or transactions that are not qualified financial contracts are deemed to be a netting agreement only with respect to those agreements or transactions that are qualified financial contracts.

13. "Preferred claim" means any claim with respect to which the law of the state or of the United States accords priority of payments from the general assets of the insurer.

14. "Qualified financial contract" means any commodity contract, forward contract, repurchase agreement, securities contract and swap agreement and any similar agreement that the director determines by rule or order to be a qualified financial contract for the purposes of this article. For the purposes of this paragraph:

(a) "Commodity contract" means:

(i) A contract for the purchase or sale of a commodity for future delivery on, or subject to the rules of, a board of trade or contract market under the commodity exchange act or a board of trade outside the United States.

(ii) An agreement that is subject to regulation under section 19 of the commodity exchange act and that is commonly known to the commodities trade as a margin account, margin contract, leverage account or leverage contract.

(iii) An agreement or transaction that is subject to regulation under section 6c(b) of the commodity exchange act and that is commonly known to the commodities trade as a commodity option.

(iv) Any combination of the agreements or transactions referred to in this paragraph.

(v) Any option to enter into an agreement or transaction referred to in this paragraph.

(b) "Forward contract", "repurchase agreement", "securities contract" and "swap agreement" have the same meanings prescribed in the federal deposit insurance act, 12 United States Code section 1821(e)(8)(D), as amended.

15. "Receiver" means the director as receiver, liquidator, rehabilitator or conservator as the context may require.

16. "Reciprocal state" means any state other than this state in which in substance and effect the provisions of the uniform insurers liquidation act, as defined in section 20-631, are in force, including the provisions requiring that the director of insurance or equivalent insurance supervisory official be the receiver of a delinquent insurer.

17. "Secured claim" means any claim secured by mortgage, trust deed, pledge, deposit as security, escrow or otherwise, including federal, state or local tax liens that are perfected before the commencement of a delinquency proceeding but not including a special deposit claim or claims against general assets. The term also includes claims that more than four months before the commencement of delinquency proceedings in the state of the insurer's domicile have become liens on specific assets by reason of judicial process.

18. "Special deposit claim" means any claim secured by a deposit made pursuant to statute for the security or benefit of a limited class or classes of persons, but not including any general assets.

19. "State" means any state of the United States, the District of Columbia and the territories and possessions of the United States.

§ 20-612 Delinquency proceedings; jurisdiction; venue; nature of remedy; appeal

A. The superior court is vested with exclusive original jurisdiction of delinquency proceedings under this article and is authorized to make all necessary and proper orders to carry out the purposes of this article.

B. The venue of delinquency proceedings against a domestic, foreign or alien insurer shall be in Maricopa county.

C. Delinquency proceedings pursuant to this article constitute the sole and exclusive method of liquidating, rehabilitating, reorganizing or conserving an insurer, and a court shall not entertain a petition for the commencement of such proceedings unless it has been filed in the name of the state on the relation of the director of the department of insurance and financial institutions.

D. An appeal shall lie to the supreme court from an order granting or refusing rehabilitation, liquidation or conservation and from every other order in delinquency proceedings having the character of a final order as to the particular portion of the proceedings embraced therein.

§ 20-613 Commencement of delinquency proceedings

A. The director shall commence any delinquency proceeding, the attorney general representing the director, by an application to the court for an order directing the insurer to show cause why the director should not have the relief prayed for. On the return of the order to show cause and after a full hearing, the court shall either deny the application or grant the application, together with such other relief as the nature of the case and the interests of policyholders, creditors, stockholders, members, subscribers or the public requires.

B. The director may file with the superior court a certificate stating that the delinquency proceeding is of special public importance. On receipt of the certificate the presiding judge of the superior court immediately shall designate a judge to hear and determine the proceeding. The designated judge shall assign the proceeding for hearing at the earliest practicable date and cause the proceeding to be expedited in every way, including applications for temporary restraining orders, preliminary injunctions and orders appointing receivers. An expedited hearing under this subsection is in addition to the requirements of section 20-172, subsection A.

C. Pending proceedings commenced under section 20-169, the director is not precluded from commencing a delinquency proceeding under this article. The pendency of proceedings under section 20-169 is not a ground for denying an application for an order under this article.

§ 20-614 Injunctions

A. On application by the director for an order to show cause, or at any time thereafter, the court may without notice issue an injunction restraining the insurer, its officers, directors, stockholders, members, subscribers and agents and all other persons from the transaction of its business or the waste or disposition of its property until further order of the court.

B. The court may at any time during a proceeding under this article issue other injunctions or orders as is deemed necessary to prevent any of the following:

1. Interference with the receiver or the proceeding.

2. The waste of the assets of the insurer.

3. The commencement or prosecution of any actions.

4. The obtaining of preferences, judgments, attachments or other liens.

5. The making of any levy against the insurer or against its assets or any part of its assets.

C. An injunction issued pursuant to subsection A or B of this section does not operate to enjoin or prohibit any right to cause the netting, liquidation, setoff, termination, acceleration or close out of obligations or enforcement of any security agreement or arrangement or other credit enhancement or guarantee or reimbursement obligation under or in connection with any netting agreement or qualified financial contract as provided in section 20-637.

D. The court may also prescribe exclusive conditions and procedures for access to information from the receiver including procedures for the inspection or copying of the records of the insurer or receiver. The court may not place conditions on a reinsurer's contract rights to access to claim files other than the payment of reasonable charges for locating and copying the records.

E. Notwithstanding any other law, a bond is not required of the director or receiver as a prerequisite for the issuance of any injunction or restraining order pursuant to this section or for the filing of any appeal or other action for which a bond may be required.

F. Notwithstanding any other provision of this chapter, a federal home loan bank may not be stayed, enjoined or prohibited from exercising or enforcing any right or cause of action against collateral pledged by an insurer member under any federal home loan bank security agreement or any pledge, security, collateral or guarantee agreement or other similar arrangement or credit enhancement relating to a security agreement to which that federal home loan bank is a party.

§ 20-615 Grounds for rehabilitation of domestic insurers

The director may apply to the court for an order appointing the director as receiver of and directing the director to rehabilitate a domestic insurer upon one or more of the following grounds:

1. That the insurer is impaired or insolvent.

2. That the insurer has refused to submit its books, records, accounts or affairs to reasonable examination by the director.

3. That the insurer has failed to comply with an order of the director to make good an impairment of capital or surplus, or both.

4. That the insurer has transferred or attempted to transfer substantially its entire property or business, or has entered into any transaction the effect of which is to merge substantially its entire property or business in that of any other insurer without having first obtained the written approval of the director.

5. That the insurer has wilfully violated its charter or any law of this state.

6. That the insurer has an officer, director or manager who has refused to be examined under oath concerning its affairs, for which purpose the director is authorized to conduct and to enforce by all appropriate and available means any such examination under oath in any other state or territory of the United States, in which any such officer, director or manager may then presently be, to the full extent permitted by the laws of such other state or territory, this special authorization considered.

7. That the insurer has been the subject of an application for the appointment of a receiver, trustee, custodian or sequestrator of the insurer or its property otherwise than pursuant to the provisions of this title, but only if such appointment has been made or is imminent and its effect is or would be to oust the courts of this state of jurisdiction under this section.

8. That the insurer has consented to such an order through a majority of its directors, stockholders, members or subscribers.

9. That the insurer has failed to pay a final judgment rendered against it in this state upon any insurance contract issued or assumed by it, within thirty days after the judgment became final or within thirty days after the time for taking an appeal has expired, or within thirty days after dismissal of an appeal before final termination, whichever date is later.

10. That an authorized control level event or mandatory control level event has occurred with respect to the insurer as prescribed in chapter 2, article 12 of this title.

§ 20-616 Grounds for liquidation

The director may apply to the court for an order appointing him as receiver, if his appointment as receiver is not then in effect, and directing him to liquidate the business of a domestic insurer or of the United States branch of an alien insurer having trusteed assets in this state, regardless of whether or not there has been a prior order directing him to rehabilitate such insurer, upon any of the grounds specified in section 20-615, or if such insurer:

1. Has ceased transacting business for a period of one year.

2. Is an insolvent insurer and has commenced voluntary liquidation or dissolution, or attempts to commence or prosecute any action or proceeding to liquidate its business or affairs, or to dissolve its corporate charter, or to procure the appointment of a receiver, trustee, custodian or sequestrator under any law except this title.

§ 20-617 Grounds for conservation of foreign insurers

The director may apply to the court for an order appointing him as receiver or ancillary receiver, and directing him to conserve the assets within this state, of a foreign insurer upon any of the following grounds:

1. Upon any of the grounds specified in sections 20-615 or 20-616.

2. Upon the ground that its property has been sequestrated in its domiciliary sovereignty or in any other sovereignty.

§ 20-618 Grounds for conservation of alien insurers

The director may apply to the court for an order appointing him as receiver or ancillary receiver, and directing him to conserve the assets within this state, of any alien insurer upon any of the following grounds:

1. Upon any of the grounds specified in sections 20-615 or 20-616.

2. Upon the ground that the insurer has failed to comply, within the time designated by the director, with an order made by him to make good an impairment of its trusteed funds.

3. Upon the ground that the property of the insurer has been sequestrated in its domiciliary sovereignty or elsewhere.

§ 20-619 Grounds for ancillary liquidation of foreign insurers

The director may apply to the court for an order appointing the director as ancillary receiver of and directing the director to liquidate the business of a foreign insurer having assets, business or claims in this state upon the occurrence of either:

1. The appointment in the domiciliary state of the insurer of any receiver, liquidator, conservator, rehabilitator or other officer by whatever name called for the purpose of liquidating the business of the insurer.

2. A mandatory control level event as prescribed by chapter 2, article 12 of this title, if any receiver, liquidator, conservator, rehabilitator or other officer by whatever name called is not appointed in the insurer's domiciliary state.

§ 20-620 Order of rehabilitation; termination

A. An order to rehabilitate a domestic insurer shall direct the receiver to take immediate possession of the property of the insurer, to conduct its business and to take such steps toward removal of the causes and conditions which have made rehabilitation necessary as the court may direct.

B. If at any time the receiver deems that further efforts to rehabilitate the insurer would be useless, he may apply to the court for an order of liquidation.

C. The receiver, or any interested person upon due notice to the receiver, at any time may apply to the court for an order terminating the rehabilitation proceedings and permitting the insurer to resume possession of its property and the conduct of its business, but no such order shall be granted except when, after a full hearing, the court has determined that the purposes of the proceeding have been fully accomplished.

§ 20-621 Order of liquidation of domestic insurers

A. An order to liquidate the business of a domestic insurer shall direct the receiver to take immediate possession of the property of the insurer, to liquidate its business, to deal with the insurer's property and business in the receiver's own name as receiver or in the name of the insurer, as the court may direct, and to give notice to all creditors who have claims against the insurer to present such claims.

B. The receiver may apply for and secure an order dissolving the corporate existence of a domestic insurer upon his application for an order of liquidation of the insurer or at any time after such order has been granted.

§ 20-622 Order of liquidation of alien insurers

An order to liquidate the business of a United States branch of an alien insurer having trusteed assets in this state shall be in the same terms as those prescribed for domestic insurers, except that the assets of the business of such United States branch shall be the only assets included therein.

§ 20-623 Order of conservation or ancillary liquidation of foreign or alien insurers

A. An order to conserve the assets of a foreign or alien insurer shall require the director as ancillary receiver to take immediate possession of the property of the insurer within this state and to conserve it, subject to the further direction of the court.

B. An order to liquidate the assets in this state of a foreign insurer shall require the director as ancillary receiver to take immediate possession of the property of the insurer within this state and to liquidate it subject to the orders of the court and with due regard to the rights and powers of the domiciliary receiver, as provided in this article.

§ 20-623.01 Conduct of all delinquency proceedings

A. In any delinquency proceeding, the receiver may appoint one or more special deputy receivers to act for the receiver and may employ, as the receiver deems necessary, counsel, clerks and assistants. Subject to the approval of the court, the receiver shall fix the compensation of the special deputies, counsel, clerks or assistants and all expenses of taking possession of the insurer and of conducting the proceeding and shall use the funds or assets of the insurer to pay the compensation and expenses. Subject to the limits of duties imposed on a special deputy, in any delinquency proceeding the special deputy possesses all of the powers given to the receiver and, in the exercise of those powers, is subject to all of the duties imposed on the receiver.

B. No person except the receiver may cancel or terminate an insurance policy under which another insurer who is the subject of a delinquency proceeding is included in the policy as an owner or insured, based on the director or receiver instituting the delinquency proceeding or any other action pursuant to this article.

§ 20-624 Conduct of delinquency proceedings against domestic and alien insurers

A. If under this article a receiver is to be appointed in delinquency proceedings for a domestic or alien insurer, the court shall appoint the director as receiver. The court shall order the receiver to take immediate possession of the assets of the insurer and to administer them under the orders of the court.

B. As domiciliary receiver, the director is vested by operation of law with the title to all of the property, contracts and rights of action and all of the books and records of the insurer, wherever located, as of the date of entry of the order directing the director to rehabilitate or liquidate a domestic insurer or to liquidate the United States branch of an alien insurer domiciled in this state, and the director shall have the right to recover the assets and reduce them to possession, except that ancillary receivers in reciprocal states, as to assets located in their respective states, shall have the rights and powers that are prescribed in this article for ancillary receivers appointed in this state as to assets located in this state.

C. The recording of a certified copy of the order directing possession to be taken in the office of the county recorder of the county where the proceedings are pending shall impart the same notice as would be imparted by a deed, a bill of sale or any other evidence of title duly recorded or filed.

D. The director as domiciliary receiver shall be responsible for the proper administration of all assets coming into the director's possession or control. The court may at any time require a bond from the director or the director's deputies if deemed desirable for the protection of the assets.

E. On taking possession of the assets of an insurer, the domiciliary receiver, subject to the direction of the court, shall immediately proceed to conduct the business of the insurer or to take such steps as are authorized by this article for the purpose of rehabilitating, liquidating or conserving the affairs or assets of the insurer.

§ 20-625 Conduct of delinquency proceedings against foreign insurers

A. If under this article an ancillary receiver is to be appointed in delinquency proceedings for an insurer not domiciled in this state, the court shall appoint the director as ancillary receiver. The director shall file a petition requesting the appointment on the grounds set forth in section 20-619 if the director finds that there are sufficient assets of the insurer located in this state to justify the appointment of an ancillary receiver, or if ten or more persons resident in this state having claims against the insurer file a petition with the director requesting the appointment of an ancillary receiver.

B. The domiciliary receiver, for the purpose of liquidating an insurer domiciled in a reciprocal state, shall be vested by operation of law with the title to all of the property, contracts and rights of action and all of the books and records of the insurer located in this state and the domiciliary receiver shall have the immediate right to recover balances due from local agents and to obtain possession of any books and records of the insurer found in this state. The domiciliary receiver shall also be entitled to recover the other assets of the insurer located in this state, except that on the appointment of an ancillary receiver in this state, the ancillary receiver shall during the ancillary receivership proceedings have the sole right to recover such other assets. The ancillary receiver, as soon as practicable, shall liquidate from its respective securities those special deposit claims and secured claims that are proved and allowed in the ancillary proceedings in this state and shall pay the necessary expenses of the proceedings. The ancillary receiver shall promptly transfer all remaining assets to the domiciliary receiver. Subject to the foregoing provisions, the ancillary receiver and the ancillary receiver's deputies shall have the same powers and be subject to the same duties with respect to the administration of such assets as a receiver of an insurer domiciled in this state.

C. The domiciliary receiver of an insurer domiciled in a reciprocal state may sue in this state to recover any assets of the insurer to which the domiciliary receiver may be entitled under the laws of this state.

§ 20-626 Claims of nonresidents against domestic insurers

A. In a delinquency proceeding begun in this state against a domestic insurer, claimants residing in reciprocal states may file claims either with the ancillary receivers, if any, in their respective states, or with the domiciliary receiver. All such claims shall be filed on or before the last date fixed for the filing of claims in the domiciliary delinquency proceedings.

B. Controverted claims belonging to claimants residing in reciprocal states may either be proved in this state, or if ancillary proceedings have been commenced in such reciprocal states, may be proved in those proceedings. In the event a claimant elects to prove his claim in ancillary proceedings, if notice of the claim and opportunity to appear and be heard is afforded the domiciliary receiver of this state as provided in section 20-627 with respect to ancillary proceedings in this state, the final allowance of such claim by the courts in the ancillary state shall be accepted in this state as conclusive as to its amount and shall also be accepted as conclusive as to its priority, if any, against special deposits or other security located within the ancillary state, but shall not be conclusive as to its priority against general assets under section 20-629.

§ 20-627 Claims against foreign insurers

A. In a delinquency proceeding in a reciprocal state against an insurer domiciled in that state, claimants against the insurer who reside within this state may file claims either with the ancillary receiver, if any, appointed in this state, or with the domiciliary receiver. All such claims shall be filed on or before the last date fixed for the filing of claims in the domiciliary delinquency proceedings.

B. Controverted claims belonging to claimants residing in this state may either be proved in the domiciliary state as provided by the law of that state, or if ancillary proceedings have been commenced in this state, be proved in those proceedings. In the event that any such claimant elects to prove his claim in this state, he shall file his claim with the ancillary receiver and shall give notice in writing to the receiver in the domiciliary state, either by registered mail or by personal service at least forty days prior to the date set for hearing. The notice shall contain a concise statement of the amount of the claim, the facts on which the claim is based, and the priorities asserted, if any. If the domiciliary receiver within thirty days after the giving of such notice shall give notice in writing to the ancillary receiver and to the claimant, either by registered mail or by personal service, of his intention to contest such claim, he shall be entitled to appear or to be represented in any proceeding in this state involving adjudication of the claim. The final allowance of the claim by the courts of this state shall be accepted as conclusive as to its amount and shall also be accepted as conclusive as to its priority, if any, against special deposits or other security located within this state.

§ 20-628 Proof of claims; notice; hearing

A. All claims against an insurer against which delinquency proceedings have been begun shall set forth in reasonable detail the amount of the claim, or the basis upon which such amount can be ascertained, the facts upon which the claim is based and the priorities asserted, if any. All such claims shall be verified by the affidavit of the claimant, or someone authorized to act on his behalf and having knowledge of the facts, and shall be supported by such documents as may be material thereto.

B. All claims filed in this state shall be filed with the receiver, whether domiciliary or ancillary, in this state, on or before the last date for filing as specified in this article.

C. Within ninety days after the claims bar date, or within such further period as the court may, for good cause shown, fix, the receiver shall report the claim to the court, specifying in the report his recommendation with respect to the action to be taken thereon. Upon receipt of the report, the court shall fix a time for hearing the claim and shall direct that the claimant or the receiver, as the court specifies, shall give such notice as the court determines to such persons as appear to the court to be interested therein. All such notices shall specify the time and place of the hearing and shall concisely state the amount and nature of the claim, the priorities asserted, if any, and the recommendation of the receiver with reference thereto.

D. At the hearing, all persons interested shall be entitled to appear and the court shall enter an order allowing, allowing in part or disallowing the claim. Any such order shall be deemed to be an appealable order.

§ 20-629 Priority of distribution; definition

A. In a delinquency proceeding against an insurer domiciled in this state, the priority of distribution of claims from the general assets of the insurer shall be determined pursuant to this section. Every claim in each class shall be paid in full or adequate funds shall be reserved for the payment before the members of the next class may receive any payment. Subclasses may not be established within any class. The order of distribution is as follows:

1. The costs and expenses of administration incurred in connection with the delinquency proceedings.

2. Claims of the Arizona property and casualty insurance guaranty fund established pursuant to section 20-662 and the life and disability insurance guaranty fund established pursuant to section 20-683 or a similar organization in another state to the extent the organization provides substantially similar protection with respect to the same kinds of insurance, including claims for unallocated loss adjustment expenses and general administrative costs and expenses.

3. Claims under insurance policies and contracts and guaranteed investment contracts except reinsurance, including claims under nonassessable policies for unearned premiums, claims under annuity contracts, third-party claims against insureds who are covered under liability insurance policies and, in a delinquency proceeding of a health care services organization that is domiciled in this state, claims of enrollees and enrollees' beneficiaries and any claim of a provider for services that are provided pursuant to and covered by a health care plan.

4. Claims of the federal government, except those claims under paragraph 3 of this subsection and claims that are treated as secured claims.

5. Claims for compensation actually owing to employees of the insurer, other than its officers, for services rendered to the insurer. This priority is in lieu of any other similar priority authorized by law as to wages or compensation of employees.

6. Claims of any state or local government, except those claims under paragraph 3 of this subsection and claims that are treated as secured claims.

7. Claims of other general creditors that do not fall within any other priority under this section.

8. Claims that are filed after the date specified for filing proofs of claim pursuant to section 20-640.

9. Claims of surplus note or certificate of contribution holders or other similar obligations and for premium refunds on assessable policies.

10. Claims of shareholders, members or other owners in that capacity.

B. In a delinquency proceeding against an insurer domiciled in this state, the priority of claims against the general assets of the insurer shall be determined pursuant to this section regardless of where the claimant resides or where the assets are located.

C. In a delinquency proceeding against an insurer domiciled in a reciprocal state, claims owing to residents of this state shall be preferred if like claims are preferred by the laws of that state.

D. The owners of special deposit claims against an insurer for which a receiver is appointed in this or any other state shall be given priority against their several special deposits, including without limitation assets comprising the applicable separate account, in accordance with the provisions of the statutes governing the creation and maintenance of such deposits. If there is a deficiency in any such deposit so that the claims secured are not fully discharged, the claimants may share in the general assets, but such sharing shall be deferred until general creditors, all other persons who are entitled to priority under subsection A, paragraph 3 of this section, and also claimants against other special deposits who have received smaller percentages from their respective special deposits have been paid percentages of their claims equal to the percentage paid from the special deposit, subject to the applicable terms of any variable life contract, variable annuity contract or guaranteed investment contract that is supported by a separate account to the extent it is guaranteed by the general account. This subsection shall not be applied in a manner that would reduce the value of any general account guaranty.

E. The owner of a secured claim against an insurer for which a receiver has been appointed in this or any other state may surrender the owner's security and file the owner's claim as a general creditor, or the claim may be discharged by resort to the security, in which case the deficiency, if any, shall be treated as a claim against the general assets of the insurer on the same basis as claims of unsecured creditors. If the amount of the deficiency has been adjudicated in ancillary proceedings as provided in this article or if it has been adjudicated by a court of competent jurisdiction in proceedings in which the domiciliary receiver has had notice and opportunity to be heard, such amounts shall be conclusive. Otherwise the amount shall be determined in the delinquency proceeding in the domiciliary state.

F. For the purposes of this section, "health care plan" has the same meaning prescribed in section 20-1051.

§ 20-630 Attachment and garnishment of assets

A. During the pendency of delinquency proceedings in this or any reciprocal state, an action or proceeding in the nature of an attachment, garnishment or execution may not be commenced or maintained in the courts of this state against the delinquent insurer or its assets. Any lien obtained by any such action or proceeding within four months before the commencement of any such delinquency proceeding or at any time thereafter is void as against any rights arising in the delinquency proceeding.

B. Notwithstanding any other provision of this chapter, a federal home loan bank may not be stayed, enjoined or prohibited from exercising or enforcing any right or cause of action against collateral pledged by an insurer member under any federal home loan bank security agreement or any pledge, security, collateral or guarantee agreement or other similar arrangement or credit enhancement relating to a security agreement to which that federal home loan bank is a party.

§ 20-631 Uniform insurers liquidation act

A. Section 20-611, paragraphs 1, 4, 5, 7, 8, 10, 13, 15, 16, 17, 18 and 19 and sections 20-613, 20-614, 20-624, 20-625, 20-626, 20-627, 20-628, 20-629 and 20-630 are and may be cited as the uniform insurers liquidation act.

B. The uniform insurers liquidation act shall be so interpreted and construed as to effectuate its general purpose to make uniform the law of those states that enact it. To the extent that its provisions when applicable conflict with other provisions of this article the provisions of such act shall control.

§ 20-632 Deposit of monies collected

The monies collected by the receiver in a proceeding under this article shall be from time to time deposited in one or more state or national banks, savings banks or trust companies, and in the case of the insolvency or voluntary or involuntary liquidation of any such depositary which is an institution organized and supervised under the laws of this state, such deposits shall be entitled to priority of payment on an equality with any other priority given by the banking laws of this state. The receiver may deposit such monies or any part thereof in a national bank or trust company as a trust fund.

§ 20-634 Borrowing on pledge of assets

For the purpose of facilitating the rehabilitation, liquidation, conservation or dissolution of an insurer pursuant to this article, the receiver may, subject to the approval of the court, borrow money and execute, acknowledge and deliver notes or other evidences of indebtedness therefor and secure its repayment by the mortgage, pledge, assignment, transfer in trust or hypothecation of any or all of the property, whether real, personal or mixed, of the insurer, and the receiver, subject to the approval of the court, may take any and all other action necessary and proper to consummate the loan and to provide for the repayment thereof. The receiver is under no obligation personally or in the receiver's official capacity to repay any loan made pursuant to this section.

§ 20-635 Rights and liabilities fixed as of date liquidation order filed

The rights and liabilities of the insurer and of its creditors, policyholders, stockholders, members, subscribers and all other persons interested in its estate shall, unless otherwise directed by the court, be fixed as of the date on which the order directing the liquidation of the insurer is filed in the office of the clerk of the court which made the order, subject to the provisions of this article with respect to the rights of claimants holding contingent claims.

§ 20-636 Voidable transfers

A. Any transfer of, or lien on, the property of an insurer that is made or created within four months before the granting of an order to show cause under this article with the intent of giving to any creditor or of enabling such creditor to obtain a greater percentage of the creditor's debt than any other creditor of the same class, and that is accepted by such creditor having reasonable cause to believe that such preference will occur, shall be voidable.

B. Every director, officer, employee, stockholder, member and subscriber and any other person acting on behalf of the insurer who is concerned in any such act or deed and every person receiving thereby any property of the insurer or the benefit thereof shall be personally liable therefor and shall be bound to account to the receiver.

C. The receiver in any proceeding under this article may avoid any transfer of or lien on the property of an insurer that any creditor, stockholder, subscriber or member of the insurer might have avoided and may recover the property so transferred unless the person was a bona fide holder for value before the date of the granting of an order to show cause under this article. Such property or its value may be recovered from anyone who has received it except a bona fide holder for value as specified in this article.

D. Notwithstanding any other provision of this chapter, a receiver, rehabilitator, liquidator or conservator may not void any transfer of, or any obligation to transfer, money or other property arising under or in connection with any federal home loan bank security agreement with an insurer member, or any pledge, security, collateral or guarantee agreement or any other similar arrangement or credit enhancement relating to a federal home loan bank security agreement with an insurer member unless the transfer was made with actual intent to hinder, delay or defraud either existing or future creditors.

§ 20-637 Qualified financial contracts; definition

A. Notwithstanding any other provision of this article, a person shall not be enjoined or prohibited from exercising:

1. A contractual right to cause the termination, liquidation, acceleration or close out of obligations under or in connection with any netting agreement or qualified financial contract with an insurer because of either:

(a) The insolvency, financial condition or default of the insurer at any time if the right is enforceable under applicable law other than this article.

(b) The commencement of a formal delinquency proceeding under this article.

2. Any right under a pledge, security, collateral, reimbursement or guarantee agreement or arrangement or any other similar security agreement or arrangement or other credit enhancement relating to one or more netting agreements or qualified financial contracts.

3. Subject to section 20-638, subsection B, any right to offset or net out any termination value, payment amount or other transfer obligation arising under or in connection with one or more qualified financial contracts where the counterparty or its guarantor is organized under the laws of the United States or a state or a foreign jurisdiction approved by the securities valuation office of the national association of insurance commissioners as eligible for netting.

B. If a counterparty to a master netting agreement or a qualified financial contract with an insurer subject to a proceeding under this article terminates, liquidates, closes out or accelerates the agreement or contract, damages shall be measured as of the date or dates of termination, liquidation, close out or acceleration. The amount of a claim for damages shall be actual direct compensatory damages calculated pursuant to subsection H of this section.

C. On termination of a netting agreement or qualified financial contract, the net or settlement amount owed by a nondefaulting party to an insurer against which a proceeding under this article has been commenced shall be transferred to or on the order of the receiver for the insurer, even if the insurer is the defaulting party, notwithstanding any walkaway clause in the netting agreement or qualified financial contract. Any limited two-way payment or first method provision in a netting agreement or qualified financial contract with an insurer that has defaulted shall be deemed to be a full two-way payment or second method provision as against the defaulting insurer. Any such property or amount shall be a general asset of the insurer, except to the extent it is subject to one or more secondary liens or encumbrances or rights of netting or offset. For the purposes of this subsection, "walkaway clause" means a provision in a netting agreement or a qualified financial contract that, after calculation of a value of a party's position or an amount due to or from one of the parties in accordance with its terms on termination, liquidation or acceleration of the netting agreement or qualified financial contract, either does not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in part solely because of the party's status as a nondefaulting party.

D. In making any transfer of a netting agreement or qualified financial contract of an insurer subject to a proceeding under this article, the receiver shall either:

1. Transfer to one party, other than an insurer subject to a proceeding under this article, all netting agreements and qualified financial contracts between a counterparty or any affiliate of the counterparty and the insurer that is the subject of the proceeding including:

(a) All rights and obligations of each party under each netting agreement and qualified financial contract.

(b) All property, including any guarantees or other credit enhancement, securing any claims of each party under each netting agreement and qualified financial contract.

2. Transfer none of the netting agreements, qualified financial contracts, rights, obligations or property referred to in paragraph 1 of this subsection with respect to the counterparty and any affiliate of the counterparty.

E. If the receiver makes a transfer of one or more netting agreements or qualified financial contracts, the receiver shall use its best efforts to notify any person who is a party to the netting agreements or qualified financial contracts of the transfer by noon in the receiver's local time on the business day following the transfer. For the purposes of this subsection, "business day" means a day other than a Saturday, Sunday or other day on which either the New York stock exchange or the federal reserve bank of New York is closed.

F. Notwithstanding any other provision of this article, the receiver may not avoid a transfer of money or other property arising under or in connection with a netting agreement or qualified financial contract or any pledge, security, collateral or guarantee agreement or any other similar security arrangement or credit support document relating to a netting agreement or qualified financial contract that is made before the commencement of a delinquency proceeding under this article. However, a transfer may be avoided under section 20-636, subsection C if the transfer was made with actual intent to hinder, delay or defraud the insurer, a receiver appointed for the insurer or existing or future creditors.

G. In disaffirming or repudiating any netting agreement or qualified financial contract to which an insurer is a party, the receiver for the insurer shall either:

1. Disaffirm or repudiate all netting agreements and qualified financial contracts between a counterparty or any affiliate of the counterparty and the insurer that is the subject of the proceeding.

2. Disaffirm or repudiate none of the netting agreements and qualified financial contracts referred to in paragraph 1 of this subsection with respect to the person or any affiliate of the person.

H. Notwithstanding any other provision of this article, any claim of a counterparty against the estate arising from the receiver's disaffirmance or repudiation of a netting agreement or qualified financial contract that has not been previously affirmed in the proceeding under this article shall be determined and shall be allowed or disallowed as if the claim had arisen before the date of the commencement of a proceeding under this article. The amount of the claim shall be the actual direct compensatory damages determined as of the date of the disaffirmance or repudiation of the netting agreement or qualified financial contract. For the purposes of this subsection, "actual direct compensatory damages":

1. Does not include punitive or exemplary damages, damages for lost profit or lost opportunity or damages for pain and suffering.

2. Includes normal and reasonable costs of cover or other reasonable measures of damages used in the derivatives, securities or other market for the contract and agreement claims.

I. This section does not apply to persons who are affiliates of the insurer that is the subject of the proceeding.

J. All rights of counterparties under this article apply to netting agreements and qualified financial contracts entered into on behalf of the general account or separate accounts if the assets of each separate account are available only to counterparties to netting agreements and qualified financial contracts entered into on behalf of that separate account.

K. Notwithstanding any other provision of this chapter, a federal home loan bank may not be stayed, enjoined or prohibited from exercising or enforcing any right or cause of action against collateral pledged by an insurer member under any federal home loan bank security agreement or any pledge, security, collateral or guarantee agreement or other similar arrangement or credit enhancement relating to a security agreement to which that federal home loan bank is a party.

L. For the purposes of this section, "contractual right" includes:

1. Any right set forth:

(a) In a rule or bylaw of a derivatives clearing organization as defined in the commodity exchange act, a multilateral clearing organization as defined in the federal deposit insurance corporation improvement act of 1991 (12 United States Code section 4421), a national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the commodity exchange act, a derivatives transaction execution facility registered under the commodity exchange act or a board of trade as defined in the commodity exchange act.

(b) In a resolution of the governing board of any entity described in subdivision (a) of this paragraph.

2. Any right, whether or not evidenced in writing, arising under statutory or common law, or under law merchant or by reason of normal business practice.

§ 20-638 Offsets

A. In all cases of mutual debts or mutual credits between the insurer and another person in connection with any action or proceeding under this article, such credits and debts shall be set off and the balance only shall be allowed or paid, except as provided in subsection B of this section.

B. No offset shall be allowed in favor of any such person where the obligation of the insurer to such person would not at the date of the entry of any liquidation order or otherwise as provided in section 20-635, entitle him to share as a claimant in the assets of the insurer, or the obligation of the insurer to such person was purchased by or transferred to such person with a view of its being used as an offset, or the obligation of such person is to pay an assessment levied against the members of a mutual insurer or against the subscribers of a reciprocal insurer or is to pay a balance upon the subscription to the capital stock of a stock insurer.

§ 20-639 Allowance of certain claims

A. No contingent claim shall share in a distribution of the assets of an insurer which has been adjudicated to be insolvent by an order made pursuant to this article, except that such claim shall be considered, if properly presented, and may be allowed to share where either:

1. Such claim becomes absolute against the insurer on or before the last day for filing proof of claims against the assets of such insurer.

2. There is a surplus and the liquidation is thereafter conducted upon the basis that such insurer is solvent.

B. Where an insurer has been so adjudicated to be insolvent any person who has a cause of action against an insured of such insurer under a liability insurance policy issued by such insurer shall have the right to file a claim in the liquidation proceeding, regardless of the fact that the claim may be contingent, and the claim may be allowed if all of the following requirements are met:

1. If it may be reasonably inferred from the proof presented upon the claim that the person would be able to obtain a judgment upon the cause of action against the insured.

2. If the person furnishes suitable proof, unless the court for good cause shown otherwise directs, that no further valid claim against the insurer arising out of his cause of action other than those already presented can be made.

3. If the total liability of the insurer to all claimants arising out of the same act of its insured shall be no greater than its maximum liability would be were it not in liquidation.

C. No judgment against such an insured taken after the date of entry of the liquidation order shall be considered in the liquidation proceedings as evidence of liability, or of the amount of damages, and no judgment against an insured taken by default or by collusion prior to the entry of the liquidation order shall be considered as conclusive evidence in the liquidation proceedings, either of the liability of the insured to such person upon the cause of action or of the amount of damages to which the person is therein entitled.

D. No claim of any secured claimant shall be allowed at a sum greater than the difference between the value of the claim without security and the value of the security itself as of the date of the entry of the order of liquidation or such other date set by the court for determining rights and liabilities as provided in section 20-635 unless the claimant surrenders the claimant's security to the receiver, in which event the claim shall be allowed in the full amount for which it is valued.

§ 20-640 Time to file claims

A. If, upon the granting of an order of liquidation under this article or at any time thereafter during the liquidation proceeding, the insurer is not clearly solvent, the court shall, after such notice and hearing as it deems proper, make an order declaring the insurer to be insolvent. Thereupon regardless of any prior notice which may have been given to creditors, the receiver shall notify all persons who may have claims against the insurer and who have not filed proper proofs thereof to present them to him, at a place specified in the notice, within four months from the date of entry of the order, or if the receiver certifies that it is necessary, within such longer time as the court shall prescribe. The last day for filing of proofs of claims shall be specified in the notice, and notice shall be given in a manner to be determined by the court.

B. Proofs of claim may be filed subsequent to the date specified, but no such claim shall share in the distribution of the assets until all allowed claims, proofs of which have been filed before such date, have been paid in full with interest according to the priorities established in section 20-629.

§ 20-641 Report for assessment

Within three years from the date an order of rehabilitation or liquidation of a domestic mutual insurer or a domestic reciprocal insurer was filed in the office of the clerk of the court by which the order was made, the receiver may make a report to the court setting forth:

1. The reasonable value of the assets of the insurer.

2. The insurer's probable liabilities.

3. The probable necessary assessment, if any, to pay all claims and expenses in full, including expenses of administration.

§ 20-642 Levy of assessment

A. Upon the basis of the report provided for in section 20-641, including any amendments thereof, the court, ex parte, may levy one or more assessments against all members of the insurer who, as shown by the records of the insurer, were members, if a mutual insurer, or subscribers, if a reciprocal insurer, at any time within one year prior to the date of issuance of the order to show cause under section 20-613.

B. The assessment or assessments shall cover the excess of the probable liabilities over the reasonable value of the assets, together with the estimated cost of collection and percentage of uncollectibility thereof. The total of all assessments against any member or subscriber with respect to any policy, whether levied pursuant to this article or pursuant to any other provision of this title, shall be for no greater amount than that specified in the policy or policies of the member or subscriber and as limited under this title, except that if the court finds that the policy was issued at a rate of premium below the minimum rate lawfully permitted for the risk insured, the court may determine the upper limit of the assessment upon the basis of the minimum rate.

C. No assessment shall be levied against any member or subscriber with respect to any nonassessable policy issued in accordance with this title.

§ 20-643 Order to pay assessment

After levy of an assessment as provided in section 20-642, upon the filing of a further detailed report by the receiver the court shall issue an order directing each member, if a mutual insurer, or each subscriber, if a reciprocal insurer, if the member or subscriber has not paid the amount assessed against the member or subscriber to the receiver on or before a day specified in the order, to show cause why the member or subscriber should not be held liable to pay such assessment, together with costs as provided in section 20-645, and to show cause why the receiver should not have judgment therefor.

§ 20-644 Publication and service of assessment order

The receiver shall cause a notice of the assessment order, setting forth a brief summary of the contents of the order, to be published in such manner as shall be directed by the court, and enclosed in a sealed envelope, addressed and mailed postage prepaid, to each member or subscriber liable thereunder at his last known address as it appears on the records of the insurer, at least twenty days before the return day of the order to show cause provided for in section 20-643.

§ 20-645 Judgment upon assessment

A. Upon the return day of the order to show cause provided for in section 20-643, if the member or subscriber does not appear and serve duly verified objections upon the receiver, the court shall make an order adjudging that the member or subscriber is liable for the amount of the assessment against him, together with costs, and that the receiver may have judgment against the member or subscriber therefor.

B. If, on such return day, the member or subscriber appears and serves duly verified objections upon the receiver, there shall be a full hearing before the court which, after the hearing, shall make such order as the facts warrant.

C. Any such order shall have the same force and effect, shall be entered and docketed and may be appealed from, as if it were a judgment in an original action brought in the court in which the proceeding is pending.

§ 20-646 Cooperation with Arizona property and casualty insurance guaranty fund and life and disability insurance guaranty fund

The provisions of this article shall be construed to permit the orderly and effective payment of claims by the Arizona property and casualty insurance guaranty fund established pursuant to article 6 of this chapter and the life and disability insurance guaranty fund established pursuant to article 7 of this chapter.

§ 20-647 Giving guaranty fund or association immediate access to assets

A. As soon as practicable after a final determination of insolvency of an insurer by a court of competent jurisdiction of this state, the receiver may make application to the court for approval of a proposal to distribute assets out of such company's marshaled assets, from time to time as such assets become available, to the Arizona property and casualty insurance guaranty fund established in section 20-662 and the life and disability insurance guaranty fund established in section 20-683 or a similar organization in another state to the extent the organization provides substantially similar protection with respect to the same kinds of insurance.

B. Such proposal shall at least include provisions for:

1. Reserving amounts for the payment of claims of secured creditors and claims accorded a higher priority pursuant to section 20-629.

2. Distribution of assets marshaled to date and subsequent distribution of assets as such assets become available.

3. Equitable allocation of disbursements to each of the funds.

4. The securing by the receiver from each of the funds entitled to distribution pursuant to this section of an agreement to return to the receiver such assets previously distributed as may be required to pay claims of secured creditors and claims accorded a higher priority pursuant to section 20-629. No bond shall be required of any such fund.

5. A full report to be made by the funds to the receiver accounting for all assets distributed to the fund, all disbursements made, any interest earned by the funds from such assets and any other matter as the court may direct.

C. The receiver's proposal shall provide for distribution to the funds in amounts estimated to at least equal the claim payment made or to be made for which such funds could assert a claim against the receiver, and shall further provide that if the assets available for distribution do not equal or exceed the amount of such claim payments made or to be made by the funds, then distribution shall be in the amount of available assets.

D. Notice of such application shall be given to the funds and to the commissioners and directors of insurance of each of the states. Any such notice shall be deemed to have been given when deposited in the United States mail, first class postage prepaid, at least thirty days prior to submission of such application to the court. Action on the application may be taken by the court if required notice has been given and if the receiver's proposal complies with subsection B, paragraphs 1 and 2 of this section.

§ 20-648 Receivership liquidation fund; purpose; deposit; expenses of receivership; deputy receiver; powers and duties

A. The director shall appoint a deputy receiver to administer the conservation, rehabilitation or liquidation of an insurer pursuant to this article.

B. A receivership liquidation fund is established. The deputy receiver shall file a petition with the court authorizing the deputy receiver to deposit in the fund ten per cent of the insolvent insurer's deposit required under section 20-213.

C. The common administrative costs of the receiverships incurred by the deputy receiver are payable from the receivership liquidation fund. The director shall by order after a hearing describe the nature of administrative costs common to every receivership in the operation of the receivership office that are payable from this fund. Costs may include the compensation of special deputies, clerks or assistants but shall not include attorney fees.

D. The deputy receiver shall prepare and file with the court a quarterly financial report listing expenditures and the balance remaining in the fund allocable to the respective insurer. On termination of a receivership, the deputy receiver shall remit any balance remaining in the fund that is allocated to a particular insurer to the separate account for that receivership or to the person entitled to the monies. If the common administrative expenses allocable to a receivership exceed the initial ten per cent deposit to the fund, the deputy receiver may petition the court to authorize an amount, equal to the excess, to be deposited in the fund.

E. On notice from the director, the state treasurer shall invest and divest monies in the receivership liquidation fund as provided by section 35-313, and monies earned from investment shall be credited to the fund.

§ 20-649 Extension of time

A. Except as provided in subsection D, if any law, rule, order or agreement fixes a period of time within which the insurer subject to a delinquency proceeding or the receiver may commence an action, and that period is enforceable and has not expired before the date of the commencement of the delinquency proceeding under this title, the receiver may commence the action before any of the following, whichever is later:

1. The end of the period, including any suspension of the period occurring on or after commencement of the delinquency proceeding under this title.

2. Five years after the entry of the order appointing the receiver.

3. A date set by the court that in no event is more than eight years after the entry of the order appointing the receiver.

B. Except as provided in subsection A or D, if any law, rule, order or agreement fixes a period of time within which the insurer subject to a delinquency proceeding or the receiver may file any pleading, motion, demand, notice or proof of claim or loss, may cure a default or may perform any other similar act and that period is enforceable and has not expired before the commencement of the delinquency proceeding, the receiver may file, cure or perform before either of the following, whichever is later:

1. The end of the period, including any suspension of the period occurring on or after the commencement of the delinquency proceeding under this title.

2. One hundred twenty days after the entry of the order appointing the receiver.

C. Except as provided in subsection D, if any law, rule, order or agreement fixes a period for commencing or continuing a civil action in any court on a claim against the insurer in receivership, and that period has not expired before the date of the commencement of the delinquency proceeding, the court may extend that period to permit the filing of a claim with the receiver pursuant to this article.

D. The extension of time provided under this section does not apply to any other time period imposed by this chapter, an agreement executed by the receiver and approved by the court or an order of the court.

§ 20-650 Recovery of shareholder liability

A. The receiver of an insurer may file a claim in the receivership proceeding to recover the liability of shareholders under article XIV, section 11, Constitution of Arizona.

B. Any amount recovered in an action under this section shall be distributed in the same manner provided by law for the distribution of general assets of the estate.

C. The receiver shall bring an action pursuant to subsection A of this section, within four years of the entry of an order of liquidation or other order fixing the rights and liabilities of shareholders under section 20-635.

D. In an action pursuant to this section:

1. The defendant is not entitled to offset obligations of the insurer to the defendant, except that a defendant may file a claim with the receiver for those obligations.

2. The receiver shall recover costs and reasonable attorney fees.

Article 5 Separate Accounts

§ 20-651 Establishment of separate accounts; income, gains and losses; variable benefits; requirements; reserves

A. Any legal reserve life insurance company, except a limited capital stock company, may establish one or more separate accounts, and may allocate amounts thereto, including without limitation proceeds applied under optional modes of settlement or under dividend options, to provide for life insurance, guaranteed investment contracts or annuities, and benefits incidental thereto, payable in fixed or in variable dollar amounts or in both.

B. The income, gains and losses, realized or unrealized, from assets allocated to a separate account shall be credited to or charged against the account, without regard to other income, gains or losses of the company.

C. Except with the approval of the director and under such conditions as to investments and other matters as the director may prescribe, which shall recognize the guaranteed nature of the benefits provided, reserves for benefits guaranteed as to dollar amount and duration and funds guaranteed as to principal amount or stated rate of interest shall not be maintained in a separate account.

D. Amounts allocated to a separate account in the exercise of the power granted by this section shall be owned by the company and the company shall not be, nor hold itself out to be, a trustee with respect to such amounts. If and to the extent so provided under the applicable contracts, that portion of the assets of any such separate account equal to the reserves and other contract liabilities with respect to such account shall not be chargeable with liabilities arising out of any other business the company may conduct.

E. To the extent such company deems it necessary to comply with any applicable federal or state laws, such company, with respect to any separate account, including without limitation any separate account that is a management investment company or a unit investment trust, may provide for persons having an interest in the account appropriate voting and other rights and special procedures for the conduct of the business of such account, including without limitation special rights and procedures relating to investment policy, investment advisory services, selection of independent public accountants, and the selection of a committee, the members of which need not be otherwise affiliated with such company, to manage the business of such account.

F. Any contract providing benefits payable in variable amounts that is delivered or issued for delivery in this state shall contain a statement of the essential features of the procedures to be followed by the company in determining the dollar amount of such variable benefits. Any contract under which the benefits vary to reflect investment experience, including a group contract and any certificate in evidence of variable benefits issued under the contract, shall state that such dollar amount will so vary and shall contain on its first page a statement to the effect that the benefits under the contract are on a variable basis.

G. Except for sections 20-1219, 20-1223, 20-1224, 20-1225, 20-1271 and 20-1274 in the case of a variable annuity contract and sections 20-1203, 20-1207, 20-1209, 20-1212, 20-1213, 20-1231, 20-1231.01 and 20-1259 in the case of a variable life insurance policy and except as otherwise provided in this section and in sections 20-515 and 20-536.01, all pertinent provisions of this title shall apply to separate accounts and contracts relating to separate accounts. Any individual variable life insurance contract or variable annuity contract delivered or issued for delivery in this state shall contain grace, reinstatement and nonforfeiture provisions appropriate to such a contract, and if participating, an appropriate dividend provision. Any group variable life insurance contract or variable annuity contract delivered or issued for delivery in this state shall contain grace and nonforfeiture provisions appropriate to such a contract. The reserve liability for variable contracts shall be established in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

H. No company shall deliver or issue for delivery within this state variable contracts unless it is licensed or organized to do a life insurance or annuity business in this state, and the director is satisfied that its condition or methods of operation in connection with the issuance of such variable contracts will not render its operation hazardous to the public or its policyholders in this state. In this connection, the director shall consider, among other things, all of the following:

1. The history and financial condition of the company.

2. The character, responsibility and fitness of the officers and directors of the company.

3. In the case of a company other than a domestic company, whether the statutes and regulations of the jurisdiction of its incorporation provide a degree of protection to policyholders and the public that is substantially equal to that provided by this section and the rules issued under this section. If the company is a subsidiary of an admitted life insurance company or affiliated with such company through common management or ownership, it may be deemed by the director to have met the provisions of this subsection if either it or the parent or the affiliated company meets the requirements of this section.

I. Notwithstanding any other law, the director shall have sole authority to regulate the issuance and sale of variable contracts and to issue such reasonable rules as may be appropriate to carry out the purposes and provisions of this section and sections 20-515 and 20-536.01.

Article 6 Administration of Insolvency

§ 20-661 Definitions

In this article, unless the context otherwise requires:

1. "Account" means any one of the three accounts within the Arizona property and casualty insurance guaranty fund.

2. "Board" means the guaranty fund board.

3. "Covered claim" means an unpaid claim, including one for unearned premium, which arises out of and is within the coverage of an insurance policy to which this article applies issued by an insurer, if such insurer becomes an insolvent insurer after August 27, 1977 and the claimant or insured is a resident of this state at the time of the insured event or the property from which the claim arises is permanently located in this state. Covered claim does not include any amount due any reinsurer, insurer, insurance pool or underwriting association as subrogation recoveries or otherwise nor shall it include any obligations of the insolvent insurer arising out of any reinsurance contracts nor shall it include attorney fees or adjustment expenses incurred prior to the determination of insolvency.

4. "Fund" means the Arizona property and casualty insurance guaranty fund.

5. "Insolvent insurer" means an insurer that is licensed to transact insurance in this state either at the time the policy was issued or when the insured event occurred and against whom an order of liquidation with a finding of insolvency has been entered after September 19, 2007 by a court of competent jurisdiction in the insurer's state of domicile or by this state pursuant to section 20-623, and the order of liquidation has not been stayed or been the subject of a writ of supersedeas or other comparable order. For purposes of the workers' compensation insurance account, insolvent insurer includes any insolvent insurer against which an order of liquidation with a finding of insolvency has been entered on, before or after the effective date of this section.

6. "Member insurer" means any person who writes any kind of insurance, unless such writing is restricted solely to life, title, surety, disability, credit, mortgage guaranty, ocean-marine or surplus lines insurance, including the exchange of reciprocal or inter-insurance contracts, and is licensed to transact insurance in this state.

7. "Net direct written premiums" means direct gross premiums written in this state on insurance policies to which this article applies, less return premiums and dividends paid or credited to policyholders on such direct business. Net direct written premiums do not include premiums on contracts between insurers or reinsurers.

§ 20-662 Arizona property and casualty insurance guaranty fund

A. The Arizona property and casualty insurance guaranty fund is established within the department. The fund shall be deposited in a depository designated by the director and shall exercise its powers through a board established pursuant to section 20-663.

B. For the purpose of assessment, the fund shall be divided into three separate accounts:

1. The automobile insurance account.

2. The workers' compensation insurance account.

3. The account for all other insurance to which this article applies.

C. All costs, expenses and liabilities of the fund shall be paid by the fund and shall not be a general obligation of this state.

D. All monies placed in the accounts of the fund may be expended only for the purposes of this article and only for the purposes of the account into which the monies were placed. Monies placed in one of the three separate accounts established by this section may not be used directly or indirectly for any other purpose, including to satisfy an obligation attributable to another account.

§ 20-663 Guaranty fund board; composition; compensation

A. The guaranty fund board is established within the department of insurance and financial institutions consisting of eleven members who are appointed by the governor. Membership on the board shall be for a term of three years.

B. The members of the board shall be appointed from a list of persons submitted to the governor by the director of the department of insurance and financial institutions and shall be representative of a cross section of the industry that is authorized to transact property or casualty insurance within this state. The board shall be composed of:

1. Nine members, each representing a different insurer that is authorized to transact property or casualty insurance business in this state, including at least one member who represents a workers' compensation insurer that has been authorized to transact workers' compensation insurance business in this state for at least ten consecutive years.

2. One member who is a casualty insurance producer residing in this state.

3. One member who represents the general public.

C. The board shall conduct periodic meetings in Phoenix. Meetings shall be held on the call of the director or on the written request of any two members of the board.

D. Subject to the powers of the director, the board shall administer, operate and manage the fund pursuant to this article. The board shall advise and counsel the director on matters relating to the solvency of insurers.

E. Members of the board are not entitled to receive compensation and travel expenses as authorized by title 38, chapter 4, article 2, but are entitled to be reimbursed for expenses incurred by them as members of the board from the assets of the fund.

§ 20-664 Powers and duties of the board

A. The board shall:

1. Investigate claims brought against the fund and adjust, compromise, settle and pay covered claims to the extent of the fund's obligation and deny all other claims. In regard to workers' compensation claims, the board shall adjust, compromise, settle and pay compensable claims, and deny all other claims, subject to the regulatory and adjudicatory authority of the industrial commission over workers' compensation claims pursuant to title 23, chapter 6.

2. Within six months after the determination of insolvency or six months after the fund discovers or should have discovered the settlement of a covered claim, whichever is later, deny and state the basis for the denial or pay any covered claim that was settled within four months before the determination of insolvency of the insolvent insurer. This paragraph does not apply to a settlement of a workers' compensation claim or commutation of permanent disability benefits approved by the industrial commission unless the industrial commission award approving the settlement or commutation of benefits has not become final.

3. Allocate claims paid and expenses incurred among the three accounts of the fund separately.

4. Assess member insurers separately for each account of the fund and expend amounts assessed only for the purposes of the account into which the amounts assessed were placed.

5. Notify such persons as the director directs pursuant to section 20-668, subsection B, paragraph 1.

6. Handle claims through its employees or through one or more insurers or other persons designated as servicing facilities. Designation of a servicing facility shall be subject to the approval of the director. Designation may be declined by a member insurer.

7. Reimburse each servicing facility for obligations of the fund paid by the facility and for expenses incurred by the facility while handling the claims on behalf of the fund and pay the other expenses of the fund authorized pursuant to this article.

B. The board may:

1. Appear in, defend and appeal any action on a claim that is brought against the fund.

2. Employ or retain such persons as are necessary to handle claims and perform other duties of the fund.

3. Borrow funds necessary to carry out the intent of this article pursuant to the plan of operation.

4. Sue and be sued.

5. Negotiate and become a party to such contracts as are necessary to carry out the intent of this article.

6. Perform such other acts as are necessary or proper to carry out the intent of this article.

§ 20-665 Plan of operation

A. The board shall submit to the director a fund plan of operation and any amendments necessary or suitable to assure the fair, reasonable and equitable administration of the fund. The plan of operation and any amendments shall become effective upon approval in writing by the director.

B. If the board fails to submit a suitable plan of operation or if at any time the board fails to submit suitable amendments to the plan, the director shall adopt any plan or amendment that is necessary or advisable to effectuate the provisions of this article and the plan or amendment shall continue in force until modified by the director or superseded by a plan submitted by the board and approved by the director. All member insurers shall comply with the plan of operation.

C. The plan of operation shall:

1. Establish the procedures for execution of all powers and duties of the board.

2. Establish procedures for handling assets of the fund.

3. Establish the amount and method of reimbursing members of the board pursuant to section 20-663.

4. Establish procedures by which claims may be filed with the fund and establish acceptable forms of proof of covered claims. Notice of claims to the receiver, conservator or liquidator of the insolvent insurer shall be deemed notice to the fund or its agents and a list of such claims shall be periodically submitted to the fund or similar organization in another state by the receiver or liquidator.

5. Establish regular places and times for meetings of the board.

6. Establish procedures for records to be kept of all financial transactions of the fund, the board and its agents.

7. Provide that any member insurer aggrieved by any final action or decision of the fund may appeal to the director within thirty days after the action or decision.

8. Establish the procedures for recommendations to the director for selections to the board.

9. Contain additional provisions that are necessary or proper for the execution of the powers and duties of the board.

D. In regard to the prevention and detection of insolvencies the board shall:

1. Notify the director of any information indicating that any member insurer may be insolvent or in a financial condition that is hazardous to the policyholders or to the public.

2. Notify the director of any information indicating that a member insurer may be unable to fulfill its contractual obligations and request a meeting with the director.

3. Upon request of the director, attend hearings before the director and meet with and advise the director or the receiver, conservator or liquidator appointed by the director on matters relating to the affairs of an insolvent insurer and relating to action which may be taken by the director, receiver, conservator or liquidator to best protect the interests of persons holding covered claims against the insolvent insurer and relating to the amount and timing of partial assessments and the marshalling of assets and the processing and handling of covered claims.

4. At the conclusion of any insurer insolvency in which the fund was obligated to pay covered claims, prepare a report on the history and causes of such insolvency, based on the information available to the board and submit such report to the director.

E. In regard to the prevention and detection of insolvencies the board may, on majority vote:

1. Request that the director make available to the board any information in the director's possession relative to the financial condition of any member insurer, including the power to pursue officially any operational records or activity of the member insurer wherever deemed necessary.

2. Request that the director order an examination of any member insurer which the board in good faith believes may be in a financial condition hazardous to the policyholders or to the public.

3. Make recommendations and reports to the director upon any matter germane to the solvency, liquidation, rehabilitation or conservation of any member insurer. Such reports and recommendations shall not be considered public documents.

4. Make recommendations to the director for the detection and prevention of insurer insolvencies.

F. The plan of operation may provide that any or all powers and duties of the board, except those pursuant to section 20-664, subsection A, paragraphs 3 and 4 and subsection B, are delegated to a corporation, association or other organization which performs or will perform functions similar to those of this fund, or its equivalent, in two or more states. Such a corporation, association or organization shall be reimbursed as a servicing facility and shall be paid for its performance of any other function of the fund. A delegation pursuant to this subsection shall take effect only with the approval of both the board and the director and may be made only to a corporation, association or organization which extends protection not substantially less favorable and effective than that provided by this article.

§ 20-666 Assessments; notification; exemptions; setoffs; refunds

A. The board shall assess each member insurer, as a condition of such insurer's authority to transact insurance in this state, in such amounts as are necessary to pay the obligations of the fund pursuant to section 20-667 subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, the cost of examinations and other expenses authorized pursuant to this article.

B. The assessment of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the preceding calendar year on the kinds of insurance in the account bears to the net direct written premiums of all member insurers for the preceding calendar year on the kinds of insurance in the account. The board shall notify each member insurer of the assessment not later than thirty days before it is due. No member insurer may be assessed in any year on any account an amount greater than one per cent of such member insurer's net direct written premiums for the preceding calendar year on the kinds of insurance in the account.

C. Except for the workers' compensation insurance account, if the maximum assessment, together with the other assets of the fund in any account, does not provide in any one year in any account an amount sufficient to make all necessary payments from such account, the funds available may be prorated and the unpaid portion shall be paid as soon as funds become available. The board shall pay claims in any order which it may deem reasonable, including the payment of claims as such claims are received from the claimants or in groups or categories of claims.

D. The board may exempt or defer, in whole or in part, the assessment of any member insurer, if the assessment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance.

E. Each member insurer serving as a servicing facility may set off against any assessment, authorized payments made on covered claims and expenses incurred in the payment of such claims by the member insurer if they are chargeable to the account for which the assessment is made.

F. In addition to all other assessments, the board may assess each member insurer in an amount not to exceed two hundred dollars per year for the purpose of paying for operating expenses of the board and employees of the board.

G. If, at the end of any calendar year, the board finds that the assets of the fund in any account exceed the liabilities of such account as estimated by the board for the coming year, the board may refund to the member insurers in proportion to the contribution of each member insurer to such account the amount by which the assets of the account exceed the liabilities. All refunds will be contingent upon the return of a member insurer's certificate(s) of contribution and will be in an amount equal to the premium tax offset value of the relinquished certificate.

§ 20-667 Obligations of the fund

A. The fund is obligated solely to the extent of the covered claims existing during any of the following periods:

1. Before the determination of insolvency and arising within thirty days after the determination of insolvency.

2. Before the policy expiration date if less than thirty days after the determination of insolvency.

3. Before the insured replaces the policy or on request effects cancellation, if the insured does so within thirty days of the determination of insolvency.

B. Except for obligations arising out of a covered workers' compensation claim for benefits under title 23, chapter 6, such obligation shall include only that amount of each covered claim that is more than one hundred dollars and that is less than three hundred thousand dollars or an amount of more than twenty-five dollars but not exceeding ten thousand dollars for a covered claim for the return of unearned premiums. In no event shall the fund be obligated to a policyholder or claimant in any amount in excess of the face amount of the policy from which the claim arises.

C. The fund is deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent. Notwithstanding any other law, the fund is not obligated to pay any amount that does not constitute a payment of a covered claim, including taxable costs, attorney fees or interest that could be awarded or any additional liabilities or obligations that might otherwise exist or accrue against the insolvent insurer if the insurer had not become insolvent.

D. Any settlement of a covered claim that is entered into with any insured or claimant within four months before the determination of insolvency and that has not been paid is voidable by the fund for six months after the determination of the insolvency or six months after the fund discovers or should have discovered the settlement, whichever is later.

E. Notwithstanding subsection D of this section, a settlement or commutation of a workers' compensation claim approved by an award of the industrial commission that has become final pursuant to section 23-942 or 23-943 is not voidable.

F. The fund is not bound by any settlement that is more than the fund's limits of liability established by this article.

G. Beginning on the effective date of this amendment to this section, the fund shall assume all contractual rights and obligations of the industrial commission regarding the administration of workers' compensation insolvent carrier claims if the industrial commission has contracted with a third-party processor to administer claims.

§ 20-668 Powers and duties of the director

A. The director shall:

1. Report to the board when the director has reasonable cause to believe that any member insurer examined or being examined at the request of the board may be insolvent or in a financial condition hazardous to the policyholders or to the public.

2. Notify the board of the existence of an insolvent insurer not later than three working days after the director receives notice of such insolvency.

3. Upon request of the board, provide the fund with a statement of the net direct written premiums of each member insurer.

4. Immediately make available to the fund for the purpose of making payment upon all covered claims such assets of the insolvent insurer which are not required for payment of any claim accorded a higher priority pursuant to section 20-629.

B. The director may:

1. Require that the fund notify the insureds of the insolvent insurer and any other interested parties of the determination of insolvency and of their rights pursuant to this article. Such notification shall be by mail at their last known address, where available. If sufficient information for notification by mail is not available, notice shall be by publication in a newspaper of general circulation.

2. Suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer which fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative, the director may assess a civil penalty on any member insurer which fails to pay an assessment when due. The penalty shall not exceed five per cent of the unpaid assessment per month. No penalty shall be less than one hundred dollars per month, which amount shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund.

3. Revoke the designation of any servicing facility if the director finds claims are being handled unsatisfactorily.

C. Any final action or order of the director pursuant to this article shall be subject to review pursuant to chapter 1, article 2 of this title.

§ 20-669 Examination of member insurer; costs; release of report

A. Within thirty days of receipt by the director of a request from the board to examine any member insurer, the director shall begin such examination. The director may conduct the examination in any manner deemed appropriate.

B. The cost of such examination shall be paid by the board and the examination report shall be treated as are other examination reports.

C. Such examination report may be released to the board prior to its release to the public. The director shall notify the board when the examination is completed. The request for an examination shall be kept on file by the director but it shall not be open to public inspection prior to the release of the examination report to the public.

§ 20-670 Meetings; information; subpoena power; confidentiality

A. Upon receipt of notification from the board that a member insurer may be unable to fulfill its contractual obligations, the director shall meet with the board.

B. At such meeting, the director may divulge to the board any information in his possession and any records of his office, including examination reports or preliminary reports from examiners relating to such insurer.

C. The director may subpoena officers, directors and employees of an insolvent or impaired insurer or of an insurer the director considers to be in danger of insolvency or impairment, to appear before the board for a conference or for taking of testimony.

D. The board shall not reveal information received in such meetings to anyone unless authorized by the director or when required as a witness in court.

§ 20-671 Special meetings closed

Notwithstanding any law to the contrary, special meetings of the board in which the financial condition of any member insurer is discussed shall not be open to the public and only members of the board, the director of the department of insurance and financial institutions and other persons specifically authorized by the board may attend such meetings.

§ 20-672 Effect of paid claims

A. Any person recovering pursuant to this article shall be deemed to have assigned his or her rights under the policy to the fund to the extent of his or her recovery from the fund. Every insured or claimant seeking the protection of this article shall cooperate with the fund to the same extent as such person would have been required to cooperate with the insolvent insurer. The fund shall have no cause of action against the insured of the insolvent insurer for any sums it has paid.

B. The receiver, conservator, liquidator or statutory successor of an insolvent insurer shall be bound by settlement of covered claims by the fund or similar organization in another state.

C. The board shall periodically file with the receiver, conservator, liquidator or statutory successor of the insolvent insurer statements of the covered claims paid by the fund and estimates of anticipated claims on the fund which shall preserve the rights of the fund against the assets of the insolvent insurer.

§ 20-673 Nonduplication of recovery; exhausting all other applicable coverages; rights of fund and member insurer; definition

A. Any person having a claim against an insurer under any provision in an insurance policy that is also a covered claim shall be required to exhaust first all rights under that policy. Any amount payable on a covered claim pursuant to this article shall be reduced by the amount of the recovery under the claimant's insurance policy. Any recovery pursuant to this article shall be reduced by the amount of the recovery under the claimant's insurance policy. A member insurer or other insurer, which pays the insurer's own policy, shall have no right of subrogation or recovery against the insured of an insolvent insurer. A claimant for workers' compensation benefits shall have all rights and obligations conferred under title 23, chapter 6.

B. Any person having a claim that may be recovered under more than one insurance guaranty fund or its equivalent or who is insured under more than one policy shall first exhaust coverage from the fund of the place of residence of the insured or, if it is a first-party claim for damage to property with a permanent location, shall first exhaust coverage from the fund of the location of the property, or shall first exhaust coverage under the other policy, and if it is a workers' compensation claim, recovery shall be sought from the guaranty fund or its equivalent of the place of residence of the claimant. Any recovery pursuant to this article shall be reduced by the amount of the recovery from any other insurance guaranty fund or its equivalent or under another policy. Covered claims by subscribers of an insolvent reciprocal insurer shall not be paid until all subscribers have been assessed pursuant to section 20-791.

C. Where more than one policy may be applicable, a policy issued by the insolvent insurer shall be deemed to be excess coverage. The claimant shall be required to exhaust all rights under other applicable coverage or coverages. Any recovery pursuant to this article shall be reduced by the amount of the recovery under the claimant's insurance policy. Any amount payable on a covered claim shall be reduced by the amount of the recovery under other applicable insurance.

D. Except for workers' compensation claimants, if damages against uninsured motorists are recoverable by the claimant from the claimant's own insurer, the recoverable damages shall reduce the amount of any recovery pursuant to this article if the full amount of the uninsured motorist coverage has been exhausted. The claimant shall have no claim against the insured of the insolvent carrier or the fund if the full amount of uninsured motorist coverage was not recovered by the claimant. A member insurer shall have no right of subrogation against the insured of the insolvent carrier or against the fund for any amount paid by the insurer under uninsured motorist coverage. A member insurer may file a claim for subrogation payments under uninsured motorist coverage against the ancillary or domiciliary receiver of the insolvent insurer.

E. The fund shall receive the proceeds of any amounts recoverable on reinsurance contracts or treaties entered into by the insolvent insurer that cover any of the liabilities incurred by the insolvent insurer in the category or categories involved. The proceeds shall be limited to payments on or loss adjustment expenses or defense costs actually incurred by the fund on account of claims covered in the contracts or treaties. The director, as receiver or ancillary receiver, shall receive the proceeds of any reinsurance recoverable to the extent of payment on claims, loss adjustment expenses or defense costs made before the order of liquidation.

F. If a covered claim arises out of two or more policies to which this article applies, a recovery under one policy reduces the amount that is payable under the other policy. The fund is not liable for the payment of more than one policy on a covered claim.

G. For the purposes of this article, "exhaustion of all rights under any other policy of insurance" means the payment of the applicable policy limits or an adjudication by a court of record that no benefits are owed.

§ 20-674 Premium tax offset

A. The fund shall issue to each insurer paying an assessment pursuant to this article a certificate of contribution, in a form prescribed by the director for the amount paid. All outstanding certificates shall be of equal priority without reference to amounts or dates of issue.

B. Except for premium taxes and assessments collected pursuant to title 23, chapter 6, a certificate of contribution issued to a member insurer may be offset against the insurer's premium tax liability to this state in the amount of twenty per cent of the assessment for the year of assessment and twenty per cent of the assessment per year for each of the succeeding four years. A member shall at its option have the right to show a certificate of contribution as an asset in the form approved by the director at percentages of the original face amount approved by the director, for calendar years as follows:

1. One hundred per cent for the calendar year of issuance.

2. Eighty per cent for the first calendar year after the year of issuance.

3. Sixty per cent for the second calendar year after the year of issuance.

4. Forty per cent for the third calendar year after the year of issuance.

5. Twenty per cent for the fourth calendar year after the year of issuance.

C. Any sums available for refund, pursuant to section 20-666, from the fund that have been written off by contributing insurers and offset against premium taxes shall be paid to the director and shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund.

D. Notwithstanding subsection B of this section, the total amount a member insurer, as defined in section 20-661, may offset against its premium tax liability pursuant to a certificate of contribution that is issued from 1987 through 1994 shall not exceed the following percentage amounts for each certificate of contribution, except that in no event may the total amount of the offset exceed one hundred per cent of each assessment:

1. For 1992, thirteen per cent.

2. For 1993, eleven per cent.

3. For 1994, thirteen per cent.

E. No insurer may offset its premium tax liability by any amount unless the assessment for which the first year credit is claimed was collected by the guaranty fund in the calendar year for which the insurer seeks to offset its taxes.

F. Beginning in 1995, the total amount that a member insurer may offset against its premium tax liability pursuant to a certificate of contribution shall be as provided in subsection B of this section, except that in no event may the total amount of the offset exceed one hundred per cent of the assessment.

§ 20-675 Immunity and indemnification

A. There shall be no liability on the part of, and no cause of action shall rise against, the fund, any member insurer, the board or its agents or employees, the director or representatives of the director for any action taken in the performance of their powers and duties pursuant to this article.

B. The board and its agents or employees shall be indemnified by the fund against all expenses incurred in the defense of any action, suit or proceeding brought against such person on account of any action taken in the performance of the powers and duties of such person pursuant to this article, unless such person is finally adjudged to have committed a breach of duty involving gross negligence, bad faith, dishonesty, wilful malfeasance or reckless disregard of the responsibilities of his or her office. In the event of settlement before the final adjudication, such indemnity shall be provided only if the board is advised by independent counsel selected by the board that such person did not, in the counsel's opinion, commit such a breach of duty.

C. The fund's reimbursement of such expenses of indemnification shall be prorated and paid for by the member insurers in the proportion that the net direct written premiums of each member insurer for the calendar year preceding the commencement of such action, suit or proceeding bears to the net direct written premiums of all member insurers for the preceding calendar year.

§ 20-676 Stay of proceedings

A. All proceedings in which the insolvent insurer or the insolvent insurer's insured is a party in any court of this state shall be stayed for six months from the date the insolvency is determined or an ancillary proceeding is instituted in this state, whichever is later, to permit proper defense by the fund of all pending causes of action as to any covered claim. At the request of any party and on a showing of good cause, the court may shorten or lengthen the stay prescribed in this section. This subsection does not apply to proceedings in which the insolvent insurer is a party to a proceeding before the industrial commission regarding an employee's entitlement to benefits under title 23, chapter 6, except that, on a showing of good cause, the industrial commission shall grant up to a ninety-day continuance of any scheduled hearing to allow the fund to assume the defense and investigate the claim.

B. On application of the fund, either on the fund's own behalf or on the insured's behalf, the court may set aside any judgment, order, decision, verdict, finding or award arising from the default of the insolvent insurer or the insurer's failure to defend the insured and the fund shall be allowed to defend the claim on the merits.

C. Notwithstanding any other provision of this chapter, a federal home loan bank may not be stayed, enjoined or prohibited from exercising or enforcing any right or cause of action against collateral pledged by an insurer member under any federal home loan bank security agreement or any pledge, security, collateral or guarantee agreement or other similar arrangement or credit enhancement relating to a security agreement to which that federal home loan bank is a party.

§ 20-677 Interest

All interest earned on monies held and invested by the fund shall be credited to the account from which the funds were obtained. Investments by the board shall be restricted to those investments which are permitted by insurers for statutory deposits pursuant to section 20-583.

§ 20-678 Examination of the fund; annual report

The fund is subject to examination by the director. The fund shall annually report its financial condition for the preceding year to the legislature, member insurers and the director. At the conclusion of the fund's handling of each insolvency, an audit of the financial transactions relating to such insolvency shall be made by the director or an independent accounting firm.

§ 20-679 Limitations on filing of creditor's claims

A. Notwithstanding any other provision of this article, a covered claim shall not include a claim filed with the fund after the earlier of:

1. Eighteen months after the date of the order of liquidation.

2. The final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer.

B. Notwithstanding subsection A of this section, a covered claim for workers' compensation shall include claims filed that meet the requirements of section 20-667, subsection A and the statutory filing requirements of section 23-1061.

§ 20-680 Exempt types of insurance

A. This article applies to all kinds of insurance except:

1. Life.

2. Title.

3. Surety.

4. Disability.

5. Credit.

6. Mortgage guarantee.

7. Ocean marine insurance.

8. Insurance of warranties or service contracts, including insurance that provides for the repair, replacement or service of goods or property, or indemnification for repair, replacement or service, for the operational or structural failure of the goods or property due to a defect in materials, workmanship or normal wear and tear, or reimbursement for the liability incurred by the issuer of agreements or service contracts that provide these benefits.

9. Any kind of surplus lines insurance.

10. Any policy of insurance issued to an industrial insured pursuant to section 20-400.10.

11. Any new types of coverages approved or permitted after August 27, 1977.

B. The exemptions prescribed in this section do not restrict any of the fund's rights or defenses permitted under this article, including the application of any credit or offset prescribed in section 20-673 for payments made under any policy of insurance, including any policy of insurance that is exempt from this article.

Article 7 Administration of Life and Disability Insurance Insolvencies

§ 20-681 Definitions

In this article, unless the context otherwise requires:

1. "Account" means any of the three accounts established pursuant to section 20-683.

2. "Authorized" means, when used in the context of assessments pursuant to this article, an assessment for a specified amount approved by the board of directors to be called immediately or in the future from member insurers.

3. "Called" means, when used in the context of assessments pursuant to this article, an authorized assessment for which a notice has been issued by the fund to member insurers requiring payment within the time set forth in the notice.

4. "Contractual obligation" means an obligation under a covered policy or contract for which coverage is provided pursuant to this article.

5. "Covered contract" or "covered policy" means a policy or contract or part of a policy or contract for which coverage is provided pursuant to this article.

6. "Fund" means the life and disability insurance guaranty fund.

7. "Health benefit plan":

(a) Means a hospital or medical expense policy or certificate, a health care services organization subscriber contract or any other similar health contract.

(b) Does not include:

(i) Accident only insurance.

(ii) Credit insurance.

(iii) Dental only insurance.

(iv) Vision only insurance.

(v) Medicare supplement insurance.

(vi) Benefits for long-term care, home health care or community-based care, or any combination thereof.

(vii) Disability income insurance.

(viii) Coverage for on-site medical clinics.

(ix) Specified disease, hospital confinement indemnity or limited benefit health insurance if the types of coverage do not provide coordination of benefits and are provided under separate policies or certificates.

8. "Impaired insurer" means a member insurer that is not an insolvent insurer and that is placed under an order of rehabilitation or conservation by a court of competent jurisdiction.

9. "Insolvent insurer" means a member insurer that is placed under an order of liquidation with a finding of insolvency by a court of competent jurisdiction.

10. "Member insurer" means an insurer or health care services organization that holds a certificate of authority to transact in this state any kind of insurance or health care services organization business to which this article applies and includes an insurer or health care services organization whose license or certificate of authority in this state may have been suspended, revoked, not renewed or voluntarily withdrawn. Member insurer does not include:

(a) A fraternal benefit society licensed under chapter 4, article 4 of this title.

(b) A hospital, medical, dental or optometric service corporation licensed under chapter 4, article 3 of this title.

(c) A prepaid dental plan organization licensed under chapter 4, article 7 of this title.

(d) A mandatory state pooling plan.

(e) A mutual assessment company or other person that operates on an assessment basis.

(f) A reciprocal insurance exchange licensed under chapter 4, article 2 of this title.

(g) An entity that is similar to any of the entities described in this paragraph.

11. "Moody's corporate bond yield average" means the monthly average corporate bond yield as published by Moody's investors service, incorporated, or any successor entity.

12. "Owner" and "policyholder" mean, when used in reference to a policy or contract, the person identified as the legal owner under the terms of the policy or contract or otherwise vested with legal title to the policy or contract through a valid assignment that is completed in accordance with the terms of the policy or contract and that is properly recorded as the owner on the member insurer's books. Owner and policyholder do not include a person with a mere beneficial interest in a policy or contract.

13. "Premiums":

(a) Means amounts or considerations by whatever name called that are received on covered policies or contracts less returned premiums, considerations and deposits and less dividends and experience credits.

(b) Does not include:

(i) Amounts or consideration received for policies or contracts or for parts of policies or contracts for which coverage is not provided under section 20-682, subsection C, except that assessable premium shall not be reduced under section 20-682, subsection D, paragraph 4, relating to interest limitations, and section 20-682, subsection E, paragraph 2, relating to limitations with respect to one individual, one participant and one policy or contract owner.

(ii) Amounts in excess of five million dollars with respect to multiple nongroup policies of life insurance owned by one owner, regardless of the number of policies or contracts held by the owner.

14. "Resident" means a person to whom a contractual obligation is owed and who resides in this state on the date of entry of a court order that determines a member insurer to be an impaired insurer or an insolvent insurer. A person may be a resident of only one state, which for a person other than a natural person shall be its principal place of business. A United States citizen who resides in a foreign country or a United States territory, possession or protectorate that does not have a fund similar to the fund established under this article shall be deemed to be a resident of the state of domicile of the member insurer that issued the policy or contract.

15. "Structured settlement annuity" means an annuity purchased in order to fund periodic payments for a plaintiff or other claimant in payment for or with respect to personal injury suffered by the plaintiff or other claimant.

16. "Supplemental contract" means a written agreement that is entered into for the distribution of proceeds under a life, disability, disability income or annuity policy or contract.

17. "Unallocated annuity contract" means an annuity contract or group annuity certificate that is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under the contract or certificate.

§ 20-682 Coverage; limitations

A. This article provides coverage for the policies and contracts specified in subsection B of this section to:

1. A person who, regardless of the state where the person resides, is a beneficiary, assignee or payee, including health care providers rendering services covered under the health insurance policies or certificates, of a person covered under paragraph 2 of this subsection, except for a nonresident certificate holder under a group policy or contract.

2. A person who is the owner or enrollee of, or a certificate holder under, a policy or contract other than a structured settlement annuity and who is either:

(a) A resident.

(b) Not a resident and all of the following apply:

(i) The member insurer that issued the policy or contract is domiciled in this state.

(ii) The state in which the person resides has a fund similar to the fund established under this article.

(iii) The person is not eligible for coverage by a fund in any other state because the insurer or health care services organization was not licensed in that state at the time required by the applicable law.

3. Subject to any other limitations provided by this section, a person who is a payee or a beneficiary of a deceased payee under a structured settlement annuity specified in subsection B of this section if the payee is either:

(a) A resident, regardless of where the contract owner resides.

(b) Not a resident and all of the following apply:

(i) The contract owner of the structured settlement annuity is a resident, or the contract owner of the structured settlement annuity is not a resident but the insurer that issued the structured settlement annuity is domiciled in this state, and the state in which the contract owner resides has a fund similar to the fund established by this article.

(ii) The payee, the beneficiary and the contract owner are not eligible for coverage by the fund of the state in which they reside.

B. This article provides coverage to the persons specified in subsection A of this section for policies or contracts of direct nongroup life insurance, disability insurance, which for the purposes of this article includes health care services organization subscriber contracts and certificates, or annuities, and for certificates under direct group policies and contracts, and for supplemental contracts to any of these, that are issued by member insurers, except as limited by this article. Annuity contracts and certificates under group annuity contracts include allocated funding agreements, structured settlement annuities and any immediate or deferred annuity contracts.

C. This article does not provide coverage to:

1. A person who is a payee or beneficiary of a contract owner who is a resident of this state if the payee is afforded coverage by the fund of another state.

2. A person who would otherwise receive coverage under this article but who is provided coverage under the laws of any other state. This article shall be construed to avoid duplicate coverage and to result in coverage by only one state.

3. A person who acquires rights to receive payments through a structured settlement factoring transaction as defined in 26 United States Code section 5891(c)(3)(A), regardless of whether the transaction occurred before or after that section became effective.

D. Except as otherwise provided in paragraph 14 of this subsection, this article does not provide coverage for:

1. Any policy or contract, or any part of any policy or contract, not guaranteed by the member insurer or under which the risk is borne by the policyholder or contract owner.

2. Any policy or contract, or any part of any policy or contract, assumed by the impaired insurer or insolvent insurer under a contract of reinsurance other than bulk reinsurance or reinsurance for which assumption certificates have been issued.

3. Any policy or contract issued by mutual assessment companies or other persons that operate on an assessment basis, fraternal benefit societies, hospital, medical, dental and optometric service corporations or plans, prepaid dental plan organizations, mandatory state pooling plans, a reciprocal insurance exchange and any entity similar to any of the entities described in this paragraph.

4. A part of a policy or contract to the extent that the rate of interest on which it is based, or the interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value:

(a) Averaged over the period of four years before the date on which the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier, exceeds the rate of interest determined by subtracting two percentage points from Moody's corporate bond yield average averaged for that same four-year period or for a lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier.

(b) On and after the date on which the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody's corporate bond yield average as most recently available.

5. A part of a policy or contract issued to a plan or program of an employer, association or other person to provide life, disability or annuity benefits to its employees, members or others, to the extent that the plan or program is self-funded or uninsured, including benefits payable by an employer, association or other person under any of the following:

(a) A multiple employer welfare arrangement as defined in section 3(40) of the employee retirement income security act of 1974.

(b) A minimum premium group insurance plan.

(c) A stop-loss group insurance plan.

(d) An administrative services only contract.

6. A part of a policy or contract to the extent that it provides for dividend or experience rating credits, voting rights or payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service or administration of the policy or contract.

7. A policy or contract issued in this state by a member insurer at a time when it did not have a certificate of authority to issue the policy or contract in this state.

8. A part of a policy or contract to the extent that the assessments required by section 20-686 with respect to the policy or contract are preempted or prohibited by federal or state law.

9. An obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the enrollee, certificate holder, contract owner or policy owner, including:

(a) Claims based on marketing materials.

(b) Claims based on side letters, riders or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements.

(c) Misrepresentations of or regarding policy or contract benefits.

(d) Extra-contractual claims, including claims relating to bad faith in the payment of claims, punitive or exemplary damages or attorney fees and costs.

(e) Claims for penalties or consequential or incidental damages.

10. A contractual agreement that establishes the member insurer's obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer.

11. An unallocated annuity contract.

12. A part of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy or contract owner's rights are subject to forfeiture, as of the date the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier. If a policy's or contract's interest or changes in value are credited less frequently than annually, for purposes of determining the values that have been credited and are not subject to forfeiture under this subsection, the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture.

13. A policy or contract providing any hospital, medical, prescription drug or other health care benefits pursuant to 42 United States Code chapter 7, subchapter XVIII, part C or part D or 42 United States Code chapter 7, subchapter XIX, or any applicable regulations.

14. Structured settlement annuity benefits to which a payee or beneficiary has transferred the payee's or beneficiary's rights in a structured settlement factoring transaction as defined in 26 United States Code section 5891(c)(3)(A), regardless of whether the transaction occurred before or after that section became effective.

15. The exclusion from coverage referenced in paragraph 4 of this subsection does not apply to any portion of a policy or contract, including a rider, that provides long-term care or any other health insurance benefits.

E. The benefits that the fund becomes or may become obligated to cover shall not exceed the lesser of:

1. The contractual obligations for which the member insurer is liable or would have been liable if it were not an impaired insurer or insolvent insurer.

2. With respect to one life, regardless of the number of policies or contracts:

(a) Three hundred thousand dollars in life insurance death benefits, but not more than one hundred thousand dollars in net cash surrender and net cash withdrawal values for life insurance.

(b) For disability insurance benefits:

(i) One hundred thousand dollars for coverages not defined as disability income insurance or health benefit plans or long-term care insurance.

(ii) Three hundred thousand dollars for disability income insurance and three hundred thousand dollars for long-term care insurance.

(iii) Five hundred thousand dollars for health benefit plans.

(c) Two hundred fifty thousand dollars in the present value of annuity benefits, including net cash surrender and net cash withdrawal values.

3. With respect to each payee of a structured settlement annuity, or the beneficiary of a deceased payee, an aggregate of two hundred fifty thousand dollars in present value annuity benefits, including net cash surrender and net cash withdrawal values, if any.

F. Notwithstanding subsection E of this section, the fund is not obligated to cover more than either:

1. An aggregate of three hundred thousand dollars in benefits with respect to any one individual under subsection E of this section except with respect to benefits for health benefit plans under subsection E, paragraph 2, subdivision (b) of this section, in which case the aggregate liability of the fund shall not exceed five hundred thousand dollars with respect to any one individual.

2. With respect to one owner of multiple nongroup policies of life insurance, whether the policy or contract owner is an individual, firm, corporation or other person, and whether the persons insured are officers, managers, employees or other persons, more than five million dollars in benefits, regardless of the number of policies and contracts held by the owner.

G. The limitations set forth in this section are limitations on the benefits for which the fund is obligated, before taking into account either its subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired insurer or insolvent insurer attributable to covered policies. The costs of the fund's obligations under this article may be met by the use of assets attributable to covered policies or reimbursed to the fund pursuant to its subrogation and assignment rights.

H. For the purposes of this article, benefits provided by a long-term care rider to a life insurance policy or annuity contract shall be considered the same type of benefits as the base life insurance policy or annuity contract to which it relates.

§ 20-683 Life and disability insurance guaranty fund

A. The life and disability insurance guaranty fund is established in the department. The fund shall be deposited in a depository designated by the director. All member insurers shall be members of the fund as a condition of their authority to transact insurance or a health care services organization business in this state. For the purposes of administration and assessment, the fund shall maintain three accounts:

1. The disability account.

2. The life insurance account.

3. The annuity account.

B. The fund is under the immediate supervision of the director and is subject to the applicable provisions of the insurance laws of this state.

C. All costs, expenses and liabilities of the fund shall be paid by the fund and shall not be a general obligation of the state.

D. All monies placed in the accounts of the fund may be expended for the purposes of this article.

§ 20-684 Life and disability insurance guaranty fund board; composition; compensation

A. Subject to the powers of the director, the life and disability insurance guaranty fund shall be administered by a board of eleven members. Each member of the board shall serve for a term of three years. Of the members first appointed, three shall serve for terms of one year, three shall serve for terms of two years and three shall serve for terms of three years.

B. The members of the board shall be appointed by the governor from a list of persons submitted to the governor by the director of the department of insurance and financial institutions. In submitting selections for the board, the director shall consider whether all member insurers are fairly represented.

C. Members of the board are not entitled to receive compensation and travel expenses as authorized by title 38, chapter 4, article 2 but are entitled to be reimbursed for expenses incurred by them as members of the board from the assets of the fund.

§ 20-685 Powers and duties of the fund

A. If a member insurer is an impaired insurer, the fund, subject to any conditions imposed by the fund that do not impair the contractual obligations of the impaired insurer, with the approval of the director, may:

1. Guarantee, assume, reissue or reinsure, or cause to be guaranteed, assumed, reissued or reinsured, any or all of the policies or contracts of the impaired insurer.

2. Provide monies, pledges, loans, notes, guarantees or other means as are proper to effectuate paragraph 1 of this subsection and assure payment of the contractual obligations of the impaired insurer pending action pursuant to paragraph 1 of this subsection.

B. If a member insurer is an insolvent insurer, the fund, with the approval of the director, shall either:

1. Guarantee, assume, reissue or reinsure, or cause to be guaranteed, assumed, reissued or reinsured, the policies or contracts of the insolvent insurer or assure payment of the contractual obligations of the insolvent insurer, and provide monies, pledges, loans, notes, guarantees or other means reasonably necessary to discharge the fund's obligations.

2. Provide benefits and coverage as follows:

(a) With respect to policies and contracts, assure payment of benefits that would have been payable under the policies or contracts of the insolvent insurer, for claims incurred:

(i) With respect to group policies and contracts, not later than the earlier of the next renewal date under those policies or contracts or forty-five days, but not less than thirty days, after the date on which the fund becomes obligated with respect to the policies and contracts.

(ii) With respect to nongroup policies, contracts and annuities, not later than the earlier of the next renewal date, if any, under the policies or contracts or one year, but not less than thirty days, from the date on which the fund becomes obligated with respect to the policies or contracts.

(b) Make diligent efforts to provide thirty days' notice of a termination of benefits under subdivision (a) of this paragraph to all known insureds, enrollees or annuitants for nongroup policies and contracts, and group policy or contract owners with respect to group policies and contracts.

(c) With respect to nongroup policies and contracts covered by the fund, make available to each known insured, enrollee or annuitant, or owner if other than the insured or annuitant, and with respect to an individual who was formerly an insured, enrollee or annuitant under a group policy or contract and who is not eligible for replacement group coverage, substitute coverage on an individual basis in accordance with subdivision (d) of this paragraph, if the insureds, enrollees or annuitants had a right under law or the terminated policy, contract or annuity to convert coverage to individual coverage or to continue an individual policy, contract or annuity in force until a specified age or for a specified time, during which the insurer or health care services organization had no right unilaterally to make changes in any provision of the policy, contract or annuity or had a right only to make changes in premium by class.

(d) In providing substitute coverage under subdivision (c) of this paragraph:

(i) The fund may offer to reissue the terminated coverage or to issue an alternative policy or contract at actuarially justified rates, subject to the prior approval of the director.

(ii) Any alternative or reissued policies or contracts so offered shall be offered without requiring evidence of insurability and without any waiting period or exclusion that would not have applied under the terminated policy or contract.

(iii) The fund may reinsure any alternative or reissued policy or contract.

(e) Any alternative policy or contract adopted by the fund is subject to approval by the director. The fund may adopt alternative policies or contracts of various types for future issuance without regard to any particular impairment or insolvency. Any alternative policy or contract shall:

(i) Contain at least the minimum statutory provisions required in this state and provide benefits that are reasonable in relation to the premium charged. The fund shall set the premium in accordance with a table of rates that the fund shall adopt. The premium shall reflect the amount of insurance to be provided and the age and class of risk of each insured, but shall not reflect any changes in the health of the insured after the original policy or contract was last underwritten.

(ii) Provide coverage of a type similar to that of the policy or contract issued by the impaired insurer or insolvent insurer, as determined by the fund.

(f) If the fund elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy or contract, the premium shall be actuarially justified and shall be set by the fund in accordance with the amount of insurance or coverage provided and the age and class of risk, subject to prior approval of the director.

(g) The fund's obligations with respect to coverage under any policy or contract of the impaired insurer or insolvent insurer or under any reissued or alternative policy or contract shall cease on the date the coverage or policy or contract is replaced by another similar policy or contract by the policy or contract owner, the insured, the enrollee or the fund.

(h) When proceeding under this paragraph with respect to a policy or contract carrying guaranteed minimum interest rates, the fund shall assure the payment or crediting of a rate of interest consistent with subdivision (c) of this paragraph.

C. The fund is not liable pursuant to this section for any covered policy of an impaired insurer or insolvent insurer whose domiciliary jurisdiction or state of entry provides by statute or regulation for residents of this state protection substantially similar to that provided by this article for residents of other states.

D. The fund may render assistance and advice to the director, on the director's request, concerning rehabilitation, payment of claims, continuations of coverage or the performance of other contractual obligations of any impaired insurer or insolvent insurer.

E. The fund shall have standing to appear or intervene before any court with jurisdiction over an impaired insurer or insolvent insurer concerning which the fund is or may become obligated, or over any person or property against which the fund may have rights, pursuant to this article. Such standing shall extend to all matters germane to the powers and duties of the fund, including proposals for reinsuring, reissuing, modifying or guaranteeing the covered policies or contracts of the impaired insurer or insolvent insurer and the determination of the covered policies or contracts and contractual obligations.

F. Any persons receiving benefits pursuant to this article shall be deemed to have assigned their rights under, and any causes of action against any person for losses arising under, resulting from or otherwise relating to, the covered policy or contract to the fund to the extent of the benefits received whether the benefits are payments of contractual obligations, continuation of coverage or provision of substitute or alternative policies, contracts or coverages. The fund may require an assignment to the fund of such rights by any enrollee, payee, policy or contract owner, beneficiary, insured or annuitant as a condition precedent to the receipt of any rights or benefits conferred on such person pursuant to this article. The subrogation rights of the fund under this subsection shall have the same priority against the assets of any impaired insurer or insolvent insurer as that possessed by the person who is entitled to receive the benefits under this article. The fund shall have all common law rights of subrogation and any other equitable or legal remedy that would have been available to the impaired insurer or insolvent insurer or owner, beneficiary, enrollee or payee of a policy or contract with respect to the policy or contract. If the preceding provisions of this subsection are ineffective with respect to any person or claim for any reason, the amount payable by the fund with respect to the related covered obligations shall be reduced by the amount attributable to the policies or contracts, or any part of the policies or contracts, covered by the fund that is realized by any other person with respect to the person or claim. If the fund has provided benefits with respect to a covered obligation and a person recovers amounts as to which the fund has rights under this subsection, the person shall pay to the fund the part of the recovery attributable to the policies or contracts, or any part of the policies or contracts, covered by the fund.

G. Notwithstanding any other law, the fund is not obligated to pay any amount that does not constitute a payment of a contractual obligation, including taxable costs or attorney fees that could be awarded or any additional liabilities or obligations as might otherwise exist or accrue against the impaired insurer if the insurer had not become impaired.

H. The fund may:

1. Enter into such contracts as are necessary or proper to carry out the provisions and purposes of this article.

2. Sue and be sued, including taking any legal actions that are necessary and proper for recovery of any unpaid assessments pursuant to section 20-686.

3. Borrow money to effect the purposes of this article. Any notes or other evidence of indebtedness of the fund that are not in default shall be legal investments for domestic member insurers and may be carried as admitted assets.

4. Employ and retain such persons as are necessary to handle the financial transactions of the fund and perform such other functions as become necessary or proper.

5. Negotiate and contract with any liquidator, rehabilitator, conservator or ancillary receiver to carry out the powers and duties of the fund.

6. Join an organization comprised of one or more other similar state funds in order to further the administration of the fund's powers and duties under this article.

7. Take such legal action as may be necessary to avoid payment of improper claims.

8. Exercise, for the purposes of this article and to the extent approved by the director, the powers of a domestic life insurer, disability insurer or health care services organization. In no case may the fund issue policies or contracts other than those issued to perform the contractual obligations of the impaired insurer or insolvent insurer.

9. Unless prohibited by law, in accordance with the terms and conditions of the policy or contract, file for actuarially justified rate or premium increases for any policy or contract for which the fund provides coverage under this article.

I. At any time within one hundred eighty days after the date of the order of liquidation, the fund, by written notice to the affected reinsurers, may elect to assume the rights and obligations of a ceding member insurer that relate to policies or annuities covered in whole or in part by the fund under any one or more reinsurance contracts entered into by the insolvent insurer, subject to the following:

1. The assumption shall be effective as of the date of the order of liquidation.

2. The receiver and each reinsurer of the ceding member insurer shall make available on request to the fund after commencement of formal delinquency proceedings:

(a) Copies of in-force reinsurance contracts and all related records relevant to the determination whether to assume such contracts.

(b) Notices of any defaults under the reinsurance contracts or any known event or condition that may presently or subsequently constitute a default under the reinsurance contracts.

3. With respect to reinsurance contracts assumed by the fund under this subsection:

(a) The fund shall be responsible for all unpaid premiums due under the reinsurance contracts for periods both before and after the date of the order of liquidation, and for performance of all other obligations after the date of the order of liquidation that relate to policies, contracts or annuities covered in whole or in part by the fund. The fund may charge policies, contracts or annuities covered in part by the fund, through reasonable allocation methods, for the costs for reinsurance in excess of the fund's obligations and shall provide notice and an accounting of these charges to the receiver.

(b) The fund shall be entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur after the date of the order of liquidation and that relate to policies, contracts or annuities covered in whole or in part by the fund, provided that on receipt of any such amounts, the fund shall pay to the beneficiary under the policy, contract or annuity an amount equal to the lesser of:

(i) The amount received by the fund.

(ii) The excess of the amount received by the fund over the amount equal to the benefits paid by the fund on account of the policy, contract or annuity less the retention of the impaired insurer or insolvent insurer applicable to the loss or event.

(c) Within thirty days after the fund's election, the fund and each reinsurer under contracts assumed by the fund shall calculate the net balance due to or from the fund under each reinsurance contract as of the date of the fund's election with respect to policies, contracts or annuities covered in whole or in part by the fund, giving full credit to all items paid by the member insurer or its receiver or the reinsurer before the date of the fund's election. The reinsurer shall pay the receiver any amounts due for losses or events before the date of the order of liquidation, subject to any setoff for premiums unpaid for periods before the date of the order of liquidation, and the fund or reinsurer shall pay any remaining balance due the other within five days after the completion of the calculation. Any disputes over the amounts due shall be resolved in accordance with the reinsurance contract. If the receiver has received any amounts due to the fund pursuant to subdivision (b) of this paragraph, the receiver shall promptly remit the amount to the fund.

(d) If the fund or receiver, within sixty days after the election, pays the unpaid premiums due for periods both before and after the election date that relate to policies, contracts and annuities covered in whole or in part by the fund, the reinsurer shall not be entitled to terminate the reinsurance contracts for failure to pay premium to the extent the reinsurance contracts related to policies, contracts or annuities covered in whole or in part by the fund, and shall not be entitled to set off any unpaid amounts due under other contracts or due from parties other than the fund, against amounts payable to the fund.

4. Provided that the parties rights and obligations shall be governed by paragraph 3 of this subsection, if the fund elects to assume a reinsurance contract, during the period from the date of the order of liquidation until the earlier of the election date or one hundred eighty days after the date of the order of liquidation:

(a) The fund and the reinsurer shall not have any rights or obligations under reinsurance contracts that the fund has the right to assume under paragraph 3 of this subsection, whether for periods before or after the date of the order of liquidation.

(b) The reinsurer, receiver and fund shall provide each other data and records reasonably requested, to the extent practicable.

5. If the fund does not elect to assume a reinsurance contract by the election date pursuant to paragraph 3 of this subsection, the fund shall have no rights or obligations with respect to the reinsurance contract for periods before and after the date of the order of liquidation.

6. If the fund transfers policies, contracts or annuities, or covered obligations with respect to policies, contracts or annuities, to an assuming insurer, reinsurance on the transferred policies, contracts or annuities may also be transferred by the fund, in the case of contracts assumed under paragraph 3 of this subsection, subject to the following:

(a) Unless the reinsurer and the assuming insurer agree otherwise, the reinsurance contract transferred shall not cover any policies, contracts or annuities other than those transferred.

(b) The obligations described in paragraph 3 of this subsection do not apply with respect to matters arising after the date of the transfer.

(c) The transferring party shall provide written notice to the affected reinsurer not less than thirty days before the effective date of the transfer.

J. Subsection I of this section supersedes any provision of state law or of any affected reinsurance contract that provides for or requires any payment of reinsurance proceeds, on account of losses or events that occur in periods after the date of the order of liquidation, to the receiver of the insolvent insurer or any other person. The receiver shall remain entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in periods before the date of the order of liquidation, subject to any applicable setoff provisions.

K. Except as otherwise provided in subsection I of this section, this section does not:

1. Alter or modify the terms and conditions of any reinsurance contract.

2. Limit any rights of any reinsurer to claim that it is entitled to rescind a reinsurance contract.

3. Provide a policy owner, contract owner, enrollee, certificate holder or beneficiary an independent cause of action against a reinsurer that is not otherwise set forth in the reinsurance contract.

4. Limit or affect the fund's rights as a creditor of the estate.

5. Apply to reinsurance contracts covering property or casualty risks.

L. In carrying out its duties in connection with guaranteeing, assuming, reissuing or reinsuring policies or contracts under subsection A or B of this section, the fund may issue substitute coverage for a policy or contract that provides an interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value by issuing an alternative policy or contract in accordance with the following provisions:

1. In lieu of the index or other external reference provided for in the original policy or contract, the alternative policy or contract provides for a fixed interest rate, or payment of dividends with minimum guarantees, or a different method for calculating interest or changes in value.

2. There is no requirement for evidence of insurability, waiting period or other exclusion that would not have applied under the replaced policy or contract.

3. The alternative policy or contract is substantially similar to the replaced policy or contract in all other material terms.

M. If the fund offers to provide the benefits of this article to a covered person under a plan or arrangement that fulfills the fund's obligations under this article, the person shall not be entitled to benefits from the fund in addition or as an alternative to those offered under the plan or arrangement.

N. Venue in a suit against the fund arising under this article shall be in the superior court of Maricopa county. The fund shall not be required to give a bond in an appeal that relates to a cause of action arising under this article.

§ 20-686 Assessments

A. For the purpose of providing the funds necessary to carry out the powers and duties of the fund, the fund shall assess the member insurers, separately for each account, at such times and for such amounts as the fund finds necessary. The member insurers shall be required to pay the assessments within the time prescribed in a written notice of the assessment to the member insurers but no less than thirty days after the date of the written notice.

B. There shall be two classes of assessments, as follows:

1. Class A assessments shall be authorized and called for the purpose of meeting administrative costs and other general expenses not related to a particular impaired insurer or insolvent insurer.

2. Class B assessments shall be authorized and called to the extent necessary to carry out the powers and duties of the fund pursuant to section 20-685 with regard to an impaired insurer or insolvent insurer.

C. The amount of assessment for each account shall be determined as follows:

1. The amount of any class A assessment for each account shall be determined by the fund.

2. The amount of any class B assessment, except for assessments related to long-term care insurance, shall be allocated between the accounts in the proportion that the premiums received by the impaired insurer or insolvent insurer on the policies or contracts covered by each account bear to the premiums received by such insurer on all such policies or contracts. The amount of the class B assessment for long-term care insurance written by the impaired or insolvent insurer shall be allocated according to a methodology included in the plan of operation and approved by the director. The methodology shall provide for fifty percent of the assessment to be allocated to accident and disability member insurers and fifty percent to be allocated to life and annuity member insurers.

3. Class A and class B assessments against member insurers for each account shall be in the proportion that the premiums received on business in this state by each assessed member insurer on policies covered by each account bear to such premiums received on business in this state by all assessed member insurers.

4. Assessments for funds to meet the requirements of the fund with respect to an impaired insurer or insolvent insurer shall not be made until necessary to implement the purposes of this article. Classification of assessments as prescribed pursuant to subsection B of this section and computation of assessments pursuant to this subsection shall be made with a reasonable degree of accuracy, recognizing that exact determinations may not always be possible.

5. The total of all assessments on a member insurer for each account shall not in any one calendar year exceed two percent of that member insurer's average annual premiums received in this state on the policies and contracts covered by the account during the three calendar years preceding the year in which the member insurer became an impaired insurer or insolvent insurer. If two or more assessments are authorized in one calendar year with respect to member insurers that become impaired or insolvent in different calendar years, the average annual premiums for purposes of the aggregate assessment percentage limitation shall be limited to the greater of the three year average annual premiums for the applicable account as calculated pursuant to this subsection.

D. The fund may abate or defer, in whole or in part, the assessment of a member insurer if, in the opinion of the fund, payment of the assessment would endanger the ability of the member insurer to fulfill its contractual obligations.

E. If an assessment against a member insurer is abated or deferred, in whole or in part, because of the limitations set forth in subsection D of this section, the amount by which such assessment is abated or deferred may be assessed against the other member insurers in a manner consistent with the basis for assessments set forth in this section. If the maximum assessment, together with the other assets of the fund in either account, does not provide in any one year in either account an amount sufficient to carry out the responsibilities of the fund, the necessary additional monies shall be assessed as soon thereafter as permitted by this article.

F. The fund, by an equitable method as established in the plan of operation, may refund to member insurers, in proportion to the contribution of each member insurer to that account, the amount the fund finds is not necessary to carry out during the coming year the obligations of the fund with regard to such amount, including assets accruing from net realized gains and income from investments. A reasonable amount may be retained in any account to provide funds for the continuing expenses of the fund and for future losses.

G. Any member insurer, in determining its premium rates and policyowner dividends as to any kind of insurance or health care services organization business within the scope of this article, may consider the amount reasonably necessary to meet its assessment obligations.

H. The fund shall issue to each member insurer paying an assessment a certificate of contribution, in a form prescribed by the director, for the amount paid. All outstanding certificates shall be of equal priority without reference to amounts or dates of issue. A certificate of contribution may be shown by the member insurer in its financial statement as an asset in such form and for such amount and period of time as the director may approve.

§ 20-687 Plan of operation

A. The board shall submit to the director a plan of operation and any amendments necessary to assure the fair, reasonable and equitable administration of the fund. The plan of operation and any amendments shall become effective on approval in writing by the director. If the board fails to submit a plan of operation or if at any time the board fails to submit suitable amendments to the plan, the director shall adopt any plan or amendment that is necessary or advisable to effectuate the provisions of this article and the plan or amendment shall continue in force until modified by the director or superseded by a plan submitted by the board and approved by the director.

B. All member insurers shall comply with the plan of operation.

C. The plan of operation, in addition to all other requirements, shall:

1. Establish procedures for handling the assets of the fund and claims against the fund.

2. Establish the amount and method of reimbursing members of the board of directors pursuant to section 20-684.

3. Establish regular places and times for meetings of the board of directors.

4. Establish procedures for records to be kept of all financial transactions of the fund, its agents and the board of directors.

5. Establish the procedures for selecting the board of directors and submitting such selections to the director.

6. Establish any additional procedures for assessments required pursuant to section 20-686.

7. Contain additional provisions necessary for the execution of the powers and duties of the board.

D. The plan of operation may provide that any or all powers and duties of the board, except those in section 20-685, subsection H, paragraph 3 and section 20-686, are delegated to any corporation, association or other organization that performs or will perform functions similar to those of this fund in two or more states. Such a corporation, association or organization shall be reimbursed for any payments made on behalf of the fund and shall be paid for its performance of any function of the fund. A delegation pursuant to this subsection shall take effect only with the approval of both the board of directors and the director and may be made only to a corporation, association or organization that extends protection not substantially less favorable and effective than that provided by this article.

§ 20-688 Duties and powers of the director

A. In addition to all other duties and powers enumerated in this article, the director shall:

1. Notify the board of directors of the existence of an impaired insurer or insolvent insurer not later than three days after a determination of impairment or insolvency or the director receives notice of impairment or insolvency.

2. On request of the board of directors, provide the board with a statement of the premiums in the appropriate states for each member insurer.

3. When an impairment is declared and the amount of the impairment is determined, serve a demand on the impaired insurer to make good the impairment within a reasonable time. Notice to the impaired insurer shall constitute notice to its shareholders. The failure of the impaired insurer to promptly comply with such demand shall not excuse the board from the performance of its duties pursuant to this article.

B. The director may suspend or revoke, after notice and a hearing pursuant to title 41, chapter 6, article 10, the certificate of authority to transact business in this state of any member insurer that fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative the director may levy a forfeiture on any member insurer that fails to pay an assessment when due. Such forfeiture shall not exceed five percent of the unpaid assessment per month, but no forfeiture may be less than one hundred dollars per month.

C. Any action of the board of directors may be appealed to the director by any member insurer within thirty days. Except as provided in section 41-1092.08, subsection H, any final action or order of the director is subject to judicial review pursuant to title 12, chapter 7, article 6.

D. The liquidator, rehabilitator or conservator of any impaired insurer or insolvent insurer may notify all interested persons of the effect of this article.

§ 20-689 Prevention of impairments

To aid in the detection and prevention of member insurer impairments and insolvencies:

1. The board of directors, on majority vote, shall notify the director of any information indicating that any member insurer may be unable or potentially unable to fulfill its contractual obligations.

2. The board of directors, on majority vote, may request that the director order an examination of any member insurer which the board in good faith believes may be unable or potentially unable to fulfill its contractual obligations. The director may conduct such examination. The examination may be conducted as a national association of insurance commissioners examination or may be conducted by such persons as the director designates. The cost of such examination shall be paid by the fund and the examination report shall be treated as are other examination reports. The examination report shall not be released to the board of directors of the fund before its release to the public, but this shall not excuse the director from the obligation to comply with paragraph 3. The director shall notify the board of directors when the examination is completed. The request for an examination shall be kept on file by the director but it shall not be open to the public and shall be released only if the examination discloses that the examined insurer is unable or potentially unable to meet its contractual obligations.

3. The director shall report to the board of directors when the director has reasonable cause to believe that any member insurer examined at the request of the board of directors may be unable or potentially unable to fulfill its contractual obligations.

4. The board of directors, on majority vote, may make reports and recommendations to the director on any matter germane to the solvency, liquidation, rehabilitation or conservation of any member insurer. Such reports and recommendations shall not be considered public documents.

5. The board of directors, on majority vote, may make recommendations to the director for the detection and prevention of member insurer impairments and insolvencies.

6. The board of directors, at the conclusion of any insurer impairment or insolvency in which the fund carried out its duties, shall prepare a report on the history and causes of such impairment or insolvency based on the information available to the fund and submit such report to the director.

§ 20-690 Financial provisions

A. Nothing in this article shall be construed to reduce the liability for unpaid assessments of the insureds of an impaired insurer or insolvent insurer operating under a plan with assessment liability.

B. Records shall be kept of all negotiations and meetings in which the fund or its representatives are involved to discuss the activities of the fund in carrying out its powers and duties. Records of such negotiations or meetings shall be made public only on the termination of a liquidation, rehabilitation or conservation proceeding involving the impaired insurer or insolvent insurer, on the termination of the impairment or insolvency of the insurer or on the order of a court of competent jurisdiction.

C. For the purpose of carrying out its obligations pursuant to this article, the board shall be deemed to be a creditor of the impaired insurer or insolvent insurer to the extent of assets attributable to policies reduced by any amounts to which the board is entitled as subrogee. All assets of the impaired insurer or insolvent insurer attributable to policies shall be used to continue all policies and pay all contractual obligations of the impaired insurer or insolvent insurer. As used in this subsection, "assets attributable to policies" means that proportion of the assets which the reserves that should have been established for such policies or contracts bear to the reserve that should have been established for all policies of insurance or health benefit plans written by the impaired insurer or insolvent insurer.

D. Before the termination of any liquidation, rehabilitation or conservation proceeding, the court may take into consideration the contributions of the respective parties including the board, the shareholders, contract owners, certificate holders, enrollees and policyowners of the impaired insurer or insolvent insurer and any other party with a bona fide interest in making an equitable distribution of the ownership rights of such impaired insurer or insolvent insurer. In such a determination, consideration shall be given to the welfare of the policyholders, contract owners, certificate holders and enrollees of the continuing or successor member insurer. No distribution to stockholders of the assets of an impaired insurer or insolvent insurer may be made until and unless the total amount of valid claims of the fund with interest thereon for monies expended in carrying out its powers and duties under section 20-685 with respect to such insurer is fully recovered by the fund.

E. If an order for liquidation or rehabilitation of a member insurer domiciled in this state has been entered, the receiver appointed under such order may recover on behalf of the member insurer, from any affiliate that controlled it, the amount of distributions, other than stock dividends paid by the member insurer on its capital stock, made at any time during the five years preceding the petition for liquidation or rehabilitation subject to the following limitations:

1. No such dividend shall be recoverable if the member insurer shows that when paid the distribution was lawful and reasonable and that the member insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the member insurer to fulfill its contractual obligations.

2. Any person who as an affiliate that controlled the member insurer at the time the distributions were paid shall be liable up to the amount of distributions the person received. Any person who was an affiliate that controlled the member insurer at the time the distributions were declared shall be liable up to the amount of distributions the person would have received if they had been paid immediately. If two persons are liable with respect to the same distributions, they are jointly and severally liable.

3. The maximum amount recoverable pursuant to this subsection shall be the amount needed in excess of all other available assets of the impaired insurer or insolvent insurer to pay the contractual obligations of the impaired insurer or insolvent insurer.

4. If any person liable pursuant to paragraph 2 is insolvent, all its affiliates that controlled it at the time the dividend was paid are jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent affiliate.

F. The receiver, conservator, liquidator or statutory successor of an impaired insurer or insolvent insurer is bound by a settlement of covered claims by the fund or a similar organization in another state.

§ 20-691 Examination of the fund; annual report

The fund shall be subject to examination and regulation by the director. The board of directors shall submit to the director, not later than May 1 of each year, a financial report for the preceding calendar year in a form approved by the director and a report of its activities during the preceding calendar year.

§ 20-692 Premium tax offset

A. The board shall issue to each member insurer paying an assessment pursuant to this article a certificate of contribution, in a form prescribed by the director for the amount paid. All outstanding certificates shall be of equal dignity and priority without reference to amounts or dates of issue.

B. A certificate of contribution issued to a member insurer shall be offset against its premium tax liability to this state in the amount of twenty percent of the assessment for the year of assessment and twenty percent of the assessment per year for each of the succeeding four years.

C. Notwithstanding subsection B of this section, the total amount a member insurer may offset against its premium tax liability pursuant to a certificate of contribution that is issued from 1987 through 1994 shall not exceed the following percentage amounts for each certificate of contribution, except that in no event may the total amount of the offset exceed one hundred percent of each assessment:

1. For 1991, seven percent.

2. For 1992, nine percent.

3. For 1993, eleven percent.

4. For 1994, thirteen percent.

D. A member insurer may not offset its premium tax liability by any amount unless the assessment for which the first year credit is claimed was collected by the guaranty fund in the calendar year for which the insurer seeks to offset its taxes.

E. Beginning in 1995, the total amount that a member insurer may offset against its premium tax liability pursuant to a certificate of contribution shall be as provided in subsection B of this section, except that in no event shall the total amount of the offset exceed one hundred percent of the assessment.

§ 20-693 Immunity

There shall be no liability on the part of and no cause of action of any nature shall arise against the fund or its agents or employees, members of the board of directors or the director or his or her representatives for any action taken by them in the performance of their powers and duties pursuant to this article.

§ 20-694 Stay of proceedings; reopening default judgments

A. All proceedings in which the impaired insurer or insolvent insurer or the impaired insurer's or insolvent insurer's insured is a party in any court in this state shall be stayed sixty days from the date an order of liquidation, rehabilitation or conservation is final to permit proper legal action by the board on any matters germane to its powers or duties. At the request of the board and on a showing of good cause, the court may lengthen the stay prescribed in this section. As to a judgment under any decision, order, verdict or finding based on default, the board may apply to have such judgment set aside by the same court that made such judgment and shall be permitted to defend against such suit on the merits.

B. Notwithstanding subsection A of this section or any other provision of this chapter, a receiver, rehabilitator, liquidator or conservator may not void any transfer of, or any obligation to transfer, money or other property arising under or in connection with any federal home loan bank security agreement with an insurer member, or any pledge, security, collateral or guarantee agreement or any other similar arrangement or credit enhancement relating to a federal home loan bank security agreement with an insurer member unless the transfer was made with actual intent to hinder, delay or defraud either existing or future creditors.

§ 20-695 Statute of limitations

With respect to the handling of claims pursuant to section 20-687 the board may by resolution provide that claims not filed within four months from the date of notice to creditors shall be barred.

Article 8 Life and Health Actuarial Opinion and Memorandum Requirements

§ 20-696 Scope of article

A. This article applies to all life insurance companies and fraternal benefit societies that are doing business in this state or that are authorized to reinsure life insurance, annuities or accident and health insurance business in this state.

B. This article applies to all annual statements that are filed with the director after the effective date of this article. All insurers shall file the following with the director each year:

1. A statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis that is conducted pursuant to section 20-696.03.

2. A memorandum in support of the opinion pursuant to section 20-696.04.

C. If a foreign company is required to submit a statement of actuarial opinion, the director may accept the statement of actuarial opinion that is filed by the company with the insurance supervisory regulator of another state if the director determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state.

D. The director, by order, may adopt methods of actuarial analysis and actuarial assumptions that are necessary for an acceptable opinion and memorandum consistent with this article.

§ 20-696.01 Definitions

In this article, unless the context otherwise requires:

1. "Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of the reserves and related actuarial items that is based on an asset adequacy analysis conducted pursuant to section 20-696.03 and that is based on presently accepted actuarial standards of practice.

2. "Actuarial standards board" means the board that is established by the American academy of actuaries to develop and promulgate actuarial standards of practice.

3. "Annual statement" means the statement that an insurer annually files with the director pursuant to section 20-223.

4. "Appointed actuary" means an individual who is appointed or retained pursuant to section 20-696.02, subsection D to provide the actuarial opinion and supporting memorandum prescribed by section 20-510, subsection E or F.

5. "Asset adequacy analysis" means an analysis that meets the standards and other requirements prescribed pursuant to section 20-696.02, subsection E.

6. "Company" means an insurer, fraternal benefit society or reinsurer that is subject to this article pursuant to section 20-696.

7. "Qualified actuary" means any individual who meets the requirements prescribed in section 20-696.02, subsection B.

§ 20-696.02 General requirements; statement of actuarial opinion; qualified actuary; appointed actuary; analysis

A. The following apply to the submission of statements of actuarial opinion:

1. Pursuant to section 20-696.03, a company shall include with or attach to page one of its annual statement the statement of actuarial opinion that is made by an appointed actuary and that states an opinion relating to reserves and related actuarial items held in support of policies and contracts.

2. On written request by the company, the director may grant an extension of the date for submission of the statement of actuarial opinion.

B. A qualified actuary is an individual who meets the following requirements:

1. Is a member in good standing of the American academy of actuaries.

2. Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements pursuant to the American academy of actuaries qualification standards for actuaries signing these statements.

3. Is familiar with the valuation requirements that are applicable to life and health insurance companies.

4. Has not been found by the director, after appropriate notice and hearing and without subsequent reinstatement as a qualified actuary, to have done any of the following:

(a) Violated any provision of or any obligation imposed by this title or other law in the course of the person's conduct as a qualified actuary.

(b) Been convicted of a fraudulent or dishonest practice.

(c) Demonstrated incompetence, lack of cooperation or untrustworthiness to act as a qualified actuary.

(d) Pursuant to this article, submitted to the director during the past five years an actuarial opinion or memorandum that the director rejected because it did not meet the requirements prescribed by this article, including standards prescribed by the actuarial standards board.

(e) Resigned or been removed as an actuary within the past five years as a result of acts or omissions that are indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards.

5. Has notified the director of any action taken against the actuary by the director or commissioner of another state for an act that is prohibited under paragraph 4 of this subsection.

C. Notwithstanding subsection B, paragraph 4 of this section, for good cause shown the director may classify an individual as a qualified actuary.

D. An appointed actuary is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion that is required by this article, either directly by or by the authority of the board of directors through an executive officer of the company who shall not be the qualified actuary. The company shall give the director timely written notice of the name and title of the appointed actuary, the name of the firm if the actuary is a consulting actuary, and the manner of appointment or retention of each person who is appointed or retained by the company as an appointed actuary, and shall state that the person meets the requirements of subsection B of this section. After the company furnishes this notice, no further notice is required with respect to this person, except that the company shall give the director timely written notice if the actuary ceases to be appointed or retained as an appointed actuary or fails to meet the requirements prescribed in subsection B of this section. If a person who is appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall state this and shall give the reasons for the replacement.

E. The asset adequacy analysis required by this article shall:

1. Conform to the actuarial standards of practice as promulgated by the actuarial standards board in effect on the effective date of this article and to any additional standards pursuant to this article that form the basis of the statement of actuarial opinion pursuant to this article.

2. Be based on methods of analysis as are deemed appropriate for these purposes by the actuarial standards board.

F. Liabilities shall be covered in the actuarial opinion as follows:

1. Pursuant to section 20-510, subsection E or F, the statement of actuarial opinion applies to all in force business on the statement date, whether directly issued or assumed and regardless of when or where issued.

2. If the appointed actuary determines as the result of an asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated pursuant to the methods prescribed in section 20-510, the company shall establish the additional reserve.

3. Additional reserves that are established under paragraph 2 of this subsection and that are deemed unnecessary in subsequent years may be released. Any amounts released shall be disclosed in the actuarial opinion for the applicable year. The release of these reserves is not deemed an adoption of a lower standard of valuation.

§ 20-696.03 Statement of actuarial opinion based on an asset adequacy analysis

A. The statement of actuarial opinion submitted pursuant to this section consists of:

1. A paragraph identifying the appointed actuary and the actuary's qualifications pursuant to section 20-696.02, subsection B.

2. A scope paragraph that identifies the subjects on which an opinion is to be expressed, that describes the scope of the appointed actuary's work, including a table of reserves and related actuarial items that have been analyzed for asset adequacy and the method of analysis, and that identifies the reserves and related actuarial items covered by the opinion that have not been analyzed for asset adequacy.

3. A reliance paragraph that describes those areas, if any, in which the appointed actuary who issues the opinion pursuant to this section has deferred to other experts to develop data, procedures or assumptions and that is supported by a statement of each expert in the form prescribed by the director.

4. An opinion paragraph expressing the appointed actuary's opinion with respect to the adequacy of the supporting assets to mature the liabilities.

5. One or more additional paragraphs as required in individual company cases as follows:

(a) The appointed actuary considers it necessary to state a qualification of the appointed actuary's opinion.

(b) The appointed actuary must disclose an inconsistency in the method of analysis or basis of asset allocation used at the prior opinion date with that used for this opinion.

(c) The appointed actuary must disclose whether additional reserves as of the prior opinion date are released as of this opinion date and the extent of the release.

(d) The appointed actuary chooses to add a paragraph briefly describing the assumptions that form the basis for the actuarial opinion.

B. If the appointed actuary is unable to form an opinion, the appointed actuary shall refuse to issue a statement of actuarial opinion. If the appointed actuary’s opinion is adverse or qualified, the appointed actuary shall issue an adverse or qualified actuarial opinion explicitly stating the reasons for the opinion.

C. If the appointed actuary relies on the certification of others on matters concerning the accuracy or completeness of any data underlying the actuarial opinion or the appropriateness of any other information used by the appointed actuary in forming the actuarial opinion, the actuarial opinion should indicate the persons the actuary is relying on and a precise identification of the items that are subject to reliance. In addition, the persons on whom the appointed actuary relies shall provide a certification that precisely identifies the items on which the person is providing information and a statement as to the accuracy, completeness or reasonableness, as applicable, of the items. This certification shall include the signature, title, company, address and telephone number of the person who is rendering the certification and the date on which it is signed.

§ 20-696.04 Description of actuarial memorandum including an asset adequacy analysis and regulatory asset adequacy issues summary

A. Pursuant to section 20-510, subsection E or F, the appointed actuary shall prepare a memorandum to the company describing the analysis in support of the appointed actuary's opinion regarding the reserves.

B. The director may examine the memorandum pursuant to this section and shall return the memorandum to the company after the examination. The memorandum is not a record of the department and is not subject to automatic filing with the director.

C. The appointed actuary may rely on and include as a part of the memorandum other memoranda that are prepared and signed by other actuaries who are qualified pursuant to section 20-696.02, subsection B. The memorandum shall state that the appointed actuary relied on other qualified actuaries to prepare the memorandum.

D. If the director requests a memorandum and no such memorandum exists, or if the director finds that the analysis described in the memorandum fails to meet the standards of the actuarial standards board or the standards and requirements of this article, the director may designate a qualified actuary to review the opinion and prepare a supporting memorandum as is required for review. The company shall pay any reasonable and necessary expenses of the independent review. The director shall direct and control the review.

E. The reviewing actuary who is designated under subsection D of this section has the same status as an examiner for the purposes of obtaining data from the company. The director shall retain the work papers and documentation of the reviewing actuary. The director shall keep the work papers and documentation confidential. The reviewing actuary shall not be an employee of a consulting firm that is involved with the preparation of any prior actuarial memorandum or opinion for the insurer pursuant to this article during the current year or the preceding three years.

F. The appointed actuary shall prepare a regulatory asset adequacy issues summary pursuant to subsection H of this section. The regulatory asset adequacy issues summary shall be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. The director shall keep the regulatory asset adequacy issues summary confidential to the same extent and under the same conditions as the actuarial memorandum.

G. If an actuarial opinion is provided the memorandum shall demonstrate that the analysis was conducted pursuant to the standards for asset adequacy prescribed pursuant to section 20-696.03 and any additional standards prescribed pursuant to this article. The memorandum shall specify:

1. For reserves:

(a) Product descriptions, including market description, underwriting and other aspects of a risk profile and the specific risks the appointed actuary deems significant.

(b) Source of liability in force.

(c) Reserve method and basis.

(d) Investment reserves.

(e) Reinsurance arrangements.

(f) Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account or under a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis.

(g) Documentation of assumptions, including documentation to allow an actuary reviewing the actuarial memorandum to form a conclusion about the reasonableness of the assumptions, to test reserves for the following:

(i) Base lapse rates and excess lapse rates.

(ii) Interest crediting rate strategy.

(iii) Mortality.

(iv) Policyholder dividend strategy.

(v) Competitor or market interest rate.

(vi) Annuitization rates.

(vii) Commissions and expenses.

(viii) Morbidity.

2. For assets:

(a) Portfolio descriptions, including a risk profile that discloses the quality, distribution and types of assets.

(b) Investment and disinvestment assumptions.

(c) Source of asset data.

(d) Asset valuation bases.

(e) Documentation of assumptions, including documentation to allow an actuary reviewing the actuarial memorandum to form a conclusion about the reasonableness of the assumptions, made for:

(i) Default costs.

(ii) Bond call function.

(iii) Mortgage prepayment function.

(iv) Determining market value for assets sold due to disinvestment strategy.

(v) Determining yield on assets acquired through the investment strategy.

3. For the analysis basis:

(a) Methodology.

(b) Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed.

(c) Rationale for degree of rigor in analyzing different blocks of business.

(d) Criteria for determining asset adequacy.

(e) Impact of federal income taxes and the method of treating reinsurance in the asset adequacy analysis.

4. A summary of material changes in methods, procedures or assumptions from a prior year's asset adequacy analysis.

5. A summary of results.

6. Conclusions.

H. The regulatory asset adequacy issues summary shall include:

1. Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the appointed actuary shall describe those tests and the amount of additional reserve as of the valuation date that, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined either by extending the projection period until the in force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that can reasonably be expected to arise from the assets and liabilities remaining in force.

2. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different than the assumptions used in the previous asset adequacy analysis.

3. The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but that were not subject to analysis for the current opinion.

4. Comments on any interim results that may be of significant concern to the appointed actuary.

5. The methods used by the appointed actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each of the scenarios tested.

6. The extent to which the appointed actuary is satisfied that all options, whether explicit or embedded, in any asset or liability and equity-like features in any investments are appropriately considered in the asset adequacy analysis.

7. The name of the company for which the regulatory asset adequacy issues summary is being supplied.

8. The signature of the appointed actuary and the date of the signature.

I. The memorandum shall include the following statement:

Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate actuarial standards of practice as promulgated by the actuarial standards board that form the basis for this memorandum.

J. An appropriate allocation of assets in the amount of the interest maintenance reserve whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the asset valuation reserve. These asset valuation reserve assets may not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support.

K. The amount of the assets used for the asset valuation reserve shall be disclosed in the table of reserves and liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.

L. The appointed actuary shall retain on file, for at least seven years, sufficient documentation to determine the procedures followed, the analyses performed, the bases for assumptions and the results obtained.

Article 9 Property and Casualty Actuarial Opinion Requirements

§ 20-697 Property and casualty actuarial opinions; limitation of liability

A. Every property and casualty insurance company doing business in this state annually shall file a statement of actuarial opinion that is made by an appointed actuary. The statement of actuarial opinion shall be filed with the annual financial statement required by section 20-223 in accordance with the appropriate national association of insurance commissioners property and casualty annual statement instructions. The statement of actuarial opinion is a public document.

B. Every property and casualty insurance company that is domiciled in this state and that is required to submit a statement of actuarial opinion annually shall submit an actuarial opinion summary that is written by the company's appointed actuary. This actuarial opinion summary shall be filed in accordance with the appropriate national association of insurance commissioners property and casualty annual statement instructions and shall be considered a document supporting the actuarial opinion required by subsection A of this section. A company that is licensed but not domiciled in this state shall provide the actuarial opinion summary on the director's request.

C. Every property and casualty insurance company that is domiciled in this state and that is required to submit a statement of actuarial opinion annually shall require its appointed actuary to prepare an actuarial report in support of the actuarial opinion that is in compliance with the requirements contained in the national association of insurance commissioners property and casualty annual statement instructions. If the insurance company fails to provide a supporting actuarial report or work papers at the request of the director or the director determines that the supporting actuarial report or work papers are otherwise unacceptable, the director may engage a qualified actuary at the company's expense to review the opinion and the basis for the opinion and to prepare the supporting actuarial report or work papers.

D. The appointed actuary is not liable for damages to any person other than the insurance company and the director for any act, error, omission, decision or conduct with respect to the actuary's opinion, unless the actuary engaged in fraud or wilful misconduct.

§ 20-697.01 Confidentiality; sharing of information

A. Documents, materials or other information in the possession or control of the department that are considered an actuarial report, work papers or actuarial opinion summary provided in support of the opinion and any other material provided by the company to the director in connection with the actuarial report, work papers or actuarial opinion summary are confidential, shall not be subject to public records requests, shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action.

B. This section and section 20-697 shall not be construed to limit the director's authority to release the documents to the actuarial board for counseling and discipline so long as the material is required for the purpose of professional disciplinary proceedings and that the actuarial board for counseling and discipline establishes procedures satisfactory to the director for preserving the confidentiality of the documents, nor shall this section be construed to limit the director's authority to use the documents, materials or other information in furtherance of any regulatory or legal action brought as part of the director's official duties.

C. Neither the director nor any person who receives documents, materials or other information while acting under the authority of the director shall be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to subsection A of this section.

D. The director may:

1. Share documents, materials or other information, including the confidential and privileged documents, materials or information subject to subsection A of this section with other state, federal and international regulatory agencies, with the national association of insurance commissioners and its affiliates and subsidiaries and with state, federal and international law enforcement authorities, provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material or other information and has the legal authority to maintain confidentiality.

2. Receive documents, materials or information, including otherwise confidential and privileged documents, materials or information, from the national association of insurance commissioners and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information.

3. Enter into agreements governing the sharing and use of information consistent with subsections A through D of this section.

E. No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the director under this section or as a result of sharing as authorized in subsection D of this section.

Article 10 Audited Financial Reports

§ 20-698 Annual audited financial reports

A. For the year ending December 31, 2010 and for each year thereafter, every insurer is subject to the requirements of the national association of insurance commissioners annual financial reporting model regulation for that calendar year. Only insurers having direct premiums written of less than one million dollars nationwide in any calendar year and less than one thousand policyholders or certificate holders of direct written policies nationwide at the end of the calendar year are exempt from the requirements of the national association of insurance commissioners annual financial reporting model regulation for that calendar year, unless the director makes a specific finding that compliance is necessary for the director to carry out statutory responsibilities. Insurers that assumed premiums pursuant to contracts or treaties of reinsurance of one million dollars or more are not exempt.

B. The director may determine whether, consistent with the requirements of the national association of insurance commissioners annual financial reporting model regulation:

1. A foreign or alien insurer may be exempt from compliance with any or all of the annual financial reporting requirements if the director finds its domiciliary jurisdiction has a substantially similar law in effect and the insurer has filed its audited financial report and other required communications with the director as otherwise required by this article.

2. An insurer is required to file an audited financial report earlier than June 1, with ninety days' advanced notice to the insurer.

3. An extension of the June 1 filing date will be granted for thirty-day periods.

4. An exception will be granted to the rotation requirement for a lead audit partner for an insurer.

5. An individual meets the qualifications as an independent certified public accountant for the purposes of this article.

6. A financial or organizational hardship exemption will be granted to allow a qualified independent certified public accountant to perform nonaudit services for an insurer having direct written and assumed premiums of less than one hundred million dollars in any calendar year.

7. An insurer may file consolidated or combined audited financial statements in lieu of a separate annual audited financial statement if the insurer is part of a group of insurance companies that uses a pooling or one hundred per cent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer cedes all of its direct and assumed business to the pool.

8. An insurer will be granted a hardship waiver of the audit committee requirements regarding independent audit committee members.

9. An insurer will be granted a financial or organizational hardship exemption from compliance with any or all of the annual financial reporting requirements.

§ 20-698.01 Rule making; exemption from rule making procedures

A. The director may adopt rules to implement this article.

B. The department is exempt from title 41, chapter 6 for the purposes of adopting rules relating to requirements of the national association of insurance commissioners annual financial reporting model regulation and the director's authority to grant extensions, exemptions and waivers consistent with those provisions and prescribed in section 20-698.

Chapter 4 Particular Types of Insurers

Article 1 Domestic Stock and Mutual Insurers

§ 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. 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 on the insuring powers of the corporation consistent with 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.

B. This section applies to stock and mutual insurers incorporated in this state after January 1, 1955.

§ 20-706 Filing 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 of the articles of incorporation shall be filed with the director of the department of insurance and financial institutions.

B. The articles of incorporation shall be published as required by title 10.

C. The corporation shall appoint a statutory agent located in this state on whom all process in any action or proceeding may be served and shall file originals of the appointment in the director's office and in the corporation commission's office. Any termination of the statutory agent shall not take effect until the corporation has appointed a new, valid statutory agent.

D. 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 by the corporation commission, 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 that 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 each vote may be exercised in person or by proxy.

C. The insurer shall promptly file with the director of the department of insurance and financial institutions a copy, certified by the insurer's secretary, of the bylaws and of every modification of or addition to the bylaws. The director shall disapprove any bylaw provision deemed by the director to be unlawful, inadequate, unfair or detrimental to the proper interests and protection of the insurer's members or any class of the insurer's members. The insurer shall not, after receiving written notice of such disapproval and during the existence thereof, effectuate any disapproved bylaw provision.

§ 20-713.01 Directors; terms; staggered terms

The members of a domestic mutual insurer or mutual insurance holding company shall elect directors at the annual meeting of members. Directors may be elected for terms of not more than one year each and shall serve until their successors are elected and qualified unless, notwithstanding any law to the contrary, the insurer's articles of incorporation or bylaws provide for staggering the terms of directors by dividing the total number of directors into groups containing as equal a number of directors as is possible and providing an initial term of office for directors in each group that expires at succeeding annual meetings of members, with at least one director elected each year. Such staggered terms may not exceed five years each.

§ 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 of the insurer, 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 the department of insurance and financial institutions. This section does not affect any other law requiring a 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 on 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 percent of the insurer's liabilities as of the date on 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 on premium earned on such policy during that year.

D. No member shall have an offset against any assessment for which the member is liable, on account of any claim for unearned premium or loss payable.

E. As to life insurance, any part of such an assessment on a member that remains unpaid following notice of assessment, demand for payment and lapse of a reasonable waiting period as specified in such notice, if approved by the director of the department of insurance and financial institutions as being in the best interests of the insurer and its members, may be secured by placing a lien on 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; violation; 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 of the illegal dividend to the insurer.

C. The director of the department of insurance and financial institutions may revoke or suspend the certificate of authority of an insurer that 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 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.

§ 20-726.01 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.

§ 20-727 Management and exclusive agency contracts

A. A domestic stock or mutual insurer shall not 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 the contract is filed with the director of the department of insurance and financial institutions and is subject to the director's 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 for the disapproval.

B. The director shall disapprove any such contract if the director 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 that 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.

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 $1,000 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 nonconsenting stockholder in accordance with 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 on proposal for consolidation.

6. The plan provides for definite conditions to be fulfilled by a designated early date on 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 does not apply to mutualization under order of court pursuant to rehabilitation or reorganization of an insurer under chapter 3, article 4 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 or procedure as is approved in advance by the director.

B. The director shall not approve any such plan or procedure unless:

1. It is equitable to the insurer's members.

2. It is 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 $1,000 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 shall be based on 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 include all current policyholders and all existing persons who had been a policyholder of the insurer within three years before 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 subsection a preemptive right to acquire the policyholder's proportionate part of all of the proposed capital stock of the insurer, within a designated reasonable period, and to apply on the purchase thereof the amount of the policyholder's equity in the insurer as determined under paragraph 3 of this subsection.

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 the policyholder's equity in the insurer for or on the purchase price of stock to which preemptively entitled, of cash in the amount of not less than fifty percent of the amount of the policyholder's 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. A merger or consolidation is not 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. 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, 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 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 the department of insurance and financial institutions. If a life insurer, the right to vote may be limited to members whose policies are in a face amount of not less than $1,000 and have been in force one year or more.

D. A merger or consolidation shall not be effectuated unless in advance thereof the plan and agreement therefor have been filed with and approved in writing by the director of the department of insurance and financial institutions. The director shall give approval within a reasonable time after filing unless the director 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 the director shall so notify the insurer in writing specifying the reasons for the disapproval.

§ 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 on liquidation

A. On 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 the member's membership bear to the aggregate of all premiums so earned on the policies of all such members. The insurer may, and if the insurer is a life insurer shall, make a reasonable classification of its policies so held by such members and a formula based on 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 the department of insurance and financial institutions.

§ 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.

Article 2 Reciprocal Insurers

§ 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 on a domestic reciprocal insurer by serving the insurer's attorney at the attorney's principal offices or by serving the director of the department of insurance and financial institutions as the insurer's attorney-in-fact.

B. Any judgment based on legal process so served shall be binding on 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 on 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.

Article 3 Hospital, Medical, Dental and Optometric Service Corporations

§ 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, articles 8 and 12 of this title, sections 20-223, 20-234, 20-261, 20-1133, 20-1377, 20-1408, 20-1692, 20-1692.01, 20-1692.02 and 20-1692.03 and chapters 15, 17, 20 and 30 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, "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 that 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 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 the director deems necessary. Each application for a certificate of authority shall be accompanied by the fee prescribed by chapter 1, article 2 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 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.

§ 20-825.01 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.

§ 20-826 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, as to such coverage of family members, shall 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 on 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 intellectual disability or physical disability and chiefly dependent on 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. A corporation may not 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 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 preventive mammography screening and diagnostic imaging 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, including:

1. A mammogram.

2. Digital breast tomosynthesis, magnetic resonance imaging, ultrasound or other modality and at such age and intervals as recommended by the national comprehensive cancer network. This includes patients at risk for breast cancer who have a family history with one or more first or second degree relatives with breast cancer, prior diagnosis of breast cancer, positive testing for hereditary gene mutations or heterogeneously or dense breast tissue based on the breast imaging reporting and data system of the American college of radiology.

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. 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. Subsection N of this section does not:

1. Require 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. Prevent 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. Prevent 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. Subsection P of this section does not prohibit 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 hospital formulary service drug information, a publication of the American society of health system pharmacists.

(b) The national comprehensive cancer network drugs and biologics compendium.

(c) Thomson Micromedex compendium DrugDex.

(d) Elsevier gold standard's clinical pharmacology compendium.

(e) Other authoritative compendia as identified by the secretary of the United States department of health and human services.

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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15, 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 percent 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 $5,000, 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. The corporation may 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 approved United States food and drug administration 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 religiously affiliated employer may require that the corporation provide a contract without coverage for specific items or services required under subsection Y of this section because providing or paying for coverage of the specific items or services is contrary to the religious beliefs of the religiously affiliated employer offering the plan. If a religiously affiliated employer objects to providing coverage for specific items or services required under subsection Y of this section, a written affidavit shall be filed with the corporation stating the objection. On receipt of the affidavit, the corporation shall issue to the religiously affiliated employer a contract that excludes coverage for specific items or services required under subsection Y of this section. The corporation shall retain the affidavit for the duration of the contract and any renewals of the contract. This subsection shall not exclude coverage for prescription contraceptive methods ordered by a health care provider with prescriptive authority for medical indications other than for contraceptive, abortifacient, abortion or sterilization purposes. A religiously affiliated employer offering the plan may state religious beliefs in its affidavit and may require the subscriber to first pay for the prescription and then submit a claim to the hospital service corporation, medical service corporation or hospital, medical, dental and optometric service corporation along with evidence that the prescription is not for a purpose covered by the objection. A hospital service corporation, medical service corporation or hospital, medical, dental and optometric service corporation may charge an administrative fee for handling these claims.

AA. Subsection Z of this section does not authorize a religiously affiliated employer to obtain an employee's protected health information or to violate the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936) or any federal regulations adopted pursuant to that act.

BB. Subsection Z of this section does not restrict or limit any protections against employment discrimination that are prescribed in federal or state law.

CC. 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, "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 who is under eighteen years of age.

3. Subsections Z and AA of this section, "religiously affiliated employer" means either:

(a) An entity for which all of the following apply:

(i) The entity primarily employs persons who share the religious tenets of the entity.

(ii) The entity primarily serves persons who share the religious tenets of the entity.

(iii) The entity is a nonprofit organization as described in section 6033(a)(3)(A)(i) or (iii) of the internal revenue code of 1986, as amended.

(b) An entity whose articles of incorporation clearly state that it is a religiously motivated organization and whose religious beliefs are central to the organization's operating principles.

§ 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.

§ 20-826.03 Eosinophilic gastrointestinal disorder; formula

A. Any contract that is offered by a hospital service corporation or medical service corporation and that contains a prescription drug benefit shall cover amino acid-based formula that is ordered by a physician or a registered nurse practitioner if:

1. The subscriber has been diagnosed with an eosinophilic gastrointestinal disorder.

2. The subscriber is under the continuous supervision of a physician who is licensed pursuant to title 32, chapter 13 or 17 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

3. There is risk of a mental or physical impairment without the use of the formula.

B. A hospital service corporation or medical service corporation shall cover at least seventy-five per cent of the cost of the formula. The hospital service corporation or medical service corporation may limit the maximum annual benefit for formula under this section to twenty thousand dollars.

C. This section does not apply to limited benefit coverage as defined in section 20-1137.

§ 20-826.04 Subscription contracts; autism spectrum disorder; coverage; exceptions; definitions

A. A hospital service corporation or medical service corporation shall not:

1. Exclude or deny coverage for a treatment or impose dollar limits, deductibles and coinsurance provisions based solely on the diagnosis of autism spectrum disorder. For the purposes of this paragraph, "treatment" includes diagnosis, assessment and services.

2. Exclude or deny coverage for medically necessary behavioral therapy services. To be eligible for coverage, behavioral therapy services shall be provided or supervised by a licensed or certified provider.

B. This section does not:

1. Apply to a subscription contract that is issued to an individual or a small employer.

2. Apply to limited benefit coverage as defined in section 20-1137.

3. Require coverage for services provided outside of this state.

C. The coverage required by this section is subject to all the terms and conditions of the subscription contract. This section does not prevent a corporation from imposing deductibles, coinsurance or other cost sharing in relation to the coverage required by this section.

D. For the purposes of this section:

1. "Autism spectrum disorder" means a pervasive, developmental disorder that meets the criteria for autism spectrum disorder as defined in the most recent edition of the diagnostic and statistical manual of mental disorders of the American psychiatric association.

2. "Behavioral therapy" means interactive therapies derived from evidence based research, including applied behavior analysis, which includes discrete trial training, pivotal response training, intensive intervention programs and early intensive behavioral intervention.

3. "Small employer" has the same meaning prescribed in section 20-2301.

§ 20-826.05 Organ harvesting; insurance coverage limitations

A. A subscription contract may limit coverage to a subscriber for a human organ transplant or posttransplant care if either of the following applies:

1. The transplant operation is performed in the People's Republic of China or the Hong Kong special administrative region.

2. The human organ to be transplanted was procured by a sale or donation originating in the People's Republic of China or the Hong Kong special administrative region.

B. This section does not:

1. Require coverage for human organ transplants.

2. Limit a hospital service corporation or medical service corporation from denying coverage for any valid reason.

§ 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 a corporation governed by this article shall at all times include representatives of:

1. Dentists licensed to practice in this state who have contracted with the corporation to render dental service to subscribers, if the corporation is a dental service corporation.

2. 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.

3. The general public, exclusive of 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 of the corporation any salary, compensation or emolument amounting in any year to more than $5,000, unless the board of directors of the corporation first authorizes the salary, compensation or emolument.

2. Make any agreement with any officer whereby the corporation agrees that for any services rendered or to be rendered the officer 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, registered nurse practitioner 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, registered nurse practitioner, 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 made pursuant to this article are subject to chapter 1, article 2 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 percent 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. The 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.

§ 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 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.

§ 20-841.01 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 or registered nurse practitioner 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 or registered nurse practitioner 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 or registered nurse practitioner 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.

§ 20-841.09 Telehealth; coverage of health care services; definition

A. All contracts issued, delivered or renewed in this state must provide coverage for health care services that are provided through telehealth if the health care service would be covered were it provided through an in-person encounter between the subscriber and a health care provider and provided to a subscriber receiving the service in this state. The following requirements apply to coverage of telehealth services:

1. Except as otherwise provided in this subsection, a corporation may not limit or deny the coverage of health care services provided through telehealth, including ancillary services, and may apply only the same limits or exclusions on a health care service provided through telehealth that are applicable to an in-person encounter for the same health care service, except for procedures or services for which the weight of evidence, based on practice guidelines, peer-reviewed clinical publications or research or recommendations by the telehealth advisory committee on telehealth best practices established by section 36-3607, determines not to be appropriate to be provided through telehealth.

2. Except as otherwise provided in this paragraph, a corporation shall reimburse health care providers at the same level of payment for equivalent services as identified by the healthcare common procedure coding system, whether provided through telehealth using an audio-visual format or in-person care. A corporation shall reimburse health care providers at the same level of payment for equivalent in-person behavioral health and substance use disorder services as identified by the healthcare common procedure coding system if provided through telehealth using an audio-only format. This paragraph does not apply to a telehealth encounter provided through a telehealth platform that is sponsored or provided by the corporation. A corporation may not require a health care provider to use a telehealth platform that is sponsored or provided by the corporation as a condition of network participation.

3. Before January 1, 2022, a corporation shall cover services provided through an audio-only telehealth encounter if that service is covered by medicare or the Arizona health care cost containment system when provided through an audio-only telehealth encounter. Beginning January 1, 2022, a corporation shall cover services provided through an audio-only telehealth encounter if the telehealth advisory committee on telehealth best practices established by section 36-3607 recommends that the services may appropriately be provided through an audio-only telehealth encounter.

4. A health care provider shall bill for a telehealth encounter using the healthcare common procedure coding system and shall identify whether the telehealth encounter was provided in an audio-only or audio-video format. To submit a claim for an audio-only service, the health care provider must make telehealth services generally available to patients through the interactive use of audio, video or other electronic media.

5. At the time of the telehealth encounter, the health care provider shall access clinical information and records, if available, that are appropriate to evaluate the patient's condition. The health care provider shall inform the subscriber before the telehealth encounter if there is a charge for the encounter.

6. A corporation may establish reasonable requirements and parameters for telehealth services, including documentation, fraud prevention, identity verification and recordkeeping, but such requirements and parameters may not be more restrictive or less favorable to health care providers or subscribers than are required for health care services delivered in person.

7. Covered telehealth services may be provided regardless of where the subscriber is located or the type of site.

8. Except in an emergency as prescribed in section 20-2803, the contract may limit the coverage to those health care providers who are members of the corporation's provider network.

B. Subsection A of this section does not:

1. Limit the ability of corporations to provide incentives to subscribers that are designed to improve health outcomes, increase adherence to a course of treatment or reduce risk.

2. Prevent corporations from offering network contracts to health care providers who employ value-based purchasing or bundled payment methodologies if otherwise allowed by law or prevent health care providers from voluntarily agreeing to enter into such contracts with a corporation.

C. This section does not relieve a corporation from an obligation to provide adequate access to in-person health care services. Network adequacy standards required by federal or state law may not be met by a corporation through the use of contracted health care providers who provide only telehealth services and do not provide in-person health care services in this state or within fifty miles of the border of this state.

D. This section does not prevent a corporation from imposing deductibles or copayment or coinsurance requirements for a health care service provided through telehealth if the deductible, copayment or coinsurance does not exceed the deductible, copayment or coinsurance applicable to an in-person encounter for the same health care service. If the corporation waives a deductible or copayment or coinsurance requirement that impacts a health care provider's contracted reimbursement rate, the corporation shall reimburse the health care provider for the cost of the deductible or copayment or coinsurance requirement to ensure that the health care provider receives the contracted reimbursement rate if the service is covered and the claim meets other requirements of the network participation agreement.

E. Services provided through telehealth or resulting from a telehealth encounter are subject to all of this state's laws and rules that govern prescribing, dispensing and administering prescription pharmaceuticals and devices and shall comply with Arizona licensure requirements and any practice guidelines of the telehealth advisory committee on telehealth best practices established by section 36-3607 or, if not addressed, the practice guidelines of a national association of medical professionals promoting access to medical care for consumers via telecommunications technology or other qualified medical professional societies to ensure quality of care.

F. This section does not apply to limited benefit coverage as defined in section 20-1137.

G. For the purposes of this section, "telehealth":

1. Means the interactive use of audio, video or other electronic media, including asynchronous store-and-forward technologies and remote patient monitoring technologies, for the purpose of diagnosis, consultation or treatment.

2. Includes:

(a) The use of an audio-only telephone encounter between a subscriber who has an existing relationship with a health care provider or provider group if both of the following apply:

(i) An audio-visual telehealth encounter is not reasonably available due to the subscriber's functional status, the subscriber's lack of technology or telecommunications infrastructure limits, as determined by the health care provider.

(ii) The telehealth encounter is initiated at the request of the subscriber or authorized by the subscriber before the telehealth encounter.

(b) The use of an audio-only encounter between the subscriber and a health care provider, regardless of whether there is an existing relationship with the health care provider or provider group, if the telehealth encounter is for a behavioral health or substance use disorder service and both items of subdivision (a) of this paragraph apply.

3. Does not include the sole use of a fax machine, instant messages, voice mail or email.

§ 20-841.10 Cancer treatment medications; cost sharing; definition

A. A contract that is issued, delivered or renewed by a corporation on or after January 1, 2016 and that provides coverage both for cancer treatment medications that are injected or intravenously administered by a health care provider and for patient-administered cancer treatment medications, including medications that are orally administered or self-injected, may not require a higher copayment, deductible or coinsurance amount for patient-administered cancer treatment medications than is required for those cancer treatment medications that are injected or intravenously administered by a health care provider, regardless of the formulation or benefit category.

B. A corporation may not increase copayment, deductible or coinsurance amounts for covered cancer treatment medications that are injected or intravenously administered in order to avoid compliance with subsection A of this section, but may increase copayment, deductible or coinsurance amounts for cancer treatment medications if the increase is applied generally to other medical or pharmaceutical benefits under the contract and is not done to circumvent subsection A of this section.

C. A corporation may not reclassify benefits with respect to cancer treatment medications in a manner that is inconsistent with this section.

D. For the purposes of this section, "cancer treatment medications" means prescription drugs and biologics that are used to kill, slow or prevent the growth of cancerous cells.

§ 20-841.11 Prescription eyedrops; refills

A. Beginning January 1, 2018, any contract that is issued, delivered or renewed by a corporation and that provides coverage for prescription eyedrops to treat glaucoma or ocular hypertension may not deny coverage for a refill of a prescription for eyedrops to treat glaucoma or ocular hypertension if all of the following apply:

1. The subscriber requests the refill:

(a) For a thirty-day supply, at least twenty-three days and less than thirty days from the later of:

(i) The original date that the prescription was distributed to the subscriber.

(ii) The date of the most recent refill that was distributed to the subscriber.

(b) For a sixty-day supply, at least forty-five days and less than sixty days from the later of:

(i) The original date that the prescription was distributed to the subscriber.

(ii) The date of the most recent refill that was distributed to the subscriber.

(c) For a ninety-day supply, at least sixty-eight days and less than ninety days from the later of:

(i) The original date that the prescription was distributed to the subscriber.

(ii) The date of the most recent refill that was distributed to the subscriber.

2. The prescription eyedrops to treat glaucoma or ocular hypertension prescribed by the health care provider are a covered benefit under the subscriber's contract.

3. The prescribing health care provider indicates on the original prescription that additional quantities of the prescription eyedrops to treat glaucoma or ocular hypertension are needed.

4. The refill requested by the subscriber does not exceed the number of additional quantities prescribed.

B. To the extent practicable, the requirements of this section are limited in quantity to the remaining dosage initially approved for coverage, except that any limited refilling may not limit or restrict coverage to any previously or subsequently approved prescription eyedrops to treat glaucoma or ocular hypertension and is subject to the terms and conditions of the contract that are applicable to this coverage.

§ 20-841.12 Coverage of health care services

All contracts issued, delivered or renewed on or after July 1, 2017 by a corporation in this state must provide coverage for lawful health care services that are provided by a health care provider to a subscriber regardless of the familial relationship of the health care provider to the subscriber if the health care service would be covered were it provided to a subscriber who was not related to the health care provider. The contract may limit the coverage to those health care providers who are members of the corporation's provider network.

§ 20-841.13 Biomarker testing; coverage; definitions

A. A hospital service corporation or medical service corporation that issues, amends, delivers or renews a subscription contract on or after January 1, 2023 shall provide coverage for biomarker testing.

B. A subscription contract shall cover biomarker testing for the purposes of diagnosis, treatment, appropriate management or ongoing monitoring of a subscriber's disease or condition to guide treatment decisions when the test provides clinical utility as demonstrated by medical and scientific evidence, including any of the following:

1. Labeled indications for tests that are approved or cleared by the United States food and drug administration or indicated tests for a drug that is approved by the United States food and drug administration.

2. Centers for medicare and medicaid services national coverage determinations or medicare administrative contractor local coverage determinations.

3. Nationally recognized clinical practice guidelines and consensus statements.

C. A hospital service corporation or medical service corporation must ensure that coverage is provided in a manner that limits disruptions in care, including the need for multiple biopsies or biospecimen samples.

D. The subscriber and prescribing practitioner must have access to a clear, readily accessible and convenient process to request an exception to a coverage policy of a hospital service corporation or medical service corporation. The process shall be readily accessible on the hospital service corporation's or medical service corporation's website. This subsection does not require a separate process if the hospital service corporation's or medical service corporation's existing process complies with this subsection.

E. For the purposes of this section:

1. "Biomarker":

(a) Means a characteristic that is objectively measured and evaluated as an indicator of normal biological processes, pathogenic processes or pharmacologic responses to a specific therapeutic intervention.

(b) Includes gene mutations or protein expression.

2. "Biomarker testing":

(a) Means the analysis of a patient's tissue, blood or other biospecimen for the presence of a biomarker.

(b) Includes single-analyte tests, multiplex panel tests and whole genome sequencing.

3. "Clinical utility" means the test result provides information that is used in the formulation of a treatment or monitoring strategy that informs a patient’s outcome and impacts the clinical decision. The most appropriate test may include both information that is actionable and some information that cannot be immediately used in the formulation of a clinical decision.

4. "Consensus statements" means statements that:

(a) Are developed by an independent, multidisciplinary panel of experts using a transparent methodology and reporting structure that includes a conflict of interest policy.

(b) Are based on the best available evidence for the purpose of optimizing clinical care outcomes.

(c) Are aimed at specific clinical circumstances.

5. "Nationally recognized clinical practice guidelines" means evidence-based clinical practice guidelines that both:

(a) Are developed by independent organizations or medical professional societies using a transparent methodology and reporting structure and a conflict of interest policy.

(b) Establish standards of care that are informed by a systematic review of evidence and an assessment of the benefits and costs of alternative care options that includes recommendations intended to optimize patient care.

§ 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.

§ 20-846 Individual health insurance policies; mandatory coverage exemption; definitions

A. A hospital service corporation, medical service corporation or hospital and medical service corporation may issue a subscription contract to an uninsured individual that is not subject to the requirements of any of the following:

1. Section 20-461, subsection A, paragraph 17 and subsection B.

2. Section 20-826, subsections F, J, K, U, V, W and X.

3. Section 20-841, subsections A and C.

4. Sections 20-841.01, 20-841.02, 20-841.03, 20-841.04, 20-841.06, 20-841.07 and 20-841.08.

5. Section 20-841.05, subsections B and E.

B. For the purposes of this section:

1. "Health insurance coverage":

(a) Means a health care plan or arrangement that pays for or furnishes medical or health services and that is issued by a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or medical, hospital, dental and optometric service corporation or a similar entity in another state.

(b) Includes a self-insured or self-funded employee benefit plan or multiemployer employee benefit plan created pursuant to 29 United States Code section 186(c) if the regulation of that plan is preempted by section 514(b) of the employee retirement insurance security act of 1974 (29 United States Code section 1144(b)).

(c) Does not include limited benefit coverage as defined in section 20-1137.

2. "Uninsured individual" means a person who has either:

(a) Not had health insurance coverage for the ninety days immediately before the effective date of coverage issued pursuant to this section, except that this requirement does not apply at the renewal of coverage pursuant to this section.

(b) Lost health insurance coverage in one of the following ways within ninety days immediately before the effective date of coverage issued pursuant to this section:

(i) The individual left a job that provided health insurance coverage.

(ii) The individual's employer discontinued offering health insurance coverage.

(iii) The individual exhausted continuation coverage under a COBRA continuation provision as defined in section 20-2301.

(iv) The individual's family health insurance coverage was discontinued due to the death of a spouse or a divorce.

(v) The individual attained the maximum age for dependent coverage under a health insurance policy.

(vi) The individual's participation in a public health care program was discontinued.

§ 20-847 Contracts; dentists; covered services; definition

A. A contract, entered into or renewed on or after January 1, 2011, between a dental service corporation and a dentist who is licensed to practice in this state shall not require the dentist to provide services to an individual covered under a subscription contract based on a fee set by the dental service corporation unless the service for which the fee applies is a covered service under the individual's subscription contract.

B. This section does not restrict the ability of a dental service corporation to establish dental benefits for services offered by plans that are administered but not insured by the dental service corporation.

C. For the purposes of this section, "covered service" means a service for which any reimbursement is available under a subscription contract without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

§ 20-848 Prescriptions; cost sharing; refills; dispensing fees; definition

A. A subscription contract that is issued or renewed on or after January 1, 2017 and that provides coverage for prescription drugs:

1. May not deny coverage and shall prorate the cost sharing rate for a prescription drug covered by the contract that is dispensed by a network pharmacy for less than the standard refill amount if the subscriber requests enrollment into a medication synchronization program and less than the standard refill amount for the purpose of synchronizing the subscriber's medications.

2. Shall accept early refill and short fill requests for prescription drugs using the submission clarification and message codes as adopted by the national council for prescription drug plans or alternative codes provided by the plan upon July 3, 2015.

B. For the purposes of this section, "medication synchronization" means the coordination of medication refills for a patient taking two or more medications for a chronic condition that are being dispensed by a single contracted pharmacy to facilitate the synchronization of the patient's medications for the purpose of improving medication adherence.

§ 20-849 Contracts; optometrists; covered services; definition

A. Except as provided in subsection C of this section, a contract, entered into or renewed on or after January 1, 2022, between an optometric service corporation and an optometrist who is licensed to practice in this state shall not:

1. Require the optometrist to provide a service to an individual covered under a subscription contract based on a fee set by the optometric service corporation unless the service for which the fee applies is a covered service under the individual's subscription contract.

2. Prohibit an optometrist from offering or providing a vision service that is not a covered service to a covered individual at a fee determined by the optometrist or by the optometrist and the covered individual.

3. Require an optometrist to use one or more specific vendors to replenish the optometrist's inventory of spectacle lenses after the optometrist dispenses the optometrist's inventory to eligible members of the vision plan as a covered vision service.

B. This section applies to an administrator providing third-party administration services or a provider network for a vision plan.

C. This section does not restrict the ability of an optometric service corporation to enter into a contract for an optometrist to participate in a discount program sponsored by the optometric service corporation for services that are not covered if:

1. Participation in the optometric service corporation network is not contingent on participation in the sponsored discount program.

2. The optometric service corporation offers equal treatment to an optometrist who does not participate in a sponsored discount program, regarding:

(a) Promotional treatment.

(b) Marketing benefits.

(c) Materials.

(d) Contract terms for providing a covered service.

D. Notwithstanding subsection C, paragraph 2, subdivision (d) of this section, an optometric service corporation, when providing a typically formatted list of optometrists in the optometric service corporation network, may identify whether an optometrist participates in a discount program for services not covered by the optometric service corporation if all lists state that other discounts may be available with individual optometrists.

E. All contracts shall be in compliance with this section by the first renewal period on or after January 1, 2022, but not later than December 31, 2022.

F. For the purposes of this section, "covered service" means a service for which any reimbursement is available under a subscription contract without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

Article 4 Fraternal Benefit Societies

§ 20-861 Definitions

In this article, unless the context otherwise requires:

1. "Association or order" means any association or order that is a nonprofit military mutual aid association, whose members are officers or enlisted, regular or reserve, active, retired or honorably discharged members of the armed forces or sea services of the United States, and whose principal purpose is to provide life insurance and annuities to its members and their dependents or beneficiaries.

2. "Benefit contract" means an agreement for the provision of benefits.

3. "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.

4. "Certificate" means a document that is issued as written evidence of the benefit contract.

5. "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.

6. "Laws" means the articles of incorporation, constitution and bylaws of the society.

7. "Lodge" means a subordinate member of the society, including any camp, court, council, branch or other designated unit.

8. "Premiums" means rates, dues or other required contributions that are payable under the certificate.

9. "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.

10. "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 sent to one member is deemed to be sent 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 send 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 allowed 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 the department of insurance and financial institutions 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 insurance director 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 of this section 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 insurance director in the domiciliary state of the society and under any conditions that the director of the department of insurance and financial institutions 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 insurance department 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 and associations and orders from insurance laws

A. The following fraternal benefit societies and associations or orders 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.

3. Any association or order, with respect to the sale of life insurance and annuities, only if any policy or contract issued pursuant to the exemption prescribed in this subsection contains a conspicuously stamped or written notice in bold type that states:

This policy is issued by an association or order that does not possess a certificate of authority from the director of the Arizona department of insurance and financial institutions. If the association or order that issued this policy becomes insolvent, members or claimants will not be eligible for insurance guaranty fund protection pursuant to title 20, Arizona Revised Statutes.

B. Each association or order that intends on doing business in this state and that is not licensed under this title shall provide proof satisfactory to the department that it is a nonprofit organization that is exempt from taxation under section 501(c) of the internal revenue code and is subject to the following:

1. On or before June 1 of each preceding year, each association and order shall file with the director a true and complete statement of its statutory financial condition, transactions and affairs for the preceding calendar year, audited by an independent certified public accountant, together with an actuarial memorandum issued by a qualified actuary pursuant to section 20-696.04, and shall pay a filing fee at the determination of the director. The statement and actuarial memorandum are approved thirty days after filing unless the director, within the thirty-day period, has issued an order affirmatively approving or disapproving the filing.

2. The director may require an association or order to file financial statements on a quarterly basis and may require an association or order to file financial statements on other than an annual or quarterly basis due to factors or trends affecting insurers writing a particular class or classes of business or because of changes in the management or financial or operating condition of the association or order.

3. If, in the opinion of the director, an association or order does not possess sufficient capital and surplus based on eligible assets pursuant to chapter 3, article 2 of this title to meet its liabilities, the director may order the association or order to increase its capital or surplus, or both, to amounts the director deems sufficient. If the association or order fails to comply with the order, the director may order the association or order to cease and desist from assuming any additional liabilities in this state until such time as the association or order is able to comply with the capital and surplus requirements.

C. Except for a society prescribed by subsection A of this section, a fraternal benefit society or association or order 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.

D. 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.

E. The director by examination or otherwise may require any information that will enable the director to determine if the society or association or order is exempt from this article.

Article 7 Prepaid Dental Plan Organizations

§ 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 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 $50,000.

§ 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 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.

§ 20-1006.01 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.

§ 20-1007 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 and financial institutions, the director of the department of health services or another person the director of the department of insurance and financial institutions 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 percent 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.

§ 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.

Article 8 Lloyd's Associations

§ 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.

Article 9 Health Care Services Organizations

§ 20-1051 Definitions

In this article, unless the context otherwise requires:

1. "Enrollee" means an individual who has been enrolled in a health care plan.

2. "Evidence of coverage" means any certificate, agreement or contract issued to an enrollee and setting out the coverage to which the enrollee is entitled.

3. "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.

4. "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.

5. "Health care services" means services for the purpose of diagnosing, preventing, alleviating, curing or healing human illness or injury.

6. "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.

7. "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.

8. "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.

9. "Person" means any natural or artificial person including 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.

10. "Provider" means any physician, hospital or other person that is licensed or otherwise authorized to furnish health care services in this state.

11. "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).

12. "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.

13. "Registered nurse practitioner" has the same meaning prescribed in section 32-1601.

§ 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.

§ 20-1052.01 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.

§ 20-1053 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, on 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. 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 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 $50,000.

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.

§ 20-1057 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 also provide, as to such coverage of family members, 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 those 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. An evidence of coverage or amendment to the coverage shall not 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 and financial institutions. 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 preventive mammography screening and diagnostic imaging 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, including:

1. A mammogram.

2. Digital breast tomosynthesis, magnetic resonance imaging, ultrasound or other modality and at such age and intervals as recommended by the national comprehensive cancer network. This includes patients at risk for breast cancer who have a family history with one or more first or second degree relatives with breast cancer, prior diagnosis of breast cancer, positive testing for hereditary gene mutations or heterogeneously or dense breast tissue based on the breast imaging reporting and data system of the American college of radiology.

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. 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 on 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 on 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 that are applicable to persons who are leaving active service in the armed forces of the United States and returning to civilian status consistent with subsection P of this section and that include:

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. Subsection R of this section does not:

1. Require 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. Prevent 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. Prevent 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. Subsection T of this section does not:

1. Entitle 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. Provide coverage for diabetic supplies obtained by a member or enrollee of a health care services organization without a prescription unless otherwise allowed pursuant to the terms of the health care plan.

3. Prohibit 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 hospital formulary service drug information, a publication of the American society of health system pharmacists.

(b) The national comprehensive cancer network drugs and biologics compendium.

(c) Thomson Micromedex compendium DrugDex.

(d) Elsevier gold standard's clinical pharmacology compendium.

(e) Other authoritative compendia as identified by the secretary of the United States department of health and human services.

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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15, 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15 as medically necessary for the therapeutic treatment of an inherited metabolic disease.

BB. A health care services organization shall cover at least fifty percent 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 $5,000, 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(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 who is under eighteen years of age.

§ 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 enrollee 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 or registered nurse practitioner 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 or registered nurse practitioner 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 or registered nurse practitioner 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 referral 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 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 who 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 of this section, a religiously affiliated employer may require that the health care services organization provide an evidence of coverage without coverage for specific items or services required under subsection A of this section because providing or paying for coverage of the specific items or services is contrary to the religious beliefs of the religiously affiliated employer offering the plan. If a religiously affiliated employer objects to providing coverage for specific items or services required under subsection A of this section, a written affidavit shall be filed with the health care services organization stating the objection. On receipt of the affidavit, the health care services organization shall issue to the religiously affiliated employer an evidence of coverage that excludes coverage for specific items or services required under subsection A of this section. The health care services organization shall retain the affidavit for the duration of the coverage and any renewals of the coverage.

C. Subsection B of this section does not exclude coverage for prescription contraceptive methods ordered by a health care provider with prescriptive authority for medical indications other than for contraceptive, abortifacient, abortion or sterilization purposes. A religiously affiliated employer offering the plan may state religious beliefs in its affidavit and 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 not for a purpose covered by the objection. A health care services organization may charge an administrative fee for handling claims under this subsection.

D. Subsections B and C of this section do not authorize a religiously affiliated employer to obtain an employee's protected health information or to violate the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936) or any federal regulations adopted pursuant to that act.

E. Subsections B and C of this section shall not be construed to restrict or limit any protections against employment discrimination that are prescribed in federal or state law.

F. This section does not apply to evidences of coverage issued to individuals on a nongroup basis.

G. For the purposes of this section, "religiously affiliated employer" means either:

1. 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 serves primarily persons who share the religious tenets of the entity.

(c) The entity is a nonprofit organization as described in section 6033(a)(3)(A)(i) or (iii) of the internal revenue code of 1986, as amended.

2. An entity whose articles of incorporation clearly state that it is a religiously motivated organization and whose religious beliefs are central to the organization's operating principles.

§ 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.

§ 20-1057.10 Eosinophilic gastrointestinal disorder; formula

A. Any contract or evidence of coverage that is offered by a health care services organization and that contains a prescription drug benefit shall cover amino acid-based formula that is ordered by a physician or a registered nurse practitioner if:

1. The enrollee has been diagnosed with an eosinophilic gastrointestinal disorder.

2. The enrollee is under the continuous supervision of a physician who is licensed pursuant to title 32, chapter 13 or 17 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

3. There is risk of a mental or physical impairment without the use of the formula.

B. A health care services organization shall cover at least seventy-five per cent of the cost of the formula. The health care services organization may limit the maximum annual benefit for formula under this section to twenty thousand dollars.

C. This section does not apply to limited benefit coverage as defined in section 20-1137.

§ 20-1057.11 Health care services organizations; autism spectrum disorder; coverage; exceptions; definitions

A. A health care services organization shall not:

1. Exclude or deny coverage for a treatment or impose dollar limits, deductibles and coinsurance provisions based solely on the diagnosis of autism spectrum disorder. For the purposes of this paragraph, "treatment" includes diagnosis, assessment and services.

2. Exclude or deny coverage for medically necessary behavioral therapy services. To be eligible for coverage, behavioral therapy services shall be provided or supervised by a licensed or certified provider.

B. This section does not:

1. Apply to an evidence of coverage that is issued to an individual or a small employer.

2. Apply to limited benefit coverage as defined in section 20-1137.

3. Require coverage for services provided outside of this state.

C. The coverage required by this section is subject to all the terms and conditions of the evidence of coverage. This section does not prevent an organization from imposing deductibles, coinsurance or other cost sharing in relation to the coverage required by this section.

D. For the purposes of this section:

1. "Autism spectrum disorder" means a pervasive, developmental disorder that meets the criteria for autism spectrum disorder as defined in the most recent edition of the diagnostic and statistical manual of mental disorders of the American psychiatric association.

2. "Behavioral therapy" means interactive therapies derived from evidence based research, including applied behavior analysis, which includes discrete trial training, pivotal response training, intensive intervention programs and early intensive behavioral intervention.

3. "Small employer" has the same meaning prescribed in section 20-2301.

§ 20-1057.12 Contracts; dentists; covered services; definition

A. A contract, entered into or renewed on or after January 1, 2011, between a health care services organization and a dentist who is licensed to practice in this state shall not require the dentist to provide services to an individual covered under an evidence of coverage based on a fee set by the health care services organization unless the services for which the fee applies is a covered service under the individual's evidence of coverage.

B. This section does not restrict the ability of a health care services organization to establish dental benefits for services offered by plans that are administered but not insured by the health care services organization.

C. For the purposes of this section, "covered service" means a service for which any reimbursement is available under an evidence of coverage without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

§ 20-1057.13 Telehealth; coverage of health care services; definition

A. An evidence of coverage issued, delivered or renewed by a health care services organization in this state must provide coverage for health care services that are provided through telehealth if the health care service would be covered were it provided through an in-person encounter between the enrollee and a health care provider and provided to an enrollee receiving the service in this state. The following requirements apply to coverage of telehealth services:

1. Except as otherwise provided in this subsection, a health care services organization may not limit or deny the coverage of health care services provided through telehealth, including ancillary services, and may apply only the same limits or exclusions on a health care service provided through telehealth that are applicable to an in-person encounter for the same health care service, except for procedures or services as identified by the diagnostic and procedure codes, for which the weight of evidence, based on practice guidelines, peer-reviewed clinical publications or research or recommendations by the telehealth advisory committee on telehealth best practices established by section 36-3607, determines not to be appropriate to be provided through telehealth.

2. Except as otherwise provided in this paragraph, a health care services organization shall reimburse health care providers at the same level of payment for equivalent services as identified by the healthcare common procedure coding system, whether provided through telehealth using an audio-visual format or in-person care. A health care services organization shall reimburse health care providers at the same level of payment for equivalent in-person behavioral health and substance use disorder services as identified by the healthcare common procedure coding system if provided through telehealth using an audio-only format. This paragraph does not apply to a telehealth encounter provided through a telehealth platform that is sponsored or provided by the health care services organization. A health care services organization may not require a health care provider to use a telehealth platform that is sponsored or provided by the health care services organization as a condition of network participation.

3. Before January 1, 2022, a health care services organization shall cover services provided through an audio-only telehealth encounter if that service is covered by medicare or the Arizona health care cost containment system when provided through an audio-only telehealth encounter. Beginning January 1, 2022, a health care services organization shall cover services provided through an audio-only telehealth encounter if the telehealth advisory committee on telehealth best practices established by section 36-3607 recommends that the services may appropriately be provided through an audio-only telehealth encounter.

4. A health care provider shall bill for a telehealth encounter using the healthcare common procedure coding system and shall identify whether the telehealth encounter was provided in an audio-only or audio-video format. To submit a claim for an audio-only service, the health care provider must make telehealth services generally available to patients through the interactive use of audio, video or other electronic media.

5. At the time of the telehealth encounter, the health care provider shall access clinical information and records, if available, that are appropriate to evaluate the patient's condition. The health care provider shall inform the enrollee before the telehealth encounter if there is a charge for the encounter.

6. A health care services organization may establish reasonable requirements and parameters for telehealth services, including documentation, fraud prevention, identity verification and recordkeeping, but such requirements and parameters may not be more restrictive or less favorable to health care providers or enrollees than are required for health care services delivered in person.

7. Covered telehealth services may be provided regardless of where the enrollee is located or the type of site.

8. Except in an emergency as prescribed in section 20-2803, the evidence of coverage may limit the coverage to those health care providers who are members of the health care services organization's provider network.

B. Subsection A of this section does not:

1. Limit the ability of health care services organizations to provide incentives to enrollees that are designed to improve health outcomes, increase adherence to a course of treatment or reduce risk.

2. Prevent health care services organizations from offering network contracts to health care providers who employ value-based purchasing or bundled payment methodologies if otherwise allowed by law or prevent health care providers from voluntarily agreeing to enter into such contracts with a health care services organization.

C. This section does not relieve a health care services organization from an obligation to provide adequate access to in-person health care services. Network adequacy standards required by federal or state law may not be met by a health care services organization through the use of contracted health care providers who provide only telehealth services and do not provide in-person health care services in this state or within fifty miles of the border of this state.

D. This section does not prevent a health care services organization from imposing deductibles or copayment or coinsurance requirements for a health care service provided through telehealth if the deductible, copayment or coinsurance does not exceed the deductible, copayment or coinsurance applicable to an in-person encounter for the same health care service. If the health care services organization waives a deductible or copayment or coinsurance requirement that impacts a health care provider's contracted reimbursement rate, the health care services organization shall reimburse the health care provider for the cost of the deductible or copayment or coinsurance requirement to ensure that the health care provider receives the contracted reimbursement rate if the service is covered and the claim meets other requirements of the network participation agreement.

E. Services provided through telehealth or resulting from a telehealth encounter are subject to all of this state's laws and rules that govern prescribing, dispensing and administering prescription pharmaceuticals and devices and shall comply with Arizona licensure requirements and any practice guidelines of the telehealth advisory committee on telehealth best practices established by section 36-3607 or, if not addressed, the practice guidelines of a national association of medical professionals promoting access to medical care for consumers via telecommunications technology or other qualified medical professional societies to ensure quality of care.

F. This section does not apply to limited benefit coverage as defined in section 20-1137.

G. For the purposes of this section, "telehealth":

1. Means the interactive use of audio, video or other electronic media, including asynchronous store-and-forward technologies and remote patient monitoring technologies, for the purpose of diagnosis, consultation or treatment.

2. Includes:

(a) The use of an audio-only telephone encounter between an enrollee who has an existing relationship with a health care provider or provider group if both of the following apply:

(i) An audio-visual telehealth encounter is not reasonably available due to the enrollee's functional status, the enrollee's lack of technology or telecommunications infrastructure limits, as determined by the health care provider.

(ii) The telehealth encounter is initiated at the request of the enrollee or authorized by the enrollee before the telehealth encounter.

(b) The use of an audio-only encounter between the enrollee and a health care provider, regardless of whether there is an existing relationship with the health care provider or provider group, if the telehealth encounter is for a behavioral health or substance use disorder service and both items of subdivision (a) of this paragraph apply.

3. Does not include the sole use of a fax machine, instant messages, voice mail or email.

§ 20-1057.14 Cancer treatment medications; cost sharing; definition

A. An evidence of coverage that is issued, delivered or renewed by a health care services organization on or after January 1, 2016 and that provides coverage both for cancer treatment medications that are injected or intravenously administered by a health care provider and for patient-administered cancer treatment medications, including medications that are orally administered or self-injected, may not require a higher copayment, deductible or coinsurance amount for patient-administered cancer treatment medications than is required for those cancer treatment medications that are injected or intravenously administered by a health care provider, regardless of the formulation or benefit category.

B. A health care services organization may not increase copayment, deductible or coinsurance amounts for covered cancer treatment medications that are injected or intravenously administered in order to avoid compliance with subsection A of this section, but may increase copayment, deductible or coinsurance amounts for cancer treatment medications if the increase is applied generally to other medical or pharmaceutical benefits under the evidence of coverage and is not done to circumvent subsection A of this section.

C. A health care services organization may not reclassify benefits with respect to cancer treatment medications in a manner that is inconsistent with this section.

D. For the purposes of this section, "cancer treatment medications" means prescription drugs and biologics that are used to kill, slow or prevent the growth of cancerous cells.

§ 20-1057.15 Prescriptions; cost sharing; refills; dispensing fees; definition

A. An evidence of coverage that is issued or renewed on or after January 1, 2017 and that provides coverage for prescription drugs:

1. May not deny coverage and shall prorate the cost sharing rate for a prescription drug covered by the evidence of coverage that is dispensed by a network pharmacy for less than the standard refill amount if the enrollee requests enrollment into a medication synchronization program and less than the standard refill amount for the purpose of synchronizing the enrollee's medications.

2. Shall accept early refill and short fill requests for prescription drugs using the submission clarification and message codes as adopted by the national council for prescription drug plans or alternative codes provided by the plan upon July 3, 2015.

B. For the purposes of this section, "medication synchronization" means the coordination of medication refills for a patient taking two or more medications for a chronic condition that are being dispensed by a single contracted pharmacy to facilitate the synchronization of the patient's medications for the purpose of improving medication adherence.

§ 20-1057.16 Prescription eyedrops; refills

A. Beginning January 1, 2018, any evidence of coverage that is issued, delivered or renewed by a health care services organization and that provides coverage for prescription eyedrops to treat glaucoma or ocular hypertension may not deny coverage for a refill of a prescription for eyedrops to treat glaucoma or ocular hypertension if all of the following apply:

1. The enrollee requests the refill:

(a) For a thirty-day supply, at least twenty-three days and less than thirty days from the later of:

(i) The original date that the prescription was distributed to the enrollee.

(ii) The date of the most recent refill that was distributed to the enrollee.

(b) For a sixty-day supply, at least forty-five days and less than sixty days from the later of:

(i) The original date that the prescription was distributed to the enrollee.

(ii) The date of the most recent refill that was distributed to the enrollee.

(c) For a ninety-day supply, at least sixty-eight days and less than ninety days from the later of:

(i) The original date that the prescription was distributed to the enrollee.

(ii) The date of the most recent refill that was distributed to the enrollee.

2. The prescription eyedrops to treat glaucoma or ocular hypertension prescribed by the health care provider are a covered benefit under the enrollee's evidence of coverage.

3. The prescribing health care provider indicates on the original prescription that additional quantities of the prescription eyedrops to treat glaucoma or ocular hypertension are needed.

4. The refill requested by the enrollee does not exceed the number of additional quantities prescribed.

B. To the extent practicable, the requirements of this section are limited in quantity to the remaining dosage initially approved for coverage, except that any limited refilling may not limit or restrict coverage to any previously or subsequently approved prescription eyedrops to treat glaucoma or ocular hypertension and is subject to the terms and conditions of the evidence of coverage that are applicable to this coverage.

§ 20-1057.17 Coverage of health care services

Any evidence of coverage issued, delivered or renewed on or after July 1, 2017 by a health care services organization in this state must provide coverage for lawful health care services that are provided by a health care provider to an enrollee regardless of the familial relationship of the health care provider to the enrollee if the health care service would be covered were it provided to an enrollee who was not related to the health care provider. The evidence of coverage may limit the coverage to those health care providers who are members of the health care services organization's provider network.

§ 20-1057.18 Contracts; optometrists; covered services; definition

A. Except as provided in subsection C of this section, a contract, entered into or renewed on or after January 1, 2022, between a health care services organization and an optometrist who is licensed to practice in this state shall not:

1. Require the optometrist to provide a service to an individual covered under an evidence of coverage based on a fee set by the health care services organization unless the service for which the fee applies is a covered service under the individual's evidence of coverage.

2. Prohibit an optometrist from offering or providing a vision service that is not a covered service to a covered individual at a fee determined by the optometrist or by the optometrist and the covered individual.

3. Require an optometrist to use one or more specific vendors to replenish the optometrist's inventory of spectacle lenses after the optometrist dispenses the optometrist's inventory to eligible members of the vision plan as a covered vision service.

B. This section applies to an administrator providing third-party administration services or a provider network for a vision plan.

C. This section does not restrict the ability of a health care services organization to enter into a contract for an optometrist to participate in a discount program sponsored by the health care services organization for services that are not covered if:

1. Participation in the health care services organization network is not contingent on participation in the sponsored discount program.

2. The health care services organization offers equal treatment to an optometrist who does not participate in a sponsored discount program, regarding:

(a) Promotional treatment.

(b) Marketing benefits.

(c) Materials.

(d) Contract terms for providing a covered service.

D. Notwithstanding subsection C, paragraph 2, subdivision (d) of this section, a health care services organization, when providing a typically formatted list of optometrists in the health care services organization network, may identify whether an optometrist participates in a discount program for services not covered by the health care services organization if all lists state that other discounts may be available with individual optometrists.

E. All contracts shall be in compliance with this section by the first renewal period on or after January 1, 2022, but not later than December 31, 2022.

F. For the purposes of this section, "covered service" means a service for which any reimbursement is available under an evidence of coverage without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

§ 20-1057.19 Biomarker testing; coverage; definitions

A. A health care services organization that issues, amends, delivers or renews an evidence of coverage on or after January 1, 2023 shall provide coverage for biomarker testing.

B. An evidence of coverage shall cover biomarker testing for the purposes of diagnosis, treatment, appropriate management or ongoing monitoring of an enrollee's disease or condition to guide treatment decisions when the test provides clinical utility as demonstrated by medical and scientific evidence, including any of the following:

1. Labeled indications for tests that are approved or cleared by the United States food and drug administration or indicated tests for a drug that is approved by the United States food and drug administration.

2. Centers for medicare and medicaid services national coverage determinations or medicare administrative contractor local coverage determinations.

3. Nationally recognized clinical practice guidelines and consensus statements.

C. A health care services organization must ensure that coverage is provided in a manner that limits disruptions in care, including the need for multiple biopsies or biospecimen samples.

D. The enrollee and prescribing practitioner must have access to a clear, readily accessible and convenient process to request an exception to a coverage policy of a health care services organization. The process shall be readily accessible on the health care services organization's website. This subsection does not require a separate process if the health care services organization's existing process complies with this subsection.

E. For the purposes of this section:

1. "Biomarker":

(a) Means a characteristic that is objectively measured and evaluated as an indicator of normal biological processes, pathogenic processes or pharmacologic responses to a specific therapeutic intervention.

(b) Include gene mutations or protein expression.

2. "Biomarker testing":

(a) Means the analysis of a patient's tissue, blood or other biospecimen for the presence of a biomarker.

(b) Includes single-analyte tests, multiplex panel tests and whole genome sequencing.

3. "Clinical utility" means the test result provides information that is used in the formulation of a treatment or monitoring strategy that informs a patient’s outcome and impacts the clinical decision. The most appropriate test may include both information that is actionable and some information that cannot be immediately used in the formulation of a clinical decision.

4. "Consensus statements" means statements that both:

(a) Are developed by an independent, multidisciplinary panel of experts using a transparent methodology and reporting structure that includes a conflict of interest policy.

(b) Are based on the best available evidence for the purpose of optimizing clinical care outcomes.

(c) Are aimed at specific clinical circumstances.

5. "Nationally recognized clinical practice guidelines" means evidence-based clinical practice guidelines that both:

(a) Are developed by independent organizations or medical professional societies using a transparent methodology and reporting structure and a conflict of interest policy.

(b) Establish standards of care that are informed by a systematic review of evidence and an assessment of the benefits and costs of alternative care options that includes recommendations intended to optimize patient care.

§ 20-1057.20 Organ harvesting; insurance coverage limitations

A. An evidence of coverage may limit coverage to an enrollee for the human organ transplant or posttransplant care if either of the following applies:

1. The transplant operation is performed in the People's Republic of China or the Hong Kong special administrative region.

2. The human organ to be transplanted was procured by a sale or donation originating in the People's Republic of China or the Hong Kong special administrative region.

B. This section does not:

1. Require coverage for human organ transplants.

2. Limit a health care services organization from denying coverage for any valid reason.

§ 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 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.

§ 20-1059.01 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.

§ 20-1060 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 percent 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 United States 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.

§ 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 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.

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, "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.

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, 2 and 7 of this title, sections 20-223, 20-233, 20-234, 20-261, 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, 21 and 30 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.

§ 20-1070 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. A health care services organization shall submit quarterly to the director a list of all provider contracts that have been terminated during the prior three months. 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. 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.

2. 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.

3. A determination by the court that continuation of the contract would constitute undue hardship to the provider.

4. 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.

§ 20-1077 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.

§ 20-1079 Individual health insurance policies; mandatory coverage exemption; definitions

A. A health care services organization may issue an evidence of coverage to an uninsured individual that is not subject to the requirements of any of the following:

1. Section 20-1057, subsections C, K, L, Y, Z, AA and BB.

2. Sections 20-1057.01, 20-1057.03, 20-1057.04 and 20-1057.05.

3. Section 20-1057.02, subsections B and E.

B. For the purposes of this section:

1. "Health insurance coverage":

(a) Means a health care plan or arrangement that pays for or furnishes medical or health services and that is issued by a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or medical, hospital, dental and optometric service corporation or a similar entity in another state.

(b) Includes a self-insured or self-funded employee benefit plan or multiemployer employee benefit plan created pursuant to 29 United States Code section 186(c) if the regulation of that plan is preempted by section 514(b) of the employee retirement insurance security act of 1974 (29 United States Code section 1144(b)).

(c) Does not include limited benefit coverage as defined in section 20-1137.

2. "Uninsured individual" means a person who has either:

(a) Not had health insurance coverage for the ninety days immediately before the effective date of coverage issued pursuant to this section, except that this requirement does not apply at the renewal of coverage pursuant to this section.

(b) Lost health insurance coverage in one of the following ways within ninety days immediately before the effective date of coverage issued pursuant to this section:

(i) The individual left a job that provided health insurance coverage.

(ii) The individual's employer discontinued offering health insurance coverage.

(iii) The individual exhausted continuation coverage under a COBRA continuation provision as defined in section 20-2301.

(iv) The individual's family health insurance coverage was discontinued due to the death of a spouse or a divorce.

(v) The individual attained the maximum age for dependent coverage under a health insurance policy.

(vi) The individual's participation in a public health care program was discontinued.

Article 10 Domestic Life and Disability Reinsurer

§ 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 $100,000.

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 $75,000. 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 20-3601, 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. When 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 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.

§ 20-1094.01 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 20-3603 and in an amount that is not less than one hundred ten percent of the amount of the liabilities assumed.

3. With clean, irrevocable and unconditional letters of credit that comply with section 20-3603, 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.

Article 11 Service Companies

§ 20-1095 Definitions

In this article, unless the context otherwise requires:

1. "Consumer":

(a) 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.

(b) Includes a buyer, owner, lessor, lessee or seller of residential property.

2. "Consumer product" means any property that is distributed in commerce, that is normally used 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, and that becomes part of the intended usefulness of real property or that is typically transferred with real property as an integral functioning utility appliance or system.

3. "Home warranty or home protection contract" means a service contract as defined in paragraph 7, subdivision (b), item (i) of this section.

4. "Mechanical reimbursement insurance" means an insurance policy issued to an obligor to either provide reimbursement to the obligor under the terms of the insured service contracts issued or sold by the obligor or, in the event of the obligor's nonperformance, to pay on behalf of the obligor all covered contractual obligations incurred by the obligor under the terms of the insured service contracts issued or sold by the obligor.

5. "Residential property" means a house, townhouse, condominium or other habitable structure that is used principally as a residence.

6. "Service company" or "obligor" means any person that is contractually obligated to the contract holder under the terms of the service contract. Service company does not include a service contract administrator or seller if the person is not contractually obligated to the contract holder under the terms of the service contract.

7. "Service contract":

(a) Means a written contract or agreement for a separately stated consideration for any duration to perform, in whole or in part, the repair, replacement or maintenance, or indemnification for repair, replacement or maintenance, for the operational or structural failure of a consumer product due to a defect in materials, workmanship, accidental damage from handling, a power surge or interruption or normal wear and tear, with or without additional provisions for payment of indemnity including towing, rental and emergency road service, road hazard protection or roof leak.

(b) Includes a contract or agreement that is sold for a separately stated consideration for any duration and that provides for any of the following:

(i) The service, maintenance or repair, including replacement, of all or any part of structural components, appliances, electrical, plumbing, heating, cooling or air conditioning systems of residential property or indemnification for the service, maintenance, repair or replacement.

(ii) The repair or replacement of tires or wheels on a motor vehicle damaged as a result of coming into contact with road hazards including potholes, rocks, wood debris, metal parts, glass, plastic, curbs or composite scraps.

(iii) The removal of dents, dings or creases on a motor vehicle that can be repaired using the process of paintless dent removal without affecting the existing paint finish and without replacing vehicle body panels, sanding, bonding or painting.

(iv) The replacement of a motor vehicle key or key fob if the key or key fob becomes inoperable or is lost or stolen.

(v) Other services or products approved by the director.

8. "Service contract administrator" means a person who is responsible for the administration of the service contracts or the service contracts plan or who is responsible for any submission required under this article.

9. "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 that 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.

§ 20-1095.01 Service companies; permits; rules; application of laws

A. A service company may not offer or issue a service contract unless the service company has qualified for and been issued a permit by the director.

B. Except for the registration requirements in this article applicable to service companies, service companies and related service contract sellers, administrators and other persons that market, sell or offer to sell service contracts are exempt from any licensing requirements of this title as a result of activities related to the marketing, selling or offering of service contracts.

C. The director shall adopt rules that 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 chapter 1 of this title, except section 20-116, and this article.

D. A provider shall provide a consumer with a specimen copy of the service contract terms and conditions prior to the time of sale upon a request by the consumer. A provider may comply with this provision by providing the consumer with a complete sample copy of the terms and conditions or by directing the consumer to a website containing a complete sample of the terms and conditions of the service contract.

§ 20-1095.02 Exemptions; definition

A. This article, except for section 20-1095.09, does not apply to the following:

1. Warranties issued by manufacturers, builders or sellers on the actual items, structures or improvements that they manufacture, build or sell.

2. Service contract programs if a motor vehicle manufacturer or motor vehicle dealer 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 a financial statement in which at least one officer of the issuing corporation attests that the issuing corporation has and maintains a net worth in excess of $25,000,000. 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 that issues a service contract to persons other than a consumer.

5. A service company that is in the business of selling or servicing any one of the following, if the service contract only covers the actual item the service company sells:

(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. A service company only to the extent that it is in the business of selling or servicing directly, or through other retailers, cell phones and other electronic personal communications devices and accessories.

7. 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 whose service contract only covers the actual items, structures or improvements that the person installs, constructs or builds.

8. A maintenance agreement of limited duration that provides for scheduled maintenance only and does not include repair or replacement.

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. The types of agreements referred to in subsection A of this section are not insurance and are not required to comply with the insurance laws of this state unless a provision is made expressly applicable in 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. The applicant is solvent and organized 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 are capable of successfully managing the service company's affairs in compliance with law.

3. The applicant either:

(a) Files a surety bond or an alternative to a surety bond as required by section 20-1095.04.

(b) Is insured by a mechanical reimbursement insurance policy issued by an insurer authorized to do business in this state and provides a copy of the policy to the director.

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. The issuance of a service company 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 surety bond, securities or bonds

A. To ensure faithful performance of its obligations to contract holders, every service company electing to comply with section 20-1095.03, subsection A, paragraph 3, subdivision (a), before the issuance of a permit, shall file with or for the benefit of the director a surety bond that complies with subsection C of this section and that at all times has a value of at least one hundred thousand dollars.

B. The service company may file alternatives to a surety bond in the form of securities eligible for the investment of capital funds of domestic insurers under this title or bonds of the United States government.

C. A surety bond that is filed under subsection A of this section must be issued by a surety insurer licensed to do business in this state and must be for the same purpose as required in subsection A of this section. 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 securities or bonds of the United States government are filed as an alternative to a surety bond, the securities or bonds shall be irrevocably pledged to the director. The service company is entitled to any accrued interest earned from the securities or bonds.

E. The service company shall not impair or encumber the surety bond, securities or bonds of the United States government filed under this section and shall pledge the same to the director. The service company shall maintain the surety bond, securities or bonds of the United States government in force until such time as all of the service company's contractual obligations to contract holders are fulfilled.

F. Notwithstanding sections 20-116 and 35-155, a service company may not use a cash deposit to comply with this section.

§ 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 Required service contract disclosures

A. Each service company holding a service company permit shall submit all service contract forms to the director for approval at least thirty days before the proposed effective date of the form. A form may not be used until it is approved by the director or has been on file with the director for more than thirty days.

B. The director may not approve a service contract if:

1. The service contract may be canceled or voided due to acts or omissions of the service company or its assignees or subcontractors for their failure to provide correct information or their failure to perform the services or repairs provided in a timely, competent and workmanlike manner.

2. Parts or components repaired or replaced under the service contract are excluded.

3. The service contract may be canceled by the service company or its representatives for any of the following reasons:

(a) The service contract fails to state the extent to which preexisting conditions will or will not be covered.

(b) Misrepresentation by either the service company or the person selling the service contract on the service company's behalf.

C. Service contracts may not be issued, sold or offered for sale in this state unless the service company has provided both:

1. A receipt for or other written evidence of the purchase of the service contract to the contract holder.

2. A copy of the service contract to the service contract holder within a reasonable period of time after the date of purchase.

D. Service contracts that are marketed, sold, offered for sale, issued, made, proposed to be made or administered in this state shall be written, printed or typed in clear, understandable language that is easy to read and shall disclose the following, as applicable:

1. Service contracts that are insured under a mechanical reimbursement insurance policy pursuant to section 20-1095.03, subsection A, paragraph 3, subdivision (b) shall state the name and address of the insurer and contain a statement in substantially the following form: "Obligations of the obligor under this service contract are insured under a mechanical service contract reimbursement insurance policy".

2. Service contracts that are not insured under a reimbursement insurance policy pursuant to section 20-1095.03, subsection A, paragraph 3, subdivision (b) shall contain a statement in substantially the following form: "Obligations of the obligor under this service contract are backed by the full faith and credit of the obligor".

3. Service contracts shall state the name and address of the obligor and shall identify an administrator if different from the obligor, the service contract seller and the service contract holder to the extent that the name of the service contract holder has been furnished by the service contract holder. The identities of these parties are not required to be preprinted on the service contract and may be added to the service contract at the time of sale.

4. Service contracts shall state the total purchase price of the service contract. The purchase price is not required to be preprinted on the service contract and may be negotiated at the time of sale with the service contract holder.

5. Service contracts shall state the existence of a deductible amount, if applicable.

6. Service contracts shall specify the merchandise and services to be provided and any limits, exceptions or exclusions. Exclusions from coverage shall be in bold-faced type. Service contracts may, but are not required to, cover damage resulting from rust, corrosion or damage caused by a noncovered part or system.

7. Service contracts covering motor vehicles shall state whether the use of nonoriginal manufacturers' parts is allowed.

8. Service contracts shall state any restrictions governing the transferability of the service contract, if applicable.

9. Service contracts shall state the terms, restrictions or conditions governing cancellation of the service contract before the termination or expiration date of the service contract by either the service company or the service contract holder. At a minimum, a service contract shall provide for a pro rata refund after deducting for benefits paid and administrative expenses associated with the cancellation. The administrative expenses may not exceed $75 or ten percent of the purchase price of the service contract, whichever is less. Any administrative expense assessed may not exceed the amount of the refund due to the service contract holder.

10. Service contracts shall set forth all of the obligations and duties of the service contract holder, including the duty to protect against any further damage and any requirement to follow the owner's manual.

11. Service contracts shall disclose the material acts or omissions of the contract holder that cancel or void coverage, if any, and may include:

(a) Fraudulent or unlawful acts by the contract holder arising out of or relating to the service contract.

(b) The contract holder's use of a covered consumer product in a manner other than as intended by the manufacturer that is likely to increase the likelihood that the consumer product will be damaged or require repairs.

12. Service contracts shall clearly indicate whether preexisting conditions are covered or excluded under the terms of the service contract.

E. Brochures and other advertising or marketing materials are not required to be filed with or approved by the director.

§ 20-1095.07 Sale of unapproved service contract; violation; classification

A. A person who sells an unapproved service contract is guilty of a class 2 misdemeanor.

B. A service contract is not invalid solely by reason of not being approved as required by this article.

§ 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.

Article 12 Mechanical Reimbursement Reinsurers

§ 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.

§ 20-1096.01 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 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.

Article 13 Prepaid Legal Insurance

§ 20-1097 Definitions

In this article, unless the context otherwise requires:

1. "Administrative fee" means a fixed amount paid by a corporation on a periodic basis to a contracted attorney for the contracted attorney's overhead and administrative costs.

2. Pay or reimburse for specific legal services does not include payment of an administrative fee only.

3. "Prepaid legal insurance contract" means a contractual obligation to pay or reimburse for specific legal services rendered in the normal and ordinary course of business by an active member of the state bar of Arizona.

4. "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.

§ 20-1097.01 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.

§ 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, except that an applicant to sell prepaid legal insurance contracts that only provide legal services plans related to the lawful use of firearms shall possess and maintain unimpaired capital of at least fifty thousand dollars.

2. Possesses and thereafter maintains surplus funds in an amount equal to at least fifty percent of the capital requirement prescribed in paragraph 1 of this section.

3. Possesses and thereafter maintains an unearned premium reserve that 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.

Article 14 Captive Insurers

§ 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. "Alien captive insurer" means any insurer that is formed to write insurance business for its affiliates and that is licensed pursuant to the laws of an alien jurisdiction that imposes statutory or regulatory standards that are acceptable to the director on companies transacting the business of insurance in such a jurisdiction.

4. "Association" means any lawfully formed association of individuals or business entities that has been in existence for at least one year and that is organized for a primary purpose other than procuring or providing insurance for its members.

5. "Association captive insurer" means a captive insurer that is completely under the direct or indirect voting control of an association.

6. "Branch business" means any insurance business that is transacted by a branch captive insurer in this state.

7. "Branch captive insurer" means an alien captive insurer or a foreign captive insurer that establishes a business unit with a principal place of business in this state and that is licensed pursuant to this chapter to transact the business of insurance through the business unit.

8. "Branch operations" means any business operations of a branch captive insurer in this state.

9. "Business entity" means any legal entity other than an individual or sole proprietorship.

10. "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.

11. "Controlled unaffiliated business" means an individual or business entity that satisfies all of the following:

(a) Is not an affiliate of the captive insurer providing coverage or reinsurance.

(b) Has a contractual relationship with an affiliate of the captive insurer providing coverage or reinsurance.

(c) Whose risk management function that is related to the covered risk of loss is controlled by an affiliate of the captive insurer providing coverage or reinsurance.

12. "Deductible reimbursement" means insurance coverage that reimburses the insured for the deductible it paid under a separate commercial insurance policy issued to the same insured, without other conditions related to the underlying loss.

13. "Direct or directly", when used in this article to describe the transaction of insurance business by a captive insurer, means a transaction in which the captive insurer issues an insurance policy that provides primary coverage to the insured under the policy and that does not provide reinsurance coverage to another insurer.

14. "Dormant captive insurer":

(a) Means a captive insurer that has both:

(i) Ceased transacting the business of insurance, including issuing insurance policies.

(ii) No outstanding liabilities associated with the business of insurance or has not issued any insurance policy before filing an application for a certificate of dormancy.

(b) Does not include a captive risk retention group.

15. "Foreign captive insurer" means any captive insurer that is domiciled in and licensed under the laws of another state that imposes statutory or regulatory standards on captive insurance companies in that state that are acceptable to the director.

16. "Group captive insurer" means any of the following:

(a) A risk retention group.

(b) An industry group captive insurer.

(c) An association captive insurer.

17. "Industry group" means two or more business entities or persons that are engaged in businesses or activities similar or related with respect to the liability that they are exposed to by virtue of any related, similar or common business, trade, product, services, premises or operations.

18. "Industry group captive insurer" means a captive insurer that is completely under the direct or indirect voting control of an industry group.

19. "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.

20. "Member" means any individual or business entity that belongs to a group captive insurer.

21. "Participant" means an entity and any affiliates of the entity that are insured by a protected cell captive insurer pursuant to a participant contract.

22. "Participant contract" means a contract by which a protected cell captive insurer insures risks of one or more participants and limits losses under the contract to the assets of a protected cell.

23. "Protected cell" means a separate account that is established and maintained by a protected cell captive insurer pursuant to a participant contract.

24. "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 participants through participant contracts.

(d) That segregates liability under a participant contract through one or more protected cells.

25. "Pure captive insurer" means a captive insurer that insures only the risks of its affiliates and controlled unaffiliated business.

26. "Risk retention group" means a captive insurer that is organized pursuant to the liability risk retention act of 1986 (15 United States Code sections 3901 and 3902) and chapter 14 of this title.

27. "Sponsor" means an entity that meets the requirements of section 20-1098.06 and that the director has approved to provide all or part of the capital and surplus required by applicable law to operate a protected cell captive insurer.

§ 20-1098.01 Licensing; authority

A. If allowed by its articles of incorporation, bylaws or other organizational document, an applicant may apply to the director for a license to transact captive insurance, except that:

1. A pure captive insurer shall not insure risks other than the risks of its affiliates and controlled unaffiliated business.

2. A group captive insurer, other than a risk retention group, shall not insure risks other than the risks of its group members, its affiliates and controlled unaffiliated business. A risk retention group shall insure only the risks of its group members.

3. An agency captive insurer shall not:

(a) Insure any risks other than those placed by or through its owners.

(b) Directly insure life or disability insurance risks without the approval of the director. The insurance risks that the director may approve are limited to employer group term life insurance, employer group disability income insurance and reimbursement of employer health plan deductibles. The director may require the business written by an agency captive insurer to be any of the following:

(i) Fronted by an insurer that holds a certificate of authority under the laws of any state.

(ii) Reinsured by a reinsurer authorized, accredited or approved by the director.

(iii) Secured by a trust fund in the United States for the benefit of policyholders and claimants or funded by an irrevocable letter of credit or other arrangement that is acceptable to the director. The director may require the agency captive insurer to increase the funding of any security arrangement established under this item. If the form of security is a letter of credit, the letter of credit shall be issued or confirmed by a bank approved by the director. A trust maintained pursuant to this item shall be established in a form and on terms approved by the director.

4. A protected cell captive insurer shall not insure any risks other than those prescribed in its participant contracts.

B. The following apply to the transaction of insurance by a captive insurer on a direct basis:

1. A captive insurer shall not directly 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) Mortgage guaranty insurance as defined in section 20-1541.

(h) Workers' compensation or employers' liability insurance policies except in connection with a self-insurance program as prescribed in this subsection.

2. A pure captive insurer shall not provide direct coverage of workers' compensation or employers' liability in this state unless the coverage is provided under a self-insurance program that is approved by the industrial commission of Arizona pursuant to section 23-961. A captive insurance program that is authorized by section 23-961 is subject to and shall comply with all requirements of title 23, chapter 6 that are applicable to self-insurance.

3. A pure captive insurer shall not provide direct coverage of workers' compensation or employers' liability insurance in another state unless the coverage is provided under 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.

4. An agency captive insurer directly insuring life or disability income insurance risk as specified in subsection A, paragraph 3 of this section:

(a) Shall mark each policy and certificate with a conspicuously stamped or written notice in bold-faced type that states the following:

This policy is issued by an insurer that is not a member of an Arizona insurance guaranty fund. If the insurer that issued this policy becomes insolvent, insureds or claimants will not be eligible for insurance guaranty fund protection pursuant to title 20, Arizona Revised Statutes.

(b) May insure only life and disability income insurance risks as specified in subsection A, paragraph 3 of this section for employers that maintain their principal place of business within this state.

(c) May not be owned or controlled by an insurer that is granted authority by the director to transact insurance in this state.

(d) Shall have its financial statements audited by an independent certified public accountant pursuant to section 20-1098.07, subsection B.

(e) May not directly insure life or disability income insurance risks as specified in subsection A, paragraph 3 of this section in this state unless all of the following apply:

(i) An insurance producer or managing general agent that owns the agency captive insurer remains in regulatory good standing in all states in which it is licensed.

(ii) The agency captive insurer insures only the risks of employer group term life insurance, employer group disability income insurance and reimbursement of employer health plan deductibles that are placed by or through an insurance producer or managing general agent that owns the agency captive insurer and, if required by the director, provides the director the form of such policies.

(iii) The agency captive insurer discloses to the original policyholder or policyholders, in a form or manner approved by the director, all limitations, rights and obligations held by the agency captive insurer as a result of its affiliation with an insurance producer or managing general agent.

5. This subsection does not prohibit a captive insurer from directly insuring deductible reimbursement risk.

6. This subsection does not prohibit a captive insurer from directly insuring employment practices liability risk.

C. A captive insurer shall not accept or cede reinsurance except as provided in section 20-1098.11.

D. A captive insurer that writes life insurance or disability insurance shall comply with all applicable state and federal laws.

E. A captive insurer shall:

1. Hold at least one meeting of its board of directors or its board of managers or, for reciprocal insurers, its subscribers' advisory committee each year in this state.

2. Maintain its principal place of business in this state.

3. Appoint a resident statutory agent to accept service of process and to otherwise act on its behalf in this state and shall file the appointment with the director. In the case of a captive insurer formed as a 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.

F. Before receiving a license, an applicant for a captive insurer license shall file with the director the following:

1. If formed as a corporation, a certified copy of its articles of incorporation, articles of organization or other organizational document, a copy of its duly adopted bylaws or other governance rules, 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 copy of the power of attorney of its attorney-in-fact, a copy of its subscribers' agreement, a copy of its duly adopted bylaws or other governance rules, a statement under oath of its attorney-in-fact showing its financial condition and any other statement or document required by the director.

G. In addition to the information required by subsection F of this section, each applicant for a captive insurer license 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 directors and officers of 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 does business at a location 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 or members 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.

H. In addition to the information required by subsections F and G 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.

I. Before the issuance of a license, an applicant shall promptly notify the director of any material change in the information filed pursuant to this section.

J. An applicant for a captive insurer license shall pay to the director a nonrefundable fee for the issuance of a captive insurance license pursuant to section 20-167. The captive insurer shall pay the license renewal fee pursuant to section 20-167 not earlier than July 1 and not later than September 1 of each year.

K. If the director is satisfied that the documents and statements that the applicant has filed comply with this article, the director may grant the applicant a captive insurer license that authorizes the captive insurer to transact captive insurance business in this state.

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; borrowed surplus

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 $250,000.

2. In the case of a group captive insurer, at least $500,000.

3. In the case of an agency captive insurer, at least $500,000.

4. In the case of a protected cell captive insurer, at least $250,000.

5. In the case of a captive insurer that is organized as a reciprocal insurer, at least $500,000.

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 20-3601, 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.

D. Notwithstanding any other provision of this title, a written agreement under which a captive insurer borrows monies that are required to be repaid only out of the insurer’s surplus in excess of that stipulated in the agreement may provide for interest at any rate agreed on and approved by the director.

E. A captive insurer that is established solely for the purpose of reinsuring risks as part of a program filed and approved by the director to facilitate the securitization of risks ceded to the captive insurer may be a party to contracts that provide that subsequent purchasers of interests in the program assume the interests on a nonrecourse basis, both as to the captive insurer and any affiliate.

§ 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. Each owner of an agency captive insurer shall be licensed as an insurance producer.

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.

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.

3. Incorporated as a limited liability company that is manager-managed pursuant to title 29.

D. The capital stock of a captive insurer that is incorporated as a stock insurer may be authorized with no par value.

E. A captive insurer that is formed as a corporation shall have at least three incorporators, at least one of whom shall be a resident of this state. Notwithstanding subsection B, paragraph 3 of this section, a captive insurer that is formed as a reciprocal insurer may be organized by three or more subscribers, none of whom shall be required to be a resident of this state.

F. A pure captive insurer shall have at least one director. Any other kind of corporate captive insurer shall have at least three directors. Any group captive insurer formed as a reciprocal insurer shall have at least three subscribers' advisory committee members. In addition to independent directors, a group captive insurer may have as many directors as it has members.

G. A captive insurer that is formed as a corporation 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 limited liability company shall have at least one member of its board of managers 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.

H. The articles of incorporation or bylaws of a captive insurer that is formed as a corporation with more than one director may authorize a quorum of a board of directors to consist of at least one-third of the fixed or prescribed number of directors, but at least two 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, but at least two members.

I. Any foreign or alien insurer may become a domestic captive insurer by complying with the requirements of this article relating to the licensing of a domestic captive insurer and by complying with all applicable requirements of the laws of this state relating to the domestication of a corporation to this state. The effective date of a license that is issued to a foreign or alien insurer domesticated to this state shall be the date of filing its articles of domestication with the corporation commission.

§ 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. Each protected cell shall comply with the restrictions prescribed in section 20-1098.01, subsection A with respect to the risks insured through the protected cell.

§ 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 and be in compliance with chapter 3, article 10 of this title, 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. The audit opinion shall be filed with the director not later than six months after the end of the captive insurer's fiscal year.

C. Unless exempted by the director, the annual report shall be based on the type of risks insured by the insurer and shall meet the applicable requirements of one or more of the following:

1. Chapter 3, article 8 of this title.

2. Chapter 3, article 9 of this title.

3. The actuarial provisions of the national association of insurance commissioners health annual statement instructions.

§ 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 20-1098.23 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.

D. An alien captive insurer or foreign captive insurer that establishes a business unit in this state and that is licensed as a branch captive insurer shall consent to the examination by the director of the affairs of the alien captive insurer or foreign captive insurer in the jurisdiction in which the alien captive insurer or foreign captive insurer is formed. The examination of a branch captive insurer shall be of branch business and branch operations only, during the period the branch captive insurer is formed, and must demonstrate to the director's satisfaction that the alien captive insurer or foreign captive insurer is operating in a sound financial condition pursuant to all the applicable laws and regulations of the jurisdiction.

§ 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 as provided in subsection C of this section or otherwise with the approval of the director, a captive insurer may reinsure risks only pursuant to the limitations prescribed in section 20-1098.01, subsection A.

B. A captive insurer may take credit for reserves on risks or portions of risks ceded to a reinsurer that is in compliance with section 20-261 and chapter 30 of this title. 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 section 20-261 and chapter 30 of this title.

C. A captive insurer may cede and assume risks that are not within the limitations prescribed in section 20-1098.01, subsection A, 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 provisions 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. A captive insurer that is formed as a limited liability company is subject to the applicable provisions of title 29, except as otherwise prescribed in this article.

E. 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. Notwithstanding section 20-731, a domestic captive insurer may merge or consolidate with any other domestic captive insurer, foreign captive insurer or alien captive insurer even if the domestic captive insurer, foreign captive insurer or alien captive insurer was formed as a limited liability company or a stock corporation.

F. Chapter 2, article 8 of this title relating to insurance holding company systems applies to risk retention groups as defined in section 20-1098 or 20-2401.

G. Chapter 2, article 12 of this title relating to risk-based capital, as modified by the national association of insurance commissioners for risk retention groups, applies to risk retention groups as defined in section 20-1098 or 20-2401. If a risk retention group is subject to regulatory action as prescribed in section 20-488.02, 20-488.03, 20-488.04 or 20-488.05, the regulatory action shall be at the discretion of the director.

H. Unless otherwise prescribed by the director based on a risk retention group's business plan, remoteness of the risk and claim frequency, section 20-260, subsection A, relating to individual risk limitation, applies to risk retention groups as defined in section 20-1098 or 20-2401.

§ 20-1098.16 Captive manager

A captive insurer shall engage a manager who 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 Effect of fees payment; premium tax

A. The fees paid by a captive insurer pursuant to section 20-167, subsection F 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.

B. Notwithstanding subsection A of this section, an agency captive insurer that insures risks on policies as specified in section 20-1098.01, subsection A, paragraph 3, subdivision (b) shall pay the premium tax prescribed in section 20-224 for such policies that is in excess of any fees paid pursuant to section 20-167.

§ 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 subsections B and C 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 two hundred thousand dollars revert to the state general fund.

B. In addition to the purposes specified in subsection C of this section, the director may use up to one hundred thousand dollars in the captive insurance regulatory and supervision fund each fiscal year to administer programs in accordance with the department's other statutory responsibilities.

C. 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, pursuant to written guidelines adopted by the director.

D. 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.

§ 20-1098.19 Establishment of branch captive insurer

A. An alien captive insurer or foreign captive insurer may establish a business unit in this state and become licensed as a branch captive insurer in this state pursuant to this chapter to write insurance or reinsurance in this state except as provided in section 20-1098.01, subsection B and other than workers' compensation or employers' liability insurance.

B. A branch captive insurer shall not conduct any branch business in this state unless it maintains the principal place of business for its branch operations in this state.

C. A branch captive insurer shall be a pure captive insurer with respect to operations and minimum capitalization in this state unless otherwise permitted by the director.

§ 20-1098.20 Security for branch business and branch operations

A. In the case of a branch captive insurer, as security for the payment of liabilities attributable to the branch operations, the director shall require that either a trust fund that is funded by assets acceptable to the director or an irrevocable letter of credit be established and maintained in the United States for the benefit of United States policyholders and United States ceding insurers under insurance policies issued or reinsurance contracts issued or assumed by the branch captive insurer through its branch operations.

B. The amount of each security shall be at least the amount prescribed in section 20-1098.03 and the reserves on such insurance policies or such reinsurance contracts, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses and unearned premiums with regard to business written through the branch operations. Notwithstanding this section the director may permit a branch captive insurer that is required to post security for loss reserves on branch business by its reinsurer to reduce the monies in the trust account or the amount payable under the irrevocable letter of credit required by this section by the same amount if the security remains posted with the reinsurer.

C. If the form of security selected is a letter of credit, the letter of credit must be established by, or issued or confirmed by, a qualified United States financial institution.

§ 20-1098.21 Branch captive insurer reports

Within sixty days after its fiscal year end, a branch captive insurer shall file with the director a copy of all reports and statements that are required to be filed under the laws of the jurisdiction in which the alien captive insurer or foreign captive insurer is formed and that are verified by oath of two of its executive officers.

§ 20-1098.22 Change in plan of operations

A captive insurer shall obtain the written approval of the director before implementing any material change in its plan of operations.

§ 20-1098.23 Confidentiality of information; exceptions

A. Notwithstanding title 39, chapter 1, information submitted pursuant to this article is confidential and the director and the director's employees and agents shall not provide the information to any other person without the permission 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. The director shall provide the captive insurer with a copy of any document that the director believes supports a violation of this title or that justifies any regulatory or other action against the captive insurer. A disclosure pursuant to this paragraph is not a waiver of any applicable privilege or claim of confidentiality in the disclosed document.

2. The director shall provide information submitted by a captive insurer that is required by 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 of Arizona. The industrial commission shall maintain the confidentiality of the information pursuant to this section.

6. For the purpose of administering this article and promoting this state's captive insurance industry, the director may disclose only the following information about licensed captive insurers:

(a) The name of the captive insurer.

(b) The date licensed.

(c) The type of captive insurer.

(d) The business or industry of the owners or members.

(e) The captive insurer's license status.

B. This section does not apply to risk retention groups.

§ 20-1098.24 Dormant captive insurers; certificate of dormancy; report; fee; rules

A. A captive insurer that is domiciled in this state and that meets the definition of dormant captive insurer may apply for a certificate of dormancy by submitting an application to the director on a form prescribed by the director. The certificate of dormancy is subject to renewal every five years and expires unless renewed.

B. A dormant captive insurer that is issued a certificate of dormancy shall:

1. Possess and thereafter maintain unimpaired, paid-in capital and surplus of at least $125,000.

2. Not later than ninety days after the end of the dormant captive insurer's fiscal year, submit to the director a report of its financial condition that is verified by oath of two of its executive officers.

3. Pay a certificate renewal fee as prescribed in section 20-167.

C. A dormant captive insurer may surrender its certificate of dormancy by submitting an application to surrender to the director. The dormant captive insurer may not issue insurance policies or conduct the business of insurance until the director approves the application to surrender.

D. The director shall revoke a certificate of dormancy if a dormant captive insurer no longer meets the definition of dormant captive insurer.

E. The director may adopt guidelines, procedures and rules to implement this section.

Article 15 Vehicle Protection Products

§ 20-1099 Definitions

In this article, unless the context otherwise requires:

1. "Administrator" means a third party other than the warrantor who is designated by the warrantor to be responsible for the administration of vehicle protection product warranties.

2. "Incidental costs" means expenses that are specified in the vehicle protection product warranty incurred by the warranty holder relating to the failure of the vehicle protection product to perform as provided in the warranty. Incidental costs may include insurance policy deductibles, rental vehicle charges, the difference between the actual value of the stolen vehicle at the time of theft and the cost of a replacement vehicle, sales taxes, registration fees, transaction fees and mechanical inspection fees.

3. "Vehicle protection product" means a vehicle protection device, system or service that:

(a) Is installed on or applied to a vehicle.

(b) Is designed to prevent loss or damage to a vehicle from a specific cause.

(c) Includes a written warranty by a warrantor that provides if the vehicle protection product fails to prevent loss or damage to a vehicle from a specific cause, the warranty holder shall be paid specified incidental costs by the warrantor as a result of the failure of the vehicle protection product to perform pursuant to the terms of the warranty.

(d) Covers the warrantor's liability with a warranty reimbursement insurance policy.

Vehicle protection product includes alarm systems, body part marking products, steering locks, window etch products, pedal and ignition locks, fuel and ignition kill switches and electronic, radio and satellite tracking devices.

4. "Vehicle protection product warrantor" or "warrantor" means a person who is contractually obligated to the warranty holder under the terms of the vehicle protection product warranty agreement. Warrantor does not include an authorized insurer.

5. "Warranty reimbursement insurance policy" means a policy of insurance issued to the vehicle protection product warrantor to pay on behalf of the warrantor all covered contractual obligations incurred by the warrantor under the terms and conditions of the vehicle protection product warranty. An insurer authorized to do business in this state that has filed its policy form with the department shall issue the warranty reimbursement insurance policy.

§ 20-1099.01 Vehicle protection products; exemption from insurance code

A vehicle protection product that is sold or offered for sale in this state and that meets the requirements of section 20-1099.02 is not subject to this title. Vehicle protection product warrantors and related vehicle protection product sellers and administrators that comply with section 20-1099.02 are not required to comply with and are not subject to this title. The vehicle protection products' written warranties are express warranties and not insurance.

§ 20-1099.02 Exemption from insurance code; requirements

A. To be exempted from this title, a vehicle protection product shall:

1. Identify the warrantor, the seller, the warranty holder and the terms of the sale.

2. Conspicuously state that the obligations of the warrantor to the warranty holder are guaranteed under a warranty reimbursement insurance policy.

3. Conspicuously state that if the payment due under the terms of the warranty is not provided by the warrantor within sixty days after proof of loss has been filed pursuant to the terms of the warranty by the warranty holder, the warranty holder may file directly with the warranty reimbursement insurance company for reimbursement.

4. Conspicuously state the name and address of the warranty reimbursement insurance company. This information is not required to be preprinted on the warranty form but may be stamped on the warranty.

5. Contain a disclosure that reads substantially as follows:

"This agreement is a product warranty and is not insurance."

B. A warranty reimbursement insurance policy shall have the following provisions:

1. The policy shall state that the warranty reimbursement insurance company will reimburse or pay on behalf of the vehicle protection product warrantor all covered sums that the warrantor is legally obligated to pay or will provide the service that the warrantor is legally obligated to perform according to the warrantor's contractual obligations under the vehicle protection product warranty.

2. The policy shall state that if the payment due under the terms of the warranty is not provided by the warrantor within sixty days after proof of loss has been filed according to the terms of the warranty by the warranty holder, the warranty holder may file directly with the warranty reimbursement insurance company for reimbursement.

Chapter 5 The Insurance Contract

Article 1 In General

§ 20-1101 Scope of article

This article shall not apply to:

1. Reinsurance.

2. Policies or contracts not issued for delivery in this state nor delivered in this state, except as provided in section 20-1110, subsection G (approval of forms for delivery in jurisdictions where local approval not provided for) and in section 20-1133, subsection A (medicare supplement insurance minimum standards).

3. Ocean marine and foreign trade insurances.

4. Title insurance, except as to section 20-1115.

§ 20-1102 "Policy" defined

"Policy" means contract of or agreement for or effecting insurance, or the certificate thereof, by whatever name called, and includes all clauses, riders, endorsements and papers attached thereto and a part thereof.

§ 20-1103 "Premium" defined

"Premium" is the consideration for insurance, by whatever name called.

§ 20-1104 Insurable interest with respect to personal insurance; definition

A. Any individual of competent legal capacity may procure or effect an insurance contract on his own life or body for the benefit of any person. But no person shall procure or cause to be procured any insurance contract on the life or body of another individual unless the benefits under such contract are payable to the individual insured or his personal representatives, or to a person having, at the time when the contract was made, an insurable interest in the individual insured.

B. If the beneficiary, assignee or other payee under any contract made in violation of this section receives from the insurer any benefits thereunder accruing on the death, disablement or injury of the individual insured, the individual insured or his executor or administrator, as the case may be, may maintain an action to recover such benefits from the person so receiving them.

C. "Insurable interest" with reference to personal insurance includes only interests as follows:

1. In the case of individuals related closely by blood or by law, a substantial interest engendered by love and affection.

2. In the case of other persons, a lawful and substantial economic interest in having the life, health or bodily safety of the individual insured continue, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement or injury of the individual insured.

3. An individual party to a contract or option for the purchase or sale of an interest in a business partnership or firm, or of shares of stock of a closed corporation or of an interest in the shares, has an insurable interest in the life of each individual party to the contract and for the purposes of the contract only, in addition to any insurable interest which may otherwise exist as to the life of the individual.

4. A charitable organization as provided in section 501(c)(3) of the internal revenue code, which has a policy ownership interest has an insurable interest in the life of each proposed insured who joins with the charitable organization in applying for a life insurance policy naming the charitable organization as owner and irrevocable beneficiary.

§ 20-1105 Insurable interest with respect to property insurance

A. No insurance contract on property or of any interest therein or arising therefrom shall be enforceable as to the insurance except for the benefit of persons having an insurable interest in the things insured.

B. "Insurable interest" as used in this section means any actual, lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction or pecuniary damage or impairment.

C. The measure of an insurable interest in property is the extent to which the insured might be damaged by loss, injury or impairment thereof.

§ 20-1106 Capacity to contract for insurance; minors

A. Any person of competent legal capacity may contract for insurance.

B. A minor who is at least fifteen years of age as of the minor's nearest birthday may contract, notwithstanding the minor's minority, for life or disability insurance on the minor's own life or body, for the minor's own benefit or for the benefit of the minor's father or mother, spouse, child, brother, sister or grandparents.

C. A minor who is at least sixteen years of age as of the minor's nearest birthday, who is a foster child as defined in section 8-501 or a youth participating in the independent living program pursuant to section 8-521 and who has completed a driver education program may contract, notwithstanding the minor's minority, for motor vehicle liability insurance that satisfies the requirements of section 28-4009 and that covers the minor.

D. A minor described in subsection B or C of this section, notwithstanding the minor's minority, shall be deemed competent to exercise all rights and powers with respect to or under any contract of life or disability insurance on the minor's own life or body or contract of motor vehicle liability insurance pursuant to this section, as though of full legal age, and may surrender the minor's interest in the contract and give a valid discharge for any benefit accruing or money payable under the contract. The minor, by reason of his minority, may not rescind, avoid or repudiate the contract, nor rescind, avoid or repudiate any exercise of a right or privilege under the contract, except that the minor, not otherwise emancipated, may not be bound by any unperformed agreement to pay, by promissory note or otherwise, any premium on such an insurance contract.

§ 20-1107 Application for insurance

No life or disability insurance contract upon an individual, except a contract of group life insurance or of group or blanket disability insurance, shall be made or effectuated unless at the time of making the contract the individual insured, being of competent legal capacity to contract, applies therefor or consents thereto, except in the following cases:

1. A spouse may effectuate such insurance upon the other spouse.

2. Any person having an insurable interest in the life of a minor, or any person upon whom a minor is dependent for support and maintenance, may effectuate insurance upon the life of or pertaining to the minor.

§ 20-1108 Admissibility of application as evidence

A. An application for the issuance of any life or disability insurance policy or contract is not admissible in evidence in any action relative to such policy or contract, unless a true copy of the application was attached to or otherwise made a part of the policy when issued and delivered. This subsection does not apply to industrial life insurance policies.

B. If any policy of life or disability insurance delivered in this state is reinstated or renewed, and the insured or the beneficiary or assignee of the policy makes written request to the insurer for a copy of the application, if any, for such reinstatement or renewal, the insurer, within thirty days after receipt of the request at its home office or at any of its branch offices, shall deliver or send to the person making the request a copy of the application. If the copy is not delivered or sent after having been requested, the insurer is precluded from introducing the application in evidence in any action or proceeding based on or involving the policy or its reinstatement or renewal.

C. As to kinds of insurance other than life insurance, an application for insurance signed by or on behalf of the insured is not admissible in evidence in any action between the insured and the insurer arising out of the policy so applied for, if the insurer has failed, at the expiration of thirty days after receipt by the insurer of written demand therefor by or on behalf of the insured, to furnish to the insured a copy of the application reproduced by any legible means.

§ 20-1109 Statements as representation; effect of misrepresentation upon policy

All statements and descriptions in any application for an insurance policy or in negotiations therefor, by or in behalf of the insured, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery under the policy unless:

1. Fraudulent.

2. Material either to the acceptance of the risk, or to the hazard assumed by the insurer.

3. The insurer in good faith would either not have issued the policy, or would not have issued a policy in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or otherwise.

§ 20-1110 Approval of forms; definition

A. Any life or disability insurance policy form, life or disability insurance application form where written application is required and is to be made a part of the policy and printed rider or endorsement form shall not be delivered or issued for delivery in this state by a life or disability insurer unless it has been filed with and approved by the director. The director may also require that proof of death or loss forms shall be filed with and approved by the director.

B. This section shall not apply to policies, riders, endorsements or forms of unique character designed and used for insurance on a particular subject, or that relate to the manner of distribution of benefits or to the reservation of rights and benefits under life or disability insurance policies, and are used at the request of the individual policyholder, contract holder or certificate holder.

C. Every form filing shall be made not less than thirty days in advance of any delivery. The form is approved thirty days after filing unless the director, within the thirty day period, has issued an order affirmatively approving or disapproving the form. The director may extend by not more than an additional fifteen days the period for review of the form, by giving notice of the extension before expiration of the initial thirty day period. The director may at any time, after notice and for cause shown, withdraw the director's approval. This subsection also applies to contracts and policy forms filed with the department under section 20-826, subsection A by a corporation holding a certificate of authority under chapter 4, article 3 of this title. This subsection does not apply to contracts or policy forms issued by a hospital service corporation, medical service corporation or hospital and medical service corporation pursuant to section 20-1063.

D. Any order of the director disapproving the form or withdrawing a previous approval shall state the reasons for the action.

E. A life or disability insurer shall not issue or deliver any advertising matter or sales material to any person in this state until the life or disability insurer files the advertising matter or sales material with the director. This subsection does not require a life or disability insurer 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 life or disability insurer 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 life or disability insurer with a written notice of the basis of the order to provide the life or disability insurer 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 life or disability insurer may appeal the director's order pursuant to title 41, chapter 6, article 10. Except as otherwise provided in this subsection, a life or disability insurer 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.

F. The director, by order, may exempt from the requirements of this section for so long as the director deems proper any insurance document, advertisement or form as specified in the order, to which, in the director's opinion, this section may not practicably be applied, or the filing and approval of which are, in the director's opinion, not desirable or necessary for the protection of the public.

G. This section shall apply also to any form used by domestic insurers for delivery in a jurisdiction outside this state, if the insurance supervisory official of that jurisdiction informs the director that the form is not subject to approval or disapproval by that official, and on the director's order requiring the form to be submitted to the director for the purpose. The applicable same standards shall apply to these forms as apply to forms for domestic use.

H. For the purposes of this section and sections 20-826, 20-1018 and 20-1057, advertising matter and sales material do not include any of the following materials listed in this subsection, which are not required to be filed:

1. Materials that are designed solely to increase public awareness of an insurer's name, trademarks, service marks, slogan or brand and that do not reference specific products or benefits offered by the insurer.

2. Materials that are designed for and distributed only to large group benefit administrators and their brokers and that are not intended for distribution to group members.

3. Web pages and other materials that are published exclusively to guide current members about use of already purchased products.

4. Social media sites and social media content that do not reference products or benefits offered by the insurer or include a call to action.

5. Web banner advertisements, paid social media posts and online search engine advertisements that either do not link to advertising matter and sales material or, if linked to such content, link only to content that is filed in accordance with this section and that meets one of the following criterion:

(a) Do not reference specific products offered by the insurer.

(b) Are less than one hundred characters.

6. Educational materials that are designed to increase consumers' health insurance literacy and that do not include a call to action or reference a specific insurer, other than as the source or author of the materials.

7. Other materials and advertisements specified by the department in rule or by exemption order.

I. For the purposes of subsections H and J of this section, "insurer" means disability insurer, group disability insurer, blanket disability insurer, fraternal benefit society, prepaid dental plan organization, hospital service corporation, medical service corporation, dental service corporation, optometric service corporation and health care service organization.

J. For the purposes of this section, "call to action" means a statement or other content that invites a consumer to respond by contacting the insurer by phone, letter, e-mail or other electronic communication or attending an event so that the insurer can attempt to sell the individual a product or service.

§ 20-1110.01 Rules and regulations; form and readability of policies

A. The director shall adopt and promulgate rules and regulations governing the form and readability of various types of insurance policies including title insurance policies. Such rules and regulations may provide that the readability requirements established pursuant to this subsection may be met by use of an outline of coverage or brochure which accompanies the policy and is provided to the policyholder.

B. The rules and regulations adopted and promulgated by the director pursuant to subsection A of this section shall neither require standardized forms of policies nor mandate or prohibit the inclusion of any coverage provisions in policies issued in this state.

§ 20-1111 Grounds for disapproval of forms

A. The director shall disapprove any form of policy, application, rider or endorsement or withdraw any previous approval thereof only:

1. If it is in any respect in violation of or does not comply with this title.

2. If it contains or incorporates by reference any inconsistent, ambiguous or misleading clauses, or exceptions and conditions which deceptively affect the risk purported to be assumed in the general coverage of the contract.

3. If it has any title, heading or other indication of its provisions which is misleading.

4. If the purchase of such policy is being solicited by false, deceptive or misleading advertising matter, sales material or representations.

B. The director may disapprove any proof of death or loss form only if it imposes unreasonable requirements, or is in violation of this title, or contains deceptive or ambiguous matter.

C. The director may disapprove any advertising matter or sales material which is in violation of this title.

§ 20-1112 Standard provisions

A. Insurance contracts shall contain such standard provisions as are required by the applicable provisions of this title pertaining to contracts of particular kinds of insurance. The director may waive the required use of a particular standard provision in a particular insurance policy form if he finds such provision unnecessary for the protection of the insured and inconsistent with the purposes of the policy and the policy is otherwise approved by him.

B. No policy shall contain any provision inconsistent with or contradictory to any standard provision used or required to be used, but the director may approve any substitute policy or provision which, when viewed in its entirety, is substantially equivalent to or more favorable to the insured or beneficiary than the standard provisions or optional standard provisions otherwise required.

C. In lieu of the standard provisions required by the provisions of this title for contracts for particular kinds of insurance, substantially similar standard provisions required by the law of the domicile of a foreign or alien insurer may be used when approved by the director.

§ 20-1113 Contents of policy

A. The written instrument in which a contract of insurance is set forth is the policy.

B. Every policy shall specify:

1. The names of the parties to the contract.

2. The insurer's name.

3. The subject of the insurance.

4. The risks insured against.

5. The time when the insurance thereunder takes effect and the period during which the insurance is to continue.

6. The premium.

7. The conditions pertaining to the insurance.

C. If under the policy the exact amount of premium is determinable only at stated intervals or termination of the contract, a statement of the basis and rates upon which the premium is to be determined and paid shall be included.

D. The provisions of subsections A, B and C shall not apply to surety contracts, or to group insurance policies.

E. A policy may contain additional provisions not inconsistent with this title and which are:

1. Required to be inserted by the laws of the insurer's domicile.

2. Necessary, on account of the manner in which the insurer is constituted or operated, in order to state the rights and obligations of the parties to the contract.

3. Desired by the insurer and neither prohibited by law nor in conflict with any provisions required to be included therein.

§ 20-1114 Incorporation of charter or bylaw into policy

No policy shall contain any provision purporting to make any portion of the charter, bylaws or other constituent document of the insurer a part of the contract unless such portion is set forth in full in the policy. Any policy provision in violation of this section shall be invalid.

§ 20-1115 Void policy restrictions

A. No policy delivered or issued for delivery in this state and covering a subject of insurance resident, located or to be performed in this state, shall contain any condition, stipulation or agreement:

1. Requiring the policy to be construed according to the laws of any other state or country, except as necessary to meet the requirements of the motor vehicle financial responsibility laws or compulsory disability benefit laws of such other state or country.

2. Preventing the bringing of an action against the insurer for more than six months after the cause of action accrues.

3. Limiting the time within which an action may be brought to a period of less than two years from the time the cause of action accrues in connection with all insurances other than property and marine and transportation insurances. In property and marine and transportation policies such time shall be one year from the date of occurrence of the event resulting in the loss except that an insurer may extend such limitation beyond one year in its policy provisions.

B. Any such condition, stipulation or agreement shall be void, but such voidance shall not affect the validity of the other provisions of the policy.

§ 20-1116 Execution of policies

A. Every insurance policy shall be executed in the name of and on behalf of the insurer by its officer, attorney-in-fact, employee or representative duly authorized by the insurer.

B. A facsimile signature of any such executing individual may be used in lieu of an original signature.

C. No insurance contract issued and which is otherwise valid shall be rendered invalid by reason of the apparent execution thereof on behalf of the insurer by the imprinted facsimile signature of an individual not authorized so to execute as of the date of the policy, if the policy is countersigned with the original signature or initial of an individual then so authorized.

§ 20-1117 Underwriters' and combination policies

A. Two or more authorized insurers may jointly issue, and shall be jointly and severally liable on, an underwriters' policy bearing their names. Any one insurer may issue policies in the name of an underwriter's department and such policy shall plainly show the true name of the insurer.

B. Two or more insurers may, with the approval of the director, issue a combination policy which shall contain provisions substantially as follows:

1. That the insurers executing the policy shall be severally liable for the full amount of any loss or damage, according to the terms of the policy, or for specified percentages or amounts thereof, aggregating the full amount of insurance under the policy.

2. That service of process, or of any notice or proof of loss required by such policy, upon any of the insurers executing the policy, shall constitute service upon all such insurers.

C. This section shall not apply to cosurety obligations.

§ 20-1118 Validity of noncomplying forms

Any insurance policy, rider or endorsement issued after January 1, 1955 and otherwise valid which contains any condition or provision not in compliance with the requirements of this title shall not be thereby rendered invalid but shall be construed and applied in accordance with such conditions and provisions as would have applied had such policy, rider or endorsement been in full compliance with this title.

§ 20-1119 Construction of policies; translation; disclaimer

A. Every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended or modified by any rider, endorsement or application attached to and made a part of the policy.

B. An insurance policy that is translated into a language other than English and that is issued for delivery by an insurer in this state does not amplify, extend or modify the terms of the English language version of the policy if the policy contains a disclaimer that is prominently displayed on the cover page or a page that corresponds to the cover page in a contrasting color or bold-faced type in the translated language and that states: "The English language version of this policy controls in the event of a conflict or varying interpretation of the coverage provided under this policy".

§ 20-1120 Binders

A. Binders or other contracts for temporary insurance may be made orally or in writing, and shall be deemed to include all the usual terms of the policy as to which the binder was given together with such applicable endorsements as are designated in the binder, except as superseded by the clear and express terms of the binder.

B. No binder shall be valid beyond the issuance of the policy with respect to which it was given, or beyond ninety days from its effective date, whichever period is the shorter.

C. If the policy has not been issued a binder may be extended or renewed beyond such ninety days with the written approval of the director, or in accordance with such rules and regulations relative thereto as the director may promulgate.

D. This section shall not apply to life or disability insurances.

§ 20-1121 Renewal of policy by certificate or endorsement

Any insurance policy terminating by its terms at a specified expiration date and not otherwise renewable, may be renewed or extended at the option of the insurer upon a currently authorized policy form at the premium rate then required therefor for a specific additional period or periods by certificate or by endorsement of the policy, and without requiring the issuance of a new policy.

§ 20-1122 Assignment of policies

A policy may be assignable or not assignable, as provided by its terms. Subject to its terms relating to assignability, any life or disability policy, when issued, under the terms of which the beneficiary may be changed upon the sole request of the insured, may be assigned either by pledge or transfer of title, by an assignment executed by the insured alone and delivered to the insurer, whether or not the pledgee or assignee is the insurer. Any such assignment shall entitle the insurer to deal with the assignee as the owner or pledgee of the policy in accordance with the terms of the assignment until the insurer has received at its home office written notice of termination of the assignment or pledge, or written notice by or on behalf of some other person claiming some interest in the policy in conflict with the assignment.

§ 20-1123 Annulment of liability policies

No insurance contract insuring against loss or damage through legal liability for the bodily injury or death by accident of any individual, or for damage to the property of any person, shall be retroactively annulled by any agreement between the insurer and the insured after the occurrence of any injury, death or damage for which the insured may be liable, and any attempted annulment shall be void.

§ 20-1123.01 Motor vehicle liability insurance; primary and excess coverage

A. If two or more policies affording valid and collectible automobile liability insurance apply to the same motor vehicle in an occurrence out of which a liability loss shall arise, and one of such policies affords coverage to a named insured engaged in the business of selling, repairing, servicing, delivering, testing, road testing, parking or storing motor vehicles, both of the following shall be conclusively presumed:

1. If, at the time of loss, the motor vehicle is being operated by any person engaged in any of such businesses, or by his employee or agent, the insurance afforded by the policy issued to the person engaged in such business shall be primary, and the insurance afforded by any other policy shall be excess.

2. If, at the time of loss, the motor vehicle is being operated by any person other than as described in paragraph 1, the insurance afforded by the policy issued to any person engaged in any of such businesses shall be excess over all other insurance available to such operator as a named insured or otherwise.

B. Except as provided in subsection A of this section, if two or more policies affording valid and collectible liability insurance apply to the same motor vehicle in an occurrence out of which a liability loss shall arise, it shall be conclusively presumed that the insurance afforded by that policy in which such motor vehicle is described or rated as an owned automobile shall be primary and the insurance afforded by any other policy or policies shall be excess.

C. The presumptions stated in subsection A of this section may be modified or amended only by written agreement signed by all insurers who have issued a policy or policies applicable to a loss described in such subsection and all named insureds under such policies.

§ 20-1124 Discharge of insurer by payment under policy

When the proceeds of or payments under a life or disability insurance policy or annuity contract become payable in accordance with the terms of the policy or contract, or the exercise of any right or privilege thereunder, and the insurer makes payment thereof in accordance with the terms of the policy or contract or in accordance with any written assignment thereof, the person then designated in the policy or contract or by the assignment as being entitled thereto shall be entitled to receive the proceeds or payments and to give full acquittance therefor, and the payments shall fully discharge the insurer from all claims under the policy or contract unless, before payment is made, the insurer has received at its home office written notice by or on behalf of some other person that such other person claims to be entitled to such payment or some interest in the policy or contract.

§ 20-1125 Discharge of payor by payment of benefits under employee benefit plan or life insurance policy

Notwithstanding the provisions of section 25-211, when payment or refund is made to an employee, former employee or his beneficiary or estate pursuant to a written retirement, death or other employee benefit plan or savings plan, or when the proceeds of, or payments under, a policy or contract issued by a life insurance company becomes payable, and the company makes payment in accordance with the terms thereof, or in accordance with the terms of a written assignment thereof if the policy or contract has been assigned, the payment or refund shall fully discharge the employer and any trustee or insurance company making the payment or refund from all adverse claims thereto unless, before payment or refund is made, the employer or former employer, where the payment is made by the employer or former employer, has received at its principal place of business within this state, written notice by or on behalf of some other person that such other person claims to be entitled to the payment or refund or some part thereof, or where a trustee or insurance company is making the payment, the notice has been received by the trustee or insurance company at its home office. Nothing in this section shall affect a claim or right to the payment or refund or part thereof as between all persons other than the employer and the trustee or insurance company making such payment or refund.

§ 20-1126 Health care insurers; pharmacy benefits managers; cost sharing; calculation; definitions

A. When calculating an enrollee's contribution to any out-of-pocket maximum, deductible, copayment, coinsurance or other applicable cost sharing requirement, the health care insurer that provides pharmacy benefits or a pharmacy benefits manager that administers pharmacy benefits for a health care insurer shall include any cost sharing amount paid by either the enrollee or another person on behalf of the enrollee for a prescription drug that is either:

1. Without a generic equivalent.

2. With a generic equivalent where the enrollee has obtained access to the prescription drug through any of the following:

(a) Prior authorization.

(b) A step therapy protocol.

(c) The health care insurer's exceptions and appeals process.

B. For the purposes of this section:

1. "Generic equivalent":

(a) Means a drug that has an identical amount of the same active chemical ingredients in the same dosage form, that meets applicable standards of strength, quality and purity according to the United States pharmacopeia or other nationally recognized compendium and that, if administered in the same amounts, will provide comparable therapeutic effects.

(b) Does not include a drug that is listed by the United States food and drug administration as having unresolved bioequivalence concerns according to the administration's most recent publication of approved drug products with therapeutic equivalence evaluations.

2. "Health care insurer" has the same meaning prescribed in section 20-1379.

§ 20-1127 Simultaneous deaths

Where the individual insured or the annuitant and the beneficiary designated in a life insurance policy or policy insuring against accidental death or in an annuity contract have died and there is not sufficient evidence that they have died otherwise than simultaneously, the proceeds of the policy or contract shall be distributed as if the insured or annuitant had survived the beneficiary, unless otherwise specifically provided in the policy or contract.

§ 20-1128 Rights of spouse in life or disability policy

A. The benefits payable upon the death of the insured and provided in any life or disability insurance policy made payable to or for the benefit of the spouse of the insured shall, unless contrary to the terms of the policy, inure upon their becoming payable, to the separate use and benefit of such spouse, but until the benefits become payable the insurer shall be entitled to deal with the insured or person designated in the policy as having control thereof with respect to the policy and all benefits thereof, including loan and cash surrender values, without first securing the consent of such spouse.

B. The beneficial interest of a spouse in a life or disability insurance policy as to which a child of the spouse is the insured shall be deemed to be a community and not a separate interest unless expressly otherwise provided in the policy, but if the premiums paid to maintain the policy have been paid with separate funds or partly with separate and partly with community funds, the proceeds and avails of the policy shall constitute separate property in that proportion which the separate premiums paid bear to the total premiums paid.

C. In any life or disability insurance policy issued upon the life of a spouse, the designation made by such spouse of a beneficiary in accordance with the terms of the policy shall create a presumption that the beneficiary was so designated with the consent of the other spouse, but only as to any beneficiary who is the child, grandchild, parent, brother or sister of either of the spouses. The insurer may in good faith rely upon the representations made by the insured as to the relationship to him of any such beneficiary.

§ 20-1129 Furnishing of proof of loss forms by insurer

An insurer shall furnish, upon written request of any person claiming to have a loss under an insurance contract issued by the insurer, forms of proof of loss for completion by the person, but the insurer shall not, by reason of the requirement so to furnish forms, have any responsibility for or with reference to the completion of such proof or the manner of any such completion or attempted completion.

§ 20-1130 Administration of claim against insurer not deemed waiver of defense

Without limitation of any right or defense of an insurer otherwise, none of the following acts by or on behalf of an insurer shall be deemed to constitute a waiver of any provision of a policy or of any defense of the insurer thereunder:

1. Acknowledgement of the receipt of notice of loss or claim under the policy.

2. Furnishing forms for reporting a loss or claim, for giving information relative thereto, or for making proof of loss, or receiving or acknowledging receipt of any such forms or proofs completed or uncompleted.

3. Investigating any loss or claim under any policy or engaging in negotiations looking toward a possible settlement of any such loss or claim.

§ 20-1131 Exemption of life insurance proceeds and cash values from creditors

A. If a policy of life insurance is effected by any person on the person's own life or on another life in favor of another person having an insurable interest in the policy, or made payable by assignment, change of beneficiary or other means to a third person, the lawful beneficiary or such third person, other than the person effecting the insurance or the person's legal representatives, is entitled to its proceeds against the creditors and representatives of the person effecting the insurance.

B. Subject to the statute of limitations, the amount of any premiums for insurance paid in fraud of creditors, with interest, shall inure to their benefit from the proceeds of the policy, but the insurer issuing the policy shall be discharged of all liability on the policy by payment of the proceeds in accordance with its terms, unless before payment the insurer received written notice by or in behalf of some creditor, with specification of the amount claimed, claiming to recover for certain premiums paid in fraud of creditors.

C. For the purposes of subsection A, a policy shall also be deemed to be payable to a person other than the insured if and to the extent that a facility-of-payment clause or similar clause in the policy permits the insurer to discharge its obligation after the death of the individual insured by paying the death benefits to a person as permitted by the clause.

D. If, for a continuous, unexpired period of two years, a policy of life insurance has named as beneficiary the insured's surviving spouse, child, parent, brother, sister or any other dependent family member, then, in event of bankruptcy or in any proceeding before any court in this state, the cash surrender value of the insurance, in the proportion that the policy names any such beneficiary, shall be exempt from claims and demands of all creditors, other than a creditor to whom the policy has been pledged or assigned, and except that, subject to the statute of limitations, the amount of any premiums which are recoverable or avoidable by a creditor pursuant to title 44, chapter 8, article 1, with interest, shall inure to their benefit from the cash surrender value. For the purposes of this subsection, "dependent" means a family member who is dependent on the insured for not less than half support.

§ 20-1132 Exemption of group life insurance proceeds from creditors; exception

A. A policy of group life insurance or the proceeds thereof payable to the individual insured or to the beneficiary thereunder shall not be liable, either before or after payment, to be applied by any legal or equitable process to pay any liability of any person having a right under the policy. The proceeds thereof, when not made payable to a named beneficiary or to a third person pursuant to a facility-of-payment clause, shall not constitute a part of the estate of the individual insured for the payment of his debts.

B. This section shall not apply to group life insurance issued pursuant to article 2 of chapter 6 of this title to a creditor covering his debtors, to the extent that such proceeds are applied to payment of the obligation for the purpose of which the insurance was so issued.

§ 20-1133 Medicare supplement insurance; early enrollment discounts; applicability

A. The director shall adopt rules necessary to comply with the requirements of the social security disability amendments of 1980 (P.L. 96-265; 42 United States Code section 1395ss) and any federal laws or regulations pertaining to that section, so that this state may retain its full authority to regulate minimum standards for medicare supplement insurance.

B. For the purposes of this section, an insurer may file for medicare supplement rates that include an early enrollment discount that will not be considered an attained age rating structure. An early enrollment discount shall diminish over a period of time and is only available to enrollees who purchase the plan within the early enrollment period designated by the insurer. Insurers shall disclose to all applicants how the early enrollment discount will diminish over time.

C. Subject to the other limitations provided in this subsection, a benefit mandated in this title for health insurance policies does not apply to medicare supplement insurance policies unless the mandated policy benefit is set forth in rules adopted pursuant to this section or unless the statute mandating the policy benefit expressly states that it is made specifically applicable to medicare supplement insurance policies. A medicare supplement insurance policy may not contain any exclusion for services provided by any type of properly licensed health care provider if the provider's services are eligible for medicare reimbursement and if the specific services in question would be covered by medicare. The scope of benefits of a medicare supplement policy may not be less than the minimum level of benefits established by federal law.

D. Notwithstanding any other provision of this title, rules adopted pursuant to this section apply to insurance provided under disability insurance policies, under subscription contracts of hospital, medical, dental or optometric service corporations, under certificates of fraternal benefit societies, under evidences of coverage of health care services organizations and under coverages issued by any other insurer, which policies, contracts, certificates, membership coverages, evidences of coverage and coverages are delivered or issued for delivery in this state on or after the effective date of rules adopted pursuant to subsection A of this section. In adopting the rules required by subsection A of this section, the director shall prescribe an effective date of the rules that will allow insurers sufficient time to bring their forms and practices into compliance with the requirements of the rule.

§ 20-1134 Coordination of benefits

The director shall adopt rules relating to coordination of benefits provisions in group disability insurance policies. This section shall apply to hospital and medical service corporations and health care services organizations.

§ 20-1135 Prohibition against excluding coverage because of previous tests for a condition

An insurance contract offered by an insurer pursuant to this chapter 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.

§ 20-1136 Accelerated payments of certain benefits in life insurance policies

A. Notwithstanding any other provision of this title, any policy of life insurance may provide, in accordance with the provisions of subsection B, for the acceleration of death benefits in advance of the time such benefits would otherwise be payable upon the occurrence of a terminal illness, a catastrophic illness, or eligibility for long-term care.

B. The director may adopt rules regarding advertising, disclosure, benefit levels, benefit eligibility, nonforfeiture, and reserves for the accelerated payment of death benefits set forth under subsection A.

§ 20-1137 Limited benefit coverage; prohibited practice; definition

A. Bundling or combining various limited benefit insurance policies and advertising or indicating in any manner that these policies are major medical expense coverage policies or could be substituted for major medical expense coverage is a prohibited practice pursuant to chapter 2, article 6 of this title.

B. For the purposes of this title, "limited benefit coverage" means an insurance policy that is designed, advertised and marketed to supplement major medical insurance and that includes accident only, dental only, vision only, disability income only, fixed or hospital indemnity, specified disease insurance, credit insurance or Taft-Hartley trusts.

§ 20-1138 Health insurance policies; member identification cards; applicability

A. An identification card that includes information facilitating a subscriber's, enrollee's or insured's access to services or coverage under an individual or group health insurance contract, evidence of coverage or policy issued or renewed in this state by a hospital and medical service corporation, health care services organization or disability insurer must prominently display the letters "AZDOI" in capital letters on the bottom front of the identification card and a telephone number that a subscriber, enrollee or insured may call for customer assistance.

B. This section applies to identification cards for any individual or group contract, evidence of coverage or policy issued or renewed from and after December 31, 2021.

Chapter 6 Particular Types of Insurance

Article 1 Life Insurance and Annuities

§ 20-1201 Scope of article

This article applies to contracts of life insurance and annuities, other than reinsurance, group life insurance, group annuities and industrial life insurance. Section 20-1217 (contestability as to excluded or restricted coverage), section 20-1226 (limitation of liability), section 20-1227 (incontestability after reinstatement), section 20-1230 (dual pay policies) and sections 20-1231 and 20-1231.01 (standard nonforfeiture law) shall apply to industrial life insurance also.

§ 20-1202 Standard provisions required in life insurance policies

A. No policy of life insurance other than industrial, group and pure endowments with or without return of premiums or of premiums and interest, shall be delivered or issued for delivery in this state unless it contains in substance all of the provisions required by sections 20-1203 to 20-1216, inclusive. This section shall not apply to annuity contracts nor to any provision of a life insurance policy relating to disability benefits or to additional benefits in the event of death by accident or accidental means.

B. Any provisions or portions thereof not applicable to single premium or term policies shall to that extent not be incorporated therein.

§ 20-1203 Grace period

There shall be a provision that a grace period of thirty days, or, at the option of the insurer, of one month of not less than thirty days, shall be allowed within which the payment of any premium after the first may be made, during which period of grace the policy shall continue in full force. If a claim arises under the policy during the period of grace before the overdue premium is paid, the amount of the premium may be deducted from the policy proceeds.

§ 20-1204 Incontestability

There shall be a provision that the policy, exclusive of provisions relating to disability benefits or to additional benefits in the event of death by accident or accidental means, shall be incontestable, except for nonpayment of premiums, after it has been in force during the lifetime of the insured for a period of two years from its date of issue.

§ 20-1205 Application and policy as entire contract; statements in application as representations; information

A. There shall be a provision that the policy, or the policy and the application therefor if a copy of the application is endorsed upon or attached to the policy when issued, shall constitute the entire contract between the parties, and that all statements contained in the application shall, in the absence of fraud, be deemed representations and not warranties.

B. On written request of an applicant or annuity holder, an insurer shall provide within a reasonable time reasonable factual information regarding the benefits and provisions of his annuity contract.

§ 20-1206 Misstatement of age

There shall be a provision that if the age of the insured or of any other person whose age is considered in determining the premium has been misstated, any amount payable or benefit accruing under the policy shall be such as the premium would have purchased at the correct age or ages.

§ 20-1207 Dividends

There shall be a provision in participating policies that, beginning not later than the end of the third policy year, the insurer shall annually ascertain and apportion the divisible surplus, if any, that will accrue on the policy anniversary or other dividend date specified in the policy provided the policy is in force and all premiums to that date are paid. Except as provided in this section, any dividend so apportioned shall, at the option of the party entitled to elect such option, be either payable in cash or applied to any one of such other dividend options as may be provided by the policy. If any such other dividend options are provided, the policy shall further state which option shall be automatically effective if the party has not elected some other option. If the policy specifies a period within which the other dividend option may be elected, such period shall be not less than thirty days following the date on which the dividend is due and payable. The annually apportioned dividend shall be deemed to be payable in cash even though the policy provides that payment of the dividend is to be deferred for a specified period, but such period shall not exceed six years from the date of apportionment and interest shall be added to the dividend at a specified rate. If a participating policy provides that the benefit under any paid-up nonforfeiture provision is to be participating, it may provide that any divisible surplus apportioned while the insurance is in force under the nonforfeiture provision shall be applied in the manner set forth in the policy.

§ 20-1208 Policy loan on old policies

A. In the case of policies issued prior to the operative date of section 20-1231, there shall be a provision that after three full years premiums have been paid, the insurer at any time while the policy is in force will advance on proper assignment or pledge of the policy and on the sole security thereof at a specified rate of interest not to exceed six per cent per annum, an amount equal to, or at the option of the owner of the policy less than, the reserve at the end of the current policy year on the policy and on any dividend addition thereto, computed according to any mortality table, rate of interest and the method of valuation permitted by the provisions of this title, the policy specifying the mortality table and rate of interest adopted for computing such reserve, less an amount not more than two and one-half per cent of the amount insured by the policy and of any dividend additions thereto, and that the insurer shall deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year. An insurer may, in lieu of the provisions permitted by this section for the deduction from a loan on the policy of an amount not more than two and one-half per cent of the amount insured by the policy and of any dividend additions thereto, insert in the policy a provision that one fifth of the entire reserve may be deducted in case of a loan under the policy, or may provide therein that the deduction may be the two and one-half per cent or the one fifth of the entire reserve at the option of the insurer. The policy shall reserve to the insurer the right to defer the granting of a loan, other than for the payment of any premium to the insurer, for six months after application therefor is made. The policy, at the insurer's option, may provide for an automatic premium loan, subject to an election of the party entitled to elect.

B. The provision provided for in subsection A of this section shall not be required in term insurance, nor shall it apply to temporary insurance or pure endowment insurance, issued or granted in exchange for lapsed or surrendered policies.

C. In ascertaining the indebtedness due from policy loans, the interest, if not paid when due, shall be added to the principal of the loans and shall bear interest at the rate specified in the note or loan agreement.

§ 20-1209 Policy loan on new policies

A. In case of policies issued on and after January 1, 1979, there shall be a provision that after the policy has a cash surrender value and while no premium is in default beyond the grace period for payment, the insurer will advance, on proper assignment or pledge of the policy and on the sole security of such policy, at a specified rate of interest, an amount equal to or, at the option of the party entitled thereto, less than the loan value of the policy. The loan value of the policy shall be at least equal to the cash surrender value at the end of the then current policy year, provided that the insurer may deduct, either from the loan value or from the proceeds of the loan, any existing indebtedness not already deducted in determining the cash surrender value including any interest then accrued but not due, any unpaid balance of the premium for the current policy year and interest on the loan to the end of the current policy year. The policy may also provide that if interest on any indebtedness is not paid when due it shall then be added to the existing indebtedness and shall bear interest at the same rate, and that if and when the total indebtedness on the policy, including interest due or accrued, equals or exceeds the amount of the loan value the policy shall terminate and become void. The policy shall reserve to the insurer the right to defer the granting of a loan, other than for the payment of any premium to the insurer, for six months after application. The policy, at the insurer's option, may provide for an automatic premium loan, subject to an election of the party entitled to elect.

B. This section shall not apply to term policies nor to term insurance benefits provided by rider or supplemented policy provision.

§ 20-1209.01 Maximum rate of interest on policy loans; definitions

A. Policies issued on or after the effective date of this section shall provide for policy loan interest rates at either of the following levels:

1. A maximum interest rate of not more than eight per cent a year.

2. An adjustable maximum interest rate established by the life insurer as provided by this section.

B. The rate of interest charged on a policy loan made by a life insurer under subsection A, paragraph 2 of this section shall not exceed the higher of the following:

1. The published monthly average for the calendar month ending two months before the date on which the rate is determined.

2. The rate used to compute the cash surrender values under the policy during the applicable period plus one per cent a year.

C. If the maximum rate of interest on a policy loan is determined under subsection A, paragraph 2 of this section, the policy shall contain a provision prescribing the frequency at which the rate is to be recalculated for that policy.

D. The life insurer shall determine the maximum rate for each policy containing a provision permitting an adjustable policy loan interest rate at regular intervals at least once every twelve months but not more frequently than once in any three month period. At the intervals specified in the policy:

1. The life insurer may increase the policy loan interest rate being charged if the increase as determined under subsection B of this section would increase that rate by one-half per cent or more a year.

2. The life insurer shall reduce the policy loan interest rate being charged if the reduction as determined under subsection B of this section would decrease that rate by one-half per cent or more a year.

E. The life insurer shall:

1. Notify the policyholder at the time a cash loan is made of the initial rate of interest on the loan.

2. Notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan. Notice need not be given to the policyholder if a further premium loan is added, except as provided in paragraph 3 of this subsection.

3. Send to policyholders with loans reasonable advance notice of any increase in the rate.

4. Include in the notices required by this subsection the substance of the provisions of either subsection A, paragraph 1, or subsection A, paragraph 2 and subsection C of this section, whichever is applicable.

F. The life insurer shall determine the loan value of the policy according to section 20-1209, but no policy may terminate in a policy year as the sole result of a change in the interest rate during that policy year, and the life insurer shall maintain coverage during that policy year until the time at which it would otherwise have terminated if there had been no change during that policy year.

G. The substance of the provisions of either subsection A, paragraph 1, or subsection A, paragraph 2 and subsection C of this section shall be set forth in the policies to which they apply.

H. The rate of interest on policy loans permitted under this section includes the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy.

I. In this section, unless the context otherwise requires:

1. "Policy" includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans.

2. "Policyholder" includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer.

3. "Policy loan" includes any premium loan made under a policy to pay one or more premiums that were not paid to the life insurer as they fell due.

4. "Published monthly average" means either:

(a) The Moody's corporate bond yield average, monthly average corporates, as published by Moody's investors service, incorporated or any successor to the corporation.

(b) If the Moody's corporate bond yield average, monthly average corporates, is no longer published, a substantially similar average, established by rule of the director.

J. No other provisions of law applies to policy loan interest rates unless made specifically applicable to such a rate.

§ 20-1210 Nonforfeiture options in old policies

A. There shall be a provision specifying the option to which the policyholder is entitled in the event of default in a premium payment after three full annual premiums have been paid. This provision shall not be required in term insurance of twenty years or less, for which uniform premiums are payable during the entire term of the policy, nor to any term policy of decreasing amount. A provision may also be inserted in the policy that in the event of default in a premium payment before such options become available the reserve on any dividend addition then in force may at the option of the insurer be paid in cash or applied as a net premium to the purchase of paid-up term insurance for any amount not in excess of the face of the original policy.

B. This section shall not apply to policies issued on or after the operative date of section 20-1231.

§ 20-1212 Table of installments

In case the policy provides that the proceeds may be payable in installments which are determinable at issue of the policy, there shall be a table showing the amounts of the guaranteed installments.

§ 20-1213 Reinstatement

There shall be a provision that unless the policy has been surrendered for its cash surrender value or unless the paid-up term insurance, if any, has expired, the policy will be reinstated at any time within three years from the date of premium default upon written application therefor, the production of evidence of insurability satisfactory to the insurer, the payment of all premiums in arrears, and the payment or reinstatement of any other indebtedness to the insurer upon the policy, all with interest at a rate not exceeding six per cent per annum compounded annually.

§ 20-1214 Payment of premiums

There shall be a provision that all premiums after the first shall be payable in advance.

§ 20-1215 Payment of claims

There shall be a provision that when a policy becomes a claim by the death of the insured settlement shall be made upon receipt of due proof of death and, at the insurer's option, surrender of the policy, proof of the interest of the claimant, or both. If an insurer specifies a particular period prior to the expiration of which settlement shall be made, the period shall not exceed two months from the receipt of such proofs.

§ 20-1216 Policy title

There shall be a title on the face and on the back of the policy, briefly describing the policy.

§ 20-1217 Excluded or restricted coverage

A clause in any policy of life insurance providing that the policy shall be incontestable after a specified period shall preclude only a contest of the validity of the policy, and shall not preclude the assertion at any time of defenses based upon provisions in the policy which exclude or restrict coverage, whether or not such restrictions or exclusions are excepted in the clause.

§ 20-1218 Standard provisions required in annuity and pure endowment contracts

A. No annuity or pure endowment contract, other than reversionary annuities, survivorship annuities or group annuities, and except as stated in this section, shall be delivered or issued for delivery in this state unless it contains in substance each of the provisions specified in sections 20-1219 to 20-1224, inclusive. Any such provisions not applicable to single premium annuities or single premium pure endowment contracts shall not, to that extent, be incorporated therein.

B. This section shall not apply to contracts for deferred annuities included in, or upon the lives of beneficiaries under, life insurance policies.

§ 20-1219 Grace period in annuities

In an annuity or pure endowment contract, other than a reversionary, survivorship or group annuity, there shall be a provision that there shall be a period of grace of one month, but not less than thirty days, within which any stipulated payment to the insurer falling due after the first may be made, subject at the option of the insurer to an interest charge thereon at a rate to be specified in the contract but not exceeding six per cent per annum for the number of days of grace elapsing before payment, during which period of grace the contract shall continue in full force, but in case a claim arises under the contract on account of death prior to expiration of the period of grace before the overdue payment to the insurer or the deferred payments of the current contract year, if any, are made, the amount of the payments, with interest on any overdue payments, may be deducted from any amount payable under the contract in settlement.

§ 20-1220 Incontestability in annuities

If any statements, other than those relating to age, sex and identity are required as a condition to issuing an annuity or pure endowment contract, other than a reversionary, survivorship or group annuity, and subject to section 20-1222, there shall be a provision that the contract shall be incontestable after it has been in force during the lifetime of the person or of each of the persons as to whom such statements are required, for a period of two years from its date of issue, except for nonpayment of stipulated payments to the insurer. At the option of the insurer the contract may also except any provisions relative to benefits in the event of disability and any provisions which grant insurance specifically against death by accident or accidental means.

§ 20-1221 Application and contract as entire contract in annuities

In an annuity or pure endowment contract, other than a reversionary, survivorship or group annuity, there shall be a provision that the contract shall constitute the entire contract between the parties or, if a copy of the application is endorsed upon or attached to the contract when issued, a provision that the contract and the application therefor shall constitute the entire contract between the parties.

§ 20-1222 Misstatement of age in annuities

In an annuity or pure endowment contract, other than a reversionary, survivorship or group annuity, there shall be a provision that if the age of the person or persons upon whose life or lives the contract is made, or of any of them, has been misstated, the amount payable or benefits accruing under the contract shall be such as the stipulated payment or payments to the insurer would have purchased according to the correct age, and that if the insurer makes or has made any overpayment or overpayments on account of such misstatement, the amount thereof, with interest at the rate to be specified in the contract but not exceeding six per cent per annum, may be charged against the current or next succeeding payment or payments to be made by the insurer under the contract.

§ 20-1223 Dividends on annuities

If an annuity or pure endowment contract, other than a reversionary, survivorship or group annuity, is participating, there shall be a provision that the insurer shall annually ascertain and apportion any divisible surplus accruing on the contract.

§ 20-1224 Reinstatement of annuities

In an annuity or pure endowment contract, other than a reversionary, survivorship or group annuity, there shall be a provision that the contract may be reinstated at any time within one year from the default in making stipulated payments to the insurer, unless the cash surrender value has been paid, but all overdue stipulated payments and any indebtedness to the insurer on the contract shall be paid or reinstated with interest thereon at a rate to be specified in the contract but not exceeding six per cent per annum payable annually, and in cases where applicable the insurer may also include a requirement of evidence of insurability satisfactory to the insurer.

§ 20-1225 Standard provisions required in reversionary annuities

A. Except as stated herein, no contract for a reversionary annuity shall be delivered or issued for delivery in this state unless it contains in substance each of the following provisions:

1. The reversionary annuity contract shall contain the provisions specified in sections 20-1219, 20-1220, 20-1221, 20-1222 and 20-1223, except that under section 20-1219 the insurer may at its option provide for an equitable reduction of the amount of the annuity payments in settlement of an overdue or deferred payment in lieu of providing for deduction of such payments from an amount payable upon settlement under the contract.

2. In reversionary annuity contracts there shall be a provision that the contract may be reinstated at any time within three years from the date of default in making stipulated payments to the insurer, upon production of evidence of insurability satisfactory to the insurer, and upon condition that all overdue payments and any indebtedness to the insurer on account of the contract be paid, or, within the limits permitted by the then cash values of the contract, reinstated, with interest as to both payments and indebtedness at a rate to be specified in the contract but not exceeding six per cent per annum compounded annually.

B. This section shall not apply to group annuities or to annuities included in life insurance policies, and any such provisions not applicable to single premium annuities shall not to that extent be incorporated therein.

§ 20-1226 Limitation of liability

A. No life insurance policy shall be delivered or issued for delivery in this state if it contains a provision that excludes or restricts liability for death caused in a certain specified manner or occurring while the insured has a specified status, except that a policy may contain provisions excluding or restricting coverage as specified therein in the event of death under any one or more of the following circumstances:

1. Death as a result, directly or indirectly, of war, declared or undeclared, or of action by military forces, or of any act or hazard of such war or action, or of service in the military, naval or air forces or in civilian forces auxiliary thereto, or from any cause while a member of such military, naval or air forces of any country at war, declared or undeclared, or of any country engaged in such military action.

2. Death as a result of aviation.

3. Death as a result of a specified hazardous occupation or occupations.

4. Death while the insured is outside the continental United States and Canada.

B. A life insurance policy that is delivered or issued for delivery in this state may include an exclusion for death resulting from suicide that occurs within two years after the issue or reinstatement of the policy. If the owner applies for an increase in death benefits after the policy issue date, the policy may provide an exclusion for suicide that occurs within one year after any increase in death benefits only to the extent of the increased death benefits.

C. A policy that contains any exclusion or restriction pursuant to this section shall also provide that in the event of death under the circumstances to which the exclusion or restriction is applicable, the insurer will pay an amount not less than a reserve determined according to the commissioners reserve valuation method upon the basis of the mortality table and interest rate specified in the policy for the calculation of nonforfeiture benefits, or if the policy provides for no such benefits, computed according to a mortality table and interest rate determined by the insurer and specified in the policy, with adjustment for indebtedness or dividend credit.

D. This section shall not apply to group life insurance, disability insurance, reinsurance or annuities, or to any provision in a life insurance policy relating to disability benefits or to additional benefits in the event of death by accident or accidental means.

§ 20-1227 Incontestability after reinstatement

The reinstatement of any policy of life insurance or annuity contract delivered or issued for delivery in this state after January 1, 1955 may be contested on account of fraud or misrepresentation of facts material to the reinstatement only for the same period following reinstatement and with the same conditions and exceptions as the policy provides with respect to contestability after original issuance.

§ 20-1228 Policy settlements

Any life insurer may hold under agreement the proceeds of any policy issued by it, upon such terms and restrictions as to revocation by the policyholder and control by beneficiaries, and with such exemptions from the claims of creditors of beneficiaries other than the policyholder as set forth in the policy or as agreed to in writing by the insurer and the policyholder. Upon maturity of a policy, in the event the policyholder has made no such agreement, the insurer may hold the proceeds of the policy under an agreement with the beneficiaries. The insurer shall not be required to segregate the funds so held but may hold them as part of its general assets.

§ 20-1229 Authorized deductions from insurance proceeds

In determining the amount due under any life insurance policy issued, deduction may be made of:

1. Any unpaid premiums or installments thereof for the current policy year due under the terms of the policy.

2. The amount of principal and accrued interest of any policy loan or other indebtedness against the policy then remaining unpaid.

§ 20-1230 Prohibition of dual or multiple pay policies

No life insurance policy shall be issued or delivered in this state if it provides that on the death of anyone not specifically named therein, the owner or beneficiary of the policy shall receive the payment or granting of anything of value.

§ 20-1231 Standard nonforfeiture law for life insurance

A. This section may be cited as the standard nonforfeiture law for life insurance.

B. Nonforfeiture provisions--Life. In the case of policies issued on or after the operative date of this section as defined in subsection J of this section, no policy of life insurance, except as set forth in subsection I of this section, shall be delivered or issued for delivery in this state unless it contains in substance the following provisions, or corresponding provisions which in the opinion of the director are at least as favorable to the defaulting or surrendering policyholder as are the minimum requirements specified in this section and are essentially in compliance with subsection H of this section:

1. That in the event of default in any premium payment, the insurer will grant, upon proper request not later than sixty days after the due date of the premium in default, a paid-up nonforfeiture benefit on a plan stipulated in the policy, effective as of such due date, of such amount as is specified by this section. Instead of the stipulated paid-up nonforfeiture benefit, the insurer may substitute, upon proper request not later than sixty days after the due date of the premium in default, an actuarially equivalent alternative paid-up nonforfeiture benefit which provides a greater amount or longer period of death benefits or, if applicable, a greater amount or earlier payment of endowment benefits.

2. That upon surrender of the policy within sixty days after the due date of any premium payment in default after premiums have been paid for at least three full years in the case of ordinary insurance, and five full years in the case of industrial insurance, the insurer will pay, in lieu of any paid-up nonforfeiture benefit, a cash surrender value of such amount as is specified by this section.

3. That a specified paid-up nonforfeiture benefit shall become effective as specified in the policy unless the person entitled to make such election elects another available option not later than sixty days after the due date of the premium in default.

4. That if the policy has become paid up by completion of all premiums payments, or if it is continued under any paid-up nonforfeiture benefit which became effective on or after the third policy anniversary in the case of ordinary insurance, or the fifth policy anniversary in the case of industrial insurance, the insurer will pay, upon surrender of the policy within thirty days after any policy anniversary, a cash surrender value of such amount as is specified by this section.

5. In the case of policies which cause on a basis guaranteed in the policy unscheduled changes in benefits or premiums, or which provide an option for changes in benefits or premiums other than a change to a new policy, a statement of the mortality table, interest rate and method used in calculating cash surrender values and the paid-up nonforfeiture benefits available under the policy. In the case of all other policies, a statement of the mortality table and interest rate used in calculating the cash surrender values and the paid-up nonforfeiture benefits available under the policy, together with a table showing the cash surrender value, if any, and paid-up nonforfeiture benefit, if any, available under the policy on each policy anniversary, either during the first twenty policy years or during the term of the policy, whichever is shorter, such values and benefits to be calculated upon the assumption that there are no dividends or paid-up additions credited to the policy and that there is no indebtedness to the insurer on the policy.

6. A statement that the cash surrender values and the paid-up nonforfeiture benefits available under the policy are not less than the minimum values and benefits required by or pursuant to the insurance law of this state, an explanation of the manner in which the cash surrender values and the paid-up nonforfeiture benefits are altered by the existence of any paid-up additions credited to the policy or any indebtedness to the insurer on the policy, if a detailed statement of the method of computation of the values and benefits shown in the policy is not stated therein, a statement that such method of computation has been filed with the insurance supervisory official of the state in which the policy is delivered, and a statement of the method to be used in calculating the cash surrender value and paid-up nonforfeiture benefit available under the policy on any policy anniversary beyond the last anniversary for which such values and benefits are consecutively shown in the policy.

C. Any of the provisions or portions of the provisions set forth in subsection B, paragraphs 1 through 6 of this section which are not applicable by reason of the plan of insurance may, to the extent inapplicable, be omitted from the policy. The insurer shall reserve the right to defer the payment of any cash surrender value for a period of six months after demand therefor with surrender of the policy.

D. Cash surrender value--Life.

1. Any cash surrender value available under the policy in the event of default in the premium payment due on any policy anniversary, whether or not required by subsection B of this section, shall be an amount not less than the excess, if any, of the present value on such anniversary of the future guaranteed benefits which would have been provided for by the policy, including any existing paid-up additions if there had been no default, over the sum of the then present value of the adjusted premiums as defined in subsection F of this section and in section 20-1231.01, corresponding to premiums which would have fallen due on and after such anniversary, and the amount of any indebtedness to the insurer on account of or secured by the policy.

2. For any policy issued on or after the operative date as provided in section 20-1231.01 which provides supplemental life insurance or annuity benefits at the option of the insured and for an identifiable additional premium by rider or supplemental policy provision, the cash surrender value referred to in paragraph 1 of this subsection is in an amount not less than the sum of the cash surrender value as defined in such paragraph for an otherwise similar policy issued at the same age without such rider or supplemental policy provision and the cash surrender value as defined in such paragraph for a policy which provides only the benefits otherwise provided by such rider or supplemental policy provision.

3. For any family policy issued on or after the operative date as provided in section 20-1231.01 which defines a primary insured and provides term insurance on the life of the spouse of the primary insured expiring before the spouse's age seventy-one, the cash surrender value referred to in paragraph 1 of this subsection is in an amount not less than the sum of the cash surrender value as defined in that paragraph for an otherwise similar policy issued at the same age without term insurance on the life of the spouse and the cash surrender value as defined in that paragraph for a policy which provides only the benefits otherwise provided by term insurance on the life of the spouse.

4. Any cash surrender value available within thirty days after any policy anniversary under any policy paid up by completion of all premium payments, or any policy continued under any paid-up nonforfeiture benefits, whether or not required by subsection B of this section, shall be an amount not less than the present value, on such anniversary, of the future guaranteed benefits provided for by the policy, including any existing paid-up additions, decreased by any indebtedness to the insurer on account of or secured by the policy.

E. Paid-up nonforfeiture benefits--Life. Any paid-up nonforfeiture benefit available under the policy in the event of default in the premium payment due on any policy anniversary shall be such that its present value as of such anniversary shall be at least equal to the cash surrender value then provided for by the policy, or, if none is provided for, that cash surrender value which would have been required by this section in the absence of the conditions that premiums shall have been paid for at least a specified period.

F. The adjusted premiums--Life.

1. Paragraphs 1 through 4 and paragraph 5, subdivision (a) of this subsection do not apply to policies issued on or after the operative date as provided in section 20-1231.01. Except as provided in paragraph 3 of this subsection, the adjusted premiums for any policy shall be calculated on an annual basis and shall be such uniform percentage of the respective premiums specified in the policy for each policy year, excluding extra premiums on a substandard policy, that the present value, at the date of issue of the policy, of all such adjusted premiums shall be equal to the sum of:

(a) The then present value of the future guaranteed benefits provided for by the policy.

(b) Two per cent of the amount of the insurance if the insurance is uniform in amount, or of the equivalent uniform amount, as defined by this section, if the amount of insurance varies with the duration of the policy.

(c) Forty per cent of the adjusted premium for the first policy year.

(d) Twenty-five per cent of either the adjusted premium for the first policy year or the adjusted premium for a whole life policy of the same uniform or equivalent uniform amount with uniform premiums for the whole of life issued at the same age for the same amount of insurance, whichever is less.

2. In applying the percentages specified in subdivisions (c) and (d) of paragraph 1 of this subsection, no adjusted premiums shall be deemed to exceed four per cent of the amount of insurance or uniform amount equivalent thereto. When the plan or term of a policy has been changed, either by request of the insured or automatically in accordance with the provisions of the policy, the date of inception of the changed policy for the purposes of determining a nonforfeiture benefit or cash surrender value shall be the date as of which the age of the insured is determined for the purposes of the changed policy.

3. The adjusted premiums for any policy providing term insurance benefits by rider or supplemental policy provisions shall be equal to the sum of:

(a) The adjusted premiums for an otherwise similar policy issued at the same age without such term insurance benefits.

(b) The adjusted premiums for such term insurance benefits during the period for which premiums for such term insurance benefits are payable. Such subdivisions (a) and (b) shall be calculated separately and as specified in paragraphs 1 and 2 of this subsection except that, for the purposes of subdivisions (b), (c) and (d) of paragraph 1 of this subsection, the amount of insurance or equivalent uniform amount of insurance used in the calculation of the adjusted premiums referred to in this subdivision shall be equal to the excess of the corresponding amount determined for the entire policy over the amount used in the calculation of the adjusted premiums in subdivision (a) of this paragraph.

4. In the case of a policy providing an amount of insurance varying with the duration of the policy, the equivalent uniform amount thereof for the purpose of paragraphs 1, 2 and 3 of this subsection shall be deemed to be the uniform amount of insurance provided by an otherwise similar policy, containing the same endowment benefit or benefits, if any, issued at the same age and for the same term, the amount of which does not vary with duration and the benefits under which have the same present value at the date of issue as the benefits under the policy, but in the case of a policy for a varying amount of insurance issued on the life of a child under age ten, the equivalent uniform amount may be computed as though the amount of insurance provided by the policy prior to the attainment of age ten were the amount provided by the policy at age ten.

5. Tables for calculating adjusted premiums shall be as follows:

(a) Except as otherwise provided in subdivisions (b) and (d) of this paragraph, all adjusted premiums and present values referred to in this section shall for all policies of ordinary insurance be calculated on the basis of the commissioners 1941 standard ordinary mortality table provided that, for any category of ordinary insurance issued on female risks, adjusted premiums and present values may be calculated according to an age not in excess of three years younger than the actual age of the insured. Such calculations for all policies of industrial insurance shall be made on the basis of the 1941 standard industrial mortality table. All calculations shall be made on the basis of the rate of interest, not exceeding three and one-half per cent per annum, specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits, but in calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than one hundred thirty per cent of the rates of mortality according to such applicable table. For insurance issued on a substandard basis, the calculation of any such adjusted premiums and present values may be based on such other table of mortality as may be specified by the insurer and approved by the director.

(b) This subdivision does not apply to ordinary policies issued on or after the operative date as provided in section 20-1231.01. In the case of ordinary policies issued on or after the operative date defined in subdivision (c) of this paragraph, all adjusted premiums and present values referred to in this section shall be calculated on the basis of the commissioners 1958 standard ordinary mortality table and the rate of interest specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits, provided that such rate of interest shall not exceed three and one-half per cent per annum except that a rate of interest not exceeding four per cent per annum may be used for policies issued on or after July 1, 1974 and prior to January 1, 1979, and a rate of interest not exceeding five and one-half per cent per annum may be used for policies issued on or after January 1, 1979, except that for any single premium whole life or endowment insurance policy a rate of interest not exceeding six and one-half per cent per annum may be used, and provided that:

(i) For any category of ordinary insurance issued on female risks, adjusted premiums and present values may be calculated according to an age not in excess of six years younger than the actual age of the insured.

(ii) In calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not in excess of those shown in the commissioners 1958 extended term insurance table.

(iii) For insurance issued on a substandard basis, the calculation of any such adjusted premiums and present values may be based on such other table of mortality as may be specified by the insurer and approved by the director.

(c) Any insurer may file with the director a written notice of its election to comply with the provisions of subdivision (b) of this paragraph, either as to designated ordinary policies or as to all ordinary policies issued by it, after a specified date before January 1, 1966. After the filing of such notice, then upon such specified date, which shall be the operative date of such subdivision (b) as to such policies for such insurer, such subdivision (b) shall become operative with respect to such policies thereafter issued by such insurer. If an insurer makes no such election, or so elects to have such subdivision (b) apply as to certain of its ordinary policies only, the operative date thereof as to all of the ordinary policies issued by such insurer, other than those policies as to which the insurer has elected an earlier operative date, shall be January 1, 1966.

(d) This subdivision does not apply to industrial policies issued on or after the operative date provided in section 20-1231.01. In the case of industrial policies issued on or after the operative date of this subdivision as defined herein, all adjusted premiums and present values referred to in this subdivision shall be calculated on the basis of the commissioners 1961 standard industrial mortality table and the rate of interest specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits provided that such rate of interest shall not exceed three and one-half per cent per annum except that a rate of interest not exceeding four per cent per annum may be used for policies issued on or after July 1, 1974 and prior to January 1, 1979, and a rate of interest not exceeding five and one-half per cent per annum may be used for policies issued on or after January 1, 1979, except that for any single premium whole life or endowment insurance policy a rate of interest not exceeding six and one-half per cent per annum may be used. But, in calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than those shown in the commissioners 1961 industrial extended term insurance table and, for insurance issued on a substandard basis, the calculations of any such adjusted premiums and present values may be based on such other table of mortality as may be specified by the insurer and approved by the director. After the effective date of this subdivision, an insurer may file with the director a written notice of its election to comply with the provisions of this subdivision, either as to designated industrial policies or as to all industrial policies issued by it, after a specified date before January 1, 1968. After the filing of such notice, then upon such specified date, which shall be the operative date of this subdivision for such insurer, this subdivision shall become operative with respect to the industrial policies thereafter issued by such insurer. If an insurer makes no such election, the operative date of this subdivision for such insurer shall be January 1, 1968.

(e) For any plan of life insurance which provides for future premium determination, the amounts of which are to be determined by the insurer based on then estimates of future experience, or for any plan of life insurance which is of such a nature that minimum values cannot be determined by the methods described in subsection B, C, D or E of this section, paragraph 1 of this subsection, subdivision (b), (c) or (d) of this paragraph or section 20-1231.01, then:

(i) The director must be satisfied that the benefits provided under the plan are substantially as favorable to policyholders and insureds as the minimum benefits otherwise required by subsection B, C, D or E of this section, paragraph 1 of this subsection, subdivision (b), (c) or (d) of this paragraph or section 20-1231.01.

(ii) The director must be satisfied that the benefits and the pattern of premiums of the plan are not such as to mislead prospective policyholders or insureds.

(iii) The cash surrender values and paid-up nonforfeiture benefits provided by the plan must not be less than the minimum values and benefits required for the plan computed by a method consistent with the principles of this standard nonforfeiture law for life insurance, as determined by rules adopted by the director.

G. Calculation of values--Life.

1. Any cash surrender value and any paid-up nonforfeiture benefit available under the policy in the event of default in a premium payment due at any time other than on the policy anniversary shall be calculated with allowance for the lapse of time and the payment of fractional premiums beyond the last preceding policy anniversary. All values referred to in subsections D, E and F of this section and section 20-1231.01 may be calculated upon the assumption that any death benefit is payable at the end of the policy year of death. The net value of any paid-up additions, other than paid-up term additions, shall be not less than the amounts used to provide such additions.

2. Notwithstanding such provisions of subsection D of this section, additional benefits payable and premiums for all such additional benefits shall be disregarded in ascertaining cash surrender values and nonforfeiture benefits required by this section, and no such additional benefits shall be required to be included in any paid-up nonforfeiture benefits:

(a) In the event of death or dismemberment by accident or accidental means.

(b) In the event of total and permanent disability.

(c) As reversionary annuity or deferred reversionary annuity benefits.

(d) As term insurance benefits provided by a rider or supplemental policy provision to which, if issued as a separate policy, this section would not apply.

(e) As term insurance on the life of a child or on the lives of children provided in a policy on the life of a parent of the child, if such term insurance expires before the child's age is twenty-six, is uniform in amount after the child's age is one, and has not become paid-up by reason of the death of a parent of the child.

(f) As other policy benefits additional to life insurance and endowment benefits.

H. This subsection, in addition to all other applicable subsections of this section, applies to all policies issued on or after January 1, 1986:

1. Any cash surrender value available under the policy in the event of default in a premium payment due on any policy anniversary shall be in an amount which does not differ by more than two-tenths of one per cent of either the amount of insurance, if the insurance is uniform in amount, or the average amount of insurance at the beginning of each of the first ten policy years, from the sum of:

(a) The greater of zero and the basic cash value hereinafter specified.

(b) The present value of any existing paid-up additions less the amount of any indebtedness to the insurer under the policy.

2. The basic cash value shall be equal to the present value, on such anniversary, of the future guaranteed benefits which would have been provided for by the policy, excluding any existing paid-up additions and before deduction of any indebtedness to the insurer, if there had been no default, less the then present value of the nonforfeiture factors, corresponding to premiums which would have fallen due on and after such anniversary, except that the effects on the basic cash value of supplemental life insurance or annuity benefits or of family coverage, as described in subsection D or F of this section, whichever is applicable, shall be the same as are the effects specified in subsection D or F of this section, whichever is applicable, on the cash surrender values defined in that subsection.

3. The nonforfeiture factor for each policy year shall be an amount equal to a percentage of the adjusted premium for the policy year, as defined in subsection F of this section or section 20-1231.01, whichever is applicable. Except as is required by the next succeeding sentence of this paragraph, such percentage:

(a) Must be the same percentage for each policy year between the second policy anniversary and the latter of:

(i) The fifth policy anniversary.

(ii) The first policy anniversary at which there is available under the policy a cash surrender value in an amount, before including any paid-up additions and before deducting any indebtedness, of at least two-tenths of one per cent of either the amount of insurance, if the insurance is uniform in amount, or the average amount of insurance at the beginning of each of the first ten policy years.

(b) Must be such that no percentage after the later of the two policy anniversaries specified in subdivision (a) may apply to fewer than five consecutive policy years.

4. No basic cash value may be less than the value which would be obtained if the adjusted premiums for the policy, as defined in subsection F of this section or section 20-1231.01, whichever is applicable, were substituted for the nonforfeiture factors in the calculation of the basic cash value.

5. All adjusted premiums and present values referred to in this subsection shall for a particular policy be calculated on the same mortality and interest bases as are used in demonstrating the policy's compliance with the other subsections of this section. The cash surrender values referred to in this subsection shall include any endowment benefits provided for by the policy.

6. Any cash surrender value available other than in the event of default in a premium payment due on a policy anniversary and the amount of any paid-up nonforfeiture benefit available under the policy in the event of default in a premium payment shall be determined in manners consistent with the manners specified for determining the analogous minimum amounts in subsections B, C, D, E and G of this section and section 20-1231.01. The amounts of any cash surrender values and of any paid-up nonforfeiture benefits granted in connection with additional benefits such as those listed in subsection G, paragraph 2 of this section shall conform with the principles of this subsection.

I. Exceptions. This section and section 20-1231.01 do not apply to any of the following:

1. Reinsurance.

2. Group insurance.

3. Pure endowment.

4. Annuity or reversionary annuity contract.

5. A term policy of uniform amount which provides no guaranteed nonforfeiture or endowment benefits, or renewal thereof, of twenty years or less expiring before age seventy-one, for which uniform premiums are payable during the entire term of the policy.

6. A term policy of decreasing amount, which provides no guaranteed nonforfeiture or endowment benefits, on which each adjusted premium, calculated as specified in subsection F of this section and section 20-1231.01, is less than the adjusted premiums so calculated on a term policy of uniform amount, or renewal thereof, which provides no guaranteed nonforfeiture or endowment benefits, issued at the same age and for the same initial amount of insurance and for a term of twenty years or less expiring before age seventy-one, for which uniform premiums are payable during the entire term of the policy.

7. Any policy which is delivered outside this state through an insurance producer or other representative of the insurer issuing the policy.

8. A policy, which provides no guaranteed nonforfeiture or endowment benefits, for which no cash surrender value, if any, or present value of any paid-up nonforfeiture benefit, at the beginning of any policy year, calculated as specified in subsections D, E and F of this section and section 20-1231.01, exceeds two and one-half per cent of the amount of insurance at the beginning of the same policy year. For the purposes of determining the applicability of this section, the age at expiry for a joint term life insurance policy is the age at expiry of the oldest life.

J. Operative date. Except as is otherwise provided in subsection F of this section, after January 1, 1955, any insurer may file with the director a written notice of its election to comply with the provisions of this section after a specified date before July 1, 1956. After the filing of such notice, then upon such specified date, which shall be the operative date for such insurer, this section shall become operative with respect to the policies thereafter issued by the insurer. If an insurer makes no such election, the operative date of this section for the insurer shall be July 1, 1956.

§ 20-1231.01 Standard nonforfeiture law for life insurance; table for calculating adjusted premiums; definitions

A. Except as provided in paragraph 7 of this section, on a policy issued on or after the operative date as provided in this section:

1. The adjusted premiums for any policy shall be calculated on an annual basis and shall be such a uniform percentage of the respective premiums specified in the policy for each policy year, excluding amounts payable as extra premiums to cover impairments or special hazards and also excluding any uniform annual contract charge or policy fee specified in the policy in a statement of the method to be used in calculating the cash surrender values and paid-up nonforfeiture benefits, that the present value, at the date of issue of the policy, of all adjusted premiums shall be equal to the sum of:

(a) The then present value of the future guaranteed benefits provided for by the policy.

(b) One per cent of either the amount of insurance, if the insurance is uniform in amount, or the average amount of insurance at the beginning of each of the first ten policy years.

(c) One hundred twenty-five per cent of the nonforfeiture net level premium. In applying the percentage specified in subdivision (c) of this paragraph no nonforfeiture net level premium shall be deemed to exceed four per cent of either the amount of insurance, if the insurance is uniform in amount, or the average amount of insurance at the beginning of each of the first ten policy years. The date of issue of a policy for the purpose of this section is the date as of which the rated age of the insured is determined.

2. The nonforfeiture net level premium is equal to the present value, at the date of issue of the policy, of the guaranteed benefits provided for by the policy divided by the present value, at the date of issue of the policy, of an annuity of one per annum payable on the date of issue of the policy and on each anniversary of the policy on which a premium falls due.

3. In the case of policies that cause on a basis guaranteed in the policy unscheduled changes in benefits or premiums, or that provide an option for changes in benefits or premiums other than a change to a new policy, the adjusted premiums and present values shall initially be calculated on the assumption that future benefits and premiums do not change from those stipulated at the date of issue of the policy. At the time of such a change in the benefits or premiums, the future adjusted premiums, nonforfeiture net level premiums and present values shall be recalculated on the assumption that future benefits and premiums do not change from those stipulated by the policy immediately after the change.

4. Except as otherwise provided in paragraph 7 of this section, the recalculated future adjusted premiums for any such policy are the uniform percentage of the respective future premiums specified in the policy for each policy year, excluding amounts payable as extra premiums to cover impairments and special hazards and also excluding any uniform annual contract charge or policy fee specified in the policy in a statement of the method to be used in calculating the cash surrender values and paid-up nonforfeiture benefits, that the present value, at the time of change to the newly defined benefits or premiums, of all such future adjusted premiums shall be equal to the excess of the sum of the then present value of the then future guaranteed benefits provided for by the policy and the additional expense allowance, if any, over the then cash surrender value, if any, or present value of any paid-up nonforfeiture benefit under the policy.

5. The additional expense allowance, at the time of the change to the newly defined benefits or premiums, is the sum of:

(a) One per cent of the excess, if positive, of the average amount of insurance at the beginning of each of the first ten policy years subsequent to the change over the average amount of insurance prior to the change at the beginning of each of the first ten policy years subsequent to the time of the most recent previous change or, if there has been no previous change, the date of issue of the policy.

(b) One hundred twenty-five per cent of the increase, if positive, in the nonforfeiture net level premium.

6. The recalculated nonforfeiture net level premium is equal to the result obtained by dividing (a) by (b) where:

(a) (a) equals the sum of:

(i) The nonforfeiture net level premium applicable prior to the change times the present value of an annuity of one per annum payable on each anniversary of the policy on or subsequent to the date of the change on which a premium would have fallen due had the change not occurred.

(ii) The present value of the increase in future guaranteed benefits provided for by the policy.

(b) (b) equals the present value of an annuity of one per annum payable on each anniversary of the policy on or subsequent to the date of change on which a premium falls due.

7. Notwithstanding any other provisions of this section, in the case of a policy issued on a substandard basis that provides reduced graded amounts of insurance so that, in each policy year, the policy has the same tabular mortality cost as an otherwise similar policy issued on the standard basis that provides higher uniform amounts of insurance, adjusted premiums and present values for the substandard policy may be calculated as if it were issued to provide higher uniform amounts of insurance on the standard basis.

8. All adjusted premiums and present values referred to in this section shall, for all policies of ordinary insurance, be calculated on the basis of either the commissioners 1980 standard ordinary mortality table, or at the election of the insurer for any one or more specified plans of life insurance, the commissioners 1980 standard ordinary mortality table with ten year select mortality factors, for all policies of industrial insurance, be calculated on the basis of the commissioners 1961 standard industrial mortality table, and for all policies issued in a particular calendar year, be calculated on the basis of a rate of interest not exceeding the nonforfeiture interest rate for policies issued in that calendar year. However:

(a) At the option of the insurer, calculations for all policies issued in a particular calendar year may be made on the basis of a rate of interest not exceeding the nonforfeiture interest rate, as prescribed in this section, for policies issued in the immediately preceding calendar year.

(b) Under any paid-up nonforfeiture benefit, including any paid-up dividend additions, any cash surrender value available, whether or not required by section 20-1231, subsection B, shall be calculated on the basis of the mortality table and rate of interest used in determining the amount of such paid-up nonforfeiture benefit and paid-up dividend additions, if any.

(c) An insurer may calculate the amount of any guaranteed paid-up nonforfeiture benefit including any paid-up additions under the policy on the basis of an interest rate no lower than that specified in the policy for calculating cash surrender values.

(d) In calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than those shown in the commissioners 1980 extended term insurance table for policies of ordinary insurance and not more than the commissioners 1961 industrial extended term insurance table for policies of industrial insurance.

(e) For insurance issued on a substandard basis, the calculation of any such adjusted premiums and present values may be based on appropriate modifications of the tables prescribed in this section and section 20-1231.

(f) For policies issued before the operative date of the valuation manual, any commissioners standard ordinary mortality tables, adopted after 1980 by the national association of insurance commissioners, that are approved by the director for use in determining the minimum nonforfeiture standard may be substituted for the commissioners 1980 standard ordinary mortality table with or without ten year select mortality factors or for the commissioners 1980 extended term insurance table. For policies issued on or after the operative date of the valuation manual, the valuation manual shall provide the commissioners standard mortality table for use in determining the minimum nonforfeiture standard that may be substituted for the commissioners 1980 standard ordinary mortality table with or without ten-year select mortality factors or for the commissioners 1980 extended term insurance table. If the director approves by rule any commissioners standard ordinary mortality table adopted by the national association of insurance commissioners for use in determining the minimum nonforfeiture standard for policies issued on or after the operative date of the valuation manual, that minimum nonforfeiture standard supersedes the minimum nonforfeiture standard provided by the valuation manual.

(g) For policies issued before the operative date of the valuation manual, any industrial mortality tables, adopted after 1980 by the national association of insurance commissioners, that are approved by the director for use in determining the minimum nonforfeiture standard may be substituted for the commissioners 1961 standard industrial mortality table or the commissioners 1961 industrial extended term insurance table. For policies issued on or after the operative date of the valuation manual, the valuation manual shall provide the commissioners standard mortality table for use in determining the minimum nonforfeiture standard that may be substituted for the commissioners 1961 standard industrial mortality table or the commissioners 1961 industrial extended term insurance table. If the director approves by rule any commissioners standard industrial mortality table adopted by the national association of insurance commissioners for use in determining the minimum nonforfeiture standard for policies issued on or after the operative date of the valuation manual, that minimum nonforfeiture standard supersedes the minimum nonforfeiture standard provided by the valuation manual.

9. The nonforfeiture interest rate is as follows:

(a) For policies issued before the operative date of the valuation manual, the nonforfeiture interest rate per annum for any policy issued in a particular calendar year shall be equal to one hundred twenty-five per cent of the calendar year statutory valuation interest rate for such policy as defined in the standard valuation law, rounded to the nearer one-quarter of one per cent.

(b) For policies issued on or after the operative date of the valuation manual, the nonforfeiture interest rate per annum for any policy issued in a particular calendar year shall be provided by the valuation manual.

10. Notwithstanding any other provision in this title, any refiling of nonforfeiture values or their methods of computation for any previously approved policy form that involves only a change in the interest rate or mortality table used to compute nonforfeiture values shall not require refiling of any other provisions of that policy form.

11. After July 24, 1982 any insurer may file with the director a written notice of its election to comply with the provisions of this section after a specified date before January 1, 1989, which is the operative date of this section for the insurer. If an insurer makes no such election, the operative date of this section for the insurer is January 1, 1989.

B. For the purposes of this section:

1. "Operative date of the valuation manual" has the same meaning prescribed in section 20-510, subsection R, paragraph 2.

2. "Valuation manual" has the same meaning prescribed in section 20-510, subsection B.

§ 20-1232 Standard nonforfeiture law for individual deferred annuities

A. A contract of annuity, except as stated in subsection K of this section, shall not be delivered or issued for delivery in this state unless the contract contains in substance the following provisions or corresponding provisions that in the opinion of the director are at least as favorable to the contract holder on cessation of payment of considerations under the contract:

1. That on cessation of payment of considerations under a contract, or on the written request of the contract owner, the company shall grant a paid-up annuity benefit on a plan stipulated in the contract of such value as is specified in subsections D, E, F, G and I of this section.

2. If a contract provides for a lump sum settlement at maturity, or at any other time, that on surrender of the contract at or before the commencement of any annuity payments, the company shall pay in lieu of a paid-up annuity benefit a cash surrender benefit of such an amount as is specified in subsections D, E, G and I of this section. The company, within thirty days of the date of maturity as prescribed in the contract, shall notify the annuity owner of the owner’s rights under the contract at the time of maturity of the contract, including the right to receive the cash value benefit in a lump sum, if applicable. The company shall pay any amounts due under the contract within thirty days after the date the amount becomes payable. The company may reserve the right to defer the payment of the cash surrender benefit for a period not to exceed one hundred eighty days after demand for such a cash surrender benefit with surrender of the contract after making written request and receiving written approval from the director. The annuity owner shall be notified within fifteen days after the date that any request for withdrawal is received that the company has requested a deferral pursuant to this paragraph. In making its request to the director, the company shall address the necessity and equitability to all policyholders of the deferral and the reason why payment cannot take place within the time period required under this paragraph after the date the annuity benefit becomes due. Any transfer of monies to another annuity company designated by the contract owner pursuant to section 1035 of the internal revenue code shall take place within thirty days after all required forms relating to the transfer are filed with the original annuity company.

3. A statement of the mortality table, if any, and interest rates used in calculating any minimum paid-up annuity, cash surrender or death benefits that are guaranteed under the contract, together with sufficient information to determine the amounts of the benefits.

4. A statement that any paid-up annuity, cash surrender or death benefits that may be available under the contract are not less than the minimum benefits required by any statute of the state in which the contract is delivered and an explanation of the manner in which the benefits are altered by the existence of any additional amounts credited by the company to the contract, any indebtedness to the company on the contract or any prior withdrawals from or partial surrenders of the contract.

B. Notwithstanding the requirements of subsection A of this section, a deferred annuity contract may provide that if no considerations have been received under a contract for a period of two full years and the portion of the paid-up annuity benefit at maturity on the plan stipulated in the contract arising from prior considerations paid would be less than $20 monthly, the company, at its option, may terminate the contract by payment in cash of the then present value of the portion of the paid-up annuity benefit, calculated on the basis on the mortality table, if any, and interest rate specified in the contract for determining the paid-up annuity benefit, and by this payment shall be relieved of any further obligation under the contract.

C. The minimum values as specified in subsections D, E, F, G and I of this section of any paid-up annuity, cash surrender or death benefits available under an annuity contract shall be based on minimum nonforfeiture amounts prescribed as follows:

1. The minimum nonforfeiture amount at any time at or before the commencement of any annuity payments is equal to an accumulation up to that time at rates of interest, as prescribed in paragraph 2 of this subsection, of the net considerations paid before that time, decreased by the sum of all of the following:

(a) Any prior withdrawals from or partial surrenders of the contract accumulated at rates of interest as prescribed in paragraph 2 of this subsection.

(b) An annual contract charge of $50, accumulated at rates of interest as prescribed in paragraph 2 of this subsection.

(c) Any premium tax paid by the company for the contract, accumulated at rates of interest as prescribed in paragraph 2 of this subsection.

(d) The amount of any indebtedness to the company on the contract, including interest due and accrued.

For the purposes of this paragraph, the net considerations for a given contract year used to define the minimum nonforfeiture amount is an amount equal to eighty-seven and one-half percent of the gross considerations credited to the contract during that contract year.

2. The interest rate used in determining minimum nonforfeiture amounts is an annual rate of interest determined as the lesser of three percent per annum and the following, which shall be specified in the contract if the interest rate will be reset:

(a) The five-year constant maturity treasury rate reported by the federal reserve as of a date, or average over a period, rounded to the nearest one-twentieth of one percent, specified in the contract not longer than fifteen months before the contract issue date or redetermination date under subdivision (d) of this paragraph.

(b) Reduced by one hundred twenty-five basis points.

(c) Where the resulting interest rate is not less than fifteen-hundredths of one percent.

(d) The interest rate shall apply for an initial period and may be redetermined for additional periods. The redetermination date, basis and period, if any, shall be stated in the contract. The basis is the date or average over a specified period that produces the value of the five-year constant maturity treasury rate to be used at each redetermination date.

3. During the period or term that a contract provides substantive participation in an equity indexed benefit, it may increase the reduction described in paragraph 2, subdivision (b) of this subsection by up to an additional one hundred basis points to reflect the value of the equity index benefit. The present value at the contract issue date, and at each redetermination date thereafter, of the additional reduction shall not exceed the market value of the benefit. The director may require a demonstration that the present value of the additional reduction does not exceed the market value of the benefit. Lacking such a demonstration that is acceptable to the director, the director may disallow or limit the additional reduction.

4. The director may adopt rules to implement paragraph 3 of this subsection and to provide for further adjustments to the calculation of minimum nonforfeiture amounts for contracts that provide substantive participation in an equity index benefit and for other contracts where the director determines that adjustments are justified.

D. Any paid-up annuity benefit available under a contract shall be such that its present value on the date annuity payments are to commence is at least equal to the minimum nonforfeiture amount on that date. The present value shall be computed using the mortality table, if any, and the interest rate specified in the contract for determining the minimum paid-up annuity benefits guaranteed in the contract.

E. For contracts that provide cash surrender benefits, the cash surrender benefits available before maturity shall not be less than the present value as of the date of surrender of that portion of the maturity value of the paid-up annuity benefit that would be provided under the contract at maturity arising from considerations paid prior to the time of cash surrender reduced by the amount appropriate to reflect any prior withdrawals from or partial surrenders of the contract, the present value being calculated on the basis of an interest rate not more than one percent higher than the interest rate specified in the contract for accumulating the net considerations to determine maturity value, decreased by the amount of any indebtedness to the company on the contract, including interest due and accrued, and increased by any existing additional amounts credited by the company to the contract. Any cash surrender benefit shall not be less than the minimum nonforfeiture amount at that time. The death benefit under such contracts shall be at least equal to the cash surrender benefit.

F. For contracts that do not provide cash surrender benefits, the present value of any paid-up annuity benefit available as a nonforfeiture option at any time before maturity shall not be less than the present value of that portion of the maturity value of the paid-up annuity benefit provided under the contract arising from considerations paid before the time the contract is surrendered in exchange for, or changed to, a deferred paid-up annuity, the present value being calculated for the period before the maturity date on the basis of the interest rate specified in the contract for accumulating the net considerations to determine maturity value and increased by any additional amounts credited by the company to the contract. For contracts that do not provide any death benefits before the commencement of any annuity payments, the present values shall be calculated on the basis of such interest rate and the mortality table specified in the contract for determining the maturity value of the paid-up annuity benefit. However, the present value of a paid-up annuity benefit shall not be less than the minimum nonforfeiture amount at that time.

G. For the purpose of determining the benefits calculated under subsections E and F of this section, in the case of annuity contracts under which an election may be made to have annuity payments commence at optional maturity dates, the maturity date shall be deemed to be the latest date for which election shall be allowed by the contract, but shall not be deemed to be later than the anniversary of the contract next following the annuitant's seventieth birthday or the tenth anniversary of the contract, whichever is later.

H. Any contract that does not provide cash surrender benefits or does not provide death benefits at least equal to the minimum nonforfeiture amount before the commencement of any annuity payments shall include a statement in a prominent place in the contract that such benefits are not provided.

I. Any paid-up annuity, cash surrender or death benefits available at any time, other than on the contract anniversary under any contract with fixed scheduled considerations, shall be calculated with allowance for the lapse of time and the payment of any scheduled considerations beyond the beginning of the contract year in which cessation of payment of considerations under the contract occurs.

J. For a contract that provides, within the same contract by rider or supplemental contract provision, both annuity benefits and life insurance benefits that are in excess of the greater of cash surrender benefits or a return of the gross considerations with interest, the minimum nonforfeiture benefits shall be equal to the sum of the minimum nonforfeiture benefits for the annuity portion and the minimum nonforfeiture benefits, if any, for the life insurance portion computed as if each portion were a separate contract. Notwithstanding the provisions of subsections D, E, F, G and I of this section, additional benefits payable in the event of total and permanent disability, as reversionary annuity or deferred reversionary annuity benefits or as other policy benefits additional to life insurance, endowment and annuity benefits, and considerations for all such additional benefits, shall be disregarded in ascertaining the minimum nonforfeiture amounts, paid-up annuity, cash surrender and death benefits that may be required by this section. The inclusion of such additional benefits shall not be required in any paid-up benefits, unless the additional benefits separately would require minimum nonforfeiture amounts, paid-up annuity, cash surrender and death benefits.

K. This section shall not apply to any reinsurance, group annuity purchased under a retirement plan or plan of deferred compensation established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under section 408 of the internal revenue code, as now or hereafter amended, premium deposit fund, variable annuity, investment annuity, immediate annuity, any deferred annuity contract after annuity payments have commenced, or reversionary annuity, nor to any contract that shall be delivered outside this state through an insurance producer or other representative of the company issuing the contract.

L. The director may adopt rules to implement this section.

§ 20-1233 Free look; annuity contracts

A. Each annuity contract delivered or issued for delivery in this state and each annuity application shall contain a notice prominently printed on or attached to the first page stating that, on written request, an insurer is required to provide within a reasonable time reasonable factual information regarding the benefits and provisions of the annuity contract to the contract holder and that if for any reason the contract holder is not satisfied with the annuity contract the contract holder may return the annuity contract within ten days, or within thirty days if the contract holder is sixty-five years of age or older on the date of the application for the annuity contract, after the contract is delivered and receive a refund of all monies paid.

B. Notwithstanding subsection A, for variable annuity contracts, the refund under subsection A shall equal the sum of the difference between the premiums paid, including any policy or contract fees or other charges, and the amounts allocated to any separate accounts under the policy or contract, and the value of the amounts allocated to any separate accounts under the policy or contract on the date the returned policy is received by the insurer or its insurance producer.

C. The ten or thirty day return and refund provision provided in subsection A does not apply to an annuity contract supplemental to a settled annuity contract that provides for payments in consideration of accumulations from the original annuity contract and that is issued only to holders of the original contract.

Article 1.1 Replacement of Life Insurance Policies and Annuity Contracts

§ 20-1241 Definitions

In this article, unless the context otherwise requires:

1. "Contract" means a contract for the purchase of an annuity.

2. "Direct response solicitation" means a solicitation to purchase a policy or contract solely through mail, telephone, the internet or other mass communication media.

3. "Direct solicitation" means personal contact to solicit someone to purchase a policy or contract, but does not include any group meeting held by an insurance producer solely for the purpose of educating or enrolling individuals or when initiated by an individual member of a group assisting the individual with selection of investment options offered by a single insurer in connection with enrolling that individual.

4. "Existing insurer" means the insurer whose policy or contract is or will be replaced.

5. "Existing policy or contract" means a policy or contract that is in force and includes a policy under a binding or conditional receipt and a policy or contract that is within an unconditional refund period.

6. "Financed purchase" means the purchase of a new policy involving the actual or intended use of monies obtained by the withdrawal or surrender of, or by borrowing from values of, an existing policy to pay all or part of any premium due on the new policy. For the purposes of a regulatory review of an individual transaction only, if a withdrawal, surrender or borrowing involving the policy values of an existing policy is used to pay premiums on a new policy owned by the same policyholder and issued by the same insurer within four months before or thirteen months after the effective date of the new policy, it is deemed prima facie evidence of the policyholder's intent to finance the purchase of the new policy with existing policy values. This prima facie standard is not intended to increase or decrease the monitoring obligations of section 20-1241.04, subsection B, paragraph 5.

7. "Illustration" has the same meaning prescribed in section 20-431.

8. "Insurance producer" has the same meaning prescribed in section 20-281.

9. "Policy summary" means a description of a policy or contract that meets the requirements in section 20-1241.02 and prescribed by the director.

10. "Registered contract" means a variable annuity contract or variable life insurance policy subject to the prospectus delivery requirements of the securities act of 1933 (P.L. 107-377; 15 United States Code sections 77a through 77aa).

11. "Replaced" or "replacement" means a transaction in which a new policy or contract is to be purchased and it is known or should be known to the proposing insurance producer, or to the proposing insurer if there is no insurance producer, that by reason of the transaction an existing policy or contract has been or is to be:

(a) Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated.

(b) Converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.

(c) Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid.

(d) Reissued with any reduction in cash value.

(e) Used in a financed purchase.

12. "Replacing insurer" means the insurer that issues or proposes to issue a new policy or contract that replaces an existing policy or contract or is a financed purchase.

13. "Sales material" means a sales illustration and any other written, printed or electronically presented information that is created, completed or provided by an insurer or insurance producer, that is used in the presentation to the policy or contract owner and that is related to the policy or contract purchased.

§ 20-1241.01 Scope of article

A. This article applies to the replacement of policies and contracts except for the following:

1. Credit life insurance.

2. Except as provided in subsection B of this section, group policies and contracts that do not involve direct solicitation of individuals by an insurance producer.

3. Policies and contracts used to fund prearranged funeral agreements as defined in section 32-1301.

4. Except as provided in subsection C of this section, a policy or contract that is used to fund any of the following:

(a) An employee pension and welfare plan as defined by and that is subject to the employee retirement income security act of 1974 (29 United States Code sections 1001 through 1461).

(b) A plan described by sections 401(a), 401(k) or 403(b) of the internal revenue code, where the plan, for purposes of the employee retirement income security act of 1974, is established or maintained by an employer.

(c) A governmental or church plan as defined in section 414 of the internal revenue code, a governmental or church welfare benefit plan, or a deferred compensation plan of a state or local government or a tax exempt organization pursuant to section 457 of the internal revenue code.

(d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

5. An application to the existing insurer that issued the existing policy or contract:

(a) To exercise a contractual change or a conversion privilege.

(b) If the existing insurer is replacing the existing policy or contract pursuant to a program filed with and approved by the director.

(c) If a term conversion privilege is exercised among corporate affiliates.

6. Existing life insurance that is a nonrenewable and nonconvertible term life insurance policy that will expire in five years or less.

7. Proposed life insurance that is to replace life insurance under a binding or conditional receipt issued by the same insurer.

8. New coverage that is provided under a policy or contract if the insured's employer or an association of which the insured is a member bears all costs.

9. Immediate annuities that are purchased with proceeds from an existing contract. Immediate annuities purchased with proceeds from an existing policy are subject to this article.

10. Structured settlements as defined in section 12-2901.

11. The reinstatement of a life insurance policy pursuant to section 20-1213.

B. Group policies and contracts involving direct solicitation are subject to this article.

C. Notwithstanding subsection A of this section, this article applies to a policy or contract that is used to fund any plan or arrangement that meets all of the following requirements:

1. The plan or arrangement is funded solely by contributions an employee elects to make on a pretax or after tax basis.

2. The insurer has been notified that plan participants may choose from among two or more contract providers or policy providers.

3. The insurance producer directly solicits individual employees for the purchase of the contract or policy.

D. Registered contracts are exempt from the requirements of this article with respect to the provision of illustrations or policy summaries. Premium or contract contribution amounts and identification of the appropriate prospectus or offering circular are required.

§ 20-1241.02 Policy summary requirements

A. Any policy summary required under this article shall be in writing and shall satisfy the requirements of this section.

B. A summary of a policy or contract other than a universal life policy shall contain, to the extent applicable, at least the following information:

1. Current death benefit.

2. Annual contract premium.

3. Current cash surrender value.

4. Current dividend.

5. Application of current dividend.

6. Amount of outstanding loan.

C. A summary of a universal life policy shall contain at least the following information:

1. The beginning and end date of the current report period.

2. The policy value at the end of the previous report period and at the end of the current report period.

3. The total amounts that have been credited or debited to the policy value during the current report period, identifying each by type.

4. The current death benefit at the end of the current report period on each life covered by the policy.

5. The net cash surrender value of the policy as of the end of the current report period.

6. The amount of outstanding loans, if any, as of the end of the current report period.

§ 20-1241.03 Duties of insurance producers

A. An insurance producer who initiates an application shall submit to the insurer, with or as part of the application, a statement signed by both the applicant and the insurance producer as to whether the applicant has an existing policy or contract.

B. If the answer is "no" to the question under subsection A of this section regarding existing coverage, the insurance producer has no further replacement duties.

C. If the answer is "yes" to the question under subsection A of this section regarding existing coverage, the insurance producer shall present and read to the applicant, not later than the time of taking the application, a notice regarding replacements that is in a form that the director has approved or prescribed by rule.

D. The applicant and the insurance producer shall sign the notice required under subsection C of this section. The insurance producer shall leave the signed notice with the applicant. If the notice is presented electronically, the insurer shall send the applicant a copy of the notice within three business days after the application is submitted to the insurer. In the notice the insurance producer and the applicant shall attest that the insurance producer either read the notice aloud or that the applicant did not wish the notice to be read aloud, in which case the producer need not have read the notice aloud.

E. The notice prescribed in subsection C of this section shall:

1. Identify each policy and contract proposed to be replaced by:

(a) Name of the insurer.

(b) Name of the insured or annuitant.

(c) Policy or contract number if available.

(d) Application or receipt number if the policy or contract number is not available.

2. Include a statement as to whether each policy or contract will be replaced or whether a policy will be used as a source of financing for the new policy or contract.

F. If the application for a new policy or contract is completed in any replacement transaction, the insurance producer shall give the applicant the original or a copy of all sales material at the time of the application for the new policy or contract. The insurance producer or insurer shall provide the applicant with a printed copy of any electronically presented sales material not later than at the time of policy or contract delivery.

G. Except as provided in section 20-1241.05, subsection G, in connection with any replacement transaction, an insurance producer shall submit to the insurer to which an application for a policy or contract is presented a copy of:

1. Each document required by this section.

2. A statement identifying any preprinted or electronically presented company approved sales materials used.

3. Any individualized sales materials, including any illustrations related to the specific policy or contract purchased.

§ 20-1241.04 Duties of insurers that use insurance producers

A. An insurer that uses an insurance producer shall comply with the requirements of this section.

B. The insurer shall maintain a system for supervision and control of insurance producers that ensures compliance with the requirements of this article including at least the following:

1. A method to inform insurance producers of the requirements of this article and to incorporate those requirements into the insurer's relevant insurance producer training manuals.

2. A system to provide each insurance producer with a written statement of the insurer's position on the acceptability of replacements to guide the insurance producer as to the appropriateness of a replacement transaction.

3. A system to review the appropriateness of each replacement transaction for compliance with the insurer's replacement policy described in paragraph 2 of this subsection.

4. A procedure to confirm that the requirements of this article have been met.

5. A procedure to detect replacement transactions that have not been reported as such by the applicant or insurance producer. An insurer may comply with this requirement by systematic customer surveys, interviews, confirmation letters or programs of internal monitoring.

C. The insurer shall have the capacity to monitor each producer's policy and contract replacements for that insurer and shall be able to produce, on request, and make available to the department the following records for each insurance producer:

1. Life replacements, including financed purchases, as a percentage of the producer's total annual sales for life policies covered under section 20-1241.01.

2. Number of lapses of policies by the insurance producer as a percentage of the insurance producer's total annual sales for life policies covered under section 20-1241.01.

3. Annuity contract and replacements as a percentage of the producer's total annual annuity contract sales.

4. Number of transactions that are unreported replacements of existing policies or contracts detected by the insurer's monitoring system as required by subsection B, paragraph 5 of this section.

5. Replacements, indexed by the replacing insurance producer and the existing insurer.

D. With or as a part of each application for a policy or contract, the insurer shall require the signed statement prescribed by section 20-1241.03, subsection A.

E. With each application for a replacement policy or contract, the insurer shall require the notice prescribed by section 20-1241.03, subsections C and D.

F. If an applicant has an existing policy or contract, the insurer shall require and shall be able to produce for at least five years after the termination or expiration of the proposed policy or contract:

1. Copies of any sales materials.

2. The basic illustration and any supplemental illustrations related to the specific policy or contract that is purchased.

3. The insurance producer's and applicant's signed statements with respect to financing and replacement.

G. The insurer shall ascertain that the sales material and illustrations used in the replacement, as provided in section 20-1241.03, subsection G, meet the requirements of this article and are complete and accurate for the proposed policy or contract.

H. If an application does not meet the requirements of this article, the insurer shall notify the insurance producer and applicant and fulfill any outstanding requirements.

I. An insurer may maintain the records required by this section in paper, photograph, microprocess, magnetic, mechanical or electronic media, or other process that accurately reproduces that actual document.

§ 20-1241.05 Duties of replacing insurers that use insurance producers

A. A replacing insurer shall comply with the requirements of this section for each replacement transaction.

B. The insurer shall verify that it has received all required forms and that the forms comply with this article.

C. The insurer shall notify any existing insurer that may be affected by the proposed replacement within five business days after the receipt of a completed application indicating replacement or, if not indicated on the application, when the replacement is identified, and send a copy of the available illustration or policy summary for the proposed policy or available disclosure document for the proposed contract within five business days after a request from an existing insurer.

D. The insurer shall be able to produce copies of the notification regarding replacement required in section 20-1241.03, subsections C and D, indexed by the insurance producer, for at least five years or until the next regular examination by the insurance regulatory authority of its state of domicile, whichever is later.

E. The insurer shall provide the policy or contract owner notice of the right to return the policy or contract within thirty days of delivery and receive an unconditional full refund of all premiums or consideration paid, including any policy fees or charges or, in the case of a variable or market value adjustment policy or contract, a payment of the cash surrender value provided under the policy or contract plus all fees and other charges deducted from the gross premiums or considerations or imposed under the policy or contract. The notice may be included in the notice required under section 20-1241.03, subsections C and D.

F. If the replacing insurer and the existing insurer are the same or subsidiaries or affiliates under common ownership or control, the replacing insurer shall allow credit for the period of time that has elapsed under the replacement policy's or contract's incontestability and suicide period up to the face amount of the existing policy or contract. For financed purchases, the insurer may limit the credit to the amount that the face amount of the existing policy is reduced by the use of existing policy values to fund the new policy or contract.

G. If an insurer prohibits the use of sales materials the insurer has not approved, the insurer, as an alternative to the requirements of section 20-1241.03, subsection G, may comply as follows:

1. The insurer shall require an insurance producer to submit a signed statement with each application stating that the insurance producer used only sales material that the insurer approved and that the insurance producer will provide copies to the applicant as required by section 20-1241.03, subsection F.

2. Within ten days after the issuance of the policy or contract, the insurer shall:

(a) Notify the applicant by letter or by verbal communication from a person whose duties are separate from the marketing area of the insurer that the insurance producer made the representation about leaving sales materials as described in paragraph 1 of this subsection.

(b) Provide the applicant with a toll-free number to contact insurer personnel responsible for regulatory compliance if the insurance producer did not leave sales materials.

(c) Advise the applicant that it is important to retain copies of the sales material for future reference.

3. The insurer shall be able to produce a copy of the letter or other verification required by paragraph 2, subdivision (a) of this subsection for at least five years after the termination or expiration of the policy or contract.

§ 20-1241.06 Duties of existing insurer

A. An existing insurer shall comply with the following requirements for any replacement transaction:

1. The insurer shall retain and be able to provide the director with all notifications received, indexed by replacing insurer, for at least five years or until the conclusion of its next examination by the insurance regulatory authority of its state of domicile, whichever is later.

2. Within five business days of receiving a replacement notice, the insurer shall send the policy or contract owner a letter advising the owner of the right to receive information about the existing policy or contract values including, if available, an in-force illustration or a policy summary if an in-force illustration cannot be produced. The insurer shall provide the policy or contract owner with this information within five business days of the receipt of a request from the policy or contract owner.

3. On receipt of a request to borrow, surrender or withdraw any policy values, the insurer shall send a notice advising the policy owner that a release of policy values may affect the guaranteed elements, nonguaranteed elements, face amount or surrender value of the policy from which the values are released.

B. The insurer shall send the notice required by subsection A, paragraph 3 separate from the check if the check is sent to anyone other than the policy owner. In the case of consecutive automatic premium loans, the insurer shall send the notice only at the time of the first loan.

§ 20-1241.07 Duties of insurers with respect to direct response solicitations

A. If a person applies for a policy or contract in response to a direct response solicitation, the insurer shall require, with or as part of each completed application for a policy or contract, a statement asking whether the applicant, by applying for the proposed policy or contract, intends to replace, discontinue or change an existing policy or contract. If the applicant indicates a replacement or change is not intended or if the applicant fails to respond to the statement, the insurer shall send the applicant, with the policy or contract, a notice that the director has approved or prescribed by rule.

B. If the insurer has proposed the replacement or if the applicant indicates a replacement is intended and the insurer continues with the replacement, the insurer shall:

1. Comply with the requirements of section 20-1241.05, subsections C and D if the applicant furnishes the names of the existing insurer, and the requirements of section 20-1241.05, subsections E and F.

2. With the policy or contract, provide the applicant or prospective applicant with a notice as required under section 20-1241.05.

§ 20-1241.08 Violations; penalties; intent

A. Any person who does not comply with the applicable requirements of this article is subject to penalties prescribed under sections 20-220, 20-295 and 20-456. Violations include:

1. Any deceptive or misleading information set forth in sales material.

2. When completing an application, failing to ask the applicant the pertinent questions regarding the possibility of financing or replacement.

3. The intentional incorrect recording of an answer.

4. Advising an applicant to respond negatively to any question regarding replacement in order to prevent notice to the existing insurer.

5. Advising a policy or contract owner to write directly to the company in such a way as to attempt to obscure the identity of the replacing insurance producer or company.

B. A policy or contract owner may replace existing life insurance or annuities after indicating in or as part of an application for new coverage that replacement is not intended. A pattern of such action by a policy or contract owner who buys new coverage from the same producer is deemed prima facie evidence of the insurance producer's knowledge that replacement was intended in connection with the transaction and of the insurance producer's intent to violate this article.

C. If the requirements of this article have not been met, the replacing insurer shall provide the policy owner an in-force illustration, if available, a policy summary for the replacement policy or the available disclosure document for the replacement contract and the appropriate notice regarding replacements prescribed in section 20-1241.03.

D. The director may impose the following penalties for a violation of this article either separately or in combination:

1. Revocation or suspension of an insurance producer's or company's license.

2. Civil monetary penalties.

3. Forfeiture of any commissions or compensation paid to an insurance producer as a result of the transaction in connection with which the violations occurred.

4. If the director has determined that the violations were material to the sale, the insurer may be required to make restitution, restoration of policy or contract values and interest at the maximum lawful rate on the amount refunded in cash.

§ 20-1241.09 Rules; exemption from rule making procedures

A. The director may adopt rules necessary to implement the requirements of this article.

B. The department is exempt from title 41, chapter 6, articles 3 and 5 for the purposes of adopting rules that establish the form and content of any consumer notices, disclosure forms, buyer's guides and other forms required by this article. The requirements adopted by rule for any such notices, forms and guides shall substantially conform to those adopted in model regulations adopted by the national association of insurance commissioners.

Article 1.2 Annuity Disclosure

§ 20-1242 Definitions

In this article, unless the context otherwise requires:

1. "Contract owner" means the owner named in the annuity contract or certificate holder in the case of a group annuity contract.

2. "Determinable elements" means elements that are derived from processes or methods that are guaranteed at issue and that are not subject to company discretion, but where the values or amounts cannot be determined until some point after issue. These elements include the premiums, credited interest rates, including any bonus, benefits, values, noninterest based credits, charges or elements of formulas used to determine any of these. These elements may be described as guaranteed but not determined at issue. An element is considered determinable if it is calculated from underlying determinable elements only or from both determinable and guaranteed elements.

3. "Generic name" means a short title descriptive of the annuity contract being applied for or illustrated such as "single premium deferred annuity".

4. "Guaranteed elements" means the premiums, credited interest rates, including any bonus, benefits, values, noninterest based credits, charges, or elements of formulas used to determine any of these, that are guaranteed and determined at issue. An element is considered guaranteed if all of the underlying elements that go into its calculation are guaranteed.

5. "Insurance producer" has the same meaning prescribed in section 20-281.

6. "Nonguaranteed elements" means the premiums, credited interest rates, including any bonus, benefits, values, noninterest based credits, charges, or elements of formulas used to determine any of these, that are subject to company discretion and that are not guaranteed at issue. An element is considered nonguaranteed if any of the underlying nonguaranteed elements are used in its calculation.

7. "Structured settlement annuity" means a qualified funding asset as defined in section 130(d) of the internal revenue code or an annuity that would be a qualified funding asset under section 130(d) but for the fact that it is not owned by an assignee under a qualified assignment.

§ 20-1242.01 Applicability and scope

A. This article applies to all group and individual annuity contracts and certificates except:

1. Registered or nonregistered variable annuities or other registered products.

2. Immediate and deferred annuities that contain no nonguaranteed elements.

3. Annuities used to fund:

(a) An employee pension plan that is covered by the employee retirement income security act of 1974 (29 United States Code section 1001 through 1461).

(b) A plan described by sections 401(a), 401(k) or 403(b) of the internal revenue code, where the plan, for purposes of the employee retirement income security act of 1974, is established or maintained by an employer.

(c) A governmental or church plan as defined in section 414 of the internal revenue code or a deferred compensation plan of a state or local government or a tax exempt organization pursuant to section 457 of the internal revenue code.

(d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

4. Structured settlement annuities.

B. Notwithstanding subsection A of this section, this article applies if:

1. Annuities are used to fund a plan or arrangement that is funded solely by contributions an employee elects to make on a pretax or after tax basis.

2. The insurer has been notified that plan participants may choose from among two or more fixed annuity providers.

3. There is a direct solicitation of any individual employee by an insurance producer for the purchase of an annuity contract. For the purposes of this paragraph, direct solicitation does not include any meeting held by an insurance producer solely for the purpose of educating or enrolling employees in the plan or arrangement.

§ 20-1242.02 Standards for the disclosure document and buyer's guide

A. If the application for an annuity contract is taken in a face-to-face meeting, the applicant, at or before the time of application, shall be given both the disclosure document and the buyer's guide in the form prescribed by the director.

B. If the application for an annuity contract is taken by means other than in a face-to-face meeting, the applicant shall be sent both the disclosure document and the buyer's guide no later than five business days after the completed application is received by the insurer.

C. With respect to an application received as a result of a direct solicitation through the mail:

1. Providing a buyer's guide in a mailing that invites prospective applicants to apply for an annuity contract is deemed to satisfy the requirement that the buyer's guide be provided no later than five business days after receipt of the application.

2. Providing a disclosure document in a mailing that invites a prospective applicant to apply for an annuity contract is deemed to satisfy the requirement that the disclosure document be provided no later than five business days after receipt of the application.

D. With respect to an application received through the internet:

1. Taking reasonable steps to make the buyer's guide available for viewing and printing on the insurer's web site is deemed to satisfy the requirement that the buyer's guide be provided not later than five business days after receipt of the application.

2. Taking reasonable steps to make the disclosure document available for viewing and printing on the insurer's web site is deemed to satisfy the requirement that the disclosure document be provided not later than five business days after receipt of the application.

E. A solicitation for an annuity contract provided in other than a face-to-face meeting shall include a statement that the proposed applicant may contact the insurer for a free annuity buyer's guide.

F. If the buyer's guide and disclosure document are not provided at or before the time of application, a free look period of not less than fifteen days shall be provided for the applicant to return the annuity contract without penalty. This free look period shall run concurrently with any other free look period provided under statute.

G. At a minimum, the following information shall be included in the disclosure document required to be provided under this article:

1. The generic name of the contract, the company product name, if different, the form number and the fact that it is an annuity.

2. The insurer's name and address.

3. A description of the contract and its benefits, emphasizing its long-term nature and including examples where appropriate.

4. The guaranteed, nonguaranteed and determinable elements of the contract, their limitations, if any, and an explanation of how they operate.

5. An explanation of the initial crediting rate, specifying any bonus or introductory portion, the duration of the rate and the fact that rates may change from time to time and are not guaranteed.

6. The periodic income options both on a guaranteed and nonguaranteed basis.

7. Any value reductions caused by withdrawals from or surrender of the contract.

8. How values in the contract can be accessed.

9. The death benefit, if available, and how it will be calculated.

10. A summary of the federal tax status of the contract and any penalties applicable on withdrawal of values from the contract.

11. The impact of any rider, such as a long-term care rider.

12. The specific dollar amount or percentage charges. Fees shall be listed with an explanation of how they apply.

13. Information about the current guaranteed rate for new contracts that contains a clear notice that the rate is subject to change.

§ 20-1242.03 Report to contract owners

For annuities in the payout period with changes in nonguaranteed elements and for the accumulation period of a deferred annuity, the insurer shall provide each contract owner with a report, at least annually, on the status of the contract that contains at least the following information:

1. The beginning and end date of the current report period.

2. The accumulation and cash surrender value, if any, at the end of the previous report period and at the end of the current report period.

3. The total amounts, if any, that have been credited, charged to the contract value or paid during the current report period.

4. The amount of outstanding loans, if any, as of the end of the current report period.

§ 20-1242.04 Penalties

An insurer or insurance producer that violates this article is subject to penalties prescribed under sections 20-220, 20-295 and 20-456.

§ 20-1242.05 Rules; exemption from rule making procedures

A. The director may adopt rules that are necessary to implement the requirements of this article.

B. The department is exempt from title 41, chapter 6, articles 3 and 5 for the purposes of adopting rules that establish the form and content of any consumer notices, disclosure forms, buyer's guides and other forms required by this article. The requirements adopted by rule for any such notices, forms and guides shall substantially conform to those adopted in model regulations adopted by the national association of insurance commissioners.

Article 1.3 Protection in Annuity Transactions

§ 20-1243 Definitions

In this article, unless the context otherwise requires:

1. "Annuity" means an annuity that is individually solicited, whether the product is classified as an individual or group annuity.

2. "Business entity" has the same meaning prescribed in section 20-281.

3. "Cash compensation" means any discount, concession, fee, service fee, commission, sales charge, loan, override or cash benefit received by a producer in connection with the recommendation or sale of an annuity from an insurer or intermediary or directly from the consumer.

4. "Consumer profile information" means information that is reasonably appropriate to determine whether a recommendation addresses the consumer's financial situation, insurance needs and financial objectives, including at least the following:

(a) Age.

(b) Annual income.

(c) Financial situation and needs, including debts and other obligations.

(d) Financial experience.

(e) Insurance needs.

(f) Financial objectives.

(g) Intended use of the annuity.

(h) Financial time horizon.

(i) Existing assets or financial producers, including investment, annuity and insurance holdings.

(j) Liquidity needs.

(k) Liquid net worth.

(l) Risk tolerance, including willingness to accept nonguaranteed elements in the annuity.

(m) Financial resources used to fund the annuity.

(n) Tax status.

5. "Continuing education credit" means one continuing education credit hour as defined in section 20-2901.

6. "Continuing education provider" means an individual or entity that is approved to offer continuing education courses pursuant to chapter 18 of this title.

7. "FINRA" means the financial industry regulatory authority or a succeeding agency.

8. "Insurer" has the same meaning prescribed in section 20-104.

9. "Intermediary" means an entity that is contracted directly with an insurer or with another entity that is contracted with an insurer to facilitate the sale of the insurer's annuities by producers.

10. "Managing general agent" has the same meaning prescribed in section 20-311.

11. "Material conflict of interest":

(a) Means a producer's financial interest in the sale of an annuity that a reasonable person would expect to influence the impartiality of the producer's recommendation.

(b) Does not include cash compensation or noncash compensation.

12. "Noncash compensation" means any form of compensation that is not cash compensation, including health insurance, office rent, office support and retirement benefits.

13. "Nonguaranteed elements" means the premiums, credited interest rates including any bonus, benefits, values, dividends, noninterest based credits, charges or elements of formulas used to determine any of these that are subject to company discretion and are not guaranteed at issue. An element is considered nonguaranteed if any of the underlying nonguaranteed elements are used in its calculation.

14. "Producer":

(a) Means an insurance producer as defined in section 20-281.

(b) Includes an insurer where no producer is involved.

15. "Recommendation":

(a) Means advice provided by a producer to an individual consumer that was intended to result or does result in a purchase, exchange or replacement of an annuity pursuant to that advice.

(b) Does not include general communication to the public, generalized customer service assistance or administrative support, general education information and tools, prospectuses or other product and sales materials.

16. "Replacement" means a transaction in which a new annuity is to be purchased and it is known or should be known to the proposing producer or to the proposing insurer, whether or not a producer is involved, that by reason of the transaction, an existing annuity or other insurance policy has been or is to be any of the following:

(a) Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated.

(b) Converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.

(c) Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or which benefits would be paid.

(d) Reissued with any reduction in cash value.

(e) Used in a financed purchase.

17. "SEC" means the United States securities and exchange commission.

§ 20-1243.01 Scope and limitation of article

A. This article applies to any sale or recommendation of an annuity.

B. This article does not:

1. Affect in any manner any provision of title 44, chapters 12 and 13.

2. Create or imply a private cause of action for a violation of this article or subject a producer to civil liability under the best interest standard of care prescribed in section 20-1243.03 or under standards that govern the conduct of a fiduciary or fiduciary relationship.

§ 20-1243.02 Exemptions

Unless otherwise specifically included, this article does not apply to recommendations involving:

1. Direct response solicitations if there is no recommendation based on information collected from the consumer pursuant to this article.

2. Contracts used to fund any of the following:

(a) An employee pension or welfare benefit plan that is covered by the employee retirement and income security act of 1974 (P.L. 93-406; 88 Stat. 829; 29 United States Code sections 1001 through 1461).

(b) A plan described by section 401(a), 401(k), 403(b), 408(k) or 408(p) of the internal revenue code, if established or maintained by an employer.

(c) A government or church plan as defined in section 414 of the internal revenue code, a government or church welfare benefit plan or a deferred compensation plan of a state or local government or tax exempt organization under section 457 of the internal revenue code.

(d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

(e) Settlements of, or assumptions of liabilities associated with, personal injury litigation or any dispute or claim resolution process.

(f) Formal prepaid funeral contracts.

§ 20-1243.03 Duties of insurers and producers; definitions

A. When a producer makes a recommendation of an annuity, the producer shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer's or the insurer's financial interest ahead of the consumer's interest. The producer has acted in the best interest of the consumer if the producer has satisfied the obligations regarding care, disclosure, conflict of interest and documentation prescribed in this section.

B. To satisfy the care obligation, in making a recommendation, the producer shall exercise reasonable diligence, care and skill to do all of the following:

1. Know the consumer's financial situation, insurance needs and financial objectives.

2. Understand the available recommendation options after making a reasonable inquiry into options available to the producer.

3. Have a reasonable basis to believe both of the following:

(a) The recommended option effectively addresses the consumer's financial situation, insurance needs and financial objectives over the life of the product, as evaluated in light of the consumer profile information.

(b) The consumer would benefit from certain features of the annuity, such as annuitization, death or living benefits or other insurance-related features.

4. Communicate the basis or bases of the recommendation.

5. Make reasonable efforts to obtain consumer profile information from the consumer before the recommendation of an annuity.

6. Consider the types of products the producer is authorized and licensed to recommend or sell that address the consumer's financial situation, insurance needs and financial objectives. The producer:

(a) Is not required to analyze or consider any product outside the producer's authority and license or other possible alternative products or strategies that are available in the market at the time of recommendation.

(b) Shall be held to standards that apply to producers with similar authority and licensure.

7. In the case of an exchange or replacement of an annuity, consider the whole transaction, including taking into consideration whether:

(a) The consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living or other contractual benefits, or be subject to increased fees, investment advisory fees or charges for riders and similar product enhancements.

(b) The replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product.

(c) The consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding sixty months.

C. The requirements under the best interest and care obligations under subsections A and B of this section do not create a fiduciary obligation or relationship and only create a regulatory obligation as established in this article.

D. The requirements under the care obligation under subsection B of this section:

1. Apply to the particular annuity as a whole and the underlying subaccounts to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar product enhancements, if any.

2. Do not mean the annuity with the lowest onetime or multiple occurrence compensation structure shall necessarily be recommended.

3. Do not mean the producer has ongoing monitoring obligations under the care obligation under subsection B of this section, although such an obligation may be separately owed under the terms of a fiduciary, consulting, investment advising or financial planning agreement between the consumer and the producer.

4. Do not require a producer to obtain any license other than a producer license with the appropriate line of authority to sell, solicit or negotiate insurance in this state, including any securities license, in order to fulfill the duties and obligations contained in this article if the producer does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses.

E. Under the care obligation under subsection B of this section, the consumer profile information, characteristics of the insurer and product costs, rates, benefits and features are those factors generally relevant in making a determination whether an annuity effectively addresses the consumer's financial situation, insurance needs and financial objectives, but the level of importance of each factor under the care obligation under subsection B of this section may vary depending on the facts and circumstances of a particular case, and each factor may not be considered in isolation.

F. To satisfy the disclosure obligation, before the recommendation or sale of an annuity, the producer shall prominently disclose the following information to the consumer on a form substantially similar to the "insurance agent (producer) disclosure for annuities" form in appendix A of the 2020 national association of insurance commissioners suitability in annuity transactions model regulation:

1. A description of the scope and terms of the relationship with the consumer and the role of the producer in the transaction.

2. An affirmative statement on whether the producer is licensed and authorized to sell the following products:

(a) Fixed annuities.

(b) Fixed indexed annuities.

(c) Variable annuities.

(d) Life insurance.

(e) Mutual funds.

(f) Stocks and bonds.

(g) Certificates of deposit.

3. An affirmative statement describing the insurers for which the producer is authorized, contracted or appointed or otherwise able to sell insurance products, using the following descriptions:

(a) One insurer.

(b) From two or more insurers.

(c) From two or more insurers although primarily contracted with one insurer.

4. A description of the sources and types of cash compensation and noncash compensation to be received by the producer, including whether the producer is to be compensated for the sale of a recommended annuity by commission as part of a premium or other remuneration received from the insurer, intermediary or other producer or by fee as a result of a contract for advice or consulting services.

5. A notice of the consumer's right to request additional information regarding cash compensation. On request of the consumer or the consumer's designated representative, the producer shall disclose both of the following:

(a) A reasonable estimate of the amount of cash compensation to be received by the producer, which may be stated as a range of amounts or percentages.

(b) Whether the cash compensation is a onetime or multiple occurrence amount and, if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages.

G. The disclosure obligation under subsection F of this section requires that before or at the time of the recommendation or sale of an annuity, the producer shall have a reasonable basis to believe the consumer has been informed of various features of the annuity, such as the potential surrender period and surrender charge, potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity, mortality and expense fees, investment advisory fees, any annual fees, potential charges for and features of riders or other options of the annuity, limits on interest returns, potential changes in nonguaranteed elements of the annuity, insurance and investment components and market risk.

H. To satisfy the conflict of interest obligation, the producer shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest.

I. To satisfy the documentation obligation, the producer at the time of recommendation or sale shall:

1. Make a written record of any recommendation and the basis for the recommendation subject to this article.

2. Obtain a consumer-signed statement on a form substantially similar to the "consumer refusal to provide information" form in appendix B of the 2020 national association of insurance commissioners suitability in annuity transactions model regulation documenting both:

(a) A customer's refusal to provide the consumer profile information, if any.

(b) A customer's understanding of the ramifications of not providing the consumer profile information or providing insufficient consumer profile information.

3. Obtain a consumer-signed statement on a form substantially similar to the "consumer decision to purchase an annuity not based on a recommendation" form in appendix C of the 2020 national association of insurance commissioners suitability in annuity transactions model regulation acknowledging the annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the producer's recommendation.

J. Any requirement applicable to a producer under subsections A, B, C, D, E, F, G, H and I of this section applies to every producer who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the producer has had any direct contact with the consumer. Activities such as the following do not in and of themselves constitute material control or influence:

1. Providing or delivering marketing or educational material.

2. Product wholesaling or other back-office product support.

3. General supervision of a producer.

K. An insurer's issuance of an annuity subject to this subsection shall be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued. A producer has no other obligation under subsections A, B, C, D and E of this section to a consumer related to an annuity transaction if:

1. No recommendation is made.

2. A recommendation was made that was later found to have been prepared based on materially inaccurate information provided by the consumer.

3. The consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended.

4. The consumer decides to enter into an annuity transaction that is not based on a recommendation by the producer.

L. Except as allowed under this subsection, an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity would effectively address the particular consumer's financial situation, insurance needs and financial objectives based on the consumer's consumer profile information. Each insurer shall establish and maintain a supervision system that is reasonably designed to achieve the insurer's and its producers' compliance with this article and that includes the following:

1. Reasonable procedures to inform its producers of the requirements of this article, including incorporating the requirements of this article in relevant producer training manuals.

2. Standards for producer product training, including establishing and maintaining reasonable procedures to ensure compliance with section 20-1243.07.

3. Product-specific training and training materials that explain all material features of its annuity products to its producers.

4. Procedures for reviewing each recommendation before issuing an annuity that are designed to ensure there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer's financial situation, insurance needs and financial objectives. The review procedures may apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means, including physical review. The electronic system or other system may be designed to require additional review of only those transactions that are identified for additional review by the selection criteria.

5. Reasonable procedures to detect recommendations that do not comply with subsections A, B, C, D, E, F, G, H, I, J, K, O and P of this section, including confirmation of the consumer's consumer profile information, systematic customer surveys, producer and consumer interviews, confirmation letters, producer statements or attestations and programs of internal monitoring. This paragraph does not prevent an insurer from complying with this paragraph by applying sampling procedures or by confirming the consumer profile information or other required information under this section after issuing or delivering the annuity.

6. Reasonable procedures to assess, before or on issuance or delivery of an annuity, whether a producer has provided to the consumer the information required to be provided under this section.

7. Reasonable procedures to identify and address suspicious consumer refusals to provide consumer profile information.

8. Reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses and noncash compensation that are based on the sales of specific annuities within a limited period of time. This paragraph does not prohibit the receipt of health insurance, office rent, office support, retirement benefits or other employee benefits by employees so long as those benefits are not based on the volume of sales of a specific annuity within a limited period of time.

9. A written annual report to senior management, including to the senior manager responsible for audit functions, that details a review with appropriate testing and that is reasonably designed to determine the effectiveness of the supervision system, the exceptions found and corrective action taken or recommended, if any.

M. An insurer may contract for performance of a function, including maintenance of procedures, required under subsection L of this section but is responsible for taking appropriate corrective action and may be subject to sanctions and penalties pursuant to section 20-1243.05 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with paragraphs 1 and 2 of this subsection. An insurer's supervision system under this subsection shall include supervision of contractual performance under this subsection by incorporating at least both of the following:

1. Monitoring and, as appropriate, conducting audits to ensure that the contracted function is properly performed.

2. Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly performed.

N. An insurer is not required to include in its system of supervision:

1. A producer's recommendations to consumers of products other than the annuities offered by the insurer.

2. Consideration of or comparison to options available to the producer or compensation relating to those options other than annuities or other products offered by the insurer.

O. A producer or an insurer may not dissuade, or attempt to dissuade, a consumer from:

1. Truthfully responding to an insurer's request for confirmation of the consumer profile information.

2. Filing a complaint.

3. Cooperating with the investigation of a complaint.

P. Recommendations and sales of annuities that comply with comparable standards satisfy the requirements under this article. This subsection applies to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls and procedures that satisfy a comparable standard even if such a standard would not otherwise apply to the product or recommendation at issue. This subsection does not limit the director's ability to investigate and enforce this article or limit the insurer's obligation to comply with its obligation under subsection L of this section not to issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity would effectively address the particular consumer's financial situation, insurance needs and financial objectives based on the consumer's consumer profile information, although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional. An insurer complies with this subsection if the insurer does all of the following:

1. Monitors the relevant conduct of the financial professional seeking to rely on this subsection or the entity responsible for supervising the financial professional, such as the financial professional's broker-dealer or an investment adviser registered under federal or state securities laws using information collected in the normal course of an insurer's business.

2. Provides to the entity responsible for supervising the financial professional seeking to rely on this subsection, such as the financial professional's broker-dealer or investment adviser registered under federal or state securities laws, information and reports that are reasonably appropriate to assist the entity to maintain its supervision system.

Q. For the purposes of this section:

1. "Comparable standards" means:

(a) With respect to broker-dealers and registered representatives of broker-dealers, applicable SEC and FINRA rules relating to best interest obligations and supervision of annuity recommendations and sales, including regulation best interest and any amendments or successor regulations.

(b) With respect to investment advisers registered under federal or state securities law or investment adviser representatives, the fiduciary duties and all other requirements imposed on the investment advisers or investment adviser representatives by contract or under the investment advisers act of 1940, including the form ADV and interpretations.

(c) With respect to plan fiduciaries or other fiduciaries, the fiduciary duties, obligations and prohibitions and all other requirements attendant to such a status under the employee retirement income security act of 1974 or the internal revenue code and any amendments or successor statutes.

2. "Financial professional" means a producer that is regulated and acting as:

(a) A broker-dealer registered under federal or state securities laws or a registered representative of a broker-dealer.

(b) An investment adviser registered under federal or state securities laws or an investment adviser representative associated with the federal or state investment adviser.

(c) A plan fiduciary under section 3(21) of the employee retirement income security act of 1974 or section 4975(e)(3) of the internal revenue code or any amendments or successor statutes.

§ 20-1243.04 Standards for supervision

A. An insurer shall either assure that a system to supervise recommendations that is reasonably designed to achieve compliance with this article is established and maintained by complying with subsections C, D and E, or establish and maintain such a system. Such a system includes:

1. Maintaining written procedures.

2. Conducting periodic reviews of records that are reasonably designed to assist in detecting and preventing violations of this article.

B. A managing general agent and business entity shall either adopt a system that is established by an insurer to supervise recommendations of its insurance producers and that is reasonably designed to achieve compliance with this article or establish and maintain such a system. Such a system includes:

1. Maintaining written procedures.

2. Conducting periodic reviews of records that are reasonably designed to assist in detecting and preventing violations of this article.

C. An insurer may contract with a third party, including a managing general agent or business entity, to establish and maintain a system of supervision as required by subsection A with respect to insurance producers under contract with or employed by the third party.

D. An insurer shall make reasonable inquiry to assure that the third party contracting under subsection C is performing the functions required under subsection A and shall take such action as is reasonable under the circumstances to enforce the contractual obligation to perform the functions. An insurer may comply with the obligation to make reasonable inquiry by doing both of the following:

1. Annually obtaining a certification from a third party senior manager who has responsibility for the delegated functions that the manager has a reasonable basis to represent, and does represent, that the third party is performing the required functions.

2. Based on reasonable selection criteria, periodically select third parties contracting under subsection C for a review to determine if the third parties are performing the required functions. The insurer shall perform those procedures to conduct the review that are reasonable under the circumstances.

E. An insurer that contracts with a third party pursuant to subsection C and that complies with the requirements to supervise in subsection D fulfills its responsibilities under subsection A.

F. An insurer, managing general agent or business entity is not required pursuant to subsection A or B to:

1. Review, or provide for review of, all insurance producer solicited transactions.

2. Include in its system of supervision an insurance producer's recommendations to consumers of products other than the annuities offered by the insurer, managing general agent or business entity.

G. A managing general agent or business entity contracting with an insurer pursuant to subsection C, if requested by the insurer pursuant to subsection D, shall promptly give a certification as described in subsection D or give a clear statement that it is unable to meet the certification criteria.

H. A person shall not provide a certification under subsection D, paragraph 1 unless both of the following apply:

1. The person is a senior manager with responsibility for the delegated functions.

2. The person has a reasonable basis for making the certification.

I. Compliance with the financial industry regulatory authority conduct rules pertaining to suitability satisfies the requirements under this section for the recommendation of annuities registered under the securities act of 1933 (15 United States Code sections 77a through 77aa) or rules adopted thereunder. However, this subsection does not limit the director's ability to enforce this article.

§ 20-1243.05 Compliance; enforcement; penalties

A. An insurer is responsible for compliance with this article. If a violation occurs, either because of the action or inaction of the insurer or its producer, the director may order:

1. The insurer to take reasonably appropriate corrective action for any consumer who is harmed by a failure to comply with this article by the insurer, an entity contracted to perform the insurer's supervisory duties or the producer.

2. A general agency, independent agency or the producer to take reasonably appropriate corrective action for any consumer who is harmed by the producer's violation of this article.

3. Appropriate penalties and sanctions.

B. The director may reduce or eliminate any applicable penalty under sections 20-220, 20-295 and 20-456 for a violation of this article if corrective action for the consumer was taken promptly after a violation was discovered or the violation was not part of a pattern or practice.

C. The authority to enforce compliance with article is vested exclusively with the director.

§ 20-1243.06 Recordkeeping

A. Insurers, general agents, independent agencies, business entities and producers shall maintain, or be able to make available to the director, records of the information collected from the consumer, disclosures made to the consumer, including summaries of oral disclosures, and other information used in making the recommendations that were the basis for insurance transactions for at least five years after the insurance transaction is completed by the insurer. An insurer may but is not required to maintain documentation on behalf of a producer.

B. Records required to be maintained by this article may be maintained in paper, photographic, microprocess, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document.

§ 20-1243.07 Producer training; annuities; continuing education

A. A producer may not solicit the sale of an annuity product unless the producer has adequate knowledge of the product to recommend the annuity and the producer is in compliance with the insurer's standards for product training. A producer may rely on insurer-provided product-specific training standards and materials to comply with this subsection.

B. Before selling, soliciting or negotiating an annuity, a producer with a life insurance line of authority shall complete a onetime four credit-hour training course approved pursuant to section 20-2904 that is provided by an education provider approved pursuant to section 20-2904.

C. The minimum length of the training required under subsection B of this section shall be sufficient to qualify for at least four continuing education credit hours, but may be longer. The training required under subsection B of this section shall include information on the following topics:

1. Types of annuities and various classifications of annuities.

2. Identification of the parties to an annuity.

3. How product-specific annuity contract features affect consumers.

4. The application of income taxation of qualified and nonqualified annuities.

5. The primary uses of annuities.

6. Appropriate standard of conduct, sales practices, replacement requirements and disclosure requirements.

D. A provider of an annuity training course intended to comply with this section shall cover all topics listed in subsection C of this section and may not present any marketing information, provide training on sales techniques or provide specific information about a particular insurer's products. Additional topics may be offered in conjunction with and in addition to the topics listed in subsection C of this section. A provider of an annuity training course intended to comply with this section shall register as a continuing education provider in this state and shall comply with the rules and guidelines applicable to producer continuing education courses required by chapter 18 of this title. A provider of an annuity training course shall comply with the reporting requirements and shall issue a certificate of completion in accordance with chapter 18 of this title.

E. Annuity training courses may be conducted and completed by classroom or self-study methods in accordance with chapter 18 of this title and any rules of the department. Satisfactory completion of the training requirements of another state that are substantially similar to the provisions of this section satisfy the training requirements of this section. Satisfactory completion of the components of the training requirements of any course or courses with components that are substantially similar to the requirements prescribed in this section satisfy the training requirements of this section.

F. An insurer shall verify that a producer has completed the annuity training course required under this section before allowing the producer to sell an annuity product for that insurer. An insurer may satisfy its responsibility under this subsection by obtaining certificates of completion of the annuity training course or obtaining reports provided by department-sponsored database systems or vendors or from a reasonably reliable commercial database vendor that has a reporting arrangement with approved insurance education providers.

Article 2 Group Life Insurance and Group Annuity Contracts

§ 20-1251 Requirements for group contracts

A. Except as provided in subsection C of this section, no life insurance policy shall be delivered in this state insuring the lives of more than one individual unless to one of the groups as provided for in section 20-1251.01 and sections 20-1252 through 20-1256 and unless in compliance with the other applicable provisions of those sections.

B. Subsection A of this section shall not apply to life insurance policies:

1. Insuring only individuals related by marriage, blood or legal adoption.

2. Insuring only individuals having a common interest through ownership of a business enterprise, or a substantial legal interest or equity therein, and who are actively engaged in the management thereof.

3. Insuring only individuals otherwise having an insurable interest in each other's lives.

C. A life insurance policy may be delivered or issued for delivery in this state insuring the lives of more than one individual if, in the director's discretion, the director determines that the group of individuals to be insured is substantially similar to a group described in section 20-1251.01 and sections 20-1252 through 20-1256.

D. Nothing in this article validates any charge or practice illegal under any rule of law or regulation governing usury, consumer lender loans, retail installment sales or the like, or extends the application of any such rule of law or regulation to any transaction not otherwise subject thereto.

§ 20-1251.01 Credit union groups

The lives of a group of individuals may be insured under a policy issued to a credit union organized under the laws of this state or the federal credit union act, which shall be considered the policyholder, to insure eligible members for amounts of insurance related to the share balance of each member, based upon some plan which will preclude individual selection, for the benefit of someone other than the credit union or its officials and subject to the following requirements:

1. The members eligible for insurance under the policy shall be all the members of the credit union who meet standard physical requirement conditions of the insurer, or all of any class or classes of them determined by conditions pertaining to their age or to membership in the credit union or both.

2. The premiums for the policy shall be paid by the policyholder, either from the credit union's funds, or from funds contributed by the insured members specifically for their insurance, or from both. A policy on which no part of the premium is to be derived from funds contributed by the insured members specifically for their insurance must insure all eligible members or all except those whose evidence of individual insurability is not satisfactory to the insurer.

3. The policy must cover at least twenty-five members at the date of issue.

§ 20-1252 Employee groups

The lives of a group of individuals may be insured under a policy issued to an employer, or to the trustees of a fund established by an employer, which employer or trustees shall be deemed the policyholder, to insure employees of the employer for the benefit of persons other than the employer, subject to the following requirements:

1. The employees eligible for insurance under the policy shall be all of the employees of the employer, or all of any class or classes thereof determined by conditions pertaining to their employment. The policy may provide that the term "employees" shall include the employees of one or more subsidiary corporations, and the employees, individual proprietors and partners of one or more affiliated corporations, proprietors or partnerships if the business of the employer and of such affiliated corporations, proprietors or partnerships is under common control through stock ownership, contract or otherwise. The policy may provide that the term "employees" shall include the individual proprietor or partners if the employer is an individual proprietor or a partnership. The policy may provide that the term "employees" shall include retired employees. No director of a corporate employer shall be eligible for insurance under the policy unless such person is otherwise eligible as a bona fide employee of the corporation by performing services other than the usual duties of a director. No individual proprietor or partner shall be eligible for insurance under the policy unless he is actively engaged in and devotes a substantial part of his time to the conduct of the business of the proprietor or partnership. A policy issued to insure the employees of a public body may provide that the term "employees" shall include elected or appointed officials.

2. The premium for the policy shall be paid by the policyholder, either from the employer's funds or funds contributed by him, or from funds contributed by the insured employees, or from both. A policy on which no part of the premium is to be derived from funds contributed by the insured employees shall insure all eligible employees, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

3. The policy must cover at least two employees at date of issue.

4. The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the employees or by the employer or trustees.

§ 20-1253 Debtor groups

The lives of a group of individuals may be insured under a policy issued to a creditor, who shall be deemed the policyholder, to insure debtors of the creditor, subject to the following requirements:

1. The debtors eligible for insurance under the policy shall be all of the debtors of the creditor whose indebtedness is repayable in installments, or all of any class or classes thereof determined by conditions pertaining to the indebtedness or to the purchase giving rise to the indebtedness. The policy may provide that the term "debtors" shall include the debtors of one or more subsidiary corporations, and the debtors of one or more affiliated corporations, proprietors or partnerships if the business of the policyholder and of such affiliated corporations, proprietors or partnerships is under common control through stock ownership, contract or otherwise.

2. The premium for the policy shall be paid by the policyholder, either from the creditor's funds, or from charges collected from the insured debtors, or from both. A policy on which part or all of the premium is to be derived from the collection from the insured debtors of identifiable charges not required of uninsured debtors shall not include, in the class or classes of debtors eligible for insurance, debtors under obligations outstanding at its date of issue without evidence of individual insurability unless at least seventy-five per cent of the then eligible debtors elect to pay the required charges. A policy on which no part of the premium is to be derived from the collection of such identifiable charges shall insure all eligible debtors, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

3. The policy may be issued only if the group of eligible debtors is then receiving new entrants at the rate of at least one hundred persons yearly, or may reasonably be expected to receive at least one hundred new entrants during the first policy year, and only if the policy reserves to the insurer the right to require evidence of individual insurability if less than seventy-five per cent of the new entrants become insured.

4. The amount of insurance on the life of any debtor shall at no time exceed the amount of the unpaid indebtedness.

5. The insurance shall be payable to the policyholder. Such payment shall reduce or extinguish the unpaid indebtedness of the debtor to the extent of such payment.

§ 20-1254 Labor union groups

The lives of a group of individuals may be insured under a policy issued to a labor union, which shall be deemed the policyholder, to insure members of the union for the benefit of persons other than the union or any of its officials, representatives or agents, subject to the following requirements:

1. The members eligible for insurance under the policy shall be all of the members of the union, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the union, or both.

2. The premium for the policy shall be paid by the policyholder, either from the union's funds, or from funds contributed by the insured members specifically for their insurance, or from both. A policy on which no part of the premium is to be derived from funds contributed by the insured members specifically for their insurance shall insure all eligible members, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

3. The policy shall cover at least two members at date of issue.

4. The amounts of insurance under the policy shall be based upon some plan precluding individual selection either by the members or by the union.

§ 20-1255 Trustee groups

The lives of a group of individuals may be insured under a policy issued to the trustees of a fund established in this state by two or more employers in the same industry, if a majority of the employees to be insured of each employer are located within this state, or to the trustees of a fund established by one or more labor unions, or by one or more employers in the same industry and one or more labor unions, or by one or more employers and one or more labor unions whose members are in the same or related occupations or trades, which trustees shall be deemed the policyholder, to insure employees of the employers or members of the unions for the benefit of persons other than the employers or the unions, subject to the following requirements:

1. The persons eligible for insurance shall be all of the employees of the employers or all of the members of the unions, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the unions, or to both. The policy may provide that the term "employees" shall include retired employees, and the individual proprietor or partners if an employer is an individual proprietor or a partnership. No director of a corporate employer shall be eligible for insurance under the policy unless such person is otherwise eligible as a bona fide employee of the corporation by performing services other than the usual duties of a director. No individual proprietor or partner shall be eligible for insurance under the policy unless he is actively engaged in and devotes a substantial part of his time to the conduct of the business of the proprietor or partnership. The policy may provide that the term "employees" shall include the trustees or their employees, or both, if their duties are principally connected with such trusteeship.

2. The premium for the policy shall be paid by the trustees, either from funds contributed by the employer or employers of the insured persons or by the union or unions, or from the insured persons specifically for their insurance, or from both, or, except in the case of a policy issued to the trustees of a fund established wholly by two or more employers, from such funds, or from funds contributed by the insured persons, or from both. A policy on which no part of the premium is to be derived from funds contributed by insured persons specifically for their insurance shall insure all eligible persons, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

3. The policy shall cover at date of issue at least one hundred persons and not less than an average of five persons, other than individual proprietors or partners, per employer unit. If the fund is established by the members of an association of employers the policy may be issued only if either the participating employers constitute at date of issue at least sixty per cent of those employer members whose employees are not already covered for group life insurance, or the total number of persons covered at date of issue exceeds six hundred, and if the policy does not require that, if a participating employer discontinues membership in the association, the insurance of his employees shall cease solely by reason of such discontinuance.

4. The amounts of insurance under the policy shall be based upon some plan precluding individual selection either by the insured persons or by the policyholder, employers or unions.

§ 20-1256 Association groups

The lives of a group of individuals may be insured under a policy issued to an association, or to a trust or to the trustee of a fund established, created or maintained for the benefit of one or more associations. The association, trust or trustee shall be deemed the policyholder, to insure members of the association or associations, employees of the association or associations and employees of members of the association or associations for the benefit of persons other than the association or associations or any of its officials, representatives or agents, subject to the following requirements:

1. The association or associations must have a constitution and bylaws and must be organized and maintained in good faith for a purpose other than obtaining insurance.

2. The policy must cover at least two persons at the date of issue.

3. The policy may provide that the term "employees" shall include retired employees.

§ 20-1257 Coverage of dependents; definition

A. Insurance under any group life insurance policy that is issued pursuant to section 20-1252, 20-1254 or 20-1255 may be extended to insure the dependents, or any class or classes of dependents, of each insured person who so elects, in amounts in accordance with a plan that precludes individual selection by the insured persons or by the policyholder and that on the life of any one dependent or the spouse of an insured person shall not be more than one hundred per cent of the insurance on the life of the insured person.

B. Premiums for any dependent coverage issued pursuant to this section shall be paid by the policyholder, from the policyholder's monies, from monies contributed by the policyholder or from monies contributed by the persons insured under the group policy or from any or all of those sources.

C. A dependent insured pursuant to this section has the same conversion right as to the insurance on the dependent insured's life as is vested by the terms of the group policy in the persons insured under the group policy.

D. For the purposes of this section, "dependent" means the spouse of an insured person, the minor children of an insured person and any other children of an insured person as provided in the group life insurance policy.

§ 20-1258 Standard provisions required in group life insurance policies

A. Except as set forth in subsection B of this section, no policy of group life insurance shall be delivered in this state unless it contains in substance the standard provisions as required by sections 20-1259 to 20-1268, inclusive, or provisions which in the opinion of the director are more favorable to the persons insured, or at least as favorable to the persons insured and more favorable to the policyholder.

B. The provisions of sections 20-1264 to 20-1268, inclusive, shall not apply to policies issued to a creditor to insure debtors of the creditor. The standard provisions required for individual life insurance policies shall not apply to group life insurance policies. If the group life insurance policy is on a plan of insurance other than the term plan, it shall contain a nonforfeiture provision or provisions which in the opinion of the director is or are equitable to the insured persons and to the policyholder, but nothing in this section shall be construed to require that group life insurance policies contain the same nonforfeiture provisions as are required for individual life insurance policies.

§ 20-1259 Grace period

In group life policies there shall be a provision that the policyholder is entitled to a grace period of thirty-one days for the payment of any premium due except the first, during which grace period the death benefit coverage shall continue in force, unless the policyholder has given the insurer written notice of discontinuance in advance of the date of discontinuance and in accordance with the terms of the policy. The policy may provide that the policyholder shall be liable to the insurer for the payment of a pro rata premium for the time the policy was in force during such grace period.

§ 20-1260 Incontestability

In group life policies there shall be a provision that the validity of the policy shall not be contested, except for nonpayment of premiums, after it has been in force for two years from its date of issue, and that no statement made by any person insured under the policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which the statement was made after the insurance has been in force prior to the contest for a period of two years during the person's lifetime nor unless it is contained in a written instrument signed by him.

§ 20-1261 Attachment of application to policy; statements of persons insured as representations

In group life policies there shall be a provision that a copy of the application, if any, of the policyholder shall be attached to the policy when issued, that all statements made by the policyholder or by the persons insured shall be deemed representations and not warranties, and that no statement made by any person insured shall be used in any contest unless a copy of the instrument containing the statement is or has been furnished to such person or to his beneficiary.

§ 20-1262 Right to require evidence of individual insurability

In group life policies there shall be a provision setting forth the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance to furnish evidence of individual insurability satisfactory to the insurer as a condition to part or all of his coverage.

§ 20-1263 Misstatement of age

In group life policies there shall be a provision specifying an equitable adjustment of premiums or of benefits or of both to be made in the event the age of a person insured has been misstated, and such provision shall contain a clear statement of the method of adjustment to be used.

§ 20-1264 Beneficiary

In group life policies there shall be a provision that any sum becoming due by reason of the death of the person insured shall be payable to the beneficiary designated by the person insured, subject to the provisions of the policy in the event there is no designated beneficiary, as to all or any part of such sum, living at the death of the person insured, and subject to any right reserved by the insurer in the policy and set forth in the certificate to pay at its option a part of such sum not exceeding two hundred fifty dollars to any person appearing to the insurer to be equitably entitled thereto by reason of having incurred funeral or other expenses incident to the last illness or death of the person insured.

§ 20-1265 Individual certificates

In group life policies there shall be a provision that the insurer will issue to the policyholder for delivery to each person insured an individual certificate setting forth a statement as to the insurance protection to which he is entitled, to whom the insurance benefits are payable, and the rights and conditions set forth in sections 20-1266, 20-1267 and 20-1268.

§ 20-1266 Conversion on termination of eligibility

In group life policies there shall be a provision that if the insurance, or any portion of it, on a person covered under the policy ceases because of termination of employment or of membership in the class or classes eligible for coverage under the policy, such person shall be entitled to have issued to him by the insurer, without evidence of insurability, an individual policy of life insurance without disability or other supplementary benefits, provided that application for the individual policy has been made, and the first premium paid to the insurer, within thirty-one days after the termination, and provided further that:

1. The individual policy, at the option of such person, is on any one of the forms, except term insurance, then customarily issued by the insurer at the age and for the amount applied for.

2. The individual policy is in an amount not in excess of the amount of life insurance which ceases because of the termination, less, in the case of a person whose membership in the class or classes eligible for coverage terminates but who continues in employment in another class, the amount of any life insurance for which the person is or becomes eligible under any other group policy within thirty-one days after the termination, provided that any amount of insurance which has matured on or before the date of the termination as an endowment payable to the person insured, whether in one sum or in installments or in the form of an annuity, shall not, for the purposes of this provision, be included in the amount which is considered to cease because of the termination.

3. The premium on the individual policy is at the insurer's then customary rate applicable to the form and amount of the individual policy, to the class of risk to which the person then belongs, and to his age attained on the effective date of the individual policy.

§ 20-1267 Conversion on termination of policy

In group life policies there shall be a provision that if the group policy terminates or is amended so as to terminate the insurance of any class of insured persons, each person insured thereunder at the date of termination whose insurance terminates and who has been so insured for at least five years prior to the termination date shall be entitled to have issued to him by the insurer an individual policy of life insurance, subject to the same conditions and limitations as are provided by section 20-1266, except that the group policy may provide that the amount of the individual policy shall not exceed the smaller of the amount of the person's life insurance protection ceasing because of the termination or amendment of the group policy, less the amount of any life insurance for which he is or becomes eligible under any group policy issued or reinstated by the same or another insurer within thirty-one days after such termination, and two thousand dollars.

§ 20-1268 Death pending conversion

In group life policies there shall be a provision that if a person insured under the group policy dies during the period within which he would have been entitled to have an individual policy issued to him in accordance with sections 20-1266 or 20-1267 and before such an individual policy becomes effective, the amount of life insurance which he would have been entitled to have issued to him under such individual policy shall be payable as a claim under the group policy, whether or not application for the individual policy or the payment of the first premium therefor has been made.

§ 20-1269 Notice of conversion right

If any individual insured under a group life insurance policy delivered after January 1, 1955 in this state becomes entitled under the terms of the policy to have an individual policy of life insurance issued to him without evidence of insurability, subject to the making of application and payment of the first premium within a period specified in the policy, and if the individual is not given notice of the existence of such right at least fifteen days prior to the expiration date of such period, then notwithstanding the terms of the policy the individual shall have an additional period within which to exercise the right. The additional period shall expire fifteen days next after the individual is given such notice, but in no event shall the additional period extend beyond sixty days next after the expiration date of the period provided in the policy. Written notice presented to the individual or mailed by the policyholder to the last known address of the individual or mailed by the insurer to the last known address of the individual as furnished by the policyholder shall constitute notice for the purpose of this section, and nothing contained in this section shall be construed to continue any insurance beyond the period provided in the policy.

§ 20-1270 Standard provisions required in group annuity contracts

No group annuity contract shall be delivered or issued for delivery in this state and no certificate shall be used in connection therewith unless it contains in substance the provisions set forth in sections 20-1271 to 20-1275, inclusive, to the extent that such provisions are applicable to the contract or to the certificate, as the case may be, or provisions which in the opinion of the director are more favorable to annuitants, or not less favorable to annuitants and more favorable to the holders.

§ 20-1271 Grace period in group annuity contracts

In group annuity contracts there shall be a provision that there shall be a period of grace, either of thirty days or of one month, within which any stipulated payment to be remitted by the holder to the insurer, falling due after one year from date of issue, may be made, subject, at the option of the insurer, to an interest charge thereon at a rate to be specified in the contract, which shall not exceed six per cent per annum for the number of days of grace elapsing before such payment.

§ 20-1272 Documents constituting entire group annuity contract

In group annuity contracts there shall be a provision specifying the document or documents which shall constitute the entire contract between the parties. The document or documents so specified shall be only:

1. The contract.

2. The contract together with the application of the holder of which a copy is attached thereto.

3. The contract together with the application of the holder of which a copy is attached thereto and the individual applications of annuitants on file with the insurer and referred to therein.

§ 20-1273 Misstatements in group annuity contracts

In group annuity contracts there shall be a provision, with an appropriate reference thereto in the certificate, for the equitable adjustment of the benefits payable under the contract or of the stipulated payments thereunder, if it is found that the sex, age, service, salary or any other fact determining the amount of any stipulated payment or the amount or date or dates of payment of any benefit with respect to any annuitant covered thereby has been misstated.

§ 20-1274 Nonforfeiture benefits in group annuity contract

A. In group annuity contracts there shall be a provision or provisions, with an appropriate reference thereto in the certificate, specifying the nature and basis of ascertainment of the benefits which will be available to an annuitant who contributes to the cost of the annuity and the conditions of payment thereof in the event of either the termination of employment of the annuitant, except by death, or the discontinuance of stipulated payments under the contract. The provision or provisions shall, in either event, make available to an annuitant who contributes to the cost of the annuity a paid-up annuity payable commencing at a fixed date in an amount at least equal to that purchased by the contributions of the annuitant, determinable as of the respective dates of payment of the several contributions, as shown by a schedule in the contract for that purpose, based upon the same mortality table, rate of interest and loading formula used in computing the stipulated payments under the contract. The provision or provisions may, by way of exception to the foregoing, provide that if the amount of the annuity determined as aforesaid from the fixed commencement date would be less than one hundred twenty dollars annually, the insurer may at its option, in lieu of granting the paid-up annuity, pay a cash surrender value at least equal to that provided by this section.

B. If a cash surrender value, in lieu of the paid-up annuity, is allowed to the annuitant by the terms of the contract, it may be either in a single sum or in equal installments over a period of not more than twelve months, and it shall at least equal either paragraph 1 or 2 following, whichever is less:

1. The amount of reserve attributable to the annuitant's contributions less a surrender charge not exceeding thirty-five per cent of the average annual contribution made by the annuitant.

2. The amount which would be payable as a death benefit at the date of surrender.

C. The contract shall also provide that in case of the death of an annuitant before the commencement date of the annuity, the insurer shall pay a death benefit at least equal to the aggregate amount of the annuitant's contributions without interest. If any benefits are available to the holder in either event, the contract shall contain a provision or provisions specifying the nature and basis of ascertainment of the benefits.

§ 20-1275 Group annuity contract certificates

In group annuity contracts there shall be a provision that the insurer will issue to the holder of the contract for delivery to each annuitant who contributes thereunder an individual certificate setting forth a statement in substance of the benefits to which he is entitled under the contract.

§ 20-1276 "Employee life insurance" defined

A. "Employee life insurance" is that plan of life insurance, other than salary savings life insurance or pension trust insurance and annuities, under which individual policies are issued to the employees of any employer and where such policies are issued on the lives of not less than two nor more than forty-nine employees at date of issue.

B. Premiums for such policies shall be paid by the employer or the trustee of a fund established by the employer either from the employer's funds or funds contributed by him, or from funds contributed by the insured employees, or from both.

§ 20-1277 Assignability of group life insurance

Nothing in this title or in any other title shall be construed to prohibit any person insured under a group life insurance policy from making an assignment of all or any part of his incidents of ownership under such policy including but not limited to the privilege to have issued to him an individual policy of life insurance pursuant and subject to the provisions of sections 20-1266 through 20-1269, inclusive, and the right to name a beneficiary. Subject to the terms of the policy or agreement between the insured, the group policyholder and the insurer relating to assignment of incidents of ownership thereunder, such an assignment by an insured, made either before or after the effective date of this act, is valid for the purpose of vesting in the assignee, in accordance with any provisions included therein as to the time at which it is to be effective, all of such incidents of ownership so assigned, but without prejudice to the insurer on account of any payment it may make or individual policy it may issue in accordance with sections 20-1266 through 20-1269, inclusive, prior to receipt of notice of the assignment.

Article 3 Industrial Life Insurance

§ 20-1301 Scope of article

The provisions of this article apply only to industrial life insurance policies. Section 20-1217 (contestability as to excluded or restricted coverage), section 20-1226 (limitation of liability), section 20-1227 (incontestability after reinstatement), section 20-1230 (dual pay policies) and sections 20-1231 and 20-1231.01 (standard nonforfeiture law) shall also apply to industrial life insurance.

§ 20-1302 Required provisions

No policy of industrial life insurance shall be delivered or be issued for delivery in this state unless it contains in substance the applicable provisions set forth in sections 20-1303 to 20-1316, inclusive.

§ 20-1303 Grace period

There shall be a provision that the insured is entitled to a grace period of four weeks within which the payment of any premiums after the first may be made, except that in policies the premiums for which are payable monthly, the period of grace shall be one month, but not less than thirty days, and that during the period of grace the policy shall continue in full force, but if during the grace period the policy becomes a claim, then any overdue and unpaid premiums may be deducted from any settlement under the policy.

§ 20-1304 Application and policy as entire contract; statements of applicant as representations

There shall be a provision that the policy shall constitute the entire contract between the parties, or, if a copy of the application is endorsed upon or attached to the policy when issued, a provision that the policy and the application therefor shall constitute the entire contract. If the application is so made a part of the contract, the policy shall also provide that all statements made by the applicant in such application shall, in the absence of fraud, be deemed to be representations and not warranties.

§ 20-1305 Incontestability

There shall be a provision that the policy, exclusive of provisions relating to disability benefits or to additional benefits in the event of death by accident or accidental means, shall be incontestable, except for nonpayment of premiums, after it has been in force during the lifetime of the insured for a period of two years from its date of issue.

§ 20-1306 Misstatement of age

There shall be a provision that if it is found that the age of the individual insured, or the age of any other individual considered in determining the premium, has been misstated, any amount payable or benefit accruing under the policy shall be such as the premium would have purchased at the correct age or ages.

§ 20-1307 Dividends

If a participating policy, there shall be a provision that the insurer shall annually ascertain and apportion any divisible surplus accruing on the policy, except that at the option of the insurer such participation may be deferred to the end of the fifth policy year. This provision shall not prohibit the payment of additional dividends on default of payment of premiums or termination of the policy.

§ 20-1308 Nonforfeiture benefits

There shall be provisions for nonforfeiture benefits and cash surrender values as required by sections 20-1231 and 20-1231.01.

§ 20-1309 Reinstatement

There shall be a provision that unless the policy has been surrendered for its cash surrender value or unless the paid-up term insurance, if any, has expired, the policy will be reinstated at any time within two years from the date of premium default upon written application therefor, the production of evidence of insurability satisfactory to the insurer, the payment of all premiums in arrears, and the payment or reinstatement of any other indebtedness to the insurer upon the policy, all with interest at a rate not exceeding six per cent per annum compounded annually.

§ 20-1310 Settlement

There shall be a provision that when the policy becomes a claim by the death of the insured, settlement shall be made upon surrender of the policy and receipt of due proof of death.

§ 20-1311 Authority to alter contract

There shall be a provision that no insurance producer shall have the power or authority to waive, change or alter any of the terms or conditions of any policy, except that at the option of the insurer the terms or conditions may be changed by an endorsement signed by a duly authorized officer of the insurer.

§ 20-1312 Beneficiary; change of beneficiary; payment

A. Each policy shall have a space on the front or back page of the policy for the name of the beneficiary designated with a reservation of the right to designate or change the beneficiary after the issuance of the policy.

B. The policy may also provide that no designation or change of beneficiary shall be binding on the insurer unless endorsed on the policy by the insurer, and that the insurer may refuse to endorse the name of any proposed beneficiary who does not appear to the insurer to have an insurable interest in the life of the insured. Such a policy may also provide that if the beneficiary designated in the policy does not surrender the policy with due proof of death within the period stated in the policy, which shall be not less than thirty days after the death of the insured, or if the beneficiary is the estate of the insured or is a minor, or dies before the insured, or is not legally competent to give a valid release, then the insurer may make payment thereunder to the executor or administrator of the insured, or to any of the insured's relatives by blood or legal adoption or connection by marriage, or to any person appearing to the insurer to be equitably entitled thereto by reason of having been named beneficiary, or by reason of having incurred expense for the maintenance, medical attention or burial of the insured. The policy may also include a similar provision applicable to any other payment due under the policy.

§ 20-1313 Direct payment of premiums

In the case of weekly premium policies, there may be a provision that upon proper notice to the insurer, while premiums on the policy are not in default beyond the grace period, of the intention to pay future premiums directly to the insurer at its home office or any office designated by the insurer for the purpose, the insurer will, at the end of each period of a year from the due date of the first premium so paid, for which period such premiums are so paid continuously without default beyond the grace period, refund a stated percentage of the premiums in an amount which fairly represents the savings in collection expense.

§ 20-1314 Conversion of weekly premium policies

There shall be a provision in the case of weekly premium policies granting to the insured, upon proper written request and upon presentation of evidence of insurability satisfactory to the insurer, the privilege of converting a weekly premium industrial insurance policy to any form of life insurance with less frequent premium payments regularly issued by the insurer, in accordance with terms and conditions agreed upon with the insurer. The privilege of making the conversion need be granted only if the insurer's weekly premium industrial policies on the life insured, in force as premium paying insurance and on which conversion is requested, grant benefits in event of death, exclusive of additional accidental death benefits and exclusive of any dividend additions, in an amount not less than the minimum amount of such insurance with less frequent premium payments issued by the insurer at the age of the insured on the plan of industrial or ordinary insurance desired.

§ 20-1315 Conversion of monthly premium policies

There shall be a provision, in the case of monthly premium industrial policies, granting, upon proper written request and upon presentation of evidence of insurability satisfactory to the insurer, the privilege of converting a monthly premium industrial insurance policy to any form of ordinary life insurance regularly issued by the insurer, in accordance with terms and conditions agreed upon with the insurer. The privilege of making the conversion need be granted only if the insurer's monthly premium industrial policies on the life insured, in force as premium paying insurance and on which conversion is requested, grant benefits in event of death, exclusive of additional accidental death benefits and exclusive of any dividend additions, in an amount not less than the minimum amount of ordinary insurance issued by the insurer at the age of the insured on the plan of ordinary insurance desired.

§ 20-1316 Title of policy

There shall be a title on the face of each such policy briefly describing its form.

§ 20-1317 Provisions inapplicable to single premium or term policies

Any of the provisions required by sections 20-1303 to 20-1316, inclusive, or any portion thereof which are not applicable to single premium or term policies or to policies issued or granted pursuant to nonforfeiture provisions shall to that extent not be incorporated therein.

§ 20-1318 Prohibited provisions

No policy of industrial insurance shall contain any of the following provisions:

1. A provision by which the insurer may deny liability under the policy for the reason that the insured has previously obtained other insurance from the same insurer.

2. A provision giving the insurer the right to declare the policy void because the insured has had any disease or ailment, whether specified or not, or because the insured has received institutional, hospital, medical or surgical treatment or attention, except a provision which gives the insurer the right to declare the policy void if the insured has, within two years prior to the issuance of the policy, received institutional, hospital, medical or surgical treatment or attention and if the insured or claimant under the policy fails to show that the condition occasioning such treatment or attention was not of a serious nature or was not material to the risk.

3. A provision giving the insurer the right to declare the policy void because the insured has been rejected for insurance, unless such right is conditioned upon a showing by the insurer that knowledge of the rejection would have led to a refusal by the insured to make the contract.

Article 4 Disability Insurance

§ 20-1341 Scope of article

Nothing in this article shall apply to or affect:

1. Any policy of liability or workers' compensation insurance with or without supplementary expense coverage therein.

2. Any group or blanket policy.

3. Life insurance, endowment or annuity contracts, or contracts supplemental thereto which contain only such provisions relating to disability insurance as provide additional benefits in case of death or dismemberment or loss of sight by accident, or as operate to safeguard such contracts against lapse or to give a special surrender value or special benefit or an annuity in the event that the insured or annuitant develops a total and permanent disability, as defined by the contract or supplemental contract.

4. Reinsurance.

§ 20-1342 Scope and format of policy; definitions

A. A policy of disability insurance shall not be delivered or issued for delivery to any person in this state unless it otherwise complies with this title and complies with the following:

1. The entire money and other considerations shall be expressed in the policy.

2. The time when the insurance takes effect and terminates shall be expressed in the policy.

3. It shall purport to insure only one person, except that a policy may insure, originally or by subsequent amendment, on the application of the policyholder or the policyholder's spouse, any two or more eligible members of that family, including husband, wife, dependent children or any children under a specified age that does not exceed nineteen years and any other person dependent on the policyholder. Any policy, except accidental death and dismemberment, applied for that provides family coverage, as to such coverage of family members, shall 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 policy 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.

4. The style, arrangement and overall appearance of the policy shall give no undue prominence to any portion of the text, and every printed portion of the text of the policy and of any endorsements or attached papers shall be plainly printed in light-faced type of a style in general use, the size of which shall be uniform and not less than ten point with a lower case unspaced alphabet length of not less than one hundred and twenty point. "Text" shall include all printed matter except the name and address of the insurer, name or title of the policy, the brief description, if any, and captions and subcaptions.

5. The exceptions and reductions of indemnity shall be set forth in the policy and, other than those contained in sections 20-1345 through 20-1368, shall be printed and, at the insurer's option, either included with the benefit provision to which they apply or under an appropriate caption such as "exceptions", or "exceptions and reductions", except that if an exception or reduction specifically applies only to a particular benefit of the policy, a statement of such exception or reduction shall be included with the benefit provision to which it applies.

6. Each such form, including riders and endorsements, shall be identified by a form number in the lower left-hand corner of the first page.

7. The policy shall contain no provision purporting to make any portion of the charter, rules, constitution or bylaws of the insurer a part of the policy unless such portion is set forth in full in the policy, except in the case of the incorporation of, or reference to, a statement of rates or classification of risks, or short-rate table filed with the director.

8. Each contract shall be so written that the corporation shall pay benefits:

(a) For performance of any surgical service that is covered by the terms of such contract, regardless of the place of service.

(b) For 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.

(c) For any diagnostic service that a physician has performed outside a hospital in lieu of inpatient service, providing the inpatient service would have been covered.

(d) For any service performed in a hospital's outpatient department or in a freestanding surgical facility, providing such service would have been covered if performed as an inpatient service.

9. A disability insurance policy that provides coverage for the surgical expense of a mastectomy shall also provide coverage incidental to the patient's covered mastectomy for the expense of reconstructive surgery 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.

10. A contract, except a supplemental contract covering a specified disease or other limited benefits, that provides coverage for surgical services for a mastectomy shall also provide coverage for preventive mammography screening and diagnostic imaging 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, including:

(a) A mammogram.

(b) Digital breast tomosynthesis, magnetic resonance imaging, ultrasound or other modality and at such age and intervals as recommended by the national comprehensive cancer network. This includes patients at risk for breast cancer who have a family history with one or more first or second degree relatives with breast cancer, prior diagnosis of breast cancer, positive testing for hereditary gene mutations or heterogeneously or dense breast tissue based on the breast imaging reporting and data system of the American college of radiology.

11. 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 the following are true:

(a) The child is adopted within one year of birth.

(b) The insured is legally obligated to pay the costs of birth.

(c) All preexisting conditions and other limitations have been met by the insured.

(d) 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.

12. The coverage prescribed by paragraph 11 of this subsection 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. 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.

B. 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 insurer 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 insurer 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 C 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.

C. Subsection B of this section does not:

1. Require 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. Prevent an insurer 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 B of this section shall not be greater than the coinsurance or cost sharing for any preceding portion of that stay.

3. Prevent an insurer from negotiating the level and type of reimbursement with a provider for care provided in accordance with subsection B of this section.

D. 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.

E. Subsection D of this section does not:

1. Prohibit a disability insurer from imposing deductibles, coinsurance or other cost sharing in relation to benefits for equipment or supplies for the treatment of diabetes.

2. Require a policy to provide an insured with outpatient benefits if the policy does not cover outpatient benefits.

F. Any 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 G of this section or medical literature that meets the criteria prescribed in subsection G 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. 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. 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.

G. For the purposes of subsection F of this section:

1. The acceptable standard medical reference compendia are the following:

(a) The American hospital formulary service drug information, a publication of the American society of health system pharmacists.

(b) The national comprehensive cancer network drugs and biologics compendium.

(c) Thomson Micromedex compendium DrugDex.

(d) Elsevier gold standard's clinical pharmacology compendium.

(e) Other authoritative compendia as identified by the secretary of the United States department of health and human services.

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)).

H. Any contract that is offered by a disability insurer and that contains a routine outpatient prescription drug benefit shall provide coverage of medical foods to treat inherited metabolic disorders as provided by this section.

I. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15, that must be consumed throughout life and without which the person may suffer serious mental or physical impairment.

J. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15 as medically necessary for the therapeutic treatment of an inherited metabolic disease.

K. An insurer shall cover at least fifty percent of the cost of medical foods prescribed to treat inherited metabolic disorders and covered pursuant to this section. An insurer may limit the maximum annual benefit for medical foods under this section to $5,000, which applies to the cost of all prescribed modified low protein foods and metabolic formula.

L. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(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 A 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 who is under eighteen years of age.

§ 20-1342.01 Children with disabilities

An individual hospital or medical expense insurance policy delivered or issued for delivery in this state more than one hundred twenty days after August 27, 1977 that provides that coverage of a dependent child shall terminate on attainment of the limiting age for dependent children specified in the policy, shall also provide in substance that attainment of such limiting age shall not operate to terminate the coverage of that child while the child is and continues to be both incapable of self-sustaining employment by reason of intellectual disability or physical disability and chiefly dependent on the policyholder for support and maintenance. Proof of such incapacity and dependency shall be furnished to the insurer by the policyholder within thirty-one days of the child's attainment of the limiting age and subsequently as may be required by the insurer but not more frequently than annually after the two-year period following the child's attainment of the limiting age.

§ 20-1342.02 Disapproval of disability policy form

The director may disapprove any disability policy form if the benefits provided in the policy form are unreasonable in relation to the premium charged.

§ 20-1342.03 Disability insurance; clinical trials; cancer; definitions

A. A disability insurer 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 insured 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 insurer at the rates that are established by the insurer and that are not more than the level of reimbursement applicable to other similar services provided by health care providers with the insurer'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 insurer. 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 insurer from imposing deductibles, coinsurance or other cost sharing measures in relation to benefits provided pursuant to this section.

F. 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 insured or the insured'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.

§ 20-1342.04 Disability insurance policies; varying copayments and deductibles allowed

A. Except as provided in sections 20-1379 and 20-2304, a disability insurer may offer one or more disability insurance policies 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 disability insurer that offers such a disability insurance policy 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.

§ 20-1342.05 Eosinophilic gastrointestinal disorder; formula

A. Any policy of disability insurance that is offered by a disability insurer and that contains a prescription drug benefit shall cover amino acid-based formula that is ordered by a physician or by a registered nurse practitioner if:

1. The insured has been diagnosed with an eosinophilic gastrointestinal disorder.

2. The insured is under the continuous supervision of a physician who is licensed pursuant to title 32, chapter 13 or 17 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

3. There is risk of a mental or physical impairment without the use of the formula.

B. A disability insurer shall cover at least seventy-five per cent of the cost of the formula. The disability insurer may limit the maximum annual benefit for formula under this section to twenty thousand dollars.

C. This section does not apply to limited benefit coverage as defined in section 20-1137.

§ 20-1342.06 Contracts; dentists; covered services; definition

A. A contract, entered into or renewed on or after January 1, 2011, between a disability insurer and a dentist who is licensed to practice in this state shall not require the dentist to provide services to an individual covered under a disability insurance policy based on a fee set by the disability insurer unless the services for which the fee applies is a covered service under the individual's disability insurance policy.

B. This section does not restrict the ability of a disability insurer to establish dental benefits for services offered by plans that are administered but not insured by the disability insurer.

C. For the purposes of this section, "covered service" means a service for which any reimbursement is available under a disability insurance policy without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

§ 20-1342.07 Contracts; optometrists; covered services; definition

A. Except as provided in subsection C of this section, a contract, entered into or renewed on or after January 1, 2022, between a disability insurer and an optometrist who is licensed to practice in this state shall not:

1. Require the optometrist to provide a service to an individual covered under a disability insurance policy based on a fee set by the disability insurer unless the service for which the fee applies is a covered service under the individual's disability insurance policy.

2. Prohibit an optometrist from offering or providing a vision service that is not a covered service to a covered individual at a fee determined by the optometrist or by the optometrist and the covered individual.

3. Require an optometrist to use one or more specific vendors to replenish the optometrist's inventory of spectacle lenses after the optometrist dispenses the optometrist's inventory to eligible members of the vision plan as a covered vision service.

B. This section applies to an administrator providing third-party administration services or a provider network for a vision plan.

C. This section does not restrict the ability of a disability insurer to enter into a contract for an optometrist to participate in a discount program sponsored by the disability insurer for services that are not covered if:

1. Participation in the disability insurer network is not contingent on participation in the sponsored discount program.

2. The disability insurer offers equal treatment to an optometrist who does not participate in a sponsored discount program, regarding:

(a) Promotional treatment.

(b) Marketing benefits.

(c) Materials.

(d) Contract terms for providing a covered service.

D. Notwithstanding subsection C, paragraph 2, subdivision (d) of this section, a disability insurer, when providing a typically formatted list of optometrists in the disability insurer network, may identify whether an optometrist participates in a discount program for services not covered by the disability insurer, provided that all lists state that other discounts may be available with individual optometrists.

E. All contracts shall be in compliance with this section by the first renewal period on or after January 1, 2022, but not later than December 31, 2022.

F. For the purposes of this section, "covered service" means a service for which any reimbursement is available under a disability insurance policy without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

§ 20-1342.08 Organ harvesting; insurance coverage limitations

A. A disability insurance policy may limit coverage to an insured for a human organ transplant or posttransplant care if either of the following applies:

1. The transplant operation is performed in the People's Republic of China or the Hong Kong special administrative region.

2. The human organ to be transplanted was procured by a sale or donation originating in the People's Republic of China or the Hong Kong special administrative region.

B. This section does not:

1. Require coverage for human organ transplants.

2. Limit a disability insurer from denying coverage for any valid reason.

§ 20-1343 Policies issued for delivery in another state

If any policy is issued by a domestic insurer for delivery to a person residing in another state, and if the official having responsibility for the administration of the insurance laws of such other state has advised the director that any such policy is not subject to approval or disapproval by such official, the director may by ruling require that such policy meet applicable standards set forth in this article and in article 1 of chapter 5 of this title.

§ 20-1344 Policy provisions required; omissions; substitutions

A. Except as provided in subsection B of this section, each such policy delivered or issued for delivery to any person in this state shall contain the provisions specified in sections 20-1345 to 20-1356, inclusive, in the words in which such provisions appear, except that the insurer may, at its option, substitute for one or more of such provisions corresponding provisions of different wording approved by the director which are in each instance not less favorable in any respect to the insured or the beneficiary. Each such provision shall be preceded individually by the applicable caption shown, or, at the option of the insurer, by such appropriate individual or group captions or subcaptions as the director approves.

B. If any such provision is in whole or in part inapplicable to or inconsistent with the coverage provided by a particular form of policy, the insurer, with the approval of the director, shall omit from the policy any inapplicable provision or part of a provision, and shall modify any inconsistent provision or part of a provision in such manner as to make the provision as contained in the policy consistent with the coverage provided by the policy.

§ 20-1345 Policy and attachments as entire contract; changes in policy

There shall be a provision as follows: "Entire contract; changes: This policy, including the endorsements and the attached papers, if any, constitutes the entire contract of insurance. No change in this policy shall be valid until approved by an executive officer of the insurer and unless such approval be endorsed hereon or attached hereto. No agent has authority to change this policy or to waive any of its provisions."

§ 20-1346 Time limit on defenses

A. There shall be a provision as follows: "Time limit on certain defenses: (a) After two years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy shall be used to void the policy or to deny a claim for loss incurred or disability (as defined in the policy) commencing after the expiration of such two year period."

"(b) No claim for loss incurred or disability (as defined in the policy) commencing after two years from the date of issue of this policy shall be reduced or denied on the ground that a disease or physical condition not excluded from coverage by name or specific description effective on the date of loss had existed prior to the effective date of coverage of this policy."

B. The policy provision set forth in (a) of subsection A of this section shall not be so construed as to affect any legal requirement for avoidance of a policy or denial of a claim during such initial two year period, nor to limit the application of sections 20-1358, 20-1359, 20-1360, 20-1361 and 20-1362 in the event of misstatement with respect to age or occupation or other insurance.

C. A policy which the insured has the right to continue in force subject to its terms by the timely payment of premium until at least age fifty or, in the case of a policy issued after age forty-four, for at least five years from its date of issue, may contain in lieu of (a) of subsection A of this section the following provision, from which the clause in parentheses may be omitted at the insurer's option, under the caption "Incontestable:" "After this policy has been in force for a period of two years during the lifetime of the insured (excluding any period during which the insured is a person with a disability), it shall become incontestable as to the statements contained in the application."

§ 20-1347 Grace period

A. There shall be a provision as follows: "Grace period: A grace period of ______________ (insert a number not less than 'seven' for weekly premium policies, 'ten' for monthly premium policies and 'thirty-one' for all other policies) days will be granted for the payment of each premium falling due after the first premium, during which grace period the policy shall continue in force."

B. A policy which contains a cancellation provision may add, at the end of the provision set forth in subsection A of this section: "subject to the right of the insurer to cancel in accordance with the cancellation provision hereof."

C. A policy in which the insurer reserves the right to refuse any renewal shall have, at the beginning of the provision set forth in subsection A of this section: "Unless not less than five days prior to the premium due date the insurer has delivered to the insured or has mailed to his last address as shown by the records of the insurer written notice of its intention not to renew this policy beyond the period for which the premium has been accepted,".

§ 20-1348 Reinstatement

A. There shall be a provision as follows: "Reinstatement: If any renewal premium is not paid within the time granted the insured for payment, a subsequent acceptance of premium by the insurer or by any agent duly authorized by the insurer to accept such premium, without requiring in connection therewith an application for reinstatement, shall reinstate the policy, provided, however, that if the insurer or such agent requires an application for reinstatement and issues a conditional receipt for the premium tendered, the policy will be reinstated upon approval of such application by the insurer or, lacking such approval, upon the forty-fifth day following the date of such conditional receipt unless the insurer has previously notified the insured in writing of its disapproval of such application. The reinstated policy shall cover only loss resulting from such accidental injury as may be sustained after the date of reinstatement and loss due to such sickness as may begin more than ten days after such date. In all other respects the insured and insurer shall have the same rights thereunder as they had under the policy immediately before the due date of the defaulted premium, subject to any provisions endorsed hereon or attached hereto in connection with the reinstatement. Any premium accepted in connection with a reinstatement shall be applied to a period for which premium has not been previously paid, but not to any period more than sixty days prior to the date of reinstatement."

B. The last sentence of the provision set forth in subsection A of this section may be omitted from any policy which the insured has the right to continue in force subject to its terms by the timely payment of premiums until at least age fifty or, in the case of a policy issued after age forty-four for at least five years from its date of issue.

§ 20-1349 Notice of claim

A. There shall be a provision as follows: "Notice of claim: Written notice of claim must be given to the insurer within twenty days after the occurrence or commencement of any loss covered by the policy, or as soon thereafter as is reasonably possible. Notice given by or on behalf of the insured or the beneficiary to the insurer at ____________ (insert the location of such office as the insurer may designate for the purpose), or to any authorized agent of the insurer, with information sufficient to identify the insured, shall be deemed notice to the insurer."

B. In a policy providing a loss-of-time benefit which may be payable for at least two years, an insurer may at its option insert the following between the first and second sentences of the provision set forth in subsection A of this section: "Subject to the qualifications set forth below, if the insured suffers loss of time on account of disability for which indemnity may be payable for at least two years, he shall, at least once in every six months after having given notice of claim, give to the insurer notice of continuance of said disability, except in the event of legal incapacity. The period of six months following any filing of proof by the insured or any payment by the insurer on account of such claim or any denial of liability in whole or in part by the insurer shall be excluded in applying this provision. Delay in the giving of such notice shall not impair the insured's right to any indemnity which would otherwise have accrued during the period of six months preceding the date on which such notice is actually given."

§ 20-1350 Claim forms

There shall be a provision as follows: "Claim forms: The insurer, upon receipt of a notice of claim, will furnish to the claimant such forms as are usually furnished by it for filing proofs of loss. If such forms are not furnished within fifteen days after the giving of such notice the claimant shall be deemed to have complied with the requirements of this policy as to proof of loss upon submitting, within the time fixed in the policy for filing proofs of loss, written proof covering the occurrence, the character and the extent of the loss for which claim is made."

§ 20-1351 Proofs of loss

There shall be a provision as follows: "Proofs of loss: Written proof of loss must be furnished to the insurer at its said office in case of claim for loss for which this policy provides any periodic payment contingent upon continuing loss within ninety days after the termination of the period for which the insurer is liable and in case of claim for any other loss within ninety days after the date of such loss. Failure to furnish such proof within the time required shall not invalidate nor reduce any claim if it was not reasonably possible to give proof within such time, provided such proof is furnished as soon as reasonably possible and in no event, except in the absence of legal capacity, later than one year from the time proof is otherwise required."

§ 20-1352 Time for payment of claims

There shall be a provision as follows:

"Time of payment of claims: Indemnities payable under this policy for any loss other than loss for which this policy provides any periodic payment, will be paid immediately upon receipt of due written proof of such loss. Subject to due written proof of loss, all accrued indemnities for loss for which this policy provides periodic payment will be paid ___________ (insert period for payment which must not be less frequently than monthly) and any balance remaining unpaid upon the termination of liability will be paid immediately upon receipt of due written proof."

§ 20-1353 Payment of claims

A. There shall be a provision as follows:

"Payment of claims: Indemnity for loss of life will be payable in accordance with the beneficiary designation and the provisions respecting such payment which may be prescribed herein and effective at the time of payment. If no such designation or provision is then effective, such indemnity shall be payable to the estate of the insured. Any other accrued indemnities unpaid at the insured's death may, at the option of the insurer, be paid either to such beneficiary or to such estate. All other indemnities will be payable to the insured."

B. The following provisions, or either of them, may be included with the provision set forth in subsection A of this section at the option of the insurer: "If any indemnity of this policy shall be payable to the estate of the insured, or to an insured or beneficiary who is a minor or otherwise not competent to give a valid release, the insurer may pay such indemnity, up to an amount not exceeding $ ____________________ (insert an amount which shall not exceed one thousand dollars), to any relative by blood or connection by marriage of the insured or beneficiary who is deemed by the insurer to be equitably entitled thereto. Any payment made by the insurer in good faith pursuant to this provision shall fully discharge the insurer to the extent of such payment."

"Subject to any written direction of the insured in the application or otherwise all or a portion of any indemnities provided by this policy on account of hospital, nursing, medical, or surgical services may, at the insurer's option and unless the insured requests otherwise in writing not later than the time of filing proof of such loss, be paid directly to the hospital or person rendering such services, but it is not required that the service be rendered by a particular hospital or person."

§ 20-1354 Physical examination; autopsy

There shall be a provision as follows: "Physical examinations and autopsy: The insurer at its own expense shall have the right and opportunity to examine the person of the insured when and as often as it may reasonably require during the pendency of a claim hereunder and to make an autopsy in case of death where it is not forbidden by law."

§ 20-1355 Legal actions

There shall be a provision as follows: "Legal actions: No action at law or in equity shall be brought to recover on this policy prior to the expiration of sixty days after written proof of loss has been furnished in accordance with the requirements of this policy. No such action shall be brought after the expiration of two years after the time written proof of loss is required to be furnished."

§ 20-1356 Change of beneficiary

A. There shall be a provision as follows: "Change of beneficiary: Unless the insured makes an irrevocable designation of beneficiary, the right to change a beneficiary is reserved to the insured and the consent of the beneficiary or beneficiaries shall not be requisite to surrender or assignment of this policy or to any change of beneficiary or beneficiaries, or to any other changes in this policy."

B. The first clause of the provision set forth in subsection A of this section relating to the irrevocable designation of beneficiary may be omitted at the insurer's option.

§ 20-1357 Optional policy provisions

Except as provided in subsection B of section 20-1344, no such policy delivered or issued for delivery to any person in this state shall contain provisions respecting the matters set forth in sections 20-1358 to 20-1368, inclusive, unless the provisions are in the words in which such provisions appear in the applicable section, except that the insurer may, at its option, use in lieu of any such provision a corresponding provision of different wording approved by the director which is not less favorable in any respect to the insured or the beneficiary. Any such provision contained in the policy shall be preceded individually by the appropriate caption or, at the option of the insurer, by such appropriate individual or group captions or subcaptions as the director may approve.

§ 20-1358 Change of occupation

There may be a provision as follows: "Change of occupation: If the insured be injured or contract sickness after having changed his occupation to one classified by the insurer as more hazardous than that stated in this policy or while doing for compensation anything pertaining to an occupation so classified, the insurer will pay only such portion of the indemnities provided in this policy as the premium paid would have purchased at the rates and within the limits fixed by the insurer for such more hazardous occupation. If the insured changes his occupation to one classified by the insurer as less hazardous than that stated in this policy, the insurer, upon receipt of proof of such change of occupation, will reduce the premium rate accordingly, and will return the excess pro rata unearned premium from the date of change of occupation or from the policy anniversary date immediately preceding receipt of such proof, whichever is the more recent. In applying this provision, the classification of occupational risk and the premium rates shall be such as have been last filed by the insurer prior to the occurrence of the loss for which the insurer is liable or prior to date of proof of change in occupation with the state official having supervision of insurance in the state where the insured resided at the time this policy was issued; but if such filing was not required, then the classification of occupational risk and the premium rates shall be those last made effective by the insurer in such state prior to the occurrence of the loss or prior to the date of proof of change in occupation."

§ 20-1359 Misstatement of age

There may be a provision as follows: "Misstatement of age: If the age of the insured has been misstated, all amounts payable under this policy shall be such as the premium paid would have purchased at the correct age."

§ 20-1360 Other insurance in this insurer

A. There may be a provision as follows:

"Other insurance in this insurer: If an accident or sickness or accident and sickness policy or policies previously issued by the insurer to the insured be in force concurrently herewith, making the aggregate indemnity for _____________________ (insert type of coverage or coverages) in excess of $ _______________________ (insert maximum limit of indemnity or indemnities) the excess insurance shall be void and all premiums paid for such excess shall be returned to the insured or to his estate."

B. The following provision may be inserted in lieu of the provision set forth in subsection A of this section: "Insurance effective at any one time on the insured under a like policy or policies in this insurer is limited to the one such policy elected by the insured, his beneficiary or his estate, as the case may be, and the insurer will return all premiums paid for all other such policies."

§ 20-1361 Insurance with other insurers; provision of service or expense incurred basis

A. There may be a provision as follows:

"Insurance with other insurers: If there be other valid coverage, not with this insurer, providing benefits for the same loss on a provision of service basis or on an expense incurred basis and of which this insurer has not been given written notice prior to the occurrence or commencement of loss, the only liability under any expense incurred coverage of this policy shall be for such proportion of the loss as the amount which would otherwise have been payable hereunder plus the total of the like amounts under all such other valid coverages for the same loss of which this insurer had notice bears to the total like amounts under all valid coverages for such loss, and for the return of such portion of the premiums paid as shall exceed the pro rata portion for the amount so determined. For the purpose of applying this provision when other coverage is on a provision of service basis, the 'like amount' of such other coverage shall be taken as the amount which the services rendered would have cost in the absence of such coverage."

B. If the policy provision set forth in subsection A of this section is included in a policy which also contains the policy provision set out in section 20-1362 there shall be added to the caption of the provision the phrase "--expense incurred benefits." The insurer may, at its option, include in this provision a definition of "other valid coverage," approved as to form by the director which definition shall be limited in subject matter to coverage provided by organizations subject to regulation by insurance law or by insurance authorities of this or any other state of the United States or any province of Canada, and by hospital or medical service organizations, and to any other coverage the inclusion of which may be approved by the director. In the absence of such definition the term shall not include group insurance, automobile medical payments insurance, or coverage provided by hospital or medical service organizations or by union welfare plans or employer or employee benefit organizations. For the purpose of applying the policy provision with respect to any insured, any amount of benefit provided for the insured pursuant to any compulsory benefit statute, including any workers' compensation or employer's liability statute, whether provided by a governmental agency or otherwise shall in all cases be deemed to be "other valid coverage" of which the insurer has had notice. In applying the policy provision no third party liability coverage shall be included as "other valid coverage."

§ 20-1362 Insurance with other insurers

A. There may be a provision as follows:

"Insurance with other insurers: If there be other valid coverage, not with this insurer, providing benefits for the same loss on other than an expense incurred basis and of which this insurer has not been given written notice prior to the occurrence or commencement of loss, the only liability for such benefits under this policy shall be for such proportion of the indemnities otherwise provided hereunder for such loss as the like indemnities of which the insurer had notice (including the indemnities under this policy) bear to the total amount of all like indemnities for such loss, and for the return of such portion of the premium paid as shall exceed the pro rata portion for the indemnities thus determined."

B. If the provision is included in a policy which also contains the policy provision set out in section 20-1361 there shall be added to the caption of the provision set forth in subsection A of this section the phrase "--other benefits." The insurer may, at its option, include in this provision a definition of "other valid coverage," approved as to form by the director, which definition shall be limited in subject matter to coverage provided by organizations subject to regulation by insurance law or by insurance authorities of this or any other state of the United States or any province of Canada, and to any other coverage the inclusion of which may be approved by the director. In the absence of such definition the term shall not include group insurance, or benefits provided by union welfare plans or by employer or employee benefit organizations. For the purpose of applying the policy provision with respect to any insured, any amount of benefit provided for the insured pursuant to any compulsory benefit statute, including any workers' compensation or employer's liability statute, whether provided by a governmental agency or otherwise shall in all cases be deemed to be "other valid coverage" of which the insurer has had notice. In applying the policy provision no third party liability coverage shall be included as "other valid coverage."

§ 20-1363 Relation of earnings to insurance

A. There may be a provision as follows: "Relation of earnings to insurance: If the total monthly amount of loss of time benefits promised for the same loss under all valid loss of time coverage upon the insured, whether payable on a weekly or monthly basis, shall exceed the monthly earnings of the insured at the time disability commenced or his average monthly earnings for the period of two years immediately preceding a disability for which claim is made, whichever is the greater, the insurer will be liable only for such proportionate amount of such benefits under this policy as the amount of such monthly earnings or such average monthly earnings of the insured bears to the total amount of monthly benefits for the same loss under all such coverage upon the insured at the time such disability commences and for the return of such part of the premiums paid during such two years as shall exceed the pro rata amount of the premiums for the benefits actually paid hereunder; but this shall not operate to reduce the total monthly amount of benefits payable under all such coverage upon the insured below the sum of two hundred dollars or the sum of the monthly benefits specified in such coverages, whichever is the lesser, nor shall it operate to reduce benefits other than those payable for loss of time."

B. The policy provision set forth in subsection A of this section may be inserted only in a policy which the insured has the right to continue in force subject to its terms by the timely payment of premiums until at least age fifty or, in the case of a policy issued after age forty-four for at least five years from its date of issue. The insurer may, at its option, include in this provision a definition of "valid loss of time coverage," approved as to form by the director, which definition shall be limited in subject matter to coverage provided by governmental agencies or by organizations subject to regulation by insurance law or by insurance authorities of this or any other state of the United States or any province of Canada, or to any other coverage the inclusion of which may be approved by the director or any combination of such coverages. In the absence of such definition the term shall not include any coverage provided for the insured pursuant to any compulsory benefit statute, including any workers' compensation or employer's liability statute, or benefits provided by union welfare plans or by employer or employee benefit organizations.

§ 20-1364 Unpaid premium

There may be a provision as follows: "Unpaid premium: Upon the payment of a claim under this policy, any premium then due and unpaid or covered by any note or written order may be deducted therefrom."

§ 20-1365 Cancellation

There may be a provision as follows: "Cancellation: The insurer may cancel this policy at any time by written notice delivered to the insured, or mailed to his last address as shown by the records of the insurer, stating when, not less than thirty days thereafter, such cancellation shall be effective; and after the policy has been continued beyond its original term the insured may cancel this policy at any time by written notice delivered or mailed to the insurer, effective upon receipt or on such later date as may be specified in such notice. In the event of cancellation, the insurer will return promptly the unearned portion of any premium paid. If the insured cancels, the earned premium shall be computed by the use of the short-rate table last filed with the state official having supervision of insurance in the state where the insured resided when the policy was issued. If the insurer cancels, the earned premium shall be computed pro rata. Cancellation shall be without prejudice to any claim originating prior to the effective date of cancellation."

§ 20-1366 Conformity with statutes

There may be a provision as follows: "Conformity with statutes: Any provision of this policy which, on its effective date, is in conflict with the statutes of the state, District of Columbia or territory in which the insured resides on such date is hereby amended to conform to the minimum requirements of such statutes."

§ 20-1367 Illegal occupation

There may be a provision as follows: "Illegal occupation: The insurer shall not be liable for any loss to which a contributing cause was the insured's commission of or attempt to commit a felony or to which a contributing cause was the insured's being engaged in an illegal occupation."

§ 20-1368 Intoxicants and narcotics

There may be a provision as follows: "Intoxicants and narcotics: The insurer shall not be liable for any loss sustained or contracted in consequence of the insured's being intoxicated or under the influence of any narcotic unless administered on the advice of a physician."

§ 20-1369 Arrangement of provisions in policy

The provisions which are the subject of sections 20-1345 to 20-1368, inclusive, or any corresponding provisions which are used in lieu thereof in accordance with such sections, shall be printed in the consecutive order of the provisions in such sections or, at the option of the insurer, any such provision may appear as a unit in any part of the policy, with other provisions to which it may be logically related, provided that the resulting policy shall not be in whole or in part unintelligible, uncertain, ambiguous, abstruse or likely to mislead a person to whom the policy is offered, delivered or issued.

§ 20-1370 Third party ownership

The word "insured," as used in this article shall not be construed as preventing a person other than the insured with a proper insurable interest from making application for and owning a policy covering the insured or from being entitled under such a policy to any indemnities, benefits and rights provided therein.

§ 20-1371 Policy provision requirements of other jurisdictions

Any policy of a foreign or alien insurer, when delivered or issued for delivery to any person in this state, may contain any provision which is not less favorable to the insured or the beneficiary than the provisions of this article and which is prescribed or required by the law of the state or country under which the insurer is organized. Any policy of a domestic insurer may, when issued for delivery in any other state or country, contain any provision permitted or required by the laws of such other state or country.

§ 20-1372 Effect of policy containing nonconforming provisions

No policy provision which is not subject to this article shall cause a policy, or any portion thereof to be less favorable in any respect to the insured or the beneficiary than the provisions thereof which are subject to this article. A policy delivered or issued for delivery to any person in this state in violation of this article shall be held valid but shall be construed as provided in this article. When any provision in a policy subject to this article is in conflict with any provision of this article, the rights, duties and obligations of the insurer, the insured and the beneficiary shall be governed by the provisions of this article.

§ 20-1373 Age limit

If any policy contains a provision establishing, as an age limit or otherwise, a date after which the coverage provided by the policy will not be effective, and if such date falls within a period for which premium is accepted by the insurer or if the insurer accepts a premium after such date, the coverage provided by the policy will continue in force subject to any right of cancellation until the end of the period for which premium has been accepted. In the event the age of the insured has been misstated and if, according to the correct age of the insured, the coverage provided by the policy would not have become effective, or would have ceased prior to the acceptance of such premium or premiums, then the liability of the insurer shall be limited to the refund, upon request, of all premiums paid for the period not covered by the policy.

§ 20-1374 Effective date of provisions; moratorium

A policy, rider or endorsement which could have been lawfully used or delivered or issued for delivery to any person in this state immediately prior to January 1, 1955, may be used or delivered or issued for delivery to any such person until January 1, 1957, without being subject to the provisions of sections 20-1341 to 20-1372, inclusive.

§ 20-1375 Franchise disability insurance law

Disability insurance on a franchise plan is declared to be that form of disability insurance issued to five or more employees of any corporation, copartnership or individual employer or any governmental corporation, agency or department thereof, or to ten or more members, employees or employees of members of any trade or professional association or of a labor union or of any other association having had an active existence for at least two years where such association or union has a constitution or bylaws and is formed in good faith for purposes other than that of obtaining insurance, where such persons, with or without their dependents, are issued the same form of an individual policy varying only as to amounts and kinds of coverage applied for by such persons under an arrangement whereby the premiums on the policies may be paid to the insurer periodically by the employer, with or without payroll deductions, or by the association for its members, or by some designated person acting on behalf of the employer or association. The term "employees" as used herein may be deemed to include the officers, managers and employees of the employer and the individual proprietor or partners if the employer is an individual proprietor or partnership.

§ 20-1376 Prohibiting denial of certain contract benefits

A. Notwithstanding any provision of any disability insurance contract, 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, or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15, 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 any disability insurance contract 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 that falls within the scope of practice of the optometrist or physician and surgeon. Unless such disability insurance contract otherwise provides, there shall be no reimbursement for ophthalmic materials, lenses, spectacles, eyeglasses or appurtenances to these materials or items.

C. If any individual disability insurance contract 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.

§ 20-1376.01 Prohibiting denial of chiropractic contract benefits; direct reimbursement

If a disability insurance contract 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 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 or to the subscriber if the cost of the service has not been reimbursed to another provider or health care institution.

§ 20-1376.02 Prohibiting denial of psychologist contract benefits

If a disability insurance contract 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 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.

§ 20-1376.03 Prohibiting denial of contract benefits; nurses; reimbursement

If a disability insurance contract 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 contract benefits shall not be denied 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 or to the subscriber if another provider or health care institution was not reimbursed for the cost of the service.

§ 20-1376.04 Prohibiting denial of occupational or physical therapist contract benefits

If a disability insurance contract provides coverage for occupational or physical therapy services, and provides both an in-network and out-of-network benefit, an insurer 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. An insurer 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.

§ 20-1376.05 Telehealth; coverage of health care services; definition

A. All policies issued, delivered or renewed by a disability insurer in this state must provide coverage for health care services that are provided through telehealth if the health care service would be covered were it provided through an in-person encounter between the insured and a health care provider and provided to an insured receiving the service in this state. The following requirements apply to coverage of telehealth services:

1. Except as otherwise provided in this subsection, a disability insurer may not limit or deny the coverage of health care services provided through telehealth, including ancillary services, and may apply only the same limits or exclusions on a health care service provided through telehealth that are applicable to an in-person encounter for the same health care service, except for procedures or services for which the weight of evidence, based on practice guidelines, peer-reviewed clinical publications or research or recommendations by the telehealth advisory committee on telehealth best practices established by section 36-3607, determines not to be appropriate to be provided through telehealth.

2. Except as otherwise provided in this paragraph, a disability insurer shall reimburse health care providers at the same level of payment for equivalent services as identified by the healthcare common procedure coding system, whether provided through telehealth using an audio-visual format or in-person care. A disability insurer shall reimburse health care providers at the same level of payment for equivalent in-person behavioral health and substance use disorder services as identified by the healthcare common procedure coding system if provided through telehealth using an audio-only format. This paragraph does not apply to a telehealth encounter provided through a telehealth platform that is sponsored or provided by the disability insurer. A disability insurer may not require a health care provider to use a telehealth platform that is sponsored or provided by the disability insurer as a condition of network participation.

3. Before January 1, 2022, a disability insurer shall cover services provided through an audio-only telehealth encounter if that service is reimbursed by medicare or the Arizona health care cost containment system when provided through an audio-only telehealth encounter. Beginning January 1, 2022, a disability insurer shall cover services provided through an audio-only telehealth encounter if the telehealth advisory committee on telehealth best practices established by section 36-3607 recommends that the services may appropriately be provided through an audio-only telehealth encounter.

4. A health care provider shall bill for a telehealth encounter using the healthcare common procedure coding system and shall identify whether the telehealth encounter was provided in an audio-only or audio-video format. To submit a claim for an audio-only service, the health care provider must make telehealth services generally available to patients through the interactive use of audio, video or other electronic media.

5. At the time of the telehealth encounter, the health care provider shall access clinical information and records, if available, that are appropriate to evaluate the patient's condition. The health care provider shall inform the insured before the telehealth encounter if there is a charge for the encounter.

6. A disability insurer may establish reasonable requirements and parameters for telehealth services, including documentation, fraud prevention, identity verification and recordkeeping, but such requirements and parameters may not be more restrictive or less favorable to health care providers or insureds than are required for health care services delivered in person.

7. Covered telehealth services may be provided regardless of where the insured is located or the type of site.

8. Except in an emergency as prescribed in section 20-2803, the policy may limit the coverage to those health care providers who are members of the disability insurer's provider network.

B. Subsection A of this section does not:

1. Limit the ability of disability insurers to provide incentives to insureds that are designed to improve health outcomes, increase adherence to a course of treatment or reduce risk.

2. Prevent disability insurers from offering network contracts to health care providers that employ value-based purchasing or bundled payment methodologies if otherwise allowed by law or prevent health care providers from voluntarily agreeing to enter into such contracts with a disability insurer.

C. This section does not relieve a disability insurer from an obligation to provide adequate access to in-person health care services. Network adequacy standards required by federal or state law may not be met by a disability insurer through the use of contracted health care providers who provide only telehealth services and do not provide in-person health care services in this state or within fifty miles of the border of this state.

D. This section does not prevent a disability insurer from imposing deductibles or copayment or coinsurance requirements for a health care service provided through telehealth if the deductible, copayment or coinsurance does not exceed the deductible, copayment or coinsurance applicable to an in-person encounter for the same health care service. If the disability insurer waives a deductible or copayment or coinsurance requirement that impacts a health care provider's contracted reimbursement rate, the disability insurer shall reimburse the health care provider for the cost of the deductible or copayment or coinsurance requirement to ensure that the health care provider receives the contracted reimbursement rate if the service is covered and the claim meets other requirements of the network participation agreement.

E. Services provided through telehealth or resulting from a telehealth encounter are subject to all of this state's laws and rules that govern prescribing, dispensing and administering prescription pharmaceuticals and devices and shall comply with Arizona licensure requirements and any practice guidelines of the telehealth advisory committee on telehealth best practices established by section 36-3607 or, if not addressed, the practice guidelines of a national association of medical professionals promoting access to medical care for consumers via telecommunications technology or other qualified medical professional societies to ensure quality of care.

F. This section does not apply to limited benefit coverage as defined in section 20-1137.

G. For the purposes of this section, "telehealth":

1. Means the interactive use of audio, video or other electronic media, including asynchronous store-and-forward technologies and remote patient monitoring technologies, for the purpose of diagnosis, consultation or treatment.

2. Includes:

(a) The use of an audio-only telephone encounter between an insured who has an existing relationship with a health care provider or provider group if both of the following apply:

(i) An audio-visual telehealth encounter is not reasonably available due to the insured's functional status, the insured's lack of technology or telecommunications infrastructure limits, as determined by the health care provider.

(ii) The telehealth encounter is initiated at the request of the insured or authorized by the insured before the telehealth encounter.

(b) The use of an audio-only encounter between the insured and a health care provider, regardless of whether there is an existing relationship with the health care provider or provider group, if the telehealth encounter is for a behavioral health or substance use disorder service and both items of subdivision (a) of this paragraph apply.

3. Does not include the sole use of a fax machine, instant messages, voice mail or email.

§ 20-1376.06 Cancer treatment medications; cost sharing; definition

A. A disability insurance policy that is issued, delivered or renewed by a disability insurer on or after January 1, 2016 and that provides coverage both for cancer treatment medications that are injected or intravenously administered by a health care provider and for patient-administered cancer treatment medications, including medications that are orally administered or self-injected, may not require a higher copayment, deductible or coinsurance amount for patient-administered cancer treatment medications than is required for those cancer treatment medications that are injected or intravenously administered by a health care provider, regardless of the formulation or benefit category.

B. A disability insurer may not increase copayment, deductible or coinsurance amounts for covered cancer treatment medications that are injected or intravenously administered in order to avoid compliance with subsection A of this section, but may increase copayment, deductible or coinsurance amounts for cancer treatment medications if the increase is applied generally to other medical or pharmaceutical benefits under the policy and is not done to circumvent subsection A of this section.

C. A disability insurer may not reclassify benefits with respect to cancer treatment medications in a manner that is inconsistent with this section.

D. For the purposes of this section, "cancer treatment medications" means prescription drugs and biologics that are used to kill, slow or prevent the growth of cancerous cells.

§ 20-1376.07 Prescriptions; cost sharing; refills; dispensing fees; definition

A. A disability insurance policy that is issued or renewed on or after January 1, 2017 and that provides coverage for prescription drugs:

1. May not deny coverage and shall prorate the cost sharing rate for a prescription drug covered by the policy that is dispensed by a network pharmacy for less than the standard refill amount if the insured requests enrollment into a medication synchronization program and less than the standard refill amount for the purpose of synchronizing the insured's medications.

2. Shall accept early refill and short fill requests for prescription drugs using the submission clarification and message codes as adopted by the national council for prescription drug plans or alternative codes provided by the plan upon July 3, 2015.

B. For the purposes of this section, "medication synchronization" means the coordination of medication refills for a patient taking two or more medications for a chronic condition that are being dispensed by a single contracted pharmacy to facilitate the synchronization of the patient's medications for the purpose of improving medication adherence.

§ 20-1376.08 Prescription eyedrops; refills

A. Beginning January 1, 2018, any policy that is issued, delivered or renewed by a disability insurer and that provides coverage for prescription eyedrops to treat glaucoma or ocular hypertension may not deny coverage for a refill of a prescription for eyedrops to treat glaucoma or ocular hypertension if all of the following apply:

1. The insured requests the refill:

(a) For a thirty-day supply, at least twenty-three days and less than thirty days from the later of:

(i) The original date that the prescription was distributed to the insured.

(ii) The date of the most recent refill that was distributed to the insured.

(b) For a sixty-day supply, at least forty-five days and less than sixty days from the later of:

(i) The original date that the prescription was distributed to the insured.

(ii) The date of the most recent refill that was distributed to the insured.

(c) For a ninety-day supply, at least sixty-eight days and less than ninety days from the later of:

(i) The original date that the prescription was distributed to the insured.

(ii) The date of the most recent refill that was distributed to the insured.

2. The prescription eyedrops to treat glaucoma or ocular hypertension prescribed by the health care provider are a covered benefit under the insured's policy.

3. The prescribing health care provider indicates on the original prescription that additional quantities of the prescription eyedrops to treat glaucoma or ocular hypertension are needed.

4. The refill requested by the insured does not exceed the number of additional quantities prescribed.

B. To the extent practicable, the requirements of this section are limited in quantity to the remaining dosage initially approved for coverage, except that any limited refilling may not limit or restrict coverage to any previously or subsequently approved prescription eyedrops to treat glaucoma or ocular hypertension and is subject to the terms and conditions of the policy that are applicable to this coverage.

§ 20-1376.09 Coverage of health care services

All policies issued, delivered or renewed on or after July 1, 2017 by a disability insurer in this state must provide coverage for lawful health care services that are provided by a health care provider to an insured regardless of the familial relationship of the health care provider to the insured if the health care service would be covered were it provided to an insured who was not related to the health care provider. The policy may limit the coverage to those health care providers who are members of the disability insurer's provider network. This section does not apply to disability income.

§ 20-1376.10 Biomarker testing; coverage; definitions

A. A disability insurer that issues, amends, delivers or renews a policy on or after January 1, 2023 shall provide coverage for biomarker testing.

B. A policy shall cover biomarker testing for the purposes of diagnosis, treatment, appropriate management or ongoing monitoring of an insured's disease or condition to guide treatment decisions when the test provides clinical utility as demonstrated by medical and scientific evidence, including any of the following:

1. Labeled indications for tests that are approved or cleared by the United States food and drug administration or indicated tests for a drug that is approved by the United States food and drug administration.

2. Centers for medicare and medicaid services national coverage determinations or medicare administrative contractor local coverage determinations.

3. Nationally recognized clinical practice guidelines and consensus statements.

C. A disability insurer must ensure that coverage is provided in a manner that limits disruptions in care, including the need for multiple biopsies or biospecimen samples.

D. The insured and prescribing practitioner must have access to a clear, readily accessible and convenient process to request an exception to a coverage policy of a disability insurer. The process shall be readily accessible on the disability insurer's website. This subsection does not require a separate process if the disability insurer's existing process complies with this subsection.

E. A policy that is issued or renewed by a disability insurer does not include a policy that provides limited benefit coverage as defined in section 20-1137.

F. For the purposes of this section:

1. "Biomarker":

(a) Means a characteristic that is objectively measured and evaluated as an indicator of normal biological processes, pathogenic processes or pharmacologic responses to a specific therapeutic intervention.

(b) Includes gene mutations or protein expression.

2. "Biomarker testing":

(a) Means the analysis of a patient's tissue, blood or other biospecimen for the presence of a biomarker.

(b) Includes single-analyte tests, multiplex panel tests and whole genome sequencing.

3. "Clinical utility" means the test result provides information that is used in the formulation of a treatment or monitoring strategy that informs a patient’s outcome and impacts the clinical decision. The most appropriate test may include both information that is actionable and some information that cannot be immediately used in the formulation of a clinical decision.

4. "Consensus statements" means statements that are all of the following:

(a) Developed by an independent, multidisciplinary panel of experts using a transparent methodology and reporting structure that includes a conflict of interest policy.

(b) Based on the best available evidence for the purpose of optimizing clinical care outcomes.

(c) Aimed at specific clinical circumstances.

5. "Nationally recognized clinical practice guidelines" means evidence-based clinical practice guidelines that both:

(a) Are developed by independent organizations or medical professional societies using a transparent methodology and reporting structure and a conflict of interest policy.

(b) Establish standards of care that are informed by a systematic review of evidence and an assessment of the benefits and costs of alternative care options that includes recommendations intended to optimize patient care.

§ 20-1377 Continuation of coverage under individual policies; requirements; exceptions; renewability

A. A policy of disability insurance delivered or issued for delivery in this state shall provide for the right of covered family members to continue coverage on the death of the named insured, the entry of a decree of dissolution of marriage of the named insured and any other conditions, other than failure of the insured to pay the required premium, specifically stated in the policy under which coverage would otherwise terminate as to the covered spouse or covered dependent children of the named insured.

B. At the option of the insurer, coverage shall either continue under the existing policy or by the issuance of a converted policy with the person exercising the right to convert designated as the named insured. Coverage provided by a conversion policy must provide benefits most similar to the coverage contained in the policy that was terminated. A person entitled to continuation or conversion rights under this section may elect a lesser form of coverage.

C. Continuation or conversion of coverage may, at the option of the spouse exercising the right, include covered dependent children for whom the spouse has responsibility for care or support.

D. The person exercising the continuation or conversion rights shall notify the insurer and make payment of the appropriate premium within thirty-one days following the termination of the existing policy. A monthly premium rate shall be offered to the person exercising continuation or conversion rights, and payment of one monthly premium shall be deemed sufficient consideration to enact the continuation or conversion policy.

E. Coverage provided through continuation or conversion shall be without additional evidence of insurability and shall not impose any preexisting condition limitations, exclusions or other contractual time limitations other than those remaining unexpired under the policy or contract from which continuation or conversion is exercised.

F. Conversion is not available to a person who is eligible for medicare or eligible for or covered by other similar disability benefits which together with the conversion coverage would constitute overinsurance.

G. This section does not apply to disability income policies, to accidental death or dismemberment policies or to single term nonrenewable policies.

H. Each policy of disability insurance shall include notice of the continuation and conversion privilege.

I. Except as provided in subsection J of this section, any policy, including a conversion or continuation policy, that is issued under this section shall not be cancelled or nonrenewed except for the following reasons:

1. The individual has failed to pay premiums or contributions in accordance with the terms of the coverage or the insurer 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 coverage.

3. The insurer has ceased to offer coverage to individuals that is consistent with the requirements of sections 20-1379 and 20-1380.

4. If the insurer offers health care coverage 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 insurer is authorized to transact business but only if the coverage is terminated uniformly without regard to any health status-related factor of any covered individual.

5. If the insurer offers health care 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.

J. An insurer who offers only one form of an individual medical expense policy may modify the conversion policy if the modification complies with the notice and disclosure requirements set forth in the policy and applies uniformly to the policy offered to the general public and to the conversion policy.

K. At the time of filing a petition for dissolution of marriage, the clerk of the court shall provide to the petitioner for a dissolution of marriage two copies of the notice of the right of a dependent spouse to convert health insurance coverage under this section. The petitioner shall cause one copy of the notice to be served on the respondent together with a copy of the petition, summons and preliminary injunction. The director shall prepare the notice which must include a summary of this section. The clerk of the court or the director is not liable for damages arising from information contained in or omitted from the notices prepared or provided under this section.

L. 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 had coverage under an individual disability insurance policy at such time 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 insurer 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 application by the insurer.

2. The insurer may exclude from such coverage any health or physical condition arising during and occurring as a direct result of active military duty.

M. Each dependent of a person eligible for reinstatement under this section shall be afforded the same rights and be subject to the same conditions as the insured, if the dependent was insured under the individual disability insurance policy at the time the eligible person entered active duty. Any dependent of such person born during the period of active military duty shall have the same rights as other dependents noted in this section.

N. 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 L 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 coverage.

§ 20-1378 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, an insurer issuing disability insurance contracts 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 its plans for eligible policyholders.

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 insurer shall make payments to the state program pursuant to title XIX of the social security act according to the coverage provided in the disability insurance policy.

C. An insurer issuing disability insurance contracts 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. An insurer issuing disability insurance contracts 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.

§ 20-1379 Guaranteed availability of individual health insurance coverage; prior group coverage; definitions

A. Every health care insurer that offers individual health insurance coverage in the individual market in this state shall provide guaranteed availability of coverage to an eligible individual who desires to enroll in individual health insurance coverage and shall not:

1. Decline to offer that coverage to, or deny enrollment of, that individual.

2. Impose any preexisting condition exclusion for that coverage.

B. Every health care insurer that offers individual health insurance coverage in the individual market in this state shall offer all policy forms of health insurance coverage that are designed for, that are made generally available and actively marketed to and that enroll both eligible or other individuals. A health care insurer that offers only one policy form in the individual market complies with this section by offering that form to eligible individuals. A health care insurer also may comply with the requirements of this section by electing to offer at least two different policy forms to eligible individuals as provided by subsection C of this section.

C. A health care insurer shall meet the requirements prescribed in subsection B of this section if:

1. The health care insurer offers at least two different policy forms, both of which are designed for, are made generally available and actively marketed to and enroll both eligible and other individuals.

2. The offer includes at least either:

(a) The policy forms with the largest and next to the largest earned premium volume of all policy forms offered by the health care insurer in this state in the individual market during a period not to exceed the preceding two calendar years.

(b) A choice of two policy forms with representative coverage, consisting of a lower level of coverage policy form and a higher level of coverage policy form, each of which includes benefits that are substantially similar to other individual health insurance coverage offered by the health care insurer in this state and each of which is covered by a method that provides for risk adjustment, risk spreading or a risk spreading mechanism among the health care insurer's policies.

D. The health care insurer's election pursuant to subsection C of this section is effective for policies offered during a period of at least two years.

E. If a health care insurer offers individual health insurance coverage in the individual market through a network plan, the health care insurer may do both of the following:

1. Limit the individuals who may be enrolled under health insurance coverage to those who live, reside or work within the service area for a network plan.

2. Within the service area of a network plan, deny health insurance coverage to individuals if the health care insurer has demonstrated, if required, to the director that both:

(a) The health care insurer will not have the capacity to deliver services adequately to additional individual enrollees because of the health care insurer's obligations to existing group contract holders and enrollees and individual enrollees.

(b) The health care insurer is applying this paragraph uniformly to individuals without regard to any health status-related factor of the individuals and without regard to whether the individuals are eligible individuals.

F. A health care insurer may deny individual health insurance coverage in the individual market to an eligible individual if the health care insurer demonstrates to the director that the health care insurer:

1. Does not have the financial reserves necessary to underwrite additional coverage.

2. Is denying coverage uniformly to all individuals in the individual market in this state pursuant to state law and without regard to any health status-related factor of the individuals and without regard to whether the individuals are eligible individuals.

G. If a health care insurer denies health insurance coverage in this state pursuant to subsection F of this section, the health care insurer shall not offer that coverage in the individual market in this state for one hundred eighty days after the date the coverage is denied or until the health care insurer demonstrates to the director that the health care insurer has sufficient financial reserves to underwrite additional coverage, whichever is later.

H. An accountable health plan as defined in section 20-2301 that offers conversion policies on an individual or group basis in connection with a health benefits plan pursuant to this title is not a health care insurer that offers individual health insurance coverage solely because of the offer of a conversion policy.

I. This section does not:

1. Create additional restrictions on the amount of the premium rates that a health care insurer may charge an individual for health insurance coverage provided in the individual market.

2. Prevent a health care insurer that offers health insurance coverage in the individual market from establishing premium rates or modifying otherwise applicable copayments or deductibles in return for adherence to programs of health promotion and disease prevention.

3. Require a health care insurer that offers only short-term limited duration insurance or limited benefit coverage to individuals and no other coverage to individuals in the individual market to offer individual health insurance coverage in the individual market.

4. Require a health care insurer offering health care coverage only on a group basis or through one or more bona fide associations, or both, to offer health insurance coverage in the individual market.

J. A health care insurer shall provide, without charge, a written certificate of creditable coverage as described in this section for creditable coverage occurring after June 30, 1996 if the individual:

1. Ceases to be covered under a policy offered by a health care insurer. An individual who is covered by a policy that is issued on a group basis by a health care insurer, that is terminated or not renewed at the choice of the sponsor of the group and where the replacement of the coverage is without a break in coverage is not entitled to receive the certification prescribed in this paragraph but is instead entitled to receive the certification prescribed in paragraph 2 of this subsection.

2. Requests certification from the health care insurer within twenty-four months after the coverage under a health insurance coverage policy offered by a health care insurer ceases.

K. The certificate of creditable coverage provided by a health care insurer is a written certification of the period of creditable coverage of the individual under the health insurance coverage offered by the health care insurer. The department may enforce and monitor the issuance and delivery of the notices and certificates by health care insurers as required by this section, section 20-1380, the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936) and any federal regulations adopted to implement the health insurance portability and accountability act of 1996. Notwithstanding any other law, an insurer is not required to provide a certificate of creditable coverage if the federal laws that require providing a certificate of creditable coverage are superseded by the prohibition on preexisting condition exclusions.

L. Any health care insurer, accountable health plan or other entity that issues health care coverage in this state, as applicable, shall issue and accept a certificate of creditable coverage of the individual that contains at least the following information:

1. The date that the certificate is issued.

2. The name of the individual or dependent for whom the certificate applies and any other information that is necessary to allow the issuer providing the coverage specified in the certificate to identify the individual, including the individual's identification number under the policy and the name of the policyholder if the certificate is for or includes a dependent.

3. The name, address and telephone number of the issuer providing the certificate.

4. The telephone number to call for further information regarding the certificate.

5. One of the following:

(a) A statement that the individual has at least eighteen months of creditable coverage. For the purposes of this subdivision, "eighteen months" means five hundred forty-six days.

(b) Both the date that the individual first sought coverage, as evidenced by a substantially complete application, and the date that creditable coverage began.

6. The date creditable coverage ended, unless the certificate indicates that creditable coverage is continuing from the date of the certificate.

7. The consumer assistance telephone number for the department.

8. The following statement in at least fourteen-point type:

Important Notice!

Keep this certificate with your important personal records to protect your rights under the health insurance portability and accountability act of 1996 ("HIPAA"). This certificate is proof of your prior health insurance coverage. You may need to show this certificate to have a guaranteed right to buy new health insurance ("Guaranteed issue"). This certificate may also help you avoid waiting periods or exclusions for preexisting conditions. Under HIPAA, these rights are guaranteed only for a very short time period. After your group coverage ends, you must apply for new coverage within 63 days to be protected by HIPAA. If you have questions, call the Arizona department of insurance and financial institutions.

M. A health care insurer has satisfied the certification requirement under this section if the insurer offering the health benefits plan provides the certificate of creditable coverage in accordance with this section within thirty days after the event that triggered the issuance of the certificate.

N. Periods of creditable coverage for an individual are established by the presentation of the certificate described in this section and section 20-2310. In addition to the written certificate of creditable coverage as described in this section, individuals may establish creditable coverage through the presentation of documents or other means. In order to make a determination that is based on the relevant facts and circumstances of the amount of creditable coverage that an individual has, a health care insurer shall take into account all information that the insurer obtains or that is presented to the insurer on behalf of the individual.

O. A health care insurer shall calculate creditable coverage according to the following rules:

1. The health care insurer shall allow an individual credit for each day the individual was covered by creditable coverage.

2. The health care insurer shall not count a period of creditable coverage for an individual enrolled under any form of health insurance coverage if after the period of coverage and before the enrollment date there were sixty-three consecutive days during which the individual was not covered by any creditable coverage.

3. The health care insurer shall not include any period that an individual is in a waiting period or an affiliation period for any health coverage or is awaiting action by a health care insurer on an application for the issuance of health insurance coverage when the health care insurer determines the continuous period pursuant to paragraph 1 of this subsection.

4. The health care insurer shall not include any period that an individual is waiting for approval of an application for health care coverage, provided the individual submitted an application to the health care insurer for health care coverage within sixty-three consecutive days after the individual's most recent creditable coverage.

5. The health care insurer shall not count a period of creditable coverage with respect to enrollment of an individual if, after the most recent period of creditable coverage and before the enrollment date, sixty-three consecutive days lapse during all of which the individual was not covered under any creditable coverage. The health care insurer shall not include in the determination of the period of continuous coverage described in this section any period that an individual is in a waiting period for health insurance coverage offered by a health care insurer, is in a waiting period for benefits under a health benefits plan offered by an accountable health plan or is in an affiliation period.

6. In determining the extent to which an individual has satisfied any portion of any applicable preexisting condition period the health care insurer shall count a period of creditable coverage without regard to the specific benefits covered during that period.

P. An individual is an eligible individual if, on the date the individual seeks coverage pursuant to this section, the individual has an aggregate period of creditable coverage as defined and calculated pursuant to this section of at least eighteen months and all of the following apply:

1. The most recent creditable coverage for the individual was under a plan offered by:

(a) An employee welfare benefit plan that provides medical care to employees or the employees' dependents directly or through insurance, reimbursement or otherwise pursuant to the employee retirement income security act of 1974 (P.L. 93-406; 88 Stat. 829; 29 United States Code sections 1001 through 1461).

(b) A church plan as defined in the employee retirement income security act of 1974.

(c) A governmental plan as defined in the employee retirement income security act of 1974, including a plan established or maintained for its employees by the government of the United States or by any agency or instrumentality of the United States.

(d) An accountable health plan as defined in section 20-2301.

2. The individual is not eligible for coverage under:

(a) An employee welfare benefit plan that provides medical care to employees or the employees' dependents directly or through insurance, reimbursement or otherwise pursuant to the employee retirement income security act of 1974.

(b) A health benefits plan issued by an accountable health plan as defined in section 20-2301.

(c) Part A or part B of title XVIII of the social security act.

(d) Title 36, chapter 29 or any other plan established under title XIX of the social security act, and the individual does not have other health insurance coverage.

3. The most recent coverage within the coverage period was not terminated based on any factor described in section 20-2309, subsection B, paragraph 1 or 2 relating to nonpayment of premiums or fraud.

4. The individual was offered and elected the option of continuation coverage under a COBRA continuation provision pursuant to the consolidated omnibus budget reconciliation act of 1985 (P.L. 99-272; 100 Stat. 82) or a similar state program.

5. The individual exhausted the continuation coverage pursuant to the consolidated omnibus budget reconciliation act of 1985.

Q. Notwithstanding subsection P of this section, an individual is an eligible individual if:

1. The individual is an individual enrollee in a health care services organization that is domiciled in this state on the date that the health care services organization is declared insolvent, including any health care services organization that is not an accountable health plan as defined in section 20-2301.

2. The individual's coverage terminates during the delinquency proceeding, after the health care services organization is declared insolvent.

3. The individual satisfies the requirements of an eligible individual as prescribed in this section other than the required period of creditable coverage.

R. Notwithstanding subsection P of this section, a newborn child, adopted child or child placed for adoption is an eligible individual if the child was timely enrolled and otherwise would have met the definition of an eligible individual as prescribed in this section other than the required period of creditable coverage and the child is not subject to any preexisting condition exclusion or limitation if the child has been continuously covered under health insurance coverage or a health benefits plan offered by an accountable health plan since birth, adoption or placement for adoption.

S. If a health care insurer imposes a waiting period for coverage of preexisting conditions, within a reasonable period of time after receiving an individual's proof of creditable coverage and not later than the date by which the individual must select an insurance plan, the health care insurer shall give the individual written disclosure of the insurer's determination regarding any preexisting condition exclusion period that applies to that individual. The disclosure shall include all of the following information:

1. The period of creditable coverage allowed toward the waiting period for coverage of preexisting conditions.

2. The basis for the insurer's determination and the source and substance of any information on which the insurer has relied.

3. A statement of any right the individual may have to present additional evidence of creditable coverage and to appeal the insurer's determination, including an explanation of any procedures for submission and appeal.

T. This section and section 20-1380 apply to all health insurance coverage that is offered, sold, issued, renewed, in effect or operated in the individual market after June 30, 1997, regardless of when a period of creditable coverage occurs.

U. For the purposes of this section and section 20-1380 as applicable:

1. "Affiliation period" has the same meaning prescribed in section 20-2301.

2. "Bona fide association" means, for health care coverage issued by a health care insurer, an association that meets the requirements of section 20-2324.

3. "Creditable coverage" means coverage solely for an individual, other than limited benefits coverage, under any of the following:

(a) An employee welfare benefit plan that provides medical care to employees or the employees' dependents directly or through insurance, reimbursement or otherwise pursuant to the employee retirement income security act of 1974.

(b) A church plan as defined in the employee retirement income security act of 1974.

(c) A health benefits plan issued by an accountable health plan as defined in section 20-2301.

(d) Part A or part B of title XVIII of the social security act.

(e) Title XIX of the social security act, other than coverage consisting solely of benefits under section 1928.

(f) Title 10, chapter 55 of the United States Code.

(g) A medical care program of the Indian health service or of a tribal organization.

(h) A health benefits risk pool operated by any state of the United States.

(i) A health plan offered pursuant to title 5, chapter 89 of the United States Code.

(j) A public health plan as defined by federal law.

(k) A health benefit plan pursuant to section 5(e) of the peace corps act (P.L. 87-293; 75 Stat. 612; 22 United States Code sections 2501 through 2523).

(l) A policy or contract, including short-term limited duration insurance, issued on an individual basis by an insurer, a health care services organization, a hospital service corporation, a medical service corporation or a hospital, medical, dental and optometric service corporation.

(m) A policy or contract issued by a health care insurer or an accountable health plan to a member of a bona fide association.

4. "Delinquency proceeding" has the same meaning prescribed in section 20-611.

5. "Different policy forms" means variations between policy forms offered by a health care insurer, including policy forms that have different cost sharing arrangements or different riders.

6. "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 analyses of genes or chromosomes.

7. "Health care insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital, medical, dental and optometric service corporation.

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. "Higher level of coverage" means a policy form for which the actuarial value of the benefits under the health insurance coverage offered by a health care insurer is at least fifteen percent more than the actuarial value of the health insurance coverage offered by the health care insurer as a lower level of coverage in this state but not more than one hundred twenty percent of a policy form weighted average.

10. "Individual health insurance coverage" means health insurance coverage offered by a health care insurer to individuals in the individual market but does not include limited benefit coverage or short-term limited duration insurance. A health care insurer that offers limited benefit coverage or short-term limited duration insurance to individuals and no other coverage to individuals in the individual market is not a health care insurer that offers health insurance coverage in the individual market.

11. "Limited benefit coverage" has the same meaning prescribed in section 20-1137.

12. "Lower level of coverage" means a policy form offered by a health care insurer for which the actuarial value of the benefits under the health insurance coverage is at least eighty-five percent but not more than one hundred percent of the policy form weighted average.

13. "Network plan" means a health care plan provided by a health care insurer under which the financing and delivery of health care services are provided, in whole or in part, through a defined set of providers either under contract with a health care insurer licensed pursuant to chapter 4, article 3 of this title or under contract with a health care insurer in accordance with the determination made by the director pursuant to section 20-1053 regarding the geographic or service area in which a health care insurer may operate.

14. "Policy form weighted average" means the average actuarial value of the benefits provided by a health care insurer that issues health coverage in this state that is provided by either the health care insurer or, if the data are available, by all health care insurers that issue health coverage in this state in the individual health coverage market during the previous calendar year, except coverage pursuant to this section, weighted by the enrollment for all coverage forms.

15. "Preexisting condition" means a condition, regardless of the cause of the condition, for which medical advice, diagnosis, care or treatment was recommended or received within not more than six months before the date of the enrollment of the individual under the health insurance policy or other contract that provides health coverage benefits. A genetic condition is not a preexisting condition in the absence of a diagnosis of the condition related to the genetic information and shall not result in a preexisting condition limitation or preexisting condition exclusion.

16. "Preexisting condition limitation" or "preexisting condition exclusion" means a limitation or exclusion of benefits for a preexisting condition under a health insurance policy or other contract that provides health coverage benefits.

17. "Short-term limited duration insurance" has the same meaning prescribed in section 20-1384 and is not intended or marketed as health insurance coverage subject to guaranteed issuance or guaranteed renewal provisions of the laws of this state but is creditable coverage within the meaning of this section and section 20-2301.

§ 20-1380 Guaranteed renewability of individual health coverage

A. Except as provided in this section, on request of the insured individual, a health care insurer that provides individual health coverage to the individual shall renew or continue that coverage.

B. A health care insurer may nonrenew or discontinue the health insurance coverage of an individual in the individual market only for one or more of the following reasons:

1. The individual has failed to pay premiums or contributions pursuant to the terms of the health insurance coverage or the health care insurer has not received premium payments in a timely manner.

2. The individual has performed an act or practice that constitutes fraud or has made an intentional misrepresentation of material fact under the terms of the coverage.

3. The health care insurer has ceased to offer new coverage and has discontinued all in-force coverage in the individual market pursuant to subsection D of this section.

4. If the health care insurer offers health care coverage through a network plan in this state, the individual no longer resides, lives or works in the service area or in an area served by the network plan for which the health care insurer is authorized to do business but only if the coverage is terminated uniformly without regard to any health status-related factor of any covered individual.

5. If the health care insurer offers health coverage in the individual market only through one or more bona fide associations, the membership of an 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.

C. If a health care insurer decides to discontinue offering a particular policy form offered in the individual market, the health care insurer may discontinue that policy form only if:

1. The health care insurer provides notice to the director at least five business days before the health care insurer gives notice to each individual covered under that policy form of the intention to discontinue offering that policy form in this state.

2. The health care insurer provides notice to each individual who is covered by that policy form in the individual market at least ninety days before the date of the discontinuation of that policy form.

3. The health care insurer offers to each individual in the individual market whose coverage is discontinued pursuant to this subsection the option to purchase all other individual health insurance coverage currently offered by the health care insurer for individuals in that market.

4. In exercising the option to discontinue that type of coverage and in offering the option of coverage prescribed in paragraph 3 of this subsection, the health care insurer acts uniformly without regard to any health status-related factor of enrolled individuals or individuals who may become eligible for that coverage.

D. If a health care insurer elects to discontinue offering all health insurance coverage in the individual market in this state, the health care insurer may discontinue that coverage only if all of the following occur:

1. The health care insurer gives notice to the director at least five business days before the health care insurer gives notice to each individual of the intention to discontinue offering health insurance coverage in the individual market in this state.

2. The health care insurer provides notice to each individual of that discontinuation at least one hundred eighty days before the date of the expiration of that coverage.

3. The health care insurer discontinues all individual insurance or coverage that was issued or delivered for issuance in this state and does not renew any coverage that was offered or sold in this state.

E. If the health care insurer discontinues offering health insurance coverage pursuant to subsection D of this section, the health care insurer shall not issue any health insurance coverage in this state in the individual market for five years after the date that the last individual health insurance coverage was not renewed.

F. Subsection C of this section does not apply if the health care insurer modifies the health coverage at the time of renewal and that modification is otherwise consistent with this title and effective on a uniform basis among all individuals covered by that policy form.

G. A health care insurer shall provide the certification described in section 20-2310, subsection G if the individual:

1. Ceases to be covered under a policy offered by a health care insurer or otherwise becomes covered under a COBRA continuation provision.

2. Who was covered under a COBRA continuation provision ceases to be covered under the COBRA continuation provision.

3. Requests certification from the health care insurer within twenty-four months after the coverage under a policy offered by a health care insurer ceases.

H. The director may use independent contractor examiners pursuant to sections 20-148 and 20-159 to review the higher level of coverage and lower level of coverage policy forms offered by a health care insurer in compliance with this section and section 20-1379. All examination and examination related expenses shall be borne by the insurer and shall be paid by the insurance examiners' revolving fund pursuant to section 20-159.

§ 20-1381 Suspension of health care insurer obligation to issue coverage on a guaranteed issuance basis to eligible individuals

A. A health care insurer may apply to the director to suspend its obligation to issue coverage to eligible individuals pursuant to section 20-1379 for a specified period if all of the following conditions are met:

1. The health care insurer can demonstrate to the director that its financial or administrative capacity to serve eligible individuals would impair the ability of the health care insurer to serve previously enrolled individuals in the individual market.

2. The health care insurer requests that its obligation to issue coverage to eligible individuals pursuant to section 20-1379 be suspended for a specified period, of not more than one year, and provides a rationale for suspending its obligation to issue coverage to eligible individuals for that period of time.

3. The health care insurer provides sufficient information for the director to determine that the health care insurer has met the requirements of this subsection.

B. A health care insurer that refuses to enroll an eligible individual shall not enroll any eligible individuals until the earlier of:

1. The date on which the director determines that the health care insurer has the capacity to enroll eligible individuals.

2. The date on which the health care insurer enrolls an eligible individual. The health care insurer shall notify the director within ten days after that enrollment.

C. The director shall approve or disapprove an application submitted by a health care insurer within sixty days after the filing. The director may extend the period for good cause for up to an additional sixty days. The director may suspend a health care insurer's obligation to issue coverage to eligible individuals for a period of less time than requested in the application.

D. In calculating the period of creditable coverage to determine if a person is an eligible individual, if the person was an eligible individual when the person submitted an application for coverage to a health care insurer and the health care insurer has received an order pursuant to this section, the person continues to be an eligible individual until the later of the expiration of the original sixty-three day period or an additional thirty days after the individual receives a written notice from the health care insurer pursuant to an order of the director that the health care insurer will not issue coverage to the individual pursuant to section 20-1379.

§ 20-1382 Health care insurers; reporting requirements

A. On or before March 1 of each year, each health care insurer shall submit to the director a written report that contains the following information:

1. The number of eligible individuals covered by policies that were written by that health care insurer in the individual market during the previous calendar year.

2. The number of individuals covered by policies that were issued other than to eligible individuals during the previous calendar year.

3. The earned premium for each category of individual policy for the previous calendar year.

4. The total number of eligible individuals covered by policies that were issued by the health care insurer as of the end of the previous calendar year.

B. Each health care insurer shall submit the following information to the department, if applicable, to demonstrate compliance with sections 20-1379, 20-1380 and 20-1381:

1. The health care insurer's name and address.

2. The identification, form number and summary of all products that the health care insurer offers in the individual market.

3. If the health care insurer elects the option prescribed in section 20-1379, subsection C, paragraph 2, subdivision (a) the data on premium volumes of all policy forms that the health care insurer offers in the individual market and the number of individuals who are covered under each form during the preceding calendar year.

4. If the health care insurer elects the option prescribed in section 20-1379, subsection C, paragraph 2, subdivision (b) the data, assumptions and methods used to calculate the actuarial values of the two representative policy forms.

5. An explanation of how the health care insurer is complying with sections 20-1379, 20-1380 and 20-1381.

6. A list of all products, including all marketing material, that the health care insurer is making or will make available to eligible individuals and an explanation of how the health care insurer will inform individuals of these policy forms.

7. A description of the risk spreading and financial subsidization mechanism.

C. The health care insurer shall submit the information described in subsection B of this section to the department by March 1 of each year.

D. If all or part of the information required by subsection B, paragraph 5, 6 or 7 of this section has not changed since the health care insurer's last previous submission, instead of refiling the information the health care insurer may indicate the information that has not changed.

E. Notwithstanding any other law, an insurer is not required to comply with the reporting requirements of this section if the federal laws that require providing a certificate of creditable coverage are superseded by the prohibition on preexisting condition exclusions.

§ 20-1383 Individual health insurance policies; mandatory coverage exemption; definitions

A. A disability insurer may issue a policy to an uninsured individual that is not subject to the requirements of any of the following:

1. Section 20-461, subsection A, paragraph 17 and subsection B.

2. Section 20-1342, subsection A, paragraphs 11 and 12.

3. Section 20-1342, subsections H, I, J and K.

4. Section 20-1376, subsections A and C.

5. Sections 20-1342.01, 20-1376.01, 20-1376.02, 20-1376.03 and 20-1376.04.

B. For the purposes of this section:

1. "Health insurance coverage":

(a) Means a health care plan or arrangement that pays for or furnishes medical or health services and that is issued by a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or medical, hospital, dental and optometric service corporation or a similar entity in another state.

(b) Includes a self-insured or self-funded employee benefit plan or multiemployer employee benefit plan created pursuant to 29 United States Code section 186(c) if the regulation of that plan is preempted by section 514(b) of the employee retirement insurance security act of 1974 (29 United States Code section 1144(b)).

(c) Does not include limited benefit coverage as defined in section 20-1137.

2. "Uninsured individual" means a person who has either:

(a) Not had health insurance coverage for the ninety days immediately before the effective date of coverage issued pursuant to this section, except that this requirement does not apply at the renewal of coverage pursuant to this section.

(b) Lost health insurance coverage in one of the following ways within ninety days immediately before the effective date of coverage issued pursuant to this section:

(i) The individual left a job that provided health insurance coverage.

(ii) The individual's employer discontinued offering health insurance coverage.

(iii) The individual exhausted continuation coverage under a COBRA continuation provision as defined in section 20-2301.

(iv) The individual's family health insurance coverage was discontinued due to the death of a spouse or a divorce.

(v) The individual attained the maximum age for dependent coverage under a health insurance policy.

(vi) The individual's participation in a public health care program was discontinued.

§ 20-1384 Short-term limited duration insurance; notice; definitions

A. All policies or certificates issued, delivered or renewed in this state for short-term limited duration insurance shall display on the policy's fact page and in any application materials provided in connection with enrollment in such coverage the following federal disclosure in at least fourteen-point type:

Notice

This coverage is not required to comply with certain federal market requirements for health insurance, principally those contained in the affordable care act. Be sure to check your policy carefully to make sure you are aware of any exclusions or limitations regarding coverage of preexisting conditions or health benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs and mental health and substance use disorder services). Your policy might also have lifetime or annual dollar limits on health benefits, or both. If this coverage expires or you lose eligibility for this coverage, you might have to wait until an open enrollment period to get other health insurance coverage.

B. A health care insurer shall provide notice to the insured before expiration that the policy needs to be renewed or is expiring.

C. For the purposes of this section:

1. "Health care insurer" has the same meaning prescribed in section 20-1379.

2. "Short-term limited duration insurance" means health insurance coverage that is offered by a health care insurer, that is not subject to state health coverage mandates in this title, that has an expiration date specified in the contract that is less than twelve months after the original effective date of the contract and, taking into account renewals or extensions, that has a duration of not longer than thirty-six months.

Article 5 Group and Blanket Disability Insurance

§ 20-1401 Eligible groups

A. Group disability insurance is that form of disability insurance covering groups of persons as defined below, with or without one or more members of their families or one or more of their dependents, or covering one or more members of the families or one or more dependents of persons in such groups, and issued on the following basis:

1. Under a policy issued to an employer or trustees of a fund established by an employer, who shall be deemed the policyholder, insuring at least two employees of the employer, for the benefit of persons other than the employer. For the purposes of this paragraph, "employees" includes:

(a) The officers, managers and employees of the employer, the individual proprietor or partners if the employer is an individual proprietor or partnership, the officers, managers and employees of subsidiary or affiliated corporations and the individual proprietors, partners and employees of individuals and firms, if the business of the employer and such individual or firm is under common control through stock ownership, contract or otherwise.

(b) Retired employees.

(c) If a policy issued to insure employees of a public body so provides, elected or appointed officials.

2. Under a policy issued to an association, including a labor union, which shall have a constitution and bylaws and which has been organized and is maintained in good faith for purposes other than that of obtaining insurance, insuring at least twenty-five members, employees or employees of members of the association for the benefit of persons other than the association or its officers or trustees. For the purposes of this paragraph, "employees" includes retired employees.

3. Under a policy issued to the trustees of a fund established by two or more employers in the same industry or by one or more labor unions or by one or more employers and one or more labor unions, which trustees shall be deemed the policyholder, to insure employees of the employers or members of the unions for the benefit of persons other than the employers or the unions. For the purposes of this paragraph, "employees" includes:

(a) The officers, managers and employees of the employer and the individual proprietor or partners if the employer is an individual proprietor or partnership.

(b) Retired employees.

(c) If the policy so provides, the trustees or their employees, or both, if their duties are principally connected with such trusteeship.

4. Under a policy issued to any persons or organizations to which a policy of group life insurance may be delivered in this state, to insure any class or classes of individuals that could be insured under such group life policy.

5. Under a policy or contract issued to a qualified marketplace platform, which shall be deemed the policyholder, covering qualified marketplace contractors who have executed a written contract with the qualified marketplace platform. For the purposes of this paragraph, "qualified marketplace contractor" and "qualified marketplace platform" have the same meanings prescribed in section 20-485.

6. Under a policy issued to cover any other substantially similar group that, in the discretion of the director, may be subject to the issuance of a group disability policy or contract.

B. This article does not validate any charge or practice illegal under any rule of law or regulation governing usury, consumer lender loans, retail installment sales or the like, or extend the application of any such rule of law or regulation to any transaction not otherwise subject to it.

§ 20-1401.01 Group disability insurers; notice; copies

A. No person or insurer may deliver or issue for delivery to an employer in this state a certificate of insurance or other evidence of coverage of a group disability policy issued outside this state unless the certificate or other evidence of coverage contains the following notice, prominently displayed: "Notice: This certificate of insurance may not provide all benefits and protections provided by law in Arizona. Please read this certificate carefully."

B. At least thirty days before offering coverage under a group disability policy issued outside this state to an employer in this state, any person or insurer offering this coverage shall make available to the director copies of the policies and certificates of insurance or other evidences of coverage issued under such policies.

C. The director may adopt rules prescribing disclosure standards for advertising, solicitation and similar representations. Such standards shall apply to all representations made prior to sale or at the point of sale.

§ 20-1402 Provisions of group disability policies; definitions

A. Each group disability policy shall contain in substance the following provisions:

1. A provision that, in the absence of fraud, all statements made by the policyholder or by any insured person shall be deemed representations and not warranties, and that no statement made for the purpose of effecting insurance shall avoid such insurance or reduce benefits unless contained in a written instrument signed by the policyholder or the insured person, a copy of which has been furnished to the policyholder or to the person or beneficiary.

2. A provision that the insurer will furnish to the policyholder, for delivery to each employee or member of the insured group, an individual certificate setting forth in summary form a statement of the essential features of the insurance coverage of the employee or member and to whom benefits are payable. If dependents or family members are included in the coverage additional certificates need not be issued for delivery to the dependents or family members. Any policy, except accidental death and dismemberment, applied for that provides family coverage, as to such coverage of family members, shall 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 the 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 policy 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 such thirty-one day period.

3. A provision that to the group originally insured may be added from time to time eligible new employees or members or dependents, as the case may be, in accordance with the terms of the policy.

4. Each contract shall be so written that the corporation shall pay benefits:

(a) For performance of any surgical service that is covered by the terms of such contract, regardless of the place of service.

(b) For 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.

(c) For any diagnostic service that a physician has performed outside a hospital in lieu of inpatient service, providing the inpatient service would have been covered.

(d) For any service performed in a hospital's outpatient department or in a freestanding surgical facility, providing such service would have been covered if performed as an inpatient service.

5. A group disability insurance policy that provides coverage for the surgical expense of a mastectomy shall also provide coverage incidental to the patient's covered mastectomy for the expense of reconstructive surgery 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.

6. A contract, except a supplemental contract covering a specified disease or other limited benefits, that provides coverage for surgical services for a mastectomy shall also provide coverage for preventive mammography screening and diagnostic imaging 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, including:

(a) A mammogram.

(b) Digital breast tomosynthesis, magnetic resonance imaging, ultrasound or other modality and at such age and intervals as recommended by the national comprehensive cancer network. This includes patients at risk for breast cancer who have a family history with one or more first or second degree relatives with breast cancer, prior diagnosis of breast cancer, positive testing for hereditary gene mutations or heterogeneously or dense breast tissue based on the breast imaging reporting and data system of the American college of radiology.

7. 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 the following are true:

(a) The child is adopted within one year of birth.

(b) The insured is legally obligated to pay the costs of birth.

(c) All preexisting conditions and other limitations have been met by the insured.

(d) 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.

8. The coverage prescribed by paragraph 7 of this subsection 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. 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.

B. Any policy 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 policy shall not require the provider to obtain authorization from the insurer for prescribing the minimum length of stay required by this subsection. The policy 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 insurer 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 policy 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 policy 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 policy in a manner that is inconsistent with this subsection.

5. Except as described in subsection C 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.

C. Subsection B of this section does not:

1. Require 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. Prevent an insurer 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 policy, except that any coinsurance or other cost sharing for any portion of a period within a hospital length of stay required pursuant to subsection B of this section shall not be greater than the coinsurance or cost sharing for any preceding portion of that stay.

3. Prevent an insurer from negotiating the level and type of reimbursement with a provider for care provided in accordance with subsection B of this section.

D. 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.

E. Subsection D of this section does not prohibit a group disability insurer from imposing deductibles, coinsurance or other cost sharing in relation to benefits for equipment or supplies for the treatment of diabetes.

F. Any 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 G of this section or medical literature that meets the criteria prescribed in subsection G 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. 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. 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.

G. For the purposes of subsection F of this section:

1. The acceptable standard medical reference compendia are the following:

(a) The American hospital formulary service drug information, a publication of the American society of health system pharmacists.

(b) The national comprehensive cancer network drugs and biologics compendium.

(c) Thomson Micromedex compendium DrugDex.

(d) Elsevier gold standard's clinical pharmacology compendium.

(e) Other authoritative compendia as identified by the secretary of the United States department of health and human services.

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)).

H. Any contract that is offered by a group disability insurer and that contains a prescription drug benefit shall provide coverage of medical foods to treat inherited metabolic disorders as provided by this section.

I. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15, that must be consumed throughout life and without which the person may suffer serious mental or physical impairment.

J. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15 as medically necessary for the therapeutic treatment of an inherited metabolic disease.

K. An insurer shall cover at least fifty percent of the cost of medical foods prescribed to treat inherited metabolic disorders and covered pursuant to this section. An insurer may limit the maximum annual benefit for medical foods under this section to $5,000, which applies to the cost of all prescribed modified low protein foods and metabolic formula.

L. Any group disability policy that provides coverage for:

1. Prescription drugs shall also 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 group disability insurer 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. The group disability insurer may 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 shall also 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 approved United States food and drug administration prescription contraceptive methods to prevent unintended pregnancies.

M. Notwithstanding subsection L of this section, a religiously affiliated employer may require that the insurer provide a group disability policy without coverage for specific items or services required under subsection L of this section because providing or paying for coverage of the specific items or services is contrary to the religious beliefs of the religiously affiliated employer offering the plan. If a religiously affiliated employer objects to providing coverage for specific items or services required under subsection L of this section, a written affidavit shall be filed with the insurer stating the objection. On receipt of the affidavit, the insurer shall issue to the religiously affiliated employer a group disability policy that excludes coverage for specific items or services required under subsection L of this section. The insurer shall retain the affidavit for the duration of the group disability policy and any renewals of the policy. This subsection shall not exclude coverage for prescription contraceptive methods ordered by a health care provider with prescriptive authority for medical indications other than for contraceptive, abortifacient, abortion or sterilization purposes. A religiously affiliated employer offering the policy may state religious beliefs in its affidavit and may require the insured to first pay for the prescription and then submit a claim to the insurer along with evidence that the prescription is not for a purpose covered by the objection. An insurer may charge an administrative fee for handling these claims.

N. Subsection M of this section does not authorize a religiously affiliated employer to obtain an employee's protected health information or to violate the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936) or any federal regulations adopted pursuant to that act.

O. Subsection M of this section shall not be construed to restrict or limit any protections against employment discrimination that are prescribed in federal or state law.

P. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(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 A 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 who is under eighteen years of age.

3. Subsections M and N of this section, "religiously affiliated employer" means either:

(a) An entity for which all of the following apply:

(i) The entity primarily employs persons who share the religious tenets of the entity.

(ii) The entity serves primarily persons who share the religious tenets of the entity.

(iii) The entity is a nonprofit organization as described in section 6033(a)(3)(A)(i) or (iii) of the internal revenue code of 1986, as amended.

(b) An entity whose articles of incorporation clearly state that it is a religiously motivated organization and whose religious beliefs are central to the organization's operating principles.

§ 20-1402.01 Group disability insurance; clinical trials; cancer; definitions

A. A group disability insurer 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 insured 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 insurer at the rates that are established by the insurer and that are not more than the level of reimbursement applicable to other similar services provided by health care providers with the insurer'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 insurer. 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 insurer from imposing deductibles, coinsurance or other cost sharing measures in relation to benefits provided pursuant to this section.

F. 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 insured or the insured'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.

§ 20-1402.02 Eosinophilic gastrointestinal disorder; formula

A. Any group disability policy that is offered by a group disability insurer and that contains a prescription drug benefit shall cover amino acid-based formula that is ordered by a physician or a registered nurse practitioner if:

1. The insured has been diagnosed with an eosinophilic gastrointestinal disorder.

2. The insured is under the continuous supervision of a physician who is licensed pursuant to title 32, chapter 13 or 17 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

3. There is risk of a mental or physical impairment without the use of the formula.

B. A group disability insurer shall cover at least seventy-five per cent of the cost of the formula. The group disability insurer may limit the maximum annual benefit for formula under this section to twenty thousand dollars.

C. This section does not apply to limited benefit coverage as defined in section 20-1137.

§ 20-1402.03 Group disability insurers; autism spectrum disorder; coverage; exceptions; definitions

A. A group disability insurer shall not:

1. Exclude or deny coverage for a treatment or impose dollar limits, deductibles and coinsurance provisions based solely on the diagnosis of autism spectrum disorder. For the purposes of this paragraph, "treatment" includes diagnosis, assessment and services.

2. Exclude or deny coverage for medically necessary behavioral therapy services. To be eligible for coverage, behavioral therapy services shall be provided or supervised by a licensed or certified provider.

B. This section does not:

1. Apply to a policy that is issued to an individual or a small employer.

2. Apply to long term care insurance, life insurance, annuities and limited benefit coverage as defined in section 20-1137.

3. Require coverage for services provided outside of this state.

C. The coverage required by this section is subject to all the terms and conditions of the group disability contract. This section does not prevent a group disability insurer from imposing deductibles, coinsurance or other cost sharing in relation to the coverage required by this section.

D. For the purposes of this section:

1. "Autism spectrum disorder" means a pervasive, developmental disorder that meets the criteria for autism spectrum disorder as defined in the most recent edition of the diagnostic and statistical manual of mental disorders of the American psychiatric association.

2. "Behavioral therapy" means interactive therapies derived from evidence based research, including applied behavior analysis, which includes discrete trial training, pivotal response training, intensive intervention programs and early intensive behavioral intervention.

3. "Small employer" has the same meaning prescribed in section 20-2301.

§ 20-1402.04 Contracts; dentists; covered services; definition

A. A contract, entered into or renewed on or after January 1, 2011, between a group disability insurer and a dentist who is licensed to practice in this state shall not require the dentist to provide services to an individual covered under a group disability policy based on a fee set by the group disability insurer unless the services for which the fee applies is a covered service under the individual's group disability policy.

B. This section does not restrict the ability of a group disability insurer to establish dental benefits for services offered by plans that are administered but not insured by the group disability insurer.

C. For the purposes of this section, "covered service" means a service for which any reimbursement is available under a group disability policy without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

§ 20-1402.05 Contracts; optometrists; covered services; definition

A. Except as provided in subsection C of this section, a contract, entered into or renewed on or after January 1, 2022, between a group disability insurer and an optometrist who is licensed to practice in this state shall not:

1. Require the optometrist to provide a service to an individual covered under a group disability insurance policy based on a fee set by the group disability insurer unless the service for which the fee applies is a covered service under the individual's group disability insurance policy.

2. Prohibit an optometrist from offering or providing a vision service that is not a covered service to a covered individual at a fee determined by the optometrist or by the optometrist and the covered individual.

3. Require an optometrist to use one or more specific vendors to replenish the optometrist's inventory of spectacle lenses after the optometrist dispenses the optometrist's inventory to eligible members of the vision plan as a covered vision service.

B. This section applies to an administrator providing third-party administration services or a provider network for a vision plan.

C. This section does not prohibit the ability of a group disability insurer to enter into a contract for an optometrist to participate in a discount program sponsored by the group disability insurer for services that are not covered if:

1. Participation in the group disability insurer network is not contingent on participation in the sponsored discount program.

2. The group disability insurer offers equal treatment to an optometrist who does not participate in a group disability insurer sponsored discount program, regarding:

(a) Promotional treatment.

(b) Marketing benefits.

(c) Materials.

(d) Contract terms for providing a covered service.

D. Notwithstanding subsection C, paragraph 2, subdivision (d) of this section, a group disability insurer, when providing a typically formatted list of optometrists in the group disability insurer network, may identify whether an optometrist participates in a discount program for services not covered by the group disability insurer provided that all lists state that other discounts may be available with individual optometrists.

E. All contracts shall be in compliance with this section by the first renewal period on or after January 1, 2022, but not later than December 31, 2022.

F. For the purposes of this section, "covered service" means a service for which any reimbursement is available under a group disability insurance policy without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

§ 20-1403 Direct payment of hospital and medical services

Any group disability policy may provide that all or any portion of any indemnities provided by any such policy on account of hospital, nursing, medical or surgical services may, at the insurer's option, be paid directly to the hospital or person rendering such services, but the policy may not require that the service be rendered by a particular hospital or person. Payments so made shall discharge the insurer's obligation with respect to the amount of insurance so paid.

§ 20-1404 Blanket disability insurance; definitions

A. Blanket disability insurance is that form of disability insurance covering special groups of persons as enumerated in one of the following paragraphs:

1. Under a policy or contract issued to any common carrier or to any operator, owner or lessee of a means of transportation, which shall be deemed the policyholder, covering a group defined as all persons who may become passengers on such common carrier or means of transportation.

2. Under a policy or contract issued to an employer, who shall be deemed the policyholder, covering all employees or any group of employees defined by reference to hazards incident to an activity or activities or operations of the policyholder. Dependents of the employees and guests of the employer or employees may also be included where exposed to the same hazards.

3. Under a policy or contract issued to a college, school or other institution of learning or to the head or principal thereof, who or which shall be deemed the policyholder, covering students, teachers, employees or volunteers.

4. Under a policy or contract issued in the name of any volunteer fire department or any first aid, civil defense or other such volunteer group, or agency having jurisdiction thereof, which shall be deemed the policyholder, covering all or any group of the members, participants or volunteers of the fire department or first aid, civil defense or other group.

5. Under a policy or contract issued to a creditor, who shall be deemed the policyholder, to insure debtors of the creditor.

6. Under a policy or contract issued to a sports team or to a camp or sponsor thereof, which team or camp or sponsor thereof shall be deemed the policyholder, covering members, campers, employees, officials, supervisors or volunteers.

7. Under a policy or contract issued to an incorporated or unincorporated religious, charitable, recreational, educational or civic organization, or branch thereof, which organization shall be deemed the policyholder, covering any group of members, participants or volunteers defined by reference to hazards incident to an activity or activities or operations sponsored or supervised by or on the premises of the policyholder.

8. Under a policy or contract issued to a newspaper or other publisher, which shall be deemed the policyholder, covering its carriers.

9. Under a policy or contract issued to a restaurant, hotel, motel, resort, innkeeper or other group with a high degree of potential customer liability, which shall be deemed the policyholder, covering patrons or guests.

10. Under a policy or contract issued to a health care provider or other arranger of health services, which shall be deemed the policyholder, covering patients, donors or surrogates provided that the coverage is not made a condition of receiving care.

11. Under a policy or contract issued to a bank, financial vendor or other financial institution, or to a parent holding company or to the trustee, trustees or agent designated by one or more banks, financial vendors or other financial institutions, which shall be deemed the policyholder, covering account holders, debtors, guarantors or purchasers.

12. Under a policy or contract issued to an incorporated or unincorporated association of persons having a common interest or calling, which association shall be deemed the policyholder, formed for purposes other than obtaining insurance, covering members of such association.

13. Under a policy or contract issued to a travel agency or other organization that provides travel-related services, which agency or organization shall be deemed the policyholder, to cover all persons for whom travel-related services are provided.

14. Under a policy or contract issued to a qualified marketplace platform, which is deemed the policyholder, covering qualified marketplace contractors that have executed a written contract with the qualified marketplace platform. For the purposes of this paragraph, "qualified marketplace contractor" and "qualified marketplace platform" have the same meanings prescribed in section 20-485.

15. Under a policy or contract that is issued to any other substantially similar group and that, in the discretion of the director, may be subject to the issuance of a blanket disability policy or contract. The director may exercise discretion on an individual risk basis or class of risks, or both.

B. An individual application need not be required from a person covered under a blanket disability policy or contract, nor shall it be necessary for the insurer to furnish each person with a certificate.

C. All benefits under any blanket disability policy shall be payable to the person insured, or to the insured's designated beneficiary or beneficiaries, or to the insured's estate, except that if the person insured is a minor, such benefits may be made payable to the insured's parent or guardian or any other person actually supporting the insured, and except that the policy may provide that all or any portion of any indemnities provided by any such policy on account of hospital, nursing, medical or surgical services, at the insurer's option, may be paid directly to the hospital or person rendering such services, but the policy may not require that the service be rendered by a particular hospital or person. Payment so made shall discharge the insurer's obligation with respect to the amount of insurance so paid.

D. This section does not affect the legal liability of policyholders for the death of or injury to any member of the group.

E. Any policy or contract, except accidental death and dismemberment, applied for that provides family coverage, as to such coverage of family members, shall 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 policy or 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 policy or contract shall be so written that the insurer shall pay benefits:

1. For performance of any surgical service that is covered by the terms of such contract, regardless of the place of service.

2. For 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. For 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. For any service performed in a hospital's outpatient department or in a freestanding surgical facility, providing such service would have been covered if performed as an inpatient service.

G. A blanket disability insurance policy that provides coverage for the surgical expense of a mastectomy shall also provide coverage incidental to the patient's covered mastectomy for the expense of reconstructive surgery 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.

H. A contract that provides coverage for surgical services for a mastectomy shall also provide coverage for preventive mammography screening and diagnostic imaging 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, including:

1. A mammogram.

2. Digital breast tomosynthesis, magnetic resonance imaging, ultrasound or other modality and at such age and intervals as recommended by the national comprehensive cancer network. This includes patients at risk for breast cancer who have a family history with one or more first or second degree relatives with breast cancer, prior diagnosis of breast cancer, positive testing for hereditary gene mutations or heterogeneously or dense breast tissue based on the breast imaging reporting and data system of the American college of radiology.

I. 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 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 his 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.

J. The coverage prescribed by subsection I 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. 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.

K. 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 insurer 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 insurer 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 L 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.

L. Subsection K of this section does not:

1. Require 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. Prevent an insurer 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 K of this section shall not be greater than the coinsurance or cost sharing for any preceding portion of that stay.

3. Prevent an insurer from negotiating the level and type of reimbursement with a provider for care provided in accordance with subsection K of this section.

M. 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.

N. Subsection M of this section does not prohibit a blanket disability insurer from imposing deductibles, coinsurance or other cost sharing in relation to benefits for equipment or supplies for the treatment of diabetes.

O. Any 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 P of this section or medical literature that meets the criteria prescribed in subsection P 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. 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. 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.

P. For the purposes of subsection O of this section:

1. The acceptable standard medical reference compendia are the following:

(a) The American hospital formulary service drug information, a publication of the American society of health system pharmacists.

(b) The national comprehensive cancer network drugs and biologics compendium.

(c) Thomson Micromedex compendium DrugDex.

(d) Elsevier gold standard's clinical pharmacology compendium.

(e) Other authoritative compendia as identified by the secretary of the United States department of health and human services.

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)).

Q. Any contract that is offered by a blanket disability insurer and that contains a prescription drug benefit shall provide coverage of medical foods to treat inherited metabolic disorders as provided by this section.

R. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15, that must be consumed throughout life and without which the person may suffer serious mental or physical impairment.

S. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15 as medically necessary for the therapeutic treatment of an inherited metabolic disease.

T. An insurer shall cover at least fifty percent of the cost of medical foods prescribed to treat inherited metabolic disorders and covered pursuant to this section. An insurer may limit the maximum annual benefit for medical foods under this section to $5,000, which applies to the cost of all prescribed modified low protein foods and metabolic formula.

U. Any blanket disability policy that provides coverage for:

1. Prescription drugs shall also 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 blanket disability insurer 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. The blanket disability insurer may 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 shall also 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 approved United States food and drug administration prescription contraceptive methods to prevent unintended pregnancies.

V. Notwithstanding subsection U of this section, a religiously affiliated employer may require that the insurer provide a blanket disability policy without coverage for specific items or services required under subsection U of this section because providing or paying for coverage of the specific items or services is contrary to the religious beliefs of the religiously affiliated employer offering the plan. If a religiously affiliated employer objects to providing coverage for specific items or services required under subsection U of this section, a written affidavit shall be filed with the insurer stating the objection. On receipt of the affidavit, the insurer shall issue to the religiously affiliated employer a blanket disability policy that excludes coverage for specific items or services required under subsection U of this section. The insurer shall retain the affidavit for the duration of the blanket disability policy and any renewals of the policy. This subsection shall not exclude coverage for prescription contraceptive methods ordered by a health care provider with prescriptive authority for medical indications other than for contraceptive, abortifacient, abortion or sterilization purposes. A religiously affiliated employer offering the policy may state religious beliefs in its affidavit and may require the insured to first pay for the prescription and then submit a claim to the insurer along with evidence that the prescription is not for a purpose covered by the objection. An insurer may charge an administrative fee for handling these claims under this subsection.

W. Subsection V of this section does not authorize a religiously affiliated employer to obtain an employee's protected health information or to violate the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936) or any federal regulations adopted pursuant to that act.

X. Subsection V of this section shall not be construed to restrict or limit any protections against employment discrimination that are prescribed in federal or state law.

Y. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(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 who is under eighteen years of age.

3. Subsections V and W of this section, "religiously affiliated employer" means either:

(a) An entity for which all of the following apply:

(i) The entity primarily employs persons who share the religious tenets of the entity.

(ii) The entity serves primarily persons who share the religious tenets of the entity.

(iii) The entity is a nonprofit organization as described in section 6033(a)(3)(A)(i) or (iii) of the internal revenue code of 1986, as amended.

(b) An entity whose articles of incorporation clearly state that it is a religiously motivated organization and whose religious beliefs are central to the organization's operating principles.

§ 20-1404.01 Blanket disability insurance; clinical trials; cancer; definitions

A. A blanket disability insurer is not obligated to pay any costs, other than patient costs, that are directly associated with a cancer clinical trial that is offered in this state and in which the insured 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 insurer at the rates that are established by the insurer and that are not more than the level of reimbursement applicable to other similar services provided by health care providers with the insurer'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 insurer. 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 insurer from imposing deductibles, coinsurance or other cost sharing measures in relation to benefits provided pursuant to this section.

F. 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 insured or the insured'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.

§ 20-1404.02 Eosinophilic gastrointestinal disorder; formula

A. Any policy or contract that is offered by a blanket disability insurer and that contains a prescription drug benefit shall cover amino acid-based formula that is ordered by a physician or a registered nurse practitioner if:

1. The insured has been diagnosed with an eosinophilic gastrointestinal disorder.

2. The insured is under the continuous supervision of a physician who is licensed pursuant to title 32, chapter 13 or 17 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

3. There is risk of a mental or physical impairment without the use of the formula.

B. A blanket disability insurer shall cover at least seventy-five per cent of the cost of the formula. The blanket disability insurer may limit the maximum annual benefit for formula under this section to twenty thousand dollars.

C. This section does not apply to limited benefit coverage as defined in section 20-1137.

§ 20-1404.03 Blanket disability insurers; autism spectrum disorder; coverage; exceptions; definitions

A. A blanket disability insurer shall not:

1. Exclude or deny coverage for a treatment or impose dollar limits, deductibles and coinsurance provisions based solely on the diagnosis of autism spectrum disorder. For the purposes of this paragraph, "treatment" includes diagnosis, assessment and services.

2. Exclude or deny coverage for medically necessary behavioral therapy services. To be eligible for coverage, behavioral therapy services shall be provided or supervised by a licensed or certified provider.

B. This section does not:

1. Apply to a policy or contract that is issued to an individual or a small employer.

2. Apply to limited benefit coverage as defined in section 20-1137.

3. Require coverage for services provided outside of this state.

C. The coverage required by this section is subject to all the terms and conditions of the blanket disability contract. This section does not prevent a blanket disability insurer from imposing deductibles, coinsurance or other cost sharing in relation to the coverage required by this section.

D. For the purposes of this section:

1. "Autism spectrum disorder" a pervasive, developmental disorder that meets the criteria for autism spectrum disorder as defined in the most recent edition of the diagnostic and statistical manual of mental disorders of the American psychiatric association.

2. "Behavioral therapy" means interactive therapies derived from evidence based research, including applied behavior analysis, which includes discrete trial training, pivotal response training, intensive intervention programs and early intensive behavioral intervention.

3. "Small employer" has the same meaning prescribed in section 20-2301.

§ 20-1404.04 Contracts; dentists; covered services; definition

A. A contract, entered into or renewed on or after January 1, 2011, between a blanket disability insurer and a dentist who is licensed to practice in this state shall not require the dentist to provide services to an individual covered under a blanket disability policy based on a fee set by the blanket disability insurer unless the services for which the fee applies is a covered service under the individual's blanket disability policy.

B. This section does not restrict the ability of a blanket disability insurer to establish dental benefits for services offered by plans that are administered but not insured by the blanket disability insurer.

C. For the purposes of this section, "covered service" means a service for which any reimbursement is available under a blanket disability policy without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

§ 20-1404.05 Contracts; optometrists; covered services; definition

A. Except as provided in subsection C of this section, a contract, entered into or renewed on or after January 1, 2022, between a blanket disability insurer and an optometrist who is licensed to practice in this state shall not:

1. Require the optometrist to provide a service to an individual covered under a blanket disability insurance policy based on a fee set by the blanket disability insurer unless the service for which the fee applies is a covered service under the individual's blanket disability insurance policy.

2. Prohibit an optometrist from offering or providing a vision service that is not a covered service to a covered individual at a fee determined by the optometrist or by the optometrist and the covered individual.

3. Require an optometrist to use one or more specific vendors to replenish the optometrist's inventory of spectacle lenses after the optometrist dispenses the optometrist's inventory to eligible members of the vision plan as a covered vision service.

B. This section applies to an administrator providing third-party administration services or a provider network for a vision plan.

C. This section does not prohibit the ability of a blanket disability insurer to enter into a contract for an optometrist to participate in a discount program sponsored by the blanket disability insurer for services that are not covered if:

1. Participation in the blanket disability insurer network is not contingent on participation in the sponsored discount program.

2. The blanket disability insurer offers equal treatment to an optometrist who does not participate in a blanket disability insurer sponsored discount program, regarding:

(a) Promotional treatment.

(b) Marketing benefits.

(c) Materials.

(d) Contract terms for providing a covered service.

D. Notwithstanding subsection C, paragraph 2, subdivision (d) of this section, a blanket disability insurer, when providing a typically formatted list of optometrists in the blanket disability insurer network, may identify whether an optometrist participates in a discount program for services not covered by the blanket disability insurer provided that all lists state that other discounts may be available with individual optometrists.

E. All contracts shall be in compliance with this section by the first renewal period on or after January 1, 2022, but not later than December 31, 2022.

F. For the purposes of this section, "covered service" means a service for which any reimbursement is available under a blanket disability insurance policy without regard to contractual limitations by a deductible, copayment, coinsurance, waiting period, annual or lifetime maximum, frequency limitation, alternative benefit payment, exclusion or other limitation.

§ 20-1404.06 Organ harvesting; insurance coverage limitations

A. A group or blanket disability insurance policy may limit coverage to an insured for a human organ transplant or posttransplant care if either of the following applies:

1. The transplant operation is performed in the People's Republic of China or the Hong Kong special administrative region.

2. The human organ to be transplanted was procured by a sale or donation originating in the People's Republic of China or the Hong Kong special administrative region.

B. This section does not:

1. Require coverage for human organ transplants.

2. Limit a group or blanket disability insurer from denying coverage for any valid reason.

§ 20-1405 Provisions of group and blanket disability policy

The provisions of article 4 of chapter 6 of this title shall not apply to group disability or blanket disability insurance policies, but no such policy of group or blanket disability insurance shall contain any provision relative to notice or proof of loss, or to the time for paying benefits, or to the time within which suit may be brought on the policy, which is less favorable to the individuals insured than would be permitted by the standard provisions required for individual disability insurance policies.

§ 20-1406 Prohibiting denial of certain contract benefits

A. Notwithstanding any provision of any group disability insurance contract or blanket disability insurance contract, 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15, 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 any group disability insurance contract or blanket disability insurance contract provides for or offers eye medical care services, whether by a network of health care providers or by the selection of a health care provider by the subscriber, 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. This subsection does not require that any specific optometrist or physician, or number or percentage of optometrists or physicians, be included on an insurer's provider network. Unless a group disability insurance contract or blanket disability insurance contract otherwise provides, there shall be no reimbursement for ophthalmic materials, lenses, spectacles or eyeglasses or appurtenances thereto.

C. If any group disability insurance contract is written to provide coverage for psychiatric, drug abuse or alcoholism services, reimbursement for those 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.

§ 20-1406.01 Prohibiting denial of chiropractic contract benefits; direct reimbursement

If a group disability insurance contract or blanket disability insurance contract 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 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 or to the subscriber if the cost of the service has not been reimbursed to another provider or health care institution.

§ 20-1406.02 Prohibiting denial of psychologist contract benefits

If a group disability insurance contract or blanket disability insurance contract 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 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.

§ 20-1406.03 Prohibiting denial of contract benefits; nursing; reimbursement

If a group disability or blanket disability insurance contract 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 contract benefits shall not be denied to the 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 or to the subscriber if another provider or health care institution was not reimbursed for the cost of the service.

§ 20-1406.04 Prohibiting denial of occupational or physical therapist contract benefits

If a group disability or blanket disability insurance contract provides coverage for occupational or physical therapy services, and provides both an in-network and out-of-network benefit, an insurer 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. An insurer 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.

§ 20-1406.05 Telehealth; coverage of health care services; definition

A. All policies issued, delivered or renewed by a group disability insurer or a blanket disability insurer in this state must provide coverage for health care services that are provided through telehealth if the health care service would be covered were it provided through an in-person encounter between the insured and a health care provider and provided to an insured receiving the service in this state. The following requirements apply to coverage of telehealth services:

1. Except as otherwise provided in this subsection, a group or blanket disability insurer may not limit or deny the coverage of health care services provided through telehealth, including ancillary services, and may apply only the same limits or exclusions on a health care service provided through telehealth that are applicable to an in-person encounter for the same health care service, except for procedures or services for which the weight of evidence, based on practice guidelines, peer-reviewed clinical publications or research or recommendations by the telehealth advisory committee on telehealth best practices established by section 36-3607, determines not to be appropriate to be provided through telehealth.

2. Except as otherwise provided in this paragraph, a group or blanket disability insurer shall reimburse health care providers at the same level of payment for equivalent services as identified by the healthcare common procedure coding system, whether provided through telehealth using an audio-visual format or in-person care. A group or blanket disability insurer shall reimburse health care providers at the same level of payment for equivalent in-person behavioral health and substance use disorder services as identified by the healthcare common procedure coding system if provided through telehealth using an audio-only format. This paragraph does not apply to a telehealth encounter provided through a telehealth platform that is sponsored or provided by the group or blanket disability insurer. A group or blanket disability insurer may not require a health care provider to use a telehealth platform that is sponsored or provided by the group or blanket disability insurer as a condition of network participation.

3. Before January 1, 2022, a group or blanket disability insurer shall cover services provided through an audio-only telehealth encounter if that service is reimbursed by medicare or the Arizona health care cost containment system when provided through an audio-only telehealth encounter. Beginning January 1, 2022, a group or blanket disability insurer shall cover services provided through an audio-only telehealth encounter if the telehealth advisory committee on telehealth best practices established by section 36-3607 recommends that the services may appropriately be provided through an audio-only telehealth encounter.

4. A health care provider shall bill for a telehealth encounter using the healthcare common procedure coding system and shall identify whether the telehealth encounter was provided in an audio-only or audio-video format. To submit a claim for an audio-only service, the health care provider must make telehealth services generally available to patients through the interactive use of audio, video or other electronic media.

5. At the time of the telehealth encounter, the health care provider shall access clinical information and records, if available, that are appropriate to evaluate the patient's condition. The health care provider shall inform the insured before the telehealth encounter if there is a charge for the encounter.

6. A group or blanket disability insurer may establish reasonable requirements and parameters for telehealth services, including documentation, fraud prevention, identity verification and recordkeeping, but such requirements and parameters may not be more restrictive or less favorable to health care providers or insureds than are required for health care services delivered in person.

7. Covered telehealth services may be provided regardless of where the insured is located or the type of site.

8. Except in an emergency as prescribed in section 20-2803, the policy may limit the coverage to those health care providers who are members of the insurer's provider network.

B. Subsection A of this section does not:

1. Limit the ability of group or blanket disability insurers to provide incentives to insureds that are designed to improve health outcomes, increase adherence to a course of treatment or reduce risk.

2. Prevent group or blanket disability insurers from offering network contracts to health care providers who employ value-based purchasing or bundled payment methodologies if otherwise allowed by law or prevent health care providers from voluntarily agreeing to enter into such contracts with a group or blanket disability insurer.

C. This section does not relieve a group or blanket disability insurer from an obligation to provide adequate access to in-person health care services. Network adequacy standards required by federal or state law may not be met by a group or blanket disability insurer through the use of contracted health care providers who provide only telehealth services and do not provide in-person health care services in this state or within fifty miles of the border of this state.

D. This section does not prevent a group or blanket disability insurer from imposing deductibles or copayment or coinsurance requirements for a health care service provided through telehealth if the deductible, copayment or coinsurance does not exceed the deductible, copayment or coinsurance applicable to an in-person encounter for the same health care service. If the group or blanket disability insurer waives a deductible or copayment or coinsurance requirement that impacts a health care provider's contracted reimbursement rate, the group or blanket disability insurer shall reimburse the health care provider for the cost of the deductible or copayment or coinsurance requirement to ensure that the health care provider receives the contracted reimbursement rate if the service is covered and the claim meets other requirements of the network participation agreement.

E. Services provided through telehealth or resulting from a telehealth encounter are subject to all of this state's laws and rules that govern prescribing, dispensing and administering prescription pharmaceuticals and devices and shall comply with Arizona licensure requirements and any practice guidelines of the telehealth advisory committee on telehealth best practices established by section 36-3607 or, if not addressed, the practice guidelines of a national association of medical professionals promoting access to medical care for consumers via telecommunications technology or other qualified medical professional societies to ensure quality of care.

F. This section does not apply to limited benefit coverage as defined in section 20-1137.

G. For the purposes of this section, "telehealth":

1. Means the interactive use of audio, video or other electronic media, including asynchronous store-and-forward technologies and remote patient monitoring technologies, for the purpose of diagnosis, consultation or treatment.

2. Includes:

(a) The use of an audio-only telephone encounter between an insured who has an existing relationship with a health care provider or provider group if both of the following apply:

(i) An audio-visual telehealth encounter is not reasonably available due to the insured's functional status, the insured's lack of technology or telecommunications infrastructure limits, as determined by the health care provider.

(ii) The telehealth encounter is initiated at the request of the insured or authorized by the insured before the telehealth encounter.

(b) The use of an audio-only encounter between the insured and a health care provider, regardless of whether there is an existing relationship with the health care provider or provider group, if the telehealth encounter is for a behavioral health or substance use disorder service and both items of subdivision (a) of this paragraph apply.

3. Does not include the sole use of a fax machine, instant messages, voice mail or email.

§ 20-1406.06 Cancer treatment medications; cost sharing; definition

A. A group or blanket disability policy that is issued, delivered or renewed by a group or blanket disability insurer on or after January 1, 2016 and that provides coverage both for cancer treatment medications that are injected or intravenously administered by a health care provider and for patient-administered cancer treatment medications, including medications that are orally administered or self-injected, may not require a higher copayment, deductible or coinsurance amount for patient-administered cancer treatment medications than is required for those cancer treatment medications that are injected or intravenously administered by a health care provider, regardless of the formulation or benefit category.

B. A group or blanket disability insurer may not increase copayment, deductible or coinsurance amounts for covered cancer treatment medications that are injected or intravenously administered in order to avoid compliance with subsection A of this section, but may increase copayment, deductible or coinsurance amounts for cancer treatment medications if the increase is applied generally to other medical or pharmaceutical benefits under the policy and is not done to circumvent subsection A of this section.

C. A group or blanket disability insurer may not reclassify benefits with respect to cancer treatment medications in a manner that is inconsistent with this section.

D. For the purposes of this section, "cancer treatment medications" means prescription drugs and biologics that are used to kill, slow or prevent the growth of cancerous cells.

§ 20-1406.07 Prescriptions; cost sharing; refills; dispensing fees; definition

A. A group or blanket disability insurance contract that is issued or renewed on or after January 1, 2017 and that provides coverage for prescription drugs:

1. May not deny coverage and shall prorate the cost sharing rate for a prescription drug covered by the contract that is dispensed by a network pharmacy for less than the standard refill amount if the insured requests enrollment into a medication synchronization program and less than the standard refill amount for the purpose of synchronizing the insured's medications.

2. Shall accept early refill and short fill requests for prescription drugs using the submission clarification and message codes as adopted by the national council for prescription drug plans or alternative codes provided by the plan upon July 3, 2015.

B. For the purposes of this section, "medication synchronization" means the coordination of medication refills for a patient taking two or more medications for a chronic condition that are being dispensed by a single contracted pharmacy to facilitate the synchronization of the patient's medications for the purpose of improving medication adherence.

§ 20-1406.08 Prescription eyedrops; refills

A. Beginning January 1, 2018, any policy that is issued, delivered or renewed by a group or blanket disability insurer and that provides coverage for prescription eyedrops to treat glaucoma or ocular hypertension may not deny coverage for a refill of a prescription for eyedrops to treat glaucoma or ocular hypertension if all of the following apply:

1. The insured requests the refill:

(a) For a thirty-day supply, at least twenty-three days and less than thirty days from the later of:

(i) The original date that the prescription was distributed to the insured.

(ii) The date of the most recent refill that was distributed to the insured.

(b) For a sixty-day supply, at least forty-five days and less than sixty days from the later of:

(i) The original date that the prescription was distributed to the insured.

(ii) The date of the most recent refill that was distributed to the insured.

(c) For a ninety-day supply, at least sixty-eight days and less than ninety days from the later of:

(i) The original date the prescription was distributed to the insured.

(ii) The date of the most recent refill that was distributed to the insured.

2. The prescription eyedrops to treat glaucoma or ocular hypertension prescribed by the health care provider are a covered benefit under the insured's policy.

3. The prescribing health care provider indicates on the original prescription that additional quantities of the prescription eyedrops to treat glaucoma or ocular hypertension are needed.

4. The refill requested by the insured does not exceed the number of additional quantities prescribed.

B. To the extent practicable, the requirements of this section are limited in quantity to the remaining dosage initially approved for coverage, except that any limited refilling may not limit or restrict coverage to any previously or subsequently approved prescription eyedrops to treat glaucoma or ocular hypertension and is subject to the terms and conditions of the policy that are applicable to this coverage.

§ 20-1406.09 Coverage of health care services

All policies issued, delivered or renewed on or after July 1, 2017 by a group or blanket disability insurer in this state must provide coverage for lawful health care services that are provided by a health care provider to an insured regardless of the familial relationship of the health care provider to the insured if the health care service would be covered were it provided to an insured who was not related to the health care provider. The policy may limit the coverage to those health care providers who are members of the insurer's provider network. This section does not apply to disability income.

§ 20-1406.10 Biomarker testing; coverage; definitions

A. A group or blanket disability insurer that issues, amends, delivers or renews a policy on or after January 1, 2023 shall provide coverage for biomarker testing.

B. A policy shall cover biomarker testing for the purposes of diagnosis, treatment, appropriate management or ongoing monitoring of an insured's disease or condition to guide treatment decisions when the test provides clinical utility as demonstrated by medical and scientific evidence, including any of the following:

1. Labeled indications for tests that are approved or cleared by the United States food and drug administration or indicated tests for a drug that is approved by the United States food and drug administration.

2. Centers for medicare and medicaid services national coverage determinations or medicare administrative contractor local coverage determinations.

3. Nationally recognized clinical practice guidelines and consensus statements.

C. A group or blanket disability insurer must ensure coverage is provided in a manner that limits disruptions in care, including the need for multiple biopsies or biospecimen samples.

D. The insured and prescribing practitioner must have access to a clear, readily accessible and convenient process to request an exception to a coverage policy of a group or blanket disability insurer. The process shall be readily accessible on the group or blanket disability insurer's website. This subsection does not require a separate process if the group or blanket disability insurer's existing process complies with this subsection.

E. A policy that is issued or renewed by a group or blanket disability insurer does not include a policy that provides a limited benefit coverage as defined in section 20-1137.

F. For the purposes of this section:

1. "Biomarker":

(a) Means a characteristic that is objectively measured and evaluated as an indicator of normal biological processes, pathogenic processes or pharmacologic responses to a specific therapeutic intervention.

(b) Includes gene mutations or protein expression.

2. "Biomarker testing":

(a) Means the analysis of a patient's tissue, blood or other biospecimen for the presence of a biomarker.

(b) Includes single-analyte tests, multiplex panel tests and whole genome sequencing.

3. "Clinical utility" means the test result provides information that is used in the formulation of a treatment or monitoring strategy that informs a patient's outcome and impacts the clinical decision. The most appropriate test may include both information that is actionable and some information that cannot be immediately used in the formulation of a clinical decision.

4. "Consensus statements" means statements that are all of the following:

(a) Developed by an independent, multidisciplinary panel of experts using a transparent methodology and reporting structure that includes a conflict of interest policy.

(b) Based on the best available evidence for the purpose of optimizing clinical care outcomes.

(c) Aimed at specific clinical circumstances.

5. "Nationally recognized clinical practice guidelines" means evidence-based clinical practice guidelines that both:

(a) Are developed by independent organizations or medical professional societies using a transparent methodology and reporting structure and a conflict of interest policy.

(b) Establish standards of care that are informed by a systematic review of evidence and an assessment of the benefits and costs of alternative care options that includes recommendations intended to optimize patient care.

§ 20-1407 Children with disabilities

A group hospital or medical expense insurance policy delivered or issued for delivery in this state more than one hundred twenty days after August 27, 1977 that provides that coverage of a dependent child of an employee or other member of the covered group shall terminate on attainment of the limiting age for dependent children specified in the policy, shall also provide in substance that attainment of such limiting age shall not operate to terminate the coverage of that child while the child is and continues to be both incapable of self-sustaining employment by reason of intellectual disability or physical disability and chiefly dependent on the employee or member for support and maintenance. Proof of such incapacity and dependency shall be furnished to the insurer by the employee or member within thirty-one days of the child's attainment of the limiting age and subsequently as may be required by the insurer, but not more frequently than annually after the two-year period following the child's attainment of the limiting age.

§ 20-1408 Right to obtain individual policy; requirements; exceptions; definition

A. Each group disability insurance policy delivered or issued for delivery in this state shall provide for the right of all persons covered under the group contract to convert to an individual disability policy on the death of the named insured, the entry of a decree of dissolution of marriage or any other condition other than the failure of the insured to pay the required premium specifically stated in the policy under which coverage would otherwise terminate as to a covered spouse or covered dependent children of the named insured.

B. All persons exercising their right to an individual disability policy under subsection A are entitled to have an individual disability policy issued to them by the issuer on a form provided for conversion which provides coverage most similar to that provided under the group policy. Each person entitled to have a conversion policy issued to him may elect a lesser form of coverage.

C. A written application and the first premium payment for the converted policy shall be made to the insurer within thirty-one days following termination of coverage under the existing policy. A monthly premium rate shall be offered to the person exercising continuation or conversion rights, and payment of one monthly premium shall be deemed sufficient consideration to enact the continuation or conversion policy. The effective date of the conversion policy is the day following the termination of insurance under the group policy.

D. Coverage provided through the conversion policy shall be without additional evidence of insurability and shall not impose any preexisting condition limitations, exclusions or other contractual time limitations other than those remaining unexpired under the policy or contract from which conversion is exercised.

E. Conversion of coverage may, at the option of the spouse exercising the right, include covered dependent children for whom the spouse has responsibility for care or support.

F. The insurer may elect to provide group insurance coverage in lieu of the issuance of a converted individual policy.

G. Each certificate of coverage shall include notice of the conversion privilege.

H. This section does not apply to disability income policies, to accidental death or dismemberment policies or to single term nonrenewable policies.

I. Conversion is not available to a person eligible for medicare or eligible for or covered by other similar disability benefits which together with the conversion coverage would constitute overinsurance.

J. At the time of filing a petition for dissolution of marriage, the clerk of the court shall provide to the petitioner for a dissolution of marriage two copies of the notice of the right of a dependent spouse to convert health insurance coverage under this section. The petitioner shall cause one copy of the notice to be served on the respondent together with a copy of the petition, summons and preliminary injunction. The director shall prepare the notice which must include a summary of this section. The clerk of the court or the director is not liable for damages arising from information contained in or omitted from the notices prepared or provided under this section.

K. This section also applies to blanket accident and sickness insurance policies and to all disability insurance issued by hospital, medical, dental and optometric service corporations, health care services organizations and fraternal benefit societies.

L. 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 had coverage under a disability insurance policy provided by the person's employer at such time shall have the right to reinstate such coverage upon release from active military duty subject to the following conditions:

1. Following reemployment by the reservist's former employer, the reservist shall make written application to the insurer 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 application by the insurer.

2. The coverage reinstated shall be the same coverage provided by the employer to other employees and their dependents in the employer group health insurance plan at the time of application.

3. The insurer may exclude from such coverage any health or physical condition arising during and occurring as a direct result of active military duty.

M. Each dependent of a person eligible for reinstatement under this provision shall be afforded the same rights and be subject to the same conditions as the insured, if the dependent was insured under the disability insurance policy at the time the eligible person entered active duty. Any dependent of such person born during the period of active military duty shall have the same rights as other dependents noted in this section.

N. 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 L 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 group and blanket disability contracts.

O. A group policy or any conversion policy that is issued under this section shall not be cancelled or nonrenewed except if:

1. The individual has failed to pay premiums or contributions pursuant to the terms of the health insurance coverage or the insurer has not received premium payments in a timely manner.

2. The individual has performed an act or practice that constitutes fraud or has made an intentional misrepresentation of material fact under the terms of the coverage.

3. The insurer has ceased to offer coverage to individuals that is consistent with the requirements of sections 20-1379 and 20-1380.

4. In the case of an insurer that offers health care coverage in this state through a network plan, no member of the group resides, lives or works in the service area served by the network plan or in an area for which the insurer is authorized to transact business but only if the coverage is terminated uniformly without regard to any health status-related factor of any covered individual.

5. In the case of an insurer who offers health coverage in the group market only through one or more bona fide associations, the membership of an employer in the association has ceased but only if that coverage is terminated uniformly without regard to any health status-related factor or any covered individual.

P. A conversion policy may be modified if the modification complies with the notice and disclosure requirements set forth in the group policy and evidence of coverage. A modification of a conversion policy which has already been issued to an insured shall not result in the effective elimination of any benefit originally included in the conversion policy.

Q. For the purposes of this section, "network plan" means a health care plan provided by an insurer 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 insurer.

§ 20-1409 Right to open enrollment period; insureds; definition

A. With respect to insureds who are members of a group with more than one carrier, if there is an insolvency of an insurer, all other carriers that participated in an open enrollment with the insolvent insurer at a group's last regular open enrollment period shall offer insureds of the insolvent insurer 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 insureds the same coverages and rates that it currently offers to other insureds in the group without any waiting periods or preexisting conditions, exclusions, limitations or restrictions. On declaration of insolvency, the insurer shall notify the remaining carrier or carriers of the insolvency and notify its members of their right to open enrollment as provided in this section.

B. Entitlement to continuation of benefits under subsection A is contingent on timely payment of the premium by the insured or by the insured's representative to the carrier selected through the open enrollment.

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.

§ 20-1410 Mail order prescription drugs; prohibition

From and after September 30, 1990, no medical benefits contract on a group basis delivered or issued for delivery in this state, whether issued by an insurance company, a hospital service corporation, a medical service corporation or a health care services organization, may require any person covered under the policy to purchase prescription drugs exclusively from a mail order pharmacy as a condition of obtaining benefits for the drugs. Under this section the receipt of a discount for a prescription drug off of a mail order pharmacy's regular list price is not construed as a requirement to purchase prescription drugs.

§ 20-1411 Eligibility; prohibiting cancellation because of eligibility for certain benefits

A. An insurer issuing group disability or blanket disability insurance contracts 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 its plans for eligible policyholders.

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 insurer shall make payments to the state program pursuant to title XIX of the social security act according to the coverage provided in the policy or certificate.

C. An insurer issuing group disability or blanket disability insurance contracts 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. An insurer issuing group disability or blanket disability insurance contracts 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.

§ 20-1412 Group and blanket disability insurance policies or contracts; varying copayments and deductibles allowed

A. Except as provided in sections 20-1379 and 20-2304, a group disability insurer or a blanket disability insurer may offer one or more disability insurance policies or 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 group disability insurer or blanket disability insurer that offers such a disability insurance policy or 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.

Article 6 Group Excess Liability Insurance Policies

§ 20-1491 Definitions

In this article, unless the context otherwise requires:

1. "Certificate holder" means the individual named insured group member under a group excess liability insurance policy.

2. "Certificate of insurance" means the certificate of insurance, evidence of coverage or other summary of coverage that is issued to each certificate holder under a group excess liability insurance policy.

3. "Conditional renewal" means a renewal that is conditioned on any of the following:

(a) A change of limits.

(b) A change in the type of coverage.

(c) A reduction or elimination of coverage.

(d) Increased deductibles or the addition of exclusions.

(e) Increased premiums in excess of ten percent, except for premium increases that are generated as a result of increased exposure units or as a result of experience rating, loss rating, retrospective rating or audit.

4. "Excess liability insurance" means liability insurance, as prescribed in section 20-252, paragraph 1, that provides excess coverage after the certificate holder's primary liability insurance limits have been exhausted.

5. "Excess uninsured or underinsured liability" means damages for bodily injury, personal injury or property damage that the certificate holder or an immediate family member of the certificate holder is legally entitled to receive from an uninsured or underinsured negligent person.

6. "Group excess liability insurance" means excess liability insurance that is issued on a group basis and that covers groups of persons as prescribed in this article.

7. "Group policyholder" means those groups identified in section 20-1492, subsection D to which a group excess liability insurance policy may be issued.

8. "Immediate family member" includes any of the following:

(a) The certificate holder's spouse or domestic partner.

(b) Any relative of the certificate holder who lives with the certificate holder.

(c) Any person who is under twenty-five years of age and who is in the care of the certificate holder.

9. "Issued on a group basis" means the issuance of a master policy to a group policyholder, with certificates of insurance issued to certificate holders, solely for the benefit of persons other than the group policyholder.

10. "Negligent person" means a natural person who is identifiable by legal name, who is not an immediate family member of the certificate holder and who is legally responsible for any damages that were sustained by the certificate holder or the certificate holder's immediate family member and that were caused by an accident or offense to which the group excess liability insurance policy applies.

§ 20-1492 Group excess liability insurance; eligible groups

A. An authorized insurer or an unauthorized insurer as provided in chapter 2, article 5 of this title may offer group excess liability insurance in this state. An authorized insurer that issues a group excess liability insurance policy in this state shall file the group policy and the certificate of insurance forms with the department pursuant to section 20-398 but is exempt from the requirements of section 20-385. The terms of the certificate of insurance shall be consistent with the terms of the group excess liability insurance policy pursuant to which the certificate of insurance is issued.

B. An insurer may issue or deliver a group excess liability insurance policy and certificate of insurance in this state only pursuant to this article. In addition to excess liability coverage, a group excess liability insurance policy may also provide excess uninsured motorist, excess underinsured motorist and excess uninsured or underinsured liability coverage to certificate holders. The terms and conditions for any excess uninsured motorist coverage and excess underinsured motorist coverage provided under the group policy shall comply with this title.

C. Notwithstanding subsection B of this section, a group excess liability insurance policy may provide coverage for excess uninsured motorist or underinsured motorist coverage in amounts that exceed the limits set forth in section 20-259.01.

D. An insurer may issue a group excess liability insurance policy to an employer that insures one or more employees of the employer. For the purposes of this subsection:

1. "Employees" include:

(a) The officers, directors, managers and employees of the employer.

(b) The partners if the employer is a partnership.

(c) The officers, managers and employees of a subsidiary or any affiliated corporations, companies, limited liability companies, firms or partnerships.

(d) The members of the employee's immediate family.

2. "Employer" includes any type of corporation, company, firm, limited liability company and partnership.

E. An insurer may establish underwriting criteria for the group policyholder and certificate holders that apply at issuance and renewal of the group policy and the certificate of insurance. Insurers shall treat all eligible groups of the same class in a like manner.

F. Nothing in this article shall apply to or otherwise prohibit the issuance of commercial excess liability insurance policies that provide coverage to one or more named insureds and its owners, employees, contractors, agents or representatives under a single limit of insurance. For the purposes of this subsection, "commercial" means insurance that insures against the risks arising from business and commercial activity.

§ 20-1493 Group excess liability insurance policy; premiums; cancellation; requirements

A. The group policyholder may pay the premium for a group excess liability insurance policy from monies contributed wholly by the group policyholder, wholly by the certificate holders or jointly by the group policyholder and the certificate holders.

B. The group excess liability insurance policy shall provide separate limits of coverage for each certificate holder.

C. The insurer or, if authorized by the insurer and agreed to by the insurance producer, the group policyholder's insurance producer shall deliver a copy of the group policy and any endorsement or amendment to the group policyholder. If authorized by the insurer and agreed to by the group policyholder or the group policyholder's insurance producer, the group policyholder or the group policyholder's insurance producer may send the certificate of insurance and any endorsement or amendment to the certificate holders on behalf of the insurer.

D. The certificate of insurance shall contain all material terms and conditions of coverage that are afforded to the certificate holder, including a disclosure in clear and easily understandable language of any limitation, exclusion or required underlying coverage, or a copy of the group policy shall be delivered to the certificate holder within a reasonable period of time after the certificate of insurance is delivered to the certificate holder.

E. The insurer may not disclose claims-related information about any certificate holder to the group policyholder other than the existence of a claim.

F. The following requirements apply to the cancellation, nonrenewal or conditional renewal of coverage under a group excess liability insurance policy:

1. Except as provided in paragraph 5 of this subsection, an insurer may nonrenew the group policy or any certificate of insurance issued under the policy if the insurer complies with the requirements of this article. The insurer shall send notice of nonrenewal to the group policyholder and the certificate holders at least thirty days before the effective date of the nonrenewal. If authorized by the insurer and agreed to by the group policyholder, the group policyholder may send notice of nonrenewal to the certificate holders at least thirty days before the effective date of the nonrenewal on behalf of the insurer.

2. Except as provided in paragraph 5 of this subsection, after a group policy or certificate of insurance has been in effect for sixty days, or if the group policy or certificate of insurance is a renewal, effective immediately, an insurer may cancel the group policy or any certificate of insurance issued under the policy after the effective date of the group policy or certificate of insurance based on any of the following:

(a) The nonpayment of the premium.

(b) The conviction of the group policyholder or certificate holder of a crime that arose out of acts that increased any of the hazards insured against.

(c) Any acts or omissions by the group policyholder, the group policyholder's representative or the certificate holder that constitute fraud or material misrepresentation in obtaining or continuing the group policy or certificate of insurance or in presenting a claim under the group policy or certificate of insurance.

(d) A substantial change in the risk assumed by the insurer since the group policy or certificate of insurance was issued, except to the extent that the insurer should reasonably have foreseen the change or contemplated the risk in writing the contract.

(e) A determination by the director that continuing the group policy or certificate of insurance would place the insurer in violation of the insurance laws of this state or would jeopardize the solvency of the insurer.

(f) The loss of reinsurance that applies to the risk insured against, but only if the absence of reinsurance resulted from the termination of treaty reinsurance or facultative reinsurance initiated or implemented by the reinsurer or reinsurers of the insurer issuing the group policy.

(g) The discovery of grossly negligent acts by the group policyholder, the group policyholder's representative or the certificate holder that materially increased any of the hazards insured against.

3. The insurer shall send notice of cancellation to the group policyholder and the certificate holders if the group policy is being canceled or to affected certificate holders if one or more certificates of insurance are being canceled at least thirty days before the effective date of the cancellation. If authorized by the insurer and agreed to by the group policyholder, the group policyholder may send notice of cancellation to the certificate holders if the group policy is being canceled or to affected certificate holders if one or more certificates of insurance are being canceled at least thirty days before the effective date of the cancellation on behalf of the insurer.

4. The group policy shall set forth the conditions and timing on which a certificate holder's coverage will terminate following the termination of a certificate holder's employment with the group policyholder.

5. An act or omission by a certificate holder may not constitute the basis for cancellation of the group policy.

6. The notice of cancellation and any refund of unearned premium may be sent separately, but both must be sent within thirty days before the effective date of the cancellation.

G. With thirty days' written notice to the insurer and each certificate holder, a group policyholder may cancel or nonrenew the group policy for any reason.

H. If a certificate holder sustains a loss that would be covered by the group policy and that occurs before the effective date of the cancellation, nonrenewal or conditional renewal of the group policy or the certificate holder's certificate of insurance, whether initiated by the insurer, group policyholder or certificate holder, the loss remains covered as provided under the group policy notwithstanding the cancellation, nonrenewal or conditional renewal.

Article 7 Property Insurance

§ 20-1501 Scope of article

This article shall not apply to vehicle, casualty, inland marine or ocean marine insurance, or reinsurance.

§ 20-1502 "Fire insurance" defined

"Fire insurance" is insurance against the perils of fire or lightning as written under the Arizona standard fire policy.

§ 20-1503 Arizona standard fire policy

A. No policy of fire insurance covering property located in this state shall be made, issued or delivered unless it conforms as to all provisions and the sequence thereof with the basic policy commonly known as the New York standard fire policy, edition of 1943. Such policy is designated as the Arizona standard fire policy.

B. The Arizona standard fire policy may exclude coverage for loss by fire or other perils insured against if the loss is caused directly or indirectly by terrorism and involves risks other than a type of risk to which article 12 of this chapter applies.

C. The director shall file in his office and thereafter maintain so on file, a true copy of the Arizona standard fire policy, designated as such and bearing the director's authenticating certificate and signature and the date of filing. Provisions to be contained on the first page of the policy may be rewritten, supplemented and rearranged to facilitate policy issuance and to include matter which may otherwise properly be added by endorsement.

§ 20-1504 Variations from standard policy format and page numbers

The pages of the standard fire insurance policy may be renumbered and the format rearranged for convenience in the preparation of individual contracts, and to provide space for the listing of rates and premiums for coverages insured thereunder or under endorsements attached or printed thereon, and such other data as may be conveniently included for duplication on daily reports for office records.

§ 20-1505 Policy description of insurer

There shall be printed on the first or front page at the head of the standard fire insurance policy the name of the insurer or insurers issuing the policy, the location of the home office or United States office of the insurer or insurers, a statement whether the insurer or insurers are stock corporations, mutual corporations, reciprocal insurers, Lloyd's underwriters or otherwise, and there may be added thereto such device or emblem as the insurer or insurers issuing the policy may desire. Any insurer organized under special charter provisions may so indicate upon its policy, and may add a statement of the plan under which it operates in this state. If the policy is issued by a mutual or reciprocal insurer having special regulations with respect to the payment of assessments by the policyholder or subscriber, such regulations shall be printed on the policy, and any such insurer may print upon the policy such regulations as may be appropriate to or required by its form of organization. There may be substituted for the word "company" a more accurate descriptive term for the type of insurer. There may also be added a statement of the group of insurers with which the insurer is financially affiliated. In lieu of the facsimile signatures of the president and secretary of the insurer there may be used the name or names of the officers or managers authorized to execute the contract.

§ 20-1506 Provisions required by charter or laws of other states

A domestic insurer may print in the standard fire policy any provisions which it is authorized or required by law to insert therein. A foreign or alien insurer may print in the policy any provision required by its charter or deed of settlement, or by the laws of its own state or country, not contrary to the laws of this state.

§ 20-1507 Riders; endorsements; additional perils

A. Appropriate forms of additional contracts, riders or endorsements, insuring against indirect or consequential loss or damage, or against any one or more perils other than those of fire and lightning, or providing coverage which the insurer issuing the policy is authorized by charter and by the laws of this state to assume or issue, may be used in connection with the standard fire policy.

B. Such other perils or coverages may include those excluded in the standard fire insurance policy, and may include any of the perils or coverages permitted to be insured against or issued by property and casualty insurers. Such forms of contracts, riders and endorsements may contain provisions and stipulations inconsistent with such standard fire insurance policy, if such provisions and stipulations are applicable only to such additional coverage or to the additional peril or perils insured against.

§ 20-1508 Designation as standard policy; producer's name

A. There may be printed upon the standard fire policy the words, "standard fire insurance policy for Arizona", and there may be inserted before and after the word "Arizona" a designation of any state or states in which such form of policy is standard.

B. There may be endorsed on the outside of any such policy the name, with the word "producer" or "producers" and place of business, of any insurance producer, either by writing, printing, stamping or otherwise.

§ 20-1509 Loss or damage caused by nuclear reaction, or nuclear radiation or radio-active contamination not covered by Arizona standard fire policy

Insurers issuing the standard policy pursuant to section 20-1503, are authorized to affix thereto a written statement that the policy does not cover loss or damage caused by nuclear reaction, nuclear radiation or radio-active contamination, all whether directly or indirectly resulting from an insured peril under said policy, provided, that nothing here contained shall be construed to prohibit the attachment to any such policy of an endorsement or endorsements specifically assuming coverage for loss or damage caused by nuclear reaction, nuclear radiation or radio-active contamination; however, subject to the foregoing and all provisions of the said policy, direct loss by fire resulting from nuclear reaction or nuclear radiation or radio-active contamination is insured against by such policy.

§ 20-1510 Homeowner's or renter's insurance; dog breeds; prohibitions; definitions

A. The breed of a dog may not be the sole factor considered or used for any of the following purposes:

1. Underwriting or actuarial processes for determining risk, liability or actual or potential losses related to claims involving dogs under a policy of insurance.

2. Questionnaires, surveys or other means of gathering information regarding ownership or possession of a dog or the presence of a dog on premises insured or to be insured under a policy of insurance.

B. For the purposes of this section:

1. "Breed" means the actual or perceived breed or mixture of breeds of a dog.

2. "Policy of insurance" means a homeowner's or renter's policy of insurance.

Article 8 Surety Insurance

§ 20-1531 Sole surety on official bonds

When any bond, recognizance or undertaking is required or permitted to be made for the security or protection of any person or municipality, the state, or any department thereof, or organization, conditioned for the doing or not doing of anything therein specified, any such board, court, organization or officer required or permitted to accept or approve the sufficiency of the bond, recognizance or undertaking, may accept and approve it when executed, or when the conditions thereof are guaranteed, solely by an insurer authorized to transact a surety business in this state in accordance with the requirements of this title. When any such bond, recognizance or undertaking is required to be made with one surety or with two or more sureties, the execution of the bond, recognizance or undertaking, or the guarantee of the performance of the conditions thereof, shall be sufficient when so executed or guaranteed solely by one such insurer, and shall be a full compliance with every requirement of every law, ordinance or regulation relating thereto, and no justification by such insurer shall be necessary.

§ 20-1532 Venue of actions against surety insurers

Any surety insurer may be sued in respect of any surety bond issued by it in the county where the bond, recognizance, stipulation or undertaking was made or guaranteed, or in the county where the principal office of the insurer in this state is located, and for the purposes hereof, it shall be treated as made or guaranteed in the county in which such office is located or in which it is filed, or in the county in which the principal resided when it was made or guaranteed.

§ 20-1533 Surety companies; arrest bond certificates issued by motor clubs; definition

A. A domestic or foreign surety company that has qualified to transact surety business in this state may become surety in an amount of not more than three hundred dollars with respect to a guaranteed arrest bond certificate issued by a motor club by filing with the director an undertaking to become surety.

B. The undertaking shall both:

1. Be in a form prescribed by the director.

2. State the following:

(a) The name and address of the motor club with respect to the guaranteed arrest bond certificates of which the surety company undertakes to be surety.

(b) The unqualified obligation of the surety company to pay the forfeiture in an amount of not more than three hundred dollars of a person who, after posting a guaranteed arrest bond certificate with respect to which the surety company has undertaken to be surety, fails to make the appearance for which the guaranteed arrest bond certificate was posted.

C. An undertaking filed by a domestic or foreign surety company with the director pursuant to this section expires on December 31 of each year.

D. Motor clubs may issue guaranteed arrest bond certificates that are guaranteed by a domestic or foreign surety company for the year covered by the undertaking filed with the director pursuant to this section.

E. For the purposes of this section "motor club" means an individual, firm, partnership, company, association or corporation engaged in selling, furnishing or procuring for consideration any one or a combination of the following for a member pursuant to an agreement:

1. "Bail bond service", which means furnishing or procuring for the member accused of a violation of any law a cash deposit, a bond, a guaranteed arrest bond certificate or any other undertaking.

2. "Buying and selling service", which means any act by which the member is aided in any way in the purchase or sale of a motor vehicle.

3. "Discount service", which means any act resulting in giving special discounts, rebates or reductions to the member.

4. "Emergency road service", which means any act consisting of the adjustment, repair or replacement of the equipment, tires or mechanical parts of a motor vehicle to permit it to be operated under its own power by or for the member.

5. "Financial service", which means any act by which loans or other advances of money are made to the member.

6. "Insurance service", which means any act consisting of selling or giving, with the agreement or as a result of membership in or affiliation with a motor club, a policy of insurance.

7. "Map service", which means furnishing road maps without cost to the member.

8. "Safety service", which means examining and testing motor vehicles and giving advice in connection with the safe and proper operation of the motor vehicles to the member.

9. "Theft service", which means any act the purpose of which is to locate, identify or recover a motor vehicle for the member, or to detect or apprehend the person guilty of the theft.

10. "Touring service", which means furnishing touring information without cost to the member.

11. "Towing service", which means any act consisting of moving for or on behalf of the member a motor vehicle from one place to another other than under its own power.

§ 20-1534 Guaranteed arrest bond certificate; cash bail or other bond; forfeiture

A. A guaranteed arrest bond certificate that conforms to section 20-1533 shall:

1. Be accepted as a bail bond in lieu of cash bail or any other bond if posted by the person whose signature appears on the certificate.

2. Be accepted to guarantee the appearance of the person whose signature appears on the certificate in any court in this state, including all municipal courts, at the time the court requires if the person is arrested or required to post a bond for a violation of a motor vehicle law of this state or a motor vehicle ordinance of a city or town.

3. Not be accepted as bail bonds for:

(a) The offense of driving under the influence of intoxicating liquor or of drugs.

(b) Any felony.

B. A guaranteed arrest bond certificate posted as bail bond in any court in this state shall be treated like a bail bond in any criminal case and:

1. Is subject to the same forfeiture and enforcement provisions that govern bail bonds in criminal cases.

2. If in any municipal court of this state, is subject to the forfeiture and enforcement provisions of the charter or ordinance of the particular city or town pertaining to bail bonds posted.

Article 8.1 Mortgage Guaranty Insurance

§ 20-1541 Definitions

In this article, unless the context otherwise requires:

1. "Authorized real estate security" means either:

(a) Any amortized note, bond or other evidence of indebtedness that is secured by both a mortgage, deed of trust or other instrument that constitutes or is equivalent to a first lien or charge on real estate and the balance on any pledged cash account or collateralized guaranty agreement that is contracted for by a parent, blood relative, employer or nonprofit corporation for the benefit of the borrower if all of the following apply:

(i) The loan amount does not exceed one hundred three per cent of the fair market value of the combined security at the time that the loan is made where any percentage greater than one hundred per cent is used to finance fees and closing costs on the indebtedness.

(ii) The pledged cash account or collateralized guaranty agreement does not exceed thirty-five per cent of the fair market value of the real estate at the time the loan is made.

(iii) The lender has a first position lien on the pledged cash account or collateralized guaranty agreement.

(iv) The loan amount does not exceed the fair market value of the real estate at the time the loan is made plus three per cent for financing fees and closing costs.

(v) The requirements of subdivision (b) of this paragraph are met.

(b) Any amortized note, bond or other evidence of indebtedness that does not exceed one hundred three per cent of the fair market value of the real estate and that is secured by any mortgage, deed of trust or other instrument that constitutes, or is equivalent to, a first lien or charge on real estate if:

(i) The real estate loan secured in such manner is one of a type which a bank, a savings and loan association or an insurance company, which is supervised and regulated by a department of this state or an agency of the federal government, is authorized to make, or would be authorized to make, disregarding any requirement applicable to such an institution that the amount of the loan not exceed a certain percentage of the value of the real estate.

(ii) The improvement on such real estate is a building or buildings designed for occupancy as specified by paragraph 4, subdivisions (a) and (b) of this section.

(iii) The lien on such real estate may be subject to and subordinate to the lien of any public bond, assessment or tax, when no installment, call or payment of or under such bond, assessment or tax is delinquent, or to any outstanding mineral, oil, water or timber rights, rights-of-way, easements or rights-of-way of support, sewer rights, building restrictions or other restrictions or covenants, conditions or regulations of use or outstanding leases upon such real property under which rents or profits are reserved to the owner of such real property.

2. "Contingency reserve" means an additional premium reserve established to protect policyholders against the effect of adverse economic cycles.

3. "Minimum policyholder position" means the amount computed pursuant to section 20-1550.

4. "Mortgage guaranty insurance" means insurance against financial loss by reason of nonpayment of:

(a) Principal, interest or other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by a mortgage, deed of trust or other instrument constituting a lien or charge on real estate if the improvement on such real estate is a residential building or a condominium unit or buildings designed for occupancy by not more than four families.

(b) Principal, interest or other sums agreed to be paid under the terms of any note, bond or other evidence of indebtedness secured by a mortgage, deed of trust or other instrument constituting a lien or charge on real estate if the improvement on such real estate is a building or buildings designed for occupancy by five or more families or designed to be occupied for industrial or commercial purposes.

(c) Rent or other sums agreed to be paid under the terms of a written lease for the possession, use or occupancy of real estate if the improvement on such real estate is a building or buildings designed to be occupied for industrial or commercial purposes.

5. "Policyholder position" means the contingency reserve prescribed in section 20-1556 and surplus as regards policyholders.

§ 20-1542 Capital and surplus

A. A mortgage guaranty insurance company shall not transact the business of mortgage guaranty insurance unless:

1. If a stock insurance company, it has paid in capital of at least one million dollars and paid in surplus of at least one million dollars.

2. If a mutual insurance company, it has a minimum initial surplus of two million dollars.

B. A stock company or a mutual company shall at all times thereafter maintain a minimum policyholders' surplus of at least one million five hundred thousand dollars.

§ 20-1543 Limitation on geographic concentration

A. A mortgage guaranty insurance company shall not:

1. Insure loans secured by a single risk in excess of ten per cent of the company's aggregate capital, surplus and contingency reserve.

2. Have more than twenty per cent of its total insurance in force in any one standard metropolitan statistical area, as defined by the United States department of commerce.

B. The provisions of this section shall not apply to a mortgage guaranty insurance company until it has possessed a certificate of authority in this state for three years.

§ 20-1544 Limitation on advertising

A mortgage guaranty insurance company or any agent or representative of a mortgage guaranty insurance company shall not prepare or distribute or assist in preparing or distributing any brochure, pamphlet, report or any form of advertising to the effect that the real estate investments of any financial institution are "insured investments", unless the brochure, pamphlet, report or advertising clearly states that the loans are insured by mortgage guaranty insurance companies possessing a certificate of authority to transact mortgage guaranty insurance in this state or are insured by an agency of the federal government.

§ 20-1545 Limitation on investment

A mortgage guaranty insurance company shall not invest in notes or other evidences of indebtedness secured by mortgage or other lien upon real property. This section shall not apply to obligations secured by real property, or contracts for the sale of real property, which are acquired in the course of the good faith settlement of claims under policies of insurance issued by the mortgage guaranty insurance company or in the good faith disposition of real property so acquired.

§ 20-1547 Mortgage guaranty insurance as monoline

A. A mortgage guaranty insurance company that anywhere transacts any class of insurance other than mortgage guaranty insurance is not eligible for the issuance or renewal of a certificate of authority to transact mortgage guaranty insurance in this state.

B. A mortgage guaranty insurance company that anywhere transacts the classes of insurance defined in section 20-1541, paragraph 4, subdivision (b) or (c) is not eligible for a certificate of authority to transact in this state the class of mortgage guaranty insurance defined in section 20-1541, paragraph 4, subdivision (a). A mortgage guaranty insurance company that transacts a class of insurance defined in section 20-1541, paragraph 4, subdivision (a) may write up to five per cent of its insurance in force on residential property designed for occupancy by five or more families.

§ 20-1548 Underwriting discrimination

A. Nothing in this article shall be construed as limiting the right of any mortgage guaranty insurance company to impose reasonable requirements upon the lender with regard to the terms of any note or bond or other evidence of indebtedness secured by a mortgage or deed of trust, such as requiring a stipulated down payment by the borrower.

B. A mortgage guaranty insurance company shall not discriminate in the issuance or extension of mortgage guaranty insurance on the basis of the applicant's sex, marital status, race, color, creed or national origin.

C. No policy of mortgage guaranty insurance, excluding policies of reinsurance, shall be written unless the insurer shall have conducted a reasonable and thorough examination of:

1. The evidence supporting credit worthiness of the borrower.

2. The appraisal report reflecting market evaluation of the property and shall have determined that prudent underwriting standards have been met.

§ 20-1549 Policy forms and premium rates filed

A. A mortgage guaranty insurer shall file all policy forms, endorsements and rates a mortgage guaranty insurer proposes to use with the director pursuant to chapter 2, article 4.1. With respect to owner-occupied, single-family dwellings, the mortgage guaranty insurance policy shall provide that the borrower shall not be liable to the insurance company for any deficiency arising from a foreclosure sale.

B. Each mortgage guaranty insurance company shall adopt, print and make available a schedule of premium charges for mortgage guaranty insurance policies. Premium charges made pursuant to the provisions of this article shall not be deemed to be interest or other charges under any other provision of law limiting interest or other charges in connection with mortgage loans. The schedule shall show the entire amount of premium charge for each type of mortgage guaranty insurance policy issued by the insurance company.

§ 20-1550 Minimum policyholder position; definitions

A. A mortgage guaranty insurer shall maintain at all times a minimum policyholder position in an amount not less than the amount required by this section. The face amount of an insured mortgage shall include reinsurance assumed and shall be calculated net of reinsurance that is ceded to an insurer either:

1. Authorized to transact insurance or accredited to assume reinsurance in this state.

2. Pursuant to section 20-1557, subsection C.

3. Otherwise approved by the director.

B. If a policy of mortgage guaranty insurance insures individual loans with a percentage claim settlement option on the loans, the insurer shall maintain a minimum policyholder position based on each one hundred dollars of the face amount of an insured mortgage, the percentage coverage or claim settlement option and the loan-to-value category. The required amount of minimum policyholder position is calculated in the following manner:

1. If the total indebtedness is greater than seventy-five per cent of the value of the collateral property at the date of insurance, the following applies:

Minimum policyholder

position per one hundred

Per cent dollars of the face

coverage amount of an insured mortgage

5% $ .20

10 .40

15 .60

20 .80

25 1.00

30 1.10

35 1.20

40 1.30

45 1.35

50 1.40

55 1.50

60 1.55

65 1.60

70 1.65

75 1.75

80 1.80

85 1.85

90 1.90

95 1.95

100 2.00

If the per cent coverage is between any five percentage point increment, the factor for minimum policyholder position per one hundred dollars of the face amount of an insured mortgage shall be prorated.

2. If the total indebtedness is at least fifty per cent and not more than seventy-five per cent of the value of the collateral property at the date of insurance, the required amount of minimum policyholder position is fifty per cent of the amount required by paragraph 1 of this subsection.

3. If the total indebtedness is less than fifty per cent of the value of the collateral property at the date of insurance, the required amount of minimum policyholder position is twenty-five per cent of the amount required by paragraph 1 of this subsection.

C. If a policy of mortgage guaranty insurance provides coverage on a pool of loans subject to an aggregate loss limit and if the equity:

1. Is not more than fifty per cent and not less than twenty per cent, or equity plus any prior insurance or a deductible equals twenty-five per cent of the value of the collateral property at the date of insurance, the required amount of minimum policyholder position is calculated as follows:

Minimum policyholder

position per one hundred

Per cent dollars of the face

coverage amount of an insured mortgage

1% $ .30

5 .50

10 .60

15 .65

20 .70

25 .75

30 .775

40 .80

50 .825

60 .85

70 .875

75 .90

80 .925

90 .95

100 1.00

If the per cent coverage is between any specified increment, the factor for minimum policyholder position per one hundred dollars of the face amount of an insured mortgage shall be prorated.

2. Is less than twenty per cent or the equity plus prior insurance or a deductible is less than twenty-five per cent of the value of the collateral property at the date of insurance, the required amount of minimum policyholder position is two hundred per cent of the amount required by paragraph 1 of this subsection.

3. Is more than fifty per cent or the equity plus prior insurance or a deductible is more than fifty-five per cent of the value of the collateral property at the date of insurance, the required amount of minimum policyholder position is fifty per cent of the amount of minimum policyholder position required by paragraph 1 of this subsection.

D. If a policy of mortgage guaranty insurance provides for layers of coverage, deductibles or excess reinsurance, the required amount of minimum policyholder position may be computed by subtracting the required minimum policyholder position for the lower percentage coverage limits from the required minimum policyholder position for the upper or greater coverage limit.

E. If a policy of mortgage guaranty insurance provides for coverage on loans secured by second liens:

1. If the policy provides coverage on individual loans, the required amount of minimum policyholder position is calculated according to subsection B of this section after the per cent of coverage and the loan-to-value ratios have been determined as follows:

(a) Divide the insured portion of the second loan by the entire loan indebtedness on the collateral property to determine the per cent coverage.

(b) Divide the entire loan indebtedness on the property by the value of the collateral property at the date of insurance to determine loan-to-value per cent.

2. If the policy provides coverage on a group of loans subject to an aggregate loss limit, the minimum policyholder position is calculated according to subsection C of this section after the per cent of coverage and the loan-to-value ratios have been determined in accordance with this subsection.

F. If a policy of mortgage guaranty insurance provides for coverage on leases, the minimum policyholder position is four dollars for each one hundred dollars of the insured amount of the lease.

G. Among other remedial actions, the director may require a mortgage guaranty insurer to cease transacting new business until such time as the minimum policyholder position as required by this section is met.

H. A mortgage guaranty insurer shall include with its annual statement a report of its minimum policyholder position on a form approved by the director.

I. For the purposes of this section, except as otherwise provided:

1. "Equity" means the complement of the loan-to-value per cent.

2. "Face amount of an insured mortgage":

(a) Means outstanding principal balance computed without any reduction because of an insurer's option limiting its coverage, except that for the purposes of determining a minimum policyholder position under subsection E "face amount of the mortgage" means the entire loan indebtedness on the property.

(b) Does not include the outstanding principal balance of any indebtedness secured by the subject real property to the extent that the insurer has established a loss reserve for that indebtedness.

§ 20-1551 Rebates, commissions and charges

A. A mortgage guaranty insurance company shall not pay or cause to be paid either directly or indirectly, to any owner, purchaser, lessor, lessee, mortgagee or prospective mortgagee of the real property which secures the authorized real estate security or which is the fee of an insured lease, or any interest in such lease, or any person who is acting as an agent, representative, attorney or employee of such owner, purchaser or mortgagee, any commission, or any part of its premium charges or any other consideration as an inducement for or as compensation on any mortgage guaranty insurance business.

B. In connection with the placement of any mortgage guaranty insurance, a mortgage guaranty insurance company shall not cause or permit any commission, fee, remuneration or other compensation to be paid to or received by any insured lender or lessor, any subsidiary or affiliate of any insured, any officer, director or employee of any insured or any member of such person's immediate family, any corporation, partnership, trust, trade association in which any insured is a member or other entity in which any insured or any such officer, director or employee or any member of such person's immediate family has a financial interest, or any designee, trustee, nominee or other agent or representative of any of the foregoing.

C. A mortgage guaranty insurance company shall not make any rebate of any portion of the premium charge shown by the schedule required by section 20-1549, subsection B. A mortgage guaranty insurance company shall not quote any rate or premium charge to any person which is different than that currently available to others for the same type of coverage. The amount by which any premium charge is less than that called for by the current schedule of premium charges is an unlawful rebate.

D. Notwithstanding section 20-451, section 20-452, section 20-1553, subsection B or any other provision of this section, a mortgage guaranty insurance company may enter into an agreement with a mortgage lender or an affiliate of a mortgage lender to provide financial incentives to the mortgage lender for the performance of the mortgage loans insured by the mortgage guaranty insurance company. The agreement to provide financial incentives to mortgage lenders shall not take effect unless it is filed with the director and either approved or not disapproved within thirty days after being filed. The director's disapproval shall be in writing and shall specify the reason for the disapproval. The director shall approve the agreement upon finding that:

1. The agreement is not contrary to other applicable law.

2. The agreement is supported by information that establishes that the mortgage guaranty insurer's rates are not inadequate when considered in conjunction with the financial incentives of the agreement.

E. The director may after notice and hearing suspend or revoke the certificate of authority of any mortgage guaranty insurance company, or in the director's discretion, issue a cease and desist order to any mortgage guaranty insurance company which pays any commission or makes any unlawful rebate in willful violation of the provisions of this article. In the event of the issuance of a cease and desist order, the director may, after notice and hearing, suspend or revoke the certificate of authority of any mortgage guaranty insurance company which does not comply with the terms of such certificate.

§ 20-1552 Compensating balances prohibited

A. Except for commercial checking accounts and normal deposits in support of an active bank line of credit, a mortgage guaranty insurance company, its holding company or any affiliate of either such companies shall not maintain funds on deposit with the lender for which the mortgage guaranty insurance company has insured loans.

B. Any deposit account bearing interest at rates less than what is currently being paid other depositors on similar deposits or any deposit in excess of amounts insured by an agency of the federal government shall be presumed to be an account in violation of this section. A mortgage guaranty insurance company shall not use compensating balances, special deposit accounts or engage in any practice which unduly delays its receipt of monies due or which involves the use of its financial resources for the benefit of any owner, mortgagee of the real property or any interest in such property or any person who is acting as agent, representative, attorney or employee of such owner, purchaser or mortgagee as a means of circumventing any part of this section.

§ 20-1553 Conflict of interest

A. If it is a member of a holding company system, a mortgage guaranty insurance company licensed to transact business in this state shall not, as a condition of its certificate of authority, knowingly underwrite mortgage guaranty insurance on mortgages originated by the holding company system or an affiliate or on mortgages originated by any mortgage lender to which credit is extended, directly or indirectly, by the holding company system or any affiliate unless such insurance is underwritten on the same basis, for the same consideration and subject to the same insurability requirements as insurance provided to nonaffiliated lenders.

B. A mortgage guaranty insurance company, the holding company system of which it is a part or any affiliate shall not, as a condition of the mortgage guaranty insurance company's certificate of authority, pay any commissions, remuneration, rebates or engage in activities proscribed in sections 20-1551 and 20-1552.

§ 20-1554 Unearned premium reserve

A mortgage guaranty insurance company shall compute and maintain an unearned premium reserve that is according to the method approved by the director and that is consistent with the accounting practices and procedures manual adopted by the national association of insurance commissioners.

§ 20-1555 Loss reserve

A mortgage guaranty insurance company shall compute and maintain adequate case basis and other loss reserves which accurately reflect loss frequency and loss severity and shall include components for claims reported and unpaid, and for claims incurred but not reported, including estimated losses on:

1. Insured loans which have resulted in the conveyance of property which remains unsold.

2. Insured loans in the process of foreclosure.

3. Insured loans in default for four months or for any lesser period which is defined as default for such purposes in the policy provisions.

4. Insured leases in default for four months or for any lesser period which is defined as default for such purposes in policy provisions.

§ 20-1556 Contingency reserve

A. In addition to the paid in capital and surplus provided in section 20-1542 each mortgage guaranty insurer shall establish a contingency reserve after establishing the unearned premium reserve. The mortgage guaranty insurer shall annually contribute to the contingency reserve an amount that in the aggregate is the greater of either fifty percent of the net earned premium or the minimum policyholder position required by section 20-1550 divided by ten. The annual contributions to the contingency reserve made during each calendar year shall be maintained for a period of one hundred twenty months, except that the insurer may make withdrawals in any year in which the actual incurred losses and loss expenses exceed thirty-five percent of the corresponding net earned premiums, and these releases shall not be made without prior approval by the insurance director or commissioner of the insurer's state of domicile.

B. In addition to withdrawals made pursuant to subsection A of this section, with the prior approval of the insurance director or commissioner of the insurer's state of domicile, the mortgage guaranty insurer may withdraw from the contingency reserve an amount that is not more than the amount by which the policyholder position exceeds the minimum policyholder position prescribed in section 20-1550. The mortgage guaranty insurer shall provide or identify any information, analysis and other necessary documentation that supports the request submitted to the director or commissioner.

§ 20-1556.01 Premium deficiency reserve

If the mortgage guaranty insurance company's anticipated losses, loss adjustment expenses, commissions and other acquisition costs and maintenance costs are more than the recorded unearned premium reserve, contingency reserve and estimated future renewal premiums on existing policies, the company shall establish a premium deficiency reserve by recording an additional liability for the deficiency according to the accounting practices and procedures manual adopted by the national association of insurance commissioners.

§ 20-1557 Reinsurance

A. If a mortgage guaranty insurance company obtains reinsurance from an insurance company that is properly licensed to provide such reinsurance or from an appropriate governmental agency, the mortgage guaranty insurer and the reinsurer shall establish and maintain the reserves required in this article in appropriate proportions in relation to the risk retained by the original insurer and ceded to the assuming reinsurer so that the total reserves established shall not be less than the reserves required by this article.

B. Section 20-261, subsection D does not apply to a mortgage guaranty insurer.

C. Notwithstanding section 20-261, subsection A, a domestic mortgage guaranty insurer may reinsure its risks with a solvent insurer that has surplus to policyholders less than the minimum capital stock prescribed in section 20-1542 if the reinsurance agreement is approved by the director or the agreement both:

1. Cedes to a reinsurer that insures or reinsures only mortgage guaranty insurance.

2. Requires that reserves ceded to the reinsurer are secured in the manner prescribed in section 20-3603.

D. A mortgage guaranty insurer shall file a report with the director that includes all information regarding its reinsurance agreements as required by the director. The mortgage guaranty insurer shall file the report prescribed in this subsection with its annual and quarterly financial statements.

E. Except as provided in subsection B of this section, this section does not alter or diminish a domestic mortgage guaranty insurer's obligation to report to the director, file documents with the director or obtain the director's approval as prescribed in this title.

F. Notwithstanding title 39, chapter 1, the information submitted pursuant to subsection D of this section is confidential and proprietary and the director shall not make the information available for public inspection without the written consent of the domestic mortgage guaranty insurer, except that:

1. This subsection does not prevent the department's use of the information for any regulatory purpose, disciplinary action or hearing.

2. The director shall release the information if the information is required by a subpoena issued in connection with an administrative, civil or criminal investigation by a government agency.

3. In a civil action or contested case in which the domestic mortgage guaranty insurer that submitted the information is a party, any other party to the action or case may obtain the information if the party seeking to discover the information shows 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 not available from any other nonconfidential source.

(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 who 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.

§ 20-1558 Miscellaneous reserves

A. If the laws of any other jurisdiction in which a mortgage guaranty insurance company, subject to the requirement of this article is also licensed to transact mortgage guaranty insurance, require a larger unearned premium reserve or contingency reserve in the aggregate than that set forth in this article, the establishment of such larger unearned premium reserve or contingency reserve in the aggregate shall be deemed to be in compliance with this article.

B. Unearned premium reserves and contingency reserves shall be computed and maintained on risks insured after the effective date of this article as required by sections 20-1554 and 20-1556. Unearned premium reserves and contingency reserves on risks insured before the effective date of this article may be computed and maintained as required previously.

§ 20-1559 Mortgage guaranty insurers; dividend payment

A. Notwithstanding section 20-722, a domestic mortgage guaranty insurance company may pay dividends out of any available surplus monies if the mortgage guaranty insurance company continues to comply with the policyholder surplus and reserve requirements under this article.

B. The payment of a dividend by a domestic mortgage guaranty insurance company is subject to the requirements of section 20-481.19.

C. A domestic mortgage guaranty insurance company shall maintain sufficient liquidity.

§ 20-1560 Examinations; rules

A. The director may use independent contractor examiners pursuant to sections 20-148 and 20-159 to conduct examinations to review compliance with this article. All examination and examination related expenses shall be borne by the mortgage guaranty insurer and shall be paid by the insurance examiners' revolving fund pursuant to section 20-159.

B. The director may adopt rules to carry out this article.

Article 9 Title Insurers

§ 20-1561 Law governing title insurers

A. This article applies to all title insurers, title insurance rating organizations, title insurance agents, applicants for title insurance and policyholders and to all persons and business entities engaged in the business of title insurance.

B. To the extent not modified by this article, title insurers are subject to and governed by the other applicable sections of this title.

C. Any new insurance law enacted after January 1, 1968 does not apply to title insurers, title insurance rating organizations, title insurance agents, applicants for title insurance, title insurance policyholders or title insurance, except by express reference therein.

D. Section 20-223 applies to title insurers.

E. Title insurance agents shall be licensed pursuant to this article. Chapter 2, article 3 of this title does not apply to licensure of title agents except by specific reference in that article, except that to the extent not inconsistent with this article, section 20-285, section 20-286, subsections C and D and sections 20-287, 20-289, 20-289.01, 20-290, 20-291, 20-292, 20-295, 20-296, 20-297, 20-298, 20-299, 20-300 and 20-301 apply to title insurance agents.

§ 20-1562 Definitions

In this article, unless the context otherwise requires:

1. "Abstract of title" means a written representation that is provided pursuant to a written or oral contract that is intended to be relied on by the person who has contracted for the receipt of the representation. The abstract of title shall include all recorded conveyances, instruments or documents that impart constructive notice with respect to the chain of title to the real property described in the abstract. An abstract of title is not a title insurance policy.

2. "Applicants for insurance" shall be deemed to include all those, whether or not prospective insureds, who from time to time apply to a title insurer, or to its agent, for title insurance, and who at the time of such application are not agents for such title insurer.

3. "Business of title insurance" shall be deemed to be:

(a) The making as insurer, guarantor or surety, or proposing to make as insurer, guarantor or surety, of any contract or policy of title insurance.

(b) The transacting of, or proposing to transact, any phase of title insurance, including solicitation, negotiation preliminary to execution, execution of a contract of title insurance, insuring and transacting matters subsequent to the execution of the contract and arising out of it, including reinsurance.

(c) The doing of, or proposing to do, any business in substance equivalent to any of the foregoing.

4. "Net retained liability" means the total liability retained by a title insurer under any policy or contract of insurance, or under a single insurance risk as defined in or computed in accordance with paragraph 7, after the purchase of reinsurance.

5. "Preliminary report", "commitment" or "binder" means a report that is furnished in connection with an application for title insurance and that offers to issue a title insurance policy subject to the stated exceptions set forth in the report or incorporated by reference. The reports are not abstracts of title and the rights, duties and responsibilities relating to the preparation and issuance of an abstract of title do not apply to the issuance of a report. The report is not a representation as to the condition of title to real property but does constitute a statement of the terms and conditions on which the issuer is willing to issue its title insurance policy if the offer is accepted.

6. "Risk premium" for title insurance means that portion of the fee charged by a title insurer, or agent of a title insurer, to an insured or to an applicant for insurance, for the assumption by the title insurer of the risk created by the issuance of the title insurance policy.

7. "Single insurance risk" means the insured amount of any policy or contract of title insurance issued by a title insurer unless two or more policies or contracts are simultaneously issued on different estates in identical real property, in which event, it means the sum of the insured amounts of all such policies or contracts, except that any such policy or contract that insures a mortgage interest or a vendor's interest that is excepted in a fee or leasehold policy or contract, and which does not exceed the insured amount of such fee or leasehold policy or contract, shall be excluded in computing the amount of a single insurance risk.

8. "Title insurance" means insuring, guaranteeing or indemnifying owners of real property or others interested therein against loss or damage suffered by reason of liens, encumbrances upon, defects in or the unmarketability of the title to such property, guaranteeing, warranting or otherwise insuring the correctness of searches relating to the title to real property, or doing any business in substance equivalent to any of the foregoing.

9. "Title insurance agent" means a domestic or foreign stock corporation or limited liability company authorized in writing by a title insurer to solicit insurance and collect premiums and to issue or countersign policies in its behalf, except that the term "title insurance agent" shall not include officers or salaried employees of any title insurer authorized to do a title insurance business within this state.

10. "Title insurance plant" means a set of records in which an entry has been made of all documents or matters which under the law impart constructive notice of matters affecting title to real property or any interest therein or encumbrance thereon and which have been filed or recorded in the county for which such title plant is maintained for a period of not less than the immediately preceding twenty years. In order to constitute a title insurance plant such records shall include:

(a) An index or indices in which notations of or references to any such documents that describe the property affected thereby are posted, entered or otherwise included, according to the property described therein, or copies or briefs of all such documents that describe the property affected thereby which are sorted and filed according to the property described therein.

(b) An index or indices in which all other such documents are posted, entered or otherwise included, according to the name or names of the parties whose title to real property or any interest therein or encumbrance thereon is affected.

11. "Title insurance policy" means a written instrument or contract by means of which title insurance liability is accepted.

12. "Title insurer" means any domestic company organized under the provisions of this title for the purpose of insuring titles to real property, any title insurance company organized under the laws of another state and licensed to insure titles to real estate within this state pursuant to the provisions of this article, and any domestic or foreign company having the power and authorized to insure titles to real estate within this state as of January 1, 1968 which meet the requirements of this article.

§ 20-1563 Qualifications

A. Any foreign or domestic stock insurer authorized by its corporate charter to engage in business as a title insurer shall be entitled to the issuance of a certificate of authority as a title insurer in this state upon meeting the applicable requirements of article 1 of chapter 2 of this title, together with the following additional requirements:

1. The insurer shall not transact any other kind of insurance.

2. The insurer shall have on deposit in public trust pursuant to section 20-213, the sum of two hundred fifty thousand dollars, plus fifty thousand dollars for each state or territorial subdivision of the United States, other than the state of its domicile, in which it shall be or become qualified to engage in the business of title insurance. When the aggregate of amounts so deposited in this or such other states or territorial subdivision has reached the sum of seven hundred fifty thousand dollars no further deposit shall be required of any domestic or foreign insurer.

3. The capital, surplus and accumulations of every foreign insurer shall be invested in obligations, assets and property of a kind and quality equal in value and safety to those permitted to domestic insurers by this title, and such investments, except with the consent of the director, shall not exceed the limitations provided hereby with respect to domestic insurers. Subsection A of section 20-559 shall not apply to title insurers.

B. If the provisions of this title require a greater amount of capital, surplus or deposit than the capital, surplus or deposit of a title insurer which was the holder of a validly issued, unexpired and unrevoked certificate of authority immediately prior to the effective date hereof, such title insurer shall have the period ending July 1 five years after the effective date hereof within which to comply with any such increased requirement.

§ 20-1564 Investments

A. A domestic title insurer shall invest and maintain invested funds to the amount of minimum paid-in capital required under this title only in cash and the securities described in subsection B, paragraph 1 of this section and sections 20-537, 20-538 and 20-551.

B. A domestic title insurer may invest its capital, surplus and accumulations in excess of the amount of minimum paid-in capital required under this title in the investments made eligible for funds of domestic insurers by sections 20-537 through 20-541, sections 20-543 through 20-548 and sections 20-551, 20-554 and 20-555 and in addition in the following investments:

1. Real estate loans. Ground rents and bonds, notes or other evidences of indebtedness, secured by first mortgages or trust deeds on unencumbered and improved real property located in any state, district or territory of the United States, and in investments in the equity of the seller under contracts covering the entire balance due on bona fide sales of the real property, provided, however, that a loan guaranteed or insured in full by the administrator of veterans' affairs pursuant to the federal servicemen's readjustment act of 1944, as amended, may be subject to a prior encumbrance. Real property shall not be considered to be encumbered within the meaning of this subsection by reason of the existence of instruments reserving mineral, oil, water or timber rights, rights-of-way, sewer rights, rights in walls or driveways, by reason of liens inferior to the lien securing the loan of the insurer, or liens for taxes or assessments not yet delinquent, or by reason of building restrictions or other restrictive covenants or by reason of any lease under which rents or profits are reserved to the owner, if, in any event, the security for the loan is a first lien on the real property, and if there is no condition or right of re-entry or forfeiture under which the lien can be cut off, subordinated or otherwise disturbed. Real property shall be deemed to be improved if such real property is a lot or portion of a subdivision or development that has been improved by off-site improvements for the general benefit of all or a portion of the subdivision or development. No mortgage or trust deed, loan or investment in a seller's equity under a contract made or acquired by the insurer on any one property shall at the date of investment exceed seventy-five per cent of the value of the real property securing the loan, or subject to the contract, provided, however, that the limitation in respect to value shall not apply to a loan which is:

(a) Insured by, or for which a commitment to insure has been made by, the federal housing administrator or commissioner pursuant to the federal national housing act, as amended;

(b) Guaranteed by the administrator of veterans' affairs pursuant to the federal servicemen's readjustment act of 1944, as amended, except that if only a portion of a loan is so guaranteed, the limitation shall apply to the portion that is not guaranteed;

(c) Insured by the administrator of veterans' affairs pursuant to the federal servicemen's readjustment act of 1944, as amended.

2. Federal housing administrators debentures. Debentures issued by the federal housing administrator or commissioner in settlement of claims pursuant to the federal national housing act, as amended.

3. National mortgage association securities. Securities of national mortgage associations or similar national mortgage credit institutions organized under the federal national housing act, as amended.

4. Federal land bank and related securities. Bonds, debentures and other obligations of federal land banks or federal intermediate credit banks issued pursuant to the federal farm loan act, as amended, or of banks for cooperatives issued pursuant to the farm credit act of 1933, as amended.

5. Loans on leaseholds. Loans on leasehold estates on improved, unencumbered real estate located in any state, district or territory of the United States, provided that no loan shall exceed seventy-five per cent of the value of the leasehold at the date of investment, and provided further that every loan shall provide for amortization by repayments of principal at least once in each year in amounts sufficient to repay the loan within a period of four-fifths of the unexpired term of the leasehold, but within a period of not more than thirty-five years.

6. Federal savings and loan insurance corporation obligations. Bonds, notes or obligations issued, assumed or guaranteed by the federal savings and loan insurance corporation, under the federal national housing act, as amended.

7. Federal home loan bank obligations. Bonds, notes or obligations issued, assumed or guaranteed by the federal home loan bank, or issued, assumed or guaranteed by the federal home loan bank board under the federal home loan bank act, as amended.

C. Section 20-536, subsections B and C do not apply to domestic title insurers.

D. Any title insurer that is organized under the laws of this state may purchase, receive, hold and convey real estate or an interest in real estate:

1. Required for its convenient accommodation in the transaction of its business with reasonable regard to future needs.

2. Acquired in connection with a claim under a policy of title insurance.

3. Acquired in satisfaction or on account of loans, mortgages, liens, judgments or decrees, previously owing to it in the course of its business.

4. Acquired in part payment of the consideration of the sale of real property owned by it if the transaction shall result in a net reduction in the company's investment in real estate.

5. Reasonably necessary for the purpose of maintaining or enhancing the sale value of real property previously acquired or held by it under paragraph 1, 2, 3 or 4 of this subsection.

E. A title insurer shall not continue to hold any real estate acquired by it under paragraph 2, 3 or 4 of subsection D for more than five years from the date of acquisition, unless it shall obtain the written approval of the director to hold the real estate for a longer period of time.

F. A title insurer may invest in a title insurance plant, and that plant shall be considered an asset at the actual cost of the plant. The aggregate admitted value of the investment shall not exceed the amount allowed pursuant to the accounting practices and procedures manual adopted by the national association of insurance commissioners. In determining the admitted value of a title insurance plant, no value shall be attributed to furniture and fixtures, and the real estate in which the title plant is housed shall be carried as real estate. The value of title abstracts, title briefs, copies of conveyances or other documents, indices and other records comprising the title insurance plant shall be determined by considering the expenses incurred in obtaining them. Once the title insurance plant is operational its value may be increased only by the acquisition of another title insurance plant by purchase, consolidation or merger. In no event shall the value of the title insurance plant be increased by additions made as part of the normal course of abstracting and insuring titles to real estate. Subject to the limitations prescribed in this subsection, a title insurer may enter into agreements with one or more other title insurers authorized to do business in this state, or with one or more title insurance agents, to participate in the ownership, management and control of a title insurance plant to service the needs of all parties, or in lieu of that common ownership the parties may invest in the stock of a corporation owning and operating a title plant for the same purposes. Subject to the limitations with respect to value set forth in this subsection, any joint investment in existence on the effective date of this section may be continued indefinitely.

G. Funds equal to the unearned premium reserve of a title insurer may be held in cash or invested, but the funds shall be invested only in those classes of investments authorized by sections 20-537 through 20-541, sections 20-543, 20-544 and 20-545 and subsection B, paragraphs 4, 6 and 7 of this section, except that not more than one-fourth of the reserve may be invested in preferred or guaranteed stocks or shares.

H. Nothing in this section applies to any investments made by a title insurer when acting as a trustee.

§ 20-1565 Additional powers

A. A title insurer may provide any other services reasonably related to the land title business and may engage in any other business which is not inconsistent with the business of issuing title insurance policies and which may be authorized by its corporate charter, but only if such services and businesses are not prohibited to it by this title and if the title insurer qualifies for and obtains any other applicable license or certificate that is required by any other law regulating the services or business.

B. Neither a title insurer nor a title insurance agent shall engage in the business of guaranteeing the payment of the principal or the interest of bonds or other obligations.

§ 20-1566 Taxation of title insurers

A. In lieu of the premium tax provisions of section 20-224, title insurers shall be subject to taxation on income as other private corporations.

B. The income tax required to be paid by title insurers by the provisions of subsection A of this section shall be payment in full of all demands for all state, county, district, municipal and school taxes and licenses of whatever kind or character, excepting only the fees prescribed by article 2 of chapter 1 of this title and taxes on real and tangible personal property located within this state.

C. If the provisions of section 20-230 shall operate to require any foreign title insurer to pay premium tax in this state, such tax shall be computed on total risk premiums received by the insurer during the preceding calendar year on account of title insurance on real property in this state. The provisions of section 20-230 shall operate to require such foreign title insurer to pay only the amount of such net premium tax which is in excess of the net income tax actually paid to this state for the same calendar year by such foreign title insurer. For the purposes of this section only, every foreign title insurer which may be required to pay premium tax in this state may file with the director as a part of or as an amendment to its schedule of fees under subsection A of section 20-376 a statement of the risk premium included in its schedule of fees.

§ 20-1567 Determination of insurability required

A. No policy or contract of title insurance shall be written on any risk located in this state except by a title insurer authorized to do business in this state, nor unless and until the title insurer has caused to be conducted a reasonable examination of the title and has caused to be made a determination of insurability of title in accordance with sound underwriting practices for title insurers.

B. No title insurer shall write title insurance in, nor issue any title insurance policy with respect to risks located in, any county of this state with a population, as shown by the latest decennial census, in excess of one hundred thousand persons, unless the title insurer or its agent in that county maintains a title insurance plant covering title records of such county, or unless the insurer issues its policy based on a policy issued to it by another title insurance company, or its agent, who meets the requirements of this section provided, however, that for the purposes of this subsection a title insurer or title insurance agent shall be deemed to maintain a title insurance plant if it is a lessee thereof or joint owner or has a beneficial interest in such a plant.

C. This section shall not apply to a reinsurer or an excess coinsurer, provided the originating insurer complies with subsections A and B.

§ 20-1568 Unearned premium reserve

A. Every title insurer shall, in addition to other reserves, establish and maintain a reserve to be known as the "unearned premium reserve" for title insurance on real estate, which shall, at all times and for all purposes, be deemed and shall constitute the unearned portions of premiums due or received on account of such insurance and shall be charged as a reserve liability of such title insurer in determining its financial condition. A foreign title insurer doing business in this state may establish an unearned premium reserve for title insurance on real estate in accordance with the laws of its domiciliary state, provided an unearned premium reserve is mandatory under the law of its domiciliary state and such law is substantially equivalent to the requirements of this title.

B. The unearned premium reserve for title insurance on real estate shall be retained and held by such title insurer for the protection of the policyholders' interest in policies on real estate which have not expired. Except as provided in section 20-1571, assets equal to the amount of such reserve shall not be subject to distribution among other creditors or stockholders of such title insurer until all claims of policyholders or holders of title insurance contracts or agreements of such title insurer have been paid in full and all liability on the policies or title insurance contracts or agreements, whether contingent or actual, has been discharged or lawfully reinsured. Income from the investment of the amount of such reserve shall be the unrestricted property of the title insurer.

§ 20-1569 Amount of unearned premium reserve; release

A. The unearned premium reserve of every title insurer shall consist of:

1. The amount of the unearned premium reserve held as of January 1, 1968.

2. The amount of all additions required to be made to the reserve by this section, less withdrawals permitted by this section.

B. Every title insurer shall add to its unearned premium reserve in respect to each title insurance policy, whether primary insurance, reinsurance or coinsurance, issued by it on real estate a sum of money out of the fees due or received for the title insurance and deemed to be unearned portions of fees and a sum equal to ten cents for each one thousand dollars of the face amount of net retained liability, as defined in section 20-1562, and shall separately record the aggregate amounts set aside and reserved with respect to policies, contracts or agreements written in each calendar year.

C. The amounts set aside as additions to the unearned premium reserve shall be deducted in determining net profits of any title insurer.

D. For the purpose of determining the amounts of the unearned premium reserve that may be withdrawn pursuant to subsection E of this section, and the interest of the policyholders under section 20-1571, all policies of title insurance shall be considered as dated on July 1 in the year of issue.

E. The aggregate of the amounts set aside in unearned premium reserve in any calendar year pursuant to subsection B of this section shall be released from the reserve and restored to income in the year of release pursuant to the formula prescribed in the accounting practices and procedures manual adopted by the national association of insurance commissioners.

§ 20-1570 Maintenance of the unearned premium reserve

If by reason of any cause, other than depreciation in the market value of investments, the amount of the assets of a title insurer held as investments of its unearned premium reserve should on any date be less than the amount required to be maintained by law in such reserve, and the deficiency shall not be promptly cured, such title insurer shall forthwith give written notice thereof to the director and shall issue no further title insurance policies, whether of policy insurance, reinsurance or coinsurance, until the deficiency shall have been eliminated and until it shall have received written approval from the director authorizing it again to issue such policies.

§ 20-1571 Use of the unearned premium reserve on liquidation, dissolution or insolvency

A. If an order of rehabilitation or of liquidation shall have been entered with respect to a title insurer in accordance with the provisions of article 4 of chapter 3 of this title, then, and notwithstanding the provisions of such article:

1. Such amount of the assets of such title insurer equal to the unearned premium reserve then remaining as is necessary may be used to pay for reinsurance of the liability of such title insurer upon all outstanding policies of title insurance, as to which claims for losses by the holders are not then pending, the balance, if any, of assets equal to the unearned premium reserve fund then remaining, then to be transferred to the general assets of the title insurer.

2. The assets other than the unearned premium reserve shall be available to pay claims for losses sustained by holders of policies then pending or arising up to the time reinsurance is effected. In the event that claims for losses are in excess of such other assets of the title insurer, such claims, when established, shall be paid pro rata out of the surplus assets attributable to the unearned premium reserve, to the extent of such surplus, if any.

B. In the event that reinsurance is not obtained, the unearned premium reserve and assets constituting minimum capital, or so much as remains thereof after outstanding claims have been paid, shall constitute a trust fund to be held by the director for twenty years, out of which claims of policyholders shall be paid as they arise. The balance, if any, of such fund shall, at the expiration of twenty years, revert to the general assets of the title insurer.

§ 20-1572 Reserve for unpaid losses and loss expense

A. Each title insurer shall at all times establish and maintain, in addition to other reserves, a reserve against unpaid losses, and against loss expense, and shall calculate the reserves by making a careful estimate in each case of the loss and loss expense likely to be incurred, by reason of every claim presented, pursuant to notice from or on behalf of the insured, of a title defect in or lien or adverse claim against the title insured, that may result in a loss or cause expense to be incurred for the proper disposition of the claim. The sums of the items estimated pursuant to this section shall be the total amounts of the reserves against unpaid losses and loss expenses of the title insurer.

B. In combination with the reserves prescribed in section 20-1569 and subsection A of this section, each title insurer shall establish a supplemental reserve that consists of all other reserves that are necessary to cover the insurer's liabilities for all losses, claims and loss adjustment expenses.

C. The amounts estimated pursuant to this section may be revised from time to time as circumstances warrant, but shall be redetermined at least once each year.

D. The amounts set aside in the reserves in any year shall be deducted in determining the net profits of any title insurer for that year.

§ 20-1573 Net retained liability

A. The net retained liability of any title insurer under any single insurance risk as defined in section 20-1562, paragraphs 4 and 7 shall not exceed fifty per cent of the net amount remaining after deducting from the sum of its capital, surplus, unearned premium reserve and voluntary reserves the value, if any, assigned in such summation to its title insurance plants, all as shown in its most recent report on file with the director. The same limitation shall apply to any secondary risk assumed by means of reinsurance or coinsurance except, whenever the primary retained liability of a ceding company shall equal or exceed ten per cent of the single insurance risk liability, the net retained or assumed liability limit of this section may be increased by an additional two hundred fifty thousand dollars, but in no event above one hundred per cent of the net amount remaining after deducting from the sum of its capital and surplus the value, if any, assigned in such summation to its title insurance plants, all as shown by its most recent report on file with the director.

B. Nothing in this section is intended to limit the amount of a single insurance risk, as defined in section 20-1562, paragraph 7, that may be written or assumed by a title insurer, provided, however, that every title insurer shall cede, to one or more other title insurers, on or before the effective date of such writing or assumption, such portion, or portions, of any risk as shall be sufficient to bring its net retained liability thereunder within the limits set forth in this section; and provided further that each such cession of risk shall also be within the limits of this section as applied to the sum of the capital, surplus, unearned premium reserve and voluntary reserves, less the value, if any, assigned in such summation to the title insurance plants of the assuming and reinsuring title insurer, as shown by its most recent report on file with the supervisory agency in the state of its domicile.

§ 20-1574 Power to reinsure

A. Any title insurer authorized to engage in the business of title insurance in this state may cede reinsurance of all or any part of its liability under one or more of its title insurance policies to any title insurer authorized to engage in the business of title insurance in this or any other state, provided, however, that no larger amount of reinsurance shall be ceded to any title insurer on a single policy of title insurance, or on any single title insurance risk, than such title insurer would be permitted to retain if authorized to engage in the business of title insurance in this state.

B. Any title insurer authorized to do business in this state may also reinsure policies of title insurance issued by other companies on risks whether located in this state or elsewhere.

C. Issuance of contracts of reinsurance by a title insurer not authorized to engage in the business of title insurance in this state, but authorized to engage in the business of title insurance in any of the United States, reinsuring a title insurer authorized to engage in the business of title insurance in this state on real property located in this state, shall not of itself constitute the doing of business in this state by such reinsurer.

D. No agreement by any domestic title insurer for the reinsurance of all or substantially all its business in force shall be effective unless it shall comply with the provisions of section 20-732.

§ 20-1575 Foreign title insurers; resident agent required

A. A title insurer that is not incorporated under the laws of this state, but is authorized to transact business herein, shall not make, write, place or cause to be made, written or placed any policy or contract of insurance covering real property in this state except:

1. Through a title insurance agent as defined in section 20-1562.

2. Through a bona fide branch office located in this state and under the direction and control of such title insurer, all expenses of which branch office, including compensation of all employees, are paid by such title insurer.

3. Through a subsidiary title insurer.

B. This section does not apply to contracts of reinsurance or excess coinsurance.

§ 20-1576 Mergers and consolidations of title insurers

A. A title insurer incorporated under the laws of this state may merge, be merged by or consolidated with, one or more title insurers whether or not so incorporated, by complying with the provisions of general law governing the merger or consolidation of stock corporations formed for profit, but subject to the further provisions of this section:

1. No such merger or consolidation shall be effectuated unless in advance thereof, the plan and agreement therefor have been filed with the director. The director shall examine the terms and conditions of such merger or consolidation, and of any exchange of shares or securities pursuant thereto, after holding a hearing at which all persons or parties to whom it is proposed to issue shares or securities in such exchange shall have the right to appear. After such hearing, the director shall either approve or disapprove the fairness of such terms and conditions of exchange. The director shall give such approval within a reasonable time after filing of a plan or agreement unless he finds such plan or agreement:

(a) Is contrary to law; or

(b) Inequitable to the stockholders of such insurer; or

(c) Would substantially reduce the security of and services to be rendered to policyholders of the domestic title insurer in this state or elsewhere.

2. Where such merger or consolidation involves a parent company absorbing a wholly-owned subsidiary, the director may, in his discretion, dispense with the holding of a hearing.

B. No director, officer, agent or employee of any title insurer party to such acquisition shall receive any fee, commission, compensation or other valuable consideration whatsoever for in any manner aiding, promoting or assisting therein except as set forth in such plan or agreement.

C. If the director does not approve any such plan or agreement, he shall notify the title insurer in writing specifying in detail his reasons therefor.

§ 20-1577 Corporate acquisitions other than by merger or consolidation

A. A title insurer incorporated under the laws of this state may issue stock in exchange for all or any part of the assets or stock of a domestic or foreign title insurer, abstract company or title insurance agent if, in advance thereof, a plan or agreement of acquisition shall have been filed with the director. The director shall examine the terms and conditions of such plan or agreement of acquisition, and of any exchange of shares or securities pursuant thereto, after holding a hearing at which all persons or parties to whom it is proposed to issue shares or securities in such exchange shall have the right to appear. After such hearing, the director shall either approve or disapprove the fairness of such terms and conditions of such acquisition and exchange. The director shall give such approval within a reasonable time after filing of a plan or agreement unless he finds such plan or agreement either:

1. Is contrary to law.

2. Is inequitable to the stockholders of any title insurer or abstract company involved.

3. Would substantially reduce the security of and services to be rendered to policyholders of the domestic title insurer in this state or elsewhere.

B. No director, officer, agent or employee of any title insurer or abstract company party to such acquisition shall receive any fee, commission, compensation or other valuable consideration whatsoever for in any manner aiding, promoting or assisting therein except as set forth in such plan or agreement.

C. If the director does not approve any such plan or agreement, he shall notify the title insurer in writing specifying in detail his reasons therefor.

D. If the assets or stock to be acquired are held by a domestic corporation, such corporation shall comply with, and its stockholders shall have the rights set forth in title 10, chapter 13.

§ 20-1578 Purchase or acquisition of controlling stock

A. In the event any person or persons propose to purchase or acquire the controlling capital stock of any domestic title insurer, such person or persons shall first make application to the director for approval of such purchase or acquisition. The application shall contain the name and address of the proposed new owner or owners of the controlling stock, and the director shall approve the proposed purchase or acquisition only after he has become satisfied that such purchase or acquisition will not result in violation of the anti-rebate provisions or controlled business provisions of this article, that the proposed new owner or owners of the controlling stock are qualified by character, experience and financial responsibility to control and operate the title insurer in a lawful and proper manner, and that the interests of the stockholders and policyholders of the title insurer and the interests of the public generally will not be jeopardized by the proposed change in ownership and management. If the director does not, by affirmative action, approve or disapprove the proposed purchase or acquisition within thirty days after the date on which such application was so filed with him, the proposed purchase or acquisition shall be deemed to be approved at the expiration of such thirty-day period.

B. No such purchase or acquisition of a domestic title insurer shall be effectuated unless approved as provided in subsection A of this section.

C. In the event the director disapproves the proposed purchase or acquisition, he shall give written notice thereof to the person or persons so applying for approval, setting forth in detail the reasons for disapproval.

§ 20-1580 Title insurance agents to be licensed

A. Title insurance agents shall be licensed by the director. Application for license shall be made on forms approved by the director, and the director shall issue a license upon completion and filing the application and payment of the license fee specified in section 20-167.

B. Licenses of title insurance agents shall expire quadrennially at midnight on the last day of the same month four years after the license was issued or renewed unless sooner terminated by the withdrawal by the insurer of authority in the agent, or unless revoked by the director.

C. Title insurance agents' licenses shall be renewed quadrennially on the filing of an application containing such information as the director deems necessary.

D. The director may grant a temporary license to a corporation or limited liability company that is qualified for licensing as a title insurance agent. The license shall remain in force and effect for a period of six months. If the applicant fails to qualify for a regular title insurance agent's license as provided in this section, no renewal or extension may be granted.

§ 20-1581 Title insurance agents; books; records; revocation of license

A. Every title insurance agent shall keep books of account, records and vouchers pertaining to the business of title insurance in such a manner that the director may readily ascertain from time to time whether the agent has complied with all applicable provisions of law.

B. A title insurance agent may engage in the business of handling escrows of real property transactions so long as it maintains a separate record of all receipts and disbursements of escrow funds and does not commingle any such funds with its own funds or with funds held by it in any other capacity.

C. If at any time the director determines that a title insurance agent has failed to comply with any applicable provision of law other than any provision of title 6, chapter 7, has been guilty of fraudulent conduct toward the public or any title insurer, or has violated any applicable insurance law, he may, after notice and hearing, revoke the license of such agent.

§ 20-1582 Title insurance agents; replies to inquiries by director

Every title insurance agent shall promptly reply, in writing, with a copy thereof to each title insurer for which the agent is acting, to any inquiry of the director relative to the business of title insurance, and failure to reply shall be a ground for revocation of the agent's license. A copy of any inquiry sent by the director to any agent relative to the agent's conduct of the business of title insurance shall also be sent by the director to each title insurer for which the agent is acting.

§ 20-1583 Title insurance agencies; use of corporate names

A title insurer may authorize the use of its corporate name or a portion of the name to a title insurance agency.

§ 20-1584 Commissions; right to pay

A title insurer may pay a commission to a licensed title insurance agent or other title insurer.

§ 20-1585 Commissions; other considerations prohibited

No title insurer and no title insurance agent shall pay or give to any applicant for insurance, or to any person who is acting as agent, representative, attorney or employee of the owner, lessee, or mortgagee or of the prospective owner, lessee or mortgagee of the real property or any interest therein, either directly or indirectly, any commission or any part of its fees or charges including, but not limited to, fees for escrow services performed by a title insurer or title insurance agent, or any other consideration or valuable thing, as an inducement for, or as compensation for, any title insurance business.

§ 20-1586 Rebates or reduced fees

A. No title insurer nor title insurance agent shall knowingly make any rebate of any portion of the fee or charge established pursuant to section 20-376.

B. No title insurer nor title insurance agent shall knowingly quote any fee or make any charge for a title insurance policy to any person which is less than that allowable pursuant to section 20-376. The amount by which any fee or charge is less than that prescribed by section 20-376 is an unlawful rebate.

§ 20-1587 Personal or controlled insurance

A. As used in this article "personal or controlled insurance" means a policy of title insurance where the insured or one of the insureds under such policy is, or the loss thereunder is payable to:

1. The title insurer issuing such policy for its own benefit rather than as a fiduciary, or

(a) Any person directly or indirectly owning or controlling a majority of the voting stock or controlling interest in such title insurer, or

(b) Any corporation which is directly or indirectly controlled by a person who also directly or indirectly owns or controls the title insurer, or

(c) Any corporation making consolidated returns for United States income tax purposes with such title insurer or with any corporation which controls or is under common control with such title insurer.

2. The title insurance agent issuing such policy, for his own benefit rather than as a fiduciary, or

(a) Any person directly or indirectly owning or controlling a majority of the voting stock or controlling interest in such agent, or

(b) Any corporation which is directly or indirectly controlled by a person who also controls the title insurance agent, or

(c) Any corporation making consolidated returns for United States income tax purposes with the agent or any corporation which controls or is under common control with the agent.

B. If the fees and charges received in any one calendar year by a title insurer or by a title insurance agent for personal or controlled insurance from any single source shall exceed twenty-five per cent, or for personal or controlled insurance from all sources shall exceed fifty per cent, of the total fees and charges received by such title insurer or by such title insurance agent for title insurance issued in the same year in this state, the excess shall be deemed to be unlawful rebate.

§ 20-1588 Examination of records; order; notice

A. If he has reason to believe that any title insurance agent has violated or is violating any of the provisions of this article, the director shall forthwith examine such title insurance agent's books of account, records and vouchers pertaining to the business of title insurance, and any title insurance agent so examined shall pay to the director the cost of such examination on demand.

B. The director's order after an examination of a title insurer and its authorized title insurance agents shall describe each violation found by the director, the name of the title insurer or title insurance agent that caused or committed the violation and the penalty, if any, imposed for each violation.

C. After an examination of a title insurer and its authorized title insurance agents, a copy of the director's order or notice to the title insurer under section 20-151 shall be provided to each title insurance agent of the title insurer affected by the order or notice.

§ 20-1589 Violations; classification

Every title insurer and every title insurance agent who knowingly pays any commission, or which makes any unlawful rebate, in violation of this article shall be guilty of a class 2 misdemeanor.

§ 20-1590 Permitted division of fees

Nothing in this article shall be construed to prohibit the division of fees and charges between or among two or more title insurers or between or among one or more title insurers and one or more title insurance agents, or between or among two or more title insurance agents.

§ 20-1591 Forms of policies and other contracts of title insurance; approval or disapproval

A. Every title insurer shall file with the director all forms of title policies and other contracts of title insurance before issuance of any policy or contract. A title insurance rating organization may make filings on behalf of all of its members or subscribers. A title insurer shall not issue any policy or contract until thirty days after the policy or contract has been filed with the director. A policy or contract is approved thirty days after filing unless the director has issued, within the thirty-day period, an order affirmatively approving or disapproving the form. On written notice given within the thirty-day period to the person making the filing, the director may extend the period for up to fifteen additional days to enable the director to complete the review of the filing.

B. Forms of title policies and other contracts of insurance, as used in this section, shall specifically exclude:

1. Reinsurance contracts or agreements.

2. All specific defects in title that may be ascertained from an examination of the risk and excepted in reports, binders or policies, together with any affirmative assurance of the title insurer with respect to the defects whether given by endorsement or otherwise.

3. Further exceptions from coverage by reason of limitations on the examination of the risk imposed by an applicant for insurance or through failure of an applicant for insurance to provide the date requisite to a judgment of insurability.

C. An agreement by a person to indemnify or hold harmless a title insurer from risks that arise from an instrument that is or becomes properly recorded and indexed in the office of the county recorder is enforceable only if the agreement is in writing and any of the following applies:

1. The instrument was not of record at the time the agreement was executed.

2. The instrument is specifically described in the agreement.

3. The instrument is shown as an exception from coverage in the title insurance policy.

4. The instrument is or secures a monetary obligation of the person and remains an outstanding and enforceable debt. An improvement district assessment is not a monetary obligation of the person.

5. The agreement indemnifies for or holds harmless against liens that arise from work or labor done or professional services, materials, machinery, fixtures or tools furnished on the insured property.

D. Subsection C of this section does not affect the enforceability of title warranties provided by a person in a deed or mortgage.

E. An agreement pursuant to subsection C must be separate from and not included in the title insurance policy.

§ 20-1592 Records

A. Every domestic title insurer shall, except as hereinafter provided, keep and maintain at its principal office in this state:

1. A true copy of its articles of incorporation as filed in the office of the corporation commission, and the original of its by-laws,

2. Its books of account,

3. A record containing the names and addresses of its stockholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof, and

4. The minutes of any meetings of its stockholders, board of directors and committees thereof.

B. A domestic title insurer may keep and maintain its books of account without this state if, in accordance with a plan adopted by its board of directors and approved by the director, it maintains in this state suitable records in lieu thereof; provided, however, that the director may after notice and hearing direct such title insurer to return all or any of its books of account to this state if such return is reasonably necessary (1) to protect the interests of the people of this state, or (2) to permit their inspection in this state by a director or stockholder who has shown to the satisfaction of the director that he has made an application to such title insurer for inspection of such books in good faith and for a necessary and legitimate purpose, and that such title insurer has either declined to permit such inspection or to agree to pay any additional expenses reasonably to be incurred by the applicant, or his agent or attorney, in connection with the inspection of such books as a result of their maintenance without this state. If in the judgment of the director delay in the return of any or all books of account of such title insurer may be hazardous, or may cause irreparable injury, to the people of this state or to the policyholders of such title insurer, he may direct the return thereof without notice and hearing.

Article 10 Consumer Credit Insurance

§ 20-1602 Scope and repeal

A. All consumer credit insurance issued, sold or made effective in connection with a loan or other credit transaction for personal, family or household purposes is subject to this article and to all other provisions of this title not inconsistent with this article. Any provision of other law, general or special, that is inconsistent with this article is repealed to the extent of the inconsistency. In addition, all consumer credit insurance issued or made effective relative to consumer lender loans under title 6, chapter 5 is subject to this article.

B. The following consumer credit insurance transactions are not subject to this article:

1. Insurance on credit transactions of more than fifteen years duration.

2. Insurance written in connection with a credit transaction that is secured by a first mortgage or deed of trust and made to finance the purchase of real property or the construction of a dwelling or to refinance a prior credit transaction made for such a purpose.

3. Insurance sold as an isolated transaction on the part of the insurer and not related to an agreement or a plan for insuring debtors of the creditor.

4. Insurance for which no identifiable charge is made to the debtor.

§ 20-1603 Definitions

In this article, unless the context otherwise requires:

1. "Consumer credit insurance" means any one or a combination of the following:

(a) Credit life insurance.

(b) Credit disability insurance.

(c) Credit unemployment insurance.

2. "Credit disability insurance" means insurance on a debtor to provide indemnity for payments becoming due or outstanding on a specific loan or other credit transaction while the debtor has a disability as defined in the policy or certificate.

3. "Credit life insurance" means insurance on the life of a debtor pursuant to or in connection with a specific loan or other credit transaction that provides for the satisfaction of a debt, in whole or in part, on the death of an insured debtor.

4. "Credit unemployment insurance" means casualty insurance on a debtor to provide indemnity for payments or debt becoming due on a specific loan or other credit transaction while the debtor is involuntarily unemployed as defined in the policy.

5. "Creditor" means the lender of money or vendor or lessor of goods, services, property, rights or privileges, including a lessor under a lease intended as a security, where payment is arranged through a credit transaction. "Creditor" means also any successor to the right, title or interest of any such lender, vendor or lessor or an affiliate, associate or subsidiary of any of them or any director, officer or employee of any of them or any other person in any way associated with any of them.

6. "Debtor" means a borrower of money or a person possessing a commitment for a loan of certain funds or a purchaser or lessee of goods, services, property, rights or privileges for which payment is arranged through a credit transaction.

7. "Gross debt" means the sum of the remaining payments that a debtor owes a creditor.

8. "Identifiable charge" means a charge for a type of consumer credit insurance that is made to debtors having that insurance and not made to debtors not having the insurance, and that includes a charge for insurance that is disclosed in the credit or other instrument furnished to the debtor that states the financial elements of the credit transaction and any difference in the finance, interest, service or other similar charge made to debtors in like circumstances except for the insured or noninsured status of the debtor or of the property used as security for the credit transaction.

9. "Loan" means an advance or commitment of certain funds pursuant to a repayment agreement.

10. "Net debt" means the amount necessary to liquidate a debt in a single lump sum payment, excluding all unearned interest and other unearned finance charges.

§ 20-1604 Types of consumer credit insurance

The types of consumer credit insurance may each be written separately or in combination on an individual policy or group policy basis. The director may prohibit or limit any combination by rule.

§ 20-1605 Maximum amount of credit life insurance

A. The initial amount of credit life insurance shall not exceed the gross debt.

B. If a debt is repayable in substantially equal installments, the amount of insurance shall at no time exceed the scheduled or actual amount of the gross debt, whichever is greater.

C. Notwithstanding subsections A and B, credit life insurance in connection with a loan not exceeding one year in duration, or pursuant to a bank or financial institution loan checking account or revolving line of credit plan, may be issued or made effective on a nondecreasing or level term plan in an amount not in excess of the loan. Credit life insurance on an educational transaction commitment may be issued or made effective in an amount which includes that portion of the commitment not yet advanced by the creditor.

§ 20-1606 Maximum amount of credit disability insurance and credit unemployment insurance

A. The total amount of periodic indemnity payable by credit disability insurance in the event of disability, as defined in the policy, or credit unemployment insurance, in the event of unemployment, as defined in the policy, shall not exceed the aggregate of the periodic scheduled unpaid installments of the gross debt or, with respect to group insurance where the indebtedness is repayable in installments, the maximum sum permitted by section 20-1401. The amount of each periodic indemnity payment shall not exceed the original gross debt divided by the number of periodic installments.

B. Notwithstanding subsection A of this section:

1. For credit disability insurance or credit unemployment insurance written in connection with an open-end credit agreement, the amount of insurance shall not exceed the gross debt which would accrue on that amount using the periodic indemnity. Subject to any policy maximums, the periodic indemnity shall not be less than the creditor's minimum repayment schedule.

2. An insurer may offer credit disability insurance with a periodic or lump sum indemnity that exceeds the creditor's minimum repayment schedule if no single indemnity exceeds the net debt.

§ 20-1606.01 Credit unemployment insurance; provisions

A. A credit unemployment insurance policy shall contain benefits that are at least as favorable to insureds as the following provisions:

1. The policy shall provide coverage for unemployment for any reason, except that coverage may be excluded for unemployment due to:

(a) Voluntary forfeiture of salary, wage or other employment income.

(b) Resignation.

(c) Retirement.

(d) General strike.

(e) Illegal walk out.

(f) War.

(g) Separation from the military.

(h) Willful misconduct, criminal misconduct or unlawful behavior.

(i) Disability caused by injury, sickness or pregnancy.

2. For credit unemployment insurance that provides a monthly benefit, benefits shall start after a waiting period of no more than thirty days, but need not be retroactive to the first day of unemployment and shall have a maximum benefit period of at least six months.

B. A credit unemployment insurance policy shall not contain eligibility requirements more restrictive than the following:

1. The policy may exclude from qualification for coverage:

(a) A self-employed individual.

(b) A worker in a seasonal or temporary job. For the purposes of this subdivision, "seasonal or temporary job" means a job designed to last no more than six consecutive months.

(c) A debtor who has been notified in writing of any layoff or employment termination that is to occur within sixty days of the date coverage begins.

2. The policy shall not have an employment requirement more restrictive than requiring a debtor to be employed full-time on the effective date of coverage for at least six consecutive months before the effective date of coverage. For the purposes of this paragraph, "full-time" means a regular work week of not less than thirty hours.

§ 20-1607 Term of insurance

A. Subject to acceptance by the insurer, the term of any consumer credit insurance shall commence on the date when the debtor becomes obligated to the creditor.

B. Notwithstanding subsection A of this section, the term of a policy that provides coverage for an existing obligation shall commence on the effective date of the policy and where evidence of insurability is required and the evidence is furnished more than thirty days after the date when the debtor becomes obligated to the creditor, the term of the insurance shall commence on the date on which the insurer determines the evidence to be satisfactory and in such event, respecting collections from or charges to the debtor for earlier coverage, there shall be an appropriate refund or adjustment.

C. Except where the creditor grants an extension of time for repayment of a debt, the term of any consumer credit insurance shall not extend more than fifteen days beyond the scheduled maturity date of the debt unless done without additional cost to the debtor. If the debt is discharged due to renewal or refinancing prior to the scheduled maturity date, the insurance in force shall be terminated before any new insurance may be issued in connection with the renewed or refinanced debt. In each case of termination prior to scheduled maturity, a refund shall be paid or credited as provided in section 20-1611.

§ 20-1608 Policy provisions and disclosures

A. Before a debtor elects to purchase consumer credit insurance, the following information shall be disclosed to the debtor in the manner provided in subsection C of this section:

1. Purchase of consumer credit insurance is optional and not a condition of obtaining credit approval.

2. If more than one kind of consumer credit insurance is being made available to the debtor, whether the debtor can purchase each kind separately or the multiple coverages only as a package.

3. The conditions of eligibility.

4. If the consumer has other life or disability insurance, the consumer may not want or need credit insurance.

5. Within the first thirty days after receiving the individual policy or group certificate, the debtor may cancel the coverage and have all premiums paid by the debtor refunded or credited.

6. A description of:

(a) The amount.

(b) The term if less than the term of the loan or extension of credit.

(c) The premium rate for each coverage or for all coverages in a package.

7. If the premium or insurance charge is financed, it will be subject to finance charges at the rate applicable to the credit transaction.

B. A person may combine the disclosures required by subsection A of this section with other disclosures required by the laws of this state or the federal government.

C. The disclosures required under subsection A of this section shall be provided in the following manner:

1. For consumer credit insurance offered contemporaneously with the extension of credit or offered through direct mail advertisements, the disclosures shall be made in writing and presented to the consumer in a clear and conspicuous manner.

2. For consumer credit insurance offered after the extension of credit by other than direct mail advertisements, the disclosures required by subsection A, paragraphs 1, 6 and 7 of this section may be provided orally or electronically if both of the following occur:

(a) The following oral disclosure is also made to a debtor who elects to purchase any consumer credit insurance:

You will be receiving important written information about the insurance you have chosen to purchase and your rights. We recommend that you read and carefully review this information as soon as you receive it.

(b) Written disclosure of all information required by subsection A of this section is provided to the debtor no later than the earlier of either:

(i) Ten days after the debtor elects coverage.

(ii) The date any other written material is provided to the debtor.

D. All consumer credit insurance shall be evidenced by an individual policy or a group certificate of insurance that shall be delivered to the debtor.

E. In addition to other requirements of law, the individual policy or group certificate shall state all of the following:

1. The name and home office address of the insurer.

2. The name of the debtor, or, in the case of a group certificate, the identity by name or otherwise of the debtor.

3. The premium or amount of payment by the debtor separately for each kind of coverage or for all coverages in a package, except that, for open-end loans, the premium rate and the basis of the premium calculation, such as average daily balance and prior monthly balance, shall be specified.

4. A full description of the coverage or coverages, including the amount and term and any exceptions, limitations and exclusions.

5. A statement that the benefits shall be paid to the creditor to reduce or extinguish the unpaid debt and, whenever the amount of insurance benefit exceeds the unpaid debt, that any excess shall be payable to a beneficiary, other than the creditor, named by the debtor or to the debtor's estate.

6. If the scheduled term of insurance is less than the scheduled term of the credit transaction, a statement to that effect on the face of the individual policy or group certificate in not less than ten point bold face type.

F. Unless the individual policy or group certificate of insurance is delivered to the debtor at the time the debt is incurred, or at such other time that the debtor elects to purchase coverage, a copy of the application for the policy that is signed by the debtor or a notice of proposed insurance that sets forth the name and home office address of the insurer, the name of the debtor, the premium rate or amount of payment by the debtor for the insurance and the amount, term and a brief description of the coverage provided shall be delivered to the debtor at the time the debt is incurred or the election to purchase coverage is made. The copy of the application for, or notice of proposed insurance, shall also refer exclusively to insurance coverage and shall be separate and apart from the loan, sale or other credit statement of account, instrument or agreement, unless the information required by this subsection is prominently set forth therein. On acceptance of the insurance by the insurer and within thirty days of the date on which the debt is incurred or the election to purchase coverage is made, the insurer shall cause the individual policy or group certificate of insurance to be delivered to the debtor. The application or notice of proposed insurance shall state that on acceptance by the insurer, the insurance shall become effective as provided in section 20-1607.

G. The application, notice of proposed insurance or certificate may be used to fulfill all of the requirements of subsection A of this section and subsection E of this section if it contains all of the information required by those subsections.

H. The debtor has thirty days from the date that the debtor receives either the individual policy or the group certificate to review the coverage purchased. At any time within the thirty-day period, the debtor may contact the creditor or insurer issuing the policy or certificate and request that the coverage be cancelled. The individual policy or group certificate may require the request to be in writing or that the policy or certificate be returned to the insurer, or both. Within thirty days of the request, the debtor shall receive a full refund or credit of all premiums or insurance charges paid by the debtor.

I. If the insurer is not willing to insure the particular risk, another insurer may agree to accept the risk and be substituted for the original insurer. A substitute insurer shall provide the debtor with a policy or certificate of insurance stating the name and home office address of the substituted insurer and the amount of the premium to be charged. If the amount of premium is less than that stated in the notice of proposed insurance, an appropriate refund shall be made within thirty days. If no insurer accepts the risk, then all premiums paid shall be refunded or credited within thirty days of application to the person entitled to the refund.

J. For the purpose of subsection F of this section, an individual policy or group certificate delivered in conjunction with an open-end consumer credit agreement or any consumer credit insurance requested by the debtor after the date of the debt is deemed to be delivered at the time the debt is incurred or election to purchase coverage is made if the delivery occurs within thirty days of the date the insurance is effective.

K. An individual policy or group certificate delivered in conjunction with an open-end credit agreement continues from its effective date through the term of the agreement unless the individual policy or group certificate is terminated according to its terms at an earlier date.

§ 20-1609 Filing, approval and disapproval of forms

A. A person shall not use or issue for delivery in this state a policy, certificate of insurance, application for insurance, endorsement or rider that relates to consumer credit insurance unless the person has first filed the form with the director and the director has approved the form. A person shall file each form with the director at least thirty days before using the form. Unless the director issues an order affirmatively approving or disapproving the form within thirty days after the filing, the form is deemed approved. On written notice given within the thirty day period to the person making the filing, the director may extend the period for review up to fifteen additional days to enable the director to complete the review of the filing.

B. The director shall disapprove any form filed pursuant to subsection A if the form contains provisions that are unjust, unfair, inequitable, misleading, ambiguous or deceptive, that encourage misrepresentations of the coverage or that are contrary to any provision of this title or of any rule adopted pursuant to this title.

C. If the director disapproves any form or determines that approval once given should be withdrawn, the director shall notify the insurer of the reason for the decision and advise the insurer of the hearing procedure prescribed by title 41, chapter 6, article 10.

§ 20-1610 Premiums for consumer credit insurance; approval or disapproval of rates

A. The consumer credit insurance charge to the debtor shall not exceed the premium for the particular coverage that is specified in the insurer's rate schedule on file with the director. If the premium is less than that specified in the rate schedule, the insurer shall charge the lesser amount.

B. A person shall not use in this state a schedule of premium rates or any revision of the schedule for consumer credit insurance unless the person has first filed the schedule or revision with the director and the director has approved the schedule or revision. A person shall file each schedule or revision with the director at least thirty days before using the schedule or revision. Unless the director issues an order affirmatively approving or disapproving the schedule or revision within thirty days after filing the schedule or revision, the schedule or revision is deemed approved. On written notice given within the thirty day period to the person making the filing, the director may extend the period for review up to fifteen additional days to enable the director to complete the review of the schedule or revision. The director shall disapprove the schedule or revision if in the director's opinion the premium rates charged or to be charged are excessive in relation to benefits that may be awarded. In determining whether to disapprove the schedule or revision the director shall accord due consideration to past and prospective loss experience within and outside this state, to underwriting practice and judgment and to all other factors relevant to the relationship between premium rates and benefits.

C. Rates for credit unemployment insurance are subject to section 20-1621.05.

D. If the director disapproves any schedule of premium rates or determines that approval once given should be withdrawn, the director shall so notify the insurer and thereafter the schedule shall not be used. The notice issued by the director shall specify the reason for the decision and advise the insurer of the hearing procedure prescribed by title 41, chapter 6, article 10.

E. Premiums in accordance with a schedule of rates filed with and approved by the director for consumer credit insurance shall be deemed not interest or as an amount in excess of permitted charges in connection with a loan or credit transaction, and any gain or advantage to a creditor arising from a premium or commission in the sale or provision of this insurance shall be deemed not interest or charges.

§ 20-1611 Refunds

A. Each individual policy or group certificate of consumer credit insurance shall provide that, in the event of termination of insurance prior to the scheduled maturity date of the debt, any refund of an amount paid by the debtor for insurance shall be remitted or credited promptly to the person entitled to the refund or credit. The director shall prescribe a minimum refund, which shall be not less than five dollars. An insurer is not required to refund any amount that is less than the minimum. The formula to be used in computing refunds shall be filed with the director and shall be subject to the director's approval.

B. If a creditor requires a debtor to make any payment for consumer credit insurance and an individual policy or group certificate is not issued, the creditor shall immediately give written notice to the debtor and shall promptly make an appropriate refund to the debtor or credit the debtor's account.

§ 20-1612 Authorization for issuance of policies

A. Each policy, certificate of insurance, application for insurance, endorsement and rider of consumer credit insurance delivered or issued for delivery in this state shall be by an insurer authorized by the director to transact insurance in this state.

B. In any transaction where a premium is collected from, or a payment made by, a debtor for consumer credit insurance, each policy, certificate of insurance, application for insurance, endorsement and rider shall be solicited by and placed through a holder of a license issued by the director in accordance with chapter 2, article 3 of this title. Nothing in this section requires a creditor to be licensed as an insurance producer solely because the creditor enrolls individuals in or administers a subsisting contract of group insurance.

§ 20-1613 Reporting and settlement of claims

A. In accordance with the terms of the applicable insurance contract, each claim shall be promptly reported to the insurer or to its designated claim representative and once reported shall be settled as soon as practicable.

B. Each claim shall be paid either by draft drawn upon the insurer, by electronic funds transfer or by check of the insurer to the order of the claimant to whom payment of benefits is due under the policy provisions or upon the claimant's direction paid to another.

C. No plan or arrangement shall be used whereby any person, firm or corporation, other than the insurer or its designated claim representative, shall be authorized to settle or adjust claims. The creditor shall not be designated as claim representative for the insurer in adjusting claims.

§ 20-1614 Debtor's option in satisfying security

When consumer credit insurance is required as a condition to a loan or credit transaction or as security for a debt, if so permitted by law, the debtor, upon request to the creditor, shall have the option of satisfying the requirements by furnishing existing policies of insurance in sufficient amount owned or controlled by the debtor or by procuring the necessary coverage from any insurer authorized by the director.

§ 20-1615 Rules

In the manner prescribed by section 20-143, the director may make reasonable rules as the director deems appropriate for proper administration of this article.

§ 20-1616 Cease and desist order; hearing

On finding that a person has violated this article or a rule adopted pursuant to this article, the director may issue an order directing that the person cease and desist from committing the violation. On the issuance of an order to cease and desist, the person may request a hearing pursuant to section 20-161 and title 41, chapter 6, article 10.

§ 20-1616.01 Penalties

In addition to any other penalties authorized by this title, after notice and a hearing, the director may impose on an insurer that violates an order of the director that is issued pursuant to this article or any rule adopted pursuant to this article a civil penalty of not more than one thousand dollars for each violation but not to exceed an aggregate penalty of one hundred thousand dollars, except that, if the violation was committed flagrantly in a conscious disregard of this article, the civil penalty shall not be more than twenty-five thousand dollars for each violation but not to exceed an aggregate penalty of two hundred fifty thousand dollars.

Article 10.1 Credit Property Insurance

§ 20-1621 Scope of article

A. This article applies to an insurer or producer transacting credit property insurance.

B. All credit property insurance written in connection with credit transactions for personal, family or household purposes is subject to this article, except:

1. Insurance resulting from transactions involving extensions of credit primarily for business or commercial purposes.

2. Insurance on mobile homes.

3. Insurance written in connection with a credit transaction that is secured by a real estate mortgage or deed of trust.

4. Creditor-placed insurance.

5. Title insurance.

6. Nonrecording insurance.

7. Insurance purchased by a creditor after repossession or a similar event where the creditor gains possession of the property.

C. All credit property insurance issued or made effective relative to consumer lender loans under title 6, chapter 5 is subject to this article.

D. All other provisions of this title not inconsistent with this article apply to transaction of credit property insurance.

§ 20-1621.01 Definitions

In this article, unless the context otherwise requires:

1. "Closed-end credit" means a credit transaction that does not meet the definition of open-end credit.

2. "Collateral" means personal property in which a purchase money security interest is retained or that is pledged as security for the satisfaction of a debt.

3. "Compensation" means commission, service fee, brokerage or any other valuable consideration that is paid to a person as a result of the sale of credit insurance.

4. "Consumer credit insurance" has the same meaning prescribed in section 20-1603.

5. "Credit agreement" means a written document that sets forth the terms of a credit transaction and includes the security agreement.

6. "Credit property insurance" means a policy of insurance that covers perils to goods purchased through a credit transaction or used as collateral for a credit transaction and that concerns a creditor's interest in the purchased goods or pledged collateral either in whole or in part.

7. "Credit transaction" means a transaction in which the repayment of money loaned or credit commitment made or payment of goods, services or properties sold or leased is to be made at a future date.

8. "Creditor" means the lender of money or the vendor or lessor of goods, services, property, rights or privileges for which payment is arranged through a credit transaction, or any successor to the right, title or interest of a lender, vendor or lessor and an affiliate, associate or subsidiary of any of them, any director, officer or employee of any of them or any person in any way associated with any of them.

9. "Creditor-placed insurance" means insurance that:

(a) A creditor unilaterally purchases after the date of a credit transaction.

(b) Names the creditor as the insured.

(c) Provides coverage against loss, expense or damage to collateralized personal property as a result of fire, theft, collision or other risks of loss that would either impair the creditor's interest or adversely affect the value of collateral covered by dual interest insurance.

(d) Is purchased according to the terms of the credit agreement because of the debtor's failure to provide required insurance and the cost of which coverage is charged to the debtor.

(e) Is either single interest insurance or dual interest insurance.

10. "Debtor" means the borrower of money or a purchaser or lessee of goods, services, property, rights or privileges for which payment is arranged through a credit transaction.

11. "Dual interest insurance" means a credit personal property insurance covering a seller's or creditor's interest and at least partially the borrower's interest in the goods purchased through the credit transaction or pledged as collateral for the credit transaction.

12. "Experience" means earned premiums and incurred losses during the experience period.

13. "Experience period" means the most recent period of time for which earned premiums and incurred losses are reported, not to exceed a period of three years.

14. "Finance charge" means any charge payable directly or indirectly to a lender as an incident to or as a condition of the extension of credit, including interest, time price differentials, amounts payable under a discount system of additional charges, service, transaction or carrying charges, loan fees, points or similar charges, appraisal fees, or charges incurred for investigating the credit worthiness of a consumer, but does not include charges as a result of default, taxes, license fees, delinquency charges or filing fees.

15. "Gross debt" means the sum of the remaining payments owed to a creditor by a debtor, including compensation, finance charges, interest or any other charges.

16. "Incurred losses" means total claims paid during the experience period plus any change in claim and claim adjustment expense reserves and claim adjustment experiences.

17. "Loss ratio" means incurred losses divided by the sum of earned premiums.

18. "Net debt" means the amount necessary to liquidate the remaining debt in a single lump sum payment, excluding all unearned interest and other unearned finance charges.

19. "Nonrecording insurance" means insurance that protects a creditor if the creditor suffers a loss as a result of its failure to perfect its security interest in collateral by failure to file a lien or record a security interest in the collateral as required by law for perfection of a security interest.

20. "Open-end credit" means credit extended by a creditor under an agreement in which:

(a) The creditor reasonably contemplates repeated transactions.

(b) The creditor imposes a finance charge from time to time on an outstanding unpaid balance.

(c) The amount of credit that may be extended to the debtor during the term of the agreement, up to any limit set by the creditor, is generally made available to the extent that any outstanding balance is repaid.

21. "Personal property" means all tangible property not classified as real property.

22. "Policy" means a policy, contract, endorsement, binder, certificate or evidence of credit property insurance, by whatever name called, and includes all attached or incorporated clauses, endorsements and papers.

23. "Producer" means a person or entity that receives a commission for insurance written or that, on behalf of an insurer or creditor, solicits, negotiates, effects, procures, delivers, renews, continues or binds credit insurance to which this article applies.

24. "Single interest insurance" means credit property insurance covering only a seller's or creditor's interest in the goods purchased through the credit transaction or pledged as collateral in the credit transaction.

§ 20-1621.02 Amount; term; coverage; prohibited practices

A. For credit property insurance sold in conjunction with a closed-end transaction, an insurer shall not:

1. Issue credit property insurance coverage unless the amount financed exceeds one hundred dollars.

2. Issue credit property insurance in an amount that exceeds the amount of the underlying credit transaction unless otherwise required by the laws of this state.

3. Sell credit property insurance with a term that exceeds in duration the scheduled term of the underlying credit transaction.

B. At a minimum, credit property insurance coverage shall include the coverages in the standard fire policy prescribed in section 20-1503 with coverage attachment and extended coverage endorsement.

C. Credit property insurance shall cover the possibility of an actual and substantial risk of loss of or damage to the property related to the credit transaction.

D. An insurer may not require the bundling of any other consumer credit insurance coverage with the purchase of credit property insurance coverage. A debtor may choose to purchase credit property insurance coverage separate from any other consumer credit insurance coverage.

E. An insurer shall not use gross debt as an exposure rating base in determining credit property insurance premiums.

§ 20-1621.03 Disclosure to debtors; provisions of policies; certificates of insurance

A. Before a debtor elects to purchase credit property insurance, the following information shall be disclosed to the debtor in writing:

1. Purchase of credit property insurance through the creditor is optional and not a condition of obtaining credit approval.

2. If more than one kind of credit insurance is being made available to the debtor, the debtor can purchase credit property insurance separately.

3. If the debtor has other insurance that covers the property, the debtor may not want or need credit property insurance.

4. Within the first thirty days of insurance coverage, the debtor may cancel the coverage and receive a refund or credit of all premium the debtor has paid.

5. The premium or premium rate for each type of coverage.

6. If the premium or insurance charge is financed, that it will be subject to finance charges at the rate applicable to the credit transaction.

B. A person may combine the disclosures required by subsection A with other disclosures required by the laws of this state or by federal law.

C. The disclosures required by subsection A shall be provided in the following manner:

1. For credit property insurance offered contemporaneously with the extension of credit or offered through direct mail advertisements, the disclosures shall be made in writing and presented to the consumer in a clear and conspicuous manner.

2. For credit property insurance offered after the extension of credit by other than direct mail advertisements, the disclosures required by subsection A, paragraphs 1, 5 and 6 may be provided orally or electronically if both of the following occur:

(a) The following oral disclosure is also made to a debtor who elects to purchase any consumer credit insurance:

You will be receiving important written information about the insurance you have chosen to purchase and your rights. We recommend that you read and carefully review this information as soon as you receive it.

(b) Written disclosure of all information required by subsection A of this section is provided to the debtor no later than the earlier of:

(i) Ten days after the debtor elects coverage.

(ii) The date any other written material is provided to the debtor.

D. An offer to extend credit property insurance coverage for an open-end consumer transaction shall include, at the time of the invitation to contract, the written disclosure prescribed below in at least ten point type. If the solicitation is made by telephone, the written disclosure shall be mailed within ten days of enrollment.

This coverage may duplicate existing coverage if you have a residential property insurance policy. It applies to any item of covered property on which you owe a debt. This coverage is primary, so it is the first source to be used in the event of a loss on property it covers. You may cancel this coverage at any time by calling the insurer at the telephone number provided to you or by writing to the insurer. We are charging you a premium that may be based on things for which a claim cannot be made, such as services, meals or other consumables, entertainment, finance or service fees, loan interest, delivery charges or other insurance premiums.

E. All credit property insurance shall be evidenced by an individual policy or a certificate of insurance that shall be delivered to the debtor.

F. In addition to other requirements of law, the individual policy or certificate of insurance shall contain all of the following information:

1. The name and home office address of the insurer.

2. The name of each debtor, or, in the case of a certificate of insurance, the identity by name or otherwise of each debtor.

3. The premium or amount of payment by the debtor, except that, for open-end loans, the premium rate and balance to which the rate applies shall be specified.

4. A full description of the coverage or coverages, including the amount and term and any exceptions, limitations and exclusions.

5. A statement that the benefits shall be paid to the creditor to reduce or extinguish the unpaid debt or, for credit personal property insurance coverage, to repair or replace the property and, whenever the amount of loss payment exceeds the unpaid debt, that any excess payment is payable to the debtor.

6. If the scheduled term of the insurance is less than the scheduled term of the credit transaction, a statement to that effect on the face of the individual policy or certificate of insurance in not less than twelve point bold face type.

G. Policies issued to cover open-end consumer transactions shall provide that the policyholder or certificate holder will be furnished the following disclosure notice with the account statement at least annually in no smaller than ten point type:

You are paying credit property insurance premiums based on the outstanding balance of this account. You may cancel this coverage at any time by calling the insurer at the telephone number the insurer has provided to you or by writing to the insurer. Your premium may be based on things for which a claim cannot be made, such as services, meals or other consumables, entertainment, finance or service fees, loan interest, delivery charges or other insurance premiums.

H. The policy shall be delivered to the debtor when the insurer accepts the insurance, except that a policy issued in conjunction with an open-end credit agreement or requested after the date the indebtedness is incurred may be delivered within thirty days of the date the debtor requests insurance.

§ 20-1621.04 Rates and forms; filing; approval; withdrawal of approval

A. A person shall not deliver, or issue for delivery in this state, any credit property insurance policy or rate unless the person has first filed the form or rate with the director and the director has approved the form or rate. Unless the director issues an order affirmatively approving or disapproving the form or rate within thirty days after filing, the form or rate is deemed approved. On written notice given to the insurer within the thirty day period, the director may extend the thirty day review period for up to fifteen additional days.

B. The director shall disapprove a rate or form if either:

1. The rate is inadequate, unfairly discriminatory or excessive or not reasonable in relation to the coverage provided.

2. The form contains provisions that are unjust, unfair, inequitable, ambiguous, misleading or deceptive, that encourage misrepresentation of the coverage or that are contrary to this title or of any rule adopted pursuant to this title.

C. If the director disapproves a rate or form, the director shall send the insurer a written notice specifying the reason for disapproval. The insurer may request a hearing pursuant to title 41, chapter 6, article 10 to contest the disapproval. It is unlawful for the insurer to issue or use a rate or form that has been disapproved.

D. At any time after notice and for cause shown, the director may issue an order withdrawing approval of any form or rate for any reason listed in subsection B. The insurer may request a hearing pursuant to title 41, chapter 6, article 10 to contest the director's order.

E. An insurer shall not issue or use a rate or form after the effective date of an order withdrawing approval.

F. An insurer shall not issue any credit property insurance policy for which the rates have not been filed with the director.

§ 20-1621.05 Reasonableness of benefits in relation to premium charged

A. An insurer's premium rates shall be reasonable in relation to the benefits provided and shall not be excessive, inadequate or unfairly discriminatory.

B. At least once every three years, the director shall establish by order a loss ratio standard. In establishing the loss ratio standard, the director shall consider the standard prescribed in subsection A of this section and the actual and expected loss experience of insurers, including a reasonable catastrophe provision. The director shall also consider other rate components, including reasonable general and administrative expenses, reasonable acquisition expenses, reasonable creditor compensation, investment income, premium taxes, licenses, fees, assessments and reasonable underwriting profit and contingencies.

C. Concurrently with the establishment of a loss ratio standard pursuant to subsection B of this section, the director, by order, shall establish prima facie rates. If an insurer's actual rates do not exceed the prima facie rates, the insurer's rates are presumed not to be excessive and the insurer is not required to file its rates with the director, subject to the following:

1. On or before April 1 of each year, on a form prescribed by the director, the insurer shall certify to the director that the rates currently applied by the insurer do not exceed the prima facie rates and that the rates are not inadequate or unfairly discriminatory. The insurer shall also state the actual rates then in effect. If the insurer changes the rates before the next April 1, the insurer shall file an amended certification with the director.

2. At any time the director may require the insurer to make rate filings according to section 20-1621.04.

D. The reasonable cost of actuarial or other professional services necessary to perform the duties required by this section are chargeable as examination expenses pursuant to section 20-159 and shall be allocated among insurers transacting credit property insurance or credit unemployment insurance in this state in proportion to the relative amounts of combined direct credit property and credit unemployment insurance premiums received in this state for the calendar year immediately before the date of the director's order pursuant to this section.

§ 20-1621.06 Experience reports

An insurer transacting credit property insurance in this state shall annually file with the director and the national association of insurance commissioner's a report of credit property insurance written on a calendar year basis. The report shall use the credit insurance supplement annual statement blank approved by the commissioners, and shall contain data separately for each state, rather than an allocation of the company's countrywide experience. The filing shall be made in accordance with and no later than the due date in the instructions to the annual statement.

§ 20-1621.07 Cancellation and refund of unearned premium

On cancellation for any reason, the debtor is entitled to a refund of unearned premiums calculated on a daily pro rata basis, except that an insurer is not required to make any refund of less than five dollars.

§ 20-1621.08 Claims

A. A creditor shall promptly report all claims to the insurer or its designated claim representative.

B. All claims shall be paid either by draft drawn on the insurer, by electronic funds transfer, by check of the insurer to the order of the claimant to whom payment of the claim is due pursuant to the policy provisions or on direction of the claimant to the party specified by the claimant.

C. A person shall not authorize a person, firm or corporation, other than the insurer or its designated claim representative, to settle or adjust claims. The creditor shall not be designated as claim representative for the insurer in adjusting claims, except that once the amount is determined, a group policyholder, by arrangement with the group insurer, may draw drafts, checks or electronic transfers in payment of claims due to the group policyholder subject to audit and review by the insurer.

D. A person shall not deny a claim because the debtor was ineligible for coverage later than ninety days after the initiation of coverage unless the debtor misrepresented a material fact. If a claim is denied because the debtor was ineligible for coverage within ninety days of initiation of coverage or because the debtor misrepresented a material fact for coverage, the insurer shall refund to the debtor all premiums paid and the creditor shall refund any finance charge paid on the premiums.

§ 20-1621.09 Cease and desist order; hearing

On finding that a person has violated this article or a rule adopted pursuant to this article, the director may issue an order directing that the person cease and desist from committing the violation. On the issuance of an order to cease and desist, the person may request a hearing pursuant to section 20-161 and title 41, chapter 6, article 10.

§ 20-1621.10 Rules

The director may adopt any rules reasonably necessary to carry out and effectuate this article.

§ 20-1621.11 Penalties

In addition to any other penalties authorized by this title, after notice and a hearing, the director may impose on an insurer that violates an order of the director that is issued pursuant to this article or any rule adopted pursuant to this article a civil penalty of not more than one thousand dollars for each violation but not to exceed an aggregate penalty of one hundred thousand dollars, except that, if the violation was committed flagrantly in a conscious disregard of this article, the civil penalty shall not be more than twenty-five thousand dollars for each violation but not to exceed an aggregate penalty of two hundred fifty thousand dollars.

Article 11 Cancellation or Nonrenewal of Motor Vehicle Insurance

§ 20-1631 Definition of motor vehicle; cancellation of or failure to renew coverage; limitations; limitation of liability; exceptions; insurance producers; definitions

A. In this article, unless the context otherwise requires, "motor vehicle" means a licensed land, motor-driven vehicle but does not mean:

1. A private passenger or station wagon type vehicle used as a public or livery conveyance or rented to others.

2. Any other four-wheel motor vehicle of a load capacity of fifteen hundred pounds or less that is used in the business of transporting passengers for hire, used in business primarily to transport property or equipment, used as a public or livery conveyance or rented to others.

3. Any motor vehicle with a load capacity of more than fifteen hundred pounds.

4. A vehicle that otherwise qualifies as a motor vehicle under this subsection but only while the driver of the vehicle is logged in to a transportation network company's digital network or software application to be a driver or is providing transportation network services, unless expressly covered by the private passenger policy.

B. A motor vehicle used as a public or livery conveyance or rented to others does not include a motor vehicle used in the course of volunteer work for a tax-exempt organization as described in section 501(c)(3) of the internal revenue code.

C. An insurer shall not cancel or refuse to renew a motor vehicle insurance policy solely because of the location of residence, age, race, color, religion, sex, national origin or ancestry of anyone who is an insured, except that an insurer may refuse to renew a motor vehicle insurance policy if a named insured establishes a primary residence in a state other than this state.

D. An insurer shall not issue a motor vehicle insurance policy in this state unless the cancellation and renewal conditions of the policy or the endorsement on the policy includes the limitations required by this section. After a policy issued in this state has been in effect for sixty days, or if the policy is a renewal, effective immediately, the company shall not exercise its right to cancel the insurance afforded under the policy unless:

1. The named insured fails to discharge when due any of the obligations of the named insured in connection with the payment of premium for this policy or any installment of the premium.

2. The insurance was obtained through fraudulent misrepresentation.

3. The named insured, any person who resides in the same household as the named insured and who customarily operates a motor vehicle insured under the policy or any other person who regularly and frequently operates a motor vehicle insured under the policy:

(a) Has had the person's driver license suspended or revoked during the policy period.

(b) Develops a permanent disability, either physically or mentally, and the person does not produce a certificate from a physician or a registered nurse practitioner testifying to the person's ability to operate a motor vehicle.

(c) Is or has been convicted during the thirty-six months immediately preceding the effective date of the policy or during the policy period of:

(i) Criminal negligence resulting in death, homicide or assault and arising out of the operation of a motor vehicle.

(ii) Operating a motor vehicle while in an intoxicated condition or while under the influence of drugs.

(iii) Leaving the scene of an accident.

(iv) Making false statements in an application for a driver license.

(v) Reckless driving.

4. The insurer is placed in rehabilitation or receivership by the insurance supervisory official in its state of domicile or by a court of competent jurisdiction or the director has suspended the insurer's certificate of authority based on its financially hazardous condition.

5. The named insured, any person who resides in the same household as the named insured and who customarily operates a motor vehicle insured under the policy or any other person who regularly and frequently operates a motor vehicle insured under the policy uses a motor vehicle rated or insured under the policy as a private passenger motor vehicle regularly and frequently for commercial purposes.

6. The named insured, any person who resides in the same household as the named insured and who customarily operates a motor vehicle insured under the policy or any other person who regularly and frequently operates a motor vehicle insured under the policy uses a motor vehicle rated or insured under the policy to provide transportation network services unless, while the driver is logged in to the transportation network company's digital network or software application to be a driver or is providing transportation network services, the named insured either:

(a) Has procured an endorsement to the private passenger policy that expressly provides such coverage.

(b) Is covered by a motor vehicle liability insurance policy issued by another insurer expressly providing such coverage.

7. The director determines that the continuation of the policy would place the insurer in violation of the laws of this state or would jeopardize the solvency of the insurer.

E. An insurer may nonrenew a motor vehicle insurance policy if the insurer complies with this article. An insurer shall provide notice of a nonrenewal to the named insured as prescribed by section 20-1632. A named insured who disputes the nonrenewal of the named insured's policy may file an objection with the director pursuant to section 20-1633.

F. The company shall not cancel the insurance when a person other than the named insured has violated subsection D, paragraph 3 of this section, if the named insured in writing agrees to exclude as insured the person by name when operating a motor vehicle and further agrees to exclude coverage to the named insured for any negligence that may be imputed by law to the named insured arising out of the maintenance, operation or use of a motor vehicle by the excluded person. The written agreement that excludes coverage under a policy for a named individual is effective for each renewal of the policy by the insurer and remains in effect until the insurer agrees in writing to provide coverage for the named individual who was previously excluded from coverage.

G. This article does not apply to any policy that has been in effect less than sixty days at the time notice of cancellation is mailed or delivered by the insurer unless the policy is a renewal policy, or to policies:

1. Insuring any motor vehicle other than a private passenger motor vehicle as defined in section 20-117.

2. Insuring the motor vehicle hazard of garages, motor vehicle sales agencies, repair shops, service stations or public parking places.

3. Providing insurance only on an excess basis.

H. If a consumer purchases motor vehicle insurance coverage from an insurance producer licensed in this state, the insurance producer that owns the policy expiration shall remain the insurance producer of record for that insured. If the insurer terminates the insurance producer's contract, the insurance producer shall continue to provide customary services to the insured. The insurer shall provide the insurance producer with a minimum degree of authority necessary to provide customary services to the insured and shall provide the same level of compensation for these services that were in effect before the termination of the insurance producer contract.

I. Subsection H of this section does not apply if one or more of the following conditions exist:

1. The insurance producer of record has had its license suspended or revoked by the department.

2. The insurance producer of record is indebted to the insurer.

3. The insured has supplied the insurer with a written request that its insurance producer of record be changed to another insurance producer of the insurer.

4. The insurance producer of record has authorized transfer of this account to another licensed insurance producer of the insurer.

5. The director has determined after a public hearing that continuation of this relationship is not in the best interest of the public.

6. The insurance producer of record is under an exclusive contract or contract requiring the insurance producer to submit all eligible business to an insurer or group of insurers under a common management.

J. Subsection H of this section does not apply to any transaction in which the expiration of the policies is owned by the insurer.

K. Notwithstanding any law to the contrary, if an insurer chooses to renew a policy, the issuance at renewal of revised policy provisions to modify an existing policy by adding coverages or policy provisions, modifying coverages or policy provisions or eliminating coverages or policy provisions is not a nonrenewal or cancellation of the policy if the modification of a basic coverage does not eliminate the essential benefit of that basic coverage. If the modification of the basic coverage eliminates the essential benefit of the basic coverage, the director shall order the insurer to remove the modification from the policy. This subsection does not allow the insurer, without the written consent of the insured, to eliminate the basic coverages of the policy or to reduce the monetary limits of any of the basic coverages of the policy that were selected and agreed on. If an insurer chooses to renew a policy, this subsection does not limit a policyholder from continuing to renew uninsured or underinsured motorist coverage pursuant to section 20-259.01. For the purposes of this subsection, "basic coverage" means any of the following:

1. Bodily injury coverage.

2. Property damage coverage.

3. Uninsured motorist coverage.

4. Underinsured motorist coverage.

5. Medical payments coverage.

6. Comprehensive coverage.

7. Collision coverage.

L. For the purposes of this section, fail to renew or nonrenewal does not include the issuance and delivery of a new policy within the same insurer or an insurer under the same ownership or management as the original insurer as provided in this subsection. An insurer may transfer any of its policies to an affiliated insurer. An insurer may not transfer policyholders because of their location of residence, age, race, color, religion, sex, national origin or ancestry. A transfer by an insurer pursuant to this subsection does not allow the insurer to apply a new unrestricted sixty-day period for cancellation or nonrenewal.

M. Except as provided in this subsection, an insurer shall not refuse to renew a policy, based on an insured's failure to maintain membership in a bona fide association, until both the insurer and bona fide association have complied with this subsection and shall not refuse to renew any coverage continuously in effect before September 1, 1998, subject to all the following:

1. In addition to any other reason provided in this section, an insurer may refuse to renew an insurance policy issued pursuant to this article if all of the following conditions apply:

(a) The insurer clearly discloses to the applicant and the insured in the application for insurance and insurance policy that both the payment of dues and current membership in the bona fide association are prerequisites to obtaining or renewing the insurance.

(b) Any money paid to the bona fide association as a membership fee:

(i) Is not used by the insurer directly or indirectly to defray any costs or expenses in connection with the sale or purchase of the insurance.

(ii) Is set independently of any factor used by the insurer to make any judgment or determination about the eligibility of any individual, including the member, an employee of a member or a dependent of a member, to purchase or renew the insurance.

(c) The bona fide association has filed a certification with the director verifying the eligibility of the insurer to refuse to renew an insurance policy based on membership in the bona fide association.

2. To qualify as a bona fide association pursuant to this subsection, the association shall meet all of the requirements of this paragraph. The association shall file a statement with the director at least thirty days before the commencement of the offer or sale of insurance as provided by this subsection verifying that the association meets the requirements of this paragraph. The association shall update the filing required by this paragraph at least thirty days before the effective date of any material change in the information contained in the statement and shall file a separate notice with the director if the insurance described in the statement is no longer available through the association. The statement shall include the following information:

(a) That the association has been in active existence for at least five consecutive years immediately before the filing of the statement.

(b) That the association has been formed and maintained in good faith for purposes other than obtaining or providing insurance and does not condition membership in the association on the purchase of insurance.

(c) That the association has articles of incorporation and bylaws or other similar governing documents.

(d) That the association does not condition membership in the association or set membership fees on the eligibility of any individual, including the member, an employee of the member or a dependent of the member, to purchase or renew the insurance, or on any factor that the insurer could not lawfully consider when setting rates.

(e) That the association has a relationship with a specific insurer or insurers and identifies the insurer or insurers.

3. Membership fees collected by the bona fide association are not premiums of the insurer that issued the coverage unless the bona fide association:

(a) Uses any portion of the membership fees directly or indirectly to defray any costs or expenses in connection with the sale or purchase of the insurance.

(b) Sets or adjusts membership fees for any member of the bona fide association based on any factor used by the insurer that issues the insurance to make any judgment or determination about the eligibility of any individual, including the member, an employee of the member or a dependent of the member, to purchase or renew the insurance.

4. If the membership fees constitute premiums pursuant to paragraph 3 of this subsection, an insurer shall not refuse to renew a policy as otherwise allowed by this subsection.

N. An insurer or insurance producer shall not inquire on an application for a motor vehicle insurance policy whether the applicant, any person who resides in the same household as the applicant and who customarily operates a motor vehicle to be insured under the policy or any other person who regularly and frequently operates a motor vehicle to be insured under the policy has been nonrenewed by an insurer.

O. An insurer may issue an endorsement to a private passenger policy that expressly provides coverage for the provision of transportation network services, but that endorsement may not be treated as basic coverage as defined in subsection K of this section and any termination of the endorsement may not be treated as a modification of basic coverage. An insurer may terminate the endorsement allowed by this subsection by giving advance notice of the termination. Any notice by the insurer to the policyholder to terminate the endorsement allowed by this subsection shall be sent to the named insured at least forty-five days before the effective date of the termination. The notice shall include an explanation to the named insured that the further provision of transportation network services following the effective date of the termination might subject the insured to cancellation or nonrenewal of the insured's private passenger motor vehicle policy.

P. This section and section 28-4009 do not create an obligation of an insurer to offer, provide or issue a policy or an endorsement that includes coverage for any liability incurred while a transportation network company driver is logged in to the transportation network company's digital network or software application to be a driver or is providing transportation network services.

Q. For the purposes of this section, "transportation network company", "transportation network company driver" and "transportation network services" have the same meanings prescribed in section 28-9551.

§ 20-1632 Cancellation, nonrenewal and reduction of limits for reasons other than nonpayment of premium; notices to insured; refund of unearned premium

A. A notice by the insurer to the policyholder of cancellation or reduction in the limits of liability or coverage for reasons other than nonpayment of premium shall be sent to the named insured at least ten days before the effective date of the cancellation or reduction in limits of liability or coverage. Notice of nonrenewal for reasons other than nonpayment of premium shall be sent at least forty-five days before the effective date of the nonrenewal. A notice under this subsection shall include or be accompanied by all of the following:

1. A statement in writing of the specific facts that constitute the reasons, consistent with this article, for such action by the insurer and a notice indicating the named insured's right to complain to the director of the insurer's action within ten days after receipt of the notice by the insured.

2. Notice of the insured's possible eligibility for insurance through the automobile assigned risk plan, and the notice shall state that all information included in the notice is given pursuant to this article.

3. Except as provided in paragraph 4 of this subsection, a refund of unearned premium. For the purposes of this paragraph, the insurer shall either send the notice and refund of unearned premium together at least ten days before the effective date or send the notice before the refund of unearned premium if both the notice and the refund of unearned premium are sent separately to the insured at least ten days before the effective date. As an alternative to sending the refund by mail, an insurer may refund the unearned premium by any electronic means previously established with the insured to make and receive premium payments for the policy.

4. In the case of a notice of cancellation or nonrenewal of a policyholder whose premium payment is collected and remitted on the insurer's behalf by the insurer's affiliate, the insurer shall refund any unearned premium to the policyholder within ten days after the policy cancellation or nonrenewal. For the purposes of this paragraph, "affiliate" has the same meaning prescribed in section 20-481.

B. Failure of the insurer to comply with subsection A of this section shall invalidate any cancellation, nonrenewal or reduction in limits of liability or coverage.

C. If a premium has been financed, a refund of unearned premium shall be returned as provided in section 6-1416.

§ 20-1632.01 Cancellation or nonrenewal for nonpayment of premium; grace period; notice of cancellation; discrimination; definition

A. Motor vehicle insurance policies shall contain a provision that the policyholder is entitled to a minimum grace period of seven days for the payment of any premium due except the first payment, during which grace period the policy shall continue in full force. For the purposes of this subsection, an initial payment on the renewal of a policy is not a first payment of premium.

B. For any motor vehicle insurance policy that is cancelled or nonrenewed for nonpayment of premium by the insurer after the grace period, the insurer must send a notice of cancellation or nonrenewal to the policyholder. The cancellation or nonrenewal is effective on the date the notice is sent to the policyholder. The notice shall include or be accompanied by a statement in writing of the reasons for such action by the insurer and a notice indicating the named insured's right to complain to the director of the insurer's action within ten days after receipt of the notice by the insured. An insurer shall not cancel or nonrenew a motor vehicle insurance policy pursuant to this section because of the named insured's location of residence, age, race, color, religion, sex, sexual orientation, marital status, national origin, ancestry or driving record.

C. This section does not apply to policies being cancelled pursuant to section 6-1415. The grace period provided in such policies shall be satisfied by the ten-day notice of intent of the premium finance company to cancel the insurance contract unless the default is cured within the ten-day period.

D. For the purposes of this section, "grace period" means the period of time after the premium due date during which the policy remains in force without penalty even though the premium due has not been paid.

§ 20-1633 Objections; investigation; determination

A. Any individual who believes cancellation of the individual's policy is arbitrary, capricious or otherwise in violation of this article, who believes nonrenewal is in violation of this article or who believes notice of nonrenewal or cancellation, or the reasons for nonrenewal or cancellation, were not given as provided by this article, within ten days after receipt of notice, may file in writing an objection to the action with the director.

B. On receipt of a written objection pursuant to this article, the director shall notify the insurer of receipt of the objection and of the right of the insurer to file a written response within ten days of receipt of the notification. The director may also order an examination of the objection or complaint, the submission of additional information by the insured or the insurer about the action by the insurer or the objections of the insured, or any other procedure as the director deems appropriate or necessary. The insurer shall pay the cost of the examination pursuant to section 20-159. Within fifteen days of receipt of the written objection by an insured the director shall approve or disapprove the insurer's action and shall notify the insured and insurer in writing of the director's final decision. The director shall order an insurer that has failed to renew a policy in violation of this article to reinstate the policy retroactive to the effective date of the nonrenewal. Except as provided in section 41-1092.08, subsection H, either party may institute proceedings for judicial review of the director's final decision pursuant to title 12, chapter 7, article 6. Notwithstanding any other law, if the director decides in favor of the insured, the director may order that the decision not be stayed pending judicial review.

§ 20-1634 Immunity

The director or any person who in good faith furnishes to the insured or insurer information as to reasons for cancellation or nonrenewal of a motor vehicle policy shall not be liable to any party for providing such information.

Article 12 Cancellation or Nonrenewal of Insurance

§ 20-1651 Application; types of risks

This article shall apply to policies of insurance, other than motor vehicle insurance and workers' compensation insurance, on risks located or resident in this state which insure any of the following contingencies:

1. Loss of or damage to real property which is used predominantly for residential purposes and which consists of not more than four dwelling units.

2. Loss of or damage to personal property in which natural persons resident in specifically described real property of the kind described in paragraph 1 have an insurable interest, except personal property used in the conduct of a commercial or industrial enterprise.

3. Legal liability of a natural person for loss, damage or injury to persons or property, but not including policies primarily insuring risks arising from the conduct of a commercial or industrial enterprise.

§ 20-1652 Grounds for valid notice of cancellation; inquiries; definitions

A. After a policy has been in effect for sixty days or, if the policy is a renewal, effective immediately, a notice of cancellation is not effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:

1. Nonpayment of premium.

2. Conviction of the named insured of a crime arising out of acts increasing the hazard insured against.

3. Acts or omissions by the insured or the insured's representative constituting fraud or material misrepresentation in obtaining the policy, continuing the policy or presenting a claim under the policy.

4. Discovery of grossly negligent acts or omissions by the insured substantially increasing any of the hazards insured against.

5. Substantial change in the risk assumed by the insurer, since the policy was issued, except to the extent that the insurer should reasonably have foreseen the change or contemplated the risk in writing the contract.

6. A determination by the director that the continuation of the policy would place the insurer in violation of the insurance laws of this state.

7. Failure of the insured to take reasonable steps to eliminate or reduce any conditions in or on the insured premises that contributed to a loss in the past or will increase the probability of future losses.

B. If nonrenewal is based on the condition of the premises, the insured shall be given thirty days' notice to remedy the identified conditions. If the identified conditions are remedied, coverage shall be renewed. If the identified conditions are not satisfactorily remedied, the insured shall be given an additional thirty days, on payment of premium, to cure the defective condition. Any insured who believes nonrenewal under this subsection is arbitrary or capricious may use the appeal procedures set forth in section 20-1633.

C. If an insurer uses for underwriting purposes information from a report provided by, or database maintained by, an insurance support organization or consumer reporting agency related to the premises that is the subject of the application or to the person applying for insurance, the insurer shall obtain that information as soon as practicable on application by a person for insurance coverage and before the issuance of a binder of insurance coverage. Failure of the insurer to timely obtain the information required by this subsection precludes the insurer from declining insurance coverage or terminating a binder of insurance coverage based on the information. This subsection does not apply to a policy renewal.

D. This section does not affect the provisions of section 20-1120.

E. After thirty days from the application by an insured for insurance coverage, no declination of insurance coverage or termination of a binder shall be based on information from a consumer report, including a consumer report provided by, or database maintained by, an insurance support organization or consumer reporting agency related to the premises that is the subject of the application or to the person applying for insurance. Notwithstanding any other law, an insurer may decline or terminate insurance coverage based on the condition of the premises as determined through a physical inspection of the premises.

F. An insurer shall not consider as a claim any inquiry by an insured into whether a policy will cover a loss or about the type or level of coverage. An insurer shall not use such an inquiry, regardless of the source of the information that an inquiry was made, as a basis for declining, nonrenewing or canceling insurance coverage or a binder of insurance coverage. An insurer shall not submit to any insurance support organization or consumer reporting agency that a mere inquiry was made to the insurer as to the terms or coverage of a policy of insurance. An inquiry into coverage on a property insurance policy is not a claim activity unless an actual claim is filed by the insured that results in an investigation of the claim by the insurer.

G. For the purposes of this section, nonrenewal does not include the issuance and delivery of a new policy within the same insurer or an insurer under the same ownership or management as the original insurer as provided in this subsection. An insurer may transfer any of its policies to an affiliated insurer. An insurer may not transfer a policyholder because of the policyholder's location of residence, age, race, color, religion, sex, national origin or ancestry. A transfer by an insurer pursuant to this subsection does not allow the insurer to apply a new unrestricted sixty-day period for cancellation or nonrenewal.

H. For the purposes of this section:

1. "Consumer reporting agency" has the same meaning prescribed in section 20-2102.

2. "Insurance support organization" has the same meaning prescribed in section 20-2102.

§ 20-1653 Sending notice of cancellation or nonrenewal to insured; statement of grounds and facts on which cancellation or nonrenewal is based

All notices of cancellation or nonrenewal shall be in writing, shall be sent to the named insured and shall state, with respect to cancellation of policies in effect after the time limits specified in section 20-1652 and, in the case of nonrenewal of policies as specified in section 20-1654:

1. In the case of cancellation the specific facts that constitute the grounds set forth in section 20-1652 relied on.

2. In the case of nonrenewal the specific facts that constitute the reason the policy is not being renewed, which may include the grounds set forth in section 20-1652.

§ 20-1654 Sending notice of intention not to renew to insured; time; term of policy

A. Unless the insurer, at least thirty days before the end of the policy period, sends to the named insured notice of its intention not to renew the policy or to condition its renewal on reduction of limits or elimination of coverages, the insurer shall not fail to renew the policy on payment of the premium due on the effective date of the renewal, in accordance with the then existing rating manual of the insurer.

B. For the purposes of this section:

1. Any policy written for a term of less than one year may be renewed for a term of one year if the notice is not given as required by subsection A of this section. For the purposes of subsection A of this section, a policy with no fixed expiration date is deemed written for successive policy periods of one year.

2. Nonrenewal does not include the issuance and delivery of a new policy within the same insurer or an insurer under the same ownership or management as the original insurer as provided in this paragraph. An insurer may transfer any of its policies to an affiliated insurer. An insurer may not transfer a policyholder because of the policyholder's location of residence, age, race, color, religion, sex, national origin or ancestry. A transfer by an insurer pursuant to this paragraph does not allow the insurer to apply a new unrestricted sixty-day period for cancellation or nonrenewal.

C. This section does not apply if the insured has accepted replacement coverage or has agreed to nonrenewal.

§ 20-1655 Liability of insurer and representatives for statements in notice of cancellation, other communication or evidence given in court relating to cancellation

There shall be no liability on the part of, and no cause of action of any nature shall arise against, any insurer or its authorized representatives, agents or employees, or any licensed insurance producer, for any statement made, unless shown to have been made in bad faith with malice in any of the following:

1. Written notice of cancellation or nonrenewal or in any other oral or written communication specifying the reasons for cancellation or nonrenewal.

2. Communication providing information pertaining to such cancellation or nonrenewal.

3. Evidence submitted at any court proceeding or informal inquiry in which such cancellation or nonrenewal is an issue.

§ 20-1656 Proof of sending as proof of notice

A. Proof of sending a notice of cancellation and the reasons for cancellation or of intention not to renew to the named insured by mail at the address shown in the policy is sufficient proof of the notice required by this article.

B. Any method of proof retained by the insurer for sending a notice of cancellation by any method other than by mail is sufficient proof of the notice required by this article.

Article 13 Mass Marketed Life or Health Insurance

§ 20-1661 Definitions

A. In this article, unless the context otherwise requires:

1. "Direct response solicitation" means any offer by an insurer to persons in this state, either directly or through a third party, to effect life or health insurance coverage which enables the individual to apply or enroll for the insurance on the basis of the offer.

2. "Mass marketed life or health insurance" means insurance under any franchise, group or blanket policy of life or health insurance which is offered by means of direct response solicitation through a sponsoring organization or through the mails or other mass communications media and under which the person who is insured pays all or substantially all of the cost of his insurance.

B. In this article, "direct response solicitation" does not include solicitations for insurance through an employee benefit plan or a solicitation through the individual's creditor with respect to credit life or credit health insurance.

§ 20-1662 Requirements to transact mass marketed insurance

An insurer extending mass marketed life or health insurance under a group or blanket policy issued outside this state to residents of this state shall, before offering coverage to the citizens of this state:

1. Make available for the purpose of determining compliance with this article copies of any such policy or certificates issued under such policy and advertising material used within this state in connection with such insurance.

2. Comply with the requirements of this state relating to advertising and to claims settlement practices.

§ 20-1663 Unreasonable mass marketed insurance prohibited; hearing; findings; rules

A. No mass marketed life or health insurance may continue to be transacted in this state if the director finds that the total charges for the insurance to the persons who are insured are unreasonable in relation to the benefits provided. The director shall make any such finding after conducting a hearing on not less than thirty days' written notice to the insurer. The director shall make such findings in writing, including the reasons for such findings, and may issue an order directing the insurer to cease transacting such insurance. Such an order continues in effect until the director determines that the total charges for the insurance are found to be reasonable in relation to the benefits.

B. The director may adopt reasonable rules to determine whether the total charges for the insurance to persons insured are unreasonable in relation to the benefits provided.

C. Nothing in this section shall be construed to permit the director to set rates.

Article 14 Cancellation or Nonrenewal of Commercial Insurance

§ 20-1671 Scope of article

This article applies to commercial property insurance policies, commercial liability policies and commercial multi-peril insurance policies other than automobile policies. This article does not apply to any of the following:

1. Life and disability insurance.

2. Annuities.

3. Workers' compensation and employers' liability insurance written in connection with workers' compensation.

4. Motor vehicle policies governed by section 20-1631.

5. Surplus lines insurance.

6. Mortgage guaranty insurance.

7. Title insurance.

8. Marine, as distinguished from inland marine, insurance.

9. Policies covering multistate location risks.

10. Excess policies.

11. Policies issued through assigned risk plans, joint underwriting associations or other residual market mechanisms.

12. Such other policies as the director may exempt.

§ 20-1672 Definitions

In this article, unless the context otherwise requires:

1. "Cancellation" means termination of a policy at a date other than its expiration date.

2. "Expiration date" means the date on which coverage under a policy ends as set forth in the policy. For a policy written for a term longer than one year or with no fixed expiration date, each annual anniversary date of the policy is the expiration date.

3. "Nonpayment of premium" means the failure or inability of the named insured to discharge any obligation in connection with the payment of premiums on a policy of insurance subject to this article, whether the payments are payable directly to the insurer or its agent or payable through a premium finance plan or extension of credit.

4. "Nonrenewal" means termination of a policy at its expiration date.

5. "Renewal" or "to renew" means the issuance of or the offer to issue by an insurer a policy succeeding a policy previously issued and delivered by the same insurer or an insurer within the same group of insurers or the issuance of a certificate or notice extending the term of an existing policy for a specified period beyond its expiration date.

§ 20-1673 Grounds for valid cancellation

A. No insurer may cancel an insurance policy before the expiration of the agreed term or one year from the effective date of the policy or renewal, whichever is less, if one of the following is true:

1. The policy has been in effect for sixty days.

2. The policy is a renewal, effective immediately.

B. Notwithstanding subsection A of this section, an insurer may cancel a policy for either of the following:

1. Nonpayment of a premium.

2. One of the following grounds, which must be stated in the policy:

(a) Conviction of the named insured of a crime arising out of acts increasing the hazard insured against.

(b) Acts or omissions by the insured or the insured's representative constituting fraud or material misrepresentation in obtaining the policy, in continuing the policy or in presenting a claim under the policy.

(c) A substantial change in the risk assumed, except to the extent that the insurer should reasonably have foreseen the change or contemplated the risk in writing the contract.

(d) A substantial breach of contractual duties or conditions.

(e) Loss of reinsurance applicable to the risk insured against, but only if the absence of reinsurance has resulted from termination of treaty or facultative reinsurance initiated or implemented by the reinsurer or reinsurers of the company issuing the policy.

(f) A determination by the director that the continuation of the policy would place the insurer in violation of the insurance laws of this state or would jeopardize the solvency of the insurer.

(g) Acts or omissions by the insured or the insured's representative that materially increase the hazard insured against.

§ 20-1674 Notice of cancellation; refund of unearned premium

A. A cancellation under section 20-1673 is not effective unless the insurer sends a copy of the notice of cancellation to the insured's agent and to the named insured at least forty-five days before the effective date of the cancellation, except that, if cancellation is for nonpayment of premium, at least ten days' notice of cancellation must be given. The notice must state the specific facts that constitute the grounds set forth in section 20-1673 that are relied on. If the insurer sends the notice by mail, the insurer shall obtain proof of mailing by United States certified mail or first class mail using intelligent mail barcode or another similar tracking method used or approved by the United States postal service.

B. The notice of cancellation and any refund of unearned premium may be sent separately, but both must be sent within the time frames established in subsection A of this section. If a premium has been financed, a refund of unearned premium shall be returned as provided in section 6-1416.

§ 20-1675 Liability of insurer and representatives for statements in notice of cancellation, other communication or evidence given in court relating to cancellation

There is no liability on the part of and no cause of action of any nature arises against any insurer or its authorized representatives, agents or employees, or any licensed insurance producer, for any statement made, unless shown to have been made in bad faith with malice, in any of the following:

1. A written notice of cancellation or in any other oral or written communication specifying the reasons for cancellation.

2. A communication providing information pertaining to such cancellation.

3. Evidence submitted at any court proceeding or informal inquiry in which such cancellation is an issue.

§ 20-1676 Notice of nonrenewal

A. This article does not apply to the nonrenewal of insurance policies except as provided in subsection B of this section.

B. A nonrenewal of any policy of insurance to which this article applies is not effective unless the insurer sends a copy of the notice of nonrenewal to the insured's agent and to the named insured at least forty-five days before the end of the policy period of its intention not to renew the policy. The transfer of a policyholder between companies within the same insurance group or changes in deductibles, premium, amount of insurance or coverage are not refusals to renew.

C. Notice of nonrenewal is not required if either of the following occurs:

1. The insurer or a company within the same insurance group has offered to issue a renewal policy.

2. The named insured has obtained replacement coverage or has agreed in writing to obtain replacement coverage.

D. If an insurer provides the notice described in subsection B of this section and the insurer subsequently extends the policy for ninety days at the request of the policyholder, an additional notice of nonrenewal is not required with respect to the extension.

E. If the notice of nonrenewal is sent less than forty-five days before expiration, the coverage remains in effect until forty-five days after the notice is sent. Earned premium for any period of coverage that extends beyond the expiration date shall be considered pro rata based on the previous year's rate.

§ 20-1677 Notice of premium or coverage changes

A. An insurer shall send to the named insured written notice of a premium increase, change in deductible or reduction in limits or substantial reduction in coverage at least thirty days before the expiration date of the policy. If the insurer fails to provide the thirty days' notice, the coverage provided to the named insured remains in effect until notice is given or until the effective date of replacement coverage obtained by the named insured, whichever occurs first.

B. Notice is considered given thirty days after the date the notice is sent. If the insured elects not to renew, any earned premium for the period of extension of the terminated policy shall be calculated pro rata at the lower of the current or previous year's rate. If the insured accepts the renewal, the premium increase, if any, and other changes are effective the day following the prior policy's expiration or anniversary date.

C. For the purposes of this section, notice is considered given if an insurer delivers new policy terms and conditions thirty days before the expiration date of the policy.

§ 20-1678 Proof of notice

A. Proof of sending a notice of cancellation, or of nonrenewal or of premium or coverage changes, by mail to the named insured at the address shown in the policy is sufficient proof of notice.

B. Any method of proof retained by the insurer for sending a notice of cancellation, or of nonrenewal or of premium or coverage changes, by any method other than by mail is sufficient proof of notice.

§ 20-1679 Application and effective date

This article applies only to policies with coverage effective dates that are after the effective date of this article.

Article 15 Long-Term Care Insurance

§ 20-1691 Definitions

In this article, unless the context otherwise requires:

1. "Applicant" means:

(a) In the case of an individual long-term care insurance policy, the person who seeks to contract for such benefits.

(b) In the case of a group long-term care insurance policy, the proposed certificate holder.

2. "Certificate" means a certificate issued under a group long-term care insurance policy, which has been delivered or issued for delivery in this state.

3. "Chronically ill individual" means any individual who has been certified by a licensed health care practitioner as meeting the definition of illness established by title III of the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936).

4. "Group" means any of the following:

(a) One or more employers or labor organizations, or a trust or the trustees of a fund established by one or more employers or labor organizations for employees or former employees or members or former members of the labor organization.

(b) A professional, trade or occupational association for its members or former or retired members if the association is composed of individuals who were all actively engaged in the same profession, trade or occupation and the association has been maintained in good faith for purposes other than obtaining insurance.

(c) An association or a trust or the trustees of a fund established, created or maintained for the benefit of members of one or more associations, subject to compliance with the requirements of section 20-1691.04, subsection A.

(d) A group other than that described in subdivision (a), (b) or (c) of this paragraph if a policy issued to the group satisfies the criteria under section 20-1691.04, subsection C.

5. "Group long-term care insurance" means a long-term care insurance policy that is delivered or issued for delivery in this state to a group.

6. "Licensed health care practitioner" means any physician licensed pursuant to title 32, chapter 13 or 17, any registered nurse or registered nurse practitioner licensed pursuant to title 32, chapter 15 or any other individual who meets the requirements prescribed by the United States secretary of the treasury.

7. "Long-term care insurance" means an individual or group insurance policy or rider issued by insurers, fraternal benefit societies, nonprofit health, hospital and medical service corporations, prepaid health plans, health care services organizations or any similar organization and advertised, marketed, offered or designed to provide coverage for each covered person on an expense-incurred, indemnity, prepaid or other basis for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, personal or custodial care services provided in a setting other than an acute care unit of a hospital. Long-term care insurance includes group and individual annuities, life insurance policies or riders that provide or supplement long-term care insurance and qualified long-term care insurance contracts. Long-term care insurance also includes a policy or rider that provides for payment of benefits based on cognitive impairment or loss of functional capacity. Long-term care insurance does not include any insurance policy that is offered primarily to provide basic medicare supplement coverage, basic hospital expense coverage, basic medical and surgical expense coverage, major medical expense coverage, disability income or related asset protection coverage, hospital confinement indemnity coverage, accident only coverage, specified disease coverage, specified accident coverage or limited benefit health coverage or riders to the insurance policy or a life insurance policy that accelerates the death benefit for terminal illness, medical conditions requiring extraordinary medical intervention or permanent institutional confinement, that provides the option of a lump sum payment for those benefits and in which the benefits or the eligibility for the benefits is not conditioned on the receipt of long-term care.

8. "Long-term care partnership program" means a qualified state long-term care insurance partnership as defined in section 1917(b) of the social security act (42 United States Code section 1396p).

9. "Maintenance or personal care services" means any care the primary purpose of which is to provide assistance needed with any disability that results in the individual being a chronically ill individual, including the protection from threats to health and safety due to severe cognitive impairment.

10. "Policy" means an individual or group policy, contract, subscriber agreement, rider or endorsement delivered or issued for delivery in this state by an insurer, fraternal benefit society, nonprofit health, hospital or medical service corporation, prepaid health plan or health care services organization or any similar organization.

11. "Preexisting condition" means a condition for which medical advice or treatment was recommended by or received from a health care services provider within six months before the effective date of coverage of an insured person.

12. "Qualified long-term care insurance contract" means:

(a) Any insurance policy that meets the requirements of section 7702B(b) of the internal revenue code of 1986, as amended.

(b) The portion of a life insurance policy that provides long-term care insurance coverage by rider or as a part of the policy and that satisfies the requirements of section 7702B(b) and (e) of the internal revenue code of 1986, as amended.

13. "Qualified long-term care services" means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services and maintenance or personal care services to which the insured is eligible under a qualified long-term care insurance contract and that are provided pursuant to a plan of care prescribed by a licensed health care practitioner.

14. "Severe cognitive impairment" means an impairment determined by a licensed health care practitioner as meeting the definition of an impairment as established by title III of the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936).

§ 20-1691.01 Applicability and scope

A. Except as otherwise provided in this article, this article applies to all long-term care insurance policies delivered or issued for delivery in this state. This article does not supersede the obligations of any person subject to this article to comply with other applicable insurance laws in this title that do not conflict with this article, except that laws applicable to medicare supplement insurance policies do not apply to long-term care insurance policies.

B. A long-term care insurance policy and any product that is advertised, marketed or offered as long-term care insurance must comply with the applicable requirements of this article.

§ 20-1691.02 Adoption of rules

The director may adopt reasonable rules to implement this article, including rules that:

1. Establish specific standards for policy provisions of long-term care insurance policies, including terms of renewability, initial and subsequent conditions of eligibility, nonduplication of coverage, coverage of dependents, preexisting conditions, termination of insurance, continuation, conversion, probationary periods, limitations, exceptions, reductions, elimination periods, replacement, recurrent conditions and definitions.

2. Establish loss ratio standards for long-term care insurance policies provided that a specific reference to long-term care insurance policies is contained in the rule.

3. Promote premium adequacy and protect policyholders in the event of substantial rate increases.

4. Establish standards for the manner, content and required disclosure for the sale of long-term care insurance policies, including disclosure of policy provisions, conditions and limitations.

5. Prescribe a standard format, including style, arrangement and overall appearance, and the content of an outline of coverage.

6. Establish minimum standards for marketing practices, insurance producer testing and reporting practices relating to long-term care insurance and penalties for violating the standards.

7. Specify the type or types of nonforfeiture benefits to be offered as part of a long-term care insurance policy and certificate, the standards for nonforfeiture benefits and the requirements for contingent benefit on lapse, including a determination of the specified period of time during which a contingent benefit on lapse will be available and the substantial premium rate increase that triggers a contingent benefit on lapse as described in section 20-1691.11.

§ 20-1691.03 Limitations of long-term care insurance policies

A. No insurer may cancel, fail to renew or otherwise terminate a long-term care insurance policy solely on the grounds of the age or the deterioration of the mental or physical health of the insured individual or certificate holder.

B. No long-term care insurance policy may contain a provision establishing any new waiting period if existing coverage is converted to or replaced by a new or other form within the same company, except with respect to an increase in benefits voluntarily selected by the insured individual or group policyholder.

C. A long-term care insurance policy shall provide coverage for at least twenty-four consecutive months for each covered person.

D. No preexisting condition limitation period in a long-term care insurance policy or certificate may exceed the following:

1. If not approved under paragraph 2, six months after the effective date of coverage of an insured for whom medical advice or treatment was recommended by, or received from, a health care services provider.

2. A period of time set by the director after the effective date of coverage of an insured who is a member of a designated group for which the director has found that a different limitation period is justified because the group is specially limited by age, group categories or other specific policy provisions and that the different limitation period will be a benefit to the certificate holders.

E. No long-term care insurance policy or certificate may use a definition of preexisting condition which is more restrictive than the definition prescribed in this article.

F. A long-term care insurance policy shall not exclude or use waivers or riders of any kind to exclude, limit or reduce coverage or benefits for specifically named or described preexisting diseases or physical conditions beyond the periods allowed under subsection D.

G. The definition of preexisting condition does not prohibit an insurer from using an application form designed to elicit the complete health history of an applicant and, on the basis of the answers on that application, from underwriting in accordance with that insurer's established underwriting standards.

H. No long-term care insurance policy or certificate issued on or after July 1, 1990 may provide coverage for skilled nursing care only or provide significantly more coverage for skilled care in a facility than coverage for lower levels of care, or coverage that conditions eligibility for benefits for levels of care on the receipt of higher levels of care. In evaluating the requirements of this subsection, the director shall consider the amount of coverage provided based on aggregate days of care covered for lower levels of care when compared to days of care covered for skilled care.

I. A long-term care insurance policy or certificate, other than a policy or certificate that is issued to a group, may not exclude coverage for a loss or confinement that is the result of a preexisting condition unless the loss or confinement begins within six months following the effective date of coverage of an insured person.

§ 20-1691.04 Requirements for certain group coverage

A. Before advertising, marketing or offering a policy within this state issued to a group defined in section 20-1691, paragraph 4, subdivision (c), the association or the insurer of the association shall file evidence with the director that the association meets all of the following requirements:

1. Consists of at least one hundred persons.

2. Has been organized and maintained in good faith for purposes other than obtaining insurance.

3. Has been in active existence for at least one year.

4. Has a constitution and bylaws that prescribe all of the following:

(a) That the association holds regular meetings at least annually to further the purposes of the members.

(b) Except for credit unions, that the association collects dues or solicits contributions from members.

(c) That the members have voting privileges and representation on the governing board and committees.

B. Thirty days after filing the evidence required by subsection A of this section, an association is deemed to satisfy the organizational requirements of subsection A of this section unless the director notifies the association or its insurer in writing that the association does not satisfy those organizational requirements.

C. An insurer may offer a group long-term care insurance policy to a group defined in section 20-1691, paragraph 4, subdivision (d) if the director finds all of the following:

1. Issuance of the group policy is not contrary to the best interest of the public.

2. Issuance of the group policy would result in economies of acquisition or administration.

3. The benefits of the policy are reasonable in relation to the premium charged.

D. A person shall not offer long-term care insurance coverage for a resident of this state under a group policy issued in another state to a group defined in section 20-1691, paragraph 4, subdivision (d) unless the state of issuance has statutory and regulatory long-term care insurance requirements substantially similar to the requirements in this state and either this state or the state of issuance has made a determination that the requirements have been met.

E. The director may prohibit further offering to a resident of this state a policy that was issued to a group as defined in section 20-1691, paragraph 4, subdivision (c) or (d) and that was initially authorized for issuance, if the director finds that the insurer does not currently meet the requirements of this article.

§ 20-1691.05 Prior institutionalization

A. A long-term care insurance policy delivered or issued for delivery in this state on or after July 1, 1990 shall not condition availability of benefits on prior hospitalization.

B. A long-term care insurance policy delivered or issued for delivery in this state on or after the effective date of this amendment to this section shall not:

1. Condition eligibility for benefits provided in an institutional care setting on the receipt of a higher level of institutional care.

2. Condition eligibility for any benefits, other than waiver of premium, postconfinement, postacute care or recuperative benefits, on a prior institutionalization requirement.

C. A long-term care insurance policy containing postconfinement, postacute care or recuperative benefits shall clearly label, in a separate paragraph of the policy that is entitled "limitations on benefits", any limitations or conditions, including any required number of days of confinement.

D. A long-term care insurance policy or rider that conditions eligibility of noninstitutional benefits on the prior receipt of institutional care shall not require a prior institutional stay of more than thirty days.

E. A long-term care policy that provides benefits only following institutionalization shall not condition the benefits on admission to a facility for the same or related conditions within a period of less than thirty days after discharge from the institution.

§ 20-1691.06 Outline of coverage; certificate

A. An outline of coverage shall be delivered to an applicant for a long-term care insurance policy at the time of initial solicitation through means that prominently direct the recipient’s attention to the document and its purpose. In the case of direct response solicitations, the outline of coverage shall be presented in conjunction with an application or enrollment form. In the case of insurance producer solicitations, the insurance producer shall deliver the outline of coverage before the presentation of an application or enrollment form. The outline of coverage shall include all of the following:

1. A description of the principal benefits and coverage provided in the policy.

2. A statement of the principal exclusions, reductions and limitations contained in the policy.

3. A statement of the renewal provisions, including any reservation in the policy of a right to change premiums, and any continuation or conversion provisions of group coverage.

4. A statement that the outline of coverage is a summary of the policy issued or applied for and that the policy should be consulted to determine governing contractual provisions.

5. A description of the terms under which the policy or certificate may be returned and the premium refunded.

6. A description of the relationship of cost of care and benefits.

7. A statement and description of whether the policy constitutes a qualified long-term care insurance contract.

B. For a long-term care insurance policy that is issued to a group as defined in section 20-1691, paragraph 4, subdivision (a), an outline of coverage is not required to be delivered if the information listed in subsection A of this section is contained in other materials related to enrollment. On request, an insurer shall make the other materials available to the director.

C. On delivery of an individual life insurance policy that provides long-term care benefits within the policy or by rider, a policy summary shall be delivered to the policyholder. In the case of direct response solicitations, the insurer shall deliver the policy summary on the applicant's request. If an applicant does not request the delivery of a policy summary, the insurer shall deliver the policy summary no later than at the time the policy is delivered. A policy summary shall include:

1. An explanation of how the long-term care benefits interact with other components of the policy, including deductions from death benefits.

2. An explanation of the amount of benefits, the length of benefits and the guaranteed lifetime benefits, if any, for each covered person.

3. Any exclusions, reductions or limitations on benefits of long-term care.

4. A statement that any long-term care inflation protection option required by state law is not available under the policy.

5. If applicable to the type of policy that is issued:

(a) A disclosure of the effects of exercising other rights under the policy.

(b) A disclosure of guarantees that are related to long-term care costs of insurance charges.

(c) Current and projected maximum lifetime benefits.

6. An explanation of the monthly reporting requirements for life insurance policies with an accelerated death benefits option.

D. The provisions of the policy summary required under subsection C of this section may be incorporated into any required life insurance illustration or policy summary.

E. The insurer shall provide a monthly report to the insured any time a long-term care benefit that is funded through a life insurance vehicle by the acceleration of the death benefit is in benefit payment status and the report shall include:

1. Any long-term care benefits paid out during the month.

2. An explanation of any changes in the policy, including death benefits or cash values, due to long-term care benefits paid out.

3. The amount of long-term care benefits existing or remaining.

F. A certificate issued pursuant to a group long-term care insurance policy that is delivered or issued for delivery in this state shall include all of the following:

1. A description of the principal benefits and coverage provided in the policy.

2. A statement of the principal exclusions, reductions and limitations contained in the policy.

3. A statement that the group master policy should be consulted to determine governing contractual provisions.

G. If an application for a long-term care insurance contract or certificate is approved, the issuer shall deliver the contract or certificate of insurance to the applicant within thirty days after approval.

H. An insurer shall notify a claimant that a claim under a long-term care insurance policy is accepted or denied within fifteen working days after the insurer's receipt of a claim if the insurer has received the documentation it reasonably requires to determine liability. If the insurer requires longer than fifteen working days, the insurer, within the fifteen days, shall notify the claimant of the need for additional time and shall explain why additional time is required. In no case shall the determination exceed sixty days.

I. If an insurer denies a claim under a long-term care insurance policy, the insurer shall:

1. Provide the policyholder, certificate holder or designated representative of the policyholder or certificate holder with a written explanation of the reasons for the denial, including a reference to any specific policy provision, condition or exclusion supporting the denial.

2. Make available all information directly related to the denial to the policyholder, certificate holder or designated representative of the policyholder or certificate holder.

§ 20-1691.07 Right to return

A. A person insured under a long-term care insurance policy or certificate shall have the right to return the policy or certificate within thirty days of its delivery and to have the premium refunded if, after examination, the insured person is not satisfied for any reason. Long-term care insurance policies or certificates shall have a notice prominently printed on or attached to the first page stating in substance that the insured person shall have the right to return the policy or certificate within thirty days of its delivery and to have the premium refunded if after examination the insured person is not satisfied for any reason.

B. The insurer shall return any premium refund made pursuant to this section to the insured within thirty days of the insurer's receipt of the returned long-term care insurance policy or certificate.

§ 20-1691.08 Rate and form review; disapproval

A. A person shall not deliver or issue for delivery in this state any long-term care insurance policy or rate unless the person has first filed the form or rate with the director and the director has approved the form or rate. Unless the director issues an order affirmatively approving or disapproving the form or rate within sixty days after filing, the form or rate is deemed approved. On written notice given to the insurer within the sixty-day period, the director may extend the sixty-day review period for up to fifteen additional days.

B. The director shall disapprove a rate or form if either:

1. The rate does not comply with this article or any rules adopted pursuant to this article.

2. The form contains provisions that are ambiguous, misleading or deceptive, that encourage misrepresentation of the coverage or that are contrary to this title or of any rule adopted pursuant to this title.

C. If the director disapproves a rate or form, the director shall send the insurer a written notice specifying the reason for the disapproval. The insurer may request a hearing pursuant to title 41, chapter 6, article 10 to contest the disapproval. It is unlawful for the insurer to issue or use a rate or form that has been disapproved.

D. At any time after notice and for cause shown, the director may issue an order withdrawing approval of any form or rate for any reason listed in subsection B of this section. The insurer may request a hearing pursuant to title 41, chapter 6, article 10 to contest the director's order.

E. An insurer shall not issue or use a rate or form after the effective date of an order withdrawing approval.

F. The director, by order, may exempt from the requirements of this section for as long as the director deems proper any insurance rate or form specified in the order, to which, in the director's opinion, this section may not practicably be applied or the filing and approval of which are, in the director's opinion, not desirable or necessary for the protection of the public.

§ 20-1691.09 Penalties

In addition to any other penalty provided by law, an insurer or insurance producer who is found to have violated any provision relating to the regulation of long-term care insurance or the marketing of long-term care insurance is subject to a civil penalty of up to three times the amount of any commissions paid for each policy involved in the violation or up to ten thousand dollars, whichever is more.

§ 20-1691.10 Contestable periods

A. If a policy or certificate has been in force for less than six months, an insurer may rescind a long-term care insurance policy or certificate or deny an otherwise valid long-term care insurance claim only on a showing of misrepresentation that is material to the acceptance for coverage.

B. If a policy or certificate has been in force for at least six months but less than two years, an insurer may rescind a long-term care insurance policy or certificate or deny an otherwise valid long-term care insurance claim only on a showing of misrepresentation that is both material to the acceptance for coverage and that pertains to the condition for which benefits are sought.

C. After a policy or certificate has been in force for two years it is not contestable solely for misrepresentation, but the insurer may contest the policy or certificate on a showing that the insured knowingly and intentionally misrepresented relevant facts relating to the insured's health.

D. An insurance producer or third party administrator shall not issue a long-term insurance policy or certificate pursuant to the underwriting authority granted to the insurance producer or third party administrator by an insurer that is based on medical or health status.

E. If an insurer paid benefits under the long-term care insurance policy or certificate, the insurer shall not recover the benefit payments if the insurer rescinds the policy or certificate.

F. If an insured dies, this section does not apply to the remaining death benefit of a life insurance policy that accelerates benefits for long-term care. Section 20-1204 applies to the remaining death benefits.

§ 20-1691.11 Nonforfeiture benefits

A. Except as provided in subsection B of this section, a person shall not deliver or issue for delivery in this state a long-term care insurance policy unless the policyholder or certificate holder has been offered the option of purchasing a policy or certificate with a nonforfeiture benefit. The offer of the nonforfeiture benefit may be in the form of a rider that is attached to the policy. If the policyholder or certificate holder declines the benefit, the insurer shall provide a contingent benefit on lapse that shall be available for a specified period of time following a substantial increase in premium rates.

B. If a group long-term care insurance policy is issued, a person shall make the offer of the nonforfeiture benefit to the group policyholder, except that if the policy is issued to a group as defined in section 20-1691, paragraph 4, subdivision (d), other than to a continuing care retirement community or other similar entity, a person shall make the offering to each proposed certificate holder.

§ 20-1691.12 Insurance producer training course requirements

A. An individual may not sell, solicit or negotiate long-term care insurance unless the individual:

1. Is licensed as an insurance producer for accident and health or sickness.

2. Has completed eight hours of initial long-term care training.

3. Has completed four hours of long-term care training in each two-year period succeeding July 1, 2009, after the two-year period within which the individual completed the initial long-term care training.

B. An individual may satisfy the training requirement prescribed in subsection A of this section only by completing an approved continuing education course that is offered by an approved provider pursuant to chapter 18 of this title. The completion of such a course may also satisfy the insurance continuing education requirement prescribed by chapter 18 of this title.

C. The training courses required by subsection A of this section consist of topics that are related to long-term care insurance, long-term care services and, if applicable, qualified state long-term care insurance partnership programs including, as consistent with the minimum standards that apply to approved continuing education courses:

1. State and federal rules and requirements and the relationship between qualified state long-term care insurance partnership programs and other public and private coverage of long-term care services, including medicaid.

2. Available long-term care services and long-term care service providers.

3. Changes or improvements in long-term care services or long-term care service providers.

4. Alternatives to the purchase of private long-term care insurance.

5. The effect of inflation on benefits and the importance of inflation protection.

6. Consumer suitability standards and guidelines.

D. An insurer that is subject to this article shall obtain verification that an insurance producer received training that is required by subsection A of this section before the insurance producer is allowed to sell, solicit or negotiate the insurer's long-term care products.

E. An insurer that is subject to this article shall maintain and make available to the director on request sufficient records with respect to the training of insurance producers who sell, solicit or negotiate the insurer's long-term care insurance products to allow the department to provide assurance to the Arizona health care cost containment system administration that the insurance producers have received the training prescribed by this section.

F. A nonresident insurance producer's satisfaction of a substantially similar long-term care training requirement of any other state satisfies the nonresident insurance producer's long-term care training requirement as prescribed by this section.

Article 16 Adopted Child Coverage

§ 20-1692 Definitions

In this article, unless the context otherwise requires:

1. "Alternate recipient" means a child of a participant who has a right to enrollment under a group health plan pursuant to a medical child support order.

2. "Child" means an individual who is under eighteen years of age as of the date of the adoption or placement for adoption.

3. "Group health plan" means a plan covering employees of an employer as defined in section 607(1) of the employee retirement income security act of 1974.

4. "Placement for adoption" means the assumption and retention by a person of a legal obligation for total or partial support of a child in anticipation of adoption of the child. The child's placement with a person terminates on the termination of the legal obligations.

5. "Qualified medical child support order" means an order that creates or recognizes an alternate payment right to receive benefits for which a participant or beneficiary is eligible under a group plan.

§ 20-1692.01 Requirements for coverage

A. If a group health plan provides coverage for the dependent children of participants or beneficiaries under the plan, the plan shall provide benefits to any dependent children who are placed with the participants or beneficiaries for adoption under the same terms and conditions that apply to the natural dependent children of the participants and beneficiaries, regardless of whether the adoption has become final.

B. Restrictions that are based on preexisting conditions at the time of placement for adoption are prohibited. A group health plan may not restrict the coverage under the plan of any dependent child who is adopted by a participant or beneficiary or who is placed with a participant or beneficiary for adoption solely on the basis of a preexisting condition of the child at the time that the child would otherwise become eligible for coverage under the plan if the adoption or placement for adoption occurs while the participant or beneficiary is eligible for coverage under the plan.

§ 20-1692.02 Eligibility under title XIX of the social security act

A. An insurer, hospital and medical service corporation, health care services organization group health plan 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 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 insurer, hospital and medical service corporation, health care services organization or group health plan shall make payments to the program pursuant to title XIX of the social security act according to the coverage provided in the policy, certificate, evidence of coverage or contract.

C. An insurer, hospital and medical service corporation, health care services organization or group health plan 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.

§ 20-1692.03 Coverage of children

A. Insurers, hospital and medical service corporations, health care services organizations, group health plans and prepaid dental plans shall not deny enrollment of a child under a policy, certificate, evidence of coverage or contract of a child's parent for any of the following reasons:

1. The child was born out of wedlock.

2. The child is not claimed as a dependent on the parent's federal or state tax return.

3. The child does not reside with the parent or in the insurer's, hospital and medical service corporation's, health care services organization's or prepaid dental plan's service area.

B. If the child has health coverage through an insurer of the noncustodial parent, the insurer shall:

1. Provide any information to the custodial parent that may be necessary for the child to obtain benefits through the custodial parent's insurer.

2. Permit the custodial parent or the provider with the custodial parent's approval to submit claims for covered services without the approval of the noncustodial parent.

3. Make payments on claims that are submitted pursuant to paragraph 2 of this subsection directly to the custodial parent, the provider or the Arizona health care cost containment system.

C. If a court or administrative order requires a parent to provide health coverage for a child and the parent is eligible for family coverage, the insurer, hospital and medical service corporation, health care services organization or prepaid dental plan shall:

1. Permit the parent to enroll the child under the family coverage if the child is otherwise eligible for the coverage without regard to any enrollment season restrictions.

2. If the parent is enrolled in family coverage but fails to enroll the child, enroll the child under the family coverage on the application of the child's other parent or pursuant to title 36, chapter 29, article 1.

3. Not refuse to enroll or terminate the coverage of a child unless the insurer receives satisfactory written evidence that one of the following applies:

(a) The court or administrative order is no longer in effect.

(b) The child will be enrolled in comparable health coverage through another insurer and the coverage will take effect not later than the effective date of the termination of coverage.

(c) The employer has eliminated family coverage for all of its employees.

(d) Nonpayment of premium.

4. Establish reasonable procedures for determining if a child is covered under a qualified medical support order. The procedures shall:

(a) Be in writing.

(b) Provide for the notification of each person who is specified in a medical child support order as eligible to receive benefits under the plan of the procedures. The insurer shall promptly send the notice to the address included in the medical child support order on receipt by the insurer of the medical child support order.

(c) Permit an alternate recipient to designate a representative for the receipt of copies of notices that are sent to the alternate recipient pursuant to a medical child support order.

D. Insurers, hospital and medical service corporations and health care services organizations may not reduce their coverage of pediatric vaccines below the level that was in effect on May 1, 1993.

Article 17 Portable Electronics Insurance

§ 20-1693 Definitions

In this article, unless the context otherwise requires:

1. "Customer" means a person who purchases portable electronics or services.

2. "Enrolled customer" means a customer who elects coverage under a portable electronics insurance policy issued to a vendor of portable electronics.

3. "Location" means any physical location in this state or any website, call center site or similar location directed to residents of this state.

4. "Portable electronics" means personal, self-contained, easily carried by an individual, battery-operated electronic communication, viewing, listening, recording, gaming, computing or global positioning devices, including cell or satellite phones, pagers, personal global positioning satellite units, portable computers, portable audio listening devices, video viewing or recording devices, digital cameras, video camcorders, portable gaming systems, docking stations, automatic answering devices and other similar devices and the devices' accessories.

5. "Portable electronics insurance":

(a) Means insurance providing coverage for the repair or replacement of portable electronics that may provide coverage for portable electronics against loss, theft or inoperability, or any combination thereof, due to mechanical failure, malfunction, damage or other similar causes of loss.

(b) Does not include:

(i) A service contract under chapter 4, article 11 of this title.

(ii) An insurance policy covering a seller's or manufacturer's obligations under a warranty.

(iii) A homeowner's, renter's, private passenger automobile, commercial multiperil or similar policy.

6. "Portable electronics transaction" means either:

(a) The sale or lease of portable electronics by a vendor to a customer.

(b) The sale of a service related to the use of portable electronics by a vendor to a customer.

7. "Supervising entity" means a business entity that is a licensed insurer or insurance producer and that is authorized by an insurer to supervise the administration of a portable electronics insurance policy.

8. "Vendor" means a business in the business of engaging in portable electronics transactions directly or indirectly.

§ 20-1693.01 Licensure of vendors

A. The director may issue, and a vendor who intends to sell or offer insurance coverage under a portable electronics insurance policy is required to obtain, a limited lines license that authorizes the vendor to offer or sell insurance coverage under a portable electronics insurance policy.

B. A limited lines license issued under this section authorizes an employee or authorized representative of the vendor to sell or offer coverage under a portable electronics insurance policy to a customer at each location at which the vendor engages in portable electronics transactions.

C. An applicant for a portable electronics insurance license shall file with the director a written application that is in a form prescribed by the director and that is signed by the designated representative of the vendor who is the person responsible for the vendor's compliance with the requirements of this article. If the vendor derives more than fifty per cent of its revenue from the sale of portable electronics insurance the information in the written application shall be provided for all officers, directors and shareholders of record having beneficial ownership of ten per cent or more of any class of securities registered under the federal securities law.

D. A supervising entity shall maintain a registry of vendor locations that are authorized to sell or solicit portable electronics insurance coverage in this state. On the director's request, and with ten days' notice to the supervising entity, the registry shall be open to inspection and examination by the director during regular business hours of the supervising entity.

E. Notwithstanding any other law, a license issued pursuant to this section authorizes the licensee and its employees or authorized representatives to engage in those activities that are permitted in this article.

§ 20-1693.02 Portable electronics insurance; requirements; disclosures

A. At every location where portable electronics insurance is offered to customers, brochures or other written materials must be made available to a prospective customer that:

1. Disclose that portable electronics insurance may provide a duplication of coverage already provided by a customer's homeowner's insurance policy, renter's insurance policy or other source of coverage.

2. State that the enrollment by the customer in a portable electronics insurance policy is not required in order to purchase or lease portable electronics or services.

3. Summarize the material terms of the insurance coverage, including:

(a) The identity of the insurer.

(b) The identity of the supervising entity.

(c) The amount of any applicable deductible and how it is to be paid.

(d) Benefits of the coverage.

(e) Key terms and conditions of the coverage, including whether portable electronics may be repaired or replaced with similar make and model reconditioned or nonoriginal manufacturer parts or equipment.

4. Summarize the process for filing a claim, including a description of how to return portable electronics and the maximum fee applicable in the event the customer fails to comply with any equipment return requirements.

5. State that an enrolled customer may cancel enrollment for coverage under a portable electronics insurance policy at any time and the person paying the premium shall receive a refund or credit of any applicable unearned premium.

B. Portable electronics insurance may be offered on a month to month or other periodic basis as a group or master commercial inland marine policy issued to a vendor of portable electronics for its enrolled customers.

C. Eligibility and underwriting standards for customers electing to enroll in coverage shall be established for each portable electronics insurance program.

§ 20-1693.03 Portable electronics vendors; authority; charges for portable electronics insurance; accounting

A. The employees and authorized representatives of vendors may sell or offer portable electronics insurance to customers and shall not be subject to licensure as an insurance producer under this title or be subject to the continuing education requirements of this title if:

1. The vendor obtains a license to authorize its employees or authorized representatives to sell or offer portable electronics insurance pursuant to this article.

2. Each vendor or its designee provides a training program that gives the vendor's employees and authorized representatives basic instruction about coverage under a portable electronics insurance policy and the requirements of this article.

B. Notwithstanding any other law, a vendor of portable electronics or its employees or authorized representatives shall not advertise, represent or otherwise be portrayed as licensed insurers or insurance producers unless so licensed.

C. The vendor may bill and collect the charges for portable electronics insurance coverage. Any charge to the enrolled customer for coverage that is not included in the cost associated with the purchase or lease of portable electronics or related services shall be separately itemized on the enrolled customer's bill. If the portable electronics insurance coverage is included with the purchase or lease of portable electronics or related services, the vendor shall clearly and conspicuously disclose to the enrolled customer that the portable electronics insurance coverage is included with the portable electronics or related services. A vendor that bills and collects charges for insurance coverage included with the purchase or lease of portable electronics or related services is not required to maintain those monies in a segregated account if the vendor is authorized by the insurer to hold those monies in an alternative manner and remits these monies to the supervising entity within sixty days of receipt. All monies received by a vendor from an enrolled customer for the sale of portable electronics insurance shall be considered monies held in trust by the vendor in a fiduciary capacity for the benefit of the insurer.

D. Vendors may receive compensation for billing and collection services.

§ 20-1693.04 Suspension or revocation of license

If a vendor or its employee or authorized representative violates any provision of this article, the director may impose penalties pursuant to section 20-295, including suspending the privilege of transacting portable electronics insurance pursuant to this article at the specific business location where violations have occurred.

§ 20-1693.05 Termination of portable electronics insurance; notice; cancellation

A. Notwithstanding any other law:

1. An insurer may terminate or otherwise change the terms and conditions of a portable electronics insurance policy only on providing the policyholder and enrolled customers with at least thirty days' notice.

2. If the insurer changes the terms and conditions of a policy, the insurer shall provide the vendor policyholder with a revised policy or endorsement and each enrolled customer with a revised certificate, endorsement, updated brochure or other evidence indicating that a change in the terms and conditions has occurred and that includes a summary of the material changes.

B. Notwithstanding subsection A, paragraph 1 of this section:

1. An insurer may terminate a customer's enrollment under a portable electronics insurance policy with fifteen days' notice for discovery of fraud or material misrepresentation in obtaining coverage or in the presentation of a claim.

2. An insurer may immediately terminate a customer's enrollment under a portable electronics insurance policy for any of the following reasons:

(a) Nonpayment of premium.

(b) If the enrolled customer ceases to have an active service with the vendor.

(c) If an enrolled customer exhausts the aggregate limit of liability, if any, under the terms of the portable electronics insurance policy and the insurer sends notice of termination to the enrolled customer within thirty calendar days after exhaustion of the limit. If notice is not timely sent, enrollment shall continue notwithstanding the aggregate limit of liability until the insurer sends notice of termination to the enrolled customer.

C. If a vendor terminates a portable electronics insurance policy, the vendor shall mail or deliver written notice to each enrolled customer advising the enrolled customer of the termination of the policy and the effective date of termination. The written notice shall be mailed or delivered to the enrolled customer at least thirty days before the termination.

D. If notice or correspondence with respect to a policy of portable electronics insurance is required pursuant to this section or is otherwise required by law, it shall be in writing and sent within the notice period, if any, specified in the statute or rule requiring the notice or correspondence. Notwithstanding any other law, notices and correspondence may be sent either by mail or by electronic means. If the notice or correspondence is mailed, it shall be sent to the vendor at the vendor's mailing address specified for such purpose and to its affected enrolled customers' last known mailing addresses on file with the insurer. The insurer or vendor shall maintain proof of mailing in a form authorized or accepted by the United States postal service or other commercial mail delivery service. If the notice or correspondence is sent by electronic means, it shall be sent to the vendor at the vendor's electronic mail address specified for such purpose and to its affected enrolled customers' last known electronic mail addresses as provided by each enrolled customer to the insurer or vendor, as applicable. For the purposes of this section, an enrolled customer's provision of an electronic mail address to the insurer or vendor is deemed to constitute consent to receive notices and correspondence by electronic means. The insurer or vendor, as applicable, shall maintain proof that the notice or correspondence was sent.

E. The supervising entity appointed by the insurer may send notice or correspondence that is required by this section, or that is otherwise required by law, on behalf of an insurer or vendor.

F. An enrolled customer may cancel enrollment for coverage under a portable electronics insurance policy at any time and the person paying the premium shall receive a pro rata refund or credit of any applicable unearned premium within sixty days after the insurer or vendor receives the notice of cancellation from the enrolled customer.

§ 20-1693.06 Application of existing laws

To the extent not inconsistent with this article, sections 20-281, 20-289 and 20-289.01, section 20-290, subsection A and sections 20-291, 20-292, 20-295, 20-296, 20-297, 20-299, 20-301 and 20-302 apply to the sale of portable electronics insurance.

Article 18 Identity Theft Group Insurance Policies

§ 20-1694 Definitions

In this article, unless the context otherwise requires:

1. "Certificate holder" means the individual insured group member.

2. "Conditional renewal" means a renewal that is conditioned on change of limits, change in type of coverage, reduction or elimination of coverage, increased deductibles or addition of exclusions or increased premiums in excess of ten percent, except for premium increases that are generated as a result of increased exposure units or as a result of experience rating, loss rating, retrospective rating or audit.

3. "Group policyholder" means those groups described in section 20-1694.01, subsection C to which an identity theft group insurance policy may be issued.

4. "Identity theft group insurance" means a form of identity theft insurance covering groups of persons as prescribed in this article.

5. "Identity theft insurance" means insurance against losses and expenses resulting from a stolen identity event.

6. "Stolen identity event" includes the theft, accidental release, publication or misappropriation of information related to an individual's personal identification or social security number or other method of identifying the individual that results in or could reasonably result in the wrongful use of the information.

§ 20-1694.01 Identity theft group insurance; eligible groups

A. An authorized insurer or, subject to chapter 2, article 5 of this title, an unauthorized insurer may issue an identity theft group insurance policy in this state. If an authorized insurer issues an identity theft group insurance policy in this state, the insurer shall file with the department pursuant to section 20-398 the policy to be issued to the group policyholder and the certificate to be issued to individual group members. The contents of any certificate that is filed shall be consistent with the terms of the identity theft group insurance policy pursuant to which such certificate is issued.

B. An insurer may issue or deliver an identity theft group insurance policy in this state only pursuant to this article. The policy shall cover losses and expenses incurred by the certificate holder because of a stolen identity event.

C. An insurer may issue an identity theft group insurance policy to either of the following:

1. A business that sells services or products that are designed to prevent or to minimize the effects of a stolen identity event, if the policy insures the persons who purchase the services or products of the business and the business is the policyholder.

2. An entity for which the director determines by rule that the members are engaged in a common enterprise or have an economic or social affinity or relationship and that the issuance of the policy would not be contrary to the best interests of the public.

D. The groups listed in subsection C of this section shall consist of only natural persons and may include a member of a group member's immediate family or household.

E. An insurer shall treat all eligible groups of the same class in a like manner.

§ 20-1694.02 Identity theft group insurance policy; premiums; cancellation; requirements

A. The group policyholder may pay the premium for an identity theft group insurance policy from monies contributed wholly by the group policyholder, wholly by the group members or jointly by the group policyholder and the group members.

B. The following requirements apply to the cancellation, nonrenewal or conditional renewal of coverage under an identity theft group insurance policy:

1. The policy shall be issued or renewed for a one-year policy period unless the policy provides for a longer policy period.

2. Except as provided in paragraph 3 of this subsection, an insurer may cancel the policy or any certificate issued under the policy only if the cancellation is based on one or more of the following:

(a) The nonpayment of premium if the notice of cancellation informs the group policyholder of the amount due.

(b) The conviction of a criminal offense arising out of acts increasing the hazard insured against.

(c) The discovery of fraud or material misrepresentation in obtaining the policy or in the presentation of a claim under the policy.

(d) After the policy is issued or after the last renewal date, the discovery of an act or omission or a violation of any policy condition that substantially and materially increases the hazard insured against and that occurred subsequent to the inception of the current policy period.

(e) A material change in the nature or extent of the risk that occurred after the issuance or last annual renewal anniversary date of the policy that causes the risk of loss to be substantially and materially increased beyond what was contemplated at the time the policy was issued or last renewed.

(f) A determination by the director that continuation of the present premium volume of the insurer would jeopardize that insurer's solvency or be hazardous to the interests of the policyholders of the insurer, its creditors or the public.

3. An individual group member's coverage under this article terminates on termination of the member's affiliation with the group policyholder that constitutes membership in the group.

4. An act or omission by a group member does not constitute the basis for cancellation of the group policy.

5. An insurer's cancellation, nonrenewal or conditional renewal of a group policy or any certificate issued under the policy shall set forth the specific reasons for cancellation, nonrenewal or conditional renewal and does not become effective until at least forty-five days, or twenty days if based on nonpayment of premium, after the insurer sends written notice of the cancellation, nonrenewal or conditional renewal to the group policyholder and to affected certificate holders. If authorized by the insurer, the group policyholder may send the notice to the certificate holder on behalf of the insurer.

C. A group policyholder may cancel the group policy for any reason on thirty days' written notice to the insurer and each affected group member. A group policyholder is not required to give notice to a group member if substantially similar coverage has been obtained from another insurer without a lapse of coverage.

D. If a group member sustains a loss pursuant to a stolen identity event that occurs before the effective date of the cancellation, nonrenewal or conditional renewal of a group policy or the cancellation, nonrenewal, conditional renewal or termination of a certificate, whether initiated by the insurer, group policyholder or group member, the loss remains covered as provided under the policy notwithstanding the cancellation, nonrenewal, conditional renewal or termination.

Chapter 7 Professional Liability Insurance

Article 2 Health Care Insurers

§ 20-1721 Health care insurers; policy limits; eligibility; rates; applicability to other insurers; restrictions

A. Any person, pursuant to this article and to the otherwise applicable provisions of title 20, to the extent that such other provisions are not inconsistent with this article, may establish a domestic stock insurance company, a domestic mutual insurance company or a reciprocal insurer, to issue professional liability and related casualty insurance to any licensed health care provider holding a valid, nonsuspended license or permit issued by this state.

B. Until October 1, 1980, the following provisions shall apply to the offering of primary coverage professional liability insurance by health care insurers:

1. Primary coverage shall be made available by such insurers to every licensed health care provider currently holding a nonsuspended permit or license issued by this state and providing health care services in this state.

2. A health care insurer may reduce the scope of its insurance coverage for any insured who has his license or permit restricted by his licensing agency or board in accordance with such restriction, or may terminate coverage if such insured has his license or permit suspended or revoked.

3. The rates for such coverage shall reflect past and prospective loss and expense experience relating to that type of licensed health care provider and reasonably recognized prior claims experience of the insured and shall be applied on the basis of standard underwriting practices in the insurance industry.

4. The rates for such coverage may include assessments and surcharges for negative underwriting experience.

C. On or after October 1, 1980, health care insurers shall not be subject to the provisions contained in subsection B, but shall offer coverage as otherwise provided by this title.

D. Coverage exceeding the limits of primary coverage may be made available by health care insurers to licensed health care providers satisfying the insurer's underwriting policies which may be established from time to time.

§ 20-1722 Deposit; surplus requirements

A. Until October 1, 1985, the provisions of subsection A of section 20-260 shall not apply to primary coverage issued by health care insurers established pursuant to this article.

B. A health care insurance company established pursuant to the provisions of this article shall maintain three hundred thousand dollars as a statutory deposit pursuant to section 20-213 and such deposit shall be held by the state treasurer in accordance with the provisions of chapter 3, article 3 of this title.

C. In addition to the statutory deposit required in subsection B, a health care insurance company shall maintain additional surplus funds in the following amounts:

1. Seven hundred thousand dollars throughout the first year of operation,

2. One million seven hundred thousand dollars throughout the second year of operation, and

3. Two million seven hundred thousand dollars throughout the third year of operation and each subsequent year of operation.

D. The director shall not issue a certificate of authority to an insurer established pursuant to this article until the deposit requirement specified in subsection B and the surplus requirement specified in subsection C for the first year of operation are satisfied.

§ 20-1723 Exemption from mandatory participation in certain plans and associations

A. Until October 1, 1980, health care insurers shall be exempted from mandatory participation in any joint underwriting plan and the Arizona insurance guaranty association and their successor plans or associations.

B. Prior to October 1, 1980, if the insurer wishes to participate in any joint underwriting plan, the Arizona insurance guaranty association or their successor plans or associations, such insurer shall notify the director on forms prescribed by the director within ninety days of receipt of its certificate of authority.

§ 20-1724 Sale of professional liability insurance coverage for licensed health care providers by insurers other than by health care insurance companies; requirements; exemptions

A. Notwithstanding any other provision of this title, after the effective date of this act and until October 1, 1980, any authorized insurer or surplus line broker offering or proposing to offer professional liability insurance to any type of health care provider, other than health care institutions, shall make such coverage available to every health care provider within every underwriting or rating classification of such type of health care provider. In offering such coverage the rates and scope of coverage for any such health care provider shall be subject to the provisions of paragraphs 2, 3 and 4 of subsection B of section 20-1721.

B. Any authorized insurer or surplus line broker providing professional liability insurance to licensed health care providers other than health care institutions on the effective date of this section shall not be subject to the provisions of subsection A if such insurer continues to make professional liability insurance available to all such insureds on the same basis offered on the effective date of this section, except that such insurer may reduce coverage to primary coverage limits set forth in section 20-1701, paragraph 11 and may adjust rates for coverage in accordance with title 20, chapter 2, article 4, and if such insurer does not offer coverage to any such health care provider not insured by such insurer on the effective date of this section.

Article 3 Insurance Review Committees

§ 20-1731 Immunity for serving on or furnishing information to insurance review committees

A person who without malice and in good faith makes a decision or recommendation or takes any action within the scope of his duties as a member, agent or employee of an insurance review committee established by or at the request of an insurer for the purpose of reviewing or evaluating applications for insurance, or for performing such other underwriting or claim evaluation functions as are requested by the insurer, shall not be subject to liability for civil damages therefor or any legal action in consequence thereof, nor shall any person who without malice and in good faith furnishes any records, information or assistance to such a committee be liable for civil damages therefor or any legal action in consequence thereof.

Article 4 Reporting Requirements

§ 20-1741 Annual statement to include certain claims and premium information

Each licensed insurer that is authorized to transact casualty insurance in this state and that writes professional liability insurance, as part of the annual statement required by section 20-223, shall report professional liability claims and premium data as prescribed by the director.

§ 20-1742 Insurers to report malpractice claims and actions; definition

A. Each health care insurer providing professional liability insurance to a health professional as defined in section 32-3201 shall report to the appropriate health profession regulatory board, except the Arizona medical board, within thirty days of its receipt, any written or oral claim or action for damages for personal injury claimed to have been caused by:

1. An error, omission or negligence in the performance of an insured's professional services.

2. The performance of professional services without adequate informed consent.

3. An alleged breach of contract for professional services.

B. The reports required by subsection A of this section shall be confidential, nondiscoverable and nonadmissible as evidence, shall be filed on such forms as the health profession regulatory board, except the Arizona medical board, may require and shall contain:

1. The name and address of the health professional involved in the claim.

2. The name and address of the person on whose behalf the claim is being filed.

3. The date of the occurrence that created the claim.

4. The date of the claim if a complaint is not simultaneously filed.

5. The date the complaint is filed, if applicable.

6. A summary of the occurrence on which the claim is based as stated by the claimant.

7. Such other reasonable information related to the claim as the director may require.

C. Every health care insurer required to report to the health profession regulatory board pursuant to this section is required to advise the health profession regulatory board of any settlements or judgments entered against a health professional as defined in section 32-3201 within thirty days after the settlement was agreed to or the judgment was entered in superior court.

D. There shall be no liability on the part of and no cause of action shall arise against any health care insurer or its agents or employees reporting as required by this section.

E. The health profession regulatory board shall notify each health care insurer that is required to report pursuant to subsection A of this section of its duty to report.

F. This section does not limit the director of the department of insurance and financial institutions from obtaining any of the information required to be reported under this section.

G. For the purposes of this section, "health profession regulatory board" means an agency, board or commission that licenses, certifies or registers a health professional as defined by section 32-3201.

Chapter 8 Life Care Contracts

Article 1 General Provisions

§ 20-1801 Definitions

In this chapter, unless the context otherwise requires:

1. "Assets of a life care facility" means those assets held in the name of the life care facility only.

2. "Contract holder" means a person who enters into a life care contract with a provider or who is designated, in a life care contract, to be a person provided with services in the person's private residence with the right to future access to services, board and lodging in a facility.

3. "Entrance fee" means an initial or deferred transfer to a provider of a sum of money or property, made or promised to be made by a person entering into a life care contract, which assures a resident or contract holder of services pursuant to a life care contract.

4. "Facility":

(a) Means a place or places in which a provider undertakes to provide a resident with nursing services, medical services or health-related services, in addition to board and lodging, for a term in excess of one year or for life pursuant to a life care contract.

(b) Does not include a contract holder's private residence.

5. "Life care contract" means a contract to provide to a person for the duration of the person's life or for a term in excess of one year nursing services, medical services or health-related services, as defined in section 36-401, in addition to board and lodging for the person in a facility or services in the person's private residence with the right to future access to services, board and lodging in a facility, conditioned on the transfer of an entrance fee to the provider of such services in addition to or in lieu of the payment of regular periodic charges for the care and services involved.

6. "Living unit" means an apartment, room or other area within a facility set aside for the exclusive use of one or more identified residents.

7. "Manager" means a corporation, partnership, association, joint stock company, trust, or any other unincorporated organization that is contracted with to manage the residential section or health-related section, or both, of a life care facility.

8. "Permit" means a permit to enter into life care contracts issued by the department.

9. "Promoter" means the primary person who is employed to consult or to promote the establishment of a life care facility.

10. "Provider" means a person who provides services pursuant to a life care contract.

11. "Resident" means a person who enters into a life care contract with a provider or who is designated, in a life care contract, to be a person provided with services, board and lodging in a living unit or at a facility.

§ 20-1802 Permit required; application; definition

A. No person may solicit or enter into a life care contract as a provider or as a provider extend the term of an existing life care contract except pursuant to this chapter.

B. To qualify for a permit to enter into life care contracts with respect to a particular facility or to provide services in a contract holder's private residence with the obligation to provide future access to services, board and lodging to the contract holder in a facility, a person shall file an application for a permit with the department on permit application forms provided by the department that shall include as an exhibit a copy of the proposed form of life care contract to be entered into with residents at each facility and the proposed form of life care contract to be entered into with contract holders to provide services at a contract holder's private residence with the right to future access to services, board and lodging at each facility. The application shall contain the following information:

1. The name and business address of the applicant.

2. The name, the address and a description of the physical property of the facility.

3. The terms and conditions of the life care contracts to be used by the applicant, including the services to be provided to residents and contract holders, pursuant to the contract and the fees or charges to be paid by residents and contract holders, including the method of payment of the fees or charges.

4. If the applicant is not an individual, such as a corporation, partnership or trust, a statement naming the fiscal year end date that is the last day of a calendar month and the type of legal entity and listing the interest and extent of such interest of each principal in the entity.

5. If the applicant is not an individual, a biographical affidavit on a form approved by the director for each of the members of the board of directors, officers, trustees or managing partners.

6. The estimated number of residents of the facility to be provided services by the applicant pursuant to the life care contracts and the estimated number of contract holders who will receive services in their private residences with the right to future access to services, board and lodging at the facility.

7. A statement of the provisions that have been made or will be made to provide reserve funding or security by the provider to enable the provider to fully perform the provider's obligations pursuant to life care contracts, including the establishment of escrow accounts, accounts in financial institutions, trusts or reserve funds.

8. A statement as to whether the applicant was or is affiliated with a religious, charitable or other nonprofit organization, the extent of any affiliation and the extent to which the affiliate organization will be responsible for the financial and contract obligations of the applicant.

9. If the applicant is a subsidiary corporation or the affiliate of another corporation, a statement identifying the parent corporation or the other affiliate corporation and the primary activities of the parent or other affiliate corporation.

10. A description of the business experience of the provider in the operation of similar facilities and, if the facility will be managed on a day-to-day basis by a corporation or organization other than the provider, a description of the business experience of the manager in the operation or management of similar facilities.

11. A statement as to whether the applicant, a promoter, a principal, a parent or subsidiary corporation or an affiliate has had any injunctive or restrictive order of a court of record, or any suspension or revocation of any state or federal license or permit, arising out of or relating to business activity or health care applied against it, including without limitation actions affecting a license to operate a foster care facility, a health care institution, a retirement home or a home for the aged.

12. A statement of any periodic rates to be initially paid by residents and contract holders, the method by which the rates are determined and the manner by which the provider may adjust the rates in the future. If the facility is already in operation, or if the provider operates one or more similar facilities within this state, the statement must include tables showing the frequency and average dollar amount of each increase in periodic rates at each facility for the previous five years or any shorter period as the facility may have been operated by the provider. If a provider is providing services to a contract holder in the person's residence, the statement must include the frequency and average dollar amount of each increase in periodic rates for contract holders for the previous five years or any shorter period as the provider has been providing services to contract holders in their private residences.

13. A statement of the terms and conditions under which a life care contract may be canceled by the provider or resident or contract holder, including any health and financial conditions required for a person to continue as a resident or contract holder and any conditions under which all or any portion of the entrance fee will be refunded by the provider.

14. If construction or purchase of the facility has not yet been completed, a statement of the anticipated source and application of the monies to be used in the purchase or construction, including all of the following:

(a) An estimate of the cost of purchasing or constructing and equipping the facility including related costs as financing expense, legal expense, land costs, occupancy development costs and all other similar costs that the provider expects to incur or become obligated for before the commencement of operations.

(b) An estimate of the total entrance fees to be received from residents on completion of occupancy.

(c) A description of any mortgage loan or other long-term financing intended to be used for the financing of the facility, including the anticipated terms and costs of the financing.

(d) An estimate of any funds that are anticipated to be necessary to fund start-up losses and to assure full performance of the obligations of the provider pursuant to life care contracts including any reserve fund escrow required by the director pursuant to section 20-1806.

15. Certified financial statements of the provider, promoter and manager as of a date not more than ninety days before the date the permit application is filed, that shall include a balance sheet and the related statements of income, retained earnings or equity and changes in financial position for the three most recent fiscal years or any shorter period of time as the provider, promoter or manager has been in existence. Each of these statements shall be prepared in accordance with generally accepted accounting principles and reported on by a certified public accountant in accordance with generally accepted auditing standards. If the fiscal year ended more than ninety days before the date of filing, the provider shall include an income statement, that need not be certified, covering the period between the date the fiscal year ended and a date not more than ninety days before the date the application is filed.

16. A feasibility study that shall include a financial forecast of the life care facility estimating the most probable financial position, results of operations and changes in financial position for the immediately succeeding five year period. The feasibility study must set forth the actuarial assumptions for determining that the project has sufficient revenues and funds, including reserves, for the project to continue as a viable operating concern. The study must include all of the following:

(a) Beginning cash balance, and in the event that operation of the facility has not yet commenced, the beginning cash balance shall be consistent with the statement of anticipated source and application of funds described in paragraph 14.

(b) Anticipated earnings on cash reserves.

(c) Estimates of net receipts from entrance fees, other than entrance fees included in the statement of source and application of funds required under paragraph 14, less estimated entrance fee refunds and a description of the actuarial basis and method of calculation for the projection of entrance fee receipts.

(d) An estimate of gifts or bequests if any are to be relied on to meet operating expenses.

(e) A projection of estimated income from fees and charges other than entrance fees, showing individual rates presently anticipated to be charged, including a description of the assumptions used for calculating the effect on the income of the facility of subsidized health services to be provided pursuant to the life care contracts.

(f) A projection of estimated operating expenses of the facility and for providing services in contract holders' private residences, including a description of the assumptions used in calculating the expenses, and separate allowances for the replacement of equipment and furnishings and anticipated major structural repairs or additions.

(g) An estimate of annual payments of principal and interest required by any mortgage loan or other long-term financing.

17. An actuarial study prepared by a qualified actuary to be submitted with the feasibility study for the purpose of demonstrating that the project has sufficient revenues and funds, including reserves, for the project to continue as a viable operating concern. The actuarial study shall include a cash flow projection, an evaluation of the adequacy of current pricing structures and an analysis of the long-term relationship between the project's assets and liabilities.

18. If the feasibility study required by paragraph 16 indicates that the provider will have cash balances over and above two months' projected operating expenses of the facility, a description of the manner in which the reserve funds will be invested and the persons who will be making the investment decisions.

C. The application shall be signed under oath by the chief executive officer of the applicant.

D. Copies of the escrow agreements executed with an escrow agent pursuant to sections 20-1804 and 20-1806 shall be recorded as exhibits to the application.

E. The life care contract shall provide that any person entering into the contract shall have a period of seven days within which to rescind the life care contract without penalty or further obligation beginning with the first full calendar day following the last to occur of the execution of the contract, the payment of an initial sum of money as a deposit or application fee or receipt of a copy of the provider's most recent annual report if the provider has filed an annual report with the director pursuant to section 20-1807, or, if the provider has not filed an annual report, a copy of the provider's application. In the event of a rescission, all money or property paid or transferred by the person shall be fully refunded by the provider. A person shall not be required to move into a facility or begin receiving services in the person's private residence until after the expiration of the seven-day rescission period.

F. The director may charge an applicant the fee prescribed in section 20-167 for processing the application filed pursuant to subsection B of this section.

G. Nothing in this article requires the director to determine the actual financial condition of any life care contract provider. The approval of a permit indicates only that the entity appears to be financially viable based on the information provided to the director.

H. For the purposes of this section, "principal" means any person or entity having a ten per cent or more financial interest or, if the legal entity is a trust, each beneficiary of the trust holding a ten per cent or more beneficial interest.

§ 20-1803 Issuance of permit

A. The director shall review applications for completeness and issue a report of deficiencies to the applicant within sixty days of receipt of the application. The director shall issue a permit to the provider within thirty days of the receipt of a completed application and exhibits and payment of the fee by the applicant, and proof of compliance by the applicant with the provisions of sections 20-1804 and 20-1806. If the applicant has already paid the fee as a part of the process to receive a provisional permit under subsection E of this section, this subsection does not establish an additional fee. The director shall issue an order refusing the permit if the applicant does not meet the requirements therefor. The permit shall be subject to the conditions imposed pursuant to sections 20-1804 through 20-1806 allowing the provider to enter into life care contracts with respect to the number of living units and facility and the number of contract holders to be provided services in their private residences described in the application.

B. A permit issued under this section shall remain in full force, subject to the provisions of this chapter.

C. A permit issued pursuant to this section shall contain, in a prominent location, a statement that the issuance of a permit pursuant to section 20-1803 does not constitute approval, recommendation or endorsement by the department or director, nor does such a permit evidence the accuracy or completeness of the information set out in the application or the annual report of the provider.

D. All permits shall be nontransferable.

E. The director shall review an application for a provisional permit for completeness and issue a report of deficiencies to the applicant within sixty days of receipt of the application. The director may grant an applicant a provisional permit within thirty days of the receipt of a completed application and exhibits and payment of the fee by the applicant if the applicant has submitted an application containing the information required in section 20-1802, subsection B, paragraphs 1 through 15. Under the provisional permit, the applicant may solicit reservations for residences in the facility and reservations for the provision of services in private residences and collect deposits therefor. The applicant shall establish a trust account in which all reservation deposits shall be placed. The person entering into the contract for a reservation may rescind the agreement at any time prior to entering into the life care contract. In the event the reservation agreement is rescinded, all money or property, including accrued interest thereon, shall be returned to the person.

§ 20-1804 Entrance fee escrow; refundable fee

A. As a condition for the issuance of a permit pursuant to section 20-1803, the director shall require that the provider establish an escrow account with a licensed agent which provides that all of any entrance fee received by the provider before the date the resident is allowed to occupy his or her living unit in the facility or the date the contract holder is to begin receiving services in his or her private residence be placed in escrow with a bank, trust company or other escrow agent approved by the director, subject to the condition that such funds may be released only as follows:

1. If the entrance fee applies to a contract holder who will be receiving services in his or her private residence, the entrance fee shall be released to the provider at such time as the life care contract commences.

2. If the entrance fee applies to a living unit that has been previously occupied in the facility, the entrance fee shall be released to the provider at such time as the living unit becomes available for occupancy by the new resident.

3. If the entrance fee applies to a living unit that has not previously been occupied by any resident, the entrance fee, or that portion of the entrance fee not to be held in escrow pursuant to section 20-1806, shall be released to the provider at such time as the director is satisfied that all of the following conditions exist:

(a) Construction or purchase of the facility has been substantially completed and an occupancy permit covering the living unit has been issued by the local government having authority to issue such permits.

(b) A commitment has been received by the provider for any permanent mortgage loan or other long-term financing described in the statement of anticipated source and application of funds submitted by the provider as part of its permit application, and any conditions of the commitment before disbursement of funds thereunder have been substantially satisfied.

(c) Aggregate entrance fees received or receivable by the provider pursuant to binding life care contracts, plus the anticipated proceeds of any first mortgage loan or other long-term financing commitment are equal to not less than ninety percent of the aggregate cost of constructing or purchasing, equipping and furnishing the facility plus not less than ninety percent of the funds estimated in the statement of anticipated source and application of funds submitted by the provider as part of its permit application, to be necessary to fund start-up losses and assure full performance of the obligations of the provider pursuant to life care contracts.

B. If the funds in an escrow account required to be established under subsection A of this subsection are not released within such time as provided by rules and regulations issued by the director, such funds shall be returned by the escrow agent to the persons who had made payment to the provider.

C. An entrance fee held in escrow may be returned by the escrow agent to the person or persons who had made payment to the provider at any time on receipt by the escrow agent of notice from the provider that such person is entitled to a refund of the entrance fee.

D. Within sixty days after a facility receives a resident's notice to vacate, the facility shall assign the vacated unit a sequential refund number among all the available units with refundable entrance fees and provide refunds in order based on the sequential refund number, subject to subsections E and F of this section.

E. Subsection D of this section does not apply to a life care contract if either of the following applies:

1. The life care contract is executed before January 1, 2026.

2. The life care contract provides for the payment of a refundable portion of the entrance fee, with a maximum waiting period which may not exceed three years from when the resident vacates the unit.

F. A facility that is required to pay a refundable entrance fee pursuant to subsection D of this section shall pay a refund to the resident, the resident's estate, other institutional or personal payees designated by the resident or other payees as per applicable law in connection with the resident vacating the residential unit if all of the following are satisfied:

1. The refund is owed pursuant to the contract between the facility and the resident.

2. The resident's residential unit is next in line based on the sequential numbering system to receive a refund.

3. Sufficient monies are available from new resident entrance fees to provide the full amount of the refund.

G. This section does not require the escrow of any nonrefundable application fee, designated as such in the permit application required by section 20-1802, received by the provider from a prospective resident or contract holder.

§ 20-1805 Recording of lien by director

A. The director shall, as a condition to granting a permit to an applicant, record with the county recorder of any county a notice of lien against the facility's properties on behalf of all residents and contract holders who enter into life care contracts with the applicant to secure performance of the provider's obligations to residents and contract holders pursuant to life care contracts.

B. From the time of such recording there exists a lien for an amount equal to the reasonable value of services to be performed under a life care contract in favor of each resident and contract holder on the land and improvements of the facility's properties owned by the provider, not exempt from execution, which are listed in the notice of lien filed pursuant to subsection C of this section and which are located in the county in which the notice of lien is recorded.

C. The lien shall be perfected by the director by executing by affidavit the notice and claim of lien, which shall contain:

1. The legal description of the lands and improvements to be charged with a lien.

2. The name of the owner of the property affected.

3. A statement providing that the lien has been filed by the director pursuant to section 20-1805.

D. The lien may be released or partially released at the request of the applicant if, in the judgment of the director, such release or partial release inures to the benefit of the residents and contract holders and the performance of the provider's obligations to the residents and contract holders.

E. The lien may be foreclosed by civil action. Any number of persons claiming liens against the same property pursuant to this section may join in the same action. If separate actions are commenced, the court may consolidate such actions. The court shall, as part of the costs, allow reasonable attorney's fees for each claimant who is a party to the action.

F. In a civil action filed pursuant to this section, the judgment shall be given in favor of each resident and contract holder having a lien who has joined in the foreclosure action for the amount equal to the reasonable value of services to be performed under a life care contract in favor of each resident and contract holder. The court shall order the sheriff to sell any property subject to the lien at the time judgment is given, in the same manner as real and personal property is sold on execution. The lien for the reasonable value of services to be performed under a life care contract shall be on equal footing with claims of other residents and contract holders. If a sale is ordered and the property sold and the proceeds of the sale are not sufficient to discharge all liens of residents and contract holders against the property, the proceeds shall be prorated among the respective residents and contract holders.

G. The liens provided for in this section are preferred to all liens, mortgages or other encumbrances upon the property attaching subsequently to the time the lien is recorded and are preferred to all unrecorded liens, mortgages and other encumbrances. The amount secured by any lien having priority to the lien filed pursuant to this section may not be increased without prior approval of the director.

H. The director shall file a release of the lien upon proof of complete performance of all obligations to residents and contract holders pursuant to life care contracts.

I. The director may subordinate any lien filed pursuant to this section to the lien of a first mortgage or other long-term financing obtained by the provider, regardless of the time at which the subsequent lien attaches.

§ 20-1806 Reserve fund escrow

The director shall, as a condition of the issuance of a permit pursuant to section 20-1803, require that the provider maintain on a current basis, in escrow with a bank, trust company or other escrow agent approved by the director, an amount which equals the aggregate principal and interest payments due during the next twelve months on account of any first mortgage or other long-term financing of the facility. The principal of the escrow account may be invested with the earnings thereon payable to the provider, and up to one-sixth of the total principal shall be released to the provider upon notice to the director. The escrow agreement shall provide that upon withdrawal of any such amount by the provider, the escrow agent shall provide immediate written notice of such withdrawal to the director and that any amount released to the provider shall be repaid to the escrow account within two years of the release of such amount. In the event that the provider does not repay the escrow account within such two year period, the escrow agent shall provide immediate written notice to the director.

§ 20-1807 Annual report; civil penalty

A. Each year not later than ninety days after the last day of the provider's fiscal year, each provider shall file with the department an annual report accompanied by the fee prescribed in section 20-167. The annual report shall include the information required by section 20-1802, subsection B, except that the information required by section 20-1802, subsection B, paragraphs 5, 15 and 17 shall be filed in accordance with the provisions of subsection C of this section. The annual report need not include the information required by section 20-1802, subsection B, paragraph 16. The annual report shall be made on forms provided by the department. The annual report and any amendment to the annual report shall be signed under oath by the chief executive officer of the provider. For good cause, the director may extend the due date for a provider to file its annual report and pay the required fee.

B. A provider shall amend its annual report on file with the department at any time, without the payment of any additional fee, if an amendment is necessary to prevent the annual report from containing a material misstatement of fact or omitting to state a material fact required to be stated.

C. Any provider, manager or promoter shall comply with the requirements of this section as follows:

1. Information required by section 20-1802, subsection B, paragraph 5 shall be filed:

(a) Immediately on the substitution or installation of a member of the board of directors or an officer, trustee or managing partner different from the information disclosed in the provider's application or submission pursuant to subdivision (b).

(b) Every three years after the initial filing of the biographical affidavit by the provider.

2. Certified financial statements required by section 20-1802, subsection B, paragraph 15 for the two most recent fiscal years shall be filed with the annual report by the provider and manager only. The certified financial statements of the promoter shall be filed with the annual report unless the promoter is not currently employed by the provider.

3. The actuarial study required by section 20-1802, subsection B, paragraph 17 shall be filed by the provider on a triennial basis beginning with the year in which resident occupancy began at the facility or contract holders began receiving services pursuant to the permit issued to the provider. The director may require a provider to file an actuarial study on a more frequent basis if the director deems it necessary and may adjust subsequent triennial filings accordingly.

D. A provider shall not change the fiscal year end date disclosed pursuant to section 20-1802, subsection B, paragraph 4 without the prior approval of the director. The director shall approve the change if the commissioner of the internal revenue service grants a request for a change of a fiscal year pursuant to 26 United States Code section 442.

E. Assets 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 the director may employ one or more competent appraisers for that purpose, and the reasonable expense shall be borne by the provider.

F. The director may assess and collect a civil penalty of not more than twenty-five dollars for each day the annual report is late against a provider who fails to file the annual report timely accompanied by the required fee.

§ 20-1808 Ratio of assets to liabilities; report; rehabilitation of provider

A. The provider shall possess assets in the first year of operation equal to at least seventy-five percent of the unamortized endowment fees plus all other liabilities including long-term debt. The unamortized endowment fees shall be based on life expectancy of purchasers. Thereafter, the provider shall at all times possess assets in an amount sufficient to assure full performance of the obligations of the provider pursuant to life care contracts including any reserve fund escrow required by the director pursuant to section 20-1806.

B. If revenues or funds including reserves are inadequate or projected to be inadequate pursuant to the annual report or an actuarial report or if the provider does not meet the requirements of subsection A of this section, the director may employ an independent management consultant experienced in the operation of life care facilities, at the expense of the provider, who shall examine the financial structure and operations of the provider and make recommendations on remedial action to the director. The director shall not be bound by such recommendations.

C. If at any time the director receives notice from the escrow agent that section 20-1806 has not been complied with, if at any other time when the director has reason to believe that the provider is in a financially unsound or unsafe condition or that its condition is such that it may otherwise be unable to fully perform its obligations pursuant to life care contracts, if the provider fails to implement the director's recommendations as a result of a management consultant's report or if it is obvious to the director that to obtain the services of a financial consultant under subsection B of this section would be futile, the director, through the attorney general, shall apply to the superior court in the county in which the provider's facility is located for an order directing the director to assume management and possession of the provider's facility and to rehabilitate the provider to enable it to fully perform its obligation pursuant to life care contracts. The court shall act on the application on notice to the provider, and any objection to the petition shall be filed with the court within the time prescribed by such notice.

D. If the court on hearing finds that the provider is in a financially unsound or unsafe condition or that its condition is such that it may otherwise be unable to fully perform its obligations pursuant to life care contracts, the court shall issue an order directing the director to take possession of the property of the provider and to conduct the business thereof, and to take such steps toward removal of the causes and conditions that have made rehabilitation necessary, as the court may direct. The order shall include a provision directing the issuance of a notice of the rehabilitation proceedings to the residents at such facility, to the provider's contract holders and to such other interested persons as the court shall direct.

E. Appointment of the director to rehabilitate a provider shall authorize the director to:

1. Take possession of and preserve, protect and recover any assets, books and records or property of the provider, including claims or causes of action that belong to or that may be asserted by the provider, and to deal with such property in the director's name in the capacity as director, and purchase at any sale any real estate or other asset on which the provider may hold any lien or encumbrance or in which it may have an interest.

2. File, prosecute and defend or compromise any suit or suits that have been filed or that may thereafter be filed by or against the provider and that are deemed by the director to be necessary to protect the provider or the residents or contract holders or any property affected thereby.

3. Take possession of and deposit and invest any of the provider's available funds.

4. Pay all expenses of the rehabilitation.

5. Exercise such other powers and duties as may be provided by order of the court.

6. Appoint managers, supervisors or employees necessary to properly manage and operate the provider and the provider's facility.

7. Take possession of and, with the prior approval of the court, sell, exchange, lease, mortgage or otherwise dispose of any property of the provider by public sale, bidding or otherwise.

8. With the prior approval of the court, borrow money with or without security for the purpose of facilitating the rehabilitation of the provider.

9. Perform all duties of the provider.

10. Reject any executory contract to which the provider is a party.

11. Withdraw any sums remaining in the escrow account established pursuant to section 20-1806 for the purpose of rehabilitating the provider's facility.

F. The court may at any time during a rehabilitation proceeding issue such other instructions or orders as are deemed necessary to aid the director in the rehabilitation proceeding.

G. The director, or any interested person on due notice to the director, at any time may apply to the court for an order terminating the rehabilitation proceedings and allowing the provider to resume possession of its property and the conduct of its business, but no such order shall be granted except when, after a full hearing, the court has determined that the purposes of the proceeding have been fully accomplished and that the facility can be returned to the provider's management without further jeopardy to the residents of the facility, creditors, owners of the facility and the public. An order terminating the rehabilitation proceeding shall be based on a full report and accounting by the director of the conduct of the provider's officers during the rehabilitation and of the provider's current financial condition.

H. If at any time the director deems that further efforts to rehabilitate the provider would be useless, the director may report to the court and apply for an order of liquidation and dissolution pursuant to title 10, chapter 14, article 3, if a corporation, or may apply for other appropriate relief for dissolving the provider and winding up its affairs. An order directing the liquidation or dissolution of the provider shall act as a revocation of the provider's permit issued pursuant to section 20-1803.

I. In connection with the rehabilitation proceedings, the director may appoint one or more special deputy directors of the department of insurance and financial institutions to act for the director and may employ such counsel, clerks or assistants as the director deems necessary. The compensation of the special deputies, counsel, clerks or assistants and any expenses of taking possession of the provider's facility and of conducting the proceedings shall be set by the director, subject to approval of the court, and shall be paid out of the funds or assets of the provider.

§ 20-1809 Examination

The director may conduct an examination of the affairs of any provider as often as he 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.

§ 20-1810 Rules and regulations

The director may promulgate reasonable rules and regulations for effectuating any provision of this chapter.

§ 20-1811 Violation; classification

After January 1, 1978, any person acting in the capacity of a provider who enters into a life care contract, or extends the term of an existing life care contract, without first having been issued a permit by the department or without otherwise acting in compliance with the provisions of this chapter, shall be guilty of a class 2 misdemeanor.

§ 20-1812 Disclosure statement; contents; refunds

A. At the time of or before the execution of a life care contract and the transfer of any money or other property to a provider pursuant thereto, the provider shall deliver to the person with whom the life care contract is entered into:

1. A disclosure statement that contains a copy of the provider's certified financial statements and feasibility study prepared according to section 20-1802 and any other information required by the director. The cover of the disclosure statement shall contain the following statement in bold-faced print: "A permit for this life care facility has been issued by the Arizona department of insurance and financial institutions. This permit does not constitute approval, recommendation or endorsement of the life care facility by the department, nor does it evidence the accuracy or completeness of the information in this statement."

2. If the life care contract offers a refund, a separate disclosure document that indicates:

(a) Whether an entrance fee will be charged and when the person must pay the entrance fee.

(b) Whether any part of the entrance fee, or any other amount, paid at any time by the contract holder or resident will be refunded to the person or the person's heirs.

(c) If a refund will be paid to the person or the person's heirs, the amount or amounts to be paid and the time for payment of the amounts.

(d) The specific conditions or limits, if any, on the payment of any refund, including a requirement for reoccupancy of a vacated unit, or any other limit or condition.

B. The disclosure language prescribed in subsection A, paragraph 2 of this section shall be in at least ten-point boldface type, shall be signed by the contract holder and the contract holder's partner or spouse, if any, and shall be witnessed by at least two independent persons. The purchaser must separately initial each disclosure prescribed by subsection A, paragraph 2 of this section and verify that the person has read and understands the information presented in each disclosure. The provider shall give an initialed copy of the separate disclosure statement to the contract holder at the time of signing, and the provider shall keep a signed copy of the initialed disclosure statement. The director may recommend or require that the separate disclosures be in a specified form. The form must contain the information required by this section.

Chapter 9 Automobile Theft, Fire and Arson Reporting Immunity

Article 1 General Provisions

§ 20-1901 Definitions

In this chapter, unless the context otherwise requires:

1. "Authorized agency" means:

(a) The office of the state fire marshal when authorized or charged with the investigation of a fire.

(b) The director of the department of public safety.

(c) A county attorney.

(d) A county sheriff.

(e) The attorney general.

(f) The fire department of any city, town or county of this state.

(g) A police agency of any city, town or county of this state.

(h) Solely for the purposes of section 20-1902, subsection A, the federal bureau of investigation, any other federal agency or the United States attorney general's office when authorized or charged with investigation or prosecution of a crime in this state.

(i) The automobile theft authority.

2. "Insurer" means every person or entity engaged in the business of making contracts of insurance in this state.

3. "Relevant" means having any tendency to make the existence of any fact that is of consequence to the investigation or determination of the issue more probable or less probable than it would be without the evidence.

§ 20-1902 Disclosure of information

A. An authorized agency may, in writing, require an insurer to release to such other authorized agency any relevant information which the insurer has in its possession relating to a loss which such authorized agency is investigating including:

1. Application for an insurance policy.

2. Policy premium payment records.

3. History of previous claims made by the insured.

4. Material relating to the investigation of the loss, including statements of any person, proof of loss and any other evidence relevant to the investigation.

B. If an insurer has reason to believe that a loss in which it has an interest may be based on a false or fraudulent claim such insurer shall, in writing, notify an authorized agency and provide it with all material developed from the insurer's inquiry into the loss. Notice to any one of the authorized agencies listed in section 20-1901, paragraph 1, subdivisions (a) through (g) shall be sufficient notice for the purpose of this subsection.

C. Nothing in subsection B of this section shall abrogate or impair the rights or powers created under subsection A of this section.

D. The authorized agency provided with information pursuant to subsection A or B of this section shall upon request release or provide such information to any other authorized agency.

E. An insurer providing information to an authorized agency shall have the right to request in writing from such agency relevant information and receive, within a reasonable time, not to exceed thirty days, the information requested. The relevant information shall not include non-conviction criminal history record information nor any other information detrimental to another ongoing criminal investigation or that would reveal the identity of a confidential source of information.

§ 20-1903 Immunity from liability for disclosure of information

Any insurer, its employees or agents or an authorized agency that releases information in good faith pursuant to this chapter is immune from civil liability or criminal penalty based upon the release of the information.

§ 20-1904 Confidentiality of information

An authorized agency who receives information pursuant to this chapter shall hold the information in confidence until such time as its release is required pursuant to this chapter or pursuant to a criminal or civil proceeding.

§ 20-1905 Authorized agency as witness

An authorized agency or personnel of such agency may be required to testify in any litigation in which an insurer is named as a party.

§ 20-1906 Violation; classification

A person, insurer or authorized agency that knowingly fails to provide information pursuant to section 20-1902, subsection A or who knowingly fails to hold information in confidence pursuant to section 20-1904 is guilty of a class 2 misdemeanor.

§ 20-1907 Application of chapter

The provisions of this chapter shall not be construed to affect or repeal any local ordinance relating to fire prevention or the control of arson.

Chapter 11 Insurance Information and Privacy Protection

Article 1 General Provisions

§ 20-2101 Scope

A. This chapter applies to insurance institutions, insurance producers or insurance support organizations that:

1. In the case of life, health or disability insurance either:

(a) Collect, receive or maintain information in connection with insurance transactions that pertain to natural persons who are residents of this state.

(b) Engage in insurance transactions with applicants, individuals or policyholders who are residents of this state.

2. In the case of property or casualty insurance:

(a) Collect, receive or maintain information in connection with insurance transactions involving policies, contracts or certificates of insurance delivered, issued for delivery or renewed in this state.

(b) Engage in insurance transactions involving policies, contracts or certificates of insurance delivered, issued for delivery or renewed in this state.

B. The rights granted by this chapter extend to:

1. In the case of life, health or disability insurance, the persons who are residents of this state, including natural persons who are the subject of information collected, received or maintained in connection with insurance transactions, and applicants, individuals or policyholders who engage in or seek to engage in insurance transactions.

2. In the case of property or casualty insurance, the persons, including natural persons who are the subject of information collected, received or maintained in connection with insurance transactions involving policies, contracts or certificates of insurance delivered, issued for delivery or renewed in this state, and applicants, individuals or policyholders who engage in or seek to engage in insurance transactions involving policies, contracts or certificates of insurance delivered, issued for delivery or renewed in this state.

C. For purposes of this section, a person is considered a resident of this state if the person's last known mailing address, as shown in the records of the insurance institution, insurance producer or insurance support organization, is located in this state.

D. Notwithstanding subsections A and B, this chapter does not apply to information collected from the public records of a governmental authority and maintained by an insurance institution or its representatives for the purpose of insuring the title to real property located in this state.

§ 20-2102 Definitions

In this chapter, unless the context otherwise requires:

1. "Adverse underwriting decision" means any of the following actions involving insurance coverage which is individually underwritten:

(a) A declination of insurance coverage.

(b) A termination of insurance coverage.

(c) Failure of an insurance producer to apply for insurance coverage with a specific insurance institution which the insurance producer represents and which is requested by an applicant.

(d) In the case of property or casualty insurance coverage, placement by an insurance institution or insurance producer of a risk with a residual market mechanism, an unauthorized insurer or an insurance institution which specializes in substandard risks, or the charging of a higher rate on the basis of information which differs from that which the applicant or policyholder furnished.

(e) In the case of life, health or disability insurance coverage, an offer to insure at higher than standard rates.

(f) In the case of property or casualty insurance, assigning an applicant or policyholder to a higher rating tier or failing to apply a premium discount or credit based on any credit related information derived from the applicant's or policyholder's consumer report, insurance score or lack of credit history.

Notwithstanding subdivisions (a) through (f) of this paragraph, the termination of an individual policy form on a class or statewide basis, a declination of insurance coverage solely because the coverage is not available on a class or statewide basis or the rescission of a policy is not considered an adverse underwriting decision, but the insurance institution or insurance producer responsible for its occurrence shall provide the applicant or policyholder with the specific reasons for its occurrence.

2. "Affiliate" or "affiliated" means a person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with another person.

3. "Applicant" means any person who seeks to contract for insurance coverage other than a person seeking group insurance that is not individually underwritten.

4. "Consumer report" means any written, oral or other communication of information that bears on a natural person's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living and that is used or expected to be used in connection with an insurance transaction.

5. "Consumer reporting agency" means any person who does any of the following:

(a) Regularly engages, in whole or in part, in the practice of assembling or preparing consumer reports for a monetary fee.

(b) Obtains information primarily from sources other than insurance institutions.

(c) Furnishes consumer reports to other persons.

6. "Control", including the terms "controlled by" or "under common control with", means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person.

7. "Declination of insurance coverage" means a denial, in whole or in part, by an insurance institution or insurance producer of requested insurance coverage.

8. "Individual" means any natural person who:

(a) In the case of property or casualty insurance, is a past, present or proposed named insured or certificate holder.

(b) In the case of life, health or disability insurance, is a past, present or proposed principal insured or certificate holder.

(c) Is a past, present or proposed policyowner.

(d) Is a past or present applicant.

(e) Is a past or present claimant.

(f) Derived, derives or is proposed to derive insurance coverage under an insurance policy or certificate subject to this chapter.

9. "Institutional source" means any person or governmental entity that provides information about an individual to an insurance producer, insurance institution or insurance support organization, other than an insurance producer, the individual who is the subject of the information or a natural person acting in a personal capacity rather than in a business or professional capacity.

10. "Insurance institution" means any corporation, association, partnership, reciprocal insurer, inter-insurer, Lloyd's association, fraternal benefit society or other person engaged in the business of insurance, including health care service organizations and hospital, medical, dental and optometric service corporations as defined in this title. Insurance institution does not include insurance producers or insurance support organizations.

11. "Insurance producer" means an insurance producer as defined in section 20-281.

12. "Insurance score" means, for the purpose of insurance underwriting or rating, a designation that is derived by using a variety of data sources, including an individual's consumer report in an algorithm, computer program, model or other process that reduces the data to a number, alpha character or rating that is used for insurance underwriting and rating decisions.

13. "Insurance support organization" means:

(a) Any person who regularly engages, in whole or in part, in the practice of assembling or collecting information about natural persons for the primary purpose of providing the information to an insurance institution or insurance producer for insurance transactions, including the furnishing of consumer reports or investigative consumer reports to an insurance institution or insurance producer for use in connection with an insurance transaction or the collection of personal information from insurance institutions, insurance producers or other insurance support organizations for the purpose of detecting or preventing fraud, material misrepresentation or material nondisclosure in connection with insurance underwriting or insurance claim activity.

(b) Notwithstanding subdivision (a) of this paragraph the following persons are not considered insurance support organizations for purposes of this chapter:

(i) Insurance producers.

(ii) Government institutions.

(iii) Insurance institutions.

(iv) Medical care institutions.

(v) Medical professionals.

14. "Insurance transaction" means any transaction that involves insurance primarily for personal, family or household needs rather than business or professional needs and that entails the determination of an individual's eligibility for an insurance coverage, benefit or payment or the servicing of an insurance application, policy, contract or certificate, including transfers of business.

15. "Investigative consumer report" means a consumer report or portion of a consumer report in which information about a natural person's character, general reputation, personal characteristics or mode of living is obtained through personal interviews with the person's neighbors, friends, associates, acquaintances or others who may have knowledge concerning those items of information.

16. "Medical care institution" means any facility or institution that is licensed to provide health care services to natural persons including:

(a) Health care service organizations.

(b) Home health agencies.

(c) Hospitals.

(d) Medical clinics.

(e) Public health agencies.

(f) Rehabilitation agencies.

(g) Skilled nursing facilities.

17. "Medical professional" means any person licensed or certified to provide health care services to natural persons, including a chiropractor, clinical dietitian, clinical psychologist, dentist, nurse, occupational therapist, optometrist, pharmacist, physical therapist, physician, podiatrist, psychiatric social worker or speech therapist.

18. "Medical record information" means personal information that relates to an individual's physical or mental condition, medical history or medical treatment and that is obtained from a medical professional or medical care institution, the individual or the individual's spouse, parent or legal guardian.

19. "Personal information" means any individually identifiable information gathered in connection with an insurance transaction and from which judgments can be made about an individual's character, habits, avocations, finances, occupation, general reputation, credit, health or any other personal characteristics. Personal information includes an individual's name and address and medical record information but does not include privileged information.

20. "Policyholder" means any person who:

(a) In the case of individual property or casualty insurance, is a present named insured.

(b) In the case of individual life, health or disability insurance, is a present policyowner.

(c) In the case of group insurance which is individually underwritten, is a present group certificate holder.

21. "Pretext interview" means an interview in which a person, in an attempt to obtain information about a natural person, performs one or more of the following acts:

(a) Pretends to be someone he or she is not.

(b) Pretends to represent a person he or she is not in fact representing.

(c) Misrepresents the true purpose of the interview.

(d) Refuses to identify himself or herself on request.

22. "Privileged information" means any individually identifiable information that relates to a claim for insurance benefits or a civil or criminal proceeding involving an individual and that is collected in connection with or in reasonable anticipation of a claim for insurance benefits or a civil or criminal proceeding involving an individual, except that information otherwise meeting the requirements of this paragraph is considered personal information under this chapter if it is disclosed in violation of section 20-2113.

23. "Residual market mechanism" means an agreement for the equitable apportionment among insurers of insurance afforded applicants who are in good faith entitled to but who are unable to procure insurance through ordinary methods.

24. "Termination of insurance coverage" or "termination of an insurance policy" means either a cancellation or nonrenewal of an insurance policy, in whole or in part, for any reason other than the failure to pay a premium as required by the policy.

25. "Transfer of business":

(a) Means the transfer by an insurance institution or insurance producer that owns the policy expiration of a policyholder's existing policy of insurance or the transfer of a group of policyholders' existing policies of insurance to another insurance institution.

(b) Does not include the transfer of business by an insurance producer that is under an exclusive contract or a contract requiring the insurance producer to submit all eligible business to an insurer or group of insurers under a common management.

26. "Unauthorized insurer" means an insurance institution that has not been granted a certificate of authority by the director to transact insurance in this state.

§ 20-2103 Pretext interviews; exception

An insurance institution, insurance producer or insurance support organization shall not use or authorize the use of pretext interviews to obtain information in connection with an insurance transaction, except that a pretext interview may be undertaken to obtain information from a person or institution that does not have a generally or statutorily recognized privileged relationship with the person about whom the information relates for the purpose of investigating a claim where, based upon specific information available for review by the director, there is a reasonable basis for suspecting criminal activity, fraud, material misrepresentation or material nondisclosure in connection with the claim.

§ 20-2104 Notice of insurance information practices

A. An insurance institution or insurance producer shall provide a notice of information practices to applicants and policyholders in connection with insurance transactions as prescribed in this section.

B. The insurance institution or insurance producer shall provide the notice at the following times:

1. In the case of an application for insurance, not later than when the insurance institution or insurance producer either:

(a) Delivers the insurance policy or certificate, if personal information is collected only from the applicant or from public records.

(b) First collects personal information from a source other than the applicant or public records.

2. In the case of a policy renewal, at least annually during the continuation of the relationship with the policyholder, except that an insurance institution or insurance producer is not required to provide the notice described in subsection C of this section annually if the insurance institution or insurance producer meets both of the following requirements:

(a) Provides personal information in accordance with section 20-2113.

(b) Has not changed the policies and practices related to disclosing personal information since the customer was last notified pursuant to this section.

3. In the case of a policy reinstatement or change in insurance benefits, not later than the time when the insurance institution receives a request for a policy reinstatement or change in insurance benefits except that a notice is not required if a notice was already given within the immediately preceding twelve months or the insurance institution or insurance producer meets both of the following requirements:

(a) Provides personal information in accordance with section 20-2113.

(b) Has not changed the policies and practices related to disclosing personal information since the customer was last notified pursuant to this section.

C. The notice shall be in writing or, if the applicant or policyholder agrees, in an electronic form and shall either contain the information required for compliance with the notice requirements established under section 503 of the Gramm-Leach-Bliley act (15 United States Code section 6803) or shall state:

1. Whether personal information may be collected from persons other than the individual or individuals proposed for coverage.

2. The types of personal information that may be collected and the types of sources and investigative techniques that may be used to collect the information.

3. The types of disclosures identified in section 20-2113, paragraphs 2 through 6, 9, 11, 12 and 14 and the circumstances under which the disclosures may be made without prior authorization, except only those circumstances need be described that occur with such a frequency as to indicate a general business practice.

4. A description of the rights established under sections 20-2108 and 20-2109 and the manner in which those rights may be exercised.

5. That information obtained from a report prepared by an insurance support organization may be retained by the insurance support organization and disclosed to other persons.

D. Instead of the notice prescribed in subsection C of this section, the insurance institution or insurance producer may provide an abbreviated notice informing the applicant that:

1. Personal information may be collected from persons other than the individual or individuals proposed for coverage.

2. The information as well as other personal or privileged information subsequently collected by the insurance institution or insurance producer may in certain circumstances be disclosed to third parties without authorization.

3. A right of access and correction exists with respect to all personal information collected.

4. The notice prescribed in subsection C of this section will be provided to the applicant on request.

E. The obligations imposed by this section on an insurance institution or insurance producer may be satisfied by another insurance institution or insurance producer authorized to act on its behalf.

F. If an insurance institution, insurance producer or insurance support organization that is required to give notice under this section gives the notice to the sponsor of an employee benefit plan, a group or blanket insurance policyholder or group annuity contract holder or a workers' compensation plan participant and does not disclose personal information about any of the individuals described in paragraph 1, 2 or 3 of this subsection except as otherwise allowed under section 20-2113, the insurer, producer or insurance support organization is not required to provide the notice to:

1. A participant or a beneficiary of an employee benefit plan that the insurer administers or sponsors or for which the insurer acts as trustee, insurer or fiduciary.

2. An individual who is covered under a group or blanket insurance policy or group annuity contract issued by the insurer.

3. A beneficiary in a workers' compensation plan.

G. An insurance institution or insurance producer is not required to give notice under this section to a policyholder whose policy is lapsed, expired or otherwise inactive if the insurance institution or insurance producer has not communicated with the policyholder for at least twelve consecutive months, other than to provide annual privacy notices, material required by law or order of a state or federal regulatory authority or promotional materials.

H. An insurance institution or insurance producer is not required to give notice under this section to a policyholder whose last known address of record is invalid. An address is deemed invalid under this subsection if mail sent to that address by the insurance institution or insurance producer has been returned by the postal authorities as undeliverable and if subsequent attempts by the insurance institution or insurance producer to obtain a valid address for the individual have been unsuccessful.

§ 20-2105 Marketing and research surveys; disclosure of questions

An insurance institution or insurance producer shall clearly specify those questions designed to obtain information solely for marketing or research purposes from an individual in connection with an insurance transaction.

§ 20-2106 Content of disclosure authorization forms

Notwithstanding any other statute no insurance institution, insurance producer or insurance support organization may utilize as its disclosure authorization form in connection with insurance transactions a form or statement which authorizes the disclosure of personal or privileged information about an individual to the insurance institution, insurance producer or insurance support organization unless the form or statement:

1. Is written in plain language.

2. Is dated.

3. Specifies the types of persons authorized to disclose information about the individual.

4. Specifies the nature of the information authorized to be disclosed.

5. Names the insurance institution or insurance producer and identifies by generic reference representatives of the insurance institution to whom the individual is authorizing information to be disclosed.

6. Specifies the purposes for which the information is collected.

7. In the case of authorizations signed for the purpose of collecting information in connection with an application for an insurance policy, a policy reinstatement or a request for change in policy benefits, specifies the length of time the authorization remains valid. The length of time shall be no longer than:

(a) Thirty months from the date the authorization is signed if the application or request involves life, health or disability insurance.

(b) One year from the date the authorization is signed if the application or request involves property or casualty insurance.

8. In the case of authorizations signed for the purpose of collecting information in connection with a claim for benefits under an insurance policy, specifies the length of time the authorization remains valid. The length of time shall be no longer than:

(a) The term of coverage of the policy if the claim is for a health insurance benefit.

(b) The duration of the claim if the claim is not for a health insurance benefit.

9. Advises the individual or a person authorized to act on behalf of the individual that the individual or the individual's authorized representative is entitled to receive a copy of the authorization form.

§ 20-2107 Investigative consumer reports

A. No insurance institution, insurance producer or insurance support organization may prepare or request an investigative consumer report about an individual in connection with an insurance transaction involving an application for insurance, a policy renewal, a policy reinstatement or a change in insurance benefits unless the insurance institution or insurance producer informs the individual that the individual may request to be interviewed in connection with the preparation of the investigative consumer report and that upon a request pursuant to section 20-2108 the individual is entitled to receive a copy of the investigative consumer report.

B. If an investigative consumer report is to be prepared by an insurance institution or insurance producer, the insurance institution or insurance producer shall institute reasonable procedures to conduct a personal interview requested by an individual.

C. If an investigative consumer report is to be prepared by an insurance support organization, the insurance institution or insurance producer desiring the report shall inform the insurance support organization whether a personal interview has been requested by the individual. The insurance support organization shall institute reasonable procedures to conduct the interview, if requested.

§ 20-2108 Access to recorded personal information

A. If any individual, after proper identification, submits a written request to an insurance institution, insurance producer or insurance support organization for access to recorded personal information about the individual which is reasonably described by the individual and which the insurance institution, insurance producer or insurance support organization can reasonably locate and retrieve the insurance institution, insurance producer or insurance support organization shall within thirty business days from the date the request is received:

1. Inform the individual of the nature and substance of the recorded personal information in writing, by telephone or by other oral communication, whichever the insurance institution, insurance producer or insurance support organization prefers.

2. Permit the individual to see and copy, in person, the recorded personal information pertaining to the individual or to obtain a copy of the recorded personal information by mail, whichever the individual prefers, unless the recorded personal information is in coded form, in which case the insurance institution, insurance producer or insurance support organization shall provide an accurate translation in plain language and in writing.

3. Disclose to the individual the identity, if recorded, of those persons to whom the insurance institution, insurance producer or insurance support organization has disclosed the personal information within two years prior to the request, and if the identity is not recorded, the names of those insurance institutions, insurance producers, insurance support organizations or other persons to whom the information is normally disclosed.

4. Provide the individual with a summary of the procedures by which the individual may request correction, amendment or deletion of recorded personal information.

B. Any personal information provided pursuant to subsection A of this section shall identify the source of the information if the source is an institutional source.

C. Medical record information supplied by a medical care institution or medical professional and requested under subsection A of this section, together with the identity of the medical professional or medical care institution which provided the information, shall be supplied either directly to the individual or to a medical professional designated by the individual and licensed to provide medical care with respect to the condition to which the information relates, whichever the insurance institution, insurance producer or insurance support organization prefers. If it elects to disclose the information to a medical professional designated by the individual, the insurance institution, insurance producer or insurance support organization shall notify the individual, at the time of the disclosure, that it has provided the information to the medical professional.

D. Except for personal information provided under section 20-2109, an insurance institution, insurance producer or insurance support organization may charge a reasonable fee to cover the costs incurred in providing a copy of recorded personal information to individuals.

E. The obligations imposed by this section upon an insurance institution or insurance producer may be satisfied by another insurance institution or insurance producer authorized to act on its behalf. With respect to the copying and disclosure of recorded personal information pursuant to a request under subsection A of this section, an insurance institution, insurance producer or insurance support organization may make arrangements with an insurance support organization or a consumer reporting agency to copy and disclose recorded personal information on its behalf.

F. The rights granted to individuals in this section extend to all natural persons to the extent information about them is collected and maintained by an insurance institution, insurance producer or insurance support organization in connection with an insurance transaction. The rights granted to all natural persons by this subsection do not extend to information about them that relates to and is collected in connection with or in reasonable anticipation of a claim or civil or criminal proceeding involving them.

G. For the purposes of this section, "insurance support organization" does not include a consumer reporting agency.

§ 20-2109 Correction, amendment or deletion of recorded personal information

A. Within thirty business days from the date of receipt of a written request from an individual to correct, amend or delete any recorded personal information about the individual within its possession, an insurance institution, insurance producer or insurance support organization shall either:

1. Correct, amend or delete the portion of the recorded personal information in dispute.

2. Notify the individual of its refusal to make the correction, amendment or deletion, the reasons for the refusal and the individual's right to file a statement as provided in subsection C.

B. If the insurance institution, insurance producer or insurance support organization corrects, amends or deletes recorded personal information, the insurance institution, insurance producer or insurance support organization shall so notify the individual in writing and furnish the correction, amendment or fact of deletion to the following, as applicable:

1. Any person specifically designated by the individual who may have, within the preceding two years, received the recorded personal information.

2. Any insurance support organization whose primary source of personal information is insurance institutions if the insurance support organization has systematically received the recorded personal information from the insurance institution within the preceding seven years, except that the correction, amendment or fact of deletion need not be furnished if the insurance support organization no longer maintains recorded personal information about the individual.

3. Any insurance support organization that furnished the personal information that has been corrected, amended or deleted.

C. If an individual disagrees with an insurance institution's, insurance producer's or insurance support organization's refusal to correct, amend or delete recorded personal information, the individual may file with the insurance institution, insurance producer or insurance support organization a concise statement setting forth what the individual thinks is the correct, relevant or fair information and a concise statement of the reasons why the individual disagrees with the insurance institution's, insurance producer's or insurance support organization's refusal to correct, amend or delete recorded personal information.

D. If the individual files either statement as described in subsection C, the insurance institution, insurance producer or support organization shall:

1. File the statement with the disputed personal information and provide a means by which anyone reviewing the disputed personal information will be made aware of the individual's statement and have access to it.

2. In any subsequent disclosure by the insurance institution, insurance producer or insurance support organization of the recorded personal information that is the subject of disagreement, clearly identify the matter in dispute and provide the individual's statement along with the recorded personal information being disclosed.

3. Furnish the statement to the persons and in the manner prescribed in subsection B.

E. If the individual so requests, the insurance institution shall reconsider its underwriting decision based on any corrected information or the individual's statement provided under subsections C and D.

F. The rights granted to individuals in this section extend to all natural persons to the extent information about them is collected and maintained by an insurance institution, insurance producer or insurance support organization in connection with an insurance transaction. The rights granted to all natural persons by this section do not extend to information about them that relates to and is collected in connection with or in reasonable anticipation of a claim or civil or criminal proceeding involving them.

G. For purposes of this section, "insurance support organization" does not include a consumer reporting agency.

§ 20-2110 Reasons for adverse underwriting decisions

A. In the event of an adverse underwriting decision the insurance institution or insurance producer responsible for the decision shall either provide the applicant, policyholder or individual proposed for coverage with the specific reason for the adverse underwriting decision in writing or advise the person, in writing, that on written request the person may receive the specific reason in writing and provide the applicant, policyholder or individual proposed for coverage with a summary of the rights established under subsection B of this section and sections 20-2108 and 20-2109.

B. On receipt of a written request within ninety business days after the date the notice or other communication of an adverse underwriting decision is sent to an applicant, policyholder or individual proposed for coverage, the insurance institution or insurance producer shall send to the person within twenty-one business days after the date of receipt of the written request:

1. The specific reason for the adverse underwriting decision, in writing, if the information was not initially furnished in writing pursuant to subsection A of this section.

2. The specific items of personal and privileged information that support those reasons except that:

(a) The insurance institution or insurance producer is not required to furnish specific items of privileged information if it has a reasonable suspicion, based on specific information available for review by the director, that the applicant, policyholder or individual proposed for coverage has engaged in criminal activity, fraud, material misrepresentation or material nondisclosure.

(b) Specific items of medical record information supplied by a medical care institution or medical professional shall be disclosed either directly to the individual about whom the information relates or to a medical professional designated by the individual and licensed to provide medical care with respect to the condition to which the information relates, at the option of the insurance institution or insurance producer.

3. The names and addresses of the institutional sources that supplied the specific items of information pursuant to paragraph 2 of this subsection, except that the identity of any medical professional or medical care institution shall be disclosed either directly to the individual or to the designated medical professional, whichever the insurance institution or insurance producer prefers.

C. The obligations imposed by this section on an insurance institution or insurance producer may be satisfied by another insurance institution or insurance producer authorized to act on its behalf.

D. If an adverse underwriting decision results solely from an oral request or inquiry, the explanation of the specific reasons and summary of rights required by subsection A of this section may be given orally.

E. In providing the specific reason for an adverse underwriting decision based on credit related information contained or not contained in an individual's consumer report, the insurance institution or agent shall provide at least the following information:

1. That the decision was based in part on a consumer report or the absence of credit history.

2. The source of the consumer report and how the individual may obtain a copy of the consumer report.

3. A description of up to four factors that were the primary cause for the adverse action that resulted from the insurance score.

F. An insurer shall not use the following types of credit history to calculate an insurance score to determine property or casualty premiums for insurance transactions that are subject to this article and shall not knowingly use an insurance score developed by a third party if the score is calculated using any of the following types of credit history:

1. The absence of credit history or the inability to determine the consumer's credit history unless the insurer's action is actuarially justified or the insurer treats the consumer as if the consumer had neutral credit information, as defined by the insurer.

2. Credit history or an insurance score based on collection accounts identified with a medical industry code.

3. A bankruptcy or a lien satisfaction that is more than seven years old.

4. The consumer's use of a particular type of credit card, charge card or debit card unless actuarially justified.

5. The consumer's total available line of credit, except that an insurer may consider the total amount of outstanding debt in relation to the total available line of credit.

6. An insurance score that is calculated using the income, gender, address, zip code, ethnic group, religion, marital status or nationality of the consumer as a factor. This paragraph does not prohibit an insurer from using zip code, address, gender and marital status information for underwriting purposes.

§ 20-2111 Information concerning previous adverse underwriting decisions

An insurance institution, insurance producer or insurance support organization shall not seek information in connection with an insurance transaction concerning any previous adverse underwriting decision experienced by an individual or any previous insurance coverage obtained by an individual through a residual market mechanism, unless the inquiry also requests the reasons for any previous adverse underwriting decision or the reasons why insurance coverage was previously obtained through a residual market mechanism.

§ 20-2112 Previous adverse underwriting decisions

An insurance institution or insurance producer shall not base an adverse underwriting decision in whole or in part:

1. On the fact of a previous adverse underwriting decision or the fact that an individual previously obtained insurance coverage through a residual market mechanism, except that an insurance institution or insurance producer may base an adverse underwriting decision on further information obtained from an insurance institution or insurance producer responsible for a previous adverse underwriting decision.

2. On personal information received from an insurance support organization whose primary source of information is insurance institutions, except that an insurance institution or insurance producer may base an adverse underwriting decision on further personal information obtained as the result of information received from the insurance support organization.

§ 20-2113 Disclosure limitations and conditions

An insurance institution, insurance producer or insurance support organization shall not disclose any personal or privileged information about an individual collected or received in connection with an insurance transaction unless the disclosure is:

1. With the written authorization of the individual except that:

(a) If the authorization is submitted by another insurance institution, insurance producer or insurance support organization, the authorization shall meet the requirements prescribed in section 20-2106.

(b) If the authorization is submitted by a person other than an insurance institution, insurance producer or insurance support organization, the authorization shall be dated, signed by the individual and obtained one year or less before the date a disclosure is sought pursuant to this section.

2. To a person other than an insurance institution, insurance producer or insurance support organization, if the disclosure is reasonably necessary:

(a) To enable the person to perform a business, professional or insurance function for the disclosing insurance institution, insurance producer or insurance support organization and the person agrees not to disclose the information further without the individual's written authorization unless the further disclosure either:

(i) Would otherwise be permitted by this section if made by an insurance institution, insurance producer or insurance support organization.

(ii) Is reasonably necessary for the person to perform the individual's function for the disclosing insurance institution, insurance producer or insurance support organization.

(b) To enable the person to provide information to the disclosing insurance institution, insurance producer or insurance support organization for the purpose of determining an individual's eligibility for an insurance benefit or payment or detecting or preventing criminal activity, fraud, material misrepresentation or material nondisclosure in connection with an insurance transaction.

3. To an insurance institution, insurance producer, insurance support organization or self-insurer if the information disclosed is limited to that which is reasonably necessary either:

(a) To detect or prevent criminal activity, fraud, material misrepresentation or material nondisclosure in connection with insurance transactions.

(b) For the disclosing or receiving insurance institution, insurance producer or insurance support organization to perform its function in connection with an insurance transaction involving the individual.

4. To a medical care institution or medical professional for the purpose of verifying insurance coverage or benefits, informing an individual of a medical problem of which the individual may not be aware or conducting an operations or service audit, if only the information that is reasonably necessary to accomplish the purposes prescribed by this paragraph is disclosed.

5. To an insurance regulatory authority.

6. To a law enforcement or other governmental authority to protect the interests of the insurance institution, insurance producer or insurance support organization in preventing or prosecuting the perpetration of fraud upon it, or if the insurance institution, insurance producer or insurance support organization reasonably believes that illegal activities have been conducted by the individual.

7. Otherwise permitted or required by law.

8. In response to a valid administrative or judicial order, including a search warrant or subpoena.

9. Made for the purpose of conducting actuarial or research studies, except that no individual may be identified in any actuarial or research report, materials allowing the individual to be identified shall be returned or destroyed as soon as they are no longer needed and the actuarial or research organization shall agree not to disclose the information unless the disclosure would otherwise be permitted by this section if made by an insurance institution, insurance producer or insurance support organization.

10. To a party or a representative of a party to a proposed or consummated sale, transfer, merger or consolidation of all or part of the business of the insurance institution, insurance producer or insurance support organization, except that before the consummation of the sale, transfer, merger or consolidation only the information is disclosed that is reasonably necessary to enable the recipient to make business decisions about the purchase, transfer, merger or consolidation and the recipient agrees not to disclose the information unless the disclosure would otherwise be permitted by this section if made by an insurance institution, insurance producer or insurance support organization.

11. To a person whose only use of the information will be in connection with the marketing of a product or service if:

(a) No medical record information, privileged information or personal information relating to an individual's character, personal habits, mode of living or general reputation is disclosed and no classification derived from the information is disclosed.

(b) The individual has been given an opportunity to indicate that the individual does not want personal information disclosed for marketing purposes and has given no indication that the individual does not want the information disclosed.

(c) The person receiving the information agrees not to use it except in connection with the marketing of a product or service.

12. To an affiliate whose only use of the information will be in connection with an audit of the insurance institution or insurance producer or the marketing of an insurance or financial product or service, if the affiliate agrees not to disclose the information for any other purpose or to an unaffiliated person, except that no medical record information may be disclosed for marketing purposes without the individual's written consent.

13. By a consumer reporting agency if the disclosure is to a person other than an insurance institution or insurance producer.

14. To a group insurance policyholder for the purpose of reporting claims experience or conducting an audit of the insurance institution's or insurance producer's operations or services if the information disclosed is reasonably necessary for the recipient to conduct the review or audit.

15. To a professional peer review organization for the purpose of reviewing the service or conduct of a medical care institution or medical professional.

16. To a governmental authority for the purpose of determining the individual's eligibility for health benefits for which the governmental authority may be liable.

17. To a certificate holder or policyholder for the purpose of providing information regarding the status of an insurance transaction.

§ 20-2113.01 Consumer reporting agency; sale of information obtained by insurance inquiry prohibited; exceptions

A. A consumer reporting agency shall not provide or sell data or lists that include any information that in whole or in part was submitted in conjunction with an insurance inquiry about a consumer's credit information or a request for a credit report or insurance score. Such information includes the expiration dates of an insurance policy or any other information that may identify time periods during which a consumer's insurance may expire and the terms and conditions of the consumer's insurance coverage.

B. Subsection A does not apply to data or lists that the consumer reporting agency supplies to the insurance producer from whom the information was received, the insurer on whose behalf the producer acted or the insurer's affiliates or holding companies.

C. This section shall not restrict an insurer from being able to obtain a claims history report or a motor vehicle report.

§ 20-2114 Director; powers

A. The director may examine and investigate the affairs of every insurance institution or insurance producer doing business in this state to determine whether the insurance institution or insurance producer has been or is engaged in any conduct in violation of this chapter.

B. The director may examine and investigate the affairs of every insurance support organization acting on behalf of an insurance institution or insurance producer which either transacts business in this state or transacts business outside this state that has an effect on a person residing in this state in order to determine whether the insurance support organization has been or is engaged in any conduct in violation of this chapter.

§ 20-2115 Service of process; insurance support organizations

For the purpose of this chapter, an insurance support organization transacting business outside this state which has an effect on a person residing in this state is deemed to have appointed the director to accept service of process on its behalf, if the director causes a copy of the service to be mailed immediately by registered mail to the insurance support organization at its last known principal place of business. The return postcard receipt for the mailing is sufficient proof that the copy of the service was properly mailed by the director.

§ 20-2116 Cease and desist order and reports

If, after a hearing, the director determines that the insurance institution, insurance producer or insurance support organization charged has engaged in conduct or practices in violation of this chapter, the director shall put the director's findings in writing and shall issue and cause to be served upon the insurance institution, insurance producer or insurance support organization a copy of the findings and an order requiring the insurance institution, insurance producer or insurance support organization to cease and desist from the conduct or practices constituting a violation of this chapter.

§ 20-2117 Civil penalty

A. In any case in which a hearing results in the finding of a knowing violation of this chapter, the director may, in addition to the issuance of a cease and desist order as prescribed in section 20-2116, order payment of a civil penalty of not more than five hundred dollars for each violation but not to exceed ten thousand dollars in the aggregate for multiple violations.

B. After notice and a hearing, the director may subject any person who violates a cease and desist order of the director under section 20-2116 to one or more of the following penalties:

1. A civil penalty of not more than ten thousand dollars for each violation.

2. A civil penalty of not more than fifty thousand dollars if the director finds that violations have occurred with such frequency as to constitute a general business practice.

3. Suspension or revocation of an insurance institution's or agent's license.

C. The director shall deposit all civil penalties pursuant to this section for deposit in the state general fund.

§ 20-2118 Individual remedies

A. If any insurance institution, insurance producer or insurance support organization fails to comply with the rights granted under sections 20-2108 through 20-2110, any person whose rights are violated may apply to the superior court of this state, or any other court of competent jurisdiction, for appropriate equitable relief.

B. An insurance institution, insurance producer or insurance support organization which discloses information in violation of section 20-2113 is liable for damages sustained by the individual about whom the information relates, except that no individual is entitled to a monetary award which exceeds the actual damages sustained by the individual as a result of a violation of section 20-2113.

C. In any action brought pursuant to this section, the court may award the cost of the action and reasonable attorney fees to the prevailing party.

D. An action under this section must be brought within two years from the date the alleged violation is or should have been discovered.

E. Except as specifically provided in this section, there is no remedy or recovery available to individuals, in law or in equity, for a violation of this chapter.

§ 20-2119 Immunity

No claim for relief in the nature of defamation, invasion of privacy or negligency may arise against any person for disclosing personal or privileged information according to this chapter nor may such a claim for relief arise against any person for furnishing personal or privileged information according to this chapter to an insurance institution, insurance producer or insurance support organization, except that this section provides no immunity for disclosing or furnishing false information with malice or wilful intent to injure any person.

§ 20-2120 No limitation of common law right

Nothing in this article shall limit any common law right of any person.

§ 20-2121 Enforcement of privacy provisions of Gramm Leach Bliley act

A. The department may enforce title V, subtitle A of the Gramm Leach Bliley act (15 United States Code sections 6801 through 6809) related to privacy and protection of nonpublic personal information.

B. The director may adopt rules pursuant to title 41, chapter 6 to carry out this section.

§ 20-2122 Partial exemption for health insurers subject to HIPAA

A. Except as provided in subsection B of this section, if an insurance institution is subject to and in compliance with 45 Code of Federal Regulations part 164, subparts A and E, the insurance institution is deemed to comply with this article.

B. An insurance institution is subject to sections 20-2103, 20-2107, 20-2110, 20-2111, 20-2112, 20-2114, 20-2115, 20-2116, 20-2117, 20-2118, 20-2119, 20-2120 and 20-2121.

Chapter 12 Joint Underwriting Association

Article 1 General Provisions

§ 20-2201 Voluntary plans; assessments; fund

A. If the director finds after a hearing that in any part of this state any liability insurance coverage is not readily available in the voluntary insurance market and that the public interest requires such availability, the director may authorize the formation of voluntary plans to provide the coverage for any class or classes of risk in this state which are entitled to but otherwise unable to obtain the coverage. The director may request insurers, agents and brokers to prepare the plans or assist as needed in the preparation and administration of the plans.

B. A plan formulated pursuant to this section shall give consideration to all of the following:

1. The need for adequate and readily accessible coverage.

2. Alternative methods of improving the market affected.

3. Inherent limitations of providing coverage.

4. The need for reasonable underwriting standards.

5. The requirement of reasonable loss prevention measures.

C. The plans shall establish procedures that will encourage use of the voluntary insurance market as a condition of placement of coverage through the plan.

D. The director may annually assess each insurer authorized to transact liability insurance in this state up to two hundred dollars for the costs of administering the plan. Monies collected from assessments shall be deposited in the assessment fund for voluntary plans established by subsection E of this section.

E. An assessment fund for voluntary plans is established consisting of the monies that are deposited pursuant to subsection D of this section. The director shall administer the fund monies as a continuing appropriation for the purposes provided for in this section. Monies in the fund are exempt from the provisions of section 35-190 relating to lapsing of appropriations.

§ 20-2202 Joint underwriting association; establishment

A. A joint underwriting association is established in the department of insurance and financial institutions consisting of insurers authorized to write and engaged in writing in this state on a direct basis liability insurance, including the liability portion of multiperil policies, but not including ocean marine insurance. Every such insurer shall be a member of the association and shall remain a member as a condition of its authority to continue to transact insurance in this state.

B. If after a hearing conducted pursuant to section 20-2201, the director determines that a voluntary plan would fail to provide coverage, the association shall provide liability insurance coverages for a designated class or classes of risks on a primary basis in this state. The association shall not be required to provide coverage available through an assigned risk plan or coverages for pollution liability, hazardous waste liability or workers' compensation. The association may operate only on a finding by the director after a public hearing pursuant to section 20-161 that liability insurance is substantially unavailable through private insurers for a particular line.

C. If the director determines, on application of any interested party and after a public hearing, that liability insurance for a particular line is no longer substantially unavailable through private insurers, the association shall cease its underwriting operations.

D. This chapter does not prohibit an insurer from issuing or renewing a policy of liability insurance in this state. However, on a determination by the director, after a public hearing pursuant to section 20-161, that substantial adverse selection has, or will likely, result, the director may issue an order to insurers that no original policies shall thereafter be issued or that renewal policies shall be issued only if the insurer will offer the insurance to a representative sample of rating classifications, or both.

§ 20-2203 Powers of the joint underwriting association

The association may, on behalf of its members and with the approval of the director, do all of the following, which may be exercised directly or by contractual delegation:

1. Issue or cause to be issued policies of liability insurance on a claims-made basis to applicants, including incidental coverages, subject to limits as specified in the plan of operation. The policies shall be offered on one of the following bases:

(a) One hundred thousand dollars for each claimant under one policy and three hundred thousand dollars for all claimants under one policy in any one year.

(b) Two hundred fifty thousand dollars for each claimant under one policy and seven hundred fifty thousand dollars for all claimants under one policy in any one year.

(c) Five hundred thousand dollars for each claimant under one policy and one million five hundred thousand dollars for all claimants under one policy in any one year.

(d) One million dollars for each claimant under one policy and three million dollars for all claimants under one policy in any one year.

2. Underwrite the insurance and adjust and pay losses with respect to the insurance or retain service companies to perform those functions.

3. Assume reinsurance from its members.

4. Cede reinsurance.

5. Receive, invest and disburse monies.

6. Open bank accounts and delegate authority for deposit, withdrawal and disbursement of monies.

7. Borrow monies for the association's necessary administrative expenses.

8. Provide for such fidelity and surety bonds as are deemed necessary to transact the business of the association.

9. Review, consider and act on any matters deemed by it to be necessary and proper for the administration of the association.

10. Develop, promulgate and effectuate loss prevention programs.

11. Sue and be sued, except that no judgment against the association shall create any liability in the individual member companies, and the association may provide for the indemnification of its member companies, members of the board of directors and officers and employees and other persons acting on behalf of the association.

12. Employ attorneys and other persons necessary to perform the functions of the association.

§ 20-2204 Directors; election; appointment

A. The association shall be governed by a board of eleven directors annually appointed by the director. Six of the directors shall be selected from the members of the association. Three of the directors shall be domestic insurers and three shall be foreign insurers. Five of the directors shall be representatives of commercial insureds.

B. Directors of the association shall receive no compensation and shall not be entitled to travel expenses as authorized by title 38, chapter 4, article 2, but shall be entitled to be reimbursed for expenses incurred by them as members of the board from the assets of the association.

§ 20-2205 Plan of operation; contents

Within forty-five days after the effective date of the initial order of the director issued pursuant to section 20-2202, the directors of the association shall submit to the director for his review a proposed plan of operation consistent with the provisions of this chapter. The plan of operation shall provide for economic, fair and nondiscriminatory administration and for the prompt and efficient provision of liability insurance coverage in designated lines. The plan shall contain provisions pertaining to preliminary assessment of all members for initial expenses necessary to commence operations, establishment of necessary facilities, management of the association, assessment of members or surcharging of insureds to defray losses and expenses, commission arrangements, reasonable and objective underwriting standards, acceptance and cession of reinsurance, retention of servicing carriers or other servicing arrangements, procedures for determining amounts of insurance to be provided by the association and retention of persons necessary to effectuate the purposes of this chapter. The plan shall contain a provision for a system or program of reasonable loss control efforts.

§ 20-2206 Approval of plan of operation

A. The plan of operation prepared pursuant to section 20-2205 is subject to approval by the director after consultation with the members of the association and other affected individuals and organizations. If the director disapproves all or any part of the proposed plan of operation, the directors of the association, within fifteen days, shall submit for review an appropriate revised plan of operation or a part of a revised plan. If the directors of the association fail to act, the director shall promulgate a plan of operation or a part of a plan, whichever is appropriate. The plan of operation approved or promulgated by the director becomes effective and operational on order of the director.

B. A plan of operation shall require the association to issue a claims-made policy. Pending the approval of the plan of operation, the association shall designate a service company or service companies to bind the association for the coverage. The policies shall make provision for payment of dividends.

§ 20-2207 Amendments to the plan of operation

Amendments to the plan of operation may be made by the directors of the association, subject to the approval of the director, or shall be made at the direction of the director consistent with the provisions of section 20-2206.

§ 20-2208 Policies issued by the association; claims-made basis

Except as otherwise provided in this chapter, a liability insurance policy issued by the association shall be on a claims-made basis. The policy form shall be filed with and approved by the director.

§ 20-2209 Claims-made policy; cancellation

A policy issued pursuant to this chapter may provide that the association may cancel any of its policies for the reasons specified in section 20-1673 or in the event of nonpayment of any premium assessment or other charge by sending to the insured written notice at least ten days before the effective date of the cancellation.

§ 20-2210 Occurrence riders; premiums; assessments

A. All policies written by the association shall contain a provision that guarantees the insured that the association shall issue, on the written demand of any insured to whom it has issued a claims-made policy, an occurrence rider comparable to that provided in the voluntary market.

B. The premium for the occurrence rider shall not exceed the total amount that the insured would have paid for occurrence policies, if the occurrence policies had been issued to the insured by the association, less the total amount that the insured paid for claims-made policies issued to him by the association. However, if a majority of the directors of the association concludes that the occurrence rider premium would be inadequate, the directors may request the actuary provided for in section 20-2211 to determine whether a premium surcharge based on the experience of the policyholder should be required. Based on his actuarial opinion, the actuary may recommend to the director a premium surcharge of no more than ten per cent of the initial net occurrence rider premium. If the director approves a recommended surcharge, the surcharge shall be imposed no earlier than the end of the policy term. Individual policyholders may pay for an occurrence rider on a quarterly basis for a period of not to exceed two years. If the policyholder fails to make payment, the occurrence rider is void. A policyholder electing to pay for the occurrence rider on a deferred payment basis may be assessed a finance charge of not to exceed six per cent per year on the unpaid balance. A private insurer issuing a liability insurance policy on an occurrence or claims-made basis which replaces or begins coverage on the expiration of a policy issued by the association may provide liability coverage for acts or omissions by the insured which occurred during the period the association's policy was in effect, excluding liability for any claim of injury or loss made to the association during the period.

§ 20-2211 Rates; actuary

A. The rates, rating plans, rating rules, rating classifications and territories applicable to insurance written by the association, and the statistics relating thereto, are subject to the provisions of chapter 2, article 4.1 of this title, giving consideration to the past and prospective loss and expense experience for the designated class or classes of liability insurance, trends in the frequency and severity of losses, the investment income of the association and other relevant information. The premium rates for an occurrence policy and a claims-made policy for each year the association issues policies shall be established by the association. In determining whether the association's rates are not inadequate, excessive or unfairly discriminatory, the director shall consider recommendations made by the actuary. All rates shall be on an actuarially sound basis, giving consideration to the group retrospective rating plan, and shall be calculated to be self-supporting, except that the total initial expenses necessary to establish, commence and manage operations may be amortized over a period of at least five years. Such rates shall be deemed not inadequate if they are so constituted that the expenses and loss costs of the plan of operation are equal to or exceeded by the premium. Competition or lack of competition shall not be considered as a rating standard under this section.

B. All policies issued by the association are subject to a group retrospective rating plan under which the final premium for all policyholders of the association, as a group, shall be equal to administrative, servicing and contingency expenses, modified as applicable in accordance with subsection A, loss and loss adjustment expenses, and taxes. Policyholders shall be given full credit for all investment income, net of expenses and a reasonable management fee on policyholder supplied monies. The maximum final premium for all policyholders of the association, as a group, is limited as provided in this chapter.

C. The director shall examine the association as often as he deems appropriate to ensure that the group retrospective rating plan is being operated in a manner consistent with this section. If he finds that it is not being so operated, he shall issue an order to the association, specifying in what respect its operation is deficient and stating what corrective action shall be taken.

§ 20-2212 Deficits; equitable assessments; premium tax credits

A. On a determination that within the next one hundred eighty days thereafter the association will be unable to pay its outstanding lawful obligations as they mature in the regular course of business as shown by an excess of such lawful obligations over admitted assets, the association shall certify to the director the existence of this condition.

B. At the time of certification, the association shall submit a schedule of policyholder surcharges and a plan of member assessments which, in combination, are sufficient to assure the continued sound financial operation of the association. The surcharge may not exceed ten per cent of the total premium paid for a policy or policies obtained through the association. Member assessments shall not exceed one per cent of each member's net direct premium in this state attributable to the line of insurance, the writing of which requires it to be a member of the association.

C. Any member of the association subject to an assessment in any one calendar year shall be allowed a premium tax credit beginning in the following calendar year, at the rate of twenty per cent per year for five years.

D. The association shall certify to the director the estimated amount of any deficit remaining after the termination of all underwriting activities of the association. Policyholder surcharges are limited to ten per cent of the annual premium.

§ 20-2213 Initial assessment; temporary contribution by members

A. An initial assessment of up to five hundred dollars may be imposed by the director on every participating insurer of the association to defray the initial operating expenses of the plan. The initial assessment may be refunded by the association.

B. If sufficient monies are not available for the sound financial operation of the association as provided for in this chapter, all members shall contribute to the financial requirements of the association in the manner provided for in this chapter. Any such contributions shall not exceed one per cent annually of each member's net direct premium attributable to the liability insurance the member writes as a requirement for membership in the association pursuant to section 20-2202, subsection A.

C. If the association determines that the applicant meets the underwriting standards of the association, as prescribed in the plan of operation, the association, on receipt of the premium or the portion of the premium as is prescribed in the plan of operation, shall cause a policy of liability insurance to be issued.

§ 20-2214 Member participation in writings, expenses, servicing allowance, management fees and losses

All members of the association shall participate in its writings, expenses, servicing allowance, management fees and losses in the proportion that the net direct premium of each member, excluding that portion of a premium attributable to the operation of the association, written during the preceding calendar year bears to the aggregate net direct premium written in this state by all members of the association. Each member's participation in the association shall be determined annually on the basis of the net direct premium written during the preceding calendar year.

§ 20-2215 Appeal by applicants to the association; order

Any applicant to the association or any person insured pursuant to this chapter, or their representatives, or any affected member may appeal to the director within thirty days after any ruling, action or decision by or on behalf of the association, with respect to those items defined by the directors of the association and approved by the director as appealable matters. Except as provided in section 41-1092.08, subsection H, all final orders of the director made pursuant to this section are subject to judicial review pursuant to title 12, chapter 7, article 6, except that notwithstanding any other law, proceedings for judicial review act as a stay of the enforcement of any order or decision of the director disapproving or ordering the withdrawal, adjustment or termination of the effectiveness of any rate filing made by or on behalf of the association on the ground that the rates or premiums for the business of the association are unreasonable or excessive. The association may continue to charge rates pursuant to the filing pending final order of the court.

§ 20-2216 Annual filing; contents

Annually on or before January 1, the association shall file in the office of the director a statement which contains information with respect to its transactions, condition, operations and affairs during the preceding year. Such statement shall contain such matters and information as are prescribed and shall be in such form as is approved by the director. The director, at any time, may require the association to furnish additional information with respect to its transactions, condition or any matter connected with its transactions and condition considered to be material and of assistance in evaluating the scope, operation and experience of the association.

§ 20-2217 Annual examination by the director

The director shall make an examination into the affairs of the association at least annually. The examination shall be conducted and the report filed in the manner prescribed in section 20-156.

§ 20-2218 Costs; charge to the association

All reasonable and necessary costs incurred by the director pursuant to this chapter shall be charged to and immediately reimbursed by the association.

§ 20-2219 Liability of the association

There is no liability on the part of nor does any cause of action accrue against the association or its members, the director or his authorized representatives or any other person or organization for any acts or omissions made in good faith by them during any proceeding or concerning any matters within the scope of this chapter. The association is a legal entity separate and distinct from its members.

§ 20-2220 Prohibition from membership in Arizona guaranty fund

The association shall not be a member of the Arizona guaranty fund nor shall that fund or this state or any of its political subdivisions be otherwise responsible for losses sustained by the joint underwriting association.

§ 20-2221 Dissolution

Dissolution of the association, including its assets and liabilities, shall be accomplished under the supervision of the director.

Chapter 13 Accountable Health Plans

Article 1 Accountable Health Plans

§ 20-2301 Definitions; late enrollee coverage

A. In this chapter, unless the context otherwise requires:

1. "Accountable health plan" means an entity that offers, issues or otherwise provides a health benefits plan and that is approved by the director as an accountable health plan pursuant to section 20-2303.

2. "Affiliation period" means a period of two months, or three months for late enrollees, that under the terms of the health benefits plan offered by a health care services organization must expire before the health benefits plan becomes effective and in which the health care services organization is not required to provide health care services or benefits and cannot charge the participant or beneficiary a premium for any coverage during the period.

3. "Base premium rate" means, for each rating period, the lowest premium rate that could have been charged under a rating system by the accountable health plan to small employers for health benefits plans involving the same or similar coverage, family size and composition, and geographic area.

4. "Bona fide association" means, for a health benefits plan issued by an accountable health plan, an association that meets the requirements of section 20-2324.

5. "COBRA continuation provision" means:

(a) Section 4980B, except subsection (f)(1) as it relates to pediatric vaccines, of the internal revenue code of 1986.

(b) Title I, subtitle B, part 6, except section 609, of the employee retirement income security act of 1974 (P.L. 93-406; 88 Stat. 829; 29 United States Code sections 1001 through 1461).

(c) Title XXII of the public health service act.

(d) Section 20-2330 or a similar provision of the law of this state or any other state.

6. "Creditable coverage" means coverage solely for an individual, other than limited benefits coverage, under any of the following:

(a) An employee welfare benefit plan that provides medical care to employees or the employees' dependents directly or through insurance or reimbursement or otherwise pursuant to the employee retirement income security act of 1974.

(b) A church plan as defined in the employee retirement income security act of 1974.

(c) A health benefits plan issued by an accountable health plan as defined in this section.

(d) Part A or part B of title XVIII of the social security act.

(e) Title XIX of the social security act, other than coverage consisting solely of benefits under section 1928.

(f) Title 10, chapter 55 of the United States Code.

(g) A medical care program of the Indian health service or of a tribal organization.

(h) A health benefits risk pool operated by any state of the United States.

(i) A health plan offered pursuant to title 5, chapter 89 of the United States Code.

(j) A public health plan as defined by federal law.

(k) A health benefit plan pursuant to section 5(e) of the peace corps act (P.L. 87-293; 75 Stat. 612; 22 United States Code sections 2501 through 2523).

(l) A policy or contract, including short-term limited duration insurance, issued on an individual basis by an insurer, a health care services organization, a hospital service corporation, a medical service corporation or a hospital, medical, dental and optometric service corporation.

(m) A policy or contract issued by a health care insurer or an accountable health plan to a member of a bona fide association.

7. "Demographic characteristics" means objective factors an insurer considers in determining premium rates. Demographic characteristics do not include health status-related factors, industry or duration of coverage since issue.

8. "Different policy forms" means variations between policy forms offered by a health care insurer, including policy forms that have different cost sharing arrangements or different riders.

9. "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 analyses of genes or chromosomes.

10. "Health benefits plan" means a hospital and medical service corporation policy or certificate, a health care services organization contract, a group disability policy, a certificate of insurance of a group disability policy that is not issued in this state, a multiple employer welfare arrangement or any other arrangement under which health services or health benefits are provided to two or more individuals. Health benefits plan does not include the following:

(a) Accident only, dental only, vision only, disability income only or long-term care only insurance, fixed or hospital indemnity coverage, limited benefit coverage, specified disease coverage, credit coverage or Taft-Hartley trusts.

(b) Coverage that is issued as a supplement to liability insurance.

(c) Medicare supplemental insurance.

(d) Workers' compensation insurance.

(e) Automobile medical payment insurance.

11. "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 an accountable health plan, 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.

12. "Higher level of coverage" means a health benefits plan offered by an accountable health plan for which the actuarial value of the benefits under the coverage is at least fifteen percent more than the actuarial value of the health benefits plan offered by the accountable health plan as a lower level of coverage in this state but not more than one hundred twenty percent of a policy form weighted average.

13. "Index rate" means, as to a rating period, the arithmetic average of the applicable base premium rate and the highest premium rate that could have been charged under a rating system by the accountable health plan to small employers for a health benefits plan involving the same or similar coverage, family size and composition, and geographic area.

14. "Late enrollee" means an employee or dependent who requests enrollment in a health benefits plan after the initial enrollment period that is provided under the terms of the health benefits plan if the initial enrollment period is at least thirty-one days. An employee or dependent shall not be considered a late enrollee if:

(a) The person:

(i) At the time of the initial enrollment period was covered under a public or private health insurance policy or any other health benefits plan.

(ii) Lost coverage under a public or private health insurance policy or any other health benefits plan due to the employee's termination of employment or eligibility, the reduction in the number of hours of employment, the termination of the other plan's coverage, the death of the spouse, legal separation or divorce or the termination of employer contributions toward the coverage.

(iii) Requests enrollment within thirty-one days after the termination of creditable coverage that is provided under a public or private health insurance or other health benefits plan.

(iv) Requests enrollment within thirty-one days after the date of marriage.

(b) The person is employed by an employer that offers multiple health benefits plans and the person elects a different plan during an open enrollment period.

(c) A court orders that coverage be provided for a spouse or minor child under a covered employee's health benefits plan and the person requests enrollment within thirty-one days after the court order is issued.

(d) The person becomes a dependent of a covered person through marriage, birth, adoption or placement for adoption and requests enrollment no later than thirty-one days after becoming a dependent.

15. "Lower level of coverage" means a health benefits plan offered by an accountable health plan for which the actuarial value of the benefits under the health benefits plan is at least eighty-five percent but not more than one hundred percent of the policy form weighted average.

16. "Network plan" means a health benefits plan provided by an accountable health plan under which the financing and delivery of health benefits are provided, in whole or in part, through a defined set of providers under contract with the accountable health plan in accordance with the determination made by the director pursuant to section 20-1053 regarding the geographic or service area in which an accountable health plan may operate.

17. "Policy form weighted average" means the average actuarial value of the benefits provided by all health benefits plans issued by either the accountable health plan or, if the data are available, by all accountable health plans in the group market in this state during the previous calendar year, weighted by the enrollment for all coverage forms.

18. "Preexisting condition" means a condition, regardless of the cause of the condition, for which medical advice, diagnosis, care or treatment was recommended or received within not more than six months before the date of the enrollment of the individual under a health benefits plan issued by an accountable health plan. A genetic condition is not a preexisting condition in the absence of a diagnosis of the condition related to the genetic information and shall not result in a preexisting condition limitation or preexisting condition exclusion.

19. "Preexisting condition limitation" or "preexisting condition exclusion" means a limitation or exclusion of benefits for a preexisting condition under a health benefits plan offered by an accountable health plan.

20. "Small employer" means an employer who employs at least two but not more than fifty eligible employees on a typical business day during any one calendar year. For the purposes of this paragraph, "employee" includes the employees of the employer and the individual proprietor or self-employed person if the employer is an individual proprietor or self-employed person.

21. "Taft-Hartley trust" means a jointly-managed trust, as allowed by 29 United States Code sections 141 through 187, that contains a plan of benefits for employees and that is negotiated in a collective bargaining agreement governing the wages, hours and working conditions of the employees, as allowed by 29 United States Code section 157.

22. "Waiting period" means the period that must pass before a potential participant or beneficiary in a health benefits plan offered by an accountable health plan is eligible to be covered for benefits as determined by the individual's employer.

B. Coverage for a late enrollee begins on the date the person becomes a dependent if a request for enrollment is received within thirty-one days after the person becomes a dependent.

§ 20-2302 Scope of article

A. This article applies to any health benefits plan that provides coverage to eligible employees or dependents in this state and that is issued by an accountable health plan if:

1. Any portion of the premium or benefits is paid by or on behalf of the employer.

2. The eligible employee or dependent is reimbursed by or on behalf of the employer for any portion of the premium.

3. The health benefits plan is treated by the employer or any of the eligible employees or dependents as part of a plan or program for the purposes of section 106, 162 or 220 of the internal revenue code.

B. This article applies to a health benefits plan that qualifies as a group health plan under section 2791(a)(1) of the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936).

C. This article does not apply to any policy that is issued on an individual basis.

§ 20-2303 Approval as accountable health plan; definition

An entity may offer, issue or otherwise provide a health benefits plan only if the entity is authorized to transact insurance in this state and is approved as an accountable health plan by the director based on a determination that the entity meets the applicable requirements of this chapter.

§ 20-2304 Availability of insurance; premium tax exemption

A. As a condition of doing business in this state, each accountable health plan shall offer at least one health benefits plan on a guaranteed issuance basis to small employers as required by this section. All small employers qualify for this guaranteed offer of coverage. The accountable health plan shall provide a health benefits plan to each small employer without regard to health status-related factors if the small employer agrees to make the premium payments and to satisfy any other reasonable provisions of the plan that are not inconsistent with this chapter.

B. If an accountable health plan offers more than one health benefits plan to small employers, the accountable health plan shall offer a choice of all health benefits plans that the accountable health plan offers to small employers and shall accept any small employer that applies for any of those plans.

C. For any offering of any health benefits plan to a small employer, as part of the accountable health plan's solicitation and sales materials, an accountable health plan shall make a reasonable disclosure to the employer of the availability of the information described in this subsection and, on request of the employer, shall provide that information to the employer. The accountable health plan shall provide information concerning the following:

1. Provisions of coverage relating to the following, if applicable:

(a) The accountable health plan's right to change premium rates and the factors that may affect changes in premium rates.

(b) Renewability of coverage.

(c) Any preexisting condition exclusion.

(d) Any affiliation period applied by a health care services organization.

(e) The geographic areas served by health care services organizations.

2. The benefits and premiums available under all health benefits plans for which the employer is qualified.

D. The accountable health plan shall describe the information required by subsection C of this section in language that is understandable by the average small employer and with a level of detail that is sufficient to reasonably inform a small employer of the employer's rights and obligations under the health benefits plan. This requirement is satisfied if the accountable health plan provides each of the following for each product the accountable health plan offers:

1. An outline of coverage that describes the benefits in summary form.

2. The rate or rating schedule that applies to the product, preexisting condition exclusion or affiliation period.

3. The minimum employer contribution and group participation rules that apply to any particular type of coverage.

4. In the case of a network plan, a map or listing of the areas served.

E. An accountable health plan is not required to disclose any information that is proprietary and protected trade secret information under applicable law.

F. An accountable health plan that issues a health benefits plan through a network plan may limit the employers that may apply for any health benefits plan offered by the accountable health plan to those eligible individuals who live, work or reside in the service area for the network plan of the accountable health plan.

G. On approval of the director, an accountable health plan may refuse to enroll a qualified small employer in a health benefits plan or in a geographic area served by the plan if the accountable health plan demonstrates that its financial or administrative capacity to serve previously enrolled groups and individuals would be impaired. An accountable health plan that refuses to enroll a qualified small employer may not enroll an employer of the same or larger size until the earlier of:

1. The date on which the director determines that the accountable health plan has the capacity to enroll a qualified small employer.

2. The date on which the accountable health plan enrolls a qualified small employer.

H. An accountable health plan that offers coverage to a qualified small employer shall offer coverage to all of the eligible employees of the qualified small employer and their eligible dependents.

I. An accountable health plan may request health screening and underwriting information on prospective enrollees to evaluate the risks associated with a qualified small employer who applies for coverage. The accountable health plan may use this information for the purposes of setting premiums, evaluating plan offerings and making reinsurance decisions. An accountable health plan shall not use this information to deny coverage to a qualified small employer or to an eligible employee or to an eligible dependent, except a late enrollee who attempts to enroll outside an open enrollment period.

J. Accountable health plans are exempt from the premium taxes that are required by section 20-224, subsection B and sections 20-837, 20-1010 and 20-1060 for the net premiums received for health benefits plans issued to small employers, including the net premiums collected from coverage issued pursuant to section 20-2313, subsection C. Each accountable health plan shall notify the small employers to whom it provides coverage of the reductions in the premium tax as specified in this subsection.

K. The director may use independent contractor examiners pursuant to sections 20-148 and 20-159 to review the higher level of coverage and lower level of coverage health benefits plans offered by an accountable health plan insurer in compliance with this section. All examination and examination related expenses shall be borne by the insurer and shall be paid by the insurance examiners' revolving fund pursuant to section 20-159.

§ 20-2306 Use of uniform employee health status questionnaire

A. An accountable health plan shall use the uniform employee health status questionnaire prescribed by the department for all small groups for which the accountable health plan requires employees and their covered dependents to complete health status questionnaires.

B. An accountable health plan may add to the questionnaire additional questions that pertain to eligibility for coverage and for underwriting purposes and may ask the producer or the employees and dependents follow-up questions about their responses to the uniform employee health status questionnaire.

§ 20-2307 Eligibility; annual open enrollment period

A. Except as otherwise provided in this section or section 20-2308 or 20-2309, an accountable health plan may not exclude from coverage any employee or a spouse or a dependent child of the employee if the person meets the eligibility requirements established by the employer.

B. Subsection A of this section does not apply to a period in which an employee is excluded from coverage under the health benefits plan pursuant to an employer requirement that imposes a minimum period of service before the employee and the employee's dependents are eligible for coverage.

C. An accountable health plan may deny enrollment to employees or family members of an employer if the employees or family members are located outside the service area of the accountable health plan and if the denial is applied uniformly without regard to health status-related factors or insurability.

D. An accountable health plan that provides an annual open enrollment period of at least thirty-one days may deny enrollment to a late enrollee until the next annual open enrollment period or may require acceptable evidence of insurability.

§ 20-2308 Portability

A newborn child, adopted child or child placed for adoption is an eligible individual if the child was timely enrolled and otherwise would have met the definition of an eligible individual as prescribed in section 20-1379 other than the required period of creditable coverage and the child is-not subject to any preexisting condition exclusion or limitation if the child has been continuously covered under health insurance coverage or a health benefits plan offered by an accountable health plan since birth, adoption or placement for adoption.

§ 20-2309 Renewability

A. At least sixty days before the date of expiration of a health benefits plan, an accountable health plan that provides a health benefits plan shall provide for written notice to the employer of the terms for renewal of the plan. The notice shall include an explanation of the extent to which any increase in premiums is due to actual or expected claims experience of the individuals covered under the employer's health benefits plan contract.

B. An accountable health plan may refuse to renew or may terminate a health benefits plan only if:

1. The employer fails to pay premiums or contributions in accordance with the terms of the health benefits plan of the accountable health plan or the accountable health plan does not receive premium payments in a timely manner.

2. The employer committed an act or practice that constitutes fraud or made an intentional misrepresentation of material fact under the terms of the health benefits plan.

3. The employer has failed to comply with a material plan provision relating to individual or employer participation rules as prescribed in subsection C of this section.

4. The accountable health plan has ceased to offer new coverage and has terminated or ceased to renew all in-force coverage in the group market pursuant to this section.

5. In the case of an accountable health plan that offers a health benefits plan through a network plan in this state, there is no longer any enrollee in connection with the accountable health plan who lives, resides or works in the service area of the accountable health plan or in the area served by the network plan for which the accountable health plan is authorized to do business and the accountable health plan would deny enrollment pursuant to section 20-2304, subsection G.

6. In the case of an accountable health plan that offers a health benefits plan in the group market only through one or more bona fide associations, the membership of an employer in the association has ceased but only if that coverage is terminated uniformly without regard to any health status-related factor or any covered individual.

C. An accountable health plan may require that a minimum percentage of employees who are not covered under a spouse's or parent's employer's health benefits plan be enrolled in a plan if the percentage is applied uniformly to all plans that are offered to employers of comparable size.

D. An accountable health plan is not required to renew a health benefits plan with respect to an employer or individual if the accountable health plan:

1. Elects not to renew all of its health benefits plans that are issued to employers or individuals in this state.

2. Provides notice to the director at least five business days before the accountable health plan gives notice to each employer or individual covered under a health benefits plan of the intention to discontinue offering any health benefits plans in this state.

3. Provides notice of termination or nonrenewal to each employer or individual covered under a plan at least one hundred eighty days before the renewal date of the plan. If the accountable health plan terminates coverage, the accountable health plan may not issue a health benefits plan to an employer in this state during the five year period beginning on the termination date of the last plan that was not renewed.

E. If an accountable health plan decides to discontinue offering a particular health benefits plan offered in the group market, the accountable health plan may discontinue that coverage only if the accountable health plan:

1. Provides notice to the director at least five business days before the accountable health plan gives notice to each employer or individual covered under that health benefits plan of the intention to discontinue offering that health benefits plan in this state.

2. Provides notice to each employer or individual covered under that health benefits plan at least ninety days before the date of the discontinuation of that coverage.

3. Offers to each employer whose coverage is discontinued pursuant to this subsection the option to purchase all other health benefits plans currently offered by the accountable health plan for employers in the group market uniformly without regard to any health status-related factor of any employee or a spouse or a dependent of the employee enrolled or individuals who may become eligible for that coverage.

§ 20-2310 Discrimination prohibited; preexisting conditions; wellness programs

A. Except as provided in subsection B of this section, a health benefits plan may not deny, limit or condition the coverage or benefits based on a person's health status-related factors or a lack of evidence of insurability.

B. A health benefits plan shall not exclude coverage for preexisting conditions, except that:

1. A health benefits plan may exclude coverage for preexisting conditions for a period of not more than twelve months or, in the case of a late enrollee, eighteen months. The exclusion of coverage does not apply to services that are furnished to newborns who were otherwise covered from the time of their birth or to persons who satisfy the portability requirements under section 20-2308.

2. The accountable health plan shall reduce the period of any applicable preexisting condition exclusion by the aggregate of the periods of creditable coverage that apply to the individual.

C. A health benefits plan shall not include an affiliation period in a policy unless the affiliation period satisfies the requirements prescribed in 45 Code of Federal Regulations section 146.119(b).

D. On request of a health benefits plan, a person who provides coverage during a period of continuous coverage with respect to a covered individual shall promptly disclose the coverage provided to the covered individual, the period of the coverage and the benefits provided under the coverage.

E. The accountable health plan shall calculate creditable coverage according to the following rules:

1. The accountable health plan shall give an individual credit for each day the individual was covered by creditable coverage.

2. The accountable health plan shall not count a period of creditable coverage for an individual enrolled in a health benefits plan if after the period of coverage and before the enrollment date there were sixty-three consecutive days during which the individual was not covered under any creditable coverage.

3. The accountable health plan shall give credit in the calculation of creditable coverage for any period that an individual is in a waiting period or an affiliation period for any health coverage.

4. The accountable health plan shall not count a period of creditable coverage with respect to enrollment of an individual if, after the most recent period of creditable coverage and before the enrollment date, sixty-three consecutive days lapse during all of which the individual was not covered under any creditable coverage. The accountable health plan shall not include in the determination of the period of continuous coverage described in this section any period that an individual is in a waiting period for health insurance coverage offered by a health care insurer, is in a waiting period for benefits under a health benefits plan offered by an accountable health plan or is in an affiliation period.

5. In determining the extent to which an individual has satisfied any portion of any applicable preexisting condition period the accountable health plan shall count a period of creditable coverage without regard to the specific benefits covered during that period.

6. An accountable health plan shall not impose any preexisting condition exclusion in the case of an individual who is covered under creditable coverage thirty-one days after the individual's date of birth.

7. An accountable health plan shall not impose any preexisting condition exclusion in the case of a child who is adopted or placed for adoption before age eighteen and who is covered under creditable coverage thirty-one days after the adoption or placement for adoption.

F. An accountable health plan shall provide the certificate of creditable coverage described in subsection G of this section without charge for creditable coverage occurring after June 30, 1996 if the individual:

1. Ceases to be covered under a health benefits plan offered by an accountable health plan or otherwise becomes covered under a COBRA continuation provision. An individual who is covered by a health benefits plan that is offered by an accountable health plan, that is terminated or not renewed at the choice of the employer and where the replacement of the health benefits plan is without a break in coverage is not entitled to receive the certification prescribed in this paragraph but is instead entitled to receive the certifications prescribed in paragraphs 2 and 3 of this subsection.

2. Who was covered under a COBRA continuation provision ceases to be covered under the COBRA continuation provision.

3. Requests certification from the accountable health plan within twenty-four months after the coverage under a health benefits plan offered by an accountable health plan ceases.

G. The certificate of creditable coverage provided by an accountable health plan is a written certification of:

1. The period of creditable coverage of the individual under the accountable health plan and any applicable coverage under a COBRA continuation provision.

2. Any applicable waiting period or affiliation period imposed on an individual for any coverage under the accountable health plan.

H. Any accountable health plan that issues health benefits plans in this state, as applicable, shall issue and accept a written certificate of creditable coverage of the individual that contains at least the following information:

1. The date that the certificate is issued.

2. The name of the individual or dependent for whom the certificate applies and any other information that is necessary to allow the issuer providing the coverage specified in the certificate to identify the individual, including the individual's identification number under the policy and the name of the policyholder if the certificate is for or includes a dependent.

3. The name, address and telephone number of the issuer providing the certificate.

4. The telephone number to call for further information regarding the certificate.

5. One of the following:

(a) A statement that the individual has at least eighteen months of creditable coverage. For the purposes of this subdivision, "eighteen months" means five hundred forty-six days.

(b) Both the date that the individual first sought coverage, as evidenced by a substantially complete application, and the date that creditable coverage began.

6. The date creditable coverage ended, unless the certificate indicates that creditable coverage is continuing from the date of the certificate.

7. The consumer assistance telephone number for the department.

8. The following statement in at least fourteen-point type:

Important notice!

Keep this certificate with your important personal records to protect your rights under the health insurance portability and accountability act of 1996 ("HIPAA"). This certificate is proof of your prior health insurance coverage. You may need to show this certificate to have a guaranteed right to buy new health insurance ("Guaranteed issue"). This certificate may also help you avoid waiting periods or exclusions for preexisting conditions. Under HIPAA, these rights are guaranteed only for a very short time period. After your group coverage ends, you must apply for new coverage within 63 days to be protected by HIPAA. If you have questions, call the Arizona department of insurance and financial institutions.

I. An accountable health plan may provide any certification pursuant to subsection F, paragraph 1 of this section at the same time the accountable health plan sends the notice required by the applicable COBRA continuation provision.

J. An accountable health plan has satisfied the certification requirement under this section if the accountable health plan offering the health benefits plan provides the prescribed certificate in accordance with this section within thirty days after the event that triggered the issuance of the certification.

K. If an accountable health plan imposes a waiting period for coverage of preexisting conditions, within a reasonable period of time after receiving an individual's proof of creditable coverage and not later than the date by which the individual must select an insurance plan, the accountable health plan shall give the individual written disclosure of the accountable health plan's determination regarding any preexisting condition exclusion period that applies to that individual. The disclosure shall include all of the following information:

1. The period of creditable coverage allowed toward the waiting period for coverage of preexisting conditions.

2. The basis for the accountable health plan's determination and the source and substance of any information on which the accountable health plan has relied.

3. A statement of any right the individual may have to present additional evidence of creditable coverage and to appeal the accountable health plan's determination, including an explanation of any procedures for submission and appeal.

L. Periods of creditable coverage for an individual are established by presentation of the written certifications described in this section and section 20-1379. In addition to written certification of the period of creditable coverage as described in this section, individuals may establish creditable coverage through the presentation of documents or other means. In order to make a determination that is based on the relevant facts and circumstances of the amount of creditable coverage that an individual has, an accountable health plan shall take into account all information that the plan obtains or that is presented to the plan on behalf of the individual.

M. The department may enforce and monitor the issuance and delivery of the notices and certificates by accountable health plans and insurers as required by this section, the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936) and any federal regulations adopted to implement the health insurance portability and accountability act of 1996.

N. This section does not prohibit any health benefits plan from providing or offering to provide rewards or incentives under a wellness program that satisfies the requirements for an exception from the general prohibition against discrimination based on a health factor under the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 stat. 1936), including any federal regulations that are adopted pursuant to that act.

O. Notwithstanding any other law, an insurer is not required to provide a certificate of creditable coverage if the federal laws that require providing a certificate of creditable coverage are superseded by the prohibition on preexisting condition exclusions.

§ 20-2311 Premium rates and rating practices

A. The premium rate that an accountable health plan charges during a rating period for a health benefits plan issued to a small employer shall not vary by more than sixty percent from the index rate for health benefits plans involving the same or similar coverage, family size and composition, and geographic area.

B. In establishing premium rates for health benefits plans offered to small employers:

1. An accountable health plan making adjustments with respect to demographic characteristics shall apply those adjustments consistently across all small employers.

2. An accountable health plan may not use a geographic area that is smaller than a county or smaller than an area that includes all areas in which the first three digits of the zip code are identical, whichever is smaller.

C. The percentage increase in the premium rate that is charged to a small employer for a new rating period may not exceed the sum of the following:

1. The percentage change in the base premium rate.

2. Fifteen percentage points.

3. Any adjustment due to a change in coverage, family size or composition, geographic area or demographic characteristics.

D. At the time an accountable health plan offers a health benefits plan to a small employer, the accountable health plan shall fully disclose to the employer all of the following:

1. Rating practices for small employer health benefits plans, including rating practices for different populations and benefit designs.

2. The extent to which premium rates for the small employer are established or adjusted based on the actual or expected variation in claims costs or health condition of the employees of the small employer and their dependents.

3. The accountable health plan's right to change premium rates, the extent to which premiums can be modified and the factors that affect changes in premium rates.

E. Each accountable health plan shall file annually with the director a written statement by a member of the American academy of actuaries or another individual acceptable to the director certifying that based on an examination by the individual, including a review of the appropriate records and of the actuarial assumptions of the accountable health plan and methods used by the accountable health plan in establishing base premium rates, index rates and premium rates for small employer health benefits plans:

1. The accountable health plan is in compliance with the applicable provisions of this article.

2. The rating methods are actuarially sound.

F. Each accountable health plan shall retain a copy of the statement required by subsection E for examination at its principal place of business.

G. Each accountable health plan shall annually file with the director for informational purposes the accountable health plan's base premium rates and index rates. On request, the director shall make the base premium rates or the index rates available to the public for inspection.

H. This section does not apply if a small employer obtains a health benefits plan that is subject to and complies with 42 United States Code section 300gg.

§ 20-2313 Marketing practices

A. An accountable health plan or its insurance producer shall not:

1. Discourage an employer from filing an application for a health benefits plan because of the health status-related factors, industry, occupation or geographic location of the employer.

2. Encourage or direct an employer to seek a health benefits plan from another insurer because of the health status-related factors, industry, occupation or geographic location of the employer.

B. This section does not prohibit an accountable health plan from providing information regarding the geographic service area of the accountable health plan.

C. Notwithstanding any law to the contrary, an accountable health plan may market health benefits plans to groups of small employers from the same or different industries that elect to pool their risks on a voluntary basis.

§ 20-2321 Maternity benefits; adoption; coverage

A. A contract that is issued to an enrollee pursuant to this article and that provides coverage for maternity benefits shall also provide that the maternity benefits apply to the costs of the birth of a child who is legally adopted by the enrollee if all of 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 this approval or within sixty days after a change in insurance policies, plans or companies.

B. The coverage prescribed by subsection A 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).

C. If 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.

D. The enrollee adopting parents shall notify their accountable health plan of the existence and extent of the other coverage.

E. An accountable health plan 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 accountable health plan.

F. Beginning January 1, 1998, 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 accountable health plan 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 accountable health plan 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 G 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.

G. Nothing in subsection F 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 an accountable health plan 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 F of this section shall not be greater than the coinsurance or cost sharing for any preceding portion of that stay.

3. Prevents an accountable health plan from negotiating the level and type of reimbursement with a provider for care provided in accordance with subsection F of this section.

H. An accountable health plan shall not impose any preexisting condition exclusions or limitations relating to pregnancy as a preexisting condition.

§ 20-2322 Mental health services and benefits; definitions

A. Beginning on January 1, 1998, any health benefits plan that is offered by an accountable health plan and that provides services or health benefits that include mental health services or mental health benefits shall comply with this section.

B. If the health benefits plan does not include an aggregate lifetime limit on substantially all health services or health benefits that are not related to mental health services or mental health benefits, the health benefits plan shall not impose any aggregate lifetime limit on mental health services or mental health benefits. If the health benefits plan includes an aggregate lifetime limit on substantially all health services or health benefits that are not related to mental health services or mental health benefits, the health benefits plan shall either:

1. Apply the applicable lifetime limit to both the health services or health benefits that are not related to mental health services or mental health benefits and to the mental health services or mental health benefits.

2. Not include an aggregate lifetime limit on mental health services or mental health benefits that is less than the applicable lifetime limit for health services or health benefits that are not related to mental health services or mental health benefits.

C. If the health benefits plan does not include an aggregate annual limit on substantially all health services or health benefits that are not related to mental health services or mental health benefits, the health benefits plan shall not impose any aggregate annual limit on mental health services or mental health benefits. If the health benefits plan includes an aggregate annual limit on substantially all health services or health benefits that are not related to mental health services or mental health benefits, the health benefits plan shall either:

1. Apply the applicable annual limit to both the health services or health benefits that are not related to mental health services or mental health benefits and to the mental health services or mental health benefits.

2. Not include any aggregate annual limit on mental health services or mental health benefits that is less than the applicable annual limit for health services or health benefits that are not related to mental health services or mental health benefits.

D. Except as provided in subsections A, B and C, this section does not prevent an accountable health plan that offers a health benefits plan that provides mental health services or mental health benefits from imposing terms and conditions, including cost sharing, limits on the number of visits or days of coverage or requirements relating to medical necessity in relation to the amount, duration or scope of coverage for mental health services or mental health benefits under the health benefits plan. Nothing in this section requires an accountable health plan to:

1. Offer a health benefits plan that provides mental health services or mental health benefits.

2. Comply with this section in connection with any health benefits plan offered to a small employer.

3. Comply with this section if that compliance under the health benefits plan offered by the accountable health plan would result in an increase in the cost to the health benefits plan of at least one per cent.

E. The requirements of this section apply separately to each health benefits plan offered by an accountable health plan and shall be consistent with title VII of the health insurance portability and accountability act of 1996 (P.L. 104-204; 110 Stat. 2944) and 45 Code of Federal Regulations part 146.

F. Mental health services or mental health benefits do not include benefits for the treatment of substance abuse or chemical dependency.

G. For the purposes of this section:

1. "Aggregate annual limit" means a dollar limitation on the total amount that may be paid in a twelve month period for benefits or services under a health benefits plan for an individual who is covered under a health benefits plan.

2. "Aggregate lifetime limit" means a dollar limitation on the total amount that may be paid for benefits or services under a health benefits plan for an individual who is covered under a health benefits plan.

§ 20-2324 Bona fide associations; definitions

A. An association qualifies as a path 1 bona fide association if the association meets the following requirements:

1. Has been formed and maintained in good faith for purposes other than obtaining insurance and does not condition membership in the association on the purchase of insurance that is sponsored by the association.

2. Has a constitution and bylaws.

3. Insures at least twenty-five members, employees or employees of members of the association for the benefit of persons other than the association or its officers or trustees.

4. Does not condition membership in the association on any health status-related factor relating to an individual, including an employee of an employer or a dependent of an employee, and clearly states this in all membership and application materials.

5. Makes health benefits plans offered through the association available to all members regardless of any health status-related factor relating to any member of the association or individual eligible for coverage through a member and clearly states this in all membership and application materials.

6. Does not make health benefits plans offered through the association available other than in connection with a member of the association and clearly states this in all membership and application materials.

B. An association qualifies as a path 2 bona fide association if the association meets the requirements of 29 Code of Federal Regulations section 2510.3-5. An insurer electing to offer health benefits plans through a bona fide association to small employer groups of one, which may include sole proprietors or working owners, is not required to make health benefits plans available under section 20-2304, subsection A to small employer groups of one if the small employer is not seeking a health benefits plan through a bona fide association.

C. The requirements of section 20-2304, subsection A do not apply to health benefits plans offered by an accountable health plan if the accountable health plan makes this coverage available in the small group market only through one or more path 1 bona fide associations.

D. The department may survey insurers issuing health benefits plans to determine the number of health benefits plans issued to bona fide associations in this state each year.

E. This section does not limit or prohibit the issuance of self-funded health benefits plans in this state through a bona fide association if the association is established and operating in compliance with applicable provisions of the employee retirement income security act of 1974. The department retains the authority to investigate whether an association is unlawfully transacting insurance in violation of this title.

F. For the purposes of subsection A of this section, "employees" includes retired employees.

G. For the purposes of this section:

1. "Bona fide association" includes path 1 bona fide associations and path 2 bona fide associations.

2. "Small employer" includes, if an insurer elects to issue coverage to small employer groups of one:

(a) For health benefits plans issued through a bona fide association, an employer who employs at least one but not more than fifty eligible employees on a typical business day during any one calendar year.

(b) For health benefits plans issued through a path 2 bona fide association, a sole proprietor or working owner.

3. "Sole proprietor" means a person who is a working owner, who owns a business and who does not operate the business using any type of entity.

4. "Working owner" means a person who a responsible plan fiduciary reasonably determines is an individual who meets all of the following requirements:

(a) Has an ownership right of any nature in a trade or business, whether incorporated or unincorporated, including a partner and another self-employed individual.

(b) Is earning wages or self-employment income from the trade or business for providing personal services to the trade or business.

(c) Either:

(i) Works on average at least twenty hours per week or at least eighty hours per month providing personal services to the trade or business.

(ii) Has wages or self-employment income from the trade or business that at least equals the working owner's cost of coverage for participation by the working owner and any covered beneficiaries in the group health plan sponsored by the association in which the individual is participating.

§ 20-2325 Diabetes; equipment; supplies

A. Any health benefits plan that is offered by an accountable health plan and 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.

B. Nothing in subsection A of this section:

1. Entitles a member or enrollee of an accountable health plan to equipment or supplies for the treatment of diabetes that are not medically necessary as determined by the accountable health plan's medical director or the medical director's designee.

2. Provides coverage for diabetic supplies obtained by a member or enrollee of an accountable health plan without a prescription unless otherwise permitted pursuant to the terms of the health benefits plan.

3. Prohibits an accountable health plan from imposing deductibles, coinsurance or other cost sharing in relation to benefits for equipment or supplies for the treatment of diabetes.

§ 20-2326 Drugs; cancer treatment; definitions

A. Any health benefits plan that is offered by an accountable health plan and 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 B or medical literature that meets the criteria prescribed in subsection B. 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. 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 health benefits plan.

5. Prohibit a health benefits plan 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.

B. For the purposes of subsection A:

1. The acceptable standard medical reference compendia are the following:

(a) The American hospital formulary service drug information, a publication of the American society of health system pharmacists.

(b) The national comprehensive cancer network drugs and biologics compendium.

(c) Thomson Micromedex compendium DrugDex.

(d) Elsevier gold standard's clinical pharmacology compendium.

(e) Other authoritative compendia as identified by the secretary of the United States department of health and human services.

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)).

§ 20-2327 Metabolic disorders; medical foods; definitions

A. Any health benefits plan that is offered by an accountable health plan and that contains a prescription drug benefit shall provide coverage of medical foods to treat inherited metabolic disorders as provided by this section.

B. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15, that must be consumed throughout life and without which the person may suffer serious mental or physical impairment.

C. 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 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15 as medically necessary for the therapeutic treatment of an inherited metabolic disease.

D. An accountable health plan 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 plan may limit the maximum annual benefit for medical foods under this section to five thousand dollars that applies to the cost of all prescribed modified low protein foods and metabolic formula.

E. For the purposes of this section:

1. "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.

2. "Medical foods" means modified low protein foods and metabolic formula.

3. "Metabolic formula" means foods that are all of the following:

(a) Formulated to be consumed or administered enterally under the supervision of a physician who is licensed pursuant to title 32, chapter 13 or 17 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(b) Processed or formulated to be deficient in one or more of the nutrients present in typical foodstuffs.

(c) 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.

(d) Essential to a person's optimal growth, health and metabolic homeostasis.

4. "Modified low protein foods" means foods that are all of the following:

(a) Formulated to be consumed or administered enterally under the supervision of a physician who is licensed pursuant to title 32, chapter 13 or 17 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

(b) 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.

(c) 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.

(d) Essential to a person's optimal growth, health and metabolic homeostasis.

§ 20-2328 Accountable health plans; clinical trials; cancer; definitions

A. An accountable health plan 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 accountable health plan at the rates that are established by the plan and that are not more than the level of reimbursement applicable to other similar services provided by health care providers with the plan'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 health benefits plan delivered or issued for delivery in this state shall provide benefits under the plan, 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 accountable health plan. 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 accountable health plan from imposing deductibles, coinsurance or other cost sharing measures in relation to benefits provided pursuant to this section.

F. 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 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 health benefits plan.

(f) Of treatment or services provided outside this state.

§ 20-2329 Prescription contraceptive drugs and devices; definition

A. An accountable health plan that provides a health benefits plan that provides coverage for:

1. Prescription drugs shall also provide coverage for any prescribed drug or device that is approved by the United States food and drug administration for use as a contraceptive. An accountable health plan 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 accountable health plan 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 shall also 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 of this section, a religiously affiliated employer may require that the accountable health plan provide a health benefits plan without coverage for specific items or services required under subsection A of this section because providing or paying for coverage of the specific items or services is contrary to the religious beliefs of the religiously affiliated employer offering the plan. If a religiously affiliated employer objects to providing coverage for specific items or services required under subsection A of this section, a written affidavit shall be filed with the accountable health plan stating the objection. On receipt of the affidavit, the accountable health plan shall issue to the religiously affiliated employer a health benefits plan that excludes coverage for specific items or services required under subsection A of this section. The accountable health plan shall retain the affidavit for the duration of the health benefits plan and any renewals of the plan.

C. Subsection B of this section shall not exclude coverage for prescription contraceptive methods ordered by a health care provider with prescriptive authority for medical indications other than for contraceptive, abortifacient, abortion or sterilization purposes. A religiously affiliated employer offering the plan may state religious beliefs in its affidavit and may require the enrollee to first pay for the prescription and then submit a claim to the accountable health plan along with evidence that the prescription is not for a purpose covered by the objection. An accountable health plan may charge an administrative fee for handling claims under this subsection.

D. Subsections B and C of this section do not authorize a religiously affiliated employer to obtain an employee's protected health information or to violate the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936) or any federal regulations adopted pursuant to that act.

E. Subsections B and C of this section shall not be construed to restrict or limit any protections against employment discrimination that are prescribed in federal or state law.

F. For the purposes of this section, "religiously affiliated employer" means either:

1. 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 serves primarily persons who share the religious tenets of the entity.

(c) The entity is a nonprofit organization as described in section 6033(a)(3)(A)(i) or (iii) of the internal revenue code of 1986, as amended.

2. An entity whose articles of incorporation clearly state that it is a religiously motivated organization and whose religious beliefs are central to the organization's operating principles.

§ 20-2330 Continuation of small group coverage; notice; duration; definitions

A. For health benefit plans issued or renewed after December 31, 2018, a health benefits plan shall provide that an enrollee and any qualified dependent may continue coverage under the plan as provided in this section.

B. A small employer shall notify the enrollee in writing of the enrollee's qualifying event and right to continue the enrollee's and any qualified dependent's coverage within thirty days after the qualifying event. A written communication or a notice postmarked within forty-four days after a qualifying event mailed by the employer to the enrollee's last known address satisfies this notice requirement. Notice to the enrollee constitutes notice to any qualified dependent unless the employer knows there is a qualified dependent who does not live at the same address and knows the dependent's address, in which case a separate notice shall be sent to the qualified dependent. The notice shall inform the enrollee and any qualified dependent of the following information:

1. The enrollee's and any qualified dependent's right to continue coverage at the full cost of the coverage, which includes the employer's contribution and the enrollee's contribution and an administrative fee for the employer that may not exceed five percent of the premium.

2. The amount of the full cost of the coverage, stated separately for the enrollee and qualified dependent.

3. The process and deadline for the enrollee to elect continuation coverage for the enrollee and any qualified dependent.

4. The date and time by which the enrollee must submit the initial and ongoing payments to the employer to continue coverage.

5. The loss of continuation coverage if the enrollee fails to pay the premium and administrative fee in a timely manner.

C. The department shall prepare a sample notice of coverage continuation form and make the form available on its website. Use of the department's form, if properly completed, is presumed to satisfy the requirements in subsection B of this section.

D. To continue coverage, the enrollee or a qualified dependent shall elect continuation coverage in writing for the enrollee and any qualified dependent within sixty days after the date of the notice to elect continuation coverage and submit the first month premium to the employer within forty-five days after the date of election to continue coverage. If the enrollee or qualified dependent elects coverage pursuant to this section, coverage continues as if there had been no interruption.

E. Notwithstanding subsection D of this section, if the employer fails to provide complete, accurate and timely notice of the right to continue coverage as specified in subsection B of this section, the enrollee has one hundred twenty days after the date of the notice to elect continuation coverage and pay the required premium and administrative fee.

F. If an insurance renewal occurs during the enrollee's or qualified dependent's period of eligibility for continuation coverage, the employer shall notify the enrollee or qualified dependent of any change to the premium due at least thirty days before the change is effective through the process prescribed in subsections B, C, D and E of this section.

G. This section does not apply if continuation coverage benefits are available to enrollees or qualified dependents pursuant to 29 United States Code sections 1161 through 1169 or 42 United States Code sections 300bb-1 through 300bb-8 or if the enrollee or qualified dependent seeking to continue coverage is eligible for medicare.

H. Continuation coverage ends on the earliest of the following:

1. Eighteen months after the date the continuation coverage begins.

2. The date on which coverage ceases under the health benefits plan due to the enrollee's failure to timely pay the premium and administrative fee.

3. The date on which the enrollee or a qualified dependent becomes eligible for medicare or medicaid or obtains any other health care coverage, with respect only to that person.

4. The date on which the employer terminates coverage under the health benefits plan for all employees. If the employer terminates coverage under the health benefits plan for all employees and replaces the plan with coverage under another plan, the enrollee and any qualified dependents who have continuation coverage have the right to become covered under the new plan for the balance of the period that the enrollee or qualified dependent could have remained covered under the continuation coverage.

5. As to a dependent child of the enrollee, the date the dependent child would otherwise lose coverage under the terms of the health benefits plan due to attaining a certain age.

I. A qualified dependent who is determined to have a disability, under title II or title XVI of the social security act, at the time of a qualifying event may be eligible to continue coverage for an additional eleven months if the qualified dependent provides the written determination of disability from the social security administration to the employer within sixty days after the date of that determination and before the end of the eighteen-month continuation period. The health benefits plan may charge up to one hundred fifty percent of the group rate during the eleven-month disability extension. The qualified dependent shall notify the employer within thirty days after the social security administration determines that the qualified dependent no longer has a disability under title II or title XVI of the social security act.

J. If a qualifying event as defined in subsection N, paragraph 3, subdivision (b), (c), (d) or (e) of this section occurs during the eighteen-month continuation period, a qualified dependent may be eligible to continue coverage for an additional eighteen months.

K. If an enrollee is in the military reserve or national guard and is called to active duty and the enrollee's employment is terminated either after or during the active duty period, the termination is a separate qualifying event, distinct from the qualifying event that may have occurred when the enrollee was called to active duty, and the enrollee and any qualified dependent are eligible for a new eighteen-month benefit period beginning on the later of the date active duty ends or the date of employment termination.

L. If an enrollee is in the military reserve or national guard and is called to active duty, the following events are qualifying events distinct from the qualifying event that may have occurred when the enrollee was called to active duty:

1. The enrollee dies during the period of active duty.

2. A divorce or legal separation of the enrollee from the enrollee's spouse occurs.

3. A dependent child ceases to be a dependent child under the requirements of the employer's health benefits plan.

M. Notwithstanding subsection H of this section, if an enrollee who is in the military reserve or national guard has elected to continue coverage and is thereafter called to active duty and the coverage under the employer's health benefits plan is terminated by the enrollee or the health benefits plan due to the enrollee becoming eligible for a health care program provided by the United States department of defense, the eighteen-month period or any other applicable maximum time period for which the enrollee would otherwise be entitled to continuation coverage is tolled during the time that the enrollee is covered under the health care program. Within sixty-three days after the federal health care program coverage terminates, the enrollee may elect to continue coverage under the employer's health benefits plan retroactively to the date coverage terminated under the federal health care program for the remainder of the eighteen-month period or any other applicable time period, subject to termination of coverage at the earliest of the conditions specified in subsection H of this section.

N. For the purposes of this section:

1. "Enrollee" means an employee who is covered under an employer's health benefits plan for at least three months before a qualifying event.

2. "Qualified dependent" means a person who is covered under an enrollee's health benefits plan immediately before a qualifying event and who is the spouse or dependent child of the enrollee.

3. "Qualifying event" means the date coverage ends due to:

(a) Voluntary or involuntary termination of employment for a reason other than gross misconduct or reduction of hours required to qualify for health benefits under the employer's health benefits plan.

(b) Divorce or separation from the enrollee.

(c) Death of the enrollee.

(d) The enrollee becoming eligible for medicare.

(e) A dependent child ceasing to be a dependent child under the generally applicable requirements of the employer's health benefits plan.

(f) A retired enrollee or the spouse or dependent child of a retiree losing coverage within one year before or after commencement of a bankruptcy proceeding under title XI of the United States Code by the employer from whose employment the retired enrollee retired.

4. "Small employer" means an employer that employs an average of at least one but fewer than twenty eligible employees during the preceding calendar year.

§ 20-2331 Accountable health plans; varying copayments and deductibles allowed

A. Except as provided in sections 20-1379 and 20-2304, an accountable health plan may offer one or more health benefits 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. An accountable health plan that offers such a health benefit 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.

§ 20-2332 Eosinophilic gastrointestinal disorder; formula

A. Any health benefit plan that is offered by an accountable health plan and that contains a prescription drug benefit shall cover amino acid-based formula that is ordered by a physician or by a registered nurse practitioner if:

1. The insured has been diagnosed with an eosinophilic gastrointestinal disorder.

2. The insured is under the continuous supervision of a physician who is licensed pursuant to title 32, chapter 13 or 17 or a registered nurse practitioner who is licensed pursuant to title 32, chapter 15.

3. There is risk of a mental or physical impairment without the use of the formula.

B. An accountable health plan shall cover at least seventy-five per cent of the cost of the formula. The accountable health plan may limit the maximum annual benefit for formula under this section to twenty thousand dollars.

C. This section does not apply to limited benefit coverage as defined in section 20-1137.

Article 2 Uninsured Small Business Health Insurance Plans

§ 20-2341 Uninsured small business health insurance plans; mandatory coverage exemption; definitions

A. A policy, subscription contract, contract, plan or evidence of coverage issued to an uninsured small business by a health care insurer is not subject to the requirements of any of the following:

1. Section 20-461, subsection A, paragraph 17 and subsection B.

2. Section 20-826, subsection C, paragraph 1.

3. Section 20-826, subsections F, J, K, U, V, W, X and Y.

4. Sections 20-841, 20-841.01, 20-841.02, 20-841.03, 20-841.04, 20-841.06, 20-841.07 and 20-841.08.

5. Section 20-841.05, subsections B and E.

6. Section 20-1057, subsections C, K, L, Y, Z, AA and BB.

7. Sections 20-1057.01, 20-1057.03, 20-1057.04, 20-1057.05 and 20-1057.08.

8. Section 20-1057.02, subsection B.

9. Section 20-1342, subsection A, paragraph 8, subdivision (a).

10. Section 20-1342, subsection A, paragraphs 11 and 12.

11. Section 20-1342, subsections H, I, J and K.

12. Section 20-1342.01.

13. Sections 20-1376, 20-1376.01, 20-1376.02, 20-1376.03 and 20-1376.04.

14. Section 20-1402, subsection A, paragraph 4, subdivision (a).

15. Section 20-1402, subsection A, paragraphs 7 and 8.

16. Section 20-1402, subsections H, I, J, K and L.

17. Section 20-1404, subsection F, paragraph 1.

18. Section 20-1404, subsections I, Q, R, S, T and U.

19. Section 20-1406.

20. Sections 20-1406.01, 20-1406.02, 20-1406.03 and 20-1406.04.

21. Section 20-1407.

22. Section 20-2321.

23. Section 20-2327.

24. Section 20-2329.

B. Section 20-2304, subsection B does not apply to a policy, subscription contract, contract, plan or evidence of coverage issued to an uninsured small business pursuant to subsection A of this section.

C. In this article, unless the context otherwise requires:

1. "Health care insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital and medical service corporation.

2. "Uninsured small business" means a small employer that did not provide a health benefits plan for at least ninety days immediately before the effective date of coverage provided pursuant to this section, except that this requirement does not apply at the renewal of coverage pursuant to this section.

Chapter 14 Risk Retention Groups

Article 1 General Provisions

§ 20-2401 Definitions

In this chapter, unless the context otherwise requires:

1. "Completed operations liability" means liability arising out of the installation, maintenance or repair of any product at a site which is not owned or controlled by either:

(a) A person who performs that work.

(b) A person who hires an independent contractor to perform that work. Completed operations liability includes liability for activities which are completed or abandoned before the date of the occurrence giving rise to the liability.

2. "Domicile", for purposes of determining the state in which a purchasing group is domiciled, means:

(a) For a corporation, the state in which the purchasing group is incorporated.

(b) For an unincorporated entity, the state of its principal place of business.

3. "Hazardous financial condition" means that, based on its present or reasonably anticipated financial condition, a risk retention group, although not yet financially impaired or insolvent, is unlikely to be able to either:

(a) Meet obligations to policyholders with respect to known claims and reasonably anticipated claims.

(b) Pay other obligations in the normal course of business.

4. "Insurance" means primary insurance, excess insurance, reinsurance, surplus lines insurance and any other arrangement for shifting and distributing risk which is determined to be insurance under the laws of this state.

5. "Liability":

(a) Means legal liability for damages, including costs of defense, legal costs and fees and other claims expenses, because of injuries to other persons, damage to their property or other damage or loss to other persons resulting from or arising out of either:

(i) A business, whether for profit or nonprofit, trade, product, services, including professional services, premises or operations.

(ii) An activity of a state or local government, or an agency or political subdivision of the state.

(b) Does not include personal risk liability and an employer's liability with respect to its employees other than legal liability under the federal employers' liability act (45 United States Code section 51).

6. "Personal risk liability" means liability for damages because of injury to a person, damage to property or other loss or damage resulting from any personal, familial or household responsibilities or activities other than those listed in paragraph 5.

7. "Plan of operation or feasibility study" means an analysis which presents the expected activities and results of a risk retention group including at least all of the following:

(a) Information sufficient to verify that its members are engaged in businesses or activities similar or related with respect to the liability to which the members are exposed by virtue of any related, similar or common business, trade, product, services, premises or operations.

(b) For each state in which the group intends to operate, the coverages, deductibles, coverage limits, rates and rating classification systems for each line of insurance the group intends to offer.

(c) Historical and expected loss experience of the proposed members and national experience of similar exposures to the extent that this experience is reasonably available.

(d) Pro forma financial statements and projections.

(e) Appropriate opinions by a qualified, independent casualty actuary, including a determination of minimum premium or participation levels required to commence operations and to prevent a hazardous financial condition.

(f) Identification of management, underwriting and claims procedures, marketing methods, managerial oversight methods and investment policies.

(g) Other matters as prescribed by the director for liability insurance companies authorized by the insurance laws of the state in which the risk retention group is chartered.

8. "Product liability" means liability for damages because of any personal injury, death, emotional harm, consequential economic damage or property damage, including damages resulting from the loss of use of property, arising out of the manufacture, design, importation, distribution, packaging, labeling, lease or sale of a product. Product liability does not include the liability of a person for those damages if the product involved was in the possession of the person when the incident giving rise to the claim occurred.

9. "Purchasing group" means a group which meets all of the following criteria:

(a) Has as one of its purposes the purchase of liability insurance on a group basis.

(b) Purchases the insurance only for its group members and only to cover their similar or related liability exposure, as described in subdivision (c) of this paragraph.

(c) Is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar or common business, trade, product, services, premises or operations.

(d) Is domiciled in any state.

10. "Risk retention group" means a corporation or other limited liability association formed under the laws of any state which meets all of the following criteria:

(a) Its primary activity consists of assuming and spreading all or any portion of the liability exposure of its group members.

(b) It is organized for the primary purpose of conducting the activity described in subdivision (a) of this paragraph.

(c) It is either:

(i) Chartered and licensed as a liability insurance company and authorized to engage in the business of insurance under the laws of any state.

(ii) It was, before January 1, 1985, chartered or licensed and authorized to engage in the business of insurance under the laws of Bermuda or the Cayman Islands and, before January 1, 1985, had certified to the insurance commissioner of at least one state that it satisfied the capitalization requirements of the state. Any such group is a risk retention group only if it has been engaged in business continuously since January 1, 1985 and only for the purpose of continuing to provide insurance to cover product liability or completed operations liability.

(d) It does not exclude any person from membership in the group solely to provide for members of a group a competitive advantage over the person.

(e) It either:

(i) Has as its owners only persons who comprise the membership of the risk retention group and who are provided insurance by the group.

(ii) Has as its sole owner an organization which has as its members only persons who comprise the membership of the risk retention group and has as its owners only persons who comprise the membership of the risk retention group and who are provided insurance by the group.

(f) Its members are engaged in businesses or activities similar or related with respect to the liability which the members are exposed to by virtue of any related, similar or common business, trade, product, services, premises or operations.

(g) Its activities do not include the provision of insurance other than:

(i) Liability insurance for assuming and spreading all or any portion of the liability of its group members.

(ii) Reinsurance with respect to the liability of any other risk retention group or any members of any other group which is engaged in businesses or activities that meet the requirement described in subdivision (f) of this paragraph from membership in the risk retention group which provides the reinsurance.

(h) The name of the group includes the phrase "risk retention group".

11. "State" means any state of the United States or the District of Columbia.

§ 20-2402 Risk retention groups chartered and licensed in this state; definitions

A. A risk retention group, pursuant to this title, shall be chartered and licensed to write only liability insurance pursuant to this chapter and, except as provided in this chapter, must comply with this title with respect to insurers that are chartered and licensed in this state and with section 20-2403. Before it may offer insurance in any state, each risk retention group shall also submit for approval to the director of the department of insurance and financial institutions a plan of operation or a feasibility study and revisions of the plan or study if the group intends to offer any additional lines of liability insurance. The group shall not offer any additional kinds of liability insurance in this state or in any other state until a revision of the plan or study is approved by the director of the department of insurance and financial institutions.

B. Immediately on receipt of an application for a charter, this state shall provide summary information concerning the filing to the national association of insurance commissioners, including the name of the risk retention group, the identity of the initial members of the group, the identity of those individuals who organized the group or who will provide administrative services or otherwise influence or control the activities of the group, the amount and nature of initial capitalization, the coverages to be afforded and the states in which the group intends to operate.

C. A risk retention group that is licensed in this state shall comply with all of the following:

1. The board of directors of the risk retention group shall have a majority of independent board directors. If the risk retention group is a reciprocal risk retention group, the attorney-in-fact shall be required to adhere to the same standards regarding independence of operation and governance as imposed on the risk retention group's board of directors or subscribers' advisory committee, or both, under these standards, and, to the extent permissible under this state's laws, service providers of a reciprocal risk retention group shall contract with the risk retention group and not the attorney-in-fact.

2. A board director does not qualify as independent unless the board of directors affirmatively determines that the board director has no material relationship with the risk retention group. Each risk retention group shall disclose these determinations to its domestic regulator at least annually. Any person that is a direct or indirect owner of or subscriber in the risk retention group or is an officer, board director or employee, or all three, of an owner and insured, as contemplated by 15 United States Code section 3901(a)(4)(E)(ii), is considered to be independent, unless some other position of that officer, board director or employee constitutes a material relationship.

3. The term of any material service provider contract with the risk retention group may not exceed five years. Any contract or its renewal shall require the approval of the majority of the risk retention group's independent board directors. The risk retention group's board of directors shall have the right to terminate any service provider, audit or actuarial contracts at any time for cause after providing adequate notice as defined in the contract. The service provider contract is deemed material if the amount to be paid for that contract is greater than or equal to five percent of the risk retention group's annual gross written premium or two percent of its surplus, whichever is greater. A service provider contract that is a material relationship may not be entered into unless the risk retention group has notified the director of the department of insurance and financial institutions in writing of its intention to enter into the transaction at least thirty days before and the director of the department of insurance and financial institutions has not disapproved the transaction within that period.

4. The board of directors of a risk retention group shall adopt a written policy in the plan of operation as approved by the board that requires the board of directors to do all of the following:

(a) Ensure that all owners or insureds, or both, of the risk retention group receive evidence of ownership interest.

(b) Develop a set of governance standards applicable to the risk retention group.

(c) Oversee the evaluation of the risk retention group's management, including the performance of the captive manager, managing general underwriter or other parties responsible for underwriting, determination of rates, collection of premium, adjusting or settling claims or the preparation of financial statements.

(d) Review and approve the amount to be paid for all material service providers.

(e) Review and approve, at least annually, all of the following:

(i) The risk retention group's goals and objectives relevant to the compensation of officers and service providers.

(ii) The officers' and service providers' performance in light of those goals and objectives.

(iii) The continued engagement of the officers and material service providers.

5. Each risk retention group shall have an audit committee composed of at least three independent board members. A nonindependent board member may participate in the activities of the audit committee, if invited by the members, but cannot be a member of that committee. The audit committee shall have a written charter that defines the committee's purpose, which, at a minimum, shall be to do all of the following:

(a) Assist in board oversight of the integrity of the financial statements, the compliance with legal and regulatory requirements and the qualifications, independence and performance of the independent auditor and actuary.

(b) Discuss the annual audited financial statements and quarterly financial statements with management.

(c) Discuss the annual audited financial statements with its independent auditor and, if advisable, discuss its quarterly financial statements with its independent auditor.

(d) Discuss policies with respect to risk assessment and risk management.

(e) Meet separately and periodically, either directly or through a designated representative of the committee, with management and independent auditors.

(f) Review with the independent auditor any audit problems or difficulties and management's response.

(g) Set clear hiring policies of the risk retention group as to the hiring of employees or former employees of the independent auditor.

(h) Require the external auditor to rotate the lead or coordinating audit partner having primary responsibility for the risk retention group's audit as well as the audit partner responsible for reviewing that audit, so that neither individual performs audit services for more than five consecutive fiscal years.

(i) Report regularly to the board of directors.

6. The director of the department of insurance and financial institutions may waive the requirement to establish an audit committee pursuant to paragraph 5 of this subsection if the risk retention group demonstrates to the director that doing so is impracticable and the risk retention group's board of directors is otherwise able to fulfill the requirements of the audit committee as set forth in this section.

7. The board of directors shall adopt and disclose governance standards by making the information available through electronic means, such as posting the information on the risk retention group's website, or other means, and providing that information to members and insureds on request. The information shall include all of the following:

(a) A process by which the board directors are elected by the owners or insureds, or both.

(b) Board director qualification standards.

(c) Board director responsibilities.

(d) Board director access to management and, as necessary and appropriate, independent advisers.

(e) Board director compensation.

(f) Board director orientation and continuing education.

(g) The policies and procedures that are followed for management succession.

(h) The policies and procedures that are followed for the annual performance evaluation of the board.

8. The board of directors shall adopt and disclose a code of business conduct and ethics for board directors, officers and employees and promptly disclose to the board of directors any waivers of the code for board directors or executive officers, including all of the following topics:

(a) Conflicts of interest.

(b) Matters covered under the corporate opportunity doctrine under the state of domicile.

(c) Confidentiality.

(d) Fair dealing.

(e) Protection and proper use of risk retention group assets.

(f) Compliance with all applicable laws, rules and regulations.

(g) Requiring the reporting of any illegal or unethical behavior that affects the operation of the risk retention group.

9. The captive manager, president or chief executive officer of the risk retention group shall promptly notify the domestic regulator, in writing, if either becomes aware of any material noncompliance with any of the risk retention group's governance standards.

D. For the purposes of this section:

1. "Board director" means a natural person designated in the articles of the risk retention group, or designated, elected or appointed by any other manner, name or title to act as a board director.

2. "Board of directors" or "board" means the governing body of the risk retention group elected by the shareholders or members to establish policy, elect or appoint officers and committees and make other governing decisions.

3. "Material relationship" means a person's relationship with the risk retention group, including any of the following:

(a) The receipt in any one twelve-month period of compensation or payment of any other item of value by that person, a member of that person's immediate family or any business with which that person is affiliated from the risk retention group or a consultant or service provider to the risk retention group that is greater than or equal to five percent of the risk retention group's gross written premium for that twelve-month period or two percent of its surplus, whichever is greater, as measured at the end of any fiscal quarter falling in a twelve-month period. The person or immediate family member of that person is not independent until one year after the person's compensation from the risk retention group falls below the threshold.

(b) A relationship with an auditor in which a board director or an immediate family member of a board director who is affiliated with, or employed in, a professional capacity by a present or former internal or external auditor of the risk retention group is not independent until one year after the end of the affiliation, employment or auditing relationship.

(c) A relationship with a related entity in which a board director or immediate family member of a board director who is employed as an executive officer of another company where any of the risk retention group's present executives serve on that other company's board of directors is not independent until one year after the end of that service or the employment relationship.

4. "Service providers" includes captive managers, auditors, accountants, actuaries, investment advisers, attorneys and managing general underwriters or any other party responsible for underwriting, determination of rates, collection of premium, adjusting and settling claims or the preparation of financial statements. For the purposes of this paragraph, attorney does not include defense counsel retained by the risk retention group to defend claims, unless the amount of fees paid to those attorneys creates a material relationship.

§ 20-2403 Risk retention groups not chartered and licensed in this state

A. Before offering insurance in this state, a risk retention group shall submit to the director all of the following:

1. Evidence that the group meets the criteria of a risk retention group.

2. A statement identifying the state or states in which the risk retention group is chartered and licensed as a liability insurance company, the date of chartering and its principal place of business.

3. A copy of its plan of operations or a feasibility study and revisions of the plan or study submitted to its state of domicile.

4. A statement of registration which designates the director as its agent for the purpose of receiving service of legal documents or process. The director shall determine the filing fee for the statement of registration.

B. A risk retention group doing business in this state shall submit to the director all of the following:

1. A copy of the group's financial statement submitted to the state in which the risk retention group is chartered and licensed, which is certified by an independent public accountant and contains a statement of opinion on loss and loss adjustment expense reserves made by a member of the American academy of actuaries or a qualified loss reserve specialist under criteria established by the director.

2. A copy of each examination of the risk retention group as certified by the director or public official conducting the examination.

3. On request by the director, a copy of any audit performed with respect to the risk retention group.

4. Information required to verify it continues to meet the criteria as a risk retention group under section 20-2401, paragraph 10.

C. Each risk retention group is liable for the payment of premium taxes and taxes on premiums of direct business for risks resident or located in this state and shall report to the director the net premiums written for risks resident or located in this state. The risk retention group is subject to taxation and any applicable fines and penalties related to the taxation on the same basis as a foreign admitted insurer. To the extent licensed insurance producers are used pursuant to this chapter, they shall report to the director the premiums for direct business for risks resident or located in this state which the licensees have placed with or on behalf of a risk retention group which is not chartered and licensed in this state. To the extent that insurance producers are used pursuant to this chapter, the insurance producer shall keep a complete and separate record of all policies procured from each risk retention group. The record shall be open to examination by the director. These records, for each policy and each kind of insurance provided under each policy, shall include all of the following:

1. The limit of liability.

2. The time period covered.

3. The effective date.

4. The name of the risk retention group which issued the policy.

5. The gross premium charged.

6. The amount of return premium, if any.

D. A risk retention group and its agents and representatives shall comply with section 20-461 pertaining to unfair claims settlement practices.

E. A risk retention group shall comply with chapter 2, article 6 of this title. However, if the director seeks an injunction regarding such conduct, the injunction shall be obtained from a court of competent jurisdiction.

F. A risk retention group shall submit to an examination by the director to determine its financial condition if the director of the jurisdiction in which the group is chartered and licensed has not initiated an examination or does not initiate an examination within sixty days after a request by the director of this state. Any examination shall be coordinated to avoid unjustified repetition and conducted in an expeditious manner and in accordance with rules established by the director.

G. A policy issued by a risk retention group shall contain in ten point type on the front page and the declaration page the following notice:

Notice

This policy is issued by your risk retention group. Your risk retention group may not be subject to all of the insurance laws and regulations of your state. State insurance insolvency guaranty funds are not available for your risk retention group.

H. The following acts by a risk retention group are prohibited:

1. The solicitation or sale of insurance by a risk retention group to a person who is not eligible for membership in the group.

2. The solicitation or sale of insurance by, or operation of, a risk retention group that is in a hazardous financial condition or is financially impaired.

I. No risk retention group may do business in this state if an insurance company is directly or indirectly a member or owner of the risk retention group, other than a risk retention group whose members are insurance companies.

J. A risk retention group which is not chartered and licensed in this state and is doing business in this state must comply with a lawful order issued in a voluntary dissolution proceeding or in a delinquency proceeding commenced by a state insurance director if there has been a finding of financial impairment after an examination under subsection F of this section.

K. The director, in establishing criteria for loss and loss adjustment reserves under subsection B, paragraph 1 of this section and in conducting examinations under subsection F of this section, for purposes of uniformity, shall consider any nationally adopted criteria or procedure.

L. In addition to complying with the requirements of this section applicable to risk retention groups doing business in this state, any risk retention group operating in this state before August 18, 1987 shall comply with subsection A of this section within thirty days after August 18, 1987.

M. A risk retention group which violates any provision of this chapter is subject to fines and penalties applicable to licensed insurers generally, including revocation of its license or the right to do business in this state.

§ 20-2404 Compulsory associations

A. No risk retention group is required or permitted to join or contribute financially to any insurance insolvency guaranty fund, or similar mechanism, in this state, and no risk retention group, or its insureds or claimants against its insureds, may receive any benefit from any fund for claims arising under the insurance policies issued by the risk retention group.

B. If a purchasing group obtains insurance covering its members' risks from an insurer that is not authorized in this state or a risk retention group, no risks wherever resident or located may be covered by any insurance guaranty fund or similar mechanism in this state.

C. If a purchasing group obtains insurance covering its members' risks from an authorized insurer, only risks resident or located in this state may be covered by the state guaranty fund.

D. A risk retention group shall participate in this state's joint underwriting associations and mandatory liability pools as provided by this title.

§ 20-2406 Purchasing groups; exemption from certain laws relating to the group purchase of insurance

A. A purchasing group which meets the criteria established under the federal liability risk retention act of 1986 is exempt from any law of this state relating to the creation of groups for the purchase of insurance, prohibition of group purchasing or any law that would discriminate against a purchasing group or its members.

B. This state shall not enact any law or the director shall not adopt a rule which imposes prohibitions or requirements on purchasing groups in violation of section 3(a) of the liability risk retention act of 1986, Public Law 99-563. A purchasing group is subject to all applicable laws of this state.

§ 20-2407 Notice and registration requirements of purchasing groups

A. A purchasing group which intends to do business in this state, before doing business, shall furnish notice to the director which:

1. Identifies the state in which the group is domiciled.

2. Specifies the lines and classifications of liability insurance which the purchasing group intends to purchase.

3. Specify the method by which, and the person or persons, if any, through whom, insurance will be offered to its members whose risks are resident or located in this state.

4. Identifies the principal place of business of the group.

5. Provides other information as may be required by the director to verify that the purchasing group meets the criteria under section 20-2401, paragraph 9.

B. The purchasing group shall register with and designate the director as its agent solely for the purpose of receiving service of legal documents of process. The director shall determine the filing fee. This requirement does not apply in the case of a purchasing group:

1. Which in any state both:

(a) Was domiciled before April 1, 1986.

(b) Is domiciled on October 27, 1986 in any state.

2. Which both:

(a) Before October 27, 1986 purchased insurance from an insurance carrier licensed in any state.

(b) Since October 27, 1986 purchased its insurance from an insurance carrier licensed in any state.

3. Which was a purchasing group under the requirements of the product liability risk retention act of 1981 (15 United States Code section 3901) before October 27, 1986.

4. Which does not purchase insurance that was not authorized for purposes of an exemption under the product liability risk retention act of 1981 (15 United States Code section 3901), in effect before October 27, 1986.

C. Any purchasing group which was doing business in this state before the effective date of this chapter, within thirty days after the effective date of this chapter, shall furnish notice to the director pursuant to subsection A and furnish information required pursuant to subsection B.

§ 20-2408 Restrictions on insurance purchased by purchasing groups

A. A purchasing group may not purchase insurance from a risk retention group that is not chartered in a state or from an insurer which is not admitted in the state in which the purchasing group is located, unless the purchase is effected through a licensed insurance producer.

B. No purchasing group may offer insurance policy coverage prohibited by this title or declared unlawful by the supreme court of this state.

C. A purchasing group which obtains liability insurance from an insurer that is not admitted in this state or a risk retention group shall inform each of the members of the group which have a risk resident or located in this state that the risk is not protected by an insurance insolvency guaranty fund in this state and that the risk retention group or the insurer may not be subject to all insurance laws and rules of this state.

§ 20-2409 Administrative and procedural authority regarding risk retention groups and purchasing groups

The director may make use of any of the powers established under this title to enforce the laws of this state so long as those powers are not specifically preempted by the product liability risk retention act of 1981, as amended by the risk retention amendments of 1986. This includes the director's administrative authority to investigate, issue subpoenas, conduct depositions and hearings, issue orders and impose penalties. With regard to any investigation, administrative proceedings or litigation, the director may rely on the procedural law and rules of this state. The injunctive authority of the director in regard to risk retention groups is restricted by the requirement that any injunction be issued by a court of competent jurisdiction.

§ 20-2410 Penalties

A risk retention group which violates any provision of this chapter is subject to civil penalties set forth in section 20-220 and section 20-456 and to revocation or suspension of its license and the right to do business in this state.

§ 20-2411 Duty of insurance producer to obtain license

A. No person, firm, association or corporation may act or aid in any manner in soliciting, negotiating or procuring liability insurance in this state from a risk retention group unless the person, firm, association or corporation is licensed as an insurance producer in accordance with this title.

B. No person, firm, association or corporation may act or aid in any manner in soliciting, negotiating or procuring liability insurance in this state for a purchasing group or any of its members from an authorized insurer or a risk retention group chartered in a state unless the person, firm, association or corporation is licensed as an insurance producer in accordance with this title.

C. No person, firm, association or corporation may act or aid in any manner in soliciting, negotiating or procuring liability insurance from an insurer that is not authorized to do business in this state on behalf of a purchasing group which is located in this state unless the person, firm, association or corporation is licensed as a surplus lines broker or excess line broker in accordance with this title.

D. For purposes of acting as an insurance producer or surplus lines broker for a risk retention group or purchasing group pursuant to subsections A, B and C of this section, the requirement of residence in this state does not apply.

E. Every person, firm, association or corporation that is licensed pursuant to this title, on business placed with risk retention groups or written through a purchasing group, shall inform each prospective insured of the provisions of the notice required by section 20-2403, subsection G in the case of a risk retention group and section 20-2408, subsection C in the case of a purchasing group.

§ 20-2412 Binding effect of orders issued in United States district court

An order issued by any district court of the United States enjoining a risk retention group from soliciting or selling insurance or operating in any state on a finding that such a group is in a hazardous financial condition is enforceable in the courts of this state.

§ 20-2413 Rules

The director may adopt rules relating to risk retention groups as may be necessary or desirable to carry out the provisions of this chapter.

§ 20-2414 Annual report

A. The director shall annually report the following information to the president of the senate and the speaker of the house of representatives:

1. The number of risk retention groups licensed in this state since August 6, 2016.

2. Any regulatory action taken by the director against a risk retention group licensed in this state for noncompliance with section 20-2402.

B. The director may provide the report required by subsection A of this section in an electronic format.

Chapter 15 Utilization Review

Article 1 General Provisions

§ 20-2501 Definitions; scope

A. In this chapter, unless the context otherwise requires:

1. "Adverse determination":

(a) Means a utilization review determination by the utilization review agent that a requested service or claim for service or a denial, reduction or termination of a service, in whole or in part, is not a covered service, or is not medically necessary or appropriate, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational under the plan if that determination results in a documented denial or nonpayment of the service or claim.

(b) Includes a rescission.

2. "Benefits based on the health status of the insured" means a contract of insurance to pay a fixed benefit amount, without regard to the specific services received, to a policyholder who meets certain eligibility criteria based on health status including:

(a) A disability income insurance policy that pays a fixed daily, weekly or monthly benefit amount to an insured who is deemed to have a disability as defined by the policy terms.

(b) A hospital indemnity policy that pays a fixed daily benefit during hospital confinement.

(c) A disability insurance policy that pays a fixed daily, weekly or monthly benefit amount to an insured who is certified by a licensed health care professional as chronically ill as defined by the policy terms.

(d) A disability insurance policy that pays a fixed daily, weekly or monthly benefit amount to an insured who suffers from a prolonged physical illness, disability or cognitive disorder as defined by the policy terms.

3. "Claim":

(a) Means a request for payment for a service already provided.

(b) Does not include:

(i) Claim adjustments for usual and customary charges for a service or coordination of benefits between health care insurers.

(ii) A request for payment under a policy or contract that pays benefits based on the health status of the insured and that does not reimburse the cost of or provide covered services.

4. "Covered service" means a service that is included in a policy, evidence of coverage or similar document that specifies which services, insurance or other benefits are included or covered.

5. "Denial":

(a) Means a direct or indirect determination regarding all or part of a request for any service.

(b) Includes a denial, reduction or termination of a service or a rescission or a direct determination regarding a claim that may trigger a request for review.

(c) Does not include:

(i) Enforcement of a health care insurer's deductibles, copayments or coinsurance requirements or adjustments for usual and customary charges, deductibles, copayments or coinsurance requirements for a service or coordination of benefits between health care insurers.

(ii) The rejection of a request for payment under a policy or contract that pays benefits based on the health status of the insured and that does not reimburse the cost of or provide covered services.

6. "Final internal adverse determination" means an adverse determination that is upheld, in whole or in part, at the completion of the health care insurer's internal levels of review or an adverse determination with respect to which the internal levels of review have been waived or deemed exhausted.

7. "Grandfathered individual plan" means coverage provided by an individual health care insurer which was purchased before March 23, 2010 and which has not lost such status due to changes in benefits.

8. "Health care insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, prepaid dental plan organization, medical service corporation, dental service corporation or optometric service corporation or a hospital, medical, dental and optometric service corporation.

9. "Health care setting" means an institution providing health care services, including but not limited to, hospitals and other licensed inpatient centers, ambulatory surgical or treatment centers, skilled nursing centers, residential treatment centers, diagnostic, laboratory and imaging centers and rehabilitation and other therapeutic health settings.

10. "Indirect denial" means a failure to communicate authorization or nonauthorization to the member by the utilization review agent within the prescribed time frames pursuant to section 20-3404 after the utilization review agent receives the request for a covered service.

11. "Internal levels of review" means:

(a) An expedited medical review and expedited appeal pursuant to section 20-2534.

(b) An initial internal appeal pursuant to section 20-2535.

(c) A voluntary internal appeal pursuant to section 20-2536, if applicable.

12. "Provider" means the physician or other licensed practitioner identified to the utilization review agent as having primary responsibility for providing care, treatment and services rendered to a patient.

13. "Rescission" means a retroactive cancellation of coverage that is not related to a failure to timely pay required premiums.

14. "Service" means a diagnostic or therapeutic medical or health care service, benefit or treatment.

15. "Utilization review" means a system for reviewing the appropriate and efficient allocation of inpatient hospital resources, inpatient medical services and outpatient surgery services that are being given or are proposed to be given to a patient, and of any medical, surgical and health care services or claims for services that may be covered by a health care insurer depending on determinable contingencies, including without limitation outpatient services, in-office consultations with medical specialists, specialized diagnostic testing, mental health services, emergency care and inpatient and outpatient hospital services. Utilization review does not include elective requests for the clarification of coverage.

16. "Utilization review agent" means a person or entity that performs utilization review. For purposes of article 2 of this chapter, utilization review agent has the same meaning prescribed in section 20-2530. For purposes of this chapter, utilization review agent does not include:

(a) A governmental agency.

(b) An agent that acts on behalf of the governmental agency.

(c) An employee of a utilization review agent.

17. "Utilization review plan" means a summary description of the utilization review guidelines, protocols, procedures and written standards and criteria of a utilization review agent.

B. For the purposes of this chapter, utilization review by an optometric service corporation applies only to nonsurgical medical and health care services.

§ 20-2502 Utilization review activities; exemptions

A. A utilization review agent shall not conduct utilization review in this state unless the utilization review agent meets or is exempt from this article.

B. A person is exempt from sections 20-2504, 20-2505, 20-2506, 20-2507 and 20-2508 and section 20-2509, subsection A if the person:

1. Is accredited by the utilization review accreditation commission, the national committee for quality assurance or any other nationally recognized accreditation process recognized by the director.

2. Conducts internal utilization review for hospitals, home health agencies, clinics, private offices or other health facilities or entities if the review does not result in the approval or denial of payment for hospital or medical services.

3. Conducts utilization review activities exclusively for work related injuries and illnesses covered under the workers' compensation laws in title 23.

4. Conducts utilization review activities exclusively for a self-funded or self-insured employee benefit plan if the regulation of that plan is preempted by section 514(b) of the employee retirement income security act of 1974 (29 United States Code section 1144(b)).

C. A utilization review agent shall conduct utilization review in accordance with the agent's utilization review plan that is on file with the department pursuant to section 20-2505 and in accordance with section 20-2532.

§ 20-2503 Utilization review standards; applicability; definition

A. The utilization review standards established in this chapter apply to prospective, concurrent and retrospective utilization review for:

1. Inpatient admissions to hospitals and other inpatient facilities.

2. Outpatient admissions to surgical facilities.

3. Outpatient surgical services provided in a health care provider's office.

4. Medical, surgical and health care services that may be covered by a health care insurer depending on determinable contingencies, including without limitation outpatient services, in-office consultations with medical specialists, specialized diagnostic testing, mental health services, emergency care and inpatient and outpatient hospital services.

B. For purposes of this section "inpatient admissions" includes inpatient admissions to all acute medical, surgical, obstetrical, psychiatric and chemical dependency inpatient services at a licensed hospital or other inpatient facility.

§ 20-2504 Utilization review agents; certification; rules

A. The director shall issue a certificate to a utilization review agent that meets all of the requirements of this chapter and all applicable rules. A utilization review agent shall submit a signed and notarized application on a form prescribed by the director.

B. A certificate is not transferable.

C. The director may adopt rules consistent with the requirements of this chapter.

D. Except as provided in section 20-2532, information required by the department with respect to customers, patients or utilization review plans is confidential and is not open to public inspection.

E. The utilization review agent shall pay all certification expenses as provided in section 20-2506.

§ 20-2505 Application for certification

A utilization review agent applying for a certificate shall submit the following information to the department:

1. A signed and notarized application on a form prescribed by the director.

2. A utilization review plan that includes a summary description of review guidelines, protocols and procedures, standards and criteria to be used in evaluating inpatient hospital care, inpatient medical care, outpatient surgical care and any medical, surgical and health care services that may be covered by a health care insurer and the provisions by which patients, providers or hospitals may seek reconsideration or appeal of decisions made by the utilization review agent.

3. The professional qualifications of the personnel either employed or under contract to perform the utilization review. Personnel conducting utilization review shall have current licenses that are in good standing and without restrictions from a state health care professional licensing agency in the United States and may be a member of a profession that practices inpatient hospital or outpatient surgical care.

4. A description of the policies and procedures that ensure that a representative of the utilization review agent is available to receive and send the notice and acknowledgments prescribed in article 2 of this chapter and is reasonably accessible to patients and providers in this state and the department by a toll free telephone line or by acceptance of long-distance collect calls for forty hours each week during normal business hours.

5. A description of the policies and procedures that ensure that the utilization review agent will follow applicable state and federal laws to protect the confidentiality of individual medical records.

6. A copy of the materials or a description of the procedure designed to inform patients and providers, as appropriate, of the requirements of the utilization review plan.

§ 20-2506 Certification; responsibilities of department; cost recovery

A. The director shall examine the affairs, transactions, accounts and records of each utilization review agent before issuing an initial certificate and as often as the director deems it necessary in order to determine if a utilization review agent is in compliance with this chapter. The department shall not make any determination of quality of care, appropriateness of utilization review recommendations or medical necessity relating to any plan of care or treatment.

B. All examination and examination related expenses shall be charged to the utilization review agent and shall be paid by the director out of the insurance examiners' revolving fund in accordance with section 20-159.

C. The director may use independent contract examiners pursuant to sections 20-148 and 20-149 to perform the examinations under this section.

D. Any expenses of examinations not paid by the utilization review agent within thirty days of the billing of the examination expenses shall be paid by the health care insurer that used the services or that contracted with the utilization review agent. If more than one health care insurer used the services of or contracted with a utilization review agent each health care insurer shall pay an equal share of the uncollected expenses.

§ 20-2507 Certificates; renewal

A. A certificate expires on the third anniversary of its effective date unless the certificate is renewed for a three year term as provided in this section.

B. A certificate holder may renew an unexpired certificate for an additional three year term if the certificate holder meets the requirements of this chapter.

§ 20-2508 Denial, suspension or revocation of certificates; hearing; civil penalties

A. The director shall deny a certificate if the director finds that the utilization review agent does not:

1. Have an allopathic or osteopathic physician available to supervise utilization review activities of any medical, surgical or health care services except that:

(a) A dental service corporation that is licensed pursuant to chapter 4, article 3 of this title and a prepaid dental plan organization that is licensed pursuant to chapter 4, article 7 of this title may have a licensed dentist supervise or conduct utilization review activities for health care services that involve dental care.

(b) An optometric service corporation that is licensed pursuant to chapter 4, article 3 of this title may have a licensed optometrist supervise or conduct utilization review activities for health care services that involve optometric care.

(c) A utilization review agent shall have a licensed chiropractor supervise or conduct utilization review activities for health care services that are performed by a chiropractor and within the chiropractor's scope of practice pursuant to title 32, chapter 8.

2. Meet all applicable department rules relating to the qualifications of utilization review agents or the performance of utilization review.

3. Provide assurances satisfactory to the director that the procedure and policies of the utilization review agent will protect the confidentiality of medical records and the utilization review agent will be reasonably accessible to patients and providers in this state and the department by a toll free telephone line or by acceptance of long-distance collect calls for forty hours each week during normal business hours.

B. The director shall deny a certificate to a utilization review agent who has been convicted of a misdemeanor involving moral turpitude or a felony or who employs a person who has been convicted of a felony.

C. The director may suspend, revoke or refuse to renew a certificate issued under this chapter if after giving notice to the utilization review agent, and holding a hearing if demanded by the agent, the director finds that the agent has violated this chapter or a rule adopted under this chapter.

D. If after a hearing the director finds that the agent has violated this chapter or an applicable rule or order adopted under this chapter, the director shall issue an order that specifies the violation and may impose a civil penalty of not more than two hundred fifty dollars for each violation or an aggregate civil penalty of not more than two thousand five hundred dollars. The director may also impose a civil penalty of not more than two thousand five hundred dollars for each knowing violation or an aggregate civil penalty of not more than fifteen thousand dollars. The director shall deposit, pursuant to sections 35-146 and 35-147, all monies in the state general fund. A civil penalty is in addition to any other applicable penalty or restraint provided in this chapter and may be recovered in a civil action brought by the director.

E. A certificate does not expire or terminate until a pending department investigation is resolved but is suspended on the date it would otherwise expire or terminate. The utilization review agent shall not transact business in this state until the investigation is completed.

F. When the director suspends or revokes a certificate the director shall immediately notify the utilization review agent either by personal service or by mail addressed to the agent at the agent's address of record. Notice by mail is effective at the time it is mailed.

G. The utilization review agent shall deliver a revoked or suspended certificate to the director on the director's request.

H. The director shall not issue a new certificate earlier than one year after the date of a previous revocation. Agents shall reapply to the director and shall meet all the requirements of this chapter to obtain a new certificate.

I. If the certificate of a firm or corporation is suspended or revoked, no member of that firm or officer or director of the corporation may hold a certificate during the period of the suspension or revocation unless the director determines, based on substantial evidence, that the member, officer or corporation director was not personally at fault.

§ 20-2509 Confidentiality

A. A utilization review agent shall file with the director written procedures for assuring that patient information it obtains during the process of utilization review is maintained as confidential in accordance with applicable federal and state laws, is used solely for the purposes of utilization review, quality assurance, discharge planning and catastrophic case management and is shared only with agencies authorized by the patient in writing and on a form prescribed by the director to receive the information. Summary data are not confidential if the data do not provide sufficient information to allow identification of individual patients. This subsection does not permit a person to obtain information without complying with other requirements of this title.

B. A utilization review agent shall comply with all applicable state and federal laws relating to the confidentiality of medical records.

§ 20-2510 Health care insurers requirements; medical directors

A. A health care insurer that proposes to provide coverage of inpatient hospital and medical benefits, outpatient surgical benefits or any medical, surgical or health care service for residents of this state with utilization review of those benefits shall meet at least one of the following requirements:

1. Have a certificate issued pursuant to this chapter.

2. Be accredited by the utilization review accreditation commission, the national committee for quality assurance or any other nationally recognized accreditation process recognized by the director.

3. Contract with a utilization review agent that has a certificate issued pursuant to this chapter.

4. Contract with a utilization review agent that is accredited by the utilization review accreditation commission, the national committee for quality assurance or any other nationally recognized accreditation process recognized by the director.

5. Provide to the director a signed and notarized statement that the health care insurer has submitted an application for accreditation to the utilization review accreditation commission or the national committee for quality assurance and is awaiting completion of the accreditation review process. On completion of the accreditation review process, the insurer shall provide to the director adequate proof that the insurer has been accredited. If the insurer is denied accreditation, within sixty days after the denial the insurer shall meet at least one of the requirements set forth in paragraph 1, 2, 3 or 4 of this subsection.

B. Except as provided in subsections C, D and E of this section, any direct denial of prior authorization of a service requested by a health care provider on the basis of medical necessity by a health care insurer shall be made in writing by a medical director who holds an active unrestricted license to practice medicine in this state pursuant to title 32, chapter 13 or 17. The written denial shall include an explanation of why the treatment was denied. The health care insurer shall send a copy of the written denial to the health care provider who requested the treatment. Health care insurers shall maintain copies of all written denials and shall make the copies available to the department for inspection during regular business hours. The medical director is responsible for all direct denials that are made on the basis of medical necessity. Nothing in this section prohibits a health care insurer from consulting with a licensed physician whose scope of practice may provide the health care insurer with a more thorough review of the medical necessity.

C. For determinations made pursuant to subsection B of this section, a dental service corporation as defined in section 20-822 or a prepaid dental plan organization as defined in section 20-1001 may use as a medical director either:

1. An individual who holds an active unrestricted license to practice dentistry in this state pursuant to title 32, chapter 11.

2. A physician who holds an active unrestricted license to practice medicine in this state pursuant to title 32, chapter 13 or 17.

D. For determinations made pursuant to subsection B of this section, an optometric service corporation may use as a medical director either:

1. An individual who holds an active unrestricted license to practice optometry in this state pursuant to title 32, chapter 16.

2. A physician who holds an active unrestricted license to practice medicine in this state pursuant to title 32, chapter 13 or 17.

E. For determinations made pursuant to subsection B of this section, a health care insurer shall use a chiropractor licensed in this state pursuant to title 32, chapter 8 or by any regulatory board in another state to review any direct denial of prior authorization of a chiropractic service requested by a chiropractor on the basis of medical necessity.

§ 20-2511 Violation; injunctive relief

If the director believes that a utilization review agent is violating or is about to violate section 20-2502, the director may order the agent to cease and desist. The director through the attorney general may file a complaint in the superior court in the county in which the agent transacts utilization review business to enjoin and restrain the agent from committing or continuing the violation. If the director orders the utilization review agent to cease and desist, the agent may request a hearing pursuant to title 41, chapter 6, article 10 and, except as provided in section 41-1092.08, subsection H, seek judicial review pursuant to title 12, chapter 7, article 6. If the director files a complaint through the attorney general the superior court has jurisdiction of the proceeding and may make and enter an order or judgment awarding preliminary or final relief as in its judgment is proper.

Article 2 Health Care Appeals

§ 20-2530 Definitions

For the purposes of this article:

1. "Member" means a person who is covered under a health care plan provided by a health care insurer or that person's treating provider, parent, legal guardian, surrogate who is authorized to make health care decisions for that person by a power of attorney, a court order or the provisions of section 36-3231, or agent who is an adult and who has the authority to make health care treatment decisions for that person pursuant to a health care power of attorney.

2. "Utilization review agent" means those persons and entities that perform utilization review as defined in section 20-2501 and includes any health care insurer whose utilization review plan includes the direct or indirect denial of requested medical or health care services or the denial of claims.

§ 20-2531 Applicability; requirements; exception

A. Notwithstanding article 1 of this chapter and subject to subsection B of this section, this article applies to all utilization review decisions made by utilization review agents and health care insurers operating in this state.

B. Each utilization review agent and each health care insurer operating in this state whose utilization review system includes the power to affect the direct or indirect denial of requested medical or health care services or claims for medical or health care services shall adopt written utilization review standards and criteria and processes for the review, reconsideration and appeal of denials that do all of the following:

1. Meet the requirements of this article.

2. Are consistent with chapter 1 of this title.

3. Comply with section 20-2505, paragraphs 2 through 6.

C. This article does not apply to utilization review:

1. Performed under contract with the federal government for utilization review of patients eligible for all services under title XVIII of the social security act.

2. Performed by a self-insured or self-funded employee benefit plan or a multiemployer employee benefit plan created in accordance with and pursuant to 29 United States Code section 186(c) if the regulation of that plan is preempted by section 514(b) of the employee retirement income security act of 1974 (29 United States Code section 1144(b)), but this article does apply to a health care insurer that provides coverage for services as part of an employee benefit plan.

3. Of work related injuries and illnesses covered under the workers' compensation laws in title 23.

4. Performed under the terms of a policy that pays benefits based on the health status of the insured and does not reimburse the cost of or provide covered services.

5. Performed under the terms of a long-term care insurance policy as defined in section 20-1691.

6. Performed under the terms of a medicare supplement policy as defined by the department.

D. This article does not create any new private right or cause of action for or on behalf of any member. This article provides only an administrative process for a member to pursue an external independent review of a denial for a covered service or claim for a covered service.

E. Utilization review activities involving retrospective claims review are limited to the provisions of this article only as clearly and specifically provided in the provisions of this article.

F. The processes available under this article do not apply to a denial of a nonformulary exception request that was appealed pursuant to 45 Code of Federal Regulations section 156.122(c). A provider or enrollee may appeal a denial of a nonformulary exception for a plan covered by 45 Code of Federal Regulations section 156.122(c) through the process prescribed in the federal rule.

§ 20-2532 Utilization review standards and criteria; requirements

A. Each utilization review agent shall:

1. Adopt a written utilization review plan with standards and criteria that apply to all utilization review determinations and that are objective, clinically valid and compatible with established principles of health care.

2. Establish the utilization review plan with input from physician advisors who represent major medical specialties and who are certified or board eligible under the standards of the appropriate American medical specialty board.

3. Include in the adopted utilization review plan a process for prompt initial reconsideration of an adverse determination and a process for appeals that meet the requirements of this article. This paragraph does not apply to utilization review activities limited to retrospective claims review.

B. Deviations from the written standards and criteria in the utilization review plan are allowed if the utilization review agent determines that the member and other members with similar symptoms and diagnoses would materially benefit from new treatments available because of medical or technological advances made since the adoption of the utilization review plan and made in accordance with accepted medical standards. This subsection does not apply to utilization review activities limited to retrospective claims review. Nothing in this subsection creates a private right or cause of action against a health care insurer or utilization review agent for failure to deviate from the utilization review plan.

C. A health care insurer who uses the services of an outside utilization review agent shall adopt a utilization review plan pursuant to subsections A and B of this section. The utilization review plan adopted and filed by the health care insurer who uses the services of an outside utilization review agent is deemed adopted by that utilization review agent.

D. A health care insurer who uses the services of an outside utilization review agent is responsible for the utilization review agent's acts that are within the scope of the written and filed utilization review plan, including the administration of all patient claims processed by the utilization review agent on behalf of the health care insurer.

E. Each utilization review agent shall file a notice with the director that provides a specific description and the published date of the source of the written standards and criteria of the utilization review plan and that certifies that the utilization review plan in use complies with the requirements of this section, is available for review and inspection at a designated location in this state or at an office accessible to authorized representatives of the director in another state and is the complete utilization review plan with all standards and criteria on which utilization review decisions are based. A copy of any portion of the utilization review plan on which any adverse determinations have been based shall be made before the effective date of any modification and the utilization review agent shall retain a copy at the designated location for review and inspection for a period of five years after the date of the modification. If at any time a complete change in the written standards and criteria occurs, the utilization review agent shall file a new certification notice with the director.

F. On or before March 1 of each year after the year in which the utilization review agent filed the notice prescribed in subsection E of this section, the utilization review agent or the agent's successor shall submit a signed and notarized annual report to the director that includes the designated location for review and inspection by the director or the director's authorized representative and that certifies that:

1. The utilization review plan and all modifications remain in compliance with the requirements of this section.

2. The utilization review agent will conduct all utilization reviews in accordance with the plan.

3. All adverse determinations made in the prior year were based on the plan in effect on the date of those adverse determinations.

G. On written request, the utilization review agent shall provide copies to any member or the member's treating provider of:

1. Those portions of the utilization review agent's utilization review plan that are relevant to the request for a covered service or claim for a covered service.

2. The protocols or guidelines that were used if the standards and criteria adopted are based on protocols or guidelines developed by an American medical specialty board.

H. Any person who requests records pursuant to subsection G of this section shall direct the request to the utilization review agent and not to the department.

I. If the utilization review plan is copyrighted by a person other than the utilization review agent, the health care insurer shall make a good faith effort to obtain permission from that person to make copies of the relevant material. If the health care insurer is unable to secure copyright permission, the utilization review agent shall provide a detailed summary of the relevant portions of the utilization review plan.

J. Health care insurers having utilization review activities limited to retrospective claims review shall be required to adopt only those procedures and sources of review that are traditionally associated with and necessary for retrospective claims review.

§ 20-2533 Denial; levels of review; disclosure; additional time after service by mail; review process

A. No minimum dollar amount may be imposed on any claim that is the subject of an adverse determination for a member to, and any member who receives an adverse determination may, pursue the applicable review process prescribed in this article. Except as provided in sections 20-2534 and 20-2535, health care insurers shall provide at least the following levels of review, as applicable:

1. An expedited medical review and expedited appeal pursuant to section 20-2534.

2. An initial appeal pursuant to section 20-2535.

3. An external independent review pursuant to section 20-2537.

B. For group plans, and for grandfathered individual plans, a health care insurer may elect to offer a voluntary internal appeal pursuant to section 20-2536 as an additional internal level of review after a determination of an initial appeal.

C. For individual plans and group plans for which the health care insurer does not elect to offer a voluntary internal appeal as an internal level of review, the health care insurer shall:

1. With the exception of a denial of a claim for service that has already been provided, send the member a written determination within thirty days after the health care insurer receives the appeal request.

2. For a denial of a claim for service that has already been provided, send the member a written determination within sixty days after the health care insurer receives the appeal request.

D. A health care insurer that elects to offer a voluntary internal appeal for the health care insurer's group plans shall:

1. With the exception of a denial of a claim for service that has already been provided, send the member a written determination within fifteen days after the health care insurer receives the initial appeal request and within fifteen days after the health care insurer receives the voluntary internal appeal request.

2. For a denial of a claim for a service that has already been provided, send the member its written determination within thirty days after the health care insurer receives the health care insurer receives the initial appeal request and within thirty days after the health care insurer receives the voluntary internal appeal request.

E. A health care insurer shall provide a written determination as required by this section and include the basis, criteria used, clinical reasons and rationale for the determination.

F. Except as provided in sections 20-2534 and 20-2537, a member shall be considered to have exhausted a health care insurer's internal levels of review if the health care insurer fails to comply with this article, except to the extent that the member requested or agreed to the delay, and the member may simultaneously initiate an expedited external independent review.

G. Notwithstanding subsection A, paragraph 2 of this section, a health care insurer may waive the internal appeal process.

H. At the time coverage is initiated, each health care insurer that operates in this state and whose utilization review system includes the power to affect the direct or indirect denial of requested medical or health care services or claims for medical or health care services shall include a separate information packet that is approved by the director with the member's policy, evidence of coverage or similar document. At the time coverage is renewed, each health care insurer shall include a separate statement with the member's policy, evidence of coverage or similar document that informs the member that the member can obtain a replacement packet that explains the appeal process by contacting a specific department and telephone number. A health care insurer shall also provide a copy of the information packet to the member or the member's treating provider on request and shall prominently display a copy of the approved information packet on its website. The information packet provided by the health care insurer shall include all of the following information:

1. A detailed description and explanation of each level of review prescribed in subsections A and B of this section and notice of the member's right to proceed to the next level of review if the prior review is unsuccessful.

2. An explanation of the procedures that the member must follow, including the applicable time periods, for each applicable level of review prescribed in subsections A, B, C and D of this section and an explanation of how the member may obtain the member's medical records pursuant to title 12, chapter 13, article 7.1.

3. The specific title and department of the person and the address, telephone number and fax number or email address of the person whom the member must notify at each applicable level of review prescribed in subsections A and B of this section in order to pursue that level of review.

4. The specific title and department of the person and the address, telephone number and fax number or email address of the person who will be responsible for processing that review.

5. A notice that if the member decides to pursue an appeal the member must provide the person who will be responsible for processing the appeal with any material justification or documentation for the appeal at the time that the member files the written appeal.

6. A description of the utilization review agent's and health care insurer's roles at each applicable level of review prescribed by subsections A, B, C and D of this section and an outline of the director's role during the external independent review process, if not already described in response to paragraph 1 of this subsection.

7. A notice that if the member participates in the process of review pursuant to this article the member waives any privilege of confidentiality of the member's medical records regarding any person who examined or will examine the member's medical records in connection with that review process for the medical condition under review.

8. A statement that the member is not responsible for the costs of any external independent review.

9. Standardized forms that are prescribed by the department and that a member may use to file and pursue an appeal.

10. The name and telephone number for the department of insurance and financial institutions consumer assistance office with a statement that the department of insurance and financial institutions consumer assistance office can assist consumers with questions about the health care appeals process.

I. At the time of issuing a denial, the health care insurer shall notify the member of the right to appeal under this article. A health care insurer that issues an explanation of benefits document shall satisfy this obligation by prominently displaying in the document a statement about the right to appeal. A health care insurer that does not issue an explanation of benefits document shall satisfy this obligation through some other reasonable means to assure that the member is apprised of the right to appeal at the time of a denial. A reasonable means that includes giving the member's treating provider a form statement about the right to appeal shall require the treating provider to notify the member of the member's right to appeal.

J. Any written notice, acknowledgment, request, determination or other written document that is sent by mail is deemed received by the person to whom the document is properly addressed on the fifth business day after mailing.

K. The director shall require any member who files a complaint with the department relating to an adverse determination to pursue the review process prescribed in this article. This subsection does not limit the director's authority pursuant to chapter 1, article 2 of this title.

L. If the member's complaint involves an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational under the coverage document and not whether the claim or service is covered, the initial appeal process shall be performed as prescribed by section 20-2535 by a licensed health care professional. If the member's complaint involves an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational under the coverage document and not whether the claim or service is covered, the expedited review or voluntary internal appeal shall be decided by a physician, provider or other health care professional as prescribed by section 20-2534 or 20-2536. Any external independent review shall be decided by a physician, provider or other health care professional as prescribed by section 20-2537.

M. Before a health care insurer makes a final internal adverse determination that relies on new or additional evidence generated directly or indirectly by the health care insurer, the health care insurer shall provide the new or additional information to the member free of charge sufficiently in advance of the final adverse determination to allow the member a reasonable opportunity to respond within the applicable time frames for the health care insurer to provide the member with a written determination prescribed in subsections C and D of this section.

N. Any person given access to a member's medical records or other medical information in connection with proceedings pursuant to this article shall maintain the confidentiality of the records or information in accordance with title 12, chapter 13, article 7.1.

§ 20-2534 Expedited medical review; expedited appeal

A. Except for a denial of a claim for service or a rescission of coverage, any member who receives an adverse determination may pursue an expedited medical review of that denial if the member's treating provider certifies in writing and provides supporting documentation to the utilization review agent that the time period for the initial appeal process prescribed in section 20-2535 and, if applicable, the voluntary internal appeal process prescribed in section 20-2536 are likely to cause a significant negative change in the member's medical condition at issue that is subject to the appeal. The treating provider's certification is not challengeable by the health care insurer. A health care insurer whose utilization review activities consist only of claims review for services already provided is not required to provide its members an expedited medical review or expedited appeal pursuant to this section. A health care insurer who conducts utilization review of claims in connection with services already provided is not required to provide its members an expedited medical review or expedited appeal of a claim related to a service already provided.

B. On receipt of the certification and supporting documentation, the utilization review agent has seventy-two hours to make a determination and send to the member and the member's treating provider a notice of that determination, including the basis, criteria used, clinical reasons and rationale for that determination and any references to supporting documentation. If the member's complaint involves an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational under the coverage document and not whether the service is covered, before making a determination, the agent shall consult with a physician or other health care professional who is licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an out-of-state provider, physician or other health care professional who is licensed in another state and who is not licensed in this state and who typically manages the medical condition under review.

C. If the utilization review agent affirms the denial of the requested service, the agent shall telephonically provide and send to the member and the member's treating provider a notice of the adverse determination and of the member's option to immediately proceed to an expedited appeal pursuant to subsection E of this section.

D. At any time during the expedited appeal process, the utilization review agent may request an expedited external independent review pursuant to section 20-2537. If the utilization review agent initiates an expedited external independent review, the utilization review agent does not have to comply with subsection E of this section.

E. If the member chooses to proceed with an expedited appeal, the member's treating provider shall immediately submit a written appeal of the denial of the service to the utilization review agent and provide the utilization review agent with any additional material justification or documentation to support the member's request for the service. Within three business days after receiving the request for an expedited appeal, the utilization review agent shall provide notice of the expedited appeal determination as prescribed in this subsection. If the member's complaint involves an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational under the coverage document and not whether the service is covered, the utilization review agent shall select a provider who shall review the appeal and render the determination based on the utilization review plan adopted by the utilization review agent. If the utilization review agent or provider denies the expedited appeal, the utilization review agent shall telephonically provide and send to the member and the member's treating provider a notice of the denial and of the member's option to immediately proceed to the external independent review prescribed in section 20-2537. For the purposes of this subsection:

1. "Advanced practice registered nurse" means any of the following as defined in section 32-1601:

(a) A certified nurse midwife.

(b) A certified registered nurse anesthetist.

(c) A clinical nurse specialist.

(d) A registered nurse practitioner.

2. "Provider" means either of the following:

(a) A physician or other health care professional who is licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an advanced practice registered nurse who is licensed pursuant to title 32, chapter 15, who is qualified in a similar scope of practice as a physician or other health care professional licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an advanced practice registered nurse who is licensed pursuant to title 32, chapter 15 and who is employed or under contract with the utilization review agent.

(b) An out-of-state physician or other health care professional who is licensed in another state and who is not licensed in this state, who is employed or under contract with the utilization review agent and who either is qualified in a similar scope of practice as a physician or other health care professional licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an advanced practice registered nurse who is licensed pursuant to title 32, chapter 15 or who typically manages the medical condition under appeal.

F. If the utilization review agent, provider, physician or other health care professional concludes that the covered service should be provided, the health care insurer is bound by the utilization review agent's determination.

§ 20-2535 Initial appeal

A. Any member who receives an adverse determination and who does not qualify for an expedited medical review pursuant to section 20-2534 may request, either orally or in writing, an initial appeal of that denial by notifying the person described in section 20-2533, subsection H, paragraph 3. After the denial, the member has up to two years to request an initial appeal.

B. The utilization review agent may request any pertinent medical records pursuant to title 12, chapter 13, article 7.1 that are necessary for the initial appeal.

C. If the member's appeal involves an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational under the coverage document and not whether the service is covered, the utilization review agent shall select a provider to review the appeal and render a determination based on the utilization review plan. For the purposes of this subsection:

1. "Advanced practice registered nurse" means any of the following as defined in section 32-1601:

(a) A certified nurse midwife.

(b) A certified registered nurse anesthetist.

(c) A clinical nurse specialist.

(d) A registered nurse practitioner.

2. "Provider" means either of the following:

(a) A physician or other health care professional who is licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an advanced practice registered nurse who is licensed pursuant to title 32, chapter 15, who is qualified in a similar scope of practice as a physician or other health care professional licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an advanced practice registered nurse who is licensed pursuant to title 32, chapter 15 and who is employed or under contract with the utilization review agent.

(b) An out-of-state physician or other health care professional who is licensed in another state and who is not licensed in this state, who is employed or under contract with the utilization review agent and who either is qualified in a similar scope of practice as a physician or other health care professional licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an advanced practice registered nurse who is licensed pursuant to title 32, chapter 15 or who typically manages the medical condition under appeal.

D. Within the time frames prescribed in section 20-2533, subsections C and D, the utilization review agent shall send to the member and the member's treating provider a notice of the utilization review agent's determination and the basis, criteria used, clinical reasons and rationale for that determination.

E. At any time during the initial appeal process, the utilization review agent may submit a request to the director to initiate an external independent review process pursuant to section 20-2537. At the same time that the utilization review agent submits the request to the director, the utilization review agent shall also render a written determination and shall send the written determination, including the basis, criteria used, clinical reasons and rationale for that determination and any references to supporting documentation, to the member, the member's treating provider and the director.

F. If the utilization review agent does not submit a request to the director pursuant to subsection E of this section and at the conclusion of the initial appeal process the utilization review agent denies the covered service or the claim for the covered service, the utilization review agent shall provide the member and the treating provider with a written statement of the agent's decision and the basis, criteria used, clinical reasons and rationale for that determination, including any references to any supporting documentation. The determination shall include a notice of the option to proceed to the voluntary internal appeal process pursuant to section 20-2536 for a group health plan or grandfathered individual plan for which the health care insurer elected to have a voluntary internal appeal level of review or to an external independent review pursuant to section 20-2537 if the health care insurer has only one internal level of review.

G. If the utilization review agent concludes that the covered service should be provided or the claim for a covered service should be paid, the health care insurer is bound by the utilization review agent's determination.

§ 20-2536 Voluntary internal appeal

A. For a group health plan, or a grandfathered individual plan, if a health care insurer elects to include as part of its internal review levels a voluntary internal appeal level after any applicable initial appeal pursuant to section 20-2535 and the utilization review agent denies the member's initial request, the member may appeal that adverse determination to the voluntary internal appeal level. The member shall send a written appeal to the utilization review agent within sixty days after receipt of the adverse determination.

B. The member or the member's treating provider shall submit to the utilization review agent with the written voluntary internal appeal any material justification or documentation to support the member's request for the service or claim for a service.

C. If the member's appeal involves an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational under the coverage document and not whether the service is covered, the utilization review agent shall select a provider to review the appeal and render a determination based on the utilization review plan adopted by the utilization review agent. For the purposes of this subsection:

1. "Advanced practice registered nurse" means any of the following as defined in section 32-1601:

(a) A certified nurse midwife.

(b) A certified registered nurse anesthetist.

(c) A clinical nurse specialist.

(d) A registered nurse practitioner.

2. "Provider" means either of the following:

(a) A physician or other health care professional who is licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an advanced practice registered nurse who is licensed pursuant to title 32, chapter 15, who is qualified in a similar scope of practice as a physician or other health care professional licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an advanced practice registered nurse who is licensed pursuant to title 32, chapter 15 and who is employed or under contract with the utilization review agent.

(b) An out-of-state physician or other health care professional who is licensed in another state and who is not licensed in this state, who is employed or under contract with the utilization review agent and who either is qualified in a similar scope of practice as a physician or other health care professional Licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 or an advanced practice registered nurse who is licensed pursuant to title 32, chapter 15 or who typically manages the medical condition under appeal.

D. Except as provided in subsection E of this section, the utilization review agent shall send to the member and the member's treating provider a notice of the utilization review agent's determination and the basis, criteria used, clinical reasons and rationale for that determination within the time frames prescribed in section 20-2533, subsection D.

E. At any time during the voluntary internal appeal process, the utilization review agent may request an external independent review process pursuant to section 20-2537. If the utilization review agent initiates the external independent review process, the utilization review agent does not have to comply with subsection d of this section.

F. If at the conclusion of the voluntary internal appeal process the utilization review agent denies the appeal and the utilization review agent does not initiate the external independent review process, the utilization review agent shall provide the member with notice of the option to proceed to an external independent review pursuant to section 20-2537.

G. If the utilization review agent concludes that the covered service should be provided or the claim for a covered service should be paid, the health care insurer is bound by the utilization review agent's determination.

§ 20-2537 External independent review; expedited external independent review

(Conditionally Rpld.)

A. If the utilization review agent denies the member's request for a covered service or claim for a covered service at all applicable internal levels of review or if the member has exhausted the health care insurer's internal levels of review pursuant to section 20-2533, subsection F, the member may initiate an external independent review.

B. Except as provided in subsection N of this section, a member may initiate an external independent review within four months after the member receives written notice by the utilization review agent of an adverse determination made pursuant to section 20-2534 or 20-2536 by sending to the utilization review agent a written request for an external independent review, including any material justification or documentation to support the member's request for the covered service or claim for a covered service.

C. Except as provided in subsection N of this section, within five business days after the utilization review agent receives a request for an external independent review from the member pursuant to subsection B of this section or the director pursuant to subsection J of this section, or if the utilization review agent initiates an external independent review pursuant to section 20-2536, subsection F, the utilization review agent shall:

1. Send a written acknowledgment to the director, the member, the member's treating provider and the health care insurer. The acknowledgement shall include notice to the member that the member has five business days after receiving the notice to submit additional written evidence to the department for consideration by the assigned independent review organization.

2. Forward to the director the request for review, the terms of agreement in the member's policy, evidence of coverage or a similar document and all medical records and supporting documentation used to render the determination pertaining to the member's case, a summary description of the applicable issues including a statement of the utilization review agent's determination, the basis, criteria used, clinical reasons and rationale for that determination, the relevant portions of the utilization review agent's utilization review plan and the name and credentials of the licensed health care provider who reviewed the case as required by section 20-2533, subsection L.

D. Except as provided in subsection N of this section, within five days after the director receives all of the information prescribed in subsection C, paragraph 2 of this section and if the case involves an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational under the coverage document, the director shall choose an independent review organization procured pursuant to section 20-2538 and forward to the organization all of the information required by subsection C, paragraph 2 of this section.

E. Within one business day after the director receives additional written evidence submitted by the member pursuant to subsection C, paragraph 1 of this section, the director shall provide a copy of the evidence to the health care insurer and the independent review organization. The independent review organization shall consider the evidence in making its determination and in its discretion may consider evidence submitted after five business days.

F. Except as provided in subsection N of this section, for cases involving an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational under the coverage document, within twenty-one days after the date of receiving a case for independent review from the director, the independent review organization shall evaluate and analyze the case and, based on all information required under subsection C, paragraph 2 of this section, render a determination that is consistent with the utilization review plan on whether or not the service or claim for the service is medically necessary or appropriate, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational and send the determination to the director.

G. The independent review organization's determination pursuant to subsection F of this section shall be consistent with the utilization review plan and in accordance with the following:

1. The independent review organization reviewer shall consider the following information in rendering a determination, as appropriate and available under the circumstances:

(a) The member's pertinent medical records.

(b) The treating provider's recommendation.

(c) Any consulting report from a health care professional.

(d) Any document submitted by a health care insurer or member.

(e) For claims or requests for services denied for reasons other than as experimental or investigational, the independent review organization shall also consider:

(i) The most appropriate practice guidelines, which shall include applicable evidence-based standards and may include any other practice guidelines developed by the federal government, national or professional medical societies, boards and associations.

(ii) Any applicable clinical review criteria developed and used by the health carrier or its designee utilization review organization.

(iii) The opinion of the independent review organization's clinical reviewer or reviewers after considering subdivisions (a) through (d) and subdivision (e), items (i) and (ii) of this paragraph to the extent the information or documents are available and the clinical reviewer or reviewers consider appropriate.

(f) For claims or requests for services denied as experimental or investigational, the independent review organization shall also consider the terms of coverage under the member's policy with the health care insurer to ensure that except for a health care insurer's determination for an experimental or investigational service, the reviewer's opinion is not contrary to the terms of coverage and any of the following:

(i) Whether the service has been approved by the United States food and drug administration for the condition.

(ii) Whether the medical or scientific evidence or evidence-based standards demonstrate that the expected benefit of the service is more likely than not to be beneficial to the member than any available standard service and that any adverse risk is not substantially increased over adverse risks of available standard services.

2. The independent review organization reviewer's written determination shall include:

(a) A description of the covered person's medical condition.

(b) A description of the indicators relevant to determining whether there is sufficient evidence to demonstrate that the expected benefit of the service is more likely than not to be beneficial to the member than any available standard service and that any adverse risk is not substantially increased over adverse risks of available standard services.

(c) A description and analysis of any medical or scientific evidence considered in reaching the determination.

(d) A description and analysis of any evidence-based standard.

(e) Information on whether the reviewer's rationale for the determination is based on paragraph 1, subdivision (e), items (i) and (ii) of this subsection.

H. Within five business days after receiving a notice of determination from the independent review organization, the director shall send notice of the determination to the utilization review agent, the health care insurer, the member and the member's treating provider. The determination is a final administrative decision pursuant to title 41, chapter 6, article 10 and is subject to judicial review pursuant to title 12, chapter 7, article 6. The health care insurer shall provide any service or pay any claim determined to be covered and medically necessary by the independent review organization for a case under review without delay regardless of whether judicial review is sought.

I. Except as provided in subsection N of this section, for cases involving an issue of coverage, within fifteen business days after receipt of all of the information prescribed in subsection C, paragraph 2 of this section from the utilization review agent, the director shall determine if the service or claim is or is not covered and if the adverse determination made pursuant to section 20-2536 conforms to the utilization review agent's utilization review plan and this article and shall send a notice of determination to the utilization review agent, the health care insurer, the member and the member's treating provider.

J. If the director finds that the case involves a medical issue or is unable to determine issues of coverage, the director shall submit the member's case to the external independent review organization in accordance with subsections F and N of this section.

K. After a determination is made pursuant to subsection F, I, J or N of this section, the appeals and administrative processes are completed and the department's role is ended, except:

1. To transmit, when necessary, a record of the proceedings to superior court or to the office of administrative hearings.

2. To issue a final administrative decision pursuant to section 41-1092.08.

L. Except as provided in subsection N of this section, on written request by the independent review organization, the member or the utilization review agent, the director may extend the twenty-one day time period prescribed in subsection F of this section for up to an additional ten days if the requesting party demonstrates good cause for an extension.

M. A determination made by the director or an independent review organization pursuant to this section is admissible in proceedings involving a health care insurer or utilization review agent.

N. If the utilization review agent denies the member's request for a covered service or claim for a covered service at the expedited medical review level presented and resolved pursuant to section 20-2534, subsections A and E, denies a health care service for which the member received emergency services but has not been discharged or denies, reduces or terminates coverage for a member's admission, the availability of care, a continued stay for a course of treatment before the end of the period of time or number of treatments recommended by the treating provider, or if a member exhausted or the health care insurer has waived the health care insurer's internal levels of review pursuant to section 20-2533, subsections F and G, the member may initiate an expedited external independent review in accordance with the following:

1. Within four months after the member receives written notice by the utilization review agent of the adverse determination made pursuant to section 20-2534, if the member decides to initiate an external independent review, the member shall send to the utilization review agent a written request for an expedited external independent review, including any material justification or documentation to support the member's request for the covered service or claim for a covered service. For an adverse determination involving an experimental or investigational service, a member may make an oral request if the member's treating physician certifies in writing that the recommended service or treatment would be significantly less effective if not promptly initiated.

2. Within one business day after the utilization review agent receives a request for an expedited external independent review from the member pursuant to this subsection or if the utilization review agent initiates an expedited external independent review pursuant to section 20-2534, subsection D, the utilization review agent shall:

(a) Send a written acknowledgment to the director, the member, the member's treating provider and the health care insurer.

(b) Forward to the director the request for an expedited independent external review, the terms of agreement in the member's policy, evidence of coverage or a similar document and all medical records and supporting documentation used to render the determination pertaining to the member's case, a summary description of the applicable issues including a statement of the utilization review agent's determination, the basis, criteria used clinical reasons and rationale for that determination, the relevant portions of the utilization review agent's utilization review plan and the name and credentials of the licensed health care provider who reviewed the case as required by section 20-2534, subsection B.

3. Within two business days after the director receives all of the information prescribed in this subsection and if the case involves an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational, the director shall choose an independent review organization procured pursuant to section 20-2538 and forward to the organization all of the information required by this subsection.

4. For cases involving an issue of medical necessity or appropriateness, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational, within seventy-two hours from the date of receiving a case for expedited external independent review from the director, the independent review organization shall evaluate and analyze the case and, based on all information required under subsection C, paragraph 2 of this section, render a determination that is consistent with the utilization review plan on whether or not the service or claim for the service is medically necessary or appropriate, including health care setting, level of care or effectiveness of a covered benefit, or is experimental or investigational and send the determination to the director. Within one business day after receiving a notice of determination from the independent review organization, the director shall send a notice of the determination to the utilization review agent, the health care insurer, the member and the member's treating provider. The determination by the independent review organization is a final administrative decision pursuant to title 41, chapter 6, article 10 and, except as provided in section 41-1092.08, subsection H, is subject to judicial review pursuant to title 12, chapter 7, article 6. The health care insurer shall provide any service or pay any claim determined to be covered and medically necessary by the independent review organization for the case under review regardless of whether judicial review is sought.

5. For cases involving an issue of coverage, within two business days after receipt of all of the information prescribed in subsection C of this section from the utilization review agent, the director shall determine if the service or claim is or is not covered and if the adverse determination made pursuant to section 20-2534 conforms to the utilization review agent's utilization review plan and this article and shall send a notice of determination to the utilization review agent, the health care insurer, the member and the member's treating provider.

O. Notwithstanding title 41, chapter 6, article 10 and section 12-908, if a party to a decision issued under this section seeks further administrative review, the department shall not be a party to the action unless the department files a motion to intervene in the action.

P. The independent review organization, the director or the office of administrative hearings may not order the health care insurer to provide a service or to pay a claim for a benefit or service that is excluded from coverage by the contract.

Q. The health care insurer shall provide any service or pay any claim determined in a final administrative decision to be covered and medically necessary for the case under review regardless of whether judicial review is sought. Any proceedings before the office of administrative hearings that involve an expedited external independent review and that are subject to subsection N of this section shall be promptly instituted and completed.

§ 20-2538 Independent review organizations

A. Pursuant to title 41, chapter 23, the director shall procure as many independent review organizations as necessary and practicable to perform the independent medical reviews described in section 20-2537.

B. Through the procurement process the director shall ensure that any procured independent review organization uses physicians or other health care professionals who are licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 17, 19, 19.1 or 29 or out of state physicians or other health care professionals who are licensed in another state and who are not licensed in this state, who are board certified or board eligible by the appropriate American medical specialty board and who are in the same or a similar scope of practice as a physician or another health care professional who is licensed pursuant to title 32, chapter 7, 8, 11, 13, 14, 17, 19, 19.1 or 29 or an out of state physician or another health care professional who is licensed in another state and who is not licensed in this state and who typically manages the medical condition, procedure or treatment under review.

C. The independent review organization and its individual reviewer shall not have a substantial interest in the member, provider or health care insurer involved in the particular case under review or any other conflict of interest that will preclude the reviewer from making a fair and impartial decision. The individual reviewer shall not be a policyholder or insured member of a company whose case is being reviewed.

D. An out of state physician or another health care professional who is licensed in another state and who is not licensed in this state in a field substantially similar to the laws of this state applicable to physicians or other health care professionals who are licensed under title 32, chapter 7, 8, 11, 13, 14, 16, 17, 19, 19.1 or 29 and who are certified or board eligible by the appropriate American medical specialty board may serve as an independent reviewer for the procured independent review organization and that provider's analysis, assessment or decision for the independent review organization does not constitute the practice of medicine or any other health care profession in this state.

E. The director, any procured independent review organization or any independent reviewer acting in good faith is not liable for the analysis, assessment or decision of any case reviewed pursuant to this article.

§ 20-2539 Rules

The director may adopt rules pursuant to title 41, chapter 6 to carry out this article.

§ 20-2540 Health care appeals fund

A. The health care appeals fund is established consisting of monies collected pursuant to subsection B of this section. The fund is a special state fund pursuant to section 35-142, subsection A, paragraph 8. Monies in the fund do not revert to the state general fund. The department shall administer the fund. Monies in the fund are continuously appropriated and are exempt from the provisions of section 35-190 relating to lapsing of appropriations.

B. The director shall charge an appealing member's health care insurer for all amounts owed to the independent review organization, pursuant to subsection C of this section, to decide the member's appeal. The director may assess each health care insurer for administrative costs for implementing and maintaining the external independent review process as prescribed in this section and section 20-2538. The director shall deposit all collected monies in the fund.

C. The director shall use monies in the fund to:

1. Compensate procured independent review organizations for performing independent medical reviews on a per case rate unless the director determines that another method is necessary to carry out the purposes of this article.

2. Perform the responsibilities relating to the procurement of independent review organizations and to implement and maintain the external independent review process.

D. An independent review organization shall submit to the director for approval a detailed invoice consistent with the method of payment prescribed in subsection C of this section.

§ 20-2541 Health care insurer fee

The director may assess each health care insurer that is authorized to transact insurance:

1. A single fee of not more than $200 per insurer.

2. Up to $200 each year for the costs of performing the responsibilities relating to the procurement of independent review organizations as prescribed in sections 20-2537 and 20-2538 and for implementing and maintaining the external independent review process, including processing and paying claims through the health care appeals fund established by section 20-2540. The department is authorized one full-time equivalent position to perform these responsibilities.

§ 20-2542 Recordkeeping

A health care insurer and an independent review organization shall maintain all records related to internal and external appeals and exception requests for at least three years after the completion of the appeals process or exception request process.

Chapter 16 Variable Life Products

Article 1 Variable Life Insurance

§ 20-2601 Definitions

In this chapter, unless the context otherwise requires:

1. "Affiliate" means a person who directly or indirectly controls, is controlled by or is under common control with an insurer, a person who for a specific fee or commission regularly furnishes investment advice to an insurer with respect to the insurer's separate accounts or a director, officer, partner or employee or a member of the immediate family of a director, officer, partner or employee of an insurer, controlling or controlled person or person providing investment advice.

2. "Assumed investment rate" means the rate of investment return that is required to be credited to a variable life insurance policy, after the deduction of charges for taxes, investment expenses and mortality and expense guarantees, to maintain the variable death benefit in an amount that is equal at all times to the amount of the death benefit, other than incidental insurance benefits, that would be payable under the plan of insurance if the death benefit did not vary according to the investment experience of the separate account.

3. "Benefit base" means the amount to which the net investment return is applied.

4. "Control" or "controlling" has the same meaning prescribed in section 20-481 and includes the terms "controlled by" and "under common control with".

5. "Flexible premium policy" means a variable life insurance policy other than a scheduled premium policy.

6. "General account" means all of the assets of an insurer other than assets in separate accounts established pursuant to section 20-651 or the insurance laws of the insurer's state of domicile if the insurer is a foreign or alien insurer.

7. "Incidental insurance benefit" means all of the insurance benefits in a variable life insurance policy except the variable death benefit and the minimum death benefit. Incidental insurance benefit includes accidental death and dismemberment benefits, disability benefits, guaranteed insurability options, family income or term riders.

8. "Insurance producer" means any person, corporation, partnership, or other legal entity that is licensed by this state as a life insurance producer.

9. "Minimum death benefit" means the amount of the guaranteed death benefit, except incidental insurance benefits, that is payable under a variable life insurance policy regardless of the investment performance of the separate account.

10. "Net investment return" means the rate of investment return in a separate account that is applied to the benefit base.

11. "Policy processing day" means the day on which the charges that are authorized in a policy are deducted from the policy's cash value.

12. "Scheduled premium policy" means a variable life insurance policy under which both the amount and timing of premium payments are fixed by the insurer.

13. "Separate account" means a separate account established pursuant to section 20-651 or the insurance laws of the insurer's state of domicile if the insurer is a foreign or alien insurer.

14. "Variable death benefit" means the amount of the death benefit, except incidental insurance benefits, that is payable under a variable life insurance policy, that is dependent on the investment performance of the separate account and that the insurer must pay in the absence of any minimum death benefit.

15. "Variable life insurance policy" means an individual policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts that are established and maintained by the insurer pursuant to section 20-651 or the insurance laws of the insurer's state of domicile if the insurer is a foreign or alien insurer.

§ 20-2602 Requirements applicable to insurers issuing variable life insurance

A. An insurer shall not deliver or issue for delivery in this state a variable life insurance policy unless all of the following apply:

1. The insurer is licensed to transact life insurance business in this state.

2. The director gives written approval to the insurer for the issuance of variable life insurance policies in this state. The director shall grant the written approval only after finding that:

(a) The plan of operation for the issuance of variable life insurance policies is not unsound.

(b) The general character, reputation and experience of the management and those persons or firms that the insurer proposes to supply consulting, investment, administrative or custodial services to the insurer will reasonably result in the competent operation of the variable life insurance business of the insurer in this state.

(c) The financial condition of the insurer and its method of operation in connection with the issuance of variable life policies is not likely to harm the public or its policyholders in this state. The director shall consider at least the following:

(i) The insurer's history of operation and financial condition.

(ii) The qualifications, fitness, character, responsibility, reputation and experience of the officers, directors and other management personnel of the insurer and of those persons or firms that the insurer proposes to supply consulting, investment, administrative or custodial services to the insurer.

(iii) The applicable law under which the insurer is authorized in its state of domicile to issue variable life insurance policies. The state of entry of an alien insurer is deemed to be its state of domicile.

(iv) If the insurer is a subsidiary of or is affiliated by common management or ownership with another company, the insurer's relationship to the other company and the degree to which the requesting insurer and the other company meet these standards.

B. Before delivering or issuing for delivery in this state a variable life insurance policy, an insurer shall file the following information with the director:

1. Copies and a general description of the variable life insurance policies the insurer intends to issue.

2. A general description of the insurer's methods of operation of the variable life insurance business, including the methods of policy distribution and the names of those persons or firms that the insurer proposes to supply consulting, investment, administrative, custodial or distribution services to the insurer.

3. With respect to a separate account that the insurer maintains for any variable life insurance policy, a statement of the investment policy that the issuer intends to follow for the investment of the assets that are held in the separate account and a statement of the procedures for changing the investment policy. The statement of investment policy shall include a description of the investment objectives that are intended for the separate account.

4. A description of any contemplated investment advisory services that satisfies section 20-2606, subsection L.

5. A copy of the statutes and rules of the insurer's state of domicile under which the insurer is authorized to issue variable life insurance policies, unless the insurer is domiciled in this state.

6. A completed national association of insurance commissioners' uniform biographical data form for the officers and directors of the insurer.

7. A statement that is completed by the insurer's actuary and that describes the mortality and expense risks that the insurer will bear under the policy.

8. A statement that describes the method of computation of cash values and other nonforfeiture benefits if not described in the policy.

C. Each insurer that seeks to enter into the variable life insurance business in this state shall establish and maintain a written statement and shall specify in the statement the standards of suitability the insurer will use. The standards of suitability shall specify the following:

1. That an insurer shall not make a recommendation to an applicant to purchase a variable life insurance policy.

2. That a variable life insurance policy shall not be issued if after the insurance producer making the recommendation or the insurer considers the applicant's insurance and investment objectives, financial situation and needs and any other information known to the insurer or the insurance producer, the insurer or insurance producer determines that the purchase of the policy is unsuitable for the applicant.

D. An insurer authorized to transact variable life insurance business in this state shall not use any sales material, advertising material, descriptive literature or other material of any kind in connection with its variable life insurance business in this state that is false, misleading, deceptive or inaccurate. Variable life insurance sales material, advertising material and descriptive literature are subject to section 20-1110, subsection E.

E. A material contract that is entered into between an insurer and a supplier of consulting, investment, administrative, sales, marketing, custodial or other services with respect to variable life insurance operations shall be in writing and shall state that on the director's request the supplier of the services shall furnish to the director any information or reports in connection with the services that would allow the director to determine if the variable life insurance operations of the insurer are being conducted in a manner that is consistent with this article.

§ 20-2603 Reports

A. In addition to any other materials an insurer is required to submit to the director pursuant to this article, an insurer authorized to transact variable life insurance business in this state shall submit the following to the director:

1. An annual statement of the business of its separate account or accounts in a form that the national association of insurance commissioners prescribes.

2. Before its use in this state, any information that the insurer furnishes to applicants pursuant to section 20-2607.

3. Before its use in this state, the form of the reports to policyholders that are prescribed by section 20-2609.

4. Any additional information concerning the insurer's variable life insurance operations or separate accounts as the director deems necessary.

B. The director shall disapprove any material that is submitted under this section that the director finds to be false, misleading, deceptive or inaccurate in any material respect. If the material was previously distributed, the director shall require that the insurer distribute amended material.

C. The director may disapprove any material that is filed with the director if at any time the director finds that the material does not comply with the standards established pursuant to the laws of this state.

§ 20-2604 Variable life insurance policy and filing requirements

A. Except pursuant to chapter 5, article 1 of this title, the director shall not approve a variable life insurance form unless the insurer files with the director its variable life insurance policies, and all riders, endorsements, applications and other documents that are attached to the policy and that relate to the variable nature of the policy, and the director approves each policy before the policy is delivered or issued for delivery in this state. For the purposes of this subsection the procedures and requirements for the filing and approval of variable life insurance policies shall be the same as the filing and approval procedures that apply to other life insurance policies, to the extent those procedures are not inconsistent with this article.

B. A variable life insurance policy that is delivered or issued for delivery in this state shall comply with the following minimum requirements:

1. The insurer shall bear mortality and expense risks. The mortality and expense charges are subject to the maximums stated in the policy.

2. For scheduled premium policies, the insurer shall provide a minimum death benefit in an amount that equals or exceeds the initial face amount of the policy as long as the insured pays the premiums.

3. The policy shall reflect the investment experience of one or more separate accounts that are established and maintained by the insurer. The insurer shall demonstrate that the reflection of investment experience in the variable life insurance policy is actuarially sound.

4. Each variable life insurance policy shall be credited with the full amount of the net investment return that is applied to the benefit base.

5. At least annually the insurer shall determine any changes in the variable death benefits of each variable life insurance policy.

6. At least monthly the insurer shall determine the cash value of each variable life insurance policy. The method of computation of cash values and other nonforfeiture benefits shall be in accordance with actuarial procedures that recognize the variable nature of the policy. If the net investment return that is credited to the policy at all times from the date of issue is equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the policy, the resulting cash values shall not be less than the minimum values that are required by section 20-1231 for a general account policy with these premiums and benefits. The assumed investment rate shall not exceed the maximum interest rate permitted under section 20-1231. If the policy does not contain an assumed investment rate the method of computation shall be based on the maximum interest rate permitted under section 20-1231. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. For the purposes of this paragraph incidental minimum guarantees include a guarantee that the amount payable at death or maturity shall equal or exceed the amount that otherwise would have been payable if the net investment return credited to the policy at all times from the date of issue had been equal to the assumed investment rate.

C. The insurer may base the computation of values that are required for each variable life insurance policy on any reasonable and necessary approximations that the director accepts.

D. Each variable life insurance policy that is filed for approval in this state shall contain at least the following:

1. The cover page or a page that corresponds to the cover page of each policy that:

(a) Prominently states in either a contrasting color or bold-faced type that the amount or duration of the death benefit may be variable or fixed under specified conditions.

(b) Prominently states in either a contrasting color or bold-faced type that cash values may increase or decrease according to the experience of the separate account, subject to any specified minimum guarantees.

(c) Describes any minimum death benefit that is required pursuant to subsection B, paragraph 2 of this section.

(d) Describes the method or refers to the policy provision that describes the method for determining the amount of insurance payable at death.

(e) Informs the policyholder that the policyholder may return the variable life insurance policy within ten days after receiving the policy and receive a refund that equals the sum of:

(i) The difference between the premiums paid and the amounts allocated to any separate accounts under the policy.

(ii) The value of the amounts that are allocated to any separate accounts under the policy on the date the returned policy is received by the insurer or the insurer's insurance producer.

(f) Identifies the owner of the contract.

(g) Includes items that are required for fixed benefit life insurance policies and that are not inconsistent with this article.

2. For scheduled premium policies, a grace period provision of not less than thirty-one days from the premium due date. The grace period shall provide that if the premium is paid within the grace period, the policy values will be the same as if the premium had been paid on or before the due date, except for the deduction of any overdue premium.

3. For flexible premium policies, a grace period provision that begins on the policy processing day on which the total charges that are authorized by the policy and that are necessary to keep the policy in force until the next policy processing day exceed the amounts available under the policy to pay the charges according to the terms of the policy. The grace period shall end on a date not less than sixty-one days after the report to policyholders is mailed pursuant to section 20-2609, paragraph 1. The death benefit that is payable during the grace period shall equal the death benefit that was in effect immediately before the grace period less any overdue charges. If the policy processing days occur monthly, the insurer may require the payment of not more than three times the charges that were due on the policy processing day on which the amounts available under the policy were insufficient to pay all of the charges that are authorized by the policy and that are necessary to keep the policy in force until the next policy processing day.

4. For scheduled premium policies, a reinstatement provision that states that the policy shall be reinstated at any time within two years from the date of default on the occurrence of all of the following:

(a) The written application of the insured and on the presentation of evidence of insurability, including good health, that is satisfactory to the insurer, unless the cash surrender value has been paid or the period of extended insurance has expired.

(b) The payment of any outstanding indebtedness that arose after the end of the grace period following the date of default together with accrued interest on the indebtedness to the date of reinstatement.

(c) Payment of an amount not exceeding the greater of:

(i) All overdue premiums with interest at a rate of not more than six per cent per annum compounded annually and any indebtedness in effect at the end of the grace period following the date of default with interest at a rate of not more than six per cent per annum compounded annually.

(ii) One hundred ten per cent of the increase in cash value resulting from reinstatement plus all overdue premiums for incidental insurance benefits with interest at a rate of not more than six per cent per annum compounded annually.

5. A full description of the benefit base, the method of calculation and the application of any factors that are used to adjust variable benefits under the policy.

6. A provision that designates the separate account to be used and that states both of the following:

(a) The assets of the separate account are available to cover the liabilities of the insurer's general account only to the extent that the assets of the separate account exceed the liabilities of the separate account arising under the variable life insurance policies supported by the separate account.

(b) The assets of the separate account will be valued monthly or more frequently if any policy benefits vary.

7. A provision that specifies what documents constitute the entire insurance contract.

8. The names of the officers who are empowered to make an agreement or representation on behalf of the insurer.

9. The conditions or requirements for the designation or change of designation of a beneficiary and for the disbursement of benefits if a beneficiary is not designated.

10. The conditions of or requirements for the assignment of the policy.

11. A description of policy value adjustments that will be made if the insured misstates the insured's age or sex.

12. A provision that after a policy has been in force for two years the insurer may not contest the policy during the lifetime of the insured. If an increase in the amount of the policy's death benefits occurs after the policy issue date, if the owner applied for or requested the increase and if the increase was subject to satisfactory proof of the insured's insurability, after the increase has been in force for two years, the insurer may not contest the increase during the lifetime of the insured.

13. A statement that the investment policy of the separate account shall not be changed without the approval of the insurance regulatory authority of the insurer's state of domicile and that the approval is on file with the director.

14. A provision that except if variable death benefits are used to pay premiums the payment of variable death benefits in excess of any minimum death benefits, cash values, policy loans or partial withdrawals or the payment of variable death benefits in excess of any partial surrenders may be deferred either:

(a) For up to six months from the date of the request, if the payments are based on policy values that do not depend on the investment performance of the separate account.

(b) For any period during which the New York stock exchange is closed for trading, except for normal holiday closing, or for any period during which the securities and exchange commission determines that a state of emergency exists.

15. If settlement options are provided, that at least one option is provided on a fixed basis only.

16. A description of the basis for computing the cash value and the surrender value under the policy.

17. A statement of the premiums or other charges for incidental insurance benefits.

18. Any other items that are currently required for fixed benefit life insurance policies and that are not inconsistent with this article.

19. A provision for nonforfeiture insurance benefits. The insurer may establish a reasonable minimum cash value below which any nonforfeiture insurance options will not be available.

20. That statements that are made by the insured or on behalf of the insured are representations and not warranties.

E. Except for term insurance policies and pure endowment policies that are delivered or issued for delivery in this state, each variable life insurance policy shall contain loan provisions for policies that have been in force for two full years that are not less favorable to the policyholder than the following:

1. At least seventy-five per cent of the policy's cash surrender value may be borrowed.

2. The amount borrowed bears interest at a rate that does not exceed the rate permitted by this title.

3. Any indebtedness shall be deducted from the proceeds payable on death.

4. Any indebtedness shall be deducted from the cash surrender value on surrender or in determining any nonforfeiture benefit.

5. For scheduled premium policies, if the indebtedness exceeds the cash surrender value, the insurer shall give notice of its intent to cancel the policy if the excess indebtedness is not repaid within thirty-one days after the date on which the notice was mailed. For flexible premium policies, if the total charges that are authorized by the policy and that are necessary to keep the policy in force until the next following policy processing day exceed the amounts available under the policy to pay the charges, the insurer must send the policyholder a report containing the information specified by section 20-2609, paragraph 3.

F. The policy may provide that, as long as the premiums are paid, if, at any time, the variable death benefit is less than it would have been if a loan or withdrawal had not been made, the policyholder may increase the variable death benefit up to the amount it would have been if a loan or withdrawal had not been made. The insured may increase the variable death benefit by paying an amount that does not exceed one hundred ten per cent of the corresponding increase in cash value and by furnishing any evidence of insurability that the insurer requests.

G. The policy may specify a reasonable minimum amount that may be borrowed at any time. The minimum does not apply to any automatic premium loan provision.

H. If the policy is under an extended insurance nonforfeiture option, a policy loan provision is not required.

I. Variable life insurance policyholders who exercise their rights under policy loan provisions shall not be disadvantaged by the exercise of those rights.

J. On the exercise of any policy loan provision, the amounts paid to the policyholder shall be withdrawn from the separate account and shall be returned to the separate account on repayment, except that a stock insurer may provide the amounts for policy loans from the general account.

K. A variable life insurance policy or related form that is delivered or issued for delivery in this state may:

1. Include an exclusion for suicide that occurs within two years of the issue date of the policy. If the owner applies for an increase in death benefits after the policy issue date, the policy may provide an exclusion for suicide that occurs within two years of any increase in death benefits to the extent of the increased death benefits only.

2. Offer incidental insurance benefits on a fixed or variable basis.

3. Offer to pay dividend amounts in cash. In addition, the policies may offer the following dividend options:

(a) The amount of the dividend may be credited against premium payments.

(b) The amount of the dividend may be applied to provide amounts of additional fixed or variable benefit life insurance.

(c) The amount of the dividend may be deposited in the general account at a specified minimum rate of interest.

(d) The amount of the dividend may be applied to provide paid-up amounts of fixed benefit one year term insurance.

(e) The amount of the dividend may be deposited as a variable deposit in a separate account.

4. Allow the policyholder to elect in writing an automatic premium loan on a basis that is not less favorable than that required of policy loans under subsection E of this section. The policy may impose a restriction that no more than two consecutive premiums can be paid under the requirements of this paragraph.

5. Allow the policyholder to make partial withdrawals.

6. Include any other policy provision that the director approves.

§ 20-2605 Reserve liabilities for variable life insurance

A. Reserve liabilities for variable life insurance policies shall be established under section 20-510 according to actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

B. Reserve liabilities for the guaranteed minimum death benefit shall be the reserve amount that is needed to provide for the contingency of death occurring when the guaranteed minimum death benefit exceeds the death benefit that would otherwise be paid in the absence of the guarantee. The insurer shall maintain reserve liabilities in the general account. Reserve liabilities shall not be less than the greater of any of the following minimum reserves:

1. Assuming an immediate one-third depreciation in the current value of the assets in the separate account followed by a net investment return equal to the assumed investment rate, the aggregate total of the term costs on each variable life insurance contract, if any, covering either:

(a) A period of one full year from the valuation date.

(b) If less than the amount under subdivision (a) of this paragraph, the period that is provided for in the guarantee and that is not otherwise provided for by the reserves held in the separate account.

2. The aggregate total of the attained age level reserves on each variable life insurance contract. The attained age level reserve on each variable life insurance contract shall not be less than zero and shall equal the residue of the prior year's attained age level reserve on the contract. Any residue shall be increased or decreased by a payment that is computed on an attained age basis pursuant to subdivision (b) of this paragraph. For the purposes of this paragraph:

(a) The residue of the prior year's attained age level reserve on each variable life insurance contract shall not be less than zero and shall be determined by adding interest at the valuation interest rate to the prior year's reserve, by deducting the tabular claims based on any excess, if any, of the guaranteed minimum death benefit over the death benefit that would be payable in the absence of the guarantee and by dividing the net result by the tabular probability of survival. The excess shall be based on the actual level of death benefits that would have been in effect during the preceding year in the absence of the guarantee and shall take account of the reserve assumptions regarding the distribution of death claim payments over the year.

(b) The payment shall be computed so that the present value of a level payment of that amount each year over the future period for which charges for this risk will be collected under the contract or if no future charges for this risk will be collected under the contract, the payment shall equal (A) minus (B) minus (C). For the purposes of this subdivision:

(i) (A) means the present value of the future guaranteed minimum death benefits.

(ii) (B) means the present value of the future death benefits that would be payable in the absence of the guarantee and that is computed by assuming a net investment return of the separate account that may differ from the assumed investment rate or the valuation interest rate, or both, but that may not exceed the maximum interest rate that is permitted for the valuation of life contracts.

(iii) (C) means any residue as prescribed by subdivision (a) of this paragraph of the prior year's attained age level reserve on the variable life insurance contract.

3. The valuation interest rate and mortality table that are used to compute the guaranteed minimum death benefit and the future death benefit that would be payable in the absence of the guarantee shall conform to permissible standards for the valuation of life insurance contracts. In determining the minimum reserves, the insurer may employ suitable approximations and estimates, including groupings and averages.

C. According to the actuarial procedures appropriate to the benefit, the insurer shall maintain reserve liabilities for all fixed incidental insurance benefits and any guarantees that are associated with variable accidental insurance benefits in the general account and shall maintain reserve liabilities for all variable aspects of the variable incidental insurance benefits in a separate account.

§ 20-2606 Separate accounts

A. A domestic insurer issuing variable life insurance contracts shall establish one or more separate accounts pursuant to section 20-651. The following apply to the establishment of separate accounts:

1. If no law governs the custody of separate account assets and if the insurer is not the custodian of the separate account assets, all contracts for the custody of the assets shall be in writing and the director may review and approve both the terms of a contract and the proposed custodian before the transfer of custody.

2. Without the director's prior written approval, the insurer shall not employ any person in connection with the handling of separate account assets who within the last ten years either:

(a) Was convicted of a felony or a misdemeanor offense involving embezzlement, fraudulent conversion, the misappropriation of funds or securities or a violation of 18 United States Code section 1341, 1342 or 1343.

(b) Was found to have violated or has acknowledged violating any law involving fraud, deceit or knowing misrepresentation.

3. All persons who have access to the cash, securities or other assets of any separate account established pursuant to this chapter shall be under bond in an amount of not less than the following amounts based on the combined assets of the insurer's separate accounts:

Combined assets Minimum amount of bond

Equal to or more than: But less than:

$ 0 $ 100,000 $10,000

100,000 600,000 $10,000 plus 4% of assets

over $100,000

600,000 1,200,000 $30,000 plus 3 1/3% of

assets over $600,000

1,200,000 3,200,000 $50,000 plus 2 1/2% of

assets over $1,200,000

3,200,000 4,450,000 $100,000 plus 2% of assets

over $3,200,000

4,450,000 6,450,000 $125,000 plus 1 1/4% of

assets over $4,450,000

6,450,000 90,450,000 $150,000 plus 5/8% of

assets over $6,450,000

90,450,000 350,450,000 $675,000 plus 3/8% of

assets over $90,450,000

350,450,000 1,070,450,000 $1,650,000 plus 3/16% of

assets over $350,450,000

1,070,450,000 $3,000,000 plus 3/32% of

assets over $1,070,450,000

until the total of the

bonds equals $5,000,000

4. The insurer shall value the assets of the separate accounts at least monthly.

B. The insurer shall maintain in each separate account assets with a value that is at least equal to the greater of the valuation reserves for the variable portion of the variable life insurance policies or the benefit base for the variable life insurance policies.

C. The following apply to investments by the separate account:

1. An insurer or any of its affiliates may not make any sale, exchange or other transfer of assets between any of its separate accounts or between any other investment account and one or more of its separate accounts unless both:

(a) If assets are transferred into a separate account, the transfer is made solely to establish the account or to support the operation of the policies with respect to the separate account to which the transfer is made.

(b) The transfer, whether into or from a separate account, is made by a transfer of cash. The director may approve the transfer of other assets in advance of the transfer.

2. The separate account shall have sufficient net investment income and readily marketable assets to meet anticipated withdrawals under the policies that are funded by the account.

D. Except for securities issued or guaranteed as to principal and interest by the United States, a separate account shall not purchase or otherwise acquire the securities of any issuer if immediately after the purchase or acquisition the value of the investment, together with any prior investments of the account in the security that is valued pursuant to this article, exceeds ten per cent of the value of the assets of the separate account. The director may waive this limitation in writing if the director believes that the waiver will not render the operation of the separate account hazardous to the public or to the policyholders in this state.

E. A separate account shall not purchase or otherwise acquire the voting securities of any issuer if as a result of the purchase or acquisition the insurer and its aggregated separate accounts will own more than ten per cent of the issuer's total issued and outstanding voting securities. The director may waive this limitation in writing if the director believes that the waiver will not render the operation of the separate account hazardous to the public or to the policyholders in this state or jeopardize the independent operation of the issuer of the securities.

F. The ten per cent limitation under subsection D of this section does not preclude the investment of separate account assets in shares of investment companies that are registered pursuant to the investment company act of 1940 (15 United States Code sections 80a-1 through 80a-64) or in other pools of investment assets if the investments and investment policies of the investment companies or asset pools comply substantially with subsection C of this section and with any other applicable provisions under this article.

G. The insurer shall value investments of the separate account at their market value on the date of valuation or at amortized cost if it approximates market value.

H. A domestic insurer shall not change its investment policy of a separate account without first filing the change with the director. A change that is filed pursuant to this subsection is effective sixty days after the date on which it was filed with the director, unless the director notifies the insurer before the end of the sixty day period of the director's disapproval of the proposed change. At any time, after notice and a public hearing, the director may disapprove any change that has become effective. The director may disapprove the change if the director determines that the change would be detrimental to the interests of the policyholders who participate in the separate accounts.

I. Before or contemporaneously with the delivery of the policy, the insurer shall disclose to the insured in writing all charges that may be made against the separate account, including the following:

1. Taxes or reserves for taxes that are attributable to investment gains and income of the separate account.

2. Actual cost of reasonable brokerage fees and similar direct acquisition and sale costs that are incurred in the purchase or sale of separate account assets.

3. Actuarially determined tabular costs of insurance and the release of separate account liabilities.

4. Charges for administrative expenses and investment management expenses, including internal costs that are attributable to the investment management of assets of the separate account.

5. A charge for mortality and expense guarantees at a rate specified in the policy.

6. Any amounts in excess of the amounts that are required to be held in the separate accounts.

7. Charges for incidental insurance benefits.

J. The board of directors of each insurer that seeks approval to enter into the variable life insurance business in this state shall adopt written standards of conduct relating to the purchase or sale of investments of separate accounts. The standards of conduct are binding on the insurer and its officers, directors, employees and affiliates. The adoption of a code of ethics that meets the requirements of section 17j of the investment company act of 1940 satisfies this section.

K. A law that applies to the officers and directors of insurance companies with respect to conflicts of interest also applies to the members of a committee or any other similar body of a separate account.

L. An insurer shall not enter into a contract under which a person for a fee undertakes to regularly furnish investment advice to the insurer with respect to its separate accounts that are maintained for variable life insurance policies unless the contract is in writing, the contract states that the insurer may terminate the contract without penalty to the insurer or the separate account on sixty days' written notice to the investment advisor and one of the following applies:

1. The person who provides the advice is registered as an investment adviser under the investment advisers act of 1940 (15 United States Code sections 80b-1 through 80b-21).

2. The person who provides the advice is an investment manager under the employee retirement income security act of 1974 (29 United States Code sections 1001 through 1461) with respect to the assets of each employee benefit plan that are allocated to the separate account.

3. The insurer has filed with the director and continues to file annually the following information and statements concerning the proposed advisor:

(a) The name and form of the organization, the state of organization and the proposed advisor's principal place of business.

(b) The names and addresses of the proposed advisor's partners, officers and directors and of persons who perform similar functions if the investment advisor is an individual.

(c) A written standard of conduct that complies in substance with subsection J of this section.

(d) A statement that is submitted by the proposed advisor to the insurer and that states with respect to each of the following that the proposed advisor or a person associated with the proposed advisor has not:

(i) Within the last ten years been convicted of a felony or misdemeanor offense arising out of such person's conduct as an employee, salesman, officer or director of an insurance company, a banker, an insurance producer, a securities broker or an investment advisor involving embezzlement, fraudulent conversion, the misappropriation of funds or securities or a violation of 18 United States Code section 1341, 1342 or 1343, and arising out of the person's conduct as an employee, salesperson, officer or director of an insurance company or as a banker, insurance producer, securities broker or investment advisor.

(ii) Been permanently or temporarily enjoined by a court order, judgment or decree from acting as an investment advisor, underwriter, broker or dealer, acting as an affiliated person or an employee of an investment company, bank or insurance company or engaging in or continuing any conduct or practice in connection with any enjoined activity.

(iii) Been found by a federal or state regulatory authority to have wilfully violated or acknowledged a wilful violation of a federal or state securities law or the insurance laws of this state.

(iv) Been censured, been denied an investment advisor registration, had a registration as an investment advisor revoked or suspended or been barred or suspended from associating with an investment advisor by a federal or state regulatory authority.

M. After notice and an opportunity for a hearing, the director may require that the investment advisory contract be terminated if the director deems that continued operation under the contract would be hazardous to the public or the insurer's policyholders.

§ 20-2607 Information to applicants

A. An insurer that delivers or issues for delivery in this state a variable life insurance policy shall deliver the following information to the applicant for the policy:

1. A summary explanation of the principal features of the policy. The summary explanation shall be in nontechnical terms and shall include a description of the manner in which the variable benefits will reflect the investment experience of the separate account and the factors that affect the variation. The explanation shall include notice of the requirements of section 20-2604, subsection D, paragraph 1, subdivision (e) and paragraph 7.

2. A statement of the investment policy of the separate account, including a description of both:

(a) The investment objectives of the separate account and the principal types of investments that will be made.

(b) The restrictions or limitations on the manner in which the operations of the separate account will be conducted.

3. A statement of the net investment return of the separate account for each of the last ten years, or if the separate account has been in existence for less than ten years, a statement of the net investment return of the separate account for each of the years that the separate account has been in existence.

4. A statement of the charges that were levied against the separate account during the previous year.

5. A summary of the method the insurer will use in valuing the assets that are held by the separate account.

6. A summary of the federal income tax aspects of the policy that apply to the insured, the policyholder and the beneficiary.

7. Illustrations of benefits that are payable under the variable life insurance contract. The insurer shall prepare the illustrations. The illustrations shall not include projections of past investment experience into the future or attempted predictions of future investment experience. This paragraph does not prohibit the use of hypothetical assumed rates of return to illustrate possible levels of benefits if the illustration makes it clear that the assumed rates are hypothetical only.

B. This section is satisfied if a disclosure that contains the information required by this section is delivered to the applicant. The disclosure shall either:

1. Be a prospectus that satisfies the requirements of the securities act of 1933 (15 United States Code sections 77a through 77aa) and that the securities and exchange commission declares effective.

2. Contain the information and reports that are required by the employee retirement income security act of 1974 (29 United States Code sections 1001 through 1461) if the policies are exempt from the registration requirements of the securities act of 1933.

§ 20-2608 Variable life insurance policy application requirements

A variable life insurance policy application shall contain all of the following:

1. A prominent statement that the death benefit may be variable or fixed under specified conditions.

2. A prominent statement that cash values may increase or decrease according to the investment experience of the separate account.

3. Questions that enable the insurer to determine the suitability of variable life insurance for the applicant.

§ 20-2609 Policyholder reports

An insurer that delivers or issues for delivery in this state a variable life insurance policy shall send the following reports to each variable life insurance policyholder:

1. Within thirty days after each anniversary of the policy, a statement or statements of the cash surrender value, the death benefit, any partial withdrawal or policy loan, any interest charge and any optional payments that are allowed under the policy and that are computed as of the policy anniversary date. The statement may be furnished within thirty days after a specified date in each policy year if the information contained in the statement is computed not more than sixty days before the notice is sent. This statement shall state that the cash values and the variable death benefit may increase or decrease according to the investment experience of the separate account and shall prominently identify any value that the statement describes and that may be recomputed before the next statement required by this section. If the policy guarantees that the variable death benefit on the next policy anniversary date will not be less than the variable death benefit specified in the statement, the statement shall be modified to indicate this policy guarantee. In addition, the report must show the projected cash value and cash surrender value, if different, as of one year from the end of the period covered by the report. In determining the projected value, the insurer shall assume that the planned periodic premiums, if any, are paid as scheduled, that the guaranteed costs of insurance are deducted and that the net return is equal to the guaranteed rate, or if there is no guaranteed rate, is not greater than zero. If the projected value is less than zero, the statement shall include a warning message that the policy may be in danger of terminating without value in the next twelve months unless additional premium is paid. For flexible premium policies, the report shall contain a reconciliation of the change since the previous report in cash value and cash surrender value, if different, because of payments made, less deductions for expense charges, withdrawals, investment experience, insurance charges and any other charges made against the cash value.

2. An annual statement or statements, including:

(a) A summary of the financial statement of the separate account that is based on the annual statement last filed with the director.

(b) The net investment return of the separate account for the last year and, for each year after the first, a comparison of the investment rate of the separate account during the last year with the investment rate during prior years, up to a total of not less than five years if available.

(c) A list of investments that are held by the separate account as of a date not earlier than the end of the last year for which an annual statement was filed with the director.

(d) Any charges that were levied against the separate account during the previous year.

(e) A statement of any change in the investment objective and orientation of the separate account, in any investment restriction or material quantitative or qualitative investment requirement that applies to the separate account or in the investment advisor of the separate account.

3. For flexible premium policies, if the amounts that are available under the policy on any policy processing day to pay the charges that are authorized by the policy are less than the amount necessary to keep the policy in force until the next following policy processing day, a report that indicates the minimum payment that is required under the terms of the policy to keep the policy in force and the length of the grace period for the payment of that amount.

§ 20-2610 Foreign companies; compliance with laws of domiciliary state

If the laws of a foreign company's domiciliary state provide a degree of protection to the policyholders and the public that is substantially similar to the degree of protection that is provided by this article, the director may determine that the foreign company has complied with this article.

Article 2 Variable Annuities

§ 20-2631 Definitions

In this article, unless the context otherwise requires:

1. "Company" means an insurer licensed pursuant to this title to transact life insurance or annuities in this state.

2. "Variable annuity" means an individual policy or contract that provides for annuity benefits that vary according to the investment experience of a separate account or accounts that the insurer maintains pursuant to section 20-651 or the corresponding insurance laws of a foreign insurer's domiciliary state.

§ 20-2632 Qualifications to issue variable annuities

A. A company shall not issue or issue for delivery in this state variable annuities unless the director is satisfied that the company's condition or method of operation in connection with the issuance of variable annuity contracts will not be hazardous to the public or the company's policyholders in this state. The director shall consider the following:

1. The history and financial condition of the company.

2. The character, responsibility and fitness of the company's officers and directors.

3. If the company is a foreign company, the law under which the company is authorized in its domiciliary state to issue variable annuities.

B. If the company is a subsidiary of an authorized life insurance company or is affiliated with an authorized life insurance company by common management or ownership, the director may determine that the subsidiary has complied with subsection A, paragraph 2, if either:

1. The authorized life insurance company has satisfied the requirements under subsection A.

2. The authorized life insurance company or the company is authorized to and has a satisfactory record of doing business in this state for at least three years.

C. Before a company issues or issues for delivery variable annuities in this state, the company shall submit all of the following to the director:

1. A general description of the kinds of variable annuities the company intends to issue.

2. If requested by the director, a copy of the laws of the company's state of domicile under which the company is authorized to issue variable annuities.

3. If requested by the director, biographical data on the company's officers and directors. The biographical data shall be submitted on the national association of insurance commissioners' biographical data forms.

§ 20-2633 Separate account; annuities

A. A domestic company that issues variable annuities shall establish one or more separate accounts pursuant to section 20-651.

B. Except pursuant to subsection C of this section:

1. The company may invest and reinvest amounts that are allocated to a separate account and accumulations on the allocated amounts without regard to any requirements or limitations that are prescribed by the laws of this state governing the investments of life insurance companies.

2. The company shall not consider the investments in the separate account or accounts in applying the investment limitations that otherwise apply to the investments of the company.

C. The company may retain its reserves for benefits that are guaranteed as to the dollar amount and duration and for funds that are guaranteed as to the principal amount or stated rate of interest in a separate account if a portion of the assets of the separate account in an amount that is at least equal to the reserve liability is invested according to the laws of this state governing the investments of life insurance companies. The company shall not consider the portion of the assets in applying the investment limitations that otherwise apply to the investments of the company.

D. With respect to seventy-five per cent of the market value of the total assets in a separate account, a company shall not, unless otherwise approved by the director on a showing that the approval will not be hazardous to the public or policyholders in this state, purchase or otherwise acquire the securities of any issuer, other than securities that are issued or guaranteed as to principal or interest by the United States, if immediately after the purchase or acquisition the market value of the investment, together with prior investments of the separate account in the security taken at market, would exceed ten per cent of the market value of the assets of the separate account.

E. Unless otherwise permitted by law or approved by the director, a company shall not purchase or otherwise acquire for its separate accounts the voting securities of any issuer if as a result of the acquisition the insurance company and its separate accounts, in the aggregate, will own more than ten per cent of the total issued and outstanding voting securities of the issuer. This limitation does not apply to securities that are held in separate accounts, the voting rights in which are exercisable only according to instructions from those persons who have an interest in the accounts.

F. The limitations under subsections D and E of this section do not apply to the investment with respect to a separate account in the securities of an investment company that is registered under the investment company act of 1940 (15 United States Code sections 80a-1 through 80a-64) if the investments of the investment company substantially comply with subsections D and E of this section.

G. Unless the director otherwise approves, assets that are allocated to a separate account shall be valued at their market value on the date of valuation. If there is no readily available market, the assets shall be valued under the terms of the contract or the rules or other written agreement that applies to the separate account. Unless the director otherwise approves, the portion, if any, of the assets of the separate account that is equal to the company's reserve liability with regard to the benefits and funds under subsection C of this section shall be valued according to the rules that otherwise apply to the company's assets.

H. Except as provided under the applicable contracts, that portion of the assets of any separate account that is equal to the reserves and other contract liabilities with respect to the account shall not be charged with liabilities arising out of any other business the company may conduct.

I. Notwithstanding any law to the contrary, a company may either:

1. With respect to a separate account that is registered with the securities and exchange commission as a unit investment trust, exercise voting rights in connection with any securities of a regulated investment company registered under the investment company act of 1940 and held in the separate accounts according to instructions from those persons who have an interest in the accounts ratably as determined by the company.

2. With respect to a separate account that is registered with the securities and exchange commission as a management investment company, establish for the account a committee, a board or any other body. The members of the committee, board or other body may or may not be affiliated with the company and may be elected to the membership by the vote of those persons who have an interest in the accounts ratably as determined by the company. This committee, board or other body, alone or in conjunction with others, may manage the separate account and the investment of its assets. Subject to approval of the director on a showing that the approval will not be hazardous to the public or policyholders of this state any company, committee, board or other body may make such other provisions in respect to any such separate account as may be deemed appropriate to facilitate compliance with the requirements of any federal or state law.

J. A company may not sell, exchange or otherwise transfer assets between any of its separate accounts or between any other investment account and one or more of its separate accounts unless either:

1. The director approves the sale, transfer or exchange based on a showing that the sale, transfer or exchange is equitable to current policyholders.

2. Both of the following occur:

(a) If the transfer is into a separate account, the transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made.

(b) If the transfer is into or from a separate account, the transfer is made either:

(i) By a transfer of cash.

(ii) By a transfer of securities having a valuation that can be readily determined in the marketplace, if the director approves the transfer of the securities.

K. Except as otherwise approved by the director, the company shall maintain in each separate account assets with a value in an amount that is at least equal to the reserves and other contract liabilities with respect to the account.

L. Any law that relates to conflicts of interest and that applies to the officers and directors of insurance companies also applies to the members of any separate accounts committee, board or other body that is established pursuant to subsection I of this section. An officer or director of the company or a member of the committee, board or body of a separate account shall not receive, directly or indirectly, any commission or other compensation with respect to the purchase or sale of any assets of the separate account.

§ 20-2634 Filing of contracts; approval

Unless exempt pursuant to chapter 5, article 1 of this title, each insurer shall file with the director all variable annuity contracts and all riders, endorsements, applications and other documents that are attached to and made part of the contract and that relate to the variable nature of the contract. The director shall approve all variable annuity contracts before they are delivered or issued for delivery in this state.

§ 20-2635 Variable annuity contracts

A. A variable annuity that provides benefits payable in variable amounts and that is delivered or issued for delivery in this state shall contain a statement of the essential features of the procedures the insurance company must follow in determining the dollar amount of the variable benefits. The contract, including a group contract and any certificate in evidence of variable benefits that is issued under the contract, shall state that the dollar amount will vary to reflect investment experience and shall contain on its first page a clear statement that the benefits under the contract are on a variable basis.

B. Illustrations of benefits that are payable under a variable annuity shall not include projections of past investment experience into the future or attempted predictions of future investment experience. This subsection does not prohibit the use of hypothetical assumed rates of return to illustrate possible benefit levels.

C. An insurer shall not deliver or issue for delivery in this state an individual variable annuity contract that calls for the payment of periodic stipulated payments unless the contract contains in substance the following provision or provisions:

1. A grace period provision of thirty days or of one month, within which any stipulated payment to the insurer that falls due after the first day may be made and during which the contract shall continue in force. The contract may state the basis for determining the date as of which any payment that is received during the grace period shall be applied to produce the values under the contract arising from the contract.

2. A reinstatement provision that unless the cash surrender value has been paid the contract may be reinstated on the payment to the insurer of the overdue payments as required by contract and all indebtedness on the contract, including interest, at any time after the date of the default in making periodic stipulated payments to the insurer during the life of the annuitant. The contract may state the basis for determining the date as of which the amount to cover the overdue payments and indebtedness shall be applied to produce the values under the contract arising from the contract.

D. A variable annuity contract that is delivered or issued for delivery in this state shall stipulate the investment increment factors the insurer will use in computing the dollar amount of variable benefits or other variable contractual payments or values under the variable annuity contract. The contract may guarantee that expense or mortality results, or both, do not adversely affect the dollar amounts. If the expense and mortality results may adversely affect the dollar amount of benefits, the insurer shall stipulate the expense and mortality factors in the contract. For the purposes of this subsection, the contract may stipulate that expense excludes some or all taxes.

E. In computing the dollar amount of variable benefits or other contractual payments or values under an individual variable annuity contract:

1. Unless the director otherwise approves, the annual net investment increment assumption shall not exceed five per cent.

2. To the extent that the level of benefits may be affected by future mortality results, unless the director approves the use of another table the mortality factor shall be determined from the annuity mortality table for 1949, ultimate, or any modification of that table not having a lower life expectancy at any age.

F. The reserve liability for variable annuities shall be established pursuant to the requirements of section 20-510 in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

§ 20-2636 Nonforfeiture benefits; exceptions; definition

A. This section does not apply to the following:

1. Reinsurance.

2. Group annuity contract purchases that are made in connection with one or more retirement or deferred compensation plans that are established or maintained by or for one or more employers, including partnerships or sole proprietorships, employee organizations or any combination of partnerships, proprietorships and employee organizations. This exception does not apply to group annuity contract purchases that are made in connection with plans that provide individual retirement accounts or individual retirement annuities under section 408 of the internal revenue code.

3. A premium deposit fund.

4. An investment annuity.

5. An immediate annuity.

6. A deferred annuity contract after annuity payments begin.

7. A reversionary annuity.

8. A contract that is delivered outside this state through any insurance producer or other representative of the company issuing the contract.

B. To the extent that a variable annuity contract provides benefits that do not vary according to the investment performance of a separate account before the annuity commencement date, the contract shall contain provisions that satisfy the requirements of section 20-1232 and the contract is not subject to this section.

C. Except pursuant to subsections A and B of this section, if a contract is issued on or after January 1, 1998, a variable annuity contract shall not be delivered or issued for delivery in this state unless it contains in substance the following provisions or corresponding provisions that the director determines are at least as favorable to the contract holder:

1. That, on cessation of the payment of considerations under a contract, the company will grant a paid-up annuity benefit on a plan that is described in the contract and that complies with subsection G of this section. The description shall include a statement of the mortality table, if any, and the guaranteed or assumed interest rates that are used in calculating annuity payments.

2. If a contract provides for a lump sum settlement at maturity or at any other time, that, on the surrender of the contract at or before the commencement of any annuity payments, the company will pay in lieu of any paid-up annuity benefit a cash surrender benefit that is described in the contract and that complies with subsection H of this section. The contract may provide that the company reserves the right to defer the determination and payment of any cash surrender benefit for any period during which the New York stock exchange is closed for trading except for normal holidays or in which the securities and exchange commission determines that a state of emergency exists.

3. A statement that any paid-up annuity, cash surrender or death benefits that may be available under the contract are not less than the minimum benefits that are required by the laws of the state in which the contract is delivered and an explanation of the manner in which the benefits are altered by any of the following:

(a) The existence of any additional amounts the company credited to the contract.

(b) Any indebtedness to the company on the contract.

(c) Any prior withdrawals from or partial surrenders of the contract.

D. The minimum values under this section of any paid-up annuity, cash surrender or death benefits that are available under a variable annuity contract shall be based on nonforfeiture amounts that meet the following requirements:

1. The minimum nonforfeiture amount on any date before the annuity commencement date shall be an amount that is equal to the percentages of net considerations under subsection E of this section, and increased or decreased by the net investment return that is allocated to the percentages of net considerations. This amount shall be reduced to reflect the effect of:

(a) Any partial withdrawals from or partial surrenders of the contract.

(b) The amount of any indebtedness on the contract, including interest due and accrued.

(c) An annual contract charge that is not less than zero and that is equal to the lesser of thirty dollars or two per cent of the end of year contract value, less the amount of any annual contract charge that is deducted from any gross considerations credited to the contract during the contract year.

(d) A transaction charge of ten dollars for each transfer to another separate account or to another investment division within the same separate account.

2. The net investment return to be credited to a contract shall be determined at least monthly.

3. The annual thirty dollar contract charge and the ten dollar transaction charge under paragraph 1 of this subsection will be adjusted to reflect changes in the consumer price index pursuant to subsection F of this section.

For the purposes of this subsection, "net investment return" means the rate of investment return that is in an amount that does not exceed the actual expense not offset by other deductions and that is credited to the variable annuity contract according to the terms of the contract after deductions for tax charges, if any, for asset charges either at a rate that does not exceed the rate stated in the contract, or if the contract is issued by a nonprofit corporation under which the contract holder participates fully in the investment, for mortality and expense experience of the account.

E. The percentages of net considerations that are used to define the minimum nonforfeiture amount under subsection D of this section shall meet one of the following requirements:

1. For contracts that provide for periodic considerations, the net considerations for a given contract year that are used to define the minimum nonforfeiture amount shall be an amount not less than zero and shall be equal to the corresponding gross considerations that are credited to the contract during that contract year less an annual contract charge of thirty dollars, less a collection charge of one dollar twenty-five cents for each periodic consideration credited to the contract during that contract year, and less any charges for premium taxes. The percentages used to calculate the minimum nonforfeiture amount shall be as follows:

(a) For the first contract year, sixty-five per cent of the net considerations.

(b) For each renewal contract year, eighty-seven and one-half per cent of the net considerations, except that for any portion of the total net consideration for a renewal contract year that exceeds by not more than two times the sum of those portions of the net considerations in all prior contract years for which the percentage was sixty-five per cent, the percentage to be applied to this amount shall be sixty-five per cent.

2. For contracts that provide for a single consideration, the net consideration that is used to define the minimum nonforfeiture amount shall be the gross consideration less a seventy-five dollar contract charge and less any charges for premium taxes. The percentage of the net consideration shall be ninety per cent. The annual thirty dollar contract charge, the collection charge of one dollar twenty-five cents per collection and the seventy-five dollar single consideration contract charge will be adjusted to reflect changes in the consumer price index pursuant to subsection F of this section.

F. A demonstration that a contract's nonforfeiture amounts comply with this section shall be based on the following assumptions, unless the company demonstrates the suitability of alternative assumptions:

1. The testing of values shall occur at the end of each of the first twenty contract years.

2. A net investment return of seven per cent per year.

3. If the contract provides for transfers to another separate account or to another investment division within the same separate account, one transfer per contract year.

4. In determining the state premium tax that applies to the contract, the state of residence is the state of delivery.

5. With respect to contracts that provide for periodic considerations, monthly considerations of one hundred dollars for each of the first two hundred forty months.

6. With respect to contracts that provide for a single consideration, a ten thousand dollar single consideration.

7. The following contract charges:

(a) For contracts that are filed in 1980 or earlier, the annual thirty dollar contract charge, the charge of ten dollars per transfer, the collection charge of one dollar twenty-five cents per consideration and the seventy-five dollar contract charge.

(b) For contracts that are filed in 1981 or after, the contract charges listed in subdivision (a) of this paragraph multiplied by the ratio of the consumer price index for June of the calendar year preceding the date of filing to the consumer price index for June, 1979.

8. If the contract provides for the allocation of considerations to both fixed and variable accounts, allocate one hundred per cent of the considerations to the variable account.

G. A paid-up annuity benefit that is available under a variable annuity contract shall be in an amount so that its present value on the annuity commencement date is at least equal to the minimum nonforfeiture amount on the annuity commencement date. The insurer shall compute the present value by using the mortality table, if any, and the guaranteed or assumed interest rates that are used in calculating the annuity payments.

H. For variable annuity contracts that provide cash surrender benefits, at any time before the annuity commencement date the cash surrender benefit shall not be less than the minimum nonforfeiture amount next computed after the company receives the request for surrender. The death benefit under the contracts shall be at least equal to the cash surrender benefit.

I. A variable annuity contract that does not provide cash surrender benefits or that does not provide death benefits that are at least equal to the minimum nonforfeiture amount before the annuity commencement date shall prominently state in the contract that these benefits are not provided.

J. Notwithstanding the requirements of this section, a variable annuity contract may provide that the company may cancel the annuity and pay the contract holder its accumulated value and that on the payment of its accumulated value the company is released from any further obligation under the contract if either:

1. At the time the annuity becomes payable the accumulated value is less than two thousand dollars, or would provide an income the initial amount of which is less than twenty dollars per month.

2. Before the annuity becomes payable under a periodic payment variable annuity contract, considerations have not been received under the contract for the two full years preceding the cancellation and both:

(a) The considerations were paid before the annuity became payable and were reduced to reflect any partial withdrawals from or partial surrenders of the contract.

(b) The accumulated value amounted to less than two thousand dollars.

K. For a variable annuity contract that provides within the same contract by rider or supplemental contract provision both annuity benefits and life insurance benefits that are in excess of the greater of the cash surrender benefits or a return of the gross considerations with interest, the minimum nonforfeiture benefits shall be equal to the sum of the minimum nonforfeiture benefits for the annuity portion and the minimum nonforfeiture benefits, if any, for the life insurance portion computed as if each portion were a separate contract. Notwithstanding subsection D of this section, in ascertaining the minimum nonforfeiture amounts and paid-up annuity, cash surrender and death benefits that may be required by this section, the insurer shall disregard any additional benefits that are payable in the event of a total and permanent disability, as reversionary annuity or deferred reversionary annuity benefits or as other policy benefits in addition to life insurance, endowment and annuity benefits, and the considerations for all of the additional benefits. The inclusion of the additional benefits is not required in any paid-up benefits, unless the additional benefits separately would require minimum nonforfeiture amounts and paid-up annuity, cash surrender and death benefits.

L. For the purposes of this section, "consumer price index" means the index for all urban consumers for all items that is published by the bureau of labor statistics of the United States department of labor or its successor.

§ 20-2637 Reports

A. At least once in each contract year after the first contract year, a company that issues individual variable annuities shall send to the contract holder at the contract holder's last known address a statement reporting the investments that are held in the separate account as of a date not more than four months before the sent date. The company shall submit annually to the director on a form prescribed by the national association of insurance commissioners a statement of the business of its separate account or accounts.

B. If payments under an annuity contract have not yet commenced the statement shall contain either:

1. The number of accumulation units that are credited to the contract and the dollar value of a unit.

2. The value of the contract holder's account.

§ 20-2638 Foreign companies

If the law in a foreign company's domiciliary state provides a degree of protection to the policyholders and the public that is substantially equal to the degree of protection that is provided by this article, the director may determine that the foreign company has complied with this article.

Article 3 Agent Qualifications

§ 20-2661 Scope of article; definitions

A. This article applies to all agents as defined in section 20-2601 seeking qualification to sell or offer for sale variable contracts or variable group contracts in this state.

B. In this article, unless the context otherwise requires:

1. "Variable contracts" means a variable life insurance policy or a variable annuity as defined in sections 20-2601 and 20-2631, respectively.

2. "Variable group annuity" means a group policy or contract of two or more individuals that provides for annuity benefits that vary according to the investment experience of a separate account or accounts that the insurer maintains pursuant to section 20-651 or the corresponding insurance laws of a foreign insurer's domiciliary state.

3. "Variable group contracts" means a variable group annuity or a variable group life insurance policy.

§ 20-2662 Insurance producer qualifications; reports

A. A person may not sell or offer for sale in this state any variable contracts unless the person is licensed as a life insurance producer by the department and files with the director evidence that the person is licensed by the financial industry regulatory authority as a principal or a registered representative and that the person is authorized to solicit or sell variable contracts by an insurer admitted to transact variable contract business in this state.

B. A person may not sell or offer for sale in this state any variable group contracts unless the person is licensed as a life insurance producer by the department and is authorized to solicit or sell variable group contracts by an insurer who is admitted to transact variable group contract business in this state.

C. Any examination that is administered by the department to determine if a person is eligible for licensing as an insurance producer may include any questions that the director deems appropriate and that concern the history, purpose, regulation and sale of variable contracts or variable group contracts.

D. Any person who is qualified to sell or offer to sell variable contracts or variable group contracts under this article shall immediately report to the director:

1. The suspension or revocation of the insurance producer's license in any other state or territory of the United States.

2. The imposition of any disciplinary sanction, including the suspension or expulsion of the insurance producer from membership, or suspension, revocation or denial of the insurance producer's registration by any national securities exchange, national securities association or federal, state or territorial agency that has jurisdiction over securities or variable contracts.

3. The entry of a judgment or injunction against the insurance producer for conduct involving fraud, deceit or misrepresentation or a violation of any insurance or securities law.

E. The director may reject an application or suspend, revoke or refuse to renew an insurance producer's qualification to sell or offer to sell variable contracts on any ground that would bar the applicant or insurance producer from being licensed to sell other life insurance contracts in this state. The rules that apply to a proceeding relating to the suspension or revocation of an insurance producer's license also apply to a proceeding for the suspension or revocation of an insurance producer's qualification to sell or offer to sell variable contracts.

Chapter 17 Access to Emergency Health Care

Article 1 General Provisions

§ 20-2801 Definitions

In this chapter, unless the context otherwise requires:

1. "Coverage" means the contractual obligation of a health care services plan to pay its enrollee or a contracted or noncontracted provider for medically necessary emergency services rendered by the provider to an enrollee, as specified in the governing agreement, contract or policy between the plan and the enrollee, subject to applicable copayments, coinsurance and deductibles.

2. "Emergency ambulance services" means services that are provided by an ambulance service authorized to operate pursuant to title 36, chapter 21.1 following the onset of a medical condition that manifests itself by symptoms of pain, illness or injury that the absence of accessing an ambulance or emergency response by calling 911 or a designated telephone number to reach a public safety answering point and receiving time sensitive medical attention could reasonably be expected to result in any of the following:

(a) Placing the health of the individual or, with respect to a pregnant woman, the health of her unborn child, in serious jeopardy.

(b) Serious impairment to bodily functions.

(c) Serious dysfunction of any bodily organ or part.

3. "Emergency services" means health care services that are provided to an enrollee in a licensed hospital emergency facility by a provider after the recent onset of a medical condition that manifests itself by symptoms of sufficient severity, including severe pain, such that a prudent layperson who possesses an average knowledge of health and medicine could reasonably expect the absence of immediate medical attention to result in any of the following:

(a) Serious jeopardy to the patient's health, including mental health.

(b) Serious impairment to a bodily function of the patient.

(c) Serious dysfunction of any bodily organ or part of the patient.

(d) Harm to the patient or others.

4. "Enrollee" means an individual, or a dependent of that individual, who is currently enrolled with and covered by a health care services plan.

5. "Health care services plan":

(a) Means a plan that is offered by a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation or medical service corporation that contractually agrees to pay or make reimbursement for health care expenses for one or more individuals residing in Arizona.

(b) Does not apply to benefits that are provided under limited benefit coverage as defined in section 20-1137.

6. "Prior authorization":

(a) Means authorization by telephone or fax that is given in advance of the performance of an emergency service on an enrollee by a health care services plan after receiving necessary medical and enrollment information on the enrollee.

(b) Is not a guarantee of full payment.

7. "Provider" means any physician, hospital or other person that is licensed or otherwise authorized to furnish emergency services in this state.

§ 20-2802 Scope of chapter

A. This chapter does not apply to:

1. A provider employed by or under contract with the enrollee's health care services plan.

2. A health care services plan administered under title 36.

3. A health care services plan that only covers health care expenses incurred by an enrollee who is subsequently admitted to a licensed hospital as part of the treatment.

B. This chapter does not create any private right or cause of action for or on behalf of any enrollee, provider or other person, whether a resident or nonresident of this state. This chapter provides solely an administrative remedy to the director for any violation of this chapter or any related rule.

§ 20-2803 Emergency services access; prior authorization; requirements

A. A health care services plan shall provide coverage for an initial medical screening examination and any immediately necessary stabilizing treatment required by the emergency medical treatment and active labor act (P.L. 99-272; 100 Stat. 164; 42 United States Code section 1395dd) without prior authorization by the plan, subject to applicable copayments, coinsurance and deductibles.

B. A health care services plan shall provide coverage for emergency ambulance services without prior authorization, subject to applicable copayment, coinsurance and deductibles.

C. A provider shall not deny, limit or otherwise restrict a patient's access to medically necessary emergency services based on the patient's enrollment in a health care services plan.

D. A health care services plan may require as a condition of coverage prior authorization for health care services arising after the initial medical screening examination and immediately necessary stabilizing treatment. Prior authorization is granted unless denied or direction of the enrollee's care is initiated by the plan within a reasonable period of time after the plan receives the prior authorization request. If direction of care instructions are received from the plan after more than a reasonable period of time has elapsed, the treating provider or providers shall comply with the late instructions to the extent feasible, except that a health care services plan remains responsible for coverage of medically necessary care given and substantially completed before the late instructions were received.

E. A health care services plan that requires prior authorization under subsection C shall provide twenty-four hour access by telephone or facsimile for enrollees and providers to request prior authorization for medically necessary care after the initial medical screening examination and any immediately necessary stabilizing treatment. Plan personnel shall have access to a physician when necessary to make determinations regarding prior authorization.

F. A health care services plan that gives prior authorization for specific care by a provider shall not rescind or modify the authorization after the provider renders the authorized care in good faith and pursuant to the authorization.

G. A hospital emergency department shall make reasonable efforts to promptly contact the health care services plan for prior authorization for continuing treatment, specialty consultations, transfer arrangements or other appropriate care for an enrollee. A health care services plan shall not deny coverage for emergency services provided to the plan's enrollee due to a provider's failure to obtain prior authorization from the plan if the provider could not determine the patient's enrollment in a particular plan due to the patient's physical condition, or if the patient's enrollment information was not available from the plan at the time of the provider's contact.

H. If the health care services plan and the provider disagree on the medical necessity of specific emergency services for an enrollee, except for emergency services provided outside the geographic service area of the plan, medical personnel representing the plan shall make necessary arrangements to assume the care of the enrollee within a reasonable period of time after the disagreement arises. If the health care services plan fails to assume the care of the enrollee as provided by this subsection, the plan shall not deny coverage for medically necessary emergency services provided to the enrollee due to lack of prior authorization.

I. If within a reasonable period of time after receiving a request from a hospital emergency department for a specialty consultation a health care services plan fails to identify an appropriate specialist who is available and willing to assume the care of the enrollee, the emergency department may arrange for medically necessary emergency services by any appropriate specialist, and the plan shall not deny coverage for these services due to lack of prior authorization. A health care services plan shall not require prior authorization for specialty care emergency services for treatment of any immediately life threatening medical condition.

§ 20-2804 Utilization review; medically necessary emergency services

A. A health care services plan engaging in utilization review to determine whether any emergency services rendered by a provider were medically necessary and in accordance with this chapter shall consider the following factors:

1. Current emergency medical literature and standards of care.

2. Clinical information reasonably available to the provider at the time of the services.

B. A health care services plan shall not deny a claim for emergency services on the basis that the services were not medically necessary without review by a physician of the plan's choosing.

C. For the purpose of claims payment and utilization review of emergency services, a health care services plan shall have the right to require as a condition of payment that each treating provider produce all of the following:

1. Copies of all medical records pertaining to the emergency services provided to the enrollee.

2. Copies of records pertaining to any prior authorization and specialty consultation requests made by the provider.

3. A detailed and itemized billing statement.

D. If a health care services plan pays any portion of a provider's claim for services rendered to an enrollee, the plan shall not be permitted to recover all or part of that payment from the enrollee, except for:

1. The cost of an initial medical screening examination and related charges where the examination determined that emergency services were not medically necessary.

2. Payments made as a result of misrepresentation, fraud or clerical error.

3. Copayment, coinsurance or deductible amounts that are the responsibility of the enrollee.

Chapter 18 Continuing Education

Article 1 General Provisions

§ 20-2901 Definitions

In this article, unless the context otherwise requires:

1. "Applicant" means a provider organization that submits an application to the contractor to provide continuing education courses.

2. "Approved continuing education course" means any course that has been approved by at least five other states or that is approved by a contractor or automatically approved pursuant to section 20-2904.

3. "Approved provider" means an organization or individual that offers an approved continuing education course and that is authorized by the contractor to offer the course to a licensee for credit toward the licensee's continuing education requirements.

4. "Continuously licensed" means that a licensee's license has not terminated for any reason. For the purposes of this paragraph, a license that expires under section 20-289, subsection E is not considered to have terminated if the late fee is timely paid and the license is renewed or the license is placed on inactive status pursuant to section 20-289.01.

5. "Contractor" means the person who has a contract with the department to approve continuing education providers and courses and to administer the continuing education program and who is paid through fees collected from approved providers when the approved providers apply for continuing education course approval.

6. "Credit hour" means the value assigned to an hour of instruction in an approved continuing education course.

7. "Ethics training" means continuing education course content regarding the ethical responsibilities insurance producers owe to insurers, applicants, policyholders, regulators, insurance professionals and the public.

8. "License period" means the period between the date an Arizona insurance license is issued or last renewed and the expiration date of the Arizona insurance license.

9. "Licensee" means an individual insurance producer licensed for major line insurance as defined in section 20-281. Licensee does not include any business entity.

10. "Nonresident licensee" means a licensee who is applying to renew a nonresident license in this state.

11. "Provider organization" means a person that provides continuing education courses but that has not yet been accepted as an approved provider pursuant to section 20-2904.

§ 20-2902 Continuing education requirements; nonresident license in another state; nonresident license in this state

A. To qualify for renewal of a resident license:

1. If the license period immediately preceding the renewal commenced before January 1, 2014 and the licensee held a nonresident license in another state to transact insurance at any time during the license period, the licensee shall have completed during that license period at least forty credit hours of approved insurance continuing education courses offered by an approved provider.

2. If the license period immediately preceding the renewal commenced on or after January 1, 2014, the licensee shall have completed during that license period at least forty-eight credit hours, including at least six credit hours of ethics training, of approved insurance continuing education courses offered by an approved provider.

B. Subsection A of this section does not apply to a licensee who, as of January 1, 2014, meets and continues to meet the following criteria:

1. Has been continuously licensed as an insurance agent, broker or producer in this state since January 1, 1995.

2. Has not at any time since January 1, 1995, held a nonresident insurance producer license in another state.

3. Has never been the subject of an order issued by the director finding that the licensee has violated any provision of this title in which the director ordered any of the following:

(a) The suspension, revocation or denial or renewal of the licensee's agent, broker or producer license.

(b) The licensee to cease and desist from the conduct constituting the violation.

(c) The licensee to pay restitution or a civil penalty.

C. A licensee who instructs an approved course on behalf of an approved provider shall receive two times the credit hours assigned to the approved course.

D. A licensee may receive credit for a particular approved course only once during a single license period.

E. After the licensee completes an approved continuing education course, the approved provider shall furnish the licensee with a certificate of compliance that certifies that the licensee has taken and completed the course. The licensee and a person authorized to sign on behalf of the approved provider shall sign the certificate. The director may require that the licensee include the signed certificate of compliance with the application for renewal of the resident license.

F. The certificate of compliance shall be in a form approved by the director and shall set forth at least the following information:

1. The licensee's name and license number.

2. The name of the approved provider.

3. The subjects and titles of the approved continuing education courses that the licensee completed.

4. The dates that the licensee completed the approved continuing education courses.

5. The number of credit hours in ethics training that the licensee earned by completing the approved continuing education course.

6. The total number of credit hours that the licensee earned by completing the approved continuing education course.

G. The director shall not renew a licensee's resident license unless the licensee has provided evidence that the licensee has completed the credit hours prescribed in subsection A of this section.

H. Except as provided in subsections I and J of this section, a nonresident licensee shall submit proof to the director of having earned the continuing education credit requirements that are needed to satisfy the requirements of the nonresident licensee's home state to comply with the continuing education requirements prescribed in this section.

I. If the nonresident licensee's home state does not recognize credits earned by residents of this state, the nonresident licensee shall satisfy the continuing education prescribed in this section only by earning continuing education credits from an approved provider.

J. If the home state of a nonresident licensee does not have a continuing education requirement, the nonresident licensee is subject to the same continuing education requirements as a resident licensee.

K. The department may not require a proctor to administer any required post-course examination for a self-study continuing education course that a licensee completes online.

§ 20-2903 Record keeping

A. Licensees shall maintain their own continuing education records described in section 20-2902, subsection F and shall keep the records until the second renewal date after the period for which the continuing education credits were earned.

B. In order to verify the attendance and successful course completion of all licensees enrolled in an approved course, approved providers shall maintain records for five years in a manner acceptable to the director. The records are subject to audit by the department. Each approved provider shall maintain records that include at least the following information for each approved continuing education course provided by the approved provider:

1. The title and subject.

2. A list of attendees.

3. The name of the instructor.

4. A copy of the continuing education course outline.

5. Other information deemed necessary by the director.

C. Based on an audit prescribed in subsection B of this section, if the director discovers that an approved provider has failed to maintain records in the manner prescribed in subsection B of this section, the director shall immediately notify the contractor described in section 20-2904 of the approved provider's noncompliance and the contractor shall remove the approved provider from the contractor's list of approved providers. The contractor shall not accept that provider organization as an approved provider for at least one year. The approved provider's noncompliance does not affect the licensee's ability to obtain a renewal of a nonresident license if the licensee complies with section 20-2902 and subsection A of this section.

§ 20-2904 Continuing education; contractor requirements; automatic approval

A. Pursuant to title 41, chapter 23, the director shall enter into a contract with a person for the approval of approved providers and courses and administration of the continuing education program.

B. The contractor shall:

1. Accept or reject provider organizations as approved providers.

2. Except as provided in subsection C of this section, review course content for approval or disapproval as an approved continuing education course.

3. Charge an applicant an application fee for acceptance as an approved provider and a fee for approval of a continuing education course.

C. A continuing education course is automatically approved if either:

1. Thirty days after the contractor receives an application, the contractor does not disapprove the course described in the application or does not request supplemental information from the applicant.

2. The course is approved by the insurance regulatory authority in at least five other states and the approved provider provides the contractor with a certificate or letter from the regulatory authority in the five other states that confirms the approval of the course.

D. The contractor's decision pursuant to subsection B, paragraph 2 of this section is an appealable agency action as defined in section 41-1092 and the approved provider 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. Except as provided in section 20-2903, the acceptance of an approved provider is valid for five years. At the end of the five years, the approved provider may submit an application for renewal to the contractor and the contractor shall charge the approved provider the fee prescribed in subsection B of this section. The approval of a continuing education course is valid for two years or until the course content or outline changes. At the end of the two years or when the course content or outline changes, the approved provider may submit an application for renewal to the contractor and the contractor shall charge the approved provider the fee prescribed in subsection B of this section.

Chapter 20 Timely Payment of Claims

Article 1 General Provisions

§ 20-3101 Definitions

In this article, unless the context otherwise requires:

1. "Adjudicate" means an insurer's decision to deny or pay a claim, in whole or in part, including the decision as to how much to pay.

2. "Clean claim" means a written or electronic claim for health care services or benefits that may be processed without obtaining additional information, including coordination of benefits information, from the health care provider, the enrollee or a third party, except in cases of fraud.

3. "Enrollee" means an individual who is enrolled under a health care insurer's policy, contract or evidence of coverage.

4. "Grievance":

(a) Means any written complaint that is subject to resolution through the insurer's system that is prescribed in section 20-3102, subsection F and submitted by a health care provider and received by a health care insurer.

(b) Includes any delay in the timeliness of claim adjudication that results in a delay of payment of a clean claim as prescribed in section 20-3102.

(c) Does not include a complaint:

(i) By a noncontracted provider regarding an insurer's decision to deny the noncontracted provider admission to the insurer's network.

(ii) About an insurer's decision to terminate a health care provider from the insurer's network.

(iii) That is the subject of a health care appeal pursuant to chapter 15, article 2 of this title.

5. "Health care insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, prepaid dental plan organization, hospital service corporation, medical service corporation, dental service corporation, optometric service corporation, or hospital, medical, dental and optometric service corporation.

§ 20-3102 Timely payment of health care providers' claims; grievances

A. A health care insurer shall adjudicate any clean claim from a contracted or noncontracted health care provider relating to health care insurance coverage within thirty days after the health care insurer receives the clean claim or within the time period specified by contract. Unless there is an express written contract between the health care insurer and the health care provider that specifies the period in which approved claims shall be paid, the health care insurer shall pay the approved portion of any clean claim within thirty days after the claim is adjudicated. If the claim is not paid within the thirty-day period or within the time period specified in the contract, the health care insurer shall pay interest on the claim at a rate that is equal to the legal rate. Interest shall be calculated beginning on the date that the payment to the health care provider is due.

B. If the claim is not a clean claim and the health care insurer requires additional information to adjudicate the claim, the health care insurer shall send a written request for additional information to the contracted or noncontracted health care provider, enrollee or third party within thirty days after the health care insurer receives the claim. The health care insurer shall notify the contracted or noncontracted health care provider of all of the specific reasons for the delay in adjudicating the claim. The health care insurer shall record the date it receives the additional information and shall adjudicate the claim within thirty days after receiving all the additional information. The health care insurer shall also pay the approved portion of the adjudicated claim within the same thirty-day period allowed for adjudication or within the time period specified in the provider's contract. If the health care insurer fails to pay the claim as prescribed in this subsection, the health care insurer shall pay interest on the claim in the manner prescribed in subsection A of this section.

C. A health care insurer shall not delay the payment of clean claims to a contracted or noncontracted provider or pay less than the amount agreed to by contract to a contracted health care provider without reasonable justification.

D. A health care insurer shall not request information from a contracted or noncontracted health care provider that does not apply to the medical condition at issue for the purposes of adjudicating a clean claim.

E. A health care insurer shall not request a contracted or noncontracted health care provider to resubmit claim information that the contracted or noncontracted health care provider can document it has already provided to the health care insurer unless the health care insurer provides a reasonable justification for the request and the purpose of the request is not to delay the payment of the claim.

F. A health care insurer shall establish an internal system for resolving payment disputes and other contractual grievances with health care providers. The director may review the health care insurer's internal system for resolving payment disputes and other contractual grievances with health care providers. Each health care insurer shall maintain records of health care provider grievances. Semiannually each health care insurer shall provide the director with a summary of all records of health care provider grievances received during the prior six months. The records shall include at least the following information:

1. The name and any identification number of the health care provider who filed a grievance.

2. The type of grievance.

3. The date the insurer received the grievance.

4. The date the grievance was resolved.

G. On review of the records, if the director finds a significant number of grievances that have not been resolved, the director may examine the health care insurer.

H. This section does not require or authorize the director to adjudicate the individual contracts or claims between health care insurers and health care providers.

I. On or before August 1 of each year, the director shall post a report on the department's publicly accessible website that includes the information prescribed in subsection F of this section for the prior fiscal year and that includes:

1. The total number of grievances received.

2. The average time to resolve a grievance.

3. The percentage of grievances where a health care insurer's decision was overturned.

J. Except in cases of fraud, a health care insurer or contracted or noncontracted health care provider shall not adjust or request adjustment of the payment or denial of a claim more than one year after the health care insurer has paid or denied that claim. If the health care insurer and health care provider agree through contract on a length of time to adjust or request adjustment of the payment of a claim, the health care insurer and health care provider must have the same length of time to adjust or request adjustment of the payment of the claim. If a claim is adjusted, neither the health care insurer nor the health care provider shall owe interest on the overpayment or underpayment resulting from the adjustment, as long as the adjusted payment is made or recoupment taken within thirty days of the date of the claim adjustment.

K. This article does not apply to licensed health care providers who are salaried employees of a health care insurer.

L. If a contracted or noncontracted health care provider files a claim or grievance with a health care insurer that has changed the location where providers were instructed to file claims or grievances, the health care insurer shall, for ninety days following the change:

1. Consider a claim or grievance delivered to the original location properly received.

2. Following receipt of a claim or grievance at the original location, promptly notify the health care provider of the change of address through mailed written notice or some other written communication.

M. This section does not preclude a health care provider, with written informed consent of the patient, from collecting monies for a medical service that is either:

1. Not covered under the insurance policy.

2. Medically necessary and a payment on the claim was not made due to a denial on the basis of frequency or a disallowance on the basis of frequency. For the purposes of this paragraph, a provider is limited to the rates prescribed by that provider's fee schedule.

N. Any claim that is subject to article 2 of this chapter is not subject to this article.

§ 20-3103 Denial of claims; review of claims

(Eff. 7/1/26)

Before a health care insurer may deny a claim that was submitted by a provider on the basis of medical necessity, the medical director shall individually review the denial. During each individual review, the medical director shall exercise independent medical judgment and may not rely solely on recommendations from any other source.

Article 2 Out-of-Network Claim Dispute Resolution

§ 20-3111 Definitions

In this article, unless the context otherwise requires:

1. "Arbitration" means a dispute resolution process in which an impartial arbitrator determines the dollar amount a health care provider is entitled to receive for payment of a surprise out-of-network bill.

2. "Arbitrator" means an impartial person who is appointed to conduct an arbitration.

3. "Billing company" means any affiliated or unaffiliated company that is hired by a health care provider or health care facility to coordinate the payment of bills with health insurers and to generate or bill and collect payment from enrollees on the health care provider's or health care facility's behalf.

4. "Contracted provider" means a health care provider that has entered into a contract with a health insurer to provide health care services to the health insurer's enrollees at agreed on rates.

5. "Cost sharing requirements" means an enrollee's applicable out-of-network coinsurance, copayment and deductible requirements under a health plan based on the adjudicated claim.

6. "Emergency services" has the same meaning prescribed in section 20-2801.

7. "Enrollee" means an individual who is eligible to receive benefits through a health plan.

8. "Health care facility" has the same meaning prescribed in section 36-437.

9. "Health care provider" means a person who is licensed, registered or certified as a health care professional under title 32 or a laboratory or durable medical equipment provider that furnishes services to a patient in a network facility and that separately bills the patient for the services.

10. "Health care services" means treatment, services, medications, tests, equipment, devices, durable medical equipment, laboratory services or supplies rendered or provided to an enrollee for the purpose of diagnosing, preventing, alleviating, curing or healing human disease, illness or injury.

11. "Health insurer" means a disability insurer, group disability insurer, blanket disability insurer, hospital service corporation or medical service corporation that provides health insurance in this state.

12. "Health plan" means a group or individual health plan that finances or furnishes health care services and that is issued by a health insurer.

13. "Network facility" means a health care facility that has entered into a contract with a health insurer to provide health care services to the health insurer's enrollees at agreed on rates.

14. "Surprise out-of-network bill" means a bill for a health care service that was provided in a network facility by a health care provider that is not a contracted provider and that meets one of the requirements listed in section 20-3113.

§ 20-3112 Applicability

This article does not apply to:

1. Health care services that are not covered by the enrollee's health plan.

2. Limited benefit coverage as defined in section 20-1137.

3. Charges for health care services that are subject to a direct payment agreement under section 32-3216 or 36-437.

4. Health plans that do not include coverage for out-of-network health care services, unless otherwise required by law.

5. State health and accident coverage for full-time officers and employees of this state and their dependents that is provided pursuant to title 38, chapter 4, article 4.

6. A self-funded or self-insured employee benefit plan if the regulation of that plan is preempted by the employee retirement income security act of 1974 (P.L. 93-406; 88 Stat. 829; 29 United States Code section 1144(b)).

§ 20-3113 Surprise out-of-network bill; requirements; notice

A. A bill for a health care service that was provided in a network facility by a health care provider that is not a contracted provider must meet one of the following requirements to qualify as a surprise out-of-network bill:

1. The bill was for emergency services, including under circumstances described by section 20-2803, subsection A and health care services directly related to the emergency services that are provided during an inpatient admission to any network facility.

2. The bill was for a health care service that was not provided in the case of an emergency and the health care provider or the provider's representative did not provide to the enrollee, or did not provide to the enrollee within a reasonable amount of time before the enrollee received the services, a written dated disclosure that contained the following information:

(a) Notice that contains the name of the billing health care provider and that states the health care provider is not a contracted provider.

(b) The estimated total cost to be billed by the health care provider or the provider's representative.

(c) Notice that the enrollee or the enrollee's authorized representative is not required to sign the disclosure to obtain medical care but if the enrollee or the enrollee's representative signs the disclosure, the enrollee may have waived any rights to dispute resolution under this article.

3. The bill was for a health care service that was not provided in the case of an emergency and the enrollee received the disclosure prescribed in paragraph 2 of this subsection, but the enrollee or the enrollee's authorized representative chose not to sign the disclosure.

B. Notwithstanding any provision of this article, a health insurer and any health plan offered by a health insurer shall comply with chapter 17, article 1 of this title.

§ 20-3114 Dispute resolution; settlement teleconference; arbitration; surprise out-of-network bills

A. An enrollee who has received a surprise out-of-network bill and who disputes the amount of the bill may seek dispute resolution of the bill by filing a request for arbitration with the department not later than one year after the date of service noted in the surprise out-of-network bill, except as otherwise provided in this section, if all of the following apply:

1. The enrollee has resolved any health care appeal pursuant to chapter 15, article 2 of this title that the enrollee may have had against the health insurer following the health insurer's initial adjudication of the claim. The one-year time period for requesting arbitration is tolled from the date that the enrollee files a health care appeal until the date of final resolution of the appeal.

2. The enrollee has not instituted a civil lawsuit or other legal action against the insurer or health care provider related to the same surprise out-of-network bill or the health care services provided.

3. The amount of the surprise out-of-network bill for which the enrollee is responsible for all related health care services provided by the health care provider whether contained in one or multiple bills, after deduction of the enrollee's cost sharing requirements and the insurer's allowable reimbursement, is at least one thousand dollars.

B. If an enrollee requests dispute resolution of a surprise out-of-network bill, the enrollee or the enrollee's authorized representative shall participate in an informal settlement teleconference and may participate in the arbitration of the bill. If the enrollee or enrollee's authorized representative fails to attend the informal settlement teleconference, the conference shall be terminated and the enrollee, within fourteen days after the first scheduled informal settlement teleconference, may request that the department reschedule the informal settlement teleconference. If the enrollee does not request that the department reschedule the informal settlement teleconference, the enrollee forfeits the right to arbitrate the surprise out-of-network bill. The health care provider or the provider's representative and the health insurer shall participate in the informal settlement teleconference and the arbitration.

C. An enrollee may not seek dispute resolution of a bill if the enrollee or the enrollee's authorized representative signed the disclosure prescribed in section 20-3113, subsection A, paragraph 2 and the amount actually billed to the enrollee is less than or equal to the estimated total cost provided in the disclosure.

§ 20-3115 Conduct of arbitration proceedings

A. The department shall develop a simple, fair, efficient and cost-effective arbitration procedure for surprise out-of-network bill disputes and specify time frames, standards and other details of the arbitration proceeding, including procedures for scheduling and notifying the parties of the settlement teleconference required by subsection E of this section. The department shall contract with one or more entities to provide arbitrators who are qualified under section 20-3116 for this process. Department staff may not serve as arbitrators.

B. An enrollee may request arbitration of a surprise out-of-network bill by submitting a request for arbitration to the department on a form prescribed by the department, which shall include contact, billing and payment information regarding the surprise out-of-network bill and any other information the department believes is necessary to confirm that the bill qualifies for arbitration. The form shall be made available on the department's website.

C. Within fifteen days after receipt of a request for arbitration, the department shall do one of the following:

1. Determine that the surprise out-of-network bill qualifies for arbitration under this article and notify the enrollee, health insurer and health care provider that the request qualifies.

2. Determine that the surprise out-of-network bill does not qualify for arbitration under this article and notify the enrollee that the surprise out-of-network bill does not qualify and state the reason for the determination.

3. If the department cannot determine whether the surprise out-of-network bill qualifies for arbitration, request in writing any additional information from the enrollee, health insurer or health care provider or its billing company that is needed to determine whether the surprise out-of-network bill qualifies for arbitration and all of the following apply:

(a) The enrollee, health insurer or health care provider or its billing company shall respond to the department's request for additional information within fifteen days after the date of the department's request.

(b) Within seven days after receipt of the additional requested information, the department shall determine whether the surprise out-of-network bill qualifies for arbitration and send the notices required under this subsection.

(c) If the health insurer or health care provider or its billing company fails to respond within the time frame specified in subdivision (a) of this paragraph to a department request for information, the department shall deem the request for arbitration as eligible for arbitration. If the enrollee fails to respond within the time frame specified in subdivision (a) of this paragraph, the request for arbitration is denied.

D. The determination by the department of whether a surprise out-of-network bill qualifies for arbitration is a final and binding decision with no right of appeal to the department. The department's determination is solely an administrative remedy and does not bar any private right or cause of action for or on behalf of any enrollee, health care provider or other person. The court shall decide the matter, including any interpretation of statute or rule, without deference to any previous determination that may have been made on the question by the department.

E. In an effort to settle the surprise out-of-network bill before arbitration, the department shall arrange an informal settlement teleconference within thirty days after the department sends the notices required by this section. The department is not a party to and may not participate in the informal settlement teleconference. As part of the settlement teleconference the health insurer shall provide to the parties the enrollee's cost sharing requirements under the enrollee's health plan based on the adjudicated claim. The health insurer shall notify the department whether the informal settlement teleconference resulted in settlement of the disputed surprise out-of-network bill and, if settlement was reached, notify the department of the terms of the settlement within seven days.

F. If after proper notice from the department or contracted entity either the health insurer or health care provider or the provider's representative fails to participate in the teleconference, the other party may notify the department to immediately initiate arbitration and the nonparticipating party shall be required to pay the total cost of the arbitration.

G. On receipt of notice that the dispute has not settled or that a party has failed to participate in the teleconference, the department shall appoint an arbitrator and shall notify the parties of the arbitration and the appointed arbitrator. The department's notice shall specify whether one party is responsible for the total cost of the arbitration pursuant to subsection F of this section. The health insurer and health care provider must agree on the arbitrator and may mutually agree to use an arbitrator who is not on the department's list. If either the health insurer or health care provider objects to the arbitrator, and the parties are unable to agree on a mutually acceptable alternative arbitrator, the department or contracted entity shall randomly assign three arbitrators. The health insurer and the health care provider shall each strike one arbitrator, and the last arbitrator shall conduct the arbitration unless there are two arbitrators remaining, in which case the department or contracted entity shall randomly assign the arbitrator.

H. Before the arbitration:

1. The enrollee shall pay or make arrangements in writing to pay the health care provider the total amount of the enrollee's cost sharing requirements that is due for the health care services that are the subject of the surprise out-of-network bill as stated by the health insurer in the settlement teleconference.

2. The enrollee shall pay any amount that has been received by the enrollee from the enrollee's health insurer as payment for the out-of-network health care services that were provided by the health care provider.

3. If a health insurer pays for out-of-network health care services directly to a health care provider, the health insurer that has not remitted its payment for the out-of-network health care services shall remit the amount due to the health care provider.

I. Arbitration of any surprise out-of-network bill shall be conducted telephonically unless otherwise agreed by all of the required participants.

J. Arbitration of the surprise out-of-network bill shall take place with or without the enrollee's participation.

K. The arbitrator shall determine the amount the health care provider is entitled to receive as payment for the health care services. The arbitrator shall allow each party to provide information the arbitrator reasonably determines to be relevant in evaluating the surprise out-of-network bill, including the following information:

1. The average contracted amount that the health insurer pays for the health care services at issue in the county where the health care services were performed.

2. The average amount that the health care provider has contracted to accept for the health care services at issue in the county where the services were performed.

3. The amount that medicare and medicaid pay for the health care services at issue.

4. The health care provider's direct pay rate for the health care services at issue, if any, under section 32-3216.

5. Any information that would be evaluated in determining whether a fee is reasonable under title 32 and not excessive for the health care services at issue, including the usual and customary charges for the health care services at issue performed by a health care provider in the same or similar specialty and provided in the same geographic area.

6. Any other reliable databases or sources of information on the amount paid for the health care services at issue in the county where the services were performed.

L. Except on the agreement of the parties participating in the arbitration, the arbitration shall be conducted within one hundred twenty days after the department's notice of arbitration.

M. Except on the agreement of the parties participating in the arbitration, the arbitration may not last more than four hours.

N. The arbitrator shall issue a final written decision within ten business days following the arbitration hearing. The arbitrator shall provide a copy of the decision to the enrollee, the health insurer and the health care provider or its billing company or authorized representative.

O. All pricing information provided by health insurers and health care providers in connection with the arbitration of a surprise out-of-network bill is confidential and may not be disclosed by the arbitrator or any other party participating in the arbitration or used by anyone, other than the providing party, for any purpose other than to resolve the surprise out-of-network bill.

P. All information received by the department or contracted entity in connection with an arbitration is confidential and may not be disclosed by the department or contracted entity to any person other than the arbitrator.

Q. A claim that is the subject of an arbitration request is not subject to article 1 of this chapter during the pendency of the arbitration. A health insurer shall remit its portion of the payment resulting from the informal settlement teleconference or the amount awarded by the arbitrator within thirty days after resolution of the claim.

R. A claim that is reprocessed by a health insurer as a result of a settlement, arbitration decision or other action under this article is not in violation of section 20-3102, subsection N.

S. Notwithstanding any informal settlement or the arbitrator's decision under this article, the enrollee is responsible for only the amount of the enrollee's cost sharing requirements and any amount received by the enrollee from the enrollee's health insurer as payment for the out-of-network health care services that were provided by the health care provider, and the health care provider may not issue, either directly or through its billing company, any additional balance bill to the enrollee related to the health care service that was the subject of the informal settlement teleconference or arbitration.

T. Unless all the parties otherwise agree or unless required by subsection F of this section, the health insurer and the health care provider shall share the costs of the arbitration equally, and the enrollee is not responsible for any portion of the cost of the arbitration. The health insurer and health care provider shall make payment arrangements with the arbitrator for their respective share of the costs of the arbitration.

§ 20-3116 Arbitrator qualifications

To qualify as an arbitrator, a person shall have at least three years' experience in health care services claims and shall comply with any other qualifications established by the department.

§ 20-3117 Dispute resolution; notice of rights

A. The department in conjunction with the appropriate health care boards shall prescribe the notice outlining an enrollee's rights to dispute surprise out-of-network bills under this article.

B. Health insurers shall include the notice prescribed pursuant to subsection A of this section in each explanation of benefits or other similar claim adjudication notice that is issued to enrollees and that involves covered services provided by a noncontracted health care provider. This subsection applies only to claims that are not subject to an independent dispute resolution pursuant to the No Surprises Act (P.L. 116-120; 134 Stat. 2758; 42 United States Code section 201).

C. If an enrollee contacts a health care provider, a provider's representative or a billing company regarding a dispute involving a surprise out-of-network bill that is not subject to an independent dispute resolution pursuant to the no surprises act (P.L. 116-120; 134 Stat. 2758; 42 United States Code section 201), the health care provider, the provider's representative or the billing company shall provide written notice as prescribed in subsection A of this section to the enrollee of the dispute resolution process.

D. The department shall post on its website information for health care consumers regarding what constitutes a surprise out-of-network bill, how to try to avoid a surprise out-of-network bill and how the dispute resolution process may be used to resolve a surprise out-of-network bill.

§ 20-3118 Surprise out-of-network bills; annual report

A. On or before December 31, 2019 and each December 31 thereafter, the department shall report on the resolution of disputed surprise out-of-network bills. The report shall include:

1. The total number of inquiries regarding dispute resolution of surprise out-of-network bills.

2. The total number of requests that did not qualify for dispute resolution and the reasons why the disputed bills did not qualify.

3. The number of requests that qualified for dispute resolution.

4. The most common requests for dispute resolution by health care provider specialty area.

5. The most common requests for dispute resolution by health care service.

6. The number of requests for dispute resolution by geographic area in this state.

7. The most common requests for dispute resolution based on the type of health care facility in which the health care services were provided.

8. The number of requests for dispute resolution that were settled during a settlement teleconference.

9. The number of requests for dispute resolution that were settled during arbitration.

10. The number of times a health insurer, a health care provider or the provider's representative or an enrollee failed to attend the settlement teleconference.

11. The average percentage by which disputed surprise out-of-network bills were reduced from the initially billed amount.

12. Any additional information that the department determines is relevant in evaluating the effectiveness of the dispute resolution process.

B. The department shall submit the report to the governor, the president of the senate and the speaker of the house of representatives and shall provide a copy of the report to the secretary of state.

§ 20-3119 Right of civil action

An enrollee who is aggrieved by an arbitration decision regarding a disputed surprise out-of-network bill may file a civil action in superior court not later than one year after the date of the disputed decision to obtain appropriate relief with respect to the same surprise out-of-network bill.

Chapter 21 Health Care Insurer Liability

Article 1 General Provisions

§ 20-3151 Definitions

For the purposes of this section:

1. "Enrollee" means an individual who is enrolled in a health care plan provided by a health care insurer.

2. "Health care insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital and medical service corporation.

3. "Health care plan" means a policy, contract or evidence of coverage issued to an enrollee. Health care plan does not include limited benefit coverage as defined in section 20-1137.

4. "Health care professional" means a professional who is regulated pursuant to title 32, chapter 7, 8, 11, 13, 14, 15, 15.1, 16, 17, 18, 19, 19.1, 25, 28, 29, 33, 34, 35, 39 or 41, title 36, chapter 6, article 7 or title 36, chapter 17.

§ 20-3152 Exemptions; waiver

A. This chapter does not create:

1. Any liability on the part of any employer or employer group purchasing organization that purchases coverage or assumes risk on behalf of its employees or on behalf of self-funded employee benefit plans.

2. Any new or additional liability on the part of a health care insurer for harm caused that is attributable to the medical negligence of a treating health care professional or health care institution as defined in section 36-401.

B. This chapter does not abrogate or limit any other theory of liability or defense otherwise available at law.

C. Any waiver by an enrollee of any provision of this chapter is contrary to public policy and is unenforceable and void.

D. An enrollee who files an action pursuant to section 20-3153 may not pursue a common law action for breach of the duty of good faith and fair dealing against the health care insurer. An enrollee who files a common law action for breach of the duty of good faith and fair dealing against a health care insurer may not pursue an action pursuant to section 20-3153.

§ 20-3153 Health care insurer liability

A. A health care insurer is liable for any damages caused to the insurer's enrollee by the insurer's delay in authorizing or failure to authorize a request for medically necessary health care services covered under the health care plan or by the insurer's denial of payment of benefits covered under the health care plan if both:

1. The health care insurer delayed authorizing or failed to authorize the requested health care services or denied payment of the covered benefits without a reasonable basis for that action.

2. The health care insurer knew that it acted without a reasonable basis or failed to perform an investigation or evaluation adequate to determine whether its action was supported by a reasonable basis.

B. A health care insurer:

1. Is liable under this section if the insurer's conduct was a cause of the enrollee's damages and if the damages would not have occurred without that conduct.

2. Is not liable under this section if the insurer's conduct under this section was inadvertent or unintentional.

§ 20-3154 Health care appeals; admissibility

In an action under this chapter, any person, enrollee or health care insurer may introduce into evidence for any purpose any of the documents, findings, decisions or information concerning events that occurred in the health care appeals process pursuant to chapter 15, article 2 of this title. The fact that the enrollee did not participate in the health care appeals process may also be introduced into evidence.

§ 20-3155 Notice of intent to file suit

A. Before an enrollee files an action pursuant to section 20-3153, the enrollee shall either:

1. Complete the health care appeals process prescribed in chapter 15, article 2 of this title.

2. Provide written notice to the health care insurer at least thirty days before filing suit stating the enrollee's intention to file suit and setting forth the basis for the suit.

B. If the enrollee provides notice pursuant to subsection A, paragraph 2 of this section, the enrollee shall deliver the notice to the health care insurer in compliance with the terms specified for delivery of written notices prescribed in the policy, contract or evidence of coverage. If the policy, contract or evidence of coverage does not specify the terms for delivery of written notices, the enrollee may provide notice to the last representative of the health care insurer who corresponded in writing with the enrollee.

C. Participation in the health care appeals process prescribed in chapter 15, article 2 of this title does not prohibit or limit the enrollee from filing suit at the conclusion of the appeals process.

Chapter 22 Life Settlements

Article 1 General Provisions

§ 20-3201 Definitions

In this chapter, unless the context otherwise requires:

1. "Advertising" means any written, electronic or printed communication or any communication by means of recorded telephone messages or transmitted by radio, television, the internet or similar communications media, including film strips, motion pictures and videos, that is published, disseminated, circulated or placed directly before an owner in this state for the purpose of creating an interest in or inducing an owner to purchase or sell, assign, devise, bequest or transfer the death benefit or ownership of a life insurance policy or an interest in a life insurance policy pursuant to a life settlement contract.

2. "Broker":

(a) Means a person who:

(i) On behalf of an owner, and for a fee, commission or other valuable consideration, offers or attempts to negotiate life settlement contracts between an owner and providers.

(ii) Represents only the owner.

(iii) Owes a fiduciary duty to the owner to act according to the owner's instructions, and in the best interest of the owner, notwithstanding the manner in which the broker is compensated.

(b) Does not include an attorney, certified public accountant or financial planner who is retained in the type of practice customarily performed in that professional capacity to represent the owner and whose compensation is not paid directly or indirectly by the provider or any other person, except the owner.

3. "Business of life settlements" includes offering to enter into, soliciting, negotiating, procuring, effectuating, monitoring or tracking of life settlement contracts.

4. "Chronic illness" means an illness that causes an individual to either:

(a) Be unable to perform at least two activities of daily living.

(b) Require substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.

5. "Financing entity" means an underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a provider, credit enhancer or any entity that has a direct ownership in a policy or certificate that is the subject of a life settlement contract and for which both of the following apply:

(a) The entity's principal activity related to the transaction is providing monies to effect the life settlement contract or the purchase of one or more policies.

(b) The entity has an agreement in writing with one or more providers to finance the acquisition of life settlement contracts.

6. "Financing transaction" means a transaction in which a licensed provider obtains financing from a financing entity, including any secured or unsecured financing, any securitization transaction or any securities offering that either is registered or exempt from registration under federal and state securities law.

7. "Insured" means the person who is covered under the policy being considered for sale in a life settlement contract.

8. "Life expectancy" means the arithmetic mean of the number of months the insured under the life insurance policy to be settled can be expected to live considering medical records and appropriate experiential data.

9. "Life insurance producer" means any person who is licensed to transact life insurance business in this state pursuant to chapter 2, article 3 of this title.

10. "Life settlement contract":

(a) Means a written agreement between a provider and an owner that establishes the terms under which compensation or anything of value will be paid, which compensation or thing of value is less than the expected death benefit of the insurance policy or certificate, in return for the owner's assignment, transfer, sale, devise or bequest of the death benefit or any portion of an insurance policy or certificate of insurance for compensation if the minimum value for a life settlement contract is greater than a cash surrender value or accelerated death benefit available at the time of an application for a life settlement contract.

(b) Includes the transfer for compensation or value of ownership or beneficial interest in a trust or other entity that owns the policy if the trust or other entity was formed or availed of for the principal purpose of acquiring one or more life insurance contracts that are owned by a person residing in this state.

(c) Includes a premium finance loan made for a policy on or before the date of issuance of the policy if one or more of the following conditions apply:

(i) The loan proceeds are not used solely to pay premiums for the policy and any costs or expenses incurred by the lender or the borrower in connection with the financing.

(ii) The owner receives on the date of the premium finance loan a guarantee of the future life settlement value of the policy.

(iii) The owner agrees on the date of the premium finance loan to sell the policy or any portion of the policy's death benefit on any date following the issuance of the policy, not including an agreement to sell the policy in the event of a default, if the default is not pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this chapter.

(d) Does not include any of the following:

(i) A policy loan by a life insurance company pursuant to the terms of the life insurance policy or accelerated death provisions contained in the life insurance policy, whether issued with the original policy or as a rider.

(ii) A premium finance loan or any loan made by a bank or other licensed financial institution if the default on the loan or the transfer of the policy in connection with the default is pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this chapter.

(iii) A collateral assignment of a life insurance policy by an owner.

(iv) A loan made by a lender if the loan is not described in subdivision (c) of this paragraph and is not otherwise within the definition of life settlement contract.

(v) An agreement where all of the parties are either closely related to the insured by blood or law or have a lawful substantial economic interest in the continued life, health and bodily safety of the person insured or in trusts established primarily for the benefit of those parties.

(vi) Any designation, consent or agreement by an insured who is an employee of an employer in connection with the purchase by the employer or by a trust established by the employer of life insurance on the life of the employee.

(vii) A bona fide business succession planning arrangement between one or more shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trusts established by its shareholders, between one or more partners in a partnership or between a partnership and one or more of its partners or one or more trusts established by its partners or between one or more members in a limited liability company or between a limited liability company and one or more of its members or one or more trusts established by its members.

(viii) An agreement entered into by a service recipient, or a trust established by the service recipient, and a service provider, or a trust established by the service provider, who performs significant services for the service recipient's trade or business.

(ix) Any other contract, transaction or arrangement that the director determines is not of the type intended to be regulated by this chapter.

11. "Owner":

(a) Means the owner of a policy, with or without a chronic illness or a terminal illness or condition, who enters or seeks to enter into a life settlement contract.

(b) Is not limited to an owner of a policy that insures the life of an individual with a chronic illness or a terminal illness or condition except where specifically addressed.

(c) Does not include any of the following:

(i) Any provider or other licensee under this chapter.

(ii) A qualified institutional buyer as defined in rule 144A of the federal securities act of 1933, as amended.

(iii) A financing entity.

(iv) A special purpose entity.

(v) A related provider trust.

12. "Person" means an individual or business entity.

13. "Policy" means an individual or group policy, group certificate, contract or arrangement of life insurance owned by a resident of this state regardless of whether delivered or issued for delivery in this state.

14. "Premium finance loan" means a loan that is made primarily for the purpose of making premium payments on a life insurance policy and that is secured by an interest in the life insurance policy.

15. "Provider":

(a) Means a person, other than an owner, who enters into or effectuates a life settlement contract with an owner.

(b) Does not include any of the following:

(i) Any bank, savings bank, savings and loan association or credit union.

(ii) A licensed lending institution or creditor or secured party pursuant to a premium finance loan agreement that takes an assignment of a life insurance policy or certificate issued pursuant to a group life insurance policy as collateral for a loan.

(iii) The insurer of a life insurance policy or rider to the extent of providing accelerated death benefits or riders or cash surrender value.

(iv) A purchaser.

(v) Any authorized or eligible insurer that provides stop loss coverage to a provider, purchaser, financing entity, special purpose entity or related provider trust.

(vi) A financing entity.

(vii) A related provider trust.

(viii) A broker.

(ix) An accredited investor or qualified institutional buyer, as defined in regulation D, rule 501 or rule 144A of the federal securities act of 1933, as amended, who purchases a life settlement policy from a provider.

16. "Purchaser" means a person who pays compensation or anything of value as consideration for a beneficial interest in a trust that is vested with, or for the assignment, transfer or sale of, an ownership or other interest in a life insurance policy or a certificate issued pursuant to a group life insurance policy that has been the subject of a life settlement contract.

17. "Related provider trust" means a titling trust or other trust that is established by a licensed provider or a financing entity for the sole purpose of holding the ownership or beneficial interest in purchased policies in connection with a financing transaction and that has a written agreement with the licensed provider under which the licensed provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files relating to life settlement transactions available to the department as if those records and files were maintained directly by the licensed provider.

18. "Settled" means a life insurance policy or certificate that has been acquired by a provider pursuant to a life settlement contract.

19. "Special purpose entity" means a corporation, partnership, trust, limited liability company or other legal entity whose securities pay a fixed rate of return commensurate with established asset-backed capital markets or that has been formed solely to provide either directly or indirectly access to institutional capital markets:

(a) For a financing entity or provider.

(b) In connection with a transaction in which the securities in the special purpose entity are acquired by the owner or by a qualified institutional buyer as defined in rule 144 of the federal securities act of 1933, as amended.

20. "Stranger originated life insurance" means an intentional practice or plan as prescribed in section 20-443.02.

21. "Terminally ill" means having an illness or sickness that can reasonably be expected to result in death in twenty-four months or less.

§ 20-3202 Licensure; requirements

A. Except as otherwise provided in this section, a person shall not act as a provider or broker with any owner who is a resident of this state unless the person obtains a certificate of authority or license pursuant to this section.

B. An applicant for a provider certificate of authority shall submit an application to the director on a form prescribed by the director. The application shall be accompanied by a fee in an amount established by the director.

C. The applicant for a provider certificate of authority shall provide all of the information required by the director. The director, at any time, may require an applicant to fully disclose the identity of its partners, officers, employees and stockholders except for stockholders owning less than ten percent of the shares of an applicant whose shares are publicly traded. The director, at the director's sole discretion, may refuse to issue a certificate of authority in the name of any person if the director is not satisfied that any officer, employee, stockholder or partner who may materially influence the applicant's conduct meets the requirements of this chapter.

D. A provider certificate of authority issued to a partnership, corporation or other entity authorizes all members, officers and designated employees to act as a provider under the certificate of authority if those persons are named in the application and any supplements to the application.

E. The director shall require that:

1. A provider submit a detailed plan of operation.

2. If the applicant for a provider certificate of authority is a legal entity, it be formed or organized pursuant to the laws of this state or, if it is a foreign legal entity, it be authorized to transact business in this state or provide a certificate of good standing from the state of its domicile.

3. The applicant for a provider certificate of authority provide an antifraud plan that meets the requirements of section 20-3211 and that includes a description of:

(a) The procedures for detecting and investigating possible fraudulent acts and for resolving material inconsistencies between medical records and insurance applications.

(b) The procedures for reporting fraudulent insurance acts to the director.

(c) The plan for antifraud education and training of its underwriters and other personnel.

(d) A written description or organizational chart of the antifraud personnel who are responsible for the investigation and reporting of possible fraudulent insurance acts and the investigation of unresolved material inconsistencies between medical records and insurance applications.

F. A producer that is licensed in this state with a life line of authority shall:

1. Be deemed to meet the licensing requirements of this section and be permitted to operate as a broker.

2. Within the first thirty days of operating as a broker, notify the director, on a form prescribed by the director, that the producer is acting as a broker. Notification shall include an acknowledgement by the life insurance producer that the producer will operate as a broker pursuant to this chapter.

3. Pay any applicable fee as determined by the director.

G. A broker may renew a license by paying the renewal fee in an amount established by the director. The expiration date of the broker authority shall coincide with the expiration date of the life line of authority as set forth in section 20-289.

H. The director may not issue a license to any nonresident applicant unless a written designation of an agent in this state for service of process is filed and maintained with the director or unless the applicant has filed with the director the applicant's written irrevocable consent that any action against the applicant may be commenced against the applicant by service of process on the director.

I. A provider may not use any person to perform the function of a broker unless the person holds a valid license as a broker pursuant to this section.

J. A broker may not use any person to perform the functions of a provider unless the person holds a valid license as a provider pursuant to this section.

K. A provider or broker shall submit to the director any new or revised information concerning individuals required to be disclosed pursuant to subsection C of this section within thirty days of any change.

L. A person who is licensed as an attorney or a certified public accountant, who is retained to represent the owner and whose compensation is not paid directly or indirectly by the provider or purchaser may negotiate a life settlement contract on behalf of the owner without having to obtain a license as a broker.

M. The insurer that issued the policy and that is the subject of a life settlement contract is not responsible for any act or omission of a broker or provider or a purchaser arising out of or in connection with the life settlement transaction unless the insurer receives compensation for the placement of a life settlement contract from the provider, broker or purchaser in connection with the life settlement contract.

§ 20-3203 Contract requirements

A. A person may not use any form of life settlement contract in this state unless it is filed with and, if required, approved by the director in a manner that conforms with the filing procedures and any time restrictions or deeming provisions for life insurance forms, policies or contracts.

B. As a condition of responding to a request for verification of coverage or in connection with the transfer of a policy pursuant to a life settlement contract, an insurer may not require that the owner, insured, provider or broker sign any form, disclosure, consent, waiver or acknowledgment that has not been expressly approved by the director for use in connection with life settlement contracts in this state.

C. A person may not use a life settlement contract form or provide to an owner a disclosure statement form in this state unless the form is first filed with and approved by the director. The director may not approve a life settlement contract form or disclosure statement form if, in the director's opinion, the contract or provisions of the contract fail to meet the requirements of this chapter or are unreasonable, contrary to the public interest or otherwise misleading or unfair to the owner.

§ 20-3204 Provider and broker disclosures to owners; violation; classification

A. The provider or broker shall provide in writing the following information, in a separate document that is signed by the owner and provider, to the owner no later than the date of application for the life settlement contract:

1. That there are possible alternatives to life settlements, including accelerated benefits options that may be offered by the life insurer or policy loans.

2. That some or all of the proceeds of a life settlement may be taxable and that assistance should be sought from a professional tax adviser.

3. That the proceeds from a life settlement could be subject to the claims of creditors.

4. That receipt of proceeds from a life settlement contract may adversely affect the recipient's eligibility for public assistance or other government benefits or entitlements and that advice should be obtained from the appropriate agencies.

5. That entering into a life settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or certificate of a group policy, to be forfeited by the owner and that assistance should be sought from a professional financial adviser.

6. That the owner has a right to rescind a life settlement contract within fifteen days after the date it is executed by all parties and the owner has received all required disclosures. Rescission, if exercised by the owner, is effective only if both notice of rescission is given and the owner repays all proceeds and any premiums, loans and loan interest paid on account of the provider within the rescission period. If the insured dies during the rescission period, the contract is deemed to have been rescinded subject to repayment by the owner or the owner's estate of all proceeds and any premiums, loans and loan interest to the provider.

7. That proceeds will be sent to the owner within three business days after the provider has received the insurer or group administrator's acknowledgment that ownership of the policy or the interest in the certificate has been transferred and the beneficiary has been designated according to the terms of the life settlement contract.

8. The date by which the monies will be available to the owner and the transmitter of the monies.

9. That the insured may be contacted by either the provider or the broker or its authorized representative for the purpose of determining the insured's health status or to verify the insured's address. This contact is limited to once every three months if the insured has a life expectancy of more than one year and not more than once per month if the insured has a life expectancy of one year or less.

10. Any affiliations or contractual relations between the provider and the broker and the affiliation, if any, between the provider and the issuer of the policy to be settled.

11. That a broker represents exclusively the owner and not the insurer or the provider or any other person and owes a fiduciary duty to the owner, including a duty to act according to the owner's instructions and in the best interest of the owner.

12. The name, business address and telephone number of the broker.

B. The disclosure required under subsection A shall also include the following statements:

All medical, financial or personal information solicited or obtained by a provider or broker about an insured, including the insured's identity or the identity of family members, a spouse or a significant other, may be disclosed as necessary to effect the life settlement contract between the owner and provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides monies for the purchase. You may be asked to renew your permission to share information every two years.

Any person who knowingly presents false information in an application for insurance or life settlement contract is guilty of a class 1 misdemeanor and may be subject to fines and confinement in jail.

C. The broker shall provide the owner and the provider with at least all of the following disclosures in writing before all parties sign the life settlement contract. The disclosures shall be clearly displayed in the life settlement contract or in a separate document signed by the owner:

1. The name, business address and telephone number of the broker.

2. A full, complete and accurate description of all of the offers, counteroffers, acceptances and rejections relating to the proposed life settlement contract.

3. A disclosure of any affiliations or contractual arrangements between the broker and any person making an offer in connection with the proposed life settlement contract.

4. The name of each broker who receives compensation and the amount of compensation received by that broker including anything of value paid or given to the broker in connection with the life settlement contract.

5. A complete reconciliation of the gross offer or bid by the provider to the net amount of proceeds or value to be received by the owner. For the purposes of this paragraph, "gross offer or bid" means the total amount or value offered by the provider for the purchase of one or more life insurance policies including commissions and fees.

§ 20-3205 Privacy

Except as otherwise provided by law, a provider, broker, insurance company, insurance producer or any other person with actual knowledge of an insured's identity shall not disclose the identity of an insured or any information that there is a reasonable basis to believe could be used to identify the insured or the insured's financial or medical information to any other person unless the disclosure is one of the following:

1. Necessary to effect a life settlement contract between the owner and a provider and the owner and insured have provided prior written consent to the disclosure.

2. Necessary to effect the sale of life settlement contracts or interests in life settlement contracts as investments if the sale is conducted pursuant to applicable state and federal securities law and the owner and the insured have both provided prior written consent to the disclosure.

3. Provided in response to an investigation or examination by the director or any other state or federal agency.

4. A term or condition to the transfer of a policy by one provider to another provider, in which case the receiving provider shall be required to comply with all applicable laws regarding the confidentiality of medical information.

5. Necessary to allow the provider or broker or the provider's or broker's authorized representatives to make contacts for the purpose of determining health status. For the purposes of this paragraph, authorized representative does not include any person who has or may have any financial interest in the settlement contract other than a provider or licensed broker. Authorized representatives shall agree in writing to adhere to all applicable confidentiality and privacy laws.

6. Required to purchase stop loss coverage.

§ 20-3206 Rule making; examinations

A. The director may adopt rules reasonably necessary to regulate life settlements and transactions consistent with the provisions of this chapter.

B. The director, whenever the director deems it reasonably necessary to protect the interests of the public, may examine the business and affairs of any licensee or applicant for a license. The director may order any licensee or applicant to produce any records, books, files or other information to ascertain whether or not the licensee or applicant is acting or has acted in violation of this title or otherwise contrary to the interests of the public. The licensee or applicant shall pay any expenses incurred in conducting any examination.

C. In lieu of an examination of any foreign or alien licensee licensed in this state, the director, at the director's discretion, may accept an examination report on the licensee prepared by the director for the licensee's state of domicile or port-of-entry state.

D. Names of and individual identification data for all owners and insureds is private and confidential information and shall not be disclosed by the director unless required by law.

E. The provider shall maintain records of all consummated transactions and life settlement contracts for three years after the death of the insured. The director may inspect these records during reasonable business hours.

§ 20-3207 Conduct of examinations; examination reports; confidentiality

A. The director may investigate suspected fraudulent life settlement acts and persons engaged in the business of life settlements.

B. After determining that an examination should be conducted, the director shall issue an examination warrant appointing one or more examiners to perform the examination and instructing them as to the scope of the examination. In conducting the examination, the examiner shall use methods common to the examination of any life settlement licensee and should use those guidelines and procedures set forth in an examiners' handbook adopted by a national organization.

C. Every licensee or person from whom information is sought and the officers, directors and agents of the licensee or person shall provide to the examiners timely, convenient and free access during reasonable hours at its offices to all examined licensee's books, records, accounts, papers, documents, assets and computer or other records relating to the property, assets, business and affairs. The officers, directors, employees and agents of the licensee or person shall facilitate and aid in the examination. The director may suspend, revoke or nonrenew a licensee's license or authority to engage in the life settlement business or other business that is subject to the director's jurisdiction if the licensee, by its officers, directors, employees or agents, fails to submit to an examination or to comply with any reasonable written request of the director.

D. The director may issue subpoenas, administer oaths and examine under oath any person as to any matter pertinent to the examination. If a person fails or refuses to obey a subpoena, the director may petition a court of competent jurisdiction and, on proper showing, the court may enter an order compelling the witness to appear and testify or produce documentary evidence.

E. When making an examination under this chapter, the director may retain attorneys, appraisers, independent actuaries, independent certified public accountants or other professionals and specialists as examiners, the reasonable cost of which shall be borne by the licensee that is the subject of the examination.

F. The provisions of this section do not limit the director's authority to terminate or suspend an examination in order to pursue other legal or regulatory action pursuant to the insurance laws of this state. Findings of fact and conclusions made pursuant to any examination constitute prima facie evidence in any legal or regulatory action.

G. The provisions of this section do not limit the director's authority to use and, if appropriate, make public any final or preliminary examination report, any examiner or licensee work papers or other documents or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action that the director deems appropriate.

H. Examination reports shall include only the facts appearing on the licensee's books or from the testimony of the licensee's officers or agents or other persons examined concerning the licensee's affairs and the conclusions and recommendations the examiner finds reasonably warranted from the facts.

I. Within sixty days after the examination is completed, the examiner in charge shall file with the director a verified written report of examination under oath. On receipt of the verified report, the director shall transmit the report to the examined licensee together with a notice that gives the examined licensee a reasonable opportunity of not more than thirty days to make a written submission or rebuttal with respect to any matters contained in the examination report, and that shall become part of the report, or to request a hearing on any matter in dispute.

J. On finding that a person has violated this chapter or a rule adopted pursuant to this chapter, the director may issue an order directing that the person cease and desist from committing the violation. On the issuance of an order to cease and desist, the person may request a hearing pursuant to section 20-161 and title 41, chapter 6, article 10.

K. The names and individual identification data for all owners, purchasers and insureds is confidential information and shall not be disclosed by the director unless the disclosure is to another regulator or is required by law.

L. Except as otherwise provided in this chapter, all examination reports, working papers, recorded information, documents and copies produced by, obtained by or disclosed to the director or any other person in the course of an examination made under this chapter, or in the course of an analysis or investigation by the director of the licensee's financial condition or market conduct are confidential and privileged and are not public records. This information is not subject to subpoena or discovery and is not admissible in evidence in any private civil action. The director is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as part of the director's official duties. The examined licensee may access all documents used to make the report.

M. All examination and examination related expenses shall be borne by the provider and shall be paid by the insurance examiners' revolving fund pursuant to section 20-159.

§ 20-3208 Conflict of interest; examiners

A. The director may not appoint an examiner if the examiner, either directly or indirectly, has a conflict of interest or is affiliated with the management of or owns a pecuniary interest in any person subject to examination under this chapter. This section does not automatically preclude an examiner from being an owner, an insured in a life settlement contract or insurance policy or a beneficiary in an insurance policy that is proposed for a life settlement contract.

B. Notwithstanding subsection A, the director may retain on an individual basis qualified actuaries, certified public accountants or other similar individuals who are independently practicing their professions even though these persons may from time to time be similarly employed or retained by persons subject to examination under this chapter.

§ 20-3209 Immunity from liability

A. The director, the director's authorized representatives or any examiner appointed by the director is not liable for any statements made or conduct performed in good faith while carrying out the provisions of this chapter.

B. A person who communicates or delivers information or data to the director, the director's authorized representative or an examiner pursuant to an examination made under this chapter is not liable for the communication or delivery if the communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive.

C. A person listed in subsection A or B is entitled to attorney fees and costs if the person is the prevailing party in a civil cause of action for libel, slander or other relevant tort arising out of activities in carrying out the provisions of this chapter and the party bringing the action was not substantially justified in doing so. For the purposes of this subsection, a proceeding is substantially justified if it had a reasonable basis in law or fact at the time that it was initiated.

§ 20-3210 Annual statements; record retention

A. Each licensed provider shall file with the director on or before March 1 of each year an annual statement in a form prescribed by the director. The annual statement shall be verified by the oath of at least two of its principal officers, showing its condition at the end of the preceding calendar year. In addition to any other requirements, the annual statement shall include the total number, aggregate face amount and life settlement proceeds of policies settled during the immediately preceding calendar year, together with a breakdown of the information by policy issue year. The annual statement shall not include individual transaction data regarding the business of life settlements or information that there is a reasonable basis to believe could be used to identify the owner or the insured.

B. The provider shall maintain records of all consummated transactions and life settlement contracts for three years after the death of the insured. The director may inspect these records during reasonable business hours.

§ 20-3211 Contract requirements; execution; rescission; definition

A. A provider entering into a life settlement contract with any owner of a policy in which the insured is terminally ill shall first obtain the following:

1. If the owner is the insured, a written statement from a licensed attending physician that the owner is of sound mind and under no constraint or undue influence to enter into a settlement contract.

2. A document in which the insured consents to the release of the insured's medical records to a provider, settlement broker or insurance producer and, if the policy was issued less than two years from the date of application for a settlement contract, to the insurance company that issued the policy.

B. The insurer shall respond to a request for verification of coverage submitted by a provider, settlement broker or life insurance producer not later than thirty calendar days from the date the request is received. The request for verification of coverage must be made on a form approved by the director. The insurer shall complete and issue the verification of coverage or indicate in which respects it is unable to respond. In the insurer's response, the insurer shall indicate whether, based on the medical evidence and documents provided, the insurer intends to pursue an investigation at this time regarding the validity of the insurance contract.

C. Before or at the time of execution of the settlement contract, the provider shall obtain a witnessed document in which the owner consents to the settlement contract, represents that the owner has a full and complete understanding of the settlement contract and a full and complete understanding of the benefits of the policy, acknowledges that the owner is entering into the settlement contract freely and voluntarily and, for persons with a chronic illness or terminal illness or condition, acknowledges that the insured has a chronic illness or a terminal illness or condition and that the chronic illness or the terminal illness or condition was diagnosed after the policy was issued.

D. The insurer shall not unreasonably delay effecting change of ownership or beneficiary with any life settlement contract lawfully entered into in this state or with a resident of this state.

E. If a life settlement broker or life insurance producer performs any of these activities required of the provider, the provider is deemed to have fulfilled the requirements of this section.

F. If a broker performs the verification of coverage activities required of the provider, the provider is deemed to have fulfilled the requirements of this section.

G. Within twenty days after an owner executes the life settlement contract, the provider shall give written notice to the insurer that issued the insurance policy that the policy is subject to a life settlement contract. The notice shall be accompanied by the documents required by section 20-3204, subsection C.

H. All medical information solicited or obtained by any licensee is subject to any applicable law relating to confidentiality of medical information.

I. All life settlement contracts entered into in this state shall provide that the owner may rescind the contract on or before fifteen days after the date it is executed by all parties and the owner has received all required disclosures. Rescission, if exercised by the owner, is effective only if both notice of the rescission is given and the owner repays all proceeds and any premiums, loans and loan interest paid on account of the provider within the rescission period. If the insured dies during the rescission period, the contract shall be deemed to have been rescinded subject to repayment by the owner or the owner's estate of all proceeds and any premiums, loans and loan interest to the provider.

J. Within three business days after receipt from the owner of documents to effect the transfer of the insurance policy, the provider shall pay the proceeds of the settlement to an escrow or trust account managed by a trustee or escrow agent in a state or federally chartered financial institution pending acknowledgment of the transfer by the issuer of the policy. The trustee or escrow agent shall transfer the proceeds due to the owner within three business days after acknowledgment of the transfer from the insurer.

K. Failure to tender the life settlement contract proceeds to the owner by the date disclosed to the owner renders the contract voidable by the owner for lack of consideration until the time the proceeds are tendered to and accepted by the owner. The failure to give written notice of the right of rescission tolls the right of rescission until thirty days after the written notice of the right of rescission has been given.

L. Any fee paid by a provider, party, individual or owner to a broker in exchange for services provided to the owner pertaining to a life settlement contract shall be computed as a percentage of the offer obtained and not the face value of the policy. This section does not prohibit a broker from reducing the broker's fee below this percentage if the broker so chooses.

M. The broker shall disclose to the owner anything of value paid or given to a broker that relates to a life settlement contract.

N. At any time before or at the time of the application for or issuance of a policy or during a two-year period commencing with the date of issuance of the policy, a person shall not enter into a life settlement regardless of the date the compensation is to be provided and regardless of the date the assignment, transfer, sale, devise, bequest or surrender of the policy is to occur. This prohibition does not apply if:

1. The owner certifies to the provider that the policy was issued on the owner's exercise of conversion rights arising out of a group or individual policy if the total of the time covered under the conversion policy plus the time covered under the prior policy is at least twenty-four months. The time covered under a group policy must be calculated without regard to a change in insurance carriers if the coverage has been continuous and under the same group sponsorship.

2. The owner submits independent evidence to the provider that one or more of the following conditions have been met within the two-year period:

(a) The owner or insured is terminally ill.

(b) The owner or insured disposes of ownership interests in a closely held corporation pursuant to the terms of a buyout or other similar agreement in effect at the time the insurance policy was initially issued.

(c) The owner's spouse dies.

(d) The owner divorces the owner's spouse.

(e) The owner retires from full-time employment.

(f) The owner becomes a person with a physical or mental disability and a physician determines that the disability prevents the owner from maintaining full-time employment.

(g) On the application of a creditor of the owner, a court of competent jurisdiction enters a final order, judgment or decree adjudicating the owner bankrupt or insolvent, or approving a petition seeking reorganization of the owner or appointing a receiver, trustee or liquidator to all or a substantial part of the owner's assets.

O. The provider shall submit copies of the independent evidence required by subsection N, paragraph 2 of this section when the provider submits a request to the insurer for verification of coverage. The copies shall be accompanied by a letter of attestation from the provider that the copies are true and correct copies of the documents received by the provider. This section does not prohibit an insurer from exercising its right to contest the validity of any policy.

P. If the provider submits to the insurer a copy of independent evidence as provided in subsection N, paragraph 2, subdivision (a) of this section when the provider submits a request to the insurer to effect the transfer of the policy to the provider, the copy shall be deemed to establish that the settlement contract satisfies the requirements of this section.

Q. An insurer shall not:

1. Engage in any transaction, act or practice that restricts, limits or impairs the lawful transfer of ownership, change of beneficiary or assignment of a policy.

2. Make any false or misleading statement for the purpose of dissuading an owner or insured from a lawful life settlement contract.

R. If there is more than one owner on a single policy and the owners are residents of different states, the life settlement contract shall be governed by the law of the state in which the owner having the largest percentage ownership resides or, if the owners hold equal ownership, the state of residence of one owner agreed on in writing by all of the owners of the policy. The law of the state of the insured shall govern in the event that equal owners fail to agree in writing on a state of residence for jurisdictional purposes.

S. A provider from this state who enters into a life settlement contract with an owner who is a resident of another state that has enacted statutes or adopted rules governing life settlement contracts shall be governed in the effectuation of that life settlement contract by the statutes and rules of the owner's state of residence. If the state in which the owner is a resident has not enacted statutes or rules governing life settlement contracts, the provider shall give the owner notice that neither state regulates the transaction on which the owner is entering. For transactions in those states, the provider shall maintain all records required if the transactions were executed in the state of residence. The forms used in those states need not be approved by the department.

T. If there is a conflict in the laws that apply to an owner and a purchaser in any individual transaction, the laws of the state that apply to the owner shall take precedence and the provider shall comply with those laws.

U. It is a fraudulent life settlement act and a violation of this chapter for any person to do any of the following or any of the acts listed in subsection X of this section:

1. Enter into a life settlement contract if a person knows or reasonably should have known that the life insurance policy was obtained by means of a false, deceptive or misleading application for the policy.

2. Engage in any transaction, practice or course of business if a person knows or reasonably should have known that the intent was to avoid the notice requirements of this section.

3. Engage in any fraudulent act or practice in connection with any transaction relating to any settlement involving an owner who is a resident of this state.

4. Fail to provide the disclosures or file the required reports with the director as required by this chapter.

5. Issue, solicit or market the purchase of a new life insurance policy for the sole purpose of, or with a primary emphasis on, settling the policy.

6. With respect to any settlement contract or insurance policy and a broker, knowingly solicit an offer from, effectuate a life settlement contract with or make a sale to any provider, financing entity or related provider trust that is controlling, controlled by or under common control with a broker, unless the relationship has been fully disclosed to the owner.

7. With respect to any life settlement contract or insurance policy and a provider, knowingly enter into a life settlement contract with an owner if, in connection with a life settlement contract, anything of value will be paid to a broker that is controlling, controlled by or under common control with a provider or the financing entity or related provider trust that is involved in a settlement contract, unless the relationship has been fully disclosed to the owner.

8. With respect to a provider, enter into a life settlement contract unless the life settlement promotional, advertising and marketing materials, have been filed with the director as may be prescribed by rule. The marketing materials shall not expressly reference that the insurance is free for any period of time. The inclusion of any reference in the marketing materials that would cause an owner to reasonably believe that the insurance is free for any period of time is a violation of this chapter.

9. With respect to any life insurance producer, insurance company, broker or provider, make any statement or representation to the applicant or policyholder in connection with the sale or financing of a life insurance policy to the effect that the insurance is free or without cost to the policyholder for any period of time unless provided in the policy.

V. Life settlement contracts and applications for life settlement contracts, regardless of the form of transmission, shall contain the following statement or a substantially similar statement:

Any person who knowingly presents false information in an application for insurance or for a life settlement contract may be subject to criminal or civil liability.

W. The lack of a statement as required by subsection V of this section does not constitute a defense in any prosecution for a fraudulent life settlement act.

X. For the purposes of this section, "fraudulent life settlement act" includes all of the following:

1. Acts or omissions committed by any person who, for the purpose of depriving another of property or for pecuniary gain, commits or permits his employees or agents to engage in acts, including the following:

(a) Presenting, causing to be presented or preparing with knowledge and belief that it will be presented to or by a provider, premium finance lender, broker, insurer or insurance producer or any other person, false material information, or concealing material information as part of, in support of or concerning a fact material to one or more of the following:

(i) An application for the issuance of a life settlement contract or insurance policy.

(ii) The underwriting of a life settlement contract or insurance policy.

(iii) A claim for payment or benefit pursuant to a life settlement contract or insurance policy.

(iv) Premiums paid on an insurance policy.

(v) Payments and changes in ownership or beneficiary made according to the terms of a life settlement contract or insurance policy.

(vi) The reinstatement or conversion of an insurance policy.

(vii) The solicitation, offer to enter into or effectuation of a life settlement contract or insurance policy.

(viii) The issuance of written evidence of life settlement contracts or insurance and any application for or the existence of or any payments related to a loan secured directly or indirectly by any interest in a life insurance policy.

(b) Employing any device, scheme or artifice to defraud in the business of life settlements.

(c) Entering into any intentional practice or plan that involves stranger originated life insurance as prescribed in section 20-443.02.

(d) Employing any device, scheme or artifice in violation of section 20-1104.

(e) If providing premium financing, receiving any proceeds, fees or other consideration from the policy or owner of the policy that are in addition to the amounts required to pay principal, interest and any costs or expenses incurred by the lender or borrower in connection with the premium finance agreement, except for a default, unless the default on such a loan or transfer of the policy occurs pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this chapter. Any payments, charges, fees or other amounts received by a person providing premium financing in violation of this subdivision shall be remitted to the original owner of the policy or to the original owner's estate if the original owner is not living at the time of the determination of overpayment.

2. If a person does any of the following or permits the person's employees or agents to do any of the following, in the furtherance of a fraud or to prevent the detection of a fraud:

(a) Remove, conceal, alter, destroy or sequester from the director the assets or records of a licensee or other person engaged in the business of life settlements.

(b) Misrepresent or conceal the financial condition of a licensee, financing entity, insurer or other person.

(c) Transact the business of life settlements in violation of any law requiring a license, certificate of authority or other legal authority for the transaction of the business of life settlements.

(d) File with the director or the chief insurance regulatory official of another jurisdiction a document containing false information or otherwise conceal information about a material fact from the director.

(e) Engage in embezzlement, theft, misappropriation or conversion of moneys, funds, premiums, credits or other property of a provider, insurer, insured, owner, insurance policy owner or any other person engaged in the business of life settlements or insurance.

(f) Enter into, broker or otherwise deal in a life settlement contract that was obtained by presenting false information concerning any fact material to the policy or by concealing, for the purpose of misleading another, information requested concerning any fact material to the policy where the owner or the owner's agent intended to defraud the policy's issuer.

(g) Attempt to commit, assist, aid or abet in the commission of, or conspiracy to commit the acts or omissions specified in this paragraph.

(h) Misrepresent the state of residence of an owner to be a state or jurisdiction that does not have a law substantially similar to this chapter for the purpose of evading or avoiding the provisions of this chapter.

§ 20-3212 Scope of chapter

This chapter does not:

1. Preempt the authority or relieve the duty of other law enforcement or regulatory agencies to investigate, examine and prosecute suspected violations of law.

2. Prevent or prohibit a person from disclosing voluntarily information concerning life settlement fraud to a law enforcement or regulatory agency other than the department.

3. Limit the powers granted elsewhere by the laws of this state to the director or an insurance fraud unit to investigate and examine possible violations of law and to take appropriate action against wrongdoers.

4. Preempt or otherwise limit title 44, chapter 12 or any rules, orders, policy statements, notices, bulletins or other interpretations issued by or through the corporation commission or the corporation commission's designee acting pursuant to title 44, chapter 12. Compliance with this chapter does not constitute compliance with any applicable provision of title 44, chapter 12 or any rules, orders, policy statements, notices, bulletins or other interpretations issued by or through the corporation commission or the corporation commission's designee acting pursuant to title 44, chapter 12.

§ 20-3213 Applicability

A. A provider lawfully transacting business in this state before the effective date of this chapter may continue to transact business in this state, pending approval or disapproval of that person's application for a license, if the provider files the application with the director not later than thirty days after publication by the director of an application form and instructions for licensure of providers. If the publication of the application form and instructions occurs before the effective date of this chapter, the provider shall file the application not later than thirty days after the effective date of this chapter. During the time that an application is pending with the director, the applicant may use any form of life settlement contract that has been filed with the director pending approval of the application if the form is otherwise in compliance with this chapter.

B. A person who has lawfully acted as a broker and negotiated life settlement contracts between any owner residing in this state and one or more providers for at least one year immediately before the effective date of this chapter may continue to do so pending approval or disapproval of that person's application for a license if the broker files the application with the director not later than thirty days after publication by the director of an application form and instructions for licensure of brokers. If the publication of the application form and instructions occurs before the effective date of this chapter, the broker shall file the application not later than thirty days after the effective date of this chapter.

C. Any person transacting business in this state under this section shall comply with all requirements of this chapter.

§ 20-3214 Injunctions; civil remedies; cease and desist

A. In addition to the penalties and other enforcement provisions of this chapter, if any person violates any provision of this chapter or any rule adopted pursuant to this chapter, the director may seek an injunction in a court of competent jurisdiction in the county where the person resides or has a principal place of business and may apply for temporary and permanent orders that the director determines are necessary to restrain the person from further committing the violation.

B. Any person who is damaged by the acts of another person in violation of this chapter or any rule adopted pursuant to this chapter may bring a civil action for damages against the person committing the violation in a court of competent jurisdiction.

C. The director may issue a cease and desist order pursuant to section 20-456 upon a person who violates any provision of this chapter, any rule or order adopted by the director or any written agreement entered into with the director.

D. If the director finds that an action presents an immediate danger to the public and requires an immediate final order, the director may issue an emergency cease and desist order reciting with particularity the facts underlying the findings. The emergency cease and desist order is effective immediately upon service of a copy of the order on the respondent and remains effective for ninety days. If the department begins nonemergency cease and desist proceedings under subsection C of this section, the emergency cease and desist order remains effective, absent an order by a court of competent jurisdiction. In addition to actual damages, if the violation of this chapter was willful, the trial court may award statutory damages in an amount up to three times the actual damages awarded. The provisions of this chapter may not be waived by agreement. No choice of law provision may be used to prevent the application of this chapter to any settlement in which a party to the settlement is a resident of this state.

§ 20-3215 Penalties

A. It is a violation of this chapter for any person, provider, broker or party related to the business of life settlements to commit a fraudulent life settlement act.

B. A person who commits a fraudulent life settlement act is guilty of committing insurance fraud and is subject to section 20-466.01.

C. The director may seek an injunction and an order of restitution and may levy a civil penalty pursuant to section 20-466.02 on any person who is licensed pursuant to this chapter and who is found to have committed a fraudulent life settlement act or to have violated any other provision of this chapter.

D. The director may deny, suspend for not more than twelve months, revoke or refuse to renew the license of a person who commits a fraudulent life settlement act.

Chapter 23 Interstate Insurance Product Regulation Compact

Article 1 General Provisions

§ 20-3251 Interstate insurance product regulation compact

The interstate insurance product regulation compact is enacted into law as follows:

Article I

Purpose

Under the terms and conditions of this compact, this state seeks to join with other states and establish the interstate insurance product regulation compact and thus become a member of the interstate insurance product regulation commission. The director is hereby designated to serve as the representative of this state to the commission. The purposes of the compact are, through means of joint and cooperative action among the compacting states:

1. To promote and protect the interest of consumers of individual and group annuity, life insurance, disability income and long-term care insurance products.

2. To develop uniform standards for insurance products covered under the compact.

3. To establish a central clearinghouse to receive and provide prompt review of insurance products covered under the compact and, in certain cases, related advertisements, submitted by insurers authorized to do business in one or more compacting states.

4. To give appropriate regulatory approval to those product filings and advertisements satisfying the applicable uniform standard.

5. To improve coordination of regulatory resources and expertise between state insurance departments regarding the setting of uniform standards and review of insurance products covered under the compact.

6. To create the interstate insurance product regulation commission.

7. To perform these and other related functions as may be consistent with the state regulation of the business of insurance.

Article II

Definitions

In this compact, unless the context otherwise requires:

1. "Advertisement" means any material designed to create public interest in a product or induce the public to purchase, increase, modify, reinstate, borrow on, surrender, replace or retain a policy, as more specifically defined in the rules and operating procedures of the commission.

2. "Bylaws" means those bylaws established by the commission for its governance or for directing or controlling the commission's actions or conduct.

3. "Commission" means the interstate insurance product regulation commission established by this compact.

4. "Commissioner" means the insurance director or the chief insurance regulatory official of a state including commissioner, deputy director, director or administrator.

5. "Compact" means the interstate insurance product regulation compact.

6. "Compacting state" means any state that has enacted the compact and that has not withdrawn or been terminated under article XIV of this compact.

7. "Insurer" means any entity licensed by a state to issue contracts of insurance for any of the lines of insurance covered by the compact.

8. "Member" means the person chosen by a compacting state as its representative to the commission or the person's designee.

9. "Noncompacting state" means any state that is not at the time a compacting state.

10. "Operating procedures" means procedures adopted by the commission implementing a rule, uniform standard or compact provision.

11. "Product" means the form of a policy or contract, including any application, endorsement or related form that is attached to and made a part of the policy or contract, and any evidence of coverage or certificate, for an individual or group annuity, life insurance, disability income or long-term care insurance product that an insurer is authorized to issue.

12. "Rule" means a statement of general or particular applicability and future effect that is adopted by the commission, including a uniform standard developed pursuant to article VII of this compact, and that is designed to implement, interpret or prescribe law or policy or describes the organization, procedure or practice requirements of the commission, which shall have the force and effect of law in the compacting states.

13. "State" means any state, district or territory of the United States.

14. "Third-party filer" means an entity that submits a product filing to the commission on behalf of an insurer.

15. "Uniform standard" means a standard adopted by the commission for a product line pursuant to article VII of this compact and includes all of the product requirements in aggregate. Each uniform standard shall be construed, whether express or implied, to prohibit the use of any inconsistent, misleading or ambiguous provisions in a product and the form of the product made available to the public shall not be unfair, inequitable or against public policy as determined by the commission.

Article III

Commission Establishment and Venue

A. The compacting states hereby create and establish a joint public agency known as the interstate insurance product regulation commission. Under article IV of this compact, the commission has the power to develop uniform standards for product lines, receive and provide prompt review of products filed with the commission and give approval to those product filings satisfying applicable uniform standards. It is not intended for the commission to be the exclusive entity for receipt and review of insurance product filings. This section does not prohibit any insurer from filing its product in any state wherein the insurer is licensed to conduct the business of insurance. Any filing is subject to the laws of the state where filed.

B. The commission is a body corporate and politic, and an instrumentality of the compacting states.

C. The commission is solely responsible for its liabilities except as otherwise specifically provided in this compact.

D. Venue is proper and judicial proceedings by or against the commission shall be brought solely and exclusively in a court of competent jurisdiction where the principal office of the commission is located.

Article IV

Commission Powers

The commission has the following powers:

1. To adopt rules pursuant to article VII of this compact that shall have the force and effect of law and shall be binding in the compacting states to the extent and in the manner provided in the compact.

2. To exercise its rulemaking authority and establish reasonable uniform standards for products covered under the compact, and advertisement related thereto, which shall have the force and effect of law and shall be binding in the compacting states, but only for those products filed with the commission. A compacting state shall have the right to opt out of the uniform standard pursuant to article VII of this compact, to the extent and in the manner provided in this compact. Any uniform standard established by the commission for long-term care insurance products may provide the same or greater protections for consumers as, but shall not provide less than, those protections set forth in the national association of insurance commissioners' long-term care insurance model act and long-term care insurance model regulation, respectively, adopted as of 2001. The commission shall consider whether any subsequent amendments to the long-term care insurance model act or long-term care insurance model regulation adopted by the national association of insurance commissioners require amending of the uniform standards established by the commission for long-term care insurance products.

3. To receive and review in an expeditious manner products filed with the commission, and rate filings for disability income and long-term care insurance products, and give approval of those products and rate filings that satisfy the applicable uniform standard, where such approval shall have the force and effect of law and be binding on the compacting states to the extent and in the manner provided in the compact.

4. To receive and review in an expeditious manner advertisement relating to long-term care insurance products for which uniform standards have been adopted by the commission, and give approval to all advertisement that satisfies the applicable uniform standard. For any product covered under this compact, other than long-term care insurance products, the commission shall have the authority to require an insurer to submit all or any part of its advertisement with respect to that product for review or approval before use if the commission determines that the nature of the product is such that an advertisement of the product could have the capacity or tendency to mislead the public. The actions of the commission as provided in this section shall have the force and effect of law and shall be binding in the compacting states to the extent and in the manner provided in the compact.

5. To exercise its rulemaking authority and designate products and advertisement that may be subject to a self-certification process without the need for prior approval by the commission.

6. To adopt operating procedures pursuant to article VII of this compact that shall be binding in the compacting states to the extent and in the manner provided in the compact.

7. To bring and prosecute legal proceedings or actions in its name as the commission. The standing of any state insurance department to sue or be sued under applicable law shall not be affected.

8. To issue subpoenas requiring the attendance and testimony of witnesses and the production of evidence.

9. To establish and maintain offices.

10. To purchase and maintain insurance and bonds.

11. To borrow, accept or contract for services of personnel, including employees of a compacting state.

12. To hire employees, professionals or specialists, and elect or appoint officers, and to fix their compensation, define their duties and give them appropriate authority to carry out the purposes of the compact, and determine their qualifications and to establish the commission's personnel policies and programs relating to, among other things, conflicts of interest, rates of compensation and qualifications of personnel.

13. To accept any and all appropriate donations and grants of money, equipment, supplies, materials and services, and to receive, use and dispose of the same. The commission shall strive to avoid any appearance of impropriety.

14. To lease, purchase, accept appropriate gifts or donations of, or otherwise to own, hold, improve or use, any property, real, personal or mixed. The commission shall strive to avoid any appearance of impropriety.

15. To sell, convey, mortgage, pledge, lease, exchange, abandon or otherwise dispose of any property, real, personal or mixed.

16. To remit filing fees to compacting states as may be set forth in the bylaws, rules or operating procedures.

17. To enforce compliance by compacting states with rules, uniform standards, operating procedures and bylaws.

18. To provide for dispute resolution among compacting states.

19. To advise compacting states on issues relating to insurers domiciled or doing business in noncompacting jurisdictions, consistent with the purposes of the compact.

20. To provide advice and training to those personnel in state insurance departments responsible for product review, and to be a resource for state insurance departments.

21. To establish a budget and make expenditures.

22. To borrow money.

23. To appoint committees, including advisory committees comprising members, state insurance regulators, state legislators or their representatives, insurance industry and consumer representatives and other interested persons as may be designated in the bylaws.

24. To provide and receive information from, and to cooperate with, law enforcement agencies.

25. To adopt and use a corporate seal.

26. To perform other functions as may be necessary or appropriate to achieve the purposes of the compact consistent with the state regulation of the business of insurance.

Article V

Commission Organization

A. Each compacting state shall have and be limited to one member. Each member shall be qualified to serve in that capacity pursuant to applicable law of the compacting state. Any member may be removed or suspended from office as provided by the law of the state from which the member shall be appointed. Any vacancy occurring in the commission shall be filled in accordance with the laws of the compacting state wherein the vacancy exists. This section does not affect the manner in which a compacting state determines the election or appointment and qualification of its own commissioner.

B. Each member shall be entitled to one vote and shall have an opportunity to participate in the governance of the commission in accordance with the bylaws. Notwithstanding any provision in this compact to the contrary, no action of the commission with respect to the adoption of a uniform standard shall be effective unless two-thirds of the members vote in favor of the uniform standard.

C. The commission, by a majority of the members, shall prescribe bylaws to govern its conduct as may be necessary or appropriate to carry out the purposes, and exercise the powers, of the compact, including:

1. Establishing the fiscal year of the commission.

2. Providing reasonable procedures for appointing and electing members, as well as holding meetings, of the management committee.

3. Providing reasonable standards and procedures for:

(a) The establishment and meetings of other committees.

(b) Governing any general or specific delegation of any authority or function of the commission.

4. Providing reasonable procedures for calling and conducting meetings of the commission that consist of a majority of commission members, ensuring reasonable advance notice of each such meeting and providing for the right of citizens to attend each such meeting with enumerated exceptions designed to protect the public's interest, the privacy of individuals and insurers' proprietary information, including trade secrets. The commission may meet in camera only after a majority of the entire membership votes to close a meeting. As soon as practicable, the commission must make public a copy of the vote to close the meeting revealing the vote of each member with no proxy votes allowed and the votes taken during the meeting.

5. Establishing the titles, duties, authority and reasonable procedures for the election of the officers of the commission.

6. Providing reasonable standards and procedures for the establishment of the personnel policies and programs of the commission. Notwithstanding any civil service or other similar laws of any compacting state, the bylaws shall exclusively govern the personnel policies and programs of the commission.

7. Adopting a code of ethics to address permissible and prohibited activities of commission members and employees.

8. Providing a mechanism for winding up the operations of the commission and the equitable disposition of any surplus funds that may exist after the termination of the compact and after the payment or reserving of all of its debts and obligations.

D. The commission shall publish its bylaws in a convenient form and file a copy of the bylaws and any amendment to the bylaws with the appropriate agency or officer in each of the compacting states.

E. A management committee comprising no more than fourteen members shall be established as follows:

1. One member from each of the six compacting states with the largest premium volume for individual and group annuities, life, disability income, and long-term care insurance products, determined from the records of the national association of insurance commissioners for the prior year.

2. Four members from those compacting states with at least two percent of the market based on the premium volume described in paragraph 1 of this subsection, other than the six compacting states with the largest premium volume, selected on a rotating basis as provided in the bylaws.

3. Four members from those compacting states with less than two percent of the market, based on the premium volume described in paragraph 1 of this subsection, with one selected from each of the four zone regions of the national association of insurance commissioners as provided in the bylaws.

F. The management committee shall have such authority and duties as may be set forth in the bylaws, including:

1. Managing the affairs of the commission in a manner consistent with the bylaws and purposes of the commission.

2. Establishing and overseeing an organizational structure within, and appropriate procedures for, the commission to provide for the creation of uniform standards and other rules, the receipt and review of product filings, administrative and technical support functions, the review of decisions regarding the disapproval of a product filing and the review of elections made by a compacting state to opt out of a uniform standard. However, a uniform standard shall not be submitted to the compacting states for adoption unless approved by two-thirds of the members of the management committee.

3. Overseeing the offices of the commission.

4. Planning, implementing and coordinating communications and activities with other state, federal and local government organizations in order to advance the goals of the commission.

G. The commission shall elect annually officers from the management committee, with each having such authority and duties, as may be specified in the bylaws.

H. The management committee, subject to the approval of the commission, may appoint or retain an executive director for such period, on such terms and conditions and for such compensation as the commission may deem appropriate. The executive director shall serve as secretary to the commission, but shall not be a member of the commission. The executive director shall hire and supervise other staff as may be authorized by the commission.

I. A legislative committee comprising state legislators or their designees shall be established to monitor the operations of, and make recommendations to, the commission, including the management committee. However, the manner of selection and term of any legislative committee member shall be as set forth in the bylaws. Before the adoption by the commission of any uniform standard, revision to the bylaws, annual budget or other significant matter as may be provided in the bylaws, the management committee shall consult with and report to the legislative committee.

J. The commission shall establish two advisory committees, one of which shall comprise consumer representatives independent of the insurance industry, and the other comprising insurance industry representatives.

K. The commission may establish additional advisory committees as its bylaws may provide for the carrying out of its functions.

L. The commission shall maintain its corporate books and records in accordance with the bylaws.

M. The members, officers, executive director, employees and representatives of the commission shall be immune from suit and liability, either personally or in their official capacity, for any claim for damage to or loss of property or personal injury or other civil liability caused by or arising out of any actual or alleged act, error or omission that occurred, or that the person against whom the claim is made had a reasonable basis for believing occurred within the scope of commission employment, duties or responsibilities. This subsection does not protect any such person from suit or liability for any damage, loss, injury or liability caused by the intentional or wilful and wanton misconduct of that person.

N. The commission shall defend any member, officer, executive director, employee or representative of the commission in any civil action seeking to impose liability arising out of any actual or alleged act, error or omission that occurred within the scope of commission employment, duties or responsibilities, or that the person against whom the claim is made had a reasonable basis for believing occurred within the scope of commission employment, duties or responsibilities. This subsection does not prohibit that person from retaining the person's own counsel. Also, the actual or alleged act, error or omission may not have resulted from that person's intentional or wilful and wanton misconduct.

O. The commission shall indemnify and hold harmless any member, officer, executive director, employee or representative of the commission for the amount of any settlement or judgment obtained against that person arising out of any actual or alleged act, error or omission that occurred within the scope of commission employment, duties or responsibilities, or that such person had a reasonable basis for believing occurred within the scope of commission employment, duties or responsibilities. However, the actual or alleged act, error or omission may not have resulted from the intentional or wilful and wanton misconduct of that person.

Article VI

Commission Meeting and Acts

A. The commission shall meet and take such actions as are consistent with the provisions of this compact and the bylaws.

B. Each member of the commission shall have the right and power to cast a vote to which that compacting state is entitled and to participate in the business and affairs of the commission. A member shall vote in person or by such other means as provided in the bylaws. The bylaws may provide for members' participation in meetings by telephone or other means of communication.

C. The commission shall meet at least once during each calendar year. Additional meetings shall be held as set forth in the bylaws.

Article VII

Rules and Operating Procedures, Rulemaking Functions

and Opting Out of Uniform Standards

A. The commission shall adopt reasonable rules, including uniform standards, and operating procedures in order to effectively and efficiently achieve the purposes of this compact. If the commission exercises its rulemaking authority in a manner that is beyond the scope of the purposes of this compact, the action by the commission shall be invalid and have no force and effect.

B. Rules and operating procedures shall be made pursuant to a rulemaking process that conforms to the model state administrative procedure act of 1981 as amended, as may be appropriate to the operations of the commission. Before the commission adopts a uniform standard, the commission shall give written notice to the relevant state legislative committees in each compacting state responsible for insurance issues of its intention to adopt the uniform standard. The commission in adopting a uniform standard shall consider fully all submitted materials and issue a concise explanation of its decision.

C. A uniform standard shall become effective ninety days after its adoption by the commission or such later date as the commission may determine. A compacting state may opt out of a uniform standard as provided in this article. "Opt out" means any action by a compacting state to decline to adopt or participate in an adopted uniform standard. All other rules and operating procedures, and amendments thereto, shall become effective as of the date specified in each rule, operating procedure or amendment.

D. A compacting state may opt out of a uniform standard, either by legislation or rule adopted by the insurance department under the compacting state's administrative procedure act. If a compacting state elects to opt out of a uniform standard by rule, it must:

1. Give written notice to the commission no later than ten business days after the uniform standard is adopted, or at the time the state becomes a compacting state.

2. Find that the uniform standard does not provide reasonable protections to the citizens of the state, given the conditions in the state.

E. The commissioner shall make specific findings of fact and conclusions of law, based on a preponderance of the evidence, detailing the conditions in the state that warrant a departure from the uniform standard and determining that the uniform standard would not reasonably protect the citizens of the state. The commissioner must consider and balance the following factors and find that the conditions in the state and needs of the citizens of the state outweigh both:

1. The intent of the legislature to participate in, and the benefits of, an interstate agreement to establish national uniform consumer protections for the products subject to this compact.

2. The presumption that a uniform standard adopted by the commission provides reasonable protections to consumers of the relevant product.

F. A compacting state, at the time of its enactment of the compact, may prospectively opt out of all uniform standards involving long-term care insurance products by expressly providing for such opt out in the enacted compact, and such an opt out shall not be treated as a material variance in the offer or acceptance of any state to participate in the compact. Such an opt out shall be effective at the time of enactment of the compact by the compacting state and shall apply to all existing uniform standards involving long-term care insurance products and those subsequently adopted.

G. If a compacting state elects to opt out of a uniform standard, the uniform standard shall remain applicable in the compacting state electing to opt out until the opt out legislation is enacted into law or the regulation opting out becomes effective. Once the opt out of a uniform standard by a compacting state becomes effective as provided under the laws of that state, the uniform standard shall have no further force and effect in that state unless and until the legislation or regulation implementing the opt out is repealed or otherwise becomes ineffective under the laws of that state. If a compacting state opts out of a uniform standard after the uniform standard has been made effective in that state, the opt out shall have the same prospective effect as provided under article XIV of this compact for withdrawals.

H. If a compacting state has formally initiated the process of opting out of a uniform standard by regulation, and while the regulatory opt out is pending, the compacting state may petition the commission, at least fifteen days before the effective date of the uniform standard, to stay the effectiveness of the uniform standard in that state. The commission may grant a stay if it determines the regulatory opt out is being pursued in a reasonable manner and there is a likelihood of success. If a stay is granted or extended by the commission, the stay or extension thereof may postpone the effective date by up to ninety days, unless affirmatively extended by the commission. However, a stay may not be permitted to remain in effect for more than one year unless the compacting state can show extraordinary circumstances that warrant a continuance of the stay, including, the existence of a legal challenge that prevents the compacting state from opting out. A stay may be terminated by the commission on notice that the rulemaking process has been terminated.

I. Not later than thirty days after a rule or operating procedure is adopted, any person may file a petition for judicial review of the rule or operating procedure. However, the filing of such a petition shall not stay or otherwise prevent the rule or operating procedure from becoming effective unless the court finds that the petitioner has a substantial likelihood of success. The court shall give deference to the actions of the commission consistent with applicable law and shall not find the rule or operating procedure to be unlawful if the rule or operating procedure represents a reasonable exercise of the commission's authority.

Article VIII

Commission Records and Enforcement

A. The commission shall adopt rules establishing conditions and procedures for public inspection and copying of its information and official records, except information and records involving the privacy of individuals and insurers' trade secrets. The commission may adopt additional rules under which it may make available to federal and state agencies, including law enforcement agencies, records and information otherwise exempt from disclosure, and may enter into agreements with such agencies to receive or exchange information or records subject to nondisclosure and confidentiality provisions.

B. Except as to privileged records, data and information, the laws of any compacting state pertaining to confidentiality or nondisclosure shall not relieve any compacting state commissioner of the duty to disclose any relevant records, data or information to the commission. Disclosure to the commission does not waive or otherwise affect any confidentiality requirement. Except as otherwise expressly provided in this compact, the commission shall not be subject to the compacting state's laws pertaining to confidentiality and nondisclosure with respect to records, data and information in its possession. Confidential information of the commission shall remain confidential after the information is provided to any commissioner.

C. The commission shall monitor compacting states for compliance with duly adopted bylaws, rules, including uniform standards, and operating procedures. The commission shall notify any noncomplying compacting state in writing of its noncompliance with commission bylaws, rules or operating procedures. If a noncomplying compacting state fails to remedy its noncompliance within the time specified in the notice of noncompliance, the compacting state shall be deemed to be in default as set forth in article XIV of this compact.

D. The commissioner of any state in which an insurer is authorized to do business, or is conducting the business of insurance, shall continue to exercise the commissioner's authority to oversee the market regulation of the activities of the insurer in accordance with the provisions of the state's law. The commissioner's enforcement of compliance with the compact is governed by the following provisions:

1. With respect to the commissioner's market regulation of a product or advertisement that is approved or certified to the commission, the content of the product or advertisement shall not constitute a violation of the provisions, standards or requirements of the compact except on a final order of the commission, issued at the request of a commissioner after prior notice to the insurer and an opportunity for hearing before the commission.

2. Before a commissioner may bring an action for violation of any provision, standard or requirement of the compact relating to the content of an advertisement not approved or certified to the commission, the commission, or an authorized commission officer or employee, must authorize the action. Authorization under this paragraph does not require notice to the insurer, opportunity for hearing or disclosure of requests for authorization or records of the commission's action on such requests.

Article IX

Dispute Resolution

On the request of a member, the commission shall attempt to resolve any disputes or other issues that are subject to this compact and that may arise between two or more compacting states, or between compacting states and noncompacting states, and the commission shall adopt an operating procedure providing for resolution of such disputes.

Article X

Product Filing and Approval

A. Insurers and third-party filers seeking to have a product approved by the commission shall file the product with, and pay applicable filing fees to, the commission. This compact does not restrict or otherwise prevent an insurer from filing its product with the insurance department in any state wherein the insurer is licensed to conduct the business of insurance, and such filing shall be subject to the laws of the states where filed.

B. The commission shall establish appropriate filing and review processes and procedures pursuant to commission rules and operating procedures. The commission shall adopt rules to establish conditions and procedures under which the commission will provide public access to product filing information. In establishing such rules, the commission shall consider the interests of the public in having access to such information, as well as protection of personal medical and financial information and trade secrets, that may be contained in a product filing or supporting information.

C. Any product approved by the commission may be sold or otherwise issued in those compacting states for which the insurer is legally authorized to do business.

Article XI

Review of Commission Decisions Regarding Filings

A. Not later than thirty days after the commission has given notice of a disapproved product or advertisement filed with the commission, the insurer or third-party filer whose filing was disapproved may appeal the determination to a review panel appointed by the commission. The commission shall adopt rules to establish procedures for appointing the review panels and provide for notice and hearing. An allegation that the commission, in disapproving a product or advertisement filed with the commission, acted arbitrarily, capriciously or in a manner that is an abuse of discretion or otherwise not in accordance with the law, is subject to judicial review in accordance with article III, subsection D of this compact.

B. The commission shall have authority to monitor, review and reconsider products and advertisement subsequent to their filing or approval on a finding that the product does not meet the relevant uniform standard. Where appropriate, the commission may withdraw or modify its approval after proper notice and hearing, subject to the appeal process in subsection A of this article.

Article XII

Finance

A. The commission shall pay or provide for the payment of the reasonable expenses of its establishment and organization. To fund the cost of its initial operations, the commission may accept contributions and other forms of funding from the national association of insurance commissioners, compacting states and other sources. Contributions and other forms of funding from other sources shall be of such a nature that the independence of the commission concerning the performance of its duties shall not be compromised.

B. The commission shall collect a filing fee from each insurer and third-party filer filing a product with the commission to cover the cost of the operations and activities of the commission and its staff in a total amount sufficient to cover the commission's annual budget.

C. The commission's budget for a fiscal year shall not be approved until it has been subject to notice and comment as set forth in article VII of this compact.

D. The commission shall be exempt from all taxation in and by the compacting states.

E. The commission shall not pledge the credit of any compacting state, except by and with the appropriate legal authority of that compacting state.

F. The commission shall keep complete and accurate accounts of all its internal receipts, including grants and donations, and disbursements of all funds under its control. The internal financial accounts of the commission shall be subject to the accounting procedures established under its bylaws. The financial accounts and reports including the system of internal controls and procedures of the commission shall be audited annually by an independent certified public accountant. On the determination of the commission, but no less frequently than every three years, the review of the independent auditor shall include a management and performance audit of the commission. The commission shall make an annual report to the governor and legislature of the compacting states, which shall include a report of the independent audit. The commission's internal accounts shall not be confidential and such materials may be shared with the commissioner of any compacting state on request. Any work papers related to any internal or independent audit and any information regarding the privacy of individuals and insurers' proprietary information, including trade secrets, shall remain confidential.

G. A compacting state does not have any claim to or ownership of any property held by or vested in the commission or to any commission funds held under this compact.

Article XIII

Compacting States, Effective Date and Amendment

A. Any state is eligible to become a compacting state.

B. The compact shall become effective and binding on legislative enactment of the compact into law by two compacting states. The commission shall become effective for purposes of adopting uniform standards for, reviewing and giving approval or disapproval of products filed with the commission that satisfy applicable uniform standards only after twenty-six states are compacting states or, alternatively, by states representing greater than forty percent of the premium volume for life insurance, annuity, disability income and long-term care insurance products, based on records of the national association of insurance commissioners for the prior year. Thereafter, it shall become effective and binding as to any other compacting state on enactment of the compact into law by that state.

C. Amendments to the compact may be proposed by the commission for enactment by the compacting states. An amendment does not become effective and binding on the commission and the compacting states unless and until all compacting states enact the amendment into law.

Article XIV

Withdrawal, Default and Termination

A. Once effective, the compact shall continue in force and remain binding on each and every compacting state. A compacting state may withdraw from the compact by enacting a statute specifically repealing the statute that enacted the compact into law.

B. The effective date of withdrawal is the effective date of the repealing statute. The withdrawal shall not apply to any product filings approved or self-certified, or any advertisement of such products, on the date the repealing statute becomes effective, except by mutual agreement of the commission and the withdrawing state unless the approval is rescinded by the withdrawing state as provided in subsection E of this article.

C. The commissioner of the withdrawing state shall immediately notify the management committee in writing on the introduction of legislation repealing the compact in the withdrawing state.

D. The commission shall notify the other compacting states of the introduction of such legislation within ten days after its receipt of notice thereof.

E. The withdrawing state is responsible for all obligations, duties and liabilities incurred through the effective date of withdrawal, including any obligations, the performance of which extend beyond the effective date of withdrawal, except to the extent those obligations may have been released or relinquished by mutual agreement of the commission and the withdrawing state. The commission's approval of products and advertisement before the effective date of withdrawal shall continue to be effective and be given full force and effect in the withdrawing state, unless formally rescinded by the withdrawing state in the same manner as provided by the laws of the withdrawing state for the prospective disapproval of products or advertisement previously approved under state law.

F. Reinstatement following withdrawal of any compacting state shall occur on the effective date of the withdrawing state reenacting the compact.

G. If the commission determines that any compacting state has at any time defaulted in the performance of any of its obligations or responsibilities under the compact, the bylaws or adopted rules or operating procedures, after notice and hearing as set forth in the bylaws, all rights, privileges and benefits conferred by the compact on the defaulting state shall be suspended from the effective date of default as fixed by the commission. The grounds for default include failure of a compacting state to perform its obligations or responsibilities and any other grounds designated in commission rules. The commission shall immediately notify the defaulting state in writing of the defaulting state's suspension pending a cure of the default. The commission shall stipulate the conditions and the time period within which the defaulting state must cure its default. If the defaulting state fails to cure the default within the time period specified by the commission, the defaulting state shall be terminated from the compact and all rights, privileges and benefits conferred by the compact shall be terminated from the effective date of termination.

H. Product approvals by the commission or product self-certifications, or any advertisement in connection with such product, that are in force on the effective date of termination shall remain in force in the defaulting state in the same manner as if the defaulting state had withdrawn voluntarily under this article.

I. Reinstatement following termination of any compacting state requires a reenactment of the compact.

J. The compact dissolves effective on the date of the withdrawal or default of the compacting state that reduces membership in the compact to one compacting state. On the dissolution of the compact, the compact becomes null and void and shall be of no further force or effect, and the business and affairs of the commission shall be wound up and any surplus funds shall be distributed in accordance with the bylaws.

Article XV

Binding Effect of Compact and Other Laws

A. The compact does not prevent the enforcement of any other law of a compacting state, except as provided in subsection B of this article.

B. For any product approved or certified to the commission, the rules, uniform standards and any other requirements of the commission shall constitute the exclusive provisions applicable to the content, approval and certification of such products. For advertisement that is subject to the commission's authority, any rule, uniform standard or other requirement of the commission that governs the content of the advertisement shall constitute the exclusive provision that a commissioner may apply to the content of the advertisement. No action taken by the commission shall abrogate or restrict any of the following:

1. The access of any person to state courts.

2. Remedies available under state law related to breach of contract, tort or other laws not specifically directed to the content of the product.

3. State law relating to the construction of insurance contracts.

4. The authority of the attorney general of the state, including maintaining any actions or proceedings, as authorized by law.

C. All insurance products filed with individual states shall be subject to the laws of those states.

D. All lawful actions of the commission, including all rules and operating procedures adopted by the commission, are binding on the compacting states.

E. All agreements between the commission and the compacting states are binding in accordance with their terms.

F. On the request of a party to a conflict over the meaning or interpretation of commission actions, and on a majority vote of the compacting states, the commission may issue advisory opinions regarding the meaning or interpretation in dispute.

G. If any provision of the compact exceeds the constitutional limits imposed on the legislature of any compacting state, the obligations, duties, powers or jurisdiction sought to be conferred by that provision on the commission shall be ineffective as to that compacting state, and those obligations, duties, powers or jurisdiction shall remain in the compacting state and shall be exercised by the agency thereof to which those obligations, duties, powers or jurisdiction are delegated by law in effect at the time the compact becomes effective.

Article XVI

Severability and Construction

A. If any provision of this compact or its application to any person or circumstance is held invalid, the remainder of the compact or the application of the provision to other persons or circumstances is not affected.

B. This compact shall be liberally construed to effectuate its purposes.

Chapter 24 Insurance Compliance Audit Privilege

Article 1 General Provisions

§ 20-3301 Definitions; applicability

A. In this article, unless the context otherwise requires:

1. "Insurance compliance audit" means a voluntary, internal evaluation, review, assessment, audit or investigation that follows adopted written standards and criteria for the purpose of identifying or preventing noncompliance with or promoting compliance with laws, regulations, orders or industry or professional standards that is conducted by or on behalf of a company licensed or regulated under this title and specified in subsection B of this section, or that involves an activity regulated under this title. An audit shall establish a start and end date.

2. "Insurance compliance audit document":

(a) Means documents prepared as a result of or in connection with an insurance compliance audit and identified specifically as part of an insurance compliance audit.

(b) Includes any of the following:

(i) An insurance compliance audit report prepared by an auditor, who may be an employee of the company or an independent contractor, which may include the scope of the audit, the information gained in the audit and conclusions and recommendations, with exhibits and appendices.

(ii) Memoranda and documents analyzing portions or all of the insurance compliance audit report and discussing potential implementation issues.

(iii) An implementation plan that addresses correcting past noncompliance, improving current compliance and preventing future noncompliance.

(iv) Analytic data generated in the course of conducting the insurance compliance audit.

(c) May include a written response to the findings of an insurance compliance audit and field notes and records of observations, findings, opinions, suggestions, conclusions, drafts, memoranda, drawings, photographs, exhibits, computer-generated or electronically recorded information, phone records, maps, charts, graphs and surveys if this supporting information is collected or developed for the primary purpose and in the course of an insurance compliance audit.

B. This article applies to insurance compliance audit documents prepared and insurance compliance audits conducted by or on behalf of an insurer licensed or regulated under this title including any:

1. Stock, mutual, reciprocal or title insurer.

2. Fraternal benefit society.

3. Health care services organization.

4. Hospital service corporation, medical service corporation, dental service corporation, optometric service corporation or hospital, medical, dental and optometric service corporation.

5. Prepaid dental plan organization.

6. Mechanical reimbursement reinsurer.

7. Prepaid legal plan.

8. Lloyd's association.

9. Service company as defined in this title.

§ 20-3302 Insurance compliance audit privilege; requirements

A. Except as provided in subsections E and F of this section, an insurance compliance audit document is privileged information and is not discoverable or admissible as evidence in any legal action in any civil or administrative proceeding other than a regulatory or legal action brought as part of the director's duties. This privilege is a matter of substantive law of this state and is not merely a procedural matter governing civil proceedings in the courts of this state. The following provisions apply to the privilege:

1. If any company, person or entity performs or directs the performance of an insurance compliance audit, an officer, employee or agent involved with the insurance compliance audit or any consultant who is hired for the purpose of performing the insurance compliance audit may not be examined in any civil or administrative proceeding as to the insurance compliance audit or any insurance compliance audit document.

2. In connection with examinations conducted under this title, an insurer may submit an insurance compliance audit document to the director or the director's designee as a confidential document without waiving the privilege set forth under this subsection to which the insurer would otherwise be entitled. Any insurance compliance audit document furnished to the director may not be provided by the director to any other person or entity and shall be accorded the same privilege provided under this subsection.

3. If an insurer submits an insurance compliance audit document to the director, the document remains confidential and privileged and:

(a) Is subject to all applicable statutory or common law privileges, including the insurance compliance audit privilege, the work product doctrine, the attorney-client privilege or the subsequent remedial measures exclusion.

(b) Is not subject to any further disclosure or production.

(c) Is not subject to title 39, chapter 1, article 2, not subject to subpoena and not subject to discovery or admissible in a private administrative proceeding or in a private civil action, other than in an administrative proceeding conducted by the director.

4. Disclosure of an insurance compliance audit document to a governmental agency, whether voluntary or pursuant to compulsion of law, does not constitute a waiver of the privilege set forth under this subsection with respect to any other person or governmental agency.

5. The director may obtain insurance compliance audit documents at any time. The director may use the insurance compliance audit documents in the furtherance of any regulatory or legal action brought as part of the director's duties. The insurer shall comply with any compliance dates set by the director with respect to the insurance compliance audit. Notwithstanding any other law, the director shall provide an insurer with copies of all documents that the director believes support a violation of this title or that justify any regulatory or other action against the insurer. A disclosure pursuant to this paragraph is not a waiver of any applicable privilege or claim of confidentiality in the disclosed documents.

6. In order to facilitate identification, audit documents produced as a result of an insurance compliance audit shall be labeled "compliance report: privileged document".

7. A person who conducts or participates in the preparation of an insurance compliance audit and who has observed physical events may testify regarding those events, but may not be compelled to testify or produce documents related to any privileged part of the insurance compliance audit or any insurance compliance audit document.

8. The insurance compliance audit does not prevent the discovery of a document or other evidence, otherwise discoverable, that is maintained by an insurer and that was not developed for the insurance compliance audit pursuant to this article.

B. The privilege described in this article does not apply to:

1. A document, communication, data or report or other information required by the department or other regulatory agency to be collected, developed, maintained or reported under applicable law.

2. Information obtained by observation, sampling or monitoring by the department or other regulatory agency.

3. Information obtained from a source not involved in the preparation of the insurance compliance audit report.

4. Documents, communications, data, spreadsheets, reports, memoranda, drawings, photographs, exhibits, computer records, maps, charts, graphs, recordings and surveys kept or prepared in the ordinary course of business.

C. If an insurance compliance audit document is obtained, reviewed or used in a criminal proceeding, the privilege described in this article is not waived or eliminated for any other purpose.

D. This article does not provide civil or criminal immunity to an organization or affect any other privilege that may be available by law.

E. The privilege set forth under subsection A of this section does not apply under the following circumstances:

1. To the extent that it is expressly waived by the insurer that prepared or caused to be prepared the insurance compliance audit document.

2. If, after an in camera review, a court of record in a civil or administrative proceeding other than in a regulatory or legal action brought as part of the director's duties determines one of the following:

(a) The privilege is asserted for a fraudulent purpose.

(b) The document is not subject to the privilege.

(c) The privileged document shows evidence of noncompliance with applicable state or federal laws, rules, regulations or orders of the department and the insurer, person or entity fails to undertake corrective action or eliminate the noncompliance within the compliance date set by the director.

F. Within sixty days after an insurer is served a written request by certified mail for disclosure of an insurance compliance audit document, the insurer may file with the appropriate court a petition requesting a hearing on whether the insurance compliance audit document or portions of the document are privileged under this section or subject to disclosure. The court shall conduct an in camera review of the insurance compliance audit document and shall determine whether all or a portion of the insurance compliance audit document is privileged or subject to disclosure. The insurer's failure to file a petition for a hearing does not waive the privilege in connection with any other request for disclosure of the insurance compliance audit document. If an insurer files a petition for an in camera hearing pursuant to this subsection, the following apply:

1. The petition shall include all of the information set forth in paragraph 3 of this subsection.

2. After conducting an in camera review, the court may require disclosure of all or a portion of the insurance compliance audit document if the court determines, based on its in camera review, that any one of the conditions set forth in subsection E, paragraph 2 of this section applies. On making this determination, the court may only compel the disclosure of those portions of an insurance compliance audit document that are relevant to issues in dispute in the underlying proceeding. Any compelled disclosure will not be considered to be a public document or be deemed to be a waiver of the privilege for any other civil or administrative proceeding. An insurer unsuccessfully opposing disclosure may apply to the court for an appropriate order protecting the document from further disclosure.

3. At the time of filing a request for a hearing, the insurer shall provide all of the following information:

(a) The date of the insurance compliance audit document.

(b) The identity of the entity conducting the insurance compliance audit.

(c) The general nature of the activities covered by the insurance compliance audit.

(d) An identification of the portions of the insurance compliance audit document for which the privilege is being asserted.

G. An insurer asserting the insurance compliance privilege set forth under subsection A of this section has the burden of demonstrating the applicability of the privilege. Once an insurer has established the applicability of the privilege, the party seeking disclosure has the burden of proving the inapplicability of the privilege.

H. At any time, the parties to a civil or administrative proceeding other than a regulatory or legal action brought as a part of the director's duties may stipulate to entry of an order directing that specific information contained in an insurance compliance audit document is or is not subject to the privilege provided under subsection A of this section. The stipulation may be limited to the instant proceeding and, absent specific language to the contrary, is not applicable to any other proceeding.

I. This section or the release of any insurance compliance audit document under this section does not limit, waive or abrogate the scope or nature of any statutory or common law privilege including the work product doctrine, the attorney-client privilege or the subsequent remedial measures exclusion.

J. This article does not limit the director's authority under sections 20-156, 20-157, 20-157.01, 20-160 and 20-466.

Chapter 25 Pharmacy Benefits

Article 1 Auditing

§ 20-3321 Definitions

In this chapter, unless the context otherwise requires:

1. "Auditing entity" means any person, company, group or plan working on behalf of or pursuant to a contract with an insurer or pharmacy benefits manager for the purposes of auditing pharmacy drug claims adjudicated by pharmacies.

2. "Clerical errors" means a minor recordkeeping or transcribing error, including typographical errors, scrivner's errors or computer errors, in a required electronic or hard copy document, record or prescription order if both of the following criteria are met:

(a) The error did not result in actual financial harm to an entity.

(b) The error did not involve dispensing an incorrect dose or type of medication or dispensing a prescription drug to the wrong person.

3. "Desktop audit" means an audit that is conducted by an auditing entity at a location other than the location of the pharmacist or pharmacy. Desktop audit includes an audit that is performed at the offices of the auditing entity during which the pharmacist or pharmacy provides requested documents for review by hard copy or by microfiche, disk or other electronic media.

4. "In-pharmacy audit" means an audit that is conducted by an auditing entity at the physical business address of the pharmacy where the claim was adjudicated.

5. "Insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital and medical service corporation.

6. "List" means the list of drugs for which a pharmacy benefit manager has established a maximum allowable cost.

7. "Maximum allowable cost":

(a) Means the maximum amount that a pharmacy benefit manager will reimburse a pharmacy for the cost of a multisource drug.

(b) Does not include the dispensing fee for the drug.

8. "Pharmacist" has the same meaning prescribed in section 32-1901.

9. "Pharmacy" has the same meaning prescribed in section 32-1901.

10. "Pharmacy benefit manager" means a person, business or other entity that, pursuant to a contract or under an employment relationship with an insurer or other third-party payor, either directly or through an intermediary manages the prescription drug coverage provided by the insurer or other third-party payor, including the processing and payment of claims for prescription drugs, the performance of drug utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to prescription drug coverage, contracting with network pharmacies and controlling the cost of covered prescription drugs.

§ 20-3322 Audit procedures; interest prohibition; claim payment reduction

A. The following procedures apply to an audit conducted by an auditing entity:

1. When conducting an in-pharmacy audit an auditing entity shall:

(a) Give a pharmacy at least fourteen days' written notice.

(b) Not conduct an audit during the first five days of the month unless the pharmacy otherwise consents.

(c) Provide the pharmacy a list of items to be audited that provides for identification of prescription number or numbers or date range that the auditing entity is seeking to audit.

(d) When conducting an in-pharmacy audit or desktop audit, limit the audit to claims that do not exceed two years from the date that the claim was adjudicated by the pharmacy benefits manager.

2. An in-pharmacy audit or desktop audit that involves clinical or professional judgment shall be conducted by or in consultation with a pharmacist.

3. The pharmacy may use the records of a hospital, physician or other authorized practitioner to validate the pharmacy records. The validated records may be obtained via electronic methods, fax, telephone or written prescription orders and do not have to be the original hard copy prescription order.

4. Each pharmacy shall be audited under the same standards and parameters as other similarly situated pharmacies in this state.

5. When conducting a wholesale invoice audit, an auditing entity shall:

(a) Not audit the pharmacy claims of another auditing entity.

(b) Reverse a finding of discrepancy if the pharmacist or pharmacy dispensed the correct quantity of the drug according to the prescription and either of the following applies:

(i) The national drug code published by the United States food and drug administration is in a quantity that is a subunit or multiple of the drug purchased by the pharmacist or pharmacy according to the supplier invoice.

(ii) The drug dispensed by the pharmacist or pharmacy shares all but the last two digits of the United States food and drug administration's national drug code of the drug reflected on the supplier invoice.

(c) As a presumption of validity of a purchase of a dispensed drug, accept any of the following to support the pharmacy's claim related to a dispensed drug:

(i) Copies of the supplier invoices in the pharmacist's or pharmacy's possession, subject to validation that includes validating the pharmacy purchase order and the payment of the supplier invoice, and including any supplier invoices that were issued before the date the drug was dispensed but not earlier than ninety days before the first day of the audit period and any other invoices and supporting documentation from a supplier that is authorized by federal or state law to transfer ownership of the drug to the pharmacist or pharmacy. The validation may also require information that is required under the drug supply chain security act (P.L. 113-54; 127 Stat. 599; 21 United States Code sections 360eee through 360eee-4).

(ii) Any reports required by a state board or agency.

(d) Not later than the tenth business day after receiving the pharmacy's request, provide any supporting documentation that the pharmacy supplier provided to the auditing entity.

B. When conducting an in-pharmacy audit or desktop audit, an auditing entity shall comply with the following requirements:

1. The auditing entity shall base a finding of overpayment or underpayment on the actual overpayment or underpayment and not on a projection based on the number of patients served who have similar diagnoses or on the number of similar orders or refills for similar drugs, unless required by federal or state law.

2. The auditing entity may not recoup monies from the pharmacy for any clerical errors identified in an audit.

3. Any finding of an overpayment may not include the dispensing fee amount unless any of the following criteria is met:

(a) A prescription was not received by the patient or the patient's designee.

(b) The prescriber denied authorization.

(c) The prescription dispensed was a medication error by the pharmacy.

(d) The identified overpayment is based solely on an extra dispensing fee.

C. Interest may not accrue during the audit period.

D. An auditing entity may not, directly or indirectly, retroactively reduce the amount of a claim payment to a pharmacist or a pharmacy after adjudication of the claim for a prescription drug unless any of the following applies:

1. The original claim was found to have been fraudulently submitted through an audit conducted in accordance with this article.

2. The claim submitted was a duplicate for which the pharmacy had already received payment.

3. The original reimbursement was incorrect due to an error that resulted in an overpayment by an insurer or a pharmacy benefit manager.

E. Subsection D of this section does not prohibit an auditing entity, insurer or pharmacy benefit manager from increasing the amount of a claim payment after adjudication of the claim.

§ 20-3323 Audit reports

A. The auditing entity must deliver a preliminary audit report to the pharmacy within sixty days after the conclusion of the audit.

B. A pharmacy is allowed at least thirty days after receipt of the preliminary audit to provide documentation to address any discrepancy found in the audit.

C. Each auditing entity shall establish and make available to network pharmacies a written appeals process that shall include a process to appeal, investigate and resolve disputes regarding final audit findings. A pharmacy shall have at least thirty days from the delivery of the final audit findings to appeal an unfavorable audit finding to the auditing entity. This written appeals process shall be included in all contracts between a pharmacy benefits manager and a network pharmacy or a pharmacy benefits manager and a pharmacy's contracting representative.

D. Each auditing entity shall provide a telephone number at which a network pharmacy may contact the pharmacy benefits manager and speak to someone who is responsible for processing appeals.

E. The auditing entity must deliver a final audit report to the pharmacy within ninety days after receipt of the preliminary audit report or final appeal, whichever is later.

F. Chargebacks, recoupment or other penalties may not be assessed until the appeals process has been exhausted and the final audit report has been issued.

G. Unless otherwise required by state or federal law, audit information may not be shared with any entity other than the insurer on whose behalf the audit was conducted. Auditors may have access only to previous audit reports on a particular pharmacy conducted by that same auditing entity.

§ 20-3324 Applicability

A. Notwithstanding any other law, this article applies only to audits conducted of pharmacies located in this state.

B. This article does not apply to claims reviews that are initiated within three business days after transmission of a claim in which no chargeback or recoupment is demanded.

C. This article does not apply to an audit conducted in which a suspicion of fraudulent activity or other intentional and wilful misrepresentation is evidenced by physical review, review of claims data, statements or other investigative methods. The reason for an audit specified in this subsection shall be documented and available on request.

Article 2 Pharmacy Benefit Managers

§ 20-3331 Pharmacy benefit managers; requirements; applicability

A. A pharmacy benefit manager shall do all of the following:

1. Update the price and drug information for each list that the pharmacy benefit manager maintains every seven business days.

2. At the beginning of the term of a contract, on renewal of a contract and at least once annually during the term of a contract, make available to each network pharmacy the sources used to determine maximum allowable cost pricing.

3. Establish a process by which a network pharmacy may appeal its reimbursement for a drug subject to maximum allowable cost pricing.

4. Allow a pharmacy services administrative organization that is contracted with the pharmacy benefit manager to file an appeal of a drug on behalf of the organization's contracted pharmacies.

B. Beginning on January 1, 2020, this section applies to all new and existing contracts between a pharmacy benefit manager and a licensed pharmacy.

§ 20-3332 Prohibition against claim adjudication process fees; civil remedies

A. A pharmacy benefit manager may not directly or indirectly, on behalf of itself, a plan sponsor or an insurer, charge or hold a pharmacist or pharmacy responsible for a fee for any step of or component or mechanism related to the claims adjudication process, including:

1. Adjudicating a pharmacy benefit claim.

2. Processing or transmitting a pharmacy benefit claim.

3. Developing or managing a claims processing or adjudication network.

4. Participating in a claims processing or adjudication network.

B. A pharmacy may submit a complaint of a violation of this chapter to the director. The pharmacy must include supporting documentation at the time the pharmacy files the complaint. The director shall investigate the complaint and may examine and audit the books and records of a pharmacy benefit manager to determine if the pharmacy benefit manager has committed a violation of this chapter. If the director finds that a pharmacy benefit manager has committed a violation of this chapter, the director may:

1. Seek an injunction in a court of competent jurisdiction and may apply for temporary and permanent orders that the director determines are necessary to restrain the pharmacy benefit manager from continuing to commit the violation.

2. Issue a cease and desist order pursuant to section 20-456 on the pharmacy benefit manager.

C. A pharmacy benefit manager that commits a violation of this chapter is subject to the penalties prescribed in section 20-456.

D. In addition to the actions and penalties prescribed in subsections B and C of this section, any person who is damaged by the acts of a pharmacy benefit manager committed in violation of this chapter may bring a civil action for damages against the pharmacy benefit manager committing the violation in a court of competent jurisdiction.

§ 20-3333 Certificates of authority; issuance; revocation; renewal; civil penalties; rules

A. A pharmacy benefit manager shall apply for, obtain and maintain a valid certificate of authority to operate as a pharmacy benefit manager in this state. A certificate of authority is renewable biennially and is nontransferable.

B. A pharmacy benefit manager that applies for a certificate of authority shall submit to the director both of the following:

1. An application in a form and manner prescribed by the director. An officer or individual who is responsible for the conduct of the activities of the pharmacy benefit manager shall sign the application and verify that the contents of the application and any attachments are correct. The application form shall include the following:

(a) The name, address and telephone number of the pharmacy benefit manager.

(b) A copy of all basic organizational documents of the pharmacy benefit manager, including the articles of incorporation, bylaws, articles of association and trade name certificate, any other similar documents and all amendments to the documents.

(c) The name and address of the pharmacy benefit manager's agent in this state for service of process.

(d) The names, addresses, official positions and professional qualifications of each individual who is responsible for the conduct of the activities of the pharmacy benefit manager.

(e) The name, address, telephone number, email address and official position of the employee who will serve as the primary contact for the department.

(f) A signed certificate of good standing.

(g) A description of the pharmacy benefit manager and its services, facilities and personnel.

(h) A document in which the pharmacy benefit manager confirms that its business practices and each ongoing Arizona contract comply with this article and all laws of this state.

2. An application fee prescribed by the director.

C. Within ninety days after receipt of a completed application and application fee, the director shall review the application and issue a certificate of authority if the applicant is deemed qualified under this section. If the director determines that the applicant is not qualified, the director shall notify the applicant, shall specify the reason for the denial and shall allow the applicant sixty days to remedy the stated reasons for the denial.

D. Within thirty days after any material modification of the information submitted with the application for a certificate of authority, the pharmacy benefit manager shall file a notice of modification with the director.

E. The director may refuse to issue a certificate of authority if the director determines that the pharmacy benefit manager had a pharmacy benefit manager certificate of authority or license revoked for cause in another state.

F. The director may issue a cease and desist order if the pharmacy benefit manager does not hold a valid certificate of authority. The director may deny, suspend or revoke a pharmacy benefit manager's certificate of authority if the director finds, after notice and opportunity for hearing, that any of the following applies:

1. The pharmacy benefit manager violated any rule or order of the director or any law of this state applicable to a pharmacy benefit manager.

2. The pharmacy benefit manager refused to be examined or to produce its accounts, records and files for examination or that any individual responsible for the conduct of the activities in this state of the pharmacy benefit manager refused to provide information with respect to its activities or refused to perform any other legal obligation required by the director.

3. The pharmacy benefit manager is required under this section to have a certificate of authority and fails at any time to meet any qualification for which issuance of a certificate of authority could have been refused had the failure existed at the time of issuance and been known to the director, unless the director issued a certificate of authority with knowledge of the ground for disqualification and had the authority to waive it.

4. Any individual who is responsible for the management of the pharmacy benefit manager is convicted of or enters a plea of guilty or no contest to a felony related to the individual's activities on behalf of the pharmacy benefit manager.

5. The pharmacy benefit manager's certificate of authority or license has been revoked in another state.

G. If a pharmacy benefit manager's certificate of authority is suspended or restricted, the director may allow the operation of the pharmacy benefit manager for a limited time not to exceed one hundred twenty days. The director may allow a pharmacy benefit manager whose certificate of authority has been suspended or restricted to operate for a period that exceeds one hundred twenty days if the director determines that the continued operation of the pharmacy benefit manager is in the beneficial interests of the covered persons by ensuring minimal disruptions to the continuity of care. A pharmacy benefit manager whose certificate of authority has been suspended or restricted is subject to the following civil penalties each month, as determined by the director, until the pharmacy benefit manager remedies the violation:

1. For an unintentional violation, not more than $1,000 for each violation and not more than an aggregate of $10,000 in any six month period.

2. For an intentional violation, not more than $5,000 for each violation and not more than an aggregate of $50,000 in any six month period.

H. The director may revoke the certificate of authority if the pharmacy benefit manager has been operating under a suspended certificate of authority for a period of more than one hundred twenty days.

I. For the purposes of this section, a pharmacy benefit manager has the same rights to notice and a hearing prescribed in title 41, chapter 6, article 10.

J. The director may investigate officers, directors and owners of a pharmacy benefit manager to comply with this section.

K. To renew a certificate of authority, a pharmacy benefit manager shall submit to the director all of the following:

1. A renewal application in a form and manner prescribed by the director. An officer or authorized representative of the pharmacy benefit manager shall sign the application and verify that the contents of the renewal form are correct.

2. A renewal schedule and a fee prescribed by the director.

L. A pharmacy benefit manager's certificate of authority expires by operation of law if a complete renewal application and fee is not received by the due date as established in rule.

M. If a pharmacy benefit manager and an insurer enter into a contractual agreement, the pharmacy benefit manager shall comply with the laws and rules that govern the contractual agreement as of the date of issuance of the certificate of authority.

N. A pharmacy benefit manager shall comply with the records retention schedules as prescribed in rule and section 20-3334.

O. A pharmacy benefit manager shall comply with the duties and appeals processes of a utilization review agent as prescribed by rule and chapter 15 of this title.

P. The director may examine or review the relevant books and records of a pharmacy benefit manager to determine if the pharmacy benefit manager is in compliance with this article. All of the following apply to the information or data that is obtained during an examination or review:

1. The information is considered and treated as proprietary and confidential.

2. The information is not a public record and is exempt from title 39, chapter 1.

3. The information is to be used only for the purpose of ensuring a pharmacy benefit manager's compliance with this article.

Q. The director may adopt rules to implement this section.

R. This section shall apply only to a pharmacy benefit manager performing services for a health plan subject to the jurisdiction of this state.

S. This section does not apply to a workers' compensation insurer performing services under title 23.

§ 20-3334 Records retention; schedule

A. The director shall establish a retention schedule for all records, books, documentation and other data on file with the department related to the enforcement of this article.

B. The director shall not order the destruction or other disposal of any record, book, document or other data that is:

1. Required by law to be maintained.

2. Kept on file with the department until ten years have passed.

3. Filed during the director's administration or administrations.

C. All of the following apply to the records, books, documentation and other data obtained by the department:

1. The information is considered and treated as proprietary and confidential.

2. The information is not a public record and is exempt from title 39, chapter 1.

3. The information is to be used only for the purpose of ensuring the pharmacy benefit manager's compliance with this article.

§ 20-3335 Pharmacy benefit managers; prescribing; formulary change; notice; exemption; enforcement; applicability; definitions

A. A pharmacy benefit manager that enters into an agreement with a health care insurer to provide pharmacy benefit management services to covered individuals on behalf of the pharmacy benefit manager or a health care insurer may not limit or exclude coverage of a prescription drug for any covered individual who is on a specific prescription drug if both of the following apply:

1. The prescription drug was previously approved by the pharmacy benefit manager or health care insurer for coverage for the covered individual.

2. The covered individual continues to be an insured, enrollee or subscriber of the health care insurer that the pharmacy benefit manager has contracted with to provide pharmacy benefit management services.

B. If subsection A of this section applies, the drug coverage shall continue for a covered individual's specific prescription drug through the last day of the covered individual's health care plan year.

C. A pharmacy benefit manager or health care insurer may not change a covered individual from the previously covered prescription drug if the covered individual's prescribing health care provider provides electronic or written notice to the pharmacy benefit manager or health care insurer notifying the pharmacy benefit manager or health care insurer that the covered individual will continue on the current prescription drug.

D. If a pharmacy benefit manager or health care insurer makes any formulary change that limits or excludes coverage of a prescription drug, the pharmacy benefit manager or health care insurer shall provide electronic or written notice of the removal of or change for any prescription drug on the drug formulary to each impacted covered individual and the impacted covered individual's prescribing health care provider at least sixty days before the formulary change. The notice shall do both of the following:

1. Set forth the process by which the covered individual's health care provider may notify the pharmacy benefit manager or health care insurer for the continued use of the nonformulary prescription drugs.

2. Include notification to the prescribing health care provider that if the health care provider notifies the pharmacy benefit manager or health care insurer that the insured, enrollee or subscriber will continue on the nonformulary prescription drug for the remainder of the health care plan year, the health care provider will need to apply for a formulary exception pursuant to section 20-3336 for the continued use of the nonformulary prescription drug on renewal of the health care plan.

E. This section does not:

1. Prevent a health care provider from prescribing another prescription drug that is covered by the health care insurer of the pharmacy benefit manager if the health care provider deems the prescription drug medically necessary for the covered individual.

2. Prevent a health care insurer or pharmacy benefit manager that is contracted to provide pharmacy benefit management services from:

(a) Adding a prescription drug to its formulary.

(b) Removing a prescription drug from its formulary if the drug manufacturer has removed the prescription drug for sale in the United States.

(c) Making any formulary changes for patients who are not on a previously approved prescription drug.

F. If a health care insurer, pharmacy benefit manager or utilization review agent violates this section, the director may enforce this section pursuant to section 20-3333 or chapter 15, article 1 of this title, as applicable.

G. This section applies only to pharmacy benefit managers that are subject to section 20-3333.

H. For the purposes of this section:

1. "Health care insurer" has the same meaning prescribed in section 20-2501.

2. "Health care plan" means a policy, contract or evidence of coverage that a health care insurer issues to an insured, enrollee or subscriber.

3. "Limit or exclude coverage" means to:

(a) Limit or reduce the maximum coverage of prescription drug benefits.

(b) Increase cost sharing for a covered prescription drug.

(c) Require an additional prior authorization for a patient who is currently approved for a prescription drug based solely on the movement of the prescription drug to a more restrictive formulary tier.

(d) Remove a prescription drug from a formulary unless either of the following applies:

(i) The United States food and drug administration revokes approval for or removes a prescription drug from the prescription drug market.

(ii) The prescription drug manufacturer notifies the United States food and drug administration of a manufacturing discontinuation or a potential discontinuation as required by section 506c of the federal food, drug, and cosmetic act (21 United States Code section 356c).

4. "Utilization review agent" means a utilization review agent as defined in section 20-2530 that is contracted to provide pharmacy benefit management services for a health care insurer.

§ 20-3336 Pharmacy benefit managers; prescribing; formulary exception process requirements; exception; enforcement; definitions

A. On renewal of a health care plan, a health care insurer, pharmacy benefit manager or utilization review agent shall provide a covered individual and prescribing health care provider with access to a clear and convenient process to request a formulary exception process. The health care insurer, pharmacy benefit manager or utilization review agent may use its existing formulary exception process to satisfy this requirement if the medical exceptions process is consistent with the requirements prescribed in this section.

B. A health care insurer, pharmacy benefit manager or utilization review agent shall respond to a formulary exception determination request within seventy-two hours after receiving the formulary exception request and relevant clinical documentation. The covered individual or the covered individual's prescribing health care provider may request an expedited review in cases where exigent circumstances exist, and the health care insurer, pharmacy benefit manager or utilization review agent shall respond within twenty-four hours after receiving the formulary exception request and relevant clinical documentation.

C. For a covered individual who renews the same health care plan, a health care insurer, pharmacy benefit manager or utilization review agent shall approve a formulary exception for the covered individual if the covered individual has been previously approved to receive the nonformulary prescription drug under the same health care plan and the prescribing health care provider uses the formulary exception process and provides relevant clinical documentation to certify all of the following:

1. The covered individual has tried a formulary equivalent prescription drug that was a part of the covered individual's prescription drug benefit at the time of the trial, the formulary equivalent prescription drug was not effective in the treatment of the covered individual's medical condition and the health care provider specifies the contraindication or adverse or harmful reaction in the covered individual.

2. The covered individual has experienced a positive therapeutic outcome on the requested drug for more than ninety days.

3. Formulary equivalent prescription drugs are contraindicated or will likely cause a serious adverse reaction.

D. If a covered individual does not qualify for a formulary exception pursuant to subsection C of this section, the covered individual may still apply for a formulary exception using the health care insurer's, pharmacy benefit manager's or utilization review agent's formulary exception process. When evaluating whether the covered individual should qualify for a formulary exception to continue on a nonformulary prescription drug, the health care insurer, pharmacy benefit manager or utilization review agent shall consider the following factors:

1. Whether the covered individual has experienced a positive therapeutic outcome on the previously approved drug.

2. Whether the formulary prescription drug is not in the best interest of the covered individual based on medical necessity because the covered individual's use of the formulary prescription drug is expected to cause either of the following:

(a) A negative impact on the covered individual's comorbid condition.

(b) A clinically predictable negative drug interaction.

3. Whether the formulary prescription drug is contraindicated or will likely cause a serious adverse reaction.

E. A health care insurer's or pharmacy benefit manager's denial of coverage for a nonformulary prescription drug shall be made in writing to the covered individual by a licensed pharmacist or medical director who made the decision to deny coverage. The written denial shall contain an explanation of the denial that includes the medical or pharmacological reasons why the authorization was denied. The health care insurer, pharmacy benefit manager or utilization review agent shall send a copy of the written denial to the covered individual's treating health care provider who requested the formulary exception. The health care insurer, pharmacy benefit manager or utilization review agent shall maintain copies of all written denials and shall make the copies available to the department for inspection. A covered individual or the covered individual's authorized representative may appeal any determination to deny a formulary exception under chapter 15, article 2 of this title. The written notification shall include the process by which a covered individual may appeal the determination.

F. A formulary exception for a covered individual that is authorized by a health care insurer, pharmacy benefit manager or utilization review agent shall be in effect until the end of the covered individual's plan year. The approval of a formulary exception shall be in writing and delivered to the covered individual and the covered individual's treating health care provider.

G. This section does not:

1. Prevent a health care provider from prescribing another prescription drug that is covered by the health care insurer or the pharmacy benefit manager if the health care provider deems the prescription drug medically necessary for the covered individual.

2. Prevent a health care insurer or pharmacy benefit manager that is contracted to provide pharmacy benefit management services from managing its formulary in compliance with this section, including:

(a) Adding a prescription drug to its formulary.

(b) Removing a prescription drug from its formulary if the drug manufacturer has removed the prescription drug for sale in the United States.

(c) Setting the cost sharing for nonformulary prescription drugs.

H. If a health care insurer, pharmacy benefit manager or utilization review agent violates this section, the director may enforce this section pursuant to section 20-3333 or chapter 15, article 1 of this title, as applicable.

I. A policy that is issued or renewed by a disability insurer does not include a policy that provides limited benefit coverage as defined in section 20-1137.

J. This section applies only to pharmacy benefit managers that are subject to section 20-3333.

K. For the purposes of this section:

1. "Exigent circumstances" means a covered individual is suffering from a health condition that may seriously jeopardize the covered individual's life, health or ability to regain maximum function or when a covered individual is undergoing a current course of treatment using a nonformulary prescription drug.

2. "Formulary exception" means that health plan coverage of a health care provider's selected prescription drug is granted.

3. "Health care insurer" has the same meaning prescribed in section 20-2501.

4. "Health care plan" means a policy, contract or evidence of coverage that a health care insurer issues to an insured, enrollee or subscriber.

5. "Utilization review agent" means a utilization review agent as defined in section 20-2530 that is contracted to provide pharmacy benefit management services for a health care insurer.

Article 3 340B Pharmacies

§ 20-3341 Definitions

In this article, unless the context otherwise requires:

1. "Drug coverage":

(a) Means any form of compensation paid to a pharmacy that dispenses prescription drugs for a patient under a contractual or other legal obligation with a health insurer or pharmacy benefit manager.

(b) Does not include either of the following:

(i) Coverage provided pursuant to title 36, chapter 29, article 1.

(ii) Any amounts paid by an individual on his or her own behalf or on behalf of another individual without a contractual or legal obligation to do so.

2. "Health care plan" has the same meaning prescribed in section 20-3151.

3. "Health insurer" has the same meaning prescribed in section 20-242.

4. "Third party" means a health insurer or pharmacy benefit manager that provides or manages drug coverage under a health care plan.

5. "340B covered entity" means an entity that participates in the 340B drug discount program authorized by 42 United States Code section 256b.

6. "340B drug" means a drug that is purchased by a 340B covered entity through the 340B drug discount program authorized by 42 United States Code section 256b and that is dispensed by a pharmacy.

§ 20-3342 Applicability

A. This article applies to third parties that provide or manage drug coverage under a health care plan in this state.

B. This article does not apply to any of the following:

1. The Arizona health care cost containment system administration and its contractors as defined in section 36-2901 to the extent the services are provided pursuant to title 36, chapter 29 or 34 or equivalent medicaid programs from other states.

2. The department of health services to the extent the services are provided under the AIDS drug assistance program.

3. Any individual or entity identified in section 36-2930.05.

§ 20-3343 340B drug program; 340B covered entities; pharmacies; drug coverage

All contracts that are issued, delivered or renewed on or after January 1, 2024 for a third party that reimburses for 340B drugs shall not do any of the following:

1. Discriminate in reimbursement on the basis that the pharmacy dispenses a 340B drug.

2. Assess any fee, chargeback, clawback or adjustment on the basis that a pharmacy dispenses a 340B drug.

3. Exclude a pharmacy from a third party's pharmacy network on the basis that the pharmacy dispenses a 340B drug.

4. Restrict the methods or pharmacies within a third-party network by which a 340B covered entity may dispense or deliver 340B drugs.

Chapter 26 Prior Authorization for Certain Health Care Services

Article 1 General Provisions

§ 20-3401 Definitions

In this article, unless the context otherwise requires:

1. "Adverse determination":

(a) Means a decision by a health care services plan or its utilization review agent that the health care services furnished or proposed to be furnished to an enrollee are not medically necessary and plan coverage is therefore denied, reduced or terminated.

(b) Does not include a decision to deny, reduce or terminate services that are not covered for reasons other than medical necessity.

2. "Authorization":

(a) Means a determination by a health care services plan or its utilization review agent that a health care service has been reviewed and, based on the information provided, satisfies the health care services plan's requirements for medical necessity and appropriateness and that payment under the plan will be made for that health care service.

(b) Does not include any different or additional procedures, services or treatments beyond those specifically reviewed and approved by the health care services plan.

3. "Emergency ambulance services" has the same meaning prescribed in section 20-2801.

4. "Emergency services" has the same meaning prescribed in section 20-2801.

5. "Enrollee" means an individual or a dependent of that individual who is currently enrolled with and covered by a health care services plan. Enrollee includes an enrollee's legally authorized representative.

6. "Health care service":

(a) Means a health care procedure, treatment or service that is covered under a health care services plan.

(b) Includes providing a prescription drug, device or durable medical equipment that is covered under a health care services plan.

(c) Does not include treatments that are experimental, investigational or off label.

7. "Health care services plan":

(a) Means a plan offered by a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation or medical service corporation that contractually agrees to pay or make reimbursements for health care services expenses for one or more individuals residing in this state.

(b) Does not include benefits provided under limited benefit coverage as defined in section 20-1137.

8. "Medically necessary" or "medical necessity":

(a) Means covered health care services provided by a licensed provider acting within the provider's scope of practice in this state to prevent or treat disease, disability or other adverse conditions or their progression or to prolong life.

(b) Does not include services that are experimental or investigational or prescriptions that are prescribed off label.

9. "Medication-assisted treatment" has the same meaning prescribed in section 32-3201.01.

10. "Pharmacy benefit manager" has the same meaning prescribed in section 20-3321.

11. "Prior authorization requirement":

(a) Means a practice implemented by a health care services plan or its utilization review agent in which coverage of a health care service is dependent on an enrollee or a provider obtaining approval from the health care services plan before the service is performed, received or prescribed, as applicable.

(b) Includes preadmission review, pretreatment review, prospective review or utilization review procedures conducted by a health care services plan or its utilization review agent before providing a health care service.

(c) Does not include case management or step therapy protocols.

12. "Provider" means a physician, health care institution or other person or entity that is licensed or otherwise authorized to furnish health care services in this state.

13. "Urgent health care service" means a health care service with respect to which the application of the time periods for making a nonexpedited prior authorization decision, in the opinion of a provider with knowledge of the enrollee's medical condition, could either:

(a) Seriously jeopardize the life or health of the enrollee or the ability of the enrollee to regain maximum function.

(b) Subject the enrollee to severe pain that cannot be adequately managed without the care or treatment that is the subject of the utilization review.

14. "Utilization review agent" has the same meaning prescribed in section 20-2501.

§ 20-3402 Prior authorization; exceptions

A. A health care services plan or its utilization review agent may impose a prior authorization requirement for health care services provided to an enrollee, except for emergency ambulance services and emergency services as specified in section 20-2803, health care services arising after the initial medical screening examination and immediately necessary stabilizing treatment as specified in section 20-2803.

B. A health care services plan must allow at least one modality of medication-assisted treatment to be available without prior authorization.

§ 20-3403 Prior authorization requirements; disclosures; access

A. If a health care services plan contains a prior authorization requirement, all of the following apply:

1. The health care services plan or its utilization review agent shall make available to all providers on its website or provider portal a listing of all prior authorization requirements. The listing shall clearly identify the specific health care services, drugs or devices to which a prior authorization requirement exists, including specific information or documentation that a provider must submit in order for the prior authorization request to be considered complete.

2. The health care services plan or its utilization review agent shall allow providers to access the uniform prior authorization request forms approved by the department pursuant to section 20-3406 through the applicable electronic software system.

3. The health care services plan or its utilization review agent shall accept prior authorization requests through a secure electronic transmission.

4. The health care services plan or its utilization review agent shall provide at least two forms of access to request a prior authorization including telephone, fax or electronic means and shall have emergency after-hours procedures.

B. The health care services plan or its utilization review agent shall accept and respond to prior authorization requests for prescription benefits through a secure electronic transmission.

C. The health care services plan or its utilization review agent may enter into a contractual arrangement with a provider under which the plan agrees to process and respond to prior authorization requests that are not submitted electronically because of the financial hardship that electronic submission of prior authorization requests would create for the provider or because internet connectivity is limited or unavailable where the provider is located.

§ 20-3404 Prior authorization requirement timelines

A. If a plan offered by a health care services plan contains a prior authorization requirement, all of the following apply:

1. For prior authorization requests concerning urgent health care services, the health care services plan or its utilization review agent shall notify the provider of the prior authorization or adverse determination not later than five days after the receipt of all necessary information to support the prior authorization request.

2. For prior authorization requests concerning health care services that are not urgent health care services, the health care services plan or its utilization review agent shall notify the provider of the prior authorization or adverse determination not later than fourteen days after receipt of all necessary information to support the prior authorization request.

3. On receipt of information from the provider in support of a prior authorization request, the health care services plan or its utilization review agent shall provide a receipt in the same format that the request was made to the provider acknowledging that the information was received, unless the necessary return contact information is not provided.

B. The notification required under subsection A of this section shall state whether the prior authorization request is approved, denied or incomplete. If the prior authorization request is denied, the health care services plan or its utilization review agent shall state the specific reason for the denial. For a request that is considered incomplete, the provider shall have the opportunity to submit additional information. Once the provider submits additional information on incomplete requests, the health care services plan has five days to review and respond to requests for health care services deemed urgent and fourteen days to review and respond to requests for health care services deemed not urgent.

C. A prior authorization request is deemed granted if a health care services plan or its utilization review agent fails to comply with the deadlines and notification requirements of this section.

D. A prior authorization request, once granted or deemed granted, is binding on the health care services plan, may be relied on by the enrollee and provider and may not be rescinded or modified by a health care services plan or its utilization review agent after the provider renders the authorized health care services in good faith and pursuant to the authorization unless there is evidence of fraud or misrepresentation by the provider.

E. On a denial of a prior authorization request, the enrollee and the provider may exercise the review and appeal rights specified in chapter 15, article 2 of this title.

§ 20-3405 Prior authorization of prescription drugs for chronic pain conditions

A. For a prior authorization request related to a chronic pain condition, the health care services plan or its utilization review agent shall honor a prior authorization that is granted for an approved prescription drug for the earliest of the following:

1. Six months after the date of the prior authorization approval.

2. The last day of the enrollee's coverage under the plan.

B. In relation to a prior authorization described in subsection A of this section, the health care services plan or its utilization review agent may request that the provider submit information to the health care services plan or its utilization review agent indicating that the enrollee's chronic pain condition has not changed and that the continuation of the treatment is not negatively impacting the enrollee's health. If the provider does not respond within five business days after the date on which the request was received, the health care services plan or its utilization review agent may terminate the prior authorization.

C. This section does not apply to:

1. Prescription medications if the United States food and drug administration recommends that the drug be used only for periods of less than six months.

2. Any opioid or benzodiazepine or other schedule I or II controlled substance.

D. This section does not prohibit the substitution of any drug that has received a six-month prior authorization under subsection A of this section when there is a release of a United States food and drug administration-approved comparable brand product or a generic counterpart of a brand product that is listed as therapeutically equivalent in the United States food and drug administration's publication titled approved drug products with therapeutic equivalence evaluations.

E. This section does not prohibit a health care services plan from granting a prior authorization for a duration longer than six months.

§ 20-3406 Uniform prior authorization request forms; definition

A. Notwithstanding any other law, on or before January 1, 2022, the department shall approve a uniform prior authorization request form for prescription drugs, devices or durable medical equipment and a uniform prior authorization request form for all other health care procedures, treatments and services. On or before January 1, 2023, all providers shall use only the approved uniform prior authorization request forms and all health care services plans and utilization review agents shall accept and process prior authorization requests submitted using the approved uniform prior authorization request forms. Prior authorization requests that are submitted on or after January 1, 2023 are invalid unless the requests are submitted on the approved uniform prior authorization request forms. The uniform prior authorization request forms shall both:

1. Not exceed two printed pages. This two-page limit does not apply to or include a provider's notes or documentation that the provider submits in support of a prior authorization request.

2. Meet the electronic submission and acceptance requirements prescribed in section 20-3403.

B. In approving the uniform prior authorization request forms, the department shall both:

1. Consider the following:

(a) Any existing prior authorization request forms that the centers for medicare and medicaid services or the United States department of health and human services has developed.

(b) Any national standards relating to electronic prior authorization.

(c) Any other form adopted by the director or another state agency.

2. Seek input from interested stakeholders, including providers, health care services plans, utilization review agents, pharmacists and pharmacy benefit managers.

C. This section does not prohibit a payor or any entity acting for a payor under contract with the payor from using a prior authorization methodology that uses an internet webpage, an internet webpage portal or a similar electronic, internet and web-based system if the methodology is consistent with the uniform prior authorization request forms approved by the director pursuant to this section.

D. For the purposes of this section, "provider" includes a health professional as defined in section 32-3218 or a health care institution that is licensed under title 36.

§ 20-3407 Denial of prior authorization; review of prior authorization

(Eff. 7/1/26)

Before a health care insurer may issue a direct denial of a prior authorization of a service that was requested by a provider and that involves medical necessity, the medical director shall individually review the denial. During each individual review, the medical director shall exercise independent medical judgment and may not rely solely on recommendations from any other source.

Chapter 27 Provider Credentialing

Article 1 General Provisions

§ 20-3451 Definitions

In this chapter, unless the context otherwise requires:

1. "Applicant" means a provider that submits a credentialing application to a health insurer to become a participating provider in the health insurer's network.

2. "Application" means an applicant's initial application to be credentialed as a participating provider.

3. "Complete credentialing application":

(a) Means an application that includes all the information, any required supporting documentation and a current authorization to access electronic documentation that a health insurer needs in order to process the credentialing request through a credentialing system that is developed by a nationally recognized, nonprofit alliance of health plans and trade associations, including a nonprofit organization that is incorporated as a mutual health corporation and that is working to streamline the business of health care.

(b) Includes a credentialing system that is operated by a dental services corporation.

4. "Designee" means a third party to whom the health insurer has delegated credentialing activities or responsibilities.

5. "Health insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital, medical, dental and optometric service corporation and includes the health insurer's designee. Health insurer does not include a pharmacy benefits manager as defined in section 20-3321.

6. "Loading" means to input a participating provider's information into a health insurer's billing system for the purpose of processing claims and submitting reimbursement for covered services.

7. "Participating provider" means a provider that has been credentialed and contracted by a health insurer to provide health care items or services to subscribers in at least one of the health insurer's provider networks.

8. "Provider" means a physician, hospital or other person that is licensed in this state or that is otherwise authorized to furnish health care services in this state.

9. "Recredential" means to confirm that a participating provider is in good standing by a health insurer and does not require submitting an application or going through a contracting and loading process.

10. "Subscriber" means a person who is eligible to receive health care benefits pursuant to a health insurance policy or coverage issued or provided by a health insurer.

§ 20-3452 Requirements for electronic application submission

A. A health insurer shall establish a process for the electronic submission of a credentialing application. On or before December 31, 2019, the health insurers shall adopt and implement a standard application.

B. On or before December 31, 2019, to the greatest extent possible, a health insurer shall establish an electronic process to submit supporting documentation for a credentialing application.

§ 20-3453 Credentialing; loading; timelines; exception

A. Except as provided in subsection C of this section, the health insurer shall conclude the process of credentialing within sixty calendar days and loading the applicant's information into the health insurer's billing system within thirty calendar days after the date the health insurer receives a complete credentialing application.

B. A health insurer shall provide written or electronic notice of the approval or denial of a credentialing application to an applicant within seven calendar days after the conclusion of the credentialing process.

C. If a licensed health care facility has a delegated credentialing agreement with a health insurer, the health insurer is not responsible for compliance with the timeline prescribed in subsection A of this section for an applicant who works for that facility, but shall conclude the loading process for that applicant within ten calendar days after the health insurer receives a roster of demographic changes related to newly credentialed, terminated or suspended participating providers.

§ 20-3454 Acknowledgement of receipt of an application; notification of incomplete applications

A. When submitting a credentialing application, a health insurer shall provide written or electronic acknowledgement to an applicant within seven calendar days after the health insurer's receipt of the application. The applicant shall include in the application a contact name, telephone number and email address of an individual who can address discrepancies in the application.

B. On receipt of an application, a health insurer shall promptly review the application to determine if the application is complete.

C. Not later than seven calendar days after receipt of a credentialing application, a health insurer shall contact the applicant in writing or by electronic means to acknowledge receipt of the application and inform the applicant whether the application is a complete credentialing application. If the application is not a complete credentialing application, the notice shall include a detailed list of all of the items required to complete the application. A health insurer may request supplemental information to complete the credentialing process.

D. If the health insurer does not send the notice to the applicant within the required time frame specified in this section, the application is deemed complete for the purposes of section 20-3453.

E. If the health insurer notifies the applicant pursuant to subsection C of this section that the application is not a complete credentialing application, the time periods specified under section 20-3453 are tolled, and the application is suspended from the date the notification was sent to the applicant until the date on which the health insurer receives the information from the applicant to complete the application. Not later than seven calendar days after the applicant submits information to complete the application, the health insurer shall contact the applicant to acknowledge receipt of the additional information and inform the applicant whether the application is a complete credentialing application. If the health insurer has not received any response providing the requested information in subsection C of this section from the applicant after thirty calendar days, the health insurer may deem the application withdrawn and communicate the withdrawal of the application to the applicant within seven calendar days.

F. If at any time during the application process the health insurer tolls the time period specified in section 20-3453 while waiting for additional information from the applicant, the health insurer shall acknowledge receipt of the additional information not later than seven calendar days after the health insurer receives the additional information. The health insurer shall provide all notifications to the applicant in this subsection in writing or by electronic means.

G. A health insurer may not toll the time period specified in section 20-3453 more than three times. If, after the third toll, a health insurer has not received a response from the applicant that includes the requested information as prescribed in subsection C of this section within thirty calendar days, the health insurer may deem the application withdrawn and shall inform the applicant of the withdrawal within seven calendar days.

H. On receipt of a complete credentialing application, a health insurer must send the applicant a proposed contract that is complete and ready for execution by the parties.

I. A health insurer that enters into a delegated credentialing agreement with a licensed health care facility or that participates in a health insurer credentialing alliance with equivalent or higher standards than as prescribed in this section is deemed to be in compliance with the requirements of this section.

§ 20-3455 Reported discrepancies; corrective action

A health insurer shall take reasonable steps to correct discrepancies in the provider or network plan directory within thirty calendar days after receiving a written or electronic report of the discrepancy from a participating provider. A participating provider shall notify a health insurer of any change in the provider's name, address, telephone number, business structure or tax identification number within ten business days after making the change.

§ 20-3456 Covered services; claims; payment; disclosure

A. A provider may receive payment from a health insurer pursuant to this section for services that were provided from the date that was included on the notice of complete credentialing application to the date the provider's network participation contract is executed. A health insurer shall process a provider's claim as an in-network claim and pay the claim if all of the following apply:

1. The provider has applied for credentialing with the health insurer and renders a covered service to an individual who is an eligible health plan member on the date of service.

2. The provider renders the service on or after the date on which the health insurer notified the provider that the application was a complete credentialing application.

3. The provider does not submit the claim until after the provider has a fully executed network participation contract with the health insurer for the member's health plan network and the health insurer has approved the provider's credentials.

B. If a claim is submitted within one year after the date of service, a health insurer may not deny a provider's claim that is submitted in compliance with this section on the basis that the claim was not submitted within the contractually required time period.

C. This section does not require a health insurer to reimburse the applicant at the in-network rate for any covered medical services provided by the applicant if the applicant's credentialing application is not approved or the health care provider is unwilling to contract with the insurer on mutually acceptable terms.

D. Within a reasonable period before a health care provider provides service to a patient in a network facility, a health care provider or the health care provider's representative shall provide a written, dated disclosure that informs the patient of all of the following:

1. The name of the billing health care provider.

2. The total estimated cost to be billed by the health care provider or the health care provider's representative.

3. A statement that the health care provider is not credentialed and is not a contracted provider.

§ 20-3457 Availability of credentialing information; policies

A. A health insurer shall make the following nonproprietary information available to all applicants for credentialing and shall post the information on its website:

1. The applicable credentialing policies and procedures.

2. A list of all the information required to be included in an application.

3. A checklist of materials that must be submitted in the credentialing process.

4. Designated contact information, including a designated point of contact, an e-mail address and a telephone number to address any credentialing inquiries.

B. On completion of the credentialing process, a health insurer shall make all nonproprietary information pertaining to a provider's credentialing application and final decision available to the applicant on request, if allowed by law.

§ 20-3458 Recredentialing

A. A health insurer or its designee may recredential participating providers at least once every thirty-six months and more frequently if required by federal or state law or the health insurer's accreditation standards, or if permitted by the health insurer's contract with the participating provider. Nothing in this section shall affect the contract termination rights of a health insurer or a participating provider.

B. A participating provider remains credentialed and loaded in the health insurer's billing system unless the health insurer discovers information that would result in the participating provider ceasing to meet the health insurer's guidelines for participation, in which case the health insurer shall provide the participating provider a written explanation for the change in status.

§ 20-3459 Civil immunity; enforcement; civil penalty

A. A health insurer that complies in good faith with the requirements of this chapter is immune from civil liability for the purposes of reviewing and approving a credentialing application.

B. A health insurer that does not credential a provider is not subject to civil liability for any act or omission of the provider in rendering services to a health insurer's member.

C. The director shall enforce this chapter. A health insurer that fails to comply with this chapter or with any rules adopted pursuant to this chapter is subject to the civil penalties prescribed in section 20-456.

D. On receipt of multiple complaints of violations of this chapter by a health insurer from applicants or participating providers, the director shall conduct an examination of the health insurer pursuant to section 20-156, 20-831 or 20-1058, as applicable to the specific insurer.

Chapter 28 Mental Health Parity

Article 1 General Provisions

§ 20-3501 Definitions

In this chapter, unless the context otherwise requires:

1. "Classification of benefits" means the following classifications of benefits provided by a health plan:

(a) Inpatient, in-network.

(b) Inpatient, out-of-network.

(c) Outpatient, in-network.

(d) Outpatient, out-of-network.

(e) Emergency care.

(f) Prescription benefits.

2. "Health care insurer" means a disability insurer, group disability insurer, blanket disability insurer, health care services organization, hospital service corporation, medical service corporation or hospital, medical, dental and optometric service corporation that issues a health plan in this state.

3. "Health plan" means an individual health plan or accountable health plan that provides mental health services or mental health benefits, that finances or provides covered health care services, that is issued by a health care insurer in this state and that is subject to the mental health parity and addiction equity act.

4. "Mental health parity and addiction equity act" means the mental health parity and addiction equity act of 2008 (42 United States Code section 300gg-26) and implementing regulations.

5. "Product network type" means the network model associated with the type of health plan under which covered health care is delivered, such as a health care services organization, preferred provider network organization, point of service plan or indemnity plan.

6. "Treatment limits":

(a) Means limits on benefits based on the frequency of treatment, number of visits, days of coverage, days in a waiting period or other similar limits on the scope or duration of treatment.

(b) Includes both quantitative treatment limits that are expressed numerically and nonquantitative treatment limits that otherwise limit the scope or duration of benefits for treatment under a health plan.

(c) Does not include a permanent exclusion of all benefits for a particular condition or disorder.

§ 20-3502 Compliance with federal law; report

A. Each health care insurer that issues a health plan in this state shall comply with the mental health parity and addiction equity act.

B. After January 1, 2022, on a date specified by the director, each health care insurer that issues a health plan in this state shall submit a report to the department for each fully insured product network type the health care insurer issues. If the health care insurer determines that the information to be reported varies by network or plan, or varies in the individual, small group or large group market, the health care insurer must submit a report for each variation. Each report must do the following:

1. Describe the process that is used to develop or select the medical necessity criteria for mental health and substance use disorder benefits and the process used to develop or select the medical necessity criteria for medical and surgical benefits.

2. Identify all nonquantitative treatment limits that are applied to mental health and substance use disorder benefits and all nonquantitative treatment limits that are applied to medical and surgical benefits within each classification of benefits.

3. Demonstrate through analysis that for any nonquantitative treatment limit applied to mental health and substance use disorder benefits in a classification of benefits, as written and in operation, any process, strategy, evidentiary standard or other factor used in applying the nonquantitative treatment limit to mental health and substance use disorder benefits in the classification are comparable to, and applied not more stringently than, any process, strategy, evidentiary standard or other factor used in applying the treatment limit for medical and surgical benefits in the classification.

C. In addition to analyzing the reports prescribed in subsection B of this section, the department shall also evaluate health plan compliance with the standards related to financial requirements and quantitative treatment limits described in this section. The department shall perform this analysis during its review of required health care insurer form filings, but may also require a health care insurer to submit additional data relating to its methods for complying with financial requirements and quantitative treatment limit standards. The department may collect and analyze data for each health care insurer's large group plans through a separate, consolidated report.

D. The health plan may not apply any financial requirement or quantitative treatment limit to mental health and substance use disorder benefits in any classification that is more restrictive than the predominant financial requirement or quantitative treatment limit of that type applied to substantially all medical and surgical benefits in the same classification, unless the requirement or treatment limit is modified by one of the following exceptions:

1. Multitiered prescription drug benefits. If a health plan applies different levels of financial requirements to different tiers of prescription drug benefits that are based on reasonable factors determined in accordance with the requirements for nonquantitative treatment limits and without regard to whether a drug is generally prescribed with respect to medical and surgical benefits or with respect to mental health or substance use disorder benefits, the health plan satisfies the parity requirements of this section with respect to prescription drug benefits. For the purposes of this paragraph, "reasonable factors" include cost, efficacy, generic versus brand name and mail order versus pharmacy pick up.

2. Multiple network tiers. If a health plan provides benefits through multiple tiers of in-network providers, including an in-network tier of preferred providers with more generous cost sharing to participants than a separate in-network tier of participating providers, the health plan may divide its benefits provided on an in-network basis into subclassifications that reflect network tiers, if the tiering is based on reasonable factors determined in accordance with the requirements for nonquantitative treatment limits and without regard to whether a provider provides services with respect to medical and surgical benefits or mental health or substance use disorder benefits in any subclassification that is more restrictive than the predominant financial requirement or treatment limit that applies to substantially all medical and surgical benefits in the subclassification.

3. Subclassifications allowed for office visits that are separate from other outpatient services. For the purposes of applying the financial requirements and treatment limits prescribed by this section, a health plan may divide its benefits provided on an outpatient basis into the two subclassifications described in this paragraph. After the subclassifications are established, the health plan or health care insurer may not impose any financial requirement or quantitative treatment limit on mental health or substance use disorder benefits in any subclassification that is more restrictive than the predominant financial requirement or quantitative treatment limit that applies to substantially all medical and surgical benefits in the subclassification. Subclassifications for generalists and specialists are prohibited. Only the following two subclassifications are allowed under this paragraph:

(a) Office and physician visits.

(b) All other outpatient items and services, including outpatient surgery, facility charges for day treatment centers, laboratory charges or other similar medical items.

E. A health insurer shall file the report required by subsection B of this section once every three years. In years in which the report required by subsection B of this section is not required to be filed, the health care insurer shall file a summary of changes made to the medical necessity criteria and nonquantitative treatment limits and a written attestation that specifies that the health care insurer is in compliance with the mental health parity and addiction equity act. The department may require the health care insurer to respond to additional questions that are related to the summary of changes or to supply additional data to verify compliance. Three years after the health care insurer submits an original report required by subsection B of this section or an updated or refiled report described in this subsection, the health care insurer may either:

1. File an updated report.

2. Resubmit the health care insurer's currently filed report if the health care insurer files a written attestation to the department that specifies that there have been no changes.

F. Except as otherwise provided in this section, if a health care insurer provided the information required by this section in an existing filing or report, the department may not require the health care insurer to submit any additional filing or report. The department is not prohibited from otherwise requesting information or data that is necessary to verify compliance with the mental health parity and addiction equity act or this chapter. The department shall analyze the information required by this section that the health care insurer previously submitted in an existing filing or report to determine compliance with the report required by this section. The department may establish by rule the terms regarding any required resubmittal of information.

G. All documents, reports or other materials provided to the director pursuant to this section are confidential and are not subject to disclosure. Section 20-157.01, subsection B applies to this section.

§ 20-3503 Enforcement and oversight

A. The department shall enforce this chapter.

B. On or before January 1, 2021, the department shall develop a web page that provides the following information in nontechnical and readily understandable language:

1. Consumer-friendly information concerning the scope and applicability of the mental health parity and addiction equity act and the mental health parity requirements that apply to health care insurers that issue health plans in this state.

2. A step-by-step guide with supporting information that explains how consumers can file an appeal or complaint with the department concerning an alleged violation of this chapter. The guide must also prominently display a link to the United States department of labor's website, or a related website, that provides information on appeals or complaints by consumers who are covered by self-insured plans that are regulated by the employee retirement income security act of 1974 (P.L. 93-406; 88 Stat. 829).

C. On or before January 1, 2023, the department shall post to the web page prescribed in subsection B of this section an aggregated summary of its analysis of the reports filed by health care insurers pursuant to section 20-3502, subsection B, including any conclusions regarding industry compliance with the mental health parity and addiction equity act. The department may not post any information that:

1. Contains any proprietary or confidential information of a health care insurer.

2. Enables a person to determine the identity of a health care insurer.

D. Beginning in 2022, the department shall include in its annual report a summary of all stakeholder outreach and regulatory activity related to the implementation, oversight and enforcement of the mental health parity and addiction equity act and the requirements of this chapter.

§ 20-3504 Access to behavioral health services for minors

A. Notwithstanding any other provision of this title, any health care insurer that issues a health plan in this state that includes mental health or substance use disorder benefits may not deny any claim for mental health or substance use disorder benefits for a minor solely on grounds that the mental health or substance use disorder service was provided in a school or other educational setting or ordered by a court if the service was provided by an in-network provider or by an out-of-network provider only as allowed by the health plan that covers the subscriber, enrollee or insured.

B. This section does not require a health care insurer to approve a claim or provide reimbursement for a mental health or substance use disorder service provided by an out-of-network provider except as allowed by the health plan that covers the subscriber, enrollee or insured.

C. A health care insurer may require that any mental health or substance use disorder service offered by a mental health provider in an educational setting be provided in a facility or location that is appropriate for the type of service provided and in a manner that complies with applicable laws governing the provision of health care services, including privacy and parental consent laws.

D. Claims for covered mental health or substance use disorder services that are provided by an out-of-network provider and that are not covered by the subscriber's, enrollee's or insured's health plan solely because the provider is an out-of-network provider shall be paid from the children's behavioral health services fund established by section 36-3436.

§ 20-3505 Mental health parity advisory committee; members

A. The mental health parity advisory committee is established to advise the directors of the department of insurance and financial institutions and department of health services relating to matters pertinent to mental health parity, including recommendations related to case management, discharge planning and expedited review and appeals processes for cases involving suicidal ideation. The director of the department of insurance and financial institutions shall appoint the following members to the committee:

1. Four members who represent health care insurers.

2. One member who is a licensed behavioral health services provider.

3. One member who represents a behavioral health advocacy organization.

4. At least three members or family members who are not employed by or contracted with the state and who have been affected by suicide, substance use or a mental health disorder.

5. At least one member who represents a hospital that provides inpatient behavioral health services.

B. The director of the Arizona health care cost containment system may serve in an advisory capacity at the request of the director of the department of insurance and financial institutions or the director of the department of health services.

Chapter 29 Travel Insurance

Article 1 General Provisions

§ 20-3551 Definitions

In this chapter, unless the context otherwise requires:

1. "Aggregator site" means a website that provides access to information regarding insurance products from more than one insurer, including product and insurer information, for use in comparison shopping.

2. "Blanket travel insurance" means a policy of travel insurance that is issued to any eligible group and that provides coverage for specific classes of persons defined in the policy with coverage provided to all members of the eligible group without a separate charge to individual members of the eligible group.

3. "Cancellation fee waiver":

(a) Means a contractual agreement between a supplier of travel services and its customer to waive some or all of the nonrefundable cancellation fee provisions of the supplier's underlying travel contract with or without regard to the reason for the cancellation or form of reimbursement.

(b) Does not mean insurance.

4. "Eligible group", solely for the purposes of travel insurance:

(a) Means two or more persons who are engaged in a common enterprise or who have an economic, educational or social affinity or relationship.

(b) Includes any of the following:

(i) An entity that is engaged in the business of providing travel or travel services, including tour operators, lodging providers, vacation property owners, hotels and resorts, travel clubs, travel agencies, property managers, cultural exchange programs and common carriers, or the operator, owner or lessor of a means of transportation of passengers, including airlines, cruise lines, railroads, steamship companies and public bus carriers, wherein with regard to any particular travel or type of travel or travelers, all members or customers of the group have a common exposure to risk attendant to that travel.

(ii) Any college, school or other institution of learning covering students, teachers, employees or volunteers.

(iii) Any employer covering any group of employees, volunteers, contractors, board of directors, dependents or guests.

(iv) Any sports team or camp or any sponsor of a sports team or camp covering participants, members, campers, employees, officials, supervisors or volunteers.

(v) Any religious, charitable, recreational, educational or civic organization or any branch of that organization covering any group of members, participants or volunteers.

(vi) Any financial institution, financial institution vendor or parent holding company, trustee or agent of or designated by one or more financial institutions or financial institution vendors, including account holders, credit card holders, debtors, guarantors or purchasers.

(vii) Any incorporated or unincorporated association, including a labor union, that has a common interest, constitution and bylaws and that is organized and maintained in good faith for purposes other than obtaining insurance for members or participants of that association covering its members.

(viii) Any trust or the trustees of a fund established, created or maintained for the benefit of and covering members, employees or customers, subject to the director allowing the use of a trust and the state's premium tax provisions in section 20-3554 of one or more associations described in item (vii) of this subdivision.

(ix) Any entertainment production company covering any group of participants, volunteers, audience members, contestants or workers.

(x) Any volunteer fire department, ambulance, rescue, police, court, first aid or civil defense group or another similar volunteer group.

(xi) Any preschool, day care institution for children or adults and senior citizen club.

(xii) Any automobile or truck rental or leasing company covering a group of individuals who may become renters, lessees or passengers defined by their travel status on the rented or leased vehicles and in which the common carrier, the operator, owner or lessor of a means of transportation or the automobile or truck rental or leasing company is the policyholder under a policy to which this chapter applies.

(xiii) Any other group for which the director determines that the members are engaged in a common enterprise, or have an economic, educational or social affinity or relationship, and that issuance of the policy would not be contrary to the public interest.

5. "Fulfillment materials" means documentation that is sent to the purchaser of a travel protection plan and that confirms the purchase and provides the travel protection plan's coverage and assistance details.

6. "Group travel insurance" means travel insurance that is issued to any eligible group.

7. "Limited lines travel insurance producer" means any of the following:

(a) A licensed managing general agent or third-party administrator.

(b) A licensed insurance producer, including a limited lines producer.

(c) A travel Administrator.

8. "Offer and disseminate" means providing general information, including a description of the coverage and price, processing an application and collecting premiums.

9. "Travel administrator":

(a) Means a person who directly or indirectly underwrites, collects charges, collateral or premiums from, or adjusts or settles claims on residents of this state in connection with travel insurance.

(b) Does not include a person whose only actions that would otherwise cause the person to be considered a travel administrator include the following:

(i) Working for a travel administrator to the extent that the person's activities are subject to the supervision and control of the travel administrator.

(ii) Selling insurance or engaging in administrative and claims-related activities as an insurance producer within the scope of the producer's license.

(iii) Offering and disseminating travel insurance as a travel retailer while registered under the license of a limited lines travel insurance producer in accordance with this chapter.

(iv) Adjusting or settling claims in the normal course of practice or employment as an attorney-at-law without collecting charges or premiums in connection with insurance coverage.

(v) Being a business entity that is affiliated with a licensed insurer while acting as a travel administrator for the direct and assumed insurance business of the affiliated insurer.

10. "Travel assistance services":

(a) Means noninsurance services for which the consumer is not indemnified based on a fortuitous event and where providing the service does not result in a transfer or shifting of risk that would constitute the business of insurance.

(b) Includes:

(i) Security advisories.

(ii) Destination information.

(iii) Vaccination and immunization information services.

(iv) Travel reservation services.

(v) Entertainment.

(vi) Activity and event planning.

(vii) Translation assistance.

(viii) Emergency messaging.

(ix) International legal and medical referrals.

(x) Medical case monitoring.

(xi) Coordinating transportation arrangements.

(xii) Emergency cash transfer assistance.

(xiii) Medical prescription replacement assistance.

(xiv) Passport and travel document replacement assistance.

(xv) Lost luggage assistance.

(xvi) Concierge services.

(xvii) Any other service that is provided in connection with planned travel.

(c) Does not mean insurance and is not related to insurance.

11. "Travel insurance":

(a) Means insurance coverage for personal risks incident to planned travel, including:

(i) Interruption or cancellation of a trip or event.

(ii) Loss of baggage or personal effects.

(iii) Damages to accommodations or rental vehicles.

(iv) Sickness, accident, disability or death occurring during travel.

(v) Emergency evacuation.

(vi) Repatriation of remains.

(vii) Any other contractual obligations to indemnify or pay a specified amount to a traveler on determinable contingencies related to travel as approved by the director.

(b) Does not include major medical plans that provide comprehensive medical protection for travelers with trips lasting longer than six months, such as those working or residing overseas as an expatriate, or any other product that requires a specific insurance producer license.

(c) Does not include a prearranged funeral agreement by a funeral service provider.

12. "Travel protection plans" means plans that provide one or more of the following:

(a) Travel insurance.

(b) Travel assistance services.

(c) Cancellation fee waivers.

13. "Travel retailer" means a business entity that makes, arranges or offers planned travel and may offer and disseminate travel insurance as a service to its customers on behalf of and under the direction of a limited lines travel insurance producer.

§ 20-3552 Purpose; applicability

A. The purpose of this chapter is to promote the public welfare by creating a comprehensive legal framework within which travel insurance may be sold in this state.

B. The requirements of this chapter apply to travel insurance that covers any resident of this state and that is sold, solicited, negotiated or offered in this state and to policies and certificates that are delivered or issued for delivery in this state. This chapter does not apply to cancellation fee waivers or travel assistance services except as expressly provided in this chapter.

C. All other applicable provisions of this state's insurance laws continue to apply to travel insurance except that the specific provisions of this chapter supersede any general provisions of law that would otherwise be applicable to travel insurance.

§ 20-3553 Limited lines travel insurance producer licensing

A. Notwithstanding any other provision of this title, a travel retailer may offer and issue travel insurance under a limited lines travel insurance producer business entity license under the following conditions:

1. The limited lines travel insurance producer or travel retailer provides to purchasers of travel insurance all of the following:

(a) A description of the material terms or the actual material terms of the insurance coverage.

(b) A description of the process for filing a claim.

(c) A description of the review or cancellation process for the travel insurance policy.

(d) The identity and contact information of the insurer and limited lines travel insurance producer.

2. At the time of licensure, the limited lines travel insurance producer establishes and maintains a register, on a form prescribed by the director, of each travel retailer that offers travel insurance on the limited lines travel insurance producer's behalf. The limited lines travel insurance producer shall maintain and annually update the register, which shall include the name, address and contact information of the travel retailer and an officer or person who directs or controls the travel retailer's operations, and the travel retailer's federal tax identification number. The limited lines travel insurance producer shall submit the register to the department within thirty days after a request. The limited lines travel insurance producer shall also certify to the department that the registered travel retailer is not in violation of 18 United States Code section 1033.

3. The limited lines travel insurance producer designates one of the producer's employees who is a licensed individual producer as the person responsible for the limited lines travel insurance producer's compliance with the travel insurance laws and rules of this state.

4. The licensed individual producer designated under paragraph 3 of this subsection complies with the fingerprinting requirements applicable to insurance producers in the resident state of the limited lines travel insurance producer.

5. The limited lines travel insurance producer pays all applicable insurance producer licensing fees required under this title.

6. The limited lines travel insurance producer requires each employee or authorized representative of the travel retailer whose duties include offering and disseminating travel insurance to receive a training or an instruction program, which may be subject to review by the director. The training material, at a minimum, shall contain instructions on the types of insurance offered, ethical sales practices and required disclosures to prospective customers.

B. Limited lines travel insurance producers and those registered under the producer's license are exempt from the examination requirements under chapter 2 of this title and the continuing education requirements under chapter 18 of this title.

C. Any travel retailer offering or disseminating travel insurance shall make available to prospective purchasers brochures or other written materials that:

1. Provide the identity and contact information of the insurer and the limited lines travel insurance producer.

2. Explain that the purchase of travel insurance is not required in order to purchase any other product or service from the travel retailer.

3. Explain that an unlicensed travel retailer is allowed to provide general information about the insurance offered by the travel retailer, including a description of the coverage and price, but is not qualified or authorized to answer technical questions about the terms and conditions of the insurance offered by the travel retailer or to evaluate the adequacy of the customer's existing insurance coverage.

D. A travel retailer's employee or authorized representative who is not licensed as an insurance producer may not do any of the following:

1. Evaluate or interpret the technical terms, benefits and conditions of the offered travel insurance coverage.

2. Evaluate or provide advice concerning a prospective purchaser's existing insurance coverage.

3. Hold himself out as a licensed insurer, licensed producer or insurance expert.

E. A travel retailer whose insurance-related activities, and those of the retailer's employees and authorized representatives, are limited to offering and disseminating travel insurance under the limitations of this section may receive related compensation on registration by the limited lines travel insurance producer pursuant to subsection A, paragraph 2 of this section.

F. Travel insurance may be provided under an individual policy or under a group or master policy.

G. As the insurer designee, the limited lines travel insurance producer is responsible for the acts of the travel retailer and shall use reasonable means to ensure compliance by the travel retailer with the requirements of this section.

H. To the extent not inconsistent with this chapter, section 20-281, section 20-286, subsections B, C and D, sections 20-289 and 20-289.01, section 20-290, subsection A and sections 20-291, 20-292, 20-295, 20-296, 20-297, 20-298, 20-299, 20-301 and 20-302 apply to a limited lines travel insurance producer and any travel retailer offering and disseminating travel insurance under the limited lines travel insurance producer business entity license.

§ 20-3554 Premium tax; definitions

A. A travel insurer shall pay premium tax as provided in section 20-224 on travel insurance premiums paid by any of the following:

1. An individual primary policyholder who is a resident of this state.

2. A primary certificate holder who is a resident of this state and who elects coverage under a group travel insurance policy.

3. A blanket travel insurance policyholder that is a resident in this state, or has its principal place of business or the principal place of business of an affiliate or subsidiary that has purchased blanket travel insurance in this state for eligible blanket group members, subject to any apportionment rules that apply to the insurer across multiple taxing jurisdictions or that allow the insurer to allocate premium on an apportioned basis in a reasonable and equitable manner in those jurisdictions.

B. A travel insurer shall:

1. Document the state of residence or principal place of business of the policyholder or certificate holder as required in subsection A of this section.

2. Report as premium only the amount allocable to travel insurance and not any amounts received for travel assistance services or cancellation fee waivers.

C. For the purposes of this section:

1. "Primary certificate holder" means an individual who elects and who purchases travel insurance under a group policy.

2. "Primary policyholder" means an individual who elects and who purchases individual travel insurance.

§ 20-3555 Travel protection plans

Travel protection plans may be offered for one price for the combined features that the travel protection plan offers in this state if both:

1. The travel protection plan clearly discloses to the consumer, at or before the time of purchase, that it includes travel insurance, travel assistance services and cancellation fee waivers, as applicable, and provides information and an opportunity, at or before the time of purchase, for the consumer to obtain additional information regarding the features and pricing of each.

2. The fulfillment materials both:

(a) Describe and delineate the travel insurance, travel assistance services and cancellation fee waivers in the travel protection plan.

(b) Include the travel insurance disclosures and the contact information for persons providing travel assistance services and cancellation fee waivers, as applicable.

§ 20-3556 Sales practices; definition

A. All persons offering travel insurance to residents of this state are subject to chapter 2, article 6 of this title relating to unfair trade practices and frauds, except as otherwise provided in this section. If a conflict exists between this chapter and another provision of this title regarding the sale and marketing of travel insurance and travel protection plans, this chapter controls.

B. Offering or selling a travel insurance policy that could never result in payment of any claims for any insured under the policy is an unfair trade practice under chapter 2, article 6 of this title.

C. All documents provided to consumers before the purchase of travel insurance, including sales materials, advertising materials and marketing materials, shall be consistent with the travel insurance policy itself, including forms, endorsements, policies, rate filings and certificates of insurance.

D. For travel insurance policies or certificates that contain preexisting condition exclusions, information and an opportunity to learn more about the preexisting condition exclusions shall be provided any time before the time of purchase and in the coverage's fulfillment materials.

E. The fulfillment materials and the information described in section 20-3553, subsection A, paragraph 1 shall be provided to a policyholder or certificate holder as soon as practicable following the purchase of a travel protection plan. Unless the insured has either started a covered trip or filed a claim under the travel insurance coverage, a policyholder or certificate holder may cancel a policy or certificate for a full refund of the travel protection plan price from the date of purchase of the travel protection plan until at least either:

1. Fifteen days after the date of delivery of the travel protection plan's fulfillment materials by postal mail.

2. Ten days after the date of delivery of the travel protection plan's fulfillment materials by means other than postal mail.

F. The policy documentation and fulfillment materials shall disclose whether the travel insurance is primary or secondary to other applicable coverage.

G. If travel insurance is marketed directly to a consumer through an insurer's website or by others through an aggregator site, it is not an unfair trade practice or other violation of law if an accurate summary or short description of the coverage is provided on the website and the consumer has access to the full provisions of the policy through electronic means.

H. A person may not offer, solicit or negotiate travel insurance or travel protection plans on an individual or group basis by using a negative or opt out option that requires a consumer to take an affirmative action to deselect coverage, such as unchecking a box on an electronic form, when the consumer purchases a trip.

I. It is an unfair trade practice to market blanket travel insurance coverage as free.

J. If a consumer's destination jurisdiction requires insurance coverage, it is not an unfair trade practice to require that a consumer choose between the following options as a condition of purchasing a trip or travel package:

1. Purchasing the coverage required by the destination jurisdiction through the travel retailer or limited lines travel insurance producer supplying the trip or travel package.

2. Agreeing to obtain and provide proof of coverage that meets the destination jurisdiction's requirements before departure.

K. For the purposes of this section, "delivery" means handing fulfillment materials to the policyholder or certificate holder or sending fulfillment materials by postal mail or electronic means to the policyholder or certificate holder.

§ 20-3557 Travel administrators

A. Notwithstanding any other provision of this title, a person may not act or represent itself as travel administrator for travel insurance in this state unless that person either:

1. Is a licensed property and casualty insurance producer in this state for activities allowed under that producer license.

2. Holds a valid managing general agent license in this state.

B. A travel administrator and its employees are exempt from the licensing requirements of chapter 2, article 3.2 of this title for travel insurance it administers.

C. An insurer that underwrites travel insurance is responsible for the acts of the travel administrator administering that travel insurance, ensuring that the travel administrator maintains all books and records relevant to the insurer and ensuring that the travel administrator makes the books and records available to the director on request.

§ 20-3558 Travel insurance classification and filing

A. Notwithstanding any other provision of this title, travel insurance is classified and filed for purposes of rates and forms under an inland marine line of insurance, except that travel insurance that provides coverage for sickness, accident, disability or death occurring during travel, either exclusively or in conjunction with related coverages of emergency evacuation or repatriation of remains, may be filed under either an accident and health line of insurance or an inland marine line of insurance.

B. Travel insurance may be in the form of an individual, group or blanket policy.

C. Eligibility and underwriting standards for travel insurance may be developed and provided based on travel protection plans that are designed for individual or identified marketing or distribution channels, if those standards also meet this state's underwriting standards for inland marine.

Chapter 30 Credit for Reinsurance

Article 1 General Provisions

§ 20-3601 Definitions of qualified United States financial institution

A. For the purposes of section 20-3603, subsection B, paragraph 3, "qualified United States financial institution" means an institution that both:

1. Is:

(a) Organized or, in the case of a United States office of a foreign banking organization, is licensed under the laws of the United States or any state of the United States.

(b) Regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies.

2. Has been determined by either the director or the securities valuation office of the national association of insurance commissioners to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the director.

B. For the purposes of the provisions of this article that specify the institutions that are eligible to act as a fiduciary of a trust, "qualified United States financial institution" means an institution that is both:

1. Organized or, in the case of a United States branch or agency office of a foreign banking organization, is licensed under the laws of the United States or any state of the United States and that has been granted authority to operate with fiduciary powers.

2. Regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies.

§ 20-3602 Credit allowed a domestic ceding insurer; definition

A. A domestic ceding insurer shall be allowed a credit for reinsurance as either an asset or a reduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subsection C, D, E, F, G, H or M of this section. The director may adopt rules pursuant to section 20-3604 that specify additional requirements relating to or setting forth any of the following:

1. The valuation of assets or reserve credits.

2. The amount and forms of security supporting reinsurance arrangements described in section 20-3603, subsection B.

3. The circumstances pursuant to which credit will be reduced or eliminated.

B. Credit shall be allowed under subsection C, D or E of this section only for cessions of those kinds or classes of business that the assuming insurer is licensed or otherwise allowed to write or assume in its state of domicile or, in the case of a United States branch of an alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance. Credit shall be allowed under subsection E or F of this section only if the applicable requirements of subsection N have been satisfied.

C. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state.

D. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited by the director as a reinsurer in this state. To be eligible for accreditation, a reinsurer shall do all of the following:

1. File with the director evidence of its submission to this state's jurisdiction.

2. Submit to this state's authority to examine its books and records.

3. Be licensed to transact insurance or reinsurance in at least one state or, in the case of a United States branch of an alien assuming insurer, be entered through and licensed to transact insurance or reinsurance in at least one state.

4. File annually with the director a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement.

5. Demonstrate to the satisfaction of the director that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement as of the time of its application if it maintains a surplus as regards policyholders of at least $20,000,000 and its accreditation has not been denied by the director within ninety days after submission of its application.

E. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled in or, in the case of a United States branch of an alien assuming insurer, is entered through a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this article and the assuming insurer or United States branch of an alien assuming insurer does both of the following:

1. Maintains a surplus as regards policyholders of at least $20,000,000. This requirement does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.

2. Submits to the authority of this state to examine its books and records.

F. The following apply when credit is allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund for the payment of claims:

1. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution as defined in section 20-3601, subsection B for the payment of the valid claims of its United States ceding insurers, their assigns and successors in interest. To enable the director to determine the sufficiency of the trust fund, the assuming insurer shall report annually to the director information that is substantially the same as the information licensed insurers are required to report on the national association of insurance commissioners annual statement form. The assuming insurer shall submit to examination of its books and records by the director and bear the expense of examination.

2. Credit for reinsurance may not be granted under this subsection unless the form of the trust and any amendments to the trust have been approved by either:

(a) The insurance commissioner of the state where the trust is domiciled.

(b) The insurance commissioner of another state who, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust.

3. The form of the trust and any trust amendments also shall be filed with the insurance commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument shall provide that contested claims shall be valid and enforceable on the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in its trustees for the benefit of the assuming insurer's United States ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the director.

4. The trust shall remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust. Not later than February 28 of each year, the trustee of the trust shall report to the director in writing the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust will not expire before the following December 31.

5. The following requirements apply to the following categories of assuming insurer:

(a) The trust fund for a single assuming insurer shall consist of monies in trust in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers, and, in addition, the assuming insurer shall maintain a trusteed surplus of at least $20,000,000, except as provided in subdivision (b) of this paragraph.

(b) At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three full years, the insurance commissioner with principal regulatory oversight of the trust may authorize a reduction in the required trusteed surplus, but only after a finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of United States ceding insurers, policyholders and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and shall consider all material risk factors, including when applicable the lines of business involved, the stability of the incurred loss estimates and the effect of the surplus requirements on the assuming insurer's liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount that is less than thirty percent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.

(c) In the case of a group, including incorporated and individual unincorporated underwriters, all of the following apply:

(i) For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after January 1, 1993, the trust shall consist of a trusteed account in an amount that is not less than the respective underwriters' several liabilities attributable to business ceded by United States domiciled ceding insurers to any underwriter of the group.

(ii) For reinsurance ceded under reinsurance agreements with an inception date on or before December 31, 1992, and not amended or renewed after that date, notwithstanding any other provision of this article, the trust shall consist of a trusteed account in an amount not less than the respective underwriters' several insurance and reinsurance liabilities attributable to business written in the United States.

(iii) In addition to the trusts described in items (i) and (ii) of this subdivision, the group shall maintain in trust a trusteed surplus of which $100,000,000 shall be held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account.

(iv) The incorporated members of the group may not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group's domiciliary regulator as are the unincorporated members.

(v) Within ninety days after its financial statements are due to be filed with the group's domiciliary regulator, the group shall provide to the director an annual certification by the group's domiciliary regulator of the solvency of each underwriter member, or if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the group.

(d) In the case of a group of incorporated underwriters under common administration, the group shall meet the following requirements:

(i) Have continuously transacted an insurance business outside the United States for at least three years immediately before making application for accreditation.

(ii) Maintain aggregate policyholders' surplus of at least $10,000,000,000.

(iii) Maintain a trust fund in an amount not less than the group's several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group.

(iv) Maintain a joint trusteed surplus of which $100,000,000 shall be held jointly for the benefit of United States domiciled ceding insurers of any member of the group as additional security for these liabilities.

(v) Within ninety days after its financial statements are due to be filed with the group's domiciliary regulator, make available to the director an annual certification of each underwriter member's solvency by the member's domiciliary regulator and financial statements of each underwriter member of the group prepared by its independent public accountant.

G. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the director as a reinsurer in this state and that secures its obligations in accordance with the requirements of this subsection, and all of the following apply:

1. To be eligible for certification, the assuming insurer shall meet the following requirements:

(a) The assuming insurer must be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the director pursuant to paragraph 3 of this subsection.

(b) The assuming insurer must maintain minimum capital and surplus, or its equivalent, in an amount to be determined by the director pursuant to rule.

(c) The assuming insurer must maintain financial strength ratings from two or more rating agencies deemed acceptable by the director pursuant to rule.

(d) The assuming insurer must agree to submit to the jurisdiction of this state, must appoint the director as its agent for service of process in this state and must agree to provide security for one hundred percent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment.

(e) The assuming insurer must agree to meet applicable information filing requirements as determined by the director, both with respect to an initial application for certification and on an ongoing basis.

(f) The assuming insurer must satisfy any other requirements for certification deemed relevant by the director.

2. An association that includes incorporated and individual unincorporated underwriters may be a certified reinsurer. To be eligible for certification, in addition to satisfying the requirements prescribed in paragraph 1 of this subsection:

(a) The association shall satisfy its minimum capital and surplus requirements through the capital and surplus equivalents, net of liabilities, of the association and its members, which shall include a joint central fund that may be applied to any unsatisfied obligation of the association or any of its members, in an amount determined by the director to provide adequate protection.

(b) The incorporated members of the association may not be engaged in any business other than underwriting as a member of the association and shall be subject to the same level of regulation and solvency control by the association's domiciliary regulator as are the unincorporated members.

(c) Within ninety days after its financial statements are due to be filed with the association's domiciliary regulator, the association shall provide to the director an annual certification by the association's domiciliary regulator of the solvency of each underwriter member or, if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the association.

3. The director shall create and publish a list of qualified jurisdictions under which an assuming insurer that is licensed and domiciled in a qualified jurisdiction is eligible to be considered for certification by the director as a certified reinsurer, and all of the following apply:

(a) To determine whether the domiciliary jurisdiction of a non-United States assuming insurer is eligible to be recognized as a qualified jurisdiction, the director shall evaluate the appropriateness and effectiveness of the reinsurance supervisory system of the jurisdiction, both initially and on an ongoing basis, and consider the rights, the benefits and the extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers licensed and domiciled in the United States. A qualified jurisdiction must agree to share information and cooperate with the director with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction may not be recognized as a qualified jurisdiction if the director has determined that the jurisdiction does not adequately and promptly enforce final United States judgments and arbitration awards. The director may consider additional factors.

(b) A list of qualified jurisdictions shall be published through the national association of insurance commissioners committee process. The director shall consider this list in determining qualified jurisdictions. If the director approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the director shall provide thoroughly documented justification in accordance with criteria to be developed under rule.

(c) United States jurisdictions that meet the requirement for accreditation under the national association of insurance commissioners financial standards and accreditation program shall be recognized as qualified jurisdictions.

(d) If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction, the director may suspend the reinsurer's certification indefinitely, in lieu of revocation.

4. The director shall assign a rating to each certified reinsurer, giving due consideration to the financial strength ratings that have been assigned by rating agencies deemed acceptable to the director pursuant to rule. The director shall publish a list of all certified reinsurers and their ratings.

5. A certified reinsurer shall secure obligations assumed from United States ceding insurers under this subsection at a level that is consistent with its rating, as specified in rules adopted by the director, and all of the following apply:

(a) For a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form that is acceptable to the director and that is consistent with section 20-3603, or in a multibeneficiary trust in accordance with subsection F of this section, except as otherwise provided in this subsection.

(b) If a certified reinsurer maintains a trust to fully secure its obligations subject to subsection F of this section and chooses to secure its obligations incurred as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as allowed by this subsection or comparable laws of other United States jurisdictions and for its obligations subject to subsection F of this section. It shall be a condition to the grant of certification under this subsection that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the insurance commissioner with principal regulatory oversight of each such trust account, to fund, on termination of any such trust account, out of the remaining surplus of such trust any deficiency of any other such trust account.

(c) The minimum trusteed surplus requirements provided in subsection F of this section are not applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this subsection, except that such a trust shall maintain a minimum trusteed surplus of $10,000,000.

(d) With respect to obligations incurred by a certified reinsurer under this subsection, if the security is insufficient, the director shall reduce the allowable credit by an amount proportionate to the deficiency, and may impose further reductions in allowable credit on finding that there is a material risk that the certified reinsurer's obligations will not be paid in full when due.

(e) A certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure one hundred percent of its obligations. If the director continues to assign a higher rating as allowed by other provisions of this section, this requirement does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended. For the purposes of this subdivision, "terminated" refers to revocation, suspension, voluntary surrender and inactive status.

6. If an applicant for certification has been certified as a reinsurer in a national association of insurance commissioners accredited jurisdiction, the director may defer to that jurisdiction's certification and to the rating assigned by that jurisdiction, and the assuming insurer shall be considered to be a certified reinsurer in this state.

7. To continue to qualify for a reduction in security for its in-force business, a certified reinsurer that ceases to assume new business in this state may request to maintain its certification in inactive status. An inactive certified reinsurer shall continue to comply with all applicable requirements of this subsection, and the director shall assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.

H. Credit shall be allowed when the reinsurance is ceded to an assuming insurer meeting each of the following conditions:

1. The assuming insurer must have its head office or be domiciled in, as applicable, and be licensed in a reciprocal jurisdiction. A reciprocal jurisdiction is a jurisdiction that meets one of the following:

(a) A non-United States jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and the European Union, that is a member state of the European Union.

(b) A United States jurisdiction that meets the requirements for accreditation under the national association of insurance commissioners financial standards and accreditation program.

(c) A qualified jurisdiction, as determined by the director pursuant to subsection G, paragraph 3 of this section that is not otherwise described in subdivision (a) or (b) of this paragraph and that meets certain additional requirements, consistent with the terms and conditions of in-force covered agreements, as specified by the director in rule.

2. The assuming insurer must have and maintain, on an ongoing basis, minimum capital and surplus, or its equivalent, calculated according to the methodology of its domiciliary jurisdiction, in an amount to be prescribed in rule. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it must have and maintain, on an ongoing basis, minimum capital and surplus equivalents, net of liabilities, calculated according to the methodology applicable in its domiciliary jurisdiction and a central fund containing a balance in amounts to be prescribed in rule.

3. The assuming insurer must have and maintain, on an ongoing basis, a minimum solvency or capital ratio, as applicable, that is prescribed in rule. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it must have and maintain, on an ongoing basis, a minimum solvency or capital ratio in the reciprocal jurisdiction where the assuming insurer has its head office or is domiciled, as applicable, and is also licensed.

4. The assuming insurer must agree and provide adequate assurance to the director, in a form specified by the director pursuant to rule, as follows:

(a) The assuming insurer must provide a prompt written notice and explanation to the director if it falls below the minimum requirements prescribed in paragraph 2 or 3 of this subsection or if any regulatory action is taken against it for serious noncompliance with applicable law.

(b) The assuming insurer must consent in writing to the jurisdiction of the courts of this state and to the appointment of the director as agent for service of process. The director may require that consent for service of process be provided to the director and included in each reinsurance agreement. This subdivision does not limit, or in any way alter, the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent such agreements are unenforceable under applicable insolvency or delinquency laws.

(c) The assuming insurer must consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer or its legal successor, that have been declared enforceable in the jurisdiction where the judgment was obtained.

(d) Each reinsurance agreement must include a provision requiring the assuming insurer to provide security in an amount equal to one hundred percent of the assuming insurer's liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its resolution estate.

(e) The assuming insurer must confirm that it is not presently participating in any solvent scheme of arrangement that involves this state's ceding insurers, and agree to notify the ceding insurer and the director and to provide security in an amount equal to one hundred percent of the assuming insurer's liabilities to the ceding insurer, should the assuming insurer enter into such a solvent scheme of arrangement. The security shall be in a form that is consistent with the requirements prescribed in subsection G of this section and section 20-3603 and as specified by the director in rule.

5. If requested by the director, the assuming insurer or its legal successor must provide on behalf of itself and any legal predecessors certain documentation to the director as specified by the director in rule.

6. The assuming insurer must maintain a practice of prompt payment of claims under reinsurance agreements, pursuant to criteria prescribed in rule.

7. The assuming insurer's supervisory authority must confirm to the director on an annual basis, as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, that the assuming insurer complies with the requirements prescribed in paragraphs 2 and 3 of this subsection.

8. The assuming insurer may provide the director with additional information on a voluntary basis.

I. The director:

1. Shall timely create and publish a list of reciprocal jurisdictions that includes any reciprocal jurisdiction prescribed in subsection H, paragraph 1, subdivisions (a) and (b) of this section and shall consider including any other reciprocal jurisdiction included on the national association of insurance commissioners list of reciprocal jurisdictions published through the national association of insurance commissioners committee process. The director may approve a jurisdiction that does not appear on the national association of insurance commissioners list of reciprocal jurisdictions in accordance with criteria to be developed under rules issued by the director.

2. May remove a jurisdiction from the list of reciprocal jurisdictions on a determination that the jurisdiction no longer meets the requirements of a reciprocal jurisdiction, in accordance with a process prescribed in rules issued by the director, except that the director shall not remove from the list a reciprocal jurisdiction prescribed in subsection H, paragraph 1, subdivisions (a) and (b) of this section. On removal of a reciprocal jurisdiction from the list, credit for reinsurance ceded to an assuming insurer that has its home office or is domiciled in that jurisdiction shall be allowed, if otherwise allowed by law.

3. Shall timely create and publish a list of assuming insurers that have satisfied the conditions prescribed in this section and to which cessions shall be granted credit in accordance with this section. The director may add an assuming insurer to the list if a national association of insurance commissioners accredited jurisdiction has added the assuming insurer to a list of such assuming insurers or if, on initial eligibility, the assuming insurer submits the information to the director as required under subsection H, paragraph 4 of this section and complies with any additional requirements that the director may impose by rule, except to the extent that they conflict with an applicable covered agreement.

4. May revoke or suspend the eligibility of an assuming insurer for recognition under this subsection in accordance with procedures prescribed in rule, if the director determines that the assuming insurer no longer meets one or more of the requirements under this section. While the assuming insurer's eligibility is suspended, a reinsurance agreement issued, amended or renewed after the effective date of the suspension does not qualify for credit except to the extent that the assuming insurer's obligations under the contract are secured in accordance with section 20-3603. If the assuming insurer's eligibility is revoked, credit for reinsurance may not be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into before the date of revocation, except to the extent that the assuming insurer's obligations under the contract are secured in a form acceptable to the director and are consistent with the parameters prescribed in section 20-3603.

J. If subject to a legal process of rehabilitation, liquidation or conservation, as applicable, the ceding insurer, or its representative, may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding ceded liabilities.

K. Subsection H of this section does not:

1. Limit or in any way alter the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement, except as expressly prohibited by this article or another applicable law or rule.

2. Authorize an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement except as allowed by the terms of the agreement.

3. Limit or in any way alter the capacity of parties to any reinsurance agreement to renegotiate the agreement.

L. Credit may be taken under subsection H of this section only for reinsurance agreements entered into, amended or renewed on or after September 29, 2021, and only with respect to losses incurred and reserves reported on or after the later of the date on which the assuming insurer has met all eligibility requirements pursuant to subsection H of this section and the effective date of the new reinsurance agreement, amendment or renewal. This subsection does not alter or impair a ceding insurer's right to take credit for reinsurance, to the extent that credit is not available under this section, as long as the reinsurance qualifies for credit under any other applicable provision of this article.

M. Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsection C, D, E, F, G or H of this section, but only as to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction.

N. If the assuming insurer is not licensed, accredited or certified to transact insurance or reinsurance in this state, the credit allowed by subsections E and F of this section may not be allowed unless the assuming insurer agrees in the reinsurance agreements:

1. That if the assuming insurer fails to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, will submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, will comply with all requirements necessary to give the court jurisdiction and will abide by the final decision of the court or of any appellate court in the event of an appeal. This subsection is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if this obligation is created in the agreement.

2. To designate the director or a designated attorney as its true and lawful attorney on whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding insurer.

O. If the assuming insurer does not meet the requirements prescribed in subsection C, D, E or H of this section, the credit allowed by subsection F or G of this section may not be allowed unless the assuming insurer agrees in the trust agreements to the following conditions:

1. Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount that is less than the amount required by subsection F, paragraph 5 of this section, or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the insurance commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the insurance commissioner with regulatory oversight all of the assets of the trust fund.

2. The assets shall be distributed by and claims shall be filed with and valued by the insurance commissioner with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies.

3. If the insurance commissioner with regulatory oversight determines that the assets of the trust fund or any part of the assets are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part of the assets shall be returned by the insurance commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement.

4. The grantor shall waive any right otherwise available to it under United States law that is inconsistent with this subsection.

P. If an accredited or certified reinsurer ceases to meet the requirements for accreditation or certification, the director may suspend or revoke the reinsurer's accreditation or certification, and the following apply:

1. The director must give the reinsurer notice and an opportunity for a hearing. The suspension or revocation may not take effect until after the director's order on the hearing, unless either:

(a) The reinsurer waives its right to a hearing.

(b) The director's order is based on regulatory action by the reinsurer's domiciliary jurisdiction or the voluntary surrender or termination of the reinsurer's eligibility to transact insurance or reinsurance business in its domiciliary jurisdiction or in the primary certifying state of the reinsurer under subsection G, paragraph 6 of this section.

(c) The director finds that an emergency requires immediate action and a court of competent jurisdiction has not stayed the director's action.

2. While a reinsurer's accreditation or certification is suspended, a reinsurance contract issued or renewed after the effective date of the suspension does not qualify for credit except to the extent that the reinsurer's obligations under the contract are secured in accordance with section 20-3603. If a reinsurer's accreditation or certification is revoked, a credit for reinsurance may not be granted after the effective date of the revocation except to the extent that the reinsurer's obligations under the contract are secured in accordance with subsection G, paragraph 5 of this section or section 20-3603.

Q. A ceding insurer shall take steps to:

1. Manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the director within thirty days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceed fifty percent of the domestic ceding insurer's last reported surplus to policyholders, or after it is determined that reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, are likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

2. A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the director within thirty days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than twenty percent of the ceding insurer's gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded to any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

R. For the purposes of this section, "covered agreement" means an agreement that is entered into pursuant to the Dodd-Frank Wall Street reform and consumer protection act (31 United States Code sections 313 and 314), that is currently in effect or in a period of provisional application and that addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into any reinsurance agreement with a ceding insurer domiciled in this state or for allowing the ceding insurer to recognize credit for reinsurance.

§ 20-3603 Asset or reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer

A. An asset or a reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer that does not meet the requirements of section 20-3602 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer. The director may adopt by rule pursuant to section 20-3604, subsection B specific additional requirements relating to or prescribing any or all of the following:

1. The valuation of assets or reserve credits.

2. The amount and forms of security supporting reinsurance arrangements described in subsection B of this section.

3. The circumstances pursuant to which credit will be reduced or eliminated.

B. The reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with the assuming insurer as security for the payment of obligations thereunder, if the security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a qualified United States financial institution as defined in section 20-3601, subsection B. This security may be in the form of:

1. Cash.

2. Securities listed by the securities valuation office of the national association of insurance commissioners, including those deemed exempt from filing as defined by the purposes and procedures manual of the securities valuation office, and qualifying as admitted assets.

3. Clean, irrevocable and unconditional letters of credit, issued or confirmed by a qualified United States financial institution, as defined in section 20-3601, subsection A, effective not later than December 31 of the year for which the filing is being made, and in the possession of, or in trust for, the ceding insurer on or before the filing date of its annual statement. Letters of credit that meet applicable standards of issuer acceptability as of the dates of their issuance or confirmation, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, shall continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever occurs first.

4. Any other form of security acceptable to the director.

§ 20-3604 Rules

A. The director may adopt rules pursuant to title 41, chapter 6 to carry out this article.

B. The rules may include regulation of reinsurance arrangements relating to any of the following:

1. Life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits.

2. Universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period.

3. Variable annuities with guaranteed death or living benefits.

4. Long-term care insurance policies.

5. Any other life and health insurance and annuity products for which the national association of insurance commissioners adopts model regulatory requirements with respect to credit for reinsurance.

C. Any rule adopted pursuant to subsection B, paragraph 1 or 2 of this section may apply to any treaty that contains either or both:

1. Policies issued on or after January 1, 2015.

2. Policies issued before January 1, 2015, if risk pertaining to such pre-2015 policies is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.

D. Any rule adopted pursuant to subsection B of this section:

1. May require the ceding insurer, in calculating the amounts or forms of security required to be held pursuant to rules adopted by the department, to use the valuation manual adopted by the national association of insurance commissioners under section 11B(1) of the national association of insurance commissioners standard valuation law, including all amendments adopted by the national association of insurance commissioners and in effect on the date as of which the calculation is made, to the extent applicable.

2. Does not apply to cessions to an assuming insurer that is licensed in at least twenty-six states or that is licensed in at least ten states and licensed or accredited in a total of at least thirty-five states and that either:

(a) Meets the conditions prescribed in section 20-3602, subsection H in this state.

(b) Is certified in this state.

(c) Maintains at least $250,000,000 in capital and surplus as determined in accordance with the accounting practices and procedures manual and amendments adopted by the national association of insurance commissioners, excluding the impact of any allowed or prescribed practices.

E. The authority to adopt rules pursuant to subsection B of this section does not limit the department's general authority to adopt rules pursuant to subsection A of this section.

§ 20-3605 Reinsurance agreements affected

This article applies to all cessions after September 29, 2021 under reinsurance agreements that have an inception, anniversary or renewal date not less than six months after September 29, 2021.

Chapter 31 Step Therapy

Article 1 General Provisions

§ 20-3651 Definitions

In this article, unless the context otherwise requires:

1. "Clinical practice guidelines" means a systematically developed statement to assist health care providers and patients in making decisions about appropriate health care for specific clinical circumstances and conditions.

2. "Clinical review criteria" means the written screening procedures, decision abstracts, clinical protocols and practice guidelines that are used by a health care insurer, pharmacy benefit manager or utilization review agent to determine the medical necessity and appropriateness of health care services.

3. "Exigent circumstance" means the action of a health care insurer, pharmacy benefit manager or utilization review agent on a step therapy protocol exception request within the application of the time periods for making a nonexpedited decision, as determined and documented by the prescribing provider, could seriously jeopardize the insured's, enrollee's or subscriber's life, health or ability to regain maximum function or cause a significant negative change in the patient's medical condition.

4. "Health care insurer" has the same meaning prescribed in section 20-2501.

5. "Health care plan" means a policy, contract or evidence of coverage that a health care insurer issues to an insured, enrollee or subscriber.

6. "Medically necessary" means, with respect to a prescription drug, appropriate under the applicable standard of care:

(a) To improve or preserve health, life or function.

(b) To slow the deterioration of health, life or function.

(c) For the early screening, prevention, evaluation, diagnosis or treatment of a disease, condition, illness or injury.

7. "Methodologist" means a person that manages research design for the purpose of accurate and unbiased data collection and that has experience testing questions that are germane to the subject of the research.

8. "Pharmaceutical sample" means a unit of a prescription drug that is not intended to be sold but is intended to promote the sale of the prescription drug.

9. "Pharmacy benefit manager" has the same meaning prescribed in section 20-3321.

10. "Serious adverse reaction":

(a) Means an adverse event or suspected adverse reaction if, in the view of either the investigator or sponsor, the event or reaction results in any of the following outcomes:

(i) Death.

(ii) A life-threatening adverse event.

(iii) Inpatient hospitalization or prolonging existing hospitalization.

(iv) A persistent or significant incapacity or substantial disruption of the ability to conduct normal life functions.

(v) A congenital anomaly or birth defect.

(b) Includes an event or reaction that might not result in death, be life threatening or require hospitalization but, based on appropriate medical judgment, could jeopardize the patient's health or medical situation by requiring medical or surgical intervention to prevent at least one of the outcomes listed in subdivision (a) of this paragraph.

11. "Step therapy exception" means a step therapy protocol that is overridden in favor of immediate coverage of a health care provider's selected prescription drug.

12. "Step therapy protocol" means a protocol or program that establishes the specific sequence in which prescription drugs that are for a specified medical condition and that are medically necessary for a particular patient are covered by a health care insurer under a health care plan.

13. "Utilization review" has the same meaning prescribed in section 20-2501.

14. "Utilization review agent" has the same meaning prescribed in section 20-2530.

§ 20-3652 Applicability

This article applies to:

1. Any health care plan that is subject to state law regulating insurance, that provides prescription drug benefits and that includes coverage for a step therapy protocol regardless of how that coverage is described.

2. A contractor, agent or similar entity that implements coverage for a step therapy protocol on behalf of a health care plan, including a pharmacy benefit manager or utilization review agent.

§ 20-3653 Clinical review criteria

A. Clinical review criteria that are used by a health care insurer, pharmacy benefit manager or utilization review agent to establish a step therapy protocol shall be based on clinical practice guidelines that:

1. Recommend that the prescription drugs be taken in the specific sequence required by the step therapy protocol.

2. Except as provided in subsection B of this section, are developed and endorsed by a multidisciplinary panel of experts that manages conflicts of interest among the members of the writing and review groups by doing both of the following:

(a) Requiring the members to disclose any potential conflict of interest with an entity, including a health care insurer or pharmaceutical manufacturer, and recuse themselves from voting if they have a conflict of interest.

(b) Using a methodologist to work with writing groups to provide objectivity in data analysis and ranking of evidence through preparing evidence tables and facilitating consensus.

3. Are based on high quality studies, research and medical practice.

4. Are created by an explicit and transparent process that does all of the following:

(a) Minimizes biases and conflicts of interest.

(b) Explains the relationship between treatment options and outcomes.

(c) Rates the quality of the evidence supporting recommendations.

(d) Considers relevant patient subgroups and preferences.

5. Are regularly updated at least once a year through a review of new evidence and research and newly developed treatments.

B. If no clinical practice guidelines exist that meet the requirements prescribed in subsection A, paragraph 2 of this section, peer reviewed publications may be used.

C. When considering clinical review criteria to establish a step therapy protocol, a utilization review agent shall also consider the needs of atypical patient populations and diagnoses.

D. Each health care insurer, pharmacy benefit manager and utilization review agent shall annually certify to the department that the clinical review criteria used in the insurer's, manager's or agent's step therapy protocol for prescription drugs meet the requirements prescribed by this article. On the department's request, the health care insurer, pharmacy benefit manager or utilization review agent shall submit the insurer's, manager's or agent's clinical review criteria for approval. The department may require a health care insurer to submit an annual certification or clinical review criteria submission for a pharmacy benefit manager or utilization review agent that acts on behalf of the health care insurer, and the health care insurer and the pharmacy benefit manager or utilization review agent shall be held jointly responsible for any errors, omissions, misstatements or misrepresentations in that annual certification or submission. A health care insurer that submits an annual certification or clinical review criteria submission on behalf of the health care insurer's pharmacy benefit manager or utilization review agent shall provide the pharmacy benefit manager or utilization review agent at least fifteen days' advance notice of the certification or submission, and the pharmacy benefit manager or utilization review agent may submit an independent certification or submission, in lieu of having the health care insurer make the certification or submission on the pharmacy benefit manager's or utilization review agent's behalf.

E. This section does not require a health care insurer to establish a new entity to develop clinical review criteria used for a step therapy protocol.

§ 20-3654 Exceptions; process

A. Notwithstanding any other law, if coverage of a prescription drug for the treatment of any medical condition is restricted for use by a health care insurer, pharmacy benefit manager or utilization review agent through the use of a step therapy protocol, the patient and prescribing provider shall have access to a clear and convenient process to request a step therapy exception determination. A health care insurer, pharmacy benefit manager or utilization review agent may use its existing medical exceptions process to satisfy this requirement if that process is consistent with the requirements prescribed in section 20-3653 and this section. The process shall be made easily accessible on the health care insurer's, health benefit plan's, pharmacy benefit manager's or utilization review agent's website and shall include a list of the information and documentation the health care insurer, pharmacy benefit manager or utilization review agent requires and where and to whom the patient and prescribing provider must send the step therapy exception request.

B. A step therapy exception request shall be granted if sufficient justification and any necessary supporting clinical documentation are submitted to establish that any of the following applies:

1. The prescription drug required by the step therapy protocol is contraindicated or will likely cause a serious adverse reaction by or physical or mental harm to the patient.

2. The prescription drug required by the step therapy protocol is expected to be ineffective based on the known clinical characteristics of the patient and the known characteristics of the prescription drug regimen.

3. The patient has tried the prescription drug required by the step therapy protocol while under the patient's current or previous health care plan, or another prescription drug in the same pharmacologic class with a similar efficacy and side effect profile or with the same mechanism of action, the patient's adherence during the trial was for a period of time sufficient to allow for a positive treatment outcome and the prescription drug was discontinued due to lack of efficacy or effectiveness, an adverse event or contraindication.

4. The prescription drug required by the step therapy protocol is not in the best interest of the patient based on medical necessity because the patient's use of the prescription drug is expected to cause any of the following:

(a) A barrier to the patient's adherence to or compliance with the patient's plan of care.

(b) A negative impact on the patient's comorbid conditions.

(c) A clinically predictable negative drug interaction.

(d) A decrease in the patient's ability to achieve or maintain a reasonably functional ability in performing daily activities for which the patient has experienced a positive therapeutic outcome.

5. The patient has experienced a positive therapeutic outcome on a prescribed drug selected by the patient's health care provider for the medical condition under consideration while on the patient's current or previous health care plan. A health care provider may not use a pharmaceutical sample for the purpose of qualifying for an exception to step therapy under this paragraph.

C. On granting a step therapy exception determination, the health care insurer, pharmacy benefit manager or utilization review agent shall authorize coverage for the prescription drug prescribed by the patient's treating health care provider if the prescription drug is covered by the patient's health care plan.

D. The health care insurer, pharmacy benefit manager or utilization review agent shall grant or deny a step therapy exception request within seventy-two hours after receiving the request. In a case in which an exigent circumstance exists, the health care insurer, pharmacy benefit manager or utilization review agent shall grant or deny the step therapy exception request within twenty-four hours after receiving the request. If the step therapy exception request is incomplete or additional clinically relevant information is required, the health care insurer, pharmacy benefit manager or utilization review agent shall notify the prescribing provider within seventy-two hours after receiving the request, or within twenty-four hours if an exigent circumstance exists, that additional or clinically relevant information is required in order to approve or deny the step therapy exception request pursuant to the requirements outlined in subsection A of this section. The health care insurer, pharmacy benefit manager or utilization review agent shall grant or deny the step therapy exception request within seventy-two hours after receiving the requested additional or clinically relevant information, or within twenty-four hours if an exigent circumstance exists. If the prescribing provider does not receive a determination or request for additional or clinically relevant information from the health care insurer, pharmacy benefit manager or utilization review agent within the time period prescribed by this subsection, the exception is deemed granted.

E. An insured, enrollee or subscriber may appeal an adverse step therapy exception determination as prescribed in chapter 15, article 2 of this title.

F. This section does not prevent either of the following:

1. A health care insurer, pharmacy benefit manager or utilization review agent from requiring a patient to try an AB-rated generic equivalent before providing coverage for the equivalent branded prescription drug.

2. A health care provider from prescribing a prescription drug that is determined to be medically necessary.