S*1265 Session 109 (1991-1992)
S*1265(Rat #0457, Act #0394 of 1992) General Bill, By
Senate Banking and Insurance
A Bill to amend Sections 38-13-10 through 38-13-60, as amended, Code of Laws
of South Carolina, 1976, relating to the examination, investigation, reports,
penalties, and remedies of insurers, so as to revise current provisions to
provide for scheduling of financial examinations of insurers, method of
conducting examinations, content, filing, adoption, publication, and use of
examination reports, confidentiality of ancillary information, cost of
examinations, and immunity for statements made or conduct engaged in if
performed in good faith while performing a financial examination.
02/04/92 Senate Introduced, read first time, placed on calendar
without reference SJ-11
02/05/92 Senate Read second time SJ-17
02/05/92 Senate Unanimous consent for third reading on next
legislative day SJ-17
02/06/92 Senate Read third time and sent to House SJ-26
02/11/92 House Introduced and read first time HJ-7
02/11/92 House Referred to Committee on Labor, Commerce and
Industry HJ-8
03/04/92 House Committee report: Favorable Labor, Commerce and
Industry HJ-11
03/19/92 House Debate adjourned until Thursday, May 14, 1992 HJ-28
05/14/92 House Read second time HJ-299
05/19/92 House Read third time and enrolled HJ-44
05/27/92 Ratified R 457
06/01/92 Signed By Governor
06/01/92 Effective date 06/01/92
06/01/92 Act No. 394
06/26/92 Copies available
(A394, R457, S1265)
AN ACT TO AMEND SECTIONS 38-13-10 THROUGH 38-13-60,
AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976,
RELATING TO THE EXAMINATION, INVESTIGATION, REPORTS,
PENALTIES, AND REMEDIES OF INSURERS, SO AS TO REVISE
CURRENT PROVISIONS TO PROVIDE FOR SCHEDULING OF
FINANCIAL EXAMINATIONS OF INSURERS, METHOD OF
CONDUCTING EXAMINATIONS, CONTENT, FILING, ADOPTION,
PUBLICATION, AND USE OF EXAMINATION REPORTS,
CONFIDENTIALITY OF ANCILLARY INFORMATION, COST OF
EXAMINATIONS, AND IMMUNITY FOR STATEMENTS MADE OR
CONDUCT ENGAGED IN IF PERFORMED IN GOOD FAITH WHILE
PERFORMING A FINANCIAL EXAMINATION.
Be it enacted by the General Assembly of the State of South Carolina:
Financial examinations of insurers; confidential information;
immunity
SECTION 1. Section 38-13-10 and 38-13-30 through 38-13-60 of the
1976 Code and Section 38-13-20, as last amended by Act 363 of 1990, are
amended to read:
"Section 38-13-10. (A) The commissioner or his examiners
may conduct an examination under this chapter of an insurer as often as the
commissioner in his sole discretion considers appropriate but, at a
minimum, shall conduct an examination of every insurer licensed in this
State not less frequently than once every five years. When the
commissioner considers it prudent for the protection of policyholders in
this State, he may examine or have examined an insurer applying for
admission in this State. In scheduling and determining the nature, scope,
and frequency of the examinations, the commissioner shall consider
compliance with relevant South Carolina laws and regulations, the results
of financial statement analyses and ratios, changes in management or
ownership, actuarial opinions, reports of independent certified public
accountants, and other criteria set forth in the Examiners' Handbook
adopted by the National Association of Insurance Commissioners and in
effect when the commissioner exercises his authority under this
subsection.
(B) For purposes of completing an examination of an insurer under this
chapter, the commissioner may examine or investigate a person or his
business in a manner considered necessary or material by the
commissioner.
(C) In lieu of an examination under this section of a foreign or an alien
insurer licensed in this State, the commissioner may accept an examination
report on the insurer prepared by the insurance department for the insurer's
state of domicile or port-of-entry state until January 1, 1994. After that
time, the reports may be accepted only if one or both of the following
apply:
(1) The insurance department at the time of the examination was
accredited under the National Association of Insurance Commissioners'
Financial Regulation Standards and Accreditation Program;
(2) The examination is performed with the participation of one or
more examiners who are employed by the accredited insurance department,
and who, after a review of the examination work papers and report, state
under oath that the examination was performed in a manner consistent with
the standards and procedures required by their department.
Section 38-13-20. (A) Upon determining that an examination must be
conducted, the commissioner or his designee shall issue an examination
warrant appointing one or more examiners to perform the examination and
instructing them as to the scope of the examination. In conducting the
examination, the examiner shall observe South Carolina laws and
regulations and those guidelines and procedures set forth in the Examiners'
Handbook adopted by the National Association of Insurance
Commissioners. The commissioner also may employ other guidelines or
procedures he considers appropriate.
(B) Every person or insurer and his or its officers, directors, and agents
from whom information is sought shall provide to the examiners appointed
under subsection (A) timely, convenient, and free access at all reasonable
hours at his or its offices to all books, records, accounts, papers, documents,
and all computer or other recordings relating to the property, assets,
business, and affairs of the person or insurer being examined. If the
commissioner considers it necessary to the conduct of the examination, he
may require that the person or insurer or his or its agents or affiliated or
subsidiary corporations or partnerships furnish the original books and
records. The officers, directors, employees, and agents of the insurer or
person shall facilitate the examination and aid in the examination so far as
it is in their power to do so. The refusal of a person or an insurer by his or
its officers, directors, employees, or agents to submit to examination or to
comply with a reasonable written request of the examiners is grounds for
suspension or revocation of the person's or insurer's certificate of authority
to engage in the business of insurance in this State. The commissioner may
make the suspension or revocation and the reasons for it public.
Proceedings for revocation must be conducted pursuant to Section
38-5-140.
(C) The commissioner or his examiners may issue subpoenas,
administer oaths, and examine under oath a person as to matters pertinent to
the examination. Upon the failure or refusal of a person to obey a
subpoena, the commissioner may petition a court of competent jurisdiction,
and upon proper showing the court may enter an order compelling the
witness to appear and testify or produce documentary evidence. Failure to
obey the court order is punishable as contempt of court.
(D) When making an examination under Section 38-13-10, the
commissioner may retain attorneys, appraisers, independent actuaries,
independent certified public accountants, or other professionals and
specialists as examiners. The cost of the retainment must be borne by the
insurer which is the subject of the examination.
(E) Nothing contained in Section 38-13-10 limits the commissioner's
authority to:
(1) terminate or suspend an examination to pursue other legal or
regulatory action pursuant to the insurance laws of this State. Findings of
fact and conclusions made pursuant to an examination are prima facie
evidence in a legal or regulatory action;
(2) use and, if appropriate, make public a final or preliminary
examination report, examiner or insurer work papers or other documents, or
other information discovered or developed during the course of an
examination in the furtherance of a legal or regulatory action which the
commissioner, in his sole discretion, considers appropriate.
Section 38-13-30. (A) Examination reports must be comprised of only
facts appearing upon the books, records, or other documents of the insurer,
its agents, or other persons examined or as ascertained from the testimony
of its officers or agents or other persons examined concerning its affairs
and the conclusions and recommendations the examiners find reasonably
warranted from the facts.
(B) No later than sixty days following completion of the examination,
the examiner in charge shall file with the department a verified written
report of examination under oath. Upon receipt of the verified report, the
department shall transmit the report to the insurer examined with a notice
which affords the insurer a reasonable opportunity of not more than thirty
days to make a written submission or rebuttal with respect to matters
contained in the examination report.
(C) After the expiration of the thirty-day period allowed for the receipt
of written submissions or rebuttals, the commissioner shall consider and
review the report fully with written submissions or rebuttals and relevant
portions of the examiner's work papers and enter an order:
(1) adopting the examination report as filed or with modification
or corrections. If the examination report reveals that the insurer is
operating in violation of law, regulation, or prior order of the
commissioner, he may order the insurer to take action the commissioner
considers necessary and appropriate to cure the violation;
(2) rejecting the examination report with directions to the
examiners to reopen the examination to obtain additional data,
documentation, or information and refiling pursuant to subsection (A);
or
(3) calling for an investigatory hearing with no less than twenty
days' notice to the insurer to obtain additional documentation, data,
information, and testimony.
(D)(1) Orders entered pursuant to subsection (C)(1) must be
accompanied by findings and conclusions resulting from the
commissioner's consideration and review of the examination report,
relevant examiner work papers, and written submissions or rebuttals. The
order must be considered a final administrative decision and may be
appealed pursuant to the Administrative Procedures Act. The order must
be served upon the insurer by certified mail, with a copy of the adopted
examination report. Within thirty days of the issuance of the adopted
report, the insurer shall file affidavits executed by each of its directors
stating under oath that they have received a copy of the adopted report and
related orders.
(2) A hearing conducted under subsection (C)(3) by the
commissioner or his authorized representative must be conducted as a
nonadversarial, confidential investigatory proceeding as necessary for the
resolution of inconsistencies, discrepancies, or disputed issues apparent
upon the face of the filed examination report or raised by or as a result of
the commissioner's review of relevant work papers or by the written
submission or rebuttal of the insurer. Within twenty days of the conclusion
of the hearing, the commissioner shall enter an order pursuant to subsection
(C)(1).
(a) The commissioner may not appoint an examiner as an
authorized representative to conduct the hearing. The hearing shall proceed
expeditiously with discovery by the insurer limited to the examiner's work
papers which tend to substantiate assertions set forth in a written
submission or rebuttal. The commissioner or his representative may issue
subpoenas for the attendance of witnesses or the production of documents
considered relevant to the investigation whether under the control of the
department, the insurer, or other persons. The documents produced must be
included in the record, and testimony taken by the commissioner or his
representative must be under oath and preserved for the record. Nothing
contained in this section requires the department to disclose information or
records which indicate or show the existence or content of an investigation
or activity of a criminal justice agency.
(b) The hearing shall proceed with the commissioner or his
representative posing questions to the person subpoenaed. After the
questions the insurer and the department may present testimony relevant to
the investigation. Cross examination may be conducted only by the
commissioner or his representative. The insurer and the department may
make closing statements and be represented by counsel of their choice.
(E)(1) Upon completion of the examination report under subsection
(C)(1), the commissioner shall hold the content of the examination report as
private and confidential information for the thirty-day period provided for
written submissions or rebuttals. Thirty days after the examination report
has been submitted to it if the insurer examined has neither notified the
commissioner of its acceptance and approval of the report nor requested to
be heard on it, the report must be filed as a public document and is open to
public inspection, as long as no court of competent jurisdiction has stayed
its publication.
(2) This section does not prohibit the commissioner from
disclosing the content of an examination report, preliminary examination
report, or results or related matters to the insurance department of this or
another state or country, or law enforcement officials of this or another
state or agency of the federal government so long as the agency or office
receiving the reports, results, or related matters agrees in writing to hold
them confidential and in a manner consistent with Sections 38-13-10
through 38-13-60.
(3) If the commissioner determines that regulatory action is
appropriate as a result of an examination, he may initiate proceedings or
actions provided by law.
(F) All work papers, recorded information, documents, and their
copies produced by, obtained by, or disclosed to the commissioner or other
persons in the course of an examination made under this chapter must be
given confidential treatment, are not subject to subpoena, and must not be
made public by the commissioner, or other persons, except to the extent
provided in subsection (E). Access also may be granted to the National
Association of Insurance Commissioners. The parties shall agree in writing
before receiving the information to provide to it the same confidential
treatment as required by this section, unless the prior written consent of the
insurer to which it pertains has been obtained or unless ordered by a court
of competent jurisdiction. The information may be provided to the
consumer advocate as provided in Section 37-6-605 pursuant to an
appropriate proprietary agreement to ensure confidentiality.
Section 38-13-40. (A) No examiner may be appointed by the
commissioner if the examiner, directly or indirectly, has a conflict of
interest or is affiliated with the management of or owns a pecuniary interest
in a person subject to examination under Section 38-13-10. This section
does not preclude automatically an examiner from being:
(1) a policyholder or claimant under an insurance policy;
(2) a grantor of a mortgage or similar instrument on the
examiner's residence to a regulated entity if done under customary terms
and in the ordinary course of business;
(3) an investment owner in shares of regulated diversified
investment companies; or
(4) a settlor or beneficiary or a `blind trust' into which otherwise
impermissible holdings have been placed.
(B) Notwithstanding the requirements of this section, the
commissioner may retain on an individual basis qualified actuaries,
certified public accountants, or other similar individuals who are practicing
their professions independently, even though the persons may be employed
or retained similarly by persons subject to examination under Section
38-13-10.
Section 38-13-50. The insurer shall pay the charges incurred in the
examination, including the expenses of the commissioner and the expenses
and compensation of his examiners and assistants. The commissioner
promptly shall institute a civil action to recover the expenses of
examination against an insurer which refuses or fails to pay.
Section 38-13-60. (A) No cause of action may arise nor may liability
be imposed against:
(1) the commissioner, the commissioner's authorized
representatives, or an examiner appointed by the commissioner for
statements made or conduct performed in good faith while carrying out
Sections 38-13-10 through 38-13-40;
(2) a person for communicating or delivering information or data
to the commissioner or the commissioner's authorized representative or
examiner pursuant to an examination made under Sections 38-13-10
through 38-13-40 if the communication or delivery was performed in good
faith and without fraudulent intent or the intent to deceive.
(B) This section does not abrogate or modify common law or statutory
privilege or immunity enjoyed by a person identified in subsection (A).
(C) A person identified in subsection (A) may receive attorney's fees
and costs if he is the prevailing party in a civil cause of action for libel,
slander, or another relevant tort arising out of his activities in carrying out
Sections 38-13-10 through 38-13-40 and the party bringing the action was
not justified substantially in doing so. For purposes of this section a
proceeding is `substantially justified' if it had a reasonable basis in law or
fact at the time that it was initiated."
Time effective
SECTION 2. This act takes effect upon approval by the Governor.
Approved the 1st day of June, 1992. |