H 4135 Session 109 (1991-1992)
H 4135 General Bill, By J.J. Bailey, R.S. Corning, J.T. McElveen, Quinn and
Scott
A Bill to amend Sections 38-13-10 through 38-13-60, as amended, 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.
01/14/92 House Introduced and read first time HJ-192
01/14/92 House Referred to Committee on Labor, Commerce and
Industry HJ-192
02/19/92 House Committee report: Favorable Labor, Commerce and
Industry HJ-4
02/20/92 House Debate adjourned until Thursday, March 5, 1992 HJ-2
03/05/92 House Tabled HJ-14
Indicates Matter Stricken
Indicates New Matter
COMMITTEE REPORT
February 19, 1992
H. 4135
Introduced by REPS. J. Bailey, Corning, McElveen, Quinn and Scott
S. Printed 2/19/92--H.
Read the first time January 14, 1992.
THE COMMITTEE ON LABOR, COMMERCE AND
INDUSTRY
To whom was referred a Bill (H. 4135), to amend Sections 38-13-10
through 38-13-60, as amended, relating to the examination,
investigation, reports, penalties and remedies of insurers, etc.,
respectfully
REPORT:
That they have duly and carefully considered the same, and
recommend that the same do pass:
THOMAS C. ALEXANDER, for Committee.
A BILL
TO AMEND SECTIONS 38-13-10 THROUGH 38-13-60, AS
AMENDED, 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:
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. The Commissioner or an examiner
shall visit every domestic insurer during the year immediately following
the end of each five-year period of operation and thoroughly inspect and
examine at least those affairs conducted during each full year of
operation since the last examination, especially as to the insurer's
financial condition, ability to fulfill its obligations, and compliance with
the law. The Commissioner also may examine any domestic insurer
whenever he considers it prudent to do so. Whenever the Commissioner
considers it prudent for the protection of policyholders in this State, he
may examine or have examined any insurer applying for admission or
already admitted to do business in this State. The insurer shall pay the
charges incurred in this examination, including the expenses of the
Commissioner and the expenses and compensation of his assistants. The
Commissioner, in lieu of conducting the examination, may accept an
examination conducted by the supervising official of the insurer's
domiciliary state.
Section 38-13-30. The refusal of any insurer to submit to
examination or the refusal or failure of an insurer to pay the expenses of
an examination is grounds for the revocation or refusal of its license.
The Commissioner is authorized to make public the revocation or refusal
of license and the reasons for revocation or refusal. The Commissioner
shall promptly institute a civil action to recover the expenses of
examination against an insurer which refuses or fails to pay.
Section 38-13-40. Before, during, and after the examination of an
insurer neither the Commissioner nor any
of his representatives may make public or allow to be made public the
financial statement, findings, or report of examination or any report
affecting the status or standing of the insurer examined until the insurer
has either accepted or approved the final report of examination or has
been afforded a reasonable opportunity to be heard and to answer or
rebut any statements or findings. This hearing, if requested, shall be
informal and private. If, within thirty days after the final report of
examination has been submitted to it, the insurer examined has neither
notified the Commissioner of its acceptance and approval of the report
nor requested that it be heard, thereon, the report must be filed as a
public document and is open to public inspection.
Section 38-13-50. If, within thirty days after the final report of
examination has been submitted to it, the insurer examined requests a
hearing, a hearing must be held within thirty days after receipt of the
request and the report as amended, modified, or affirmed must be filed
as a public document thirty days after the hearing.
Section 38-13-60. Sections 38-13-40 and 38-13-50 do not prohibit
the Commissioner from taking any action provided for or from
exercising any power conferred by any other provision of this title to
suspend or revoke the license of an insurer.
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 or 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.
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."
SECTION 2. This act takes effect upon approval by the
Governor.
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