PRINTER'S NO. 1869
No. 1595 Session of 1991
INTRODUCED BY VEON, CAPPABIANCA, PISTELLA, BELARDI, KOSINSKI,
KUKOVICH, PETRONE, TRELLO, MICHLOVIC, MELIO, RICHARDSON,
BUTKOVITZ AND BUNT, JUNE 6, 1991
REFERRED TO COMMITTEE ON INSURANCE, JUNE 6, 1991
AN ACT
1 Amending the act of May 17, 1921 (P.L.789, No.285), entitled, as
2 amended, "An act relating to insurance; establishing an
3 insurance department; and amending, revising, and
4 consolidating the law relating to the licensing,
5 qualification, regulation, examination, suspension, and
6 dissolution of insurance companies, Lloyds associations,
7 reciprocal and inter-insurance exchanges, and certain
8 societies and orders, the examination and regulation of fire
9 insurance rating bureaus, and the licensing and regulation of
10 insurance agents and brokers; the service of legal process
11 upon foreign insurance companies, associations or exchanges;
12 providing penalties, and repealing existing laws," further
13 providing for the examination of insurers; and making
14 repeals.
15 The General Assembly of the Commonwealth of Pennsylvania
16 hereby enacts as follows:
17 Section 1. Sections 213 and 216 and Article VII of the act
18 of May 17, 1921 (P.L.789, No.285), known as The Insurance
19 Department Act of one thousand nine hundred and twenty-one, are
20 repealed.
21 Section 2. The act is amended by adding an article to read:
22 ARTICLE VII
23 EXAMINATIONS
1 Section 701. Purpose.--The purpose of this article is to
2 provide an effective and efficient system for examining the
3 activities, operations, financial condition and affairs of all
4 persons transacting the business of insurance in this
5 Commonwealth and all persons otherwise subject to the
6 jurisdiction of the department. The provisions of this article
7 are intended to enable the department to adopt a flexible system
8 of examinations which directs resources as may be deemed
9 appropriate and necessary for the administration of the
10 insurance and insurance related laws of this Commonwealth.
11 Section 702. Definitions.--The following words and phrases
12 when used in this article shall have, unless the context clearly
13 indicates otherwise, the meanings given to them in this section:
14 "Commissioner" means the Insurance Commissioner of the
15 Commonwealth.
16 "Company" means any person engaging in or proposing or
17 attempting to engage in any transaction or kind of insurance or
18 surety business and any person or group of persons who may
19 otherwise be subject to the administrative or regulatory
20 authority of the Insurance Department.
21 "Department" means the Insurance Department of the
22 Commonwealth.
23 "Examiner" means any individual or firm having been
24 authorized by the Insurance Department to conduct an examination
25 under this article.
26 "Insurer" means any individual, corporation, association,
27 partnership, reciprocal exchange, inter-insurer, Lloyds insurer,
28 fraternal benefit society, beneficial association and any other
29 legal entity engaged in the business of insurance, including
30 agents, brokers and adjusters, and also means health care plans
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1 as defined in 40 Pa.C.S. Chs. 61 (relating to hospital plan
2 corporations), 63 (relating to professional health services plan
3 corporations), 65 (relating to fraternal benefit societies) and
4 67 (relating to beneficial societies) and the act of December
5 29, 1972 (P.L.1701, No.364), known as the "Health Maintenance
6 Organization Act." For purposes of this article, health care
7 plans, fraternal benefit societies and beneficial societies
8 shall be deemed to be engaged in the business of insurance.
9 "NAIC" means the National Association of Insurance
10 Commissioners.
11 "Person" means any individual, aggregation of individuals,
12 trust, association, partnership or corporation or any affiliate
13 thereof. The term shall exclude agents.
14 Section 703. Authority, Scope and Scheduling of
15 Examinations.--(a) Every company or person subject to
16 examination in accordance with this act must keep all books,
17 records, accounts, papers, documents and any or all computer or
18 other recordings relating to its property, assets, business and
19 affairs in such manner and for such time periods as the
20 department may, in its discretion, require in order that its
21 authorized representatives may readily verify the financial
22 condition of the company or person and ascertain whether the
23 company or person has complied with the laws of this
24 Commonwealth.
25 (b) The commissioner shall, without notice, at least once
26 annually during the first five years of existence of every
27 domestic insurance company, association and exchange, and
28 thereafter every four years, or as often as he deems necessary,
29 personally or by his deputy, actuary or examiners, visit and
30 examine every insurer licensed in this Commonwealth. In
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1 scheduling and determining the nature, scope and frequency of
2 the examinations, the commissioner shall consider such matters
3 as the results of financial statement analyses and ratios,
4 changes in management or ownership, actuarial opinions, reports
5 of independent certified public accountants and other criteria
6 as set forth in the Examiners' Handbook adopted by the NAIC and
7 in effect when the commissioner exercises discretion under this
8 subsection.
9 (c) For purposes of completing an examination of any company
10 under this article, the department may examine or investigate
11 any person, or the business of any person, insofar as such
12 examination or investigation is, in the sole discretion of the
13 commissioner, necessary or material to the examination of the
14 company.
15 (d) In lieu of an examination under this article of any
16 foreign or alien insurer licensed in this Commonwealth, the
17 department may accept an examination report on such company as
18 prepared by the insurance department for the company's state of
19 domicile or port-of-entry state until January 1, 1994.
20 Thereafter, such reports may only be accepted if:
21 (1) the insurance department of the other state was at the
22 time of the examination accredited under the NAIC Financial
23 Regulation Standards and Accreditation Program; or
24 (2) the examination is performed under the supervision of an
25 accredited insurance department with the participation of one or
26 more examiners who are employed by that department and who,
27 after a review of the examination work papers and report, state
28 under oath that the examination was performed in a manner
29 consistent with the standards and procedures required by their
30 insurance department.
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1 Section 704. Conduct of Examinations.--(a) Upon determining
2 that an examination should be conducted, the commissioner or his
3 designee shall issue an examination warrant appointing one or
4 more examiners to perform the examination and instructing them
5 as to the scope of the examination. In conducting the
6 examination, the examiner shall observe those guidelines and
7 procedures set forth in the Examiners' Handbook adopted by the
8 NAIC. The department may also employ such other guidelines or
9 procedures as it may deem appropriate.
10 (b) Every company or person from whom information is sought,
11 its officers, directors and agents must provide to the examiners
12 appointed under subsection (a) timely, convenient and free
13 access at all reasonable hours at its offices to all books,
14 records, accounts, papers, documents and any or all computer or
15 other recordings relating to the property, assets, business and
16 affairs of the company being examined. The officers, directors,
17 employes and agents of the company or person must facilitate
18 such examination and aid in such examination so far as it is in
19 their power to do so. The refusal of any company, by its
20 officers, directors, employes or agents, to submit to
21 examination or to comply with any reasonable written request of
22 the examiners shall be grounds for suspension or refusal of, or
23 nonrenewal of any license or authority held by the company to
24 engage in an insurance or other business subject to the
25 department's jurisdiction. Any such proceedings for suspension,
26 revocation or refusal of any license or authority shall be
27 conducted pursuant to 2 Pa.C.S. (relating to administrative law
28 and procedure).
29 (c) The commissioner or any of his examiners shall have the
30 power to issue subpoenas, to administer oaths and to examine
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1 under oath any person as to any matter pertinent to the
2 examination. Upon the failure or refusal of any person to obey a
3 subpoena, the department may petition a court of competent
4 jurisdiction, and upon proper showing, the court may enter any
5 order compelling the witness to appear and testify or produce
6 documentary evidence. Failure to obey the court order shall be
7 punishable as contempt of court.
8 (d) When making an examination under this article, the
9 department may retain attorneys, appraisers, independent
10 actuaries, independent certified public accountants or other
11 professionals and specialists as examiners, the cost of which
12 shall be borne by the company which is the subject of the
13 examination.
14 (e) Nothing contained in this article shall be construed to
15 limit the department's authority to terminate or suspend any
16 examination in order to pursue other legal or regulatory action
17 pursuant to the insurance laws of this Commonwealth. Findings of
18 fact and conclusions made pursuant to any examination shall be
19 prima facie evidence in any legal or regulatory action.
20 (f) Nothing contained in this article shall be construed to
21 limit the department's authority to use and, if appropriate, to
22 make public any final or preliminary examination report, any
23 examiner or company workpapers or other documents, or any other
24 information discovered or developed during the course of any
25 examination in the furtherance of any legal or regulatory action
26 which the commissioner may, in his sole discretion, deem
27 appropriate.
28 Section 705. Examination Reports.--(a) All examination
29 reports shall be comprised of only facts appearing upon the
30 books, records, or other documents of the company, its agents or
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1 other persons examined, or as ascertained from the testimony of
2 its officers or agents or other persons examined concerning its
3 affairs, and such conclusions and recommendations as the
4 examiners find reasonably warranted from such facts.
5 (b) No later than sixty days following completion of the
6 examination, the examiner in charge shall file with the
7 department a verified written report of examination under oath.
8 Upon receipt of the verified report, the department shall
9 transmit the report to the company examined, together with a
10 notice which shall afford such company examined a reasonable
11 opportunity of not more than thirty days to make a written
12 submission or rebuttal with respect to any matters contained in
13 the examination report.
14 (c) Within thirty days of the end of the period allowed for
15 the receipt of written submissions or rebuttals, the
16 commissioner or his designee shall fully consider and review the
17 report, together with any written submissions or rebuttals and
18 any relevant portions of the examiner's workpapers and enter an
19 order:
20 (1) adopting the examination report as filed or with
21 modification or corrections. If the examination report reveals
22 that the company is operating in violation of any law,
23 regulation or prior order of the department, the commissioner
24 may order the company to take any action the commissioner
25 considers necessary and appropriate to cure such violation;
26 (2) rejecting the examination report with directions to the
27 examiners to reopen the examination for purposes of obtaining
28 additional data, documentation or information, and refiling
29 pursuant to subsection (a); or
30 (3) calling for an investigatory hearing with no less than
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1 twenty days' notice to the company for purposes of obtaining
2 additional documentation, data, information and testimony.
3 (d) (1) All orders entered pursuant to subsection (c)(1)
4 shall be accompanied by findings and conclusions resulting from
5 the commissioner's consideration and review of the examination
6 report, relevant examiner workpapers and any written submissions
7 or rebuttals. Any such order shall be considered a final
8 administrative decision and may be appealed to the commissioner
9 pursuant to 2 Pa.C.S. (relating to administrative law and
10 procedure), and shall be served upon the company by certified
11 mail, together with a copy of the adopted examination report.
12 Within thirty days of the issuance of the adopted report, the
13 company shall file affidavits executed by each of its directors
14 stating under oath that they have received a copy of the adopted
15 report and related orders.
16 (2) Any hearing conducted under subsection (c)(3) by the
17 department or its authorized representative shall be conducted
18 as a nonadversarial confidential investigatory proceeding as
19 necessary for the resolution of any inconsistencies,
20 discrepancies or disputed issues apparent upon the face of the
21 filed examination report or raised by or as a result of the
22 department's review of relevant workpapers or by the written
23 submission or rebuttal of the company. Within twenty days of the
24 conclusion of any such hearing, the commissioner shall enter an
25 order pursuant to subsection (c)(1).
26 (3) The commissioner shall not appoint an examiner as an
27 authorized representative to conduct the hearing. The hearing
28 shall proceed expeditiously with discovery by the company
29 limited to the examiner's workpapers which tend to substantiate
30 any assertions set forth in any written submission or rebuttal.
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1 The commissioner or his representative may issue subpoenas for
2 the attendance of any witnesses or the production of any
3 documents deemed relevant to the investigation whether under the
4 control of the department, the company or other persons. The
5 documents produced shall be included in the record and testimony
6 taken by the commissioner or his representative shall be under
7 oath and preserved for the record.
8 (4) The hearing shall proceed with the commissioner or his
9 designee posing questions to the persons subpoenaed. Thereafter,
10 the company and the department may present testimony relevant to
11 the investigation. Cross examination shall be conducted only by
12 the commissioner or his designee. The company and the department
13 shall be permitted to make closing statements and may be
14 represented by counsel of their choice.
15 (5) Nothing contained in this section shall require the
16 department to disclose any information or records which would
17 indicate or show the existence or content of any investigation
18 or activity of a criminal justice agency.
19 (e) (1) Upon the adoption of the examination report under
20 subsection (c)(1), the department shall continue to hold the
21 content of the examination report as private and confidential
22 information for a period of thirty days except to the extent
23 provided in subsection (b). Thereafter, the department may open
24 the report for public inspection so long as no court of
25 competent jurisdiction has stayed its publication.
26 (2) Nothing contained in this article shall prevent or be
27 construed as prohibiting the commissioner from disclosing the
28 content of an examination report, preliminary examination report
29 or results, or any matter relating thereto, to the Insurance
30 Department of this or any other state or country, or to law
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1 enforcement officials of this or any other state or agency of
2 the Federal Government at any time, so long as such agency or
3 office receiving the report or matters relating thereto agrees
4 in writing to hold it confidential and in a manner consistent
5 with this article.
6 (3) In the event the department determines that regulatory
7 action is appropriate as a result of any examination, it may
8 initiate any proceedings or actions as provided by law.
9 (f) All working papers, recorded information, documents and
10 copies thereof produced by, obtained by or disclosed to the
11 department or any other person in the course of an examination
12 made under this article shall be given confidential treatment
13 and are not subject to subpoena and may not be made public by
14 the department or any other person, except to the extent
15 provided in subsection (e). Access may also be granted to the
16 NAIC. Such parties must agree in writing prior to receiving the
17 information to provide to it the same confidential treatment as
18 required by the act of June 21, 1957 (P.L.390, No.212), referred
19 to as the Right-to-Know Law, unless the prior written consent of
20 the company to which it pertains has been obtained.
21 Section 706. Conflict of Interest.--(a) No examiner may be
22 appointed by the commissioner if such examiner, either directly
23 or indirectly, has a conflict of interest or is affiliated with
24 the management of or owns a pecuniary interest in any person
25 subject to examination under this article. This section shall
26 not be construed to automatically preclude an examiner from
27 being:
28 (1) a policyholder or claimant under an insurance policy;
29 (2) a grantor of a mortgage or similar instrument on such
30 examiner's residence to a regulated entity if done under
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1 customary terms and in the ordinary course of business;
2 (3) an investment owner in shares of regulated diversified
3 investment companies; or
4 (4) a settlor or beneficiary of a "blind trust" into which
5 any otherwise impermissible holdings have been placed.
6 (b) Notwithstanding the requirements of this section, the
7 department may retain from time to time, on an individual basis,
8 qualified actuaries, certified public accountants or other
9 similar individuals who are independently practicing their
10 professions, even though these persons may from time to time be
11 similarly employed or retained by persons subject to examination
12 under this article.
13 Section 707. Cost of Examinations.--All the expenses
14 incurred in and about the examination of any company, including
15 compensation of department employes assisting in such
16 examination and any other professionals or specialists retained
17 in accordance with section 704(d), shall be charged to and paid
18 by the company examined in such manner as the commissioner shall
19 by regulation prescribe.
20 Section 708. Immunity from Liability.--(a) No cause of
21 action shall arise nor shall any liability be imposed against
22 the commissioner, the commissioner's authorized representatives
23 or any examiner appointed by the commissioner for any statements
24 made or conduct performed in good faith while carrying out the
25 provisions of this article.
26 (b) No cause of action shall arise nor shall any liability
27 be imposed against any person for the act of communicating or
28 delivering information or data to the commissioner, his
29 authorized representative or examiner or the department pursuant
30 to an examination made under this article, if such act of
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1 communication or delivery was performed in good faith and
2 without fraudulent intent or the intent to deceive.
3 (c) This section does not abrogate or modify in any way any
4 common law or statutory privilege or immunity heretofore enjoyed
5 by any person identified in subsection (a).
6 (d) A person identified in subsection (a) shall be entitled
7 to an award of attorney fees and costs if he is the prevailing
8 party in a civil cause of action for libel, slander or any other
9 relevant tort arising out of his activities in carrying out the
10 provisions of this article and the party bringing the action was
11 not substantially justified in doing so. For purposes of this
12 section, a proceeding is "substantially justified" if it had a
13 reasonable basis in law or fact at the time that it was
14 initiated.
15 Section 3. This act shall take effect in 60 days.
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